.2

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

MRC GLOBAL INC.

(in millions, except per share amounts)

 

		September 30,				December 31,
		2025				2024
Assets
Current assets:
Cash		$	59			$	63
Accounts receivable, net			473				378
Inventories, net			523				415
Other current assets			49				29
Current assets of discontinued operations			1				36
Total current assets			1,105				921
Long-term assets:
Operating lease assets			160				170
Property, plant and equipment, net			100				89
Other assets			36				37
Intangible assets:
Goodwill, net			264				264
Other intangible assets, net			130				143
Total assets		$	1,795			$	1,624
Liabilities and stockholders’ equity
Current liabilities:
Trade accounts payable		$	433			$	329
Accrued expenses and other current liabilities			119				124
Operating lease liabilities			31				31
Current portion of debt obligations			4				3
Current liabilities of discontinued operations			1				21
Total current liabilities			588				508
Long-term liabilities:
Long-term debt			472				384
Operating lease liabilities			141				153
Deferred income taxes			35				35
Other liabilities			28				28
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.01 par value per share: 500 million shares authorized, 110,424,832 and 109,460,293 issued, respectively			1				1
Additional paid-in capital			1,785				1,779
Retained deficit			(670	)			(652	)
Less: Treasury stock at cost: 25,433,286 and 24,216,330 shares, respectively			(390	)			(375	)
Accumulated other comprehensive loss			(195	)			(237	)
Total stockholders’ equity			531				516
Total liabilities and stockholders’ equity		$	1,795			$	1,624

See notes to condensed consolidated financial statements.

 

1

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,
		2025				2024				2025				2024
Sales		$	678			$	771			$	2,188			$	2,347
Cost of sales			553				614				1,770				1,862
Gross profit			125				157				418				485
Selling, general and administrative expenses			128				120				382				362
Operating (loss) income			(3	)			37				36				123
Other (expense) income:
Interest expense			(10	)			(4	)			(29	)			(19	)
Other, net			—				(1	)			7				(2	)
(Loss) income from continuing operations before income taxes			(13	)			32				14				102
Income tax (benefit) expense from continuing operations			(4	)			3				2				23
Net (loss) income from continuing operations			(9	)			29				12				79
Loss from discontinued operations, net of tax			—				—				(30	)			(1	)
Net (loss) income			(9	)			29				(18	)			78
Series A preferred stock dividends			—				6				—				18
Net (loss) income attributable to common stockholders		$	(9	)		$	23			$	(18	)		$	60
Basic (loss) earnings per common share:
(Loss) income from continued operations		$	(0.11	)		$	0.27			$	0.14			$	0.72
Loss from discontinued operations			—				—				(0.35	)			(0.01	)
Basic (loss) earnings per common share		$	(0.11	)		$	0.27			$	(0.21	)		$	0.71
Diluted (loss) earnings per common share:
(Loss) income from continued operations		$	(0.11	)		$	0.27			$	0.14			$	0.71
Loss from discontinued operations			—				—				(0.35	)			(0.01	)
Diluted (loss) earnings per common share		$	(0.11	)		$	0.27			$	(0.21	)		$	0.70
Weighted-average common shares, basic			84.5				85.2				85.2				85.0
Weighted-average common shares, diluted			84.5				86.2				85.2				86.2

See notes to condensed consolidated financial statements.

 

2

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

MRC GLOBAL INC.

(in millions)

 

		Three Months Ended								Nine Months Ended
		September 30,				September 30,				September 30,				September 30,
		2025				2024				2025				2024
Net (loss) income from continuing operations		$	(9	)		$	29			$	12			$	79
Loss from discontinued operations, net of tax			—				—				(30	)			(1	)
Net (loss) income		$	(9	)		$	29			$	(18	)		$	78
Other comprehensive income
Foreign currency translation adjustments			—				7			$	14			$	3
Reclassification of foreign currency translation adjustments to net income as a result of the sale of Canada			—				—				28				—
Total other comprehensive income, net of tax			—				7				42				3
Comprehensive (loss) income		$	(9	)		$	36			$	24			$	81

See notes to condensed consolidated financial statements.

 

3

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

MRC GLOBAL INC.

