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EX-31.1(A) - SECTION 302 CEO CERTIFICATION - Momentive Performance Materials Inc.ex311aq115.htm
EX-31.1(B) - SECTION 302 CFO CERTIFICATION - Momentive Performance Materials Inc.ex311bq115.htm
EX-32.1 - SECTION 906 CEO AND CFO CERTIFICATION - Momentive Performance Materials Inc.exhibit321q115.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 March 31, 2015
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
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes  x    No  o
The number of shares of common stock of the Company, par value $0.01 per share, outstanding as of the close of business on May 8, 2015, was 48 shares, all of which were held by MPM Intermediate 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 March 31, 2015 and December 31, 2014
 
Condensed Consolidated Statements of Operations for the three months ended March 31, 2015 (successor) and 2014 (predecessor)
 
Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2015 (successor) and 2014 (predecessor)
 
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2015 (successor) and 2014 (predecessor)
 
 
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.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In millions, except share data)
March 31, 2015
 
December 31, 2014
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents (including restricted cash of $4 and $5, respectively)
$
190

 
$
228

Accounts receivable (net of allowance for doubtful accounts of less than $1)
339

 
324

Inventories:
 
 
 
Raw materials
140

 
144

Finished and in-process goods
280

 
258

Deferred income taxes
35

 
33

Other current assets
53

 
60

Total current assets
1,037

 
1,047

Investment in unconsolidated entities
19

 
18

Deferred income taxes
12

 
14

Other long-term assets
29

 
27

Property and equipment:
 
 
 
Land
75

 
75

Buildings
292

 
295

Machinery and equipment
789

 
799

 
1,156

 
1,169

Less accumulated depreciation
(39
)
 
(17
)
 
1,117

 
1,152

Goodwill
216

 
218

Other intangible assets, net
387

 
408

Total assets
$
2,817

 
$
2,884

Liabilities and Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
219

 
$
223

Debt payable within one year
36

 
38

Interest payable
24

 
11

Income taxes payable
8

 
7

Deferred income taxes
16

 
18

Accrued payroll and incentive compensation
66

 
57

Other current liabilities
75

 
82

Total current liabilities
444

 
436

Long-term liabilities:
 
 
 
Long-term debt
1,169

 
1,163

Pension liabilities
342

 
352

Deferred income taxes
104

 
98

Other long-term liabilities
58

 
66

Total liabilities
2,117

 
2,115

Commitments and contingencies (See Note 7)
 
 
 
Equity
 
 
 
Common stock - $0.01 par value; 100 shares authorized; 48 shares issued and outstanding at March 31, 2015 and December 31, 2014

 

Additional paid-in capital
857

 
857

Accumulated other comprehensive loss
(71
)
 
(28
)
Accumulated deficit
(86
)
 
(60
)
Total equity
700

 
769

Total liabilities and equity
$
2,817

 
$
2,884

See Notes to Condensed Consolidated Financial Statements

3


MOMENTIVE PERFORMANCE MATERIALS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

 
 
Three Months Ended March 31,
 
 
Successor
 
 
Predecessor
 (In millions)

2015

 
2014
Net sales
 
$
579

 
 
$
605

Cost of sales
 
479

 
 
 
Gross profit
 
100

 
 
 
Cost of sales, excluding depreciation and amortization
 


 
 
434

Selling, general and administrative expense
 
74

 
 
79

Depreciation and amortization expense
 


 
 
41

Research and development expense
 
18

 
 
20

Restructuring and other costs
 
4

 
 
4

Other operating income, net
 
(7
)
 
 

Operating income
 
11

 
 
27

Interest expense, net
 
19

 
 
76

Other non-operating expense, net
 
4

 
 

Reorganization items, net
 
5

 
 

Loss before income taxes and earnings from unconsolidated entities
 
(17
)
 
 
(49
)
Income tax expense
 
10

 
 
8

Loss before earnings from unconsolidated entities
 
(27
)
 
 
(57
)
Earnings from unconsolidated entities, net of taxes
 
1

 
 
1

Net loss
 
$
(26
)
 
 
$
(56
)

See Notes to Condensed Consolidated Financial Statements

4


MOMENTIVE PERFORMANCE MATERIALS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited)

 
Three Months Ended March 31,
 
Successor
 
 
Predecessor
(In millions)
2015
 
 
2014
Net loss
$
(26
)
 
 
$
(56
)
Other comprehensive loss, net of tax:
 
 
 
 
Foreign currency translation
(43
)
 
 
(15
)
Gain recognized from pension and postretirement benefits

 
 
1

Other comprehensive loss
(43
)
 
 
(14
)
Comprehensive loss
$
(69
)
 
 
$
(70
)

See Notes to Condensed Consolidated Financial Statements

5


MOMENTIVE PERFORMANCE MATERIALS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
Three Months Ended March 31,
 
Successor
 
 
Predecessor
(In millions)
2015
 
 
2014
Cash flows used in operating activities
 
 
 
 
Net loss
$
(26
)
 
 
$
(56
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
 
Depreciation and amortization
37

 
 
