Momentive Performance Materials Inc. ("Momentive" or "the
Company") today reported its combined results for the year ended
December 31, 2006. Highlights for 2006 include:
-- Net sales of $2,414.1 million in 2006 compared to $2,341.9
million in 2005.
-- Operating income of $100.8 million versus operating income of
$222.8 million in 2005.
-- Net loss of $36.9 million in 2006 compared to net income of
$74.3 million in 2005.
-- Adjusted EBITDA of $427.8 million for the Last Twelve Month
(LTM) period ended December 31, 2006 compared to Adjusted
EBITDA of $417.2 million in 2005. (Note: Adjusted EBITDA is a
non-GAAP measure and is defined and reconciled to Net Income
later in this release).
On December 3, 2006, Momentive Performance Materials Inc. acquired
GE Advanced Materials ("the Transaction"), an operating unit of
General Electric Company. The purchase price for GE Advanced Materials
as of the acquisition date was approximately $3.8 billion subject to
certain purchase price adjustments. In connection with the
acquisition, the Company issued $3,031.2 million of debt, consisting
of $50.0 million of drawn revolving credit facility, a $1,053.1
million term loan B facility, $765.0 million of senior notes, $300
million of senior toggle notes, $363.1 million of Euro senior notes
and $500.0 million of senior subordinated notes. The total
availability of our revolving credit facility is $300.0 million, of
which $50.0 million was borrowed at the closing of the Transaction,
and which has no outstanding balance, with the exception of $3.3
million of funded letters of credit, as of December 31, 2006.
"The Company has made significant steps into transforming itself
into a self-reliant, standalone business," said Wayne Hewett,
President and CEO. "We are competing admirably in the market,
executing on our business plan, and completing the steps necessary to
ensure that Momentive is a strong and focused standalone business.
There is clearly a lot of work for us to do, in terms of expanding
growth and tempering inflationary trends, both of which we are focused
on improving."
Summary Results
In the following discussion, comparisons are made between the
years ended December 31, 2006 (combined) and December 31, 2005,
notwithstanding the presentation in our consolidated and combined
statements of operations for the year ended December 31, 2006, the
Successor period from December 4, 2006 to December 31, 2006 and the
Predecessor period from January 1, 2006 to December 3, 2006. A split
presentation of an annual period is required under GAAP when a change
in accounting basis occurs. Consequently, the combined presentation
for 2006 is not a recognized presentation under GAAP. Accounting for
an acquisition requires that the historical carrying values of assets
acquired and liabilities assumed be adjusted to fair value. A
resulting higher cost basis associated with the allocation of the
purchase price impacts post-acquisition period results, which impacts
period-to-period comparisons. We believe a discussion of the separate
periods presented for the year ended December 31, 2006 in our
consolidated and combined statements of operations may impede
understanding of our operating performance. The impact of the
acquisition on the 28-day Successor period does not materially affect
the comparison of the annual periods and, accordingly, we have
prepared the discussion of our results of operations by comparing the
year ended December 31, 2006 (combined) with the year ended
December 31, 2005 without regard to the differentiation between
Predecessor and Successor results of operations for the Predecessor
period from January 1, 2006 to December 3, 2006 and the Successor
period from December 4, 2006 to December 31, 2006.
