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ALBANY, N.Y., (November 13, 2012) – Momentive Performance Materials Inc. (“Momentive Performance
Materials” or the “Company”) today reported its consolidated results for the third quarter ended
September 30, 2012. Results for the third quarter of 2012 include:
· Net sales of $571 million compared to $653 million in the prior year period. The decline was
primarily due to a decrease in volume and price, as well as product mix shift.
· Operating loss of $(7) million versus operating income of $27 million in the prior year period. Third
quarter 2012 operating loss reflected margin compression in certain product lines and a product
mix shift due to declines in certain higher-margin products.
· Net loss attributable to Momentive Performance Materials Inc. of $(81) million compared to a net
loss of $(32) million in the prior year period, which reflected the same factors impacting operating
loss.
· Segment EBITDA of $51 million compared to $97 million in the prior year period. Segment
EBITDA is a non-GAAP financial measure and is defined and reconciled to net loss later in this
release.
“Our third quarter 2012 results reflected continued weak economic conditions, excess capacity in the
silicones industry and seasonality,” said Craig O. Morrison, Chairman, President and CEO. “Soft demand
in Europe and the Asia Pacific region for some of our higher-margin products, such as those serving the
electronics, semiconductor and commercial construction markets, also negatively impacted our third
quarter 2012 results. In addition, our quartz business continued to experience a downturn in demand for
semiconductor-related products, which we anticipate to continue into the fourth quarter of 2012 as quartz
customers further reduce their inventory levels.”
“To address the ongoing market volatility, we continue to focus on the cost and cash actions that we can
directly control. Through September 30, 2012, we have realized approximately $59 million in cost savings
as a result of the Shared Services Agreement with Momentive Specialty Chemicals Inc. on a run-rate
basis since the program began in late 2010. In addition, in the second quarter of 2012, we announced an
incremental $30 million in restructuring actions, of which we achieved $7 million in the third quarter of
2012. We anticipate fully realizing $43 million of total pro forma savings that are remaining from the
Shared Services Agreement and the incremental restructuring actions over the next nine to 15 months.”
“We were also pleased to successfully complete the first stage of our refinancing activities announced in
October 2012, which will proactively extend our debt maturity profile."
Business Results
The Company's profitability measure has changed from operating income to Segment EBITDA (earnings
before interest, income taxes, depreciation and amortization) in the third quarter of 2012. Following are
net sales and Segment EBITDA by business for the three- and nine-months ended September 30, 2012
and 2011. Segment EBITDA is defined as EBITDA adjusted for certain non-cash and certain nonrecurring
expenses. Segment EBITDA is an important measure used by the Company's senior
management and board of directors to evaluate operating results and allocate capital resources among
businesses. Other primarily represents certain general and administrative expenses that are not
allocated to the businesses. (Note: Segment EBITDA is defined and reconciled to net loss later in this
release).
Refinancing Activities
On October 25, 2012, MPM Escrow LLC and MPM Finance Escrow Corp., wholly owned special purpose
subsidiaries of the Company (the “Escrow Issuers”), issued $1.1 billion principal amount of first-priority
senior secured notes due 2020 (the “ First Lien Notes”) in a private offering. The proceeds from the sale
of First Lien Notes have initially been placed in escrow pending satisfaction of certain conditions,
including, among others, either (i) obtaining an amendment to the Company’s senior secured credit
facilities to permit the Company to assume the obligations of the Escrow Issuers under the First Lien
Notes or (ii) entering into the asset-based lending facility, or ABL facility, described below. Following the
release of such escrow the Company intends to use the proceeds from the sale of First Lien Notes (i) to
repay all amounts outstanding under its senior secured credit facilities, (ii) to purchase, redeem or
discharge all of its outstanding $200 million aggregate principal amount of 12 ½% Second-Lien Senior
Secured Notes due 2014, (iii) to pay related fees and expenses and (iv) for general corporate purposes..
On October 25, 2012, the Company obtained $270 million of commitments from financial institutions for a
new $300 million asset-based revolving loan facility (the “ABL Facility”). The borrowing base will be based
on a specified percentage of eligible accounts receivable and inventory and, in certain foreign
jurisdictions, machinery and equipment. The ABL Facility will replace the Company's existing revolving
senior secured credit facilities and the Company expects to enter into the ABL Facility as soon as
practicable following the satisfaction of customary closing conditions.
Liquidity and Capital Resources
At September 30, 2012, Momentive Performance Materials had approximately $3.0 billion of long-term
debt compared to $2.9 billion of long-term debt at December 31, 2011. In addition, at September 30,
2012, Momentive Performance Materials had $283 million in liquidity including $110 million of cash and
cash equivalents and $173 million of borrowings available under its senior secured revolving credit
facility. Liquidity on an as-adjusted basis at September 30, 2012 was $401 million giving effect to the
release from escrow of the proceeds from the sale of First Lien Notes after the repayment of debt and
related fees and expenses described above.
At September 30, 2012, the Company was in compliance with all financial covenants that govern its
senior secured credit facilities, including its senior secured debt to Adjusted EBITDA ratio. Based on
Momentive Performance Materials’ current assessment of its operating plan and the general economic
outlook, the Company believes that its cash flow from operations and available cash, including available
borrowings under its senior secured credit facilities, will be adequate to meet its liquidity needs for the
next twelve months.
Outlook
“We continue to focus on prudently managing our liquidity and driving costs out of the business,” said
Morrison. “During the fourth quarter of 2012 we expect to benefit from normal seasonality and ongoing
cost reduction initiatives. Going forward, we believe our diversified technologies and varied end markets
provide significant growth opportunities for us, which we are aggressively pursuing through our global
specialty materials platform.”
Earnings Call
Momentive Performance Materials will host a teleconference to discuss third quarter 2012 results on
Tuesday, November 13, 2012, at 10 a.m. Eastern Time.
Interested parties are asked to dial-in approximately 10 minutes before the call begins at the following
numbers:
U.S. Participants: 800-798-2864
International Participants: 617-614-6206
Participant Passcode: 87215779
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.
A replay of the call will be available for three weeks beginning at 1 p.m. Eastern Time on November 13,
2012. The playback can be accessed by dialing 888-286-8010 (U.S.) and +1-617-801-6888
(International). The passcode is 73181660. A replay also will be available through the Investor Relations
Section of the Company’s website.
Covenants under our Senior Secured Credit Facility and the Notes
The instruments that govern the Company’s indebtedness contain, among other provisions, restrictive
covenants (and incurrence tests in certain cases) regarding indebtedness, dividends and distributions,
mergers and acquisitions, asset sales, affiliate transactions, capital expenditures and, in one case, the
maintenance of a certain financial ratio. Payment of borrowings under the Company’s senior secured
credit facilities and notes may be accelerated if there is an event of default as determined under the
governing debt instrument. Events of default under the credit agreement governing the senior secured
credit facilities include the failure to pay principal and interest when due, a material breach of
representation or warranty, most covenant defaults, events of bankruptcy and a change of control. Events
of default under the indentures governing the notes include the failure to pay principal and interest, a
failure to comply with covenants, subject to a 30-day grace period in certain instances, and certain events
of bankruptcy.
The financial maintenance covenant in the credit agreement governing the senior secured credit facilities
provides that at any time that loans or letters of credit are outstanding (and not cash collateralized) under
the Company’s revolving credit facility (which is part of the senior secured credit facilities), the Company
is required to maintain a specified net first-lien indebtedness to Adjusted EBITDA ratio, referred to as the
“Senior Secured Leverage Ratio”. Specifically, the ratio of the Company’s “Total Senior Secured Net
Debt” (as defined in the credit agreement governing the senior secured credit facilities) to trailing twelvemonth
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. On September 30, 2012, the
Company was in compliance with the senior secured leverage ratio maintenance covenant.
As indicated above, the Company expects to enter into a new ABL Facility that will replace the senior
secured credit facilities as soon as practicable following the satisfaction of customary closing conditions.
The financial maintenance covenant in the agreement governing the ABL Facility is expected to provide
that if the Company’s availability under the ABL Facility is less than the greater of (a) 12.5% of the lesser
of the borrowing base and the total ABL Facility commitments at such time and (b) $30 million, the
Company is required to have an Adjusted EBITDA to Fixed Charges ratio (measured on a last twelve
months, or LTM, basis) of at least 1.0 to 1.0 as of the last day of any fiscal quarter. The Company does
not currently meet such ratio, and therefore in the event that the Company enters into the ABL Facility,
the Company does not expect to allow availability under the ABL Facility to fall below such levels.
In addition to the financial maintenance covenant described above, the Company is also subject to certain
incurrence tests under the credit agreement governing the senior secured credit facilities and the
indentures governing the notes that restrict the Company’s ability to take certain actions if the Company is
unable to meet specified ratios. For instance, the indentures governing the notes contain an Adjusted
EBITDA to Fixed Charges ratio incurrence test that restricts the Company’s ability to incur indebtedness
or make investments, among other actions, if the Company is unable to meet this ratio (measured on a
last twelve months, or LTM, basis) of at least 2.00 to 1.00. “Fixed charges” are generally defined under
the indentures as net interest expense, excluding the amortization or write-off of deferred financing costs.
As of September 30, 2012, the Company was not able to satisfy this test. The restrictions on the
Company’s ability to incur indebtedness or make investments under the indentures that apply as a result,
however, are subject to exceptions, including exceptions that permit indebtedness under the senior
secured credit facilities (including the use of unused borrowing capacity under the revolving credit facility,
which was $173 million at September 30, 2012). Based on its forecast for the next 12 months, the
Company has sufficient cash and available borrowing capacity to fund operations and pay liabilities as
they come due in the normal course of business.
On September 30, 2012, the Company was in compliance with all covenants under the credit agreement
governing the senior secured credit facilities and all covenants under the indentures governing the notes.
Reconciliation of Financial Measures that Supplement U.S. GAAP
Adjusted EBITDA is defined as EBITDA adjusted for certain non-cash and certain non-recurring items
and other adjustments calculated on a pro-forma basis, including the expected future cost savings from
business optimization or other programs and the expected future impact of acquisitions, in each case as
determined under the governing debt instrument. As the Company is highly leveraged, the Company
believes that including the supplemental adjustments that are made to calculate Adjusted EBITDA
provides additional information to investors about the Company’s ability to comply with its financial
covenants and to obtain additional debt in the future. Adjusted EBITDA is not a defined term under
GAAP. Adjusted EBITDA is not a measure of financial condition, liquidity or profitability, and should not be
considered as an alternative to net income (loss) determined in accordance with GAAP or operating cash
flows determined in accordance with GAAP. Additionally, EBITDA is not intended to be a measure of free
cash flow for management's discretionary use, as it does not take into account certain items such as
interest and principal payments on the Company’s indebtedness, depreciation and amortization expense
(because the Company uses capital assets, depreciation and amortization expense is a necessary
element of the Company’s costs and ability to generate revenue), working capital needs, tax payments
(because the payment of taxes is part of the Company’s operations, it is a necessary element of the
Company’s costs and ability to operate), non-recurring expenses and capital expenditures.
The following table reconciles net loss attributable to Momentive Performance Materials Inc. to EBITDA
and Adjusted EBITDA (as calculated under the credit agreement and as substantially calculated under
the indentures) for the period presented:
Forward-Looking and Cautionary Statements
Certain statements in this press release are forward-looking statements within the meaning of and made
pursuant to the safe harbor provisions of 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 forward-looking statements. Forward-looking statements may be identified by the words
“believe,” “expect,” “anticipate,” “project,” “plan,” “estimate,” “may,” “will,” “could,” “should,” “seek” or
“intend” and similar expressions. Forward-looking statements reflect our current expectations and
assumptions regarding our business, the economy and other future events and conditions 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 as discussed in the Risk Factors section of our most recent
Annual Report on Form 10-K and our other filings with the Securities and Exchange Commission (the
“SEC”). While we believe our assumptions are reasonable, we caution you against relying on any
forward-looking statements as it is very difficult to predict the impact of known factors, and it is impossible
for us to anticipate all factors that could affect our actual results. Important factors that could cause actual
results to differ materially from those in the forward-looking statements include, but are not limited to, a
weakening of global economic and financial conditions, interruptions in the supply of or increased cost of
raw materials, changes in governmental regulations and related compliance and litigation costs,
difficulties with the realization of cost savings in connection with our strategic initiatives, including
transactions with our affiliate, Momentive Specialty Chemicals Inc., pricing actions by our competitors that
could affect our operating margins, the impact of our substantial indebtedness, our failure to comply with
financial covenants under our credit facilities or other debt, and the other factors listed in the Risk Factors
section of our most recent Annual Report on Form 10-K and in our other SEC filings, including our
quarterly reports on Form 10-Q. For a more detailed discussion of these and other risk factors, see the
Risk Factors section in our most recent Annual Report on Form 10-K and our other filings made with the
SEC. All forward-looking statements are expressly qualified in their entirety by this cautionary notice. The
forward-looking statements made by us speak only as of the date on which they are made. Factors or
events that could cause our actual results to differ may emerge from time to time. 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 whollyowned
subsidiary of Momentive Performance Materials Holdings LLC.
About Momentive
Momentive Performance Materials Holdings LLC (“Momentive”) is the ultimate parent company of
Momentive Performance Materials Inc. and Momentive Specialty Chemicals Inc. 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. Its technology portfolio delivers
tailored solutions to meet the diverse needs of its customers around the world. 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. Momentive is controlled by
investment funds affiliated with Apollo Global Management, LLC. Additional information about Momentive
and its products is available at www.momentive.com.
Contacts
Investors:
John Kompa
614-225-2223
john.kompa@momentive.com
Media:
John Scharf
518-233-3893
john.scharf@momentive.com
(See Attached Financial Statements)
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