mrc20200629_8k.htm
false 0001439095 0001439095 2020-07-28 2020-07-28
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________
 
FORM 8-K
 
_________________________________
 
CURRENT REPORT
 
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
date of Report (Date of earliest event reported): July 28, 2020
___________________________________
 
MRC Global inc.
(Exact name of registrant as specified in its charter)
___________________________________
 
Delaware
(State or other jurisdiction of incorporation)
001-35479
(Commission
File Number)
20-5956993 
(I.R.S. Employer
Identification Number)
 
 
Fulbright Tower1301 McKinney Street, Suite 2300 
Houston, Texas 77010
(Address of Principal Executive Offices)
 
 
Registrant’s telephone number, including area code: (877) 294-7574
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
 Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
Trading symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01
MRC
New York Stock Exchange
 
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
 
Emerging growth company 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
 
 

  
Item 2.02
Results of Operations and Financial Condition
 
On July 28, 2020, MRC Global Inc. (“MRC Global” or the “Company”) issued a press release announcing its financial results for the three and six months ended June 30, 2020. A copy of the press release is furnished as Exhibit 99.1 to this Form 8-K and is incorporated herein by reference.
 
In accordance with General Instruction B.2 of Form 8-K, the information in Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.1, shall not be deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
 
Item 7.01
Regulation FD Disclosure.
 
Earnings Presentation
 
On July 28, 2020, MRC Global Inc. announced its financial results for the three and six months ended June 30, 2020. In conjunction with this release, the Company issued a presentation summarizing the highlights of the financial results (the “Earnings Presentation”). A copy of the Earnings Presentation is furnished as Exhibit 99.2 to this Form 8-K and is incorporated herein by reference.
 
The information contained in the Earnings Presentation is summary information that should be considered in the context of MRC Global’s filings with the Securities and Exchange Commission and other public announcements that MRC Global may make by press release or otherwise from time to time. The Earnings Presentation speaks as of the date of this Current Report on Form 8-K. While MRC Global may elect to update the Earnings Presentation in the future or reflect events and circumstances occurring or existing after the date of this Current Report on Form 8-K, MRC Global specifically disclaims any obligation to do so. The Earnings Presentation will also be posted in the Investor Relations section of MRC Global’s website, http://www.mrcglobal.com.
 
The information referenced under Item 7.01 (including Exhibit 99.2 referenced under Item 9.01 below) of this Current Report on Form 8-K is being “furnished” under “Item 7.01. Regulation FD Disclosure” and, as such, shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section. The information set forth in this Current Report on Form 8-K (including Exhibit 99.2 referenced under Item 9.01 below) shall not be incorporated by reference into any registration statement, report or other document filed by MRC Global pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.
  
Item 9.01
Financial Statements and Exhibits.
 
 
 
   
(d)
 
Exhibits.
     
99.1
 
     
99.2   Earnings presentation of MRC Global Inc. dated July 28, 2020
     
104
 
Cover Page Interactive Data File – The cover page XBRL tags from this Current Report on Form 8-K are imbedded within the Inline XBRL document
 
 

 
INDEX TO EXHIBITS
 
Exhibit No.
  
Description
99.1
 
Press release dated July 28, 2020
99.2
 
Earnings Presentation dated July 28, 2020
104
 
Cover Page Interactive Data File – The cover page XBRL tags from this Current Report on Form 8-K are imbedded within the Inline XBRL document
 
 

 
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 hereunto duly authorized.
 
Date: July 28, 2020
 
     
 
MRC GLOBAL Inc.
     
     
     
 
By:
/s/ Kelly Youngblood 
 
Kelly Youngblood
 
Executive Vice President and Chief Financial Officer
 
 
 
ex_192089.htm

Exhibit 99.1

 

 

MRC Global Announces Second Quarter 2020 Results

Sales of $602 million, a 24% sequential decline

Results include restructuring and impairment charges of $284 million, net of tax

 

Net loss attributable to common shareholders of $(287) million or $(8) million, excluding adjustments

Diluted loss per common share of $(3.50) or $(0.10), excluding adjustments

 

Adjusted Gross Profit percentage of 19.6%

Adjusted EBITDA of $17 million

Cash Flow from Operations of $47 million

 

Net debt of $455 million, a sequential reduction of $38 million

Total available liquidity of $430 million

 

Houston, TX – July 28, 2020 – MRC Global Inc. (NYSE: MRC), the largest global distributor, based on sales, of pipe, valves and fittings and related infrastructure products and services to the energy industry, today announced second quarter 2020 results.

