19. Acquisitions

2016 Acquisition

On June 1, 2016, the Company acquired Power Service, Inc., Industrial Tool & Repair, Inc. and Power Transportation LLC (collectively, “Power Service”) for a purchase price consideration of $179 million. Power Service is known as a premier one-stop shop for modularized well hook-ups. This acquisition primarily expands NOW’s market in the western United States. The Company has included the financial results of the acquisition in its consolidated financial statements from the date of the acquisition.

As of May 31, 2017, the Company completed its valuations of this acquisition as of the acquisition date and recognized goodwill of $119 million and intangible assets of $45 million.

The measurement period adjustments are shown below, primarily as a result of making an election under Internal Revenue Code Section 338(h)(10) to treat the acquisition of Power Service, Inc. as an asset acquisition for U.S. tax purposes during the fourth quarter of 2016 (see Note 9 “Income Taxes”). Following is the purchase price allocation detail and the measurement period adjustments (in millions):

	As initially reported			Measurement period adjustments			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 Company believes will result from combining its operations with those of businesses acquired. The amount of goodwill recognized that is expected to be deductible for income tax purposes is $116 million.

The Purchase Agreement with Power Service contains non-compete agreements with certain employees. The Company identified these agreements as a separate transaction and recognized a non-compete intangible asset of $7 million with a two-year life. Amortization expense for these agreements recognized for the year ended December 31, 2016 was approximately $2 million.

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 did not materially impact the Company’s consolidated operating results.

2015 Acquisitions

For the year ended December 31, 2015, the Company completed eight acquisitions for an aggregate purchase price consideration of approximately $544 million in cash. These acquisitions primarily expand NOW’s market in Australia, Canada, Mexico, Norway, the Philippines, the United Kingdom and the United States. The Company has included the financial results of the acquisitions in its consolidated financial statements from the date of acquisition. In connection with one of the acquisitions, the Company agreed to make contingent consideration payments of up to $6 million upon the attainment of certain profitability milestones. At the acquisition date, the Company estimated the fair value for contingent consideration to be approximately $4 million by using a Monte Carlo simulation using level 3 inputs because the fair value was derived using significant unobservable inputs, which include discount rates and probability-weighted cash flows. Changes in fair value of the contingent consideration liability subsequent to the acquisition date, such as changes in the probability assessment, are recognized in the period when the change in estimated fair value occurs. For the year ended December 31, 2016, the Company recognized less than $1 million gain in warehousing, selling and administrative in the accompanying consolidated statements of operations.

The Company completed its valuations as of the applicable acquisition dates of the acquired net assets and recognized goodwill of $276 million and intangible assets of $103 million. An aggregated working capital adjustment of $6 million was recognized during the measurement period for the year ended December 31, 2015.

The following table summarizes the consideration paid for the eight acquisitions and the assets acquired and liabilities assumed recognized (in millions):

	As of December 31, 2015
Purchase price including contingent consideration				$	544
Less: cash acquired					(29	)
Net purchase price					515
Fair value of net assets acquired:
Current assets other than cash		181
Property, plant and equipment		59
Trade names (estimated useful lives of 1-20 years)		24
Customer relationships (estimated useful lives of 6-10 years)		79
Current liabilities		(72	)
Deferred tax liabilities		(31	)
Other non-current liability		(1	)
Total fair value of net assets acquired					239
Goodwill ⁽¹⁾					276

⁽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 Company believes will result from combining its operations with those of businesses acquired. An immaterial amount of the goodwill recognized is expected to be deductible for income tax purposes.

For the year ended December 31, 2015, the Company recognized $6 million in acquisition-related costs. Actual results included in the consolidated statements of operations for the Company’s acquisitions consist of approximately $341 million revenues and $171 million net loss for the year ended December 31, 2015.

Pro Forma Financial Information (unaudited)

The following unaudited pro forma information has been presented as if the acquisitions occurred on January 1, 2014. This information is based on historical results of operations, adjusted to give effect to pro forma events that are directly attributable to the acquisitions and factually supportable. Additionally, certain pro forma adjustments have been made to the historical results in order to (i) present them in U.S. dollars; (ii) align accounting periods; (iii) conform their statutory income tax rates to those applied by the Company; (iv) reflect the increase of cost of goods sold, depreciation and amortization from the fair value step-up as if the acquisitions had occurred on January 1, 2014.

The pro forma information is for informational purposes only and is not indicative of the results of operations that would have been achieved had the acquisitions occurred at the beginning of fiscal year 2014 (in millions).

	December 31,
	2015			2014
Revenue	$	3,255		$	4,847
Net loss	$	(482	)	$	(131	)