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 ~~September~~June 30, ~~2015~~2017



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

Table of Contents

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 Emerging Growth Company o

~~Large~~If ~~accelerated~~an ~~filer~~emerging ogrowth ~~Accelerated~~company, ~~filer~~indicate oby ~~Non-accelerated~~check ~~filer~~mark xif ~~Smaller~~the ~~Reporting~~registrant ~~Company~~has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Momentive Performance Materials Inc.



Large accelerated filer	o	Accelerated filer	o

Non-accelerated filer	x	Smaller Reporting Company	o

		Emerging Growth Company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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 ~~November~~August 64, ~~2015~~2017, was 48,~~028~~121,~~594~~634 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 ~~November~~August 64, ~~2015~~2017, 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.

Table of Contents

MPM HOLDINGS INC. AND MOMENTIVE PERFORMANCE MATERIALS INC.

INDEX

		Page
Part I —	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets at September 30, 2015 and December 31, 2014	4
	Condensed Consolidated Balance Sheets at June 30, 2017 and December 31, 2016	4
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2015 (successor) and 2014 (predecessor)	5
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2017 and 2016	5
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2015 (successor) and 2014 (predecessor)	7
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2017 and 2016	7
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 (successor) and 2014 (predecessor)	8
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016	8
	Condensed Consolidated Statement of Equity for the nine months ended September 30, 2015	9
	Condensed Consolidated Statement of Equity for the six months ended June 30, 2017	9
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3432
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	5045
Item 4.	Controls and Procedures	5045
Part II —	OTHER INFORMATION
Item 1.	Legal Proceedings	5146
Item 1A.	Risk Factors	5146
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5246
Item 3.	Defaults Upon Senior Securities	5246
Item 4.	Mine Safety Disclosures	5246
Item 5.	Other Information	5246
Item 6.	Exhibits	5347
Signatures		5448

Table of Contents

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)	~~September~~June 30, ~~2015~~2017			December 31, ~~2014~~2016			~~September~~June 30, ~~2015~~2017			December 31, ~~2014~~2016
Assets
Current assets:
Cash and cash equivalents (including restricted cash of $4, $5, $4, and $5 respectively)	$	165		$	228		$	165		$	228
Cash and cash equivalents (including restricted cash of $4)	$	132		$	228		$	132		$	228
Accounts receivable (net of allowance for doubtful accounts of less than $1)	319			324			319			324
Accounts receivable (net of allowance for doubtful accounts of $4)	332			280			332			280
Inventories:
Raw materials	~~154~~137			~~144~~119			~~154~~137			~~144~~119
Finished and in-process goods	~~270~~292			~~258~~271			~~270~~292			~~258~~271
Deferred income taxes	31			33			31			33
Other current assets	67			50			67			50
Other current assets	56			60			56			60
Total current assets	960			948			960			948
Total current assets	995			1,047			995			1,047
Investment in unconsolidated entities	20			20			20			20
Investment in unconsolidated entities	19			18			19			18
Deferred income taxes	13			9			13			9
Deferred income taxes	18			14			18			14
Other long-term assets	10			20			10			20
Other long-term assets	23			27			23			27
Property, plant and equipment:
Land	7477			7574			7477			7574
Buildings	~~293~~322			~~295~~307			~~293~~322			~~295~~307
Machinery and equipment	~~855~~1,048			~~799~~959			~~855~~1,048			~~799~~959
	1,222			1,169			1,222			1,169
	1,447			1,340			1,447			1,340
Less accumulated depreciation	(~~108~~323		)	(17265		)	(~~108~~323		)	(17265		)
	1,114			1,152			1,114			1,152
	1,124			1,075			1,124			1,075
Goodwill	~~211~~215			~~218~~211			~~211~~215			~~218~~211
Other intangible assets, net	~~371~~314			~~408~~323			~~371~~314			~~408~~323
Total assets	$	2,~~751~~656		$	2,~~884~~606		$	2,~~751~~656		$	2,~~884~~606
Liabilities and Equity
Current liabilities:
Accounts payable	$	~~196~~276		$	~~223~~238		$	~~196~~276		$	~~223~~238
Debt payable within one year	4036			3836			4036			3836
Interest payable	2612			11			2612			11
Income taxes payable	7			78			7			78
Deferred income taxes	16			18			16			18
Accrued payroll and incentive compensation	47			61			47			61
Accrued payroll and incentive compensation	49			57			49			57
Other current liabilities	108			123			105			122
Other current liabilities	70			82			70			82
Total current liabilities	486			477			483			476
Total current liabilities	404			436			404			436
Long-term liabilities:
Long-term debt	1,~~180~~179			1,~~163~~167			1,~~180~~179			1,~~163~~167
Pension and postretirement benefit liabilities	~~340~~342			~~352~~341			~~340~~342			~~352~~341
Deferred income taxes	~~100~~68			9866			~~100~~68			9866
Other long-term liabilities	5467			6673			5467			6672
Total liabilities	2,~~078~~142			2,~~115~~124			2,~~078~~139			2,~~115~~122
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 September 30, 2015 and December 31, 2014, respectively	—			—
Common stock - $0.01 par value; 70,000,000 shares authorized; 48,121,634 and 48,058,114 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively	—			—
Common stock - $0.01 par value; 100 shares authorized; 48 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively							—			—
Common stock - $0.01 par value; 100 shares authorized; 48 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively							—			—
Additional paid-in capital	~~860~~866			~~857~~864			~~859~~865			~~857~~863
Accumulated other comprehensive loss	(8135		)	(2876		)	(8135		)	(2876		)
Accumulated deficit	(~~106~~317		)	(60306		)	(~~105~~313		)	(60303		)
Total equity	~~673~~514			~~769~~482			~~673~~517			~~769~~484
Total liabilities and equity	$	2,~~751~~656		$	2,~~884~~606		$	2,~~751~~656		$	2,~~884~~606

See Notes to Condensed Consolidated Financial Statements

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MPM HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

	Three Months Ended September 30,								Nine Months Ended September 30,
	Three Months Ended June 30,							Six Months Ended June 30,
	2015				2014				2015					2014
(In millions, except share and per share data)	2017			2016				2017				2016
(In millions, except share data)	Successor				Predecessor				Successor					Predecessor
Net sales	$	594		$	586			$	1,138			$	1,122
Net sales	$	559			$	631			$	1,740				$	1,873
Cost of sales	459			468				905				914
Cost of sales	469								1,438
Gross profit	135			118				233				208
Gross profit	90								302
Costs and expenses:
Cost of sales, excluding depreciation and amortization					445									1,339
Selling, general and administrative expense	85			78				169				159
Selling, general and administrative expense	76				249				210					417
Research and development expense	16			17				31				33
Depreciation and amortization expense					54									137
Restructuring and other costs (See Note 3)	(5		)	4				—				9
Research and development expense	17				19				53					58
Other operating expense, net	1			2				4				8
Restructuring and other costs	4				6				13					20
Operating income (loss)	38			17				29				(1		)
Other operating income, net	(2		)		—				(7		)			—
Interest expense, net (See Note 6)	20			19				39				38
Operating (loss) income	(5		)		(142		)		33					(98		)
Gain on extinguishment of debt (See Note 6)	—			—				—				(9		)
Interest expense, net	20				36				59					153
Other non-operating (income) expense, net	(5		)	5				(4		)		2
Other non-operating expense, net	—				—				2					—
Reorganization items, net	—			—				—				1
Reorganization items, net	1				44				8					114
Income (loss) before income taxes and earnings from unconsolidated entities	23			(7		)		(6		)		(33		)
Loss before income taxes and earnings from unconsolidated entities	(26		)		(222		)		(36		)			(365		)
Income tax expense (benefit) (See Note 12)	4			4				5				(4		)
Income tax expense (benefit)	6				(23		)		11					(2		)
Income (loss) before earnings from unconsolidated entities	19			(11		)		(11		)		(29		)
Loss before earnings from unconsolidated entities	(32		)		(199		)		(47		)			(363		)
Earnings from unconsolidated entities, net of taxes	—			1				—				1
Earnings from unconsolidated entities, net of taxes	—				—				1					2
Net income (loss)	$	19		$	(10	)		$	(11	)		$	(28	)
Net loss	$	(32	)		$	(199	)		$	(46	)			$	(361	)
Net income (loss) per share:
Net loss per share:
Net income (loss) per common share—basic	$	0.39		$	(0.21	)		$	(0.23	)		$	(0.58	)
Net loss per common share—basic	$	(0.67	)		$	(1,990,000	)		$	(0.96	)			$	(3,610,000	)
Net income (loss) per common share—diluted	$	0.39		$	(0.21	)		$	(0.23	)		$	(0.58	)
Net loss per common share—diluted	$	(0.67	)		$	(1,990,000	)		$	(0.96	)			$	(3,610,000	)
Shares used in per-share calculation
Shares used in per-share calculation
Weighted average common shares outstanding—basic	48,117,894			48,055,194				48,103,386				48,041,894
Weighted average common shares outstanding—basic	48,028,594				100				48,011,335					100
Weighted average common shares outstanding—diluted	48,166,189			48,055,194				48,103,386				48,041,894
Weighted average common shares outstanding—diluted	48,028,594				100				48,011,335					100

See Notes to Condensed Consolidated Financial Statements

Table of Contents

MOMENTIVE PERFORMANCE MATERIALS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

	Three Months Ended September 30,								Nine Months Ended September 30,
	Three Months Ended June 30,							Six Months Ended June 30,
	2015				2014				2015					2014
(In millions)	2017			2016				2017				2016
(In millions)	Successor				Predecessor				Successor					Predecessor
Net sales	$	594		$	586			$	1,138			$	1,122
Net sales	$	559			$	631			$	1,740				$	1,873
Cost of sales	459			468				905				914
Cost of sales	469								1,438
Gross profit	135			118				233				208
Gross profit	90								302
Selling, general and administrative expense	85			78				168				158
Cost of sales, excluding depreciation and amortization					445									1,339
Research and development expense	16			17				31				33
Selling, general and administrative expense	75				249				209					417
Restructuring and other costs (See Note 3)	(5		)	4				—				9
Depreciation and amortization expense					54									137
Other operating expense, net	1			2				4				8
Research and development expense	17				19				53					58
Operating income	38			17				30				—
Restructuring and other costs	4				6				13					20
Interest expense, net (See Note 6)	20			19				39				38
Other operating income, net	(2		)		—				(7		)			—
Gain on extinguishment of debt (See Note 6)	—			—				—				(9		)
Operating (loss) income	(4		)		(142		)		34					(98		)
Other non-operating (income) expense, net	(5		)	5				(4		)		2
Interest expense, net	20				36				59					153
Reorganization items, net	—			—				—				1
Other non-operating expense, net	—				—				2					—
Income (loss) before income taxes and earnings from unconsolidated entities	23			(7		)		(5		)		(32		)
Reorganization items, net	1				44				8					114
Income tax expense (benefit) (See Note 12)	4			4				5				(4		)
Loss before income taxes and earnings from unconsolidated entities	(25		)		(222		)		(35		)			(365		)
Income (loss) before earnings from unconsolidated entities	19			(11		)		(10		)		(28		)
Income tax expense (benefit)	6				(23		)		11					(2		)
Earnings from unconsolidated entities, net of taxes	—			1				—				1
Loss before earnings from unconsolidated entities	(31		)		(199		)		(46		)			(363		)
Net income (loss)	$	19		$	(10	)		$	(10	)		$	(27	)
Earnings from unconsolidated entities, net of taxes	—				—				1					2
Net loss	$	(31	)		$	(199	)		$	(45	)			$	(361	)

See Notes to Condensed Consolidated Financial Statements

Table of Contents

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

	MPM HOLDINGS INC.
	Three Months Ended September 30,								Nine Months Ended September 30,
	Three Months Ended June 30,							Six Months Ended June 30,
	2015				2014				2015					2014
(In millions)	2017			2016				2017				2016
(In millions)	Successor				Predecessor				Successor					Predecessor
Net income (loss)	$	19		$	(10	)		$	(11	)		$	(28	)
Net loss	$	(32	)		$	(199	)		$	(46	)			$	(361	)
Other comprehensive income, net of tax:
Other comprehensive (loss) income, net of tax:
Foreign currency translation	9			21				31				59
Foreign currency translation	(14		)		52				(51		)			38
Net prior service credit	(1		)	—				10				20
Loss recognized from pension and postretirement benefits	—				(22		)		(2		)			(21		)
Other comprehensive income	8			21				41				79
Other comprehensive (loss) income	(14		)		30				(53		)			17
Comprehensive income	$	27		$	11			$	30			$	51
Comprehensive loss	$	(46	)		$	(169	)		$	(99	)			$	(344	)

