As filed with the Securities and Exchange Commission on August 19, 2008

Registration No. 333-          

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form S-1

REGISTRATION STATEMENT UNDER

THE SECURITIES ACT OF 1933

 

McJUNKIN RED MAN HOLDING CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

 

 

Craig Ketchum

8023 East 63rd Place

Tulsa, Oklahoma 74133

(918) 250-8541

(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)

 

 

With a copy to:

 

Approximate date of commencement of proposed sale to the public:  As soon as practicable after the effective date of this Registration Statement.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  o

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

(Do not check if smaller reporting company)

 

CALCULATION OF REGISTRATION FEE

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

Subject to Completion. Dated August 19, 2008.

 

      Shares

 

McJunkin Red Man Holding Corporation

Common Stock

 

 

 

 

This is an initial public offering of shares of common stock of McJunkin Red Man Holding Corporation. The selling stockholder identified in this prospectus is offering all of the shares to be sold in the offering. We will not receive any of the proceeds from the sale of the shares. PVF Holdings LLC intends to distribute the net proceeds of this offering, after giving effect to the underwriting discount, to its members, which include certain members of our board of directors and senior management team and various of their affiliates, and affiliates of Goldman Sachs & Co., which is one of the book-running managers for this offering.

 

Prior to this offering, there has been no public market for the common stock. It is currently estimated that the initial public offering price per share will be between $      and $     . We intend to apply to have our common stock listed on the New York Stock Exchange under the symbol “MRC”.

 

See “Risk Factors” beginning on page 17 to read about factors you should consider before buying shares of the common stock.

 

 

 

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

 

 

 

 

 

To the extent that the underwriters sell more than           shares of common stock, the underwriters have the option to purchase up to an additional           shares from the selling stockholder at the initial public offering price less the underwriting discount.

 

 

 

 

The underwriters expect to deliver the shares against payment in New York, New York on          , 2008.

 

 

 

 

 

 

Prospectus dated          , 2008.

[Page left intentionally blank]

 

 

TABLE OF CONTENTS

 

Prospectus

 

 

 

Through and including          , 2008 (the 25th day after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

 

 

No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

 

PROSPECTUS SUMMARY

	•	Broad Product Offering and High Customer Service Levels:  The breadth and depth of our product offering enables us to provide a high level of service to our energy and industrial customers. Given our North American inventory coverage and branch network, we are able to fulfill orders more quickly, including orders for less common and specialty items, and provide our customers with a greater array of value added services, including multiple daily deliveries, volume purchasing, product testing and supplier assessments, inventory management and warehousing, technical support, just-in-time delivery, order consolidation, product tagging and tracking, and system interfaces customized to customer and supplier specifications, than if we

		operated on a smaller scale and/or only at a local or regional level. Thus our clients, particularly those operating throughout North America, can quickly and efficiently source the most suitable products with the least amount of downtime and at the lowest total transaction cost.

	•	Approved Manufacturer List (“AML”) Services:  Our customers rely on us to provide a high level of quality control for their PVF products. We do this by regularly auditing many of our suppliers for quality assurance through our Supplier Registration Process. We use our resulting Approved Supplier List (the “MRM ASL”) to supply products across many of the markets we support, particularly for downstream and midstream customers. This process has enabled us to achieve a preferred vendor status with many key end users in the industry that utilize our AML services to help devise and maintain their own approved manufacturer listings. In this manner, we seek to ensure that our customers timely receive reliable and high quality products without incurring additional administrative and procurement expenses. Our suppliers in turn look to us as a key partner, which has been important in establishing us as an important link in the supply chain and a leader in the industry.
	•	Customized and Integrated Service Offering:  We offer our customers integrated supply services including product procurement, product quality assurance, physical warehousing, and inventory management and analysis using our proprietary customized information technology platform. This is part of an overall strategy to promote a “one stop” shop for PVF purchases across the upstream-midstream-downstream spectrum and throughout North America through integrated supply agreements and MRO contracts that enable our customers to focus on their core operations and increase the efficiency of their business.

Issuer		McJunkin Red Man Holding Corporation.
Common stock offered by the selling stockholder		shares.
Option to purchase additional shares of common stock from the selling stockholder		shares.
Common stock outstanding immediately after the offering		shares.
Use of proceeds		The proceeds from the sale of shares of our common stock in the offering are solely for the account of PVF Holdings LLC, the selling stockholder. We will not receive any proceeds from the sale of our common stock by the selling stockholder. See “Use of Proceeds”. PVF Holdings LLC intends to distribute the net proceeds of this offering, after giving effect to the underwriting discount, to its members, which include certain members of our board of directors and senior management team and various of their affiliates. See “Principal and Selling Stockholders” and “Underwriting”. Additionally, affiliates of Goldman, Sachs & Co. own a majority interest in PVF Holdings LLC. Accordingly, such affiliates will receive a significant portion of the proceeds from this offering. See “Underwriting”.
Proposed New York Stock Exchange symbol		“MRC”.
Risk Factors		See “Risk Factors” beginning on page 17 of this prospectus for a discussion of factors that you should carefully consider before deciding to invest in shares of our common

	•	gives effect to a           for      split of our common stock to be effected prior to the pricing of this offering;
	•	excludes           shares of common stock issuable upon the exercise of stock options granted to certain of our employees and directors pursuant to the McJ Holding Corporation 2007 Stock Option Plan; and
	•	excludes           shares of non-vested restricted stock awarded to certain of our employees pursuant to the McJ Holding Corporation 2007 Restricted Stock Plan.

		Predecessor					Successor					Pro Forma					Successor
		One Month					Five Months					Six Months					Six Months
		Ended					Ended					Ended					Ended
		January 30,					June 28,					June 28,					June 26,
		2007					2007					2007					2008
							(Unaudited)					(Unaudited)					(Unaudited)
		(In millions, except per share and share data)
Statement of Operations Data:
Sales		$	142.5				$	784.9				$	1,862.1				$	2,196.0
Costs and expenses
Cost of sales			114.6					635.9					1,529.9					1,803.8
Selling, general and administrative expenses			14.6					80.7					169.2					200.1
Depreciation and amortization			0.3					1.7					5.4					5.2
Amortization of intangibles(1)			—					4.6					12.3					15.6
Profit sharing			1.3					5.6					11.3					13.5
Stock-based compensation			—					1.3					2.3					3.3
Total costs and expenses			130.8					729.8					1,730.4					2,041.5
Operating income			11.7					55.1					131.7					154.5
Other income (expense)
Interest expense			(0.1	)				(24.3	)				(30.4	)				(35.0	)
Minority interests			(0.4	)				—					(0.1	)				(0.1	)
Other, net			—					(0.9	)				(0.7	)				(0.3	)
Total other income (expense)			(0.5	)				(25.2	)				(31.2	)				(35.4	)
Income before income taxes			11.2					29.9					100.5					119.1
Income tax expense			4.6					12.3					37.7					43.2
Net income(2)		$	6.6				$	17.6				$	62.8				$	75.9
Pro forma earnings per share, basic
Pro forma earnings per share, diluted
Pro forma weighted average shares, basic
Pro forma weighted average shares, diluted
Other Financial Data:
Net cash provided by (used in) operating activities		$	6.6				$	1.9					—				$	70.5
Net cash provided by (used in) investing activities			(0.2	)				(933.3	)				—					(16.4	)
Net cash provided by (used in) financing activities			(8.3	)				945.9					—					(55.2	)
Adjusted EBITDA(3)			26.0					151.3					163.4					249.9

