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EX-31.1(A) - SECTION 302 CEO CERTIFICATION - Momentive Performance Materials Inc.ex311aq214.htm
EX-31.1(B) - SECTION 302 CFO CERTIFICATION - Momentive Performance Materials Inc.ex311bq214.htm
EX-10.12 - BACKSTOP COMMITMENT AGREEMENT - Momentive Performance Materials Inc.dmpmexhibit1012.htm
EXCEL - IDEA: XBRL DOCUMENT - Momentive Performance Materials Inc.Financial_Report.xls
EX-10.13 - DIP ABL AND EXIT FACILITY AMENDMENT NO. 1 - Momentive Performance Materials Inc.dmpmexhibit1013.htm
EX-32.1 - SECTION 906 CEO AND CFO CERTIFICATION - Momentive Performance Materials Inc.ex321q214.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2014
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number 333-146093
 
 
MOMENTIVE PERFORMANCE MATERIALS INC.
(Exact name of registrant as specified in its charter)
 
 
Delaware
 
20-5748297
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
260 Hudson River Road
Waterford, NY 12188
 
(518) 233-3370
(Address of principal executive offices including zip code)
 
(Registrant’s telephone number, including area code)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x     No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
o
  
Accelerated filer
o
 
 
 
 
 
Non-accelerated filer
x
  
Smaller Reporting Company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x
The number of shares of common stock of the Company, par value $0.01 per share, outstanding as of the close of business on August 1, 2014, was 100 shares, all of which were held by Momentive Performance Materials Holdings Inc.



MOMENTIVE PERFORMANCE MATERIALS INC.

INDEX

 
 
Page
Part I —
FINANCIAL INFORMATION
 
 
 
 
Item 1.
Momentive Performance Materials Inc. Condensed Consolidated Financial Statements (Unaudited)

 
 
Condensed Consolidated Balance Sheets at June 30, 2014 and December 31, 2013
 
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2013
 
 
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013
 
 
Item 2.
Item 3.
Item 4.
 
 
 
Part II —
OTHER INFORMATION
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.


2




MOMENTIVE PERFORMANCE MATERIALS INC.
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In millions, except share data)
June 30, 2014
 
December 31,
2013
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents (including restricted cash of $5)
$
117

 
$
94

Accounts receivable (net of allowance for doubtful accounts of $4)
367

 
331

Inventories:
 
 
 
Raw materials
157

 
128

Finished and in-process goods
258

 
240

Deferred income taxes
6

 
6

Other current assets
84

 
61

Total current assets
989

 
860

Investment in unconsolidated entities
9

 
8

Deferred income taxes
3

 
3

Other long-term assets
25

 
33

Property and equipment:


 


Land
77

 
77

Buildings
380

 
377

Machinery and equipment
1,604

 
1,582

 
2,061

 
2,036

Less accumulated depreciation
(1,139
)
 
(1,082
)
 
922

 
954

Goodwill
386

 
381

Other intangible assets, net
437

 
455

Total assets
$
2,771

 
$
2,694

Liabilities and Deficit
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
226

 
$
259

Debt payable within one year
1,705

 
3,250

Interest payable
29

 
88

Income taxes payable
7

 
6

Deferred income taxes
12

 
12

Accrued payroll and incentive compensation
39

 
44

Other current liabilities
98

 
85

Total current liabilities
2,116

 
3,744

Long-term liabilities:
 
 
 
Long-term debt
6

 
7

Pension and post employment benefit obligations
143

 
280

Deferred income taxes
90

 
77

Other long-term liabilities
55

 
66

Liabilities subject to compromise
2,019

 

Total liabilities
4,429

 
4,174

Commitments and contingencies (See Note 9)
 
 
 
Deficit
 
 
 
Common stock - $0.01 par value; 100 shares authorized, issued and outstanding at June 30, 2014 and December 31, 2013

 

Additional paid-in capital
713

 
716

Accumulated other comprehensive income
189

 
202

Accumulated deficit
(2,560
)
 
(2,398
)
Total deficit
(1,658
)
 
(1,480
)
Total liabilities and deficit
$
2,771

 
$
2,694

See Notes to Condensed Consolidated Financial Statements

3


MOMENTIVE PERFORMANCE MATERIALS INC.
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 (In millions)
 
2014

2013

2014

2013
Net sales
 
$
637

 
$
610

 
$
1,242

 
$
1,180

Costs and expenses:
 

 
 
 

 

Cost of sales, excluding depreciation and amortization
 
460

 
443

 
894

 
833

Selling, general and administrative expense
 
89

 
94

 
168

 
192

Depreciation and amortization expense
 
42

 
43

 
83

 
87

Research and development expense
 
19

 
16

 
39

 
33

Restructuring and other costs
 
10

 
4

 
14

 
8

Operating income
 
17

 
10

 
44

 
27

Interest expense, net (contractual interest of $78 and $154 for the three and six months ended June 30, 2014, respectively)
 
41

 
79

 
117

 
157

Other non-operating income, net
 

 
(1
)
 

 
(1
)
Reorganization items, net
 
70

 

 
70

 

Loss before income taxes and earnings from unconsolidated entities
 
(94
)
 
(68
)
 
(143
)
 
(129
)
Income tax expense
 
13

 
3

 
21

 
5

Loss before earnings from unconsolidated entities
 
(107
)
 
(71
)
 
(164
)
 
(134
)
Earnings from unconsolidated entities, net of taxes
 
1

 
1

 
2

 
3

Net loss
 
$
(106
)
 
$
(70
)
 
$
(162
)
 
$
(131
)

See Notes to Condensed Consolidated Financial Statements

4


MOMENTIVE PERFORMANCE MATERIALS INC.
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In millions)
2014
 
2013
 
2014
 
2013
Net loss
$
(106
)
 
$
(70
)
 
$
(162
)
 
$
(131
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation
1

 
(18
)
 
(14
)
 
(64
)
(Loss) gain recognized from pension and postretirement benefits

 
(3
)
 
1

 
(2
)
Other comprehensive income (loss)
1

 
(21
)
 
(13
)
 
(66
)
Comprehensive loss
$
(105
)
 
$
(91
)
 
$
(175
)
 
$
(197
)

See Notes to Condensed Consolidated Financial Statements

5


MOMENTIVE PERFORMANCE MATERIALS INC.
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
Six Months Ended June 30,
(In millions)
2014
 
2013
Cash flows used in operating activities
 
 
 
Net loss
$
(162
)
 
$
(131
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
83

 
87

Non-cash reorganization items, net
49

 

Deferred income tax expense (benefit)
13

 
(3
)
Unrealized foreign currency (gains) losses
(27
)
 
4

DIP Facility financing fees included in net loss
19

 

Other non-cash adjustments
(1
)
 
4

Net change in assets and liabilities:
 
 
 
Accounts receivable
(43
)
 
(39
)
Inventories
(45
)
 
(40
)
Accounts payable
36

 
56

Due to/from affiliates
9

 
2

Income taxes payable
4

 

Other assets, current and non-current
(12
)
 
(6
)
Other liabilities, current and non-current
(33
)
 

Net cash used in operating activities
(110
)
 
(66
)
Cash flows provided by (used in) investing activities
 
 
 
Capital expenditures
(48
)
 
(39
)
Purchases of intangible assets
(1
)
 
(2
)
Consolidation of variable interest entity
50

 

Proceeds from sale of business
12

 

Change in restricted cash

 
(5
)
Proceeds from sale of assets
1

 

Net cash provided by (used in) investing activities
14

 
(46
)
Cash flows provided by financing activities
 
 
 
Net short-term debt borrowings (repayments)
303

 
(1
)
Borrowings of long-term debt
105

 
279

Repayments of long-term debt
(220
)
 
(247
)
Repayment of affiliated debt
(50
)
 

Long-term debt financing fees

 
(11
)
DIP Facility financing fees
(19
)
 

Proceeds from capital contribution

 
102

Net cash provided by financing activities
119


122

Increase in cash and cash equivalents
23

 
10

Effect of exchange rate changes on cash and cash equivalents


(2
)
Cash and cash equivalents (unrestricted), beginning of period
89

 
110

Cash and cash equivalents (unrestricted), end of period
$
112

 
$
118

Supplemental disclosures of cash flow information
 
 
 
Cash paid for:
 
 
 
Interest
$
131

 
$
149

Income taxes, net of refunds
5

 
4

Professional fees related to reorganization items
2

 

Non-cash investing activity:
 
 
 
Capital expenditures included in accounts payable
$
9

 
$
9


See Notes to Condensed Consolidated Financial Statements

6


MOMENTIVE PERFORMANCE MATERIALS INC.
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENT OF DEFICIT (Unaudited)


(In millions)
 
Common
Stock
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Income
 
Accumulated
Deficit
 
Total
Deficit
Balance as of December 31, 2013
 
$

 
$
716

 
$
202

 
$
(2,398
)
 
$
(1,480
)
Net loss
 

 

 

 
(162
)
 
(162
)
Other comprehensive loss
 

 

 
(13
)
 

 
(13
)
Sale of business to related party (see Note 6)
 

 
(3
)
 

 

 
(3
)
Balance as of June 30, 2014
 
$

 
$
713

 
$
189

 
$
(2,560
)
 
$
(1,658
)

