What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-04-28 compared with 2020-03-24 · 663 added, 877 removed, 177 unchanged (90% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

CONTROLS AND PROCEDURE S

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our Chairman, Chief Executive Officer and President and our Senior Vice President and Chief Financial Officer, of the effectiveness, as of January 31, 2020, 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 Chairman, Chief Executive Officer and President and our Senior Vice President and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of January 31, 2020.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the quarter ended January 31, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of KLX Energy Services Holdings, Inc.

(“KLX Energy Services”

or the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.

Internal control over financial reporting is a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers, and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with generally accepted accounting principles.

The Company’s internal control over financial reporting includes those policies and procedures that:

(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and the receipts and expenditures of the Company are being made only in accordance with authorizations of the management and directors of the Company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of January 31, 2020.

The Company acquired the Tecton Energy Services business on March 19, 2019 (“Tecton”).

Management excluded from its assessment the internal control over financial reporting at the portion of the Tecton business which has not yet been integrated and whose financial statements constitute approximately 2% of total assets and approximately 4% of revenues of the consolidated financial statement amounts as of and for the year ended January 31, 2020.

In making the assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control –

Integrated Framework (2013) .

Based on its assessment, management believes that, as of January 31, 2020, the Company’s internal control over financial reporting is effective.

The independent registered public accounting firm that audited the financial statements included in this annual report has issued an attestation report on the Company’s internal control over financial reporting.

OTHER INFORMATIO N

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Our Executive Officers

The following table sets forth information regarding our executive officers as of March 24, 2020.

Name and Title

Business Experience

Khoury –

Chief Executive Officer, Chairman and President

Khoury has served as Chief Executive Officer, Chairman of the Board of Directors and President of KLX Energy Services Holdings, Inc.

since September 2018.

Previously, Mr.

Khoury served as Chief Executive Officer and Chairman of the Board of Directors of KLX Inc.

from its formation in December 2014 until its sale to The Boeing Company in October 2018.

Khoury co-founded B/E Aerospace in July 1987 and served as its Chairman of the Board until its sale to Rockwell Collins in April 2017.

Khoury served as Chief Executive Officer of B/E Aerospace from December 31, 2005 through December 31, 2013.

Khoury also served as the Co ‑

Chief Executive Officer of B/E Aerospace from January 1, 2014 to December 16, 2014.

Khoury was a Trustee of the Scripps Research Institute from May 2008 until July 2014 and was a director of Synthes Incorporated until its acquisition by Johnson & Johnson in 2012.

Khoury holds an Executive Masters Professional Director Certification, the highest level, from the American College of Corporate Directors.

Khoury has served as a member of the Board of Trustees of Northeastern University since July 2018 and received an honorary doctorate in entrepreneurship from Northeastern University in May 2019.

McCaffrey –

Senior Vice President and Chief Financial Officer

McCaffrey has served as Senior Vice President and Chief Financial Officer of KLX Energy Services Holdings, Inc.

since September 2018.

Previously, Mr.

McCaffrey served as President and Chief Operating Officer of KLX Inc.

from December 2014 until its sale to The Boeing Company in October 2018 and as Senior Vice President and Chief Financial Officer of B/E Aerospace from May 1993 until December 2014.

Prior to joining B/E Aerospace, Mr.

McCaffrey practiced as a CPA for 17 years with a large international accounting firm and a regional accounting firm based in California.

Since 2016, Mr.

McCaffrey has served as a member of the Board of Trustees of Palm Beach Atlantic University, Chairman of its Development Committee and a member of its Audit Committee.

Roberts –

Vice President and General Manager

Gary Roberts has served as Vice President and General Manager of KLX Energy Services Holdings, Inc.

since September 2018.

Previously, Mr.

Roberts served as Vice President and General Manager of the Energy Services Group segment of KLX Inc.

from December 2014 until September 2018, and as Vice President and General Manager, Energy Services Group of B/E Aerospace from April 2014 to December 2014.

Previously, 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 in April 2014.

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.

Roberts brings to KLX Energy Services over 30 years of oilfield experience.

Our Board of Directors

The following table sets forth information regarding our directors as of March 24, 2020.

The table contains each person’s biography as well as the qualifications and experience each person brings to our Board.

Our Board consists of eight members, seven of whom will meet applicable regulatory and exchange listing independence requirements.

Name and Title

Business Experience and Director Qualifications

Khoury has served as our Chairman of the Board of Directors, Chief Executive Officer and President since September 2018.

Khoury served as Chairman and Chief Executive Officer of KLX Inc.

from its spin-off from B/E Aerospace in December 2014 until its sale to The Boeing Company in October 2018.

Khoury co-founded B/E Aerospace in July 1987 and served as its Chairman of the Board until its sale to Rockwell Collins in April 2017.

Khoury served as Chief Executive Officer of B/E Aerospace from December 31, 2005 through December 31, 2013.

Khoury also served as the Co-Chief Executive Officer of B/E Aerospace from January 1, 2014 to December 16, 2014.

Khoury was a Trustee of the Scripps Research Institute from May 2008 until July 2014.

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.

Khoury also led the founding and growth of the KLX Aerospace Solutions Group from a single acquisition in 2001 through nine additional acquisitions, transforming it into a leading independent company in its industry.

During his time at B/E Aerospace and KLX Inc., Mr.

Khoury oversaw the expansion into the oilfield services industry and formation of our company through the combination and integration of seven private oilfield service companies.

Khoury led the strategic planning and acquisition strategies of B/E Aerospace and KLX Inc.

as well as their 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 32 years at B/E Aerospace, KLX Inc.

and KLX Energy Services Holdings, Inc.

All of the above experience and leadership roles uniquely qualify Mr.

Khoury to serve as our company's Chairman of the Board.

Collins has been a Director since September 2018.

He served on the Board of Directors of KLX Inc.

from December 2014 until its sale to The Boeing Company in October 2018.

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.

From 1992 to 2017, Mr.

Collins was the 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.

Collins currently serves on the Board of Directors of Federated Funds, Inc.

and has served on the Board of Directors for several public companies, including Bank of America Corp.

and FleetBoston Financial.

In addition, Mr.

Collins has served as Chairman of the Board of Trustees of his alma mater, Bentley University.

Our Board benefits from Mr.

Collins's many years of experience in the management, acquisition and development of several companies.

Name and Title

Business Experience and Director Qualifications

Del Presto has been a Director since September 2018.

He served on the Board of Directors of KLX Inc.

from December 2014 until its sale to The Boeing Company in October 2018.

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 200 investments.

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.

Del Presto is a member of the Board of Advisors of Sabert Corporation and the principal shareholder of two smaller companies.

Del Presto is also a licensed private pilot.

Our Board benefits 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.

Hamermesh has been a Director since September 2018.

He served on the Board of Directors of KLX Inc.

from December 2014 until its sale to The Boeing Company in October 2018.

Hamermesh is a Senior Fellow at the Harvard Business School, where he was formerly the MBA Class of 1961 Professor of Management Practice from 2002 to 2015.

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.

From 1976 to 1987, Dr.

Hamermesh was a member of the faculty of Harvard Business School.

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.

Hamermesh is a member of the Board of Directors of SmartCloud, Inc.

and was a director of B/E Aerospace, Inc.

until its sale to Rockwell Collins in April 2017, and a director of Rockwell Collins from April 2017 until its sale to United Technologies Corporation in November 2018.

Our Board benefits from Dr.

Hamermesh’s education and business experience as co-founder of a leading executive education and consulting firm, as president, founder, director and co-investor in over 15 early stage businesses, and his 28 years as a Professor of Management Practice at Harvard Business School, where he has led MBA candidates through thousands of business case studies, as well as his intimate knowledge of our business and industry.

Name and Title

Business Experience and Director Qualifications

Hardesty has been a Director since September 2018.

He served on the Board of Directors of KLX Inc.

from December 2014 until its sale to The Boeing Company in October 2018.

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 Energy 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 Energy in 1995, Mr.

Hardesty also served in other executive positions, including President of Dominion Appalachian Development, Inc.

and General Manager and Vice President Northeast Gas Basin.

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.

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.

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.

Hardesty’s 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.

Ward, Jr., has been a Director since September 2018.

He served on the Board of Directors of KLX Inc.

from December 2014 until its sale to The Boeing Company in October 2018.

Ward 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.

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.

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.

Ward is a co-founder and Board member of C3.ai, a company that develops and sells internet of things software for analytics and control.

Ward was previously a Board member and founder of E2open, a maker of enterprise software, and a Board member of E-Ink, a maker of high-tech screens for e-readers and computers, and the Chairman of the Board of QDVision, the developer and a manufacturer of quantum dot technology for the computer, TV and display industries until its sale.

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 growth, making him well suited to serve as a member of our Board.

Name and Title

Business Experience and Director Qualifications

Weise has been a Director since September 2018.

He served on the Board of Directors of KLX Inc.

from December 2014 until its sale to The Boeing Company in October 2018.

Weise is currently a business consultant and serves on the Board of Directors of Hawthorne Global Aviation Services.

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 Center, 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.

Weise is a member of the Missouri University of Science and Technology Board of Trustees, of which he was a past President.

Weise is a jet rated Airline Transport Pilot with over 5,700 flight hours.

He holds an Executive Masters Professional Director Certification from the American College of Corporate Directors.

Our Board benefits from Mr.

Weise’s extensive leadership experience.

Whates has been a Director since September 2018.

He served on the Board of Directors of KLX Inc.

from December 2014 until its sale to The Boeing Company in October 2018.

Whates has been an independent tax advisor and involved in venture capital and private investing since 2005.

He is a member of the Board of Dynamic Healthcare Systems, Inc., was a member of the board of Rockwell Collins from April 2017 until February 2018 and was the Chairman of the Compensation Committee of B/E Aerospace until its sale to Rockwell Collins in April 2017.

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.

Whates is an attorney licensed to practice in California and was an Adjunct Professor of Taxation at Golden Gate University.

Our Board benefits from Mr.

Whates’

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 are chosen for three-year terms upon the expiration of their current terms, and each year our stockholders elect one class of our directors.

The directors designated as Class II directors will be up for election at the 2020 Annual Meeting of Stockholders to be held in August 2020 and the directors elected at that meeting will have three-year terms expiring in August 2023.

The directors designated as Class III directors will be up for election at the 2021 Annual Meeting of Stockholders and the directors elected at that meeting will have three-year terms expiring in August 2024.

The directors designated as Class I directors will be up for election at the 2022 Annual Meeting of Stockholders and the directors elected at that meeting will have three-year terms expiring in August 2025.

Audit Committee

We have a separately‑designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act.

Del Presto, Hardesty, Weise and Whates 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 each of Messrs.

Del Presto and Whates are “audit committee financial experts”

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.

Compliance with Section 16(a) of the Exchange Act

Information on compliance with Section 16(a) of the Exchange Act will be set forth in the Proxy Statement or Annual Report on Form 10-K/A and is incorporated by reference herein.

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.klxenergy.com.

EXECUTIVE COMPENSATIO N

Information set forth under the caption “Executive Compensation”

in the Proxy Statement or Annual Report on Form 10‑K/A is incorporated by reference herein.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information set forth under the caption “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.

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information set forth under the caption “Certain Relationships and Related Party Transactions”

in the Proxy Statement or Annual Report on Form 10‑ K/A is incorporated by reference herein.

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.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Financial Statements

The information required by this item is contained under the section “Index to Consolidated Financial Statements and Schedule”

beginning on page F‑1 of this Form 10‑K.

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

Exhibit 2 –

Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession

Distribution Agreement, dated as of July 13, 2018, by and among KLX Inc., KLX Energy Services Holdings, Inc.

and KLX Energy Services LLC (incorporated by reference to Exhibit 2.1 to KLX Inc.’s Current Report on Form 8-K (File No.

001-36610) filed with the SEC on July 17, 2018)

Employee Matters Agreement, dated as of July 13, 2018, by and among KLX Inc., KLX Energy Services Holdings, Inc.

and KLX Energy Services LLC (incorporated by reference to Exhibit 2.2 to KLX Inc.’s Current Report on Form 8-K (File No.

001-36610) filed with the SEC on July 17, 2018)

IP Matters Agreement, dated as of July 13, 2018, by and among KLX Inc.

and KLX Energy Services Holdings, Inc.

(incorporated by reference to Exhibit 2.3 to KLX Inc.’s Current Report on Form 8-K (File No.

001-36610) filed with the SEC on July 17, 2018)

Unit Purchase Agreement, dated as of October 22, 2018, by and among KLX Energy Services Holdings, Inc., KLX Energy Services LLC, District 5 Investments, LP, 3M Capital, Inc.

Davis (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K (File No.

001-38609) filed with the SEC on October 22, 2018)

Exhibit 3(i) –

Articles of Incorporation

Amended and Restated Articles of Incorporation of KLX Energy Services Holdings, Inc.

(incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-8 (File No.

333-227321) filed with the SEC on September 13, 2018)

Exhibit 3(ii) –

Amended and Restated Bylaws of KLX Energy Services Holdings, Inc.

(incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No.

001-38609) filed with the SEC on October 15, 2018)

Exhibit 4 –

Instruments Defining the Rights of Security Holders, including Indentures

Indenture, dated October 31, 2018, among KLX Energy Services Holdings, Inc., as the issuer, KLX Energy Services LLC, KLX RE Holdings LLC and Wilmington Trust, National Association, as trustee and collateral agent (incorporated by reference to the Company’s Current Report on Form 8-K (File No.

001-38609) filed with the SEC on November 1, 2018)

First Supplemental Indenture, dated November 16, 2018, among KLX Energy Services Holdings, Inc., as the issuer, the Guaranteeing Subsidiaries named therein and Wilmington Trust, National Association, as trustee and collateral agent (incorporated by reference to the Company’s Annual Report on Form 10-K (File No.

001-38609) filed with the SEC on March 21, 2019)

Second Supplemental Indenture, dated May 13, 2019, among KLX Energy Services Holdings, Inc., as the issuer, the Guaranteeing Subsidiaries named therein and Wilmington Trust, National Association, as trustee and collateral agent (incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q (File No.

001-38609) filed with the SEC on August 22, 2019)

Form of 11.500% Senior Secured Notes due 2025 (included in Exhibit 4.1)

Description of securities registered pursuant to Section 12 of the Exchange Act**

Exhibit 10 –

Material Contracts

Credit Agreement, dated as of August 10, 2018, by and among KLX Energy Services Holdings, Inc., the several Lenders and JPMorgan Chase Bank, N.A.

as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 10.10 to Amendment No.

1 to the Company’s Registration Statement on Form 10 (File No.

001-38609) filed with the SEC on August 15, 2018)

First Amendment, dated as of October 22, 2018, to Credit Agreement, dated as of August 10, 2018, by and among KLX Energy Services Holdings, Inc., the Subsidiary Guarantors party thereto, the several Lenders and JPMorgan Chase Bank, N.A.

as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No.

001-38609) filed with the SEC on October 22, 2018)

Second Amendment, dated as of June 10, 2019, to Credit Agreement, dated as of August 10, 2018, by and among KLX Energy Services Holdings, Inc., the Subsidiary Guarantors party thereto, the several Lenders and JPMorgan Chase Bank, N.A.

as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No.

