Note

- Organization, Nature of Business and Summary of Significant Accounting Policies

Organization and Nature of Business

C&J Energy Services, Inc., a Delaware corporation (the “Successor” and together with its consolidated subsidiaries for periods subsequent to the Plan Effective Date (as defined in Note

- Chapter

Proceeding and Emergence), “C&J” or the “Company”), is a leading provider of well construction and intervention, well completion, well support and other complementary oilfield services and technologies to independent and major oil field companies engaged in the exploration, production and development of oil and gas properties in onshore basins throughout the continental United States. The Company is a new well-focused service provider offering a diverse, integrated suite of services across the life cycle of the well, including hydraulic fracturing, cased-hole wireline and pumping, cementing, coiled tubing, rig services, fluids management and other completions-focused and specialty well site support services.

The Company was founded in Texas in

1997

and is headquartered in Houston, Texas. On

April 12, 2017,

following the successful completion of a financial restructuring (see Note

- Chapter

Proceeding and Emergence), the Company completed an underwritten public offering of common stock and began trading on the New York Stock Exchange (“NYSE”) under the symbol “CJ.”

Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

. The accompanying consolidated financial statements have

not

been audited by the Company’s independent registered public accounting firm, except that the consolidated balance sheet at

December

31,

2017,

the consolidated statements of operations, comprehensive income (loss), and cash flows on

January 1, 2017,

and the consolidated statement of changes in stockholders' equity as of

December 31, 2016,

January 1, 2017

and

December

31,

2017,

are derived from audited consolidated financial statements. In the opinion of management, all material adjustments, consisting of normal recurring adjustments, necessary for fair presentation have been included. These consolidated financial statements include all accounts of the Company. All significant intercompany transactions and accounts have been eliminated upon consolidation.

These consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do

not

include all of the information and notes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements. Therefore, these consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the fiscal year ended

December

31,

2017,

which are included in the Company’s Annual Report on Form

-K for the fiscal year ended

December

31,

2017

filed with the SEC. The operating results for interim periods are

not

necessarily indicative of results that

may

be expected for any other interim period or for the full year.

January 1, 2017 (

the "Fresh Start Reporting Date"), in connection with the Company's emergence from its Chapter

Proceeding (as defined in Note

- Chapter

Proceeding and Emergence), the Company adopted fresh start accounting in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)

852

Reorganizations

, in preparing the consolidated financial statements. ASC

852

requires that the financial statements distinguish transactions and events that are directly associated with the Chapter

Proceeding from the ongoing operations of the business. Accordingly, certain expenses, gains and losses that were realized or incurred in the Chapter

Proceeding were recorded in a reorganization line item on the consolidated statements of operations. The Company's consolidated financial statements and notes on

January 1, 2017,

are

not

comparable to the consolidated financial statements for the periods subsequent to

January 1, 2017,

due to the application of fresh start accounting as noted above.

Reclassifications

. Certain reclassifications have been made to prior period amounts to conform to current period financial statement presentation. These reclassifications did

not

affect previously reported results of operations, stockholders' equity, comprehensive income or cash flows.

Use of Estimates

. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Estimates are used in, but are

not

limited to, determining the following: allowance for doubtful accounts, valuation of long-lived assets and intangibles, goodwill, useful lives used in depreciation and amortization, inventory reserves, income taxes and share-based compensation. The accounting estimates used in the preparation of the consolidated financial statements

may

change as new events occur, as more experience is acquired, or as additional information 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 and short-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 captive insurance subsidiaries, which totaled

$9.6

million and

$23.8

million at

June

30,

2018

and

December

31,

2017,

respectively, are included in cash and cash equivalents in the consolidated balance sheets, and the Company expects to use these cash balances to fund the day to day operations of the captive insurance subsidiaries and to settle future anticipated claims.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are generally stated at the amount billed to customers. The Company provides an allowance for doubtful accounts, which is based upon a review of outstanding receivables, historical collection information and existing economic conditions. Provisions for doubtful accounts are recorded when it is deemed probable that the customer will

not

make the required payments at either the contractual due dates or in the future.

