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): June 9, 2015
MRC GLOBAL INC.
(Exact name of registrant as specified in its charter)
| Delaware | 001-35479 | 20-5956993 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) |
(I.R.S. Employer Identification Number) |
2 Houston Center, 909 Fannin, Suite 3100,
Houston, TX 77010
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: (877) 294-7574
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| Item 7.01 | Regulation FD Disclosure. |
MRC Global Inc. (“MRC Global”) executive management will make a presentation on June 9, 2015 to attendees of the J.P. Morgan Energy Distribution Day regarding, among other things, MRC Global’s operations and performance. A copy of the materials to be used at the presentation (the “Presentation Materials”) is included as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference. The Presentation Materials, possibly with modifications, will also be used from time to time after June 9, 2015 in presentations about MRC Global’s operations and performance to current and potential investors, lenders, creditors, insurers, vendors, customers, employees and others with an interest in MRC Global and its business.
The information contained in the Presentation Materials is summary information that should be considered in the context of MRC Global’s filings with the Securities and Exchange Commission and other public announcements that MRC Global may make by press release or otherwise from time to time. The Presentation Materials speak as of the date of this Current Report on Form 8-K. While MRC Global may elect to update the Presentation Materials in the future or reflect events and circumstances occurring or existing after the date of this Current Report on Form 8-K, MRC Global specifically disclaims any obligation to do so. The Presentation Materials will also be posted in the Investor Relations section of MRC Global’s website, http://www.mrcglobal.com for 90 days.
The information referenced under Item 7.01 (including Exhibit 99.1 referenced under Item 9.01 below) of this Current Report on Form 8-K is being “furnished” under “Item 7.01. Regulation FD Disclosure” and, as such, shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section. The information set forth in this Current Report on Form 8-K (including Exhibit 99.1 referenced under Item 9.01 below) shall not be incorporated by reference into any registration statement, report or other document filed by MRC Global pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.
| Item 9.01 | Financial Statements and Exhibits. |
| (d) | Exhibits. |
| 99.1 | Investor Presentation, dated June 9, 2015 |
2
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: June 9, 2015
| MRC GLOBAL INC. | ||
| By: | /s/ James E. Braun | |
| James E. Braun | ||
| Executive Vice President and Chief Financial Officer | ||
3
INDEX TO EXHIBITS
| Exhibit No. |
Description | |
| 99.1 | Investor Presentation, dated June 9, 2015 | |
4
 1 June 9, 2015 J.P. Morgan Energy Distribution Day Andrew Lane Chairman, President & CEO Jim Braun Executive Vice President & CFO Exhibit 99.1 TM |
 2 2 Forward Looking Statements and Non-GAAP Disclaimer This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Words such as “will,” “expect,” “expected”, “looking forward”, “guidance” and similar expressions are
intended to identify forward-looking statements. Statements about the
company’s business, including its strategy, the impact of changes in oil prices and customer spending, its industry, the company’s future profitability, the company’s guidance on its sales, adjusted EBITDA, adjusted gross profit, tax rate, capital expenditures and cash flow,
growth in the company’s various markets and the company’s
expectations, beliefs, plans, strategies, objectives, prospects and assumptions are not guarantees of future performance. These statements are based on management’s expectations that involve a number of business risks and uncertainties, any of which
could cause
actual results to differ materially from those expressed in or implied by the forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors, most of which are difficult to predict and many of which are beyond our control, including the factors
described in the company’s
SEC filings that may cause our actual results and performance to be materially different from any future results or performance expressed or implied by these forward-looking statements. For a discussion of key risk factors, please see the risk factors disclosed in the company’s SEC filings, which are available on the SEC’s website at www.sec.gov and on the company’s website, www.mrcglobal.com. Our filings and other important information are also available on the Investor Relations
page of our website at www.mrcglobal.com.