001-38609) filed with the SEC on August 22, 2019)

KLX Energy Services Holdings, Inc.

Long-Term Incentive Plan (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-8 (File No.

333-227321) filed with the SEC on September 13, 2018)*

Form of KLX Energy Services Holdings, Inc.

Long-Term Incentive Plan Restricted Stock Award Agreement (incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-8 (File No.

333-227321) filed with the SEC on September 13, 2018)*

Form of KLX Energy Services Holdings, Inc.

Long-Term Incentive Plan Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-8 (File No.

333-227321) filed with the SEC on September 13, 2018)*

KLX Energy Services Holdings, Inc.

Employee Stock Purchase Plan (incorporated by reference to Exhibit 4.4 to the Company’s Registration Statement on Form S-8 (File No.

333-227321) filed with the SEC on September 13, 2018)*

KLX Energy Services Holdings, 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.

333-227321) filed with the SEC on September 13, 2018)*

KLX Energy Services Holdings, Inc.

2018 Deferred Compensation Plan (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-8 (File No.

333-227327) filed with the SEC on September 13, 2018)*

Guaranty, dated September 14, 2018, of KLX Energy Services LLC and KLX RE Holdings LLC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No.

001-38609) filed with the SEC on September 19, 2018)

Letter Agreement, dated September 14, 2018, between Amin J.

Khoury and KLX Energy Services Holdings, Inc.

(incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K (File No.

001-38609) filed with the SEC on September 19, 2018)*

Letter Agreement, dated September 14, 2018, between Thomas P.

McCaffrey and KLX Energy Services Holdings, Inc.

(incorporated by reference to Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q (File No.

001-38609) filed with the SEC on December 6, 2018)*

Consulting Agreement, dated September 14, 2018, between Amin J.

Khoury and KLX Energy Services Holdings, Inc.

(incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K (File No.

001-38609) filed with the SEC on September 19, 2018)*

Amended and Restated Employment Agreement, dated September 14, 2018, between Gary J.

Roberts and KLX Energy Services Holdings, Inc.

(incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K (File No.

001-38609) filed with the SEC on September 19, 2018)*

Medical Care Reimbursement Plan for Executives of KLX Energy Services Holdings, Inc.

(incorporated by reference to Exhibit 10.11 to the Company’s Current Report on Form 8-K (File No.

001-38609) filed with the SEC on September 19, 2018)*

KLX Energy Services Holdings, Inc.

Executive Retiree Medical and Dental Plan (incorporated by reference to Exhibit 10.12 to the Company’s Current Report on Form 8-K (File No.

001-38609) filed with the SEC on September 19, 2018)*

Registration Rights Agreement, dated September 14, 2018, between KLX Energy Services Holdings, Inc.

Khoury (incorporated by reference to Exhibit 10.15 to the Company’s Current Report on Form 8-K (File No.

001-38609) filed with the SEC on September 19, 2018)*

Registration Rights Agreement, dated September 14, 2018, between KLX Energy Services Holdings, Inc.

and Thomas P.

McCaffrey (incorporated by reference to Exhibit 10.16 to the Company’s Current Report on Form 8-K (File No.

001-38609) filed with the SEC on September 19, 2018)*

Exhibit 21 –

Subsidiaries of the registrant

List of subsidiaries of KLX Energy Services Holdings, Inc.**

Exhibit 23 –

Consents of experts and counsel

Consent of Independent Registered Public Accounting Firm –

Deloitte & Touche LLP**

Exhibit 31 –

Rule 13a-14/15d-14 Certifications

Certification of Chief Executive Officer**

Certification of Chief Financial Officer**

Exhibit 32 –

Section 1350 Certifications

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

Section 1350**

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

Section 1350**

Exhibit 101 –

Interactive Data Files

XBRL Instance Document**

XBRL Taxonomy Extension Schema Document**

XBRL Taxonomy Extension Calculation Linkbase Document**

XBRL Taxonomy Extension Definition Linkbase Document**

XBRL Extension Labels Linkbase**

XBRL Taxonomy Extension Presentation Linkbase Document**

* Management contract or compensatory plan.

** Filed herewith.

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.

FINANCIAL STATEMENTS

Index to Consolidated Financial Statements

KLX Energy Services Holdings, Inc.

Chairman, Chief Executive Officer and President

March 24, 2020

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.

Chairman, Chief Executive Officer and President (Principal Executive Officer)

March 24, 2020

/s/ Thomas P.

Senior Vice President and Chief Financial Officer (Principal Financial Officer)

March 24, 2020

/s/ Heather M.

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

March 24, 2020

/s/ Richard G.

March 24, 2020

/s/ Benjamin A.

March 24, 2020

/s/ Stephen M.

March 24, 2020

/s/ Theodore L.

March 24, 2020

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

Report of Independent Registered Public Accounting Firm

Consolidated Financial Statements:

Consolidated Balance Sheets as of January 31, 2021 and 2020 64

Consolidated Statements of (Loss) Earnings for the Years Ended January 31, 2020, 2019 and 2018

Consolidated Statements of Stockholders’

Equity for the Years Ended January 31, 2020, 2019 and 2018

Consolidated Statements of Operations for the Years Ended January 31, 2021 and 2020 65

Consolidated Statements of Stockholders' Equity for the Years Ended January 31, 2021 and 2020 66

Consolidated Statements of Cash Flows for the Years Ended January 31, 2021 and 2020 67

Notes to Consolidated Financial Statements for the Years Ended January 31, 2020, 2019 and 2018

Consolidated Financial Statement Schedule:

Schedule II—Valuation and Qualifying Accounts for the Years Ended January 31, 2020, 2019 and 2018

REPOR T OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Notes to Consolidated Financial Statements 68

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of KLX Energy Services Holdings, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of KLX Energy Services Holdings, Inc.

and subsidiaries (the "Company") as of January 31, 2020 and 2019, the related consolidated statements of (loss) earnings, stockholders' equity, and cash flows, for each of the three years in the period ended January 31, 2020, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements").

We also have audited the Company’s internal control over financial reporting as of January 31, 2020, based on criteria established in Internal Control —

Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of January 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended January 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 31, 2020, based on criteria established in Internal Control —

Integrated Framework (2013) issued by COSO.

As described in Management’s Annual Report on Internal Control over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Tecton Energy Services, LLC which was acquired on March 19, 2019, and whose financial statements constitute approximately 2% of total assets and approximately 4% of revenues of the consolidated financial statement amounts as of and for the year ended January 31, 2020.

Accordingly, our audit did not include the internal control over financial reporting at Tecton Energy Services, LLC.

Basis for Opinions

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

and subsidiaries (the "Company") as of January 31, 2021 and 2020, the related consolidated statements of operations, stockholders’ equity, and cash flows, for each of the two years in the period ended January 31, 2021, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended January 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

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We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting 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.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

We believe that our audits provide a reasonable basis for our opinion.

/s/ Deloitte & Touche LLP

Boca Raton, Florida

March 24, 2020

Tampa, Florida

April 28, 2021

We have served as the Company's auditor since 2018.

KLX Energy Services Holdings, Inc.

CONSOLIDATED BALANCE SHEETS AS OF JANUARY 31, 2020 AND 2019

(In millions, except per share data)

Consolidated Balance Sheets

(In millions of U.S.

dollars and shares, except per share data)

January 31, 2021 January 31, 2020

Current assets:

Cash and cash equivalents $ 47.1 $ 123.5

Accounts receivable–trade, less allowance for doubtful accounts ($12.9 at January 31, 2020 and $3.1 at January 31, 2019)

Accounts receivable–trade, net of allowance of $ 6.5 and $ 12.9

Inventories, net 20.8 12.0

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Total current assets 150.7 228.5

Property and equipment, net of accumulated depreciation ($206.0 at January 31, 2020 and $152.7 at January 31, 2019)

Identifiable intangible assets, net

LIABILITIES AND STOCKHOLDERS’

Property and equipment, net 203.7 306.8

Goodwill — 28.3

Intangible assets, net 2.5 45.8

Other assets 5.8 14.0

Total assets $ 362.7 $ 623.4

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

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Accrued liabilities 29.2 26.2

Current portion of capital lease obligations 1.9 —

Total current liabilities 77.7 64.8

Long-term debt 243.9 243.0

Long-term capital lease obligations 4.4 —

Other non-current liabilities 4.6 3.4

Commitments, contingencies and off-balance sheet arrangements (Note 11)

Stockholders’

Common stock, $0.01 par value per share;

110.0 shares authorized;

25.0 shares issued as of January 31, 2020 and 22.6 shares issued as of January 31, 2019

Stockholders’ equity:

Common stock, $ 0.01 par value;

110.0 authorized;

8.6 and 5.0 issued (1)

Additional paid-in capital 469.1 416.6

Treasury stock:

0.3 shares as of January 31, 2020 and 0 shares as of January 31, 2019

Treasury stock, at cost, 0.3 shares and 0.1 shares (1)

( 4.0 ) ( 3.6 )

Accumulated deficit ( 433.1 ) ( 100.9 )

Total stockholders’

Total stockholders’ equity 32.1 312.2

Total liabilities and stockholders' equity $ 362.7 $ 623.4

(1) Common stock and treasury stock were retroactively adjusted for the Company's 1-for-5 Reverse Stock Split effective July 28, 2020.

See accompanying notes to consolidated financial statements.

KLX Energy Services Holdings, Inc.

CONSOLIDATED STATEMENTS OF (LOSS) EARNINGS

FOR THE YEARS ENDED JANUARY 31, 2020, 2019 AND 2018

(In millions, except per share data)

Service revenues

Consolidated Statements of Operations

(In millions of U.S.

dollars, except per share amounts)

January 31, 2021 January 31, 2020

Revenues $ 276.8 $ 544.0

Costs and expenses:

Cost of sales 314.8 470.0

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Research and development costs 0.7 2.7

Goodwill impairment charge

Operating (loss) earnings

Impairment and other charges 213.9 47.0

Bargain purchase gain ( 40.3 ) —

Operating loss ( 301.1 ) ( 75.7 )

Non-operating expense:

Interest expense, net 30.7 29.2

(Loss) earnings before income taxes

Income tax (benefit) expense

Net (loss) earnings

Net (loss) earnings per share - basic

Net (loss) earnings per share - diluted

Weighted average common shares - basic

Weighted average common shares - diluted

Loss before income tax ( 331.8 ) ( 104.9 )

Income tax expense (benefit) 0.4 ( 8.5 )

Net loss $ ( 332.2 ) $ ( 96.4 )

Net loss per share-basic (1)

$ ( 50.86 ) $ ( 21.61 )

Net loss per share-diluted (1)

$ ( 50.86 ) $ ( 21.61 )

(1) Basic and diluted net loss per share were retroactively adjusted for the Company’s 1-for-5 Reverse Stock

Split effective July 28, 2020.

See accompanying notes to consolidated financial statements.

KLX Energy Services Holdings, Inc.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

FOR THE YEARS ENDED JANUARY 31, 2020, 2019 AND 2018

(In millions)

Stockholders’

Balance, January 31, 2017

Net transfers from Former Parent

Balance, January 31, 2018

Capital contribution from Former Parent

Net transfers from Former Parent (pre spin-off)

Restricted stock grants, net of forfeitures and restricted stock unit vesting

Net earnings before spin-off

Consummation of spin-off transaction on September 14, 2018

Issuance of shares as a component of Motley acquisition price

Net loss after spin-off

Balance, January 31, 2019

Consolidated Statements of Stockholders' Equity

Years Ended January 31, 2021 and 2020

( In millions of U.S.

dollars and shares )

Common Stock Additional Paid-in Capital Treasury

Stock Accumulated

Deficit Total Stockholders’ Equity

Shares Amount

Balance at January 31, 2019 4.5 $ — $ 345.2 $ — $ ( 4.5 ) $ 340.7

Sale of stock under employee stock purchase plan — — 1.8 — — 1.8

1 unchanged sentence

Purchase of treasury stock — — — ( 1.2 ) — ( 1.2 )

Issuance of shares reserved as a component of Red Bone acquisition price

Red Bone acquisition price shares reserved 0.2 — 36.4 — — 36.4

Issuance of shares as a component of Tecton acquisition price 0.1 — 12.1 — — 12.1

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Escrowed shares related to Tecton acquisition — — — ( 1.4 ) — ( 1.4 )

Balance, January 31, 2020

Net loss — — — — ( 96.4 ) ( 96.4 )

Balance at January 31, 2020 5.0 0.1 416.6 ( 3.6 ) ( 100.9 ) 312.2

Restricted stock, net of forfeitures — — 17.8 ( 0.1 ) — 17.7

Purchase of treasury stock — — — ( 0.3 ) — ( 0.3 )

Red Bone acquisition price shares reserved 0.2 — — — — —

QES acquisition price shares issuance 3.4 — 34.7 — — 34.7

Net loss — — — — ( 332.2 ) ( 332.2 )

Balance at January 31, 2021 8.6 $ 0.1 $ 469.1 $ ( 4.0 ) $ ( 433.1 ) $ 32.1

See accompanying notes to consolidated financial statements.

KLX Energy Services Holdings, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOW S

FOR THE YEARS ENDED JANUARY 31, 2020, 2019 AND 2018

(In millions)

Consolidated Statements of Cash Flows

(In millions of U.S.

January 31, 2021 January 31, 2020

Cash flows from operating activities:

Net (loss) earnings

Adjustments to reconcile net (loss) earnings to net cash flows provided by (used in) operating activities:

Net loss $ ( 332.2 ) $ ( 96.4 )

Adjustments to reconcile net loss to net cash flows (used in) provided by operating activities

Depreciation and amortization 61.7 64.1

Deferred income taxes ( 0.1 ) ( 8.9 )

Goodwill impairment charge

Impairment and other charges 213.9 47.0

Non-cash compensation 17.8 18.5

2 unchanged sentences

Change in allowance for doubtful accounts ( 6.9 ) 9.8

Loss (gain) on disposal of property, equipment and other

(Gain) loss on disposal of property, equipment and other ( 1.7 ) 5.0

Bargain purchase gain ( 40.3 ) —

Changes in operating assets and liabilities:

Accounts receivable 31.4 39.9

Inventories ( 0.1 ) 3.6

Other current and non-current assets 7.4 ( 9.0 )

1 unchanged sentence

Other current and non-current liabilities ( 4.0 ) ( 5.4 )

Net cash flows provided by (used in) operating activities

Net cash flows (used in) provided by operating activities ( 64.9 ) 58.1

Cash flows from investing activities:

Capital expenditures

Proceeds from sale of assets

Purchases of property and equipment ( 12.2 ) ( 70.8 )

Proceeds from sale of property and equipment 4.3 0.7

Acquisitions, net of cash acquired ( 4.0 ) ( 27.6 )

4 unchanged sentences

Cash proceeds from stock issuance — 1.5

Proceeds from long-term debt

Debt origination costs

Capital contribution from Former Parent

Net transfers from Former Parent (pre spin-off)

Net cash flows (used in) provided by financing activities

Net change in cash and cash equivalents

Payments on capital lease obligations ( 1.1 ) —

Change to financed payables 1.9 —

Net cash flows provided by (used in) financing activities 0.4 ( 0.7 )

Net decrease in cash and cash equivalents ( 76.4 ) ( 40.3 )

Cash and cash equivalents, beginning of period 123.5 163.8

3 unchanged sentences

Income taxes paid, net of refunds $ ( 0.5 ) $ 1.0

Interest 29.4 29.4

Supplemental schedule of non-cash activities:

3 unchanged sentences

KLX Energy Services Holdings, Inc.