Inventories

Inventories are carried at the lower of cost or net realizable value using a weighted average cost flow method. 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.

Inventories consisted of the following (in thousands):

	June 30, 2018			December 31, 2017
Raw materials	$	3,544		$	5,302
Work-in-process		664			1,329
Finished goods		81,919			74,552
Total inventory		86,127			81,183
Inventory reserve		(3,035	)		(3,390	)
Inventory, net	$	83,092		$	77,793

Property, Plant and Equipment

Property, plant and equipment ("PP&E") are reported at cost less accumulated depreciation. Maintenance and repairs, which do

not

improve or extend the life of the related assets, are charged to expense when incurred. Refurbishments are capitalized when the value of the equipment is enhanced for an extended period. When property and equipment are sold or otherwise disposed of, the asset account and related accumulated 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 of certain 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 the period in which it is determined that the carrying amount of PP&E is

not

recoverable. The determination of recoverability is made based upon the estimated undiscounted future net cash flows of assets grouped at the lowest level for which there are identifiable cash flows independent of the cash flows of other groups of assets with such cash flows to be realized over the estimated remaining useful life of the primary asset within the asset group, excluding interest expense. The Company determined the lowest level of identifiable cash flows that are independent of other asset groups to be primarily at the service line level. The Company's asset groups consist of the well support services, fracturing, cased-hole wireline and pumping services, cementing, coiled tubing, 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, an impairment loss is determined by comparing the estimated fair value with the carrying value of the related assets. The impairment loss is then allocated across the asset group's major classifications.

impairment charge was recorded for the

six

months ended

June 30, 2018

and

2017.

Goodwill and Definite-Lived Intangible Assets

Goodwill

may

be allocated across

three

reporting units: Completion Services, Well Construction and Intervention Services ("WC&I") and Well Support Services. At the reporting unit level, the Company tests goodwill for impairment on an annual basis as of

October 31

of each year, or when events or changes in circumstances, referred to as triggering events, indicate the carrying value of goodwill

may

not

be recoverable and that a potential impairment exists.

Judgment is used in assessing whether goodwill should be tested for impairment more frequently than annually. Factors such as unexpected adverse economic conditions, competition, market changes and other external events

may

require more frequent assessments.

Before employing quantitative impairment testing methodologies, the Company

may

first

evaluate the likelihood of impairment by considering qualitative 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, quantitative testing methodologies are then applied. Otherwise, the Company concludes that

impairment has occurred. Quantitative impairment testing involves comparing the fair 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 a potential sale of the reporting unit. If the fair value exceeds carrying value, then it is concluded that

goodwill impairment has occurred. If the carrying value of the reporting unit exceeds its fair value an impairment loss is recognized in an amount equal to the excess,

not

to exceed the amount of goodwill allocated to the reporting unit.

The Company’s impairment analysis involves the use of a blended income and market approach. Significant management judgment is necessary 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.

Definite-lived intangible assets are amortized over their estimated useful lives and are reviewed for impairment when a triggering event occurs. 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 recoverable value. In these cases, the Company performs a recoverability test on its PP&E and definite-lived intangible assets by comparing the estimated future net undiscounted cash flows expected to be generated from the use of these assets to the carrying amount of the assets for recoverability. If the estimated undiscounted cash flows 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 than the 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 trade name is a corporate asset and is reviewed for impairment upon the occurrence of a triggering event by comparing the carrying amount of the corporate assets with the remaining cash flows available, after taking into consideration the lower level asset groups that benefit from the C&J trade name.

Deferred Financing Costs.

Costs incurred to obtain term debt financing are presented on the balance sheet as a direct deduction from the carrying amount of the term debt, consistent with debt discounts, and accreted over the term of the loan using the effective interest method. Costs incurred to obtain revolver based financing are capitalized and amortized over the term of the loan using the effective interest method.

Revenue Recognition

. The Company adopted Accounting Standards Update ("ASU")

No.