	MOMENTIVE PERFORMANCE MATERIALS INC.
	Three Months Ended September 30,								Nine Months Ended September 30,
	Three Months Ended June 30,							Six Months Ended June 30,
	2015				2014				2015					2014
(In millions)	2017			2016				2017				2016
(In millions)	Successor				Predecessor				Successor					Predecessor
Net income (loss)	$	19		$	(10	)		$	(10	)		$	(27	)
Net loss	$	(31	)		$	(199	)		$	(45	)			$	(361	)
Other comprehensive income, net of tax:
Other comprehensive (loss) income, net of tax:
Foreign currency translation	9			21				31				59
Foreign currency translation	(14		)		52				(51		)			38
Net prior service credit	(1		)	—				10				20
Loss recognized from pension and postretirement benefits	—				(22		)		(2		)			(21		)
Other comprehensive income	8			21				41				79
Other comprehensive (loss) income	(14		)		30				(53		)			17
Comprehensive income	$	27		$	11			$	31			$	52
Comprehensive loss	$	(45	)		$	(169	)		$	(98	)			$	(344	)

See Notes to Condensed Consolidated Financial Statements

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	MPM HOLDINGS INC.							MOMENTIVE PERFORMANCE MATERIALS INC.	~~MOMENTIVE PERFORMANCE MATERIALS INC.~~
	Nine Months Ended September 30,								Nine Months Ended September 30,
	Six Months Ended June 30,							Six Months Ended June 30,
	2015				2014				2015					2014
(In millions)	2017			2016				2017				2016
(In millions)	Successor				Predecessor				Successor					Predecessor
Cash flows (used in) provided by operating activities
Cash flows provided by (used in) operating activities
Net loss	$	(11	)	$	(28	)		$	(10	)		$	(27	)
Net loss	$	(46	)		$	(361	)		$	(45	)			$	(361	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	75			84				75				84
Depreciation and amortization	118				137				118					137
Unrealized actuarial losses from pensions and other post retirement liabilities	1			5				1				5
Non-cash reorganization items	—				30				—					30
Deferred income tax benefit	(9		)	(14		)		(9		)		(14		)
Unrealized actuarial gains from pension liabilities	(10		)		—				(10		)			—
Unrealized foreign currency gains	(4		)	—				(4		)		—
Pension curtailment gain	(3		)		—				(3		)			—
Amortization of debt discount	12			12				12				12
Deferred income tax benefit	(1		)		(15		)		(1		)			(15		)
Gain on the extinguishment of debt	—			(9		)		—				(9		)
Unrealized foreign currency (gain) loss	(6		)		109				(6		)			109
Other non-cash adjustments	7			7				7				7
Amortization of debt discount	17				—				17					—
Net change in assets and liabilities:
DIP Facility financing fees	—				19				—					19
Accounts receivable	(43		)	(14		)		(43		)		(14		)
Other non-cash adjustments	3				5				3					5
Inventories	(27		)	(25		)		(27		)		(25		)
Net change in assets and liabilities:
Accounts payable	36			(2		)		36				(2		)
Accounts receivable	(7		)		(28		)		(7		)			(28		)
Income taxes payable	(1		)	3				(1		)		3
Inventories	(37		)		(75		)		(37		)			(75		)
Other assets, current and non-current	(4		)	(7		)		(4		)		(7		)
Accounts payable	(9		)		44				(9		)			44
Other liabilities, current and non-current	(44		)	42				(43		)		41
Income taxes payable	(8		)		(2		)		(8		)			(2		)
Net cash (used in) provided by operating activities	(12		)	54				(10		)		54
Other assets, current and non-current	7				1				7					1
Cash flows used in investing activities
Other liabilities, current and non-current	13				11				13					11
Capital expenditures	(77		)	(53		)		(77		)		(53		)
Net cash provided by (used in) operating activities	31				(125		)		32					(125		)
Purchases of intangible assets	(2		)	(1		)		(2		)		(1		)
Cash flows used in investing activities
Dividend from MPM	1			—				—				—
Capital expenditures	(88		)		(70		)		(88		)			(70		)
Purchase of a business	(9		)	—				(9		)		—
Capitalized interest	(1		)		—				(1		)			—
Net cash used in investing activities	(87		)	(54		)		(88		)		(54		)
Purchases of intangible assets	(2		)		(2		)		(2		)			(2		)
Cash flows used in financing activities
Consolidation of variable interest entity	—				50				—					50
Net short-term debt borrowings	—			1				—				1
Proceeds from sale of business	—				12				—					12
Repayments of long-term debt	—			(16		)		—				(16		)
Proceeds from sale of assets	1				1				1					1
Dividends paid	—			—				(1		)		—
Net cash used in investing activities	(90		)		(9		)		(90		)			(9		)
Net cash used in financing activities	—			(15		)		(1		)		(15		)
Cash flows provided by financing activities
Decrease in cash and cash equivalents	(99		)	(15		)		(99		)		(15		)
Proceeds from sale of common stock	1				—				—					—
Effect of exchange rate changes on cash and cash equivalents	3			4				3				4
Net short-term debt borrowings	3				305				3					305
Cash and cash equivalents (unrestricted), beginning of period	224			217				224				217
Borrowings of long-term debt	—				208				—					208
Cash and cash equivalents (unrestricted), end of period	$	128		$	206			$	128			$	206
Repayments of long-term debt	—				(260		)		—					(260		)
Supplemental disclosures of cash flow information
Repayment of affiliated debt	—				(50		)		—					(50		)
Cash paid for:
DIP Facility financing fees	—				(19		)		—					(19		)
Interest	$	28		$	28			$	28			$	28
Net cash provided by financing activities	4				184				3					184
Income taxes, net of refunds	14			7				14				7
(Decrease) increase in cash and cash equivalents	(55		)		50				(55		)			50
Non-cash investing activity:
Effect of exchange rate changes on cash and cash equivalents	(7		)		(5		)		(7		)			(5		)
Capital expenditures included in accounts payable	$	21		$	18			$	21			$	18
Cash and cash equivalents (unrestricted), beginning of period	223				89				223					89
Cash and cash equivalents (unrestricted), end of period	$	161			$	134			$	161				$	134
Supplemental disclosures of cash flow information
Cash paid for:
Interest	$	29			$	136			$	29				$	136
Income taxes, net of refunds	14				11				14					11
Non-cash investing activity:
Capital expenditures included in accounts payable	$	11			$	12			$	11				$	12

See Notes to Condensed Consolidated Financial Statements

Table of Contents

CONDENSED CONSOLIDATED STATEMENT OF EQUITY (Unaudited)

MPM HOLDINGS INC.
	Common Stock			AdditionalPaid-inCapital		AccumulatedOtherComprehensiveLoss			AccumulatedDeficit			TotalEquity
(In millions, except shares data)	Shares	Amount
(In millions, except share data)	Shares	Amount
Balance as of December 31, 2014	47,989,000	$	—	$	857	$	(28	)	$	(60	)	$	769
Balance as of December 31, 2016	48,058,114	$	—	$	864	$	(76	)	$	(306	)	$	482
Net loss	—	—		—		—			(4611		)	(4611		)
Other comprehensive loss	—	—		—		(53		)	—			(53		)
Other comprehensive income	—	—		—		41			—			41
Stock-based compensation expense	—	—		2		—			—			2
Proceeds from sale of common stock	39,594	—		1		—			—			1
Issuance of common stock	63,520	—		—		—			—			—
Balance as of September 30, 2015	48,028,594	$	—	$	860	$	(81	)	$	(106	)	$	673
Balance as of June 30, 2017	48,121,634	$	—	$	866	$	(35	)	$	(317	)	$	514

MOMENTIVE PERFORMANCE MATERIALS INC.
(In millions)	CommonStock		AdditionalPaid-inCapital		AccumulatedOtherComprehensiveLoss			AccumulatedDeficit			TotalEquity
(In millions, except share data)	Common Stock		AdditionalPaid-inCapital		AccumulatedOtherComprehensiveLoss			AccumulatedDeficit			TotalEquity
Balance as of December 31, 2014	$	—	$	857	$	(28	)	$	(60	)	$	769
Balance as of December 31, 2016	$	—	$	863	$	(76	)	$	(303	)	$	484
Net loss	—		—		—			(4510		)	(4510		)
Other comprehensive loss	—		—		(53		)	—			(53		)
Other comprehensive income	—		—		41			—			41
Capital contribution from parent	—		2		—			—			2
Stock-based compensation expense	—		2		—			—			2
Balance as of September 30, 2015	$	—	$	859	$	(81	)	$	(105	)	$	673
Capital contribution from parent	—		—					—			—
Balance as of June 30, 2017	$	—	$	865	$	(35	)	$	(313	)	$	517

See Notes to Condensed Consolidated Financial Statements

Table of Contents

MPM HOLDINGS INC. AND MOMENTIVE PERFORMANCE MATERIALS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(In millions, except share and per 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 operating and reportable segments: Silicones and Quartz. Silicones is a global business engaged in the manufacture, sale and distribution of silicones, silicone derivatives and ~~organofunctional~~organo-functional 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~~The ~~emergence~~unaudited ~~from~~Condensed ~~bankruptcy~~Consolidated onFinancial Statements include the ~~Effective~~accounts ~~Date,~~of the Company, ~~adopted~~its ~~fresh~~majority-owned ~~start~~subsidiaries ~~accounting~~in which ~~resulted~~minority inshareholders ~~the~~hold ~~creation~~no ofsubstantive aparticipating ~~new~~rights. Intercompany ~~entity~~accounts ~~for~~and ~~financial~~transactions ~~reporting~~are ~~purposes.~~eliminated Asupon aconsolidation. ~~result~~In of the ~~application~~opinion of ~~fresh start accounting~~management, asall ~~well~~adjustments asconsisting ~~the effects~~ of ~~the implementation of the Plan~~normal, ~~the~~recurring ~~Consolidated~~adjustments ~~Financial~~considered ~~Statements~~necessary onfor ora ~~after~~fair ~~October~~statement ~~24,~~have ~~2014~~been ~~are not comparable with the Consolidated Financial Statements prior to that date~~included. Results ~~References~~for ~~to “Successor” or “Successor Company” relate to~~ the ~~financial~~interim ~~position~~periods ~~and~~are ~~results~~not ofnecessarily ~~operations~~indicative of ~~the reorganized Company subsequent to October 24, 2014. References to “Predecessor” or “Predecessor Company” refer to the financial position and~~ results offor ~~operations of~~ the ~~Company~~entire ~~prior to October 24, 2014~~year.

~~The~~Year-end ~~unaudited~~condensed ~~Condensed~~consolidated ~~Consolidated~~balance ~~Financial~~sheet ~~Statements~~data ~~include~~was ~~the~~derived ~~accounts~~from ofaudited ~~the~~financial ~~Company~~statements, ~~its~~but ~~majority-owned~~does ~~subsidiaries~~not ininclude ~~which~~all ~~minority~~disclosures ~~shareholders~~required ~~hold~~by noaccounting ~~substantive~~principles ~~participating~~generally ~~rights~~accepted ~~and~~in ~~for~~ the ~~comparable~~United ~~prior~~States ~~periods,~~of ~~variable~~America ~~interest entities~~ (“~~VIEs~~U.S. GAAP”). Pursuant into ~~which~~ the ~~Company~~rules ~~was~~and regulations of the ~~primary~~Securities ~~beneficiary.~~and ~~Intercompany~~Exchange ~~accounts~~Commission (the “SEC”), certain information and ~~transactions~~disclosures ~~are~~normally ~~eliminated~~included in ~~consolidation~~financial statements prepared in accordance with U.S. InGAAP ~~the~~have ~~opinion~~been ofcondensed ~~management,~~or ~~all~~omitted. These ~~adjustments~~unaudited ~~consisting~~Condensed ofConsolidated ~~normal,~~Financial ~~recurring~~Statements ~~adjustments~~should ~~considered~~be ~~necessary~~read ~~for~~in aconjunction ~~fair~~with ~~statement~~the ~~have~~audited ~~been~~Consolidated ~~included.~~Financial ~~Results~~Statements ~~for~~and the ~~interim~~accompanying ~~periods~~notes ~~are~~included ~~not~~in ~~necessarily~~Momentive, ~~indicative~~MPM ofand ~~results~~their subsidiaries’ most recent Annual Report on Form 10-K for the ~~entire~~ year ended December 31, 2016.

