Momentive Performance Materials Inc. - FORM 10-Q - August 14, 2015

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EX-32.1 - SECTION 906 CEO AND CFO CERTIFICATION MPM HOLDINGS INC - Momentive Performance Materials Inc.exhibit321q215.htm
EX-31.1 - EX-31.1(B) - Momentive Performance Materials Inc.exhibit311bq215.htm
EX-31.2 - EX-31.2(A) - Momentive Performance Materials Inc.exhibit312aq215.htm
EX-31.2 - EX-31.2(B) - Momentive Performance Materials Inc.exhibit312bq215.htm
EX-31.1 - EX-31.1(A) - Momentive Performance Materials Inc.exhibit311aq215.htm
XML - IDEA: XBRL DOCUMENT - Momentive Performance Materials Inc.R9999.htm
EX-10.1 - EMPLOYMENT LETTER - Momentive Performance Materials Inc.employmentletter.htm
EX-32.2 - SECTION 906 CEO AND CFO CERTIFICATION MPM INC - Momentive Performance Materials Inc.exhibit322q215.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, 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             
 
 
MPM HOLDINGS INC.
(Exact name of registrant as specified in its charter)
Commission File Number 333-201338
 
 
Delaware
 
47-1756080
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
MOMENTIVE PERFORMANCE MATERIALS INC.
(Exact name of registrant as specified in its charter)
Commission File Number 333-146093 
 
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) 233-3330
(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.    
MPM Holdings Inc.                Yes  x    No  o
Momentive Performance Materials Inc.    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).    
MPM Holdings Inc.                Yes  x    No  o
Momentive Performance Materials Inc.    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):
MPM Holdings Inc.
Large accelerated filer
o
  
Accelerated filer
o
 
 
 
 
 
Non-accelerated filer
x
  
Smaller Reporting Company
o
Momentive Performance Materials Inc.
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).    
MPM Holdings Inc.                Yes  o    No  x
Momentive Performance Materials Inc.    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.    
MPM Holdings Inc.                Yes  x    No  o
Momentive Performance Materials Inc.    Yes  x    No  o
The number of shares of common stock of MPM Holdings Inc., par value $0.01 per share, outstanding as of the close of business on August 7, 2015, was 48,028,594 shares.
The number of shares of common stock of Momentive Performance Materials Inc., par value $0.01 per share, outstanding as of the close of business on August 7, 2015, was 48 shares, all of which were held by MPM Intermediate Holdings Inc.
This Form 10-Q is a combined quarterly report being filed separately by two registrants: MPM Holdings Inc. and Momentive Performance Materials Inc.


MPM HOLDINGS INC. AND MOMENTIVE PERFORMANCE MATERIALS INC.

INDEX

 
 
Page
Part I —
FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements (Unaudited)
 
 
Condensed Consolidated Balance Sheets at June 30, 2015 and December 31, 2014
 
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2015 (successor) and 2014 (predecessor)
 
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2015 (successor) and 2014 (predecessor)
 
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 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.


3

Part I — FINANCIAL INFORMATION
Item 1.
Financial Statements (Unaudited)

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

 
MPM HOLDINGS INC.
 
MOMENTIVE PERFORMANCE MATERIALS INC.
(In millions, except share data)
June 30, 2015
 
December 31, 2014
 
June 30, 2015
 
December 31, 2014
Assets
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
Cash and cash equivalents (including restricted cash of $4, $5, $4, and $5 respectively)
$
173

 
$
228

 
$
172

 
$
228

Accounts receivable (net of allowance for doubtful accounts of less than $1)
338

 
324

 
338

 
324

Inventories:
 
 
 
 
 
 
 
Raw materials
157

 
144

 
157

 
144

Finished and in-process goods
277

 
258

 
277

 
258

Deferred income taxes
33

 
33

 
33

 
33

Other current assets
55

 
60

 
55

 
60

Total current assets
1,033

 
1,047

 
1,032

 
1,047

Investment in unconsolidated entities
19

 
18

 
19

 
18

Deferred income taxes
13

 
14

 
13

 
14

Other long-term assets
23

 
27

 
23

 
27

Property, plant and equipment:
 
 
 
 
 
 
 
Land
73

 
75

 
73

 
75

Buildings
292

 
295

 
292

 
295

Machinery and equipment
825

 
799

 
825

 
799

 
1,190

 
1,169

 
1,190

 
1,169

Less accumulated depreciation
(76
)
 
(17
)
 
(76
)
 
(17
)
 
1,114

 
1,152

 
1,114

 
1,152

Goodwill
216

 
218

 
216

 
218

Other intangible assets, net
381

 
408

 
381

 
408

Total assets
$
2,799

 
$
2,884

 
$
2,798

 
$
2,884

Liabilities and Equity
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
Accounts payable
$
221

