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Income Taxes | 12 Months Ended
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Dec. 31, 2017
Income Tax Disclosure [Abstract] |
Income Taxes | 9. Income Taxes On May 1, 2014, the National Oilwell Varco, Inc. (“NOV”) Board of Directors approved the Spin-Off (the “Spin-Off” or “Separation”) of its distribution business into an independent, publicly traded company named NOW Inc. 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. 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 Tax Cuts and Jobs Act (“Act”) was enacted on December 22, 2017. The Act contains several tax law changes that will impact the Company in the current and future periods, including a reduction in the U.S. federal corporate tax rate from 35% to 21%, requiring companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, creating new taxes on certain foreign sourced earnings and changes to bonus depreciation, the deductions for executive compensation and interest expense. At December 31, 2017, the Company has not completed its accounting for the tax effects of the Act; however, in certain cases, as described below, the Company has made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax. The Company is also assessing the impact of the provisions of the Act which do not apply until 2018. The Company remeasured its U.S. deferred tax assets and liabilities and recorded a $69 million charge relating to the U.S. federal corporate tax rate change, with a corresponding decrease to its valuation allowance of $69 million. There is no net impact to the deferred tax expense for these entries at December 31, 2017. Similarly, the Company recorded a one-time, mandatory $33 million charge relating to the one-time transition tax on unremitted foreign earnings which is fully offset by foreign tax credits and net operating losses, resulting in no net impact to the provision for income taxes. The Company does not expect to incur a material cash tax payable with respect to the one-time transition tax. The Company is still analyzing the Act and refining its calculations, which could potentially impact the measurement of the tax balances. The Act’s tax law changes impacting the Company’s 2017 provision for income taxes, for which a reasonable estimate has been made, are reflected in the tables below. The domestic and foreign components of income (loss) before income taxes were as follows (in millions):
|  | December 31, |
|  | 2017 |  |  | 2016 |  |  | 2015 |
United States |  | $ | (64 | ) |  | $ | (206 | ) |  | $ | (524 | )
Foreign |  |  | 12 |  |  |  | (24 | ) |  |  | 6 |
Loss before income taxes |  | $ | (52 | ) |  | $ | (230 | ) |  | $ | (518 | )
The provision (benefit) for income taxes for 2017, 2016 and 2015 consisted of the following (in millions):
|  | 2017 |  |  | 2016 |  |  | 2015 |
U.S. Federal: |  |  |  |  |  |  |  |  |  |  |  |
Current |  |  | — |  |  | $ | 2 |  |  | $ | (14 | )
Deferred |  |  | — |  |  |  | (1 | ) |  |  | (2 | )
|  |  | — |  |  |  | 1 |  |  |  | (16 | )
U.S. State: |  |  |  |  |  |  |  |  |  |  |  |
Current |  |  | — |  |  |  | — |  |  |  | (1 | )
Deferred |  |  | — |  |  |  | — |  |  |  | — |
|  |  | — |  |  |  | — |  |  |  | (1 | )
Foreign |  |  |  |  |  |  |  |  |  |  |  |
Current |  |  | 1 |  |  |  | 3 |  |  |  | 5 |
Deferred |  |  | (1 | ) |  |  | — |  |  |  | (4 | )
|  |  | — |  |  |  | 3 |  |  |  | 1 |
Income tax provision (benefit) |  | $ | — |  |  | $ | 4 |  |  | $ | (16 | )
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):
|  | December 31, |
|  | 2017 |  |  | 2016 |  |  | 2015 |
Income tax provision (benefit) at federal statutory rate |  | $ | (18 | ) |  | $ | (81 | ) |  | $ | (181 | )
Foreign tax rate differential |  |  | (2 | ) |  |  | 2 |  |  |  | (1 | )
State income tax provision (benefit), net of federal benefit |  |  | (5 | ) |  |  | (3 | ) |  |  | (8 | )
Nondeductible expenses |  |  | 2 |  |  |  | 8 |  |  |  | 3 |
Foreign tax credits |  |  | (31 | ) |  |  | (2 | ) |  |  | (3 | )
Nondeductible goodwill impairment |  |  | — |  |  |  | — |  |  |  | 42 |
One-time transition tax |  |  | 33 |  |  |  |  |  |  |  |  |
U.S. tax rate change |  |  | 69 |  |  |  |  |  |  |  |  |
Change in valuation allowance |  |  | (45 | ) |  |  | 78 |  |  |  | 129 |
Change in contingency reserve and other |  |  | (3 | ) |  |  | 2 |  |  |  | 3 |
Income tax provision (benefit) |  | $ | — |  |  | $ | 4 |  |  | $ | (16 | )
Effective tax rate |  |  | 0.0 | % |  |  | (1.6 | )% |  |  | 3.0 | %
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. In 2017, the effective tax rate continues to be impacted by a valuation allowance in the United States, Canada and other foreign jurisdictions. In addition, the effective tax rate was impacted by the enactment of the Tax Cuts and Jobs Act of 2017 which includes the one-time transition tax, the U.S. tax rate change and foreign tax credits related to earnings of foreign subsidiaries that were previously tax deferred. Significant components of the Company’s deferred tax assets and liabilities were as follows (in millions):
|  | December 31, |
|  | 2017 |  |  | 2016 |  |  | 2015 |
Deferred tax assets: |  |  |  |  |  |  |  |  |  |  |  |
Allowances and operating liabilities |  | $ | 8 |  |  | $ | 8 |  |  | $ | 9 |
Net operating loss carryforwards |  |  | 52 |  |  |  | 78 |  |  |  | 13 |
Foreign tax credit carryforwards |  |  | 29 |  |  |  | 5 |  |  |  | 3 |
Trade credit |  |  | 1 |  |  |  | 3 |  |  |  | 4 |
Allowance for doubtful accounts |  |  | 6 |  |  |  | 10 |  |  |  | 12 |
Inventory reserve |  |  | 12 |  |  |  | 18 |  |  |  | 11 |
Stock-based compensation |  |  | 15 |  |  |  | 19 |  |  |  | 19 |
Intangible assets |  |  | 27 |  |  |  | 53 |  |  |  | 56 |
Other |  |  | 2 |  |  |  | 6 |  |  |  | 1 |
Total deferred tax assets |  |  | 152 |  |  |  | 200 |  |  |  | 128 |
Deferred tax liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Tax over book depreciation |  |  | — |  |  |  | (4 | ) |  |  | (6 | )
Total deferred tax liabilities |  |  | — |  |  |  | (4 | ) |  |  | (6 | )
Net deferred tax assets before valuation allowance |  |  | 152 |  |  |  | 196 |  |  |  | 122 |
Valuation allowance |  |  | (157 | ) |  |  | (202 | ) |  |  | (129 | )
Net deferred tax assets (liability) |  | $ | (5 | ) |  | $ | (6 | ) |  | $ | (7 | )
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. Due to the level of losses incurred since 2015, management believes that it is not more-likely-than-not that the Company would be able to realize the benefits of its deferred tax assets in the U.S., Canada and other foreign jurisdictions and accordingly recognized a valuation allowance for the year ended December 31, 2017. The change during the year in the valuation allowance was $44 million in the U.S., $3 million in Canada, and $(2) million in other foreign jurisdictions. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):
|  | 2017 |  |  | 2016 |  |  | 2015 |
Unrecognized tax benefit at January 1 |  | $ | 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 |  |  | (1 | ) |  |  | — |  |  |  | — |
Lapse of statute of limitations |  |  | — |  |  |  | — |  |  |  | — |
Unrecognized tax benefit at December 31 |  | $ | — |  |  | $ | 1 |  |  | $ | 1 |
The balance of unrecognized tax benefits at December 31, 2017, 2016 and 2015 was $0 million, $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, 2017, 2016 and 2015. 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, 2017, 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 2013 and outside the U.S. for the tax years ending after 2011. 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 $188 million of federal net operating loss carryforwards as of December 31, 2017, which will expire between 2035 and 2036. The potential tax benefit of $39 million has been reduced by a $39 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 net operating losses. The Company has $143 million of state net operating loss carryforwards as of December 31, 2017, which will expire between 2020 through 2037. The potential benefit of $8 million has been reduced by an $8 million valuation allowance. Outside the United States, the Company has $20 million of net operating loss carryforwards as of December 31, 2017, of which $13 million have no expiration and $7 million will expire between 2020 and 2037. The potential tax benefit of $5 million has been reduced by a $5 million valuation allowance. As of December 31, 2017, the Company has $29 million of excess foreign tax credits in the U.S., of which $23 million was recognized as a result of the one-time transition tax. The foreign tax credits will expire between 2024 and 2027. The potential benefit of $29 million has been reduced by a $29 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, 2017, the amount of undistributed earnings of foreign subsidiaries was approximately $153 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, except for the Act’s one-time transition tax, no additional 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 additional U.S. federal and state taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable in various foreign countries. No income taxes have been provided for any additional outside basis difference inherent in these entities as these amounts continue to be indefinitely reinvested in foreign operations. 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 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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