e8vk
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported): August 12, 2011
MCJUNKIN RED MAN HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
         
Delaware   333-153091   20-5956993
(State or other jurisdiction of       (I.R.S. Employer
incorporation)       Identification Number)
(Commission File Number)
2 Houston Center
909 Fannin, Suite 3100, Houston, TX 77010
(Address of principal executive offices,
including zip code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
o   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
o   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 

 


 

Item 2.02 Results of Operations and Financial Condition
On August 12, 2011, McJunkin Red Man Holding Corporation (the “Company”) issued a press release announcing its financial results for the quarter ended June 30, 2011. A copy of the press release is furnished as Exhibit 99.1 to this Form 8-K and is incorporated herein by reference.
The information in Item 2.02 of this current report or Form 8-k and Exhibit 99.1 attached hereto is being “furnished” and is not deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor is it deemed incorporated by reference into any filing under the Securities Exchange Act of 1934, as amended.
Item 9.01 Financial Statements and Exhibits
(d)   Exhibits.
The following exhibit is being furnished as part of this report:
99.1   Press Release of McJunkin Red Man Holding Corporation dated August 12, 2011

 


 

SIGNATURES
     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
     Date: August 12, 2011
         
  MCJUNKIN RED MAN HOLDING CORPORATION
 
 
  By:   /s/ Andrew R. Lane    
    Andrew R. Lane   
    Chairman, President and Chief Executive Officer   
 

 


 

INDEX TO EXHIBITS
         
Exhibit No.   Description
  99.1    
Earnings Release of McJunkin Red Man Holding Corporation dated August 12, 2011

 

exv99w1
Exhibit 99.1
     
(MRC LOGO)
  Investor Contact:
Cinda Bowling
Vice President — Investor Relations
Cinda.Bowling@mrcpvf.com
P: 304-348-5877
Announcement
 
McJunkin Red Man Holding Corporation Announces
Second Quarter 2011 Financial Results
Houston, TX — August 12, 2011: McJunkin Red Man Holding Corporation (MRC), the largest global distributor of pipe, valves and fittings (PVF) and related products and services to the energy and industrial sectors based on sales, today announced its second quarter 2011 financial results.
For the second quarter of 2011, the Company generated sales of $1.17 billion, up 26% from sales of $927 million in the second quarter of 2010 and up 18% from sales of $992 million in the first quarter of 2011. For the first six months of 2011 sales increased 21% to $2.16 billion from $1.79 billion during the first six months of 2010. These increases were primarily due to strengthening in MRC’s upstream and midstream end markets, which have been driven largely by improved activity levels in the oil and natural gas shale regions, and improvements in the overall business environment.
Gross margin was $173 million, or 14.8% of sales, in the second quarter of 2011, compared with $117 million, or 12.7% of sales, in the second quarter of 2010, and $147 million, or 14.8% of sales, in the first quarter of 2011. Gross margin for the first six months of 2011 was $320 million, or 14.8% of sales, compared to $247 million, or 13.8%, for the same period in 2010.
Beginning in the second quarter of 2011, we elected to reflect depreciation and amortization, including the amortization of intangible assets, in our reported gross margins rather than as a separate component of operating expenses. Gross margins referenced herein for prior periods have been revised to reflect results on a consistent basis. In order to maintain the visibility of each of the components of our gross margins, to facilitate more detailed period to period comparisons, and to enable comparisons to our competitors who do not have such comparable expenses, we are also reporting Adjusted Gross Margins, which exclude depreciation and amortization, as well as the impact of our last-in, first-out (LIFO) inventory costing methodology. A reconciliation of Adjusted Gross Margin to reported gross margins is included herein.
Commenting on the Company’s results, Andrew R. Lane, Chairman, President and Chief Executive Officer, stated, “Our end markets in North America continue to improve. It was a solid quarter for us with 26% year-on-year quarterly revenue growth and improved profitability. We increased our inventories by $69 million during the quarter due to the increase in current and forecasted demand. We expect a good level of activity in the second half of 2011.”
For the second quarter of 2011, selling, general and administrative expenses (“SG&A”) increased $12 million (11%) compared to the same quarter in 2010.  Compared to the first quarter of 2011, SG&A expenses increased $8  million (8%). For the first six months of 2011, SG&A expenses increased $19 million (9%) over the comparable period in 2010.   These increases are attributable primarily to an increase in variable

