CJ 2017 Annual Report

The Company treated the Nabors Merger as a non-taxable transaction. Such treatment resulted in the acquired assets and liabilities having carryover basis for tax purposes. A deferred tax liability in the amount of $208.9 million was recorded to account for the differences between the preliminary purchase price allocation and carryover tax basis. Acquisition-related costs associated with the Nabors Merger were expensed as incurred and totaled $42.7 million for the year ended December 31, 2015, and are included in selling, general and administrative expenses. The results of operations for the C&P Business that have been included in C&J's consolidated financial statements from the March 24, 2015 acquisition date through December 31, 2015 include revenue of $822.2 million and a net loss of $211.1 million. The following unaudited pro forma results of operations have been prepared as though the Nabors Merger was completed on January 1, 2014. Pro forma amounts are based on the purchase price allocation of the acquisition and are not necessarily indicative of results that may be reported in the future (in thousands): Year Ended  December 31, 2015 Year Ended  December 31, 2014 Revenues $ 2,114,671 $ 3,861,412 Net loss $ (879,231) $ (244,183) Acquisition of Artificial Lift Provider On May 18, 2015, the Company acquired all of the outstanding equity interests of ESP Completion Technologies LLC, a manufacturer of wellheads, artificial lift completion tools and electric submersible pumps ("Artificial Lift Provider") for approximately $34.0 million consisting of cash of approximately $13.6 million, a holdback of $6.0 million, and an earn-out valued at approximately $14.4 million on the acquisition date. During the second quarter of 2016, C&J and the sellers agreed to a working capital adjustment of $0.5 million in favor of C&J, which was accounted for as a reduction to the purchase price of ESP Completion Technologies LLC. The adjusted purchase price of $33.5 million was allocated to the net assets acquired based upon their estimated fair values, as follows (in thousands): Current assets $ 5,822 Property, plant and equipment 2,529 Goodwill 24,219 Other intangible assets 5,173 Total assets acquired 37,743 Current liabilities (1,927) Deferred income taxes (2,067) Other liabilities (276) Total liabilities assumed (4,270) Net assets acquired $ 33,473 If Artificial Lift Provider is able to achieve certain levels of EBITDA over a three-year period, the Company will be obligated to make future tiered payments of up to $29.5 million. This could result in a maximum total purchase price of $49.1 million. The potential payment is considered contingent consideration. At the acquisition date, the fair value of this earn-out was determined using a Monte Carlo simulation model over many simulated possible future outcomes which yielded a value of $14.4 million. The earn-out has been remeasured on a fair value basis each quarter and will continue to be remeasured each quarter until the contingent consideration is paid or expires. As of December 31, 2017, the earn-out was estimated to have zero value. C&J ENERGY SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 112 Note 13 - 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