UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________
FORM
(Mark One)
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| FOR THE QUARTERLY PERIOD ENDED | ||
| OR | ||
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______ |
Commission file number:
MRC GLOBAL INC.
(Exact name of registrant as specified in its charter)
| | |
| (State or Other Jurisdiction of | (I.R.S. Employer Identification No.) |
| | |
| (Address of Principal Executive Offices) | (Zip Code) |
(
(Registrant’s Telephone Number, including Area Code)
________________
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered |
| | | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
There were
INDEX TO QUARTERLY REPORT ON FORM 10-Q
| Page |
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| PART I – FINANCIAL INFORMATION |
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| ITEM 1. |
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| Condensed Consolidated Balance Sheets – SEPTEMBER 30, 2021 AND DECEMBER 31, 2020 |
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| Condensed Consolidated Statements of cOMPREHENSIVE INCOME (LOSS) – three AND NINE months ended SEPTEMBER 30, 2021 AND SEPTEMBER 30, 2020 |
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| Condensed CONSOLIDATED STATEMENTS OF STOCKHOLDERs’ EQUITY – three AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND SEPTEMBER 30, 2020 |
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| Condensed CONSOLIDATED STATEMENTS OF cash flows – NINE MONTHS ENDED SEPTEMBER 30, 2021 AND SEPTEMBER 30, 2020 |
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| Notes to the Condensed Consolidated Financial Statements – SEPTEMBER 30, 2021 |
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| ITEM 2. |
management’s discussion and analysis of financial condition and results of operations |
15 |
| ITEM 3. |
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| ITEM 4. |
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| PART II – OTHER INFORMATION |
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| ITEM 1. |
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| ITEM 1a. |
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| ITEM 2. |
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| ITEM 3. |
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| ITEM 4. |
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| ITEM 5. |
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| ITEM 6. |
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CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MRC GLOBAL INC.
(in millions, except per share amounts)
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories, net | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Long-term assets: | ||||||||
| Operating lease assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Other assets | ||||||||
| Intangible assets: | ||||||||
| Goodwill, net | ||||||||
| Other intangible assets, net | ||||||||
| $ | $ | |||||||
| Liabilities and stockholders' equity | ||||||||
| Current liabilities: | ||||||||
| Trade accounts payable | $ | $ | ||||||
| Accrued expenses and other current liabilities | ||||||||
| Operating lease liabilities | ||||||||
| Current portion of long-term debt | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities: | ||||||||
| Long-term debt, net | ||||||||
| Operating lease liabilities | ||||||||
| Deferred income taxes | ||||||||
| Other liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Series A Convertible Perpetual Preferred Stock, par value; authorized shares; shares issued and outstanding | ||||||||
| Stockholders' equity: | ||||||||
| Common stock, par value per share: million shares authorized, and issued, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Retained deficit | ( | ) | ( | ) | ||||
| Less: Treasury stock at cost: shares | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| $ | $ | |||||||
| See notes to condensed consolidated financial statements. |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
MRC GLOBAL INC.
(in millions, except per share amounts)
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
September 30, |
September 30, |
|||||||||||||
| 2021 |
2020 |
2021 |
2020 |
|||||||||||||
| Sales |
$ | $ | $ | $ | ||||||||||||
| Cost of sales |
||||||||||||||||
| Gross profit |
||||||||||||||||
| Selling, general and administrative expenses |
||||||||||||||||
| Goodwill and intangible asset impairment |
||||||||||||||||
| Operating (loss) income |
( |
) | ( |
) | ||||||||||||
| Other (expense) income: |
||||||||||||||||
| Interest expense |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other, net |
( |
) | ||||||||||||||
| (Loss) income before income taxes |
( |
) | ( |
) | ( |
) | ||||||||||
| Income tax (benefit) expense |
( |
) | ( |
) | ( |
) | ||||||||||
| Net (loss) income |
( |
) | ( |
) | ( |
) | ||||||||||
| Series A preferred stock dividends |
||||||||||||||||
| Net loss attributable to common stockholders |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Basic loss per common share |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Diluted loss per common share |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Weighted-average common shares, basic |
||||||||||||||||
| Weighted-average common shares, diluted |
||||||||||||||||
See notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
MRC GLOBAL INC.
