Nov 10, 2018   SOURCE: BusinessWire

Momentive Announces Third Quarter 2018 Results

MPM Holdings Inc. (“Momentive” or the “Company”) (OTCQX: MPMQ) today announced results for the third quarter ended September 30, 2018.

“Our strong third quarter results demonstrate incremental progress against our strategy to drive segment EBITDA growth, improve margins and generate free cash flow,” said Jack Boss, Chief Executive Officer and President. “We continue to benefit from the ongoing market uplift within our Formulated and Basic Silicones segment as well as growth in our specialty applications driven by end-market pull and our strategic capital investments.”

“In addition, as previously announced, following a thoughtful and comprehensive review of our strategic growth opportunities, we announced a definitive merger agreement that will deliver maximum value to our stockholders, while positioning the Company for long-term growth and future job creation that will benefit our talented global employees, customers, and suppliers. When completed, we believe the transaction will enhance our global leadership position by expanding our portfolio of products, broadening our geographic reach and strengthening our financial position.”

Mr. Boss concluded, “As we look out into the remainder of 2018, we continue to expect strong demand driven by solid industry fundamentals and continued margin improvement from increased specialty sales, cost optimization and favorable trends in basics products.”

Third Quarter 2018 Results

Net Sales. Net sales for the three months ended September 30, 2018 were $687 million, an increase of 16% compared with $594 million in the prior year. The increase was driven by improved market dynamics in our basics end markets and volume gains across nearly all of Momentive’s segments, which reflected the benefits of our strategic growth investments and increased demand in the automotive, agriculture, personal care, electronic, and industrial end markets.

Net Income (Loss). Net income for the three months ended September 30, 2018 was $18 million compared with net loss of $8 million in the prior year period.

Segment EBITDA. Segment EBITDA for the three months ended September 30, 2018 was $102 million, an increase of 52% compared with $67 million in the prior year period. The increase in Segment EBITDA was driven by significantly improved market dynamics in our basics end markets and the benefits of prior strategic investments in our specialty capabilities.

Segment Results

The following tables reflect net sales and Segment EBITDA by reportable segment for the third quarter and nine months ended September 30, 2018 and 2017. See “Non-U.S. GAAP Measures” and Schedule 4 to this release for further information regarding Segment EBITDA and for a reconciliation of net income (loss) to Segment EBITDA.

   

Net Sales (1):

(in millions)
 
Three Months Ended September 30, Nine Months Ended September 30,
2018   2017 2018   2017
Performance Additives $ 239 $ 223 $ 737 $ 670
Formulated and Basic Silicones 395 320 1,151 910

Quartz Technologies

53 51 160 152

Total

$ 687 $ 594 $ 2,048 $ 1,732
 

(1) Intersegment sales are not significant and, as such, are eliminated within the selling segment.

   
Segment EBITDA:
(in millions)
 
Three Months Ended September 30, Nine Months Ended September 30,
2018   2017 2018   2017
Performance Additives $ 47 $ 45 $ 151 $ 140
Formulated and Basic Silicones 51 20 155 71
Quartz Technologies 13 13 34 30
Corporate (9 ) (11 ) (31 ) (31 )
Total $ 102   $ 67   $ 309   $ 210  
 

Momentive Enters into Agreement to be Acquired by Investor Group

On September 13, 2018, Momentive, SJL Partners LLC, KCC Corporation and Wonik QnC Corporation (collectively, the “Investor Group”) announced that they have entered into a definitive merger agreement whereby the Investor Group will acquire Momentive in a transaction valued at approximately $3.1 billion, including the assumption of net debt, pension and postretirement liabilities.

Liquidity and Balance Sheet

At September 30, 2018, Momentive had net debt, which is total debt less cash and cash equivalents, of approximately $1.1 billion. In addition, at September 30, 2018, Momentive had $498 million in liquidity, including $251 million of unrestricted cash and cash equivalents, and $247 million of availability under its senior secured asset-based revolving loan facility (the “ABL Facility”) (undrawn, with $53 million letters of credit outstanding). Momentive expects to have adequate liquidity to fund its operations for the foreseeable future from cash on its balance sheet, cash flows provided by operating activities, and amounts available for borrowings under the ABL Facility.

Non-U.S. GAAP Measures

Segment EBITDA is defined as EBITDA (earnings before interest, income taxes, depreciation and amortization) 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 segments. Segment EBITDA should not be considered a substitute for net income (loss) or other results reported in accordance with accounting principles generally accepted in the United States (“GAAP”). Segment EBITDA may not be comparable to similarly titled measures reported by other companies. See Schedule 4 to this release for a reconciliation of net income (loss) to Segment EBITDA.

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. 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, Adjusted 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. See Schedule 5 to this release for a reconciliation of net income to Adjusted EBITDA and the calculation of the Adjusted EBITDA to Fixed Charges ratio.