		Predecessor													Successor					Pro Forma
		Year				Year				One Month					Eleven Months					Year
		Ended				Ended				Ended					Ended					Ended
		December 31,				December 31,				January 30,					December 31,					December 31,
		2005				2006				2007					2007					2007
																				(Unaudited)
		(In millions, except per share and share data)
Statement of Operations Data:
Sales		$	1,445.8			$	1,713.7			$	142.5				$	2,124.9				$	3,952.7
Costs and expenses
Cost of sales			1,177.1				1,394.3				114.6					1,734.6					3,229.2
Selling, general and administrative expenses			155.7				173.9				14.6					201.9					365.7
Depreciation and amortization			3.7				3.9				0.3					5.4					10.8
Amortization of intangibles			0.3				0.3				—					10.5	(1)				24.6	(1)
Profit sharing			13.1				15.1				1.3					13.2					13.5
Stock-based compensation			—				—				—					3.0					2.9
Total costs and expenses			1,349.9				1,587.5				130.8					1,968.6					3,646.7
Operating income			95.9				126.2				11.7					156.3					306.0
Other income (expense)
Interest expense			(2.7	)			(2.8	)			(0.1	)				(61.7	)				(60.8	)
Minority interests			(2.8	)			(4.1	)			(0.4	)				(0.1	)				0.0
Other, net			(1.3	)			(1.4	)			—					(1.1	)				(3.9	)
Total other income (expense)			(6.8	)			(8.3	)			(0.5	)				(62.9	)				(64.7	)
Income before income taxes			89.1				117.9				11.2					93.4					241.3
Income tax expense			36.6				48.3				4.6					36.5					90.5
Net income(2)		$	52.5			$	69.6			$	6.6				$	56.9				$	150.8
Pro forma earnings per share, basic
Pro forma earnings per share, diluted
Pro forma weighted average shares, basic
Pro forma weighted average shares, diluted
Other Financial Data:
Net cash provided by operating activities		$	30.4			$	18.4			$	6.6				$	110.2					—
Net cash (used in) investing activities			(6.7	)			(3.3	)			(0.2	)				(1,788.9	)				—
Net cash (used in) provided by financing activities			(21.1	)			(17.2	)			(8.3	)				1,687.2					—
Adjusted EBITDA(3)			115.6				139.1				26.0					344.9					370.4

		Predecessor									Successor
															Actual				As Adjusted(4)
		December 31,				December 31,					December 31,				June 26,				June 26,
		2005				2006					2007				2008				2008
		(In millions)
Balance Sheet Data:
Cash and cash equivalents		$	5.9			$	3.7				$	10.1			$	8.8			$	8.8
Working capital			129.0				212.3					663.5				686.1				686.1
Total assets			434.0				481.0					2,925.0				3,294.3				3,294.3
Total debt, including current portion			3.1				13.0					868.4				1,284.7				1,384.7
Minority interest in subsidiaries			11.5				15.6					100.7				95.2				—
Stockholders’ equity			168.8				242.6					1,210.0				824.4				824.4

(1)		Represents amortization of intangibles included as a result of the GS Acquisition, our acquisition of Midway-Tristate Corporation, and the Red Man Transaction, plus associated transaction fees.
(2)		The following are certain charges and costs incurred in each of the relevant periods that are meaningful to understanding our net income and in evaluating our performance:

		Predecessor												Successor				Pro Forma				Successor				Pro Forma				Successor
										One				Eleven								Five				Six				Six
		Year				Year				Month				Months				Year				Months				Months				Months
		Ended				Ended				Ended				Ended				Ended				Ended				Ended				Ended
		December 31,				December 31,				January 30,				December 31,				December 31,				June 28,				June 28,				June 26,
		2005				2006				2007				2007				2007				2007				2007				2008
		(in millions)
LIFO expense		$	20.2			$	12.2				—			$	10.3			$	10.3			$	3.0			$	3.0			$	55.6
Amortization of intangibles			0.3				0.3				—				10.5				24.6				4.6				12.3				15.6
Amortization of financing fees			—				—				—				8.0				3.8				1.6				1.9				2.3

(3)		Adjusted EBITDA is used in our senior secured term loan facility, senior secured revolving credit facility, and junior term loan facility in the ratio of consolidated total debt to consolidated adjusted EBITDA, and is also used in our senior secured term loan facility and junior term loan facility in the ratio of consolidated adjusted EBITDA to consolidated interest expense. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Revolving Credit Facility and Term Loan Facility — Covenants”. Adjusted EBITDA is defined in our credit facilities as net income plus depreciation and amortization, amortization of intangibles, interest expense, income tax expense, stock-based compensation, LIFO expense, certain non-recurring and transaction-related expenses (including transaction costs associated with the GS Acquisition, our acquisition of Midway-Tristate Corporation, and the Red Man Transaction), minority interest, charges in connection with an employee profit sharing plan for certain employees of our subsidiary Midfield Supply ULC, and certain other adjustments, including franchise taxes and pro forma adjustments relating to acquisitions. We present Adjusted EBITDA because it is a material component of material covenants in our senior secured term loan facility and junior term loan facility. In addition, we believe it is a useful indicator of our operating performance. We believe this for the following reasons:

	•	Our management uses Adjusted EBITDA for planning purposes, including the preparation of our annual operating budget and financial projections, as well as for determining a significant portion of the compensation of our executive officers;
	•	Adjusted EBITDA is widely used by investors to measure a company’s operating performance without regard to items, such as interest expense, income tax expense, and depreciation and amortization, that can vary substantially from company to company depending upon their financing and accounting methods, the book value of their assets, their capital structures and the method by which their assets were acquired; and
	•	securities analysts use Adjusted EBITDA as a supplemental measure to evaluate the overall operating performance of companies.

		Particularly, we believe that Adjusted EBITDA is a useful indicator of our operating performance because:

	•	Our lenders believed Adjusted EBITDA was the appropriate performance measure for the key operational covenants in our senior secured term loan facility and junior term loan facility (see “Description of Our Indebtedness”);
	•	Adjusted EBITDA measures our company’s operating performance without regard to LIFO expense, which is high due to recent inflation and therefore reflects an overstatement of the cost of goods sold over recent periods, and we believe that this adjustment assists in comparing us to our peers, because many of our peers do not use the LIFO method of inventory valuation; and
	•	Adjusted EBITDA measures our company’s operating performance without regard to non-recurring and transaction-related expenses incurred in connection with business combination transactions such as the Red Man Transaction.

		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. Our Adjusted EBITDA may not be comparable to similar measures reported by other companies because other companies may not calculate Adjusted EBITDA in the same manner as we do. Although we use Adjusted EBITDA as a measure to assess the operating performance of our business, Adjusted EBITDA has significant limitations as an analytical tool because it excludes certain material costs. For example, it does not include interest expense, which has been a necessary element of our costs. Because we use capital assets, depreciation expense is a necessary element of our costs and our ability to generate revenue. In addition, the omission of the amortization expense associated with our intangible assets further limits the usefulness of this measure. Adjusted EBITDA also does not include the payment of certain taxes, which is also a necessary element of our operations. Furthermore, Adjusted EBITDA does not account for LIFO expense, and therefore to the extent

		that recently purchased inventory accounts for a relatively large portion of our sales, Adjusted EBITDA may overstate our operating performance. Because Adjusted EBITDA does not account for certain expenses, its utility as a measure of our operating performance has material limitations. Because of these limitations management 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.
		The following table presents a reconciliation of Adjusted EBITDA to Net income:

		Predecessor												Successor				Pro Forma				Successor				Pro Forma				Successor
										One				Eleven								Five				Six				Six
		Year				Year				Month				Months				Year				Months				Months				Months
		Ended				Ended				Ended				Ended				Ended				Ended				Ended				Ended
		December 31,				December 31,				January 30,				December 31,				December 31,				June 28,				June 28,				June 26,
		2005				2006				2007				2007				2007				2007				2007				2008
																		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
		(In millions)
Net income		$	52.5			$	69.6			$	6.6			$	56.9			$	150.8			$	17.6			$	62.8			$	75.9
Plus:
Interest expense			2.7				2.8				0.1				61.7				60.8				24.3				30.4				35.0
Income tax expense			36.6				48.3				4.6				36.5				90.5				12.3				37.7				43.2
Amortization of intangibles			0.3				0.3				—				10.5				24.6				4.6				12.3				15.6
Depreciation and amortization			3.7				3.9				0.3				5.4				10.8				1.7				5.4				5.2
Stock-based compensation			—				—				—				3.0				2.9				1.3				2.3				3.3
Red Man pre-merger contribution			—				—				13.1				142.2				—				74.5				—				—
Midway pre-acquisition contribution			—				—				1.0				2.8				3.8				2.8				—				—
LIFO expense			20.2				12.2				—				10.3				10.3				3.0				3.0				55.6
Non-recurring and transaction-related expenses(a)			—				0.4				—				12.7				12.7				9.1				9.1				11.9
Minority interest / Midfield employee profit sharing plan			—				—				0.4				0.9				1.3				—				0.4				3.1
Transaction cost savings			—				—				—				1.1				1.1				—				—				—
Other(b)			(0.4	)			1.6				(0.1	)			0.9				0.8				0.1				—				1.1
Adjusted EBITDA		$	115.6			$	139.1			$	26.0			$	344.9			$	370.4			$	151.3			$	163.4			$	249.9

(a)		Includes transaction costs associated with the GS Acquisition, our acquisition of Midway-Tristate Corporation, and the Red Man Transaction.
(b)		Includes franchise tax expense, certain consulting fees, gains and losses on the sale of assets and other nonrecurring items.