(in millions)

 

																										Accumulated
										Additional				Retained												Other				Total
		Common Stock								Paid-in				Earnings				Treasury Stock								Comprehensive				Stockholders’
		Shares				Amount				Capital				(Deficit)				Shares				Amount				Income (Loss)				Equity
Balance at December 31, 2024			109			$	1			$	1,779			$	(652	)			(24	)		$	(375	)		$	(237	)		$	516
Net loss			—				—				—				(22	)			—				—				—				(22	)
Foreign currency translation			—				—				—				—				—				—				5				5
Reclassification of foreign currency translation adjustments to net income as a result of the sale of Canada			—				—				—				—				—				—				28				28
Vesting of restricted stock			1				—				—				—				—				—				—				—
Shares withheld for taxes			—				—				(6	)			—				—				—				—				(6	)
Equity-based compensation expense			—				—				4				—				—				—				—				4
Balance at March 31, 2025			110			$	1			$	1,777			$	(674	)			(24	)		$	(375	)		$	(204	)		$	525
Net income			—				—				—				13				—				—				—				13
Common stock repurchased			—				—				—				—				(1	)			(15	)			—				(15	)
Foreign currency translation			—				—				—				—				—				—				9				9
Equity-based compensation expense			—				—				4				—				—				—				—				4
Balance at June 30, 2025			110			$	1			$	1,781			$	(661	)			(25	)		$	(390	)		$	(195	)		$	536
Net loss			—				—				—				(9	)			—				—				—				(9	)
Foreign currency translation			—				—				—				—				—				—				—				—
Equity-based compensation expense			—				—				4				—				—				—				—				4
Balance at September 30, 2025			110			$	1			$	1,785			$	(670	)			(25	)		$	(390	)		$	(195	)		$	531

 

																										Accumulated
										Additional				Retained												Other				Total
		Common Stock								Paid-in				Earnings				Treasury Stock								Comprehensive				Stockholders’
		Shares				Amount				Capital				(Deficit)				Shares				Amount				Loss				Equity
Balance at December 31, 2023			109			$	1			$	1,768			$	(678	)			(24	)		$	(375	)		$	(228	)		$	488
Net income			—				—				—				19				—				—				—				19
Foreign currency translation			—				—				—				—				—				—				(5	)			(5	)
Shares withheld for taxes			—				—				(5	)			—				—				—				—				(5	)
Equity-based compensation expense			—				—				4				—				—				—				—				4
Dividends declared on preferred stock			—				—				—				(6	)			—				—				—				(6	)
Balance at March 31, 2024			109			$	1			$	1,767			$	(665	)			(24	)		$	(375	)		$	(233	)		$	495
Net income			—				—				—				30				—				—				—				30
Foreign currency translation			—				—				—				—				—				—				1				1
Equity-based compensation expense			—				—				3				—				—				—				—				3
Dividends declared on preferred stock			—				—				—				(6	)			—				—				—				(6	)
Balance at June 30, 2024			109			$	1			$	1,770			$	(641	)			(24	)		$	(375	)		$	(232	)		$	523
Net income			—				—				—				29				—				—				—				29
Foreign currency translation			—				—				—				—				—				—				7				7
Equity-based compensation expense			—				—				4				—				—				—				—				4
Dividends declared on preferred stock			—				—				—				(6	)			—				—				—				(6	)
Balance at September 30, 2024			109			$	1			$	1,774			$	(618	)			(24	)		$	(375	)		$	(225	)		$	557

See notes to condensed consolidated financial statements.

 

4

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

MRC GLOBAL INC.

(in millions)

 

