Table of Contents

     
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

Form 10-Q 

(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 20172018
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-35281

Forbes Energy Services Ltd.
(Exact name of registrant as specified in its charter)

Delaware 98-0581100
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
   
3000 South Business Highway 281
Alice, Texas
 78332
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code:
(361) 664-0549 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  x  Yes    ¨  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    ¨  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer” andfiler,” “smaller reporting company”company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer¨Accelerated filer¨
    
Non-accelerated filer
¨ (Do not check if a smaller reporting company)
Smaller reporting companyx
    
  Emerging growth company¨
    
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).    ¨  Yes    x  No
The numberIndicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of sharesthe Securities Exchange Act of common stock, par value $0.04 per share,1934 subsequent to the distribution of Forbes Energy Services Ltd. outstanding prior to its emergence from bankruptcy on April 13, 2017 was 22,214,855 and after such emergence was zero. securities under a plan confirmed by a court (as defined in Exchange Act Rule 12b-2).    x  Yes    ¨  No
The number of shares of common stock, par value $0.01 per share, of Forbes Energy Services Ltd. outstanding as of May 11, 201710, 2018 was 5,249,997.5,336,397.

     


FORBES ENERGY SERVICES LTD.
TABLE OF CONTENTS
 
  Page
Part I—Financial Information
 
Item 1.
Unaudited Condensed Consolidated Financial Statements
5
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
2620
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
3731
Item 4.
Controls and Procedures
3731
  
Part II—Other Information
 
Item 1.
Legal Proceedings
3832
Item 1A.
Risk Factors
3832
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
3832
Item 3.
Default Upon Senior Securities
3832
Item 4.
Mine Safety Disclosures
3832
Item 5.Other Information
3832
Item 6.Exhibits
3933
 Signatures
4034


FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q and any oral statements made in connection with it include certain forward-looking statements within the meaning of the federal securities laws. You can generally identify forward-looking statements by the appearance in such a statement of words like “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project” or “should” or other comparable words or the negative of these words. When you consider our forward-looking statements, you should keep in mind the risk factors we describe and other cautionary statements we make in this Quarterly Report on Form 10-Q. Our forward-looking statements are only predictions based on expectations that we believe are reasonable. Our actual results could differ materially from those anticipated in, or implied by, these forward-looking statements as a result of known risks and uncertainties set forth below and elsewhere in this Quarterly Report on Form 10-Q. These factors include or relate to the following:
increased advisory costs to execute our reorganization;
the effect of the industry-wide downturn incyclical nature of energy exploration and development activities;
continuing incurrence of operating losses due to such downturn;
oil and natural gas commodity prices;
market response to global demands to curtail use of oil and natural gas;
capital budgets and spending by the oil and natural gas industry;
the ability or willingness of the Organization of Petroleum Exporting Countries, or OPEC, to set and maintain production levels for oil;
oil and natural gas production levels by non-OPEC countries;
supply and demand for oilfield services and industry activity levels;
our ability to maintain stable pricing;
our level of indebtedness;
possible impairment of our long-lived assets;
potential for excess capacity;
competition;
substantial capital requirements;
significant operating and financial restrictions under our loan and security agreement which provides for a term loan of $50.0 million, or the New Loan Agreement;
technological obsolescence of operating equipment;
dependence on certain key employees;
concentration of customers;
substantial additional costs of compliance with reporting obligations, the Sarbanes-Oxley Act and New Loan Agreement covenants;
seasonality of oilfield services activity;
collection of accounts receivable;
environmental and other governmental regulation, including potential climate change legislation;regulation;
the potential disruption of business activities caused by the physical effects, if any, of climate change;
risks inherent in our operations;
ability to fully integrate future acquisitions;
variation from projected operating and financial data;
variation from budgeted and projected capital expenditures;
volatility of global financial markets; and

the other factors discussed under “Risk Factors” beginning on page 1110 of the Annual Report on Form 10-K for the year ended December 31, 2016.2017.

We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. To the extent these risks, uncertainties and assumptions give rise to events that vary from our expectations, the forward-looking events discussed in this Quarterly Report on Form 10-Q may not occur. All forward-looking statements attributable to us are qualified in their entirety by this cautionary statement.

PART I—FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements

Forbes Energy Services Ltd.
(Debtor-in-Possession through April 12, 2017)
Condensed Consolidated Balance Sheets (unaudited)
(in thousands, except par value amounts)

Successor
March 31,
2017		 December 31,
2016		March 31,
2018

December 31,
2017
Assets   


Current assets   


Cash and cash equivalents$17,647
 $20,437
$7,572

$5,465
Cash - restricted27,579
 27,563
25,601

30,015
Accounts receivable - trade, net of allowance for doubtful accounts of $1.5 million and $1.4 million as of March 31, 2017, and December 31, 2016, respectively16,889
 16,962
Accounts receivable - trade, net26,623

24,341
Accounts receivable - other664
 290
207

496
Prepaid expenses and other6,556
 7,957
Other current assets—
 821
Prepaid expenses and other current assets8,926

11,212
Total current assets69,335
 74,030
68,929

71,529
Property and equipment, net221,538
 233,362
115,401

117,191
Intangible assets, net3,086
 3,220
11,572

11,852
Other assets2,376
 2,269
1,104

1,185
Total assets$296,335
 $312,881
$197,006

$201,757
Liabilities and Shareholders’ Deficit   
Liabilities and Stockholders’ Equity


Current liabilities   


Current portions of long-term debt$18,806
 $298,932
$5,097

$7,566
Accounts payable - trade7,424
 4,505
11,206

7,497
Accounts payable - related parties—
 18
1

11
Accrued interest payable300
 26,578
991

998
Accrued expenses9,869
 8,740
12,268

11,084
Total current liabilities36,399
 338,773
29,563

27,156
Long-term debt, net of current portion121
 240
52,447

51,288
Deferred tax liability1,052
 1,096
358

379
Liabilities subject to compromise308,431
 —
Total liabilities346,003
 340,109
82,368

78,823
   



Commitments and contingencies (Note 10)—
 —
Commitments and contingencies (Note 8)
 
   


Temporary equity   
Series B senior convertible preferred shares, 588 shares outstanding at March 31, 2017 and December 31, 201615,344
 15,298
Shareholders’ deficit   
Common stock, $.04 par value, 112,500 shares authorized, 22,215 shares issued and outstanding at March 31, 2017 and December 31, 2016889
 889
Common stock, $0.01 par value, 40,000 shares authorized, 5,336 shares issued and outstanding at March 31, 2018 and December 31, 201753
 53
Additional paid-in capital193,431
 193,477
149,117
 148,866
Accumulated deficit(259,332) (236,892)(34,532)
(25,985)
Total shareholders’ deficit(65,012) (42,526)
Total liabilities and shareholders’ deficit$296,335
 $312,881
Total stockholders’ equity114,638

122,934
Total liabilities and stockholders’ equity$197,006

$201,757
The accompanying notes are an integral part of these condensed consolidated financial statements.

Forbes Energy Services Ltd.
(Debtor-in-Possession through April 12, 2017)
Condensed Consolidated Statements of Operations (unaudited)
(in thousands, except per share amounts)
 
Successor  Predecessor
Three months ended March 31, Three Months Ended  Three Months Ended
2017 2016 March 31, 2018  March 31, 2017
Revenues        
Well servicing$17,105
 $18,713
 $22,857
  $17,105
Fluid logistics9,942
 13,218
 12,735
  9,942
Total revenues27,047

31,931
 35,592
  27,047
Expenses        
Well servicing14,140
 16,720
 19,017
  14,140
Fluid logistics9,948
 13,161
 10,689
  9,948
General and administrative4,512
 6,056
 4,888
  4,512
Depreciation and amortization12,068
 13,489
 7,163
  12,068
Total expenses40,668

49,426
 41,757
  40,668
Operating loss(13,621)
(17,495) (6,165)  (13,621)
Other income (expense)        
Interest income13
 22
 2
  13
Interest expense (excludes contractual interest of $4.7 million on Prior Senior Notes subject to compromise for the period January 22, 2017 through March 31, 2017)(2,214) (6,946) (2,367)  (2,214)
Reorganization costs(6,587) —
 
Loss on reorganization items, net—
  (6,587)
Pre-tax loss(22,409)
(24,419) (8,530)  (22,409)
Income tax expense31
 49
 17
  31
Net loss(22,440)
(24,468)
(8,547)  (22,440)
Preferred stock dividends(46) (194) —
  (46)
Net loss attributable to common shareholders$(22,486)
$(24,662) 
Net loss attributable to common stockholders$(8,547)  $(22,486)
Loss per share of common stock        
Basic and diluted loss per share$(1.01) $(1.11) $(1.60)  $(1.01)
Weighted average number of shares outstanding        
Basic and diluted22,215
 22,210
 5,336
  22,215
The accompanying notes are an integral part of these condensed consolidated financial statements.


Forbes Energy Services Ltd.
Condensed Consolidated Statements of Cash Flows (unaudited)
(in thousands)
 Successor  Predecessor
 
Three months ended
March 31, 2018
  
Three months ended
March 31, 2017
     
Cash flows from operating activities:    
Net loss$(8,547)  $(22,440)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:    
Depreciation and amortization7,163
  12,068
Share-based compensation250
  —
Reorganization items (non-cash)—
  2,104
Deferred tax benefit(21)  (44)
Gain on disposal of assets(20)  (700)
Bad debt expense100
  175
Amortization of debt discount196
  234
Interest paid in kind924
  —
Changes in operating assets and liabilities:    
Accounts receivable(2,093)  (477)
Prepaid expenses and other assets(135)  (71)
Accounts payable - trade1,296
  3,519
Accounts payable - related parties(10)  (18)
Accrued expenses1,171
  1,122
Accrued interest payable(7)  1,546
Net cash provided by (used in) operating activities267
  (2,982)
Cash flows from investing activities:    
Proceeds from sale of property and equipment300
  979
Purchases of property and equipment(2,363)  (377)
Net cash provided by (used in) investing activities(2,063)  602
Cash flows from financing activities:    
Payments for capital leases(511)  (394)
Net cash used in financing activities(511)  (394)
Net decrease in cash, cash equivalents, and cash - restricted(2,307)  (2,774)
Cash, cash equivalents, and cash - restricted:    
Beginning of period35,480
  48,000
End of period$33,173
  $45,226
The accompanying notes are an integral part of these condensed consolidated financial statements.

Forbes Energy Services Ltd.
(Debtor-in-Possession through April 12, 2017)
Condensed Consolidated Statement of Changes in Shareholders’ Deficit (unaudited)
(in thousands)
 Temporary Equity Permanent Equity
 Preferred Shares Common Stock 
Additional
Paid-In
Capital
 
Accumulated
Deficit
 
Total
Shareholders’
Deficit
 Shares Amount Shares Amount   
Balance: December 31, 2016588
 $15,298
 22,215
 $889
 $193,477
 $(236,892) $(42,526)
Net loss—
 —
 —
 —
 —
 (22,440) (22,440)
Preferred shares dividends
and accretion
—
 46
 —
 —
 (46) —
 (46)
Balance: March 31, 2017588
 $15,344
 22,215
 $889
 $193,431
 $(259,332) $(65,012)
The accompanying notes are an integral part of these condensed consolidated financial statements.

Forbes Energy Services Ltd.
(Debtor-in-Possession through April 12, 2017)
Condensed Consolidated Statements of Cash Flows (unaudited)
(in thousands)
 Three months ended March 31,
 2017 2016
Cash flows from operating activities:   
Net loss$(22,440) $(24,468)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:   
Depreciation and amortization12,068
 13,489
Share-based compensation—
 70
Reorganization items2,104
 —
Deferred tax (benefit) expense(44) 49
(Gain) loss on disposal of assets, net(700) 676
Bad debt expense175
 643
Amortization of deferred financing cost234
 355
Changes in operating assets and liabilities:   
Accounts receivable(477) 7,440
Prepaid expenses and other assets(71) 1,032
Accounts payable - trade3,519
 (282)
Accounts payable - related parties(18) (4)
Accrued expenses1,122
 2,270
Accrued interest payable1,546
 6,242
Net cash (used in) provided by operating activities(2,982) 7,512
Cash flows from investing activities:   
Proceeds from sale of property and equipment979
 —
Purchases of property and equipment(377) (3,065)
Change in restricted cash—
 51
Net cash provided by (used in) investing activities602
 (3,014)
Cash flows from financing activities:   
Change in restricted cash(16) —
Payments of debt(394) (1,052)
Payment of tax withholding obligations related to restricted stock—
 (110)
Dividends paid on Series B senior convertible preferred shares—
 (184)
Net cash used in financing activities(410) (1,346)
Net (decrease) increase in cash and cash equivalents(2,790) 3,152
Cash and cash equivalents:   
Beginning of period20,437
 74,611
End of period$17,647
 $77,763
    
The accompanying notes are an integral part of these condensed consolidated financial statements.

Forbes Energy Services Ltd.
(Debtor-in-Possession through April 12, 2017)
Notes to Condensed Consolidated Financial Statements
(unaudited)

1. Organization and Nature of Operations

Nature of Business
Forbes Energy Services Ltd., or FES Ltd., is an independent oilfield services contractor that provides a wide range of well site services to oil and natural gas drilling and producing companies to help develop and enhance the production of oil and natural gas. These services include fluid hauling, fluid disposal, well maintenance, completion services, workovers and re-completions, plugging and abandonment, and tubing testing. OurThe Company's operations are concentrated in the major onshore oil and natural gas producing regions of Texas, with an additional location in Pennsylvania. We believeThe Company believes that ourits broad range of services, which extends from initial drilling, through production, to eventual abandonment, is fundamental to establishing and maintaining the flow of oil and natural gas throughout the life cycle of ourits customers' wells. Our headquarters and executive offices are located at 3000 South Business Highway 281, Alice, Texas 78332. We can be reached by phone at (361) 664-0549.

As used in these Consolidated Financial Statements, the “Company,” “we,” and “our” mean FES Ltd. and its direct and indirect subsidiaries, except as otherwise indicated.