 
$
223

 
$
221

 
$
223

Debt payable within one year
37

 
38

 
37

 
38

Interest payable
12

 
11

 
12

 
11

Income taxes payable
4

 
7

 
4

 
7

Deferred income taxes
16

 
18

 
16

 
18

Accrued payroll and incentive compensation
46

 
57

 
46

 
57

Other current liabilities
77

 
82

 
77

 
82

Total current liabilities
413

 
436

 
413

 
436

Long-term liabilities:
 
 
 
 
 
 
 
Long-term debt
1,174

 
1,163

 
1,174

 
1,163

Pension and postretirement benefit liabilities
339

 
352

 
339

 
352

Deferred income taxes
100

 
98

 
100

 
98

Other long-term liabilities
55

 
66

 
55

 
66

Total liabilities
2,081

 
2,115

 
2,081

 
2,115

Commitments and contingencies (See Note 7)
 
 
 
 
 
 
 
Equity
 
 
 
 
 
 
 
Common stock - $0.01 par value; 70,000,000 shares authorized; 48,028,594 and 47,989,000 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively
—

 
—

 


 


Common stock - $0.01 par value; 100 shares authorized; 48 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively
 
 
 
 
—

 
—

Additional paid-in capital
859

 
857

 
858

 
857

Accumulated other comprehensive loss
(67
)
 
(28
)
 
(67
)
 
(28
)
Accumulated deficit
(74
)
 
(60
)
 
(74
)
 
(60
)
Total equity
718

 
769

 
717

 
769

Total liabilities and equity
$
2,799

 
$
2,884

 
$
2,798

 
$
2,884

See Notes to Condensed Consolidated Financial Statements

4

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

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2015
 
 
2014
 
2015
 
 
2014
(In millions, except share data)
 
Successor
 
 
Predecessor
 
Successor
 
 
Predecessor
Net sales
 
$
602

 
 
$
637

 
$
1,181

 
 
$
1,242

Cost of sales
 
490

 
 
 
 
969

 
 
 
Gross profit
 
112

 
 
 
 
212

 
 
 
Cost of sales, excluding depreciation and amortization
 


 
 
460

 


 
 
894

Selling, general and administrative expense
 
60

 
 
89

 
134

 
 
168

Depreciation and amortization expense
 


 
 
42

 


 
 
83

Research and development expense
 
18

 
 
19

 
36

 
 
39

Restructuring and other costs
 
5

 
 
10

 
9

 
 
14

Other operating expense (income), net
 
2

 
 
—

 
(5
)
 
 
—

Operating income
 
27

 
 
17

 
38

 
 
44

Interest expense, net
 
20

 
 
41

 
39

 
 
117

Other non-operating (income) expense, net
 
(2
)
 
 
—

 
2

 
 
—

Reorganization items, net
 
2

 
 
70

 
7

 
 
70

Income (loss) before income taxes and earnings from unconsolidated entities
 
7

 
 
(94
)
 
(10
)
 
 
(143
)
Income tax (benefit) expense
 
(5
)
 
 
13

 
5

 
 
21

Income (loss) before earnings from unconsolidated entities
 
12

 
 
(107
)
 
(15
)
 
 
(164
)
Earnings from unconsolidated entities, net of taxes
 
—

 
 
1

 
1

 
 
2

Net income (loss)
 
$
12

 
 
$
(106
)
 
$
(14
)
 
 
$
(162
)
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) per share:
 
 
 
 
 
 
 
 
 
 
Net income (loss) per common share—basic
 
$
0.25

 
 
$
(1,060,000
)
 
$
(0.29
)
 
 
$
(1,620,000
)
Net income (loss) per common share—diluted
 
$
0.25

 
 
$
(1,060,000
)
 
$
(0.29
)
 
 
$
(1,620,000
)
Shares used in per-share calculation
 
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding—basic
 
48,015,976

 
 
100

 
48,002,563

 
 
100

Weighted average common shares outstanding—diluted
 
48,084,004

 
 
100

 
48,002,563

 
 
100


See Notes to Condensed Consolidated Financial Statements

5

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

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2015
 
 
2014
 
2015
 
 
2014
 (In millions)
 
Successor
 
 
Predecessor
 
Successor
 
 
Predecessor
Net sales
 
$
602

 
 
$
637

 
$
1,181

 
 
$
1,242

Cost of sales
 
490

 
 
 
 
969

 
 
 
Gross profit
 
112

 
 
 
 
212

 
 
 
Cost of sales, excluding depreciation and amortization
 
 
 
 
460

 
 
 
 