NOTE S TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED JANUARY 31, 2020, 2019 AND 2018

(In millions, except share and per share data)

DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Notes to Consolidated Financial Statements

(In millions of U.S.

NOTE 1 - Description of Business and Significant Accounting Policies

Description of Business

On September 14, 2018, KLX Inc.

(the “Former Parent”

or “KLX”) created an independent, publicly-traded company through a spin-off of its Energy Services Group business to Former Parent’s stockholders (the “Spin-Off”).

As a result of the Spin-Off, KLX Energy Services Holdings, Inc.

(the “Company”

or “KLX Energy Services”) now operates as an independent, publicly-traded company.

Basic and diluted earnings per common share and the average number of common shares outstanding for the year ended January 31, 2018 were calculated using the number of KLX Energy Services common shares outstanding immediately following the Spin-Off.

The Company is a provider of completion, intervention and production services and products to the major onshore oil and gas producing regions of the United States.

KLX Energy Services Holdings, Inc.

(the “Company”, “KLXE” or “KLX Energy Services”) is a growth-oriented provider of diversified oilfield services to leading onshore oil and natural gas exploration and production (“E&P”) companies operating in both conventional and unconventional plays in all of the active major basins throughout the United States.

The Company delivers mission critical oilfield services focused on drilling, completion, production and intervention activities for the most technically demanding wells in over 50 service and support facilities located throughout the United States.

The Company offers a complementary suite of proprietary products and specialized services that is supported by technically skilled personnel and a broad portfolio of innovative in-house manufacturing, repair and maintenance capabilities.

KLXE’s primary services include coiled-tubing, directional drilling, hydraulic fracturing rentals, fishing, pressure control, wireline, rig-assisted snubbing, fluid pumping, flowback, testing and well control services.

KLXE’s primary rentals and products include hydraulic fracturing stacks, blow out preventers, tubulars, downhole tools, dissolvable plugs, composite plugs and accommodation units.

On July 24, 2020, KLXE stockholders approved an amendment to the amended and restated certificate of incorporation of KLXE (the “Reverse Stock Split Amendment”) to effect a reverse stock split of KLXE common stock at a ratio within a range of 1-for-5 and 1-for-10 (the “Reverse Stock Split”), as determined by KLXE’s board of directors (the “Board”).

The Board subsequently resolved to implement the Reverse Stock Split at a ratio of 1-for-5.

On July 28, 2020, KLX Energy Services, Krypton Intermediate, LLC, an indirect wholly owned subsidiary of KLXE, Krypton Merger Sub, Inc., an indirect wholly owned subsidiary of KLXE (“Merger Sub”), and Quintana Energy Services Inc.

(“QES”) completed the previously announced acquisition of QES, by means of a merger of Merger Sub with and into QES, with QES surviving the merger as a subsidiary of KLXE (the “Merger”).

On July 28, 2020, immediately prior to the consummation of the Merger, the Reverse Stock Split Amendment became effective and thereby effectuated the 1-for-5 Reverse Stock Split of the Company’s issued and outstanding common stock.

Basis of Presentation

Prior to the Spin-Off on September 14, 2018, the Company’s financial statements were derived from the Former Parent’s consolidated 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 statements of (loss) earnings for the years ended January 31, 2019 and 2018 reflect allocations of general corporate expenses from the 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.

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.

Former Parent Company Investment —

Former Parent company investment in the consolidated statement of stockholders’

equity for the years ended January 31, 2019 and 2018 represents Former Parent’s historical investment in the Company, the net effect of cost allocations from transactions with Former Parent and net transfers of cash and assets from Former Parent.

“Related Party Transactions”

for a further description of the transactions between the Company and Former Parent.

Use of Estimates —The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and related disclosures.

The accompanying consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP”).

The consolidated financial statements include all accounts of KLXE and its subsidiaries.

All intercompany transactions and account balances have been eliminated upon consolidation.

The consolidated financial statements for Fiscal 2019 and for the period from February 1, 2020 to July 28, 2020 reflect only the historical results of the Company prior to the completion of the Merger.

The accompanying consolidated financial statements present the consolidated KLXE and QES financial position as of January 31, 2021.

The consolidated statement of operations and the consolidated statement of cash flows for the year ended January 31, 2021 includes QES’s results for the period July 29, 2020 through January 31, 2021.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and related disclosures.

Actual results could differ from those estimates.

Revenue Recognition —Revenue is recognized upon the customer obtaining control of promised goods or services, in an amount that reflects the consideration which is expected to be received in exchange for those goods or services.

Segment Reporting

The Company changed its presentation of reportable segments related to the allocation of corporate overhead costs to reflect the presentation used by the company's chief operational decision-making group ("CODM") to make decisions about resources to be allocated to the Company’s reportable segments and to assess segment performance.

Historically, and through July 31, 2020, the Company’s total corporate overhead costs were allocated and reported within each reportable segment.

During the third quarter of 2020, the Company changed the corporate overhead allocation methodology to only include corporate costs incurred on behalf of its operating segments, which includes accounts payable, accounts receivable, insurance, audit, supply chain, health, safety and environmental and others.

The remaining unallocated corporate costs are reported as a reconciling item in the Company’s segment reporting disclosures.

See Note 15 for additional information.

The change is reflected retroactively in the accompanying financial statements which resulted in a decrease to the total corporate overhead costs allocated to our three reportable segments for the year ended January 31, 2021, and 2020 of $ 62.0 and $ 54.7 , respectively.

In conjunction with the change in presentation of reportable segments, the Company also changed its presentation of segment assets.

Historically, and through July 31, 2020, the Company’s corporate assets were allocated and reported within each reportable segment.

During the third quarter of 2020, the Company changed the presentation of total assets to present corporate assets separately as a reconciling item in its segment reporting disclosures.

As a result of the change in presentation, the total corporate assets allocated to the Company’s three reportable segments decreased by $ 51.9 and $ 139.1 as of January 31, 2021 and 2020, respectively.

The Company also changed its presentation of service offering revenues.

Historically, and through July 31, 2020, the Company’s service offering revenues included revenues from the completion, production and intervention market types within segment reporting.

During the third quarter of 2020, the Company changed the presentation of its service offering revenues by separately reporting a drilling market type revenue, which includes directional drilling, drilling accommodation units and related drilling support services.

The reclassifications are retroactively reported in the Company’s segment reporting disclosures to reflect the drilling revenue change and use of the information by the Company’s CODM.

For the year ended January 31, 2021 and 2020, the total drilling revenues reported within segment reporting was $ 46.7 and $ 44.4 , respectively.

These current period changes in the Company’s corporate allocation method and service offering revenue disclosures have no net impact to the consolidated financial statements.

The change better reflects the CODM’s philosophy on assessing performance and allocating resources as well as improves the Company’s comparability to its peer group.

Business Combinations

We completed our acquisition of QES on July 28, 2020.

QES's results of operations have been included in our financial results for the period subsequent to the acquisition date.

Under the acquisition method of accounting, we allocate the fair value of purchase consideration transferred to the tangible assets and intangible assets acquired, if any, and liabilities assumed based on their estimated fair values on the date of the acquisition.

The fair values assigned, defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants, are based on estimates and assumptions determined by management.

The estimated fair value of the assets acquired, net of liabilities assumed, exceeded the purchase consideration, resulting in a bargain purchase gain.

When determining the fair value of assets acquired and liabilities assumed, we make significant estimates and assumptions.

Our estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

During the measurement period, not to exceed one year from the date of acquisition, we may record adjustments to the assets acquired and liabilities assumed, with a corresponding offset to bargain purchase gain if new information is obtained related to facts and circumstances that existed as of the acquisition date.

After the measurement period, any subsequent adjustments are reflected in the consolidated statements of operations.

Acquisition costs, such as legal and consulting fees, are expensed as incurred.

Revenue Recognition

Revenue is recognized upon the customer obtaining control of promised goods or services, in an amount that reflects the consideration which is expected to be received in exchange for those goods or services.

To determine revenue recognition for arrangements within the scope of ASC Topic 606, the following five steps are performed:

5 unchanged sentences

Revenue is recognized in the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Service revenues are recorded over time throughout and for the duration of the service period pursuant to a master services agreement (“MSA”) combined with a completed field ticket or a work order.

Revenues from product sales are recognized when the customer obtains control of the product, which occurs at a point in time, typically upon delivery in accordance with the terms of the field ticket or work order.

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.

At this time, the Company does not have any uncertain tax positions;

however, if the Company does record uncertain tax positions in the future, it expects to record them within income tax expense and to classify 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 accounts for deferred income taxes through the asset and liability method.

Under this method, a deferred tax liability or asset is recognized for the expected future tax consequences resulting from the differences in financial reporting bases and tax bases of assets and liabilities.

Deferred tax assets and liabilities are measured using enacted tax rates in effect for the years in which the differences are expected to reverse.

A valuation allowance is recorded if it is more likely than not that some or all of the deferred tax assets will not be realized.

The Company recognizes accrued interest and penalties related to uncertain tax positions, if any, as a component of income tax expense.

Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents consist of cash on hand, and certificates of deposits.

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

The Company maintains its cash and cash equivalents in various financial institutions, which at times may exceed federally insured amounts.

Management believes that this risk is not significant.

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 January 31, 2021 and 2020 was $ 6.5 and $ 12.9 , respectively.

Inventories —Inventories, made up of finished goods, primarily consist of packers, plugs and other consumables used to perform services for customers.

Activity in our allowance for doubtful accounts during the years ended January 31, 2021 and 2020 is set forth in the table below:

Allowance of doubtful accounts Balance at beginning of period Charged (credited) to costs and expenses Deductions (1)

Balance at end of period

2021 $ 12.9 $ 2.0 $ ( 8.4 ) $ 6.5

2020 $ 3.1 $ 11.6 $ ( 1.8 ) $ 12.9

(1) Accounts receivable balances written off during the period, net of recoveries.

Inventories, made up primarily of dissolvable plugs, supplies, finished goods and other consumables used to perform services for customers.

The Company values inventories at the lower of cost or net realizable value.

Reserves for excess and obsolete inventory were approximately $ 2.4 and $ 1.5 as of January 31, 2021 and 2020, respectively.

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 forty 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, goodwill and indefinite-lived intangible assets are reviewed at least annually for impairment.

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 forty years (or the lesser of the term of the lease for leasehold improvements, as appropriate).

Goodwill and Intangible Assets, Net

Acquired intangible assets with definite lives are amortized over their individual useful lives.

As of January 31, 2021, the Company had three 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.

Goodwill is tested at least annually as of December 31, and the Company’s management assesses whether there has been any impairment in the value of goodwill by comparing the fair value of the reporting unit to its net carrying value.

Each reporting unit constitutes a business, for which there is discrete financial information available that is regularly reviewed by the CODM.

If the carrying value exceeds its estimated fair value, an impairment loss is recognized for the difference up to the carrying value of goodwill.

In this event, the asset is written down accordingly.

The fair value is determined using valuation techniques based on estimates, judgments and assumptions that the Company’s management believes are appropriate in the circumstances.

For the year ended January 31, 2020, the Company determined goodwill was impaired and recorded a $47.0 goodwill impairment charge.

For the years ended January 31, 2019 and 2018, the Company’s annual impairment testing yielded no impairments of goodwill or the indefinite-lived intangible asset.

Long‑Lived Assets —Long-lived assets, such as property and equipment and purchased intangibles subject to amortization, are tested for impairment when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recovered.

The fair value is determined using valuation techniques based on estimates, judgments and assumptions that the Company’s management believes are appropriate in the circumstances.

For the years ended January 31, 2021 and 2020, the Company determined goodwill was impaired and recorded goodwill impairment charges of $ 28.3 and $ 47.0 , respectively.

See Note 7 for additional information.

Long‑Lived Assets

Long-lived assets, such as property and equipment and purchased intangibles subject to amortization, are tested for impairment 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.

For the years ended January 31, 2020, 2019 and 2018, there were no impairments of long lived assets.

Debt Issuance Costs—

For the years ended January 31, 2021 and 2020, there were $ 180.4 and $ 0.0 impairments of long lived assets.

See Note 7 for additional information.

Debt Issuance Costs

The Company capitalizes certain third-party fees directly related to the issuance of debt and amortizes these costs over the life of the debt using the effective interest method.

Debt issuance costs related to the Company’s $100.0 senior secured asset-based lending facility are presented net of amortization as a non-current asset.

Debt issuance costs related to the Company’s $250.0 principal amount of 11.5% senior secured notes due 2025 is presented net of amortization as an offset to the liability.

Amortized debt issuance costs are included in interest expense and totaled $1.1 and $0.3 for the years ended January 31, 2020 and 2019.

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 ‑

Accounting for Stock-Based Compensation —The Company accounts for share-based compensation arrangements in accordance with the provisions of FASB 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 year ended January 31, 2020 primarily related to grants of restricted stock and restricted stock units granted or approved by the Company’s Compensation Committee.

Compensation cost recognized during the years ended January 31, 2019 and 2018 primarily related to grants of restricted stock and restricted stock units granted or approved by Former Parent.

The Company has established a qualified Employee Stock Purchase Plan (the “Plan”), the terms of which allow for qualified employees (as defined in the Plan) to participate in the purchase of designated shares of the Company’s common stock at a price equal to 85% of the closing price on the last business day of each semi-annual stock purchase period.

The fair value of the employee purchase rights represents the difference between the closing price of the Company’s shares on the date of purchase and the purchase price of the shares.

Compensation cost for the years ended January 31, 2019 and 2018 relates to the Former Parent’s employee stock purchase plan through June 30, 2018, when Former Parent’s final option period ended.

The Company’s first option period began on January 1, 2019.

Debt issuance costs related to the Company’s $ 100.0 senior secured asset-based lending facility are presented net of amortization as a non-current asset.

Debt issuance costs related to the Company’s $ 250.0 principal amount of 11.5 % senior secured notes due 2025 is presented net of amortization as an offset to the liability.

Amortized debt issuance costs are included in interest expense and totaled $ 1.3 and $ 1.1 for the years ended January 31, 2021 and 2020, respectively.

Common Stock Equivalents

The Company has potential common stock equivalents related to its outstanding restricted stock awards and restricted stock units.

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.

Stock-Based Compensation

The Company accounts for share-based compensation arrangements in accordance with the provisions of FASB ASC 718, whereby share-based compensation cost is measured on the date of grant, based on the calculated fair value of the award and recognized as selling, general and administrative expenses in the consolidated statement of operations over the requisite service period.

