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$DNOW
·
10-K
DNOW Inc. · Feb 25, 9:26 PM ET
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DNOW Inc. 10-K
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Contents
174
ITEM 1. BUSINESS
Overview
General
Business Strategy
Sales and Marketing
Operations
Products
Services
Customers
Digital Customer Services
Suppliers
Seasonality
Competition
Human Capital
Sustainability
Environmental Matters
Exchange Rate Information
Available Information
ITEM 1A. RISK FACTORS
Risk Factors Summary
Risks Relating to Our Business
Risks Relating to the MRC Global Merger
Risks Relating to Our Supply Chain and International Trade Policies
Risks Relating to Legal and Regulatory Matters
Risks Relating to Our Common Stock
Risks Relating to Our Business
Risks Relating to the MRC Global Merger
Risks Relating to Our Supply Chain and International Trade Policies
Risks Relating to Legal and Regulatory Matters
Risks Relating to Our Common Stock
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1C. CYBERSECURITY
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. MINE SAFETY DISCLOSURES
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Quarterly Common Stock Prices and Cash Dividends Per Share
Performance Graph
ITEM 6. RESERVED
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Basis of Presentation
Reclassification
Change in Accounting Principles
General Overview
Key Drivers of Our Business
Recent Trends and Outlook
Upstream
Midstream
Gas Utilities
Downstream and Industrial
Supply Chain
Operating Environment Overview
Longer Term Outlook
Results of Operations
Financial Condition and Cash Flows
Liquidity and Capital Resources
Share Repurchase Program
Legal Proceedings
Off-Balance Sheet Arrangements
Critical Accounting Estimates
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
Management’s Annual Report on Internal Control Over Financial Reporting
ITEM 9B. OTHER INFORMATION
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(1) Financial Statements and Exhibits
(2) Financial Statement Schedule
(3) Exhibits
SIGNATURES
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
1. Organization and Basis of Presentation
Nature of Operations
Basis of Presentation
Reclassification
Change in Accounting Principles
Recently Issued Accounting Standards
In December 2025, the FASB issued Accounting Standards Update (“ASU”) 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements which clarifies the interim reporting requirements by improving navigability of Topic 270 and more clearly specifying what disclosures are required in an interim reporting period. It is not intended to significantly change interim reporting or expand or reduce interim disclosure requirements. ASU 2025-11 is effective for public business entities for interim reporting periods within annual reporting periods beginning after December 15, 2027, with early adoption permitted. The Company is currently assessing the impact of ASU 2025-11 in its consolidated financial statements and its disclosures.
In September 2025, the FASB issued ASU 2025-06, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software, which is intended to modernize the accounting for internal-use software costs by removing the previous “development stage” model and introducing a model that aligns with current software development methods, such as the agile approach. Capitalization of eligible costs will begin when management has authorized and committed to funding the software project and it is probable the project will be completed and the software will be used for the function intended. This update will be effective for annual periods beginning after December 15, 2027, and interim reporting periods within those annual periods. Entities may apply the guidance using a prospective, retrospective or modified transition approach. Early adoption is permitted as of the beginning of an annual period. The Company is currently assessing the impact of the provisions of ASU 2025-06 in its consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires more detailed information related to types of expenses in commonly presented captions in income statements. ASU 2024-03 is effective for annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The Company will not early adopt, and is currently assessing the impact of ASU 2024-03 in its consolidated financial statements and its disclosures.
Recently Adopted Accounting Standards
In July 2025, the FASB issued ASU 2025-05, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets, which provides all entities with a practical expedient for estimating expected credit losses on current trade receivables and contract assets under Topic 606. The practical expedient allows entities to assume that current conditions as of the balance sheet date remain unchanged for the remaining life of the asset. ASU 2025-05 is effective for fiscal years beginning after December 15, 2025, with early adoption permitted. The Company early adopted this standard effective September 30, 2025. The adoption of this standard did not have a material impact on its consolidated financial statements. See Note 2 “Summary of Significant Accounting Policies” and Note 4 “Receivables, net” for additional information.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740), which requires public companies to expand the income tax disclosures. The ASU requires entities to disclose more detailed information in their effective tax rate reconciliation and their cash taxes paid both in the U.S., state and foreign jurisdictions. ASU 2023-09 is effective for annual periods beginning after December 15, 2024, with early adoption permitted for annual financial statements that have not yet been issued. For the fiscal year ended December 31, 2025, the Company adopted this standard using the allowed prospective transition method. See Note 10 “Income Taxes” for additional information.
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents
Fair Value Measurement
Inventories
Property, Plant and Equipment
Long-lived Assets, Excluding Goodwill and Indefinite-lived Intangible Assets
Goodwill and Indefinite-lived Intangible Assets
Foreign Currency
Revenue Recognition
Cost of Products
Income Taxes
Concentration of Credit Risk and Allowance for Credit Losses
Stock-Based Compensation
Use of Estimates
Contingencies
3. Revenue
Remaining Performance Obligations
Contract Balances
Disaggregated Revenue
4. Receivables, net
5. Inventories, net
Inventories consist primarily of (in millions):
6. Property, Plant and Equipment, net
7. Accrued Liabilities
8. Goodwill
9. Intangibles, net
10. Income Taxes
11. Debt
12. Stockholders’ Equity
Preferred Stock
The Company has authorized 20 million shares of undesignated preferred stock. The Board of Directors has the authority to issue shares of the preferred stock. As of December 31, 2025 and 2024, there were no shares of preferred stock issued and outstanding.
Common Stock
On November 6, 2025, the Company issued 82 million shares of common stock to former shareholders of MRC Global in connection with the closing of its acquisition of MRC Global.
Share Repurchase Program
On August 3, 2022, the Company’s Board of Directors approved a share repurchase program, under which the Company was authorized to purchase up to $80 million of its outstanding common stock through December 31, 2024. The Company fully utilized this $80 million repurchase program as of December 31, 2024. On January 24, 2025, the Company’s Board of Directors authorized a new share repurchase program to purchase up to $160 million of its outstanding common stock. The Company may from time to time repurchase common stock through various methods, including, but not limited to, open market, privately negotiated transaction, or by other means which comply with applicable state and federal securities laws. The amount and timing of any repurchase will depend on several factors, including share price, general business and market conditions, and alternative investment opportunities. The share repurchase program does not obligate the Company to repurchase shares and may be suspended or discontinued at any time at the Company's discretion. All shares repurchased shall be retired pursuant to the terms of the share repurchase program. Depending on the timing of the retirement and cash settlement of the repurchased shares, the Company could have shares held in treasury stock until retired. Share repurchases made are subject to a 1% excise tax. The impact of this 1% excise tax was less than $1 million for the years ended December 31, 2025, 2024 and 2023.
Information regarding the shares repurchased was as follows:
Consolidated Variable Interest Entities ("VIE")
The Company conducts certain operations through contractual arrangements with certain entities that are considered VIEs. The Company is the primary beneficiary and consolidates the VIEs as it has the power to direct the activities that most significantly affect
the VIEs’ economic performance and has the obligation to absorb the VIEs’ losses or the right to receive benefits. For the years ended December 31, 2025, 2024 and 2023, net income attributable to noncontrolling interest was $1 million each year.
The assets of the VIEs can only be used to settle their own obligations and their creditors have no recourse to the Company’s assets. As of December 31, 2025 and 2024, the VIEs’ assets were primarily current assets of $24 million and $10 million, respectively, and the liabilities were primarily current liabilities of $8 million and $2 million, respectively.
13. Leases
14. Commitments and Contingencies
Legal Claims and Matters
Customer Contracts
Purchase Commitments
Warranty Claims
Letters of Credit
16. Business Segments
United States
Canada
International
17. Earnings Per Share (“EPS”)
18. Stock-based Compensation and Outstanding Awards
Restricted Stock Awards (“RSAs”)
Restricted Stock Units (“RSUs”)
19. Employee Benefit Plans
Benefit plans
Defined Benefit Pension Plans
20. Acquisitions
2025 Acquisitions
The Company completed its preliminary valuations as of the acquisition date of the acquired net assets and recognized goodwill of $383 million, $289 million in the U.S. segment and $94 million in the International segment, and intangible assets of $510 million in the U.S. segment, which are subject to change. The fair values of trade names in the acquisition were determined using a relief-from-royalty method, and customer relationships acquired were determined using a multi-period excess earnings method. These methods utilize unobservable inputs that are significant to these fair value measurements and thus classified as Level 3 inputs. The amounts recognized for assets acquired and liabilities assumed are provisional and subject to revision as more information becomes available. The primary areas of the preliminary valuation that are not yet finalized relate to the fair values of certain intangible assets pending the completion of a final third-party valuation report, the final determination of net working capital, and the tax basis of acquired assets and assumed liabilities. The Company expects to finalize the valuation and the purchase price allocation as soon as practicable but no later than one year from the acquisition date. Any adjustments to these provisional amounts will be recorded as an adjustment to goodwill.
The following table summarizes the purchase price allocation as of the acquisition date (in millions):
The Company has included the financial results of MRC Global in its consolidated financial statements from the date of the acquisition. For the year ended December 31, 2025, actual results included in the consolidated statements of operations consist of approximately $388 million of revenue and approximately $145 million of net loss from the acquisition. For the year ended December 31, 2025, the Company recognized approximately $40 million in acquisition-related costs included in selling, general and administrative expenses.
Pro Forma Financial Information (unaudited)
The unaudited pro forma information has been presented as if the acquisitions occurred on January 1, 2024. This information is based on historical results of operations, adjusted to give effect to pro forma events that are directly attributable to the acquisition and factually supportable. The pro forma information does not reflect any synergy savings that might have been achieved from combining the operations and is not intended to reflect the actual results that would have occurred had the companies actually been combined at the beginning of fiscal year 2024.
The unaudited pro forma revenue on consolidated statements of operations with the acquisition for the years ended December 31, 2025 and 2024 would be approximately $5,274 million and $5,556 million, respectively. The unaudited pro forma net income for the years ended December 31, 2025 and 2024 would be approximately $10 million and $17 million, respectively.
These amounts have been calculated by applying the Company’s accounting policies and adjusting for the incremental depreciation, amortization, interest and cost of products sold related to the fair value step-up, as if the acquisitions had occurred on January 1, 2024, including the consequential tax effects. Additionally, acquisition-related costs incurred during the year ended December 31, 2025, have been reclassified to the year ended December 31, 2024, along with the corresponding tax effects.
2024 Acquisitions
For the year ended December 31, 2024, the Company completed the acquisitions of Whitco Supply, LLC and Trojan Rentals, LLC for an aggregate purchase price consideration of approximately $299 million, net of cash acquired. These acquisitions expand the Company’s energy products and solutions in the U.S. The Company completed its valuations as of the applicable acquisition dates of the acquired net assets and recognized goodwill of $92 million and intangible assets of $41 million in the U.S. segment. For the year ended December 31, 2024, the Company recognized approximately $3 million in acquisition-related costs.
The following table summarizes the purchase price allocation detail as of the acquisition dates and the measurement period adjustments for acquisitions closed during fiscal year 2024 (in millions):
The Company has included the financial results of the acquisitions in its consolidated financial statements from the date of the acquisition. For the year ended December 31, 2024, actual results included in the consolidated statements of operations consist of approximately $297 million of revenue and approximately $15 million of net income from the acquisitions.
Pro Forma Financial Information (unaudited)
The unaudited pro forma information has been presented as if the acquisitions occurred on January 1, 2023. 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. 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 2023.
The unaudited pro forma revenue on consolidated statements of operations with the acquisitions for the years ended December 31, 2024 and 2023 would be approximately $2,545 million and $2,824 million, respectively. The unaudited pro forma net income for the years ended December 31, 2024 and 2023 would be approximately $108 million and $286 million, respectively.
These amounts have been calculated by applying the Company’s accounting policies and adjusting for the incremental depreciation, amortization, and cost of products sold related to the fair value step-up, as if the acquisitions had occurred on January 1, 2023, including the consequential tax effects. Additionally, acquisition-related costs incurred during the year ended December 31, 2024, have been reclassified to the year ended December 31, 2023, along with the corresponding tax effects.
2023 Acquisitions
For the year ended December 31, 2023, the Company completed two acquisitions for a net purchase price consideration of approximately $33 million cash. These acquisitions expand product line offerings and services to the Company's U.S. Process Solutions business. The Company has included the financial results of the acquisitions in its consolidated financial statements from the date of the acquisition.
The Company completed its valuations as of the acquisition date of the acquired net assets and recognized goodwill of $22 million and intangible assets of $9 million in the U.S. segment. The full amount of goodwill recognized is expected to be deductible for income tax purposes. The Company has not presented supplemental pro forma information because the acquired operations did not materially impact the Company’s consolidated operating results.
22. Subsequent Event
Subsequent to December 31, 2025, the Company entered into a purchase agreement to purchase the business of Edge Controls (“Edge”). The completion of this acquisition is subject to customary closing conditions, including regulatory approval. Edge is a leading provider of automation & controls, SCADA, pump, motor and drive products and services and expands the Company's product range, enhances the Company's automation capabilities and bolsters the Company's strong position in the horizontal pump market.
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