10-Q 1 cjes6301810-qdoc.htm 10-Q Document


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2018
or
¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For 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 of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
3990 Rogerdale Rd.
Houston, Texas 77042
(Address of principal executive office)
(713) 325-6000
(Registrant’s telephone number, including area code) 
Indicate 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 preceding 12 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 and posted 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 and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
ý

  
Accelerated filer
 
¨

 
 
 
 
Non-accelerated filer
 
¨ (Do not check if a smaller reporting company)
  
Smaller reporting company
 
¨
 
 
 
 
 
 
 
 
 
 
 
Emerging growth company
 
¨
If an emerging growth company, indicated by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ¨ No  ý
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes  ý    No  ¨
The number of shares of the registrant’s common stock, par value $0.01 per share, outstanding at August 3, 2018, was 68,357,617.
 




C&J ENERGY SERVICES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
 

 
 
Page
 
 
 
 
Consolidated Statements of Operations for the three months ended June 30, 2018 and 2017
 
Consolidated Statements of Operations for the six months ended June 30, 2018 and 2017 (Successor) and on January 1, 2017 (Predecessor)
 
Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2018 and 2017 (Successor) and on January 1, 2017 (Predecessor)
 
 
 
 
 
 
 
 
 
 



-i-


PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
C&J ENERGY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
 
 
June 30, 2018
 
December 31, 2017
 
 
(Unaudited)
 
 
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
110,042

 
$
113,887

Accounts receivable, net of allowance of $5,002 at June 30, 2018 and $4,269 at December 31, 2017
 
411,165

 
367,906

Inventories, net
 
83,092

 
77,793

Prepaid and other current assets
 
32,503

 
33,011

Total current assets
 
636,802

 
592,597

Property, plant and equipment, net of accumulated depreciation of $227,160 at June 30, 2018 and $133,755 at December 31, 2017
 
746,814

 
703,029

Other assets:
 
 
 
 
Goodwill
 
146,015

 
147,515

Intangible assets, net
 
119,445

 
123,837

Deferred financing costs, net of accumulated amortization of $2,464 at June 30, 2018 and $608 at December 31, 2017
 
4,667

 
3,379

Other noncurrent assets
 
28,967

 
38,500

Total assets
 
$
1,682,710

 
$
1,608,857

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
187,166

 
$
138,624

Payroll and related costs
 
41,014

 
52,812

Accrued expenses
 
59,110

 
67,414

Total current liabilities
 
287,290

 
258,850

Deferred tax liabilities
 
2,560

 
3,917

Other long-term liabilities
 
26,464

 
24,668

Total liabilities
 
316,314

 
287,435

Commitments and contingencies
 
 
 
 
Stockholders' equity
 
 
 
 
Common stock, par value of $0.01, 1,000,000,000 shares authorized, 68,386,944 and 68,546,820 issued and outstanding at June 30, 2018 and December 31, 2017, respectively
 
684

 
686

Additional paid-in capital
 
1,307,585

 
1,298,859

Accumulated other comprehensive loss
 
(260
)
 
(580
)
Retained earnings
 
58,387

 
22,457

Total stockholders' equity
 
1,366,396

 
1,321,422

Total liabilities and stockholders’ equity
 
$
1,682,710

 
$
1,608,857


See accompanying notes to consolidated financial statements

-1-



C&J ENERGY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

 
Three Months Ended June 30, 2018
 
Three Months Ended June 30, 2017
 
(Unaudited)
Revenue
$
610,521

 
$
390,143

Costs and expenses:
 
 
 
Direct costs
463,602

 
310,473

Selling, general and administrative expenses
59,908

 
61,165

Research and development
1,681

 
2,052

Depreciation and amortization
54,387

 
32,833

(Gain) loss on disposal of assets
49

 
(3,136
)
Operating income (loss)
30,894

 
(13,244
)
Other income (expense):
 
 
 
Interest expense, net
(2,185
)
 
(414
)
Other income (expense), net
(1,106
)
 
(1,456
)
Total other income (expense)
(3,291
)
 
(1,870
)
 
 
 
 
Income (loss) before income taxes
27,603

 
(15,114
)
Income tax benefit
(893
)
 
(2,393
)
Net income (loss)
$
28,496

 
$
(12,721
)
Net income (loss) per common share:
 
 
 
Basic
$
0.42

 
$
(0.20
)
Diluted
$
0.42

 
$
(0.20
)
Weighted average common shares outstanding:
 
 
 