41

Deferred income tax expense
4

 
 
6

Unrealized foreign currency losses (gains)
7

 
 
(23
)
Amortization of debt discount
6

 
 

Other non-cash adjustments
(2
)
 
 

Net change in assets and liabilities:
 
 
 
 
Accounts receivable
(26
)
 
 
(30
)
Inventories
(34
)
 
 
(22
)
Accounts payable
14

 
 

Due to/from affiliates
(5
)
 
 
3

Income taxes payable
(4
)
 
 

Other assets, current and non-current
3

 
 
10

Other liabilities, current and non-current
23

 
 
3

Net cash used in operating activities
(3
)
 
 
(68
)
Cash flows used in investing activities
 
 
 
 
Capital expenditures
(27
)
 
 
(27
)
Purchases of intangible assets
(1
)
 
 

Net cash used in investing activities
(28
)
 
 
(27
)
Cash flows (used in) provided by financing activities
 
 
 
 
Net short-term debt (repayments) borrowings
(2
)
 
 
4

Borrowings of long-term debt

 
 
105

Borrowings from parent

 
 
9

Net cash (used in) provided by financing activities
(2
)

 
118

(Decrease) increase in cash and cash equivalents
(33
)
 
 
23

Effect of exchange rate changes on cash and cash equivalents
(4
)

 
(1
)
Cash and cash equivalents (unrestricted), beginning of period
223

 
 
89

Cash and cash equivalents (unrestricted), end of period
$
186

 
 
$
111

Supplemental disclosures of cash flow information
 
 
 
 
Cash paid for:
 
 
 
 
Interest
$
1

 
 
$
64

Income taxes, net of refunds
7

 
 
2

Non-cash investing activity:
 
 
 
 
Capital expenditures included in accounts payable
$
11

 
 
$
11


See Notes to Condensed Consolidated Financial Statements

6


MOMENTIVE PERFORMANCE MATERIALS INC.
CONDENSED CONSOLIDATED STATEMENT OF EQUITY (Unaudited)


(In millions)
 
Common
Stock
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Loss
 
Accumulated
Deficit
 
Total
Equity
Balance as of December 31, 2014
 
$

 
$
857

 
$
(28
)
 
$
(60
)
 
$
769

Net loss
 

 

 

 
(26
)
 
(26
)
Other comprehensive loss
 

 

 
(43
)
 

 
(43
)
Balance as of March 31, 2015
 
$

 
$
857

 
$
(71
)
 
$
(86
)
 
$
700


See Notes to Condensed Consolidated Financial Statements

7


MOMENTIVE PERFORMANCE MATERIALS INC.
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 reportable segments: 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.
On April 13, 2014 (the “Petition Date”), Momentive Performance Materials Holdings Inc. (the Company’s direct parent prior to October 24, 2014) (“Old 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 were jointly administered under the caption In re MPM Silicones, LLC, et al., Case No. 14-22503. The Debtors continued 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 through the Effective Date (defined below).
As a result of the Company’s reorganization and emergence from Chapter 11 bankruptcy on October 24, 2014 (the “Effective Date”) in accordance with the plan of reorganization (the “Plan”), the Company’s direct parent is MPM Intermediate Holdings Inc., a holding company and wholly owned subsidiary of MPM Holdings Inc. (“MPM Holdings”), the ultimate parent entity of MPM. Prior to our reorganization, we, through a series of intermediate holding companies, were controlled by investment funds managed by affiliates of Apollo Management Holdings, L.P. (together with Apollo Global Management, LLC and subsidiaries, “Apollo”).
Upon emergence from bankruptcy on the Effective Date, the Company adopted fresh start accounting which resulted in the creation of a new entity for financial reporting purposes. As a result of the application of fresh start accounting, as well as the effects of the implementation of the Plan, the Consolidated Financial Statements on or after October 24, 2014 are not comparable with the Consolidated Financial Statements prior to that date. References to “Successor” or “Successor Company” relate to the financial position and results of operations of the reorganized Company subsequent to October 24, 2014. References to “Predecessor” or “Predecessor Company” refer to the financial position and results of operations of the Company prior to October 24, 2014.
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.
2. 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 March 31, 2015 through May 15, 2015, the date of issuance of its unaudited Condensed Consolidated Financial Statements.
Reclassifications—Certain prior period balances have been reclassified to conform with current presentations.

