In January 2017,We recognize revenue when we transfer control of promised goods or services to our customers in an amount that reflects the FASB issued ASU No. 2017-04, Simplifyingconsideration to which we expect to be entitled in exchange for those goods or services. We recognize substantially all of our revenue when products are shipped or delivered to our customers, and payment is due from our customers at the Test for Goodwill Impairment. The amendments in ASU 2017-04 eliminate the current two-step approach used to test goodwill for impairment and require an entity to applytime of billing with a one-step quantitative testmajority of our customers having 30-day terms. We estimate and record returns as a reduction of revenue. Amounts received in advance of shipment are deferred and recognized when the amountperformance obligations are satisfied. Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and, therefore, we exclude these taxes from sales in the accompanying condensed consolidated statements of goodwill impairmentoperations. Cost of sales includes the cost of inventory sold and related items, such as vendor rebates, inventory allowances and reserves and shipping and handling costs associated with inbound and outbound freight, as well as depreciation and amortization of intangible assets. In some cases, particularly with third-party pipe shipments, we consider shipping and handling costs to be separate performance obligations, and as such, we record the excessrevenue and cost of a reporting unit's carrying amount over its fair value, not to exceedsales when the total amount of goodwill allocated to the reporting unit. ASU 2017-04performance obligation is effective for fiscal years, including interim periods within, beginning after December 15, 2019 (upon the first goodwill impairment test performed during that fiscal year). Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. A reporting entity must apply the amendments in ASU 2017-04 using a prospective approach. We do not expect the adoption of ASU 2017-04 to have a material impact on our consolidated financial statements.fulfilled.

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

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

Generally, revenue recognition and invoicing occur simultaneously as we transfer control of promised goods or services to our customers. We consider contract assets to be accounts receivable when we have an unconditional right to consideration and only the passage of time is required before payment is due. In May 2017,certain cases, particularly those involving customer-specific documentation requirements, we delay invoicing until we are able to meet the FASB issued ASU No. 2017-09,  Compensation – Stock Compensation (Topic 718) Scopedocumentation requirements. In these cases, we recognize a contract asset separate from accounts receivable until those requirements are met, and we are able to invoice the customer. Our contract asset balance associated with these requirements as of Modification Accounting which clarifies modification accounting for share-based payment awards should not be applied ifSeptember 30, 2023, and December 31, 2022, was $12 million and $24 million, respectively. These contract asset balances are included within accounts receivable in the fair value, vesting conditions,accompanying condensed consolidated balance sheets.

We record contract liabilities, or deferred revenue, when we receive cash payments from customers in advance of our performance, including amounts that are refundable. The deferred revenue balance at September 30, 2023 and December 31, 2022 was $6 million and $9 million, respectively. During the three and nine months ended September 30, 2023, we recognized $3 million and $8 million of revenue that was deferred as of December 31,2022. During the three and nine months ended September 30, 2022, we recognized $0 million and $3 million of revenue that was deferred as of December 31, 2021. Deferred revenue balances are included within accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheets.

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

NOTE 23 – INVENTORIES

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

In 2016, we experienced reductions in inventory quantities, resulting in a liquidation of a

The Company uses the last-in, first out-out (“LIFO”) inventory layer that was carried at a lower cost prevailing from a prior year, as compared with current costs (a “LIFO decrement”). Amethod of valuing U.S. inventories. The use of the LIFO decrement results in the erosion of layers created in earlier years, and, therefore, a LIFO layer is not created for years that have decrements. For the three and nine months ended September 30, 2016,method has the effect of thisreducing net income during periods of rising inventory costs (inflationary periods) and increasing net income during periods of falling inventory costs (deflationary periods). Valuation of inventory under the LIFO decrement decreased costmethod can be made only at the end of sales by approximately $8 million and $11 million, respectively.  