~~Year-end~~During ~~condensed~~the ~~consolidated~~three ~~balance~~months ~~sheet~~ended ~~data~~June ~~was~~30, ~~derived~~2017, ~~from~~the ~~audited~~Company ~~financial~~recorded ~~statements,~~an ~~but~~out-of-period ~~does~~correction ~~not~~totaling ~~include~~approximately ~~all~~$1 ~~disclosures~~related ~~required~~to bythe ~~accounting~~reversal ~~principles~~of ~~generally~~capitalized ~~accepted~~interest on a capital project in progress between November 2014 and March 2017. Also during the ~~United~~three ~~States~~months ended March 31, 2017, the Company recorded an another out-of-period ~~America~~adjustment ~~(“U~~of $1 related to the correction of 2016 sales commissions to employees.S. After ~~GAAP”)~~evaluating the quantitative and qualitative aspects of the above adjustments, the Company concluded the effect of these adjustments was not material to the current periods presented as well as any previously issued consolidated financial statements or expected annual results for 2017.

Pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), 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.

During the three and nine months ended September 30, 2015, the Company recorded out-of-period adjustments totaling approximately $4 related to operating (loss) income ($3 of which impacted depreciation). The adjustment related to depreciation should have been originally recorded in the successor period ended December 31, 2014 ($1) and each of the first and second quarters of 2015 ($1). The remaining $1 adjustment reversed an entry recorded in the first quarter of 2015 that should have been adjusted to goodwill in fresh-start accounting. The entries decreased pretax income and net income for the three and nine months ended September 30, 2015 by $4 and $2, respectively. After evaluating the quantitative and qualitative aspects of the adjustments, the Company concluded the effect of these adjustments was not material to any previously issued consolidated financial statements or expected annual results for 2015.

Table of Contents

MPM HOLDINGS INC. AND MOMENTIVE PERFORMANCE MATERIALS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(In millions, except share data)

2. Summary of Significant Accounting Policies

Use of Estimates—The preparation of financial statements in conformity with ~~accounting~~U.S. ~~principles~~GAAP ~~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—As a public reporting company, the Company evaluates subsequent events and transactions through the date these unaudited Condensed Consolidated Financial Statements are issued.

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 September 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.

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.

Stock-Based Compensation—The Company measures and recognizes the compensation expense for all share-based awards made to employees and directors based on estimated fair values, in accordance with ASC 718, Compensation – Stock Compensation. 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 over the employee’s requisite service period (generally the vesting period of the equity grant). See Note 8 for additional details regarding stock-based compensation.

Business Acquisitions—In January 2017 the Company acquired the operating assets of Sea Lion Technology, Inc. to further support the Silanes business of its Silicones segment. The Company previously had a tolling relationship with Sea Lion Technology, Inc. on their site. The Company believes the acquisition will enable it to further strategically leverage these assets in support of the NXT* silane business. The Company paid $9 in cash to acquire Sea Lion Technology, Inc., and acquired substantially all of its property, plant and equipment. This acquisition was not significant in relation to the Company’s consolidated financial results and, therefore, pro forma financial information has not been presented.

The acquisition was accounted for using the purchase method of accounting and the allocation of the purchase price inclusive of identification and measurement of the fair value of tangible and intangible assets. The Company engaged specialists to assist in the valuation of tangible and intangible assets. The table below summarizes the initial purchase price allocation to the fair value of assets acquired at the acquisition date. Goodwill is calculated as the excess of the purchase price over the total assets recognized and represents the estimated future economic benefits arising from expected synergies and growth opportunities for the Company. All of the goodwill and intangible assets are deductible for tax purposes.



Property, plant & equipment	$	7
Goodwill	1
Intangible assets	1
Purchase price of the business acquisition	$	9

*NXT is a trademark of Momentive Performance Materials Inc.

Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board (the “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. Additionally, in March 2016, the FASB issued Accounting Standards Board Update No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued Accounting Standards Board Update No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarifies the identification of performance obligations and the licensing implementation guidance. In May 2016, the FASB issued Accounting Standards Board Update No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which provides clarifying guidance in certain narrow areas and adds some practical expedients. In December 2016, the FASB issued Accounting Standards Board Update No. 2016-20, Technical Corrections and Improvements to Topic 606: Revenue from Contracts with Customers, which facilitates 13 technical corrections and improvements to Topic 606 and other Topics amended by ASU 2014-09 to increase stakeholders’ awareness of the proposals and to expedite improvements to ASU 2014-09. The effective dates for the ASUs issued in 2016 are the same as the effective date for ASU 2014-09. 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 has formed an implementation team and is currently ~~assessing~~evaluating the ~~potential~~ impact of ~~ASU~~the ~~2014-09~~standard on its ongoing financial ~~statements~~reporting. The Company has not yet selected a transition method for the standard. The Company will provide additional updates in future filings, as appropriate.

In ~~January~~July 2015, the FASB issued Accounting Standards Board Update No. 2015-0111: ~~Income~~ ~~Statement-Extraordinary~~Inventory ~~and Unusual Items~~ (~~Subtopic~~Topic ~~225-20~~330) - Simplifying ~~Income Statement Presentation by Eliminating~~ the ~~Concept~~Measurement of ~~Extraordinary~~Inventory ~~Items~~ (“ASU 2015-0111”). ASU 2015-0111 ~~eliminates~~has ~~from~~changed ~~U.S.~~the ~~GAAP~~measurement requirement of inventory within the ~~concept~~scope of ~~extraordinary~~this ~~items~~guidance ~~and~~from ~~removes~~lower ~~the~~of ~~requirement~~cost or market to ~~present~~the ~~extraordinary~~lower ~~items~~of ~~separately~~cost onand net realizable value. The guidance is also defining net realizable value as: the ~~income~~estimated ~~statement~~selling price in the ordinary course of business, ~~net~~less reasonably predictable costs of ~~tax.~~completion, disposal, and transportation. The guidance is effective for annual periods beginning after December 15, ~~2015~~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 adoption of the requirements of ASU 2015-0111 ~~are~~during ~~not~~2017 ~~expected~~did tonot ~~have~~significantly ~~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. In August 2015, the FASB issued Accounting Standards Board Update No. 2015-15: Interest-Imputation of Interest (Subtopic 835-30)- Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements (“ASU 2015-15”). ASU 2015-15 provides additional guidance regarding the SEC staff’s position on presentation and subsequent measurement of debt issuance costs associated with line-of-credit arrangements. The guidance is effective for annual periods beginning after December 15, 2015, including interim periods within that reporting period, and early adoption is permitted. Based on the current state of affairs, the Company expects that the adoption of the requirements of ASU 2015-03 and ASU 2015-15 will not impact its consolidated financial statements.

~~Table~~In February 2016, the FASB issued Accounting Standards Board Update No. 2016-02: Leases (ASC 842) (“ASU 2016-02”). Lessees will need to recognize almost all leases on their balance sheet as a right-of-use ~~Contents~~asset and a lease liability. It will be critical to identify leases embedded in a contract to avoid misstating the lessee’s balance sheet. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines. ASU 2016-02 is effective for public companies for annual reporting periods beginning after December 15, 2018, and interim periods within those fiscal years. The Company is currently evaluating the effect of the standard on its ongoing financial reporting.

~~MPM~~In ~~HOLDINGS~~August ~~INC~~2016, the FASB issued Accounting Standards Board Update No. ~~AND~~2016-15: ~~MOMENTIVE~~Statement ~~PERFORMANCE~~of ~~MATERIALS~~Cash ~~INC~~Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 provides new guidance designed to reduce existing diversity in practice of how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The ASU addresses eight specific cash flow issues, of which the following are expected to be applicable to the Company: 1) debt prepayment and extinguishment costs, 2) proceeds from settlement of insurance claims, 3) distributions received from equity method investments, and 4) separately identifiable cash flows and application of the predominance principle. In addition, in November 2016, the FASB issued Accounting Standards Board Update No. 2016-18: Statement of Cash Flows (Topic 230), Restricted Cash ("ASU 2016-18"). ASU 2016-18 clarifies certain existing principles in ASC 230, including providing additional guidance related to transfers between cash and restricted cash and how entities present, in their statement of cash flows, the cash receipts and cash payments that directly affect the restricted cash accounts. These ASUs will be effective for the Company’s fiscal year beginning January 1, 2018 and subsequent interim periods with retrospective application to each period presented is required and early adoption is permitted, the adoption of ASU 2016-15 and ASU 2016-18 will modify the Company's current disclosures and reclassifications within the consolidated statement of cash flows but they are not expected to have a material effect on the Company’s consolidated financial statements.

~~NOTES~~In TOJanuary ~~CONDENSED~~2017, ~~CONSOLIDATED~~the ~~FINANCIAL~~FASB ~~STATEMENTS~~issued Accounting Standards Board Update No. 2017-01: Business Combinations (~~Unaudited~~Topic 805) - Clarifying the Definition of a Business (~~Continued~~“ASU 2017-01”). The ASU clarifies the definition of business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 will be effective for the Company’s fiscal year beginning January 1, 2018 and subsequent interim periods with prospective application with impacts on the Company’s consolidated financial statements that may vary depending on each specific acquisition. Early adoption is conditionally permitted.

( In ~~millions~~January 2017, ~~except~~the ~~share~~FASB ~~data~~issued Accounting Standards Board Update No. 2017-04: Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendments in this ASU simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying value, which eliminates the current requirement to calculate a goodwill impairment charge by comparing the implied fair value of goodwill with its carrying amount. The amendments in this ASU are effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The amendments in this ASU should be applied on a prospective basis. The Company is currently evaluating whether to early adopt this ASU.

In ~~July~~February ~~2015,~~2017 the FASB issued Accounting Standards Board Update No. ~~2015~~2017-1105: ~~Inventory~~Other ~~(Topic~~Income ~~330)~~ - ~~Simplifying~~Gains ~~the~~and ~~Measurement~~Loss from Derecognition of ~~Inventory~~Nonfinancial Assets (~~“ASU~~subtopic ~~2015~~610-~~11”~~20). The ~~ASU~~amendments ~~2015-11~~in ~~has~~this ~~changed~~ASU ~~the~~provide ~~measurement~~clarification ~~requirement~~that ofnonfinancial ~~inventory~~assets within the scope of ~~this~~ASC ~~guidance~~610-20 ~~from~~may ~~lower~~include ofnonfinancial ~~cost~~assets ortransferred ~~market~~within toa ~~the~~legal ~~lower~~entity ofto ~~cost~~a counterparty and ~~net~~that ~~realizable~~an ~~value.~~entity ~~The~~should ~~guidance~~allocate isconsideration ~~also~~to ~~defining~~each ~~net~~distinct ~~realizable~~asset ~~value~~by ~~as:~~applying the ~~estimated~~guidance ~~selling~~in ~~prices~~ASC in606 on allocating the ~~ordinary~~transaction ~~course~~price ofto ~~business,~~performance ~~less~~obligations. The ~~reasonably~~amendments ~~predictable~~in ~~costs~~this ofASU ~~completion,~~also ~~disposal,~~require ~~and~~entities ~~transportation.~~to ~~The~~de-recognize ~~guidance~~a isdistinct ~~effective~~non-financial ~~for~~asset ~~annual~~or ~~periods~~distinct ~~beginning~~in ~~after~~substance ~~December~~non-financial ~~15,~~asset ~~2016,~~in ~~including~~a ~~interim~~partial ~~periods~~sale ~~within~~transaction ~~that~~when ~~reporting~~it ~~period~~(1) ~~and~~does ~~amendments~~not have (or ceases to behave) ~~applied~~a ~~prospectively~~controlling financial interest in the legal entity that holds the asset in accordance with ~~earlier~~ASC ~~application~~810 ~~permitted~~and as(2) transfers control of the asset in accordance with ASC 606. The amendments to this ASU are effective in fiscal years beginning ofafter anDecember 15, 2017, including interim orperiods ~~annual~~within ~~reporting~~those ~~period.~~annual periods. The Company isdoes ~~currently~~not ~~assessing~~expect the ~~potential~~adoption ~~impact~~ of the amendments in this ASU ~~2015-11~~to have a significant impact on ~~its~~the Company’s consolidated financial statements.

