CJ 2017 Annual Report

Successor Predecessor Years Ended December 31, 2017 2016 2015 Federal statutory rate 35.0 % 35.0 % 35.0 % State taxes, net of federal benefit 8.0 % 0.3 % 1.4 % Domestic production activities deduction — % — % (0.2)% Effect of foreign losses 9.8 % (2.0)% (0.3)% Impairment — % (8.8)% (9.8)% Changes in uncertain tax positions 37.7 % (0.6)% — % Effects of the plan of reorganization 1,114.9 % (1.3)% — % Valuation allowance (959.3)% (10.9)% — % Other (16.3)% 0.3 % (0.6)% Effective income tax rate 229.8 % 12.0 % 25.5 % The Company’s deferred tax assets and liabilities consisted of the following (in thousands): Successor Predecessor As of December 31, 2017 2016 Deferred tax assets: Accrued liabilities $ 2,100 $ 25,470 Allowance for doubtful accounts 1,791 2,630 Stock-based compensation 2,570 11,530 Inventory reserve 1,883 9,131 Net operating losses 276,239 231,360 163j interest limitation 41,342 58,426 Amortization of goodwill and intangible assets 4,101 4,526 Other 4,379 3,774 Total deferred tax assets 334,405 346,847 Deferred tax liabilities: Prepaid assets (4,438) (2,123) Depreciation on property, plant and equipment (37,784) (179,428) Other (643) (3,873) Total deferred tax liabilities (42,865) (185,424) Valuation allowances (295,457) (171,016) Net deferred tax liability $ (3,917) $ (9,593) The Company has approximately $1.1 billion of U.S. federal net operating loss carryforwards (“NOLs”) which, if not utilized, will begin to expire in the year 2035 and state NOLs of approximately $602.4 million which, if not utilized, will expire in various years between 2020 and 2037. Additionally, the Company has approximately $19.9 million of NOLs in other jurisdictions which, if not utilized, will expire in various years between 2020 and 2037. As of December 31, 2017, the Company has recorded a deferred tax asset of approximately $276.2 million relating to NOLs, and an offsetting valuation allowance has been provided for these NOLs due to uncertainty regarding the ultimate realization of the deferred tax assets associated with the NOL carryforwards prior to expiration. Additionally, the Company has foreign operating loss carryforwards of approximately $908.6 million for which the realization of a tax benefit is considered remote. Due to the remote likelihood of utilizing these NOLs, neither the deferred tax asset nor the offsetting valuation allowance has been recorded, and neither is presented in the table above. The Company's ability to utilize its U.S. NOL carryforwards to offset future taxable income and to reduce U.S. federal income tax liability is subject to certain requirements and restrictions. In general, under Section 382 of the Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change NOLs to offset future taxable income. An ownership change generally occurs if one or more shareholders (or groups of shareholders) who are each deemed to own at least 5% of the Company's stock have aggregate increases in their ownership of such stock of C&J ENERGY SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 99