Chapter 11 Proceedings2. Basis of Presentation

Fresh Start Accounting
On January 22, 2017, FES Ltd. and its domestic subsidiaries, or collectively, the Debtors, filed voluntary petitions or the Bankruptcy Petitions, for reorganization under chapter 11 of the United States Bankruptcy Code, or the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas-Corpus Christi Division, or the Bankruptcy Court, pursuant to the terms of a restructuring support agreement that contemplated the reorganization of the Debtors pursuant to a prepackaged plan of reorganization, as amended and supplemented, the Plan. On March 29, 2017, the Bankruptcy Court entered an order or the Confirmation Order, confirming the Plan. On April 13, 2017, or the Effective Date, the Plan became effective pursuant to its terms and the Debtors emerged from their chapter 11 cases. Although the Debtors are no longer debtors-in-possession, the Debtors were debtors-in-possession for the entire quarter ended March 31, 2017. As such, certain aspects of the
Upon emergence from bankruptcy proceedings of the Debtors and related matters are described below in order to provide context and explain part of the Company's financial condition and results of operations for the period presented.
Effect of the Bankruptcy Proceedings
During the bankruptcy proceedings, the Debtors conducted normal business activities and were authorized to pay certain vendor payments, wage payments and tax payments in the ordinary course. In addition, subject to certain specific exceptions under the Bankruptcy Code, the Bankruptcy Petitions automatically stayed most judicial or administrative actions against the Debtors or their property to recover, collect, or secure a prepetition claim. For example, the Bankruptcy Petitions prohibited lenders or note holders from pursuing claims for defaults under the Debtors’ debt agreements during the pendency of the chapter 11 cases.
The Plan
Under the Plan, which was approved by the Bankruptcy Court and became effective on the Effective Date,:
•FES Ltd. converted from a Texas corporation to a Delaware corporation;
•All prior equity interests (which included the Company qualified for and adopted fresh start accounting in accordance with the provisions of ASC 852 as (i) the holders of FES Ltd.’s prior common stock, par value $0.04 per share, or the Old Common Stock, FES Ltd.’s prior preferred stock, awards under FES Ltd.’s prior incentive compensation plans, orreceived none of the Prior Compensation Plans, and the preferred stock purchase rights under the Rights Agreement dated as of May 19, 2008 and subsequently amended on July 8, 2013, or the Rights Agreement, between FES Ltd. and CIBC Mellon Trust Company, as rights agent) in FES Ltd. were extinguished without recovery;
•FES Ltd. created a new class of common stock, par value $0.01 per share, or the New Common Stock;
•FES Ltd.’s prior 9% senior notes due 2019, or the Prior Senior Notes, were canceled and each holder of the Prior Senior Notes received such holder’s pro rata share of (i) $20.0 million in cash and (ii) 100% of the New Common Stock, subject to dilution only as a result of the shares of New Common Stock issued or available

for issuance in connection with a management incentive plan, or the Management Incentive Plan. A total of 5,249,997 shares of New Common Stock was issued to the holders of the Prior Senior Notes;
•The Debtors entered into the New Loan Agreement, with certain financial institutions party thereto from time to time as lenders, or the Lenders, and Wilmington Trust, National Association, as agent for the Lenders;
•FES Ltd. adopted the Management Incentive Plan, which provides for the issuance of equity-based awards with respect to, in the aggregate, up to 750,000 shares of New Common Stock;
•The Debtors’ loan and security agreement governing their revolving credit facility, or the Prior Loan Agreement, dated as of September 9, 2011 and subsequently amended, with Regions Bank, or Regions, as the sole lender party thereto, or the Lender, was terminated and a new letter of credit facility was entered into with Regions, or the New Regions Letters of Credit Facility, which covers letters of credit and certain bank product obligations. Regions continues to hold the cash pledged to support the New Regions Letters of Credit Facility in the amount of $10.1 million as of May 11, 2017;
•The Debtors paid off the outstanding principal balance of $15 million plus outstanding interest and fees under the Prior Loan Agreement, and the Prior Loan Agreement was terminated in accordance with the Plan;
•Holders of allowed creditor claims, aside from holders of the Prior Senior Notes, received, on account of such claims, either payment in full in cash or otherwise had their rights reinstated; and
•FES Ltd. entered into a registration rights agreement with certain of its stockholders to provide registration rights.
On the Effective Date, the Debtors eliminated approximately $280.0 million in principal amount of the Prior Senior Notes plus accrued interest thereon.
Fresh Start Accounting
In connection with the Debtors' emergence from bankruptcy, the Company will be required to apply fresh start accounting to its financial statements because (i) the holders of Old Common Stock received none of the New Common Stock, issued upon the Debtors' emergence from bankruptcy and (ii) the reorganization value of the Company's assets immediately prior to confirmation of the Plan was less than the post-petition liabilities and allowed claims. Fresh start accounting will be applied to the Company’s consolidated financial statements during the quarter ending June 30, 2017.
Financial Statement ClassificationThe effects of Liabilities Subject to Compromise
The Company's financial statements include amounts classified as liabilities subject to compromise, which represent liabilities that have been addressed in the chapter 11 cases. The Plan, as confirmed, provides for the treatment of claims against the Debtors’ bankruptcy estates, including prepetition liabilities. Certain claims were unimpaired under the Plan and remain pending against the Debtors. Such claims may be material and will be addressed in the ordinary course.
The following table summarizes the componentsapplication of liabilities subject to compromise included on our condensed consolidated balance sheets as of March 31, 2017 and December 31, 2016 (in thousands):

   March 31, 2017
   (in thousands)
     
 Accounts payable and accrued liabilities $607
 Prior Senior Notes and accrued interest  307,824
     
   $308,431



Reorganization Items

The Debtors have incurred significant costs associated with the reorganization, principally professional fees. The amount of these costs, whichfresh start accounting are being expensed as incurred, significantly affect the Company's results of operations.

The following table summarizes the components included in reorganization itemsreflected in the Company's condensed consolidated financial statements of operations for the three months ended March 31, 2017 (in thousands):

   March 31, 2017 
   (in thousands) 
      
 Reorganization legal and professional fees and expenses $4,483
 
 
Deferred loan costs expensed (1)
  2,104
 
      
     Reorganization items $6,587
 
(1) The amount shown reflects the deferred financing costs on the Prior Senior Notes that were written off in the
first quarter offrom and after April 13, 2017.

2. Risk and Uncertainties
As an independent oilfield services contractor that provides a broad range of drilling-related and production-related services to oil and natural gas companies, primarily onshore in Texas, our revenue, profitability, cash flows and future rate of growth are substantially dependent on our ability to (1) maintain adequate equipment utilization, (2) maintain adequate pricing for the services we provide, and (3) maintain a trained work force. Failure to do so could adversely affect our financial position, results of operations, and cash flows.

Because our revenues are generated primarily from customers who are subject References to the same factors generally impacting"Successor" pertain to the oilCompany from and natural gas industry, our operations are also susceptibleafter the Effective Date. References to market volatility resulting"Predecessor" pertain to the Company prior to the Effective Date.
The Company applied fresh start accounting from economic, cyclical, weather related,and after the Effective Date. Fresh start accounting required the Company to present its assets, liabilities and equity as if it were a new entity upon emergence from bankruptcy, with no beginning retained earnings or other factors relateddeficit as of the fresh start reporting date. As a result of the adoption of fresh start accounting, the Company’s unaudited condensed consolidated financial statements from and after the Effective Date will not be comparable to its financial statements prior to such industry. Changes experienced in the level of operating and capital spending in the industry, decreases in oil and natural gas prices, and/or industry perception about future oil and natural gas prices has materially decreased the demand for our services, and has had an adverse effect on our financial position, results of operations and cash flows.date.

3. Basis of Presentation
Reclassification
Certain prior period amounts have been reclassified to conform to the current year presentation with no material impact on consolidated net income or cash flows.
Interim Financial Information
The unaudited condensed consolidated financial statements of the Company are prepared in conformity with accounting principles generally accepted in the United States of America, or GAAP, for interim financial reporting. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. Therefore, these condensed consolidated financial statements should be read along with the annual audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016. In management’s opinion, all adjustments necessary for a fair statement are reflected in the interim periods presented. Interim results for the three months ended March 31, 2017 may not be indicative of results that will be realized for the full year ending December 31, 2017. All significant intercompany accounts and transactions have been eliminated in consolidation.

In the opinion of management, all adjustments which are of normal recurring natures considered necessary for a fair representation have been made in the accompanying unaudited financial statements.

Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated balance sheets and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates.

Recent Accounting PronouncementsCash - Restricted
In JanuaryRestricted cash at March 31, 2018 (Successor) and December 31, 2017 the Financial Accounting Standards Board, or the FASB, issued Accounting Standards Update, or ASU, No. 2017-01, or ASU 2017-01, "Clarifying the Definition of a Business." ASU 2017-01 provides guidance on whether or not an integrated set of assets(Successor) was $25.6 million and activities constitutes a business. ASU 2017-01 is effective for periods beginning after December 15, 2017 including interim periods within those periods, with early adoption permitted in specific instances. We have determined the adoption of this pronouncement will not have a material impact on our consolidated financial statements and related disclosures.
In November 2016, the FASB issued ASU No. 2016-18, "Statement of Cash Flows (Topic 230), Restricted Cash," or ASU 2016-18. ASU 2016-18 provides guidance on the presentation$30.0 million, respectively. The components of restricted cash at March 31, 2018 (Successor) included $16.9 million related to the loan and restrictedsecurity agreement which provides for a term loan of $50.0 million, or the New Loan Agreement, which is subject to satisfaction of certain release restrictions and $8.7 million in a cash equivalentscollateral account related to letters of credit and the Company's corporate credit card program under a new letter of credit facility entered into with Regions, or the New Regions Letter of Credit Facility. The release conditions set forth in the statementNew Loan Agreement include, among other things, (i) no default or event of cash flows. Restricted cashdefault under the New Loan Agreement having occurred or being continuing as of the date of the requested release of proceeds of the New Loan Agreement, or that would exist after giving effect to the release requested to be made on such date, and restricted cash equivalents should be included with(ii) the Company’s unrestricted cash and cash equivalents when reconcilingbeing less than $7.0 million after giving pro forma effect to the beginning-of-period and end-of-period amounts shown on the statement of cash flows. The amendments of ASU 2016-18 should be applied using a retrospective transition method and are effective for reporting periods beginning after December 15, 2017 with early adoption permitted. We believe the adoption of this pronouncement will only change the presentation of the statement of cash flows for restricted cash.requested release.
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” or ASU 2016-15. ASU 2016-15 will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017. The new standard will require adoption on a retrospective basis unless it is impracticable to apply, in which case, the new standard would apply the amendments prospectively as of the earliest date practicable. We are currently in the process of evaluating the impact of adoption on our consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", or ASU 2016-13, which introduces a new impairment model for financial instruments that is based on expected credit losses rather than incurred credit losses. The new impairment model applies to most financial assets, including trade accounts receivable. The amendments in ASU 2016-13 are effective for interim and annual reporting periods beginning after December 15, 2019 with early adoption permitted for annual periods beginning after December 15, 2018. We will be evaluating the impact of adopting this pronouncement on our consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)," or ASU 2016-02, which increases the transparency and comparability about leases among entities. The new guidance requires lessees to recognize a lease liability and a corresponding lease asset for operating leases with lease terms greater than 12 months.  It also requires additional disclosures about leasing arrangements to help users of financial statements better understand the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 becomes effective for interim and annual periods beginning after December 15, 2018 and requires a modified retrospective approach to adoption. Early adoption is permitted. We have engaged a third party to assist in evaluating the impact of this new standard on our consolidated financial statements and related disclosures.Revenue Recognition
In May 2014, the FASB issued ASU No. 2014-09, “Revenue"Revenue from Contracts with Customers (Topic 606),”" or ASU 2014-09, which provides guidance for revenue recognition and which supersedes nearly all existing revenue recognition guidance under ASU 2014-09.2014-09 and created ASC 606. This ASU provides guidance that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. Additionally,On January 1, 2018, the guidance permits two methods of transition upon adoption: full retrospective and modified retrospective. Under the full retrospective method, the standard would be applied to each prior reporting period presented. Under theCompany adopted ASC 606 on a modified retrospective method,basis for all contracts. As a result of the cumulative effect of applyingCompany's adoption, there were no changes to the standard would be recognized at the date of initial application. In August 2015, the FASB issued final revised guidance that defers the effective datetiming of the revenue recognition standardor measurement of revenue, and there was no cumulative effect of adoption as of January 1, 2018. Therefore, the only changes to the financial statements related to the adoption are in the footnote disclosures as included here-in.
Revenue is measured as consideration specified in a contract with a customer and excludes any sales incentives and amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation by providing service to a customer. Amounts are billed upon completion of service and are generally due within 30 days.
The Company has its principal revenue generating activities organized into two service lines, well servicing and fluid logistics. The Company's well servicing line consists primarily of maintenance, workover, completion, plugging and abandonment, and tubing testing services. The Company's fluid logistics line provides supporting services to the well servicing line as well as direct sales to customers for fluid management and movement. The Company generally establishes a master services agreement with each customer and provides associated services on a work order basis in increments of days, by the hour for services performed or on occasion, bid/turnkey pricing. Services provided under the well servicing and the fluid logistics segments are short in duration and generally completed within 30 days.

The majority of the Company’s contracts with customers in both the well servicing and fluid logistics segments are short-term in nature and are recognized as “over-time” performance obligations as the services are performed. The Company applies the “as-invoiced” practical expedient as the amount of consideration the Company has a right to invoice corresponds directly with the value of the Company’s performance to date. Because of the short-term nature of the Company’s services, which generally last a few hours to multiple days, the Company does not have any contracts with a duration longer than one year that require disclosure. The Company has no material contract assets or liabilities.

The Company does not have any revenue expected to be recognized in the future related to remaining performance obligations or contracts with a variable consideration related to undelivered performance obligations. There was no revenue recognized in the current period from performance obligations satisfied in previous periods. The Company's significant judgments made in connection with the adoption of ASC 606 included the determination of when the Company satisfies its performance obligation to customers and the applicability of the as invoiced practical expedient.
The following tables show revenue disaggregated by primary geographical markets and major service lines for annualthe three months ended March 31, 2018 (Successor) and interim periods beginning after December 15,March 31, 2017 with early adoption permitted for interim and annual reporting periods beginning after December 15, 2016. We have engaged a third party to assist in evaluating the impact of this new standard on our consolidated financial statements and related disclosures.(Predecessor).

Impairment
During
Successor  Three months ended March 31, 2018
  Well ServicingFluid LogisticsTotal
Primary Geographical Markets (in thousands)
South Texas  $19,553
$8,884
$28,437
East Texas (1)
  370
348
718
Central Texas  2,922
1,636
4,558
West Texas  12
1,867
1,879
Total  $22,857
$12,735
$35,592

Predecessor  Three months ended March 31, 2017
  Well ServicingFluid LogisticsTotal
Primary Geographical Markets (in thousands)
South Texas  $12,818
$5,219
$18,037
East Texas (1)
  765
828
1,593
Central Texas  —
1,421
1,421
West Texas  3,522
2,474
5,996
Total  $17,105
$9,942
$27,047
      
(1) Includes revenues from the Company's operations in Pennsylvania.  


3. Risk and Uncertainties
As an independent oilfield services contractor that provides a broad range of drilling-related and production-related services to oil and natural gas companies, primarily onshore in Texas, the second quarterCompany's revenue, profitability, cash flows and future rate of 2016,growth are substantially dependent on its ability to (1) maintain adequate equipment utilization, (2) maintain adequate pricing for the services it provides, and (3) maintain a trained workforce. Failure to do so could adversely affect the Company's financial position, results of operations, and cash flows.

Because the Company's revenues are generated primarily from customers who are subject to the same factors as the Company experienced a triggering eventthat are generally impacting the oil and natural gas industry, the Company's operations are also susceptible to market volatility resulting from economic, cyclical, weather related, or other factors related to such industry. Changes experienced in the continuing decline in operating revenues due to an industry-wide slowdown. An impairment loss of $14.5 million was recorded as a componentlevel of operating expenses based on the amount that the carrying value of certain intangibles exceeded the fair value of such intangibles during the second quarter of 2016. The Company continues to monitor facts and circumstances for asset impairment indicators for long-term assets. The Company did not experience any triggering eventscapital spending in the first quarterindustry, decreases in oil and natural gas prices, and/or industry perception about future oil and natural gas prices has materially decreased the demand for the Company's services, and has had an adverse effect on its financial position, results of 2017.operations and cash flows.

4. Property and Equipment
Property and equipment consisted of the following:
   Successor
 
Estimated
Life in Years
 March 31, 2018  December 31, 2017
   (in thousands)
Well servicing equipment9-15 years $84,333
  $80,899
Autos and trucks5-10 years 44,248
  42,831
Disposal wells5-15 years 3,952
  3,977
Building and improvements5-30 years 5,519
  5,474
Furniture and fixtures3-15 years 2,054
  1,950
Land  868
  868
   140,974
  135,999
Accumulated depreciation  (25,573)  (18,808)
   $115,401
  $117,191
Depreciation expense was $6.9 million and $12.0 million for the three months ended March 31, 2018 (Successor), and 2017 (Predecessor), respectively.

5. Intangible Assets
OurThe Company's major class of intangible assets subject to amortization consists of trade names. The Company expenses costs associated with extensions or renewals of intangible assets. There were no such extensions or renewals in each of the three months ended March 31, 2018 (Successor) and 2017 and 2016.(Predecessor). Amortization expense is calculated using the straight-line method over the period indicated. Amortization expense for the three months ended March 31, 2018 (Successor) and March 31, 2017 (Predecessor) was $0.3 million and 2016 was $0.1 million, and $0.7 million, respectively. As noted in Note 3, an impairment of certain intangible assets of $14.5 million was recorded in the second quarter of 2016. Based upon our findings during the second quarter of 2016, the recoverable amount of the trade name was in excess of the carrying amount, and no impairment was indicated at that time. We did not experience any triggering events during the first quarter of 2017.