(in millions)
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
September 30, |
September 30, |
|||||||||||||
| 2021 |
2020 |
2021 |
2020 |
|||||||||||||
| Net (loss) income |
$ | ( |
) | $ | $ | ( |
) | $ | ( |
) | ||||||
| Other comprehensive (loss) income |
||||||||||||||||
| Foreign currency translation adjustments |
( |
) | ( |
) | ( |
) | ||||||||||
| Hedge accounting adjustments, net of tax |
( |
) | ||||||||||||||
| Total other comprehensive (loss) income, net of tax |
( |
) | ( |
) | ||||||||||||
| Comprehensive (loss) income |
$ | ( |
) | $ | $ | ( |
) | $ | ( |
) | ||||||
See notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
MRC GLOBAL INC.
(in millions)
| Nine Months Ended September 30, 2021 |
||||||||||||||||||||||||||||||||
| Accumulated |
||||||||||||||||||||||||||||||||
| Additional |
Other |
Total |
||||||||||||||||||||||||||||||
| Common Stock |
Paid-in |
Retained |
Treasury Stock |
Comprehensive |
Stockholders' |
|||||||||||||||||||||||||||
| Shares |
Amount |
Capital |
(Deficit) |
Shares |
Amount |
(Loss) |
Equity |
|||||||||||||||||||||||||
| Balance at December 31, 2020 |
$ | $ | $ | ( |
) | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
| Net loss |
- | ( |
) | - | ( |
) | ||||||||||||||||||||||||||
| Foreign currency translation |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Hedge accounting adjustments |
- | - | ||||||||||||||||||||||||||||||
| Shares withheld for taxes |
- | ( |
) | - | ( |
) | ||||||||||||||||||||||||||
| Vesting of stock awards |
- | - | - | - | - | - | ||||||||||||||||||||||||||
| Equity-based compensation expense |
- | - | ||||||||||||||||||||||||||||||
| Dividends declared on preferred stock |
- | ( |
) | - | ( |
) | ||||||||||||||||||||||||||
| Balance at March 31, 2021 |
$ | $ | $ | ( |
) | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
| Net income |
- | - | ||||||||||||||||||||||||||||||
| Foreign currency translation |
- | - | ||||||||||||||||||||||||||||||
| Hedge accounting adjustments |
- | - | ||||||||||||||||||||||||||||||
| Equity-based compensation expense |
- | - | ||||||||||||||||||||||||||||||
| Dividends declared on preferred stock |
- | ( |
) | - | ( |
) | ||||||||||||||||||||||||||
| Balance at June 30, 2021 |
$ | $ | $ | ( |
) | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
| Net loss |
- | ( |
) | - | ( |
) | ||||||||||||||||||||||||||
| Foreign currency translation |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Hedge accounting adjustments |
- | - | ||||||||||||||||||||||||||||||
| Equity-based compensation expense |
- | - | ||||||||||||||||||||||||||||||
| Dividends declared on preferred stock |
- | ( |
) | - | ( |
) | ||||||||||||||||||||||||||
| Balance at September 30, 2021 |
$ | $ | $ | ( |
) | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
| Nine Months Ended September 30, 2020 |
||||||||||||||||||||||||||||||||
| Accumulated |
||||||||||||||||||||||||||||||||
| Additional |
Other |
Total |
||||||||||||||||||||||||||||||
| Common Stock |
Paid-in |
Retained |
Treasury Stock |
Comprehensive |
Stockholders' |
|||||||||||||||||||||||||||
| Shares |
Amount |
Capital |
(Deficit) |
Shares |
Amount |
(Loss) |
Equity |
|||||||||||||||||||||||||
| Balance at December 31, 2019 |
$ | $ | $ | ( |
) | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
| Net income |
- | - | ||||||||||||||||||||||||||||||
| Foreign currency translation |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Hedge accounting adjustments |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Shares withheld for taxes |
