C&J Energy Services, Ltd.
Annual Report 2017

Plain-text annual report

Morningstar® Document Research℠ FORM 10-KC&J Energy Services, Inc. - CJFiled: March 01, 2018 (period: December 31, 2017)Annual report with a comprehensive overview of the companyThe information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The userassumes all risks for any damages or losses arising from any use of this information, except to the extent such damages or losses cannot belimited or excluded by applicable law. Past financial performance is no guarantee of future results. UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549 FORM 10-K (Mark One)ýANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE FISCAL YEAR ENDED DECEMBER 31, 2017OR¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE TRANSITION PERIOD FROM TO Commission File Number: 000-55404 C&J Energy Services, Inc.(Exact name of registrant as specified in its charter) Delaware 81-4808566(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification No.) 3990 Rogerdale Rd.Houston, Texas 77042(Address of principal executive offices)(713) 325-6000(Registrant’s telephone number, including area code)Securities registered pursuant to Section 12(b) of the Act:Title of each class Name of exchange on which registered Common stock, Par value $0.01 per share The New York Stock ExchangeSecurities registered pursuant to Section 12(g) of the Act: Warrants, each exercisable to purchase one share of Common Stock, $0.01 par value per share Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No ¨Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No ýIndicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit andpost such files). Yes ý No ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein and will not be contained, tothe best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ýIndicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of“large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange ActLarge accelerated filer ý Accelerated filer ¨ Non-accelerated filer ¨ (do not check if a smaller reporting company) Smaller reporting company ¨ Emerging growth company ¨ Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No ýSource: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The aggregate market value of the registrant’s common stock held by non-affiliates on June 30, 2017 (the last business day of the registrant’s most recently completed secondfiscal quarter) based upon the closing price on the New York Stock Exchange on that date was approximately $1.9 billion.The number of shares of the registrant’s common stock, par value $0.01 per share, outstanding at February 27, 2018, was 68,465,637.DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant’s definitive proxy statement for its 2018 Annual Meeting of Stockholders, which will be filed with the United States Securities and ExchangeCommission within 120 days of December 31, 2017, are incorporated by reference into Part III of this Annual Report on Form 10-K. Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TABLE OF CONTENTS PagePART I Item 1. Business 3 Item 1A. Risk Factors 18 Item 1B. Unresolved Staff Comments 31 Item 2. Properties 31 Item 3. Legal Proceedings 32 Item 4. Mine Safety Disclosures 33 PART II Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities 34 Item 6. Selected Financial Data 36 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 37 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 64 Item 8. Financial Statements and Supplementary Data 65 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 118 Item 9A. Controls and Procedures 118 Item 9B. Other Information 120 PART III Item 10. Directors, Executive Officers and Corporate Governance 121 Item 11. Executive Compensation 121 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters 121 Item 13. Certain Relationships and Related Transactions, and Director Independence 121 Item 14. Principal Accounting Fees and Services 121 PART IV Part 15. Exhibits, Financial Statement Schedules 122 Signatures 125 Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.PART ICAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTSThis Annual Report on Form 10-K (this “Annual Report”) includes certain statements and information that may constitute “forward-lookingstatements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities ExchangeAct of 1934, as amended (the “Exchange Act”). The words “anticipate,” “believe,” “ensure,” “expect,” “if,” “intend,” “plan,” “estimate,” “project,”“forecasts,” “predict,” “outlook,” “will,” “could,” “should,” “potential,” “would,” “may,” “probable,” “likely,” and similar expressions that convey theuncertainty of future events or outcomes, and the negative thereof, are intended to identify forward-looking statements. Forward-looking statements, whichare not generally historical in nature, include those that express a belief, expectation or intention regarding our future activities, plans and goals and ourcurrent expectations with respect to, among other things, the impact of our emergence from bankruptcy on our business and relationships, future sales of orthe availability for future sale of substantial amounts of our common stock, including the exercise of outstanding Warrants, our strategic plan, our businessstrategy and our financial strategy, including our ability to maintain sufficient liquidity.Forward-looking statements are not assurances of future performance and actual results could differ materially from our historical experience andour present expectations or projections. These forward-looking statements are based on management’s current expectations and beliefs, forecasts for ourexisting operations, experience, expectations and perception of historical trends, current conditions, anticipated future developments and their effect on us,and other factors believed to be appropriate. Although management believes the expectations and assumptions reflected in these forward-looking statementsare reasonable as and when made, no assurance can be given that these assumptions are accurate or that any of these expectations will be achieved (in full orat all). Our forward-looking statements involve significant risks, contingencies and uncertainties, most of which are difficult to predict and many of which arebeyond our control. Known material factors that could cause actual results to differ materially from those in the forward-looking statements include, but arenot limited to, risks associated with the following:•a decline in demand for our services, including due to declining commodity prices, overcapacity and other competitive factors affectingour industry;•the cyclical nature and volatility of the oil and gas industry, which impacts the level of drilling, completion and production activity andspending patterns by E&P companies;•a decline in, or substantial volatility of, crude oil and gas commodity prices, which generally leads to decreased spending by ourcustomers and negatively impacts drilling, completion and production activity;•pressure on pricing for our core services, including due to competition and industry and/or economic conditions, which may impact,among other things, our ability to implement price increases or maintain pricing on our core services;•the loss of, or interruption or delay in operations by, one or more of our significant customers;•the failure by one or more of our significant customers to pay amounts when due, or at all;•changes in customer requirements in the markets we serve;•costs, delays, regulatory compliance requirements and other difficulties in executing our long-term growth strategy;•the effects of recent or future acquisitions on our business, including our ability to successfully integrate our operations and the costsincurred in doing so;•business growth outpacing the capabilities of our infrastructure;•adverse weather conditions in oil or gas producing regions;•the effect of environmental and other governmental regulations on our operations, including the risk that future changes in the regulationof hydraulic fracturing could reduce or eliminate demand for our hydraulic fracturing services;1Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.•the incurrence of significant costs and liabilities resulting from litigation;•the incurrence of significant costs and liabilities or severe restrictions on our operations or the inability to perform certain operationsresulting from a failure to comply, or our compliance with, new or existing regulations;•the loss of, or inability to attract, key management and other competent personnel;•a shortage of qualified workers;•the loss of, or interruption or delay in operations by, one or more of our key suppliers;•operating hazards inherent in our industry, including the possibility of accidents resulting in personal injury or death, property damage orenvironmental damage;•accidental damage to or malfunction of equipment;•our ability to maintain sufficient liquidity and/or obtain adequate financing to allow us to execute our business plan; and•our ability to comply with covenants under our amended credit facility.For additional information regarding known material factors that could affect our operating results and performance, please read (1) “RiskFactors” in Part I, Item 1A and (2) “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this AnnualReport. Should one or more of these known material risks occur, or should the underlying assumptions prove incorrect, our actual results, performance,achievements or plans could differ materially from those expressed or implied in any forward-looking statement.Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake noobligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events orotherwise, except as required by law.2Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Item 1.Introduction and Corporate OverviewC&J Energy Services, Inc., a Delaware corporation (the “Successor” and together with its consolidated subsidiaries for periods subsequent to thePlan Effective Date (as defined below), “C&J” the “Company,” “we,” “us” or “our”) is a leading provider of well construction, well completion, well supportand other complementary oilfield services to oil and gas exploration and production (“E&P”) companies throughout the continental United States. We offer acomprehensive integrated suite of services throughout the life cycle of the well, including hydraulic fracturing, cased-hole wireline and pumping, cementing,coiled tubing, directional drilling, rig services, fluids management, artificial lift and other completion and specialty well site support services. We areheadquartered in Houston, Texas and operate across all active onshore basins in the continental United States.We were founded in Texas in 1997 as a partnership and converted to a Delaware corporation (“Old C&J”) in connection with our initial publicoffering, which was completed in 2011 with a listing on the New York Stock Exchange (“NYSE”) under the symbol “CJES.” In 2015, Old C&J combinedwith the completion and production services business (the “C&P Business”) of Nabors Industries Ltd. (“Nabors”) in a transformative transaction (the “NaborsMerger”) that nearly tripled the Company’s size, significantly expanding the Company’s Completion Services business and adding the Well SupportServices division to the Company’s service offering. Upon the closing of the Nabors Merger, Old C&J became a subsidiary of C&J Energy Services Ltd., aBermuda corporation (the “Predecessor” and together with its consolidated subsidiaries for periods prior to the Plan Effective Date, the “PredecessorCompanies” or the “Company”), and shares of common stock of Old C&J were converted into common shares of the Predecessor on a 1-for-1 basis.Due to a severe industry downturn, on July 20, 2016, the Predecessor Companies voluntarily filed petitions for reorganization seeking reliefunder the provisions of Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas, HoustonDivision (the “Bankruptcy Court”), with ancillary recognition proceedings filed in Canada and Bermuda (collectively, the “Chapter 11 Proceeding”).On December 16, 2016, the Bankruptcy Court entered an order confirming the plan of reorganization (the “Restructuring Plan”) of thePredecessor Companies. On January 6, 2017 (the “Plan Effective Date”), the Predecessor Companies substantially consummated the Restructuring Plan andemerged from the Chapter 11 Proceeding. As part of the transactions undertaken pursuant to the Restructuring Plan, effective on the Plan Effective Date, theSuccessor was formed, the Predecessor’s equity was canceled, the Predecessor transferred all of its assets and operations to the Successor and the Predecessorwas subsequently dissolved. For more information regarding the Chapter 11 Proceeding, see Note 2 - Chapter 11 Proceeding and Emergence in Part II, Item 8“Financial Statements and Supplementary Data” of this Annual Report on Form 10-K (this “Annual Report”).Upon emergence from the Chapter 11 Proceeding, we adopted Fresh Start accounting in accordance with the provisions set forth in AccountingStandards Codification (“ASC”) 852 - Reorganizations. For more information regarding the adoption of Fresh Start accounting, see Note 3 - Fresh StartAccounting in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report.The Successor is the successor issuer to the Predecessor for purposes of and pursuant to Rule 12g-3 of the Exchange Act. Accordingly, referencesto “C&J,” the “Company,” “we,” “us” or “our” in this Annual Report are to the Successor, together with our consolidated subsidiaries when referring toperiods following the Plan Effective Date, and to the Predecessor Companies when referring to periods prior to the Plan Effective Date.Contemporaneously with the commencement of the Chapter 11 Proceeding, trading in the Predecessor’s common stock was suspended and thePredecessor’s common stock was ultimately delisted from the NYSE. On April 12, 2017, the Successor completed an underwritten public offering of commonstock and its common stock began trading again on the NYSE under the symbol “CJ.”We file annual, quarterly and current reports and other documents with the U.S. Securities and Exchange Commission (“SEC”) under theExchange Act. You may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549.You may obtain information on the operations of the Public Reference Room by calling the SEC at (800) SEC-0330. In addition, the SEC maintains a websiteat www.sec.gov that contains reports and other information regarding issuers that file electronically with the SEC.3Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Our principal executive offices are located at 3990 Rogerdale Road, Houston, Texas 77042 and our main telephone number at that address is(713) 325-6000. Our website is available at www.cjenergy.com. We make available free of charge through our website all reports filed with or furnished to theSEC pursuant to Section 13(a) or 15(d) of the Exchange Act, including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reportson Form 8-K, Proxy Statement on Schedule 14A and all amendments to those reports, as soon as reasonably practicable after such material is electronicallyfiled with or furnished to the SEC. Information contained on or available through our website is not a part of or incorporated into this Annual Report or anyother report that we may file with or furnish to the SEC.Business OverviewDemand for our services, and therefore our operating and financial performance, is heavily influenced by drilling, completion and productionactivity by our customers, which is significantly impacted by commodity prices. Beginning in 2011 through mid-2015, we significantly invested in a numberof strategic initiatives to strengthen, expand and diversify our business, including through service line diversification, vertical integration and technologicaladvancement (“R&T”). During that time, we rapidly grew our business both organically and through multiple acquisitions, including the Nabors Merger.During 2016 and into the first quarter of 2017, we divested several of our small, non-core businesses, including our specialty chemical business,equipment manufacturing and repair business, and our international coiled tubing operations in the Middle East. These divestitures, as well as the sale of ourCanadian Well Support Services business in November 2017 discussed below, reflect a refocusing of our growth strategy in line with our goal of being theleading U.S. provider in all of our core services. Additionally, in furtherance of our strategy, we have continued to rightsize our U.S. Well Support Servicessegment, while we accelerated the growth of our cementing services with the O-Tex Transaction, described below.We emerged from the Chapter 11 Proceeding as the market was beginning to recover. During 2017, we focused on the continuous improvementof our organization, including several ongoing initiatives purposed to optimize our business processes and gain greater efficiency over time. We also took adeliberate approach to increasing our core capabilities, adding capacity, and growing our core service lines.The O-Tex TransactionOn October 25, 2017, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among Caymus Merger Sub, Inc., aDelaware corporation and wholly owned direct subsidiary of the Company (“Merger Sub”), O-Tex Holdings, Inc., a Texas corporation (“O-Tex”), thestockholders of O-Tex (the “Stockholders”), and O-Tex Sellers Representative LLC, a Delaware limited liability company, in its capacity as representative ofthe Stockholders (the “Stockholders’ Representative”), providing for the merger of Merger Sub with and into O-Tex (the “Merger”), with O-Tex surviving theMerger, and immediately thereafter, the merger of O-Tex with and into another wholly owned direct subsidiary of the Company (together with the Merger andthe other transactions contemplated by the Merger Agreement, the “O-Tex Transaction”).On November 30, 2017 (the “Closing Date”), each holder of (i) outstanding common stock, par value $0.01 per share, of O-Tex (the “O-Tex Common Stock”), (ii) Series A Preferred Stock, par value $0.01 per share, of O-Tex (the “Series A Preferred Stock”) and (iii) Series B Preferred Stock, parvalue $0.01 per share, of O-Tex (together with the Series A Preferred Stock and the O-Tex Common Stock, the “O-Tex Shares”) had its O-Tex Shares(excluding any O-Tex Shares held in the treasury of O-Tex or held by the Company or Merger Sub immediately prior to the effective time of the Merger)converted into the right to receive such Stockholders’ pro rata portion of 4,420,000 shares of common stock, par value $0.01 per share, of the Company (the“Specified C&J Common Stock”). In addition, we paid to the Stockholders’ Representative, and each Stockholder became entitled to receive a pro rataportion of, $90.8 million in cash. The cash portion of the merger consideration was determined based on $132.5 million of base cash merger consideration,which was subject to closing adjustments as provided in the Merger Agreement (including reductions for the repayment of O-Tex’s indebtedness andtransaction expenses) and may be further adjusted post-closing as provided in the Merger Agreement (including reductions for the payment of certainamounts into escrow for post-closing working capital adjustments and the satisfaction of post-closing indemnification obligations).The foregoing description of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the MergerAgreement, which was filed as Exhibit 2.1 to our Current Report on Form 8-K filed with the SEC on October 26, 2017, and is incorporated herein byreference.Canadian Well Support Service Divestiture4Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.On October 30, 2017, we entered into an Asset Purchase Agreement (the “Purchase Agreement”) with CWC Energy Services Corp., an Albertacorporation (“CWC”), and C&J Energy Production Services-Canada Ltd., an Alberta corporation and an indirect wholly owned subsidiary of the Company(“C&J Canada”), whereby CWC, among other things, acquired the assets of C&J Canada included in the Purchased Business (as defined in the PurchaseAgreement) for total consideration of CDN $37.5 million in cash (the “Canadian Divestiture”).With the closing of the Canadian Divestiture on November 5, 2017, we have completely exited the Well Support Services business in WesternCanada, and we are no longer providing any oilfield services in Canada.Our Reportable Business Segments and StrategyAs of December 31, 2017, our reportable business segments were:•Completion Services, which consists of the following businesses and service lines: (1) fracturing; (2) cased-hole wireline and pumpingservices; (3) well construction & intervention services, which includes cementing, coiled tubing and directional drilling services; and (4)completion support services, which includes our R&T department and data control instruments business.•Well Support Services, which consists of the following businesses and service lines: (1) rig services; (2) fluids management services; and (3)special services, which includes plug and abandonment, artificial lift applications and other specialty well site services.Our Other Services segment consisted of smaller, non-core business lines that have since been divested, including our specialty chemicalbusiness, equipment manufacturing and repair business and our international coiled tubing operations in the Middle East. In line with the discontinuance ofthese small, ancillary service lines and divisions, subsequent to the year ended December 31, 2016, we are now disclosing two reportable segments, andfinancial information for the Other Services reportable segment is only presented for the corresponding prior year period.Each reportable business segment is described in more detail below; for additional financial information about each of our reportable businesssegments, including revenue from external customers and total assets by reportable business segment, see Note 13 - Segment Information in Part II, Item 8“Financial Statements and Supplementary Data” of this Annual Report. Our results of operations in our core service lines are driven primarily by fourinterrelated, fluctuating variables: (1) the drilling, completion and production activities of our customers, which is primarily driven by oil and natural gasprices and directly affects the demand for our services; (2) the price we are able to charge for our services, which is primarily driven by the level of demand forour services and the supply of equipment capacity in the market; (3) the cost of products and labor involved in providing our services, and our ability to passthose costs on to our customers; and (4) our activity, or “utilization” levels, and service performance.Management evaluates the performance of our reportable segments primarily based on Adjusted EBITDA because management believesAdjusted EBITDA provides important information about the activity and profitability of our lines of business within each reportable business segment andaids us in analytical comparisons for purposes of, among other things, efficiently allocating our assets and resources. Our management team also monitorsasset utilization, among other factors, for purposes of assessing our overall activity levels and customer demand. For our Completion Services operations, wemeasure our asset utilization levels primarily by the total number of days that our asset base works on a monthly basis, based on the available working daysper month, which excludes scheduled maintenance days. We generally consider an asset to be working such days that it is at or in transit to a job location. Inour Well Support Services operations, we measure activity levels primarily by the number of hours our assets work on a monthly basis, based on the availableworking days per month. However, given the variance in revenue and profitability from job to job, depending on the type of service to be performed and theequipment, personnel and consumables required for the job, as well as competitive factors and market conditions in the region in which the services areperformed, undue reliance should not be placed on asset utilization as an indicator of our financial or operating performance. For additional informationabout Adjusted EBITDA for each of our reportable business segments, please see Note 13 - Segment Information in Part II, Item 8 "Financial Statements andSupplementary Data" of this Annual Report.Our operating strategy is focused on maintaining high asset utilization levels to maximize revenue generation while controlling costs to gain acompetitive advantage and drive returns. We believe that the quality and efficiency of our service execution and our alignment with customers whorecognize the value that we provide through efficiency gains are central to our efforts to support utilization and grow our business. Given the volatile andcyclical nature of activity drivers in the U.S. onshore oilfield services industry, coupled with the varying prices we are able to charge for our services and thecost of providing those5Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.services, among other factors, operating margins can fluctuate widely depending on supply and demand at a given point in the cycle. For additionalinformation about factors impacting our business and results of operations, please see “Industry Trends and Outlook” in Part II, Item 7 “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” in this Annual Report.Completion ServicesThe core services provided through our Completion Services segment are fracturing and cased-hole wireline and pumping services. We utilizeour in-house manufacturing capabilities, including our R&T department and data control instruments business, to offer a technologically advanced andefficiency focused range of completion techniques. The majority of revenue for this segment is generated by our fracturing business.Fracturing. With a fleet of approximately 900,000 hydraulic horsepower (“HHP”) we are capable of handling the most technically demandingwell completions in conventional and unconventional high-pressure formations. We leverage our R&T capabilities to provide customers with engineered fracdesigns, refracturing and other reservoir stimulation services that help regain production and increase well recovery. We also can provide our services usingsmaller frac fleets in response to customer demand for vertical fracs and restimulation services.Casedhole Wireline and Pumping. Through our cased-hole wireline and pumping services business, we are one of the leading providers ofperforating, pumpdown, pipe recovery, pressure pumping, and wellsite make-up and pressure testing services with a fleet of 124 wireline trucks and 68pumpdown units. We are highly experienced in safely servicing deep, high-pressure, high-temperature wells in some of the most active onshore basins in theUnited States and provide premium perforating services for both wireline and tubing-conveyed applications. Our in-house manufacturing capabilitiesthrough our R&T department allow us to manage costs and lead times with regard to hardware and perforating charges, providing us with a competitiveadvantage and enabling higher returns.Cementing. Following the closing of the O-Tex Transaction, we are one of the largest providers of specialty cementing services in the UnitedStates, with 117 units. Our operations are supported by eight full-service laboratory facilities with advanced capabilities.Coiled Tubing. With a fleet of 44 coiled tubing units, we offer a complete range of coiled tubing services to help customers accomplish a widevariety of goals in their horizontal completion, workover and well maintenance projects. Approximately 70 percent of our coiled tubing fleet consists of largediameter coil, meaning two inches or larger in diameter, which allows us to service wells with longer lateral lengths. Our coiled tubing services allowcustomers to complete projects quickly and safely across a wide spectrum of pressures, without having to shut in their wells.During 2017, we steadily refurbished and redeployed previously stacked equipment, and due to the continued strong near-term outlook, we arecurrently planning to deploy additional refurbished equipment over the course of 2018. Additionally, at any given time, our deployed assets may not beutilized fully or at all, due to, among other things, routine scheduled maintenance and downtime.For the year ended December 31, 2017, revenue from our Completion Services segment was $1.3 billion, representing approximately 76.7% ofour total revenue, with net income of $161.1 million and Adjusted EBITDA of $221.9 million.Well Support ServicesOur Well Support Services segment focuses on post-completion activities at the well site, and includes rig services, such as workover, fluidsmanagement, and special services, including plug and abandonment, artificial lift applications and other specialty well site services. The majority of revenuefor this segment is generated by our rig services business, and we consider our rig services and fluids management businesses to be our core service lineswithin this reportable business segment.Rig Services. As part of our services that help prolong the productive life of an oil or gas well, we operate the third largest fleet in the UnitedStates, consisting of 384 workover and well servicing rigs. These rigs range from 150 to 900 horsepower and are involved in the routine repair andmaintenance of oil and gas wells, re-drilling operations and plug and abandonment operations. Workover services can include deepening or extendingwellbores into new formations by drilling horizontal or lateral wellbores, sealing off depleted production zones and accessing previously bypassedproduction zones, converting former production wells into injection wells for enhanced recovery operations and conducting major subsurface repairs due toequipment failures. Workover services may last from a few days to several weeks, depending on the complexity6Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.of the workover. Maintenance services provided with our rig fleet are generally required throughout the life cycle of an oil or gas well. Examples of thesemaintenance services include routine mechanical repairs to the pumps, tubing and other equipment, removing debris and formation material from wellbores,and pulling rods and other downhole equipment from wellbores to identify and resolve production problems. Maintenance services are generally lesscomplicated than completion and workover related services and require less time to perform. Our rig fleet is also used in the process of permanently shutting-in oil or gas wells that are at the end of their productive lives. These plugging and abandonment services generally require auxiliary equipment in addition toa well servicing rig. The demand for plugging and abandonment services is not significantly impacted by the demand for oil and gas because well operatorsare required by state regulations to plug wells that are no longer productive.Fluids Management. We provide a full range of fluid services, including the storage, transportation and disposal of various fluids used in thedrilling, completion and workover of oil and gas wells utilizing a service fleet of 1,090 fluid trucks and trailers and 3,503 portable tanks. This large fleet oftrucks and trailers and portable tanks enable us to rapidly deploy our equipment across a broad geographic area. Included in our fleet of fluid trucks andtrailers are 73 specialized trucks and trailers that are optimized to transport condensate. We also own 25 private salt water disposal wells. Demand and pricingfor our fluids management services generally correspond to demand for our rig services.We also provide certain other special services, including artificial lift applications and other specialty well site services.For the year ended December 31, 2017, revenue from our Well Support Services segment was $382.2 million, representing approximately 23.3%of our total revenue, with net loss of $19.4 million and Adjusted EBITDA of $9.2 million.Other ServicesOur Other Services segment consisted of smaller, non-core business lines that have since been divested, including our specialty chemicalbusiness, equipment manufacturing and repair business and the Company's international coiled tubing operations in the Middle East. In line with thediscontinuance of these small, ancillary service lines and divisions, subsequent to the year ended December 31, 2016, we are now disclosing two reportablesegments, and financial information for the Other Services reportable segment is only presented for the corresponding prior year period.Other Information About Our BusinessGeographic AreasWe operate in all active onshore basins in the continental United States. During the year ended December 31, 2017, approximately $1.6 billion,or 97.5%, of our consolidated revenue from external customers was derived from the United States, and the majority of our long lived assets were located inthe United States. We also generated approximately $4.3 million, or 0.3% of our 2017 consolidated revenue from our Completions Service operations inCanada and $35.9 million, or 2.2%, of our 2017 consolidated revenue from our Well Support Service operations in Canada and approximately $0.9 million,or less than 0.1%, of our 2017 consolidated revenue from our artificial lift applications business in Ecuador and the Middle East. With the closing of theCanadian Divestiture on November 5, 2017, we have completely exited the Well Support Services business in Western Canada, and we are no longerproviding any oilfield services in Canada.From late 2011 through mid-2016, we worked to establish an operational presence in key countries in the Middle East, and opened offices inDubai, Saudi Arabia and Oman. We were successful in winning a short-term contract to provide coiled tubing services in Saudi Arabia, which we completedin September 2015. However, we were not successful in winning any other work in Saudi Arabia or elsewhere in the region. Given our financial position andthe severe industry downturn, coupled with changes in our executive management team with a resulting shift in short- and long-term growth strategy, in mid-2016 we re-evaluated our business plan with respect to international expansion generally, and the Middle East specifically. We determined that it wasappropriate to significantly scale back our investment in this area to preserve liquidity and focus on the advancement of our core business in the UnitedStates. We are in the process of unwinding our footprint in the region, including selling assets and excess inventory to other operators in the region. The onlybusiness line we are currently offering in the Middle East is our artificial lift systems.SeasonalityOur operations are subject to seasonal factors and our overall financial results reflect the seasonal variations that impact activity in our corebusiness lines. Specifically, we typically have experienced a pause by our customers around the7Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.holiday season in the fourth quarter, which may be compounded as our customers exhaust their annual capital spending budgets towards year end.Additionally, our operations are directly affected by weather conditions. During the winter months our customers may delay operations or we may not be ableto operate or move our equipment between locations during periods of heavy snow, ice or rain, and during the spring some areas impose transportationrestrictions due to the muddy conditions caused by the spring thaws. During the summer months, our operations may be impacted by tropical weathersystems.Sales and MarketingSales of our Completion Services and Well Support Services are primarily generated by the efforts of our sales force, working closely with ouroperations teams. In our core business lines of fracturing and rig services, these services are typically contracted well in advance for relatively long durations,which can result in sales backlogs during periods of high demand for our services. Our other core services are typically contracted on an ad hoc basis and assuch generally have no, or very limited, sales backlogs. Our ability to deliver integrated services through the life of the well and strong track record providescross-selling opportunities with existing customers.Sales and marketing activities are typically performed through our local operations in each geographic region, with the exception of fracturing,which is centralized to a specific sales team at the corporate level. For our other core business lines, we believe our local field sales personnel have a strongunderstanding of region-specific issues and customer operating procedures and, therefore, can effectively target marketing activities. We also have multiplecorporate sales representatives that supplement our field sales efforts and focus on large accounts and selling technical services. Our sales representativescollaborate with our legal team to identify customer contracting needs in advance of potential operations, which we believe streamlines our customeronboarding process. Our sales representatives work closely with our local managers and field sales personnel to target compelling market opportunities. Wefacilitate teamwork among our sales representatives by basing a portion of their compensation on aggregate company sales targets rather than individualsales targets. We believe this emphasis on teamwork enables us to better serve our existing customers and will also allow us to further expand our customerbase.CustomersWe serve a diverse group of independent and major national oil and gas companies that are active in our core areas of operations across thecontinental United States. We seek customers who value our technology, scale, diversification, expertise and efficiency capabilities. We monitor closely thefinancial condition of our customers, their capital expenditure plans and other indications of their drilling, completion and production services activity. Inparticular, we seek to identify distressed customers and apply what we believe to be appropriate business and legal measures to protect us from any defaults orfailures to pay.Our top ten customers accounted for approximately 40.7%, 46.0% and 53.6% of our consolidated revenue for the years ended December 31,2017, 2016 and 2015, respectively. There were no individual customers that accounted for more than 10.0% of our consolidated revenues during the yearended December 31, 2017 and December 31, 2016. For the year ended December 31, 2015, revenue from Oxy USA, Inc. individually represented 15.5% ofour consolidated revenue. Other than the customer listed above, no other customer accounted for more than 10.0% of our consolidated revenue in 2015. If wewere to lose any material customer, we may not be able to redeploy our equipment at similar utilization or pricing levels and such loss could have an adverseeffect on our business until the equipment is redeployed at similar utilization or pricing levels.CompetitionWe operate in highly competitive areas of the oilfield services industry with significant potential for excess capacity. Equipment can be movedfrom one region to another in response to changes in levels of activity and market conditions, which may result in an oversupply of assets relative to activityin any particular area. Utilization and pricing for our services have in the past been negatively affected by increases in supply relative to demand in our coreoperating areas and geographic markets.The demand for our services depends primarily on the level of spending by oil and gas companies for drilling, completion and productionactivities, which is affected by short-term and long-term trends in oil and natural gas prices and numerous other factors over which we have no control. Severedeclines and sustained weakness and volatility in commodity prices over the course of 2015 and 2016, and the consequent negative impact on the level ofdrilling, completion and production activity and capital expenditures by our customers, adversely affected the demand for our services. This, in turn,negatively impacted our ability to maintain adequate utilization of our asset base and to negotiate pricing at levels generating sufficient margins. The impactto our financial and operational performance ultimately led to the Chapter 11 Proceeding.8Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Our revenues and earnings are directly affected by changes in the utilization of our assets and pricing for our services, which fluctuate in directresponse to changes in the level of drilling, completion and production activity by our customers. Pressure on pricing for our services, including due tocompetition and industry and/or economic conditions, may impact, among other things, our ability to maintain utilization and profitability. During periodsof declining pricing for our services, we may not be able to reduce our costs accordingly, which could further adversely affect our results. Furthermore, evenwhen we are able to increase our prices, we may not be able to do so at a rate that is sufficient to offset any rising costs. Also, we may not be able tosuccessfully increase prices without adversely affecting our utilization levels. The inability to maintain our utilization and pricing levels, or to increase ourprices as our costs increase, could have a material adverse effect on our business, financial position and results of operations.Our competitors include many large and small energy service companies, including some of the largest integrated oilfield services companiesthat possess substantially greater financial and other resources than we do. Our larger competitors’ greater resources could allow them to compete moreeffectively than we can, including by reducing prices for services in our core operating areas. Our major competitors for our Completion Services includeHalliburton, Schlumberger, BJ Services, Keane Group, RPC, Inc., FTS International, Inc. (formerly known as Frac Tech Services), Basic Energy Services,Superior Energy Services, CalFrac Well Services, a significant number of regional, mostly-private businesses. Our major competitors for our Well SupportServices include Key Energy Services, Basic Energy Services, Superior Energy Services, Ranger Energy Services, Precision, Forbes and Pioneer EnergyServices, as well as a significant number of mostly-private, regional businesses.Generally, we believe that the principal competitive factors in the markets that we serve are price, technical expertise, equipment capacity, workforce capability, safety record, reputation and experience. Although we believe our customers consider all of these factors, price is often the primary factor indetermining which service provider is awarded work, particularly during times of weak commodity prices such as those we experienced from late 2014through 2016. Throughout the industry downturn, as a whole, our customer base generally prioritized receiving the lowest service cost pricing possible.Additionally, projects for certain of our core services are often awarded on a bid basis, which tends to further increase competition based primarily on price.During the downturn, our utilization and pricing levels were also negatively impacted by predatory pricing from certain large competitors, who elected tooperate at negative margins for these services.During healthier market conditions, we believe many of our customers choose to work with us based on our diversified service offering and life-of-well capabilities, geographic footprint and scale, reputation for safety, the quality of our crews, equipment and services, and our value-added technology,although we must always be competitive in our pricing. We seek to differentiate ourselves from our major competitors by our operating philosophy, which isfocused on delivering the highest quality customer service and equipment, safely and with superior execution and operating efficiency. As part of thisstrategy, we seek customers who are aligned with our strengths and want dedicated services, and we target high volume, high efficiency customers withservice intensive, 24-hour work, which is where we believe we can differentiate our services from our competitors.See Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Industry Trends and Outlook” foradditional discussion of the market challenges within our industry.Research & Technology, Intellectual PropertyOver the last several years we have significantly invested in technological advancement, including the development of a state-of-the-art researchand technology center staffed by a team of highly skilled engineers. Our efforts to date have been focused on developing innovative, fit-for-purpose solutionsdesigned to enhance our service offerings, increase efficiencies, provide cost savings to our operations and add value for our customers. Our R&T initiativesgenerate monthly cost savings for our integrated completion services operations, which is central to our overall strategy of proactively managing our costs tomaximize returns. Several of these investments provide value added products and services that, in addition to producing revenue, are creating increasingdemand from key customers. In our day-to-day operations, we utilize equipment and products manufactured by our vertically integrated businesses which aremanaged through our R&T department, and we also sell such equipment and products to third-party customers in the global energy services industry. Webelieve that our focus on R&T provides a significant strategic benefit through the ability to develop and implement new technologies and quickly respond tochanges in customer requirements and industry demand.We seek patent and trademark protection for our technology when we deem it prudent, and we aggressively pursue protection of these rights. Webelieve our patents and trademarks are adequate for the conduct of our business and that no single patent or trademark is critical to our business. We also rely,to a significant extent, on the technical expertise and know-how of our personnel to maintain our competitive position.9Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.See Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations” foradditional detail as to our investment in technological advancement.SuppliersWe purchase raw materials (such as proppant, guar, acid, chemicals, completion fluids, cement and coiled tubing strings) and finished products(such as fluid ends, power ends and pump consumables) used in our Completion Services segment and certain raw materials and finished products used in ourWell Support Services segment from various third-party suppliers.We are not materially dependent on any single supply source for these materials or products and we believe that we would be able to makesatisfactory alternative arrangements in the event of any interruption in the supply of these materials and/or products by one of our suppliers. However, ifalternative sources of supply are unavailable and we are unable to purchase the necessary materials and/or products needed for our business in a timelymanner and in the quantities required, we may be delayed in providing our services, which could have a material adverse effect on our business, financialcondition, results of operations and cash flows. For example, in the past, our industry has faced sporadic guar and proppant shortages and trucking shortagesassociated with hydraulic fracturing operations requiring work stoppages, which adversely impacted the operating results of several of our competitors.Additionally, increasing costs of certain raw materials, such as guar, may negatively impact demand for our services or the profitability of our businessoperations.During the year ended December 31, 2017, two suppliers from our Completions Services segment, Gardner Denver, Inc. and Unimin Corporation,supplied 9.7% and 7.2%, respectively, of our total Company's materials and/or products; but no single third party supplier from our Well Services segmentsupplied 5.0% or more of the Company's materials and/or products. Additionally, with respect to our Completion Services segment, as part of the Chapter 11Proceeding we rejected all of our take or pay contracts for proppant and chemicals, which enabled us to negotiate two new proppant contracts coveringapproximately 80.0% of our forecasted volume needs for 2018 and beyond. In conjunction with the sale of our manufacturing business line, we also enteredinto a preferred supply agreement with a third party to supply us with components and finished goods to repair and refurbish certain of our stacked hydraulicfracturing equipment.Quality, Health, Safety and Environmental (“QHSE”) ProgramOur business involves the operation of heavy and powerful equipment and the use of explosive and radioactive materials which can result inserious injuries to our employees and third parties and substantial damage to property or the environment. We commit significant resources towardsemployee safety and have a robust new hire program. We also have comprehensive QHSE-focused training programs designed to minimize accidents in theworkplace and improve the efficiency of our operations. We believe that our QHSE policies and procedures, which are reviewed internally for compliancewith industry changes, provide a solid framework to ensure our operations minimize the hazards inherent in our work and meet regulatory requirements andcustomer demands. Further, we are in the process of developing a best-in-class quality management system that will create standardization of processesthroughout all facets of our business, support our risk mitigation strategy and help ensure compliance with our procedures and processes.Our record and reputation for safety are important to all aspects of our business. In the oilfield services industry, a critical competitive factor inestablishing and maintaining long-term customer relationships is having an experienced, skilled and well-trained work force. In recent years, many of ourlarger customers have placed an added emphasis on the safety records and quality management systems of their contractors. We strive to meet or exceed thesafety and quality management requirements of our customers, and we believe our continued focus on safety will gain even further importance to ourcustomers as the market continues to improve. Our reputation and proven safety record have allowed us to earn work certification from several industryleaders that we believe have some of the most demanding safety requirements, including ConocoPhillips, ExxonMobil, Chevron and Royal Dutch Shell.Risk Management and InsuranceOur operations are subject to hazards inherent in the oil and gas industry, including blowouts, explosions, cratering, fires, the use of explosivesand radioactive materials, oil spills, surface and underground pollution and contamination, hazardous material spills, loss of well control, loss of or damageto the wellbore, formation or underground reservoir, damaged or lost equipment, and damage or loss from inclement weather or natural disasters. Any of thesehazards could result in personal injury or death, damage to or destruction of equipment and facilities, loss of oil and natural gas production, suspension ofoperations, environmental and natural resources damage and damage to the property of others. Additionally, because our business involves the transportationof heavy equipment and materials, we may also experience traffic accidents which may10Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.result in personal injury or death, damage to or destruction of equipment and the property of others and hazardous material spills. The occurrence of a seriousaccident involving our employees, equipment and/or services, could result in C&J being named as a defendant in lawsuits asserting large claims for damages.Despite our efforts to maintain high safety standards, we from time to time have suffered accidents, and it is likely that we will experienceaccidents in the future. In addition to the property and personal losses from these accidents, the frequency and severity of these incidents affect our operatingcosts and insurability, and our relationship with customers, employees and regulatory agencies. Any significant increase in the frequency or severity of theseincidents, or the general level of compensatory payments, could adversely affect the cost of, or our ability to obtain, workers’ compensation and other formsof insurance, and could have other material adverse effects on our financial condition and results of operations.We maintain insurance policies for workers’ compensation, automobile liability, general liability, which also includes sudden and accidentalpollution insurance, environmental liability, and property damage relating to catastrophic events, together with excess loss liability coverage. Theseinsurance policies carry self-insured retention limits or deductibles on a per occurrence basis. We have deductibles per occurrence for: workers’ compensationof $1,000,000; automobile liability claims of $1,000,000; general liability claims, including sudden and accidental pollution claims, of $250,000, plus anadditional annual aggregate deductible of $250,000; environmental liability claims of $500,000; and property damage for catastrophic events of $50,000.The excess loss liability coverage is subject to a self-insured retention of $5,000,000 for each occurrence and in the aggregate.With respect to the C&P Business that we acquired from Nabors in the Nabors Merger, and as a result of the settlement agreement negotiated withNabors in connection the Chapter 11 Proceeding, we assumed, among other liabilities, all liabilities of the C&P Business to the extent arising out of orresulting from the operation of the C&P Business at any time before, at or after the closing of the Nabors Merger, including liability for death, personal injuryand property damage resulting from or caused by the assets, products and services of the C&P Business; other than those liabilities specifically identified inthe settlement agreement, as incorporated into the Restructuring Plan, for which Nabors maintains a continuing indemnification obligation.As discussed below, our Master Service Agreements (“MSAs”) with our customers generally provide, among other things, that our customersgenerally assume (without regard to fault) liability for underground pollution and pollution emanating from the wellbore as a result of an explosion, fire orblowout. We retain the risk for any liability not indemnified by our customers in excess of our insurance coverage. Our insurance coverage may beinadequate to cover our liabilities. In addition, we may not be able to maintain adequate insurance in the future at rates we consider reasonable andcommercially justifiable or on terms as favorable as our current arrangements.We seek to enter into MSAs with each of our customers before providing any services. Our sales and operations teams work closely with our legalteam to identify and prioritize MSAs for negotiation, which we believe increases the efficiency of our risk management efforts. These MSAs delineate our andour customers’ respective warranty and indemnification obligations with respect to the services we provide. With respect to warranty issues, our MSAstypically provide that our obligations are limited to replacing any defective good or services, or in the alternative, providing the customer with a refund. OurMSAs typically provide for knock-for-knock indemnification for all losses, which means that we and our customers assume (without regard to fault) liabilityfor damages to our respective personnel and property. For catastrophic losses, our MSAs generally include industry-standard carve-outs from the knock-for-knock indemnities, pursuant to which our customers (typically exploration and production companies) assume (without regard to fault) liability for(i) damage to the well bore, including the cost to re-drill; (ii) damage to the formation, underground strata and the reservoir; (iii) damages or claims arisingfrom loss of control of a well or a blowout; and (iv) allegations of subsurface trespass. Additionally, our MSAs often provide carve-outs to the “without regardto fault” concept that would permit, for example, us to be held responsible for events of catastrophic loss to the extent they arise as a result of our grossnegligence or willful misconduct. Our MSAs typically provide for industry-standard pollution indemnities, pursuant to which we assume liability for surfacepollution associated with our equipment and originating above the surface (without regard to fault), and our customer assumes (without regard to fault)liability arising from all other pollution, including, without limitation, underground pollution and pollution emanating from the wellbore as a result of anexplosion, fire or blowout. In certain circumstances, we agree to exceptions from our MSAs’ catastrophic loss and pollution indemnities to the extentincidents arise from our gross negligence or willful misconduct.The description of insurance policies set forth above is a summary of certain material terms of our insurance policies currently in effect and maychange in the future as a result of market and/or other conditions. Similarly, the summary of MSAs set forth above is a summary of the material terms of thetypical MSA that we have in place and does not reflect every MSA that we have entered into or may enter into in the future, some of which may containindemnity structures and risk allocations between our customers and us that are different than those described here.11Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EmployeesAs of February 23, 2018, we have 6,274 employees. The delivery of our core completion services requires personnel with specialized skills andexperience who can perform physically demanding work. Due to the commodity price volatility often experienced in the energy services industry and thedemanding nature of the work, workers often choose to pursue employment in fields that offer a less strenuous work environment. During periods of highdemand for our services, there can be extreme competition amongst employers to attract skilled workers, which often results in a shortage of qualifiedemployees. Additionally, in our Well Support Services segment we are currently experiencing labor shortages for qualified drivers with a commercial driver'slicense and workover rig operators for our rig services business.Our employees are not represented by any labor unions or covered by collective bargaining agreements. We consider our relations with ouremployees to be generally good.Government Regulations and Environmental, Health and Safety MattersWe are significantly affected by stringent and complex federal, state and local laws and regulations, including those governing worker health andsafety, motor carrier operations, the transportation of explosives, the use, management and disposal of certain radioactive materials, the handling ofhazardous materials and the emission or discharge of substances into the environment or otherwise relating to environmental protection. Regulationsconcerning equipment certification create an ongoing need for regular maintenance, which is incorporated into our daily operating procedures. Theregulatory burden on the industry increases the cost of doing business and consequently affects profitability. Any failure by us to comply with such local,state and federal laws and regulations may result in governmental authorities taking actions against our business that could adversely impact our operationsand financial condition, including the following:•issuance of administrative, civil and criminal penalties;•modification, denial or revocation of permits or other authorizations;•imposition of limitations on our operations through injunctions or other governmental actions; and•performance of site investigatory, remedial or other corrective actions.Worker Health and SafetyWe are subject to the requirements of the federal Occupational Safety and Health Act (“OSHA”), and comparable state statutes that regulate theprotection of the health and safety of workers. In addition, the OSHA hazard communication standard requires that information be maintained abouthazardous materials used or produced in operations and that this information be provided to employees, state and local government authorities and thepublic.Motor Carrier OperationsAmong the services we provide, we operate as a motor carrier and therefore are subject to regulation by the United States Department ofTransportation (“DOT”) and various state agencies. These regulatory authorities exercise broad powers, governing activities such as the authorization toengage in motor carrier operations; regulatory safety; hazardous materials labeling, placarding and marking; financial reporting; and certain mergers,consolidations and acquisitions. There are additional regulations specifically relating to the trucking industry, including testing and specification ofequipment and product handling requirements. The trucking industry is subject to possible regulatory and legislative changes that may affect the economicsof the industry by requiring changes in operating practices or by changing the demand for common or contract carrier services or the cost of providingtruckload services. Some of these possible changes include increasingly stringent environmental regulations, changes in the hours of service regulationswhich govern the amount of time a driver may drive in any specific period and requiring onboard black box recorder devices or limits on vehicle weight andsize. For example, in December 2016, the DOT finalized minimum training standards for new drivers seeking a commercial driver’s license. Certain motorvehicle operators are required to register with the DOT. This registration requires an acceptable operating record. The DOT periodically conducts compliancereviews and may revoke registration privileges based on certain safety performance criteria, and a revocation could result in a suspension of operations. Since2010, the DOT has pursued its Compliance, Safety, Accountability (“CSA”) program, in an effort to improve commercial truck and bus safety. A componentof CSA is the Safety Measurement System (“SMS”), which analyzes all safety violations recorded by federal and state law enforcement personnel todetermine a carrier’s safety performance. The SMS is intended to allow DOT to identify carriers with safety issues and intervene to address those problems.12Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Interstate motor carrier operations are subject to safety requirements prescribed by DOT. To a large degree, intrastate motor carrier operations aresubject to safety regulations that mirror federal regulations. Such matters as weight and dimension of equipment are also subject to federal and stateregulations. DOT regulations also mandate drug testing of drivers. From time to time, various legislative proposals are introduced, including proposals toincrease federal, state or local taxes, including taxes on motor fuels, which may increase our costs or adversely impact the recruitment of drivers. We cannotpredict whether, or in what form, any increase in such taxes applicable to us will be