S-1/A
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As filed with the Securities and Exchange Commission on October 31, 2008
Registration No. 333-153091          
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
AMENDMENT NO. 2
to
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)
 
         
Delaware   1311   20-5956993
(State or Other Jurisdiction of
Incorporation or Organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)
 
 
     
8023 East 63rd Place
  835 Hillcrest Drive
Tulsa, Oklahoma 74133
  Charleston, West Virginia 25311
(918) 250-8541
  (304) 348-5211
(Address, Including Zip Code, and Telephone Number,Including Area Code, of Registrant’s Principal Executive Offices)
 
 
Andrew Lane
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:
     
Stuart H. Gelfond
  Richard A. Drucker
Michael A. Levitt
  Davis Polk & Wardwell
Fried, Frank, Harris, Shriver & Jacobson LLP
  450 Lexington Avenue
One New York Plaza
  New York, New York 10017
New York, New York 10004
  (212) 450-4000
(212) 859-8000
   
 
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):
 
             
Large accelerated filer o
  Accelerated filer o   Non-accelerated filer þ   Smaller reporting company o
(Do not check if smaller reporting company)
 
CALCULATION OF REGISTRATION FEE
 
             
      Proposed Maximum
     
Title of Each Class of
    Aggregate Offering
    Amount of
Securities to be Registered     Price (1)(2)     Registration Fee
Common Stock, $0.01 par value
    $750,000,000     $29,475 (3)
             
(1) Includes offering price of shares of common stock which the underwriters have the option to purchase.
(2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) of the Securities Act of 1933, as amended.
(3) Previously paid.
 
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.
 


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The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
 
Subject to Completion. Dated October 31, 2008.
 
      Shares
 
(MCJUNKIN LOGO)
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 18 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.
 
 
 
 
                 
    Per Share   Total
 
Initial public offering price
  $             $          
Underwriting discount
  $       $    
Proceeds, before expenses, to the selling stockholder
  $       $  
 
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.
 
Goldman, Sachs & Co. Barclays Capital
J.P.Morgan Deutsche Bank Securities
Robert W. Baird & Co. Credit Suisse Stephens Inc. Raymond James
 
 
 
 
 
Prospectus dated          , 2008.


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    F-1  
 EX-3.1: AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
 EX-3.2: AMENDED AND RESTATED BYLAWS
 EX-5.1: OPINION OF FRIED, FRANK, HARRIS, SHRIVER & JACOBSON LLP
 EX-10.1.5: JOINDER AGREEMENT
 EX-10.1.6: JOINDER PURCHASE AGREEMENT
 EX-10.1.7: JOINDER AGREEMENT
 EX-10.1.8: JOINDER PURCHASE AGREEMENT
 EX-21.1: LIST OF SUBSIDIARIES
 EX-23.1: CONSENT OF ERNST & YOUNG LLP
 EX-23.2: CONSENT OF SCHNEIDER DOWNS & CO., INC.
 EX-23.3: CONSENT OF PRICEWATERHOUSECOOPERS LLP
 EX-24.2: POWER OF ATTORNEY
 
 
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 or any free writing prospectus prepared by or on behalf of us. 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.


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PROSPECTUS SUMMARY
 
This summary highlights selected information contained elsewhere in this prospectus. You should carefully read the entire prospectus, including the “Risk Factors” and the consolidated financial statements and related notes included elsewhere in this prospectus, before making an investment decision. In this prospectus, all references to “the Company”, “McJunkin Red Man”, “we”, “us”, and “our” refer to McJunkin Red Man Holding Corporation and its consolidated subsidiaries, unless the context otherwise requires or where otherwise indicated, and references to the “Red Man Transaction” are to the October 2007 business combination of McJunkin Corporation (“McJunkin”) and Red Man Pipe & Supply Co. (“Red Man”). We use non-GAAP measures in this prospectus, including Adjusted EBITDA. For a reconciliation of this measure to Net income, see footnote 3 under “— Summary Consolidated Financial Information.”
 
Our Business
 
We are the largest North American distributor of pipe, valves and fittings (“PVF”) and related products and services to the energy industry based on sales and the leading PVF distributor serving this industry across each of the upstream (exploration, production, and extraction of underground oil and gas), midstream (gathering and transmission of oil and gas, gas utilities, and the storage and distribution of oil and gas) and downstream (crude oil refining and petrochemical processing) markets. We have an unmatched presence of over 250 branches that are located in the most active oil and gas regions in North America. We offer an extensive array of PVF and oilfield supplies encompassing over 100,000 products, we are diversified by geography and end market and we seek to provide best-in-class service to our customers by satisfying the most complex, multi-site needs of some of the largest companies in the energy and industrials sectors as their primary supplier. As a result, we have an average relationship of over 20 years with our top ten customers and our pro forma sales in 2007 were over twice as large as our nearest competitor in the energy industry. We believe the critical role we play in our customers’ supply chain, our unmatched scale and extensive product offering, our broad North American geographic presence, our customer-linked scalable information systems and our efficient distribution capabilities serve to solidify our long-standing customer relationships and drive our growth.
 
We have benefited in recent years from several growth trends within the energy industry including high levels of expansion and maintenance capital expenditures by our customers. This growth in spending has been driven by several factors, including underinvestment in North American energy infrastructure, production and capacity constraints and anticipated strength in the oil, natural gas, refined products and petrochemical markets. While current prices for oil and natural gas are high relative to historical levels, we believe that investment in the energy sector by our customers would continue at prices well below current levels. In addition, our products are often used in extreme operating environments leading to the need for a regular replacement cycle. As a result, over 50% of our historical and pro forma sales in 2007 were attributable to multi-year maintenance, repair and operations (“MRO”) contracts where we have demonstrated an over 99% average annual retention rate since 2000. The combination of these ongoing factors has helped increase demand for our products and services, resulting in record levels of customer orders to be shipped as of September 2008. For the twelve months ended December 31, 2007 on a pro forma basis, we generated sales of $3,952.7 million, Adjusted EBITDA of $370.4 million and net income of $150.8 million. In addition, for the eleven months ended December 31, 2007, without giving pro forma effect to the Red Man Transaction, we generated sales of $2,124.9 million, EBITDA of $171 million and net income of $56.9 million, and for the twelve months ended October 31, 2007, before giving effect to the Red Man Transaction, Red Man generated sales of $1,982.0 million, EBITDA of $170 million and net income of $82.2 million.
 
We have established a position as the largest North American PVF distributor to the energy industry based on sales. We distribute products throughout North America and the Gulf of Mexico, including in PVF intensive, rapidly expanding oil and natural gas production areas such as the


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Bakken, Barnett, Fayetteville, Haynesville and Marcellus shales. Growth in these oil and natural gas production areas is driven by improved production technology, favorable market trends and robust capital expenditure budgets. Furthermore, our Canadian subsidiary Midfield Supply ULC and its subsidiaries (“Midfield”), one of the three largest Canadian PVF distributors based on sales, provides PVF products to oil and gas companies operating primarily in Western Canada, including the Western Canadian Sedimentary Basin, Alberta Oil Sands and heavy oil markets. These regions are still in the early stages of infrastructure investment with numerous companies seeking to facilitate the long-term harvesting of difficult to extract and process crude oil.
 
McJunkin Red Man Locations
 
(MAP)
 
Across our extensive North American platform we offer a broad complement of products and services to the upstream, midstream and downstream sectors of the energy industry, as well as other industrial (including general manufacturing, pulp and paper, food and beverage) and other energy (power generation, liquefied natural gas, coal, alternative energy) end markets. During the twelve months ended December 31, 2007 on a pro forma basis, approximately 46% of our sales were attributable to upstream activities, approximately 22% were attributable to midstream activities and approximately 32% were attributable to downstream and other processing activities which include the refining, chemical and other industrial and energy end markets. In addition, before giving pro forma effect to the Red Man Transaction, during the twelve months ended December 31, 2007, approximately 39% of our sales were attributable to upstream activities, approximately 19% were attributable to midstream activities and approximately 42% were attributable to downstream and other processing activities.
 
We offer more than 100,000 products including an extensive array of PVF, oilfield supply, automation, instrumentation and other general and specialty products to our customers across our various end markets. Due to the demanding operating conditions in the energy industry and high costs associated with equipment failure, customers prefer highly reliable products and vendors with established qualifications and experience. As our PVF products typically represent a fraction of the total cost of the project, our customers place a premium on service given the high cost to them of maintenance or new project delays. Our products are typically used in high-volume, high-stress, abrasive applications such as the gathering and transmission of oil and natural gas, in high-pressure,


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extreme temperature and high-corrosion applications such as in heating and desulphurization in the processing and refining industries and in steam generation units in the power industry.
 
With over 250 branches servicing the energy and industrial sectors, we are an important link between our more than 10,000 customers and our more than 10,000 suppliers. We add value to our customers and suppliers in a number of ways:
 
  •  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.
 
Our Industry
 
We primarily serve the North American oil and gas industry, generating over 90% of our sales from supplying PVF products and various services to customers throughout the energy industry. Given the diverse requirements and various factors that drive the growth of the upstream, midstream and downstream energy markets, our sales to each sector may vary from time to time, though the overall strength of the global energy market is typically a good indicator of our performance. The underinvestment in North American energy infrastructure, together with production and capacity constraints and anticipated strength in the oil, natural gas, refined products and petrochemical markets, have spurred high levels of expansion and maintenance capital expenditures in our energy end markets by our customers. Furthermore, as participants in the energy industry continue to focus on raising operating efficiency, they have been increasingly looking to outsource their procurement and related administrative functions to distributors like us.
 
Beyond the oil and gas industry, we also supply products and services to other energy sectors such as coal, power generation, liquefied natural gas and alternative energy facilities. We also provide


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products such as automation and instrumentation products and corrosion resistant piping products to more general industrial end markets such as pulp and paper, metals processing, fabrication, pharmaceutical, food and beverage and manufacturing companies.
 
Our Competitive Strengths
 
We consider the following to be our key competitive strengths:
 
Market Leader with Complete North American Coverage and Significant Scale.   We are the leading North American distributor of PVF and related products to the energy industry based on sales, with at least twice the sales of our nearest competitor in the energy industry in 2007. Our North American network of over 250 branches in 38 U.S. states and in Canada gives us a significant market presence and provides us with substantial economies of scale that we believe make us a more effective competitor. The benefits of our size and extensive North American presence include: (1) the ability to act as a single-source supplier to large, multi-location customers operating across all segments of the energy industry; (2) the ability to commit significant financial resources to further develop our operating infrastructure, including our information systems, and provide a strong platform for future expansion; (3) volume purchasing benefits from our suppliers; (4) an ability to leverage our extensive North American inventory coverage to provide greater overall breadth and depth of product offerings; (5) the ability to attract and retain effective managers and salespeople; and (6) a business model exhibiting a high degree of operating leverage. Our presence and scale have also enabled us to establish an efficient supply chain and logistics platform, allowing us to better serve our customers and further differentiate us from our competitors.
 
High Level of Integration and MRO Contracts with a Blue Chip Customer Base.   We have a diversified customer base with over 10,000 active customers and serve as the sole or primary supplier in all end markets or in specified end markets or geographies for many of our customers. Our top ten customers, with whom we have had relationships for more than 20 years on average, accounted for less than 25% of 2007 pro forma sales and no single customer accounted for more than 5% of 2007 pro forma sales. Before giving pro forma effect to the Red Man Transaction, our top ten customers accounted for approximately 28% of our 2007 sales and our largest customer accounted for approximately 6% of our 2007 sales. We enjoy fully integrated relationships, including interconnected technology systems and daily communication, with many of our customers and we provide an extensive range of integrated and outsourced supply services, allowing us to market a “total transaction cost” concept as opposed to individual product prices. We provide such services as multiple daily deliveries, zone stores management, valve tagging, truck stocking and significant system support for tracking and replenishing inventory, which we believe results in deeply integrated customer relationships. We sell products to many of our customers through multi-year MRO contracts which are typically renegotiated every three to five years. Although there are typically no guaranteed minimum purchase amounts under these contracts, these MRO customers, representing over 50% of both our 2007 historical and pro forma sales, provide a relatively stable revenue stream and help mitigate against industry downturns. We believe we have been able to retain customers by ensuring a high level of service and integration, as evidenced by our annual average MRO contract retention rate of over 99% since 2000. Furthermore, we have recently signed new MRO contracts displacing competitors that provide opportunities for us to gain new customers and broaden existing customer relationships.
 
Business and Geographic Diversification in High-Growth Areas.   We are well diversified across the upstream, midstream and downstream operations of the energy industry, as well as through our participation in selected industrial end markets. During the twelve months ended December 31, 2007 on a pro forma basis, we generated approximately 46% of our sales in the upstream sector, 22% in the midstream sector, and 32% in the downstream, industrial and other energy end markets. Before giving pro forma effect to the Red Man Transaction, during the twelve months ended December 31, 2007, approximately 39% of our sales were attributable to upstream


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activities, approximately 19% were attributable to midstream activities and approximately 42% were attributable to downstream and other processing activities. This diversification affords us some measure of protection in the event of a downturn in any one end market while providing us the ability to offer “one stop” shopping for most of our integrated energy customers. In addition, our more than 250 branches are located near major hydrocarbon and refining regions throughout North America, including rapidly expanding oil and natural gas exploration and production (“E&P”) areas in North America, such as the Bakken, Barnett, Fayetteville, Haynesville and Marcellus shales. Our geographic diversity enhances our ability to respond to customers quickly, gives us a strong presence in these high growth E&P areas and reduces our exposure to a downturn in any one region.
 
Strategic Supplier Relationships.  We have extensive relationships with our suppliers and have key supplier relationships dating back in certain instances over 60 years. We purchased approximately $1 billion of products from our top ten suppliers for the twelve months ended December 31, 2007 on a pro forma basis, representing approximately 32% of our purchases. Before giving pro forma effect to the Red Man Transaction, during the twelve months ended December 31, 2007 we purchased approximately $505.6 million of products from our top ten suppliers, representing approximately 30% of our purchases. We believe our customers view us as an industry leader for the formal processes we use to evaluate vendor performance and product quality. We employ individuals, certified by the International Registry of Certificated Auditors, who specialize in conducting manufacturer assessments both domestically and internationally. Our Supplier Registration Process (“SRP”), which allows us to maintain the MRM ASL, serves as a significant strategic advantage to us in developing, maintaining and institutionalizing key supplier relationships. For our suppliers, being included on the MRM ASL represents an opportunity for them to increase their product sales to our customers. The SRP also adds value to our customers, as they collaborate with us regarding specific manufacturer performance, our past experiences with products and the results of our on-site supplier assessments. Having a timely, uninterrupted supply of those mission critical products from approved vendors is an essential part of our customers’ day-to-day operations and we work to fulfill that need through our SRP.
 
A Leading IT Platform Focused on Customer Service.  Our business is supported by our integrated, scalable and customer-linked customized information systems. These systems and our more than 3,400 employees are linked by a wide area network. We are currently implementing an initiative, expected to be completed in 2009, that will combine our business operations onto one enterprise server-based system. This will enable real-time access to our business resources, including customer order processing, purchasing and material requests, distribution requirements planning, warehousing and receiving, inventory control and accounting and financial functions. Significant elements of our systems include firm-wide pricing controls resulting in disciplined pricing strategies, advanced scanning and customized bar-coding capabilities, allowing for efficient warehousing activities at customer as well as our own locations, and significant levels of customer-specific integrations. We believe that the customized integration of our customers’ systems into our own information systems has increased customer retention by reducing their expenses, thus creating switching costs when comparing us to alternative sources of supply. Typically, smaller regional and local competitors do not have IT capabilities that are as advanced as ours.
 
Highly Efficient, Flexible Operating Platform Drives Significant Free Cash Flow Generation.  We place a particular emphasis on practicing financial discipline as evidenced by our strong focus on return on assets, minimal capital expenditures and high free cash flow generation. Our disciplined cost control, coupled with our active asset management strategies, result in a business model exhibiting a high degree of operating leverage. As is typical with the flexibility associated with a distribution operating model, our variable cost base includes substantially all of our cost of goods sold and a significant portion of our operating costs. Furthermore, our maintenance capital expenditures were approximately 0.3% of our pro forma sales for the year ended December 31, 2007. This cost structure allows us to adjust to changing industry dynamics and, as a


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result, during periods of decreased sales activity, we typically generate significant free cash flow as our costs are reduced and working capital contracts.
 
Experienced and Motivated Management Team.  Our senior management team has an average of over 25 years of experience in the oilfield and industrial supply business, the majority of which has been with McJunkin Red Man or its predecessors. After giving effect to this offering, senior management will own     % of our company indirectly through their equity interests in PVF Holdings LLC. We also seek to incentivize and align management with shareholder interests through equity-linked compensation plans. Furthermore, executive compensation is based on profitability and return-on-investment targets which we believe drives accountability and further aligns the organization with our shareholders.
 
Our Business Strategy
 
Our goal is to become the largest global distributor of PVF and related products to the energy and industrials sectors. We intend to grow our business by leveraging our existing position as the largest North American distributor of PVF products and services to the energy industry based on sales. Our strategy is focused on pursuing growth by increasing organic market share and growing our business with current customers, expanding into new geographies and end markets, further penetrating the Canadian Oil Sands and downstream sector, pursuing selective strategic acquisitions and investments, increasing recurring revenues through integrated supply, MRO and project contracts, and continuing to increase our operational efficiency.
 
Increase Organic Market Share and Grow Business with Current Customers.  We are committed to expanding upon existing deep relationships with our current customer base while at the same time striving to secure new customers. To accomplish this, we are focused on providing a “one stop” PVF procurement solution throughout North America and across the upstream, midstream and downstream sectors of the energy industry, cross-selling by leveraging our expanded product offering resulting from the business combination between McJunkin Corporation (“McJunkin”) and Red Man Pipe & Supply Co. (“Red Man”) in October 2007, and increasing our penetration of existing customers’ new multiyear projects.
 
The migration of existing customer relationships to sole or primary sourcing arrangements is a core strategic focus. We seek to position ourselves as the sole or primary provider of a broad complement of PVF products and services for a particular customer, often by end market and/or geography, or in certain instances across all of a customer’s North American upstream, midstream and downstream operations. Several of our largest customers have recently switched to sole or primary sourcing contracts with us. Additionally, we believe that significant opportunities exist to expand upon heritage McJunkin and Red Man existing deep customer and supplier relationships and thereby increase our market share. While we believe that the heritage McJunkin and Red Man organizations each maintained robust product offerings, there also remain opportunities to cross-sell certain products into the other heritage organization’s customer base and branch network. As part of these efforts, we are working to further strengthen our service offerings by augmenting our product portfolio, management expertise and sales force.
 
We also aim to increase our penetration of our existing customers’ new projects. For example, while we often provide nearly 100% of the PVF products for certain customers under MRO contracts, increased penetration of those customers’ new downstream and midstream projects remains a strategic priority. Initiatives are in place to deepen relationships with engineering and construction firms and to extend our product offering into certain niches. We recently integrated core project groups in several locations to focus solely on capturing new multi-year project opportunities and we are encouraged by these initial efforts.
 