 

The company’s sales were $602 million for the second quarter of 2020, which was 24% lower than the first quarter of 2020 and 39% lower than the second quarter of 2019. The sequential decline was across all segments and sectors except gas utilities, which was up $3 million. As compared to the second quarter of 2019, the decrease was across all sectors and segments as the impact of the COVID-19 pandemic and lower commodity prices significantly reduced customer spending.

 

Net loss attributable to common stockholders for the second quarter of 2020 was $287 million, or $(3.50) per diluted share, as compared the second quarter of 2019 net income of $18 million, or $0.21 per diluted share. The second quarter of 2020 results include pre-tax charges for the impairment of goodwill and intangible assets, severance and restructuring and other items of $301 million and after-tax charges of $284 million or $3.46 per diluted share. Adjusted net loss attributable to common stockholders for the second quarter of 2020 was $(8) million, or $(0.10) per diluted share, compared to net income of $17 million, or $0.20 per diluted share for the second quarter of 2019. Please refer to the reconciliation of adjusted net income (loss) (a non-GAAP measure) to net income (loss) (a GAAP measure) included in this release.

 

Andrew R. Lane, MRC Global’s president and chief executive officer stated, “Due to the incredible demand destruction brought on by the coronavirus pandemic, the second quarter was our most challenging to date, but I am very pleased with the rapid and proactive response of our employees and management team, who remain fully committed to our long-term strategy to enhance shareholder value. We are keenly focused on the levers within our control. As a result, we have reduced operating costs significantly in the second quarter, exceeding our initial estimates and achieving a new quarterly SG&A run rate of $104 million, excluding severance and restructuring charges. Our cost savings programs are expected to achieve over $100 million of adjusted cost savings in 2020 as compared to 2019 and we will continue to adjust the cost structure as conditions dictate. We generated $84 million of cash from operations in the first half of the year, and we continue to target $200 million for the full year. Debt reduction remains a top priority. We have reduced net debt by $64 million in the first half of the year and reduced our ABL balance to $89 million.”

 

 

 

 

“We continue to invest in e-commerce opportunities and have recently set a new milestone to transition thousands of smaller transactional customers to our e-commerce platform, which can reduce our cost to serve with targeted $5 million to $10 million in annual savings by 2022. We are the global leader in supplying PVF to the energy industry. We remain focused on delivering shareholder value by serving our customers, generating cash, strengthening our balance sheet, managing operating costs and optimizing our working capital.” Mr. Lane added.

 

MRC Global’s second quarter 2020 gross profit was $79 million, or 13.1% of sales as compared to the second quarter of 2019 gross profit of $174 million, or 17.7% of sales. Gross profit for the second quarter of 2020 and 2019 reflects income of $6 million and $1 million, respectively, in cost of sales relating to the use of the last-in, first out (LIFO) method of inventory cost accounting. Gross profit for the second quarter of 2020 also includes $34 million of pre-tax inventory-related charges. Adjusted gross profit, which excludes both the impact of LIFO and inventory-related charges for the second quarter of 2020 was $118 million or 19.6% of revenue, a 30-basis point improvement over the second quarter of 2019.

 

Selling, general and administrative (SG&A) expenses were $126 million, or 20.9% of sales, for the second quarter of 2020 compared to $133 million, or 13.5% of sales, for the same period of 2019. SG&A includes severance and restructuring charges and facilities closure charges of $22 million in the second quarter of 2020.

 

Other, net includes $3 million of non-cash charges for the write-down of assets related to facility closures.

 

The income tax benefit was $17 million for the three months ended June 30, 2020 as compared to $8 million of expense for the three months ended June 30, 2019. The effective tax rates were 6% and 25% for the three months ended June 30, 2020 and 2019, respectively. The company’s rates generally differ from the U.S. federal statutory rate of 21% as a result of state income taxes and differing foreign income tax rates. The effective tax rate for three months ended June 30, 2020 was lower primarily due to a non-tax-deductible goodwill impairment charge during the quarter.

 

Please refer to the reconciliation of non-GAAP measures (adjusted gross profit, adjusted EBITDA) to GAAP measures (gross profit, net income) in this release.