8


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 tentative revised effective date for ASU 2014-09 is for annual and interim periods beginning on or after December 15, 2017, and early adoption will be permitted. Entities will have the option of using either a full retrospective approach or a modified approach to adopt the guidance in ASU 2014-09. The Company is currently assessing the potential impact of ASU 2014-09 on its financial statements.
In January 2015, the FASB issued Accounting Standards Board Update No. 2015-01: Income Statement-Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items (“ASU 2015-01”). ASU 2015-01 eliminates from U.S. GAAP the concept of  extraordinary items and removes the requirement to present extraordinary items separately on the income statement, net of tax. The guidance is effective for annual periods beginning after December 15, 2015, including interim periods within that reporting period. The requirements of ASU 2015-01 are not expected to have a significant impact on the Company’s financial statements.
In February 2015, the FASB issued Accounting Standards Board Update No. 2015-02: Consolidation (Topic 810): Amendments to the Consolidation Analysis (“ASU 2015-02”). ASU 2015-02 amends the existing consolidation guidance related to (i) limited partnerships and similar legal entities, (ii) the evaluation of fees paid to a decision maker or a service provider as variable interest, (iii) the effect of fee arrangements on the primary beneficiary determination, and (iv) the effect of related parties on the primary beneficiary determination. ASU 2015-02 simplifies the existing guidance by reducing the number of consolidation models from four to two, reducing the extent to which related party arrangements cause an entity to be considered a primary beneficiary, and placing more emphasis on the risk of loss when determining a controlling financial interest. The guidance is effective for annual periods beginning after December 15, 2015, including interim periods within that reporting period. The requirements of ASU 2015-02 are not expected to have a significant impact on the Company’s financial statements.
In April 2015, the FASB issued Accounting Standards Board Update No. 2015-03: Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). ASU 2015-03 requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, and also requires that the amortization of such costs be reported as interest expense. The guidance is effective for annual periods beginning after December 15, 2015, including interim periods within that reporting period, and early adoption is permitted. The Company is currently assessing the potential impact of ASU 2015-03 on its financial statements.
3. Reorganization Items, Net
Incremental costs incurred directly as a result of the Bankruptcy Filing are classified as “Reorganization items, net” in the unaudited Condensed Consolidated Statements of Operations. For the three months ended March 31, 2015, “Reorganization items, net” primarily included professional fees and rating fees for the new first and second lien notes issued on the Emergence Date.

4. Related Party Transactions
Transactions with Hexion
Shared Services Agreement

In October 2010, the Company entered into a shared services agreement with Hexion (which, from October 1, 2010 through October 24, 2014, was a subsidiary under a common parent) (the “Shared Services Agreement”). Under this agreement, the Company provides to Hexion, and Hexion 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 establishes certain criteria upon which the cost of such services are allocated between the Company and Hexion. The Shared Services Agreement is subject to termination by either the Company or Hexion, without cause, on not less than 30 days’ written notice, and expires in October 2015 (subject to one-year renewals every year thereafter; absent contrary notice from either party).
In conjunction with the consummation of the Plan, the Shared Services Agreement was amended to, among other things, (i) exclude the services of certain executive officers, (ii) provide for a transition assistance period at the election of the recipient following termination of the Shared Services Agreement of up to 12 months, subject to one successive renewal period of an additional 60 days and (iii) provide for the use of an independent third-party audit firm to assist the Shared Services Steering Committee with its annual review of billings and allocations.

9


Pursuant to the Shared Services Agreement, during the three months ended March 31, 2015 and 2014, the Company incurred approximately $25 of net costs for shared services and Hexion incurred approximately $31 and $33, respectively, of net costs for shared services. Included in the net costs incurred during the three months ended March 31, 2015 and 2014, were net billings from Hexion to the Company of $17 and $9, 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 percentages are reviewed by the Steering Committee pursuant to the terms of the Shared Services Agreement. The Company had accounts payable to Hexion of $6 and $9 at March 31, 2015 and December 31, 2014, respectively, and no accounts receivable from Hexion.
Purchases and Sales of Products and Services with Hexion
The Company also sells products to, and purchases products from Hexion, pursuant to a Master Buy/Sell Agreement dated as of September 6, 2012 (the “Master Buy/Sell Agreement”). The standard terms and conditions of the seller in the applicable jurisdiction apply to transactions under the Master Buy/Sell Agreement. The Master Buy/Sell Agreement has an initial term of three years and may be terminated for convenience by either party thereunder upon 30 days' prior notice. Additionally, a subsidiary of the Company has acted as a non-exclusive distributor in India for certain of Hexion’s subsidiaries pursuant to Distribution Agreements dated as of September 6, 2012 (the “Distribution Agreements”). The Distribution Agreements had initial terms of three years and was terminated by mutual agreement on March 9, 2015. Pursuant to these agreements and other purchase orders, during both the three months ended March 31, 2015 and 2014, the Company sold $2 of products to Hexion and purchased less than $1. As of March 31, 2015 and December 31, 2014, the Company had less than $1 and $2, respectively, of accounts receivable from Hexion and less than $1 of accounts payable to Hexion related to these agreements.
Other Transactions with Hexion
In March 2014, the Company entered into a ground lease with a Brazilian subsidiary of Hexion to lease a portion of the Company’s manufacturing site in Itatiba, Brazil, where the subsidiary of Hexion 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 provides to the subsidiary of Hexion various services such as environmental, health and safety, security, maintenance and accounting, amongs others, to support the operation of this new facility. The Company received less than $1 from Hexion under this agreement during the three months ended March 31, 2015. No amounts were transacted under these agreements during the three months ended March 31, 2014.
In April 2014, the Company sold 100% of its interest in its Canadian subsidiary to a subsidiary of Hexion 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 Hexion, whereby the subsidiary of Hexion 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 Hexion for acting as distributor at a rate of 2% of the net selling price of the related products sold. During the three months ended March 31, 2015, the Company sold approximately $7 of products to Hexion under this distribution agreement, and paid less than $1 to Hexion as compensation for acting as distributor of the products. As of March 31, 2015 and December 31, 2014, the Company had $3 and $2, respectively, of accounts receivable from Hexion related to the distribution agreement.
Transactions with Affiliates Other Than Hexion
Purchases and Sales of Products and Services
The Company sells products to various affiliates other than Hexion. These sales were less than $1 and $3 for the three months ended March 31, 2015 and 2014, respectively. Receivables from these affiliates were less than $1 and $1 at March 31, 2015 and December 31, 2014, respectively. The Company also purchases products and services from various affiliates other than Hexion. These purchases were $1 and $3 for the three months ended March 31, 2015 and 2014, respectively. The Company had accounts payable to these affiliates of less than $1 as of both March 31, 2015 and December 31, 2014.
Transactions and Arrangements with Parent and its Subsidiaries
In March 2014, the Company entered into an Employee Services Agreement with Hexion Holdings, Hexion and Momentive Performance Materials Holdings Employee Corporation (“Employee Corp.”), a subsidiary of Hexion Holdings (the “Services Agreement”).  The Services Agreement provided for the executive services of Mr. Jack Boss, who was then employed by Employee Corp., to be made available to the Company and set 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 agreed 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.
In December 2014, Mr. Boss was appointed as Chief Executive Officer and President of the Company, In connection with the appointment, MPM Holdings assumed from Hexion Holdings the terms of the accepted offer of employment with Mr. Boss. The Company paid less than $1 under this agreement during both the three months ended March 31, 2015 and 2014.