 


 

personnel expenses and the inclusion in 2011 of the on-going and one-time expenses relating to the mid-2010 acquisitions in the Eagle Ford and Bakken shales, and the June 2011 acquisition of Stainless Pipe and Fittings in Australia.
The Company generated operating income of $50 million in the second quarter of 2011, as compared to $7 million for the second quarter of 2010 and $32 million in the first quarter of 2011. For the first six months of 2011, the Company generated operating income of $82 million, compared to operating income of $29 million for the same period in 2010, an increase of $53 million.
The Company’s net income for the second quarter of 2011 was $4.7 million, compared to a net loss of $15.9 million for the second quarter of 2010 and a net loss of $1.1 million in the first quarter of 2011. For the first six months of 2011 the Company’s net income was $3.6 million, compared to a net loss of $27.8 million for the same period in 2010.
Adjusted EBITDA was $91 million for the second quarter of 2011, compared to $56 million for the same period in 2010. See the table attached hereto for a reconciliation of Adjusted EBITDA to net income and net loss. Sequentially, Adjusted EBITDA for the second quarter of 2011 increased by $31 million compared to the first quarter of 2011. Adjusted EBITDA was $151 million for the first six months of 2011, compared to $105 million for the same period in 2010. The increase in Adjusted EBITDA was due primarily to an increase in gross margins.
On June 8, we closed on our acquisition of Stainless Pipe and Fittings Australia (SPF). SPF expands our presence in the active Australian market and provides us with an Asian “PFF hub” for further “PVF” expansion as well as a Middle East base for further growth. The SPF acquisition is very complementary to our 2009 acquisition of Transmark Fcx.
The Company’s net working capital at June 30, 2011 was $975 million, compared to $843 million at December 31, 2010. The current year increase is the result of improving business conditions requiring greater working capital, as well as the June acquisition of SPF. These working capital additions are seen in the cash used by operations for the second quarter of 2011, which was $57 million.
On June 14, 2011, MRC and certain of its subsidiaries entered into a new $1.05 billion asset based revolving credit facility. The proceeds of this facility were used to replace the existing operating lines in the U.S. and Canada, enabling us to streamline our capital structure while extending maturities and reducing borrowing rates. In connection with the refinancing of these previously existing credit facilities, we incurred a non-recurring, non-cash charge of $9.5 million during the second quarter.
Mr. Lane continued, “I’m very pleased with the significant improvement in operating income from last year and the positive net income for the quarter. The new $1.05 billion asset based revolving credit facility is the second phase of our long term debt restructuring plan following our 2009 issuance of $1.05 billion of corporate bonds. We now have a capital structure in place that meets our current needs through 2016. I’m also very pleased to add SPF to MRC. The acquisition of SPF is the next step in our international growth strategy and will lead to future growth in Australia, Asia, and the Middle East.”

 


 

About McJunkin Red Man
Headquartered in Houston, Texas with corporate offices in Charleston, West Virginia and Tulsa, Oklahoma and operations centers in Calgary, Alberta, Canada and Bradford, United Kingdom, MRC is the largest global distributor of pipe, valves and fittings (PVF) and related products and services to the energy and industrial sectors, based on sales, and supplies these products and services across each of the upstream, midstream and downstream markets.
Safe Harbor Statement
This announcement contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, including, for example, statements about the Company’s business strategy, its industry, its future profitability, growth in the Company’s various markets and the Company’s expectations, beliefs, plans, strategies, objectives, prospects and assumptions. These forward-looking statements are not guarantees of future performance. These statements involve known and unknown risks, uncertainties and other factors that may cause the Company’s actual results and performance to be materially different from any future results or performance expressed or implied by these forward-looking statements. For a discussion of key risk factors, please see the risk factors disclosed in the Company’s registration statement on Form S-4, which is available on the SEC’s website at www.sec.gov and on the Company’s website, www.mrcpvf.com.
Undue reliance should not be placed on the Company’s forward-looking statements. Although forward-looking statements reflect the Company’s good faith beliefs, reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise.
www.mrcpvf.com
         
