CJ 2017 Annual Report

more than 50 percentage points over such stockholders’ lowest ownership percentage during the testing period (generally a rolling three year period). The Company believes it experienced an ownership change in January 2017 as a result of the implementation of the Restructuring Plan and a subsequent ownership change also occurred on or about June 30, 2017. As a result, the Company's pre-change NOLs are subject to limitation under Section 382 of the Code. Such limitation may cause U.S. federal income taxes to be paid earlier than otherwise would be paid if such limitation were not in effect. The Company does not believe either ownership change created a restriction, which, by itself, could cause its pre-change NOLs to expire unused. As of December 31, 2017, management’s assessment that a full valuation allowance is appropriate due to uncertainty about ultimate realization of the deferred tax assets was determined before consideration of a Section 382 limitation. Similar rules and limitations may apply for state income tax purposes. The Company remains subject to ongoing testing for future ownership changes based on shareholder ownership that may create a more restrictive Section 382 limitation on the NOLs in subsequent reporting periods. The Company’s U.S. federal income tax returns for the tax years 2014 through 2016 remain open to examination by the Internal Revenue Service under the applicable U.S. federal statute of limitations provisions. The various states in which the Company is subject to income tax are generally open to examination for the tax years after 2013. A reconciliation of unrecognized tax benefit balances is as follows (in thousands): Successor Predecessor Years Ended December 31, 2017 2016 Balance at beginning of year $ 6,525 $ — Additions based on tax positions related to the current year — 6,525 Reductions for tax positions of prior years (6,525) — Balance at end of year $ — $ 6,525 As of December 31, 2017, the Company had no balances related to unrecognized tax benefits and associated interest and penalties. The Company classifies interest and penalties within the provision for income taxes. The Company had no interest and penalties in the provision for income taxes for each of the years ended December 31, 2017, 2016 and 2015. C&J ENERGY SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 100 Note 7 - Share-Based Compensation Successor Equity Plans 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 December 31, 2017, only nonqualified stock options, restricted shares and performance awards have been awarded under the MIP. A total of approximately 8.0 million shares of common stock were originally authorized and approved for issuance under the MIP. The number 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