In ~~September~~March ~~2015,~~2017 the FASB issued Accounting Standards ~~Board~~ Update No. ~~2015~~2017-1607: ~~Business~~Improving ~~Combinations~~the ~~(Topic~~Presentation ~~805)~~of -Net ~~Simplifying~~Periodic ~~the~~Pension ~~Accounting~~Cost ~~for~~and ~~Measurement-Period~~Net ~~Adjustments~~Periodic ~~(“ASU~~Postretirement ~~2015-16”)~~Benefit Cost. The ASU ~~2015-16~~ requires ~~that~~entities ~~an acquirer~~to: i1) ~~recognize~~disaggregate ~~adjustments~~the tocurrent-service-cost ~~provisional~~component ~~amounts~~from ~~that~~the ~~are~~other ~~identified~~components ~~during~~of ~~the~~net ~~measurement~~benefit ~~period~~cost in (the ~~reporting~~“other ~~period~~components”) inand ~~which~~present ~~the~~it ~~adjustment~~with ~~amounts~~other ~~are~~current ~~determined,~~compensation ~~and~~costs ~~ii)~~for ~~record~~related employees in the ~~same~~income ~~period’s~~statement ~~financial~~and ~~statements,~~2) present the ~~effect~~other oncomponents ~~earnings~~elsewhere ~~of changes~~ in ~~depreciation,~~the ~~amortization, or other~~ income ~~effects,~~statement ifand ~~any,~~outside ~~as a result~~ of ~~the~~income ~~change~~from tooperations ~~the provisional amounts, calculated as~~ if ~~the~~that ~~accounting~~subtotal ~~had~~is ~~been completed at the acquisition date~~presented. In ~~Therefore~~addition, ~~ASU 2015-15 eliminates~~ the ~~requirement to retrospectively account for provisional adjustments recognized in a business combination.~~ ASU ~~2015-16 also~~ requires anentities ~~entity~~ to ~~present~~disclose ~~separately on~~ the ~~face of the~~ income ~~statements~~statement orlines ~~disclose~~that incontain the ~~notes~~other ~~the~~components ~~portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods~~ if ~~the~~they ~~adjustment~~are tonot ~~the~~presented ~~provisional~~on ~~amounts~~appropriately ~~had~~described ~~been~~separate ~~recognized as of the acquisition date~~lines. The ~~guidance~~ASU’s isamendments are effective for interim and annual periods beginning after December 15, ~~2015,~~2017. The ~~including~~Company ~~interim~~is ~~periods~~currently ~~within~~assessing ~~that~~this ~~reporting period and amendments to be applied prospectively to adjustments to provisional amounts that occur after the effective date of~~ ASU ~~2015-16, with earlier application permitted for financial statements that have not yet been made available for issuance, with impacts on the Company~~’s ~~consolidated~~impact ~~financial statements that may vary depending~~ on ~~each~~its ~~specific~~financial ~~business combination~~statements.

3In May 2017 the FASB issued Accounting Standards Update No. ~~Reorganization~~2017-09: ~~Items~~Compensation - Stock Compensation (Topic 718). The amendments in the ASU provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The ASU’s amendments are effective for interim and annual periods beginning after December 15, ~~Net~~2017. Early adoption is permitted. An entity should apply the amendments in this ASU on a prospective basis to an award modified on or after the adoption date. The impact on the Company’s consolidated financial statements would vary depending on the nature of any potential future changes to share-based payment awards.

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 nine months ended September 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.12

All other new accounting pronouncements issued but not yet effective or adopted have been deemed to be not relevant to the Company and, accordingly, are not expected to have an impact once adopted.

3. Restructuring Expenses and Other Costs

Included in restructuring and other costs are costs related to restructuring (primarily severance payments associated with work force reductions) and services and other expenses associated with cost optimization programs and transformation savings activities.

In November 2015 and as expanded in March and May 2016, the Company announced a global restructuring program to reduce costs through global selling, general and administrative expenses reductions and productivity actions at the Company’s operating facilities. The Company expected the program cost, primarily severance related, to be approximately $15. Substantially all of these charges will result in cash expenditures. These costs primarily relate to the Silicones operating segment and are included in Other current liabilities on the Consolidated Balance Sheet and Restructuring and other costs on the Consolidated Statement of Operations.

In January 2016, the Company announced plans to exit siloxane production at its Leverkusen, Germany site to help optimize its manufacturing footprint in order to improve its long-term profitability once fully implemented. The planned reduction is expected to be fully implemented in 2017 and is incremental to the Company’s global restructuring program. This restructuring will result in an overall reduction of employment at the site. The Company recorded severance related costs of approximately $3, some of which was paid in late 2016 and the remaining to be paid in 2017. In addition, as a result of the siloxane production transformation programs, the Company recognized $17 of accelerated depreciation associated with asset retirement obligations during the year ended December 31, 2016.

The total charges incurred to date on the above restructuring programs were $14.

The following table sets forth the changes in the restructuring reserve related to severance. Included in this table are also other minor restructuring programs that were undertaken by the Company in different locations, none of which were individually material. These costs are primarily related to workforce reductions:



	Total
Accrued liability at December 31, 2016	4
Restructuring charges	1
Adjustments	—
Payments	—
Accrued liability at March 31, 2017	5
Restructuring charges	—
Adjustments	—
Payments	(1		)
Accrued liability at June 30, 2017	$	4

For the three months ended June 30, 2017 and June 30, 2016, the Company recognized other costs of $(5) and $3, respectively. For the six months ended June 30, 2017 and June 30, 2016, the company recognized other costs of $(1) and $6, respectively. The costs in 2017 and 2016 were primarily comprised of one-time expenses for services and integration, whereas the costs in 2017 were offset by a gain related to an insurance reimbursement of $10 related to fire damage at our Leverkusen, Germany facility. These are included in “Restructuring and other costs” in the Condensed Consolidated Statements of Operations. Refer to Note 10 for further details regarding these costs.

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 and thereafter, an entity controlled by a significant shareholder of the Company) (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, ~~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 was renewed for one year starting in October ~~2015~~2016, ~~and~~ is subject to termination by either the Company or Hexion, without cause, on not less than 30 days’ written notice, and expires in October ~~2016~~2017 (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 nine months ended September 30, 2015 and 2014, the Company incurred approximately $49 and $76, respectively, of net costs for shared services and Hexion incurred approximately $58 and $100, respectively, of net costs for shared services. Included in the net costs incurred during the nine months ended September 30, 2015 and 2014, were net billings from Hexion to the Company of $30 and $31, 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 $5 and $9 at September 30, 2015 and December 31, 2014, respectively, and no accounts receivable from Hexion.

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MPM HOLDINGS INC. AND MOMENTIVE PERFORMANCE MATERIALS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(In millions, except share data)

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 September 30, 2015 and 2014, the Company sold less than $1 and $2, respectively, of products to Hexion and purchased less than $1. During the nine months ended September 30, 2015 and 2014, the Company sold $2 and $6, respectively, of products to Hexion and purchased less than $1. As of September 30, 2015 and December 31, 2014, the Company had less than $1 and $2, respectively, of accounts receivable from Hexion. As of September 30, 2015 and December 31, 2014, the Company had 0 and less than $1, respectively, 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 nine months ended September 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 nine months ended September 30, 2015, the Company sold approximately $7 and $21, 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 nine months ended September 30, 2014, the Company sold approximately $10 and $20 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 September 30, 2015 and December 31, 2014, the Company had $3 and $2 of accounts receivable, respectively, from Hexion related to the distribution agreement.

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 September 30, 2015 and 2014, respectively, and less than $1 and $9 for the nine months ended September 30, 2015 and 2014, respectively. Receivables from these affiliates were less than $1 and $1 at September 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 $5 for the three months ended September 30, 2015 and 2014, respectively, and $3 and $12 for the nine months ended September 30, 2015 and 2014, respectively. The Company had accounts payable to these affiliates of less than $1 as of both September 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 nine months ended September 30, 2014.

~~Table~~Pursuant to the Shared Services Agreement, during the six months ended June 30, 2017 and 2016, the Company incurred approximately $23 and $29, respectively, of ~~Contents~~net costs for shared services and Hexion incurred approximately $31 and $39, respectively, of net costs for shared services. Included in the net costs incurred during the six months ended June 30, 2017 and 2016, were net billings from Hexion to the Company of $15 and $16, 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 $2 and $5 at June 30, 2017 and December 31, 2016, respectively, and no accounts receivable from Hexion under this agreement.

~~MPM~~Other ~~HOLDINGS~~Transactions ~~INC.~~with ~~AND MOMENTIVE PERFORMANCE MATERIALS INC.~~Hexion

~~NOTES~~In TOApril ~~CONDENSED~~2014, ~~CONSOLIDATED~~the ~~FINANCIAL~~Company ~~STATEMENTS~~sold ~~(Unaudited) (Continued)~~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, 2017, the Company sold $6 and $11, 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 for all periods. During the three and six months ended June 30, 2016, the Company sold $6 and $13, 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 for all periods. As of both June 30, 2017 and December 31, 2016, the Company had $2 of accounts receivable from Hexion related to the distribution agreement.

~~(In~~The ~~millions~~Company also sells other products to, ~~except~~and ~~share~~purchases ~~data)~~products from Hexion. These transactions were not material as of June 30, 2017.

Purchases and Sales of Products and Services with Affiliates other than Hexion.

The Company also sells products to, and purchases products from its affiliates other than Hexion. These transactions were not material as of June 30, 2017.

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 ~~September~~June 30, ~~2015~~2017 and December 31, ~~2014~~2016, 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. Counter-parties ~~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 ~~nine~~six months ended ~~September~~June 30, ~~2015~~2017.

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
September 30, 2015
Debt	$	1,220	$	—	$	1,133	$	—	$	1,133
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.

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	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
June 30, 2017
Debt	$	1,215	$	—	$	1,319	$	—	$	1,319
December 31, 2016
Debt	$	1,203	$	—	$	1,243	$	—	$	1,243

~~MPM~~Fair ~~HOLDINGS~~values ~~INC~~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 ~~AND~~values ~~MOMENTIVE~~of ~~PERFORMANCE~~debt ~~MATERIALS~~are ~~INC~~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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(In millions, except share data)

6. Debt Obligations

As of ~~September~~June 30, ~~2015~~2017 and December 31, ~~2014~~2016, 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 ~~September~~June 30, ~~2015~~2017 were $5756, leaving an unused borrowing capacity of $~~213~~214.

As of ~~September~~June 30, ~~2015~~2017, the Company was in compliance with all the covenants included in the agreements governing its outstanding indebtedness.

~~Debt~~During ~~outstanding~~the atfirst ~~September 30~~quarter of 2016, ~~2015~~the ~~and~~Company ~~December 31,~~repurchased ~~2014~~in isthe open market $29 aggregate principal amount of the Company’s 4.69% Second-Priority Senior Secured Notes due 2022 (the “Second Lien Notes”) for $16. The Company recorded a gain of $9 net of associated discount on these notes, as ~~follows:~~a result of paying down this debt at less than its aggregate principal amount. All repurchased notes were canceled reducing the aggregate principal amount of Second Lien Notes outstanding from $231 to $202.

	September 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 $127 and $140 of unamortized debt discount, respectively)	973		—		960		—
4.69% Second-Priority Senior Secured Notes due 2022 (includes $43 and $47 of unamortized debt discount, respectively)	207		—		203		—
Other Borrowings:
China bank loans	—		34		—		32
Other	—		6		—		6
Total debt	$	1,180	$	40	$	1,163	$	38

At June 30, 2017, the weighted average interest rate of the Company’s long term debt was 4.42%.

Debt outstanding at June 30, 2017 and December 31, 2016 was as follows:



	June 30, 2017				December 31, 2016
	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 $95 and $105 of unamortized debt discount, respectively)	1,005		—		995		—
4.69% Second-Priority Senior Secured Notes due 2022 (includes $28 and $30 of unamortized debt discount, respectively)	174		—		172		—
Other Borrowings:
China bank loans	—		36		—		36
Total debt	$	1,179	$	36	$	1,167	$	36

Momentive is not an obligor 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).

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 $52 and $3 at ~~September~~June 30, ~~2015~~2017 and December 31, ~~2014~~2016, 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 September 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 September 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.

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MPM HOLDINGS INC. AND MOMENTIVE PERFORMANCE MATERIALS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(In millions, except share data)

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 September~~June 30, ~~2015~~2017 and December 31, ~~2014~~2016, the Company had recognized total obligations of approximately $12 and $13, respectively, for remediation costs at the Company’s manufacturing facilities and ~~offsite~~off-site landfills. These amounts are included in “Other long-term liabilities” in the unaudited Condensed Consolidated Balance Sheets.

Included in these liabilities is $8 related to groundwater treatment at the Company’s Waterford, NY ~~Site~~site. 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.