(4)		Adjusted to give effect for our purchase on July 31, 2008 of the approximate 49% minority voting interest in Midfield Supply ULC, one of our subsidiaries.

 

You should carefully consider each of the following risks and all of the information set forth in this prospectus before deciding to invest in our common stock. If any of the following risks and uncertainties develops into actual events, our business, results of operations and financial condition could be materially and adversely affected. In that case, the price of our common stock could decline and you could lose some or all of your investment.

 

Risks Related to Our Business

 

Decreased capital expenditures in the energy industry, which can result from decreased oil and natural gas prices among other things, can materially and adversely affect our business, results of operations and financial condition.

 

A large portion of our revenue depends upon the level of capital expenditures in the oil and gas industry, including capital expenditures in connection with exploration, drilling, production, gathering, transportation, refining and processing operations. Demand for our products and services is particularly sensitive to the level of exploration, development and production activity of, and the corresponding capital expenditures by, oil and natural gas companies. A material decline in oil or natural gas prices could depress levels of exploration, development and production activity, and therefore could lead to a decrease in our customers’ capital expenditures. If our customers’ capital expenditures decline, our business will suffer.

 

Prices for oil and natural gas are subject to large fluctuations in response to relatively minor changes in the supply of and demand for oil and natural gas, market uncertainty, and a variety of other factors that are beyond our control. Oil and natural gas prices are currently at levels higher than historical long term averages, and worldwide oil and gas drilling and exploration activity is also at very high levels. A decline in oil and natural gas prices could result in decreased capital expenditures in the oil and gas industry, and could therefore have a material adverse effect on our business, results of operations and financial condition.

 

Many factors affect the supply of and demand for energy and therefore influence oil and gas prices, including:

 

 

 

Oil and gas prices have been and are expected to remain volatile. This volatility has historically caused oil and gas companies to change their strategies and expenditure levels from year to year. We have experienced in the past, and we will likely experience in the future, significant fluctuations in operating results based on these changes. In particular, such volatility in the oil and gas markets could materially adversely affect our business, results of operations and financial condition.

 

Our business, results of operations and financial condition may be materially and adversely affected by general economic conditions.

 

Many aspects of our business, including demand for our products and the pricing and availability of supplies, are affected by U.S. and global general economic conditions. General economic conditions and predictions regarding future economic conditions also affect our forecasts, and a decrease in demand for our products or other adverse effects resulting from an economic downturn may cause us to fail to achieve our anticipated financial results. General economic factors beyond our control that affect our business and end markets include interest rates, recession, inflation, deflation, consumer credit availability, consumer debt levels, performance of housing markets, energy costs, tax rates and policy, unemployment rates, commencement or escalation of war or hostilities, the threat or possibility of war, terrorism or other global or national unrest, political or financial instability, and other matters that influence spending by our customers. Increasing volatility in financial markets may cause these factors to change with a greater degree of frequency or increase in magnitude. An economic downturn could adversely affect our business, results of operations and financial condition and could also lead to a decrease in the market price of our common stock.

 

We may be unable to compete successfully with other companies in our industry.

 

We sell our products and services in very competitive markets. In some cases, we compete with large oilfield services providers with substantial resources and smaller regional players that may increasingly be willing to provide similar products and services at lower prices. Our revenues and earnings could be adversely affected by competitive actions such as price reductions, improved delivery and other actions by competitors. Our business, results of operations and financial condition could be materially and adversely affected to the extent that our competitors are successful in

reducing our customers’ purchases of our products and services. Competition could also cause us to lower our prices which could reduce our margins and profitability.

 

Demand for our products could decrease if manufacturers of our products were to sell a substantial amount of goods directly to end users in the markets we serve.

 

We do not manufacture any of the products that we distribute. Historically, users of PVF and related products in the United States, in contrast to users of PVF and related products outside the United States, have purchased such products through distributors and not directly from manufacturers. If customers were to purchase the products that we sell directly from manufacturers, or if manufacturers sought to increase their efforts to sell directly to end users, our business, results of operations and financial condition could be materially and adversely affected. These or other developments that remove us from, or limit our role in, the distribution chain, may harm our competitive position in the marketplace and reduce our sales and earnings.

 

We may experience unexpected supply shortages.

 

We distribute products from a wide variety of manufacturers and suppliers. Nevertheless, in the future we may have difficulty obtaining the products we need from suppliers and manufacturers as a result of unexpected demand or production difficulties. Also, products may not be available to us in quantities sufficient to meet our customer demand. Our inability to obtain sufficient products from suppliers and manufacturers, in sufficient quantities, could have a material adverse effect on our business, results of operations and financial condition.

 

We may experience cost increases by suppliers, which we may be unable to pass on to our customers.

 

In the future, we may face supply cost increases due to, among other things, unexpected increases in demand for supplies, decreases in production of supplies or increases in the cost of raw materials or transportation. Our inability to pass supply price increases on to our customers could have a material adverse effect on our business, results of operations and financial condition. For example, we may be unable to pass increased supply costs on to our customers because significant amounts of our sales are derived from stocking program arrangements, contracts and maintenance, repair and operations (“MRO”) arrangements which provide our customers time limited price protection, which may obligate us to sell products at a set price for a specific period. In addition, if supply costs increase, our customers may elect to purchase smaller amounts of products or may purchase products from other distributors. While we may be able to work with our customers to reduce the effects of unforeseen price increases because of our relationships with them, we may not be able to reduce the effects of such cost increases. In addition, to the extent that competition leads to reduced purchases of our products or services or reduction of our prices, and such reductions occur concurrently with increases in the prices for selected commodities which we use in our operations, including steel, nickel and molybdenum, the adverse effects described above would likely be exacerbated and could result in a prolonged downturn in profitability.

 

We do not have contracts with most of our suppliers. The loss of a significant supplier would require us to rely more heavily on our other existing suppliers or to develop relationships with new suppliers, and such a loss may have a material adverse effect on our business, results of operations and financial condition.

 

Given the nature of our business, and consistent with industry practice, we do not have contracts with most of our suppliers. Purchases are generally made through purchase orders. Therefore, most of our suppliers have the ability to terminate their relationships with us at any time. Approximately 33% of our total purchases during 2007 on a pro forma basis were from our ten largest suppliers. Although we believe there are numerous manufacturers with the capacity to supply our products, the loss of one or more of our major suppliers could have a material adverse effect on our business,

results of operations and financial condition. Such a loss would require us to rely more heavily on our other existing suppliers or develop relationships with new suppliers, which may cause us to pay higher prices for products due to, among other things, a loss of volume discount benefits currently obtained from our major suppliers.

 

Price reductions by suppliers of products sold by us could cause the value of our inventory to decline. Also, such price reductions could cause our customers to demand lower sales prices for these products, possibly decreasing our margins and profitability on sales to the extent that our inventory of such products was purchased at the higher prices prior to supplier price reductions and we are required to sell such products to our customers at the lower market prices.

 

The value of our inventory could decline as a result of price reductions by manufacturers of products sold by us. We believe the risk of a material reduction in the value of our inventory is mitigated due to the fact that we do not carry a significant amount of speculative inventory, our significant supply commitments are generally for relatively short-term periods, and we have been selling the same types of products to our customers for many years (and therefore do not expect that our inventory will become obsolete). However, there is no assurance that a substantial decline in product prices would not result in a write-down of our inventory value. Such a write-down could have a material adverse effect on our financial condition.

 

Also, decreases in the market prices of products sold by us could cause customers to demand lower sale prices from us. These price reductions could reduce our margins and profitability on sales with respect to such lower-priced products to the extent that we purchase such products at the higher prices prior to supplier price reductions and we are required to sell such products to our customers at the lower market prices. Reductions in our margins and profitability on sales could have a material adverse effect on our business, results of operations, and financial condition.

 

A substantial decrease in the price of steel could significantly lower our gross profit.