Basic
67,268

 
62,232

Diluted
67,268

 
62,232


See accompanying notes to consolidated financial statements


-2-



C&J ENERGY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

 
Successor
 
 
Predecessor
 
Six Months Ended June 30, 2018
 
Six Months Ended June 30, 2017
 
 
On January 1, 2017
 
(Unaudited)
 
 
 
Revenue
$
1,163,521

 
$
704,337

 
 
$

Costs and expenses:
 
 
 
 
 
 
Direct costs
882,599

 
572,216

 
 

Selling, general and administrative expenses
125,843

 
123,257

 
 

Research and development
3,553

 
3,269

 
 

Depreciation and amortization
100,730

 
64,439

 
 

Gain on disposal of assets
(440
)
 
(9,192
)
 
 

Operating income (loss)
51,236

 
(49,652
)
 
 

Other income (expense):
 
 
 
 
 
 
Interest expense, net
(2,613
)
 
(1,105
)
 
 

Other income (expense), net
(486
)
 
106

 
 

Total other income (expense)
(3,099
)
 
(999
)
 
 

 
 
 
 
 
 
 
Income (loss) before reorganization items and income taxes
48,137

 
(50,651
)
 
 

Reorganization items

 

 
 
(293,969
)
Income tax benefit
(953
)
 
(5,629
)
 
 
(4,613
)
Net income (loss)
$
49,090

 
$
(45,022
)
 
 
$
298,582

Net income (loss) per common share:
 
 
 
 
 
 
Basic
$
0.73

 
$
(0.76
)
 
 
$
2.52

Diluted
$
0.73

 
$
(0.76
)
 
 
$
2.52

Weighted average common shares outstanding:
 
 
 
 
 
 
Basic
67,227

 
58,913

 
 
118,633

Diluted
67,267

 
58,913

 
 
118,633


See accompanying notes to consolidated financial statements


-3-



C&J ENERGY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
 
Three Months Ended June 30, 2018
 
Three Months Ended June 30, 2017
 
(Unaudited)
Net income (loss)
$
28,496

 
$
(12,721
)
 
 
 
 
Other comprehensive income (loss):
 
 
 
   Foreign currency translation gain, net of tax
690

 
409

Comprehensive income (loss)
$
29,186

 
$
(12,312
)
 
Successor
 
 
Predecessor
 
Six Months Ended June 30, 2018
 
Six Months Ended June 30, 2017
 
 
On
January 1, 2017
 
(Unaudited)
 
 
 
Net income (loss)
$
49,090

 
$
(45,022
)
 
 
$
298,582

 
 
 
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
 
 
   Foreign currency translation gain (loss), net of tax
320

 
(304
)
 
 

Comprehensive income (loss)
$
49,410

 
$
(45,326
)
 
 
$
298,582

See accompanying notes to consolidated financial statements

-4-



C&J ENERGY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)
 
 
 
Common Stock
 
Additional
Paid-in
Capital
 
Other
Comprehensive
Loss
 
Retained
Earnings (Deficit)
 
Total
 
 
Number of
Shares
 
Amount, at
$0.01 par 
value
 
Balance, 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

 

 

 
725,864

Rights Offering
 
15,464

 
155

 
199,845

 

 

 
200,000

Balance, January 1, 2017 (Successor)
 
55,464

 
555

 
925,309

 

 

 
925,864

Public offering of common stock, net of offering costs
 
7,050

 
71

 
215,849

 

 

 
215,920

Issuance of stock for business acquisition
 
4,420

 
44

 
138,122

 

 

 
138,166

Issuance of restricted stock, net of forfeitures
 
1,718

 
17

 
(17
)
 

 

 

Exercise of warrants
 
2

 

 

 

 

 

Employee tax withholding on restricted stock vesting
 
(107
)
 
(1
)
 
(3,841
)
 

 

 
(3,842
)
Share-based compensation
 

 

 
23,437

 

 

 
23,437

Net income
 

 

 

 

 
22,457

 
22,457

Foreign currency translation loss, net of tax
 

 

 

 
(580
)
 

 
(580
)
Balance, December 31, 2017 (Successor)
 
68,547

 
$
686

 
$
1,298,859

 
$
(580
)
 
$
22,457

 
$
1,321,422

Cumulative effect from change in accounting principle
 

 

 

 

 
(13,160
)
 
(13,160
)
Issuance of restricted stock, net of forfeitures
 
(80
)
 
(1
)
 
1

 

 

 

Employee tax withholding on restricted stock vesting
 
(80
)
 
