Articles

WATERFORD, N.Y., (November 13, 2013) – Momentive Performance Materials Inc. (“Momentive Performance

Materials” or the “Company”) today announced results for the third quarter ended September 30, 2013. Results for

the third quarter of 2013 include:

· Net sales of $604 million compared to $571 million in the prior year period.

· Operating income of $7 million versus operating loss of $(7) million in the prior year period. Third quarter

2013 operating income improved versus third quarter 2012 due to improved gross margins and a $10

million decrease in selling, general and administrative expenses.

· Net loss of $(67) million compared to a net loss of $(81) million in the prior year period, which reflected

the improved operating income partially offset by a $6 million increase in interest costs.

· Segment EBITDA of $55 million compared to $51 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.

“While we posted year-over-year gains in Segment EBITDA, we continue to operate in a slow-growth environment

amid continued global economic volatility,” said Craig O. Morrison, Chairman, President and CEO. “Our overall

third quarter 2013 Segment EBITDA also reflected the impact of seasonality that we have historically experienced.

Third quarter 2013 silicones Segment EBITDA totaled $55 million compared to $44 million in the prior year period,

reflecting modest improvement in North American sales and the impact of our cost reduction and productivity

initiatives, partially offset by decreased pricing and mix shift. The results of our quartz business continued to reflect

cyclically weak demand for semiconductor capital goods.”

“Our aggressive cost reduction initiatives helped offset continued soft demand from ongoing economic volatility.

We also continue to aggressively focus on the remaining cost reduction initiatives and anticipate fully realizing $10

million of total pro forma savings that are remaining from the Shared Services Agreement and the incremental

restructuring actions over the next 12 to 15 months.”

 

Business Results

Following are net sales and Segment EBITDA by business for the third quarter ended September 30, 2013 and 2012.

Segment EBITDA is defined as EBITDA adjusted for certain non-cash and certain other income and 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).

 

 

Liquidity and Capital Resources

At September 30, 2013, the Company had approximately $3.2 billion of long-term debt compared to $3.1 billion at

December 31, 2012. In addition, at September 30, 2013, the Company had $245 million in liquidity, including $92

million of unrestricted cash and cash equivalents (of which $84 million is maintained in foreign jurisdictions) and

$153 million of borrowings available under its secured revolving credit facilities (without triggering the financial

maintenance covenant under the ABL Facility).

On September 30, 2013, the Company was in compliance with all covenants under the credit agreements governing

its secured revolving credit facilities and under the indentures governing the notes. Based on the Company’s current

assessment of its operating plan and the general economic outlook, the Company believes that its cash flow from

operations and available cash and cash equivalents, including available borrowings under its new secured revolving

credit facilities, will be adequate to meet its liquidity needs for at least the next twelve months.

 

Earnings Call

Momentive Performance Materials will host a teleconference to discuss third quarter 2013 results on Wednesday,

November 13, 2013, 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: 800-706-7741

International Participants: 617-614-3471

Participant Passcode: 41096211

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, 2013. The

playback can be accessed by dialing 888-286-8010 (U.S.) and +1-617-801-6888 (International). The passcode is

57978927. A replay also will be available through the Investor Relations Section of the Company’s website.

 

Covenants under our Secured Credit Facilities 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 the maintenance of certain financial ratios (depending on

certain conditions). Payment of borrowings under the Company’s secured revolving 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 agreements governing the secured revolving credit facilities include the failure to pay principal and

interest when due, a material breach of a 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 ABL Facility does not have any financial maintenance covenants other than a minimum fixed charge coverage

ratio of 1.0 to 1.0 that would only apply if the Company’s availability under the ABL Facility at any time 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) $27 million. The fixed charge coverage ratio under the credit agreement governing the ABL Facility is

generally defined as the ratio of (a) Adjusted EBITDA minus non-financed capital expenditures and cash taxes to (b)

debt service plus cash interest expense plus certain restricted payments, each measured on a LTM basis. The

Company does not currently meet such minimum ratio, and therefore the Company does not expect to allow

availability under the ABL Facility to fall below such levels.

In addition, the financial maintenance covenant in the credit agreement governing the Cash Flow Facility provides

that beginning in the third quarter of 2014, the first full quarter following the one year anniversary of our entry into

the Cash Flow Facility, at any time that loans are outstanding under the facility, the Company will be 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 our “Total Senior Secured Net Debt” (as defined in the credit agreement)

to trailing twelve-month Adjusted EBITDA (as adjusted per the credit agreement) may not exceed 5.25 to 1 as of the

last day of the applicable quarter (beginning with the last day of the third quarter of 2014). Although the Company

was not required to meet such ratio requirement, as of September 30, 2013, the Company had a Senior Secured

Leverage Ratio of 4.75to 1.0 under the Cash Flow Facility.

In addition to the financial maintenance covenants described above, the Company is also subject to certain

incurrence tests under the credit agreements governing the secured revolving 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 incurrence test that restricts the

Company’s ability to incur indebtedness or make investments, among other actions, if the Company does not

maintain an Adjusted EBITDA to Fixed Charges ratio (measured on a LTM basis) of at least 2.00 to 1.00. The

Adjusted EBITDA to Fixed Charges ratio under the indentures is generally defined as the ratio of (a) Adjusted

EBITDA to (b) net interest expense excluding the amortization or write-off of deferred financing costs, each

measured on a LTM basis. 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 secured revolving credit facilities. Based on its forecast, the Company believes that its cash

flow from operations and available cash and cash equivalents, including available borrowing capacity under the

secured revolving credit facilities, will be sufficient to fund operations and pay liabilities as they come due in the

normal course of business for at least the next 12 months.

On September 30, 2013, the Company was in compliance with all covenants under the credit agreements governing

our secured revolving credit facilities and 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. Fixed Charges under the indentures should not be considered as an alternative to

interest expense.

 

The following table reconciles net loss attributable to Momentive Performance Materials Inc. to EBITDA and

Adjusted EBITDA (as calculated under our credit agreements 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 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,

the impact of our substantial indebtedness, our failure to comply with the financial maintenance covenants under our

secured revolving credit facilities or other covenants under such facilities or other debt instruments, 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, and the other factors

listed in the Risk Factors section of our other SEC filings. 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 wholly owned 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. 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 and Media:

John Kompa

614-225-2223

john.kompa@momentive.com

(See Attached Financial Statements)