Expand into New Geographies and End Markets.  We intend to selectively establish new branches in order to facilitate our expansion into new geographies, and enter end markets where


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extreme operating environments generate high PVF product replacement rates. We continue to evaluate establishing branches and service and supply centers, entering into joint ventures, and making acquisitions in select domestic and international regions. While we believe that we are one of three PVF distributors with branches throughout North America, there is opportunity to expand via new branch openings in certain geographic areas.
 
While our near term strategy is to continue to expand within North America, we believe that attractive opportunities exist to expand internationally. Though we currently maintain only one branch outside North America, we continue to actively evaluate opportunities to extend our offering to key international markets, particularly in West Africa, the Middle East, Europe and South America. The E&P opportunity and current installed base of energy infrastructure internationally is significantly larger than in North America and as a result we believe represents an attractive long term opportunity both for ourselves and our largest customers. While our near term focus internationally will be centered on growing our business with our already largely global customer base, the increased focus, particularly by foreign-owned integrated oil companies, on efficiency, cost savings, process improvements and core competencies has also generated potential growth opportunities to add new customers that we will continue to monitor closely.
 
We also believe opportunities exist for expansion into new and under penetrated end markets where PVF products are used in specialized, highly corrosive applications. These end markets include pulp and paper, food and beverage and other general industrial markets, in addition to other energy end markets such as power generation, liquefied natural gas, coal, nuclear and ethanol. We believe our extensive North American branch platform, comprehensive PVF product offering, and reputation for high customer service and technical expertise positions us to participate in the growth in these end markets.
 
We believe there also remains an opportunity to continue to expand into certain niche and specialty products that complement our current extensive product offering. These products include automated valves, instrumentation, stainless, chrome and high nickel alloy PVF, large diameter carbon steel pipe and certain specialty items, including steam products.
 
Further Penetrate the Canadian Oil Sands, Particularly the Downstream Sector.  The Canadian Oil Sands region and its attendant downstream markets represent very attractive growth areas for our company. Improvements in mining and in-situ technology are driving significant investment in the area and, according to the Alberta Energy and Utilities Board, the Canadian Oil Sands contain an ultimately recoverable crude bitumen resource of 315 billion barrels, with established reserves of almost 173 billion barrels at December 2007. Canada has the second largest recoverable crude oil reserves in the world, behind Saudi Arabia. Capital and maintenance investments in the Canadian Oil Sands are expected to experience dramatic growth due to rising global energy demand and advancements in recovery and upgrading technologies. According to the Alberta Ministry of Energy, an estimated CDN$67 billion (US$66.2 billion) was invested in Canadian Oil Sands projects from 2000 to 2007. These large facilities require significant ongoing PVF maintenance well in excess of traditional energy infrastructure, given the extremely harsh operating environments and highly corrosive conditions. According to the Alberta Ministry of Energy, almost CDN$170 billion (US$168 billion) in Canadian Oil Sands-related projects were underway or proposed as of June 2008, which we estimate could generate significant PVF expenditures.
 
While Midfield has historically focused on the upstream and midstream sectors in Canada, we believe that a significant opportunity exists to penetrate the Canadian Oil Sands downstream market which includes the upgrader and refinery markets. We are the leading provider of PVF products to the downstream market in the U.S. and believe this sector expertise and existing customer relationships can be utilized by our upstream and midstream Canadian operations to grow our downstream sector presence in this region. We also believe there is a significant opportunity to penetrate the Canadian Oil Sands extraction market involving in-situ recovery methods, including SAGD (steam assisted gravity drainage) and CSS (cyclic steam stimulation) techniques used to extract the bitumen. We have


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formed a full team overseen by senior management, have made recent inventory and facility investments in Canada, including a new 60,000 square foot distribution center facility located near Edmonton, and have opened additional locations in Western Canada to address this opportunity. Finally, we also believe that an attractive opportunity exists to more fully penetrate the MRO market in Canada, including refineries, petrochemical facilities, utilities and pulp and paper and other general industrial markets.
 
Pursue Selective Strategic Acquisitions and Investments.  Acquisitions have been a core focus and acquisition integration a core competency for us. We continue to seek opportunities to strengthen our franchise through selective acquisitions and strategic investments. In particular, we will consider investments that enhance our presence in the energy infrastructure market and enable us to leverage our existing operations, either through acquiring new branches or by acquiring companies offering complementary products or end market breadth. Our industry remains highly fragmented and we believe a significant number of small and larger acquisition opportunities remain that offer favorable synergy potential and attractive growth characteristics. Acquisitions have been a core focus for both the heritage McJunkin and Red Man organizations which we plan to continue. In addition to the business combination between McJunkin and Red Man, since 2000 we have integrated 19 acquisitions which collectively represented over $900 million in sales in the year of acquisition. Important recent acquisitions include Midfield, one of the three largest oilfield supply companies in Canada with 68 branches, and Midway-Tristate Corporation (“Midway”), an oilfield distributor primarily serving the Rockies and Appalachia regions. Historically, our operating scale and integration capabilities have enabled us to realize important synergies, while minimizing execution risk, which we intend to focus on with future acquisitions.
 
Increase Recurring Revenues through Integrated Supply, MRO and Project Contracts.   We have entered into and continue to pursue integrated supply, MRO and project contracts with certain of our customers. Under these arrangements, we are typically the sole or primary source provider of the upstream, midstream, and/or downstream requirements of our customers. In certain instances we are the sole or primary source provider for our customers across all the energy sectors and/or North American geographies within which the customer operates.
 
Our customers have, over time, increasingly moved toward centralized PVF procurement management at the corporate level rather than at individual local units. While these developments are partly due to significant consolidation among our customer base, sole or primary sourcing arrangements allow customers to focus on their core operations and provide economic benefits by generating immediate savings for the customer through administrative cost and working capital reductions, while providing for increased volumes, more stable revenue streams and longer term visibility for us. We believe we are well positioned to obtain these arrangements due to our (1) geographically diverse and strategically located branch network, (2) experience, technical expertise and reputation for premier customer service operating across all segments of the energy industry, (3) breadth of available product lines and value added services, and (4) existing deep relationships with customers and suppliers.
 
We also have exclusive and non-exclusive MRO contracts and new project contracts in place. Our customers are increasing their maintenance and capital spending, which is being driven by aging infrastructure, their increased utilization of existing facilities and the decreasing quality of energy feedstocks. Our customers benefit from MRO agreements through lower inventory investment and the reduction of transaction costs associated with the elimination of the bid submission process, and our company benefits from the recurring revenue stream that occurs with an MRO contract in place. We believe there are additional opportunities to utilize MRO arrangements for servicing the requirements of our customers and we are actively pursuing such agreements.
 
Continued Focus on Operational Efficiency.  We strive for continued operational excellence. Our branch managers, regional management and corporate leadership team continually examine branch profitability, working capital management, and return on managed assets and utilize this information to optimize national, regional and local strategies, reduce operating costs and maximize


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cash flow generation. As part of this effort, management incentives are centered on meeting EBITDA and return on assets targets.
 
In order to improve efficiencies and profitability, we work to leverage operational best practices, optimize our vendor relationships, purchasing, and inventory levels, and source inventory internationally when appropriate. As part of this strategy, we have integrated our heritage purchasing functions and believe we have developed strong relationships with vendors that value both our national footprint and volume purchasing capabilities. Because of this, we are often considered the preferred distribution channel. As we continue to consolidate our vendor relationships, we plan to devote additional resources to assist our customers in identifying products that improve their processes, day-to-day operations and overall operating efficiencies. We believe that offering these value added services maximizes our value to our customers and helps differentiate us from competitors.
 
Risk Factors
 
While our business has grown in recent years, we face various risks. For example, decreased capital expenditures in the energy industry could lead to decreased demand for our products and services and could therefore have a material adverse effect on our business, results of operations and financial condition. We face other risks including, among others, fluctuations in steel prices, economic downturns, our lack of long-term contracts with many of our customers and suppliers and the absence of minimum purchase obligations under the long-term customer contracts that we do have, and risks associated with the integration of our predecessor companies, McJunkin and Red Man. Additionally, we have significant 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. Our significant indebtedness could limit our ability to obtain additional financing, our ability to use operating cash flow in other areas of our business, and our ability to compete with other companies that are less leveraged, and could have other negative consequences. See “Risk Factors” for a more detailed discussion of these risks and other risks associated with our business.
 
Recent Developments
 
On July 31, 2008, we acquired the remaining approximate 49% minority voting interest in our Canadian subsidiary, Midfield Supply ULC, one of the three largest oilfield supply companies in Canada with 68 branches, for total payments of approximately $135.67 million.
 
On September 9, 2008, our board of directors appointed Andrew Lane as the new president and chief executive officer of our Company. Mr. Lane has held various senior executive positions at Halliburton Company and its subsidiaries since 2000, including most recently serving as executive vice president and chief operating officer of Halliburton Company from December 2004 to December 2007. Craig Ketchum, our previous president and chief executive officer, was appointed chairman of our board of directors on September 9, 2008 and will continue with our company in that role.
 
On October 9, 2008, we acquired LaBarge Pipe & Steel Company (“LaBarge”). LaBarge is engaged in the sale and distribution of carbon steel pipes (predominantly large diameter pipe) for use primarily in the North American energy infrastructure market and had net sales of $200.6 million in 2007. We acquired LaBarge for cash. The purchase price is based upon an enterprise value for LaBarge of $160 million, and is subject to a working capital adjustment and customary indemnification provisions. We also agreed to pay up to an additional $45 million in cash if LaBarge meets certain EBITDA targets in 2008 and 2009.
 
We upsized our revolving credit facility from $700 million to $800 million during October 2008. Additionally, on October 8, 2008, Barclays Bank PLC agreed to commit an additional $100 million under our revolving credit facility effective January 2, 2009, which will increase the total commitments under our revolving credit facility to $900 million.


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Organizational Structure
 
The following chart illustrates our organizational structure upon the completion of this offering:
 
(CHART)
 
 
* PVF Holdings LLC is offering all of the shares to be sold in this offering. 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 of our directors and executive officers. See the table on page 143 for information regarding the amount of offering proceeds to be distributed to each of our directors and executive officers.


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The Offering
 
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 155,912,942 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 18 of this prospectus for a discussion of factors that you should carefully consider before deciding to invest in shares of our common stock.
 
The number of shares of common stock to be outstanding after the offering:
 
  •  gives effect to a 500 for 1 split of our common stock which occurred on October 16, 2008;
 
  •  excludes 3,640,814 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 282,771 shares of non-vested restricted stock awarded to certain of our employees pursuant to the McJ Holding Corporation 2007 Restricted Stock Plan.
 
 
 
 
McJunkin Red Man Holding Corporation (formerly known as McJ Holding Corporation) was incorporated in Delaware on November 20, 2006. Our principal executive offices are located at 8023 East 63rd Place, Tulsa, Oklahoma 74133 and 835 Hillcrest Drive, Charleston, West Virginia 25311. Our telephone number is (918) 250-8541. Our website address is www.mcjunkinredman.com. Information contained on our website is not a part of this prospectus.
 
The data included in this prospectus regarding the industrial and oilfield pipe, valves and fittings distribution industry, including trends in the market and our position and the position of our competitors within this industry, are based on our estimates, which have been derived from management’s knowledge and experience in the areas in which our business operates, and information obtained from customers, suppliers, trade and business organizations, internal research, publicly available information, industry publications and surveys and other contacts in the areas in


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which our business operates. We have also cited information compiled by industry publications, governmental agencies and publicly available sources.
 
Depending on market conditions at the time of pricing of this offering and other considerations, the selling stockholder may sell fewer or more shares than the number set forth on the cover page of this prospectus.
 
In this prospectus, unless otherwise indicated, Canadian dollar amounts are converted into U.S. dollar amounts at the exchange rate in effect on June 26, 2008, the last day of our second quarter.


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Summary Consolidated Financial Information
 
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 summary 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 summary 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 summary 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 summary 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 summary 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.
 
The summary unaudited pro forma consolidated statements of operations data for the six months ended June 28, 2007 and the year ended December 31, 2007 give pro forma effect to (1) the GS Acquisition and the Red Man Transaction, as if each such transaction had occurred on January 1, 2007, and (2) our entering into our $575 million term loan facility and our $800 million revolving credit facility, as if we had entered into these facilities on January 1, 2007.


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The pro forma statement of operations data for the six months ended June 28, 2007 includes McJunkin Corporation’s results for the one month ended January 30, 2007 (before the GS Acquisition), McJunkin Red Man Holding Corporation’s results for the five months ended June 28, 2007 (before the Red Man Transaction), and Red Man’s results for the six months ended April 30, 2007. The pro forma statement of operations data for the year ended December 31, 2007 includes McJunkin Corporation’s results for the one month ended January 30, 2007, McJunkin Red Man Holding Corporation’s results for the eleven months ended December 31, 2007 (reflecting the results of McJunkin Corporation for the full eleven months but excluding the results of Red Man for the two months ended December 31, 2007), and Red Man’s results for the twelve months ended October 31, 2007.
 
All information in this prospectus gives effect to the 500 for 1 stock split which occurred on October 16, 2008.
 
The historical 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.
 
                                       
    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 (exclusive of depreciation and amortization shown separately below)
    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         4.3         5.2  
Amortization of intangibles(1)
            4.6         14.3         15.6  
Profit sharing
    1.3         5.6         11.3         13.5  
Stock-based compensation
            1.3         2.8         3.3  
                                       
Total costs and expenses
    130.8         729.8         1,731.8         2,041.5  
                                       
Operating income
    11.7         55.1         130.3         154.5  
Other income (expense)
                                     
Interest expense
    (0.1 )       (24.3 )       (33.0 )       (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 )       (33.8 )       (35.4 )
                                       
Income before income taxes
    11.2         29.9         96.5         119.1  
Income tax expense
    4.6         12.3         36.1         43.2  
                                       
Net income(2)
  $ 6.6       $ 17.6       $ 60.4       $ 75.9  
                                       
Earnings per share, basic
          $ 0.34               $ 0.49  
Earnings per share, diluted
          $ 0.34               $ 0.49  
Weighted average shares, basic
            51,297,000                 154,710,500  
Weighted average shares, diluted
            51,396,000                 155,017,000  
Pro forma earnings per share, basic
                  $ 1.21          
Pro forma earnings per share, diluted
                  $ 1.21          
Pro forma weighted average shares, basic
                    51,297,000          
Pro forma weighted average shares, diluted
                    51,396,000          
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  
 


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    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 (exclusive of depreciation and amortization shown separately below)
    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         8.6  
Amortization of intangibles
    0.3       0.3               10.5 (1)       28.6 (1)
Profit sharing
    13.1       15.1       1.3         13.2         13.5  
Stock-based compensation
                        3.0         5.7  
                                             
Total costs and expenses
    1,349.9       1,587.5       130.8         1,968.6         3,651.7  
                                             
Operating income
    95.9       126.2       11.7         156.3         301.4  
Other income (expense)
                                           
Interest expense
    (2.7 )     (2.8 )     (0.1 )       (61.7 )       (65.9 )
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 )       (69.8 )
                                             
Income before income taxes
    89.1       117.9       11.2         93.4         231.6  
Income tax expense
    36.6       48.3       4.6         36.5         86.8  
                                             
Net income(2)
  $ 52.5     $ 69.6     $ 6.6       $ 56.9       $ 144.8  
                                             
Earnings per share, basic
                      $ 0.82          
Earnings per share, diluted
                      $ 0.82          
Weighted average shares, basic
                        69,325,299          
Weighted average shares, diluted
                        69,461,299          
Pro forma earnings per share, basic
                              $ 2.13  
Pro forma earnings per share, diluted
                              $ 2.13  
Pro forma weighted average shares, basic
                                69,325,299  
Pro forma weighted average shares, diluted
                                69,461,299  
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       1,390.1  
Minority interest in subsidiaries
    11.5       15.6         100.7       95.2        
Stockholders’ equity
    168.8       242.6         1,210.0       824.4       819.0  

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(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.


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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     $ 148.5     $ 17.6     $ 61.8     $ 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       89.1       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       6.6       1.3       3.3       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.
 
In addition, we have also presented in this prospectus our EBITDA for the eleven months ended December 31, 2007 and Red Man’s EBITDA for the twelve months ended December 31, 2007. The most comparable GAAP measure to EBITDA is Net income. We calculate our EBITDA for the eleven months ended December 31, 2007 ($171 million) by adding our Net income for this period ($56.9 million) with our interest expense ($61.7 million), income tax expense ($36.5 million), amortization of intangibles ($10.5 million), and depreciation and amortization ($5.4 million) for the same period. We calculate Red Man’s EBITDA for the twelve months ended October 31, 2007 ($170 million) by adding Red Man’s Net income for this period ($82.2 million) with Red Man’s interest expense ($20.6 million), income tax expense ($57.6 million), and depreciation and amortization ($9.7 million) for the same period.
 
We present EBITDA because we believe it is a useful indicator of our operating performance, as described above with respect to Adjusted EBITDA. EBITDA, however, does not represent and should not be considered an alternative to measures of financial performance calculated and presented in accordance with GAAP, as described above with respect to Adjusted EBITDA.
 
 
(4) Adjusted to give effect (1) to an estimated $5.4 million of expenses incurred in connection with this offering and (2) for our purchase on July 31, 2008 of the approximate 49% minority voting interest in Midfield Supply ULC, one of our subsidiaries. Our total debt, including current portion, would increase by $5.4 million due to offering-related expenses based on our estimate of such expenses. In connection with our purchase of the minority voting interest in Midfield, our total debt, including current portion, increased from $1,284.7 million to $1,384.7 million because we incurred an additional $100 million of debt in order to fund the purchase. Our minority interest in subsidiaries was eliminated upon consummation of the purchase because we had no minority interest in subsidiaries other than the purchased interest. Our stockholders’ equity has decreased from $824.4 million to $819.0 million, or by $5.4 million, on account of the $5.4 million of offering-related expenses.


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RISK FACTORS
 
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:
 
  •  the level of domestic and worldwide oil and gas production and inventories;
 
  •  the level of drilling activity and the availability of attractive oil and gas field prospects, which may be affected by governmental actions, such as regulatory actions or legislation, or other restrictions on drilling, including those related to environmental concerns;
 
  •  the discovery rate of new oil and gas reserves and the expected cost of developing new reserves;
 
  •  the actual cost of finding and producing oil and gas;
 
  •  depletion rates;
 
  •  domestic and worldwide refinery overcapacity or undercapacity and utilization rates;
 
  •  the availability of transportation infrastructure and refining capacity;
 
  •  increases in the cost of the products that we provide to the oil and gas industry, which may result from increases in the cost of raw materials such as steel;
 
  •  shifts in end-customer preferences toward fuel efficiency and the use of natural gas;


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  •  the economic and/or political attractiveness of alternative fuels, such as coal, hydrocarbon, wind, solar energy and biomass-based fuels;
 
  •  increases in oil and gas prices and/or historically high oil and gas prices, which could lower demand for oil and gas products;
 
  •  worldwide economic activity including growth in countries that are not members of the Organisation for Economic Co-operation and Development (“non-OECD countries”), including China and India;
 
  •  interest rates and the cost of capital;
 
  •  national government policies, including government policies which could nationalize or expropriate oil and gas exploration, production, refining or transportation assets;
 
  •  the ability of the Organization of Petroleum Exporting Countries (OPEC) to set and maintain production levels and prices for oil;
 
  •  the impact of armed hostilities, or the threat or perception of armed hostilities;
 
  •  pricing and other actions taken by competitors that impact the market;
 
  •  environmental regulation;
 
  •  technological advances;
 
  •  global weather conditions and natural disasters;
 
  •  an increase in the value of the U.S. dollar relative to foreign currencies; and
 
  •  tax policies.
 