- | ( |
) | - | ( |
) | ||||||||||||||||||||||||||
| Equity-based compensation expense |
- | - | ||||||||||||||||||||||||||||||
| Dividends declared on preferred stock |
- | ( |
) | - | ( |
) | ||||||||||||||||||||||||||
| Balance at March 31, 2020 |
$ | $ | $ | ( |
) | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
| Net loss |
- | ( |
) | - | ( |
) | ||||||||||||||||||||||||||
| Foreign currency translation |
- | - | ||||||||||||||||||||||||||||||
| Equity-based compensation expense |
- | - | ||||||||||||||||||||||||||||||
| Dividends declared on preferred stock |
- | ( |
) | - | ( |
) | ||||||||||||||||||||||||||
| Balance at June 30, 2020 |
$ | $ | $ | ( |
) | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
| Net income |
- | - | ||||||||||||||||||||||||||||||
| Foreign currency translation |
- | - | ||||||||||||||||||||||||||||||
| Hedge accounting adjustments |
- | - | ||||||||||||||||||||||||||||||
| Equity-based compensation expense |
- | - | ||||||||||||||||||||||||||||||
| Dividends declared on preferred stock |
- | ( |
) | - | ( |
) | ||||||||||||||||||||||||||
| Balance at September 30, 2020 |
$ | $ | $ | ( |
) | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
See notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
MRC GLOBAL INC.
(in millions)
| Nine Months Ended |
||||||||
| September 30, |
September 30, |
|||||||
| 2021 |
2020 |
|||||||
| Operating activities |
||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash provided by operations: |
||||||||
| Depreciation and amortization |
||||||||
| Amortization of intangibles |
||||||||
| Equity-based compensation expense |
||||||||
| Deferred income tax benefit |
( |
) | ( |
) | ||||
| Amortization of debt issuance costs |
||||||||
| Increase (decrease) in LIFO reserve |
( |
) | ||||||
| Goodwill and intangible asset impairment |
||||||||
| Lease impairment and abandonment |
||||||||
| Inventory-related charges |
||||||||
| Provision for credit losses |
||||||||
| Other |
||||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
( |
) | ||||||
| Inventories |
( |
) | ||||||
| Other current assets |
( |
) | ( |
) | ||||
| Accounts payable |
( |
) | ||||||
| Accrued expenses and other current liabilities |
( |
) | ( |
) | ||||
| Net cash provided by operations |
||||||||
| Investing activities |
||||||||
| Purchases of property, plant and equipment |
( |
) | ( |
) | ||||
| Other investing activities |
||||||||
| Net cash used in investing activities |
( |
) | ( |
) | ||||
| Financing activities |
||||||||
| Payments on revolving credit facilities |
( |
) | ( |
) | ||||
| Proceeds from revolving credit facilities |
||||||||
| Payments on long-term obligations |
( |
) | ( |
) | ||||
| Debt issuance costs paid |
( |
) | ||||||
| Dividends paid on preferred stock |
( |
) | ( |
) | ||||
| Repurchases of shares to satisfy tax withholdings |
( |
) | ( |
) | ||||
| Net cash used in financing activities |
( |
) | ( |
) | ||||
| (Decrease) increase in cash |
( |
) | ||||||
| Effect of foreign exchange rate on cash |
( |
) | ( |
) | ||||
| Cash -- beginning of period |
||||||||
| Cash -- end of period |
$ | $ | ||||||
| Supplemental disclosures of cash flow information: |
||||||||
| Cash paid for interest |
$ | $ | ||||||
| Cash paid for income taxes |
$ | $ | ||||||
| See notes to condensed consolidated financial statements. |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MRC GLOBAL INC.