(1
)
 
(2,192
)
 

 

 
(2,193
)
Share-based compensation
 

 

 
10,917

 

 

 
10,917

Net income
 

 

 

 

 
49,090

 
49,090

Foreign currency translation gain, net of tax
 

 

 

 
320

 

 
320

Balance, June 30, 2018 (Successor) *
 
68,387

 
684

 
1,307,585

 
(260
)
 
58,387

 
1,366,396

 
*
Unaudited
See accompanying notes to consolidated financial statements


-5-



C&J ENERGY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
 
Successor
 
 
Predecessor
 
 
Six Months Ended June 30, 2018
 
Six Months Ended June 30, 2017
 
 
On
January 1, 2017
 
 
(Unaudited)
 
 
 
Cash flows from operating activities:
 
 
 
 
 
 
 
Net income (loss)
 
$
49,090

 
$
(45,022
)
 
 
$
298,582

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
 
 
 
 
Depreciation and amortization
 
100,730

 
64,439

 
 

Deferred income taxes
 
(1,112
)
 

 
 
(4,613
)
Provision for doubtful accounts
 
1,497

 
2,032

 
 

Equity (earnings) loss from unconsolidated affiliate
 
1,199

 
(153
)
 
 

Gain on disposal of assets
 
(440
)
 
(9,192
)
 
 

Share-based compensation expense
 
10,917

 
19,541

 
 

Amortization of deferred financing costs
 
1,856

 
306

 
 

Reorganization items, net
 

 

 
 
(315,626
)
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
Accounts receivable
 
(46,408
)
 
(159,643
)
 
 

Inventories
 
(6,020
)
 
(6,978
)
 
 

Prepaid expenses and other current assets
 
2,933

 
6,741

 
 

Accounts payable
 
40,239

 
27,784

 
 

Payroll related costs and accrued expenses
 
(23,077
)
 
6,747

 
 
(1,436
)
Liabilities subject to compromise
 

 

 
 
(33,000
)
Income taxes receivable (payable)
 
4,215

 
(5,200
)
 
 

Other
 
(892
)
 
1,744

 
 

Net cash provided by (used in) operating activities
 
134,727

 
(96,854
)
 
 
(56,093
)
Cash flows from investing activities:
 
 
 
 
 
 
 
Purchases of and deposits on property, plant and equipment
 
(155,790
)
 
(72,547
)
 
 

Proceeds from disposal of property, plant and equipment and non-core service lines
 
20,862

 
31,182

 
 

Business acquisition purchase price adjustment
 
1,500

 

 
 

Net cash used in investing activities
 
(133,428
)
 
(41,365
)
 
 

Cash flows from financing activities:
 
 
 
 
 
 
 
Payments on DIP Facility
 

 

 
 
(25,000
)
Financing costs
 
(3,144
)
 
(1,463
)
 
 
(2,248
)
Proceeds from issuance of common stock, net of offering costs
 

 
215,920

 
 
200,000

Employee tax withholding on restricted stock vesting
 
(2,193
)
 
(3,870
)
 
 

Net cash provided by (used in) financing activities
 
(5,337
)
 
210,587

 
 
172,752

 
 
 
 
 
 
 
 
Effect of exchange rate changes on cash
 
193

 
(855
)
 
 

Net increase (decrease) in cash and cash equivalents
 
(3,845
)
 
71,513

 
 
116,659

Cash and cash equivalents, beginning of period
 
113,887

 
181,242

 
 
64,583

Cash and cash equivalents, end of period
 
$
110,042

 
$
252,755

 
 
$
181,242


See accompanying notes to consolidated financial statements

-6-



C&J ENERGY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - 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 2 - Chapter 11 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 2 - Chapter 11 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 10-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.
On January 1, 2017 (the "Fresh Start Reporting Date"), in connection with the Company's emergence from its Chapter 11 Proceeding (as defined in Note 2 - Chapter 11 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 11 Proceeding from the ongoing operations of the business. Accordingly, certain expenses, gains and losses that were realized or incurred in the Chapter 11 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.

-7-

C&J ENERGY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


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. No 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:

-8-

C&J ENERGY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


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 no 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 no 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: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to performance obligations in the contract, and (5)

-9-

C&J ENERGY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


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 30 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


-10-

C&J ENERGY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


 
 
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


-11-

C&J ENERGY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


 
 
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 7 - 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.

-12-

C&J ENERGY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


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

-13-

C&J ENERGY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


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 606-10-55-18, 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 no 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.