See Notes to Condensed Consolidated Financial Statements

7


MOMENTIVE PERFORMANCE MATERIALS INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In millions, except share date)
1. Business and Basis of Presentation
Based in Waterford, New York, Momentive Performance Materials Inc. (the “Company” or “MPM”), is comprised of two businesses: Silicones and Quartz. Silicones is a global business engaged in the manufacture, sale and distribution of silanes, specialty silicones and urethane additives. Quartz, also a global business, is engaged in the manufacture, sale and distribution of high-purity fused quartz and ceramic materials.
The Company’s direct parent is Momentive Performance Materials Holdings Inc. (“MPM Holdings”), a holding company and wholly owned subsidiary of Momentive Performance Materials Holdings LLC (“Momentive Holdings”), the ultimate parent entity of MPM. On October 1, 2010, MPM Holdings and Momentive Specialty Chemicals Holdings LLC (“MSC Holdings”), the parent company of Momentive Specialty Chemicals Inc. and its subsidiaries (collectively “MSC”), became subsidiaries of Momentive Holdings. This transaction is referred to as the “Momentive Combination.” Momentive Holdings is controlled by investment funds managed by affiliates of Apollo Management Holdings, L.P. (together with Apollo Global Management, LLC and subsidiaries, “Apollo”).
The unaudited Condensed Consolidated Financial Statements include the accounts of the Company, its majority-owned subsidiaries in which minority shareholders hold no substantive participating rights and variable interest entities (“VIEs”) in which the Company is the primary beneficiary. Intercompany accounts and transactions are eliminated in consolidation. In the opinion of management, all adjustments consisting of normal, recurring adjustments considered necessary for a fair statement have been included. Results for the interim periods are not necessarily indicative of results for the entire year.
Year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Pursuant to the rules and regulations of the Securities and Exchange Commission, certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the accompanying notes included in the Company’s most recent Annual Report on Form 10-K.
Going Concern

At June 30, 2014, Company believed that, under its current capital structure, there was significant doubt about its ability to continue as a going concern for the next 12 months. The unaudited Condensed Consolidated Financial Statements have been prepared assuming that the Company will continue as a going concern. The Company’s ability to continue as a going concern is contingent upon the Company’s ability to comply with the financial and other covenants contained in the DIP Facilities (see Note 2), the Court’s confirmation of the Company’s Plan (see Note 2) and the Company’s ability to successfully implement the Plan and obtain exit financing, among other factors.
The unaudited Condensed Consolidated Financial Statements do not include any adjustments related to the recoverability and classification of recorded assets, the satisfaction and classification of liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern or as a consequence of the Bankruptcy Filing (see Note 2).
2. Chapter 11 Bankruptcy Filing
Bankruptcy Filing
On April 13, 2014 (the “Petition Date”), MPM Holdings, the Company and certain of its U.S. subsidiaries (collectively, the “Debtors”) filed voluntary petitions for reorganization (the “Bankruptcy Filing”) under Chapter 11 (“Chapter 11”) of the U.S. Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of New York (the “Court”). The Chapter 11 proceedings are being jointly administered under the caption In re MPM Silicones, LLC, et al., Case No. 14-22503. The Debtors will continue to operate their businesses as “debtors-in-possession” under the jurisdiction of the Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Court.
Subsequent to the Petition Date, the Company received approval from the Court to pay or otherwise honor certain pre-petition obligations generally designed to stabilize the Company’s operations, such as certain employee wages, salaries and benefits, certain taxes and fees, certain customer obligations, obligations to certain logistics providers and pre-petition amounts owed to certain critical vendors. The Company also expects to honor payments to vendors and other providers in the ordinary course of business for goods and services received after the Petition Date. The Company has retained legal, financial and tax professionals to advise the Company in connection with the Bankruptcy Filing and certain other professionals to provide services and advice in the ordinary course of business. From time to time, the Company may seek Court approval to retain additional professionals as deemed necessary.

8


Consequences of the Bankruptcy Filing
The Bankruptcy Filing constituted an event of default that accelerated the Company’s obligations under its First Lien Notes, Senior Secured Notes, Springing Lien Notes and Senior Subordinated Notes (collectively, the “Notes”) (see Note 8). The Notes provide that as a result of the Bankruptcy Filing the principal and interest due thereunder shall be immediately due and payable; however, any efforts to enforce such payment obligations under the Notes are automatically stayed as a result of the Bankruptcy Filing and the creditors’ rights of enforcement in respect of the Notes are subject to the applicable provisions of the Bankruptcy Code. Absent an order from the Court, substantially all of the Company’s pre-petition liabilities are subject to settlement under a reorganization plan. As a result of the Bankruptcy Filing, the realization of assets and the satisfaction of liabilities are subject to uncertainty. The Debtors, operating as debtors-in-possession under the Bankruptcy Code, may, subject to Court approval, sell or otherwise dispose of assets and liquidate or settle liabilities for amounts other than those reflected in the Company’s unaudited Condensed Consolidated Financial Statements. Further, a confirmed reorganization plan or other arrangement may materially change the amounts and classifications of assets and liabilities in the Company’s unaudited Condensed Consolidated Financial Statements.
The United States Trustee for the Southern District of New York (the “U.S. Trustee”) has appointed an official committee of unsecured creditors (the “UCC”). The UCC and its legal representatives have a right to be heard on all matters that come before the Court affecting the Debtors. There can be no assurance that the UCC will support the Company’s positions on matters to be presented to the Court in the future or on any reorganization plan.
Debtor-in-Possession Financing
DIP ABL Facility
In connection with the Bankruptcy Filing, on April 15, 2014, the Debtors entered into an amended and restated senior secured debtor-in-possession and exit asset-based revolving credit agreement (the “DIP ABL Facility”), which amends and restates the Company’s existing asset-based revolving loan facility (the “ABL Facility”).
The DIP ABL Facility has a 12 month term unless, prior to the end of such 12 month period, a reorganization plan is confirmed pursuant to an order entered by the Court and subsequently consummated, in which case, the DIP ABL Facility will terminate on the date of such consummation, unless the Company exercises its option to convert the DIP ABL Facility into an exit asset-based revolving facility (the “Exit ABL Facility”), in which case, upon the effectiveness of the Exit ABL Facility, the term will be five years after such effective date. The maximum availability under the DIP ABL Facility is $270. The DIP ABL Facility is also subject to a borrowing base that is based on a specified percentage of eligible accounts receivable and inventory and, in certain foreign jurisdictions, machinery and equipment.
The DIP ABL Facility bears interest based on, at the Company’s option, an adjusted LIBOR rate plus an applicable margin of 2.75% or an alternate base rate plus an applicable margin of 1.75%. In addition to paying interest on outstanding principal under the DIP ABL Facility, the Company will be required to pay a commitment fee to the lenders in respect of the unutilized commitments at an initial rate equal to 0.375% per annum, subject to adjustment depending on the usage. The DIP ABL Facility has a minimum EBITDA covenant calculated on a cumulative basis beginning with May 1, 2014 and tested monthly commencing as of August 31, 2014 and a minimum liquidity covenant of $50 tested at the close of each business day. The Exit ABL Facility will not have any financial maintenance covenants, other than a minimum fixed charge coverage ratio of 1.0 to 1.0 that would only apply if availability is less than the greater of (a) 12.5% of the lesser of the borrowing base and the total Exit ABL Facility commitments at such time and (b) $27. The fixed charge coverage ratio under the agreement governing the Exit ABL Facility is 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 last twelve months basis.
The DIP ABL Facility is secured by, among other things, first-priority liens on most of the inventory and accounts receivable and related assets of the Company, its domestic subsidiaries and certain of its foreign subsidiaries, and, in the case of certain foreign subsidiaries, machinery and equipment (the “DIP ABL Priority Collateral”), and second-priority liens on certain collateral that generally includes most of the Company’s, its domestic subsidiaries’ and certain of its foreign subsidiaries’ assets other than DIP ABL Priority Collateral (the “DIP Term Loan Priority Collateral”), in each case subject to certain exceptions and permitted liens.
DIP Term Loan Facility
In connection with the Bankruptcy Filing, on April 15, 2014, the Company entered into a senior secured debtor-in-possession term loan agreement, as amended (the “DIP Term Loan Facility”) (collectively with the DIP ABL Facility, the “DIP Facilities”). The DIP Term Loan Facility was used in part to repay in full the outstanding obligations under the Company’s existing ABL Facility.
The DIP Term Loan Facility has a 12 month term unless, prior to the end of such 12 month period, a reorganization plan is confirmed pursuant to an order entered by the Court and subsequently consummated, in which case, the DIP Term Loan Facility will terminate on the date of such consummation. The amount committed and made available under the DIP Term Loan Facility is $300. The DIP Term Loan Facility bears interest based on, at the Company’s option, an adjusted LIBOR rate plus an applicable margin of 3.25% or an alternate base rate plus an applicable margin of 2.25%.
Like the DIP ABL Facility, the DIP Term Loan Facility has a minimum EBITDA covenant calculated on a cumulative basis beginning with May 1, 2014 and tested monthly commencing as of August 31, 2014 and a minimum liquidity covenant of $50 tested at the close of each business day.