NOTE 1 – BACKGROUND AND BASIS OF PRESENTATION
Business Operations: MRC Global Inc. is a holding company headquartered in Houston, Texas. Our wholly owned subsidiaries are global distributors of pipe, valves, fittings (“PVF”) and infrastructure products and services across each of the 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 have branches in principal industrial, chemical, gas distribution and hydrocarbon producing and refining areas throughout the United States, Canada, Europe, Asia, Australasia, the Middle East and the Caspian. We obtain products from a broad range of suppliers.
Basis of Presentation: We have prepared our unaudited condensed consolidated financial statements in accordance with Rule 10-01 of Regulation S-X for interim financial statements. These statements do not include all information and footnotes that generally accepted accounting principles require for complete annual financial statements. However, the information in these statements reflects all normal recurring adjustments which are, in our opinion, necessary for a fair presentation of the results for the interim periods. The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that will be realized for the fiscal year ending December 31, 2021. We have derived our condensed consolidated balance sheet as of December 31, 2020 from the audited consolidated financial statements for the year ended December 31, 2020. You should read these condensed consolidated financial statements in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2020.
The consolidated financial statements include the accounts of MRC Global Inc. and its wholly owned and majority owned subsidiaries (collectively referred to as the “Company” or by terms such as “we,” “our” or “us”). All material intercompany balances and transactions have been eliminated in consolidation.
Recently Issued Accounting Pronouncements: In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt – Debt with Conversion and Other Options and Derivative Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) ("ASU 2020-06"), which simplifies guidance on the topics of convertible instruments, derivative contracts and earnings per share ("EPS") calculations. This update will be effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. We are currently evaluating the impacts of the provisions of ASU 2020-06 on our consolidated financial statements.
In March 2020, the FASB issued Accounting Standards Update ASU 2020-04, Reference Rate Reform (Topic 848) ("ASU 2020-04"), which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions that the discontinuation of certain reference rates, including the London Interbank Offered Rate ("LIBOR"), impacts. The amendments are effective for all entities as of March 12, 2020 through December 31, 2022. We are currently evaluating the impacts of the provisions of ASU 2020-04 on our consolidated financial statements.
Adoption of New Accounting Standards: In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, an update intended to simplify various aspects related to accounting for income taxes. This guidance removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance to improve consistent application. This accounting standard update, which we adopted as of January 1, 2021, did not have a material impact on our consolidated financial statements.
NOTE 2 – REVENUE RECOGNITION
We recognize revenue when we transfer control of promised goods or services to our customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. We recognize substantially all of our revenue when products are shipped or delivered to our customers, and payment is due from our customers at the time of billing with a majority of our customers having 30-day terms. We estimate and record returns as a reduction of revenue. Amounts received in advance of shipment are deferred and recognized when the performance obligations are satisfied. Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and, therefore, we exclude these taxes from sales in the accompanying consolidated statements of operations. Cost of sales includes the cost of inventory sold and related items, such as vendor rebates, inventory allowances and reserves and shipping and handling costs associated with inbound and outbound freight, as well as depreciation and amortization 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 revenue and cost of sales when the performance obligation is fulfilled.
Our contracts with customers ordinarily involve performance obligations that are one year or less. Therefore, we have applied the optional exemption that permits the omission of information about our unfulfilled performance obligations as of the balance sheet dates.
Contract Balances: Variations in the timing of revenue recognition, invoicing and receipt of payment result in categories of assets and liabilities that include invoiced accounts receivable, uninvoiced accounts receivable, contract assets and deferred revenue (contract liabilities) on the consolidated balance sheets.
Generally, revenue recognition and invoicing occur simultaneously as we transfer control of promised goods or services to our customers. We consider contract assets to be accounts receivable when we have an unconditional right to consideration and only the passage of time is required before payment is due. In certain cases, particularly those involving customer-specific documentation requirements, we delay invoicing until we are able to meet the documentation requirements. In these cases, we recognize a contract asset separate from accounts receivable until those requirements are met, and we are able to invoice the customer. Our contract asset balance associated with these requirements as of September 30, 2021 and December 31, 2020 was $
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, 2021 and December 31, 2020 was $
Disaggregated Revenue: Our disaggregated revenue represents our business of selling PVF to companies that are predominantly in each of our four end-use sectors, including gas utilities, downstream, industrial and energy transition, upstream production and midstream pipeline sectors, in each of our reportable segments. Varying factors, including macroeconomic environment, commodity prices, maintenance and capital spending and exploration and production activity, impact and influence each of our end sectors and geographical reportable segments. As such, we believe that this information is important in depicting the nature, amount, timing and uncertainty of our contracts with customers.