-14-

C&J ENERGY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


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, no amounts are recognized on the consolidated balance sheet.
Impact of Adoption on the Financial Statements
The Company adopted ASC 606 on 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 no 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 5 - 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.

-15-

C&J ENERGY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


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 11 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 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 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 no 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
)

-16-

C&J ENERGY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


 
 
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. 2016-02 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. 2016-02 will require both operating and finance leases to be recognized on the balance sheet. Additionally, the new guidance will require disclosures

-17-

C&J ENERGY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


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. 2016-02 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.
In 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 2016-13 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.
In 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.
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 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 no impact on its consolidated financial statements.
In 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.
In 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.
In 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.
Note 2 - Chapter 11 Proceeding and Emergence
On July 8, 2016, C&J Energy Services Ltd., a Bermuda corporation (the “Predecessor”) and certain of its direct and indirect subsidiaries (collectively, the “Debtors”), including C&J Corporate Services (Bermuda) Ltd. (together with the Predecessor, the “Bermudian Entities”), C&J Energy Production Services-Canada Ltd. and Mobile Data Technologies Ltd. (together, the “Canadian Entities”), entered into a Restructuring Support and Lock-Up Agreement (the “Restructuring Support Agreement”), with certain lenders (the “Supporting Lenders”) holding approximately 90.0% of the secured claims and interests arising under the Credit Agreement, dated as of March 24, 2015 (as amended and otherwise modified, the “Original Credit

-18-

C&J ENERGY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Agreement”). The Restructuring Support Agreement contemplated the implementation of a financial restructuring of the Company, including the elimination of all amounts owed under the Original Credit Agreement through a complete debt-to-equity conversion and a re-investment in the Company through an equity rights 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 for reorganization (the “Bankruptcy Petitions”) seeking relief under the provisions of Chapter 11 of the Bankruptcy Code with the United States Bankruptcy Court in the Southern District of Texas, Houston Division (the “Bankruptcy Court”), and also commenced ancillary proceedings in Canada on behalf of the Canadian Entities and a provisional liquidation proceeding in Bermuda on behalf of the Bermudian Entities (collectively, the “Chapter 11 Proceeding”). The Chapter 11 Proceeding was being administered under the caption “In re: CJ Holding Co., et al., Case No. 16-33590”. Throughout the Chapter 11 Proceeding, the Debtors continued operations and management of their assets in the ordinary course as debtors-in-possession under the jurisdiction of the Bankruptcy Court in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.
In accordance with the Restructuring Support Agreement, the Debtors filed the plan of reorganization (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 a second amendment filed on November 3, 2016. On November 4, 2016, the Bankruptcy Court approved the Disclosure Statement, finding that the Disclosure Statement contained adequate information as required by the Bankruptcy Code. The Debtors then launched a solicitation of acceptances of the Restructuring Plan, as required by the Bankruptcy Code. On December 16, 2016, an order confirming the Restructuring Plan was entered by the Bankruptcy Court. On January 6, 2017 (the "Plan Effective Date"), the Debtors substantially consummated the Restructuring Plan and emerged from the Chapter 11 Proceeding. As part of the transactions undertaken pursuant to the Restructuring Plan, as of the Plan Effective Date, the Successor was formed, the Predecessor's equity was canceled, the Predecessor transferred all of its assets and operations to the Successor and the Predecessor was subsequently dissolved. As a result, the Successor became the successor issuer to the Predecessor. For additional information regarding the Chapter 11 Proceeding and Emergence, please read the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017.
Reorganization Items
The Company classifies all income, expenses, gains or losses that were incurred or realized as a result of the Chapter 11 Proceeding as reorganization items in its consolidated statements of operations. In addition, the Company reports professional fees and related costs associated with and incurred during the Chapter 11 Proceeding as reorganization items. The components of reorganization items are as follows (in thousands):
 
On January 1, 2017
Gain on settlement of liabilities subject to compromise
$
666,399

Net loss on fresh start fair value adjustments
(358,557
)
Professional fees
(13,435
)
Vendor claims adjustment
(438
)
Total reorganization items
$
293,969

While the Company’s emergence from bankruptcy is complete, certain administrative activities will continue under the authority of the Bankruptcy Court through at least the remainder of 2018.
Note 3 - Debt
Credit Facility
The Company and certain of its subsidiaries (the “Borrowers”) entered into an asset-based revolving credit agreement with, among others, JPMorgan Chase Bank, N.A., as administrative agent (the “Agent”), on May 1, 2018 (the “Credit Facility”).
The Credit Facility allows the Borrowers to incur revolving loans in an aggregate amount up to the lesser of (a) $400.0 million or (b) a borrowing base (the “Loan Cap”), which borrowing base is based upon the value of the Borrowers’