 

We distribute many products manufactured from steel and, as a result, our business is significantly affected by the price and supply of steel. When steel prices are lower, the prices that we charge customers for products may decline, which affects our gross profit. The steel industry as a whole is cyclical and at times pricing and availability of steel can be volatile due to numerous factors beyond our control, including general domestic and international economic conditions, labor costs, sales levels, competition, consolidation of steel producers, fluctuations in the costs of raw materials necessary to produce steel, import duties and tariffs and currency exchange rates. This volatility can significantly affect the availability and cost of steel for our suppliers. When steel prices decline, customer demands for lower prices and our competitors’ responses to those demands could result in lower sale prices and, consequently, lower gross profit.

 

If steel prices rise, we may be unable to pass along the cost increases to our customers.

 

We maintain inventories of steel products to accommodate the lead time requirements of our customers. Accordingly, we purchase steel products in an effort to maintain our inventory at levels that we believe to be appropriate to satisfy the anticipated needs of our customers based upon historic buying practices, contracts with customers and market conditions. Our commitments to purchase steel products are generally at prevailing market prices in effect at the time we place our orders. If steel prices increase between the time we order steel products and the time of delivery of such products to us, our suppliers may impose surcharges that require us to pay for increases in steel prices during such period. Demand for our products, the actions of our competitors, and other factors will influence whether we will be able to pass such steel cost increases and surcharges on to our customers, and we may be unsuccessful in doing so.

We do not have long-term contracts with many of our customers and our contracts generally do not commit our customers to any minimum purchase volume. The loss of a significant customer may have a material adverse effect on our business, results of operations and financial condition.

 

Given the nature of our business, and consistent with industry practice, we do not have long-term contracts with many of our customers and our contracts, including our maintenance, repair and operations contracts, generally do not commit our customers to any minimum purchase volume. Therefore, a significant number of our customers may terminate their relationships with us or reduce their purchasing volume at any time. Furthermore, the long-term customer contracts that we do have are generally terminable without cause on short notice. Our 10 largest customers represented 24% of our total pro forma sales for the fiscal year ended December 31, 2007. The products that we may sell to any particular customer depend in large part on the size of that customer’s capital expenditure budget in a particular year and on the results of competitive bids for major projects. Consequently, a customer that accounts for a significant portion of our sales in one fiscal year may represent an immaterial portion of our sales in subsequent fiscal years. The loss of a significant customer, or a substantial decrease in a significant customer’s orders, may have a material adverse effect on our business, results of operations and financial condition.

 

Changes in our customer and product mix could cause our gross margin percentage to fluctuate.

 

From time to time, we may experience changes in our customer mix and in our product mix. Changes in our customer mix may result from geographic expansion, daily selling activities within current geographic markets, and targeted selling activities to new customer segments. Changes in our product mix may result from marketing activities to existing customers and needs communicated to us from existing and prospective customers. If customers begin to require more lower-margin products from us and fewer higher-margin products, our business, results of operations and financial condition may suffer.

 

We face risks associated with our business combination with Red Man Pipe & Supply Co. in October 2007, and this business combination may not yield all of its intended benefits.

 

We are currently continuing the process of integrating the McJunkin and Red Man businesses, which were previously operated independently and sometimes competed with one another. If we cannot successfully integrate these two businesses, there may be a material adverse effect on our combined business, results of operations and financial condition. The difficulty of combining the companies presents challenges to our management, including:

 

 

If the risks associated with the Red Man Transaction materialize and we are unable to sufficiently address them, there is a possibility that the results of operations of our combined company could be

less successful than the separate results of operations of McJunkin and Red Man, taken together, if the Red Man Transaction had never occurred.

 

We may be unable to successfully execute or effectively integrate acquisitions.

 

One of our key operating strategies is to selectively pursue acquisitions, including large scale acquisitions, in order to continue to grow and increase profitability. However, acquisitions, particularly of a significant scale, involve numerous risks and uncertainties, including intense competition for suitable acquisition targets; the potential unavailability of financial resources necessary to consummate acquisitions in the future; increased leverage due to additional debt financing that may be required to complete an acquisition; dilution of our stockholders’ net current book value per share if we issue additional equity securities to finance an acquisition; difficulties in identifying suitable acquisition targets or in completing any transactions identified on sufficiently favorable terms; and the need to obtain regulatory or other governmental approvals that may be necessary to complete acquisitions. In addition, any future acquisitions may entail significant transaction costs and risks associated with entry into new markets.

 

In addition, even when acquisitions are completed, integration of acquired entities can involve significant difficulties, such as:

 

 

Failure to manage these acquisition growth risks could have a material adverse effect on our business, results of operations and financial condition.

 

Our significant indebtedness may affect our ability to operate our business, and may have a material adverse effect on our business, results of operations and financial condition.

 

We have now and will likely continue to have a significant amount of indebtedness. As of June 26, 2008, we had total debt outstanding of $1,284.7 million and we had borrowing availability of $542.5 million under our credit facilities. We and our subsidiaries may incur significant additional indebtedness in the future. If new indebtedness is added to our current indebtedness, the risks described below could increase. Our significant level of indebtedness could have important consequences, such as:

 

 

 

In addition, borrowings under our credit facilities bear interest at variable rates. If market interest rates increase, such variable-rate debt will create higher debt service requirements, which could adversely affect our cash flow. Our pro forma interest expense for the twelve months ended December 31, 2007 was $60.8 million.

 

Our ability to make scheduled debt payments, to refinance our obligations with respect to our indebtedness and to fund capital and non-capital expenditures necessary to maintain the condition of our operating assets, properties and systems software, as well as to provide capacity for the growth of our business, depends on our financial and operating performance, which, in turn, is subject to prevailing economic conditions and financial, business, competitive, legal and other factors. Our business may not generate sufficient cash flow from operations, and future borrowings may not be available to us under our credit facilities in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. We may seek to sell assets to fund our liquidity needs but may not be able to do so. We may also need to refinance all or a portion of our indebtedness on or before maturity. We may not be able to refinance any of our indebtedness on commercially reasonable terms or at all.

 

In addition, we are and will be subject to covenants contained in agreements governing our present and future indebtedness. These covenants include and will likely include restrictions on certain payments and investments, the redemption and repurchase of capital stock, the issuance of stock of subsidiaries, the granting of liens, the incurrence of additional indebtedness, dividend restrictions affecting us and our subsidiaries, asset sales, transactions with affiliates and mergers and acquisitions. They also include financial maintenance covenants which contain financial ratios we must satisfy each quarter. Any failure to comply with these covenants could result in a default under our credit facilities. Upon a default, unless waived, the lenders under our secured credit facilities would have all remedies available to a secured lender, and could elect to terminate their commitments, cease making further loans, institute foreclosure proceedings against our or our subsidiaries’ assets, and force us and our subsidiaries into bankruptcy or liquidation.

 

In addition, any defaults under our credit facilities or our other debt could trigger cross defaults under other or future credit agreements and may permit acceleration of our other indebtedness. If our indebtedness is accelerated, we cannot be certain that we will have sufficient funds available to pay the accelerated indebtedness or that we will have the ability to refinance the accelerated indebtedness on terms favorable to us or at all. For a description of our credit facilities, please see “Description of Our Indebtedness”.

 

We are a holding company and depend upon our subsidiaries for our cash flow.

 

We are a holding company. Our subsidiaries conduct all of our operations and own substantially all of our assets. Consequently, our cash flow and our ability to meet our obligations or to pay dividends or make other distributions in the future will depend upon the cash flow of our subsidiaries and the payment of funds by our subsidiaries to us in the form of dividends, tax sharing payments or otherwise. In addition, McJunkin Red Man Corporation, our direct subsidiary and the primary obligor

under our $1,275 million senior secured credit facilities, is also dependent to a significant extent on the cash flow of its subsidiaries in order to meet its debt service obligations.

 

The ability of our subsidiaries to make any payments to us will depend on their earnings, the terms of their current and future indebtedness, tax considerations and legal and contractual restrictions on the ability to make distributions. In particular, our subsidiaries’ credit facilities currently impose significant limitations on the ability of our subsidiaries to make distributions to us and consequently our ability to pay dividends to our stockholders. Subject to limitations in our credit facilities, our subsidiaries may also enter into additional agreements that contain covenants prohibiting them from distributing or advancing funds or transferring assets to us under certain circumstances, including to pay dividends.

 

Our subsidiaries are separate and distinct legal entities. Any right that we have to receive any assets of or distributions from any of our subsidiaries upon the bankruptcy, dissolution, liquidation or reorganization of any such subsidiary, or to realize proceeds from the sale of their assets, will be junior to the claims of that subsidiary’s creditors, including trade creditors and holders of debt issued by that subsidiary.