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, including statements related to the benefits and anticipated timing of the merger transaction and expectations or predictions of future financial or business performance. 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, the merger agreement, 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, the impact of work stoppage and other incidents on our operations, changes in governmental regulations or interpretations thereof and related compliance and litigation costs, adverse rulings in litigation, difficulties with the realization of our cost savings in connection with transformation and strategic initiatives, including transactions with our affiliate, Hexion Inc., pricing actions by our competitors that could affect our operating margins, the impact of our growth and productivity investments, our ability to realize the benefits there from, and the timing thereof, our ability to obtain additional financing, and risks related to the merger agreement including the risk that the necessary regulatory approvals may not be obtained or may be obtained subject to conditions that are not anticipated, risks that any of the closing conditions to the proposed merger may not be satisfied or may not be satisfied in a timely manner, the risk that the businesses will not be integrated successfully, that such integration may be more difficult, time-consuming or costly than expected or that the expected benefits of the acquisition will not be realized, potential customer losses and business disruption following the announcement or consummation of the proposed transaction, potential litigation relating to the merger transaction, the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement, the effect of the announcement or pendency of the transaction on the Company’s business relationships, operating results, and business generally, and the other factors listed in the Risk Factors section of our SEC filings. 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 Momentive

Momentive is a global leader in silicones and advanced materials, with a 75 plus year heritage of being first to market with performance applications that support and improve everyday life. Momentive delivers science-based solutions for major industries, by linking its custom technology platforms to allow the creation of unique solutions for customers. Additional information is available at www.momentive.com.

(See Attached Financial Statements)

1 Defined as total principal value of debt less cash and cash equivalents divided by Segment EBITDA.

   
MPM HOLDINGS INC.
SCHEDULE 1: CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 
Three Months Ended Nine Months Ended
September 30, September 30,

(In millions, except share and per share data)

2018   2017 2018   2017
Net sales $ 687 $ 594 $ 2,048 $ 1,732
Cost of sales 528   473   1,562   1,378  
Gross profit 159 121 486 354
Costs and expenses:
Selling, general and administrative expense 83 84 255 251
Research and development expense 17 17 52 48
Restructuring and discrete costs 8 6 11 6
Other operating expense (income), net 1   (1 ) (1 ) 3  
Operating income 50 15 169 46
Interest expense, net 21 21 61 60
Non-operating (income) expense, net (4 ) (5 ) (7 ) (7 )
Reorganization items, net 4   —   9   —  
Income (loss) before income taxes and earnings from unconsolidated entities 29 (1 ) 106 (7 )
Income tax expense 12   6   31   11  
Income (loss) before earnings from unconsolidated entities 17 (7 ) 75 (18 )
Earnings from unconsolidated entities, net of taxes 1   (1 ) 2   (1 )
Net income (loss) $ 18   $ (8 ) $ 77   $ (19 )
 

 
MPM HOLDINGS INC.
SCHEDULE 2: CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
 
MPM HOLDINGS INC.

(In millions, except share data)

September 30, 2018   December 31, 2017
Assets
Current assets:
Cash and cash equivalents (including restricted cash of $1 at both September 30, 2018 and December 31, 2017) $ 252 $ 174
Accounts receivable (net of allowance for doubtful accounts of $3 and $4 at September 30, 2018 and December 31, 2017, respectively) 386 323
Inventories:
Raw materials 172 153
Finished and in-process goods 292 292
Other current assets 52   51  
Total current assets 1,154 993
Investment in unconsolidated entities 21 19
Deferred income taxes 10 11
Other long-term assets 14 11
Property, plant and equipment:
Land 77 77
Buildings 376 338
Machinery and equipment 1,141   1,135  
1,594 1,550
Less accumulated depreciation (459 ) (383 )
1,135 1,167
Goodwill 212 216
Other intangible assets, net 268   300  
Total assets $ 2,814   $ 2,717  
Liabilities and Equity
Current liabilities:
Accounts payable $ 320 $ 286
Debt payable within one year 36 36
Interest payable 25 12
Income taxes payable 11 7
Accrued payroll and incentive compensation 69 68
Other current liabilities 100   103  
Total current liabilities 561 512

Long-term liabilities:

Long-term debt 1,211 1,192
Pension and postretirement benefit liabilities 319 335
Deferred income taxes 62 60
Other long-term liabilities 72   74  
Total liabilities 2,225   2,173  
Equity
Common stock - $0.01 par value; 70,000,000 shares authorized; 48,163,690 and 48,121,634 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively — —
Additional paid-in capital 871 868
Accumulated other comprehensive income (loss) (53 ) (18 )
Accumulated deficit (229 ) (306 )
Total equity 589   544  
Total liabilities and equity $ 2,814   $ 2,717  
 
 
MPM HOLDINGS INC.
SCHEDULE 3: CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
Nine Months Ended September 30,

(In millions)