-19-

C&J ENERGY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


accounts receivable, inventory and restricted cash, subject to eligibility criteria and customary reserves which may be modified in the Agent’s permitted discretion.
The Credit Facility also provides for the issuance of letters of credit, which would further reduce borrowing capacity thereunder. The maturity date of the Credit Facility is May 1, 2023.
If at any time the amount of loans and other extensions of credit outstanding under the Credit Facility exceed the borrowing base, the Borrowers may be required, among other things, to prepay outstanding loans immediately.
The Borrowers’ obligations under the 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’ real properties, may also be required to be pledged. Each of the Borrowers is jointly and severally liable for the obligations of the other Borrowers under the Credit Facility.
At the Borrowers’ election, interest on borrowings under the Credit Facility will be determined by reference to either LIBOR plus an applicable margin of between 1.5% and 2.0% or an “alternate base rate” plus an applicable margin of between 0.5% and 1.0%, in each case based on the Company’s total leverage ratio. Interest will be payable 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 and, in the case of an interest period longer than three months, quarterly, upon any prepayment and at final maturity. The Borrowers will also be required to pay a fee on the unused portion of the Credit Facility equal to (i) 0.5% per annum if average utilization is less than or equal to 25% or (ii) 0.375% per annum if average utilization is greater than 25%, in each case payable quarterly in arrears to the Agent.
The Credit Facility contains covenants that limit the Borrowers’ ability to incur additional indebtedness, grant liens, make loans, make acquisitions or investments, make distributions, merge into or consolidate with other persons, or engage in certain asset dispositions.
The Credit Facility also contains a financial covenant which requires the Company to maintain a monthly minimum fixed charge coverage ratio of 1.0:1.0 upon the occurrence of an event of default or on any date upon which the excess availability is less than the greater of (x) 12.5% of the lesser of the Loan Cap and (y) $30.0 million. The fixed charge coverage ratio is generally defined in the Credit Facility as the ratio of (i) EBITDA minus certain capital expenditures and cash taxes paid to (ii) the sum of cash interest expenses, scheduled principal payments on borrowed money and certain distributions.
As of June 30, 2018, the Company was in compliance with all financial covenants of the Credit Facility.
Prior Credit Facility
On January 6, 2017, in connection with the emergence from bankruptcy, the Company entered into a revolving credit and security agreement with PNC Bank, National Association, as administrative agent (the “Prior Agent”), which was subsequently amended and restated on May 4, 2017 (the “Prior Credit Facility”). The Prior Credit Facility was canceled and discharged on May 1, 2018.
The Prior Credit Facility allowed the Company and certain of its subsidiaries (the “Prior Borrowers”), to incur revolving loans in an aggregate amount up to the lesser of $200.0 million and a borrowing base, which borrowing base was based upon the value of the Prior Borrowers’ accounts receivable and inventory, subject to eligibility criteria and customary reserves which may have been modified in the Agent’s permitted discretion. The Prior Credit Facility also provided for the issuance of letters of credit, which would further reduce borrowing capacity thereunder. The maturity date of the Prior Credit Facility was May 4, 2022.
If at any time the amount of loans and other extensions of credit outstanding under the Prior Credit Facility exceeded the borrowing base, the Prior Borrowers may have been required, among other things, to prepay outstanding loans immediately.
The Prior Borrowers’ obligations under the Prior Credit Facility were secured by liens on a substantial portion of the Prior Borrowers’ personal property, subject to certain exclusions and limitations. Upon the occurrence of certain events, additional collateral, including a portion of the Prior Borrowers’ real properties, may also have been required to be pledged.