10


5. 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.

Recurring Fair Value Measurements
At both March 31, 2015 and December 31, 2014, 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. There were no transfers between Level 1, Level 2 or Level 3 measurements during the three months ended March 31, 2015.

Non-derivative Financial Instruments
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
March 31, 2015
 
 
 
 
 
 
 
 
 
 
Debt
 
$
1,205

 
$

 
$
1,209

 
$

 
$
1,209

December 31, 2014
 
 
 
 
 
 
 
 
 
 
Debt
 
$
1,201

 
$

 
$
1,166

 
$

 
$
1,166

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. Fair values of debt are based upon the aggregate principal amount of each instrument, and do not include any unamortized debt discounts or premiums. 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.


11


6. Debt Obligations

As of March 31, 2015 and December 31, 2014, the Company had no outstanding borrowings under its senior secured asset-based revolving loan facility (the “ABL Facility”). Outstanding letters of credit under the ABL Facility at March 31, 2015 were $67, leaving an unused borrowing capacity of $203.
As of March 31, 2015, the Company was in compliance with all the covenants included in the agreements governing its outstanding indebtedness.
Debt outstanding at March 31, 2015 and December 31, 2014 is as follows:
 
March 31, 2015
 
December 31, 2014
 
Long-Term
 
Due Within One Year
 
Long-Term
 
Due Within One Year
Senior Secured Credit Facilities:
 
 
 
 
 
 
 
ABL Facility
$

 
$

 
$

 
$

Secured Notes:
 
 
 
 
 
 
 
3.88% First-Priority Senior Secured Notes due 2021 (includes $136 and $140 of unamortized debt discount, respectively)
964

 

 
960

 

4.69% Second-Priority Senior Secured Notes due 2022 (includes $45 and $47 of unamortized debt discount, respectively)
205

 

 
203

 

Other Borrowings:
 
 
 
 
 
 
 
China bank loans

 
32

 

 
32

Other

 
4

 

 
6

Total debt
$
1,169

 
$
36

 
$
1,163

 
$
38

7. 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 $6 and $5 at March 31, 2015 and December 31, 2014, respectively, 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. On December 29, 2014, the Company filed an appeal before the Italian Supreme Court with respect to the lower court’s adverse decision related to the 2003 tax year. On January 10, 2015, the Company received notice of appeal of the favorable decision it received with respect to the years 2004 to 2007. The Company believes it has a considerable likelihood of obtaining favorable outcomes for all years contested. As of March 31, 2015, the total potential assessment, including penalties and interest, is €45, or approximately $48, of which €30, or approximately $32, relates to the period of ownership subsequent to the acquisition of GE Advanced Materials in 2006 (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 March 31, 2015. 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.