The following sets forth the identified intangible assets by major asset class:
   As of March 31, 2017 As of December 31, 2016
 
Useful
Life
(years)
 
Gross
Carrying
Value
 
Accumulated
Amortization
 Impairment 
Net Book
Value
 
Gross
Carrying
Value
 
Accumulated
Amortization
 Impairment 
Net Book
Value
   (in thousands)
Trade names15 8,050
 (4,964) —
 3,086
 8,050
 (4,830) —
 3,220
 
Useful Life
(years)
 
Gross
Carrying Value
 
Accumulated
Amortization
 
Net Book
Value
   (in thousands)
As of March 31, 2018 (Successor)       
Customer relationships15 $8,678
 $(560) $8,118
Trade names15 2,472
 (159) 2,313
Covenants not to compete4 1,505
 (364) 1,141
   $12,655
 $(1,083) $11,572
        
 Useful Life
(years)		 
Gross
Carrying Value
 
Accumulated
Amortization
 
Net Book
Value
   (in thousands)
As of December 31, 2017 (Successor)       
Customer relationships15 $8,678
 $(415) $8,263
Trade names15 2,472
 (118) 2,354
Covenants not to compete4 1,505
 (270) 1,235
   $12,655
 $(803) $11,852

Estimated amortization expense of the trade names remaining for the years 2017 through 2022 is $0.5 million per year.

5. Share-Based Compensation6. Long-Term Debt

Bankruptcy Proceedings

As discussed in Note 1 - Chapter 11 Proceedings, on the Effective Date, all prior equity interests (which included the Old Common Stock, FES Ltd.’s prior preferred stock, awards under the Prior Compensation Plans and the preferred stock purchase rights under the Rights Agreement) in FES Ltd. were extinguished without recovery.

Incentive Compensation Plans

From time to time, the Company grants stock options, restricted stock units, or other awards to its employees, including executive officers and directors. As discussed in Note 1 - Chapter 11 Proceedings, on the Effective Date, all awards then outstanding under the Prior Compensation Plans were extinguished without recovery and the Prior Compensation Plans were effectively terminated.

Stock Options

There were 602,625 stock options vested and exercisable at March 31, 2017.
For the three months ended March 31, 2017 and 2016, the Company recorded no expenses for share-based compensation related to stock options, as all outstanding options are fully vested. There was no share-based compensation expense capitalized for either of the three months ended March 31, 2017 or 2016. As of March 31, 2017, there was no unrecognized share-based compensation expense for stock options. As discussed in Note 1 - Chapter 11 Proceedings, on the Effective Date, all options then outstanding under the Prior Compensation Plans were extinguished without recovery.



Restricted Stock Units

The following table presents a summary of restricted stock unit grant activity for the three months ended March 31, 2017:
 Liability Based  Grant Date Average Fair Value Per Unit
Outstanding at December 31, 2016715,679
  $1.53
 
Canceled(715,679)   1.53
 
Outstanding at March 31, 2017—
  $—
 

On March 17, 2017, the outstanding restricted stock units were canceled. There was no share-based compensation expense for restricted stock units for the three months ended March 31, 2017 and $0.1 million for the three months ended March 31, 2016.

6. Property and Equipment
Property and equipment consisted of the following:
 
Estimated
Life in Years
 March 31,
2017		 December 31,
2016
   (in thousands)
Well servicing equipment9-15 years $409,321
 $411,199
Autos and trucks5-10 years 121,347
 126,580
Disposal wells5-15 years 37,748
 37,752
Building and improvements5-30 years 14,125
 14,125
Furniture and fixtures3-15 years 6,836
 6,779
Land  1,524
 1,524
   590,901
 597,959
Accumulated depreciation  (369,363) (364,597)
   $221,538
 $233,362
Depreciation expense was $12.0 million and $12.8 million for the three months ended March 31, 2017, and 2016, respectively.


7. Long-Term Debt
Long-term debt at March 31, 20172018 and December 31, 20162017 consisted of the following:following (in thousands):
 March 31,
2017		 December 31,
2016
 (in thousands)
Prior Senior Notes, net of deferred financing costs of $2.3 million as of December 31, 2016 (1)
$—
 $277,662
Revolving credit facility15,000
 15,000
Capital leases988
 1,386
Insurance notes2,939
 5,124
 18,927
 299,172
Less: Current portion(18,806) (298,932)
 $121
 $240

(1) Classified as Liabilities subject to compromise as of March 31, 2017.

Prior Senior Notes
On June 7, 2011, FES Ltd. issued $280.0 million in principal amount of the Prior Senior Notes, which were guaranteed by Forbes Energy Services LLC, or FES LLC, C.C. Forbes, LLC, or CCF, TX Energy Services, LLC, or TES, and Forbes Energy International, LLC, or FEI. FES Ltd.’s failure to make the semi-annual interest payments on the Prior Senior Notes on June 15, 2016 and December 15, 2016 after the cure periods provided for in the indenture governing the Prior Senior Notes, or the Prior Senior Indenture, and other events of default resulting from technical breaches of covenants under the Prior Senior Indenture, or, collectively, the Prior Indenture Defaults, could have resulted in all outstanding indebtedness due under the Prior Senior Indenture immediately becoming due and payable. However, as discussed in Note 1 - Chapter 11 Proceedings, any efforts to enforce such payment obligations were automatically stayed as a result of the filing of the Bankruptcy Petitions, and the creditors' rights of enforcement in respect of the Prior Senior Indenture were subject to the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. As discussed in Note 1 - Chapter 11 Proceedings, on the Effective Date, the Prior Senior Notes were canceled and each holder of the Prior Senior Notes received such holder’s pro rata share of (i) $20 million in cash and (ii) 100% of the New Common Stock, subject to dilution only as a result of the shares of New Common Stock issued or available for issuance in connection with the Management Incentive Plan.

Revolving Credit Facility
On September 9, 2011, the Debtors entered into the Prior Loan Agreement. Under cross default provisions in the Prior Loan Agreement, an event of default under the Prior Senior Indenture constituted an event of default under the Prior Loan Agreement. As mentioned above, the Debtors experienced the Prior Indenture Defaults under the Prior Senior Indenture and, thus, constituted an event of default under the Prior Loan Agreement, or the Prior Loan Defaults. The Prior Indenture Defaults and the Prior Loan Defaults could have resulted in all outstanding indebtedness due under the Prior Senior Indenture and the Prior Loan Agreement becoming immediately due and payable. However, as discussed in Note 1 - Chapter 11 Proceedings, any efforts to enforce such payment obligations were automatically stayed as a result of the filing of the Bankruptcy Petitions, and the creditors' rights of enforcement in respect of the Prior Senior Indenture and the Prior Loan Agreement were subject to the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. As discussed in Note 1 - Chapter 11 Proceedings, on the Effective Date, the outstanding principal balance of $15.0 million plus outstanding interest and fees under the Prior Loan Agreement was paid off and the Prior Loan Agreement was terminated in accordance with the Plan. Additionally, on the Effective Date, the Debtors entered into the New Regions Letters of Credit Facility to cover letters of credit and certain bank product obligations.
 Successor
 March 31, 2018  December 31, 2017
 (in thousands)
Third party equipment notes and capital leases$5,898
  $5,822
Insurance notes3,380
  5,882
New Loan Agreement, including $2.6 million and $1.7 million of accrued interest paid in kind and net of debt discount of $4.3 million and $4.5 million as of March 31, 2018 and December 31, 2017, respectively48,266
  47,150
Total debt57,544
  58,854
Less: Current portion(5,097)  (7,566)
Total long-term debt$52,447
  $51,288

New Loan Agreement
As discussed previously, onOn the Effective Date, the Company entered into the New Loan Agreement. FESForbes Energy Services LLC, or the Borrower, is the borrower or the Borrower, under the New Loan Agreement. The Borrower’s obligations have been guaranteed by the FES Ltd. and by TES, CCFTexas Energy Services, LLC, C.C. Forbes, LLC and FEI,Forbes Energy International, LLC, each direct subsidiaries of the Borrower and indirect subsidiaries of FES Ltd. The New Loan Agreement provides for a term loan of $50.0 million.million, which was fully funded on the Effective Date. Subject to certain exceptions and permitted encumbrances, the obligations under this loan are secured by a first priority security interest in substantially all the assets of the Company other than cash collateralizing the New Regions Letters of Credit Facility. Such term loan has a stated maturity date of April 13, 2021. The proceeds of such term loan are only permitted to be used for (i) the payment on account of the Prior Senior Notes in an amount equal to $20.0 million; (ii) the payment of costs, expenses and fees incurred on or prior to the Effective Date in connection with the preparation, negotiation, execution and delivery of the New Loan Agreement and documents related thereto; and (iii) subject to satisfaction of certain release conditions set forth in the New Loan Agreement, for general operating, working capital and other general corporate purposes of the Borrower not otherwise prohibited by the terms of the New Loan Agreement. The release conditions set forth in the New Loan Agreement include, among other things, (i) no default or event of default under the New Loan Agreement having occurred or being continuing as of the date of the requested release of proceeds of the New Loan Agreement, or that would exist after giving effect to the release requested to be made on such date, and (ii) the Company’s unrestricted cash and cash equivalents being less than $7.0 million after giving pro forma effect to the requested release. At March 31, 2018, $16.9 million included in restricted cash was subject to these release restrictions.

Borrowings under this term loan bear interest at a rate equal to five percent (5%) per annum payable quarterly in cash, or the Cash Interest Rate, plus (ii) an initial PIKrate for paid in kind interest rate of seven percent (7%) commencing July 1,April 13, 2017 to be capitalized and added to the principal amount of the term loan on the first day of each quarter or, at the election of the Borrower, paid in cash. The PIKpaid in kind interest increases by two percent (2%) twelve months after the Effective Date and every twelve months thereafter until maturity. Upon and after the occurrence of an event of default, the Cash Interest Rate will increase by two percentage points per annum. At March 31, 2018, the applicable interest rate was 12% per annum.

The Borrower is also responsible for certain other administrative fees and expenses. In connection with the execution of the New Loan Agreement, the Borrower paid the Lenders a funding fee of $3.0 million, and paid certain Lenders a backstop fee of $2.0 million. The $20.0 million payment referred to above and these fees were funded as draws under the New Loan Agreement.

The Company is able to voluntarily repay the outstanding term loan at any time without premium or penalty. The Company is required to use the net proceeds from certain events, including but not limited to, the disposition of assets, certain judgments, indemnity payments, tax refunds, pension plan refunds, insurance awards and certain incurrences of indebtedness to repay outstanding loans under the New Loan Agreement. The Company may also be required to use cash in excess of $20.0 million to repay outstanding loans under the New Loan Agreement.
The New Loan Agreement includes customary negative covenants for an asset-based term loan, including covenants limiting the ability of the Company to, among other things, (i) effect mergers and consolidations, (ii) sell assets, (iii) create or suffer to exist any lien, (iv) make certain investments, (v) incur debt and (vi) transact with affiliates. In addition, the New Loan Agreement includes customary affirmative covenants for an asset-based term loan, including covenants regarding the delivery of financial statements, reports and notices to the Agent. The New Loan Agreement also contains customary representations and warranties and event of default provisions for a secured term loan.

New Regions Letters of Credit Facility
As discussed previously, on the Effective Date, the outstanding principal balance of $15.0 million plus outstanding interest and fees under the Prior Loan Agreement was paid off and the Prior Loan Agreement was terminated in accordance with the Plan. On the Effective Date the Company entered into the New Regions Letters of Credit Facility to cover letters of credit and certain bank product obligations existing on the Effective Date and pursuant to which Regions may issue, upon request by the Company, letters of credit and continue to provide charge cards for use by the Company. Amounts available under the New Regions Letters of Credit Facility are subject to customary fees and are secured by a first-priority lien on, and security interest in, a cash collateral account with Regions containing cash equal to at least (i) 105% of the sum of (a) all amounts owing for any drawings under letters of credit, including any reimbursement obligations, (b) the aggregate undrawn amount of all outstanding letters of credit, (c) all sums owing to Regions or any affiliate pursuant to any letter of credit document and (d) all obligations of the Company arising thereunder, including any indemniteesindemnities and obligations for reimbursement of expenses and (ii) 120% of the aggregate line of credit for charge cards issued by Regions to the Company. The fees for each letter of credit for the period from and excluding the date of issuance of such letter of credit to and including the date of expiration or termination, are equal to (x) the average daily face amount of each outstanding letter of credit multiplied by (y) a per annum rate determined by Regions from time to time in its discretion based upon such factors as Regions shall determine, including, without limitation, the credit quality and financial performance of the Company. As of the Effective Date,March 31, 2018, such rate was 3.00%. In the event the Company is unable to repay amounts due under the New Regions Letters of Credit Facility, Regions could proceed against such cash collateral account. Regions has no commitment under the New Regions Letters of Credit Facility to issue letters of credit. At March 31, 2018, the facility had $8.6 million in letters of credit outstanding.


Capital Leases
The Company financed the purchase of certain vehicles and equipment through commercial loans and capital leases with aggregate principal amounts outstanding as of March 31, 20172018 (Successor) and December 31, 20162017 (Successor) of approximately $1.0$5.9 million and $1.4$5.8 million, respectively. These loans are repayable in a range of 42 to 6048 monthly installments with the maturity dates ranging from April 20172018 to July 2018.February 2022. Interest accrues at rates ranging from 3.1%3.4% to 8.4%4.9% and is payable monthly. The loans are collateralized by equipment purchased with the proceeds of such loans. The Company paid total principal payments of approximately $0.5 million during the three months ended March 31, 2018 (Successor), and $0.4 million and $1.1 million forduring the three months ended March 31, 2017 and 2016, respectively.(Predecessor).

Following are required principal payments due on notes and capital leases (other than the 9% Senior Notes) existing as of March 31, 2017:2018:
 April - December 2017 2018 2019 20202021 and thereafter
 (in thousands) 
Capital lease principal payments$748
 $240
 $—
 $—
$—
 April - December 2018 2019 2020 2021 2022 and thereafter
 (in thousands)
Capital lease principal payments$1,313
 $1,644
 $1,713
 $1,197
 $31

Management has historically acquired all light duty trucks (pickup trucks) through capital leases and may use capital leases or cash to purchase equipment held under operating leases that have reached the end of the lease term. See Note 108 - Commitments and Contingencies.

Insurance Notes
During October of 2016,2017, the Company entered into an insurance promissory note for the payment of insurance premiums at an interest rate of 2.9% with an aggregate principal amount outstanding as of March 31, 20172018 (Successor) and December 31, 2016,2017 (Successor), of approximately $2.9$3.4 million and $5.1$5.9 million, respectively.

8.7. Fair Value of Financial InstrumentsMeasurements
Fair value is defined as the amount that would be received for the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Financial Assets and Liabilities
The carrying amounts of cash and cash equivalents, accounts receivable-trade, accounts receivable-other, accounts payable-trade, and insurance notes, approximate fair value because of the short maturity of these instruments. The fair values of third party notes and equipment notes approximate their carrying values, based on current market rates at which the Company could borrow funds with similar maturities (Level 2 in the fair value hierarchy). The fair values of the New Loan Agreement as of the respective dates are set forth below:
 
 March 31, 2017 December 31, 2016
 Carrying Amount Fair Value Carrying Amount Fair Value
 (in thousands)
Prior Senior Notes$280,000
 $95,200
 $277,662
 $98,570

The fair value of our 9% Senior Notes is a Level 1 input within the fair value hierarchy and is based on the dealer quoted market prices at March 31, 2017 and December 31, 2016, respectively.

Fair Value on a Non-Recurring Basis

The Company has assets measured and recorded at fair value on a non-recurring basis.  These nonfinancial assets include property, plant and equipment and intangible assets for which fair value is calculated in connection with impairment testing.  These fair value calculations incorporate a market and a cost approach and the inputs include projected revenue, costs, equipment utilization and other assumptions.  Given the unobservable inputs, these fair value measurements are classified as Level 3.
 March 31, 2018  December 31, 2017
 Carrying Amount Fair Value  Carrying Amount Fair Value
Successor(in thousands)
New Loan Agreement$48,266
 $50,719
  $47,150
 $55,550


9. Related Party Transactions
    The Company enters into transactions with related parties in the normal course of conducting business. The following tables represent related party transactions.