9


The security arrangements for the DIP Term Loan Facility include first-priority liens on the DIP Term Loan Priority Collateral owned by the Company and its domestic subsidiaries and second-priority liens on the DIP ABL Priority Collateral owned by the Company and its domestic subsidiaries, which are junior to the DIP ABL Facility, in each case subject to certain exceptions and permitted liens.
The Company has authorization from the Court to access the full amount of the DIP Facilities, and as of June 30, 2014, $300 is outstanding under the DIP Term Loan Facility and no amounts are outstanding under the DIP ABL Facility.
Reorganization Plan and Restructuring Support Agreement
In order for the Company to emerge successfully from Chapter 11, it must obtain the Court’s confirmation of a Chapter 11 plan of reorganization proposed by the Debtors (as amended, supplemented or modified, the “Plan”), which will enable the Company to transition from Chapter 11 into ordinary course operations outside of bankruptcy. In connection with the Plan, the Company may require one or more new credit facilities or “exit financing.”  The Company’s ability to obtain such approval and financing will depend on, among other things, the timing and outcome of various ongoing matters related to the Bankruptcy Filing. The financial institutions which arranged the DIP Facilities have committed to provide $1 billion in exit financing in the form of a term loan, and, in addition, the Company also has the option to convert the DIP ABL Facility into the Exit ABL Facility, each subject to certain terms and conditions. Furthermore, certain financial institutions have also committed to provide $250 in second lien exit facility proceeds to the extent needed by the Debtors to consummate the Plan. The Plan will determine the rights and satisfaction of claims of various creditors and security holders, and is subject to the ultimate outcome of negotiations and Court decisions ongoing through the date on which the Plan is confirmed.
On June 23, 2014,  the Company filed with the Court an amended version of the Plan and accompanying disclosure statement (the “Disclosure Statement”), both of which were originally filed with the Court on May 12, 2014. The Plan provides, among other things, mechanisms for settlement of claims against the Debtors’ estates, treatment of the Company’s existing equity and debt holders, and certain corporate governance and administrative matters pertaining to the reorganized Company, each consistent with the terms set forth in the Support Agreement (defined below) which are further described below. The Plan is intended to enable the Debtors to continue business operations without the likelihood of need for further financial reorganization.
On June 23, 2014, the Court issued an order (the “Disclosure Statement Order”) (a) approving the Disclosure Statement; (b) establishing August 18, 2014 as the date of commencement of the hearing to approve the Plan (the “Confirmation Hearing”); (c) establishing the procedures for solicitation and tabulation to accept or reject the Plan, including setting July 28, 2014 as the voting deadline (the “Voting Deadline”); (d) establishing the deadline, July 28, 2014, and the procedures for filing objections to confirmation of the Plan; (e) approving the rights offering procedures (see Restructuring Support Agreement below) and (f) granting related relief necessary to the Company to implement the order.
Pursuant to the Disclosure Statement Order, the Voting Deadline has passed. Pursuant to the Plan, only four classes of holders of claims against the Debtors were entitled to vote to accept or reject the Plan. Two classes of holders of claims (including holders of the Springing Lien Notes) voted unanimously to approve the Plan whereas two classes of holders of claims voted to reject the Plan (including holders of the First Lien Notes and Senior Secured Notes). The two classes of holders of claims that rejected the Plan will receive, pursuant to the Plan, certain replacement notes in satisfaction of their claims against the Debtors, the terms of which will be further addressed at the Confirmation Hearing. Four of the remaining classes of holders of claims against the Debtors are unimpaired by the Plan and thus deemed to have accepted the Plan. In addition, three classes of holders of claims will not receive any distributions under the Plan and are deemed to have rejected the Plan. Despite the rejection or deemed rejection of the Plan by certain classes of holders of claims, the Bankruptcy Code provides for the Plan to be approved if it meets certain requirements. The Court will make a determination at or following the Confirmation Hearing regarding whether the Plan meets all requirements for approval. While the Company believes that the Plan is fair, equitable, and meets all requirements of the Bankruptcy Code, there can be no assurance that the Company will be able to secure confirmation of the Plan from the Court.
Restructuring Support Agreement
In connection with the Bankruptcy Filing, the Debtors entered into a Restructuring Support Agreement, dated as of April 13, 2014, (as amended, supplemented or otherwise modified, the “Support Agreement”), among the Debtors, certain affiliates of Apollo Global Management, LLC (the “Apollo Entities”) and certain holders of the Company’s 9.0% Second-Priority Springing Lien Notes due 2021 and 9.5% Second-Priority Springing Lien Notes due 2021 (collectively, the “Second Lien Notes”) that are not Apollo Entities (the “Consenting Noteholders” and, together with the Apollo Entities, the “Plan Support Parties”) providing that the Plan Support Parties, which hold approximately 90% in dollar amount of the Second Lien Notes, will support, and vote in favor of the Plan.
Pursuant to the terms of the Support Agreement, the Plan Support Parties were required to not only vote in favor of the Plan, but were also prohibited, from among other things, opposing confirmation of the Plan. The Debtors, in turn, agreed to propose the Plan which provides for (a) payment in full in cash to the Debtors’ general unsecured trade creditors and holders of claims arising from the Company’s $75 revolving credit facility, (b) either payment in full in cash or by delivery of replacement notes to holders of 8.875% First-Priority Senior Secured Notes due 2020 and 10% Senior Secured Notes due 2020, (c) conversion of the Second Lien Notes into the new equity of the reorganized Debtors (subject to dilution by a management incentive plan and the new equity to be issued by the rights offering described below), (d) subscription rights to holders of Second Lien Notes in a $600 (the “Rights Offering Amount”) rights offering, giving such holders the opportunity to purchase a percentage of the new equity of the reorganized Debtors at a price per share determined by using the pro forma capital structure and an enterprise value of $2.2 billion and applying a 15% discount to the equity value thereto, (e) a recovery to holders of the 11% Senior Discount Note, due June 4, 2017 of MPM Holdings in the amount of the cash available at MPM Holdings as of the effective date of the Plan, after taking into account administrative expenses, and (f) no recovery to the holders of 11 1⁄2% Senior Subordinated Notes due 2016 (the “Subordinated Notes”) on account of the subordination provisions set forth in the indenture governing the Subordinated Notes. The Plan also provides that the reorganized Debtors will select a chief executive officer, chief financial officer and general counsel who are acceptable to the Requisite Investors (as defined

10


in the Support Agreement) and the costs for whom will not be shared with MSC under the Shared Services Agreement between the Company and MSC. Under the Plan, the Shared Services Agreement will be amended, subject to agreement by MSC, to provide for certain transition services in the event of a termination of the Shared Services Agreement.
The Support Agreement may be terminated upon the occurrence of certain events, including: (a) certain breaches by the Debtors or Plan Support Parties under the Support Agreement; (b) the failure to meet certain milestones with respect to achieving confirmation and consummation of the Plan; (c) the amendment or modification of certain documents, including the Plan, without the consent of the Plan Support Parties; (d) the occurrence of an uncured event of default under the Debtors’ DIP Facilities; and (e) the determination by the Company’s board of directors, upon the advice of counsel, that fiduciary obligations require the Company to terminate the Company’s obligations under the Support Agreement. On June 23, 2014, the Court found that the terms and conditions of the Support Agreement were fair, reasonable and the best available to the Debtors under the circumstances and issued an order authorizing and directing the Debtors to assume the Support Agreement.
Backstop Commitment Agreement
On May 9, 2014, the Company entered into the Backstop Commitment Agreement, as subsequently amended (the “BCA”), among the Company, MPM Holdings, and the commitment parties party thereto (the “Commitment Parties,” and each individually, a “Commitment Party”). The BCA provides that upon the satisfaction of certain terms and conditions, including the confirmation of the Plan, the Company will have the option to require each Commitment Party to purchase from the Company (on a several and not joint basis) its pro rata portion, based on such Commitment Party’s backstop commitment percentage, of the common stock of the reorganized Company (the “New Common Stock”) that is not otherwise purchased in connection with the $600 rights offerings for New Common Stock to be made in connection with the Plan (the “Unsubscribed Shares”). In consideration for their commitment to purchase the Unsubscribed Shares, the Commitment Parties will receive a commitment premium equal to $30 (the “BCA Commitment Premium”). The BCA Commitment Premium is payable in shares of New Common Stock; provided, that, if the BCA is terminated under certain circumstances, the BCA Commitment Premium will be payable in cash. Pursuant to the terms of the BCA, the BCA Commitment Premium was deemed earned, nonrefundable and non-avoidable upon entry of the approval order by the Court. Although the ultimate form of the payment cannot yet be determined, the Company recognized a $30 liability for the BCA Commitment Premium as of June 30, 2014, under the guidance for accounting for liability instruments. This amount is included in “Reorganization items, net” in the unaudited Condensed Consolidated Statements of Operations and “Other current liabilities” in the unaudited Condensed Consolidated Balance Sheets. The Company has agreed to reimburse the Commitment Parties for all reasonable fees and expenses incurred in connection with, among other things, the negotiation, preparation and implementation of the rights offerings, the Plan and any related efforts. In addition, the BCA requires that the Company and the other Debtors shall indemnify the Commitment Parties for certain losses, claims, damages, liabilities, costs and expenses arising out of or in connection with the BCA, the Plan and the related transactions. On June 23, 2014, the Court found that the terms and conditions of the Support Agreement were fair, reasonable and the best available to the Debtors under the circumstances, and issued an order authorizing and directing the Debtors to enter into, execute, deliver and implement the BCA.
Pre-Petition Claims
On June 4, 2014, the Debtors filed schedules of assets and liabilities and statements of financial affairs with the Court, which were amended on July 15, 2014. On June 6, 2014, the Court entered an order establishing July 17, 2014 as the bar date for potential non-governmental creditors and October 10, 2014 for governmental creditors to file proofs of claims and establishing the required procedures with respect to filing such claims. A bar date is the date by which pre-petition claims against the Debtors must be filed if the claimants wish to receive any distribution in the Chapter 11 proceedings.
As of August 1, 2014, the Debtors have received approximately 1,300 proofs of claim, a portion of which assert, in part or in whole, unliquidated claims. In the aggregate, total liquidated proofs of claim of approximately $38.5 billion have been filed against the Debtors, including guarantee and other redundant or duplicative claims filed against multiple Debtors. New and amended claims may be filed in the future, including claims amended to assign values to claims originally filed with no designated value. The Company is now in the process of reconciling such claims to the amounts listed by the Debtors in their Schedule of Assets and Liabilities. As of the time of filing its unaudited Condensed Consolidated Financial Statements, the Company has substantially reconciled the $38.5 billion of filed claims to the amount of liabilities classified in “Liabilities subject to compromise” as of June 30, 2014. Differences in liability amounts included in the Schedule of Assets and Liabilities of the Company and claims filed by creditors, have and will continue to be, investigated and resolved, including through the filing of objections with the Court, where appropriate. The Company will ask the Court to disallow claims that the Company believes are duplicative, have been later amended or superseded, are without merit, are overstated or should be disallowed for other reasons. In addition, as a result of this process, the Company may identify additional liabilities that will need to be recorded or reclassified to “Liabilities subject to compromise” in the unaudited Condensed Consolidated Balance Sheets. The resolution of such claims could result in material adjustments to amounts currently reflected in the Company’s unaudited Condensed Consolidated Financial Statements. The determination of how liabilities will ultimately be treated cannot be made until the Court confirms the Plan. Accordingly, the ultimate amount or treatment of such liabilities is not determinable at this time.
3. Liabilities Subject to Compromise
Liabilities subject to compromise represent unsecured liabilities that will be accounted for under the Company’s Plan. As a result of the Bankruptcy Filing, actions to enforce or otherwise effect payment of pre-petition liabilities are generally stayed. These liabilities represent the amounts expected to be allowed on known or potential claims to be resolved through the Chapter 11 process, and remain subject to future adjustments arising from negotiated settlements, actions of the Court, rejection of executory contracts and unexpired leases, the determination as to the value of collateral securing the claims, proofs of claim or other events. Liabilities subject to compromise also include certain items that may be assumed under the Plan, and as such, may be subsequently reclassified to liabilities not subject to compromise.