Compensation cost recognized during the year ended January 31, 2021 and 2020 primarily related to grants of restricted stock and restricted stock units granted or approved by the Company’s Compensation Committee.

See “Note 13 - Stock-Based Compensation” for additional information related to stock-based compensation.

The Company has established a qualified ESPP, the terms of which, when active, allow for qualified employees (as defined in the ESPP) to participate in the purchase of designated shares of the Company’s common stock at a price equal to 85 % of the closing price on the last business day of each semi-annual stock purchase period.

The fair value of the employee purchase rights represents the difference between the closing price of the Company’s shares on the date of purchase and the purchase price of the shares.

The Company’s first option period began on January 1, 2019.

The ESPP did not have enough shares reserved to satisfy outstanding options to purchase during the offering period ended June 30, 2020, therefore, the Company refunded participants’ contributions.

In addition, the Company agreed with QES to temporarily suspend the ESPP due to the Merger.

The ESPP was still suspended as of January 31, 2020.

The value of the rights granted during the years ended January 31, 2021 and 2020 was $ 0.0 and $ 0.3 , respectively.

Concentration of Risk —The Company provides products and services to energy industry customers who focus on developing and producing oil and gas onshore in North America.

The Company’s management performs ongoing 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 depending on the level of exploration and production (“E&P”) activity and the use of the Company’s services.

During the years ended January 31, 2020, 2019 and 2018, no single customer accounted for more than 10% of the Company’s revenues.

Recent Accounting Pronouncements

In January 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-01, Business Combinations.

This update clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.

The guidance became

effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.

The adoption of ASU 2017-01 did not have a material impact on the Company’s consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230):

Classification of Certain Cash Receipts and Cash Payments related to how certain cash receipts and payments are presented and classified in the statement of cash flows.

These cash flow issues include debt prepayment or extinguishment costs, settlement of zero-coupon debt, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows.

The guidance became effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019, with early adoption permitted, and should be applied retrospectively.

The adoption of ASU 2016-15 did not have a material impact on the Company’s consolidated financial statements as the Company’s consolidated statements of cash flows are not impacted by the eight issues listed above.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends ASC Topic 718, Compensation—Stock Compensation.

The ASU includes multiple provisions intended to simplify various aspects of the accounting for share-based payments, including that excess tax benefits and shortfalls to be recorded as income tax benefit or expense in the statement of earnings, rather than equity, and requires excess tax benefits from stock-based compensation to be classified in cash flows from operations.

The guidance became effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018.

Early adoption is permitted in any interim or annual period.

If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.

An entity that elects early adoption must adopt all of the amendments in the same period.

The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases, which supersedes ASC Topic 840, Leases, and creates a new topic, ASC Topic 842, Leases.

ASU 2016-02 requires lessees to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than 12 months on its balance sheet.

See “Note 13 - Stock-Based Compensation” for additional information related to the ESPP.

Concentration of Risk

The Company provides products and services to energy industry customers who focus on developing and producing oil and gas onshore in North America.

Credit losses have historically been within management’s expectations and the provisions established.

Significant customers change from year to year depending on the level of E&P activity and the use of the Company’s services.

During the years ended January 31, 2021 and 2020, no single customer accounted for more than 10% of the Company’s revenues.

NOTE 2 - Recent Accounting Pronouncements

In March 2020, FASB issued accounting standard update, ("ASU") 2020-04, Reference Rate Reform (“Topic 848”):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

This ASU provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting and, particularly, the risk of cessation of the London Interbank Offered Rate (“LIBOR”).

The amendments in this ASU are elective and apply to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

The expedients and exceptions provided by the amendments in this ASU are effective for all entities, if elected, through December 31, 2022.

While the exact impact of this standard is not known, the guidance is not expected to have a material impact on the Company’s consolidated financial statements.

In December 2019, FASB issued ASU 2019-12, Income Taxes (“Topic 740”):

Simplifying the Accounting for Income Taxes.

This ASU is intended to simplify aspects of income tax approach for intra-period tax allocations when there is a loss from continuing operations and income or a gain from other items, and to provide a general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year.

Topic 740 also provides guidance to simplify how an entity recognizes a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, and evaluations of when step ups in the tax basis of goodwill should be considered part of a business combination.

Companies should also reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date.

The guidance is effective for the Company for the fiscal year beginning February 1, 2022.

While the exact impact of this standard is not known, the guidance is not expected to have a material impact on the Company’s consolidated financial statements.

In June 2016, FASB issued ASU 2016-13, Financial Instruments - Credit Losses (“Topic 326”):

Measurement of Credit Losses on Financial Instruments.

This ASU is intended to update the measurement of credit losses on financial instruments.

This update improves financial reporting by requiring earlier recognition of credit losses on financing receivables and other financial assets in scope by using the Current Expected Credit Losses (“CECL”) model.

This guidance is effective for interim and annual periods beginning after December 15, 2022, with early adoption permitted.

The new accounting standard introduces the CECL methodology for estimating allowances for credit losses.

The Company is an oilfield service company and as of January 31, 2021 had a third-party accounts receivable balance, net of allowance, of $ 67.0 .

Topic 326 is not expected to have a material impact on the Company’s consolidated financial statements.

In February 2016, FASB issued ASU 2016-02, Leases (“Topic 842”), which supersedes ASC Topic 840, Leases.

Topic 842 requires lessees to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than 12 months on its balance sheet.

The update also expands the required quantitative and qualitative disclosures surrounding leases.

In July 2018, Topic 842 was subsequently amended by ASU 2018-11, Targeted Improvements, which provides an additional transition method that gives companies the option to use the adoption date as the date of initial application and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

ASU 2016-02 will be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements.

In November 2019, the FASB deferred the effective date for implementation of ASU 2016-02 by one year.

The guidance under ASU 2016-02 is effective for fiscal years beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021.

Topic 842 will be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements.

In November 2019, FASB deferred the effective date for implementation of Topic 842 by one year and, in June 2020, FASB deferred the effective date by an additional year.

The guidance under Topic 842 is effective for fiscal years beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022.

Earlier adoption is permitted.

1 unchanged sentence

The Company is in the process of developing its new accounting policies and determining the potential aggregate impact this guidance is likely to have on its consolidated financial statements as of its adoption date.

In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers, which updated the guidance in ASC Topic 606, Revenue Recognition.

The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

To achieve that core principle, an entity should identify the contract(s) with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract and recognize revenue when (or as) the entity satisfies a performance obligation.

In August 2015, the FASB deferred the effective date for implementation of ASU 2014-09 by one year and during 2016, the FASB issued various related accounting standard updates, which clarified revenue accounting principles and provided supplemental adoption guidance.

The guidance under ASU 2014-09 is effective for fiscal years beginning after December 15, 2018 and interim periods within annual reporting periods beginning after December 15, 2019.

To assess the impact of this guidance, the Company established a cross functional implementation project team, inventoried its revenue streams and contracts with customers and applied

the principles of the guidance against a selection of contracts to assist in the determination of potential revenue accounting differences.

No individually significant implementation matters were identified, and revenue is recognized on a “point-in-time”

basis for product revenues and over time for service revenues under the new standard, which is consistent with previous practice.

The Company implemented internal controls, policies and processes to comply with the new standard.

The Company adopted ASC Topic 606 in the first quarter of fiscal 2019 using the modified retrospective method of adoption, which resulted in no changes to the opening balance sheet as of February 1, 2019.

Prior period statements of (loss) earnings will remain unchanged.

BUSINESS COMBINATIONS

On November 5, 2018, the Company acquired Motley Services, LLC (“Motley”), a premier provider of well completion and intervention services for complex, long lateral, horizontal wells, for $140.0 in cash (net of cash acquired) and $9.0 of shares of the Company’s common stock payable to certain employees of Motley.

During the quarter ended July 31, 2019, the Company finalized its valuation of certain assets, principally intangible assets, including goodwill and identified intangible assets.

Based on the Company’s final purchase price allocation, the excess of the purchase price over the fair value of the identifiable assets acquired approximated $71.8, of which $28.3 was allocated to identifiable intangible assets consisting of customer contracts and relationships and covenants not to compete, and $43.5 is included in goodwill.

The primary items that generated the goodwill recognized were the premium paid by the Company for future earnings potential and the value of the assembled workforce that does not qualify for separate recognition.

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 three years.

On March 15, 2019, the Company acquired Tecton Energy Services (“Tecton”), a leading provider of flowback, drill-out and production testing services, operating primarily in the greater Rocky Mountains.

On March 19, 2019, the Company acquired Red Bone Services LLC (“Red Bone”), a premier provider of oilfield services primarily in the Mid-Continent, providing fishing, non-frac high pressure pumping, thru-tubing and certain other services.

The aggregate acquisition price of the acquisitions was approximately $74.6, comprised of approximately $47.0 in shares of the Company’s common stock issuable over time at a fixed price and approximately $27.6 in cash to the sellers and for the retirement of debt.

The Company issued shares in a subsidiary company to effect the Red Bone acquisition, which become exchangeable for KLXE common stock over specified dates between the acquisition date and September 19, 2021.

The Company issued shares in its common stock to effect the Tecton acquisition, a portion of which is not included in purchase consideration as the shares were escrowed and held as treasury stock to satisfy identified future tax obligations through cancellation of the shares.

The shares issued to the sellers of Tecton and Red Bone are subject to restrictions on public re-sale from a minimum of six months to a maximum of 24 months, subject to acceleration upon the occurrence of certain events.

During the quarter ended January 31, 2020, the Company finalized its valuation of certain assets, principally intangible assets, including goodwill and identified intangible assets.

Based on the Company’s final purchase price allocation, the excess of the purchase price over the fair value of the identifiable assets acquired approximated $51.2, of which $19.4 was allocated to identifiable intangible assets consisting of customer contracts and relationships and covenants not to compete, and $31.8 was 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 18 months and three years for Tecton and Red Bone, respectively.

The Motley, Tecton and Red Bone acquisitions were accounted for as purchases under FASB ASC 805, Business Combinations (“ASC 805”).

The assets purchased and liabilities assumed have been reflected, as of the respective dates of acquisition, in the accompanying consolidated balance sheets.

The results of operations for the Motley, Tecton and Red Bone acquisitions are included in the accompanying consolidated statements of (loss) earnings from the respective dates of acquisition.

The following table summarizes the fair values of assets acquired and liabilities assumed in the Motley, Tecton and Red Bone acquisitions in accordance with ASC 805:

NOTE 3 - Business Combinations

On July 28, 2020, the Company completed the Merger with QES, a diversified provider of oilfield services to onshore oil and natural gas E&P companies operating in the United States.

The Merger purchase price was approximately $ 44.4 , which was comprised of 3.4 million shares of the Company’s common stock and cash paid to settle QES debt.

Based on the Company’s preliminary purchase price allocation, the purchase price was less than the fair value of the identifiable assets acquired, which resulted in a $ 40.3 bargain purchase gain being recorded on the consolidated statements of operations for the year ended January 31, 2021.

In connection with the closing of the Merger, $ 9.7 in outstanding borrowings and associated fees and expenses of QES's five-year asset-based revolving credit agreement (the “QES ABL Facility”) were paid off.

In addition, the Company assumed certain QES compensation agreements, including restricted stock units ("RSU"), with an estimated fair value of $ 2.0 .

Based on the service period related to the period prior to the acquisition date, $ 0.4 was allocated to the purchase price, and $ 1.6 relating to post-acquisition services will be recorded as operating expenses over the remaining requisite service periods.

As of the Merger date, each unvested QES RSU was converted into a replacement KLXE RSU award at a conversion rate of 0.0969 and valued on July 28, 2020.

The Merger was accounted for as a purchase under FASB ASC 805, Business Combinations (“ASC 805”).

The results of operations for the acquisition are included in the accompanying consolidated statements of operations from the respective date of acquisition.

The fair values assigned to certain assets acquired and liabilities assumed in relation to the Company’s acquisition have been prepared on a preliminary basis with information currently available and are subject to change.

The Company expects to finalize its analysis by the second quarter of fiscal 2021.

The following table summarizes the fair values of assets acquired and liabilities assumed in the Merger in accordance with ASC 805:

Accounts receivable-trade 12.2

Inventories 11.8

Other current and non-current assets 7.4

Property and equipment 84.5

Identified intangibles

Accounts payable ( 27.1 )

Accrued liabilities

Other current and non-current liabilities ( 12.8 )

Bargain purchase ( 40.3 )

Total purchase price (1)

(1) The total consideration the Merger was approximately $ 44.4 , which was comprised of 3.4 million shares of the Company’s common stock and cash paid to settle QES debt.

The Company has substantially integrated portions of the QES business and, as a result, it is not practicable to report stand-alone revenues and operating (loss) earnings of the QES business since the Merger date.

Unaudited Supplemental Pro Forma Information

The unaudited supplemental pro forma financial information has been provided for illustrative purposes only and does not purport to be indicative of the actual results that would have been achieved by combining the companies for the periods presented, or of the results that may be achieved by the combined companies in the future.

Further, results may vary significantly from the results reflected in the following unaudited supplemental pro forma financial information because of future events and transactions, as well as other factors.

The unaudited supplemental pro forma financial information does not include adjustments to reflect the impact of other cost savings or synergies that may result from the Merger.

On a pro forma basis to give effect to the Merger, as if it occurred on February 1, 2019, revenues, net loss and loss per diluted share for the years ended January 31, 2021 and 2020 would have been as follows:

Unaudited Pro Forma

Year Ended January 31,

Revenues $ 370.4 $ 1,010.1

Net loss 386.6 167.6

Loss per diluted share ( 46.58 ) ( 21.77 )

2019 Acquisitions

On March 15, 2019, the Company acquired Tecton Energy Services (“Tecton”), a provider of flowback and production testing services, operating primarily in the Rocky Mountains.

On March 19, 2019, the Company acquired Red Bone Services LLC (“Red Bone”), a provider of fishing and thru-tubing services in the Mid-Continent.

The aggregate acquisition price of the acquisitions was approximately $ 74.6 , comprised of approximately $ 47.0 in shares of the Company’s common stock issuable over time at a fixed price and approximately $ 27.6 in cash to the sellers and for the retirement of debt.

The Company issued shares in a subsidiary company to effect the Red Bone acquisition, which were exchanged for KLXE common stock over specified dates between the acquisition date and Fiscal 2020.

Based on the Company’s final purchase price allocation, the excess of the purchase price over the fair value of the identifiable assets acquired approximated $ 51.2 , of which $ 19.4 was allocated to intangible assets consisting of customer contracts and relationships and covenants not to compete, and $ 31.8 was allocated to goodwill.

The useful life assigned to the customer contracts and relationships is 10 years, and the covenants not to compete are being amortized over their contractual periods of 1.5 and 3 years for Tecton and Red Bone, respectively.

The Tecton and Red Bone acquisitions were accounted for as purchases under ASC 805.

The results of operations for the acquisitions are included in the accompanying consolidated statements of operations from the respective dates of acquisition.