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.


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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.


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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 32% of our total purchases during 2007 on a pro forma basis were from our ten largest suppliers. Before giving pro forma effect to the Red Man Transaction, approximately 30% of our total purchases during 2007 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.


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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 while we generated more than 50% of our pro forma sales in 2007 from multi-year maintenance, repair and operations (“MRO”) contracts, our contracts, including our MRO 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, and even our MRO customers are not required to purchase products from us. Furthermore, the long-term customer contracts that we do have are generally terminable without cause on short notice. Our 10 largest customers represented approximately 25% of our total pro forma sales for the fiscal year ended December 31, 2007. Before giving pro forma effect to the Red Man Transaction, our ten largest customers represented approximately 28% of our total 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


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combined business, results of operations and financial condition. The difficulty of combining the companies presents challenges to our management, including:
 
  •  operating a significantly larger combined company with operations in more geographic areas and with more business lines;
 
  •  integrating personnel with diverse backgrounds and organizational cultures;
 
  •  coordinating sales and marketing functions;
 
  •  retaining key employees, customers or suppliers;
 
  •  integrating the information systems;
 
  •  preserving the collaboration, distribution, marketing, promotion and other important relationships; and
 
  •  consolidating other corporate and administrative functions.
 
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 achieve cost savings or other financial or operating objectives with respect to an acquisition;
 
  •  strain on the operational and managerial controls and procedures of our business, and the need to modify systems or to add management resources;
 
  •  difficulties in the integration and retention of customers or personnel and the integration and effective deployment of operations or technologies;
 
  •  amortization of acquired assets, which would reduce future reported earnings;
 
  •  possible adverse short-term effects on our cash flows or operating results;
 
  •  diversion of management’s attention from the ongoing operations of our business;
 
  •  failure to obtain and retain key personnel of an acquired business; and
 
  •  assumption of known or unknown material liabilities or regulatory non-compliance issues.


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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:
 
  •  limiting our ability to obtain additional financing to fund our working capital, acquisitions, expenditures, debt service requirements or other general corporate purposes;
 
  •  limiting our ability to use operating cash flow in other areas of our business because we must dedicate a substantial portion of these funds to service debt;
 
  •  limiting our ability to compete with other companies who are not as highly leveraged;
 
  •  subjecting us to restrictive financial and operating covenants in the agreements governing our and our subsidiaries’ long-term indebtedness;
 
  •  exposing us to potential events of default (if not cured or waived) under financial and operating covenants contained in our or our subsidiaries’ debt instruments that could have a material adverse effect on our business, results of operations and financial condition;
 
  •  increasing our vulnerability to a downturn in general economic conditions or in pricing of our products; and
 
  •  limiting our ability to react to changing market conditions in our industry and in our customers’ industries.
 
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. Without giving pro forma effect to the Red Man Transaction, our interest expense for the eleven months ended December 31, 2007 was $61.7 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


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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.


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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. Although we are not aware of any active litigation against us under the federal Superfund law or its state equivalents, 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


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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).


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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 843 claims as of September 25, 2008 alleging, among other things, personal injury, including mesothelioma and other cancers, arising from exposure to asbestos-containing materials included in products possibly distributed by us in the past. Each claim involves allegations of exposure to asbestos-containing materials by a single individual or an individual, his or her spouse and/or family members. 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 claims will have a material impact on us. However, the potential liability associated with asbestos claims is subject to many uncertainties, including negative developments in the claims 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” at pages 26-27, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Contractual Obligations, Commitments and Contingencies — Legal Proceedings” and “Business — Overview of Our 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


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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:
 
  •  fund our operations;
 
  •  finance investments in equipment and infrastructure needed to maintain and expand our distribution capabilities;
 
  •  enhance and expand the range of products we offer; and
 
  •  respond to potential strategic opportunities, such as investments, acquisitions and international expansion.
 
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


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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.


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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


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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:
 
  •  the requirement that a majority of our board of directors consist of independent directors;
 
  •  the requirement that we have a nominating/corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and
 
  •  the requirement that we have a compensation committee that is composed entirely of independent directors.
 
Following this offering, we will rely on all of the exemptions listed above. 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.


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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:
 
  •  fluctuations in oil and natural gas prices;
 
  •  the failure of securities analysts to cover our common stock after this offering or changes in financial estimates by analysts;
 
  •  announcements by us or our competitors of significant contracts or acquisitions or other business developments;


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  •  variations in quarterly results of operations;
 
  •  loss of a large customer or supplier;
 
  •  U.S. and international general economic conditions;
 
  •  increased competition;
 
  •  terrorist acts;
 
  •  future sales of our common stock or the perception that such sales may occur; and
 
  •  investor perceptions of us and the industries in which our products are used.
 
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


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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 800 million shares of common stock, of which 155,912,942 shares of common stock (excluding 282,771 shares of non-vested restricted 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”.


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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
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:
 
  •  decreases in oil and gas prices;
 
  •  decreases in oil and gas industry expenditure levels, which may result from decreased oil and natural gas prices or other factors;
 
  •  increased usage of alternative fuels, which may negatively affect oil and gas industry expenditure levels;
 
  •  U.S. and international general economic conditions;
 
  •  our ability to compete successfully with other companies in our industry;
 
  •  the risk that manufacturers of our products will sell a substantial amount of goods directly to end users in the markets that we serve;
 
  •  unexpected supply shortages;
 
  •  cost increases by our suppliers;
 
  •  our lack of long-term contracts with most of our suppliers;
 
  •  increases in customer, manufacturer and distributor inventory levels;
 
  •  price reductions by suppliers of products sold by us, which could cause the value of our inventory to decline;
 
  •  decreases in steel prices, which could significantly lower our profit;
 
  •  increases in steel prices, which we may be unable to pass along to our customers, which could significantly lower our profit;
 
  •  our lack of long-term contracts with many of our customers and our lack of contracts with customers that require minimum purchase volumes;
 
  •  changes in our customer and product mix;
 
  •  the potential adverse effects associated with integrating Red Man into our business and whether the Red Man Transaction will yield its intended benefits;
 
  •  ability to integrate acquired companies into our business;
 
  •  the success of our acquisition strategies;
 
  •  our significant indebtedness;
 
  •  the dependence on our subsidiaries for cash to meet our debt obligations;
 
  •  changes in our credit profile;
 
  •  a decline in demand for certain of our products if import restrictions on these products are lifted;


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  •  environmental, health and safety laws and regulations;
 
  •  the sufficiency of our insurance policies to cover losses, including liabilities arising from litigation;
 
  •  product liability claims against us;
 
  •  pending or future asbestos-related claims against us;
 
  •  the potential loss of key personnel;
 
  •  interruption in the proper functioning of our information systems or failure to timely and properly complete our current information systems integration project;
 
  •  loss of third-party transportation providers;
 
  •  potential inability to obtain necessary capital;
 
  •  risks related to hurricanes and other adverse weather events;
 
  •  the failure of Red Man Distributors LLC to continue to be certified as a minority business enterprise;
 
  •  impairment of our goodwill or other intangible assets;
 
  •  adverse changes in political or economic conditions in the countries in which we operate;
 
  •  potential increases in costs and distraction of management resulting from the requirements of being a public company;
 
  •  risks relating to evaluations of internal controls required by Section 404 of the Sarbanes-Oxley Act;
 
  •  the operation of our company as a “controlled company”; and
 
  •  our limited operating history as a combined company.
 
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.


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USE OF PROCEEDS
 
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”.


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DIVIDEND POLICY
 
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”. For a list of our executive officers and directors who received proceeds of this dividend and the amount of proceeds that each received, see the table in “Certain Relationships and Related Party Transactions — Transactions with Executive Officers and Directors — May 2008 Dividend” on page 151. This dividend is not indicative of future dividends we may pay to our stockholders.


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CAPITALIZATION
 
The following table sets forth our consolidated cash and cash equivalents and capitalization as of June 26, 2008:
 
  •  on an actual basis; and
 
  •  on an as adjusted basis to give effect to (1) the payment of expenses in connection with this offering and (2) transactions in connection with our purchase of the minority interest in Midfield Supply ULC, one of our subsidiaries, on July 31, 2008.
 
You should read this table in conjunction with “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.
 
                 
    June 26, 2008  
   
Actual
   
As Adjusted
 
    (in millions)  
 
Cash and cash equivalents
  $ 8.8     $ 8.8  
                 
Debt (including current portion):
               
Senior secured revolving credit facility(1)
    204.4       309.8  
Senior secured term loan facility
    567.8       567.8  
Junior term loan facility
    450.0       450.0  
Midfield revolving credit facility(2)
    51.7       51.7  
Midfield term loan facility
    9.8       9.8  
Midfield notes payable
    1.0       1.0  
                 
Total debt before Midfield shareholder loans
    1,284.7       1,390.1  
Midfield shareholder loans(3)
    29.1        
                 
Total debt
    1,313.8       1,390.1  
Minority interest in subsidiaries(3)
    58.2       1.3  
Stockholders’ equity:
               
Common stock, $0.01 par value per share; 800,000,000 shares authorized, 155,682,364 shares issued and outstanding(4)
    1.6       1.6  
Preferred stock, $0.01 par value per share; 150,000,000 shares authorized, no shares issued and outstanding
           
Additional paid-in capital
    1,168.0       1,200.8  
Retained earnings
    (341.8 )     (347.2 )
Other comprehensive loss
    (3.5 )     (3.5 )
                 
Total stockholders’ equity
    824.3       851.7  
                 
Total capitalization
  $ 2,196.3     $ 2,243.1  
                 
 
(1) As of June 26, 2008, we had outstanding $204.4 million of borrowings and availability of $490.9 million under our senior secured revolving credit facility. During October 2008, we upsized our revolving credit facility from $700 million to $800 million and obtained a commitment from an additional lender for $100 million effective January 2, 2009, which would upsize our revolving credit facility to $900 million as of January 2, 2009.
 
(2) As of June 26, 2008, we had outstanding $51.7 million of borrowings and availability of $51.6 million under the Midfield revolving credit facility. The as adjusted amount includes


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$5.4 million in drawings under our revolving credit facility for purposes of paying expenses in connection with this offering.
 
(3) The as adjusted column gives effect to total payments made in connection with our purchase on July 31, 2008 of all of the minority interest in Midfield Supply ULC, one of our subsidiaries. Total payments consisted of CDN$90.04 million (US$87.97 million) paid to shareholders of and lenders to Midfield Holdings (Alberta) Ltd., the holder of the minority interest, and approximately US$47.7 million paid to former shareholders of Red Man pursuant to the stock purchase agreement entered into in connection with the Red Man Transaction. In connection with the purchase of the minority interest, the Midfield shareholder loans were paid in full.
 
(4) The number of shares of common stock outstanding on an actual and as adjusted basis as of June 26, 2008:
 
  •  excludes 1,899,852 shares of common stock issuable upon the exercise of stock options granted to certain of our employees pursuant to the McJ Holding Corporation 2007 Stock Option Plan; and
 
  •  excludes 296,786 shares of non-vested restricted stock awarded to certain of our employees and directors pursuant to the McJ Holding Corporation 2007 Restricted Stock Plan.


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DILUTION
 
Our pro forma net tangible book value per share as of June 26, 2008, before giving effect to this offering, was approximately $(6.10). After giving effect to this offering, our pro forma net tangible book value per share as of June 26, 2008 would have been $(6.14) (due to the costs and expenses incurred by our company in connection with this offering). 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 500 for 1 split of our common stock which occurred on October 16, 2008). 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 substantial dilution because our pro forma net tangible book value per share will not be significantly affected by this offering, other than as a result of offering-related costs and expenses.
 
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 500 for 1 split of our common stock which occurred on October 16, 2008:
 
                                         
    Shares Purchased     Total Consideration     Average Price
 
   
Number
   
Percent
   
Amount
   
Percent
   
Per Share
 
 
Existing stockholders(1)
                      %   $                   %   $        
New investors(2)(3)
                                       
                                         
Total
            %   $         %   $  
                                         
 
(1) Total consideration and average price per share paid by the existing stockholders give effect to the $475 million distribution made to the existing stockholders in May 2008 using proceeds from our senior secured revolving credit facility and junior term loan facility. If the table were adjusted to not give effect to these payments, existing stockholders’ total consideration for their shares would be $      with an average share price of $     .
 
(2) A $1.00 increase (decrease) in the assumed initial public offering price of $      per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) total consideration paid by new investors and total consideration paid by all stockholders by $      million, assuming the number of shares offered by the selling stockholder, as set forth on the cover page of the prospectus, remains the same.
 
(3) If the underwriters exercise their option to purchase           shares from the selling stockholder in full, then new investors would purchase           shares, or approximately     % of shares outstanding, and the total consideration paid by new investors would increase to $     , or     % of the total consideration paid (based on the midpoint of the range set forth on the cover page of this prospectus).
 
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 500 for 1 split of our common stock which occurred on October 16, 2008). Also, as of June 26, 2008, there were 296,786 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 $     .


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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
 
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.
 
The purchase price allocation for the GS Acquisition has been finalized but the purchase price allocation for the Red Man Transaction has not been finalized. We expect the purchase price allocation for the Red Man Transaction to be finalized by October 31, 2008. The purchase price has been finalized for both the GS Acquisition and the Red Man Transaction and the consideration for such transactions will not increase.


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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.
 
                           
    Predecessor       Successor  
    One Month
      Five Months
    Six Months
 
    Ended
      Ended
    Ended
 
   
January 30, 2007
     
June 28, 2007
   
June 26, 2008
 
            (Unaudited)     (Unaudited)  
    (In millions, except per share and share data)  
Statement of Operations Data:
                         
Sales
  $ 142.5       $ 784.9     $ 2,196.0  
Costs and expenses
                         
Cost of sales (exclusive of depreciation and amortization shown separately below)
    114.6         635.9       1,803.8  
Selling, general and administrative expenses
    14.6         80.7       200.1  
Depreciation and amortization
    0.3         1.7       5.2  
Amortization of intangibles
            4.6       15.6  
Profit sharing
    1.3         5.6       13.5  
Stock-based compensation
            1.3       3.3  
                           
Total costs and expenses
    130.8         729.8       2,041.5  
                           
Operating income
    11.7         55.1       154.5  
Other income (expense)
                         
Interest expense
    (0.1 )       (24.3 )     (35.0 )
Minority interests
    (0.4 )             (0.1 )
Other, net
            (0.9 )     (0.3 )
                           
Total other income (expense)
    (0.5 )       (25.2 )     (35.4 )
                           
Income before income taxes
    11.2         29.9       119.1  
Income tax expense
    4.6         12.3       43.2  
                           
Net income
  $ 6.6       $ 17.6     $ 75.9  
                           
Earnings per share, basic
  $ 376.70       $ 0.34     $ 0.49  
Earnings per share, diluted
    376.70       $ 0.34     $ 0.49  
Weighted average shares, basic
    17,510         51,297,000       154,710,500  
Weighted average shares, diluted
    17,510         51,396,000       155,017,000  
Dividends per common share
  $       $     $ 3.05  
                           
Balance Sheet Data:
                         
Cash and cash equivalents
  $ 2.0       $ 16.5     $ 8.8  
Working capital
    211.1         324.0       686.1  
Total assets
    474.2         1,551.7       3,294.3  
Total debt, including current portion
    4.8         747.4       1,284.7  
Minority interest in subsidiaries
    16.0               95.2  
Stockholders’ equity
    245.2         392.9       824.4  
                           
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 )


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    Predecessor       Successor  
    Year
    Year
    Year
    Year
    One Month
      11 Months
 
    Ended
    Ended
    Ended
    Ended
    Ended
      Ended
 
    December 31,
    December 31,
    December 31,
    December 31,
    January 30,
      December 31,
 
   
2003
   
2004
   
2005
   
2006
   
2007
     
2007
 
    (In millions, except as otherwise indicated)  
Statement of Operations Data:
                                                 
Sales
  $ 798.2     $ 1,081.2     $ 1,445.8     $ 1,713.7     $ 142.5       $ 2,124.9  
Costs and expenses
                                                 
Cost of sales (exclusive of depreciation and amortization shown separately below)
    644.5       867.6       1,177.1       1,394.3       114.6         1,734.6  
Selling, general and administrative expenses
    118.7       140.5       155.7       173.9       14.6         201.9  
Depreciation and amortization
    4.3       3.9       3.7       3.9       0.3         5.4  
Amortization of intangibles
    0.5       0.5       0.3       0.3               10.5  
Profit sharing
    5.1       11.5       13.1       15.1       1.3         13.2  
Stock-based compensation
                                    2.9  
                                                   
Total costs and expenses
    773.1       1,024.0       1,349.9       1,587.5       130.8         1,968.5  
                                                   
Operating income
    25.1       57.2       95.9       126.2       11.7         156.4  
Other income (expense)
                                                 
Interest expense
    (2.5 )     (2.5 )     (2.7 )     (2.8 )     (0.1 )       (61.7 )
Minority interests
    (0.6 )     (1.9 )     (2.8 )     (4.1 )     (0.4 )       (0.1 )
Other, net
    (0.9 )     (0.1 )     (1.3 )     (1.4 )             (1.1 )
                                                   
Total other income (expense)
    (4.0 )     (4.5 )     (6.8 )     (8.3 )     (0.5 )       (62.9 )
                                                   
Income before income taxes
    21.1       52.7       89.1       117.9       11.2         93.5  
Income tax expense
    8.9       21.3       36.6       48.3       4.6         36.6  
                                                   
Net income
  $ 12.2     $ 31.4     $ 52.5     $ 69.6     $ 6.6       $ 56.9  
                                                   
Earnings per share — Class A, basic
  $ 2,994.24     $ 2,960.24     $ 2,952.12     $ 3,972.08     $ 376.70          
Earnings per share — Class A, diluted
  $ 2,994.24     $ 2,960.24     $ 2,952.12     $ 3,972.08     $ 376.70          
Weighted average shares — Class A, basic
    16,940       16,940       16,940       16,940       16,940          
Weighted average shares — Class A, diluted
    16,940       16,940       16,940       16,940       16,940          
Earnings per share — Class B, basic
  $ 3,190.49     $ 4,200.98     $ 4,442.12     $ 4,012.08     $ 376.70          
Earnings per share — Class B, diluted
  $ 3,190.49     $ 4,200.98     $ 4,442.12     $ 4,012.08     $ 376.70          
Weighted average shares — Class B, basic
    570       570       570       570       570          
Weighted average shares — Class B, diluted
    570       570       570       570       570          
Earnings per share, basic
                                  $ 0.82  
Earnings per share, diluted
                                  $ 0.82  
Weighted average shares, basic
                                    69,325,299  
Weighted average shares, diluted
                                    69,461,299  
Dividends per common share, Class A
  $ 975     $ 6,200     $ 1,490     $ 40     $       $  
Dividends per common share, Class B
  $ 1,950     $ 12,400     $ 2,980     $ 80     $       $  


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    Predecessor       Successor  
    Year
    Year
    Year
    Year
    One Month
      11 Months
 
    Ended
    Ended
    Ended
    Ended
    Ended
      Ended
 
    December 31,
    December 31,
    December 31,
    December 31,
    January 30,
      December 31,
 
   
2003
   
2004
   
2005
   
2006
   
2007
     
2007
 
    (In millions, except as otherwise indicated)  
Balance Sheet Data:
                                                 
Cash and cash equivalents
  $ 6.3     $ 10.4     $ 5.9     $ 3.7     $ 2.0       $ 10.1  
Working capital
    112.3       115.6       129.0       212.3       211.1         663.5  
Total assets
    265.3       323.9       434.0       481.0       474.2         2,925.0  
Total debt, including current portion
    24.7       14.2       3.1       13.0       4.8         868.4  
Minority interest in subsidiaries
    6.8       8.7       11.5       15.6       16.0         100.7  
Stockholders’ equity
    120.9       132.3       168.8       242.6       245.2         1,210.0  
                                                   
Other Financial Data:
                                                 
Net cash provided by operating activities
  $ 25.1     $ 32.3     $ 30.4     $ 18.4     $ 6.6       $ 110.2  
Net cash (used in) investing activities
    (8.5 )     (1.4 )     (6.7 )     (3.3 )     (0.2 )       (1,788.9 )
Net cash (used in) provided by financing activities
    (15.5 )     (26.8 )     (21.1 )     (17.2 )     (8.3 )       1,687.2  

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PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
 
On January 31, 2007, McJunkin Red Man Holding Corporation, an affiliate of The Goldman Sachs Group, Inc., acquired a majority of the equity of McJunkin Red Man Corporation (then known as McJunkin Corporation) (the “GS Acquisition”). In connection with the GS Acquisition, McJunkin Corporation entered into a $575 million term loan facility on January 31, 2007. On October 31, 2007, McJunkin Corporation completed a business combination transaction with Red Man Pipe & Supply Co. (the “Red Man Transaction”). At that time McJunkin Corporation was renamed McJunkin Red Man Corporation. McJunkin Red Man Corporation entered into a $650 million revolving credit facility on October 31, 2007 in connection with the Red Man Transaction. This revolving credit facility was upsized to $700 million on June 10, 2008, to $750 million on October 3, 2008, and to $800 million on October 16, 2008.
 