In the third quarter of 2016, we incurred inventory-related charges totaling $45 million.  These charges reflected adjustments necessary to reduce the carrying value of certain products determined to be excess or obsolete to their estimated net realizable valueeach year based on our market outlook for certain productsthe inventory levels and costs at that time. This amount included $24 million inAccordingly, we base interim LIFO calculations on management’s estimates of expected year-end inventory levels and costs and these estimates are subject to the International segment primarily related tofinal year-end LIFO inventory determination. 

NOTE 4 – LEASES

We lease certain distribution centers, warehouses, office space, land and equipment. Substantially all of these leases are classified as operating leases. We recognize lease expense on a restructuringstraight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet.

Many of our Australian businessfacility leases include one or more options to renew, with renewal terms that can extend the lease term from one year to 15 years with a maximum lease term of 30 years, including renewals. The exercise of lease renewal options is at our sole discretion; therefore, renewals to extend the terms of most leases are not included in our right of use (“ROU”) assets and market conditionslease liabilities as they are not reasonably certain of exercise. In the case of our regional distribution centers and certain corporate offices, where the renewal is reasonably certain of exercise, we include the renewal period in Iraq.  Reserves for excessour lease term. Leases with escalation adjustments based on an index, such as the consumer price index, are expensed based on current rates. Leases with specified escalation steps are expensed based on the total lease obligation ratably over the life of the lease. Leasehold improvements are depreciated over the expected lease term. Non-lease components, such as payment of real estate taxes, maintenance, insurance and obsolete inventory were increasedother operating expenses, have been excluded from the determination of our lease liability.

As most of our leases do not provide an implicit rate, we use an incremental borrowing rate based on the information available at the commencement date in determining the U.S. and Canada by $16present value of the lease payments using a portfolio approach. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Expense associated with our operating leases was $11 million and $5$31 million respectively.for the three and nine months ended September 30, 2023, and $10 million and $30 million for the three and nine months ended September 30, 2022, which we have classified in selling, general and administrative expenses. Cash paid for leases recognized as liabilities was $10 million and $30 million for the three and nine months ended September 30, 2023, and $10 million and $31 million for the three and nine months ended September 30, 2022.

The maturity of lease liabilities is as follows (in millions):

Amounts maturing after 2027 include expected renewals for leases of regional distribution centers and certain corporate offices through dates up to 2048. Excluding these optional renewals, our weighted-average remaining lease term is 6 years.

NOTE 35 – LONG-TERM DEBT

The components of our long-term debt are as follows (in millions):