enacted.Radioactive MaterialsIn addition, some of our operations utilize equipment that contains sealed, low-grade radioactive sources. Our activities involving the use ofradioactive materials are regulated by the United States Nuclear Regulatory Commission (“NRC”) and state regulatory agencies under agreement with theNRC. Standards implemented by these regulatory agencies require us to obtain licenses or other approvals for the use of such radioactive materials. Webelieve that we have obtained these licenses and approvals as necessary and applicable. Numerous governmental agencies issue regulations to implementand enforce these laws, for which compliance is often costly and difficult. The violation of these laws and regulations may result in the denial or revocationof permits, issuance of corrective action orders, injunctions prohibiting some or all of our operations, assessment of administrative and civil penalties, andeven criminal prosecution. In addition, releases of radioactive material could result in substantial remediation costs and potentially expose us to third partyproperty damage or personal injury claims.Hazardous SubstancesWe generate wastes, including hazardous wastes, which are subject to the federal Resource Conservation and Recovery Act (“RCRA”), andcomparable state statutes. The U.S. Environmental Protection Agency (“EPA”), the NRC, and state agencies have limited the approved methods of disposalfor some types of hazardous and nonhazardous wastes. RCRA currently excludes drilling fluids, produced waters and certain other wastes associated with theexploration, development or production of oil and natural gas from regulation as “hazardous waste.” Disposal of such non-hazardous oil and natural gasexploration, development and production wastes is usually regulated by state law. Other wastes handled at exploration and production sites or generated inthe course of providing well services may not fall within this exclusion. Moreover, stricter standards for waste handling and disposal may be imposed on theoil and natural gas industry in the future. For example, in December 2016, the EPA and environmental groups entered into a consent decree to address EPA’salleged failure to timely assess its RCRA Subtitle D criteria regulations exempting certain exploration and production related oil and gas wastes fromregulation as hazardous wastes under RCRA. The consent decree requires EPA to propose a rulemaking no later than March 15, 2019 for revision of certainSubtitle D criteria regulations pertaining to oil and gas wastes or to sign a determination that revision of the regulations is not necessary. Removal of RCRA’sexemption for exploration and production wastes has the potential to significantly increase waste disposal costs, which in turn will result in increasedoperating costs and could adversely impact our business and results of operations. The impact of future revisions to environmental laws and regulationscannot be predicted.Naturally Occurring Radioactive Materials (“NORM”) may contaminate extraction and processing equipment used in the oil and natural gasindustry. The waste resulting from such contamination is regulated by federal and state laws. Standards have been developed for: worker protection;treatment, storage, and disposal of NORM and NORM waste; management of NORM-contaminated waste piles, containers and tanks; and limitations on therelinquishment of NORM contaminated land for unrestricted use under RCRA and state laws. It is possible that we may incur costs or liabilities associatedwith elevated levels of NORM.The Federal Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA” or the “Superfund” law), and comparablestate statutes impose liability, without regard to fault or legality of the original conduct, on classes of persons that are considered to have contributed to therelease of a hazardous substance into the environment. Such classes of persons include the current and past owners or operators of sites where a hazardoussubstance was released, and companies that disposed or arranged for disposal of hazardous substances at off-site locations such as landfills. Under CERCLA,these persons may be subject to strict, joint and several liability for the costs of cleaning up the hazardous substances that have been released into theenvironment and for damages to natural resources, and it is not uncommon for neighboring landowners and other third parties to file claims for personalinjury and property damage allegedly caused by the hazardous substances released into the environment. We currently own, lease, or operate numerousproperties and facilities that for many years have been used for industrial activities, including oil and natural gas related operations. Hazardous substances,wastes, or hydrocarbons may have been released on or under the properties owned or leased by us, or on or under other locations where such substances havebeen taken for recycling or disposal. In addition, some of these properties have been operated by third parties or by previous owners whose treatment anddisposal or release of hazardous substances, wastes, or hydrocarbons, was not under our control. These properties and the substances disposed or released onthem may be subject to CERCLA, RCRA13Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.and analogous state laws. Under such laws, we could be required to remove previously disposed substances and wastes and remediate contaminated property(including groundwater contamination), including instances where the prior owner or operator caused the contamination, or perform remedial plugging ofdisposal wells or waste pit closure operations to prevent future contamination. These laws and regulations may also expose us to liability for our acts thatwere in compliance with applicable laws at the time the acts were performed.Water DischargesThe Federal Water Pollution Control Act (the “Clean Water Act”), and comparable state statutes impose restrictions and strict controls regardingthe discharge of pollutants into state waters or waters of the United States. The discharge of pollutants into jurisdictional waters is prohibited unless thedischarge is permitted by the EPA or applicable state agencies. The Clean Water Act also prohibits the discharge of dredge and fill material into regulatedwaters, including jurisdictional wetlands, unless authorized by an appropriately issued permit. In September 2015, the EPA and U.S. Army Corps of Engineers(the “Corps”) issued a new rule defining the scope of the EPA’s and the Corps’ jurisdiction over wetlands and other waters. The 2015 rule was previouslystayed nationwide to determine whether federal district or appellate courts had jurisdiction to hear cases in the matter and, in January 2017, the U.S. SupremeCourt agreed to hear the case. The EPA and Corps proposed a rulemaking in June 2017 to repeal the June 2015 rule and announced their intent to issue a newrule defining the Clean Water Act’s jurisdiction. Recently, in January 2018, the U.S. Supreme Court issued a decision finding that jurisdiction to hearchallenges to the 2015 rule resides with the federal district courts; consequently, the previously-filed district court cases will be allowed to proceed.Following the Supreme Court’s decision, the EPA and the Corps issued a final rule in January 2018 staying implementation of the 2015 rule for two years. Asa result of these recent developments, future implementation of the June 2015 rule is uncertain. The process for obtaining permits has the potential to delaythe development of natural gas and oil projects. Also, spill prevention, control and countermeasure regulations under federal law require appropriatecontainment berms and similar structures to help prevent the contamination of navigable waters in the event of a petroleum hydrocarbon tank spill, rupture orleak.In addition, the Clean Water Act and analogous state laws require individual permits or coverage under general permits for discharges of stormwater runoff from certain types of facilities. Moreover, the Oil Pollution Act of 1990 (“OPA”) imposes a variety of requirements on responsible parties relatedto the prevention of oil spills and liability for damages, including natural resource damages, resulting from such spills in waters of the United States. Aresponsible party includes the owner or operator of an onshore facility. The Clean Water Act and analogous state laws provide for administrative, civil andcriminal penalties for unauthorized discharges and, together with the OPA, impose rigorous requirements for spill prevention and response planning, as wellas substantial potential liability for the costs of removal, remediation, and damages in connection with any unauthorized discharges.The Safe Water Drinking Act (“SDWA”) regulates the underground injection of substances through the Underground Injection Control (“UIC”)program. Hydraulic fracturing generally is exempt from regulation under the UIC program, and the hydraulic fracturing process is typically regulated by stateoil and gas commissions. However, the EPA has asserted that hydraulic fracturing with fluids containing diesel fuel is subject to regulation under the UICprogram. In addition, in response to recent seismic events near underground injection wells used for the disposal of oil and gas-related wastewater, federal andsome state agencies have begun investigating whether such wells have caused increased seismic activity, and some states have imposed volumetric injectionlimits, shut down or imposed moratorium on the use of such injection wells. If new regulatory initiatives are implemented that restrict or prohibit the use ofunderground injection wells in areas where we rely upon the use of such wells in our operations, our costs to operate may significantly increase and ourability to perform services may be delayed or limited, which could have an adverse effect on our results of operations and financial position.Air EmissionsSome of our operations also result in emissions of regulated air pollutants. The federal Clean Air Act (“CAA”) and analogous state laws requirepermits for certain facilities that have the potential to emit substances into the atmosphere that could adversely affect environmental quality. These laws andtheir implementing regulations also impose generally applicable limitations on air emissions and require adherence to maintenance, work practice, reportingand record keeping, and other requirements. Failure to obtain a permit or to comply with permit or other regulatory requirements could result in theimposition of substantial administrative, civil and even criminal penalties. In addition, we or our customers could be required to shut down or retrofit existingequipment, leading to additional expenses and operational delays.Many of these regulatory requirements, including New Source Performance Standards (“NSPS”) and Maximum Achievable Control Technology(“MACT”) standards are expected to be made more stringent over time as a result of stricter ambient air quality standards and other air quality protectiongoals adopted by the EPA. For example, in October 2015, the EPA14Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.lowered the National Ambient Air Quality Standard, (“NAAQS”) for ozone from 75 to 70 parts per billion for both the 8-hour primary and secondarystandards. Subsequently, in November 2017, the EPA published a list of areas that are in compliance with the new ozone standards and separately inDecember 2017 issued responses to state recommendation for designating nonattainment areas. States have the opportunity to submit new air qualitymonitoring to EPA prior to EPA finalizing any nonattainment designations. State implementation of the revised NAAQS could result in stricter permittingrequirements, delay or prohibit our ability to obtain such permits, and result in increased expenditures for pollution control equipment, the costs of whichcould be significant. In addition, in 2012, the EPA issued federal regulations requiring the reduction of volatile organic compound (“VOC”) emissions fromcertain fractured and refractured natural gas wells for which well completion operations are conducted and further requiring that most wells use reducedemission completions, also known as “green completions.” These regulations also establish specific new requirements regarding emissions from productionrelated wet seal and reciprocating compressors, and from pneumatic controllers and storage vessels.Compliance with these and other air pollution control and permitting requirements has the potential to delay the development of oil and naturalgas projects and increase costs for us and our customers. Although we do not believe our operations will be materially adversely affected by theserequirements, our business could be materially affected if our customers’ operations are significantly affected by these or other similar requirements. Theserequirements could increase the cost of doing business for us and our customers, reduce the demand for the oil and gas our customers produce, and thus havean adverse effect on the demand for our products and services.Climate ChangeMore stringent laws and regulations relating to climate change may be adopted in the future and could cause us to incur additional operatingcosts or reduce the demand for our services. The EPA has determined that emissions of carbon dioxide, methane, and other greenhouse gases (“GHGs”)present an endangerment to the environment because emissions of such gases are, according to the EPA, contributing to the warming of the earth’satmosphere and other climatic changes. Based on these findings, EPA has adopted regulations that restrict emissions of GHGs under existing provisions ofthe CAA, including rules that require preconstruction and operating permit reviews for GHG emissions from certain large stationary sources. The EPA has alsoadopted rules requiring the monitoring and reporting of GHG emissions from specified GHG sources, including, among others, certain oil and natural gasproduction facilities, on an annual basis. More recently, in June 2016, the EPA issued final rules that establish new air emission controls for emissions ofmethane from certain equipment and processes in the oil and natural gas source category, including production, processing transmission and storageactivities. The EPA’s final rule package includes first-time standards to address emissions of methane from equipment and processes across the sourcecategory, including hydraulically fractured oil and natural gas well completions. However, over the past year the EPA has taken several steps to delayimplementation of these methane rules, and the agency proposed a rulemaking in June 2017 to stay the requirements for a period of two years and revisitimplementation of the EPA’s methane rules in their entirety. The EPA has not yet published a final rule but, as a result of these developments, futureimplementation of the EPA methane rules is uncertain at this time. The Bureau of Land Management (“BLM”) also finalized similar rules in November 2016which seek to limit methane emissions from new and existing oil and gas operations on federal lands through limitations on the venting and flaring of gas, aswell as enhanced leak detection and repair requirements for certain equipment and processes, but the BLM issued a rule in December 2017 staying therequirements of its methane rule for one year. BLM’s actions have been challenged in federal court. We do not believe our operations are currently subject tothese requirements, but, to the extent fully implemented, our business could be affected if our customers’ operations become subject to these or other similarrequirements. Moreover, these requirements could increase the cost of doing business for us and our customers, reduce the demand for the oil and gas ourcustomers produce, and thus have a material adverse effect on the demand for our products and services.In addition, while Congress has yet to pass legislation to reduce emissions of GHGs, and almost one-half of the states have established or joinedGHG cap and trade programs. Most of these cap and trade programs work by requiring major sources of emissions or major producers of fuels, to acquire andsurrender emission allowances. The number of allowances available for purchase is reduced each year in an effort to achieve the overall greenhouse gasemission reduction goal. In addition, in 2015, the U.S. participated in the United Nations Conference on Climate Change, which led to the creation of theParis Agreement. The Paris Agreement requires countries to review and “represent a progression” in their intended nationally determined contributions,which set GHG emission reduction goals, every five years beginning in 2020. However, in August 2017, the U.S. State Department officially informed theUnited Nations of the intent of the United States to withdraw from the Paris Agreement. The Paris Agreement has a four year exit process. The United States’adherence to the exit process is uncertain and/or the terms on which the United States may reenter the Paris Agreement or a separately negotiated agreementare unclear at this time. Although it is not possible at this time to predict how legislation or new regulations that may be adopted to address GHG emissionswould impact our business, any new federal, regional or state restrictions on emissions of carbon dioxide or other GHGs that may be imposed in areas inwhich we conduct business could result in increased compliance costs or additional operating restrictions on our customers. Such restrictions couldpotentially make our customers’ products more15Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.expensive and thus reduce demand for such products, which in turn could have a material adverse effect on the demand for our services and our business.Finally, it should be noted that some scientists have concluded that increasing concentrations of GHGs in the earth’s atmosphere may produce climaticchanges that have significant physical effects, such as increased frequency and severity of storms, droughts, and floods and other climatic events; if any sucheffects were to occur, they could have an adverse effect on our assets and operations.Hydraulic FracturingHydraulic fracturing is an important and common practice that is used to stimulate production of natural gas and/or oil from dense subsurfacerock formations. The hydraulic fracturing process involves the injection of water, sand and chemicals under pressure into the formation to fracture thesurrounding rock and stimulate production. We commonly perform hydraulic fracturing services for our customers. Hydraulic fracturing typically is regulatedby state oil and natural gas commissions, but, as noted above, the EPA has asserted federal regulatory authority pursuant to the SDWA over certain hydraulicfracturing activities involving the use of diesel fuel and issued permitting guidance in February 2014 that applies to such activities. In addition, the EPA hastaken the following actions and issued final regulations under the CAA governing performance standards, including standards for the capture of air emissionsreleased during hydraulic fracturing; and finalized rules in June 2016 to prohibit the discharge of wastewater from hydraulic fracturing operations to publiclyowned wastewater treatment plants. Also, the BLM finalized rules in March 2015 that impose new or more stringent standards for performing hydraulicfracturing on federal and Native American lands. The BLM issued a final rule in December 2017 repealing its hydraulic fracturing rule, and this action hasbeen challenged in federal court. Also, in December 2016, the EPA released its final report on the potential impacts of hydraulic fracturing on drinking waterresources. The final report concluded that “water cycle” activities associated with hydraulic fracturing may impact drinking water resources “under somecircumstances,” noting that the following hydraulic fracturing water cycle activities and local- or regional-scale factors are more likely than others to result inmore frequent or more severe impacts: water withdrawals for fracturing in times or areas of low water availability; surface spills during the management offracturing fluids, chemicals or produced water; injection of fracturing fluids into wells with inadequate mechanical integrity; injection of fracturing fluidsdirectly into groundwater resources; discharge of inadequately treated fracturing wastewater to surface waters; and disposal or storage of fracturingwastewater in unlined pits.In addition, various state and local governments have implemented, or are considering, increased regulatory oversight of hydraulic fracturingthrough additional permit requirements, operational restrictions, disclosure requirements, well construction and temporary or permanent bans on hydraulicfracturing in certain areas. For example, in May 2013, the Texas Railroad Commission adopted new rules governing well casing, cementing and otherstandards for ensuring that hydraulic fracturing operations do not contaminate nearby water resources. Local governments also may seek to adopt ordinanceswithin their jurisdictions regulating the time, place and manner of drilling activities in general or hydraulic fracturing activities in particular or prohibit theperformance of well drilling in general or hydraulic fracturing in particular. We believe that we follow applicable standard industry practices and legalrequirements for groundwater protection in our hydraulic fracturing activities. If new federal, state or local laws or regulations that significantly restricthydraulic fracturing are adopted, such legal requirements could result in delays, eliminate certain drilling and injection activities and make it more difficultor costly to perform hydraulic fracturing. Any such regulations limiting or prohibiting hydraulic fracturing could result in decreased oil and natural gasexploration and production activities and, therefore, adversely affect demand for our services and our business. Such laws or regulations could also materiallyincrease our costs of compliance and doing business.There have been no material incidents or citations related to our hydraulic fracturing operations in the past five years. During that period we havenot been involved in any litigation over alleged environmental violations, have not been ordered to pay any material monetary fine or penalty with respectto alleged environmental violations, and are not currently facing any type of governmental enforcement action or other regulatory proceeding involvingalleged environmental violations related to our hydraulic fracturing operations. In addition, pursuant to our MSAs, we are generally liable for only surfacepollution, not underground or flowback pollution, which our customers are generally liable for and for which we are typically indemnified by our customers.We maintain insurance against some risks associated with underground contamination that may occur as a result of well services activities.However, this insurance is limited to activities at the well site and may not continue to be available or may not be available at premium levels that justify itspurchase. The occurrence of a significant event not fully insured or indemnified against could have a materially adverse effect on our financial condition andresults of operations.Overall, we do not anticipate that compliance with existing environmental laws and regulations will have a material effect on our financialcondition or results of operations. It is possible, however, that substantial costs for compliance or penalties for non-compliance may be incurred in the future.Moreover, it is possible that other developments, such as the16Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.adoption of stricter environmental laws, regulations, and enforcement policies, could result in additional costs or liabilities that we cannot currently quantify.17Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Item 1A. Risk FactorsWe face many challenges and risks in the industry in which we operate. Before investing in our common stock you should carefully considereach of the following risk factors and all of the other information set forth in this Annual Report, including under the section titled “Cautionary NoteRegarding Forward-Looking Statements”, and in our other reports filed with the SEC, and the documents and other information incorporated by referenceherein and therein, for a detailed discussion of known material factors which could materially affect our business, financial condition or future results. Therisks and uncertainties described are not the only ones we face. Additional risk factors not presently known to us or which we currently consider immaterialmay also adversely affect our business, financial condition or future results. If any of these risks were actually to occur, our business, financial condition orresults of operations could be materially adversely affected. In that case, the trading price of our common stock could decline, and you could lose all or partof your investment.Risks Related to Our Business and Financial ConditionOur business is cyclical and dependent upon conditions in the oil and natural gas industry that impact the level of exploration, development andproduction of oil and natural gas and capital expenditures by oil and natural gas companies. Our customers’ willingness to undertake drilling, completionand production activities depends largely upon prevailing industry conditions that are influenced by numerous factors that are beyond our control. Any ofthese factors could have a material adverse effect on our business, financial condition, results of operations and cash flow.We depend on our customers’ willingness to make operating and capital expenditures to explore for, develop and produce oil and natural gas. Ifthese expenditures decline, our business will suffer. The oil and gas industry has traditionally been volatile, is highly sensitive to supply and demand cyclesand is influenced by a combination of long-term, short-term and cyclical trends. Our customers’ willingness to conduct drilling, completion and productionactivities depends largely upon prevailing industry conditions that are influenced by numerous factors over which we have no control, such as:•the supply of and demand for oil and natural gas, including current natural gas storage capacity and usage;•the current and expected future prices for oil and natural gas and the perceived stability and sustainability of those prices;•the supply of and demand for hydraulic fracturing and other well service equipment in the continental United States;•the level of global and domestic oil and natural gas inventories;•the cost of exploring for, developing, producing and delivering oil and natural gas;•the ability or willingness of the Organization of Petroleum Exporting Countries (“OPEC”) to set and maintain production levels for oil;•public pressure on, and legislative and regulatory interest within, federal, state and local governments to stop, significantly limit or regulatehydraulic fracturing activities;•the expected rates of decline of current oil and natural gas production;•lead times associated with acquiring equipment and products and availability of personnel;•regulation of drilling activity;•the availability of water resources, suitable proppant and chemicals in sufficient quantities for use in hydraulic fracturing fluids;•the discovery and development rates of new oil and natural gas reserves;•available pipeline and other transportation capacity;•weather conditions, including hurricanes that can affect oil and natural gas operations over a wide area;•political instability in oil and natural gas producing countries;•domestic and worldwide economic conditions;•technical advances affecting energy consumption;•the price and availability of alternative fuels; and•merger and divestiture activity among oil and natural gas producers.Volatility or weakness in oil prices or natural gas prices (or the perception that oil prices or natural gas prices will decline) generally leads todecreased spending by our customers, which in turn negatively impacts drilling, completion and production activity. In particular, the demand for new orexisting drilling, completion and production work is driven by available investment capital for such work. When these capital investments decline, ourcustomers’ demand for our services declines. Because these types of services can be easily “started” and “stopped,” and oil and natural gas producersgenerally tend to be less risk tolerant when commodity prices are low or volatile, we typically experience a more rapid decline in demand for our servicescompared with demand for other types of energy services. Any negative impact on the spending patterns of our customers may cause lower pricing andutilization for our core service lines, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.18Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Spending by exploration and production companies can also be impacted by conditions in the capital markets. Limitations on the availability ofcapital, or higher costs of capital, for financing expenditures may cause exploration and production companies to make additional reductions to capitalbudgets in the future even if oil prices remain at current levels or natural gas prices increase from current levels. Any such cuts in spending may cause ourcustomers to curtail their drilling programs, including completion and production activities and any discretionary spending on well services, which mayresult in a reduction in the demand for our services, the rates we can charge and the utilization of our assets. Moreover, reduced discovery rates of new oil andnatural gas reserves, or a decrease in the development rate of reserves, in our market areas, whether due to increased governmental regulation, limitations onexploration and drilling activity or other factors, could also have a material adverse impact on our business, even in a stronger oil and natural gas priceenvironment.Fluctuations in oil and natural gas prices could adversely affect drilling, completion and production activities by oil and natural gas companies and ourrevenues, cash flows and profitability. If oil and natural gas prices remain volatile, or if oil or natural gas prices decline, the demand for our services couldbe adversely affected.The demand for our services depends on the level of spending by oil and gas companies for drilling, completion and production activities, whichare affected by short-term and long-term trends in oil and natural gas prices, including current and anticipated oil and natural gas prices. Oil and natural gasprices, as well as the level of drilling, completion and production activities, historically have been extremely volatile and are expected to continue to be so.For example, during 2016, NYMEX crude oil prices reached a high of $54.06 per barrel and a low of $26.21 per barrel, and during 2017 NYMEX crude oilprices ranged from $42.53 to $60.42 per barrel. In line with the sustained weakness and volatility in oil prices over the course of 2016, we experienced asignificant decline in drilling, completion and production activities across our customer base, which resulted in reduced demand and increased competitionand pricing pressure to varying degrees across our service lines and operating areas.Worldwide military, political and economic events, including initiatives by OPEC, affect both the demand for, and the supply of, oil and naturalgas. Weather conditions, governmental regulation (both in the United States and elsewhere), levels of consumer demand, the availability of pipeline capacityand other factors that will be beyond our control may also affect the supply of, demand for, and price of oil and natural gas. Volatility or weakness in oilprices or natural gas prices (or the perception that oil prices or natural gas prices will decrease) affects the spending patterns of our customers and may resultin the drilling of fewer new wells or lower completion and production spending on existing wells. This, in turn, could result in lower demand for our servicesand cause lower pricing and utilization levels for our services. If oil and natural gas prices decline, or if there is a further reduction in drilling and completionactivities, the demand for our services and our results of operations could be materially and adversely affected.We participate in a capital-intensive industry, and we may not be able to finance future growth of our operations or future acquisitions, which couldadversely affect our operations and financial position.The successful execution of our growth strategy depends on our ability to generate sufficient cash flows and our access to capital, both of whichare impacted by numerous factors beyond our control, including financial, business, economic and other factors, such as volatility in commodity prices andpressure from competitors. If we are unable to generate sufficient cash flows or to obtain additional capital on favorable terms or at all, we may be unable tocontinue growing our business, conduct necessary corporate activities, take advantage of business opportunities that arise or engage in activities that may bein our long-term best interest, which may adversely impact our ability to sustain or improve our current level of profitability. Furthermore, any failure to makescheduled payments of interest and principal on our outstanding indebtedness could harm our ability to incur additional indebtedness on acceptable terms orat all, and also could constitute an event of default under our Amended Credit Facility (as defined below). Our inability to generate sufficient cash flow tosatisfy our debt obligations or to obtain alternative financing could materially and adversely affect our business, financial condition, results of operations,cash flows and prospects, and we could be forced into bankruptcy or liquidation.The oilfield services industry is highly competitive with significant potential for excess capacity. We may not be able to meet the specific needs of oil andnatural gas exploration and production companies at competitive prices which could adversely affect our business and operating results.The oilfield services industry is highly competitive. The principal competitive factors in our markets are generally price, technical expertise, theavailability and condition of equipment, work force capability, safety record, reputation and experience. We compete with large national and multi-nationalcompanies that have longer operating histories, greater financial resources and greater name recognition than we do and who can operate and have operatedat a loss in the regions in which we operate. Additionally, some of our competitors provide a broader array of services and/or have a stronger presence in moregeographic markets. Our reputation for safety and quality may not be sufficient to enable us to maintain our competitive position, and our competitors maybe able to respond more quickly to new or emerging technologies and services and changes19Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.in customer requirements. As a result of competition, we may lose market share or be unable to maintain or increase prices for our present services or toacquire additional business opportunities, which could have a material adverse effect on our business, financial condition, results of operations and cashflows.Increases in market capacity can lead to active price competition, which could adversely affect our business and utilization levels.Significant increases in overall market capacity have caused active price competition and led to lower pricing and utilization levels for ourservices. Completion and well servicing equipment, such as hydraulic fracturing fleets, can be moved from one region to another in response to changes inlevels of activity and market conditions, which may result in an oversupply of equipment in an area. For example, natural gas prices declined sharply in 2009and remained depressed through 2015, which resulted in reduced drilling activity in natural gas shale plays. This drove many oilfield services companiesoperating in those areas to relocate their equipment to more oil- and liquids-rich shale plays, such as the Eagle Ford Shale and Permian Basin. As drillingactivity and completion capacity migrated into the oil- and liquids-rich regions from the gas-rich regions, the increase in supply relative to demandnegatively impacted pricing and utilization of our services, particularly for hydraulic fracturing services. Furthermore, as we entered 2015, we experienced aslowdown in activity across our customer base as operators reacted to the rapid decline in commodity prices that began during the fourth quarter of 2014. Theentire year proved to be extremely challenging for the North American oilfield services industry due to the sustained weakness and volatility in oil prices atlevels that caused severe reductions in drilling, completion and production activities, which in turn resulted in reduced demand and increased competitionand pricing pressure to varying degrees across our service lines and operating areas.Adoption of fresh start accounting beginning in the first quarter of 2017 limits the comparability of our current and future financial condition and resultsof operations to our financial condition and results of operations for periods prior to our emergence from the Chapter 11 Proceeding.Upon our emergence from the Chapter 11 Proceeding, we adopted fresh start accounting in accordance with the provisions set forth inAccounting Standards Codification Topic 852 - Reorganizations. Our consolidated financial statements also reflect all of the transactions contemplated bythe Restructuring Plan. Accordingly, our financial condition and results of operations subsequent to emergence are not comparable to the financial conditionor results of operations reflected in our historical financial statements prior to emergence.We may be unable to implement price increases or maintain existing prices on our core services.We generate revenue from our core service lines, the majority of which is provided on a spot market basis. Pressure on pricing for our coreservices, including due to competition and industry and/or economic conditions, may impact, among other things, our ability to implement price increases ormaintain pricing on our core services. We operate in a very competitive industry and, as a result, we may not always be successful in raising, or maintainingour existing prices. Additionally, during periods of increased market demand, a significant amount of new service capacity, including hydraulic fracturingequipment, may enter the market, which also puts pressure on the pricing of our services and limits our ability to increase or maintain prices. Furthermore,during periods of declining pricing for our services, we may not be able to reduce our costs accordingly, which could further adversely affect our profitability.Even when we are able to increase our prices, we may not be able to do so at a rate that is sufficient to offset such rising costs. Also, we may notbe able to successfully increase prices without adversely affecting our activity levels. The inability to maintain our prices or to increase our prices as costsincrease could have a material adverse effect on our business, financial position and results of operations.We may not be able to service our debt obligations in accordance with their terms.On January 6, 2017, we entered into a new revolving credit and security agreement (the “New Credit Facility”). We subsequently amended andrestated the New Credit Facility in full pursuant to an amended and restated revolving credit and security agreement (the “Amended Credit Facility”) on May4, 2017. Our ability to meet our debt service obligations under, and comply with the financial covenants contained in, our Amended Credit Facility or futuredebt agreements depends on our future performance, which is affected by financial, business, economic and other factors, many of which are beyond ourcontrol, including volatility in commodity prices and pressure from competitors. Should our revenues decline, we may not be able to generate sufficient cashflow to pay our debt service obligations when due. Additionally, revenue, utilization and pricing level declines may result in our not being in compliancewith one or more of the financial covenants under our Amended Credit Facility or future debt agreements in future periods. Any failure to satisfy our debtobligations or to comply with the applicable20Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.financial covenants could materially and adversely affect our business, financial condition, results of operations, cash flows and prospects.If we are unable to meet our debt service obligations or should we fail to comply with, or obtain relief from, the financial and other restrictivecovenants contained in our Amended Credit Facility or future debt agreements, we may trigger an event of default. Upon such an event of default, our lendersmay refuse to fund borrowings and have the right to terminate their commitments and potentially accelerate all of our outstanding debt. If an event of defaultoccurs and the lenders under our Amended Credit Facility or future debt agreements accelerate the maturity of any loans or other debt outstanding. We maynot be able to make all required payments or borrow sufficient funds to refinance such indebtedness. Even if new financing is available at that time it may notbe on terms that are acceptable to us.Any reduction of the borrowing base under our Amended Credit Facility could require us to repay that portion of indebtedness that exceeds the newborrowing base under our Amended Credit Facility earlier than anticipated, which could adversely impact our liquidity.Our Amended Credit Facility allows us to borrow amounts up to the lesser of $200 million and a borrowing base based on the value of ouraccounts receivable and inventory. Currently, our borrowing base is $178.5 million. Reductions in accounts receivable and inventory due to events or marketforces beyond our control could reduce the amount available to us under our Amended Credit Facility and could result in a redetermination, and potentially areduction, of our borrowing bases under our Amended Credit Facility. If our Amended Credit Facility eventually becomes fully drawn, any reduction in theborrowing bases could require us to make mandatory prepayments under our Amended Credit Facility to the extent existing indebtedness under the AmendedCredit Facility exceeds the borrowing base. We may have insufficient cash on hand to be able to make mandatory prepayments under our Amended CreditFacility. Any failure to repay indebtedness in excess of our borrowing bases in accordance with the terms of the Amended Credit Facility would constitute anevent of default under the Amended Credit Facility. Such event of default would permit our lenders to accelerate our outstanding debt, which if actuallyaccelerated, would become immediately due and payable and could permit our secured lenders to foreclose on any of our assets securing indebtedness.We are subject to restrictive covenants in our Amended Credit Facility, which may restrict our operational flexibility.The Amended Credit Facility governing our indebtedness contains, and future debt agreements may contain, financial and other restrictivecovenants that may limit our ability to obtain future financings to withstand a future downturn in our business or the economy in general, conduct necessarycorporate activities, take advantage of business opportunities that arise and/or to engage in activities that may be in our long-term best interests.Specifically, our Amended Credit Facility includes a Fixed Charge Coverage Ratio and minimum liquidity threshold covenants and restrictivecovenants that limit our ability and that of our subsidiaries to, among other things:•sell or otherwise dispose of assets;•make certain restricted payments and investments;•create, incur, assume, suffer to exist or guarantee additional indebtedness;•create, incur, assume, or suffer to exist liens on our assets;•make capital expenditures, investments or acquisitions;•repurchase, redeem or retire our capital shares;•merge or consolidate, or transfer all or substantially all of our assets and the assets of our subsidiaries;•engage in specified transactions with subsidiaries and affiliates; and•pursue other corporate activities.We may be prevented from taking advantage of business opportunities that arise because of the limitations imposed on us by restrictivecovenants under the Amended Credit Facility, which could: limit our ability to plan for, or react to, market conditions, to meet capital needs or otherwiserestrict our activities or business plan; and adversely affect our ability to finance our operations, enter into acquisitions or to engage in other businessactivities that would be in our interest.Please see “Liquidity and Capital Resources - Description of Our Amended Credit Facility” in Part II, Item 7 “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” for additional information about the Amended Credit Facility, including the financial and otherrestrictive covenants contained therein.21Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.We may become more leveraged and our indebtedness could adversely affect our operations and financial condition.Our business is capital intensive and we may seek to raise debt capital to fund our business and growth strategy. Indebtedness could havenegative consequences that could materially and adversely affect our business, financial condition, results of operations, cash flows and prospects, such as:•requiring us to dedicate a substantial portion of our cash flow from operating activities to payments on our indebtedness, thereby reducingthe availability of cash flow to fund working capital, capital expenditures, research and development efforts, potential strategic acquisitionsand other general corporate purposes;•limiting our ability to obtain additional financing to fund growth, working capital or capital expenditures, or to fulfill debt servicerequirements or other cash requirements;•increasing our vulnerability to economic downturns and changing market conditions;•placing us at a competitive disadvantage relative to competitors that have less debt;•to the extent that our debt is subject to floating interest rates, increasing our vulnerability to fluctuations in market interest rates; and•preventing our ability to buy back our common stock or pay cash dividends.Disruptions in the capital and credit markets, continued low commodity prices, our debt level and other factors may restrict our ability to raise capital onfavorable terms, or at all.Disruptions in the capital and credit markets, in particular with respect to companies in the energy sector, could limit our ability to access thesemarkets or may significantly increase our cost to borrow. Continued low commodity prices, among other factors, have caused some lenders to increaseinterest rates, enact tighter lending standards which we may not satisfy as a result of our debt level or otherwise, refuse to refinance existing debt at maturityon favorable terms, or at all, and in certain instances have reduced or ceased to provide funding to borrowers. If we are unable to access the capital and creditmarkets on favorable terms or at all, it could adversely affect our business, financial condition and results of operations.As a result of the implementation of our Restructuring Plan, we believe our ability to use net operating loss carryforwards to offset future taxable incomefor U.S. federal income tax purposes may be subject to limitation under Section 382.Under U.S. federal income tax law, a corporation is generally permitted to deduct from taxable income net operating losses (“NOLs”) carriedforward from prior years. As of December 31, 2017, we reported consolidated federal NOL carryforwards of approximately $1.1 billion. Our ability to utilizeour NOL carryforwards to offset future taxable income and to reduce U.S. federal income tax liability is subject to certain requirements and restrictions. Ingeneral, under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), a corporation that undergoes an “ownership change” is subjectto limitations on its ability to utilize its pre-change NOLs to offset future taxable income. An ownership change generally occurs if one or more shareholders(or groups of shareholders) who are each deemed to own at least 5% of our stock have aggregate increases in their ownership of such stock of more than 50percentage points over such stockholders’ lowest ownership percentage during the testing period (generally a rolling three year period). We believe weexperienced an ownership change in January 2017 as a result of the implementation of the Restructuring Plan and a subsequent ownership change occurredon or about June 30, 2017 and that our pre-change NOLs are subject to limitation under Section 382 of the Code as a result. Such limitation may cause U.S.federal income taxes to be paid earlier than otherwise would be paid if such limitation were not in effect and could cause our pre-change NOLs to expireunused, in each case reducing or eliminating the benefit of such NOLs. Similar rules and limitations may apply for state income tax purposes.As a result of the implementation of our Restructuring Plan, NOLs and other tax attributes may be subject to reduction, causing less NOL or tax deductionsto be available to offset future taxable income for U.S. federal income tax purposes.As a result of consummating our Restructuring Plan, the obligations of the Predecessor with respect to the Original Credit Agreement (the “OldC&J Debt”) were canceled and discharged and certain lenders were issued common stock in the reorganized Company (See Note 2 - Chapter 11 Proceedingand Emergence). This exchange may give rise to cancellation of debt income (“CODI”) to the extent that the fair market value of the common stock and otherrights exchanged with the lenders is less than the adjusted issue price of the Old C&J Debt. Other settlements with holders of Claims under the RestructuringPlan may have resulted in satisfaction of debts for less than the amount of the liability resulting in CODI. The Code provides that CODI arising under adischarge in a Chapter 11 bankruptcy proceeding is excluded from taxable income. A taxpayer excluding CODI under these circumstances may be requiredto reduce certain tax attributes, such as NOLs and depreciable basis by an amount up to the amount of excluded CODI (the “Tax Attribute Reduction Rules”).The consummation of the Restructuring Plan occurred in 2017, and any estimates around the related fair market value, the potential for CODI and anyassociated tax attribute reduction as determined by the Code will not be finalized until the 2017 tax return is filed in 2018. Our estimates are subject tochange throughout this period.22Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.We may be adversely affected by uncertainty in the global financial markets and the deterioration of the financial condition of our customers.Our future results may be impacted by the uncertainty caused by an economic downturn, volatility or deterioration in the debt and equity capitalmarkets, inflation, deflation or other adverse economic conditions that may negatively affect us or parties with whom we do business resulting in a reductionin our customers’ spending and their non-payment or inability to perform obligations owed to us, such as the failure of customers to honor their commitmentsor the failure of major suppliers to complete orders. Additionally, during times when the natural gas or crude oil markets weaken, our customers are morelikely to experience financial difficulties, including being unable to access debt or equity financing, which could result in a reduction in our customers’spending for our services. In addition, in the course of our business we hold accounts receivable from our customers. In the event of the financial distress orbankruptcy of a customer, we could lose all or a portion of such outstanding accounts receivable associated with that customer. Further, if a customer was toenter into bankruptcy, it could also result in the cancellation of all or a portion of our service contracts with such customer at significant expense or loss ofexpected revenues to us.Reliance upon a few large customers may adversely affect our revenue and operating results.Our top ten customers represented approximately 40.7%, 46.0% and 53.6% of our consolidated revenue for the years ended December 31, 2017,2016 and 2015, respectively. It is likely that we will continue to derive a significant portion of our revenue from a relatively small number of customers in thefuture. If a major customer fails to pay us, revenue would be impacted, and our operating results and financial condition could be harmed. Additionally, if wewere to lose any material customer, we may not be able to redeploy our equipment at similar utilization or pricing levels and such loss could have a materialadverse effect on our business until the equipment is redeployed at similar utilization or pricing levels.Delays in deliveries of key raw materials or increases in the cost of key raw materials could harm our business, results of operations and financialcondition.We have established relationships with a limited number of suppliers of our raw materials (such as proppant, guar, chemicals or coiled tubing)and finished products (such as fluid-handling equipment). Should any of our current suppliers be unable to provide the necessary raw materials or finishedproducts or otherwise fail to deliver the products in a timely manner and in the quantities required, any resulting delays in the provision of services couldhave a material adverse effect on our business, financial condition, results of operations and cash flows. Additionally, increasing costs of certain rawmaterials, including guar, may negatively impact demand for our services or the profitability of our business operations. In the past, our industry facedsporadic shortages associated with hydraulic fracturing operations, such as proppant and guar, requiring work stoppages, which adversely impacted theoperating results of several competitors. We may not be able to mitigate any future shortages of raw materials, including proppants.We are vulnerable to the potential difficulties associated with growth, mergers, acquisitions and expansion.We believe that our future success depends on our ability to take advantage of and manage the rapid growth that we have experienced, as well asthe demands from increased responsibility on our management personnel. The following factors could present difficulties to us:•lack of sufficient executive-level personnel;•increased administrative burden;•long lead times associated with acquiring additional equipment;•ability to manage significant levels of idle equipment in sustained periods of depressed oil and natural gas prices; and•ability to maintain the level of focused service attention that we have historically been able to provide to our customers.In addition, in the future we may seek to grow our business through acquisitions that enhance our existing operations. The success of anycompleted acquisition will depend on our ability to integrate effectively the acquired business into our existing operations. The process of integratingacquired businesses may involve unforeseen difficulties and may require a disproportionate amount of our managerial and financial resources. Our operatingresults could be adversely affected if we do not successfully manage these potential difficulties in integrating the businesses we may acquire.Our operations are subject to hazards inherent in the oilfield services industry.Risks inherent to our industry, such as equipment defects, vehicle accidents, explosions and uncontrollable flows of gas or well fluids, can causepersonal injury, loss of life, suspension of operations, damage to formations, damage to facilities,23Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.business interruption and damage to, or destruction of property, equipment and the environment. For example, transportation of heavy equipment creates thepotential for our trucks to become involved in roadway accidents, which in turn could result in personal injury or property damages lawsuits being filedagainst us. In addition, our hydraulic fracturing and well completion services could become a source of spills or releases of fluids, including chemicals usedduring hydraulic fracturing activities, at the site where such services are performed, or could result in the discharge of such fluids into undergroundformations that were not targeted for fracturing or well completion activities, such as potable aquifers. These risks could expose us to substantial liability forpersonal injury, wrongful death, property damage, loss of oil and natural gas production, pollution and other environmental damages and could result in avariety of claims, losses and remedial obligations that could have a material adverse effect on our business and results of operations. The existence, frequencyand severity of such incidents will affect operating costs, insurability and relationships with customers, employees and regulators. In particular, our customersmay elect not to purchase our services if they view our safety record as unacceptable, which could cause us to lose customers and substantial revenue.Our operational personnel have experienced accidents which have, in some instances, resulted in serious injuries. Our safety procedures may notalways prevent such damages. Our insurance coverage may be inadequate to cover our liabilities. In addition, we may not be able to maintain adequateinsurance in the future at rates we consider reasonable and commercially justifiable or on terms as favorable as our current arrangements. The occurrence of asignificant uninsured claim, a claim in excess of the insurance coverage limits maintained by us or a claim at a time when we are not able to obtain liabilityinsurance could have a material adverse effect on our ability to conduct normal business operations and on our financial condition, results of operations andcash flows.Unsatisfactory safety performance may negatively affect our customer relationships and, to the extent we fail to retain existing customers or attract newcustomers, adversely impact our revenues.Our ability to retain existing customers and attract new business is dependent on many factors, including our ability to demonstrate that we canreliably and safely operate our business in a manner that is consistent with applicable laws, rules and permits, which legal requirements are subject to change.Existing and potential customers consider the safety record of their third-party service providers to be of high importance in their decision to engage suchproviders. If one or more accidents were to occur at one of our operating sites, the affected customer may seek to terminate or cancel its use of our facilities orservices and may be less likely to continue to use our services, which could cause us to lose substantial revenues. Furthermore, our ability to attract newcustomers may be impaired if they elect not to engage us because they view our safety record as unacceptable. In addition, it is possible that we willexperience multiple or particularly severe accidents in the future, causing our safety record to deteriorate. This may be more likely as we continue to grow, ifwe experience high employee turnover or labor shortage, or hire inexperienced personnel to bolster our staffing needs.We may be unable to employ a sufficient number of key employees, technical personnel and other skilled and qualified workers.The delivery of our services and products requires personnel with specialized skills and experience who can perform physically demanding work.As a result of the volatility in the energy service industry and the demanding nature of the work, workers may choose to pursue employment in fields thatoffer a different work environment. Our ability to be productive and profitable will depend upon our ability to employ and retain skilled workers. In addition,our ability to expand our operations depends in part on our ability to increase the size of our skilled labor force. At times, demand for skilled workers in ourgeographic area of operations is high, and the supply is limited. A significant increase in the wages paid by competing employers could result in a reductionof our skilled labor force, increases in the wage rates that we pay, or both. If either of these events were to occur, our capacity and profitability could bediminished, and our growth potential could be impaired.We depend heavily on the efforts of our executive officers, managers and other key employees to manage our operations. The unexpected loss orunavailability of key members of management or technical personnel may have a material adverse effect on our business, financial condition, prospects orresults of operations.Weather conditions could materially impair our business.Our operations may be adversely affected by severe weather events and natural disasters. Furthermore, our customers’ operations may beadversely affected by seasonal weather conditions. For example, prolonged periods of drought, hurricanes, tropical storms, heavy snow, ice or rain may resultin customer delays and other disruptions to our services. Repercussions of severe weather conditions may include:•curtailment of services;24Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.