The unaudited pro forma consolidated income statement of McJunkin Red Man Holding Corporation for the twelve months ended December 31, 2007 has been derived from (1) the audited consolidated statement of income of McJunkin Corporation for the one month ended January 30, 2007 (before the GS Acquisition), (2) the audited consolidated statement of income of McJunkin Red Man Holding Corporation for the eleven months ended December 31, 2007 (which includes the results of McJunkin for 11 months and the results of Red Man for the two months ended December 31, 2007), and (3) the audited statement of operations of Red Man Pipe & Supply Co. for the twelve months ended October 31, 2007. The unaudited pro forma consolidated income statement of McJunkin Red Man Holding Corporation for the twelve months ended December 31, 2007 has been adjusted to exclude the results of Red Man for the two months ended December 31, 2007 and to give pro forma effect to (1) the GS Acquisition and the Red Man Transaction as if each such transaction had occurred on January 1, 2007, and (2) our entering into our $575 million term loan facility and our $800 million revolving credit facility, as if we had entered into these facilities on January 1, 2007.
 
The unaudited pro forma consolidated income statement of McJunkin Red Man Holding Corporation for the six months ended June 28, 2007 has been derived from (1) the audited consolidated statement of income of McJunkin Corporation for the one month ended January 30, 2007 (before the GS Acquisition), (2) the unaudited consolidated statement of income of McJunkin Red Man Holding Corporation for the five months ended June 28, 2007 (before the Red Man Transaction), and (3) the unaudited consolidated statement of operations of Red Man Pipe & Supply Co. for the six months ended April 30, 2007. The unaudited pro forma consolidated income statement of McJunkin Red Man Holding Corporation for the six months ended June 28, 2007 has been adjusted to give pro forma effect to (1) the GS Acquisition and the Red Man Transaction as if each such transaction had occurred on January 1, 2007, and (2) our entering into our $575 million term loan facility and our $800 million revolving credit facility, as if we had entered into these facilities on January 1, 2007.
 
The purchase price allocation for the GS Acquisition has been finalized but the purchase price allocation for the Red Man Transaction has not been finalized. We expect the purchase price allocation for the Red Man Transaction to be finalized by October 31, 2008. The purchase price has been finalized for both the GS Acquisition and the Red Man Transaction and the consideration for such transactions will not increase.
 
The unaudited pro forma consolidated financial statements do not give effect to our acquisition of Midway-Tristate Corporation (“Midway”) on April 30, 2007 and therefore do not include Midway’s results for the four months ended April 30, 2007 nor do they give pro forma effect to Midway as if the acquisition had occurred on January 1, 2007. Midway was not a “significant” acquisition within the meaning of Rule 3-05 of Regulation S-X. The unaudited pro forma income statements also do not give effect to our purchase of the approximate 49% minority voting interest in Midfield, one of our subsidiaries, on July 31, 2008. Red Man originally acquired 51% of Midfield in 2005 and the purchase of the remaining 49% in July 2008 was not a “significant” acquisition within the meaning of Rule 3-05


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of Regulation S-K. The assets and liabilities of Midfield are included in the audited consolidated financial statements of MRM at December 31, 2007.
 
The unaudited pro forma consolidated financial statements are provided for informational purposes only and do not purport to represent or be indicative of the results that actually would have been obtained had the transactions described above occurred on January 1, 2007 and are not intended to project our consolidated financial position or results of operations for any future period. The pro forma adjustments are based on available information and certain assumptions that we believe are reasonable. The pro forma adjustments and certain assumptions are described in the accompanying notes. Other information included under this heading has been presented to provide additional analysis. We will expense the costs of this offering.
 
The unaudited pro forma consolidated financial statements below should be read in conjunction with the historical financial statements, the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.
 
PRO FORMA INCOME STATEMENT FOR THE SIX MONTHS ENDED JUNE 28, 2007
 
                                                 
            McJunkin
                         
    McJunkin       Red Man       Red Man               Pro Forma  
    One Month
      Five Months
      Six Months
              Combined Six
 
    Ended
      Ended
      Ended
              Months Ended
 
    January 30,
      June 28,
      April 30,
      Pro Forma
      June 28,
 
   
2007
     
2007
     
2007
     
Adjustments
     
2007
 
            (Unaudited)       (Unaudited)       (Unaudited)       (Unaudited)  
    (In millions)  
Sales
  $ 142.5       $ 784.9       $ 934.7                 $ 1,862.1  
Costs and expenses
                                               
Cost of sales (exclusive of depreciation and amortization shown separately below)
    114.6         635.9         779.4                   1,529.9  
Selling, general and administrative expenses
    14.6         80.7         73.9                   169.2  
Depreciation and amortization
    0.3         1.7         2.8         (0.5 )(a)       4.3  
Amortization of intangibles
            4.6         1.6         8.1 (b)       14.3  
Profit sharing
    1.3         5.6         4.4                   11.3  
Stock-based compensation
            1.3         1.0         0.5 (c)       2.8  
                                                 
Total costs and expenses
    130.8         729.8         863.1         8.1         1,731.8  
                                                 
Operating income
    11.7         55.1         71.6         (8.1 )       130.3  
Other income (expense)
                                               
Interest expense
    (0.1 )       (24.3 )       (9.1 )       0.5 (d)       (33.0 )
Minority interest
    (0.4 )               (0.1 )       0.4 (e)       (0.1 )
Other, net
            (0.9 )       0.2                   (0.7 )
                                                 
Total other income (expense)
    (0.5 )       (25.2 )       (9.0 )       0.9         (33.8 )
                                                 
Income before income taxes
    11.2         29.9         62.6         (7.2 )       96.5  
Income tax expense
    4.6         12.3         23.4         (4.2 )(f)       36.1  
                                                 
Net income
  $ 6.6       $ 17.6       $ 39.2       $ (3.0 )     $ 60.4  
                                                 
Earnings per share, basic
  $ 376.70       $ 0.34       $ 220.22                  
Earnings per share, diluted
    376.70       $ 0.34         220.22                  
Weighted average shares, basic
    17,510         51,297,000         178,000                  
Weighted average shares, diluted
    17,510         51,396,000         178,000                  
Pro forma earnings per share, basic
                                  $ 1.21  
Pro forma earnings per share, diluted
                                  $ 1.21  
Pro forma weighted average shares, basic(g)
                                    51,297,000  
Pro forma weighted average shares, diluted(g)
                                    51,396,000  
 
 
(a) Reflects the decrease in depreciation resulting from the revaluation of our property, plant and equipment in connection with the GS Acquisition and the Red Man Transaction, as if these transactions had each occurred on January 1, 2007. All significant assets that were acquired in each of these transactions were revalued to their estimated fair value. The pro forma adjustment was determined by dividing the fair value of each asset over the newly determined life of the respective asset as determined as of the date of the transactions. This methodology assumes that a valuation completed as of January 1, 2007 would have yielded a similar result. Utilizing this asset-by-asset approach, we determined that six months of depreciation for the assets acquired in the GS Acquisition would have equated to $1.8 million, and six months of depreciation for the assets acquired in the Red Man Transaction would have equated to $2.4 million. Therefore, the pro


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forma adjustment includes a $0.2 million decrease in depreciation in connection with the revaluation of property, plant and equipment acquired in the GS Acquisition, and a $0.3 million decrease in depreciation in connection with the revaluation of property, plant and equipment acquired in the Red Man Transaction, for an adjustment of $0.5 million overall.
 
                         
Fair Value of Fixed Assets Acquired in the GS Acquisition        
Asset Description
  Fair Value     Average Life     6 Mos. Expense  
    (in millions)     (in years)     (in millions)  
 
Land
  $ 6.0             $    
Buildings and Improvements
    13.0       40       0.1  
Machinery, shop equipment, and vehicles
    15.9       6       1.4  
Furniture, fixtures, and office equipment
    2.7       4       0.3  
                         
Total Depreciation
                  $ 1.8  
                         
 
                         
Fair Value of Fixed Assets Acquired in the Red Man Transaction        
Asset Description
  Fair Value     Average Life     6 Mos. Expense  
    (in millions)     (in years)     (in millions)  
 
Land
  $ 8.6             $    
Buildings
    15.0       40       0.2  
Building Improvements
    2.7       7       0.1  
Machinery, shop equipment, and vehicles
    17.2       6       1.4  
Furniture, fixtures, and office equipment
    7.1       5       0.7  
                         
Total Depreciation
                  $ 2.4  
                         
 
(b) Reflects the increase in amortization of intangibles in connection with the GS Acquisition and the Red Man Transaction, as if these transactions had each occurred on January 1, 2007. In accordance with the purchase accounting method, the fair value of certain identifiable assets is amortized over the asset’s estimated life. The pro forma adjustment was determined by dividing the fair value of the intangible asset over the estimated life of the asset. This methodology assumes that a valuation completed as of January 1, 2007 would have yielded a similar result. Using straight line amortization, we determined that the six month amortization expense for the assets related to the GS Acquisition is $5.4 million, and the six month amortization expense for the assets related to the Red Man Transaction is $8.9 million. Therefore the pro forma adjustment includes a $0.7 million increase in the amortization of intangibles in connection with the assets acquired in the GS Acquisition, and a $7.4 million increase in amortization of intangibles in connection with the assets acquired in the Red Man Transaction, for an adjustment of $8.1 million overall.
 
                         
GS Acquisition Related Amortizable Intangibles        
Intangible
  Value     Estimated Life     6 Mos. Expense  
    (in millions)     (in years)     (in millions)  
 
Sales Order Backlog
  $ 1.6       1     $ 0.8  
Customer Base
    356.0       40       4.4  
Non Compete Agreements
    0.9       5       .1  
                         
Total Amortization
                  $ 5.3  
                         
 
                         
Red Man Transaction Related Amortizable Intangibles        
Intangible
  Value     Estimated Life     6 Mos. Expense  
    (in millions)     (in years)     (in millions)  
 
Sales Order Backlog
  $ 2.0       1     $ 1.0  
Customer Base - Red Man
    228.9       17       6.7  
Customer Base - Midfield
    31.3       13       1.2  
                         
Total Amortization
                  $ 8.9  
                         
 
(c) Reflects compensation expense relating to the equity awards granted to certain employees in connection with the GS Acquisition and the Red Man Transaction, as if each had occurred on January 1, 2007. This adjustment was calculated based on the actual expense recorded in June 2008, because this would have reflected six months of stock-based compensation expense using the aforementioned assumptions. Any forfeitures would have been immaterial in determining this adjustment.
 
The Company’s total stock-based compensation expense recorded for the six months ended June 26, 2008 was $2.8 million, consisting of compensation expense related to stock options and restricted stock of $0.5 million, compensation expense related to restricted stock of $0.1 million, compensation expense related to restricted common units of PVF Holdings LLC of $0.6 million, and compensation expense related to profits units of PVF Holdings LLC of $1.6 million. See Note 10 to the Company’s Consolidated Financial Statements for the six months ended June 26, 2008 for significant assumptions used in the computation of stock based compensation. The Company calculated the pro forma adjustment for stock-based compensation expense by assuming that the total stock-based compensation


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expense for the pro forma combined six months ended June 28, 2007 would have been the same as the compensation expense actually recorded for the six months ended June 26, 2008. Therefore, the pro forma adjustment of $0.5 million is derived by subtracting the stock-based compensation expense for McJunkin Red Man for the five months ended June 28, 2007 ($1.3 million), along with the stock-based compensation expense for Red Man for the six months ended April 30, 2007 ($1.0 million), from the actual stock-based compensation expense for the six months ended June 26, 2008 of $2.8 million (which is the assumed stock-based compensation expense for the pro forma combined six-month period ending June 28, 2007).
 
(d) Reflects the interest expense for (1) interest resulting from our entering into our $575 million term loan facility and the $800 million revolving credit facility, as if we entered into these facilities on January 1, 2007, (2) interest resulting from debt of $71.6 million assumed in conjunction with the Red Man Transaction which includes $25.7 million of shareholder loans included in liability to shareholders in the purchase price allocation, and (3) amortization of the related deferred financing costs. To calculate interest expense, an average interest rate of 7.11% based on LIBOR was multiplied by an average annual debt balance of $874 million. The total annual interest expense based on the assumptions described is $65.9 million, and the total for six months would be $33 million. The total adjustment to the pro forma financials for interest expense is a decrease of $0.7 million. Deferred financing fees for both the GS Acquisition and the Red Man Transaction were recorded at the closing dates, and the pro forma adjustment assumes that both transactions occurred as of January 1, 2007. The deferred financing fees for the GS Acquisition were $15.5 million and the deferred financing fees for the Red Man Transaction were $7.7 million. These fees are amortized using the straight line amortization method over 74 months. Therefore, the six month amortization expense related to the deferred financing fees for six months is $1.9 million. The total adjustment to the pro forma financials for deferred financing fees is an increase of $0.3 million. Actual interest expense may be higher or lower depending upon fluctuations in interest rates. A 1/8% change in interest rates would have resulted in a $0.5 million change in interest expense for the six-month period. No pro forma adjustment has been made to reflect the increase in interest expense that would have resulted had we entered into our $450 million junior term loan facility at any time during the six-month period because our entry into the $450 million junior term loan facility was not related to funding the Red Man Transaction or the GS Acquisition.
 
(e) Reflects elimination of our minority interest related to McJunkin Appalachian Oilfield Supply Company in connection with the GS Acquisition on January 31, 2007 as if we acquired the minority interest on January 1, 2007.
 
(f) Reflects the reduction in income tax expense as a result of (1) the pro forma adjustments described above, which resulted in a lower amount of pre-tax income, and (2) the lower effective income tax rate applicable to our combined company, which is lower than the historical income tax rates applicable to McJunkin and Red Man separately, as if our combined company’s current income tax rate was in effect from January 1, 2007 onward. The tax rate assumed in this calculation was 37.5%. The total adjustment necessary was calculated by multiplying this rate with the total adjusted pre-tax income. The adjustment needed is the difference between this calculated rate and the tax recorded in the respective financial statements.
 
(g) Stock options are disregarded in the calculation of earnings per share if they are determined to be anti-dilutive. At June 28, 2007, the company’s anti-dilutive stock options totaled $0.6 million.


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PRO FORMA INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2007
 
                                                           
            McJunkin
              Red Man
                 
    McJunkin       Red Man       Red Man       Adjustments               Pro Forma  
                                            Combined
 
            Eleven
      Twelve
                      Twelve
 
    One Month
      Months
      Months
      Two Months
              Months
 
    Ended
      Ended
      Ended
      Ended
              Ended
 
    January 30,
      December 31,
      October 31,
      December 31,
      Pro Forma
      December 31,
 
   
2007
     
2007
     
2007
     
2007*
     
Adjustments
     
2007
 
                            (Unaudited)       (Unaudited)       (Unaudited)  
    (In millions)  
Sales
  $ 142.5       $ 2,124.9       $ 1,982.0       $ (296.7 )               $ 3,952.7  
Costs and expenses
                                                         
Cost of sales (exclusive of depreciation and amortization shown separately below)
    114.6         1,734.6         1,632.3         (252.3 )                 3,229.2  
Selling, general and administrative expenses
    14.6         201.9         176.9         (27.7 )                 365.7  
Depreciation and amortization
    0.3         5.4         6.0         (1.1 )       (2.0 )(a)       8.6  
Amortization of intangibles
            10.5         3.7                   14.4 (b)       28.6  
Profit sharing
    1.3         13.2                   (1.0 )                 13.5  
Stock-based compensation
            2.9                             2.8 (c)       5.7  
                                                           
Total costs and expenses
    130.8         1,968.5         1,818.9         (282.1 )       15.2         3,651.3  
                                                           
Operating income
    11.7         156.4         163.1         (14.6 )       (15.2 )       301.4  
Other income (expense)
                                                         
Interest expense
    (0.1 )       (61.7 )       (20.6 )       7.3         9.2 (d)       (65.9 )
Minority interests
    (0.4 )       (0.1 )               0.1         0.4 (e)       0.0  
Other, net
            (1.1 )       (2.7 )       (0.1 )                 (3.9 )
                                                           
Total other income (expense)
    (0.5 )       (62.9 )       (23.3 )       7.3         9.6         (69.8 )
                                                           
Income before income taxes
    11.2         93.5         139.8         (7.3 )       (5.6 )       231.6  
Income tax expense
    4.6         36.6         57.6         (2.4 )       (9.6 )(f)       86.8  
                                                           
Net income
  $ 6.6       $ 56.9       $ 82.2       $ (4.9 )     $ 4.0       $ 144.8  
                                                           
Earnings per share, basic
  $ 376.70       $ 0.82       $ 461.70                          
Earnings per share, diluted
    376.70         0.82       $ 461.70                          
Weighted average shares, basic
    17,510         69,325,299         178,000                          
Weighted average shares, diluted
    17,510         69,461,299         178,000                          
Pro forma earnings per share, basic
                                          $ 2.13  
Pro forma earnings per share, diluted
                                          $ 2.13  
Pro forma weighted average shares, basic(g)
                                            69,325,299  
Pro forma weighted average shares, diluted(g)
                                            69,461,299  
 
 
* Represents actual amounts recorded by Red Man during the period; no transaction-related costs have been reversed.
 