2018   2017
Cash flows provided by (used in) operating activities
Net income (loss) $ 77 $ (19 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 120 117
Gain on insurance proceeds received for capital (3 ) —
Unrealized actuarial (gains) losses from pensions and other post retirement liabilities (2 ) 1
Deferred income tax expense (benefit) 4 (10 )
Unrealized foreign currency gains (6 ) (4 )
Amortization of debt discount and ABL deferred financing costs 19 18
Stock based compensation 3 3
Other non-cash adjustments (2 ) 9
Net change in assets and liabilities:
Accounts receivable (71 ) (40 )
Inventories (27 ) (20 )
Accounts payable 47 27
Income taxes payable 6 —
Other assets, current and non-current (2 ) (3 )
Other liabilities, current and non-current 6   (33 )
Net cash provided by operating activities 169   46  
Cash flows used in investing activities
Capital expenditures (84 ) (123 )
Capital reimbursed from insurance proceeds 3 —
Purchases of intangible assets (1 ) (2 )
Dividend from MPM 1 1
Purchase of a business —   (9 )
Net cash used in investing activities (81 ) (133 )
Cash flows used in financing activities
Borrowings of short-term debt 36 35
Repayments of short-term debt (36 ) (36 )
ABL financing fees (4 ) —  
Net cash used in financing activities (4 ) (1 )
Increase (decrease) in cash, cash equivalents, and restricted cash 84 (88 )
Effect of exchange rate changes on cash, cash equivalents, and restricted cash (6 ) 4
Cash, cash equivalents, and restricted cash at beginning of period 174   228  
Cash, cash equivalents, and restricted cash at end of period $ 252   $ 144  
Supplemental disclosures of cash flow information
Cash paid for:
Interest $ 29 $ 30
Income taxes, net of refunds 21 20
Non-cash investing activity:
Capital expenditures included in accounts payable $ 15 $ 25
 
   
MPM HOLDINGS INC.
SCHEDULE 4: RECONCILIATION OF NET INCOME (LOSS) TO SEGMENT EBITDA (Unaudited)
 
Three Months Ended Nine Months Ended
September 30, September 30,

(In millions)

2018   2017 2018   2017
Net income (loss) $ 18 $ (8 ) $ 77 $ (19 )
Interest expense, net 21 21 61 60
Income tax expense 12 6 31 11
Depreciation and amortization 40 42 120 117
 
Items not included in Segment EBITDA:
Non-cash charges and other income and expense , net $ (1 ) $ — $ 2 $ 4
Unrealized (gains) losses on pension and postretirement benefits — — (2 ) 1
Restructuring and discrete costs 8 6 11 36
Reorganization items 4   —   9   —  
Segment EBITDA $ 102   $ 67   $ 309   $ 210  
 
 
MOMENTIVE PERFORMANCE MATERIALS INC.
SCHEDULE 5: RECONCILIATION OF LAST TWELVE MONTHS NET INCOME TO ADJUSTED EBITDA (Unaudited)
 
September 30, 2018

(In millions)

LTM Period
Net income $ 98
Interest expense, net 81
Income tax expense 35
Depreciation and amortization 157  
EBITDA 371
Adjustments to EBITDA
Restructuring and discrete costs(a) 11
Reorganization items, net(b) 10
Unrealized gains on pension and postretirement benefits (c) (8 )
Pro forma cost savings (d) 11
Non-cash charges (e) 9  
Adjusted EBITDA $ 404  
Adjusted EBITDA less Capital Expenditures and Cash Taxes $ 251  
Pro forma fixed charges(f) $ 56  
Ratio of Adjusted EBITDA to Fixed Charges(g) 7.21  
Pro forma Fixed Charge Coverage Ratio(h) 4.48  
(a)   Primarily includes expenses related to our global restructuring program, siloxane production transformation, and certain other non-operating income and expenses.
(b) Represents professional fees related to our reorganization.
(c) Represents non-cash actuarial gains resulting from pension and postretirement liability curtailment and re-measurements.
(d) Represents estimated cost savings, on a pro forma basis, from initiatives implemented or being implemented by management.
(e) Includes primarily the effects of foreign exchange gains and losses and impacts of asset impairments and disposals, and stock-based compensation expense.
(f) Reflects pro forma interest expense based on outstanding indebtedness and interest rates at September 30, 2018 adjusted for applicable restricted payments.
(g) MPM’s ability to incur additional indebtedness, among other actions, is restricted under the indentures governing our notes, unless MPM has an Adjusted EBITDA to Fixed Charges ratio of at least 2.0 to 1.0. As of September 30, 2018, we were able to satisfy this test and incur additional indebtedness under these indentures.
(h) Represents Pro forma Fixed Charge Coverage Ratio (the “FCCR”) as defined in the credit agreement for the ABL Facility. If the 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) $27, then the FCCR must be greater than 1.0 to 1.0.