•weather-related damage to facilities and equipment, resulting in suspension of operations;•inability to deliver equipment, personnel and products to job sites in accordance with contract schedules;•increase in the price of insurance; and•loss of productivity.These constraints could also delay our operations, reduce our revenue and materially increase our operating and capital costs.Federal and state legislative and regulatory initiatives relating to hydraulic fracturing could result in increased costs and additional operatingrestrictions or delays as well as adversely affect demand for our support services.Hydraulic fracturing is an important and common practice that is used to stimulate production of natural gas and/or oil from dense subsurfacerock formations. The hydraulic fracturing process involves the injection of water, sand and chemicals under pressure into the formation to fracture thesurrounding rock and stimulate production. We commonly perform hydraulic fracturing services for our customers.Hydraulic fracturing typically is regulated by state oil and natural gas commissions, but the EPA has asserted federal regulatory authoritypursuant to the SDWA over certain hydraulic fracturing activities involving the use of diesel fuel and issued permitting guidance in February 2014 thatapplies to such activities. Also, in May 2014, the EPA published an advanced notice of proposed rulemaking under the Toxic Substances and Control Act(“TSCA”) that would require the disclosure of chemicals used in hydraulic fracturing fluids; however, to date no further action has been taken and additionalrulemaking under TSCA appears unlikely at this time. In addition, in June 2016, the EPA finalized regulations that prohibit the discharge of wastewater fromhydraulic fracturing operations to publicly owned wastewater treatment plants.In December 2016, the EPA released its final report on the potential impacts of hydraulic fracturing on drinking water resources. The final reportconcluded that “water cycle” activities associated with hydraulic fracturing may impact drinking water resources under some circumstances,” noting that thefollowing hydraulic fracturing water cycle activities and local- or regional-scale factors are more likely than others to result in more frequent or more severeimpacts: water withdrawals for fracturing in times or areas of low water availability; surface spills during the management of fracturing fluids, chemicals orproduced water; injection of fracturing fluids into wells with inadequate mechanical integrity; injection of fracturing fluids directly into groundwaterresources; discharge of inadequately treated fracturing wastewater to surface waters; and disposal or storage of fracturing wastewater in unlined pits. Since thereport did not find a direct link between hydraulic fracturing itself and contamination of groundwater resources, this years-long study report does not appearto provide any basis for further regulation of hydraulic fracturing at the federal level.Various state and local governments have implemented, or are considering, increased regulatory oversight of hydraulic fracturing throughadditional permit requirements, operational restrictions, disclosure requirements, well construction, and temporary or permanent bans on hydraulic fracturingin certain areas. For example, in May 2013, the Texas Railroad Commission adopted new rules governing well casing, cementing and other standards forensuring that hydraulic fracturing operations do not contaminate nearby water resources. In addition, state and federal regulatory agencies have recentlyfocused on a possible connection between the disposal of wastewater in underground injection wells and the increased occurrence of seismic activity, andregulatory agencies at all levels are continuing to study the possible linkage between oil and gas activity and induced seismicity. In response to theseconcerns, regulators in some states are seeking to impose additional requirements on hydraulic fracturing fluid disposal practices, including restrictions onthe operations of produced water disposal wells and imposing more stringent requirements on the permitting of such wells. The adoption and implementationof any new laws or regulations that restrict our ability to dispose of produced water gathered from our customer’s activities by limiting volumes, disposalrates, disposal well locations or otherwise, or requiring us to shut down disposal wells, could have a material adverse effect on our fluid transportationbusiness, financial condition and results of operations.Local governments also may seek to adopt ordinances within their jurisdictions regulating the time, place and manner of drilling activities ingeneral or hydraulic fracturing activities in particular or prohibit the performance of well drilling in general or hydraulic fracturing in particular. If newfederal, state or local laws or regulations that significantly restrict hydraulic fracturing are adopted, such legal requirements could result in delays, eliminatecertain drilling and injection activities and make it more difficult or costly to perform hydraulic fracturing. Any such regulations limiting or prohibitinghydraulic fracturing could result in decreased oil and natural gas exploration and production activities and, therefore, adversely affect demand for ourservices and our business. Such laws or regulations could also materially increase our costs of compliance and doing business.The adoption of new laws or regulations imposing reporting obligations on, or otherwise limiting, the hydraulic fracturing process could make itmore difficult to complete oil and natural gas wells in shale formations, increase our costs of25Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.compliance and adversely affect the hydraulic fracturing services that we render for our exploration and production customers. In addition, if hydraulicfracturing becomes regulated at the federal level as a result of federal legislation or regulatory initiatives by the EPA, fracturing activities could becomesubject to additional permitting requirements, and also to attendant permitting delays and potential increases in cost, which could adversely affect ourbusiness and results of operations.Climate change legislation or regulations restricting emissions of GHGs could result in increased operating costs and reduced demand for our services.The EPA has determined that emissions of carbon dioxide, methane and other GHGs present an endangerment to the environment becauseemissions of such gases are contributing to the warming of the earth’s atmosphere and other climatic changes. Based on these findings, the EPA adoptedregulations that restrict emissions of GHGs under existing provisions of the federal Clean Air Act including one that requires a reduction in emissions ofGHGs from motor vehicles and another that requires certain preconstruction and operating permit reviews for GHG emissions from certain large stationarysources. The EPA has also adopted rules requiring the monitoring and reporting of GHGs from specified GHG emission sources, including, among others,certain oil and natural gas production facilities, on an annual basis. More recently, in June 2016, the EPA finalized regulations under the Clean Air Act thataddress emissions of methane from equipment and processes across the source category, including hydraulically fractured oil and natural gas wellcompletions, and also imposes leak detection and repair requirements on operators. However, in June 2017 the EPA published a proposed rule to stay certainportions of the June 2016 standards for two years and re-consider the entirety of the 2016 methane standards. The EPA has not yet published a final rule and,as a result, the 2016 rule remains in effect, but the future implementation of that rule is uncertain at this time. The BLM finalized similar rules in November2016 that limit methane emissions from new and existing oil and gas operations on federal lands through limitations on the venting and flaring of gas, as wellas enhanced leak detection and repair requirements. However, in December 2017, BLM finalized a suspension of certain requirements of the rule untilJanuary 17, 2019. That suspension is now being challenged in court, and substantial uncertainty exists with respect to implementation of the rule.From time to time the U.S. Congress has considered legislation to reduce emissions of GHGs, and almost one-half of the states have establishedGHG cap and trade programs. Most of these cap and trade programs work by requiring major sources of emissions or major producers of fuels, to acquire andsurrender emission allowances. The number of allowances available for purchase is reduced each year in an effort to achieve the overall greenhouse gasemission reduction goal. In addition, in 2015, the U.S. participated in the United Nations Conference on Climate Change, which led to the creation of theParis Agreement. In August 2017, the United States issued formal notice that it was withdrawing from the Paris Agreement. The Paris Agreement has a fouryear exit process but the United States’ adherence to this process is uncertain at this time.Any new federal, regional or state restrictions on emissions of GHGs that may be imposed in areas in which we conduct business could result inincreased compliance costs or additional operating restrictions on our customers. Such actions could also potentially make our customers’ products moreexpensive and thus reduce demand for those products, which could have a material adverse effect on the demand for our services and our business. Recently,activists concerned about the potential effects of climate change have directed their attention at sources of funding for fossil-fuel energy companies, whichhas resulted in certain financial institutions, funds and other sources of capital restricting or eliminating their investment in oil and natural gas activities.Ultimately, this could make it more difficult to secure funding for exploration and production activities, which could have a material adverse effect on ourbusiness and results of operations. Notwithstanding potential risks related to climate change, the International Energy Agency estimates that global energydemand will continue to rise and will not peak until after 2040 and that oil and gas will continue to represent a substantial percentage of global energy useover that time. Finally, some scientists have concluded that increasing concentrations of GHGs in the earth’s atmosphere may produce climate changes thathave significant physical effects, such as increased frequency and severity of storms, droughts, and floods and other climatic events. If any such effects wereto occur, they could have an adverse effect on our results of operations if they were to damage our equipment or facilities.We are subject to extensive and costly environmental, and occupational health and safety laws, and regulations that may require us to take actions thatwill adversely affect our results of operations.Our business is significantly affected by stringent and complex federal, state and local laws and regulations governing the emission or dischargeof substances into the environment, protection of the environment and worker health and safety. Any failure by us to comply with such environmental andoccupational health and safety laws and regulations may result in governmental authorities taking actions against our business that could adversely impactour operations and financial condition, including the following:•issuance of administrative, civil and criminal penalties;•modification, denial or revocation of permits or other authorizations;•imposition of limitations on our operations or orders prohibiting our operations altogether; and26Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.•performance of site investigatory, remedial or other corrective actions.As part of our business, we handle, transport, and dispose of a variety of fluids and substances used by our customers in connection with their oiland natural gas exploration and production activities. We also generate and dispose of nonhazardous and hazardous wastes. The generation, handling,transportation, and disposal of these fluids, substances, and wastes are regulated by a number of laws, including CERCLA, RCRA, Clean Water Act, SDWAand analogous state laws. Under RCRA, the generation, transportation, treatment, storage, disposal and cleanup of hazardous and non-hazardous wastes areregulated. RCRA currently exempts many exploration and production wastes from classification as hazardous waste. However, these oil and gas explorationand production wastes may still be regulated under state solid waste laws and regulations, and it is possible that certain oil and natural gas exploration andproduction wastes now classified as non-hazardous could be classified as hazardous waste in the future. For example, in December 2016, the EPA andenvironmental groups entered into a consent decree to address EPA’s alleged failure to timely assess its RCRA Subtitle D criteria regulations exemptingcertain exploration and production related oil and gas wastes from regulation as hazardous wastes under RCRA. The consent decree requires EPA to proposea rulemaking no later than March 15, 2019, for revision of certain Subtitle D criteria regulations pertaining to oil and gas wastes or to sign a determinationthat revision of the regulations is not necessary. If EPA proposes rulemaking for revised oil and gas regulations, the Consent Decree requires that the EPAtake final action following notice and comment rulemaking no later than July 15, 2021.Failure to properly handle, transport or dispose of these materials or otherwise conduct our operations in accordance with these and otherenvironmental laws could expose us to liability for governmental penalties, third-party claims, cleanup costs associated with releases of such materials,damages to natural resources, and other damages, as well as potentially impair our ability to conduct our operations. Moreover, certain of theseenvironmental laws impose joint and several, strict liability even though our conduct in performing such activities was lawful at the time it occurred or theconduct of, or conditions caused by, prior operators or other third parties was the basis for such liability. In addition, environmental laws and regulations aresubject to frequent change and if existing laws, regulatory requirements or enforcement policies were to change in the future, we may be required to makesignificant unanticipated capital and operating expenditures.Anti-indemnity provisions enacted by many states may restrict or prohibit a party’s indemnification of us.We typically enter into agreements with our customers governing the provision of our services, which usually include certain indemnificationprovisions for losses resulting from operations. Such agreements may require each party to indemnify the other against certain claims regardless of thenegligence or other fault of the indemnified party; however, many states place limitations on contractual indemnity agreements, particularly agreements thatindemnify a party against the consequences of its own negligence. Furthermore, certain states, including Texas, New Mexico and Wyoming, have enactedstatutes generally referred to as “oilfield anti-indemnity acts” expressly prohibiting certain indemnity agreements contained in or related to oilfield servicesagreements. Such anti-indemnity acts may restrict or void a party’s indemnification of us, which could have a material adverse effect on our business,financial condition, prospects and results of operations.More stringent trucking regulations may increase our costs and negatively impact our results of operations.As part of the services we provide, we operate as a motor carrier and therefore are subject to regulation by the DOT, and by other various stateagencies. These regulatory authorities exercise broad powers, governing activities such as the authorization to engage in motor carrier operations andregulatory safety, and hazardous materials labeling, placarding and marking. There are additional regulations specifically relating to the trucking industry,including testing and specification of equipment and product handling requirements. In addition, the trucking industry is subject to possible regulatory andlegislative changes that may affect the economics of the industry by requiring changes in operating practices or by changing the demand for common orcontract carrier services or the cost of providing truckload services. Some of these possible changes include increasingly stringent environmental regulations,changes in the hours of service regulations which govern the amount of time a driver may drive in any specific period, require onboard black box recorderdevices or limits on vehicle weight and size. For example, in December 2016, the DOT finalized minimum training standards for new drivers seeking acommercial driver’s license. Certain motor vehicle operators are required to register with the DOT. This registration requires an acceptable operating record.The DOT periodically conducts compliance reviews and may revoke registration privileges based on certain safety performance criteria, and a revocationcould result in a suspension of operations. Since 2010, the DOT has pursued its Compliance, Safety, Accountability (“CSA”) program, in an effort to improvecommercial truck and bus safety. A component of CSA is the Safety Measurement System (“SMS”), which analyzes all safety violations recorded by federaland state law enforcement personnel to determine a carrier’s safety performance. The SMS is intended to allow DOT to identify carriers with safety issues andintervene to address those problems.27Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Interstate motor carrier operations are subject to safety requirements prescribed by the DOT. To a large degree, intrastate motor carrier operationsare subject to state safety regulations that mirror federal regulations. Such matters as weight and dimension of equipment are also subject to federal and stateregulations.From time to time, various legislative proposals are introduced, including proposals to increase federal, state or local taxes, including taxes onmotor fuels, which may increase our costs or adversely impact the recruitment of drivers. We cannot predict whether, or in what form, any increase in suchtaxes applicable to us will be enacted.New technology may hurt our competitive position.The energy service industry is subject to the introduction of new techniques and services using new technologies, some of which may be subjectto patent protection. As competitors and others use or develop new technologies or technologies comparable to ours in the future, we may lose market shareor be placed at a competitive disadvantage. Further, we may face competitive pressure to implement or acquire certain new technologies at a substantial cost.Some of our competitors have greater financial, technical and personnel resources than we do, which may allow them to gain technological advantages orimplement new technologies before we can. Additionally, we may be unable to implement new technologies or products at all, on a timely basis or at anacceptable cost. Limits on our ability to effectively use or implement new technologies may have a material adverse effect on our business, financialcondition and results of operations.Our assets require significant amounts of capital for maintenance, upgrades and refurbishment and may require significant capital expenditures for newequipment.Our hydraulic fracturing fleets and other completion service-related equipment require significant capital investment in maintenance, upgradesand refurbishment to maintain their competitiveness. The costs of components and labor required to maintain our fleets have increased in the past and mayincrease in the future with increases in demand, which will require us to incur additional costs to make our remaining active fleets operational. Our fleets andother equipment typically do not generate revenue while they are undergoing maintenance, refurbishment or upgrades. Any maintenance, upgrade orrefurbishment project for our assets could increase our indebtedness or reduce cash available for other opportunities. Further, such projects may requireproportionally greater capital investments as a percentage of total asset value, which may make such projects difficult to finance on acceptable terms. To theextent we are unable to fund such projects, we may have less equipment available for service or our equipment may not be attractive to potential or currentcustomers. Additionally, competition or advances in technology within our industry may require us to update or replace existing fleets or build or acquirenew fleets. Such demands on our capital or reductions in demand for our hydraulic fracturing fleets and other completion service related equipment and theincrease in cost to maintain labor necessary for such maintenance and improvement, in each case, could have a material adverse effect on our business,liquidity position, financial condition, prospects and results of operations and may increase the cost to make our inactive fleets operational.We are subject to certain requirements of Section 404 of the Sarbanes-Oxley Act. If we fail to comply with the requirements of Section 404 or if we or ourauditors identify and report material weaknesses in internal control over financial reporting, our investors may lose confidence in our reportedinformation and our stock price may be negatively affected.As of December 31, 2017, we are required to comply with certain provisions of Section 404 of the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley Act. Section 404 requires that we document and test our internal control over financial reporting and issue our management’s assessment of ourinternal control over financial reporting. This section also requires that our independent registered public accounting firm issue an attestation report on suchinternal control. If we fail to comply with the requirements of Section 404 of the Sarbanes-Oxley Act, or if we or our auditors identify and report materialweaknesses in our internal control over financial reporting, the accuracy and timeliness of the filing of our annual and quarterly reports may be materiallyadversely affected and could cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading priceof our common stock. In addition, a material weakness in the effectiveness of our internal control over financial reporting could result in an increased chanceof fraud and the loss of customers, reduce our ability to obtain financing and require additional expenditures to comply with these requirements, each ofwhich could have a material adverse effect on our business, results of operations and financial condition.We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar foreign anti-bribery laws.The United States Foreign Corrupt Practices Act (the “FCPA”) and similar worldwide anti-bribery laws generally prohibit companies and theirintermediaries and partners from making, offering or authorizing improper payments to non-U.S. government officials for the purpose of obtaining orretaining business. Although we currently have no international operations, we previously did business and may do business in the future in countries orregions where strict compliance with anti-bribery laws may conflict with local customs and practices. Our employees, intermediaries, and partners may face,directly or28Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.indirectly, corrupt demands by government officials, political parties and officials, tribal or insurgent organizations, or private entities in the countries inwhich we operate or may operate in the future. As a result, we face the risk that an unauthorized payment or offer of payment could be made by one of ouremployees, intermediaries, or partners even if such parties are not always subject to our control or are not themselves subject to the FCPA or other anti-briberylaws to which we may be subject. We are committed to doing business in accordance with applicable anti-bribery laws and have implemented policies andprocedures concerning compliance with such laws. Our existing safeguards and any future improvements, however, may prove to be less than effective, andour employees, intermediaries, and partners may engage in conduct for which we might be held responsible. Violations of the FCPA and other anti-briberylaws (either due to our acts, the acts of our intermediaries or partners, or our inadvertence) may result in criminal and civil sanctions and could subject us toother liabilities in the U.S. and elsewhere. Even allegations of such violations could disrupt our business and result in a material adverse effect on ourbusiness and operations.Our operations are subject to cyber-attacks or other cyber incidents that could have a material adverse effect on our business, consolidated results ofoperations, and consolidated financial condition.Our operations are becoming increasingly dependent on digital technologies and services. We use these technologies for internal purposes,including data storage, processing, and transmissions, as well as in our interactions with customers and suppliers. Digital technologies are subject to the riskof cyber-attacks and other cyber incidents. If our systems for protecting against cybersecurity risks prove not to be sufficient, we could be adversely affectedby, among other things: loss of or damage to intellectual property, proprietary or confidential information, or customer, supplier, or employee data;interruption of our business operations; and increased costs required to prevent, respond to, or mitigate cybersecurity attacks. These risks could harm ourreputation and our relationships with customers, suppliers, employees, and other third parties, and may result in claims against us. In addition, these riskscould have a material adverse effect on our business, results of operations and financial condition.Risks Related to Our Common StockThe concentration of our capital stock ownership among our largest stockholders and their affiliates will limit your ability to influence corporate matters.A large percentage of our shares of common stock are held by a relatively small number of investors whose interests may conflict. Consequently,these holders (each of whom we refer to as a “principal stockholder”) may have significant influence over all matters that require approval by ourstockholders, including the election of directors and approval of significant corporate transactions. This concentration of ownership and the rights of ourprincipal stockholders will limit your ability to influence corporate matters and, as a result, actions may be taken that you may not view as beneficial.Furthermore, conflicts of interest could arise in the future between us, on the one hand, and our principal stockholders and their respectiveaffiliates, including portfolio companies, on the other hand, concerning among other things, potential competitive business activities or businessopportunities. Several of our principal stockholders are private equity firms or investment funds in the business of making investments in entities in a varietyof industries. As a result, our principal stockholders’ existing and future portfolio companies may compete with us for investment or business opportunities.These conflicts of interest may not be resolved in our favor.Certain of our directors have significant duties with, and spend significant time serving, entities that may compete with us in seeking acquisitions andbusiness opportunities and, accordingly, may have conflicts of interest in allocating time or pursuing business opportunities.Certain of our directors, who are responsible for managing the direction of our operations and acquisition activities, hold positions ofresponsibility with other entities. The existing positions held by these directors may give rise to fiduciary or other duties that are in conflict with the dutiesthey owe to us. These directors may become aware of business opportunities that may be appropriate for presentation to us as well as to the other entities withwhich they are or may become affiliated. Due to these existing and potential future affiliations, they may present potential business opportunities to otherentities prior to presenting them to us, which could cause additional conflicts of interest. They may also decide that certain opportunities are moreappropriate for other entities with which they are affiliated and, as a result, they may elect not to present those opportunities to us. These conflicts may not beresolved in our favor.29Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Future sales or the availability for sale of substantial amounts of our common stock, or the perception that these sales may occur, could adversely affectthe trading price of our common stock and could impair our ability to raise capital through future sales of equity securities.Our Amended and Restated Certificate of Incorporation authorizes us to issue 1,000,000,000 shares of common stock, of which an estimated68,465,637 shares were outstanding as of February 23, 2018. This number includes 55,463,903 shares issued in connection with our emergence frombankruptcy. We also have 8,046,021 shares of common stock authorized for issuance as equity awards under the 2017 C&J Energy Services, Inc.Management Incentive Plan, of which 351,306 shares are issuable pursuant to outstanding options, 1,132,697 shares are issuable pursuant to outstandingrestricted stock awards and 92,332 shares are issuable pursuant to outstanding performance shares. In addition, as of February 23, 2018, warrants to purchaseup to 3,528,074 shares of our common stock were outstanding and immediately exercisable. Shares issued upon exercise of these warrants will generally befreely transferable without restriction or registration under the Securities Act pursuant to Section 1145 of the Bankruptcy Code.A large percentage of our shares of common stock are held by a relatively small number of investors. We entered into a registration rightsagreement (the “Registration Rights Agreement”) with certain of those investors in connection with our emergence from the Chapter 11 Proceeding pursuantto which we have filed a registration statement with the SEC to facilitate potential future sales of such shares by them. In addition, we filed a registrationstatement with the SEC following the closing of the O-Tex Transaction to register for sale the shares of Specified C&J Common Stock issued to theStockholders pursuant to the Merger Agreement. Sales of a substantial number of shares of our common stock in the public markets, or even the perceptionthat these sales might occur, could impair our ability to raise capital through a future sale of, or pay for acquisitions using, our equity securities.We may issue shares of our common stock or other securities from time to time as consideration for future acquisitions and investments. If anysuch acquisition or investment is significant, the number of shares of our common stock, or the number or aggregate principal amount, as the case may be, ofother securities that we may issue may in turn be substantial. We may also grant registration rights covering those shares of our common stock or othersecurities in connection with any such acquisitions and investments.We cannot predict the effect that future sales of our common stock will have on the price at which our common stock trades or the size of futureissuances of our common stock or the effect, if any, that future issuances will have on the market price of our common stock. Sales of substantial amounts ofour common stock, or the perception that such sales could occur, may adversely affect the trading price of our common stock.We have outstanding warrants that are exercisable for shares of common stock of the Company. The exercise of such equity instruments would have adilutive effect to stockholders of the Company.On January 6, 2017, we issued 1,180,083 warrants that are exercisable into shares of common stock of the Company at an initial exercise price of$27.95 per warrant. In addition, on July 26, 2017, we issued an additional 2,360,166 warrants with the same terms pursuant to the Warrant Agreement. Theexercise of these warrants into common stock would have a dilutive effect to the holdings of our existing stockholders. The warrants will not expire untilJanuary 6, 2024 and may create an overhang on the market for, and have a negative effect on the market price of, our common stock.There is no guarantee that outstanding warrants will continue to be in the money, and unexercised warrants may expire worthless. Further, the terms ofsuch warrants may be amended.If our stock price is below $27.95 per share, the warrants will have limited economic value, and they may expire worthless. In addition, thewarrant agreement provides that the terms of the warrants may be amended without the consent of any holder to cure any ambiguity or correct any defectiveprovision but requires the approval by the holders of at least a certain percentage of the then-outstanding warrants originally issued to make any change thatadversely affects the interests of the holders. Accordingly, we may amend the terms of the warrants in a manner adverse to a holder if holders of at least acertain percentage of the then outstanding warrants approve of such amendment. Because we currently have no plans to pay regular dividends on our common stock for the foreseeable future, you may not receive any return on yourinvestment unless you sell your common stock for a price greater than that which you paid for it.We have no plans to pay regular dividends on our common stock. Any declaration and payment of future dividends to holders of our commonstock is limited by restrictive covenants in our Amended Credit Facility and will be at the sole discretion of our Board and will depend on many factors,including our financial condition, earnings, capital requirements, level of indebtedness, cash flows, statutory and contractual restrictions applying to thepayment of dividends and other30Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.considerations that our Board deems relevant. In addition, any agreements governing our future indebtedness may restrict our ability to pay dividends on ourcommon stock. As a result, you may not receive any return on your investment unless you sell your common stock for a price greater than that which youpaid for it.Certain provisions of our Certificate of Incorporation, Bylaws, Stockholders Agreement and our stockholder rights plan may make it difficult forstockholders to change the composition of our Board and may discourage, delay or prevent a merger or acquisition that some stockholders may considerbeneficial.Certain provisions of our Certificate of Incorporation and our Bylaws may have the effect of delaying or preventing changes in control if ourBoard determines that such changes in control are not in the best interests of the Company and our stockholders. The provisions in our Certificate ofIncorporation and our Bylaws include, among other things, those that:•classify the Board;•limit removal of directors;•authorize our Board to issue preferred stock and to determine the price and other terms, including preferences and voting rights, of thoseshares without stockholder approval;•establish advance notice procedures for nominating directors or presenting matters at stockholder meetings;•prohibit cumulative voting;•prohibit action by written consent; and•provide that only the Board may call special meetings of stockholders.These provisions may prevent or discourage attempts to remove and replace incumbent directors. These provisions may also frustrate or preventany attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our Board,which is responsible for appointing the members of our management.We may issue preferred stock on terms that could adversely affect the voting power or value of our common stock.Our Certificate of Incorporation authorizes our Board to issue, without the approval of our stockholders, one or more classes or series of preferredstock having such designations, preferences, limitations and relative rights, including preferences over our common stock respecting dividends anddistributions, as the Board may determine. The terms of one or more classes or series of preferred stock could adversely affect the voting power or value of ourcommon stock. For example, we might grant holders of preferred stock the right to elect some number of directors in all events or on the happening ofspecified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we might assign toholders of preferred stock could affect the residual value of the common stock.Item 1B. Unresolved Staff CommentsNone.Item 2. PropertiesWe lease office space for our principal executive headquarters, which is located at 3990 Rogerdale Rd., Houston, Texas 77042. In addition, weown or lease numerous other smaller facilities and administrative offices across the geographic regions in which we operate, including local sales offices andtemporary facilities to house employees in regions where infrastructure is limited. Our leased properties are subject to various lease terms and expirations.We believe all properties that we currently occupy are suitable for their intended uses. We believe that our current facilities are sufficient toconduct our operations. However, we continue to evaluate the purchase or lease of additional properties or the consolidation of our properties, as our businessrequires.31Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The following table shows our active owned and leased properties, categorized by geographic region as of December 31, 2017.RegionAdministrative and Sales Offices;Research and TechnologyFacilities Operational Field ServicesFacilitiesWest Texas Owned1 38Leased4 25South Texas / South East Owned2 21Leased9 7Rockies / Bakken Owned— 8Leased2 18California Owned— 9Leased1 15Mid-Con Owned— 16Leased9 13North East Owned— —Leased1 11Canada Owned— —Leased1 —Total30 181Item 3. Legal ProceedingsWe are subject to various legal proceedings and claims incidental to or arising in the ordinary course of our business. Our management does notexpect the outcome in any of these known legal proceedings, individually or collectively, to have a material adverse effect on our consolidated financialcondition or results of operations.U.S. Department of Justice Criminal Investigation into Pre-Nabors Merger IncidentThere is a pending criminal investigation led by the Department of Justice in connection with a fatality that occurred at a C&P Business facilityin Williston, North Dakota on October 3, 2014 prior to the Predecessor’s acquisition of the C&P Business in the Nabors Merger. We are cooperating fullywith the investigation and expect to continue to do so. At this time, we cannot predict the outcome of the investigation.Shareholder LitigationIn July 2014, following the announcement that Old C&J, Nabors, and the Predecessor had entered into the Nabors merger agreement (the “NaborsMerger Agreement”), a putative class action lawsuit was filed by a purported shareholder of Old C&J challenging the Nabors Merger. The lawsuit isstyled City of Miami General Employees’ and Sanitation Employees’ Retirement Trust, et al. v. Comstock, et al.; C.A. No. 9980-CB, in the Court of Chanceryof the State of Delaware, filed on July 30, 2014 (the “Shareholder Litigation”). The plaintiff in the Shareholder Litigation generally alleged that the Old C&Jboard of directors breached their fiduciary duties of loyalty and care by approving the Nabors Merger at an allegedly unfair price and through an allegedlyunfair process. On November 24, 2014, the Court of Chancery preliminarily enjoined Old C&J from holding its stockholder meeting to approve the NaborsMerger Agreement for a period of 30 days (the “Injunction Order”), but32Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.the Delaware Supreme Court reversed the Injunction Order on December 17, 2014. After the Nabors Merger closed, the plaintiff filed an Amended VerifiedClass Action Complaint (the “Amended Complaint”), adding various allegations and seeking money damages instead of injunctive relief.On August 24, 2016, the Court of Chancery granted the defendants’ motions to dismiss the Amended Complaint in its entirety issued its opinionand also granted Old C&J’s motion to recover damages arising from the Injunction Order. On March 23, 2017, the Supreme Court issued an order affirmingthe Court of Chancery’s opinion.Plaintiff then filed a motion for attorneys’ fees and costs. On Tuesday, January 23, 2018, the Court of Chancery denied Plaintiff’s motion forattorneys’ fees and costs.Item 4. Mine Safety DisclosuresNot applicable.33Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.PART IIItem 5. Market for Registrant’s Common Equity and Related Shareholder Matters and Issuer Purchases of Equity SecuritiesMarket Price of and Dividends on the Registrant’s Common Equity and Related Shareholder MattersOur common shares are traded on the NYSE under the symbol “CJ.” As of February 27, 2018, we had 68,465,637 common shares issued andoutstanding, held by approximately 37 registered holders. The number of registered holders does not include holders that have common shares held for themin “street name,” meaning that the shares are held for their accounts by a broker or other nominee. In these instances, the brokers or other nominees areincluded in the number of registered holders, but the underlying holders of the common shares that hold such shares in “street name” are not.The following table sets forth the high and low sales prices of our common shares as reported by the NYSE for the periods indicated: High LowPeriod from March 6, 2017 to March 31, 2017 $41.00 $32.49Quarter ended June 30, 2017 $37.49 $28.17Quarter ended September 30, 2017 $35.07 $24.70Quarter ended December 31, 2017 $35.07 $24.92From March 6, 2017, through April 12, 2017, the Company’s common stock was traded on the NYSE MKT under the symbol “CJ.” Prior toMarch 6, 2017, the Company's common stock was not traded on a national securities exchange.On February 27, 2018, the last reported sales price of our common shares on the NYSE was $24.26 per share.We have not declared or paid any cash dividends on our common stock. We currently intend to retain all future earnings for the development andgrowth of our business, and we do not anticipate declaring or paying any cash dividends to holders of our common stock in the foreseeable future. Paymentsof dividends, if any, will be at the discretion of our Board and will depend on our results of operations, financial condition, capital requirements and otherfactors deemed relevant by our Board. Additionally, covenants contained in our Amended Credit Facility restrict the payment of cash dividends on ourcommon stock. Please read Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and CapitalResources-Description of our Credit Agreement” in this Annual Report.Recent Sales of Unregistered SecuritiesOn October 25, 2017, the Company entered into the Merger Agreement, providing for the merger of Merger Sub with and into O-Tex, with O-Tex surviving the Merger, and immediately thereafter, the merger of O-Tex with and into another wholly owned direct subsidiary of the Company.On the Closing Date, each holder of O-Tex Shares (as defined above) had its O-Tex Shares (excluding any O-Tex Shares held in the treasury of O-Tex or held by us or Merger Sub immediately prior to the effective time of the Merger) converted into the right to receive such Stockholders’ pro rata portionof the Specified C&J Common Stock (as defined above).On the Closing Date, in connection with the completion of the Merger, we issued the Specified C&J Common Stock to the Stockholders asdescribed above. The issuance of the Specified C&J Common Stock in the Merger was not registered under the Securities Act. These shares were issued in aprivate placement exempt from the registration requirements of the Securities Act, in reliance on the exemptions set forth in Section 4(a)(2) of the SecuritiesAct. On December 22, 2017, we filed a registration statement entitling the O-Tex Stockholders to request that we register their Specified C&J Common Stockfor sale under the Securities Act at various times and upon the terms and conditions set forth in the Merger Agreement.Rights Offering, Backstop Commitment AgreementOn December 6, 2016, we entered into a backstop commitment agreement (the “Backstop Commitment Agreement”), pursuant to which certainholders of our unsecured indebtedness as of such date (the “Backstop Parties”) agreed to backstop a $200.0 million cash investment in us pursuant to a rightsoffering (the “Rights Offering”) conducted in accordance with the Restructuring Plan.34Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.In accordance with the Restructuring Plan, the Backstop Commitment Agreement and the Rights Offering procedures, we offered eligiblecreditors, including the Backstop Parties, the right to purchase common stock upon emergence from the Chapter 11 Proceeding for an aggregate purchaseprice of $200 million. The Rights Offering, which commenced on November 15, 2016 and ended on December 9, 2016, provided holders of eligible securedclaims under our prior credit agreement as of the record date set therefor to be granted rights entitling each such holder to subscribe to purchase an amount ofcommon stock (such common stock offered for purchase pursuant to the Rights Offering, the “Rights Offering Shares”) up to such holders’ respective pro ratashare of such eligible secured claims at a per share price of $13.58. Under the Backstop Commitment Agreement, the Backstop Parties agreed to purchase,severally and not jointly, the Rights Offering Shares that were not duly subscribed to by parties other than Backstop Parties pursuant to the Rights Offering atthe same per share price as the Rights Offering (the “Backstop Commitment”).We paid the Backstop Parties on the Plan Effective Date a put option premium equal to 5.0% of the $200 million committed amount (the “PutOption Premium”) in the form of common stock at the same per share price offered in the Rights Offering. All amounts paid to the Backstop Parties in theircapacities as such for the Put Option Premium were paid pro rata based on the amount of their respective Backstop Commitments. As a condition to theclosing of the transactions contemplated by the Backstop Commitment Agreement, we entered into a Registration Rights Agreement with the BackstopParties entitling such Backstop Parties to request that we register their securities for sale under the Securities Act at various times and upon the terms andconditions set forth in the Registration Rights Agreement.New Common StockOn the Plan Effective Date, pursuant to the terms of the Restructuring Plan, we issued an aggregate of 55,463,903 shares of common stock to theHolders of Allowed Secured Lender Claims (as defined in the Restructuring Plan). We also issued 1,180,083 warrants (subject to adjustments pursuant to theterms of the Warrants) at an initial exercise price of $27.95 per warrant (subject to adjustments pursuant to the terms of the Warrants) to former holders ofInterests in our Predecessor and will issue in the future up to an additional 2,360,166 warrants (subject to adjustments pursuant to the terms of the Warrants) atan initial exercise price of $27.95 per warrant (subject to adjustments pursuant to the terms of the Warrants) to the Unsecured Claims Representative for thebenefit of the former holders of Unsecured Creditor Claims after the Plan Effective Date in accordance with the terms of the Restructuring Plan, theConfirmation Order, the Unsecured Creditor Agreement and the Warrant Agreement.Of the 55,463,903 shares of common stock issued on the Plan Effective Date,•39,999,997 shares of common stock were issued pro rata to certain holders of claims arising under our Predecessor's prior credit agreement(the “Plan Shares”);•14,408,789 shares of common stock were issued to participants in the Right Offering at a per share purchase price of $13.58, for anaggregate purchase price of approximately $195.7 million (the “Rights Offering Shares”);•318,743 shares of common stock were issued to the Backstop Parties under the Backstop Parties’ commitment to purchase UnsubscribedShares (as defined in the Backstop Commitment Agreement) at a per share purchase price of $13.58, for an aggregate purchase price ofapproximately $4.3 million (the “Backstop Shares”); and•736,374 shares of common stock were issued to the Backstop Parties as the Put Option Premium (as defined in the Backstop CommitmentAgreement) under the Backstop Commitment Agreement, representing 5.0% of the $200 million committed amount and a per sharepurchase price of $13.58 (the “Put Option Shares”).The Warrants, Plan Shares, Rights Offering Shares and Put Option Shares were issued pursuant to an exemption from the registration requirementsof the Securities Act under Section 1145 of the Bankruptcy Code. The Backstop Shares were issued pursuant to the exemption from the registrationrequirements of the Securities Act provided by Section 4(a)(2) thereof.Purchases of Equity Securities by the Issuer or Affiliated PurchasersRepurchases of Equity SecuritiesThe following table summarizes stock repurchase activity for the fiscal year ended December 31, 2017 (in thousands, except average price paidper share). All of the repurchases below are the Successor common stock that were35Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.withheld to satisfy tax withholding obligations of employees that arose upon the vesting of restricted stock. The value of such stock is based on the closingprice of the Successor common stock on the vesting date. No shares of stock were purchased as part of a publicly announced program. Total Numberof SharesPurchased (a) AveragePricePaid PerShareJanuary 1—January 31 — $—February 1—February 28 107,336 43.93March 1—March 31 — —April 1—April 30 — —May 1—May 31 — —June 1—June 30 — —July 1—July 31 — —August 1—August 31 — —September 1—September 30 — —October 1—October 31 — —November 1—November 30 — —December 1—December 31 — —(a) Represents shares that were withheld by us to satisfy tax withholding obligations of employees that arose upon the vesting of restricted shares. Thevalue of such shares is based on the closing price of our common shares on the vesting date.Item 6. Selected Financial DataThis section presents our selected consolidated financial data for the periods and as of the dates indicated. The selected historical consolidatedfinancial data presented below is not intended to replace our historical consolidated financial statements. The following selected consolidated financial datashould be read in conjunction with both Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and PartII, Item 8 “Financial Statements and Supplementary Data” of this Annual Report in order to understand those factors, such as the Nabors Merger, which mayaffect the comparability of the Selected Financial Data: Successor Predecessor Year EndedDecember 31, Years Ended December 31, 2017 2016 2015 2014 2013 (In thousandsexcept per shareamounts) (In thousands except per share amounts)Revenue $1,638,739 $971,142 $1,748,889 $1,607,944 $1,070,322Net income (loss) $22,457 $(944,289) $(872,542) $68,823 $66,405Net income (loss) per common share Basic $0.37 $(7.98) $(8.48) $1.28 $1.25Diluted $0.37 $(7.98) $(8.48) $1.22 $1.20Total assets $1,608,857 $1,361,682 $2,198,991 $1,612,746 $1,132,300Long-term debt and capital leaseobligations, excluding current portion $— $— $1,108,123 $349,875 $164,20536Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion and analysis of our financial condition and results of operations is intended to assist you in understanding ourbusiness and results of operations together with our present financial condition. This section should be read in conjunction with the audited consolidatedfinancial statements and the related notes thereto included elsewhere in this Annual Report. This discussion and analysis contains forward-lookingstatements that involve risks and uncertainties. Our actual results may differ materially from those discussed in any forward-looking statement because ofvarious factors, including, without limitation, those described in the sections titled “Cautionary Note Regarding Forward-Looking Statements” and Part I,Item 1A “Risk Factors” of this Annual Report.Introductory Note and Corporate OverviewC&J Energy Services, Inc., a Delaware corporation (the “Successor” and together with its consolidated subsidiaries for periods subsequent to thePlan Effective Date (as defined below), “C&J” or the “Company”) is a leading provider of well construction, well completion, well support and othercomplementary oilfield services to oil and gas exploration and production (“E&P”) companies throughout the continental United States. We offer acomprehensive, integrated suite of services throughout the life cycle of the well, including hydraulic fracturing, cased-hole wireline and pumping,cementing, coiled tubing, directional drilling, rig services, fluids management, artificial lift and other completion and specialty well site support services. Weare headquartered in Houston, Texas and operate across all active onshore basins in the continental United States.Business OverviewDemand for our services, and therefore our operating and financial performance, is heavily influenced by drilling, completion and productionactivity by our customers, which is significantly impacted by commodity prices. Beginning in 2011 through mid-2015, we significantly invested in a numberof strategic initiatives to strengthen, expand and diversify our business, including through service line diversification, vertical integration and technologicaladvancement (“R&T”). During that time, we rapidly grew our business both organically and through multiple acquisitions, including the Nabors Merger.During 2016 and into the first quarter of 2017, we divested several of our small, non-core businesses, including our specialty chemical business,equipment manufacturing and repair business, and our international coiled tubing operations in the Middle East. These divestitures, as well as the sale of ourCanadian Well Support Services business in November 2017 discussed below, reflect a refocusing of our growth strategy in line with our goal of being theleading U.S. provider in all of our core services. Additionally, in furtherance of our strategy, we have continued to rightsize our U.S. Well Support Servicessegment, while we accelerated the growth of our cementing services with the O-Tex Transaction, described below.We emerged from the Chapter 11 Proceeding as the market was beginning to recover. During 2017, we focused on the continuous improvement ofour organization, including several ongoing initiatives purposed to optimize our business processes and gain greater efficiency over time. We also took adeliberate approach to increasing our core capabilities, adding capacity, and growing our core service lines.The O-Tex TransactionOn October 25, 2017, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among Caymus Merger Sub, Inc., aDelaware corporation and wholly owned direct subsidiary of the Company (“Merger Sub”), O-Tex Holdings, Inc., a Texas corporation (“O-Tex”), thestockholders of O-Tex (the “Stockholders”), and O-Tex Sellers Representative LLC, a Delaware limited liability company, in its capacity as representative ofthe Stockholders (the “Stockholders’ Representative”), providing for the merger of Merger Sub with and into O-Tex (the “Merger”), with O-Tex surviving theMerger, and immediately thereafter, the merger of O-Tex with and into another wholly owned direct subsidiary of the Company (together with the Merger andthe other transactions contemplated by the Merger Agreement, the “O-Tex Transaction”).On November 30, 2017 (the “Closing Date”), each holder of (i) outstanding common stock, par value $0.01 per share, of O-Tex (the “O-Tex Common Stock”), (ii) Series A Preferred Stock, par value $0.01 per share, of O-Tex (the “Series A Preferred Stock”), and (iii) Series B Preferred Stock, parvalue $0.01 per share, of O-Tex (together with the Series A Preferred Stock and the O-Tex Common Stock, the “O-Tex Shares”) had its O-Tex Shares(excluding any O-Tex Shares held in the treasury of O-Tex or held by the Company or Merger Sub immediately prior to the effective time of the Merger)converted into the right to receive such Stockholders’ pro rata portion of 4,420,000 shares of common stock, par value $0.01 per share, of the Company (the“Specified C&J Common Stock”). In addition, we paid to the Stockholders’ Representative, and each37Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Stockholder became entitled to receive a pro rata portion of $90.8 million in cash. The cash portion of the merger consideration was determined based on$132.5 million of base cash merger consideration, which was subject to closing adjustments as provided in the Merger Agreement (including reductions forthe repayment of O-Tex’s indebtedness and transaction expenses) and may be further adjusted post-closing as provided in the Merger Agreement (includingreductions for the payment of certain amounts into escrow for post-closing working capital adjustments and the satisfaction of post-closing indemnificationobligations).The foregoing description of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the MergerAgreement, which was filed as Exhibit 2.1 to our Current Report on Form 8-K filed with the SEC on October 26, 2017 and is incorporated herein by reference.Canadian Well Support Service DivestitureOn October 30, 2017, we entered into an Asset Purchase Agreement (the “Purchase Agreement”) with CWC Energy Services Corp., an Albertacorporation (“CWC”), and C&J Energy Production Services-Canada Ltd., an Alberta corporation and an indirect wholly owned subsidiary of the Company(“C&J Canada”), whereby CWC, among other things, acquired the assets of C&J Canada included in the Purchased Business (as defined in the PurchaseAgreement) for total consideration of CDN $37.5 million in cash (the “Canadian Divestiture”).With the closing of the Canadian Divestiture on November 5, 2017, we have completely exited the Well Support Services business in WesternCanada, and we are no longer providing any oilfield services in Canada.38Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Our Reportable Business SegmentsAs of December 31, 2017, our reportable business segments were:•Completion Services, which consists of the following businesses and service lines: (1) fracturing; (2) cased-hole wireline and pumpingservices; (3) well construction & intervention services, which includes cementing, coiled tubing and directional drilling services; and (4)completion support services, which includes our R&T department and data control instruments business.