894

Selling, general and administrative expense
 
60

 
 
89

 
134

 
 
168

Depreciation and amortization expense
 
 
 
 
42

 
 
 
 
83

Research and development expense
 
18

 
 
19

 
36

 
 
39

Restructuring and other costs
 
5

 
 
10

 
9

 
 
14

Other operating expense (income), net
 
2

 
 
—

 
(5
)
 
 
—

Operating income
 
27

 
 
17

 
38

 
 
44

Interest expense, net
 
20

 
 
41

 
39

 
 
117

Other non-operating expense, net
 
(2
)
 
 
—

 
2

 
 
—

Reorganization items, net
 
2

 
 
70

 
7

 
 
70

Income (loss) before income taxes and earnings from unconsolidated entities
 
7

 
 
(94
)
 
(10
)
 
 
(143
)
Income tax (benefit) expense
 
(5
)
 
 
13

 
5

 
 
21

Income (loss) before earnings from unconsolidated entities
 
12

 
 
(107
)
 
(15
)
 
 
(164
)
Earnings from unconsolidated entities, net of taxes
 
—

 
 
1

 
1

 
 
2

Net income (loss)
 
$
12

 
 
$
(106
)
 
$
(14
)
 
 
$
(162
)

See Notes to Condensed Consolidated Financial Statements


6

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)

 
MPM HOLDINGS INC.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
 
2014
 
2015
 
 
2014
(In millions)
Successor
 
 
Predecessor
 
Successor
 
 
Predecessor
Net income (loss)
$
12

 
 
$
(106
)
 
$
(14
)
 
 
$
(162
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
 
Foreign currency translation
6

 
 
1

 
(37
)
 
 
(14
)
(Loss) gain recognized from pension and postretirement benefits
(2
)
 
 
—

 
(2
)
 
 
1

Other comprehensive income (loss)
4

 
 
1

 
(39
)
 
 
(13
)
Comprehensive income (loss)
$
16

 
 
$
(105
)
 
$
(53
)
 
 
$
(175
)

 
MOMENTIVE PERFORMANCE MATERIALS INC.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
 
2014
 
2015
 
 
2014
(In millions)
Successor
 
 
Predecessor
 
Successor
 
 
Predecessor
Net income (loss)
$
12

 
 
$
(106
)
 
$
(14
)
 
 
$
(162
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
 
Foreign currency translation
6

 
 
1

 
(37
)
 
 
(14
)
(Loss) gain recognized from pension and postretirement benefits
(2
)
 
 
—

 
(2
)
 
 
1

Other comprehensive income (loss)
4

 
 
1

 
(39
)
 
 
(13
)
Comprehensive income (loss)
$
16

 
 
$
(105
)
 
$
(53
)
 
 
$
(175
)
See Notes to Condensed Consolidated Financial Statements

7

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
MPM HOLDINGS INC.
 
MOMENTIVE PERFORMANCE MATERIALS INC.
 
Six Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
 
2014
 
2015
 
 
2014
(In millions)
Successor
 
 
Predecessor
 
Successor
 
 
Predecessor
Cash flows provided by (used in) operating activities
 
 
 
 
 
 
 
 
 
Net loss
$
(14
)
 
 
$
(162
)
 
$
(14
)
 
 
$
(162
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 
 
 
 
 
 
 
 
 
Depreciation and amortization
76

 
 
83

 
76

 
 
83

Non-cash reorganization items
—

 
 
49

 
—

 
 
49

Unrealized actuarial gains from pension liabilities
(10
)
 
 
—

 
(10
)
 
 
—

Pension curtailment gain
(3
)
 
 
—

 
(3
)
 
 
—

Deferred income tax expense
2

 
 
13

 
2

 
 
13

Unrealized foreign currency gains
(2
)
 
 
(27
)
 
(2
)
 
 
(27
)
Amortization of debt discount
11

 
 
—

 
11

 
 
—

DIP Facility financing fees included in net loss
—

 
 
19

 
—

 
 
19

Other non-cash adjustments
1

 
 
(1
)
 
1

 
 
(1
)
Net change in assets and liabilities:
 
 
 
 
 
 
 
 
 
Accounts receivable
(23
)
 
 
(43
)
 
(23
)
 
 
(43
)
Inventories
(44
)
 
 
(45
)
 
(44
)
 
 
(45
)
Accounts payable
18

 
 
36

 
18

 
 
36

Due to/from affiliates
(5
)
 
 
9

 
(5
)
 
 
9

Income taxes payable
(8
)
 
 
4

 
(8
)
 
 
4

Other assets, current and non-current
9

 
 
(12
)
 
9

 
 
(12
)
Other liabilities, current and non-current
—

 
 
