UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

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FORM 8-K

CURRENT REPORT

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

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date of Report (Date of earliest event reported):  February 20, 2014

 

MRC Global inc.

(Exact name of registrant as specified in its charter)

 

 

 

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 February 20, 2014, MRC Global Inc. (the “Company”) issued a press release announcing its financial results for the year ended December 31, 2013. A copy of the press release is furnished as Exhibit 99.1 to this Form 8-K and is incorporated herein by reference.

Item 9.01 Financial Statements and Exhibits 

 

99.1 Press Release of MRC Global Inc. dated February 20, 2014

 

 

 

 

 

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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:   February 20, 2014

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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Exhibit 99.1

 

 

 

MRC GLOBAL ANNOUNCES FOURTH QUARTER AND FULL YEAR 2013 RESULTS AND INTRODUCES 2014 GUIDANCE

 

 

Houston, TX – February 20, 2014 – MRC Global Inc. (NYSE: MRC), the largest global distributor, based on sales, of pipe, valves and fittings (PVF) and related products and services to the energy industry, today announced fourth quarter and full year 2013 results and introduced 2014 guidance.

 

The company’s sales increased 3% from $1.31 billion in the fourth quarter of 2012 to $1.34 billion in the same quarter of 2013. The increase of $37 million came from the acquisitions of Production Specialty Services Inc. (PSS), Flow Control Products (Flow Control) and Flangefitt Stainless Ltd. (Flangefitt), all of which are primarily in the upstream sector.

 

Net income for the fourth quarter of 2013 was $23.3 million, or $0.23 per diluted share, compared to a fourth quarter 2012 net loss of ($6.4) million, or ($0.06) per diluted share.

 

Adjusted diluted EPS for the fourth quarter of 2013 was $0.32 per diluted share and excludes the impact of a total of $9.7 million in after-tax charges ($0.09 per diluted share) related to re-pricing of debt, the accelerated recognition of equity-based compensation and an increase in valuation allowances for certain deferred tax assets. Adjusted diluted EPS for the fourth quarter of 2012 was $0.55 per diluted share and excluded $62.8 million in after-tax charges ($0.61 per diluted share) related to the purchase and early retirement of a portion of MRC Global’s previously outstanding senior secured notes and the termination of a pension plan in the Netherlands. See the reconciliation of adjusted net income (a non-GAAP measure) to net income (a GAAP measure) included in this release.

 

Andrew R. Lane, MRC Global’s chairman, president and chief executive officer, stated, "While 2013 didn't result in the growth we had initially expected, we completed our strategic rebalance of OCTG which resulted in a $251 million drop in annual revenue compared to 2012 but accomplished our goal of reducing our exposure to our most volatile, lowest margin product line.”

 

Mr. Lane also noted, “The year finished on a positive note, with the highest sales quarter of the year, up 2% from the previous quarter despite poor weather and fewer billing days. We were successful in expanding several of our major customer framework agreements, adding international scope for future growth. We are also very pleased with our strategic acquisitions of Flangefitt in December 2013 and Stream in January 2014. These two acquisitions significantly increase our international scale as well as add new offshore and project capabilities in the upstream sector to our business model. We successfully managed our working capital in the slower than expected year, generating $324 million in cash flow from operations in 2013 and reduced our long-term debt.”

 

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In conclusion, Mr. Lane stated, “We are looking forward to returning to a year of growth in 2014, with annual sales expected to grow in the high single digits."

 

MRC Global’s fourth quarter 2013 gross profit of $226.0 million declined to 16.8% of sales from fourth quarter 2012 gross profit of $258.3 million, or 19.8% of sales. Fourth quarter 2013 reflected a charge of $1.1 million in cost of sales relating to the use of the last-in, first-out (LIFO) method of inventory cost accounting while fourth quarter 2012 reflected a benefit of $27.2 million. Gross profit was also negatively impacted by pricing pressure and product mix changes in the line pipe product line.