~~The~~Due ~~Company~~to ~~currently~~the ~~owns~~long-term ~~and~~nature ~~operates~~of athe ~~manufacturing~~project ~~site~~and the uncertainty inherent in ~~Waterford,~~estimating ~~NY.~~future Incosts ~~1988,~~of aimplementing ~~consent~~this ~~decree~~program, ~~was~~this ~~signed~~liability ~~with~~was ~~the~~recorded ~~State~~at ofits ~~New~~net ~~York~~present value, which ~~requires~~assumes ~~recovery~~a of3% ~~groundwater~~discount atrate ~~the~~and ~~site~~an toestimated ~~contain~~time ~~migration~~period of ~~specified~~50 ~~contaminants~~years and is included in ~~the~~our ~~groundwater~~total obligations as discussed above. The Aundiscounted ~~groundwater~~obligations, ~~pump~~which ~~and~~are ~~treat~~expected ~~system~~to ~~and~~be ~~groundwater~~paid ~~monitoring~~over ~~program~~the estimated period, are ~~currently~~approximately ~~operational~~$17. Over tothe ~~implement~~next five years the ~~requirements~~Company ofexpects ~~this~~to ~~consent~~make ~~decree~~ratable payments totaling approximately $2.

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 estimated period, are approximately $17. Over the next five years the Company expects to make ratable payments totaling approximately $2.

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.

OnThe ~~April 10, 2015, the~~ Compensation Committee of the Board of Directors of Momentive has 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 (“NEOs”) and certain directors of the Company.

The following is a summary of key terms of the stock-based awards granted under the MPMH Equity Plan ~~during the three and nine months ended September 30, 2015~~:

Award	Vesting Terms	Option/Unit Terms
Stock Options—Tranche A	Performance-based and market-based upon achievement of targeted common stock prices either through a ~~sale~~Sale or an IPO with certain conditions as such terms are defined by the MPMH Equity Plan	10 years
Stock Options—Tranche B	Performance-based and market-based upon achievement of targeted common stock prices either through a ~~sale~~Sale or an IPO with certain conditions as such terms are defined by the MPMH Equity Plan	10 years
Restricted Stock Units	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
Employees and NEOs Restricted Stock Units grant	Cliff vest four years after grant date; Immediate vesting upon a Sale and ratable vesting in the event of an IPO as defined in the MPMH Equity Plan	NA
Directors Restricted Stock Units grant	Cliff vest annually after grant date; Immediate vesting upon a Sale as defined in the MPMH Equity Plan	NA

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MPM HOLDINGS INC. AND MOMENTIVE PERFORMANCE MATERIALS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(In millions, except share data)

Stock Options

In May 2016, the Company’s Board of Directors approved a re-pricing of the granted stock options reducing the strike price to $10.25 from $20.33 based on the fair market value of Momentive’s shares on May 19, 2016 and changing the market conditions vesting thresholds of Tranche A and Tranche B to be $20 per share and $25 per share, down from $30.50 per share and $40.66 per share, respectively. Momentive treated the repricing as a modification of the original awards and calculated additional compensation costs for the difference between the fair value of the modified award and the fair value of the original award on the modification date. The repricing triggered changes in fair value of Tranche A from $7.93 per option to $9.83 per option and in Tranche B from $7.62 per option to $8.93 per option resulting in an incremental increase of $3 in unrecognized compensation expense related to these non-vested stock options, to $15 at May 19, 2016.

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						Nine Months Ended
	June 30, 2017						June 30, 2016
	September 30, 2015						September 30, 2015
	Tranche A			Tranche B			Tranche A			Tranche B
Estimated fair values	$	79.9383		$	78.6293		$	79.9383		$	78.6293
Assumptions:
Strike Price	$	2010.3325		$	2010.3325		$	2010.3325		$	2010.3325
Risk-free interest rate	0.4880		%	0.4880		%	0.4880		%	0.4880		%
Expected term	1.7362 years			1.7362 years			1.7362 years			1.7362 years
Expected volatility	4760.00		%	4760.00		%	4760.00		%	4760.00		%
Tranche Market Threshold	$	3020.5000		$	4025.6600		$	3020.5000		$	4025.6600

~~The~~Information ~~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~~Stock ~~yields~~Options ~~for~~activity 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~~as using the expected term of the stock options granted. The Tranche Market Thresholds are the average targeted expected closing prices over 10 days in the event of the underlying stocks trading publicly.follows:

Information on Stock Options activity at the weighted average exercise price of $20.33 per underlying share is as follows:



	Tranche A			Tranche B
	Units	Weighted-Average Exercise Price per Share		Units	Weighted-Average Exercise Price per Share
Balance at January 1, 2017	782,040	$	10.33	782,040	$	10.33
Granted	—			—
Exercised	—			—
Forfeited	—			—
Expired	—			—
Balance as of June 30, 2017	782,040	$	10.33	782,040	$	10.33

	Three Months Ended		Nine Months Ended
	September 30, 2015		September 30, 2015
	Tranche A	Tranche B	Tranche A	Tranche B
Balance at beginning of the period	817,320	817,320	—	—
Granted	93,100	93,100	910,420	910,420
Exercised	—	—	—	—
Forfeited	—	—	—	—
Expired	—	—	—	—
Balance at end of the period	910,420	910,420	910,420	910,420

As there have been no performance and market based achievements since the date of the original grant, there has been no compensation expense recorded during the three months and six months ended June 30, 2017 and the three months and six months ended June 30, 2016 with respect to stock options. At both June 30, 2017 and December 31, 2016, unrecognized compensation expense related to non-vested stock options was $15. Stock-based compensation cost related to stock options will be recognized once the satisfaction of the performance and market conditions becomes probable.

As there have been no performance and market based achievements during the three and nine months ended September 30, 2015, there has been no compensation expense recorded. As of September 30, 2015, unrecognized compensation expense related to non-vested stock options was $13. Stock-based compensation cost related to stock options will be recognized once the satisfaction of the performance and market conditions becomes probable.

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MPM HOLDINGS INC. AND MOMENTIVE PERFORMANCE MATERIALS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(In millions, except share data)

Restricted Stock Units

Information on Restricted Stock Units ~~(“RSU”)~~ activity ~~at the weighted average grant date fair value of $20.33 per stock unit~~ is as follows:

	Three Months Ended			Nine Months Ended
	Units		Weighted-Average Grant Date Fair Value per Share		Aggregate Fair Value
	September 30, 2015			September 30, 2015
Balance at January 1, 2017	733,840		$	19.23
Balance at beginning of the period	700,560			—
Granted	42,056		18.28
Granted	79,800			780,360
Vested	(63,520	)	10.35		1
Vested	—			—
Forfeited	—
Forfeited	—			—
Expired	—
Expired	—			—
Balance as of June 30, 2017	712,376		$	19.92
Balance at end of the period	780,360			780,360

The fair market ~~value~~values ~~of $20.33 per unit~~ related to the RSUs at the different grant ~~date~~dates iswere derived ~~through~~from ~~relying on~~ material financial weighted analysis of the Company’s ~~developed~~value atas ~~the~~implied ~~time~~at ~~the~~emergence ~~Company emerged~~ from Chapter 11 Bankruptcy, ~~after~~or ~~considering~~by ~~recent~~the sales of stock tocompleted with related parties and ~~the~~adjusted ~~review~~to ofreflect current and future market conditions and ~~financial~~the ~~performance~~expected asCompany’s offinancial ~~April~~performances ~~10,~~at ~~2015.~~the grant date. 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 employees’ and named executive officers’ 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. 17

~~There~~Date”) ~~were~~provided nothat ~~performance-based~~the ~~achievements~~grantee ~~during~~remains ~~the~~continuously ~~three~~employed ~~and~~in ~~nine~~active ~~months~~service ~~ended~~by ~~September 30,~~the ~~2015.~~Company ~~The~~or ~~fair~~one ~~value~~ of ~~the~~its ~~Company’s~~affiliates ~~RSUs,~~from ~~net~~the date of ~~estimated~~grant ~~forfeitures~~through isthe ~~expensed~~Scheduled onVesting aDate. The ~~straight-line~~directors’ ~~basis~~RSUs ~~over~~are 100% vested upon the ~~required~~first ~~service~~anniversary ~~period,~~of ~~currently~~the ~~four~~date ~~years.~~of grant.

~~Stock-based~~Additionally, ~~compensation~~vesting ~~expense~~of ~~related to~~ the RSU ~~awards~~grants ~~was~~could ~~approximately~~be $1accelerated: ~~and~~(i) $2upon ~~for~~a Sale of the ~~three~~Company ~~and~~occurring ~~nine~~prior ~~months~~to ~~ended~~the ~~September~~Scheduled ~~30,~~Vesting ~~2015~~Date, ~~respectively.~~the AsRSUs, ofto ~~September~~the ~~30,~~extent ~~2015~~unvested, ~~unrecognized~~shall ~~compensation~~become ~~related~~fully tovested, ~~RSU~~subject ~~awards~~to ~~was~~the ~~$13~~grantee’s ~~and~~continued ~~expense~~employment ~~will~~through bethe ~~recognized~~effective ~~over~~date ~~the~~of ~~remaining~~such ~~3.5~~Sale; ~~years~~or ~~vesting~~(ii) ~~period.~~upon ~~Stock-based~~an ~~compensation~~IPO ~~cost~~occurring ~~related~~prior to ~~RSU~~the ~~awards~~Scheduled ~~may~~Vesting beDate, ~~accelerated~~a ~~once~~graded percentage of the ~~satisfaction~~employees’ ofRSUs, ~~one~~shall ofbecome vested subject to the ~~performance~~grantee’s ~~conditions~~continued ~~outlined~~employment ~~becomes~~through ~~probable~~the effective date of the IPO.

~~Although~~There ~~the MPMH Equity Plan, under which the above awards~~ were ~~granted,~~no ~~was~~performance-based ~~issued~~achievements byduring ~~Momentive,~~ the ~~underlying~~three ~~compensation~~and ~~cost~~six ~~represents~~months ~~compensation~~ended ~~costs paid for by Momentive on MPM’s behalf~~June 30, as2017. The afair ~~result~~value of the ~~employees~~Company’s ~~services~~RSUs, tonet ~~MPM. None~~ of ~~the~~forfeitures, ~~stock~~is ~~grants~~expensed ~~have~~on ~~been~~a ~~forfeited~~straight-line ~~since~~basis ~~the~~over ~~grant date and~~ the ~~Company~~required ~~intends~~service ~~to issue new stock to deliver shares under the MPMH Equity Plan~~period.

18Stock-based compensation expense related to the RSU awards was approximately $1 for both the three months ended June 30, 2017 and June 30, 2016 and $2 for both the six months ended June 30, 2017 and June 30, 2016. As of June 30, 2017, unrecognized compensation related to RSU awards was $7 and expense will be recognized over the remaining 1.79 years 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.

~~Table~~Although the MPMH Equity Plan, under which the above awards were granted, was issued by Momentive, substantially all of ~~Contents~~the underlying compensation cost represents compensation costs paid for by Momentive on MPM’s behalf, as a result of the MPM’s employees’ services to MPM. Upon vesting of awards, Momentive will issue new stock to deliver shares under the MPMH Equity Plan.

MPM HOLDINGS INC. AND MOMENTIVE PERFORMANCE MATERIALS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(In millions, except share data)

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 ~~nine~~six months ended ~~September~~June 30, ~~2015~~2017 and ~~2014~~2016:

	Pension Benefits										Non-Pension Postretirement Benefits
	Three Months Ended September 30,										Three Months Ended September 30,
	Three Months Ended June 30,										Three Months Ended June 30,
	2015					2014					2015					2014
	2017					2016					2017					2016
	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	$	21		$	3	$	21		$	13	$	1—		$	—	$	1		$	—
Interest cost on projected benefit obligation	23			1		2			1		1			—		1—			—
Expected return on assets	(23		)	—		(2		)	—		—			—		—			—
Amortization of prior service cost	—			—		—			—		—			—		1			—
Amortization of prior service credit	—			—		—			—		(1		)	—		(1		)	—
Amortization of net gains	—			—		—			—		—			—		(1		)	—
Net periodic benefit cost	$	1		$	4	$	1		$	4	$	—		$	—	$	—		$	—
Net periodic benefit cost	$	2		$	4	$	2		$	2	$	2		$	—	$	2		$	—

	Pension Benefits										Non-Pension Postretirement Benefits
	Nine Months Ended September 30,										Nine Months Ended September 30,
	Six Months Ended June 30,										Six Months Ended June 30,
	2015					2014					2015					2014
	2017					2016					2017					2016
	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	$	73		$	76	$	63		$	5	$	2—		$	—	$	21		$	—
Interest cost on projected benefit obligation	65			32		64			32		31			—		31			—
Expected return on assets	(65		)	—		(64		)	—		—			—		—			—
Curtailment gain (1)	(3		)	—		—			—		—			—		—			—
Amortization of prior service credit	—			—		—			—		(2		)	—		(1		)	—
Actuarial gain (2)	(10		)	—		—			—		—			—		—			—
Actuarial loss (1)	—					—			—		1			—		5			—
Amortization of prior service cost	—			—		—			—		—			—		1			—
Net periodic benefit cost	$	3		$	8	$	3		$	7	$	—		$	—	$	6		$	—
Amortization of net losses (gains)	—			—		—			1		—			—		(1		)	—
Net periodic benefit (gain) cost	$	(6	)	$	10	$	6		$	9	$	5		$	—	$	5		$	—

(1) The ~~curtailment~~actuarial ~~gain~~loss ~~recognized~~ on non-pension post-retirement benefits of $1 and $5 during the ~~nine~~six months ended ~~September~~June 30, ~~2015~~2017 and 2016, respectively relates to the ~~remeasurement~~decrease in discount rate as a result of the ~~pension~~re-measurement of the accumulated postretirement benefit obligation inon ~~conjunction~~company ~~with~~sponsored ~~plan~~post-retiree ~~provision~~medical, ~~changes~~dental, ~~for~~vision ~~non-exempt~~and ~~employees~~life ~~not~~insurance ~~subject~~benefit toplans. aThese ~~collective~~were ~~bargaining~~triggered ~~agreement~~by ~~(“impacted~~plan provision changes for active retirees and employees”). The Company recorded this ~~gain~~expense in Selling, general and administrative expense in the unaudited ~~Condensed~~ Consolidated Statements of Operations. ~~There was no curtailment gain during the three months ended September 30, 2015.~~

(2) The actuarial gain recognized on pension benefits during the nine months ended September 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

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MPM HOLDINGS INC. AND MOMENTIVE PERFORMANCE MATERIALS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(In millions, except share data)

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 ~~September~~June 30, ~~2015~~2017, 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. In addition, 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 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 nine months ended September 30, 2014 was retrospectively revised to conform with current presentation.

