mrc20200630_10q.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________________________

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	FOR THE QUARTERLY PERIOD ENDED March 31, 2021

	OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______

Commission file number: 001-35479

MRC GLOBAL INC.

(Exact name of registrant as specified in its charter)

Delaware	20-5956993
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

Fulbright Tower 1301 McKinney Street, Suite 2300 Houston, Texas	77010
(Address of Principal Executive Offices)	(Zip Code)

(877) 294-7574
(Registrant’s Telephone Number, including Area Code)

________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01	MRC	New York Stock Exchange

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 12 months (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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 financial accounting 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 ☒

There were 82,505,851 shares of the registrant’s common stock (excluding 169,603 unvested restricted shares), par value $0.01 per share, issued and outstanding as of April 21, 2021.

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INDEX TO QUARTERLY REPORT ON FORM 10-Q

Page
PART I – FINANCIAL INFORMATION

ITEM 1.	financial statements (UNAUDITED)	1

	Condensed Consolidated Balance Sheets – march 31, 2021 AND DECEMBER 31, 2020	1

	cONdENSED cONSOLIDATED STATEMENTS OF OPERATIONS – THREE MONTHS ENDED March 31, 2021 AND March 31, 2020	2

	Condensed Consolidated Statements of cOMPREHENSIVE INCOME – three months ended March 31, 2021 AND March 31, 2020	3

	Condensed CONSOLIDATED STATEMENTS OF STOCKHOLDERs’ EQUITY – three MONTHS ENDEd March 31, 2021 AND March 31, 2020	4

	Condensed CONSOLIDATED STATEMENTS OF cash flows – three MONTHS ENDEd March 31, 2021 AND March 31, 2020	5

	Notes to the Condensed Consolidated Financial Statements – March 31, 2021	6

ITEM 2.	management’s discussion and analysis of financial condition and results of operations	16

ITEM 3.	quantitative and qualitative disclosures about market risk	25

ITEM 4.	controls and procedures	26

PART II – OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	27

ITEM 1a.	RISK FACTORS	27

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	27

ITEM 3.	Defaults Upon Senior Securities	27

ITEM 4.	MINING SAFETY DISCLOSURES	28

ITEM 5.	other information	28

ITEM 6.	Exhibits	29

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CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

MRC GLOBAL INC.

(in millions, except per share amounts)

	*March 31,*			*December 31,*
	*2021*			*2020*

Assets
Current assets:
Cash	$	132		$	119
Accounts receivable, net		369			319
Inventories, net		504			509
Other current assets		24			19
Total current assets		1,029			966

Long-term assets:
Operating lease assets		195			200
Property, plant and equipment, net		98			103
Other assets		19			19

Intangible assets:
Goodwill, net		264			264
Other intangible assets, net		222			229
	$	1,827		$	1,781

Liabilities and stockholders' equity
Current liabilities:
Trade accounts payable	$	338		$	264
Accrued expenses and other current liabilities		85			94
Operating lease liabilities		35			37
Current portion of long-term debt		105			4
Total current liabilities		563			399

Long-term liabilities:
Long-term debt, net		277			379
Operating lease liabilities		181			187
Deferred income taxes		71			70
Other liabilities		36			41

Commitments and contingencies

6.5% Series A Convertible Perpetual Preferred Stock, $0.01 par value; authorized 363,000 shares; 363,000 shares issued and outstanding		355			355

Stockholders' equity:
Common stock, $0.01 par value per share: 500 million shares authorized, 106,721,847 and 106,315,296 issued, respectively		1			1
Additional paid-in capital		1,742			1,739
Retained deficit		(790	)		(781	)
Less: Treasury stock at cost: 24,216,330 shares		(375	)		(375	)
Accumulated other comprehensive loss		(234	)		(234	)
		344			350
	$	1,827		$	1,781

See notes to condensed consolidated financial statements.

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

MRC GLOBAL INC.

(in millions, except per share amounts)

	*Three Months Ended*
	*March 31,*			*March 31,*
	*2021*			*2020*

Sales	$	609		$	794
Cost of sales		506			646
Gross profit		103			148
Selling, general and administrative expenses		100			126
Operating income		3			22
Other expense:
Interest expense		(6	)		(8	)
Other, net		-			-

(Loss) income before income taxes		(3	)		14
Income tax expense		-			5
Net (loss) income		(3	)		9
Series A preferred stock dividends		6			6
Net (loss) income attributable to common stockholders	$	(9	)	$	3


Basic (loss) income per common share	$	(0.11	)	$	0.04
Diluted (loss) income per common share	$	(0.11	)	$	0.04
Weighted-average common shares, basic		82.3			81.7
Weighted-average common shares, diluted		82.3			82.4

See notes to condensed consolidated financial statements.

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

MRC GLOBAL INC.

(in millions)

	*Three Months Ended*
	*March 31,*			*March 31,*
	*2021*			*2020*

Net (loss) income	$	(3	)	$	9

Other comprehensive (loss) income
Foreign currency translation adjustments		(1	)		(21	)
Hedge accounting adjustments, net of tax		1			(6	)
Total other comprehensive income (loss), net of tax		—			(27	)
Comprehensive loss	$	(3	)	$	(18	)

See notes to condensed consolidated financial statements.

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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

MRC GLOBAL INC.

(in millions)

	*Three Months Ended March 31, 2021*
																	*Accumulated*
					*Additional*												*Other*			*Total*
	*Common Stock*				*Paid-in*			*Retained*			*Treasury Stock*						*Comprehensive*			*Stockholders'*
	*Shares*		*Amount*		*Capital*			*(Deficit)*			*Shares*			*Amount*			*(Loss)*			*Equity*
Balance at December 31, 2020		106	$	1	$	1,739		$	(781	)		(24	)	$	(375	)	$	(234	)	$	350
Net loss		-		-		-			(3	)		-			-			-			(3	)
Foreign currency translation		-		-		-			-			-			-			(1	)		(1	)
Hedge accounting adjustments		-		-		-			-			-			-			1			1
Shares withheld for taxes		-		-		(2	)		-			-			-			-			(2	)
Vesting of stock awards		1		-		-			-			-			-			-			-
Equity-based compensation expense		-		-		5			-			-			-			-			5
Dividends declared on preferred stock		-		-		-			(6	)		-			-			-			(6	)
Balance at March 31, 2021		107	$	1	$	1,742		$	(790	)		(24	)	$	(375	)	$	(234	)	$	344

	*Three Months Ended March 31, 2020*
																	*Accumulated*
					*Additional*												*Other*			*Total*
	*Common Stock*				*Paid-in*			*Retained*			*Treasury Stock*						*Comprehensive*			*Stockholders'*
	*Shares*		*Amount*		*Capital*			*(Deficit)*			*Shares*			*Amount*			*(Loss)*			*Equity*
Balance at December 31, 2019		106	$	1	$	1,731		$	(483	)		(24	)	$	(375	)	$	(232	)	$	642
Net income		-		-		-			9			-			-			-			9
Foreign currency translation		-		-		-			-			-			-			(21	)		(21	)
Hedge accounting adjustments		-		-		-			-			-			-			(6	)		(6	)
Shares withheld for taxes		-		-		(3	)		-			-			-			-			(3	)
Equity-based compensation expense		-		-		2			-			-			-			-			2
Dividends declared on preferred stock		-		-		-			(6	)		-			-			-			(6	)
Balance at March 31, 2020		106	$	1	$	1,730		$	(480	)		(24	)	$	(375	)	$	(259	)	$	617

See notes to condensed consolidated financial statements.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

MRC GLOBAL INC.

(in millions)

	*Three Months Ended*
	*March 31,*			*March 31,*
	*2021*			*2020*

Operating activities
Net (loss) income	$	(3	)	$	9
Adjustments to reconcile net (loss) income to net cash provided by operations:
Depreciation and amortization		5			5
Amortization of intangibles		6			7
Equity-based compensation expense		5			2
Deferred income tax benefit		-			1
Increase (decrease) in LIFO reserve		4			(3	)
Provision for credit losses		-			6
Other		-			1
Changes in operating assets and liabilities:
Accounts receivable		(50	)		(33	)
Inventories		-			(4	)
Other current assets		(6	)		2
Accounts payable		75			49
Accrued expenses and other current liabilities		(12	)		(5	)
Net cash provided by operations		24			37

Investing activities
Purchases of property, plant and equipment		(2	)		(2	)
Other investing activities		1			-
Net cash used in investing activities		(1	)		(2	)

Financing activities
Payments on revolving credit facilities		(2	)		(228	)
Proceeds from revolving credit facilities		2			205
Payments on long-term obligations		(1	)		(4	)
Dividends paid on preferred stock		(6	)		(6	)
Repurchases of shares to satisfy tax withholdings		(2	)		(3	)
Net cash used in financing activities		(9	)		(36	)

Increase (decrease) in cash		14			(1	)
Effect of foreign exchange rate on cash		(1	)		(3	)
Cash -- beginning of period		119			32
Cash -- end of period	$	132		$	28

Supplemental disclosures of cash flow information:
Cash paid for interest	$	6		$	8
Cash paid for income taxes	$	2		$	1

See notes to condensed consolidated financial statements.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

MRC GLOBAL INC.

NOTE 1 – BACKGROUND AND BASIS OF PRESENTATION

Business Operations: MRC Global Inc. is a holding company headquartered in Houston, Texas. Our wholly owned subsidiaries are global distributors of pipe, valves, fittings (“PVF”) and related infrastructure products and services across each of the following sectors:

●		gas utilities (storage and distribution of natural gas)
●		downstream and industrial (crude oil refining and petrochemical and chemical processing and general industrials)
●		upstream production (exploration, production and extraction of underground oil and gas)
●		midstream pipeline (gathering, processing and transmission of oil and gas)

We have branches in principal industrial, hydrocarbon producing and refining areas throughout the United States, Canada, Europe, Asia, Australasia, the Middle East and Caspian. We obtain products from a broad range of suppliers.

Basis of Presentation: We have prepared our unaudited condensed consolidated financial statements in accordance with Rule 10-01 of Regulation S-X for interim financial statements. These statements do not include all information and footnotes that generally accepted accounting principles require for complete annual financial statements. However, the information in these statements reflects all normal recurring adjustments which are, in our opinion, necessary for a fair presentation of the results for the interim periods. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results that will be realized for the fiscal year ending December 31, 2021. We have derived our condensed consolidated balance sheet as of December 31, 2020 from the audited consolidated financial statements for the year ended December 31, 2020. You should read these condensed consolidated financial statements in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2020.

The consolidated financial statements include the accounts of MRC Global Inc. and its wholly owned and majority owned subsidiaries (collectively referred to as the “Company” or by such terms as “we,” “our” or “us”). All material intercompany balances and transactions have been eliminated in consolidation.

Recently Issued Accounting Pronouncements: In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt – Debt with Conversion and Other Options and Derivative Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) ("ASU 2020-06"), which simplifies guidance on the topics of convertible instruments, derivative contracts and earnings per share ("EPS") calculations. This update will be effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. We are currently evaluating the impacts of the provisions of ASU 2020-06 on our consolidated financial statements.

In March 2020, the FASB issued Accounting Standards Update ASU 2020-04, Reference Rate Reform (Topic 848) ("ASU 2020-04"), which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of certain reference rates, including the London Interbank Offered Rate ("LIBOR"). The amendments are effective for all entities as of March 12, 2020 through December 31, 2022. We are currently evaluating the impacts of the provisions of ASU 2020-04 on our consolidated financial statements.

Adoption of New Accounting Standards: In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, an update intended to simplify various aspects related to accounting for income taxes. This guidance removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance to improve consistent application. This accounting standards update was adopted as of January 1, 2021, but did not have a material impact on our consolidated financial statements.

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NOTE 2 – REVENUE RECOGNITION

We recognize revenue when we transfer control of promised goods or services to our customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. We recognize substantially all of our revenue when products are shipped or delivered to our customers, and payment is due from our customers at the time of billing with a majority of our customers having 30-day terms. We estimate and record returns as a reduction of revenue. Amounts received in advance of shipment are deferred and recognized when the performance obligations are satisfied. Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and, therefore, are excluded from sales in the accompanying consolidated statements of operations. Cost of sales includes the cost of inventory sold and related items, such as vendor rebates, inventory allowances and reserves and shipping and handling costs associated with inbound and outbound freight, as well as depreciation and amortization and amortization of intangible assets. In some cases, particularly with third-party pipe shipments, shipping and handling costs are considered separate performance obligations, and as such, the revenue and cost of sales are recorded when the performance obligation is fulfilled.

Our contracts with customers ordinarily involve performance obligations that are one year or less. Therefore, we have applied the optional exemption that permits the omission of information about our unfulfilled performance obligations as of the balance sheet dates.

Contract Balances: Variations in the timing of revenue recognition, invoicing and receipt of payment result in categories of assets and liabilities that include invoiced accounts receivable, uninvoiced accounts receivable, contract assets and deferred revenue (contract liabilities) on the consolidated balance sheets.

Generally, revenue recognition and invoicing occur simultaneously as we transfer control of promised goods or services to our customers. We consider contract assets to be accounts receivable when we have an unconditional right to consideration and only the passage of time is required before payment is due. In certain cases, particularly those involving customer-specific documentation requirements, invoicing is delayed until we are able to meet the documentation requirements. In these cases, we recognize a contract asset separate from accounts receivable until those requirements are met, and we are able to invoice the customer. Our contract asset balance associated with these requirements as of March 31, 2021 and December 31, 2020 was $11 million and $17 million, respectively. These contract asset balances are included within accounts receivable in the accompanying consolidated balance sheets.

We record contract liabilities, or deferred revenue, when we receive cash payments from customers in advance of our performance, including amounts which are refundable. The deferred revenue balance at March 31, 2021 and December 31, 2020 was $5 million and $6 million, respectively. During the three months ended March 31, 2021, we recognized $3 million of revenue that was deferred as of December 31, 2020. During the three months ended March 31, 2020, we recognized $2 million of revenue that was deferred as of December 31, 2019. Deferred revenue balances are included within accrued expenses and other current liabilities in the accompanying consolidated balance sheets.

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Disaggregated Revenue: Our disaggregated revenue represents our business of selling PVF to the energy sector across each of the gas utilities, downstream and industrial, upstream production and midstream pipeline sectors in each of our reportable segments. Each of our end markets and geographical reportable segments are impacted and influenced by varying factors, including macroeconomic environment, commodity prices, maintenance and capital spending and exploration and production activity. As such, we believe that this information is important in depicting the nature, amount, timing and uncertainty of our contracts with customers.

The following table presents our revenue disaggregated by revenue source (in millions):

*Three Months Ended*
*March 31,*

	*U.S.*		*Canada*		*International*		*Total*
2021:
Gas utilities	$	209	$	1	$	—	$	210
Downstream & industrial		138		4		52		194
Upstream production		68		23		36		127
Midstream pipeline		69		4		5		78
	$	484	$	32	$	93	$	609
2020:
Gas utilities	$	199	$	3	$	—	$	202
Downstream & industrial		190		6		55		251
Upstream production		139		37		46		222
Midstream pipeline		110		4		5		119
	$	638	$	50	$	106	$	794

NOTE 3 – INVENTORIES

The composition of our inventory is as follows (in millions):

	*March 31,*			*December 31,*
	*2021*			*2020*
Finished goods inventory at average cost:
Valves, automation, measurement and instrumentation	$	265		$	279
Carbon steel pipe, fittings and flanges		153			156
All other products		245			229
		663			664
Less: Excess of average cost over LIFO cost (LIFO reserve)		(140	)		(136	)
Less: Other inventory reserves		(19

SEC Form 10-Q filed by MRC Global Inc.