-20-

C&J ENERGY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Each of the Prior Borrowers was jointly and severally liable for the obligations of the other Prior Borrowers under the Prior Credit Facility.
At the Prior Borrowers’ election, interest on borrowings under the Prior Credit Facility would have been determined by reference to either LIBOR plus an applicable margin of 2.0% or an “alternate base rate” plus an applicable margin of 1.0%. Beginning after the fiscal month ending on or about September 30, 2017, these margins were subject to a monthly step-up of 0.25% in the event that average excess availability under the Prior Credit Facility was less than 37.5% of the total commitment, and a monthly step-down of 0.25% in the event that average excess availability under the Prior Credit Facility was equal to or greater than 62.5% of the total commitment. Interest was payable 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. The Prior Borrowers were also required to pay a fee on the unused portion of the Prior Credit Facility equal to (i) 0.75% in the event that utilization was less than 25% of the total commitment, (ii) 0.50% in the event utilization was equal to or greater than 25% of the total commitment but less than 50% of the total commitment and (iii) 0.375% in the event that utilization was equal to or greater than 50% of the total commitment.
The Prior Credit Facility contained covenants that limited the Prior Borrowers’ ability to incur additional indebtedness, grant liens, make loans or investments, make distributions, merge into or consolidate with other persons, make capital expenditures or engage in certain asset dispositions including a sale of all or substantially all of the Company’s assets.
The Prior Credit Facility also contained a financial covenant that required the Company to maintain a monthly minimum fixed charge coverage ratio of 1.0:1.0 if, as of any month-end, liquidity was less than $40.0 million.
The fixed charge coverage ratio was generally defined in the Prior Credit Facility as the ratio of (i) EBITDA minus certain capital expenditures and cash taxes paid to (ii) the sum of cash interest expenses, scheduled principal payments on borrowed money and certain distributions.
In connection with the cancellation and discharge of the Prior Credit Facility, the Company accelerated the amortization of $1.5 million in deferred financing costs.
Note 4 - Goodwill and Other Intangible Assets
On 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 8 - Acquisitions for further discussion on the O-Tex acquisition. As of June 30, 2018, all of the goodwill reported on the Company's consolidated balance sheet is related to the O-Tex acquisition, which was allocated to the Company's WC&I reporting unit.
The changes in the carrying amount of goodwill for the six months ended June 30, 2018 are as follows (in thousands):
 
 
WC&I
December 31, 2017
 
147,515

Purchase price adjustment
 
(1,500
)
June 30, 2018
 
146,015

Definite-Lived Intangible Assets
The Company reviews definite-lived intangible assets, along with PP&E, for impairment when a triggering event indicates that the asset may have a net book value in excess of recoverable value.

-21-

C&J ENERGY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


The change in the carrying amounts of other intangible assets as of the June 30, 2018 is presented as follows (in thousands):
 
 
 
Amortization
Period
 
December 31, 2017
 
Amortization Expense
 
June 30, 2018
Customer relationships
 
8-15 years
 
$
58,100

 
$

 
$
58,100

Trade name
 
10-15 years
 
68,300

 

 
68,300

Non-compete
 
4-5 years
 
1,600

 

 
1,600

 
 
 
 
128,000

 

 
128,000

Less: accumulated amortization
 
 
 
(4,163
)
 
(4,392
)
 
(8,555
)
Intangible assets, net
 
 
 
$
123,837

 
$
(4,392
)
 
$
119,445

Note 5 - Share-Based Compensation
Pursuant to the Restructuring Plan, the Company adopted the C&J Energy Services, Inc. 2017 Management Incentive Plan (as amended from time 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 types of 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 June 30, 2018, 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 of shares 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. The number 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 Options
The 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 the Company’s lack of historical volume of option activity, the expected term of options granted was derived using the “plain vanilla” method. Expected volatilities were based on comparable public company data, with consideration given to the Company’s limited historical data. The Company makes estimates with respect to employee termination 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 at the time of grant. During the year ended December 31, 2017, approximately 0.4 million nonqualified stock options were granted under the MIP to certain of the 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 first 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 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 the fourth 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. During the six months ended June 30, 2018, no stock options were granted by the Company.
As of June 30, 2018, the Company had approximately 0.4 million options outstanding to employees, including 0.2 million unvested options. The Company had approximately $3.0 million of share-based compensation remaining to be expensed over a weighted average remaining service period of 2.0 years.

-22-

C&J ENERGY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


The following table includes the assumptions used in determining the fair value of option awards granted during the year ended December 31, 2017.
Expected volatility
  
50.1% - 53.2%
Expected dividends
  
None
Exercise price
  
$30.83 - $42.65
Expected term (in years)
  