Net Sales⁽¹⁾:

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended June 30,					Six Months Ended June 30,
	2015			2014			2015				2014
	2017		2016			2017			2016
	Successor			Predecessor			Successor				Predecessor
Silicones	$	542	$	539		$	1,037		$	1,039
Silicones	$	514		$	587		$	1,605			$	1,736
Quartz	52		47			101			83
Quartz	45			44			135				137
Total	$	594	$	586		$	1,138		$	1,122
Total	$	559		$	631		$	1,740			$	1,873


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

Segment EBITDA:

	MPM HOLDINGS INC.
	Three Months Ended September 30,								Nine Months Ended September 30,
	Three Months Ended June 30,							Six Months Ended June 30,
	2015				2014				2015					2014
	2017			2016				2017				2016
	Successor				Predecessor				Successor					Predecessor
Silicones	$	75		$	70			$	146			$	120
Silicones	$	42			$	70			$	154				$	195
Quartz	10			6				17				7
Quartz	6				5				26					17
Corporate	(11		)	(10		)		(20		)		(20		)
Corporate	(7		)		(12		)		(27		)			(35		)
Total	$	74		$	66			$	143			$	107
Total	$	41			$	63			$	153				$	177

	MOMENTIVE PERFORMANCE MATERIALS INC.
	Three Months Ended September 30,								Nine Months Ended September 30,
	Three Months Ended June 30,							Six Months Ended June 30,
	2015				2014				2015					2014
	2017			2016				2017				2016
	Successor				Predecessor				Successor					Predecessor
Silicones	$	75		$	70			$	146			$	120
Silicones	$	42			$	70			$	154				$	195
Quartz	10			6				17				7
Quartz	6				5				26					17
Corporate	(11		)	(10		)		(19		)		(19		)
Corporate	(7		)		(12		)		(26		)			(35		)
Total	$	74		$	66			$	144			$	108
Total	$	41			$	63			$	154				$	177

2019

~~Table~~Reconciliation of ~~Contents~~Net Income (Loss) to Segment EBITDA:

MPM HOLDINGS INC. AND MOMENTIVE PERFORMANCE MATERIALS INC.



	MPM HOLDINGS INC.
	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Net income (loss)	$	19		$	(10	)	$	(11	)	$	(28	)
Interest expense, net	20			19			39			38
Income tax expense (benefit)	4			4			5			(4		)
Depreciation and amortization	37			42			75			84
Gain on extinguishment and exchange of debt	—			—			—			(9		)

Items not included in Segment EBITDA:
Non-cash charges and other income and expense	$	(2	)	$	7		$	4		$	11
Unrealized losses on pension and postretirement benefits	—			—			1			5
Restructuring and other costs	(4		)	4			30			9
Reorganization items, net	—			—			—			1
Segment EBITDA	$	74		$	66		$	143		$	107

Segment EBITDA:
Silicones	$	75		$	70		$	146		$	120
Quartz	10			6			17			7
Corporate	(11		)	(10		)	(20		)	(20		)
Total	$	74		$	66		$	143		$	107

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)



	MOMENTIVE PERFORMANCE MATERIALS INC.
	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Net income (loss)	$	19		$	(10	)	$	(10	)	$	(27	)
Interest expense, net	20			19			39			38
Income tax expense (benefit)	4			4			5			(4		)
Depreciation and amortization	37			42			75			84
Gain on extinguishment and exchange of debt	—			—			—			(9		)

Items not included in Segment EBITDA:
Non-cash charges and other income and expense	$	(2	)	$	7		$	4		$	11
Unrealized losses on pension and postretirement benefits	—			—			1			5
Restructuring and other costs	(4		)	4			30			9
Reorganization items, net	—			—			—			1
Segment EBITDA	$	74		$	66		$	144		$	108

Segment EBITDA:
Silicones	75			70			146			120
Quartz	10			6			17			7
Corporate	(11		)	(10		)	(19		)	(19		)
Total	$	74		$	66		$	144		$	108

(In millions, except share data)

Reconciliation of Segment EBITDA to Net Loss:

	MPM HOLDINGS INC.
	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	Successor			Predecessor			Successor			Predecessor
Segment EBITDA:
Silicones	$	42		$	70		$	154		$	195
Quartz	6			5			26			17
Corporate	(7		)	(12		)	(27		)	(35		)
Total	$	41		$	63		$	153		$	177
Reconciliation:
Items not included in Segment EBITDA:
Non-cash charges	$	—		$	(145	)	$	(3	)	$	(116	)
Unrealized actuarial and curtailment gains from pension liabilities	—			—			13			—
Restructuring and other costs	(4		)	(6		)	(13		)	(20		)
Reorganization items, net	(1		)	(44		)	(8		)	(114		)
Total adjustments	(5		)	(195		)	(11		)	(250		)
Interest expense, net	(20		)	(36		)	(59		)	(153		)
Income tax (expense) benefit	(6		)	23			(11		)	2
Depreciation and amortization	(42		)	(54		)	(118		)	(137		)
Net loss	$	(32	)	$	(199	)	$	(46	)	$	(361	)

	MOMENTIVE PERFORMANCE MATERIALS INC.
	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	Successor			Predecessor			Successor			Predecessor
Segment EBITDA:
Silicones	$	42		$	70		$	154		$	195
Quartz	6			5			26			17
Corporate	(7		)	(12		)	(26		)	(35		)
Total	$	41		$	63		$	154		$	177
Reconciliation:
Items not included in Segment EBITDA:
Non-cash charges	$	1		$	(145	)	$	(3	)	$	(116	)
Unrealized actuarial and curtailment gains from pension liabilities	—			—			13			—
Restructuring and other costs	(4		)	(6		)	(13		)	(20		)
Reorganization items, net	(1		)	(44		)	(8		)	(114		)
Total adjustments	(4		)	(195		)	(11		)	(250		)
Interest expense, net	(20		)	(36		)	(59		)	(153		)
Income tax (expense) benefit	(6		)	23			(11		)	2
Depreciation and amortization	(42		)	(54		)	(118		)	(137		)
Net loss	$	(31	)	$	(199	)	$	(45	)	$	(361	)

Table of Contents

MPM HOLDINGS INC. AND MOMENTIVE PERFORMANCE MATERIALS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(In millions, except share data)

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 and nine months ended September 30, 2015 and September 30, 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 and nine months ended September 30, 2015, these amounts also included certain other operating charges. For the three and nine months ended September 30, 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 both the three and nine months ended September 30, 2015, reorganization items, net included professional fees and rating fees for the new debt issued on the Emergence Date.

For the three and six months ended June 30, 2017 and June 30, 2016, non-cash charges primarily included asset impairment charges, stock based compensation expense and net foreign exchange transaction gains and losses related to certain intercompany arrangements.

For the six months ended June 30, 2017 and June 30, 2016, unrealized gains (losses) on pension and postretirement benefits represented non-cash actuarial losses recognized upon the remeasurement of our pension and postretirement benefit obligations.

For the three and six months ended June 30, 2017 and June 30, 2016, restructuring and other costs included expenses from restructuring and integration. In addition, for the three months ended June 30, 2017, these costs also included a gain related to an insurance reimbursement of $10 related to fire damage at our Leverkusen, Germany facility and for the six months ended June 30, 2017, these costs also included costs arising from the work stoppage inclusive of unfavorable manufacturing variances at our Waterford, NY facility.

11. Changes in Other Comprehensive (Loss) Income

Following is a summary of changes in “Accumulated other comprehensive (loss) income” for the three and ~~nine~~six months ended ~~September~~June 30, ~~2015~~2017 and ~~2014~~2016:

	Three Months Ended September 30,
	Three Months Ended June 30,
	2015									2014
	2017									2016
	Successor									Predecessor
	Defined Benefit Pension and Postretirement Plans			Foreign Currency Translation Adjustments			Total			Defined Benefit Pension and Postretirement Plans			Foreign Currency Translation Adjustments			Total
Beginning balance	$	(128	)	$	(6671	)	$	(6743	)	$	~~(36~~20	)	$	~~225~~(54	)	$	~~189~~(34	)
Other comprehensive (loss) income before reclassifications, net of tax (1)	—			(14		)	(14		)	(22		)	52			30
Other comprehensive income before reclassifications, net of tax (1)	—			9			9			—			21			21
Amounts reclassified from Accumulated other comprehensive (loss) income, net of tax	—			—			—			—			—			—
Amounts reclassified from Accumulated other comprehensive income (loss), net of tax	(1		)	—			(1		)	—			—			—
Net other comprehensive (loss) income	—(1		)	~~(14~~9		)	~~(14~~8		)	~~(22~~—		)	5221			3021
Ending balance	$	(127	)	$	(8062	)	$	(8135	)	$	~~(58~~20	)	$	~~277~~(33	)	$	~~219~~(13	)



	Six Months Ended June 30,
	2017									2016
	Defined Benefit Pension and Postretirement Plans			Foreign Currency Translation Adjustments			Total			Defined Benefit Pension and Postretirement Plans		Foreign Currency Translation Adjustments			Total
Beginning balance	$	17		$	(93	)	$	(76	)	$	—	$	(92	)	$	(92	)
Other comprehensive income before reclassifications, net of tax ⁽¹⁾	12			31			43			20		59			79
Amounts reclassified from Accumulated other comprehensive income (loss), net of tax	(2		)	—			(2		)	—		—			—
Net other comprehensive income	10			31			41			20		59			79
Ending balance	$	27		$	(62	)	$	(35	)	$	20	$	(33	)	$	(13	)

~~Table~~(1) Other comprehensive income related to defined benefit pension and postretirement plans for the six months ended June 30, 2017 and six months ended June 30, 2016 represent the recognition of ~~Contents~~prior service benefits of $18 and $32, respectively, with the corresponding decrease in the projected benefit obligation following certain plan provision changes, reduced by tax

~~MPM HOLDINGS INC. AND MOMENTIVE PERFORMANCE MATERIALS INC.~~21

~~NOTES~~expenses TOof ~~CONDENSED~~$6 ~~CONSOLIDATED~~and ~~FINANCIAL~~$12, ~~STATEMENTS~~for the six months ended June 30, 2017 and six months ended June 30, 2016, respectively, (~~Unaudited~~see Note 9) ~~(Continued)~~.

(In millions, except share data)

	Nine Months Ended September 30,
	2015									2014
	Successor									Predecessor
	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 (income) loss before reclassifications, net of tax (1) (2)	(2		)	(51		)	(53		)	(22		)	38		16
Amounts reclassified from Accumulated other comprehensive income, net of tax	—			—			—			1			—		1
Net other comprehensive (loss) income	(2		)	(51		)	(53		)	(21		)	38		17
Ending balance	$	(1	)	$	(80	)	$	(81	)	$	(58	)	$	277	$	219

(1) Other comprehensive loss related to defined benefit pension and postretirement plans for the three and nine months ended September 30, 2014 relates to unrecognized losses recorded in conjunction with the remeasurement of certain defined benefit pension obligations due to the renegotiation of certain collective bargaining agreements.