		Nine Months Ended
		September 30,				September 30,
		2025				2024
Operating activities
Net income		$	12			$	79
Adjustments to reconcile net income from continuing operations to net cash (used in) provided by continuing operations:
Depreciation and amortization			18				16
Amortization of intangibles			13				15
Equity-based compensation expense			12				11
Deferred income tax (benefit)			(2	)			(6	)
Increase (decrease) in LIFO reserve			24				(4	)
Other non-cash items			(1	)			8
Changes in operating assets and liabilities:
Accounts receivable			(84	)			(41	)
Inventories			(129	)			88
Other current assets			(6	)			(3	)
Accounts payable			102				31
Accrued expenses and other current liabilities			(20	)			1
Operating cash flows from continuing operations			(61	)			195
Operating cash flows from discontinued operations			(6	)			2
Net cash (used in) provided by operating activities			(67	)			197
Investing activities
Purchases of property, plant and equipment			(30	)			(23	)
Other investing activities			5				1
Investing cash flows from continuing operations			(25	)			(22	)
Investing cash flows from discontinued operations			18				—
Net cash used in investing activities			(7	)			(22	)
Financing activities
Payments on revolving credit facilities			(504	)			(276	)
Proceeds from revolving credit facilities			595				352
Payments on debt obligations			(2	)			(295	)
Debt issuance costs paid			(1	)			—
Dividends paid on preferred stock			—				(18	)
Repurchases of common stock			(15	)			—
Repurchases of shares to satisfy tax withholdings			(7	)			(5	)
Other financing activities			(1	)			—
Financing cash flows from continuing operations			65				(242	)
Financing cash flows from discontinued operations			—				—
Net cash provided by (used in) financing activities			65				(242	)
Decrease in cash			(9	)			(67	)
Effect of foreign exchange rate on cash			5				(2	)
Cash — beginning of period			63				131
Cash — end of period		$	59			$	62
Supplemental disclosures of cash flow information:
Cash paid for interest, net of capitalized interest		$	31			$	17
Cash paid for income taxes		$	10			$	38
Supplemental non-cash transactions:
Change in accrued purchases of property, plant and equipment		$	(1	)		$	—

See notes to condensed consolidated financial statements.

 

5

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

MRC GLOBAL INC.

NOTE 1 – BACKGROUND AND BASIS OF PRESENTATION

Business Operations: MRC Global Inc. (“MRC Global”) 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)

 

•

DIET: downstream, industrial and energy transition (crude oil refining, petrochemical and chemical processing, general industrials and energy transition projects)

 

•

PTI: production and transmission infrastructure (exploration, production extraction, gathering, processing and transmission of oil and gas)

We have service centers in industrial, chemical, gas distribution and hydrocarbon producing and refining areas throughout the United States, Europe, Asia, Australasia and the Middle East. We obtain products from a broad range of suppliers.

Planned Merger with DNOW Inc.

On June 26, 2025, MRC Global entered into an Agreement and Plan of Merger (the “Merger Agreement”) with DNOW Inc., a Delaware Corporation (“DNOW”), Buck Merger Sub, Inc., a Delaware corporation and a wholly owned, direct subsidiary of DNOW (“Merger Sub”) and Stag Merger Sub, LLC, a Delaware limited liability company and a wholly owned, direct subsidiary of DNOW (“LLC Sub”). The Merger Agreement provides that, among other things and subject to the terms and conditions of the Merger Agreement:

 

(1)

Merger Sub will be merged with and into MRC Global, with MRC Global continuing as the surviving corporation (the “First Merger” and the time the First Merger becomes effective, the “Effective Time”) and

 

(2)

immediately following the First Merger, MRC Global will be merged with and into LLC Sub (the “Second Merger” and, together with the First Merger, the “Mergers”), with LLC Sub continuing as the surviving company at the effective time of the Second Merger as a wholly owned, direct subsidiary of DNOW.

At the Effective Time, each share of common stock of MRC Global issued and outstanding (other than certain excluded shares) immediately prior to the Effective Time will be converted into the right to receive 0.9489 shares of common stock, $0.01 par value, of DNOW, subject to certain adjustments, with cash paid in lieu of the issuance of fractional shares, if any (collectively, the “Merger Consideration”). The Merger Agreement also specifies the treatment of outstanding MRC Global equity awards in connection with the Mergers. As of the date of this filing, the completion of the Mergers remain subject to customary mutual closing conditions.

On September 9, 2025, each of MRC Global and DNOW held a special meeting of stockholders at which their respective stockholders approved the Mergers and related matters. In addition, on October 6, 2025, the statutory waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”) expired. The required regulatory approvals were received on November 3, 2025. The Mergers, which remain subject to customary mutual closing conditions, are expected to be consummated during the fourth quarter of 2025.

The Merger Agreement contains termination rights for each of MRC Global and DNOW, including, among others, if the consummation of the First Merger does not occur on or before June 26, 2026.