11


Subsequent to the Petition Date, the Company received approval from the Court to pay or otherwise honor certain pre-petition obligations generally designed to stabilize the Company’s operations, such as certain employee wages, salaries and benefits, certain taxes and fees, customer obligations, obligations to logistics providers and pre-petition amounts owed to certain critical vendors. The Company also expects to honor payments to vendors and other providers in the ordinary course of business for goods and services received after the Petition Date.
The following table summarizes pre-petition liabilities that are classified as “Liabilities subject to compromise” in the unaudited Condensed Consolidated Balance Sheets:
 
 
As of June 30, 2014
Accounts payable
 
$
76

Debt
 
1,727

Interest payable
 
46

Pension and other post employment benefit obligations
 
143

Other
 
27

Total
 
$
2,019

The Bankruptcy Filing, was an event of default under the ABL Facility, the Cash Flow Facility and the indentures that govern the Company’s notes (see Note 8). Interest payable reflects pre-petition accrued interest related to the Debtor’s unsecured debt. Other liabilities subject to compromise primarily include accrued liabilities for incentive compensation, environmental and legal items. The amount of liabilities subject to compromise represents the Company’s estimate of known or potential pre-petition claims to be addressed in connection with the Bankruptcy Filing. Refer to Note 2 for additional information.
4. Reorganization Items, Net
Incremental costs incurred directly as a result of the Bankruptcy Filing and adjustments to the expected amount of allowed claims for liabilities subject to compromise are classified as “Reorganization items, net” in the unaudited Condensed Consolidated Statements of Operations. The following table summarizes reorganization items, net for the three months ended June 30, 2014:
 
 
Three Months Ended June 30, 2014
Professional fees
 
$
21

DIP Facility financing costs
 
19

BCA Commitment Premium
 
30

Total
 
$
70

5. Summary of Significant Accounting Policies
Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and also requires the disclosure of contingent assets and liabilities at the date of the financial statements. In addition, it requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Subsequent Events—The Company has evaluated events and transactions subsequent to June 30, 2014 through August 13, 2014, the date of issuance of its unaudited Condensed Consolidated Financial Statements.
Reclassifications—Certain prior period balances have been reclassified to conform with current presentations.
Recently Issued Accounting Standards
In May, 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Board Update No. 2014-09: Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 supersedes the existing revenue recognition guidance and most industry-specific guidance applicable to revenue recognition. According to the new guidance, an entity will apply a principles-based five step model to recognize revenue upon the transfer of promised goods or services to customers and in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. The guidance is effective for annual periods beginning after December 15, 2016, including interim periods within that reporting period and early application is not permitted. The Company is currently assessing the potential impact of ASU 2014-09 on its financial statements.



12


6. Related Party Transactions
Administrative Services, Management and Consulting Agreement
The Company is subject to a management consulting and advisory services agreement with Apollo and its affiliates for the provision of management and advisory services for an initial term of up to twelve years. The Company also agreed to indemnify Apollo and its affiliates and their directors, officers and representatives for potential losses relating to the services contemplated under these agreements. Terms of the agreement provide for annual fees of $4 plus out of pocket expenses, payable in one lump sum annually, and provide for a lump-sum settlement equal to the net present value of the remaining annual management fees payable under the remaining term of the agreement in connection with a sale or initial public offering by the Company. This annual management fee was waived for 2014.
Transactions with MSC
Shared Services Agreement
On October 1, 2010, in connection with the closing of the Momentive Combination, the Company entered into a shared services agreement with MSC, as amended on March 17, 2011 (the “Shared Services Agreement”). Under this agreement, the Company provides to MSC, and MSC provides to the Company, certain services, including, but not limited to, executive and senior management, administrative support, human resources, information technology support, accounting, finance, technology development, legal and procurement services. The Shared Services Agreement is subject to termination by either the Company or MSC, without cause, on not less than 30 days’ written notice subject to a 180 day transition assistance period, and expires in October 2015 (subject to one-year renewals every year thereafter; absent contrary notice from either party). The Shared Services Agreement establishes certain criteria upon which the costs of such services are allocated between the Company and MSC. Pursuant to this agreement, during the six months ended June 30, 2014 and 2013, the Company incurred approximately $51 and $46, respectively, of net costs for shared services and MSC incurred approximately $67 and $61, respectively, of net costs for shared services. Included in the net costs incurred during the six months ended June 30, 2014 and 2013, were net billings from MSC to the Company of $20 and $14, respectively, to bring the percentage of total net incurred costs for shared services under the Shared Services Agreement to the applicable allocation percentage. The allocation percentage was initially set at 51% for MSC and 49% for the Company at the inception of the agreement. Following the required annual review by the Steering Committee in accordance with the terms of the Shared Services Agreement, the allocation percentage for 2014 remains unchanged from 2013, which was 57% for MSC and 43% for the Company. The Company had accounts receivable from MSC of less than $1 as of both June 30, 2014 and December 31, 2013, and accounts payable to MSC of $13 and $4 at June 30, 2014 and December 31, 2013, respectively. During the six months ended June 30, 2014 and 2013, the Company realized approximately $1 and $6, respectively, in cost savings as a result of the Shared Services Agreement.
The Company expects to amend the Shared Services Agreement in connection with the Plan to, among other things, provide for the Shared Services Agreement to be subject to termination by either the Company or MSC, without cause, on not less than 30 days’ written notice, subject to a 12 month transition period following a termination.
Purchases and Sales of Products and Services with MSC
The Company also sells products to, and purchases products from MSC, pursuant to a Master Buy/Sell Agreement dated as of September 6, 2012 (the “Master Buy/Sell Agreement”). Prices under the agreement are determined by a formula based upon certain third party sales of the applicable product, or in the event that no qualifying third party sales have taken place, based upon the average contribution margin generated by certain third party sales of products in the same or a similar industry. The standard terms and conditions of the seller in the applicable jurisdiction apply to transactions under the Master Buy/Sell Agreement. A subsidiary of the Company also acts as a non-exclusive distributor in India for certain of MSC’s subsidiaries pursuant to Distribution Agreements dated as of September 6, 2012 (the “Distribution Agreements”). Prices under the Distribution Agreements are determined by a formula based on the weighted average sales price of the applicable product less a margin. The Master Buy/Sell Agreement and Distribution Agreements have initial terms of 3 years and may be terminated for convenience by either party thereunder upon 30 days’ prior notice in the case of the Master/Buy Sell Agreement and upon 90 days’ prior notice in the case of the Distribution Agreements. Pursuant to these agreements and other purchase orders, during the three months ended June 30, 2014 and 2013, the Company sold $2 and $1, respectively, of products to MSC and purchased less than $1. During the six months ended June 30, 2014 and 2013, the Company sold $4 and $2, respectively, of products to MSC and purchased less than $1. As of both June 30, 2014 and December 31, 2013, the Company had $1 of accounts receivable from MSC and less than $1 of accounts payable to MSC related to these agreements.
Other Transactions with MSC
In March 2014, the Company entered into a ground lease with a Brazilian subsidiary of MSC to lease a portion of the Company’s manufacturing site in Itatiba, Brazil, where the subsidiary of MSC will construct and operate an epoxy production facility. In conjunction with the ground lease, the Company also entered into a site services agreement whereby it will provide to the subsidiary of MSC various services such as environmental, health and safety, security, maintenance and accounting, amongst others, to support the operation of this new facility. The Company received less than $1 from MSC under this agreement during both the three and six months ended June 30, 2014.