(2) Other comprehensive loss related to defined benefit pension and postretirement plans for the nine months ended September 30, 2015 primarily represents the recognition of net prior service cost following certain plan provision changes (see Note 9).

There were no reclassifications from “Accumulated other comprehensive (loss) income” for either the three or nine months ended September 30, 2015 or 2014.

12. Income Taxes

The effective tax rate was ~~(23)~~17% for both Momentive and ~~10%~~MPM, for the three months ended ~~September~~June 30, ~~2015~~2017 and ~~2014~~(57)% for Momentive and MPM, ~~respectively.~~for the three months ended June 30, 2016. The effective tax rate was (2883)% and 1(100)% for Momentive and MPM for the ~~nine~~Six ~~months~~Months ~~ended~~Ended ~~September~~ June 30, ~~2015~~2017. The effective tax rate was 12% and ~~2014~~13% for Momentive and MPM for the six months ended June 30, ~~respectively~~2016. The change in the effective tax rate was primarily attributable to the amount and distribution of income and loss among the various jurisdictions in which the Company operates. The effective tax rates were also impacted by operating losses generated in jurisdictions where no tax benefit was recognized due to the maintenance of a full valuation allowance, tax impact of recognition of net prior service benefit following certain plan provision changes (see Note 11), legislative changes in Italy and Japan, and the resolution of certain tax matters in non-U.S. jurisdictions.

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2015~~2017, income taxes included a favorable discrete tax ~~adjustments~~adjustment of $15 and 0$10, respectively, pertaining to abenefits ~~tax~~curtailment, ~~law~~legislative ~~change~~changes in Italy and Japan, and the resolution of certain tax matters in non-U.S. jurisdictions. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2014~~2016, income taxes included a favorable discrete tax ~~adjustments~~adjustment of ($~~23)~~0 and ($9)13, respectively, pertaining to ~~pension~~benefits curtailment, ~~adjustments made to prior year intercompany transactions~~ and ~~the~~a ~~resolution~~change ofin ~~certain~~ tax ~~matters~~law in UJapan.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 ~~September~~ June 30, ~~2015,~~2017 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. In addition, the Company has certain intercompany arrangements that if settled may trigger taxable gains or losses based on currency exchange rates in place at the time of settlement. Since the currency translation impact is considered indefinite, the Company has not provided deferred taxes on gains of $11, which could result in a tax obligation of $3, based on currency exchange rates as of June 30, 2017. Should the intercompany arrangement be settled or the Company change its assertion, the actual tax impact will depend on the currency exchange rate at the time of settlement or change in assertion.

2313. Net Income (Loss) per Share

~~Table~~The following table presents the calculation of ~~Contents~~basic and diluted net loss per share attributable to Momentive for the three and six months ended June 30, 2017 and 2016:

MPM HOLDINGS INC. AND MOMENTIVE PERFORMANCE MATERIALS INC.



	Three Months Ended June 30,					Six Months Ended June 30,
(in millions, except share data)	2017		2016			2017			2016
Net income (loss)	$	19	$	(10	)	$	(11	)	$	(28	)
Weighted average common shares—basic	48,117,894		48,055,194			48,103,386			48,041,894
Effect of dilutive potential common shares	48,295		—			—			—
Weighted average shares outstanding—diluted	48,166,189		48,055,194			48,103,386			48,041,894
Net income (loss) per common share—basic	$	0.39	$	(0.21	)	$	(0.23	)	$	(0.58	)
Net income (loss) per common share—diluted	$	0.39	$	(0.21	)	$	(0.23	)	$	(0.58	)
Antidilutive employee share-based awards, excluded	—		583,527			32,906			713,224

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(In millions, except share data)

13. Net Loss per Share

	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
(in millions, except share data)	Successor			Predecessor			Successor			Predecessor
Net loss	$	(32	)	$	(199	)	$	(46	)	$	(361	)
Weighted average common shares—basic	48,028,594			100			48,011,335			100
Effect of dilutive potential common shares	—			—			—			—
Weighted average shares outstanding—diluted	48,028,594			100			48,011,335			100
Net loss per share—basic	$	(0.67	)	$	(1,990,000	)	$	(0.96	)	$	(3,610,000	)
Net income loss per share—diluted	$	(0.67	)	$	(1,990,000	)	$	(0.96	)	$	(3,610,000	)
Antidilutive employee share-based awards, excluded	77,290			—			37,520			—

Employee equity share options, unvested shares and similar equity instruments granted by the Company are treated as potential common shares outstanding in computing diluted earnings per share. Diluted shares outstanding include the dilutive effect of in-the-money options, unvested restricted stock, and restricted stock units. The dilutive effect of such equity awards is calculated based on the average share price for each fiscal period using the treasury stock method. Under the treasury stock method, the amount the employee must pay for exercising stock options, the amount of compensation cost for future service that the Company has not yet recognized, and the amount of tax benefits that would be recorded in additional paid-in capital when the award becomes deductible are collectively assumed to be used to repurchase shares.

~~Due to the net loss recognized for the three and nine months ended September 30, 2015 and September 30, 2014, there is no effect for potentially dilutive shares.~~22

14. Guarantor/Non-Guarantor Subsidiary Financial Information

As of ~~September~~June 30, ~~2015~~2017, 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~~202 in aggregate principal amount of 4.69% Second-Priority Senior Secured Notes due 2022 (the “Second Lien Notes”). The notes are fully and unconditionally, jointly and severally guaranteed on a senior secured basis by each of MPM’s existing 100% owned U.S. subsidiaries that is a guarantor under MPM’s ABL Facility and MPM’s future U.S. subsidiaries (other than receivables subsidiaries and U.S. subsidiaries of foreign subsidiaries) that guarantee any debt of MPM or any of the guarantor subsidiaries of MPM under the related indenture (the “Note Guarantors”). The following condensed consolidated financial information presents the Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2015~~2017 and December 31, ~~2014~~2016, the Condensed Consolidated Statements of Operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2015~~2017 and ~~2014~~2016 and the Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2015~~2017 and ~~2014~~2016 of (i) Momentive Performance Materials Inc. (“Parent”); (ii) the guarantor subsidiaries; (iii) the non-guarantor subsidiaries; and (iv) MPM on a consolidated basis.

These financial statements are prepared on the same basis as the consolidated financial statements of MPM 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 MPM’s ability and the ability of certain of MPM’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 MPM’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 MPM’s subsidiaries to pay dividends or to make other payments to us; (viii) enter into transactions with MPM’s affiliates; (ix) merge or consolidate with other companies or transfer all or substantially all of MPM’s assets; and (x) transfer or sell assets.

2423

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MPM HOLDINGS INC. AND MOMENTIVE PERFORMANCE MATERIALS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(In millions, except share data)

MOMENTIVE PERFORMANCE MATERIALS INC.

~~SEPTEMBER~~JUNE 30, ~~2015~~2017

CONDENSED CONSOLIDATING BALANCE SHEETS (Unaudited)

	Parent		Combined GuarantorSubsidiaries		Combined Non-GuarantorSubsidiaries		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents (including restricted cash of $0, $0 and $4, respectively)	$	4818	$	12	$	~~116~~112	$	—		$	~~165~~132
Accounts receivable	—		8799		~~232~~233		—			~~319~~332
Due from affiliates	—		6774		1838		(85112		)	—
Inventories:
Raw materials	—		7667		7870		—			~~154~~137
Finished and in-process goods	—		~~118~~127		~~152~~165		—			~~270~~292
Deferred income taxes	—		—		31		—			31
Other current assets			9		58		—			67
Other current assets	1		25		30		—			56
Total current assets	18		378		676		(112		)	960
Total current assets	49		374		657		(85		)	995
Investment in unconsolidated entities	1,612		303		20		(1,915		)	20
Investment in unconsolidated entities	1,735		320		19		(2,055		)	19
Deferred income taxes	—		—		13		—			13
Deferred income taxes	—		—		18		—			18
Other long-term assets	—		—		10		—			10
Other long-term assets	—		5		18		—			23
Intercompany loans receivable	302		949		88		(1,339		)	—
Intercompany loans receivable	115		1,034		27		(1,176		)	—
Property, plant and equipment, net	—		540		584		—			1,124
Property, plant and equipment, net	—		524		590		—			1,114
Goodwill	—		105		110		—			215
Goodwill	—		105		106		—			211
Other intangible assets, net	—		129		185		—			314
Other intangible assets, net	—		154		217		—			371
Total assets	$	1,932	$	2,404	$	1,686	$	(3,366	)	$	2,656
Total assets	$	1,899	$	2,516	$	1,652	$	(3,316	)	$	2,751
Liabilities and Equity
Current liabilities:
Accounts payable	$	—	$	6497	$	~~132~~179	$	—		$	~~196~~276
Due to affiliates	—		1838		6774		(85112		)	—
Debt payable within one year	5—		—		3536		—			4036
Interest payable	2611		—		—1		—			2612
Income taxes payable	—		—		7		—			7
Deferred income taxes	—		—		16		—			16
Accrued payroll and incentive compensation	—		25		22		—			47
Accrued payroll and incentive compensation	—		22		27		—			49
Other current liabilities	—		31		74		—			105
Other current liabilities	—		25		45		—			70
Total current liabilities	11		191		393		(112		)	483
Total current liabilities	31		129		329		(85		)	404
Long-term liabilities:
Long-term debt	1,~~180~~179		—		—		—			1,~~180~~179
Intercompany loans payable	15225		~~455~~435		~~706~~679		(1,~~176~~339		)	—
Pension liabilities	—		183		157		—			340
Pension and retirement benefit liabilities	—		152		190		—			342
Deferred income taxes	—		—		~~100~~68		—			~~100~~68
Other long-term liabilities	—		14		4053		—			5467
Total liabilities	1,~~226~~415		~~781~~792		1,~~332~~383		(1,~~261~~451		)	2,~~078~~139
Total equity	673		1,735		320		(2,055		)	673
Total equity (deficit)	517		1,612		303		(1,915		)	517
Total liabilities and equity	$	1,~~899~~932	$	2,~~516~~404	$	1,~~652~~686	$	(3,~~316~~366	)	$	2,~~751~~656

2524

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MPM HOLDINGS INC. AND MOMENTIVE PERFORMANCE MATERIALS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(In millions, except share data)

MOMENTIVE PERFORMANCE MATERIALS INC.

DECEMBER 31, ~~2014~~2016

CONDENSED CONSOLIDATING BALANCE SHEETS

	Parent		Combined GuarantorSubsidiaries		Combined Non-GuarantorSubsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents (including restricted cash of $0, $0 and $5, respectively)	$	78	$	10	$	140		$	—		$	228
Cash and cash equivalents (including restricted cash of $0, $0 and $4, respectively)	$	39	$	1	$	188		$	—		$	228
Accounts receivable	—		9277		~~232~~203			—			~~324~~280
Due from affiliates	—		7386		2541			(98127		)	—
Inventories:
Raw materials	—		6571		7948			—			~~144~~119
Finished and in-process goods	—		~~123~~118		~~135~~153			—			~~258~~271
Deferred income taxes	—		28		5			—			33
Other current assets	—		16		34			—			50
Other current assets	—		26		34			—			60
Total current assets	39		369		667			(127		)	948
Total current assets	78		417		650			(98		)	1,047
Investment in unconsolidated entities	1,556		257		20			(1,813		)	20
Investment in unconsolidated entities	1,852		—		18			(1,852		)	18
Deferred income taxes	—		—		9			—			9
Deferred income taxes	—		—		14			—			14
Other long-term assets	—		1		19			—			20
Other long-term assets	—		10		17			—			27
Intercompany loans receivable	264		927		51			(1,242		)	—
Intercompany loans receivable	92		1,766		52			(1,910		)	—
Property, plant and equipment, net	—		526		549			—			1,075
Property, plant and equipment, net	—		528		624			—			1,152
Goodwill	—		105		106			—			211
Goodwill	—		104		114			—			218
Other intangible assets, net	—		136		187			—			323
Other intangible assets, net	—		163		245			—			408
Total assets	$	1,859	$	2,321	$	1,608		$	(3,182	)	$	2,606
Total assets	$	2,022	$	2,988	$	1,734		$	(3,860	)	$	2,884
Liabilities and Equity
Liabilities and Equity (Deficit)
Current liabilities:
Accounts payable	$	9—	$	8064	$	~~134~~174		$	—		$	~~223~~238
Due to affiliates	—		2641		7286			(98127		)	—
Debt payable within one year	4—		—		3436			—			3836
Interest payable	11		—		—			—			11
Income taxes payable	—		—		78			—			78
Deferred income taxes	—		—		18			—			18
Accrued payroll and incentive compensation	—		35		26			—			61
Accrued payroll and incentive compensation	—		35		22			—			57
Other current liabilities	—		41		81			—			122
Other current liabilities	1		28		53			—			82
Total current liabilities	11		181		411			(127		)	476
Total current liabilities	25		169		340			(98		)	436
Long-term liabilities:
Long-term debt	1,~~163~~167		—		—			—			1,~~163~~167
Intercompany loans payable	63197		~~475~~401		~~1,372~~644			(1,~~910~~242		)	—
Accumulated losses from unconsolidated subsidiaries in excess of investment	—		258		—			(258		)	—
Pension and retirement benefit liabilities	—		168		173			—			341
Pension liabilities	—		191		161			—			352
Deferred income taxes	—		—		66			—			66
Deferred income taxes	—		28		70			—			98
Other long-term liabilities	—		15		57			—			72
Other long-term liabilities	2		15		49			—			66
Total liabilities	1,375		765		1,351			(1,369		)	2,122
Total liabilities	1,253		1,136		1,992			(2,266		)	2,115
Total equity (deficit)	484		1,556		257			(1,813		)	484
Total equity (deficit)	769		1,852		(258		)	(1,594		)	769
Total liabilities and equity (deficit)	$	1,859	$	2,321	$	1,608		$	(3,182	)	$	2,606
Total liabilities and equity (deficit)	$	2,022	$	2,988	$	1,734		$	(3,860	)	$	2,884

MOMENTIVE PERFORMANCE MATERIALS INC.