During the three and nine months ended September 30, 2025, we recorded third party legal and consulting costs of $6 million and $13 million, respectively, in connection with the Merger Agreement with DNOW. These costs are reflected in selling, general and administrative expenses within our condensed consolidated statement of operations.

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 (“GAAP”) require for complete annual financial statements. However, the information in these statements reflects all normal recurring adjustments that 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, 2025, are not necessarily indicative of the results that will be realized for the fiscal year ending December 31, 2025. We have derived our condensed consolidated balance sheet as of September 30, 2025, from the audited consolidated financial statements for the year ended December 31, 2024. 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, 2024.

 

6

The condensed 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”). The Company is a primary beneficiary of a variable interest entity, and the assets, liabilities and results of operations of the variable interest entity are included in the Company’s condensed consolidated financial statements. All intercompany balances and transactions have been eliminated in consolidation.

On December 13, 2024, we entered into a definitive agreement to sell assets associated with our Canada operations to EMCO Corporation, and on March 14, 2025, we completed the sale. The historical results of the assets to be sold and the liabilities to be assumed (the “Disposal Group”) have been reflected as discontinued operations in our condensed consolidated financial statements for all periods prior to the definitive agreement. Assets and liabilities associated with the Disposal Group are classified as assets and liabilities of discontinued operations in our condensed consolidated balance sheets as of September 30, 2025 and December 31, 2024. Additional disclosures regarding the sale of assets and assumption of liabilities associated with our Canada operations are provided in Note 2.

Recently Issued Accounting Standards: In September 2025, the Financial Accounting Standards Board (“FASB”) issued ASU 2025-06, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software (“ASU 2025-06”), which is intended to modernize the accounting for internal-use software costs by removing the previous “development stage” model and introducing a model that aligns with current software development methods, such as the agile approach. Capitalization of eligible costs will begin when management has authorized and committed to funding the software project and it is probable the project will be completed and the software will be used for the function intended. This update will be effective for annual periods beginning after December 15, 2027, and interim reporting periods within those annual periods. Entities may apply the guidance using a prospective, retrospective or modified transition approach. Early adoption is permitted as of the beginning of an annual period. We are currently evaluating the impact of the provisions of ASU 2025-06 on our consolidated financial statements.

In November 2024, the Financial Accounting Standards Board (“FASB”) issued ASU 2024-03, Income Statement - Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”), which requires public entities to include more detailed disclosures about specific categories of expenses such as inventory purchases, employee compensation, depreciation, amortization and selling costs within the notes to the financial statements. This update will be effective for annual periods beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027. We are currently evaluating the impact of the provisions of ASU 2024-03 on our consolidated financial statements.

Adoption of New Accounting Standards: In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) (“ASU 2023-09”), which aims to enhance the transparency and decision usefulness of income tax disclosures through requiring improvements in those disclosures primarily related to the rate reconciliation and income taxes paid information. This update will be effective for annual periods beginning after December 15, 2024. We adopted ASU 2023-09 on January 1, 2025. We do not expect ASU 2023-09 to impact our consolidated financial statements, and we are currently evaluating the impact of new disclosure requirements beginning with the Form 10-K for the year ended December 31, 2025.

NOTE 2 – DISCONTINUED OPERATIONS

On December 13, 2024, we entered into a definitive agreement to sell assets associated with our Canada operations to EMCO Corporation, and on March 14, 2025, we completed the sale. Net cash proceeds for the sale were $18 million. The historical results of the Disposal Group have been reflected as discontinued operations in our condensed consolidated financial statements for all periods prior to the definitive agreement. As a result of the executed sale agreement in December of 2024, a pre-tax, non-cash loss on discontinued operations of approximately $22 million was recorded in the fourth quarter of 2024. Upon completion of the sale in March 2025, the cumulative foreign currency translation adjustment of $28 million was released from accumulated other comprehensive income and recognized in the condensed consolidated statement of operations. The total amount was included in loss from discontinued operations, net of tax for the nine months ended September 30, 2025. Assets and liabilities associated with the Disposal Group are classified as assets and liabilities of discontinued operations in our condensed consolidated balance sheets as of September 30, 2025 and December 31, 2024.