  As of 
  March 31,
2017		 December 31, 2016 
  (in thousands) 
Related parties cash and cash equivalents balances:     
Balance at Texas Champion Bank (1)
 $160
 $295
 
      
Related parties payable:     
Texas Quality Gate Guard Services, LLC (2)
 —
 18
 
  $—
 $18
 
      

There were no related party receivables as of March 31, 2017 and December 31, 2016.

There were no related party capital expenditures for the three months ended March 31, 2017 and 2016 .


      
  Three months ended March 31, 
  2017 2016 
  (in thousands) 
Related parties revenue activity:     
  Tasco Tool Services, Ltd. (3)
 $1
 $—
 
  $1
 $—
 
      
      
Related parties expense activity:     
Alice Environmental Services, LP/Alice Environmental Holdings, LLC (4)
 $223
 $298
 
Tasco Tool Services, Ltd. (3)
 9
 7
 
Texas Quality Gate Guard Services, LLC (2)
 41
 45
 
  Animas Holdings, LLC (5)
 48
 40
 
CJW Group, LLC (6)
 9
 9
 
  $330
 $399
 
Other payments to related parties:     
SB Factoring, LLC (7)
 $73
 $128
 
  $73
 $128
 
      
      
      
      
      
      
      

(1)The Company has a deposit relationship with Texas Champion Bank. Travis Burris, who served as a Company director until the Effective Date, is the President, Chief Executive Officer, and director of Texas Champion Bank. John E. Crisp, or Mr. Crisp, an executive officer and director of the Company, serves on the board of directors of Texas Champion Bank.
(2)Texas Quality Gate Guard Services, LLC, or Texas Quality Gate Guard Services, is an entity owned by Mr. Crisp and Charles C. Forbes, Jr., and a son of Mr. Crisp. Texas Quality Gate Guard Services has provided security services to the Company. Mr. Forbes served as a Company director and an executive officer until the Effective Date.
(3)Tasco Tool Services, Ltd., or Tasco, is a down-hole tool company that is partially owned and managed by a company that is partially owned by Mr. Forbes. Tasco rents and sells tools to the Company from time to time.
(4)Messrs. Crisp and Forbes are also owners and managers of Alice Environmental Holdings, LLC, or AEH, and indirect owners and managers of Alice Environmental Services, LP, or AES and Alice Environmental West Texas, LLC, or AEWT. The Company leases or rents land and buildings, and formerly leased aircraft from AES. During January 2015, the Company purchased land from AEWT for an additional operating location. The aircraft leases were terminated during the third quarter of 2015.
(5)Animas Holdings, LLC, or Animas, is owned by the two sons of Mr. Crisp and three children of Mr. Forbes. Animas owns land and property that it leases to the Company.
(6) CJW Group, LLC is an entity that leases office space to the Company and is partially owned by Messrs. Crisp and Forbes.
(7)From time to time, vendors of the Company factor their receivables from the Company and direct that the Company make payment of such factored amounts directly to the applicable factor.  One such factor to whom payments have been made by the Company is SB Factoring LLC which is owned in part by each of Mr. Crisp and Mr. Forbes. The nature of these transactions does not result in recording in the Company’s financial records any revenue, any expense or any receivable and does not result in any payable distinct in amount from the amount payable to such vendors as originally incurred.

10.8. Commitments and Contingencies
    
Chapter 11 Proceedings

As discussed in Note 1 - Chapter 11 Proceedings, the Bankruptcy Petitions automatically stayed certain actions against the Debtors, including actions to collect prepetition liabilities or to exercise control over the property of the Debtors. The Plan, as confirmed, provides for the treatment of claims against the Debtors’ bankruptcy estates, including prepetition liabilities. Certain claims were unimpaired under the Plan and remain pending against the Debtors. Such claims may be material and will be addressed in the ordinary course.

Concentrations of Credit Risk

FDIC insurance coverage is currently $250,000 per depositor at each financial institution, and ourthe Company's non-interest bearing cash balances typically exceed federally insured limits. The Company restricts investment of temporary cash investments to financial institutions with high credit standings.

The Company's customer base consists primarily of multi-national and independent oil and natural gas producers. The Company does not require collateral on its trade receivables. For the three months ended March 31, 20172018 (Successor), the Company's largest customer, five largest customers, and ten largest customers constituted 14.3%15.2%, 45.1%48.6% and 56.4%60.9% of

consolidated revenues, respectively. For the three months ended March 31, 2016 the Company's largest customer, five largest customers, and ten largest customers constituted 23.7%2018 (Successor), 60.2% and 76.7% of consolidated revenues, respectively. For the three months ended March 31, 2017 two customers constituted 14.3%15.2% and 12.7%14.8% of consolidated revenues, respectively. The loss of any one of ourthe Company's top five customers would have a materially adverse effect on the revenues and profits of the Company. Further, ourthe Company's trade accounts receivable are from companies within the oil and natural gas industry and as such the Company is exposed to normal industry credit risks. As of March 31, 20172018, the Company's largest customer, five largest customers, and ten largest customers constituted 20.7%24.7%, 46.3%48.5% and 61.5%62.9% of accounts receivable, respectively. As

Litigation

From time to time, the Company is subject to various claims and legal actions that arise in the ordinary course of business. There are no pending material legal proceedings, and the Company is not aware of any material threatened legal proceedings, to which the Company is a party or to which its property is subject that would have a material adverse effect on the Company's financial statements as of March 31, 2017 two customers constituted 20.7%2018. It is reasonably possible that cases could be resolved and 10.0% of accounts receivable, respectively.result in liabilities that exceed the amounts currently reserved.

Self-Insurance

The Company is self-insured under its Employee Group Medical Plan for the first $150 thousand$150,000 per individual. The Company is self-insured with a retention for the first $250 thousand$250,000 in general liability. The Company also retains the first $1.0 million within the auto liability buffer policy which is in excess of a primary $1.0 million auto liability limit. The Company has an additional premium payable clause under its lead $10.0$10 million limit excess policy that states in the event losses exceed $0.5$1 million, a loss additional premium of up to 15% of paid losses in excess of $0.5$1 million will be due. The loss additional premium is payable at the time when the loss is paid and will be payable over a period agreed by insurers. The Company has accrued liabilities totaling $6.4$6.3 million and $7.2 million as of March 31, 20172018 (Successor) and December 31, 2016,2017 (Successor), respectively, for the projected additional premium and self-insured portion of these insurance claims as of the financial statement dates. This accrual includes claims made as well as an estimate for claims incurred but not reported as of the financial statement dates.

LitigationOther

The Company is subject to various other claimscurrently undergoing sales and legal actions that arise inuse tax audits for multi-year periods. The Company believes the ordinary course of business. We do not believe that anyoutcome of these claims and actions, separately or in the aggregate,audits will not have a material adverse effect on our business, financial condition,its results of operations or cash flows, although wefinancial position. Because certain of these audits are in a preliminary stage, an estimate of the possible loss or range of loss cannot guarantee that a material adverse effect will not occur.reasonably be made.

Off-Balance Sheet Arrangements
The Company is often party to certain transactions that constitute off-balance sheet arrangements such as performance bonds, guarantees, operating leases for equipment, and bank guarantees that are not reflected in ourthe Company's condensed consolidated balance sheets. These arrangements are made in ourthe Company's normal course of business and they are not reasonably likely to have a current or future material adverse effect on ourits financial condition, results of operations, liquidity, or cash flows. The Company's off-balance sheet arrangements include $9.0$8.6 million in letters of credit and operating leases for equipment, which are summarized in the table below.equipment.

Following
9. Share-Based Compensation

On the Effective Date, all prior equity interests (which included the Old Common Stock, FES Ltd.’s prior preferred stock, awards under the prior compensation plans and the preferred stock purchase rights under the Rights Agreement) in FES Ltd. were extinguished without recovery.

Management Incentive Plan
On the Effective Date, pursuant to the operation of the Plan, the Management Incentive Plan became effective.

A summary of the Company's share-based compensation expense during the periods presented are future lease payments on operating leases existing as of March 31, 2017:follows (dollar amounts in thousands):

 April - December 2017 2018 2019 2020 2021 2022 and thereafter
 (in thousands)    
Lease payments$1,447
 $953
 $513
 $476
 $417
 $2,167
   Successor  Predecessor
   Three months ended March 31, 2018  Three months ended March 31, 2017
Share based compensation expense recognized$250
  $—
Unrecognized compensation cost $3,414
  $—
Remaining weighted-average service period (years) 3.41
  —


During the year ended December 31, 2017, the Company granted 450,000 restricted stock units to officers and employees subject to the Management Incentive Plan. Below is a summary of the unvested restricted stock units awarded.
11. Supplemental Cash Flow Information
 Three months ended March 31,
 2017 2016
 (in thousands)
Cash paid for   
Interest$461
 $147
Income tax—
 25
Supplemental schedule of non-cash investing and financing activities   
Changes in accounts payable related to capital expenditures$—
 $(1,485)
Capital leases on equipment—
 50
Preferred stock dividends and accretion costs46
 10
   Number of Shares  Weighted Average Fair Value
Unvested as of December 31, 2017 (Successor)363,300  $11.00
  Granted —
  $—
  Vested —
  $—
  Forfeited  —
  $—
Unvested as of March 31, 2018 (Successor)  363,300
  $11.00

12.10. Related Party Transactions
During the three months ended March 31, 2018 (Successor) and 2017 (Predecessor), the Company incurred $266,000 and $330,000, respectively, in related party expenses, primarily related to leases and rents. There was no related party revenue for the three months ended March 31, 2018 (Successor). Related party revenue for the three months ended March 31, 2017 (Predecessor) was $1,000. From time to time, vendors of the Company factor their receivables from the Company with a related party. For the three months ended March 31, 2017 (Predecessor), the Company made payments of $73,000 for receivables factored to a related party. The nature of these transactions do not result in recording in the Company’s financial records any revenue, any expense or any receivable and does not result in any payable distinct in amount from the amount payable to such vendors as originally incurred. There were no such payments made during the three months ended March 31, 2018 (Successor).

As of March 31, 2018 (Successor), related party payables amounted to $1,000 and there were no related party accounts receivable. As of December 31, 2017 (Successor), related party accounts payable were $11,000 and there were no related party or accounts receivable.  
In addition to such related party transactions above, Lawrence “Larry” First, a director of FES Ltd., serves as the Chief Investment Officer and Managing Director of Ascribe Capital LLC, or Ascribe, and Brett G. Wyard, also a director of FES Ltd., serves as a Managing Partner of Solace Capital Partners, or Solace. Ascribe and/or one or more of its affiliates own approximately 24.1% of the outstanding New Common Stock as of May 10, 2018, and is owed approximately $13.2 million of the aggregate principal amount of the New Loan Agreement. Solace and/or one of its affiliates own approximately 17.8% of the outstanding New Common Stock as of May 10, 2018, and is owed approximately $11.9 million of the aggregate principal amount of the term loan covered by the New Loan Agreement. Moreover, an affiliate of Solace and affiliates of Ascribe are parties to certain registration rights agreement dated as of the Effective Date by and among the Company and certain stockholders of the Company.
11. Earnings per Share
On the Effective Date, the Old Common Stock, the prior Series B Senior Convertible Preferred Stock, or the Prior Preferred Stock, and awards then outstanding under the Prior Compensation Plans were extinguished without recovery.

Basic earnings (loss) per share, or EPS, is computed by dividing net income (loss) available to common shareholdersstockholders by the weighted average common stock outstanding during the period. Diluted earnings (loss) per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock, such as options and convertible preferred stock, were exercised and converted into common stock. Potential common stock equivalents relate to outstanding stock options and unvested restricted stock units, which are determined using the treasury stock method, and the prior Series B Senior Convertible Preferred Stock, or the Prior Preferred Stock, which were determined using the "if-converted" method. In applying the if-converted method, conversion is not assumed for purposes of computing diluted EPS if the effect would be antidilutive. As of each of the quarters ended March 31, 2017 and 2016, there were 602,625 and 614,125 options to purchase shares of the Old Common Stock outstanding, respectively, and 588,059 shares of Prior Preferred Stock. The Prior Preferred Stock was convertible at a rate of nine shares of Old Common Stock to one share of Prior Preferred Stock, or 5,292,531 shares of Old Common Stock. As discussed in Note 1 - Chapter 11 Proceedings, on the Effective Date, the Old Common Stock, the Prior Preferred Stock and awards then outstanding under the Prior Compensation Plans were extinguished without recovery.
The following table sets forth the computation of basic and diluted loss per share: 
Three months ended March 31,Successor  Predecessor
2017 2016Three months ended March 31, 2018  Three months ended March 31, 2017
(in thousands, except per share amounts)(in thousands, except per share amounts)  (in thousands, except per share amounts)
Basic and diluted:       
Net loss$(22,440) (24,468)$(8,547)  $(22,440)
Preferred stock dividends and accretion(46) (194)—
  (46)
Net loss attributable to common shareholders$(22,486) $(24,662)
Net loss attributable to common stockholders$(8,547)  $(22,486)
Weighted-average common shares22,215
 22,210
5,336
  22,215
Basic and diluted net loss per share$(1.01) $(1.11)$(1.60)  $(1.01)

There were 602,625 stock options and 5,292,531 shares of Old Common Stock equivalents underlying the Prior Preferred Stock outstanding as of March 31, 2017 that were not included in the calculation of diluted EPS for the three months ended March 31, 2017 because their effect would have been antidilutive. There were 614,125 stock options, 779,183 units of363,300 unvested restricted stock and 5,292,531 shares of Old Common Stock equivalents underlying the Prior Preferred Stock outstanding as of March 31, 2016units that were not included in the calculation of diluted EPS for the three months ended March 31, 20162018 (Successor) because their effect would have been antidilutive. There were 602,625 stock options and 5,292,531shares of Old Common Stock equivalents underlying the Prior Preferred Stock that were not included in the calculation of diluted EPS for the three months ended March 31, 2017 (Predecessor) because their effect would have been antidilutive.

13. Income Taxes

The Company’s effective tax rate for the three months ended March 31, 2017 was (0.1)% based on a pre-tax loss of $22.4 million. The Company's effective tax rate for the three months ended March 31, 2016 was (0.2)% based on a pre-tax loss of $24.4 million. The difference between the effective rate and 35.0% statutory rate is mainly due to the application of a valuation allowance in 2017 and 2016. With respect to the application of a valuation allowance, the management team considered the

likelihood of realizing the future benefits associated with the Company's existing deductible temporary differences and carryforwards. As a result of this analysis, and based on the current year pre-tax loss and a cumulative loss in the prior three fiscal years, management determined that it is not more likely than not that the future benefit associated with all of the Company's existing deductible temporary differences and carryforwards will be realized. As a result, the Company maintained a valuation allowance against all of its net deferred tax assets. Management evaluates the recoverability of the Company's deferred income tax assets by assessing the need for a valuation allowance on a quarterly basis. If the Company determines that it is more likely than not that its deferred tax assets will be recovered, the valuation allowance will be reduced.


14.12. Business Segment Information
The Company has determined that it has two reportable segments organized based on its products and services—well servicing and fluid logistics. The accounting policies of the segments are the same as those described in the summary of significant accounting policies.

Well Servicing
At March 31, 2017, our2018, the Company's well servicing segment utilized ourits fleet of 172168 well servicing rigs, which was comprised of 158154 workover rigs and 14 swabbing rigs, in addition to six coiled tubing spreads and other related assets and equipment. These assets are used to provide (i) well maintenance, including remedial repairs and removal and replacement of downhole production equipment, (ii) well workovers, including significant downhole repairs, re-completions and re-perforations, (iii) completion and swabbing activities, (iv) plugging and abandonment services, and (v) pressure testing of oil and natural gas production tubing and scanning tubing for pitting and wall thickness using tubing testing units.
Fluid Logistics
The fluid logistics segment utilizes ourthe Company's fleet of 258 owned or leased fluid transport trucks and related assets, 109 other heavy trucks including specialized vacuum, high pressure pump and tank trucks, 2,868 frac tanks, 15 salt water disposal wells and facilities, and related equipment. These assets are used to transport, store and dispose of a variety of drilling and produced fluids used in and generated by oil and natural gas production activities. These services are required in most workover and completion projects and are routinely used in the daily operation of producing wells.

The following tables set forth certain financial information with respect to the Company’s reportable segments for the three months ended March 31, 2018 (Successor), and the three months ended March 31, 2017 and 2016: (Predecessor):
 
Three months ended March 31, Successor  Predecessor
Well Servicing Fluid Logistics Consolidated Three months ended March 31, 2018  Three months ended March 31, 2017
2017(in thousands) 
(in thousands)  (in thousands)
Well Servicing Fluid Logistics Total  Well Servicing Fluid Logistics Total
Operating revenues$17,105
 $9,942
 $27,047
 $22,857
 $12,735
 $35,592
  $17,105
 $9,942
 $27,047
Direct operating costs14,140
 9,948
 24,088
 19,017
 10,689
 29,706
  14,140
 9,948
 24,088
Segment operating profit (loss)$2,965
 $(6) $2,959
 $3,840
 $2,046
 $5,886
  $2,965
 $(6) $2,959
Depreciation and amortization$6,169
 $5,899
 $12,068
 $3,732
 $3,431
 $7,163
  $6,169
 $5,899
 $12,068
Capital expenditures (1)
274
 103
 377
 $955
 4,377
 $5,332
  $274
 $103
 $377
Total assets615,696
 434,304
 1,050,000
 $146,825
 $80,456
 $227,281
  $615,696
 $434,304
 $1,050,000
Long-lived assets136,435
 85,103
 221,538
 $83,615
 $43,358
 $126,973
  $136,435
 $85,103
 $221,538
2016      
Operating revenues$18,713
 $13,218
 $31,931
 
Direct operating costs16,720
 13,161
 29,881
 
Segment operating profit$1,993
 $57
 $2,050
 
Depreciation and amortization$6,676
 $6,813
 $13,489
 
Capital expenditures (1)
193
 1,437
 1,630
 
Total assets615,449
 465,242
 1,080,691
 
Long-lived assets158,257
 106,952
 265,209
 
                 
(1) Capital expenditures listed above include all cash and non-cash additions to property and equipment, including capital leases and fixed assets recorded in accounts payable at period end.
(1) Capital expenditures listed above include all cash and non-cash additions to property and equipment, including capital leases and fixed assets recorded in accounts payable at period end.
(1) Capital expenditures listed above include all cash and non-cash additions to property and equipment, including capital leases and fixed assets recorded in accounts payable at period end.
 
Three months ended March 31,Successor  Predecessor
2017 2016Three months ended March 31, 2018  Three months ended in March 31, 2017
Reconciliation of the Company's Operating Loss As Reported:(in thousands)(in thousands)  (in thousands)
Segment operating profits$2,959
 $2,050
$5,886
  $2,959
General and administrative expense4,512
 6,056
4,888
  4,512
Depreciation and amortization12,068
 13,489
7,163
  12,068
Operating loss(13,621) (17,495)(6,165)  (13,621)
Other expense, net(8,788) (6,924)(2,365)  (8,788)
Restructuring costs6,587
 —
Pre-tax loss$(22,409) $(24,419)$(8,530)  $(22,409)
 
 March 31, 2017 December 31, 2016
Reconciliation of the Company's Assets As Reported:(in thousands)
Total reportable segments$1,050,000
 $1,045,753
Elimination of internal transactions(1,971,596) (1,935,640)
Parent1,217,931
 1,202,768
Total assets$296,335
 $312,881


15. Equity Securities

Bankruptcy Proceedings

As discussed in Note 1 - Chapter 11 Proceedings, on the Effective Date, the Old Common Stock or Prior Preferred Stock were extinguished without recovery.
Additionally, on the Effective Date, FES Ltd. created the New Common Stock. The New Common Stock carries the following rights:
•Voting. Holders of the New Common Stock are entitled to one vote per share of New Common Stock owned as of the relevant record date on all matters submitted to a vote of shareholders. Except as otherwise required by Delaware law, holders of New Common Stock (as well as holders of any preferred stock of FES Ltd. entitled to vote with such common shareholders) vote together as a single class on all matters presented to the shareholders for their vote or approval, including the election of directors. The election of directors is determined by a plurality of the votes cast by the shareholders present in person or represented by proxy at the meeting and entitled to vote thereon. All other matters are determined by the vote of a majority of the votes cast by the shareholders present in person or represented by proxy at the meeting and entitled to vote thereon, unless the matter is one upon which, by applicable law, the rules or regulations of any stock exchange applicable to FES Ltd., the Certificate of Incorporation of FES Ltd., or the Certificate of Incorporation, or the Second Amended and Restated Bylaws of FES Ltd., or the Bylaws, a different vote is required, in which case such provision shall govern and control the decision of such matter.
•Dividends. Subject to provisions of applicable law and the Certificate of Incorporation, dividends may be declared by and at the discretion of the board of directors of FES Ltd. at any meeting and may be paid in cash, in property, or in shares of stock of FES Ltd.
•Liquidation, dissolution or winding up. Except as otherwise required by the Certificate of Incorporation or the Bylaws, in the event of the liquidation, dissolution or winding-up of FES Ltd., holders of New Common Stock will have all rights and privileges typically associated with such securities as set forth in the General Corporation Law of the State of Delaware in relation to rights upon liquidation.
•Restrictions on transfer. The New Common Stock is not subject to restrictions on transfer as a result of the Certificate of Incorporation or the Bylaws. Nevertheless, there may be restrictions imposed by applicable securities laws or by the terms of other agreements entered into in the future. The Bylaws permit FES Ltd. to place restrictive legends on its share certificates in order to ensure compliance with these restrictions.
•Other rights. Holders of the New Common Stock have no preemptive, redemption, conversion or sinking fund rights.

The rights, preferences, and privileges of the holders of the New Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any series of preferred stock that may be issued by FES Ltd.

16. Subsequent Events

The Company has evaluated events subsequent to the date of the Company's condensed consolidated financial statements, March 31, 2017. On the Effective Date, the Debtors completed their financial restructuring and emerged from the chapter 11 bankruptcy cases after completing all required actions and satisfying the remaining conditions to the Plan, which was confirmed by the Bankruptcy Court on March 29, 2017. See Note 1 - Chapter 11 Proceedings for more information regarding the Debtor’s emergence from bankruptcy. The Company cannot currently estimate the financial effect of the Debtor’s emergence from bankruptcy on its financial statements, although it expects to record material adjustments in the second quarter of 2017 related to the Plan and due to the application of fresh start accounting upon emergence. There were no other material subsequent events requiring additional disclosure in these financial statements.
 Successor
 March 31, 2018  December 31, 2017
Reconciliation of the Company's Assets As Reported:(in thousands)
Total reportable segments$227,281
  $215,134
Elimination of internal transactions(348,903)  (311,147)
Parent318,628
  297,770
Total assets$197,006
  $201,757



13. Supplemental Cash Flow Information
  
 Successor  Predecessor
 Three months ended March 31, 2018  Three months ended March 31, 2017
Cash paid for(in thousands)  (in thousands)
Interest$921
  $461
Supplemental schedule of non-cash investing and financing activities    
Changes in accounts payable related to capital expenditures$2,414
  $—
Capital leases on equipment$583
  $—
Preferred stock dividends and accretion costs$—
  $46


14. Recent Accounting Pronouncements

In November 2016, the FASB issued ASU No. 2016-18, "Statement of Cash Flows (Topic 230), Restricted Cash," or ASU 2016-18. ASU 2016-18 provides guidance on the presentation of restricted cash and restricted cash equivalents in the statement of cash flows. Restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period amounts shown on the statement of cash flows. On January 1, 2018 the Company adopted the provisions of ASU 2016-18 on a retrospective basis. The 2017 statement of cash flows has been restated to conform to the requirements of ASU 2016-18 and the 2018 presentation.
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets to the same such amounts shown in the consolidated statements of cash flows.

  Successor Successor  Predecessor Predecessor
  March 31, 2018 December 31, 2017  March 31, 2017 December 31, 2016
  (in thousands)  (in thousands)
Cash and cash equivalents $7,572
 $5,465
  $17,647
 $20,437
Restricted cash 25,601
 30,015
  27,579
 27,563
Cash and cash equivalents and restricted cash as shown in the consolidated statement of cash flows $33,173
 $35,480
  $45,226
 $48,000
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", or ASU 2016-13, which introduces a new impairment model for financial instruments that is based on expected credit losses rather than incurred credit losses. The new impairment model applies to most financial assets, including trade accounts receivable. The amendments in ASU 2016-13 are effective for interim and annual reporting periods beginning after December 15, 2019 with early adoption permitted for annual periods beginning after December 15, 2018. The Company is currently in the process of evaluating the impact of adoption on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)," or ASU 2016-02, which increases the transparency and comparability about leases among entities. The new guidance requires lessees to recognize a lease liability and a corresponding lease asset for operating leases with lease terms greater than 12 months. It also requires additional disclosures about leasing arrangements to help users of financial statements better understand the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 becomes effective for interim and annual periods beginning after December 15, 2018 and requires a modified retrospective approach to adoption. The Company has engaged a third party to assist in evaluating the impact of this new standard on its consolidated financial statements and related disclosures. The Company expects to recognize additional lease assets and liabilities related to operating leases with terms longer than one year.


Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with the audited consolidated financial statements for the year ended December 31, 20162017 included in our Annual Report on Form 10-K.10-K, as amended. Any forward-looking statements made by or on our behalf are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Readers are cautioned that such forward-looking statements involve risks and uncertainties in that the actual results may differ materially from those projected in the forward-looking statements. Important factors that could cause actual results to differ include risks set forth in the Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2016.2017.
Overview
Forbes Energy Services Ltd., or FES Ltd., is an independent oilfield services contractor that provides a wide range of well site services to oil and natural gas drilling and producing companies to help develop and enhance the production of oil and natural gas. These services include fluid hauling, fluid disposal, well maintenance, completion services, workovers and re-completions, plugging and abandonment, and tubing testing. Our operations are concentrated in the major onshore oil and natural gas producing regions of Texas, plus one location in Pennsylvania. We believe that our broad range of services, which extends from initial drilling, through production, to eventual abandonment, is fundamental to establishing and maintaining the flow of oil and natural gas throughout the life cycle of our customers’ wells. Our headquarters and executive offices are located at 3000 South Business Highway 281, Alice, Texas 78332. We can be reached by phone at (361) 664-0549.
As used in this Quarterly Report on Form 10-Q, the “Company,” “we,” and “our” mean FES Ltd. and its subsidiaries, except as otherwise indicated.
As discussed in Note 2 to the consolidated financial statements in Item 1, we applied fresh start accounting upon emergence from bankruptcy on the Effective Date which resulted in the Company becoming a new entity for financial reporting purposes. The effects of the Plan and the application of fresh start accounting are reflected in our condensed consolidated financial statements from and after April 13, 2017 (Successor). References to the "Successor" pertain to the Company from and after the Effective Date. References to "Predecessor" pertain to the Company prior to the Effective Date.
We currently provide a wide range of services to a diverse group of companies. InDuring the three months ended March 31, 2017,2018, we provided services to approximately 280306 companies. John E. Crisp and our senior management team, have cultivated deep and ongoing relationships with these customers during their average of over 40 years of experience in the oilfield services industry. ForDuring the three months ended March 31, 20172018 (Successor), we generated consolidated revenues of approximately $27.0$35.6 million.
We currently conduct our operations through the following two business segments:

Well Servicing. Our well servicing segment comprised 63.2%64.2% of consolidated revenues for the three months ended March 31, 2017.2018. At March 31, 2017,2018, our well servicing segment utilized our fleet of 172168 well servicing rigs, which was comprised of 158154 workover rigs and 14 swabbing rigs, as well as six coiled tubing spreads and other related assets and equipment. These assets are used to provide (i) well maintenance, including remedial repairs and removal and replacement of downhole production equipment, (ii) well workovers, including significant downhole repairs, re-completions and re-perforations, (iii) completion and swabbing activities, (iv) plugging and abandonment services, and (v) pressure testing of oil and natural gas production tubing and scanning tubing for pitting and wall thickness using tubing testing units.

Fluid Logistics. Our fluid logistics segment comprised 36.8%35.8% of consolidated revenues for the three months ended March 31, 2017.2018. Our fluid logistics segment utilized our fleet of owned or leased fluid transport trucks and related assets, including specialized vacuum, high-pressure pump and tank trucks, hot oil trucks, frac tanks, fluid mixing tanks, salt water disposal wells and facilities, and related equipment. These assets are used to provide, transport, store, and dispose of a variety of drilling and produced fluids used in, and generated by, oil and natural gas production. These services are required in most workover and completion projects and are routinely used in daily operations of producing wells.

We believe that our two business segments are complementary and create synergies in terms of selling opportunities. Our multiple lines of service are designed to capitalize on our existing customer base to grow it within existing markets, generate more business from existing customers, and increase our operating performance. By offering our customers the ability to reduce the number of vendors they use, we believe that we help improve our customers’ efficiency. This is demonstrated by the fact that 65.9% and 76.3%56.7% of our revenues for the three months ended March 31, 2017 and 20162018, were from customers that utilized services of both of

our business segments. Further, by having multiple service offerings that span the life cycle of the well, we believe that we have a competitive advantage over smaller competitors offering more limited services.


Recent Events

Fresh Start Accounting
Chapter 11 Proceedings
On January 22, 2017, FES Ltd. and its domestic subsidiaries, or collectively, the Debtors, filed voluntary petitions, or the Bankruptcy Petitions, for reorganization under chapter 11 of the United States Bankruptcy Code, or the Bankruptcy Code, in the United States Bankruptcy Court for the Southern District of Texas-Corpus Christi Division, or the Bankruptcy Court, pursuant to the terms of a restructuring support agreement that contemplated the reorganization of the Debtors pursuant to a prepackaged plan of reorganization, as amended and supplemented, the Plan. On March 29, 2017, the Bankruptcy Court entered an order, or the Confirmation Order, confirming the Plan. On April 13, 2017, or the Effective Date, the Plan became effective pursuant to its terms and the Debtors emergedUpon our emergence from their chapter 11 cases. Although the Debtors are no longer debtors-in-possession, the Debtors were debtors-in-possession for the entire quarter ended March 31, 2017. As such, certain aspects of the bankruptcy, proceedings of the Debtors and related matters are described below in order to provide context and explain part of the Company's financial condition and results of operations for the period presented.
Effect of the Bankruptcy Proceedings
During the bankruptcy proceedings, the Debtors conducted normal business activities and were authorized to pay certain vendor payments, wage payments and tax payments in the ordinary course. In addition, subject to certain specific exceptions under the Bankruptcy Code, the Bankruptcy Petitions automatically stayed most judicial or administrative actions against the Debtors or their property to recover, collect, or secure a prepetition claim. For example, the Bankruptcy Petitions prohibited lenders or note holders from pursuing claims for defaults under the Debtors’ debt agreements during the pendency of the chapter 11 cases.
The Plan
Under the Plan, which was approved by the Bankruptcy Court and became effective on the Effective Date,:
•FES Ltd. converted from a Texas corporation to a Delaware corporation;
•All prior equity interests (which included FES Ltd.’s prior common stock, par value $0.04 per share, or the Old Common Stock, FES Ltd.’s prior preferred stock, awards under FES Ltd.’s prior incentive compensation plans, or the Prior Compensation Plans, and the preferred stock purchase rights under the Rights Agreement dated as of May 19, 2008 and subsequently amended on July 8, 2013, or the Rights Agreement, between FES Ltd. and CIBC Mellon Trust Company, as rights agent) in FES Ltd. were extinguished without recovery;
•FES Ltd. created a new class of common stock, par value $0.01 per share, or the New Common Stock;
•FES Ltd.’s prior 9% senior notes due 2019, or the Prior Senior Notes, were canceled and each holder of the Prior Senior Notes received such holder’s pro rata share of (i) $20 million in cash and (ii) 100% of the New Common Stock, subject to dilution only as a result of the shares of New Common Stock issued or available for issuance in connection with a management incentive plan, or the Management Incentive Plan. A total of 5,249,997 shares of New Common Stock was issued to the holders of the Prior Senior Notes;
•The Debtors entered into the New Loan Agreement, with certain financial institutions party thereto from time to time as lenders, or the Lenders, and Wilmington Trust, National Association, as agent for the Lenders;
•FES Ltd.we adopted the Management Incentive Plan, which provides for the issuance of equity-based awards with respect to, in the aggregate, up to 750,000 shares of New Common Stock;
•The Debtors’ loan and security agreement governing their revolving credit facility, or the Prior Loan Agreement, dated as of September 9, 2011 and subsequently amended, with Regions Bank, or Regions, as the sole lender party thereto, or the Lender, was terminated and a new letter of credit facility was entered into with Regions, or the New Regions Letters of Credit Facility, which covers letters of credit and certain bank product obligations. Regions continues to hold the cash pledged to support the New Regions Letters of Credit Facility in the amount of $10.1 million as of May 11, 2017;
•The Debtors paid off the outstanding principal balance of $15 million plus outstanding interest and fees under the Prior Loan Agreement, and the Prior Loan Agreement was terminatedfresh start accounting in accordance with the Plan;
•provisions of Accounting Standards Codification 852, Holders of allowed creditor claims, aside from holders of the Prior Senior Notes, received, on account of such claims, either payment in full in cash “Reorganizations,” or otherwise had their rights reinstated; and

•FES Ltd. entered into a registration rights agreement with certain of its stockholders to provide registration rights.
On the Effective Date, the Debtors eliminated approximately $280.0 million in principal amount of the Prior Senior Notes plus accrued interest thereon.
Fresh Start Accounting

In connection with the Debtors' emergence from bankruptcy, the Company will be required to apply fresh start accounting to its financial statements becauseASC 852, as (i) the holders of Old Common Stock received none of the New Common Stock issued upon the Debtors' emergence from bankruptcy and (ii) the reorganization value of the Company'sour assets immediately prior to confirmation of the Plan was less than the post-petition liabilities and allowed claims. We applied fresh start accounting from and after the Effective Date. Fresh start accounting will be appliedrequired us to present our assets, liabilities and equity as if we were a new entity upon emergence from bankruptcy, with no beginning retained earnings or deficit as of the Company’sfresh start reporting date. The cancellation of the Old Common Stock and the issuance of the New Common Stock on the Effective Date caused a change of control under ASC 852. As a result of the adoption of fresh start accounting, our unaudited condensed consolidated financial statements during the quarter ending June 30, 2017.from and after April 13, 2017 will not be comparable to our financial statements prior to such date.

Financial Statement Classification of Liabilities Subject to Compromise

The Company's financial statements include amounts classified as liabilities subject to compromise, which represent liabilities that have been addressed in the chapter 11 cases. The Plan, as confirmed, provides for the treatment of claims against the Debtors’ bankruptcy estates, including prepetition liabilities. Certain claims were unimpaired under the Plan and remain pending against the Debtors. Such claims may be material and will be addressed in the ordinary course.

Factors Affecting Results of Operations

Market Conditions

The oil and natural gas industry has experienced a significant decline in oil exploration and production activity that began in the fourth quarter of 2014 and continued through 2016 and into the first half of 2017. The price of West Texas Intermediate or WTI,(“WTI”) oil fell from a price of $104 per barrel as of June 30, 2014 to a low of approximately $26$30 per barrel onin February 11,of 2016.  Since then,Oil prices traded in a range of approximately $45 to $55 in the last half of 2016 and through most of 2017.  During the last half of 2017 oil prices trended upward in response to market conditions, and as of March 31, 2018, the price of WTI was approximately $65 per barrel. As oil has experiencedprices began to rise, U.S. drilling rig count increased by 586 from May 2016 to March 2018, with the count stabilizing in the last half of 2017 then experiencing a modest recovery and settled into a trading range of roughly $47 to $54 per barrel duringincrease in the first quarter of 2017.  On March 31, 2017, the price of WTI oil closed at approximately $51 per barrel. In response to this precipitous drop in WTI oil prices, exploration and production companies decreased the number of U.S. drilling rigs from a peak high of 1,873 operating as of June 30, 2014 to 824 as of March 31, 2017, a decrease of 56.0%.2018.  During this same time period the Texas drilling rig count droppedincreased by 317 rigs, similar to the U.S. count increases.  The two basins in which we operate, the Eagle Ford and Permian, had rig count increases of 79 and 235, respectively, from an average monthly high48 and 120.  Of note, while we are actively pursuing additional business in the Permian, currently 79.9% of 903our revenues are generated in November of 2014 to an average of 399 in March of 2017, a decrease of 55.8%.the Eagle Ford where the rig count increased by 79.

Below are three charts that provide total U.S. rig counts, total Texas rig counts and WTI oil price trends for the twelve months ended March 31, 20172018 and 2016.2017.

a201710qq1_chart-10911.jpgchart-e2f330b83e1c50f896c.jpg


a201710qq1_chart-13273.jpg
chart-e8438388388253318dd.jpg
Source: Rig counts are per Baker Hughes, Inc. (www.bakerhughes.com). Rig counts are the averages of the weekly rig count activity.


a201710qq1_chart-15146.jpgchart-b71a190633e85030b73.jpg
The declines in oil and natural gas prices and exploration activities, that began in 2014 and continued through 2016 and into the first few months of 2017, created a more challenging market for the provision of our services. In response to these market conditions, we implemented cost reduction measures and continuecontinued to analyze cost reduction opportunities while ensuring that appropriate functions and capacity arewere preserved to allowallowing us to be opportunistic as market conditions improve.  Cost reductions, which beganimproved in the fourthsecond quarter of 2014 and continued through2017. Through the first quarter of 2017, include reductions in headcount, labor rates, bonuses, over-time, travel and entertainment, vendor pricing, and other cost controls that contribute to earnings.  We also consolidated locations where levels of activity dictated greater efficiencies with operations performed out of a single location. Capitalcapital spending haswas largely been limited to capital commitments incurred before the market downturn, purchases of certain, limited pieces of equipment with greater operating efficiencies to improve margins, and the purchase of certain equipment under operating leases at the end of their term.

In May 2016, Texas drilling rig count reached a low point. From that point until the end of the first quarterlast part of 2017 drilling rig countsand the current quarter, we began maintenance capital spending in Texasresponse to increased by 252 rigs to a total of 435; an increase of 137.7%. Of this increase, 182, 26, and 44 were attributable to West Texas, East Texas, and South Texas, respectively. Our revenuesdemand for the first quarter of 2017 were approximately 22.3%, 5.9%, and 71.8% in West Texas, East Texas, and South Texas, respectively.

our services.
The second key metric, other than volume of work, that impacts profitability is pricing. In 2015 and 2016, price concessions were granted to customers in recognition of the oil and natural gas pricing declines. AsSince the oil and natural gas price environment stabilized in mid-2016,began to improve, price increases have been requested and received from customers in certain operating areas. Through the end of the first quarter of 2017, customer price increases granted have been limited.

Oil and Natural Gas Prices

Demand for well servicing and fluid logistics services is generally a function of the willingness of oil and natural gas companies to make operating and capital expenditures to explore for, develop and produce oil and natural gas, which in turn is affected by current and anticipated levels of oil and natural gas prices. Exploration and production spending is generally categorized as either operating expenditures or capital expenditures. Activities by oil and natural gas companies designed to add oil and natural gas reserves are classified as capital expenditures, and those associated with maintaining or accelerating production, such as workover and fluid logistics services, are categorized as operating expenditures. Operating expenditures are typically more stable than capital expenditures and are less sensitive to oil and natural gas price volatility. However, induring the current market environmentbottom of the downturn our customers arewere even limiting these expenditures. In contrast, capital expenditures by oil and natural gas companies for drilling are more directly influenced by current and expected oil and natural gas prices and generally reflect the volatility of commodity prices including the precipitous decline in oil and natural gas prices that began in late 2014 with only a recent modest increase in the price of oil.


Workover Rig Rates

Our well servicing segment revenues are dependent on the prevailing market rates for workover rigs. Utilization and average rates increased by 7.0% inthrough the first quarter of 20172018 (Successor), compared to the same period in 2016, while average composite rates decreased by 26.7%2017 (Predecessor).

Fluid Logistics Rates

Our fluid logistics segment revenues are dependent on the prevailing market rates for fluid transport trucks and the related assets, including specialized vacuum, high-pressure pump and tank trucks, hot oil trucks, frac tanks, fluid mixing tanks and salt water disposal wells. Pricing and utilization decreased through 2016 and continued to decrease through the three months ended March 31,first quarter of 2017. During the later part of the second quarter of 2017 we began to see improvements in response to market conditions.both utilization and pricing. These improvements have continued through the first quarter of 2018.

Operating Expenses

During the first quarter of 2017,2018 (Successor), consolidated operating expenses decreased at a slightly slower rate thanincreased when compared to the reductionsame period in consolidated revenues. Most variable costs, which are directly tied to revenues, decreased ratably2017 (Predecessor) consistent with the decrease in revenues; however, those decreases were partially offset by the factors noted below under Results of Operations.our increased activity. Future earnings and cash flows will be dependent on our ability to manage our overall cost structure as well as continued efforts to maintain or increase rates to customers.

Capital Expenditures

During the first quarter of 2017,2018, capital expenditures primarily consisted of purchases of equipment and vehicles whose operating leases had reached the end of their term, major equipment rebuildsoverhauls and system software.replacements of heavy trucks.

Results of Operations

The following discussion compares our consolidated financial information for the three months ended March 31, 2017 to the three months ended March 31, 2016.

Three Months Ended March 31, 20172018 (Successor) Compared to Three Months Ended March 31, 20162017 (Predecessor)

The following table comparestables compare our segment operating results for the three months ended March 31, 2018 (Successor) and the three months ended March 31, 2017 and 2016 (in thousands, except percentages)(Predecessor). Operating expenses exclude general and administrative expenses, depreciation, and amortization.
 Revenue Operating Expenses, excluding depreciation, amortization and impairment
 2017 2016 2017 % of revenue 2016 % of revenue Change % Change
Well Servicing$17,105
 18,713
 $14,140
 82.7% 16,720
 89.3% $(2,580) (15.4)%
Fluid Logistics9,942
 13,218
 9,948
 100.1% 13,161
 99.6% (3,213) (24.4)%
Total$27,047
 $31,931
 $24,088
 89.1% $29,881
 93.6% $(5,793) (19.4)%
The following table compares segment profit (loss) for the three months ended March 31, 2017 and 2016 (in thousands, except percentages).
RevenuesRevenues
Successor  Predecessor
2017 2016Three months ended March 31, 2018% of total revenue  Three months ended March 31, 2017% of total revenue
Amount 
Gross margin % (1)
 Amount 
Gross margin % (1) 
(in thousands, except percentages)  (in thousands, except percentages)
Well Servicing$2,965
 17.3 % $1,993
 10.6%$22,857
64.2%  $17,105
63.2%
Fluid Logistics(6) (0.1)% 57
 0.4%12,735
35.8%  9,942
36.8%
Total$2,959
 11.0 % $2,050
 6.4%$35,592
   $27,047
 
     
Operating Expenses (1)
Operating Expenses (1)
Successor  Predecessor
Three months ended March 31, 2018% of segment revenue  Three months ended March 31, 2017% of segment revenue
(in thousands, except percentages)  (in thousands, except percentages)
Well Servicing$19,017
83.2%  $14,140
82.7%
Fluid Logistics10,689
83.9%  9,948
100.1%
Total$29,706
   $24,088
 
Segment Profit (1)
 Successor  Predecessor
 Three months ended March 31, 2018Gross margin %  Three months ended March 31, 2017Gross margin %
 (in thousands, except percentages)  (in thousands, except percentages)
Well Servicing$3,840
16.8%  $2,965
17.3 %
Fluid Logistics2,046
16.1%  (6)(0.1)%
Total$5,886
16.5%  $2,959
10.9 %
(1) Excluding general and administrative expenses, and depreciation and amortization.
.

Revenues
Consolidated Revenues. The decrease in consolidatedConsolidated revenues is a result of decline in activity in both the well servicing and fluid logistics segments in the first quarter of 2017 as compared to the same period in 2016 due to the decline as described more fully under "Market Conditions" above. These decreases in revenues were driven by price concessions and a decrease in billable hours for both our well servicing and fluid logistics segments.
Well Servicing. Our well servicing segment revenues are dependent on the prevailing market rates and utilization of our workover rigs, coiled tubing units and tubing testing units. Revenues from the well servicing segment decreased by $1.6 million or 8.6% from the first quarter of 2016 to the first quarter of 2017 due to a decline in rates.
Fluid Logistics. The current market decline resulted in revenues from the fluid logistics segment decreasing due to a decrease in trucking hours and price reductions for the three months ended March 31, 2017 when compared to the same period ended March 31, 2016. Billable trucking hours decreased during the three months ended March 31, 2017 by approximately 11.7% when2018 (Successor) increased as compared to the three months ended March 31, 2016.2017 (Predecessor) due to increased activity from both our well servicing and fluid logistics customers as they increased activity in response to rising oil prices.
Well Servicing. The revenues from the well servicing segment during the three months ended March 31, 2018 (Successor) increased as compared to the three months ended March 31, 2017 (Predecessor) due to an 18.2% increase in rates and a 13.0% increase in hours worked.
Fluid Logistics. Our revenues from the fluid logistics segment during the three months ended March 31, 2018 (Successor) increased as compared to the three months ended March 31, 2017 (Predecessor) due to a 34.0% increase in rates and an 8.8% increase in trucking hours driven by tank rental and skim oil also contributed to the increase. Our principal fluid logistics assets at March 31, 20172018 and 20162017 were as follows:
March 31,Successor Predecessor
2017 2016March 31, 2018  March 31, 2017
Fluid Logistics segment:       
Vacuum trucks365
 452
258
  365
Other heavy trucks103
 109
109
  103
Frac tanks2,895
 3,060
2,868
  2,895
Salt water disposal wells (1)
20
 22
15
  20

(1) At March 31, 2017, 152018, 10 salt water disposal wells, included in the above well count, were subject to ground leases or other operating arrangements towith third parties. The above well count does not include one well that has been permitted and drilled but has not been completed.
Operating Expenses
 Successor  Predecessor
 Three months ended March 31, 2018  Three months ended March 31, 2017
 (in thousands)  (in thousands)
Well servicing$19,017
  $14,140
Fluid logistics10,689
  9,948
General and administrative4,888
  4,512
Depreciation and amortization7,163
  12,068
Total expenses$41,757
  $40,668

Consolidated Operating Expenses. The decreaseDirect operating costs for the three months ended March 31, 2018 (Successor) increased as compared to the three months ended March 31, 2017 (Predecessor), consistent with our increased activity.
Well Servicing. Direct operating costs for our well servicing segment for the three months ended March 31, 2018 (Successor) increased as compared to the three months ended March 31, 2017 (Predecessor). This increase was primarily attributable to higher labor, fuel costs, and repairs and maintenance expenses resulting from the coiled tubing division of our well servicing segment preparing to deploy additional equipment. Other costs were consistent with the increased activity experienced during the period.
Fluid Logistics. Direct operating costs for our fluid logistics segment for the three months ended March 31, 2018 (Successor) increased as compared to the three months ended in direct operating expensesMarch 31, 2017 (Predecessor), consistent with increased activity. Fluid logistics costs as a percentage of fluid logistics revenue were 83.9% for the three months ended March 31, 2018 (Successor) compared to 100.1% for the three months ended March 31, 2017 as compared to the same period in the prior year(Predecessor). This percentage decrease was attributable to lower operating hours related to the industry downturn relative to the first quarterprimarily a result of 2016. The decrease in consolidated operating expensesreduced labor costs as a percentage of revenue was primarily due to the factors noted directly below under the well servicinghigher composite customer rates and fluid logistics operating expense sections.
Well Servicing. Direct operating costs as a percentageimproved utilization and efficiencies of revenues were 82.7%our work force with additional activity. Insurance and 89.3% for the three months ended March 31, 2017 and 2016, respectively, a decrease of 6.6%.  The primary factors causing the decrease was a reduction in operating lease expense of approximately $1.4 million resulting from the Company purchasing assets as leases reached their terms, and the Company recognized a $0.1 million gain on disposal of assets in the first quarter of 2017 as compared to the first quarter of 2016 where the Company recognized a loss of $0.7 million on disposal of assets.
Fluid Logistics. Direct operating costs as a percentage of revenues were 100.1% and 99.6% for the three months ended March 31, 2017 and 2016, respectively, an increase of 0.5%. The driving factors for the increase were wage expense declining at a slower rate than revenues due to an increase in overtime wages as a percentage of revenues, an increase in fuel expense due to increasing fuel prices, and an increase in repairs and maintenance resulting from stacked vehicles being placed back in service.property taxes expenses also declined, consistent with normal variations between quarters.
General and Administrative Expenses. General and administrative expenses decreased by approximately $1.5 million to $4.5 million for the three months ended March 31, 20172018 (Successor) increased as compared to $6.1 million for the same period in 2016.three months ended March 31, 2017 (Predecessor). General and administrative expenses as a percentage of revenues were 16.7%13.7% and 18.9%16.7% for the three months ended March 31, 20172018 (Successor) and the three months ended March 31, 2016,2017 (Predecessor), respectively. The key driversThis decrease as a percentage of the decrease wererevenue is primarily a reduction in wages of approximately $0.8 million due to decreased bonus expense and reductions in insurance and entertainment expenses.increased revenues as described above.
Depreciation and Amortization. Depreciation and amortization expenses decreased by $1.4 million, or 10.4%, to $12.1 million for the three months ended March 31, 2017 as2018 (Successor) decreased compared to $13.5 million for the same periodthree months ended March 31, 2017 (Predecessor) due to a decrease in 2016. The decrease resulted fromthe depreciable value of property and equipment as a numberresult of our assets becoming fully depreciated thereby reducing current period and future depreciation.fresh start accounting.
Reorganization costs.Other Income (Expense)
 Successor  Predecessor
 Three months ended March 31, 2018  Three months ended March 31, 2017
 (in thousands)  (in thousands)
Interest income$2
  $13
Interest expense(2,367)  (2,214)
Loss on reorganization items, net—
  (6,587)
Other income (expense), net$(2,365)  $(8,788)
     
Income tax expense$17
  $31
Reorganization costs were Interest Expense$6.6 million. Interest expense for the three months ended March 31, 2018 (Successor) was consistent as compared to the three months ended March 31, 2017 and were comprised of $4.5 million of professional fees and $2.1 million of debt issuance costs that were expensed during the quarter. There were no reorganization costs for the same period in the prior year.
Interest and Other Expenses(Predecessor). Interest and other expenses decreased by approximately $4.7 million to $2.2 millionexpense for the three months ended March 31, 2017 as compared to the same period in the prior year. The decrease was due to a reduction in2018 primarily

related to interest on our New Loan Agreement which is subject to higher interest rates than than our Prior Senior Notes. Compared to the three months ended March 31, 2017 (Successor), the higher interest rates on our New Loan Agreement are offset by reduced interest expense on the Prior Senior Notes during the first quarter of 2017, because suchas interest was no longer incurred after the date of Bankruptcy Petitions as it was discharged in the chapter 11 cases.case.
Loss on reorganization items, net. There were no reorganization costs for the three months ended March 31, 2018 (Successor). Reorganization costs for the three months ended March 31, 2017 (Predecessor) were $6.6 million. These costs were related to bankruptcy activities during the period.

Income Taxes. We recognized an income tax expense of less than $0.1$0.1 million for the each of three months ended March 31, 2018 (Successor) and the three months ended March 31, 2017 and 2016.(Predecessor). Our effective tax rate for the three months ended March 31, 2017 iswas (0.2)% and (0.1)% compared to (0.2)% for the three months ended March 31, 2016. The difference in2018 (Successor)and the tax rate is primarilythree months ended March 31, 2017 (Predecessor), respectively, due to the difference in the pre-tax loss for each period. Based on the current year pre-tax loss and a cumulative loss in the prior three fiscal years, management determined that it is not more likely than notfact that the future benefit associated with allCompany has recorded a full valuation allowance against its net deferred assets. At March 31, 2018 (Successor), we estimate our NOL carryforwards were approximately $52.0 million. On December 22, 2017, the Tax Reform Act was signed into law. The legislation significantly changed U.S. tax law by, among other things, lowering the U.S. corporate income tax rate from a maximum of the Company's existing deductible temporary differences and carryforwards will be realized.35% to a flat 21% rate, effective January 1, 2018. As a result of the Company maintained a valuation allowance against all of itsdecrease in the corporate income tax rate, we revalued our ending net deferred tax assets.assets at December 31, 2017, but did not recognize any income tax impact in 2017 due to the offsetting change in the valuation allowance.

Adjusted EBITDA

“Adjusted EBITDA” is defined as income (loss) from continuing operations before interest, taxes, depreciation, amortization, gain or loss on early extinguishment of debt and non-cash stock based compensation, excluding non-recurring items. Management evaluates the recoverabilitydoes not include gain (loss) on extinguishment of debt, non-cash stock based compensation or other nonrecurring items in its calculations of Adjusted EBITDA, because it believes that such amounts are not representative of our deferred income tax assets by assessing the need for a valuation allowancecore operations. Further, management believes that most investors exclude gain (loss) on a quarterly basis. If the Company determines that it is more likely thanextinguishment of debt, stock based compensation recorded under FASB ASC Topic 718 and other nonrecurring items from customary EBITDA calculations as those items are often viewed as either non-recurring and not that our deferred tax assets will be recovered, the valuation allowance will be reduced.
reflective of ongoing financial performance or have no cash impact on operations.

Adjusted EBITDA is a non-GAAP financial measure that is used as a supplemental financial measure by our management and directors and by our investors to assess the financial performance of our assets without regard to financing methods, capital structure or historical cost basis; the ability of our assets to generate cash sufficient to pay interest on our indebtedness; and our operating performance and return on invested capital as compared to those of other companies in the well services industry, without regard to financing methods and capital structure. We use adjusted EBITDA in other filings with the Commission.

Adjusted EBITDA has limitations as an analytical tool and should not be considered an alternative to net income, operating income, cash flow from operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Adjusted EBITDA excludes some, but not all, items that affect net income and operating income and these measures may vary among other companies. Limitations to using Adjusted EBITDA as an analytical tool include:
•Adjusted EBITDA does not reflect our current or future requirements for capital expenditures or capital commitments;
•Adjusted EBITDA does not reflect changes in, or cash requirements necessary to service interest or principal payments on our debt;
•Adjusted EBITDA does not reflect income taxes;
•Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; and
•Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.


Reconciliation of Adjusted EBITDA to Net Loss
(Unaudited)
      
  Successor  Predecessor
  
Three months ended
March 31, 2018
  
Three months ended
March 31, 2017
  (in thousands)  (in thousands)
Net Loss $(8,547)  $(22,440)
   Interest income (2)  (13)
   Interest expense 2,367
  2,214
   Taxes 17
  31
   Depreciation 6,870
  11,930
   Amortization 280
  135
   Accretion 13
  3
   Share-based compensation 250
  —
   Mergers and acquisitions expenses 192
  —
   Restructuring expenses 188
  6,587
   Litigation/settlements 69
  339
Adjusted EBITDA $1,697
  $(1,214)



Liquidity and Capital Resources
Overview
During the last thirty-six months,Historically, we have funded our operations, including capital expenditures, through our cash flow from operations, and a drawing on the revolving credit facility under the Prior Loan Agreement. Prior to this time, we had historically funded our operations and capital expenditures with bank borrowings,Agreement, vendor financings, cash flow from operations, the issuance of senior notes and the proceeds from our public and private equity offerings.

As of March 31, 2017, the Company2018 (Successor), we had $17.6$7.6 million in unrestricted cash and cash equivalents and $18.9$57.5 million in contractual debtdebt.

Restricted cash at March 31, 2018 (Successor) was $25.6 million. The components of restricted cash at March 31, 2018 included $16.9 million related to the New Loan Agreement which is subject to satisfaction of certain release restrictions and capital leases.$8.7 million in a cash collateral account related to letters of credit and our corporate credit card program under the New Regions Letter of Credit Facility. The release conditions set forth in the New Loan Agreement include, among other things, (i) no default or event of default under the New Loan Agreement having occurred or being continuing as of the date of the requested release of proceeds of the New Loan Agreement, or that would exist after giving effect to the release requested to be made on such date, and (ii) our unrestricted cash and cash equivalents being less than $7.0 million after giving pro forma effect to the requested release.

The $18.9$57.5 million in contractual debt was comprised of $15.0$48.3 million drawn onfor the revolving credit facility under the PriorNew Loan Agreement $2.9net of debt issuance costs, $3.4 million in insurance notes and $1.0$5.9 million in equipment notes. Of our total debt, $18.8$5.1 million was short-term debt outstanding oron the current portion of long-term debt and $0.1$52.4 million of the outstanding contractual debt was classified as long-term debt. We incurred $0.4 million and $7.0 million for capital equipment acquisitions during the three months ended March 31, 2017 and 2016, respectively.
On September 9, 2011, the Debtors entered into the Prior Loan Agreement. The Prior Loan Agreement provided for an asset based revolving credit facility with a maximum borrowing credit of $90.0 million subject to borrowing base availability.
In accordance with the terms of the Prior Loan Agreement, the Loan Agreement had a stated maturity of July 26, 2018. In June 2015, FES LLC borrowed $15.0 million under the facility. As of March 31, 2017, the facility had a revolving loan balance outstanding of $15.0 million and $9.0 million in letters of credit outstanding against the facility. On the Effective Date, the outstanding principal balance of $15.0 million under the Prior Loan Agreement plus outstanding interest and fees were paid off and the Prior Loan Agreement was terminated in accordance with the Plan.
In June 2011, FES Ltd. issued $280.0 million aggregate principal amount of the Prior Senior Notes, which are classified as liabilities subject to compromise on the Company's balance sheet at March 31, 2017. On the Effective Date, the Prior Senior Notes were canceled and each holder of the Prior Senior Notes received such holder’s pro rata share of (i) $20.0 million in cash and (ii) 100% of the New Common Stock, subject to dilution only as a result of the shares of New Common Stock issued or available for issuance in connection with the Management Incentive Plan.

New Loan Agreement
As discussed previously, on
Forbes Energy Services LLC, or the Effective Date, the Company entered into the New Loan Agreement. FES LLCBorrower, is the borrower or the Borrower, under the New Loan Agreement. The Borrower’s obligations have been guaranteed by the FES Ltd. and by TES, CCFTexas Energy Services, LLC, C.C. Forbes, LLC and FEI,Forbes Energy International, LLC, each direct subsidiaries of the Borrower and indirect subsidiaries of FES Ltd. The New Loan Agreement provides for a term loan of $50.0 million.million, which was fully funded on the Effective Date. Subject to certain exceptions and permitted encumbrances, the obligations under this loan are secured by a first priority security interest in substantially all the assets of the Company other than cash collateralizing the New Regions Letters of Credit Facility. Such term loan has a stated maturity date of April 13, 2021. The proceeds of such term loan are only permitted to be used for (i) the payment on account of the Prior Senior Notes in an amount equal to $20.0 million; (ii) the payment of costs, expenses and fees incurred on or prior to the Effective Date in connection with the preparation, negotiation, execution and delivery of the New Loan Agreement and documents related thereto; and (iii) subject to satisfaction of certain release conditions set forth in the New Loan Agreement, for general operating, working capital and other general corporate purposes of the Borrower not otherwise prohibited by the terms of the New Loan Agreement.

The release conditions set forth in the New Loan Agreement include, among other things, (i) no default or event of default under the New Loan Agreement having occurred or being continuing as of the date of the requested release of proceeds of the New Loan Agreement, or that would exist after giving effect to the release requested to be made on such date, and (ii) the Company’s unrestricted cash and cash equivalents being less than $7.0 million after giving pro forma effect to the requested release. At March 31, 2018, $16.9 million included in restricted cash was subject to these release restrictions.

Borrowings under this term loan bear interest at a rate equal to five percent (5%) per annum payable quarterly in cash, or the Cash Interest Rate, plus (ii) an initial PIKrate for paid in kind interest rate of seven percent (7%) commencing July 1,April 13, 2017 to be capitalized and added to the principal amount of the term loan on the first day of each quarter, or at the election of the Borrower, paid in cash. The PIKpaid in kind interest increases by two percent (2%) twelve months after the Effective Date and every twelve months thereafter until maturity. Upon and after the occurrence of an event of default, the Cash Interest Rate will increase by two percentage points per annum. At March 31, 2018, the applicable interest rate was 12% per annum.

The Borrower is also responsible for certain other administrative fees and expenses. In connection with the execution of the New Loan Agreement, the Borrower paid the Lenders a funding fee of $3.0 million, and paid certain Lenders a backstop fee of $2.0 million. The $20.0 million payment referred to above and these fees were funded as draws under the New Loan Agreement.

The Company is able to voluntarily repay the outstanding term loan at any time without premium or penalty. The Company is required to use the net proceeds from certain events, including but not limited to, the disposition of assets, certain judgments, indemnity payments, tax refunds, pension plan refunds, insurance awards and certain incurrences of indebtedness to repay outstanding loans under the New Loan Agreement. The Company may also be required to use cash in excess of $20.0 million to repay outstanding loans under the New Loan Agreement.
The New Loan Agreement includes customary negative covenants for an asset-based term loan, including covenants limiting theour ability of the Company to, among other things, (i) effect mergers and consolidations, (ii) sell assets, (iii) create or suffer to exist any lien, (iv) make certain investments, (v) incur debt and (vi) transact with affiliates. In addition, the New Loan Agreement includes customary affirmative covenants for an asset-based term loan, including covenants regarding the delivery of financial statements, reports and notices to the Agent. The New Loan Agreement also contains customary representations and warranties and event of default provisions for a secured term loan.


New Regions Letters of Credit Facility
As discussed previously, on
On the Effective Date, we repaid the outstanding principal balance of $15.0 million plus outstanding interest and fees under the Prior Loan Agreement, was paid off and the Prior Loan Agreement was terminated in accordance with the Plan. On the Effective Date, the Company entered into the New Regions Letters of Credit Facility to cover letters of credit and certain bank product obligations existing on the Effective Date and pursuant to which Regions may issue, upon request by the Company, letters of credit and continue to provide charge cards for use by the Company. Amounts available under the New Regions Letters of Credit Facility are subject to customary fees and are secured by a first-priority lien on, and security interest in, a cash collateral account with Regions containing cash equal to at least (i) 105% of the sum of (a) all amounts owing for any drawings under letters of credit, including any reimbursement obligations, (b) the aggregate undrawn amount of all outstanding letters of credit, (c) all sums owing to Regions or any affiliate pursuant to any letter of credit document and (d) all obligations of the Company arising thereunder, including any indemniteesindemnities and obligations for reimbursement of expenses and (ii) 120% of the aggregate line of credit for charge cards issued by Regions to the Company. The fees for each letter of credit for the period from and excluding the date of issuance of such letter of credit to and including the date of expiration or termination, are equal to (x) the average daily face amount of each outstanding letter of credit multiplied by (y) a per annum rate determined by Regions from time to time in its discretion based upon such factors as Regions shall determine, including, without limitation, the credit quality and financial performance of the Company. As of the Effective Date,March 31, 2018, such rate was 3.00%. In the event the Company iswe are unable to repay amounts due under the New Regions Letters of Credit Facility, Regions could proceed against such cash collateral account. Regions has no commitment under the New Regions Letters of Credit Facility to issue letters of credit. At March 31, 2018, the facility had $8.6 million in letters of credit outstanding.