13


In April 2014, the Company sold 100% of its interest in its Canadian subsidiary to a subsidiary of MSC for a purchase price of $12. As a part of the transaction the Company also entered into a non-exclusive distribution agreement with a subsidiary of MSC, whereby the subsidiary of MSC will act as a distributor of certain of the Company’s products in Canada. The agreement has a term of 10 years, and is cancelable by either party with 180 days’ notice. The Company compensates the subsidiary of MSC for acting as distributor at a rate of 2% of the net selling price of the related products sold. Additionally, the Company will provide transitional services to the subsidiary of MSC for a period of 6 months. During the three months ended June 30, 2014, the Company sold approximately $10 of products to MSC under this distribution agreement, and paid less than $1 to MSC as compensation for acting as distributor of the products. As of June 30, 2014, the Company had $8 of accounts receivable from MSC related to the distribution agreement.
As both the Company and MSC share a common ultimate parent, this sale was accounted for as a transaction under common control, as defined in the accounting guidance for business combinations. As such, the loss on the sale of $3 was accounted for as a capital distribution, and is reflected in “Paid-in-Capital” in the unaudited Condensed Consolidated Balance Sheets.
Transactions with Affiliates Other Than MSC
Purchases and Sales of Products and Services
The Company sells products to various affiliates other than MSC. These sales were $3 and $6 for the three months ended June 30, 2014 and 2013, respectively, and $6 for both the six months ended June 30 2014 and 2013. Receivables from these affiliates were $3 and $1 at June 30, 2014 and December 31, 2013, respectively. The Company also purchases products and services from various affiliates other than MSC. These purchases were $4 and $8 the three months ended June 30, 2014 and 2013, respectively, and $7 and $11 for the six months ended June 30, 2014 and 2013, respectively. The Company had accounts payable to these affiliates of $1 and $2 as of June 30, 2014 and December 31, 2013, respectively.
ASM Off-Take Agreement
Through May 17, 2013, the Company was a party to an (i) off-take agreement (the “Old Off-Take Agreement”) with Asia Silicones Monomer Limited (“ASM”), which was 50% owned by GE Monomer (Holdings) Pte Ltd. up until such date, and (ii) a long-term supply agreement with General Electric Company (“GE”) and GE Monomer (Holdings) Pte. Ltd. (the “Old GE Supply Agreement”), which was entered into at the closing of the GE Advanced Materials Acquisition. Under the Old Off-Take Agreement, ASM was obligated to provide siloxane and certain related products to the Company through 2014 (or until certain ASM financing obligations were satisfied). Under the Old GE Supply Agreement, GE and GE Monomer (Holdings) Pte. Ltd. agreed to ensure the Company a minimum annual supply of siloxane and certain related products from ASM or an alternative source in certain circumstances through December 2026. Under the Old Off-Take Agreement, the Company purchased approximately $15 and $35 of siloxane and certain related products from ASM for the three and six months ended June 30, 2013, respectively. Subsequent to May 17, 2013, the Company continues to purchase siloxane and certain related products from ASM under a new agreement whereby ASM is not a considered a related party.
Revolving Credit Facility
In April 2013, the Company entered into a $75 revolving credit facility with an affiliate of GE (the “Cash Flow Facility”) (see Note 8). Prior to entry into the Cash Flow Facility, an affiliate of GE was one of the lenders under the Company’s prior senior secured revolving credit facility, representing approximately $160 of the lenders’ $300 revolving credit facility commitment. As of June 30, 2014, $20 was outstanding under the Cash Flow Facility.
Transactions and Arrangements with Parent and its Subsidiaries
Momentive Holdings purchases insurance policies which also cover the Company and MSC. Amounts are billed to the Company annually based on the Company’s relative share of the insurance premiums and amortized over the term of the policy. There were no billings to the Company for either the three or six months ended June 30, 2014 or 2013. The Company had accounts payable to Momentive Holdings of $0 and $3 under these arrangements at June 30, 2014 and December 31, 2013, respectively.
In March 2014, the Company entered into an Employee Services Agreement with Momentive Holdings, MSC and Momentive Performance Materials Holdings Employee Corporation (“Employee Corp.”), a subsidiary of Momentive Holdings (the “Services Agreement”).  The Services Agreement provides for the executive services of Mr. Jack Boss, an employee of Employee Corp., to be made available to the Company and sets forth the terms with respect to payment for the cost of such services. Mr. Boss was elected Executive Vice President and President, Silicones and Quartz Division of the Company effective March 31, 2014. Pursuant to the Services Agreement, the Company agrees to pay 100% of Mr. Boss’s costs of employment which are comprised of “Covered Costs” including an annual base salary of $585 thousand, a sign-on bonus of $1.3 payable between 2014 and 2015, annual incentive compensation, relocation costs, severance and benefits and other standard reasonable business expenses. The Company paid less than $1 under this agreement during both the three and six months ended June 30, 2014.
In April 2014, the Company entered into an accounts receivable purchase and sale agreement with Superholdco Finance Corp (“Finco”), a newly formed subsidiary of Momentive Holdings. The agreement contains customary terms and conditions associated with such arrangements. On April 7, 2014, under this agreement, the Company sold approximately $51 of accounts receivable to Finco, and received 95% of the proceeds in cash, with the remaining 5% to be received in cash when the sold receivables are fully collected by Finco. The agreement also appointed the Company to act as the servicer of the receivables on behalf of Finco.

14


Finco is deemed to be a VIE, and the 5% holdback of cash by Finco represents the Company’s variable interest in Finco. The power to direct the activities that most significantly impact the VIE is shared between the Company and the other related party variable interest entity holder. However, as of June 30, 2014, the 5% holdback of cash by Finco results in the Company absorbing the majority of the risk from potential losses or the majority of the gains from potential returns of the VIE and, therefore, the Company has consolidated Finco in its unaudited Condensed Consolidated Financial Statements during the three months ended and as of June 30, 2014. As a result, the Company consolidated $50 of cash and cash equivalents and a $50 affiliated loan payable. During the three months ended June 30, 2014, the affiliated loan payable was substantially repaid, and less than $1 remained outstanding at June 30, 2014. Under the accounting guidance for VIEs, the Company is required to periodically reassess the primary beneficiary of the VIE as changes in facts and circumstances warrant.
7. Fair Value Measurements
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value hierarchy exists, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are:
Level 1: Inputs are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2: Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date.
Level 3: Unobservable inputs, that are supported by little or no market activity and are developed based on the best information available in the circumstances. For example, inputs derived through extrapolation or interpolation that cannot be corroborated by observable market data.
At both June 30, 2014 and December 31, 2013, the Company had less than $1 of natural gas derivative contracts, which are measured using Level 2 inputs, and are included in “Other current assets” in the unaudited Condensed Consolidated Balance Sheets. The fair value of the natural gas derivative contracts generally reflects the estimated amounts that the Company would receive or pay, on a pre-tax basis, to terminate the contracts at the reporting date based on broker quotes for the same or similar instruments. Counterparties to these contracts are highly rated financial institutions, none of which experienced any significant downgrades that would reduce the fair value receivable amount owed, if any, to the Company.
The following table summarizes the carrying amount and fair value of the Company’s non-derivative financial instruments:
 
 
Carrying Amount
 
Fair Value
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
June 30, 2014
 
 
 
 
 
 
 
 
 
 
Debt
 
$
3,438

 
$

 
$
3,010

 
$

 
$
3,010

December 31, 2013
 
 
 
 
 
 
 
 
 
 
Debt
 
$
3,257

 
$

 
$
3,029

 
$

 
$
3,029

Fair values of debt classified as Level 2 are determined based on other similar financial instruments, or based upon interest rates that are currently available to the Company for the issuance of debt with similar terms and maturities. The carrying amount of cash and cash equivalents, accounts receivable, accounts payable and other accrued liabilities are considered reasonable estimates of their fair values due to the short-term maturity of these financial instruments.



