2. DIVESTITURES AND BUSINESS COMBINATIONS

Spin-off of KLX Inc.

On June 10, 2014, we announced a plan to spin-off our Consumables Management Segment into a separate publicly traded company. To accomplish the Spin-Off, we formed KLX. On the Distribution Date, we completed the Spin-Off by means of the transfer of our Consumables Management Segment to KLX and the subsequent distribution of all the outstanding KLX common stock to our stockholders. We retained our commercial aircraft and business jet segments. On the Distribution Date, each of our stockholders of record as of the close of business on the Record Date received one share of KLX common stock for every two shares of our common stock held as of the Record Date. The distribution was structured to be tax free to our U.S. stockholders for U.S. federal income tax purposes.

The divested KLX is presented as a discontinued operation on the consolidated statements of earnings and comprehensive income for 2014. The cash flows of KLX are included within our consolidated statements of cash flows through December 16, 2014.

Summary results of operations for KLX through December 16, 2014 were as follows:



	For the Period from
	January 1, 2014 to
	December 16, 2014
Revenues	$	1,611.2

Earnings before income taxes		207.9
Provision for income taxes		161.3
Earnings from discontinued operations, net of income taxes	$	46.6

The results of KLX discontinued operations exclude certain corporate and group allocations which were historically allocated to KLX. These costs include primarily corporate overhead and information systems.

On December 16, 2014, we divested the following assets and liabilities in connection with the Spin-Off:


Assets
Cash and cash equivalents	$	460.0
Accounts receivable		310.8
Inventories		1,303.4
Deferred income taxes		40.2
Other current assets		52.3
Property and equipment		323.1
Goodwill		1,370.4
Identifiable intangible assets		430.7
Other assets		119.1
		4,410.0
Liabilities
Accounts payable		167.1
Accrued liabilities		182.4
Long-term debt		1,200.0
Deferred income taxes		121.1
Other non-current liabilities		112.0
		1,782.6
Net assets divested in the Spin-Off	$	2,627.4

During 2014, the Company completed five energy services acquisitions (the “Energy Services Acquisitions”) for a total purchase price of $513.8. The Energy Services Acquisitions were accounted for as purchases under FASB ASC 805, Business Combinations (“ASC 805”). The assets purchased and liabilities assumed for the Energy Services Acquisitions have been reflected in the amounts divested in connection with the Spin-Off.

We entered into transitional services agreements with KLX prior to the Spin-Off pursuant to which we and KLX are providing various services to each other on an interim transitional basis. Except for certain information technology services, all transition services were completed, pursuant to the underlying agreements, on or before December 31, 2016. On October 18, 2016, the Company was notified by KLX of KLX’s election to extend certain information technology services for up to an additional 12 months, terminating no later than December 31, 2017. We recorded (and for information technology services, will continue to record) billings under these transition services agreements as a reduction of the costs of the respective service in the applicable expense category in the Consolidated Statement of Earnings and Comprehensive Income. The informational technology transitional support will enable KLX to establish its stand-alone processes for informational technology activities that were previously provided by us and does not constitute significant continuing support of KLX’s operations.

Under the Tax Sharing and Indemnification Agreement between the Company and KLX, we generally assume liability for all federal and state income taxes for all tax periods ending on or prior to December 31, 2014. We assume the liability for all federal and state income taxes of KLX’s U.S. operations through the Distribution Date. KLX assumes all other federal taxes, foreign income tax/non-income taxes and state/local non-income taxes related to their business for all periods and we assume all other federal taxes, foreign income tax/non-income taxes and state/local non-income taxes related to our business for all periods. Additional taxes incurred related to the internal restructuring to separate the businesses to complete the Spin-Off shall be shared equally between the Company and KLX. Taxes incurred related to certain international tax initiatives for the KLX business shall be assumed by KLX subject to the calculation provisions of the Tax Sharing and Indemnification Agreement. In addition, we transferred to KLX all of its deferred tax assets and liabilities as of December 16, 2014. In connection with the Transaction, we entered into a first amendment to the Tax Sharing and Indemnification Agreement. The amendment to the Tax Sharing and Indemnification Agreement modifies a requirement under the Tax Sharing and Indemnification Agreement relating to our ability to enter into certain transactions after the Spin-Off. In satisfaction of this modified requirement, we provided KLX with an opinion from our tax advisor, Shearman & Sterling LLP, relating to the impact of the Transaction on certain tax consequences of the Spin-Off. In addition, under the amendment to the Tax Sharing and Indmenification Agreement, KLX delivered a representation letter to Shearman & Sterling LLP for purposes of such opinion. The Shearman & Sterling LLP opinion relies on certain representations, assumptions, undertakings and covenants, from us, KLX and Rockwell Collins, and the conclusion in the opinion may be adversely affected if one or more of the representations and assumptions is incorrect or one or more of the undertakings and covenants is not complied with.

