occupational health and safety.

6

7 The information contained on the websites referenced in this Form 10-K is not incorporated by reference into this filing. Further, the Company’s references to website URLs are intended to be inactive textual references only. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov.

ITEM 1A.    RISK FACTORS

You should carefully consider the following risk factors as well as the other risks and uncertainties contained in this Annual Report on
Form 10-K or in our other SEC filings. The occurrence of one or more of these risks or uncertainties could materiallymaterially and adversely affect our business, financial condition and operating results. In this Annual Report on Form 10-K, unless the context expressly requires a different reading, when we state that a factor could “adversely affect us,” have a “material adverse effect,” “adversely affect our business” and similar expressions, we mean that the factor could materially and adversely affect our business, financial condition, operating results and cash flows. Information contained in this section may be considered “forward-looking statements.” See “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Cautionary Note Regarding Forward-Looking Statements” for a discussion of certain qualifications regarding forward looking statements.

Risks Related to Our Business

Decreased capital and other expenditures in the energy industry, which can result from decreased oil and natural gas prices, among other things,industries that we serve can adversely impact our customers’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 oilindustries that we serve. For instance, demand for our products and naturalservices is sensitive to capital expenditures for the addition of distribution capacity and replacement of aging infrastructure in our gas industry, including capitalutilities business. In our upstream production, midstream pipeline and other expenditures in connection with exploration, drilling, production, gathering, transportation, refining portion of our downstream, industrial and processing operations. Demandenergy transition sectors, demand for the products we distribute and services we provide is particularly sensitive to the level of exploration, development, production, transportation and productionrefining activity of, and the corresponding capital and otheroperating expenditures by oil and natural gas companies. A material decline in oil or natural gas prices, inability to accessOther industrial sectors have various drivers for their capital and consolidation within the industry could all depress levels of exploration, development and production activity and, therefore, could lead to a decrease in our customers’ capital and other expenditures. If our customers’ capital expenditures decline, our business will suffer.

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. If general economic conditions deteriorate and the business of our customers in one or more of our end market sectors is negatively impacted, our customers may curtail their capital expenditures and demand for our products may suffer. General economic factors beyond our control that affect our business and customers include (among others) interest rates, recession, inflation, deflation, customer credit availability, consumer credit availability, consumer debt levels, performance of housing markets, energy costs, tax rates and policy, unemployment rates, and other economic matters that influence our customers' spending.

Geopolitical events may adversely affect our business

U.S. and global general geopolitical events and relations among countries affect many aspects of our business as well as general economic conditions. These events could include (among others) the commencement or escalation of war or hostilities, the threat or possibility of war, terrorism or other global or national unrest, political or financial instability or the restriction of the flow of goods, data, people or capital among various countries. Governments in the countries where we do business could impose new taxes, change tax policies, change laws, add protectionist policies for their country, impose tariffs or export quotas, impose embargos or restrict imports or exports or impose economic sanctions. These sorts of actions could adversely impact our suppliers, our prices, our customers' demand for our products and our ability to receive payments.

Volatile oil and gas prices affect demand for our products.

As evidenced by the decline of oil prices from late 2014 through 2016 and again in 2020, prices for oil and natural gas are cyclical and 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. A decline in oil and gas prices impacts the capital spending of many of our customers, particularly in our upstream production, midstream pipeline and the refining portion of our downstream, industrial and energy transition businesses. Any sustained decrease in capital expenditures in the oil and natural gas industry could have a material adverse effect on us.

Many factors affect the supply of and demand for energy and, therefore, influence oil and natural gas prices, including:

Oil and natural gas prices have been and are expected to remain volatile. This volatility has historically caused oil and natural gas companies to change their strategies and expenditure levels from year to year. We have experienced in the past, and we will likely experience in the future, significant fluctuations in operating results based on these changes. In particular, volatility in the oil and natural gas sectors could adversely affect our business.

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 and availability of supplies. General economic conditions and predictions regarding future economic conditions also affect our forecasts. A decrease in demand for 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 credit availability, 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 of frequency 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 going forward. Continued adverse economic conditions would have an adverse effect on us.

We may be unable to compete successfully with other companies in our industry.

We sell products and services in very competitive markets. In some cases, we compete with large companies with substantial resources. In other cases, we compete with smaller regional players that may increasingly be willing to provide similar products and services at lower prices. Competitive actions, such as price reductions, consolidation in the industry, improved delivery and other actions, could adversely affect our revenue and earnings. We could experience a material adverse effect to the extent that our competitors are successful in reducing our customers’ purchases of products and services from us. Competition could also cause us to lower our prices, which could reduce our margins and profitability. Furthermore, consolidation in our industry could heighten the impacts of the competition on our business and results of operations discussed above, particularly if consolidation results in competitors with stronger 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.

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 users in the sectors we serve.

Historically, users of PVF and related products have purchased certain amounts of these products through distributors and not directly from manufacturers. If customers were to purchase the products that we sell directly from manufacturers, or if manufacturers sought to increase their efforts to sell 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, the distribution chain, may harm our competitive position in the marketplace, reduce our sales and earnings and adversely affect our business.

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 need from suppliers and manufacturers as a result of unexpected demand, or production difficulties that might extend lead times. Also,times or a supplier’s decision to sell its products may not be available to usthrough other distributors. For instance, during various times during the COVID-19 pandemic starting in quantities sufficient to meet our customer demand.2020, supply chain shortages have resulted from lockdowns and related health measures in various jurisdictions, labor shortages and transportation delays. Our inability to obtain products from suppliers and manufacturers in sufficient quantities to meet customer demand, or at all, could adversely affect our product and service offerings and our business.

The loss of third-party transportation providers, or conditions negatively affecting the transportation industry, could increase our costs 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 other conditions in the transportation industry, including, among others, shortages of truck drivers or dock workers, disruptions in rail service, increases in fuel prices and adverse weather conditions, could increase our costs and disrupt our operations and our ability to service our customers on a timely basis. We cannot predict whether or to what extent increases or anticipated increases in fuel prices may impact our costs or cause a disruption in our operations going forward.

We may experience cost increases from suppliers and transportation providers, which we may be unable to pass on to our customers.

In the future, we

Highly inflationary environments may adversely impact our business. We may face supply cost increases due to, among other things, unexpected increases in demand for supplies, decreases in production of supplies, increases in the cost of raw materials, transportation shortages, changes in exchange rates or the imposition of import taxes or tariff on imported products. Any inability to pass supply price increases on to our customers could have a material adverse effect on us. For example, we may be unable to pass increased supply costs on to our customers because significant amounts of our

sales are derived from stocking program arrangements, contracts and maintenance and repair arrangements, which provide our customers time limited price protection, which may obligate us to sell products at a set price for a specific period.protection. In addition, if supply costs increase, our customers may elect to purchase smaller amounts of products or may purchase products from other 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,

If steel prices rise, we may be unable to pass along the extent that competition leadscost increases to reduced purchasesour customers.

We maintain inventories of steel products or services from us or a reductionto accommodate the lead time requirements of our customers. Accordingly, we purchase steel products in an effort to 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 forecasts of customer demands. Our commitments to purchase steel products are generally at prevailing market prices in effect at the time we place our orders. If steel prices increase between the time we order steel products and these reductions occur concurrently withthe time of delivery of the products to us, our suppliers may impose surcharges that require us to pay for increases in steel prices during the pricesperiod. Demand for selected commodities whichthe products we usedistribute, the actions of our competitors and other 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 our operations, including steel, nickel and molybdenum, the adverse effects described above would likely be exacerbated and could result in a prolonged downturn in profitability.doing so.

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 suppliers or to develop relationships with new suppliers. Such a loss may have an adverse effect on our product and service 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 purchases through purchase orders. Therefore, most of our suppliers have the ability to terminate their relationships with us at any time. Approximately 43% of our total purchases during the year ended December 31, 20172022, were from our 25 largest suppliers. Although we believe there are numerous 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 on our product and service offerings and our business. Such a loss would require us to rely more heavily on our other existing suppliers or develop relationships with new suppliers, which may cause us to pay higher prices for products due to, among other things, a loss of volume discount benefits currently obtained from our major 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 our customers to demand lower sales prices for these products, possibly decreasing our margins and profitability on sales to the extent that we purchased our inventory 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 a substantial decline in product prices would not result in a write-down of our inventory value. Such a write-downdecline could have an adverse effect on our financial condition.effect.

Also, decreases in the market prices of products that we sell could cause customers to demand lower sales prices from us. These price reductions could reduce our margins and profitability on sales with respect to the lower-priced products. Reductions in our margins and profitability on sales could have a material adverse effect on us.

A substantial decrease in the price of steel could significantly lower our gross profit 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 carbon steel line pipe product category. When steel prices are lower, the prices that we charge customers for products may decline, which affects our gross profit and cash flow. At times pricing and availability of steel can be volatile due to numerous factors beyond our control, including general domestic and international economic conditions, 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 for the carbon steel line pipe products could put pressure on the prices we receive for our carbon steel line pipe products. When steel prices decline, customer demands for lower prices and our competitors’ responses to those demands could result in lower sales prices and, consequently, lower gross profit 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 effort to 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 we place 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 impose surcharges that require us to pay for increases in steel prices during the period. Demand for the products we distribute, the actions of our competitors and other 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.

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 our customers 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, our contracts, including our maintenance, repair and operations (“MRO”) contracts, generally do not commit our customers to any minimum purchase volume. Therefore, a significant number of our customers, including our MRO customers, may terminate their relationships with us or reduce their purchasing volume at any time. Furthermore, the long-term customer contracts that we do have are generally terminable without cause on short notice. Our 25 largest customers represented approximately 53% of our sales for the year ended December 31,2017. The products that we may sell to any particular customer depend in large part on the size of that customer’s capital expenditure budget in a particular year and on the results of competitive bids for major projects. Consequently, a customer that accounts for a significant portion of our sales 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 decrease in 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 for invoices 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 gross profit percentage 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 geographic expansion, daily selling activities within current geographic markets and targeted selling activities to new customer segments. Changes in our product mix may result from marketing activities to existing customers and needs communicated to us from existing and prospective customers. If customers begin to require 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 prolonged changes in economic and industry conditions. Further, laws in some jurisdictions in which we operate could make collection difficult or time consuming. In addition, in times when commodity prices are low, our customers with higher debt levels may not have the ability to pay their debts.  We perform ongoing credit evaluations of our customers and do not generally require collateral in support of our trade receivables. While we maintain reserves for expected credit losses, we cannot assure these reserves will be sufficient to meet write-offs of uncollectible receivables or that our losses from such receivables 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 acquisition targets, the potential unavailability of financial resources necessary to consummate acquisitions in the future, increased leverage due to additional debt financing that may be required to complete an acquisition, dilution of our stockholders’ net current book value per share if we issue additional equity securities to finance an acquisition, difficulties in identifying suitable acquisition targets or in completing any transactions identified on sufficiently favorable terms, assumption of undisclosed or unknown liabilities and the need to obtain regulatory or other governmental approvals that may be necessary to 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 manage these acquisition growth risks could have an adverse effect on us.

Our indebtedness may affect our ability to operate our business, and this could have a material adverse effect on us.

We have now and will likely continue to have indebtedness. As of December 31, 2017, we had total debt outstanding of  $526million and excess availability of $437 million under our credit facilities. We may incur significant additional indebtedness in the future. If new indebtedness is added to our current indebtedness, the risks described below could increase. Our significant level of indebtedness could have important consequences, such as:

In addition, borrowings under our credit facilities bear interest at variable rates. If market interest rates increase, the variable-rate debt will create higher debt service requirements, which could adversely affect our cash flow. Our interest expense for the year ended December 31, 2017 was  $31 million.

Our ability to make scheduled debt payments, to refinance our obligations with respect to our indebtedness and to fund capital and non-capital expenditures necessary to maintain the condition of our operating assets, properties and systems software, as well as to provide capacity for the growth of our business, depends on our financial and operating performance, which, in turn, is subject to prevailing economic conditions and financial, business, competitive, legal and other factors. Our business may not generate sufficient cash flow from operations, and future borrowings may not be available to us under our credit facilities in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. We may seek to sell assets to fund our liquidity needs but may not be able to do so. We may also need to refinance all or a portion of our indebtedness on or before maturity. We may not be able to refinance any of our indebtedness on commercially reasonable terms or at all.

In addition, we are and will be subject to covenants contained in agreements governing our present and future indebtedness. These covenants include and will likely include restrictions on:

In addition, any defaults under our credit facilities, including our global asset-based lending facility (“Global ABL Facility”), our senior secured term loan B (“Term Loan”) or our other debt could trigger cross defaults under other or future credit agreements and may permit acceleration of our other indebtedness. If our indebtedness is accelerated, we cannot be certain that we will have sufficient funds available to pay the accelerated indebtedness or that we will have the ability to refinance the accelerated indebtedness on terms favorable to us or at all. For a description of our credit facilities and indebtedness, see “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources”.

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 ability to meet our obligations or to pay dividends or make other distributions in the future will depend upon the cash flow of our subsidiaries and our subsidiaries’ payment of funds to 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, tax considerations and legal and contractual restrictions on the ability to make distributions. In particular, our subsidiaries’ credit facilities currently impose limitations on the ability of our subsidiaries to make distributions to us and consequently our ability to pay dividends to our stockholders. Subject to limitations in our credit facilities, our subsidiaries may also enter into additional agreements that contain covenants prohibiting them from distributing or advancing funds or transferring assets to us under certain circumstances, including to pay dividends.

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 the bankruptcy, dissolution, liquidation or reorganization, or to realize proceeds from the sale of their assets, will be junior to the claims of that subsidiary’s creditors, 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 their invoices if they perceive our indebtedness to be high. Given the large dollar amounts and volume of our purchases from suppliers, a change in payment terms may have a material adverse effect on our liquidity and our ability to make payments to our suppliers and, consequently, may have a material adverse effect on us.

If tariffs, quotas and duties on imports into the U.S. of certain of the products that we sell are lifted or imposed, we could have too many of these products in inventory competing against less expensive imports or conversely pay higher prices for products that we sell.

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 products that we sell. If these tariffs and duties are lifted or reduced or if the level of these imported products otherwise increase, and our U.S. customers accept these imported products, we could be materially and adversely affected to the extent that we would then have higher-cost products in our inventory or experience lower prices and margins due to increased supplies of these products that could drive down prices and margins. If prices of these products were to decrease significantly, we might not be able to profitably sell these products, and the value of our inventory would decline. In addition, significant price decreases could result in a significantly longer holding period for some of our inventory. Conversely, if tariffs and duties are imposed on imports from certain foreign countries of products that we sell, we could be required to pay higher prices for our products. Demand for the products we distribute, the actions of our competitors and other factors will influence whether we will be able to pass on additional cost increases to our customers, and we may be unsuccessful in doing so.

We may be adversely impacted by holding more inventory than can be sold in a commercial time frame.

A fundamental aspect of our business is to have inventory available for customers when they need it. If we over-estimate the amount of inventory that can be sold in a commercial time frame or if market demand for a product drops unexpectedly, we may be forced to sell the product at substantially lower prices, scrap the product or write down its carrying value. This can adversely impact our business.

A transition to alternative forms of energy could adversely impact our customers, result in lower sales and adversely impact our results and financial condition.

If through legislation, treaty or consumer preference, demand for oil and gas is substantially reduced through the use of alternative forms of energy and sales of our products to alternative energy producers are less than sales of our products to existing customers that produce, transport and use hydrocarbons as feedstock as well as sales to other customers, we could experience a reduction in sales, which could adversely impact our results and financial condition. Likewise, to the extent that governments limit the use of oil or gas in various applications, such as in prohibiting natural gas connections to newly constructed homes or buildings, we could also experience a reduction in sales, which could adversely impact our results and financial condition.

Adverse weather events or natural disasters could negatively affect our local economies or disrupt our operations.

Certain areas in which we operate have been susceptible to more frequent and more severe weather events, such as hurricanes, tornadoes and floods and to natural disasters such as earthquakes, fires, volcanic eruptions and coronal mass ejections (sometimes referred to as solar flares). Weather events, in particular, may be increasing in frequency and severity due to climate change. These events can disrupt our operations, result in damage to our properties and negatively affect the local economies in which we operate. Additionally, we may experience communication disruptions with our customers, vendors and employees. These events can cause physical damage to our service centers and require us to close service centers. Additionally, our sales order backlog and shipments can experience a temporary decline immediately following these events.

These adverse events could result in disruption of our purchasing or distribution capabilities, interruption of our business that exceeds our insurance coverage, our inability to collect from customers and increased operating costs. Our business or results of operations may be adversely affected by these and other negative effects of these events.

We are subject to strict environmental, health and safety laws and regulations that may lead to significant liabilities and negatively impact the demand for our products.

We are subject to a variety of federal, state, local, foreign and provincial environmental, health and safety laws, regulations and permitting requirements (collectively, “environmental laws”), including those governing the following:

Our failure to comply with applicable environmental laws could result in fines, penalties, enforcement actions, employee, neighbor or other third-party claims for property damage and personal injury, requirements to clean up property or to pay for the costs of cleanup or regulatory or judicial orders requiring corrective measures, including the installation of pollution control equipment or remedial actions.

Certain environmental laws, such as the U.S. federal Superfund law or its state or foreign equivalents, may impose the obligation to investigate, remediate, monitor and clean up contamination at a facility on current and former owners, lessees or operators or on persons who may have sent waste to that facility for disposal.  These environmental laws may impose liability without regard to fault or to the legality of the activities giving rise to the contamination. Although we are not aware of any active litigation against us under the U.S. federal Superfund law or its state or foreign equivalents, we have identified contamination at several of our current and former facilities, and we have incurred and will continue to incur costs to investigate, remediate, monitor and clean up these conditions. Moreover, we may incur liabilities in connection with environmental conditions currently unknown to us relating to our prior, existing or future owned or leased sites or operations or those of predecessor companies whose liabilities we may have assumed

or acquired. We believe that indemnities contained in certain of our acquisition agreements may cover certain environmental conditions existing at the time of the acquisition subject to certain terms, limitations and conditions. However, if these indemnification provisions terminate or if the indemnifying parties do not fulfill their indemnification obligations, we may be subject to liability with respect to the environmental matters that those indemnification provisions address.  Although our responsibility for the clean-up of contamination or pollution to date has not been material, were there to be a significant release of contamination or pollution related to our operations, our obligation to clean up that contamination or pollution could have a material adverse effect on our business, financial position, results of operations or cash flows.

Certain governments at the international, national, regional and state level are at various stages of considering or implementing treaties and environmental laws that could limit emissions of greenhouse gases, including carbon dioxide, associated with the burning of fossil fuels.  It is not possible to predict how new environmental laws to address greenhouse gas emissions would impact our business or that of our customers, but these laws and regulations could impose costs on us or negatively impact the market for the products we distribute and, consequently, our business. 

In addition, federal, state, local, foreign and provincial governments have adopted, or are considering the adoption of, environmental laws that could impose more stringent permitting; disclosure; wastewater and other waste disposal; greenhouse gas, ethane or volatile organic compound control, leak detection and repair requirements;  and well construction and testing requirements on our customers’ hydraulic fracturing. 

Environmental laws applicable to our business and the business of our customers, including environmental laws regulating the energy industry, and the interpretation or enforcement of these environmental laws, are constantly evolving; it is impossible to predict accurately the effect that changes in these environmental laws, or their interpretation or enforcement, may have upon our business, financial condition or results of operations. Should environmental laws, or their interpretation or enforcement, become more stringent, our costs, or the costs of our customers, could increase, which may have a material adverse effect on our business, financial position, results of operations or cash flows.

Changes in our customer and product mix could cause our gross profit percentage to fluctuate.

From time to time, we may experience changes in our customer mix or in our product mix. We must provide the products that our customers need when they need them and provide an appropriate level of service to gain and retain customers.  If our customers' experience is negative or our customers require more lower-margin products from us and fewer higher-margin products, our business, results of operations and financial condition may suffer.

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 users in the sectors we serve.

Historically, users of PVF and related products have purchased certain amounts of these products through distributors and not directly from manufacturers. If customers were to purchase the products that we sell directly from manufacturers, or if manufacturers sought to increase their efforts to sell 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, the distribution chain, may harm our competitive position in the marketplace, reduce our sales and earnings and adversely affect our business.

Failure to operate our business in an efficient or optimized manner can adversely impact our business.

To make a profit, we must control selling, general and administrative expense. This requires our distribution network structure, our warehouse operations and the cost to serve customers to be diligently controlled for our Company to earn a profit after deducting the cost of goods sold from the price of the products that we sell. We are constantly working to create a more efficient operation and will often review where our service centers and regional distribution centers are located, the transportation patterns and other operations among those centers and the needs and costs to operate our business. Failure to operate our business in an efficient or optimized manner can adversely impact our business.

We may be unable to compete successfully with other companies in our industry.

We sell products and services in very competitive markets. In some cases, we compete with large companies with substantial resources. In other cases, we compete with smaller regional players that may increasingly be willing to provide similar products and services at lower prices. Competitive actions, such as price reductions, consolidation in the industry, improved delivery and other actions could adversely affect our revenue and earnings. Competition could also cause us to lower our prices, which could reduce our margins and profitability. Furthermore, consolidation of our customers' businesses could heighten the impacts of the competition on our business. Our results of operations could also be impacted, particularly if consolidation results in competitors with stronger financial and strategic resources and greater scale in inventory and purchasing power. We must maintain an appropriate level of inventory and provide a service quality to adequately compete. Our failure to successfully compete and maintain a competitive strategy can adversely affect our business.

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 our customers 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, our contracts, including our maintenance, repair and operations (“MRO”) contracts, generally do not commit our customers to any minimum purchase volume. Therefore, a significant number of our customers, including our MRO customers, may terminate their relationships with us or reduce their purchasing volume at any time. Furthermore, the customer contracts that we do have are generally terminable without cause on short notice. Our 25 largest customers represented approximately 54% of our sales for the year ended December 31, 2022. The products that we may sell to any particular customer depend in large part on the size of that customer’s capital expenditure budget in a particular year and on the results of competitive bids for major projects. Consequently, a customer that accounts for a significant portion of our sales 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 decrease in 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 for invoices per the contract terms, we may be subject to negotiated settlements with our major customers.

If we are unable to attract and retain our employees or if we lose our key personnel, we may be unable to effectively operate and manage our business or continue our growth.

Our future performance depends to a significant degree upon the continued contributions of our employees and management team and our ability to attract, hire, train and retain employees for our workforce and qualified managerial, sales and marketing personnel. If job openings for qualified personnel exceed the available qualified labor pool in a particular location, we may experience difficulty in attracting and retaining our workforce. We may also need to increase our offered compensation and, thus, increase our costs to attract and retain qualified employees. 

We rely on our sales and marketing teams to create innovative ways to generate demand 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 could have an adverse effect on us to the extent we are unable to timely find adequate replacements. We face competition for these professionals from our competitors, our customers and other companies operating in our industry. We may be unsuccessful in attracting, hiring, training and retaining qualified personnel.

Adverse health events, such as a pandemic, could adversely impact our business.

From time to time, various diseases have spread across the globe such as COVID-19, SARS and the avian flu. If a disease spreads sufficiently to cause an epidemic or a pandemic, the ability to operate our business or the businesses of our suppliers, contractors or customers could be reduced due to illness of employees or local restrictions to combat the disease. In addition, our supply chain that spans over 50 countries could be negatively impacted if our suppliers are unable to operate their business. Such an adverse health event could adversely impact our business.

Interruptions in the proper functioning of our information systems could disrupt operations and cause increases in costs or decreases in revenue.

The proper functioning of our information systems is critical to the successful operation of our business. However, our information systems are vulnerable to natural disasters, power losses, telecommunication failures, cyber incidents and other problems. Many of our systems utilize software as a service or operate on third party “cloud” servers. Likewise, Company data is often stored on these servers. If critical information systems, whether operated by the Company or a contracted third party, fail or are otherwise unavailable, our ability to operate our business could be adversely affected. Our ability to integrate our systems with our customers’ systems would also be significantly affected. 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, we face increased risks of unexpected errors and unreliable financial data or theft of proprietary Company information.

We are constantly upgrading and modifying our information systems and the related software and hardware. We are also implementing new systems and technology to support and grow our business and increase efficiencies. Finally, we must maintain a number of aging information systems for our Company to operate. A failure to properly upgrade, modify, implement or maintain these systems and technology can have an adverse effect on our Company.

The occurrence of cyber incidents, or a deficiency in our cybersecurity, could negatively impact our business by causing a disruption to our operations, a compromise or corruption of our confidential information or damage to our Company’s image or reputation, 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. More specifically, 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 we have outsourced. Our three primary risks that could directly result from the occurrence of a cyber incident include operational interruption, damage to our Company’s reputation and image and private data exposure. We have implemented hardware and software solutions, processes, training and procedures to help mitigate this risk, but these measures, as well as our organization’s increased awareness of our risk of a cyber incident, may fail and do not guarantee that our financial results and operations will not be negatively impacted by such an incident. While we also have some insurance to protect against the financial damage that a cyber incident could cause, the insurance may not be adequate for every type of incident to protect against the financial damages that could occur. In some incidents, the Company may be required to shut off its computer systems, reboot them and reestablish its information from back up sources. In other incidents, the Company may be required under various laws to notify any third parties whose data has been compromised. These incidents can adversely affect us.

Cyber incidents could include (among others) the following:

Customer credit risks could result in losses.

Concentration of our customers in our various industry sectors may impact our overall exposure to credit risk as customers in a sector may be similarly affected by prolonged changes in economic and industry conditions. Further, laws in some jurisdictions in which we operate could make collection difficult or time consuming. In times when commodity prices are low, particularly in our upstream production sector, our customers with higher debt levels may not have the ability to pay their debts. Other customers may have specific issues regarding their ability to pay their indebtedness. We perform ongoing credit evaluations of our customers and do not generally require collateral in support of our trade receivables. While we maintain reserves for expected credit losses, these reserves may not be sufficient to meet write-offs of uncollectible receivables or that our losses from such receivables will be consistent with our expectations.

We may be unable to successfully execute or effectively integrate acquisitions.

From time to time, we may 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 acquisition targets, the potential unavailability of financial resources necessary to consummate acquisitions in the future, increased leverage due to additional debt financing that may be required to complete an acquisition, dilution of our stockholders’ net current book value per share if we issue additional equity securities to finance an acquisition, difficulties in identifying suitable acquisition targets or in completing any transactions identified on sufficiently favorable terms, assumption of undisclosed or unknown liabilities and the need to obtain regulatory or other governmental approvals that may be necessary to 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 manage these acquisition risks could have an adverse effect on us.

We have a substantial amount of goodwill and other intangible assets recorded on our balance sheet, partly because of acquisitions and business combination transactions. The amortization of acquired intangible assets will reduce our future reported earnings. Furthermore, if our goodwill or other intangible assets become impaired, we may be required to recognize non-cash charges that would reduce our income.

As of December 31, 2022, we had $447 million of goodwill and other intangibles recorded on our consolidated balance sheet. A substantial portion of these intangible assets results from acquisitions we have made over the past several years. The excess of the cost of an acquisition over the fair value of identifiable tangible and intangible assets is assigned to goodwill. The amortization expense associated with our identifiable intangible assets will have a negative effect on our future reported earnings. Many other companies, including many of our competitors, may not have the significant acquired intangible assets that we have because they may not have participated in recent acquisitions and business combination transactions similar to ours. Thus, the amortization of identifiable intangible assets may not negatively affect their reported earnings to the same degree as ours.

Additionally, under U.S. generally accepted accounting principles, goodwill and certain other indefinite-lived intangible assets are not amortized, but must be reviewed for possible impairment annually, or more often in certain circumstances where events indicate that the asset values are not recoverable. These reviews could result in an earnings charge for impairment, which would reduce our net income even though there would be no impact on our underlying cash flow. 

We face risks associated with conducting business in markets outside of North America.

We currently conduct substantial business in countries outside of North America, and we are subject to geopolitical events and risks related to international instability. We could be materially and adversely affected by economic, legal, political and regulatory developments in the countries in which we do business in the future or in which we expand our business, particularly those countries which have historically experienced a high degree of political or economic instability. Examples of risks inherent in such non-North American activities include:

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 of management time in connection with establishing our business there.

Risks Related to Our Capital Structure

Our indebtedness may affect our ability to operate our business, and this could have a material adverse effect on us.

We have now and will likely continue to have indebtedness. As of December 31, 2022, we had total debt outstanding of $340 million and excess availability of $606 million under our credit facilities. We may incur significant additional indebtedness in the future. If new indebtedness is added to our current indebtedness, the risks described below could increase. Our significant level of indebtedness could have important consequences, such as:

Our ability to make scheduled debt payments, to refinance our obligations with respect to our indebtedness and to fund capital and non-capital expenditures necessary to maintain the condition of our operating assets, properties and systems software, as well as to provide capacity for the growth of our business, depends on our financial and operating performance. Our business may not generate sufficient cash flow from operations, and future borrowings may not be available to us under our credit facilities in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. We may seek to sell assets to fund our liquidity needs but may not be able to do so. We may also need to refinance all or a portion of our indebtedness on or before maturity. We may not be able to refinance any of our indebtedness on commercially reasonable terms or at all.

In addition, we are and will be subject to covenants contained in agreements governing our present and future indebtedness. These covenants include and will likely include restrictions on operations, business and capital flexibility.

Any defaults under our credit facilities, including our global asset-based lending facility (“Global ABL Facility”), our senior secured term loan B (“Term Loan”) or our other debt could trigger cross defaults under other or future credit agreements and may permit acceleration of our other indebtedness. If our indebtedness is accelerated, we cannot be certain that we will have sufficient funds available to pay the accelerated indebtedness or that we will have the ability to refinance the accelerated indebtedness on terms favorable to us or at all. For a description of our credit facilities and indebtedness, see “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources”.

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 parent company’s cash flow and its ability to meet its obligations or to pay dividends or make other distributions in the future will depend upon the cash flow of our subsidiaries and our subsidiaries’ payment of funds to MRC Global Inc. 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, tax considerations and legal and contractual restrictions on the ability to make distributions. In particular, our subsidiaries’ credit facilities currently impose limitations on the ability of our subsidiaries to make distributions to us and consequently our ability to pay dividends to our stockholders. Subject to limitations in our credit facilities, our subsidiaries may also enter into additional agreements that contain covenants prohibiting them from distributing or advancing funds or transferring assets to us under certain circumstances, including to pay dividends.

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 the bankruptcy, dissolution, liquidation or reorganization, or to realize proceeds from the sale of their assets, will be junior to the claims of that subsidiary’s creditors, 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 their invoices if they perceive our indebtedness to be high. Given the large dollar amounts and volume of our purchases from suppliers, a change in payment terms may have a material adverse effect on our liquidity and our ability to make payments to our suppliers and, consequently, may have a material adverse effect on us.

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:

Additional financing may not be available on terms favorable to us, or at all. The terms of available financing may place limits on our financial and operating flexibility. If adequate funds are not available on acceptable terms, we may be forced to reduce our operations or delay, limit or abandon expansion opportunities. Moreover, even if we are able to continue our operations, the failure to obtain additional financing could reduce our competitiveness.

Legal and Liability Risks

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 seeking damages or other remedies concerning our commercial operations, the products we distribute, employees and other matters, including potential claims by individuals alleging exposure to hazardous materials as a result of the products we distribute or our operations. Some of these claims may relate to the activities of businesses that we have acquired, even though these activities may have occurred prior to our acquisition of the businesses. The products we distribute are sold primarily for use in the energy, industry,industrial gas utility sectors, which isare 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 distribute may 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-insured retentions, deductibles and caps under our insurance. It is possible, however, that judgments could be rendered against us in cases in which we would be uninsured and beyond the amounts of insurance we have or beyond the amounts that we currently have reserved or anticipate incurring for these matters. Even a partially uninsured claim, if successful and of significant size, could have a material adverse effect on us. Furthermore, we may not be able to continue to obtain insurance on commercially reasonable terms in the future, and we may incur losses from interruption of our business that exceed our insurance coverage. Even in cases where we maintain insurance coverage, our insurers may raise various objections and exceptions to coverage that could make uncertain the timing and amount of any possible insurance recovery. Finally, while we may have insurance coverage, we cannot guarantee that the insurance carrier will have the financial wherewithal to pay a claim otherwise covered by insurance, and as a result we may be responsible for any such claims.

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 of the products we distribute in potentially hazardous applications that can result in personal injury, product liability and environmental claims. A catastrophic occurrence at a location where end users use the products we distribute may result in us being named as a defendant in lawsuits asserting potentially large claims, even though we did not manufacture the products. Applicable law may render us liable for damages without regard to negligence or fault. In particular, certain environmental laws provide for joint and several and strict liability for remediation of spills and releases of hazardous substances. Certain of these risks are reduced by the fact that we are a distributor of products that third-party manufacturers produce, and, thus, in certain circumstances, we may have third-party warranty or other claims against the manufacturer of products alleged to have been defective. However, there is 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 our insurance coverage will cover or be adequate to cover the underlying claims. Our insurance does not provide

coverage for all liabilities (including but not limited to liability for certain events involving pollution or other environmental claims). Our insurance does not cover damages from breach of contract by us or based on alleged fraud or deceptive trade practices.

We are a defendant in asbestos-related lawsuits. Exposure to these and any future lawsuits could have a material adverse effect on us.

We are a defendant in lawsuits involving approximately 1,1531,112 claims, arising from exposure to asbestos-containing materials included in products that we distributed in the past.are alleged to have distributed. Each claim involves allegations of exposure to asbestos-containing materials by a single individual, his or her spouse or family members. The complaints in these lawsuits typically name many other defendants. In the majority of these lawsuits, little or no information is known regarding the nature of the plaintiffs’ alleged injuries or their connection with the products we distributed. Based on our experience with asbestos litigation to date, as well as the existence of certain insurance coverage, we do not believe that the outcome of these pending claims will have a material impact on us. However, theThe potential liability associated with asbestos claims is subject to many uncertainties, including negative trends with respect to settlement payments, dismissal rates and the types of medical conditions alleged in pending or future claims, negative developments in the claims pending against us, the current or future insolvency of co-defendants, adverse changes in relevant laws or the interpretation of those laws and the extent to which insurance will be available to pay for defense costs, judgments or settlements. In addition, applicable insurance policies are subject to overall caps on limits, which coverage may exhaust the amount available from insurers under those limits. In those cases, the Company is seeking indemnity payments from responsive excess insurance policies, but other insurers may not be solvent or may not make payments under the policies without contesting their liability. Further, while we anticipate that additional claims will be filed against us in the future, we are unable to predict with any certainty the number, timing and magnitude of future claims. Therefore, we can give no assurance that pending or future asbestos litigation will notmay ultimately have a material adverse effect on us. See “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations, Commitments and Contingencies—Legal Proceedings” and “Item 3—Legal Proceedings” for more information.

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 and retain qualified managerial, sales and marketing personnel. In particular, we rely on our sales and marketing teams to create innovative ways to generate demand 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 could have a material adverse effect on us to the extent we are unable to timely find adequate replacements. We face competition for these professionals from our competitors, our customers and other companies operating in our industry. We may be unsuccessful in attracting, hiring, training and retaining qualified personnel.

Interruptions in the proper functioning of our information systems could disrupt operations and cause increases in costs or decreases in revenue.

The proper functioning of our information systems is critical to the successful operation of our business. We depend on our information management systems to process orders, track credit risk, manage inventory and monitor accounts receivable collections. Our information systems also allow us to efficiently purchase products from our vendors and ship products to our customers on a timely basis, maintain cost-effective operations and provide superior service to our customers. However, our information systems are vulnerable to natural disasters, power losses, telecommunication failures, cyber incidents and other 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 adversely affected. In addition, the cost to repair, modify or replace all or part of our information systems or consolidate one or more systems onto one information technology platform, whether by necessity or choice, would require a significant cash investment on the part of the Company. Our ability to integrate our systems with our customers’ systems would also be significantly affected. 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, we face increased risks of unexpected errors and unreliable financial data or theft of proprietary Company information.

The occurrence of cyber incidents, or a deficiency in our cybersecurity, could negatively impact our business by causing a disruption to our operations, a compromise or corruption of our confidential information or damage to our Company’s image or reputation, 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. More specifically, 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 we have outsourced. Our three primary risks that could directly result from the occurrence of a cyber incident include operational interruption, damage to our Company’s reputation and image and private data exposure. We have implemented hardware and software solutions, processes, training and procedures to help mitigate this risk, but these measures, as well as our organization’s increased awareness of our risk of a cyber incident, do not guarantee that our financial results and operations will not be negatively impacted by such an incident.  While we also have some insurance to protect against the financial damage that a cyber incident could cause, there can be no guarantee that the insurance would be adequate for every type of incident to protect against the financial damages that could occur.  In some incidents, the Company may be required to shut off its

computer systems, reboot them and reestablish its information from back up tapes.  In other incidents, the Company may be required under various laws to notify any third parties whose data has been compromised.  These incidents can adversely affect us.

Among others, cyber incidents could include the following:

The loss of third-party transportation providers upon whom we depend, or conditions negatively affecting the transportation industry, could increase our costs 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 other conditions in the transportation industry, including, among others, shortages of truck drivers, disruptions in rail service, increases in fuel prices and adverse weather conditions, could increase our costs and disrupt our operations and our ability to service our customers on a timely basis. We cannot predict whether or to what extent increases or anticipated increases in fuel prices may impact our costs or cause a disruption in our operations going forward.

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:

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 on our financial and operating flexibility. If adequate funds are not available on acceptable terms, we may be forced to reduce our operations or delay, limit or abandon expansion opportunities. Moreover, even if we are able to continue our operations, the failure to obtain additional financing could reduce our competitiveness.

Adverse weather events or natural disasters could negatively affect our local economies or disrupt our operations.

Certain areas in which we operate have been susceptible to more frequent and more severe weather events, such as hurricanes, tornadoes, and floods and to natural disasters such as earthquakes. These events can disrupt our operations, result in damage to our properties and negatively affect the local economies in which we operate. Additionally, we may experience communication

disruptions with our customers, vendors and employees. These events can cause physical damage to our branches and require us to close branches. Additionally, our sales order backlog 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. These adverse events could result in disruption of our purchasing or distribution capabilities, interruption of our business that exceeds our insurance coverage, our inability to collect from customers and increased operating costs. Our business or results of operations may be adversely affected by these and other negative effects of these events.

We have a substantial amount of goodwill and other intangible assets recorded on our balance sheet, partly because of acquisitions and business combination transactions. The amortization of acquired intangible assets will reduce our future reported earnings. Furthermore, if our goodwill or other intangible assets become impaired, we may be required to recognize non-cash charges that would reduce our income.

As of December 31, 2017, we had  $854 million of goodwill and other intangibles recorded on our consolidated balance sheet. A substantial portion of these intangible assets results from our use of purchase accounting in connection with the acquisitions we have made over the past several years. In accordance with the purchase accounting method, the excess of the cost of an acquisition over the fair value of identifiable tangible and intangible assets is assigned to goodwill. The amortization expense associated with our identifiable intangible assets will have a negative effect on our future reported earnings. Many other companies, including many of our competitors, may not have the significant acquired intangible assets that we have because they may not have participated in recent acquisitions and business combination transactions similar to ours. Thus, the amortization of identifiable intangible assets may not negatively affect their reported earnings to the same degree as ours.

Additionally, under U.S. generally accepted accounting principles, goodwill and certain other indefinite-lived intangible assets are not amortized, but must be reviewed for possible impairment annually, or more often in certain circumstances where events indicate that the asset values are not recoverable. These reviews could result in an earnings charge for impairment, which would reduce our net income even though there would be no impact on our underlying cash flow. 

We face risks associated with conducting business in markets outside of North America.

We currently conduct substantial business in countries outside of North America. In addition, we are evaluating the possibility of establishing distribution networks in certain other foreign countries, particularly in Europe, Asia, the Middle East and South America. We could be materially and adversely affected by economic, legal, political and regulatory developments in the countries in which we do business in the future or in which we expand our business, particularly those countries which have historically experienced a high degree of political or economic instability. Examples of risks inherent in such non-North American activities include:

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 of management 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 the jurisdictions where we operate. Our failure to comply with these laws and regulations could subject us to civil, criminal and administrative penalties and harm 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 laws and regulations place restrictions on our operations, trade practices, partners and investment decisions. In particular, our operations are subject to U.S. and foreign anti-corruption, anti-bribery and trade control laws and regulations, such as the Foreign Corrupt Practices Act (“FCPA”), export controls and economic sanctions programs, including those administered by the U.S. Treasury

Department’s Office of Foreign Assets Control (“OFAC”). As a result of doing business in foreign countries and with foreign partners, we are exposed to a heightened risk of violating anti-corruption, anti-bribery 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 improper business advantage. It also requires us to keep books and records that accurately and fairly reflect the Company’s transactions. As part of our business, we may deal with state-owned business enterprises, the employees of which are considered foreign officials for purposes of the FCPA. In addition, the provisions of the United Kingdom Bribery Act (the “Bribery Act”) and other laws extend beyond bribery of foreign public officials and also apply to transactions with individuals that a government does not employ. The provisions of the Bribery Act are also more onerous than the FCPA in a number of other respects, including jurisdiction, non-exemption of facilitation payments and penalties. Some of the international locations 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 a distributor, 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 sanctioned country, which might subject us to an investigation concerning compliance with OFAC or other sanctions regulations.

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. We have established policies and procedures designed to assist our compliance with applicable U.S. and international anti-corruption and trade control laws and regulations, including the FCPA, the Bribery Act and trade controls and sanctions programs that OFAC administers, and have trained our employees to comply with these laws and regulations. However, there can be no assurance that all of our employees, consultants, agents or other associated persons will not take actions in violation of our policies and these laws and regulations, and that our policies and procedures will effectively prevent us from violating these regulations 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 actions that 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 a violation even if our policies prohibit it, could have a material adverse effect on our reputation, business, financial condition and results of operations. In addition, various state and municipal governments, universities and other investors maintain prohibitions or restrictions on investments in companies that do business with sanctioned countries, persons and entities, which could adversely affect the market for our common stock and other securities.

We face risks associated with international instability and geopolitical developments.

In some countries, there is an increased chance for economic, legal or political changes that may adversely affect the performance of our services, sale of our products or repatriation of our profits. We do not know the impact that these regulatory, geopolitical and other factors may have on our business in the future and any of these factors could adversely affect us.

We are exposed to risks relating to evaluations of controls required by Section404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”“Sarbanes-Oxley Act”).

Section 404 of the Sarbanes-Oxley Act requires us to annually evaluate our internal controls systems over financial reporting. This is not a static process as we may change our processes each year or acquire new companies that have different controls than our existing controls. Upon completion of this process each year, we may identify control deficiencies of varying degrees of severity under applicable U.S. Securities and Exchange Commission (“SEC”) and Public Company Accounting Oversight Board (“PCAOB”) rules and regulations that remain unremediated. We are required to report, among other things, control deficiencies that constitute a “material weakness” or changes in internal controls that, or that are reasonably likely to, materially affect internal controls over financial reporting. A “material weakness” is a significant deficiency or combination of significant deficiencies in internal control over financial reporting that results in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected and corrected on a timely basis.

We could suffer a loss of confidence in the reliability of our financial statements if we or our independent registered public accounting firm reports a material weakness in our internal controls, if we do not develop and maintain effective controls and procedures or if we are otherwise unable to deliver timely and reliable financial information. Any loss of confidence in the reliability of our financial statements or other negative reaction to our failure to develop timely or adequate disclosure controls and procedures or internal controls could result in a decline in the price of our common stock. In addition, if we fail to remedy any material weakness, our financial statements may be inaccurate, we may face restricted access to the capital markets and our stock price may be adversely affected.

We do not currently intend to pay dividends to our common stockholders in the foreseeable future.

It is uncertain when, if ever, we will declare dividends to our common stockholders. We do not currently intend to pay dividends in the foreseeable future. Our ability to pay dividends is constrained by our holding company structure under which we are dependent on our subsidiaries for payments. Additionally, we and our subsidiaries are parties to credit agreements which restrict our ability and their ability to pay dividends. See “Item 5—Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” and “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources”.

Compliance with and changes in laws and regulations in the countries in which we operate could have a significant financial impact and affect how and where we conduct our operations.

We have operations in the U.S. and in 2114 other countries. Expected and unexpected changes in the business and legal environments in the countries in which we operate can impact us. Compliance with and changes in laws, regulations and other legal and business issues could impact our ability to manage our costs and to meet our earnings goals. Compliance related matters could also limit our ability to do business in certain countries. Changes that could have a 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, changes in trade and other treaties that lead to differing tariffs and trade rules, the expansion of currency exchange controls, export controls or additional restrictions on doing business in countries subject to sanctions in which we operate or intend to operate.  For instance, we have provisionally accounted for changes from the recently enacted U.S. Tax Cuts and Jobs Act

ITEM 1B. UNRESOLVED STAFF COMMENTS 

Not applicable.

ITEM  2.PROPERTIES

In North America, we operate a hub and spoke model that is centered around our 10six distribution centers in the U.S. and Canada with 127 branch87 service center locations which have inventory and local employees and house 1413 valve and engineering service centers. Our U.S. network is comprised of 102 branch78 service center locations and nine distribution centers. We own our Charleston, WV corporate office and our Nitro, WV and our Houston, TX (Darien Street) distribution centers and lease the remaining sevenfive distribution centers. In Canada, we have 25 branchnine service center locations and we own our one distribution center in Nisku, Alberta, Canada.center. We own less than 10%2% of our branchservice center locations as we primarily lease thethese facilities. All of our distribution centers are leased.

Outside North America, we operate through a network of 50 branch23 service center locations located throughout Europe, Asia, Australasia and the Middle East, and Caspian, including sixseven distribution centers in the United Kingdom, Norway, Singapore, the Netherlands, the United Arab Emirates and Australia. Thirteen valve and engineering service centers are housed within our distribution centers and branchservice center locations. We own our Brussels, Belgium location, and the remainder of our locations are leased.

Our Company maintains its principal executive office at 1301 McKinney Street, Suite 2300, Houston, Texas, 77010 and also maintains a corporate officeoffices in Charleston, West Virginia.Virginia and La Porte, Texas. These locations have corporate functions such as executive management, accounting, human resources, legal, marketing, supply chain management, business development and information technology.

ITEM  3.

From time to time, we have been subject to various claims and involved in legal proceedings incidental to the nature of our businesses. We maintain insurance coverage to reduce financial risk associated with certain of these claims and proceedings. It is not possible to predict the outcome of these claims and proceedings. However, in our opinion, there are no pending legal proceedings that upon resolution are likely to have a material effect on our business, financial condition, results of operations or cash flows.

Also, from time to time, in the ordinary course of our business, our customers may claim that the products that we distribute are either defective or require repair or replacement under warranties that either we or the manufacturer may provide to the customer. These proceedings are, in the opinion of management, ordinary and routine matters incidental to our normal business. Our purchase orders with our suppliers generally require the manufacturer to indemnify us against any product liability claims, leaving the manufacturer ultimately responsible for these claims. In many cases, state, provincial or foreign law provides protection to distributors for these sorts of claims, shifting the responsibility to the manufacturer. In some cases, we could be required to repair or replace the products for the benefit of our customer and seek our recovery from the manufacturer for our expense. In the opinion of management, the

ultimate disposition of these claims and proceedings are not expected to have a material adverse effect on our financial position, results of operations or cash flows.

For information regarding asbestos cases in which we are a defendant and other claims and proceedings, see “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations, Commitments and Contingencies—Legal Proceedings” and “Note 16—Commitments and Contingencies” to our audited consolidated financial statements included elsewhere in this report.

ITEM  4.MINE SAFETY DISCLOSURES 

Not applicable.  

20

 

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EXECUTIVE OFFICERS OF THE REGISTRANT

 

The name, age, period of service and the title of each of our executive officers as of February 16, 201814, 2023, are listed below.

 

Andrew R. Lane, Robert J. Saltiel, Jr., age 58,60,has served as our president and chief executive officer (“CEO”) and a member of our board of directors since September 2008.  He has also served as a director of MRC Global Inc. since September 2008 and was chairman of the board from December 2009March 2021. Prior to April 2016. From December 2004 to December 2007,this, he served as executive vice president and chief operating officerCEO of Halliburton Company, where he was responsible for Halliburton’s overall operational performance. PriorKey Energy Services from 2018 to that, he2019 and of Atwood Oceanics from 2009 to 2017. Mr. Saltiel held a varietypositions of increasing leadership roles within Halliburton.in strategy, operations and marketing at Transocean from 2003 to 2009. Mr. LaneSaltiel’s prior experience includes positions at Nabors Industries, Enron Corp., McKinsey & Co. and ExxonMobil. Mr. Saltiel received a B.S. in mechanicalchemical engineering from Southern MethodistPrinceton University in 1981 (cum1985 (magna cum laude). He also completed the Advanced Management Program (“A.M.P.”) at Harvard Business School and an MBA from Northwestern University in 2000.1990.

 

James E. BraunKelly Youngblood, age 58,57, has served as our executive vice president and chief financial officer since March 2020 and executive vice president since November 2011.2019. Prior to joining the Company, Mr. BraunYoungblood served as executive vice president and chief financial officer of Newpark Resources, Inc. since 2006. Newpark provides drilling fluidsBJ Services from December 2017 to November 2019 and other productsprior to that was the senior vice president and services to the oil and gas exploration and production industry, both inside and outside of the U.S. Before joining Newpark, Mr. Braun was chief financial officer at Diamond Offshore Drilling, Inc. from 2016 to 2017. He has also held a variety of Baker Oil Tools, onefinance and accounting positions of the largest divisions of Baker Hughes Incorporated, a leading provider of drilling, formation evaluation, completion and production products and services to the worldwide oil and gas industry. From 1998 until 2002, he wasincreasing responsibility at Halliburton, including vice president finance and administration of Baker Petrolite, the oilfield specialty chemical business division of Baker Hughes.  Previously, he served as vice president and controller of Baker Hughes.investor relations. Mr. BraunYoungblood is a CPA and was formerly a partner with Deloitte & Touche. Mr. Braun received a B.A. in accountingAccounting from the University of Illinois at Urbana-Champaign.Cameron University.

 

Daniel J. Churay, age 55,60, has served as our executive vice president – corporate affairs, general counsel, and corporate secretary since May 2012. In his current role, Mr. Churay manages the Company’s human resources, legal, risk and compliance, external and government affairs and certain shared services functions. He also acts as corporate secretary to the Company’s board of directors. Prior to May 2012,Board. Mr. Churay servedjoined the Company in August 2011 as executive vice president and general counsel since August 2011 and as our corporate secretary since November 2011. From December 2010 to June 2011, he served as president and CEO ofcounsel. Mr. Churay's prior experience includes positions at Rex Energy, Yellow Corporation, an independent oilBaker Hughes and gas company. From September 2002 to December 2010, Mr. Churay served as executive vice president, general counsel and secretary of YRC Worldwide Inc., a transportation and logistics company.Norton Rose Fulbright. Mr. Churay received a bachelor’s degree in economics from the University of Texas and a juris doctorate from the University of Houston Law Center, where he was a member of the Law Review.Center.

 

Steinar AaslandGrant Bates, age 52,51, is our senior vice president of internationalNorth America operations and e-commerce since August 2015.  Prior toJuly 2021. Before that role, he served as our senior vice president – Europe since April 2014.  Before that, he was the CEO of Stream AS, which was acquired by MRC Global in 2014, and was responsible for all business activities of its three subsidiaries, Teamtrade, Solberg & Andersen and Energy Piping.  Mr. Aasland has more than 20 years of executive management experience in the PVF industry.  Mr. Aasland currently serves as the Chairman of the Board for the Stavanger Chamber of Commerce.  He is a mechanical engineer and holds a masters degree in strategy and management from BI Norwegian Business School.

Grant Bates, age 46,  is our senior vice president of strategy, corporate development and e-commerce since April 2020. Prior to that he served as senior vice president of operations, International and Canada, and operational excellenceexcellence. Prior to January 2019, Mr. Bates was our senior vice president and chief information officer since April 2016. In this role, he is responsible for our global quality, safety, health and environment (QHSE) and our transportation, warehouse operations, business processes and customer implementation teams and information systems. Mr. Bates previously led our Canada region since March 2014 and prior to that served as regional vice presidentin various roles with the Company and one of the Australasian region since March 2012. Mr. Bates joined MRC Global in March 2012 through the acquisition of OneSteel Piping Systems. Prior to the acquisition, Mr. Bates served as the National Manager of OneSteel Piping Systems. He has more than a decade of experience in manufacturing and distribution in a variety of management roles, including several years as a business analyst and consulting engineer.its predecessors. Mr. Bates holds a B.E. in mechanical engineering from the University of Newcastle, a graduate diploma in management and a masterMaster of business administrationBusiness Administration from Deakin University.

 

John L. BowhayShweta Kurvey-Mishra, age 52, is43, serves as our senior vice president – supply chain management, valve and technical product saleschief human resources officer since August 2015.  He previously served as seniorJanuary 2023. Prior to joining MRC Global, Ms. Kurvey-Mishra was the vice president of Asia Pacific- organization and Middle East operations since August 2014.  Before that, Mr. Bowhaytalent development at Waste Management, an environmental services company. Prior to this she served as vice president of European operations since August 2013.  Priorhuman resources of Silver Eagle Distributors from 2017 to this role, Mr. Bowhay served as the managing director for our United Kingdom operations and prior to that role, he was the vice president of sales in the U.K.  He brings more than 31 years of industry experience and valve expertise to the MRC Global team.  Mr. Bowhay attended the London Business School.

G. Tod Moss, age 56, is our2019. Ms. Kurvey-Mishra previously held various senior vice president of U.S. Western Region and Canada operations since April 2016. Since 2001, Mr. Moss has held multiple operational leadership positions at our Company. He has been involved in opening and expanding many of our service locations in the Rockies, Alaska and North Dakota, as well as our Cheyenne, Tulsa, Odessa and Bakersfield regional distribution centers. Prior to these roles, Mr. Moss was the branch manager in Salt Lake City, Utah from 1993 – 2001, and served as assistant product manager of tubular products from 1991-1993. His early career included various fieldmanagement positions including inside sales, outside salesdirector of diversity and responsibility for coordinating the line pipe sales and inventory levelinclusion at Illinois Tool Works. She holds a bachelor's degree in the Western U.S.  Mr. Moss began with Vinson Supply in 1984, which was later acquired by Red Man Pipe & Supply (a predecessor to the Company). Over the course of his

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career, he has been involved in integrating the key acquisitions of Wesco Equipment, Dresser Oil Tools and Chaparral Supply. Mr. Moss attendedCommerce (Business) from the University of Utah.Mumbai in India and earned her Masters in Organizational Communication and Masters in Human Resources and Labor Relations from Michigan State University.

 

Robert W. Stein,  age 59, isour senior vice president of business development since April 2016. He previously led our downstream and integrated supply teams. Prior to that, Mr. Stein led our U.S. Southwestern region operations. He has been part of MRC Global since 1984 and has served in a variety of roles including regional and branch management, downstream business development, project services and integrated supply. Mr. Stein received a B.B.A. in business management from Sam Houston State University.

Karl W. WittRance Long, age 57, is our senior vice president of U.S. Eastern Region and Gulf Coast operations since April 2016. Prior to that, he served in a variety of roles including seven years as regional vice president of the Eastern region and seven years as regional vice president of the Midwest sub-region as well as warehouse manager, outside sales representative, branch manager and vice president of operations with Joliet Valves, which was acquired by McJunkin Red Man Corporation (a predecessor to the Company) in 2001. Mr. Witt attended South Suburban College in Chicago.

Elton Bond, age 42,54, has served as our senior vice president of sales and chief accounting officermarketing since May 2011.  From September 2009 to May 2011,July 2019. Most recently he served as our vice president business development, midstream pipeline & gas utilities since 2013. Prior to this role, he served as vice president of line pipe and was responsible for all line pipe sales in the US. He joined MRC Global as part of the acquisition of LaBarge Pipe and Steel in 2008. Mr. Long holds a bachelor’s degree in construction from Southern Illinois University Edwardsville.

Jack McCarthy, age 57, has served as our senior vice president of supply chain since July 2020. Most recently, he served as our vice president of supply chain and treasurer.technical sales. Prior to that role, Mr. McCarthy served as vice president of carbon steel pipe, fittings, flanges and VAMI supply chain management where he led our line pipe team since 2011 with responsibilities for our carbon steel fittings and flanges being added in 2016. Prior to joining MRC Global with the acquisition of LaBarge Pipe and Steel in 2008, he held roles in business development, sales and sales management in the industrial distribution industry for 17 years. Mr. McCarthy is a graduate of the University of Illinois at Urbana-Champaign and is a former vice president and board member of the National Association of Steel Pipe Distributors.

Emily Shields, age 47, has served as our senior vice president of sustainability and assistant general counsel since June 2022. Most recently, she served as our assistant general counsel and compliance officer. Prior to joining MRC Global in 2013, Ms. Shields practiced litigation at the law firm of Morgan Lewis & Bockius L.L.P. She holds a bachelor's degree in speech communication from Texas A&M University and received her juris doctorate from South Texas College of Law.

Steve Smith, age 55, has served as our senior vice president of international operations since January 2022. Prior to that he served as vice president of financeEurope, Middle East and compliance since December 2008. Before that, Mr. Bond was the director of financeAfrica and compliance since January 2007.  He started his career withhas held multiple sales and operations leadership roles at MRC Global and one of its predecessors.

Gillian Anderson, age 37, has served as the acquisition development manager in April 2006.our vice president and chief accounting officer since July 2021. Prior to joining MRC Global, Mr. Bond was employedthat role, she held various positions with Ernst & Young LLP, from 1997 to 2006, serving in a variety of roles, including audit senior manager of assurance and advisory business services. Mr. Bond received a B.B.A. from Marshall University in 1997.  Hemanager. Ms. Anderson is a member ofCPA and a chartered accountant through the American Institute of Certified PublicChartered Accountants of Scotland. She holds an MA in accountancy and a memberfinance (with honors) from the University of the West Virginia Society of CPAs.

22Aberdeen (Scotland).

 

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PART II

ITEM  5.MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 

MRC Global Inc. common stock is listed on the New York Stock Exchange (“NYSE’) under the symbol “MRC”. The following table illustrates the high and low sales prices as reported by the NYSE for the two most recent years by quarter: 


		2017
		First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Common stock sale price
High		$	22.26		$	20.77		$	17.57		$	18.51
Low		$	17.04		$	14.78		$	15.30		$	14.01

		2016
		First Quarter			Second Quarter			Third Quarter			Fourth Quarter

High		$	15.14		$	15.34		$	16.50		$	22.52
Low		$	8.50		$	12.65		$	11.50		$	13.68

ITEM 5.

MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

As of February 9, 2018,7, 2023, there were 294123 holders of record of the Company’s common stock.

The Company’s common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “MRC”.

Our board of directors has not declared any dividends on common stock during 20172022 or 20162021 and currently has no intention to declare any dividends.dividends on common stock.

The Company’s Global ABL Facility, Term Loan and our 6.5% Series A Convertible Perpetual Preferred Stock restrict our ability to declare cash dividends under certain circumstances. Any future dividends declared would be at the discretion of our board of directors and would depend on our financial condition, results of operations, cash flows, contractual obligations, the terms of our financing agreements at the time a dividend is considered, and other relevant factors.

 

Issuer Purchases of Securities

 


A summary of our purchases of MRC Global Inc. common stock during the fourth quarter of fiscal year 2017 is as follows:

	Total Number of Shares Purchased (1)		Average Price Paid per Share		Total number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)		Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
October 1 - October 31	-		$                    -		-		$                    100,000,000
November 1 - November 30	1,832,337		$            15.20		1,832,337		$                      72,155,809
December 1 - December 31	1,382,603		$            16.07		1,381,979		$                      49,949,393
	3,214,940

(1) We purchased 624 shares in connection with funding employee income tax withholding obligations arising upon the lapse of restrictions on restricted shares.
(2) We purchased 3,214,316 shares during the period as part of a share repurchase program authorized by the Company's board in October 2017. The plan allows for purchases of common stock up to $100 million and is scheduled to expire in December 2018.





23None.

 

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PERFORMANCE GRAPH

The graph below compares the cumulative total shareholder return on our common stock to the S&P 500 Index and the Philadelphia Oil Service Sector Index. The total shareholder return assumes $100 invested on December 31, 2012,2017, in MRC Global Inc., the S&P 500 Index and the Philadelphia Oil Service Sector Index. It also assumes reinvestment of all dividends. The results shown in the graph below are not necessarily indicative of future performance.

Comparison of Cumulative Total Return

 

This information shall not be deemed to be ‘‘soliciting material’’ or to be ‘‘filed’’ with the SEC or subject to Regulation 14A (17 CFR(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).

 

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ITEM 6.

SELECTED FINANCIAL DATA

 

ITEM 6. SELECTED FINANCIAL DATA 

The selected financial data presented below have been derived from the consolidated financial statements of MRC Global Inc. that have been prepared using accounting principles generally accepted in the United States of America which have been audited by Ernst & Young LLP, our independent registered public accounting firm. This data should be read in conjunction with “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements, related notes and other financial information included elsewhere in this report.  


			Year Ended December 31,
			2017			2016			2015			2014			2013
				(in millions, except per share amounts)
Statement of Operations Data:
Sales			$	3,646		$	3,041		$	4,529		$	5,933		$	5,231
Cost of sales				3,064			2,573			3,743			4,915			4,276
Gross profit				582			468			786			1,018			955
Selling, general and administrative expenses				536			524			606			716			643
Goodwill and intangible asset impairment				-			-			462			-			-
Operating income (loss)				46			(56)			(282)			302			312
Other expenses:
Interest expense				(31)			(35)			(48)			(62)			(61)
Other, net				(8)			-			(12)			(14)			(14)
Income (loss) before income taxes				7			(91)			(342)			226			237
Income tax (benefit) expense				(43)			(8)			(11)			82			85
Net income (loss)				50			(83)			(331)			144			152
Series A preferred stock dividends				24			24			13			-			-
Net income (loss) attributable to common stockholders			$	26		$	(107)		$	(344)		$	144		$	152
Earnings (loss) per share amounts:
Basic			$	0.28		$	(1.10)		$	(3.38)		$	1.41		$	1.50
Diluted			$	0.27		$	(1.10)		$	(3.38)		$	1.40		$	1.48
Weighted-average shares, basic				94.3			97.3			102.1			102.0			101.7
Weighted-average shares, diluted				95.6			97.3			102.1			102.8			102.5
Dividends (common)				-			-			-			-			-

Reserved.

 


			Year Ended December 31,
			2017			2016			2015			2014			2013
Balance Sheet Data:
Cash			$	48		$	109		$	69		$	25		$	25
Working capital (1)				756			684			960			1,504			1,084
Total assets				2,340			2,164			2,497			3,869			3,327
Long-term debt (2)				526			414			519			1,447			978
Redeemable preferred stock				355			355			355			-			-
Stockholders' equity				759			763			956			1,397			1,338

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			Year Ended December 31,
			2017			2016			2015			2014			2013
Other Financial Data:
Net cash flow:
Operating activities			$	(48)		$	253		$	690		$	(106)		$	324
Investing activities				(27)			16			(41)			(362)			(69)
Financing activities				9			(226)			(599)			467			(265)


ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

(1)Working capital is defined as current assets less current liabilities.

(2)Includes current portion of long-term debt.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our financial statements and related notes included elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including, but not limited to, those set forth under “Cautionary Note Regarding Forward-Looking Statements” and “Item 1A—Risk Factors” and elsewhere in this report.

Cautionary Note Regarding Forward-Looking Statements

Management’s Discussion and Analysis of Financial Condition and Results of Operations (as well as other sections of this Annual Report on Form 10-K) contain forward-looking statementswithin the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include those preceded by, followed by or including the words “will,” “expect,” “intended,” “anticipated,” “believe,” “project,” “forecast,” “propose,” “plan,” “estimate,” “enable,” and similar expressions, including, for example, statements about our business strategy, our industry, our future profitability, growth in the industry sectors we serve, our expectations, beliefs, plans, strategies, objectives, prospects and assumptions, and estimates and projections of future activity and trends in the oilenergy, industrial and natural gas utilities industry. These forward-looking statements are not guarantees of future performance. These statements are based on management’s expectations that involve a number of business risks and uncertainties, any of which could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors, most of which are difficult to predict and many of which are beyond our control, including the factors described under “Item 1A -1A. Risk Factors,” that may cause our actual results and performance to be materially different from any future results or performance expressed or implied by these forward-looking statements. Such risks and uncertainties include, among other things:

●	·decreases in capital and other expenditure levels in the industries that we serve;
●	U.S. and international general economic conditions;
●	global geopolitical events;
●	decreases in oil and natural gas prices;

●	·unexpected supply shortages;
●	loss of third-party transportation providers;
●	cost increases by our suppliers and transportation providers;
●	increases in steel prices, which we may be unable to pass along to our customers which could significantly lower our profit;
●	our lack of long-term contracts with most of our suppliers;
●	suppliers’ price reductions of products that we sell, which could cause the value of our inventory to decline;
●	decreases in steel prices, which could significantly lower our profit;
●	a decline in demand for certain of the products we distribute if tariffs and duties on these products are imposed or lifted;
●	holding more inventory than can be sold in a commercial time frame;
●	significant substitution of renewables and low-carbon fuels for oil and natural gas, industry expenditure levels, which may result from decreased oil and natural gas prices or other factors;impacting demand for our products;

●	·risks related to adverse weather events or natural disasters;
●	environmental, health and safety laws and regulations and the interpretation or implementation thereof;
●	increased usage of alternative fuels, which may negatively affect oil and natural gas industry expenditure levels;

·

U.S. and international general economic conditions;

·

our ability to compete successfully with other companieschanges in our industry;customer and product mix;

·

●

the risk that manufacturers of the products we distribute will sell a substantial amount of goods directly to end users in the industry sectors we serve;

●	·failure to operate our business in an efficient or optimized manner;
●		unexpected supply shortages;our ability to compete successfully with other companies in our industry

·

cost increases by our suppliers;

·

●

our lack of long-term contracts with mostmany of our suppliers;

·

suppliers’ price reductions of products that we sell, which could cause the value of our inventory to decline;

·

decreases in steel prices, which could significantly lower our profit;

·

increases in steel prices, which we may be unable to pass along to our customers which could significantly lower our profit;

·

and our lack of long-term contracts with manycustomers that require minimum purchase volumes;

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	●	inability to attract and retain our employees or the potential loss of key personnel;
	●	adverse health events, such as a pandemic;
	●	interruption in the proper functioning of our customers and our lack of contracts with customers that require minimum purchase volumes;information systems;

	●	·the occurrence of cybersecurity incidents;
		changes in our customer and product mix;

·

●

risks related to our customers’ creditworthiness;

●

·

the success of our acquisition strategies;

·

●

the potential adverse effects associated with integrating acquisitions into our business and whether these acquisitions will yield their intended benefits;

	●	·impairment of our goodwill or other intangible assets;
	●	adverse changes in political or economic conditions in the countries in which we operate;
	●	our significant indebtedness;

·

●

the dependence on our subsidiaries for cash to meet our parent company's obligations;

·

●

changes in our credit profile;

	●	·potential inability to obtain necessary capital;
		a decline in demand for certain of the products we distribute if import restrictions on these products are lifted;

·

environmental, health and safety laws and regulations and the interpretation or implementation thereof;

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·

●

the sufficiency of our insurance policies to cover losses, including liabilities arising from litigation;

·

●

product liability claims against us;

●

·

pending or future asbestos-related claims against us;

·

the potential loss of key personnel;

·

interruption in the proper functioning of our information systems;

·

the occurrence of cybersecurity incidents;

·

loss of third-party transportation providers;

·

potential inability to obtain necessary capital;

·

risks related to adverse weather events or natural disasters;

·

impairment of our goodwill or other intangible assets;

·

adverse changes in political or economic conditions in the countries in which we operate;

·

●

exposure to U.S. and international laws and regulations, including the Foreign Corrupt Practices Act and the U.K. Bribery Act and otherregulating corruption, limiting imports or exports or imposing economic sanctions programs;sanctions;

●

·

risks associated with international instability and geopolitical developments;

·

risks relating to ongoing evaluations of internal controls required by Section 404 of the Sarbanes-Oxley Act; and

·

our intention not to pay dividends; and

·

●

risks related to changing laws and regulations.regulations including trade policies and tariffs.

Undue reliance should not be placed on our forward-looking statements. Although forward-looking statements reflect our good faith beliefs, reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise, except to the extent law requires.

Overview

We are the largestleading global industrial distributor based on sales, of pipe, valves, and fittings (“PVF”("PVF") and relatedother infrastructure products and services to thediversified gas utility, energy industry and holdindustrial end-markets. We provide innovative supply chain solutions, technical product expertise and a robust digital platform to customers globally through our leading position in our industry across each of our diversified end-markets including the upstream (exploration, production and extraction of underground oil and natural gas), midstream (gathering and transmission of oil and natural gas, natural gas utilities and the storage and distribution of oil and natural gas) and downstream (crude oil refining, petrochemical and chemical, processing and general industrials) sectors. Our business is segregated into three geographic reportable segments, consisting of our U.S., Canada and International operations. We serve our customers from approximately 300 service locations. following sectors:

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

We offer a wideover 250,000 SKUs, including an extensive array of PVF, oilfield supply, valve automation and oilfield supplies encompassing a complete line ofmodification, measurement, instrumentation and other general and specialty products from our global network of over 9,000 suppliers. With over 100 years of history, our 2,800 employees serve approximately 12,000 suppliers10,000 customers through 212 service locations including regional distribution centers, service centers, corporate offices and third-party pipe yards, where we often deploy pipe near customer locations.

Our customers use the PVF and other infrastructure products that we supply in mission critical process applications that require us to provide a high degree of product knowledge, technical expertise and comprehensive value-added services to our more than 16,000 customers. We are diversified by geography, the industry sectors we serve and the products we sell. We seek to provide best-in-class service to ourand a one-stop shop for customers by satisfying the most complex, multi-sitemulti- site needs of many of the largest companies in the energy, sectorindustrial and gas utilities sectors as their primary PVF supplier. We believe the critical role we play in our customers’customers' supply chain, together with our extensive product offering,and service offerings, broad global presence, customer-linked scalable information systems and efficient distribution capabilities, serve to solidify our long-standing customer relationships and drive our growth. As a result, we have an average relationship of over 2530 years with our 25 largest customers.

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Key Drivers of Our Business

Our

We derive our revenue is predominantly derived from the sale of PVF and other oilfield and industrial supplies to thegas utility, energy sectorand industrial customers globally. Our business is, therefore, dependent upon both the current conditions and future prospects in the energy industrythese industries and, in particular, maintenance and expansionary operating and capital expenditures by our customers in the upstream, midstream and downstream sectorseach of the industry. Long-term growth in spending has been driven by several factors, including demand growth for petroleum and petroleum derived products, underinvestment in global energy infrastructure, growth in shale and unconventional exploration and production (“E&P”) activity, and anticipated strength in the oil, natural gas, refined products and petrochemicalour sectors. The outlook

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for future oil, natural gas, refined products and petrochemical PVF spending is influenced by numerous factors, including the following:

 

	●	·Gas Utility and Energy Infrastructure Integrity and Modernization. Ongoing maintenance and upgrading of existing energy facilities, pipelines and other infrastructure equipment is a meaningful driver for business across the sectors we serve. This is particularly true for gas utilities, which is currently our largest sector by sales. Activity with customers in this sector is driven by upgrades and replacement of existing infrastructure as well as new residential and commercial development. Continual maintenance of an aging network of pipelines and local distribution networks is a critical requirement for these customers irrespective of broader economic conditions. As a result, this business tends to be more stable over time than our traditional oilfield-dependent businesses and moves independently of commodity prices.
	●		Oil and Natural Gas Prices.Demand and Prices. Sales of PVF and relatedinfrastructure products to the oil and natural gas industry constitute over 90%a significant portion of our sales. As a result, we depend upon the maintenance and capital expenditures of oil and natural gas industry and its ability and willingness to make maintenance and capital expenditurescompanies to explore for, produce and process oil, natural gas and refined products. OilDemand for oil and natural gas, prices, both current and projected along withcommodity prices and the costs necessary to produce oil and gas impact other drivers of our business, includingcustomer capital spending, by customers, additions to and maintenance of pipelines, refinery utilization and petrochemical processing activity. Additionally, as these participants rebalance their capital investment away from traditional, carbon-based energy toward alternative sources, we expect to continue to supply them and enhance our product and service offerings to support their changing requirements, including in areas such as carbon capture utilization and storage, biofuels, offshore wind and hydrogen processing.

●

·

Economic Conditions. The demand for the products we distribute is dependent on the general economy, the energy sector and other factors.Conditions. Changes in the general economy or in the energy sector (domestically or internationally) can cause demand for fuels, feedstocks and petroleum-derived products to vary, thereby causing demand for the products we distribute to materially change.

●

·

Manufacturer and Distributor Inventory Levels of PVF and Related Products.Products. Manufacturer and distributor inventory levels of PVF and related products can change significantly from period to period. Increased inventory levels by manufacturers or other distributors can cause an oversupply of PVF and related products in the industry sectors we serve and reduce the prices that we are able to charge for the products we distribute. Reduced prices, in turn, would likely reduce our profitability. Conversely, decreased manufacturer inventory levels may ultimately lead to increased demand for our products and would likelyoften result in increased sales volumesrevenue, higher PVF pricing and overallimproved profitability.

●

·

Steel Prices, Availability and Supply and Demand.Demand. Fluctuations in steel prices can lead to volatility in the pricing of the products we distribute, especially carbon steel line pipe products, which can influence the buying patterns of our customers. A majority of the products we distribute contain various types of steel. The worldwide supply and demand for these products orand other steel products that we do not supply, impactsimpact the pricing and availability of our products and, ultimately, our sales and operating profitability. Additionally, supply chain disruptions with key manufacturers or in markets in which we source products can impact the availability of inventory we require to support our customers. Furthermore, logistical challenges, including inflation and availability of freight providers and containers for shipping can also significantly impact our profitability and inventory lead-times. These constraints can also present an opportunity, as our supply chain expertise allows us to meet customer expectations when the competition may not.

Recent Trends and Outlook

We have made significant strides in increasing the diversification of our end markets over the last few years, supporting our customers in the gas utilities sector and traditional energy markets along with other industrial end markets and the rapidly evolving energy transition. For the year ended 2022, 68% of our revenue was derived from our gas utility and downstream, industrial and energy transition ("DIET") sectors, with the remainder in the upstream production and midstream pipeline sectors.

Gas Utilities

Our gas utility business continues to be our largest sector, making up 38% of our total company revenue with a 25% increase in revenue compared to 2021. This majority of the work we perform with our gas utility customers are multi-year programs where they continually evaluate, monitor and implement measures to improve their pipeline distribution networks, ensuring the safety and the integrity of their system. As of 2021, which is the most recently available information, the Pipeline and Hazardous Materials Safety Administration (PHMSA) estimates approximately 37% of the gas distribution main and service line miles are over 40 years old or of unknown origin. This infrastructure requires continuous replacement and maintenance as these gas distribution networks continue to age. We supply many of the replacement products including valves, line pipe, smart meters, risers and other gas products. A large percentage of the line pipe we sell is sold to our gas utilities customers for line replacement and new sections of their distribution network. Additionally, as our gas utility customers connect new homes and businesses to their gas distribution network, the growth in the housing market creates new revenue opportunities for our business to supply the related infrastructure products. While new housing market starts have declined with interest rate increases and rising construction costs, we do not anticipate this to have a significant impact as customers will generally reallocate their budgets toward integrity upgrade projects. The compound annual growth rate since 2010 for this sector is 11% and based on market fundamentals and new market share opportunities, we expect this area of our business to continue to have steady growth. Additionally, this sector has proven historically to be less sensitive to a scenario of economic slowdown due to its reduced dependency on energy demand and commodity prices.

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Downstream, Industrial and Energy Transition (DIET)

DIET, our second largest sector, generated 30% of our total company revenue for 2022 and grew 29% from 2021. We continue to expect this sector to deliver strong growth in 2023 driven by increased customer activity levels related to new energy transition related projects, maintenance, repair and operations ("MRO") activities and project turnaround activity in refineries and chemical plants. This business has historically been less volatile than the upstream and midstream pipeline sectors as it is less commodity price dependent. 

The energy transition portion of our business is growing rapidly, particularly for biofuels refinery projects. The outlook for energy transition projects in the coming years is robust as pressure to decarbonize the economy rises and government incentives and policy such as those in the Inflation Reduction Act of 2022 begin to support the development of carbon energy alternatives. Also, many of our customers have made commitments to net zero emissions and to demonstrate their commitment to address factors that cause climate change to investors and potential investors and other stakeholders. Our customer base is one of the primary leaders in the energy transition movement and is positioned to lead the effort to decarbonize through nearer-term efforts such as renewable or biodiesel refineries and offshore wind electric generation as well as longer-term efforts such as carbon capture and storage and hydrogen. These sorts of projects require similar products that we currently provide today to these customers. We also sell low-emission valves, which represent 96% of the valves we sell currently. Low-emission valves restrict the release of methane and other greenhouse gases into the environment. We are well positioned to grow our energy transition business as we supply products for these projects through our long-standing customer relationships and our product and global supply chain expertise.

Upstream Production and Midstream Pipeline

The upstream production and midstream pipeline sectors of our business are the most cyclical, and in 2022 these sectors represented about one-third of our company revenues. The upstream production sector revenue increased 30% in 2022 compared to 2021, while the midstream pipeline sector increased 15% over the same period. Initial estimates from sell side equity research analysts currently estimate double-digit growth in upstream spending in 2023. During 2017, the average2022, Brent crude oil price ofaveraged over $100 per barrel and West Texas Intermediate (“WTI”("WTI") increased to $50.80 per barrel compared to  $43.29 per barrel in 2016.  Natural gas prices increased to an average price of  $2.99/Mcf (Henry Hub) for 2017 compared to  $2.52/Mcf (Henry Hub) for 2016.  North American drilling rig activity increased 69% in 2017 compared to 2016.    U.S. well completions were up 41% in 2017 as compared to 2016.

In recent years, there has been an increase in the global supply of crude oil, including the contribution of U.S. shale oil, at a pace exceeding demand growth.  This increase combined with the initial hesitance on the part of the Organization of Petroleum Exporting Countries (“OPEC”) to curb production triggered a dramatic decline in oil prices that began in late 2014 and continued throughout 2016.  This low price environment, in turn, resulted in a dramatic decline in capital spending by our customers in each of our end market sectors, which directly impacted our business.  Major capital projects and discretionary spending were negatively impacted as customers were reluctant to invest or spend in an uncertain oil and gas commodity price environment.  However, our business rebounded with 20% sales growth in 2017, and we remain encouraged by stability inaveraged approximately $95 per barrel. Although, oil prices and sustainedhave recently declined from earlier highs in 2022, recent OPEC+ production cuts have maintained prices at levels that support continued growth in drilling and completion activity.  Prominentactivity by our customers. Natural gas prices also drive customer activity, and despite recent volatility in various parts of the world, current prices remain elevated compared to previous years. If gas prices further decline or remain sustainably low, this could negatively impact our business.

The consistent expectation from research analysts is that the larger public exploration and production (“E&P”companies will drive a higher percentage of the activity increases in 2023, which bodes well for our Company as our revenue for these sectors is driven predominantly from this customer base. We also expect our larger public customers will remain disciplined and consistent with their commitments to their budgets, maintaining returns to their shareholders and operating within their cash flow requirements.

To the extent completion activity and related production increase, this could have the impact of improving our revenue opportunities in our upstream production and midstream pipeline sectors. Higher production levels are driving the need for additional gathering and processing infrastructure benefitting our midstream pipeline business. Our upstream revenue is more correlated to new well completions rather than rig count.

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Russia-Ukraine War

On February 24, 2022, Russia invaded Ukraine, which has had several consequences to the broader economy, global attitudes toward energy security and the pace of the energy transition. Government actions to reduce dependency on Russian fuels through embargoes and sanctions on Russia have spurred a commodity price spike, supply constraints and various policy changes to address energy security. While we have no operations or sales in Ukraine, Belarus or Russia, the conflict has impacted certain macro energy trends.

As Europe looks to replace Russian natural gas with more stable sources, liquified natural gas ("LNG") spending surveys, which include manywith its related infrastructure is being considered as an alternative to Russian gas supplies, with projects being considered in the U.S. and Europe. To the extent new LNG infrastructure is built, our midstream pipeline and our DIET sectors are well positioned to benefit from this growth.

Supply Chain and Labor

As a distribution business, we have closely monitored the ability of our suppliers and transportation providers to continue the functioning of our supply chain, particularly in cases where there are limited alternative sources of supply. Lead-times for purchases of certain products have extended substantially. We expect continued disruptions related to both lead-times and logistics for the foreseeable future. This disruption has complicated forecasting our inventory levels, however, our strong inventory positions have allowed us to continue to supply most customers indicate that 2018 spending willwith little interruption despite the delays from transportation providers. In those instances where there is interruption, we work with our customers to limit the impacts on their business and maintain an ongoing dialogue regarding the status of impacted orders. We experienced significant increases in transportation costs from prior year as the economies of the U.S. and other countries recover from the COVID-19 pandemic, although more recently, transportation costs have declined.

We continued to experience inflation this year for certain product categories. Although inflation causes the price we pay for products to increase, bywe are generally able to leverage long-standing relationships with our suppliers and the high single digits globally including double digit growth in North America combined with more modest growth internationally.volume of our purchases to achieve market competitive pricing and preferential allocations of limited supplies. In addition, our contracts with customers generally allow us to pass price increases along to customers within a more favorable regulatory environmentreasonable time after they occur. To the extent further pricing fluctuations impact our products, the impact on our revenue and cost of goods sold, which for our U.S. inventory is determined using the last-in, first-out ("LIFO") inventory costing methodology, remains subject to uncertainty and volatility. However, our supply chain expertise, relationships with our key suppliers and inventory position has allowed us to manage the supply chain for both inflationary and deflationary pressures.

There has been little impact to our supply chain directly from the conflict in 2017 as a resultUkraine. However, the COVID-19 lockdowns in China constrained the global supply chain and impacted the availability of some component parts, particularly for valves and meters. China has lifted these lockdowns but is experiencing an increased outbreak of the new Presidential administrationdisease. We continue to monitor our supply chains for supply interruptions and work with our customers to manage any delays or source replacement parts.

Globally, we are being impacted by labor constraints as the post-pandemic recovery has lowered unemployment rates and created increased competition among companies to attract and retain personnel, which has increased our selling, general and administrative expense. We proactively monitor market trends in the areas where we have operations and, due to our efficient sourcing practices, we have experienced little to no disruption supporting our customers.

Longer Term Outlook

In 2021, the U.S. President implemented executive orders for the U.S. to rejoin the Paris Agreement, which presumably will require the U.S. to set greenhouse gas reduction goals and enact policies to meet those goals. In November 2022, Congress passed, and the President signed into law, the Inflation Reduction Act (the "IRA"), which further encourages investments in energy alternatives to fossil fuels. The IRA provides funding and incentives to dramatically increase investments in alternative energy including wind, solar, hydrogen and other alternatives to fossil fuels and to support carbon capture, utilization and storage ("CCUS") projects. The IRA also has provisions that further support the EPA's efforts to curtail emissions of methane, a potent greenhouse gas, from oil and gas operations. While these policies are aimed at increasing decarbonization efforts in the United States, has benefitedthey do not directly inhibit the operations of our business, particularlyoil and gas customers. Many of MRC Global's customers are leading projects for the energy transition from carbon-based energy to alternative forms of energy, and we are positioned to supply our PVF products to projects in the midstream sector.  Andenergy transition such as biofuels, offshore wind, CCUS and hydrogen. In addition, MRC Global sells products, including low-emission valves that directly support our domestic downstream sector has benefitted from the improved access tocustomers' methane reduction efforts and stability in pricing of the necessary feedstocks available from increased, and in some cases, new upstream production.  We expect these favorable business trends to continue into 2018.requirements.

 

Our international segment has seen customer spending continue to decline, even asWe play a critical role in supporting our customers and the energy industry during the energy transition and throughout the cycles. The U.S. Energy Information Administration's ("EIA") Reference Case published in its "International Energy Outlook 2021" that world energy consumption will increase by nearly 50% between 2020 and 2050. Additionally, the EIA projects that renewable energy consumption will grow by 165% and that both natural gas and hydrocarbon based liquids consumption will both grow more than 30% between 2020 and 2050.

In 2022, the EIA published a Reference Case for the U.S. in its "Annual Energy Outlook 2022". In this reference case, the EIA projects that U.S. production of oil will grow by 17% from 2021 to 2050 and Canadian segment sales have increased from improved spendingU.S. natural gas production will grow by almost 24% in the same period. This projected increase in oil and gas to meet the rise in energy demand continues to provide a robust market for our existing goods and services. Additionally, we expect our longer term growth to be heavily influenced by the rising demand for energy transition projects. Our existing traditional energy customer base in 2017. We took actions in 2016 to reduce our international footprint and cost structure and yet we have been unable to return to profitability.  As such, we took further action in the fourth quarter of 2017 to reduce our headcount and cost structure in the international segment, particularly in Norway. As a result of these actions in the fourth quarter of 2017, we recorded $20 million of charges, including $14 million of severance and restructuring costs and a $6million write-down of inventory associated with  a decision to reduce our local presence in Iraq.  

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was enacted.  Among the significant changes to the U.S. Internal Revenue Code, the Tax Act reduced the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018 and created a new dividend-exemption territorial system with a one-time transition tax on foreign earnings which were previously not taxed in the U.S.  The Tax Act also imposes a new base erosion and anti-abuse tax (“BEAT”) and global intangible low-taxed income ("GILTI") tax, and places new or additional limitations on the deductibility of executive compensation and interest expense.  As a result of this enacted change in tax laws, we recorded a provisional net tax benefit of $50 million in the fourth quarter of 2017.  The

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provisional tax benefit of $50 million includes a $57 million non-cash benefit related to the re-measurement of deferred income taxes offset by a $7 million transition tax expense which will be paid over a period of eight years.  We are still analyzing the full impact of the Tax Act and any refinements of our estimates will be reflected in income tax expense or benefit in 2018.  In addition, the reduction of the U.S. corporate tax rate is expected to lowerreallocate increasing amounts of their future capital expenditures to fund many of these projects. We are well positioned for this future growth given our overall effective tax rate on a go forward basis.strong customer relationships and previous energy transition project experience. 

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Backlog

We determine backlog by the amount of unshipped customer orders, either specific or general in nature, which the customer may revise or cancel in certain instances. The table below details our backlog by segment (in millions):

 

		Year Ended December 31,								Year Ended December 31,
		2017			2016			2015*		2022				2021				2020
U.S.	$	559		$	472		$	305		$	539			$	350			$	193
Canada		40			36			34			45				35				13
International		233			241			161			158				135				134
	$	832		$	749		$	500		$	742			$	520			$	340

*Amount excludes U.S. OCTG backlog $42 million for 2015.  We disposed of our U.S. OCTG product line in February 2016.

As of December 31, 2017 and 2016, respectively, approximately 14% and 28% of our ending backlog was associated with one customer in our U.S segment.  In addition, approximately 14% and 10% of our ending backlog for 2017 and 2016, respectively was associated with one customer in our International segment. In each case, these are related to significant ongoing customer projects.  There can be no assurance that the backlog amounts will ultimately be realized as revenue or that we will earn a profit on the backlog of orders, but we expect that substantially all of the sales in our backlog will be realized in 2018.within twelve months.

Key Industry Indicators

The following table showssets forth key industry indicators for the years ended December 31, 2017, 20162022, 2021 and 2015:  


		Year Ended December 31,
		2017			2016			2015
Average Rig Count (1):
United States		876			509			978
Canada		206			130			192
Total North America		1,082			639			1,170
International		948			955			1,167
Total Worldwide		2,030			1,594			2,337

Average Commodity Prices (2):
WTI crude oil (per barrel)	$	50.80		$	43.29		$	48.66
Brent crude oil (per barrel)	$	54.12		$	43.67		$	52.32
Natural gas ($/Mcf)	$	2.99		$	2.52		$	2.62

Average Monthly U.S. Well Permits (3)		3,741			2,360			3,783
U.S. Wells Completed (2)		11,257			8,000			13,026
3:2:1 Crack Spread (4)	$	17.87		$	15.07		$	20.12
_______________________
(1) Source-Baker Hughes (www.bakerhughes.com) (Total rig count includes oil, natural gas and other rigs.)
(2) Source-Department of Energy, EIA (www.eia.gov)
(3) Source-Rig Data (U.S.)
(4) Source-Bloomberg


292020:

 

		Year Ended December 31,
		2022				2021				2020
Average Rig Count (1):
United States			723				478				433
Canada			175				132				89
Total North America			898				610				522
International			851				755				825
Total Worldwide			1,749				1,365				1,347
Average Commodity Prices (2):
WTI crude oil (per barrel)		$	94.90			$	68.14			$	39.16
Brent crude oil (per barrel)		$	100.93			$	70.86			$	41.96
Henry Hub natural gas ($/MMBtu)		$	6.45			$	3.89			$	2.03
Average Monthly U.S. Well Permits (3)			3,320				2,220				1,614
U.S. Wells Completed (2)			11,451				9,370				7,479
3:2:1 Crack Spread (4)		$	36.79			$	19.42			$	11.29

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(1)	Source-Baker Hughes (www.bakerhughes.com) (Total rig count includes oil, natural gas and other rigs.)

(2)	Source-Department of Energy, EIA (www.eia.gov) (As revised)

(3)	Source-Evercore ISI Research

(4)	Source-Bloomberg

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Results of Operations for the Years Ended December 31, 2017, 20162022, 2021 and 20152020

 

The breakdown of our sales by sector for the years ended December 31, 2017, 20162022, 2021 and 20152020 was as follows (in millions):

 

		Year Ended December 31,
		2022								2021								2020
Gas utilities		$	1,263				38	%		$	1,008				38	%		$	832				33	%
Downstream, industrial & energy transition			1,009				30	%			783				29	%		$	786				31	%
Upstream production			707				21	%			542				20	%			600				23	%
Midstream pipeline			384				11	%			333				13	%			342				13	%
		$	3,363				100	%		$	2,666				100	%		$	2,560				100	%


	Year Ended December 31,
	2017					2016					2015
Upstream	$	1,049		29%		$	884		29%		$	1,729		38%
Midstream		1,603		44%			1,165		38%			1,485		33%
Downstream		994		27%			992		33%			1,315		29%
	$	3,646		100%		$	3,041		100%		$	4,529		100%

 

Year Ended December 31, 20172022 Compared to the Year Ended December 31, 20162021

 

For the years ended December 31, 20172022 and 2016,2021, the following table summarizes our results of operations (in millions):

 

	Year Ended December 31,											Year Ended December 31,
	2017			2016			$ Change			% Change		2022				2021				$ Change				% Change
Sales:
U.S.	$	2,860		$	2,297		$	563		25%		$	2,823			$	2,178			$	645				30	%
Canada		294			243			51		21%			166				132				34				26	%
International		492			501			(9)		(2%)			374				356				18				5	%
Consolidated	$	3,646		$	3,041		$	605		20%		$	3,363			$	2,666			$	697				26	%
Operating income (loss):
U.S.	$	67		$	6		$	61				$	127			$	(3	)		$	130				N/M
Canada		11			(5)			16					(1	)			—				(1	)			N/M
International		(32)			(57)			25					14				10				4				40	%
Consolidated		46			(56)			102					140				7				133				N/M
Interest expense		(31)			(35)			4					(24	)			(23	)			(1	)			4	%
Other expense		(8)			-			(8)
Income tax benefit		43			8			35
Other, net													(6	)			2				(8	)			N/M
Income tax expense													(35	)			—				(35	)			N/M
Net income (loss)		50			(83)			133					75				(14	)			89				N/M
Series A preferred stock dividends		24			24			-					24				24				—				0	%
Net income (loss) attributable to common stockholders	$	26		$	(107)		$	133				$	51			$	(38	)		$	89				N/M
Gross Profit	$	582		$	468		$	114				$	610			$	417			$	193				46	%
Adjusted Gross Profit (1)	$	677		$	523		$	154				$	715			$	537			$	178				33	%
Adjusted EBITDA (1)	$	179		$	75		$	104				$	261			$	146			$	115				79	%

(1)	Adjusted Gross Profit and Adjusted EBITDA are non-GAAP financial measures. For a reconciliation of these measures to an equivalent GAAP measure, see pages 33-35 herein.

 

(1)Adjusted Gross ProfitSales. Sales reflect consideration we are entitled to for goods and Adjusted EBITDA are non-GAAP financial measures. For a reconciliationservices when control of these measuresthose goods and services is transferred to an equivalent GAAP measure, see pages 31-33 herein.

Sales. Sales include the revenue recognized from the sales of the products we distribute, services we provide and freight billings to customers, less cash discounts taken by customers in return for their early payment.our customers. Our sales were $3,646$3,363 million for the year ended December 31, 20172022, as compared to $3,041$2,666 million for the year ended December 31, 2016.2021. The $605$697 million, or 20%26%, increase reflected an $11included a $47 million favorableunfavorable impact from the strengtheningweakening of foreign currencies in areas where we operate comparedrelative to the U.S. dollar.

U.S. Segment—Our U.S. sales increased $563 million to $2,860$2,823 million for 20172022 from $2,297$2,178 million for 2016.2021. This 25%$645 million, or 30%, increase reflected a $152$252 million improvement in the gas utilities sector driven by increased activity levels related to our customer safety related modernization and emission reduction programs in conjunction with continued infrastructure improvement projects. DIET sales increased $198 million due to increased renewable biofuel projects and additional turnaround projects and maintenance spending for refining, mining and chemical customers. Upstream production sales increased $137 million primarily due to increased customer spending for well completions. Midstream pipeline sales improved $58 million driven by new gathering and processing infrastructure as a result of increased production levels.

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Canadian Segment—Our Canadian sales increased $34 million to $166 million for 2022 from $132 million for 2021. This 26% increase reflected a $29 million increase in the upstream production sector, a $400$5 million increase in the midstreamDIET sector, and an $11a $2 million increase in the downstream sector.  The increasegas utilities, and a $2 million decrease in the midstream sector is related to increased activity in the gas utility and transmission and gathering subsectors, including some large project activity with several of our customers.pipeline sector. The increase in the upstream sector is relatedwas primarily due to the increase in rig count and well completions.

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Canadian Segment—Our Canadian sales increased $51 million to $294 million for 2017 from $243 million for 2016.  This 21%increase reflected a $59 million increase in the upstream business as a resultcapital budgets of our customers. The weakening of the increase in rig count and well completions.  Approximately $6 million, or 12%, of the total increase was a result of the stronger Canadian dollar relative to the U.S. dollar.dollar unfavorably impacted sales by $6 million, or 4%.

International Segment—Our International sales decreased $9increased $18 million to $492$374 million for 20172022 from $501$356 million for 2016.  This 2% decrease was due to a $58 million decline related to one2021. The 5% increase is primarily driven by the DIET sector. In addition, the weakening of our project customers in Norway offset by a $50 million increase in the midstream sector related to an Australian line pipe sale. The strengthening in the foreign currencies in areas where we operate outside ofrelative to the U.S. dollar increasedunfavorably impacted sales by $5$41 million, or 1%11%.

Gross Profit. Our gross profit was $582$610 million (16.0%(18.1% of sales) for the year ended December 31, 20172022, as compared to $468$417 million (15.4%(15.6% of sales) for the year ended December 31, 2016.2021. The $114$193 million increase was primarily attributable to increased sales and the increase in sales volumes.  In addition, gross profit for 2017 and 2016 was negatively impacted by $6 million and $45 million, respectively, of inventory-related charges to reduce the carrying value of certain excess and obsolete inventory items to their realizable value. Gross profit for 2017 was also negatively impacted by higher product costs reflectedinflationary impact on our products, especially in our last-in, first-out (“LIFO”)line pipe products driving higher gross margins. As compared to average cost, our LIFO inventory costing methodology.  LIFO resultedmethodology increased cost of sales by $66 million in an2022 compared to a $77 million increase in cost of sales of $28 million in 2017 compared to a  reduction of cost of sales of $14 million in 2016.  Excluding the impact of LIFO and the inventory-related charges, gross profit percentage improved 50 basis points as a result of sales mix changes. 2021.

Certain purchasing costs and warehousing activities (including receiving, inspection, and stocking costs), as well as general warehousing expenses, are included in selling, general and administrative expenses and not in cost of sales. As such, our gross profit may not be comparable to others who may include these expenses as a component of costs of goods sold. Purchasing and warehousing activities costs approximated $29 million and $30 million for the years ended December 31, 2017 and 2016. 

Adjusted Gross Profit. Adjusted Gross Profit increased to $677$715 million (18.6%(21.3% of sales) for 20172022 from $523$537 million (17.2%(20.1% of sales) for 2016,2021, an increase of $154$178 million. Adjusted Gross Profit for 2017The increase was primarily due to improved margins on our line pipe, gas product and 2016, respectively, included the impact of the $6 millionvalves, automation, measurement and $45 million of inventory-related charges discussed above.instrumentation sales. Adjusted Gross Profit is a non-GAAP financial measure. We define Adjusted Gross Profit as sales, less cost of sales, plus depreciation and amortization, plus amortization of intangibles, plus inventory-related charges incremental to normal operations and plus or minus the impact of our LIFO inventory costing methodology. We present Adjusted Gross Profit because we believe it is a useful indicator of our operating performance without regard to items, such as amortization of intangibles that can vary substantially from company to company depending upon the nature and extent of acquisitions. Similarly, the impact of the LIFO inventory costing method can cause results to vary substantially from company to company depending upon whether they elect to utilize LIFO and depending upon which method they may elect. We use Adjusted Gross Profit as a key performance indicator in managing our business. We believe that gross profit is the financial measure calculated and presented in accordance with U.S. generally accepted accounting principles that is most directly comparable to Adjusted Gross Profit.

The following table reconciles Adjusted Gross Profit, a non-GAAP financial measure, with our gross profit, as derived from our consolidated financial statements, with Adjusted Gross Profit, a non-GAAP financial measure (in millions):

 

	Year Ended December 31,										Year Ended December 31,
				Percentage					Percentage						Percentage								Percentage
	2017			of Revenue		2016			of Revenue		2022				of Revenue*				2021				of Revenue
Gross profit, as reported	$	582		16.0%		$	468		15.4%		$	610				18.1	%		$	417				15.6	%
Depreciation and amortization		22		0.6%			22		0.7%			18				0.5	%			19				0.7	%
Amortization of intangibles		45		1.2%			47		1.6%			21				0.6	%			24				0.9	%
Increase (decrease) in LIFO reserve		28		0.8%			(14)		(0.5%)
Increase in LIFO reserve												66				2.0	%			77				2.9	%
Adjusted Gross Profit	$	677		18.6%		$	523		17.2%		$	715				21.3	%		$	537				20.1	%

*Does not foot due to rounding

Selling, General and Administrative (“SG&A”) Expenses. Costs such as salaries, wages, employee benefits, rent, utilities, communications, insurance, fuel and taxes (other than state and federal income taxes) that are necessary to operate our branchservice center and corporate operations are included in SG&A. Also contained in this category are certain items that are non-operational in nature, including certain costs of acquiring and integrating other businesses. Our SG&A expenses were $536$470 million (14.7%(14.0% of sales) for the year ended December 31, 20172022, as compared to $524$410 million (17.2%(15.4% of sales) for the year ended December 31, 2016.2021. The $60 million increase in SG&A for 2017 and 2016 included $14 million and $20 million, respectively, of severance and restructuring chargeswas driven by higher employee-related costs resulting from cost reduction efforts.an overall improvement in business activity, as well as hiring additional resources to support the growth in our business. The weakening of foreign currencies in areas where we operate relative to the U.S. dollar favorably impacted SG&A for 2017 also included $20 million of expense related to the implementation of a new information technology system in the international segment as compared to $15 million of expense in 2016.  Excluding these amounts, SG&A increased $13 million which was attributable to volume-related increases.

31by $9 million.

 

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Operating Income (Loss). Operating income was $46$140 million for the year ended December 31, 2017,2022, as compared to  $7 million for the year ended December 31, 2021, an increase of $133 million.

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U.S. Segment—Our U.S. segment had an operating income of $127 million for 2022 as compared to an operating loss of $56$3 million for 2021. The $130 million improvement was attributable to higher revenues and improved gross profit percentage due to product mix. 

Canadian Segment—Our Canadian segment had an operating loss of $1 million for 2022 as compared to an operating loss of $0 million for 2021.

International Segment—Our International segment had operating income of $14 million for 2022 as compared to operating income of $10 million in 2021. The $4 million improvement in operating income was primarily attributable to higher revenues. 

Interest Expense. Our interest expense was $24 million for the year ended December 31, 2016,  an improvement of $102 million.

U.S. Segment—Our U.S. segment had operating income of $67 million for 20172022, as compared to an operating income of $6million for 2016.  The $61 million improvement was primarily driven by higher sales.  Severance costs included in operating expenses were $6 million for 2016.  No such expenses were incurred in 2017. In addition, in 2016, we recorded $16 million of inventory-related charges to reduce the carrying value of certain obsolete and excess inventory items to their net realizable value.

Canadian Segment—Our Canadian segment had operating income of  $11 million for 2017 as compared to an operating loss of  $5million for 2016. The $16 million improvement was primarily a result of higher sales volume.  In addition, in 2016 severance and restructuring expenses and inventory-related charges negatively impacted operating income by $6million.

International Segment—Our International segment incurred an operating loss of $32 million for 2017 as compared to $57 million in 2016.  We recorded $6 million and $24 million of inventory-related charges to reduce the carrying value of certain obsolete and excess inventory items to their net realizable value in 2017 and 2016, respectively.  Severance costs included in operating expenses were $14 million and $13 million for the years ended December 31, 2017 and 2016, respectively. The improvement of $25 million was primarily due to these prior year charges combined with lower SG&A attributable to 2016 cost reduction measures including headcount reductions and associated severance costs. 

Interest Expense. Our interest expense was $31$23 million for the year ended December 31, 20172021.

Other, net. Our other expense was $6 million for the year ended December 31, 2022, as compared to income of $2 million for the year ended December 31, 2021. The increase in other expense was primarily related to unfavorable foreign exchange rate impacts.

Income Tax Expense. Our income tax expense was $35 million for the year ended December 31, 2016.  The decrease can be attributed2022, as compared to lower average debt levels in 2017.

Other Expense.Our otheran expense increased to  $8 million for the year ended December 31, 2017 fromof $0 million for the year ended December 31, 2016.  In 2017, other expense included an $8 million charge2021. Our effective tax rates were 32% and 0% for the write off of debt issuance costs associated with the refinancing of our Term Loan and Global ABL Facility.

Income Tax Benefit. Our income tax benefit was $43 million for the yearyears ended December 31, 2017, as compared to benefit2022 and 2021, respectively. Our rates generally differ from the U.S. federal statutory rates of $8 million for the year ended December 31, 2016. In the fourth quarter of 2017, we recorded a provisional net tax benefit of $50 million associated with the passage of the Tax Act. Excluding the impact of the Tax Act and $20 million of severance and restructuring and inventory related charges within our International segment, for which there was very little tax benefit, our effective tax rate would have been 26%.  The 2016 effective tax rate of 9%  was lower than our customary effective tax rate21% as a result of the mix of pre-taxstate income taxes, non-deductible expenses and differing foreign income tax rates. The effective tax rate for 2022 was higher primarily due to unbenefited losses in all segments, including an increase in the relative significance of pre-tax losses inand taxes on foreign jurisdictions where the losses have no corresponding tax benefitoperations.

Net Income Income/(Loss). Our net income was $50 million for the year ended December 31, 2017 as compared to net loss of $83 million for the year ended December 31, 2016, an improvement of $133 million, reflecting improved income before taxes and the provisional tax benefit of $50 million associated with the Tax Act. 

Adjusted EBITDA.  Adjusted EBITDA, a non-GAAP financial measure, was $179 million for the year ended December 31, 2017, as compared to $75 million for the year ended December 31, 2016.2022, as compared to net loss of $14 million for the year ended December 31, 2021, an increase of $89 million due to higher revenues and improved margins.

Adjusted EBITDA.  Adjusted EBITDA, a non-GAAP financial measure, was $261 million for the year ended December 31, 2022, as compared to $146 million for the year ended December 31, 2021. Our Adjusted EBITDA increased $104$115 million over that period primarily as a result ofdue to the factors noted above.increase in sales and effective cost management.

We define Adjusted EBITDA as net income plus interest, income taxes, depreciation and amortization, amortization of intangibles and certain other expenses, including non-cash expenses (suchsuch as equity-based compensation, severance and restructuring, changes in the fair value of derivative instruments, andlong-lived asset impairments including inventory)(including goodwill and intangible assets), inventory-related charges incremental to normal operations and plus or minus the impact of our LIFO inventory costing methodology.

We believe Adjusted EBITDA provides investors a helpful measure for comparing our operating performance with the performance of other companies that may have different financing and capital structures or tax rates. We believe that net income is the financial measure calculated and presented in accordance with U.S. generally accepted accounting principles that is most directly comparable to Adjusted EBITDA.  

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The following table reconciles Adjusted EBITDA, a non-GAAP financial measure, with our net income (loss), as derived from our consolidated financial statements (in millions):


	Year Ended December 31,
	2017			2016
Net income (loss)	$	50		$	(83)
Income tax benefit		(43)			(8)
Interest expense		31			35
Depreciation and amortization		22			22
Amortization of intangibles		45			47
Increase (decrease) in LIFO reserve		28			(14)
Inventory-related charges		6			40
Equity-based compensation expense		16			12
Severance and restructuring charges		14			20
Foreign currency (gains) losses		(2)			4
Write off of debt issuance costs		8			1
Litigation matter		3			-
Change in fair value of derivative instruments		1			(1)
Adjusted EBITDA	$	179		$	75

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Year Ended December 31, 2016 Compared to the Year Ended December 31, 2015

For the years ended December 31, 2016 and 2015 the following table summarizes our results of operations (in millions):


	Year Ended December 31,
	2016			2015			$ Change			% Change
Sales:
U.S.	$	2,297		$	3,572		$	(1,275)		(36%)
Canada		243			333			(90)		(27%)
International		501			624			(123)		(20%)
Consolidated	$	3,041		$	4,529		$	(1,488)		(33%)

Operating (loss) income:
U.S.	$	6		$	(47)		$	53
Canada		(5)			9			(14)
International		(57)			(244)			187
Consolidated		(56)			(282)			226

Interest expense		(35)			(48)			13
Other expense		-			(12)			12
Income tax benefit (expense)		8			11			(3)
Net (loss) income		(83)			(331)			248
Series A preferred stock dividends		24			13			11
Net (loss) income attributable to common stockholders	$	(107)		$	(344)		$	237

Gross Profit	$	468		$	786		$	(318)
Adjusted Gross Profit (1)	$	523		$	814		$	(291)
Adjusted EBITDA (1)	$	75		$	235		$	(160)

(1)Adjusted Gross Profit and Adjusted EBITDA are non-GAAP financial measures. For a reconciliation of these measures to an equivalent GAAP measure, see pages 35-37 herein.

Sales. Our sales were $3,041 million for the year ended December 31, 2016 as compared to $4,529 million for the year ended December 31, 2015. The $1,488 million decrease reflected a $24 million impact of the decline in foreign currencies in areas where we operate compared to the U.S. dollar.

U.S. Segment—Our U.S. sales decreased $1,275 million to $2,297 million for 2016 from $3,572 million for 2015. This 36% decrease reflected a $698 million decrease in the upstream sector, a $329 million decrease in the midstream sector and a $248 million decrease in the downstream sector.  The decline in the upstream sector included a $287 million impact from the disposition of our U.S. OCTG product line. The remaining decrease in sales in 2016 as compared 2015 was caused by decreased customer spending for both maintenance, repair and operations (“MRO”) and projects, driven by the sustained low oil and natural gas prices and the resulting decline in rig count.

Canadian Segment—Our Canadian sales decreased $90 million to $243 million for 2016 from $333 million for 2015. This 27% decrease reflected a $79 million decrease in the upstream business also due to a decrease in customer spending. Approximately $10million, or 11%, of the total decline was a result of the weaker Canadian dollar relative to the U.S. dollar.

International Segment—Our International sales decreased $123 million to $501 million for 2016 from $624 million for 2015. This $123 million, or 20%, decrease reflected the combined impact of lower project activity and deferral of MRO expenditures particularly in Norway, Australia, the Netherlands, the U.K., and Singapore.  The impact of the decline in the foreign currencies in areas where we operate outside of the U.S. dollar accounted for $14 million, or 11%, of the total decline.

Gross Profit. Our gross profit was $468 million (15.4% of sales) for the year ended December 31, 2016 as compared to $786 million (17.4% of sales) for the year ended December 31, 2015. The $318 million decrease was primarily attributable to the reduction in sales volumes.  In addition, gross profit for 2016 was negatively impacted by $45 million of inventory-related charges to reduce the carrying value of certain excess and obsolete inventory items to their realizable value. Gross profit for 2016 benefited modestly from

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lower product costs reflected in our LIFO inventory costing methodology.  LIFO resulted in a reduction of cost of sales of $14 million and $53 million in 2016 and 2015, respectively.  Excluding the impact of LIFO and the inventory-related charges, gross profit percentage improved 20 basis points as a result of sales mix changes including the elimination of our lower margin OCTG product line.

Certain purchasing costs and warehousing activities (including receiving, inspection, and stocking costs), as well as general warehousing expenses, are included in selling, general and administrative expenses and not in cost of sales. As such, our gross profit may not be comparable to others who may include these expenses as a component of costs of goods sold. Purchasing and warehousing activities costs approximated $30 million and $37 million for the years ended December 31, 2016 and 2015.

Adjusted Gross Profit. Adjusted Gross Profit decreased to $523 million (17.2% of sales) for 2016 from $814 million (18.0% of sales) for 2015, a decrease of $291 million. Adjusted Gross Profit for 2016 included the impact of the $45 million of inventory-related charges discussed above.  Adjusted Gross Profit is a non-GAAP financial measure. We define Adjusted Gross Profit as sales, less cost of sales, plus depreciation and amortization, plus amortization of intangibles, and plus or minus the impact of our LIFO inventory costing methodology. We present Adjusted Gross Profit because we believe it is a useful indicator of our operating performance without regard to items, such as amortization of intangibles, thatwhich can vary substantially from company to company depending upon the nature and extent of acquisitions. Similarly, the impact of the LIFO inventory costing method can cause results to vary substantially from company to company depending upon whether they elect to utilize LIFO and depending upon which method they may elect. We use Adjusted Gross ProfitEBITDA as a key performance indicator in managing our business. We believe that gross profit is the financial measure calculated and presented in accordance with U.S. generally accepted accounting principles that is most directly comparable to Adjusted Gross Profit.

The following table reconciles Adjusted Gross Profit, a non-GAAP financial measure, with our gross profit, as derived from our consolidated financial statements (in millions):


	Year Ended December 31,
				Percentage					Percentage
	2016			of Revenue		2015			of Revenue
Gross profit, as reported	$	468		15.4%		$	786		17.4%
Depreciation and amortization		22		0.7%			21		0.5%
Amortization of intangibles		47		1.6%			60		1.3%
Decrease in LIFO reserve		(14)		(0.5%)			(53)		(1.2%)
Adjusted Gross Profit	$	523		17.2%		$	814		18.0%

Selling, General and Administrative (“SG&A”) Expenses.  Our SG&A expenses were $524 million (17.2% of sales) for the year ended December 31, 2016 as compared to $606 million (13.4% of sales) for the year ended December 31, 2015.  SG&A for 2016 and 2015 included $20 million and $14 million, respectively, of severance and restructuring charges resulting from cost reduction efforts.  SG&A for 2016 also included $15 million of expense related to the implementation of a new information technology system in the international segment as compared to $9 million of expense in 2015.  The full year 2016 reflected a $6 million favorable impact from foreign exchange rates compared to the full year of 2015.  Excluding these amounts, SG&A decreased $88 million which was attributable to volume-related declines and the cost reduction efforts we have made.

Goodwill and Intangibles Asset Impairment.In December 2015, because of the continued decline in commodity prices and activity levels, we performed an assessment of current market conditions and our future long-term expectations of oil and gas markets and concluded it was more likely than not that the fair values of our reporting units were lower than their carrying values.  Our assessment took into consideration, among other things, significant further reductions in projected spending by our customers in 2016 and a more pessimistic long-term outlook for the price of oil and natural gas, and the resulting impact on our 2016 budget and long-term financial forecast.   As a result of this assessment, we completed an interim goodwill impairment test as of December 31, 2015.  This test resulted in an impairment charge of $292 million comprised of $109 million in our U.S. reporting unit and $183 million in our International reporting unit.  No such charges were incurred in 2016.

As a result of these same factors, we performed impairment tests of other intangible assets as well and incurred impairment charges of $128 million related to our indefinite-lived trade name within our U.S. segment and $42 million related to the customer base intangible assets within our International segment.  No such charges were incurred in 2016.

Operating Loss. Operating loss was $56 million for the year ended December 31, 2016, as compared to $282 million for the year ended December 31, 2015, an improvement of $226 million.

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U.S. Segment—Our U.S. segment had operating income of $6 million for 2016 as compared to an operating loss of $47 million for 2015. Excluding the $237 million of goodwill and intangible asset impairments in 2015, the decline of $184 million was primarily driven by lower revenue due to decreased customer spending offset by a reduction in SG&A expenses.  In addition, severance and restructuring expenses and inventory-related charges negatively impacted operating income by $22 million and $6 million for the years ended December 31, 2016 and 2015, respectively.

Canadian Segment—Our Canadian segment incurred an operating loss of $5 million for 2016 as compared to operating income of $9 million for 2015. The decrease of $14 million reflected the decline in sales offset by corresponding reductions in SG&A.  Severance and restructuring expenses and inventory-related charges negatively impacted operating income by $6 million and $1 million for the years ended December 31, 2016 and 2015, respectively.

International Segment—Our International segment incurred an operating loss of $57 million for 2016 as compared to an operating loss of $244 million in 2015. Excluding the $225 million of goodwill and intangibles impairment charges in 2015, the $38 million decrease was a result of lower sales offset by corresponding reductions in SG&A. Severance and restructuring expenses and inventory-related charges negatively impacted operating income by $37 million and $7 million for the years ended December 31, 2016 and 2015, respectively.

Interest Expense. Our interest expense was $35 million for the year ended December 31, 2016 as compared to $48 million for the year ended December 31, 2015.  The decrease can be attributed to lower average debt levels in 2016.

Other Expense. Our other expense decreased to $0 million for the year ended December 31, 2016 from $12 million for the year ended December 31, 2015. In 2015, other expense included $5 million of expense related to the disposition of our U.S. OCTG product line, a $3 million write off of debt issuance costs, foreign currency losses of $3 million, and a $3 million charge related to a litigation matter.  In 2016, we had no such charges.

Income Tax Benefit. Our income tax benefit was $8 million for the year ended December 31, 2016, as compared to benefit of $11 million for the year ended December 31, 2015. Our effective tax rates were 9% and 3% for the years ended December 31, 2016 and 2015, respectively. These rates generally differ from the U.S. federal statutory rate of 35% as a result of state income taxes and differing, generally lower, foreign income tax rates.  The 2016 effective tax rate of 9% was lower than our customary effective tax rate as a result of the mix of pre-tax losses in all segments, including an increase in the relative significance of pre-tax losses in foreign jurisdictions where the losses have no corresponding tax benefit.  The 2015 effective tax rate of 3% was lower than our customary effective tax rate primarily due to the a non-tax deductible impairment charge combined with tax expense related to provisions for valuation allowances and the mix of income and losses in the various jurisdictions in which we operate.

Net Loss. Our net loss was $83 million for the year ended December 31, 2016 as compared to $331 million for the year ended December 31, 2015, an improvement of $248 million.

Adjusted EBITDA.  Adjusted EBITDA, a non-GAAP financial measure, was $75 million for the year ended December 31, 2016, as compared to $235 million for the year ended December 31, 2015. Our Adjusted EBITDA decreased $160 million over that period primarily as a result of the factors noted above.

We define Adjusted EBITDA as net income plus interest, income taxes, depreciation and amortization, amortization of intangibles and certain other expenses, including non-cash expenses, (such as equity-based compensation, severance and restructuring, changes in the fair value of derivative instruments and asset impairments, including inventory) and plus or minus the impact of our LIFO inventory costing methodology.

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We believe Adjusted EBITDA provides investors a helpful measure for comparing our operating performance with the performance of other companies that have different financing and capital structures or tax rates. We believe that net income is the financial measure calculated and presented in accordance with U.S. generally accepted accounting principles that is most directly comparable to Adjusted EBITDA.

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The following table reconciles Adjusted EBITDA, a non-GAAP financial measure, with our net loss,income, as derived from our consolidated financial statements, with Adjusted EBITDA, a non-GAAP financial measure (in millions):

 


	Year Ended December 31,
	2016			2015
Net loss	$	(83)		$	(331)
Income tax benefit		(8)			(11)
Interest expense		35			48
Depreciation and amortization		22			21
Amortization of intangibles		47			60
Decrease in LIFO reserve		(14)			(53)
Inventory-related charges		40			-
Goodwill and intangible asset impairment		-			462
Equity-based compensation expense		12			10
Severance and restructuring charges		20			14
Loss on disposition of non-core product lines		-			5
Foreign currency losses		4			3
Write off of debt issuance costs		1			3
Litigation matter		-			3
Change in fair value of derivative instruments		(1)			1
Adjusted EBITDA	$	75		$	235

		Year Ended December 31,
		2022				2021
Net income (loss)		$	75			$	(14	)
Income tax expense			35				—
Interest expense			24				23
Depreciation and amortization			18				19
Amortization of intangibles			21				24
Facility closures			—				1
Severance and restructuring			1				1
Employee separation			—				1
Increase in LIFO reserve			66				77
Equity-based compensation expense			13				12
Foreign currency losses			8				2
Adjusted EBITDA		$	261			$	146

Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020

For discussion and analysis of fiscal year 2021 compared to fiscal year 2020, please refer to Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which was filed with the Securities and Exchange Commission (“SEC”) on February 16, 2022 and is incorporated herein by reference.

 

Financial Condition and Cash Flows

Cash Flows

The following table sets forth our cash flows for the periods indicated below (in millions):

 

	Year Ended December 31,									Year Ended December 31,
		2017			2016			2015		2022				2021
Net cash (used in) provided by:
Operating activities	$	(48)		$	253		$	690		$	(20	)		$	56
Investing activities		(27)			16			(41)			(11	)			(7	)
Financing activities		9			(226)			(599)			17				(118	)
Net (decrease) increase in cash and cash equivalents	$	(66)		$	43		$	50
Net cash used										$	(14	)		$	(69	)

 

Operating Activities

Net cash used in operating activities was $48$20 million in 20172022 compared to $253$56 million provided by operationsoperating activities in 2016.2021. The decreasechange in operating cash provided by operationsflows was primarily the result of working capital expansion in response to thean increase in sales activity in 2017 as compared to a working capital contraction in 2016.  Working capital growth used cash of $152 million in 2017 compared to the working capital contraction providing cash of $231 million in 2016.  In particular, growth in accounts receivable utilized $118million of cash in 2017 as a result of the 20% increase in sales relative to 2016 when accounts receivable contraction provided cash of $128 million.  Growth in inventory requiredpurchases and other expenses to support higher sales levels utilized $168 million of cash in 2017 as compared to cash provided of $141 million in 2016. These uses of cash in 2017 weregrowing market activity, offset by $93 million generated from an increase in accounts payable, which was attributable to higher purchasing activities and the timing of payments to our suppliers.

Net cash provided by operating activities was $253 million in 2016 compared to $690 million provided by operations in 2015.  The decrease in cash provided by operations was primarily the result of reduced profitability combined with a reduction in the pace of working capital contraction in response to slowing sales. Working capital provided cash of $231 million in 2016 as compared to $586 million in 2015.  The 2016 decline in working capital cash flow was impacted most significantly by a $141 million and $128 million reduction in inventory and accounts receivable, respectively, caused by declining sales levels. 

37improved profitability.

 

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Investing Activities

Net cash used in investing activities was $27$11 million in 2017,2022 compared to net$7 million used in 2021. Purchases of property, plant and equipment utilized cash provided by investing activities of $16$11 million and $10 million in 2016.  The $43 million increase in cash used in investing activities is the result of $48 million in proceeds from the 2016 disposition of our U.S. OCTG product line.  Our capital expenditures were $30 million2022 and $33 million for the years ended December 31, 2017 and 2016,2021, respectively.

Net cash provided by investing activities was $16 million in 2016, compared to net cash used in investing activities of $41 million in 2015.  The $57 million increase in cash provided by investing activities is the result of $48 million in proceeds from the disposition of our U.S. OCTG product line.  Our capital expenditures were $33 million and $39 million for the years ended December 31, 2016 and 2015, respectively. 

Financing Activities

Net cash provided by financing activities was $9$17 million in 2017,2022, compared to net cash used in financing activities of $226$118 million in 2016.2021. In 2021, we made a payment of $86 million on our Term Loan as a result of excess cash flow generation in 2020 as well as $1 million mandatory principal payment. Mandatory principal payments on our Term Loan totaled $2 million in 2022. Net proceeds onborrowings under our Global ABL Facility totaled $129$45 million in 2017,2022 compared to $0 million in the 2016.   In 2017 and 2016, we used $68 million and $95 million to fund purchases of our common stock, respectively.2021. We used $24million to fund dividends on our preferred stock in each of 20172022 and 2016.  In the fourth quarter of 2016, we repaid $100 million of our Term Loan using available cash on hand.  In June 2015, we received $355 million of net proceeds related to the issuance of Series A Preferred Stock.  We used these proceeds to repay a portion of the outstanding borrowings under our Term Loan and our Global ABL Facility. 2021. 

 

Liquidity and Capital Resources

Our primary credit facilities consist of a Term Loan B maturing in September 2024 with an original principal amount of $400 million and a $750 million Global ABL Facility. As of December 31, 2022, the outstanding balance on our Term Loan, net of original issue discount and issuance costs, was $295 million. On an annual basis, we are required to repay an amount equal to 50% of excess cash flow, as defined in the Term Loan agreement, reducing to 25% if the Company’s senior secured leverage ratio is no more than 2.75 to 1.00. No payment of excess cash flow is required if the Company’s senior secured leverage ratio is less than or equal to 2.50 to 1.00. Under the terms of the Term Loan, the amount of cash used in the determination of the senior secured leverage ratio is limited to $75 million. Under this provision of the Term Loan, in April 2021 we made a payment of $86 million as a result of excess cash flow generation in 2020. Based on our senior secured leverage ratio at the end of 2021, we were not required to make an excess cash flow payment for 2021 in 2022, and based on our senior secured leverage ratio at the end of 2022, we will not be required to make an excess cash flow payment for 2022 in 2023.

Our Global ABL Facility matures in September 2026 and provides $705 million in revolver commitments in the United States (with a $30 million sublimit in Canada), $12 million in Norway, $10 million in Australia, $10.5 million in the Netherlands, $7.5 million in the United Kingdom and $5 million in Belgium. The Global ABL Facility contains an accordion feature that allows us to increase the principal amount of the facility by up to $250 million, subject to securing additional lender commitments. On December 6, 2022, the Company amended the Global ABL Facility to replace LIBOR with a new prevailing benchmark interest rate known as Term SOFR for all U.S. dollar borrowings. U.S. borrowings now bear interest at Term SOFR plus a margin varying between 1.25% and 1.75% based on our fixed charge coverage ratio. Canadian borrowings under the facility bear interest at the Canadian Dollar Bankers' Acceptances Rate ("BA Rate") plus a margin varying between 1.25% and 1.75% based on our fixed charge coverage ratio. Borrowings under our foreign borrower subsidiaries bear interest at a benchmark rate, which varies based on the currency in which such borrowings are made, plus a margin varying between 1.25% and 1.75% based on our fixed charge coverage ratio. Availability is dependent on a borrowing base comprised of a percentage of eligible accounts receivable and inventory values, which is subject to redetermination from time to time. As of December 31, 2022, we had $45 million borrowings outstanding and $606 million of Excess Availability, as defined under our Global ABL Facility.

We anticipate higher interest expense in the coming years resulting from recent debt market volatility and rate increases by the Federal Reserve that has negatively impacted the Term SOFR benchmark rate. Additionally, we anticipate refinancing our Term Loan in 2023 with financing terms that are expected to be less favorable than our current credit agreement and could result in a higher cost of capital to the Company.

Our primary sources of liquidity consist of cash generated from our operating activities, existing cash balances and borrowings under our existing Global ABL Facility. At December 31, 2017,2022, our total liquidity, includingconsisting of cash on hand and amounts available under our Global ABL Facility, was $485$638 million. Our ability to generate sufficient cash flows from our operating activities is primarily dependent on our sales of products to our customers at profits sufficient to cover our fixed and variable expenses. As of December 31, 20172022 and 2016,2021, we had cash and cash equivalents of $48$32 million and $109$48 million, respectively. As of December 31, 20172022 and 2016,  $482021, $32 million and $61$38 million of our cash and cash equivalents were maintained in the accounts of our various foreign subsidiaries and, if those amounts were transferred among countries or repatriated to the U.S., those amounts may be subject to additional tax liabilities, which would be recognized in our financial statements in the period during which the transfer decision was made. We currently have the intent and ability to indefinitely reinvest theDuring 2022, no cash held bywas repatriated from our non-Canadian foreign subsidiaries and, pending further analysis of the impact of the Tax Act, there are currently no plans for the repatriation of those amounts. Canadian subsidiaries.

Our primary credit facilities consist of a seven-year Term Loan maturing in September 2024 with an original principal amount of $400million and a five-year $800 million Global ABL Facility that provides $675 million in revolver commitments in the United States, $65 million in Canada, $18 million in Norway, $15 million in Australia, $13 million in the Netherlands, $7 million in the United Kingdom and $7 million in Belgium.    The Global ABL Facility, which was re-sized to $800 million from $1.05 billion in our September 2017 amendment, matures in September 2022.  The Global ABL Facility contains an accordion feature that allows us to increase the principal amount of the facility by up to $200 million, subject to securing additional lender commitments. As of December 31, 2017,  we had $129 million of outstanding borrowings and $437million of Excess Availability, as defined  under this Global ABL Facility.    Availability is dependent on a borrowing base comprised of a percentage of eligible accounts receivable and inventory which is subject to redetermination from time to time.

Our credit ratings are below “investment grade” and, as such, could impact both our ability to raise new funds as well as the interest rates on our future borrowings. In the first quarter of 2021, Moody's Investor Services changed our ratings outlook from negative to stable and, in the second quarter of 2021, Standard & Poor's Global Ratings revised the Company's outlook to stable. Our existing obligations restrict our ability to incur additional debt. We were in compliance with the covenants contained in our various credit facilities as of and during the year ended December 31, 2017.  2022 and, based on our current forecasts, we expect to remain in compliance.

 

We believe our sources of liquidity will be sufficient to satisfy the anticipated cash requirements associated with our existing operations for at least the next twelve months.foreseeable future. However, our future cash requirements could be higher than we currently expect as a result of various factors. Additionally, our ability to generate sufficient cash from our operating activities depends on our future performance, which is subject to general economic, political, financial, competitive and other factors beyond our control. We may, from time to time, seek to raise additional debt or equity financing or re-price or refinance existing debt in the public or private markets, based on market conditions. ThereAny such capital markets activities would be subject to market conditions, reaching final agreement with lenders or investors, and other factors, and there can be no assurance that we will be able to raisewould successfully consummate any such financing on terms acceptable to us or at all. We may also seek, from time to time, depending on market conditions, to refinance certain categories of our debt, and we may seek to consummate equity offerings. Any such transaction would be subject to market conditions, compliance with all of our credit agreements, and various other factors.

38transactions.

 

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In November 2015, the Company’s board

Table of directors authorized a share repurchase program for common stock up to $100 million, which was increased in November 2016 to $125 million.  During the first quarter of 2017, we purchased 859,830 shares of common stock at a total cost of $18 million, which completed the repurchase of all shares authorized under the program.  In total under this program, we purchased 8,537,410 shares at a total cost of $125 million. 

In October 2017, the Company’s board of directors authorized a new share repurchase program for common stock of up to $100 million.  The program is scheduled to expire December 31, 2018. The shares may be repurchased at management’s discretion in the open market.  Depending on market conditions and other factors, these repurchases may be commenced or suspended from time to time without prior notice.    During the fourth quarter of 2017, we purchased 3,214,316 shares at a total cost of $50 million. 

Contents

 

Contractual Obligations, Commitments and Contingencies

Contractual Obligations

The following table summarizes our minimum payment obligations as of December 31, 20172022 relating to long-term debt, interest payments, capital leases, operating leases, purchase obligations and other long-term liabilities for the periods indicated (in millions):

 

														More Than																			More Than
		Total			2018			2019-2020			2021-2022			5 Years			Total				2023				2024-2025				2026-2027				5 Years
Long-term debt (1)		$	526		$	4		$	8		$	137		$	377		$	340			$	3			$	292			$	45				—
Interest payments (2)			151			24			48			46			33			57				21				36				—				—
Operating leases			237			41			65			42			89			331				42				69				47				173
Purchase obligations (3)			1,066			1,062			4			-			-			1,028				1,028				—				—				—
Foreign exchange forward contracts			-			-			-			-			-
Other long-term liabilities			36			-			-			-			36			22				—				—				—				22
Total		$	2,016		$	1,131		$	125		$	225		$	535		$	1,778			$	1,094			$	397			$	92			$	195

(1)	Long-term debt is based on debt outstanding at December 31, 2022.
(2)	Interest payments are based on interest rates in effect at December 31, 2022 and assume contractual amortization payments.
(3)	Purchase obligations reflect our commitments to purchase PVF products in the ordinary course of business. While our vendors often allow us to cancel these purchase orders without penalty, in certain cases cancellations may subject us to cancellation fees or penalties, depending on the terms of the contract.

 

(1)     Long-term debt is based on debt outstanding at December 31, 2017.  

(2)     Interest payments are based on interest rates in effect at December 31, 2017 and assume contractual amortization payments.

(3)     Purchase obligations reflect our commitments to purchase PVF products in the ordinary course of business. While our vendors often allow us to cancel these purchase orders without penalty, in certain cases cancellations may subject us to cancellation fees or penalties, depending on the terms of the contract.

We historically have been an acquisitive company. We expect to fund any future acquisitions primarily from (i) borrowings, either the unused portion of our facilities or new debt issuances, (ii) cash provided by operations or (iii) the issuance of additional equity in connection with the acquisitions.

Other Commitments

In the normal course of business with customers, vendors and others, we are contingently liable for performance under standby letters of credit and bid, performance and surety bonds. We were contingently liable for approximately $55$19 million of standby letters of credit, trade guarantees that banks issue and bid, and performance and surety bonds at December 31, 2017.2022. Management does not expect any material amounts to be drawn on these instruments.

Legal Proceedings

Asbestos Claims.  We are one of many defendants in lawsuits that plaintiffs have brought seeking damages for personal injuries that exposure to asbestos allegedly caused. Plaintiffs and their family members have brought these lawsuits against a large volume of defendant entities as a result of the various defendants’ manufacture, distribution, supply or other involvement with asbestos, asbestos-containing products or equipment or activities that allegedly caused plaintiffs to be exposed to asbestos. These plaintiffs typically assert exposure to asbestos as a consequence of third-party manufactured products that the Company’s subsidiary, MRC Global (US) Inc., purportedly distributed. As of December 31, 2017,2022, we are a named defendant in approximately 537547 lawsuits involving approximately 1,1531,112 claims. No asbestos lawsuit has resulted in a judgment against us to date, with the majority being settled, dismissed or otherwise resolved. Applicable third-party insurance has substantially covered these claims, and insurance should continue to cover a substantial majority of existing and anticipated future claims. Accordingly, we have recorded a liability for our estimate of the most likely settlement of asserted claims and a related receivable from insurers for our estimated recovery, to the extent we believe that the amounts of recovery are probable.

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We annually conduct analyses of our asbestos-related litigation to estimate the adequacy of the reserve for pending and probable asbestos-related claims. Given these estimated reserves and existing insurance coverage that has been available to cover substantial portions of these claims, we believe that our current accruals and associated estimates relating to pending and probable asbestos-related litigation likely to be asserted over the next 15 years are currently adequate. This belief, however, relies on a number of assumptions, including:

 

·

●

That our future settlement payments, disease mix and dismissal rates will be materially consistent with historic experience;

·

●

That future incidences of asbestos-related diseases in the U.S. will be materially consistent with current public health estimates;

·

●

That the rates at which future asbestos-related mesothelioma incidences result in compensable claims filings against us will be materially consistent with its historic experience;

·

●

That insurance recoveries for settlement payments and defense costs will be materially consistent with historic experience;

·

●

That legal standards (and the interpretation of these standards) applicable to asbestos litigation will not change in material respects;

·

●

That there are no materially negative developments in the claims pending against us; and

●

·That key co-defendants in current and future claims remain solvent.

That key co-defendants in current and future claims remain solvent.

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If any of these assumptions prove to be materially different in light of future developments, liabilities related to asbestos-related litigation may be materially different than amounts accrued or estimated. Further, while we anticipate that additional claims will be filed in the future, we are unable to predict with any certainty the number, timing and magnitude of such future claims. In addition, applicable insurance policies are subject to overall caps on limits, which coverage may exhaust the amount available from insurers under those limits. In those cases, the Company is seeking indemnity payments from responsive excess insurance policies, but other insurers may not be solvent or may not make payments under the policies without contesting their liability. In our opinion, there are no pending legal proceedings that are likely to have a material adverse effect on our consolidated financial statements.

 

Other Legal Claims and Proceedings. From time to time, we have been subject to various claims and involved in legal proceedings incidental to the nature of our businesses. We maintain insurance coverage to reduce financial risk associated with certain of these claims and proceedings. It is not possible to predict the outcome of these claims and proceedings. However, in our opinion, there are no pending legal proceedings that are likely to have a material adverse effect on our consolidated financial statements. See also “Note 16—Commitments and Contingencies” to the audited consolidated financial statements as of December 31, 2017.  

Product Claims.  From time to time, in the ordinary course of our business, our customers may claim that the products that we distribute are either defective or require repair or replacement under warranties that either we or the manufacturer may provide to the customer. These proceedings are, in the opinion of management, ordinary and routine matters incidental to our normal business. Our purchase orders with our suppliers generally require the manufacturer to indemnify us against any product liability claims, leaving the manufacturer ultimately responsible for these claims. In many cases, state, provincial or foreign law provides protection to distributors for these sorts of claims, shifting the responsibility to the manufacturer. In some cases, we could be required to repair or replace the products for the benefit of our customer and seek our recovery from the manufacturer for our expense. In our opinion, the likelihood that the ultimate disposition of any of these claims and legal proceedings will have a material adverse effect on our consolidated financial statements is remote.

Weatherford Claim.  In addition to PVF, our Canadian subsidiary, Midfield Supply (“Midfield”), now known as MRC Global (Canada) ULC, also distributed progressive cavity pumps and related equipment (“PCPs”) under a distribution agreement with Weatherford Canada Partnership (“Weatherford”) within a certain geographical area located in southern Alberta, Canada.  In late 2005 and early 2006, Midfield hired new employees, including former Weatherford employees, as part of Midfield’s desire to expand its PVF business into northern Alberta.  Shortly thereafter, many of these employees left Midfield and formed a PCP manufacturing, distribution and service company named Europump Systems Inc. (“Europump”) in 2006.  The distribution agreement with Weatherford expired in 2006.  Midfield supplied Europump with PVF products that Europump distributed along with PCP pumps.  In April 2007, Midfield purchased Europump’s distribution branches and began distributing and servicing Europump PCPs.

Pursuant to a complaint that Weatherford filed on April 11, 2006 in the Court of Queen’s Bench of Alberta, Judicial Bench of Edmonton (Action No. 060304628), Weatherford sued Europump, three of Europump’s part suppliers, Midfield, certain current and former employees of Midfield, and other related entities, asserting a host of claims including breach of contract, breach of fiduciary duty, misappropriation of confidential information related to the PCPs, unlawful interference with economic relations and conspiracy.  The Company denies these allegations and contends that Midfield’s expansion and subsequent growth was the result of fair competition. 

In June 2017, Midfield and Europump and certain individual defendants and related entities settled the case.  As part of the settlement, MRC Global (Canada) ULC agreed to pay $6 million in exchange for a release from Weatherford and agreement to dismiss the case. 

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The Company had previously recorded a reserve of $3 million.  As a result of the settlement, an additional charge of $3 million was recorded in the second quarter of 2017.2022.

 

Off-Balance Sheet Arrangements

We do not have any material “off-balance sheet arrangements” as such term is defined within theSEC rules and regulations of the SEC.define that term.

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles. To apply these principles, management must make judgments and assumptions and develop estimates based on the best available information at the time. Actual results may differ based on the accuracy of the information utilized and subsequent events. The notes to our audited financial statements included elsewhere in this report describe our accounting policies. These critical accounting policies could materially affect the amounts recorded in our financial statements. We believe the following describes significant judgments and estimates used in the preparation of our consolidated financial statements:

Inventories:Our U.S. inventories are valued at the lower of cost (principally using the LIFO method) or market. We record an estimate each quarter, if necessary, for the expected annual effect of inflation (using period to date inflation rates) and estimated year-end inventory balances. These estimates are adjusted to actual results determined at year-end. Our inventories that are held outside of the U.S., totaling $168$143 million and $164$118 million at December 31, 20172022 and 2016,2021, respectively, were valued at the lower of weighted-average cost or estimated net realizable value.

Under the LIFO inventory valuation method, changes in the cost of inventory are recognized in cost of sales in the current period even though these costs may have been incurred at significantly different values. Since the Company values most of its inventory using the LIFO inventory costing methodology, a rise in inventory costs has a negative effect on operating results, while, conversely, a fall in inventory costs results in a benefit to operating results.

We determine reserves for inventory based on historical usage of inventory on-hand, assumptions about future demand and market conditions. Customers rely on the company to stock specialized items for certain projects and other needs. Therefore, the estimated carrying value of inventory depends upon demand driven by oil and gas spending activity, which in turn depends on oil and gas prices, the general outlook for economic growth worldwide, political stability in major oil and gas producing areas, and the potential obsolescence of various inventory items we sell.

Goodwill and Intangible Assets: We record goodwill and intangible assets in conjunction with acquisitions that we make. These assets comprise 36% of our total assets as of December 31, 2017.  We record goodwill as the excess of cost over the fair value of net assets that we acquire.  We record intangible assets at fair value at the date of acquisition and amortize the value of intangible assets over the assets’ estimated useful lives unless we determine that an asset has an indefinite life.  We make significant judgments and estimates in both calculating the fair value of these assets and determining their estimated useful lives. The carrying values of our goodwill and intangible assets, by reporting unit, were as follows as of December 31, 2017 (in millions):

 


	U.S. Eastern Region and Gulf Coast		U.S. Western Region		Canada		International		Total
Customer base intangibles	$            133		$              85		$                5		$              13		$            236
Indefinite lived trade name	81		51						132
Goodwill	289		152				45		486

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Impairment of Long-Lived Assets:

 

Our long-lived assets consist primarily of:

·

●

customer base intangibles; and

·

●

property, plant and equipment.

 

The carrying value of these assets is subject to an impairment test when circumstances indicate a possible impairment. These circumstances would include significant decreases in our operating results and significant changes in market demand for our products and services. When events and circumstances indicate a possible impairment, we assess recoverability from future operations using an undiscounted cash flow analysis, derived from the lowest appropriate asset group. If the carrying value exceeds the undiscounted cash flows, we would recognize an impairment charge to the extent that the carrying value exceeds the fair value.

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We group customer base intangible assets on a basis consistent with our reporting units. We determine the fair value of customer base intangibles using a discounted cash flow analysis. The most significant factor in the determination of the fair value of our customer base intangibles is forecasted sales to our customers including, in particular, our largest customers. Possible indicators of impairment could include the following:

·

●

prolonged decline in commodity oil and natural gas prices;

·

●

the resulting decline in activity levels of many of our major customers;

·

●

significant reductions in capital spending budgets of our customers; and

●

·a pessimistic outlook for the price of oil and natural gas.

a pessimistic outlook for the price of oil and natural gas.

Although we determined there were no impairments of our customer base intangibles in 20172022 and 2016,2021, significant decreases in our forecasted sales, particularly with our largest customers, could result in future impairments of our customer base intangible assets.

The carrying value of property, plant and equipment as of December 31, 20172022, was $147$82 million, or 6%4% of total assets. This amount was comprised of $109$75 million, $15$1 million and $23$6 million in our U.S., Canada and International segments, respectively. We group property, plant and equipment and evaluate it for recoverability at a country or regional level. We determine the fair value of property, plant and equipment based on appraisal procedures which involve both market and cost techniques depending on the nature of the specific assets and the availability of market information. In 2017,2022, no indicators of property, plant and equipment impairment were present. Based on the nature of our property, plant and equipment and the reduction in carrying value each year through depreciation, we believe future impairments are not likely.

When testing for the impairment of the value of long-lived assets, we make forecasts of:

·

●

our future operating results;

·

●

the extent and timing of future cash flows;

·

●

working capital;

·

●

profitability; and

·

●

sales growth trends.

 

We make these forecasts using the best available information at the time, including information regarding current market conditions and customer spending forecasts. While we believe our assumptions and estimates are reasonable, because of the volatile nature of the energy industry, actual results may differ materially from the projected results which could result in the recognition of additional impairment charges. Factors that could lead to actual results differing materially from projected results include, among other things, further reductions of oil and natural gas prices and changes in projected sales growth rates.

Impairment of Goodwill and Other Indefinite-Lived Intangible Assets: We testassess goodwill and intangible assets with indefinite useful lives for impairment annually, as of October 1^st each year, or more frequently if events and circumstances indicate that impairment may exist. We evaluate goodwill for impairment at fourthe reporting units (U.S. Eastern Region and Gulf Coast, U.S. Western Region, Canada and International).unit level. Within each reporting unit, we have elected to aggregate the component countries and regions into a single reporting unit based on their similar economic characteristics, products, customers, suppliers, methods of distribution and the manner in which we operate each segment. 

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In the first half of 2020, demand for oil and natural gas declined sharply as a result of the COVID-19 pandemic. This disruption in demand and the resulting decline in the price of oil had a dramatic negative impact on our business. We performexperienced a significant reduction in sales beginning in April 2020 which continued throughout the second quarter. At that time, there remained ongoing uncertainty around the timing and extent of any recovery. We took a more pessimistic long-term outlook due to the significant reduction in the demand for oil, the implications of that demand destruction on the price of oil for an extended period of time and actions our customers had taken to curtail costs and reduce spending. As a result of those developments, we concluded that it was more likely than not the fair values of our U.S. and International reporting units and our U.S. indefinite-lived tradename were lower than their carrying values. Accordingly, we completed an interim impairment test as of April 30, 2020, and recognized impairment charges of $217 million for goodwill, comprised of $177 million in our U.S. reporting unit and $40 million in our International reporting unit, and $25 million for our indefinite-lived intangible asset. Subsequent to these impairments, we only have goodwill recorded in our U.S. reporting unit and U.S. tradename is our only indefinite-lived intangible asset.

In connection with our annual tests for indications of goodwill and indefinite-lived tradename impairment tests as of October 1,st 2022, 2021 and 2020, we performed a qualitative assessment of each year, updatingthe carrying value of the goodwill for our U.S. reporting unit and U.S. indefinite-lived tradename asset. This assessment took into consideration changes in the broader economy, our industry and our business since the interim quantitative impairment tests completed as of April 30, 2020. Based on an interim basis should indicationsour assessment, we concluded there was no additional impairment of impairment exist.our goodwill or U.S. tradename.

When we perform thea quantitative goodwill impairment test, we compare the carrying value of the reporting unit that has the goodwill with the estimated fair value of that reporting unit. IfTo the extent the carrying value of a reporting unit is moregreater than theits estimated fair value, a second stepgoodwill impairment charge is performed.  Inrecorded for the second step, we calculate the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets of the reporting unit from the estimated fair value of the reporting unit. We recognize impairment lossesdifference, up to the extent that recorded goodwill exceeds impliedcarrying value of goodwill. Our impairment methodology uses discounted cash flow and multiples of cash earnings valuation techniques, acquisition control premium and valuation comparisons to similar businesses to determine the fair value of a reporting unit. Each of these methods involves Level 3 unobservable market inputs and require us to make certain assumptions and estimates regarding:

·

●

future operating results,

·

●

the extent and timing of future cash flows,

·

●

working capital,

·

●

sales prices,

·

●

profitability,

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·

●

discount rates; and

·

●

sales growth trends.

 

We make these forecasts using the best available information at the time including information regarding current market conditions and customer spending forecasts. While we believe that these assumptions and estimates are reasonable, because of the volatile nature of the energy industry, actual results may differ materially from the projected results which could result in the recognition of additional impairment charges. Factors that could lead to actual results differing materially from projected results include, among other things:

·

●

reduction of oil and natural gas prices,

·

●

changes in projected sales growth rate; and

·

●

changes in factors affecting our discount rate including risk premiums, risk free interest rates and costs of capital.

In connection with our annual goodwill

When we perform a quantitative impairment test as of October 1, 2017, we tested the carrying value of goodwill for our U.S. and International reporting units.  Our Canada reporting unit has no goodwill.  No goodwill impairments were indicated as a result of those tests as the estimated fair value of each of our reporting units substantially exceeded their carrying value.

Intangibleintangible assets with indefinite useful lives, are recorded in our U.S. segment.  We test these assets for impairment annually or more frequently if events and circumstances indicate that impairment may exist. This test compareswe compare the carrying value of the indefinite-lived intangible assets with their estimated fair value. If the carrying value is more than the estimated fair value, we recognize impairment losses in an amount equal to the excess of the carrying value over the estimated fair value. Our impairment methodology uses discounted cash flow and estimated royalty rate valuation techniques. Utilizing these valuation methods, we make certain assumptions and estimates regarding:

·

●

future operating results,

·

●

sales prices,

·

●

discount rates; and

●

·sales growth trends.

sales growth trends.

 

As with the goodwill impairment test described above, while we believe that our assumptions and estimates are reasonable, because of the volatile nature of the energy industry, actual results may differ materially from the projected results which could result in the recognition of additional impairment charges.  The estimated fair value of our indefinite-lived intangible assets substantially exceeded their carrying value.

Income Taxes: We use the liability methodaccount for determining our income taxes under which current and deferred tax liabilities and assets are recorded in accordance withthe liability method using currently enacted tax laws and rates. Under this method, the amounts of deferred tax liabilities and assets at the end of each period are determined using the tax rate expected to be in effect when taxes are actually paid or recovered.

Deferred tax assets and liabilities are recorded for differences between the financial reporting and tax bases of assets and liabilities using the tax rate expected to be in effect when the taxes will actually be paid, or refunds received. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. A valuation allowance to reduce deferred tax assets is established when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

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In determining the need for valuation allowances and our ability to utilize our deferred tax assets, we consider and make judgments regarding all the available positive and negative evidence, including the timing of the reversal of deferred tax liabilities, estimated future taxable income, ongoing, prudent and feasible tax planning strategies and recent financial results of operations. The amount of the deferred tax assets considered realizablevaluation allowances, however, could be adjusted in the future if objective negative evidence in the form of cumulative losses is no longer present in certain jurisdictions and additional weight may be given to subjective evidence such as our projections for growth.

 

Our tax provision is based upon our expected taxable income and statutory rates in effect in each country in which we operate. We are subject to the jurisdiction of numerous domestic and foreign tax authorities, as well as to tax agreements and treaties among these governments. Determination of taxable income in any jurisdiction requires the interpretation of the related tax laws and regulations and the use of estimates and assumptions regarding significant future events such as the amount, timing and character of deductions, permissible revenue recognition methods under the tax law and the sources and character of income and tax credits. Changes in tax laws, regulations, agreements and treaties, foreign currency exchange restrictions or our level of operations or profitability in each taxing jurisdiction could have an impact on the amount of income taxes we provide during any given year.

A tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including any related appeals or litigation processes, on the basis of the technical merits. We adjust these liabilities when

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our judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which the new information is available.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was enacted.  Among the significant changes to the U.S. Internal Revenue Code, the Tax Act reduced the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018 and created a new dividend-exemption territorial system with a one-time transition tax on foreign earnings which were previously not taxed in the U.S. 

In December 2017, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which addresses how a company recognizes provisional amounts when a company does not have all the necessary information available in reasonable detail to complete its accounting for the effect of the changes in the Tax Act. Under SAB 118, a company recognizes provisional amounts for income tax effects of the Tax Act for which the accounting is incomplete but a reasonable estimate can be determined. The measurement period for adjusting provisional amounts ends when a company has analyzed the information necessary to finalize its accounting, but cannot extend beyond one year.

We have determined a reasonable estimate for the re-measurement of our deferred tax assets and liabilities as of December 31, 2017 due to the reduction in the corporate tax rate.  The provisional amount recorded for this re-measurement is a $57 million tax benefit.  We have also recorded a reasonable estimate of the transition tax on undistributed foreign earnings of $7 million.  These provisional estimates are subject to change as additional necessary information becomes available and the final analysis is prepared and analyzed in reasonable detail to complete the accounting.The additional information that needs to be gathered, analyzed and used to complete the accounting for the provisional $7 million transition tax includes the historical earnings and profit information of each foreign subsidiary.  In addition, the finalization of the 2017 federal income tax return will impact the underlying temporary differences existing at the end of 2017 used to determine the provisional tax benefit of $57 million.

We classify interest and penalties related to unrecognized tax positions as income taxes in our financial statements. We currently have the intent and ability to indefinitely reinvest the cash held by our non-Canadian foreign subsidiaries and, pending further analysis of the impact of the Tax Act, there are currently no plans for the repatriation of those amounts.  As such, no deferred income taxes have been provided for differences between the financial reporting and income tax basis inherent in these foreign subsidiaries.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 

Interest Rate Risk

As of December 31, 2017,2022, all of our outstanding debt was at floating rates. These facilities prescribe the percentage point spreads from U.S. prime, LIBOR, Term SOFR, Canadian prime and EURIBOR. Our facilities generally allow us to fix the interest rate, at our option, for a period of 30 to 180 days. We are currently party to a $250 million interest rate swap to fix a portion of our variable rate exposure that matures in March 2023.

As of December 31, 2017,2022, a 1% increase in the LIBOR or Term SOFR rate would result in an increase in our interest expense of approximately $5less than $1 million per year if the amounts outstanding under our Term Loan and Global ABL Facility remained the same for an entire year.

Foreign Currency Exchange Rates

Our operations outside of the U.S. expose us to foreign currency exchange rate risk, as these transactions are primarily denominated in currencies other than the U.S. dollar, our functional currency. Our exposure to changes in foreign exchange rates is managed primarily through the use of forward foreign exchange contracts. These contracts increase or decrease in value as foreign exchange rates change, protecting the value of the underlying transactions denominated in foreign currencies. All currency contracts are entered into for the sole purpose of hedging existing or anticipated currency exposure; we do not use foreign currency contracts for trading or speculative purposes. The terms of these contracts generally do not exceed one year. We record all changes in the fair market value of forward foreign exchange contracts in income. We recordedGains and losses related to foreign currency contracts of $1 million forincurred in the yearyears ended December 31, 2017, gains of $1 million in the year ended December 31, 20162022, and losses of $1 million in the year ended December 31, 2015.2021 were not material.

Steel Prices

Our business is sensitive to steel prices, which can impact our product pricing, with carbon steel line pipe 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 meet demand, while reducing the risk of overstocking.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Audited Consolidated Financial Statements of MRC Global Inc.:
Management’s Report on Internal Control overOver Financial Reporting	F-1
Reports of Ernst & Young LLP, Independent Registered Public Accounting Firm (PCAOB ID: 42)	F-2
Audited Consolidated Financial Statements of MRC Global Inc.:	F-5
Consolidated Balance Sheets as of December 31, 20172022, and 20162021	F-4F-5
Consolidated Statements of Operations for the years ended December 31, 2017, 2016,2022, 2021, and 20152020	F-5F-6
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2017, 2016,2022, 2021, and 20152020	F-6F-7
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2017, 2016,2022, 2021, and 20152020	F-7F-8
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016,2022, 2021, and 20152020	F-8F-9
Notes to Consolidated Financial Statements	F-9F-10

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ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 

None.

ITEM 9A.CONTROLS AND PROCEDURES 

ITEM 9A.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As required by the Exchange Act, we maintain disclosure controls and procedures designed to ensureprovide assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Our management, with the participation of our principal executive and financial officers, has evaluated our disclosure controls and procedures as of December 31, 20172022 and has concluded that our disclosure controls and procedures were effective as of December 31, 2017.2022.

 

Pursuant to section 302 of the Sarbanes-Oxley Act of 2002, our Chief Executive Officer and Chief Financial Officer have provided certain certifications to the Securities and Exchange Commission. These certifications are included herein as Exhibits 31.1 and 31.2.

Management’s Report on Internal Control Over Financial Reporting

 

The Company’s management report on internal control over financial reporting is set forth on page F-1 of this annual report and is incorporated herein by reference.

Attestation Report of our Registered Public Accounting Firm

 

The Company’s registered public accounting firm’s attestation report on our internal control over financial reporting is set forth on page F-2 of this annual report and is incorporated herein by reference.

Changes in Internal Controls Over Financial Reporting

 

The Company has undertaken a multi-year enterprise resource planning (“ERP”) project to migrate certain systems to SAP software.  During the second quarter of 2016, we completed the SAP implementation in our Asia Pacific-based businesses. During the second quarter of 2017, we completed the implementation effort in our European and Middle Eastern businesses.  During the third quarter of 2017, we completed the implementation effort in our Nordic businesses. As a part of these implementations, various controls over financial reporting for the international segment changed during the year.

Other than described above, thereThere were no changes in our internal control over financial reporting that occurred during 2017the quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 9B.OTHER INFORMATION 

ITEM 9B.

OTHER INFORMATION

 

None.

 

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PART III

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information regarding our directors and nominees for director required by Item 401 of Regulation S-K will be presented under the heading “PROPOSAL I: ELECTION OF DIRECTORS” in our Proxy Statement prepared for the solicitation of proxies in connection with our annual Meeting of Stockholders to be held April 27, 2018in 2023 (“Proxy Statement”), which information is incorporated by reference herein.

Information required by Item 405 of Regulation S-K to the extent required, will be included, if applicable, under the heading “Delinquent Section 16(a) Reports” in our Proxy Statement, which information is incorporated by reference herein.

Information regarding our executive officers required by Item 401(b) of Regulation S-K is presented at the end of Part I herein and captioned “Executive Officers of the Registrant” as permitted by General Instruction G(3) to Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K.

Information required by Item 405 of Regulation S-K will be included under the heading “Section 16(a) Beneficial Ownership Reporting Compliance” in our Proxy Statement, which information is incorporated by reference herein.

Information required by paragraphs (c)(3), (d)(4) and (d)(5) of Item 407 of Regulation S-K will be included under the heading “QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING” and “CORPORATE GOVERNANCE”GOVERNANCE MATTERS” in our Proxy Statement, which information is incorporated by reference herein.

We have adopted a Code of Ethics for Principal Executive and Senior Financial Officers (“Code of Ethics for Senior Officers”) that applies to our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, and Controller, or persons performing similar functions. The Code of Ethics for Senior Officers, together with our Corporate Governance Guidelines, the charters for each of our board committees, and our Code of Ethics applicable to all employees are available on our Internet website at www.mrcglobal.com. We will provide, free of charge, a copy of our Code of Ethics or any of our other corporate documents listed above upon written request to our Corporate Secretary at 1301 McKinney Street, Suite 2300, Houston, Texas, 77010. We intend to disclose any amendments to or waivers of the Code of Ethics for Senior Officers on behalf of our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, and Controller, and persons performing similar functions on our Internet website at www.mrcglobal.com under the Investor Relations page, promptly following the date of any such amendment or waiver.

ITEM  11.EXECUTIVE COMPENSATION

ITEM 11.

EXECUTIVE COMPENSATION

The information required by Item 402 and paragraphs (e)(4) and (e)(5) of Item 407 of Regulations S-K regarding executive compensation will be presented under the headings “Compensation  Discussion and  Analysis,“COMPENSATION DISCUSSION AND ANALYSIS,” “Employment and Other Agreements,” “Summary Compensation Table for 2017,2022,” “Grants of Plan-Based Awards in Fiscal Year 2017,2022,” “Outstanding Equity Awards at 20172022 Fiscal Year-End,” “Option Exercises and Stock Vested During 2017,2022,” “Potential Payments upon Termination or Change in Control,” “Non-Employee Director Compensation Table,” “Compensation and Human Capital Committee Report,” and “Compensation and Human Capital Committee Interlocks and Insider Participation” in our Proxy Statement, which information is incorporated by reference herein. Notwithstanding the foregoing, the information provided under the heading “Compensation and Human Capital Committee Report” in our Proxy Statement is furnished and shall not be deemed to be filed for purposes of Section 18 of the Exchange Act is not subject to the liabilities of that section and is not deemed incorporated by reference in any filing under the Securities Act.

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ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information regarding the security ownership of certain beneficial owners and management required by Item 403 of Regulation S-K will be presented under the heading “Security Ownership of Officersheadings “SECURITY OWNERSHIP – Directors and Directors”Executive Owners” and “Stock Ownership of“SECURITY OWNERSHIP – Certain Beneficial Owners” in our Proxy Statement, which information is incorporated by reference herein.

The following table summarizes information, as of December 31, 2017,2022, relating to our equity compensation plans pursuant to which grants of options, restricted stock, or certain other rights to acquire our shares may be granted from time to time.



	(a)	(b)	(c)
Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders:
Stock options, restricted stock awards, restricted stock unit awards, and performance share unit awards	5,956,003	$21.96	1,944,764
Equity compensation plans not approved by security holders	None	N/A	None

 

(a)

(b)

(c)

Number of securities

remaining available for

Number of securities to

future issuance under

be issued upon

Weighted-average

equity compensation

exercise of outstanding

exercise price of

plans (excluding

options, warrants and

outstanding options,

securities reflected in

Plan Category

rights(1)

warrants and rights(2)

column (a))

Equity compensation plans approved by security holders:

Stock options, restricted stock awards, restricted stock unit awards, and performance share unit awards

3,725,244

$

29.33

3,780,202

Equity compensation plans not approved by security holders

None

N/A

None

Total

3,725,244

29.33

3,780,202

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 

(1)	Performance share awards are included at target. If overachievement of the performance criteria is achieved, the grantees of performance awards could receive up to 200% of target. This would increase the number of securities in column (a) by 908,772.
(2)	The weighted average exercise price is only for the 861,168 unexercised options included in column (a) as restricted stock units and performance share units do not have an exercise price.

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information regarding certain relationships and related transactions required by Item 404 and Item 407(a) of Regulation S-K will be presented under the headings “Certain Relationships and Related Transactions”, “Related Party Transaction Policy”, “Corporate Governance,” “Board"PROPOSAL I: ELECTION OF DIRECTORS - 'Knowledge, Skills and Committees,” “BoardExperience of Directors,” “DirectorNominees Plus our Designated Director' and 'Certain Information Regarding Nominees" and “CORPORATE GOVERNANCE MATTERS - 'Director Independence” and “Committees of the Board” in our Proxy Statement, which information is incorporated by reference herein.

ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES 

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information regarding our principal accounting fees and services required by Item 9(e) of Schedule 14A will be presented under the headings “Principal Accounting Fees and Services” and “Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services of Independent Auditors” in our Proxy Statement, which information is incorporated by reference herein.

 

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PART IV

ITEM  15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)Documents Filed as Part of this Annual Report:

(a)	Documents Filed as Part of this Annual Report:

1.Financial Statements.  

1.	Financial Statements.

See “Item 8—Financial Statements and Supplementary Data.”

See “Item 8—Financial Statements and Supplementary Data.”

2.Financial Statement Schedules.  

2.	Financial Statement Schedules.

All schedules are omitted because they are not applicable, not required or the information is included in the financial statements or the notes thereto.

3.List of Exhibits.  

3.	List of Exhibits.

Exhibit Number	Description
3.1	Amended and Restated Certificate of Incorporation of MRC Global Inc. dated April 11, 2012. (Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of MRC Global Inc. filed with the SEC on April 17, 2012, File No. 001-35479).
3.2	Amended and Restated Bylaws of MRC Global Inc. dated November 7, 2013. (Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of MRC Global Inc. filed with the SEC on November 13, 2013, File No. 001-35479).
3.3	Certificate of Designations, Preferences, Rights and Limitations of Series A Convertible Perpetual Preferred Stock of MRC Global Inc. (Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of MRC Global Inc. filed with the SEC on June 11, 2015, File No. 001-35479).
4.1	Description of Securities of Registrant. (Incorporated by reference to Exhibit 4.1 to the Annual Report on Form 10-K of MRC Global Inc. filed with the SEC on February 14, 2020, File No. 001-35479).
10.1	ThirdFourth Amended and Restated Loan, Security and Guarantee Agreement, dated as of September 22, 2017,3, 2021, among MRC Global (US) Inc., Greenbrier Petroleum Corporation, McJunkin Red Man Development Corporation, Midway-Tristate Corporation, Milton Oil & Gas Company, MRC Global Management Company, MRC Global Services Company LLC, Ruffner Realty Company and The South Texas Supply Company, Inc., as U.S. Borrowers and Guarantors, MRC Global Inc., as a guarantor, MRC Global Australia Pty Ltd., as Australian Borrower, MRC Global (Belgium) NV, as Belgian Borrower, MRC Global (Canada) ULC,Ltd., as Canadian Borrower, MRC Global (Netherlands) B.V., as Dutch Borrower, MRC Global Norway AS, as Norwegian Borrower, MRC TransmarkGlobal (UK) Limited, as UK Borrower, the other borrowers from time to time party thereto, certain financial institutions as lenders and Bank of America, N.A., as Administrative Agent, Security Trustee and Collateral Agent. (Incorporated by reference to Exhibit 10.1.210.1 to the Current Report on Form 8-K of MRC Global Inc. filed with the SEC on September 26, 2017,9, 2021, File No. 001-35479).
10.1.1	First Amendment dated December 6, 2022, to the Fourth Amended and Restated Loan, Security and Guarantee Agreement dated September 3, 2021, among MRC Global (US) Inc., Greenbrier Petroleum Corporation, McJunkin Red Man Development Corporation, Midway-Tristate Corporation, Milton Oil & Gas Company, MRC Global Management Company, MRC Global Services Company LLC, Ruffner Realty Company and The South Texas Supply Company, Inc., as U.S. Borrowers and Guarantors, MRC Global Inc., as a guarantor, MRC Global Australia Pty Ltd., as Australian Borrower, MRC Global (Belgium) NV, as Belgian Borrower, MRC Global (Canada) Ltd., as Canadian Borrower, MRC Global (Netherlands) B.V., as Dutch Borrower, MRC Global Norway AS, as Norwegian Borrower, MRC Global (UK) Limited, as UK Borrower, the other borrowers from time to time party thereto, certain financial institutions as lenders and Bank of America, N.A., as Administrative Agent, Security Trustee and Collateral Agent. (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of MRC Global Inc. filed with the SEC on December 7, 2022. File No. 001-35479).
10.2	Refinancing Amendment and Successor Administrative Agent Agreement, dated as of September 22, 2017, among MRC Global (US) Inc., as borrower, MRC Global Inc., as a guarantor, the subsidiary guarantors party thereto, the lenders party thereto, U.S. Bank National Association, as the Collateral Trustee, JPMorgan Chase Bank, N.A., as the Successor Administrative Agent, and Bank of America, N.A., as Prior Administrative Agent. (Incorporated by reference to Exhibit 10.1.1 to the Current Report on Form 8-K of MRC Global Inc. filed with the SEC on September 26, 2017, File No. 001-35479).

10.2.1	Refinancing Amendment No. 2, dated as of May 22, 2018, among MRC Global (US) Inc., as borrower, MRC Global Inc. as guarantor, the subsidiary guarantors party thereto, the lenders party thereto, U.S. Bank National Association, as the Collateral Trustee, and JP Morgan Chase Bank, N.A. as the Administrative Agent. (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of MRC Global Inc. filed with the SEC on May 25, 2018, File No. 001-35479).
10.2.2	Term Loan Guarantee and Acknowledgment, dated as of November 9, 2012, by each of the signatories listed on the signature pages thereto and each of the other entities that becomes a party thereto, in favor of the Administrative Agent (as defined therein) for the benefit of the Guaranteed Parties (as defined therein). (Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of MRC Global Inc. filed with the SEC on November 9, 2012, File No. 001-35479).

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Exhibit Number	Description
10.2.210.2.3	Security Agreement, dated as of November 9, 2012, among MRC Global (US) Inc., MRC Global Inc., each of the subsidiaries of MRC Global Inc. listed on the signature pages thereto and U.S. Bank National Association, as Collateral Trustee for the benefit of the Secured Parties (as defined therein). (Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K of MRC Global Inc. filed with the SEC on November 9, 2012, File No. 001-35479).

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Exhibit Number	Description
10.2.310.2.4	Term Loan Pledge Agreement, dated as of November 9, 2012, among MRC Global (US) Inc., MRC Global Inc., each of the subsidiaries of MRC Global Inc. listed on the signature pages thereto and U.S. Bank National Association, as Collateral Trustee, for the benefit of the Secured Parties (as defined therein). (Incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K of MRC Global Inc. filed with the SEC on November 9, 2012, File No. 001-35479).
10.2.410.2.5	Refinancing Amendment and Incremental Joinder Agreement, dated as of November 19, 2013, among MRC Global (US) Inc., MRC Global Inc., subsidiary guarantors party thereto and Bank of America, N.A. as Administrative Agent and Lender, for the benefit of the Secured Parties (as defined therein). (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of MRC Global Inc. filed with the SEC on November 20, 2013, File No. 001-35479).
10.2.510.2.6	Second Amendment, dated as of June 11, 2015, by and among MRC Global (US) Inc., as the borrower, MRC Global Inc., as guarantor, the subsidiary guarantors party thereto, the lenders party thereto, Bank of America, N.A., as Administrative Agent, and U.S. Bank National Association, as Collateral Trustee. (Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K of MRC Global Inc. filed with the SEC on June 11, 2015, File No. 001-35479).
10.2.610.2.7	Notice of Amendment and Confirmation of Intercreditor Agreement, dated September 22, 2017, by and between Bank of America, N.A., in its capacity as administrative agent and collateral agent for the Revolving Credit Lenders under the Revolving Credit Agreement, JPMorgan Chase Bank, N.A., in its capacity as administrative agent for the Term Lenders as of the date hereof, U.S. Bank National Association, in its capacity as collateral trustee for the Term Secured Parties, the Additional Term Secured Parties, if any, and the Subordinated Lien Secured Parties, if any, MRC Global Inc. and certain of its subsidiaries. (Incorporated by reference to Exhibit 10.1.3 to the Current Report on Form 8-K of MRC Global Inc. filed with the SEC on September 26, 2017, File No. 001-35479).
10.2.710.2.8	Notice of Amendment and Confirmation of Intercreditor Agreement, dated September 22, 2017,3, 2021, by and between Bank of America, N.A., in its capacity as administrative agent and collateral agent for the Revolving Credit Lenders under the Revolving Credit Agreement, U.S. Bank National Association, in its capacity as collateral trustee for the Term Secured Parties, the Additional Term Secured Parties, if any, and the Subordinated Lien Secured Parties, if any, MRC Global Inc. and certain of its subsidiaries. (Incorporated by reference to Exhibit 10.1.410.2 to the Current Report on Form 8-K of MRC Global Inc. filed with the SEC on September 26, 2017, File No. 001-35479).
10.3	Amendment No. 2 to the Amended and Restated Registration Rights Agreement, dated as of April 11, 2012, by and among MRC Global Inc., PVF Holdings LLC and the other parties thereto. (Incorporated by reference to Exhibit 10.2.1 to Form 10-Q of MRC Global Inc. for the quarterly period ended March 31, 2012, filed with the SEC on May 7, 2012,9, 2021, File No. 001-35479).
10.4.1†10.3†	Employment Agreement, dated as of May 16, 2013,March 8, 2021, between MRC Global Inc. and Andrew R. Lane.Robert James Saltiel, Jr. (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of MRC Global Inc. filed with the SEC on May 17, 2013,March 9, 2021, File No. 001-35479).
10.4.2†	First Amendment to Employment Agreement between MRC Global Inc. and Andrew R. Lane. (Incorporated by reference to Exhibit 10.4.2 to the Annual Report on Form 10-K of MRC Global Inc., filed with the SEC on February 17, 2017, File No. 001-35479).

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Exhibit Number	Description
10.5†10.4†	Form of Employment Agreement by and amongbetween MRC Global Inc. and each of James E. Braun and Daniel J. ChurayKelly Youngblood (Incorporated by reference to Exhibit 10.510.1 to the Current Report on Form 10-K8-K of MRC Global Inc. forfiled with the year ended December 31, 2013,SEC on September 27, 2019, File No. 001-35479).
10.5†	Executive Separation Policy (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of MRC Global Inc. filed with the SEC on February 21, 2014,12, 2021, File No. 001-35479)No.001-35479).
10.6†	Letter Agreement, dated as of September 24, 2008, by and among H.B. Wehrle, III, PVF Holdings LLC (now dissolved) and MRC Global (US) Inc. (f/k/a McJunkin Red Man Corporation). (Incorporated by reference to Exhibit 10.11 to Amendment No. 1 of the Registration Statement on Form S-1 of MRC Global Inc. (f/k/a McJunkin Red Man Holding Corporation) (No. 333-153091), filed with the SEC on September 26, 2008, File No. 001-35479).
10.7†	Letter Agreement, dated as of December 22, 2008, by and among MRC Global Inc. (f/k/a McJunkin Red Man Holding Corporation) and Craig Ketchum. (Incorporated by reference to Exhibit 10.12 to the Registration Statement on Form S-4 of McJunkin Red Man Corporation (No. 333-173035), filed with the SEC on March 24, 2011, File No. 001-35479).
10.8†	2007 Stock Option Plan, as amended. (Incorporated by reference to Exhibit 10.13.1 to the Registration Statement on Form S-4 of McJunkin Red Man Corporation (No. 333-173035), filed with the SEC on March 24, 2011, File No. 001-35479).
10.8.1†	Form of MRC Global Inc. (f/k/a McJunkin Red Man Holding Corporation) Nonqualified Stock Option Agreement. (Incorporated by reference to Exhibit 10.17.1 to Amendment No. 1 to the Registration Statement on Form S-1 of MRC Global Inc (No. 333-153091), filed with the SEC on September 26, 2008, File No. 001-35479).
10.8.2†	Form of MRC Global Inc. (f/k/a as McJunkin Red Man Holding Corporation) Nonqualified Stock Option Agreement (Director Grant May 2010—Dutch residents). (Incorporated by reference to Exhibit 10.9.1 to the Registration Statement on Form S-4 of McJunkin Red Man Corporation (No. 333-173035), filed with the SEC on March 24, 2011, File No. 001-35479).
10.8.3†	Form of MRC Global Inc. (f/k/a McJunkin Red Man Holding Corporation) Nonqualified Stock Option Agreement (Director Grant May 2010—US residents). (Incorporated by reference to Exhibit 10.9.1 to the Registration Statement on Form S-4 of McJunkin Red Man Corporation (No. 333-173035), filed with the SEC on March 24, 2011, File No. 001-35479).
10.9†	MRC Global Inc. 2011 Omnibus Incentive Plan.Plan (Incorporated by reference to Exhibit 10.27 to the Annual Report on Form 10-K of MRC Global Inc., filed with the SEC on March 5, 2012, File No. 001-35479).
10.10.1†10.6.1†	Amendment to the MRC Global Inc. Omnibus Incentive Plan (Incorporated by reference to Annex A to the Schedule 14A Definitive Proxy Statement of MRC Global Inc. filed with the SEC on March 25, 2015, File No. 001-35479).
10.10.2†10.6.2†	FormAmendment to the MRC Global Inc. Omnibus Incentive Plan (Incorporated by reference to Annex A to the Schedule 14A Definitive Proxy Statement of MRC Global Inc. (f/k/a McJunkin Red Man Holding Corporation) Director Option Agreement. (Incorporated by reference to Exhibit 10.28.1 to the Registration Statement on Form S-1 of MRC Global Inc. (No. 333-178980), filed with the SEC on January 12, 2012,March 18, 2019, File No. 001-35479).
10.10.3† 10.6.3†	FormAmendment to the MRC Global Inc. Omnibus Incentive Plan (Incorporated by reference to the Schedule 14A Definitive Proxy Statement of MRC Global Inc. (f/k/a McJunkin Red Man Holding Corporation) Nonqualified Stock Option Agreement (for awards prior to 2013). (Incorporated by reference to Exhibit 10.28.2 to the Registration Statement on Form S-1 of MRC Global Inc. (No. 333-178980), filed with the SEC on January 12, 2012,March 23, 2022. File No. 001-35479).

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Exhibit Number	Description
10.10.4†10.6.4†	Form of MRC Global Inc. Nonqualified Stock Option Agreement (for awards in 2013). (Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of MRC Global Inc. for the quarter ended March 31, 2013, filed with the SEC on May 3, 2013, File No. 001-35479).
10.10.5†	Form of MRC Global Inc. Restricted Stock Award Agreement (for awards in 2013). (Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q of MRC Global Inc. for the quarter ended March 31, 2013, filed with the SEC on May 3, 2013, File No. 001-35479).

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Exhibit Number	Description
10.10.6†10.6.5†	Form of MRC Global Inc. Nonqualified Stock Option Agreement (for awards in 2014). (Incorporated by reference to Exhibit 10.13.7 to Form 10-K of MRC Global Inc. for the year ended December 31, 2013, filed with the SEC on February 21, 2014, File No. 001-35479).
10.10.7†	Form of MRC Global Inc. Restricted Stock Award Agreement (for awards in 2014). (Incorporated by reference to Exhibit 10.13.8 to Form 10-K of MRC Global Inc. for the year ended December 31, 2013, filed with the SEC on February 21, 2014, File No. 001-35479).
10.10.8†10.6.6†	Form of MRC Global Inc. Director Restricted Stock Award Agreement.Agreement (Incorporated by reference to Exhibit 10.13.9 to Form 10-K of MRC Global Inc. for the year ended December 31, 2013, filed with the SEC on February 21, 2014, File No. 001-35479).
10.10.9†10.6.7†	Form of MRC Global Inc. Performance Share Unit Award Agreement (for awards for 2015).in 2021) (Incorporated by reference to Exhibit 10.12.1010.8.8 to Form 10-K of MRC Global Inc. for the year ended December 31, 20142020, filed with the SEC on February 20, 2015,12, 2021, File No. 001-35479)..
10.10.10†10.6.8†	Form of MRC Global Inc. Restricted Stock Unit Award Agreement (for 2015 awards)grants in 2022) (Incorporated by reference to Exhibit 10.12.1110.8.9 to Annual Report on Form 10-K of MRC Global Inc. for the year ended December 31, 2022, filed with the SEC on February 16, 2022. File No. 001-35479).
10.6.9†	Form of MRC Global Inc. Performance Share Unit Award Agreement (for grants on and before 2022) (Incorporated by reference to Exhibit 99.1 to Form 8-K of MRC Global Inc. dated February 11, 2022).
10.6.10†	Form of MRC Global Inc. Performance Share Unit Award Agreement (for grants beginning in 2023) (Incorporated by reference to Exhibit 10.1 to Form 8-K of MRC Global Inc., filed with the SEC on February 9, 2023. File No. 001-35479).
10.6.11†*	Form of Restricted Stock Unit Award Agreement (for grants beginning in 2023).
10.6.12†	Amendment to 2021 Performance Share Unit Award Agreement (Incorporated by reference to Exhibit 10.1 of the Form 10-Q for the quarter ended September 30, 2021, filed with the SEC on November 9, 2021. File No. 001-35479).
10.7†	MRC Global Director Compensation Plan (Incorporated by reference to Exhibit 10.11 to Form 10-K of MRC Global Inc. for the year ended December 31, 20142017 filed with the SEC on February 20, 2015, File No. 001-35479).
10.10.11†	Form of MRC Global Inc. Performance Share Unit Award Agreement (for 2016 awards). (Incorporated by reference to Exhibit 10.12.12 to Form 10-K of MRC Global Inc. for the year ended December 31, 2015 filed with the SEC on February 24, 2016,16, 2018, File No. 001-35479).
10.10.12†	Form of MRC Global Inc. Restricted Stock Unit Award Agreement (for awards after 2014).  (Incorporated by reference to Exhibit 10.12.13 to Form 10‑K of MRC Global Inc. for the year ended December 31, 2015 filed with the SEC on February 24, 2016, File No. 001-35479).
10.10.13†	Form of MRC Global Inc. Performance Share Unit Award Agreement (for 2017 awards). (Incorporated by reference to Exhibit 10.12.14 to Form 10-K of MRC Global Inc. for the year ended December 31, 2016 filed with the SEC on February 17, 2017, File No. 001-35479).
10.10.14†*	Form of MRC Global Inc. Performance Share Unit Award Agreement (for 2018 awards).
10.11†*	MRC Global Director Compensation Plan.
10.12†	MRC Global Inc. (f/k/a McJunkin Red Man Holding Corporation) Nonqualified Stock Option Agreement, dated as of September 10, 2008, by and among MRC Global Inc., PVF Holdings LLC (now dissolved), and Andrew R. Lane. (Incorporated by reference to Exhibit 10.31 to Amendment No. 1 to the Registration Statement on Form S-1 of MRC Global Inc. (f/k/a McJunkin Red Man Holding Corporation) (No. 333-153091), filed with the SEC on September 26, 2008, File No. 001-35479).
10.12.1†	Amendment to the MRC Global Inc. (f/k/a McJunkin Red Man Holding Corporation) Nonqualified Stock Option Agreement, dated as of June 1, 2009, by and among MRC Global Inc., PVF Holdings LLC (now dissolved), and Andrew R. Lane. (Incorporated by reference to Exhibit 10.23.2 to the Registration Statement on Form S-4 of McJunkin Red Man Corporation (No. 333-173035), filed with the SEC on March 24, 2011, File No. 001-35479).
10.12.2†	Second Amendment to the MRC Global Inc. (f/k/a McJunkin Red Man Holding Corporation) Nonqualified Stock Option Agreement, dated as of September 10, 2009, by and among MRC Global Inc., PVF Holdings LLC (now dissolved), and Andrew R. Lane. (Incorporated by reference to Exhibit 10.23.3 to the Registration Statement on Form S-4 of McJunkin Red Man Corporation (No. 333-173035), filed with the SEC on March 24, 2011, File No. 001-35479).

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Exhibit Number	Description
10.13†	MRC Global Inc. (f/k/a McJunkin Red Man Holding Corporation) Nonqualified Stock Option Agreement, dated as of October 3, 2008, by and among MRC Global Inc., PVF Holdings LLC (now dissolved), and Len Anthony. (Incorporated by reference to Exhibit 10.26.1 to the Registration Statement on Form S-4 of McJunkin Red Man Corporation (No. 333-173035), filed with the SEC on March 24, 2011, File No. 001-35479).
10.13.1†	Amendment to the MRC Global Inc. (f/k/a as McJunkin Red Man Holding Corporation) Nonqualified Stock Option Agreement, dated as of September 10, 2009, by and among MRC Global Inc. (f/k/a McJunkin Red Man Holding Corporation), PVF Holdings LLC (now dissolved), and Len Anthony. (Incorporated by reference to Exhibit 10.26.2 to the Registration Statement on Form S-4 of McJunkin Red Man Corporation (No. 333-173035), filed with the SEC on March 24, 2011, File No. 001-35479).
10.14†	MRC Global Inc. (f/k/a McJunkin Red Man Holding Corporation) Nonqualified Stock Option Agreement, dated as of December 3, 2009, by and among MRC Global Inc., PVF Holdings LLC (now dissolved), and John A. Perkins. (Incorporated by reference to Exhibit 10.29 to the Registration Statement on Form S-4 of McJunkin Red Man Corporation (No. 333-173035), filed with the SEC on March 24, 2011, File No. 001-35479).
	F
10.15	Indemnity Agreement, dated as of December 4, 2006, by and among MRC Global Inc. (f/k/a McJunkin Red Man Holding Corporation), Hg Acquisition Corp., MRC Global (US) Inc. (f/k/a McJunkin Red Man Corporation), and certain shareholders of MRC Global (US) Inc. named therein. (Incorporated by reference to Exhibit 10.21 to Amendment No. 1 of the Registration Statement on Form S-1 of MRC Global Inc. (f/k/a McJunkin Red Man Holding Corporation) (No. 333-153091), filed with the SEC on September 26, 2008, File No. 001-35479).
10.1610.8	Form of Indemnification Agreement between MRC Global Inc. and Officers, Directors and Certain Employees.Employees (Incorporated by reference to Exhibit 10.19 to Form 10-K of MRC Global Inc. for the year ended December 31, 2014, filed with the SEC on February 20, 2015, File No. 001-35479)..

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Exhibit Number	Description
10.1710.9	Shareholders’ Agreement, dated June 10, 2015, by and between MRC Global Inc. and Mario Investments LLC. (Incorporated by reference to the Current Report on Form 8-K of MRC Global Inc. filed with the SEC on June 11, 2015, File No. 001-35479).
21.1*	List of Subsidiaries of MRC Global Inc.
23.1*	Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.
31.1*	Certification of the Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities and Exchange Act of 1934, as amended, and Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of the Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities and Exchange Act of 1934, as amended, and Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32**	Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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Exhibit Number	Description
100*	The following financial information from MRC Global Inc.’s Annual Report on Form 10-K for the period ended December 31, 2017,2022, formatted in Inline Extensible Business Reporting Language (“XBRL”IXBRL”): (i) the Consolidated Balance Sheets at December 31, 20172022 and December 31, 2016,2021, (ii) the Consolidated Statements of Operations for the twelve-month periods ended December 31, 2017, 20162022, 2021 and 2015,2020, (iii) the Consolidated Statements of Comprehensive Income (Loss) for the twelve-month periods ended December 31, 2017, 20162022, 2021 and 2015,2020, (iv) the Consolidated Statements of Cash Flows for the twelve-month periods ended December 31, 2017, 20162022, 2021 and 2015,2020, (v) the Consolidated Statements of Stockholders’ Equity for the twelve-month periods ended December 31, 2017, 20162022, 2021 and 2015and2020 and (vi) Notes to Consolidated Financial Statements.
101*	Interactive data file.
101.INS*	Inline XBRL Instance Document.
101.SCH*	Inline XBRL Taxonomy Extension Schema.
101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase.
101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase.
101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase.
101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase.
104	The cover page from the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 formatted in Inline XBRL and contained in Exhibit 101.

†Management contract or compensatory plan or arrangement required to be posted as an exhibit to this report.

*Filed herewith.

**Furnished herewith.

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ITEM 16.

FORM 10-K SUMMARY

 

None.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

MRC GLOBAL INC.
By:	/s/    Robert J. Saltiel, Jr.
MRC GLOBAL INC.
By:	/s/    ANDREW R. LANE
	Andrew R. LaneRobert J. Saltiel, Jr. President and Chief Executive Officer

 

Date: February 16, 201814, 2023

 

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 registrant and in the capacity and on the dates indicated.

1

Signature	Title	Date
/S/    ANDREW R. LANE         Andrew R. Lane s/    Robert J. Saltiel, Jr.	President and Chief Executive Officer	February 14, 2023
Robert J. Saltiel, Jr.	(principal executive officer)	February 16, 2018
/S/    JAMES E. BRAUN         James E. Braun s/    Kelly Youngblood	Executive Vice President and Chief Financial Officer	February 14, 2023
Kelly Youngblood	(principal financial officer)	February 16, 2018
/S/    ELTON  BOND         Elton Bond s/    Gillian Anderson	Senior Vice President and Chief Accounting Officer	February 14, 2023
Gillian Anderson	(principal accounting officer)	February 16, 2018
/S/    RHYS J. BEST         Rhys J. Best s/    Robert L. Wood	Chairman	February 16, 201814, 2023
Robert L. Wood
/s/    Deborah G. Adams	Director	February 14, 2023
Deborah G. Adams
/s/    Leonard M. Anthony	Director	February 14, 2023
Leonard M. Anthony
/s/    Henry Cornell	Director	February 14, 2023
Henry Cornell
/s/    George J. Damiris	Director	February 14, 2023
George J. Damiris
/s/    Barbara J. Duganier	Director	February 14, 2023
Barbara J. Duganier
/s/    Ronald L. Jadin	Director	February 14, 2023
Ronald L. Jadin
/S/   Deborah G. Adams Deborah G. Adamss/    Dr. Cornelis Adrianus Linse	Director	February 16, 2018 14, 2023
Dr. Cornelis Adrianus Linse
/S/    LEONARD M. ANTHONY         Leonard M. Anthonys/    Dr. Anne McEntee	Director	February 16, 2018 14, 2023
Dr. Anne McEntee
/S/    BARBARA  J. DUGANIER Barbara J. Duganier	Director	February 16, 2018
/S/    CRAIG  KETCHUM         Craig Ketchum	Director	February 16, 2018
/S/    GERARD P. KRANS         Gerard P. Krans	Director	February 16, 2018
/S/    DR. CORNELIS  ADRIANUS  LINSE         Dr. Cornelis Adrianus Linse	Director	February 16, 2018
/S/    JOHN A. PERKINS         John A. Perkins	Director	February 16, 2018
/S/    H.B. WEHRLE, III         H.B. Wehrle, III	Director	February 16, 2018
/S/    ROBERT  L. WOOD Robert L. Wood	Director	February 16, 2018

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MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

MRC Global Inc.’s management is responsible for establishing and maintaining adequate internal control over financial reporting. MRC Global Inc.’s internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected and corrected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

Management has used the framework set forth in the report entitled “Internal Control—Integrated Framework” issued by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission (2013 framework) to evaluate the effectiveness of the Company’s internal control over financial reporting. Management has concluded that the Company’s internal control over financial reporting was effective as of December 31, 2017.2022.

 

Ernst & Young LLP, the independent registered public accounting firm that audited the Company’s consolidated financial statements included in this Form 10-K, has issued an attestation report on the Company’s internal control over financial reporting. Ernst & Young LLP’s attestation report on the Company’s internal control over financial reporting is included in this Form 10-K.

 

/s/    ANDREW R. LANEROBERT J. SALTIEL, JR.
Andrew R. LaneRobert J. Saltiel, Jr. President and Chief Executive Officer

 

/s/    JAMES E. BRAUNKELLY YOUNGBLOOD
James E. BraunKelly Youngblood Executive Vice President and Chief Financial Officer

 

Houston, Texas

February 16, 2018 

14, 2023

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REPORT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of MRC Global Inc.

Opinion on Internal Control overOver Financial Reporting

We have audited MRC Global Inc.’s internal control over financial reporting as of December 31, 2017,2022, based on criteria established in Internal Control— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, MRC Global Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2022, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2022 consolidated balance sheets of MRC Global Inc. as of December 31, 2017 and 2016, and the related consolidatedfinancial statements of consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2017 of MRC Global Inc.Company, and our report dated February 16, 201814, 2023, expressed an unqualified opinion thereon.

 

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance 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 and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely 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 of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

/s/ Ernst & Young LLP

Houston, Texas

February 16, 201814, 2023

 

[ consolidatedstatements of operations, comprehensive income,  stockholders' equity and cash flows for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2017 and 2016, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles. 2013 framework and our report dated February 16, 2018expressed an unqualified opinion thereon.

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F-2REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of MRC Global Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of MRC Global Inc. and subsidiaries (the Company) as of December31,2017 2022 and 2016,2021, and 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, 2017,2022, and the related notes (collectively referred to as the “financial“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 20172022 and 2016,2021, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2022, 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's internal control over financial reporting as of December 31, 2017,2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework and our report dated February 16, 201814, 2023, expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in 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 reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to 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 included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

	LIFO inventory valuation
Description of the Matter	At December 31, 2022 the Company’s inventory balance was $578 million, of which $435 million was held in the U.S. As discussed in Notes 1 and 4 to the consolidated financial statements, the Company’s U.S. inventories are stated at the lower of cost, using the last-in, first-out (LIFO) method, or market. The Company maintains its inventory accounting records on a weighted-average cost basis and adjusts U.S. inventory and cost of goods sold from weighted-average cost to LIFO at period end. Auditing the adjustment of U.S. inventory and cost of goods sold from weighted-average cost to LIFO was complex due to the use of multiple inflation indices across various product categories within the Company's U.S. inventory balance.

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How We Addressed the Matter in Our Audit	We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company's controls over its process to adjust U.S. inventory and cost of goods sold from weighted-average cost to LIFO.
	To test the LIFO inventory balance, we performed audit procedures that included, among others, assessing methodologies and testing the underlying data used to adjust the weighted-average cost inventory balances to LIFO. We also tested the mathematical accuracy of the Company’s calculations.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2007.

Houston, Texas

February 16, 201814, 2023

 

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CONSOLIDATED BALANCE SHEETS

MRC GLOBAL INC.

(in millions, except shares)

 

	December 31,						December 31,
	2017			2016			2022				2021
Assets
Current assets:
Cash	$	48		$	109		$	32			$	48
Accounts receivable, net		522			399			501				379
Inventories, net		701			561			578				453
Other current assets		47			48			31				19
Total current assets		1,318			1,117			1,142				899
Long-term assets:
Operating lease assets								202				191
Property, plant and equipment, net								82				91
Other assets		21			19			22				22
Property, plant and equipment, net		147			135
Intangible assets:
Goodwill, net		486			482			264				264
Other intangible assets, net		368			411			183				204
							$	1,895			$	1,671
	$	2,340		$	2,164
Liabilities and stockholders' equity
Current liabilities:
Trade accounts payable	$	415		$	314		$	410			$	321
Accrued expenses and other current liabilities		143			111			115				80
Operating lease liabilities								36				33
Current portion of long-term debt		4			8			3				2
Total current liabilities		562			433			564				436
Long-term obligations:
Long-term debt, net		522			406			337				295
Operating lease liabilities								182				177
Deferred income taxes		106			184			49				53
Other liabilities		36			23			22				32
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
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,
103,099,692 and 102,529,637 issued, respectively		1			1
Common stock, $0.01 par value per share: 500 million shares authorized, 107,864,421 and 107,284,171 issued, respectively								1				1
Additional paid-in capital		1,691			1,677			1,758				1,747
Retained deficit		(548)			(574)			(768	)			(819	)
Treasury stock at cost: 11,751,726 and 7,677,580 shares, respectively		(175)			(107)
Treasury stock at cost: 24,216,330 shares								(375	)			(375	)
Accumulated other comprehensive loss		(210)			(234)			(230	)			(231	)
		759			763			386				323
	$	2,340		$	2,164		$	1,895			$	1,671
See notes to consolidated financial statements.

 

See notes to consolidated financial statements.

 

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CONSOLIDATED STATEMENTS OF OPERATIONS

MRC GLOBAL INC.

(in millions, except per share amounts)

 

	Year Ended December 31,										Year Ended December 31,
	2017			2016			2015				2022				2021				2020
Sales	$	3,646		$	3,041		$	4,529			$	3,363			$	2,666			$	2,560
Cost of sales		3,064			2,573			3,743				2,753				2,249				2,129
Gross profit		582			468			786				610				417				431
Selling, general and administrative expenses		536			524			606				470				410				449
Goodwill and intangible asset impairment		-			-			462				—				—				242
Operating income (loss)		46			(56)			(282)				140				7				(260	)
Other expense:
Other (expense) income:
Interest expense		(31)			(35)			(48)				(24	)			(23	)			(28	)
Write off of debt issuance costs		(8)			(1)			(3)
Other, net		-			1			(9)				(6	)			2				5
Income (loss) before income taxes		7			(91)			(342)				110				(14	)			(283	)
Income tax benefit		(43)			(8)			(11)
Income tax expense (benefit)												35				—				(9	)
Net income (loss)		50			(83)			(331)				75				(14	)			(274	)
Series A preferred stock dividends		24			24			13				24				24				24
Net income (loss) attributable to common stockholders	$	26		$	(107)		$	(344)			$	51			$	(38	)		$	(298	)
Basic earnings (loss) per common share		$               0.28			$              (1.10)			$              (3.38)			$	0.61			$	(0.46	)		$	(3.63	)
Diluted earnings (loss) per common share		$               0.27			$              (1.10)			$              (3.38)			$	0.60			$	(0.46	)		$	(3.63	)
Weighted-average common shares, basic		94.3			97.3			102.1				83.5				82.5				82.0
Weighted-average common shares, diluted		95.6			97.3			102.1				84.9				82.5				82.0

 

See notes to consolidated financial statements.

 

F-5

F-6

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Table of Contents

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

MRC GLOBAL INC.

(in millions)

 

	Year Ended December 31,									Year Ended December 31,
	2017			2016			2015			2022				2021				2020
Net income (loss)	$	50		$	(83)		$	(331)		$	75			$	(14	)		$	(274	)
Other comprehensive income (loss):
Foreign currency translation adjustments		24			(2)			(95)			(5	)			(3	)			2
Pension related adjustments		-			-			-
Total other comprehensive income (loss)		24			(2)			(95)
Hedge accounting adjustments, net of tax											6				6				(4	)
Total other comprehensive income (loss), net of tax											1				3				(2	)
Comprehensive income (loss)	$	74		$	(85)		$	(426)		$	76			$	(11	)		$	(276	)

See notes to consolidated financial statements.

 

F-6

F-7

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Table of Contents

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

MRC GLOBAL INC.

(in millions)

 

																																															Accumulated
																	Accumulated														Additional																Other				Total
						Additional											Other			Total			Common Stock								Paid-in				Retained				Treasury Stock								Comprehensive				Stockholders'
	Common Stock					Paid-in			Retained			Treasury Stock					Comprehensive			Stockholders'			Shares				Amount				Capital				(Deficit)				Shares				Amount				(Loss)				Equity
	Shares		Amount			Capital			(Deficit)			Shares		Amount			(Loss)			Equity
Balance at December 31, 2014	102		$	1		$	1,656		$	(123)		-		$	-		$	(137)		$	1,397
Balance at December 31, 2019																								106				1				1,731				(483	)			(24	)			(375	)			(232	)			642
Net loss	-			-			-			(331)		-			-			-			(331)			—				—				—				(274	)			—				—				—				(274	)
Foreign currency translation	-			-			-			-		-			-			(95)			(95)			—				—				—				—				—				—				2				2
Hedge accounting adjustments																								—				—				—				—				—				—				(4	)			(4	)
Shares withheld for taxes																								—				—				(4	)			—				—				—				—				(4	)
Equity-based compensation expense	-			-			10			-		-			-			-			10			—				—				12				—				—				—				—				12
Dividends declared on preferred stock	-			-			-			(13)		-			-			-			(13)			—				—				—				(24	)			—				—				—				(24	)
Purchase of common stock	-			-			-			-		(1)			(12)			-			(12)
Balance at December 31, 2015	102			1			1,666			(467)		(1)			(12)			(232)			956
Balance at December 31, 2020																								106				1				1,739				(781	)			(24	)			(375	)			(234	)			350
Net loss	-			-			-			(83)		-			-			-			(83)			—				—				—				(14	)			—				—				—				(14	)
Foreign currency translation	-			-			-			-		-			-			(2)			(2)			—				—				—				—				—				—				(3	)			(3	)
Hedge accounting adjustments																								—				—				—				—				—				—				6				6
Shares withheld for taxes	-			-			(1)			-		-			-			-			(1)			—				—				(4	)			—				—				—				—				(4	)
Equity-based compensation expense	-			-			12			-		-			-			-			12			—				—				12				—				—				—				—				12
Exercise of stock options	-			-			1			-		-			-			-			1
Tax expense on equity-based compensation	-			-			(1)			-		-			-			-			(1)
Dividends declared on preferred stock	-			-			-			(24)		-			-			-			(24)			—				—				—				(24	)			—				—				—				(24	)
Purchase of common stock	-			-			-			-		(7)			(95)			-			(95)
Balance at December 31, 2016	102			1			1,677			(574)		(8)			(107)			(234)			763
Balance at December 31, 2021																								106				1				1,747				(819	)			(24	)			(375	)			(231	)			323
Net income	-			-			-			50		-			-			-			50			—				—				—				75				—				—				—				75
Foreign currency translation	-			-			-			-		-			-			24			24			—				—				—				—				—				—				(5	)			(5	)
Hedge accounting adjustments																								—				—				—				—				—				—				6				6
Vesting of restricted stock																								2				—				—				—				—				—				—				—
Shares withheld for taxes	-			-			(3)			-		-			-			-			(3)			—				—				(2	)			—				—				—				—				(2	)
Equity-based compensation expense	-			-			16			-		-			-			-			16			—				—				13				—				—				—				—				13
Exercise and vesting of stock awards	1			-			1			-		-			-			-			1
Dividends declared on preferred stock	-			-			-			(24)		-			-			-			(24)			—				—				—				(24	)			—				—				—				(24	)
Purchase of common stock	-			-			-			-		(4)			(68)			-			(68)
Balance at December 31, 2017	103		$	1		$	1,691		$	(548)		(12)		$	(175)		$	(210)		$	759
Balance at December 31, 2022																								108			$	1			$	1,758			$	(768	)			(24	)		$	(375	)		$	(230	)		$	386