CJ 2017 Annual Report

On October 30, 2017, we entered into an Asset Purchase Agreement (the “Purchase Agreement”) with CWC Energy Services Corp., an Alberta corporation (“CWC”), and C&J Energy Production Services-Canada Ltd., an Alberta corporation and an indirect wholly owned subsidiary of the Company (“C&J Canada”), whereby CWC, among other things, acquired the assets of C&J Canada included in the Purchased Business (as defined in the Purchase Agreement) for total consideration of CDN $37.5 million in cash (the “Canadian Divestiture”). With the closing of the Canadian Divestiture on November 5, 2017, we have completely exited the Well Support Services business in Western Canada, and we are no longer providing any oilfield services in Canada. Our Reportable Business Segments and Strategy As of December 31, 2017, our reportable business segments were: • Completion Services, which consists of the following businesses and service lines: (1) fracturing; (2) cased- hole wireline and pumping services; (3) well construction & intervention services, which includes cementing, coiled tubing and directional drilling services; and (4) completion support services, which includes our R&T department and data control instruments business. • Well Support Services, which consists of the following businesses and service lines: (1) rig services; (2) fluids management services; and (3) special services, which includes plug and abandonment, artificial lift applications and other specialty well site services. Our Other Services segment consisted of smaller, non-core business lines that have since been divested, including our specialty chemical business, equipment manufacturing and repair business and our international coiled tubing operations in the Middle East.  In line with the discontinuance of these small, ancillary service lines and divisions, subsequent to the year ended December 31, 2016, we are now disclosing two reportable segments, and financial information for the Other Services reportable segment is only presented for the corresponding prior year period. Each reportable business segment is described in more detail below; for additional financial information about each of our reportable business segments, including revenue from external customers and total assets by reportable business segment, see Note 13 - Segment Information in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report. Our results of operations in our core service lines are driven primarily by four interrelated, fluctuating variables: (1) the drilling, completion and production activities of our customers, which is primarily driven by oil and natural gas prices and directly affects the demand for our services; (2) the price we are able to charge for our services, which is primarily driven by the level of demand for our services and the supply of equipment capacity in the market; (3) the cost of products and labor involved in providing our services, and our ability to pass those costs on to our customers; and (4) our activity, or “utilization” levels, and service performance. Management evaluates the performance of our reportable segments primarily based on Adjusted EBITDA because management believes Adjusted EBITDA provides important information about the activity and profitability of our lines of business within each reportable business segment and aids us in analytical comparisons for purposes of, among other things, efficiently allocating our assets and resources. Our management team also monitors asset utilization, among other factors, for purposes of assessing our overall activity levels and customer demand. For our Completion Services operations, we measure our asset utilization levels primarily by the total number of days that our asset base works on a monthly basis, based on the available working days per month, which excludes scheduled maintenance days. We generally consider an asset to be working such days that it is at or in transit to a job location. In our Well Support Services operations, we measure activity levels primarily by the number of hours our assets work on a monthly basis, based on the available working days per month. However, given the variance in revenue and profitability from job to job, depending on the type of service to be performed and the equipment, personnel and consumables required for the job, as well as competitive factors and market conditions in the region in which the services are performed, undue reliance should not be placed on asset utilization as an indicator of our financial or operating performance. For additional information about Adjusted EBITDA for each of our reportable business segments, please see Note 13 - Segment Information in Part II, Item 8 "Financial Statements and Supplementary Data" of this Annual Report. Our operating strategy is focused on maintaining high asset utilization levels to maximize revenue generation while controlling costs to gain a competitive advantage and drive returns. We believe that the quality and efficiency of our service execution and our alignment with customers who recognize the value that we provide through efficiency gains are central to our efforts to support utilization and grow our business. Given the volatile and cyclical nature of activity drivers in the U.S. onshore oilfield services industry, coupled with the varying prices we are able to charge for our services and the cost of providing those 5