 

Selling, general and administrative expenses were $167.4 million for the fourth quarter of 2013 compared to $154.2 million in the same period of 2012.  This increase included a $5.2 million charge associated with the accelerated recognition of equity-based compensation expense as a result of the November 2013 secondary common stock offering in which our private equity sponsor sold its remaining interest in MRC Global. The increase also included $5.0 million of incremental expense from the PSS, Flow Control and Flangefitt acquisitions as well as costs associated with our ongoing acquisition-related activities.

 

Adjusted EBITDA was $87.2 million for the fourth quarter of 2013 compared to $99.2 million for the same period in 2012. See reconciliation of adjusted EBITDA (a non-GAAP measure) to net income (a GAAP measure) in this release.

 

Interest expense for the fourth quarter of 2013 was $14.7 million as compared to $19.9 million in the fourth quarter of 2012. The decrease in interest expense was the result of lower interest rates from refinancing the company’s senior secured notes in November 2012 and the re-pricing of the senior secured Term Loan B in November 2013, as well as lower average debt balances in 2013.

 

Sales by Segment

 

U.S. sales in the fourth quarter of 2013 were up 6% to $1.01 billion from the same quarter in 2012. A majority of the increase was due to the acquisitions of PSS and Flow Control. In addition, the company experienced organic growth in the sales of its gas utility and line pipe product lines.

 

Canadian sales in the fourth quarter of 2013 were $189.3 million, down 10.6% from the same quarter in 2012. Adjusting for a 5% decline in the Canadian dollar, the company experienced an underlying reduction in sales of approximately 6% due to a lower level of project-related sales.

 

International sales in the fourth quarter of 2013 were $143.1 million, an increase of 1.8% from the same period in 2012. The company experienced growth in sales from Europe and Asia, but were partially offset by a decline in sales from Australasia.

 

Sales by Sector

 

Upstream sales in the fourth quarter of 2013 increased 5.5% from the fourth quarter of 2012 to $606.0 million, or 45% of total sales. The improvement in upstream sales is substantially attributable to the acquisitions of PSS and Flow Control, partially offset by weak sales in Canada.

 

Midstream sales in the fourth quarter of 2013 increased 7.2% from the fourth quarter of 2012 to $392.2 million, or 29% of total sales. Spending from transmission and gas utility customers was up by 4% and 14%, respectively.

 

Downstream sales in the fourth quarter of 2013 decreased 5.6% from the fourth quarter of 2012 to $346.0 million, or 26% of total sales. The company continued to experience weak market conditions in the international and Canadian segments although the company experienced growth in the U.S.

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Balance sheet

 

Debt outstanding was $986.8 million at December 31, 2013, a reduction of $57 million during the fourth quarter of 2013. Cash provided by operations was $82.2 million during the fourth quarter of 2013 and $323.6 million for the year ended December 31, 2013.

 

Calendar Year 2014 Guidance

 

MRC Global’s expected full year 2014 results, excluding the impact of any future acquisitions, are as follows:

 

 

Conference Call

 

The company will hold a conference call to discuss its fourth quarter and full year 2013 results at 10:00 a.m. Eastern (9:00 a.m. Central) on February 21, 2014.  To participate in the call, dial (480) 629-9692 and ask for the MRC Global conference call at least 10 minutes prior to the start time. To access the conference call live over the Internet, please log onto the web at 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 March 8, 2014 and may be accessed by dialing (303) 590-3030 and using pass code 4660955#. Also, an archive of the webcast will be available shortly after the call at http://www.mrcglobal.com for 90 days.

 

About MRC Global Inc.

 

Headquartered in Houston, Texas, MRC Global, a Fortune 500 company, 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.

 

This news release contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Words such as “will,” “expect,” “expected”, “looking forward”, “guidance” and similar expressions are intended to identify forward-looking statements.

