You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our financial statements and related notes included elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including, but not limited to, those set forth under "Cautionary Note Regarding Forward-Looking Statements" and "Item 1A-Risk Factors" and elsewhere in this report. All references throughout this section (and elsewhere in this report) to amounts available for borrowing under various credit facilities refer to amounts actually available for borrowing after giving effect to any borrowing base limitations imposed by the facility.

Cautionary Note Regarding Forward-Looking Statements

Management's Discussion and Analysis of Financial Condition and Results of Operations (as well as other sections of this Annual Report on Form 10-K) contain forward-looking statements, including, for example, statements about our business strategy, our industry, our future profitability, growth in the industry sectors we serve, our expectations, beliefs, plans, strategies, objectives, prospects and assumptions, and estimates and projections of future activity and trends in the oil and natural gas industry. These forward-looking statements are not guarantees of future performance. These statements are based on management's expectations that involve a number of business risks and uncertainties, any of which could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors, including the factors described under "Risk Factors", that may cause our actual results and performance to be materially different from any future results or performance expressed or implied by these forward-looking statements. Such risks and uncertainties include, among other things:

• decreases in oil and natural gas prices;

• decreases in oil and natural 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 natural 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 the products we distribute will sell a substantial amount of goods directly to end users in the industry sectors 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;

• suppliers' price reductions of products that we sell, 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 acquisitions into our business and whether these acquisitions will yield their intended benefits;

• 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 the products we distribute if import restrictions on these products are lifted;

• environmental, health and safety laws and regulations and the interpretation or implementation thereof;

• 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;

• loss of third-party transportation providers;

• potential inability to obtain necessary capital;

• risks related to adverse weather events or natural disasters;

• impairment of our goodwill or other intangible assets;

• changes in tax laws or adverse positions taken by taxing authorities in the countries in which we operate;

• adverse changes in political or economic conditions in the countries in which we operate;

• exposure to U.S. and international laws and regulations, including the Foreign Corrupt Practices Act and the U.K. Bribery Act and other economic sanction programs;

• risks relating to ongoing evaluations of internal controls required by
Section 404 of the Sarbanes-Oxley Act;

• the operation of our Company as a "controlled company";

• the impact on us of the SEC's move toward convergence with IFRS;

• adverse changes in political or economic conditions in the countries in which we operate; and

• the occurrence of cybersecurity incidents.

Undue reliance should not be placed on our forward-looking statements. Although forward-looking statements reflect our good faith beliefs, reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise, except to the extent law requires.

Overview

We are the largest global industrial distributor, based on sales, of PVF and related products and services to the energy industry and hold a leading position in our industry across each of the upstream (exploration, production and extraction of underground oil and natural gas), midstream (gathering and transmission of oil and natural gas,

natural gas utilities and the storage and distribution of oil and natural gas) and downstream (crude oil refining, petrochemical and chemical, processing and general industrials) sectors. Our business is segregated into three geographical operating segments, consisting of our U.S. operations, our Canadian operations and our International operations. We serve our customers in over 400 service locations. We offer a wide array of PVF and oilfield supplies encompassing a complete line of products from our global network of suppliers to our more than 18,000 customers. We are diversified by geography, the industry sectors we serve and the products we sell. We seek to provide best-in-class service to our customers by satisfying the most complex, multi-site needs of many of the largest companies in the energy and industrial sectors as their primary PVF supplier. We believe the critical role we play in our customers' supply chain, together with our extensive product offering, broad global presence, customer-linked scalable information systems and efficient distribution capabilities, serve to solidify our long-standing customer relationships and drive our growth. As a result, we have an average relationship of over 20 years with our 25 largest customers.

Key Drivers of Our Business

Our revenues are predominantly derived from the sale of PVF and other oilfield and industrial supplies to the energy sector in North America, Europe, Asia and Australasia. Our business is therefore dependent upon both the current conditions and future prospects in the energy industry and, in particular, maintenance and expansionary operating and capital expenditures by our customers in the upstream, midstream and downstream sectors of the industry. Long-term growth in spending has been, and we believe will continue to be, driven by several factors, including underinvestment in global energy infrastructure, growth in shale and unconventional exploration and production ("E&P") activity, and anticipated strength in the oil, natural gas, refined products, petrochemical and other industrial sectors. The outlook for future oil, natural gas, refined products, petrochemical and other industrial PVF spending is influenced by numerous factors, including the following:

• Oil and Natural Gas Prices. Sales of PVF and related products to the oil and natural gas industry constitute a significant portion of our sales. As a result, we depend upon the oil and natural gas industry and its ability and willingness to make maintenance and capital expenditures to explore for, produce and process oil and natural gas and refined products. Oil and natural gas prices, both current and projected, along with the costs necessary to produce oil and gas, impact other drivers of our business, including E&P spending, additions and maintenance to pipeline mileage, refinery utilization and petrochemical and other industrial processing activity.

• Economic Conditions. The demand for the products we distribute is dependent on the general economy, the energy and industrials sectors and other factors. Changes in the general economy or in the energy and industrials sectors (domestically or internationally) can cause demand for the products we distribute to materially change.

• 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 an adverse effect on the demand for the products we distribute when customers draw from their inventory rather than purchase new products. Reduced demand, in turn, would likely result in reduced sales volume and profitability. Increased inventory levels by manufacturers or other distributors can cause an oversupply of PVF and related products in the industry sectors we serve and reduce the prices that we are able to charge for the products we distribute. Reduced prices, in turn, would likely reduce our profitability. Conversely, decreased customer and manufacturer inventory levels may ultimately lead to increased demand for our products and would likely result in increased sales volumes and overall profitability.

• Steel Prices, Availability and Supply and Demand. Fluctuations in steel prices can lead to volatility in the pricing of the products we distribute, especially carbon steel tubular products, which can influence the buying patterns of our customers. A majority of the products we distribute contain various types of steel. The worldwide supply and demand for these products, or other steel products that we do not supply, impacts the pricing and availability of our products and, ultimately, our sales and operating profitability.

Recent Trends and Outlook

During 2012, the average oil price of approximately $94.05 per barrel for West Texas Intermediate ("WTI") was flat compared to 2011. Natural gas prices declined to an average price of $2.75/Mcf (Henry Hub) during 2012 from an average of $4.00/Mcf in 2011. We continue to see a shift in rig utilization from natural gas to oil, with oil drilling representing over 72% of the total North American rig count during 2012 compared to 55% in 2011.

Activity levels in the upstream sector remain strong. In the U.S., the average rig count was up 2% in 2012 as compared to 2011 although rig counts have leveled off since peaking in the fourth quarter of 2011. Continued development within the Eagle Ford and Bakken shale regions and the Permian Basin primarily drove this increase in rig count. In Canada, the average total rig count for 2012 declined 14% as compared to the same period in 2011 having peaked in the first quarter of 2012 primarily due to the decline in natural gas drilling. However, maintenance, repair and operations ("MRO") activity, particularly in the heavy oil and oil sands regions, has remained strong, mitigating the downturn experienced in shallow natural gas drilling elsewhere in Canada.

Within the midstream sector, which includes gathering, transmission pipelines and natural gas utilities, new wells coming on line and the continued need for infrastructure within the shale basins continues to drive growth in gathering and transmission. As a result of the shift in E&P activity from natural gas to oil, we have experienced a shifting in activity from the primarily natural gas regions of the Barnett, Haynesville, Woodford and Fayetteville shales to the Marcellus, Bakken, Eagle Ford and Niobrara shales and the Permian Basin and Mississippian Lime region, which are regions producing relatively greater proportions of oil and natural gas liquids. At the same time, increasing focus on pipeline integrity work and the need for utilities to repair or replace aging pipeline infrastructure has had a similar positive impact on the gas utilities portion of our midstream business.

Our downstream and other industrials sector performance continues to improve. Within refining, market participants are experiencing higher utilization rates with corresponding need for MRO turnarounds but are still cautious with respect to major project capital spending because of international refining capacity additions and domestic demand levels. However, we believe there will continue to be increased turnaround activity by our major customers in the U.S. refining sector in 2013. The chemical portion of our downstream sector continues to experience strong levels of operational activity, driven at least in part by reduced pricing for the chemical industry's key feedstocks, natural gas and natural gas liquids.

Internationally, we continue to see some improvement in prospects, although in Europe the outlook will be partly driven by Eurozone sentiment that will impact market confidence. Our Australasian business benefited from the March 2012 acquisition of MRC PSA. Refining customers remain cautious, particularly with the shift in production from Europe to Asia.

As part of our strategy to focus on our higher margin product lines, we continue to rebalance our OCTG business. We expect to accomplish this by continuing to reduce our OCTG inventory. Historically, this product line had contributed up to 25% of our revenue. It comprised 17% of our revenue in 2011 and 13% of our revenue in 2012.

Our backlog at December 31, 2012 was $664 million including $455 million, $62 million and $147 million in our US, Canadian and International segments, respectively. Our backlog at December 31, 2011 was $817 million including $631 million, $60 million and $126 million in our US, Canadian and International segments, respectively. The reduction in the U.S. 2012 backlog is primarily from repositioning the Company away from certain OCTG drilling programs.

Near the end of the fourth quarter of 2012, we experienced the impact of a general slow-down in the activities of our U.S. customers. The year-end slow down was expected, however, this year the slow down started earlier and was broader than in recent years driven in part by some of the uncertainty around the "fiscal cliff" negotiations at year end and the robustness of capital spending earlier in 2012, which may have exhausted certain customers' capital budgets before the end of the year.

The following table shows key industry indicators for the years ended December 31, 2012, 2011 and 2010:

                                                         Year Ended December 31,
                                                      2012         2011        2010
     Average Total Rig Count(1):
     United States                                     1,919        1,875       1,546
     Canada                                              364          422         351

     Total North America                               2,283        2,297       1,897
     International                                     1,234        1,167       1,094

     Total Worldwide                                   3,517        3,464       2,991

     Average Oil Rig Count(1):
     United States                                     1,383          984         591
     Canada                                              265          279         199

     Total North America                               1,648        1,263         790

     Average Natural Gas Rig Count(1):
     United States                                       557          888         943
     Canada                                              102          141         148

     Total North America                                 659        1,029       1,091

     Average Commodity Prices(2):
     WTI crude oil (per barrel)                     $  94.05     $  94.91     $ 79.48
     Brent crude oil (per barrel)                   $ 111.63     $ 111.26     $ 79.61
     Natural gas ($/Mcf)                            $   2.75     $   4.00     $  4.37

     Average Monthly Well Permits(3):                  5,251        5,811       5,317
     3:2:1 Crack Spread(4)                          $  30.02     $  25.40     $ 12.92
     PMI Index (as of December 1 of each year)(5)       50.7         53.1        57.3

(1) Source-Baker Hughes (www.bakerhughes.com) (Total rig count includes oil, natural gas and other rigs.)

(2) Source-Department of Energy, EIA (www.eia.gov)

(3) Source-RigData (U.S.)

(4) Source-Commodity Systems, Inc.

(5) Source-Institute for Supply Management

Results of Operations for the years ended December 31, 2012, 2011 and 2010

The breakdown of our sales by sector for the years ended December 31, 2012, 2011
and 2010 was as follows (in millions):



                                                                  Year Ended December 31,
                                                  2012                     2011                     2010
Upstream                                   $ 2,534.7        46 %    $ 2,257.7        47 %    $ 1,768.9        46 %
Midstream                                    1,526.2        27 %      1,269.5        26 %        922.9        24 %
Downstream and other industrials             1,509.9        27 %      1,305.2        27 %      1,153.7        30 %

                                           $ 5,570.8       100 %    $ 4,832.4       100 %    $ 3,845.5       100 %

Our operating results by segment are as follows (in millions):

                                           Year Ended December 31,
                                      2012          2011          2010
                Sales:
                U.S.                $ 4,238.4     $ 3,849.2     $ 3,124.7
                Canada                  765.2         653.6         465.2
                International           567.2         329.6         255.6

                Consolidated        $ 5,570.8     $ 4,832.4     $ 3,845.5

                Operating Income:
                U.S.                $   358.3     $   166.5     $    60.0
                Canada                   27.2          17.4          (4.0 )
                International            21.5          10.7          10.4

                Consolidated        $   407.0     $   194.6     $    66.4

Year Ended December 31, 2012 Compared to the Year Ended December 31, 2011

For the years ended December 31, 2012 and 2011 the following table summarizes
our results of operations (in millions):



                                          Year Ended December 31,
                                         2012                  2011             $ Change          % Change
Sales:
U.S.                                 $    4,238.4          $    3,849.2         $   389.2                10 %
Canada                                      765.2                 653.6             111.6                17 %
International                               567.2                 329.6             237.6                72 %

Consolidated                         $    5,570.8          $    4,832.4         $   738.4                15 %

Gross profit:
U.S.                                 $      729.1          $      508.5         $   220.6                43 %
Canada                                      131.3                 105.2              26.1                25 %
International                               153.3                  94.5              58.8                62 %

Consolidated                         $    1,013.7          $      708.2         $   305.5                43 %

Selling, general and
administrative expenses:
U.S.                                 $      370.8          $      342.0         $    28.8                 8 %
Canada                                      104.1                  87.8              16.3                19 %
International                               131.8                  83.8              48.0                57 %

Consolidated                         $      606.7          $      513.6         $    93.1                18 %

Operating income:
U.S.                                 $      358.3          $      166.5         $   191.8               115 %
Canada                                       27.2                  17.4               9.8                56 %
International                                21.5                  10.7              10.8               101 %

Consolidated                         $      407.0          $      194.6         $   212.4               109 %

Interest expense                           (112.5 )              (136.8 )            24.3               (18 )%
Loss on early extinguishment of
debt                                       (114.0 )                  -             (114.0 )             N/A
Write off of deferred financing
fees                                         (1.7 )                (9.5 )             7.8               (82 )%
Other, net                                    2.9                   7.5              (4.6 )             (61 )%
Income tax expense                          (63.7 )               (26.8 )           (36.9 )             138 %

Net income                           $      118.0          $       29.0         $    89.0               307 %

Adjusted Gross Profit(1)             $    1,057.7          $      849.6         $   208.1                24 %

Adjusted EBITDA(1)                   $      463.2          $      360.5         $   102.7                29 %

(1) Adjusted Gross Profit and Adjusted EBITDA are non-GAAP financial measures. For a reconciliation of these measures to and equivalent GAAP measure, see pages 37-38 herein.

Sales. Sales include the revenue recognized from the sales of the products we distribute, services to customers and freight billings to customers, less cash discounts taken by customers in return for their early payment of our invoices to them. Our sales were $5,570.8 million for the year ended December 31, 2012 as compared to $4,832.4 million for the year ended December 31, 2011.

U.S. Segment-Our U.S. sales increased $389.2 million to $4,238.4 million for 2012 from $3,849.2 million for 2011. The 10% increase was due to an increase in volume related to the improved business environment, including, in particular, the upstream and midstream sectors, which have been driven by activity levels in the oil and natural gas shale regions in the U.S. The acquisition of Chaparral Supply in June 2012 contributed $37.9 million to the revenue increase.

Canadian Segment-Our Canadian sales increased $111.6 million to $765.2 million for 2012 from $653.6 million for 2011. The 17% increase was due to an increase in volume related to the improved business environment, including, in particular, the upstream sector, which was driven by activity levels in the heavy oil and oil sands regions of Canada.

International Segment-Our International sales increased $237.6 million to $567.2 million for 2012 from $329.6 million for 2012. Approximately $192 million of this increase was due to the acquisitions of MRC PSA and MRC SPF in March 2012 and June 2011, respectively, while the remainder of the increase was due to an improvement in volume in the downstream sector in Europe during 2012.

Gross Profit. Our gross profit was $1,013.7 million (18.2% of sales) for the year ended December 31, 2012 as compared to $708.2 million (14.7% of sales) for the year ended December 31, 2011. The 350 basis point improvement in gross profit percentage was driven, in part, by the impact of our LIFO inventory costing methodology which increased 2012 gross profit percentage by 40 basis points and decreased 2011 gross profit percentage by 150 basis points. Excluding the impact of LIFO, as well as depreciation and amortization of intangibles, gross profit percentage improved by 140 basis points.

U.S. Segment-Gross profit for our U.S. segment increased to $729.1 million (17.2% of sales) for 2012 from $508.5 million (13.2% of sales) for 2011. The increase of $220.6 million was significantly impacted by our LIFO inventory costing methodology which had the effect of increasing 2012 gross profit by $24.1 million and decreasing 2011 gross profit by $73.7 million. The remaining increase in gross profit of $122.8 million was due to an increase in the volume of products sold year over year. Excluding the impact of LIFO, gross profit percentage increased by 150 basis points. This improvement was attributable to a shift in our product mix away from lower margin OCTG to our higher margin product lines.

Canadian Segment-Gross profit for our Canadian segment increased to $131.3 million (17.2% of sales) for 2012 from $105.2 million (16.1% of sales) for 2011. The increase of $26.1 million was due to an increase in the volume of products sold year over year. The improvement of gross profit percentage was largely due to the volume of products sold and improved leveraging of the fixed cost component of cost of sales.

International Segment-Gross profit for our International segment increased to $153.3 million (27.0% of sales) for 2012 from $94.5 million (28.7% of sales) for 2011, an improvement of $58.8 million. The increase in gross profit was largely due to the impact of the acquisitions of MRC PSA and MRC SPF, while the remainder of the increase was due to an increase in sales, particularly in Europe. The decrease in the gross profit percentage was due to a change in product mix resulting from these acquisitions.

Certain purchasing costs and warehousing activities (including receiving, inspection, and stocking costs), as well as general warehousing expenses, are included in selling, general and administrative expenses and not in cost of

. . .