(33
)
 
—

 
 
(33
)
Net cash provided by (used in) operating activities
8

 
 
(110
)
 
8

 
 
(110
)
Cash flows (used in) provided by investing activities
 
 
 
 
 
 
 
 
 
Capital expenditures
(54
)
 
 
(48
)
 
(54
)
 
 
(48
)
Capitalized interest
(1
)
 
 
—

 
(1
)
 
 
—

Purchases of intangible assets
(2
)
 
 
(1
)
 
(2
)
 
 
(1
)
Consolidation of variable interest entity
—

 
 
50

 
—

 
 
50

Proceeds from sale of business
—

 
 
12

 
—

 
 
12

Proceeds from sale of assets
—

 
 
1

 
—

 
 
1

Net cash (used in) provided by investing activities
(57
)
 
 
14

 
(57
)
 
 
14

Cash flows provided by (used in) financing activities
 
 
 
 
 
 
 
 
 
Proceeds from sale of common stock
1

 
 
—

 
—

 
 
—

Net short-term debt (repayments) borrowings
(1
)
 
 
303

 
(1
)
 
 
303

Borrowings of long-term debt
—

 
 
105

 
—

 
 
105

Repayments of long-term debt
—

 
 
(220
)
 
—

 
 
(220
)
Repayment of affiliated debt
—

 
 
(50
)
 
—

 
 
(50
)
DIP Facility financing fees
—

 
 
(19
)
 
—

 
 
(19
)
Net cash provided by (used in) financing activities
—


 
119

 
(1
)
 
 
119

(Decrease) increase in cash and cash equivalents
(49
)
 
 
23

 
(50
)
 
 
23

Effect of exchange rate changes on cash and cash equivalents
(5
)

 
—

 
(5
)
 
 
—

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

 
 
89

 
223

 
 
89

Cash and cash equivalents (unrestricted), end of period
$
169

 
 
$
112

 
$
168

 
 
$
112

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

 
 
$
131

 
$
28

 
 
$
131

Income taxes, net of refunds
8

 
 
5

 
8

 
 
5

Non-cash investing activity:
 
 
 
 
 
 
 
 
 
Capital expenditures included in accounts payable
$
10

 
 
$
9

 
$
10

 
 
$
9


See Notes to Condensed Consolidated Financial Statements

8

CONDENSED CONSOLIDATED STATEMENT OF EQUITY (Unaudited)

MPM HOLDINGS INC.
 
 
 
 
 
 
 
 
 
 
(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
 
—

 
—

 
—

 
(14
)
 
(14
)
Other comprehensive loss
 
—

 
—

 
(39
)
 
—

 
(39
)
Stock-based compensation expense
 
—

 
1

 
—

 
—

 
1

Proceeds from sale of common stock
 
—

 
1

 
—

 
—

 
1

Balance as of June 30, 2015
 
$
—

 
$
859

 
$
(67
)
 
$
(74
)
 
$
718


MOMENTIVE PERFORMANCE MATERIALS INC.
 
 
 
 
 
 
 
 
 
 
(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
 
—

 
—

 
—

 
(14
)
 
(14
)
Other comprehensive loss
 
—

 
—

 
(39
)
 
—

 
(39
)
Capital contribution from parent
 
—

 
1

 
—

 
—

 
1

Balance as of June 30, 2015
 
$
—

 
$
858

 
$
(67
)
 
$
(74
)
 
$
717


See Notes to Condensed Consolidated Financial Statements

9

MPM HOLDINGS INC. AND MOMENTIVE PERFORMANCE MATERIALS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In millions, except share data)
1. Business and Basis of Presentation
MPM Holdings Inc. (“Momentive”) is a holding company that conducts substantially all of its business through its subsidiaries. Momentive’s wholly owned subsidiary, MPM Intermediate Holdings Inc. (“Intermediate Holdings”), is a holding company for its wholly owned subsidiary, Momentive Performance Materials Inc. (“MPM”) and its subsidiaries. Momentive, Intermediate Holdings and MPM are collectively referred to herein as the “Company.” Momentive became the indirect parent company of MPM in accordance with MPM’s plan of reorganization (the “Plan”) pursuant to MPM’s emergence from Chapter 11 bankruptcy on October 24, 2014 (the “Effective Date” or the “Emergence Date”). Prior to its reorganization, MPM, through a series of intermediate holding companies, was controlled by investment funds managed by affiliates of Apollo Management Holdings, L.P. (together with Apollo Global Management, LLC and subsidiaries, “Apollo”). Unless otherwise noted, references to “we,” “us,” “our” or the “Company” refer collectively to Momentive and MPM and their subsidiaries, and, unless otherwise noted, the information provided pertains to both Momentive and MPM. Differences between the financial results of Momentive and MPM represent certain management expenses of and cash received by Momentive and therefore are not consolidated within the results of MPM.
Based in Waterford, New York, the Company is comprised of two reportable segments: Silicones and Quartz. Silicones is a global business engaged in the manufacture, sale and distribution of silicones, silicone derivatives and organofunctional silanes. 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. (MPM’s direct parent prior to October 24, 2014) (“Old MPM Holdings”), MPM 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).
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 for the comparable prior periods, variable interest entities (“VIEs”) in which the Company was 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 financial statements and notes thereto for the year ended December 31, 2014 included in Momentive’s registration statement on Form S-1 (Registration No. 333-201388) filed December 31, 2014 and amendments thereto (“Form S-1”), which became effective on July 2, 2015, and the audited Consolidated Financial Statements and the accompanying notes included in MPM and its subsidiaries’ 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. Management’s estimates and assumptions are evaluated on an ongoing basis and are based on historical experience, current conditions and available information. Actual results could differ from these estimates.
Subsequent Events—The Company has evaluated subsequent events and transactions through the date these unaudited Condensed Consolidated Financial Statements were issued.