•Well Support Services, which consists of the following businesses and service lines: (1) rig services; (2) fluids management services; and (3)special services, which includes plug and abandonment, artificial lift applications and other specialty well site services.Our Other Services segment consisted of smaller, non-core business lines that have since been divested, including our specialty chemicalbusiness, equipment manufacturing and repair business and our international coiled tubing operations in the Middle East. In line with the discontinuance ofthese small, ancillary service lines and divisions, subsequent to the year ended December 31, 2016, we are now disclosing two reportable segments, andfinancial information for the Other Services reportable segment is only presented for the corresponding prior year period.Our reportable business segments are described in more detail below; for financial information about our reportable business segments, includingrevenue from external customers and total assets by reportable business segment, please see “Note 13 - Segment Information” in Part II, Item 8 “FinancialStatements and Supplementary Data” of this Annual Report.Completion ServicesThe core services provided through our Completion Services segment are fracturing and cased-hole wireline and pumping services. We utilizeour in-house manufacturing capabilities, including our R&T department and data control instruments business, to offer a technologically advanced andefficiency focused range of completion techniques. Our well construction & intervention services business, which includes cementing, coiled tubing anddirectional drilling services, and our completion support services business, which includes the manufacturing capabilities of our R&T department and datacontrol instruments business, are each also managed through our Completion Services segment. The majority of revenue for this segment is generated by ourfracturing business.During the fourth quarter of 2017, our fracturing business deployed, on average, approximately 590,000 hydraulic horsepower (“HHP”) out ofour fleet of approximately 860,000 HHP as of December 31, 2017. We ended the year with 615,000 HHP deployed over 14 horizontal and two vertical fleets.With the delivery and deployment of an additional 40,000 new HHP in February 2018, our current total capacity is 900,000 HHP. In our cased-hole wirelineand pumping business, we deployed, on average, approximately 75 of our average fleet of 124 wireline trucks, as well as all 68 of our pumpdown units. In ourwell construction & intervention services business, we deployed, on average, approximately 16 coiled tubing units out of our average fleet of approximately44 units. Prior to the completion of the O-Tex Transaction, in our legacy cementing services business, we deployed, on average, approximately 31 cementingunits out of our average fleet of 36 units. After the completion of the O-Tex Transaction, we deployed, on average, approximately 56 cementing units out ofour average fleet of 81 units during the month of December. However, our deployed assets may not be utilized fully, or at all, at any given time, due to,among other things, routine scheduled maintenance and downtime.Management evaluates the operational performance of our Completions Services segment and allocates resources primarily based on AdjustedEBITDA because management believes that Adjusted EBITDA provides important information about the activity and profitability of our lines of businesswithin this segment. Adjusted EBITDA is a non-GAAP financial measure computed as total earnings (loss) before net interest expense, income taxes,depreciation and amortization, other income (expense), net, net gain or loss on disposal of assets, acquisition-related costs, and non-routine items.For the year ended December 31, 2017, revenue from our Completion Services segment was $1.3 billion, representing approximately 76.7% of our totalrevenue, compared with revenue of $599.8 million for the year ended December 31, 2016, which represents a 109.5% year-over-year increase. AdjustedEBITDA from this segment for the year ended December 31, 2017 was $221.9 million, compared with $(41.6) million of Adjusted EBITDA for the year endedDecember 31, 2016, which39Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.represents a 633.1% year-over-year increase. Successor Predecessor Year Ended December 31, 2017 2016 Revenue Fracturing$777,147 $353,929Wireline & Pumping Services315,999 159,317Other (Cementing, Coil, Directional Drilling and Research & Technology)163,365 86,541Total revenue$1,256,511 $599,787 Adjusted EBITDA$221,888 $(41,624) Average active hydraulic fracturing horsepower515,000 480,000Total fracturing stages15,189 11,413 Average coiled tubing units44 45Average active coiled tubing units19 27 Average active wireline trucks72 68 Average active pumpdown units61 44Please read Note 13 - Segment Information” in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report, for areconciliation of Adjusted EBITDA, a non-GAAP financial measure, from net income (loss), which is the nearest comparable U.S. GAAP financial measure (inthousands) on a reportable segment basis for the years ended December 31, 2017 and 2016.In our Completion Services segment, we continued to experience strong customer demand for all of our core services, which resulted insequential improvement in both revenue and profitability despite year-end seasonality. In our fracturing business, we deployed a refurbished horizontal fracfleet to a dedicated customer in the Mid-Continent in early December 2017, which resulted in approximately 615,000 HHP deployed at quarter endconsisting of fourteen horizontal and two vertical frac fleets. We also experienced solid customer demand and improved pricing in our wireline and pumpingbusinesses, offset by varying degrees of year-end seasonality as certain core customers either substantially reduced activity levels or deferred certain jobs intothe first quarter of 2018. With respect to our wireline business, our Texas districts continued to outperform, delivering an almost 13.0% increase in revenuethat enhanced fourth quarter profitability and offset seasonal revenue declines in other core basins. In our well construction and intervention servicesbusiness, our fourth quarter financial performance benefited from the closing of the O-Tex Transaction. Additionally, our cementing services businesscontinued to experience growing demand and improved utilization in our core West Texas operating basin as we were awarded more rigs from both new andexisting customers. In our coiled tubing business, despite fourth quarter seasonality, utilization and pricing continued to improve due to tight marketconditions for large diameter units and our recently signed agreements for dedicated units with some of our most active customers in both South and WestTexas. Demand for large diameter units remains strong, and we are currently evaluating additional dedicated agreements with select customers for our twonew-build units that we expect to be delivered early in the second quarter of 2018.Completion Services OutlookAs we move through the first quarter of 2018, we currently expect that our Completion Services segment will continue to experience strongactivity levels based on increasing demand for our products and services as customer budgets were refreshed and new production targets set early in the firstquarter. Based on customer demand in our fracturing business, we expect to deploy an additional horizontal fleet, consisting of new-build pumps andrefurbished ancillary equipment, to a dedicated customer by the end of the first quarter. This will result in us exiting the first quarter of 2018 withapproximately 655,000 HHP deployed, consisting of fifteen horizontal and two vertical fracturing fleets. We also currently expect to deploy all of ouradditional refurbished equipment by year-end 2018 due to continued strong near-term outlook. In our cased-hole wireline and pumping business, we expectto deploy refurbished pumping units and previously stacked wireline trucks into40Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.service during the first quarter as customers continue to increase completion activity and we continue to seek to align ourselves with our most efficientcustomers with competitive pricing.In our cementing business, we expect to focus on increasing utilization by fully integrating the O-Tex asset base and redeploying warm stackedunits at market pricing. We expect the majority of asset redeployment and improvement in utilization to occur in West Texas where demand remains strong,but we anticipate gradual improvement in our other core operating basins by the end of the first quarter as the chance for potential disruptions caused byinclement weather decreases. We ordered two large diameter, meaning two inches or larger in diameter, new-build coiled tubing units to meet strong demandfrom multiple customers, which are expected to be deployed to customers early in the second quarter of 2018. With the arrival of these new units combinedwith strengthening market conditions, we expect to continue with our strategy of dedicating additional units to our most active customers at elevatedutilization levels and market pricing. We have and expect to continue to experience increases in activity and pricing in all of our core operating basins.Well Support ServicesOur Well Support Services segment focuses on post-completion activities at the well site, including rig services, such as workover and plug andabandonment, fluids management, and special services, including artificial lift applications and other specialty well site services. The majority of revenue forthis segment is generated by our rig services business, and we consider rig services and fluids management to be our core businesses within this segment.During the fourth quarter of 2017, our rig services business deployed, on average, approximately 121 workover rigs per workday out of ouraverage fleet of approximately 400 marketable workover rigs. In our fluids management business, we deployed, on average, approximately 628 fluid servicestrucks per workday and approximately 1,114 frac tanks per workday out of our estimated average fleets of approximately 1,087 trucks and 3,744 frac tanks,respectively. In our fluids management business, we own 25 private salt water disposal wells for fluids disposal purposes. However, our deployed assets maynot be utilized fully, or at all, at any given time, due to, among other things, routine scheduled maintenance and downtime. Additionally, in response to thecontinued competitive landscape, we have continued to focus on operational rightsizing measures to better align these businesses with current marketconditions, which has included closing facilities and idling unproductive equipment.Management evaluates the operation and performance of our Well Support Services segment and allocates resources primarily based on activitylevels, specifically rig and trucking hours, as well as Adjusted EBITDA. The following table presents rig and trucking hours for our Well Support Services forthe years ended December 31, 2017 and 2016 (in thousands): Successor Predecessor Year Ended December 31, 2017 2016 Revenue Rig Services$218,819 $197,003 Fluids Management Services122,949 132,486 Other Well Support Services (includes ESPCT)40,460 34,279Total revenue$382,228 $363,768 Adjusted EBITDA$9,233 $19,456 Average active workover rigs188 197Total workover rig hours452,948 429,727 Average fluids management trucks1,107 1,411Average active fluids management trucks638 725Total fluids management truck hours1,281,024 1,384,89741Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Please read Note 13 - Segment Information” in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report, for areconciliation of Adjusted EBITDA, a non-GAAP financial measure, from net income (loss), which is the nearest comparable U.S. GAAP financial measure (inthousands) on a reportable segment basis for the years ended December 31, 2017 and 2016.During the fourth quarter of 2017, Well Support Services segment revenue decreased sequentially primarily due to the sale of our Canadian rigservices business in early November 2017 and the typical year-end seasonal slowdown. However, we improved segment profitability by executing onimproving demand in select core basins and obtaining higher overall pricing for our services, even with an additional $1.6 million of inventory write-downsin our artificial lift business. In our rig services business, we continued to capitalize on high-grading our customer base and reallocating assets to areas withimproving demand and higher overall pricing. In West Texas, despite a seasonally-driven decline in workover rig and trucking activity, revenue increasednearly 4.0% driven by plug and abandonment, frac tank rentals and special services. Additionally, our special services business experienced improvedrevenue and profitability due to higher activity levels in California. As oil prices increased, we continued with our strategy of selectively deployingequipment with customers that plan to increase workover or well maintenance activities in our core operating basins. In our fluids management business,improving activity levels primarily in West Texas and the Mid-Continent resulted in higher pricing and sequential improvement in both revenue andprofitability. However, our ability to fully capitalize on those opportunities was limited due to a lack of skilled labor, and we believe that pricing will need tofurther increase in order to both attract and retain additional personnel to meet improving demand for fluids management services as production levelscontinue to increase.Well Support Services OutlookAs we move through the first quarter of 2018, we currently expect that our Well Support Services segment will experience higher activity levelsand improving profitability. We expect that improving oil prices and workover economics will result in increased workover activity levels allowing us tocontinue our strategy of high-grading our customer base and reallocating assets into areas with higher pricing and profitability. In our fluids managementbusiness, we expect to continue to focus on putting personnel and equipment to work in areas with improving demand, such as West Texas, and the Mid-Continent. However, labor will continue to be an impediment and we plan to increase our rates commensurate with our rising cost structure to generate moreattractive returns. We expect our fluids management business to continue to face competition from growing infrastructure build-out, and any future assetdeployment will also be limited by our ability to raise rates to attract and retain skilled workers. We are encouraged to see signs of market improvement forour Well Support Services segment, and our primary goal remains to align ourselves with customers that value our ability to deliver superior service qualitysafely and to increase segment profitability.Other ServicesOur Other Services segment consisted of smaller, non-core business lines that have since been divested, including our specialty chemicalbusiness, equipment manufacturing and repair business and the Company's international coiled tubing operations in the Middle East. In line with thediscontinuance of these small, ancillary service lines and divisions, subsequent to the year ended December 31, 2016, we are now disclosing two reportablesegments, and financial information for the Other Services reportable segment is only presented for the corresponding prior year period.Our Other Services segment contributed $7.6 million of revenue for the year ended December 31, 2016, which represents approximately 0.8% ofour total revenue. Adjusted EBITDA from this segment for the year ended December 31, 2016 was $(5.8) million.Please read Note 13 - Segment Information” in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report, for areconciliation of Adjusted EBITDA, a non-GAAP financial measure, from net income (loss), which is the nearest comparable U.S. GAAP financial measure (inthousands) on a reportable business segment basis for the year ended December 31, 2016.Operating Overview & StrategyOur results of operations in our core service lines are driven primarily by four interrelated, fluctuating variables: (1) the drilling, completion andproduction activities of our customers, which is primarily driven by oil and natural gas prices and directly affects the demand for our services; (2) the price weare able to charge for our services, which is primarily driven by the level of demand for our services and the supply of equipment capacity in the market;(3) the cost of products and labor42Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.involved in providing our services, and our ability to pass those costs on to our customers; and (4) our activity, or “utilization” levels, and serviceperformance.Our operating strategy is focused on maintaining high asset utilization levels to maximize revenue generation while controlling cost to gain acompetitive advantage and drive returns. We believe that the quality and efficiency of our service execution and aligning with customers who recognize thevalue that we provide through efficiency gains are central to our efforts to support utilization and grow our business. However, asset utilization is notnecessarily indicative of our financial and/or operational performance and should not be given undue reliance. Given the volatile and cyclical nature ofactivity drivers in the U.S. onshore oilfield services industry, coupled with the varying prices we are able to charge for our services and the cost of providingthose services, among other factors, operating margins can fluctuate widely depending on supply and demand at a given point in the cycle.Historically, our utilization levels have been highly correlated to U.S. onshore spending by our customers as a group. Generally, as capitalspending by our customers increases, drilling, completion and production activity also increases, resulting in increased demand for our services, and thereforemore days or hours worked (as the case may be). Conversely, when drilling, completion and production activity levels decline due to lower spending by ourcustomers, we generally provide fewer services, which results in fewer days or hours worked (as the case may be). Additionally, during periods of decreasedspending by our customers, we may be required to discount our rates or provide other pricing concessions to remain competitive and support utilization,which negatively impacts our revenue and operating margins. During periods of pricing weakness for our services, we may not be able to reduce our costsaccordingly, and our ability to achieve any cost reductions from our suppliers typically lags behind the decline in pricing for our services, which couldfurther adversely affect our results. For additional information about factors impacting our business and results of operations, please see “Industry Trends andOutlook” in this Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”Management evaluates the performance of our reportable business segments primarily based on Adjusted EBITDA because management believesAdjusted EBITDA provides important information about the activity and profitability of our lines of business within each reportable business segment andaids us in analytical comparisons for purposes of, among other things, efficiently allocating our assets and resources. Our management team also monitorsasset utilization, among other factors, for purposes of assessing our overall activity levels and customer demand. In our Completion Services segment, wemeasure our asset utilization levels primarily by the total number of days that our asset base works on a monthly basis, based on the available working daysper month, which excludes scheduled maintenance days. We generally consider an asset to be working such days that it is at or in transit to a job location,regardless of the number of hours worked or whether it generated any revenue during such time. In our Well Support Services segment, we measure activitylevels primarily by the number of hours our assets work on a monthly basis, based on the available working days per month. However, given the variance inrevenue and profitability from job to job, depending on the type of service to be performed and the equipment, personnel and consumables required for thejob, as well as competitive factors and market conditions in the region in which the services are performed, asset utilization cannot be relied on as indicativeof our financial or operating performance. For additional information, please see “Our Reportable Business Segments” in this Part II, Item 7 “Management’sDiscussion and Analysis of Financial Condition and Results of Operations.”Industry Trends and OutlookWe face many challenges and risks in the industry in which we operate. Although many factors contributing to these risks are beyond our abilityto control, we continuously monitor these risks and have taken steps to mitigate them to the extent practicable. In addition, while we believe that we are wellpositioned to capitalize on available growth opportunities, we may not be able to achieve our business objectives and, consequently, our results ofoperations may be adversely affected. Please read the factors described in the sections titled “Cautionary Note Regarding Forward-Looking Statements”and “Risk Factors” in Part I, Item 1A of this Annual Report for additional information about the known material risks that we face.General Industry TrendsThe oil and gas industry has traditionally been volatile and is influenced by a combination of long-term, short-term and cyclical trends,including the domestic and international supply and demand for oil and gas, current and expected future prices for oil and gas and the perceived stability andsustainability of those prices, production depletion rates and the resultant levels of cash flows generated and allocated by oil and gas companies to theirdrilling, completion and workover budgets. The oil and gas industry is also impacted by general domestic and international economic conditions, politicalinstability in oil producing countries, government regulations (both in the United States and elsewhere), levels of consumer demand, the availability ofpipeline capacity, weather conditions, and other factors that are beyond our control.43Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.In light of the above, demand for our services tends to be extremely volatile and cyclical, as it is a direct function of our customers’ willingness tomake operating and capital expenditures to explore for, develop and produce hydrocarbons in the United States. Our customers’ willingness to undertakesuch activities and expenditures depends largely upon prevailing industry conditions that are influenced by numerous factors which are beyond our control,including, among other things, current and expected future levels of oil and gas prices and the perceived stability and sustainability of those prices, which, inturn, is driven primarily by the supply of, and demand for, oil and gas. Oil and gas prices, and therefore the level of drilling, completion and workoveractivity by our customers, historically have been extremely volatile and are expected to continue to be highly volatile.In late 2014, oil prices began a substantial and rapid decline, and the severe weakness continued throughout 2015 and the majority of 2016. Aswe entered 2016, we experienced a sharp drop in activity across our customer base as operators reacted to further declines in oil prices and the deterioratingonshore drilling rig count. The consequent negative impact on the level of drilling, completion and production activity and capital expenditures by ourcustomers adversely affected the demand for our services throughout the severe industry downturn. Our financial and operational performance weresignificantly impacted, which led to the Chapter 11 Proceeding. Although both crude oil and natural gas prices began to increase modestly and stabilize inlate 2016, commodity prices, in general, have remained significantly lower than the industry average experienced leading up to the downturn. Crude oilprices have rebounded from the lows set in early 2016, and in 2017 prices have averaged approximately $51.00 per barrel. Natural gas prices declinedsignificantly in 2009 and have remained depressed relative to pre-2009 levels. Although there has been slight improvement in the early part of 2018,commodity prices continue to be relatively unstable and any declines or perceived sustained weakness impacts the allocation of capital by our customers.Sustained weakness in oil and gas prices influences our customers to curtail their operations, reduce their capital expenditures, and requestpricing concessions to reduce their operating costs. The demand for drilling, completion and workover services is driven by available investment capital forsuch activities and in a lower oil and gas price environment, demand for service and maintenance generally decreases as oil and gas producers decrease theiractivity and expenditures. Because the type of services that we offer can be easily “started” and “stopped,” and oil and gas producers generally tend to be lessrisk tolerant when commodity prices are low or volatile, we typically experience a more rapid decline in demand for our services compared with demand forother types of energy services. A prolonged low level of customer activity, such as we experienced through 2015 and 2016, could adversely affect ourfinancial condition and results of operations.Competition and Demand for Our ServicesWe operate in highly competitive areas of the oilfield services industry with significant potential for excess capacity. Completion and wellservicing equipment can be moved from one region to another in response to changes in levels of activity and market conditions, which may result in anoversupply of such equipment in any particular area. Utilization and pricing for our services have in the past been negatively affected by increases in supplyrelative to demand in our core operating areas and geographic markets.Additionally, the demand for our services depends primarily on the level of spending by oil and gas companies for drilling, completion andproduction activities, which is affected by short-term and long-term trends in oil and natural gas prices and numerous other factors over which we have nocontrol. Severe declines and sustained weakness and volatility in commodity prices over the course of 2015, and for the majority of 2016, and the consequentnegative impact on the level of drilling, completion and production activity and capital expenditures by our customers, adversely affected the demand forour services. This, in turn, negatively impacted our ability to maintain adequate utilization of our asset base and to negotiate pricing at levels generatingsufficient margins. Moreover, the impact to our financial and operational performance ultimately led to the Chapter 11 Proceeding.Our revenues and earnings are directly affected by changes in utilization and pricing levels for our services, which fluctuate in direct response tochanges in the level of drilling, completion and production activity by our customers. Pressure on pricing for our services, including due to competition andindustry and/or economic conditions, may impact, among other things, our ability to maintain utilization and profitability. During periods of decliningpricing for our services, we may not be able to reduce our costs accordingly, which could further adversely affect our results. Furthermore, even when we areable to increase our prices, we may not be able to do so at a rate that is sufficient to offset any rising costs. Also, we may not be able to successfully increaseprices without adversely affecting our utilization levels. The inability to maintain our utilization and pricing levels, or to increase our prices as costs increase,could have a material adverse effect on our business, financial position and results of operations.Our competitors include many large and small energy service companies, including some of the largest integrated oilfield services companiesthat possess substantially greater financial and other resources than we do. Our larger competitors’44Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.greater resources could allow them to compete more effectively than we can, including by reducing prices for services in our core operating areas. Our majorcompetitors for our Completion Services include Halliburton, Schlumberger, BJ Services, Keane Group, RPC, Inc., FTS International, Inc. (formerly known asFrac Tech Services), Basic Energy Services, Superior Energy Services, CalFrac Well Services, as well as a significant number of regional, predominantlyprivate businesses. Our major competitors for our Well Support Services include Key Energy Services, Basic Energy Services, Superior Energy Services,Ranger Energy Services, Precision, Forbes and Pioneer Energy Services, as well as a significant number of predominantly private, regional businesses.Generally, we believe that the principal competitive factors in the markets that we serve are price, technical expertise, equipment capacity, workforce capability, safety record, reputation and experience. Although we believe our customers consider all of these factors, price is often the primary factor indetermining which service provider is awarded work, particularly during times of weak commodity prices such as those we experienced from late 2014through the majority of 2016. Throughout this severe, prolonged downturn for our industry, our customer base demonstrated a more intense focus and placeda higher priority on receiving the lowest service cost pricing possible. Additionally, projects for certain of our core service lines are often awarded on a bidbasis, which tends to further increase competition based primarily on price. During this downturn, our utilization and pricing levels were also negativelyimpacted by predatory pricing from certain large competitors, who elected to operate at negative margins for these services.During healthier market conditions, we believe many of our customers choose to work with us based on the safety, performance and quality ofour crews, equipment and services, although even then, we must be competitive in our pricing. We seek to differentiate ourselves from our major competitorsby our operating philosophy, which is focused on delivering the highest quality customer service and equipment, coupled with superior execution andoperating efficiency. As part of this strategy, we target high volume, high efficiency customers with service intensive, 24-hour work, which is where webelieve we can differentiate our services from our competitors.See Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations- Industry Trends and Outlook” foradditional discussion of the market challenges within our industry.Current Market Conditions and OutlookThe challenging market conditions experienced from late 2014 through the majority of 2016 began to abate towards the end of 2016 ascommodity prices began to stabilize and customers began re-initiating their drilling and completion programs. As we entered 2017, we experiencedincreasing utilization levels in our Completion Services segment as our customers accelerated drilling and completion activity to take advantage of higheroverall commodity prices. We were able to increase pricing across our core Completion Services businesses, largely due to a lack of available servicecapacity in select core operating basins and rapidly increasing demand. Stability in the North American land drilling rig count coupled with the continuedshortage of available fracturing equipment over the second half of 2017 resulted in higher overall utilization and pricing across our entire CompletionServices segment, especially in our cased-hole wireline and pumping, coiled tubing and cementing businesses. During the fourth quarter of 2017, wecontinued to experience strong demand for all of our core completion services, which resulted in improved financial performance primarily due to additionalequipment deployment and increased pricing despite the seasonal slowdown in activity in select operating basins. We currently expect demand to remainstrong for our core completion services through 2018.In our Well Support Services segment, we also experienced improvement in market conditions entering into 2017, as customers began to allocatemore capital towards well maintenance and workover activities with the stabilization in commodity prices. However, even with the increased activity levelsexperienced early in 2017, the operating environment remained highly competitive as several of our major competitors did not increase service ratesthroughout the majority of the year. In the fourth quarter of 2017, we closed the Canadian Divestiture narrowing our focus exclusively on the lower forty-eight U.S. land market. Additionally, despite the expected seasonal slowdown in activity experienced in the fourth quarter, we began to see signs of modestimprovement in select core basins, especially in our special services and fluids management businesses. Increases in plug and abandonment, rental andfishing activities in both California and West Texas resulted in a sequential increase in both revenue and profitability in our special services business as well.In our fluids management business, we experienced pockets of activity improvement, specifically in West Texas and the Mid-Continent, but struggled tocapitalize on these opportunities primarily due to growing labor shortages. We believe that pricing will need to further improve in order to both attract andretain additional employees to meet growing demand for fluids management services as completion activity continues to increase.Based on market conditions and customer demand, we are optimistic about the level of completion activity in 2018. Assuming macroeconomicconditions and commodity prices remain stable or improve, we would expect improving45Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.levels of activity from the majority of our customer base in 2018, which should result in continued operational and financial improvement in both ourCompletion Services segment and Well Support Services segment.We are actively monitoring the market and managing our business in line with demand for services, and we will make adjustments to our strategyas necessary to effectively respond to changes in market conditions. We are taking a measured approach to asset deployment, balancing our view of customerdemand with an acute focus on generating positive returns for our shareholders. Our top priorities remain to drive revenue by maximizing utilization, toimprove margins through cost control, and to protect and grow market share by focusing on the quality and efficiency of our service execution and ensuringthat we are strategically positioned to capitalize on future market improvement.Please see “Liquidity and Capital Resources” in this Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Resultsof Operations,” in addition to “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” in Part I, Item 1A of this Annual Report.Results of OperationsAs a result of our emergence from the Chapter 11 Proceeding, the 2017 financial results have been separately presented under the label"Successor" for the year ended December 31, 2017. The results for the Predecessor on January 1, 2017 reflect solely the impact of the application of fresh startaccounting on that date and are therefore not included in the discussion of results of operations below.The following is a comparison of our results of operations for the year ended December 31, 2017, compared to the year ended December 31,2016, and a comparison of our results of operations for the year ended December 31, 2016, compared to the year ended December 31, 2015. Our results for the2017 and 2016 years include the financial and operating results of the businesses acquired in the Nabors Merger for the entire period. Our results for the 2015year include the financial and operating results of the businesses acquired in the Nabors Merger for the partial period beginning March 24, 2015 (the "MergerEffective Time") through December 31, 2015. Accordingly, comparisons of the 2016 results to prior year 2015 results may not be meaningful.Results for the Year Ended December 31, 2017 Compared to the Year Ended December 31, 2016The following table summarizes the change in our results of operations for the year ended December 31, 2017, compared to the year endedDecember 31, 2016 (in thousands):46Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Years Ended December 31, 2017 2016 $ ChangeCompletion Services: Revenue $1,256,511 $599,787 $656,724 Operating income (loss) $137,014 $(306,614) $443,628 Well Support Services: Revenue $382,228 $363,768 $18,460 Operating income (loss) $(21,584) $(377,707) $356,123 Other Services: Revenue $— $7,587 $(7,587) Operating income (loss) $— $(51,778) $51,778 Corporate / Elimination: Operating income (loss) $(131,209) $(133,909) $2,700 Combined: Revenue $1,638,739 $971,142 $667,597 Costs and expenses: Direct costs 1,288,092 947,255 340,837Selling, general and administrative expenses 250,871 229,267 21,604Research and development 6,368 7,718 (1,350)Depreciation and amortization 140,650 217,440 (76,790)Impairment Expense — 436,395 (436,395)(Gain) loss on disposal of assets (31,463) 3,075 (34,538)Operating income (loss) (15,779) (870,008) 854,229Other income (expense): Interest expense, net (1,527) (157,465) 155,938Other income (expense), net 3 9,504 (9,501)Total other expenses, net (1,524) (147,961) 146,437Loss before reorganization items and income taxes (17,303) (1,017,969) 1,000,666 Reorganization items — 55,330 (55,330)Income tax benefit (39,760) (129,010) 89,250Net income (loss) $22,457 $(944,289) $966,746RevenueRevenue increased $667.6 million, or 68.7%, to $1.6 billion for the year ended December 31, 2017, as compared to $971.1 million for the yearended December 31, 2016. The increase in revenue was primarily due to (i) an increase of $656.7 million of revenue in our Completion Services segment as aresult of the continued strong demand for all of our completion services, which resulted in improved utilization and pricing across our asset base, (ii) anincrease of $18.5 million in our Well Support Services segment as a result of improvement in both our rig services and special services product lines andpartially offset by a decrease of $7.6 million in our Other Services segment as a result of the segment being divested during the comparable prior year period.47Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Direct CostsDirect costs increased $340.8 million, or 36.0%, to $1.3 billion for the year ended December 31, 2017, as compared to $947.3 million for the yearended December 31, 2016. The increase in direct costs was primarily due to the corresponding increase in revenue from our Completion Service segment.Revenue has been positively impacted by overall increased utilization levels across our Completion Services and Well Support Services segments resultingfrom the improved market environment.As a percentage of revenue, direct costs decreased to 78.6% for the year ended December 31, 2017, as compared to 97.5% for the year endedDecember 31, 2016. The decrease was primarily due to substantially improved pricing for our services due to the more favorable market conditions resultingfrom the increase in commodity prices.Selling, General and Administrative Expenses ("SG&A") and Research and Development Expenses ("R&D")SG&A increased $21.6 million, or 9.4%, to $250.9 million for the year ended December 31, 2017, as compared to $229.3 million for the yearended December 31, 2016. The increase in SG&A was primarily due to (i) a $40.8 million increase in compensation expense primarily as a result of (a)significant increases in operating performance throughout 2017 and (b) the reinstatement of certain previously reduced compensation programs during thefirst half of 2017, (ii) a $10.3 million increase in professional fee expense primarily as a result of efficiency initiatives within our finance and human resourcesdepartments, (iii) a $3.8 million increase in acquisition related costs related to the O-Tex acquisition and (iv) a $1.2 million increase in other general andadministrative expenses, partially offset by (i) a $19.2 million reduction in costs related to our restructuring activities and Chapter 11 Proceeding during thecorresponding prior year period, (ii) a $9.2 million reduction in integration related costs incurred in the corresponding prior year primarily related to theplanned implementation of the new ERP system and (iii) a $6.1 million reduction in severance costs as a result of headcount reductions in the correspondingprior year period.We also incurred $6.4 million in R&D for the year ended December 31, 2017, as compared to $7.7 million for the corresponding prior yearperiod. The decrease in R&D was primarily due to our cost control initiatives, which included scaling back our R&T business line and initiatives anddelaying certain projects.Depreciation and Amortization Expense ("D&A")D&A decreased $76.8 million, or 35.3%, to $140.7 million for the year ended December 31, 2017 as compared to $217.4 million for the sameperiod in 2016. The decrease in D&A was primarily due to a lower value of the asset base as a result of the estimated fresh start adjustments on the Fresh StartReporting Date to our property, plant and equipment (" PP&E") and other intangible assets.Impairment ExpenseDue to the severe downturn in the oil and gas industry, and the resulting weakness in demand for our services, we determined that it wasnecessary to test goodwill for impairment and to test PP&E and other intangible assets for recoverability throughout 2016.Impairment expense for the year ended December 31, 2016 was $436.4 million, consisting of $314.3 million of goodwill impairment related toimpairment of all remaining goodwill associated with our Well Support Services segment, along with $61.0 million related to other intangible assets and$61.1 million related to PP&E within each of our Completion Services, Well Support Services, and Other Services segments.Reorganization itemsReorganization items of $55.3 million for the year ended December 31, 2016 are primarily related to professional fees of $41.2 million, contracttermination settlements of $20.3 million and revisions of estimated claims of $0.8 million, partially offset by $5.2 million in related party settlements and$1.8 million in vendor claims adjustments in connection with our Chapter 11 Proceeding.Interest Expense, netInterest expense decreased $155.9 million, or 99.0%, to $1.5 million for the year ended December 31, 2017 from $157.5 million for the yearended December 31, 2016. The decrease is primarily due to the settlement of all outstanding borrowings of the Predecessor in accordance with theRestructuring Plan in addition to the prior year $91.9 million of48Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.accelerated amortization of original issue discount and deferred financing costs as a result of the Restructuring Support agreement.Income TaxesWe recorded an income tax benefit of $39.8 million for the year ended December 31, 2017, at an effective rate of 229.8%, compared to incometax benefit of $129.0 million for the year ended December 31, 2016, at an effective rate of 12.0%. The increase in the effective tax rate is primarily due toadjustments to reduce valuation allowances previously applied against certain deferred tax assets, including net operating loss carryforwards. Theseadjustments were the result of the treatment of the O-Tex Transaction as a non-taxable transaction, resulting in the acquired assets and liabilities havingcarryover basis for tax purposes. At the closing of the transaction, an estimated deferred tax liability of approximately $31.3 million was recorded to accountfor the differences between the preliminary purchase price allocation and carryover tax basis.Results for the Year Ended December 31, 2016 Compared to the Year Ended December 31, 2015The following table summarizes the change in our results of operations for the year ended December 31, 2016, compared to the year endedDecember 31, 2015 (in thousands):49Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Years Ended December 31, 2016 2015 $ ChangeCompletion Services: Revenue $599,787 $1,261,398 $(661,611) Operating income (loss) $(306,614) $(882,786) $576,172 Well Support Services: Revenue $363,768 $459,265 $(95,497) Operating income (loss) $(377,707) $(31,253) $(346,454) Other Services: Revenue $7,587 $28,226 $(20,639) Operating income (loss) $(51,778) $(69,129) $17,351 Corporate / Elimination: Operating income (loss) $(133,909) $(115,154) $(18,755) Combined: Revenue $971,142 $1,748,889 $(777,747)Costs and expenses: Direct costs 947,255 1,523,194 (575,939)Selling, general and administrative expenses 229,267 239,697 (10,430)Research and development 7,718 16,704 (8,986)Depreciation and amortization 217,440 276,353 (58,913)Impairment Expense 436,395791,807 (355,412)Loss on disposal of assets 3,075 (544) 3,619Operating income (870,008) (1,098,322) 228,314Other income (expense): Interest expense, net (157,465) (82,086) (75,379)Other income (expense), net 9,504 8,773 731Total other expenses, net (147,961) (73,313) (74,648)Income before income taxes (1,017,969) (1,171,635) 153,666Reorganization items 55,330 — 55,330Income tax expense (129,010) (299,093) 170,083Net income $(944,289) $(872,542) $(71,747)RevenueRevenue decreased $777.7 million, or 44.5%, for the year ended December 31, 2016, as compared to the year ended December 31, 2015. Thedecrease in revenue was primarily due to (i) a decrease of $661.6 million in our Completion Services segment as a result of significantly lower utilization andpricing levels across this segment caused by the extremely competitive market environment given the severe decline in U.S. onshore drilling and completionactivity, partially offset by the fact that Completion Services revenue for the corresponding prior year period only included the Nabors Merger completionand production services business (the "C&P Business") revenue from the Merger Effective Time to December 31, 2015. The $95.5 million decrease in revenuein our Well Support Services segment was primarily due to the unprecedented low levels of customer activity during 2016 in areas that typically maintainmoderate levels of well support services activity, partially offset by the fact that revenue for the corresponding prior year period only included C&P BusinessWell Support Services revenue from the Merger Effective Time to December 31, 2015. The $20.6 million decrease in our Other Services segment wasprimarily due to continued weak demand for our services driven by the low commodity prices characterizing this severe, prolonged industry downturn.50Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Direct CostsDirect costs decreased $575.9 million, or 37.8%, to $947.3 million for the year ended December 31, 2016, as compared to $1.5 billion for theyear ended December 31, 2015. The decrease in direct costs was primarily due to the corresponding decrease in revenue which was negatively impacted byoverall lower utilization levels across our Completion Services and Well Support Services segments resulting from the extremely competitive marketenvironment caused by the severe decline in U.S. onshore drilling and completion activity as well as the unprecedented slowdown in well support servicesactivity, and partially offset by the shorter period for the C&P Business from the date the Nabors Merger was closed to December 31, 2015, as noted above. Asutilization fell in our Completion Services segment, we strategically stacked additional equipment, closed unprofitable facilities, reduced head count andaggressively cut costs in order to further lower our operational cost structure. Similarly, in our Well Support Services segment, we exited select service linesin certain basins, closed unprofitable facilities and further reduced head count.As a percentage of revenue, direct costs increased to 97.5% for the year ended December 31, 2016, up from 87.1% for the year endedDecember 31, 2015, primarily due to substantially lower pricing for our services due to competitive market conditions resulting from the rapid and sustaineddecline in commodity prices, partially offset by reductions to our cost structure, as noted above.Selling, General and Administrative Expenses ("SG&A") and Research and Development Expenses ("R&D")SG&A decreased $10.4 million, or 4.4%, to $229.3 million for the year ended December 31, 2016, as compared to $239.7 million for the yearended December 31, 2015. The decrease in SG&A was primarily due to a $32.1 million decrease in acquisition-related costs and a $12.6 million decrease inemployee related costs as a result of headcount reductions. These amounts are partially offset by $30.4 million in costs related to the Chapter 11 Proceedingand related restructuring activities, by a $2.0 million increase in legal fees and settlements as a result of the Chapter 11 Proceeding and by the fact that SG&Aassociated with the C&P Business was only incurred from the closing of the Nabors Merger to December 31, 2015.We also incurred $7.7 million in R&D for the year ended December 31, 2016, as compared to $16.7 million for the corresponding prior yearperiod. The decrease in R&D was primarily due to our cost control initiatives, which included scaling back our R&T business line and initiatives anddelaying certain projects.Depreciation and Amortization Expense ("D&A")D&A decreased $58.9 million, or 21.3%, to $217.4 million for the year ended December 31, 2016 as compared to $276.4 million for the sameperiod in 2015. The decrease in D&A was primarily the result of significant impairment charges recorded during 2015 and the first half of 2016 due to thesteep decline in asset utilization levels related to the sustained downturn in the oil and gas industry.Impairment ExpenseDue to the severe downturn in the oil and gas industry, and the resulting weakness in demand for our services, we determined that it wasnecessary to test goodwill for impairment and to test PP&E and other intangible assets for recoverability during the third and fourth quarters of 2015 andthroughout 2016. Based on our assessment, we recorded impairment expense of $436.4 million for the year ended December 31, 2016, consisting of $314.3million of goodwill impairment related to impairment of all remaining goodwill associated with our Well Support Services segment, along with $61.0 millionrelated to other intangible assets and $61.1 million related to PP&E within each of our Completion Services, Well Support Services, and Other Servicessegments.Impairment expense for the year ended December 31, 2015 was $791.8 million and consisted of $385.0 million of goodwill impairment withineach of our Completion Services, Well Support Services and Other Services segments, $393.1 million of PP&E impairment related to the Completion Servicesand Other Services segments, and $13.7 million related to other intangible assets.Reorganization itemsReorganization items of $55.3 million for the year ended December 31, 2016 are primarily related to professional fees of $41.2 million, contracttermination settlements of $20.3 million and revisions of estimated claims of $0.8 million, partially offset by $5.2 million in related party settlements and$1.8 million in vendor claims adjustments in connection with our Chapter 11 Proceeding.51Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Interest Expense, netInterest expense increased $75.4 million, or 91.8%, to $157.5 million for the year ended December 31, 2016. The increase is primarily due to$91.9 million of accelerated amortization of original issue discount and deferred financing costs, which we fully amortized as of June 30, 2016 as a result ofour entry into a restructuring support agreement related to our Chapter 11 Proceeding, and due to $3.5 million in interest expense primarily related to higherlevels of borrowings under the Revolving Credit Facility and DIP Facility, partially offset by $20.0 million of lower interest expense due to the Chapter 11Proceeding in that interest expense subsequent to a Chapter 11 filing is recognized only to the extent that it will be paid during the cases or that it is probablethat it will be an allowed claim. As a result, we did not accrue interest that we believed was not probable of being treated as an allowed claim in the Chapter11 Proceeding.Income TaxesWe recorded an income tax benefit of $129.0 million for the year ended December 31, 2016, at an effective rate of 12.0%, compared to incometax benefit of $299.1 million for the year ended December 31, 2015, at an effective rate of 25.5%. The decrease in the effective tax rate is primarily due tovaluation allowances applied against certain deferred tax assets including net operating loss carryforwards. The effective rate, and resulting benefit, is lessthan the expected statutory rate primarily due to impairment charges that were not deductible for tax, the impact of permanent differences, including non-deductible reorganization costs and the valuation allowance reducing the carrying value of certain deferred tax assets.Liquidity and Capital ResourcesSources of Liquidity and Capital ResourcesOur primary uses of cash are for operating costs and expenditures and capital expenditures. The oilfield services business is capital-intensive,requiring significant investment to maintain, upgrade and purchase equipment to meet our customers’ needs and industry demand. Our capital requirementsconsist primarily of:•growth capital expenditures, which are capital expenditures made to acquire additional equipment and other assets, increase our servicelines, or advance other strategic initiatives for the purpose of growing our business; and•maintenance capital expenditures related to our existing equipment, such as refurbishment and other activities to extend the useful life ofpartially or fully depreciated assets.On January 6, 2017, we entered into the New Credit Facility with PNC Bank, National Association, as administrative agent (the “Agent”). Wesubsequently amended and restated the New Credit Facility in full pursuant to the Amended Credit Facility dated May 4, 2017, with the Agent and thelenders party thereto. We currently have $178.5 million of available borrowing capacity under our Amended Credit Facility after taking into considerationour current outstanding letters of credit of approximately $20.7 million. For additional information about the Amended Credit Facility, please see “-Description of our Indebtedness” below and Note 4 - Debt and Capital Lease Obligations in Part II, Item 8 “Financial Statements and Supplementary Data” ofthis Annual Report.As of December 31, 2017, we had a cash balance of $113.9 million and no borrowings drawn on our Amended Credit Facility resulting in totalliquidity of $292.3 million. Under the terms of our Amended Credit Facility, the borrowing base is subject to monthly adjustments based on current levels ofaccounts receivable and inventory.Capital expenditures totaled $210.2 million in 2017, primarily pertaining to the maintenance of deployed equipment, the refurbishment ofexisting stacked equipment in preparation for redeployment and the related reactivation costs, and the building of new equipment for deployment in our coreservice lines. Based on current market conditions and customer demand, and assuming they remain relatively stable, we expect 2018 capital expenditures torange between approximately $430.0 million and $450.0 million. The majority of our 2018 capital expenditure program is expected to be used for the fullrefurbishment of all of our remaining stacked fracturing fleets, including the related reactivation costs, which we expect to fully redeploy by year-end, therefurbishment and redeployment of stacked equipment across most of our other core service lines, the deployment of new-build equipment primarily in ourCompletion Services segment and the ongoing maintenance of our active, deployed equipment.With the stable North American drilling rig count, higher commodity prices, and the continued shortages of available completion servicesequipment, we are particularly focused on redeploying our stacked frac fleets. We have been52Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.upgrading and standardizing our equipment concurrent with our reactivation efforts, which among other benefits, is expected to increase the operating life ofthe equipment and lower the overall cost of ownership over time. During the fourth quarter of 2017, we deployed a refurbished horizontal frac fleet, totaling40,000 HHP, to a dedicated customer in the Mid-Continent. In the first quarter of 2018, we plan to deploy another horizontal frac fleet consisting of 40,000HHP of new-build pumps and refurbished ancillary equipment to a dedicated customer. Additionally, we plan to redeploy the remainder of our approximately245,000 stacked HHP over the course of 2018 at an average estimated capital cost of approximately $24.0 million per horizontal equivalent frac fleet. Ourremaining stacked HHP represents our oldest stacked equipment, and thus the most expensive to refurbish and redeploy. This estimated capital cost isinclusive of the pump refurbishment costs and all ancillary equipment necessary for future redeployment. Our typical horizontal fleet size consists of 20pumps and our typical vertical fleet size consists of 10 pumps. The estimated capital cost to redeploy the remainder of our stacked HHP is inherentlyuncertain until the refurbishment process begins. Although we believe that approximately $24.0 million per horizontal equivalent frac fleet is a reasonableestimate, the actual capital cost to redeploy the remainder of our stacked HHP may exceed our current estimates. Additionally, we currently expect a portionof our capital expenditure program for 2018 to consist of the purchase of advanced auxiliary well-site equipment and additional units within our other coreservice lines.We expect to fund a portion of our 2018 capital expenditure program with borrowings under our Amended Credit Facility. The amount ofindebtedness we have outstanding could limit our ability to finance future growth and could adversely affect our operations and financial condition.Our primary sources of liquidity have historically included cash flows from operations, proceeds from public offerings of common stock andborrowings under debt facilities. Future cash flows are subject to a number of variables, many of which are beyond our control, and are highly dependent onthe drilling, completion and production activity by our customers, which in turn is highly dependent on oil and gas prices. See Part I, Item 2 “Management’sDiscussion and Analysis of Financial Condition and Results of Operations - Industry Trends and Outlook” for additional discussion of the market challengeswithin our industry. Please also read “-Financial Condition and Cash Flows” below for information about net cash provided by or used in our operating,investing and financing activities.Based on our existing operating performance, we currently believe that our cash flows from operations, cash on hand and borrowings under ourAmended Credit Facility will be sufficient to meet our operational and capital expenditure requirements over the next twelve months.Financial Condition and Cash FlowsThe net cash provided by or used in our operating, investing and financing activities is summarized below (in thousands): Successor Predecessor Years Ended December 31, 2017 2016 2015Cash flow provided by (used in): Operating activities $94 $(107,372) $103,005Investing activities (275,686) (26,927) (825,156)Financing activities 210,339 174,264 734,126Effect of exchange rate on cash (2,102) (1,282) 3,908Increase (decrease) in cash and cash equivalents $(67,355) $38,683 $15,883Cash Provided by (Used in) Operating ActivitiesNet cash from operating activities was $0.1 million for the year ended December 31, 2017. The cash inflow was primarily related to net income of$22.5 million, adjustments for non-cash items of $106.5 million, cash provided from the collection of accounts receivable assumed in the O-Tex acquisitionand positive changes in other operating assets and liabilities, excluding accounts receivable, inventory, accounts payable and accrued expenses. This cashinflow was offset by $149.3 million of (i) increased investment in working capital (accounts receivable, inventory, accounts payable and accrued expenses)as a result of the increase in the demand primarily for our completion service lines and the resulting increase in revenue and direct costs for the year endedDecember 31, 2017 and (ii) cash used to satisfy obligations related to accounts payable and accrued liabilities assumed in the O-Tex acquisition.Net cash used in operating activities was $107.4 million for the year ended December 31, 2016. The use of cash was primarily related to a net lossof $944.3 million and adjustments for non-cash items of $714.5 million, partially offset by53Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.cash inflows of $101.3 million due to (i) a decrease in our investment in working capital (accounts receivable, inventory, accounts payable and accruedexpenses) as a result of the decrease in the demand for our services and the resulting decrease in revenue and direct costs during the year ended December 31,2016, (ii) a decrease in the use of cash related to accounts payable and accrued expenses during the third and fourth quarters of 2016 both resulting from theautomatic stay associated with the Chapter 11 Proceeding and (iii) positive changes in other operating assets and liabilities, excluding accounts receivable,inventory, accounts payable and accrued expenses.Net cash from operating activities was $103.0 million for the year ended December 31, 2015. The cash inflow was primarily related to (i) cashinflows of $148.1 million due to a decrease in our investment in working capital (accounts receivable, inventory, accounts payable and accrued expenses) asa result of the decrease in the demand for our services and the resulting decrease in revenue and direct costs during the year ended December 31, 2015 and (ii)cash collections from accounts acquired as part of the Nabors Merger. These cash inflows were partially offset by (i) a net loss of $872.5 million andadjustments for non-cash items of $857.7 million, (ii) cash used to satisfy obligations related to accounts payable and accrued liabilities assumed in theNabors Merger and (iii) negative changes in other operating assets and liabilities, excluding accounts receivable, inventory, accounts payable and accruedexpenses.Cash Flows Used in Investing ActivitiesNet cash used in investing activities was $275.7 million for the year ended December 31, 2017. The use of cash was related to (i) $210.2 millionof capital expenditures primarily pertaining to the refurbishment of stacked equipment and the construction of new-build frac pumps and refurbishedancillary equipment and (ii) $133.8 million related to the O-Tex Transaction. These amounts were offset by $68.3 million of proceeds from the divestiture ofnon-core business lines previously reported under our Other Services reportable segment and from the disposal of property plant and equipment.Net cash used in investing activities was $26.9 million for the year ended December 31, 2016. The use of cash was related to (i) $57.9 million ofcapital expenditures primarily pertaining to the new ERP system and to costs incurred to extend the useful lives of our existing equipment and (ii) $1.8million in payments related to our non-core service lines. These amounts were offset by $32.8 million of proceeds from disposal of property plant andequipment.Net cash used in investing activities was $825.2 million for the year ended December 31, 2015. The use of cash was primarily related to $663.3million primarily for cash consideration for the C&P Business, and $166.3 million of capital expenditures primarily pertaining to maintenance of our existingequipment. These amounts were offset by $4.5 million of proceeds from the disposal of property plant and equipment.Cash Flows Provided by Financing ActivitiesNet cash provided by financing activities was $210.3 million for the year ended December 31, 2017. The cash provided was primarily from$215.9 million of proceeds from the public offering of common stock, partially offset by (i) $3.8 million of employee tax withholding on restricted stockvesting and (ii) $1.7 million of cash paid for financing costs related to our Amended Credit Facility.Net cash provided by financing activities was $174.3 million for the year ended December 31, 2016. The cash provided was primarily from (i)$174.0 million in proceeds from the Predecessor's revolving credit facility, (ii) $23.0 million in proceeds from the DIP Facility partially offset by (i) $13.3million in payments on the Predecessor's revolving credit facility and term debt, (ii) $5.6 million of payments for excess tax expense from share-basedcompensation (iii) $2.4 million in payments related to capital lease obligations and (iv) $1.0 million of cash paid for financing costs related to our DIPFacility.Net cash provided by financing activities was $734.1 million for the year ended December 31, 2015. The cash provided was primarily from $1.3billion in proceeds from the Predecessor's term debt and revolving credit facility to fund the cash consideration portion of the acquisition of the C&PBusiness, partially offset by (i) $540.0 million in payments on the Predecessor's term debt and revolving credit facility, (ii) $55.5 million of cash paid forfinancing costs related to the Predecessor's term debt and revolving credit facility, (iii) $3.9 million in payments related to capital lease obligations, (iv) $2.6million of employee tax withholding on restricted stock vesting, (v) $2.4 million of payments for excess tax expense from share-based compensation and (vi)$1.5 million of cash paid for registration costs associated with the issuance of common stock.Description of our IndebtednessDescription of our Amended Credit Facility54Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The Successor and certain of its subsidiaries (the “Borrowers”) entered into the New Credit Facility on the Plan Effective Date, and on May 4,2017, entered into the Amended Credit Facility.The Amended Credit Facility allows the Borrowers to incur revolving loans in an aggregate amount up to the lesser of (a) $200.0 million or (b) aborrowing base, which borrowing base is based upon the value of the Borrowers’ accounts receivable and inventory, subject to eligibility criteria andcustomary reserves which may be modified in the Agent’s permitted discretion.The Amended Credit Facility also provides for the issuance of letters of credit, which would further reduce borrowing capacity thereunder. Thematurity date of the Amended Credit Facility is May 4, 2022.If at any time the amount of loans and other extensions of credit outstanding under the Amended Credit Facility exceeds the borrowing base, theBorrowers may be required, among other things, to prepay outstanding loans immediately.The Borrowers’ obligations under the Amended Credit Facility are secured by liens on a substantial portion of the Borrowers’ personal property,subject to certain exclusions and limitations. Upon the occurrence of certain events, additional collateral, including a portion of the Borrowers’ realproperties, may also be required to be pledged. Each of the Borrowers is jointly and severally liable for the obligations of the other Borrowers under theAmended Credit Facility.At the Borrowers’ election, interest on borrowings under the Amended Credit Facility will be determined by reference to either LIBOR plus anapplicable margin of 2.0% or an “alternate base rate” plus an applicable margin of 1.0%. These margins are subject to a monthly step-up of 0.25% in theevent that average excess availability under the Amended Credit Facility is less than 37.5% of the total commitment, and a monthly step-down of 0.25% inthe event that average excess availability under the Amended Credit Facility is equal to or greater than 62.5% of the total commitment. Interest will bepayable quarterly for loans bearing interest based on the alternative base rate and on the last day of the interest period applicable to LIBOR-based loans. TheBorrowers will also be required to pay a fee on the unused portion of the Amended Credit Facility equal to (i) 0.75% in the event that utilization is less than25.0% of the total commitment, (ii) 0.50% in the event that utilization is equal to or greater than 25% of the total commitment but less than 50% of the totalcommitment and (iii) 0.375% in the event that utilization is equal to or greater than 50% of the total commitment.The Amended Credit Facility contains covenants that limit the Borrowers’ and their subsidiaries’ ability to incur additional indebtedness, grantliens, make loans or investments, make distributions, merge into or consolidate with other persons, make capital expenditures or engage in certain assetdispositions including a sale of all or substantially all of the Company’s assets.The Amended Credit Facility also contains a financial covenant which requires the Company to maintain a monthly minimum fixed chargecoverage ratio of 1.0:1.0 if, as of any month-end, liquidity is less than $40.0 million.The fixed charge coverage ratio is generally defined in the Amended Credit Facility as the ratio of (i) EBITDA minus certain capital expendituresand cash taxes paid to (ii) the sum of cash interest expenses, scheduled principal payments on borrowed money and certain distributions.Debtor-in-Possession $100 Million Term Loan FacilityPrior to the execution of the New Credit Facility, certain DIP Lenders agreed to fund a $100 million DIP Facility.The borrowers under the DIP Facility were the Company and CJ Holding Co. All obligations under the DIP Facility were guaranteed by theCompany’s subsidiaries that were debtors in the Bankruptcy cases. Borrowings under the DIP Credit Agreement were generally secured by superprioritypriming liens on substantially all of the assets of the borrowers and guarantors.The DIP Facility was scheduled to mature on March 31, 2017.Amounts outstanding under the DIP Facility bore interest based on, at the option of the borrower, the London Interbank Offered Rate (“LIBOR”)or an alternative base rate, plus an applicable margin equal to 9.0% in the case of LIBOR loans and 8.0% in the case of base rate loans. The alternative baserate was equal to the highest of (i) the published ‘prime rate’, (ii) the Federal Funds Effective Rate (as defined in the DIP Credit Agreement) plus 0.5% and(iii) LIBOR plus 1.0%.55Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The DIP Facility also required that the Company pay various fees to the DIP Lenders, including a commitment fee equal to 5.0% of the unusedcommitments thereunder.In accordance with the Restructuring Plan, on the Plan Effective Date, we repaid all amounts outstanding under the DIP Facility with theproceeds from the Rights Offering and the DIP Facility was canceled and discharged.Description of the Original Credit AgreementOn March 24, 2015, we entered into a credit agreement (the “Original Credit Agreement”), among C&J, CJ Lux Holdings S.