 

Sales by Segment

 

U.S. sales in the second quarter of 2020 were $474 million, down $332 million, or 41%, from the same quarter in 2019. Upstream production sales decreased by $122 million, or 65% primarily due to reduced spending from the company’s customers and a 62% reduction in well completions. Downstream and industrial sales declined $87 million, or 41%, as many customers delayed maintenance spending and idled facilities due to lower demand as well as non-recurring projects. Midstream pipeline sales declined $79 million, or 49% due to reduced customer spending and the timing of customer projects. Gas utilities’ sales were down $44 million, or 18%, primarily due to the impact from the pandemic restrictions as customers paused spending.

 

2

 

Canadian sales in the second quarter of 2020 were $28 million, down $30 million, or 52%, from the same quarter in 2019 driven primarily by the upstream production sector, which was adversely affected by the pandemic and associated reduced demand as well as the midstream pipeline sector, which was lower due to non-recurring projects.

 

International sales in the second quarter of 2020 were $100 million, down $20 million, or 17%, from the same period in 2019 driven primarily by reduced spending in the downstream and industrials sector followed by the upstream sector due to the completion of a multi-year project in 2019. Weaker foreign currencies relative to the U.S. dollar unfavorably impacted sales by $6 million or 5%.

 

All sales were adversely impacted by the COVID-19 pandemic and the related mitigation measures, which negatively affected demand for energy products.

 

Sales by Sector

 

Upstream production sales in the second quarter of 2020 were $134 million, or 22% of total sales, a decline of $150 million or 53% from the second quarter of 2019. The decrease in upstream production sales was across all segments led by the U.S. segment.

 

Midstream pipeline sales in the second quarter of 2020 were $87 million, or 15% of total sales, a reduction of $87 million or 50% from the first quarter of 2019 driven by the U.S. segment.

 

Gas utilities sales in the second quarter of 2020 were $205 million, or 34% of total sales, lower by 17% from the second quarter of 2019.

 

Downstream and industrial sales in the second quarter of 2020 were $176 million, or 29%, of total sales, a decrease of $103 million, or 37%, from the second quarter of 2019 driven by the U.S. segment.

 

Balance Sheet

 

Cash balances were $19 million and debt, net of cash, was $455 million at June 30, 2020. Cash provided by operations was $47 million in the second quarter of 2020 and $84 million for the six months ended June 30, 2020. Excess availability under the company’s asset-based lending facility was $411 million and available liquidity was $430 million.

 

COVID-19 Pandemic Impact

 

The COVID-19 pandemic and related mitigation measures have created significant volatility and uncertainty in the oil and gas industry. Oil demand has significantly deteriorated as a result. The unparalleled demand destruction has resulted in lower spending by customers and reduced demand for the company’s products and services. There is significant uncertainty as to the duration of this disruption.

 

As a critical supplier to the global energy infrastructure and an essential business, the company has remained operational with no closures to any facilities. The company currently has 27 COVID-19 illnesses reported. MRC Global has implemented various safety measures for employees working in the company’s facilities and implemented remote working for those whose jobs permit it. MRC Global is committed to a safe working environment for all employees and is constantly monitoring its response in the locations where the company operates.

 

From a supply chain perspective, the effects have moved around the globe as the virus has spread. Given the company’s inventory position and the reduced demand, the company has fulfilled orders with little disruption. However, if shutdowns are re-established in our suppliers’ locations, order fulfillment risk could increase.

 

3

 

Conference Call

 

The company will hold a conference call to discuss its second quarter 2020 results at 10:00 a.m. Eastern Time (9:00 a.m. Central Time) on July 29, 2020. To participate in the call, please dial 412-902-0003 and ask for the MRC Global conference call at least 10 minutes prior to the start time. To access the conference call, live over the Internet, please log onto the web at www.mrcglobal.com and go to the “Investor Relations” page of the company’s website at least fifteen minutes early to register, download and install any necessary audio software. For those who cannot listen to the live call, a replay will be available through August 12, 2020 and can be accessed by dialing 201-612-7415 and using pass code 13704697#. Also, an archive of the webcast will be available shortly after the call at www.mrcglobal.com for 90 days.

 

About MRC Global Inc.

 

MRC Global is the largest distributor of pipe, valves and fittings (PVF) and other infrastructure products and services to the energy industry, based on sales. Through approximately 240 service locations worldwide, approximately 2,850 employees and with nearly 100 years of history, MRC Global provides innovative supply chain solutions and technical product expertise to customers globally across diversified end-markets including the upstream production, midstream pipeline, gas utility and downstream and industrial. MRC Global manages a complex network of over 200,000 SKUs and 10,000 suppliers simplifying the supply chain for its over 13,000 customers. With a focus on technical products, value-added services, a global network of valve and engineering centers and an unmatched quality assurance program, MRC Global is the trusted PVF expert. Find out more at www.mrcglobal.com.

