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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) |
Including Area Code, of Agent for Service)
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 |
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | Smaller reporting company o |
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. |
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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. |
Per Share | Total | |||||||
Initial public offering price | $ | $ | ||||||
Underwriting discount | $ | $ | ||||||
Proceeds, before expenses, to the selling stockholder | $ | $ |
Goldman, Sachs & Co. | Lehman Brothers |
JPMorgan | Deutsche Bank Securities |
Robert W. Baird & Co. | Credit Suisse | Stephens Inc. |
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EX-2.1 | ||||||||
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EX-10.18 | ||||||||
EX-10.18.1 | ||||||||
EX-10.19 | ||||||||
EX-10.19.1 | ||||||||
EX-10.19.2 | ||||||||
EX-10.20 | ||||||||
EX-10.21 | ||||||||
EX-10.22 | ||||||||
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EX-10.22.2 | ||||||||
EX-10.23 | ||||||||
EX-10.24 | ||||||||
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EX-10.28 | ||||||||
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EX-10.30 | ||||||||
EX-10.31 | ||||||||
EX-16 | ||||||||
EX-21.1 | ||||||||
EX-23.1 | ||||||||
EX-23.2 | ||||||||
EX-23.3 |
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• | 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 scaleand/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. |
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* | 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 139 for information regarding the amount of offering proceeds to be distributed to each of our directors and executive officers. |
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Issuer | McJunkin Red Man Holding Corporation. | |
Common stock offered by the selling stockholder | shares. | |
Option to purchase additional shares of common stock from the selling stockholder | shares. | |
Common stock outstanding immediately after the offering | shares. | |
Use of proceeds | The proceeds from the sale of shares of our common stock in the offering are solely for the account of PVF Holdings LLC, the selling stockholder. We will not receive any proceeds from the sale of our common stock by the selling stockholder. See “Use of Proceeds”. PVF Holdings LLC intends to distribute the net proceeds of this offering, after giving effect to the underwriting discount, to its members, which include certain members of our board of directors and senior management team and various of their affiliates. See “Principal and Selling Stockholders” and “Underwriting”. Additionally, affiliates of Goldman, Sachs & Co. own a majority interest in PVF Holdings LLC. Accordingly, such affiliates will receive a significant portion of the proceeds from this offering. See “Underwriting”. | |
Proposed New York Stock Exchange symbol | “MRC”. |
Risk Factors | See “Risk Factors” beginning on page 18 of this prospectus for a discussion of factors that you should carefully consider before deciding to invest in shares of our common |
• | gives effect to a for split of our common stock to be effected prior to the pricing of this offering; | |
• | excludes shares of common stock issuable upon the exercise of stock options granted to certain of our employees and directors pursuant to the McJ Holding Corporation 2007 Stock Option Plan; and | |
• | excludes shares of non-vested restricted stock awarded to certain of our employees pursuant to the McJ Holding Corporation 2007 Restricted Stock Plan. |
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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 | 5.4 | 5.2 | |||||||||||||||
Amortization of intangibles(1) | — | 4.6 | 12.3 | 15.6 | |||||||||||||||
Profit sharing | 1.3 | 5.6 | 11.3 | 13.5 | |||||||||||||||
Stock-based compensation | — | 1.3 | 2.3 | 3.3 | |||||||||||||||
Total costs and expenses | 130.8 | 729.8 | 1,730.4 | 2,041.5 | |||||||||||||||
Operating income | 11.7 | 55.1 | 131.7 | 154.5 | |||||||||||||||
Other income (expense) | |||||||||||||||||||
Interest expense | (0.1 | ) | (24.3 | ) | (30.4 | ) | (35.0 | ) | |||||||||||
Minority interests | (0.4 | ) | — | (0.1 | ) | (0.1 | ) | ||||||||||||
Other, net | — | (0.9 | ) | (0.7 | ) | (0.3 | ) | ||||||||||||
Total other income (expense) | (0.5 | ) | (25.2 | ) | (31.2 | ) | (35.4 | ) | |||||||||||
Income before income taxes | 11.2 | 29.9 | 100.5 | 119.1 | |||||||||||||||
Income tax expense | 4.6 | 12.3 | 37.7 | 43.2 | |||||||||||||||
Net income(2) | $ | 6.6 | $ | 17.6 | $ | 62.8 | $ | 75.9 | |||||||||||
Pro forma earnings per share, basic | |||||||||||||||||||
Pro forma earnings per share, diluted | |||||||||||||||||||
Pro forma weighted average shares, basic | |||||||||||||||||||
Pro forma weighted average shares, diluted | |||||||||||||||||||
Other Financial Data: | |||||||||||||||||||
Net cash provided by (used in) operating activities | $ | 6.6 | $ | 1.9 | — | $ | 70.5 | ||||||||||||
Net cash provided by (used in) investing activities | (0.2 | ) | (933.3 | ) | — | (16.4 | ) | ||||||||||||
Net cash provided by (used in) financing activities | (8.3 | ) | 945.9 | — | (55.2 | ) | |||||||||||||
Adjusted EBITDA(3) | 26.0 | 151.3 | 163.4 | 249.9 |
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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 | 10.8 | |||||||||||||||||
Amortization of intangibles | 0.3 | 0.3 | — | 10.5 | (1) | 24.6 | (1) | |||||||||||||||
Profit sharing | 13.1 | 15.1 | 1.3 | 13.2 | 13.5 | |||||||||||||||||
Stock-based compensation | — | — | — | 3.0 | 2.9 | |||||||||||||||||
Total costs and expenses | 1,349.9 | 1,587.5 | 130.8 | 1,968.6 | 3,646.7 | |||||||||||||||||
Operating income | 95.9 | 126.2 | 11.7 | 156.3 | 306.0 | |||||||||||||||||
Other income (expense) | ||||||||||||||||||||||
Interest expense | (2.7 | ) | (2.8 | ) | (0.1 | ) | (61.7 | ) | (60.8 | ) | ||||||||||||
Minority interests | (2.8 | ) | (4.1 | ) | (0.4 | ) | (0.1 | ) | 0.0 | |||||||||||||
Other, net | (1.3 | ) | (1.4 | ) | — | (1.1 | ) | (3.9 | ) | |||||||||||||
Total other income (expense) | (6.8 | ) | (8.3 | ) | (0.5 | ) | (62.9 | ) | (64.7 | ) | ||||||||||||
Income before income taxes | 89.1 | 117.9 | 11.2 | 93.4 | 241.3 | |||||||||||||||||
Income tax expense | 36.6 | 48.3 | 4.6 | 36.5 | 90.5 | |||||||||||||||||
Net income(2) | $ | 52.5 | $ | 69.6 | $ | 6.6 | $ | 56.9 | $ | 150.8 | ||||||||||||
Pro forma earnings per share, basic | ||||||||||||||||||||||
Pro forma earnings per share, diluted | ||||||||||||||||||||||
Pro forma weighted average shares, basic | ||||||||||||||||||||||
Pro forma weighted average shares, diluted | ||||||||||||||||||||||
Other Financial Data: | ||||||||||||||||||||||
Net cash provided by operating activities | $ | 30.4 | $ | 18.4 | $ | 6.6 | $ | 110.2 | — | |||||||||||||
Net cash (used in) investing activities | (6.7 | ) | (3.3 | ) | (0.2 | ) | (1,788.9 | ) | — | |||||||||||||
Net cash (used in) provided by financing activities | (21.1 | ) | (17.2 | ) | (8.3 | ) | 1,687.2 | — | ||||||||||||||
Adjusted EBITDA(3) | 115.6 | 139.1 | 26.0 | 344.9 | 370.4 |
Predecessor | Successor | ||||||||||||||||||||
Actual | As Adjusted(4) | ||||||||||||||||||||
December 31, | December 31, | December 31, | June 26, | June 26, | |||||||||||||||||
2005 | 2006 | 2007 | 2008 | 2008 | |||||||||||||||||
(In millions) | |||||||||||||||||||||
Balance Sheet Data: | |||||||||||||||||||||
Cash and cash equivalents | $ | 5.9 | $ | 3.7 | $ | 10.1 | $ | 8.8 | $ | 8.8 | |||||||||||
Working capital | 129.0 | 212.3 | 663.5 | 686.1 | 686.1 | ||||||||||||||||
Total assets | 434.0 | 481.0 | 2,925.0 | 3,294.3 | 3,294.3 | ||||||||||||||||
Total debt, including current portion | 3.1 | 13.0 | 868.4 | 1,284.7 | 1,390.1 | ||||||||||||||||
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 |
(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. |
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(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 | $ | 150.8 | $ | 17.6 | $ | 62.8 | $ | 75.9 | ||||||||||||||||
Plus: | ||||||||||||||||||||||||||||||||
Interest expense | 2.7 | 2.8 | 0.1 | 61.7 | 60.8 | 24.3 | 30.4 | 35.0 | ||||||||||||||||||||||||
Income tax expense | 36.6 | 48.3 | 4.6 | 36.5 | 90.5 | 12.3 | 37.7 | 43.2 | ||||||||||||||||||||||||
Amortization of intangibles | 0.3 | 0.3 | — | 10.5 | 24.6 | 4.6 | 12.3 | 15.6 | ||||||||||||||||||||||||
Depreciation and amortization | 3.7 | 3.9 | 0.3 | 5.4 | 10.8 | 1.7 | 5.4 | 5.2 | ||||||||||||||||||||||||
Stock-based compensation | — | — | — | 3.0 | 2.9 | 1.3 | 2.3 | 3.3 | ||||||||||||||||||||||||
Red Man pre-merger contribution | — | — | 13.1 | 142.2 | — | 74.5 | — | — | ||||||||||||||||||||||||
Midway pre-acquisition contribution | — | — | 1.0 | 2.8 | 3.8 | 2.8 | — | — | ||||||||||||||||||||||||
LIFO expense | 20.2 | 12.2 | — | 10.3 | 10.3 | 3.0 | 3.0 | 55.6 | ||||||||||||||||||||||||
Non-recurring and transaction-related expenses(a) | — | 0.4 | — | 12.7 | 12.7 | 9.1 | 9.1 | 11.9 | ||||||||||||||||||||||||
Minority interest / Midfield employee profit sharing plan | — | — | 0.4 | 0.9 | 1.3 | — | 0.4 | 3.1 | ||||||||||||||||||||||||
Transaction cost savings | — | — | — | 1.1 | 1.1 | — | — | — | ||||||||||||||||||||||||
Other(b) | (0.4 | ) | 1.6 | (0.1 | ) | 0.9 | 0.8 | 0.1 | — | 1.1 | ||||||||||||||||||||||
Adjusted EBITDA | $ | 115.6 | $ | 139.1 | $ | 26.0 | $ | 344.9 | $ | 370.4 | $ | 151.3 | $ | 163.4 | $ | 249.9 |
(a) | Includes transaction costs associated with the GS Acquisition, our acquisition of Midway-Tristate Corporation, and the Red Man Transaction. | |
(b) | Includes franchise tax expense, certain consulting fees, gains and losses on the sale of assets and other nonrecurring items. |
(4)Adjusted to give effect (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 tooffering-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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• | 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; | |
• | the economicand/or political attractiveness of alternative fuels, such as coal, hydrocarbon, wind, solar energy and biomass-based fuels; |
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• | increases in oil and gas pricesand/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. |
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• | 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. |
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• | 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. |
• | 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; |
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• | 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. |
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• | fund our operations; | |
• | finance investments in equipment and infrastructure needed to maintain and expand our distribution capabilities; |
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• | enhance and expand the range of products we offer; and | |
• | respond to potential strategic opportunities, such as investments, acquisitions and international expansion. |
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• | 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. |
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• | 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; | |
• | 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. |
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• | 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. |
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• | 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. |
June 26, 2008 | ||||||||
Actual | As Adjusted | |||||||
(in millions) | ||||||||
Cash and cash equivalents | $ | 8.8 | $ | |||||
Debt (including current portion): | ||||||||
Senior secured revolving credit facility(1) | 204.4 | |||||||
Senior secured term loan facility | 567.8 | |||||||
Junior term loan facility | 450.0 | |||||||
Midfield revolving credit facility(2) | 51.7 | |||||||
Midfield term loan facility | 9.8 | |||||||
Midfield notes payable | 1.0 | |||||||
Total debt before Midfield shareholder loans | 1,284.7 | |||||||
Midfield shareholder loans(3) | 29.1 | |||||||
Total debt | 1,313.8 | |||||||
Minority interest in subsidiaries(3) | ||||||||
Stockholders’ equity: | ||||||||
Common stock, $0.01 par value per share; shares authorized, shares issued and outstanding(4) | ||||||||
Preferred stock, $0.01 par value per share; no shares authorized, issued or outstanding, actual; shares authorized; no shares issued and outstanding as adjusted | ||||||||
Additional paid-in capital | ||||||||
Total stockholders’ equity | 825.7 | |||||||
Total capitalization | $ | $ | ||||||
(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. |
(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 $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 |
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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. 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. |
(4) | The number of shares of common stock outstanding on an actual and as adjusted basis: |
• | excludes 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 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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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). |
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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 | $ | 171.69 | $ | 245.41 | |||||||
Earnings per share, diluted | 376.70 | 171.36 | 244.92 | ||||||||||
Weighted average shares, basic | 17,510 | 102,594 | 309,421 | ||||||||||
Weighted average shares, diluted | 17,510 | 102,792 | 310,034 | ||||||||||
Pro forma earnings per share, basic | |||||||||||||
Pro forma earnings per share, diluted | |||||||||||||
Pro forma weighted average shares, basic | |||||||||||||
Pro forma weighted average shares, diluted | |||||||||||||
Dividends per common share | $ | — | $ | — | $ | 1,523 | |||||||
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 | — | — | |||||||||||||||
Earnings per share — Class A, diluted | $ | 2,994.24 | $ | 2,960.24 | $ | 2,952.12 | $ | 3,972.08 | — | — | |||||||||||||||
Weighted average shares — Class A, basic | 16,940 | 16,940 | 16,940 | 16,940 | — | — | |||||||||||||||||||
Weighted average shares — Class A, diluted | 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 | — | — | |||||||||||||||
Earnings per share — Class B, diluted | $ | 3,190.49 | $ | 4,200.98 | $ | 4,442.12 | $ | 4,012.08 | — | — | |||||||||||||||
Weighted average shares — Class B, basic | 570 | 570 | 570 | 570 | — | — | |||||||||||||||||||
Weighted average shares — Class B, diluted | 570 | 570 | 570 | 570 | — | — | |||||||||||||||||||
Earnings per share, basic | — | — | $ | 376.70 | $ | 410.64 | |||||||||||||||||||
Earnings per share, diluted | — | — | $ | 376.70 | $ | 409.84 | |||||||||||||||||||
Weighted average shares, basic | — | — | 17,510 | 138,627 | |||||||||||||||||||||
Weighted average shares, diluted | — | — | 17,510 | 138,899 | |||||||||||||||||||||
Pro forma earnings per share, basic | |||||||||||||||||||||||||
Pro forma earnings per share, diluted | |||||||||||||||||||||||||
Pro forma weighted average shares, basic | |||||||||||||||||||||||||
Pro forma weighted average shares, diluted | |||||||||||||||||||||||||
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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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 | 0.6 | (a) | 5.4 | ||||||||||||||||||
Amortization of intangibles | — | 4.6 | 1.6 | 6.1 | (b) | 12.3 | ||||||||||||||||||
Profit sharing | 1.3 | 5.6 | 4.4 | 11.3 | ||||||||||||||||||||
Stock-based compensation | — | 1.3 | 1.0 | 1.0 | (c) | 3.3 | ||||||||||||||||||
Total costs and expenses | 130.8 | 729.8 | 863.1 | 7.7 | 1,731.4 | |||||||||||||||||||
Operating income | 11.7 | 55.1 | 71.6 | (7.7 | ) | 130.7 | ||||||||||||||||||
Other income (expense) | ||||||||||||||||||||||||
Interest expense | (0.1 | ) | (24.3 | ) | (9.1 | ) | 3.1 | (d) | (30.4 | ) | ||||||||||||||
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 | ) | 3.5 | (31.2 | ) | |||||||||||||||
Income before income taxes | 11.2 | 29.9 | 62.6 | (4.2 | ) | 99.5 | ||||||||||||||||||
Income tax expense | 4.6 | 12.3 | 23.4 | (3.1 | )(f) | 37.7 | ||||||||||||||||||
Net income | $ | 6.6 | $ | 17.6 | $ | 39.2 | $ | (1.4 | ) | $ | 61.8 | |||||||||||||
Earnings per share, basic | $ | 376.70 | $ | 171.69 | $ | 220.22 | — | — | ||||||||||||||||
Earnings per share, diluted | 376.70 | 171.36 | 220.22 | — | — | |||||||||||||||||||
Weighted average shares, basic | 17,510 | 102,594 | 178,000 | — | — | |||||||||||||||||||
Weighted average shares, diluted | 17,510 | 102,792 | 178,000 | — | — | |||||||||||||||||||
Pro forma earnings per share, basic | ||||||||||||||||||||||||
Pro forma earnings per share, diluted | ||||||||||||||||||||||||
Pro forma weighted average shares, basic(g) | ||||||||||||||||||||||||
Pro forma weighted average shares, diluted(g) |
(a) | Reflects the increase 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 $2.5 million, and six months of depreciation for the assets acquired in the Red Man Transaction would have equated to $2.9 million. Therefore, the pro forma adjustment includes a $544,000 increase in depreciation in connection with the revaluation of property, plant and equipment acquired in the GS Acquisition, and a $80,000 increase in depreciation in connection with the revaluation of property, plant and equipment acquired in the Red Man Transaction, for an adjustment of $624,000 overall. |
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Fair Value of Fixed Assets Acquired in the GS Acquisition | ||||||||
Asset Description | Fair Value | Average Life | ||||||
(in millions) | ||||||||
Land | $ | 5.0 | ||||||
Buildings and improvements | 10.1 | 40 | ||||||
Machinery, shop equipment, and vehicles | 15.7 | 5 | ||||||
Furniture, fixtures, and office equipment | 2.9 | 3 |
Fair Value of Fixed Assets Acquired in the Red Man Transaction | ||||||||
Asset Description | Fair Value | Average Life | ||||||
(in millions) | ||||||||
Land | $ | 1.3 | ||||||
Buildings and improvements | 3.2 | 40 | ||||||
Machinery, shop equipment, and vehicles | 4.4 | 8 | ||||||
Furniture, fixtures, and office equipment | 6.1 | 3 |
(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 $5.3 million, and the six month amortization expense for the assets related to the Red Man Transaction is $6.9 million. Therefore the pro forma adjustment includes a $707,500 increase in the amortization of intangibles in connection with the assets acquired in the GS Acquisition, and a $5,371,000 increase in amortization of intangibles in connection with the assets acquired in the Red Man Transaction, for an adjustment of $6,078,500 overall. |
GS Acquisition-related Amortizable Intangibles | ||||||||||||
Amortizable Intangible | Value | Estimated Life (in Years) | ||||||||||
(in millions) | ||||||||||||
Backlog | $ | 1.6 | 1 | |||||||||
Customer Base | 356.0 | 40 | ||||||||||
Non-Compete Agreements | 1.0 | 5 |
Red Man Transaction-related Amortizable Intangibles | ||||||||||||
Amortizable Intangible | Value | Estimated Life (in Years) | ||||||||||
(in millions) | ||||||||||||
Red Man Backlog | $ | 2.0 | 1 | |||||||||
Red Man Customer Base | 229.0 | 17 |
(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. A Black-Scholes option pricing model was used to estimate the fair value of the stock options granted in 2007. For purposes of measuring compensation, we relied on a calculated value that requires certain assumptions including the volatility based on the appropriate industry sector. For a discussion of these assumptions, see Note 9 to our historical financial statements for the eleven months ended December 31, 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. |
(d) | Reflects the interest expense for (1) interest resulting from our entering into our $575 million term loan facility and the $700 million revolving credit facility, as if we entered into these facilities on January 1, 2007 and (2) 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 $802 million. The total annual interest expense based on the assumptions described is $57.5 million, and the total for six months would be $28.5 million. The total adjustment to the pro forma financials for interest expense is a decrease of $3.3 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 $1,896,000. The total adjustment to the pro forma financials for deferred financing fees is an increase of $326,000. Actual interest expense may be higher or lower depending upon fluctuations in interest rates. A1/8% change in interest rates would have resulted in a $501,000 change in interest expense for the six-month period. No pro forma adjustment has been made to reflect an 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 this 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. |
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(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 beanti-dilutive. At June 28, 2007, the company’santi-dilutive stock options totaled 1,169. |
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 | ) | 0.2 | (a) | 10.8 | |||||||||||||||||||||
Amortization of intangibles | — | 10.5 | 3.7 | 10.4 | (b) | 24.6 | |||||||||||||||||||||||
Profit sharing | 1.3 | 13.2 | (1.0 | ) | 13.5 | ||||||||||||||||||||||||
Stock-based compensation | — | 2.9 | 3.7 | (c) | 6.6 | ||||||||||||||||||||||||
Total costs and expenses | 130.8 | 1,968.5 | 1,818.9 | (282.1 | ) | 14.6 | 3,650.4 | ||||||||||||||||||||||
Operating income | 11.7 | 156.4 | 163.1 | (14.6 | ) | (14.6 | ) | 302.3 | |||||||||||||||||||||
Other income (expense) | |||||||||||||||||||||||||||||
Interest expense | (0.1 | ) | (61.7 | ) | (20.6 | ) | 7.3 | 14.3 | (d) | (60.8 | ) | ||||||||||||||||||
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 | 14.7 | 64.7 | ||||||||||||||||||||
Income before income taxes | 11.2 | 93.5 | 139.8 | (7.3 | ) | 0.1 | 237.6 | ||||||||||||||||||||||
Income tax expense | 4.6 | 36.6 | 57.6 | (2.4 | ) | (7.3 | )(f) | 89.1 | |||||||||||||||||||||
Net income | $ | 6.6 | $ | 56.9 | $ | 82.2 | $ | (4.9 | ) | $ | 7.4 | $ | 148.5 | ||||||||||||||||
Earnings per share, basic | $ | 376.70 | $ | 410.64 | $ | 461.70 | — | — | — | ||||||||||||||||||||
Earnings per share, diluted | 376.70 | 409.84 | $ | 461.70 | — | — | — | ||||||||||||||||||||||
Weighted average shares, basic | 17,510 | 138,627 | 178,000 | — | — | — | |||||||||||||||||||||||
Weighted average shares, diluted | 17,510 | 138,899 | 178,000 | — | — | — | |||||||||||||||||||||||
Pro forma earnings per share, basic | |||||||||||||||||||||||||||||
Pro forma earnings per share, diluted | |||||||||||||||||||||||||||||
Pro forma weighted average shares, basic(g) | |||||||||||||||||||||||||||||
Pro forma weighted average shares, diluted(g) |
* | Represents actual amounts recorded by Red Man during the period; notransaction-related costs have been reversed. |
(a) | Reflects the increase 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 $5.1 million, and the full year of |
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depreciation for the assets acquired in the Red Man Transaction would have equated to $5.7 million. Therefore, the pro forma adjustment includes a $590,000 decrease in depreciation in connection with the revaluation of property, plant and equipment acquired in the GS Acquisition, and a $760,000 increase in depreciation in connection with the revaluation of property, plant and equipment acquired in the Red Man Transaction, for an adjustment of $170,000 overall. |
Fair Value of Fixed Assets Acquired in the GS Acquisition | ||||||||
Asset Description | Fair Value | Average Life | ||||||
(in millions) | ||||||||
Land | $ | 5.0 | ||||||
Buildings and improvements | 10.1 | 40 | ||||||
Machinery, shop equipment, and vehicles | 15.7 | 5 | ||||||
Furniture, fixtures, and office equipment | 2.9 | 3 |
Fair Value of Fixed Assets Acquired in the Red Man Transaction | ||||||||
Asset Description | Fair Value | Average Life | ||||||
(in millions) | ||||||||
Land | $ | 1.3 | ||||||
Buildings and improvements | 3.2 | 40 | ||||||
Machinery, shop equipment, and vehicles | 4.4 | 8 | ||||||
Furniture, fixtures, and office equipment | 6.1 | 3 |
(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 $13.9 million. Therefore, the pro forma adjustment includes a $190,000 increase in the amortization of intangibles in connection with the assets acquired in the GS Acquisition, and a $10,250,000 increase in amortization of intangibles in connection with the assets acquired in the Red Man Transaction, for an adjustment of $10,440,000 overall. |
GS Acquisition-related Amortizable Intangibles | ||||||||
Amortizable Intangible | Value | Estimated Life (in Years) | ||||||
(in millions) | ||||||||
Backlog | $ | 1.6 | 1 | |||||
Customer Base | 356.0 | 40 | ||||||
Non-Complete Agreements | 1.0 | 5 |
Red Man Transaction-related Amortizable Intangibles | ||||||||
Amortizable Intangible | Value | Estimated Life (in Years) | ||||||
(in millions) | ||||||||
Red Man Backlog | $ | 2.0 | 1 | |||||
Red Man Customer Base | 229.0 | 17 | ||||||
Midfield Customer Base | 31.4 | 13 |
(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. A Black-Scholes option pricing model was used to estimate the fair value of the stock options granted in 2007. For purposes of measuring compensation, we relied on a calculated value that requires certain assumptions including the volatility based on the appropriate industry sector. For a discussion of these assumptions, see Note 9 to our audited historical statements for the eleven months ended December 31, 2007 for these assumptions. 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. 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 $700 million revolving credit facility, as if we entered into these facilities on January 1, 2007 and (2) 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 $802 million. The total annual interest expense based on the assumptions described is $57.5 million. The total adjustment to the pro forma financials for interest expense is a decrease of $14.6 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 $3,792,000. The total adjustment to the pro forma financials for deferred financing fees is an increase of $338,000. Actual interest expense may be higher or lower depending upon fluctuations in interest rates. A1/8% change in interest rates would have resulted in a $1,002,000 change in interest expense for the twelve-month period. No pro forma adjustment has been made to reflect an increase in interest |
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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 this 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 beanti-dilutive. At December 31, 2007, the company’santi-dilutive stock options totaled 3,533. |
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OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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• | 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. |
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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 | % | ||||||||||||
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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 | % | ||||||||
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• | 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. |
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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 |
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(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. |
• | 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 |
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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; |
• | 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; |
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Predecessor | Successor | Pro Forma | Successor | Pro Forma | Successor | |||||||||||||||||||||||||||
Year | Year | One Month | Eleven Months | Year | Five Months | Six Months | Six Months | |||||||||||||||||||||||||
Ended | Ended | Ended | Ended | Ended | Ended | Ended | Ended | |||||||||||||||||||||||||
December 31, | December 31, | January 30, | December 31, | December 31, | June 28, | June 28, | June 26, | |||||||||||||||||||||||||
2005 | 2006 | 2007 | 2007 | 2007 | 2007 | 2007 | 2008 | |||||||||||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||||||
Net income | $ | 52.5 | $ | 69.6 | $ | 6.6 | $ | 56.9 | $ | 150.8 | $ | 17.6 | $ | 62.8 | $ | 75.9 | ||||||||||||||||
Plus: | ||||||||||||||||||||||||||||||||
Interest expense | 2.7 | 2.8 | 0.1 | 61.7 | 60.8 | 24.3 | 30.4 | 35.0 | ||||||||||||||||||||||||
Income tax expense | 36.6 | 48.3 | 4.6 | 36.5 | 90.5 | 12.3 | 37.7 | 43.2 | ||||||||||||||||||||||||
Amortization of intangibles | 0.3 | 0.3 | — | 10.5 | 24.6 | 4.6 | 12.3 | 15.6 | ||||||||||||||||||||||||
Depreciation and amortization | 3.7 | 3.9 | 0.3 | 5.4 | 10.8 | 1.7 | 5.4 | 5.2 | ||||||||||||||||||||||||
Stock-based compensation | — | — | — | 3.0 | 2.9 | 1.3 | 2.3 | 3.3 | ||||||||||||||||||||||||
Red Man pre-merger contribution | — | — | 13.1 | 142.2 | — | 74.5 | — | — | ||||||||||||||||||||||||
Midway pre-acquisition contribution | — | — | 1.0 | 2.8 | 3.8 | 2.8 | — | — | ||||||||||||||||||||||||
LIFO expense | 20.2 | 12.2 | — | 10.3 | 10.3 | 3.0 | 3.0 | 55.6 | ||||||||||||||||||||||||
Non-recurring and transaction-related expenses(a) | — | 0.4 | — | 12.7 | 12.7 | 9.1 | 9.1 | 11.9 | ||||||||||||||||||||||||
Minority interest / Midfield employee profit sharing plan | — | — | 0.4 | 0.9 | 1.3 | — | 0.4 | 3.1 | ||||||||||||||||||||||||
Transaction cost savings | — | — | — | 1.1 | 1.1 | — | — | — | ||||||||||||||||||||||||
Other(b) | (0.4 | ) | 1.6 | (0.1 | ) | 0.9 | 0.8 | 0.1 | — | 1.1 | ||||||||||||||||||||||
Adjusted EBITDA | $ | 115.6 | $ | 139.1 | $ | 26.0 | $ | 344.9 | $ | 370.4 | $ | 151.3 | $ | 163.4 | $ | 249.9 |
(a) | Includes transaction costs associated with the GS Acquisition, our acquisition of Midway-Tristate Corporation, and the Red Man Transaction. | |
(b) | Includes franchise tax expense, certain consulting fees, gains and losses on the sale of assets and other nonrecurring items. |
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• | a disposition of any of our or our restricted subsidiaries’ business units, assets or other property not in the ordinary course of business, subject to certain exceptions for permitted asset sales; | |
• | a casualty event with respect to collateral for which we or any of our restricted subsidiaries receives insurance proceeds, or proceeds of a condemnation award or other compensation; | |
• | the issuance or incurrence by us or any of our restricted subsidiaries of indebtedness, subject to certain exceptions; and | |
• | any sale-leaseback transaction permitted under the Junior Term Loan Facility. |
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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 | 4.75:1.00 | (a) | 2.50:1.00 | (b) | ||||
September 30, 2008 | 4.75:1.00 | 2.50:1.00 | ||||||
December 31, 2008 | 4.75:1.00 | 2.50:1.00 | ||||||
March 31, 2009 | 4.00:1.00 | 2.75:1.00 | ||||||
June 30, 2009 | 4.00:1.00 | 2.75:1.00 | ||||||
September 30, 2009 | 4.00:1.00 | 2.75:1.00 | ||||||
December 31, 2009 | 4.00:1.00 | 2.75:1.00 | ||||||
March 31, 2010 | 3.25:1.00 | 2.75:1.00 | ||||||
June 30, 2010 | 3.25:1.00 | 2.75:1.00 | ||||||
September 30, 2010 | 3.25:1.00 | 2.75:1.00 | ||||||
December 31, 2010 | 3.25:1.00 | 2.75:1.00 | ||||||
March 31, 2011 | 3.00:1.00 | 2.75:1.00 | ||||||
June 30, 2011 | 3.00:1.00 | 2.75:1.00 | ||||||
September 30, 2011 | 3.00:1.00 | 2.75:1.00 | ||||||
December 31, 2011 | 3.00:1.00 | 2.75:1.00 | ||||||
March 31, 2012 and thereafter | 3.00:1.00 | 3.00:1.00 |
(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. |
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Red Man Standalone | Predecessor | Successor | ||||||||||||||||||||||||||||||||||||
Eleven | Five | Six | ||||||||||||||||||||||||||||||||||||
Year | Year | Month | Months | Months | Months | |||||||||||||||||||||||||||||||||
Ended | Ended | Ended | Ended | Ended | Ended | |||||||||||||||||||||||||||||||||
October 31, | December 31, | January 30, | December 31, | June 28, | June 26, | |||||||||||||||||||||||||||||||||
2005 | 2006 | 2007 | 2005 | 2006 | 2007 | 2007 | 2007 | 2008 | ||||||||||||||||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||||||||
Net cash provided by (used in) | ||||||||||||||||||||||||||||||||||||||
Operating activities | $ | (11,419 | ) | $ | (56,459 | ) | $ | 102,284 | $ | 30,385 | $ | 18,352 | $ | 6,617 | $ | 110,226 | $ | 1,895 | $ | 70,497 | ||||||||||||||||||
Investing activities | (50,411 | ) | 3,497 | (12,510 | ) | (6,701 | ) | (3,262 | ) | (158 | ) | (1,788,920 | ) | (933,256 | ) | (16,437 | ) | |||||||||||||||||||||
Financing activities | 60,904 | 52,663 | (78,170 | ) | (21,084 | ) | (17,207 | ) | (8,254 | ) | 1,687,188 | 945,860 | (55,233 | ) | ||||||||||||||||||||||||
Effect of exchange rates on cash and cash equivalents | 18 | (161 | ) | 1,805 | — | — | — | (372 | ) | (141 | ) | |||||||||||||||||||||||||||
Net increase (decrease) in cash and cash equivalents | $ | (908 | ) | $ | (460 | ) | $ | 13,409 | $ | 2,600 | $ | (2,117 | ) | $ | (1,795 | ) | $ | 8,122 | $ | 14,499 | $ | (1,314 | ) |
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Amount of Commitment Expiration per Period | ||||||||||||||||||||
Less than | More than | |||||||||||||||||||
Total | 1 year | 1-3 years | 3-5 years | 5 years | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Contractual Obligations | ||||||||||||||||||||
Long-term debt(1) | $ | 868.4 | $ | 19.8 | $ | 62.5 | $ | 11.5 | $ | 774.6 | ||||||||||
Interest payments(2) | 366.7 | 64.2 | 123.8 | 118.9 | 59.8 | |||||||||||||||
Interest rate swap | 81.3 | 27.1 | 54.2 | |||||||||||||||||
Capital leases | 10.1 | 0.9 | 1.9 | 1.9 | 5.4 | |||||||||||||||
Operating leases | 46.9 | 18.3 | 18.9 | 7.5 | 2.2 | |||||||||||||||
Purchase obligations(3) | 846.7 | 846.7 | ||||||||||||||||||
Other long-term liabilities reflected on our balance sheet under GAAP | 49.1 | 25.0 | 24.1 | — | — | |||||||||||||||
Total | $ | 2,269.2 | $ | 1,002.0 | $ | 285.4 | $ | 139.8 | $ | 842.0 | ||||||||||
(1) | Long-term debt amortization is based on the contractual terms of our credit facilities. As of December 31, 2007, $868.4 million was outstanding under these facilities. On May 22, 2008, we entered into a $450 million junior term loan facility. As of June 26, 2008, giving effect to this new facility, a total of $1,284.8 million was outstanding under our credit facilities. See “Description of Our Indebtedness”. As of June 26, 2008, our total minimum amortization payments with respect to long-term debt were $1,284.8 million, with payments of $16.6 million due within less than one year from June 26, 2008, $63.2 million due within one to three years of that date, $11.5 million due within three to five years of that date, and $1,193.5 million due more than five years from that date. |
(2) | Interest payments are based on interest rates in effect at December 31, 2007 and assume contractual amortization payments. |
(3) | Purchase obligations reflect our commitments to purchase PVF products in the ordinary course of business. Information presented with respect to purchase obligations is presented (1) with respect to U.S. purchase obligations, as of June 26, 2008 and (2) with respect to Canadian purchase obligations, as of August 2008. |
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• | 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 |
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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 scaleand/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 the resulting 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. |
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Year Over Year % Increase | 2003A | 2004A | 2005A | 2006A | 2007A | 2008E | 2009E | 2010E | 2011E | 2012E | 2013E | |||||||||||||||||||||||||||||||||
U.S. | 34 | % | 64 | % | 23 | % | 41 | % | 10 | % | 6 | % | 16 | % | 9 | % | 9 | % | 8 | % | 7 | % | ||||||||||||||||||||||
Canada | 49 | 25 | 46 | 13 | (31 | ) | 5 | 26 | 13 | 8 | 7 | 6 | ||||||||||||||||||||||||||||||||
North America | 37 | 56 | 26 | 36 | 3 | 6 | 17 | 10 | 9 | 8 | 7 |
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Name | Age | Position | ||
Andrew Lane | 48 | Chief Executive Officer and Director | ||
James F. Underhill | 53 | Executive Vice President and Chief Financial Officer | ||
Dee Paige | 55 | Executive Vice President of Canadian Operations and Business Development | ||
Stephen D. Wehrle | 55 | Executive Vice President — Branch Sales and Operations | ||
Jeffrey Lang | 52 | Executive Vice President — Branch Sales and Operations | ||
Randy K. Adams | 58 | Senior Corporate Vice President — Sales & Marketing (Upstream) | ||
Rory M. Isaac | 58 | Senior Corporate Vice President — Sales & Marketing (Downstream/Gas Utilities) | ||
Gary A. Ittner | 56 | Senior Corporate Vice President of Supply Chain Management (based in Charleston) | ||
Dennis Niver | 60 | Senior Corporate Vice President of Supply Chain Management (based in Tulsa) | ||
Ken Hayes | 52 | Senior Corporate Vice President of Standard and Line Pipe | ||
Stephen W. Lake | 44 | Senior Corporate Vice President, General Counsel and Corporate Secretary | ||
David Fox, III | 59 | Senior Regional Vice President of the Appalachian Region | ||
Craig Ketchum | 51 | Chairman of the Board of Directors | ||
Rhys J. Best | 61 | Director | ||
Henry Cornell | 52 | Director | ||
Christopher A.S. Crampton | 30 | Director | ||
John F. Daly | 42 | Director | ||
Harry K. Hornish, Jr. | 63 | Director | ||
Sam B. Rovit | 50 | Director | ||
H.B. Wehrle, III | 56 | Director |
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• | Reviewed both performance and compensation to ensure that the company maintains its ability to attract and retain superior executives in key positions and that the compensation provided to those employees is competitive with the compensation paid to similarly situated executives at our peer companies; | |
• | Reviewed and authorized the company to enter into employment, severance and other compensation agreements with senior executives; |
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• | Administered the McJunkin Red Man Corporation Variable Compensation Plan (a general bonus plan), the Red Man Pipe & Supply Co. Retirement Savings Plan, the McJunkin Corporation Profit-Sharing and Savings Plan and Trust and the McJunkin Red ManNon-Qualified Deferred Compensation Plan; |
• | Performed such duties and responsibilities as may be assigned by our board of directors under the terms of any other executive compensation planand/or with respect to the issuance and management of profits units and common units in PVF Holdings LLC; and | |
• | Reviewed and established perquisites and employee benefits policies. |
• | To align the interests of executive officers with those of our shareholders, thereby providing long-term economic benefit to the company’s shareholders; | |
• | To provide competitive financial incentives in the form of salary, bonus and benefits, with the goal of attracting and retaining talented executive officers; and | |
• | To maintain a compensation program whereby executive officers who demonstrate exceptional performance will have the opportunity to realize appropriate economic rewards. |
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• | Base salary | |
• | Short-term incentive compensation | |
• | Long-term equity incentive compensation | |
• | Retirement and other benefits | |
• | Perquisites and other personal benefits |
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Adjusted | Percent of Target | |||||||||||
Performance Level | EBITDA | RONA | Award Payout | |||||||||
Threshold | $ | 146,639,160 | 34.87 | % | 5 | % | ||||||
Target | $ | 181,036,000 | 43.05 | % | 100 | % | ||||||
Maximum | $ | 181,036,000 | 43.05 | % | 100 | % |
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Harry K. Hornish
John F. Daly
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Non-Equity | ||||||||||||||||||||||||||||
Stock | Incentive Plan | All Other | ||||||||||||||||||||||||||
Name and Principal Position | Year | Salary(1) | Bonus | Awards(2) | Compensation(3) | Compensation | Total | |||||||||||||||||||||
H.B. Wehrle, III, | 2007 | $ | 650,101 | — | $ | 213,500 | $ | 819,500 | $ | 242,862 | (5) | $ | 1,925,963 | |||||||||||||||
President and Chief Executive Officer(4) | ||||||||||||||||||||||||||||
Craig Ketchum, | 2007 | $ | 347,823 | $ | 1,100,000 | (7) | $ | 4,467 | — | $ | 43,686 | (8) | $ | 1,495,976 | ||||||||||||||
President and Chief Executive Officer(6) | ||||||||||||||||||||||||||||
James F. Underhill, | 2007 | $ | 445,933 | $ | 687,500 | (9) | $ | 334,483 | $ | 486,400 | $ | 127,230 | (10) | $ | 2,081,546 | |||||||||||||
Executive Vice President and Chief Financial Officer | ||||||||||||||||||||||||||||
David Fox, III, | 2007 | $ | 559,004 | — | $ | 373,027 | $ | 640,907 | $ | 2,638,930 | (11) | $ | 4,211,868 | |||||||||||||||
Senior Regional Vice President of the Appalachian Region | ||||||||||||||||||||||||||||
Dee Paige, | 2007 | $ | 239,763 | $ | 1,200,000 | (12) | $ | 6,700 | — | $ | 449,507 | (13) | $ | 1,895,970 | ||||||||||||||
Executive Vice President of Canadian Operations and Business Development | ||||||||||||||||||||||||||||
Stephen D. Wehrle, | 2007 | $ | 548,387 | — | $ | 106,750 | $ | 709,317 | $ | 208,349 | (14) | $ | 1,572,803 | |||||||||||||||
Executive Vice President, Branch Sales and Operations |
(1) | For Messrs. H.B. Wehrle, Underhill, Fox and S. Wehrle, these amounts represent the base salary paid to them by McJunkin for service during 2007, both prior to and following the GS Acquisition. Messrs. Ketchum and Paige became employed by McJunkin Red Man Corporation on October 31, 2007 in connection with the Red Man Transaction. For Messrs. Ketchum and Paige, these amounts represent the base salary paid to them for service during 2007, by Red Man prior to the Red Man Transaction and by McJunkin Red Man Corporation thereafter. | |
(2) | These numbers reflect the amount recognized for financial statement reporting purposes in accordance with FAS 123R for the eleven months ended December 31, 2007 with respect to profits units in PVF Holdings LLC held by Messrs. H.B. Wehrle, Ketchum, Underhill, Paige and S. Wehrle and restricted common units in PVF Holdings LLC held by Mr. Fox. A discussion of the assumptions underlying the valuation of these profits units is provided in Note 9 to our audited financial statements for the eleven months ending December 31, 2007, included elsewhere in this prospectus. | |
(3) | These amounts represent cash awards earned pursuant to the Variable Compensation Plan in respect of performance during the 2007 fiscal year. As a result of McJunkin meeting its fiscal year 2007 performance goals, the named executive officers who participated in the plan in 2007 were paid 100% of their target annual incentive bonuses (with the exception of Mr. Fox, who earned 97.4% of his target Variable Compensation Plan award for this period), pro-rated to reflect participation during eleven months of the year. Amounts paid under the Variable Compensation Plan for 2007 performance are as follows: $632,500 for |
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Mr. H.B. Wehrle, $412,500 for Mr. Underhill, $513,643 for Mr. Fox and $531,667 for Mr. S. Wehrle. Messrs. Ketchum and Paige will be eligible to earn awards under the Variable Compensation Plan starting in fiscal year 2008. Please refer to the Compensation Discussion and Analysis and the narrative following the “Grants of Plan-Based Awards in Fiscal Year 2007” table for a discussion of the 2007 performance goals. Amounts in this column also include amounts earned under the pre-GS-Acquisition McJunkin bonus plan for performance during the month of January 2007, in the amounts as follows: $187,000 for Mr. H.B. Wehrle, $73,900 for Mr. Underhill, $127,264 for Mr. Fox and $177,650 for Mr. S. Wehrle. |
(4) | Mr. H.B. Wehrle was sole president and chief executive officer of McJunkin during 2007 until October 30, 2007 and co-president and co-chief executive officer with Mr. Ketchum from October 31, 2007 until May 6, 2008. On May 7, 2008, Mr. Ketchum became sole president and chief executive officer. | |
(5) | This amount includes (i) a contribution by McJunkin Red Man Corporation of $110,000 to Mr. H.B. Wehrle’s nonqualified deferred compensation plan account; (ii) a $49,293 contribution made by McJunkin Red Man Corporation with respect to January 2007 contributions due under the McJunkin Supplemental Executive Savings Plan and Trust, which was terminated in connection with the GS Acquisition; (iii) a $21,224 contribution made by McJunkin Red Man Corporation with respect to January 2007 contributions due under a pre-GS Acquisition McJunkin deferred compensation arrangement, which was terminated in connection with the GS Acquisition; (iv) with respect to the McJunkin Corporation Profit-Sharing and Savings Plan, $35,000 representing profit sharing and salary deferral matching contributions made by McJunkin Red Man Corporation; (v) $19,620 attributable to a company-provided automobile; and (vi) $7,725 with respect to country club dues paid by McJunkin Red Man Corporation on behalf of Mr. H.B. Wehrle. |
(6) | Mr. Ketchum became co-president and co-chief executive officer of McJunkin Red Man Corporation on October 31, 2007 in connection with the Red Man Transaction. Mr. Ketchum served as sole president and chief executive officer from May 7, 2008 until September 9, 2008. On September 10, 2008 Mr. Ketchum became chairman of our board of directors when Andrew Lane was hired to serve as our chief executive officer. |
(7) | This amount represents the annual bonus paid to Mr. Ketchum pursuant to the Red Man bonus plan for performance during the fiscal year ended October 31, 2007. | |
(8) | This amount includes (i) a contribution by McJunkin Red Man Corporation of $20,000 to Mr. Ketchum’s nonqualified deferred compensation plan account; (ii) with respect to the Red Man Pipe & Supply Co. Retirement Savings Plan, $10,338 representing a salary deferral match contribution; (iii) $5,600 attributable to a company-provided automobile, a portion of which was paid by Red Man prior to the Red Man Transaction and a portion of which was paid by McJunkin Red Man Corporation following the Red Man Transaction; and (iv) $7,748 with respect to country club dues paid on behalf of Mr. Ketchum, a portion of which was paid by Red Man prior to the Red Man Transaction and a portion of which was paid by McJunkin Red Man Corporation following the Red Man Transaction. | |
(9) | In connection with the consummation of the GS Acquisition, Mr. Underhill received a $750,000 transaction bonus, to be paid in installments, and conditioned on Mr. Underhill’s continued service through each respective payment date. This amount represents the portion of Mr. Underhill’s transaction bonus earned in 2007. | |
(10) | This amount includes (i) a contribution by McJunkin Red Man Corporation of $64,167 to Mr. Underhill’s nonqualified deferred compensation plan account; (ii) a $10,861 contribution made by McJunkin Red Man Corporation with respect to January 2007 contributions due under the McJunkin Supplemental Executive Savings Plan and Trust, which was terminated in connection with the GS Acquisition; (iii) with respect to the McJunkin Corporation Profit-Sharing and Savings Plan, $35,000 representing profit sharing and salary deferral matching contributions made by McJunkin Red Man Corporation; (iv) $12,948 attributable to a company-provided automobile; and (v) $4,254 with respect to country club dues paid by McJunkin Red Man Corporation on behalf of Mr. Underhill. | |
(11) | This amount includes (i) a payment of $2,480,000 to Mr. Fox in connection with the GS Acquisition as agross-up for taxes in respect of restricted common units in PVF Holdings LLC granted to Mr. Fox; (ii) a contribution by McJunkin Red Man Corporation of $91,666 to Mr. Fox’s nonqualified deferred compensation plan account; (iii) a $15,705 contribution made by McJunkin Red Man Corporation with respect to January 2007 contributions due under the McJunkin Supplemental Executive Savings Plan and Trust, which was terminated in connection with the GS Acquisition; (iv) with respect to the McJunkin Corporation Profit- |
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Sharing and Savings Plan, $35,000 representing profit sharing and salary deferral matching contributions made by McJunkin Red Man Corporation; (v) $12,948 attributable to a company-provided automobile; and (vi) $3,611 with respect to country club dues paid by McJunkin Red Man Corporation on behalf of Mr. Fox. | ||
(12) | This amount represents (i) a $500,000 payment to Mr. Paige pursuant to the Red Man bonus plan for performance during the fiscal year ended October 31, 2007 and (ii) a $700,000 transaction bonus paid to Mr. Paige by Red Man in connection with the Red Man Transaction. | |
(13) | This amount includes (i) a payment of $436,867 by PVF Holdings LLC to Mr. Paige on January 12, 2008 in partial settlement of phantom shares in Red Man surrendered by Mr. Paige plus interest, to which Mr. Paige became entitled as a result of services performed in 2007; (ii) with respect to the Red Man Pipe & Supply Co. Retirement Savings Plan, $7,831 representing a salary deferral match contribution; and (iii) $4,809 with respect to country club dues paid on behalf of Mr. Paige, a portion of which was paid by Red Man prior to the Red Man Transaction and a portion of which was paid by McJunkin Red Man Corporation following the Red Man Transaction. | |
(14) | This amount includes (i) a contribution by McJunkin Red Man Corporation of $82,500 to Mr. S. Wehrle’s nonqualified deferred compensation plan account; (ii) a $46,433 contribution made by McJunkin Red Man Corporation with respect to January 2007 contributions due under the McJunkin Supplemental Executive Savings Plan and Trust, which was terminated in connection with the GS Acquisition; (iii) a $17,459 contribution made by McJunkin Red Man Corporation with respect to January 2007 contributions due under a pre-GS Acquisition McJunkin deferred compensation arrangement, which was terminated in connection with the GS Acquisition; (iv) with respect to the McJunkin Corporation Profit-Sharing and Savings Plan, $35,000 representing profit sharing and salary deferral matching contributions, made by McJunkin Red Man Corporation; (v) $22,736 attributable to a company-provided automobile; and (vi) $4,221 with respect to country club dues paid by McJunkin Red Man Corporation on behalf of Mr. S. Wehrle. |
All Other | ||||||||||||||||||||||||
Stock Awards: | Grant Date | |||||||||||||||||||||||
Number of | Fair Value | |||||||||||||||||||||||
Estimated Future Payouts Under Non- | Shares of | of Stock | ||||||||||||||||||||||
Grant | Equity Incentive Plan Awards | Stocks or | and Option | |||||||||||||||||||||
Name | Date(1) | Threshold(2) | Target(3) | Maximum(3) | Units (#)(4) | Awards(5) | ||||||||||||||||||
H.B. Wehrle, III | 1/31/07 | $ | 31,625 | $ | 632,500 | $ | 632,500 | 381.3098 | $ | 1,164,543 | ||||||||||||||
Craig Ketchum(6) | 10/31/07 | — | — | — | 381.3098 | $ | 1,164,543 | |||||||||||||||||
James F. Underhill | 1/31/07 | $ | 20,625 | $ | 412,500 | $ | 412,500 | 597.3853 | $ | 1,824,451 | ||||||||||||||
David Fox, III | 1/31/07 | $ | 26,354 | $ | 527,083 | $ | 527,083 | 640.6004 | $ | 2,034,694 | ||||||||||||||
Dee Paige(6) | 10/31/07 | — | — | — | 571.9647 | $ | 1,746,815 | |||||||||||||||||
Stephen D. Wehrle | 1/31/07 | $ | 26,583 | $ | 531,667 | $ | 531,667 | 190.6549 | $ | 582,272 |
(1) | These are the grant dates for the awards set forth in the sixth column of this table. | |
(2) | Under the Variable Compensation Plan, no awards are payable unless there is at least 81% achievement of the annual performance goals, which are comprised of Adjusted EBITDA and RONA, during the relevant fiscal year. At 81% achievement, there is a payout of 5% of participants’ target annual incentive bonus. The named executive officers, except for Messrs. Ketchum and Paige, began participating in the Variable Compensation Plan on February 1, 2007. As a result, the amounts in this column reflect 5% of each named executive officer’s target annual incentive bonus that would have been paid upon 81% achievement of the performance goals, pro-rated to reflect participation during eleven months of the year. If the named executive officers had participated in the Variable Compensation Plan during the entire 2007 year, threshold payouts would have been as follows: $34,500 for Mr. H.B. Wehrle, $22,500 for Mr. Underhill, $28,750 for Mr. Fox and $29,000 for Mr. S. Wehrle. | |
(3) | Payout under the Variable Compensation Plan increases in 5% increments for each additional percent of achievement beyond 81% up to full achievement of the annual goal. Upon full achievement of the annual goal, 100% of the target annual incentive bonus is paid, which is the maximum award possible under the plan. In 2007, 100% of the performance goals were attained (for all named executive officers other than Mr. Fox). The amounts in these columns reflect 100% of the named executive officers’ target annual incentive |
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bonuses for 2007, pro-rated to reflect participation for eleven months of the year. These amounts are also the maximum payouts possible under the Variable Compensation Plan for 2007. If the named executive officers had participated in the Variable Compensation Plan during the entire 2007 year, target and maximum payouts would have been as follows: $690,000 for Mr. H.B. Wehrle, $450,000 for Mr. Underhill, $575,000 for Mr. Fox and $580,000 for Mr. S. Wehrle. Please refer to the Compensation Discussion and Analysis and the narrative following the “Grants of Plan-Based Awards in Fiscal Year 2007” for a discussion of the specific 2007 performance goals. |
(4) | For Messrs. H.B. Wehrle, Ketchum, Underhill, Paige and S. Wehrle, these amounts reflect the number of profits units in PVF Holdings LLC granted under the PVF LLC Agreement during 2007. For Mr. Fox, this amount reflects the number of restricted common units in PVF Holdings LLC granted under the PVF LLC Agreement during 2007. Pursuant to the PVF LLC Agreement, profits units and restricted common units generally become vested in equal increments on each of the third, fourth and fifth anniversaries of the date of grant subject to accelerated vesting under certain circumstances, but may be subject to more favorable vesting schedules if approved by the board of directors of PVF Holdings LLC. The employment agreements for Mr. S. Wehrle provides that his profits units become vested in equal increments on each of the fourth and fifth anniversaries of the date of grant. Profits units held by Messrs. Underhill and Paige and restricted common units held by Mr. Fox become vested in accordance with the terms of the PVF LLC Agreement, but each of their employment agreements provides that if, at any time, Mr. Underhill, Mr. Paige or Mr. Fox terminates his employment with Good Reason (as defined in the employment agreement) or McJunkin Red Man Corporation terminates Mr. Underhill’s, Mr. Paige’s or Mr. Fox’s employment without Cause (as defined in the employment agreement), all profits units and restricted common units held by them shall become vested. With respect to restricted common units held by Mr. Fox, in the event that Mr. Fox is terminated for “Cause” (as defined in the employment agreement), Mr. Fox will not forfeit his restricted common units that are vested at the time of termination, but PVF Holdings LLC will have the opportunity to purchase vested restricted common units held by Mr. Fox at “Fair Market Value” (as defined in the PVF LLC Agreement). Profits units held by Messrs. H.B. Wehrle and Ketchum are fully vested and not subject to forfeiture under any circumstances, pursuant to Mr. H.B. Wehrle’s Letter Agreement and Mr. Ketchum’s employment agreement. |
(5) | These amounts represent the grant date fair value, computed in accordance with FAS 123R, of profits units (for Messrs. H.B. Wehrle, Ketchum, Underhill, Paige and S. Wehrle) and restricted common units (for Mr. Fox) in PVF Holdings LLC granted to the named executive officers in 2007. A discussion of the assumptions underlying the valuation is provided in Note 9 to our audited financial statements for the eleven months ending December 31, 2007, included elsewhere in this prospectus. | |
(6) | Messrs. Ketchum and Paige will be eligible to receive awards under the Variable Compensation Plan beginning in fiscal year 2008. |
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Stock Awards | ||||||||
Number of Shares | Market Value of Shares | |||||||
or Units of Stock That | or Units of Stock That | |||||||
Name | Have Not Vested (#)(1) | Have Not Vested(2) | ||||||
H.B. Wehrle, III | 381.3098 | $ | 0 | |||||
Craig Ketchum | 381.3098 | $ | 0 | |||||
James F. Underhill | 597.3853 | $ | 0 | |||||
David Fox, III | 640.6004 | $ | 0 | |||||
Dee Paige | 571.9647 | $ | 0 | |||||
Stephen D. Wehrle | 190.6549 | $ | 0 |
(1) | Reflects profits units granted to Messrs. H.B. Wehrle, Ketchum, Underhill, Paige and S. Wehrle in 2007 and restricted common units granted to Mr. Fox in 2007, each in respect of PVF Holdings LLC pursuant to the PVF LLC Agreement. Pursuant to the PVF LLC Agreement, profits units and restricted common units generally become vested in equal increments on each of the third, fourth and fifth anniversaries of the date of grant, but may be subject to more favorable vesting schedules if approved by the board of directors of PVF Holdings LLC. The employment agreement for Mr. S. Wehrle provides that his profits units become vested in equal increments on each of the fourth and fifth anniversaries of the date of grant subject to accelerated vesting under certain circumstances. Profits units held by Messrs. Underhill and Paige and restricted common units held by Mr. Fox become vested in accordance with the PVF LLC Agreement, but each of their employment agreements provides that if, at any time, Mr. Underhill, Mr. Paige or Mr. Fox terminate their employment with “Good Reason” (as defined in the employment agreement) or McJunkin |
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Red Man Corporation terminates Mr. Underhill’s, Mr. Paige’s or Mr. Fox’s employment without “Cause” (as defined in the employment agreement), all profits units and restricted common units held by them shall become vested. With respect to restricted common units held by Mr. Fox, in the event that Mr. Fox is terminated for “Cause” (as defined in the employment agreement), Mr. Fox will not forfeit his restricted common units that are vested at the time of termination, but PVF Holdings LLC would have the opportunity to purchase vested restricted common units held by Mr. Fox at “Fair Market Value” (as defined in the PVF LLC Agreement). The date of grant for Messrs. H.B. Wehrle, Underhill, Fox and S. Wehrle was January 31, 2007 and for Messrs. Ketchum and Paige was October 31, 2007. Profits units held by Messrs. H.B. Wehrle and Ketchum are fully vested and not subject to forfeiture under any circumstances, pursuant to Mr. H.B. Wehrle’s Letter Agreement and Mr. Ketchum’s employment agreement. |
(2) | The market value of unvested profits units and restricted common units in PVF Holdings LLC on December 31, 2007 was $0. |
Registrant | Aggregate | |||||||
Contributions in | Balance | |||||||
Name | Last FY(1) | at Last FYE | ||||||
H.B. Wehrle, III | $ | 110,000 | $ | 110,000 | ||||
Craig Ketchum | $ | 20,000 | $ | 20,000 | ||||
James F. Underhill | $ | 64,167 | $ | 64,167 | ||||
David Fox, III | $ | 91,666 | $ | 91,666 | ||||
Dee Paige | $ | 0 | $ | 0 | ||||
Stephen D. Wehrle | $ | 82,500 | $ | 82,500 |
(1) | These amounts are included in the All Other Compensation column of the Summary Compensation Table. |
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Fees Earned | ||||||||||||||||
or Paid | Option | All Other | ||||||||||||||
Name | in Cash | Awards(1) | Compensation | Total | ||||||||||||
Harry K. Hornish | $ | 112,500 | — | $ | 4,901 | (2) | $ | 117,401 | ||||||||
Peter C. Boylan, III | $ | 16,667 | $ | 3,257 | (3)(4) | — | $ | 19,924 | ||||||||
Rhys Best | $ | 8,333 | $ | 1,584 | (5)(6) | — | $ | 9,917 | ||||||||
H.B. Wehrle, III(7) | — | — | — | — | ||||||||||||
Craig Ketchum(7) | — | — | — | — | ||||||||||||
Henry Cornell(7) | — | — | — | — | ||||||||||||
Christopher A.S. Crampton(7) | — | — | — | — | ||||||||||||
John F. Daly(7) | — | — | — | — | ||||||||||||
David A. Fox, III(7) | — | — | — | — | ||||||||||||
Kent Ketchum(7) | — | — | — | — | ||||||||||||
E. Gaines Wehrle(7) | — | — | — | — |
(1) | The aggregate number of shares of our common stock subject to option awards outstanding on December 31, 2007 was for each of Messrs. Boylan and Best (taking into account the stock split). | |
(2) | Mr. Hornish participates in the company medical and dental plans that are offered to employees. The company pays all costs of this coverage for Mr. Hornish. This amount represents the annual cost to the company of providing such coverage, pro-rated to reflect Mr. Hornish’s coverage for two months of the 2007 year. Starting in 2008, Mr. Hornish will receive an annual fee of $100,000 for his service on our board of directors. In addition, starting in 2008, Mr. Hornish will no longer be eligible to participate in the company health and dental plans available to employees. | |
(3) | Mr. Boylan was awarded stock options in respect of shares on December 24, 2007 (taking into account the stock split). The amount in the table reflects the dollar amount recognized for financial statement reporting purposes in accordance with FAS 123R for the eleven months ended December 31, 2007. A discussion of the assumptions underlying the valuation is provided in Note 9 to our audited financial statements for the eleven months ending December 31, 2007, included elsewhere in this prospectus. | |
(4) | The grant date fair value of Mr. Boylan’s option award, computed in accordance with FAS 123R, was $1,281 using the Black Scholes method. A discussion of the assumptions underlying the valuation is provided in Note 9 to our audited financial statements for the eleven months ending December 31, 2007, included elsewhere in this prospectus. | |
(5) | Mr. Best was awarded stock options in respect of shares on December 24, 2007 (taking into account the stock split). The amount in the table reflects the dollar amount recognized for financial statement reporting purposes in accordance with FAS 123R for the fiscal year ended December 31, 2007. A discussion of the assumptions underlying the valuation is provided in Note 9 to our audited financial statements for the eleven months ending December 31, 2007, included elsewhere in this prospectus. | |
(6) | The grant date fair value of Mr. Best’s option award, computed in accordance with FAS 123R, was $1,226 using the Black Scholes method. A discussion of the assumptions underlying the valuation |
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is provided in Note 9 to our audited financial statements for the eleven months ending December 31, 2007, included elsewhere in this prospectus. | ||
(7) | Each of these directors served on our board of directors during 2007, but did not receive any compensation for such service. Mr. Cornell has served on our board of directors since November 29, 2006. Messrs. Crampton and Daly have served on our board of directors since January 31, 2007. Craig Ketchum has served on our board of directors since October 31, 2007. Kent Ketchum served on our board of directors from October 31, 2007 until August 2008. Mr. Fox and Mr. Wehrle served on our board from January 31, 2007 until August 2008. |
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Deferred | ||||||||||||||||||||||||||||
Base | Medical | Compensation | ||||||||||||||||||||||||||
Accrued | Salary | Pro Rata | Benefit | Profits | Account | |||||||||||||||||||||||
Name | Obligations(1) | Continuation | Bonus(2) | Continuation | Units(3) | Balance | Total | |||||||||||||||||||||
H.B. Wehrle, III | ||||||||||||||||||||||||||||
Voluntary Separation | $ | 79,617 | — | — | — | $ | 0 | �� | $ | 110,000 | $ | 189,617 | ||||||||||||||||
Not for Cause Termination | $ | 79,617 | — | — | — | $ | 0 | $ | 110,000 | $ | 189,617 | |||||||||||||||||
Termination for Good Reason | $ | 79,617 | — | — | — | $ | 0 | $ | 110,000 | $ | 189,617 | |||||||||||||||||
Involuntary for Cause Termination | $ | 79,617 | — | — | — | $ | 0 | $ | 110,000 | $ | 189,617 | |||||||||||||||||
Death | $ | 79,617 | — | — | — | $ | 0 | $ | 110,000 | $ | 189,617 | |||||||||||||||||
Disability | $ | 79,617 | — | — | — | $ | 0 | $ | 110,000 | $ | 189,617 | |||||||||||||||||
Change in Control | — | — | — | — | $ | 0 | $ | 110,000 | $ | 110,000 | ||||||||||||||||||
Craig Ketchum | ||||||||||||||||||||||||||||
Voluntary Separation | $ | 66,346 | — | — | — | $ | 0 | $ | 20,000 | $ | 86,346 | |||||||||||||||||
Not for Cause Termination | $ | 66,346 | $ | 690,000 | $ | 0 | $ | 7,360 | $ | 0 | $ | 20,000 | $ | 783,706 | ||||||||||||||
Termination for Good Reason | $ | 66,346 | $ | 690,000 | $ | 0 | $ | 7,360 | $ | 0 | $ | 20,000 | $ | 783,706 | ||||||||||||||
Involuntary for Cause Termination | $ | 66,346 | — | — | — | $ | 0 | $ | 20,000 | $ | 86,346 | |||||||||||||||||
Death | $ | 66,346 | — | $ | 0 | — | $ | 0 | $ | 20,000 | $ | 86,346 | ||||||||||||||||
Disability | $ | 66,346 | — | $ | 0 | — | $ | 0 | $ | 20,000 | $ | 86,346 | ||||||||||||||||
Change in Control | — | — | — | — | $ | 0 | $ | 20,000 | $ | 20,000 | ||||||||||||||||||
James F. Underhill | ||||||||||||||||||||||||||||
Voluntary Separation | $ | 43,270 | — | — | — | — | $ | 64,167 | $ | 107,437 | ||||||||||||||||||
Not for Cause Termination | $ | 43,270 | $ | 450,000 | $ | 412,500 | $ | 7,360 | $ | 0 | $ | 64,167 | $ | 977,297 | ||||||||||||||
Termination for Good Reason | $ | 43,270 | $ | 450,000 | $ | 412,500 | $ | 7,360 | $ | 0 | $ | 64,167 | $ | 977,297 | ||||||||||||||
Involuntary for Cause Termination | $ | 43,270 | — | — | — | — | $ | 64,167 | $ | 107,437 | ||||||||||||||||||
Death | $ | 43,270 | — | $ | 412,500 | — | $ | 0 | $ | 64,167 | $ | 519,937 | ||||||||||||||||
Disability | $ | 43,270 | — | $ | 412,500 | — | $ | 0 | $ | 64,167 | $ | 519,937 | ||||||||||||||||
Change in Control | — | — | — | — | $ | 0 | $ | 64,167 | $ | 64,167 | ||||||||||||||||||
David Fox, III | ||||||||||||||||||||||||||||
Voluntary Separation | $ | 66,347 | — | — | — | — | $ | 91,666 | $ | 158,013 | ||||||||||||||||||
Not for Cause Termination | $ | 66,347 | $ | 575,000 | $ | 513,643 | $ | 7,360 | $ | 0 | $ | 91,666 | $ | 1,254,016 | ||||||||||||||
Termination for Good Reason | $ | 66,347 | $ | 575,000 | $ | 513,643 | $ | 7,360 | $ | 0 | $ | 91,666 | $ | 1,254,016 | ||||||||||||||
Involuntary for Cause Termination | $ | 66,347 | — | — | — | $ | 91,666 | $ | 158,013 | |||||||||||||||||||
Death | $ | 66,347 | — | $ | 513,643 | — | $ | 0 | $ | 91,666 | $ | 671,656 | ||||||||||||||||
Disability | $ | 66,347 | — | $ | 513,643 | — | $ | 0 | $ | 91,666 | $ | 671,656 | ||||||||||||||||
Change in Control | — | — | — | — | $ | 0 | $ | 91,666 | $ | 91,666 |
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Deferred | ||||||||||||||||||||||||||||
Base | Medical | Compensation | ||||||||||||||||||||||||||
Accrued | Salary | Pro Rata | Benefit | Profits | Account | |||||||||||||||||||||||
Name | Obligations(1) | Continuation | Bonus(2) | Continuation | Units(3) | Balance | Total | |||||||||||||||||||||
Dee Paige | ||||||||||||||||||||||||||||
Voluntary Separation | $ | 32,572 | — | — | — | — | $ | 0 | $ | 32,572 | ||||||||||||||||||
Not for Cause Termination | $ | 32,572 | $ | 338,750 | $ | 0 | $ | 7,360 | $ | 0 | $ | 0 | $ | 378,682 | ||||||||||||||
Termination for Good Reason | $ | 32,572 | $ | 338,750 | $ | 0 | $ | 7,360 | $ | 0 | $ | 0 | $ | 378,682 | ||||||||||||||
Involuntary for Cause Termination | $ | 32,572 | — | — | — | — | $ | 0 | $ | 32,572 | ||||||||||||||||||
Death | $ | 32,572 | — | $ | 0 | — | $ | 0 | $ | 0 | $ | 32,572 | ||||||||||||||||
Disability | $ | 32,572 | — | $ | 0 | — | $ | 0 | $ | 0 | $ | 32,572 | ||||||||||||||||
Change in Control | $ | 32,572 | — | — | — | $ | 0 | $ | 0 | $ | 32,572 | |||||||||||||||||
Stephen D. Wehrle | ||||||||||||||||||||||||||||
Voluntary Separation | $ | 66,924 | — | — | — | — | $ | 82,500 | $ | 149,424 | ||||||||||||||||||
Not for Cause Termination | $ | 66,924 | $ | 580,000 | $ | 531,667 | $ | 7,360 | — | $ | 82,500 | $ | 1,268,451 | |||||||||||||||
Termination for Good Reason | $ | 66,924 | $ | 580,000 | $ | 531,667 | $ | 7,360 | — | $ | 82,500 | $ | 1,268,451 | |||||||||||||||
Involuntary for Cause Termination | $ | 66,924 | — | — | — | — | $ | 82,500 | $ | 149,424 | ||||||||||||||||||
Death | $ | 66,924 | — | $ | 531,667 | — | $ | 0 | $ | 82,500 | $ | 681,091 | ||||||||||||||||
Disability | $ | 66,924 | — | $ | 531,667 | — | $ | 0 | $ | 82,500 | $ | 681,091 | ||||||||||||||||
Change in Control | — | — | — | — | $ | 0 | $ | 82,500 | $ | 82,500 |
(1) | These amounts represent accrued but unused vacation time as of December 31, 2007. | |
(2) | Each of the named executive officers has an annual target bonus of 100% of annual base salary at the beginning of the relevant fiscal year. Except for Messrs. Ketchum and Paige, who will be eligible to earn awards starting in fiscal year 2008, the named executive officers participated in the Variable Compensation Plan starting on February 1, 2007. The Adjusted EBITDA and RONA performance goals for the Variable Compensation Plan were satisfied in fiscal year 2007. As a result, assuming a termination as of December 31, 2007, pursuant to the terms of their employment agreements, Messrs. H.B. Wehrle, Underhill, Fox and S. Wehrle would be entitled to receive their target annual incentive bonus, pro-rated to reflect participation during eleven months of the year. | |
(3) | In the event of a Transaction (as defined in the PVF LLC Agreement) or a termination by reason of death or Disability, the profits units and restricted common units in PVF Holdings LLC held by the named executive officers would become fully vested. |
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• | each of our directors; | |
• | each of our named executive officers; | |
• | each stockholder known by us to beneficially hold five percent or more of our common stock; | |
• | each selling stockholder; and | |
• | all of our executive officers and directors as a group. |
Shares Beneficially | Shares Beneficially | |||||||||||||||||||
Owned Prior to the Offering | Number of | Owned After the Offering† | ||||||||||||||||||
Name and Address | Number | Percent | Shares Offered† | Number | Percent | |||||||||||||||
PVF Holdings LLC(1) | ||||||||||||||||||||
The Goldman Sachs Group, Inc.(1) | ||||||||||||||||||||
85 Broad Street New York, New York 10004 | ||||||||||||||||||||
Andrew Lane(2) | ||||||||||||||||||||
James F. Underhill(3) | ||||||||||||||||||||
David Fox, III(4) | ||||||||||||||||||||
Dee Paige(5) | ||||||||||||||||||||
Stephen D. Wehrle(6) | ||||||||||||||||||||
Craig Ketchum(7) | ||||||||||||||||||||
Rhys J. Best(8) | ||||||||||||||||||||
Henry Cornell(1) | ||||||||||||||||||||
Christopher A.S. Crampton | ||||||||||||||||||||
John F. Daly(1) | ||||||||||||||||||||
Harry K. Hornish, Jr.(9) | ||||||||||||||||||||
Sam B. Rovit(10) | ||||||||||||||||||||
H.B. Wehrle, III(11) | ||||||||||||||||||||
All directors and executive officers, as a group (20 persons)(12) |
† | PVF Holdings LLC has granted the underwriters the option to purchase from it an aggregate of additional shares. If the option to purchase additional shares were exercised in full, after the offering PVF Holdings LLC and The Goldman Sachs Group, Inc. would own shares, or %, of our common stock, and all of our directors and executive officers, as a group, would own shares, or %, of our common stock. | |
* | Less than 1%. | |
(1) | PVF Holdings LLC directly owns shares of common stock. GS Capital Partners V Fund, L.P., GS Capital Partners V Offshore Fund, L.P., GS Capital Partners V GmbH & Co. KG, GS Capital Partners V Institutional, L.P., GS Capital Partners VI Fund, L.P., GS Capital Partners VI Offshore Fund, L.P., GS Capital Partners VI Parallel, L.P., and GS Capital Partners VI GmbH & Co. KG (collectively, the “Goldman Sachs |
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Funds”) are members of PVF Holdings LLC and own common units of PVF Holdings LLC. The Goldman Sachs Funds’ common units in PVF Holdings LLC correspond to shares of common stock. The Goldman Sachs Group, Inc., and Goldman, Sachs & Co. may be deemed to beneficially own indirectly, in the aggregate, all of the common stock owned by PVF Holdings LLC because (i) affiliates of Goldman, Sachs & Co. and The Goldman Sachs Group, Inc. are the general partner, managing general partner, managing partner, managing member or member of the Goldman Sachs Funds and (ii) the Goldman Sachs Funds control PVF Holdings LLC and have the power to vote or dispose of all of the common stock of the Company owned by PVF Holdings LLC. Goldman, Sachs & Co. is a direct and indirect wholly owned subsidiary of The Goldman Sachs Group, Inc. Goldman, Sachs & Co. is the investment manager of certain of the Goldman Sachs Funds. Shares of common stock that may be deemed to be beneficially owned by the Goldman Sachs Funds that correspond to the Goldman Sachs Funds’ common units of PVF Holdings LLC consist of: (1) shares of common stock deemed to be beneficially owned by GS Capital Partners V Fund, L.P. and its general partner, GSCP V Advisors, L.L.C., (2) shares of common stock deemed to be beneficially owned by GS Capital Partners V Offshore Fund, L.P. and its general partner, GSCP V Offshore Advisors, L.L.C., (3) shares of common stock deemed to be beneficially owned by GS Capital Partners V Institutional, L.P. and its general partner, GS Advisors V, L.L.C., (4) shares of common stock deemed to be beneficially owned by GS Capital Partners V GmbH & Co. KG and its managing limited partner, GS Advisors V, L.L.C., (5) shares of common stock deemed to be beneficially owned by GS Capital Partners VI Fund, L.P. and its general partner, GSCP VI Advisors, L.L.C., (6) shares of common stock deemed to be beneficially owned by GS Capital Partners VI Offshore Fund, L.P. and its general partner, GSCP VI Offshore Advisors, L.L.C., (7) shares of common stock deemed to be beneficially owned by GS Capital Partners VI Parallel, L.P. and its general partner, GS Advisors VI, L.L.C., and (8) shares of common stock deemed to be beneficially owned by GS Capital Partners VI GmbH & Co. KG and its managing limited partner, GS Advisors VI, L.L.C. Henry Cornell and John F. Daly are managing directors of Goldman, Sachs & Co. Mr. Cornell, Mr. Daly, The Goldman Sachs Group, Inc. and Goldman, Sachs & Co. each disclaims beneficial ownership of the shares of common stock owned directly or indirectly by PVF Holdings LLC and the Goldman Sachs Funds, except to the extent of their pecuniary interest therein, if any. |
(2) | Mr. Lane owns shares directly. Mr. Lane also owns options to purchase shares of our common stock at an exercise price of . The date of grant for Mr. Lane’s options was September 10, 2008. These options will generally vest in one-fourth annual increments on the second, third, fourth and fifth anniversaries of the date of grant. |
(3) | Mr. Underhill owns no shares of common stock directly. Mr. Underhill owns shares indirectly through his ownership of common units in PVF Holdings LLC. Mr. Underhill does not have the power to vote or dispose of shares of common stock that correspond to his ownership of common units in PVF Holdings LLC and thus does not have beneficial ownership of such shares. Mr. Underhill also owns profits units in PVF Holdings LLC. These profits units do not give Mr. Underhill beneficial ownership of any shares of our common stock because they do not give Mr. Underhill the power to vote or dispose of any such shares. |
(4) | Mr. Fox owns no shares of common stock directly. Mr. Fox has transferred all of his common units (including his restricted common units) in PVF Holdings LLC, corresponding to shares of our common stock, to a trust for the benefit of members of his family. Neither Mr. Fox nor the trust has the power to vote or dispose of the common units of PVF Holdings LLC held by the trust, which correspond to shares of our common stock, and therefore neither Mr. Fox nor the trust has beneficial ownership of these shares of our common stock. | |
(5) | Mr. Paige owns no shares of common stock directly. Mr. Paige owns shares indirectly through his ownership of common units in PVF Holdings LLC. Mr. Paige does not have the power to vote or dispose of shares of common stock that correspond to his ownership of common units in PVF Holdings LLC and thus does not have beneficial ownership of such shares. Mr. Paige also owns profits units in PVF Holdings LLC. These profits units do not give Mr. Paige beneficial ownership of any shares of our common stock because they do not give Mr. Paige the power to vote or dispose of any such shares. | |
(6) | Mr. Wehrle owns no shares of common stock directly. Mr. Wehrle owns shares indirectly through his ownership of common units in PVF Holdings LLC. Mr. Wehrle does not have the power to vote or dispose of shares of common stock that correspond to his ownership of common units in PVF Holdings LLC and thus does not have beneficial ownership of such shares. Mr. Wehrle also owns profits units in PVF |
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Holdings LLC. These profits units do not give Mr. Wehrle beneficial ownership of any shares of our common stock because they do not give Mr. Wehrle the power to vote or dispose of any such shares. |
(7) | Mr. Ketchum owns no shares of common stock directly. Mr. Ketchum owns common units in PVF Holdings LLC both directly and through a limited liability company which correspond to shares of common stock owned by PVF Holdings LLC. Mr. Ketchum does not have the power to vote or dispose of shares of common stock that correspond to his ownership or his limited liability company’s ownership of common units in PVF Holdings LLC and thus does not have beneficial ownership of such shares. Mr. Ketchum also owns profits units in PVF Holdings LLC. These profits units do not give Mr. Ketchum beneficial ownership of any shares of our common stock because they do not give Mr. Ketchum the power to vote or dispose of any such shares. |
(8) | Mr. Best owns no shares of common stock directly. Mr. Best owns shares indirectly due to his limited liability company’s ownership of common units in PVF Holdings LLC. Mr. Best does not have the power to vote or dispose of shares of common stock that correspond to such limited liability company’s ownership of common units in PVF Holdings LLC and thus does not have beneficial ownership of such shares. Mr. Best also owns options to purchase shares of our common stock at an exercise price of $ . The date of grant for these options was December 24, 2007. These options will generally vest in one-third annual increments on the third, fourth and fifth anniversaries of the date of grant. |
(9) | Mr. Hornish owns no shares of common stock directly. Mr. Hornish owns shares indirectly through his ownership of common units in PVF Holdings LLC. Mr. Hornish does not have the power to vote or dispose of shares of common stock that correspond to his ownership of common units in PVF Holdings LLC and thus does not have beneficial ownership of such shares. |
(10) | Mr. Rovit owns no shares of common stock directly. Mr. Rovit owns shares indirectly through his ownership of common units in PVF Holdings LLC. Mr. Rovit does not have the power to vote or dispose of shares of common stock that correspond to his ownership of common units in PVF Holdings LLC and thus does not have beneficial ownership of such shares. Mr. Rovit also owns options to purchase shares of our common stock at an exercise price of $ . The date of grant for these options was June 27, 2008. These options will generally vest in one-third annual increments on the third, fourth and fifth anniversaries of the date of grant. |
(11) | Mr. Wehrle owns no shares of common stock directly. Mr. Wehrle owns shares indirectly through his ownership of common units in PVF Holdings LLC. Mr. Wehrle does not have the power to vote or dispose of shares of common stock that correspond to his ownership of common units in PVF Holdings LLC and thus does not have beneficial ownership of such shares. Mr. Wehrle also owns profits units in PVF Holdings LLC. These profits units do not give Mr. Wehrle beneficial ownership of any shares of our common stock because they do not give Mr. Wehrle the power to vote or dispose of any such shares. |
(12) | The number of shares of common stock owned by all directors and executive officers, as a group, reflects (i) all shares of common stock directly owned by PVF Holdings LLC, with respect to which Henry Cornell and John F. Daly may be deemed to share beneficial ownership, and (ii) shares of our common stock held by Andrew Lane, our chief executive officer and a director of our company. |
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Percentage of | ||||||||||||||||
Common | Profits | Proceeds from | Proceeds from this | |||||||||||||
Units Owned | Units Owned | this Offering to | Offering Received | |||||||||||||
Name of | Directly or | Directly or | be Distributed to | in Proportion to | ||||||||||||
Beneficial Owner | Indirectly | Indirectly | the Unit Holder | All Unit Holders | ||||||||||||
The Goldman Sachs Funds | ||||||||||||||||
Craig Ketchum | ||||||||||||||||
James F. Underhill | ||||||||||||||||
David Fox, III(1) | ||||||||||||||||
Dee Paige | ||||||||||||||||
Stephen D. Wehrle | ||||||||||||||||
Jeffrey Lang | ||||||||||||||||
Randy K. Adams | ||||||||||||||||
Rory M. Isaac | ||||||||||||||||
Gary A. Ittner | ||||||||||||||||
Dennis Niver | ||||||||||||||||
Ken Hayes | ||||||||||||||||
Stephen W. Lake | ||||||||||||||||
Rhys J. Best | ||||||||||||||||
Henry Cornell | ||||||||||||||||
Christopher A.S. Crampton | ||||||||||||||||
John F. Daly | ||||||||||||||||
Harry K. Hornish, Jr. | ||||||||||||||||
Sam B. Rovit | ||||||||||||||||
H.B. Wehrle, III | ||||||||||||||||
The Goldman Sachs Funds and all of our directors and executive officers, as a group | ||||||||||||||||
Other holders of common units of PVF Holdings LLC, as a group | ||||||||||||||||
Total | 100 | % |
(1) | Of the proceeds received on account of common units issued to Mr. Fox, $ will be received on account of restricted common units. No proceeds will be distributed by PVF Holdings LLC on account of these restricted common units until they vest. |
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Monthly 2007 | Square | |||||||||||||||
Location | Rent | Term | Expiration | Feet | Renewal Option | |||||||||||
Artesia, NM | $ | 2,000 | 5 years | May 31, 2013 | 8,750 | One five-year renewal option | ||||||||||
Lovington, NM | $ | 2,350 | 3 years | September 30, 2009 | 6,000 | None | ||||||||||
Tulsa, OK | $ | 2,700 | 3 years | March 31, 2009 | 7,500 | One three-year renewal option | ||||||||||
Woodward, OK | $ | 3,500 | 5 years | July 31, 2012 | 6,000 | None |
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Monthly Rent | ||||||||||||||||
as of | Square | |||||||||||||||
Location | September 2008 | Term | Expiration | Feet | Renewal Option | |||||||||||
Hurricane, WV | $ | 10,005.00 | 3 years | December 31, 2010 | 6,500 | Four three-year renewal options | ||||||||||
Corbin, KY | $ | 3,752.50 | 3 years | May 31, 2009 | 8,000 | None |
Number of | ||||||||||||||||
Shares of | Shares of | Common Units of | ||||||||||||||
McJunkin | McJunkin | Value of | PVF Holdings LLC | |||||||||||||
Corporation | Appalachian | Shares | Received | |||||||||||||
Name | Contributed | Contributed | Contributed | in Exchange | ||||||||||||
H.B. Wehrle, III | 310.0000 | 31.89 | $ | 17,173,005.47 | 4,365.4898 | |||||||||||
David Fox, III(1) | 0.0000 | 459.18 | $ | 2,548,646.04 | 647.8824 | |||||||||||
E. Gaines Wehrle | 218.9688 | 31.89 | $ | 12,180,895.82 | 3,096.4630 | |||||||||||
Stephen D. Wehrle | 215.8000 | 31.89 | $ | 12,008,413.81 | 3,052.6170 | |||||||||||
Michael H. Wehrle | 212.5521 | 31.89 | $ | 11,829,133.40 | 3,007.0427 | |||||||||||
Martha G. Wehrle | 26.4688 | — | $ | 1,451,019.99 | 368.8587 | |||||||||||
Russell L. Isaacs | 2.4063 | — | $ | 131,910.91 | 33.5326 | |||||||||||
Other Wehrle Family Members(2) | 850.4147 | — | $ | 46,619,540.83 | 11,850.9908 |
(1) | Mr. Fox’s common units in PVF Holdings LLC were transferred to a trust established by Mr. Fox. | |
(2) | As used in this table, “Other Wehrle Family Members” include the immediate family members of H.B. Wehrle, III, E. Gaines Wehrle, Stephen D. Wehrle and Michael H. Wehrle. |
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Amount Contributed | Number of Common Units | |||||||
Name | to PVF Holdings LLC | of PVF Holdings LLC Received | ||||||
H.B. Wehrle, III | $ | 3,000,000.00 | 762.6195 | |||||
Stephen D. Wehrle | $ | 5,000,000.00 | 1,271.0376 | |||||
Rory Isaac | $ | 500,000.00 | 127.1033 | |||||
Gary Ittner | $ | 100,000.00 | 25.4207 | |||||
James F. Underhill | $ | 200,000.00 | 50.8413 |
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Number of | ||||||||||||
Amount Contributed | Common Units of PVF | Date Units | ||||||||||
Name | to PVF Holdings LLC | Holdings LLC Received | Were Issued | |||||||||
Randy Adams | $ | 15,735.24 | 4.0000 | November 29, 2007 | ||||||||
Ken Hayes | $ | 212,425.74 | 54.0000 | November 29, 2007 | ||||||||
Stephen W. Lake | $ | 200,000.00 | 50.8413 | February 5, 2008 | ||||||||
Jeffrey Lang | $ | 100,000.00 | 25.4207 | December 14, 2007 | ||||||||
Dee Paige | $ | 200,000.00 | 50.8413 | November 29, 2007 |
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Proceeds from Distributions | Proceeds from Distributions | |||||||||||
Name | Received on Common Units | Received on Profits Units | Total | |||||||||
Randy K. Adams | $ | 6,131.28 | $ | 48,420.00 | $ | 54,551.28 | ||||||
Rhys J. Best(1) | $ | 194,826.51 | — | $ | 194,826.51 | |||||||
Peter C. Boylan, III(2) | $ | 389,653.01 | — | $ | 389,653.01 | |||||||
David Fox, III(3) | $ | 1,975,013.20 | — | $ | 1,975,013.20 | |||||||
Ken Hayes | $ | 82,772.33 | $ | 16,140.00 | $ | 98,912.33 | ||||||
Harry K. Hornish, Jr. | $ | 584,479.57 | — | $ | 584,479.57 | |||||||
Rory M. Isaac | $ | 195,160.51 | $ | 48,420.00 | $ | 243,580.51 | ||||||
Russell L. Isaacs | $ | 137,300.00 | — | $ | 137,300.00 | |||||||
Gary A. Ittner | $ | 39,299.30 | $ | 48,420.00 | $ | 87,719.30 | ||||||
Craig Ketchum(4) | $ | 17,198,047.58 | $ | 48,420.00 | $ | 17,246,467.58 | ||||||
Kent Ketchum(5) | $ | 6,878,317.54 | $ | 24,210.00 | $ | 6,902,527.54 | ||||||
Stephen W. Lake | $ | 78,264.59 | $ | 16,140.00 | $ | 94,404.59 | ||||||
Jeffrey Lang | $ | 38,965.30 | $ | 48,420.00 | $ | 87,385.30 | ||||||
Dennis Niver | $ | 333.99 | $ | 32,280.00 | $ | 32,613.99 | ||||||
Dee Paige | $ | 77,930.60 | $ | 72,630.00 | $ | 150,560.60 | ||||||
James F. Underhill | $ | 78,264.60 | $ | 75,858.00 | $ | 154,122.60 | ||||||
E. Gaines Wehrle(6) | $ | 7,306,083.68 | — | $ | 7,306,083.68 | |||||||
H.B. Wehrle, III | $ | 7,860,472.35 | $ | 48,420.00 | $ | 7,908,892.35 | ||||||
Stephen D. Wehrle | $ | 6,627,379.72 | $ | 24,210.00 | $ | 6,651,589.72 | ||||||
Michael H. Wehrle | $ | 7,095,097.13 | — | $ | 7,095,097.13 | |||||||
Martha G. Wehrle | $ | 870,319.63 | — | $ | 870,319.63 | |||||||
Other Wehrle Family Members(7) | $ | 34,345,051.67 | — | $ | 34,345,051.67 | |||||||
Other Ketchum Family Members(8) | $ | 19,238,151.48 | — | $ | 19,238,151.48 | |||||||
All executive officers, directors and their immediate family members | $ | 111,297,315.58 | $ | 551,988.00 | $ | 111,849,303.58 |
(1) | Mr. Best holds common units in PVF Holdings LLC through a limited liability company which he controls. | |
(2) | Mr. Boylan holds common units in PVF Holdings LLC through a limited liability company which he owns and controls. | |
(3) | The $1,975,013.20 that is indicated as being distributed on account of Mr. Fox’s common units (including common units) was distributed to a trust established by Mr. Fox. Of this sum, $993,087.61 was distributed with respect to common units and $81,345.60 was paid as a tax distribution with respect to restricted common units. The balance of this sum ($900,579.99) relates to proceeds of the dividend distributed with respect to restricted common units which are being held by PVF Holdings LLC subject to vesting of the restricted common units. | |
(4) | Craig Ketchum received $17,197,713.60 in proceeds with respect to common units held by a limited liability company which he controls. Craig Ketchum received $333.99 in proceeds with respect to common units that he holds directly. | |
(5) | Kent Ketchum received $6,877,983.55 in proceeds with respect to common units held by a limited liability company which he controls. Kent Ketchum received $333.99 in proceeds with respect to common units that he holds directly. | |
(6) | The $7,306,083.68 that is indicated as being distributed with respect to Mr. Wehrle’s common units was distributed to a trust established by Mr. Wehrle. | |
(7) | As used in this table, “Other Wehrle Family Members” include the immediate family members of H.B. Wehrle, III, E. Gaines Wehrle, Stephen D. Wehrle and Michael H. Wehrle. | |
(8) | As used in this table, “Other Ketchum Family Members” include the immediate family members of Craig Ketchum and Kent Ketchum. |
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• | 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. |
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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 | 3.00:1.00 | ||||||
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 |
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• | a disposition of any of our or our restricted subsidiaries’ business units, assets or other property not in the ordinary course of business, subject to certain exceptions for permitted asset sales; | |
• | a casualty event with respect to collateral for which we or any of our restricted subsidiaries receives insurance proceeds, or proceeds of a condemnation award or other compensation; | |
• | the issuance or incurrence by us or any of our restricted subsidiaries of indebtedness, subject to certain exceptions; and | |
• | any sale-leaseback transaction permitted under the Junior Term Loan Facility. |
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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 | 4.75:1.00 | 2.50:1.00 | ||||||
September 30, 2008 | 4.75:1.00 | 2.50:1.00 | ||||||
December 31, 2008 | 4.75:1.00 | 2.50:1.00 | ||||||
March 31, 2009 | 4.00:1.00 | 2.75:1.00 | ||||||
June 30, 2009 | 4.00:1.00 | 2.75:1.00 | ||||||
September 30, 2009 | 4.00:1.00 | 2.75:1.00 | ||||||
December 31, 2009 | 4.00:1.00 | 2.75:1.00 | ||||||
March 31, 2010 | 3.25:1.00 | 2.75:1.00 | ||||||
June 30, 2010 | 3.25:1.00 | 2.75:1.00 | ||||||
September 30, 2010 | 3.25:1.00 | 2.75:1.00 | ||||||
December 31, 2010 | 3.25:1.00 | 2.75:1.00 | ||||||
March 31, 2011 | 3.00:1.00 | 2.75:1.00 | ||||||
June 30, 2011 | 3.00:1.00 | 2.75:1.00 | ||||||
September 30, 2011 | 3.00:1.00 | 2.75:1.00 | ||||||
December 31, 2011 | 3.00:1.00 | 2.75:1.00 | ||||||
March 31, 2012 and thereafter | 3.00:1.00 | 3.00:1.00 |
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• | restricting dividends on the common stock; | |
• | diluting the voting power of the common stock; | |
• | impairing the liquidation rights of the common stock; or | |
• | delaying or preventing a change in control without further action by the stockholders. |
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• | one percent of the number of shares of common stock then outstanding, which will equal approximately shares immediately after this offering; or | |
• | the average weekly trading volume of the common stock during the four calendar weeks preceding the sale. |
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• | an individual who is a citizen or resident of the United States or a former citizen or resident of the United States subject to taxation as an expatriate; | |
• | a corporation (or other entity classified as a corporation for these purposes) created or organized in, or under the laws of, the United States or any political subdivision of the United States; | |
• | a partnership (including any entity or arrangement classified as a partnership for these purposes); | |
• | an estate whose income is includible in gross income for U.S. federal income tax purposes regardless of its source; or | |
• | a trust, if (1) a United States court is able to exercise primary supervision over the trust’s administration and one or more “United States persons” (within the meaning of the U.S. Internal Revenue Code of 1986, as amended, or the Code) has the authority to control all of the trust’s substantial decisions, or (2) the trust has a valid election in effect under applicable U.S. Treasury regulations to be treated as a United States person. |
• | special U.S. federal income tax rules that may apply to particularnon-U.S. holders, such as financial institutions, insurance companies, tax-exempt organizations, and dealers and traders in stocks, securities or currencies; | |
• | non-U.S. holders holding our common stock as part of a conversion, constructive sale, wash sale or other integrated transaction or a hedge, straddle or synthetic security; | |
• | any U.S. state and local ornon-U.S. or other tax consequences; or | |
• | the U.S. federal income or estate tax consequences for the beneficial owners of anon-U.S. holder. |
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• | the gain is effectively connected with thenon-U.S. holder’s conduct of a trade or business in the United States and, if required by an applicable income tax treaty, is attributable to a permanent establishment maintained by thenon-U.S. holder in the United States; in these cases, the gain generally will be taxed on a net income basis at the regular graduated rates and in the manner applicable to United States persons (unless an applicable income tax treaty provides otherwise) and, if thenon-U.S. holder is a foreign corporation, the “branch profits tax” described above may also apply; | |
• | thenon-U.S. holder is an individual who holds our common stock as a capital asset, is present in the United States for at least 183 days in the taxable year of the disposition and meets other requirements (in which case, except as otherwise provided by an applicable income tax treaty, the gain, which may be offset by U.S. source capital losses, generally will be subject to a flat |
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30% U.S. federal income tax, even though thenon-U.S. holder is not considered a resident alien under the Code); or |
• | we are or have been a “U.S. real property holding corporation” for U.S. federal income tax purposes at any time during the shorter of the five-year period ending on the date of disposition or the period that thenon-U.S. holder held our common stock. |
• | is a United States person; | |
• | derives 50% or more of its gross income in specific periods from the conduct of a trade or business in the United States; | |
• | is a “controlled foreign corporation” for U.S. federal income tax purposes; or | |
• | is a foreign partnership, if at any time during its tax year: |
• | one or more of its partners are United States persons who in the aggregate hold more than 50% of the income or capital interests in the partnership; or | |
• | the foreign partnership is engaged in a United States trade or business, |
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Underwriters | Number of Shares | |||
Goldman, Sachs & Co. | ||||
Lehman Brothers Inc. | ||||
J.P. Morgan Securities Inc. | ||||
Deutsche Bank Securities Inc. | ||||
Robert W. Baird & Co. Incorporated | ||||
Credit Suisse Securities (USA) LLC | ||||
Stephens Inc. | ||||
Total |
No Exercise | Full Exercise | |||||||
Per Share | $ | $ | ||||||
Total | $ | $ |
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• | the history and prospects for our industry; | |
• | our historical performance, including our net sales, net income, margins and certain other financial information; | |
• | estimates of our business potential and earnings prospects; | |
• | an assessment of our management; | |
• | investor demand for our shares of common stock; | |
• | market valuations of companies that we and the representatives believe to be comparable; and | |
• | prevailing securities markets at the time of this offering. |
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Consolidated Financial Statements of McJunkin Red Man Holding Corporation and Subsidiaries | ||||
Audited Financial Statements: | ||||
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-6 | ||||
F-7 | ||||
Unaudited Financial Statements: | ||||
F-33 | ||||
F-34 | ||||
F-35 | ||||
F-36 | ||||
Consolidated Financial Statements of McJunkin Corporation and Subsidiaries | ||||
Audited Financial Statements: | ||||
F-55 | ||||
F-56 | ||||
F-57 | ||||
F-58 | ||||
F-59 | ||||
F-60 | ||||
F-68 | ||||
F-69 | ||||
Consolidated Financial Statements of Red Man Pipe & Supply Co. and Subsidiaries | ||||
Audited Financial Statements: | ||||
F-70 | ||||
F-71 | ||||
F-72 | ||||
F-73 | ||||
F-74 | ||||
F-75 | ||||
F-77 |
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(Successor) | (Predecessor) | ||||||||
December 31, | December 31, | ||||||||
2007 | 2006 | ||||||||
ASSETS | |||||||||
CURRENT ASSETS | |||||||||
Cash | $ | 10,075 | $ | 3,748 | |||||
Receivables, less allowances of $6,352 and $2,015 | 481,463 | 168,877 | |||||||
Inventories | 666,188 | 225,304 | |||||||
Other current assets | 1,937 | 3,122 | |||||||
TOTAL CURRENT ASSETS | 1,159,663 | 401,051 | |||||||
INVESTMENTS AND OTHER ASSETS | |||||||||
Investments | 1,680 | 40,985 | |||||||
Assets held for sale | 37,500 | — | |||||||
Debt issuance costs | 23,390 | — | |||||||
Notes receivable and other assets | 4,376 | 2,995 | |||||||
66,946 | 43,980 | ||||||||
FIXED ASSETS | |||||||||
Property, plant, and equipment, net | 80,120 | 27,208 | |||||||
PROPERTY HELD UNDER CAPITAL LEASES | 1,925 | 2,104 | |||||||
INTANGIBLE ASSETS | |||||||||
Goodwill | 1,092,379 | 6,274 | |||||||
Intangible assets | 523,998 | 382 | |||||||
1,616,377 | 6,656 | ||||||||
$ | 2,925,031 | $ | 480,999 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||
CURRENT LIABILITIES | |||||||||
Trade accounts payable | $ | 306,509 | $ | 130,864 | |||||
Accrued expenses and other liabilities | 70,778 | 46,471 | |||||||
Income taxes payable | 11,996 | 2,500 | |||||||
Deferred revenue | 6,552 | 4,715 | |||||||
Deferred income taxes | 80,364 | 3,998 | |||||||
Term loans due on demand | 10,228 | — | |||||||
Current portion of long-term obligations | |||||||||
Long-term debt | 9,553 | — | |||||||
Capital leases | 189 | 167 | |||||||
TOTAL CURRENT LIABILITIES | 496,169 | 188,715 | |||||||
LONG-TERM OBLIGATIONS | |||||||||
Long-term debt | 848,616 | 13,035 | |||||||
Payable to shareholders | 49,164 | — | |||||||
Deferred income taxes | 215,487 | 15,627 | |||||||
Capital leases | 3,446 | 3,635 | |||||||
Other liabilities | 1,415 | 1,799 | |||||||
1,118,128 | 34,096 | ||||||||
MINORITY INTEREST AND AMOUNTS DUE TO FORMER RED MAN SHAREHOLDERS | 100,700 | 15,601 | |||||||
STOCKHOLDERS’ EQUITY | |||||||||
Common stock, par value $0.01 — authorized 1,000,000; issued and outstanding 299,891.4604 in 2007 | — | — | |||||||
Common stock, Class A voting, par value $700 — authorized 37,860; issued and outstanding 16,940 in 2006 | — | 11,858 | |||||||
Common stock, Class B nonvoting, par value $700 — authorized 5,000; issued and outstanding 570 in 2006 | — | 399 | |||||||
Additional paid-in capital | 1,154,148 | — | |||||||
Retained earnings | 56,926 | 206,044 | |||||||
Other comprehensive (loss) income, net of deferred income taxes of $162 and $14,759 | (1,040 | ) | 24,286 | ||||||
1,210,034 | 242,587 | ||||||||
$ | 2,925,031 | $ | 480,999 | ||||||
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(Successor) | (Predecessor) | ||||||||||||||||
Eleven Months | One Month | ||||||||||||||||
Ended | Ended | Year Ended | |||||||||||||||
December 31, | January 30, | December 31, | |||||||||||||||
2007 | 2007 | 2006 | 2005 | ||||||||||||||
SALES | $ | 2,124,919 | $ | 142,549 | $ | 1,713,679 | $ | 1,445,770 | |||||||||
COSTS AND EXPENSES | |||||||||||||||||
Cost of sales (exclusive of depreciation and amortization shown separately below) | 1,734,558 | 114,562 | 1,394,294 | 1,177,091 | |||||||||||||
Selling, general and administrative expenses | 201,948 | 14,592 | 173,948 | 155,717 | |||||||||||||
Depreciation and amortization | 5,402 | 344 | 3,936 | 3,743 | |||||||||||||
Amortization of intangibles | 10,489 | 16 | 277 | 337 | |||||||||||||
Profit sharing | 13,167 | 1,338 | 15,064 | 13,144 | |||||||||||||
Stock-based compensation | 2,988 | — | — | — | |||||||||||||
TOTAL COSTS AND EXPENSES | 1,968,552 | 130,852 | 1,587,519 | 1,350,032 | |||||||||||||
OPERATING INCOME | 156,367 | 11,697 | 126,160 | 95,738 | |||||||||||||
OTHER INCOME (EXPENSE) | |||||||||||||||||
Interest expense | (61,703 | ) | (131 | ) | (2,845 | ) | (2,707 | ) | |||||||||
Minority interests | (89 | ) | (356 | ) | (4,142 | ) | (2,774 | ) | |||||||||
Other, net | (1,090 | ) | (15 | ) | (1,259 | ) | (1,133 | ) | |||||||||
(62,882 | ) | (502 | ) | (8,246 | ) | (6,614 | ) | ||||||||||
INCOME BEFORE INCOME TAXES | 93,485 | 11,195 | 117,914 | 89,124 | |||||||||||||
Income tax expense | 36,559 | 4,599 | 48,340 | 36,583 | |||||||||||||
NET INCOME | $ | 56,926 | $ | 6,596 | $ | 69,574 | $ | 52,541 | |||||||||
Earnings per share — Class A, basic | — | — | $ | 3,972.08 | $ | 2,952.12 | |||||||||||
Earnings per share — Class A, diluted | — | — | $ | 3,972.08 | $ | 2,952.12 | |||||||||||
Weighted average shares — Class A, basic | — | — | 16,940 | 16,940 | |||||||||||||
Weighted average shares — Class A, diluted | — | — | 16,940 | 16,940 | |||||||||||||
Earnings per share — Class B, basic | — | — | $ | 4,012.08 | $ | 4,442.12 | |||||||||||
Earnings per share — Class B, diluted | — | �� | — | $ | 4,012.08 | $ | 4,442.12 | ||||||||||
Weighted average shares — Class B, basic | — | — | 570 | 570 | |||||||||||||
Weighted average shares — Class B, diluted | — | — | 570 | 570 | |||||||||||||
Basic earnings per common share | $ | 410.64 | $ | 376.70 | — | — | |||||||||||
Diluted earnings per common share | $ | 409.84 | $ | 376.70 | — | — | |||||||||||
Dividends per common share, Class A | $ | — | $ | — | $ | 40 | $ | 1,490 | |||||||||
Dividends per common share, Class B | $ | — | $ | — | $ | 80 | $ | 2,980 |
F-4
Table of Contents
Class A | Class B | Accumulated | ||||||||||||||||||||||||||||||||||||||
Common | Common | Common | Additional | Other | Total | |||||||||||||||||||||||||||||||||||
Stock | Stock | Stock | Paid-in | Retained | Comprehensive | Stockholders’ | ||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Earnings | Income (Loss) | Equity | |||||||||||||||||||||||||||||||
PREDECESSOR: | ||||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2005 | 16,940 | $ | 11,858 | 570 | $ | 399 | — | $ | — | $ | — | $ | 111,592 | $ | 8,469 | $ | 132,318 | |||||||||||||||||||||||
Net income for the year 2005 | — | — | — | — | — | — | — | 52,541 | — | 52,541 | ||||||||||||||||||||||||||||||
Change in unrealized gain on securities available for sale net of deferred taxes of $7,153 and reclassification adjustments for gains included in net income of $585 | — | — | — | — | — | — | — | — | 10,880 | 10,880 | ||||||||||||||||||||||||||||||
Net comprehensive income | 63,421 | |||||||||||||||||||||||||||||||||||||||
Cash dividends on common stock | ||||||||||||||||||||||||||||||||||||||||
On Class A, $1,490 per share | — | — | — | — | — | — | — | (25,242 | ) | — | (25,242 | ) | ||||||||||||||||||||||||||||
On Class B, $2,980 per share | — | — | — | — | — | — | — | (1,699 | ) | — | (1,699 | ) | ||||||||||||||||||||||||||||
Balance at December 31, 2005 | 16,940 | 11,858 | 570 | 399 | — | — | — | 137,192 | 19,349 | 168,798 | ||||||||||||||||||||||||||||||
Net income for the year 2006 | — | — | — | — | — | — | — | 69,574 | — | 69,574 | ||||||||||||||||||||||||||||||
Change in unrealized gain on securities available for sale net of deferred taxes of $3,230 | — | — | — | — | — | — | — | — | 4,937 | 4,937 | ||||||||||||||||||||||||||||||
Net comprehensive income | 74,511 | |||||||||||||||||||||||||||||||||||||||
Cash dividends on common stock | ||||||||||||||||||||||||||||||||||||||||
On Class A, $40 per share | — | — | — | — | — | — | — | (677 | ) | — | (677 | ) | ||||||||||||||||||||||||||||
On Class B, $80 per share | — | — | — | — | — | — | — | (45 | ) | — | (45 | ) | ||||||||||||||||||||||||||||
Balance at December 31, 2006 | 16,940 | 11,858 | 570 | 399 | — | — | — | 206,044 | 24,286 | 242,587 | ||||||||||||||||||||||||||||||
Net income for month ended January 30, 2007 | — | — | — | — | — | — | — | 6,596 | — | 6,596 | ||||||||||||||||||||||||||||||
Change in unrealized gain on securities available for sale net of deferred taxes of $2,589 | — | — | — | — | — | — | — | — | (3,958 | ) | (3,958 | ) | ||||||||||||||||||||||||||||
Net comprehensive income | 2,638 | |||||||||||||||||||||||||||||||||||||||
Balance at January 30, 2007 | 16,940 | $ | 11,858 | 570 | $ | 399 | — | $ | — | $ | — | $ | 212,640 | $ | 20,328 | $ | 245,225 | |||||||||||||||||||||||
SUCCESSOR: | ||||||||||||||||||||||||||||||||||||||||
Net income for eleven months ended December 31, 2007 | — | $ | — | — | $ | — | — | $ | — | $ | — | 56,926 | $ | — | $ | 56,926 | ||||||||||||||||||||||||
Foreign currency translation | — | — | — | — | — | — | — | — | (791 | ) | (791 | ) | ||||||||||||||||||||||||||||
Derivative valuation adjustment (net of $162 of deferred taxes) | — | — | — | — | — | — | — | — | (249 | ) | (249 | ) | ||||||||||||||||||||||||||||
Net comprehensive income | 55,886 | |||||||||||||||||||||||||||||||||||||||
Equity contribution to acquire controlling interest and recognize new basis of accounting arising from change of controlling interest of predecessor | — | — | — | — | 102,111 | — | 385,125 | — | — | 385,125 | ||||||||||||||||||||||||||||||
Carryover basis adjustment for continuing shareholders | — | — | — | — | — | — | (11,605 | ) | — | — | (11,605 | ) | ||||||||||||||||||||||||||||
Equity contribution associated with acquisition of Red Man Pipe & Supply Co. | — | — | — | — | 26,472 | — | 104,136 | — | — | 104,136 | ||||||||||||||||||||||||||||||
Equity contribution | — | — | — | — | 171,309 | — | 674,537 | — | — | 674,537 | ||||||||||||||||||||||||||||||
Issuance of stock subscription receivable | — | — | — | — | — | — | (1,033 | ) | — | — | (1,033 | ) | ||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | 2,988 | — | — | 2,988 | ||||||||||||||||||||||||||||||
Balance at December 31, 2007 | — | $ | — | — | $ | — | 299,892 | $ | — | $ | 1,154,148 | $ | 56,926 | $ | (1,040 | ) | $ | 1,210,034 | ||||||||||||||||||||||
F-5
Table of Contents
(Dollars in thousands)
(Successor) | (Predecessor) | ||||||||||||||||
Eleven Months | One Month | ||||||||||||||||
Ended | Ended | Year Ended | |||||||||||||||
December 31, | January 30, | December 31, | |||||||||||||||
2007 | 2007 | 2006 | 2005 | ||||||||||||||
CASH PROVIDED BY (USED IN) OPERATIONS | |||||||||||||||||
Net income | $ | 56,926 | $ | 6,596 | $ | 69,574 | $ | 52,541 | |||||||||
Adjustments to reconcile net income to net cash provided by operations: | |||||||||||||||||
Depreciation and amortization | 5,402 | 344 | 3,936 | 3,743 | |||||||||||||
Amortization of debt issuance costs | 8,010 | — | — | — | |||||||||||||
Stock-based compensation | 2,988 | — | — | — | |||||||||||||
Deferred income taxes | (750 | ) | — | 3,802 | (4,905 | ) | |||||||||||
Minority interest | 89 | 356 | 4,142 | 2,774 | |||||||||||||
Amortization of intangibles | 10,489 | 16 | 277 | 337 | |||||||||||||
Increase in fair market value of derivatives | — | — | — | (499 | ) | ||||||||||||
Provision for losses on receivables | 380 | 35 | 414 | 90 | |||||||||||||
Reduction of inventory loss provision | (30 | ) | 13 | (260 | ) | (233 | ) | ||||||||||
Non-operating gains and other items not providing cash | 297 | (153 | ) | (571 | ) | (1,001 | ) | ||||||||||
Changes to operating assets and liabilities: | |||||||||||||||||
Accounts receivable | 46,974 | (1,363 | ) | (5,516 | ) | (53,444 | ) | ||||||||||
Inventories | 27,821 | 6,700 | (35,835 | ) | (36,386 | ) | |||||||||||
Income taxes | 1,778 | 4,595 | (6,016 | ) | 6,823 | ||||||||||||
Other current assets | 2,169 | 139 | (580 | ) | (65 | ) | |||||||||||
Accounts payable | (35,130 | ) | (7,665 | ) | (14,432 | ) | 47,694 | ||||||||||
Deferred revenue | 1,991 | — | — | — | |||||||||||||
Accrued expenses and other current liabilities | (19,178 | ) | (2,996 | ) | (583 | ) | 12,916 | ||||||||||
NET CASH PROVIDED BY OPERATIONS | 110,226 | 6,617 | 18,352 | 30,385 | |||||||||||||
INVESTING ACTIVITIES | |||||||||||||||||
Purchases of property, plant and equipment | (5,521 | ) | (417 | ) | (5,314 | ) | (8,680 | ) | |||||||||
Proceeds from the disposition of property, plant and equipment | — | — | 354 | 955 | |||||||||||||
Acquisition of controlling interest in McJunkin by GSCP | (849,053 | ) | — | — | — | ||||||||||||
Acquisition ofMidway-Tristate Corporation | (83,338 | ) | — | — | — | ||||||||||||
Acquisition of Red Man Pipe & Supply Co., net of cash acquired of $13,866 | (852,422 | ) | — | — | — | ||||||||||||
Other investment and notes receivable transactions | 1,414 | 259 | 1,698 | 1,024 | |||||||||||||
NET CASH USED IN INVESTING ACTIVITIES | (1,788,920 | ) | (158 | ) | (3,262 | ) | (6,701 | ) | |||||||||
FINANCING ACTIVITIES | |||||||||||||||||
Proceeds from issuance of long-term obligations | 897,500 | — | 9,731 | — | |||||||||||||
Payments on long-term obligations | (78,834 | ) | (8,254 | ) | — | (11,319 | ) | ||||||||||
Cash equity contribution in conjunction with acquisition of controlling interest in McJunkin by GSCP | 225,653 | — | — | — | |||||||||||||
Cash equity contributions | 673,505 | — | — | — | |||||||||||||
Debt issuance costs paid | (30,636 | ) | — | — | — | ||||||||||||
Dividends paid | — | — | (26,938 | ) | (9,765 | ) | |||||||||||
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | 1,687,188 | (8,254 | ) | (17,207 | ) | (21,084 | ) | ||||||||||
Increase (decrease) in cash | 8,494 | (1,795 | ) | (2,117 | ) | 2,600 | |||||||||||
Effect of foreign exchange rate on cash | (372 | ) | — | — | — | ||||||||||||
Cash — beginning of period | 1,953 | 3,748 | 5,865 | 3,265 | |||||||||||||
CASH — END OF YEAR | $ | 10,075 | $ | 1,953 | $ | 3,748 | $ | 5,865 | |||||||||
F-6
Table of Contents
December 31, 2007
NOTE 1 — | SIGNIFICANT ACCOUNTING POLICIES |
F-7
Table of Contents
December 31, 2007
F-8
Table of Contents
December 31, 2007
Additions | ||||||||||||||||
Charged to | ||||||||||||||||
Beginning | Costs & | Ending | ||||||||||||||
Balance | Expenses | Deductions | Balance | |||||||||||||
(In thousands) | ||||||||||||||||
(Successor) | ||||||||||||||||
Eleven months ended | ||||||||||||||||
December 31, 2007 | $ | 2,059.6 | $ | 4,450.2 | $ | 157.6 | $ | 6,352.2 | ||||||||
One month ended January 30, 2007 | 2,015.0 | 45.0 | 0.4 | 2,059.6 | ||||||||||||
(Predecessor) | ||||||||||||||||
Year ended December 31, 2006 | 1,743.3 | 414.0 | 142.3 | 2,015.0 | ||||||||||||
Year ended December 31, 2005 | 1,722.0 | 90.0 | 68.7 | 1,743.3 |
F-9
Table of Contents
December 31, 2007
Buildings and improvements | 40 years | |||
Machinery, shop equipment and vehicles | 3-10 years | |||
Furniture, fixtures and office equipment | 3-10 years |
F-10
Table of Contents
December 31, 2007
F-11
Table of Contents
December 31, 2007
NOTE 2 — | TRANSACTIONS |
F-12
Table of Contents
December 31, 2007
Sources | ||||
Asset-Based Revolving Credit Facility | $ | 75.0 | ||
Term Loan Facility | 575.0 | |||
Equity contribution — cash | 225.6 | |||
Equity contribution — non-cash | 159.5 | |||
Total sources | $ | 1,035.1 | ||
Uses | ||||
Consideration paid to stockholders (including non-cash rollover by McJunkin and McApple stockholders of $159.5 million) | $ | 983.4 | ||
Transaction costs | 16.5 | |||
Debt issuance costs | 22.8 | |||
General corporate purposes | 7.6 | |||
Repayment of existing debt | 4.8 | |||
Total uses | $ | 1,035.1 | ||
F-13
Table of Contents
December 31, 2007
Cash consideration: | ||||||||
Paid to shareholders | $ | 823.9 | ||||||
Transaction costs paid at closing | 16.5 | |||||||
Transaction costs paid outside of closing | 8.6 | |||||||
849.0 | ||||||||
Noncash consideration | 159.5 | |||||||
Total consideration | 1,008.5 | |||||||
Net assets acquired at historical cost | 245.2 | |||||||
Adjustments to state acquired assets at fair value: | ||||||||
1) Increase carrying value of property and equipment to fair value | $ | 16.6 | ||||||
2) Increase carrying value of inventory to fair value | 68.2 | |||||||
3) Write-off historical goodwill and tradename | (6.6 | ) | ||||||
4) Record intangible assets acquired | ||||||||
Customer-related intangibles | 356.0 | |||||||
Sales order backlog | 1.6 | |||||||
Non-compete agreements | 1.0 | |||||||
Tradename | 155.8 | |||||||
5) Eliminate McApple minority interest | 16.0 | |||||||
6) Record liability to shareholders related to non-core assets | (26.2 | ) | ||||||
7) Record fair value adjustments to various other assets and liabilities | 0.2 | |||||||
8) Tax impact of valuation adjustments | (213.8 | ) | 368.8 | |||||
Net assets acquired at fair value | 614.0 | |||||||
Carryover basis adjustment | (11.6 | ) | ||||||
Excess purchase price recorded as goodwill | $ | 382.9 | ||||||
F-14
Table of Contents
December 31, 2007
Assets | ||||
Cash | $ | 10.9 | ||
Accounts receivable | 168.8 | |||
Inventory | 293.8 | |||
Assets held for sale | 39.9 | |||
Debt issuance costs | 22.8 | |||
Fixed assets | 39.8 | |||
Other assets | 5.7 | |||
Intangible assets | 514.4 | |||
Goodwill | 382.9 | |||
1,479.0 | ||||
Liabilities and Stockholders Equity | ||||
Accounts payable | 135.2 | |||
Accrued expenses | 50.8 | |||
Income taxes payable | 7.0 | |||
Deferred income taxes | 230.7 | |||
Payable to shareholders | 28.0 | |||
Other liabilities | 3.8 | |||
Debt | 650.0 | |||
Stockholders Equity | 373.5 | |||
$ | 1,479.0 |
F-15
Table of Contents
December 31, 2007
Assets acquired | ||||
Accounts receivable | $ | 19.5 | ||
Inventory | 30.8 | |||
Fixed assets | 3.4 | |||
Other assets | 0.1 | |||
Customer-related intangibles | 20.1 | |||
Goodwill | 30.8 | |||
104.7 | ||||
Liabilities assumed | ||||
Accounts payable | 11.5 | |||
Accrued expenses | 2.1 | |||
Income taxes payable | 0.2 | |||
Deferred income taxes | 7.6 | |||
21.4 | ||||
Total purchase price | $ | 83.3 | ||
F-16
Table of Contents
December 31, 2007
Assets acquired | ||||
Cash | $ | 13.9 | ||
Accounts receivable | 342.3 | |||
Notes and other receivables | 5.2 | |||
Inventory | 378.5 | |||
Fixed assets | 39.6 | |||
Other assets | 0.2 | |||
Intangible Assets | 451.1 | |||
Goodwill | 230.8 | |||
1,461.6 | ||||
Liabilities assumed | ||||
Accounts payable | 209.5 | |||
Accrued expenses | 42.9 | |||
Income taxes payable | 3.1 | |||
Deferred income taxes | 60.3 | |||
Debt | 71.6 | |||
Minority interest and amounts due to former Red Man shareholders | 100.6 | |||
Other liabilities | 3.2 | |||
491.2 | ||||
Total purchase price | $ | 970.4 | ||
F-17
Table of Contents
December 31, 2007
Years Ended December 31, | ||||||||
2007 | 2006 | |||||||
(In millions) | ||||||||
Revenues | $ | 4,000.0 | $ | 3,703.1 | ||||
Net income | 147.6 | 84.4 |
Common | Restricted Stock | |||||||||||
Consideration | Stock | & Options | ||||||||||
(in thousands) | ||||||||||||
Equity issued to majority shareholders in exchange for cash | $ | 900,158 | 228,571.74 | |||||||||
Equity issued in exchange for shares in McJunkin | 159,472 | 40,538.94 | ||||||||||
Equity issued in exchange for shares in Red Man | 104,136 | 26,472.20 | ||||||||||
Equity issued in deferred compensation to members of management | — | 4,308.80 | 4,168.99 | |||||||||
1,163,766 | 299,892 | 4,168.99 |
F-18
Table of Contents
December 31, 2007
NOTE 3 — | GOODWILL AND INTANGIBLE ASSETS |
Sales | Tradename | |||||||||||||||||||
Order | Customer | Non Compete | (With | |||||||||||||||||
Backlog | Base | Agreements | Indefinite | |||||||||||||||||
(1 Year) | (38 Years) | (5 Years) | Life) | Goodwill | ||||||||||||||||
Recorded in connection with the McJunkin acquisition | $ | 1,601 | $ | 356,036 | $ | 970 | $ | 155,762 | $ | 382,908 | ||||||||||
Recorded in connection with the Midway acquisition | — | 20,118 | — | — | 30,802 | |||||||||||||||
Recorded in connection with the Red Man acquisition (preliminary, see note below) | — | — | — | — | 681,906 | |||||||||||||||
Amortization | (1,467 | ) | (8,844 | ) | (178 | ) | — | — | ||||||||||||
Impact of foreign currency translation | — | — | — | — | (3,237 | ) | ||||||||||||||
Balance at December 31, 2007 | $ | 134 | $ | 367,310 | $ | 792 | $ | 155,762 | $ | 1,092,379 | ||||||||||
2008 | $ | 10.3 | ||
2009 | 10.1 | |||
2010 | 10.1 | |||
2011 | 10.1 | |||
2012 | 10.1 |
(dollars in thousands)
F-19
Table of Contents
December 31, 2007
NOTE 4 — | INVENTORIES |
NOTE 5 — | LONG-TERM DEBT |
(Successor) | (Predecessor) | ||||||||
December 31, | December 31, | ||||||||
2007 | 2006 | ||||||||
Asset-based revolving credit facility | $ | 234,146 | $ | — | |||||
Term loan facility | 569,250 | — | |||||||
Revolving credit/term loan agreement | — | 8,300 | |||||||
Short-term debt expected to be refinanced on a long-term basis | — | 2,735 | |||||||
Three-year asset securitization | — | 2,000 | |||||||
Midfield revolving credit facility | 50,970 | — | |||||||
Midfield term loan facility | 10,228 | — | |||||||
Midfield notes payable | 3,803 | — | |||||||
868,397 | 13,035 | ||||||||
Less current portion | 19,781 | — | |||||||
$ | 848,616 | $ | 13,035 | ||||||
F-20
Table of Contents
December 31, 2007
• | A first-priority security interest in personal property consisting of inventory and accounts receivable; | |
• | A second-priority pledge of certain of the capital stock held by MRM or any subsidiary guarantor; and |
F-21
Table of Contents
December 31, 2007
• | A second-priority security interest in, and mortgages on, substantially all other tangible and intangible assets of MRM and each subsidiary guarantor. |
• | Incur additional indebtedness; | |
• | Pay dividends on MRM’s capital stock or the capital stock of MRM’s direct or indirect parent; | |
• | Make investments, loans, advances or acquisitions; | |
• | Sell assets, including capital stock of MRM’s subsidiaries; | |
• | Consolidate or merge with another entity; | |
• | Create liens; | |
• | Pay, redeem, or amend the terms of subordinated indebtedness; | |
• | Enter into certain sale-leaseback transactions; | |
• | Fundamentally or substantively alter the character of the business conducted by MRM and its subsidiaries; and | |
• | Enter into agreements that limit (1) the ability of non-guarantors to pay dividends to MRM or any guarantor or (2) the ability of MRM or any guarantor to pledge its assets to secure its obligations under the Asset-Based Revolving Credit Facility. |
F-22
Table of Contents
December 31, 2007
• | A second-priority security interest in personal property consisting of inventory and accounts receivable; | |
• | A first-priority pledge of certain of the capital stock held by MRM or any subsidiary guarantor; and | |
• | A first-priority security interest in, and mortgages on, substantially all other tangible and intangible assets of the MRM and each subsidiary guarantor. |
F-23
Table of Contents
December 31, 2007
2008 | $ | 19.8 | ||
2009 | 5.8 | |||
2010 | 56.8 | |||
2011 | 5.8 | |||
2012 | 5.8 | |||
Thereafter | 774.6 |
F-24
Table of Contents
December 31, 2007
NOTE 6 — | PROPERTY, PLANT, AND EQUIPMENT |
(Successor) | (Predecessor) | ||||||||
December 31, | December 31, | ||||||||
2007 | 2006 | ||||||||
Land and improvements | $ | 10,911 | $ | 4,392 | |||||
Buildings and building improvements | 31,624 | 21,416 | |||||||
Equipment | 42,295 | 43,143 | |||||||
84,830 | 68,951 | ||||||||
Allowances for depreciation | (4,710 | ) | (41,743 | ) | |||||
$ | 80,120 | $ | 27,208 | ||||||
NOTE 7 — | LEASES |
(Successor) | (Predecessor) | ||||||||||||||||
Eleven | One | ||||||||||||||||
Months | Month | ||||||||||||||||
Ended | Ended | Years Ended | |||||||||||||||
December 31, | January 30, | December 31, | |||||||||||||||
2007 | 2007 | 2006 | 2005 | ||||||||||||||
Amortization of capital leases | $ | 164 | $ | 15 | $ | 179 | $ | 179 | |||||||||
(Successor) | (Predecessor) | ||||||||
December 31, | December 31, | ||||||||
2007 | 2006 | ||||||||
Land and buildings | $ | 2,089 | $ | 4,881 | |||||
Allowances for amortization | (164 | ) | (2,777 | ) | |||||
$ | 1,925 | $ | 2,104 | ||||||
F-25
Table of Contents
December 31, 2007
(Successor) | (Predecessor) | ||||||||||||||||
Eleven | One | ||||||||||||||||
Months | Month | ||||||||||||||||
Ended | Ended | Years Ended | |||||||||||||||
December 31, | January 30, | December 31, | |||||||||||||||
2007 | 2007 | 2006 | 2005 | ||||||||||||||
Leases with Hansford Associates | $ | 1,498 | $ | 136 | $ | 1,534 | $ | 1,474 | |||||||||
Leases with Appalachian Leasing | 134 | 12 | 153 | 154 | |||||||||||||
Leases with Prideco | 538 | — | — | — | |||||||||||||
Leases with Midfield shareholders | 151 | — | — | — | |||||||||||||
Other operating leases | 8,748 | 608 | 7,149 | 6,442 | |||||||||||||
Total rent expense under operating leases | $ | 11,069 | $ | 756 | $ | 8,836 | $ | 8,070 | |||||||||
NOTE 8 — | INCOME TAXES |
(Successor) | (Predecessor) | ||||||||||||||||
Eleven | One | ||||||||||||||||
Months | Month | ||||||||||||||||
Ended | Ended | Years Ended | |||||||||||||||
December 31, | January 30, | December 31, | |||||||||||||||
2007 | 2007 | 2006 | 2005 | ||||||||||||||
Current: | |||||||||||||||||
Federal | $ | 31,190 | $ | 4,024 | $ | 36,514 | $ | 34,075 | |||||||||
State | 5,895 | 814 | 8,024 | 7,413 | |||||||||||||
Foreign | 224 | — | — | — | |||||||||||||
37,309 | 4,838 | 44,538 | 41,488 | ||||||||||||||
Deferred: | |||||||||||||||||
Federal | 263 | (197 | ) | 3,129 | (4,037 | ) | |||||||||||
State | 38 | (42 | ) | 673 | (868 | ) | |||||||||||
Foreign | (1,051 | ) | — | — | — | ||||||||||||
(750 | ) | (239 | ) | 3,802 | (4,905 | ) | |||||||||||
Income tax provision | $ | 36,559 | $ | 4,599 | $ | 48,340 | $ | 36,583 | |||||||||
F-26
Table of Contents
December 31, 2007
(Successor) | (Predecessor) | ||||||||||||||||
Eleven | One | ||||||||||||||||
Months | Month | ||||||||||||||||
Ended | Ended | Years Ended | |||||||||||||||
December 31, | January 30, | December 31, | |||||||||||||||
2007 | 2007 | 2006 | 2005 | ||||||||||||||
Federal tax expense at statutory rates | $ | 32,721 | $ | 3,918 | $ | 41,270 | $ | 31,193 | |||||||||
State taxes | 3,971 | 502 | 5,653 | 4,254 | |||||||||||||
Non-deductible expenses | 424 | 26 | 409 | 372 | |||||||||||||
Foreign | (827 | ) | — | — | — | ||||||||||||
Other | 270 | 153 | 1,008 | 764 | |||||||||||||
Income tax provision | $ | 36,559 | $ | 4,599 | $ | 48,340 | $ | 36,583 | |||||||||
Effective rate | 39.10 | % | 40.78 | % | 41.0 | % | 41.0 | % | |||||||||
(Successor) | (Predecessor) | ||||||||
December 31, | December 31, | ||||||||
2007 | 2006 | ||||||||
Deferred tax assets: | |||||||||
Accounts receivable valuation | $ | 964 | $ | 797 | |||||
Real estate and investments | 26 | 86 | |||||||
Accruals and reserves | 2,395 | 3,684 | |||||||
Other | 819 | — | |||||||
Total deferred tax assets | 4,204 | 4,567 | |||||||
Deferred tax liabilities: | |||||||||
Accounts receivable | (3,878 | ) | — | ||||||
Inventory valuation | (75,882 | ) | (6,464 | ) | |||||
Property, plant and equipment | (6,485 | ) | (2,969 | ) | |||||
Interest in Red Man Canada | (4,138 | ) | — | ||||||
Investments | (11,930 | ) | (14,759 | ) | |||||
Intangible assets | (197,742 | ) | — | ||||||
Total deferred tax liabilities | (300,055 | ) | (24,192 | ) | |||||
Net deferred tax liability | $ | (295,851 | ) | $ | (19,625 | ) | |||
F-27
Table of Contents
December 31, 2007
(Successor) | (Predecessor) | |||||||
Eleven Months | One Month | |||||||
Ended | Ended | |||||||
December 31, | January 30, | |||||||
2007 | 2007 | |||||||
Beginning balance | $ | 667 | $ | 667 | ||||
Additions based on tax positions related to current year | — | — | ||||||
Reductions due to lapse of statute of limitations | (69 | ) | — | |||||
Reductions for tax positions of prior years | (53 | ) | — | |||||
Settlements | (40 | ) | — | |||||
Ending balance | $ | 505 | $ | 667 | ||||
NOTE 9 — | STOCK-BASED COMPENSATION |
F-28
Table of Contents
December 31, 2007
Risk-free interest rate | 4.10% | |
Dividend yield | 0.00% | |
Expected volatility | 22.07% | |
Expected lives | 6.2 years |
Weighted Average | ||||||||
Options | Exercise Price | |||||||
Outstanding at January 31, 2007 | — | $ | — | |||||
Granted | 3,533.46 | 3,933.81 | ||||||
Exercised | — | — | ||||||
Forfeited | — | — | ||||||
Expired | — | — | ||||||
Outstanding at December 31, 2007 | 3,533.46 | $ | 3,933.81 | |||||
Options exercisable at December 31, 2007 | — | $ | — | |||||
Options vested at December 31, 2007 | — | — |
Shares | ||||
Balance at January 31, 2007 | — | |||
Granted | 635.52 | |||
Forfeited | — | |||
Issued | — | |||
Balance at December 31, 2007 | 635.52 | |||
F-29
Table of Contents
December 31, 2007
NOTE 10 — | EMPLOYEE BENEFIT PLANS |
(Successor) | (Predecessor) | ||||||||||||||||
Eleven | One | ||||||||||||||||
Months | Month | ||||||||||||||||
Ended | Ended | Years Ended | |||||||||||||||
December 31, | January 30, | December 31, | |||||||||||||||
2007 | 2007 | 2006 | 2005 | ||||||||||||||
Profit sharing expenses | $ | 12,294 | $ | 1,338 | $ | 15,064 | $ | 13,144 | |||||||||
401(k) savings plan expenses | 1,141 | 73 | 837 | 830 | |||||||||||||
Other | 157 | — | — | — |
NOTE 11 — | RELATED PARTY TRANSACTIONS |
F-30
Table of Contents
December 31, 2007
NOTE 12 — | EARNINGS PER SHARE |
(Successor) | (Predecessor) | ||||||||||||||||
Eleven Months | One Month | ||||||||||||||||
Ended | Ended | ||||||||||||||||
December 31, | January 30, | Year Ended December 31, | |||||||||||||||
2007 | 2007 | 2006 | 2005 | ||||||||||||||
Net income (in thousands) | $ | 56,926 | $ | 6,596 | $ | 69,574 | $ | 52,541 | |||||||||
Average basic shares outstanding | 138,627 | 17,510 | 17,510 | 17,510 | |||||||||||||
Effect of dilutive securities | 272 | — | — | — | |||||||||||||
Average dilutive shares outstanding | 138,899 | 17,510 | 17,510 | 17,510 | |||||||||||||
Net income per share: | |||||||||||||||||
Basic | $ | 410.64 | $ | 376.70 | $ | 3,973.39 | $ | 3,000.63 | |||||||||
Diluted | $ | 409.84 | $ | 376.70 | $ | 3,973.39 | $ | 3,000.63 |
NOTE 13 — | CONTINGENCIES |
F-31
Table of Contents
December 31, 2007
F-32
Table of Contents
McJUNKIN RED MAN HOLDING CORPORATION
(Dollars in thousands)
June 26, | December 31, | |||||||
2008 | 2007 | |||||||
(Note1) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash | $ | 8,761 | $ | 10,075 | ||||
Receivables, less allowances of $5,426 and $6,352 | 617,693 | 481,463 | ||||||
Inventories | 724,208 | 666,188 | ||||||
Other current assets | 4,437 | 1,937 | ||||||
TOTAL CURRENT ASSETS | 1,355,099 | 1,159,663 | ||||||
INVESTMENTS AND OTHER ASSETS | ||||||||
Investments | 1,571 | 1,680 | ||||||
Assets held for sale | 36,022 | 37,500 | ||||||
Debt issuance costs | 30,341 | 23,390 | ||||||
Notes receivable and other assets | 3,705 | 4,376 | ||||||
71,639 | 66,946 | |||||||
FIXED ASSETS | ||||||||
Property, plant, and equipment, net | 91,396 | 80,120 | ||||||
PROPERTY HELD UNDER CAPITAL LEASES | 1,835 | 1,925 | ||||||
INTANGIBLE ASSETS | ||||||||
Goodwill | 814,704 | 1,092,379 | ||||||
Intangible assets | 959,603 | 523,998 | ||||||
1,774,307 | 1,616,377 | |||||||
$ | 3,294,276 | $ | 2,925,031 | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Trade accounts payable | $ | 453,184 | $ | 306,509 | ||||
Accrued expenses and other liabilities | 103,724 | 70,778 | ||||||
Income taxes payable | 10,182 | 11,996 | ||||||
Deferred revenue | 8,589 | 6,552 | ||||||
Deferred income taxes | 76,538 | 80,364 | ||||||
Term loans due on demand | 9,845 | 10,228 | ||||||
Current portion of long-term obligations | ||||||||
Long-term debt | 6,717 | 9,553 | ||||||
Capital leases | 259 | 189 | ||||||
TOTAL CURRENT LIABILITIES | 669,038 | 496,169 | ||||||
LONG-TERM OBLIGATIONS | ||||||||
Long-term debt | 1,268,184 | 848,616 | ||||||
Payable to shareholders | 52,294 | 49,164 | ||||||
Deferred income taxes | 380,512 | 215,487 | ||||||
Capital leases | 3,339 | 3,446 | ||||||
Other liabilities | 1,386 | 1,415 | ||||||
1,705,715 | 1,118,128 | |||||||
MINORITY INTEREST AND AMOUNTS DUE TO FORMER RED MAN SHAREHOLDERS | 95,164 | 100,700 | ||||||
STOCKHOLDERS’ EQUITY | ||||||||
Common stock, $0.01 par value per share; 1,000,000 shares authorized issued and outstanding June 2008 — 311,364.7277, issued and outstanding December 2007 — 299,891.4604 | — | — | ||||||
Additional paid-in capital | 1,169,589 | 1,154,148 | ||||||
Retained earnings | (341,763 | ) | 56,926 | |||||
Other comprehensive (loss), net of deferred income taxes of $1,200 and $162 | (3,467 | ) | (1,040 | ) | ||||
824,359 | 1,210,034 | |||||||
$ | 3,294,276 | $ | 2,925,031 | |||||
F-33
Table of Contents
McJUNKIN RED MAN HOLDING CORPORATION
(Dollars in thousands, except per share data)
(Successor) | (Predecessor) | |||||||||||
Six Months | Five Months | One Month | ||||||||||
Ended | Ended | Ended | ||||||||||
June 26, 2008 | June 28, 2007 | January 30, 2007 | ||||||||||
SALES | $ | 2,196,033 | $ | 784,964 | $ | 142,549 | ||||||
COSTS AND EXPENSES | ||||||||||||
Cost of sales (exclusive of depreciation and amortization shown separately below) | 1,803,792 | 635,934 | 114,562 | |||||||||
Selling, general and administrative expenses | 200,116 | 80,714 | 14,592 | |||||||||
Depreciation and amortization | 5,192 | 1,665 | 344 | |||||||||
Amortization of intangibles | 15,623 | 4,624 | 16 | |||||||||
Profit sharing | 13,509 | 5,635 | 1,338 | |||||||||
Stock-based compensation | 3,319 | 1,291 | — | |||||||||
TOTAL COSTS AND EXPENSES | 2,041,551 | 729,863 | 130,852 | |||||||||
OPERATING INCOME | 154,482 | 55,101 | 11,697 | |||||||||
OTHER INCOME (EXPENSE) | ||||||||||||
Interest expense | (34,973 | ) | (24,332 | ) | (131 | ) | ||||||
Minority interests | (123 | ) | — | (356 | ) | |||||||
Other, net | (249 | ) | (822 | ) | (15 | ) | ||||||
(35,345 | ) | (25,154 | ) | (502 | ) | |||||||
INCOME BEFORE INCOME TAXES | 119,137 | 29,947 | 11,195 | |||||||||
Income tax expense | 43,203 | 12,333 | 4,599 | |||||||||
NET INCOME | $ | 75,934 | $ | 17,614 | $ | 6,596 | ||||||
Effective Tax Rate | 36.26 | % | 41.18 | % | 41.08 | % | ||||||
Basic earnings per common share | $ | 245.41 | $ | 171.69 | $ | 376.70 | ||||||
Diluted earnings per common share | $ | 244.92 | $ | 171.36 | $ | 376.70 | ||||||
Dividends per common share | $ | 1,523 | $ | — | $ | — |
F-34
Table of Contents
McJUNKIN RED MAN HOLDING CORPORATION
(Dollars in thousands)
(Successor) | (Predecessor) | |||||||||||
Six Months | Five Months | One Month | ||||||||||
Ended | Ended | Ended | ||||||||||
June 26, 2008 | June 28, 2007 | January 30, 2007 | ||||||||||
CASH PROVIDED BY OPERATIONS | ||||||||||||
Net income | $ | 75,934 | $ | 17,614 | $ | 6,596 | ||||||
Adjustments to reconcile net income to net cash provided by operations: | ||||||||||||
Depreciation and amortization | 5,192 | 1,665 | 344 | |||||||||
Amortization of debt issuance costs | 2,285 | 1,571 | — | |||||||||
Stock-based compensation | 3,319 | 1,291 | — | |||||||||
Deferred income taxes | (2,482 | ) | (2,065 | ) | — | |||||||
Minority interest | 123 | — | 356 | |||||||||
Amortization of intangibles | 15,623 | 4,624 | 16 | |||||||||
Change in fair market value of derivatives | 413 | — | — | |||||||||
Provision for losses on receivables | 1,052 | 175 | 35 | |||||||||
Inventory loss provision | 313 | 65 | 13 | |||||||||
Non-operating gains (losses) and other items not providing cash | (273 | ) | 82 | (153 | ) | |||||||
Changes in operating assets and liabilities: | ||||||||||||
Accounts receivable | (138,949 | ) | (28,597 | ) | (1,363 | ) | ||||||
Inventories | (57,634 | ) | (2,843 | ) | 6,700 | |||||||
Income taxes | (1,763 | ) | (2,248 | ) | 4,595 | |||||||
Other current assets | (2,509 | ) | 526 | 139 | ||||||||
Accounts payable | 146,589 | 6,104 | (7,665 | ) | ||||||||
Accrued expenses and other current liabilities | 23,264 | 3,931 | (2,996 | ) | ||||||||
NET CASH PROVIDED BY OPERATIONS | 70,497 | 1,895 | 6,617 | |||||||||
INVESTING ACTIVITIES | ||||||||||||
Purchases of property, plant and equipment | (7,550 | ) | (2,235 | ) | (417 | ) | ||||||
Proceeds from the disposition of property, plant and equipment | 1,330 | 39 | — | |||||||||
Acquisition of controlling interest in McJunkin by GSCP | — | (849,053 | ) | — | ||||||||
Acquisition of Midway Tristate Corporation | (3 | ) | (83,338 | ) | — | |||||||
Acquisition of Red Man Pipe & Supply | (11,391 | ) | — | — | ||||||||
Other investment and notes receivable transactions | 1,177 | 1,331 | 259 | |||||||||
NET CASH USED IN INVESTING ACTIVITIES | (16,437 | ) | (933,256 | ) | (158 | ) | ||||||
FINANCING ACTIVITIES | ||||||||||||
Proceeds from issuance of long-term obligations | 454,474 | 747,433 | — | |||||||||
Payments on long-term obligations | (31,384 | ) | (4,896 | ) | (8,254 | ) | ||||||
Cash equity contribution in conjunction with acquisition of controlling interest in McJunkin by GSCP | — | 225,653 | — | |||||||||
Cash equity contributions | 5,030 | 507 | — | |||||||||
Debt issuance costs paid | (9,257 | ) | (22,837 | ) | — | |||||||
Dividends paid | (474,096 | ) | — | — | ||||||||
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | (55,233 | ) | 945,860 | (8,254 | ) | |||||||
(Decrease) increase in cash | (1,173 | ) | 14,499 | (1,795 | ) | |||||||
Effect of foreign exchange rate on cash | (141 | ) | — | — | ||||||||
Cash — beginning of period | 10,075 | 1,953 | 3,748 | |||||||||
CASH — END OF PERIOD | $ | 8,761 | $ | 16,452 | $ | 1,953 | ||||||
F-35
Table of Contents
NOTE 1 — | SIGNIFICANT ACCOUNTING POLICIES |
F-36
Table of Contents
F-37
Table of Contents
NOTE 2 — | TRANSACTIONS AND SUBSEQUENT EVENT |
F-38
Table of Contents
Sources | ||||
Asset-Based Revolving Credit Facility | $ | 75.0 | ||
Term Loan Facility | 575.0 | |||
Equity contribution — cash | 225.6 | |||
Equity contribution — non-cash | 159.5 | |||
Total sources | $ | 1,035.1 | ||
Uses | ||||
Consideration paid to stockholders (including non-cash rollover by McJunkin and McApple stockholders of $159.5 million) | $ | 983.4 | ||
Transaction costs | 16.5 | |||
Debt issuance costs | 22.8 | |||
General corporate purposes | 7.6 | |||
Repayment of existing debt | 4.8 | |||
Total uses | $ | 1,035.1 | ||
F-39
Table of Contents
Cash consideration: | ||||||||
Paid to shareholders | $ | 823.9 | ||||||
Transaction costs paid at closing | 16.5 | |||||||
Transaction costs paid outside of closing | 8.6 | |||||||
849.0 | ||||||||
Noncash consideration | 159.5 | |||||||
Total consideration | 1,008.5 | |||||||
Net assets acquired at historical cost | 245.2 | |||||||
Adjustments to state acquired assets at fair value: | ||||||||
1) Increase carrying value of property and equipment to fair value | $ | 16.6 | ||||||
2) Increase carrying value of inventory to fair value | 68.2 | |||||||
3) Write-off historical goodwill and tradename | (6.6 | ) | ||||||
4) Record intangible assets acquired | ||||||||
Customer-related intangibles | 356.0 | |||||||
Sales order backlog | 1.6 | |||||||
Non-compete agreements | 1.0 | |||||||
Tradename | 155.8 | |||||||
5) Eliminate McApple minority interest | 16.0 | |||||||
6) Record liability to shareholders related to non-core assets | (26.2 | ) | ||||||
7) Record fair value adjustments to various other assets and liabilities | 0.2 | |||||||
8) Tax impact of valuation adjustments | (213.8 | ) | 368.8 | |||||
Net assets acquired at fair value | 614.0 | |||||||
Carryover basis adjustment | (11.6 | ) | ||||||
Excess purchase price recorded as goodwill | $ | 382.9 | ||||||
F-40
Table of Contents
Assets acquired | ||||
Accounts receivable | $ | 19.5 | ||
Inventory | 30.8 | |||
Fixed assets | 3.4 | |||
Other assets | 0.1 | |||
Customer-related intangibles | 20.1 | |||
Goodwill | 30.6 | |||
104.5 | ||||
Liabilities assumed | ||||
Accounts payable | 11.5 | |||
Accrued expenses | 2.1 | |||
Income taxes payable | 0.2 | |||
Deferred income taxes | 7.4 | |||
21.2 | ||||
Total purchase price | $ | 83.3 | ||
F-41
Table of Contents
Assets acquired | ||||
Cash | $ | 13.9 | ||
Accounts receivable | 335.2 | |||
Notes and other receivables | 5.2 | |||
Inventory | 386.3 | |||
Fixed assets | 50.6 | |||
Other assets | 0.3 | |||
Customer-related intangibles | 260.2 | |||
Tradename | 188.9 | |||
Sales order backlog | 2.0 | |||
Goodwill | 407.9 | |||
1,650.5 | ||||
Liabilities assumed | ||||
Accounts payable | 209.5 | |||
Accrued expenses | 45.6 | |||
Income taxes payable | 3.1 | |||
Deferred income taxes | 225.9 | |||
Debt | 71.6 | |||
Minority interest | 100.6 | |||
Other liabilities | 3.2 | |||
659.5 | ||||
Total purchase price | $ | 991.0 | ||
F-42
Table of Contents
Six Months Ended, | ||||
June 28, | ||||
2007 | ||||
(in millions) | ||||
Pro forma sales | $ | 1,909.2 | ||
Pro forma net income | $ | 62.6 |
NOTE 3 — | GOODWILL AND INTANGIBLE ASSETS |
Sales | Tradename | |||||||||||||||||||
Order | Customer | Non Compete | (With | |||||||||||||||||
Backlog | Base | Agreements | Indefinite | |||||||||||||||||
(1 Year) | (30.5 Years) | (5 Years) | Life) | Goodwill | ||||||||||||||||
Recorded in connection with the McJunkin acquisition | $ | 1,601 | $ | 356,036 | $ | 970 | $ | 155,762 | $ | 382,908 | ||||||||||
Recorded in connection with the Midway acquisition (preliminary) | — | 20,118 | — | — | 30,802 | |||||||||||||||
Recorded in connection with the Red Man acquisition (preliminary) | — | — | — | — | 681,906 | |||||||||||||||
Amortization | (1,467 | ) | (8,844 | ) | (178 | ) | — | — | ||||||||||||
Impact of foreign currency translation | — | — | — | — | (3,237 | ) | ||||||||||||||
Balance at December 31, 2007 | $ | 134 | $ | 367,310 | $ | 792 | $ | 155,762 | $ | 1,092,379 | ||||||||||
Adjustments to purchase price allocation in connection with the Red Man acquisition | 2,048 | 260,316 | — | 188,864 | (273,978 | ) | ||||||||||||||
Adjustments to purchase price allocation in connection with the Midway acquisition | — | — | — | — | (170 | ) | ||||||||||||||
Amortization | (1,321 | ) | (14,204 | ) | (98 | ) | — | — | ||||||||||||
Impact of foreign currency translation | (3,527 | ) | ||||||||||||||||||
Balance at June 26, 2008 | $ | 861 | $ | 613,422 | $ | 694 | $ | 344,626 | $ | 814,704 | ||||||||||
F-43
Table of Contents
2008 | $ | 27.9 | ||
2009 | 26.1 | |||
2010 | 26.1 | |||
2011 | 26.1 | |||
2012 | 26.1 |
NOTE 4 — | INVENTORIES |
NOTE 5 — | LONG-TERM DEBT |
June 26, | December 31, | ||||||||
2008 | 2007 | ||||||||
Asset-based revolving credit facility | $ | 204,394 | $ | 234,146 | |||||
Term loan facility | 567,813 | 569,250 | |||||||
Junior Term loan facility | 450,000 | — | |||||||
Midfield revolving credit facility | 51,727 | 50,970 | |||||||
Midfield term loan facility | 9,845 | 10,228 | |||||||
Midfield notes payable | 967 | 3,803 | |||||||
1,284,746 | 868,397 | ||||||||
Less current portion | 16,562 | 19,781 | |||||||
$ | 1,268,184 | $ | 848,616 | ||||||
F-44
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F-45
Table of Contents
• | A first-priority security interest in personal property consisting of inventory and accounts receivable; | |
• | A second-priority pledge of certain of the capital stock held by MRM or any subsidiary guarantor; and | |
• | A second-priority security interest in, and mortgages on, substantially all other tangible and intangible assets of MRM and each subsidiary guarantor. |
• | Incur additional indebtedness; | |
• | Pay dividends on MRM’s capital stock or the capital stock of MRM’s direct or indirect parent; | |
• | Make investments, loans, advances or acquisitions; | |
• | Sell assets, including capital stock of MRM’s subsidiaries; | |
• | Consolidate or merge with another entity; | |
• | Create liens; | |
• | Pay, redeem, or amend the terms of subordinated indebtedness; | |
• | Enter into certain sale-leaseback transactions; | |
• | Fundamentally or substantively alter the character of the business conducted by MRM and its subsidiaries; and | |
• | Enter into agreements that limit (1) the ability of non-guarantors to pay dividends to MRM or any guarantor or (2) the ability of MRM or any guarantor to pledge its assets to secure its obligations under the Asset-Based Revolving Credit Facility. |
F-46
Table of Contents
• | A second-priority security interest in personal property consisting of inventory and accounts receivable; | |
• | A first-priority pledge of certain of the capital stock held by MRM or any subsidiary guarantor; and | |
• | A first-priority security interest in, and mortgages on, substantially all other tangible and intangible assets of the Company and each subsidiary guarantor. |
F-47
Table of Contents
• | a disposition of any of our or our restricted subsidiaries’ business units, assets or other property not in the ordinary course of business, subject to certain exceptions for permitted asset sales; | |
• | a casualty event with respect to collateral for which we or any of our restricted subsidiaries receives insurance proceeds, or proceeds of a condemnation award or other compensation; | |
• | the issuance or incurrence by us or any of our restricted subsidiaries of indebtedness, subject to certain exceptions; and | |
• | any sale-leaseback transaction permitted under the Junior Term Loan Facility. |
F-48
Table of Contents
2008 | $ | 16.6 | ||
2009 | 5.8 | |||
2010 | 56.8 | |||
2011 | 5.8 | |||
2012 | 5.8 | |||
Thereafter | 1,194.0 |
NOTE 6 — | INCOME TAXES |
F-49
Table of Contents
NOTE 7 — | CONTINGENCIES |
NOTE 8 — | FAIR VALUE MEASUREMENTS |
F-50
Table of Contents
June 26, 2008 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
(In thousands) | ||||||||||||||||
Assets: | ||||||||||||||||
Assets Held for Sale (Investments) | $ | 33,595 | $ | 33,595 | $ | — | $ | — | ||||||||
Liabilities: | ||||||||||||||||
Derivatives (Interest Rate Swaps) | $ | 3,248 | $ | — | $ | 3,248 | $ | — |
F-51
Table of Contents
NOTE 9 — | COMPREHENSIVE INCOME |
(Successor) | (Predecessor) | |||||||||||
Six Months Ended | Five Months Ended | One Month Ended | ||||||||||
June 26, | June 28, | January 30, | ||||||||||
2008 | 2007 | 2007 | ||||||||||
Net income | $ | 75,934 | $ | 17,614 | $ | 6,596 | ||||||
Changes in accumulated other comprehensive income (loss): | ||||||||||||
Change in unrealized gain on securities | ||||||||||||
Available for sale, net of tax | — | — | (3,958 | ) | ||||||||
Derivative valuation adjustment, net of tax | (1,386 | ) | — | — | ||||||||
Foreign currency translation, net of tax | (1,041 | ) | — | — | ||||||||
Comprehensive Income | $ | 73,507 | $ | 17,614 | $ | 2,638 | ||||||
NOTE 10 — | STOCK-BASED COMPENSATION |
2008 | 2007 | |||||||
Risk-free interest rate | 3.19% | 4.10% | ||||||
Dividend yield | 0.00% | 0.00% | ||||||
Expected volatility | 22.07% | 22.07% | ||||||
Expected lives | 6.2 years | 6.2 years |
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Weighted Average | ||||||||
Options | Exercise Price | |||||||
Outstanding at January 1, 2008 | 3,533.46 | $ | 2,411.17 | |||||
Granted | 394.61 | 4,348.19 | ||||||
Exercised | — | — | ||||||
Forfeited | (128.37 | ) | (2,411.17 | ) | ||||
Expired | — | — | ||||||
Outstanding at June 26, 2008 | 3,799.70 | $ | 2,612.34 | |||||
Options exercisable at June 26, 2008 | — | $ | — | |||||
Options vested at June 26, 2008 | — | — |
Shares | ||||
Balance at January 1, 2008 | 635.52 | |||
Granted | — | |||
Forfeited | (41.95 | ) | ||
Issued | — | |||
Balance at June 26, 2008 | 593.57 | |||
Six Months | Five Months | |||||||
Ended | Ended | |||||||
June 26, | June 28, | |||||||
2008 | 2007 | |||||||
Compensation expense Stock options | $ | 501,000 | $ | 80,000 | ||||
Restricted stock | 139,000 | 39,000 | ||||||
Total compensation expense | $ | 640,000 | $ | 119,000 | ||||
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NOTE 11 — | EARNINGS PER SHARE |
(Successor) | (Predecessor) | |||||||||||
Six Months | Five Months | One Month | ||||||||||
Ended | Ended | Ended | ||||||||||
June 26, | June 28, | January 30, | ||||||||||
2008 | 2007 | 2007 | ||||||||||
Net income (in thousands) | $ | 75,934 | $ | 17,614 | $ | 6,596 | ||||||
Average basic shares outstanding | 309,421 | 102,594 | 17,510 | |||||||||
Effect of dilutive securities | 613 | 198 | — | |||||||||
Average dilutive shares outstanding | 310,034 | 102,792 | 17,510 | |||||||||
Net income per share: | ||||||||||||
Basic | $ | 245.41 | $ | 171.69 | $ | 376.70 | ||||||
Diluted | $ | 244.92 | $ | 171.36 | $ | 376.70 |
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December 31, | ||||||||
2006 | 2005 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash | $ | 3,748 | $ | 5,865 | ||||
Receivables, less allowances of $2,015 and $1,743 | 168,877 | 163,775 | ||||||
Inventories | 225,304 | 189,209 | ||||||
Other current assets | 3,122 | 2,542 | ||||||
TOTAL CURRENT ASSETS | 401,051 | 361,391 | ||||||
INVESTMENTS AND OTHER ASSETS | ||||||||
Investments: | ||||||||
PrimeEnergy and other oil and gas | 40,396 | 32,226 | ||||||
Real estate and other | 589 | 449 | ||||||
Total investments | 40,985 | 32,675 | ||||||
Notes receivable | 1,835 | 2,187 | ||||||
Cash value of life insurance | 1,160 | 2,270 | ||||||
43,980 | 37,132 | |||||||
FIXED ASSETS | ||||||||
Land and improvements | 4,392 | 4,411 | ||||||
Buildings and building improvements | 21,416 | 21,325 | ||||||
Equipment | 43,143 | 42,402 | ||||||
68,951 | 68,138 | |||||||
Allowances for depreciation | (41,743 | ) | (41,909 | ) | ||||
27,208 | 26,229 | |||||||
PROPERTY HELD UNDER CAPITAL LEASES | 2,104 | 2,283 | ||||||
INTANGIBLE ASSETS | ||||||||
Goodwill | 6,274 | 6,274 | ||||||
Other intangible assets, net of accumulated amortization of $2,702 and $2,425 | 382 | 659 | ||||||
6,656 | 6,933 | |||||||
$ | 480,999 | $ | 433,968 | |||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable — trade | $ | 130,864 | $ | 145,296 | ||||
Accrued expenses and other liabilities | 46,471 | 45,220 | ||||||
Customer prepayments | 4,715 | 6,536 | ||||||
Dividends payable | — | 26,216 | ||||||
Income taxes payable | 2,500 | 8,516 | ||||||
Deferred income taxes | 3,998 | 203 | ||||||
Current portion of long-term obligations: | ||||||||
Long-term debt | — | 210 | ||||||
Capital leases | 167 | 148 | ||||||
TOTAL CURRENT LIABILITIES | 188,715 | 232,345 | ||||||
LONG-TERM OBLIGATIONS | ||||||||
Long-term debt | 13,035 | 2,885 | ||||||
Capital leases | 3,635 | 3,802 | ||||||
Other liabilities | 1,799 | 2,290 | ||||||
18,469 | 8,977 | |||||||
DEFERRED INCOME TAXES | 15,627 | 12,389 | ||||||
MINORITY INTEREST IN McJUNKIN APPALACHIAN OILFIELD SUPPLY COMPANY | 15,601 | 11,459 | ||||||
SHAREHOLDERS’ EQUITY | ||||||||
Capital stock, par value $700: | ||||||||
Class A common voting — authorized 37,860; issued and outstanding 16,940 | 11,858 | 11,858 | ||||||
Class B common nonvoting — authorized 5,000; issued and outstanding 570 | 399 | 399 | ||||||
Retained earnings | 206,044 | 137,192 | ||||||
Other comprehensive income, net of deferred income taxes of $14,759 and $11,529 | 24,286 | 19,349 | ||||||
242,587 | 168,798 | |||||||
$ | 480,999 | $ | 433,968 | |||||
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Years Ended December 31, | ||||||||
2006 | 2005 | |||||||
REVENUES | ||||||||
Net sales | $ | 1,713,679 | $ | 1,445,770 | ||||
Increase in fair market values of derivatives | — | 499 | ||||||
Other income | 2,615 | 2,361 | ||||||
TOTAL REVENUES | 1,716,294 | 1,448,630 | ||||||
COSTS AND EXPENSES | ||||||||
Cost of goods sold (exclusive of depreciation and amortization shown separately below) | 1,394,294 | 1,177,091 | ||||||
Selling, general and administrative | 173,948 | 155,717 | ||||||
Profit sharing | 15,064 | 13,144 | ||||||
Depreciation and amortization | 3,936 | 3,743 | ||||||
Interest | 2,845 | 2,707 | ||||||
Minority interest in McJunkin Appalachian | 4,142 | 2,774 | ||||||
Amortization of intangibles | 277 | 337 | ||||||
Other expenses | 3,874 | 3,993 | ||||||
TOTAL COSTS AND EXPENSES | 1,598,380 | 1,359,506 | ||||||
INCOME BEFORE INCOME TAXES | 117,914 | 89,124 | ||||||
Income tax provision | 48,340 | 36,583 | ||||||
NET INCOME | $ | 69,574 | $ | 52,541 | ||||
Earnings per share — Class A, basic | $ | 3,972.08 | $ | 2,952.12 | ||||
Earnings per share — Class A, diluted | $ | 3,972.08 | $ | 2,952.12 | ||||
Weighted average shares — Class A, basic | 16,940 | 16,940 | ||||||
Weighted average shares — Class A, diluted | 16,940 | 16,940 | ||||||
Earnings per share — Class B, basic | $ | 4,012.08 | $ | 4,442.12 | ||||
Earnings per share — Class B, diluted | $ | 4,012.08 | $ | 4,442.12 | ||||
Weighted average shares — Class B, basic | 570 | 570 | ||||||
Weighted average shares — Class B, diluted | 570 | 570 | ||||||
Dividends per common share, Class A | $ | 40 | $ | 1,490 | ||||
Dividends per common share, Class B | $ | 80 | $ | 2,980 |
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McJUNKIN CORPORATION AND SUBSIDIARIES
Years Ended December 31, 2006 and 2005
(Dollars in thousands, except per share amounts)
Class A | Class B | Accumulated Other | ||||||||||||||||||||||||||
Common Stock | Common Stock | Retained | Comprehensive | |||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Earnings | Income | Total | ||||||||||||||||||||||
Balances at January 1, 2005 | 16,940 | $ | 11,858 | 570 | $ | 399 | $ | 111,592 | $ | 8,469 | $ | 132,318 | ||||||||||||||||
Net income for the year 2005 | — | — | 52,541 | — | 52,541 | |||||||||||||||||||||||
Unrealized and realized gain inPrimeEnergy-net of deferred taxes | — | — | — | — | — | 10,880 | 10,880 | |||||||||||||||||||||
Net comprehensive income | — | — | 52,541 | 10,880 | 63,421 | |||||||||||||||||||||||
Cash dividends on common stock: | ||||||||||||||||||||||||||||
On Class A, $1,490 per share | — | — | (25,242 | ) | — | (25,242 | ) | |||||||||||||||||||||
On Class B, $2,980 per share | — | — | — | — | (1,699 | ) | — | (1,699 | ) | |||||||||||||||||||
Balances at December 31, 2005 | 16,940 | 11,858 | 570 | 399 | 137,192 | 19,349 | 168,798 | |||||||||||||||||||||
Net income for the year 2006 | — | — | 69,574 | — | 69,574 | |||||||||||||||||||||||
Unrealized and realized gain inPrimeEnergy-net of deferred taxes | — | — | — | — | — | 4,937 | 4,937 | |||||||||||||||||||||
Net comprehensive income | — | — | — | — | 69,574 | 4,937 | 74,511 | |||||||||||||||||||||
Cash dividends on common stock: | ||||||||||||||||||||||||||||
On Class A, $40 per share | — | — | — | — | (677 | ) | — | (677 | ) | |||||||||||||||||||
On Class B, $80 per share | — | — | — | — | (45 | ) | — | (45 | ) | |||||||||||||||||||
Balances at December 31, 2006 | 16,940 | $ | 11,858 | 570 | $ | 399 | $ | 206,044 | $ | 24,286 | $ | 242,587 | ||||||||||||||||
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Years Ended December 31, | ||||||||
2006 | 2005 | |||||||
CASH PROVIDED BY (USED IN) OPERATIONS | ||||||||
Net income | $ | 69,574 | $ | 52,541 | ||||
Adjustments to reconcile net income to net cash provided by operations: | ||||||||
Depreciation and amortization | 3,936 | 3,743 | ||||||
Deferred income taxes | 3,802 | (4,905 | ) | |||||
Minority interest in McJunkin Appalachian | 4,142 | 2,774 | ||||||
Amortization of intangibles | 277 | 337 | ||||||
Increase in fair market values of derivatives | — | (499 | ) | |||||
Provision for losses on receivables | 414 | 90 | ||||||
Reduction of inventory loss provision | (260 | ) | (233 | ) | ||||
Non-operating gains and other items not providing cash | (571 | ) | (1,001 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (5,516 | ) | (53,444 | ) | ||||
Inventories | (35,835 | ) | (36,386 | ) | ||||
Income taxes | (6,016 | ) | 6,823 | |||||
Other current assets | (580 | ) | (65 | ) | ||||
Accounts payable | (14,432 | ) | 47,694 | |||||
Accrued expenses and other current liabilities | (583 | ) | 12,916 | |||||
NET CASH PROVIDED BY OPERATIONS | 18,352 | 30,385 | ||||||
INVESTING ACTIVITIES | ||||||||
Fixed asset purchases — net of proceeds from disposals | (4,960 | ) | (7,725 | ) | ||||
Other investment and notes receivable transactions | 1,698 | 1,024 | ||||||
NET CASH USED IN INVESTING ACTIVITIES | (3,262 | ) | (6,701 | ) | ||||
FINANCING ACTIVITIES | ||||||||
Proceeds from (Payments on) long-term obligations | 9,731 | (11,319 | ) | |||||
Dividends paid | (26,938 | ) | (9,765 | ) | ||||
NET CASH USED IN FINANCING ACTIVITIES | (17,207 | ) | (21,084 | ) | ||||
(Decrease) Increase in cash | (2,117 | ) | 2,600 | |||||
Cash — beginning of year | 5,865 | 3,265 | ||||||
CASH — END OF YEAR | $ | 3,748 | $ | 5,865 | ||||
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NOTE A — | SIGNIFICANT ACCOUNTING POLICIES |
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NOTE B — | INVENTORIES |
NOTE C — | LONG-TERM DEBT |
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December 31, | ||||||||
2006 | 2005 | |||||||
(In $000’s) | ||||||||
Revolving credit/term loan agreement at a variable rate between LIBOR and prime, due in 2010 | $ | 8,300 | $ | 2,500 | ||||
Short-term debt expected to be refinanced on a long-term basis at a variable rate between LIBOR and prime, due in 2010 | 2,735 | 385 | ||||||
Other long-term obligations | — | 210 | ||||||
Three-year asset securitization at a variable rate based on commercial paper due in 2009 | 2,000 | — | ||||||
13,035 | 3,095 | |||||||
Less current portion | — | 210 | ||||||
$ | 13,035 | $ | 2,885 | |||||
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NOTE D — | LEASES |
December 31, | ||||||||
2006 | 2005 | |||||||
(In $000’s) | ||||||||
Land and buildings | $ | 4,881 | $ | 4,881 | ||||
Allowances for amortization | (2,777 | ) | (2,598 | ) | ||||
$ | 2,104 | $ | 2,283 | |||||
NOTE E — | FINANCIAL INSTRUMENTS |
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NOTE F — | INCOME TAXES |
Years Ended December 31, | ||||||||
2006 | 2005 | |||||||
(in $000’s) | ||||||||
Federal: | ||||||||
Current | $ | 36,514 | $ | 34,075 | ||||
Deferred | 3,129 | (4,037 | ) | |||||
39,643 | 30,038 | |||||||
State and local: | ||||||||
Current | 8,024 | 7,413 | ||||||
Deferred | 673 | (868 | ) | |||||
8,697 | 6,545 | |||||||
INCOME TAX PROVISION | $ | 48,340 | $ | 36,583 | ||||
Years Ended December 31, | ||||||||
2006 | 2005 | |||||||
(in $000’s) | ||||||||
Federal tax expense at statutory rates | $ | 41,270 | $ | 31,193 | ||||
State taxes | 5,653 | 4,254 | ||||||
Non-deductible sales expenses | 409 | 372 | ||||||
Other | 1,008 | 764 | ||||||
INCOME TAX PROVISION | $ | 48,340 | $ | 36,583 | ||||
Effective rate | 41.0 | % | 41.0 | % | ||||
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December 31, | ||||||||
2006 | 2005 | |||||||
(in $000’s) | ||||||||
Deferred tax assets: | ||||||||
Accounts receivable valuation | $ | 797 | $ | 689 | ||||
Real estate and investment bases differences | 86 | 312 | ||||||
Expenses deductible as paid | 3,684 | 3,453 | ||||||
Total deferred tax assets | 4,567 | 4,454 | ||||||
Deferred tax liabilities: | ||||||||
Inventory valuation | (6,464 | ) | (2,612 | ) | ||||
Accelerated depreciation and amortization | (2,969 | ) | (2,905 | ) | ||||
Investment basis difference | (14,759 | ) | (11,529 | ) | ||||
Total deferred tax liabilities | (24,192 | ) | (17,046 | ) | ||||
Net deferred tax liabilities | $ | (19,625 | ) | $ | (12,592 | ) | ||
NOTE G — | CONTINGENCIES |
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NOTE H — | SUBSEQUENT EVENT |
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(B) Balance | (C) Additions | (E) Balance | ||||||||||||||||||
at Beginning | Charged to | at end | ||||||||||||||||||
(A) Description (1) | of Period | Costs and Expenses | (D) Deductions (1) | of Period | ||||||||||||||||
Allowance for | ||||||||||||||||||||
Doubtful Accounts | ||||||||||||||||||||
2005 | $ | 1,722,000 | $ | 90,000 | $ | 68,654 | $ | 1,743,346 | ||||||||||||
2006 | $ | 1,743,346 | $ | 414,000 | $ | 142,346 | $ | 2,015,000 |
(1) | Includes write off of uncollectible accounts receivable, net of recoveries. |
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Red Man Pipe & Supply Co.
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2006 | 2007 | |||||||
(in thousands of dollars, except share amounts) | ||||||||
Assets | ||||||||
Current assets | ||||||||
Cash | $ | 457 | $ | 13,866 | ||||
Accounts receivable, less allowance for doubtful accounts of $2,204 and $1,755 in 2006 and 2007, respectively | 303,629 | 329,073 | ||||||
Inventories | 336,714 | 329,272 | ||||||
Income tax receivable | 5,473 | — | ||||||
Other current assets | 929 | 243 | ||||||
Total current assets | 647,202 | 672,454 | ||||||
Property, plant and equipment, net | 29,931 | 39,583 | ||||||
Goodwill | 76,198 | 91,077 | ||||||
Intangible assets, net of accumulated amortization of $4,047 and $8,913 in 2006 and 2007, respectively | 28,422 | 30,034 | ||||||
Investments | 6,689 | 5,057 | ||||||
Other assets | 2,558 | 120 | ||||||
Total assets | $ | 791,000 | $ | 838,325 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current liabilities | ||||||||
Operating lines of credit | $ | 27,028 | $ | — | ||||
Trade accounts payable | 187,162 | 209,513 | ||||||
Accrued liabilities | 63,043 | 41,988 | ||||||
Income taxes payable | 3,457 | 3,427 | ||||||
Notes payable | 6,939 | 3,910 | ||||||
Deferred revenue | 1,488 | — | ||||||
Term loans due on demand | 3,975 | 10,519 | ||||||
Deferred income tax liabilities | 22,721 | 28,974 | ||||||
Total current liabilities | 315,813 | 298,331 | ||||||
Long-term debt, less current portion | 207,418 | 31,434 | ||||||
Payable to minority interest shareholders | 28,009 | 25,718 | ||||||
Deferred income tax liabilities | 5,923 | 7,826 | ||||||
Other long-term liability (Note 2) | — | 125,113 | ||||||
Total liabilities | 557,163 | 488,422 | ||||||
Commitments and contingencies (Notes 7 and 9) | ||||||||
Minority interest | 49,423 | 76,064 | ||||||
Stockholders’ equity | ||||||||
Preferred stock, $2,500 par value, 2,000 shares authorized, none issued and outstanding as of October 31, 2006 and 2007 | — | — | ||||||
Class A common stock, $0.01 par value, 50,000,000 shares authorized, 144,831 and 143,976 issued and outstanding as of October 31, 2006 and 2007, respectively | 2 | 2 | ||||||
Class B common stock, $0.01 par value, 50,000,000 shares authorized, 34,344 issued and outstanding as of October 31, 2006 and 2007 | — | — | ||||||
Additional paid-in capital | 2,480 | 8,159 | ||||||
Retained earnings | 176,091 | 258,274 | ||||||
Accumulated other comprehensive income | 6,343 | 7,404 | ||||||
184,916 | 273,839 | |||||||
Treasury stock, at cost | (502 | ) | — | |||||
Total stockholders’ equity | 184,414 | 273,839 | ||||||
Total liabilities and stockholders’ equity | $ | 791,000 | $ | 838,325 | ||||
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2005 | 2006 | 2007 | ||||||||||
(in thousands of dollars) | ||||||||||||
Sales | $ | 1,224,174 | $ | 1,815,345 | $ | 1,981,990 | ||||||
Costs and expenses | ||||||||||||
Cost of products sold | 1,023,030 | 1,551,118 | 1,632,320 | |||||||||
Selling, general and administrative expenses | 100,211 | 172,192 | 186,551 | |||||||||
Total costs and expenses | 1,123,241 | 1,723,310 | 1,818,871 | |||||||||
Operating income | 100,933 | 92,035 | 163,119 | |||||||||
Other income (expense) | ||||||||||||
Interest expense | (8,431 | ) | (15,024 | ) | (20,641 | ) | ||||||
Other, net | 973 | 3,317 | (2,658 | ) | ||||||||
(7,458 | ) | (11,707 | ) | (23,299 | ) | |||||||
Income before income taxes | 93,475 | 80,328 | 139,820 | |||||||||
Income tax expense | 34,208 | 26,498 | 57,572 | |||||||||
59,267 | 53,830 | 82,248 | ||||||||||
Non-controlling interest | — | 176 | 65 | |||||||||
Earnings before discontinued operations | 59,267 | 53,654 | 82,183 | |||||||||
Discontinued operations | ||||||||||||
Earnings (loss) from discontinued operations, net of EPSP and income tax (Note 4) | 528 | (2,177 | ) | — | ||||||||
Gain on sale of discontinued operations, net of EPSP and income tax | — | 8,170 | — | |||||||||
Net income | $ | 59,795 | $ | 59,647 | $ | 82,183 | ||||||
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2005 | 2006 | 2007 | ||||||||||
(in thousands of dollars) | ||||||||||||
Net income | $ | 59,795 | $ | 59,647 | $ | 82,183 | ||||||
Other comprehensive income, net of taxes | ||||||||||||
Change in value of cash flow derivative instruments used as cash flow hedges | (743 | ) | — | — | ||||||||
Reclassification — derivative settlements | 1,226 | — | — | |||||||||
Currency translation adjustments | 248 | 6,095 | 1,061 | |||||||||
Comprehensive income | $ | 60,526 | $ | 65,742 | $ | 83,244 | ||||||
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Common Stock | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||
Class C | Voting | Non-Voting | Additional | Comprehensive | ||||||||||||||||||||||||||||||||||||||||||||
Preferred Stock | Class A | Class B | Paid-in | Retained | Income | Treasury Stock | ||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Earnings | (Loss) | Shares | Amount | Total | |||||||||||||||||||||||||||||||||||||
(in thousands of dollars, except per share amounts) | ||||||||||||||||||||||||||||||||||||||||||||||||
Balances at October 31, 2004 | — | $ | — | 146 | $ | 2 | 34 | $ | — | $ | 2,628 | $ | 56,649 | $ | (483 | ) | (1 | ) | $ | (87 | ) | $ | 58,709 | |||||||||||||||||||||||||
Net income | — | — | — | — | — | — | — | 59,795 | — | — | — | 59,795 | ||||||||||||||||||||||||||||||||||||
Acquisition of treasury stock | — | — | — | — | — | — | — | — | — | (1 | ) | (61 | ) | (61 | ) | |||||||||||||||||||||||||||||||||
Retirement of treasury stock | — | — | (2 | ) | — | — | — | (148 | ) | — | — | 2 | 148 | — | ||||||||||||||||||||||||||||||||||
Gain on derivative instruments designated and qualifying as cash flow hedging instruments | — | — | — | — | — | — | — | — | 483 | — | — | 483 | ||||||||||||||||||||||||||||||||||||
Currency translation adjustments | — | — | — | — | — | — | — | — | 248 | — | — | 248 | ||||||||||||||||||||||||||||||||||||
Balances at October 31, 2005 | — | — | 144 | 2 | 34 | — | 2,480 | 116,444 | 248 | — | — | 119,174 | ||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | — | 59,647 | — | — | — | 59,647 | ||||||||||||||||||||||||||||||||||||
Acquisition of treasury stock | — | — | — | — | — | — | — | — | — | (1 | ) | (502 | ) | (502 | ) | |||||||||||||||||||||||||||||||||
Currency translation adjustments | — | — | — | — | — | — | — | — | 6,095 | — | — | 6,095 | ||||||||||||||||||||||||||||||||||||
Balances at October 31, 2006 | — | — | 144 | 2 | 34 | — | 2,480 | 176,091 | 6,343 | (1 | ) | (502 | ) | 184,414 | ||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | — | 82,183 | — | — | — | 82,183 | ||||||||||||||||||||||||||||||||||||
Retirement of treasury stock | — | — | — | — | — | — | (502 | ) | — | — | 1 | 502 | — | |||||||||||||||||||||||||||||||||||
Shareholder contributions (Note 2) | — | — | — | — | — | — | 6,181 | — | — | — | — | 6,181 | ||||||||||||||||||||||||||||||||||||
Currency translation adjustments | — | — | — | — | — | — | — | — | 1,061 | — | — | 1,061 | ||||||||||||||||||||||||||||||||||||
Balances at October 31, 2007 | — | $ | — | 144 | $ | 2 | 34 | $ | — | $ | 8,159 | $ | 258,274 | $ | 7,404 | — | $ | — | $ | 273,839 | ||||||||||||||||||||||||||||
Table of Contents
2005 | 2006 | 2007 | ||||||||||
(in thousands of dollars) | ||||||||||||
Cash flows from operating activities | ||||||||||||
Net income | $ | 59,795 | $ | 59,647 | $ | 82,183 | ||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities | ||||||||||||
Depreciation and amortization | 3,916 | 8,300 | 9,680 | |||||||||
Write-off of obsolete inventories | 2,289 | 3,383 | 4,363 | |||||||||
Gain on disposal of assets | (60 | ) | (83 | ) | (2,336 | ) | ||||||
Impairment loss on goodwill and intangible assets | — | — | 5,149 | |||||||||
Stock compensation expense | — | — | 963 | |||||||||
Equity in earnings of unconsolidated subsidiary | (705 | ) | — | — | ||||||||
Gain on sale of discontinued operations | — | (16,585 | ) | — | ||||||||
Deferred income taxes | 15,364 | (2,056 | ) | 7,214 | ||||||||
Minority interest | — | 176 | 66 | |||||||||
Other, net | (271 | ) | (277 | ) | — | |||||||
Decrease (increase) in assets | ||||||||||||
Accounts receivable | (59,120 | ) | (63,380 | ) | (8,626 | ) | ||||||
Income tax receivable | 135 | — | 5,008 | |||||||||
Inventories | (65,164 | ) | (98,085 | ) | 18,724 | |||||||
Other assets | (1,799 | ) | (1,563 | ) | 3,162 | |||||||
Increase (decrease) in liabilities | ||||||||||||
Accounts payable and accrued liabilities | 30,528 | 53,027 | (22,937 | ) | ||||||||
Income tax payable | 1,223 | 1,936 | (329 | ) | ||||||||
Other current liabilities | — | (736 | ) | — | ||||||||
Other long-term liabilities | 2,450 | (163 | ) | — | ||||||||
Net cash provided by (used in) operating activities | (11,419 | ) | (56,459 | ) | 102,284 | |||||||
Cash flows from investing activities | ||||||||||||
Purchase of property, plant and equipment | (5,801 | ) | (14,468 | ) | (12,193 | ) | ||||||
Proceeds from disposal of property, plant and equipment | 347 | 1,285 | 3,673 | |||||||||
Proceeds from disposal of subsidiary | — | 35,220 | — | |||||||||
Business acquisitions | (45,874 | ) | (12,784 | ) | (3,747 | ) | ||||||
Advance to related parties | — | (4,877 | ) | — | ||||||||
Repayment of advances to unconsolidated subsidiaries | 957 | — | — | |||||||||
Purchases of investment | — | (879 | ) | — | ||||||||
Other, net | (40 | ) | — | (243 | ) | |||||||
Net cash provided by (used in) investing activities | (50,411 | ) | 3,497 | (12,510 | ) | |||||||
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Years Ended October 31, 2005, 2006 and 2007
2005 | 2006 | 2007 | ||||||||||
(in thousands of dollars) | ||||||||||||
Cash flows from financing activities | ||||||||||||
Advances on long-term debt | 1,143,106 | 1,403,024 | 1,353,302 | |||||||||
Payments on long-term debt | (1,093,917 | ) | (1,338,977 | ) | (1,398,620 | ) | ||||||
Extinguishment of debt | — | — | (120,027 | ) | ||||||||
Advances on operating lines of credit | 371 | — | — | |||||||||
Payments on operating lines of credit | (396 | ) | (2,665 | ) | (27,606 | ) | ||||||
Advances on notes payable | 20,450 | 1,757 | — | |||||||||
Advances from affiliates | — | — | 120,027 | |||||||||
Advances to affiliate | — | — | 2,504 | |||||||||
Repayments of term loans | (675 | ) | (1,619 | ) | — | |||||||
Repayment of notes payable | — | (20,369 | ) | (7,087 | ) | |||||||
Advances (payments) to minority interest shareholders | (7,974 | ) | 13,087 | (6,238 | ) | |||||||
Acquisition of treasury stock | (61 | ) | (502 | ) | — | |||||||
Repayments to shareholders | — | (918 | ) | — | ||||||||
Capital contributions | — | — | 6,181 | |||||||||
Financing costs | — | — | (898 | ) | ||||||||
Other | — | (155 | ) | 292 | ||||||||
Net cash provided by (used in) financing activities | 60,904 | 52,663 | (78,170 | ) | ||||||||
Effect of exchange rate changes on cash and cash equivalents | 18 | (161 | ) | 1,805 | ||||||||
Net increase (decrease) in cash | (908 | ) | (460 | ) | 13,409 | |||||||
Cash | ||||||||||||
Beginning of year | 1,825 | 917 | 457 | |||||||||
End of year | $ | 917 | $ | 457 | $ | 13,866 | ||||||
Supplemental cash flow data | ||||||||||||
Interest paid | $ | 7,228 | $ | 18,133 | $ | 21,961 | ||||||
Income taxes paid | 18,144 | 30,436 | 45,118 |
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1. | Summary of Significant Accounting Policies and Nature of Operations |
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Years | ||||
Buildings and improvements | 5 -- 40 | |||
Machinery, shop equipment and vehicles | 5 -- 12 | |||
Furniture, fixtures and office equipment | 3 -- 7 | |||
Leasehold improvements | 5 -- 15 |
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2. | Merger Agreement |
3. | Business Acquisitions |
(In thousands of dollars) | ||||
Inventory | $ | 2,553 | ||
Property, plant and equipment | 260 | |||
Goodwill | 1,800 | |||
$ | 4,613 | |||
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(In thousands of dollars) | ||||
Current assets | $ | 12,170 | ||
Property, plant and equipment | 2,213 | |||
Goodwill | 4,195 | |||
Intangibles | 2,615 | |||
Current liabilities | (11,053 | ) | ||
Long-term debt | (1,723 | ) | ||
$ | 8,417 | |||
(In thousands of dollars) | ||||
Assets acquired | ||||
Accounts receivable | $ | 54,585 | ||
Inventory | 37,285 | |||
Property and equipment | 23,154 | |||
Intangible assets | 27,106 | |||
Goodwill | 67,469 | |||
Other assets | 2,527 | |||
212,126 | ||||
Liabilities assumed | ||||
Accounts payable and accrued liabilities | (56,989 | ) | ||
Debt and notes payable | (31,710 | ) | ||
Payable to shareholders | (22,125 | ) | ||
Minority interest | (45,609 | ) | ||
Deferred income tax liabilities | (7,757 | ) | ||
Other liabilities | (2,062 | ) | ||
(166,252 | ) | |||
Purchase price | $ | 45,874 | ||
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Northern | ||||||||||||
Hagan | Boreal | Total | ||||||||||
(in thousands of dollars) | ||||||||||||
Consideration paid | ||||||||||||
Cash | $ | 1,882 | $ | 2,773 | $ | 4,655 | ||||||
Shares issued in Midfield Supply ULC | 217 | 820 | 1,037 | |||||||||
Notes payable | 701 | 1,495 | 2,196 | |||||||||
$ | 2,800 | $ | 5,088 | $ | 7,888 | |||||||
Net assets acquired | ||||||||||||
Current assets | $ | 98 | $ | 3,812 | $ | 3,910 | ||||||
Property, plant and equipment | 127 | 244 | 371 | |||||||||
Goodwill | 2,045 | 2,638 | 4,683 | |||||||||
Intangible assets | 610 | 1,167 | 1,777 | |||||||||
Current liabilities | (80 | ) | (2,773 | ) | (2,853 | ) | ||||||
$ | 2,800 | $ | 5,088 | $ | 7,888 | |||||||
4. | Business Divestitures |
(in thousands | ||||
of dollars) | ||||
Current assets | $ | 5,790 | ||
Property, plant and equipment | 14,760 | |||
Goodwill | 7,943 | |||
Intangibles | 297 | |||
Current liabilities | (130 | ) | ||
Minority interest | (2,416 | ) | ||
Long-term liabilities | (1,724 | ) | ||
$ | 24,520 | |||
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June 15, 2005 | November 1, 2005 | |||||||
to | to | |||||||
October 31, 2005 | June 30, 2006 | |||||||
(in thousands of dollars) | ||||||||
Revenue | $ | 15,170 | $ | 28,031 | ||||
Cost of sales | (10,819 | ) | (21,880 | ) | ||||
Expenses | (2,494 | ) | (4,608 | ) | ||||
Amortization | — | (540 | ) | |||||
Bonuses | (1,032 | ) | (3,326 | ) | ||||
Other income | — | 447 | ||||||
Earnings (loss) before income taxes | 825 | (1,876 | ) | |||||
Provision for current income taxes | (297 | ) | (301 | ) | ||||
Earnings (loss) from discontinued operations | $ | 528 | $ | (2,177 | ) | |||
5. | Property, Plant and Equipment |
2006 | 2007 | |||||||
(in thousands | ||||||||
of dollars) | ||||||||
Land | $ | 3,802 | $ | 4,300 | ||||
Buildings and improvements | 11,140 | 16,172 | ||||||
Machinery, shop equipment and vehicles | 11,840 | 24,178 | ||||||
Furniture, fixtures and office equipment | 24,455 | 21,254 | ||||||
Leasehold improvements | 1,763 | 2,996 | ||||||
53,000 | 68,900 | |||||||
Less: Accumulated depreciation and amortization | 23,069 | 29,317 | ||||||
$ | 29,931 | $ | 39,583 | |||||
6. | Operating Lines of Credit(in thousands of dollars) |
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7. | Long-Term Debt, Notes Payable and Term Loans |
2006 | 2007 | |||||||
(in thousands of dollars) | ||||||||
Revolving credit facility(A) | $ | 207,418 | $ | — | ||||
Notes payable(B) | 6,939 | 3,910 | ||||||
Term loans due on demand(C) | 3,975 | 41,953 | ||||||
218,332 | 45,863 | |||||||
Less: Current portion | 10,914 | 14,429 | ||||||
$ | 207,418 | $ | 31,434 | |||||
(A) | At October 31, 2006, the Credit Facility, as amended and restated, permitted the Company to borrow amounts up to the lesser of (i) $260 million or (ii) an amount equal to the borrowing base plus the outstanding balance on the term loan portion. On the revolving credit portion of the Credit Facility, the Company is permitted to borrow amounts up to the lesser of (i) $260 million or (ii) an amount equal to the borrowing base amount. The borrowing base amount is determined through a computation of eligible accounts receivable and inventories as defined in the Credit Facility. The amount of unused borrowings available under the Credit Facility at October 31, 2006 was $52.6 million. The borrowings under the revolving credit portion of the Credit Facility bear an interest rate equal to the lesser of the Eurodollar rate, as defined in the Credit Facility plus a margin based upon the average daily availability and a fixed charge coverage ratio, as defined in the Credit Facility or the maximum legal rate permitted by applicable state or federal law, as defined in the Credit Facility. The term loan portion of the Credit Facility bears interest at (i) the lesser of the bank’s Eurodollar margin plus the Eurodollar base rate, as defined in the Credit Facility, or the maximum legal rate permitted by applicable state or federal law, as defined in the Credit Facility or (ii) the lesser of the bank’s base rate margin, plus the base rate, as defined by the Credit Facility, or the maximum legal rate permitted by applicable state or federal law, as defined by the Credit Facility. The term loan was paid off in 2006. The Company pays a fee on the unused portion of the Credit Facility equal to 0.25% per year. Additionally, the Company will pay a fee equal to 2.5% per annum of the face amount of the letters of credit outstanding during the month, for which letter of credit guarantees have been issued. As discussed in Note 2, the Credit Facility was paid off on October 31, 2007, using funds loaned from McJunkin Corporation. |
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2006 | 2007 | |||||||
(in thousands of dollars) | ||||||||
Due to related parties | $ | 5,154 | $ | 3,910 | ||||
Unsecured note payable | 1,785 | — | ||||||
$ | 6,939 | $ | 3,910 | |||||
2006 | 2007 | |||||||
(in thousands of dollars) | ||||||||
Borrowings under line of credit with interest at prime plus margin of 0.25%, due in October 2010(D) | $ | — | $ | 31,434 | ||||
Revolving term loan facility with interest at prime plus margin of up to 0.5% (6.75% at October 31, 2007), due on February 28, 2008 | — | 10,420 | ||||||
Term loan payable in monthly installments of $57,107 including interest at Canadian bank prime plus 1.25% | 3,787 | — | ||||||
Other | 188 | 99 | ||||||
$ | 3,975 | $ | 41,953 | |||||
(D) | On November 2, 2006, Midfield entered into a loan and security agreement for a CAD150 million revolving credit facility. As of October 31, 2007, $31.4 million of borrowings were outstanding under the facility and the unused borrowing capacity was approximately $125.8 million. Midfield must pay a monthly fee with respect to unutilized revolving loan commitments equal to amounts ranging from 0.25% to 0.375%, depending upon average borrowing levels for the previous quarter. The facility provides for borrowings up to CAD150 million, subject to adjustments based on the borrowing base and less the aggregate letters of credit outstanding under the facility. Letters of credit may be issued under the facility subject to certain conditions, including a CAD10 million sub-limit. The revolving loan has a maturity date of November 2, 2010. All letters of credit issued under the facility must expire at least 20 business days prior to November 2, 2010. |
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(in thousands | ||||
of dollars) | ||||
Year ending October 31, | ||||
2008 | $ | 10,519 | ||
2009 | — | |||
2010 | 31,434 | |||
2011 | — | |||
$ | 41,953 | |||
8. | Stockholders’ Equity |
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9. | Leases |
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Year ending October 31 | (In thousands of dollars) | |||||||
2008 | $ | 10,676 | ||||||
2009 | 7,618 | |||||||
2010 | 4,774 | |||||||
2011 | 3,508 | |||||||
2012 | 3,871 | |||||||
Thereafter | 1,005 | |||||||
Total minimum lease payments | $ | 31,452 | ||||||
10. | Income Taxes |
October 31, | ||||||||||||
2005 | 2006 | 2007 | ||||||||||
(In thousands of dollars) | ||||||||||||
Income (loss) before income taxes | ||||||||||||
Domestic | $ | 91,209 | $ | 74,918 | $ | 141,881 | ||||||
Non-United States | 2,266 | 5,410 | (2,061 | ) | ||||||||
Total income (loss) before income taxes | $ | 93,475 | $ | 80,328 | $ | 139,820 | ||||||
October 31, | ||||||||||||
2005 | 2006 | 2007 | ||||||||||
(In thousands of dollars) | ||||||||||||
Current | ||||||||||||
Federal tax expense | $ | 16,312 | $ | 21,791 | $ | 42,632 | ||||||
State tax expense | 2,324 | 3,542 | 6,198 | |||||||||
Non-United States | 208 | 59 | 2,456 | |||||||||
Deferred tax expense | 15,364 | 1,106 | 6,286 | |||||||||
$ | 34,208 | $ | 26,498 | $ | 57,572 | |||||||
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October 31, | ||||||||
2006 | 2007 | |||||||
(In thousands of dollars) | ||||||||
Current deferred tax assets (liabilities) | ||||||||
Inventory | $ | (18,367 | ) | $ | (22,627 | ) | ||
Accounts receivable | (3,461 | ) | (4,103 | ) | ||||
Vacation accrual | 663 | 710 | ||||||
Accrued insurance | 394 | 318 | ||||||
Red Man Canada interest | (2,181 | ) | (3,987 | ) | ||||
Phantom stock | 231 | 715 | ||||||
Current deferred tax (liabilities) | $ | (22,721 | ) | $ | (28,974 | ) | ||
Noncurrent deferred tax assets (liabilities) | ||||||||
Property, plant and equipment | $ | (1,847 | ) | $ | (3,136 | ) | ||
Intangible assets | (4,048 | ) | (4,690 | ) | ||||
Other | (29 | ) | — | |||||
Noncurrent deferred tax (liabilities) | $ | (5,924 | ) | $ | (7,826 | ) | ||
October 31, | ||||||||||||
2005 | 2006 | 2007 | ||||||||||
Federal statutory rate | 34.0 | % | 35.0 | % | 35.0 | % | ||||||
State income tax | 4.6 | 4.3 | 4.8 | |||||||||
Nondeductible expenses | 1.0 | 0.7 | 0.3 | |||||||||
Foreign sales corporation | (1.3 | ) | (1.5 | ) | (0.1 | ) | ||||||
Non-United States | — | (2.3 | ) | 0.9 | ||||||||
Other | (1.7 | ) | (3.3 | ) | 0.3 | |||||||
Effective tax rate | 36.6 | % | 32.9 | % | 41.2 | % | ||||||
11. | Employee Benefit Plans |
12. | Related Party Transactions |
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13. | Concentration of Credit Risk and Sources of Supply |
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Table of Contents
Item 13. | Other Expenses of Issuance and Distribution. |
SEC registration fee | $ | 29,475 | ||
FINRA filing fee | 75,500 | |||
The New York Stock Exchange listing fee | 250,000 | |||
Accounting fees and expenses | 850,000 | |||
Legal fees and expenses | 3,500,000 | |||
Printing and engraving expenses | 650,000 | |||
Blue Sky qualification fees and expenses | 10,000 | |||
Transfer agent and registrar fees and expenses | 10,000 | |||
Miscellaneous expenses | 25,025 | |||
Total | $ | 5,400,000 | ||
Item 14. | Indemnification of Directors and Officers. |
• | for any breach of the director’s duty of loyalty to the Registrant or its stockholders; | |
• | for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; | |
• | under section 174 of the Delaware General Corporation Law regarding unlawful dividends and stock purchases; or | |
• | for any transaction for which the director derived an improper personal benefit. |
• | the Registrant is required to indemnify its directors and officers to the fullest extent permitted by the Delaware General Corporation Law, subject to very limited exceptions; | |
• | the Registrant may indemnify its other employees and agents to the fullest extent permitted by the Delaware General Corporation Law, subject to very limited exceptions; | |
• | the Registrant is required to advance expenses, as incurred, to its directors and officers in connection with a legal proceeding to the fullest extent permitted by the Delaware General Corporation Law, subject to very limited exceptions; |
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• | the Registrant may advance expenses, as incurred, to its employees and agents in connection with a legal proceeding; and | |
• | the rights conferred in the Bylaws are not exclusive. |
Item 15. | Recent Sales of Unregistered Securities. |
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Item 16. | Exhibits and Financial Statement Schedules. |
Number | Exhibit Title | |||
1 | .1* | Form of Underwriting Agreement. | ||
2 | .1 | Agreement and Plan of Merger, dated as of December 4, 2006, by and among McJunkin Corporation, McJ Holding Corporation and Hg Acquisition Corp. | ||
2 | .1.1 | McJunkin Contribution Agreement, dated as of December 4, 2006, by and among McJunkin Corporation, McJ Holding LLC and certain shareholders of McJunkin Corporation. | ||
2 | .1.2 | McApple Contribution Agreement, dated as of December 4, 2006, among McJunkin Corporation, McJ Holding LLC and certain shareholders of McJunkin Appalachian Oilfield Supply Company. | ||
2 | .2 | Stock Purchase Agreement, dated as of April 5, 2007, by and between McJunkin Development Corporation, Midway-Tristate Corporation and the other parties thereto. | ||
2 | .2.1 | Assignment Agreement, dated as of April 27, 2007, by and among McJunkin Development Corporation, McJunkin Appalachian Oilfield Supply Company, Midway-Tristate Corporation, and John A. Selzer, as Representative of the Shareholders. | ||
2 | .3 | Stock Purchase Agreement, dated as of July 6, 2007, by and among West Oklahoma PVF Company, Red Man Pipe & Supply Co., the Shareholders listed on Schedule 1 thereto, PVF Holdings LLC, and Craig Ketchum, as Representative of the Shareholders. | ||
2 | .3.1 | Contribution Agreement, dated July 6, 2007, by and among McJ Holding LLC and certain shareholders of Red Man Pipe & Supply Co. | ||
2 | .3.2 | Amendment No. 1 to Stock Purchase Agreement, dated as of October 24, 2007, by and among West Oklahoma PVF Company, Red Man Pipe & Supply Co., and Craig Ketchum, as Representative of the Shareholders. | ||
2 | .3.3 | Joinder Agreement and Amendment No. 2 to the Stock Purchase Agreement, dated as of October 31, 2007, by and among West Oklahoma PVF Company, Red Man Pipe & Supply Co., PVF Holdings LLC, Craig Ketchum, as Representative of the Shareholders, and the other parties thereto. | ||
3 | .1* | Form of Amended and Restated Certificate of Incorporation of McJunkin Red Man Holding Corporation. | ||
3 | .2* | Form of Amended and Restated Bylaws of McJunkin Red Man Holding Corporation. | ||
4 | .1* | Specimen Common Stock Certificate. | ||
5 | .1 | Form of opinion of Fried, Frank, Harris, Shriver & Jacobson LLP. | ||
10 | .1 | Revolving Loan Credit Agreement, dated as of October 31, 2007, by and among McJunkin Red Man Corporation and the other parties thereto. | ||
10 | .1.1 | Joinder Agreement, dated as of June 10, 2008, by and among The Huntington National Bank, McJunkin Red Man Corporation and The CIT Group/Business Credit, Inc. | ||
10 | .1.2 | Joinder Agreement, dated as of June 10, 2008, by and among JP Morgan Chase Bank, N.A., McJunkin Red Man Corporation and The CIT Group/Business Credit, Inc. | ||
10 | .1.3 | Joinder Agreement, dated as of June 10, 2008, by and among TD Bank, N.A., McJunkin Red Man Corporation and The CIT Group/Business Credit, Inc. |
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Number | Exhibit Title | |||
10 | .1.4 | Joinder Agreement, dated as of June 10, 2008, by and among United Bank Inc., McJunkin Red Man Corporation and The CIT Group/Business Credit, Inc. | ||
10 | .2 | Revolving Loan Security Agreement, dated as of October 31, 2007, by and among McJunkin Red Man Corporation and the other parties thereto. | ||
10 | .3 | Term Loan Credit Agreement, dated as of January 31, 2007, by and among McJunkin Red Man Corporation and the other parties thereto. | ||
10 | .3.1 | First Amendment to Term Loan Credit Agreement, dated as of October 31, 2007, by and among McJunkin Red Man Corporation and the other parties thereto. | ||
10 | .4 | Term Loan Pledge Agreement, dated as of January 31, 2007, by and among McJunkin Red Man Corporation, Lehman Commercial Paper Inc., and the other parties thereto. | ||
10 | .4.1 | Supplement No. 1 to Term Loan Pledge Agreement, dated as of April 30, 2007, by and among McJunkin Red Man Corporation, Lehman Commercial Paper Inc., and the other parties thereto. | ||
10 | .4.2 | Supplement No. 2 to Term Loan Pledge Agreement, dated as of April 30, 2007, by and among McJunkin Red Man Corporation, Lehman Commercial Paper Inc., and the other parties thereto. | ||
10 | .4.3 | Supplement No. 3 to Term Loan Pledge Agreement, dated as of October 31, 2007, by and among McJunkin Red Man Corporation, Lehman Commercial Paper Inc., and the other parties thereto. | ||
10 | .5 | Term Loan Security Agreement, dated as of January 31, 2007, by and among McJunkin Red Man Corporation, Lehman Commercial Paper Inc., and the other parties thereto. | ||
10 | .5.1 | Supplement No. 1 to Term Loan Security Agreement, dated as of April 30, 2007, by and among McJunkin Red Man Corporation, Lehman Commercial Paper Inc., and the other parties thereto. | ||
10 | .5.2 | Supplement No. 2 to Term Loan Security Agreement, dated as of October 31, 2007, by and among McJunkin Red Man Corporation, Lehman Commercial Paper Inc., and the other parties thereto. | ||
10 | .6 | Term Loan Credit Agreement, dated as of May 22, 2008, by and among McJunkin Red Man Holding Corporation and the other parties thereto. | ||
10 | .7 | Term Loan Pledge Agreement, dated as of May 22, 2008, by and between McJunkin Red Man Holding Corporation and Lehman Commercial Paper Inc. | ||
10 | .8 | Term Loan Security Agreement, dated as of May 22, 2008, by and between McJunkin Red Man Holding Corporation and Lehman Commercial Paper Inc. | ||
10 | .9 | Loan and Security Agreement, dated as of November 2, 2006, by and among Midfield Supply ULC and the other parties thereto. | ||
10 | .9.1 | Consent and First Amendment to the Loan and Security Agreement, dated as of April 26, 2007, by and among Midfield Supply ULC and the other parties thereto. | ||
10 | .9.2 | Second Amendment to the Loan and Security Agreement, dated as of May 17, 2007, by and among Midfield Supply ULC and the other parties thereto. | ||
10 | .9.3 | Third Amendment, Consent and Waiver to the Loan and Security Agreement, dated as of October 31, 2007, by and among Midfield Supply ULC and the other parties thereto. | ||
10 | .9.4 | Fourth Amendment to the Loan and Security Agreement, dated as of April 28, 2008, by and among Midfield Supply ULC and the other parties thereto. | ||
10 | .10 | Letter Agreement, dated as of May 17, 2007, by and between Alberta Treasury Branches and Midfield Supply ULC. | ||
10 | .10.1 | Amendment to Letter Agreement, dated as of October 10, 2007, by and between Alberta Treasury Branches and Midfield Supply ULC. | ||
10 | .11 | Letter Agreement, dated as of September 24, 2008, by and among H.B. Wehrle, III, PVF Holdings LLC and McJunkin Red Man Corporation. | ||
10 | .12 | Employment Agreement of Craig Ketchum. | ||
10 | .13 | Employment Agreement of James F. Underhill. | ||
10 | .14 | Employment Agreement of David Fox, III. | ||
10 | .15 | Employment Agreement of Dee Paige. |
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Number | Exhibit Title | |||
10 | .16 | Employment Agreement of Stephen D. Wehrle. | ||
10 | .17 | McJ Holding Corporation 2007 Stock Option Plan. | ||
10 | .17.1 | Form of McJunkin Red Man Holding Corporation Nonqualified Stock Option Agreement. | ||
10 | .18 | McJ Holding Corporation 2007 Restricted Stock Plan. | ||
10 | .18.1 | Form of McJunkin Red Man Holding Corporation Restricted Stock Award Agreement. | ||
10 | .19 | McJunkin Red Man Holding Corporation 2007 Stock Option Plan (Canada). | ||
10 | .19.1 | Form of McJunkin Red Man Holding Corporation Nonqualified Stock Option Agreement (Canada) (for plan participants who are parties to non-competition agreements). | ||
10 | .19.2 | Form of McJunkin Red Man Holding Corporation Nonqualified Stock Option Agreement (Canada) (for plan participants who are not parties to non-competition agreements). | ||
10 | .20 | McJunkin Red Man Corporation Deferred Compensation Plan. | ||
10 | .21 | Indemnity Agreement, dated as of December 4, 2006, by and among McJunkin Red Man Holding Corporation, Hg Acquisition Corp., McJunkin Red Man Corporation, and certain shareholders of McJunkin Red Man Corporation named therein. | ||
10 | .22 | Management Stockholders Agreement, dated as of March 27, 2007, by and among PVF Holdings LLC, McJunkin Red Man Holding Corporation, and the other parties thereto. | ||
10 | .22.1 | Amendment No. 1 to the Management Stockholders Agreement, dated as of December 21, 2007, executed by PVF Holdings LLC. | ||
10 | .22.2 | Amendment No. 2 to the Management Stockholders Agreement, dated as of December 26, 2007, executed by PVF Holdings LLC. | ||
10 | .23 | Phantom Shares Surrender Agreement, Release and Waiver, dated as of October 30, 2007, by and among Red Man Pipe & Supply Co., PVF Holdings LLC, and Jeffrey Lang. | ||
10 | .24 | Phantom Shares Surrender Agreement, Release and Waiver, dated as of October 30, 2007, by and among Red Man Pipe & Supply Co., PVF Holdings LLC, and Dee Paige. | ||
10 | .25* | Form of Second Amended and Restated Limited Liability Company Agreement of PVF Holdings LLC. | ||
10 | .26* | Form of Registration Rights Agreement by and among McJunkin Red Man Holding Corporation and PVF Holdings LLC. | ||
10 | .27 | Amended and Restated Limited Liability Company Operating Agreement of Red Man Distributors LLC, dated as of September 18, 2008. | ||
10 | .28 | Amended and Restated Services Agreement, dated as of September 18, 2008, by and between McJunkin Red Man Corporation and Red Man Distributors LLC. | ||
10 | .29 | Employment Agreement of Andrew Lane. | ||
10 | .30 | Subscription Agreement, dated as of September 10, 2008, by and among McJunkin Red Man Holding Corporation, Andrew Lane, and PVF Holdings LLC. | ||
10 | .31 | McJunkin Red Man Holding Corporation Nonqualified Stock Option Agreement, dated as of September 10, 2008, by and among McJunkin Red Man Holding Corporation, PVF Holdings LLC, and Andrew Lane. | ||
16 | Letter from Schneider Downs & Co., Inc. | |||
21 | .1 | List of Subsidiaries of McJunkin Red Man Holding Corporation. | ||
23 | .1 | Consent of Ernst & Young LLP. | ||
23 | .2 | Consent of Schneider Downs & Co., Inc. | ||
23 | .3 | Consent of PricewaterhouseCoopers LLP. | ||
23 | .4 | Consent of Fried, Frank, Harris, Shriver & Jacobson LLP (included in Exhibit 5.1). | ||
24 | .1** | Power of Attorney. |
* | To be filed by amendment. |
** | Previously filed. |
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Table of Contents
Item 17. | Undertakings. |
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Table of Contents
Chief Executive Officer
Signature | Title | Date | ||
/s/ Andrew Lane Andrew Lane | Chief Executive Officer and Director (Principal Executive Officer) | September 26, 2008 | ||
* James F. Underhill | Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | September 26, 2008 | ||
/s/ Craig Ketchum Craig Ketchum | Chairman of the Board of Directors | September 26, 2008 | ||
* Rhys J. Best | Director | September 26, 2008 | ||
* Henry Cornell | Director | September 26, 2008 | ||
* Christopher A.S. Crampton | Director | September 26, 2008 | ||
* John F. Daly | Director | September 26, 2008 | ||
* Harry K. Hornish, Jr. | Director | September 26, 2008 | ||
* Sam B. Rovit | Director | September 26, 2008 | ||
* H.B. Wehrle, III | Director | September 26, 2008 | ||
*By: /s/ Craig Ketchum Craig Ketchum, as attorney-in-fact |
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