Articles

ALBANY, N.Y., November 3, 2010 – Momentive Performance Materials Inc. (“Momentive Performance

Materials” or the “Company”) today reported its consolidated results for the fiscal

three-month period ended September 26, 2010. Highlights include:

 

• Net sales of $662.2 million compared to $568.4 million in the fiscal three-month period

ended September 27, 2009, an increase of 17%.

• Adjusted EBITDA of $118.9 million compared to Adjusted EBITDA of $93.5 million in the

fiscal three-month period ended September 27, 2009, an increase of 27%. Adjusted

EBITDA excludes the EBITDA of one of our subsidiaries that is designated as an Unrestricted

Subsidiary under our debt documents of $6 million and $1 million for the quarters

ended September 26, 2010 and September 27, 2009, respectively.

• Pro Forma Adjusted EBITDA for the twelve-month period ended September 26, 2010 of

$526.8 million, which includes cost savings of approximately $50 million that the Company

expects to achieve in connection with the shared services agreement that it recently

entered into with Momentive Specialty Chemicals Inc.

• Operating income of $68.3 million versus operating income of $44.1 million in the fiscal

three-month period ended September 27, 2009.

• Net income attributable to Momentive Performance Materials of $29.1 million compared

to a net loss attributable to Momentive Performance Materials of $25.9 million in the fiscal

three-month period ended September 27, 2009.

 

“In the third quarter, we achieved significant year-over-year increases in sales and Adjusted

EBITDA of approximately 17% and 27%, respectively,” said Craig O. Morrison, Chairman and

CEO. He added, “We benefited in the quarter from improved volumes across our Silicones business,

robust demand in our Quartz segment and an improved cost structure. Inflation in raw

material costs, though somewhat offset by pricing actions, and inventory reductions from our

planned second quarter build up, however, negatively impacted Adjusted EBITDA comparisons

on a sequential basis. Turning to our balance sheet, we are pleased to report that our proposed

refinancing of approximately $1.25 billion of our senior unsecured notes has been well received

and we expect the related cash tender offers, bond offering and bond exchange to close in November.”

Momentive Performance Materials will host a teleconference to discuss Third Quarter 2010 results

on Wednesday, November 3, 2010 at 10:00 a.m. Eastern Time.

Interested parties are asked to dial-in approximately 10 minutes before the call begins at the

following numbers:

 

U.S. Toll-Free: 866.700.0161

Outside of the U.S.: 617.213.8832

Participant Passcode: 75150732

 

Live Internet access to the call and presentation materials will be available through the Investor

Relations section of the Company’s website: www.momentive.com/investors. A replay of the call

will be available for three weeks beginning at 1 p.m. Eastern Time on November 3, 2010. The

playback can be accessed by dialing 888.286.8010 (U.S.) and 617.801.6888 (International). The

passcode is 28660777. A replay also will be available through the Investor Relations Section of

the Company’s website.

 

Summary Results

The following table sets forth certain historical consolidated financial information, in both dollars

and percentages of net sales, for the fiscal three-month periods ended September 26, 2010 and

September 27, 2009.

 

Net Sales. Net sales in the fiscal three-month period ended September 26, 2010 were $662.2

million, compared to $568.4 million for the same period in 2009, an increase of 16.5%. The increase

was primarily due to an increase in sales volume of 16.0% and an increase in selling

prices of 2.2%, partially offset by unfavorable exchange rate fluctuations of 1.7%. Foreign exchange

impacts were primarily related to the strengthening of the U.S. dollar against the Euro.

 

Net sales for our Silicones segment in the fiscal three-month period ended September 26, 2010

were $585.4 million, compared to $523.4 million for the same period in 2009, an increase of

11.8%. The increase was primarily due to an increase in sales volume of 11.8%. Sales volume

for our Silicones segment was positively impacted on a year-over-year basis by stronger demand

in the electronics, automotive and agriculture sectors. Compared to the second quarter

of 2010, net sales for our Silicones segment increased by 1.6% primarily due to increases in

selling price and volume partially offset by fluctuations in foreign exchange rates. Most product

groups and the Pacific region saw improvements in volume versus the second quarter of 2010.

We continue to focus on providing more high-value specialty products to our customers versus

lower-margin commoditized or core products.

 

Net sales for our Quartz segment in the fiscal three-month period ended September 26, 2010

were $76.8 million, compared to $45.0 million for the same period in 2009, an increase of

70.7%. The increase was primarily a result of strong overall demand on a year-over-year basis

for semiconductor related products. Compared to the second quarter of 2010, net sales for our

Quartz segment grew 1.9% primarily due to improved semiconductor demand on a sequential

basis as production levels continued to recover at chipmakers. We expect semiconductor related

product sales to remain strong through the first half of 2011.

 

Cost of Sales, excluding depreciation. Cost of sales, excluding depreciation, in the fiscal

three-month period ended September 26, 2010 was $432.3 million, compared to $381.9 million

for the same period in 2009, an increase of 13.2%. The increase was primarily due to higher

sales volume of 16.0% and inflation in raw material costs of 4.5%, partially offset by higher

cost leverage, fluctuations in exchange rates, and deflation in energy related costs.

Cost of sales, excluding depreciation, for our Silicones segment was $390.9 million, compared

to $352.7 million for the same period in 2009, an increase of 10.8%. The increase was primarily

due to higher sales volume of 11.8% and inflation in raw material costs of 4.9%, partially offset

by favorable cost leverage and fluctuations in exchange rates.

 

Cost of sales, excluding depreciation, for our Quartz segment was $41.4 million, compared to

$29.2 million for the same period in 2009, an increase of 41.8%. The increase was primarily

due to higher sales volume of 64.6%, partially offset by favorable cost leverage, and lower energy

related costs.

Selling, General and Administrative Expenses. Selling, general and administrative expenses

in the fiscal three-month period ended September 26, 2010 were $141.0 million, compared

to $124.3 million for the same period in 2009, an increase of 13.4%. The increase was

primarily due to the impact of temporary pay cuts for certain employees instituted in the second

quarter of 2009, which were restored effective as of the first pay period in January 2010, an

increase in depreciation and unfavorable fluctuations in foreign currency exchange rates.

Net income (loss) attributable to Momentive Performance Materials. Net income attributable

to Momentive Performance Materials was $29.1 million in the fiscal three-month period

ended September 26, 2010, compared to a net loss attributable to Momentive Performance

Materials of $25.9 million for the same period in 2009. Net income attributable to Momentive

Performance Materials in the fiscal three-month period ended September 26, 2010 included a

valuation allowance release in certain non-U.S. jurisdictions based on the Company's assessment

that the net deferred tax assets will more likely than not be realized.

 

Reconciliation of Financial Measures that Supplement GAAP

EBITDA consists of earnings before interest, taxes and depreciation and amortization. EBITDA is

a measure commonly used in our industry and we present EBITDA to enhance your understanding

of our operating performance. We use EBITDA as one criterion for evaluating our performance

relative to that of our peers. We believe that EBITDA is an operating performance measure,

and not a liquidity measure, that provides investors and analysts with a measure of operating

results unaffected by differences in capital structures, capital investment cycles and ages of

related assets among otherwise comparable companies. Adjusted EBITDA is defined as EBITDA

further adjusted for unusual items and other pro forma adjustments permitted in calculating

covenant compliance in the credit agreement governing our credit facilities and indentures governing

the notes to test the permissibility of certain types of transactions. Adjusted EBITDA as

presented in the table below corresponds to the definition of “EBITDA” calculated on a “Pro

Forma Basis” used in the credit agreement and substantially conforms to the definition of

“EBITDA” calculated on a pro forma basis used in the indentures. Adjusted EBITDA has important

limitations as an analytical tool, and you should not consider it in isolation, or as a substitute

for analysis of our results as reported under GAAP. For example, Adjusted EBITDA does not

reflect: (a) our capital expenditures, future requirements for capital expenditures or contractual

commitments; (b) changes in, or cash requirements for, our working capital needs; (c) the significant

interest expenses, or the cash requirements necessary to service interest or principal

payments, on our debt; (d) tax payments that represent a reduction in cash available to us;

(e) any cash requirements for the assets being depreciated and amortized that may have to be

replaced in the future; (f) management fees that may be paid to Apollo; or (g) the impact of

earnings or charges resulting from matters that we and the lenders under our secured senior

credit facility may not consider indicative of our ongoing operations. In particular, our definition

of Adjusted EBITDA allows us to add back certain non-cash, non-operating or non-recurring

charges that are deducted in calculating net income, even though these are expenses that may

recur, vary greatly and are difficult to predict and can represent the effect of long-term strategies

as opposed to short-term results. In addition, certain of these expenses can represent the

reduction of cash that could be used for other corporate purposes. Further, as included in the

calculation of Adjusted EBITDA below, the measure allows us to add estimated cost savings and

operating synergies related to operational changes ranging from restructuring to acquisitions to

dispositions as if such event occurred on the first day of the four consecutive fiscal quarter period

ended on or before the occurrence of such event and/or exclude one-time transition expenditures

that we anticipate we will need to incur to realize cost savings before such savings

have occurred. Adjusted EBITDA and Pro Forma Adjusted EBITDA exclude the EBITDA of one of

our subsidiaries that is designated as an Unrestricted Subsidiary under our debt documents of

$6 million and $14 million for the quarter and twelve-month periods ended September 26,

2010, respectively, and of $1 million and $1 million for the quarter and twelve-month periods

ended September 27, 2009, respectively. Pro Forma Adjusted EBITDA includes cost savings expected

to be achieved under the shared services agreement that the Company recently entered

into with Momentive Specialty Chemicals Inc. only for the quarter and twelve-month periods

ended September 26, 2010.

 

EBITDA, Adjusted EBITDA and Pro Forma Adjusted EBITDA are not measurements of financial

performance under U.S. GAAP, and our EBITDA, Adjusted EBITDA and Pro Forma Adjusted

EBITDA may not be comparable to similarly titled measures of other companies. You should not

consider our EBITDA, Adjusted EBITDA or Pro Forma Adjusted EBITDA, which are non-GAAP

financial measures, as an alternative to operating or net income, determined in accordance with

U.S. GAAP, as an indicator of our operating performance, or as an alternative to cash flows

from operating activities, determined in accordance with U.S. GAAP, as an indicator of our cash

flows or as a measure of liquidity.

 

Covenants under our Senior Secured Credit Facilities and the Notes

The credit agreement governing our senior secured credit facilities and the indentures governing

the notes contain various covenants that limit our ability to, among other things:

• incur or guarantee additional debt;

• pay dividends and make other distributions to our stockholders;

• create or incur certain liens;

• make certain loans, acquisitions, capital expenditures or investments;

• engage in sales of assets and subsidiary stock;

• enter into sale/leaseback transactions;

• enter into transactions with affiliates; and

• transfer all or substantially all of our assets or enter into merger or consolidation

transactions.

 

In addition, at any time that loans or letters of credit are outstanding (and not cash collateralized)

thereunder, our revolving credit facility (which is part of our senior secured credit facilities)

requires us to maintain a specified net first-lien indebtedness to Adjusted EBITDA ratio,

referred to as the “Senior Secured Leverage Ratio”. Specifically, the ratio of our “Total Senior

Secured Net Debt” (as defined in the credit agreement governing the senior secured credit facilities)

to trailing twelve-month Adjusted EBITDA (as adjusted per the credit agreement governing

the senior secured credit facilities) may not exceed 4.25 to 1 as of the last day of any

fiscal quarter. In addition, our ability to incur indebtedness or make investments is restricted

under the indentures governing our notes unless we have an Adjusted EBITDA to fixed charges

ratio (measured on a last twelve months, or LTM, basis) of at least 2.00 to 1.00. “Fixed

charges” are defined under the indentures as net interest expense, excluding the amortization

or write-off of deferred financing costs. As of September 26, 2010, we were able to satisfy this

test and incur additional indebtedness under the indentures. The restrictions on our ability to

incur indebtedness or make investments under the indentures are also subject to other significant

exceptions. On September 26, 2010, we were in compliance with the senior secured leverage

ratio maintenance covenant, the other covenants under the credit agreement governing the

senior secured credit facilities and the covenants under the indentures governing the notes.

 

Forward-Looking and Cautionary Statements

Certain statements included in this press release constitute forward-looking statements within

the meaning of and are made pursuant to the safe harbor provisions of the Private Securities

Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended, and

Section 21E of the Securities Exchange Act of 1934, as amended. In addition, our management

may from time to time make oral forward-looking statements. All statements other than statements

of historical facts are statements that could be forward-looking statements. Forwardlooking

statements may be identified by the words “believe,” “expect,” “anticipate,” “project,”

“plan,” “estimate,” “will” or “intend” and similar words or expressions. These forward-looking

statements reflect our current views with respect to future events and are based on currently

available financial, economic and competitive data and our current business plans. Actual results

could vary materially depending on risks and uncertainties that may affect our operations,

markets, services, prices and other factors. Important factors that could cause actual results to

differ materially from those in the forward-looking statements include, but are not limited to:

our substantial leverage; limitations in operating our business contained in the documents governing

our indebtedness, including the restrictive covenants contained therein; global economic

conditions; difficulties with the integration process or realization of benefits in connection with

the transactions with Momentive Specialty Chemicals Inc.; and our inability to achieve cost savings.

For a more detailed discussion of these and other risk factors, see our Annual Report on

Form 10-K for the fiscal year ended December 31, 2009 and our other filings with the Securities

and Exchange Commission. All forward-looking statements are expressly qualified in their entirety

by this cautionary notice. You are cautioned not to place undue reliance on any forwardlooking

statements, which speak only as of the date of this release. We undertake no obligation

to publicly update or revise any forward-looking statement as a result of new information, future

events or otherwise, except as otherwise required by law.

 

About the Company

Momentive Performance Materials Inc. is a global leader in silicones and advanced materials,

with a 70-year heritage of being first to market with performance applications for major industries

that support and improve everyday life. The Company delivers science-based solutions, by

linking custom technology platforms to opportunities for customers. Momentive Performance

Materials Inc. is an indirect wholly-owned subsidiary of Momentive Performance Materials Holdings

LLC. Additional information is available at www.momentive.com.

 

About the new Momentive

Momentive Performance Materials Holdings LLC is the ultimate parent company of Momentive

Performance Materials Inc. and Momentive Specialty Chemicals Inc. (collectively, the “new Momentive”).

The new Momentive is a global leader in specialty chemicals and materials, with a

broad range of advanced specialty products that help industrial and consumer companies support

and improve everyday life. The company uses its technology portfolio to deliver tailored

solutions to meet the diverse needs of its customers around the world. The new Momentive

was formed in October 2010 through the combination of entities that indirectly owned Momentive

Performance Materials Inc. and Hexion Specialty Chemicals Inc. The capital structures and

legal entity structures of both Momentive Performance Materials Inc. and Momentive Specialty

Chemicals Inc. (formerly known as Hexion Specialty Chemicals, Inc.), and their respective subsidiaries

and direct parent companies, remain separate. Momentive Performance Materials Inc.

and Momentive Specialty Chemicals Inc. file separate financial and other reports with the Securities

and Exchange Commission. The new Momentive is controlled by investment funds affiliated

with Apollo Global Management, LLC. Additional information about the new Momentive and

its products is available at www.momentive.com and at www.hexion.com.

 

Contacts

Investors:

Peter Cholakis

(914) 784-4871

peter.cholakis@momentive.com

Media:

John Scharf

518-233-3893

john.scharf@momentive.com