 

Changes in our credit profile may affect our relationship with our suppliers, which could have a material adverse effect on our liquidity.

 

Changes in our credit profile may affect the way our suppliers view our ability to make payments and may induce them to shorten the payment terms of their invoices, particularly given our high level of outstanding indebtedness. Given the large dollar amounts and volume of our purchases from suppliers, a change in payment terms may have a material adverse effect on our liquidity and our ability to make payments to our suppliers, and consequently may have a material adverse effect on our business, results of operations and financial condition.

 

Our business, results of operations and financial condition could be materially and adversely affected if restrictions on imports of line pipe, oil country tubular goods, or certain of the other products that we sell are lifted.

 

U.S. law currently imposes tariffs and duties on imports from certain foreign countries of line pipe and oil country tubular goods, and, to a lesser extent, on imports of certain other products that we sell. If these restrictions are lifted, if the tariffs are reduced or if the level of such imported products otherwise increases, and these imported products are accepted by our customer base, our business, results of operations and financial condition could be materially and adversely affected to the extent that we would then have higher-cost products in our inventory or if prices and margins are driven down by increased supplies of such products. If prices of these products were to decrease significantly, we might not be able to profitably sell these products and the value of our inventory would decline. In addition, significant price decreases could result in a significantly longer holding period for some of our inventory, which could also have a material adverse effect on our business, results of operations and financial condition.

 

We are subject to strict environmental, health and safety laws and regulations that may lead to significant liabilities.

 

We are subject to a variety of federal, state, local, foreign and provincial environmental, health and safety laws and regulations, including those governing the discharge of pollutants into the air or water, the management, storage and disposal of hazardous substances and wastes, the responsibility to investigate and cleanup contamination and occupational health and safety. Fines and penalties may be imposed for non-compliance with applicable environmental, health and safety requirements and the failure to have or to comply with the terms and conditions of required permits. Historically, the costs to comply with environmental and health and safety requirements have not been material. However, the

failure by us to comply with applicable environmental, health and safety requirements could result in fines, penalties, enforcement actions, third party claims for property damage and personal injury, requirements to clean up property or to pay for the costs of cleanup, or regulatory or judicial orders requiring corrective measures, including the installation of pollution control equipment or remedial actions.

 

Under certain laws and regulations, such as the federal Superfund law, the obligation to investigate and remediate contamination at a facility may be imposed on current and former owners or operators or on persons who may have sent waste to that facility for disposal. Liability under these laws and regulations may be without regard to fault or to the legality of the activities giving rise to the contamination. Contamination has been identified at several of our current and former facilities, and we have incurred and will continue to incur costs to investigate and remediate these conditions.

 

Moreover, we may incur liabilities in connection with environmental conditions currently unknown to us relating to our existing, prior, or future sites or operations or those of predecessor companies whose liabilities we may have assumed or acquired. We believe that indemnities contained in certain of our acquisition agreements may cover certain environmental conditions existing at the time of the acquisition, subject to certain terms, limitations and conditions. However, if these indemnification provisions terminate or if the indemnifying parties do not fulfill their indemnification obligations, we may be subject to liability with respect to the environmental matters that may be covered by such indemnification obligations.

 

In addition, environmental, health and safety laws and regulations applicable to our business and the business of our customers, including laws regulating the energy industry, and the interpretation or enforcement of these laws and regulations, are constantly evolving and it is impossible to predict accurately the effect that changes in these laws and regulations, or their interpretation or enforcement, may have upon our business, financial condition or results of operations. In particular, legislation and regulations limiting emissions of greenhouse gases, including carbon dioxide associated with the burning of fossil fuels, are at various stages of consideration and implementation, and if fully implemented, could negatively impact the market for our products and, consequently, our business. Should environmental laws and regulations, or their interpretation or enforcement, become more stringent, our costs could increase, which may have a material adverse effect on our business, financial condition and results of operations.

 

We may not have adequate insurance for potential liabilities, including liabilities arising from litigation.

 

In the ordinary course of business, we have and in the future may become the subject of various claims, lawsuits and administrative proceedings seeking damages or other remedies concerning our commercial operations, products, employees and other matters, including potential claims by individuals alleging exposure to hazardous materials as a result of our products or operations. Some of these claims may relate to the activities of businesses that we have acquired, even though these activities may have occurred prior to our acquisition of such businesses. Our products are sold primarily for use in the energy industry, which is subject to inherent risks that could result in death, personal injury, property damage, pollution or loss of production. In addition, defects in our products could result in death, personal injury, property damage, pollution or damage to equipment and facilities. Actual or claimed defects in the products we distribute may give rise to claims against us for losses and expose us to claims for damages.

 

We maintain insurance to cover certain of our potential losses, and we are subject to various self-retentions, deductibles and caps under our insurance. It is possible, however, that judgments could be rendered against us in cases in which we would be uninsured and beyond the amounts that we currently have reserved or anticipate incurring for such matters. Even a partially uninsured claim, if successful and of significant size, could have a material adverse effect on our business, results of operations and financial condition. Furthermore, we may not be able to continue to obtain insurance

on commercially reasonable terms in the future, and we may incur losses from interruption of our business that exceed our insurance coverage. Finally, even in cases where we maintain insurance coverage, our insurers may raise various objections and exceptions to coverage which could make uncertain the timing and amount of any possible insurance recovery.

 

Due to our position as a distributor, we are subject to personal injury, product liability and environmental claims involving allegedly defective products.

 

Certain of our products are used in potentially hazardous applications that can result in personal injury, product liability and environmental claims. A catastrophic occurrence at a location where our products are used may result in us being named as a defendant in lawsuits asserting potentially large claims, even though we did not manufacture the products, and applicable law may render us liable for damages without regard to negligence or fault. Particularly, certain environmental laws provide for joint and several and strict liability for remediation of spills and releases of hazardous substances. Certain of these risks are reduced by the fact that we are a distributor of products produced by third-party manufacturers, and thus in certain circumstances we may have third-party warranty or other claims against the manufacturer of products alleged to have been defective. However, there is no assurance that such claims could fully protect us or that the manufacturer would be able financially to provide such protection. There is no assurance that our insurance coverage will be adequate to cover the underlying claims and our insurance does not provide coverage for all liabilities (including liability for certain events involving pollution).

 

We are a defendant in asbestos-related lawsuits, and exposure to these and any future lawsuits could have a material adverse effect on our business, results of operations and financial condition.

 

We are a defendant in lawsuits involving approximately 826 plaintiffs as of June 2008 alleging, among other things, personal injury, including mesothelioma and other cancers, arising from exposure to asbestos-containing materials included in products distributed by us in the past. The complaints in these lawsuits typically name many other defendants. In the majority of these lawsuits, little or no information is known regarding the nature of the plaintiffs’ alleged injuries or their connection with the products we distributed. Based on our experience with asbestos litigation to date, as well as the existence of certain insurance coverage, we do not believe that the outcome of these cases will have a material impact on us. However, the potential liability associated with asbestos lawsuits is subject to many uncertainties, including negative developments in the cases pending against us, the current or future insolvency of co-defendants, adverse changes in relevant laws or the interpretation thereof, and the extent to which insurance will be available to pay for defense costs, judgments or settlements. Further, we expect that additional claims will be filed against us in the future, but we are unable to predict the number, timing and magnitude of such future claims with any certainty. Therefore, we cannot assure you that pending or future asbestos litigation will not ultimately have a material adverse effect on our business, results of operations and financial condition. See “Risk Factors — We may not have adequate insurance for potential liabilities, including liabilities arising from litigation”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Contingencies” and “Business — Legal Proceedings” for more information.

 

If we lose any of our key personnel, we may be unable to effectively manage our business or continue our growth.

 

Our future performance depends to a significant degree upon the continued contributions of our management team and our ability to attract, hire, train and retain qualified managerial, sales and marketing personnel. Particularly, we rely on our sales and marketing teams to create innovative ways to generate demand for our products. The loss or unavailability to us of any member of our management team or a key sales or marketing employee could have a material adverse effect on our business, results of operations and financial condition to the extent we are unable to timely find

adequate replacements. We face competition for these professionals from our competitors, our customers and other companies operating in our industry. We may be unsuccessful in attracting, hiring, training and retaining qualified personnel, and our business, results of operations and financial condition could be materially and adversely effected under such circumstances.

 

Interruptions in the proper functioning of our information systems or failure to timely and properly complete our current information systems integration project could disrupt operations and cause increases in costs and/or decreases in revenues.