The following table summarizes the fair values of assets acquired and liabilities assumed in the Tecton and Red Bone acquisitions in accordance with ASC 805:

Tecton Red Bone

Accounts receivable-trade $ 2.1 $ 7.2

Inventories — 2.7

Other current and non-current assets 0.2 —

Property and equipment 2.8 23.6

Goodwill 15.0 16.8

Identified intangibles 6.2 13.2

Accounts payable and accrued liabilities ( 2.1 ) ( 4.2 )

Other current and non-current liabilities ( 1.6 ) ( 7.3 )

Total consideration paid $ 22.6 $ 52.0

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

The majority of goodwill and intangible assets for Tecton and Red Bone are not expected to be deductible for tax purposes.

As more fully described in Note 4.

“Goodwill and Intangible Assets, Net”, the Company performed an interim goodwill impairment test and a long-lived asset recovery test, which resulted in a $47.0 goodwill impairment charge during the year ended January 31, 2020, which is included in the consolidated statements of (loss) earnings for the year ended January 31, 2020.

No charge was recorded for impairment of long-lived assets during the year ended January 31, 2020.

The Company has substantially integrated Motley and Red Bone and, as a result, it is not practicable to report stand-alone revenues and operating earnings of the acquired businesses since the acquisition date.

The amount of Tecton revenues included in the Company’s results was approximately $21.8 for the year ended January 31, 2020.

It is not practicable to report stand-alone operating earnings of Tecton since the acquisition date.

On a pro forma basis to give effect to the Motley acquisition, as if it occurred on February 1, 2017, revenues, net (loss) earnings and (loss) earnings per diluted share for the years ended January 31, 2019 and 2018 would have been as follows:

January 31, 2019

January 31, 2018

Net earnings (loss)

Earnings (loss) per diluted share

The Company has substantially integrated Red Bone and, as a result, it is not practicable to report stand-alone revenues and operating earnings of the acquired business since the acquisition date.

The amount of Tecton revenues included in the Company’s results was approximately $ 21.8 for the year ended January 31, 2020.

Unaudited Supplemental Pro Forma Information

On a pro forma basis to give effect to the Tecton and Red Bone acquisitions, as if they occurred on February 1, 2018, revenues, net (loss) earnings and (loss) earnings per diluted share for the years ended January 31, 2020 and 2019 would have been as follows:

January 31, 2020

January 31, 2019

Unaudited Pro Forma

Year Ended January 31,

Revenues $ 551.7 $ 566.2

Net (loss) earnings ( 95.9 ) 19.9

(Loss) earnings per diluted share ( 21.50 ) 4.45

PROPERTY AND EQUIPMENT, NET

Property and equipment consist of the following:

Motley Services Acquisition

On November 5, 2018, the Company acquired Motley Services, LLC (“Motley”), a premier provider of well

completion and intervention services for complex, long lateral, horizontal wells, for $ 140.0 in cash (net of cash acquired) and $ 9.0 of shares of the Company’s common stock payable to certain employees of Motley.

The final $ 3.0 installment of the consideration was settled in cash during the year ended January 30, 2021.

NOTE 4 - Merger and Integration Costs

Merger and integration costs were recorded separately from the acquisition of assets and assumptions of liabilities in the Merger.

Merger costs consist of legal and professional fees and accelerated stock compensation expense incurred in connection with the Merger (“Merger costs”).

Integration costs consist of expenses to relocate corporate headquarters, integrate the QES business, reduce headcount, and consolidate service and support facilities following the Merger (“Integration costs”).

Merger and Integration costs totaled $ 39.7 for the year ended January 31, 2021.

$ 3.4 were recorded to cost of sales in the consolidated statement of operations for the year ended January 31, 2021.

Additionally, $ 31.0 were recorded to selling, general and administrative in the consolidated statement of operations for the year ended January 31, 2021.

Lease termination costs of $ 5.3 were recorded to impairment and other charges in the consolidated statement of operations for the year ended January 31, 2021.

As of January 31, 2021, and 2020, accrued lease termination costs were:

Beginning Balance as of January 31, 2020 $ —

Charged (credited) to costs and expenses 5.3

Deductions ( 1.9 )

Ending balance as of January 31, 2021 $ 3.4

As the Company continues to integrate the QES business, there will be further charges in future periods relating to, among other things, fixed assets, facilities, workforce reductions and other assets.

The following table presents Merger and Integration costs that were recorded for the year ended January 31, 2021 in the consolidated statement of operations:

Year Ended January 31,

Merger costs $ 27.8

Integration costs 11.9

Total Merger and Integration Costs $ 39.7

NOTE 5 - Inventories, net

Inventories consisted of the following:

January 31, 2021 January 31, 2020

Supplies $ 13.5 $ 5.6

Plugs 4.6 6.1

Consumables 2.8 1.0

Work-in-progress — 0.2

Other 2.3 0.6

Subtotal 23.2 13.5

Inventory reserve ( 2.4 ) ( 1.5 )

Total inventories $ 20.8 $ 12.0

Inventories are made up primarily of composite and dissolvable plugs, supplies and consumables used to perform services for customers.

The Company values inventories at the lower of cost or net realizable value.

Inventory reserves were approximately $ 2.4 and $ 1.5 as of January 31, 2021 and 2020, respectively.

During the third quarter of 2020, the Company identified certain excess inventory of $ 1.2 , which was written off to cost of sales in the consolidated statement of operations.

Activity in the reserve for inventory accounts during the years ended January 31, 2021 and 2020 is set forth in the table below:

Reserve for inventory Balance at beginning of period Charged to costs and expenses Deductions (1)

Balance at end of period

2021 $ 1.5 $ 1.8 $ ( 0.9 ) $ 2.4

2020 $ 2.0 $ 2.6 $ ( 3.1 ) $ 1.5

(1) Reserve for inventory balances written off during the period, net of recoveries.

NOTE 6 - Property and Equipment, Net

Property and equipment consisted of the following:

Useful Life (Years) January 31, 2021 January 31, 2020

Land, buildings and improvements 1 — 40 $ 43.7 $ 38.2

Machinery 1 — 20 221.8 257.9

Furniture and equipment 1 — 15 183.2 216.7

Total property and equipment 448.7 512.8

Less accumulated depreciation 245.0 206.0

Property and equipment, net $ 203.7 $ 306.8

Depreciation expense was $ 57.7 and $ 60.2 for the years ended January 31, 2021 and 2020, respectively.

Refer to Note 4.

“Goodwill and Intangible Assets, Net”

for a discussion of the interim long-lived asset recovery test performed during the year ended January 31, 2020.

GOODWILL AND INTANGIBLE ASSETS, NET

Goodwill and indefinite life intangible assets are tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of the asset has decreased below its carrying value.

The abrupt deterioration in industry conditions, which accelerated through the end of the Company’s fourth quarter, was driven by a sharp decline in U.S.

land rig count and an unprecedented decline in operating frac spreads from the second quarter through the end of 2019.

The decline in E&P activity resulted in lower demand levels and lower current and expected revenues for the Company.

As a result, during the three months ended October 31, 2019, the Company performed an interim goodwill impairment test and a long-lived asset recoverability test.

The valuation of the Company and its reportable segments’

goodwill impairment test was estimated using the guideline public company analysis and the discounted cash flow analysis, which were equally weighted in the fair value analysis.

“Fair Value Information”

for additional information regarding the fair value determination.

The results of the goodwill impairment test as of October 31, 2019, indicated that goodwill was impaired because the carrying value of two of the reporting units exceeded the fair value.

Due to continued deterioration in industry conditions, which accelerated through the end of the fourth quarter, the quantitative goodwill impairment test was performed again as of December 31, 2019 for the Rocky Mountains segment, which concluded that the fair value of the reporting unit exceeded the carrying value.

The Company recorded a $47.0 goodwill impairment charge during the year ended January 31, 2020, which is included in the consolidated statements of (loss) earnings for the year ended January 31, 2020.

The charges reflect the full value of the goodwill attributable to the Northeast/Mid-Con and Southwest segments, leaving the Company with $28.3 goodwill related to the Rocky Mountains segment as of January 31, 2020.

The fair value of the Rocky Mountains reporting unit exceeded the carrying value by 10.9% as of December 31, 2019.

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.

Based on the impairment indicators above, the Company performed a long-lived asset impairment analysis during the three months ended October 31, 2019 and December 31, 2019 and concluded that the undiscounted cash flows of the long-lived assets exceeded the carrying amount of each segment’s asset group in both periods.

The sum of the undiscounted cash flows of the Southwest, Rocky Mountains and Northeast/Mid-Con long-lived assets exceeded the carrying value by 35.7%, 54.8% and 56.7%, respectively, as of December 31, 2019.

As a result, the Company determined that its long-lived assets were not impaired as of December 31, 2019.

As of January 31, 2020, $28.3 of goodwill and $45.8 of identifiable intangible assets remain.

The Company's cash flow projections were a significant input into the October 15, 2019 fair value.

If the business continues to be unable

to achieve projected results or long-term projections are adjusted downward, it could negatively impact future valuations of the Rocky Mountains reporting unit and the Company’s long-lived assets and result in an impairment charge.

Assets Held for Sale

As of January 31, 2021, the Company’s consolidated balance sheet includes assets classified as held for sale of $ 4.4 .

The assets held for sale are reported within other current assets on the consolidated balance sheet and represent the value of six facilities.

In light of the current market environment and as part of the ongoing integration of the QES business, the Company has consolidated operations within certain geographies rendering these locations unnecessary to support the efficient operations of the Company.

These assets are being actively marketed for sale as of January 31, 2021 and are recorded at the lower of their carrying value or fair value less costs to sell.

Subsequent to January 31, 2021, the Company has completed the sale of four operational facilities with a carrying value of $ 3.0 for total sales proceeds of $ 3.5 .

NOTE 7 - 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:

January 31, 2020

January 31, 2019

January 31, 2021 January 31, 2020

Useful Life (Years) Original Cost Accumulated Amortization Net Book Value Original

Cost Accumulated Amortization Net Book Value

Customer contracts and relationships (1)

10 $ 5.7 $ 3.2 $ 2.5 $ 43.0 $ 2.4 $ 40.6

Covenants not to compete 1.5 - 3

0.5 0.5 — 4.7 1.9 2.8

Developed technologies 15 — — — 3.3 0.9 2.4

Amortization expense associated with identifiable intangible assets was $3.9, $0.8 and $0.3 for the years ended January 31, 2020, 2019 and 2018, respectively.

The Company currently expects to recognize amortization expense related to intangible assets of approximately $4.0 in each of the next five fiscal years.

The future amortization amounts are estimates.

Total intangible assets $ 6.2 $ 3.7 $ 2.5 $ 51.0 $ 5.2 $ 45.8

(1) The customer contracts and relationships intangible asset’s useful life was reduced from 20 to 10 years as of July 31, 2020.

Amortization expense associated with intangible assets was $ 4.0 and $ 3.9 for the year ended January 31, 2021 and 2020, respectively.

During the year ended January 31, 2021, accelerated amortization of $ 2.7 was recognized related to the Company’s customer contracts and relationships long-lived intangible.

Due to the accelerated amortization of intangible assets, the Company does not expect to recognize future material amortization expense related to intangible assets.

Actual future amortization expense may be different due to future acquisitions, impairments, changes in amortization periods or other factors.

During the second quarter 2020 review of the customer relationship intangible assets, an analysis of the future contributions to revenue from these customers resulted in forecast declines of approximately 50 %.

As a result of the review, the Company recognized a charge of $ 2.7 reflecting accelerated amortization to reduce the carrying value of its customer relationships intangible.

The accelerated amortization charge is included in the consolidated statement of operations for the year ended January 31, 2021.

The oilfield service industry experienced an abrupt deterioration in demand during the second half of 2019, which continued into 2020.

During the first quarter of 2020, the novel coronavirus (“COVID-19”) pandemic emerged and applied significant downward pressure on the global economy and oil demand and prices, leading North American operators to announce significant cuts to planned 2020 capital expenditures.

The combination of the COVID-19 pandemic and supply concerns drove a steep drop in oil prices, which led to decreases in demand for the Company’s services and lower current and expected revenues for the Company.

Based on the impairment indicators above, the Company performed a goodwill and long-lived asset impairment analysis as of the April 30, 2020.

The results of the impairment analysis concluded that the carrying amount of the long-lived assets exceeded the relative fair values of two of the reporting units asset groups.

As a result, the Company recorded a $ 180.4 long-lived asset impairment charge, $ 39.2 related to intangible assets and $ 141.2 related to property and equipment, which is included in the consolidated statement of operations for the year ended January 31, 2021.

This charge reflects $ 91.3 and $ 89.1 of the long-lived assets attributable to the Southwest and Northeast/Mid-Con segments, respectively.

Determining fair value requires the use of estimates and assumptions.

Such estimates and assumptions include revenue growth rates, operating profit margins, weighted average cost of capital, terminal growth rates, future market share and future market conditions, among others.

The Company’s cash flow projections were a significant input into the April 30, 2020 fair values.

See Note 10 for additional information regarding the fair value determination.

If the Company continues to be unable to achieve projected results or long-term projections are adjusted downward, it could negatively impact future valuations of the Company’s long-lived assets.

The valuation of the Company and its reportable segments’ goodwill impairment test was estimated using the guideline public company analysis and the discounted cash flow analysis, which were equally weighted in the fair value analysis.

See Note 10 for additional information regarding the fair value determination.

The results of the goodwill impairment test as of April 30, 2020 indicated that goodwill was impaired because the carrying value of the Rocky Mountains reporting unit exceeded its relative fair value.

Accordingly, the Company recorded a $ 28.3 goodwill impairment charge, which is included in the consolidated statement of operations for the year ended January 31, 2021.

This charge reflects the full value of the goodwill attributable to the Rocky Mountains segment, leaving the Company with no goodwill as of January 31, 2021.

The Company recorded a $ 47.0 goodwill impairment charge during the year ended January 31, 2020, which is included in the consolidated statements of operations.

The charges reflect the full value of the goodwill attributable to the Northeast/Mid-Con and Southwest segments.

The changes in the carrying amount of goodwill for the years ended January 31, 2021 and 2020 are as follows:

Balance, January 31, 2019 $ 43.2

Balance, January 31, 2019

Acquisitions 31.8

Purchase price adjustments 0.3

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Balance, January 31, 2020 28.3

RELATED PARTY TRANSACTIONS

The statements of (loss) earnings for the years ended January 31, 2019 and 2018 include an allocation of general corporate expenses from KLX.

These costs were 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 revenue generated, costs incurred, headcount or other measures.

Allocations for general corporate expenses, including management costs and corporate support services provided to the Company, totaled $16.6 and $18.7 for the years ended January 31, 2019 up through the date of the Spin-Off and 2018, respectively, and were reported in the Company’s selling, general and administrative expenses on its consolidated statements of (loss) earnings.

These amounts include costs for allocations related to Former Parent’s strategic alternatives review process in the first quarter of Fiscal 2018, the Company’s Spin-Off process in the second and third quarters of Fiscal 2018 as well as 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 consummation of the Spin-Off, KLX Energy Services entered into a number of agreements with KLX, including a transition services agreement, distribution agreement, an employee matters agreement and an Intellectual Property (“IP”) matters agreement.