(a) Reflects the decrease in depreciation resulting from the revaluation of our property, plant and equipment in connection with the GS Acquisition and the Red Man Transaction, as if these transactions had each occurred on January 1, 2007. All significant assets that were acquired in each of these transactions were revalued to their estimated fair value. The pro forma adjustment was determined by dividing the fair value of each asset over the newly determined life of the respective asset as determined as of the date of the transactions. This methodology assumes that a valuation completed as of January 1, 2007 would have yielded a similar result. Utilizing this asset-by-asset approach, we determined that a full year of depreciation for the assets acquired in the GS Acquisition would have equated to $3.7 million, and the full year of depreciation for the assets acquired in the Red Man Transaction would have equated to $4.9 million. Therefore, the pro forma adjustment includes a $2 million decrease in depreciation in connection with the revaluation of property, plant and equipment acquired in the GS Acquisition, and a $0.01 million decrease in depreciation in connection with the revaluation of property, plant and equipment acquired in the Red Man Transaction, for an adjustment of $2.0 million overall.
 


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Fair Value of Fixed Assets Acquired in the GS Acquisition
       
Asset Description
  Fair Value     Average Life     Annual Expense  
    (in millions)     (in years)     (in millions)  
 
Land
  $ 6.0             $    
Buildings and Improvements
    13.0       40       0.3  
Machinery, shop equipment, and vehicles
    15.9       6       2.7  
Furniture, Fixtures, and office equipment
    2.7       4       .6  
                         
Total Depreciation
                  $ 3.6  
                         
 
                         
Fair Value of Fixed Assets Acquired in the Red Man Transaction
       
Asset Description
  Fair Value     Average Life     Annual Expense  
    (in millions)     (in years)     (in millions)  
 
Land
  $ 8.6                  
Buildings
    15.0       40     $ 0.4  
Building Improvements
    2.7       7       0.2  
Machinery, shop equipment, and vehicles
    17.2       6       2.8  
Furniture, Fixtures, and office equipment
    7.1       5       1.5  
                         
Total Depreciation
                  $ 4.9  
                         
 
(b) Reflects the increase in amortization of intangibles in connection with the GS Acquisition and the Red Man Transaction, as if these transactions had each occurred on January 1, 2007. In accordance with the purchase accounting method, the fair value of certain identifiable assets is amortized over the asset’s estimated life. The pro forma adjustment was determined by dividing the fair value of the intangible asset over the estimated life of the asset. This methodology assumes that a valuation completed as of January 1, 2007 would have yielded a similar result. Using straight line amortization, we determined that the full year amortization expense for the assets related to the GS Acquisition is $10.7 million, and the full year amortization expense for the assets related to the Red Man Transaction is $17.9 million. Therefore, the pro forma adjustment includes a $0.2 million increase in the amortization of intangibles in connection with the assets acquired in the GS Acquisition, and a $14.2 million increase in amortization of intangibles in connection with the assets acquired in the Red Man Transaction, for an adjustment of $14.4 million overall.
 
                         
GS Acquisition Related Amortizable Intangibles
       
Intangible
  Value     Estimated Life     Annual Expense  
    (in millions)     (in years)     (in millions)  
 
Sales Order Backlog
  $ 1.6       1     $ 1.6  
Customer Base
    356.0       40       8.9  
Non Compete Agreements
    0.9       5       .2  
                         
Total Amortization
                  $ 10.7  
                         
 
                         
Red Man Transaction Related Amortizable Intangibles
       
Intangible
  Value     Estimated Life     Annual Expense  
    (in millions)     (in years)     (in millions)  
 
Sales Order Backlog
  $ 2.0       1     $ 2.0  
Customer Base — Red Man
    228.9       17       13.5  
Customer Base — Midfield
    31.3       13       2.4  
                         
Total Amortization
                  $ 17.9  
                         
 
(c) Reflects compensation expense relating to the equity awards granted to certain employees in connection with the GS Acquisition and the Red Man Transaction, as if each had occurred on January 1, 2007. This adjustment was calculated based on the actual expense recorded in June 2008, because this would have reflected six months of stock based-compensation expense using the significant assumptions noted in Note 10 of the Company’s Consolidated Financial Statements for the six months ended June 26, 2008. The adjustment was calculated by annualizing the actual 2008 expense. Any forfeitures would have been immaterial in determining this adjustment.
 
(d) Reflects the interest expense for (1) interest resulting from our entering into our $575 million term loan facility and the $800 million revolving credit facility, as if we entered into these facilities on January 1, 2007, (2) interest resulting from debt of $71.6 million assumed in conjunction with the Red Man Transaction which includes $25.7 million of shareholder loans included in liability to shareholders in the purchase price allocation, and (3) amortization of the related deferred financing costs, and the remaining debt of $71.6 million on the Red Man financial statements. To calculate interest expense, an average interest rate of 7.11% based on LIBOR was multiplied by an average annual debt balance of $874 million. The total annual interest expense based on the assumptions described is $65.9 million. The total adjustment to the pro forma financials for interest expense is a decrease of $9.2 million. Deferred financing fees for both the GS Acquisition and the Red Man Transaction were recorded at the closing date, and the pro forma adjustment assumes that both transactions occurred as of January 1, 2007. The deferred financing fees for the GS Acquisition were $15.5 million and the deferred financing fees for the Red Man Transaction were $7.7 million. These fees are amortized using the straight line amortization method over 74 months. Therefore, the amortization expense related to the deferred financing fees for the full year is $3.8 million. The

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total adjustment to the pro forma financials for deferred financing fees is an increase of $0.3 million. Actual interest expense may be higher or lower depending upon fluctuations in interest rates. A 1/8% change in interest rates would have resulted in a $1 million change in interest expense for the twelve-month period. No pro forma adjustment has been made to reflect the increase in interest expense that would have resulted had we entered into our $450 million junior term loan facility at any time during the twelve-month period because our entry into the $450 million junior term loan facility was not related to funding the Red Man Transaction or the GS Acquisition.
 
(e) Reflects elimination of our minority interest related to McJunkin Appalachian Oilfield Supply Company in connection with the GS Acquisition on January 31, 2007 as if we acquired the minority interest on January 1, 2007.
 
(f) Reflects the reduction in income tax expense as a result of (1) the pro forma adjustments described above, which resulted in a lower amount of pre-tax income, and (2) the lower effective income tax rate applicable to our combined company, which is lower than the historical income tax rates applicable to McJunkin and Red Man separately, as if our combined company’s current income tax rate was in effect from January 1, 2007 onward. The tax rate assumed in this calculation was 37.5%. The total adjustment necessary was calculated by multiplying this rate with the total adjusted pre-tax income. The adjustment needed is the difference between this calculated rate and the tax recorded in the respective financial statements.
 
(g) Stock options are disregarded in the calculation of earnings per share if they are determined to be anti-dilutive. At December 31, 2007, the company’s anti-dilutive stock options totaled $1.7 million.


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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our financial statements and related notes included elsewhere in this prospectus. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including, but not limited to, those set forth under “Risk Factors”, “Cautionary Note Regarding Forward-Looking Statements” and elsewhere in this prospectus.
 
Overview
 
We are the largest North American distributor of pipe, valves and fittings (“PVF”) and related products and services to the energy industry based on sales and the leading PVF distributor serving this industry across each of the upstream (exploration, production, and extraction of underground oil and gas), midstream (gathering and transmission of oil and gas, gas utilities, and the storage and distribution of oil and gas) and downstream (crude oil refining and petrochemical processing) markets. We have an unmatched presence of over 250 branches that are located in the most active oil and gas regions in North America. We offer an extensive array of PVF and oilfield supplies encompassing over 100,000 products, we are diversified by geography and end market and we seek to provide best-in-class service to our customers by satisfying the most complex, multi-site needs of some of the largest companies in the energy and industrial sectors as their primary supplier. As a result, we have an average relationship of over 20 years with our top ten customers and our pro forma sales in 2007 were over twice as large as our nearest competitor in the energy industry. We believe the critical role we play in our customers’ supply chain, our unmatched scale and extensive product offering, our broad North American geographic presence, our customer-linked scalable information systems and our efficient distribution capabilities serve to solidify our long-standing customer relationships and drive our growth.
 
We have benefited in recent years from several growth trends within the energy industry including high levels of expansion and maintenance capital expenditures by our customers. This growth in spending has been driven by several factors, including underinvestment in North American energy infrastructure, production and capacity constraints and anticipated strength in the oil, natural gas, refined products and petrochemical markets. While current prices for oil and natural gas are high relative to historical levels, we believe that investment in the energy sector by our customers would continue at prices well below current levels. In addition, our products are often used in extreme operating environments leading to the need for a regular replacement cycle. As a result, over 50% of our historical and pro forma sales in 2007 were attributable to multi-year maintenance, repair and operations (“MRO”) contracts where we have demonstrated an over 99% average annual retention rate since 2000. The combination of these ongoing factors has helped increase demand for our products and services, resulting in record levels of customer orders to be shipped as of September 2008. For the twelve months ended December 31, 2007 on a pro forma basis, we generated sales of $3,952.7 million, Adjusted EBITDA of $370.4 million and net income of $150.8 million. During the twelve months ended December 31, 2007 on a pro forma basis, approximately 46% of our sales were attributable to upstream activities, approximately 22% were attributable to midstream activities, and approximately 32% were attributable to downstream activities. In addition, for the eleven months ended December 31, 2007, without giving pro forma effect to the Red Man Transaction, we generated sales of $2,124.9 million, EBITDA of $171 million and net income of $56.9 million, and for the twelve months ended October 31, 2007, before giving effect to the Red Man Transaction, Red Man generated sales of $1,982.0 million, EBITDA of $170 million and net income of $82.2 million.


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Key Factors Affecting Our Business
 
Our revenues are predominantly derived from the sale of PVF and other oilfield service supplies to the energy industry in North America. Our business is therefore dependent upon conditions in the energy sector and, in particular, maintenance and expansionary capital expenditures by our customers in the upstream, midstream and downstream sectors of the energy industry. Growth in spending has been, and we believe will continue to be, driven by several factors, including underinvestment in North American energy infrastructure, production and capacity constraints, and anticipated strength in the oil, natural gas, refined products and petrochemical markets. The outlook for future oil, natural gas, refined products and petrochemical prices are influenced by numerous factors, including but not limited to the factors listed in “Risk Factors” beginning on page 18 as well as the following factors:
 
  •  Oil and gas price volatility.  Proceeds from the sale of PVF and related products to the oil and gas industry constitute a significant portion of our sales. As a result, we depend upon the oil and gas industry and its ability and willingness to make capital expenditures to explore for, develop and produce oil and gas and refined products. If these expenditures decline due to declining prices or otherwise, our business will suffer.
 
  •  Fluctuations in steel prices.  Fluctuations in steel prices can lead to volatility in the pricing of our products, which can influence the buying patterns of our customers and have a negative impact on our results of operations.
 
  •  Economic downturns.  The demand for our products is dependent on the general economy, the energy and industrials sectors and other factors. Downturns in the general economy or in the energy and industrials sectors (domestically or internationally) could cause demand for our products to materially decrease.
 
  •  Increases in customer, manufacturer and distributor inventory levels of PVF and related products.  Customer, manufacturer and distributor inventory levels of PVF and related products can change significantly from period to period. Increases in our customers’ inventory levels can have a direct adverse affect on the demand for our products when customers draw from inventory rather than purchase new products. Reduced demand, in turn, would likely result in reduced sales volume and overall profitability. Increased inventory levels by manufacturers or other distributors can cause an oversupply of PVF and related products in our markets and reduce the prices that we are able to charge for our products. Reduced prices, in turn, would likely reduce our profitability.
 
History
 
McJunkin Corporation (“McJunkin”) and Red Man Pipe & Supply Co. (“Red Man”), two leading national PVF distributors, completed a business combination transaction in October 2007 to create our combined company (“McJunkin Red Man”). The combination created the largest North American PVF distributor to the energy industry based on sales, with pro forma sales of more than twice those of our nearest competitor in the energy industry.
 
McJunkin Corporation
 
McJunkin Corporation (formerly known as McJunkin Supply Company) was founded in 1921 in Charleston, West Virginia by brothers-in-law Jerry McJunkin and H. Bernard Wehrle and initially primarily served the local oil and gas industry. Following post-war economic expansion, by the end of the 1960s McJunkin had 29 branches in 18 states with sales of approximately $60 million, focusing primarily on the downstream sector. In 1989 McJunkin broadened its upstream presence by merging its oil and gas division with Appalachian Pipe & Supply Co. to form McJunkin Appalachian Oilfield Supply Company (“McJunkin Appalachian”), which focused primarily on upstream oil and gas customers. Since 2001, McJunkin Corporation has integrated eight acquisitions, with pro forma


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revenues in the respective years of acquisition totaling approximately $300 million, and became a leading supplier of PVF products to customers in the Appalachian region and California.
 
In January 2007, affiliates of Goldman Sachs Capital Partners (the “Goldman Sachs Funds”) acquired a controlling interest in McJunkin Corporation. The Goldman Sachs Funds are part of Goldman Sachs’ Principal Investment Area, a leading private equity and mezzanine investor.
 
Red Man Pipe & Supply Co.
 
Red Man was founded in 1977 in Tulsa, Oklahoma by the late Lewis B. Ketchum, a member and former Chief of the Delaware Indian Tribe headquartered in Oklahoma. The heritage and tradition of the Delaware Indian was very important to Mr. Ketchum and was the basis upon which he gave the company the name “Red Man”. Red Man began as a distributor to the upstream energy sector and subsequently expanded into the midstream and downstream energy sectors. Since then, Red Man has grown organically and through a number of acquisitions in the United States. In 2005, Red Man acquired an approximate 51% voting interest in Canadian oilfield distributor Midfield, giving Red Man a significant presence in the Western Canadian Sedimentary Basin. We acquired the remaining voting interest and equity interest in Midfield on July 31, 2008.
 
In October 2007, McJunkin and Red Man completed a business combination transaction (the “Red Man Transaction”) to form the combined company, McJunkin Red Man.
 
Results of Operations
 
Our results of operations for the year ended December 31, 2007 consist of McJunkin Red Man Holding Corporation’s results of operations for the eleven months ended December 31, 2007 and McJunkin Corporation’s results of operations for the one month ended January 30, 2007. Our financial statements for 2007 include two reporting periods because on January 31, 2007, the entity now known as McJunkin Red Man Holding Corporation, an affiliate of the Goldman Sachs Funds, acquired a majority of the equity of the entity now known as McJunkin Red Man Corporation (then known as McJunkin Corporation, or McJunkin), and McJunkin’s basis of accounting was deemed to have changed on that date. As a result, we have compared below (1) our results of operations for the six months ended June 26, 2008 with our results of operations for the five months ended June 28, 2007 and McJunkin’s results of operations for the one month ended January 30, 2007, (2) our results of operations for the eleven months ended December 31, 2007 and McJunkin’s results of operations for the one month ended January 30, 2007 with McJunkin’s results of operations for the year ended December 31, 2006, and (3) McJunkin’s results of operations for the year ended December 31, 2006 with McJunkin’s results of operations for the year ended December 31, 2005. McJunkin Red Man Holding Corporation’s results of operations for periods subsequent to January 30, 2007 (before the GS Acquisition occurred) may not be comparable to McJunkin’s results of operations prior to that date.
 
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 for the two months after the business combination on October 31, 2007. Accordingly, results for the year ended December 31, 2006 (which do not reflect the operating results of Red Man) are not comparable to the results for the eleven months ended December 31, 2007 (which include the operating results of Red Man for two months). 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 (which include the operating results of Red Man for the full period) are not comparable to the results for the five months ended June 28, 2007.
 
Given the materiality of Red Man’s financial results to our business, we have also compared (1) the results of operations of Red Man for the year ended October 31, 2007 with Red Man’s results


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of operations for the year ended October 31, 2006 and (2) the results of operations of Red Man for the year ended October 31, 2006 with Red Man’s results of operations for the year ended October 31, 2005. Red Man’s results of operations are included in our results of operations beginning after October 31, 2007.
 
Six Months Ended June 26, 2008 (Successor) Compared to the Five Months Ended June 28, 2007 (Successor) and the One Month Ended January 30, 2007 (Predecessor)
 
Sales.  Sales include the revenue recognized from the sales of our products and services to customers and freight billings to customers, less cash discounts taken by customers in return for their early payment of our invoices to them. Our sales were $2,196 million for the six months ended June 26, 2008 as compared to $785 million for the five months ended June 28, 2007 and McJunkin’s sales of $143 million for the one month ended January 30, 2007. The increase of $1,268 million for the six months ended June 26, 2008 as compared to the combined six-month period ended June 28, 2007 was due to the inclusion of $1,047 million of Red Man sales in the six months ended June 26, 2008, as well as the inclusion of Midway Tri-State’s sales for the full six months of 2008 compared with only May and June of 2007 of approximately $48 million and significant increases in our exploration and production and petroleum refining business.
 
Cost of Sales.  Cost of sales consists of the cost of our products at lower of cost (principally last-in, first-out (LIFO) method) or market, in-bound and out-bound freight expense, manufacturers’ rebates, physical inventory gains/losses, and inventory obsolescence charges, less cash discounts that we earn by early payment of vendor invoices. Our cost of sales was $1,804 million for the six months ended June 26, 2008 as compared to $636 million for the five months ended June 28, 2007 and McJunkin’s cost of sales of $115 million for the one month ended January 30, 2007. As a percentage of sales, cost of sales was 82.1% for the six months ended June 26, 2008 as compared to 81.0% for the five months ended June 28, 2007 and 80.4% for the one-month period ended January 30, 2007. The increase of $1.053 billion for the six months ended June 26, 2008 as compared to the combined six-month period ended June 28, 2007 was due to the inclusion of $882 million of Red Man cost of sales, the inclusion of Midway’s cost of sales for the full six months of 2008 compared with only May and June of 2007 of approximately $40 million, increases in our exploration and production and petroleum refining business, and higher product costs resulting from inflation in the cost of our products in 2008. Certain purchasing costs and warehousing activities (including receiving, inspection, stocking, picking and packing costs), as well as general warehousing expenses, are included in selling, general and administrative expenses and not in cost of sales. As such, our gross profit may not be comparable to others who may include these expenses as a component of cost of goods sold. Purchasing and warehousing activities costs approximated $24.0 million for the six months ended June 26, 2008 compared to $11.4 million for the five months ended June 28, 2007 and McJunkin’s $2.3 million expense for the one month ended January 30, 2007.
 
Selling, General and Administrative Expenses.  Costs such as salaries, wages, employee benefits, rent, utilities, communications, insurance, fuel, and taxes (other than state and federal income taxes) that are necessary to operate our branch and corporate operations are included in selling, general and administrative expenses. Also contained in this category are certain items that are non-operational in nature, including certain costs of acquiring and integrating other businesses. Our selling, general and administrative expenses were $200.1 million for the six months ended June 26, 2008 as compared to $80.7 million for the five months ended June 28, 2007 and McJunkin’s selling, general and administrative expenses of $14.6 million for the one month ended January 30, 2007. As a percentage of sales, selling, general and administrative expenses were 9.1% for the six months ended June 26, 2008 as compared to 10.3% for the combined six-month period ended June 28, 2007. The increase of $104.8 million for the six months ended June 26, 2008 as compared to the combined six-month period ended June 28, 2007 was due to the inclusion of Red Man’s $98.7 million of selling, general and administrative expenses; the absence of $8.6 million of expenses incurred in the 2007


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periods related to the GS Acquisition (including payments of $6.2 million to former McJunkin Appalachian shareholders); an increase in wages and benefits of $8.7 million; Red Man integration expenses of $2.3 million; and an increase in fuel expense of $0.8 million.
 
