CJ 2017 Annual Report

agreed to transact for comparable properties. This approach is based on the principle of substitution, which states that the limits of prices, rents and rates tend to be set by the prevailing prices, rents and rates of equally desirable substitutes. In conducting the sales comparison approach, data was gathered on comparable properties and adjustments were made for factors including market conditions, size, access/frontage, zoning, location, and conditions of sale. Greatest weight was typically given to the comparable sales in proximity and similar in size to each of the owned sites. In valuing the fee simple interest in buildings and leasehold improvements, the Company utilized the direct and indirect methods of the cost approach. For the direct method cost approach analysis, the Company first had to determine the RCN. In order to estimate the RCN of the buildings and leasehold improvements, various factors were considered including building size, year built, number of stories, and the breakout of the space, property history, maintenance history, and insurable value costs. For the indirect method cost approach, the Company first had to estimate a CRN for leasehold improvements being valued via the indirect, or trending, method of the cost approach. To estimate the CRN amounts, the Company applied published inflation indices obtained from third-party sources to each asset’s historical cost to convert the known cost into an indication of current cost. Once the RCN and CRN of the buildings and leasehold improvements was computed, the Company estimated an allowance for physical depreciation for the buildings and leasehold improvements based upon their respective age. Intangible Assets The financial information used to estimate the fair values of intangible assets was consistent with the information used in estimating the Company’s enterprise value. Tradenames were valued primarily utilizing the relief from royalty method of the income approach. Significant inputs and assumptions included remaining useful lives, the forecasted revenue streams, applicable royalty rates, tax rates, and applicable discount rates. Customer relationships were considered in the analysis, but based on the valuation under the excess earnings methodology, no value was attributed to customer relationships. The following table reconciles the enterprise value to the estimated fair value of the Successor common stock as of the Fresh Start Reporting Date (in thousands): Enterprise value $ 750,000 Add: Cash and cash equivalents 181,242 Less: Emergence costs settled in cash post-emergence (5,378) Fair value of New Equity and New Warrants, including Rights Offering 925,864 Less: Rights Offering proceeds (200,000) Less: Fair value of New Warrants (20,385) Fair value of Successor common stock, prior to Rights Offering $ 705,479 Shares outstanding on January 1, 2017, prior to Rights Offering shares 39,999,997 Per share value $ 17.64 The following table reconciles the enterprise value to the reorganization value of the Successor assets on the Effective Date (in thousands): Enterprise value $ 750,000 Add: Cash and cash equivalents 181,242 Less: Emergence costs settled in cash post-emergence (5,378) Add: Other current liabilities 165,501 Add: Other long-term liabilities and deferred tax liabilities 22,666 Reorganization value of Successor assets $ 1,114,031 The following table summarizes the impact of the reorganization and the Fresh Start accounting adjustments on the Company's consolidated balance sheet on the Fresh Start Reporting Date. The reorganization value has been allocated to the assets acquired based upon their estimated fair values, as shown below. The estimated fair values of certain assets and C&J ENERGY SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 88