Those agreements governed the relationship between the Company and KLX and provided for the allocation between us and KLX of various assets, liabilities and obligations (including employee benefits, information technology and insurance).

All services under the transition services agreement with Former Parent were terminated prior to January 31, 2019, and amounts under such agreement were not material for the year ended January 31, 2019.

ACCRUED LIABILITIES

Accrued liabilities consist of the following:

Goodwill impairment ( 28.3 )

Balance, January 31, 2021 $ —

NOTE 8 - Accrued Liabilities

Accrued liabilities consisted of the following:

January 31, 2021 January 31, 2020

Accrued salaries, vacation and related benefits $ 14.3 $ 13.9

Accrued incentive compensation

Accrued property taxes 1.8 2.3

Accrued incentive compensation 1.9 2.3

Other accrued liabilities 11.2 7.7

LONG-TERM DEBT

Long-term debt consists of the following:

January 31, 2020

January 31, 2019

Total accrued liabilities $ 29.2

NOTE 9 - Long-Term Debt

Long-term debt consisted of the following:

January 31, 2021 January 31, 2020

Senior Secured Notes $ 250.0 $ 250.0

Less unamortized debt issue costs

As of January 31, 2020 and 2019, long-term debt consisted of $250.0 principal amount of 11.5% senior secured notes due November 2025 (the “Notes”) offered pursuant to Rule 144A under the Securities Act and to certain non-U.S.

Less unamortized debt issuance costs 6.1 7.0

Total debt obligations, net of debt issuance costs 243.9

Capital leases 6.3 —

current portion of capital lease obligations ( 1.9 ) —

Total long-term debt and capital lease obligations 248.3 243.0

As of January 31, 2021, long-term debt consisted of $ 250.0 principal amount of 11.5 % senior secured notes due 2025 (the “Notes”) offered pursuant to Rule 144A under the Securities Act of 1933 (as amended, the “Securities Act”) and to certain non-U.S.

persons outside the United States in compliance with Regulation S under the Securities Act.

The indenture governing the Notes requires semi-annual interest payments on May 1 and November 1 of each year through the maturity date of November 1, 2025.

On a net basis, after taking into consideration the debt issue costs for the Notes, total debt as of January 31, 2020 and 2019 was $243.0 and $242.2, respectively.

As of January 31, 2020 and 2019, the Company also had a $100.0 asset-based revolving credit facility pursuant to a senior secured credit agreement dated August 10, 2018 (the “ABL Facility”).

The ABL Facility became effective on September 14, 2018, the date of the Spin-Off, and matures in September 2023.

On October 22, 2018, the ABL Facility was amended primarily to permit the Company to issue the Notes and acquire Motley and also amended the definition of the required ratio (as defined in the ABL Facility) as a result of the Notes issuance.

On a net basis, after taking into consideration the debt issuance costs for the Notes, total debt as of January 31, 2021 was $ 243.9 .

The Notes bear interest at an annual rate of 11.5 %, payable semi-annually in arrears on May 1 and November 1.

Interest expense amounted to $ 30.7 and $ 29.2 for the years ended January 31, 2021 and 2020, respectively.

Accrued interest as of January 31, 2021 and 2020 was $ 7.2 for both periods.

As of January 31, 2021, the Company also had a $ 100.0 asset-based revolving credit facility pursuant to a senior secured credit agreement dated August 10, 2018 (the “ABL Facility”).

The ABL Facility became effective on September 14, 2018 and matures in September 2023.

On October 22, 2018, the ABL Facility was amended primarily to permit the Company to issue the Notes and acquire Motley and the definition of the required ratio (as defined in the ABL Facility) was also amended as a result of the Notes issuance.

Unamortized deferred costs for the ABL Facility of $ 0.7 and $ 0.9 were recorded in other non-current assets as of January 31, 2021 and 2020, respectively.

Borrowings under the ABL Facility bear interest at a rate equal to the London interbank offered rate plus the applicable margin (as defined in the ABL Facility).

No amounts were outstanding under the ABL Facility as of January 31, 2020 or 2019.

The ABL Facility is tied to a borrowing base formula and has no maintenance financial covenants.

The ABL Facility is secured by, among other things, a first priority lien on our accounts receivable and inventory and contains customary conditions precedent to borrowing and affirmative and negative covenants, all of which were met as of January 31, 2020.

Availability under the ABL Facility is determined primarily by a borrowing base formula calculated based on a percentage of our accounts receivable and inventory ($60.0 million as of January 31, 2020).

The amount of availability under the ABL Facility will be reduced by the greater of $10.0 million or 15% of the borrowing base during any period for which the Company’s fixed charge coverage ratio is not at least 1:1 for the trailing four quarters for which financial statements have been delivered.

The indenture that governs the Notes and the credit agreement that governs the ABL Facility contain certain affirmative and negative covenants that are binding on the borrowers and their subsidiaries, including, among others, restrictions (subject to exceptions and qualifications) on the ability of the borrowers and their subsidiaries to create liens, to undertake fundamental changes, to incur debt, to sell or dispose of assets, to make investments, to make restricted payments such as dividends, distributions or equity repurchases, to change the nature of their businesses, to enter into transactions with affiliates and to enter into certain burdensome agreements.

Letters of credit issued under the ABL Facility aggregated $0.8 at January 31, 2020.

Borrowings under the ABL Facility bear interest at a rate equal to LIBOR plus the applicable margin (as defined in the ABL Facility).

There were no outstanding amounts under the ABL Facility as of January 31, 2021 or 2020.

The ABL Facility is tied to a borrowing base formula and has no maintenance financial covenants as long as the minimum level of borrowing availability is maintained.

During the third quarter of 2020, the Company included the acquired QES current asset collateral into the borrowing base formula used to calculate the Company’s borrowing availability.

Availability under the ABL Facility is determined by the borrowing base formula calculated based on a percentage of our accounts receivable and inventory, net of a consolidated fixed charge coverage ratio (“FCCR”) holdback of $ 10.0 .

The ABL Facility is secured by, among other things, a first priority lien on the Company’s accounts receivable and inventory and contains customary conditions precedent to borrowing and affirmative and negative covenants.

Availability under the ABL Facility was $ 34.9 , net of $ 10.0 FCCR holdback, as of January 31, 2021.

The ABL Facility includes a financial covenant which requires the Company’s consolidated fixed charge coverage ratio (“FCCR”) to be at least 1.0 to 1.0 if availability falls below the greater of $ 10.0 or 15 % of the borrowing base.

At all times during the year ended January 31, 2021, availability exceeded this threshold, and the Company was not subject to this financial covenant.

As of January 31, 2021, the FCCR was below 1.0 to 1.0.

The Company was in full compliance with its credit facility as of January 31, 2021.

The Company uses standby letters of credit to facilitate commercial transactions with third parties and to secure our performance to certain vendors.

Total letters of credit outstanding under the ABL Facility were $ 6.7 at January 31, 2021.

To the extent liabilities are incurred as a result of the activities covered by the letters of credit, such liabilities are included on the accompanying consolidated balance sheets.

Maturities of long-term debt are as follows:

Year Ending January 31,

Interest expense amounted to $30.4, $7.7 and $0.0 for the years ended January 31, 2020, 2019 and 2018, respectively.

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.

Years ended January 31,

Total maturities of Long-term debt $ 250.0

Capital Lease Obligations

The Company acquired QES's long-term capital lease agreements in the Merger.

The leases are for a manufacturing and office facility supporting completion operations in Oklahoma City, Oklahoma and Elk City, Oklahoma.

The capital lease for the facility in Oklahoma City, Oklahoma commenced in December 2006 and is payable monthly in amounts ranging from $ 28,000 to $ 35,000 over the 20 year lease term.

The lease for the facility in Elk City, Oklahoma commenced in April 2007 is payable monthly in amounts ranging from $ 25,000 to $ 29,000 over the 20 year lease term.

During Fiscal 2020, the Company leased certain vehicles, machinery and service equipment under capital leases.

The capital lease obligations for these assets have lease terms ranging from 36 months to 55 months, and the interest rates range between 3.0 % to 7.0 %.

As of January 31, 2021, the future minimum lease payments acquired under the Company’s capital leases are as follows (in millions of dollars):

Years ended January 31,

Thereafter 0.6

Total capital lease payments 7.3

imputed interest 1.0

Total maturities of capital lease obligations $ 6.3

The interest expense associated with the capital lease payments during the year ended January 31, 2021 and 2020 totaled $ 0.3 and $ 0.0 , respectively.

NOTE 10 - 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 knowledgeable, willing parties.

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

Level 1 – quoted prices in active markets for identical assets and liabilities.

Level 2 – quoted prices for identical assets and liabilities in markets that are not active or observable inputs other than quoted prices in active markets for identical assets and liabilities.

Level 3 – unobservable inputs in which there is little or no market data available, which require the reporting entity to develop its own assumptions.

The carrying amounts of cash and cash equivalents, accounts receivable-trade and accounts payable represent their respective fair values due to their short-term nature.

There was no debt outstanding under the ABL Facility as of January 31, 2021.

The fair value of the Notes, based on market prices for publicly traded debt, which the Company classifies as Level 2 inputs, was $ 132.5 and $ 202.5 as of January 31, 2021 and 2020, respectively.

During the year ended January 31, 2021, goodwill and long-lived assets, including certain property and equipment and purchased intangibles subject to amortization, were impaired as a result of the interim goodwill and long-lived asset impairment tests performed as of April 30, 2020.

The goodwill Level 3 fair value was determined using the average of the guideline public company analysis and the discounted cash flow analysis, both of which were unobservable.

The long-lived asset Level 3 fair value was determined using the discounted cash flow analysis using the market and income approaches, both of which were unobservable.

Fair value is measured as of the impairment date.

The carrying value and fair values of the impaired assets as of April 30, 2020 was $ 194.0 and $ 52.8 for property and equipment, net, $ 28.3 and $ 0.0 for goodwill, and $ 39.2 and $ 0.0 for intangible assets, net, respectively.

See Note 7 for a discussion of the changes in goodwill and long-lived asset values due to impairment charges recorded during the year ended January 31, 2021.

NOTE 11 - 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 consolidated balance sheets.

2 unchanged sentences

Future payments under operating leases with terms greater than one year as of January 31, 2020 are as follows:

Year Ending January 31,

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

During Fiscal 2019, the Company discovered a credit card theft by third parties of approximately $2.6 (which is included in Fiscal 2019 Cost of Sales) and promptly reported the theft to its insurers and law enforcement.

The Company has also filed suit against several third parties to recover damages related to the theft.

While the Company cannot reasonably determine the outcome of any related litigation at this time, it believes its insurance coverage will be available for recovery of some or all of this loss after the appropriate legal proceedings have concluded.

Indemnities, Commitments and Guarantees —During its normal course of business, the Company has made certain indemnities, commitments and guarantees under which it may be required to make payments in relation to certain transactions.

These indemnities include indemnities to various lessors in connection with facility leases for certain claims arising from such facility or lease and indemnities to other parties to certain acquisition agreements.

Years ended January 31,

Thereafter 1.1

Total future operating lease payments $ 72.1

Environmental Regulations & Liabilities

The Company is subject to various federal, state and local environmental laws and regulations that establish standards and requirements for the protection of the environment.

The Company continues to monitor the status of these laws and regulations.

However, the Company cannot predict the future impact of such laws and regulations, as well as standards and requirements, on its business, which are subject to change and can have retroactive effectiveness.

Currently, the Company has not been fined, cited or notified of any

environmental violations or liabilities that would have a material adverse effect on its consolidated financial statement position, results of operations, liquidity or capital resources.

However, management does recognize that by the very nature of its business, material costs could be incurred in the future to maintain compliance.

The amount of such future expenditures is not determinable due to several factors, including the unknown magnitude of possible regulation or liabilities, the unknown timing and extent of the corrective actions that may be required, the determination of the Company’s liability in proportion to other responsible parties and the extent to which such expenditures are recoverable from insurance or indemnification.

During the year ended January 31, 2020, the Company discovered a credit card theft of approximately $ 2.6 (which is included in cost of sales for the year ended January 31, 2020) and promptly reported the theft to its insurers and law enforcement.

The Company also filed suit against several third parties to recover damages related to the theft.

During the year ended January 31, 2021, the Company received an insurance reimbursement of $ 2.5 from insurance providers (which is included in cost of sales for the year ended January 31, 2021).

The Company implemented additional expenditure controls to reduce the likelihood of similar thefts in the future, such as daily limits on all fuel cards and additional credit card activity reviews by management.

The Company is at times either a plaintiff or a defendant in various legal actions arising in the normal course of business, the outcomes of which, in the opinion of management, neither individually nor in the aggregate are likely to result in a material adverse effect on the Company’s consolidated financial statements, except as noted herein.

On March 9, 2021, the Company filed claims in the District Court of Harris, County Texas against Magellan E&P Holdings, Inc.

("Magellan"), Redmon-Keys Insurance Group, Inc.

("Redmon") and Certain Underwriters at Lloyd's ("Underwriters") to recover $ 4.6 owed on invoices duly issued by the Company for services rendered on behalf of defendants in response to an offshore well blowout near Bob Hall Pier in Corpus Christi, Texas.

Magellan did not dispute the invoices or the charges therein but alleged an inability to pay prior to obtaining funding from Underwriters under Magellan's Owner's Extra Expense ("OEE") policy.

An OEE policy is an industry norm to provide insurance coverage in the event of a blowout.

Magellan's OEE policy has a limit of $ 20 .

We believe that total invoices issued to Magellan by its blowout vendors total $ 14.3 and are within policy limits.

The Company's Texas court action includes claims against Magellan and as an additional insured under the OEE policy and also against Redmon-Keys as Magellan's broker who issued the additional insured certificate to the Company.

On March 19, 2021, Underwriters filed a declaratory judgment action in the United States District Court for the Southern District of Texas seeking a declaration that approximately $ 7.4 of the total $ 14.3 in blowout related expenses fall outside of policy coverage referencing a date on which they believe coverage ceased to apply.

The Company disputes Underwriters allegations on coverage and will likely litigate the issue in one or more court actions.

Nonetheless, we note here that approximately $ 2.3 or half of the Company's total $ 4.6 in invoice to Magellan relate to services rendered and materials provided prior to the coverage dispute date alleged by Underwriters.

In its declaratory judgment action, Underwriters further alleged that it had made some payments to Magellan.

As Magellan had not made onward payments to the Company, the Company filed a request for a Temporary Restraining Order ("TRO") against Magellan in its Texas state court lawsuit.

On March 30, 2021, hours before the TRO hearing, Magellan filed for bankruptcy pursuant to Chapter 7 of the U.S.

bankruptcy code.

The Company believes that the OEE policy is now an asset of the Chapter 7 estate.

The bankruptcy proceedings are in their initial stages.

At this time, the Company has reserved the full amount of its invoices totaling $ 4.6 as a prudent action in light of the Chapter 7 filing.

However, we believe that the proceeds from the OEE policy will ultimately be allocated to the blowout creditors and will be offering our support to the U.S.