2014

09,

Revenue from Contracts with Customers and its related updates as codified under ASC

606,

Revenue from Contracts with Customers ("ASC

606"

) on

January 1, 2018,

using the modified retrospective method for all contracts

not

completed as of the date of adoption. The reported results for the

three

and

six

months ended

June

30,

2018

reflect the application of ASC

606

guidance while the reported results for the corresponding prior year period were prepared under the previous guidance of ASC

No.

605,

Revenue Recognition ("ASC

605"

The adoption of ASC

606

represents a change in accounting principle that more closely aligns revenue recognition with the performance of the Company's services and provides financial statement readers with enhanced disclosures. In accordance with ASC

606,

revenue is recognized in a manner reflecting the transfer of goods or services to customers based on consideration a company expects to receive. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. To achieve this core principle, ASC

606

requires the Company to apply the following

five

steps: (

) identify the contract with a customer, (

) identify the performance obligations in the contract, (

) determine the transaction price, (

) allocate the transaction price to performance obligations in the contract, and (

) recognize revenue when or as the Company satisfies a performance obligation. The

five

-step model requires management to exercise judgment when evaluating contracts and recognize revenue.

The Company’s services create or enhance a customer controlled asset. The performance obligations of each of the Company’s services lines are primarily satisfied over time. Measurement of the satisfaction of the performance obligations is measured using the output method, which is typically evidenced by a field ticket. A field ticket includes items such as services performed, consumables used, and man hours incurred to complete the job for the customer. Each field ticket is used to invoice customers. Payment terms for invoices issued are in accordance with the master services agreement with each customer, which typically require payment within

days of the invoice issuance.

A portion of the Company’s contracts contain variable consideration; however, this variable consideration is typically unknown at the time of contract inception, and is

not

known until the job is complete, at which time the variability is resolved. Examples of variable consideration include the number of hours that will be incurred and the amount of consumables (such as fluids and proppants) that will be used to complete a job.

In the course of providing services to its customers, the Company

may

use consumables; for example, in the Company’s fracturing business, sand, guar and chemicals are used in the fracturing service for the customer. ASC

606

requires that goods or services promised to a customer be identified separately when they are distinct within the contract. However, the consumables are used to complete the service for the customer and are

not

beneficial to the customer on their own. As such, the consumables are

not

a separate performance obligation, but instead are combined with the other services within the context of the contract and accounted for as a single performance obligation.

Disaggregation of Revenue

The following tables disaggregate revenue by the Company's reportable segments, core service lines and geography (in thousands):

	Three Months Ended June 30, 2018
	Completion Services		WC&I		Well Support Services		Total
Product Service Line
Fracturing	$	288,855	$	—	$	—	$	288,855
Cased-hole Wireline & Pumping		115,377		—		—		115,377
Cementing		—		69,328		—		69,328
Coiled Tubing		—		29,758		—		29,758
Rig Services		—		—		51,716		51,716
Fluids Management		—		—		34,128		34,128
Other		8,663		—		12,696		21,359
	$	412,895	$	99,086	$	98,540	$	610,521
Geography
West Texas	$	170,343	$	56,504	$	26,286	$	253,133
South Texas / South East		135,437		13,034		9,280		157,751
Rockies / Bakken		44,076		5,557		9,402		59,035
California		5,796		—		44,570		50,366
Mid-Con		38,833		12,157		8,278		59,268
North East		16,418		11,834		659		28,911
Other		1,992		—		65		2,057
	$	412,895	$	99,086	$	98,540	$	610,521

	Three Months Ended June 30, 2017
	Completion Services		WC&I		Well Support Services		Total
Product Service Line
Fracturing	$	183,714	$	—	$	—	$	183,714
Cased-hole Wireline & Pumping		76,644		—		—		76,644
Cementing		—		12,432		—		12,432
Coiled Tubing		—		18,577		—		18,577
Rig Services		—		—		54,022		54,022
Fluids Management		—		—		32,141		32,141
Other		2,522		258		9,833		12,613
	$	262,880	$	31,267	$	95,996	$	390,143
Geography
West Texas	$	100,987	$	11,392	$	21,874	$	134,253
South Texas / South East		62,966		9,216		10,886		83,068
Rockies / Bakken		53,628		—		9,893		63,521
California		3,494		—		37,885		41,379
Mid-Con		20,075		3,154		6,794		30,023
North East		20,979		7,505		1,934		30,418
Other		751		—		6,730		7,481
	$	262,880	$	31,267	$	95,996	$	390,143