à r.l. (“Luxco”),CJ Holding Co, Bank of America, N.A., as Administrative Agent (in such capacity, the “Administrative Agent”), Swing Line Lender and an L/C Issuer, andthe other lenders party thereto. The Original Credit Agreement provided for senior secured credit facilities (collectively, the “Credit Facilities”) in anaggregate principal amount of $1.66 billion, consisting of (a) a $600.0 million revolving credit facility (“Revolving Credit Facility” or “Revolver”) and (b) aTerm Loan B Facility in the aggregate principal amount of $1.06 billion, comprised of two tranches: (i) a tranche consisting of $575.0 million in originalaggregate principal amount of term loans maturing on March 24, 2020 (the “Five-Year Term Loans”) and (ii) a tranche consisting of a $485.0 million inoriginal aggregate principal amount of term loans maturing on March 24, 2022 (the “Seven-Year Term Loans”).The borrowers under the Revolving Credit Facility were C&J, Luxco and CJ Holding Co. The borrower under the Term Loan B Facility was CJHolding Co. All obligations under the Original Credit Agreement were guaranteed by CJ Holding Co.'s wholly-owned domestic subsidiaries, other thanimmaterial subsidiaries and certain other customary exceptions.Borrowings under the Revolving Credit Facility were scheduled to mature on March 24, 2020 (except that if any Five-Year Term Loans had notbeen repaid prior to September 24, 2019, the Revolving Credit Facility was scheduled to mature on September 24, 2019).Borrowings under the Revolving Credit Facility were non-amortizing. The Term Loan B Facility required the borrower thereunder to makequarterly amortization payments in an amount equal to 1.0% per annum, with the remaining balance payable on the applicable maturity date.Amounts outstanding under the Revolving Credit Facility bore interest based on, at the option of the borrower, the LIBOR or an alternative baserate, plus an applicable margin based on the ratio of consolidated total indebtedness of C&J and its subsidiaries to consolidated EBITDA of C&J and itssubsidiaries for the most recent four fiscal quarter period for which financial statements are available (the “Total Leverage Ratio”). The Revolving CreditFacility also required that the borrowers pay a commitment fee equal to a percentage of unused commitments which varied based on the Total LeverageRatio.Five-Year Term Loans outstanding under the Term Loan B Facility bore interest based on, at the option of the borrower, LIBOR (which, in thecase of the Term Loan B Facility, was deemed to be no less than 1.0% per annum), plus a margin of 5.5%, or an alternative base rate, plus a margin of 4.5%.Seven-Year Term Loans outstanding under the Term Loan B Facility bore interest based on, at the option of the borrower, LIBOR (which, in the case of theTerm Loan B Facility, will be deemed to be no less than 1.0% per annum), plus a margin of 6.25%, or an alternative base rate, plus a margin of 5.25%.The alternative base rate was equal to the highest of (i) the Administrative Agent’s prime rate, (ii) the Federal Funds Effective Rate plus 0.5% and(iii) LIBOR plus 1.0%.On the Plan Effective Date, except as otherwise specifically provided for in the Restructuring Plan, the obligations of the Debtors under theOriginal Credit Agreement, any guarantees, and any other certificate, share, note, bond, indenture, purchase right, option, warrant, or other instrument ordocument directly or indirectly evidencing or creating any indebtedness or obligation of or ownership interest in any of the Debtors giving rise to any claimor equity interest (except as provided under the Restructuring Plan), were canceled as to the Debtors and their affiliates, and the reorganized Company and itsaffiliates ceased to have any obligations thereunder.Contractual ObligationsThe following table summarizes our contractual cash obligations as of December 31, 2017 (in thousands):56Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Contractual Obligations Total Less than1 year 1-3 years 3-5 years More than5 yearsService equipment and components $18,371 $18,371 $— $— $—Operating leases 29,040 9,076 10,456 7,021 2,487Amended Credit Facility (1) 7,670 1,738 3,476 2,456 —Administrative contracts 1,369 1,099 270 — —Total $56,450 $30,284 $14,202 $9,477 $2,487(1) Represents unused commitment fees on unused portion of the Amended Credit Facility and outstanding letters of credit. As of December 31,2017, there were no amounts outstanding under the Amended Credit Facility.Off-Balance Sheet ArrangementsWe had no off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K, as of December 31, 2017.Critical Accounting PoliciesThe selection and application of accounting policies is an important process that has developed as our business activities have evolved and asthe accounting standards have developed. Accounting standards generally do not involve a selection among alternatives, but involve the implementationand interpretation of existing standards, and the use of judgment applied to the specific set of circumstances existing in our business. We make every effort toproperly comply with all applicable standards on or before their adoption, and we believe the proper implementation and consistent application of theaccounting standards are critical.Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which havebeen prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of theseconsolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, expenses and relateddisclosures. We base our estimates and assumptions on historical experience and on various other factors that we believe to be reasonable under thecircumstances. We evaluate our estimates and assumptions on an ongoing basis. The results of our analysis form the basis for making assumptions about thecarrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under differentassumptions or conditions.We believe the following critical accounting policies involve significant areas of management’s judgments and estimates in the preparation ofour consolidated financial statements.Property, Plant and Equipment. Property, plant and equipment ("PP&E") are reported at cost less accumulated depreciation. Maintenance andrepairs, which do not improve or extend the life of the related assets, are charged to expense when incurred. Refurbishments are capitalized when the value ofthe equipment is enhanced for an extended period. When property and equipment are sold or otherwise disposed of, the asset account and relatedaccumulated depreciation account are relieved, and any gain or loss is included in operating income.PP&E are evaluated on a quarterly basis to identify events or changes in circumstances (“triggering events”) that indicate the carrying value ofcertain PP&E may not be recoverable. PP&E are reviewed for impairment upon the occurrence of a triggering event. An impairment loss is recorded in theperiod in which it is determined that the carrying amount of PP&E is not recoverable. The determination of recoverability is made based upon the estimatedundiscounted future net cash flows of assets grouped at the lowest level for which there are identifiable cash flows independent of the cash flows of othergroups of assets with such cash flows to be realized over the estimated remaining useful life of the primary asset within the asset group, excluding interestexpense. We determined the lowest level of identifiable cash flows that are independent of other asset groups to be at the service line level, which consists ofthe well support services, fracturing, cased-hole wireline and pumping services, well construction & intervention, and data acquisition and controlinstruments provider service lines as well as the research and technology ("R&T") service lines If the estimated undiscounted future net cash flows for a givenasset group is less than the carrying amount of the related assets, an impairment loss is determined by comparing the estimated fair value with the carryingvalue of the related assets. The impairment loss is then allocated across the asset group's major classifications.57Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Goodwill, Indefinite-Lived Intangible Assets and Definite-Lived Intangible Assets. Our Other Services Segment which consisted of our smaller,non-core service lines such as our specialty chemical business, equipment manufacturing and repair business and international coiled tubing operations inthe Middle East was divested in 2016. In line with the discontinuance of these small, ancillary service lines and divisions, subsequent to the year endedDecember 31, 2016, we are now disclosing two reportable segments. Consistent with our new structure, goodwill may be allocated across two reporting units:Completions Services and Well Support Services. At the reporting unit level, we test goodwill for impairment on an annual basis as of October 31 of eachyear, or when events or changes in circumstances, referred to as triggering events, indicate the carrying value of goodwill may not be recoverable and that apotential impairment exists.Judgment is used in assessing whether goodwill should be tested for impairment more frequently than annually. Factors such as unexpectedadverse economic conditions, competition, market changes and other external events may require more frequent assessments.Before employing detailed impairment testing methodologies, we may first evaluate the likelihood of impairment by considering qualitativefactors relevant to each reporting unit, such as macroeconomic, industry, market or any other factors that have a significant bearing on fair value. If we firstutilize a qualitative approach and determine that it is more likely than not that goodwill is impaired, detailed testing methodologies are then applied.Otherwise, we conclude that no impairment has occurred. Detailed impairment testing, or Step 1 testing, involves comparing the fair value of each reportingunit to its carrying value, including goodwill. Fair value reflects the price a market participant would be willing to pay in a potential sale of the reportingunit. If the fair value exceeds carrying value, then it is concluded that no goodwill impairment has occurred. If the carrying value of the reporting unitexceeds its fair value, a second step is required to measure possible goodwill impairment loss. The second step, or Step 2 testing, includes hypotheticallyvaluing the tangible and intangible assets and liabilities of the reporting unit as if the reporting unit had been acquired in a business combination. Then, theimplied fair value of the reporting unit’s goodwill is compared to the carrying value of that goodwill. If the carrying value of the reporting unit’s goodwillexceeds the implied fair value of the goodwill, an impairment loss is recognized in an amount equal to the excess, not to exceed the carrying value.Our Step 1 impairment analysis involves the use of a blended income and market approach. Significant management judgment is necessary toevaluate the impact of operating and macroeconomic changes on each reporting unit. Critical assumptions include projected revenue growth, fleet count,utilization, gross profit rates, SG&A rates, working capital fluctuations, capital expenditures, discount rates, terminal growth rates, and price-to-earningsmultiples. Our market capitalization is also used to corroborate reporting unit valuations.Similar to goodwill, indefinite-lived intangible assets are subject to annual impairment tests or more frequently if events or circumstancesindicate the carrying amount may not be recoverable.Definite-lived intangible assets are amortized over their estimated useful lives. With the exception of the C&J trade name, these intangibles,along with PP&E, are reviewed for impairment when a triggering event indicates that the asset group may have a net book value in excess of recoverablevalue. In these cases, we perform a recoverability test on our PP&E and definite-lived intangible assets by comparing the estimated future net undiscountedcash flows expected to be generated from the use of these assets to the carrying amount of the assets for recoverability. If the estimated undiscounted cashflows exceed the carrying amount of the assets, an impairment does not exist, and a loss will not be recognized. If the undiscounted cash flows are less thanthe carrying amount of the assets, the assets are not recoverable, and the amount of impairment must be determined by fair valuing the assets. The C&J tradename is a corporate asset, and it is reviewed for impairment when a triggering event indicates the trade name, on a stand-alone basis, may have a net bookvalue in excess of consolidated C&J recoverable value using the same recoverability testing noted above.Mergers and Acquisitions. In accordance with accounting guidance for business combinations, we allocate the purchase price of an acquiredbusiness to its identifiable assets and liabilities based on estimated fair values. The excess of the purchase price over the amount allocated to the assets andliabilities, if any, is recorded as goodwill. We use all available information to estimate fair values. We typically engage outside appraisal firms to assist in thefair value determination of identifiable intangible assets such as trade names and any other significant assets or liabilities. We adjust the preliminary purchaseprice allocation, as necessary, up to one year after the acquisition closing date as we obtain more information regarding asset valuations and liabilitiesassumed.Our purchase price allocation methodology contains uncertainties because it requires management to make assumptions and to apply judgmentto estimate the fair value of acquired assets and liabilities. Management estimates the fair value of assets and liabilities based upon quoted market prices, thecarrying value of the acquired assets and widely accepted valuation techniques, including discounted cash flows and market multiple analysis. Unanticipatedevents or circumstances58Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.may occur which could affect the accuracy of our fair value estimates, including assumptions regarding industry economic factors and business strategies. Ifactual results are materially different than the assumptions we used to determine fair value of the assets and liabilities acquired through a businesscombination, it is possible that adjustments to the carrying values of such assets and liabilities will have an impact on our net earnings.See “Note 12 - Mergers and Acquisitions” in Item 8 “Financial Statements and Supplementary Data” of our Annual Report on Form 10-K for theacquisition-related information associated with mergers and acquisitions completed in the last three fiscal years.Revenue Recognition. All revenue is recognized when persuasive evidence of an arrangement exists, the service is complete or the equipmenthas been delivered to the customer, the amount is fixed or determinable and collectibility is reasonably assured, as follows:Completion Services SegmentFracturing Services Revenue. Through our fracturing service line, we provide fracturing services pursuant to contractual arrangements, such asterm contracts and pricing agreements or on a spot market basis. Under either scenario, revenue is recognized and customers are invoiced upon thecompletion of each job, which can consist of one or more fracturing stages. Once a job has been completed, a field ticket is written that includes charges forthe services performed and the consumables (such as fluids and proppants) used during the course of service. The field ticket may also include charges for themobilization and set-up of equipment, the personnel on the job, any additional equipment used on the job, and other miscellaneous consumables.Rates for services performed on a spot market basis are based on an agreed-upon hourly spot market rate for a specified number of hours ofservice.Pursuant to pricing agreements and other contractual arrangements that we may enter into from time to time, such as those associated with anaward from a bid process, customers typically commit to targeted utilization levels based on a specified number of hours of service at agreed-upon pricing,but without termination penalties or obligations to pay for services not used by the customer. In addition, the agreed-upon pricing is typically subject toperiodic review, as specifically defined in the agreement, and may be adjusted upon the agreement of both parties.Cased-hole Wireline & Pumping Services Revenue. Through our Cased-hole Wireline and Pumping Services business, we provide cased-holewireline, pumping, wireline logging, perforating, well site make-up and pressure testing and other complementary services, on a spot market basis. Jobs forthese services are typically short-term in nature, lasting anywhere from a few hours to multiple days. We typically charge the customer for these services on aper job basis at agreed-upon spot market rates. Revenue is recognized based on a field ticket issued upon the completion of the job.Well Construction and Intervention Services Revenue. Through our well construction and intervention services business, we provide cementing,coiled tubing and directional drilling services.With respect to our cementing services, we provide these services on a spot market or project basis. Jobs for these services are typically short-termin nature and are generally completed in a few hours. We typically charge the customer for these services on a per job basis at agreed-upon spot market ratesor agreed-upon job pricing for a particular project. Revenue is recognized and customers are invoiced upon the completion of each job. Once a job has beencompleted to the customer’s satisfaction, a field ticket is written that includes charges for the service performed and the consumables (such as blended bulkcement and chemical additives) used during the course of service.With respect to our coiled tubing services, we provide a range of coiled tubing services primarily used for frac plug drill-out during completionoperations and for well workover and maintenance, primarily on a spot market basis. Jobs for these services are typically short-term in nature, lastinganywhere from a few hours to multiple days. Revenue is recognized upon completion of each day’s work based upon a completed field ticket. The field ticketincludes charges for the services performed and the consumables (such as stimulation fluids, nitrogen and coiled tubing materials) used during the course ofservice. The field ticket may also include charges for the mobilization and set-up of equipment, the personnel on the job, any additional equipment used onthe job, and other miscellaneous consumables. We typically charge the customer for the services performed and resources provided on an hourly basis atagreed-upon spot market rates or pursuant to contractual arrangements such as term contracts and pricing agreements.59Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.With respect to our directional drilling services, we provide these services on a spot market basis. Jobs for these services are typically short-termin nature, lasting anywhere from a few days to multiple weeks. We typically charge the customer for these services on a per day basis at agreed-upon spotmarket rates depending on the level of services required and the complexity of the job. Revenue is recognized and customers are invoiced upon thecompletion of each job. Once a job has been completed, a field ticket is written that includes charges for the service performed.Revenue from Materials Consumed While Performing Certain Completion Services. We generate revenue from consumables used during thecourse of providing services.With respect to our fracturing services, we generate revenue from the fluids, proppants and other materials that are consumed while performing ajob. For services performed on a spot market basis, the required consumables are typically provided by us and the customer is billed for those consumables atcost plus an agreed-upon markup. For services performed on a contractual basis, when the consumables are provided by us, the customer typically is billed forthose consumables at a negotiated contractual rate. When consumables are supplied by the customer, we typically charge handling fees based on the amountof consumables used.Other Completion Services Revenue. We generate revenue from our R&T department, which is primarily engaged in the engineering andproduction of certain parts and components, such as perforating guns and addressable switches, which are used in the completion process. Revenue isrecognized upon the completion, delivery and customer acceptance of each order of parts and components.Well Support Services SegmentRig Services Revenue. Through our rig service line, we provide workover and well servicing rigs that are primarily used for routine repair andmaintenance of oil and gas wells, re-drilling operations and plugging and abandonment operations. These services are provided on an hourly basis at agreedupon spot market rates. Revenue is recognized and a field ticket is generated upon the earliest of the completion of a job or at the end of each day. A rigservices job can last anywhere from a few hours to multiple days depending on the type of work being performed. The field ticket includes the base hourlyrate charge and, if applicable, charges for additional personnel or equipment not contemplated in the base hourly rate. The field ticket may also includecharges for the mobilization and set-up of equipment,Fluids Management Services Revenue. Through our fluids management service line, we primarily provide storage, transportation and disposalservices for fluids used in the drilling, completion and workover of oil and gas wells. Rates for these services vary and can be on a per job, per hour or perload basis, or on the basis of quantities sold or disposed. Revenue is recognized upon the completion of each job or load, or delivered product, based on acompleted field ticket.Other Special Well Site Services Revenue. Through our other special well site service line, we primarily provide fishing, contract labor, and toolrental services for completion and workover of oil and gas wells. Rates for these services vary and can be on a per job, per hour or on the basis of rental daysper month. Revenue is recognized based on a field ticket issued upon the completion of each job or on a monthly billing for rental services provided.With respect to our artificial lift applications, we generate revenue primarily from the sale of manufactured equipment and products. Revenue isrecognized upon the completion, delivery and customer acceptance of each order.Other Services SegmentRevenue within our Other Services Segment was generated from certain of our smaller, non-core service lines that were divested in 2016 and2017, such as our specialty chemical business, equipment manufacturing and repair business and international coiled tubing operations in the Middle East.In line with the discontinuance of these small, ancillary service lines and divisions, subsequent to the year ended December 31, 2016, we are now disclosingtwo reportable segments, and financial information for the Other Services reportable segment is only presented for the corresponding prior year period.Accounts Receivable and Allowance for Doubtful Accounts. Accounts receivable are generally stated at the amount billed to customers. Weprovide an allowance for doubtful accounts, which is based upon a review of outstanding receivables, historical collection information and existingeconomic conditions. Provisions for doubtful accounts are recorded when it is deemed probable that the customer will not make the required payments ateither the contractual due dates or in the future. At December 31, 2017 and 2016, the allowance for doubtful accounts totaled $4.3 million and $3.0 million,respectively. Bad debt expense of $4.4 million, $1.7 million and $8.1 million was included in direct costs on the consolidated statements of operations forthe years ended December 31, 2017, 2016 and 2015, respectively.60Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Share-Based Compensation. Our share-based compensation consists of restricted shares and nonqualified share options. We recognize share-based compensation expense on a straight-line basis over the requisite service period of the award. We value restricted share grants based on the closing priceof our common stock on the grant date. We value option grants based on the grant date fair value using the Black-Scholes option-pricing model, and wevalue equity awards with market conditions based on the grant date fair value using a Monte Carlo simulation, both of which require the use of subjectiveassumptions.The Black-Scholes option-pricing model requires inputs such as the expected term of the grant, expected volatility and risk-free interest rate.Further, the forfeiture rate also affects the amount of aggregate compensation that we are required to record as an expense. We will continue to use judgmentin evaluating the expected term, volatility and forfeiture rate related to our share-based compensation on a prospective basis and will incorporate thesefactors into our option-pricing model. Each of these inputs is subjective and generally requires significant management judgment. If, in the future, wedetermine that another method for calculating the fair value of our stock options is more reasonable, or if another method for calculating these inputassumptions is prescribed by authoritative guidance, and, therefore, should be used to estimate expected volatility or expected term, the fair value calculatedfor our employee stock options could change significantly. Higher volatility and longer expected terms generally result in an increase to share-basedcompensation expense determined at the date of grant.Income Taxes. We are subject to income and other similar taxes in all areas in which they operate. When recording income tax expense, certainestimates are required because: (a) income tax returns are generally filed months after the close of our annual accounting period; (b) tax returns are subject toaudit by taxing authorities and audits can often take years to complete and settle; and (c) future events often impact the timing of when we recognize incometax expenses and benefits.We account for income taxes utilizing the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for thefuture tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective taxbasis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporarydifferences are expected to be recovered or settled. The effect on deferred tax assets and liabilities due to a change in tax rates is recognized as income orexpense in the period that includes the enactment date.The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which thosetemporary differences become deductible. In assessing the likelihood and extent that deferred tax assets will be realized, consideration is given to projectedfuture taxable income and tax planning strategies. A valuation allowance is recorded when, in the opinion of management, it is more likely than not that aportion or all of the deferred tax assets will not be realized.We have federal, state and international net operating losses ("NOLs") carried forward from prior years that will expire in the years 2021 through2037. After considering the scheduled reversal of deferred tax liabilities, projected future taxable income, the potential limitation on use of NOLs underSection 382 of the Internal Revenue Code of 1986, as amended (the "Code") and tax planning strategies, the Company established a valuation allowance dueto the uncertainty regarding the ultimate realization of the deferred tax assets associated with its NOL carryforwards.As a result of the Chapter 11 Proceeding, on the Plan Effective Date, we believes we experienced an ownership change for purposes of Section382 of the Code because of its Restructuring Plan and in addition experienced a subsequent ownership change on or about June 30, 2017. Consequently, ourpre-change NOLs are subject to an annual limitation (See Note 2 - Chapter 11 Proceeding and Emergence for additional information, including definitions ofcapitalized defined terms, about the Chapter 11 Proceeding and emergence from the Chapter 11 Proceeding). The ownership change and resulting annuallimitation on use of NOLs are not expected to result in the expiration of our NOL carryforwards if we are able to generate sufficient future taxable incomewithin the carryforward periods. However, the limitation on the amount of NOLs available to offset taxable income in a specific year may result in thepayment of income taxes before all NOLs have been utilized. Additionally, a subsequent ownership change may result in further limitation on the ability toutilize existing NOLs and other tax attributes, which could cause our pre-change NOL carryforwards to expire unused.We recognize the financial statement effects of a tax position when it is more-likely-than-not, based on the technical merits, that the position willbe sustained upon examination. A tax position that meets the more-likely-than-not recognition threshold is measured as the largest amount of tax benefit thatis greater than 50.0% likely of being realized upon ultimate settlement with a taxing authority. Previously recognized uncertain tax positions are reversed inthe first period in which it is more-likely-than-not that the tax position would be sustained upon examination. Income tax related interest and penalties, ifapplicable, are recorded as a component of the provision for income tax expense. For the year ended61Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.December 31, 2017, we recorded an income tax benefit of $6.5 million related to a decrease in the estimate of the reserve for unrecognized tax benefitsrelating to uncertain tax positions. The decrease resulted from the effect of changes in the application of relevant withholding tax provisions underapplicable local country treaties related to certain our foreign subsidiaries. As of December 31, 2017, we have no uncertain tax positions.Recent Accounting PronouncementsIn May 2014, the Financial Accounting Standards Board ("FASB") issued a comprehensive new revenue recognition standard, AccountingStandards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers ("ASU 2014-09") that will supersede existing revenue recognition guidanceunder U.S. GAAP. In August 2015, the FASB issued an accounting standards update for a one-year deferral of the revenue recognition standard's effectivedate for all entities, which changed the effectiveness to annual reporting periods beginning after December 15, 2017, including interim periods within thatreporting period. The core principle of the new guidance is that a company should recognize revenue to depict the transfer of promised goods or services tocustomers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The standardcreates a five-step model that requires companies to exercise judgment when considering the terms of a contract and all relevant facts and circumstances. Thestandard allows for several transition methods: (a) a full retrospective adoption in which the standard is applied to all of the periods presented, or (b) amodified retrospective adoption in which the standard is applied only to the most current period presented in the financial statements, including additionaldisclosures of the standard’s application impact to individual financial statement line items. We adopted this new accounting standard on January 1, 2018and upon adoption, we incorporated the modified retrospective approach as our transition method. The approach included performing a detailed review ofkey contracts representative of our different businesses and comparing historical accounting policies and practices to the new standard. Based on thisassessment, the Company has concluded the adoption of this new account standard will not have a material impact on our consolidated financial statements.In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory ("ASU 2015-11"), which changes the measurementprinciple for inventory from the lower of cost or market to lower of cost and net realizable value. ASU 2015-11 is part of the FASB’s simplification initiativeand applies to entities that measure inventory using a method other than last-in, first-out ("LIFO") or the retail inventory method. We adopted ASU 2015-11on January 1, 2017 prospectively and the adoption had no effect on our consolidated financial statements.In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes ("ASU 2015-17”). ASU 2015-17 amends existing guidance on income taxes to require the classification of all deferred tax assets and liabilities as non-current on thebalance sheet. We adopted ASU 2015-17 on January 1, 2017 prospectively and no prior periods have been restated to conform to the new presentation. Theadoption had no effect on our results of operations or financial position.In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"). ASU No. 2016-02 seeks to increase transparency andcomparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and by disclosing key information about leasingarrangements. Unlike current U.S. GAAP, which requires only capital leases to be recognized on the balance sheet, ASU No. 2016-02 will require bothoperating and finance leases to be recognized on the balance sheet. Additionally, the new guidance will require disclosures to help investors and otherfinancial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases, including qualitative and quantitativerequirements. The amendments in ASU No. 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within thosefiscal years, and early application is permitted. We are currently evaluating the impact of adopting this new accounting standard on our consolidatedfinancial statements.In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-BasedPayment Accounting ("ASU 2016-09"), to simplify certain provisions in stock compensation accounting, including the simplification of accounting for astock payment's tax consequences. The ASU amends the guidance for classifying awards as either equity or liabilities, allows companies to estimate thenumber of stock awards they expect to vest, and revises the tax withholding requirements for stock awards. The amendments in ASU No. 2016-09 areeffective for public companies for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, and early application ispermitted. We adopted ASU 2016-09 on January 1, 2017 prospectively and the adoption had no effect on our results of operations or financial position.62Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on FinancialInstruments (“ASU 2016-13”), which amends U.S. GAAP by introducing a new impairment model for financial instruments that is based on expected creditlosses rather than incurred credit losses. The new impairment model applies to most financial assets, including trade accounts receivable. The amendments inASU 2016-13 are effective for interim and annual reporting periods beginning after December 15, 2019, although it may be adopted one year earlier, andrequires a modified retrospective transition approach. We are currently evaluating the impact this standard will have on our consolidated financialstatements.In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory ("ASU2016-16"), which requires an entity to recognize the income tax consequences of an intra-entity asset transfer, other than an intra-entity asset transfer ofinventory, when the transfer occurs. The ASU is effective for the interim and annual reporting periods beginning after December 15, 2017, including interimperiods within those fiscal years, and early application is permitted. We adopted this new accounting standard on January 1, 2018. We anticipate acumulative effect adjustment to reduce retained earnings by approximately $13.2 million will occur as a result of our adoption of ASU 2016-16.In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment("ASU 2017-04"), which establishes a one-step process for testing goodwill for a drop in value. This ASU is effective for the interim and annual reportingperiods beginning after December 15, 2019 and early adoption is permitted. We do not expect the adoption of this new accounting standard to have asignificant impact on our consolidated financial statements.InflationInflation in the United States has been relatively low in recent years and did not have a material impact on our results of operations for the yearsended December 31, 2017, 2016 and 2015. Although the impact of inflation has been insignificant in recent years, it is still a factor in the U.S. economy, andwe tend to experience inflationary pressure on the cost of our equipment, materials and supplies as increasing oil and natural gas prices increase activity inour areas of operations.63Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Item 7A. Quantitative and Qualitative Disclosures About Market RiskMarket risk is the risk of loss arising from adverse changes in market rates and prices. The principal market risk to which we are exposed iscommodity price risk, which is the risk related to increases in the prices of fuel, materials and supplies consumed in performing our services. We are alsoexposed to risks related to interest rate fluctuations and customer credit.Commodity Price Risk. Our material and fuel purchases expose us to commodity price risk. Our material costs primarily include the cost ofinventory consumed while performing our stimulation services such as proppants, chemicals, guar, coiled tubing and fluid supplies. Our fuel costs consistprimarily of diesel fuel used by our various trucks and other motorized equipment. The prices for fuel and the raw materials (particularly guar and proppants)in our inventory are volatile and are impacted by changes in supply and demand, as well as market uncertainty and regional shortages. Historically, we havegenerally been able to pass along price increases to our customers; however, we may be unable to do so in the future. We do not engage in commodity pricehedging activities.Interest Rate Risk. We are exposed to changes in interest rates on our floating rate borrowings under our Amended Credit Facility. As ofDecember 31, 2017, we had no debt outstanding under our Amended Credit Facility. The impact of a 1.0% increase in interest rates under the terms of theAmended Credit Facility would have no impact on interest expense for the 2017 year.Customer Credit Risk. Financial instruments that potentially subject us to concentrations of credit risk are trade receivables. We extend credit tocustomers and other parties in the normal course of business. We have established various procedures to manage our credit exposure, including creditevaluations and maintaining an allowance for doubtful accounts.64Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Item 8. Financial Statements and Supplementary DataIndex toConsolidated Financial Statements Management's Report on Internal Control Over Financial Reporting66Reports of Independent Registered Public Accounting Firms67Consolidated Balance Sheets as of December 31, 2017 (Successor) and 2016 (Predecessor)69Consolidated Statements of Operations for the Year Ended December 31, 2017 (Successor), on January 1, 2017 (Predecessor) and for the Years EndedDecember 31, 2016 (Predecessor) and 2015 (Predecessor)70Consolidated Statements of Comprehensive Income (Loss) for the Year Ended December 31, 2017 (Successor), on January 1, 2017 (Predecessor) andfor the Years Ended December 31, 2016 (Predecessor) and 2015 (Predecessor)71Consolidated Statements of Changes in Stockholders’ Equity for the Year Ended December 31, 2017 (Successor), on January 1, 2017 (Predecessor)and for the Years Ended December 31, 2016 (Predecessor) and 2015 (Predecessor)72Consolidated Statements of Cash Flows for the Year Ended December 31, 2017 (Successor), on January 1, 2017 (Predecessor) and for the YearsEnded December 31, 2016 (Predecessor) and 2015 (Predecessor)73Notes to Consolidated Financial Statements7465Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Management’s Report on Internal Control Over Financial ReportingManagement of the Company is responsible for establishing and maintaining adequate internal control over financial reporting (as defined inRules 13a-15(f) and 15d-15(f) of the Exchange Act). Internal control over financial reporting is a process designed by, or under the supervision of, theCompany’s principal executive and principal financial officers, or persons performing similar functions, 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 financial statementsfor external purposes in accordance with generally accepted accounting principles in the United States and includes those policies and procedures that(i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generallyaccepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of managementand directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or dispositionof 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. Therefore, even thosesystems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projectionsof any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that thedegree of compliance with the policies or procedures may deteriorate.Management with the participation of the Company’s principal executive and financial officers assessed the effectiveness of the Company’sinternal control over financial reporting as of December 31, 2017. In making this assessment, it used the criteria set forth in 2013 by the Committee ofSponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Management’s assessment included an evaluationof the design of internal control over financial reporting and testing of the operational effectiveness of its internal control over financial reporting. Based onthis assessment, management has concluded that the Company maintained effective internal control over financial reporting as of December 31, 2017.Management’s assessment of the Company’s internal control over financial reporting as of December 31, 2017 excluded the internal control overfinancial reporting of O-Tex Holdings, Inc., and its operating subsidiaries ("O-Tex"), which was acquired by the Company on November 30, 2017. O-Texrepresented approximately 1% of consolidated revenues and 20% of consolidated total assets as of December 31, 2017.The Company's internal control over financial reporting as of December 31, 2017 has been audited by KPMG LLP, an independent registeredpublic accounting firm, as stated in their report which appears in this Form 10-K. /s/ Donald J. Gawick /s/ Mark C. Cashiola /s/ Michael S. GalvanDonald J. GawickPresident, Chief Executive Officer andDirector (Principal Executive Officer) Mark C. CashiolaChief Financial Officer (PrincipalFinancial Officer) Michael S. GalvanChief Accounting Officer(Principal Accounting Officer)March 1, 201866Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Report of Independent Registered Public Accounting FirmTo the Stockholders and Board of DirectorsC&J Energy Services, Inc.:Opinion on the Consolidated Financial StatementsWe have audited the accompanying consolidated balance sheets of C&J Energy Services, Inc. (the Company) as of December 31, 2017 (Successor) and2016 (Predecessor), the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for the year endedDecember 31, 2017 (Successor), and for the years ended 2016 and 2015 (Predecessor), and the related notes (collectively, the consolidated financialstatements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as ofDecember 31, 2017 (Successor) and 2016 (Predecessor), and the results of its operations and its cash flows for the year ended December 31, 2017 (Successor)and for the years ended 2016 and 2015 (Predecessor), in conformity with U.S. generally accepted accounting principles.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’sinternal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued bythe Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 1, 2018 expressed an unqualified opinion on theeffectiveness of the Company’s internal control over financial reporting.Basis of AccountingAs discussed in Note 1 to the consolidated financial statements, on December 15, 2016, the United States Bankruptcy Court in the Southern District of Texasentered an order confirming the Company’s plan for reorganization under Chapter 11 of the Bankruptcy Code, which became effective on January 6, 2017.Accordingly, the accompanying consolidated financial statements have been prepared in conformity with Accounting Standards Codification 852,Reorganizations, for the Successor as a new reporting entity with assets, liabilities and a capital structure having carrying amounts not comparable with priorperiods as described in Note 1.Basis for OpinionThese consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on theseconsolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent withrespect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and ExchangeCommission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performingprocedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures thatrespond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financialstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating theoverall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion./s/ KPMG LLPWe have served as the Company's auditor since 2014Houston, TexasMarch 1, 201867Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Report of Independent Registered Public Accounting FirmTo the Stockholders and Board of DirectorsC&J Energy Services, Inc.:Opinion on Internal Control Over Financial ReportingWe have audited C&J Energy Services, Inc.’s (the Company) internal control over financial reporting as of December 31, 2017, based on criteria establishedin Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, theCompany maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established inInternal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidatedbalance sheets of the Company as of December 31, 2017 (Successor) and 2016 (Predecessor), the related consolidated statements of operations,comprehensive income (loss), stockholders’ equity, and cash flows for the year ended December 31, 2017 (Successor), and for the years ended 2016 and 2015(Predecessor), and related notes (collectively, the consolidated financial statements), and our report dated March 1, 2018 expressed an unqualified opinion onthose consolidated financial statements.The Company acquired O-Tex Holdings, Inc. (O-Tex) during 2017, and management excluded from its assessment of the effectiveness of the Company’sinternal control over financial reporting as of December 31, 2017, O-Tex’s internal control over financial reporting associated with approximately 20% ofconsolidated assets and 1% of consolidated revenues included in the consolidated financial statements of the Company as of and for the year endedDecember 31, 2017. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financialreporting of O-Tex.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Ourresponsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firmregistered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financialreporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing andevaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures aswe considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control Over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely 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 ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate./s/ KPMG LLPHouston, TexasMarch 1, 201868Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(Amounts in thousands, except share data) Successor Predecessor December 31, 2017 December 31, 2016ASSETS Current assets: Cash and cash equivalents $113,887 $64,583Accounts receivable, net of allowance of $4,269 at December 31, 2017 and$2,951 at December 31, 2016 367,906 137,084Inventories, net 77,793 54,471Prepaid and other current assets 33,011 37,611Deferred tax assets — 6,020Total current assets 592,597 299,769Property, plant and equipment, net of accumulated depreciation of $133,755 atDecember 31, 2017 and $683,189 at December 31, 2016 703,029 950,811Other assets: Goodwill 147,515 —Intangible assets, net 123,837 76,057Deferred financing costs, net of accumulated amortization of $608, as ofDecember 31, 2017 3,379 —Other noncurrent assets 38,500 35,045Total assets $1,608,857 $1,361,682LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) Current liabilities: Accounts payable $138,624 $74,382Payroll and related costs 52,812 17,991Accrued expenses 66,547 60,363DIP Facility — 25,000Other current liabilities 867 2,980Total current liabilities 258,850 180,716Deferred tax liabilities 3,917 15,613Other long-term liabilities 24,668 18,577Total liabilities not subject to compromise 287,435 214,906Liabilities subject to compromise — 1,445,346Commitments and contingencies Stockholders’ equity Predecessor common shares, par value of $0.01, 750,000,000 shares authorized,119,529,942 issued and outstanding at December 31, 2016 — 1,195Predecessor additional paid-in capital — 1,009,426Successor common stock, par value of $0.01, 1,000,000,000 shares authorized,68,546,820 issued and outstanding at December 31, 2017 686 —Successor additional paid-in capital 1,298,859 —Accumulated other comprehensive loss (580) (2,600)Retained earnings (deficit) 22,457 (1,306,591)Total stockholders’ equity (deficit) 1,321,422 (298,570)Total liabilities and stockholders’ equity (deficit) $1,608,857 $1,361,682See accompanying notes to consolidated financial statements69Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(Amounts in thousands, except per share data) Successor Predecessor Year Ended December31, On January 1, Years Ended December31, 2017 2017 2016 2015Revenue $1,638,739 $— $971,142 $1,748,889Costs and expenses: Direct costs 1,288,092 — 947,255 1,523,194Selling, general and administrative expenses 250,871 — 229,267 239,697Research and development 6,368 — 7,718 16,704Depreciation and amortization 140,650 — 217,440 276,353Impairment expense — — 436,395 791,807(Gain) loss on disposal of assets (31,463) — 3,075 (544)Operating income (loss) (15,779) — (870,008) (1,098,322)Other income (expense): Interest expense, net (1,527) — (157,465) (82,086)Other income (expense), net 3 — 9,504 8,773Total other income (expense) (1,524) — (147,961) (73,313)Losses before reorganization items and income taxes (17,303) — (1,017,969) (1,171,635)Reorganization items — (293,969) 55,330 —Income tax benefit (39,760) (4,613) (129,010) (299,093)Net income (loss) $22,457 $298,582 $(944,289) $(872,542)Net income (loss) per common share: Basic $0.37 $2.52 $(7.98) $(8.48)Diluted $0.37 $2.52 $(7.98) $(8.48)Weighted average common shares outstanding: Basic 61,208 118,633 118,305 102,853Diluted 61,460 118,633 118,305 102,853See accompanying notes to consolidated financial statements70Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)(In thousands) Successor Predecessor Year EndedDecember 31, On January 1, Years Ended December 31, 2017 2017 2016 2015Net income (loss)$22,457 $298,582 $(944,289) $(872,542) Other comprehensive income (loss): Foreign currency translation gain (loss), net of income tax(expense) benefit of ($777), ($31) and $1,369 as of December31, 2017, 2016 and 2015 respectively(580) — 1,425 (3,980)Comprehensive income (loss)$21,877 $298,582 $(942,864) $(876,522)See accompanying notes to consolidated financial statements71Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY(Amounts in thousands) Common Stock AdditionalPaid-inCapital Other ComprehensiveLoss RetainedEarnings(Deficit) Total Number ofShares Amount, at$0.01 par value Balance, December 31, 2014 (Predecessor) 55,333 $553 $271,104 $(45) $510,240 $781,852Issuance of common shares, net of issuancecosts 62,542 625 709,642 — — $710,267Issuance of restricted shares, net of forfeitures 2,613 26 3,006 — — 3,032Employee tax withholding on restricted sharesvesting (222) (2) (2,619) — — (2,621)Issuance of common shares for stock optionsexercised 154 2 451 — — 453Tax effect of share-based compensation — — (2,367) — — (2,367)Share-based compensation — — 18,549 — — 18,549Net income — — — — (872,542) (872,542)Foreign currency translation loss, net of tax — — — (3,980) — (3,980)Balance, December 31, 2015 (Predecessor) 120,420 1,204 997,766 (4,025) (362,302) 632,643Forfeitures of restricted shares (576) (6) 6 — — —Employee tax withholding on restricted sharesvesting (314) (3) (494) — — (497)Tax effect of share-based compensation — — (5,592) — — (5,592)Share-based compensation — — 17,740 — — 17,740Net loss — — — — (944,289) (944,289)Foreign currency translation gain, net of tax — — — 1,425 — 1,425Balance, December 31, 2016 (Predecessor) 119,530 1,195 1,009,426 (2,600) (1,306,591) (298,570)Cancellation of Predecessor equity (119,530) (1,195) (1,009,426) 2,600 1,306,591 298,570 Issuance of New Equity and New Warrants 40,000 400 725,464 — — 725,864Rights Offering 15,464 155 199,845 — — 200,000Balance January 1, 2017 (Successor) 55,464 555 925,309 — — 925,864Public offering of common stock, net ofoffering costs 7,050 71 215,849 — — 215,920Issuance of stock for business acquisition 4,420 44 138,122 — — 138,166Issuance of restricted stock, net of forfeitures 1,718 17 (17) — — —Exercise of warrants 2 — — — — —Employee tax withholding on restricted stockvesting (107) (1) (3,841) — — (3,842)Share-based compensation — — 23,437 — — 23,437Net income — — — — 22,457 22,457Foreign currency translation loss, net of tax — — — (580) — (580)Balance December, 31, 2017 (Successor) 68,547 $686 $1,298,859 $(580) $22,457 $1,321,422See accompanying notes to consolidated financial statements72Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(Amounts in thousands) Successor Predecessor Year EndedDecember 31, On January 1, Years Ended December 31, 2017 2017 2016 2015Cash flows from operating activities: Net income (loss) $22,457 $298,582 $(944,289) $(872,542)Adjustments to reconcile net income (loss) to net cash provided byoperating activities: Depreciation and amortization 140,650 — 217,440 276,353Impairment expense — — 436,395 791,807Inventory write-down — — 35,350 31,109Contingent consideration adjustment — — (4,700) (11,147)Deferred income taxes (31,244) (4,613) (129,533) (273,144)Provision for doubtful accounts 4,444 — 1,735 8,071Equity (earnings) loss from unconsolidated affiliate 83 — 5,663 (500)(Gain) loss on disposal of assets (31,463) — 3,075 (544)Share-based compensation expense 23,437 — 17,740 18,549Amortization of deferred financing costs 608 — 48,310 10,926Accretion of original issue discount — — 52,414 6,187Reorganization items, net — (315,626) 30,611 —Changes in operating assets and liabilities: Accounts receivable (203,101) — 137,075 278,150Inventories (26,072) — 4,244 21,123Prepaid expenses and other current assets 16,013 — 24,447 (26,821)Accounts payable 41,801 — (75,016) (168,607)Payroll and related costs and accrued expenses 38,104 (1,436) 35,028 17,400Liabilities subject to compromise — (33,000) — —Income taxes receivable (payable) 1,714 3,604 (108)Other 2,663 — (6,965) (3,257)Net cash provided by (used in) operating activities 94 (56,093) (107,372) 103,005Cash flows from investing activities: Purchases of and deposits on property, plant and equipment (210,186) — (57,909) (166,321)Proceeds from disposal of property, plant and equipment and non-core service lines 68,250 — 32,809 4,468Payments made for business acquisitions (133,750) — — (663,303)Other payments related to non-core service lines — (1,827) —Net cash used in investing activities (275,686) — (26,927) (825,156)Cash flows from financing activities: Proceeds from revolving debt and term loans — — 174,000 1,339,400Payments on revolving debt and term loans — — (13,250) (539,950)Proceeds from DIP Facility — — 23,000 —Payments on DIP Facility — (25,000) — —Payments of capital lease obligations — — (2,388) (3,874)Financing costs (1,739) (2,248) (1,009) (55,450)Proceeds from issuance of common stock, net of offering costs 215,920 200,000 — 453Registration costs associated with issuance of common stock — — — (1,465)Employee tax withholding on restricted stock vesting (3,842) — (497) (2,621)Excess tax benefit (expense) from share-based compensation — — (5,592) (2,367)Net cash provided by financing activities 210,339 172,752 174,264 734,126 Effect of exchange rate on cash (2,102) — (1,282) 3,908Net increase (decrease) in cash and cash equivalents (67,355) 116,659 38,683 15,883Cash and cash equivalents, beginning of year 181,242 64,583 25,900 10,017Cash and cash equivalents, end of year $113,887 $181,242 $64,583 $25,900Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.See accompanying notes to consolidated financial statements73Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNote 1 - Organization, Nature of Business and Summary of Significant Accounting PoliciesC&J Energy Services, Inc., a Delaware corporation (the “Successor” and together with its consolidated subsidiaries for periods subsequent to thePlan Effective Date (as defined below), “C&J” or the “Company”), is a leading provider of well construction, well completion, well support and othercomplementary oilfield services to oil and gas exploration and production ("E&P") companies throughout the continental United States. The Company offersan integrated suite of services throughout the life cycle of the well, including hydraulic fracturing, cased-hole wireline and pumping, cementing, coiledtubing, directional drilling, rig services, fluids management, artificial lift, and other completion and specialty well site support services. The Company isheadquartered in Houston, Texas, and operates across all active onshore basins in the continental United States.C&J’s business was founded in Texas in 1997 as a partnership and converted to a Delaware corporation (“Old C&J”) in connection with an initialpublic offering which was completed in 2011 with a listing on the New York Stock Exchange (“NYSE”) under the symbol “CJES.” In 2015, Old C&Jcombined with the completion and production services business (the “C&P Business”) of Nabors Industries Ltd. (“Nabors”) in a transformative transaction(the “Nabors Merger”) that nearly tripled the Company’s size, significantly expanding the Company’s Completion Services business and adding the WellSupport Services division to the Company’s service offerings. Upon the closing of the Nabors Merger, Old C&J became a subsidiary of C&J Energy ServicesLtd., a Bermuda corporation (the “Predecessor” and together with its consolidated subsidiaries for periods prior to the Plan Effective Date, the “PredecessorCompanies,” or the “Company”), and shares of common stock of Old C&J were converted into common shares of the Predecessor on a 1-for-1 basis.Due to the severe industry downturn, on July 20, 2016 (the "Petition Date"), the Predecessor Companies voluntarily filed petitions forreorganization seeking relief under the provisions of Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for theSouthern District of Texas, Houston Division (the "Bankruptcy Court"), with ancillary recognition proceedings filed in Canada and Bermuda (collectively,the "Chapter 11 Proceeding").On December 16, 2016, the Bankruptcy Court entered an order confirming the plan of reorganization (the “Restructuring Plan”) of thePredecessor Companies. On January 6, 2017 (the “Plan Effective Date”), the Predecessor Companies substantially consummated the Restructuring Plan andemerged from the Chapter 11 Proceeding. As part of the transactions undertaken pursuant to the Restructuring Plan, effective on the Plan Effective Date, theSuccessor was formed, the Predecessor’s equity was canceled, the Predecessor transferred all of its assets and operations to the Successor and the Predecessorwas subsequently dissolved. For more information regarding the Chapter 11 Proceeding, see Note 2 - Chapter 11 Proceeding and Emergence.Upon emergence from the Chapter 11 Proceeding, the Company adopted Fresh Start accounting in accordance with the provisions set forth inAccounting Standards Codification (“ASC”) 852 - Reorganizations. For more information regarding the adoption of Fresh Start accounting, see Note 3 -Fresh Start Accounting.Contemporaneously with the commencement of the Chapter 11 Proceeding, trading in the Predecessor’s common stock was suspended and thePredecessor’s common stock was ultimately delisted from the NYSE. On April 12, 2017, the Successor completed an underwritten public offering of commonstock and its common stock began trading again on the NYSE under the symbol “CJ.”Basis of Presentation and Principles of ConsolidationThe consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States ofAmerica (“U.S. GAAP”) and include all of the accounts of C&J and its consolidated subsidiaries. All significant inter-company transactions and accountbalances have been eliminated upon consolidation.As discussed above the Company adopted Fresh Start accounting in accordance with the provisions set forth in ASC 852 with respect to theaccounting and financial statement disclosures. Accordingly, the Company's consolidated financial statements and notes prior to January 1, 2017, are notcomparable to the consolidated financial statements as of January 1, 2017 and periods subsequent to January 1, 2017.74Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe Company’s results for the year ended 2015 include results from the C&P Business from the closing of the Nabors Merger on March 24, 2015through December 31, 2015. Results for periods prior to March 24, 2015 reflect the financial and operating results of Old C&J, and do not include thefinancial and operating results of the C&P Business.During the fourth quarter of 2015, the Company recorded out-of-period adjustments to correct the overstatement from the over-accrual of directcosts related to periods from 2008 through December 31, 2014, resulting in a $9.8 million increase to net income. In evaluating whether these errors,individually and in the aggregate, and the corrections of the errors had a material impact to the periods such errors and corrections related to, the Companyevaluated both the quantitative and qualitative impact to its consolidated financial statements for such periods. In assessing the quantitative impact, theCompany considered the errors in each impacted period relative to the amount of reported direct costs, net income or loss, and current and total liabilities.The Company considered a number of qualitative factors, including, among others, that the errors and the correction of the errors (i) did not change a net lossinto net income or vice versa, (ii) did not have an impact on the Company's debt covenant compliance and (iii) did not result in a change in the Company'searnings trends when considering the overall competitive and economic environment within which it operated from 2008 through December 31, 2014. Basedupon the Company's quantitative and qualitative evaluation, it determined that the errors and the correction of such errors did not have a material impact toprior periods, individually or in the aggregate, and were not material to the year ending December 31, 2015.Summary of Significant Accounting PoliciesUse of Estimates. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and thereported amounts of revenue and expenses during the reporting period. Estimates are used in, but are not limited to, determining the following: allowance fordoubtful accounts, valuation of long-lived assets and intangibles, goodwill, useful lives used in depreciation and amortization, inventory reserves, incometaxes, share-based compensation and liabilities subject to compromise under the provisions of ASC 852 fresh start accounting ("Fresh Start"). The accountingestimates used in the preparation of the consolidated financial statements may change as new events occur, as more experience is acquired, or as additionalinformation is obtained and as the Company’s operating environment changes.Cash and Cash Equivalents. For purposes of the consolidated statement of cash flows, cash is defined as cash on-hand, demand deposits, andshort-term investments with initial maturities of three months or less. 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. Cash balances related to the Company's captiveinsurance subsidiaries, which totaled $23.8 million and $16.1 million at December 31, 2017 and December 31, 2016, respectively, are included in cash andcash equivalents in the consolidated balance sheets, and the Company expects to use these cash balances to fund the operations of the captive insurancesubsidiaries and to settle future anticipated claims.Accounts Receivable and Allowance for Doubtful Accounts. Accounts receivable are generally stated at the amount billed to customers. TheCompany provides an allowance for doubtful accounts, which is based upon a review of outstanding receivables, historical collection information andexisting economic conditions. Provisions for doubtful accounts are recorded when it is deemed probable that the customer will not make the requiredpayments at either the contractual due dates or in the future. At December 31, 2017 and 2016, the allowance for doubtful accounts totaled $4.3 million and$3.0 million, respectively. Bad debt expense of $4.4 million, $1.7 million and $8.1 million was included in selling, general, and administrative expenses onthe consolidated statements of operations for the years ended December 31, 2017, 2016 and 2015, respectively.Inventories. Inventories are carried at the lower of cost or net realizable value. Inventories for the Company consist of raw materials, work-in-process and finished goods, including equipment components, chemicals, proppants, supplies and materials for the Company's operations.Consistent with FASB requirements under ASC 852, an entity adopting fresh-start accounting may generally set new accounting policies for thesuccessor independent of those followed by the predecessor. The entity emerging from bankruptcy typically is not required to demonstrate preferability forits new accounting policies, as the successor entity represents a new entity for financial reporting purposes.During January 2017, the Company implemented a new computer system that provides financial reporting, inventory management and fixedasset management capabilities (the "new ERP system") to enhance functionality and to support the Company's existing and future operations. The new ERPsystem utilizes the weighted average cost flow method for determining inventory cost ("Weighted Average"), which replaced the first-in, first-out basis("FIFO") method utilized by the Predecessor's legacy system. The Weighted Average and FIFO methods are both allowable under U.S. GAAP. As of the Fresh75Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSStart Reporting Date, the Company began utilizing the Weighted Average method for determining inventory cost. Inventory cost for the prior periodspresented are still reflective of the FIFO method.Inventories consisted of the following (in thousands): Successor Predecessor As of December 31, 2017 2016Raw materials $5,302 $16,367Work-in-process 1,329 5,022Finished goods 74,552 38,091Total inventory 81,183 59,480Inventory reserve (3,390) (5,009)Inventory, net $77,793 $54,471Property, Plant and Equipment. Property, plant and equipment (PP&E) are reported at cost less accumulated depreciation. Maintenance andrepairs, which do not improve or extend the life of the related assets, are charged to expense when incurred. Refurbishments are capitalized when the value ofthe equipment is enhanced for an extended period. When property and equipment are sold or otherwise disposed of, the asset account and relatedaccumulated depreciation account are relieved, and any gain or loss is included in operating income.The cost of property and equipment currently in service is depreciated, on a straight-line basis, over the estimated useful lives of the relatedassets, which range from three to 25 years. Depreciation expense was $136.5 million, $206.7 million, and $261.8 million for the years ended December 31,2017, 2016 and 2015, respectively. Major classifications of property, plant and equipment and their respective useful lives were as follows (in thousands): Successor Predecessor EstimatedUseful Lives As of December 31, 2017 2016Land Indefinite $38,385 $46,000Building and leasehold improvements 5-25 years 79,985 121,915Office furniture, fixtures and equipment 3-5 years 34,672 29,435Machinery and equipment 3-10 years 577,922 1,219,645Transportation equipment 3-10 years 23,352 179,426 754,316 1,596,421Less: accumulated depreciation (133,755) (683,189) 620,561 913,232Construction in progress 82,468 37,579Property, plant and equipment, net $703,029 $950,811PP&E are evaluated on a quarterly basis to identify events or changes in circumstances (“triggering events”) that indicate the carrying value ofcertain PP&E may not be recoverable. PP&E are reviewed for impairment upon the occurrence of a triggering event. An impairment loss is recorded in theperiod in which it is determined that the carrying amount of PP&E is not recoverable. The determination of recoverability is made based upon the estimatedundiscounted future net cash flows of assets grouped at the lowest level for which there are identifiable cash flows independent of the cash flows of othergroups of assets with such cash flows to be realized over the estimated remaining useful life of the primary asset within the asset group, excluding interestexpense. The Company determined the lowest level of identifiable cash flows that are independent of other asset groups to be primarily at the service linelevel. The Company's assets groups consist of the well support services, fracturing, cased-hole wireline and pumping services, well construction andintervention, artificial lift applications, and data acquisition and control instruments provider service lines as well as the research and technology ("R&T")service lines. If the estimated undiscounted future net cash flows for a given asset group is less than the carrying amount of the related assets, an76Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSimpairment loss is determined by comparing the estimated fair value with the carrying value of the related assets. The impairment loss is then allocated acrossthe asset group's major classifications.The Company concluded that the sharp fall in commodity prices during the second half of 2014 constituted a triggering event that resulted in asignificant slowdown in activity across the Company’s customer base, which in turn increased competition and put pressure on pricing for its servicesthroughout 2015 and 2016. Although uncertainty as to the severity and extent of this downturn still exists, activity and pricing levels may decline again infuture periods. As a result of the triggering event during the fourth quarter of 2014, PP&E recoverability testing was performed throughout 2015 and 2016 onthe asset groups described above. During the fourth quarter of 2015, the recoverability testing for the hydraulic fracturing, coiled tubing, directional drilling,international coiled tubing, equipment manufacturing and repair services, specialty chemicals and the research and technology asset groups yielded anestimated undiscounted net cash flow that was less than the carrying amount of the related assets. The estimated fair value for each respective asset group wascompared to its carrying value, and impairment expense of $393.1 million was recognized during the fourth quarter of 2015 and allocated across eachrespective asset group's major classification. The impairment charge was primarily related to underutilized pressure pumping and other equipment in theCompletion Services and Other Services segments. For the 2016 year, the recoverability testing for the coiled tubing, directional drilling, cementing,artificial lift applications and international coiled tubing asset groups yielded an estimated undiscounted net cash flow that was less than the carryingamount of the related assets. The estimated fair value for each respective asset group was compared to its carrying value, and impairment expense of $61.1million was recognized during 2016 and allocated across each respective asset group's major classification. The impairment charge was primarily related tounderutilized equipment in the Completion Services and Other Services segments. The fair value of these assets was based on the projected present value offuture cash flows that these assets are expected to generate. Should industry conditions not significantly improve or worsen, additional impairment chargesmay be required in future periods. No impairment charge was recorded for the year ended December 31, 2017.On June 29, 2016, the Company sold a majority of the assets comprising their specialty chemicals supply business, including PP&E, forapproximately $9.3 million of net cash.PP&E impairment expense for the years ended December 31, 2016 and 2015 was recognized across each asset group as follows (in thousands). Certain assetgroups reflected in the table below were part of the Company’s smaller, non-core service lines that were divested in 2016, such as the Company's specialtychemical business, equipment manufacturing and repair business and international coiled tubing operations in the Middle East. Predecessor Year Ended December31, Year Ended December31, 2016 2015Fracturing $— $255,283Well Construction & Intervention 49,877 101,171International Coiled Tubing 4,663 6,931Equipment Manufacturing and Repair Services 3,238 13,847Specialty Chemicals — 3,070Artificial lift 2,784 —Research and Technology 518 12,777Total PP&E impairment expense $61,080 $393,079Goodwill, Indefinite-Lived Intangible Assets and Definite-Lived Intangible Assets. Goodwill may be allocated across two reporting units:Completions Services and Well Support Services. At the reporting unit level, the Company tests goodwill for impairment on an annual basis as of October 31of each year, or when events or changes in circumstances, referred to as triggering events, indicate the carrying value of goodwill may not be recoverable andthat a potential impairment exists.Judgment is used in assessing whether goodwill should be tested for impairment more frequently than annually. Factors such as unexpectedadverse economic conditions, competition, market changes and other external events may require more frequent assessments. During the third quarter of2015, sustained low commodity price levels and the resulting impact on the Company’s results of operations, coupled with the sustained weakness in theCompany’s share price were deemed triggering events that led to an interim period test for goodwill impairment. During the first quarter of 2016, commodityprice levels remained depressed which materially and negatively impacted the Company's results of operations, and the further77Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSdeclines in the Company's share price led to another interim period test for goodwill impairment. See Note 5 - Goodwill and Other Intangible Assets forfurther discussion on impairment testing results.Before employing detailed impairment testing methodologies, the Company may first evaluate the likelihood of impairment by consideringqualitative factors relevant to each reporting unit, such as macroeconomic, industry, market or any other factors that have a significant bearing on fair value.If the Company first utilizes a qualitative approach and determines that it is more likely than not that goodwill is impaired, detailed testing methodologiesare then applied. Otherwise, the Company concludes that no impairment has occurred. Detailed impairment testing, or Step 1 testing, involves comparing thefair value of each reporting unit to its carrying value, including goodwill. Fair value reflects the price a market participant would be willing to pay in apotential sale of the reporting unit. If the fair value exceeds carrying value, then it is concluded that no goodwill impairment has occurred. If the carryingvalue of the reporting unit exceeds its fair value, a second step is required to measure possible goodwill impairment loss. The second step, or Step 2 testing,includes hypothetically valuing the tangible and intangible assets and liabilities of the reporting unit as if the reporting unit had been acquired in a businesscombination. Then, the implied fair value of the reporting unit’s goodwill is compared to the carrying value of that goodwill. If the carrying value of thereporting unit’s goodwill exceeds the implied fair value of the goodwill, an impairment loss is recognized in an amount equal to the excess, not to exceed thecarrying value.The Company’s Step 1 impairment analysis involves the use of a blended income and market approach. Significant management judgment isnecessary to evaluate the impact of operating and macroeconomic changes on each reporting unit. Critical assumptions include projected revenue growth,fleet count, utilization, gross profit rates, sales, general and administrative ("SG&A") rates, working capital fluctuations, capital expenditures, discount rates,terminal growth rates, and price-to-earnings multiples. The Company’s market capitalization is also used to corroborate reporting unit valuations.Similar to goodwill, indefinite-lived intangible assets are subject to annual impairment tests or more frequently if events or circumstances indicatethe carrying amount may not be recoverable.Definite-lived intangible assets are amortized over their estimated useful lives. With the exception of the C&J trade name, these intangibles, alongwith PP&E, are reviewed for impairment when a triggering event indicates that the asset group may have a net book value in excess of recoverable value. Inthese cases, the Company performs a recoverability test on its PP&E and definite-lived intangible assets by comparing the estimated future net undiscountedcash flows expected to be generated from the use of these assets to the carrying amount of the assets for recoverability. If the estimated undiscounted cashflows exceed the carrying amount of the assets, an impairment does not exist and a loss will not be recognized. If the undiscounted cash flows are less thanthe carrying amount of the assets, the assets are not recoverable and the amount of impairment must be determined by fair valuing the assets. The C&J tradename is a corporate asset, and it is reviewed for impairment when a triggering event indicates the trade name, on a stand-alone basis, may have a net bookvalue in excess of consolidated C&J recoverable value using the same recoverability testing noted above.For further discussion of the application of this accounting policy regarding impairments, please see Note 5 - Goodwill and Other IntangibleAssets.Deferred Financing Costs. Costs incurred to obtain term debt financing are presented on the balance sheet as a direct deduction from the carryingamount of the term debt, consistent with debt discounts, and accreted over the term of the loan using the effective interest method. Costs incurred to obtainrevolver based financing are capitalized and amortized over the term of the loan using the effective interest method. These costs are classified within interestexpense on the consolidated statements of operations and were $0.6 million, $48.3 million and $10.9 million for the years ended December 31, 2017, 2016and 2015, respectively. Accumulated amortization of deferred financing costs was $0.6 million and $58.8 million at December 31, 2017 and 2016,respectively. As of December 31, 2016, and prior to emergence from the Chapter 11 Proceeding, deferred financing costs were fully amortized to zero.Revenue Recognition. All revenue is recognized when persuasive evidence of an arrangement exists, the service is complete or the equipment hasbeen delivered to the customer, the amount is fixed or determinable and collectibility is reasonably assured, as follows:Completion Services SegmentFracturing Services Revenue. Through its fracturing service line, the Company provides fracturing services pursuant to contractual arrangements,such as term contracts and pricing agreements or on a spot market basis. Under either scenario, revenue is recognized and customers are invoiced upon thecompletion of each job, which can consist of one or more fracturing stages. Once a job has been completed, a field ticket is written that includes charges forthe services performed and78Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSthe consumables (such as fluids and proppants) used during the course of service. The field ticket may also include charges for the mobilization and set-up ofequipment, the personnel on the job, any additional equipment used on the job, and other miscellaneous consumables.Rates for services performed on a spot market basis are based on an agreed-upon hourly spot market rate for a specified number of hours ofservice.Pursuant to pricing agreements and other contractual arrangements that the Company may enter into from time to time, such as those associatedwith an award from a bid process, customers typically commit to targeted utilization levels based on a specified number of hours of service at agreed-uponpricing, but without termination penalties or obligations to pay for services not used by the customer. In addition, the agreed-upon pricing is typicallysubject to periodic review, as specifically defined in the agreement, and may be adjusted upon the agreement of both parties.Cased-hole Wireline & Pumping Services Revenue. Through its cased-hole wireline & pumping services business, the Company provides cased-hole wireline, pumping, wireline logging, perforating, well site make-up and pressure testing and other complementary services, on a spot market basis. Jobsfor these services are typically short-term in nature, lasting anywhere from a few hours to multiple days. The Company typically charges the customer forthese services on a per job basis at agreed-upon spot market rates. Revenue is recognized based on a field ticket issued upon the completion of the job.Well Construction & Intervention Services Revenue. Through its well construction and intervention services business, the Company providescementing, coiled tubing and directional drilling services.With respect to its cementing services, the Company provides these services on a spot market or project basis. Jobs for these services are typicallyshort-term in nature and are generally completed in a few hours. The Company typically charges the customer for these services on a per job basis at agreed-upon spot market rates or agreed-upon job pricing for a particular project. Revenue is recognized and customers are invoiced upon the completion of eachjob. Once a job has been completed to the customer’s satisfaction, a field ticket is written that includes charges for the service performed and the consumables(such as blended bulk cement and chemical additives) used during the course of service.With respect to its coiled tubing services, the Company provides a range of coiled tubing services primarily used for frac plug drill-out duringcompletion operations and for well workover and maintenance, primarily on a spot market basis. Jobs for these services are typically short-term in nature,lasting anywhere from a few hours to multiple days. Revenue is recognized upon completion of each day’s work based upon a completed field ticket. Thefield ticket includes charges for the services performed and the consumables (such as stimulation fluids, nitrogen and coiled tubing materials) used during thecourse of service. The field ticket may also include charges for the mobilization and set-up of equipment, the personnel on the job, any additional equipmentused on the job, and other miscellaneous consumables. The Company typically charges the customer for the services performed and resources provided on anhourly basis at agreed-upon spot market rates or pursuant to contractual arrangements such as term contracts and pricing agreements.With respect to its directional drilling services, the Company provides these services on a spot market basis. Jobs for these services are typicallyshort-term in nature, lasting anywhere from a few days to multiple weeks. The Company typically charges the customer for these services on a per day basis atagreed-upon spot market rates depending on the level of services required and the complexity of the job. Revenue is recognized and customers are invoicedupon the completion of each job. Once a job has been completed, a field ticket is written that includes charges for the service performed.Revenue from Materials Consumed While Performing Certain Completion Services. The Company generates revenue from consumables usedduring the course of providing services.With respect to fracturing services, the Company generates revenue from the fluids, proppants and other materials that are consumed whileperforming a job. For services performed on a spot market basis, the required consumables are typically provided by the Company and the customer is billedfor those consumables at cost plus an agreed-upon markup. For services performed on a contractual basis, when the consumables are provided by theCompany, the customer typically is billed for those consumables at a negotiated contractual rate. When consumables are supplied by the customer, theCompany typically charges handling fees based on the amount of consumables used.Other Completion Services Revenue. The Company generates revenue from its R&T department, which is primarily engaged in the engineeringand production of certain parts and components, such as perforating guns and addressable switches, which are used in the completion process. Revenue isrecognized upon the completion, delivery and customer acceptance of each order of parts and components.79Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSWell Support Services SegmentRig Services Revenue. Through its rig services line, the Company provides workover and well servicing rigs that are primarily used for routinerepair and maintenance of oil and gas wells, re-drilling operations and plugging and abandonment operations. These services are provided on an hourly basisat agreed upon spot market rates. Revenue is recognized and a field ticket is generated upon the earliest of the completion of a job or at the end of each day.A rig services job can last anywhere from a few hours to multiple days depending on the type of work being performed. The field ticket includes the basehourly rate charge and, if applicable, charges for additional personnel or equipment not contemplated in the base hourly rate. The field ticket may alsoinclude charges for the mobilization and set-up of equipment,Fluids Management Services Revenue. Through its fluids management service line, the Company primarily provides storage, transportation anddisposal services for fluids used in the drilling, completion and workover of oil and gas wells. Rates for these services vary and can be on a per job, per houror per load basis, or on the basis of quantities sold or disposed. Revenue is recognized upon the completion of each job or load, or delivered product, basedon a completed field ticket.Other Special Well Site Services Revenue. Through its other special well site service line, the Company primarily provides fishing, contractlabor, and tool rental services for completion and workover of oil and gas wells. Rates for these services vary and can be on a per job, per hour or on the basisof rental days per month. Revenue is recognized based on a field ticket issued upon the completion of each job or on a monthly billing for rental servicesprovided.With respect to its artificial lift applications, the Company generates revenue primarily from the sale of manufactured equipment and products.Revenue is recognized upon the completion, delivery and customer acceptance of each order.Other Services SegmentRevenue within the Other Services Segment was generated from certain of the Company’s smaller, non-core service lines that were divested in2016, such as the Company's specialty chemical business, equipment manufacturing and repair business and international coiled tubing operations in theMiddle East. In line with the discontinuance of these small, ancillary service lines and divisions, subsequent to the year ended December 31, 2016, theCompany is now disclosing two reportable segments, and financial information for the Other Services reportable segment is only presented for thecorresponding prior year period.Share-Based Compensation. The Company’s share-based compensation plans provide the ability to grant equity awards to the Company’semployees, consultants and non-employee directors. As of December 31, 2017, only nonqualified stock options, restricted shares and performance awards hadbeen granted under such plans. The fair value of restricted stock grants is based on the closing price of C&J’s common stock on the grant date. The Companyvalues option grants based on the grant date fair value using the Black-Scholes option-pricing model, and the Company values equity awards with marketconditions based on the grant date fair value using a Monte Carlo simulation, both of which require the use of subjective assumptions. The Companyrecognizes share-based compensation expense on a straight-line basis over the requisite service period for the entire award. Further information regarding theCompany’s share-based compensation arrangements and the related accounting treatment can be found in Note 7 - Share-Based Compensation.Fair Value of Financial Instruments. The Company’s financial instruments consist of cash and cash equivalents, accounts receivable andaccounts payable. The recorded values of cash and cash equivalents, accounts receivable and accounts payable approximate their fair values given the short-term nature of these instruments.Equity Method Investments. The Company has investments in joint ventures which are accounted for under the equity method of accounting asthe Company has the ability to exercise significant influence over operating and financial policies of the joint venture. Judgment regarding the level ofinfluence over each equity method investment includes considering key factors such as ownership interest, representation on the board of directors,participation in policy-making decisions and material intercompany transactions. Under the equity method, original investments are recorded at cost andadjusted by the Company’s share of undistributed earnings and losses of these investments. The Company eliminates all significant intercompanytransactions, including the intercompany portion of transactions with equity method investees, from the consolidated financial results.80Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe carrying value of the Company's equity method investments at December 31, 2017 and December 31, 2016 was $2.8 million and $9.0million, respectively, and is included in other noncurrent assets on the consolidated balance sheets. The Company’s share of the net income (loss) from theunconsolidated affiliates was approximately ($0.1) million, ($5.7) million and $0.5 million the years ended December 31, 2017, 2016 and 2015 respectivelyand is included in other income (expense), net, on the consolidated statements of operations.Income Taxes. The Company is subject to income and other similar taxes in all areas in which they operate. When recording income tax expense,certain estimates are required because: (a) income tax returns are generally filed months after the close of our annual accounting period; (b) tax returns aresubject to audit by taxing authorities and audits can often take years to complete and settle; and (c) future events often impact the timing of when werecognize income tax expenses and benefits.The Company accounts for income taxes utilizing the asset and liability method. Under this method, deferred tax assets and liabilities arerecognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities andtheir respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in whichthose temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities due to a change in tax rates is recognizedas income or expense in the period that includes the enactment date.The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which thosetemporary differences become deductible. In assessing the likelihood and extent that deferred tax assets will be realized, consideration is given to projectedfuture taxable income and tax planning strategies. A valuation allowance is recorded when, in the opinion of management, it is more likely than not that aportion or all of the deferred tax assets will not be realized.The Company has federal, state and international net operating losses ("NOLs") carried forward from prior years that will expire in the years 2020through 2037. After considering the scheduled reversal of deferred tax liabilities, projected future taxable income, the potential limitation on use of NOLsunder Section 382 of the Internal Revenue Code of 1986, as amended (the "Code") and tax planning strategies, the Company established a valuationallowance due to the uncertainty regarding the ultimate realization of the deferred tax assets associated with its NOL carryforwards.As a result of the Chapter 11 Proceeding, on the Plan Effective Date, the Company believes it experienced an ownership change for purposes ofSection 382 of the Code because of its Restructuring Plan and in addition experienced a subsequent ownership change on or about June 30, 2017.Consequently, its pre-change NOLs are subject to an annual limitation (See Note 2 - Chapter 11 Proceeding and Emergence for additional information,including definitions of capitalized defined terms, about the Chapter 11 Proceeding and emergence from the Chapter 11 Proceeding). The ownership changeand resulting annual limitation on use of NOLs are not expected to result in the expiration of the Company's NOL carryforwards if it is able to generatesufficient future taxable income within the carryforward periods. However, the limitation on the amount of NOLs available to offset taxable income in aspecific year may result in the payment of income taxes before all NOLs have been utilized. Additionally, a subsequent ownership change may result infurther limitation on the ability to utilize existing NOLs and other tax attributes, which could cause the Company's pre-change NOL carryforwards to expireunused.The Company recognizes the financial statement effects of a tax position when it is more-likely-than-not, based on the technical merits, that theposition will be sustained upon examination. A tax position that meets the more-likely-than-not recognition threshold is measured as the largest amount oftax benefit that is greater than 50.0% likely of being realized upon ultimate settlement with a taxing authority. Previously recognized uncertain tax positionsare reversed in the first period in which it is more-likely-than-not that the tax position would be sustained upon examination. Income tax related interest andpenalties, if applicable, are recorded as a component of the provision for income tax expense. For the year ended December 31, 2017, the Company recordedan income tax benefit of $6.5 million related to a decrease in the estimate of the reserve for unrecognized tax benefits relating to uncertain tax positions. Thedecrease resulted from the effect of changes in the application of relevant withholding tax provisions under applicable local country treaties related to certainof the Company's foreign subsidiaries. As of December 31, 2017, the Company has no uncertain tax positions.Earnings Per Share. Basic earnings per share is based on the weighted average number of common shares (“common shares”) outstanding duringthe applicable period and excludes shares subject to outstanding stock options and shares of restricted stock. Diluted earnings per share is computed based onthe weighted average number of common shares outstanding during the period plus, when their effect is dilutive, incremental shares consisting of sharessubject to outstanding stock options and restricted stock.81Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe following is a reconciliation of the components of the basic and diluted earnings per share calculations for the applicable periods: Successor Predecessor (In thousands, except per share amounts) Years Ended December 31, 2017 2016 2015 Numerator: Net income (loss) attributed to common stockholders $22,457 $(944,289) $(872,542)Denominator: Weighted average common shares outstanding - basic 61,208 118,305 102,853Effect of potentially dilutive securities: Stock options — — —Restricted stock 4 — —Warrants 248 — —Weighted average common shares outstanding - diluted 61,460 118,305 102,853Net income (loss) per common share: Basic $0.37 $(7.98) $(8.48)Diluted $0.37 $(7.98) $(8.48)A summary of securities excluded from the computation of basic and diluted earnings per share is presented below for the applicable periods: Successor Predecessor (In thousands) Years Ended December 31, 2017 2016 2015Basic earnings per share: Unvested restricted stock 537 1,529 2,610Diluted earnings per share: Anti-dilutive stock options 235 4,808 3,661Anti-dilutive warrants — — —Anti-dilutive restricted stock 524 1,490 2,125Potentially dilutive securities excluded as anti-dilutive 759 6,298 5,786On January 6, 2017, the Debtors substantially consummated the Restructuring Plan and emerged from the Chapter 11 Proceeding. As part of thetransactions undertaken pursuant to the Restructuring Plan, all of the existing shares of the Predecessor common equity that were used in the above earningsper share calculations of the Predecessor were canceled as of the Plan Effective Date.Recent Accounting Pronouncements.In May 2014, the FASB issued a comprehensive new revenue recognition standard, Accounting Standards Update ("ASU") No. 2014-09, Revenuefrom Contracts with Customers ("ASU 2014-09") that will supersede existing revenue recognition guidance under U.S. GAAP. In August 2015, the FASBissued an accounting standards update for a one-year deferral of the revenue recognition standard's effective date for all entities, which changed theeffectiveness to annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The core principle of thenew guidance is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects theconsideration to which the company expects to be entitled in exchange for those goods or services. The standard creates a five-step model that requirescompanies to exercise judgment when considering the terms of a contract and all relevant facts and circumstances. The standard allows for the followingtransition methods: (a) a full retrospective adoption in which the standard is applied to all of the periods presented, or (b) a modified retrospective adoptionin which the standard is applied only to the most current period presented in the financial statements, including additional disclosures of the82Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSstandard’s application impact to individual financial statement line items. The Company adopted this new accounting standard on January 1, 2018, and uponadoption, the Company incorporated the modified retrospective approach as its transition method. The approach included performing a detailed review ofkey contracts representative of the Company’s different service lines and comparing historical accounting policies and practices to the new standard. Basedon this assessment, the Company has concluded the adoption of this new accounting standard will not have a material impact on the consolidated financialstatements.In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory ("ASU 2015-11"), which changes the measurementprinciple for inventory from the lower of cost or market to lower of cost and net realizable value. ASU 2015-11 is part of the FASB’s simplification initiativeand applies to entities that measure inventory using a method other than last-in, first-out ("LIFO") or the retail inventory method. The Company adopted ASU2015-11 on January 1, 2017 prospectively and the adoption had no effect on the consolidated financial statements.In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes ("ASU 2015-17”). ASU 2015-17 amends existing guidance on income taxes to require the classification of all deferred tax assets and liabilities as non-current on thebalance sheet. The Company adopted ASU 2015-17 on January 1, 2017 prospectively and no prior periods have been restated to conform to the newpresentation. The adoption had no effect on the Company's results of operations or financial position.In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"). ASU No. 2016-02 seeks to increase transparency andcomparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and by disclosing key information about leasingarrangements. Unlike current U.S. GAAP, which requires only capital leases to be recognized on the balance sheet, ASU No. 2016-02 will require bothoperating and finance leases to be recognized on the balance sheet. Additionally, the new guidance will require disclosures to help investors and otherfinancial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases, including qualitative and quantitativerequirements. The amendments in ASU No. 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within thosefiscal years, and early application is permitted. The Company is currently evaluating the impact of adopting this new accounting standard on its consolidatedfinancial statements.In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-BasedPayment Accounting ("ASU 2016-09"), to simplify certain provisions in stock compensation accounting, including the simplification of accounting for astock payment's tax consequences. The ASU amends the guidance for classifying awards as either equity or liabilities, allows companies to estimate thenumber of stock awards they expect to vest, and revises the tax withholding requirements for stock awards. The amendments in ASU No. 2016-09 areeffective for public companies for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, and early application ispermitted. The Company adopted ASU 2016-09 on January 1, 2017 prospectively and the adoption had no effect on the Company's results of operations orfinancial position.In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on FinancialInstruments (“ASU 2016-13”), which amends U.S. GAAP by introducing a new impairment model for financial instruments that is based on expected creditlosses rather than incurred credit losses. The new impairment model applies to most financial assets, including trade accounts receivable. The amendments inASU 2016-13 are effective for interim and annual reporting periods beginning after December 15, 2019, although it may be adopted one year earlier, andrequires a modified retrospective transition approach. The Company is currently evaluating the impact this standard will have on its consolidated financialstatements.In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory ("ASU2016-16"), which requires an entity to recognize the income tax consequences of an intra-entity asset transfer, other than an intra-entity asset transfer ofinventory, when the transfer occurs. The ASU is effective for the interim and annual reporting periods beginning after December 15, 2017, including interimperiods within those fiscal years, and early application is permitted. The Company adopted this new accounting standard on January 1, 2018. The Companyanticipates a cumulative effect adjustment as a reduction to retained earnings of approximately $13.2 million will occur as a result of the Company'sadoption of ASU 2016-16.In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment("ASU 2017-04"), which establishes a one-step process for testing goodwill for a drop in value. This ASU is effective for the interim and annual reportingperiods beginning after December 15, 2019 and early adoption is permitted. The Company does not expect the adoption of this new accounting standard tohave a significant impact on its consolidated financial statements.83Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNote 2 - Chapter 11 Proceeding and EmergenceOverviewOn July 8, 2016, the Debtors, including C&J Corporate Services (Bermuda) Ltd. (together with the Predecessor, the “Bermudian Entities”), C&JEnergy Production Services-Canada Ltd. and Mobile Data Technologies Ltd. (together, the “Canadian Entities”), entered into a Restructuring Support andLock-Up Agreement (the “Restructuring Support Agreement”), with certain lenders (the “Supporting Lenders”) holding approximately 90.0% of the securedclaims and interests arising under the Credit Agreement, dated as of March 24, 2015 (as amended and otherwise modified, the “Original Credit Agreement”).The Restructuring Support Agreement contemplated the implementation of a financial restructuring of the Company, including the elimination of allamounts owed under the Original Credit Agreement through a complete debt-to-equity conversion and a re-investment in the Company through an equityrights offering. This financial restructuring was effectuated through the Restructuring Plan under Chapter 11 of the Bankruptcy Code.To implement the Restructuring Support Agreement, on July 20, 2016 (the “Petition Date”), the Debtors filed voluntary petitions forreorganization (the “Bankruptcy Petitions”) seeking relief under the provisions of Chapter 11 of the Bankruptcy Code with the United States BankruptcyCourt in the Southern District of Texas, Houston Division (the “Bankruptcy Court”), and also commenced ancillary proceedings in Canada on behalf of theCanadian Entities and a provisional liquidation proceeding in Bermuda on behalf of the Bermudian Entities. The Chapter 11 Proceeding was beingadministered under the caption “In re: CJ Holding Co., et al., Case No. 16-33590”. Throughout the Chapter 11 Proceeding, the Debtors continued operationsand management of their assets in the ordinary course as debtors-in-possession under the jurisdiction of the Bankruptcy Court in accordance with theapplicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.In accordance with the Restructuring Support Agreement, the Debtors filed the Restructuring Plan and related disclosure statement (the“Disclosure Statement”) with the Bankruptcy Court on August 19, 2016, with a first amendment to the Restructuring Plan filed on September 28, 2016 and asecond amendment filed on November 3, 2016. On November 4, 2016, the Bankruptcy Court approved the Disclosure Statement, finding that the DisclosureStatement contained adequate information as required by the Bankruptcy Code. The Debtors then launched a solicitation of acceptances of the RestructuringPlan, as required by the Bankruptcy Code. On December 16, 2016, an order confirming the Restructuring Plan was entered by the Bankruptcy Court. On thePlan Effective Date, the Debtors substantially consummated the Restructuring Plan and emerged from the Chapter 11 Proceeding. As part of the transactionsundertaken pursuant to the Restructuring Plan, as of the Plan Effective Date, the Successor was formed, the Predecessor's equity was canceled, the Predecessortransferred all of its assets and operations to the Successor and the Predecessor was subsequently dissolved. As a result, the Successor became the successorissuer to the Predecessor.The key terms of the restructuring included in the Restructuring Plan were as follows:•Debt-to-equity Conversion: As of the Plan Effective Date, the Supporting Lenders were issued new common equity (“New Equity”) in theSuccessor, as the ultimate parent company of the reorganized Debtors, and all of the existing shares of the Predecessor's common equitywere canceled.•The Rights Offering, Backstop Commitment: The Company offered its secured lenders the right to purchase New Equity in an amount ofup to $200.0 million as part of the approved Restructuring Plan (the “Rights Offering”). Certain of the Supporting Lenders (the “BackstopParties”) agreed to backstop the full amount pursuant to a Backstop Commitment Agreement, in exchange for a commitment premium of5.0% of the $200.0 million committed amount payable in New Equity to the Backstop Parties (the “Backstop Fee”). The Rights Offeringwas consummated on the Plan Effective Date and the shares were issued at a price that reflects a discount of 20.0% to the RestructuringPlan value, which was $750.0 million.•DIP Facility: Certain of the Supporting Lenders (the “DIP Lenders”) provided a superpriority secured delayed draw term loan facility to thePredecessor in an aggregate principal amount of up to $100.0 million (the “DIP Facility”). As further discussed below, on July 25, 2016,the Bankruptcy Court entered an order approving the Debtors’ entry into the DIP Facility on an interim basis, pending a final hearing. OnJuly 29, 2016, the Debtors entered into a superpriority secured debtor-in-possession credit agreement, among the Debtors, the DIP Lendersand Cortland Capital Market Services LLC, as Administrative Agent (the “DIP Credit Agreement”), which set forth the terms andconditions of the DIP Facility. On September 25, 2016,84Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSthe Bankruptcy Court entered a final order approving entry into the DIP Facility and DIP Credit Agreement. The Company repaid allamounts outstanding under the DIP Facility on the Plan Effective Date using proceeds from the Rights Offering.•The New Credit Facility: The Successor and certain of its subsidiaries, as borrowers (the “Borrowers”), entered into a revolving credit andsecurity agreement (the “New Credit Facility”) dated the Plan Effective Date with a maturity date of January 6, 2021, with PNC Bank,National Association, as administrative agent (the “Agent”). The Borrowers subsequently amended and restated the New Credit Facility infull pursuant to an amended and restated credit and security agreement (the “Amended Credit Facility”) dated May 4, 2017, with theAgent and the lenders party thereto. The Amended Credit Facility allows the Borrowers to incur revolving loans in an aggregate amountup to the lesser of $200.0 million and a borrowing base, which borrowing base is based upon the value of the Borrowers’ accountsreceivable and inventory. The Amended Credit Facility also provides for the issuance of letters of credit, which would reduce borrowingcapacity thereunder. The maturity date of the Amended Credit Facility is May 4, 2022.•The New Warrants: As of the Plan Effective Date, the Company agreed to issue new seven-year warrants exercisable on a net-share settledbasis into up to 6.0% of the New Equity at a strike price of $27.95 per warrant (the “New Warrants”). New Warrants representing up to2.0% of the New Equity were issued to existing holders of Predecessor common equity as a result of such holders voting as a class toaccept the Restructuring Plan, and the remaining New Warrants representing up to 4.0% of the New Equity were issued to a third party whoacquired them from the representative for the Debtors' general unsecured creditors.•Distributions: The DIP Lenders received payment in full in cash on the Plan Effective Date from cash on hand and proceeds from theRights Offering. The Supporting Lenders received all of the New Equity, subject to dilution on account of the Management Incentive Plan(as defined below), the Rights Offering, the Backstop Fee and the New Warrants, along with all of the subscription rights under the RightsOffering. Under the Restructuring Plan, mineral contractor claimants have or will be paid in full in the ordinary course of business.Additionally, subject to the terms of the Restructuring Plan, certain other unsecured claimants will share in a $33.0 million cash recoverypool, plus a portion of the New Warrants, as described above.•Management Incentive Plan: 10.0% of the New Equity was reserved for a management incentive program to be issued to management ofthe Company after the Plan Effective Date from time to time at the discretion of the board of the reorganized Company (the “ManagementIncentive Plan”). See Note 7 - Share-Based Compensation for additional information regarding the Management Incentive Plan.•Governance: The board of the Successor was appointed by the Supporting Lenders and includes the Successor's Chief Executive Officer.Liabilities Subject to CompromiseAs of December 31, 2016, the Company had segregated liabilities and obligations whose treatment and satisfaction were dependent on theoutcome of its reorganization under the Chapter 11 Proceeding and had classified these items as liabilities subject to compromise. Generally, all actions toenforce or otherwise effect repayment of pre-petition liabilities of the Debtors, as well as all pending litigation against the Debtors, were subject to theChapter 11 Proceeding. Liabilities subject to compromise includes only those liabilities that are obligations of the Debtors and excludes the obligations ofthe Predecessor's non-debtor subsidiaries.Principal and accrued interest owed to the Supporting Lenders as of the Petition Date were settled via the issuance of New Equity under theRestructuring Plan. Interest expense incurred subsequent to the Petition Date was not accrued since it was not treated as an allowed claim under theRestructuring Plan. For the year ended December 31, 2016, the Company did not accrue interest totaling $60.5 million under the Original Credit Agreementsubsequent to the Petition Date.As of December 31, 2016, the Company classified the entire principal balance of the Revolving Credit Facility, the Five-Year Term Loans andthe Seven-Year Term Loans (see Note 4 - Debt for defined terms), as well as interest that was accrued but unpaid as of the Petition Date, as liabilities subject tocompromise in accordance with ASC 852 - Reorganizations. The components of liabilities subject to compromise were as follows (in thousands):85Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2016Revolving Credit Facility$284,400Five-Year Term Loans569,250Seven-Year Term Loans480,150Total debt subject to compromise1,333,800Accrued interest on debt subject to compromise37,516Accounts payable and other estimated allowed claims60,780Related party payables13,250Total liabilities subject to compromise$1,445,346Reorganization ItemsThe Company classifies all income, expenses, gains or losses that were incurred or realized as a result of the Chapter 11 Proceeding asreorganization items in its consolidated statements of operations. In addition, the Company reports professional fees and related costs associated with andincurred during the Chapter 11 Proceeding as reorganization items. The components of reorganization items are as follows (in thousands): Year Ended December31, 2016 On January 1, 2017Gain on settlement of liabilities subject to compromise $— $666,399Net loss on fresh start fair value adjustments — (358,557)Professional fees (41,240) (13,435)Contract termination settlements (20,383) —Revision of estimated claims (782) —Related party settlement 5,226 —Vendor claims adjustment 1,849 (438)Total reorganization items $(55,330) $293,969While the Company's emergence from bankruptcy is complete, certain administrative activities will continue under the authority of theBankruptcy Court for the next several months.Note 3 - Fresh Start AccountingThe Company adopted Fresh Start accounting on the Plan Effective Date in connection with the Company's emergence from bankruptcy.Although the effective date of the Restructuring Plan was January 6, 2017, the Company accounted for the consummation of the Restructuring Plan as if ithad occurred on the Fresh Start Reporting Date, January 1, 2017 and implemented Fresh Start reporting as of that date. The adoption of Fresh Start accountingresulted in a new reporting entity, the Successor, for financial reporting purposes. The presentation is analogous to that of a new business entity such that onthe Plan Effective Date the Successor's consolidated financial statements reflect a new capital structure with no beginning retained earnings or deficit and anew basis in the identifiable assets and liabilities assumed which includes the elimination of Predecessor accumulated depreciation and accumulatedamortization. Upon the Company's emergence from the Chapter 11 Proceeding, the Company qualified for and adopted Fresh Start accounting in accordancewith the provisions set forth in ASC 852 based on the following two conditions: (i) holders of existing voting shares of the Predecessor immediately beforethe Plan Effective Date received less than 50.0% of the voting shares of the Successor and (ii) the reorganization value of the Successor was less than its post-petition liabilities and estimated allowed claims.As part of Fresh Start accounting, the Company was required to determine the reorganization value of the Successor upon emergence from theChapter 11 Proceeding. Reorganization value approximates the fair value of the entity, before considering liabilities, and approximates the amount a willingbuyer would pay for the assets of the entity immediately after the restructuring. The fair value of the Successor's assets was determined with the assistance of athird-party valuation expert who used available comparable market data and quotations, discounted cash flow analysis, and other methods in determining theappropriate asset fair values. The reorganization value was allocated to the Company's individual assets based on their estimated fair values.86Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSEnterprise value, which was used to derive reorganization value, represents the estimated fair value of an entity’s capital structure whichgenerally consists of long term debt and stockholders’ equity. The Successor’s enterprise value was approved by the Bankruptcy Court in support of theRestructuring Plan and was not to exceed $750.0 million, which represented the mid-point of a determined range of $600.0 million to $900.0 million. TheSuccessor's enterprise value of $750.0 million was based upon $725.9 million of New Equity and New Warrants as approved by the Bankruptcy Court and$24.1 million of other liabilities that were not eliminated or discharged under the Restructuring Plan. The Successor's enterprise value was determined withthe assistance of a separate third-party valuation expert who used available comparable market data and quotations, discounted cash flow analysis and otherinternal financial information and projections. This enterprise value combined with the Company’s Rights Offering was the basis for deriving equity value. The Company’s estimates of fair value are inherently subject to significant uncertainties and contingencies beyond its control. Accordingly, there can be noassurance that the estimates, assumptions, valuations, appraisals and financial projections will be realized, and actual results could vary materially. Moreover, the market value of the Company’s common stock subsequent to its emergence from bankruptcy may differ materially from the equity valuationderived for accounting purposes.Machinery and EquipmentThe fair value of machinery and equipment was estimated with the assistance of the third-party valuation expert, and the market approach, thecost approach, and the income approach were considered for each individual asset. The market approach and the cost approach were the primary approachesthat were relied upon to value these assets. Although the income approach was not applied to value the machinery and equipment assets individually, theCompany did consider the earnings of the reporting unit within which each of these assets reside. Because more than one approach was used to develop avaluation, the various approaches were reconciled to determine a final value conclusion.Under the cost approach, the valuation estimate was based upon a determination of replacement cost new ("RCN"), reproduction cost new("CRN"), or a combination of both. Once the RCN and CRN estimates were adjusted for physical and functional conditions, they were then compared tomarket data and other indications of value, where available, to confirm results obtained by the cost approach. Where direct RCN estimates were not availableor deemed inappropriate, the CRN for machinery and equipment was estimated using the indirect, or trending, method in which percentage changes inapplicable price indices were applied to historical costs to convert them into indications of current costs. To estimate the CRN amounts, inflation indicesfrom established external sources were then applied to historical costs to estimate the CRN for each such asset.The Company also developed a cost approach when market information was not available, or a market approach was deemed inappropriate. Indoing so, an indicated value was derived by deducting physical deterioration from the RCN or CRN of each identifiable asset. Physical deterioration is theloss in value or usefulness of a property due to the using up or expiration of its useful life caused by wear and tear, deterioration, exposure to variouselements, physical stresses, and similar factors.Under the market approach, the valuation estimate was based upon an analysis of recent sales transactions for comparable assets and took intoaccount physical, functional and economic conditions. Where comparable sales transactions could not be reasonably obtained, the Company utilized thepercent of cost technique under the market approach, which takes into consideration general sales, sales listings, and auction data for each major assetcategory. This information was then used in conjunction with each asset’s effective age to develop ratios between the sales price and RCN or CRN of similarasset types. A market-based depreciation curve was then developed and applied to asset categories where sufficient sales and auction information existed.Economic obsolescence related to machinery and equipment was also considered and was applied to stacked and underutilized assets based uponthe status of the asset. Economic obsolescence was also considered in situations in which the earnings of the applicable business segment in which the assetsare employed suggest economic obsolescence. When penalizing assets for economic obsolescence, an additional economic obsolescence penalty was levied,while considering scrap value to be the floor value for an asset.Land, Buildings and Leasehold ImprovementsThe fair value estimates of the real property assets were estimated with the assistance of the third-party valuation expert, and the market approach,the cost approach, and the income approach were considered for each of the Company's significant real property assets. The Company primarily relied uponthe market and cost approaches.In valuing the fee simple interest in the land, the Company utilized the sales comparison approach under the market approach. The salescomparison approach estimates value based upon the price in which other purchasers and sellers have87Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSagreed to transact for comparable properties. This approach is based on the principle of substitution, which states that the limits of prices, rents and rates tendto be set by the prevailing prices, rents and rates of equally desirable substitutes. In conducting the sales comparison approach, data was gathered oncomparable properties and adjustments were made for factors including market conditions, size, access/frontage, zoning, location, and conditions of sale.Greatest weight was typically given to the comparable sales in proximity and similar in size to each of the owned sites.In valuing the fee simple interest in buildings and leasehold improvements, the Company utilized the direct and indirect methods of the costapproach. For the direct method cost approach analysis, the Company first had to determine the RCN. In order to estimate the RCN of the buildings andleasehold improvements, various factors were considered including building size, year built, number of stories, and the breakout of the space, propertyhistory, maintenance history, and insurable value costs. For the indirect method cost approach, the Company first had to estimate a CRN for leaseholdimprovements being valued via the indirect, or trending, method of the cost approach. To estimate the CRN amounts, the Company applied publishedinflation indices obtained from third-party sources to each asset’s historical cost to convert the known cost into an indication of current cost.Once the RCN and CRN of the buildings and leasehold improvements was computed, the Company estimated an allowance for physicaldepreciation for the buildings and leasehold improvements based upon their respective age.Intangible AssetsThe financial information used to estimate the fair values of intangible assets was consistent with the information used in estimating theCompany’s enterprise value. Tradenames were valued primarily utilizing the relief from royalty method of the income approach. Significant inputs andassumptions included remaining useful lives, the forecasted revenue streams, applicable royalty rates, tax rates, and applicable discount rates. Customerrelationships were considered in the analysis, but based on the valuation under the excess earnings methodology, no value was attributed to customerrelationships.The following table reconciles the enterprise value to the estimated fair value of the Successor common stock as of the Fresh Start Reporting Date(in thousands):Enterprise value $750,000 Add: Cash and cash equivalents 181,242 Less: Emergence costs settled in cash post-emergence (5,378) Fair value of New Equity and New Warrants, including Rights Offering 925,864 Less: Rights Offering proceeds (200,000) Less: Fair value of New Warrants (20,385) Fair value of Successor common stock, prior to Rights Offering $705,479 Shares outstanding on January 1, 2017, prior to Rights Offering shares 39,999,997 Per share value $17.64 The following table reconciles the enterprise value to the reorganization value of the Successor assets on the Effective Date (in thousands):Enterprise value $750,000 Add: Cash and cash equivalents 181,242 Less: Emergence costs settled in cash post-emergence (5,378) Add: Other current liabilities 165,501 Add: Other long-term liabilities and deferred tax liabilities 22,666 Reorganization value of Successor assets $1,114,031 The following table summarizes the impact of the reorganization and the Fresh Start accounting adjustments on the Company's consolidatedbalance sheet on the Fresh Start Reporting Date. The reorganization value has been allocated to the assets acquired based upon their estimated fair values, asshown below. The estimated fair values of certain assets and88Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSliabilities, including property, plant and equipment, other intangible assets, taxes (including uncertain tax positions), and contingencies required significantjudgments and estimates (in thousands): Predecessor ReorganizationAdjustments Fresh StartAdjustments Successor ASSETS Current assets: Cash and cash equivalents $64,583 $116,659(a)$— $181,242 Accounts receivable 137,222 — — 137,222 Inventories, net 54,471 — — 54,471 Prepaid and other current assets 37,392 — — 37,392 Deferred tax assets 6,020 — — 6,020 Total current assets 299,688 116,659 — 416,347Property, plant and equipment, net 950,811 — (350,314)(h)600,497Other assets: Intangible assets, net 76,057 — (15,657)(h)60,400 Deferred financing costs — 2,248(b)— 2,248 Other noncurrent assets 35,045 — (506)(h)34,539Total assets $1,361,601 $118,907 $(366,477) $1,114,031LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $75,193 $16,848(c)$— $92,041 Payroll and related costs 18,287 — — 18,287 Accrued expenses 59,129 (5,985)(c)— 53,144 DIP Facility 25,000 (25,000)(d)— — Other current liabilities 3,026 — (997)(i)2,029 Total current liabilities 180,635 (14,137) (997) 165,501Deferred tax liabilities 15,613 — (4,613)(j)11,000Other long-term liabilities 18,577 — (6,911)(i)11,666 Total liabilities not subject to compromise 214,825 (14,137) (12,521) 188,167Liabilities subject to compromise 1,445,346 (1,445,346)(e)— —Commitments and contingencies Stockholders' equity: Common stock 1,195 (640)(f)— 555 Additional paid-in capital 1,009,426 926,504(f)(1,010,621)(k)925,309 Accumulated other comprehensive loss (2,600) — 2,600(k)— Retained earnings (deficit) (1,306,591) 652,526(g)654,065(l)— Total stockholders' equity (deficit) (298,570) 1,578,390 (353,956)(l)925,864Total liabilities and stockholders' equity $1,361,601 $118,907 $(366,477) $1,114,031Reorganization adjustments(a) Represents the reorganization adjustment to cash and cash equivalents (in thousands):89Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Cash settlement of general unsecured and other reinstated claims $(33,898) Payment of professional fees and success fees paid (21,657) Repayment of DIP Facility borrowing and accrued interest (25,538) Proceeds from the Rights Offering 200,000 Payment of deferred financing costs related to the New Credit Facility (2,248) Net impact to cash and cash equivalents $116,659 (b) Represents deferred loan costs associated with the closing of the New Credit Facility.