12


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 March 31, 2015 and December 31, 2014, the Company had recognized obligations of $13 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 $8, which assumes a 3% 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 $17. Over the next five years the Company expects to make ratable payments totaling $2.
Subsequent Event

In April 2015, we entered into a new long-term purchase agreement with Unimin, a major supplier of sand used in the Company’s Quartz business. The agreement is effective as of January 1, 2013 and expires on December 31, 2016.
8. Equity Plans and Stock Based Compensation
Management Equity Plan
On March 12, 2015, the Board of Directors of MPM Holdings approved the MPM Holdings Inc. Management Equity Plan (the “MPMH Equity Plan”). Under the MPMH Equity Plan, MPM Holdings can award no more than 3,818,182 shares which may consist of options, restricted stock units, restricted stock and other stock-based awards. The restricted stock units are non-voting units of measurement which are deemed to be equivalent to one common share of MPM Holdings. The options are options to purchase common shares of MPM Holdings. The awards contain restrictions on transferability and other typical terms and conditions.
On April 10, 2015, the Compensation Committee of the Board of Directors of MPM Holdings approved grants under the MPMH Equity Plan of restricted stock units and options to certain of the Company’s key managers, including the Company’s named executive officers.
9. Pension and Postretirement Benefit Plans
The following are the components of the Company’s net pension and postretirement benefit expense for the three months ended March 31, 2015 and 2014:
 
Pension Benefits
 
Non-Pension Postretirement Benefits
 
Three Months Ended March 31,
 
Three Months Ended March 31,
 
Successor
 
 
Predecessor
 
Successor
 
 
Predecessor
 
2015
 
 
2014
 
2015
 
 
2014
 
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

 
$
2

 
$

 
$

 
 
$
1

 
$

Interest cost on projected benefit obligation
2

 
1

 
 
2

 
1

 
1

 

 
 
1

 

Expected return on assets
(2
)
 

 
 
(2
)
 

 

 

 
 

 

Net expense
$
2

 
$
3

 
 
$
2

 
$
3

 
$
1

 
$

 
 
$
2

 
$



13


10. Segment Information
The Company’s segments are based on the products that the Company offers and the markets that it serves. At March 31, 2015, the Company’s had two reportable segments: Silicones and Quartz. 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 segments 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 segment. 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 segments. Segment EBITDA is also the profitability measure used to set management and executive incentive compensation goals.
In 2015, the Company redefined its internal reporting structure and now allocates additional administrative functional costs to the operating segments. The current presentation of Segment EBITDA includes a Corporate component rather than the Other component previously disclosed. Corporate is primarily corporate, general and administrative expenses that are not allocated to the operating segments, such as certain shared service and administrative functions. The presentation of Segment EBITDA for the three months ended March 31, 2014 was retrospectively revised to conform with current presentation.
Net Sales(1):
 
Three Months Ended March 31,
 
Successor
 
 
Predecessor
 
2015
 
 
2014
Silicones
$
532

 
 
$
557

Quartz
47

 
 
48

Total
$
579

 
 
$
605

(1)
Inter-segment sales are not significant and, as such, are eliminated within the selling segment.
Segment EBITDA:
 
Three Months Ended March 31,
 
Successor
 
 
Predecessor
 
2015
 
 
2014
Silicones
$
52

 
 
$
58

Quartz
11

 
 
7

Corporate
(10
)
 
 
(10
)
Total
$
53

 
 
$
55


14


Reconciliation of Segment EBITDA to Net Loss:
 
Three Months Ended March 31,
 
Successor
 
 
Predecessor
 
2015
 
 
2014
Segment EBITDA:
 
 
 
 
Silicones
$
52

 
 
$
58

Quartz
11

 
 
7

Corporate
(10
)
 
 
(10
)
Total
$
53

 
 
$
55

 
 
 
 
 
Reconciliation:
 
 
 
 
Items not included in Segment EBITDA:
 
 
 
 
Non-cash charges
$
(4
)
 
 
$
18

Restructuring and other costs
(4
)
 
 
(4
)
Reorganization items, net
(5
)

 

Total adjustments
(13
)
 
 
14

Interest expense, net
(19
)
 
 
(76
)
Income tax expense
(10
)
 
 
(8
)
Depreciation and amortization
(37
)
 
 
(41
)
Net loss
$
(26
)
 
 
$
(56
)
 Items Not Included in Segment EBITDA
Not included in Segment EBITDA are certain non-cash items and other income and expenses. For both the three months ended March 31, 2015 and March 31, 2014, non-cash charges primarily included net unrealized foreign exchange transaction gains and losses related to certain intercompany arrangements. Restructuring and other costs primarily included expenses from restructuring and costs optimization programs. For the three months ended March 31, 2015, these amounts also included certain other operating charges. For the three months ended March 31, 2014, these amounts also included costs associated with restructuring our capital structure incurred prior to the Bankruptcy Filing, which were partially offset by a gain related to a claim settlement. For the three months ended March 31, 2015, reorganization items, net included professional fees and rating fees for the new debt issued on the Emergence Date.
11. Changes in Other Comprehensive (Loss) Income
Following is a summary of changes in “Accumulated other comprehensive (loss) income” for the three months ended March 31, 2015 and 2014:
 
Three Months Ended March 31,
 
Successor
 
 
Predecessor
 
2015
 
 
2014
 
Defined Benefit Pension and Postretirement Plans
 
Foreign Currency Translation Adjustments
 
Total
 
 
Defined Benefit Pension and Postretirement Plans
 
Foreign Currency Translation Adjustments
 
Total
Beginning balance
$
1

 
$
(29
)
 
$
(28
)
 
 
$
(37
)
 
$
239

 
$
202

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

 
(43
)
 
(43
)
 
 
1

 
(15
)
 
(14
)
Amounts reclassified from Accumulated other comprehensive (loss) income, net of tax

 

 

 
 

 

 

Net other comprehensive (loss) income

 
(43
)
 
(43
)
 
 
1

 
(15
)
 
(14
)
Ending balance
$
1

 
$
(72
)
 
$
(71
)
 
 
$
(36
)
 
$
224

 
$
188

There were no reclassifications from “Accumulated other comprehensive (loss) income” for either the three months ended March 31, 2015 or March 31, 2014.