Depreciation and Amortization.  Our depreciation and amortization was $5.2 million for the six months ended June 26, 2008 as compared to $1.7 million for the five months ended June 28, 2007 and McJunkin’s depreciation and amortization of $0.3 million for the one month ended January 30, 2007. The increase of $3.2 million for the six months ended June 26, 2008 as compared to the combined six-month period ended June 28, 2007 was due to the inclusion of depreciation on the Midway Supply and Red Man assets from the date of each transaction as well as the write up of assets to fair value in purchase accounting for the GS Acquisition and the Midway and Red Man transactions. Depreciation increased $83,000 due to the GS Acquisition, $234,000 due to the Midway transaction, and $2.6 million due to the Red Man transaction.
 
Amortization of Intangibles.  In connection with the January 2007 acquisition of a controlling interest in McJunkin by the Goldman Sachs Funds, the April 2007 acquisition of Midway Tristate by McJunkin, and the October 2007 business combination between Red Man and McJunkin, the fair values of intangible assets were determined based upon assumptions related to future cash flows, discounts rates and asset lives. These amortizable intangible assets consist of sales order backlog at the date of the transactions, the customer base of each entity, and non-compete agreements which are amortized over a weighted average amortization period of 30.3 years. Our amortization of intangibles was $15.6 million for the six months ended June 26, 2008 as compared to $4.6 million for the five months ended June 28, 2007 and McJunkin’s amortization of intangibles of $0.02 million for the one month ended January 30, 2007. The increase of $11.0 million for the six months ended June 26, 2008 as compared to the combined six-month period ended June 28, 2007 was the result of the timing of each of the three transactions described above. In particular, the six months ended June 26, 2008 included $10.5 million of amortization expense associated with the Red Man Transaction for which there were no corresponding amounts for the five months ended June 28, 2007 and one month ended January 30, 2007. This $10.5 million of amortization expense includes $2.6 million of amortization which was estimated in 2007 because the business combination occurred late in the year and the purchase price allocation was preliminary pending receipt of appraisals and valuations at year-end. Further, amortization of intangibles increased $0.8 million and $0.3 million for the six months ended June 26, 2008 as compared to the combined six-month period ended June 28, 2007 due to amortization expense related to the GS Acquisition and the Midway transaction, respectively.
 
Profit Sharing.  We have a qualified, defined-contribution plan for employees who meet eligibility requirements, generally six months of service. This plan provides for annual discretionary contributions generally based upon company operating results. Our profit sharing expense was $13.5 million for the six months ended June 26, 2008 as compared to $5.6 million for the five months ended June 28, 2007 and McJunkin’s profit sharing of $1.3 million for the one month ended January 30, 2007. The increase of $6.6 million for the six months ended June 26, 2008 as compared to the combined six-month period ended June 28, 2007 was due to an increase in the number of our employees primarily as a result of the Midway and Red Man transactions. Profit sharing increased $7.1 million due to the Red Man Transaction.
 
Stock-Based Compensation.  Our equity-based compensation consists of restricted common units in PVF Holdings LLC, profit units in PVF Holdings LLC, restricted stock and non-qualified stock options. In conjunction with the acquisition of McJunkin by the Goldman Sachs Funds, certain key employees received restricted common units in PVF Holdings LLC, and in conjunction with the acquisition of McJunkin by the Goldman Sachs Funds and the Red Man Transaction, certain key employees received profits units in PVF Holdings LLC. In addition, effective March 27, 2007, our board of directors approved the formation of the 2007 Restricted Stock Plan and the 2007 Stock Option Plan. The purpose of these plans is to aid us in recruiting and retaining key employees, directors and consultants of outstanding ability and to motivate such key employees, directors and


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consultants to exert their best efforts on our behalf by providing them incentives in the form of restricted stock and stock options. It is expected that the Company will benefit from the added interest which such key employees, directors and consultants will have in the welfare of the Company as a result of their proprietary interest in the Company’s success. Our stock-based compensation was $3.3 million for the six months ended June 26, 2008 as compared to $1.3 million for the five months ended June 28, 2007 and no stock-based compensation for the one month ended January 30, 2007. The increase of $2.0 million for the six months ended June 26, 2008 as compared to the combined six-month period ended June 28, 2007 was due to the adoption of our equity plans in January and March 2007 and the addition of incremental participants as a result of the Red Man Transaction in October 2007. Stock-based compensation increased $1.7 million due to the addition of the Red Man participants in October 2007.
 
Operating Income.  As a result of the aforementioned items, our operating income was $154.5 million for the six months ended June 26, 2008 as compared to $55.1 million for the five months ended June 28, 2007 and McJunkin’s operating income of $11.7 million for the one month ended January 30, 2007, an increase of $87.7 million for the six months ended June 26, 2008 as compared to the combined six-month period ended June 28, 2007.
 
Interest Expense.  Our interest expense was $35.0 million for the six months ended June 26, 2008 as compared to $24.3 million for the five months ended June 28, 2007 and McJunkin’s interest expense of $0.1 million for the one month ended January 30, 2007. The increase of $10.6 million for the six months ended June 26, 2008 as compared to the combined six-month period ended June 28, 2007 was primarily due to increased amounts of debt incurred and/or assumed in conjunction with the GS Acquisition and the Midway and Red Man transactions, including Midfield’s Canadian debt. Interest expense increased approximately $3.3 million due to the GS Acquisition and the additional debt incurred on January 30, 2007. We incurred approximately $83 million of debt on our asset-backed revolving credit facility in connection with the acquisition of Midway resulting in an increase in interest expense of approximately $1.4 million. Interest expense was further increased by approximately $8.4 million as a result of the incurrence of approximately $190 million of incremental borrowings under our asset-backed revolving credit facility and the assumption of approximately $72 million of debt in connection with the Red Man Transaction. Interest expense for the six months ended June 26, 2008 also reflects approximately $2.6 million of expense associated with the Junior Term Loan Facility which was entered into on May 22, 2008, the proceeds of which were used to fund a dividend to our shareholders. Increases in interest expense associated with additions to debt noted above were partially offset by lower average interest rates experienced in 2008 as compared to 2007.
 
Minority Interests.  Our minority interests were $0.1 million for the six months ended June 26, 2008 (all related to Midfield) as compared to none for the five months ended June 28, 2007 and McJunkin’s minority interests of $0.4 million for the one month ended January 30, 2007 (which was due to McJunkin Appalachian). The decrease of $0.3 million for the six months ended June 26, 2008 as compared to the combined six-month period ended June 28, 2007 was due to the repurchase of the minority interest held by McJunkin Appalachian’s management in January 2007. In connection with our 1989 transaction with Appalachian Pipe and Supply which formed our McJunkin Appalachian subsidiary, certain members of Appalachian’s management group retained a minority ownership in the combined company. As part of the acquisition of McJunkin by the Goldman Sachs Funds in January 2007, these minority shareholders were bought out and McJunkin Appalachian became a wholly owned subsidiary of McJunkin. On December 31, 2007, McJunkin Appalachian was merged into McJunkin Red Man Corporation. In addition, in 2005 Red Man acquired an approximate 51% interest in Midfield.
 
Other Income (Expense), Net.  Our other expense, net was $0.3 million for the six months ended June 26, 2008 as compared to other expense, net of $0.9 million for the five months ended June 28, 2007 and McJunkin’s other expense, net of $15,000 for the one month ended January 30, 2007. The decrease of $0.6 million for the six months ended June 26, 2008 as compared to the


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combined six-month period ended June 28, 2007 was due in part to $0.4 million derivatives expense, $0.1 million increase in bank charges, and $0.1 million increase in directors’ fees.
 
Income Tax Expense.  Our income tax expense was $43.2 million for the six months ended June 26, 2008 as compared to $12.3 million for the five months ended June 28, 2007 and McJunkin’s income tax expense of $4.6 million for the one month ended January 30, 2007. The increase of $26.3 million for the six months ended June 26, 2008 as compared to the combined six-month period ended June 28, 2007 was due to the inclusion of Red Man’s results, which added $10.3 million to our income tax expense, and higher pre-tax income, partially offset by certain tax savings in the six months ended June 26, 2008. Our effective tax rates were 36.26% for the six months ended June 26, 2008, 41.18% for the five months ended June 28, 2007 and 41.08% for the one month ended January 30, 2007. These rates differ from the federal statutory rate of 35% principally as a result of state income taxes. The rate for the six months ended June 26, 2008 is lower than the rates for the five months ended June 28, 2007 and the one month ended January 30, 2007 primarily due to lower state taxes.
 
Net Income.  Our net income was $75.9 million for the six months ended June 26, 2008 as compared to $17.6 million for the five months ended June 28, 2007 and McJunkin’s net income of $6.6 million for the one month ended January 30, 2007. Net income increased $51.7 million for the six months ended June 26, 2008 as compared to the combined six-month period ended June 28, 2007.
 
Eleven Months Ended December 31, 2007 (Successor) and One Month Ended January 30, 2007 (Predecessor) Compared to Year Ended December 31, 2006 (Predecessor)
 
Sales.  Our sales were $2.1 billion for the eleven months ended December 31, 2007 and McJunkin’s sales were $142.5 million for the one month ended January 30, 2007, as compared to McJunkin’s sales of $1.7 billion for the year ended December 31, 2006. The increase of $554 million for the combined twelve-month period ended December 31, 2007 as compared to the year ended December 31, 2006 was due to the inclusion of Red Man’s sales of $297 million and Midway’s sales of approximately $98 million during the 2007 periods, and increases in our exploration and production and petroleum refining business.
 
Cost of Sales.  Our cost of sales was $1.7 billion for the eleven months ended December 31, 2007 and McJunkin’s cost of sales was $115 million for the one month ended January 30, 2007, as compared to McJunkin’s cost of sales of $1.4 billion for the year ended December 31, 2006. As a percentage of sales, cost of sales was 81.6% for the combined twelve-month period ended December 31, 2007 as compared to 81.4% for the year ended December 31, 2006. The increase in cost of sales of $455 million for the combined twelve-month period ended December 31, 2007 as compared to the year ended December 31, 2006 was due to the inclusion of Red Man’s cost of sales of $252 million and Midway’s cost of sales of approximately $83 million, and increases in our exploration and production and petroleum refining business. Certain purchasing costs and warehousing activities (including receiving, inspection, stocking, picking and packing costs), as well as general warehousing expenses, are included in selling, general and administrative expenses and not in cost of sales. As such, our gross profit may not be comparable to others who may include these expenses as a component of cost of goods sold. Purchasing and warehousing activities costs approximated $34.1 million for the year ended December 31, 2007 compared to $26.9 million for the year ended December 31, 2006.
 
Selling, General and Administrative Expenses.  Our selling, general and administrative expenses were $201.9 million for the eleven months ended December 31, 2007 and McJunkin’s selling, general and administrative expenses were $14.6 million for the one month ended January 30, 2007, as compared to McJunkin’s selling, general and administrative expenses of $173.9 million for the year ended December 31, 2006. As a percentage of sales, selling, general and administrative expenses were 9.5% for the combined twelve-month period ended December 31, 2007 as compared to 10.1% for the year ended December 31, 2006. The increase of $42.6 million for the combined


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twelve-month period ended December 31, 2007 as compared to the year ended December 31, 2006 was due to the inclusion of two months of Red Man’s selling, general and administrative expenses totaling $28.0 million in the twelve-months ended December 31, 2007; payments of $6.2 million to the former McJunkin Appalachian shareholders in 2007; eight months of expenses of approximately $4.4 million from the Midway operations acquired at the end of April 2007; $4.2 million of expenses related to the GS Acquisition in 2007; an increase in franchise taxes of $1.3 million due to the increase in shareholders equity resulting from the GS Acquisition; $0.8 million in acquisition and integration expenses related to Red Man; a $0.6 million increase in fuel costs; and $0.3 million in acquisition and integration expenses related to Midway.
 
Depreciation and Amortization.  Our depreciation and amortization was $5.4 million for the eleven months ended December 31, 2007 and McJunkin’s depreciation and amortization was $0.3 million for the one month ended January 30, 2007, as compared to McJunkin’s depreciation and amortization of $3.9 million for the year ended December 31, 2006. The increase of $1.8 million for the combined twelve-month period ended December 31, 2007 as compared to the year ended December 31, 2006 was primarily due to the recording of depreciation expense with respect to the Red Man and Midway transactions in 2007, and the write up of McJunkin’s assets to fair value in conjunction with the GS Acquisition in January 2007. Depreciation increased $143,000 in connection with the write up of the fixed assets related to the GS Acquisition. Depreciation also increased $1.1 million and $235,000 due to the Red Man and Midway transactions, respectively.
 
Amortization of Intangibles.  Our amortization of intangibles was $10.5 million for the eleven months ended December 31, 2007 and McJunkin’s amortization of intangibles was $16,000 for the one month ended January 30, 2007, as compared to McJunkin’s amortization of intangibles of $0.3 million for the year ended December 31, 2006. The increase of $10.2 million for the combined twelve-month period ended December 31, 2007 as compared to the year ended December 31, 2006 was due to the acquisition of McJunkin by the Goldman Sachs Funds in January 2007 ($9.8 million) and the Midway acquisition in April 2007 ($0.7 million). Intangibles amortization totaling $2.6 million with respect to the Red Man Transaction was recorded in the six months ended June 26, 2008.
 
Profit Sharing.  Our profit sharing was $13.2 million for the eleven months ended December 31, 2007 and McJunkin’s profit sharing was $1.3 million for the one month ended January 30, 2007, as compared to McJunkin’s profit sharing of $15.1 million for the year ended December 31, 2006. The decrease of $0.6 million for the combined twelve-month period ended December 31, 2007 as compared to the year ended December 31, 2006 was due to lower non-qualified plan contributions as a result of the departure of several members of management who left the company in connection with the GS Acquisition, offset in part by an increase of approximately 100 employees added with the Midway acquisition on April 30, 2007.
 
Stock-Based Compensation.  Our stock-based compensation was $3.0 million for the eleven months ended December 31, 2007. McJunkin had no stock based compensation for the one month ended January 30, 2007 or for the year ended December 31, 2006. Our equity-based compensation consists of restricted common units in PVF Holdings LLC, profit units in PVF Holdings LLC, restricted stock and non-qualified stock options. In conjunction with the acquisition of McJunkin by the Goldman Sachs Funds, certain key employees received restricted common units in PVF Holdings LLC, and in conjunction with the acquisition of McJunkin by the Goldman Sachs Funds and the Red Man Transaction, certain key employees received profits units in PVF Holdings LLC. In addition, effective March 27, 2007 our board of directors approved the formation of the 2007 Restricted Stock Plan and the 2007 Stock Option Plan.
 
Operating Income.  Our operating income was $156.3 million for the eleven months ended December 31, 2007 and McJunkin’s operating income was $11.7 million for the one month ended January 30, 2007, as compared to McJunkin’s operating income of $126.2 million for the year ended December 31, 2006. Operating income increased by $41.9 million for the combined twelve-month


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period ended December 31, 2007 as compared to the year ended December 31, 2006 as a result of the items mentioned above.
 
Interest Expense.  Our interest expense was $61.7 million for the eleven months ended December 31, 2007 and McJunkin’s interest expense was $0.1 million for the one month ended January 30, 2007, as compared to McJunkin’s interest expense of $2.8 million for the year ended December 31, 2006. The increase of $59.0 million for the combined twelve-month period ended December 31, 2007 as compared to the year ended December 31, 2006 was primarily due to our entering into and borrowing under our then-existing $300 million asset-backed revolving credit facility and our $575 million term loan facility to finance the acquisition of McJunkin by the Goldman Sachs Funds on January 31, 2007.
 
Minority Interests.  Our minority interests were $0.1 million for the eleven months ended December 31, 2007 and McJunkin’s minority interests were $0.4 million for the one month ended January 30, 2007, as compared to McJunkin’s minority interests of $4.1 million for the year ended December 31, 2006. The decrease of $3.6 million for the combined twelve-month period ended December 31, 2007 as compared to the year ended December 31, 2006 was primarily due to the minority shareholders in McJunkin Appalachian selling their interests as part of the January 2007 acquisition of McJunkin by the Goldman Sachs Funds whereby McJunkin Appalachian became a wholly owned subsidiary.
 
Other Income (Expense), Net.  Our other expense, net was $1.1 million for the eleven months ended December 31, 2007 and McJunkin’s other expense, net was $15,000 for the one month ended January 30, 2007, as compared to McJunkin’s other expense, net of $1.4 million for the year ended December 31, 2006. The decrease of $0.2 million expense for the combined twelve-month period ended December 31, 2007 as compared to the year ended December 31, 2006 was due to a change in our corporate charitable contributions policy in 2007 which reduced contribution expense in 2007 by $0.4 million and a decrease in board of directors’ fees of $0.2 million, offset in part by the absence of gains from the sales of various parcels of real estate ($0.5 million) and life insurance proceeds received by McJunkin upon the deaths of certain stockholders not actively involved in management of the company, which were lower in 2007 as compared to 2006 by $0.3 million.
 
Income Tax Expense.  Our income tax expense was $36.5 million for the eleven months ended December 31, 2007 and McJunkin’s income tax expense was $4.6 million for the one month ended January 30, 2007, as compared to McJunkin’s income tax expense of $48.3 million for the year ended December 31, 2006. The decrease of $7.2 million for the combined twelve-month period ended December 31, 2007 as compared to the year ended December 31, 2006 was due to (1) a decrease in pretax income of $13.2 million, permanent items decreased by $3.5 million due to one month of minority interest compared to 12 months in 2006, (2) a decrease in state taxable income of $14.6 million which resulted in a decrease in state income tax expense, and (3) a foreign tax credit of $.8 million in 2007 which we did not have in 2006, offset in part by an increase of $2.4 million relating to the inclusion of Red Man’s results for the last two months of 2007.


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The total provision for income taxes varied from the U.S. federal statutory rate due to the following:
 
                                                 
    Successor   Predecessor
    Period   Period   Period
    Eleven
       
    Months
  One Month
  Year
    Ended
  Ended
  Ended
    December 31,
  January 30,
  December 31,
   
2007
 
2007
 
2006
    (dollars in thousands)
 
Federal tax expense at statutory rate
  $ 32,721       35 %   $ 3,918       35 %   $ 41,270       35 %
State taxes net of federal income tax benefit
    3,971       4.2 %     502       4.5 %     5,653       4.8 %
Non-deductible expenses
    424       0.5 %     26       0.2 %     409       0.3 %
Foreign
    (827 )     (0.9 )%     0       0.0 %     0       0.0 %
Other
    270       0.3 %     153       1.4 %     1,008       0.9 %
                                                 
Income tax provision
  $ 36,559       39.1 %   $ 4,599       41.1 %   $ 48,340       41.0 %
                                                 
 
Net Income.  Our net income was $56.9 million for the eleven months ended December 31, 2007 and McJunkin’s net income was $6.6 million for the one month ended January 30, 2007, as compared to McJunkin’s net income of $69.6 million for the year ended December 31, 2006. The decrease of $6.1 million for the combined twelve-month period ended December 31, 2007 as compared to the year ended December 31, 2006 was due to the factors described above.
 