 

The proper functioning of our information systems is critical to the successful operation of our business. We depend on our information technology systems to process orders, track credit risk, manage inventory and monitor accounts receivable collections. Our information systems also allow us to efficiently purchase products from our vendors and ship products to our customers on a timely basis, maintain cost-effective operations and provide superior service to our customers. Although our information systems are protected through physical and software safeguards and remote processing capabilities exist, information systems are still vulnerable to natural disasters, power losses, telecommunication failures and other problems. If critical information systems fail or are otherwise unavailable, our ability to procure products to sell, process and ship customer orders, identify business opportunities, maintain proper levels of inventories, collect accounts receivable and pay accounts payable and expenses could be adversely affected. Our ability to integrate our systems with our customers’ systems would also be significantly affected. We maintain information systems controls designed to protect against, among other things, unauthorized program changes and unauthorized access to data on our information systems. If our information systems controls do not function properly, we face increased risks of unexpected errors and unreliable financial data.

 

In addition, we are currently integrating the information systems of our predecessor companies McJunkin Corporation and Red Man Pipe & Supply Co. and our Canadian subsidiary, Midfield Supply ULC. Our failure to timely and properly complete this project and train our staff in the use of the integrated system could cause similar negative effects.

 

The loss of third-party transportation providers upon whom we depend, or conditions negatively affecting the transportation industry, could increase our costs or cause a disruption in our operations.

 

We depend upon third-party transportation providers for delivery of products to our customers. Strikes, slowdowns, transportation disruptions or other conditions in the transportation industry, including, but not limited to, shortages of truck drivers, disruptions in rail service, increases in fuel prices and adverse weather conditions, could increase our costs and disrupt our operations and our ability to service our customers on a timely basis. We cannot predict whether or to what extent recent increases or anticipated increases in fuel prices may impact our costs or cause a disruption in our operations going forward.

 

We may need additional capital in the future and it may not be available on acceptable terms.

 

We may require more capital in the future to:

 

We cannot assure you that additional financing will be available on terms favorable to us, or at all. The terms of available financing may place limits on our financial and operating flexibility. If adequate funds are not available on acceptable terms, we may be forced to reduce our operations or delay, limit or abandon expansion opportunities. Moreover, even if we are able to continue our operations, the failure to obtain additional financing could reduce our competitiveness.

 

Hurricanes or other adverse weather events could negatively affect our local economies or disrupt our operations, which could have an adverse effect on our business or results of operations.

 

Certain areas in which we operate in the United States, including areas in the southeastern United States, are susceptible to hurricanes and other adverse weather conditions. Such weather events can disrupt our operations, result in damage to our properties and negatively affect the local economies in which we operate. Additionally, we may experience communication disruptions with our customers, vendors and employees. In late August 2005 and September 2005, Hurricanes Katrina and Rita struck the Gulf Coast of Louisiana, Mississippi, Alabama and Texas and caused extensive and catastrophic physical damage to those market areas. Hurricanes can cause physical damage to our branches and require us to close branches in order to secure our employees. Additionally, our sales order backlog and shipments can experience a temporary decline immediately following hurricanes.

 

We cannot predict whether or to what extent damage caused by future hurricanes and tropical storms will affect our operations or the economies in regions where we operate. Such adverse weather events could result in disruption of our purchasing and/or distribution capabilities, interruption of our business that exceeds our insurance coverage, our inability to collect from customers and increased operating costs. Our business or results of operations may be adversely affected by these and other negative effects of hurricanes or other adverse weather events.

 

The failure of Red Man Distributors LLC to continue to be certified as a minority business enterprise could result in the loss of customers or volume which may have a material adverse effect on our business, results of operations and financial condition.

 

Our wholly owned subsidiary, McJunkin Red Man Corporation owns 49% of the outstanding equity interests in Red Man Distributors LLC (“RMD”), an Oklahoma limited liability company formed on November 1, 2007 for the purposes of distributing oil country tubular goods in North America as a certified minority supplier. RMD is currently certified by each of the Oklahoma Minority Supplier Development Council and the North Central Texas Regional Certification Agency as a minority business enterprise. If for any reason RMD ceases to be certified as a minority business enterprise, then customers who may derive advantages from purchasing products from RMD as a result of its status as a certified minority business enterprise could terminate their relationships with RMD or reduce their purchasing volume. The loss of a significant customer of RMD, or a significant decrease in a customer’s orders, may have a material adverse effect on our business, results of operations and financial condition.

 

We have a substantial amount of goodwill and other intangibles recorded on our balance sheet, partly because of our recent acquisitions and business combination transactions. The amortization of acquired assets will reduce our future reported earnings and, furthermore, if our goodwill or other intangible assets become impaired, we may be required to recognize charges that would reduce our income.

 

As of June 26, 2008, we had $1.8 billion of goodwill and other intangibles recorded on our balance sheet. A substantial portion of these intangible assets result from our use of purchase accounting in connection with the GS Acquisition, our acquisition of Midway-Tristate Corporation, and the Red Man Transaction. In accordance with the purchase accounting method, the excess of the cost of purchased assets over the fair value of such assets is assigned to intangible assets and is

amortized over a period of time. The amortization expense associated with our intangible assets will have a negative effect on our future reported earnings. Many other companies, including many of our competitors, will not have the significant acquired intangible assets that we have because they have not participated in recent acquisitions and business combination transactions similar to ours. Thus, their reported earnings will not be as negatively affected by the amortization of intangible assets as our reported earnings will be.

 

Additionally, under U.S. generally accepted accounting principles, goodwill and certain other intangible assets are not amortized but must be reviewed for possible impairment annually, or more often in certain circumstances if events indicate that the asset values are not recoverable. Such reviews could result in an earnings charge for the impairment of goodwill, which would reduce our income and negatively affect our stock price even though there would be no impact on our underlying cash flow.

 

We face risks associated with conducting business in markets outside of North America.

 

Nigeria is currently the only country outside of North America in which we conduct business, though we are aware that our customers use our products outside of North America as well. In addition, we are evaluating the possibility of establishing distribution networks in certain other foreign countries, particularly in West Africa, the Middle East, Europe and South America. Though our revenue from business in developing countries is currently not significant, our business, results of operations and financial condition could be materially and adversely affected by changes in the developing countries in which we do business in the future or in which we expand our business, particularly those countries which have historically experienced a high degree of political and/or economic instability. Examples of risks inherent in such non-North American activities include changes in the political and economic conditions in the countries in which we operate, including civil uprisings and terrorist acts, unexpected changes in regulatory requirements, changes in tariffs, the adoption of foreign or domestic laws limiting exports to certain foreign countries, fluctuations in currency exchange rates and the value of the U.S. dollar, restrictions on repatriation of earnings, expropriation of property without fair compensation, governmental actions that result in the deprivation of contract or proprietary rights, the acceptance of business practices which are not consistent with or antithetical to prevailing business practices we are accustomed to in North America, and governmental sanctions. If we begin doing business in a foreign country in which we do not presently operate, we may also face difficulties in operations and diversion of management time in connection with establishing our business there.

 

The requirements of being a public company, including compliance with the reporting requirements of the Exchange Act and the requirements of the Sarbanes-Oxley Act, may strain our resources, increase our costs and distract management, and we may be unable to comply with these requirements in a timely or cost-effective manner.

 

As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, or the Exchange Act, and the corporate governance standards of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and the New York Stock Exchange. These requirements may place a strain on our management, systems and resources. The Exchange Act will require that we file annual, quarterly and current reports with respect to our business and financial condition within specified time periods. The Sarbanes-Oxley Act will require that we maintain effective disclosure controls and procedures and internal control over financial reporting. Due to our limited operating history, our disclosure controls and procedures and internal controls may not meet all of the standards applicable to public companies subject to the Sarbanes-Oxley Act. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, significant resources and management oversight will be required. This may divert management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition, results of operations and the price of our common stock.

We also expect that it could be difficult and will be significantly more expensive to obtain directors’ and officers’ liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers. Advocacy efforts by shareholders and third parties may also prompt even more changes in governance and reporting requirements. We cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

 

We will be exposed to risks relating to evaluations of controls required by Section 404 of the Sarbanes-Oxley Act.

