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Income Taxes | 12 Months Ended
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Dec. 31, 2016
Income Tax Disclosure [Abstract] |
Income Taxes | 9. Income Taxes In connection with the Separation, the Company and NOV entered into a Tax Matters Agreement, dated as of May 29, 2014 (the “Tax Matters Agreement”). The Tax Matters Agreement sets forth the Company and NOV’s rights and obligations related to the allocation of federal, state, local and foreign taxes for periods before and after the Spin-Off, as well as taxes attributable to the Spin-Off, and related matters such as the filing of tax returns and the conduct of IRS and other audits. Pursuant to the Tax Matters Agreement, NOV has prepared and filed the consolidated federal income tax return, and any other tax returns that include both NOV and the Company for all the liability periods ended on or prior to May 30, 2014. The income tax provision (benefit) for periods prior to the Separation has been computed as if NOW were a stand-alone company. NOV will indemnify and hold harmless the Company for any income tax liability for periods before the Separation date. The Company will prepare and file all tax returns that include solely the Company for all taxable periods ending after that date. Settlements of tax payments between NOV and the Company were generally treated as contributions from or distributions to NOV in periods prior to the Separation date. The domestic and foreign components of income (loss) before income taxes were as follows (in millions):
|  | Year Ended December 31, |
|  | 2016 |  |  | 2015 |  |  | 2014 |
United States |  | $ | (206 | ) |  | $ | (524 | ) |  | $ | 101 |
Foreign |  |  | (24 | ) |  |  | 6 |  |  |  | 77 |
Income (loss) before income taxes |  | $ | (230 | ) |  | $ | (518 | ) |  | $ | 178 |
The provision (benefit) for income taxes for 2016, 2015 and 2014 consisted of the following (in millions):
|  | 2016 |  |  | 2015 |  |  | 2014 |
U.S. Federal: |  |  |  |  |  |  |  |  |  |  |  |
Current |  | $ | 2 |  |  | $ | (14 | ) |  | $ | 38 |
Deferred |  |  | (1 | ) |  |  | (2 | ) |  |  | 3 |
|  |  | 1 |  |  |  | (16 | ) |  |  | 41 |
U.S. State: |  |  |  |  |  |  |  |  |  |  |  |
Current |  |  | — |  |  |  | (1 | ) |  |  | 4 |
Deferred |  |  | — |  |  |  | — |  |  |  | — |
|  |  | — |  |  |  | (1 | ) |  |  | 4 |
Foreign |  |  |  |  |  |  |  |  |  |  |  |
Current |  |  | 3 |  |  |  | 5 |  |  |  | 18 |
Deferred |  |  | — |  |  |  | (4 | ) |  |  | (1 | )
|  |  | 3 |  |  |  | 1 |  |  |  | 17 |
Income tax provision (benefit) |  | $ | 4 |  |  | $ | (16 | ) |  | $ | 62 |
The reconciliation between the Company’s effective tax rate on income (loss) from continuing operations and the statutory tax rate is as follows (in millions):
|  | Year Ended December 31, |
|  | 2016 |  |  | 2015 |  |  | 2014 |
Income tax provision (benefit) at federal statutory rate |  | $ | (81 | ) |  | $ | (181 | ) |  | $ | 62 |
Foreign tax rate differential |  |  | 2 |  |  |  | (1 | ) |  |  | (6 | )
State income tax provision (benefit), net of federal benefit |  |  | (3 | ) |  |  | (8 | ) |  |  | 3 |
Nondeductible expenses |  |  | 8 |  |  |  | 3 |  |  |  | 2 |
Foreign tax credits |  |  | (2 | ) |  |  | (3 | ) |  |  | — |
Nondeductible goodwill impairment |  |  | — |  |  |  | 42 |  |  |  | — |
Change in valuation allowance |  |  | 78 |  |  |  | 129 |  |  |  | — |
Change in contingency reserve and other |  |  | 2 |  |  |  | 3 |  |  |  | 1 |
Income tax provision (benefit) |  | $ | 4 |  |  | $ | (16 | ) |  | $ | 62 |
Effective tax rate |  |  | (1.6 | )% |  |  | 3.0 | % |  |  | 34.9 | %
In 2015, the effective tax rate was impacted by nondeductible goodwill impairments and a valuation allowance recorded against the Company’s deferred tax assets in the United States. In 2016, the effective tax rate continues to be impacted by a valuation allowance recorded against the Company’s deferred tax assets in the United States, Canada and other foreign jurisdictions. The change in valuation allowance excludes intercompany transactions as they do not impact consolidated income (loss) from continuing operations. Significant components of the Company’s deferred tax assets and liabilities were as follows (in millions):
|  | Year Ended December 31, |
|  | 2016 |  |  | 2015 |  |  | 2014 |
Deferred tax assets: |  |  |  |  |  |  |  |  |  |  |  |
Allowances and operating liabilities |  | $ | 8 |  |  | $ | 9 |  |  | $ | 2 |
Net operating loss carryforwards |  |  | 78 |  |  |  | 13 |  |  |  | 1 |