Year Ended December 31, 2006 (Predecessor) Compared to the Year Ended December 31, 2005 (Predecessor)
 
Sales.  McJunkin’s sales were $1.7 billion for the year ended December 31, 2006 as compared to $1.4 billion for the year ended December 31, 2005. The increase of $268 million for the year ended December 31, 2006 as compared to the year ended December 31, 2005 was due to increases in our sales to the exploration and production, gas transmission and distribution, and petroleum refining end markets.
 
Cost of Sales.  McJunkin’s cost of sales was $1.4 billion for the year ended December 31, 2006 as compared to $1.2 billion for the year ended December 31, 2005. As a percentage of sales, McJunkin’s cost of sales was 81.4% for the year ended December 31, 2006 as compared to 81.4% for the year ended December 31, 2005. The increase of $217 million for the year ended December 31, 2006 as compared to the year ended December 31, 2005 was due to increases in our sales to the exploration and production, gas transmission and distribution, and petroleum refining end markets. Certain purchasing costs and warehousing activities (including receiving, inspection, stocking, picking and packing costs), as well as general warehousing expenses, are included in selling, general and administrative expenses and not in cost of sales. As such, our gross profit may not be comparable to others who may include these expenses as a component of cost of goods sold. Purchasing and warehousing activities costs approximated $26.9 million for the year ended December 31, 2006 compared to $25.1 million for the year ended December 31, 2005.
 
Selling, General and Administrative Expenses.  McJunkin’s selling, general and administrative expenses were $173.9 million for the year ended December 31, 2006 as compared to $155.7 million for the year ended December 31, 2005. As a percentage of sales, McJunkin’s selling, general and administrative expenses were 10.2% for the year ended December 31, 2006 as compared to 10.8% for the year ended December 31, 2005. The increase of $18.2 million for the year


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ended December 31, 2006 as compared to the year ended December 31, 2005 was due to an $8.4 million increase in incentive compensation expense due to higher levels of sales and profitability; a $4.6 million increase in employee salaries, wages, overtime, benefits, and temporary labor due to increased sales activity; $3.0 million of consulting fees for strategic planning services; an increase in fuel costs of $0.6 million; and $0.4 million of expenses related to the acquisition of McJunkin by the Goldman Sachs Funds. Additionally, in 2005 we recorded losses of $0.7 million related to Hurricanes Katrina and Rita on which insurance recoveries were higher than anticipated. As a result of these insurance recoveries, 2006 expenses were reduced by $0.3 million.
 
Depreciation and Amortization.  McJunkin’s depreciation and amortization was $3.9 million for the year ended December 31, 2006 as compared to $3.7 million for the year ended December 31, 2005. The increase of $0.2 million for the year ended December 31, 2006 as compared to the year ended December 31, 2005 was due to the depreciation recorded in 2006 regarding certain distribution center expansions that were made in 2005.
 
Amortization of Intangibles.  McJunkin’s amortization of intangibles was $0.3 million for the year ended December 31, 2006 and $0.3 million for the year ended December 31, 2005.
 
Profit Sharing Expenses.  McJunkin’s profit sharing expenses were $15.1 million for the year ended December 31, 2006 as compared to $13.1 million for the year ended December 31, 2005. The increase of $2.0 million for the year ended December 31, 2006 as compared to the year ended December 31, 2005 was due to increased compensation, primarily management incentive compensation, increased profitability and an increase in the number of employees from year to year.
 
Operating Income.  As a result of the items mentioned above, McJunkin’s operating income was $126.2 million for the year ended December 31, 2006 as compared to $95.9 million for the year ended December 31, 2005, an increase of $30.3 million.
 
Interest Expense.  McJunkin’s interest expense was $2.8 million for the year ended December 31, 2006 as compared to $2.7 million for the year ended December 31, 2005, an increase of $0.1 million attributable to marginally higher levels of debt.
 
Minority Interests.  McJunkin’s minority interests were $4.1 million for the year ended December 31, 2006 as compared to $2.8 million for the year ended December 31, 2005. The increase of $1.3 million for the year ended December 31, 2006 as compared to the year ended December 31, 2005 was due to a $9.5 million increase in net income at McJunkin Appalachian to $28.7 million for the year ended December 31, 2006 from $19.2 million for the year ended December 31, 2005.
 
Other Expenses, Net.  McJunkin’s other expenses, net were $1.4 million for the year ended December 31, 2006 as compared to $1.3 million for the year ended December 31, 2005. The increase of $0.1 million for the year ended December 31, 2006 as compared to the year ended December 31, 2005 was partly due to a $0.3 million increase in allowance for doubtful accounts receivable, offset by a decrease in charitable contributions expense in 2006 of $0.6 million due to the absence in 2006 of certain special contributions made in 2005, including $0.1 million in contributions made to Hurricane Katrina relief efforts. Additionally, we realized a gain of $0.7 million on the sale of real estate in 2006, realized a gain of $0.9 million on the sale of stock in PrimeEnergy in 2005, and received income of $0.5 million from swap valuation in 2005 (the swap instrument expired in 2005).
 
Income Tax Expense.  McJunkin’s income tax expense was $48.3 million for the year ended December 31, 2006 as compared to $36.6 million for the year ended December 31, 2005. The increase of $11.7 million for the year ended December 31, 2006 as compared to the year ended December 31, 2005 was due to pre-tax income increased $28.8 million and permanent items increased $1.0 million primarily due to increased minority interest income related to McJunkin Appalachian.


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The total provision for income taxes varied from the U.S. federal statutory rate due to the following:
 
                                 
    Predecessor
    Period   Period
    Year
  Year
    Ended
  Ended
    December 31,
  December 31,
   
2006
 
2005
    (dollars in thousands)
 
Federal tax expense at statutory rate
  $ 41,270       35 %   $ 31,193       35 %
State taxes net of federal income tax benefit
    5,653       4.8 %     4,254       4.8 %
Non-deductible expenses
    409       0.3 %     372       0.4 %
Other
    1,008       0.9 %     764       0.9 %
                                 
Income tax provision
  $ 48,340       41.0 %   $ 36,583       41.0 %
                                 
 
Net Income.  McJunkin’s net income was $69.6 million for the year ended December 31, 2006 as compared to $52.5 million for the year ended December 31, 2005. The increase of $17.1 million for the year ended December 31, 2006 as compared to the year ended December 31, 2005 was due to the factors described above.
 
Red Man: Year Ended October 31, 2007 Compared to the Year Ended October 31, 2006.
 
Sales.  Red Man’s sales were $2.0 billion for the year ended October 31, 2007 as compared to $1.8 billion for the year ended October 31, 2006. The increase of $166.7 million for the year ended October 31, 2007 as compared to the year ended October 31, 2006 was due primarily to an increase of $179.5 million in Red Man US sales to $1,499.2 million for the year ended October 31, 2007 as compared to $1,319.7 million for the year ended October 31, 2006, partially offset by a $12.8 million decrease in Midfield sales to $482.8 million for the year ended October 31, 2007 as compared to $495.6 million for the year ended October 31, 2006. The increase in Red Man US sales was primarily attributable to growth in upstream and midstream oil & gas operations reflecting higher spending by exploration, production and field services companies associated with increased drilling and completion activities. The decrease in Midfield sales was attributable to a slowing of spending by exploration, production and field services companies associated with decreased drilling and completion activities in Canada.
 
Cost of Products Sold.  Red Man’s cost of products sold was $1.6 billion for the year ended October 31, 2007 as compared to $1.6 billion for the year ended October 31, 2006. As a percentage of sales, Red Man’s cost of products sold was 82.4% for the year ended October 31, 2007 as compared to 85.4% for the year ended October 31, 2006. The increase of $81.2 million for the year ended October 31, 2007 as compared to the year ended October 31, 2006 was due primarily to an increase in sales of $166.7 million to $1,982.0 million in the year ended October 31, 2007 as compared to $1,815.3 million for the year ended October 31, 2006 due primarily to growth in upstream and midstream oil & gas operations reflecting higher spending by exploration, production and field services companies associated with increased drilling and completion activities. The decrease in the percentage of cost of product sold of 82.4% in 2007 as compared with 85.4% in 2006 was due to lower cost of product sold percentages for both the Midfield business and the Red Man US business in 2007 as compared to 2006, due to lower cost of product sold percentages of other pipe, valve and fittings partially offset by an overall increase in tubulars cost of product sold percentages in 2007 as compared to 2006. Certain purchasing costs and warehousing activities (including receiving, inspection, stocking, picking and packing costs), as well as general warehousing expenses, are included in selling, general and administrative expenses and not in cost of products sold. As such, our gross profit may not be comparable to others who may include these expenses as


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a component of cost of goods sold. Purchasing and warehousing activities costs approximated $17.2 million for the year ended October 31, 2007 compared to $14.8 million for the year ended October 31, 2006.
 
Selling, General and Administrative Expenses.  Red Man’s selling, general and administrative expenses were $186.6 million for the year ended October 31, 2007 as compared to $172.2 million for the year ended October 31, 2006. As a percentage of sales, Red Man’s selling, general and administrative expenses were 9.4% for the year ended October 31, 2007 as compared to 9.5% for the year ended October 31, 2006. The increase of $14.4 million, or 8.4%, for the year ended October 31, 2007 as compared to the year ended October 31, 2006 was due to an increase in sales of $166.7 million in 2007 compared with 2006, which represents a 9.2% increase in sales, which resulted in increased selling, general and administrative expenses commensurate with the sales activity increase.
 
Operating Income.  Red Man’s operating income was $163.1 million for the year ended October 31, 2007 as compared to $92.0 million for the year ended October 31, 2006. The increase of $71.1 million for the year ended October 31, 2007 as compared to the year ended October 31, 2006 was due to the factors described above.
 
Interest Expense.  Red Man’s interest expense was $20.6 million for the year ended October 31, 2007 as compared to $15.0 million for the year ended October 31, 2006. The increase of $5.6 million for the year ended October 31, 2007 as compared to the year ended October 31, 2006 was due to higher average borrowings during 2007 as compared to 2006.
 
Other Income (Expense), Net.  Red Man’s other income (expense), net was $(2.7) million for the year ended October 31, 2007 as compared to $3.3 million for the year ended October 31, 2006. The decrease of $6.0 million for the year ended October 31, 2007 as compared to the year ended October 31, 2006 was primarily due to a goodwill impairment loss on Midfield of $5.1 million recorded in the year ended October 31, 2007. Red Man performed an impairment analysis for its goodwill and intangible assets and engaged an independent valuation specialist to determine the fair values of Red Man’s business units. The valuation analysis determined that the fair value of the Nusco pipe division’s goodwill and intangible assets was lower than their carrying value as of July 31, 2007.
 
Income Tax Expense.  Red Man’s income tax expense was $57.6 million for the year ended October 31, 2007 as compared to $26.5 million for the year ended October 31, 2006. The increase of $31.1 million for the year ended October 31, 2007 as compared to the year ended October 31, 2006 was primarily due to an increase in earnings before income taxes of $59.5 million to $139.8 million for the year ended October 31, 2007 as compared to $80.3 million for the year ended October 31, 2006 as well as an increase in the effective income tax rate in 2007 as compared to 2006.
 
Non-Controlling Interest.  Red Man’s non-controlling interest was $0.1 million for the year ended October 31, 2007 as compared to $0.2 million for the year ended October 31, 2006.
 
Earnings From Discontinued Operations.  Red Man earnings from discontinued operations were $(2.2) million for the year ended October 31, 2006. These earnings are associated with Nusco Mfg., a division of Midfield Supply ULC, which was disposed of in June 2006.
 
Gain on Sale of Discontinued Operations.  Red Man recorded a gain on sale of discontinued operations of $8.2 million for the year ended October 31, 2006 in connection with the disposition in June 2006 of Nusco Mfg., a division of Midfield Supply ULC.
 
Net Income.  Red Man’s net income was $82.2 million for the year ended October 31, 2007 as compared to $59.6 million for the year ended October 31, 2006. The increase of $22.6 million for the year ended October 31, 2007 as compared to the year ended October 31, 2006 was due to the factors described above.


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Red Man: Year Ended October 31, 2006 Compared to the Year Ended October 31, 2005.
 
Sales.  Red Man’s sales were $1.8 billion for the year ended October 31, 2006 as compared to $1.2 billion for the year ended October 31, 2005. The increase of $591.2 million for the year ended October 31, 2006 as compared to the year ended October 31, 2005 was primarily due to the acquisition of a controlling interest in Midfield in June 2005. Sales of Midfield were $495.6 million for the year ended October 31, 2006 as compared with $158.7 million for the year ended October 31, 2005, an increase of $336.9 million due to a full year of sales in 2006. In addition, Red Man US sales were $1,319.7 million for the year ended October 31, 2006 as compared with $1,065.4 million for the year ended October 31, 2005, an increase of $254.3 million due primarily to growth in upstream and midstream oil & gas operations reflecting higher spending by exploration, production & field services companies associated with increased drilling and completion activities.
 
Cost of Products Sold.  Red Man’s cost of products sold was $1.6 billion for the year ended October 31, 2006 as compared to $1.0 billion for the year ended October 31, 2005. As a percentage of sales, Red Man’s cost of products sold was 85.4% for the year ended October 31, 2006 as compared to 83.6% for the year ended October 31, 2005. The increase of $528.1 million for the year ended October 31, 2006 as compared to the year ended October 31, 2005 was primarily due to the acquisition of Midfield in June 2005 and growth in upstream and midstream oil and gas operations in the United States. In addition, Red Man US cost of products sold was $1,132.5 million for the year ended October 31, 2006 as compared with $886.7 million for the year ended October 31, 2005, an increase of $245.8 million, primarily due to growth in upstream and midstream oil and gas operations reflecting higher spending by exploration, production and field services companies associated with increased drilling and completion activities. The increase in cost of product sold as a percentage of sales of 85.4% in 2006 as compared with 83.6% in 2005 was due to higher cost of product sold percentages for the Midfield business which was a larger percentage of the overall Red Man business in 2006 as compared to 2005 and an overall increase in tubulars cost of product sold percentages in the United States in 2006 as compared to 2005, partially offset by lower cost of product sold percentages of other pipe, valve and fittings business in the United States. Certain purchasing costs and warehousing activities (including receiving, inspection, stocking, picking and packing costs), as well as general warehousing expenses, are included in selling, general and administrative expenses and not in cost of products sold. As such, our gross profit may not be comparable to others who may include these expenses as a component of cost of goods sold. Purchasing and warehousing activities costs approximated $14.8 million for the year ended October 31, 2006 compared to $10.0 million for the year ended October 31, 2005.
 
Selling, General and Administrative Expenses.  Red Man’s selling, general and administrative expenses were $172.2 million for the year ended October 31, 2006 as compared to $100.2 million for the year ended October 31, 2005. As a percentage of sales, Red Man’s selling, general and administrative expenses were 9.5% for the year ended October 31, 2006 as compared to 8.2% for the year ended October 31, 2005. The increase of $72.0 million for the year ended October 31, 2006 as compared to the year ended October 31, 2005 was due primarily to an additional $47.7 million in expenses for Midfield due to including them for a full year in 2006. In addition, there was an additional $18.2 million in employee related expenses in the United States due primarily to a 12.4% increase in the overall average headcount in 2006 as compared with 2005 due to increased business activities. The increase in selling, general and administrative expenses as a percentage of sales of 9.5% in 2006 as compared with 8.2% in 2005 was primarily due to higher Midfield expenses as a percentage of overall expenses in 2006 as compared with 2005.
 
Operating Income.  Red Man’s operating income was $92.0 million for the year ended October 31, 2006 as compared to $100.9 million for the year ended October 31, 2005. The decrease of $8.9 million for the year ended October 31, 2006 as compared to the year ended October 31, 2005 was due to an increase in the LIFO reserve of $35.9 million in 2006 as compared to a $0.7 million reduction in 2005, and an increase in selling, general and administrative expenses to $172.2 million in


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2006 as compared to $100.2 million in 2005, partially offset by an increase in pre-LIFO gross margin of $300.1 million in 2006 as compared to $200.4 million in 2005.
 
Interest Expense.  Red Man’s interest expense was $15.0 million for the year ended October 31, 2006 as compared to $8.4 million for the year ended October 31, 2005. The increase of $6.6 million for the year ended October 31, 2006 as compared to the year ended October 31, 2005 was due primarily to $7.3 million of interest on debt of Midfield for the year ended October 31, 2006 as compared to $2.2 million for the year ended October 31, 2005. This increase was primarily due to a full year of interest in 2006 as compared to four and one-half months in 2005 due to the acquisition of Midfield in June 2005. In addition, Red Man U.S. interest expense for the year ended October 31, 2006 was $7.7 million as compared to $6.2 million for the year ended October 31, 2005 due primarily to increased borrowings in 2006 versus 2005.
 
Other Income (Expense), Net.  Red Man’s other income (expense), net was $3.3 million for the year ended October 31, 2006 as compared to $1.0 million for the year ended October 31, 2005. The increase of $2.3 million for the year ended October 31, 2006 as compared to the year ended October 31, 2005 was primarily due to an insurance settlement related to Hurricanes Katrina and Rita in 2006.
 
Income Tax Expense.  Red Man’s income tax expense was $26.5 million for the year ended October 31, 2006 as compared to $34.2 million for the year ended October 31, 2005. The decrease of $7.7 million for the year ended October 31, 2006 as compared to the year ended October 31, 2005 was due primarily to a decrease in earnings before income taxes of $13.2 million in 2006 as compared to 2005 as well as a lower effective income tax rate in 2006 as compared to 2005.
 
Non-Controlling Interest.  Red Man’s non-controlling interest was $0.2 million for the year ended October 31, 2006 as compared to none for the year ended October 31, 2005.
 
Earnings From Discontinued Operations.  Red Man’s earnings from discontinued operations were $(2.2) million for the year ended October 31, 2006 as compared to $0.5 million for the year ended October 31, 2005. These earnings are associated with Nusco Mfg., a division of Midfield Supply ULC, which was disposed of in June 2006.
 
Gain on Sale of Discontinued Operations.  Red Man recorded a gain on sale of discontinued operations of $8.2 million for the year ended October 31, 2006 in connection with the disposition by Midfield of Nusco Mfg. in June 2006.
 
Net Income.  Red Man’s net income was $59.6 million for the year ended October 31, 2006 as compared to $59.8 million for the year ended October 31, 2005, a decrease of $0.2 million.
 
Liquidity and Capital Resources
 
Our primary sources of liquidity consist of cash generated from our operating activities, existing cash balances and borrowings under our existing revolving credit facilities. Our ability to generate sufficient cash flows from our operating activities will continue to be primarily dependent on our sales of pipe, valves, fittings and other products and services to our customers at margins sufficient to cover fixed and variable expenses. As of June 26, 2008 we had cash and cash equivalents of $8.8 million and up to $542.5 million available under our revolving credit facilities.
 
We believe our sources of liquidity will be sufficient to satisfy the anticipated cash requirements associated with our existing operations for at least the next twelve months. However, our future cash requirements could be higher than we currently expect as a result of various factors. Additionally, our ability to generate sufficient cash from our operating activities depends on our future performance, which is subject to general economic, political, financial, competitive and other factors beyond our control.


