Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): August 14, 2018
 
 
MPM HOLDINGS INC.
(Exact name of registrant as specified in its charter)
 
 
Delaware
 333-201338
47-1756080
(State or other jurisdiction of
incorporation or organization)
(Commission File
Number)
(I.R.S. Employer
Identification No.)
 

MOMENTIVE PERFORMANCE MATERIALS INC.
(Exact name of registrant as specified in its charter)
 
Delaware
 333-146093
20-5748297
(State or other jurisdiction of
incorporation or organization)
(Commission File
Number)
(I.R.S. Employer
Identification No.)
 

260 Hudson River Road
Waterford, NY 12188
 
(518) 233-3330
(Address of principal executive offices including zip code)
 
(Registrant’s telephone number, including area code)

Not Applicable
(Former Name or Former Address, if Changed Since Last Report)

 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))





Item 2.02 Results of Operations and Financial Condition

On August 14, 2018, MPM Holdings Inc. ("Momentive") issued a news release announcing its results for the second quarter ended June 30, 2018. A copy of the News Release is being furnished as Exhibit 99.1 to this current report.

Item 9.01 Financial Statements and Exhibits

(d)    Exhibits
Exhibit 99.1
 







SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, each of the Registrants has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
 
MPM HOLDINGS INC.
 
 
 
Date: August 14, 2018
 
/s/ Erick R. Asmussen
 
 
Erick R. Asmussen
 
 
Chief Financial Officer

 
 
MOMENTIVE PERFORMANCE MATERIALS INC.
 
 
 
 
 
/s/ Erick R. Asmussen
 
 
Erick R. Asmussen
 
 
Chief Financial Officer







EXHIBIT INDEX

Exhibit
 
Description
99.1
 
News Release dated August 14, 2018 titled “Momentive Announces Second Quarter 2018 Results.”


Exhibit


Exhibit 99.1
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12408320&doc=3
260 Hudson River Road
Waterford, NY 12188
momentive.com
NEWS
RELEASE

FOR IMMEDIATE RELEASE

Momentive Announces Second Quarter 2018 Results

Second Quarter Highlights:
Net sales of $704 million, a 19% increase year-over-year
Segment EBITDA of $113 million, a 53% increase year-over-year
Segment EBITDA margin of 16.1%, a 360bp increase year-over-year
Reduced net leverage1 to 3.2x as of June 30, 2018. Significant liquidity of $448 million

WATERFORD, N.Y. (August 14, 2018) - MPM Holdings Inc. (“Momentive” or the “Company”) (OTCQX: MPMQ) today announced results for the second quarter ended June 30, 2018.

“Our second quarter results demonstrate progress against our clearly defined competitive strategy to drive segment EBITDA growth and margin improvement, as well as market uplift from our Formulated and Basic Silicones segment,” said Jack Boss, Chief Executive Officer and President. “We continue to see tremendous growth in our basics products driven by continued optimization and favorable market dynamics, as well as growth in our specialty applications, driven by end-market pull and prior capital investment.”

“In addition, we recently completed the commissioning process for our NXT* capacity expansion, and production is expected to ramp up in the second half of 2018. This will reinforce our leadership position in automotive tire applications and enable new product offerings.”

Mr. Boss concluded, “As we look out into the remainder of 2018, we expect strong demand, solid industry fundamentals, pricing tailwinds from realization of previously implemented increases, and continued margin improvement from increased specialty sales, cost optimization and favorable trends in basics products.”


Second Quarter 2018 Results

Net Sales. Net sales for the three months ended June 30, 2018 were $704 million, an increase of 19% 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.


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



Net Income. Net income for the three months ended June 30, 2018 was $39 million compared with net income of $19 million in the prior year period.

Segment EBITDA. Segment EBITDA for the three months ended June 30, 2018 was $113 million, an increase of 53% compared with $74 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, partially offset by one-time production issues relating to silanes and headwinds in the urethane additives end-market.