Foreign tax credit carryforwards |  |  | 5 |  |  |  | 3 |  |  |  | — |
Trade credit |  |  | 3 |  |  |  | 4 |  |  |  | 4 |
Allowance for doubtful accounts |  |  | 10 |  |  |  | 12 |  |  |  | 3 |
Inventory reserve |  |  | 18 |  |  |  | 11 |  |  |  | 9 |
Stock-based compensation |  |  | 19 |  |  |  | 19 |  |  |  | 12 |
Intangible assets |  |  | 53 |  |  |  | 56 |  |  |  | — |
Other |  |  | 6 |  |  |  | 1 |  |  |  | 3 |
Total deferred tax assets |  |  | 200 |  |  |  | 128 |  |  |  | 34 |
Deferred tax liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Tax over book depreciation |  |  | (4 | ) |  |  | (6 | ) |  |  | (2 | )
Intangible assets |  |  | — |  |  |  | — |  |  |  | (18 | )
Total deferred tax liabilities |  |  | (4 | ) |  |  | (6 | ) |  |  | (20 | )
Net deferred tax assets before valuation allowance |  |  | 196 |  |  |  | 122 |  |  |  | 14 |
Valuation allowance |  |  | (202 | ) |  |  | (129 | ) |  |  | — |
Net deferred tax assets (liability) |  | $ | (6 | ) |  | $ | (7 | ) |  | $ | 14 |
The Company records a valuation allowance when it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets depends on the ability to generate sufficient taxable income of the appropriate character in the future and in the appropriate taxing jurisdictions. If the Company was to determine that it would be able to realize the deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the valuation allowance, which would reduce the provision for income taxes. Based upon the significant level of cumulative recent losses, management believes that it is not more-likely-than-not that the Company would be able to realize the benefits of the deferred tax assets in the U.S., Canada and other foreign jurisdictions and accordingly recognized a valuation allowance for the year ended December 31, 2016. The change during the year in the valuation allowance was $64 million, $7 million, and $2 million, for the U.S., Canada and other foreign jurisdictions. During the second quarter of 2016, the Company acquired Power Service (see Note 20 “Acquisitions”) and recorded a deferred tax liability of $19 million related to basis differences between U.S. GAAP and U.S. Tax associated with the acquisition and step-up to fair value of certain assets, primarily intangible assets. As a result of the additional deferred tax liability, a corresponding reduction in the Company’s valuation allowance was recorded against deferred tax assets in the U.S. The Company and the former shareholders of Power Service, Inc. came to an agreement to make an election under Internal Revenue Code Section 338(h)(10) to treat the acquisition of Power Service, Inc. as an asset acquisition for U.S. tax purposes during the fourth quarter of 2016. As a result, the Company recorded a step-up in the tax basis of the assets acquired from Power Service, Inc. and reversed $18 million of the deferred tax liability and the corresponding reduction in the valuation allowance recorded in the second quarter of 2016. Overall, the Company’s net deferred tax liability increased and valuation allowance decreased by $1 million during the year ended December 31, 2016 as a result of the Power Service acquisition. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):
|  | 2016 |  |  | 2015 |  |  | 2014 |
Unrecognized tax benefit at January 1 |  | $ | 1 |  |  | $ | — |  |  | $ | — |
Gross increases - tax positions in prior period |  |  | — |  |  |  | — |  |  |  | — |
Gross decreases - tax positions in prior period |  |  | — |  |  |  | — |  |  |  | — |
Gross increases - tax positions in current period |  |  | — |  |  |  | 1 |  |  |  | — |
Settlement |  |  | — |  |  |  | — |  |  |  | — |
Lapse of statute of limitations |  |  | — |  |  |  | — |  |  |  | — |
Unrecognized tax benefit at December 31 |  | $ | 1 |  |  | $ | 1 |  |  | $ | — |
The balance of unrecognized tax benefits at December 31, 2016 and 2015 was $1 million and $1 million, respectively. These unrecognized tax benefits are included as a reduction to deferred tax assets in the consolidated balance sheet at December 31, 2016 and 2015. If the $1 million of unrecognized tax benefits are ultimately realized, $1 million would be recorded as a reduction of income tax expense. The Company does not anticipate that the total unrecognized tax benefits will significantly change due to the settlement of audits or the expiration of statutes of limitation within 12 months of this reporting date. To the extent penalties and interest would be assessed on any underpayment of income tax, such accrued amounts are classified as a component of income tax provision (benefit) in the financial statements consistent with the Company’s policy. During the year ended December 31, 2016, the Company did not record any income tax expense for interest and penalties related to uncertain tax positions. The Company is subject to taxation in the United States, various states and foreign jurisdictions. The Company has significant operations in the United States and Canada and to a lesser extent in various other international jurisdictions. Tax years that remain subject to examination vary by legal entity, but are generally open in the U.S. for the tax years ending after 2012 and outside the U.S. for the tax years ending after 2010. The Company is indemnified for any income tax expense exposures related to periods prior to the Separation under the Tax Matters Agreement with NOV. In the United States, the Company has $194 million and $30 million of net operating loss carryforwards as of December 31, 2016 and December 31, 2015, which will expire in 2036 and 2035, respectively. The potential benefit of $68 million has been reduced by a $68 million valuation allowance. Future income tax payments will be reduced in the event the Company ultimately realizes the benefit of these net operating losses. In addition to future income tax expense, future income tax payments will also be reduced in the event the Company ultimately realizes the benefit of these net operating losses. The Company has $105 million and $35 million of state net operating loss carryforwards as of December 31, 2016 and December 31, 2015, which will expire between 2020 through 2036. The potential benefit of $4 million has been reduced by a $4 million valuation allowance. Outside the United States, the Company has $26 million and $7 million of net operating loss carryforwards as of December 31, 2016 and December 31, 2015, of which $9 million have no expiration and $17 million will expire in future years through 2026. The potential benefit of $7 million has been reduced by a $7 million valuation allowance. Also in the United States, the Company has $5 million and $3 million of excess foreign tax credits as of December 31, 2016 and December 31, 2015. The potential benefit of $5 million has been reduced by a $5 million valuation allowance. In addition to future income tax expense, future income tax payments will also be reduced in the event the Company ultimately realizes the benefit of these foreign tax credits. In general, it is the practice and intention of the Company to reinvest the earnings of its non-U.S. subsidiaries in those operations. As of December 31, 2016, the amount of undistributed earnings of foreign subsidiaries was approximately $140 million. The Company has not, nor does it anticipate the need to, repatriate funds to the United States to satisfy domestic liquidity needs arising in the ordinary course of business, including liquidity needs associated with domestic debt service requirements. These earnings are considered to be permanently reinvested and no provision for U.S. federal and state income taxes has been made. Distribution of these earnings in the form of dividends or otherwise could result in U.S. federal taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable in various foreign countries. Determination of the amount of unrecognized deferred U.S. income tax liability is not practical; however, unrecognized foreign tax credit carryforwards would be available to reduce some portion of the U.S. liability. Because of the number of tax jurisdictions in which the Company operates, its effective tax rate can fluctuate as operations and the local country tax rates fluctuate. The Company is also subject to audits by federal, state and foreign jurisdictions which may result in proposed assessments. The Company’s future tax provision will reflect any favorable or unfavorable adjustments to its estimated tax liabilities when resolved. The Company is unable to predict the outcome of these matters. However, the Company believes that none of these matters will have a material adverse effect on the results of operations or financial position of the Company.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32559-109319 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32718-109319 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32537-109319 + Details
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