 

We are in the process of evaluating our internal controls systems to allow management to report on, and our independent auditors to audit, our internal control over financial reporting. We will be performing the system and process evaluation and testing (and any necessary remediation) required to comply with the management certification and auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, and will be required to comply with Section 404 in our annual report for the year ended December 31, 2009 (subject to any change in applicable SEC rules). Furthermore, upon completion of this process, we may identify control deficiencies of varying degrees of severity under applicable U.S. Securities and Exchange Commission, or SEC, and Public Company Accounting Oversight Board, or PCAOB, rules and regulations that remain unremediated. As a public company, we will be required to report, among other things, control deficiencies that constitute a “material weakness” or changes in internal controls that, or that are reasonably likely to, materially affect internal control over financial reporting. A “material weakness” is a significant deficiency or combination of significant deficiencies in internal control over financial reporting that results in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

 

If we fail to implement the requirements of Section 404 in a timely manner, we might be subject to sanctions or investigation by regulatory authorities such as the SEC or the PCAOB. If we do not implement improvements to our disclosure controls and procedures or to our internal controls in a timely manner, our independent registered public accounting firm may not be able to certify as to the effectiveness of our internal control over financial reporting pursuant to an audit of our internal control over financial reporting. This may subject us to adverse regulatory consequences or a loss of confidence in the reliability of our financial statements. We could also suffer a loss of confidence in the reliability of our financial statements if our independent registered public accounting firm reports a material weakness in our internal controls, if we do not develop and maintain effective controls and procedures or if we are otherwise unable to deliver timely and reliable financial information. Any loss of confidence in the reliability of our financial statements or other negative reaction to our failure to develop timely or adequate disclosure controls and procedures or internal controls could result in a decline in the price of our common stock. In addition, if we fail to remedy any material weakness, our financial statements may be inaccurate, we may face restricted access to the capital markets and our stock price may be adversely affected.

 

We are a “controlled company” within the meaning of the New York Stock Exchange rules and, as a result, will qualify for, and may rely on, exemptions from certain corporate governance requirements.

 

A company of which more than 50% of the voting power is held by an individual, a group or another company is a “controlled company” within the meaning of the New York Stock Exchange rules and may elect not to comply with certain corporate governance requirements of the New York Stock Exchange, including:

 

 

 

Following this offering, we will rely on some or all of these exemptions as a controlled company. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the New York Stock Exchange.

 

We are a newly combined company with a limited combined operating history, and the financial statements presented in this prospectus may therefore not give you an accurate indication of what our future results of operations are likely to be.

 

The Red Man Transaction closed on October 31, 2007 and we have operated as a combined company only since that time. Our limited combined operating history may make it difficult to forecast our future operating results and financial condition. Because of the significance of the Red Man Transaction, the financial statements for periods prior to the transaction are not comparable with those after the transaction, and the lack of comparable data may make it difficult to evaluate our results of operations and future prospects. The only historical financial statements of our combined company included in this prospectus are audited financial statements for the eleven months ended December 31, 2007 (which includes McJunkin’s results for the full eleven month period and Red Man’s results for only the two months following October 31, 2007) and unaudited financial statements for the six months ended June 26, 2008. Pro forma financial information that assumes that the Red Man Transaction closed on January 1, 2007 as opposed to the actual closing date of October 31, 2007 is presented with respect to the twelve months ended December 31, 2007 and the six months ended June 28, 2007. However, due to our limited combined operating history, these historical financial statements and the related pro forma information may not give you an accurate indication of what our actual results would have been if the combination had been completed at the beginning of the periods presented or of what our future results of operations and financial condition are likely to be. In addition, we acquired Midway-Tristate Corporation in April 2007, and we acquired the remaining approximate 49% minority voting interest in Midfield in July 2008, but our pro forma financial statements do not (and are not required to) give effect to either of these transactions.

 

Additionally, other historical financial statements reflecting the separate historical results of operations, financial position and cash flows of McJunkin and Red Man prior to the Red Man Transaction are also included in this prospectus. These financial statements reflect the results of operations, financial condition and cash flows of McJunkin and Red Man as stand-alone companies and thus they may not give you an accurate indication of what our combined results would have been if the Red Man Transaction had been completed at an earlier time or of what our future results of operations and financial condition are likely to be.

 

Risks Related to this Offering and our Common Stock

 

There is no existing market for our common stock, and we do not know if one will develop to provide you with adequate liquidity. If our stock price fluctuates after this offering, you could lose a significant part of your investment.

 

Prior to this offering, there has not been a public market for our common stock. If an active trading market does not develop, you may have difficulty selling any of our common stock that you buy. The initial public offering price for the shares will be determined by negotiations among the Company, the selling stockholder and the underwriters and may not be indicative of prices that will prevail in the open market following this offering. Consequently, you may not be able to sell shares of

our common stock at prices equal to or greater than the price you paid in this offering. The market price of our common stock may be influenced by many factors including:

 

 

As a result of these factors, investors in our common stock may not be able to resell their shares at or above the initial offering price. In addition, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies like us. These broad market and industry factors may significantly reduce the market price of our common stock, regardless of our operating performance.

 

Following the completion of this offering, certain affiliates of The Goldman Sachs Group, Inc. will continue to control us and may have conflicts of interest with other stockholders. Conflicts of interest may arise because affiliates of our principal stockholder have continuing agreements and business relationships with us.

 

Upon completion of this offering, certain affiliates of The Goldman Sachs Group, Inc. (the “Goldman Sachs Funds”) will control     % of our outstanding common stock, or     % if the underwriters exercise their option in full. As a result, the Goldman Sachs Funds will continue to be able to control the election of our directors, determine our corporate and management policies and determine, without the consent of our other stockholders, the outcome of any corporate transaction or other matter submitted to our stockholders for approval, including potential mergers or acquisitions, asset sales and other significant corporate transactions. The Goldman Sachs Funds will also have sufficient voting power to amend our organizational documents.

 

Conflicts of interest may arise between our principal stockholder and us. Affiliates of our principal stockholder engage in transactions with our company. One affiliate of our principal stockholder, Goldman Sachs Credit Partners, L.P., is the joint lead arranger for our $1,275 million senior secured credit facilities and our $450 million term loan facility. See “Certain Relationships and Related Party Transactions”. Further, the Goldman Sachs Funds are in the business of making investments in companies and may, from time to time, acquire and hold interests in businesses that compete directly or indirectly with us and they may either directly, or through affiliates, also maintain business relationships with companies that may directly compete with us. In general, the Goldman Sachs Funds or their affiliates could pursue business interests or exercise their voting power as stockholders in ways that are detrimental to us but beneficial to themselves or to other companies in which they invest or with whom they have a material relationship. Conflicts of interest could also arise with respect to business opportunities that could be advantageous to the Goldman Sachs Funds and they may pursue acquisition opportunities that may be complementary to our business, and as a result, those acquisition opportunities may not be available to us. Under the terms of our amended and restated

certificate of incorporation, the Goldman Sachs Funds will have no obligation to offer us corporate opportunities. See “Description of Our Capital Stock — Corporate Opportunities”.

 

As a result of these relationships, the interests of the Goldman Sachs Funds may not coincide with the interests of our company or other holders of our common stock. So long as the Goldman Sachs Funds continue to control a significant amount of the outstanding shares of our common stock, the Goldman Sachs Funds will continue to be able to strongly influence or effectively control our decisions, including potential mergers or acquisitions, asset sales and other significant corporate transactions. See “Certain Relationships and Related Party Transactions”.

 

We do not currently intend to pay dividends in the foreseeable future.

 

It is uncertain when, if ever, we will declare dividends to our stockholders. We do not currently intend to pay dividends in the foreseeable future. Our ability to pay dividends is constrained by our holding company structure under which we are dependent on payments by our subsidiaries. Additionally, we and our subsidiaries are parties to credit agreements which restrict our ability and their ability to pay dividends. See “Dividend Policy” and “Description of our Indebtedness”. You should not rely on an investment in us if you require dividend income. In the foreseeable future, the only possible return on an investment in us would come from an appreciation of our common stock and there can be no assurance that our common stock will appreciate after this offering.

 

Shares eligible for future sale may cause the price of our common stock to decline.