In connection with the agreement to sell the Disposal Group and effective March 14, 2025, the Company entered into a Transition Services Agreement (“TSA”) under which the Company provides EMCO Corporation certain transition services related to operational systems, finance and accounting, human resources, information technology, treasury, data transfer services and licenses to use certain intellectual property rights. The time period in which the transition services are provided varies from closing to a period not to exceed one year from closing. For the three and nine months ended September 30, 2025, we recognized zero and $1 million from the provision of these services pursuant to the TSA, respectively. This income was included in other, net on the condensed consolidated statement of operations for the three and nine months ended September 30, 2025. Additionally, the Company has assigned certain operating lease agreements to EMCO corporation as part of the sale. Refer to Note 5 for additional disclosures regarding these lease assignments.

Details of the “Loss from discontinued operations, net of tax” are as follows (in millions):

 

		Three Months Ended								Nine Months Ended
		September 30,				September 30,				September 30,				September 30,
		2025				2024				2025				2024
Sales		$	—			$	26			$	16			$	88
Cost of sales			—				23				14				77
Gross profit			—				3				2				11
Selling, general and administrative expenses			—				3				5				12
Operating loss			—				—				(3	)			(1	)
Reclassification of foreign currency translation adjustments to net income as a result of the sale of Canada			—				—				(28	)			—
Other, net			—				—				—				—
Loss from discontinued operations			—				—				(31	)			(1	)
Income tax benefit from discontinued operations			—				—				(1	)			—
Loss from discontinued operations, net of tax		$	—			$	—			$	(30	)		$	(1	)

 

7

The following table summarizes the Disposal Group assets and liabilities classified as discontinued operations in the Company’s Condensed Consolidated Balance Sheets (in millions):

 

		September 30,				December 31,
		2025				2024
Assets
Current assets:
Cash		$	1			$	—
Accounts receivable, net			—				19
Inventories, net			—				30
Property, plant and equipment, net			—				1
Operating lease assets			—				8
Loss recognized on classification as held for sale			—				(22	)
Current assets of discontinued operations		$	1			$	36
Liabilities
Current liabilities:
Trade accounts payable		$	—			$	12
Accrued expenses and other current liabilities			1				1
Operating lease liabilities			—				8
Current liabilities of discontinued operations		$	1			$	21

NOTE 3 – 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 generally recognize 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 condensed consolidated statements of operations. 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. While a small proportion of our sales, we occasionally recognize revenue under a bill and hold arrangement. Recognition of revenue on bill and hold arrangements occurs when control transfers to the customer provided that the reason for the bill and hold arrangement is substantive, and the product is separately identified as belonging to the customer, ready for physical transfer and unavailable to be used or directed to another customer. 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.

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 certain cases, particularly those involving customer-specific documentation requirements, invoicing is delayed until we are able to meet the documentation requirements. In these cases, we recognize a contract asset separate from accounts receivable until those requirements are met, and we are able to invoice the customer. Our contract asset balance associated with these requirements as of September 30, 2025 and December 31, 2024 was $63 million and $18 million, respectively. These contract asset balances are included within accounts receivable in the accompanying condensed consolidated balance sheets.

We record contract liabilities, or deferred revenue, when cash payments are received from customers in advance of our performance, including amounts which are refundable. The deferred revenue balance at September 30, 2025 and December 31, 2024 was $20 million and $16 million, respectively. During the three and nine months ended September 30, 2025, we recognized $1 million and $15 million, respectively, of the revenue that was deferred as of December 31, 2024. During the three and nine months ended September 30, 2024, we recognized less than $1 million and $6 million, respectively, of the revenue that was deferred as of December 31, 2023. Deferred revenue balances are included within accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheets.