The following table presents our revenue disaggregated by revenue source (in millions):
| Three Months Ended | ||||||||||||||||
| September 30, | ||||||||||||||||
| U.S. | Canada | International | Total | |||||||||||||
| 2021: | ||||||||||||||||
| Gas utilities | $ | $ | $ | $ | ||||||||||||
| Downstream, Industrial & Energy Transition | ||||||||||||||||
| Upstream production | ||||||||||||||||
| Midstream pipeline | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| 2020: | ||||||||||||||||
| Gas utilities | $ | $ | $ | $ | ||||||||||||
| Downstream, Industrial & Energy Transition | ||||||||||||||||
| Upstream production | ||||||||||||||||
| Midstream pipeline | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Nine Months Ended | ||||||||||||||||
| September 30, | ||||||||||||||||
| U.S. | Canada | International | Total | |||||||||||||
| 2021: | ||||||||||||||||
| Gas utilities | $ | $ | $ | $ | ||||||||||||
| Downstream, Industrial & Energy Transition | ||||||||||||||||
| Upstream production | ||||||||||||||||
| Midstream pipeline | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| 2020: | ||||||||||||||||
| Gas utilities | $ | $ | $ | $ | ||||||||||||
| Downstream, Industrial & Energy Transition | ||||||||||||||||
| Upstream production | ||||||||||||||||
| Midstream pipeline | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
NOTE 3 – INVENTORIES
The composition of our inventory is as follows (in millions):
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Finished goods inventory at average cost: | ||||||||
| Valves, automation, measurement and instrumentation | $ | $ | ||||||
| Carbon steel pipe, fittings and flanges | ||||||||
| Gas products | ||||||||
| All other products | ||||||||
| Less: Excess of average cost over LIFO cost (LIFO reserve) | ( | ) | ( | ) | ||||
| Less: Other inventory reserves | ( | ) | ( | ) | ||||
| $ | $ | |||||||
The Company uses the last-in, first-out (“LIFO”) method of valuing U.S. inventories. The use of the LIFO method has the effect of reducing 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 method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, we base interim LIFO calculations on management’s estimates of expected year-end inventory levels and costs and these estimates are subject to the final 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 straight-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 facility leases include one or more options to renew, with renewal terms that can extend the lease term from year to
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 present 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 $
The maturity of lease liabilities is as follows (in millions):
| Maturity of Operating Lease Liabilities | ||||
| Remainder of 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| After 2025 | ||||
| Total lease payments | ||||
| Less: Interest | ( | ) | ||
| Present value of lease liabilities | $ |
Amounts maturing after 2025 include expected renewals for leases of regional distribution centers and certain corporate offices through dates up to 2049.
The term and discount rate associated with leases are as follows:
| September 30, | ||||
| Operating Lease Term and Discount Rate | 2021 | |||
| Weighted-average remaining lease term (years) | ||||
| Weighted-average discount rate | % | |||
NOTE 5 – GOODWILL AND INTANGIBLE ASSET IMPAIRMENT
We apply a fair value-based impairment test to the carrying value of goodwill and indefinite-lived intangible assets on an annual basis (as of October 1) and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis.