Trustee in its pursuit of full recovery under the OEE policy from Underwriters.

Indemnities, Commitments and Guarantees

During its ordinary course of business, the Company has made certain indemnities, commitments and guarantees under which it may be required to make payments in relation to certain transactions.

These indemnities include indemnities to various lessors in connection with facility leases for certain claims arising from such facility or lease, as well as indemnities to other parties to certain acquisition agreements.

The duration of these indemnities, commitments and guarantees varies and, in certain cases, is indefinite.

1 unchanged sentence

However, the Company is unable to estimate the maximum amount of liability related to its indemnities, commitments and guarantees because such liabilities are contingent upon the occurrence of events that are not reasonably determinable.

Management believes that any liability for these indemnities, commitments and guarantees

would not be material to the accompanying consolidated financial statements.

Management believes that any liability for these indemnities, commitments and guarantees would not be material to the accompanying consolidated financial statements.

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

The Company has employment agreements with certain key members of management expiring on various dates.

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.

EMPLOYEE RETIREMENT PLANS

The Company sponsors and contributes to a qualified, defined contribution savings and investment plan, covering substantially all employees.

NOTE 12 - Employee Retirement Plans

The Company sponsors a qualified, defined contribution savings and investment plan, covering substantially all employees.

The KLX Energy Services Holdings, Inc.

Retirement Plan was established pursuant to Section 401(k) of the Internal Revenue Code.

Under the terms of this plan, covered employees may contribute up to 100% of their pay, limited to certain statutory maximum contributions.

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.

Prior to the Spin-Off, KLX Energy Services employees participated in a plan sponsored by our Former Parent.

Total expense for the plans were $4.1, $3.2 and $2.1 for the years ended January 31, 2020, 2019 and 2018.

The Company also sponsors and contributes to a supplemental executive retirement plan (“SERP”), which was established pursuant to Section 409A of the Internal Revenue Code, for certain Company employees.

The SERP is an unfunded plan maintained for the purpose of providing deferred 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.

Prior to the Spin-Off, certain KLX Energy Services employees participated in a SERP sponsored by the Former Parent.

Compensation expense under the programs were $0.4, $0.2 and $0.1 for the years ended January 31, 2020, 2019 and 2018, respectively.

STOCKHOLDERS’

(Loss) Earnings Per Share —Basic net (loss) earnings per common share is computed using the weighted average of common shares outstanding during the year.

Diluted net (loss) earnings per common share reflects the potential dilution from assumed conversion of all dilutive securities such as unvested restricted stock using the treasury stock method.

When the effects of the outstanding restricted stock awards or restricted stock units are anti ‑

dilutive, they are not included in the calculation of diluted net (loss) earnings per common share.

For the years ended January 31, 2020 and 2019, 2.3 and 2.2 shares, respectively, and for the year ended January 31, 2018, no shares were excluded from the determination of diluted earnings per common share.

The following table sets forth the computation of basic and diluted net (loss) earnings per share for the years ended January 31, 2020, 2019 and 2018:

Net (loss) earnings (1)

(Shares in millions)

Basic weighted average common shares

Effect of dilutive securities - dilutive securities

Diluted weighted average common shares

Basic net (loss) earnings per common share (2)

Diluted net (loss) earnings per common share (2)

During the year ended January 31, 2019, the Company incurred approximately $30.6 of costs related to the completion of the merger of the Aerospace Solutions business of KLX Inc.

with The Boeing Company, the Spin-Off of the energy services business into an independent public company, including $10.7 of non-cash compensation expense related to the acceleration of unvested shares held by the Company’s employees, the amendment of the $100.0 asset based lending facility due to the issuance of $250.0 of Notes and the acquisition of Motley.

On September 14, 2018, the distribution date, KLX stockholders of record as of the close of business on September 3, 2018 received 0.4 shares of KLX Energy Services common stock for every 1.0 share of KLX common stock held as of the record date.

January 31, 2018 basic and diluted net loss per common share and the average number of common shares outstanding were calculated using the number of KLX Energy Services common shares outstanding immediately following the distribution.

Long‑Term Incentive Plan —The Company maintains a Long‑Term Incentive Plan (“LTIP”) under which the Company’s Compensation Committee has the authority to grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance stock and other forms of equity-based or equity-related awards.

During the year ended January 31, 2019, the Company granted restricted stock to members of the Company’s Board of Directors and certain members of management.

Restricted stock grants vest over periods ranging from three to four years and are granted at the discretion of the Compensation Committee of the Company’s Board of Directors.

Neither the Company’s Chairman, Chief Executive Officer and President and Senior Vice President and Chief Financial Officer nor members of the Board of Directors are receiving any other non-de minimis cash consideration for their services.

Compensation cost is generally recorded on a straight‑line basis over the vesting term of the shares based on the grant date value using the closing trading price.

Compensation cost of $18.2, $23.5 and $12.5 was recorded in selling, general and administrative expense for the years ended January 31, 2020, 2019 and 2018, respectively, including both the amounts related specifically to the Company’s employees and the corresponding expense related to grants of restricted stock and restricted stock units granted or approved by the Former Parent.

The vesting of all unvested shares of restricted stock was accelerated upon the sale of the Former Parent to the Boeing Company on October 9, 2018, resulting in approximately $10.7 of share based compensation expense during the year ended January 31, 2019.

Retirement Plan ("KLX 401(k) Plan") was established pursuant to Section 401(k) of the Internal Revenue Code.

Under the terms of this plan, covered employees may contribute up to 100 % of their annual compensation, limited to certain statutory maximum contributions.

Following the Merger, the Company continued to sponsor the legacy QES 401(k) Plan and the KLX 401(k) Plan through the end of their respective Plan year – December 31, 2020.

Pursuant to the KLX 401(k) Plan, the Company had a non-discretionary match with a matching percentage of 100 % of the first 3 % of employee contributions and 50 % on the next 2 % of employee contributions, and the matching contribution vested immediately.

Pursuant to the QES 401(k) Plan, the Company’s matching was discretionary with a matching percentage of 50 % of the first 6 % of employee contributions.

Given the QES match was discretionary, it was suspended prior to the Merger through August 7, 2020.

On December 31, 2020, the KLX 401(k) Plan was terminated and its assets were transferred to the QES 401(k) Plan, which was renamed the KLX Energy Services Holdings, Inc.

On a go forward basis, participants are vested in discretionary matching contributions in an amount equal to 50 % of the first 6 % of an employee’s eligible compensation that is contributed to the 401(k) Plan based on a 3 year vesting schedule.

Total expense for the Plans was $ 1.9 and $ 4.1 for the years ended January 31, 2021 and 2020, respectively.

NOTE 13 - Stock-Based Compensation

The Company has a Long-Term Incentive Plan (“LTIP”) under which the compensation committee of the Board (the “Compensation Committee”) has the authority to grant stock options, stock appreciation rights, restricted stock, restricted stock units or other forms of equity-based or equity-related awards.

Compensation cost for the LTIP grants is generally recorded on a straight-line basis over the vesting term of the shares based on the grant date value using the closing trading price.

Compensation cost recognized during the year ended January 31, 2021 and 2020 related to grants of restricted stock granted by or approved by the Compensation Committee.

Certain grants of restricted stock to directors and management accelerated in connection with the Merger on July 28, 2020, resulting in approximately $ 15.1 of stock-based compensation expense during the year ended January 31, 2021.

As a result, stock-based compensation was $ 17.8 and $ 18.2 for the year ended January 31, 2021 and 2020, respectively.

Unrecognized compensation cost related to restricted stock awards made by the Company was $ 3.7 at January 31, 2021.

As of the date of the QES acquisition, each unvested QES restricted stock unit award was converted into a replacement KLXE restricted stock unit award at a conversion rate of 0.0969 .

Approximately 2.0 million

shares of QES common stock subject to awards outstanding were converted to 0.2 million shares of common stock assumed by KLXE.

The Company also has a qualified Employee Stock Purchase Plan, the terms of which allow for qualified employees (as defined in the ESPP) to participate in the purchase of designated shares of the Company’s common stock at a price equal to 85 % of the closing price on the last business day of each semi-annual stock purchase period.

The fair value of the employee purchase rights represents the difference between the closing price of the Company’s shares on the date of purchase and the purchase price of the shares.

Because the ESPP did not have enough shares reserved to satisfy outstanding options to purchase during the offering period ended June 30, 2020, the Company refunded participants’ contributions.

In addition, the Company agreed with QES to temporarily suspend the ESPP due to the Merger.

As a result, compensation cost was $ 0.0 and $ 0.3 for the year ended January 31, 2021 and 2020, respectively.

The Company’s stockholders approved an amendment to the ESPP at the Company’s annual meeting on July 24, 2020, for an increase of 0.3 million shares to the ESPP’s share reserve.

As of January 31, 2021 the ESPP plan remained suspended.

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

The table does not include the shares of restricted stock associated with the shared based compensation expense allocated by the Former Parent to the Company as it would not be practicable to do so:

January 31, 2020

January 31, 2019

Vesting Period

(in thousands)

Year ended January 31, 2021 Year ended January 31, 2020

(in thousands) Weighted Average Grant Date Fair

Value per Share Weighted Average

Remaining vesting Period

(in years) Number of

(in thousands) (1)

Weighted Average Grant Date Fair

Value per Share (1)

Weighted Average

Remaining vesting Period

Outstanding, beginning of period 473 $ 118.75 2.63 493 $ 143.55 3.54

Make-whole shares granted upon Spin-Off

Shares granted

Shares granted including QES 401 7.39 124 41.05

Shares vested ( 398 ) 58.61 ( 126 ) 142.50

1 unchanged sentence

Outstanding, end of period 248 $ 20.14 1.61 473 $ 118.75 2.63

EMPLOYEE STOCK PURCHASE PLAN

The Company 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 Company’s common stock at a price equal to 85% of the closing price on the last business day of each semi-annual stock purchase period.

The fair value of the employee purchase rights represents the difference between the closing price of the Company’s shares on the date of purchase and the purchase price of the shares.

The Company issued approximately 175,000 shares of common stock to employees of the Company during the year ended January 31, 2020 at a weighted average price per share of $8.55.

The Former Parent issued approximately 8,000 and 14,000 shares of common stock to employees of the Company during the years ended January 31, 2019 and 2018, respectively, at a weighted average price per share of $61.12 and $49.63, respectively.

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 knowledgeable, willing parties.

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

Level 1—quoted prices in active markets for identical assets and liabilities.

Level 2—quoted prices for identical assets and liabilities in markets that are not active or observable inputs other than quoted prices in active markets for identical assets and liabilities.

Level 3—unobservable inputs in which there is little or no market data available, which require the reporting entity to develop its own assumptions.

The carrying amounts of cash and cash equivalents, accounts receivable-trade and accounts payable represent their respective fair values due to their short-term nature.

There was no debt outstanding under the ABL Facility as of January 31, 2020 and 2019.

The fair value of the Company’s Notes, based on market prices for publicly-traded debt (which the Company classifies as Level 2 inputs), was $202.5 and $254.1 as of January 31, 2020 and 2019, respectively.

Goodwill was impaired by $47.0 and written down to its estimated fair value of $28.3 during the year ended January 31, 2020.

The goodwill level 3 fair value was determined using the average of the guideline public company analysis and the discounted cash flow analysis, utilizing estimates of future cash flow, discount rate and long-term growth rate, all of which were unobservable.

Fair value is measured as of the impairment date using level 3 inputs.

“Goodwill and Intangible Assets, Net”

for a discussion of the goodwill impairment charge recorded during the year ended January 31, 2020.

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.

The need for a valuation allowance can be affected by changes to tax laws, changes to statutory tax rates and changes to future taxable income estimates.

The Company's cumulative loss position was significant negative evidence in assessing the need for a valuation allowance on its deferred tax assets.

As of January 31, 2020, the Company determined that it could not sustain a conclusion that it was more likely than not that it would realize any of its deferred tax assets as a result of historical losses, the difficulty of forecasting future taxable income, and other factors.

Given the weight of objectively verifiable historical losses from the Company's operations, it has recorded a full valuation allowance on its deferred tax assets.

The Company intends to maintain a full valuation allowance until sufficient positive evidence exists to support its reversal.

As of January 31, 2020 and 2019, the Company recorded valuation allowances of $74.9 and $67.7, respectively.

The Company reduced its deferred tax assets with a corresponding reduction to its valuation allowance resulting from the acquired deferred tax liabilities of both Red Bone and Tecton.

The Company believes it is necessary to see further positive evidence, such as sustained achievement of profits, before these valuation allowances can be released.

If such positive evidence develops, the Company may release all or a portion of the remaining valuation allowances, but at this point in time cannot determine in which period they would reverse.

The Company will continue to assess the realizability of its deferred tax assets.

Income tax (benefit) expense consists of the following:

(1) The number of shares and weighted average grant date fair value per share were retroactively adjusted for the Company’s 1-for-5 Reverse Stock Split effective July 28, 2020.

NOTE 14 - Income Taxes

Income tax expense (benefit) consisted of the following:

Year Ended January 31,

Total income tax (benefit) expense

The difference between income tax expense (benefit) and the amount computed by applying the statutory U.S.

federal income tax rate (21% for the years ended January 31, 2020 and 2019 and 33.8% for the year ended January 31, 2018) to the pre‑tax (loss) earnings consists of the following:

Federal $ — $ —

State 0.5 0.4

Total current income tax expense 0.5 0.4

Federal — ( 8.0 )

State ( 0.1 ) ( 0.9 )

Total deferred income tax expense (benefit) ( 0.1 ) ( 8.9 )

Total income tax expense (benefit) $ 0.4 $ ( 8.5 )

Year Ended January 31,

Statutory federal income tax (benefit) expense

State income taxes, net of federal benefit

Income tax provision computed at the statutory federal rate $ ( 69.7 ) $ ( 22.0 )

State income taxes, net of federal tax benefit ( 12.0 ) ( 1.8 )

Change in valuation allowance 71.2 7.2

Non-taxable/non-deductible items 0.1 0.1

Stock compensation

Non-deductible Spin-Off costs

Meals & entertainment

Stock based compensation 4.8 0.1

Non-deductible meals and entertainment 0.5 0.9

Officer compensation 1.6 2.9

Tax credits — ( 0.2 )

Goodwill impairment 3.5 3.9

Acquisition costs 0.4 0.4

Change in tax rate

Income tax benefit was $8.5 for the year ended January 31, 2020, as compared to $0.6 of income tax expense in the prior year period, reflecting the effective tax rate of approximately 8.1% resulting primarily from the benefit recorded in the fourth quarter of Fiscal 2019.

The income tax benefit relates to the reduction of the valuation allowance relative to acquired Red Bone and Tecton’s deferred tax liabilities via purchase accounting of approximately $8.9.

The benefit is partially offset by current state tax expense of $0.4.

Aside from a negligible amount of state and local taxes, there was no income tax expense in the prior year due to the fact that the Company had established a full valuation allowance against its net deferred tax asset.