 

This news release contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Words such as “will,” “expect,” “expected,” “intend,” “believes,” “well positioned,” “strong position,” “looking forward,” “guidance,” “plans,” “can,” "target," "targeted" and similar expressions are intended to identify forward-looking statements.

 

Statements about the company’s business, including its strategy, its industry, the company’s future profitability, the company’s guidance on its sales, adjusted EBITDA, tax rate, capital expenditures, achieving cost savings and cash flow, debt reduction, liquidity, growth in the company’s various markets and the company’s expectations, beliefs, plans, strategies, objectives, prospects and assumptions 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 MRC Global’s control, including the factors described in the company’s SEC filings that may cause the company’s actual results and performance to be materially different from any future results or performance expressed or implied by these forward-looking statements.

 

4

 

These risks and uncertainties include (among others) decreases in oil and natural gas prices; decreases in oil and natural gas industry expenditure levels, which may result from decreased oil and natural gas prices or other factors; U.S. and international general economic conditions; the company's ability to compete successfully with other companies in MRC Global's industry; the risk that manufacturers of the products the company distributes will sell a substantial amount of goods directly to end users in the industry sectors the company serves;  unexpected supply shortages;  cost increases by the company's suppliers; the company's lack of long-term contracts with most of its suppliers; suppliers' price reductions of products that the company sells, which could cause the value of the company's inventory to decline;  decreases in steel prices, which could significantly lower MRC Global's profit;  increases in steel prices, which the company may be unable to pass along to its customers which could significantly lower its profit; the company's lack of long-term contracts with many of its customers and the company's lack of contracts with customers that require minimum purchase volumes;  changes in the company's customer and product mix;  risks related to the company's customers' creditworthiness; the success of the company's acquisition strategies;  the potential adverse effects associated with integrating acquisitions into the company's business and whether these acquisitions will yield their intended benefits; the company's significant indebtedness;  the dependence on the company's subsidiaries for cash to meet its obligations;  changes in the company's credit profile;  a decline in demand for certain of the products the company distributes if import restrictions on these products are lifted or imposed; significant substitution of alternative fuels for oil and gas; environmental, health and safety laws and regulations and the interpretation or implementation thereof; the sufficiency of the company's insurance policies to cover losses, including liabilities arising from litigation;  product liability claims against the company;  pending or future asbestos-related claims against the company; the potential loss of key personnel; adverse health events such as a pandemic; interruption in the proper functioning of the company's information systems and the occurrence of cyber security incidents; loss of third-party transportation providers;  potential inability to obtain necessary capital;  risks related to adverse weather events or natural disasters;  impairment of the company’s goodwill or other intangible assets;  adverse changes in political or economic conditions in the countries in which the company operates; exposure to U.S. and international laws and regulations, including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act and other economic sanction programs; risks associated with international stability and geopolitical developments; risks relating to ongoing evaluations of internal controls required by Section 404 of the Sarbanes-Oxley Act; risks related to the company's intention not to pay dividends; and risks arising from compliance with and changes in law in the countries in which we operate, including (among others) changes in tax law, tax rates and interpretation in tax laws.

 

For a discussion of key risk factors, please see the risk factors disclosed in the company’s SEC filings, which are available on the SEC’s website at www.sec.gov and on the company’s website, www.mrcglobal.com. MRC Global’s filings and other important information are also available on the Investor Relations page of the company’s website at www.mrcglobal.com.

 

Undue reliance should not be placed on the company’s forward-looking statements. Although forward-looking statements reflect the company’s 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 the company’s actual results, performance or achievements or future events to differ materially from anticipated future results, performance or achievements or future events expressed or implied by such forward-looking statements. The company undertakes 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 required by law.

 

Contact:

 

Monica Broughton

Investor Relations

MRC Global Inc.

Monica.Broughton@mrcglobal.com

832-308-2847

 

5

 

MRC Global Inc.