15


12. Income Taxes
The effective tax rate was (59)% and (17)% for the three months ended March 31, 2015 and 2014, respectively. 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. Economic pressure and volatility within certain foreign jurisdictions, including Germany and Japan, were largely responsible for the change in distribution of income between 2014 and 2015. 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 months ended March 31, 2015, income taxes included unfavorable discrete tax adjustments of $3 pertaining to a change in tax law in Japan and the resolution of certain tax matters in non-U.S. jurisdictions. For the three months ended March 31, 2014, income taxes included unfavorable discrete tax adjustments of $8 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.
The Company is recognizing the earnings of non-U.S. operations currently in its U.S. consolidated income tax return as of March 31, 2015, and is expecting that all earnings, with the exception of Germany and Japan, 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.
13. Guarantor/Non-Guarantor Subsidiary Financial Information
As of March 31, 2015, the Company had outstanding $1,100 in aggregate principal amount of 3.88% First-Priority Senior Secured Notes due 2021 (the “First Lien Notes”) and $250 in aggregate principal amount of 4.69% Second-Priority Senior Secured Notes due 2022 (the “Second Lien Notes”). The notes are fully and unconditionally guaranteed on a senior secured basis by each of the Company’s existing U.S. subsidiaries that is a guarantor under the Company’s ABL Facility and the Company’s future U.S. subsidiaries (other than receivables subsidiaries and U.S. subsidiaries of foreign subsidiaries) that guarantee any debt of the Company or any of the guarantor subsidiaries of the Company under the related indenture (the “Note Guarantors”). The following condensed consolidated financial information presents the Condensed Consolidated Balance Sheets as of March 31, 2015 and December 31, 2014, the Condensed Consolidated Statements of Operations for the three months ended March 31, 2015 and 2014 and the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and 2014 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 ABL Facility is 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. The indentures governing the First Lien Notes and the Second Lien Notes contain covenants that, among other things, limit the Company’s ability and the ability of certain of the Company’s subsidiaries to (i) incur or guarantee additional indebtedness or issue preferred stock; (ii) grant liens on assets; (iii) pay dividends or make distributions to the Company’s stockholders; (iv) repurchase or redeem capital stock or subordinated indebtedness; (v) make investments or acquisitions; (vi) enter into sale/leaseback transactions; (vii) incur restrictions on the ability of the Company’s subsidiaries to pay dividends or to make other payments to us; (viii) enter into transactions with the Company’s affiliates; (ix) merge or consolidate with other companies or transfer all or substantially all of the Company’s assets; and (x) transfer or sell assets.

16


MOMENTIVE PERFORMANCE MATERIALS INC.
MARCH 31, 2015
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 $4, respectively)
$
20

 
$
4

 
$
166

 
$

 
$
190

Accounts receivable

 
101

 
238

 

 
339

Due from affiliates

 
74

 
27

 
(101
)
 

Inventories:


 


 


 


 


Raw materials

 
71

 
69

 

 
140

Finished and in-process goods

 
127

 
153

 

 
280

Deferred income taxes

 

 
35

 

 
35

Other current assets

 
20

 
33

 

 
53

Total current assets
20

 
397

 
721

 
(101
)
 
1,037

Investment in unconsolidated entities
1,801

 
171

 
19

 
(1,972
)
 
19

Deferred income taxes

 

 
12

 

 
12

Other long-term assets

 
10

 
19

 

 
29

Intercompany loans receivable
93

 
1,263

 
122

 
(1,478
)
 

Property and equipment, net

 
525

 
592

 

 
1,117

Goodwill

 
105

 
111

 

 
216

Other intangible assets, net

 
160

 
227

 

 
387

Total assets
$
1,914

 
$
2,631

 
$
1,823

 
$
(3,551
)
 
$
2,817

Liabilities and Equity
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$
71

 
$
148

 
$

 
$
219

Due to affiliates

 
27

 
74

 
(101
)
 

Debt payable within one year
2

 

 
34

 

 
36

Interest payable
24

 

 

 

 
24

Income taxes payable

 

 
8

 

 
8

Deferred income taxes

 

 
16

 

 
16

Accrued payroll and incentive compensation

 
40

 
26

 

 
66

Other current liabilities

 
29

 
46

 

 
75

Total current liabilities
26

 
167

 
352

 
(101
)
 
444

Long-term liabilities:
 
 
 
 
 
 
 
 
 
Long-term debt
1,169

 

 

 

 
1,169

Intercompany loans payable
19

 
455

 
1,004

 
(1,478
)
 