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

 

8

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

 

Three Months Ended
September 30,
		U.S.				International				Total
2025:
Gas Utilities		$	292			$	—			$	292
DIET			131				68				199
PTI			127				60				187
		$	550			$	128			$	678
2024:
Gas Utilities		$	293			$	—			$	293
DIET			170				69				239
PTI			181				58				239
		$	644			$	127			$	771

 

Nine Months Ended
September 30,
		U.S.				International				Total
2025:
Gas Utilities		$	864			$	—			$	864
DIET			455				187				642
PTI			480				202				682
		$	1,799			$	389			$	2,188
2024:
Gas Utilities		$	845			$	—			$	845
DIET			560				202				762
PTI			583				157				740
		$	1,988			$	359			$	2,347

Allowance for Credit Losses: We estimate the adequacy of the allowance for credit losses on receivables based upon periodic evaluation of accounts that may have a higher credit risk using information available about the customer, current economic conditions, volume, growth and composition of the account, and other factors such as financial statements, news reports and published credit ratings. The amount of the allowance for the remainder of the trade balance is not evaluated individually but is based upon historical loss experience. As of September 30, 2025 and December 31, 2024, the allowance for credit losses totaled $3 million and $3 million, respectively.

NOTE 4 – INVENTORIES

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

 

		September 30,				December 31,
		2025				2024
Finished goods inventory at average cost:
Valves, automation, measurement and instrumentation		$	273			$	206
Carbon steel pipe, fittings and flanges			183				135
Gas products			295				265
All other products			93				104
			844				710
Less: Excess of weighted-average cost over LIFO cost (LIFO reserve)			(304	)			(280	)
Less: Other inventory reserves			(17	)			(15	)
		$	523			$	415

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 using current month end perpetual inventory balances, except in those instances where better information regarding projected year-end balances is available.

 

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NOTE 5 – LEASES

We lease certain distribution centers, warehouses, office space, land, automobiles and equipment. The majority of these leases are classified as operating leases. We recognize operating fixed lease expense and finance lease amortization 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 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 lease liabilities as they are not reasonably certain of exercise. In the case of certain regional distribution centers and certain corporate offices, where the renewal is reasonably certain of exercise, we include the renewal period in our 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 other 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 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.

Our leases are presented in our condensed consolidated balance sheets as follows:

 

				September 30,				December 31,
		Balance Sheet Classification		2025				2024
Assets
Operating lease assets		Operating lease assets		$	160			$	170
Finance lease assets (1)		Other assets			9				8
Total lease assets				$	169			$	178
Liabilities
Current
Operating lease liabilities		Operating lease liabilities		$	31			$	31
Finance lease liabilities		Accrued expenses and other current liabilities			2				1
Long-term
Operating lease liabilities		Operating lease liabilities			141				153
Finance lease liabilities		Other liabilities			8				8
Total lease liabilities				$	182			$	193

(1)	Finance lease assets are recorded net of accumulated amortization of $4 million and $2 million as of September 30, 2025 and December 31, 2024, respectively.

Expense associated with our operating leases was $11 million and $34 million for the three and nine months ended September 30, 2025, respectively, and $12 million and $34 million for the three and nine months ended September 30, 2024, respectively, which we have classified in selling, general and administrative expenses. For the three and nine months ended September 30, 2025, expense associated with our finance leases was less than $1 million and $2 million, respectively, related to the amortization of ROU Assets, which we have classified in cost of sales, and $1 million related to the interest on finance lease liabilities, which we have classified in interest expense. For the three and nine months ended September 30, 2024, expense associated with our finance leases was $2 million related to the amortization of ROU Assets, which we have classified in cost of sales, and less than $1 million related to the interest on finance lease liabilities, which we have classified in interest expense. Cash paid for operating leases recognized as liabilities was $9 million and $30 million for the three and nine months ended September 30, 2025, respectively, and $9 million and $29 million for the three and nine months ended September 30, 2024, respectively. Cash paid for finance leases was less than $1 million and $2 million for the three and nine months ended September 30, 2025, respectively, and $1 million for the three and nine months ended September 30, 2024.

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

 

Maturity of Lease Liabilities		Operating				Finance
Remainder of 2025		$	11			$	1
2026			40				3
2027			34				2
2028			27				2
2029			21				2
After 2029			114				2
Total lease payments			247				12
Less: Interest			(75	)			(2	)
Present value of lease liabilities		$	172			$	10

 

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The term and discount rate associated with leases are as follows:

 

		September 30,				September 30,
Lease Term and Discount Rate		2025				2024
Weighted-average remaining lease term (years)
Operating leases			10				11
Finance leases			5				6
Weighted-average discount rate
Operating leases			6.8	%			6.7	%
Finance leases			6.8	%			6.6	%

Amounts maturing after 2029 include expected renewals for leases of certain regional distribution centers and certain corporate offices through dates up to 2048. Excluding these optional renewals, our weighted-average remaining lease term for operating leases is 5 years and 6 years for the periods ended September 30, 2025 and 2024, respectively. Excluding optional renewals, our weighted average remaining lease term for finance leases is 5 years and 6 years for the periods ended September 30, 2025 and 2024, respectively.