Segment Results

The following tables reflect net sales and Segment EBITDA by reportable segment for the second quarter and six months ended June 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 June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Performance Additives
$
250

 
$
228

 
$
498

 
$
448

Formulated and Basic Silicones
399

 
314

 
756

 
589

Quartz Technologies
55

 
52

 
107

 
101

Total
$
704

 
$
594

 
$
1,361

 
$
1,138

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

Segment EBITDA:
(in millions)
    
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2018
 
2017
 
2018
 
2017
 
Performance Additives
$
50

 
$
48

 
$
104

 
$
95

 
Formulated and Basic Silicones
63

 
27

 
104

 
51

 
Quartz Technologies
12

 
10

 
21

 
17

 
Corporate
(12
)
 
(11
)
 
(22
)
 
(20
)
 
Total
$
113

 
$
74

 
$
207

 
$
143

 

Global Restructuring Program and Siloxane Production Transformation
In March 2018, the Company announced a restructuring initiative totaling $15 million in estimated annual run rate cost reductions with approximately $8 million to be realized in 2018. The initiative targeted primarily selling, general, and administrative cost reductions.









Liquidity and Balance Sheet
At June 30, 2018, Momentive had net debt, which is total debt less cash and cash equivalents, of approximately $1.1 billion. In addition, at June 30, 2018, Momentive had $448 million in liquidity, including $201 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.

Earnings Call
Momentive will host a teleconference to discuss second quarter 2018 results on Tuesday, August 14, 2018, 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: (844) 309-6571
International Participants: (484) 747-6920
Participant Passcode: 2255028

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 2 p.m. Eastern Time on August 14, 2018. The playback can be accessed by dialing (855) 859-2056 (U.S.) and +1 (404) 537-3406 (International). The passcode is 2255028. A replay also will be available through the Investor Relations section of the Company’s website.

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 our transformation and restructuring activities, growth and productivity initiatives, anticipated cost savings, growth, and market recovery, the impact of work stoppage and other incidents on our operations and competitiveness. 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, 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 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.

Contact
Media and Investors:
John Kompa
614-225-2223
john.kompa@momentive.com
*NXT is a trademark of Momentive Performance Materials Inc.
 
(See Attached Financial Statements)







MPM HOLDINGS INC.
SCHEDULE 1: CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)



 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In millions)
 
2018
 
2017
 
2018
 
2017
Net sales
 
$
704

 
$
594

 
$
1,361

 
$
1,138

Cost of sales
 
531

 
459

 
1,034

 
905

Gross profit
 
173

 
135

 
327

 
233

Costs and expenses:
 
 
 
 
 
 
 
 
Selling, general and administrative expense
 
86

 
84

 
172

 
167

Research and development expense
 
18

 
16

 
35

 
31

Restructuring and discrete costs
 
2

 
(5
)
 
3

 

Other operating (income) expense, net
 
(3
)
 
(1
)
 
(2
)
 
4

Operating income
 
70

 
41

 
119

 
31

Interest expense, net
 
20

 
20

 
40

 
39

Non-operating (income) expense, net
 
(6
)
 
(2
)
 
(3
)
 
(2
)
Reorganization items, net
 
4

 

 
5

 

Income (loss) before income taxes and earnings from unconsolidated entities
 
52

 
23

 
77

 
(6
)
Income tax expense
 
13

 
4

 
19

 
5

Income (loss) before earnings from unconsolidated entities
 
39

 
19

 
58

 
(11
)
Earnings from unconsolidated entities, net of taxes
 

 

 
1

 

Net income (loss)
 
$
39

 
$
19

 
$
59

 
$
(11
)






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

(In millions, except share data)
June 30, 2018
 
December 31, 2017
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents (including restricted cash of $1 at both June 30, 2018 and December 31, 2017)
$
202

 
$
174

Accounts receivable (net of allowance for doubtful accounts of $3 and $4 at June 30, 2018 and December 31, 2017, respectively)
372

 
323

Inventories:
 
 
 
Raw materials
164

 
153

Finished and in-process goods
300

 
292

Other current assets
44

 
51

Total current assets
1,082

 
993

Investment in unconsolidated entities
20

 
19

Deferred income taxes
11

 
11

Other long-term assets
14

 
11

Property, plant and equipment:
 
 
 
Land
78

 
77

Buildings
375

 
338

Machinery and equipment
1,133

 
1,135

 
1,586

 
1,550

Less accumulated depreciation
(433
)
 
(383
)
 
1,153

 
1,167

Goodwill
215

 
216

Other intangible assets, net
280

 
300

Total assets
$
2,775

 
$
2,717

Liabilities and Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
305

 
$
286

Debt payable within one year
35

 
36

Interest payable
12

 
12

Income taxes payable
9

 
7

Accrued payroll and incentive compensation
55

 
68

Other current liabilities
101

 
103

Total current liabilities
517

 
512

Long-term liabilities:
 