(c) Represents the reorganization adjustment to accounts payable and accrued expenses (in thousands):Accounts payable: Pre-petition liabilities related to contract cures, 503(b)(9) claims and critical vendors $16,848 Accrued expenses: Settlement of professional fees $(10,135) Reinstate liability for acquisition holdback 4,100 Settlement of accrued interest related to the DIP Facility (538) Other accrued expenses 588 Net impact to accrued expenses $(5,985) (d) Represents the repayment of the DIP Facility.(e) Represents the settlement of liabilities subject to compromise in accordance with the Restructuring Plan (in thousands): Fair value of Successor common stock $(705,479)Fair value of New Warrants issued per the Restructuring Plan (20,385)Fair value of reinstated accounts payable and accrued liabilities to be settled in cash (20,083)General unsecured creditor claims settled in cash (33,000)Gain on settlement of liabilities subject to compromise (666,399)Net impact to liabilities subject to compromise $(1,445,346)(f) Represents the reorganization adjustments to common stock and additional paid in capital (in thousands): Common stock: Cancellation of Predecessor common shares $(1,195)Issuance of Successor common stock 555Net impact to common stock $(640) Additional paid in capital: Fair value of Successor common stock $705,479Fair value of New Warrants issued per the Restructuring Plan 20,385Proceeds from the Rights Offering 200,000Cancellation of Predecessor common shares 1,195Issuance of Successor common stock (555)Net impact to additional paid in capital $926,50490Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(g) Represents the reorganization adjustments to retained deficit (in thousands): Gain on settlement of liabilities subject to compromise $666,399 Accrual of success fee (13,435) Adjustment for other expenses (438) Net impact to retained deficit $652,526 Fresh Start adjustments(h) Represents the Fresh Start accounting adjustments based upon the individual asset fair values.(i) Represents the accelerated recognition of deferred gain balances of the Predecessor.(j) Represents the tax effect of the above Fresh Start accounting adjustments.(k) Represents the adjustment to Predecessor additional paid-in capital as a result of the elimination of Predecessor retained deficit and accumulatedother comprehensive loss in accordance with ASC 852.(l) Represents the income statement impacts of the revaluation loss of $354.0 million, after tax, and the elimination of the resulting retained deficitbalance in accordance with ASC 852.Note 4 - DebtDebt consisted of the following as of December 31, 2017 and 2016 (in thousands): Successor Predecessor As of December 31, 2017 2016Revolving Credit Facility $— $284,400Five-Year Term Loans — 569,250Seven-Year Term Loans — 480,150Total debt — 1,333,800Less: liabilities subject to compromise — (1,333,800)Long-term debt and capital lease obligations $— $— DIP Facility $— $25,000On July 20, 2016, the Debtors filed Bankruptcy Petitions in the Bankruptcy Court seeking relief under Chapter 11 of the Bankruptcy Code underthe caption “In re: CJ Holding Co., et al., Case No. 16-33590.” The filing of the Bankruptcy Petitions constituted an event of default with respect to theOriginal Credit Agreement. As a result, the Company’s pre-petition secured indebtedness under the Original Credit Agreement became immediately due andpayable and any efforts to enforce such payment obligations were automatically stayed as a result of the Chapter 11 Proceeding. As of December 31, 2016,$1.3 billion of debt under the Company's Credit Agreement was classified as liabilities subject to compromise.Additional information regarding the Chapter 11 Proceeding is included in Note 2 - Chapter 11 Proceeding and Emergence.Amended Credit FacilityOn January 6, 2017, in connection with the emergence from bankruptcy, the Company entered into the New Credit Facility, and subsequently onMay 4, 2017, entered into the Amended Credit Facility.91Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe Amended Credit Facility allows the Borrowers, to incur revolving loans in an aggregate amount up to the lesser of $200.0 million and aborrowing base, which borrowing base is based upon the value of the Borrowers’ accounts receivable and inventory, subject to eligibility criteria andcustomary reserves which may be modified in the Agent’s permitted discretion. The Amended Credit Facility also provides for the issuance of letters of credit,which would further reduce borrowing capacity thereunder. The maturity date of the Amended Credit Facility is May 4, 2022.If at any time the amount of loans and other extensions of credit outstanding under the Amended Credit Facility exceed the borrowing base, theBorrowers may be required, among other things, to prepay outstanding loans immediately.The Borrowers’ obligations under the Amended Credit Facility are secured by liens on a substantial portion of the Borrowers’ personal property,subject to certain exclusions and limitations. Upon the occurrence of certain events, additional collateral, including a portion of the Borrowers’ realproperties, may also be required to be pledged. Each of the Borrowers is jointly and severally liable for the obligations of the other Borrowers under theAmended Credit Facility.At the Borrowers’ election, interest on borrowings under the Amended Credit Facility will be determined by reference to either LIBOR plus anapplicable margin of 2.0% or an “alternate base rate” plus an applicable margin of 1.0%. These margins are subject to a monthly step-up of 0.25% in theevent that average excess availability under the Amended Credit Facility is less than 37.5% of the total commitment, and a monthly step-down of 0.25% inthe event that average excess availability under the Amended Credit Facility is equal to or greater than 62.5% of the total commitment. Interest will bepayable quarterly for loans bearing interest based on the alternative base rate and on the last day of the interest period applicable to LIBOR-based loans. TheBorrowers will also be required to pay a fee on the unused portion of the Amended Credit Facility equal to (i) 0.75% in the event that utilization is less than25.0% of the total commitment, (ii) 0.50% in the event utilization is equal to or greater than 25% of the total commitment but less than 50% of the totalcommitment and (iii) 0.375% in the event that utilization is equal to or greater than 50% of the total commitment.The Amended Credit Facility contains covenants that limit the Borrowers’ and their subsidiaries’ ability to incur additional indebtedness, grantliens, make loans or investments, make distributions, merge into or consolidate with other persons, make capital expenditures or engage in certain assetdispositions including a sale of all or substantially all of the Company’s assets.The Amended Credit Facility also contains a financial covenant that requires the Company to maintain a monthly minimum fixed chargecoverage ratio of 1.0:1.0 if, as of any month-end, liquidity is less than $40.0 million.The fixed charge coverage ratio is generally defined in the Amended Credit Facility as the ratio of (i) EBITDA minus certain capital expendituresand cash taxes paid to (ii) the sum of cash interest expenses, scheduled principal payments on borrowed money and certain distributions.As of December 31, 2017, the Company was in compliance with all financial covenants.DIP FacilityOn July 29, 2016, the Predecessor entered into the DIP Credit Agreement with the other Debtors, the DIP Lenders and Cortland Capital MarketServices LLC, as administrative agent.The borrowers under the DIP Facility were the Predecessor and CJ Holding Co. All obligations under the DIP Facility were guaranteed by theCompany’s subsidiaries that were debtors in the Bankruptcy cases. Borrowings under the DIP Credit Agreement were generally secured by superprioritypriming liens on substantially all of the assets of the borrowers and guarantors.Amounts outstanding under the DIP Facility bore interest based on, at the option of the borrower, LIBOR or an alternative base rate, plus anapplicable margin equal to 9.0% in the case of LIBOR loans and 8.0% in the case of base rate loans. The alternative base rate was equal to the highest of(i) the published ‘prime rate’, (ii) the Federal Funds Effective Rate (as defined in the DIP Credit Agreement) plus 0.5% and (iii) LIBOR plus 1.0%. The DIPFacility also required that the Company pay various fees to the DIP Lenders, including a commitment fee equal to 5.0% of the unused commitmentsthereunder. The DIP Facility was scheduled to mature on March 31, 2017.In accordance with the Restructuring Plan, on the Plan Effective Date, the Company repaid all amounts outstanding under the DIP Facility withthe proceeds from the Rights Offering and the DIP Facility was canceled and discharged.92Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSPredecessor Credit AgreementsOn March 24, 2015, in connection with the closing of the Nabors Merger, the Predecessor entered into the Original Credit Agreement. TheOriginal Credit Agreement provided for senior secured credit facilities in an aggregate principal amount of $1.66 billion, consisting of (i) a revolving creditfacility (“Revolving Credit Facility” or the “Revolver”) in the aggregate principal amount of $600.0 million and (ii) a term loan B facility (“Term Loan BFacility”) in the aggregate principal amount of $1.06 billion. The Company simultaneously repaid all amounts outstanding and terminated Old C&J’s priorcredit agreement; no penalties were due in connection with such repayment and termination. All obligations under the Original Credit Agreement wereguaranteed by the Predecessor’s wholly-owned domestic subsidiaries, other than immaterial subsidiaries.On September 29, 2015, the Company obtained and the Predecessor entered into a waiver and amendments to the Original Credit Agreement,which, among other things, suspended certain financial covenants set forth in the Original Credit Agreement. The suspension of these financial covenantscommenced with the fiscal quarter ending September 30, 2015 and would have lasted through the fiscal quarter ending June 30, 2017.On May 10, 2016, the Company obtained a temporary limited waiver agreement from certain of the lenders pursuant to which, effective as ofMarch 31, 2016, such lenders agreed to not consider a breach of the Minimum Cumulative Consolidated EBITDA (as defined in the Original CreditAgreement) covenant measured as of March 31, 2016 an event of default through May 31, 2016.On May 31, 2016, the Company obtained and the Predecessor entered into the Forbearance Agreement with certain of the lenders pursuant towhich, among other things, such lenders agreed not to pursue default remedies against the Company with respect to its breach of the Minimum CumulativeConsolidated EBITDA covenant or certain specified payment defaults.On June 30, 2016, this forbearance was extended through July 17, 2016 pursuant to the Second Forbearance Agreement, and prior to thetermination of the Second Forbearance Agreement, this forbearance period was once again extended through July 20, 2016. The Second ForbearanceAgreement provided that the forbearance would terminate upon the occurrence of certain events, including the failure of the Predecessor to enter into theRestructuring Support Agreement on or prior to July 8, 2016. On July 8, 2016, the Predecessor entered into the Restructuring Support Agreement with theSupporting Lenders. The Restructuring Support Agreement contemplated the implementation of a restructuring of the Company through a debt-to-equityconversion and Rights Offering, which transaction was effectuated through the Restructuring Plan.On July 20, 2016, the Debtors filed Bankruptcy Petitions in the Bankruptcy Court seeking relief under Chapter 11. Additional information,including definitions of capitalized defined terms, regarding the Chapter 11 Proceeding is included in Note 2 - Chapter 11 Proceeding and Emergence.Revolving Credit FacilityThe Revolver was scheduled to mature on March 24, 2020 (except that if any Five-Year Term Loans (as defined herein) had not been repaid priorto September 24, 2019, the Revolver was scheduled to mature on September 24, 2019). Borrowings under the Revolver were non-amortizing. Amountsoutstanding under the Revolver bore interest based on, at the option of the borrower, LIBOR or an alternative base rate, plus an applicable margin determinedpursuant to a pricing grid based on the ratio of consolidated total indebtedness of C&J and its subsidiaries to Consolidated EBITDA of C&J and itssubsidiaries for the most recent four fiscal quarter period for which financial statements are available.On July 20, 2016, the Debtors filed the Bankruptcy Petitions which constituted an event of default under the Original Credit Agreement andaccelerated the Revolver and Term Loan B Facility indebtedness to become immediately due and payable. On the Plan Effective Date, pursuant to theRestructuring Support Agreement entered into on July 8, 2016, holders of the Revolver and Term Loan B Facility received their pro rata share of 100.0% ofthe New Equity in the Successor, subject to dilution from the issuance of New Equity on account of the Management Incentive Plan, the Rights Offering, theBackstop Fee and the New Warrants as discussed further in Note 2 - Chapter 11 Proceeding and Emergence.Term Loan B FacilityBorrowings under the Term Loan B Facility were comprised of two tranches: a tranche consisting of $575.0 million in aggregate principalamount of term loans maturing on March 24, 2020 (the “Five-Year Term Loans”) and a tranche consisting of a $485.0 million in aggregate principal amountof term loans maturing on March 24, 2022 (the “Seven-Year Term Loans”). The Company was required to make quarterly amortization payments in anamount equal to 1.0%, with the remaining93Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSbalance payable on the applicable maturity date. As of December 31, 2016, the Company had borrowings outstanding under the Five-Year Term Loans andthe Seven-Year Term Loans of $569.3 million and $480.2 million, respectively.Five-Year Term Loans outstanding under the Term Loan B Facility bore interest based on, at the option of the Company, (i) LIBOR subject to afloor of 1.0%, plus a margin of 5.5%, or (ii) an alternative base rate, plus a margin of 4.5%. Seven-Year Term Loans outstanding under the Term Loan BFacility bore interest based on, at the option of the Company, (i) LIBOR subject to a floor of 1.0%, plus a margin of 6.25%, or (ii) an alternative base rate, plusa margin of 5.25%.The alternative base rate was equal to the highest of (i) the administrative agent’s prime rate, (ii) the Federal Funds Effective Rate plus 0.5%, or(iii) LIBOR plus 1.0%.On July 20, 2016, the Debtors filed the Bankruptcy Petitions which constituted an event of default under the Original Credit Agreement andaccelerated the Term Loan B Facility indebtedness to become immediately due and payable; however, any efforts to enforce such payment obligations wereautomatically stayed as a result of the Chapter 11 Proceeding. On the Plan Effective Date, pursuant to the Restructuring Support Agreement entered into onJuly 8, 2016, holders of the Term Loan B Facility debt received their pro rata share of 100.0% of the New Equity in the Successor, subject to dilution from theissuance of New Equity on account of the Management Incentive Plan, the Rights Offering, the Backstop Fee and the New Warrants as discussed further inNote 2 - Chapter 11 Proceeding and Emergence.Capital Lease ObligationsIn October 2016, the Company entered into amended lease agreements related to the Company’s corporate headquarters and its R&T facility,both originally entered into during 2013 and accounted for as capital leases. The Company determined that both amended lease agreements qualify as a newoperating lease under ASC 840 - Leases, which resulted in accounting for the amended leases as a sale-leaseback pursuant to the requirements of ASC 840. The conversion from capital lease to operating lease accounting treatment resulted in the deferral of $6.3 million of gain. As a result of the adoption of FreshStart Accounting, the Company accelerated the recognition of the deferred gain balance through the Fresh Start adjustments. As of December 31, 2017, theCompany had no capital lease obligations.Interest ExpenseAs of June 30, 2016, based on the negotiations between the Company and the lenders, it became evident that the restructuring of the Company'scapital structure would not include a restructuring of the Company's Revolving Credit Facility, the Five-Year Term Loans and the Seven-Year Term Loans,and these debt obligations, as demand obligations, would not be paid in the ordinary course of business over the term of these loans. As a result, during thesecond quarter of 2016, the Company accelerated the amortization of the associated original issue discount and deferred financing costs, fully amortizingthese amounts as of June 30, 2016. In addition, the Company did not accrue interest that it believed was not probable of being treated as an allowed claim inthe Chapter 11 Proceeding. For the year ended December 31, 2016, the Company did not accrue interest totaling $60.5 million under the Credit Agreementsubsequent to the Petition Date. For the years ended December 31, 2017 and 2016, interest expense consisted of the following (in thousands):94Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Successor Predecessor Years Ended December 31, 2017 2016 Amended Credit Facility $1,779 $—DIP Facility — 2,087Original Credit Agreement — 53,596Capital leases 471 1,206Accretion of original issue discount — 4,193Amortization of deferred financing costs 608 4,590Original issue discount accelerated amortization — 48,221Deferred financing costs accelerated amortization — 43,720Interest income and other (1,331) (148)Interest expense, net $1,527 $157,465Note 5 - Goodwill and Other Intangible AssetsOn November 30, 2017, the Company acquired all of the outstanding equity interests of O-Tex Holdings, Inc., and its operating subsidiaries ("O-Tex"). See Note 12 - Mergers and Acquisitions for further discussion on the O-Tex transaction. As of December 31, 2017, all off the goodwill reported in theCompany's consolidated balance sheet is related to the O-Tex acquisition.During the first quarter of 2016, utilization and commodity price levels continued to fall towards unprecedented levels and the resulting negativeimpact on the Company’s results of operations, coupled with the sustained decrease in the Company’s stock price, were deemed triggering events that led toan interim period test for goodwill impairment. The Company chose to bypass a qualitative approach and instead opted to employ the detailed Step 1impairment testing methodologies discussed below.Income approachThe income approach impairment testing methodology is based on a discounted cash flow model, which utilizes present values of cash flows toestimate fair value. For the Completion Services and Well Support Services reporting units, the future cash flows were projected based on estimates ofprojected revenue growth, fleet and rig count, utilization, gross profit rates, SG&A rates, working capital fluctuations, and capital expenditures. For the OtherServices reporting unit, the future cash flows were projected based primarily on estimates of future demand for manufactured and refurbished equipment aswell as parts and service, gross profit rates, SG&A rates, working capital fluctuations, and capital expenditures. Forecasted cash flows for the three reportingunits took into account known market conditions as of March 31, 2016, and management’s anticipated business outlook, both of which had been impactedby the sustained decline in commodity prices.A terminal period was used to reflect an estimate of stable, perpetual growth. The terminal period reflects a terminal growth rate of 2.5% for allthree reporting units, including an estimated inflation factor.The future cash flows were discounted using a market-participant risk-adjusted weighted average cost of capital (“WACC”) of 14.5% forCompletion Services, 14.0% for Well Support Services, and 16.0% for Other Services reporting units. These assumptions were derived from unobservableinputs and reflect management’s judgments and assumptions.Market approachThe market approach impairment testing methodology is based upon the guideline public company method. The application of the guidelinepublic company method was based upon selected public companies operating within the same industry as the Company. Based on this set of comparablecompetitor data, price-to-earnings multiples were derived and a range of price-to-earnings multiples was determined for each reporting unit. Selected marketmultiples were 10.6x for Completion Services, 10.5x for Well Support Services and 11.0x for Other Services reporting units.The fair value determined under the market approach is sensitive to these market multiples, and a decline in any of95Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSthe multiples could reduce the estimated fair value of any of the three reporting units below their respective carrying values. Earnings estimates were derivedfrom unobservable inputs that require significant estimates, judgments and assumptions as described in the income approach.The estimated fair value determined under the income approach was consistent with the estimated fair value determined under the marketapproach. The concluded fair value for the Completion Services and Well Support Services reporting units consisted of a weighted average, with an 80.0%weight under the income approach and a 20.0% weight under the market approach. The concluded fair value for the Other Services reporting unit consisted ofa weighted average with a 50.0% weight under the income approach and a 50.0% weight under the market approach.The results of the Step 1 impairment testing indicated potential impairment in the Well Support Services reporting unit. The goodwill associatedwith both the Completion Services and Other Services reporting units was completely impaired during the third quarter of 2015. As a way to validate theestimated reporting unit fair values, the total market capitalization of the Company was compared to the total estimated fair value of all reporting units, andan implied control premium was derived. Market data in support of the implied control premium was used in this reconciliation to corroborate the estimatedreporting unit fair values.Step 2 of the goodwill impairment testing for the Well Support Services reporting units was performed during the first quarter of 2016, and theresults concluded that there was no value remaining to be allocated to the goodwill associated with this reporting unit. As a result, the Company recognizedimpairment expense of $314.3 million during 2016.As of December 31, 2016, there was no goodwill remaining to be allocated across the Company's three reporting units. The changes in thecarrying amount of goodwill for the years ended December 31, 2017 and 2016 are as follows (in thousands): Completion Services Well Support Services TotalAs of December 31, 2015 (Predecessor) $— $307,677 $307,677Measurement period adjustments 8 5,382 5,390Impairment expense (8) (314,293) (314,301)Foreign currency translation and other adjustments — 1,234 1,234As of December 31, 2016 (Predecessor) — — —O-Tex acquisition 147,515 — 147,515As of December 31, 2017 (Successor) $147,515 $— $147,515Indefinite-Lived Intangible AssetsAs of December 31, 2016, the Company had approximately $6.0 million of intangible assets with indefinite useful lives, which were subject toannual impairment tests or more frequently if events or circumstances indicate the carrying amount may not be recoverable.The Company’s intangible assets associated with intellectual property, research and development (“IPR&D”) consist of technology that is still inthe testing phase; however, given the continued market downturn management has made the decision to postpone these projects. Based on the Company'sevaluation, it was determined that the IPR&D carry value of $6.0 million was impaired and written down to zero as of December 31, 2016.As of December 31, 2017, the Company has not acquired additional indefinite-lived intangible assets, and the IPR&D intangible assets remain atzero.Definite-Lived Intangible AssetsThe Company reviews definite-lived intangible assets, along with PP&E, for impairment when a triggering event indicates that the asset mayhave a net book value in excess of recoverable value. During 2016, management determined the sustained low commodity price levels coupled with thesustained decrease in the Company’s share price were deemed triggering events that provided indicators that its definite-lived intangible assets may beimpaired. The Company performed a96Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSrecoverability test on all of its definite-lived intangible assets and PP&E by comparing the estimated future net undiscounted cash flows expected to begenerated from the use of these assets to the carrying amounts of the assets for recoverability. If the estimated undiscounted cash flows exceed the carryingamount of the assets, an impairment does not exist, and a loss will not be recognized. If the undiscounted cash flows are less than the carrying amount of theassets, the assets are not recoverable, and the amount of impairment must be determined by fair valuing the assets.Recoverability testing through June 30, 2016 resulted in the determination that certain intangible assets associated with the Company’s wirelineand artificial lift lines of business were not recoverable. The fair value of the wireline and artificial lift assets was determined to be approximately $38.2million and zero, respectively, resulting in impairment expense of $50.4 million and $4.6 million, respectively. For the year ended December 31, 2016, theCompany recorded $55.0 million of impairment expense, as the intangible assets assessed were determined not to be recoverable. For the year endedDecember 31, 2015, recoverability testing resulted in $11.2 million of impairment expense as the intangible assets assessed were determined not to berecoverable.The changes in the carrying amounts of other intangible assets for the year ended December 31, 2017 are as follows (in thousands): Predecessor Successor AmortizationPeriodDecember 31,2016Fresh StartAdjustments On January 1,2017Acquisition /(Divestiture)AmortizationExpenseDecember 31,2017Customer relationships8-15 years$80,826$(80,826) $—$58,100$—$58,100Trade name10-15 years29,99426,506 56,50011,800—68,300Developed technology5-15 years21,516(17,616) 3,900(3,900)——Non-compete4-5 years2,600(2,600) —1,600—1,600Patents10 years35(35) ———— 134,971(74,571) 60,40067,600—128,000Less: accumulated amortization (58,914)58,914 ——(4,163)(4,163)Intangible assets, net $76,057$(15,657) $60,400$67,600$(4,163)$123,837Amortization expense for the years ended December 31, 2017, 2016 and 2015 totaled $4.2 million, $10.8 million and $14.5 million,respectively.Estimated amortization expense for each of the next five years and thereafter is as follows (in thousands):Years Ending December 31, 2018 $8,7472019 8,7472020 8,7472021 8,7472022 8,720Thereafter 80,129 $123,837Note 6 - Income TaxesOn December 22, 2017, the Tax Cuts and Jobs Act ("U.S. Tax Reform") was enacted by the U.S. federal government. The legislation significantlychanged U.S. income tax law, by among other things, lowering the federal corporate income tax rate from 35% to 21%, effective January 1, 2018,implementing a territorial tax system and imposing a one-time toll charge on deemed repatriated earnings of foreign subsidiaries. In addition, there are manynew provisions, including changes to expensing of qualified tangible property, the deductions for executive compensation and interest expense, a globalintangible low-tax income provision, the base erosion anti-abuse tax, and a deduction for foreign-derived intangible income. The Company's consolidatedfinancial statements for the year ended December 31, 2017 were impacted by the corporate income tax97Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSrate reduction going from 35% to 21%. This rate reduction required the revaluation of the Company's deferred tax assets and liabilities as of the U.S. TaxReform enactment date. The revaluation reflects an assumption that the new federal corporate income tax rate will remain in place for the years in whichtemporary differences are expected to reverse. The Company estimates that the reduction in the federal tax rate applicable to deferred tax balances will reducethe net deferred tax asset balance, before valuation allowance, by approximately $160.0 million, with a corresponding reduction in the recorded valuationallowance by approximately $162.3 million. As a result of the change in the federal income tax rate, the Company recorded an income tax benefit ofapproximately $2.3 million during the fourth quarter of 2017.On December 22, 2017, the SEC issued Staff Accounting Bulletin No. 118 ("SAB 118"). SAB 118 provides the registrant with up to a one yearperiod to finalize the accounting for the impacts of U.S. Tax Reform. During the one year period in which the initial accounting for U.S. Tax Reform impactsis incomplete, a registrant may include a provisional amount when reasonable estimates can be made or continue to apply the prior tax law if a reasonableestimate cannot be made. As discussed above, the Company has estimated the provisional tax impacts related to the corporate income tax rate reduction andthe impact on its deferred tax assets and liabilities, after corresponding adjustments to the reported valuation allowance. The deferred tax assets and liabilitiestable below includes the adjustments from the revaluation of deferred tax balances to reflect the rate reduction for the year ended December 31, 2017. BeforeU.S. Tax Reform adjustments, the ending net deferred tax liability would have been $6.2 million compared to the reflected ending net deferred tax liability of$3.9 million as of December 31, 2017. The ultimate impact of remeasuring the deferred tax assets and liabilities may differ from the provisional amounts dueto gathering additional information to more precisely compute the amount of tax, changes in interpretations and assumptions, additional regulatory guidancethat may be issued, and actions the Company may take. The Company expects to finalize accounting for the impacts of U.S. Tax Reform when the 2017 U.S.corporate income tax return is filed in 2018.The provision for income taxes consisted of the following (in thousands): Successor Predecessor Year Ended December 31, On January 1, Years Ended December 31, 2017 2017 2016 2015Current provision: Federal $(8,475) $— $2,047 $(23,784)State (162) — (1,588) (2,265)Foreign 121 — 64 100Total current provision (8,516) — 523 (25,949)Deferred (benefit) provision: Federal (28,950) (4,613) (122,302) (248,279)State (2,294) — (8,864) (20,553)Foreign — — 1,633 (4,312)Total deferred provision (31,244) (4,613) (129,533) (273,144)Provision for income taxes $(39,760) $(4,613) $(129,010) $(299,093)The following table reconciles the statutory tax rates to the Company’s effective tax rate:98Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Successor Predecessor Years Ended December 31, 2017 2016 2015Federal statutory rate 35.0 % 35.0 % 35.0 %State taxes, net of federal benefit 8.0 % 0.3 % 1.4 %Domestic production activities deduction — % — % (0.2)%Effect of foreign losses 9.8 % (2.0)% (0.3)%Impairment — % (8.8)% (9.8)%Changes in uncertain tax positions 37.7 % (0.6)% — %Effects of the plan of reorganization 1,114.9 % (1.3)% — %Valuation allowance (959.3)% (10.9)% — %Other (16.3)% 0.3 % (0.6)%Effective income tax rate 229.8 % 12.0 % 25.5 %The Company’s deferred tax assets and liabilities consisted of the following (in thousands): Successor Predecessor As of December 31, 2017 2016Deferred tax assets: Accrued liabilities $2,100 $25,470Allowance for doubtful accounts 1,791 2,630Stock-based compensation 2,570 11,530Inventory reserve 1,883 9,131Net operating losses 276,239 231,360163j interest limitation 41,342 58,426Amortization of goodwill and intangible assets 4,101 4,526Other 4,379 3,774Total deferred tax assets 334,405 346,847Deferred tax liabilities: Prepaid assets (4,438) (2,123)Depreciation on property, plant and equipment (37,784) (179,428)Other (643) (3,873)Total deferred tax liabilities (42,865) (185,424)Valuation allowances (295,457) (171,016)Net deferred tax liability $(3,917) $(9,593)The Company has approximately $1.1 billion of U.S. federal net operating loss carryforwards (“NOLs”) which, if not utilized, will begin to expirein the year 2035 and state NOLs of approximately $602.4 million which, if not utilized, will expire in various years between 2020 and 2037. Additionally,the Company has approximately $19.9 million of NOLs in other jurisdictions which, if not utilized, will expire in various years between 2020 and 2037. Asof December 31, 2017, the Company has recorded a deferred tax asset of approximately $276.2 million relating to NOLs, and an offsetting valuationallowance has been provided for these NOLs due to uncertainty regarding the ultimate realization of the deferred tax assets associated with the NOLcarryforwards prior to expiration. Additionally, the Company has foreign operating loss carryforwards of approximately $908.6 million for which therealization of a tax benefit is considered remote. Due to the remote likelihood of utilizing these NOLs, neither the deferred tax asset nor the offsettingvaluation allowance has been recorded, and neither is presented in the table above.The Company's ability to utilize its U.S. NOL carryforwards to offset future taxable income and to reduce U.S. federal income tax liability issubject to certain requirements and restrictions. In general, under Section 382 of the Code, a corporation that undergoes an “ownership change” is subject tolimitations on its ability to utilize its pre-change NOLs to offset future taxable income. An ownership change generally occurs if one or more shareholders (orgroups of shareholders) who are each deemed to own at least 5% of the Company's stock have aggregate increases in their ownership of such stock of99Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSmore than 50 percentage points over such stockholders’ lowest ownership percentage during the testing period (generally a rolling three year period). TheCompany believes it experienced an ownership change in January 2017 as a result of the implementation of the Restructuring Plan and a subsequentownership change also occurred on or about June 30, 2017. As a result, the Company's pre-change NOLs are subject to limitation under Section 382 of theCode. Such limitation may cause U.S. federal income taxes to be paid earlier than otherwise would be paid if such limitation were not in effect. The Companydoes not believe either ownership change created a restriction, which, by itself, could cause its pre-change NOLs to expire unused. As of December 31, 2017,management’s assessment that a full valuation allowance is appropriate due to uncertainty about ultimate realization of the deferred tax assets wasdetermined before consideration of a Section 382 limitation. Similar rules and limitations may apply for state income tax purposes. The Company remainssubject to ongoing testing for future ownership changes based on shareholder ownership that may create a more restrictive Section 382 limitation on theNOLs in subsequent reporting periods.The Company’s U.S. federal income tax returns for the tax years 2014 through 2016 remain open to examination by the Internal Revenue Serviceunder the applicable U.S. federal statute of limitations provisions. The various states in which the Company is subject to income tax are generally open toexamination for the tax years after 2013.A reconciliation of unrecognized tax benefit balances is as follows (in thousands): Successor Predecessor Years Ended December 31, 2017 2016Balance at beginning of year$6,525 $—Additions based on tax positions related to the current year— 6,525Reductions for tax positions of prior years(6,525) —Balance at end of year$— $6,525As of December 31, 2017, the Company had no balances related to unrecognized tax benefits and associated interest and penalties.The Company classifies interest and penalties within the provision for income taxes. The Company had no interest and penalties in the provisionfor income taxes for each of the years ended December 31, 2017, 2016 and 2015.Note 7 - Share-Based CompensationSuccessor Equity PlansPursuant to the Restructuring Plan, the Company adopted the C&J Energy Services, Inc. 2017 Management Incentive Plan (as amended fromtime to time, the "MIP") as of the Plan Effective Date.The MIP provides for the grant of share-based awards to the Company’s employees, consultants and non-employee directors. The following typesof awards are available for issuance under the MIP: incentive stock options and nonqualified stock options, share appreciation rights, restricted shares,restricted share units, dividend equivalent rights, performance awards, share awards, other share-based awards and substitute awards. As of December 31,2017, only nonqualified stock options, restricted shares and performance awards have been awarded under the MIP.A total of approximately 8.0 million shares of common stock were originally authorized and approved for issuance under the MIP. The number ofshares of common stock available for issuance under the MIP is subject to adjustment in the event of a reclassification, recapitalization, merger,consolidation, reorganization, spin-off, split-up, issuance of warrants, rights or debentures, share dividend, share split or reverse share split, cash dividend,property dividend, combination or exchange of shares, repurchase of shares, change in corporate structure or any similar corporate event or transaction. Thenumber of shares of common stock available for issuance may also increase due to the termination of an award granted under the MIP or by expiration,forfeiture, cancellation or otherwise without the issuance of the common stock.Stock OptionsThe fair value of each option award granted under the MIP is estimated on the date of grant using the Black-Scholes option-pricing model.Determination of the fair value was a matter of judgment and often involved the use of significant estimates and assumptions. Additionally, due to theCompany’s lack of historical volume of option activity, the expected term of options granted was derived using the “plain vanilla” method. Expectedvolatilities were based on comparable100Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSpublic company data, with consideration given to the Company’s limited historical data. The Company makes estimates with respect to employeetermination and forfeiture rates of the options within the valuation model. The risk-free rate is based on the approximate U.S. Treasury yield rate in effect atthe time of grant. During the year ended December 31, 2017, approximately 0.4 million nonqualified stock options were granted under the MIP to certain ofthe Company's executive officers at a fair market value ranging from $16.55 to $22.19 per nonqualified stock option. Stock options granted during the firstquarter of 2017 will expire on the tenth anniversary of the grant date and will vest over three years of continuous service from the grant date, with 34%vesting immediately upon the grant date, and 22% on each of the first, second and third anniversaries of the grant date. Stock options granted during thefourth quarter of 2017 will expire on the tenth anniversary of the grant date and will vest over three years of continuous service from the grant date, with one-third vesting on each of the first, second and third anniversaries of the grant date.The following table presents the assumptions used in determining the fair value of option awards granted during the year ended December 31,2017. Year Ended December 31, 2017Expected volatility 50.1% - 53.2%Expected dividends NoneExercise price $30.83 - $42.65Expected term (in years) 5.7 - 6.0Risk-free rate 2.03% - 2.24%The weighted average grant date fair value of options granted during the year ended December 31, 2017 was $20.66.A summary of the Company’s stock option activity for the year ended December 31, 2017 is presented below. Stock Options WeightedAverageExercise Price WeightedAverageRemainingContractualLife AggregateIntrinsicValue (in thousands) (in years) (in thousands)Outstanding at December 31, 2016 (Predecessor) 4,416 $13.18 3.86 $—Canceled (4,416) 13.18 3.86 —Outstanding at January 1, 2017 (Successor) — $— — $—Granted 351 39.43 — —Exercised — — — —Forfeited — — — —Outstanding at December 31, 2017 (Successor) 351 $39.43 9.34 $253Exercisable at December 31, 2017 (Successor) 87 $42.65 9.10 $—As of December 31, 2017, the Company had approximately $4.2 million in unrecognized compensation cost related to outstanding stock optionsto be expensed over a weighted average remaining service period of 2.4 years.Restricted StockThe value of the Company’s outstanding restricted stock is based on the closing price of the Company’s common stock on the NYSE on the dateof grant. During year ended December 31, 2017, approximately 1.7 million shares of restricted stock were granted to employees and non-employee directorsunder the MIP, at fair market values ranging from $31.52 to $44.90 per share of restricted stock. Restricted stock awards granted to employees during the firstquarter of 2017 will vest over three years of continuous service from the grant date, with 34% having vested immediately upon the grant date, and 22% oneach of the first, second and third anniversaries of the grant date. Restricted stock awards granted to non-employee directors will vest in full on the firstanniversary of the date of grant, subject to each director's continued service. Restricted stock101Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSawards granted to employees during the fourth quarter of 2017 will vest over three years of continuous service from the grant date, with one-third vesting oneach of the first, second and third anniversaries.To the extent permitted by law, the recipient of an award of restricted stock will generally have all of the rights of a stockholder with respect tothe underlying common stock, including the right to vote the common stock and to receive all dividends or other distributions made with respect to thecommon stock. Dividends on restricted stock will be deferred until the lapsing of the restrictions imposed on the stock and will be held by the Company forthe account of the recipient (either in cash or to be reinvested in restricted stock) until such time. Payment of the deferred dividends and accrued interest, ifany, shall be made upon the lapsing of restrictions on the restricted stock, and any dividends deferred in respect of any restricted stock shall be forfeited uponthe forfeiture of such restricted stock. As of December 31, 2017, the Company had not issued any dividends.A summary of the status and changes during the year ended December 31, 2017 of the Company’s shares of non-vested restricted shares ispresented below: Shares WeightedAverageGrant-DateFair Value (in thousands) Non-vested at December 31, 2016 (Predecessor) 898 $15.34Canceled (898) (15.34)Non-vested at January 1, 2017 (Successor) — $—Granted 1,664 37.92Forfeited (38) 43.00Vested (288) 43.83Non-vested at December 31, 2017 (Successor) 1,338 $36.51As of December 31, 2017, the Company had approximately $38.9 million in unrecognized compensation cost related to restricted stock to beexpensed over a weighted average remaining service period of 2.6 years.Performance StockDuring the fourth quarter of 2017, the Company granted approximately 0.1 million shares of performance stock under the MIP to certain of theCompany's executive officers at a fair market value of approximately $37.20 per share of restricted stock. The performance award cliff vests at the end of athree year performance period, and the participants may earn between 0% and 200% of the target number of the shares granted based on actual stock priceperformance upon comparison to a peer group. The vesting of these awards is subject to the employee's continued employment. The Company values equityawards with market conditions at the grant date using a Monte Carlo simulation model which simulates many possible future outcomes.The following table presents the assumptions used in determining the fair value of the performance stock granted during the fourth quarter of2017. Year Ended December 31, 2017Expected volatility, including peer group 30.8% - 81.6%Expected dividends None30 calendar day volume weighted average stock price, including peer group $2.13 - $133.20Expected term (in years) 3.0Risk-free rate 1.94% - 1.95%A summary of the status and changes during the year ended December 31, 2017 of the Company’s performance stock is presented below:102Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Shares WeightedAverageGrant-DateFair Value (in thousands) Non-vested at December 31, 2017 (Predecessor) — $—Granted 92 37.20Forfeited — —Vested — —Non-vested at December 31, 2017 (Successor) 92 $37.20As of December 31, 2017, the Company had approximately $3.4 million in unrecognized compensation cost related to performance stock to beexpensed over a weighted average remaining service period of 3.0 years.Share-based compensation expense was $23.4 million for the year ended December 31, 2017, and is included in selling, general andadministrative expenses, direct costs and research and development on the consolidated statements of operations. Due to the valuation allowance that hasbeen provided for NOLs as a result of the uncertainty regarding the ultimate realization of the Company's deferred tax assets, there was no income tax benefitrecognized in the consolidated statements of operations in connection with share-based compensation expense for the year ended December 31, 2017.Predecessor Equity PlansIn connection with the Nabors Merger, the Company approved and adopted the C&J Energy Services 2015 Long Term Incentive Plan (the “2015LTIP”), effective as of March 23, 2015, contingent upon the consummation of the Nabors Merger. The 2015 LTIP served as an assumption of the Old C&J2012 Long-Term Incentive Plan, (the “2012 LTIP”), with certain non-material revisions made and no increase in the number of shares remaining available forissuance under the 2012 LTIP. Prior to the adoption of the 2015 LTIP, all share-based awards granted to Old C&J employees, consultants and non-employeedirectors were granted under the 2012 LTIP and, following the 2015 LTIP’s adoption, no further awards were granted under the 2012 LTIP. Awards that werepreviously outstanding under the 2012 LTIP would have continued to remain outstanding under the 2015 LTIP, as adjusted to reflect the Nabors Merger. Atthe closing of the Nabors Merger, restricted shares and stock option awards were granted under the 2015 LTIP to certain employees of the C&P Business andapproximately 0.4 million C&J common shares underlying those awards were deemed part of the consideration paid to Nabors for the Nabors Merger.The 2015 LTIP provided for the grant of share-based awards to the Company’s employees, consultants and non-employee directors. Thefollowing types of awards were available for issuance under the 2015 LTIP: incentive stock options and nonqualified stock options, share appreciation rights,restricted shares, restricted share units, dividend equivalent rights, performance awards and share awards. As of December 31, 2016, only nonqualified stockoptions and restricted shares were awarded under the 2015 LTIP and 2012 LTIP. No grants were issued during the year ended December 31, 2016.Approximately 11.3 million shares were available for issuance under the 2015 LTIP as of December 31, 2016. The number of common sharesavailable for issuance under the 2015 LTIP was subject to adjustment in the event of a reclassification, recapitalization, merger, consolidation,reorganization, spin-off, split-up, issuance of warrants, rights or debentures, share dividend, share split or reverse share split, cash dividend, propertydividend, combination or exchange of shares, repurchase of shares, change in corporate structure or any similar corporate event or transaction.A total of 4.3 million common shares were originally authorized and approved for issuance under the 2012 LTIP and on June 4, 2015, theshareholders of the Company approved the First Amendment to the 2015 LTIP, which increased the number of common shares that may be issued under the2015 LTIP by approximately 3.6 million shares. The shareholders of the Company approved the Second Amendment to the 2015 LTIP in February 2016,which increased the number of common shares that may be issued by approximately 6.0 million shares. Including the add-back of approximately 0.9 millionrestricted shares and 0.7 million options canceled or expired under the 2012 LTIP and 2015 LTIP during 2016, approximately 11.3 million shares wereavailable for issuance under the 2015 LTIP as of December 31, 2016. The number of common shares available for issuance under the 2015 LTIP was subjectto adjustment in the event of a reclassification, recapitalization, merger, consolidation, reorganization, spin-off, split-up, issuance of warrants, rights ordebentures, share dividend, share split or reverse share split, cash dividend, property dividend, combination or exchange of shares, repurchase of shares,change in corporate structure or any similar corporate event or transaction. The number of common shares available for issuance were also subject to increasedue to the termination of an award granted under the 2015 LTIP, the 2012 LTIP or the Prior Plans (as defined103Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSbelow), by expiration, forfeiture, cancellation or otherwise without the issuance of the common shares. The 2015 LTIP was terminated as described in Note 2 -Chapter 11 Proceeding and Emergence, pursuant to the Restructuring Plan, the liquidation of C&J Energy Services Ltd. was completed under the laws ofBermuda, and all of the existing shares of the Predecessor's common equity were canceled as of the Effective Date. Also, on the Effective Date, the Successorissued the New Warrants to the holders of the canceled Predecessor common shares, provided that such class of holders voted to accept the RestructuringPlan.Stock OptionsThe fair value of each option award granted under the 2015 LTIP, the 2012 LTIP and the Prior Plans was estimated on the date of grant using theBlack-Scholes option-pricing model. Option awards were generally granted with an exercise price equal to the market price of the Company’s common shareson the grant date. Due to the Company’s lack of historical volume of option activity, the expected term of options granted was derived using the “plainvanilla” method. In addition, expected volatilities were based on comparable public company data, with consideration given to the Company’s limitedhistorical data. The Company made estimates with respect to employee termination and forfeiture rates of the options within the valuation model. The risk-free rate was based on the approximate U.S. Treasury yield rate in effect at the time of grant. No options were granted during the year ended December 31,2016.The following table presents the assumptions used in determining the fair value of option awards during the year ended December 31, 2015. Nostock options were granted by the Company for the year ended December 31, 2016. Year Ended December 31, 2015 Expected volatility 52.3% Expected dividends None Exercise price $7.93 - $27.12 Expected term (in years) 0.3 - 4.3 Risk-free rate 0.03% - 1.3% The weighted average grant date fair value of options granted during the year ended December 31, 2015, was $4.74.A summary of the Company’s stock option activity through December 31, 2016 is presented below. Stock Options WeightedAverageExercise Price WeightedAverageRemainingContractualLife AggregateIntrinsicValue (in thousands) (in years) (in thousands)Outstanding at December 31, 2014 (Predecessor) 5,067 $11.70 5.40 $21,395Granted 267 10.49 — —Exercised (154) 2.94 — —Forfeited (61) 19.03 — —Outstanding at December 31, 2015 (Predecessor) 5,119 $11.82 4.41 $2,874Granted — — — —Exercised — — — —Forfeited (703) 3.19 — —Outstanding at December 31, 2016 (Predecessor) 4,416 $13.18 3.86 $—The total intrinsic value of options exercised during the year ended December 31, 2015 was $0.6 million.Restricted SharesHistorically, restricted shares were valued based on the closing price of the Company’s common shares on the NYSE on the date of grant. Duringthe year ended December 31, 2016 there were no restricted shares granted to employees104Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSand non-employee directors under the 2015 LTIP. During the year ended December 31, 2015 approximately 2.8 million restricted shares were granted toemployees and non-employee directors under the 2015 LTIP, including approximately 0.6 million replacement restricted shares, at fair market values rangingfrom $3.55 to $15.10 per share.To the extent permitted by law, the recipient of an award of restricted shares had all of the rights of a shareholder with respect to the underlyingcommon shares, including the right to vote the common shares and to receive all dividends or other distributions made with respect to the common shares.Dividends on restricted shares would have been deferred until the lapsing of the restrictions imposed on the shares and would be held by the Company for theaccount of the recipient (either in cash or to be reinvested in restricted shares) until such time. Payment of the deferred dividends and accrued interest, if any,would have been made upon the lapsing of restrictions on the restricted shares, and any dividends deferred in respect of any restricted shares would beforfeited upon the forfeiture of such restricted shares. As of December 31, 2016, the Company did not issue any dividendsA summary of the status and changes during the year ended December 31, 2016 of the Company’s shares of non-vested restricted shares ispresented below: Shares WeightedAverageGrant-DateFair Value (in thousands) Non-vested at December 31, 2014 (Predecessor) 1,377 $23.39Granted 2,850 $13.50Forfeited (238) $14.81Vested (718) $21.97Non-vested at December 31, 2015 (Predecessor) 3,271 $15.70Granted — —Forfeited (576) 15.30Vested (1,797) 15.92Non-vested at December 31, 2016 (Predecessor) 898 $15.34As of December 31, 2016, and 2015 there was $8.9 million and $29.9 million of total unrecognized compensation cost related to restrictedshares. That cost was expected to be recognized over a weighted-average period of 1.42 years. The weighted-average grant-date fair value per share ofrestricted shares granted during the year ended December 31, 2015 was $13.50.As of December 31, 2016, the Company had 5.3 million stock options and restricted shares outstanding to employees and non-employeedirectors, 0.3 million of which were issued under the 2006 Plan, 3.9 million were issued under the 2010 Plan, 0.2 million were issued under the 2012 Plan andthe remaining 0.9 million were issued under the 2015 Plan.Share-based compensation expense was $17.7 million and $18.5 million for the years ended December 31, 2016 and 2015, respectively, and isincluded in selling, general and administrative expenses, direct costs and research and development on the consolidated statements of operations. The totalincome tax benefit recognized in the consolidated statements of operations in connection with share-based compensation expense was approximately $6.2million and $6.5 million for the years ended December 31, 2016 and 2015, respectively.Note 8 - Related Party TransactionsThe Company obtained support services from vendors which are affiliated with one of its employees. For the year ended December 31, 2017,purchases from these vendors totaled $0.9 million. Amounts due to these vendors as of December 31, 2017 totaled $0.3 million. There were no purchasesfrom these vendors for the years ended December 31, 2016 or 2015.The Company obtained support services from Nabors Corporate Services, Inc., on a transitional basis, for the processing of payroll, benefits andcertain administrative services of the C&P business in normal course following the completion of the Nabors Merger. There were no obligations incurred toNabors Corporate Services during 2017. During 2016 and prior to the Confirmation Date, the Company, the Official Committee of Unsecured Creditors of CJHolding Co, the Steering Committee of Lenders under the Credit Agreement and the DIP Facility, and Nabors entered into a mediated105Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSsettlement agreement that was subsequently approved by the Bankruptcy Court whereby, among other things, Nabors was awarded two allowed proofs ofclaim totaling $13.3 million. As of December 31, 2016, the allowed proofs of claim were included in liabilities subject to compromise on the consolidatedbalance sheet. As a result of the Company's emergence from the Chapter 11 Proceeding and the cancellation of the Predecessor common shares, NaborsCorporate Services is no longer considered a related party.The Company leased certain properties from Nabors, and Nabors leased certain properties from the Company. For the year ended December 31,2016, the Company incurred obligations to Nabors of approximately $0.6 million under the leases, and Nabors incurred obligations to C&J of approximately$0.5 million and $0.1 million under the leases for each of the years ended December 31, 2017 and 2016. Amounts payable to Nabors at December 31, 2017were $0.9 million. As a result of the Company's emergence from the Chapter 11 Proceeding and the cancellation of the Predecessor common shares, NaborsCorporate Services is no longer considered a related party.The Company provided certain services to Shehtah Nabors LP, a Nabors partnership with a third party, pursuant to a Management Agreement anda Cash Flow Sharing Agreement (collectively, “Shehtah Agreements”). Nabors incurred obligations to the Company of approximately $1.8 million under theShehtah Agreements during 2016. There were no amounts due to the Company under the Shehtah Agreements at December 31, 2016. The Company did notprovide services to Shehtah during 2017. As a result of the Company's emergence from the Chapter 11 