Condensed Consolidated Balance Sheets (Unaudited)

(in millions, except shares)

 

   

June 30,

   

December 31,

 
   

2020

   

2019

 
                 

Assets

               

Current assets:

               

Cash

  $ 19     $ 32  

Accounts receivable, net

    379       459  

Inventories, net

    627       701  

Other current assets

    36       26  

Total current assets

    1,061       1,218  
                 

Long-term assets:

               

Operating lease assets

    163       186  

Property, plant and equipment, net

    131       138  

Other assets

    17       19  
                 

Intangible assets:

               

Goodwill, net

    264       483  

Other intangible assets, net

    241       281  
    $ 1,877     $ 2,325  
                 

Liabilities and stockholders' equity

               

Current liabilities:

               

Trade accounts payable

  $ 301     $ 357  

Accrued expenses and other current liabilities

    89       91  

Operating lease liabilities

    33       34  

Current portion of long-term debt

    4       4  

Total current liabilities

    427       486  
                 

Long-term liabilities:

               

Long-term debt, net

    470       547  

Operating lease liabilities

    157       167  

Deferred income taxes

    81       91  

Other liabilities

    46       37  
                 

Commitments and contingencies

               
                 

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

    355       355  
                 

Stockholders' equity:

               

Common stock, $0.01 par value per share: 500 million shares authorized, 106,283,903 and 105,624,750 issued, respectively

    1       1  

Additional paid-in capital

    1,733       1,731  

Retained deficit

    (767 )     (483 )

Less: Treasury stock at cost: 24,216,330 shares

    (375 )     (375 )

Accumulated other comprehensive loss

    (251 )     (232 )
      341       642  
    $ 1,877     $ 2,325  

 

6

 

MRC Global Inc.

Condensed Consolidated Statements of Operations (Unaudited)

(in millions, except per share amounts)

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

   

June 30,

   

June 30,

 
   

2020

   

2019

   

2020

   

2019

 
                                 

Sales

  $ 602     $ 984     $ 1,396     $ 1,954  

Cost of sales

    523       810       1,169       1,606  

Gross profit

    79       174       227       348  

Selling, general and administrative expenses

    126       133       252       272  
Goodwill and intangibles impairment     242       -       242       -  

Operating (loss) income

    (289 )     41       (267 )     76  

Other (expense) income:

                               

Interest expense

    (7 )     (10 )     (15 )     (21 )

Other, net

    (2 )     1       (2 )     1  
                                 

(Loss) income before income taxes

    (298 )     32       (284 )     56  

Income tax (benefit) expense

    (17 )     8       (12 )     14  

Net (loss) income

    (281 )     24       (272 )     42  

Series A preferred stock dividends

    6       6       12       12  

Net (loss) income attributable to common stockholders

  $ (287 )   $ 18     $ (284 )   $ 30  
                                 
                                 

Basic (loss) income per common share

  $ (3.50 )   $ 0.22     $ (3.47 )   $ 0.36  

Diluted (loss) income per common share

  $ (3.50 )   $ 0.21     $ (3.47 )   $ 0.35  

Weighted-average common shares, basic

    82.0       83.2       81.9       83.8  

Weighted-average common shares, diluted

    82.0       83.9       81.9       84.7  

 

7

 

MRC Global Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in millions)

 

   

Six Months Ended

 
   

June 30,

   

June 30,

 
   

2020

   

2019

 
                 

Operating activities

               

Net (loss) income

  $ (272 )   $ 42  

Adjustments to reconcile net (loss) income to net cash provided by operations:

               

Depreciation and amortization

    10       11  

Amortization of intangibles

    13       22  

Equity-based compensation expense

    5       7  

Deferred income tax benefit

    (8 )     (2 )

Decrease in LIFO reserve

    (9 )     (1 )
Goodwill and intangible asset impairment     242       -  
Lease impairment and abandonment     15       -  
Inventory-related charges     34       -  

Provision for uncollectible accounts

    5       2  

Other

    1       2  

Changes in operating assets and liabilities:

               

Accounts receivable

    69       (47 )

Inventories

    41       -  

Other current assets

    (10 )     1  

Accounts payable

    (51 )     2  

Accrued expenses and other current liabilities

    (1 )     (31 )

Net cash provided by operations

    84       8  
                 

Investing activities

               

Purchases of property, plant and equipment

    (5 )     (6 )
Other investing activities     -       2  

Net cash used in investing activities

    (5 )     (4 )
                 

Financing activities

               

Payments on revolving credit facilities

    (460 )     (513 )

Proceeds from revolving credit facilities

    389       569  

Payments on long-term obligations

    (4 )     (2 )

Purchase of common stock

    -       (50 )

Dividends paid on preferred stock

    (12 )     (12 )

Repurchases of shares to satisfy tax withholdings

    (3 )     (6 )

Other

    -       1  

Net cash used in financing activities

    (90 )     (13 )
                 

Decrease in cash

    (11 )     (9 )

Effect of foreign exchange rate on cash

    (2 )     1  

Cash -- beginning of period

    32       43  

Cash -- end of period

  $ 19     $ 35  

 

8

 

MRC Global Inc.

