UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

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FORM 8-K



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CURRENT REPORT



Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934



date of Report (Date of earliest event reported): August 2, 2016



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MRC Global inc.

(Exact name of registrant as specified in its charter)



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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))





 

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Item 2.02Results of Operations and Financial Condition

On August 2, 2016, 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, 2016. 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 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 7.01Regulation FD Disclosure.



MRC Global expects the following results with respect to the operations and performance of the Company for the 2016 fiscal year:







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The following table reconciles Adjusted Gross Profit and Adjusted Gross Profit percentage (non-GAAP measures) to gross profit and gross profit percentage (GAAP measures):



*Percentages do not foot due to rounding. Percentages are based on the midpoint of revenue guidance provided above.















The above information, as well as information contained in Exhibit 99.1 referenced under Item 9.01 below, contain 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,” “expects,” “expected”, “looking forward”, “guidance” and similar expressions are intended to identify forward-looking statements.



Statements about the company’s business, including its strategy, the impact of changes in oil prices and customer spending, its industry, the company’s future profitability, the company’s guidance on its sales, Adjusted EBITDA, gross profit, gross profit percentage, Adjusted Gross Profit and Adjusted Gross Profit percentage, tax rate, capital expenditures and cash from operations, the company’s expectations regarding the pay down of its debt, 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 our control, including the factors described in the company’s SEC filings that may cause our actual results and performance to be materially different from any future results or performance expressed or implied by these forward-looking statements.



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;

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increased usage of alternative fuels, which may negatively affect oil and natural gas industry expenditure levels; U.S. and international general economic conditions; the company’s ability to complete 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 debt 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; 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; 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 our 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; the impact on us of changes in generally accepted accounting principles or tax laws or adverse positions taken by taxing authorities in the countries in which the company operates; and compliance with and changes in laws and regulations in the countries in which we operate.



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.  Our filings and other important information are also available on the Investor Relations page of our 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.



The information referenced under Item 7.01 (including Exhibit 99.1 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 99.1 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.



99.1 Press release of MRC Global Inc. dated August 2, 2016

 

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SIGNATURES

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

Date:  August 2, 2016

MRC GLOBAL INC.

By: /s/ James E. Braun                                                    

James E. Braun

Executive Vice President and Chief Financial Officer





 

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INDEX TO EXHIBITS

 



 





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MRC Global Announces Second Quarter 2016 Results



Sales of $746 million

Net loss attributable to common stockholders of $(23) million

Cash flow from operations of $90 million

Adjusted EBITDA of $15 million



Houston, TX – August 2, 2016 – MRC Global Inc. (NYSE: MRC), the largest global distributor, based on sales, of pipe, valves and fittings and related products and services to the energy industry, today announced second quarter 2016 results.



The company’s sales were $746 million for the second quarter of 2016, which were 38% lower than the second quarter of 2015 and 5% lower than the first quarter of 2016. As compared to last year, reduced customer activity across all segments and sectors drove the decline as a result of lower oil and natural gas prices. 



Net loss attributable to common stockholders for the second quarter of 2016 was $(23) million, or $(0.24) per diluted share, compared to net income attributable to common stockholders of $15 million, or $0.15 per diluted share for the second quarter of 2015. The second quarter 2016 and 2015 results include severance and restructuring after-tax charges of $3 million ($0.03 per diluted share) and $6 million ($0.06 per diluted share), respectively.



Andrew R. Lane, MRC Global’s president and chief executive officer stated, “Revenue was in line with our expectations this quarter. Looking forward, we do not expect a significant change in activity until customers increase capital spending. In the second quarter, the business generated $90 million in cash from operations for a total of $148 million in cash from operations generated so far this year. We also made progress under our stock repurchase program buying $33 million in stock during the second quarter bringing us to a total of $83 million of shares bought back since we announced the authorization in November 2015. We remain focused on executing our strategy to retain and win customers, strengthen the balance sheet, manage operating costs and optimize working capital. MRC Global is well positioned regardless of market conditions.”



MRC Global’s second quarter 2016 gross profit was $125 million, or 16.8% of sales, a decrease from second quarter 2015 gross profit of $206 million, or 17.2% of sales. Gross profit for the second quarter 2016 and 2015 reflects a benefit of $1 million and $15 million, respectively, in cost of sales relating to the use of the last-in, first out (“LIFO”) method of inventory cost accounting.



Selling, general and administrative (“SG&A”) expenses were $135 million, or 18.1% of sales, for the second quarter of 2016 compared to $159 million, or 13.3% of sales, for the same period of 2015. SG&A expenses for the second quarter of 2016 and 2015 include $4 million and $7 million of severance and restructuring charges, respectively.