5.7 - 6.0
Risk-free rate
  
2.03% - 2.24%
Restricted Stock
The 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 date of grant. During year ended December 31, 2017, approximately 1.7 million shares of restricted stock were granted to employees and non-employee directors under 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 first quarter 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% on each 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 first anniversary of the date of grant, subject to each director's continued service. Restricted stock awards 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 on each of the first, second and third anniversaries. During the six months ended June 30, 2018, no restricted shares were granted by the Company.
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 to the underlying common stock, including the right to vote the common stock and to receive all dividends or other distributions made with respect to the common 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 for the 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, if any, 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 upon the forfeiture of such restricted stock. As of June 30, 2018, the Company had not issued any dividends.
As of June 30, 2018, the Company had approximately 1.0 million shares of restricted stock outstanding to employees and non-employee directors. The Company had $29.2 million of share-based compensation remaining to be expensed over a weighted average remaining service period of 2.1 years.
Performance Stock
During the fourth quarter of 2017, the Company granted approximately 0.1 million shares of performance stock under the MIP to certain of the Company'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 a three year performance period, and the participants may earn between 0% and 200% of the target number of the shares granted based on actual stock price performance upon comparison to a peer group. The vesting of these awards is subject to the employee's continued employment. The Company values equity awards with market conditions at the grant date using a Monte Carlo simulation model which simulates many possible future outcomes. During the six months ended June 30, 2018, no performance stock was granted by the Company.
As of June 30, 2018, the Company had approximately 0.1 million shares of performance stock outstanding. The Company had $2.6 million of share-based compensation remaining to be expensed over a weighted average remaining service period of 2.5 years.
The following table presents the assumptions used in determining the fair value of the performance stock granted during the fourth quarter of 2017.
Expected volatility, including peer group
 
30.8% - 81.6%
Expected dividends
 
None
30 calendar day volume weighted average stock price, including peer group
 
$2.13 - $133.20
Expected term (in years)
 
3.0
Risk-free rate
 
1.94% - 1.95%

-23-

C&J ENERGY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



Note 6 - Commitments and Contingencies
Environmental Regulations & Liabilities
The Company is subject to various federal, state and local environmental laws and regulations that establish standards and requirements for the protection of the environment. The Company continues to monitor the status of these laws and regulations. However, the Company cannot predict the future impact 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 adverse effect 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, the determination of the Company’s liability in proportion to other responsible parties and the extent to which such expenditures are recoverable from insurance or indemnification.
Litigation
The Company is, and from time to time may be, involved in claims and litigation arising in the ordinary course of business. Because there are inherent uncertainties in the ultimate outcome of such matters, it is difficult to determine or otherwise predict with any certainty the ultimate outcome of any pending or potential claims or litigation against the Company; however, management believes that the outcome of those matters that are presently known to the Company will not have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.
Self-Insured Risk Accruals
The Company maintains insurance policies for workers’ compensation, automobile liability, general liability, environmental liability, and property damage relating to catastrophic events, together with excess loss liability coverage. These insurance policies carry self-insured retention limits or deductibles on a per occurrence basis. The Company has deductibles per occurrence for: (i) workers’ compensation of $1,000,000; (ii) automobile liability claims of $1,000,000; (iii) general liability claims, including sudden and accidental pollution claims, of $250,000, plus an additional annual aggregate deductible of $250,000; (iv) environmental liability claims of $500,000; and (v) property damage for catastrophic events of $50,000. The excess loss liability coverage is subject to an annual aggregate self-insured retention of $5,000,000.
Additionally, under the terms of the Separation Agreement, dated as of February 12, 2015, by and between the Predecessor and Nabors Industries, Ltd. (“Nabors”), relating to a transformative transaction between the Predecessor and Nabors (the “Nabors Merger”), with the exception of certain liabilities for which Nabors has agreed to indemnify the Predecessor, the Predecessor assumed, among other liabilities, all liabilities of the completion and production services business (the “C&P Business”) to the extent arising out of or resulting 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 injury and property damage resulting from or caused by the assets, products and services of the C&P Business. Any liability relating to or resulting from any claim or litigation asserted after the closing of the Nabors Merger, but where the underlying cause of action arose prior to that time, would not be covered by the Company’s insurance policies.
Note 7 - Segment Information
In accordance with ASC No. 280 - Segment Reporting, the Company routinely evaluates whether its separate operating and reportable segments have changed. This determination is made based on the following factors: (1) the Company’s chief operating decision maker (“CODM”) is currently managing each operating segment as a separate business and evaluating the performance of each segment and making resource allocation decisions distinctly and expects to do so for the foreseeable future, and (2) discrete financial information for each operating segment is available.
Prior to and as of the year ended December 31, 2017, the Company’s reportable segments were: (i) Completion Services and (ii) Well Support Services. Due to the significant expansion of C&J's cementing business, during the first quarter