Senior Secured Term Loan B:    In September 2017, the Company entered into We have a Refinancing Amendment and Successor Administrative Agent Agreement relating to the Term Loan Credit Agreement, dated as of November 9, 2012, by and among the Company, MRC Global (US) Inc., as the borrower, the other subsidiaries of the Company from time to time party thereto as guarantors, the several lenders from time to time party thereto, Bank of America, N.A., as administrative agent, and U.S. Bank National Association, as collateral trustee. Pursuant to the amendment, the parties thereto agreed to appoint JPMorgan Chase Bank, N.A. as the new administrative agent for the lenders.  As amended, the Term Loan Agreement provides for a $400 million seven-yearSenior Secured Term Loan B (the “Term Loan”) with an original principal amount of $400 million, which maturesamortizes in equal quarterly installments of 1% per year with the balance payable in September 2024.2024, when the facility matures. In accordance with ASC 470, we have classified the Term Loan as a non-current liability as of September 30, 2023, as the Company has the intent and ability to refinance the Term Loan with its Global ABL Facility on a long-term basis. The Term Loan has an applicable interest rate margin of 300 basis points in the case of loans incurring interest based on LIBOR, and 200 basis points in the case of loans incurring interest based on the base rate. Beginning July 1, 2023, the LIBOR interest rate is now calculated as the aggregate Chicago Mercantile Exchange ("CME") Term SOFR plus the International Swaps and Derivatives Association (ISDA) credit adjustment spread. "Term SOFR" is the forward-looking, per annum secured overnight financing rate administered by CME Group Benchmark Administration Limited and published on the applicable Thompson Reuters Corporation website page for each of 1-month, 3-month, and 6-month maturities. The Term Loan allows for incremental increases in facility size by up to an aggregate of $200 million, plus an additional amount such that the Company’s first lien leverage ratio (as defined under the Term Loan) would not exceed 4.00 to 1.00. MRC Global (US) Inc. is the borrower under this facility, which is guaranteed by MRC Global Inc. as well as all of its wholly owned U.S. subsidiaries.subsidiaries guarantees. In addition, itthe Term Loan is secured by a second lien on the assets securing our Global ABL Facility, defined below (which includes accounts receivable inventory and related assets)inventory) and a first lien on substantially all of the other assets of MRC Global Inc. and those of its U.S. subsidiaries as well as a pledge of all of the capital stock of our domestic subsidiaries and 65% of the capital stock of first tier, non-U.S. subsidiaries. In addition, the Term Loan contains a number of customary restrictive covenants. We are required to repay the Term Loan with the proceeds from certain asset sales and certain insurance proceeds, certain debt proceeds andproceeds. In addition, on an annual basis, we are required to repay an amount equal to 50% of excess cash flow, as defined in the Term Loan, (reducingreducing to 25% if our first lien leverage ratio is no more than 2.75 to 1.00 and 0%1.00. No payment of excess cash flow is required if our the first lien leverage ratio is no moreless than or equal 2.50 to 1.00).  In addition,1.00. The amount of cash used in the Term Loan contains a numberdetermination of customary restrictive covenants.the senior secured leverage ratio is limited to $75 million.

The interest rate for the Term Loan, including the amortization of original issue discount and debt issuance costs, was 4.85%as of September 30, 2017 and 5.51% at December 31, 2016.

Global ABL Facility: In September 2017, theThe Company entered intois a Third Amended and Restated Loan, Security and Guarantee Agreementparty to a multi-currency, global asset-based lending facility (the “Global ABL Facility”) by and among the Company, the, including certain of its subsidiaries, of the Company from time to time party thereto as borrowers and guarantors, the severalits lenders from time to time party thereto and Bank of America, N.A. as administrative agent, security trustee and collateral agent.As part of the amendment, the multi-currency global asset-based The Global ABL Facility is a revolving credit facility was re-sized to $800of $750 million, from $1.05 billion and the maturity was extended to which matures in September 2022 from July 2019.  This facility2026. The Global ABL Facility is comprised of $675$705 million in revolver commitments in the United States, $65which includes a $30 million insub-limit for Canada, $18$12 million in Norway, $15$10 million in Australia, $13$10.5 million in the Netherlands, $7$7.5 million in the United Kingdom and $7$5 million in Belgium. ItThe Global ABL Facility contains an accordion feature that allows us to increase the principal amount of the facility by up to $200$250 million, subject to securing additional lender commitments. MRC Global Inc. and each of its current and future wholly owned material U.S. subsidiaries guarantee the obligations of our borrower subsidiaries under the Global ABL Facility. Additionally, each of our non-U.S. borrower subsidiaries guarantees the obligations of our other non-U.S. borrower subsidiaries under the Global ABL Facility. Outstanding obligations are generally secured by a first priority security interest in accounts receivable, inventory and related assets. In December 2022, the Company and Administrative Agent entered into an amendment to the Global ABL Facility to replace the London Interbank Offered Rate with a new prevailing benchmark interest rate known as Term SOFR for all U.S. dollar borrowings. U.S. borrowings under the amended facility bear interest at the 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, which is subject to redetermination from time to time. Excess Availability, as defined under our Global ABL Facility, was $489$696 million as of September 30, 2017.  

The interest rate for the Global ABL Facility was 4.92% as of September 30, 2017.  We had no borrowings on our Global ABL Facility at December 31, 2016.2023.

NOTE 4 – INCOME TAXES

In the first quarter of 2017, we adopted ASU 2016-09, Compensation - Stock CompensationInterest on Borrowings: The interest rates on our outstanding borrowings at September 30, 2023, including a floating to fixed interest rate swap at December 31, 2022, which simplified the accounting for taxes related to stock based compensation. Under the standard, excess tax benefits and certain tax deficiencies expired in March 2023, are no longer recorded in additional paid-in capital (“APIC”), and APIC pools are eliminated.  Instead, all excess tax benefits and tax deficiencies are recorded as income tax expense or benefit in the income statement.  In addition, excess tax benefits are presented as operating activities rather than financing activities in the statement of cash flows.    For the three and nine months

ended September 30, 2017, we recorded a tax benefit of $0 million and $2 million, respectively, related to the vesting of stock awards. The impacts of this standard are reflected in the consolidated financial statements on a prospective basis.

For interim periods, our income tax expense is computed based upon our estimated annual effective tax rate. Our effective tax rates for the three and nine months ended September 30, 2017 were 40% and 29%, respectively. The effective tax rates for the three and nine months ended September 30, 2016 were 5% and 12%, respectively.  Our 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 effective tax rate for the nine months ended September 30, 2017 was lower than our U.S. federal statutory rate primarily due to the discrete impact of the implementation of ASU 2016-09 and a benefit related to foreign currency exchange losses.  Our 2016 effective tax rates were significantly lower than our U.S. federal statutory rate due to forecasted pre-tax losses across all segments including significant pre-tax losses in jurisdictions where there was no corresponding tax benefit.

NOTE 56 – REDEEMABLE PREFERRED STOCK

Preferred Stock Issuance

In June 2015, we issued 363,000 shares of Series A Convertible Perpetual Preferred Stock (the “Preferred Stock”) and received gross proceeds of $363 million. The Preferred Stock ranks senior to our common stock with respect to dividend rights and rights on liquidation, winding-up and dissolution. The Preferred Stock has a stated value of $1,000 per share, and holders of Preferred Stock are entitled to cumulative dividends payable quarterly in cash at a rate of 6.50% per annum. In June 2018, the holders of Preferred Stock designated one member to our board of directors. If we fail to declare and pay the quarterly dividend for an amount equal to six or more dividend periods, the holders of the Preferred Stock would be entitled to designate an additional member to our board of directors. Holders of Preferred Stock are entitled to vote together with the holders of the common stock as a single class, in each case, on an as-converted basis, except where law requires a separate class vote of the common stockholders is required by law.stockholders. Holders of Preferred Stock have certain limited special approval rights, including with respect to the issuance of pari passu or senior equity securities of the Company.

The Preferred Stock is convertible at the option of the holders into shares of common stock at an initial conversion rate of 55.9284 shares of common stock for each share of Preferred Stock, which represents an initial conversion price of $17.88 per share of common stock, subject to adjustment. On or after the fifth anniversary of the initial issuance of the Preferred Stock, theThe Company will havecurrently has the option to redeem, in whole but not in part, all the outstanding shares of Preferred Stock at par value, subject to certain redemption price adjustments on the basis of the date of the conversion.adjustments. We may elect to convert the Preferred Stock, in whole but not in part, into the relevant number of shares of common stock on or after the 54th month after the initial issuance of the Preferred Stock if the last reported sale price of the common stock has been at least 150% of the conversion price then in effect for a specified period. The conversion rate is subject to customary anti-dilution and other adjustments.

Holders of the Preferred Stock may, at their option, require the Company to repurchase their shares in the event of a fundamental change, as defined in the agreement. The repurchase price is based on the original $1,000$1,000 per share purchase price except in the case of a liquidation, in which case theythe holders would receive the greater of $1,000$1,000 per share and the amount that would be received if they held common stock converted at the conversion rate in effect at the time of the fundamental change. Because this feature could require redemption as a result of the occurrence of an event not solely within the control of the Company, the Preferred Stock is classified as temporary equity on our balance sheet.