In connection with the Spin-Off, we have adjusted our employee stock compensation awards and separated our employee medical and dental benefit plans.

Sales and cost of sales to KLX for the years ended December 31, 2016 and 2015 were immaterial to the consolidated financial statements. There were no material balances due to or due from KLX as of December 31, 2016 or December 31, 2015. Total purchases from KLX for the years ended December 31, 2016 and 2015 were approximately $23.4 and $18.3, respectively.

Acquisitions

During the second quarter of 2014, the Company acquired the outstanding shares of the Emteq, Inc. group of companies (“EMTEQ”), a domestic provider of aircraft interior and exterior lighting systems, as well as aircraft cabin management and power systems for a purchase price of $253.2, net of cash acquired. The Company also acquired the outstanding shares of the F+E Fischer + Entwicklungen GmbH & Co. KG group of companies (“Fischer”), a leading Europe-based manufacturer of seating products for civilian helicopters for a purchase price of $211.7, net of cash acquired. The Company also acquired the outstanding shares of Wessex Advanced Switching Products Ltd. (“WASP”), which is engaged in the production of lighting, control units and switches and is based in Europe, for a purchase price of $63.0, net of cash acquired. These acquisitions are included in the business jet segment and collectively referred to as the “2014 Acquisitions”.

The excess of the purchase price over the fair value of the identifiable assets acquired in the 2014 Acquisitions approximated $530.5, of which $137.0 was allocated to identified intangible assets, consisting of customer contracts and relationships, developed technologies, trade names and covenants not to compete, and $393.5 was allocated to goodwill. The useful life assigned to the customer contracts and relationships and developed technologies is 15 to 20 years, the useful life assigned to trade names is five to 20 years, and the covenants not to compete are being amortized over their contractual periods of three to five years.

The 2014 Acquisitions were accounted for as purchases under FASB ASC 805, Business Combinations (“ASC 805”). The assets purchased and liabilities assumed for the 2014 Acquisitions have been reflected in the accompanying consolidated balance sheets as of December 31, 2016 and December 31, 2015. The results of operations for the 2014 Acquisitions are included in the accompanying consolidated statements of earnings and comprehensive income from their respective dates of acquisition. The Company’s 2014 consolidated revenues and earnings before income taxes include approximately $82.6 and $11.4, respectively, from the 2014 acquisitions.

The Company completed its evaluation and allocation of the purchase price of the 2014 Acquisitions in 2015 resulting in adjustments to increase identifiable intangible assets and deferred income tax liabilities of $32.5 and $10.5, respectively, and to decrease goodwill by $19.1. These adjustments were applied retrospectively to the acquisition date. Accordingly, the Company's consolidated balance sheet as of December 31, 2014 has been adjusted to reflect the effects of the measurement period adjustments. There was no material impact of the measurement period adjustments on the retrospective period statement of earnings and comprehensive income.

The following table summarizes the fair values of assets acquired and liabilities assumed in the 2014 Acquisitions in accordance with ASC 805:


	EMTEQ		Fischer			WASP
Accounts receivable-trade	$	12.5	$	7.1	$	4.9
Inventories		12.3		4.6		3.3
Other current and non-current assets		2.5		0.9		0.3
Property and equipment		6.5		5.9		1.2
Goodwill		194.0		155.6		43.9
Identified intangibles		45.7		73.7		17.6
Accounts payable		(4.2)		(1.3)		(2.3)
Other current and non-current liabilities		(16.1)		(34.8)		(5.9)
Total purchase price	$	253.2	$	211.7	$	63.0

The majority of the goodwill and intangible assets related to the 2014 Acquisitions are not expected to be deductible for tax purposes. The primary items that generated the goodwill recognized were the premiums paid by the Company for the future earnings potential of the 2014 Acquisitions and the value of its assembled workforce that do not qualify for separate recognition.

Consolidated unaudited pro forma revenues, net earnings and diluted net earnings per share giving effect to the 2014 Acquisitions as if they had occurred on January 1, 2013 were $2,668.0, $77.4, and $0.74, and $2,372.5, $120.9 and $1.16, for the years ended December 31, 2014 and 2013, respectively.