	Six Months Ended June 30, 2018
	Completion Services		WC&I		Well Support Services		Total
Product Service Line
Fracturing	$	558,346	$	—	$	—	$	558,346
Cased-hole Wireline & Pumping		215,131		—		—		215,131
Cementing		—		130,877		—		130,877
Coiled Tubing		—		55,546		—		55,546
Rig Services		—		—		100,162		100,162
Fluids Management		—		—		65,923		65,923
Other		13,563		80		23,893		37,536
	$	787,040	$	186,503	$	189,978	$	1,163,521
Geography
West Texas	$	349,318	$	105,283	$	50,108	$	504,709
South Texas / South East		234,621		25,717		18,057		278,395
Rockies / Bakken		83,085		10,539		19,335		112,959
California		10,844		—		84,400		95,244
Mid-Con		74,453		22,337		16,107		112,897
North East		31,454		22,627		1,280		55,361
Other		3,265		—		691		3,956
	$	787,040	$	186,503	$	189,978	$	1,163,521

	Six Months Ended June 30, 2017
	Completion Services		WC&I		Well Support Services		Total
Product Service Line
Fracturing	$	314,377	$	—	$	—	$	314,377
Cased-hole Wireline & Pumping		132,909		—		—		132,909
Cementing		—		19,935		—		19,935
Coiled Tubing		—		36,335		—		36,335
Rig Services		—		—		109,567		109,567
Fluids Management		—		—		62,075		62,075
Other		7,403		1,116		20,620		29,139
	$	454,689	$	57,386	$	192,262	$	704,337
Geography
West Texas	$	186,565	$	19,798	$	41,362	$	247,725
South Texas / South East		101,243		19,364		23,287		143,894
Rockies / Bakken		87,597		—		18,873		106,470
California		6,210		—		72,451		78,661
Mid-Con		36,789		5,280		12,946		55,015
North East		34,634		12,944		4,059		51,637
Other		1,651		—		19,284		20,935
	$	454,689	$	57,386	$	192,262	$	704,337

The following is a description of the Company’s core service lines separated by reportable segments from which the Company generates its revenue. For additional detailed information regarding reportable segments, see Note

- Segment Information.

Completion Services Segment

Fracturing Services Revenue.

Through its fracturing service line, the Company provides fracturing services (i) under term pricing agreements; (ii) on a spot market basis; (iii) under contracts that include dedicated fleet arrangements or; (iv) under term contracts that include "take-or-pay" provisions. Revenue is typically recognized, and customers are invoiced upon the completion of each job, which can consist of

one

or more fracturing stages. Once a job has been completed to the customer’s satisfaction, a field ticket is written that includes charges for the services performed and the consumables (such as fluids and proppants) used during the course of service. The field tickets

may

also include charges for the personnel on the job, any additional equipment used on the job and other miscellaneous consumables.

Under term pricing agreements, the Company and its customer agree to set pricing for a specified period of time. The agreed-upon pricing is subject to periodic review, as specifically defined in the agreement, and

may

be adjusted upon the agreement of both parties. These agreements typically do

not

feature provisions obligating either party to commit to a certain utilization level. Additionally, these agreements typically allow either party to terminate the agreement for its convenience without incurring a termination penalty.

Rates for services performed on a spot market basis are based on an agreed-upon spot market rate for each stage the Company fractures.

Pursuant to dedicated fleet arrangements, customers typically commit to targeted utilization levels based on a specified number of fracturing stages per calendar month or fulfilling the customer's requirements, in either instance at agreed-upon pricing. These agreements typically do

not

feature obligations to pay for services

not

used by the customer. In addition, the agreed-upon pricing is typically subject to periodic review, as specifically defined in the agreement, and

may

be adjusted upon the agreement of both parties. These contracts also typically allow for termination for either party's convenience with a brief notice period and typically feature a termination penalty in the event the customer terminates the contract for its convenience.