The following table sets forth certain historical consolidated and
combined financial information for the year ended December 31, 2005
and the combined successor and predecessor periods for the year ended
December 31, 2006:
-0-
*T
Predecessor Successor Combined
Predecessor
and
Successor
--------------------- --------- ------------
Year Ended Period Period Year Ended
December from from December
31, 2005 January December 31, 2006
1, 2006 4, 2006
to to
December December
3, 2006 31, 2006
----------- --------- --------- ------------
(dollars in millions)
Net sales $2,341.9 $2,168.0 $246.1 $2,414.1
Cost of sales 1,429.6 1,397.6 185.2 1,582.8
----------- --------- --------- ------------
Gross profit 912.3 770.4 60.9 831.3
Selling, general and
administrative expenses 617.3 534.6 52.9 587.5
Research and development
expenses 72.2 72.8 7.4 80.2
In-process research and
development - 0.0 52.0 52.0
Restructuring and other
costs - 10.6 0.20 10.8
----------- --------- --------- ------------
Operating income 222.8 152.4 (51.6) 100.8
Other income (expenses)
Interest expense, net (16.6) (11.8) (21.6) (33.4)
Other income (expense),
net (1.7) (4.7) 0.0 (4.7)
Minority interests (64.7) (43.9) (0.1) (44.0)
----------- --------- --------- ------------
Income (loss) before
income taxes 139.8 92.0 (73.3) 18.7
Income taxes 65.5 58.3 (2.7) 55.6
----------- --------- --------- ------------
Net income (loss) $74.3 $33.7 $(70.6) $(36.9)
=========== ========= ========= ============
Net Sales by Segment
Silicones $2,094.5 $1,925.7 $219.2 2,144.9
Quartz 247.4 $242.3 $26.9 269.2
----------- --------- --------- ------------
Total $2,341.9 $2,168.0 $246.1 $2,414.1
=========== ========= ========= ============
*T
Net sales. Net sales in 2006 were $ 2,414.1 million, compared to
$2,341.9 million in 2005, an increase of 3.1%. The increase was driven
by a 4.7% increase in sales volume, reflecting growth in both our
Silicones and Quartz divisions, which was partially offset by
unfavorable exchange rates fluctuations of 0.9% and a modest decrease
in selling prices.
Cost of sales. Cost of sales in 2006 was $1,582.8 million,
compared to $1,429.6 million in 2005, an increase of 10.7%. Cost of
sales increased by $153.2 million primarily due to increases in sales
volume, higher costs of raw materials and energy and increased labor
costs, and the impact of a $34.4 million charge to cost of sales
during December 2006 resulting from the sale of inventory that had
been revalued at fair value in the purchase accounting at the date of
the transaction.
Gross Profit. Gross profit in 2006 was $831.3 million or 34.4% of
net sales, compared to $912.3 million or 39% of net sales, a decrease
of 8.9%. The decrease is primarily due to the impact of increase in
cost of net sales described above.
Reconciliation of Net Income to Adjusted EBITDA
Certain covenants contained in the credit agreement governing our
credit facilities and the indentures governing the Senior Notes,
Senior Toggle Notes and Senior Subordinated Notes (i) require the
maintenance of a net first-lien secured indebtedness to Adjusted
EBITDA ratio and/or (ii) restrict our ability to take certain actions
such as incurring additional debt or making acquisitions if we are
unable to meet certain financial tests. For example, the indenture
covenants restrict our ability to incur additional indebtedness unless
we are able to comply, on a pro forma basis, with an Adjusted EBITDA
to Fixed Charges ratio (measured on a trailing four-quarter basis) of
2.0:1.0. Inability to comply with such covenants can result in
limiting our long-term growth prospects by hindering our ability to
incur future indebtedness or grow through acquisitions.
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 to exclude unusual items and other pro forma adjustments
permitted in calculating covenant compliance in the indentures
governing the notes to test the permissibility of certain types of
transactions. However, EBITDA and Adjusted EBITDA are not measurements
of financial performance under U.S. GAAP, and our EBITDA and Adjusted
EBITDA may not be comparable to similarly titled measures of other
companies. You should not consider our EBITDA or Adjusted EBITDA 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 income to EBITDA and Adjusted
EBITDA for the periods presented:
-0-
*T
Successor Predecessor Combined Predecessor
--------- ----------- Successor ---------------
Period from and
--------------------- Predecessor
Year ended Year Ended
January 1, December December 31,
December
4, 2006 2006 to 31, 2006
to December
December 3, 2006
31, 2006 2005 2004
--------- ----------- ------------ ------- -------
(dollars in millions)
Net income (loss) $(70.6) $33.7 $(36.9) $74.3 $67.4
Interest expense,
net 21.6 11.8 33.4 16.6 23.4
Income taxes (2.7) 58.3 55.6 65.5 45.6
Depreciation and
amortization 27.0 153.4 180.4 186.3 182.1
--------- ----------- ------------ ------- -------
EBITDA $(24.7) $257.2 $232.5 $342.7 $318.5
========= =========== ============ ======= =======
Minority interest(a) 49.8 $63.4
Non Cash,
Purchase
accounting
effects (b) 86.4 -
Stand-alone
savings -
assessment (c) 15.7 14.4
U.S. benefit plan
savings (d) 4.0 2.8
Cost savings -
new initiatives (e) 7.4 -
Restructuring and
stand-alone
costs (f) 10.8 0.5
Transaction and
initial costs (g) 21.2 (6.6)
------------ -------
Adjusted EBITDA $427.8 $417.2
============ =======
*T
(a) Reflects the elimination of minority interests resulting from
the acquisition of the remaining shareholder interest in joint
ventures with Toshiba and Bayer of $63.4 million in 2005 and $44.9
million in 2006 and the consolidation from May 2006 to December 3,
2006 of OSi Italy.