15


8. Debt Obligations
As of June 30, 2014, the Company had no outstanding borrowings under the DIP ABL Facility and $20 of outstanding borrowings under the Cash Flow Facility. The outstanding letters of credit under the DIP ABL Facility at June 30, 2014 were $68, leaving an unused borrowing capacity of $202.
Debt outstanding at June 30, 2014 and December 31, 2013 is as follows:
 
June 30, 2014
 
December 31, 2013
 
Liabilities Subject to Compromise
 
Long-Term
 
Due Within One Year
 
Long-Term
 
Due Within One Year
Senior Secured Credit Facilities:
 
 
 
 
 
 
 
 
 
ABL Facility
$

 
$

 
$

 
$

 
$
135

Cash Flow Facility

 

 
20

 

 

DIP Facilities:
 
 
 
 
 
 
 
 
 
DIP ABL Facility

 

 

 

 

DIP Term Loan Facility

 

 
300

 

 

First Lien and Senior Secured Notes:
 
 
 
 
 
 
 
 
 
8.875% First Lien Notes due 2020

 

 
1,100

 

 
1,100

10.00% Senior Secured Notes due 2020

 

 
250

 

 
250

Springing Lien Notes:
 
 
 
 
 
 
 
 
 
9.00% Springing Lien Dollar Notes due 2021
1,161

 

 

 

 
1,161

9.50% Springing Lien Euro Notes due 2021
184

 

 

 

 
183

Other Borrowings:
 
 
 
 
 
 
 
 
 
11.50% Senior Subordinated Notes due 2016
382

 

 

 

 
382

China bank loans

 
6

 
30

 
7

 
33

Other

 

 
5

 

 
6

Total debt
$
1,727

 
$
6

 
$
1,705

 
$
7

 
$
3,250

The Bankruptcy Filing, was an event of default under the ABL Facility, the Cash Flow Facility and the indentures that govern the Company’s notes. As such, all outstanding debt as of December 31, 2013 related to the ABL Facility, the Cash Flow Facility, the First Lien Notes, the Senior Secured Notes, the Springing Lien Notes and the Senior Subordinated Notes has been classified as “Debt payable within one year” in the unaudited Condensed Consolidated Balance Sheets and related footnote disclosures. As of June 30, 2014, all outstanding debt related to the DIP Term Loan Facility, the Cash Flow Facility, the First Lien Notes and the Senior Secured Notes has been classified as “Debt payable within one year” in the unaudited Condensed Consolidated Balance Sheets, as these obligations are fully collateralized. As of June 30, 2014, all amounts related to the Debtor’s unsecured debt are classified in “Liabilities subject to compromise” in the unaudited Condensed Consolidated Balance Sheets. Additionally, as a result of the Bankruptcy Filing, the Company ceased accruing interest on the Debtor’s unsecured debt in April 2014.
In their opinion to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2013, the Company’s auditors, PricewaterhouseCoopers LLP, concluded that there was substantial doubt about the Company’s ability to continue as a going concern for the next 12 months. Additionally, the Company did not furnish its financial statements for the fiscal year ended December 31, 2013 to the lenders under the ABL Facility and Cash Flow Facility within the required time frame of 95 days from such fiscal year end. Both of these events, as well as the Bankruptcy Filing described in Note 2, triggered a violation of the covenants under the ABL Facility and Cash Flow Facility. The Company obtained waivers of these covenant violations from its lenders under the ABL Facility and Cash Flow Facility, which violations, if not waived or cured within a specified cure period, may have given rise to an acceleration under the ABL Facility and Cash Flow Facility and triggered cross-acceleration clauses under the indentures that govern the Company’s notes. Pursuant to such waivers, the lenders also agreed, subject to certain conditions and/or ongoing covenants and termination events, to waive any defaults or events of default arising under the ABL Facility or the Cash Flow Facility as a result of the commencement of a Chapter 11 filing.
The Bankruptcy Filing also constituted an event of default that accelerated the Company’s obligations under its First Lien Notes, Senior Secured Notes, Springing Lien Notes and Senior Subordinated Notes (collectively, the “Notes”). The Notes provide that as a result of the Bankruptcy Filing the principal and interest due thereunder shall be immediately due and payable; however, any efforts to enforce such payment obligations under the Notes are automatically stayed as a result of the Bankruptcy Filing and the creditors’ rights of enforcement in respect of the Notes are subject to the applicable provisions of the U.S. Bankruptcy Code.

16


Debtor-in-Possession Financing
In connection with the Bankruptcy Filing, in April 2014, MPM Holdings, the Company and certain of its subsidiaries entered into the DIP ABL Facility and the DIP Term Loan Facility, as further described in Note 2. During the three months ended June 30, 2014, the Company borrowed $300 under the DIP Term Loan Facility, the proceeds of which were primarily used to repay the outstanding balance under the ABL Facility.
9. Commitments and Contingencies
Non-Environmental Legal Matters
The Company is involved in various legal proceedings in the ordinary course of business and had reserves of $4 at both June 30, 2014 and December 31, 2013 for all non-environmental legal defense costs incurred and settlement costs that it believes are probable and estimable, all of which are included in “Other current liabilities” in the unaudited Condensed Consolidated Balance Sheets.
Italian Tax Claim
On June 17, 2014, an Italian tax court of appeals (the “Italian Court of Appeals”) decided against the Company related to its 2003 income tax position resulting from the acquisition by General Electric Company (“GE”) of an Italian company in the same year. GE subsequently sold this Italian subsidiary to the Company as part of the acquisition of GE Advanced Materials in 2006 (the “GE Advanced Materials Acquisition”). Having considered the use of debt financing and other characteristics of the acquisition by GE, the Italian Court of Appeals determined that the goodwill amortization and interest expense related to the acquisition by GE were not deductible for tax purposes. Prior to this decision, the Company had received favorable rulings by lower level Italian trial courts in a series of similar cases regarding the same matter.
On August 7, 2014, the Italian Court of Appeals affirmed the prior decisions of the Italian tax trial courts in the Company’s favor regarding the deductions made in the years 2004 through 2007. The Company is currently preparing to appeal the adverse decision related to the 2003 tax year before the Italian Supreme Court and believes it has a considerable likelihood of obtaining a favorable outcome. As of June 30, 2014, the total potential assessment, including penalties and interest, is €45, or approximately $61, of which €30, or approximately $41, relates to the period of ownership subsequent to the GE Advanced Materials Acquisition.
The Company continues to believe its tax filing position is appropriate and that it is more likely than not this position will prevail upon appeal to the Italian Supreme Court. As a result, the Company has not recorded any income tax liability related to this matter as of June 30, 2014. Additionally, in conjunction with the GE Advanced Materials Acquisition, the Company and GE entered into an agreement providing for the indemnification by GE for tax matters related to the GE Advanced Materials Acquisition. The Company is currently evaluating the impact of this agreement on its potential exposure.
Backstop Commitment Agreement Premium
On June 23, 2014, the Court found that the terms and conditions of the Support Agreement were fair, reasonable and the best available to the Debtors under the circumstances, and issued an order authorizing and directing the Debtors to enter into, execute, deliver and implement the BCA. As a result, the Company is obligated to pay all fees and expenses related to the BCA, including, among other things, the payment of the BCA Commitment Premium to the Commitment Parties (see Note 2). Pursuant to the terms of the BCA, the BCA Commitment Premium was deemed earned, nonrefundable and non-avoidable upon entry of the approval order by the Court. Although the ultimate form of the payment cannot yet be determined, the Company recognized a $30 liability for the BCA Commitment Premium as of June 30, 2014, under the guidance for accounting for liability instruments. This amount is included in “Reorganization items, net” in the unaudited Condensed Consolidated Statements of Operations and “Other current liabilities” in the unaudited Condensed Consolidated Balance Sheets.
Make-Whole Redemption Premium
On May 9, 2014, the Debtors filed adversary complaints with the Court against the trustees of the holders of the Company’s First Lien Notes and the Senior Secured Notes (“Defendants”) seeking a declaratory judgment that MPM’s commencement of Chapter 11 proceedings did not trigger an obligation to pay the Applicable Premium (as defined in the Indentures) under the Optional Redemption provisions set forth in the Indentures that govern the First Lien Notes and Senior Secured Notes.  Specifically, the Debtors assert that the commencement of the Chapter 11 proceedings resulted in an Event of Default as defined in the Indentures, automatically accelerating the maturity of the First Lien Notes and the Senior Secured Notes and that the Debtors did not exercise an Optional Redemption, as defined in the Indentures, and therefore the Applicable Premium, as defined in the Indentures, is not payable. On June 18, 2014, the Defendants filed counterclaims against the Debtors that seek, among other things, a declaratory judgment that the Applicable Premium is due and owing as a result of the Debtors’ bankruptcy filing. As of June 30, 2014, the Defendants claim the amount of any Applicable Premium owed by the Company is approximately $250. The Company believes the merits supporting the declaratory judgment complaints are valid and believes that a loss under the Redemption Provision is not probable, and accordingly has not recorded any liability associated with such Applicable Premium as of June 30, 2014. The Court will make a determination on this issue in connection with the Confirmation Hearing.