Under term contracts with “take-or-pay” provisions, the Company’s customers are typically obligated to pay on a monthly basis for a specified quantity of services, whether or

not

those services are actually utilized. To the extent customers use more than the specified contracted minimums, the Company will charge a pre-agreed amount for the provision of such additional services, which amounts are typically subject to periodic review. In addition, these contracts typically feature a termination penalty in the event the customer terminates the contract for its convenience.

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, typically on a spot market basis. Jobs for these services are typically short-term in nature, lasting anywhere from a few hours to multiple days. The Company typically charges the customer for these 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.

The Company

may

enter into dedicated unit arrangements with its cased-hole wireline & pumping customers from time to time. Pursuant to dedicated unit arrangements, customers typically commit to targeted utilization levels based on the Company fulfilling the customer’s requirements for cased-hole wireline & pumping services at agreed-upon pricing. These agreements typically do

not

feature obligations to pay for services

not

used by the customer. In addition, the agreed-upon pricing is typically subject to periodic review, as specifically defined in the agreement, and

may

be adjusted upon the agreement of both parties.

Other Completion Services Revenue.

The Company generates revenue from its R&T department, which is primarily engaged in the engineering and production of certain parts and components, such as perforating guns and addressable switches, which are used in the completion process. For R&T, the performance obligation is satisfied at a point in time; revenue is recognized upon the completion, delivery and customer acceptance of each order of parts and components.

Well Construction and Intervention Services Segment

Cementing Services Revenue.

The Company provides cementing services on a spot market or project basis. Jobs for these services are typically short-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 each job. 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 used during the course of service.

Coiled Tubing Services Revenue.

The Company provides a range of coiled tubing services primarily used for fracturing plug drill-out during completion 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. The field ticket includes charges for the services performed and the consumables used during the course of service. The field ticket

may

also include charges for the mobilization and set-up of equipment, the personnel on the job, any additional equipment used on the job, and other miscellaneous consumables. The Company typically charges the customer for the services performed and resources provided on an hourly basis at agreed-upon spot market rates or pursuant to pricing agreements.

Directional Drilling Services Revenue.

Through the

first

quarter of

2018,

the Company provided directional drilling services on a spot market basis. Jobs for these services were typically short-term in nature, lasting anywhere from a few days to multiple weeks. The Company typically charged the customer for these services on a per day basis at agreed-upon spot market rates depending on the level of services required and the complexity of the job. Revenue was recognized, and customers were invoiced upon the completion of each job. Once a job had been completed to the customer’s satisfaction, a field ticket was written that included charges for the service performed. During the

first

quarter of

2018,

the Company decided to exit the directional drilling business. Directional drilling operations ceased during the

first

quarter of

2018.

Well Support Services Segment

Rig Services Revenue.

Through its rig service line, the Company provides workover and well servicing rigs that are primarily used for routine repair and maintenance of oil and gas wells, re-drilling operations and plugging and abandonment operations. These services are provided on an hourly basis at prices that approximate 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 base hourly rate charge and, if applicable, charges for additional personnel or equipment

not

contemplated in the base hourly rate. The field ticket

may

also include 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 and disposal 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 hour, or 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, based on a completed field ticket.

Other Special Well Site Services Revenue.

Through its other special well site service line, the Company primarily provides fishing, contract labor 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 basis of 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 services provided.

With respect to its artificial lift applications, the Company generated revenue primarily from the sale of manufactured equipment and products. Revenue was recognized upon the completion, delivery and customer acceptance of each order. During the

first

quarter of

2018,

the Company began to divest this business and has completed the divestiture of substantially all of the assets and inventory associated with the artificial lift business.