Houston Corporate Headquarters
  Charleston Corporate Office   Tulsa Corporate Office
2 Houston Center
  835 Hillcrest Drive   8023 E. 63rd Place
909 Fannin, Suite 3100
  Charleston, WV 25311   Tulsa, OK 74133
Houston, TX 77010
  P: 800.624.8603   P: 800.666.3776
P: 877-294-7574
       

 


 

McJunkin Red Man Holding Corporation
Condensed Consolidated Balance Sheet (Unaudited)

(Dollars in thousands)
                 
    June 30,     December 31,  
    2011     2010  
Assets
               
Current assets:
               
Cash
  $ 39,437     $ 56,202  
Accounts receivables, net
    708,563       596,404  
Inventories, net
    852,161       765,367  
Income taxes receivable
    29,504       32,593  
Other current assets
    13,312       10,209  
 
           
Total current assets
    1,642,977       1,460,775  
 
               
Other assets:
               
Debt issuance costs, net
    28,294       32,211  
Assets held for sale
    1,790       12,722  
Other assets
    13,337       14,212  
 
           
 
    43,421       59,145  
Fixed Assets:
               
Property, plant and equipment, net
    108,921       104,725  
 
               
Intangible assets:
               
Goodwill
    561,783       549,384  
Other intangible assets, net
    800,197       817,165  
 
           
 
    1,361,980       1,366,549  
 
           
 
               
 
  $ 3,157,299     $ 2,991,194  
 
           
 
               
Liabilities and stockholders’ equity
               
Current liabilities:
               
Trade accounts payable
  $ 492,700     $ 426,632  
Accrued expenses and other liabilities
    99,093       102,807  
Deferred revenue
    5,055       18,140  
Deferred income taxes
    70,877       70,636  
 
           
Total current liabilities
    667,725       618,215  
 
               
Long-term obligations:
               
Long-term debt, net
    1,462,368       1,360,241  
Deferred income taxes
    298,847       303,083  
Other liabilities
    19,376       19,897  
 
           
 
    1,780,591       1,683,221  
 
               
Stockholders’ equity
    708,983       689,758  
 
           
 
               
 
  $ 3,157,299     $ 2,991,194  
 
           

 


 

McJunkin Red Man Holding Corporation
Condensed Consolidated Income Statement (Unaudited)

(Dollars in thousands, except per share amounts)
                                         
    Three Months Ended     Six Months Ended  
    June 30,     June 30,     March 31,     June 30,     June 30,  
    2011     2010     2011     2011     2010  
 
Sales
  $ 1,168,039     $ 926,905     $ 991,813     $ 2,159,852     $ 1,785,187  
Cost of sales
    995,341       809,485       844,847       1,840,188       1,538,295  
 
                             
Gross margin
    172,698       117,420       146,966       319,664       246,892  
 
                                       
Selling, general and administrative expenses
    122,500       110,115       114,812       237,312       218,203  
 
                             
Operating income
    50,198       7,305       32,154       82,352       28,689  
 
                                       
Other income (expense):
                                       
Interest expense
    (34,524 )     (34,350 )     (33,500 )     (68,024 )     (69,689 )
Write off of debt issuance costs
    (9,450 )                 (9,450 )      
Change in fair value of derivative instruments
    1,624       (1,558 )     1,868       3,492       (5,621 )
Other, net
    (695 )     1,273       (2,340 )     (3,035 )     913  
 
                             
 
    (43,045 )     (34,635 )     (33,972 )     (77,017 )     (74,397 )
 
                             
 