10

Net Income (Loss) Per Share—Momentive calculates earnings per share as the ratio of net income (loss) to weighted average basic and diluted common shares outstanding. For the predecessor period from January 1, 2014 through June 30, 2014 there were no potentially issuable common shares; therefore, basic and diluted weighted average shares outstanding were the same.
Stock-Based Compensation—The Company measures and recognizes the compensation expense for all share-based awards made to employees based on estimated fair values, in accordance with ASC 718, Compensation – Stock Compensation. As described in Note 8, the Company adopted a new management equity plan on March 12, 2015. The fair value of stock options granted is calculated using a Monte Carlo option-pricing model on the date of the grant, and the fair value of Restricted Stock Units are valued using the fair market value of the Company’s common stock on the date of grant. Compensation expense is recognized net of estimated forfeitures over the employee’s requisite service period (generally the vesting period of the equity grant). See Note 8 for additional detail regarding stock-based compensation.
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 revised effective date for ASU 2014-09 is for annual and interim periods beginning on or after December 15, 2017, and early adoption from the calendar year 2017 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.
In July 2015, the FASB issued Accounting Standards Board Update No. 2015-11: Inventory (Topic 330) - Simplifying the Measurement of Inventory (“ASU 2015-11”). ASU 2015-11 has changed the measurement requirement of inventory within the scope of this guidance from lower of cost or market to the lower of cost and net realizable value. The guidance is also defining net realizable value as: the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The guidance is effective for annual periods beginning after December 15, 2016, including interim periods within that reporting period and amendments to be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently assessing the potential impact of ASU 2015-11 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 and six months ended June 30, 2015, “Reorganization items, net” primarily included professional fees and rating fees for the new first and second lien notes issued on the Emergence Date.


11


4. Related Party Transactions
Transactions with Hexion
Shared Services Agreement

In October 2010, the Company entered into a shared services agreement with Hexion Inc. (“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.
Pursuant to the Shared Services Agreement, during the six months ended June 30, 2015 and 2014, the Company incurred approximately $37 and $51, respectively, of net costs for shared services and Hexion incurred approximately $45 and $67, respectively, of net costs for shared services. Included in the net costs incurred during the six months ended June 30, 2015 and 2014, were net billings from Hexion to the Company of $24 and $20, 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 $4 and $9 at June 30, 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 the three months ended June 30, 2015 and 2014, the Company sold less than $1 and $2, respectively, of products to Hexion and purchased less than $1. During the six months ended June 30, 2015 and 2014, the Company sold $2 and $4, respectively, of products to Hexion and purchased less than $1. As of June 30, 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, among others, to support the operation of this new facility. The Company received less than $1 from Hexion under this agreement during both the three and six months ended June 30, 2015 and 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 and six months ended June 30, 2015, the Company sold approximately $7 and $14, respectively, of products to Hexion under this distribution agreement, and paid less than $1 to Hexion as compensation for acting as distributor of the products. During the three and six months ended June 30, 2014, the Company sold approximately $10 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 June 30, 2015 and December 31, 2014, the Company had $2 of accounts receivable from Hexion related to the distribution agreement.