 
 
Long-term debt
1,204

 
1,192

Pension and postretirement benefit liabilities
323

 
335

Deferred income taxes
64

 
60

Other long-term liabilities
73

 
74

Total liabilities
2,181

 
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 June 30, 2018 and December 31, 2017, respectively

 

Additional paid-in capital
870

 
868

Accumulated other comprehensive income (loss)
(29
)
 
(18
)
Accumulated deficit
(247
)
 
(306
)
Total equity
594

 
544

Total liabilities and equity
$
2,775

 
$
2,717







MPM HOLDINGS INC.
SCHEDULE 3: CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
Six Months Ended June 30,
(In millions)
2018
 
2017
Cash flows provided by (used in) operating activities
 
 
 
Net income (loss)
$
59

 
$
(11
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization
80

 
75

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)
5

 
(9
)
Unrealized foreign currency (gains) losses
(2
)
 
(4
)
Amortization of debt discount and ABL deferred financing costs
12

 
12

Stock based compensation
2

 
2

Other non-cash adjustments
(1
)
 
5

Net change in assets and liabilities:
 
 
 
Accounts receivable
(54
)
 
(43
)
Inventories
(23
)
 
(27
)
Accounts payable
27

 
36

Income taxes payable
3

 
(1
)
Other assets, current and non-current
8

 
(4
)
Other liabilities, current and non-current
(19
)
 
(44
)
Net cash provided by (used in) operating activities
92

 
(12
)
Cash flows used in investing activities
 
 
 
Capital expenditures
(60
)
 
(77
)
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
(57
)
 
(87
)
Cash flows used in financing activities
 
 
 
Net short-term debt repayments
(1
)
 

ABL financing fees
(4
)
 

Net cash used in financing activities
(5
)
 

Increase (decrease) in cash, cash equivalents, and restricted cash
30

 
(99
)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
(2
)
 
3

Cash, cash equivalents, and restricted cash at beginning of period
174

 
228

Cash, cash equivalents, and restricted cash at end of period
$
202

 
$
132

Supplemental disclosures of cash flow information
 
 
 
Cash paid for:
 
 
 
Interest
$
28

 
$
28

Income taxes, net of refunds
11

 
14

Non-cash investing activity:
 
 
 
Capital expenditures included in accounts payable
$
17

 
$
21







MPM HOLDINGS INC.
SCHEDULE 4: RECONCILIATION OF NET INCOME (LOSS) TO SEGMENT EBITDA (Unaudited)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In millions)
2018
 
 
2017
 
2018
 
 
2017
Net income (loss)
$
39

 
 
$
19

 
$
59

 
 
$
(11
)
Interest expense, net
20

 
 
20

 
40

 
 
39

Income tax expense
13

 
 
4

 
19

 
 
5

Depreciation and amortization
40

 
 
37

 
80

 
 
75

 
 
 
 
 
 
 
 
 
 
Items not included in Segment EBITDA:
 
 
 
 
 
 
 
 
 
Non-cash charges and other income and expense
$
(3
)
 
 
$
(2
)
 
$
3

 
 
$
4

Unrealized (gains) losses on pension and postretirement benefits
(2
)
 
 

 
(2
)
 
 
1

Restructuring and discrete costs
2

 
 
(4
)
 
3

 
 
30

Reorganization items, net
4

 
 

 
5

 
 

Segment EBITDA
$
113

 
 
$
74

 
$
207

 
 
$
143







MOMENTIVE PERFORMANCE MATERIALS INC.
SCHEDULE 5: RECONCILIATION OF LAST TWELVE MONTHS NET INCOME TO ADJUSTED EBITDA (Unaudited)

 
June 30, 2018
(In millions)
LTM Period
Net income
$
71

Interest expense, net
81

Income tax expense
29

Depreciation and amortization
159

EBITDA
340

Adjustments to EBITDA
 
Restructuring and discrete costs(a)
9

Reorganization items, net(b)
6

Unrealized gains on pension and postretirement benefits (c)
(8
)
Pro forma cost savings (d)
15

Non-cash charges (e)
11

Adjusted EBITDA
$
373

Adjusted EBITDA less Capital Expenditures and Cash Taxes
$
197

Pro forma fixed charges(f)
$
56

Ratio of Adjusted EBITDA to Fixed Charges(g)
6.66

Pro forma Fixed Charge Coverage Ratio(h)
3.52


(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 June 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 June 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.