17


Subordination of the Senior Subordinated Notes
On May 30, 2014, the indenture trustee of the Company’s Senior Subordinated Notes (the “Senior Subordinated Indenture Trustee”) filed an adversary complaint with the Court against, among others, the Debtors seeking a declaratory judgment that the Springing Lien Notes do not constitute “Senior Indebtedness” under the terms of the applicable indenture of the Senior Subordinated Notes, and therefore, that any unsecured deficiency claim arising from the Springing Lien Notes should be treated as pari passu in right of payment with the Senior Subordinated Notes under the Plan. Should the Senior Subordinated Indenture Trustee succeed, the Plan would not be able to be confirmed in its current form, and would likely require material revisions to the treatment of Springing Lien Notes and Senior Subordinated Notes, and potentially other classes of holders of claims, under the Plan. The Court will make a determination on this issue in connection with the Confirmation Hearing.
Environmental Matters
The Company is involved in certain remediation actions to clean up hazardous wastes as required by federal and state laws. Liabilities for remediation costs at each site are based on the Company’s best estimate of discounted future costs. As of both June 30, 2014 and December 31, 2013, the Company had recognized obligations of $6 for remediation costs at the Company’s manufacturing facilities and offsite landfills. These amounts are included in “Other long-term liabilities” in the unaudited Condensed Consolidated Balance Sheets.
Waterford, NY Site
The Company currently owns and operates a manufacturing site in Waterford, NY. In 1988, a consent decree was signed with the State
of New York which requires recovery of groundwater at the site to contain migration of specified contaminants in the groundwater. A groundwater
pump and treat system and groundwater monitoring program are currently operational to implement the requirements of this consent decree.
Due to the long-term nature of the project and the uncertainty inherent in estimating future costs of implementing this program, this liability was recorded at its net present value of $3, which assumes a 9% discount rate and a time period of 50 years. The undiscounted obligations, which are expected to be paid over the next 50 years, are approximately $15. Over the next five years the Company expects to make ratable payments totaling $2.
10. Pension and Postretirement Benefit Plans
The following are the components of the Company’s net pension and postretirement benefit expense for the three and six months ended June 30, 2014 and 2013:
 
Pension Benefits
 
Non-Pension Postretirement Benefits
 
Three Months Ended June 30,
 
Three Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
 
U.S. Plans
 
Non-U.S. Plans
 
U.S. Plans
 
Non-U.S. Plans
 
U.S. Plans
 
Non-U.S. Plans
 
U.S. Plans
 
Non-U.S. Plans
Service cost
$
2

 
$
2

 
$
2

 
$
3

 
$

 
$

 
$
1

 
$

Interest cost
2

 
1

 
2

 
1

 
1

 

 
1

 

Expected return on plan assets
(2
)
 

 
(2
)
 
(1
)
 

 

 

 

Net expense
$
2

 
$
3

 
$
2

 
$
3

 
$
1

 
$

 
$
2

 
$


 
Pension Benefits
 
Non-Pension Postretirement Benefits
 
Six Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
 
U.S. Plans
 
Non-U.S. Plans
 
U.S. Plans
 
Non-U.S. Plans
 
U.S. Plans
 
Non-U.S. Plans
 
U.S. Plans
 
Non-U.S. Plans
Service cost
$
4

 
$
4

 
$
5

 
$
4

 
$
1

 
$

 
$
2

 
$

Interest cost
4

 
2

 
4

 
2

 
2

 

 
2

 

Expected return on plan assets
(4
)
 

 
(4
)
 
(1
)
 

 

 

 

Amortization of net losses

 

 

 
1

 

 

 

 

Net expense
$
4

 
$
6

 
$
5

 
$
6

 
$
3

 
$

 
$
4

 
$



18


11. Segment Information
The Company’s businesses are based on the products that the Company offers and the markets that it serves. At June 30, 2014, the Company’s two businesses are managed as one reportable segment; however, given the differing technology and marketing strategies, the Company reports the results for the Silicones and Quartz businesses separately.
The Silicones business is engaged in the manufacture, sale and distribution of silanes, specialty silicones and urethane additives. The Quartz business is engaged in the manufacture, sale and distribution of high-purity fused quartz and ceramic materials. The Company’s businesses are organized based on the nature of the products they produce.
The Company’s organizational structure continues to evolve. It is also continuing to refine its business and operating structure to better align its services to its customers and improve its cost position, while continuing to invest in global growth opportunities.
Following are net sales and Segment EBITDA (earnings before interest, income taxes, depreciation and amortization) by business. Segment EBITDA is defined as EBITDA adjusted for certain non-cash items and certain other income and expenses. Segment EBITDA is the primary performance measure used by the Company’s senior management, the chief operating decision-maker and the board of directors to evaluate operating results and allocate capital resources among businesses. Segment EBITDA is also the profitability measure used to set management and executive incentive compensation goals. Other is primarily general and administrative expenses that are not allocated to the businesses, such as shared service and administrative functions.
Net Sales(1):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
Silicones
$
592

 
$
559

 
$
1,149

 
$
1,087

Quartz
45

 
51

 
93

 
93

Total
$
637

 
$
610

 
$
1,242

 
$
1,180

(1)
Inter-business sales are not significant and, as such, are eliminated within the selling business.
Segment EBITDA:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
Silicones
$
68

 
$
63

 
$
131

 
$
138

Quartz
6

 
11

 
14

 
16

Other
(15
)
 
(11
)
 
(31
)
 
(23
)
Reconciliation of Segment EBITDA to Net Loss:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
Segment EBITDA:
 
 
 
 
 
 
 
Silicones
$
68

 
$
63

 
$
131

 
$
138

Quartz
6

 
11

 
14

 
16

Other
(15
)
 
(11
)
 
(31
)
 
(23
)
 
 
 
 
 
 
 
 
Reconciliation:
 
 
 
 
 
 
 
Items not included in Segment EBITDA:
 
 
 
 
 
 
 
Non-cash charges
11

 
(4
)
 
29

 
(5
)
Restructuring and other costs
(10
)
 
(4
)
 
(14
)
 
(8
)
Reorganization items, net
(70
)



(70
)


Total adjustments
(69
)
 
(8
)
 
(55
)
 
(13
)
Interest expense, net
(41
)
 
(79
)
 
(117
)
 
(157
)
Income tax expense
(13
)
 
(3
)
 
(21
)
 
(5
)
Depreciation and amortization
(42
)
 
(43
)
 
(83
)
 
(87
)
Net loss
$
(106
)
 
$
(70
)
 
$
(162
)
 
$
(131
)

19


 Items Not Included in Segment EBITDA
Not included in Segment EBITDA are certain non-cash items and other income and expenses. For the three and six months ended June 30, 2014, non-cash charges primarily included net unrealized foreign exchange transaction gains related to certain intercompany arrangements. For the three and six months ended June 30, 2013, non-cash charges primarily included net foreign exchange transaction gains and losses and asset disposal losses. For the three and six months ended June 30, 2014 and 2013, restructuring and other costs primarily included expenses from our restructuring and cost optimization programs. For the three and six months ended June 30, 2014, restructuring and other costs also included costs associated with restructuring our capital structure incurred prior to the Bankruptcy Filing. For the six months ended June 30, 2014, these costs were partially offset by a gain related to a claim settlement. For the three and six months ended June 30, 2014, reorganization items represented incremental costs incurred directly as a result of the Bankruptcy Filing, including the BCA Commitment Premium, certain professional fees and financing fees related to our DIP Facilities.
12. Changes in Other Comprehensive Income
Following is a summary of changes in “Accumulated other comprehensive income” for the three and six months ended June 30, 2014 and 2013:
 
Three Months Ended June 30, 2014
 
Three Months Ended June 30, 2013
 
Defined Benefit Pension and Postretirement Plans
 
Foreign Currency Translation Adjustments
 
Total
 
Defined Benefit Pension and Postretirement Plans
 
Foreign Currency Translation Adjustments
 
Total
Beginning balance
$
(36
)
 
$
224

 
$
188

 
$
(64
)
 
$
199

 
$
135

Other comprehensive income (loss) before reclassifications, net of tax

 
1

 
1

 
(3
)

(18
)
 
(21
)
Amounts reclassified from Accumulated other comprehensive income, net of tax

 

 

 

 

 

Net other comprehensive income (loss)

 
1

 
1

 
(3
)
 
(18
)
 
(21
)
Ending balance
$
(36
)
 
$
225

 
$
189

 
$
(67
)
 
$
181

 
$
114

 
Six Months Ended June 30, 2014
 
Six Months Ended June 30, 2013
 
Defined Benefit Pension and Postretirement Plans
 
Foreign Currency Translation Adjustments
 
Total
 
Defined Benefit Pension and Postretirement Plans
 
Foreign Currency Translation Adjustments
 
Total
Beginning balance
$
(37
)
 
$
239

 
$
202

 
$
(65
)
 
$
245

 
$
180

Other comprehensive income (loss) before reclassifications, net of tax
1

 
(14
)
 
(13
)
 
(3
)

(64
)
 
(67
)
Amounts reclassified from Accumulated other comprehensive income, net of tax

 

 

 
1

 

 
1

Net other comprehensive income (loss)
1

 
(14
)
 
(13
)
 
(2
)
 
(64
)
 
(66
)
Ending balance
$
(36
)
 
$
225

 
$
189

 
$
(67
)
 
$
181

 
$
114

 
 
Amount Reclassified From Accumulated Other Comprehensive Income for the Three Months Ended:
 
 
Amortization of defined benefit pension and other postretirement benefit items:
 
June 30, 2014
 
June 30, 2013
 
Location of Reclassified Amount in Income
Actuarial losses
 
$

 
$

 
(1) 
Total before income tax
 

 

 
 
Income tax benefit
 

 

 
Income tax expense
Total
 
$

 
$

 
 

20


 
 
Amount Reclassified From Accumulated Other Comprehensive Income for the Six Months Ended:
 
 
Amortization of defined benefit pension and other postretirement benefit items:
 