Statements about the company’s business, including its strategy, its industry, the company’s future profitability, the company’s guidance on its sales, adjusted EBITDA, tax rate, capital expenditures and cash flow, 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.

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These risks and uncertainties include (among others) decreases in oil and natural gas industry expenditure levels, which may result from decreased oil and natural gas prices or other factors; 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 compete successfully with other companies in MRC Global’s industry; the risk that manufacturers of the products the company distributes will sell a substantial amount of goods directly to end users in the industry sectors the company serves;  unexpected supply shortages;  cost increases by the company’s suppliers; the company’s lack of long-term contracts with most of its suppliers; suppliers’ price reductions of products that the company sells, which could cause the value of the company’s inventory to decline;  decreases in steel prices, which could significantly lower MRC’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 potential adverse effects associated with integrating acquisitions into the company’s business and whether these acquisitions will yield their intended benefits;  the success of the company’s acquisition strategies; 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;  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;  changes in tax laws or adverse positions taken by taxing authorities in the countries in which the company operates;  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 Foreign Corrupt Practices Act and the U.K. Bribery Act and other economic sanction programs;  risks relating to ongoing evaluations of internal controls required by Section 404 of the Sarbanes-Oxley Act;  the impact on us of the SEC’s move toward convergence with IFRS; and the occurrence of cyber security incidents.

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.

 

Contact:

 

 

 

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MRC Global Inc.

Condensed Consolidated Balance Sheets (Unaudited)

(Dollars in thousands, except per share amounts)

 

 

 

 

 

 

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MRC Global Inc.

Condensed Consolidated Statements of Income (Unaudited)

(Dollars in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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MRC Global Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)

 

 

 

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MRC Global Inc.

Supplemental Information (Unaudited)

Reconciliation of Net Income to Adjusted Net Income

(Dollars in thousands, except per share amounts)

 

 

 

 

 

Note to above:

(1)Cash and equity-based compensation charges associated with the separation of an executive officer recorded in SG&A.

(2)Charge resulting from the bankruptcy of a workers’ compensation insurance carrier, which required the company to assume the obligation for existing workers’ compensation claims, recorded in other expenses. 

(3) Expenses related to the re-pricing of the company’s senior secured Term Loan B in November 2013. Write off of debt issuance costs associated with the refinancing of our credit facilities in 2012.

(4) Accelerated recognition of equity-based compensation expense as a result of the November 2013 secondary common stock offering in which our private equity sponsor sold its remaining interest in MRC Global, which was recorded in SG&A.

(5) Net adjustment to increase the valuation allowance on deferred tax assets for certain foreign jurisdictions.

(6) Loss on the extinguishment of debt associated with the purchase and redemption of previously outstanding senior secured notes.

(7)Charges related to termination of a defined benefit pension plan in the Netherlands recorded in other expenses.

* Column does not foot due to rounding.

 

The company presents adjusted net income and adjusted net income per share because the company believes these measures are useful indicators of what the company’s net income and net income per share would have been without the impact of these events being included and believes that many analysts and investors will want to know this information when comparing the company’s results against the results of other companies. Adjusted net income and adjusted net income per share, however, does not represent and should not be considered as an alternative to net income and net income per share calculated and presented in accordance with GAAP. Because net income and net income per share does not account for certain expenses, its utility as a measure of our performance has material limitations. Because of these limitations, management does not view adjusted net income and net income per share in isolation or as a primary performance measure and also uses other measures, such as net income and net income, to measure performance. 

 

 

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MRC Global Inc.

Supplemental Information (Unaudited)

Calculation of Adjusted EBITDA

(Dollars in millions)

 

 

 

 

 

 

 

 

Note to above:

MRC Global defines Adjusted EBITDA as net income plus interest, income taxes, depreciation and amortization, amortization of intangibles, and certain other expenses (such as gain/losses on the early extinguishment of debt, 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 U.S. generally accepted accounting principles (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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