Adjusted EBITDA was $15 million in the second quarter of 2016 compared to $63 million for the same period in 2015. Please refer to the reconciliation of adjusted EBITDA (a non-GAAP measure) to net (loss) income (a GAAP measure) in this release.



The effective tax rate in the second quarter of 2016 was 11% as a result of a lower expected effective tax rate for the full year of 22% due to lower than previously forecasted pre-tax income across all segments and a change in the geographic mix of pre-tax income and losses. The change in the expected tax rate had a negative impact of $0.06 per diluted share in the second quarter of 2016.  

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Sales by Segment



U.S. sales in the second quarter of 2016 were $551 million, down $405 million, or 42%, from the same quarter in 2015. The decrease reflects a $196 million, or 66%, decrease in the upstream sector (which includes a $78 million impact from the sale of our U.S. oil country tubular goods (“OCTG”) product line), a $129 million, or 32%, decrease in the midstream sector and an $80 million, or 31%, decrease in the downstream sector.



Canadian sales in the second quarter of 2016 were $54 million, down $24 million, or 31%, from the same quarter in 2015. Approximately $3 million of the total decline was a result of a weaker Canadian dollar relative to the U.S. dollar.



International sales in the second quarter of 2016 were $141 million, down $23 million, or 14%, from the same period in 2015. The decrease was due to the combined impact of lower project activity and deferral of maintenance, repairs and operations expenditures particularly in Norway and Australia. The impact of the decline in the foreign currencies in areas where we operate account for $4 million of the total revenue decline.





Sales by Sector



Upstream sales in the second quarter of 2016 decreased 51% from the second quarter of 2015 to $211 million, or 28%, of total sales. The decline in upstream sales was across all segments and was a result of reduced customer activity. U.S. upstream sales declined 40% in the second quarter of 2016, excluding OCTG revenue, from the second quarter of 2015 as compared to a 53% decline in the average U.S. rig count over the same period. International upstream sales declined 13% in the second quarter of 2016 from the second quarter of 2015.

 

Midstream sales in the second quarter of 2016 decreased 30% from the second quarter of 2015 to $292 million, or 39%, of total sales. Sales to transmission customers were down 44% and sales to gas utility customers were down by 15% over the same quarter in 2015.



Downstream sales in the second quarter of 2016 decreased 30% from the second quarter of 2015 to $243 million, or 33%, of total sales. The downstream sector declined by 31% in the U.S. and 15% in International due primarily to lower project activity.





Balance Sheet



During the second quarter of 2016, the company generated $90 million of cash from operations and grew cash to $167 million at June 30, 2016 from $121 million at the end of the first quarter 2016. Debt, net of cash, was $349 million at June 30, 2016 compared to $450 million at December 31, 2015.





Share Repurchase Program Update



In November 2015, the board of directors authorized a share repurchase program for common stock of up to $100 million. During the second quarter of 2016, the company repurchased $33 million of its common stock at an average price of $13.82 per share. In total, the company has repurchased $83 million of its common stock. The outstanding share count as of June 30, 2016 is 96.4 million.



Shares may be repurchased at management’s discretion in the open market depending on market conditions and other factors.

Conference Call



The Company will hold a conference call to discuss its second quarter 2016 results at 10:00 a.m. Eastern Time (9:00 a.m. Central Time) on August 3, 2016. 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

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the Internet, please log onto the web at http://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 17, 2016 and can be accessed by dialing 201-612-7415 and using pass code 13638458#. Also, an archive of the webcast will be available shortly after the call at www.mrcglobal.com for 90 days.





About MRC Global Inc.



Headquartered in Houston, Texas, MRC Global is the largest global distributor, based on sales, of pipe, valves and fittings (PVF) and related products and services to the energy industry and supplies these products and services across each of the upstream, midstream and downstream sectors. More information about MRC Global can be found on our website mrcglobal.com.







Contact:



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MRC Global Inc.

Condensed Consolidated Balance Sheets (Unaudited)

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MRC Global Inc.

Condensed Consolidated Statements of Operations (Unaudited)

(in millions, except per share amounts)



























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MRC Global Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in millions)



















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MRC Global Inc.

Supplemental Information (Unaudited)

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

 (in millions)

















Notes to above:



The company defines Adjusted EBITDA as net income plus interest, income taxes, depreciation and amortization, amortization of intangibles, and certain other expenses (such as equity-based compensation, severance and restructuring, changes in the fair value of derivative instruments and goodwill impairment) 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.



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MRC Global Inc.

Supplemental Information (Unaudited)

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

(in millions)



















*Does not foot due to rounding.



The company defines Adjusted Gross Profit as sales, less cost of sales, plus depreciation and amortization, plus amortization of intangibles, 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.









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