-24-

C&J ENERGY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


of 2018 the CODM revised the approach in which performance evaluation and resource allocation decisions are made. Discrete financial information was created to provide the segment information necessary for the CODM to manage the Company under the revised operating segment structure. As a result of this change in operating segments, the Company revised its reportable segments in the first quarter of 2018. The Company's operating and reportable segments are now: (i) Completion Services, (ii) WC&I and (iii) Well Support Services. This segment structure reflects the financial information and reports used by the Company’s management, including its CODM, to make decisions regarding the Company’s business, including performance evaluation and resource allocation decisions. As a result of the revised reportable segment structure, the Company has restated the corresponding segment information for all periods presented.
The following is a brief description of the Company's reportable segments as of June 30, 2018:
Completion Services
The Company’s Completion Services segment consisted of the following businesses and service lines: (1) fracturing services; (2) cased-hole wireline and pumping services; and (3) completion support services, which includes logistics services and the Company's R&T department.
Well Construction and Intervention Services
The Company’s WC&I segment consisted of the following businesses and service lines: (1) cementing services; (2) coiled tubing services and (3) directional drilling services. During the first quarter of 2018, the Company exited its directional drilling business.
Well Support Services
The Company’s Well Support Services segment consisted of the following businesses and service lines: (1) rig services; (2) fluids management services; and (3) special services, which included plug and abandonment, artificial lift applications and other specialty well site services.

-25-

C&J ENERGY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


The following table sets forth certain financial information with respect to the Company’s reportable segments.
</
 
 
Completion
Services
 
WC&I

 
Well Support Services
 
Corporate / Elimination
 
Total
Three months ended June 30, 2018
 
 
 
 
 
 
 
 
 
 
Revenue from external customers
 
$
412,895

 
$
99,086

 
$
98,540

 
$

 
$
610,521

Inter-segment revenues
 
134

 

 
44

 
(178
)
 

Depreciation and amortization
 
29,048

 
9,831

 
13,199

 
2,309

 
54,387

Operating income (loss)
 
55,626

 
8,498

 
(2,709
)
 
(30,521
)
 
30,894

Net income (loss)
 
54,371

 
8,725

 
(2,830
)
 
(31,770
)
 
28,496

Adjusted EBITDA
 
83,252

 
19,632

 
10,933

 
(26,041
)
 
87,776

Capital expenditures
 
79,663

 
11,234

 
988

 
877

 
92,762

Six months ended June 30, 2018
 
 
 
 
 
 
 
 
 
 
Revenue from external customers
 
$
787,040

 
$
186,503

 
$
189,978

 
$

 
$
1,163,521

Inter-segment revenues
 
194

 

 
149

 
(343
)
 

Depreciation and amortization
 
51,687

 
19,763

 
25,250

 
4,030

 
100,730

Operating income (loss)
 
113,934

 
13,955

 
(11,251
)
 
(65,402
)
 
51,236

Net income (loss)
 
112,748

 
14,177

 
(11,189
)
 
(66,646
)
 
49,090

Adjusted EBITDA
 
164,150

 
35,630

 
16,040

 
(54,358
)
 
161,462

Capital expenditures
 
136,788

 
14,876

 
3,194

 
932

 
155,790

As of June 30, 2018
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
847,152

 
$
400,091

 
$
260,733

 
$
174,734

 
$
1,682,710

Goodwill
 

 
146,015

 

 

 
146,015

Three months ended June 30, 2017
 
 
 
 
 
 
 
 
 
 
Revenue from external customers
 
$
262,880

 
$
31,267

 
$
95,996

 
$

 
$
390,143

Inter-segment revenues
 
746

 
59

 
256

 
(1,061
)
 

Depreciation and amortization
 
16,274

 
2,707

 
12,035

 
1,817

 
32,833

Operating income (loss)
 
28,936

 
448

 
(7,608
)
 
(35,020
)
 
(13,244
)
Net income (loss)
 
26,461

 
448

 
(7,541
)
 
(32,089
)
 
(12,721
)
Adjusted EBITDA
 
45,114

 
2,667

 
1,927

 
(24,598
)
 
25,110

Capital expenditures
 
53,792

 
2,868

 
3,750

 
552

 
60,962

Six months ended June 30, 2017
 
 
 
 
 
 
 
 
 
 
Revenue from external customers
 
$
454,689

 
$
57,386

 
$
192,262

 
$

 
$
704,337

Inter-segment revenues
 
1,025

 
59

 
297

 
(1,381
)