June 30, 2014
 
June 30, 2013
 
Location of Reclassified Amount in Income
Actuarial losses
 
$

 
$
1

 
(1) 
Total before income tax
 

 
1

 
 
Income tax benefit
 

 

 
Income tax expense
Total
 
$

 
$
1

 
 
(1)
These accumulated other comprehensive income components are included in the computation of net pension and postretirement benefit expense (see Note 10).
13. Income Taxes
The effective tax rate was (14)% and (4)% for the three months ended June 30, 2014 and 2013, respectively. The effective tax rate was (15)% and (4)% for the six months ended June 30, 2014. The change in the effective tax rate was primarily attributable to the amount and distribution of income and loss among the various jurisdictions in which the Company operates. The effective tax rates were also impacted by operating losses generated in jurisdictions where no tax benefit was recognized due to the maintenance of a full valuation allowance.
For the three and six months ended June 30, 2014, income taxes included unfavorable discrete tax adjustments of $6 and $14, respectively, pertaining to related party transaction costs, unrealized gains on intercompany transactions and the resolution of certain tax matters in U.S. and non-U.S. jurisdictions. For the three and six months ended June 30, 2013, income taxes included favorable discrete tax adjustments of $2 and $1, respectively, pertaining to the resolution of certain tax matters in U.S. and non-U.S. jurisdictions.
The Company is recognizing the earnings of non-U.S. operations currently in its U.S. consolidated income tax return as of June 30, 2014, and is expecting that all earnings will be repatriated to the United States. The Company has accrued the incremental tax expense expected to be incurred upon the repatriation of these earnings.
As a result of the conditions related to the Company’s ability to continue as a going concern described in Note 1, beginning in the fourth quarter of 2013, the Company was no longer able to assert permanent reinvestment with respect to certain intercompany arrangements previously considered indefinite, and is now recording deferred taxes on the foreign currency translation impact.
14. Guarantor/Non-Guarantor Subsidiary Financial Information
As of June 30, 2014, the Company had outstanding $1,100 in aggregate principal amount of first-lien notes, $250 in aggregate principal amount of senior secured notes, $1,161 in aggregate principal amount of springing lien Dollar notes, €133 ($184) in aggregate principal amount of springing lien Euro notes and $382 in aggregate principal amount of senior subordinated notes. The notes are fully, jointly, severally and unconditionally guaranteed by the Company’s domestic subsidiaries (the guarantor subsidiaries). The following condensed consolidated financial information presents the Condensed Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013, the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2013 and the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013 of (i) Momentive Performance Materials Inc. (Parent); (ii) the guarantor subsidiaries; (iii) the non-guarantor subsidiaries; and (iv) the Company on a consolidated basis.
These financial statements are prepared on the same basis as the consolidated financial statements of the Company except that investments in subsidiaries are accounted for using the equity method for purposes of the consolidating presentation. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions. The guarantor subsidiaries are 100% owned by Parent and all guarantees are full and unconditional, subject to certain customary release provisions set forth in the applicable Indenture. Additionally, the secured credit facilities are secured by, among other things, most of the assets of the Parent, the guarantor subsidiaries and certain non-guarantor subsidiaries, subject to certain exceptions and permitted liens. There are no significant restrictions on the ability of Parent to obtain funds from its domestic subsidiaries by dividend or loan.

21


MOMENTIVE PERFORMANCE MATERIALS INC.
(DEBTOR-IN-POSSESSION)
JUNE 30, 2014
CONDENSED CONSOLIDATING BALANCE SHEET (Unaudited)
 
 
Parent
 
Combined Guarantor
Subsidiaries
 
Combined Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents (including restricted cash of $0, $0 and $5, respectively)
$
12

 
$
6

 
$
99

 
$

 
$
117

Accounts receivable

 
106

 
261

 

 
367

Due from affiliates
1

 
124

 
189

 
(314
)
 

Inventories:


 


 


 


 


Raw materials

 
70

 
87

 

 
157

Finished and in-process goods

 
117

 
141

 

 
258

Deferred income taxes

 

 
6

 

 
6

Other current assets

 
33

 
51

 

 
84

Total current assets
13

 
456

 
834

 
(314
)
 
989

Investment in unconsolidated entities
1,948

 

 
9

 
(1,948
)
 
9

Deferred income taxes

 

 
3

 

 
3

Other long-term assets

 
6

 
19

 

 
25

Intercompany loans receivable
53

 
2,008

 
435

 
(2,496
)
 

Property and equipment, net

 
427

 
495

 

 
922

Goodwill

 
17

 
369

 

 
386

Other intangible assets, net

 
75

 
362

 

 
437

Total assets
$
2,014

 
$
2,989

 
$
2,526

 
$
(4,758
)
 
$
2,771

Liabilities and (Deficit) Equity
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
3

 
$
64

 
$
159

 
$

 
$
226

Due to affiliates

 
78

 
236

 
(314
)
 

Debt payable within one year
1,650

 
5

 
50

 

 
1,705

Note payable to parent

 

 

 

 

Interest payable
29

 

 

 

 
29

Income taxes payable

 

 
7

 

 
7

Deferred income taxes

 

 
12

 

 
12

Accrued payroll and incentive compensation

 
15

 
24

 

 
39

Other current liabilities
1

 
47

 
50

 

 
98

Total current liabilities
1,683

 
209

 
538

 
(314
)
 
2,116

Long-term liabilities:
 
 
 
 
 
 
 
 
 
Long-term debt

 

 
6

 

 
6

Intercompany loans payable
203

 
108

 
1,977

 
(2,288
)
 

Accumulated losses from unconsolidated subsidiaries in excess of investment

 
280

 

 
(280
)
 

Pension liabilities

 

 
143

 

 
143

Deferred income taxes

 

 
90

 

 
90

Other long-term liabilities
2

 
1

 
52

 

 
55

Liabilities subject to compromise
1,784

 
443

 

 
(208
)
 
2,019

Total liabilities
3,672

 
1,041

 
2,806

 
(3,090
)
 
4,429

Total (deficit) equity
(1,658
)
 
1,948

 
(280
)
 
(1,668
)
 
(1,658
)
Total liabilities and (deficit) equity
$
2,014

 
$
2,989

 
$
2,526

 
$
(4,758
)
 
$
2,771


22


MOMENTIVE PERFORMANCE MATERIALS INC.
(DEBTOR-IN-POSSESSION)
DECEMBER 31, 2013
CONDENSED CONSOLIDATING BALANCE SHEET (Unaudited)

 
Parent
 
Combined Guarantor
Subsidiaries
 
Combined Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents (including restricted cash of $0 and $5, respectively)
$
2

 
$

 
$
92

 
$

 
$
94

Accounts receivable

 
91

 
240

 

 
331

Due from affiliates

 
63

 
97

 
(160
)
 

Inventories:


 


 


 


 


Raw materials

 
50

 
78

 

 
128

Finished and in-process goods

 
114

 
126

 

 
240

Deferred income taxes

 

 
6

 

 
6

Other current assets
2

 
14

 
45

 

 
61

Total current assets
4

 
332

 
684

 
(160
)
 
860

Investment in unconsolidated entities
1,983

 

 
8

 
(1,983
)
 
8

Deferred income taxes

 

 
3

 

 
3

Other long-term assets

 
13

 
20

 

 
33

Intercompany loans receivable
100

 
1,939

 
422

 
(2,461
)
 

Property and equipment, net

 
444

 
510

 

 
954

Goodwill

 

 
381

 

 
381

Other intangible assets, net

 
78

 
377

 

 
455

Total assets
$
2,087

 
$
2,806

 
$
2,405

 
$
(4,604
)
 
$
2,694

Liabilities and (Deficit) Equity
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
4

 
$
75

 
$
180

 
$

 
$
259

Due to affiliates

 
96

 
64

 
(160
)
 

Debt payable within one year
3,076

 
88

 
86

 

 
3,250

Interest payable
87

 
1

 

 

 
88

Income taxes payable

 

 
6

 

 
6

Deferred income taxes

 

 
12

 

 
12

Accrued payroll and incentive compensation

 
23

 
21

 

 
44

Other current liabilities

 
26

 
59

 

 
85

Total current liabilities
3,167

 
309

 
428

 
(160
)
 
3,744

Long-term liabilities:
 
 
 
 
 
 
 
 
 
Long-term debt

 

 
7

 

 
7

Intercompany loans payable
397

 
101

 
1,963

 
(2,461
)
 

Accumulated losses from unconsolidated subsidiaries in excess of investment

 
261

 

 
(261
)
 

Pension liabilities

 
141

 
139

 

 
280

Deferred income taxes

 

 
77

 

 
77

Other long-term liabilities
3

 
11

 
52

 

 
66

Total liabilities
3,567

 
823

 
2,666

 
(2,882
)
 
4,174

Total (deficit) equity
(1,480
)
 
1,983

 
(261
)
 
(1,722
)
 
(1,480
)
Total liabilities and (deficit) equity
$
2,087

 
$
2,806

 
$
2,405

 
$
(4,604
)
 
$
2,694



23


MOMENTIVE PERFORMANCE MATERIALS INC.
(DEBTOR-IN-POSSESSION)
THREE MONTHS ENDED JUNE 30, 2014
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

 
Parent
 
Combined Guarantor
Subsidiaries
 
Combined Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$