Articles

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)