12

Purchases and Sales of Products and Services with Affiliates Other Than Hexion
The Company sells products to various affiliates other than Hexion. These sales were less than $1 and $3 for the three months ended June 30, 2015 and 2014, respectively, and less than $1 and $6 for the six months ended June 30, 2015 and 2014, respectively. Receivables from these affiliates were less than $1 and $1 at June 30, 2015 and December 31, 2014, respectively. The Company also purchases products and services from various affiliates other than Hexion. These purchases were less than $1 and $4 for the three months ended June 30, 2015 and 2014, respectively, and $2 and $7 for the six months ended June 30, 2015 and 2014, respectively. The Company had accounts payable to these affiliates of less than $1 as of both June 30, 2015 and December 31, 2014.
Transactions and Arrangements with Previous Parent and its Subsidiaries
In March 2014, the Company entered into an Employee Services Agreement with Hexion Holdings LLC, (formerly, Momentive Performance Materials Holdings LLC, the Company’s ultimate parent prior to October 24, 2014, “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. John G. 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, Momentive 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 and six months ended June 30, 2014.
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 June 30, 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 or six months ended June 30, 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
June 30, 2015
 
 
 
 
 
 
 
 
 
 
Debt
 
$
1,211

 
$
—

 
$
1,231

 
$
—

 
$
1,231

December 31, 2014
 
 
 
 
 
 
 
 
 
 
Debt
 
$
1,201

 
$
—

 
$
1,166

 
$
—

 
$
1,166


13

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.
6. Debt Obligations

As of June 30, 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 June 30, 2015 were $59, leaving an unused borrowing capacity of $211.
As of June 30, 2015, the Company was in compliance with all the covenants included in the agreements governing its outstanding indebtedness.
Debt outstanding at June 30, 2015 and December 31, 2014 is as follows.
 
June 30, 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 $132 and $140 of unamortized debt discount, respectively)
968

 
—

 
960

 
—

4.69% Second-Priority Senior Secured Notes due 2022 (includes $44 and $47 of unamortized debt discount, respectively)
206

 
—

 
203

 
—

Other Borrowings:
 
 
 
 
 
 
 
China bank loans
—

 
33

 
—

 
32

Other
—

 
4

 
—

 
6

Total debt
$
1,174

 
$
37

 
$
1,163

 
$
38

Momentive is not an obliger under the debt obligations above. MPM is a borrower under the ABL Facility and the issuer of the secured notes, which are fully and unconditionally guaranteed by certain subsidiaries of MPM (see Note 14).


14

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 $4 and $5 at June 30, 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 June 30, 2015, the total potential assessment, including penalties and interest, is €47, or approximately $52, of which €32, or approximately $36, 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 June 30, 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.
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, 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, on fresh start, this liability was recorded at its net present value of $8, which assumes a 3% discount rate and an estimated time period of 50 years. The undiscounted obligations, which are expected to be paid over the next 49 years, are approximately $17. Over the next five years the Company expects to make ratable payments totaling approximately $2.

15

8. Equity Plans and Stock Based Compensation
Management Equity Plan
On March 12, 2015, the Board of Directors of Momentive approved the MPM Holdings Inc. Management Equity Plan (the “MPMH Equity Plan”). Under the MPMH Equity Plan, Momentive can award no more than 3,818,182 shares which may consist of options, restricted stock units, restricted stock and other stock-based awards, qualifying as equity classified awards in accordance with ASC 718 “Compensation - Stock Compensation”. The restricted stock units are non-voting units of measurement which are deemed to be equivalent to one common share of Momentive. The options are options to purchase common shares of Momentive. The awards contain restrictions on transferability and other typical terms and conditions. The purpose of the MPMH Equity Plan is to assist the Company in attracting, retaining, incentivizing and motivating employees and to promote the success of the Company’s business by providing such participating individuals with a proprietary interest in the performance of the Company.
On April 10, 2015, the Compensation Committee of the Board of Directors of Momentive 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.
The following is a summary of key terms of the stock-based awards granted under the MPMH Equity Plan during the three and six months ended June 30, 2015:
Award
 
Units Granted
 
Vesting Terms
 
Option/Unit Terms
Stock Options—Tranche A
 
817,320
 
Performance-based and market-based upon achievement of targeted common stock prices either through a sale or an IPO with certain conditions as such terms are defined by the MPMH Equity Plan
 
10 years
Stock Options—Tranche B
 
817,320
 
Performance-based and market-based upon achievement of targeted common stock prices either through a sale or an IPO with certain conditions as such terms are defined by the MPMH Equity Plan
 
10 years
Restricted Stock Units
 
700,560
 
Cliff vest four years after grant date; Immediate vesting upon a change in control event and ratable vesting in the event of an IPO as defined in the MPMH Equity Plan
 
NA
Stock Options
The estimated fair values of Stock Options granted and the assumptions used for the Monte Carlo option-pricing model were as follows:
    
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30, 2015
 
June 30, 2015
 
 
Tranche A
 
Tranche B
 
Tranche A
 
Tranche B
Estimated fair values
 
$
7.93

 
$
7.62

 
$
7.93

 
$
7.62

Assumptions:
 