Remaining Performance Obligations

The Company invoices its customers for the services provided at contractual rates agreed to in pricing agreements multiplied by the applicable unit of measurement, including volume of consumables used and hours incurred. In accordance with ASC

606

18,

the Company has elected the “Right to Invoice” practical expedient, which allows the Company to invoice its customers in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date. With this election, the Company is

not

required to disclose information about the variable consideration related to its remaining performance obligations. Because of the short-term nature of the Company’s services, which generally last a few hours to multiple days, the Company does

not

have any contracts with a duration of longer than

one

year that require disclosure.

Contract Balances

Accounts receivable as presented on the Company’s consolidated balance sheets represent amounts due from customers for services provided. Bad debt expense of

$1.5

million and

$2.0

million was included as a component of direct costs on the consolidated statements of operations for the

six

months ended

June 30, 2018

and

2017,

respectively.

The Company does

not

have any contracts in which it performs services to customers and payment for those services are contingent upon a future event (e.g., satisfaction of another performance obligation). As such, there are

contingent revenues or other contract assets recorded in the financial statements.

Significant Judgments

The majority of the Company’s performance obligations are satisfied over time. The Company has determined this best represents the transfer of control over services to the customer as performance by the Company helps to enhance a customer controlled asset (e.g., unplugging a well, enabling a well to produce oil or natural gas). Revenue is recognized over time as the Company satisfies its performance obligations. Field tickets are issued periodically throughout and upon completion of each job to evidence the services performed for each job and support the use of the output method.

"Take-or-pay" provisions as part of fracturing contracts are considered stand ready performance obligations. The Company recognizes revenue for "take-or-pay" revenues using a time-based measure of progress, as the Company cannot reasonably estimate if and when the customer will require the use of the Company’s fleet to provide the fracturing services; likewise, the customer can benefit when a well needs fracturing services from the fleet which is standing by to provide such services.

For R&T sales, the Company recognizes revenue at the point in time in which the products are delivered to and accepted by the customer because the customer obtains control along with the risks and rewards of ownership of the products at such time. Once delivered, the Company has the right to invoice the customer.

The Company does

not

have any significant contract costs to obtain or fulfill contracts with customers; as such,

amounts are recognized on the consolidated balance sheet.

Impact of Adoption on the Financial Statements

The Company adopted ASC

606

January 1, 2018

using the modified retrospective method for all contracts

not

completed as of such date. Under this method, the comparative financial statements for the periods presented prior to the adoption date are

not

adjusted and continue to be reported under the revenue recognition guidance of ASC

605.

After reviewing the Company's contracts and the revenue recognition guidance under ASC

606

there are

material differences between revenue recognition under ASC

605

and ASC

606.

As a result, there is

not

a cumulative effect adjustment recorded to beginning retained earnings or recognition of any contract assets or liabilities upon adoption of ASC

606.

Share-Based Compensation

The Company’s share-based compensation plan provides the ability to grant equity awards to the Company’s employees, consultants and non-employee directors. As of

June

30,

2018,

only nonqualified stock options, restricted shares and performance awards had been 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 Company values option grants based on the grant date fair value using the Black-Scholes option-pricing model, and the Company values equity awards with market conditions based on the grant date fair value using a Monte Carlo simulation, both of which require the use of subjective assumptions. The Company recognizes share-based compensation expense on a straight-line basis over the requisite service period for the entire award. Further information regarding the Company’s share-based compensation arrangements and the related accounting treatment can be found in Note

- Share-Based Compensation.

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable and accounts 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 as the Company has the ability to exercise significant influence over operating and financial policies of the joint venture. Judgment regarding the level of influence 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 and adjusted by the Company’s share of undistributed earnings and losses of these investments. The Company eliminates all significant intercompany transactions, including the intercompany portion of transactions with equity method investees, from the consolidated financial results.

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 the Company's annual accounting period; (b) tax returns are subject 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 the Company recognizes 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 are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those 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 recognized as 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 those temporary differences become deductible. In assessing the likelihood and extent that deferred tax assets will be realized, consideration is given to cumulative losses in recent years, projected future taxable income and tax planning strategies. A valuation allowance is recorded when, in the opinion of management, it is more likely than

not

that a portion 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

2021

through

2037.