In 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 experienced a significant reduction in sales beginning in April 2020, which continued throughout the second quarter of 2020. 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 that the fair values of our U.S. and International reporting units were lower than their carrying values. Accordingly, we completed an interim goodwill impairment test as of April 30, 2020. This test resulted in a $
Our impairment test uses discounted cash flow and multiples of cash earnings valuation techniques, acquisition control premium estimates 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 including future operating results, the extent and timing of future cash flows, working capital requirements, sales prices, profitability, discount rates, sales growth trends and cost trends. As of April 30, 2020, the discount rates utilized to value the reporting units were in a range from
As of September 30, 2021, there was no indication that it was more likely than not the fair value of our U.S. reporting unit was lower than its carrying value.
NOTE 6 – LONG-TERM DEBT
The components of our long-term debt are as follows (in millions):
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Senior Secured Term Loan B, net of discount and issuance costs of | $ | $ | ||||||
| Global ABL Facility | ||||||||
| Less: Current portion | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Senior Secured Term Loan B: We have a Senior Secured Term Loan B (the “Term Loan”) with an original principal amount of $
In March 2020, we purchased and retired $
Global ABL Facility: In September 2021, the Company entered into a Fourth Amended and Restated Loan, Security and Guarantee Agreement (the “Global ABL Facility”) by and among the Company, certain of its subsidiaries, its lenders 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 revolving credit facility was reduced to $
Interest on Borrowings: The interest rates on our outstanding borrowings at September 30, 2021 and December 31, 2020, including a floating to fixed interest rate swap, are set forth below:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Senior Secured Term Loan B | % | % | ||||||
| Global ABL Facility | % | % | ||||||
| Weighted average interest rate | % | % | ||||||
NOTE 7 – REDEEMABLE PREFERRED STOCK
Preferred Stock Issuance
In June 2015, we issued
The Preferred Stock is convertible at the option of the holders into shares of common stock at an initial conversion rate of
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 per share purchase price except in the case of a liquidation, in which case the holders would receive the greater of $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.
NOTE 8 – STOCKHOLDERS’ EQUITY
Equity Compensation Plans
Our 2011 Omnibus Incentive Plan originally had
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss in the accompanying consolidated balance sheets consists of the following (in millions):
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Foreign currency translation adjustments | $ | ( | ) | $ | ( | ) | ||
| Hedge accounting adjustments | ( | ) | ( | ) | ||||
| Pension related adjustments | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | $ | ( | ) | $ | ( | ) | ||
Earnings per Share
Earnings per share are calculated in the table below (in millions, except per share amounts):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | September 30, | September 30, | |||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net (loss) income | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Less: Dividends on Series A Preferred Stock | ||||||||||||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average basic shares outstanding | ||||||||||||||||
| Effect of dilutive securities | ||||||||||||||||
| Weighted average diluted shares outstanding | ||||||||||||||||
| Net loss per share: | ||||||||||||||||
| Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Equity awards and shares of Preferred Stock are disregarded in the calculation of diluted earnings per share if they are determined to be anti-dilutive. For the three and nine months ended September 30, 2021 and 2020, all of the shares of the Preferred Stock were anti-dilutive. For the three and nine months ended September 30, 2021, respectively, we had approximately
NOTE 9 – SEGMENT INFORMATION
Our business is comprised of operating and reportable segments: U.S., Canada and International. Our International segment consists of our operations outside of the U.S. and Canada. These segments represent our business of selling PVF to the energy sector across each of the gas utilities, downstream, industrial and energy transition, upstream production and midstream pipeline sectors.
The following table presents financial information for each reportable segment (in millions):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | September 30, | September 30, | |||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Sales | ||||||||||||||||
| U.S. | $ | $ | $ | $ | ||||||||||||
| Canada | ||||||||||||||||
| International | ||||||||||||||||
| Consolidated sales | $ | $ | $ | $ | ||||||||||||
| Operating (loss) income | ||||||||||||||||
| U.S. | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Canada | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| International | ( | ) | ||||||||||||||
| Total operating (loss) income | ( | ) | ( | ) | ||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other, net | ( | ) | ||||||||||||||
| (Loss) income before income taxes | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Total assets | ||||||||
| U.S. | $ | $ | ||||||
| Canada | ||||||||
| International | ||||||||
| Total assets | $ | </ | ||||||