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Diamondback EnergyUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K (Mark one)☒☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE YEAR ENDED DECEMBER 31, 2018OR☐☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934Commission file number 001-36325 NOW INC.(Exact name of registrant as specified in its charter) Delaware 46-4191184(State of Incorporation) (IRS Identification No.) 7402 North Eldridge Parkway, Houston, Texas 77041(Address of principal executive offices)(281) 823-4700(Registrant’s telephone number, including area code)Securities registered pursuant to Section 12(b) of the Act: Common Stock, par value $.01 New York Stock Exchange (Title of Class) (Exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act. Yes ☐ No ☒Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during thepreceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financialaccounting standards provided pursuant to Section 13(a) of the Exchange Act. Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒The aggregate market value of common stock held by non-affiliates of the registrant as of June 30, 2018 was $1.4 billion. As of February 7, 2019, there were 108,439,219 sharesof the Company’s common stock (excluding 1,365,173 unvested restricted shares) outstanding.Documents Incorporated by ReferencePortions of the Proxy Statement in connection with the 2019 Annual Meeting of Stockholders are incorporated in Part III of this report. NOW INC.TABLE OF CONTENTS PagePART I ITEM 1. BUSINESS 3 ITEM 1A. RISK FACTORS 9 ITEM 1B. UNRESOLVED STAFF COMMENTS 22 ITEM 2. PROPERTIES 22 ITEM 3. LEGAL PROCEEDINGS 22 ITEM 4. MINE SAFETY DISCLOSURES 22 PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIES 23 ITEM 6. SELECTED FINANCIAL DATA 25 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 25 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 41 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 43 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 43 ITEM 9A. CONTROLS AND PROCEDURES 43 ITEM 9B. OTHER INFORMATION 43 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 44 ITEM 11. EXECUTIVE COMPENSATION 44 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS 44 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 44 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 44 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 45 2 FORM 10-KNote About Forward-Looking StatementsThis report includes estimates, projections, statements relating to our business plans, objectives and expected operating results that are “forward-lookingstatements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of theSecurities Exchange Act of 1934. Forward-looking statements may appear throughout this report, including the following sections: “Business,” “RiskFactors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These forward-looking statements generally areidentified by the words “may,” “believe,” “anticipate,” “expect,” “plan,” “predict,” “estimate,” “will be” or other similar words and phrases. Forward-lookingstatements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially. Wedescribe risks and uncertainties that could cause actual results and events to differ materially in “Risk Factors” (Part I, Item 1A of this Form 10-K),“Management’s Discussion and Analysis of Financial Condition and Results of Operations” (Part II, Item 7) and “Quantitative and Qualitative Disclosuresabout Market Risk” (Part II, Item 7A). We undertake no obligation to update or revise publicly any forward-looking statements, whether because of newinformation, future events or otherwise, except to the extent required by applicable law.PART IITEM 1.BUSINESSCorporate StructureNOW Inc. (“NOW” or the “Company”), headquartered in Houston, Texas, was incorporated in Delaware on November 22, 2013. On May 30, 2014, the spin-off from National Oilwell Varco, Inc. (“NOV”) was completed and NOW became an independent, publicly traded company (the “Spin-Off” or “Separation”).In accordance with a separation and distribution agreement between NOV and NOW, the two companies were separated by NOV distributing to itsstockholders 107,053,031 shares of common stock of NOW Inc. with each NOV stockholder receiving one share of NOW common stock for every four sharesof NOV common stock held at the close of business on the record date of May 22, 2014 and not sold prior to close of business on May 30, 2014. We filed aregistration statement on Form 10, as amended through the time of its effectiveness, describing the Spin-Off, which was declared effective by the U.S.Securities and Exchange Commission (“SEC”) on May 13, 2014. On June 2, 2014, NOW stock began trading “regular-way” on the New York StockExchange under the ticker symbol “DNOW”.OverviewWe are a global distributor to the oil and gas and industrial markets with a legacy of over one-hundred and fifty years. We operate primarily under theDistributionNOW and Wilson Export brands. Through our network of approximately 265 locations and approximately 4,500 employees worldwide, we stockand sell a comprehensive offering of energy products as well as a selection of products for industrial applications. Our energy product offering is consumedthroughout all sectors of the oil and gas industry – from upstream drilling and completion, exploration and production (“E&P”), midstream infrastructuredevelopment to downstream petroleum refining – as well as in other industries, such as chemical processing, mining, utilities and industrial manufacturingoperations. The industrial distribution end markets include manufacturing, aerospace, automotive, refineries and engineering and construction firms. We alsoprovide supply chain and materials management solutions to the same markets where we sell products.Our global product offering includes consumable maintenance, repair and operating (“MRO”) supplies, pipe, valves, fittings, flanges, gaskets, fasteners,electrical, instrumentation, artificial lift, pumping solutions, valve actuation and modular process, measurement and control equipment. We also offerwarehouse and inventory management solutions as part of our supply chain and materials management offering. We have developed expertise in providingapplication systems, work processes, parts integration, optimization solutions and after-sales support.Our solutions include outsourcing portions or entire functions of our customers’ procurement, inventory and warehouse management, logistics, point of issuetechnology, project management, business process and performance metrics reporting. These solutions allow us to leverage the infrastructure of our SAP™Enterprise Resource Planning (“ERP”) system and other technologies to streamline our customers’ purchasing process, from requisition to procurement topayment, by digitally managing workflow, improving approval routing and providing robust reporting functionality.3 We support land and offshore operations for the major oil and gas producing regions around the world through our network of locations. Our key markets,beyond North America, include Latin America, the North Sea, the Middle East, Asia Pacific and the Former Soviet Union (“FSU”). Products sold through ourlocations support greenfield expansion upstream capital projects, midstream infrastructure and transmission and MRO consumables used in day-to-dayproduction. We provide downstream energy and industrial products for petroleum refining, chemical processing, LNG terminals, power generation utilitiesand industrial manufacturing operations and customer on-site locations.We stock or sell more than 300,000 stock keeping units (“SKUs”) through our branch network. Our supplier network consists of thousands of vendors inapproximately 40 countries. From our operations in over 20 countries, we sell to customers operating in approximately 80 countries. The supplies andequipment stocked by each of our branches are customized to meet varied and changing local customer demands. The breadth and scale of our offeringenhances our value proposition to our customers, suppliers and shareholders.We employ advanced information technologies, including a common ERP platform across most of our business, to provide complete procurement, materialsmanagement and logistics coordination to our customers around the globe. Having a common ERP platform allows immediate visibility into our inventoryassets, operations and financials worldwide, enhancing decision making and efficiency.Global Operations Demand for our products is driven primarily by the level of oil and gas drilling, completions, servicing, production, transmission, refining and petrochemicaland industrial manufacturing activities. It is also influenced by the global supply and demand for energy, the economy in general and by geopolitics. Severalfactors drive spending, such as investment in energy infrastructure, the North American conventional and shale plays, market expectations of futuredevelopments in the oil, natural gas, liquids, refined products, petrochemical, plant maintenance and other industrial, manufacturing and energy sectors.We have expanded globally, through acquisitions and organic investments, into Australia, Azerbaijan, Brazil, Canada, China, Colombia, Egypt, England,India, Indonesia, Kazakhstan, Kuwait, Mexico, Netherlands, Norway, Oman, the Philippines, Russia, Saudi Arabia, Scotland, Singapore, the United ArabEmirates (“UAE”) and the United States.4 Summary of Reportable SegmentsWe operate through three reportable segments: United States (“U.S.”), Canada and International. The segment data included in our Management’s Discussionand Analysis of Financial Condition and Results of Operations (“MD&A”) are presented on a basis consistent with our internal management reporting.Segment information appearing in Note 14 “Business Segments” of the Notes to Consolidated Financial Statements (Part IV, Item 15 of this Form 10-K) isalso presented on this basis.United StatesWe have approximately 175 locations in the U.S., which are geographically positioned to best serve the upstream, midstream and downstream energy andindustrial markets.We offer higher value solutions in key product lines in the U.S. which broaden and deepen our customer relationships and related product line value.Examples of these include artificial lift, pumps, valves and valve actuation, process equipment, fluid transfer products, measurement and controls, along withmany other products required by our customers, which enable them to focus on their core business while we manage their supply chain. We also provideadditional value to our customers through the design, assembly, fabrication and optimization of products and equipment essential to the safe and efficientproduction, transportation and processing of oil and gas and industrial manufacturing.CanadaWe have a network of approximately 55 locations in the Canadian oilfield, predominantly in the oil rich provinces of Alberta and Saskatchewan in WesternCanada. Our Canada segment primarily serves the energy exploration, production, mining and drilling business, offering customers many of the sameproducts and value-added solutions that we perform in the U.S. In Canada, we also provide training for, and supervise the installation of, jointed andspoolable composite pipe. This product line is supported by inventory and product and installation expertise to serve our customers.InternationalWe operate in approximately 20 countries and serve the needs of our international customers from approximately 35 locations outside the U.S. and Canada,which are strategically located in major oil and gas development areas. Our approach in these markets is similar to our approach in North America, as ourcustomers turn to us to provide inventory and support closer to their drilling and exploration activities. Our long legacy of operating in many internationalregions, combined with significant expansion into several key markets, provides a competitive advantage as few of our competitors have a presence in mostof the global energy producing regions.5 Distribution Industry OverviewThe distribution industry is highly fragmented, comprised of large companies with global reach and numerous small, local and regional competitors.Distribution companies act both as supply stores and supply chain management providers for their customers. Distributors deliver value to their customers byserving as a supply chain partner by managing vendor networks and aggregating, carrying and distributing a wide range of product inventory from numerousvendors in locations close to the end user.Our Distribution ChannelsWe offer a diverse range of products across the energy and industrial markets in the U.S., Canada and internationally. There are thousands of manufacturers ofthe products used in the markets in which we operate and customers demand a high level of service, responsiveness and availability across a broad set ofproducts and vendors. These market dynamics make the distributor an essential element in the value chain. Our product offering is aligned to meet the needsof our customer base.EnergyEnergy branches are brick and mortar supply store operations that provide products to multiple upstream and midstream customers from a single location.These branches serve repeat account and walk-in retail customers. Products are inventoried in branch warehouses based on local market needs and aredelivered or available for pick-up as needed. The branches serve a geographical radius and provide delivery of products and solutions.This distribution channel primarily serves the upstream and midstream energy, industrial and manufacturing end markets with locations worldwide. A team ofsales and operations professionals is trained in the products, applications and customer service required to support customers as they drill, explore, produce,transport and refine oil and gas and other products. Products include line pipe, valves, actuated valves, fittings and flanges, pumps, OEM parts, electricalproducts, mill supplies, tools, safety supplies, personal protective equipment, applied products and applications, such as artificial lift systems, coatings andmiscellaneous expendable items.Supply ChainSupply Chain locations serve the upstream and downstream energy, industrial and manufacturing end markets through a network of facilities staffed byskilled personnel. The primary product offering includes various grades of pipe, valves, fittings, mill supplies, machine and cutting tools, power and handtools and safety supplies. Additionally, downstream and industrial focused locations offer safety equipment, including repair and maintenance, and alsoprovide planning, sourcing and expediting of orders throughout the lifecycle of large capital projects. Supply Chain locations serve many oil and gasoperators, drilling contractors and industrial manufacturers.Supply Chain customers can also outsource supply chain functions to the Company, where we provide a significant vendor network that enables thecustomer to benefit from on-site management of their procurement, warehouses, inventory, materials, projects, logistics and manufacturing tool cribs. Wepartner with customers to evaluate their current operations and make informed recommendations regarding inventory levels and mix. Supply Chain solutionscan be customized to a customer’s requirements and guided by a strategic framework to reduce direct material expenditures and direct supply chain costs,improve maintenance productivity, reduce inventory-related working capital, streamline time to revenue and manage the risk of material availabilityaffecting business continuity.Process SolutionsProcess Solutions has a team of distribution experts, technical professionals and licensed engineers who provide expertise related to pumps and fluidmovement solutions, liquid and gas measurement systems, fabrication and valve actuation. Process Solutions distributes OEM equipment including pumps,generator sets, air and gas compressors, dryers, blowers and valves. After-market services include rental, machining and repair service from a team of fieldmechanics located throughout the central U.S. The team also fabricates customer Lease Automatic Custody Transfer (LACT) units, Vapor Recovery Units,Gas Meter Runs, ASME Code Vessels, PIG Launchers and Receivers and Water Transfer and Disposal Units.Process Solutions serves the upstream, midstream and downstream oil and gas markets as well as the municipal industrial, mining, power generation andgeneral industries. Process Solutions also provides modular oil and gas tank battery solutions that positively impact our operator customers by enabling themto expedite revenue generations by reducing the time to complete a tank battery and getting oil and gas into the pipeline earlier. This solution saves ourcustomers time and expense related to well hookup and tank battery commissioning and reduces field incident exposures due to a reduced labor requirementfor battery construction.6 CustomersOur primary customers are companies active in the upstream, midstream and downstream sectors of the energy industry, including drilling contractors, wellservicing companies, independent and national oil and gas companies, midstream operators, refineries, petrochemical, chemical, utilities and otherdownstream energy processors. We also serve a diverse range of industrial and manufacturing companies across a broad spectrum of industries and endmarkets. We partner with our customers to continually meet or exceed their expectations and add value as a supply chain partner in the locations where theyoperate. Our products are typically critical to our customers’ operations, yet represent only a small fraction of their total project or facility cost. As a result,our customers seek suppliers with established qualifications and an operational history to deliver high quality and reliable products that meet theirrequirements in a timely manner.As customers increasingly aggregate purchases to improve efficiency and reduce costs, they partner with large distributors who can meet their needs forproducts in multiple locations around the world. We believe we could benefit from consolidation among the companies we serve, as the larger resultingcompanies look to global distributors as their source for products and related solutions.No single customer represents more than 10% of our revenue.CompetitionThe distribution companies serving the energy and industrial end markets are both numerous and competitive. This industry is highly fragmented, comprisedof large distributors, each with many locations, who aggregate and distribute several product lines, and includes numerous smaller regional and localcompanies, many of which operate from a single location and either aggregate and distribute several product lines or focus on a single product line. Whilesome large distributors compete in both markets, most companies focus on either the energy or industrial end market. In the energy market, some of the largercompanies against whom we compete include Ferguson Enterprises, Inc., MRC Global, Inc., Russel Metals, Inc., DXP Enterprises, Inc. and FloWorks. In theindustrial market, some of the larger companies against whom we compete include Ferguson Enterprises, Inc., W.W. Grainger Inc., HD Supply, Inc., WescoInternational Inc., MSC Industrial Direct Co., Inc., Applied Industrial Technologies, Inc., DXP Enterprises, Inc. and Fastenal Company.Seasonal Nature of the Company’s BusinessA portion of our business has experienced seasonal trends, to some degree, which have varied by geographic region. In the U.S., activity has historically beenhigher during the summer and fall months. In Canada, certain E&P activities have declined in the spring due to seasonal thaws and regulatory restrictionslimiting the ability of drilling rigs and transportation to operate effectively and safely during these periods.EmployeesAt December 31, 2018, we had approximately 4,500 employees, of which approximately 200 were temporary employees. Some of our employees in variousforeign locations are subject to collective bargaining agreements. Less than one percent of our employees in the U.S. are subject to collective bargainingagreements. We offer market-competitive benefits for employees and opportunities for growth and advancement. We believe our relationship with ouremployees is good.Environmental MattersWe are subject to a variety of federal, state, local, foreign and provincial environmental, health and safety laws, regulations and permitting requirements,including those governing the discharge of pollutants or hazardous substances into the air, soil or water, the generation, handling, use, management, storageand disposal of, or exposure to, hazardous substances and wastes, the responsibility to investigate, remediate, monitor and clean up contamination andoccupational health and safety. Fines and penalties may be imposed for non-compliance with applicable environmental, health and safety requirements andthe failure to have or to comply with the terms and conditions of required permits. Historically, the costs to comply with environmental and health and safetyrequirements have not been material to our financial position, results of operations or cash flows. We are not aware of any pending environmental complianceor remediation matters that, in the opinion of management, are reasonably likely to have a material effect on our business, financial position or results ofoperations or cash flows.7 Available InformationOur website address is www.distributionnow.com. The information found on our website is not part of this or any other report we file with, or furnish to, theSEC and is expressly not incorporated by reference into this document. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reportson Form 8-K, proxy statements and any amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of1934 are available on our website, free of charge, as soon as reasonably practicable after such reports are filed with, or furnished to, the SEC. Alternatively,you may access these reports at the SEC’s website at www.sec.gov. 8 ITEM 1A.RISK FACTORSYou should carefully consider each of the following risks in addition to all other information contained or incorporated herein. Some of these risks relateprincipally to the Spin-Off, while others relate principally to our business and the industry in which we operate or to the securities markets generally andownership of our common stock. Our business, prospects, financial condition, results of operations or cash flows could be materially and adversely affectedby any of these risks, and, as a result, the trading price of our common stock could decline. This information should be read in conjunction with Item 7,Management’s Discussion and Analysis of Financial Condition and Results of Operations, Item 7A, Quantitative and Qualitative Disclosures about MarketRisks and the consolidated financial statements and related notes included in this Form 10-K.Risks Relating to Our BusinessDecreased capital and other expenditures in the energy industry, which can result from decreased oil and natural gas prices, among other things, canadversely impact our customers’ demand for our products and our revenue.A large portion of our revenue depends upon the level of capital and operating expenditures in the oil and natural gas industry, including capital and otherexpenditures in connection with exploration, drilling, production, gathering, transportation, refining and processing operations. Demand for the products wedistribute is particularly sensitive to the level of exploration, development and production activity of, and the corresponding capital and other expendituresby, oil and natural gas companies. In addition, after a well is drilled, there can be a lag between when the well is drilled and when it is completed, whichcauses a delay in the demand for some of our products. Oil and natural gas prices have been extremely volatile since 2014. Continued volatility andweakness in oil or natural gas prices could depress levels of exploration, development and production activity and, therefore, could lead to a decrease in ourcustomers’ capital and other expenditures.The willingness of oil and gas operators to make capital and operating expenditures to explore for and produce oil and natural gas and the willingness ofoilfield service companies to invest in capital and operating equipment will continue to be influenced by numerous factors over which we have no control,including: •the ability of the members of the Organization of Petroleum Exporting Countries (“OPEC”) and certain non-OPEC countries, such as Russia, tomaintain price stability through voluntary production limits, the level of production by other non-OPEC countries, such as the United States,and worldwide demand for oil and gas; •the level of production from known reserves; •the cost of exploring for and producing oil and gas; •the level of drilling activity and drilling rig day rates; •worldwide economic activity; •national government political requirements; •the development of alternate energy sources; and •environmental regulations.If there is a significant reduction in demand for drilling services, in cash flows of drilling contractors, well servicing companies or production companies, orin drilling or well servicing rig utilization rates, then demand for our products will decline.Volatile oil and gas prices affect demand for our products.Demand for our products is largely determined by current and anticipated oil and natural gas prices, and the related spending and level of activity by ourcustomers, including spending on production and the level of drilling activities. Volatility or weakness in oil or natural gas prices (or the perception that oilor natural gas prices will decrease) affects the spending pattern of our customers, and may result in the drilling of fewer new wells or lower productionspending on existing wells. This, in turn, could result in lower demand for our products. Any sustained decrease in capital expenditures in the oil and naturalgas industry could have a material adverse effect on us.Prices for oil and natural gas are subject to large fluctuations in response to relatively minor changes in the supply of and demand for oil and natural gas,market uncertainty and a variety of other factors that are beyond our control. Any such reduction in operating budgets, reduction in activity and/or pricingpressures, would adversely affect our revenue and operating performance.9 Many factors affect the supply of and demand for energy and, therefore, influence oil and natural gas prices, including: •the level of domestic and worldwide oil and natural gas production and inventories; •the level of drilling activity and the availability of attractive oil and natural gas field prospects, which governmental actions may affect, suchas regulatory actions or legislation, or other restrictions on drilling, including those related to environmental concerns (e.g., a temporarymoratorium on deepwater drilling in the Gulf of Mexico following a rig accident or oil spill); •the discovery rate of new oil and natural gas reserves and the expected cost of developing new reserves; •the actual cost of finding and producing oil and natural gas; •depletion rates; •domestic and worldwide refinery over capacity or under capacity and utilization rates; •the availability of transportation infrastructure and refining capacity; •increases in the cost of products that the oil and gas industry uses, such as those that we provide, which may result from increases in the cost ofraw materials such as steel; •shifts in end-customer preferences toward fuel efficiency and the use of natural gas; •the economic or political attractiveness of alternative fuels, such as coal, hydrocarbon, battery power, wind, solar energy and biomass-basedfuels; •increases in oil and natural gas prices or historically high oil and natural gas prices, which could lower demand for oil and natural gas products; •worldwide economic activity including growth in non-Organization for Economic Co-operation and Development countries, including Chinaand India; •interest rates and the cost of capital; •national government policies, including government policies that could nationalize or expropriate oil and natural gas, E&P, refining ortransportation assets; •the ability of OPEC and non-OPEC countries, such as Russia, to set and maintain production levels and prices for oil; •the level of production by non-OPEC countries; •the impact of armed hostilities, or the threat or perception of armed hostilities; •environmental regulation; •technological advances; •global weather conditions and natural disasters; •currency fluctuations; and •tax policies.Oil and natural gas prices have been and are expected to remain volatile. U.S. rig count increased from 924 rigs on January 5, 2018 to 1,083 rigs on December28, 2018. U.S. rig count averaged 1,032 rigs in 2018. U.S. rig count at January 25, 2019 was 1,059 rigs. The price for WTI crude was $52.59 per barrel atJanuary 22, 2019. The price for WTI crude was $60.37 per barrel on January 2, 2018 and $52.36 per barrel on January 3, 2017. This type of volatility hashistorically caused oil and natural gas companies to change their strategies and expenditure levels from year to year. We have experienced in the past, and wewill likely experience in the future, significant fluctuations in operating results based on these changes. 10 General economic conditions may adversely affect our business.U.S. and global general economic conditions affect many aspects of our business, including demand for the products we distribute and the pricing andavailability of supplies. General economic conditions and predictions regarding future economic conditions also affect our forecasts. A decrease in demandfor the products we distribute or other adverse effects resulting from an economic downturn may cause us to fail to achieve our anticipated financial results.General economic factors beyond our control that affect our business and customers include interest rates, recession, inflation, deflation, customer creditavailability, consumer credit availability, consumer debt levels, performance of housing markets, energy costs, tax rates and policy, unemployment rates,commencement or escalation of war or hostilities, the threat or possibility of war, terrorism or other global or national unrest, political or financial instability,and other matters that influence our customers’ spending. Increasing volatility in financial markets may cause these factors to change with a greater degree offrequency or increase in magnitude. In addition, worldwide economic conditions could have an adverse effect on our business, prospects, operating results,financial condition and cash flows.We may be unable to compete successfully with other companies in our industry.We sell products in very competitive markets. In some cases, we compete with large companies with substantial resources. In other cases, we compete withsmaller regional companies that may increasingly be willing to provide similar products at lower prices. Certain of these competitors may have greaterfinancial, technical and marketing resources than us, and may be in a better competitive position. The following competitive actions can each adverselyaffect our revenues and earnings: •price changes; •vendors with better terms; •consolidation in the industry; •investments in technology and fulfillment; and •improvements in availability and delivery.We could experience a material adverse effect to the extent that our competitors are successful in reducing our customers’ purchases of products from us.Competition could also cause us to lower our prices, which could reduce our margins and profitability. Furthermore, consolidation in our industry couldheighten the impacts of the competition on our business and results of operations discussed above, particularly if consolidation results in competitors withstronger financial and strategic resources, and could also result in increases to the prices we are required to pay for acquisitions we may make in the future. Inaddition, certain foreign jurisdictions and government-owned petroleum companies located in some of the countries in which we operate have adoptedpolicies or regulations which may give local nationals in these countries competitive advantages. Competition in our industry could lead to lower revenuesand earnings.Demand for the products we distribute could decrease if the manufacturers of those products were to sell a substantial amount of goods directly to end usersin the sectors we serve.Historically, users of pipes, valves and fittings and related products have purchased certain amounts of these products through distributors and not directlyfrom manufacturers. If customers were to purchase the products that we sell directly from manufacturers, or if manufacturers sought to increase their efforts tosell directly to end users, we could experience a significant decrease in profitability. These or other developments that remove us from, or limit our role in, thedistribution chain, may harm our competitive position in the marketplace and reduce our sales and earnings and adversely affect our business. 11 We may need additional capital in the future, and it may not be available on acceptable terms, or at all.We may require more capital in the future to: •fund our operations (including, but not limited to, working capital requirements such as inventory); •finance investments in equipment and infrastructure needed to maintain and expand our distribution capabilities; •enhance and expand the range of products we offer; and •respond to potential strategic opportunities, such as investments, acquisitions and international expansion.We can give no assurance that additional financing will be available on terms favorable to us, or at all. The terms of available financing may place limits onour financial and operating flexibility. If adequate funds are not available on acceptable terms, we may be forced to reduce our operations or delay, limit orabandon expansion opportunities. Moreover, even if we are able to continue our operations, the failure to obtain additional financing could reduce ourcompetitiveness.We may experience unexpected supply shortages.We distribute products from a wide variety of manufacturers and suppliers. Nevertheless, in the future we may have difficulty obtaining the products we needfrom suppliers and manufacturers as a result of unexpected demand or production difficulties that might extend lead times. Also, products may not beavailable to us in quantities sufficient to meet our customer demand. Our inability to obtain products from suppliers and manufacturers in sufficientquantities, or at all, could adversely affect our product offerings and our business.We may experience cost increases from suppliers, which we may be unable to pass on to our customers.In the future, we may face supply cost increases due to, among other things, unexpected increases in demand for supplies, decreases in production of suppliesor increases in the cost of raw materials or transportation, or trade wars. Any inability to pass supply price increases on to our customers could have a materialadverse effect on us. In addition, if supply costs increase, our customers may elect to purchase smaller amounts of products or may purchase products fromother distributors. While we may be able to work with our customers to reduce the effects of unforeseen price increases because of our relationships with them,we may not be able to reduce the effects of the cost increases. In addition, to the extent that competition leads to reduced purchases of products from us or areduction of our prices, and these reductions occur concurrently with increases in the prices for selected commodities which we use in our operations, theadverse effects described above would likely be exacerbated and could result in a prolonged downturn in profitability.We do not have contracts with most of our suppliers. The loss of a significant supplier would require us to rely more heavily on our other existing suppliersor to develop relationships with new suppliers. Such a loss may have an adverse effect on our product offerings and our business.Given the nature of our business, and consistent with industry practice, we do not have contracts with most of our suppliers. We generally make our purchasesthrough purchase orders. Therefore, most of our suppliers have the ability to terminate their relationships with us at any time. Although we believe there arenumerous manufacturers with the capacity to supply the products we distribute, the loss of one or more of our major suppliers could have an adverse effect onour product offerings and our business. Such a loss would require us to rely more heavily on our other existing suppliers or develop relationships with newsuppliers, which may cause us to pay higher prices for products due to, among other things, a loss of volume discount benefits currently obtained from ourmajor suppliers.Price reductions by suppliers of products that we sell could cause the value of our inventory to decline. Also, these price reductions could cause ourcustomers to demand lower sales prices for these products, possibly decreasing our margins and profitability on sales to the extent that we purchased ourinventory of these products at the higher prices prior to supplier price reductions.The value of our inventory could decline as a result of manufacturer price reductions with respect to products that we sell. There is no assurance that asubstantial decline in product prices would not result in a write-down of our inventory value. Such a write-down could have an adverse effect on our financialcondition. Also, decreases in the market prices of products that we sell could cause customers to demand lower sales prices from us. These price reductionscould reduce our margins and profitability on sales with respect to the lower-priced products. Reductions in our margins and profitability on sales could havea material adverse effect on us.12 A substantial decrease in the price of steel could significantly lower our product margin or cash flow.We distribute many products manufactured from steel. As a result, the price and supply of steel can affect our business and, in particular, our pipe productcategory. When steel prices are lower, the prices that we charge customers for products may decline, which affects our product margin and cash flow. At timespricing and availability of steel can be volatile due to numerous factors beyond our control, including general domestic and international economicconditions, labor costs, sales levels, competition, consolidation of steel producers, fluctuations in and the costs of raw materials necessary to produce steel,steel manufacturers’ plant utilization levels and capacities, import duties and tariffs and currency exchange rates. Increases in manufacturing capacity forsteel-related products could put pressure on the prices we receive for such products. When steel prices decline, customer demands for lower prices and ourcompetitors’ responses to those demands could result in lower sales prices and, consequently, lower product margin and cash flow.If steel prices rise, we may be unable to pass along the cost increases to our customers.We maintain inventories of steel products to accommodate the lead time requirements of our customers. Accordingly, we purchase steel products in an effortto maintain our inventory at levels that we believe to be appropriate to satisfy the anticipated needs of our customers based upon historic buying practices,contracts with customers and market conditions. Our commitments to purchase steel products are generally at prevailing market prices in effect at the time weplace our orders. If steel prices increase between the time we order steel products and the time of delivery of the products to us, our suppliers may imposesurcharges that require us to pay for increases in steel prices during the period. Demand for the products we distribute, the actions of our competitors andother factors will influence whether we will be able to pass on steel cost increases and surcharges to our customers, and we may be unsuccessful in doing so.If tariffs and duties on imports into the U.S. of line pipe or certain of the other products that we sell are lifted, we could have too many of these products ininventory competing against less expensive imports.U.S. law currently imposes tariffs and duties on imports from certain foreign countries of line pipe and, to a lesser extent, on imports of certain other productsthat we sell. If these tariffs and duties are lifted or reduced or if the level of these imported products otherwise increases, and our U.S. customers accept theseimported products, we could be materially and adversely affected to the extent that we would then have higher-cost products in our inventory or increasedsupplies of these products which would drive down prices and margins. If prices of these products were to decrease significantly, we might not be able toprofitably sell these products, and the value of our inventory would decline. In addition, significant price decreases could result in a significantly longerholding period for some of our inventory.Changes in trade policies, including the imposition of additional tariffs, could negatively impact our business, financial condition and results ofoperations.The current United States administration has signaled support for implementing, and in some instances, has already proposed or taken action with respect to,major changes to certain trade policies, such as the imposition of additional tariffs on imported products and the withdrawal from or renegotiation of certaintrade agreements, including the North American Free Trade Agreement. On March 8, 2018, the President of the United States signed an order to impose a tariffof 25% on steel imported from certain countries. On July 1, 2018, Canada implemented retaliatory tariffs on certain U.S. imports, including steel. Weanticipate that the tariff could result in an increase in our cost of sales and there can be no assurance that we will be able to pass any of the increases in rawmaterial costs directly resulting from the tariff to our customers.In addition, there could be additional tariffs imposed by the United States and these could also result in additional retaliatory actions by the United States’trade partners. Given that we procure many of the raw materials that we use to create our products directly or indirectly from outside of the United States, theimposition of tariffs and other potential changes in U.S. trade policy could increase the cost or limit the availability of such raw materials, which could hurtour competitive position and adversely impact our business, financial condition and results of operations. In addition, we sell a significant proportion of ourproducts to customers outside of the United States. Retaliatory actions by other countries could result in increases in the price of our products, which couldlimit demand for such products, hurt our global competitive position and have a material adverse effect on our business, financial condition and results ofoperations.13 We do not have long-term contracts or agreements with many of our customers. The contracts and agreements that we do have generally do not commit ourcustomers to any minimum purchase volume. The loss of a significant customer may have a material adverse effect on us.Given the nature of our business, and consistent with industry practice, we do not have long-term contracts with many of our customers. In addition, ourcontracts generally do not commit our customers to any minimum purchase volume. Therefore, a significant number of our customers may terminate theirrelationships with us or reduce their purchasing volume at any time. Furthermore, the long-term customer contracts that we do have are generally terminablewithout cause on short notice. The products that we may sell to any particular customer depend in large part on the size of that customer’s capital expenditurebudget in a particular year and on the results of competitive bids for major projects. Consequently, a customer that accounts for a significant portion of oursales in one fiscal year may represent an immaterial portion of our sales in subsequent fiscal years. The loss of a significant customer, or a substantial decreasein a significant customer’s orders, may have an adverse effect on our sales and revenue.In addition, we are subject to customer audit clauses in many of our multi-year contracts. If we are not able to provide the proper documentation or support forinvoices per the contract terms, we may be subject to negotiated settlements with our major customers.Changes in our customer and product mix could cause our product margin to fluctuate.From time to time, we may experience changes in our customer mix or in our product mix. Changes in our customer mix may result from geographicexpansion, daily selling activities within current geographic markets and targeted selling activities to new customer segments. Changes in our product mixmay result from marketing activities to existing customers and needs communicated to us from existing and prospective customers. If customers begin torequire more lower-margin products from us and fewer higher-margin products, our business, results of operations and financial condition may suffer.Customer credit risks could result in losses.The concentration of our customers in the energy industry may impact our overall exposure to credit risk as customers may be similarly affected by prolongedchanges in economic and industry conditions. Further, laws in some jurisdictions in which we operate could make collection difficult or time consuming. Weperform ongoing credit evaluations of our customers and do not generally require collateral in support of our trade receivables. While we maintain reservesfor expected credit losses, we cannot assure these reserves will be sufficient to meet write-offs of uncollectible receivables or that our losses from suchreceivables will be consistent with our expectations.We may be unable to successfully execute or effectively integrate acquisitions.One of our key operating strategies is to selectively pursue acquisitions, including large scale acquisitions, to continue to grow and increase profitability.However, acquisitions, particularly of a significant scale, involve numerous risks and uncertainties, including intense competition for suitable acquisitiontargets, the potential unavailability of financial resources necessary to consummate acquisitions in the future, increased leverage due to additional debtfinancing that may be required to complete an acquisition, dilution of our stockholders’ net current book value per share if we issue additional equitysecurities to finance an acquisition, difficulties in identifying suitable acquisition targets or in completing any transactions identified on sufficientlyfavorable terms, assumption of undisclosed or unknown liabilities and the need to obtain regulatory or other governmental approvals that may be necessaryto complete acquisitions. In addition, any future acquisitions may entail significant transaction costs and risks associated with entry into new markets.Even when acquisitions are completed, integration of acquired entities can involve significant difficulties, such as: •failure to achieve cost savings or other financial or operating objectives with respect to an acquisition; •complications and issues resulting from the integration/conversion of ERP systems; •strain on the operational and managerial controls and procedures of our business, and the need to modify systems or to add managementresources; •difficulties in the integration and retention of customers or personnel and the integration and effective deployment of operations ortechnologies; •amortization of acquired assets, which would reduce future reported earnings; •possible adverse short-term effects on our cash flows or operating results; •diversion of management’s attention from the ongoing operations of our business;14 •integrating personnel with diverse backgrounds and organizational cultures; •coordinating sales and marketing functions; •failure to obtain and retain key personnel of an acquired business; and •assumption of known or unknown material liabilities or regulatory non-compliance issues.Failure to manage these acquisition risks could have an adverse effect on us.We are a holding company and depend upon our subsidiaries for our cash flow.We are a holding company. Our subsidiaries conduct all of our operations and own substantially all of our assets. Consequently, our cash flow and our abilityto meet our obligations or to make other distributions in the future will depend upon the cash flow of our subsidiaries and our subsidiaries’ payment of fundsto us in the form of dividends, tax sharing payments or otherwise.The ability of our subsidiaries to make any payments to us will depend on their earnings, the terms of their current and future indebtedness, taxconsiderations and legal and contractual restrictions on the ability to make distributions.Our subsidiaries are separate and distinct legal entities. Any right that we have to receive any assets of or distributions from any of our subsidiaries upon thebankruptcy, dissolution, liquidation or reorganization, or to realize proceeds from the sale of their assets, will be junior to the claims of that subsidiary’screditors, including trade creditors and holders of debt that the subsidiary issued.Changes in our credit profile may affect our relationship with our suppliers, which could have a material adverse effect on our liquidity.Changes in our credit profile may affect the way our suppliers view our ability to make payments and may induce them to shorten the payment terms of theirinvoices. Given the large dollar amounts and volume of our purchases from suppliers, a change in payment terms may have a material adverse effect on ourliquidity and our ability to make payments to our suppliers and, consequently, may have a material adverse effect on us.We are subject to strict environmental, health and safety laws and regulations that may lead to significant liabilities and negatively impact the demand forour products.We are subject to a variety of federal, state, local, foreign and provincial environmental, health and safety laws; regulations and permitting requirements,including those governing the discharge of pollutants or hazardous substances into the air, soil or water, the generation, handling, use, management, storageand disposal of, or exposure to, hazardous substances and wastes, the responsibility to investigate and clean up contamination and occupational health andsafety. Regulations and courts may impose fines and penalties for non-compliance with applicable environmental, health and safety requirements and thefailure to have or to comply with the terms and conditions of required permits. Our failure to comply with applicable environmental, health and safetyrequirements could result in fines, penalties, enforcement actions, third-party claims for property damage and personal injury, requirements to clean upproperty or to pay for the costs of cleanup or regulatory or judicial orders requiring corrective measures, including the installation of pollution controlequipment or remedial actions.Certain laws and regulations, such as the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA” or the “U.S. federalSuperfund law”) or its state and foreign equivalents, may impose the obligation to investigate and remediate contamination at a facility on current and formerowners or operators or on persons who may have sent waste to that facility for disposal. These laws and regulations may impose liability without regard tofault or to the legality of the activities giving rise to the contamination.Moreover, we may incur liabilities in connection with environmental conditions currently unknown to us relating to our existing, prior or future owned orleased sites or operations or those of predecessor companies whose liabilities we may have assumed or acquired. We believe that indemnities contained incertain of our acquisition agreements may cover certain environmental conditions existing at the time of the acquisition, subject to certain terms, limitationsand conditions. However, if these indemnification provisions terminate or if the indemnifying parties do not fulfill their indemnification obligations, we maybe subject to liability with respect to the environmental matters that those indemnification provisions address. In addition, environmental, health and safetylaws and regulations applicable to our business and the business of our customers, including laws regulating the energy industry, and the interpretation orenforcement of these laws and regulations, are constantly evolving. It is impossible to predict accurately the effect that changes in these laws and regulations,or their interpretation or enforcement, may have on us.15 Should environmental laws and regulations, or their interpretation or enforcement, become more stringent, our costs, or the costs of our customers, couldincrease, which may have a material adverse effect on us.We may not have adequate insurance for potential liabilities, including liabilities arising from litigation.In the ordinary course of business, we have and in the future may become the subject of various claims, lawsuits and administrative proceedings seekingdamages or other remedies concerning our commercial operations, the products we distribute, employees and other matters, including potential claims byindividuals alleging exposure to hazardous materials as a result of the products we distribute or our operations. Some of these claims may relate to theactivities of businesses that we have acquired, even though these activities may have occurred prior to our acquisition of the businesses. The products wedistribute are sold primarily for use in the energy industry, which is subject to inherent risks that could result in death, personal injury, property damage,pollution, release of hazardous substances or loss of production. In addition, defects in the products we distribute could result in death, personal injury,property damage, pollution, release of hazardous substances or damage to equipment and facilities. Actual or claimed defects in the products we distributemay give rise to claims against us for losses and expose us to claims for damages.We maintain insurance to cover certain of our potential losses, and we are subject to various self-retentions, deductibles and caps under our insurance. Weface the following risks with respect to our insurance coverage: •we may not be able to continue to obtain insurance on commercially reasonable terms; •we may incur losses from interruption of our business that exceed our insurance coverage; •we may be faced with types of liabilities that will not be covered by our insurance; •our insurance carriers may not be able to meet their obligations under the policies; or •the dollar amount of any liabilities may exceed our policy limits.Even a partially uninsured claim, if successful and of significant size, could have a material adverse effect on us. Finally, even in cases where we maintaininsurance coverage, our insurers may raise various objections and exceptions to coverage that could make uncertain the timing and amount of any possibleinsurance recovery.Due to our position as a distributor, we are subject to personal injury, product liability and environmental claims involving allegedly defective products.Our customers use certain products we distribute in potentially hazardous applications that can result in personal injury, product liability and environmentalclaims. A catastrophic occurrence at a location where end users use the products we distribute may result in us being named as a defendant in lawsuitsasserting potentially large claims, even though we did not manufacture the products. Applicable law may render us liable for damages without regard tonegligence or fault. In particular, certain environmental laws provide for joint and several and strict liability for remediation of spills and releases ofhazardous substances. Certain of these risks are reduced by the fact that we are a distributor of products that third-party manufacturers produce, and, thus, incertain circumstances, we may have third-party warranty or other claims against the manufacturer of products alleged to have been defective. However, thereis no assurance that these claims could fully protect us or that the manufacturer would be able financially to provide protection. There is no assurance that ourinsurance coverage will be adequate to cover the underlying claims. Our insurance does not provide coverage for all liabilities (including liability for certainevents involving pollution or other environmental claims).If we lose any of our key personnel, we may be unable to effectively manage our business or continue our growth.Our future performance depends to a significant degree upon the continued contributions of our management team and our ability to attract, hire, train andretain qualified managerial, sales and marketing personnel. In particular, we rely on our sales and marketing teams to create innovative ways to generatedemand for the products we distribute. The loss or unavailability to us of any member of our management team or a key sales or marketing employee couldhave a material adverse effect on us to the extent we are unable to timely find adequate replacements. We face competition for these professionals from ourcompetitors, our customers and other companies operating in our industry. We may be unsuccessful in attracting, hiring, training and retaining qualifiedpersonnel.16 Interruptions in the proper functioning of our information systems could disrupt operations and cause increases in costs or decreases in revenues.The proper functioning of our information systems is critical to the successful operation of our business. We depend on our information management systemsto process orders, track credit risk, manage inventory and monitor accounts receivable collections. Our information systems also allow us to efficientlypurchase products from our vendors and ship products to our customers on a timely basis, maintain cost-effective operations and provide superior service toour customers. However, our information systems could be vulnerable to natural disasters, power losses, telecommunication failures, security breaches andother problems. If critical information systems fail or are otherwise unavailable, our ability to procure products to sell, process and ship customer orders,identify business opportunities, maintain proper levels of inventories, collect accounts receivable and pay accounts payable and expenses could be adverselyaffected. Our ability to integrate our systems with our customers’ systems would also be significantly affected. If our information systems are damaged or failto function properly, we may incur substantial costs to repair or replace them, and may experience loss of critical data and interruptions or delays in ourability to manage inventories or process transactions, which could result in lost sales, inability to process purchase orders and/or a potential loss of customerloyalty, which could adversely affect our results of operations. We maintain information systems controls designed to protect against, among other things,unauthorized program changes and unauthorized access to data on our information systems. If our information systems controls do not function properly, weface increased risks of unexpected errors and unreliable financial data or theft of proprietary Company information.The loss of third-party transportation providers upon whom we depend, or conditions negatively affecting the transportation industry, could increase ourcosts or cause a disruption in our operations.We depend upon third-party transportation providers for delivery of products to our customers. Strikes, slowdowns, transportation disruptions or otherconditions in the transportation industry, including, but not limited to, shortages of truck drivers, disruptions in rail service, increases in fuel prices andadverse weather conditions, could increase our costs and disrupt our operations and our ability to service our customers on a timely basis. We cannot predictwhether or to what extent increases or anticipated increases in fuel prices may impact our costs or cause a disruption in our operations going forward.Adverse weather events or natural disasters could negatively affect local economies and disrupt operations.Certain areas in which we operate are susceptible to adverse weather conditions or natural disasters, such as hurricanes, tornadoes, floods and earthquakes.These events can disrupt our operations, result in damage to our properties and negatively affect the local economies in which we operate. Additionally, wemay experience communication disruptions with our customers, vendors and employees. These events can cause physical damage to our locations andrequire us to close locations. Additionally, our sales orders and shipments can experience a temporary decline immediately following these events.We cannot predict whether or to what extent damage caused by these events will affect our operations or the economies in regions where we operate. Theseadverse events could result in disruption of our purchasing or distribution capabilities, interruption of our business that exceeds our insurance coverage, ourinability to collect from customers and increased operating costs. Our business or results of operations may be adversely affected by these and other negativeeffects of these events.We have a substantial amount of goodwill and other intangible assets recorded on our balance sheets. The amortization of acquired intangible assets mayreduce our future reported earnings. Furthermore, if our goodwill or other intangible assets become impaired, we may be required to recognize charges thatwould reduce our income.As of December 31, 2018, we had $314 million of goodwill and $144 million in intangibles, net recorded on our balance sheet. Under generally acceptedaccounting principles in the U.S. (“GAAP”), goodwill is not amortized, but must be reviewed for possible impairment annually, or more often in certaincircumstances where events indicate that the asset values are not recoverable. These reviews could result in an earnings charge for impairment, which wouldreduce our net income even though there would be no impact on our underlying cash flow.17 We face risks associated with conducting business in markets outside of the U.S. and Canada.We currently conduct business in countries outside of the U.S. and Canada. We could be materially and adversely affected by economic, legal, political andregulatory developments in the countries in which we do business in the future or in which we expand our business, particularly those countries which havehistorically experienced a high degree of political or economic instability. Examples of risks inherent in conducting business in markets outside of the U.S.and Canada include: •changes in the political and economic conditions in the countries in which we operate, including civil uprisings and terrorist acts; •unexpected changes in regulatory requirements; •changes in tariffs; •the adoption of foreign or domestic laws limiting exports to or imports from certain foreign countries; •fluctuations in currency exchange rates and the value of the U.S. dollar; •restrictions on repatriation of earnings; •expropriation of property without fair compensation; •governmental actions that result in the deprivation of contract or proprietary rights; and •the acceptance of business practices which are not consistent with or are antithetical to prevailing business practices we are accustomed to inNorth America including export compliance and anti-bribery practices and governmental sanctions.If we begin doing business in a foreign country in which we do not presently operate, we may also face difficulties in operations and diversion ofmanagement time in connection with establishing our business there.We are subject to U.S. and other anti-corruption laws, trade controls, economic sanctions, and similar laws and regulations, including those in thejurisdictions where we operate. Our failure to comply with these laws and regulations could subject us to civil, criminal and administrative penalties andharm our reputation.Doing business on a worldwide basis requires us to comply with the laws and regulations of the U.S. government and various foreign jurisdictions. These lawsand regulations place restrictions on our operations, trade practices, partners and investment decisions. In particular, our operations are subject to U.S. andforeign anti-corruption and trade control laws and regulations, such as the Foreign Corrupt Practices Act (“FCPA”), export controls and economic sanctionsprograms, including those administered by the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”). As a result of doing business inforeign countries and with foreign partners, we are exposed to a heightened risk of violating anti-corruption and trade control laws and sanctions regulations.The FCPA prohibits us from providing anything of value to foreign officials for the purposes of obtaining or retaining business or securing any improperbusiness advantage. It also requires us to keep books and records that accurately and fairly reflect the Company’s transactions. As part of our business, wemay deal with state-owned business enterprises, the employees of which are considered foreign officials for purposes of the FCPA. In addition, the UnitedKingdom Bribery Act (the “Bribery Act”) has been enacted and came into effect on July 1, 2011. The provisions of the Bribery Act extend beyond bribery offoreign public officials and also apply to transactions with individuals that a government does not employ. The provisions of the Bribery Act are also moreonerous than the FCPA in a number of other respects, including jurisdiction, non-exemption of facilitation payments and penalties. Some of the internationallocations in which we operate lack a developed legal system and have higher than normal levels of corruption. Our continued expansion outside the U.S.,including in developing countries, and our development of new partnerships and joint venture relationships worldwide, could increase the risk of FCPA,OFAC or Bribery Act violations in the future.Economic sanctions programs restrict our business dealings with certain sanctioned countries, persons and entities. In addition, because we act as adistributor, we face the risk that our customers might further distribute our products to a sanctioned person or entity, or an ultimate end-user in a sanctionedcountry, which might subject us to an investigation concerning compliance with the OFAC or other sanctions regulations.18 Violations of anti-corruption and trade control laws and sanctions regulations are punishable by civil penalties, including fines, denial of export privileges,injunctions, asset seizures, debarment from government contracts and revocations or restrictions of licenses, as well as criminal fines and imprisonment. Wehave established policies and procedures designed to assist our compliance with applicable U.S. and international anti-corruption and trade control laws andregulations, including the FCPA, the Bribery Act and trade controls and sanctions programs administered by the OFAC, and have trained our employees tocomply with these laws and regulations. However, there can be no assurance that all of our employees, consultants, agents or other associated persons will nottake actions in violation of our policies and these laws and regulations, and that our policies and procedures will effectively prevent us from violating theseregulations in every transaction in which we may engage or provide a defense to any alleged violation. In particular, we may be held liable for the actionsthat our local, strategic or joint venture partners take inside or outside of the United States, even though our partners may not be subject to these laws. Such aviolation, even if our policies prohibit it, could have a material adverse effect on our reputation, business, financial condition and results of operations. Inaddition, various state and municipal governments, universities and other investors maintain prohibitions or restrictions on investments in companies that dobusiness with sanctioned countries, persons and entities, which could adversely affect the market for our common stock and other securities.The occurrence of cyber incidents, or a deficiency in our cybersecurity, could negatively impact our business by causing a disruption to our operations, acompromise or corruption of our confidential information or damage to our Company’s image, all of which could negatively impact our financial results.A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of our information resources. Morespecifically, a cyber incident is an intentional attack or an unintentional event that can include gaining unauthorized access to systems to disrupt operations,corrupt data or steal confidential information. As our reliance on technology has increased, so have the risks posed to our systems, both internal and those wehave outsourced. Our four primary risks that could directly result from the occurrence of a cyber incident include operational interruption, damage to ourCompany’s image, financial loss and private data exposure.We have implemented solutions, processes, and procedures to help mitigate this risk, but these measures, as well as our organization’s increased awareness ofour risk of a cyber incident, do not guarantee that our financial results will not be negatively impacted by such an incident. Our security measures may beundermined due to the actions of outside parties, employee error, malfeasance, or otherwise, and, as a result, an unauthorized party may obtain access to ourdata systems and misappropriate business and personal information. Our systems are subject to repeated attempts by third parties to access information or todisrupt our systems. Such disruptions or misappropriations and the resulting repercussions, including reputational damage and legal claims or proceedings,may adversely affect our results of operations, cash flows and financial condition, and the trading price of our common stock.Privacy concerns relating to our personal and business information being potentially breached could damage our reputation and deter current andpotential users or customers from using our products and services.We have security measures and controls to protect personal and business information and continue to make investments to secure access to our informationtechnology network. These measures may be undermined, however, due to the actions of outside parties, employee error, internal or external malfeasance, orotherwise, and, as a result an unauthorized party may obtain access to our data systems and misappropriate business and personal information. Because thetechniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and may not immediately produce signs ofintrusion, we may be unable to anticipate these techniques, timely discover or counter them, or implement adequate preventative measures. Any such breachor unauthorized access could result in significant legal and financial exposure, damage to our reputation, and potentially have an adverse effect on ourbusiness and results of operations.Compliance with and changes in laws and regulations in the countries in which we operate could have a significant financial impact and effect how andwhere we conduct our operations.We have operations in the U.S. and in other countries that can be impacted by expected and unexpected changes in the business and legal environments inthe countries in which we operate. Compliance with and changes in laws, regulations, and other legal and business issues could impact our ability to manageour costs and to meet our earnings goals. Compliance related matters could also limit our ability to do business in certain countries. Changes that could havea significant cost to us include new legislation, new regulations, or a differing interpretation of existing laws and regulations, changes in tax law or tax rates,the unfavorable resolution of tax assessments or audits by various taxing authorities, the expansion of currency exchange controls, export controls oradditional restrictions on doing business in countries subject to sanctions in which we operate or intend to operate.19 Changes in the United Kingdom's economic and other relationships with the European Union could adversely affect us.In June 2016, a majority of voters in the United Kingdom elected to withdraw from the European Union in a national referendum ("Brexit"). In March 2017,the United Kingdom formally notified the European Union of its intention to withdraw, and withdrawal negotiations began in June 2017. European Unionrules provide for a two-year negotiation period, beginning on the withdrawal notification date, unless an extension is agreed to by the parties. Thenegotiations between the parties have yet to produce an overall structure for their ongoing relationship following Brexit. We have operations in both theUnited Kingdom and the European Union. The ongoing uncertainty and potential re-imposition of border controls and customs duties on trade between theUnited Kingdom and European Union nations could negatively impact our competitive position, supplier and customer relationships, product and laboravailability, currency fluctuations, and financial performance. In addition, Brexit could lead to legal uncertainty and potentially divergent national laws andregulations as the United Kingdom determines which European Laws to replace or replicate. The ultimate effects of Brexit on us will depend on the specificterms of any agreement the United Kingdom and the European Union reach to provide access to each other’s respective markets.Risks Relating to the Spin-OffWe are subject to continuing contingent liabilities of NOV following the Spin-Off.There are several significant areas where the liabilities of NOV may become our obligations. For example, under the U.S. Internal Revenue Code and therelated rules and regulations, each corporation that was a member of the NOV combined U.S. federal income tax reporting group during any taxable period orportion of any taxable period ending on or before the effective time of the Spin-Off is jointly and severally liable for the U.S. federal income tax liability ofthe entire NOV combined tax reporting group for that taxable period. In connection with the Spin-Off, we entered into a tax matters agreement with NOV thatallocates the responsibility for prior period taxes of the NOV combined tax reporting group between us and NOV. However, if NOV is unable to pay any priorperiod taxes for which it is responsible, we could be required to pay the entire amount of such taxes.If the Spin-Off, together with certain related transactions, does not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes,NOV and its stockholders could be subject to significant tax liability and, in certain circumstances, we could be required to indemnify NOV for materialtaxes pursuant to indemnification obligations under the tax matters agreement.If the Spin-Off or certain internal restructuring transactions that were undertaken in anticipation of the Spin-Off are determined to be taxable for U.S. federalincome tax purposes, then we, NOV and/or our stockholders could be subject to significant tax liability. To the extent that we are required to indemnify NOV(or its subsidiaries or other affiliates) or otherwise bear tax liabilities attributable to the Spin-Off under the tax matters agreement, we may be subject tosubstantial liabilities that could have a material adverse effect on our company.NOV’s insurers may deny coverage to us for losses associated with occurrences prior to the Spin-Off.In connection with the Spin-Off, we entered into agreements with NOV to address several matters associated with the Spin-Off, including insurance coverage.NOV’s insurers may deny coverage to us for losses associated with occurrences prior to the separation. Accordingly, we may be required to temporarily orpermanently bear the costs of such lost coverage.Risks Relating to Our Common StockThe market price of our shares may fluctuate widely.The market price of our common stock may fluctuate widely, depending upon many factors, some of which may be beyond our control, including: •our competitors’ significant acquisitions or dispositions; •the failure of our operating results to meet the estimates of securities analysts or the expectations of our stockholders; •changes in earnings estimates by securities analysts or our ability to meet our earnings guidance; •the operating and stock price performance of other comparable companies; •overall market fluctuations and general economic conditions; and •the other factors described in these “Risk Factors” and elsewhere in this Form 10-K.Stock markets in general have also experienced volatility that has often been unrelated to the operating performance of a particular company. These broadmarket fluctuations could negatively affect the trading price of our common stock.20 Your percentage ownership in us may be diluted in the future.As with any publicly traded company, your percentage ownership in us may be diluted in the future because of equity issuances for acquisitions, capitalmarket transactions or otherwise, including, without limitation, equity awards that we expect will be granted to our directors, officers and employees.We cannot assure you that we will pay dividends on our common stock.We do not currently pay dividends on our common stock. We currently intend to retain our future earnings to support the growth and development of ourbusiness. The payment of future cash dividends, if any, will be at the discretion of our Board of Directors and will depend upon, among other things, ourfinancial condition, results of operations, capital requirements and development expenditures, future business prospects and any restrictions imposed byfuture debt instruments.Certain provisions in our corporate documents and Delaware law may prevent or delay an acquisition of our company, even if that change may beconsidered beneficial by some of our stockholders.The existence of some provisions of our certificate of incorporation and bylaws and Delaware law could discourage, delay or prevent a change in control ofus that a stockholder may consider favorable. These include provisions: •providing our Board of Directors with the right to issue preferred stock without stockholder approval; •prohibiting stockholders from taking action by written consent; •restricting the ability of our stockholders to call a special meeting; •providing for a classified Board of Directors; •providing that the number of directors will be filled by the Board of Directors and vacancies on the Board of Directors, including thoseresulting from an enlargement of the Board of Directors, will be filled by the Board of Directors; •requiring cause and an affirmative vote of at least 80 percent of the voting power of the then-outstanding voting stock to remove directors; •requiring the affirmative vote of at least 80 percent of the voting power of the then-outstanding voting stock to amend certain provisions of ourcertificate of incorporation and bylaws; and •establishing advance notice requirements for nominations of candidates for election to our Board of Directors or for stockholder proposals.In addition, we are subject to Section 203 of the Delaware General Corporation Law (the “DGCL”) which may have an anti-takeover effect with respect totransactions not approved in advance by our Board of Directors, including discouraging takeover attempts that could have resulted in a premium over themarket price for shares of our common stock.We believe these provisions protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with ourBoard of Directors and by providing our Board of Directors with more time to assess any acquisition proposal. These provisions are not intended to make ourcompany immune from takeovers. However, these provisions apply even if the offer may be considered beneficial by some stockholders and could delay orprevent an acquisition that our Board of Directors determines is not in the best interests of our company and our stockholders. 21 ITEM 1B.UNRESOLVED STAFF COMMENTSNone.ITEM 2.PROPERTIESAs of December 31, 2018, our three reporting segments, the United States, Canada and International, had approximately 175, 55 and 35 locations,respectively. International countries include: Australia, Azerbaijan, Brazil, China, Colombia, Egypt, England, India, Indonesia, Kazakhstan, Kuwait, Mexico,Netherlands, Norway, Oman, Philippines, Russia, Saudi Arabia, Scotland, Singapore and United Arab Emirates. Our properties are comprised of offices,distribution centers and branches, approximately 85% of which are leased. One owned facility is pledged as collateral under our senior secured revolvingcredit facility discussed in Note 10 “Debt”, all other owned facilities are not subject to any mortgages.ITEM 3.LEGAL PROCEEDINGSWe have various claims, lawsuits and administrative proceedings that are pending or threatened, all arising in the ordinary course of business, with respect tocommercial, product liability and employee matters. Although no assurance can be given with respect to the outcome of these or any other pending legal andadministrative proceedings and the effect such outcomes may have, we believe any ultimate liability resulting from the outcome of such claims, lawsuits oradministrative proceedings will not have a material adverse effect on our consolidated financial position, results of operations or cash flows. See Note 11“Commitments and Contingencies” to the consolidated financial statements.ITEM 4.MINE SAFETY DISCLOSURESNot Applicable. 22 PART IIITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIESQuarterly Common Stock Prices and Cash Dividends Per ShareNOW Inc. common stock is traded on the New York Stock Exchange (“NYSE”) under the ticker symbol “DNOW”. Our board of directors has not declared any dividends during 2017 or 2018 and currently has no intention to declare dividends.As of January 31, 2019, there were 2,084 holders of record of our common stock. Many stockholders choose to own shares through brokerage accounts andother intermediaries rather than as holders of record (excluding individual participants in securities positions listing) so the actual number of stockholders isunknown but likely significantly higher.The information relating to our equity compensation plans required by Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters andIssuer Purchases of Equity Securities” is incorporated by reference to such information as set forth in Item 12. “Security Ownership of Certain BeneficialOwners and Management and Related Stockholder Matters” contained herein.23 Performance GraphThe graph below matches the cumulative 55-Month total return of holders of NOW Inc.'s common stock with the cumulative total returns of the S&P Midcap400 index and a customized peer group of five companies that includes: DXP Enterprises Inc., Fastenal Co, MRC Global Inc., W.W. Grainger Inc. and WescoInternational Inc. The graph assumes that the value of the investment in our common stock, in each index, and in the peer group (including reinvestment ofdividends) was $100 on June 2, 2014 and tracks it through December 31, 2018. 6/2/14 12/31/14 12/31/15 12/31/16 12/31/17 12/31/18 NOW Inc. $100 $72 $45 $58 $31 $33 S&P Midcap 400 100 106 104 126 146 130 Peer Group 100 94 76 94 101 106 The stock price performance included in this graph is not necessarily indicative of future stock price performance.This information shall not be deemed to be ‘‘soliciting material’’ or to be ‘‘filed’’ with the Commission or subject to Regulation 14A (17 CFR 240.14a-1-240.14a-104), other than as provided in Item 201(e) of Regulation S-K, or to the liabilities of section 18 of the Exchange Act (15 U.S.C. 78r). 24 ITEM 6.SELECTED FINANCIAL DATASelected Financial DataThe following selected financial data reflect the consolidated operations of NOW Inc. We derived the selected consolidated income statement data and theselected consolidated balance sheet data for the years ended December 31, 2018, 2017, 2016, 2015 and 2014, from the audited consolidated financialstatements of NOW Inc. As of and For the Year Ended December 31, 2018 2017 2016 2015 2014 (In millions) Operating data: Revenue $3,127 $2,648 $2,107 $3,010 $4,105 Operating profit (loss) $73 $(41) $(222) $(510) $181 Net income (loss) $52 $(52) $(234) $(502) $116 Earnings (loss) per share amounts: Basic $0.47 $(0.48) $(2.18) $(4.68) $1.07 Diluted $0.47 $(0.48) $(2.18) $(4.68) $1.06 Balance sheet data: Working capital $778 $735 $612 $985 $1,427 Total assets $1,795 $1,749 $1,603 $1,832 $2,596 Long-term debt $132 $162 $65 $108 $− Total stockholders' equity $1,214 $1,185 $1,183 $1,403 $1,966 ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSOverview of the SeparationOn May 1, 2014, the National Oilwell Varco, Inc. Board of Directors approved the Spin-Off of its distribution business into an independent, publicly tradedcompany named NOW Inc. In accordance with a separation and distribution agreement, the two companies were separated by NOV distributing to itsstockholders 107,053,031 shares of common stock of the Company after the market closed on May 30, 2014 (the “Spin-Off Date”). Each NOV stockholderreceived one share of NOW common stock for every four shares of NOV common stock held at the close of business on the record date of May 22, 2014 andnot sold prior to close of business on May 30, 2014. Fractional shares of NOW common stock were not distributed and any fractional shares of NOW commonstock otherwise issuable to a NOV stockholder were sold in the open market on such stockholder’s behalf, and such stockholder received a cash payment withrespect to that fractional share. In conjunction with the Spin-Off, NOV received an opinion from its legal counsel to the effect that, based on certain facts,assumptions, representations and undertakings, for U.S. federal income tax purposes, the distribution of NOW common stock and certain related transactionsgenerally was not taxable to NOV or U.S. holders of NOV common stock, except in respect to cash received in lieu of fractional shares, which generally willbe taxable to such holders as a capital gain. Following the Spin-Off, NOW became an independent, publicly traded company as NOV had no ownershipinterest in NOW. Each company has separate public ownership, boards of directors and management. A Registration Statement on Form 10, as amended,relating to the Spin-Off was filed by the Company with the U.S. Securities and Exchange Commission and was declared effective on May 13, 2014. OnJune 2, 2014, NOW stock began trading the “regular-way” on the New York Stock Exchange under the ticker symbol “DNOW”.Basis of PresentationThe accompanying consolidated financial information include the accounts of the Company and its consolidated subsidiaries. All significant intercompanytransactions and accounts have been eliminated.25 General OverviewWe are a global distributor to the oil and gas and industrial markets with a legacy of over one-hundred and fifty years. We operate primarily under theDistributionNOW and Wilson Export brands. Through our network of approximately 265 locations and approximately 4,500 employees worldwide, we stockand sell a comprehensive offering of energy products as well as a selection of products for industrial applications. Our energy product offering is consumedthroughout all sectors of the oil and gas industry – from upstream drilling and completion, exploration and production (“E&P”), midstream infrastructuredevelopment to downstream petroleum refining – as well as in other industries, such as chemical processing, mining, utilities and industrial manufacturingoperations. The industrial distribution end markets include manufacturing, aerospace, automotive, refineries and engineering and construction firms. We alsoprovide supply chain and materials management solutions to the same markets where we sell products.Our global product offering includes consumable maintenance, repair and operating (“MRO”) supplies, pipe, valves, fittings, flanges, gaskets, fasteners,electrical, instrumentation, artificial lift, pumping solutions, valve actuation and modular process, measurement and control equipment. We also offerwarehouse and inventory management solutions as part of our supply chain and materials management offering. We have developed expertise in providingapplication systems, work processes, parts integration, optimization solutions and after-sales support.Our solutions include outsourcing the functions of procurement, inventory and warehouse management, logistics, point of issue technology, projectmanagement, business process and performance metrics reporting. These solutions allow us to leverage the infrastructure of our SAP™ Enterprise ResourcePlanning (“ERP”) system and other technologies to streamline our customers’ purchasing process, from requisition to procurement to payment, by digitallymanaging workflow, improving approval routing and providing robust reporting functionality.We support land and offshore operations for all the major oil and gas producing regions around the world through our network of locations. Our key markets,beyond North America, include Latin America, the North Sea, the Middle East, Asia Pacific and the Former Soviet Union (“FSU”). Products sold through ourlocations support greenfield expansion upstream capital projects, midstream infrastructure and transmission and MRO consumables used in day-to-dayproduction. We provide downstream energy and industrial products for petroleum refining, chemical processing, LNG terminals, power generation utilitiesand industrial manufacturing operations and customer on-site locations.We stock or sell more than 300,000 SKUs through our branch network. Our supplier network consists of thousands of vendors in approximately 40 countries.From our operations in over 20 countries, we sell to customers operating in approximately 80 countries. The supplies and equipment stocked by each of ourbranches is customized to meet varied and changing local customer demands. The breadth and scale of our offering enhances our value proposition to ourcustomers, suppliers and shareholders.We employ advanced information technologies, including a common ERP platform across most of our business, to provide complete procurement, materialsmanagement and logistics coordination to our customers around the globe. Having a common ERP platform allows immediate visibility into our inventoryassets, operations and financials worldwide, enhancing decision making and efficiency. Our revenue and operating results are related to the level of worldwide oil and gas drilling and production activities and the profitability and cash flow of oiland gas companies and drilling contractors, which in turn are affected by current and anticipated prices of oil and gas. Oil and gas prices have been and arelikely to continue to be volatile. See Item 1A. “Risk Factors.” We conduct our operations through three business segments: United States, Canada andInternational. See “Business—Summary of Reportable Segments” for a discussion of each of these business segments.26 Unless indicated otherwise, results of operations data are presented in accordance with accounting principles generally accepted in the United States(“GAAP”). In an effort to provide investors with additional information regarding our results as determined by GAAP, we may disclose non-GAAP financialmeasures. The primary non-GAAP financial measure we focus on is earnings before interest, taxes, depreciation and amortization, excluding other costs(“EBITDA excluding other costs”). This financial measure excludes the impact of certain amounts and is not calculated in accordance with GAAP. See “Non-GAAP Financial Measures and Reconciliations” in Results of Operations for an explanation of our use of non-GAAP financial measures and reconciliationsto the corresponding measures calculated in accordance with GAAP.Operating Environment OverviewOur results are dependent on, among other things, the level of worldwide oil and gas drilling and completions, well remediation activity, crude and naturalgas prices, capital spending by oilfield service companies and drilling contractors, and the worldwide oil and gas inventory levels. Key industry indicatorsfor the past three years include the following: % % 2018 v 2018 v 2018* 2017* 2017 2016* 2016 Active Drilling Rigs: U.S. 1,032 875 17.9% 510 102.4%Canada 191 207 (7.7%) 128 49.2%International 988 948 4.2% 955 3.5%Worldwide 2,211 2,030 8.9% 1,593 38.8%West Texas Intermediate Crude Prices (per barrel) $64.94 $50.88 27.6% $43.14 50.5%Natural Gas Prices ($/MMBtu) $3.17 $2.99 6.0% $2.52 25.8%Hot-Rolled Coil Prices (steel) ($/short ton) $827.25 $620.10 33.4% $520.63 58.9% *Averages for the years indicated. See sources on following page.27 The following table details the U.S., Canadian, and international rig activity and West Texas Intermediate (“WTI”) oil prices for the past nine quarters endedDecember 31, 2018: Sources: Rig count: Baker Hughes, Inc. (www.bhge.com); West Texas Intermediate Crude and Natural Gas Prices: Department of Energy, Energy InformationAdministration (www.eia.doe.gov); Hot-Rolled Coil Prices: American Metal Market SteelBenchmarker™ Hot Roll Coil USA (www.amm.com).The worldwide average rig count increased 8.9% (from 2,030 to 2,211) and the U.S. increased 17.9% (from 875 to 1,032) in 2018 compared to 2017. Theaverage price of West Texas Intermediate (“WTI”) crude increased 27.6% (from $50.88 per barrel to $64.94 per barrel) and natural gas prices increased 6.0%(from $2.99 per MMBtu to $3.17 per MMBtu) in 2018 compared to 2017. The average price of Hot-Rolled Coil increased 33.4% (from $620.10 per short tonto $827.25 per short ton) in 2018 compared to 2017.U.S. rig count at February 1, 2019 was 1,045 rigs, up 1.3% compared to the 2018 average of 1,032 rigs. The price for WTI crude was $51.79 per barrel atJanuary 28, 2019, down 20.2% from the 2018 average. The price for natural gas was $3.05 per MMBtu at January 28, 2019, down 3.8% from the 2018average. The price for Hot-Rolled Coil was $731.20 per short ton at January 14, 2019, down 11.6% from the 2018 average.28 Executive SummaryFor the year ended December 31, 2018, the Company generated net income of $52 million, or $0.47 per fully diluted share on $3,127 million in revenue. Netincome improved for the year ended December 31, 2018 by $104 million when compared to the corresponding period of 2017. Revenue increased for theyear ended December 31, 2018 by $479 million, or 18.1%, when compared to the corresponding period of 2017. For the year ended December 31, 2018,operating profit was $73 million, or 2.3% of revenue, compared to operating loss of $41 million or negative 1.5% of revenue for the corresponding period of2017.For the fourth quarter ended December 31, 2018, the Company generated net income of $16 million, or $0.14 per fully diluted share on $764 million inrevenue. Net income improved for the fourth quarter ended December 31, 2018 by $19 million when compared to the corresponding period of 2017. Revenueincreased for the fourth quarter ended December 31, 2018 by $95 million, or 14.2%, when compared to the corresponding period of 2017. For the fourthquarter ended December 31, 2018, operating profit was $22 million or 2.9% of revenue, compared to operating profit of nil or 0.0% of revenue for thecorresponding period of 2017.OutlookOur outlook for the Company remains tied to global rig count and oil and gas spending, particularly in North America. Oil prices and U.S. oil storage levelsare primary catalysts determining U.S. rig activity.Looking into 2019, activity should fluctuate as the industry addresses the vagaries of an over- or under-supplied market. Recent oil price volatility hascreated uncertainty around global exploration and production activity, with many customers still reassessing their budgets early into 2019. Our approach continues to be to advance our strategic goals and manage the Company based on market conditions. We will continue to optimize ouroperations, scaling up or down to market activity as appropriate. We believe that our management history, paired with our resources and low capitalexpenditure requirements, enable us to maximize new opportunities.Results of OperationsConsolidated ResultsYears Ended December 31, 2018 and December 31, 2017A summary of the Company’s revenue and operating profit (loss) by segment in 2018 and 2017 follows (in millions): Year Ended December 31, Variance 2018 2017 $ Revenue: United States $2,371 $1,914 $457 Canada 358 356 2 International 398 378 20 Total revenue $3,127 $2,648 $479 Operating profit (loss): United States $57 $(53) $110 Canada 14 13 1 International 2 (1) 3 Total operating profit (loss) $73 $(41) $114 Operating profit (loss) % of revenue: United States 2.4% (2.8%) Canada 3.9% 3.7% International 0.5% (0.3%) Total operating profit (loss) % 2.3% (1.5%) 29 United StatesRevenue was $2,371 million for the year ended December 31, 2018, an increase of $457 million or 23.9% compared to the year ended December 31, 2017.This growth was primarily driven by an 18% increase in U.S. rig count due to improved market activity.Operating profit was $57 million for the year ended December 31, 2018, an improvement of $110 million compared to operating loss of $53 million for theyear ended December 31, 2017. Operating profit percentage was 2.4% for the year ended December 31, 2018, compared to operating loss percentage ofnegative 2.8% for the year ended December 31, 2017. U.S. operating profit improved due to revenue gains addressed above coupled with improved pricingassisted by commodity inflation.CanadaRevenue was $358 million for the year ended December 31, 2018, an increase of $2 million or 0.6% compared to the year ended December 31, 2017. Thisincrease was realized despite rig counts declining approximately 8% in 2018, as we captured growth with customers participating in the Canadian oil sands.Our Canadian revenue changed from 13% of total revenue in 2017 to 11% in 2018. We are subject to fluctuations in foreign currency exchange rates relativeto the U.S. dollar. Our Canadian revenue is favorably impacted as the U.S. dollar weakens relative to the Canadian dollar, and unfavorably impacted as theU.S. dollar strengthens relative to the Canadian dollar. In 2018, our revenue from Canada was favorably impacted by less than $1 million due to changes inforeign currency exchange rates over the prior year.Operating profit was $14 million for the year ended December 31, 2018, an increase of $1 million compared to operating profit of $13 million for the yearended December 31, 2017. Operating profit percentage was 3.9% in 2018 compared to operating profit percentage of 3.7% in 2017. Operating profitimproved in 2018 primarily due to higher gross margins during the year.InternationalRevenue was $398 million for the year ended December 31, 2018, an increase of $20 million or 5.3% compared to the year ended December 31, 2017. Thisgrowth was primarily attributable to customer projects in the Middle East and Asia Pacific. Our international revenue changed from 14% of total revenue in 2017 to 13% in 2018. We are subject to fluctuations in foreign currency exchange ratesrelative to the U.S. dollar. Our international revenue is favorably impacted as the U.S. dollar weakens relative to other foreign currencies, and unfavorablyimpacted as the U.S dollar strengthens relative to other foreign currencies. Our international segment revenue was favorably impacted by approximately $2million due to changes in foreign currency exchange rates over the prior year.Operating profit was $2 million for the year ended December 31, 2018, an improvement of $3 million compared to operating loss of $1 million for the yearended December 31, 2017. Operating profit percentage was 0.5% for the year ended December 31, 2018, compared to negative 0.3% for the year endedDecember 31, 2017. Operating profit improved in 2018 primarily due to the increase in revenue discussed above, partially offset by increased bad debtcharges during the year.Cost of productsCost of products was $2,497 million for the year ended December 31, 2018 compared to $2,147 million for the year ended December 31, 2017, an increase of$350 million. The increase in cost of products was attributable to an increase in revenue, offset primarily by a reduction in inventory charges made during theperiod. Cost of products includes the cost of inventory sold and related items, such as vendor consideration, inventory allowances, amortization ofintangibles and inbound and outbound freight.Warehousing, selling and administrative expensesWarehousing, selling and administrative expenses were $557 million for the year ended December 31, 2018 compared to $542 million for the year endedDecember 31, 2017. The increase in operating expense was related to a $10 million gain on sale of a property in 2017 that did not repeat and additionalexpenses from an improved market environment, partially offset by a reduction in depreciation expense. Warehousing, selling and administrative costsinclude branch location, distribution center and regional expenses (including costs such as compensation, benefits and rent) as well as corporate generalselling and administrative expenses.30 Other expenseOther expense was $15 million for the year ended December 31, 2018 compared to $11 million for the year ended December 31, 2017. These charges weremainly attributable to interest and bank charges associated with utilizing the credit facility and foreign currency exchange rate fluctuations.Provision for income taxesThe effective tax rate for the years ended December 31, 2018 and December 31, 2017 was 10.7% and 0.0%, respectively. The effective tax rate is affected byrecurring items, such as differing tax rates on income earned in foreign jurisdictions, nondeductible expenses and state income taxes. In addition, theeffective tax rate for both years was impacted by a valuation allowance in the United States, Canada and other foreign jurisdictions and the Tax Cuts and JobsAct of 2017 (“TCJA”) which includes the one-time transition tax, the U.S. tax rate change and foreign tax credits related to earnings of foreign subsidiariesthat were previously tax deferred.Consolidated ResultsYears Ended December 31, 2017 and December 31, 2016A summary of the Company’s revenue and operating profit (loss) by segment in 2017 and 2016 follows (in millions): Year Ended December 31, Variance 2017 2016 $ Revenue: United States $1,914 $1,445 $469 Canada 356 258 98 International 378 404 (26)Total revenue $2,648 $2,107 $541 Operating profit (loss): United States $(53) $(192) $139 Canada 13 (18) 31 International (1) (12) 11 Total operating profit (loss) $(41) $(222) $181 Operating profit (loss) % of revenue: United States (2.8%) (13.3%) Canada 3.7% (7.0%) International (0.3%) (3.0%) Total operating profit (loss) % (1.5%) (10.5%) United StatesRevenue was $1,914 million for the year ended December 31, 2017, an increase of $469 million or 32.5% compared to the year ended December 31, 2016.This growth was primarily driven by a 72% increase in U.S. rig count due to improved market activity, coupled with incremental revenue gains ofapproximately $65 million from an acquisition completed in 2016, partially offset by a continued build in drilled, but uncompleted wells in 2017. Operating loss was $53 million for the year ended December 31, 2017, an improvement of $139 million compared to operating loss of $192 million for theyear ended December 31, 2016. Operating loss percentage was negative 2.8% for the year ended December 31, 2017, compared to operating loss percentageof negative 13.3% for the year ended December 31, 2016. U.S. operating losses narrowed due to revenue gains addressed above coupled with improvedpricing and reduced warehousing, selling and administrative expenses.31 CanadaRevenue was $356 million for the year ended December 31, 2017, an increase of $98 million or 38.0% compared to the year ended December 31, 2016. Thisincrease was driven by the 62% improvement in Canadian rig count coupled with the impact of the weakening U.S. dollar. Our Canadian revenue grew slightly to 13% of total revenue in 2017 from 12% in 2016. We are subject to fluctuations in foreign currency exchange ratesrelative to the U.S. dollar. Our Canadian revenue is favorably impacted as the U.S. dollar weakens relative to the Canadian dollar, and unfavorably impactedas the U.S. dollar strengthens relative to the Canadian dollar. In 2017, our revenue from Canada was favorably impacted by approximately $8 million due tochanges in foreign currency exchange rates over the prior year, as the U.S. dollar weakened relative to the Canadian dollar. Operating profit was $13 million for the year ended December 31, 2017, an increase of $31 million compared to operating loss of $18 million for the yearended December 31, 2016. Operating profit percentage was 3.7% in 2017 compared to operating loss percentage of negative 7.0% in 2016. Operating profitimproved in 2017 primarily due to the revenue increase discussed above at higher gross margins during the year.InternationalRevenue was $378 million for the year ended December 31, 2017, a decline of $26 million or 6.4% compared to the year ended December 31, 2016. Thisdecrease was primarily a result of the completion of large projects in the first half of 2016 that did not repeat, coupled with the strengthening of the U.S.dollar and a softening in the offshore rig market. Our international revenue changed from 19% of total revenue in 2016 to 14% in 2017. We are subject to fluctuations in foreign currency exchange ratesrelative to the U.S. dollar. Our international revenue is favorably impacted as the U.S. dollar weakens relative to other foreign currencies, and unfavorablyimpacted as the U.S dollar strengthens relative to other foreign currencies. Our international segment revenue was unfavorably impacted by approximately $5million due to changes in foreign currency exchange rates over the prior year. Operating loss was $1 million for the year ended December 31, 2017, an improvement of $11 million compared to operating loss of $12 million for the yearended December 31, 2016. Operating loss percentage was negative 0.3% for the year ended December 31, 2017, compared to negative 3.0% for the yearended December 31, 2016. The improvement in operating profit was primarily due to reduced bad debt charges and realized cost savings.Cost of productsCost of products was $2,147 million for the year ended December 31, 2017 compared to $1,762 million for the year ended December 31, 2016, an increase of$385 million. The increase in cost of products was attributable to an increase in revenue, offset by a reduction in inventory charges made in the period. Costof products includes the cost of inventory sold and related items, such as vendor consideration, inventory allowances, amortization of intangibles andinbound and outbound freight.Warehousing, selling and administrative expensesWarehousing, selling and administrative expenses were $542 million for the year ended December 31, 2017 compared to $567 million for the year endedDecember 31, 2016. The decrease in operating expense was related to reductions in accounts receivable charges, as well as a $10 million gain on sale of aproperty, offset by the impact of additional operating expenses associated with an acquisition. Warehousing, selling and administrative costs include branchlocation, distribution center and regional expenses (including costs such as compensation, benefits and rent) as well as corporate general selling andadministrative expenses.32 ImpairmentDuring the fourth quarter of 2017, we performed our annual goodwill impairment test resulting in no impairment. The excess of the reporting units’ estimatedfair value over carrying value (expressed as a percentage of carrying value) was more than 40% except for the International reporting unit, which exceeded itscarrying value by approximately 8%. The Company continues to monitor the cash flows for this reporting unit. During the fourth quarter of 2016, weperformed our annual goodwill impairment test resulting in no impairment.Other expenseOther expense was $11 million for the year ended December 31, 2017 compared to $8 million for the year ended December 31, 2016. These charges weremainly attributable to interest and bank charges associated with utilizing the credit facility and foreign currency exchange rate fluctuations.Provision for income taxesThe effective tax rate for the years ended December 31, 2017 and December 31, 2016 was 0.0% and (1.6%), respectively. The tax rate is affected by recurringitems, such as lower tax rates on income earned in foreign jurisdictions that is permanently reinvested, offset by nondeductible expenses and state incometaxes. In 2016, the effective tax rate was impacted by a valuation allowance recorded against the Company’s deferred tax assets in the United States, Canadaand other foreign jurisdictions. In 2017, the effective tax rate continues to be impacted by a valuation allowance in the United States, Canada and otherforeign jurisdictions. In addition, the effective tax rate was impacted by the enactment of the TCJA which includes the one-time transition tax, the U.S. taxrate change and foreign tax credits related to earnings of foreign subsidiaries that were previously tax deferred. 33 Non-GAAP Financial Measures and ReconciliationsIn an effort to provide investors with additional information regarding our results of operations as determined by GAAP, we disclose non-GAAP financialmeasures. The primary non-GAAP financial measure we disclose is earnings before interest, taxes, depreciation and amortization, excluding other costs(“EBITDA excluding other costs”). This financial measure excludes the impact of certain amounts and is not calculated in accordance with GAAP. Areconciliation of this non-GAAP financial measure, to its most comparable GAAP financial measure, is included below.We use EBITDA excluding other costs internally to evaluate and manage the Company’s operations because we believe it provides useful supplementalinformation regarding the Company’s ongoing economic performance. We have chosen to provide this information to investors to enable them to performmore meaningful comparisons of operating results.The following table sets forth the reconciliations of EBITDA excluding other costs to the most comparable GAAP financial measures (in millions): Year Ended December 31, 2018 2017 2016 GAAP net income (loss) (1) $52 $(52) $(234)Interest, net 8 6 3 Income tax provision (benefit) 6 — 4 Depreciation and amortization 41 50 53 Other costs (2) 2 3 10 EBITDA excluding other costs $109 $7 $(164)EBITDA % excluding other costs (3) 3.5% 0.3% (7.8%) (1)We believe that net income (loss) is the financial measure calculated and presented in accordance with GAAP that is most directlycomparable to EBITDA excluding other costs. EBITDA excluding other costs measures the Company’s operating performance withoutregard to certain expenses. EBITDA excluding other costs is not a presentation made in accordance with GAAP and the Company’scomputation of EBITDA excluding other costs may vary from others in the industry. EBITDA excluding other costs has importantlimitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of the Company’s results asreported under GAAP. (2)Other costs primarily includes severance expenses and transaction costs associated with acquisitions, including the cost of inventory thatwas stepped up to fair value during purchase accounting, which are included in operating profit (loss) and accelerated debt issuancecosts, which are included in other expense. (3)EBITDA % excluding other costs is defined as EBITDA excluding other costs divided by Revenue.Liquidity and Capital ResourcesWe assess liquidity in terms of our ability to generate cash to fund operating, investing and financing activities. We expect resources to be available toreinvest in existing businesses, strategic acquisitions and capital expenditures to meet short and long-term objectives. We believe that cash on hand, cashgenerated from expected results of operations and amounts available under our revolving credit facility will be sufficient to fund operations, anticipatedworking capital needs and other cash requirements, including capital expenditures.At December 31, 2018 and 2017, we had cash and cash equivalents of $116 million and $98 million, respectively. As of December 31, 2018, $95 million ofour cash and cash equivalents was maintained in the accounts of our various foreign subsidiaries. Historically, it has been the practice and intention of theCompany to indefinitely reinvest the earnings of its foreign subsidiaries in those operations. In light of the significant changes made by the TCJA, theCompany will no longer be indefinitely reinvested with regard to its pre-2018 earnings in Canada and the United Kingdom. These earnings were subject tothe TCJA’s one-time transition tax and the future repatriation of these earnings will not result in additional income tax expense or foreign withholding taxesdue to the Company’s available tax attributes. No additional income taxes have been provided for other foreign earnings as these amounts continue to beindefinitely reinvested. The Company makes a determination each period concerning its intent and ability to indefinitely reinvest the cash held by its foreignsubsidiaries. Future changes to our indefinite reinvestment assertion could result in additional U.S. federal and state taxes (subject to an adjustment forforeign tax credits) and withholding taxes payable in various foreign jurisdictions, where applicable.34 As of December 31, 2018, we had borrowed $132 million against our revolving credit facility, and had $385 million in availability (as defined in the CreditAgreement) resulting in the excess availability (as defined in the Credit Agreement) of 73%, subject to certain restrictions. Borrowings that result in theexcess availability dropping below 25% are conditioned upon compliance with or waiver of a minimum fixed charge ratio (as defined in the CreditAgreement). The credit facility contains usual and customary affirmative and negative covenants for credit facilities of this type including financialcovenants. As of December 31, 2018, we were in compliance with all covenants. We continuously monitor compliance with debt covenants. A default, if notwaived or amended, would prevent us from taking certain actions, such as incurring additional debt.The following table summarizes our net cash provided by (used in) operating activities, net cash provided by (used in) investing activities and net cashprovided by (used in) financing activities for the periods presented (in millions): Year Ended December 31, 2018 2017 2016 Net cash provided by (used in) operating activities $73 $(115) $235 Net cash provided by (used in) investing activities (9) 8 (183)Net cash provided by (used in) financing activities (37) 94 (47) Fiscal year 2018 compared to fiscal year 2017Net cash flows provided by operating activities in 2018 were $73 million, up from $115 million used in operating activities in 2017. Net income was $52million in 2018 compared to a net loss of $52 million in 2017. Adjustments to reconcile net income (loss) to net cash provided by operating activities was$67 million in 2018 compared to $72 million in 2017. The decline in reconciling adjustments were mainly due to reductions in depreciation andamortization and stock-based compensation in 2018 versus 2017. Net changes in operating assets and liabilities, net of acquisitions, was a deficit of $46million in 2018 compared to a deficit of $135 million in 2017. The deficit improved primarily from a reduced growth in inventory of $30 million during2018 compared to $110 million during 2017 and an increase of $54 million in accounts payable and accrued liabilities in 2018 compared to $43 million in2017.Net cash used in investing activities in 2018 was $9 million compared to net cash provided by investing activities of $8 million in 2017. Cash used ininvesting activities in 2018 was primarily related to the purchases of property, plant and equipment of $11 million.Net cash used in financing activities for 2018 was $37 million related to net repayments under the revolving credit facility compared to net cash provided byfinancing activities in 2017 of $94 million related to net borrowings from the revolving credit facility.Fiscal year 2017 compared to fiscal year 2016Net cash flows used in operating activities in 2017 were $115 million, down from $235 million provided by operating activities in 2016. Net loss was $52million in 2017 compared to $234 million in 2016. Adjustments to reconcile net loss to net cash provided by operating activities was $72 million in 2017compared to $127 million in 2016. The decline in reconciling adjustments decreased mainly due to reductions in provisions for inventory and doubtfulaccounts in 2017 versus 2016. Net changes in operating assets and liabilities, net of acquisitions, was a deficit of $135 million in 2017 compared to $342million provided in 2016. The deficit was primarily due to increases of $110 million and $64 million, in inventories and receivables, respectively, as marketconditions improved in 2017, offset by an increase in accounts payable and accrued liabilities of $43 million.Net cash provided by investing activities in 2017 was $8 million compared to net cash used in investing activities of $183 million in 2016. Cash providedby investing activities in 2017 was primarily related to the proceeds from disposal of assets, and other for $16 million.Net cash provided by financing activities served as the primary source of liquidity. Net cash provided by financing activities for 2017 was $94 millionrelated to net borrowings from the revolving credit facility, compared to $47 million used in financing activities in 2016 associated with net repaymentsunder the revolving credit facility.Effect of the change in exchange ratesThe effect of the change in exchange rates on cash flows was a decrease of $9 million and an increase of $5 million for the years ended December 31, 2018and 2017, respectively.35 Capital SpendingWe intend to pursue additional acquisition candidates, but the timing, size or success of any acquisition effort and the related potential capital commitmentscannot be predicted. We continue to expect to fund future cash acquisitions primarily with cash flow from operations and the usage of the available portionof the revolving credit facility. We expect capital expenditures for fiscal year 2019 to be approximately $20 million primarily related to purchases ofproperty, plant and equipment.Off-Balance Sheet ArrangementsWe are often party to certain transactions that require off-balance sheet arrangements such as performance bonds, guarantees and operating leases forequipment that are not reflected in our consolidated balance sheets. These arrangements are made in our normal course of business and they are notreasonably likely to have a current or future material adverse effect on our financial condition, results of operations, liquidity or cash flows.Contractual ObligationsThe following table summarizes our aggregate contractual fixed and variable obligations as of December 31, 2018 (in millions): Payment Due by Period Total LessThan 1Year 1-3 Years 3-5 Years After 5Years Contractual obligations: Long-term debt $132 $− $− $132 $− Operating leases 94 32 42 15 5 Total contractual obligations $226 $32 $42 $147 $5 Critical Accounting Policies and EstimatesIn preparing the financial statements, we make assumptions, estimates and judgments that affect the amounts reported. We periodically evaluate our estimatesand judgments that are most critical in nature, which are related to allowance for doubtful accounts, inventory reserves, goodwill, purchase price allocation ofacquisitions, vendor consideration and income taxes. Our estimates are based on historical experience and on our future expectations that we believe arereasonable. The combination of these factors forms the basis for making judgments about the carrying values of assets and liabilities that are not readilyapparent from other sources. Actual results are likely to differ from our current estimates and those differences may be material.Allowance for Doubtful AccountsWe grant credit to our customers, which operate primarily in the energy industry. Concentrations of credit risk are limited because we have a large number ofgeographically diverse customers, thus spreading trade credit risk. We control credit risk through credit evaluations, credit limits and monitoring procedures.We perform periodic credit evaluations of our customers’ financial condition and generally do not require collateral, but may require letters of credit forcertain international sales. Credit losses are provided for in the financial statements and changes in estimates can be material. Allowances for doubtfulaccounts are determined based on a continuous process of assessing the Company’s portfolio on an individual customer basis taking into account currentmarket conditions and trends. This process consists of a thorough review of historical collection experience, current aging status of the customer accounts,and financial condition of the Company’s customers. Based on a review of these factors, the Company will establish or adjust allowances for specificcustomers. At December 31, 2018 and 2017, allowance for doubtful accounts totaled $27 million and $29 million, or 5.3% and 6.4% of gross accountsreceivable, respectively.Inventory ReservesInventories consist primarily of oilfield and industrial finished goods. Inventories are stated at the lower of cost or net realizable value and using average costmethods. Allowances for excess and obsolete inventories are determined based on the Company’s historical usage of inventory on hand as well as its futureexpectations. The Company’s estimated carrying value of inventory therefore depends upon demand driven by oil and gas spending activity, which dependsin turn upon oil, gas and steel prices, the general outlook for economic growth worldwide, available financing for the Company’s customers, politicalstability in major oil and gas producing areas, and the potential obsolescence of various inventory items we stock, among other factors. At December 31,2018 and 2017, inventory reserves totaled $28 million and $40 million, or 4.4% and 6.3% of gross inventory, respectively. Changes in our estimates can bematerial under different market conditions.36 GoodwillThe Company has $314 million of goodwill as of December 31, 2018. Generally accepted accounting principles require the Company to test goodwill forimpairment at least annually or more frequently whenever events or circumstances occur indicating that it might be impaired. The Company conductsgoodwill impairment testing annually in the fourth quarter of each fiscal year, and more frequently on an interim basis, when an event occurs or changes incircumstances indicate that the fair value of a reporting unit may have declined below its carrying value. Events or circumstances which could indicate aprobable impairment include, but are not limited to, a significant reduction in worldwide oil and gas prices or drilling; a significant reduction in profitabilityor cash flow of oil and gas companies or drilling contractors; a significant reduction in worldwide well completion and remediation activity; a significantreduction in capital investment by other oilfield service companies; or a significant increase in worldwide inventories of oil or gas. Impairment of goodwillis tested at the reporting unit level by comparing the reporting unit's carrying amount, including goodwill, to the estimated fair value of the reporting unit. Ifthe carrying amount of the reporting unit exceeds its fair value, goodwill impairment is indicated. For purposes of testing goodwill, the Company has five reporting units; U.S. Energy, U.S. Supply Chain, U.S. Process Solutions, Canada and International.When performing goodwill impairment testing, the fair values of reporting units are determined based on valuation techniques using the best availableinformation, primarily discounted cash flow projections. The discounted cash flow is based on management’s short-term and long-term forecast of operatingperformance for each reporting unit. The two main assumptions used in measuring goodwill impairment, which bear the risk of change and could impact theCompany’s goodwill impairment analysis, include the cash flow from operations from each of the Company’s individual business units and the discount rate.The starting point for each of the reporting unit’s cash flow from operations is the detailed annual plan or updated forecast. The detailed planning andforecasting process takes into consideration a multitude of factors including worldwide rig activity, inflationary forces, pricing strategies, customer analysis,operational issues, competitor analysis, capital spending requirements, working capital requirements and customer needs among other items which impact theindividual reporting unit projections. Cash flows beyond the specific operating plans were estimated using a terminal value calculation, which incorporatedhistorical and forecasted financial cyclical trends for each reporting unit and considered long-term earnings growth rates. The financial and credit marketvolatility impacts the fair value measurement by adjusting the discount rate. During times of volatility, significant judgment must be applied to determinewhether credit changes are a short-term or long-term trend. The Company makes significant assumptions and estimates, which utilize level 3 measures, aboutthe extent and timing of future cash flows, growth rates, and discount rates that represent unobservable inputs into valuation methodologies. In evaluatingthe reasonableness of the Company’s fair value estimates, the Company considers, among other factors, the relationship between the market capitalization ofthe Company and the estimated fair value of its reporting units.All reporting units tested passed with no impairment indicators and the excess of their estimated fair value over carrying value (expressed as a percentage ofcarrying value) was more than 15% except for the International reporting unit. The International reporting unit exceeded the carrying value byapproximately 5%. As a result, this unit is more susceptible to impairment risk from adverse changes in annual operating plans and micro and macroeconomicenvironment conditions that could lower oil and gas prices and drilling activity. While management has implemented strategies to address these events,adverse changes in the future could reduce the underlying cash flows used to estimate fair values and could result in a decline in fair value that could triggerfuture impairment charges. A hypothetical 50 basis point increase in the risk free rate (an input used in computing the discount rate) would decrease theestimated fair value in the International reporting unit by approximately 4%, while a hypothetical reduction in the terminal year sales growth rate assumptionby 50 basis points would decrease the estimated fair value in the International reporting unit by approximately 3%. The Company continues to monitor thecash flows for this reporting unit.Purchase Price Allocation of AcquisitionsThe Company allocates the fair value of the purchase price consideration of an acquired business to its identifiable assets and liabilities based on estimatedfair values. The excess of the purchase price over the fair value of the acquired assets and liabilities, if any, is recorded as goodwill. The Company uses allavailable information to estimate fair values including quoted market prices, the carrying value of acquired assets, and widely accepted valuation techniquessuch as discounted cash flows. The Company engages third-party appraisal firms to assist in fair value determination of inventories, identifiable intangibleassets, and any other significant assets or liabilities when appropriate. The judgments made in determining the estimated fair value assigned to each class ofassets acquired and liabilities assumed, as well as asset lives, could materially impact the Company’s results of operations.37 Vendor ConsiderationThe Company receives funds from vendors in the normal course of business, principally as a result of purchase volumes. Generally, these vendor funds do notrepresent the reimbursement of specific, incremental and identifiable costs incurred by the Company to sell the vendor’s product. Therefore, the Companytreats these funds as a reduction of inventory when purchased and once these goods are sold to third parties the associated amount is credited to cost of sales.The Company develops accrual rates for vendor consideration based on the provisions of the arrangements in place, historical trends, purchases and futureexpectations. Due to the complexity and diversity of the individual vendor agreements, the Company performs analyses and reviews historical trendsthroughout the year and confirms actual amounts with select vendors to ensure the amounts earned are appropriately recorded. Amounts accrued throughoutthe year could be impacted if actual purchase volumes differ from projected annual purchase volumes, especially in the case of programs that provide forincreased funding when graduated purchase volumes are met.Income TaxesThe Company is a U.S. registered company and is subject to income taxes in the U.S. The Company operates through various subsidiaries in a number ofcountries throughout the world. Income taxes are based upon the tax laws and rates of the countries in which the Company operates and income is earned.The Company’s annual tax provision is based on taxable income, statutory rates, and the interpretation of the tax laws in the various jurisdictions in whichthe Company operates. It requires significant judgment and the use of estimates and assumptions regarding significant future events such as the amount,timing and character of income, deductions and tax credits. Changes in tax laws, regulations and treaties, foreign currency exchange restrictions or theCompany’s level of operations or profitability in each jurisdiction could impact the tax liability in any given year. The Company also operates in manyjurisdictions where the tax laws relating to the pricing of transactions between related parties are open to interpretation, which could potentially result inaggressive tax authorities asserting additional tax liabilities with no offsetting tax recovery in other countries.As further discussed in Note 9, "Income Taxes," on December 22, 2017, the TCJA was signed into law which enacts significant changes to U.S. tax and relatedlaws. For the year ended December 31, 2017, and the nine months ended September 30, 2018, the Company recorded provisional amounts for certainenactment-date effects of the TCJA by applying the guidance in the Securities and Exchange Commission’s Staff Accounting Bulletin No. 118 (“SAB 118”)since the Company had not yet completed its accounting for these effects. As of December 31, 2018, the Company has completed its accounting for theincome tax effects of the TCJA.The Company determined the provision for income taxes under the asset and liability approach, which requires the recognition of deferred tax assets andliabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets andliabilities are determined on the basis of the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effectfor the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income inthe period that includes the enactment date.Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements,which will result in taxable or deductible amounts in the future. The Company recognizes deferred tax assets to the extent that the Company believes theseassets are more-likely-than-not to be realized. If the Company determines that they would be able to realize their deferred tax assets in the future in excess oftheir net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision forincome taxes. In evaluating the Company’s ability to recover deferred tax assets within the jurisdiction from which they arise, the Company considers allavailable positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies,and results of operations. In projecting future taxable income, the Company begins with historical results adjusted for the results of discontinued operationsand incorporates assumptions about the amount of future state, federal, and foreign pretax operating income adjusted for items that do not have taxconsequences. The assumptions about future taxable income require significant judgment and are consistent with the plans and estimates the Company isusing to manage the underlying businesses.Due to the level of losses preceding 2018, and despite being in an income position in 2018, the Company remains in a three year cumulative loss position. Asa result, 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, 2018. The change during the yearin the valuation allowance was $27 million in the U.S., $1 million in Canada, and less than $1 million in other foreign jurisdictions.38 The Company records unrecognized tax benefits as liabilities in accordance with ASC 740 and adjusts these liabilities when judgment changes as a result ofthe evaluation of new information not previously available in jurisdictions of operation. The Company records uncertain tax positions in accordance withASC 740 on the basis of a two-step process whereby (1) the Company determines whether it is more-likely-than-not that the tax positions will be sustained onthe basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Companyrecognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. Theannual tax provision includes the impact of income tax provisions and benefits for changes to liabilities that the Company considers appropriate, as well asrelated interest.The Company is subject to audits by federal, state and foreign jurisdictions which may result in proposed assessments. Because of the complexity of some ofthese uncertainties, the ultimate resolution may result in a payment that is materially different from the current estimate of the unrecognized tax benefitliabilities. The Company reviews these liabilities quarterly and to the extent audits or other events result in an adjustment to the liability accrued for a prioryear, the effect will be recognized in the period of the event. As of December 31, 2018, the amount of undistributed earnings of foreign subsidiaries was approximately $130 million. Historically, it has been the practiceand intention of the Company to indefinitely reinvest the earnings of its foreign subsidiaries in those operations. In light of the significant changes made bythe TCJA, the Company will no longer be indefinitely reinvested with regard to its pre-2018 earnings in Canada and the United Kingdom. These earningswere subject to the one-time transition tax and the future repatriation of these earnings will not result in additional income tax expense due to the Company’stax attributes. No additional income taxes have been provided for other foreign earnings as these amounts continue to be indefinitely reinvested. TheCompany makes a determination each period whether to permanently reinvest these earnings. If, as a result of these reassessments, the Company distributesthese earnings in the future, additional tax liabilities would result, offset by any available foreign tax credits. Recently Issued Accounting StandardsIn February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842). ASU2016-02 requires lessees to recognize a lease liability and a right-of-use (“ROU”) asset for all leases, including operating leases, with a term greater thantwelve months in its balance sheets. ASU 2016-02 is effective for annual and interim periods in fiscal years beginning after December 15, 2018, with earlyadoption permitted, and requires a modified retrospective transition method. In July 2018, the FASB issued ASU 2018-11, Targeted Improvements, whichprovided entities with an additional (and optional) transition method, allowing an entity to apply the new lease standard at the adoption date and torecognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company will adopt ASC Topic 842 onJanuary 1, 2019 using the modified retrospective transition method allowed under ASU 2018-11. The Company will elect the package of practical expedientspermitted under ASU 2018-11 which, among other things, allows an entity to carry forward its historical lease classifications. The Company is currentlyfinalizing the implementation of key systems functionality and internal control processes in order to comply with ASC Topic 842. Based on its currentassessment, which is subject to change, the Company estimates both assets and liabilities on its consolidated balance sheets will increase by less than $100million, upon adoption. Changes in the lease population or changes in incremental borrowing rates may alter this estimate. The Company does not expect theadoption of this standard to have a material impact in its consolidated statements of operations and cash flows. The Company will expand its consolidatedfinancial statement disclosure upon adoption of this standard.In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326), which replaces the incurred lossimpairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonableand supportable information to determine credit loss estimates. ASU 2016-13 requires entities to measure all expected credit losses for financial assets held atthe reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Entities will now use forward-lookinginformation to better form their credit loss estimates. ASU 2016-13 is effective for annual and interim periods in fiscal years beginning after December 15,2019, with early adoption permitted as of December 15, 2018, and requires modified retrospective transition method. The Company is currently assessing theimpact of ASU 2016-13 in its consolidated financial statements.In August 2018, the FASB issued ASU 2018-13, Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820),which modified the disclosure requirements on fair value measurements. ASU 2018-13 is effective for annual and interim periods in fiscal years beginningafter December 15, 2019, with early adoption permitted for removed or modified disclosures. The Company is currently assessing the impact of ASU 2018-13in its consolidated financial statements.39 Recently Adopted Accounting StandardsIn May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 affects any entity using GAAP that entersinto contracts with customers to transfer goods or services or contracts for the transfer of nonfinancial assets unless those contracts are within the scope ofother standards (e.g., insurance contracts or lease contracts). This ASU supersedes the revenue recognition requirements in ASC Topic 605 RevenueRecognition, and most industry-specific guidance. The Company adopted this standard as of January 1, 2018, using the modified retrospective transitionmethod resulting in a de minimis increase to the opening accumulated deficit due to the cumulative impact of adopting Topic 606. The adoption of the newstandard had no material impact on the measurement or recognition of revenue, however additional disclosures have been added in accordance with Topic606. See Note 2 “Summary of Significant Accounting Policies” for additional details on the Company’s revenue policies.In March 2017, the FASB issued ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost(Topic 715). ASU 2017-07 requires the disaggregation of the service cost component from the other components of net periodic benefit cost and allows onlythe service cost component of net benefit cost to be eligible for capitalization. ASU 2017-07 is effective for annual and interim periods in fiscal yearsbeginning after December 15, 2017. The Company sponsors two defined benefit plans in the UK under which accrual of pension benefits has ceased and therewill not be a service cost component to the net periodic pension cost. Plan member benefits that have previously been accrued are indexed in line withinflation during the period up to retirement in order to protect their purchasing power. The Company adopted this standard as of January 1, 2018, with nomaterial impact in its consolidated financial statements.In March 2018, the FASB issued ASU 2018-05, Income Taxes: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (Topic740), which updates the income tax accounting in U.S. GAAP to reflect the Securities and Exchange Commission interpretive guidance released on December22, 2017, when the TCJA was enacted into law. The Company evaluated the potential impacts of SEC Staff Accounting Bulletin No. 118 (“SAB 118”) alongwith this ASU and has applied them to its consolidated financial statements and related disclosures. See Note 9 “Income Taxes” for additional information.40 ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKWe are exposed to certain market risks that are inherent in our financial instruments and arise from changes in interest rates and foreign currency exchangerates. We may enter into derivative financial instrument transactions to manage or reduce market risk but do not enter into derivative financial instrumenttransactions for speculative purposes. We do not currently have any material outstanding derivative instruments. See Note 12 “Derivative FinancialInstruments” to the consolidated financial statements.A discussion of our primary market risk exposure in financial instruments is presented below.Foreign Currency Exchange Rate RiskWe have operations in foreign countries and transact business globally in multiple currencies. Our net assets as well as our revenues and costs and expensesdenominated in foreign currencies, expose us to the risk of fluctuations in foreign currency exchange rates against the U.S. dollar. Because we operateglobally and approximately one-fourth of our 2018 net sales were outside the United States, foreign currency exchange rates can impact our financialposition, results of operations and competitive position. We are a net receiver of foreign currencies and therefore benefit from a weakening of the U.S. dollarand are adversely affected by a strengthening of the U.S. dollar relative to the foreign currency. As of December 31, 2018, our most significant foreigncurrency exposure was to the Canadian dollar, followed by the British pound, with less significant foreign currency exposures to the Australian dollar andMexican peso.The financial statements of foreign subsidiaries are translated into their U.S. dollar equivalents at end-of-period exchange rates for assets and liabilities, whilerevenue, costs and expenses are translated at average monthly exchange rates. Translation gains and losses are components of other comprehensive income(loss) as reported in the consolidated statements of comprehensive income (loss). During 2018, we experienced a net foreign currency translation loss totaling$38 million, which was included in other comprehensive income (loss).Foreign currency exchange rate fluctuations generally do not materially affect our earnings since the functional currency is typically the local currency;however, our operations also have net assets not denominated in their functional currency, which exposes us to changes in foreign currency exchange ratesthat impact our net income as foreign currency transaction gains and losses. Foreign currency transaction gains and losses, arising from fluctuations incurrency exchange rates on transactions denominated in currencies other than the functional currency, are recognized in the consolidated statements ofoperations as a component of other expense. For the years ended December 31, 2018, 2017 and 2016, we reported net foreign currency transaction losses of$2 million, $2 million and $1 million, respectively. Gains and losses are primarily due to exchange rate fluctuations related to monetary asset balancesdenominated in currencies other than the functional currency and fair value adjustments to economically hedged positions as a result of changes in foreigncurrency exchange rates.Some of our revenues for our foreign operations are denominated in U.S. dollars, and therefore, changes in foreign currency exchange rates impact earnings tothe extent that costs associated with those U.S. dollar revenues are denominated in the local currency. Similarly, some of our revenues for our foreignoperations are denominated in foreign currencies, but have associated U.S. dollar costs, which also give rise to foreign currency exchange rate exposure. Inorder to mitigate those risks, we may utilize foreign currency forward contracts to better match the currency of the revenues and the associated costs.Although we may utilize foreign currency forward contracts to economically hedge certain foreign currency denominated balances or transactions, we do notcurrently hedge the net investments in our foreign operations. The counterparties to our forward contracts are major financial institutions. The credit ratingsand concentration of risk of these financial institutions are monitored by us on a continuing basis. In the event that the counterparties fail to meet the terms ofa foreign currency contract, our exposure is limited to the foreign currency rate differential.The average foreign exchange rate for 2018 compared to the average for 2017 for the aggregate of our foreign operations compared to the U.S. dollarincreased by less than 1%. The average foreign exchange rate for 2018 compared to the average for 2017 of the British pound and Canadian dollar comparedto the U.S. dollar increased by approximately 4% and less than 1%, respectively, while the average foreign exchange rate for 2018 compared to the averagefor 2017 of the Australian dollar and Mexican peso compared to the U.S. dollar decreased by approximately 2% and 2%, respectively.We utilized a sensitivity analysis to measure the potential impact on earnings based on a hypothetical 10% change in foreign currency rates. A 10% changefrom the levels experienced during 2018 of the U.S. dollar relative to foreign currencies that affected the Company would have resulted in an approximate$2 million change in net income for 2018.41 Commodity Steel PricingOur business is sensitive to steel prices, which can impact our product pricing, with steel tubular prices generally having the highest degree of sensitivity.While we cannot predict steel prices, we manage this risk by managing our inventory levels, including maintaining sufficient quantity on hand to meetdemand, while reducing the risk of overstocking.42 ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAAttached hereto and a part of this report are financial statements and supplementary data listed in Item 15. “Exhibits, Financial Statement Schedules.”ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.None.ITEM 9A.CONTROLS AND PROCEDURESWe maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports we file or submit under the SecuritiesExchange Act of 1934, as amended (the Exchange Act of 1934), is recorded, processed, summarized and reported within the time periods specified in SECrules and forms, and that such information is accumulated and communicated to management, including our principal executive and principal financialofficers, as appropriate, to allow timely decisions regarding required disclosure. As of December 31, 2018, with the participation of management, ourPresident and Chief Executive Officer and our Senior Vice President and Chief Financial Officer carried out an evaluation, pursuant to Rule 13a-15(b) of theExchange Act of 1934, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act of 1934). Based uponthat evaluation, our President and Chief Executive Officer and our Senior Vice President and Chief Financial Officer concluded that our disclosure controlsand procedures were operating effectively as of December 31, 2018.Management’s Annual Report on Internal Control Over Financial ReportingPursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, management is requiredto provide the following report on our internal control over financial reporting: •Management is responsible for establishing and maintaining adequate internal control over financial reporting. •Management has evaluated the system of internal control using the Committee of Sponsoring Organizations of the Treadway Commission2013 framework (“COSO 2013 framework”). Management has selected the COSO 2013 framework for its evaluation as it is a control frameworkrecognized by the SEC and the Public Company Accounting Oversight Board that is free from bias, permits reasonably consistent qualitativeand quantitative measurement of our internal controls, is sufficiently complete so that relevant controls are not omitted and is relevant to anevaluation of internal controls over financial reporting. •Based on management’s evaluation under this framework, management has concluded that our internal controls over financial reporting wereeffective as of December 31, 2018. There are no material weaknesses in our internal control over financial reporting that have been identifiedby management.There have been no changes in our internal control over financial reporting, as defined in Rule 13a-15(f) of the Act, in the quarterly period ended December31, 2018, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.Pursuant to section 302 of the Sarbanes-Oxley Act of 2002, our Chief Executive Officer and Chief Financial Officer have provided certain certifications to theSecurities and Exchange Commission. These certifications are included herein as Exhibits 31.1 and 31.2.The report from Ernst & Young LLP on its audit of the effectiveness of the Company's internal control over financial reporting as of December 31, 2018, isincluded on page 49 of this annual report and is incorporated herein by reference.ITEM 9B.OTHER INFORMATIONNone.43 PART IIIITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEIncorporated by reference to the definitive Proxy Statement for the 2019 Annual Meeting of Stockholders.ITEM 11.EXECUTIVE COMPENSATIONIncorporated by reference to the definitive Proxy Statement for the 2019 Annual Meeting of Stockholders.ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSIncorporated by reference to the definitive Proxy Statement for the 2019 Annual Meeting of Stockholders.Securities Authorized for Issuance Under Equity Compensation Plans.The following table sets forth information as of our fiscal year ended December 31, 2018, with respect to compensation plans under which our common stockmay be issued: Plan Category Number of securities to beissued upon exercise ofoutstanding options, warrantsand rights (1) Weighted-averageexercise price ofoutstandingoptions, warrantsand rights Number of securities remainingavailable for future issuance underequity compensation plans (2) Equity compensation plansapproved by security holders 6,045,148 $19.43 6,631,612 Equity compensation plansnot approved by security holders − $− − Total 6,045,148 $19.43 6,631,612 (1)Includes 412,593 shares of issuable performance-based awards if specific targets are met, and 149,394 shares of RSU which have no exerciseprice. Therefore, these shares are excluded for purposes of determining the weighted-average exercise prices of outstanding options, warrantsand rights. (2)Includes 6,631,612 shares issuable pursuant to the 2014 Plan in the form of stock options, restricted awards, RSUs, performance stock awards,or any combination of the foregoing.ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEIncorporated by reference to the definitive Proxy Statement for the 2019 Annual Meeting of Stockholders.ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICESIncorporated by reference to the definitive Proxy Statement for the 2019 Annual Meeting of Stockholders. 44 PART IVITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES(1) Financial Statements and ExhibitsThe following financial statements are presented in response to Part II, Item 8: PageREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM48CONSOLIDATED BALANCE SHEETS 50CONSOLIDATED STATEMENTS OF OPERATIONS 51CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) 52CONSOLIDATED STATEMENTS OF CASH FLOWS 53CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY 54NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 55 (2) Financial Statement ScheduleAll schedules are omitted because they are not applicable, not required or the information is included in the financial statements or notes thereto.45 (3) Exhibits 2.1 Separation and Distribution Agreement between National Oilwell Varco, Inc. and NOW Inc. dated as of May 29, 2014 (1) 3.1 NOW Inc. Amended and Restated Certificate of Incorporation (1) 3.2 NOW Inc. Amended and Restated Bylaws (1) 10.1 Tax Matters Agreement between National Oilwell Varco, Inc. and NOW Inc. dated as of May 29, 2014 (1) 10.2 Employee Matters Agreement between National Oilwell Varco, Inc. and NOW Inc. dated as of May 29, 2014 (1) 10.3 Master Distributor Agreement between National Oilwell Varco, L.P. and DNOW L.P. dated as of May 29, 2014 (1) 10.4 Master Services Agreement between National Oilwell Varco, L.P. and DNOW L.P. dated as of May 29, 2014 (1) 10.5 Form of Employment Agreement for Executive Officers (1) 10.6 NOW Inc. 2014 Incentive Compensation Plan (2) 10.7 Form of Restricted Stock Award Agreement (6 year cliff vest) (3) 10.8 Form of Nonqualified Stock Option Agreement (4) 10.9 Form of Restricted Stock Award Agreement (3 year cliff vest) (4) 10.10 Form of Performance Award Agreement (4) 10.11 Form of Amendment to Employment Agreement for Executive Officers (5) 10.12 Credit Agreement dated as of April 30, 2018, among the Borrowers, the lenders that are parties thereto and Wells Fargo Bank, National Associationas administrative agent, an issuing lender and swing lender (6) 21.1 Subsidiaries of Registrant 23.1 Consent of Independent Registered Public Accounting Firm 24.1 Power of Attorney (included on signature page hereto) 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14a and Rule 15d-14(a) of the Securities and Exchange Act, as amended 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14a and Rule 15d-14(a) of the Securities and Exchange Act, as amended 32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101 The following materials from our Annual Report on Form 10-K for the period ended December 31, 2018 formatted in eXtensible BusinessReporting Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements ofComprehensive Income (Loss), (iv) Consolidated Statements of Cash Flows, (v) Consolidated Statements of Stockholders’ Equity and (vi) Notes tothe Consolidated Financial Statements, tagged as block text (7) (1)Filed as an Exhibit to our Current Report on Form 8-K filed on May 30, 2014(2)Filed as an Exhibit to our Amendment No. 1 to Form 10, as amended, Registration Statement filed on April 8, 2014(3)Filed as an Exhibit to our Current Report on Form 8-K, filed on November 19, 2014(4)Filed as an Exhibit to our Quarterly Report on Form 10-Q filed on May 7, 2015(5)Filed as an Exhibit to our Quarterly Report on Form 10-Q filed on November 2, 2016(6)Filed as an Exhibit to our Current Report on Form 8-K filed on May 1, 2018(7)As provided in Rule 406T of Regulation S-T, this information is filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18of the Securities Exchange Act of 1934We hereby undertake, pursuant to Regulation S-K, Item 601(b), paragraph (4) (iii), to furnish to the U.S. Securities and Exchange Commission, upon request,all constituent instruments defining the rights of holders of our long-term debt not filed herewith.46 SIGNATURESPursuant 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 itsbehalf by the undersigned, thereunto duly authorized.NOW Inc.Date: February 14, 2019 By: /s/ Robert R. WorkmanRobert R. WorkmanPresident and 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 registrantand in the capacities and on the dates indicated.Each person whose signature appears below in so signing, constitutes and appoints Robert R. Workman and David A. Cherechinsky, and each of them actingalone, his true and lawful attorney-in-fact and agent, with full power of substitution, for him and in his name, place and stead, in any and all capacities, toexecute and cause to be filed with the Securities and Exchange Commission any and all amendments to this report, and in each case to file the same, with allexhibits thereto and other documents in connection therewith, and hereby ratifies and confirms all that said attorney-in-fact or his substitute or substitutesmay do or cause to be done by virtue hereof. Signature Title Date /s/ Robert R. Workman President, Chief Executive Officer and Director February 14, 2019Robert R. Workman /s/ David A. Cherechinsky Senior Vice President and Chief Financial Officer February 14, 2019David A. Cherechinsky /s/ Mark B. Johnson Vice President, Corporate Controller andChief Accounting Officer February 14, 2019Mark B. Johnson /s/ J. Wayne Richards Chairman of the Board February 14, 2019J. Wayne Richards /s/ Richard Alario Director February 14, 2019Richard Alario /s/ Terry Bonno Director February 14, 2019Terry Bonno /s/ Galen Cobb Director February 14, 2019Galen Cobb /s/ Paul Coppinger Director February 14, 2019Paul Coppinger /s/ James Crandell Director February 14, 2019James Crandell /s/ Rodney Eads Director February 14, 2019Rodney Eads 47 Report of Independent Registered Public Accounting FirmTo the Shareholders and the Board of Directors of NOW Inc.Opinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of NOW Inc. (the Company) as of December 31, 2018 and 2017, the related consolidatedstatements of operations, comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended December 31,2018, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements presentfairly, in all material respects, the financial position of the Company at December 31, 2018 and 2017, and the results of its operations and its cash flows foreach of the three years in the period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company'sinternal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 14, 2019, expressed an unqualifiedopinion thereon.Basis for OpinionThese financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financialstatements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Companyin 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 reasonableassurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing proceduresto 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 includedevaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financialstatements. We believe that our audits provide a reasonable basis for our opinion./s/ Ernst & Young LLPWe have served as the Company’s auditor since 2013. Houston, Texas February 14, 201948 Report of Independent Registered Public Accounting FirmTo the Shareholders and the Board of Directors of NOW Inc.Opinion on Internal Control over Financial ReportingWe have audited NOW Inc.’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control—IntegratedFramework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, NOWInc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on the COSOcriteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2018 consolidatedbalance sheets of the Company as of December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive income (loss),stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2018, and the related notes and our report dated February14, 2019 expressed an unqualified opinion thereon.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Ourresponsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firmregistered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable 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 reasonableassurance 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 andevaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considerednecessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control Over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely 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 ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate. /s/ Ernst & Young LLP Houston, Texas February 14, 2019 49 NOW INC.CONSOLIDATED BALANCE SHEETS(In millions, except share data) December 31, 2018 2017 ASSETS Current assets: Cash and cash equivalents $116 $98 Receivables, net 482 423 Inventories, net 602 590 Prepaid and other current assets 19 18 Total current assets 1,219 1,129 Property, plant and equipment, net 106 119 Deferred income taxes 2 2 Goodwill 314 328 Intangibles, net 144 166 Other assets 10 5 Total assets $1,795 $1,749 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $329 $290 Accrued liabilities 110 103 Other current liabilities 2 1 Total current liabilities 441 394 Long-term debt 132 162 Deferred income taxes 6 7 Other long-term liabilities 2 1 Total liabilities 581 564 Commitments and contingencies Stockholders' equity: Preferred stock—par value $0.01; 20 million shares authorized; no shares issued and outstanding — — Common stock - par value $0.01; 330 million shares authorized; 108,426,962 and 108,030,438 sharesissued and outstanding at December 31, 2018 and 2017, respectively 1 1 Additional paid-in capital 2,034 2,019 Accumulated deficit (678) (730)Accumulated other comprehensive loss (143) (105)Total stockholders' equity 1,214 1,185 Total liabilities and stockholders' equity $1,795 $1,749 See notes to consolidated financial statements. 50 NOW INC.CONSOLIDATED STATEMENTS OF OPERATIONS(In millions, except per share data) Year Ended December 31, 2018 2017 2016 Revenue $3,127 $2,648 $2,107 Operating expenses: Cost of products 2,497 2,147 1,762 Warehousing, selling and administrative 557 542 567 Operating profit (loss) 73 (41) (222)Other expense (15) (11) (8)Income (loss) before income taxes 58 (52) (230)Income tax provision (benefit) 6 — 4 Net income (loss) $52 $(52) $(234)Earnings (loss) per share: Basic earnings (loss) per common share $0.47 $(0.48) $(2.18)Diluted earnings (loss) per common share $0.47 $(0.48) $(2.18)Weighted-average common shares outstanding, basic 108 108 107 Weighted-average common shares outstanding, diluted 109 108 107 See notes to consolidated financial statements.51 NOW INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)(In millions) Year Ended December 31, 2018 2017 2016 Net income (loss) $52 $(52) $(234)Other comprehensive income (loss): Foreign currency translation adjustments (38) 37 (8)Comprehensive income (loss) $14 $(15) $(242) See notes to consolidated financial statements.52 NOW INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(In millions) Year Ended December 31, 2018 2017 2016 Cash flows from operating activities: Net income (loss) $52 $(52) $(234)Adjustments to reconcile net income (loss) to net cash provided by (used in) operatingactivities: Depreciation and amortization 41 50 53 Deferred income taxes (1) (1) (2)Stock-based compensation 16 20 23 Provision for doubtful accounts 2 3 17 Provision for inventory 8 11 36 Other, net 1 (11) — Change in operating assets and liabilities, net of acquisitions: Receivables (69) (64) 102 Inventories (30) (110) 190 Prepaid and other current assets (1) (2) 4 Accounts payable and accrued liabilities 54 43 22 Income taxes receivable, net — — 25 Other assets / liabilities, net — (2) (1)Net cash provided by (used in) operating activities 73 (115) 235 Cash flows from investing activities: Purchases of property, plant and equipment (11) (4) (4)Business acquisitions, net of cash acquired — (4) (175)Purchases of intangible assets — — (7)Proceeds from disposal of assets, and other 2 16 3 Net cash provided by (used in) investing activities (9) 8 (183)Cash flows from financing activities: Borrowing under the revolving credit facility 503 359 253 Repayments under the revolving credit facility (533) (262) (296)Other, net (7) (3) (4)Net cash provided by (used in) financing activities (37) 94 (47)Effect of exchange rates on cash and cash equivalents (9) 5 11 Net change in cash and cash equivalents 18 (8) 16 Cash and cash equivalents, beginning of period 98 106 90 Cash and cash equivalents, end of period $116 $98 $106 Supplemental disclosures of cash flow information: Income taxes paid (refunded), net $6 $2 $(23)Interest paid $9 $6 $4 See notes to consolidated financial statements.53 NOW INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY($ In millions) Common Stock Shares Additional Retained Accum. Other Total Outstanding Par Paid-In Earnings Comprehensive Stockholders’ (in thousands) Value Capital (Deficit) Income (Loss) Equity January 1, 2016 107,219 1 1,980 (444) (134) 1,403 Net loss — — — (234) — (234)Stock-based compensation — — 23 — — 23 Exercise of stock options 20 — — — — — Vesting of restricted stock 341 — — — — — Shares withheld for taxes (105) — (1) — — (1)Other comprehensive loss — — — — (8) (8)December 31, 2016 107,475 $1 $2,002 $(678) $(142) $1,183 Net loss — — — (52) — (52)Stock-based compensation — — 20 — — 20 Exercise of stock options 35 — 1 — — 1 Vesting of restricted stock 771 — — — — — Shares withheld for taxes (251) — (4) — — (4)Other comprehensive income — — — — 37 37 December 31, 2017 108,030 $1 $2,019 $(730) $(105) $1,185 Net income — — — 52 — 52 Stock-based compensation — — 16 — — 16 Exercise of stock options 39 — 1 — — 1 Vesting of restricted stock 485 — — — — — Shares withheld for taxes (127) — (2) — — (2)Other comprehensive loss — — — — (38) (38)December 31, 2018 108,427 1 2,034 (678) (143) 1,214 See notes to consolidated financial statements.54 NOW INC.Notes to Consolidated Financial Statements1. Organization and Basis of PresentationNature of OperationsNOW Inc. (“NOW” or the “Company”) is a holding company headquartered in Houston, Texas that was incorporated in Delaware on November 22, 2013.NOW operates primarily under the DistributionNOW and Wilson Export brands. NOW is a global distributor of energy products as well as products forindustrial applications through its locations in the U.S., Canada and internationally which are geographically positioned to serve the energy and industrialmarkets in approximately 80 countries. NOW’s energy product offerings are used in the oil and gas industry including upstream drilling and completion,exploration and production, midstream infrastructure development and downstream petroleum refining – as well as in other industries, such as chemicalprocessing, power generation and industrial manufacturing operations. The industrial distribution portion of NOW’s business targets a diverse range ofmanufacturing and facilities across numerous industries and end markets. NOW also provides supply chain management to drilling contractors, E&Poperators, midstream operators, downstream energy and industrial manufacturing companies. NOW’s supplier network consists of thousands of vendors inapproximately 40 countries.Basis of PresentationThe accompanying consolidated financial information include the accounts of the Company and its consolidated subsidiaries. All significant intercompanytransactions and accounts have been eliminated.ReclassificationCertain amounts in the prior periods presented have been reclassified to conform to the current period financial statement presentation. Thesereclassifications have no effect on previously reported results of operations.Recently Issued Accounting StandardsIn February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842). ASU2016-02 requires lessees to recognize a lease liability and a right-of-use (“ROU”) asset for all leases, including operating leases, with a term greater thantwelve months in its balance sheets. ASU 2016-02 is effective for annual and interim periods in fiscal years beginning after December 15, 2018, with earlyadoption permitted, and requires a modified retrospective transition method. In July 2018, the FASB issued ASU 2018-11, Targeted Improvements, whichprovided entities with an additional (and optional) transition method, allowing an entity to apply the new lease standard at the adoption date and torecognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company will adopt ASC Topic 842 onJanuary 1, 2019 using the modified retrospective transition method allowed under ASU 2018-11. The Company will elect the package of practical expedientspermitted under ASU 2018-11, which among other things, allows an entity to carry forward its historical lease classifications. The Company is currentlyfinalizing the implementation of key systems functionality and internal control processes in order to comply with ASC Topic 842. Based on its currentassessment, which is subject to change, the Company estimates both assets and liabilities on its consolidated balance sheets will increase by less than $100million, upon adoption. Changes in the lease population or changes in incremental borrowing rates may alter this estimate. The Company does not expect theadoption of this standard to have a material impact in its consolidated statements of operations and cash flows. The Company will expand its consolidatedfinancial statement disclosure upon adoption of this standard.In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326), which replaces the incurred lossimpairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonableand supportable information to determine credit loss estimates. ASU 2016-13 requires entities to measure all expected credit losses for financial assets held atthe reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Entities will now use forward-lookinginformation to better form their credit loss estimates. ASU 2016-13 is effective for annual and interim periods in fiscal years beginning after December 15,2019, with early adoption permitted as of December 15, 2018, and requires modified retrospective transition method. The Company is currently assessing theimpact of ASU 2016-13 in its consolidated financial statements.In August 2018, the FASB issued ASU 2018-13, Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820),which modified the disclosure requirements on fair value measurements. ASU 2018-13 is effective for annual and interim periods in fiscal years beginningafter December 15, 2019, with early adoption permitted for removed or modified disclosures. The Company is currently assessing the impact of ASU 2018-13in its consolidated financial statements. 55 Recently Adopted Accounting StandardsIn May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 affects any entity using GAAP that entersinto contracts with customers to transfer goods or services or contracts for the transfer of nonfinancial assets unless those contracts are within the scope ofother standards (e.g., insurance contracts or lease contracts). This ASU supersedes the revenue recognition requirements in ASC Topic 605 RevenueRecognition, and most industry-specific guidance. The Company adopted this standard as of January 1, 2018, using the modified retrospective transitionmethod resulting in a de minimis increase to the opening accumulated deficit due to the cumulative impact of adopting Topic 606. The adoption of the newstandard had no material impact on the measurement or recognition of revenue, however additional disclosures have been added in accordance with Topic606. See Note 2 “Summary of Significant Accounting Policies” for additional details on the Company’s revenue policies.In March 2017, the FASB issued ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost(Topic 715). ASU 2017-07 requires the disaggregation of the service cost component from the other components of net periodic benefit cost and allows onlythe service cost component of net benefit cost to be eligible for capitalization. ASU 2017-07 is effective for annual and interim periods in fiscal yearsbeginning after December 15, 2017. The Company sponsors two defined benefit plans in the UK under which accrual of pension benefits has ceased and therewill not be a service cost component to the net periodic pension cost. Plan member benefits that have previously been accrued are indexed in line withinflation during the period up to retirement in order to protect their purchasing power. The Company adopted this standard as of January 1, 2018, with nomaterial impact in its consolidated financial statements.In March 2018, the FASB issued ASU 2018-05, Income Taxes: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (Topic740), which updates the income tax accounting in U.S. GAAP to reflect the Securities and Exchange Commission interpretive guidance released on December22, 2017, when the Tax Cuts and Jobs Act of 2017 (“TCJA”) was enacted into law. The Company evaluated the potential impacts of SEC Staff AccountingBulletin No. 118 (“SAB 118”) along with this ASU and has applied them to its consolidated financial statements and related disclosures. See Note 9 “IncomeTaxes” for additional information. 2. Summary of Significant Accounting PoliciesCash and Cash EquivalentsCash and Cash Equivalents consist of all highly liquid investments with maturities of three months or less at the date of purchase.Fair Value of Financial InstrumentsThe carrying amounts of cash and cash equivalents, receivables and payables approximated fair value because of the relatively short maturity of theseinstruments. See Note 12 “Derivative Financial Instruments” for the fair value of derivative financial instruments.InventoriesInventories consist primarily of oilfield and industrial finished goods. Inventories are stated at the lower of cost or net realizable value and using average costmethods. Allowances for excess and obsolete inventories are determined based on the Company’s historical usage of inventory on hand as well as its futureexpectations. As of December 31, 2018 and 2017, the Company reported inventory of $602 million and $590 million, respectively (net of inventory reservesof $28 million and $40 million, respectively).Property, Plant and EquipmentProperty, plant and equipment are stated at cost. Expenditures for major improvements that extend the lives of property and equipment are capitalized whileminor replacements, maintenance and repairs are charged to expense as incurred. Disposals are removed at cost less accumulated depreciation with anyresulting gain or loss reflected in the results of operations for the respective period. Depreciation is provided using the straight-line method over theestimated useful lives of individual items.Long-Lived Assets, Including Goodwill and Other Acquired Intangible AssetsThe Company evaluates the recoverability of property, plant and equipment and amortizable intangible assets for possible impairment whenever events orcircumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is measured by a comparison of thecarrying amounts to the future undiscounted cash flows the assets are expected to generate. If such review indicates that the carrying amount of property andequipment and intangible assets is not recoverable, the carrying amount of such assets is reduced to fair value. The Company has not recorded any suchimpairment charge during the years presented.In addition to the recoverability assessment, the Company routinely reviews the remaining estimated useful lives of property, plant and equipment andamortizable intangible assets. If the Company changes the estimated useful life assumption for any asset, the remaining unamortized balance is amortized ordepreciated over the revised estimated useful life. 56 The Company conducts goodwill impairment testing annually in the fourth quarter of each fiscal year, and more frequently on an interim basis, when anevent occurs or changes in circumstances indicate that the fair value of a reporting unit may have declined below its carrying value. Events or circumstanceswhich could indicate a probable impairment include, but are not limited to, a significant reduction in worldwide oil and gas prices or drilling; a significantreduction in profitability or cash flow of oil and gas companies or drilling contractors; a significant reduction in worldwide well completion and remediationactivity; a significant reduction in capital investment by other oilfield service companies; or a significant increase in worldwide inventories of oil or gas. The Company evaluates goodwill for impairment at the reporting unit level, which is defined as an operating segment or one level below that constitutes abusiness for which financial information is available and is regularly reviewed by management. The Company determined that it has five reporting units forthis purpose—United States Energy, United States Supply Chain, United States Process Solutions, Canada and International. After the early adoption of ASU 2017-04, Simplifying the Test for Goodwill Impairment (Topic 350), as of January 1, 2018, the Company tests goodwill forimpairment by comparing the fair value of a reporting unit to its carrying value. If the carrying amount exceeds the fair value of a reporting unit, animpairment loss is recognized in an amount equal to that excess, but not to exceed the total amount of goodwill allocated to that reporting unit. When performing goodwill impairment testing, the fair values of reporting units are determined based on valuation techniques using the best availableinformation, including discounted cash flow projections. The discounted cash flow is based on management’s short-term and long-term forecast of operatingperformance for each reporting unit. The two main assumptions used in measuring goodwill impairment, which bear the risk of change and could impact theCompany’s goodwill impairment analysis, include the cash flow from operations from each of the Company’s individual business units and the discount rate.The starting point for each of the reporting unit’s cash flow from operations is the detailed annual plan or updated forecast. The detailed planning andforecasting process takes into consideration a multitude of factors including worldwide rig activity, inflationary forces, pricing strategies, customer analysis,operational issues, competitor analysis, capital spending requirements, working capital requirements and customer needs among other items which impact theindividual reporting unit projections. Cash flows beyond the specific operating plans were estimated using a terminal value calculation, which incorporatedhistorical and forecasted financial cyclical trends for each reporting unit and considered long-term earnings growth rates. The financial and credit marketvolatility impacts the fair value measurement by adjusting the discount rate. During times of volatility, significant judgment must be applied to determinewhether credit changes are a short-term or long-term trend. The Company makes significant assumptions and estimates about the extent and timing of futurecash flows, growth rates, and discount rates all of which represent unobservable inputs into valuation methodologies and are classified as level 3 inputs underthe fair value hierarchy. In evaluating the reasonableness of the Company’s fair value estimates, the Company considers, among other factors, therelationship between the market capitalization of the Company and the total estimated fair value of its reporting units less debt. Foreign CurrencyThe functional currency for most of the Company’s foreign operations is the local currency. Certain foreign operations use the U.S. dollar as the functionalcurrency. For those that have local currency as functional the cumulative effects of translating the balance sheet accounts from the functional currency intothe U.S. dollar at current exchange rates are included in accumulated other comprehensive income (loss). Revenues and expenses are translated at averageexchange rates in effect during the period. Accordingly, financial statements of these foreign subsidiaries are remeasured to U.S. dollars for consolidationpurposes using current rates of exchange for monetary assets and liabilities and historical rates of exchange for nonmonetary assets and related elements ofexpense. Revenue and expense elements are remeasured at rates that approximate the rates in effect on the transaction dates. For all operations, gains orlosses, from remeasuring foreign currency transactions into the reporting currency, are included in other expense. Net foreign currency transaction losses were$2 million, $2 million and $1 million for the years ending December 31, 2018, 2017 and 2016, respectively, and are included in other expense in theaccompanying consolidated statements of operations. Revenue RecognitionThe Company’s primary source of revenue is the sale of energy products and an extensive selection of products for industrial applications based uponpurchase orders or contracts with customers. The majority of revenue is recognized at a point in time once the Company has determined that the customer hasobtained control over the product. Control is typically deemed to have been transferred to the customer when the product is shipped, delivered, or picked upby the customer. The Company does not grant extended payment terms. Revenue is recognized net of any taxes collected from customers, which aresubsequently remitted to proper government authorities. Shipping and handling costs for product shipments occur prior to the customer obtaining control ofthe goods, and are recorded in cost of products. 57 The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for products sold. Revenueis recorded at the transaction price net of estimates of variable consideration, which may include product returns, trade discounts and allowances. TheCompany accrues for variable consideration using the expected value method. Estimates of variable consideration are included in revenue to the extent thatit is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. Cost of ProductsCost of products includes the cost of inventory sold and related items, such as vendor consideration, inventory allowances, amortization of intangibles andinbound and outbound freight.Warehousing, Selling and Administrative ExpensesWarehousing, selling and administrative expenses include branch location, distribution center and regional expenses (including costs such as compensation,benefits and rent) as well as corporate general selling and administrative expenses.Vendor ConsiderationThe Company receives funds from vendors in the normal course of business, principally as a result of purchase volumes. Generally, these vendor funds do notrepresent the reimbursement of specific, incremental and identifiable costs incurred by the Company to sell the vendor’s product. Therefore, the Companytreats these funds as a reduction of inventory when purchased and once these goods are sold to third parties the associated amount is credited to cost ofproducts. The Company develops accrual rates for vendor consideration based on the provisions of the arrangements in place, historical trends, purchases andfuture expectations. Due to the complexity and diversity of the individual vendor agreements, the Company performs analyses and reviews historical trendsthroughout the year and confirms actual amounts with select vendors to ensure the amounts earned are appropriately recorded. Amounts accrued throughoutthe year could be impacted if actual purchase volumes differ from projected annual purchase volumes, especially in the case of programs that provide forincreased funding when graduated purchase volumes are met.Income TaxesThe liability method is used to account for income taxes. Deferred tax assets and liabilities are determined based on differences between the financialreporting and tax basis of assets and liabilities and are measured using the enacted tax rates that will be in effect when the differences are expected to reverse.Valuation allowances are established when necessary to reduce deferred tax assets to amounts which are more-likely-than-not to be realized.Concentration of Credit RiskThe Company grants credit to its customers, which operate primarily in the energy, industrial and manufacturing markets. Concentrations of credit risk arelimited because the Company has a large number of geographically diverse customers, thus spreading trade credit risk. The Company controls credit riskthrough credit evaluations, credit limits and monitoring procedures. The Company performs periodic credit evaluations of its customers’ financial conditionand generally does not require collateral, but may require letters of credit or prepayments for certain sales. Credit losses are provided for in the financialstatements. Allowances for doubtful accounts are determined based on a continuous process of assessing the Company’s portfolio on an individual customerbasis taking into account current market conditions and trends. This process consists of a thorough review of historical collection experience, current agingstatus of the customer accounts, and financial condition of the Company’s customers. Based on a review of these factors, the Company will establish or adjustallowances for specific customers. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a chargeto the allowance and a credit to receivables. No single customer represents more than 10% of the Company’s revenue. Stock-Based CompensationCompensation expense for the Company’s stock-based compensation plans is measured using the fair value method required by ASC Topic 718“Compensation—Stock Compensation”. Under this guidance the fair value of the award is measured on the grant date and amortized to expense using thestraight-line method over the shorter of the vesting period or the remaining requisite service period. Forfeitures are recognized as they occur.Environmental LiabilitiesWhen environmental assessments or remediations are probable and the costs can be reasonably estimated, remediation liabilities are recorded on anundiscounted basis and are adjusted as further information develops or circumstances change.Use of EstimatesThe preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported andcontingent amounts of assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the reportingperiod. Actual results could differ from those estimates.58 ContingenciesThe Company accrues for costs relating to litigation claims and other contingent matters, when such liabilities become probable and reasonably estimable.Such estimates may be based on advice from third parties or on management’s judgment, as appropriate. Revisions to contingent liabilities are reflected inincome in the period in which different facts or information become known or circumstances change that affect the Company’s previous judgments withrespect to the likelihood or amount of loss. Amounts paid upon the ultimate resolution of contingent liabilities may be materially different from previousestimates and could require adjustments to the estimated reserves to be recognized in the period such new information becomes known.In circumstances where the most likely outcome of a contingency can be reasonably estimated, the Company accrues a liability for that amount. Where themost likely outcome cannot be estimated, a range of potential losses is established and if no one amount in that range is more likely than others, the low endof the range is accrued.3. Revenue Adoption of ASC Topic 606, Revenue from Contracts with Customers On January 1, 2018, the Company adopted ASC Topic 606 using the modified retrospective transition method applied to those contracts which were notcompleted as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC Topic 606, while prior periodamounts were not adjusted and continue to be reported in accordance with ASC Topic 605, “Revenue Recognition”. The adoption of ASC Topic 606 resultedin $6 million of additional receivables and deferred revenue related to the recognition of receivables with unconditional right to payment. See Note 14 “Business Segments” for the disaggregation of revenue by reporting segments. The Company believes this disaggregation best depicts how thenature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.Remaining Performance ObligationsRemaining performance obligations represent the transaction price of firm orders for which work has not been performed on contracts with an originalexpected duration of more than one year. The Company’s contracts are predominantly short-term in nature with a contract term of one year or less. For thosecontracts, the Company has utilized the practical expedient in ASC Topic 606 exempting the Company from disclosure of the transaction price allocated toremaining performance obligations when the performance obligation is part of a contract that has an original expected duration of one year or less.ReceivablesReceivables are recorded when the Company has an unconditional right to consideration.Contract Assets and LiabilitiesContract assets primarily consist of retainage amounts held as a form of security by customers until the Company satisfies its remaining performanceobligations. As of December 31, 2018, contracts assets were approximately $2 million and were included in receivables, net in the consolidated balancesheets. The Company applied the practical expedient to recognize the incremental costs of obtaining a contract as an expense when incurred if theamortization period of the asset that the Company otherwise would have recognized is one year or less. These expenses were not material for the year endedDecember 31, 2018.Contract liabilities primarily consist of deferred revenues recorded when customer payments are received or due in advance of satisfying performanceobligations, including amounts which are refundable, and other accrued customer liabilities. Revenue recognition is deferred to a future period until theCompany completes its obligations contractually agreed with customers. The increase in contract liabilities for the year ended December 31, 2018 wasprimarily related to customer deposits of approximately $16 million, partially offset by approximately $12 million of revenue recognized that was deferred atJanuary 1, 2018 upon adoption of ASC Topic 606. 59 4. Receivables, netReceivables are recorded and carried at the original invoiced amount less an allowance for doubtful accounts.The allowance for doubtful accounts reflects the Company’s best estimate of probable losses inherent in the accounts receivable balance. Activity in theallowance for doubtful accounts was as follows (in millions): December 31, 2018 2017 2016 Allowance for doubtful accounts Beginning balance $29 $34 $38 Additions charged to expenses 2 3 17 Charge-offs and other (4) (8) (21)Ending balance $27 $29 $34 5. Property, Plant and Equipment, netProperty, plant and equipment consist of (in millions): Estimated December 31, Useful Lives 2018 2017 Information technology assets 1-7 Years $45 $48 Operating equipment 2-15 Years 92 93 Buildings and land (1) 5-35 Years 99 97 Total property, plant and equipment 236 238 Less: accumulated depreciation (130) (119)Property, plant and equipment, net $106 $119 (1)Land has an indefinite life.Depreciation expense was $21 million, $28 million and $32 million for the years ended December 31, 2018, 2017 and 2016, respectively. For the year endedDecember 31, 2017, the Company completed the sale of certain assets in the U.S. segment and recognized a gain of $10 million in warehousing, selling andadministrative in the consolidated statement of operations. 6. Accrued LiabilitiesAccrued liabilities consist of (in millions): December 31, 2018 2017 Compensation and other related expenses $38 $36 Contract liabilities (1) 29 19 Taxes (non-income) 14 15 Other 29 33 Total $110 $103 (1) Previously shown as customer credits and prepayments. 60 7. GoodwillGoodwill is identified by segment as follows (in millions): United States Canada International Total Balance at December 31, 2016 (1) $117 $91 $103 $311 Additions 2 — — 2 Foreign currency translation adjustments — 7 8 15 Balance at December 31, 2017 $119 98 111 328 Foreign currency translation adjustments — $(8) $(6) (14)Balance at December 31, 2018 $119 $90 $105 $314 (1)Net of prior years’ United States accumulated impairment of $393 million. The Company performed its annual goodwill impairment test during the fourth quarter of 2018, 2017 and 2016 resulting in no impairments. The calculatedfair value of each reporting unit exceeded its carrying value. 8. Intangibles, net Identified intangible assets with determinable lives consist primarily of customer relationships, tradenames, trademarks and patents, and non-competeagreements acquired in acquisitions, and are being amortized on a straight-line basis over the estimated useful lives of 1-20 years. Identified intangible assets by major classification, affected by the fluctuation of foreign currency rates, consist of the following (in millions): Accumulated Net Book Gross Amortization Value December 31, 2018: Trademarks and patents $103 $(31) $72 Customer relationships 118 (46) 72 Other 11 (11) — Total identified intangibles $232 $(88) $144 December 31, 2017: Trademarks and patents 104 (26) 78 Customer relationships 122 (35) 87 Other 11 (10) 1 Total identified intangibles $237 $(71) $166 Amortization expense was $20 million, $22 million and $21 million for the years ended December 31, 2018, 2017, and 2016, respectively. The followingtable represents the total estimated amortization of intangible assets for the five succeeding years (in millions): For the Year Ending December 31 EstimatedAmortizationExpense 2019 $18 2020 18 2021 18 2022 17 2023 13 61 9. Income Taxes The domestic and foreign components of income (loss) before income taxes were as follows (in millions): December 31, 2018 2017 2016 United States $39 $(64) $(206)Foreign 19 12 (24)Income (loss) before income taxes $58 $(52) $(230) The provision (benefit) for income taxes for 2018, 2017 and 2016 consisted of the following (in millions): 2018 2017 2016 U.S. Federal: Current $— $— $2 Deferred — — (1) — — 1 U.S. State: Current 1 — — Deferred — — — 1 — — Foreign Current 6 1 3 Deferred (1) (1) — 5 — 3 Income tax provision (benefit) $6 $— $4 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, 2018 2017 2016 Income tax provision (benefit) at federal statutory rate $12 $(18) $(81)Foreign tax rate differential 2 (2) 2 State income tax provision (benefit), net of federal benefit 3 (5) (3)Nondeductible expenses 9 2 8 Foreign tax credits 21 (31) (2)Benefit of net operating loss (14) — — One-time transition tax 1 33 — U.S. tax rate change — 69 — Change in valuation allowance (28) (45) 78 Change in contingency reserve and other — (3) 2 Income tax provision (benefit) $6 $— $4 Effective tax rate 10.7% 0.0% (1.6)% For the year ended December 31, 2016, the effective tax rate was impacted by a valuation allowance recorded against the Company’s deferred tax assets inthe United States, Canada and other foreign jurisdictions. The change in valuation allowance excludes intercompany transactions as they do not impactconsolidated income (loss) from continuing operations. For the years ended December 31, 2018 and 2017, the effective tax rate continued to be impacted bya valuation allowance in the United States, Canada and other foreign jurisdictions and was impacted by the TCJA 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.The TCJA was enacted on December 22, 2017 and contains several tax law changes, including a reduction in the U.S. federal corporate tax rate 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 oncertain foreign earnings and changing rules for deductions for executive compensation. For the year ended December 31, 2017, and the nine months endedSeptember 30, 2018, the Company recorded provisional amounts for certain enactment-date effects of the TCJA by applying the guidance in SAB 118 sincethe Company had not yet completed its accounting for62 these effects. As of December 31, 2018, the Company has completed its accounting for the income tax effects of the TCJA. As further discussed below, during2018, the Company recognized net adjustments to the provisional amounts recorded as of December 31, 2017, impacting the Company’s provision forincome taxes by less than $1 million.As of December 31, 2017, the Company had remeasured its U.S. deferred tax assets and liabilities relating to the U.S. federal corporate income tax ratechange and recorded a $69 million charge, with a corresponding decrease to its valuation allowance of $69 million. The Company recorded a $33 millioncharge for the transition tax which was fully offset by foreign tax credits and net operating losses. There was no net impact to the Company’s provision forincome taxes for the year ended December 31, 2017.Upon further analysis of the TCJA, including interpretive guidance contained in notices and regulations issued by the U.S. Department of the Treasury andthe Internal Revenue Service, the Company completed its accounting for the income tax effects of the TCJA during 2018. The Company refined itstransition tax calculation including electing out of using its 2017 net operating losses and reduced the transition tax liability to $31 million, which wasfully offset by available tax credits. The net adjustments to the transition tax resulted in the Company recognizing tax expense during 2018 of less than $1million. In addition, the Company recorded a $3 million charge to write down deferred tax assets related to performance-based compensation with acorresponding decrease to its valuation allowance of $3 million, resulting in no net impact to the Company’s provision for income taxes for the year endedDecember 31, 2018.The TCJA subjects a U.S. shareholder to current tax on Global Intangible Low-Taxed Income (“GILTI”) earned by certain foreign subsidiaries. The FASBStaff Q&A, Topic 740, No. 5 Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to eitherrecognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in theyear the tax is incurred as a period expense only. As the Company was continuing to evaluate the provisions of GILTI as of December 31, 2017, theCompany had not recorded any deferred tax amounts related to GILTI. The Company has since adopted an accounting policy to recognize the tax effects ofGILTI in the year tax is incurred. Due to the Company’s net operating losses in certain foreign jurisdictions, the Company recognized no income tax relatedto GILTI in 2018.Significant components of the Company’s deferred tax assets and liabilities were as follows (in millions): December 31, 2018 2017 2016 Deferred tax assets: Allowances and operating liabilities $8 $8 $8 Net operating loss carryforwards 56 52 78 Foreign tax credit carryforwards 8 29 5 Trade credit 1 1 3 Allowance for doubtful accounts 6 6 10 Inventory reserve 10 12 18 Stock-based compensation 8 15 19 Intangible assets 24 27 53 Other 4 2 6 Total deferred tax assets 125 152 200 Deferred tax liabilities: Tax over book depreciation — — (4)Total deferred tax liabilities — — (4)Net deferred tax assets before valuation allowance 125 152 196 Valuation allowance (129) (157) (202)Net deferred tax liabilities $(4) $(5) $(6) 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. Theultimate realization of the deferred tax assets depends on the ability to generate sufficient taxable income of the appropriate character in the future and in theappropriate 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 netrecorded amount, the Company would make an adjustment to the valuation allowance, which would reduce the provision for income taxes.63 Due to the level of losses preceding 2018, and despite being in an income position in 2018, the Company remains in a three year cumulative loss position. Asa result, 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, 2018. The change during the yearin the valuation allowance was $27 million in the U.S., $1 million in Canada, and less than $1 million in other foreign jurisdictions. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions): 2018 2017 2016 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 — — — Settlement — (1) — Lapse of statute of limitations — — — Unrecognized tax benefit at December 31 $— $— $1 The unrecognized tax benefits are included as a reduction to deferred tax assets in the consolidated balance sheets as of December 31, 2016.To the extent penalties and interest would be assessed on any underpayment of income tax, such accrued amounts are classified as a component of incometax provision (benefit) in the financial statements consistent with the Company’s policy. For the year ended December 31, 2018, the Company did not recordany 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 UnitedStates and Canada and to a lesser extent in various other international jurisdictions. Tax years that remain subject to examination vary by legal entity, but aregenerally open in the U.S. for the tax years ending after 2014 and outside the U.S. for the tax years ending after 2012.In the United States, the Company has $220 million of federal net operating loss carryforwards as of December 31, 2018, which will expire between 2035through 2037. The potential tax benefit of $46 million has been reduced by a $46 million valuation allowance. In addition to a reduction in future incometax expense, future income tax payments will also be reduced in the event the Company ultimately realizes the benefit of these net operating losses. TheCompany has $125 million of state net operating loss carryforwards as of December 31, 2018, which will expire between 2020 through 2037, with themajority expiring after 2034. The potential benefit of $7 million has been reduced by a $7 million valuation allowance. Outside the United States, theCompany has $16 million of net operating loss carryforwards as of December 31, 2018, of which $12 million have no expiration and $4 million will expirebetween 2020 and 2037. The potential tax benefit of $3 million has been reduced by a $3 million valuation allowance. As of December 31, 2018, theCompany has $8 million of excess foreign tax credits in the U.S. The foreign tax credits will expire between 2024 and 2027. The potential benefit of $8million has been reduced by a $8 million valuation allowance. In addition to future income tax expense, future income tax payments will also be reduced inthe event the Company ultimately realizes the benefit of these foreign tax credits.As of December 31, 2018, the amount of undistributed earnings of foreign subsidiaries was approximately $130 million. Historically, it has been the practiceand intention of the Company to indefinitely reinvest the earnings of its foreign subsidiaries in those operations. In light of the significant changes made bythe TCJA, the Company will no longer be indefinitely reinvested with regard to its pre-2018 earnings in Canada and the United Kingdom. These earningswere subject to the transition tax and the future repatriation of these earnings will not result in additional income tax expense or foreign withholding taxesdue to the Company’s available tax attributes. No additional income taxes have been provided for other foreign earnings or any additional outside basisdifferences inherent in the Company’s foreign subsidiaries, as these amounts continue to be indefinitely reinvested. Determining the amount of unrecognizeddeferred tax liability related to any additional outside basis differences in these entities is not practicable.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 ratesfluctuate. The Company is also subject to audits by federal, state and foreign jurisdictions which may result in proposed assessments. The Company’s futuretax provision will reflect any favorable or unfavorable adjustments to its estimated tax liabilities when resolved. The Company is unable to predict theoutcome of these matters. However, the Company believes that none of these matters will have a material adverse effect on the results of operations orfinancial position of the Company. 64 10. DebtOn April 30, 2018, the Company replaced its existing senior secured revolving credit facility and entered into a senior secured revolving credit facility (the“Credit Facility”) with a syndicate of lenders with Wells Fargo Bank, National Association, serving as the administrative agent. The five-year Credit Facilityprovides for a $750 million global revolving credit facility (with a letter of credit subfacility of $60 million, and a swing line subfacility of 10% of thefacility amount), of which up to $100 million is available for the Company’s Canadian subsidiaries and $40 million is available for the Company’s UKsubsidiaries. The Company has the right, subject to certain conditions, to increase the aggregate principal amount of commitments under the credit facility by$250 million. The obligations under the Credit Facility are secured by substantially all the assets of the Company and its subsidiaries. The Credit Facilitycontains customary covenants, representations and warranties and events of default. The Company will be required to maintain a fixed charge coverage ratioof at least 1.00:1.00 as of the end of each fiscal quarter if excess availability under the Credit Facility falls below the greater of 12.5% of the borrowing baseor $60 million. Borrowings under the Credit Facility will bear an interest rate at the Company’s option, at (i) the base rate plus an applicable margin based on the Company’sfixed charge coverage ratio (and if applicable, the Company’s leverage ratio); or (ii) the greater of LIBOR for the applicable interest period and zero, plus anapplicable margin based on the Company’s fixed charge coverage ratio (and if applicable, the Company’s leverage ratio). The Credit Facility includes acommitment fee on the unused portion of commitments that ranges from 25 to 37.5 basis points. Commitment fees incurred during the period were includedin other expense in the consolidated statements of operations. Availability under the Credit Facility is determined by a borrowing base comprised of eligible receivables and eligible inventory in the U.S and Canada. Asof December 31, 2018, the Company borrowed $132 million against the Credit Facility and had approximately $385 million in availability (as defined in theCredit Facility) resulting in the excess availability (as defined in the Credit Facility) of 73% subject to certain limitations. The Company was not obligated topay back the borrowing against the Credit Facility until the expiration date, as such the outstanding borrowing is classified as long-term debt in theconsolidated balance sheets.The Company issued $7 million in letters of credit under the Credit Facility primarily for casualty insurance expiring in July 2019.11. Commitments and ContingenciesThe Company is involved in various claims, regulatory agency audits and pending or threatened legal actions involving a variety of matters. The Companyhas also assessed the potential for additional losses above the amounts accrued as well as potential losses for matters that are not probable but are reasonablypossible. The total potential loss on these matters cannot be determined; however, in the Company’s opinion, any ultimate liability, to the extent nototherwise recorded or accrued for, will not materially affect the Company’s financial position, cash flow or results of operations. These estimated liabilitiesare based on the Company’s assessment of the nature of these matters, their progress toward resolution, the advice of legal counsel and outside experts as wellas management’s intention and experience.The Company’s business is affected both directly and indirectly by governmental laws and regulations relating to the oilfield service industry in general, aswell as by environmental and safety regulations that specifically apply to the Company’s business. Although the Company has not incurred material costs inconnection with its compliance with such laws, there can be no assurance that other developments, such as new environmental laws, regulations andenforcement policies hereunder may not result in additional, presently unquantifiable, costs or liabilities to the Company.The Company does not accrue for contingent losses that, in its judgment, are considered to be reasonably possible, but not probable. Estimating reasonablypossible losses also requires the analysis of multiple possible outcomes that often depend on judgments about potential actions by third parties. NOW’smanagement currently estimates a range of loss for reasonably possible losses for which an estimate can be made is between zero and $16 million in theinternational segment primarily attributable to accounts receivable with one customer. The Company has accrued its best estimate for loss as of December 31,2018. Factors underlying this estimated range of loss may change from time to time, and actual results may vary significantly from this estimate.The Company maintains credit arrangements with several banks providing for standby letters of credit, including bid and performance bonds, and otherbonding requirements. As of December 31, 2018, the Company was contingently liable for approximately $10 million of outstanding standby letters of creditand surety bonds. The Company does not believe, based on historical experience and information currently available, that it is probable that any amountswill be required to be paid.65 The Company assumed leases with former owners of acquired entities for premises utilized by the acquired entities in the performance of their operations.Most of these leases are renewable at the Company’s option and contain clauses for payment of real estate taxes, maintenance, insurance and certain otheroperating expenses of the properties. The aggregated rental expense was approximately $3 million, $3 million and $3 million for the years ended December31, 2018, 2017, and 2016, respectively. Total future commitments related to these operating leases is approximately $6 million through 2023.The Company leases certain facilities and equipment under operating leases that expire at various dates through 2029. These leases generally containrenewal options and require the lessee to pay maintenance, insurance, taxes and other operating expenses in addition to the minimum annual rentals. Rentalexpense related to operating leases approximated $48 million, $50 million and $50 million in 2018, 2017 and 2016, respectively.Future minimum lease commitments under noncancellable operating leases with initial or remaining terms of one year or more as of December 31, 2018, arepayable as follows (in millions): 2019 32 2020 25 2021 17 2022 9 2023 6 Thereafter 5 Total future lease commitments $94 12. Derivative Financial InstrumentsThe Company is exposed to certain risks relating to its ongoing business operations. The primary risk managed by using derivative instruments is foreigncurrency exchange rate risk. The Company has entered into certain financial derivative instruments to manage this risk.The derivative financial instruments the Company has entered into are forward exchange contracts which have terms of less than one year to economicallyhedge foreign currency exchange rate risk on recognized nonfunctional currency monetary accounts. The purpose of the Company’s foreign currencyeconomic hedging activities is to economically hedge the Company’s risk from changes in the fair value of nonfunctional currency denominated monetaryaccounts.The Company records all derivative financial instruments at their fair value in its consolidated balance sheets. None of the derivative financial instrumentsthat the Company holds are designated as either a fair value hedge or cash flow hedge and the gain or loss on the derivative instrument is recorded inearnings. The Company has determined that the fair value of its derivative financial instruments are computed using level 2 inputs (inputs other than quotedprices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability)in the fair value hierarchy as the fair value is based on publicly available foreign exchange rates at each financial reporting date. As of December 31, 2018and 2017, the fair value of the Company’s foreign currency forward contracts totaled an asset of less than $1 million and a liability of less than $1 million. Asof December 31, 2016, the fair value of the Company’s foreign currency forward contracts totaled an asset of $1 million and a liability of less than $1 million.The Company’s foreign currency forward contract assets are included in prepaid and other current assets in the consolidated balance sheets and theCompany’s foreign currency forward contract liabilities are included in other current liabilities in the consolidated balance sheets. For the years ended December 31, 2018, 2017 and 2016, the Company recorded a loss of $1 million, a gain of $1 million and a gain of $12 million,respectively, related to changes in fair value. All gains and losses are included in other expense in the consolidated statements of operations. The notionalprincipal associated with those contracts was $20 million, $37 million and $76 million as of December 31, 2018, 2017 and 2016,respectively. As of December 31, 2018, the Company’s financial instruments do not contain any credit-risk-related or other contingent features that could causeaccelerated payments when the Company’s financial instruments are in net liability positions. The Company does not use derivative financial instruments fortrading or speculative purposes. 66 13. Accumulated Other Comprehensive Income (Loss)The components of accumulated other comprehensive income (loss) are as follows (in millions): Foreign Currency Translation Adjustments Balance at December 31, 2017 (105)Other comprehensive loss (38)Balance at December 31, 2018 (143) The Company’s reporting currency is the U.S. dollar. A majority of the Company’s international entities in which there is a substantial investment have thelocal currency as their functional currency. As a result, foreign currency translation adjustments resulting from the process of translating the entities’ financialstatements into the reporting currency are reported in other comprehensive income (loss) in accordance with ASC Topic 830 “Foreign Currency Matters”. 14. Business SegmentsThe Company has five operating segments, which are (1) U.S. Energy, (2) U.S. Supply Chain, (3) U.S. Process Solutions, (4) Canada and (5) International.These operating segments were determined based primarily on the geographical markets and secondarily on the distribution channel of the products andservices offered. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluatedregularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company’s chief executive officerhas been identified as the chief operating decision maker. The Company’s chief operating decision maker directs the allocation of resources to operatingsegments based on various metrics of each respective operating segment. The allocation of resources across the operating segments is dependent upon,among other factors, the operating segment’s historical or future expected operating margins; the operating segment’s historical or future expected return oncapital; outlook within a specific market; opportunities to grow profitability; new products or new customer accounts; confidence in management; andcompetitive landscape and intensity.The Company has determined that there are three reportable segments: (1) United States, (2) Canada and (3) International. The U.S. Energy, U.S. SupplyChain and U.S. Process Solutions operating segments were not separately reported as they exhibit similar long term economic characteristics, the nature of theproducts offered are similar, purchase many identical products from outside vendors, have similar customers, sell products directly to end-users and operate insimilar regulatory environments. They have been aggregated in to the United States reportable segment. Total assets for each reportable segment are thoseowned or allocated to each segment by the Company's internal management reporting systems and include inter-segment assets that were eliminated for thepresentation of total assets in the accompanying consolidated balance sheets.United StatesThe Company has approximately 175 locations in the U.S., which are geographically positioned to serve the upstream, midstream and downstream energyand industrial markets.CanadaThe Company has a network of approximately 55 locations in the Canadian oilfield, predominantly in the oil rich provinces of Alberta and Saskatchewan inWestern Canada. The Company’s Canadian segment primarily serves the energy exploration, production, drilling and midstream business.InternationalThe Company operates in approximately 20 countries and serves the needs of its international customers from approximately 35 locations outside of the U.S.and Canada, all of which are strategically located in major oil and gas development areas. The Company’s International segment primarily serves the energyexploration, production and drilling business.67 The following table presents financial information for each of the Company’s reportable segments as of and for the year ended December 31 (in millions): United States Canada International Total 2018 Revenue $2,371 $358 $398 $3,127 Operating profit 57 14 2 73 Depreciation and amortization 30 2 9 41 Property, plant and equipment, net 73 12 21 106 Total assets 1,272 399 124 1,795 2017 Revenue $1,914 $356 $378 $2,648 Operating profit (loss) (53) 13 (1) (41)Depreciation and amortization 37 3 10 50 Property, plant and equipment, net 81 14 24 119 Total assets 1,207 401 141 1,749 2016 Revenue $1,445 $258 $404 $2,107 Operating loss (192) (18) (12) (222)Depreciation and amortization 40 3 10 53 Property, plant and equipment, net 104 15 24 143 Total assets 1,112 306 185 1,603 The following table presents a comparison of the approximate sales mix in the principal product categories (in millions): December 31, 2018 2017 2016 Product Category Drilling and production $691 $625 $496 Pipe 587 418 287 Valves 664 541 374 Fittings and flanges 523 419 350 Mill tool, MRO, safety and other 662 645 600 Total $3,127 $2,648 $2,107 15. Earnings Per Share (“EPS”)Basic earnings (loss) per share is based on net income (loss) attributable to the Company’s earnings and is calculated based upon the daily weighted-averagenumber of common shares outstanding during the periods presented. Also, this calculation includes fully vested stock and unit awards that have not yet beenissued as common stock. Diluted EPS includes the above, plus unvested stock, unit or option awards granted and vested unexercised stock options, but onlyto the extent these instruments dilute earnings (loss) per share. For the year ended December 31, 2018, a total of approximately 5 million of potentially dilutive shares were excluded from the computation of dilutedearnings per share due to their antidilutive effect. For the years ended December 31, 2017 and 2016, a total of approximately 8 million and 7 millionpotentially dilutive shares were excluded from the computation of diluted loss per share due to the Company recognizing a net loss for the period. 68 Basic and diluted earnings (loss) per share follows (in millions, except share data): December 31, 2018 2017 2016 Numerator: Net income (loss) attributable to the Company $52 $(52) $(234) Less: net income attributable to participating securities (1) — — Net income (loss) attributable to the Company's stockholders $51 $(52) $(234)Denominator: Weighted-average basic common shares outstanding 108,296,155 107,745,229 107,416,181 Effect of dilutive securities 341,489 — — Weighted-average diluted common shares outstanding 108,637,644 107,745,229 107,416,181 Earnings (loss) per share attributable to the Company's stockholders: Basic $0.47 $(0.48) $(2.18)Diluted $0.47 $(0.48) $(2.18) ASC Topic 260, “Earnings Per Share,” requires companies with unvested participating securities to utilize a two-class method for the computation of netincome attributable to the Company per share. The two-class method requires a portion of net income attributable to the Company to be allocated toparticipating securities, which are unvested awards of share-based payments with non-forfeitable rights to receive dividends or dividend equivalents, ifdeclared. Net losses are not allocated to nonvested shares in periods that the Company determines that those shares are not obligated to participate inlosses. For the periods that the Company recognized net income, net income attributable to the Company allocated to these participating securities wasexcluded from net income attributable to the Company’s stockholders in the numerator of the earnings per share computation.16. Stock-based Compensation and Outstanding AwardsUnder the terms of the NOW Inc. Long Term Incentive Plan (the “Plan”), 16 million shares of the Company’s common stock were authorized for grant toemployees, non-employee directors and other persons. The Plan provides for the grant of stock options, restricted stock units and performance stock awards. Stock-based compensation expense recognized for the years ended December 31, 2018, 2017 and 2016 totaled $16 million, $20 million and $23 million,respectively. The tax effected benefit for share-based compensation arrangements was $3 million, $7 million, and $6 million for the years ended December31, 2018, 2017 and 2016, respectively. Each of the stock-based compensation arrangements are discussed below. Stock OptionsStock option awards are generally granted with an exercise price equal to the market price of the Company’s stock at the date of grant. Stock option awardsgenerally have either a 7-year or a 10-year contractual term and vest over a 3-year period from the grant date on a straight-line basis over the requisite serviceperiod for each separately vesting portion of the award as if the award was, in-substance, multiple awards. The grant-date fair value of stock options isdetermined using the Black-Scholes framework. Additionally, the Company’s stock options provide for full vesting of unvested outstanding options, in theevent of a change of control of the Company and a change in the holder’s responsibilities following a change in control of the Company.69 For the stock options granted in 2018, 2017 and 2016, the fair value of each option award was estimated on the date of grant using the Black-Scholesframework that uses the assumptions noted in the table below. The expected volatility was based on the implied volatility on the Company’s stock, historicalvolatility of the Company’s stock, and the historical volatility of other, similar companies. The risk-free rate was based on the U.S. Treasury yield curve ineffect at the time of grant for the period consistent with the expected term. The expected dividends were based on the Company’s history and expectation ofdividend payouts. The expected term was based on the average of the vesting period and contractual term. December 31, 2018 2017 2016 Valuation Assumptions: Expected volatility 44.2% 37.9% 44.0%Risk-free interest rate 2.7% 1.9% 1.3%Expected dividends (per share) $— $— $— Expected term (in years) 4.5 4.5 4.5 The following table summarizes award activity for stock options: Stock Options Shares(in thousands) Weighted-AverageExercisePrice Weighted-AverageRemainingContractualTerm(in years) AggregateIntrinsic Value(in millions) Outstanding as of December 31, 2017 5,630 $25.97 Granted 1,807 9.90 Forfeited and expired (1,915) 29.79 Exercised (39) 13.27 Outstanding as of December 31, 2018 5,483 $19.43 4.7 $3 Exercisable at December 31, 2018 2,917 $25.37 3.8 $— The weighted average grant-date fair value of options granted for the years ended December 31, 2018, 2017 and 2016 was $3.95, $7.07 and $5.29,respectively. The total intrinsic value of options exercised for the years ended December 31, 2018, 2017, and 2016 was less than $1 million. As of December31, 2018, unrecognized compensation cost related to stock option awards was approximately $7 million, which is expected to be recognized over a weightedaverage period of 1.7 years. Cash received from exercises of stock options was approximately $1 million for the year ended December 31, 2018. Restricted Stock Awards and Restricted Stock Units (“RSAs and RSUs”)Restricted stock generally cliff vests after 1, 3, 4 or 6 years. The grant-date fair value of restricted stock grants is determined using the closing quoted marketprice on the grant date. Additionally, the Company’s restricted stock agreements provide for full vesting of restricted stock in the event of a change of controlof the Company and a change in the holder’s responsibilities following a change in control of the Company. The following table summarizes award activity for restricted stock awards and restricted stock units: RSAs / RSUs Shares(in thousands) Weighted-AverageGrant-DateFair Value Nonvested as of December 31, 2017 1,678 $25.99 Granted 357 10.82 Vested (1) (441) 29.02 Forfeited (79) 21.18 Nonvested as of December 31, 2018 1,515 $21.78 (1)113 thousand shares were withheld and retired from the vesting of shares to employees to satisfy minimum tax withholding.70 The weighted average grant-date fair value was $10.82, $15.87, and $14.71 for RSAs and RSUs granted for the years ended December 31, 2018, 2017, and2016, respectively. As of December 31, 2018, unrecognized compensation cost related to RSAs and RSUs was $11 million, which is expected to berecognized over a weighted average period of 1.5 years. The total vest-date fair value of shares vested for the years ended December 31, 2018, 2017, and 2016was $7 million, $12 million, and $6 million, respectively. Performance Stock Awards (“PSAs”)Performance stock awards generally have a 3-year vesting period from the grant date and vest at the end of the vesting period. The grant-date fair value ofmarket-condition performance stock grants is determined using a Monte Carlo simulation probabilistic model. The grant-date fair value of performance-condition performance stock grants is determined using the closing quoted market price on the grant date. Additionally, the Company’s performance awardagreements provide for full vesting of performance awards at the target level in the event of a change of control of the Company and a change in the holder’sresponsibilities following a change in control of the Company. For the year ended December 31, 2018, the Company granted PSAs to senior management employees with potential payouts varying from zero to 364,518shares. The PSAs can be earned over a three-year performance period, based on three equal, independent parts that are subject to three separate performancemetrics: (i) one-third of the PSAs have a Total Shareholder Return (TSR) metric (market-condition), (ii) one-third of the PSAs have an EBITDA metric(performance-condition), and (iii) one-third of the PSAs have a Working Capital (WC) metric (performance-condition). Performance against the TSR metric is determined by comparing the performance of the Company’s TSR with the TSR performance of designated peercompanies for the three-year performance period. Performance against the EBITDA metric is determined by comparing the performance of the Company’sactual EBITDA average for each of the three-years of the performance period against the EBITDA metrics set by the Company’s Compensation Committee ofthe Board of Directors. Performance against the WC metric is determined by comparing the performance of the Company’s actual WC average for each of thethree-years of the performance period against the WC metrics set by the Company’s Compensation Committee of the Board of Directors.The following table summarizes award activity for performance stock awards: PSAs Shares(in thousands) Weighted-AverageGrant-DateFair Value Nonvested as of December 31, 2017 317 $19.86 Granted 202 11.81 Vested (1) (44) 22.44 Forfeited (62) 23.25 Nonvested as of December 31, 2018 413 $15.13 (1)14 thousand shares were withheld and retired from the vesting of shares to employees to satisfy minimum tax withholding. The weighted average grant-date fair value of PSAs granted for the years ended December 31, 2018, 2017 and 2016 was $11.81, $22.75 and $16.47respectively. As of December 31, 2018, unrecognized compensation cost related to PSAs was $3 million, which is expected to be recognized over a weightedaverage period of 1.2 years. The total vest-date fair value of PSAs vested during the year ended December 31, 2018 was less than $1 million. 71 17. Quarterly Financial Data (Unaudited)Summarized quarterly results were as follows (in millions, except per share data): FirstQuarter SecondQuarter ThirdQuarter FourthQuarter Year ended December 31, 2018 Revenue $764 $777 $822 $764 Operating expenses Cost of products 616 620 654 607 Warehousing, selling and administrative 141 139 142 135 Operating profit 7 18 26 22 Net income $2 $14 $20 $16 Earnings per share: Basic earnings per common share $0.02 $0.12 $0.18 $0.14 Diluted earnings per common share $0.02 $0.12 $0.18 $0.14 Year ended December 31, 2017 Revenue $631 $651 $697 $669 Operating expenses Cost of products 517 527 562 541 Warehousing, selling and administrative 135 138 141 128 Operating profit (loss) (21) (14) (6) — Net loss $(23) $(17) $(9) $(3)Loss per share: Basic loss per common share $(0.21) $(0.16) $(0.08) $(0.03)Diluted loss per common share $(0.21) $(0.16) $(0.08) $(0.03) 18. Employee Bargaining Agreements and Benefit PlansCollective bargaining agreementsAt December 31, 2018, the Company had approximately 4,500 employees, of which approximately 200 were temporary employees. Some of the Company’semployees in various foreign locations are subject to collective bargaining agreements. Less than one percent of the Company’s employees in the U.S. aresubject to collective bargaining agreements.Benefit plansThe Company has benefit plans covering substantially all of its employees. Defined contribution benefit plans cover most of the U.S. and Canadianemployees, and benefits are based on years of service, a percentage of current earnings and matching of employee contributions. For the years endedDecember 31, 2018, 2017 and 2016, employer contributions for defined contribution plans were $13 million, $12 million, and $13 million, respectively, andall funding is current.The Company has a non-qualified deferred compensation plan (the “NQDC Plan”) for certain members of senior management. NQDC Plan assets are investedin mutual funds held in a “rabbi trust,” which is restricted for payment to participants of the NQDC Plan. Such equity securities held in a rabbi trust aremeasured using quoted market prices at the reporting date (Level 1 within the fair value hierarchy) and are included in other assets, with the correspondingliability included in other long-term liabilities in the consolidated balance sheets. 72 Defined Benefit Pension PlansThe Company sponsors two defined benefit plans in the United Kingdom under which accrual of pension benefits have ceased. Plan member benefits thathave previously been accrued are indexed in line with inflation during the period up to retirement in order to protect their purchasing power. The seconddefined benefit plan was acquired from the John MacLean & Sons Electrical acquisition in March 2015. Net periodic benefit cost for the Company’s definedbenefit plans aggregated less than $1 million each year for the years ended December 31, 2018, 2017 and 2016 are included in warehousing, selling andadministrative in the consolidated statement of operations. The change in benefit obligation, plan assets and the funded status of the defined benefit pension plans in the United Kingdom using a measurement date ofDecember 31, 2018 and 2017, are as follows (in millions): Pension Benefits At year end 2018 2017 Benefit obligation at beginning of year $13 $13 Interest cost — — Actuarial loss (gain) 1 1 Benefits paid — — Plan settlements (3) — Foreign currency exchange rate changes — (1)Benefit obligation at end of year 11 13 Fair value of plan assets at beginning of year $18 $15 Actual return — 2 Benefits paid — — Company contributions — 1 Plan settlements (3) — Foreign currency exchange rate changes — — Fair value of plan assets at end of year 15 18 Funded status 4 5 Accumulated benefit obligation at end of year 11 13 The net asset is presented within other assets in the consolidated balance sheets. Assumed long-term rates of return on plan assets and discount rates vary for the different plans according to the local economic conditions. The assumptionrates used for benefit obligations are as follows: December 31, 2018 2017 Discount rate: 2.65% - 2.90% 2.50% The assumption rates used for net periodic benefit costs are as follows: December 31, 2018 2017 2016 Discount rate: 2.50% 2.70% 3.70% Expected return on assets: 3.10% - 4.17% 3.27% - 4.27% 4.04% - 4.50% In determining the overall expected long-term rate of return for plan assets, the Company takes into consideration the historical experience as well as futureexpectations of the asset mix involved. As different investments yield different returns, each asset category is reviewed individually and then weighted forsignificance in relation to the total portfolio.Both plans have plan assets in excess of projected benefit obligations. The Company expects to pay future benefit amounts on its defined benefit plans ofless than $1 million for each of the next five years and in the aggregate $2 million for the five years thereafter. The Company expects to contribute less than$1 million to its defined benefit pension plans in 2019. 73 The Company and its investment advisers collaboratively reviewed market opportunities using historic and statistical data, as well as the actuarial valuationreports for the plans, to ensure that the levels of acceptable return and risk are well-defined and monitored. Currently, the Company’s management believesthat there are no significant concentrations of risk associated with plan assets.The following table sets forth by level, within the fair value hierarchy, the plan’s assets carried at fair value (in millions): Fair Value Measurements Total Level 1 Level 2 Level 3 December 31, 2018: Equity securities $5 $5 $— $— Fixed income securities 5 5 — — Other 5 — 5 — Total fair value measurements $15 $10 $5 $— December 31, 2017: Equity securities $10 $10 $— $— Fixed income securities 3 3 — — Other 5 — 5 — Total fair value measurements $18 $13 $5 $— 19. AcquisitionsOn June 1, 2016, the Company acquired Power Service, Inc., Industrial Tool & Repair, Inc. and Power Transportation LLC (collectively, “Power Service”) fora purchase price consideration of $179 million. The Company has included the financial results of the acquisition in its consolidated financial statementsfrom the date of the acquisition. As of May 31, 2017, the Company completed its valuations of this acquisition as of the acquisition date and recognizedgoodwill of $119 million and intangible assets of $45 million. The measurement period adjustments are shown below, primarily as a result of making anelection in 2016 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.Following is the purchase price allocation detail and the measurement period adjustments (in millions): As initiallyreported Measurementperiodadjustments As adjusted Net purchase price $176 $3 $179 Fair value of net assets acquired: Current assets other than cash 26 — 26 Property, plant and equipment 12 (1) 11 Trade names (estimated useful lives of 20 years) 21 (1) 20 Customer relationships (estimated useful lives of 10 years) 25 — 25 Current liabilities (19) (2) (21)Deferred tax liabilities (19) 18 (1)Total fair value of net assets acquired $46 $14 $60 Goodwill(1) $130 $(11) $119(1)The amount of goodwill represents the excess of its purchase price over the fair value of net assets acquired. Goodwill includes the expected benefits that the Companybelieves will result from combining its operations with those of businesses acquired. The amount of goodwill recognized that is expected to be deductible for income taxpurposes is $116 million. The Purchase Agreement with Power Service contains non-compete agreements with certain employees. The Company identified these agreements as aseparate transaction and recognized a non-compete intangible asset of $7 million with a two-year life. The Company recognized $2 million in acquisition-related costs for the year ended December 31, 2016. The Company has not presented supplemental pro forma information because the acquired operations didnot materially impact the Company’s consolidated operating results.74 Exhibit 21.1SUBSIDIARIES OF THE REGISTRANT NameCountryAnnasbrook Supply Company LimitedUnited KingdomAtlas Industrial and Marine Supply LimitedUnited KingdomCapital Valves Holdings LimitedUnited KingdomCapital Valves LimitedUnited KingdomDistribution NOW FZEUnited Arab EmiratesDNOW Australia Pty. Ltd.AustraliaDNOW BRASIL DISTRIBUICAO DE PRODUTOS INDUSTRIAIS LTDA.BrazilDNOW Canada ULCCanadaDNOW de Mexico S de RL de CVMexicoDNOW L.P.United StatesDNOW Singapore Pte. Ltd.SingaporeDNOW UK LimitedUnited KingdomDNOW Wilson USVI, LLCVirgin Islands, U.S.GROUP KZ LLPKazakhstanIstok Business Services LLCRussian FederationJT Day Pty LtdAustraliaLight & Energy Design LimitedUnited KingdomLight & Energy Distribution LimitedUnited KingdomMachine Tools Supply de Mexico S. de RL de CVMexicoMacLean Electrical (Australia) Pty LimitedAustraliaMacLean Electrical Group LimitedUnited KingdomMacLean Marine LimitedUnited KingdomMT Supply, Inc.United StatesMTS Supply Chain Services Ltd.United KingdomNorth Sea Cables LimitedUnited KingdomNoskab LimitedUnited KingdomNOW Brazil Holding LLCUnited StatesNOW Canada Holding B.V.NetherlandsNOW Canada Holding ULCCanadaNOW Cooperatief I U.A.NetherlandsNOW Cooperatief II U.A.NetherlandsNOW Distribution (Shanghai) Co., Ltd.ChinaNOW Distribution Eurasia, LLCRussian FederationNOW Distribution India Private LimitedIndiaNOW Holding Cooperatief U.A.NetherlandsNOW Holding LLCUnited StatesNOW I LLCUnited StatesNOW Inc.United StatesNOW Indonesia Holding B.V.NetherlandsNOW Indonesia Holding LLCUnited StatesNOW Management, LLCUnited StatesNOW Mexico Holding I B.V.NetherlandsNOW Mexico Holding II B.V.NetherlandsNow Muscat LLCOmanNOW Netherlands B.V.NetherlandsNOW Norway ASNorwayNOW Russia Holding B.V.NetherlandsNow Saudi Arabia LimitedSaudi ArabiaNOW Singapore Holding LLCUnited StatesOaasis Group LimitedUnited KingdomOdessa Pumps and Equipment, Inc.United StatesOutland Safety and Industrial Products LimitedUnited KingdomPower Service, Inc.United StatesPower Transportation, LLCUnited StatesPT. NOW IndonesiaIndonesiaR.A. Hall LimitedUnited KingdomWilson Distribution Holdings BVNetherlandsWilson International, Inc.United StatesWilson Libya Holdings, LLCUnited StatesWilson Supply Chain Services LimitedVirgin Islands, BritishWilson United Kingdom LimitedUnited KingdomWILSONCOS, L.L.C.United States Exhibit 23.1Consent of Independent Registered Public Accounting FirmWe consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-196529) pertaining to the NOW Inc. Long-Term Incentive Planand the NOW Inc. 401(k) and Retirement Savings Plan of our reports dated February 14, 2019, with respect to the consolidated financial statements of NOWInc. and the effectiveness of internal control over financial reporting of NOW Inc. included in this Annual Report (Form 10-K) for the year endedDecember 31, 2018./s/ Ernst & Young LLPHouston, TexasFebruary 14, 2019 Exhibit 31.1CERTIFICATIONI, Robert R. Workman, certify that:1. I have reviewed this annual report on Form 10-K of NOW Inc.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrantand have:a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure thatmaterial information relating to the registrant, including its combined subsidiaries, is made known to us by others within those entities, particularly duringthe period in which this report is being prepared;b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles;c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of thedisclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the registrant’s ability to record, process, summarize and report financial information; andb) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting. Date: February 14, 2019 By: /s/ Robert R. Workman Robert R. Workman President and Chief Executive Officer Exhibit 31.2CERTIFICATIONI, David A. Cherechinsky, certify that:1. I have reviewed this annual report on Form 10-K of NOW Inc.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrantand have:a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure thatmaterial information relating to the registrant, including its combined subsidiaries, is made known to us by others within those entities, particularly duringthe period in which this report is being prepared;b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles;c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of thedisclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the registrant’s ability to record, process, summarize and report financial information; andb) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting. Date: February 14, 2019 By: /s/ David A. Cherechinsky David A. Cherechinsky Senior Vice President and Chief Financial Officer Exhibit 32.1CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of NOW Inc. (the “Company”) on Form 10-K for the period ending December 31, 2018 as filed with the Securities andExchange Commission on the date hereof (the “Report”), the undersigned, Robert R. Workman, President and Chief Executive Officer of the Company,hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:(i) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and(ii) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.The certification is given to the knowledge of the undersigned. Date: February 14, 2019 By: /s/ Robert R. Workman Robert R. Workman President and Chief Executive Officer Exhibit 32.2CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of NOW Inc. (the “Company”) on Form 10-K for the period ending December 31, 2018 as filed with the Securities andExchange Commission on the date hereof (the “Report”), the undersigned, David A. Cherechinsky, Senior Vice President and Chief Financial Officer of theCompany, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:(i) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and(ii) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.The certification is given to the knowledge of the undersigned. Date: February 14, 2019 By: /s/ David A. Cherechinsky David A. Cherechinsky Senior Vice President and Chief Financial Officer
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