Note 3. QES – Fiscal Year Alignment
The historical unaudited condensed consolidated statement of loss of QES for the month ended January 31, 2020 are being deducted from the fiscal year results and the historical unaudited condensed consolidated statement of loss of QES for the period July 1, 2020 through July 28, 2020 are being added to align with KLX Energy Services fiscal year of February 1, 2020 through January 31, 2021.
Note 4. Reclassifications
Income Statement Reclassifications
Amounts of $86.6 million and $17.8 million were reclassified from QES’s direct operating costs and depreciation and amortization, respectively, to cost of sales. The remaining $0.6 million of depreciation and amortization, related to SG&A depreciation, amortization of intangible assets and amortization of leases, was reclassified to selling, general and administrative expense. General and administrative expenses of $28.6 million and $0.9 million of gain on asset sales were reclassified to selling, general and administrative expenses. The reclassifications for the fiscal year ended January 31, 2021 were made to conform to KLXE’s presentation.
Note 5. Non-Recurring Items
For the year ended January 31, 2021
| | a. | Includes accelerated stock-based compensation expense cost of $19.5 million, severance of $6.0 million and deal costs of $8.8 million. These were all one-time, non-recurring costs associated with the Merger. |
| | b. | Includes a Bargain Purchase Gain which was a one-time, non-recurring gain associated with the Merger. |
| | c. | Includes non-recurring interest expense related to the QES ABL Facility, which was paid off as part of the merger agreement. |
Note 6. QES Merger
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 million, 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 million bargain purchase gain being recorded for the year ended January 31, 2021. In connection with the closing of the Merger, $9.7 million 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 million. Based on the service period related to the period prior to the acquisition date, $0.4 million was allocated to the purchase price, and $1.6 million relating to post-acquisition services and 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, from the respective date of acquisition, are included in the KLXE financial data for the period ended January 31, 2021 in the accompanying unaudited pro forma condensed combined statement of loss.
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:
