Liberty Energy Inc. 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures’ In accordance with the Securities Exchange Act of 1934 Rules 13a-15 and 15d-15, we carried out an evaluation, under the supervision and with the participation of management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2021 to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. As noted in Management’s Report on Internal Control Over Financial Reporting, management’s evaluation of, and conclusion on, the effectiveness of internal control over financial reporting did not include the internal controls of the entities acquired in the PropX Acquisition, as defined herein, on October 26, 2021. Under guidelines established by the SEC, companies are permitted to exclude acquisitions from their assessment of internal control over financial reporting during the first year of an acquisition while integrating the acquired company. The Company is in the process of integrating PropX’s and our internal controls over financial reporting. As a result of these integration activities, certain controls will be evaluated and may be changed. Except as noted above, there were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. See page F-1 for Management’s Report on Internal Control Over Financial Reporting and page F-4 for Report of Independent Registered Public Accounting Firm on its assessment of our internal control over financial reporting. Item 9B. Other Information None. 42 PART III Item 10. Directors, Executive Officers and Corporate Governance The information required by this item concerning our executive officers, directors and corporate governance is incorporated herein by reference to our definitive proxy statement for our 2022 annual meeting of stockholders, which will be filed with the SEC no later than 120 days after December 31, 2021, under the captions “Proposal 1 — Election of Directors,” “The Board and its Committees,” “Executive Officers” and “Delinquent Section 16(a) Reports.” Item 11. Executive Compensation The information required by this item concerning executive compensation is incorporated herein by reference to our definitive proxy statement for our 2022 annual meeting of stockholders, which will be filed with the SEC no later than 120 days after December 31, 2021, under the captions “The Board and its Committees,” “Compensation Discussion & Analysis,” “Compensation Committee Report,” “Executive Compensation Tables,” “Director Compensation” and “CEO Pay Ratio.” Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this item concerning the security ownership of certain beneficial owners and management and related stockholder matters are incorporated herein by reference to our definitive proxy statement for our 2022 annual meeting of stockholders, which will be filed with the SEC no later than 120 days after December 31, 2021, under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information.” Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by this item concerning certain relationships and related person transactions and director independence is incorporated herein by reference to our definitive proxy statement for our 2022 annual meeting of stockholders, which will be filed with the SEC no later than 120 days after December 31, 2021, under the captions “Certain Relationships and Related Party Transactions” and “the Board and its Committees.” Item 14. Principal Accountant Fees and Services The information required by this item concerning principal accounting fees and services is incorporated herein by reference to our definitive proxy statement for our 2022 annual meeting of stockholders, which will be filed with the SEC no later than 120 days after December 31, 2021, under the caption “Proposal 3 — Ratification of Appointment of the Company’s Independent Registered Public Accounting Firm.” 43 PART IV Item 15. Exhibits and Financial Statement Schedules (a) Financial Statements and Financial Statement Schedules Refer to Index to Financial Statements on page 49. All schedules are omitted as information required is inapplicable or the information is presented in the consolidated financial statements and the related notes. (b) Exhibits The documents listed in the Index to Exhibits are filed, furnished or incorporated by reference as part of this Annual Report, and such Index to Exhibits are incorporated herein by reference. 44 Item 16. Form 10-K Summary None. 45 INDEX TO EXHIBITS Exhibit Number Description 1.1 Underwriting Agreement, dated June 7, 2021, by and among Liberty Oilfield Services Inc., R/C Energy IV Direct Partnership, L.P., R/C IV Liberty Holdings, L.P. and Morgan Stanley & Co. LLC (14) 2.1 Master Reorganization Agreement, dated as of January 11, 2018, by and among Liberty Oilfield Services Inc., Liberty Oilfield Services Holdings LLC, Liberty Oilfield Services New HoldCo LLC, and the other parties named therein (2) 2.2 Master Transaction Agreement, dated as of August 31, 2020, by and among Schlumberger Technology Corporation, Schlumberger Canada Limited, Liberty Oilfield Services Holdings LLC, Liberty Canada Operations Inc. and Liberty Oilfield Services Inc. (11) 3.1 Amended and Restated Certificate of Incorporation of Liberty Oilfield Services Inc. (2) 3.2 Amended and Restated Bylaws of Liberty Oilfield Services Inc. (3) 4.1 Amended and Restated Stockholders Agreement, dated as of December 3 1 , 2020, by and among Liberty Oilfield Services Inc., Riverstone and the Schlumberger Parties (12) 4.2 Description of the Registrant’s Securities Registered pursuant to Section 12 of the Securities Exchange Act of 1934. (8) 10.1 Second Amended and Restated Limited Liability Company Operating Agreement of Liberty Oilfield Services New HoldCo LLC (2) 10.2 Form of Joinder Agreement to Second Amended and Restated Limited Liability Company Operating Agreement of Liberty Oilfield Services New HoldCo LLC (15) 10.3 Registration Rights Agreement, dated October 26, 2021, by and among Liberty Oilfield Services Inc. and the other parties named therein (15) 10.4 Tax Receivable Agreement, dated January 17, 2018, by and among Liberty Oilfield Services Inc., R/C Energy IV Direct Partnership, L.P., and R/C Energy IV Direct Partnership, L.P., as agent (2) 10.5 Tax Receivable Agreement, dated January 17, 2018, by and among Liberty Oilfield Services Inc., and the other parties named therein (2) 10.6 Amended and Restated Registration Rights Agreement, dated as of December 31, 2020, by and among Liberty Oilfield Services Inc., the Schlumberger Parties, and the Holders (12) 10.7 Liberty Oilfield Services Inc. Long Term Incentive Plan (2)† 10.8 Credit Agreement, dated September 19, 2017, by and among Wells Fargo Bank, National Association, as Administrative Agent, Wells Fargo Bank, National Association, JPMorgan Chase Bank, N.A. and Citibank, N.A., as Joint Lead Arrangers, Wells Fargo Bank, National Association, as Book Runner, JPMorgan Chase Bank, N.A. and Citibank, N.A., as Syndication Agents, the lender parties thereto, Liberty Oilfield Services Holdings LLC, as Parent and Liberty Oilfield Services LLC and LOS Acquisition Co I LLC, each as a Borrower (1) 10.9 Amendment and Parent Joinder to Credit Agreement, dated January 17, 2018, by and among Liberty Oilfield Services Holdings LLC, Liberty Oilfield Services LLC, LOS Acquisition Co I LLC, Liberty Oilfield Services Inc., Liberty Oilfield Services New Holdco LLC, Wells Fargo Bank, National Association, as Administrative Agent, and the lenders signatory thereto (4) 1010 Second Amendment and Parent Joinder to Credit Agreement, dated March 21, 2018, by and among Liberty Oilfield Services LLC, LOS Acquisition Co I LLC, Liberty Oilfield Services Inc., Liberty Oilfield Services New Holdco LLC, R/C IV Non-U.S. LOS Corp, Wells Fargo Bank, National Association, as Administrative Agent, and the lenders signatory thereto (4) 10.11 Third Amendment to Credit Agreement, dated May 29, 2020, by and among Liberty Oilfield Services LLC, Liberty Oilfield Services Inc., Liberty Oilfield Services New Holdco LLC, R/C IV Non-U.S. LOS Corp, and Wells Fargo Bank, National Association as Administrative Agent, and the lenders signatory thereto (9) 10.12 Fourth Amendment to Credit Agreement, dated August 12, 2020, by and among Liberty Oilfield Services LLC, Liberty Oilfield Services Inc., Liberty Oilfield Services New Holdco LLC, R/C IV Non-U.S. LOS Corp, Wells Fargo Bank, National Association, as Administrative Agent, and the lenders signatory thereto (10) 46 10.13 Consent and Fifth Amendment to Credit Agreement, dated December 29, 2020, by and among Liberty Oilfield Services LLC, Liberty Oilfield Services Inc., Liberty Oilfield Services New Holdco LLC, R/C IV Non-U.S. LOS Corp, LOS Cibolo RE Investments, LLC, LOS Odessa RE Investments, LLC, ST9 Gas and Oil LLC, Wells Fargo Bank, National Association, as Administrative Agent, and the lenders signatory thereto (13) 10.14 Sixth Amendment to Credit Agreement and Second Amendment to Guaranty and Security Agreement, dated October 22, 2021, by and among Liberty Oilfield Services LLC, Liberty Oilfield Services Inc., Liberty Oilfield Services New HoldCo LLC, R/C IV Non-U.S. LOS Corp, LOS Solar Acquisition LLC, Freedom Proppant LLC, LOS Kermit LLC, LOS Cibolo RE Investments, LLC, LOS Odessa RE Investments, LLC, ST9 Gas and Oil LLC, Wells Fargo Bank, National Association, as Administrative Agent, and the lenders signatory thereto (15) 10.15 Joinder Agreement, dated December 31, 2021, by and among LOS Leasing Company LLC and Wells Fargo Bank, National Association, as Administrative Agent * 10.16 Credit Agreement, dated September 1 9 , 2017, by and among Liberty Oilfield Services LLC and LOS Acquisition CO I LLC, each as Borrower, Liberty Oilfield Services Holdings LLC, as Parent Guarantor and U.S. Bank National Association as Agent (1) 10.17 Amendment and Joinder to Credit Agreement, dated January 17, 2018, by and among Liberty Oilfield Services Holdings LLC, Liberty Oilfield Services LLC, LOS Acquisition Co I LLC, Liberty Oilfield Services Inc., Liberty Oilfield Services New Holdco LLC, U.S. Bank National Association, as Administrative Agent, and the lenders signatory thereto (4) 10.18 Second Amendment and Joinder to Credit Agreement, dated March 21, 2018, by and among Liberty Oilfield Services LLC, LOS Acquisition Co I LLC, Liberty Oilfield Services Inc., Liberty Oilfield Services New Holdco LLC, R/C IV Non-U.S. LOS Corp, U.S. Bank National Association, as Administrative Agent, and the lenders signatory thereto (4) 10.19 Third Amendment to Credit Agreement, dated August 12, 2020, by and among Liberty Oilfield Services LLC, Liberty Oilfield Services Inc., Liberty Oilfield Services New Holdco LLC, R/C IV Non-U.S. LOS Corp, U.S. Bank National Association, as Administrative Agent, and the lenders signatory thereto (10) 10.20 Waiver, Consent and Fourth Amendment to Credit Agreement and First Amendment to Guaranty and Security Agreement, dated December 29, 2020, by and among Liberty Oilfield Services LLC, Liberty Oilfield Services Inc., Liberty Oilfield Services New Holdco LLC, R/C IV Non-U.S. LOS Corp, LOS Cibolo RE Investments, LLC, LOS Odessa RE Investments, LLC, ST9 Gas and Oil LLC, U.S. Bank National Association, as Administrative Agent, and the lenders signatory thereto (13) 10.21 Fifth Amendment to Credit Agreement, Second Amendment to Guaranty and Security Agreement and Termination of Right of First Offer Letter, dated October 22, 2021, by and among Liberty Oilfield Services LLC, Liberty Oilfield Services Inc., Liberty Oilfield Services New HoldCo LLC, R/C IV Non-U.S. LOS Corp, LOS Cibolo RE Investments, LLC, LOS Odessa RE Investments, LLC, ST9 Gas and Oil LLC, LOS Solar Acquisition LLC, Freedom Proppant LLC, LOS Kermit LLC, U.S. Bank National Association, as Administrative Agent, and the lenders signatory thereto (15) 10.22 Liberty Oilfield Services 401(k) Savings Plan (13)† 10.23 Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement under the Long Term Incentive Plan (5)† 10.24 Form of Restricted Stock Unit Grant Notice under the Long Term Incentive Plan (13)† 10.25 Form of Performance Restricted Stock Unit Grant Notice and Performance Restricted Stock Unit Agreement under the Liberty Oilfield Services Inc. Long Term Incentive Plan (6)† 10.26 Form of Change in Control Agreement (7)† 10.27 Form of Indemnification Agreement between the Company and each of its Directors and Executive Officers (8) 21.1 List of subsidiaries of Liberty Oilfield Services Inc. * 23.1 Consent of Deloitte & Touche LLP * 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 * 31.2 Certification of Chief Financial Officer pursuant to 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 * 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ** 47 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ** 95 Mine Safety Disclosure * 101.INS XBRL Instance Document * 101.SCH XBRL Taxonomy Extension Schema Document * 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document * 101.DEF XBRL Taxonomy Extension Definition Linkbase Document * 101.LAB XBRL Taxonomy Extension Label Linkbase Document * 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document * 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)* (1) Incorporated by reference to the exhibits to the registrant’s Registration Statement on Form S-1, as amended (SEC File 333-216050). (2) Incorporated by reference to the exhibits to the registrant’s Current Report on Form 8-K, filed on January 18, 2018. (3) Incorporated by reference to the exhibits to the registrant’s Amendment No. 1 to the Current Report on Form 8-K/A, filed on January 22, 2018. (4) Incorporated by reference to the exhibits to the registrant’s Annual Report on Form 10-K, filed on March 23, 2018. (5) Incorporated by reference to the exhibits to the registrant’s Quarterly Report on Form 10-Q, filed on May 10, 2018. (6) Incorporated by reference to the exhibits to the registrant’s Quarterly Report on Form 10-Q, filed on May 3, 2019. (7) Incorporated by reference to the exhibits to the registrant’s Current Report on Form 8-K, filed on August 30, 2019. (8) Incorporated by reference to the exhibits to the registrant’s Annual Report on Form 10-K, filed on February 27, 2020. (9) Incorporated by reference to the exhibits to the registrant’s Current Report on Form 8-K, filed on June 3, 2020. (10) Incorporated by reference to the exhibits to the registrant’s Quarterly Report on Form 10-Q, filed on October 30, 2020. (11) Incorporated by reference to the exhibits to the registrant’s Current Report on Form 8-K, filed on September 1, 2020. (12) Incorporated by reference to the exhibits to the registrant’s Current Report on Form 8-K, filed on January 4, 2021. (13) Incorporated by reference to the exhibits to the registrant’s Annual Report on Form 10-K, filed on February 24, 2021. (14) Incorporated by reference to the exhibits to the registrant’s Current Report on Form 8-K, filed on June 10, 2021. Incorporated by reference to the exhibits to the registrant’s Current Report on Form 8-K, filed on January 4, 2021. (15) Incorporated by reference to the exhibits to the registrant’s Quarterly Report on Form 10-Q, filed on October 28, 2021. * Filed herewith. ** Furnished herewith. † Denotes a management contract or compensatory plan or arrangement. 48 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LIBERTY OILFIELD SERVICES INC. /s/ Christopher A. Wright Date: February 22, 2022 By: Christopher A. Wright Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Christopher A. Wright Chief Executive Officer and Director (Principal Executive Officer) February 22, 2022 Christopher A. Wright /s/ Michael Stock Chief Financial Officer (Principal Financial Officer) February 22, 2022 Michael Stock /s/ Ryan T. Gosney Chief Accounting Officer February 22, 2022 Ryan T. Gosney (Principal Accounting Officer) /s/ Simon Ayat Director February 22, 2022 Simon Ayat /s/ Ken Babcock Director February 22, 2022 Ken Babcock /s/ Peter A. Dea Director February 22, 2022 Peter A. Dea /s/ William F. Kimble Director February 22, 2022 William F. Kimble /s/ James R. McDonald Director February 22, 2022 James R. McDonald /s/ Gale A. Norton Director February 22, 2022 Gale A. Norton /s/ Audrey Robertson Director February 22, 2022 Audrey Robertson /s/ Cary D. Steinbeck Director February 22, 2022 Cary D. Steinbeck 49 Index to Financial Statements Liberty Oilfield Services Inc. Management’s Report on Internal Control Over Financial Reporting F-1 Reports of Independent Registered Public Accounting Firm (PCAOB ID No. 34 ) F- 2 Consolidated Balance Sheets as of December 31, 202 1 and 20 20 F- 5 Consolidated Statements of Operations for the Years Ended December 31, 202 1 , 20 20 , and 20 19 F- 6 Consolidated Statements of Changes in Equity for the Years Ended December 31, 202 1 and 20 20 F- 8 Consolidated Statements of Cash Flows for the Years Ended December 31, 202 1 , 20 20 , and 20 19 F- 9 Notes to Consolidated Financial Statements F- 10 50 MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING The management of Liberty Oilfield Services Inc. is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act. Internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Further, because of changes in conditions, effectiveness of internal controls over financial reporting may vary over time. Under the supervision of, and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2021 based on the framework and criteria established in Internal Control-Integrated Framework (2013) , issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that, as of December 31, 2021, our internal control over financial reporting was effective. Management’s evaluation of, and conclusion on, the effectiveness of internal control over financial reporting did not include the internal controls of the entity acquired in the PropX Acquisition, as defined herein, on October 26, 2021. The acquired business’ financial statements constitute 9% and 6% of net and total assets as of December 31, 2021. The effectiveness of Liberty Oilfield Services Inc. ’ s internal control over financial reporting as of December 31, 2021 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report that is included herein. F-1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Liberty Oilfield Services Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Liberty Oilfield Services Inc. and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, changes in equity, and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company ’ s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 22, 2022, expressed an unqualified opinion on the Company ’ s internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company ’ s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Income Taxes — Tax Receivable Agreements — Refer to Note 12 to the financial statements Critical Audit Matter Description The amounts payable, as well as the timing of such payments, under the tax receivable agreements (“TRA”) are dependent upon significant future events and assumptions, including among others: (i) the amount of the redeeming unit holder’s tax basis in its Liberty Oilfield Services New HoldCo LLC class B units at the time of the relevant redemption, (ii) the characterization of the tax basis step-up, (iii) the depreciation and amortization periods that apply to the increase in tax basis (iv), the amount and timing of taxable income the Company generates in future periods until the TRA payable is settled, and (v) the portion of the Company’s payments under the TRA that constitute imputed interest or give rise to depreciable or amortizable tax basis. During the year ended December 31, 2021, exchanges of Liberty Oilfield Services New HoldCo LLC class B units and shares of Class B Common Stock resulted in an increase of $58.5 million in amounts payable pursuant to tax receivable F-2 agreements (“TRA payable”), and a net increase of $68.8 million in deferred tax assets, all of which are subject to the valuation allowance and remeasurement of TRA liability. At December 31, 2021, the Company's TRA payable was $37.6 million, all of which is presented as a component of long-term liabilities. We identified the computation of adjustments to the TRA payable as a critical audit matter because of the multiple owners and complex calculations required to arrive at the correct tax basis upon which to calculate the corresponding TRA payable adjustment. This involved complexity in applying relevant tax law and an increased extent of effort, including the need to involve income tax specialists, when performing audit procedures to evaluate the reasonableness of management’s calculation of tax basis, iterative impact of the computation of adjustments to the TRA payable, and TRA payable as of year-end. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the computation of adjustments to the TRA payable included the following, among others: • We tested the effectiveness of controls over the computation of adjustments to the TRA payable, including management’s calculation of the step-up in tax basis that serves as the basis for the computation of adjustments to the TRA payable. • With the assistance of our income tax specialists, we read the individual TRAs and compared the terms in the agreements for consistency with the mathematical model used by management to calculate the adjustments to the TRA payable. • With the assistance of our income tax specialists, we evaluated management’s computation of adjustments to the TRA payable, and the TRA payable as of year-end that is payable over the contractual period by comparing to our independently recalculated value, taking into account the various class B unit exchanges for Class B Common Stock occurring during the year as well as the adjustments in the TRA payable for each exchange. /s/ DELOITTE & TOUCHE LLP Denver, Colorado February 22, 2022 We have served as the Company ’ s auditor since 2016. F-3 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Liberty Oilfield Services Inc. Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Liberty Oilfield Services Inc. and subsidiaries (the “Company”) as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2021, of the Company and our report dated February 22, 2022, expressed an unqualified opinion on those financial statements. As described in Management’s Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Proppant Express Solutions, LLC (“PropX”), which was acquired on October 26, 2021 and whose financial statements constitute 9% and 6% of net and total assets, respectively of the consolidated financial statement amounts as of and for the year ended December 31, 2021. Accordingly, our audit did not include the internal control over financial reporting at PropX. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ DELOITTE & TOUCHE LLP Denver, Colorado February 22, 2022 F-4 LIBERTY OILFIELD SERVICES INC. Consolidated Balance Sheets As of December 31, 2021 and 2020 (Dollars in thousands, except share data) 2021 2020 Assets Current assets: Cash and cash equivalents $ 19,998 $ 68,978 Accounts receivable—trade, net of allowances for credit losses of $ 884 and $ 773 , respectively 298,531 244,433 Unbilled revenue 108,923 69,516 Inventories 134,593 118,568 Prepaid and other current assets (including receivables from related parties of $ 0 and $ 24,708 , respectively) 68,332 65,638 Total current assets 630,377 567,133 Property and equipment, net 1,199,287 1,120,950 Finance lease right-of-use assets 18,201 38,733 Operating lease right-of-use assets 109,899 75,878 Other assets 82,289 81,888 Deferred tax asset 607 5,360 Total assets $ 2,040,660 $ 1,889,942 Liabilities and Equity Current liabilities: Accounts payable (including payables to related parties of $ 2,732 and $ 0 , respectively) $ 288,801 $ 193,338 Accrued liabilities (including amounts due to related parties of $ 1,142 and $ 0 , respectively) 235,115 118,383 Deferred revenue 4,552 — Current portion of long-term debt, net of discount of $ 743 and $ 1,386 , respectively 1,007 364 Current portion of finance lease liabilities 8,743 20,580 Current portion of operating lease liabilities 31,029 23,481 Total current liabilities 569,247 356,146 Long-term debt, net of discount of $ 1,270 and $ 1,054 , respectively, less current portion 121,445 105,411 Deferred tax liability 563 — Payable pursuant to tax receivable agreements, including payables to related parties of $ 0 and $ 27,173 , respectively 37,555 56,594 Noncurrent portion of finance lease liabilities 4,445 11,318 Noncurrent portion of operating lease liabilities 76,966 50,430 Total liabilities 810,221 579,899 Commitments & contingencies (Note 15) Stockholders’ equity: Preferred Stock, $ 0.01 par value, 10,000 shares authorized and none issued and outstanding — — Common Stock: Class A, $ 0.01 par value, 400,000,000 shares authorized and 183,385,111 issued and outstanding as of December 31, 2021 and 157,952,213 issued and outstanding as of December 31, 2020 1,834 1,579 Class B, $ 0.01 par value, 400,000,000 shares authorized and 2,632,347 issued and outstanding as of December 31, 2021 and 21,550,282 issued and outstanding as of December 31, 2020 26 216 Additional paid in capital 1,367,642 1,125,554 (Accumulated deficit) retained earnings ( 155,954 ) 23,288 Accumulated other comprehensive (loss) ( 306 ) — Total stockholders’ equity 1,213,242 1,150,637 Non-controlling interest 17,197 159,406 Total equity 1,230,439 1,310,043 Total liabilities and equity $ 2,040,660 $ 1,889,942 See Notes to Consolidated Financial Statements. F-5 LIBERTY OILFIELD SERVICES INC. Consolidated Statements of Operations For the Years Ended December 31, 2021, 2020, and 2019 (In thousands, except per share data) 2021 2020 2019 Revenue: Revenue $ 2,447,140 $ 965,787 $ 1,972,073 Revenue—related parties 23,642 — 18,273 Total revenue 2,470,782 965,787 1,990,346 Operating costs and expenses: Cost of services (exclusive of depreciation, depletion, and amortization shown separately below) 2,249,926 857,981 1,621,180 General and administrative 123,406 84,098 97,589 Transaction, severance and other costs 15,138 21,061 — Depreciation, depletion, and amortization 262,757 180,084 165,379 Loss (gain) on disposal of assets 779 ( 411 ) 2,601 Total operating costs and expenses 2,652,006 1,142,813 1,886,749 Operating (loss) income ( 181,224 ) ( 177,026 ) 103,597 Other (income) and expense: Gain on remeasurement of liability under tax receivable agreement ( 19,039 ) — — Interest income ( 2 ) ( 297 ) ( 983 ) Interest income—related party — ( 263 ) ( 1,821 ) Interest expense 15,605 15,065 17,485 Total other (income) expense, net ( 3,436 ) 14,505 14,681 Net (loss) income before income taxes ( 177,788 ) ( 191,531 ) 88,916 Income tax expense (benefit) 9,216 ( 30,857 ) 14,052 Net (loss) income ( 187,004 ) ( 160,674 ) 74,864 Less: Net (loss) income attributable to non-controlling interests ( 7,760 ) ( 45,091 ) 35,861 Net (loss) income attributable to Liberty Oilfield Services Inc. stockholders $ ( 179,244 ) $ ( 115,583 ) $ 39,003 Net (loss) income attributable to Liberty Oilfield Services Inc. stockholders per common share: Basic $ ( 1.03 ) $ ( 1.36 ) $ 0.54 Diluted $ ( 1.03 ) $ ( 1.36 ) $ 0.53 Weighted average common shares outstanding: Basic 174,019 85,242 72,334 Diluted 174,019 85,242 105,256 See Notes to Consolidated Financial Statements. F-6 LIBERTY OILFIELD SERVICES INC. Consolidated Statements of Comprehensive (Loss) Income For the Years Ended December 31, 2021, 2020, and 2019 (In thousands) 2021 2020 2019 Net (loss) income $ ( 187,004 ) $ ( 160,674 ) $ 74,864 Other comprehensive loss Foreign currency translation ( 102 ) — — Comprehensive (loss) income $ ( 187,106 ) $ ( 160,674 ) $ 74,864 Comprehensive (loss) income attributable to non-controlling interest ( 7,556 ) ( 45,091 ) 35,861 Comprehensive (loss) income attributable to Liberty Oilfield Services, Inc. $ ( 179,550 ) $ ( 115,583 ) $ 39,003 See Notes to Consolidated Financial Statements. F-7 LIBERTY OILFIELD SERVICES INC. Consolidated Statements of Changes in Equity For the Years Ended December 31, 2021 and 2020 (In thousands, except share and per unit data) Shares of Class A Common Stock Shares of Class B Common Stock Class A Common Stock, Par Value Class B Common Stock, Par Value Additional Paid in Capital Retained Earnings Accumulated Other Comprehensive Income Total Stockholders’ equity Non-controlling Interest Total Equity Balance—December 31, 2020 157,952 21,550 $ 1,579 $ 216 $ 1,125,554 $ 23,288 $ — $ 1,150,637 $ 159,406 $ 1,310,043 Exchange of Class B Common Stock for Class A Common Stock 21,359 ( 21,359 ) 214 ( 214 ) 153,641 — — 153,641 ( 153,641 ) — Offering Costs — — — — ( 1,247 ) — — ( 1,247 ) ( 75 ) ( 1,322 ) Issuance of Class A and Class B Common Stock for the PropX Acquisition 3,406 2,441 34 24 88,979 — — 89,037 2,052 91,089 Impact of ownership changes from issuance of Class A and Class B Common Stock — — — — ( 15,325 ) — — ( 15,325 ) 15,325 — Other distributions and advance payments to non-controlling interest unitholders — — — — — — — — 1,372 1,372 Stock based compensation expense — — — — 19,122 — — 19,122 824 19,946 Vesting of restricted stock units 668 — 7 — ( 3,082 ) — — ( 3,075 ) ( 510 ) ( 3,585 ) Restricted stock and RSU forfeitures — — — — — 2 — 2 — 2 Currency translation adjustment — — — — — — ( 306 ) ( 306 ) 204 ( 102 ) Net loss — — — — — ( 179,244 ) — ( 179,244 ) ( 7,760 ) ( 187,004 ) Balance—December 31, 2021 183,385 2,632 $ 1,834 $ 26 $ 1,367,642 $ ( 155,954 ) $ ( 306 ) $ 1,213,242 $ 17,197 $ 1,230,439 Shares of Class A Common Stock Shares of Class B Common Stock Class A Common Stock, Par Value Class B Common Stock, Par Value Additional Paid in Capital Retained Earnings Accumulated Other Comprehensive Income Total Stockholders’ equity Non-controlling Interest Total Equity Balance - December 31, 2019 81,885 30,639 $ 819 $ 307 $ 410,596 $ 143,105 $ — $ 554,827 $ 226,665 $ 781,492 Exchange of Class B Common Stock for Class A Common Stock 9,089 ( 9,089 ) 91 ( 91 ) 59,474 — — 59,474 ( 59,474 ) — Effect of exchange on deferred tax asset, net of liability under tax receivable agreements — — — — 2,430 — 2,430 — 2,430 Issuance of Class A Common Stock, net of issuance costs 66,326 — 663 — 599,618 — — 600,281 81,900 682,181 Impact of changes in ownership from the issuance of Class A Common Stock — — — — 46,400 — — 46,400 ( 46,400 ) — Deferred tax impact of ownership changes from exchanges and repurchases — — — — ( 6,337 ) — — ( 6,337 ) — ( 6,337 ) $ 0.05 /share of Class A Common Stock dividend — — — — — ( 4,244 ) — ( 4,244 ) — ( 4,244 ) $ 0.05 /unit distributions to non-controlling unitholders — — — — — — — — ( 1,532 ) ( 1,532 ) Other distributions and advance payments to non-controlling interest unitholders — — — — ( 1 ) — — ( 1 ) 569 568 Stock based compensation expense — — — 12,976 — 12,976 4,163 17,139 Vesting of restricted stock units 657 — 7 — 407 — — 414 ( 1,402 ) ( 988 ) Restricted stock and RSU Forfeitures ( 5 ) — ( 1 ) — ( 9 ) 10 — — 8 8 Net loss — — — — — ( 115,583 ) — ( 115,583 ) ( 45,091 ) ( 160,674 ) Balance - December 31, 2020 157,952 21,550 $ 1,579 $ 216 $ 1,125,554 $ 23,288 $ — $ 1,150,637 $ 159,406 $ 1,310,043 See Notes to Consolidated Financial Statements. F-8 LIBERTY OILFIELD SERVICES INC. Consolidated Statements of Cash Flows For the Years Ended December 31, 2021, 2020, and 2019 (Dollars in thousands) 2021 2020 2019 Cash flows from operating activities: Net (loss) income $ ( 187,004 ) $ ( 160,674 ) $ 74,864 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion, and amortization 262,757 180,084 165,379 Loss (gain) on disposal of assets 779 ( 411 ) 2,601 (Gain) loss on tax receivable agreements ( 19,039 ) 543 ( 122 ) Amortization of debt issuance costs 2,037 2,232 2,205 Inventory write-down — 1,087 1,953 Non-cash lease expense 3,823 3,668 3,192 Stock based compensation expense 19,946 17,139 13,592 Deferred income tax expense (benefit) 5,079 ( 25,546 ) 23,408 Provision for credit losses 745 4,877 1,053 Changes in operating assets and liabilities: Accounts receivable and unbilled revenue ( 90,142 ) 53,057 ( 11,512 ) Accounts receivable and unbilled revenue—related party — 9,629 5,510 Inventories ( 24,612 ) 2,137 ( 30,476 ) Other assets ( 30,955 ) 13,780 ( 6,464 ) Prepaid and other current assets—related party 24,708 — — Deferred revenue 3,452 — — Accounts payable and accrued liabilities 160,584 ( 15,282 ) 22,386 Accounts payable and accrued liabilities—related party 3,874 — ( 1,000 ) Payment of operating lease liability ( 565 ) ( 895 ) ( 5,469 ) Net cash provided by operating activities 135,467 85,425 261,100 Cash flows from investing activities: Purchases of property and equipment and construction in-progress ( 198,794 ) ( 103,637 ) ( 195,173 ) Investment in sand logistics ( 13,106 ) — — Proceeds from sales of assets 25,406 3,368 826 Net cash used in investing activities ( 186,494 ) ( 100,269 ) ( 194,347 ) Cash flows from financing activities: Repayments of borrowings on term loan ( 1,750 ) ( 1,750 ) ( 1,750 ) Proceeds from borrowings on line-of-credit 274,000 — — Repayments of borrowings on line-of-credit ( 256,000 ) — — Payments on finance lease obligations ( 7,363 ) ( 11,663 ) ( 12,143 ) Class A Common Stock dividends and dividend equivalents upon RSU vesting ( 168 ) ( 4,431 ) ( 14,776 ) Per unit distributions to non-controlling interest unitholders — ( 1,532 ) ( 7,747 ) Other distributions and advance payments to non-controlling interest unitholders 1,372 ( 6,800 ) ( 6 ) Tax withholding on restricted stock units ( 3,585 ) ( 988 ) ( 1,039 ) Share repurchases — — ( 18,398 ) Payments of debt issuance costs ( 3,120 ) ( 63 ) — Payment of equity issuance costs ( 1,330 ) ( 1,641 ) ( 1,516 ) Net cash provided by (used in) financing activities 2,056 ( 28,868 ) ( 57,375 ) Net (decrease) increase in cash and cash equivalents ( 48,971 ) ( 43,712 ) 9,378 Translation effect on cash ( 9 ) — — Cash and cash equivalents—beginning of period 68,978 112,690 103,312 Cash and cash equivalents—end of period $ 19,998 $ 68,978 $ 112,690 Supplemental disclosure of cash flow information: Net cash (received) paid for income taxes $ ( 9,481 ) $ ( 9,653 ) $ 1,042 Cash paid for interest $ 13,268 $ 11,218 $ 12,642 Non-cash investing and financing activities: Capital expenditures included in accounts payable and accrued liabilities $ 57,475 $ 10,920 $ 32,143 Equity issued in exchange for assets and liabilities $ 91,089 $ 683,822 $ — See Notes to Consolidated Financial Statements. F-9 LIBERTY OILFIELD SERVICES INC. Notes to Consolidated Financial Statements Note 1— Organization and Basis of Presentation Organization Liberty Oilfield Services Inc. (the “Company”) was incorporated as a Delaware corporation on December 21, 2016, to become a holding corporation for Liberty Oilfield Services New HoldCo LLC (“Liberty LLC”) and its subsidiaries upon completion of a corporate reorganization (the “Corporate Reorganization”) and planned initial public offering of the Company (“IPO”). The Company has no material assets other than its ownership of units in Liberty LLC (“Liberty LLC Units”). The Company, together with its subsidiaries, is a multi-basin provider of hydraulic fracturing services and goods, with a focus on deploying the latest technologies in the technically demanding oil and gas reservoirs in which it operates, principally in North Dakota, Colorado, Louisiana, Oklahoma, New Mexico, Wyoming, Texas and the provinces of Alberta and British Columbia, Canada. Basis of Presentation The accompanying consolidated financial statements were prepared using generally accepted accounting principles in the United States of America (“GAAP”) and the instructions to Form 10-K, Regulation S-X and the rules and regulations of the Securities and Exchange Commission. The accompanying consolidated financial statements and related notes present the consolidated financial position of the Company, the results of operations, cash flows, and equity of the Company as of and for the years ended December 31, 2021, 2020 and 2019. The consolidated financial statements include the amounts of the Company and all majority owned subsidiaries where the Company has the ability to exercise control. All intercompany amounts have been eliminated in the presentation of the consolidated financial statements of the Company. The Company’s operations are organized into a single reportable segment, which consists of hydraulic fracturing and related goods and services. Note 2— Significant Accounting Policies Business Combinations Business combinations are accounted for using the acquisition method of accounting in accordance with the Accounting Standard Codification (“ASC”) Topic 805 - Business Combinations, as amended by Accounting Standards Update (“ASU”) 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business. The purchase price is allocated to the assets acquired and liabilities assumed based on their estimated fair values. Fair value of the acquired assets and liabilities is measured in accordance with the guidance of ASC 850, Fair Value Measurements, using discounted cash flows and other applicable valuation techniques. Any acquisition related costs incurred by the Company are expensed as incurred. Any excess purchase price over the fair value of the net identifiable assets acquired is recorded as goodwill if the definition of a business is met. Operating results of an acquired business are included in our results of operations from the date of acquisition. Refer to Note 3—Acquisitions. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The consolidated financial statements include certain amounts that are based on management’s best estimates and judgments. The most significant estimates relate to the fair value of assets acquired and liabilities assumed, collectability of accounts receivable and estimates of allowance for doubtful accounts, the useful lives and salvage values of long-lived assets, future cash flows associated with long-lived assets, net realizable value of inventory, and equity unit valuation. These estimates may be adjusted as more current information becomes available. Cash and Cash Equivalents The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. The Company continually monitors its positions with, and the credit quality of, the financial institutions with F-10 LIBERTY OILFIELD SERVICES INC. Notes to Consolidated Financial Statements which it has banking relationships. As of the balance sheet date, and periodically throughout the year, the Company has maintained balances in various operating accounts in excess of federally insured limits. Accounts Receivable On January 1, 2020, the Company adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) : Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) using the modified-retrospective approach, which allows for a cumulative-effect adjustment to the consolidated balance sheet as of the beginning of the first reporting period in which the guidance is effective. Periods prior to the adoption date that are presented for comparative purposes are not adjusted. The Company applies historic loss factors to its receivable portfolio segments that were not expected to be further impacted by current economic developments, and additional economic conditions factor to portfolio segments anticipated to experience greater losses in the current economic environment. Additionally, the Company continuously evaluates customers based on risk characteristics, such as historical losses and current economic conditions. Due to the cyclical nature of the oil and gas industry, the Company often evaluates its customers’ estimated losses on a case-by-case basis. While there was no impact to the financial statements as a result of adoption of ASU 2016-13, as a result of two customers inability to pay, during the year ended December 31, 2021 the Company recorded a provision for credit losses of $ 0.7 million. During the year ended December 31, 2020 the Company recorded a provision for credit losses of $ 4.9 million related to the deteriorating economic conditions for the oil and gas industry brought on by the COVID-19 pandemic. Provisions for credit losses are included in general and administrative expenses in the accompanying consolidated statement of operations, in accordance with the new standard. Refer to “Credit Risk” within Note 9—Fair Value Measurements and Financial Instruments for additional disclosures required under ASU 2016-13. Inventories Inventories consist of raw materials used in the hydraulic fracturing process, such as proppants, chemicals, and field service equipment maintenance parts and other and are stated at the lower of cost, determined using the weighted average cost method, or net realizable value. Inventories are charged to cost of services as used when providing hydraulic fracturing services. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable cost of completion, disposal, and transportation. Property and Equipment Property and equipment are stated at cost. Depreciation and amortization expense is recognized on property and equipment, excluding land, utilizing the straight-line method over the estimated useful lives, ranging from two to 30 years. The Company estimates salvage values that it does not depreciate. Construction in-progress, a component of property and equipment, represents long-lived assets not yet in service or being developed by the Company. These assets are not subject to depreciation until they are completed and ready for their intended use, at which point the Company reclassifies them to field services equipment or vehicles, as appropriate. The Company assesses its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is assessed using undiscounted future net cash flows of assets grouped at the lowest level for which there are identifiable cash flows independent of the cash flows of other groups of assets. The Company determined the lowest level of identifiable cash flows to be at the asset group, which is the aggregate of the Company’s hydraulic fracturing fleets that are in service. A long-lived asset is not recoverable if its carrying amount exceeds the sum of estimated undiscounted cash flows expected to result from the use and eventual disposition. When alternative courses of action to recover the carrying amount of the asset group are under consideration, estimates of future undiscounted cash flows take into account possible outcomes and probabilities of their occurrence. If the carrying amount of the asset is not recoverable, an impairment loss is recognized in an amount by which its carrying amount exceeds its estimated fair value, such that its carrying amount is adjusted to its estimated fair value, with an offsetting charge to impairment expense. The Company measures the fair value of its property and equipment using the discounted cash flow method. The expected future cash flows used for impairment reviews and related fair value calculations are based on judgmental assessments of projected revenue growth, fleet count, utilization, gross margin rates, selling, general and administrative rates, working capital fluctuations, capital expenditures, discount rates and terminal growth rates. During the year ended December 31, 2020, as a result of negative market indicators including the COVID-19 pandemic, the increased supply of low-priced oil, and customer cancellations, the Company concluded these triggering events could indicate possible impairment of property and equipment. The Company performed a quantitative and qualitative impairment analysis and determined that no impairment had occurred as of June 30, 2020. As of December 31, 2021 and 2020, the Company concluded that no additional triggering events had occurred, and no impairment was recognized during the years ended December 31, 2021 and 2020. F-11 LIBERTY OILFIELD SERVICES INC. Notes to Consolidated Financial Statements During 2019, the Company did not test its long-lived assets for recoverability as there were no triggering events. No impairment was recognized during the years ended December 31, 2019. Major Maintenance Activities The Company incurs maintenance costs on its major equipment. The determination of whether an expenditure should be capitalized or expensed requires management judgment in the application of how the costs incurred benefit future periods, relative to the Company’s capitalization policy. Costs that either establish or increase the efficiency, productivity, functionality or life of a fixed asset are capitalized and depreciated over the remaining useful life of the asset. Leases On January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (Accounting Standard Codification (“ASC”) Topic 842), as amended by other ASUs issued since February 2016 (“ASU 2016-02” or “ASC Topic 842”), using the modified retrospective transition method applied at the effective date of the standard. By electing this optional transition method, information prior to January 1, 2019 has not been restated and continues to be reported under the accounting standards in effect for the period (ASC Topic 840). In accordance with ASC Topic 842, the Company determines if an arrangement is a lease at inception and evaluates identified leases for operating or finance lease treatment. Operating or finance lease right-of-use assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. The Company uses the rate implicit in the lease, when available, or an estimated fully collateralized incremental borrowing rate corresponding with the lease term and the information available at the commencement date in determining the present value of lease payments. Lease terms may include options to renew, however, the Company typically cannot determine its intent to renew a lease with reasonable certainty at inception. Additionally, the Company is a lessor in several operating leases in which the lease equipment is carried at amortized cost. Depreciation expense is recorded on a straight-line basis over its useful life to the estimated residual value. The lessee may not purchase the leased equipment and must return such equipment by the lease's scheduled maturity date. Deferred Financing Costs Costs associated with obtaining debt financing are deferred and amortized to interest expense using the effective interest method. In accordance with ASU No. 2015-03 and 2015-15, for all periods the Company has reflected deferred financing costs related to term loan debt as a direct deduction from the carrying amount, and costs associated with line-of-credit arrangements as other assets. Income Taxes Deferred income taxes are computed using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Deferred tax assets and liabilities are calculated using the enacted tax rates in effect for the year in which the deferred tax asset or liability is expected to reverse. The Company classifies all deferred tax assets and liabilities as non-current. The Company records Global Intangible Low Tax Income as a current period expense. The Company evaluates its deferred tax assets quarterly and considers both positive and negative evidence in applying the guidance of ASC 740 Income Taxes (“ASC 740”) related to the realizability of its deferred tax assets. On June 30, 2021, in accordance with ASC 740, the objective negative evidence of entering into a three year cumulative pre-tax book loss position prevented the consideration of the Company’s subjective positive evidence of expected future profitability in evaluation the realizability of deferred tax assets. As a result, the Company recorded a valuation allowance against U.S. net deferred tax assets. The Company recognizes the financial statement effects of a tax position when it is more-likely-than-not, based on the technical merits, that the position will be sustained upon examination. A tax position that meets the more-likely-than-not recognition threshold is measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority. Previously recognized tax positions are reversed in the first period in which it is no longer more-likely-than-not that the tax position would be sustained upon examination. Income tax related interest and penalties, if applicable, are recorded as a component of the provision for income tax expense. F-12 LIBERTY OILFIELD SERVICES INC. Notes to Consolidated Financial Statements Tax Receivable Agreements In connection with the IPO, on January 17, 2018, the Company entered into two Tax Receivable Agreements (the “TRAs”) with the R/C Energy IV Direct Partnership, L.P. and certain legacy owners that continued to own Liberty LLC Units (each such person and any permitted transferee, a “Tax Receivable Agreement Holder” and together, the “Tax Receivable Agreement Holders”). The TRAs generally provide for the payment by the Company of 85% of the net cash savings, if any, in U.S. federal, state, and local income tax and franchise tax (computed using simplifying assumptions to address the impact of state and local taxes) that the Company actually realizes (or is deemed to realize in certain circumstances) in periods after the IPO as a result, as applicable to each Tax Receivable Agreement Holder, of (i) certain increases in tax basis that occur as a result of the Company’s acquisition (or deemed acquisition for U.S. federal income tax purposes) of all or a portion of such Tax Receivable Agreement Holder’s Liberty LLC Units in connection with the IPO or pursuant to the exercise of the right (the “Redemption Right”) or the Company’s right (the “Call Right”), (ii) any net operating losses available to the Company as a result of the Corporate Reorganization, and (iii) imputed interest deemed to be paid by the Company as a result of, and additional tax basis arising from, any payments the Company makes under the TRAs. With respect to obligations the Company expects to incur under the TRAs (except in cases where the Company elects to terminate the TRAs early, the TRAs are terminated early due to certain mergers, asset sales, or other changes of control or the Company has available cash but fails to make payments when due), generally the Company may elect to defer payments due under the TRAs if the Company does not have available cash to satisfy its payment obligations under the TRAs or if its contractual obligations limit its ability to make such payments. Any such deferred payments under the TRAs generally will accrue interest. In certain cases, payments under the TRAs may be accelerated and/or significantly exceed the actual benefits, if any, the Company realizes in respect of the tax attributes subject to the TRAs. The Company accounts for amounts payable under the TRAs in accordance with ASC Topic 450, Contingencies . If the Company experiences a change of control (as defined under the TRAs) or the TRAs otherwise terminate early, the Company’s obligations under the TRAs could have a substantial negative impact on its liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales, or other forms of business combinations or changes of control. Share Repurchases The Company accounts for the purchase price of repurchased Class A Common Stock in excess of par value ($ 0.01 per share of Class A Common Stock) as a reduction of additional paid-in capital, and will continue to do so until additional paid-in capital is reduced to zero. Thereafter, any excess purchase price will be recorded as an increase to accumulated deficit. Revenue Recognition Under ASC Topic 606- Revenue from Contracts with Customers , revenue recognition is based on the transfer of control, or the customer’s ability to benefit from the services and products in an amount that reflects the consideration expected to be received in exchange for those services and products. In recognizing revenue for services and products, the transaction price is determined from sales orders or contracts with customers. Revenue is recognized at the completion of each fracturing stage, and in most cases the price at the end of each stage is fixed, however, in limited circumstances contracts may contain variable consideration. Variable consideration typically may relate to discounts, price concessions and incentives. The Company estimates variable consideration based on the amount of consideration we expect to receive. The Company accrues revenue on an ongoing basis to reflect updated information for variable consideration as performance obligations are met. The Company also assesses customers’ ability and intention to pay, which is based on a variety of factors including historical payment experience and financial condition. Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 45 days. In connection with the adoption of ASC Topic 842, the Company determined that certain of its service revenue contracts contain a lease component. The Company elected to adopt a practical expedient available to lessors, which allows the Company to combine the lease and non-lease components and account for the combined component in accordance with the accounting treatment for the predominant component. Therefore, the Company combines the lease and service component for certain of the Company’s service contracts and continues to account for the combined component under ASC Topic 606, Revenue from Contracts with Customers. Deferred Revenue From time to time, the Company may require partial payment in advance from new customers to secure credit or from existing customers in order to secure additional hydraulic fracturing services. Initially, such payments are recorded in the accompanying consolidated financial statements as deferred revenue, and upon performance of the agreed services, the F-13 LIBERTY OILFIELD SERVICES INC. Notes to Consolidated Financial Statements Company recognizes revenue consistent with its revenue recognition policy described above. As of December 31, 2021 and 2020, the Company had $ 4.6 million and $ 0.0 million recorded as deferred revenue, respectively. Transaction, Severance and Other Costs During 2021, the Company incurred transaction and integration related costs in connection with the OneStim Acquisition (as defined below) and PropX Acquisition (as defined below). Such costs include investment banking, legal, accounting and other professional services provided in connection with closing the transaction and are expensed as incurred . The Company incurred transaction costs in 2020 related to the OneStim Acquisition and severance and other costs related to the reduction in workforce in April 2020 and the commencement of furlough schedules for remaining employees in May 2020. Payments made to employees leaving the Company, as well as benefits paid to employees while on furlough are recorded to transaction, severance and other costs in the accompanying consolidated statements of operations for the year ended December 31, 2020. Foreign Currency Translation The Company records foreign currency translation adjustments from the process of translating the functional currency of the financial statements of its foreign subsidiary into the U.S. dollar reporting currency. The Canadian dollar is the functional currency of the Company’s foreign subsidiary as it is the primary currency within the economic environment in which the subsidiary operates. Assets and liabilities of the subsidiary’s operations are translated into U.S. dollars at the rate of exchange in effect on the balance sheet date and income and expenses are translated at the average exchange rate in effect during the reporting period. Adjustments resulting from the translation of the subsidiary’s financial statements are reported in other comprehensive income. Recently Adopted Accounting Standards Simplification of Accounting for Income Taxes In December 2019, the FASB issued ASU No. 2019-12, Simplification of Accounting for Income Taxes , which simplifies the accounting for income taxes by providing new guidance to reduce complexity and eliminate certain exceptions to the general approach to the income tax accounting model. The Company adopted this guidance effective January 1, 2021, which did not have a material impact on the accompanying consolidated financial statements. Codification Improvements In October 2020, the FASB issued ASU No. 2020-10, Codification Improvements, which clarifies various topics, including the addition of existing disclosure requirements to the relevant disclosure sections. This update does not change GAAP, and therefore, does not result in a significant change in the Company’s accounting practices. The guidance is effective for fiscal periods beginning after December 15, 2020, as the amendment pertains to disclosure items only. The Company adopted the new rules effective January 1, 2021 and the adoption did not have a material impact on the accompanying consolidated financial statements. Reference Rate Reform In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform, which provides temporary optional guidance to companies impacted by the transition away from the London Interbank Offered Rate (“LIBOR”). The guidance provides certain expedients and exceptions to applying GAAP in order to lessen the potential accounting burden when contracts, hedging relationships, and other transactions that reference LIBOR as a benchmark rate are modified. This guidance is effective upon issuance and expires on December 31, 2022. The Company is currently assessing the impact of the LIBOR transition and this ASU on the Company’s consolidated financial statements. Business Combinations: Accounting for Contract Assets and Contract Liabilities from Contracts with Customers In October 2021, the FASB issued ASU No. 2021-08, Business Combinations: Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which changes the accounting for the recognition and measurement of contract assets and contract liabilities acquired in a business combination in accordance with ASC 606. The update changes GAAP surrounding the recognition of contract assets and contract liabilities from fair value on the acquisition date to guidance under ASC 606. The guidance is effective for fiscal periods beginning after December 15, 2022. The Company adopted the new rules upon issuance and the adoption did not have a material impact on the accompanying consolidated financial statements. Reclassifications Certain amounts in the prior period financial statements have been reclassified from general and administrative to transaction, severance and other costs in the accompanying consolidated statements of operation to conform to the presentation of the current period financial statements. These reclassifications had no effect on the previously reported net income or loss. F-14 LIBERTY OILFIELD SERVICES INC. Notes to Consolidated Financial Statements Note 3— Acquisitions PropX Acquisition On October 26, 2021, the Company entered into the certain Master Transaction Agreement (the “Transaction Agreement”) with Proppant Express Investments, LLC to acquire the assets and liabilities of Proppant Express Solutions, LLC “PropX”, which provides last-mile proppant delivery solutions, including proppant handling equipment and logistics software across North America. PropX was acquired in exchange for $ 11.9 million in cash and 3,405,526 shares of the Company’s Class A Common Stock, par value $ 0.01 per share (the “Class A Common Stock”) and 2,441,010 shares of the Company’s Class B Common Stock, par value $ 0.01 per share (the “Class B Common Stock”, and together with the Class A Common Stock, the “Common Stock”), for total consideration of $ 103.0 million based on the October 26, 2021 closing price of Class A Common Stock of $ 15.58 . In connection with the issuance of 2,441,010 shares of Class B Common Stock, Liberty LLC also issued 2,441,010 Liberty LLC Units to the Company. The Liberty LLC Units are redeemable for an equivalent number of shares of Class A Common Stock at anytime, at the election of the shareholder. The Company accounted for the PropX Acquisition using the acquisition method of accounting. The aggregate purchase price noted above was allocated to the major categories of assets acquired and liabilities assumed based upon their estimated fair value at the date of the acquisition. The estimated fair values of certain assets and liabilities require significant judgments and estimates. The majority of the measurements of assets acquired and liabilities assumed, are based on inputs that are not observable in the market and thus represent Level 3 inputs. In accordance with ASC Topic 805, an acquirer is allowed a period, referred to as the measurement period, in which to complete its accounting for the transaction. Such measurement period ends at the earliest date that the acquirer a) receives the information necessary or b) determines that it cannot obtain further information, and such period may not exceed one year. As the PropX Acquisition closed on October 26, 2021 the Company is in the process of completing the initial purchase price allocation, particularly as it relates to current assets and current liabilities. The following table summarizes the fair value of the consideration transferred in the PropX Acquisition and the preliminary allocation of the purchase price to the fair value of the assets acquired and liabilities assumed as of October 26, 2021, the date of the closing of the PropX Acquisition: ($ in thousands) Total Purchase Consideration: Consideration $ 103,023 Cash and cash equivalents $ 53 Accounts receivable and unbilled revenue 4,089 Inventory 8 Prepaid and other current assets 1,722 Property and equipment (1) 94,137 Intangible assets (included in other assets in the accompanying consolidated balance sheet as of December 31, 2021) (2) 7,100 Total identifiable assets acquired 107,109 Accounts payable 2,152 Accrued liabilities 1,934 Total liabilities assumed 4,086 Total purchase consideration $ 103,023 (1) Useful lives average of 10 years, see Note 5—Property and Equipment (2) Definite lived intangibles with an amortization period ranging from seven to 10 years Transaction costs, costs associated with issuing additional equity and integration costs were recognized separately from the acquisition of assets and assumptions of liabilities in the PropX Acquisition. Transaction costs consist of legal and professional fees. Integration costs consist of expenses incurred to integrate PropX’s operations, aligning accounting processes and procedures, and integrating its enterprise resource planning system with those of the Company. Merger and integration costs are expensed as incurred, and equity offering costs were recorded as a reduction to additional paid in capital. F-15 LIBERTY OILFIELD SERVICES INC. Notes to Consolidated Financial Statements The Company’s consolidated statements of operations for the year ended December 31, 2021 includes 66 days of PropX operations as the PropX Acquisition closed on October 26, 2021. The Company does not present pro forma financial information for the periods prior to the PropX Acquisition as such information, after elimination of PropX’s historical transactions with the Company, is not materially different than the results presented in the accompanying Consolidated Statements of Operations for years ended December 31, 2021 and 2020. OneStim Acquisition On August 31, 2020 the Company and certain of its subsidiaries entered into the certain Master Transaction Agreement (the “Transaction Agreement”) with Schlumberger Technology Corporation and Schlumberger Canada Limited (collectively “Schlumberger”), pursuant to which the Company acquired certain assets and liabilities of Schlumberger’s OneStim® business, which provides hydraulic fracturing pressure pumping services in onshore United States and Canada (such entire business of Schlumberger “OneStim,” and the portion of OneStim acquired pursuant to the Transaction Agreement the “Transferred Business”) in exchange for 57,377,232 shares of Class A Common Stock and a non-interest bearing demand promissory note (the “Canadian Buyer Note” and such acquisition, the “OneStim Acquisition”). The Canadian Buyer Note was settled for 8,948,902 shares of Class A Common Stock, and a total of 66,326,134 shares of Class A Common Stock were issued in connection with the OneStim Acquisition. Effective December 31, 2020, Schlumberger owned approximately 37.0 % of the Company’s issued and outstanding shares of Common Stock. In connection with the issuance of 66,326,134 shares of Class A Common Stock, Liberty LLC also issued 66,326,134 Liberty LLC Units to the Company. The OneStim Acquisition was completed for total consideration of approximately $ 683.8 million based on the value of the Canadian Buyer Note and the closing price of the Class A Common Stock on December 31, 2020. The Company accounted for the OneStim Acquisition using the acquisition method of accounting. The aggregate purchase price noted above was allocated to the major categories of assets acquired and liabilities assumed based upon their estimated fair value at the date of the acquisition. The estimated fair values of certain assets and liabilities, including accounts receivable, require significant judgments and estimates. The majority of the measurements of assets acquired and liabilities assumed, are based on inputs that are not observable in the market and thus represent Level 3 inputs. In accordance with ASC Topic 805, an acquirer is allowed a period, referred to as the measurement period, in which to complete its accounting for the transaction. Such measurement period ends at the earliest date that the acquirer a) receives the information necessary or b) determines that it cannot obtain further information, and such period may not exceed one year. As the OneStim Acquisition closed on December 31, 2020 the Company completed the purchase price allocation, particularly as it relates to current assets and current liabilities, which were subject to certain minimum working capital contribution requirements under the Transaction Agreement during the year ended December 31, 2021. The following table summarizes the fair value of the consideration transferred in the OneStim Acquisition and the allocation of the purchase price to the fair value of the assets acquired and liabilities assumed (which are included within the accompanying consolidated balance sheet as of December 31, 2020) as of December 31, 2020, the date of the closing of the OneStim Acquisition: ($ in thousands) Total Purchase Consideration: Consideration $ 683,822 Accounts receivable and unbilled revenue $ 128,602 Inventories 33,245 Prepaid and other current assets 30,859 Property and equipment (1) 559,716 Intangible assets (included in other assets in the accompanying consolidated balance sheet as of December 31, 2020) (2) 54,000 Total identifiable assets acquired 806,422 Accounts payable 75,522 Accrued liabilities 47,078 Total liabilities assumed 122,600 Total purchase consideration $ 683,822 (1) Useful lives ranging from two to greater than 25 years, see Note 5—Property and Equipment (2) Definite lived intangibles with an average amortization period of five years F-16 LIBERTY OILFIELD SERVICES INC. Notes to Consolidated Financial Statements Transaction costs, costs associated with issuing additional equity and integration costs were recognized separately from the acquisition of assets and assumptions of liabilities in the OneStim Acquisition. Transaction costs consist of legal and professional fees and pre-merger notification fees. Equity offering costs consist of expenses incurred related to the Special Meeting of Stockholders, including the costs to prepare the required filings associated with such meeting, held on November 3, 2020. Integration costs consist of expenses incurred to integrate OneStim’s operations, aligning accounting processes and procedures, and integrating its enterprise resource planning system with those of the Company. Merger and integration costs are expensed as incurred, and equity offering costs were recorded as a reduction to additional paid in capital. The following combined pro forma information assumes the OneStim Acquisition occurred on January 1, 2019. The pro forma information presented below is for illustrative purposes only and does not reflect future events that occurred after December 31, 2020 or any operating efficiencies or inefficiencies that may result from the OneStim Acquisition. The information is not necessarily indicative of results that would have been achieved had the Company controlled OneStim during the periods presented. Years ended December 31, (unaudited, in thousands) 2020 2019 Revenue $ 2,191,894 $ 5,174,346 Net loss ( 1,052,807 ) ( 1,074,735 ) Less: Net loss attributable to non-controlling interests ( 196,020 ) ( 285,178 ) Net loss attributable to Liberty Oilfield Services Inc. stockholders $ ( 856,787 ) $ ( 789,557 ) Net loss attributable to Liberty Oilfield Services Inc. stockholders per common share: Basic $ ( 5.65 ) $ ( 5.69 ) Diluted $ ( 5.65 ) $ ( 5.69 ) Weighted average common shares outstanding: Basic 151,568 138,660 Diluted 151,568 138,660 The Company’s consolidated statements of operations for the year ended December 31, 2020 does not include any results from OneStim operations as the OneStim Acquisition closed on December 31, 2020. Transaction and integration costs incurred related to both transactions were $ 13.6 million and $ 8.5 million, for the years ended December 31, 2021 and 2020, respectively, and are recorded as a component of transaction, severance and other costs in the accompanying consolidated statements of operations. Equity offering costs totaled $ 1.3 million and $ 1.6 million, for the years ended December 31, 2021 and 2020, respectively, and are recorded as a reduction to additional paid in capital in the accompanying consolidated balance sheets. F-17 LIBERTY OILFIELD SERVICES INC. Notes to Consolidated Financial Statements Note 4— Inventories Inventories consist of the following: December 31, ($ in thousands) 2021 2020 Proppants $ 23,413 $ 13,658 Chemicals 17,996 16,434 Maintenance parts 93,184 88,476 $ 134,593 $ 118,568 The Company did not record any write-down to the inventory carrying value during the year ended December 31, 2021. During the year ended December 31, 2020, the lower of cost or net realizable value analysis resulted in the Company recording a write-down to inventory carrying values of $ 1.1 million, which is included as a component in cost of services in the consolidated statements of operations. Note 5— Property and Equipment Property and equipment consist of the following: Estimated useful lives (in years) December 31, 2021 2020 ($ in thousands) Land N/A $ 33,812 $ 38,346 Field services equipment 2 - 7 1,579,420 1,249,933 Vehicles 4 - 7 61,282 59,741 Lease Equipment 10 64,770 — Buildings and facilities 5 - 30 148,555 156,109 Mineral reserves > 25 76,823 78,793 Office equipment and furniture 2 - 7 8,218 6,840 1,972,880 1,589,762 Less accumulated depreciation and amortization ( 863,194 ) ( 622,530 ) 1,109,686 967,232 Construction in-progress N/A 89,601 153,718 $ 1,199,287 $ 1,120,950 During the years ended December 31, 2021, 2020, and 2019, the Company recognized depreciation expense of $ 243.0 million, $ 169.9 million, and $ 153.6 million, respectively. Depletion expense for the year ended December 31, 2021 was $ 1.2 million. During the year ended December 31, 2020, as a result of negative market indicators including the COVID-19 pandemic, the increased supply of low-priced oil, and customer cancellations, the Company concluded these triggering events could indicate possible impairment of property and equipment. The Company performed a quantitative and qualitative impairment analysis and determined that no impairment had occurred as of June 30, 2020. As of December 31, 2021, and 2020, the Company concluded that no additional triggering events occurred. Such analysis required management to make estimates and assumptions based on historical data and consideration of future market conditions. Given the uncertainty inherent in any projection, heightened by the possibility of unforeseen additional effects of COVID-19, actual results may differ from the estimates and assumptions used, or conditions may change, which could result in impairment charges in the future. F-18 LIBERTY OILFIELD SERVICES INC. Notes to Consolidated Financial Statements Note 6— Leases Lessee Arrangements The Company has operating and finance leases primarily for vehicles, equipment, railcars, office space, and facilities. The terms and conditions for these leases vary by the type of underlying asset. Certain leases include variable lease payments for items such as property taxes, insurance, maintenance, and other operating expenses associated with leased assets. Payments that vary based on an index or rate are included in the measurement of lease assets and liabilities at the rate as of the commencement date. All other variable lease payments are excluded from the measurement of lease assets and liabilities, and are recognized in the period in which the obligation for those payments is incurred. The components of lease expense for the years ended as of December 31, 2021, and 2020 were as follows: ($ in thousands) 2021 2020 Finance lease cost: Amortization of right-of-use assets $ 5,490 $ 8,115 Interest on lease liabilities 1,598 1,770 Operating lease cost 40,365 25,817 Variable lease cost 4,183 2,935 Short-term lease cost 5,026 — Sublease (income) — ( 113 ) Total lease cost, net $ 56,662 $ 38,524 Supplemental cash flow and other information related to leases as of December 31, 2021 and 2020 were as follows: ($ in thousands) 2021 2020 Cash paid for amounts included in measurement of liabilities: Operating leases $ 37,121 $ 23,612 Finance leases 8,598 13,433 Right-of-use assets obtained in exchange for new lease liabilities: Operating leases 71,477 29,663 Finance leases 1,500 10,921 During the years ended December 31, 2021 and 2020, the Company amended certain finance leases, the change in terms of which caused the leases to be reclassified to operating leases. In connection with the amendments, the Company wrote-off finance lease right-of-use assets of $ 16.6 million and $ 22.5 million, respectively, and liabilities of $ 12.8 million and $ 19.0 million, respectively. Additionally, the Company recognized operating lease right-of-use assets of $ 14.3 million and $ 18.6 million and liabilities of $ 10.7 million and $ 15.1 million, respectively. There was no gain or loss recognized as a result of these amendments. Lease terms and discount rates as of December 31, 2021 and 2020 were as follows: December 31, 2021 December 31, 2020 Weighted-average remaining lease term: Operating leases 5.2 years 5.9 years Finance leases 1.5 years 1.5 years Weighted-average discount rate: Operating leases 4.2 % 4.8 % Finance leases 8.6 % 5.8 % F-19 LIBERTY OILFIELD SERVICES INC. Notes to Consolidated Financial Statements Future minimum lease commitments as of December 31, 2021 are as follows: ($ in thousands) Finance Operating 2022 $ 9,464 $ 34,829 2023 5,051 24,928 2024 — 18,306 2025 — 15,975 2026 — 8,388 Thereafter — 17,833 Total lease payments 14,515 120,259 Less imputed interest 1,327 12,264 Total $ 13,188 $ 107,995 The Company’s vehicle leases typically include a residual value guarantee. For the Company’s vehicle leases classified as operating leases, the total residual value guaranteed as of December 31, 2021 is $ 11.6 million; the payment is not probable and therefore has not been included in the measurement of the lease liability and right-of-use asset. For vehicle leases that are classified as finance leases, the Company includes the residual value guarantee, estimated in the lease agreement, in the financing lease liability. Lessor Arrangements The Company leases dry and wet sand containers and conveyor belts to customers through PropX. PropX leases to customers through operating leases, where the lessor for tax purposes is considered to be the owner of the equipment during the term of the lease. The lease agreements do not include options for the lessee to purchase the underlying asset at the end of the lease term for either a stated fixed price or fair market value. However, some of the leases contain a termination clause in which the customer can cancel the contract. The leases can be subject to variable lease payments if the customer requests more units than what is agreed upon in the lease. The Company does not record any lease assets or liabilities related to these variable items. The carrying amount of equipment leased to others, included in property, plant and equipment, under operating leases as of December 31, 2021 and 2020 were as follows: ($ in thousands) December 31, 2021 December 31, 2020 Equipment leased to others - at original cost $ 64,770 $ — Less: Accumulated depreciation ( 1,377 ) — Equipment leased to others - net $ 63,393 $ — Future payments receivable for operating leases commenced and committed but not delivered as of December 31, 2021 are as follows: ($ in thousands) 2022 $ 10,209 2023 10,099 2024 4,197 2025 800 2026 — Thereafter — Total $ 25,305 Revenues from operating leases for the years ended December 31, 2021 and 2020 were $ 3.2 million and $ — million , respectively. The Company had no lease revenue and no lease receivables with related parties for the year ended December 31, 2021 . F-20 LIBERTY OILFIELD SERVICES INC. Notes to Consolidated Financial Statements Note 7— Accrued Liabilities Accrued liabilities consist of the following: ($ in thousands) December 31, 2021 December 31, 2020 Accrued vendor invoices $ 109,903 $ 61,210 Operations accruals 64,707 28,932 Accrued benefits and other 60,505 28,241 $ 235,115 $ 118,383 Note 8— Debt Debt consists of the following: December 31, 2021 2020 Term Loan Outstanding $ 106,465 $ 108,215 Revolving Line of Credit 18,000 — Deferred financing costs and original issue discount ( 2,013 ) ( 2,440 ) Total debt, net of deferred financing costs and original issue discount $ 122,452 $ 105,775 Current portion of long-term debt, net of discount $ 1,007 $ 364 Long-term debt, net of discount and current portion 121,445 105,411 $ 122,452 $ 105,775 On September 19, 2017, the Company entered into two credit agreements, a revolving line of credit up to $ 250.0 million (the “ABL Facility”) and a $ 175.0 million term loan (the “Term Loan Facility”, and together with the ABL Facility the “Credit Facilities”). On October 22, 2021, the Company entered into an amendment to the ABL Facility (the “Revolving Credit Agreement Amendment”). The Revolving Credit Agreement Amendment further amends the credit agreement and guaranty and security agreement originally entered into by the parties on September 19, 2017, which governs the Company’s ABL Facility. Along with other revisions, the Revolving Credit Agreement Amendment (i) expanded the definition of borrowing base to include certain eligible US investment grade accounts, Canadian accounts solely after a specified event, and both chemical and spare parts inventory; (ii) increased the maximum revolver amount from $ 250.0 million to $ 350.0 million (with the ability to request an increase in the size of the ABL Facility by $ 75.0 million); (iii) increased certain indebtedness baskets; (iv) provided additional flexibility for a potential future internal structuring; (v) added new lenders to the facility; and (vi) extended the maturity date to the earlier of (a) October 22, 2026 and (b) to the extent the debt under the Term Loan Facility remains outstanding 90 days prior to the final maturity of the Term Loan Facility. The ABL Facility was initially scheduled to mature on the earlier to occur of (i) September 19, 2022 and (ii) to the extent the debt under the Term Loan Facility remains outstanding, 90 days prior to the final maturity of the Term Loan Facility. Additionally, on October 22, 2021, the Company entered into a Fifth Amendment to Credit Agreement, Second Amendment to Guaranty and Security Agreement and Termination of Right of First Offer Letter. The Term Loan Credit Agreement Amendment further amends the credit agreement and guaranty and security agreement and terminates the Right of First Offer Letter originally entered into by the parties on September 19, 2017, which governs the Company’s Term Loan Facility. Along with other revisions, the Term Loan Credit Agreement Amendment (i) increased certain indebtedness baskets; (ii) provided additional flexibility for a potential future internal structuring; (iii) extended the maturity date through September 19, 2024; and (iv) terminated a right of first offer in favor of the Term Loan Facility lenders. The Term Loan Facility was initially scheduled to mature on September 19, 2022. The weighted average interest rate on all borrowings outstanding as of December 31, 2021 and December 31, 2020 was 7.9 % and 8.6 %, respectively. ABL Facility Under the terms of the ABL Facility, up to $ 350.0 million may be borrowed, subject to certain borrowing base limitations based on a percentage of eligible accounts receivable and inventory. As of December 31, 2021, the borrowing base was calculated to be $ 269.0 million, and the Company had $ 18.0 million outstanding in addition to a letter of credit in the amount of $ 1.5 million, with $ 249.5 million of remaining availability. Borrowings under the ABL Facility bear interest at LIBOR or a F-21 LIBERTY OILFIELD SERVICES INC. Notes to Consolidated Financial Statements base rate, plus an applicable LIBOR margin of 1.5 % to 2.0 % or base rate margin of 0.5 % to 1.0 %, as defined in the ABL Facility credit agreement. The unused commitment is subject to an unused commitment fee of 0.375 % to 0.5 %. Interest and fees are payable in arrears at the end of each month, or, in the case of LIBOR loans, at the end of each interest period. The ABL Facility matures on the earlier of (i) October 22, 2026, and (ii) to the extent the debt under the Term Loan Facility remains outstanding, 90 days prior to the final maturity of the Term Loan Facility, which matures on September 19, 2024. Borrowings under the ABL Facility are collateralized by accounts receivable and inventory, and further secured by the Company, Liberty LLC and R/C IV Non-U.S. LOS Corp., a Delaware corporation and a subsidiary of the Company, as parent guarantors. Term Loan Facility The Term Loan Facility provides for a $ 175.0 million term loan, of which $ 106.5 million remained outstanding as of December 31, 2021. Amounts outstanding bear interest at LIBOR or a base rate, plus an applicable margin of 7.625 % or 6.625 %, respectively, and borrowings as of December 31, 2021 incurred interest at a rate of 8.625 %. The Company is required to make quarterly principal payments of 1 % per annum of the outstanding principal balance, commencing on December 31, 2017, with final payment due at maturity on September 19, 2024. The Term Loan Facility is collateralized by the fixed assets of LOS and its subsidiaries, and is further secured by the Company, Liberty LLC and R/C IV Non-U.S. LOS Corp., a Delaware corporation and a subsidiary of the Company, as parent guarantors. The Credit Facilities include certain non-financial covenants, including but not limited to restrictions on incurring additional debt and certain distributions. Moreover, the ability of the Company to incur additional debt and to make distributions is dependent on maintaining a maximum leverage ratio. The Term Loan Facility requires mandatory prepayments upon certain dispositions of property or issuance of other indebtedness, as defined, and annually a percentage of excess cash flow ( 25 % to 50 %, depending on leverage ratio, of consolidated net income less capital expenditures and other permitted payments, commencing with the year ending December 31, 2018). Certain mandatory prepayments and optional prepayments are subject to a prepayment premium of 3% of the prepaid principal declining annually to 1% during the first three years of the term of the Term Loan Facility. The Credit Facilities are not subject to financial covenants unless liquidity, as defined in the respective credit agreements, drops below a specified level. Under the ABL Facility, the Company is required to maintain a minimum fixed charge coverage ratio, as defined in the credit agreement governing the ABL Facility, of 1.0 to 1.0 for each period if excess availability is less than 10 % of the borrowing base or $ 12.5 million, whichever is greater. Under the Term Loan Facility, the Company is required to maintain a minimum fixed charge coverage ratio, as defined, of 1.2 to 1.0 for each trailing twelve-month period if the Company’s liquidity, as defined, is less than $ 25.0 million for at least five consecutive business days. The Company was in compliance with these covenants as of December 31, 2021. Maturities of debt are as follows: ($ in thousands) Years Ending December 31, 2022 $ 1,750 2023 1,750 2024 120,965 2025 — 2026 — $ 124,465 Note 9— Fair Value Measurements and Financial Instruments The fair values of the Company’s assets and liabilities represent the amounts that would be received to sell those assets or that would be paid to transfer those liabilities in an orderly transaction at the reporting date. These fair value measurements maximize the use of observable inputs. However, in situations where there is little, if any, market activity for the asset or liability at the measurement date, the fair value measurement reflects the Company’s own judgments about the assumptions that market participants would use in pricing the asset or liability. The Company discloses the fair values of its assets and liabilities according to the quality of valuation inputs under the following hierarchy: • Level 1 Inputs: Quoted prices (unadjusted) in an active market for identical assets or liabilities. • Level 2 Inputs: Inputs other than quoted prices that are directly or indirectly observable. • Level 3 Inputs: Unobservable inputs that are significant to the fair value of assets or liabilities. F-22 LIBERTY OILFIELD SERVICES INC. Notes to Consolidated Financial Statements The classification of an asset or liability is based on the lowest level of input significant to its fair value. Those that are initially classified as Level 3 are subsequently reported as Level 2 when the fair value derived from unobservable inputs is inconsequential to the overall fair value, or if corroborating market data becomes available. Assets and liabilities that are initially reported as Level 2 are subsequently reported as Level 3 if corroborated market data is no longer available. Transfers occur at the end of the reporting period. There were no transfers into or out of Levels 1, 2, and 3 during the years ended December 31, 2021 and 2020. The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, notes receivable, accounts payable, accrued liabilities, long-term debt, and finance and operating lease obligations. These financial instruments do not require disclosure by level. The carrying values of all the Company’s financial instruments included in the accompanying balance sheets approximated or equaled their fair values at December 31, 2021 and 2020. • The carrying values of cash and cash equivalents, accounts receivable and accounts payable (including accrued liabilities) approximated fair value at December 31, 2021 and 2020, due to their short-term nature. • The carrying value of amounts outstanding under long-term debt agreements with variable rates approximated fair value at December 31, 2021 and 2020, as the effective interest rates approximated market rates. Nonrecurring Measurements Certain assets and liabilities are measured at fair value on a nonrecurring basis. These items are not measured at fair value on an ongoing basis but may be subject to fair value adjustments in certain circumstances. These assets and liabilities include those acquired through the PropX Acquisition and OneStim Acquisition, which are required to be measured at fair value on the acquisition date in accordance with ASC Topic 805 . See Note 3 — Acquisitions. Recurring Measurements The fair values of the Company’s cash equivalents measured on a recurring basis pursuant to ASC 820-10 Fair Value Measurements and Disclosures are carried at estimated fair value. Cash equivalents consist of money market accounts which the Company has classified as Level 1 given the active market for these accounts. As of December 31, 2021 and 2020, the Company had cash equivalents, measured at fair value, of $ 0.3 million and $ 21.3 million, respectively. Nonfinancial assets The Company estimates fair value to perform impairment tests as required on long-lived assets. The inputs used to determine such fair value are primarily based upon internally developed cash flow models and would generally be classified within Level 3 in the event that such assets were required to be measured and recorded at fair value within the consolidated financial statements. Although a triggering event occurred during the year ended December 31, 2020 (see Note 5—Property and Equipment), no such measurements were required as of December 31, 2021 and 2020. Credit Risk The Company’s financial instruments exposed to concentrations of credit risk consist primarily of cash and cash equivalents, and trade receivables. The Company’s cash and cash equivalents balance on deposit with financial institutions total $ 20.0 million and $ 69.0 million as of December 31, 2021 and 2020, respectively, which exceeded FDIC insured limits. The Company regularly monitors these institutions’ financial condition. The majority of the Company’s customers have payment terms of 45 days or less. As of December 31, 2021 and 2020, the below customers accounted for the following percentages of the Company's consolidated accounts receivable and unbilled revenue and consolidated revenues, respectively: F-23 LIBERTY OILFIELD SERVICES INC. Notes to Consolidated Financial Statements Portion of total of consolidated accounts receivable and unbilled revenue as of December 31, Portion of consolidated revenues for the year ended December 31, 2021 2020 2021 2020 2019 Customer A 12 % — % — % — % — % Customer B — % 11 % — % 12 % — % Customer C — % 11 % — % 11 % — % Customer D — % — % — % 10 % — % Customer E — % — % — % 10 % — % The Company mitigates the associated credit risk by performing credit evaluations and monitoring the payment patterns of its customers. As of December 31, 2021, the Company had $ 0.9 million in allowance for credit losses and recorded a provision related to two entities inability to pay. As of December 31, 2020, the Company had $ 0.8 million in allowance for credit losses. Subsequent to the adoption of ASU 2016-13 (see “Accounts Receivable” within Note 2—Significant Accounting Policies— Recently Adopted Accounting Standards ) on January 1, 2020, the Company recognized a $ 4.9 million allowance for credit losses, to the Company’s accounts receivables in consideration of both historic collection experience and the expected impact of deteriorating economic conditions for the oil and gas industry as of such date. The Company applied historic loss factors to its receivable portfolio segments that were not expected to be further impacted by current economic developments, and an additional economic conditions factor to portfolio segments anticipated to experience greater losses in the current economic environment. While the Company has not experienced significant credit losses in the past and has not seen material changes to the payment patterns of its customers, the Company cannot predict with any certainty the degree to which the ongoing impacts of COVID-19, including the potential impact of periodically adjusted borrowing base limits, level of hedged production, or unforeseen well shut-ins may affect the ability of its customers to timely pay receivables when due. Accordingly, in future periods, the Company may revise its estimates of expected credit losses. As of December 31, 2019 the Company recorded a provision related to one specific entity engaged in the business of oil and gas exploration and production that had filed for bankruptcy. ($ in thousands) 2021 2020 2019 Allowance for credit losses, beginning of year $ 773 $ 1,053 $ — Credit losses: Current period provision 745 4,877 1,053 Amounts written off, net of recoveries ( 634 ) ( 5,157 ) — Allowance for credit losses, end of year $ 884 $ 773 $ 1,053 Note 10— Equity Preferred Stock As of December 31, 2021 and 2020 the Company had 10,000 shares of preferred stock authorized, par value $ 0.01 , with none issued and outstanding. If issued, each class or series of preferred stock will cover the number of shares and will have the powers, preferences, rights, qualifications, limitations and restrictions determined by the Company’s board of directors, which may include, among others, dividend rights, liquidation preferences, voting rights, conversion rights, preemptive rights and redemption rights. Except as provided by law or in a preferred stock designation, the holders of preferred stock will not be entitled to vote at or receive notice of any meeting of shareholders. Class A Common Stock The Company had a total of 183,385,111 and 157,952,213 shares of Class A Common Stock outstanding as of December 31, 2021 and 2020, none of which were restricted. Holders of Class A Common Stock are entitled to one vote per share on all matters to be voted upon by the stockholders and are entitled to ratably receive dividends when and if declared by the Company’s board of directors. F-24 LIBERTY OILFIELD SERVICES INC. Notes to Consolidated Financial Statements Class B Common Stock The Company had a total of 2,632,347 and 21,550,282 shares of Class B Common Stock outstanding as of December 31, 2021 and 2020, respectively. Holders of the Class B Common Stock are entitled to one vote per share on all matters to be voted upon by stockholders. Holders of Class A Common Stock and Class B Common Stock vote together as a single class on all matters presented to the Company’s stockholders for their vote or approval, except with respect to amendment of certain provisions of the Company’s certificate of incorporation that would alter or change the powers, preferences or special rights of the Class B Common Stock so as to affect them adversely, which amendments must be by a majority of the votes entitled to be cast by the holders of the shares affected by the amendment, voting as a separate class, or as otherwise required by applicable law. Holders of Class B Common Stock do not have any right to receive dividends, unless the dividend consists of shares of Class B Common Stock or of rights, options, warrants or other securities convertible or exercisable into or exchangeable for shares of Class B Common Stock paid proportionally with respect to each outstanding share of Class B Common Stock and a dividend consisting of shares of Class A Common Stock or of rights, options, warrants or other securities convertible or exercisable into or exchangeable for shares of Class A Common Stock on the same terms is simultaneously paid to the holders of Class A Common Stock. Holders of Class B Common Stock do not have any right to receive a distribution upon liquidation or winding up of the Company. Under the Second Amended and Restated Limited Liability Company Agreement of Liberty LLC (the “Liberty LLC Agreement”), each Liberty Unit Holder has, subject to certain limitations, the Redemption Right, which allows it to cause Liberty LLC to acquire all or a portion of its Liberty LLC Units, for, at Liberty LLC’s election, (i) shares of Class A Common Stock at a redemption ratio of one share of Class A Common Stock for each Liberty LLC Unit redeemed, subject to conversion rate adjustments for stock splits, stock dividends and reclassification and other similar transactions or (ii) an equivalent amount of cash. Alternatively, upon the exercise of the Redemption Right, the Company (instead of Liberty LLC) will have the Call Right, which allows it to, for administrative convenience, acquire each tendered Liberty LLC Unit directly from the redeeming Liberty Unit Holder for, at its election, (x) one share of Class A Common Stock or (y) an equivalent amount of cash. In addition, upon a change of control of the Company, the Company has the right to require each holder of Liberty LLC Units (other than the Company) to exercise its Redemption Right with respect to some or all of such unitholder’s Liberty LLC Units. In connection with any redemption of Liberty LLC Units pursuant to the Redemption Right or the Call Right, the corresponding number of shares of Class B Common Stock will be canceled. Long Term Incentive Plan On January 11, 2018, the Company adopted the Long Term Incentive Plan (“LTIP”) to incentivize employees, officers, directors and other service providers of the Company and its affiliates. The LTIP provides for the grant, from time to time, at the discretion of the Company’s board of directors or a committee thereof, of stock options, stock appreciation rights, restricted stock, restricted stock units, stock awards, dividend equivalents, other stock-based awards, cash awards, substitute awards and performance awards. Subject to adjustment in the event of certain transaction or changes of capitalization in accordance with the LTIP, 12,908,734 shares of Class A Common Stock have been reserved for issuance pursuant to awards under the LTIP. Class A Common Stock subject to an award that expires or is canceled, forfeited, exchanged, settled in cash or otherwise terminated without delivery of shares and shares withheld to pay the exercise price of, or to satisfy the withholding obligations with respect to, an award will again be available for delivery pursuant to other awards under the LTIP. Restricted Stock Units Restricted stock units (“RSUs”) granted pursuant to the LTIP, if they vest, will be settled in shares of the Company’s Class A Common Stock. RSUs were granted with vesting terms up to five years . Changes in non-vested RSUs outstanding under the LTIP during the year ended December 31, 2021 were as follows: Number of Units Weighted Average Grant Date Fair Value per Unit Non-vested as of December 31, 2020 2,183,034 $ 10.90 Granted 1,572,463 11.29 Vested ( 959,356 ) 12.47 Forfeited ( 55,080 ) 8.38 Outstanding at December 31, 2021 2,741,061 $ 10.62 F-25 LIBERTY OILFIELD SERVICES INC. Notes to Consolidated Financial Statements Performance Restricted Stock Units Performance restricted stock units (“PSUs”) granted pursuant to the LTIP, if they vest, will be settled in shares of the Company’s Class A Common Stock. PSUs were granted with a three year cliff vesting schedule, subject to a performance target compared to an index of competitors ’ results over a three year period as designated in the award. The Company records compensation expense based on the Company’s best estimate of the number of PSUs that will vest at the end of the performance period. If such performance targets are not met, or are not expected to be met, no compensation expense is recognized and any recognized compensation expense is reversed. Changes in non-vested PSUs outstanding under the LTIP during the year ended December 31, 2021 were as follows: Number of Units Weighted Average Grant Date Fair Value per Unit Non-vested as of December 31, 2020 722,225 $ 12.04 Granted 584,720 12.95 Vested — — Forfeited — — Outstanding at December 31, 2021 1,306,945 $ 12.45 Stock-based compensation is included in cost of services and general and administrative expenses in the Company’s consolidated statements of operations. The Company recognized stock based compensation expense of $ 19.9 million for the year ended December 31, 2021 and $ 17.1 million for the year ended December 31, 2020. There was approximately $ 25.5 million of unrecognized compensation expense relating to outstanding RSUs and PSUs as of December 31, 2021. The unrecognized compensation expense will be recognized on a straight-line basis over the weighted average remaining vesting period of two years . Dividends On April 2, 2020, the Company suspended future quarterly dividends until business conditions warrant reinstatement. The Company paid cash dividends of $ 0.05 per share of Class A Common Stock on March 20, 2020 to stockholders of record as of March 6, 2020. Liberty LLC paid a distribution of total of $ 5.6 million, or $ 0.05 per Liberty LLC Unit, to all Liberty LLC unit holders as of March 6, 2020, $ 4.1 million of which was paid to the Company. The Company used the proceeds of the distribution to pay the dividend to all holders of shares of Class A Common Stock as of March 6, 2020, which totaled $ 4.1 million. Additionally, as of December 31, 2021 and 2020, the Company had $ 0.2 million and $ 0.4 million of accrued dividends payable related to restricted stock and RSUs to be paid upon vesting, respectively. Dividends related to forfeited restricted stock and RSUs will be forfeited. Share Repurchase Program On January 22, 2019, the Company’s board of directors authorized an additional $ 100.0 million under the share repurchase plan through January 31, 2021. During the years ended December 31, 2021 and 2020, no shares were repurchased under the share repurchase program and, as of December 31, 2021, no amounts remained authorized for future repurchases of Class A Common Stock under the share repurchase program. The Company accounts for the purchase price of repurchased common shares in excess of par value ($ 0.01 per share of Class A Common Stock) as a reduction of additional paid-in capital, and will continue to do so until additional paid-in capital is reduced to zero. Thereafter, any excess purchase price will be recorded as a reduction to retained earnings. Note 11— Net Loss per Share Basic net loss per share measures the performance of an entity over the reporting period. Diluted net loss per share measures the performance of an entity over the reporting period while giving effect to all potentially dilutive common shares that were outstanding during the period. The Company uses the “if-converted” method to determine the potential dilutive effect of its Class B Common Stock and the treasury stock method to determine the potential dilutive effect of outstanding restricted stock and RSUs. F-26 LIBERTY OILFIELD SERVICES INC. Notes to Consolidated Financial Statements The following table reflects the allocation of net loss to common stockholders and net loss per share computations for the periods indicated based on a weighted average number of common stock outstanding: (In thousands, except per share data) Year Ended December 31, 2021 Year Ended December 31, 2020 Basic Net Loss Per Share Numerator: Net loss attributable to Liberty Oilfield Services Inc. Stockholders $ ( 179,244 ) $ ( 115,583 ) Denominator: Basic weighted average shares outstanding 174,019 85,242 Basic net loss per share attributable to Liberty Oilfield Services Inc. Stockholders $ ( 1.03 ) $ ( 1.36 ) Diluted Net Loss Per Share Numerator: Net loss attributable to Liberty Oilfield Services Inc. Stockholders $ ( 179,244 ) $ ( 115,583 ) Effect of exchange of the shares of Class B Common stock for shares of Class A Common Stock — — Diluted net loss attributable to Liberty Oilfield Services Inc. Stockholders $ ( 179,244 ) $ ( 115,583 ) Denominator: Basic weighted average shares outstanding 174,019 85,242 Effect of dilutive securities: Restricted stock units — — Class B Common Stock — — Diluted weighted average shares outstanding 174,019 85,242 Diluted net loss per share attributable to Liberty Oilfield Services Inc. Stockholders $ ( 1.03 ) $ ( 1.36 ) In accordance with GAAP, diluted weighted average common shares outstanding for the year ended December 31, 2021 exclude 7,052 weighted average shares of Class B Common Stock and 3,589 weighted average shares of restricted stock units. Additionally, diluted weighted average common shares outstanding for the year ended December 31, 2020 exclude 27,427 weighted average shares of Class B Common Stock, 207 weighted average shares of restricted stock, and 2,460 weighted average shares of restricted stock units. Note 12— Income Taxes The Company is a corporation and is subject to taxation in the United States, Canada and various state, local and provincial jurisdictions. Liberty LLC is treated as a partnership, and its income is passed through to its owners for income tax purposes. Liberty LLC’s members, including the Company, are liable for federal, state and local income taxes based on their share of Liberty LLC’s pass-through taxable income. As of December 31, 2021, tax reporting by the Company for the years ended December 31, 2018, 2019, and 2020 is subject to examination by the tax authorities. With few exceptions, as F-27 LIBERTY OILFIELD SERVICES INC. Notes to Consolidated Financial Statements of December 31, 2021, the Company is no longer subject to U.S. federal, state or local examinations by tax authorities for tax years ended before December 31, 2017. The components of the Company’s income (loss) from continuing operations before income taxes on which the provision for income taxes was computed consisted of the following: Year Ended December 31, ($ in thousands) 2021 2020 2019 United States ( 191,774 ) ( 191,531 ) 88,916 Foreign 13,986 — — Total $ ( 177,788 ) $ ( 191,531 ) $ 88,916 The components of the provision for incomes taxes from continuing operations are summarized as follows: Year Ended December 31, ($ in thousands) 2021 2020 2019 Current: Federal $ — $ ( 5,541 ) $ ( 9,907 ) State 29 230 551 Foreign 4,108 — — Total Current $ 4,137 $ ( 5,311 ) $ ( 9,356 ) Deferred: Federal 6,125 ( 23,103 ) 23,419 State ( 439 ) ( 2,443 ) ( 11 ) Foreign $ ( 607 ) $ — — Total Deferred $ 5,079 $ ( 25,546 ) $ 23,408 Income tax expense (benefit) $ 9,216 $ ( 30,857 ) $ 14,052 Income tax expense (benefit) attributable to net loss before income taxes differed from the amounts computed by applying the statutory U.S. federal income tax rate of 21.0% to pre-tax income as a result of the following: Year Ended December 31, ($ in thousands) 2021 2020 2019 Computed tax (benefit) expense at the statutory rate $ ( 37,336 ) $ ( 40,222 ) $ 18,672 Increase (decrease) in tax expense resulting from: State and local income tax (benefit) expense, net ( 5,204 ) ( 2,212 ) 1,525 Non-controlling interest 1,565 9,463 ( 7,531 ) Effect of foreign tax rates 478 — — Stock based compensation ( 535 ) 2,157 227 Change in valuation allowance 50,111 — — Other, net 137 ( 43 ) 1,159 Total income tax expense (benefit) $ 9,216 $ ( 30,857 ) $ 14,052 The effective tax rate for the years ended December 31, 2021, 2020, and 2019 was (5.2)%, 16.1 %, and 15.8 %, respectively. The Company recognized income tax benefit of $ 9.2 million during the year ended December 31, 2021. The Company’s effective tax rate is less than the statutory federal income tax rate of 21.0% due to the Company recording a valuation allowance on its U.S. net deferred tax assets as of December 31, 2020, due to entering into a three year cumulative pre-tax book loss position, primarily as a result of COVID-19 related losses. The Company’s effective tax rate is also less than the statutory rate because of foreign operations and the non-controlling interest’s share of Liberty LLC’s pass-through results for federal, state and local income tax reporting, upon which no taxes are payable by the Company. F-28 LIBERTY OILFIELD SERVICES INC. Notes to Consolidated Financial Statements The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below: ($ in thousands) December 31, 2021 December 31, 2020 Deferred tax assets: Federal net operating losses $ 50,093 $ 15,632 State net operating losses 7,576 2,697 Realized tax benefit - TRAs 91,312 52,561 Intangibles 301 — Other 219 — Total deferred tax assets 149,501 70,890 Less valuation allowance ( 91,336 ) — Net deferred tax assets 58,165 70,890 Deferred tax liabilities: Investment in Liberty LLC $ ( 57,461 ) $ ( 64,765 ) Property and equipment ( 97 ) — Other ( 563 ) ( 765 ) Total deferred tax liabilities ( 58,121 ) ( 65,530 ) Net deferred tax asset $ 44 $ 5,360 During the quarter ended June 30, 2021 the Company established a valuation allowance resulting in the recognition of income tax expense on the Company’s beginning U.S. net deferred tax assets of $ 6.1 million. As of December 31, 2021, the Company had significant deferred tax assets and liabilities. The deferred tax assets include U.S. federal and state net operating losses and the step-up in basis of depreciable assets under Section 754 (“Section 754”) of the Internal Revenue Code of 1986, as amended, subject to the valuation allowance. In addition, the Company recorded a deferred tax asset and liability for the difference between the book value and the tax value of the Company's investment in Liberty LLC, in which a valuation allowance has been recorded against the net US deferred tax assets. The Company also has deferred tax assets for foreign operations driven by net deductible reversing temporary differences related to differences between book and taxable income. Since the Company’s establishment of the valuation allowance, increased deferred tax benefit and deferred tax assets related to the step-up in basis of depreciation assets under Section 754 resulted in a change in valuation allowance of $ 85.2 million. As of December 31, 2021, the Company has available U.S. federal net operating loss carryforwards to reduce future taxable income of $ 3.7 million expiring in 2027, and $ 231.5 million with no expiration date. Per the Coronavirus Aid, Relief and Economic Security (“CARES”) Act enacted March 27, 2020, net operating losses (“NOL”) incurred in 2018, 2019, and 2020 may be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company has applied for and expects to receive a NOL carryback refund to recover $ 5.5 million of cash taxes paid by the Company in 2018. This amount has been reflected as a receivable in prepaids and other assets. The remaining deferred tax asset for net operating losses available for carryforward are presented net of the Company’s valuation allowance. The Company may distribute cash from foreign subsidiaries to its U.S. parent as business needs arise. The Company has not provided for deferred income taxes on the undistributed earnings from certain foreign subsidiaries earnings as such earnings are considered to be indefinitely reinvested. If such earnings were to be distributed, any income and/or withholding tax would not be significant. Uncertain Tax Positions The Company records uncertain tax positions on the basis of a two-step process in which (1) the Company determines whether it is more likely than not the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions meeting the more likely than not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority. The Company determined that no liability for unrecognized tax benefits for uncertain tax positions was required at December 31, 2021. In addition, the Company does not believe that it has any tax positions for which it is reasonably possible that it will be required to record a significant liability for unrecognized tax benefits within the next twelve months. If F-29 LIBERTY OILFIELD SERVICES INC. Notes to Consolidated Financial Statements the Company were to record an unrecognized tax benefit, the Company will recognize applicable interest and penalties related to income tax matters in income tax expense. Tax Distributions Liberty LLC is treated as a partnership for income tax purposes. Federal, state and local taxes resulting from the pass-through taxable income of Liberty LLC are obligations of its members. Net profits and losses are generally allocated to the members of Liberty LLC (including the Company) in accordance with the number of Liberty LLC Units held by each member for tax purposes. The Liberty LLC Agreement provides for pro rata cash distributions, and in certain cases non-pro rata cash advances, to assist members (including the Company) in paying their income tax liabilities. The Liberty LLC Agreement requires any tax advances to be proportionally repaid in connection with any redemption of Liberty LLC Units pursuant to the Redemption Right or the Call Right. Net advances received by Liberty LLC from non-controlling interest holders were $ 1.4 million and $ 1.4 million, respectively, for the years ended December 31, 2021 and 2020. Tax Receivable Agreements The term of each TRA commenced on January 17, 2018, and will continue until all such tax benefits that are subject to such TRA have been utilized or expired, unless the Company experiences a change of control (as defined in the TRAs, which includes certain mergers, asset sales and other forms of business combinations) or the TRAs are terminated early (at the Company’s election or as a result of its breach), and the Company makes the termination payments specified in such TRA. The amounts payable, as well as the timing of any payments, under the TRAs are dependent upon significant future events and assumptions, including the timing of the redemptions of Liberty LLC Units, the price of our Class A Common Stock at the time of each redemption, the extent to which such redemptions are taxable transactions, the amount of the redeeming unit holder’s tax basis in its Liberty LLC Units at the time of the relevant redemption, the characterization of the tax basis step-up, the depreciation and amortization periods that apply to the increase in tax basis, the amount of net operating losses available to the Company as a result of the Corporate Reorganization, the amount and timing of taxable income the Company generates in the future, the U.S. federal income tax rate then applicable, and the portion of the Company’s payments under the TRAs that constitute imputed interest or give rise to depreciable or amortizable tax basis. Prior to the Corporate Reorganization, one of the Legacy Owners distributed a portion of its member interest in Liberty Holdings to R/C IV Non-U.S. LOS Corp. (“R/C IV”). Subsequently, in conjunction with the Corporate Reorganization, R/C IV was contributed to the Company. At the time of the contribution, R/C IV had net operating loss carryforwards totaling $ 10.9 million for federal income tax purposes and $ 10.9 million for certain state income tax purposes, which became available for the Company’s use as a result of the contribution. As a result of the Company being in a net income position in 2018 and the expected utilization of deferred tax assets, the Company recognized a deferred tax asset of $ 2.6 million and a corresponding $ 2.3 million liability pursuant to the TRAs. Of the contributed net operating loss carryforwards, $ 6.4 million for federal income tax purposes and $ 6.4 million of certain state income tax purposes have been utilized. As a result, the Company has remaining $ 0.8 million of deferred tax asset and a corresponding $ 0.7 million liability pursuant to the TRAs. At December 31, 2021, the Company’s liability under the TRAs was $ 37.6 million, all of which is presented as a component of long term liabilities, and the related deferred tax assets totaled $ 91.3 million of which a valuation allowance on the net deferred tax asset has been recorded. The Company also remeasured the liability under the TRAs as of December 31, 2021 as it relates to the recording of a valuation allowance and recorded a gain on remeasurement of liabilities subject to the TRAs of $ 19.0 million recorded as part of continuing operations. The reduction in the liability under the TRA is primarily driven by current generated net operating losses and amortization of expected tax benefits that is subject to the valuation allowance and not expected to be realized in the foreseeable future. During the year ended December 31, 2021, exchanges of Liberty LLC Units and shares of Class B Common Stock resulted in an increase of $ 58.5 million in amounts payable under the TRAs, and a net increase of $ 68.8 million in deferred tax assets, all of which are subject to the valuation allowance and remeasurement of TRA liability discussed above. The Company did not make any TRA payments for the year ended December 31, 2021. During the year ended December 31, 2020, exchanges of Liberty LLC Units and shares of Class B Common Stock resulted in an increase of $13.1 million in amounts payable under the TRAs, and a net increase of $ 15.5 million in deferred tax assets, all of which were recorded through equity. The Company also made TRA payments of $ 1.9 million and $ 5.5 million, totaling $ 7.4 million for the year ended December 31, 2020. The TRA payments were related to tax benefits realized in prior years and for the Company’s NOL carryback of 2019 NOL to 2018 taxable income under the CARES Act. F-30 LIBERTY OILFIELD SERVICES INC. Notes to Consolidated Financial Statements Note 13— Defined Contribution Plan The Company sponsors a 401(k) defined contribution retirement plan covering eligible employees. During 2020, in connection with other cost savings measures undertaken in response to declining demand for frac services as a result of the impacts of the COVID-19 pandemic, employer matching contributions were temporarily suspended from April 1, 2020 through December 31, 2020. The Company makes a matching contribution at a rate of $ 1.00 for each $1.00 of employee contribution, subject to a cap of 6 % of the employee’s salary and federal limits. Contributions made by the Company were $ 19.0 million, $ 4.2 million, and $ 15.7 million for the years ended December 31, 2021, 2020 and 2019, respectively. Effective January 1, 2021 the Company restored its 6 % matching contribution. Note 14— Related Party Transactions As of December 31, 2021 Schlumberger owns 56,826,134 shares of Class A Common Stock of the Company, or approximately 30.5 % of the issued and outstanding shares of common stock of the Company, including Class A Common Stock and Class B Common Stock. Under the Transaction agreement, to the extent the net working capital, as defined in the Transaction Agreement, of the Transferred Business is less than $ 54.6 million, the difference shall be payable in cash to the Company. As of December 31, 2020, the Company recorded a receivable from Schlumberger of $ 24.7 million for the working capital settlement and an agreed upon $ 8.0 million true-up payment related to the estimated costs to bring certain assets to full working condition, which was collected during the three months ended March 31, 2021. During the three months ended September 30, 2021, the Company agreed on a working capital settlement from Schlumberger of $ 15.8 million, most of which was netted against transaction services costs and cash settlements during the transition services period. In conjunction with closing the OneStim Acquisition, the Company entered into a transition services agreement with Schlumberger, under which Schlumberger provides certain administrative and other transition services until the Company fully integrates the acquired business. During the year ended December 31, 2021, the Company incurred $ 5.7 million of fees for such transaction services. The Company does not expect to incur any additional transition services related fees in future periods. During the year ended December 31, 2021, a subsidiary of the Company and Schlumberger entered into a property swap agreement under which the Company exchanged with Schlumberger a property acquired in the OneStim Acquisition and $ 4.9 million in cash for a separate property that the Company will utilize with its existing operations. The Company did not recognize any gain or loss on the transaction. In a separate transaction, the Company sold equipment to Schlumberger for $ 1.3 million and recognized a gain on the sale of equipment of $ 0.9 million. Following the OneStim Acquisition, in the normal course of business, the Company purchases chemicals, proppant and other equipment and maintenance parts from Schlumberger and its subsidiaries. During the year ended December 31, 2021, total purchases from Schlumberger were approximately $ 28.2 million, and as of December 31, 2021 amounts due to Schlumberger were $ 2.7 million and $ 1.1 million included in accounts payable and accrued liabilities, respectively, in the consolidated balance sheet. On June 7, 2021 R/C Energy IV Direct Partnership, L.P., a Delaware limited partnership (“R/C Direct”) and R/C Liberty entered into an underwriting agreement, dated as of June 7, 2021, by and among the Company, Liberty LLC, R/C Direct, R/C Liberty and Morgan Stanley & Co. LLC, pursuant to which R/C Direct sold 3,707,187 shares of Class A Common Stock and R/C Liberty sold 8,592,809 shares of Class A Common Stock, at a price of $ 15.20 per share, to the underwriter (the “Sale”). In connection with the Sale, 6,918,142 shares of Class B Common Stock held by R/C Liberty were redeemed by the Company for an equal amount of Class A Common Stock. On June 10, 2021, the Sale closed. Following the Sale, R/C Direct and R/C Liberty no longer hold any Class A Common Stock or Class B Common Stock and are no longer considered related parties of the Company. Prior to the Sale, R/C IV Liberty Holdings, L.P. (“R/C Liberty”) exercised its redemption right and redeemed 10,269,457 shares of Class B Common Stock resulting in an increase in tax basis, as described under “Tax Receivable Agreements” in Note—12 Income Taxes, which was subsequently offset by an increase in valuation allowance during the year ended December 31, 2021. During the year ended December 31, 2020, R/C Liberty exercised its redemption right and redeemed 4,016,965 shares of Class B Common Stock resulting in the recognition of $ 6.1 million in amounts payable under the TRAs. Effective on June 15, 2021, Audrey Robertson was appointed to the board of directors of Liberty Oilfield Services Inc. Ms. Robertson serves as the Chief Financial Officer of Franklin Mountain Energy, LLC (“Franklin Mountain”). During the year ended December 31, 2021 the Company performed hydraulic fracturing services for Franklin Mountain in the amount of $ 20.5 million or 0.8 % of the Company’s revenues for such period. Receivables from Franklin Mountain as of December 31, 2021 were $ 0.0 million . Liberty Resources LLC, an oil and gas exploration and production company, and its successor entity (collectively, the “Affiliate”) has certain common ownership and management with the Company. The amounts of the Company’s revenue F-31 LIBERTY OILFIELD SERVICES INC. Notes to Consolidated Financial Statements related to hydraulic fracturing services provided to the Affiliate for the years ended December 31, 2021, 2020 and 2019, were $ 2.8 million, $ 0.0 million and $ 18.3 million, respectively. As of December 31, 2021 and 2020, there were no receivables within the Company’s accounts receivable—related party line item attributable to the Affiliate. On June 24, 2019 (the “Agreement Date”), the Company entered into an agreement with the Affiliate to amend payment terms for outstanding invoices due as of the Agreement Date to be due on July 31, 2020. On September 30, 2019, the agreement was amended to extend the due date of the remaining amounts outstanding to October 31, 2020. Amounts outstanding from the Affiliate as of the Agreement Date were $ 15.6 million. The amounts outstanding, including all accrued interest was paid in full in January 2020. As of December 31, 2021 and December 31, 2020, no amounts were outstanding under the amended payment terms from the Affiliate. During the years ended December 31, 2021, 2020 and 2019, interest income from the Affiliate was $ 0.0 million , $ 0.3 million and $ 1.8 million, respectively. Receivables earned for services performed after the Agreement Date continue to be subject to normal 30-day payment terms, provided that any amount unpaid after 60 days is subject to 13 % interest. During 2016, Liberty Holdings entered into a future commitment to invest and become a non-controlling minority member in Proppant Express Investments, LLC, the owner of Proppant Express Solutions, LLC (“PropX”), a provider of proppant logistics equipment. LOS is party to a services agreement (the “PropX Services Agreement”) whereby LOS is to provide certain administrative support functions to PropX, and LOS is to purchase and lease proppant logistics equipment from PropX. The PropX Services Agreement was terminated on May 29, 2018; however, the Company continues to lease equipment from PropX. Effective October 26, 2021, the Company completed the purchase of all membership interest in PropX, refer to Note 3—Acquisitions for further discussion of the transaction. During the period from January 1, 2021 until October 26, 2021, the Company leased proppant logistics equipment from PropX for $ 7.3 million. During the years ended December 31, 2020 and 2019 the Company leased proppant logistics equipment from PropX for $ 8.7 million and $ 9.8 million, respectively. Payables to PropX as of December 31, 2020 were $ 1.5 million. R/C IV Liberty Big Box Holdings, L.P., a Riverstone Holdings LLC (“Riverstone”) fund and a former significant stockholder of the Company, held a greater than 10 % equity interest in PropX. Christopher Wright, the Chief Executive Officer, Michael Stock, the Chief Financial Officer and Ron Gusek, the President of the Company, held a less than 5 % equity interest in PropX through Big Box Proppant Investments LLC. Cary Steinbeck, a director of the Company, served on the PropX board of the directors and held a less than 5 % indirect equity interest in PropX. In addition, Brett Staffieri, a Riverstone appointed director, served on the board of the directors of the Company until June 15, 2021 and on the PropX board of directors until the acquisition date. The PropX Acquisition was reviewed and approved by the disinterested members of the Board and pursuant to the Company’s related party transactions policy. Note 15— Commitments & Contingencies Purchase Commitments (tons are not in thousands) The Company enters into purchase and supply agreements to secure supply and pricing of proppants and chemicals. As of December 31, 2021 and 2020, the agreements provide pricing and committed supply sources for the Company to purchase 89,317 and 1,580,750 tons, respectively, of proppant through June 30, 2022. Amounts above also include commitments to pay for transport fees on minimum amounts of proppants. Additionally, related proppant transload service commitments extend into 2023. Future proppant, transload, equipment and mancamp commitments are as follows: ($ in thousands) 2022 $ 24,605 2023 1,353 2024 — 2025 — 2026 — Thereafter — $ 25,958 Certain supply agreements contain a clause whereby in the event that the Company fails to purchase minimum volumes, as defined in the agreement, during a specific time period, a shortfall fee may apply. In circumstances where the Company does not make the minimum purchase required under the contract, the Company and its suppliers have a history of amending such minimum purchase contractual terms and in rare cases does the Company incur shortfall fees. If the Company were unable to F-32 LIBERTY OILFIELD SERVICES INC. Notes to Consolidated Financial Statements make any of the minimum purchases and the Company and its suppliers cannot come to an agreement to avoid such fees, the Company could incur shortfall fees in the amounts of $ 16.1 million and $ 1.4 million for the years ended 2022 and 2023 respectively. Based on forecasted levels of activity, the Company does not currently expect to incur significant shortfall fees. Included in the commitments for the year ending December 31, 2021 are approximately $ 8.5 million of payments expected to be made to Schlumberger, in conjunction with a permissive use agreement provided by Schlumberger, in the first quarter of 2022 for the use of certain light duty trucks, heavy tractors and field equipment used to various degrees in OneStim’s frac and wireline operations. The Company is in negotiations with the third party owner of such equipment to lease or purchase some or all of such aforementioned vehicles and equipment, subject to agreement on terms and conditions. No gain or loss is expected upon consummation of any such agreement. Litigation Securities Class Actions On March 11, 2020, Marshall Cobb, on behalf of himself and all other persons similarly situated, filed a putative class action lawsuit in the state District Court of Denver County, Colorado against the Company and certain officers and board members of the Company along with other defendants in connection with the IPO (the “Cobb Complaint”). The Cobb Complaint alleges that the Company and certain officers and board members of the Company violated Section 11 of the Securities Act of 1933 by virtue of inaccurate or misleading statements allegedly contained in the registration statement filed in connection with the IPO and requests unspecified damages and costs. The Cobb Plaintiffs also allege control person liability claims under Section 15 of the Securities Act of 1933 against certain officers and board members of the Company and other defendants. On April 3, 2020, Marc Joseph, on behalf of himself and all other persons similarly situated, filed a putative class action lawsuit in the United States District Court in Denver, Colorado against the Company and certain officers and board members of the Company along with other defendants in connection with the IPO and requests unspecified damages and costs (the “Joseph Complaint,” and collectively with the Cobb Complaint, the “Securities Lawsuits”). The Joseph Complaint, which is based on similar factual allegations made in the Cobb Complaint, alleges that the defendants violated Sections 11 and 12(a)(2) of the Securities Act of 1933 by virtue of inaccurate or misleading statements allegedly contained in the registration statement and prospectus filed in connection with the IPO. The Joseph Complaint also alleges control person liability claims under Section 15 of the Securities Act of 1933 against certain officers and board members of the Company and other defendants. The Company has hired counsel and plans to vigorously defend against the allegations in the Securities Lawsuits. Other Litigation In addition to the matters described above, from time to time, the Company is subject to legal and administrative proceedings, settlements, investigations, claims and actions. The Company’s assessment of the likely outcome of litigation matters is based on its judgment of a number of factors including experience with similar matters, past history, precedents, relevant financial and other evidence and facts specific to the matter. Notwithstanding the uncertainty as to the final outcome, based upon the information currently available, management does not believe any matters in aggregate will have a material adverse effect on its financial position or results of operations. The Company cannot predict the ultimate outcome or duration of any lawsuit described in this report. Note 16— Subsequent Events As of the date of these financial statements, there were no significant subsequent events requiring disclosure or recognition in the consolidated financial statements and notes thereto. F-33