                                       
Income (Loss) before income taxes
    7,153       (27,330 )     (1,818 )     5,335       (45,708 )
Income tax (benefit)
    2,475       (11,407 )     (690 )     1,785       (17,885 )
 
                             
Net income (loss)
  $ 4,678     $ (15,923 )   $ (1,128 )   $ 3,550     $ (27,823 )
 
                             
 
                                       
Basic income (loss) per common share
  $ 0.03     $ (0.09 )   $ (0.01 )   $ 0.02     $ (0.16 )
Diluted income (loss) per common share
  $ 0.03     $ (0.09 )   $ (0.01 )   $ 0.02     $ (0.16 )
Dividends per common share
  $     $     $     $     $  

 


 

McJunkin Red Man Holding Corporation
Condensed Consolidated Statement of Cash Flows (Unaudited)

(Dollars in thousands)
                 
    Six Months Ended  
    June 30,     June 30,  
    2011     2010  
Operating activities
               
Net income (loss)
  $ 3,550     $ (27,823 )
Adjustments to reconcile net income (loss) to net cash used in operations:
               
Depreciation and amortization expense
    8,165       8,137  
Amortization of intangibles
    25,068       27,360  
Equity-based compensation expense
    2,442       2,166  
Deferred income tax (benefit) expense
    (5,325 )     3,001  
Amortization of debt issuance costs
    5,373       5,878  
Write off of debt issuance costs
    9,450        
Increase in LIFO reserve
    27,700       36,968  
Change in fair value of derivative instruments
    (3,492 )     5,621  
Hedge termination
          (24,797 )
Provision for uncollectible accounts
    315       (2,044 )
Write down of inventory
          362  
Nonoperating losses and other items not providing cash
    1,148       (1,148 )
Changes in operating assets and liabilities:
               
Accounts receivable
    (79,305 )     (43,561 )
Inventories
    (73,137 )     (902 )
Income taxes
    2,834       (7,675 )
Other current assets
    (1,511 )     (22 )
Accounts payable
    39,654       27,402  
Deferred revenue
    (13,101 )     (3,057 )
Accrued expenses and other current liabilities
    (7,184 )     (6,771 )
 
           
Net cash used in operations
    (57,356 )     (905 )
 
               
Investing activities
               
Purchases of property, plant and equipment
    (5,318 )     (7,269 )
Proceeds from the disposition of property, plant and equipment
    612       987  
Acquisition of The South Texas Supply Company, Inc., net of cash acquired of $781
          (2,938 )
Acquisition of Stainless Pipe and Fittings Australia Pty. Ltd., net of cash acquired of $1,900
    (35,305 )      
Proceeds from the sale of assets held for sale
    10,594       6,825  
Other investment and notes receivable transactions
    961       (818 )
 
           
Net cash used in investing activities
    (28,456 )     (3,213 )
 
               
Financing activities
               
Net advances from (payments on) revolving credit facilities
    77,676       (49,762 )
Proceeds from issuance of senior secured notes
          47,897  
Debt issuance costs paid
    (9,131 )     (1,660 )
Proceeds from exercise of stock options
    3        
 
           
Net cash provided by (used in) financing activities
    68,548       (3,525 )
 
           
 
               
(Decrease) in cash
    (17,264 )     (7,643 )
Effect of foreign exchange rate on cash
    499       (3,742 )
Cash — beginning of period
    56,202       56,244  
 
           
Cash — end of period
  $ 39,437     $ 44,859  
 
           

 


 

McJunkin Red Man Holding Corporation
Supplemental Information (Unaudited)
Calculation of Adjusted Gross Margin

(Dollars in millions)
                                         
    Three Months Ended     Six Months Ended  
    June 30,     June 30,     March 31,     June 30,     June 30,  
    2011     2010     2011     2011     2010  
 
Gross margin, as reported
  $ 172.7     $ 117.4     $ 147.0     $ 319.7     $ 246.9  
Depreciation and amortization
    4.2       4.1       4.0       8.2       8.1  
Amortization of intangibles
    12.7       13.6       12.4       25.1       27.4  
Increase in LIFO reserve
    17.6       30.1       10.1       27.7       37.0  
 