 
 
 
 
 
 
 
Strike Price
 
$
20.33

 
$
20.33

 
$
20.33

 
$
20.33

Risk-free interest rate
 
0.48
%
 
0.48
%
 
0.48
%
 
0.48
%
Expected term
 
1.73 years

 
1.73 years

 
1.73 years

 
1.73 years

Expected volatility
 
47.00
%
 
47.00
%
 
47.00
%
 
47.00
%
Tranche Market Threshold
 
$
30.50

 
$
40.66

 
$
30.50

 
$
40.66

The fair market value of the underlying stock price for the purpose of determining strike price was derived from a discounted cash-flow model. The risk-free interest rate has been determined on the yields for U.S. Treasury securities for a period approximating the expected term compounded continuously. The expected term represents the average of anticipated exit scenarios. The expected volatility has been estimated based on the volatilities using a weighted peer group of companies which are deemed to be similar to our Company and is calculated using the expected term of the stock options granted. Tranche Market Threshold are the average targeted expected closing prices over 10 days in the event of the underlying stocks trading publicly.
As there have been no performance and market based achievements during the three and six months ended June 30, 2015, there has been no compensation expense recorded. As of June 30, 2015, unrecognized compensation expense related to non-vested stock options was $12. Stock-based compensation cost related to stock options will be recognized once the satisfaction of the performance and market conditions becomes probable.

16

Restricted Stock Units
The fair market value of $20.33 per unit related to the Restricted Stock Units (“RSUs”) at the grant date is derived through relying on material financial weighted analysis of the Company developed at the time the Company emerged from Chapter 11 Bankruptcy, after considering recent sales of stock to related parties and the review of market conditions and financial performance as of April 10, 2015. The material financial weighted analysis on the Effective Date consisted of (i) a discounted cash flow analysis, (ii) a selected publicly traded company analysis and (iii) a selected transactions analysis. The RSUs are 100% vested upon the fourth anniversary of the date of grant (“Scheduled Vesting Date”) provided that the grantee remains continuously employed in active service by the Company or one of its affiliates from the date of grant through the Scheduled Vesting Date.
Additionally, vesting of the RSU grants could be accelerated: (i) upon a Sale of the Company occurring prior to the Scheduled Vesting Date, the RSUs, to the extent unvested, shall become fully vested, subject to the grantee’s continued employment through the effective date of such Sale; or (ii) upon an IPO occurring prior to the Scheduled Vesting Date, a graded percentage of the RSUs, shall become vested subject to the grantee’s continued employment through the effective date of the IPO.

There were no performance-based achievements during the three and six months ended June 30, 2015. The fair value of the Company’s RSUs, net of estimated forfeitures is expensed on a straight-line basis over the required service period, currently four years.

Stock-based compensation expense related to the RSU awards was approximately $1 for both the three and six months ended June 30, 2015. As of June 30, 2015, unrecognized compensation related to RSU awards was $12 and expense will be recognized over the remaining 3.8 year vesting period. Stock-based compensation cost related to RSU awards may be accelerated once the satisfaction of one of the performance conditions outlined becomes probable.

Although the MPMH Equity Plan, under which the above awards were granted, was issued by Momentive, the underlying compensation cost represents compensation costs paid for by Momentive on MPM’s behalf, as a result of the employees’ services to MPM. None of the stock grants have been forfeited since the grant date and the Company intends to issue new stock to deliver shares under the MPMH Equity Plan.


17

9. 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, 2015 and 2014:
 
Pension Benefits
 
Non-Pension Postretirement Benefits
 
Three Months Ended June 30,
 
Three Months Ended June 30,
 
2015
 
 
2014
 
2015
 
 
2014
 
Successor
 
 
Predecessor
 
Successor
 
 
Predecessor
 
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
$
3

 
$
2

 
 
$
2

 
$
2

 
$
1

 
$
—

 
 
$
—

 
$
—

Interest cost on projected benefit obligation
2

 
1

 
 
2

 
1

 
1

 
—

 
 
1

 
—

Expected return on assets
(2
)
 
—

 
 
(2
)
 
—

 
—

 
—

 
 
—

 
—

Curtailment gain (1)
(3
)
 
—

 
 
—

 
—

 
—

 
—

 
 
—

 
—

Actuarial gain (2)
(10
)
 
—

 
 
—

 
—

 
—

 
—

 
 
—

 
—

Net periodic benefit (gain) cost
$
(10
)
 
$
3

 
 
$
2

 
$
3

 
$
2

 
$
—

 
 