(b) Represents non-cash charges of that have been revalued at fair
value at the date of the Acquisition. The non-cash charges are
comprised by (i) $34.4 million to cost of sales during December 2006
resulting from the sales of inventories and (ii) $52.0 million of
in-process research and development intangible assets charged in
December 2006.
(c) Represents stand-alone cost savings for functions and services
previously provided by GE and its affiliated companies. These services
were historically billed to us via an assessment and related to
functions such as IT, finance, treasury, operations, research and
development, insurance, legal, and human resources. The assessment was
$62.5 million for 2005 and $62.6 million for 2006 and will not
continue on a stand-alone basis.
(d) Represents savings related to the design of our U.S. benefit
plans as compared to the cost historically billed directly to us by GE
for the administration of benefit programs in the U.S.
(e) Represents cost savings from initiatives which have been
implemented by management, including headcount reductions, reduction
in number of legal entities, and consolidation of warehouses and
offices.
(f) Primarily relates to restructuring and initial stand-alone
costs related to the transaction, including (i) consulting services
related to setting up our US benefit plan and other services of $3.3
million, (ii) retention payments of $3.3 million, (iii) costs for the
transfer of production to a new facility and a reorganization of a
sales force in Europe of $3.0 million and other adjustments of $1.2
million.
(g) Represents initial and start-up cost related to establishing
Momentive as a stand-alone entity in 2006, which includes (i) non-cash
items of $14.9 million that will not repeat including inventory
reserves and other non-recurring one-time charges (ii) other
consulting fees and services of $3.6 million and (iii) the
discontinuation of royalty payments to Toshiba of $2.7 million. In
2005, represents the elimination of a gain on sale of our 49% interest
in the Dong Yang Silicones Co. Ltd. joint venture to the majority
owner in the second quarter of 2005 of $4.1 million and other
adjustments of $2.5 million.
Forward Looking Statements
Certain statements in this press release are forward-looking
statements within the meaning 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, the Company's management may from time
to time make oral forward-looking statements. Forward-looking
statements may be identified by the words "believe," "expect,"
"anticipate," "project," "plan," "estimate," "will" or "intend" and
similar expressions. The forward-looking statements contained herein
reflect our current views with respect to future events and are based
on our currently available financial, economic and competitive data
and on current business plans. Actual results could vary materially
depending on risks and uncertainties that may affect our operations,
markets, services, prices and other factors. Important factors that
could cause actual results to differ materially from those in the
forward-looking statements include, but are not limited to: economic
factors such as an interruption in the supply of or increased pricing
of raw materials due to natural disasters, competitive factors such as
pricing actions by our competitors that could affect our operating
margins, and regulatory factors such as changes in governmental
regulations involving our products that lead to environmental and
legal matters.
About the Company
Momentive Performance Materials Inc. is a premier specialty
materials company, providing high-technology materials solutions to
the silicones, quartz and ceramics markets. The company is a global
leader with worldwide operations, a robust product portfolio,
industry-leading research and development capabilities, and a long
tradition of service excellence. Momentive Performance Materials Inc.
is owned by an affiliate of Apollo Management, L.P. Additional
information is available at www.momentive.com.