                             
Adjusted Gross Margin
  $ 207.2     $ 165.2     $ 173.5     $ 380.7     $ 319.4  
 
                             
Note to above:
We define Adjusted Gross Margin as reported gross margin plus depreciation and amortization, amortization of intangibles, and LIFO expense. The Company has included Adjusted Gross Margin as a supplemental disclosure because management believes Adjusted Gross Margin is a meaningful indicator of our operating performance without regard to items such as amortization of intangibles and LIFO impacts on cost of sales, that can vary substantially from company to company depending upon the nature and extent of acquisitions they have been involved in and inventory costing methodology.
We sometimes use information derived from our consolidated financial information but not presented in our financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP). Certain of these data are considered “non-GAAP financial measures” under the U.S. Securities and Exchange Commission rules. These non-GAAP financial measures supplement our GAAP disclosures and should not be considered an alternative to GAAP measures. Above is a presentation of Adjusted Gross Margin including a reconciliation to gross margin, as reported, the most comparable GAAP measure. The following page includes a presentation of Adjusted EBITDA including a reconciliation to net income.

 


 

McJunkin Red Man Holding Corporation
Supplemental Information (Unaudited)
Calculation of Adjusted EBITDA

(Dollars in millions)
                                         
    Three Months Ended     Six Months Ended  
    June 30,     June 30,     March 31,     June 30,     June 30,  
    2011     2010     2011     2011     2010  
 
Net income (loss)
  $ 4.7     $ (15.9 )   $ (1.1 )   $ 3.6     $ (27.8 )
Income tax expense (benefit)
    2.5       (11.4 )     (0.7 )     1.8       (17.9 )
Interest expense
    34.5       34.3       33.5       68.0       69.7  
Write off of debt issuance costs
    9.5                   9.5        
Depreciation and amortization
    4.2       4.1       4.0       8.2       8.1  
Amortization of intangibles
    12.7       13.6       12.4       25.1       27.4  
Increase in LIFO reserve
    17.6       30.1       10.1       27.7       37.0  
Change in fair value of derivative instruments
    (1.6 )     1.6       (1.9 )     (3.5 )     5.6  
Share based compensation expense
    1.0       1.2       1.5       2.5       2.2  
Legal and consulting expenses
    3.4       0.9       1.2       4.6       0.9  
(Gains) losses on asset sales
    1.0       (0.1 )     0.4       1.4       0.6  
Other non-recurring and non-cash expenses (1)
    1.1       (2.3 )     0.6       1.7       (1.2 )
 
                             
 
                                       
Adjusted EBITDA(2)
  $ 90.6     $ 56.1     $ 60.0     $ 150.6     $ 104.6  
 
                             
 
(1)   Other non-recurring and non-cash expenses include transaction-related expenses, pre-acquisition EBITDA of SPF, and other items added back to net income pursuant to our debt agreements.
 
(2)   For purposes of computing Adjusted EBITDA, we have added back the increase in our LIFO reserve for all periods presented. Such amounts would not be added back for similar calculations computed for purposes of the indenture governing the Company’s senior secured notes.
Note to above:
Adjusted EBITDA consists of net income plus interest, income taxes, depreciation and amortization, amortization of intangibles and other non-recurring, non-cash charges (such as gains/losses on the early extinguishment of debt, changes in the fair value of derivative instruments and goodwill impairment), and plus or minus the impact of our LIFO costing methodology. The adjustment for the impact of our LIFO inventory costing methodology is something we elected to do beginning in the second quarter of 2011 based on the non-cash nature of the charge and the significance of the charge to our results. Adjusted EBITDA referenced herein for prior periods has been revised to reflect the results on a consistent basis. The Company has included Adjusted EBITDA as a supplemental disclosure because management believes Adjusted EBITDA is an important measure under its indenture and ABL credit facility and provides investors a helpful measure for comparing its operating performance with the performance of other companies that have different financing and capital structures or tax rates.