 

Supplemental Information (Unaudited)

 

Reconciliation of Net Income to Adjusted EBITDA (a non-GAAP measure)

(in millions)

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

   

June 30,

   

June 30,

 
   

2020

   

2019

   

2020

   

2019

 
                                 

Net (loss) income

  $ (281 )   $ 24     $ (272 )   $ 42  

Income tax (benefit) expense

    (17 )     8       (12 )     14  

Interest expense

    7       10       15       21  

Depreciation and amortization

    5       6       10       11  

Amortization of intangibles

    6       11       13       22  
Goodwill and intangible asset impairment (1)     242       -       242       -  
Inventory-related charges (2)     34       -       34       -  
Facility closures (3)     18       -       18       -  
Severance and restructuring (4)     7       -       7       -  

Decrease in LIFO reserve

    (6 )     (1 )     (9 )     (1 )

Equity-based compensation expense (5)

    3       3       5       7  

Gain on early extinguishment of debt (6)

    -       -       (1 )     -  

Foreign currency (gains) losses

    (1 )     (1 )     1       -  

Adjusted EBITDA

  $ 17     $ 60     $ 51     $ 116  

 

Notes to above:

(1) Non-cash charges (pre-tax) for the impairment of $217 million for goodwill and $25 million for the U.S. intangible, indefinite-lived tradename asset. The goodwill impairment consisted of $177 million for the U.S. segment and $40 million for the International segment, resulting in a $0 balance for the International segment.

(2)

Non-cash charges (pre-tax) for inventory recorded in cost of goods sold. Charges of $19 million in the U.S. and $1 million in Canada relate to excess and obsolete inventory as a result of the current market outlook for certain products. International segment charges of $14 million relate to increased reserves for excess and obsolete inventory as well as the exit of the Thailand business.

(3)

Charges (pre-tax) of $15 million for lease impairments and abandonments related to facility closures, substantially non-cash, recorded in SG&A. $12 million is recorded in the International segment, $2 million in the U.S. segment and $1 million in Canada segment. Also included are $3 million of non-cash (pre-tax) charges for the write-down of assets for facilities in Canada ($2 million) and International, recorded in Other expense.

(4)

Charges (pre-tax) related to employee severance and restructuring charges associated with the company’s cost reduction initiatives recorded in SG&A, of which $6 million is in the U.S. segment and $1 million is in the International segment.
(5) Recorded in SG&A.
(6) Charges (pre-tax) related the purchase of the Term Loan recorded in Other, net.

 

The company defines 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 intangible assets and inventory) and plus or minus the impact of its LIFO inventory costing methodology.  The company presents Adjusted EBITDA because the company believes Adjusted EBITDA is a useful indicator of the company’s operating performance. Among other things, Adjusted EBITDA measures the company’s operating performance without regard to certain non-recurring, non-cash or transaction-related expenses. Adjusted EBITDA, however, does not represent and should not be considered as an alternative to net income, cash flow from operations or any other measure of financial performance calculated and presented in accordance with GAAP. Because Adjusted EBITDA does not account for certain expenses, its utility as a measure of the company’s operating performance has material limitations. Because of these limitations, the company does not view Adjusted EBITDA in isolation or as a primary performance measure and also uses other measures, such as net income and sales, to measure operating performance.  See the company's Annual Report filed on Form 10-K for a more thorough discussion of the use of Adjusted EBITDA.

 

9

 

MRC Global Inc.