 

Sales of substantial amounts of our common stock in the public market, or the perception that these sales may occur, could cause the market price of our common stock to decline. This could also impair our ability to raise additional capital through the sale of our equity securities. Under our amended and restated certificate of incorporation, we are authorized to issue up to          shares of common stock, of which           shares of common stock are currently outstanding. Of these shares, the           shares of common stock sold in this offering will be freely transferable without restriction or further registration under the Securities Act by persons other than “affiliates”, as that term is defined in Rule 144 under the Securities Act. Our principal stockholder, directors and executive officers, who collectively beneficially own           shares, will enter into lock-up agreements, pursuant to which they will agree, subject to certain exceptions, not to sell or transfer, directly or indirectly, any shares of our common stock for a period of 180 days from the date of this prospectus, subject to extension in certain circumstances. Upon the expiration of these lock-up agreements, all of these shares of common stock will be tradable subject to limitations imposed by Rule 144 under the Securities Act. See “Shares Eligible for Future Sale”.

 

This prospectus contains forward-looking statements. Statements that are predictive in nature, that depend upon or refer to future events or conditions or that include the words “believe”, “expect”, “anticipate”, “intend”, “estimate” and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements. Our forward-looking statements include, among others, statements about our business strategy, our industry, our future profitability, and the costs of operating as a public company. These statements involve known and unknown risks, uncertainties and other factors, including the factors described under “Risk Factors”, 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. Such risks and uncertainties include, among other things:

 

 

 

You should not place undue reliance on our forward-looking statements. Although forward-looking statements reflect our 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 our actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise.

 

We will not receive any of the proceeds from the sale of shares of our common stock by PVF Holdings LLC, the selling stockholder. PVF Holdings LLC intends to distribute the net proceeds of this offering, after giving effect to the underwriting discount, to its members, which include certain members of our board of directors and senior management team and various of their affiliates. See “Principal and Selling Stockholders”.

 

Additionally, affiliates of Goldman, Sachs & Co. own a majority interest in PVF Holdings LLC. Accordingly, such affiliates will receive a significant portion of the proceeds from this offering. See “Underwriting”.

 

Following the completion of this offering, we do not anticipate paying any cash dividends in the foreseeable future. We currently intend to retain future earnings from our business, if any, to finance operations and the expansion of our business. Any future determination to pay cash dividends will be at the discretion of our board of directors and will be dependent upon our financial condition, results of operations, capital requirements and other factors that the board deems relevant. In addition, the covenants contained in our subsidiaries’ credit facilities limit the ability of our subsidiaries to pay dividends to us, which limits our ability to pay dividends to our stockholders. Our ability to pay dividends is also limited by the covenants contained in our $450 million term loan facility, and our ability to pay dividends may be further limited by covenants contained in the instruments governing future indebtedness that we or our subsidiaries may incur in the future. See “Description of Our Indebtedness”.

 

On May 21, 2008, our board of directors approved a dividend of $475 million to our stockholders, of which $474,096,204 was distributed to PVF Holdings LLC and $903,796 was held by us in accordance with the terms of our restricted stock award agreements with holders of our restricted stock. PVF Holdings LLC distributed its share of the proceeds of the dividend to its members, including certain members of our board of directors and management team, in accordance with the terms and conditions of the Limited Liability Company Agreement of PVF Holdings LLC. See “Certain Relationships and Related Party Transactions — Transactions with the Goldman Sachs Funds — May 2008 Dividend”. This dividend is not indicative of future dividends we may pay to our stockholders.

 

The following table sets forth our consolidated cash and cash equivalents and capitalization as of June 26, 2008:

 

 

You should read this table in conjunction with “Unaudited Pro Forma Consolidated Financial Statements”, “Selected Historical Consolidated Financial Data”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes included elsewhere in this prospectus.

 

 

 

 

Our pro forma net tangible book value per share as of June 26, 2008, both before and after giving effect to this offering, was approximately $      million. Pro forma net tangible book value per share represents the amount of tangible assets less total liabilities divided by the pro forma number of shares of common stock outstanding (giving effect to the        for        split of our common stock which will occur prior to the pricing of this offering). There will be no increase in our pro forma net tangible book value per share on account of this offering because we will not receive any proceeds from the sale of shares in this offering. Purchasers of shares in this offering will not incur immediate dilution because our pro forma net tangible book value per share will not be affected by this offering.

 

The following table sets forth as of June 26, 2008 the number of shares of common stock purchased from us or to be purchased from the selling stockholder, total consideration paid or to be paid and the average price per share paid by our existing stockholders and by new investors, on a pro forma basis to give effect to the           for           split of our common stock which will occur prior to the pricing of this offering:

 

 

 

As of June 26, 2008, there were options outstanding to purchase shares of our common stock, with exercise prices ranging from $      to $      per share and a weighted average exercise price of $      per share (after taking into account the           for           split of our common stock which will occur prior to the pricing of this offering). Also, as of June 26, 2008, there were           shares of unvested restricted stock outstanding (after giving effect to the stock split). The tables and calculations above assume that those options have not been exercised and the restricted stock has not vested. If these options were exercised at the weighted average exercise price and the restricted stock was fully vested, the additional dilution per share to new investors would be $     .

 

On January 31, 2007, McJunkin Red Man Holding Corporation, an affiliate of The Goldman Sachs Group, Inc., acquired a majority of the equity of the entity now known as McJunkin Red Man Corporation (then known as McJunkin Corporation) (the “GS Acquisition”). In this prospectus, the term “Predecessor” refers to McJunkin Corporation and its subsidiaries prior to January 31, 2007 and the term “Successor” refers to the entity now known as McJunkin Red Man Holding Corporation and its subsidiaries on and after January 31, 2007. As a result of the change in McJunkin Corporation’s basis of accounting in connection with the GS Acquisition, Predecessor’s financial statement data for the one month ended January 30, 2007 and earlier periods is not comparable to Successor’s financial data for the eleven months ended December 31, 2007 and subsequent periods.

 

McJunkin Corporation completed a business combination transaction with Red Man Pipe & Supply Co. (the “Red Man Transaction”) on October 31, 2007. At that time McJunkin Corporation was renamed McJunkin Red Man Corporation. Operating results for the eleven-month period ended December 31, 2007 include the results of McJunkin Red Man Holding Corporation for the full period and the results of Red Man Pipe & Supply Co. (“Red Man”) for the two months after the business combination on October 31, 2007. Accordingly, our results for the 11 months ended December 31, 2007 are not comparable to McJunkin’s results for the years ended December 31, 2006 and 2005.

 

The selected consolidated financial information presented below under the captions Statement of Operations Data and Other Financial Data for the one month ended January 30, 2007 (Predecessor) and the eleven months ended December 31, 2007, and the selected consolidated financial information presented below under the caption Balance Sheet Data as of December 31, 2007, have been derived from the consolidated financial statements of McJunkin Red Man Holding Corporation included elsewhere in this prospectus that have been audited by Ernst & Young LLP, independent registered public accounting firm. The selected consolidated financial information presented below as of and for the years ended December 31, 2005 and 2006 has been derived from the consolidated financial statements of our Predecessor, McJunkin Corporation, included elsewhere in this prospectus that have been audited by Schneider Downs & Co., Inc., independent registered public accounting firm. The selected consolidated financial information presented below as of and for the years ended December 31, 2003 and 2004 has been derived from the audited consolidated financial statements of our predecessor, McJunkin Corporation, that are not included in this prospectus.

 

The selected unaudited interim consolidated financial information presented below under the captions Statement of Operations Data and Other Financial Data for the six months ended June 26, 2008 and the five months ended June 28, 2007, and the selected unaudited consolidated financial information presented below under the caption Balance Sheet Data as of June 26, 2008, have been derived from our unaudited interim consolidated financial statements, which are included elsewhere in this prospectus and have been prepared on the same basis as our audited consolidated financial statements. In the opinion of management, the interim data reflect all adjustments, consisting of normal and recurring adjustments, necessary for a fair presentation of results for these periods. Operating results for the six months ended June 26, 2008 include the results of McJunkin Corporation and Red Man for the full period. Operating results for the five-month period ending June 28, 2007 do not reflect the operating results of Red Man, as the Red Man Transaction did not occur until October 31, 2007. Accordingly, the results for the six months ended June 26, 2008 are not comparable to the results for the five months ended June 28, 2007. In addition, operating results for the six-month period ended June 26, 2008 are not necessarily indicative of the results that may be expected for the year ended December 31, 2008.

 

We calculated earnings per share for the year ended December 31, 2007 and the six months ended June 26, 2008 on a pro forma basis, based on the actual number of shares outstanding at the time of the initial public offering.

The selected historical consolidated financial data presented below has been derived from financial statements that have been prepared using United States generally accepted accounting principles, or GAAP. This data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes included elsewhere in this prospectus.