Momentive Performance Materials' Q1 loss shrinks 6% to US$61M as improved gross margins, expenses offset by US$16M increase in interest costs; sales down 4% to US$570M
WATERFORD, New York
May 14, 2013
– Momentive Performance Materials Inc. (“Momentive Performance Materials” or the “Company”) today announced results for the first quarter ended March 31, 2013. Results for the first quarter of 2013 include:
* Net sales of $570 million compared to $593 million in the prior year period.
* Operating income of $17 million versus operating loss of $(5) million in the prior year period. First quarter 2013 operating income improved versus first quarter 2012 due to improved gross margins, a $2 million decrease in selling, general and administrative expenses, and a $5 million decrease in restructuring and other costs.
* Net loss of $(61) million compared to a net loss of $(65) million in the prior year period, which reflected the improved operating income partially offset by a $16 million increase in interest costs.
* Segment EBITDA of $68 million compared to $48 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 sales declined slightly in first quarter 2013 compared to the prior year period, segment EBITDA increased significantly reflecting primarily the benefit of our ongoing cost control initiatives,” said Craig O. Morrison, Chairman, President and CEO. “Our Segment EBITDA margins also improved as we continue to take the necessary actions to optimize the business for the slower-growth environment we are currently experiencing globally. Although the quartz business continued to reflect poor semiconductor demand, our silicone volumes increased slightly in the first quarter of 2013 versus the first quarter of 2012.
“We remain focused on controlling the actions that we can directly control to partially offset the softer demand we are experiencing in parts of our portfolio. Through March 31, 2013, we have realized approximately $63 million in cost savings on a run-rate basis as a result of the Shared Services Agreement with MSC since the program began in late 2010. We also anticipate fully realizing $22 million of total pro forma savings that are remaining from the Shared Services Agreement and the incremental restructuring actions that we announced in July 2012 over the next nine to 18 months.”
Following are net sales and Segment EBITDA by business for the first quarter ended March 31, 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).
In April 2013, the Company entered into two new secured revolving credit facilities: a $270 million asset-based revolving loan facility, which is subject to a borrowing base (the “ABL Facility”), and a $75 million revolving credit facility, which supplements the ABL Facility and is available subject to a certain utilization test based on borrowing availability under the ABL Facility (the “Cash Flow Facility”). The ABL Facility and Cash Flow Facility (collectively, the “April Refinancing”) replaced our prior senior secured credit facility (the “Old Credit Facility”).
Liquidity and Capital Resources
At March 31, 2013, the Company had approximately $3.2 billion of long-term debt compared to $3.1 billion of long-term debt at December 31, 2012. In addition, at March 31, 2013, the Company had $301 million in liquidity, including $116 million of unrestricted and cash equivalents and $185 million of borrowings available under the Old Credit Facility.
At March 31, 2013, the Company was in compliance with all covenants under the credit agreement governing the Old Credit Facility, including the senior secured debt to Adjusted EBITDA ratio maintenance covenant. 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.
“We continue to balance our growth initiatives, such as our recent international site investments, with our cost reduction programs,” Morrison said. ‘Looking ahead, we remain cautiously optimistic that our silicones business will continue to gradually recover throughout 2013 compared to 2012 levels. Our quartz customer sentiment also seems to be improving slightly.
“Finally, we continue to benefit from our long-dated maturity profile following several refinancing transactions over the past year. As of March 31, 2013 and on a pro forma basis for the April Refinancing, we had no material debt maturities prior to 2016. We believe we remain well positioned for the eventual market recovery.”
Momentive Performance Materials will host a teleconference to discuss first quarter 2013 results on Tuesday, May 14, 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: 877-474-9504
International Participants: 857-244-7557
Participant Passcode: 91247121
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 May 14, 2013. The playback can be accessed by dialing 888-286-8010 (U.S.) and +1-617-801-6888 (International). The passcode is 10070156. 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 financial maintenance covenant in the credit agreement governing the ABL Facility provides that 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 Company is required to have a fixed charge coverage ratio (measured on a last twelve months, or LTM, basis) of at least 1.0 to 1.0 as of the last day of the applicable fiscal quarter. 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.
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 the Company’s “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 fiscal quarter (beginning with the last day of the third quarter of 2014). If the Cash Flow Facility had been in effect as of March 31, 2013, although the Company would not have been required to meet such ratio requirement, as of March 31, 2013, the Company would have had a Senior Secured Leverage Ratio of 4.68 to 1 under the Cash Flow Facility. As of March 31, 2013, the Company was in compliance with the Senior Secured Leverage Ratio covenant under the Old Credit Facility, which was replaced in April 2013.
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. As of March 31, 2013, 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 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 March 31, 2013, the Company was in compliance with all covenants under the credit agreement governing the Old Credit Facility 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. Fixed Charges under the indentures should not be considered as an alternative to interest expense.
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