Proceeding and the cancellation of the Predecessorcommon shares, Nabors Corporate Services is no longer considered a related party.The Company utilizes the services of certain saltwater disposal wells owned by Pyote Water Solutions, LLC, Pyote Water Systems, LLC, PyoteWater Systems II, LLC and Pyote Water Systems III, LLC (together “Pyote”) used in the disposal of certain fluids associated with oil and gas production. Aformer member of the Company's Board of Directors, who served from March 24, 2015 until December 16, 2016, holds the position of President and ChiefManager of Pyote and serves as Chairman of the Board of Governors of Pyote. Amounts invoiced from Pyote totaled approximately $0.8 million and $0.6million for the years ended December 31, 2016 and 2015, respectively. Amounts payable to this vendor at December 31, 2016 were less than $0.1 million. Inaddition, the Company provides certain workover rig services, fluid hauling services and plug and abandonment services to Pyote. Revenues from Pyotetotaled approximately $0.3 million for the year ended December 31, 2015, and no services were provided to Pyote during 2016. There were no amounts dueto the Company from Pyote at December 31, 2016. For the year ended December 31, 2017, Pyote was no longer a related party.The Company purchased certain of its equipment from vendors affiliated with a former member of its Board of Directors. For the year endedDecember 31, 2015, purchases from these vendors totaled $1.9 million. Amounts payable to these vendors at December 31, 2015 were less than $0.1 million.There were no purchases from these vendors for the years ended December 31, 2017 or 2016. For the year ended December 31, 2017, the vendors were nolonger considered related parties.The Company obtains office space, equipment rentals, tool repair services and other supplies from vendors affiliated with several employees. Forthe years ended December 31, 2017, 2016 and 2015, purchases from these vendors totaled $0.5 million in each year. Amounts payable to these vendors atDecember 31, 2016 were less than $0.1 million. There were no amounts due to these vendors as of December 31, 2017.The Company has an unconsolidated equity method investment with a vendor that provided the Company with raw material for its discontinuedspecialty chemical business. For the years ended December 31, 2016 and 2015, purchases from this vendor were $1.7 million and $11.8 million, respectively.There were no purchases from this vendor for the year ended December 31, 2017. Amounts payable to this vendor at December 31, 2016 and 2015 were $2.1million and $1.5 million, respectively. There were no amounts payable to this vendor as of December 31, 2017.The Company obtained drilling fluids from a vendor which was affiliated with one of its former employees. For the year ended December 31,2015, purchases from this vendor totaled $2.1 million. Amounts due to this vendor at December 31, 2015 were $0.2 million. There were no purchases fromthis vendor for the year ended December 31, 2016. For the year ended December 31, 2017, this vendor was no longer considered a related party.Note 9 - Business ConcentrationsConcentration of Credit RiskFinancial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents andaccounts receivable. Concentrations of credit risk with respect to accounts receivable are limited because the Company performs credit evaluations, setscredit limits, and monitors the payment patterns of its customers. Cash106Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSbalances on deposits with financial institutions, at times, may exceed federally insured limits. The Company regularly monitors the institutions’ financialcondition.The Company’s top ten customers accounted for approximately 40.7%, 46.0% and 53.6% of the Company’s consolidated revenue for the yearsended December 31, 2017, 2016 and 2015, respectively. For the year ended December 31, 2017 and December 31, 2016, no individual customer accountedfor 10.0% or more of the Company's consolidated revenue. For the year ended December 31, 2015 revenue from one customer individually represented 15.5%of the Company’s consolidated revenue. Other than the customer noted above, no other customer accounted for 10.0% or more of the Company’sconsolidated revenue in 2015. Revenue was earned from this customer within the Company’s Completion Services and Well Support Services segments.Note 10 - Commitments and ContingenciesEnvironmentalThe Company is subject to various federal, state and local environmental laws and regulations that establish standards and requirements for theprotection of the environment. The Company continues to monitor the status of these laws and regulations. However, the Company cannot predict the futureimpact of such 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 adverseeffect upon its consolidated financial position, liquidity or capital resources. However, management does recognize that by the very nature of its business,material costs could be incurred in the near term 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 which may be required, thedetermination of the Company’s liability in proportion to other responsible parties and the extent to which such expenditures are recoverable from insuranceor indemnification.LitigationThe Company is, and from time to time may be, involved in claims and litigation arising in the ordinary course of business. Because there areinherent uncertainties in the ultimate outcome of such matters, it is presently not possible to determine the ultimate outcome of any pending or potentialclaims or litigation against the Company; however, management believes that the outcome of those matters that are presently known to the Company will nothave a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.Contingent Consideration LiabilityOn May 18, 2015, the Company acquired all of the outstanding equity interests of ESP Completion Technologies LLC, a manufacturer ofwellheads, artificial lift completion tools and electric submersible pumps for approximately $34.0 million and including a contingent consideration liabilityvalued at approximately $14.4 million at the date of the acquisition. If the acquiree is able to achieve certain levels of EBITDA over a three-year period, theCompany will be obligated to make future tiered payments of up to $29.5 million. The contingent consideration liability is remeasured on a fair value basiseach quarter until it is paid or expires. As of December 31, 2017, the earn-out was estimated to have zero value.Service Equipment and ComponentsThe Company has agreed to purchase service equipment and components for $18.4 million as of December 31, 2017. The Company expects tofulfill these commitments during 2018.Operating LeasesThe Company leases certain property and equipment under non-cancelable operating leases. The remaining terms of the operating leasesgenerally range from 1 to 6 years.Lease expense under all operating leases totaled $10.6 million, $10.0 million and $14.2 million for the years ended December 31, 2017, 2016and 2015, respectively. As of December 31, 2017, the future minimum lease payments under non-cancelable operating leases were as follows (in thousands):107Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSYears Ending December 31, 2018 $9,0762019 5,7372020 4,7192021 3,5232022 3,498Thereafter 2,487 $29,040Note 11 - Employee Benefit PlansThe Company maintains a contributory profit sharing plan under a 401(k) arrangement which covers all employees meeting certain eligibilityrequirements. Eligible employees can make annual contributions to the plan up to the maximum amount allowed by current federal regulations, but no morethan 80.0% of compensation as noted in the plan document. The Company’s 401(k) contributions for the years ended December 31, 2017 and 2015 totaled$3.3 million and $4.8 million, respectively. Due to the continued market downturn and the Company's Chapter 11 Proceeding during 2016, no 401(k)contributions were made by the Company throughout 2016.Note 12 - Mergers and Acquisitions2017Acquisition of O-TexOn November 30, 2017, the Company acquired all of the outstanding equity interest of O-Tex for approximately $271.9 million, consisting ofcash of approximately $132.5 million and 4.42 million shares of the Company's common stock with a fair value of $138.2 million. The Company alsoacquired the remaining 49.0% non-controlling interest in an O-Tex subsidiary for $1.25 million.O-Tex specializes in both primary and secondary downhole specialty cementing services in most major U.S. shale plays. This strategictransaction immediately expands C&J’s cementing business with enhanced capabilities and strengthens the Company’s position as a leading oilfield servicesprovider with a best-in-class well construction, intervention and completions platform.The O-Tex transaction was accounted for using the acquisition method of accounting for business combinations. In applying the acquisitionmethod of accounting, the Company was required to determine the accounting acquirer which was deemed to be the party possessing the controllingfinancial interest. The Company determined that C&J possessed the controlling financial interest.The preliminary purchase price was allocated to the net assets acquired based upon their estimated fair values, as shown below (in thousands).The estimated fair values of certain assets and liabilities, including property plant and equipment, other intangible assets, and contingencies requiredsignificant judgments and estimates. As a result, the provisional measurements below are preliminary and subject to change during the measurement periodand such changes could be material. Valuations are not complete due to the timing of the acquisition during the second half of the fourth quarter. C&Jcontinues to assess the fair values of the assets acquired and liabilities assumed. All of the goodwill associated with the O-Tex transaction was allocated tothe Completion Services reporting unit.The preliminary purchase price was allocated to the net assets acquired based upon their estimated fair values, as follows (in thousands):108Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSCurrent assets $45,895Property and equipment 64,496Goodwill 147,515Other intangible assets 71,500Total assets acquired $329,406 Current liabilities $17,442Deferred income taxes 31,301Other liabilities 8,746Total liabilities assumed $57,489Net assets acquired $271,917The preliminary fair value and gross contractual amount of accounts receivable acquired on November 30, 2017 was $30.0 million and $30.1million, respectively. Based on the age of certain accounts receivable, a portion of the gross contractual amount was estimated to be uncollectible.Property, plant and equipment assets acquired consist of the following preliminary fair values (in thousands) and preliminary ranges of estimateduseful lives. As with fair value estimates, the determination of estimated useful lives requires judgments and assumptions that are preliminary and subject tochange during the measurement period. EstimatedUseful LivesEstimated Fair ValueLand Indefinite$2,010Building and leasehold improvements 5-255,700Office furniture, fixtures and equipment 3-5946Machinery & Equipment 2-1052,880Construction in progress 2,960Property, plant and equipment $64,496Other intangibles were assessed a preliminary fair value of $71.5 million with a preliminary weighted average amortization period ofapproximately 14.8 years. These intangible assets consist of customer relationships of $58.1 million, amortizable over 15 years, trade name of $11.8 million,amortizable over 15 years, and non-compete agreements of $1.6 million, amortizable over five years. The amount allocated to goodwill represents the excessof the purchase price over the fair value of the net assets acquired. Goodwill was allocated to the Company's Completion Services reporting unit. Thegoodwill recognized as a result of the O-Tex transaction was primarily attributable to the expected increased economies of scale, enhanced capabilities andresources, and an expanded geographic footprint. The tax deductible portion of goodwill and other intangibles is $4.4 million and $10.7 million,respectively.The Company treated the O-Tex acquisition as a non-taxable transaction. Such treatment resulted in the acquired assets and liabilities havingcarryover basis for tax purposes. An estimated deferred tax liability in the amount of $31.3 million was recorded to account for the differences between thepreliminary purchase price allocation and carryover tax basis.Acquisition-related costs associated with the O-Tex transaction were expensed as incurred and totaled $4.4 million for the year ended December31, 2017, and are included in selling, general and administrative expenses.The results of operations for O-Tex that have been included in C&J's consolidated financial statements subsequent to the November 30, 2017acquisition date through December 31, 2017 include revenue of $16.2 million and a net income of $0.4 million. The following unaudited pro forma results ofoperations have been prepared as though the O-Tex transaction was completed on January 1, 2016. Pro forma amounts are based on the purchase priceallocation of the acquisition and are not necessarily indicative of results that may be reported in the future (in thousands):109Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2017 Year Ended December 31, 2016Revenues $1,797,231 $1,067,075Net loss $(7,520) $(939,454)2015Merger between Old C&J and the C&P Business of NaborsOn March 24, 2015, Old C&J and Nabors completed the combination of Old C&J with the C&P Business. The resulting combined company wasrenamed C&J Energy Services Ltd. At the closing of the combination, Nabors received total consideration of $1.4 billion, subject to working capitaladjustments, in the form of $688.1 million in cash, $5.5 million in cash to reimburse Nabors for operating assets acquired prior to March 24, 2015, and $714.8million in C&J common shares. The C&J common share value was based upon Old C&J’s closing stock price on March 23, 2015 and consisted ofapproximately 62.5 million C&J common shares issued to Nabors and approximately 0.4 million designated C&J common shares attributable to replacementrestricted share and share option awards issued to certain employees of the C&P Business for the pre-acquisition-related employee service period. Upon theclosing of the combination and as of December 31, 2015, Nabors owned approximately 53.0% of the outstanding and issued common shares of Old C&J, withthe remainder held by former Old C&J shareholders.On September 25, 2015, C&J and Nabors agreed to a working capital adjustment of $43.4 million in favor of C&J, which was accounted for as areduction to the purchase price of the C&P Business.The Nabors Merger was accounted for using the acquisition method of accounting for business combinations. In applying the acquisition methodof accounting, Old C&J and Nabors were required to determine both the accounting acquirer and the accounting acquiree with the accounting acquirerdeemed to be the party possessing the controlling financial interest. Irrespective of Nabors 53.0% common share ownership in C&J immediately followingthe closing of the Nabors Merger, Old C&J and Nabors determined that Old C&J possessed the controlling financial interest, based on, among other factors,the presence of a majority of Old C&J directors on the C&J board of directors and through the composition of C&J senior management consisting almostentirely of the executive officers of Old C&J. Old C&J and Nabors therefore concluded the business combination should be treated as a reverse acquisitionwith Old C&J as the accounting acquirer.C&J financed the cash portion of the Nabors Merger and repaid previously outstanding revolver debt with borrowings drawn under the OriginalCredit Agreement which provided for senior secured credit facilities in an aggregate principal amount of $1.66 billion. See Note 4 - Debt for furtherdiscussion on the Company’s Original Credit Agreement.The purchase price was allocated to the net assets acquired based upon their estimated fair values, as shown below (in thousands). The estimatedfair values of certain assets and liabilities, including accounts receivable, inventory, property plant and equipment, other intangible assets, taxes (includinguncertain tax positions), and contingencies required significant judgments and estimates.All of the goodwill associated with the Nabors Merger was allocated to the Completion Services and Well Support Services reporting units. Aspart of the Company's interim test for goodwill impairment, during the third quarter of 2015, all of the goodwill allocated to the Completion Servicesreporting unit was written off. In addition, during the first quarter of 2016, all of the goodwill allocated to the Well Support Services reporting unit waswritten off. See Note 5 - Goodwill and Other Intangible Assets for further discussion.The purchase price was initially allocated to the net assets acquired during the first quarter of 2015 and subsequently adjusted during 2015 andin the first quarter of 2016 in connection with the measurement period based upon revised estimated fair values, as follows (in thousands):110Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Amounts Recognized asof Merger Date Measurement PeriodAdjustments (1) Estimated Fair ValueAccounts receivable $262,973 $11,079 $274,052Inventory 35,491 (7,372) 28,119Other current assets 8,857 (1,940) 6,917Property, plant and equipment 1,024,622 (59,378) 965,244Goodwill 444,162 12,684 456,846Other intangible assets 28,300 13,700 42,000Other assets 11,171 (2,913) 8,258Total assets acquired 1,815,576 (34,140) 1,781,436Accounts payable (195,913) 19,610 (176,303)Other current liabilities (23,813) (7,503) (31,316)Deferred income taxes (187,515) (21,368) (208,883)Total liabilities assumed (407,241) (9,261) (416,502)Net assets acquired $1,408,335 $(43,401) $1,364,934(1) The measurement period adjustments reflect changes in the estimated fair values of certain assets and liabilities, including income taxes. The measurement periodadjustments were recorded to reflect new information obtained about facts and circumstances existing as of the date the Nabors Merger was consummated and did notresult from intervening events subsequent to that date.The fair value and gross contractual amount of accounts receivable acquired on March 24, 2015 was $274.1 million and $296.2 million,respectively. Based on the age of certain accounts receivable, a portion of the gross contractual amount was estimated to be uncollectible.Property, plant and equipment assets acquired consist of the following fair values (in thousands) and ranges of estimated useful lives. As with fairvalue estimates, the determination of estimated useful lives requires judgments and assumptions. EstimatedUseful LivesEstimated Fair ValueLand Indefinite$42,741Building and leasehold improvements 2-2579,456Office furniture, fixtures and equipment 2-52,845Machinery & Equipment 2-10628,791Transportation equipment 2-5166,457Construction in progress 44,954Property, plant and equipment $965,244Other intangibles were assessed a fair value of $42.0 million with a weighted average amortization period of approximately 11 years. Theseintangible assets consist of developed technology of $19.6 million, amortizable over 5 – 15 years, customer relationships of $13.0 million, amortizable over15 years, trade name of $8.5 million, amortizable over ten years, and non-compete agreements of $0.9 million, amortizable over five years. The amountallocated to goodwill represents the excess of the purchase price over the fair value of the net assets acquired. Goodwill was allocated between C&J’sCompletion Services and Well Support Services reporting units on the basis of historical levels of EBITDA with $141.4 million allocated to CompletionServices and $315.4 million allocated to Well Support Services. The goodwill recognized as a result of the Nabors Merger was primarily attributable to theexpected increased economies of scale, capabilities, resources and geographic footprint of the combined company as well as the cost savings opportunities asC&J expected to capitalize on synergies from the new combined company. The tax deductible portion of goodwill and other intangibles is $60.8 million and$22.3 million, respectively.111Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe Company treated the Nabors Merger as a non-taxable transaction. Such treatment resulted in the acquired assets and liabilities havingcarryover basis for tax purposes. A deferred tax liability in the amount of $208.9 million was recorded to account for the differences between the preliminarypurchase price allocation and carryover tax basis.Acquisition-related costs associated with the Nabors Merger were expensed as incurred and totaled $42.7 million for the year ended December31, 2015, and are included in selling, general and administrative expenses.The results of operations for the C&P Business that have been included in C&J's consolidated financial statements from the March 24, 2015acquisition date through December 31, 2015 include revenue of $822.2 million and a net loss of $211.1 million. The following unaudited pro forma resultsof operations have been prepared as though the Nabors Merger was completed on January 1, 2014. Pro forma amounts are based on the purchase priceallocation of the acquisition and are not necessarily indicative of results that may be reported in the future (in thousands): Year Ended December 31, 2015 Year Ended December 31, 2014Revenues $2,114,671 $3,861,412Net loss $(879,231) $(244,183)Acquisition of Artificial Lift ProviderOn May 18, 2015, the Company acquired all of the outstanding equity interests of ESP Completion Technologies LLC, a manufacturer ofwellheads, artificial lift completion tools and electric submersible pumps ("Artificial Lift Provider") for approximately $34.0 million consisting of cash ofapproximately $13.6 million, a holdback of $6.0 million, and an earn-out valued at approximately $14.4 million on the acquisition date.During the second quarter of 2016, C&J and the sellers agreed to a working capital adjustment of $0.5 million in favor of C&J, which wasaccounted for as a reduction to the purchase price of ESP Completion Technologies LLC. The adjusted purchase price of $33.5 million was allocated to thenet assets acquired based upon their estimated fair values, as follows (in thousands):Current assets $5,822Property, plant and equipment 2,529Goodwill 24,219Other intangible assets 5,173Total assets acquired 37,743Current liabilities (1,927)Deferred income taxes (2,067)Other liabilities (276)Total liabilities assumed (4,270)Net assets acquired $33,473If Artificial Lift Provider is able to achieve certain levels of EBITDA over a three-year period, the Company will be obligated to make futuretiered payments of up to $29.5 million. This could result in a maximum total purchase price of $49.1 million. The potential payment is considered contingentconsideration. At the acquisition date, the fair value of this earn-out was determined using a Monte Carlo simulation model over many simulated possiblefuture outcomes which yielded a value of $14.4 million. The earn-out has been remeasured on a fair value basis each quarter and will continue to beremeasured each quarter until the contingent consideration is paid or expires. As of December 31, 2017, the earn-out was estimated to have zero value.Note 13 - Segment InformationIn accordance with ASC No. 280 - Segment Reporting, the Company routinely evaluates whether its separate operating and reportable segmentshave changed. This determination is made based on the following factors: (1) the Company’s chief operating decision maker (“CODM”) is currentlymanaging each operating segment as a separate business and evaluating112Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSthe performance of each segment and making resource allocation decisions distinctly and expects to do so for the foreseeable future, and (2) discrete financialinformation for each operating segment is available.Prior to the year ended December 31, 2016, the Company’s reportable segments were: (i) Completion Services, (ii) Well Support Services, and(iii) Other Services. In line with the discontinuance of the small, ancillary service lines and divisions in the Other Services reportable segment, subsequent tothe year ended December 31, 2016, the Company is disclosing two reportable segments, and financial information for the Other Services reportable segmentis only presented for the corresponding prior year period. The Company's reportable segments are now: (i) Completion Services and (ii) Well SupportServices. This segment structure reflects the financial information and reports used by the Company’s management, including its CODM, to make decisionsregarding the Company’s business, including performance evaluation and resource allocation decisions. The following is a brief description of theCompany's reportable segments:Completion ServicesThe Company’s Completion Services segment consists of the following businesses and service lines: (1) fracturing; (2) cased-hole wireline andpumping services; (3) well construction & intervention services, which includes cementing, coiled tubing and directional drilling services; and (4)completion support services, which includes our research & technology ("R&T") department and data control instruments business.Well Support ServicesThe Company’s Well Support Services segment consists of the following businesses and service lines: (1) rig services; (2) fluids managementservices; and (3) special services, which includes plug and abandonment, artificial lift applications and other specialty well site services.Other ServicesOther Services consisted of smaller, non-core business lines that have since been divested, including the Company's specialty chemical business,equipment manufacturing and repair business and international coiled tubing operations in the Middle East. The following tables set forth certain financial information with respect to the Company’s reportable segments.113Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS CompletionServices Well SupportServices OtherServices Corporate /Elimination TotalYear Ended December 31, 2017 (Successor) Revenue from external customers $1,256,511 $382,228 $— $— $1,638,739Inter-segment revenues 610 1,437 — (2,047) —Depreciation and amortization 88,053 48,832 — 3,765 140,650Operating income (loss) 137,014 (21,584) — (131,209) (15,779)Net income (loss) 161,124 (19,390) — (119,277) 22,457Adjusted EBITDA 221,888 9,233 — (100,259) 130,862Capital expenditures 184,580 24,368 — 1,238 210,186As of December 31, 2017 (Successor) Total assets $1,159,188 $289,642 $— $160,027 $1,608,857Goodwill 147,515 — — — 147,515Year Ended December 31, 2016(Predecessor) Revenue from external customers $599,787 $363,768 $7,587 $— $971,142Inter-segment revenues 947 210 29,115 (30,272) —Depreciation and amortization 141,742 73,600 2,307 (209) 217,440Operating loss (306,614) (377,707) (51,778) (133,909) (870,008)Net loss (306,866) (373,695) (58,757) (204,971) (944,289)Adjusted EBITDA (41,624) 19,456 (5,777) (66,897) (94,842)Capital expenditures 17,118 14,799 8,451 17,541 57,909As of December 31, 2016 (Predecessor) Total assets $752,225 $500,379 $50,191 $58,887 $1,361,682Goodwill — — — — —Year Ended December 31, 2015(Predecessor) Revenue from external customers $1,261,398 $459,265 $28,226 $— $1,748,889Inter-segment revenues 4,009 — 150,755 (154,764) —Depreciation and amortization 199,921 71,389 5,159 (116) 276,353Operating loss (882,786) (31,253) (69,129) (115,154) (1,098,322)Net loss (883,494) (35,313) (68,584) 114,849 (872,542)Adjusted EBITDA 51,008 68,809 (1,327) (71,734) 46,756Capital expenditures 97,283 37,540 30,444 1,054 166,321As of December 31, 2015 (Predecessor) Total assets $1,094,054 $920,008 $124,328 $60,601 $2,198,991Goodwill — 307,677 — — 307,677Management evaluates reportable segment performance and allocates resources based on total earnings (loss) before net interest expense, incometaxes, depreciation and amortization, other income (expense), net gain or loss on disposal of assets, acquisition-related costs, and non-routine items(“Adjusted EBITDA”), because Adjusted EBITDA is considered an important measure of each reportable segment’s performance. In addition, managementbelieves that the disclosure of Adjusted EBITDA as a measure of each reportable segment’s operating performance allows investors to make a directcomparison to competitors, without regard to differences in capital and financing structure. Investors should be aware, however, that there are limitationsinherent in using Adjusted EBITDA as a measure of overall profitability because it excludes significant expense items. An improving trend in AdjustedEBITDA may not be indicative of an improvement in the Company’s profitability. To compensate for the limitations in utilizing Adjusted EBITDA as anoperating measure, management also uses U.S. GAAP114Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSmeasures of performance, including operating income (loss) and net income (loss), to evaluate performance, but only with respect to the Company as a wholeand not on a reportable segment basis.As required under Item 10(e) of Regulation S-K of the Securities Exchange Act of 1934, as amended, included below is a reconciliation ofAdjusted EBITDA, a non-GAAP financial measure, from net income (loss), which is the nearest comparable U.S. GAAP financial measure (in thousands) on aconsolidated basis for the years ended December 31, 2017, 2016 and 2015, and on a reportable segment basis for the years ended December 31, 2017, 2016and 2015. Successor Predecessor Years Ended December 31, 2017 2016 2015Net income (loss) $22,457 $(944,289) $(872,542)Interest expense, net 1,527 157,465 82,086Income tax benefit (39,760) (129,010) (299,093)Depreciation and amortization 140,650 217,440 276,353Other (income) expense, net (3) (9,504) (8,773)(Gain) loss on disposal of assets (31,463) 3,075 (544)Impairment expense — 436,395 791,807Acquisition-related costs 4,606 10,534 42,662Severance, facility closures and other 5,954 34,179 16,881Restructuring costs 11,236 30,401 —Reorganization costs — 55,330 —Inventory write-down — 35,350 31,109Share-based compensation expense acceleration 15,658 7,792 —Immaterial accounts payable accrual correction — — (13,190)Adjusted EBITDA $130,862 $(94,842) $46,756 Year Ended December 31, 2017 (Successor) CompletionServices Well SupportServices Corporate /Elimination TotalNet income (loss) $161,124 $(19,390) $(119,277) $22,457Interest expense, net 634 87 806 1,527Income tax benefit (28,950) — (10,810) (39,760)Depreciation and amortization 88,053 48,832 3,765 140,650Other (income) expense, net 4,205 (2,281) (1,927) (3)Gain on disposal of assets (7,753) (23,706) (4) (31,463)Acquisition-related costs 4,474 — 132 4,606Severance, facility closures and other — 5,441 513 5,954Restructuring costs 101 250 10,885 11,236Share-based compensation expense acceleration — — 15,658 15,658Adjusted EBITDA $221,888 $9,233 $(100,259) $130,862115Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2016 (Predecessor) CompletionServices Well SupportServices OtherServices Corporate /Elimination TotalNet loss $(306,866) $(373,695) $(58,757) $(204,971) $(944,289)Interest expense, net 706 (145) — 156,904 157,465Income tax benefit — — — (129,010) (129,010)Depreciation and amortization 141,742 73,600 2,307 (209) 217,440Other (income) expense, net (453) (3,868) 6,979 (12,162) (9,504)(Gain) loss on disposal of assets (1,856) (3,105) 3,060 4,976 3,075Impairment expense 105,952 321,687 8,756 — 436,395Acquisition-related costs 202 — 209 10,123 10,534Severance, facility closures and other 8,226 4,466 7,558 13,929 34,179Restructuring costs — — — 30,401 30,401Reorganization costs — — — 55,330 55,330Inventory write-down 10,723 516 24,111 — 35,350Share-based compensation expense acceleration — — — 7,792 7,792Adjusted EBITDA $(41,624) $19,456 $(5,777) $(66,897) $(94,842) Year Ended December 31, 2015 (Predecessor) CompletionServices Well SupportServices OtherServices Corporate /Elimination TotalNet income (loss) $(883,494) $(35,313) $(68,584) $114,849 $(872,542)Interest expense, net 358 (41) — 81,769 82,086Income tax benefit — — — (299,093) (299,093)Depreciation and amortization 199,921 71,389 5,159 (116) 276,353Other (income) expense, net 350 4,101 (545) (12,679) (8,773)(Gain) loss on disposal of assets (603) (9) 19 49 (544)Impairment expense 726,678 24,700 40,429 — 791,807Acquisition-related costs — — 46 42,616 42,662Severance, facility closures and other 12,368 2,829 813 871 16,881Inventory write-down 8,620 1,153 21,336 — 31,109Immaterial accounts payable accrual correction (13,190) — — — (13,190)Adjusted EBITDA $51,008 $68,809 $(1,327) $(71,734)$46,756Note 14 - Quarterly Financial Data (unaudited)Summarized quarterly financial data for the years ended December 31, 2017 and 2016 are presented below (in thousands, except per shareamounts).116Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.C&J ENERGY SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Successor Quarters Ended March 31, 2017 June 30, 2017 September 30, 2017 December 31, 2017Revenue $314,194 $390,143 $442,652 $491,750Operating income (loss) (36,408) (13,244) 6,412 27,462Income (loss) before income taxes (35,537) (15,114) 7,357 25,991Net income (loss) (32,301) (12,721) 10,484 56,995Net income (loss) per common share: Basic $(0.58) $(0.20) $0.17 $0.89Diluted $(0.58) $(0.20) $0.17 $0.88 Predecessor Quarters Ended March 31, 2016 June 30, 2016 September 30, 2016 December 31, 2016Revenue $269,615 $225,168 $232,537 $243,822Operating loss (500,416) (182,437) (85,553) (101,602)Loss before reorganization items and income taxes (522,560) (302,368) (86,636) (106,405)Net loss (428,412) (291,116) (106,390) (118,371)Net loss per common share: Basic $(3.65) $(2.46) $(0.90) $(1.00)Diluted $(3.65) $(2.46) $(0.90) $(1.00)Note 15 - Supplemental Cash Flow DisclosuresListed below are supplemental cash flow disclosures for the year ended December 31, 2017, 2016 and 2015: Successor Predecessor Years Ended December 31, 2017 2016 2015Cash paid for interest $(926) $(19,153) $(64,950)Cash refunded from income taxes $10,561 $14,943 $13,815Cash paid for reorganization items $— $(24,719) $—Non-cash investing and financing activity: Change in accrued capital expenditures $202 $(3,182) $(42,793)Non-cash consideration for business acquisition $138,166 $— $735,125117Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Item 9. Changes in and Disagreements With Accountants on Accounting and Financial DisclosureNone.Item 9A. Controls and ProceduresEvaluation of Disclosure Controls and Procedures. As required by Rule 13a-15(b) under the Exchange Act, the Company has evaluated, under thesupervision and with the participation of its management, including its principal executive officer and principal financial officer, the effectiveness of thedesign and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) and internal controlover financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) as of the end of the period covered by this Annual Report. TheCompany’s disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by the Company inreports that it files under the Exchange Act is accumulated and communicated to its management, including its principal executive officer and principalfinancial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the timeperiods specified in the rules and forms of the SEC. Based upon that evaluation, the Company’s principal executive officer and principal financial officerconcluded that its disclosure controls and procedures were effective as of December 31, 2017.Management’s Report Regarding Internal Control. Management is responsible for establishing and maintaining adequate internal control over financialreporting. The Company’s internal control over financial reporting is a process designed under the supervision of its Chief Executive Officer and ChiefFinancial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statementsfor external purposes in accordance with generally accepted accounting principles. As of December 31, 2017, management, including the Company’s ChiefExecutive Officer and Chief Financial Officer, assessed the effectiveness of its internal control over financial reporting. Based on their assessment,management determined that the Company maintained effective internal control over financial reporting as of December 31, 2017. Because of its inherentlimitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to futureperiods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies orprocedures may deteriorate. Management’s report on internal control over financial reporting is included in Part II, Item 8 “Financial Statements andSupplementary Data” of this Annual Report.Changes in Internal Controls Over Financial Reporting. During January 2017, immediately following the Company’s emergence from the Chapter 11Proceeding, we implemented a new enterprise resource planning (ERP) system, SAP, as part of our plan to enhance functionality and to support our existingand future operations. During 2017, we identified control deficiencies in the design and operating effectiveness of general information technology controls(GITCs) after the implementation of the ERP system. Specifically, we did not establish effective systems development controls, program change controls anduser access controls over our new ERP system. Accordingly, the automated process-level controls and manual controls dependent upon the accuracy andcompleteness of information derived from our new ERP system were deemed ineffective during the first six months of 2017 and into the third quarter of 2017.These GITC control deficiencies created a reasonable possibility that a material misstatement to our consolidated financial statements would not have beenprevented or detected on a timely basis, and therefore we concluded that the deficiencies represented a material weakness in our internal control overfinancial reporting during the first six months of 2017 and into the third quarter of 2017.The control deficiencies described above did not result in any misstatements in our consolidated financial statements as of and for the year endedDecember 31, 2017.Upon identification of the deficiencies, management designed and implemented additional GITCs around our new ERP system to remediate theitems noted above including: (i) assessment of IT roles and responsibilities to align individuals’ access rights commensurate with their job descriptions, (ii)periodic reviews of access rights granted to users to ensure appropriate segregation of duties, (iii) additional monitoring to track and validate changesperformed by critical IT functions, (iv) change management controls around locking the new ERP system production environment and (v) implementingreview and approval requirements for users with access to develop and migrate program changes. We also performed additional procedures designed to ensurethe reliability of our financial reporting and related financial statements as of December 31, 2017, which included extensive monitoring controls andcomprehensive look-back procedures to identify and mitigate the risk of any errors as a result of the ERP system implementation. No errors in financialinformation were identified through these monitoring and look-back activities. We have determined that the actions described above have sufficiently improved the Company’s internal control over financial reporting suchthat as of December 31, 2017, there is not a reasonable possibility that a material misstatement of118Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.the Company’s annual or interim financial statements will not be prevented or detected on a timely basis, and the material weakness has been remediated.Except for the remediation and extensive monitoring controls discussed above, there have been no changes in our system of internal control overfinancial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2017 that havematerially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.119Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Item 9B. Other InformationNone.120Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.PART IIIItem 10. Directors, Executive Officers and Corporate GovernanceInformation About Our Directors and Executive OfficersThe information required by this item is incorporated by reference to our definitive proxy statement for our 2018 Annual Meeting ofStockholders pursuant to Regulation 14A under the Exchange Act, which we expect to file with the SEC within 120 days after the close of the year endedDecember 31, 2017.Item 11. Executive CompensationThe information required by this item is incorporated by reference to our definitive proxy statement for our 2018 Annual Meeting ofStockholders pursuant to Regulation 14A under the Exchange Act, which we expect to file with the SEC within 120 days after the close of the year endedDecember 31, 2017.Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder MattersThe information required by this item is incorporated by reference to our definitive proxy statement for our 2018 Annual Meeting ofStockholders pursuant to Regulation 14A under the Exchange Act, which we expect to file with the SEC within 120 days after the close of the year endedDecember 31, 2017.Item 13. Certain Relationships and Related Transactions, and Director IndependenceThe information required by this item is incorporated by reference to our definitive proxy statement for our 2018 Annual Meeting ofStockholders pursuant to Regulation 14A under the Exchange Act, which we expect to file with the SEC within 120 days after the close of the year endedDecember 31, 2017.Item 14. Principal Accounting Fees and ServicesThe information required by this item is incorporated by reference to our definitive proxy statement for our 2018 Annual Meeting ofStockholders pursuant to Regulation 14A under the Exchange Act, which we expect to file with the SEC within 120 days after the close of the year endedDecember 31, 2017.121Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.PART IVItem 15. Exhibits, Financial Statement Schedules(a)(1) Financial StatementsOur Consolidated Financial Statements and accompanying footnotes are included under Part II, Item 8 “Financial Statements and SupplementaryData” of this Annual Report.(a)(2) Financial Statements SchedulesAll other schedules have been omitted because they are either not applicable, not required or the information called for therein appears in theconsolidated financial statements or notes thereto or will be filed within the required timeframe.(a)(2) ExhibitsThe following documents are included as exhibits to this Annual Report: Exhibit No. Description of Exhibit. 2.1 Second Amended Joint Plan of Reorganization (as Modified) of CJ Holding Company, et al., Pursuant to Chapter 11 of theBankruptcy Code, dated December 15, 2016 (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by C&JEnergy Services Ltd. on December 22, 2016 (File No. 000-55404)).2.2 Agreement and Plan of Merger dated as of October 25, 2017, among C&J Energy Services, Inc., Caymus Merger Sub, Inc., O-TexHoldings, Inc., O-Tex Sellers Representative LLC and the Stockholders set forth therein (incorporated by reference to Exhibit 2.1 tothe Registrant’s Current Report on Form 8-K filed on October 26, 2017(File No. 000-38023)).3.1 Amended and Restated Certificate of Incorporation of C&J Energy Services, Inc. (incorporated by reference to Exhibit 3.1 to theRegistrant’s Current Report on Form 8-K filed on November 9, 2017(File No. 000-38023)).3.2 Amended and Restated Bylaws of C&J Energy Services, Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’s QuarterlyReport on Form 10-Q filed on January 6, 2017(File No. 000-55404)).3.3 Certificate of Designation of Series A Participating Cumulative Preferred Stock of C&J Energy Services, Inc. (incorporated byreference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on January 9, 2017 (File No. 000-55404)).3.4 Certificate of Elimination of Series A Participating Cumulative Preferred Stock of C&J Energy Services, Inc. (incorporated byreference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on November 9, 2017 (File No. 000-38023)).4.1 Form of specimen Warrant certificate (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed onJanuary 6, 2017(File No. 000-55404)).4.2 Warrant Agreement, dated as of January 6, 2017, by and between C&J Energy Services, Inc. and American Stock Transfer & TrustCompany, LLC, as warrant agent (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed onJanuary 6, 2017(File No. 000-55404)).4.3 Stockholders Agreement, dated as of January 6, 2017, by and among C&J Energy Services, Inc. and the parties thereto (incorporatedby reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on January 6, 2017(File No. 000-55404)).4.4 Amendment No. 1 to Stockholders Agreement, dated as of February 27, 2017, by and among C&J Energy Services, Inc. and the partiesthereto (incorporated by reference to Exhibit 4.4 to the Registrant’s Annual Report on Form 10-K filed on March 2, 2017(File No. 000-55404)).4.5 Registration Rights Agreement, dated as of January 6, 2017, by and among C&J Energy Services, Inc. and the parties thereto(incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed on January 6, 2017(File No. 000-55404)).122Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.4.6 Rights Agreement, dated as of January 6, 2017, between C&J Energy Services, Inc. and American Stock Transfer & Trust Company,LLC, as Rights Agent, which includes the Form of Certificate of Designation of Series A Participating Cumulative Preferred Stock ofC&J Energy Services, Inc. as Exhibit A, the Summary of Terms of Rights Agreement as Exhibit B and the Form of Right Certificate asExhibit C (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on January 9, 2017(File No.000-55404)).4.7 Amendment No. 1 to the Rights Agreement, dated as of November 7, 2017 between C&J Energy Services, Inc. and American StockTransfer & Trust Company, LLC, as Rights Agent (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form8-K filed on November 9, 2017(File No. 000-38023)).10.1 Amended and Restated Revolving Credit and Security Agreement, dated as of May 4, 2017, by and among C&J Energy Services, Inc.,the lenders party thereto and PNC Bank, National Association, as administrative agent(incorporated by reference to Exhibit 10.2 to theRegistrant’s Quarterly Report on Form10-Q filed on May 10, 2017(File No. 000-38023)).10.2+ C&J Energy Services, Inc. 2017 Management Incentive Plan. (incorporated by reference to Exhibit 10.1 to the Registrant’s CurrentReport on Form 8-K filed on January 13, 2017(File No. 000-55404)).10.3+ First Amendment to the C&J Energy Services, Inc. 2017 Management Incentive Plan (incorporated by reference to Exhibit 10.1 to theRegistrant’s Current Report on Form 8-K filed on February 6, 2017(File No. 000-55404)).10.4+ Restricted Share Agreement (C&J Executive Employment Agreements) under the 2017 Management Incentive Plan (incorporated byreference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on February 6, 2017(File No. 000-55404)).10.5+ Restricted Share Agreement (Restrictive Covenants) under the 2017 Management Incentive Plan (incorporated by reference to Exhibit10.3 to the Registrant’s Current Report on Form 8-K filed on February 6, 2017(File No. 000-55404)).10.6+ Restricted Share Agreement (Non-Employee Directors) under the 2017 Management Incentive Plan (incorporated by reference toExhibit 10.4 to the Registrant’s Current Report on Form 8-K filed on February 6, 2017(File No. 000-55404)).10.7+ Nonqualified Stock Option Agreement (C&J Executive Employment Agreements) under the 2017 Management Incentive Plan(incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed on February 6, 2017(File No. 000-55404)).10.8+ Nonqualified Stock Option Agreement (Restrictive Covenants) under the 2017 Management Incentive Plan (incorporated by referenceto Exhibit 10.6 to the Registrant’s Current Report on Form 8-K filed on February 6, 2017(File No. 000-55404)).10.9 Form of Lockup Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed onDecember 1, 2017(File No. 000-38023)).10.10+ Employment Agreement by and between C&J Energy Services, Inc. and Michael Galvan (incorporated by reference to Exhibit 10.1 tothe Registrant’s Current Report on Form 8-K filed on May 5, 2017(File No. 000-38023)).10.11+ Employment Agreement by and between C&J Energy Services, Inc. and Sterling Renshaw (incorporated by reference to Exhibit 10.1to the Registrant’s Current Report on Form 8-K filed on August 18, 2017 (File No. 001-38023)).10.12+ Employment Agreement by and between C&J Energy Services, Inc. and Vic Joyce (incorporated by reference to Exhibit 10.1 to theRegistrant’s Current Report on Form 8-K filed on December 19, 2017 (File No. 001-38023)).14.1 Corporate Code of Business Conduct and Ethics (incorporated by reference to Exhibit 14.1 to the Registrant’s Current Report on Form8-K filed on December 18, 2017(File No. 000-38023)).14.2 Financial Code of Ethics (incorporated by reference to Exhibit 14.2 to the Registrant’s Current Report on Form 8-K filed on December18, 2017(File No. 000-38023)).* 21.1 List of Subsidiaries of C&J Energy Services, Inc.* 23.1 Consent of KPMG LLP* 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002123Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.** 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. §1350 as adopted by Section 906 of the Sarbanes-Oxley Act of 2002** 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. §1350 as adopted by Section 906 of the Sarbanes-Oxley Act of 2002*§101.INS XBRL Instance Document*§101.SCH XBRL Taxonomy Extension Schema Document* §101.CAL XBRL Taxonomy Extension Calculation Linkbase Document* §101.LAB XBRL Taxonomy Extension Label Linkbase Document* §101.PRE XBRL Taxonomy Extension Presentation Linkbase Document* §101.DEF XBRL Taxonomy Extension Definition Linkbase Document*Filed herewith**Furnished, herewith in accordance with Item 601(b)(32) of Regulation S-K. In accordance with Rule 406T of Regulation S-T, the information inthese exhibits shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to liability under that section,and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except as expressly set forthby specific reference in such filing.+Management contract or compensatory plan or arrangement124Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.SIGNATURESPursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized, this 1st day of March, 2018. C&J Energy Services, Inc. By: /s/ Donald J. Gawick Donald J. Gawick, President and Chief Executive Officer and Director (Principal Executive Officer) By: /s/ Mark C. Cashiola Mark C. Cashiola Chief Financial Officer (Principal Financial Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated.125Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Signatures and Capacities Date By: /s/ Donald J. Gawick March 1, 2018 Donald J. Gawick, President and Chief Executive Officerand Director (Principal Executive Officer) By: /s/ Mark C. Cashiola March 1, 2018 Mark C. Cashiola, Chief Financial Officer (Principal Financial Officer) By: /s/ Michael S. Galvan March 1, 2018 Michael S. Galvan, Chief Accounting Officer (Principal Accounting Officer) By: /s/ Patrick Murray March 1, 2018 Patrick Murray, Director and Chairman of the Board By: /s/ Stuart Brightman March 1, 2018 Stuart Brightman, Director By: /s/ John Kennedy March 1, 2018 John Kennedy, Director By: /s/ Steven Mueller March 1, 2018 Steven Mueller, Director By: /s/ Michael Roemer March 1, 2018 Michael Roemer, Director By: /s/ Michael Zawadzki March 1, 2018 Michael Zawadzki, Director 126Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT INDEXThe following documents are included as exhibits to this Annual Report. Exhibit No. Description of Exhibit. 2.1 Second Amended Joint Plan of Reorganization (as Modified) of CJ Holding Company, et al., Pursuant to Chapter 11 of theBankruptcy Code, dated December 15, 2016 (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by C&JEnergy Services Ltd. on December 22, 2016 (File No. 000-55404)).2.2 Agreement and Plan of Merger dated as of October 25, 2017, among C&J Energy Services, Inc., Caymus Merger Sub, Inc., O-TexHoldings, Inc., O-Tex Sellers Representative LLC and the Stockholders set forth therein (incorporated by reference to Exhibit 2.1 tothe Registrant’s Current Report on Form 8-K filed on October 26, 2017(File No. 000-38023)).3.1 Amended and Restated Certificate of Incorporation of C&J Energy Services, Inc. (incorporated by reference to Exhibit 3.1 to theRegistrant’s Current Report on Form 8-K filed on November 9, 2017(File No. 000-38023)).3.2 Amended and Restated Bylaws of C&J Energy Services, Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’s QuarterlyReport on Form 10-Q filed on January 6, 2017(File No. 000-55404)).3.3 Certificate of Designation of Series A Participating Cumulative Preferred Stock of C&J Energy Services, Inc. (incorporated byreference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on January 9, 2017 (File No. 000-55404)).3.4 Certificate of Elimination of Series A Participating Cumulative Preferred Stock of C&J Energy Services, Inc. (incorporated byreference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on November 9, 2017 (File No. 000-38023)).4.1 Form of specimen Warrant certificate (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed onJanuary 6, 2017(File No. 000-55404)).4.2 Warrant Agreement, dated as of January 6, 2017, by and between C&J Energy Services, Inc. and American Stock Transfer & TrustCompany, LLC, as warrant agent (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed onJanuary 6, 2017(File No. 000-55404)).4.3 Stockholders Agreement, dated as of January 6, 2017, by and among C&J Energy Services, Inc. and the parties thereto (incorporatedby reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on January 6, 2017(File No. 000-55404)).4.4 Amendment No. 1 to Stockholders Agreement, dated as of February 27, 2017, by and among C&J Energy Services, Inc. and the partiesthereto (incorporated by reference to Exhibit 4.4 to the Registrant’s Annual Report on Form 10-K filed on March 2, 2017(File No. 000-55404)).4.5 Registration Rights Agreement, dated as of January 6, 2017, by and among C&J Energy Services, Inc. and the parties thereto(incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed on January 6, 2017(File No. 000-55404)).4.6 Rights Agreement, dated as of January 6, 2017, between C&J Energy Services, Inc. and American Stock Transfer & Trust Company,LLC, as Rights Agent, which includes the Form of Certificate of Designation of Series A Participating Cumulative Preferred Stock ofC&J Energy Services, Inc. as Exhibit A, the Summary of Terms of Rights Agreement as Exhibit B and the Form of Right Certificate asExhibit C (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on January 9, 2017(File No.000-55404)).4.7 Amendment No. 1 to the Rights Agreement, dated as of November 7, 2017 between C&J Energy Services, Inc. and American StockTransfer & Trust Company, LLC, as Rights Agent (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form8-K filed on November 9, 2017(File No. 000-38023)).10.1 Amended and Restated Revolving Credit and Security Agreement, dated as of May 4, 2017, by and among C&J Energy Services, Inc.,the lenders party thereto and PNC Bank, National Association, as administrative agent(incorporated by reference to Exhibit 10.2 to theRegistrant’s Quarterly Report on Form10-Q filed on May 10, 2017(File No. 000-38023)).10.2+ C&J Energy Services, Inc. 2017 Management Incentive Plan. (incorporated by reference to Exhibit 10.1 to the Registrant’s CurrentReport on Form 8-K filed on January 13, 2017(File No. 000-55404)).10.3+ First Amendment to the C&J Energy Services, Inc. 2017 Management Incentive Plan (incorporated by reference to Exhibit 10.1 to theRegistrant’s Current Report on Form 8-K filed on February 6, 2017(File No. 000-55404)).127Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.10.4+ Restricted Share Agreement (C&J Executive Employment Agreements) under the 2017 Management Incentive Plan (incorporated byreference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on February 6, 2017(File No. 000-55404)).10.5+ Restricted Share Agreement (Restrictive Covenants) under the 2017 Management Incentive Plan (incorporated by reference to Exhibit10.3 to the Registrant’s Current Report on Form 8-K filed on February 6, 2017(File No. 000-55404)).10.6+ Restricted Share Agreement (Non-Employee Directors) under the 2017 Management Incentive Plan (incorporated by reference toExhibit 10.4 to the Registrant’s Current Report on Form 8-K filed on February 6, 2017(File No. 000-55404)).10.7+ Nonqualified Stock Option Agreement (C&J Executive Employment Agreements) under the 2017 Management Incentive Plan(incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed on February 6, 2017(File No. 000-55404)).10.8+ Nonqualified Stock Option Agreement (Restrictive Covenants) under the 2017 Management Incentive Plan (incorporated by referenceto Exhibit 10.6 to the Registrant’s Current Report on Form 8-K filed on February 6, 2017(File No. 000-55404)).10.9 Form of Lockup Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed onDecember 1, 2017(File No. 000-38023)).10.10+ Employment Agreement by and between C&J Energy Services, Inc. and Michael Galvan (incorporated by reference to Exhibit 10.1 tothe Registrant’s Current Report on Form 8-K filed on May 5, 2017(File No. 000-38023)).10.11+ Employment Agreement by and between C&J Energy Services, Inc. and Sterling Renshaw (incorporated by reference to Exhibit 10.1to the Registrant’s Current Report on Form 8-K filed on August 18, 2017 (File No. 001-38023)).10.12+ Employment Agreement by and between C&J Energy Services, Inc. and Vic Joyce (incorporated by reference to Exhibit 10.1 to theRegistrant’s Current Report on Form 8-K filed on December 19, 2017 (File No. 001-38023)).14.1 Corporate Code of Business Conduct and Ethics (incorporated by reference to Exhibit 14.1 to the Registrant’s Current Report on Form8-K filed on December 18, 2017(File No. 000-38023)).14.2 Financial Code of Ethics (incorporated by reference to Exhibit 14.2 to the Registrant’s Current Report on Form 8-K filed on December18, 2017(File No. 000-38023)).* 21.1 List of Subsidiaries of C&J Energy Services, Inc.* 23.1 Consent of KPMG LLP* 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002** 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. §1350 as adopted by Section 906 of the Sarbanes-Oxley Act of 2002** 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. §1350 as adopted by Section 906 of the Sarbanes-Oxley Act of 2002* §101.INS XBRL Instance Document* §101.SCH XBRL Taxonomy Extension Schema Document* §101.CAL XBRL Taxonomy Extension Calculation Linkbase Document* §101.LAB XBRL Taxonomy Extension Label Linkbase Document* §101.PRE XBRL Taxonomy Extension Presentation Linkbase Document* §101.DEF XBRL Taxonomy Extension Definition Linkbase Document *Filed herewith**Furnished, herewith in accordance with Item 601(b)(32) of Regulation S-K. In accordance with Rule 406T of Regulation S-T, the information inthese exhibits shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to liability under that section,and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except as expressly set forthby specific reference in such filing.+Management contract or compensatory plan or arrangement128Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 21.1List of Subsidiaries of C&J Energy Services, Inc. EntityState of FormationC&J Energy Production Services - Canada, Ltd.AlbertaC&J International B.V.The NetherlandsCJES Insurance (Texas), Inc.TexasC&J Well Services, Inc.DelawareC&J Spec-Rent Services, Inc.IndianaKVS Transportation, Inc.CaliforniaSource: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 23.1Consent of Independent Registered Public Accounting FirmThe Board of Directors and StockholdersC&J Energy Services, Inc.:We consent to the incorporation by reference in the registration statements (No. 333‑222281 and 333-216515) on Form S-3 and (No. 333-215550) on Form S-8 of C&J Energy Services, Inc. of our reports dated March 1, 2018, with respect to the consolidated balance sheets of C&J Energy Services, Inc. as ofDecember 31, 2017 (Successor) and 2016 (Predecessor), the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity,and cash flows for the year ended December 31, 2017 (Successor), and for the years ended 2016 and 2015 (Predecessor), and the related notes (collectively,the consolidated financial statements), and the effectiveness of internal control over financial reporting as of December 31, 2017, which reports appear in theDecember 31, 2017 annual report on Form 10‑K of C&J Energy Services, Inc./s/ KPMG LLPHouston, TexasMarch 1, 2018Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 31.1 Certification of Principal Executive OfficerPursuant to Exchange Act Rule 13a-14(a) or 15d-14(a) I, Donald J. Gawick, certify that: 1. I have reviewed this annual report on Form 10-K for the year ended December 31, 2017 of C&J Energy Services, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting. Date:March 1, 2018/s/ Donald J. Gawick Donald J. Gawick President, Chief Executive Officer and Director (Principal Executive Officer)Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 31.2 Certification of Chief Financial OfficerPursuant to Exchange Act Rule 13a-14(a) or 15d-14(a) I, Mark C. Cashiola, certify that: 1. I have reviewed this annual report on Form 10-K for the year ended December 31, 2017 of C&J Energy Services, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting. Date:March 1, 2018/s/ Mark C. Cashiola Mark C. Cashiola Chief Financial Officer (Principal Financial Officer)Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 32.1 CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K of C&J Energy Services, Inc. (the “Company”) for the year ended December 31, 2017 as filedwith the Securities and Exchange Commission on the date hereof (the “Report”), I, Donald J. Gawick, Chief Executive Officer of the Company, certify,pursuant to 18 U.S.C. Section 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1)the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Donald J. GawickDonald J. GawickPresident, Chief Executive Officer and Director (Principal Executive Officer)Date:March 1, 2018Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 32.2 CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K of C&J Energy Services, Inc. (the “Company”) for the year ended December 31, 2017 as filedwith the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark C. Cashiola, Chief Financial Officer of the Company, certify,pursuant to 18 U.S.C. Section 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1)the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Mark C. CashiolaMark C. Cashiola Chief Financial Officer(Principal Financial Officer)Date:March 1, 2018Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Source: C&J Energy Services, Inc., 10-K, March 01, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.

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