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

January 31, 2020

January 31, 2019

Total income tax expense (benefit) $ 0.4 $ ( 8.5 )

Income tax expense was $ 0.4 for the year ended January 31, 2021, relating to the Texas franchise tax, which reflects an effective tax rate of approximately ( 0.11 )%.

The Company did not recognize a tax benefit on its year-to-date losses due to the full valuation allowance recorded against its net deferred tax assets.

The prior year income tax benefit of $ 8.5 relates to the reduction of the valuation allowance relative to acquired Red Bone and Tecton’s deferred tax liabilities via purchase accounting of approximately $ 8.9 , which was partially offset by state tax expense of $ 0.4 .

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

Year Ended January 31, 2021 Year Ended January 31, 2020

Deferred tax assets:

4 unchanged sentences

Interest expense limitation — 8.7

Deferred tax liabilities:

$ 262.1 $ 131.1

Deferred tax liability:

Bargain purchase gain ( 9.7 ) —

Other ( 1.2 ) —

Depreciation ( 17.6 ) ( 56.2 )

( 28.5 ) ( 56.2 )

Net deferred tax asset before valuation allowance $ 233.6 $ 74.9

1 unchanged sentence

Net deferred tax asset $ 0.1 $ —

Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.

The need for a valuation allowance can be affected by changes to tax laws, changes to statutory tax rates and changes to future taxable income estimates.

The Company's cumulative loss position was significant negative evidence in assessing the need for a valuation allowance on its deferred tax assets.

As of January 31, 2021, the Company determined that it could not sustain a conclusion that it was more likely than not that it would realize any of its deferred tax assets as a result of historical losses, the difficulty of forecasting future taxable income, and other factors.

Given the weight of objectively verifiable historical losses from the Company's operations, it has recorded a full valuation allowance on its deferred tax assets, exclusive of $ 0.1 relating to the Texas franchise tax to which the Company expects to fully realize.

The Company intends to maintain a full valuation allowance until sufficient positive evidence exists to support its reversal.

As of January 31, 2021 and 2020, the Company recorded valuation allowances of $( 233.5 ) and $( 74.9 ), respectively.

The change in the valuation allowance from January 31, 2020, was an increase of $ 158.6 which is comprised of $ 71.2 current year activity and $ 87.4 from QES.

The Company had an ownership change during the year.

Internal Revenue Code (IRC) Section 382 provides an annual limitation with respect to the ability of a corporation to utilize its tax attributes, as well as certain built-in-losses, against future U.S.

taxable income in the event of a change in ownership.

The Company's annual limitation of tax-effected federal net operating loss utilization under Section 382, is approximately $ 0.1 .

As of January 31, 2021, the Company had tax-effected U.S.

federal net operating loss carryforwards of $ 81.8 , which includes $ 70.0 of net operating losses subject to an IRC Section 382 limitation, exclusive of QES pre-merger net operating losses.

The Company also had tax-effected state net operating loss carryforwards of $ 11.3 as of January 31, 2021, which begin to expire for tax years ending in 2024.

As of January 31, 2020, the Company had $ 33.5 of tax-effected U.S.

federal net operating losses and $ 2.9 of tax-effected state net operating losses.

In addition, on July 28, 2020, the Company completed the all stock merger with QES, in which QES became a wholly owned subsidiary of the Company, triggering an ownership change under IRC Section 382.

On the merger date, QES estimated a tax-effected $ 35.3 federal net operating loss carryforward.

The ownership change results in an annual limitation of tax-effected federal net operating loss utilization of approximately $ 0.1 under Section 382.

The Company has recorded a valuation allowance on the net operating loss balance as it believes that it is more likely than not that the deferred tax asset will not be realized.

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based not only on the technical merits of the tax position based on tax law, but also the past administrative practices and precedents of the taxing authority.

The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.

The Company had no unrecognized tax benefits for years ended January 31, 2021 and 2020.

The Company is subject to taxation in the United States and various states.

Tax years that remain subject to examinations by major tax jurisdictions are generally open for tax years ending in 2019 and after.

On December 22, 2017, President Trump signed into law the legislation generally known as the Tax Cut and Jobs Act of 2017.

The tax law includes significant changes to the U.S.

corporate tax systems including a rate reduction from 35% to 21% beginning in January of 2018.

In accordance with ASC 740, “Income Taxes,”

the impact of a change in tax law is recorded in the period of enactment.

For the year ended January 31, 2018, the Company recorded a material, non-cash, change in its net deferred income tax balances of approximately $106.9 million related to the tax rate change.

SEGMENT REPORTING

In response to the COVID-19 pandemic, many governments have enacted or are contemplating measures to provide aid and economic stimulus.

These measures may include deferring the due dates of tax payments or other changes to their income and non-income-based tax laws.

The Coronavirus Aid, Relief, and Economic Security Act, which was enacted on March 27, 2020 in the United States, includes measures to assist companies, including temporary changes to income and non-income-based tax laws.

The Company has deferred the employer portion of FICA tax payments of $ 3.8 through December 31, 2020.

This deferral is included on the consolidated balance sheet.

Accrued and other non-current liabilities each have a balance of $ 1.9 .

These payments are due in two installments:

half on December 31, 2021;

and half on December 31, 2022.

The Company continues to monitor additional guidance issued by the U.S.

Treasury Department, the Internal Revenue Service and others.

NOTE 15 - Segment Reporting

The Company is organized on a geographic basis.

The Company’s reportable segments which are also its operating segments, are comprised of the Southwest (the Permian Basin and the Eagle Ford), the Rocky Mountains (the Bakken, Williston, DJ, Uinta, Powder River, Piceance and Niobrara basins) and the Northeast/Mid-Con (the Marcellus and Utica as well as the Mid‑Continent STACK and SCOOP and Haynesville).

The segments regularly report their results of operations and make requests for capital expenditures and acquisition funding to the Company’s chief operational decision‑making group (“CODM”).

This group is comprised of the Chairman and Chief Executive Officer and the Senior Vice President and Chief Financial Officer.

The Company’s reportable segments, which are also its operating segments, are comprised of the Southwest Region (the Permian Basin and the Eagle Ford Shale), the Rocky Mountains Region (the Bakken, Williston, DJ, Uinta, Powder River, Piceance and Niobrara basins) and the Northeast/Mid-Con Region (the Marcellus and Utica Shale as well as the Mid-Continent STACK and SCOOP and Haynesville Shale).

The segments regularly report their results of operations and make requests

for capital expenditures and acquisition funding to the CODM.

As a result, the CODM has determined the Company has three reportable segments.

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

Year Ended January 31, 2020

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

January 31, 2021 January 31, 2020

Southwest $ 83.6 $ 177.9

Rocky Mountains 99.3 216.4

Northeast/Mid-Con 93.9 149.7

Total revenues 276.8 544.0

Operating (loss) earnings (1)(2)

Total assets (1)

Capital expenditures (1)

Depreciation and amortization

Year Ended January 31, 2019

Rocky Mountains

Northeast/Mid-Con

Operating earnings (1)(3)

Total assets (1)

Capital expenditures (1)

Depreciation and amortization

Year Ended January 31, 2018

Southwest ( 120.0 ) ( 37.4 )

Rocky Mountains ( 43.4 ) 32.7

Northeast/Mid-Con ( 116.0 ) ( 16.3 )

Operating loss (1)(4)

Total assets (1)

Capital expenditures (1)

Depreciation and amortization

Administrative-level assets, capital expenditures and depreciation and amortization have been allocated to the above segments based on each segment’s pro rata share of the respective consolidated financial statement line item.

Operating expenses have been allocated to the above segments based on each segment’s pro rata share of revenues.

For the year ended January 31, 2020, operating (loss) earnings includes a goodwill impairment charge of $47.0, of which $22.4 was attributable to the Southwest segment and $24.6 was attributable to the Northeast/Mid-Con segment.

For the year ended January 31, 2019, cost of sales and SG&A expense include $0.4 and $30.2, respectively, of costs primarily associated with the completion of the merger of the Aerospace Solutions business of KLX Inc.

For the year ended January 31, 2018, cost of sales and SG&A expense include $0.3 and $3.3, respectively, of costs primarily associated with KLX’s strategic alternatives review and also a restructuring of the Eagle Ford region, which was the Company’s only unprofitable region.

Corporate and other (1)

( 62.0 ) ( 54.7 )

Bargain purchase gain 40.3 —

Total operating loss ( 301.1 ) ( 75.7 )

Interest expense, net 30.7 29.2

Loss before income tax $ ( 331.8 ) $ ( 104.9 )

(1) Historically, and through July 31, 2020, the Company ’ s total corporate overhead costs were allocated and reported within each reportable segment.

During the third quarter of 2020, the Company changed the corporate overhead allocation methodology to include corporate costs incurred on behalf of its operating segments, which includes accounts payable, accounts receivable, insurance, audit, supply chain, health, safety and environmental and others.

The remaining unallocated corporate costs are reported as a reconciling item.

The change better reflects the CODM’s philosophy on assessing performance and allocating resources, as well as improve comparability to the Company ’ s peer group.

(2) Operating loss for the year ended January 31, 2021 includes impairment and other charges of $ 213.9 of which $ 92.3 was attributable to the Southwest segment, $ 28.3 was attributable to the Rocky Mountains segment, $ 90.9 was attributable to the Northeast/Mid-Con segment and $ 2.4 was attributable to Corporate and other.

The following table presents revenues by service offering by reportable segment:

Year Ended January 31, 2020

Completion revenues

Intervention revenues

Production revenues

Total revenues

Year Ended January 31, 2019

Completion revenues

Intervention revenues

Production revenues

Total revenues

Year Ended January 31, 2018

Completion revenues

Intervention revenues

Production revenues

January 31, 2021 January 31, 2020

Southwest Rocky

Mountains Northeast

/Mid-Con Total Southwest Rocky

Mountains Northeast

/Mid-Con Total

Drilling $ 19.9 $ 3.2 $ 23.6 $ 46.7 $ 9.5 $ 0.4 $ 34.5 $ 44.4

Completion 44.7 56.7 42.6 144.0 120.7 128.6 44.8 294.1

Production 7.9 25.9 11.6 45.4 20.5 56.3 36.2 113.0

Intervention 11.1 13.5 16.1 40.7 27.2 31.1 34.2 92.5

Total revenues $ 83.6 $ 99.3

SELECTED QUARTERLY DATA ( Unaudited)

Summarized quarterly financial data for the years ended January 31, 2020 and 2019 are as follows:

$ 177.9 $ 216.4

The following table presents total assets by segment:

January 31, 2021 (1)

Cost of sales

Net (loss) earnings (1)

Basic net (loss) earnings per share (2)

Diluted net (loss) earnings per share (2)

For the quarters ended October 31, 2019 and January 31, 2020, net (loss) earnings includes a goodwill impairment charge of $45.8 and $1.2, respectively.

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.

January 31, 2020

Cost of sales

Net earnings (loss)

Basic net earnings (loss) per share (1)

Diluted net earnings (loss) per share (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.

SUBSEQUENT EVENTS

Oil prices declined sharply in March 2020 to levels as low as approximately $21.00 per barrel as a result of multiple factors affecting levels of supply and demand in global oil and gas markets, including the announcement of price reductions and production increases by OPEC members and other oil exporting nations.

Oil and natural gas prices are expected to continue to be volatile as a result of the near term production increases and the ongoing COVID-19 outbreaks and as changes in oil and natural gas inventories, industry demand and global and national economic performance are reported, and the Company cannot predict when prices will improve and stabilize.

The Company is currently unable to estimate the impact of these events on its future financial position and results of operations.

Therefore, the Company can give no assurances that the events will not have a material adverse effect on its financial position or results of operations.

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED JANUARY 31, 2020, 2019 AND 2018

(In millions)

Deducted from Assets:

Allowance for doubtful accounts:

Year ended January 31, 2020

Year ended January 31, 2019

Year ended January 31, 2018

Reserve for inventory:

Year ended January 31, 2020

Year ended January 31, 2019

Year ended January 31, 2018

Deferred tax asset valuation allowance:

Year ended January 31, 2020

Year ended January 31, 2019 (1)

Year ended January 31, 2018

The decrease in the deferred tax asset valuation allowance of $101.3 is related to the surrender of net operating losses and tax credits, which were fully valued to The Boeing Company as per the merger agreement with KLX.

Southwest $ 91.6 $ 153.3

Rocky Mountains 121.1 186.8

Northeast/Mid-Con 98.1 144.2

Total 310.8 484.3

Corporate and other 51.9 139.1

Total assets $ 362.7 $ 623.4

(1) See Note 7 for a discussion of the goodwill and long-lived asset impairment charge recorded during the year ended January 31, 2021.

The following table presents capital expenditures by reportable segment:

January 31, 2021 January 31, 2020

Southwest $ 3.5 $ 18.2

Rocky Mountains 4.2 22.6

Northeast/Mid-Con 2.9 25.3

Corporate and other 1.6 4.7

Total capital expenditures $ 12.2 $ 70.8

NOTE 16 - Net Loss Per Common Share

On July 28, 2020, immediately prior to consummation of the Merger, the Reverse Stock Split Amendment became effective and thereby effectuated the 1-for-5 Reverse Stock Split of the Company’s issued and outstanding common stock.

Basic net loss per common share is computed using the weighted average common shares outstanding during the period.

Diluted net loss per common share is computed by using the weighted average common shares outstanding, including the dilutive effect of restricted shares based on an average share price during the period.

For the year ended January 31, 2021 and 2020, 0.3 and 0.5 million shares of the Company’s common stock, respectively, were excluded from the determination of diluted net loss per common share because their effect would have been anti-dilutive.

The computations of basic and diluted net loss per share for the years ended January 31, 2021 and 2020 are as follows:

January 31, 2021 January 31, 2020

Net loss $ ( 332.2 ) $ ( 96.4 )

(Shares in millions) (2)

Basic weighted average common shares 6.5 4.5

Effect of dilutive securities - dilutive securities — —

Diluted weighted average common shares 6.5 4.5

Basic net loss per common share (1) (2)

$ ( 50.86 ) $ ( 21.61 )

Diluted net loss per common share (1) (2)

$ ( 50.86 ) $ ( 21.61 )

(1) On July 28, 2020, each issued and outstanding share of QES common stock was automatically converted into the right

to receive 0.0969 shares of KLXE common stock, which reflects adjustment for the 1-for-5 Reverse Stock Split of the KLXE common stock effected immediately prior to the consummation of the Merger.

(2) Shares and per share data have been retroactively adjusted to reflect the Company ’ s 1-for-5 Reverse Stock Split effective July 28, 2020.

NOTE 17 - SUBSEQUENT EVENT

Amended and Restated LTIP

On February 12, 2021, the stockholders of KLXE approved the KLX Energy Services Holdings, Inc.

Long-Term Incentive Plan (Amended and Restated as of December 2, 2020) (the “Amended and Restated LTIP”), which, among other things:

(i) increases the total number of shares of Company Common Stock, par value $ 0.01 per share, reserved for issuance under the Amended and Restated LTIP by 632,051 shares.

A description of the Amended and Restated LTIP is included in the Company’s proxy statement, filed with the Securities and Exchange Commission on January 11, 2021.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data