This securities fraud class action lawsuit alleges that KLX, Inc. violated the federal securities law by materially misrepresenting the value of its intangible assets and its goodwill associated with the Company's Energy Services Group, along with its policies and the methodology implemented to calculate goodwill, risk and asset impairment, conduct which ultimately caused significant losses to investors.
What investors are part of this class action? The class period is currently defined as all persons who purchased KLX securities between March 9, 2015 and November 11, 2015, inclusive (the “Class Period”). KLX common stock trades on the NASDAQ under the ticker symbol “KLXI”.
Procedural Status: This lawsuit was filed on January 6, 2016 and is captioned Mordy v. KLX, Inc., et al. It was filed in United States District Court for the Southern District of Florida. Its civil docket number is 9:16-cv-80023-RLR. The lead plaintiff deadline is March 6, 2016.
Defendant KLX was formed by B/E Aerospace in 2014 through the transfer of its consumables management segment to KLX. The spin-off was completed in December of 2014. KLX, through its two operating segments, provides mission critical products and complex logistical solutions to support customers' high value assets. The Aerospace Solutions Group is the world's leading distributor and value added service provider of aerospace fasteners and consumables. The Energy Services Group provides vital services and products to the oil and gas industry on an episodic, 24/7 basis. The plaintiff purchased KLX stock during the specified Class Period.
According to the complaint, on March 6, 2015, KLX filed its annual report with the SEC on Form 10-K and made certain representations regarding the net value of its goodwill, intangible and other assets, showing an increase from that amount reported in 2014. The 10-K also contained information concerning the Company's purported compliance with ASC 350's requirements relating to the timing of impairment tests and the value of the Company's Energy Service Group assets, despite its recognition of the decline in oil prices.
On May 28, 2015, the Company filed a quarterly report in which it represented that the value of goodwill and identifiable intangible assets had decreased, but stated that strategies were in place to prevent the Energy Services Group from suffering additional operating losses. Similar representations were made in a quarterly filing dated August 28, 2015.
August 25, 2015 saw KLX hold a conference call in which the Company's second quarter 2015 results were discussed. Officials acknowledged that the Energy Services Group's financial performance reflected a 60% decrease in the price of oil, onshore drilling rigs and significant cuts by ESG's oil and gas customers. However, the Company continued to represent the value of the good will associated with ESG assets as being worth more than $300 million and that the value of the Company's identifiable tangible assets was over $450 million.
However, on November 12, 2015, KLX announced that the Company expected to recognize a non-cash, after-tax impairment charge of roughly $435 million related to its Energy Services Group. The charge, it was said, would be subject to the finalization of the Company's interim goodwill impairment analysis, and reflects a decline in the imputed valuation of the ESG assets. As a result of this news, the trading price of KLX common stock dropped from a closing price of $39.00 on November 11, 2015 to close at $32.11 on November 12, 2015.
The plaintiff claims that he and other similarly situated members of the proposed class sustained significant financial loss due to the artificial inflation of KLX stock during the Class Period and the precipitous drop in value experienced once previously undisclosed, material facts emerged. The complaint seeks monetary damages, interest, reasonable costs and attorney fees incurred in bringing this action.
This case is in the notice period. When a shareholder brings suit under certain federal securities laws, generally that shareholder must give notice via a press release. This notice starts a sixty-day period of time when any shareholder can investigate the underlying claims of the lawsuit and then elect to bring suit as well. At the end of this sixty-day period, the court appoints one shareholder (or a group of shareholders) to prosecute the securities litigation. We will review the docket in the coming months and update this page as warranted.