Supplemental Information (Unaudited)

Reconciliation of Gross Profit to Adjusted Gross Profit (a non-GAAP measure)

(in millions)

 

   

Three Months Ended

 
   

June 30,

   

Percentage

   

June 30,

   

Percentage

 
   

2020

   

of Revenue*

   

2019

   

of Revenue

 
                                 

Gross profit, as reported

  $ 79       13.1 %   $ 174       17.7 %

Depreciation and amortization

    5       0.8 %     6       0.6 %

Amortization of intangibles

    6       1.0 %     11       1.1 %

Decrease in LIFO reserve

    (6 )     (1.0 )%     (1 )     (0.1 )%
Inventory-related charges (1)     34       5.6 %     -       0.0 %

Adjusted Gross Profit

  $ 118       19.6 %   $ 190       19.3 %

 

   

Six Months Ended

 
   

June 30,

   

Percentage

   

June 30,

   

Percentage

 
   

2020

   

of Revenue

   

2019

   

of Revenue

 
                                 

Gross profit, as reported

  $ 227       16.3 %   $ 348       17.8 %

Depreciation and amortization

    10       0.7 %     11       0.6 %

Amortization of intangibles

    13       0.9 %     22       1.1 %

Decrease in LIFO reserve

    (9 )     (0.6 )%     (1 )     (0.1 )%
Inventory-related charges (1)     34       2.4 %     -       0.0 %

Adjusted Gross Profit

  $ 275       19.7 %   $ 380       19.4 %

 

Notes to above:

 

* Does not foot due to rounding
(1) Non-cash charges (pre-tax) for inventory recorded in cost of goods sold. Charges of $19 million in the U.S. and $1 million in Canada relate to excess and obsolete inventory as a result of the current market outlook for certain products. International segment charges of $14 million relate to increased reserves for excess and obsolete inventory as well as the exit of the Thailand business.

 

The company defines Adjusted Gross Profit as sales, less cost of sales, plus depreciation and amortization, plus amortization of intangibles, plus inventory-related charges and plus or minus the impact of its LIFO inventory costing methodology. The company presents Adjusted Gross Profit because the company believes it is a useful indicator of the company’s 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 of which they have been involved. 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. The company uses Adjusted Gross Profit as a key performance indicator in managing its business. The company believes 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.

 

10

 

MRC Global Inc.

Supplemental Sales Information (Unaudited)

(in millions)

 

Disaggregated Sales by Segment


  

Three Months Ended

June 30,

   

U.S.

   

Canada

   

International

   

Total

 

2020

                               

Upstream production

  $ 66     $ 18     $ 50     $ 134  

Midstream pipeline

    82       3       2       87  

Gas utilities

    200       5       -       205  

Downstream & industrial

    126       2       48       176  
    $ 474     $ 28     $ 100     $ 602  

2019

                               

Upstream production

  $ 188     $ 41     $ 55     $ 284  

Midstream pipeline

    161       9       4       174  

Gas utilities

    244       3       -       247  

Downstream & industrial

    213       5       61       279  
    $ 806     $ 58     $ 120     $ 984  

 

Six Months Ended

June 30,

   

U.S.

   

Canada

   

International

   

Total

 

2020

                               

Upstream production

  $ 205     $ 55     $ 96     $ 356  

Midstream pipeline

    192       7       7       206  

Gas utilities

    399       8       -       407  

Downstream & industrial

    316       8       103       427  
    $ 1,112     $ 78     $ 206     $ 1,396  

2019

                               

Upstream production

  $ 394     $ 87     $ 115     $ 596  

Midstream pipeline

    294       15       12       321  

Gas utilities

    448       13       -       461  

Downstream & industrial

    449       11       116       576  
    $ 1,585     $ 126     $ 243     $ 1,954  

 

 

 

11

 

MRC Global Inc.

Supplemental Sales Information (Unaudited)

(in millions)

 

Sales by Product Line


   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

   

June 30,

   

June 30,

 

Type

 

2020

   

2019

   

2020

   

2019

 

Line pipe

  $ 80     $ 161     $ 180     $ 315  

Carbon fittings and flanges

    73       158       188       311  

Total carbon pipe, fittings and flanges

    153       319       368       626  

Valves, automation, measurement and instrumentation

    249       380       572       763  

Gas products

    114       145       248       278  

Stainless steel and alloy pipe and fittings

    30       42       67       92  

General products

    56       98       141       195  
    $ 602     $ 984     $ 1,396     $ 1,954  

 

12

 

MRC Global Inc.