Canada Lease Agreements

In connection with the sale of the Canada business, three operating lease commitments were assigned to the buyers where the Company has not been released from the covenants, liabilities and responsibilities under the lease agreements. The Company is obligated to perform under these agreements if the buyers fail to perform at any time during the remainder of the lease, which are set to expire on or before December 31, 2030. At the close date of the sale and as of September 30, 2025, the undiscounted remaining lease payments under the agreement totaled $8 million and $7 million, respectively. The Company has not recorded a liability with respect to the obligations as of September 30, 2025, as the Company concluded the provisions of these lease assignments were not probable.

NOTE 6 – DEBT

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

 

		September 30,				December 31,
		2025				2024
Senior Secured Term Loan B (1)		$	342			$	344
Global ABL Facility			134				43
			476				387
Less: current portion			4				3
		$	472			$	384

 

(1)	The Senior Secured Term Loan B is net of discount and issuance costs of $6 million and $7 million as of September 30, 2025 and December 31, 2024, respectively.

Senior Secured Term Loan B: The Company has a Senior Secured Term Loan “B” (the “Term Loan”) with an original principal amount of $350 million, which amortizes in equal quarterly installments of 1% per year with the balance payable in October 2031, when the facility matures. The Term Loan was issued at an original issue discount of 99.5%. The Company used the proceeds from the Term Loan to repurchase all of its issued and outstanding shares of its Preferred Stock as discussed in Note 8. Pursuant to the Merger Agreement, the Company will deliver, at the option of DNOW, a payoff letter with respect to the Term Loan for payment in full of the Term Loan at the closing of the Mergers, or an amendment, or a consent from the requisite holders, of the Term Loan, permitting the transactions contemplated by the Merger Agreement.

Interest Rate. The Term Loan accrues interest at a margin plus either Term SOFR or a base rate, depending on the Company’s election at the time of a loan. For loans incurring interest based on Term SOFR, the margin is (a) 350 basis points if either or both of the ratings (i) by Moody’s Investors Service, Inc. (“Moody’s”) is B2, or lower, or (ii) by Standard & Poor’s Ratings Services (“S&P”) is B, or lower, and (b) 325 basis points if either or both of the ratings (i) by Moody’s is B1, or better, or (ii) by S&P is B+, or better. For loans incurring interest based on the base rate, the margin is (a) 250 basis points if either or both of the ratings (i) by Moody’s is B2, or lower, or (ii) by S&P is B, or lower, and (b) 225 basis points if either or both of the ratings (i) by Moody’s is B1, or better, or (ii) by S&P is B+, or better. The Term Loan provides certain provisions if ratings are unavailable.

Facility Size Increases. The Term Loan allows for incremental increases in facility size (subject to additional lender commitments) up to an aggregate amount equal to the greater of $225 million and 100% of Consolidated EBITDA for the most recent trailing four consecutive fiscal quarters then ended, plus an additional amount such that the Company’s first lien leverage ratio (as defined under the Term Loan) would not exceed 3.75 to 1.00. MRC Global (US) Inc. is the borrower under the Term Loan facility, which is guaranteed by MRC Global Inc. and certain of its wholly owned U.S. subsidiaries.

Security. The Term Loan is secured by a second lien on the assets of MRC Global Inc., MRC Global (US) Inc. and those U.S. subsidiaries guaranteeing the Term Loan facility (collectively, the “Term Loan Credit Parties”) securing the Global ABL Facility (defined below), which includes accounts receivable and inventory. The Term Loan is secured by a first lien on substantially all of the other assets of the Term Loan Credit Parities. The Term Loan is further secured by a first lien pledge of all of the capital stock of certain of the direct domestic subsidiaries of Term Loan Credit Parties and 65% of the capital stock of certain of the direct, non-U.S. subsidiaries of the Term Loan Credit Parties.

 

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