$
1

 
$
—

 
Pension Benefits
 
Non-Pension Postretirement Benefits
 
Six Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
 
2014
 
2015
 
 
2014
 
Successor
 
 
Predecessor
 
Successor
 
 
Predecessor
 
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
$
5

 
$
4

 
 
$
4

 
$
4

 
$
1

 
$
—

 
 
$
1

 
$
—

Interest cost on projected benefit obligation
4

 
2

 
 
4

 
2

 
2

 
—

 
 
2

 
—

Expected return on assets
(4
)
 
—

 
 
(4
)
 
—

 
—

 
—

 
 
—

 
—

Curtailment gain (1)
(3
)
 
—

 
 
—

 
—

 
—

 
—

 
 
—

 
—

Actuarial gain (2)
(10
)
 
—

 
 
—

 
—

 
—

 
—

 
 
—

 
—

Net periodic benefit (gain) cost
$
(8
)
 
$
6

 
 
$
4

 
$
6

 
$
3

 
$
—

 
 
$
3

 
$
—


(1)
The curtailment gain recognized on pension benefits during both the three and six months ended June 30, 2015 relates to the remeasurement of the pension benefit obligation in conjunction with plan provision changes for non-exempt employees not subject to a collective bargaining agreement (“impacted employees”). The Company recorded this gain in Selling, general and administrative expense in the unaudited Condensed Consolidated Statements of Operations.
(2)
The actuarial gain recognized on pension benefits during the three and six months ended June 30, 2015 mainly relates to the decrease in projected benefit obligation due to the decrease in discount rate as a result of the re-measurement triggered by plan provision changes for the impacted employees. The Company recorded this gain in Selling, general and administrative expense in the unaudited Condensed Consolidated Statements of Operations.


18

10. Segment Information and Customers
The Company’s segments are based on the products that the Company offers and the markets that it serves. At June 30, 2015, the Company’s had two reportable segments: Silicones and Quartz. The Silicones business is engaged in the manufacture, sale and distribution of silicones, silicone derivatives and silanes. 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 and six months ended June 30, 2014 was retrospectively revised to conform with current presentation.
Net Sales(1):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
 
2014
 
2015
 
 
2014
 
Successor
 
 
Predecessor
 
Successor
 
 
Predecessor
Silicones
$
559

 
 
$
592

 
$
1,091

 
 
$
1,149

Quartz
43

 
 
45

 
90

 
 
93

Total
$
602

 
 
$
637

 
$
1,181

 
 
$
1,242

(1)
Inter-segment sales are not significant and, as such, are eliminated within the selling segment.
Segment EBITDA:
 
MPM HOLDINGS INC.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
 
2014
 
2015
 
 
2014
 
Successor
 
 
Predecessor
 
Successor
 
 
Predecessor
Silicones
$
60

 
 
$
67

 
$
112

 
 
$
125

Quartz
9

 
 
5

 
20

 
 
12

Corporate
(9
)
 
 
(13
)
 
(20
)
 
 
(23
)
Total
$
60

 
 
$
59

 
$
112

 
 
$
114


 
MOMENTIVE PERFORMANCE MATERIALS INC.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
 
2014
 
2015
 
 
2014
 
Successor
 
 
Predecessor
 
Successor
 
 
Predecessor
Silicones
$
60

 
 
$
67

 
$
112

 
 
$
125

Quartz
9

 
 
5

 
20

 
 
12

Corporate
(9
)
 
 
(13
)
 
(19
)
 
 
(23
)
Total
$
60

 
 
$
59

 
$
113

 
 
$
114



19

Reconciliation of Segment EBITDA to Net Income (Loss):
 
MPM HOLDINGS INC.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
 
2014
 
2015
 
 
2014
 
Successor
 
 
Predecessor
 
Successor
 
 
Predecessor
Segment EBITDA:
 
 
 
 
 
 
 
 
 
Silicones
$
60

 
 
$
67

 
$
112

 
 
$
125

Quartz
9

 
 
5

 
20

 
 
12

Corporate
(9
)
 
 
(13
)
 
(20
)
 
 
(23
)
Total
$
60

 
 
$
59

 
$
112

 
 
$
114

 
 
 
 
 
 
 
 
 
 
Reconciliation:
 
 
 
 
 
 
 
 
 
Items not included in Segment EBITDA:
 
 
 
 
 
 
 
 
 
Non-cash charges
$
—

 
 
$
11

 
$
(3
)
 
 
$
29

Unrealized actuarial and curtailment gains from pension liabilities
13

 
 
—

 
13

 
 
—

Restructuring and other costs
(5
)
 
 
(10
)
 
(9
)
 
 
(14
)
Reorganization items, net
(2
)

 
(70
)

(7
)