CJ 2017 Annual Report

Interest Expense, net Interest expense increased $75.4 million, or 91.8%, to $157.5 million for the year ended December 31, 2016. The increase is primarily due to $91.9 million of accelerated amortization of original issue discount and deferred financing costs, which we fully amortized as of June 30, 2016 as a result of our entry into a restructuring support agreement related to our Chapter 11 Proceeding, and due to $3.5 million in interest expense primarily related to higher levels of borrowings under the Revolving Credit Facility and DIP Facility, partially offset by $20.0 million of lower interest expense due to the Chapter 11 Proceeding in that interest expense subsequent to a Chapter 11 filing is recognized only to the extent that it will be paid during the cases or that it is probable that it will be an allowed claim. As a result, we did not accrue interest that we believed was not probable of being treated as an allowed claim in the Chapter 11 Proceeding. Income Taxes We recorded an income tax benefit of $129.0 million for the year ended December 31, 2016, at an effective rate of 12.0%, compared to income tax benefit of $299.1 million for the year ended December 31, 2015, at an effective rate of 25.5%. The decrease in the effective tax rate is primarily due to valuation allowances applied against certain deferred tax assets including net operating loss carryforwards. The effective rate, and resulting benefit, is less than the expected statutory rate primarily due to impairment charges that were not deductible for tax, the impact of permanent differences, including non- deductible reorganization costs and the valuation allowance reducing the carrying value of certain deferred tax assets. 52 Liquidity and Capital Resources Sources of Liquidity and Capital Resources Our primary uses of cash are for operating costs and expenditures and capital expenditures. The oilfield services business is capital-intensive, requiring significant investment to maintain, upgrade and purchase equipment to meet our customers’ needs and industry demand. Our capital requirements consist primarily of: • growth capital expenditures, which are capital expenditures made to acquire additional equipment and other assets, increase our service lines, or advance other strategic initiatives for the purpose of growing our business; and • maintenance capital expenditures related to our existing equipment, such as refurbishment and other activities to extend the useful life of partially or fully depreciated assets. On January 6, 2017, we entered into the New Credit Facility with PNC Bank, National Association, as administrative agent (the “Agent”). We subsequently amended and restated the New Credit Facility in full pursuant to the Amended Credit Facility dated May 4, 2017, with the Agent and the lenders party thereto. We currently have $178.5 million of available borrowing capacity under our Amended Credit Facility after taking into consideration our current outstanding letters of credit of approximately $20.7 million. For additional information about the Amended Credit Facility, please see “- Description of our Indebtedness” below and Note 4 - Debt and Capital Lease Obligations in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report. As of December 31, 2017, we had a cash balance of $113.9 million and no borrowings drawn on our Amended Credit Facility resulting in total liquidity of $292.3 million. Under the terms of our Amended Credit Facility, the borrowing base is subject to monthly adjustments based on current levels of accounts receivable and inventory. Capital expenditures totaled $210.2 million in 2017, primarily pertaining to the maintenance of deployed equipment, the refurbishment of existing stacked equipment in preparation for redeployment and the related reactivation costs, and the building of new equipment for deployment in our core service lines. Based on current market conditions and customer demand, and assuming they remain relatively stable, we expect 2018 capital expenditures to range between approximately $430.0 million and $450.0 million. The majority of our 2018 capital expenditure program is expected to be used for the full refurbishment of all of our remaining stacked fracturing fleets, including the related reactivation costs, which we expect to fully redeploy by year-end, the refurbishment and redeployment of stacked equipment across most of our other core service lines, the deployment of new-build equipment primarily in our Completion Services segment and the ongoing maintenance of our active, deployed equipment. With the stable North American drilling rig count, higher commodity prices, and the continued shortages of available completion services equipment, we are particularly focused on redeploying our stacked frac fleets. We have been