After considering the scheduled reversal of deferred tax liabilities, projected future taxable income, the potential limitation on use of NOLs under Section

382

of the Internal Revenue Code of

1986,

as amended (the "Code") and tax planning strategies, the Company established a valuation allowance due to the uncertainty regarding the ultimate realization of the deferred tax assets associated with its NOL carryforwards.

As a result of the Chapter

Proceeding, on the Plan Effective Date, the Company believes it experienced an ownership change for purposes of Section

382

of the Code because of its Restructuring Plan and that consequently its pre-change NOLs are subject to an annual limitation (See Note

- Chapter

Proceeding and Emergence for additional information, including definitions of capitalized defined terms, about the Chapter

Proceeding and emergence from the Chapter

Proceeding). The ownership change and 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 generate sufficient future taxable income within the carryforward periods. However, the limitation on the amount of NOLs available to offset taxable income in a specific year

may

result in the payment of income taxes before all NOLs have been utilized. Additionally, a subsequent ownership change

may

result in further limitation on the ability to utilize existing NOLs and other tax attributes, which could cause our pre-change NOL carryforwards to expire unused.

The Company recognizes the financial statement effects of a tax position when it is more-likely-than-

not,

based on the technical merits, that the position will be sustained upon examination. A tax position that meets the more-likely-than-

not

recognition threshold is measured as the largest amount of tax benefit that is greater than

50.0%

likely of being realized upon ultimate settlement with a taxing authority. Previously recognized uncertain tax positions are 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 and penalties, if applicable, are recorded as a component of the provision for income tax expense. As of

June

30,

2018,

the Company has

uncertain tax positions.

Earnings (Loss) Per Share

Basic earnings per share is based on the weighted average number of common shares (“common shares”) outstanding during the applicable period and excludes shares subject to outstanding stock options and shares of restricted stock. Diluted earnings per share is computed based on the weighted average number of common shares outstanding during the period plus, when their effect is dilutive, incremental shares consisting of shares subject to outstanding stock options and restricted stock. The following is a reconciliation of the components of the basic and diluted earnings (loss) per share calculations for the applicable periods:

	Three Months Ended June 30, 2018		Three Months Ended June 30, 2017
	(In thousands, except per share amounts)
Numerator:
Net income (loss) attributed to common stockholders	$	28,496	$	(12,721	)
Denominator:
Weighted average common shares outstanding		67,268		62,232
Effect of potentially dilutive common shares:
Stock options		—		—
Warrants		—		—
Restricted shares		—		—
Weighted average common shares outstanding and assumed conversions		67,268		62,232
Income (loss) per common share:
Basic	$	0.42	$	(0.20	)
Diluted	$	0.42	$	(0.20	)

	Successor					Predecessor
	Six Months Ended June 30, 2018		Six Months Ended June 30, 2017			On January 1, 2017
	(In thousands, except per share amounts)					(In thousands, except per share amounts)
Numerator:
Net income (loss) attributed to common stockholders	$	49,090	$	(45,022	)	$	298,582
Denominator:
Weighted average common shares outstanding		67,227		58,913			118,633
Effect of potentially dilutive common shares:
Stock options		—		—			—
Warrants		38		—			—
Restricted shares		2		—			—
Weighted average common shares outstanding and assumed conversions		67,267		58,913			118,633
Income (loss) per common share:
Basic	$	0.73	$	(0.76	)	$	2.52
Diluted	$	0.73	$	(0.76	)	$	2.52

A summary of securities excluded from the computation of basic and diluted earnings (loss) per share is presented below for the applicable periods:

	Three Months Ended June 30, 2018		Three Months Ended June 30, 2017
	(In thousands)
Basic earnings (loss) per share:
Restricted shares		1,130		572
Diluted earnings (loss) per share:
Anti-dilutive stock options		351		256
Anti-dilutive warrants		3,528		—
Anti-dilutive restricted shares		1,104		556
Potentially dilutive securities excluded as anti-dilutive		4,983		812

	Successor				Predecessor
	Six Months Ended June 30, 2018		Six Months Ended June 30, 2017		On January 1, 2017
	(In thousands)				(In thousands)
Basic earnings (loss) per share:
Restricted shares		1,205		436		898
Diluted earnings (loss) per share:
Anti-dilutive stock options		351		205		4,416
Anti-dilutive warrants		1,764		—		—
Anti-dilutive restricted shares		1,188		427		898
Potentially dilutive securities excluded as anti-dilutive		3,303		632		5,314

Recent Accounting Pronouncements

. In

February 2016,

the FASB issued ASU

No.