Undue reliance should not be placed on the company’s forward-looking
statements. Although forward-looking statements reflect the company’s good faith beliefs, reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which may cause the company’s actual results, performance or achievements or future events to differ materially from anticipated future results,
performance or achievements or future events expressed or implied by such
forward-looking statements. The company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise, except to the extent required by law. |
 3 By the Numbers¹ Industry Sectors Product Categories TTM Sales TTM Adjusted EBITDA $5.920B $427M Upstream Line Pipe & OCTG Employees ~4,700 Locations 400+ Midstream Valves Countries • Operations • Direct Sales (>$100,000) • All countries 20 45+ 90+ Customers 21,000+ Downstream/ Industrial Fittings & Flanges Suppliers 21,000+ SKU’s 230,000+ Company Snapshot MRC Global is the largest global distributor of pipe, valves and fittings (PVF) to the energy industry, by sales 1. As of March 31, 2015 |
 4 Revenue by Industry Sector Note: Percentage of sales for the twelve months ended March 31, 2015 Upstream 46% Downstream 25% Midstream 29% Diversified Across All Three Major Energy Sectors Other/ Industrial 12% Chemicals & Refining 13% Gas Utility 10% Transmission 19% Production Infrastructure, Materials & Supplies 37% Drilling & Completion Tubulars (OCTG) 9% |
 5 By Product Line Revenue by Geography and Product Line 10% 15% 23% 25% 27% Canada Asia / Europe Eastern Western Gulf Coast 32% 21% 20% 18% 9% Valves Fittings & Flanges Line Pipe General Oilfield Products OCTG Note: Percentage of sales for the twelve ended March 31, 2015 By Geography 21% 18% Houston, TX Edmonton, AB Bradford, UK Singapore Perth, AU Stavanger, NO Diversified Across Multiple Geographies - Domestically (all shale plays) and Internationally 20% 9% 32% |
 6 Downstream Midstream Upstream MRC Global plays a vital role in the complex, technical, global energy supply chain
Long-Term Supplier & Customer Relationships
CUSTOMERS
SUPPLIERS
IOCs Phillips 66 Valero DOW DuPont Marathon Petroleum AGL Resources Atmos NiSource PG&E MarkWest DCP Midstream Chesapeake Energy CNRL ConocoPhillips Apache Anadarko California Resources Corporation Hess Husky Energy Marathon Oil Statoil Energy Carbon Steel Tubular Products Valves Fittings, Flanges and General Use Products Tenaris TMK- IPSCO U.S. Steel CSI Tubular JMC Wheatland Balon Cameron Flowserve Kitz Neway Velan Boltex Bonney Forge Chevron Phillips Chemical Tube Forgings of America WL Plastics Emerson Williams |
 7 Integrated Supply Statistics • Supplying Integrated Supply services since 1988
• Accounts for sales in excess of $830 million and growing rapidly • Employ over 190 personnel at customer
sites •
Providing Integration Services on over
100 customer sites •
Managing over 1.4 million customer part numbers • Consignment inventories in excess of $35 million at 700
locations • Manage customer-owned point of use materials at over 800 locations MRC Global is a leading provider of Integrated Supply Services to the Energy Industry |
 8 Strategic Objectives Rebalance Product Mix to Higher Margin Items • Focus on valves and valve automation Growth from Mergers & Acquisitions • Continue to identify geographic and product line opportunities 1. Percentage of sales for the twelve months ended March 31, 2015 Organic Growth • Targeted Growth Accounts: develop the “next 75” customers 30% 22% 48% All Other -
21,000+ customers Targeted Growth Accounts Top 1 - 25 Customer Mix - Sales 1 • Focus on multi-year “Top 25” MRO agreements & adding scope to current agreements Execute Global Preferred Supplier Contracts • Recently added or renewed: • MarkWest – U.S. midstream MRO, 5 years • Statoil – Norway, Johan Sverdrup project, instrumentation • Marathon Oil – U.S. MRO, 5 years • California Resources Corporation – U.S. Integrated Supply, 3 years • TECO Energy’s People’s Gas & New Mexico Gas – U.S. Integrated Supply, 5 years • SABIC – Saudi Arabia, downstream valve framework agreement, 5 years |
  9 Strategic Shift in Product Mix to Higher Margin Products ($ millions) Total Revenue less Carbon Energy Tubulars (OCTG & Line Pipe) 15% CAGR for Higher Margin Products 2010 - 2014 $2,384 $2,989 $3,697 $3,705 $4,238 2010 2011 2012 2013 2014 |
 10 Product Mix Shift from 2008 to 2014 • Stable, higher margin valves are a larger percentage of revenue. • More volatile carbon pipe is a smaller percentage of revenue. • The prices of higher margin products are more stable. 2008 71% Higher Margin Products 29% Carbon Pipe 2014 Note: Percentage of sales for the year ended December 31, 2008 and December 31, 2014
OCTG 24% Line Pipe 21% Valves 15% Fittings & Flanges 18% General Oilfield Products 22% 55% Higher Margin Products 45% Carbon Pipe OCTG 10% Line Pipe 19% Valves 32% Fittings & Flanges 21% General Oilfield Products 18% |
 11 • Inflation impacted both OCTG and LP in 2008…resulting in a significant reduction in prices in 2009. • Today, prices are lower and have less to fall in a downturn. Line Pipe Prices OCTG Prices $3,242 $1,675 $1,786 $1,487 Peak 2008 Trough 2009 Peak 2014 Apr-15 48% $3,036 $1,614 $1,643 $1,486 Peak 2008 Trough 2009 Peak 2014 Apr-15 47% Carbon Steel Prices in 2008/2009 as Compared to Today Note: Prices are per ton as reported in published market data. Amounts reflect peak prices in September 2008, trough prices in November 2009. 2014 peak prices for OCTG are from November and Line Pipe from August. 17% 10% |
 12 Strategic Expansion into Offshore Production Platform MRO • Top 4 largest offshore markets ~$140 billion E&P spend • Norway is the largest – we are positioned in 4 of the 5 largest offshore markets. • MRC Global revenue mix • Pre Stream acquisition (2013) – approx. 98% onshore, 2% offshore • Post Stream acquisition (2014) – approx. 93% onshore, 7% offshore $38 $36 $35 $32 $24 $20 $17 $16 $16 $15 Norway United Kingdom USA Brazil Australia Angola Nigeria Kingdom of Saudi Arabia Malaysia Mexico Top 10 Global Offshore E&P Markets 1 1. Source: Rystad Energy, September 2014 ($ billions) Stream 2014 Sales by Division Valve Management 37% Instrumentation 38% Pipe, Fittings & Flanges 25% |
 13 Building an International Platform for Growth $0 $52 $256 $330 $567 $554 $873 2008 2009 2010 2011 2012 2013 2014 International Segment Revenue ($ millions) North America Estimated PVF Spend ~$25B Estimated Percentage of PVF Spend 1 International Estimated PVF Spend ~$20B 1. Estimated percentages are management estimates based on 2014 results. All Others 80% MRC Global 20% ~$5.0B All Others 95% MRC Global 5% ~$900M |
 14 Financial Overview |
 15 $663 $850 $1,058 $1,009 $1,120 $254 $241 2010 2011 2012 2013 2014 2014 2015 Financial Metrics Sales Adjusted Gross Profit and % Margin Adjusted EBITDA and % Margin 7.0% 8.5% ($ millions, except per share data) Y-o-Y Growth 28% 24% (5%) 11% Y-o-Y Growth 61% 29% (17%) 10% $3,846 $4,832 $5,571 $5,231 $5,933 $1,306 $1,292 2010 2011 2012 2013 2014 2014 2015 $224 $360 $463 $386 $424 $84 $87 2010 2011 2012 2013 2014 2014 2015 5.8% 7.5% 8.3% 7.4% 7.1% 6.4% 6.7% Y-o-Y Growth 26% 15% (6%) 13% Diluted EPS $(0.61) $0.34 $1.22 $1.48 $1.40 $0.23 $0.28 2010 2011 2012 2013 2014 2014 2015 Y-o-Y Growth 156% 259% 21% (5%) 17.2% 17.6% 19.0% 19.3% 18.9% 19.5% 18.6% Three months ended March 31 Three months ended March 31 Three months ended March 31 Three months ended March 31 |
 Balance Sheet Metrics Total Debt Capital Structure Cash Flow from Operations Net Leverage ($ millions) March 31, 2015 Pro forma March 31, 2015 Cash and Cash Equivalents $ 49 $ 49 Total Debt (including current portion): Term Loan B due 2019, net of discount 778 528 Global ABL Facility due 2019 595 482 Total Debt $ 1,373 $ 1,010 Preferred stock - 363 Common Stock 1,375 1,375 Total Capitalization $ 2,748 $ 2,748 Liquidity $ 436 $ 549 5.8x 4.1x 2.5x 2.6x 3.4x 2.4x – 2.8x 3.1x 2010 2011 2012 2013 2014 2015E 03/31/15 $113 $(103) $240 $324 $(106) $350 - $450 $(74) $116 2010 2011 2012 2013 2014 2015E 2014 2015 $1,360 $1,527 $1,257 $987 $1,454 $690 - $790 $1,373 2010 2011 2012 2013 2014 2015E 03/31/15 Three months ended March 31 NOTE: 2015E and pro forma March 31, 2015 amounts assume the gross proceeds from the $363 million convertible preferred stock issuance, which is expected to close in the second quarter, are used to reduce debt. Related expenses are not considered. Total Debt is reduced by previously disclosed $300-$400 million in cash generated from operations in addition to the proceeds from the convertible preferred stock. It is assumed that the Term Loan B is reduced by $250 million and the Global ABL is reduced by $113 million. The actual amount repaid to each of
the Term Loan B and the Global ABL may vary. The Net Leverage ratio is
calculated assuming $49 million in cash and using a denominator of $267 million, which is 2015 EBITDA consensus, as per Bloomberg on June 2, 2015. 16 |
 17 Summary of Key Terms - Convertible Preferred Stock • Conversion price: $17.88. Convertible into approximately 20.3 million shares or 16.6% of
shares outstanding after conversion.
•
6.5% annual dividend, payable quarterly
•
Entitled to vote as a single class on an as-converted basis
•
MRC may redeem for cash all the outstanding shares on or after 5 years at 105% or
100% after 7 years.
•
MRC may force conversion after 54 months, if the common share price has been at least
150% of the conversion price for any 20 out of 30 consecutive trading
days. •
The holder has the right to appoint a non-voting observer to the board as long as
33% of the original investment percentage is maintained. After 3 years,
the holder may designate a board member.
•
Standstill requirements including restrictions on acquiring additional
shares |
 18 Current 2015 Outlook – Updated May 2015 • Upstream market indicators – North American E&P capital expenditure budgets down 30 - 35%, with Canada impacted the most – International spending is expected to be 10-20% lower – US rig count down approximately 1,050 from peak in 2014 • Commodities – WTI Oil price $55 - $65/bbl (Brent $60 - $70) – US Natural Gas prices $2.25-$3.25/mcf • Expect to generate $350-$450 million of cash from operations • Free cash flow to be used to reduce debt • Cost saving measures undertaken – Headcount reduction – Lower incentive compensation – Salary and hiring freezes • Revenue headwinds $100 million or more related to currency • Potential deflation in tubular products 10% - 20% |
  19 Macro drivers • Growth in global energy consumption driving investment • Increased global production • Need for additional energy infrastructure • Expansion of downstream energy conversion businesses Investment Thesis Highlights Leading global PVF distributor to the energy sector MRC Global attributes • Market leader • Exposed to all sectors of global energy • Long term global customer & supplier relationships • Generates strong cash flow from operations over the cycle |
 20 Appendix |
 MRC Global // North America Corporate Headquarters Branch Locations Regional Distribution Centers Valve Automation Centers Western Gulf Coast Canada Eastern 21 |
 Global Footprint to Serve Customers - North America Munster, IN Nitro, WV Tulsa, OK Houston, TX Nisku, AB Cheyenne, WY Odessa, TX Bakersfield, CA By the Numbers As of 3/31/2015 Branches 160+ RDCs 10 VACs 14 Employees ~3,300 Pittsburg, PA Regional Distribution Centers Corporate Headquarters Valve Automation Centers Branch Locations San Antonio, TX 22 |
 Global Footprint to Serve Customers - Europe Stavanger, NO By the Numbers As of 3/31/2015 Branches 35 RDCs 3 VACs 14 Countries 12 Employees ~900 Rotterdam, NL Bradford, UK Regional Distribution Centers Valve Automation Centers Branch Locations 23 |
 Global Footprint to Serve Customers - Asia Pacific & Middle East Singapore Perth, WA Brisbane, QLD Dubai, UAE By the Numbers As of 3/31/2015 Branches 28 RDCs 4 VACs 7 Countries 8 Employees ~500 Regional Distribution Centers Valve Automation Centers Branch Locations 24 |
 25 Date Acquisition Rationale Region Revenue ($ millions) Oct-08 LaBarge Midstream U.S. $ 233 Oct-09 Transmark International valve platform Europe and Asia 346 May-10 South Texas Supply Domestic shale Eagle Ford Shale - South Texas 9 Aug-10 Dresser Oil Tools Supply Domestic shale Bakken Shale - North Dakota 13 Jun-11 Stainless Pipe and Fittings Projects Australia / SE Asia 91 Jul-11 Valve Systems and Controls Valve automation U.S. Gulf of Mexico 13 Mar-12 OneSteel Piping Systems International PVF expansion Australia 174 Jun-12 Chaparral Supply Domestic shale Mississippian Lime - Oklahoma / Kansas 71 Dec-12 Production Specialty Services Domestic shale Permian Basin / Eagle Ford shale 127 Jul-13 Flow Control Products Valve automation Permian Basin / Eagle Ford shale 28 Dec-13 Flangefitt Stainless Stainless/Alloys United Kingdom 24 Jan-14 Stream International Offshore PVF Norway 271 May-14 MSD Engineering Valve automation Singapore & SE Asia 26 Jun-14 HypTeck International Offshore Norway 38 1. Reflects reported revenues for the year of acquisition or 2013 for Stream, MSD and HypTeck.
M&A -
Track Record of Strategic Acquisitions
Acquisition Priorities • International branch platform for “super majors” E&P spend • Branch platforms/infrastructure for North American shale plays • Global valve and valve automation • Global stainless/alloys 1 $ 1.46 Billion + |
 Upstream 26 |
 Midstream 27 |
 Downstream 28 |
 29 Performance Measures $1,043 $1,234 $1,255 $1,054 $1,181 2010 2011 2012 2013 2014 $180 $217 $238 $203 $223 2010 2011 2012 2013 2014 Sales per Employee ($ thousands) Adjusted Gross Profit per Employee ($ thousands) 23.0% 19.8% 20.4% 21.8% 21.3% 2010 2011 2012 2013 2014 11.7% 10.6% 10.9% 12.3% 12.1% 2010 2011 2012 2013 2014 SG&A / Sales Average Working Capital / Sales 1.9% 6.1% 10.9% 8.4% 7.0% 2010 2011 2012 2013 2014 Return on Average Net Capital Employed (RANCE) 1. Calculated based on average number of employees 2. RANCE is defined as Pretax income for the year plus Interest expense and related financing charges, multiplied by 1, minus our effective tax rate, and the denominator is average net capital employed for the year. Net capital employed is defined as Total assets minus Current liabilities plus Other long-
term liabilities. 1 1 2 |
 30 Adjusted EBITDA Reconciliation Three months ended March Year Ended December 31 ($ millions) 2015 2014 2014 2013 2012 2011 2010 Net income $29.1 $ 23.5 $ 144.1 $ 152.1 $ 118.0 $ 29.0 $ (51.8) Income tax expense 13.1 13.2 81.8 84.8 63.7 26.8 (23.4) Interest expense 14.6 15.1 61.8 60.7 112.5 136.8 139.6 Depreciation and amortization 5.1 5.2 22.5 22.3 18.6 17.0 16.6 Amortization of intangibles 15.9 15.7 67.8 52.1 49.5 50.7 53.9 Increase (decrease) in LIFO reserve (0.2) 1.3 11.9 (20.2) (24.1) 73.7 74.6 Expenses associated with refinancing - - - 5.1 1.7 9.5 - Loss on early extinguishment of debt - - - - 114.0 - - Change in fair value of derivative instruments 0.7 3.6 1.1 (4.7) (2.2) (7.0) 4.9 Equity-based compensation expense 2.5 1.8 8.9 15.5 8.5 8.4 3.7 Inventory write-down - - - - - - 0.4 M&A transaction & integration expenses - - - - - 0.5 1.4 Severance & related costs 1.8 - 7.5 0.8 - 1.1 3.2 Loss on sale of Canadian progressive cavity pump business - 6.2 6.2 - - - - Loss on disposition of rolled and welded business - - 4.1 - - - - Cancellation of executive employment agreement (cash portion) - - 3.2 - - - - Insurance charge - - - 2.0 - - - Foreign currency losses (gains) 4.1 (1.6) 2.5 12.9 (0.8) (0.6) 0.3 Pension settlement - - - - 4.4 - - Legal and consulting expenses - - - - - 9.9 4.2 Provision for uncollectible accounts - - - - - 0.4 (2.0) Joint venture termination - - - - - 1.7 - Other expense (income) - - 0.6 3.0 (0.6) 2.6 (1.4) Adjusted EBITDA 86.7 $ 84.0 $ 424.0 $ 386.4 $ 463.2 $ 360.5 $ 224.2 |
 31 Adjusted Gross Profit Reconciliation Three months ended March 31 Year ended December 31 ($ millions) 2015 2014 2014 2013 2012 2011 2010 Gross profit $219.9 $ 232.1 $ 1,018.1 $ 954.8 $ 1,013.7 $ 708.2 $ 518.1 Depreciation and amortization 5.1 5.2 22.5 22.3 18.6 17.0 16.6 Amortization of intangibles 15.9 15.7 67.8 52.1 49.5 50.7 53.9 Increase (decrease) in LIFO reserve (0.2) 1.3 11.9 (20.2) (24.1) 73.7 74.6 Adjusted Gross Profit $240.7 $254.3 $ 1,120.3 $ 1,009.0 $ 1,057.7 $ 849.6 $ 663.2 |