Supplemental Information (Unaudited)

Reconciliation of Net Income Attributable to Common Stockholders to

Adjusted Net Income Attributable to Common Stockholders (a non-GAAP measure)

(in millions, except per share amounts)

 

   

June 30, 2020

 
   

Three Months Ended

   

Six Months Ended

 
   

Amount

   

Per Share

   

Amount

   

Per Share

 
                                 

Net loss attributable to common stockholders

  $ (287 )   $ (3.50 )   $ (284 )   $ (3.47 )
Goodwill and intangible asset impairment, net of tax (1)     234       2.85       234       2.86  
Inventory-related charges, net of tax (2)     29       0.35       29       0.35  
Facility closures, net of tax (3)     16       0.20       16       0.20  
Severance and restructuring, net of tax (4)     5       0.06       5       0.06  

Decrease in LIFO reserve, net of tax

    (5 )     (0.06 )     (7 )     (0.09 )

Adjusted net loss attributable to common stockholders

  $ (8 )   $ (0.10 )   $ (7 )   $ (0.09 )

 

   

June 30, 2019

 
   

Three Months Ended

   

Six Months Ended

 
   

Amount

   

Per Share

   

Amount

   

Per Share

 
                                 

Net income attributable to common stockholders

  $ 18     $ 0.21     $ 30     $ 0.35  

Decrease in LIFO reserve, net of tax

    (1 )     (0.01 )     (1 )     (0.01 )

Adjusted net income attributable to common stockholders

  $ 17     $ 0.20     $ 29     $ 0.34  

 

Notes to above:

(1) Non-cash charges (after-tax) for the impairment of $215 million for goodwill and $19 million for the U.S. intangible, indefinite-lived tradename asset. The after-tax goodwill impairment consisted of $175 million for the U.S. segment and $40 million for the International segment, resulting in a $0 balance for the International segment.
(2) Charges (after-tax) for inventory recorded in cost of goods sold. Charges (after-tax) of $15 million in the U.S. relate to excess and obsolete inventory as a result of the current market outlook for certain products. International segment charges (after-tax) of $14 million relate to increased reserves for excess and obsolete inventory as well as the exit of the Thailand business.
(3) Charges (after-tax) of $14 million for lease impairments and abandonments related to facility closures, substantially non-cash, recorded in SG&A. $11 million is recorded in the International segment, $2 million in the U.S. segment and $1 million in Canada segment, each after-tax. Also includes $2 million of non-cash (after-tax) charges for the write-down of assets for facilities in Canada ($2 million) and International, recorded in Other expense. 
(4) Charges (after-tax) related to employee severance and restructuring charges associated with the company’s cost reduction initiatives recorded in SG&A, of which $4 million is in the U.S. segment and $1 million is in the International segment.

 

The company defines Adjusted Net Income Attributable to Common Stockholders (a non-GAAP measure) as Net Income Attributable to Common Stockholders less after-tax goodwill and intangible impairment, inventory-related charges, facility closures, severance and restructuring, plus or minus the after-tax impact of its LIFO inventory costing methodology. The company presents Adjusted Net Income Attributable to Common Stockholders and related per share amounts because the company believes it provides useful comparisons of the company’s operating results to other companies, including those companies with whom we compete in the distribution of pipe, valves and fittings to the energy industry, without regard to the irregular variations from certain restructuring events not indicative of the on-going business. Those items include goodwill and intangible asset impairments, inventory-related charges, facility closures, severance and restructuring as well as the LIFO inventory costing methodology. The impact of the LIFO inventory costing methodology 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. The company believes that Net Income Attributable to Common Stockholders is the financial measure calculated and presented in accordance with U.S. generally accepted accounting principles that is most directly compared to Adjusted Net Income Attributable to Common Stockholders.   

 

 

 

# # #

 

13
Image Exhibit

Exhibit 99.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
v3.20.2
Document And Entity Information
Jul. 28, 2020
Document Information [Line Items]  
Entity, Registrant Name MRC Global inc.
Document, Type 8-K
Document, Period End Date Jul. 28, 2020
Entity, Incorporation, State or Country Code DE
Entity, File Number 001-35479
Entity, Tax Identification Number 20-5956993
Entity, Address, Address Line One Fulbright Tower
Entity, Address, Address Line Two 1301 McKinney Street, Suite 2300
Entity, Address, City or Town Houston
Entity, Address, State or Province TX
Entity, Address, Postal Zip Code 77010
City Area Code 877
Local Phone Number 294-7574
Written Communications false
Soliciting Material false
Pre-commencement Tender Offer false
Pre-commencement Issuer Tender Offer false
Title of 12(b) Security Common Stock
Trading Symbol MRC
Security Exchange Name NYSE
Entity, Emerging Growth Company false
Amendment Flag false
Entity, Central Index Key 0001439095