2016

02,

Leases (Topic

842

)

("ASU

2016

02"

). ASU

No.

2016

seeks to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and by disclosing key information about leasing arrangements. Unlike current U.S. GAAP, which requires only capital leases to be recognized on the balance sheet, ASU

No.

2016

will require both operating and finance leases to be recognized on the balance sheet. Additionally, the new guidance will require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases, including qualitative and quantitative requirements. The amendments in ASU

No.

2016

are effective for fiscal years beginning after

December 15, 2018,

including interim periods within those fiscal years, and early application is permitted. The Company will adopt this new accounting standard on

January 1, 2019.

The Company is currently determining the impacts of the new standard on its consolidated financial statements. The approach includes performing a detailed review of its lease portfolio by evaluating its population of leased assets and designing and implementing new processes and controls.

June 2016,

the FASB issued ASU

No.

2016

13,

Financial Instruments-Credit Losses (Topic

326

): Measurement of Credit Losses on Financial Instruments

(“ASU

2016

13”

), which amends U.S. GAAP by introducing a new impairment model for financial instruments that is based on expected credit losses rather than incurred credit losses. The new impairment model applies to most financial assets, including trade accounts receivable. The amendments in ASU

2016

are effective for interim and annual reporting periods beginning after

December 15, 2019,

although it

may

be adopted

one

year earlier, and requires a modified retrospective transition approach. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.

October 2016,

the FASB issued ASU

No.

2016

16,

Income Taxes (Topic

740

): Intra-Entity Transfers of Assets Other Than Inventory

("ASU

2016

16"

), which requires an entity to recognize the income tax consequences of an intra-entity asset transfer, other than an intra-entity asset transfer of inventory, when the transfer occurs. The ASU is effective for the interim and annual reporting periods beginning after

December 15, 2017,

including interim periods within those fiscal years, and early application is permitted. The Company adopted this new accounting standard on

January 1, 2018.

The Company recognized a cumulative effect adjustment as a reduction to retained earnings of

$13.2

million which occurred as a result of the Company's adoption of ASU

2016

16.

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 reporting periods beginning after

December 15, 2019

and early adoption is permitted. The Company early adopted this new accounting standard on

January 1, 2018,

and there was

impact on its consolidated financial statements.

February 2018,

the FASB issued ASU

No.

2018

02,

Income Statement - Reporting Comprehensive Income (Topic

220

): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

("ASU

2018

02"

)

which

allows for a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act and requires certain disclosures about stranded tax effects. This ASU is effective for the interim and annual reporting periods beginning after

December 15, 2019,

and early adoption is permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements.

March 2018,

the FASB issued ASU

No.

2018

05,

Income Taxes (Topic

740

): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin

No.

118

, ("ASU

2018

05"

), which provides guidance on accounting for the tax effects of the Tax Cuts and Jobs Act (the "Tax Act") pursuant to Staff Accounting Bulletin

No.

18,

which allows companies to complete the accounting under ASC

740

within a

one

-year measurement period from the Tax Act enactment date. This standard is effective upon issuance. The Company is currently within the

one

-year measurement period and is in the process of accounting for the tax effects of the Tax Act.

June 2018,

the FASB issued ASU

No.

2018

07,

Compensation-Stock Compensation (Topic

718

): Improvements to Nonemployee Share-Based Payment Accounting

, ("ASU

2018

07"

), which expands the scope of Topic

718

to include all share-based payment transactions for acquiring goods and services from nonemployees. This ASU is effective for the interim and annual reporting periods beginning after

December 15, 2018,

and early adoption is permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements.