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Momentive Performance Materials Inc. Reports Second Quarter 2012 Results

August 07, 2012

ALBANY, N.Y., (August 7, 2012) – Momentive Performance Materials Inc. (“Momentive Performance

Materials” or the “Company”) today reported its consolidated results for the second quarter ended June

30, 2012. Results for the second quarter of 2012 include:

 

· Net sales of $627 million compared to $728 million in the three-month period ended July 3,

2011. The decline was primarily due to a decrease in price and product mix shift.

· Operating loss of $(24) million versus operating income of $70 million in the three-month period

ended July 3, 2011. Second quarter 2012 operating loss reflected raw material inflation, a

product mix shift due to declines in certain higher-margin products, and increased restructuring

costs.

· Net loss attributable to Momentive Performance Materials Inc. of $(88) million compared to a net

loss of $(11) million in the three-month period ended July 3, 2011, which reflected the same

factors impacting operating loss.

· Combined Adjusted EBITDA, excluding the impact of all pro forma cost savings, of $64 million in

the three-month period ended June 30, 2012 compared to $125 million in the three-month

period ended July 3, 2011. Combined Adjusted EBITDA is a non-GAAP financial measure and is

defined and reconciled to Net Income (Loss) later in this release.

 

“We demonstrated sequential improvement in volumes of 14 percent and Combined Adjusted EBTIDA

excluding all pro forma savings of 25 percent in the second quarter of 2012 compared to the first quarter

of 2012,” said Craig O. Morrison, Chairman, President and CEO. “Our results, however, were impacted

on a year-over-year basis by softer volumes and negative mix as we experienced lower sales of some of

our higher-margin products serving the electronics, semiconductor and commercial construction

markets. We also experienced softer market conditions in Europe and the Asia Pacific region, while

demand was more resilient in the United States.”

 

“In response to market conditions, we’ve taken actions to better align our cost structure to the markets.

These restructuring actions and all other in process pro forma cost savings are expected to generate

$54 million of savings over the next 12 to 18 months. We continue to make steady progress with the

targeted savings from the shared services agreement with Momentive Specialty Chemicals Inc. as those

initiatives continue to create value. Through June 30, 2012, we have realized approximately $48 million

in synergy savings since the program began in late 2010.”

 

“Long-term, our growth strategy remains intact as we continue to focus on providing innovative

technology to our customers through our global footprint, while partnering with them to develop the next

generation of silicones and quartz products. We also continue to invest in our assets in higher growth

regions of China, India and southeast Asia, such as our recent site expansion in Chennai, India, while

leveraging our world-class global platform.”

 

Summary Results

The following table sets forth net sales for the second quarter ended June 30, 2012.

 2q 12

Net sales in the three-month period ended June 30, 2012 were $627 million, compared to $728 million

for the three-month period ended July 3, 2011, a decrease of 14 percent. The decrease was primarily

due to a decrease in price and mix shift of $76 million, exchange rate fluctuations of $22 million and a

slight decrease in volume of $3 million.

 

Net sales for the Silicones segment in the three-month period ended June 30, 2012 were $568 million,

compared to $640 million for the quarter-ended June 30, 2011, a decrease of 11 percent. The decrease

was primarily due to a decrease in price and mix shift of $77 million and exchange rate fluctuations of

$21 million, partially offset by an increase in volume of $26 million.

Net sales for the Quartz segment in the three-month period ended June 30, 2012 were $59 million,

compared to $88 million for the three-month period ended July 3, 2011, a decrease of 33 percent. The

decrease was due to lower volumes reflecting a downturn in demand for semiconductor related

products.

 

Outlook

“While we continue to anticipate challenging market conditions in the second half of 2012, the strategic

investments we’ve steadily made over the last several years in our silicones and quartz businesses

position us well for the long term,” Morrison said. “We continue to focus on prudently managing our

liquidity and driving costs out of the business, while maintaining our commitment to growth.”

 

Refinancing Activities

In April 2012, Momentive Performance Materials incurred incremental term loans due May 2015 under its

senior secured credit facilities in an aggregate principal amount of $175 million. Net proceeds from the

transaction (which consisted of a combination of cash and rollover debt after discounts and fees),

together with cash on hand, was used to retire approximately $178 million of existing term loans

maturing December 2013, effectively extending the Company’s debt maturity profile by approximately

two years. The refinancing was executed by the Company’s wholly owned subsidiary Momentive

Performance Materials GmbH, the German Borrower under its senior secured credit facilities.

In May 2012, we issued $250 million aggregate principal amount of 10% senior secured notes due 2020.

We used the net proceeds to repay $240 million aggregate principal amount of our existing term loans

maturing May 2015 under our senior secured credit facilities, effectively extending these maturities by

approximately five years.

 

Liquidity and Capital Resources

At June 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 June 30, 2012,

Momentive Performance Materials had $339 million in liquidity including $115 million of cash and cash

equivalents and $224 million of borrowings available under our senior secured revolving credit facility.

At June 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.


Earnings Call

Momentive Performance Materials will host a teleconference to discuss second quarter 2012 results on

Tuesday, August 7, 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: 866-203-3206

International Participants: 617-213-8848

Participant Passcode: 13638422

 

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 August 7, 2012. The playback can be accessed by dialing

888-286-8010 (U.S.) and +1-617-801-6888 (International). The passcode is 10268517. 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 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 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 June 30, 2012, we were not able to satisfy this test. The restrictions on

our 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 our senior

secured credit facilities. On June 30, 2012, 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.

 

Reconciliation of Financial Measures that Supplement U.S. 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 U.S. 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 facilities 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 (which we refer to as “pro forma cost savings”) 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 excludes the EBITDA of our subsidiaries that are designated as Unrestricted

Subsidiaries under our debt documents. We define Combined Adjusted EBITDA as Adjusted EBITDA

modified to include the EBITDA of our subsidiaries that are designated as Unrestricted Subsidiaries

under our debt documents. Both Adjusted EBITDA and Combined Adjusted EBITDA include pro forma

cost savings. Combined Adjusted EBITDA, excluding all pro forma cost savings, and Combined

Adjusted EBITDA are important performance measures used by our senior management and the board

of directors to evaluate operating results and allocate capital resources.

 

EBITDA, Adjusted EBITDA and Combined Adjusted EBITDA are not measurements of financial

performance under U.S. GAAP, and our EBITDA, Adjusted EBITDA and Combined Adjusted EBITDA

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

EBITDA, Adjusted EBITDA or Combined Adjusted EBITDA, which are non-U.S. 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.

 

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

Adjusted EBITDA (as calculated under our credit agreement and as substantially calculated under our

indentures) and Combined Adjusted EBITDA for the periods presented:

2q 12 2

 2q 12 3

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)

 

 2q 12 4

 2q 12 5

 2q 12 6

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