Pension liabilities

 
194

 
148

 

 
342

Deferred income taxes

 

 
104

 

 
104

Other long-term liabilities

 
14

 
44

 

 
58

Total liabilities
1,214

 
830

 
1,652

 
(1,579
)
 
2,117

Total equity
700

 
1,801

 
171

 
(1,972
)
 
700

Total liabilities and equity
$
1,914

 
$
2,631

 
$
1,823

 
$
(3,551
)
 
$
2,817


17


MOMENTIVE PERFORMANCE MATERIALS INC.
DECEMBER 31, 2014
CONDENSED CONSOLIDATING BALANCE SHEET

 
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)
$
78

 
$
10

 
$
140

 
$

 
$
228

Accounts receivable

 
92

 
232

 

 
324

Due from affiliates

 
73

 
25

 
(98
)
 

Inventories:


 


 


 


 


Raw materials

 
65

 
79

 

 
144

Finished and in-process goods

 
123

 
135

 

 
258

Deferred income taxes

 
28

 
5

 

 
33

Other current assets

 
26

 
34

 

 
60

Total current assets
78

 
417

 
650

 
(98
)
 
1,047

Investment in unconsolidated entities
1,852

 

 
18

 
(1,852
)
 
18

Deferred income taxes

 

 
14

 

 
14

Other long-term assets

 
10

 
17

 

 
27

Intercompany loans receivable
92

 
1,766

 
52

 
(1,910
)
 

Property and equipment, net

 
528

 
624

 

 
1,152

Goodwill

 
104

 
114

 

 
218

Other intangible assets, net

 
163

 
245

 

 
408

Total assets
$
2,022

 
$
2,988

 
$
1,734

 
$
(3,860
)
 
$
2,884

Liabilities and Equity (Deficit)
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
9

 
$
80

 
$
134

 
$

 
$
223

Due to affiliates

 
26

 
72

 
(98
)
 

Debt payable within one year
4

 

 
34

 

 
38

Interest payable
11

 

 

 

 
11

Income taxes payable

 

 
7

 

 
7

Deferred income taxes

 

 
18

 

 
18

Accrued payroll and incentive compensation

 
35

 
22

 

 
57

Other current liabilities
1

 
28

 
53

 

 
82

Total current liabilities
25

 
169

 
340

 
(98
)
 
436

Long-term liabilities:
 
 
 
 
 
 
 
 
 
Long-term debt
1,163

 

 

 

 
1,163

Intercompany loans payable
63

 
475

 
1,372

 
(1,910
)
 

Accumulated losses from unconsolidated subsidiaries in excess of investment

 
258

 

 
(258
)
 

Pension liabilities

 
191

 
161

 

 
352

Deferred income taxes

 
28

 
70

 

 
98

Other long-term liabilities
2

 
15

 
49

 

 
66

Total liabilities
1,253

 
1,136

 
1,992

 
(2,266
)
 
2,115

Total equity (deficit)
769

 
1,852

 
(258
)
 
(1,594
)
 
769

Total liabilities and equity (deficit)
$
2,022

 
$
2,988

 
$
1,734

 
$
(3,860
)
 
$
2,884



18


MOMENTIVE PERFORMANCE MATERIALS INC. (SUCCESSOR)
THREE MONTHS ENDED MARCH 31, 2015
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

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

 
$
275

 
$
449

 
$
(145
)
 
$
579

Cost of sales

 
240

 
384

 
(145
)
 
479

Gross profit

 
35

 
65

 

 
100

Selling, general and administrative expense

 
44

 
30

 

 
74

Research and development expense

 
11

 
7

 

 
18

Restructuring and other costs

 
4

 

 

 
4

Other operating income, net
(2
)
 
(2
)
 
(3
)
 

 
(7
)
Operating income (loss)
2

 
(22
)
 
31

 

 
11

Interest expense (income), net
19

 
(19
)
 
19

 

 
19

Other non-operating expense (income), net

 
6

 
(2
)
 

 
4

Reorganization items, net

 
5

 

 

 
5

(Loss) income before income taxes and (losses) earnings from unconsolidated entities
(17
)
 
(14
)
 
14

 

 
(17
)
Income tax expense

 

 
10

 

 
10

(Loss) income before (losses) earnings from unconsolidated entities
(17
)
 
(14
)
 
4

 

 
(27
)
(Losses) earnings from unconsolidated entities, net of taxes
(9
)
 
5

 
1

 
4

 
1

Net (loss) income
$
(26
)
 
$
(9
)
 
$
5

 
$
4

 
$
(26
)
Comprehensive (loss) income
$
(69
)
 
$
(51
)
 
$
9

 
$
42

 
$
(69
)

19


MOMENTIVE PERFORMANCE MATERIALS INC. (PREDECESSOR)
THREE MONTHS ENDED MARCH 31, 2014
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

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

 
$
265

 
$
481

 
$
(141
)
 
$
605

Costs and expenses:
 
 
 
 
 
 
 
 
 
Cost of sales, excluding depreciation and amortization

 
190

 
385

 
(141
)
 