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Our credit facilities consist of a $575 million term loan facility, an $800 million revolving credit facility, a $450 million junior term loan facility, and the two credit facilities of our subsidiary Midfield. The $575 million term loan facility was entered into for purposes of financing the GS Acquisition in January 2007, and was subsequently amended in connection with the Red Man Transaction in October 2007. The $800 million revolving credit facility was entered into for purposes of financing the Red Man Transaction in October 2007. The $450 million junior term loan facility was entered into in connection with our May 2008 recapitalization and the proceeds of the facility were distributed by way of a dividend to stockholders of McJunkin Red Man Holding Corporation.
 
Revolving Credit Facility and Term Loan Facility
 
Our subsidiary McJunkin Red Man Corporation is the borrower under an $800 million revolving credit facility (the “Revolving Credit Facility”) and a $575 million term loan facility (the “Term Loan Facility” and, together with the Revolving Credit Facility, the “Senior Secured Facilities”). $204.4 million of borrowings were outstanding and $490.9 million were available under the Revolving Credit Facility as of June 26, 2008. Goldman Sachs Credit Partners L.P. and Lehman Brothers Inc. were the co-lead arrangers and joint bookrunners for each of these facilities.
 
McJunkin Red Man Corporation entered into the Term Loan Facility, as well as a $300 million asset-backed revolving credit facility with The CIT Group/Business Credit, Inc., and the other financial institutions party thereto, in January 2007 for purposes of financing the acquisition of McJunkin Corporation by affiliates of Goldman Sachs. The Term Loan Facility was amended, and the Revolving Credit Facility was entered into, for purposes of financing the Red Man Transaction in October 2007 and refinancing the $300 million asset-backed revolving credit facility. The Revolving Credit Facility was upsized on June 10, 2008 from $650 million to $700 million, was upsized on October 3, 2008 from $700 million to $750 million, and on October 16, 2008 was upsized from $750 million to $800 million. Additionally, on October 8, 2008, Barclays Bank PLC agreed to commit an additional $100 million under the Revolving Credit Facility effective January 2, 2009, which will increase the total commitments under the Revolving Credit Facility to $900 million.
 
Letter of Credit and Swingline Sublimits.  The Revolving Credit Facility provides for the extension of both revolving loans and swingline loans and the issuance of letters of credit. The aggregate principal amount of revolving loans outstanding at any time under the Revolving Credit Facility may not exceed $800 million, subject to adjustments based on changes in the borrowing base and less the sum of aggregate letters of credit outstanding and the aggregate principal amount of swingline loans outstanding, provided that the borrower may elect to increase the limit on the revolving loans or term loans outstanding as described in “— Incremental Facilities” below. There is a $60 million sub-limit on swingline loans and the total letters of credit outstanding at any time may not exceed $60 million.
 
Maturity.  The revolving loans have a maturity date of October 31, 2013 and the swingline loans have a maturity date of October 24, 2013. Any letters of credit outstanding under the Revolving Credit Facility will expire on October 24, 2013. The maturity date of the term loans under the Term Loan Facility is January 31, 2014.
 
Interest Rate and Fees.  The term loans bear interest at a rate per annum equal to, at the borrower’s option, either (i) the greater of the prime rate and the federal funds effective rate plus 0.50%, plus in either case 2.25%; or (ii) LIBOR plus 3.25%. On June 26, 2008, $567.8 million was outstanding under the Term Loan Facility and the interest rate on these loans was 6.13%.
 
The revolving loans bear interest at a rate per annum equal to, at the borrower’s option, either (i) the greater of the prime rate and the federal funds effective rate plus 0.50%, plus in either case (a) 0.50% if the borrower’s consolidated total debt to consolidated adjusted EBITDA ratio is greater than or equal to 2.75 to 1.00, (b) 0.25% if such ratio is greater than or equal to 2.00 to 1.00 but less than 2.75 to 1.00, or (c) 0.00% if such ratio is less than 2.00 to 1.00; or (ii) LIBOR plus (a) 1.50% if the borrower’s consolidated total debt to consolidated adjusted EBITDA ratio is greater than or equal


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to 2.75 to 1.00, (b) 1.25% if such ratio is greater than or equal to 2.00 to 1.00 but less than 2.75 to 1.00, or (c) 1.00% if such ratio is less than 2.00 to 1.00. Interest on swingline loans is calculated on the basis of the rate described in clause (i) of the preceding sentence. The weighted average interest rate on the revolving loans as of June 26, 2008 was 4.14% and the interest rate on the swingline loans was 5.25%.
 
Additionally, the borrower is required to pay a commitment fee with respect to unutilized revolving credit commitments at a rate per annum equal to (i) 0.375% if the borrower’s consolidated total debt to consolidated adjusted EBITDA ratio is greater than or equal to 2.75 to 1.00 and (ii) 0.25% if such ratio is less than 2.75 to 1.00. The borrower is also required to pay fees on the stated amounts of outstanding letters of credit for the account of all revolving lenders at a per annum rate equal to (i) 1.375% if the borrower’s consolidated total debt to consolidated adjusted EBITDA ratio is greater than or equal to 2.75 to 1.00, (ii) 1.125% if such ratio is greater than or equal to 2.00 to 1.00 but less than 2.75 to 1.00, or (iii) 0.875% if such ratio is less than 2.00 to 1.00. The borrower is required to pay a fronting fee for the account of the letter of credit issuer in respect of each letter of credit issued by it at a rate for each day equal to 0.125% per annum on the average daily stated amount of such letter of credit. The borrower is also obligated to pay directly to the letter of credit issuer upon each issuance of, drawing under, and/or amendment of, a letter of credit issued by it such amount as the borrower and the letter of credit issuer agree upon for issuances of, drawings under or amendments of, letters of credit issued by the letter of credit issuer.
 
Prepayments.  The borrower may voluntarily prepay revolving loans, swingline loans and term loans in whole or in part at the borrower’s option, in each case without premium or penalty. If the borrower refinances the term loans on certain terms prior to October 31, 2008, the borrower will be subject to a prepayment penalty of 1.00% of the aggregate principal amount of such payment. The borrower is required to prepay outstanding term loans with 100% of the net cash proceeds of:
 
  •  a disposition of any business units, assets or other property of the borrower or any of the borrower’s restricted subsidiaries not in the ordinary course of business, subject to certain exceptions for permitted asset sales;
 
  •  a casualty event with respect to collateral for which the borrower or any of its restricted subsidiaries receives insurance proceeds, or proceeds of a condemnation award or other compensation;
 
  •  the issuance or incurrence by the borrower or any of its restricted subsidiaries of indebtedness, subject to certain exceptions; and
 
  •  any sale-leaseback transaction permitted under the Term Loan Facility.
 
Not later than the date that is 90 days after the last day of any fiscal year, the borrower under the Term Loan Facility will be required to prepay the outstanding term loans under the Term Loan Facility with an amount equal to (i) 50% of “excess cash flow” for such fiscal year, provided that (a) the percentage will be reduced to 25% if the borrower’s ratio of consolidated total debt to consolidated EBITDA for the most recent four consecutive fiscal quarters is no greater than 2.50 to 1.00 but greater than 2.00 to 1.00, and (b) no prepayment of term loans with excess cash flow is required if the borrower’s ratio of consolidated total debt to consolidated EBITDA for the most recent four consecutive fiscal quarters is no greater than 2.00 to 1.00, minus (ii) the principal amount of term loans under the Term Loan Facility voluntarily prepaid during such fiscal year.
 
In addition, if at any time the aggregate amount of outstanding loans, unreimbursed letter of credit drawings and undrawn letters of credit under the Revolving Credit Facility exceeds the total revolving credit commitments and (ii) the borrowing base, the borrower will be required to repay outstanding loans or cash collateralize letters of credit in an aggregate amount equal to such excess, with no reduction of the commitment amount. If the amount available under the Revolving Credit Facility is less than 7% of total revolving credit commitments for any period of five consecutive business days, or an event of default pursuant to certain provisions of the Revolving Credit Facility


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has occurred, the borrower would be required to transfer funds from certain blocked accounts daily into a collection account under the exclusive control of the agent under the Revolving Credit Facility.
 
Amortization.  The term loans are repayable in quarterly installments in an amount equal to the principal amount of the term loans outstanding on the quarterly installment date multiplied by 0.25%, with the balance of the principal amount due on the term loan maturity date of January 31, 2014.
 
Incremental Facilities.  Subject to certain terms and conditions, the borrower may request an increase in revolving loan commitments and term loan commitments. The increase in revolving loan commitments may not exceed the sum of (i) $150 million, plus (ii) only after the entire amount in the preceding clause (i) is drawn, an amount such that on a pro forma basis after giving effect to the new revolving credit commitments and certain other specified transactions, the secured leverage ratio will be no greater than 4.75 to 1.00. The borrower’s ability to borrow under such incremental facilities, however, would still be limited by the borrowing base. The incremental term loan commitments may not exceed the difference between (i) up to $100 million, and (ii) the sum of all incremental revolving commitments and incremental term loan commitments taken together. Any lender that is offered to provide all or part of the new revolving loan commitments or new term loan commitments may elect or decline, in its sole discretion, to provide such new commitments. No lender is required to fund any of such amounts.
 
Collateral and Guarantors.  The obligations under the Senior Secured Facilities are guaranteed by the borrower’s wholly owned domestic subsidiaries. The obligations under the Revolving Credit Facility are secured, subject to certain significant exceptions, by substantially all of the assets of the borrower and the subsidiary guarantors, including (i) a first-priority security interest in personal property consisting and arising from inventory and accounts receivable; (ii) a second-priority pledge of certain of the capital stock held by the borrower or any subsidiary guarantor; and (iii) a second-priority security interest in, and mortgages on, substantially all other tangible and intangible assets of the borrower and each subsidiary guarantor. The obligations under the Term Loan Facility are secured, subject to exceptions, by substantially all of the assets of the borrower and the subsidiary guarantors, including (i) a second-priority security interest in personal property consisting of and arising from inventory and accounts receivable; (ii) a first-priority pledge of certain of the capital stock held by the borrower or any subsidiary guarantor; and (iii) a first-priority security interest in, and mortgages on, substantially all other tangible and intangible assets of the borrower and each subsidiary guarantor.
 
Covenants.  The Senior Secured Facilities contain customary covenants. These agreements, among other things, restrict, subject to certain exceptions, the ability of the borrower and its subsidiaries to incur additional indebtedness, create liens on assets, engage in mergers, consolidations or sales of assets, dispose of subsidiary interests, make investments, loans or advances, pay dividends, make payments with respect to subordinated indebtedness, enter into sale and leaseback transactions, change the business conducted by the borrower and its subsidiaries taken as a whole, and enter into agreements that restrict subsidiary dividends or limit the ability of the borrower or any subsidiary guarantor to create or keep liens for the benefit of the lenders with respect to the obligations under the Senior Secured Facilities. The Senior Secured Facilities require the borrower to enter into interest rate swap, cap and hedge agreements for purposes of ensuring that no less than 50% of the aggregate principal amount of the total indebtedness of the borrower and its subsidiaries then outstanding is either subject to such interest rate agreements or bears interest at a fixed rate.
 
The Term Loan Facility requires the borrower to maintain a maximum ratio of consolidated total debt to consolidated adjusted EBITDA and a minimum ratio of consolidated adjusted EBITDA to consolidated interest expense. Each of these ratios is calculated for the period that is four consecutive


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fiscal quarters prior to the date of calculation. These financial covenants are set forth in the table below:
 
                 
    Maximum
  Minimum
    Consolidated
  Consolidated
    Total Debt to
  Adjusted EBITDA to
    Consolidated
  Consolidated
    Adjusted EBITDA
  Interest Expense
Four Consecutive Fiscal Quarters Ending on:
 
Ratio
 
Ratio
 
June 30, 2008
    4.25:1.00 (a)     3.00:1.00 (b)
September 30, 2008
    4.25:1.00       3.00:1.00  
December 31, 2008
    4.25:1.00       3.00:1.00  
March 31, 2009
    3.50:1.00       3.25:1.00  
June 30, 2009
    3.50:1.00       3.25:1.00  
September 30, 2009
    3.50:1.00       3.25:1.00  
December 31, 2009
    3.50:1.00       3.25:1.00  
March 31, 2010
    2.75:1.00       3.25:1.00  
June 30, 2010
    2.75:1.00       3.25:1.00  
September 30, 2010
    2.75:1.00       3.25:1.00  
December 31, 2010
    2.75:1.00       3.25:1.00  
March 31, 2011
    2.50:1.00       3.25:1.00  
June 30, 2011
    2.50:1.00       3.25:1.00  
September 30, 2011
    2.50:1.00       3.25:1.00  
December 31, 2011
    2.50:1.00       3.25:1.00  
March 31, 2012 and thereafter
    2.50:1.00       3.50:1.00  
 
(a) The borrower’s actual consolidated total debt to consolidated Adjusted EBITDA ratio was 2.44:1.00 for the four fiscal quarters ending on December 31, 2007 and was 1.95:1.00 for the four fiscal quarters ending on June 30, 2008.
 
(b) The borrower’s actual consolidated Adjusted EBITDA to consolidated interest expense ratio was 5.27:1.00 for the four fiscal quarters ending on December 31, 2007 and was 6.86:1.00 for the four fiscal quarters ending on June 30, 2008.
 
If the borrower fails to comply with the consolidated total debt to consolidated adjusted EBITDA ratio, then within ten days after the date on which financial statements for the applicable period are due under the Term Loan Facility, the Goldman Sachs Funds and other investors in the borrower (or any direct or indirect parent of the borrower) have a cure right which allows any of them to make a direct or indirect equity investment in the borrower or any restricted subsidiary of the borrower in cash. If such cure right is exercised, the consolidated total debt to consolidated adjusted EBITDA ratio of the borrower will be recalculated to give pro forma effect to the net cash proceeds received from the exercise of the cure right. The cure right is subject to certain limitations. For the four prior consecutive fiscal quarters, there must be at least one fiscal quarter in which the cure right is not exercised. Additionally, the equity investment contributed under the cure right may not exceed the amount necessary to bring the borrower back into compliance with the restrictions regarding the borrower’s consolidated total debt to consolidated adjusted EBITDA ratio.
 
The computation of the consolidated total debt to consolidated adjusted EBITDA ratio and the consolidated adjusted EBITDA to consolidated interest expense ratio are governed by the specific terms of the Term Loan Facility. The computation of these ratios requires a calculation of consolidated adjusted EBITDA. In general, under the terms of our Revolving Credit Facility, Term Loan Facility and our Junior Term Loan Facility (as described below), adjusted EBITDA is defined as consolidated net


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income, plus (without duplication and to the extent already deducted in arriving at consolidated net income):
 
  •  total interest expense and to the extent not reflected in such total interest expense, any losses on hedging obligations or other derivative instruments entered into for the purpose of hedging interest rate risk, net of interest income and gains on such hedging obligations and costs of surety bonds in connection with financing activities;
 
  •  provisions for taxes based on income, profits or capital, including state, franchise and similar taxes and foreign withholding taxes paid or accrued;
 
  •  depreciation and amortization;
 
  •  other non-cash charges;
 
  •  extraordinary losses and unusual or non-recurring charges, severance, relocation costs and curtailments or modifications to pension and post-retirement employee benefit plans;
 
  •  restructuring charges or reserves;
 
  •  any deductions attributable to minority interests;
 
  •  management, monitoring, consulting and advisory fees and related expenses paid to the Goldman Sachs Funds and their affiliates;
 
  •  any costs or expenses incurred pursuant to any management equity plan or stock option plan or any other management or employee benefit plan or agreement or any stock subscription or shareholder agreement, to the extent that such costs or expenses are funded with cash proceeds contributed to the capital of McJunkin Red Man Corporation or net cash proceeds of an issuance of stock or stock equivalents of McJunkin Red Man Corporation; and
 
  •  (i) for any period that includes a fiscal quarter occurring prior to the fifth fiscal quarter occurring after January 31, 2007, certain specified cost savings and (ii) for any period that includes a fiscal quarter occurring thereafter, the amount of net cost savings that we project in good faith to be realized as a result of specified actions taken by us in connection with certain specified transactions, including the Red Man Transaction (calculated on a pro forma basis as though such cost savings had been realized on the first day of such period), net of the amount of actual benefits realized during such period from such actions, subject to certain limitations and exceptions with respect to clause (ii) above;
 
less, without duplication and to the extent included in arriving at consolidated net income, the sum of the following:
 
  •  extraordinary gains and unusual or non-recurring gains;
 
  •  non-cash gains (excluding any non-cash gain to the extent it represents the reversal of an accrual or reserve for a potential cash item that reduced consolidated net income in any prior period);
 
  •  gains on asset sales (other than asset sales in the ordinary course of business);
 
  •  any net after-tax income from the early extinguishment of indebtedness or hedging obligations or other derivative instruments; and
 
  •  all gains from investments recorded using the equity method;
 
provided that certain adjustments, such as certain currency translation gains and losses and adjustments resulting from the application of Statement of Financial Accounting Standards No. 133, shall be excluded from the calculation of consolidated adjusted EBITDA to the extent they are included in consolidated net income. Additionally, to the extent included in consolidated net income, the adjusted EBITDA of properties, businesses or assets acquired during the applicable period shall be included in the calculation of consolidated adjusted EBITDA to the extent not subsequently disposed of, and the adjusted EBITDA of properties, businesses and assets sold during the applicable period shall be excluded from the calculation of adjusted EBITDA.


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Also, the calculation of consolidated adjusted EBITDA with respect to any period includes, to the extent included in consolidated net income, for the four consecutive fiscal quarters last ended to the extent such four-quarter period includes all or any part of a fiscal quarter included in a “post-acquisition period” (a period beginning on the date that a permitted acquisition is consummated and ending on the last day of the fourth full fiscal quarter immediately following the date that the permitted acquisition is consummated), a pro forma adjustment equal to the increase or decrease in consolidated adjusted EBITDA projected by us in good faith as a result of (i) actions taken during such post-acquisition period for the purposes of realizing reasonably identifiable and factually supportable cost savings or (ii) any additional costs incurred during such post-acquisition period, in each case in connection with the combination of the operations of such acquired entity or business with our operations. For purposes of this calculation, it may be assumed that such cost savings will be realizable during the entirety of the four consecutive fiscal quarters last ended, and that any such pro forma increase or decrease to consolidated adjusted EBITDA shall be without duplication for cost savings or additional costs already included in consolidated adjusted EBITDA for the four consecutive fiscal quarters last ended.
 
We present consolidated adjusted EBITDA, or Adjusted EBITDA, because it is a material component of material covenants within our Term Loan Facility and Junior Term Loan Facility and also affects the interest rate charged on revolving loans under our Revolving Credit Facility. As such, it has a material impact on our liquidity and financial position. However, Adjusted EBITDA is not a defined term under GAAP and should not be considered as an alternative to net income as a measure of operating results or as an alternative to cash flows as a measure of liquidity. Adjusted EBITDA is calculated as follows:
 
                                                                 
    Predecessor     Successor     Pro Forma     Successor     Pro Forma     Successor  
    Year
    Year
    One Month
    Eleven Months
    Year
    Five Months
    Six Months
    Six Months
 
    Ended
    Ended
    Ended