Cash Flows

Our cash flows depend, to a large degree, on the level of spending by oil and gas companies' development and production activities. The sustained decreases in the price of oil and natural gas have had a material impact on these activities, and could also materially affect our future cash flows. Certain sources and uses of cash, such as the level of discretionary capital expenditures and issuances and repurchases of debt and our common stock are within our control and are adjusted as necessary based on market conditions.

Cash Flows from Operating Activities

Cash flows used infrom operating activities were $3.0was $0.3 million, and $(3.0) million for the three months ended March 31, 2018 (Successor) and the three months ended March 31, 2017 and cash flows provided by operating activities were $7.5(Predecessor), respectively. The increase is primarily related to net loss of $8.5 million for the three months ended March 31, 2016. The decrease in cash from operating activities of $10.5 million was primarily due to2018 (Successor) and offset by the change in depreciation and amortization, reorganization items, accounts receivable, that occurred inaccounts payable and accrued interest payable for the first quarter of 2016.three months ended March 31, 2018 (Successor) and the three months ended March 31, 2017 (Predecessor).

Cash Flows from Investing Activities

Cash flows provided byfrom investing activities werewas $(2.1) million, and $0.6 million for the three months ended March 31, 20172018 (Successor) and cash flows used in investing activities were $3.0 million for the three months ended March 31, 2016.2017 (Predecessor), respectively. The increase of $3.6 milliondecrease was primarily due to an increaseincreased purchases of property and equipment and a decrease in proceeds from the sale of property and equipment and reduced levels of purchases of property and equipment.for the three months ended March 31, 2018 (Successor).

Cash Flows from Financing Activities

Cash flows used infrom financing activities were $0.4$(0.5) million, and $(0.4) million for the three months ended March 31, 20172018 (Successor) and $1.3 million for the three months ended March 31, 2016. The decrease was primarily due2017 (Predecessor), respectively. These amounts related to a reduction in debt payments.payments on our equipment loans.

Notwithstanding the impact of the chapter 11 cases on our liquidity, our current and future liquidity is greatly dependent upon our operating results. Our ability to continue to meet our liquidity needs is subject to and will be affected by cash utilized in operations, the economic or business environment in which we operate, weakness in oil and natural gas industry conditions, the financial condition of our customers and vendors, and other factors. Furthermore, as a result of the challenging market conditions we continue to face, we anticipate continued net cash used in operating activities after reorganization and capital expenditures. We believe that our current reserves of cash and availability under the New Loan Agreement are sufficient to finance our cash requirements for current and future operations, budgeted capital expenditures, debt service and other obligations for at least the next twelve months.


Off-Balance Sheet Arrangements

The Company isWe are often party to certain transactions that require off-balance sheet arrangements such as performance bonds, guarantees, operating leases for equipment, and bank guarantees that are not reflected in our condensed consolidated balance sheets. These arrangements are made in our normal course of business and they are not reasonably likely to have a current or future material adverse effect on our financial condition, results of operations, liquidity, or cash flows. See Note 108 - Commitment and Contingencies.

Contractual Obligations and Financing

In May 2017, the Company would have been required to redeem any of its shares of Series B Senior Convertible Preferred Stock, or the Prior Preferred Stock, then outstanding. Such mandatory redemption could, at the Company’s election, have been paid in cash or Old Common Stock (valued for such purpose at 95% of the then fair market value of the Old Common Stock). As of March 31, 2017, we had 588,059 shares of Stock Prior Preferred Stock outstanding. On the Effective Date, the Prior Preferred Stock was extinguished without recovery.

The table below provides estimated timing of future payments for which we were obligated as of March 31, 2017.
ActualTotal 2017 2018-2019 2020-2021 Thereafter
 (dollars in thousands)
Maturities of long-term debt, including current portion, excluding capital lease obligations (1)
$297,939
 $297,939
 $—
 $—
 $—
Capital lease obligations988
 748
 240
 —
 —
Operating lease commitments5,973
 1,447
 1,466
 893
 2,167
Interest on debt (1)
27,866
 27,863
 3
 —
 —
Series B senior preferred stock dividends (1)
643
 643
 —
 —
 —
Series B senior preferred stock redemption (1)
14,701
 14,701
 —
 —
 —
Total$348,110
 $343,341
 $1,709
 $893
 $2,167

(1) On the Effective Date, $280.0 million of debt, $27.9 million of accrued interest and all amounts related to Prior Preferred Stock were canceled.

Seasonality and Cyclical Trends

Our operations are impacted by seasonal factors. Historically, our business has been negatively impacted during the winter months due to inclement weather, fewer daylight hours, and holidays. Our well servicing rigs are mobile and we operate a significant number of oilfield vehicles. During periods of heavy snow, ice or rain, we may not be able to move our equipment between locations, thereby reducing our ability to generate rig or truck hours. In addition, the majority of our well servicing rigs work only during daylight hours. In the winter months, as daylight time becomes shorter, the amount of time that the well servicing rigs work is shortened, which has a negative impact on total hours worked. Finally, we historically have experienced significant slowdown during the Thanksgiving and Christmas holiday seasons.
In addition, theThe oil and natural gas industry has traditionally been volatile and is influenced by a combination of long-term, short-term and cyclical trends, including the domestic and international supply and demand for oil and natural gas, current and expected future prices for oil and natural gas and the perceived stability and sustainability of those prices. Such cyclical trends also include the resultant levels of cash flows generated and allocated by exploration and production companies to their drilling, completion and workover budget. The volatility of the oil and natural gas industry and the decline in oil and natural gas prices have negatively impacted the level of exploration and production activity and capital expenditures by our customers. This has adversely affected, and continues to adversely affect, the demand for our services, which has had, and if it continues, will continue to have, a material adverse effect on our business, financial condition, results of operations, and cash flows.

Critical Accounting Policies and Estimates

The preparation of our condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the dates of the financial statements and the reported amounts of revenue and expenses during the applicable reporting periods. On an ongoing basis, management reviews its estimates, particularly those related to depreciation and amortization methods, useful lives and impairment of long-lived assets, and asset retirement obligations, using currently available information. Changes in facts and circumstances may result in revised estimates, and actual results could differ from those estimates. There have been no material changes to the critical accounting policies and estimates set forth in Item 7 in our Annual Report on Form 10-K for the year ended December 31, 2016,2017, except for the application of ASU No. 2014-09 which created FASB ASC 852-10 “Reorganizations”Topic 606 “Revenue from Contracts with Customers” to our accounting and financial reporting activities as a result of the filing of the Bankruptcy Petitions. The guidance in ASC 852-10 is designed to provide readers of the financial statements with information that reflects the financial impact of the bankruptcy proceedings and requires that transactions and events directly associated with the reorganization be distinguished from the ongoing operations of the Company. The guidance affects most significantly the presentation of liabilities in the balance sheet.activities.
Impairment
During the second quarter of 2016, the Company experienced a triggering event resulting from the continuing decline in operating revenues due to an industry-wide slowdown, which began in the second half of 2014. An impairment loss of $14.5 million was recorded as a component of operating expenses based on the amount that the carrying value of certain intangibles exceeded the fair value of such intangibles during the second quarter of 2016. The Company continues to monitor facts and circumstances for asset impairment indicators for long-term assets. The Company did not experience any triggering events in the first quarter of 2017.



Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to the market risk disclosures set forth in Item 7A in our Annual Report on Form 10-K for the year ended December 31, 2016.2017.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2017.2018. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Security and Exchange Commission, or the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of March 31, 2017,2018, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures over financial reporting were effective.

Changes in Internal Control over Financial Reporting
On January 1, 2018, we adopted ASC 606, Revenue from Contracts with Customers. Although the new revenue recognition standard is not expected to have a material impact on our ongoing net income, we nevertheless implemented changes to our processes related to revenue recognition and the control activities within them.
There was no change in our internal control over financial reporting (as defined in Rules 13-a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended March 31, 20172018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

    


PART II—OTHER INFORMATION
 
Item 1.Legal Proceedings

There are no pending material legal proceedings, and the Company is not aware of any material threatened legal proceedings, to which the Company is a party or to which its property is subject that would have a material adverse effect on the Company's financial statements as of March 31, 2017.2018.

Item 1A.Risk Factors

A description of our risk factors can be found in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016.2017.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.Default Upon Senior Securities

None.

Item 4.Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Subsequent Events
The Company has evaluated events subsequent to the date of the Company's condensed consolidated financial statements, March 31, 2017. On the Effective Date, the Debtors completed their financial restructuring and emerged from the chapter 11 bankruptcy cases after completing all required actions and satisfying the remaining conditions to the Plan, which was confirmed by the Bankruptcy Court on March 29, 2017. See Note 1 - Chapter 11 Proceedings for more information regarding the Debtor’s emergence from bankruptcy.

Listing Applications
The Company has submitted an application for listing the New Common Stock for quotation on the OTC Markets and an application for listing on the NASDAQ Global Market. The Company will file a Form 8-K announcing when trading on any platform will begin.
Corporate Governance
As previously disclosed, the Company’s audit committee is comprised of Rome G. Arnold III and Paul S. Butero. On May 9, 2017, the Company’s board of directors determined that each of Rome G. Arnold III and Paul S. Butero qualifies as an “audit committee financial expert” within the meaning of the rules and regulations promulgated by the SEC. In addition, on May 9, 2017, the Company's board of directors agreed to pay the chairman of each of the audit committee and the compensation committee for his service in such role a cash fee of $25,000 per annum.None.


Item 6. Exhibits
Number  Description of Exhibits
    
2.1
—  
 
Debtors’ Prepackaged Joint Plan of Reorganization, dated December 21, 2016 (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed December 23, 2016).
3.1
—  
 
Certificate of Incorporation of Forbes Energy Services Ltd. (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form 8-A filed April 18, 2017).
3.2
—  
 
Second Amended and Restated Bylaws of Forbes Energy Services Ltd. (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form 8-A filed April 18, 2017).
4.1
—  
 
Specimen Certificate for the Company’s common stock, $0.01 par value (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form 8-A filed April 18, 2017).
10.1
—
 
Registration Rights Agreement by and among Forbes Energy Services Ltd. and certain holders identified therein dated as of April 13, 2017 (incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form 8-A filed April 18, 2017).
10.2
—
 
Loan and Security Agreement, dated as of April 13, 2017, by and among Forbes Energy Services LLC, as borrower, Forbes Energy International, LLC, TX Energy Services, LLC, C.C. Forbes, LLC and Forbes Energy Services Ltd., as guarantors, Wilmington Trust, N.A., as agent, and certain lenders party thereto (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed April 18, 2017).
10.3
—
 
Agreement regarding Cash Collateral and Letters of Credit dated as of April 13, 2017 by and among Forbes Energy Services LLC, Forbes Energy International, LLC, TX Energy Services, LLC, C.C. Forbes, LLC, Forbes Energy Services Ltd. and Regions Bank (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed April 18, 2017).
10.4
—
 
Forbes Energy Services Ltd. 2017 Management Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed April 18, 2017).
10.5
—
 
Amended and Restated Employment Agreement effective April 13, 2017, by and between John E. Crisp and Forbes Energy Services LLC (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed April 18, 2017).
10.6
—
 
Amended and Restated Employment Agreement effective April 13, 2017, by and between L. Melvin Cooper and Forbes Energy Services LLC (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed April 18, 2017).
10.7
—
 
Employment Agreement effective April 13, 2017, by and between Steve Macek and Forbes Energy Services LLC (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed April 18, 2017).
10.8*10.8
—  
 
Form of Time-Based Restricted Stock Unit Award Agreement.Agreement (incorporated by reference to Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q filed May 15, 2017).
10.9*10.9
—  
 
Form of Exit Financing Time-Based Restricted Stock Unit Award Agreement.Agreement (incorporated by reference to Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q filed May 15, 2017.
10.10*10.10
—  
 
Form of Performance-Based Restricted Stock Unit Award Agreement.Agreement (incorporated by reference to Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q filed May 15, 2017).
31.1*
—  
 
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).
31.2*
—  
 
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).
32.1*
—  
 
Certification of Chief Executive Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*
—  
 
Certification of Chief Financial Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1
—  
 
Order Approving the Debtors’ Disclosure Statement For, and Confirming, the Debtors’ Prepackaged Joint Plan of Reorganization, as entered by the Bankruptcy Court on March 29, 2017 (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed March 31, 2017).
101*
—  
 Interactive Data Files
 _________________________
*Filed herewith.



SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
  FORBES ENERGY SERVICES LTD.
    
May 15, 20172018 By: 
/s/ JOHN E. CRISP
    
John E. Crisp
Chairman, Chief Executive Officer and President
(Principal Executive Officer)
     
    
May 15, 20172018 By: 
/S/ L. MELVIN COOPER
    
L. Melvin Cooper
Senior Vice President,
Chief Financial Officer and Assistant Secretary
(Principal Financial and Accounting Officer)


EXHIBIT INDEX 
Number  Description of Exhibits
2.1
—
 Debtors’ Prepackaged Joint Plan of Reorganization, dated December 21, 2016 (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed December 23, 2016).
3.1
—
 Certificate of Incorporation of Forbes Energy Services Ltd. (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form 8-A filed April 18, 2017).
3.2
—
 Second Amended and Restated Bylaws of Forbes Energy Services Ltd. (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form 8-A filed April 18, 2017).
4.1
—
 Specimen Certificate for the Company’s common stock, $0.01 par value (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form 8-A filed April 18, 2017).
10.1
—
 Registration Rights Agreement by and among Forbes Energy Services Ltd. and certain holders identified therein dated as of April 13, 2017 (incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form 8-A filed April 18, 2017).
10.2
—
 Loan and Security Agreement, dated as of April 13, 2017, by and among Forbes Energy Services LLC, as borrower, Forbes Energy International, LLC, TX Energy Services, LLC, C.C. Forbes, LLC and Forbes Energy Services Ltd., as guarantors, Wilmington Trust, N.A., as agent, and certain lenders party thereto (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed April 18, 2017).
10.3
—
 Agreement regarding Cash Collateral and Letters of Credit dated as of April 13, 2017 by and among Forbes Energy Services LLC, Forbes Energy International, LLC, TX Energy Services, LLC, C.C. Forbes, LLC, Forbes Energy Services Ltd. and Regions Bank (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed April 18, 2017).
10.4
—
 Forbes Energy Services Ltd. 2017 Management Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed April 18, 2017).
10.5
—
 Amended and Restated Employment Agreement effective April 13, 2017, by and between John E. Crisp and Forbes Energy Services LLC (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed April 18, 2017).
10.6
—
 Amended and Restated Employment Agreement effective April 13, 2017, by and between L. Melvin Cooper and Forbes Energy Services LLC (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed April 18, 2017).
10.7
—
 Employment Agreement effective April 13, 2017, by and between Steve Macek and Forbes Energy Services LLC (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed April 18, 2017).
10.8*10.8
—  
 Form of Time-Based Restricted Stock Unit Award Agreement.Agreement (incorporated by reference to Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q filed May 15, 2017).
10.9*10.9
—  
 Form of Exit Financing Time-Based Restricted Stock Unit Award Agreement.Agreement (incorporated by reference to Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q filed May 15, 2017).
10.10*10.10
—  
 Form of Performance-Based Restricted Stock Unit Award Agreement.Agreement (incorporated by reference to Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q filed May 15, 2017).
31.1*
—
 Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).
31.2*
—
 Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).
32.1*
—
 Certification of Chief Executive Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*
—
 Certification of Chief Financial Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1
—
 Order Approving the Debtors’ Disclosure Statement For, and Confirming, the Debtors’ Prepackaged Joint Plan of Reorganization, as entered by the Bankruptcy Court on March 29, 2017 (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed March 31, 2017).
101*
—
 Interactive Data Files
 _________________________
*Filed herewith.



4135