434

Selling, general and administrative expense
8

 
43

 
28

 

 
79

Depreciation and amortization expense

 
17

 
24

 

 
41

Research and development expense

 
12

 
8

 

 
20

Restructuring and other costs
1

 
1

 
2

 

 
4

Operating (loss) income
(9
)
 
2

 
34

 

 
27

Interest expense (income), net
73

 
(39
)
 
42

 

 
76

(Loss) income before income taxes and earnings (losses) from unconsolidated entities
(82
)
 
41

 
(8
)
 

 
(49
)
Income tax expense

 
2

 
6

 

 
8

(Loss) income before earnings (losses) from unconsolidated entities
(82
)
 
39

 
(14
)
 

 
(57
)
Earnings (losses) from unconsolidated entities, net of taxes
26

 
(13
)
 
1

 
(13
)
 
1

Net (loss) income
$
(56
)
 
$
26

 
$
(13
)
 
$
(13
)
 
$
(56
)
Comprehensive (loss) income
$
(70
)
 
$
11

 
$
(28
)
 
$
17

 
$
(70
)

20


MOMENTIVE PERFORMANCE MATERIALS INC. (SUCCESSOR)
THREE MONTHS ENDED MARCH 31, 2015
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)

 
Parent
 
Combined Guarantor
Subsidiaries
 
Combined Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Cash flows (used in) provided by operating activities
$
(56
)
 
$
8

 
$
45

 
$

 
$
(3
)
Cash flows used in investing activities:
 
 
 
 
 
 
 
 
 
Capital expenditures

 
(11
)
 
(16
)
 

 
(27
)
Purchases of intangible assets

 
(1
)
 

 

 
(1
)
Return of capital from subsidiary from sales of accounts receivable

 
11

(a)

 
(11
)
 

 

 
(1
)
 
(16
)
 
(11
)
 
(28
)
Cash flows used in financing activities:
 
 
 
 
 
 
 
 
 
Net short-term debt repayments
(2
)
 

 

 

 
(2
)
Net intercompany loan (repayments) borrowings

 
(12
)
 
12

 

 

Return of capital to parent from sales of accounts receivable

 

 
(11
)
(a)
11

 

 
(2
)
 
(12
)
 
1

 
11

 
(2
)
(Decrease) increase in cash and cash equivalents
(58
)
 
(5
)
 
30

 

 
(33
)
Effect of exchange rate changes on cash and cash equivalents

 

 
(4
)
 

 
(4
)
Cash and cash equivalents (unrestricted), beginning of period
78

 
9

 
136

 

 
223

Cash and cash equivalents (unrestricted), end of period
$
20

 
$
4

 
$
162

 
$

 
$
186

Supplemental disclosures of cash flow information
 
 
 
 
 
 
 
 
 
Non-cash financing activity:
 
 
 
 
 
 
 
 
 
Intercompany loan capitalization
$

 
$
(420
)
 
$
420

 
$

 
$


(a)
During the three months ended March 31, 2015, Momentive Performance Materials USA LLC contributed receivables of $11 to a non-guarantor subsidiary as capital contributions, resulting in a non-cash transaction. During the three months ended March 31, 2015, the non-guarantor subsidiary sold the contributed receivables to certain banks under various supplier financing agreements. The cash proceeds were returned to Momentive Performance Materials USA LLC by the non-guarantor subsidiary as a return of capital. The sale of receivables has been included within cash flows from operating activities on the Combined non-guarantor subsidiaries. The return of the cash proceeds from the sale of receivables has been included as a financing outflow and an investing inflow on the Combined Non-Guarantor Subsidiaries and the Combined Guarantor Subsidiaries, respectively.

21


MOMENTIVE PERFORMANCE MATERIALS INC. (PREDECESSOR)
THREE MONTHS ENDED MARCH 31, 2014
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)

 
Parent
 
Combined Guarantor
Subsidiaries
 
Combined Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Cash flows (used in) provided by operating activities
$
(18
)
 
$
(116
)
 
$
66

 
$

 
$
(68
)
Cash flows provided by (used in) investing activities:
 
 
 
 
 
 
 
 
 
Capital expenditures

 
(12
)
 
(15
)
 

 
(27
)
Return of capital from subsidiary from sales of accounts receivable

 
15

(a)

 
(15
)
 

 

 
3

 
(15
)
 
(15
)
 
(27
)
Cash flows provided by (used in) financing activities:
 
 
 
 
 
 
 
 
 
Net short-term debt borrowings

 

 
4

 

 
4

Borrowings of long-term debt

 
35

 
70

 

 
105

Net intercompany loan borrowings (repayments)
32

 
76

 
(108
)
 

 

Borrowings from parent

 
9

 

 

 
9

Return of capital to parent from sales of accounts receivable

 

 
(15
)
(a)
15

 

 
32

 
120

 
(49
)
 
15

 
118

Increase in cash and cash equivalents
14

 
7

 
2

 

 
23

Effect of exchange rate changes on cash and cash equivalents

 

 
(1
)
 

 
(1
)
Cash and cash equivalents (unrestricted), beginning of period
2