THREE MONTHS ENDED JUNE 30, 2017

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)



	Parent			Combined Guarantor Subsidiaries			Combined Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	300		$	461		$	(167	)	$	594
Cost of sales	—			245			381			(167		)	459
Gross profit	—			55			80			—			135
Selling, general and administrative expense	—			46			39			—			85
Research and development expense	—			10			6			—			16
Restructuring and other costs	—			2			(7		)	—			(5		)
Other operating expense, net	—			1			—			—			1
Operating (loss) income	—			(4		)	42			—			38
Interest expense (income), net	18			(6		)	8			—			20
Other non-operating (income) expense, net	(1		)	(3		)	(1		)	—			(5		)
(Loss) income before income taxes and earnings (losses) from unconsolidated entities	(17		)	5			35			—			23
Income tax expense	—			—			4			—			4
(Loss) income before earnings (losses) from unconsolidated entities	(17		)	5			31			—			19
Earnings (losses) from unconsolidated entities, net of taxes	36			31			—			(67		)	—
Net income (loss)	$	19		$	36		$	31		$	(67	)	$	19
Comprehensive income (loss)	$	27		$	43		$	23		$	(66	)	$	27

~~Table~~MOMENTIVE ofPERFORMANCE ~~Contents~~MATERIALS INC.

~~MPM~~THREE ~~HOLDINGS~~MONTHS ~~INC.~~ENDED ~~AND~~JUNE ~~MOMENTIVE~~30, ~~PERFORMANCE~~2016 ~~MATERIALS INC.~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(In millions, except share data)

MOMENTIVE PERFORMANCE MATERIALS INC. (SUCCESSOR)

THREE MONTHS ENDED SEPTEMBER 30, 2015

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

	Parent			Combined GuarantorSubsidiaries			Combined Non-GuarantorSubsidiaries			Eliminations			Consolidated
Net sales	$	—		$	~~262~~280		$	~~437~~467		$	(~~140~~161	)	$	~~559~~586
Cost of sales	—			~~227~~232			~~382~~397			(~~140~~161		)	~~469~~468
Gross profit	—			3548			5570			—			90118
Selling, general and administrative expense	—1			3743			3834			—			7578
Research and development expense	—			119			68			—			17
Restructuring and other costs	—			45			—(1		)	—			4
Other operating income, net	—			—			(2		)	—			(2		)
Other operating expense (income), net	—			3			(1		)	—			2
Operating (loss) income	—(1		)	(1712		)	1330			—			(417		)
Interest expense (income), net	19			(13		)	1413			—			2019
Other non-operating income, net	—			—			—			—			—
Other non-operating (income) expense, net	—			(1		)	6			—			5
Reorganization items, net	—			1			—			—			1
(Loss) income before income taxes and earnings (losses) from unconsolidated entities	(20		)	2			11			—			(7		)
Loss before income taxes and losses from unconsolidated entities	(19		)	(5		)	(1		)	—			(25		)
Income tax expense	—			—			4			—			4
Income tax expense	—			1			5			—			6
(Loss) income before earnings (losses) from unconsolidated entities	(20		)	2			7			—			(11		)
Loss before losses from unconsolidated entities	(19		)	(6		)	(6		)	—			(31		)
Earnings (losses) from unconsolidated entities, net of taxes	10			8			1			(18		)	1
Losses from unconsolidated entities, net of taxes	(12		)	(6		)	—			18			—
Net (loss) income	$	(10	)	$	10		$	8		$	(18	)	$	(10	)
Net loss	$	(31	)	$	(12	)	$	(6	)	$	18		$	(31	)
Comprehensive income (loss)	$	11		$	30		$	37		$	(67	)	$	11
Comprehensive loss	$	(45	)	$	(25	)	$	(20	)	$	45		$	(45	)

~~Table~~MOMENTIVE ofPERFORMANCE ~~Contents~~MATERIALS INC.

~~MPM~~SIX ~~HOLDINGS~~MONTHS ~~INC.~~ENDED ~~AND~~JUNE ~~MOMENTIVE~~30, ~~PERFORMANCE~~2017 ~~MATERIALS INC.~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(In millions, except share data)

MOMENTIVE PERFORMANCE MATERIALS INC. (PREDECESSOR)

THREE MONTHS ENDED SEPTEMBER 30, 2014

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

	Parent			Combined GuarantorSubsidiaries			Combined Non-GuarantorSubsidiaries			Eliminations			Consolidated
Net sales	$	—		$	~~291~~561		$	~~494~~905		$	(~~154~~328	)	$	~~631~~1,138
Costs and expenses:
Cost of sales	—			489			744			(328		)	905
Cost of sales, excluding depreciation and amortization	—			202			397			(154		)	445
Gross profit	—			72			161			—			233
Selling, general and administrative expense	10—			~~112~~91			~~127~~77			—			~~249~~168
Depreciation and amortization expense	—			17			37			—			54
Research and development expense	—			20			11			—			31
Research and development expense	—			11			8			—			19
Restructuring and other costs	—			5			(5		)	—			—
Restructuring and other costs	3			4			(1		)	—			6
Other operating income, net	—			3			1			—			4
Operating loss	(13		)	(55		)	(74		)	—			(142		)
Operating (loss) income	—			(47		)	77			—			30
Interest expense (income), net	3436			(2613		)	2816			—			3639
Reorganization items, net	—			44			—			—			44
Other non-operating income, net	(1		)	(4		)	1						(4		)
Loss before income taxes and losses from unconsolidated entities	(47		)	(73		)	(102		)	—			(222		)
Reorganization items, net	—			—			—						—
Income tax benefit	—			—			(23		)	—			(23		)
(Loss) income before income taxes and losses from unconsolidated entities	(35		)	(30		)	60			—			(5		)
Loss before losses from unconsolidated entities	(47		)	(73		)	(79		)	—			(199		)
Income tax (benefit) expense	—			(6		)	11						5
Losses from unconsolidated entities, net of taxes	(152		)	(79		)	—			231			—
(Loss) income before earnings (losses) from unconsolidated entities	(35		)	(24		)	49			—			(10		)
Net loss	$	(199	)	$	(152	)	$	(79	)	$	231		$	(199	)
Earnings (losses) from unconsolidated entities, net of taxes	25			49			—			(74		)	—
Comprehensive loss	$	(169	)	$	(122	)	$	(27	)	$	149		$	(169	)
Net (loss) income	$	(10	)	$	25		$	49		$	(74	)	$	(10	)
Comprehensive income (loss)	$	31		$	66		$	60		$	(126	)	$	31

~~Table~~MOMENTIVE ofPERFORMANCE ~~Contents~~MATERIALS INC.

~~MPM~~SIX ~~HOLDINGS~~MONTHS ~~INC.~~ENDED ~~AND~~JUNE ~~MOMENTIVE~~30, ~~PERFORMANCE~~2016 ~~MATERIALS INC.~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(In millions, except share data)

MOMENTIVE PERFORMANCE MATERIALS INC. (SUCCESSOR)

NINE MONTHS ENDED SEPTEMBER 30, 2015

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

	Parent			Combined GuarantorSubsidiaries			Combined Non-GuarantorSubsidiaries			Eliminations			Consolidated
Net sales	$	—		$	~~815~~536		$	~~1,359~~880		$	(~~434~~294	)	$	1,~~740~~122
Cost of sales	—			~~706~~451			~~1,166~~757			(~~434~~294		)	~~1,438~~914
Gross profit	—			~~109~~85			~~193~~123			—			~~302~~208
Selling, general and administrative expense	—1			8798			~~122~~59			—			~~209~~158
Research and development expense	—			3320			2013			—			5333
Restructuring and other costs	—			134			—5			—			139
Other operating (income) expense, net	(2		)	—			(5		)	—			(7		)
Other operating income, net	—			3			5			—			8
Operating income (loss)	2			(24		)	56			—			34
Operating (loss) income	(1		)	(40		)	41			—			—
Interest expense (income), net	5837			(4625		)	4726			—			5938
Other non-operating expense (income), net	—			(1		)	3			—			2
Other non-operating (income) expense, net	(9		)	(1		)	3			—			(7		)
Reorganization items, net	—			81			—			—			81
(Loss) income before income taxes and earnings from unconsolidated entities	(56		)	15			6			—			(35		)
(Loss) income before income taxes and losses from unconsolidated entities	(29		)	(15		)	12			—			(32		)
Income tax expense	—			1			10			—			11
Income tax (benefit) expense	—			(11		)	7			—			(4		)
(Loss) income before earnings from unconsolidated entities	(56		)	14			(4		)	—			(46		)
(Loss) income before earnings (losses) from unconsolidated entities	(29		)	(4		)	5			—			(28		)
Earnings from unconsolidated entities, net of taxes	11			(3		)	1			(8		)	1
Earnings (losses) from unconsolidated entities, net of taxes	2			6			1			(8		)	1
Net (loss) income	$	(4527	)	$	112		$	(36	)	$	(8	)	$	(4527	)
Comprehensive loss	$	(98	)	$	(42	)	$	(19	)	$	61		$	(98	)
Comprehensive income (loss)	$	52		$	80		$	60		$	(140	)	$	52

~~Table~~MOMENTIVE ofPERFORMANCE ~~Contents~~MATERIALS INC.

~~MPM~~SIX ~~HOLDINGS~~MONTHS ~~INC.~~ENDED ~~AND~~JUNE ~~MOMENTIVE~~30, ~~PERFORMANCE~~2017 ~~MATERIALS INC.~~

~~NOTES~~CONDENSED TOCONSOLIDATING ~~CONDENSED~~STATEMENT ~~CONSOLIDATED~~OF ~~FINANCIAL~~CASH ~~STATEMENTS~~FLOWS (Unaudited) ~~(Continued)~~

(In millions, except share data)



	Parent			Combined Guarantor Subsidiaries				Combined Non- Guarantor Subsidiaries				Eliminations			Consolidated
Cash flows (used in) provided by operating activities	$	(4	)	$	(20	)		$	27			$	(13	)	$	(10	)
Cash flows (used in) provided by investing activities:												\
Capital expenditures	—			(29		)		(48		)		—			(77		)
Purchase of business	—			(9		)		—				—			(9		)
Purchases of intangible assets	—			(1		)		(1		)		—			(2		)
Return of capital from subsidiary from sales of accounts receivable	—			23			(a)	—				(23		)	—
	—			(16		)		(49		)		(23		)	(88		)
Cash flows (used in) provided by financing activities:
Net intercompany loan (repayments) borrowings	(16		)	37				(21		)		—			—
Common stock dividends paid	(1		)	—				(13		)		13			(1		)
Return of capital to parent from sales of accounts receivable	—			—				(23		)	(a)	23			—
	(17		)	37				(57		)		36			(1		)
(Decrease) increase in cash and cash equivalents	(21		)	1				(79		)		—			(99		)
Effect of exchange rate changes on cash and cash equivalents	—			—				3				—			3
Cash and cash equivalents (unrestricted), beginning of period	39			1				184				—			224
Cash and cash equivalents (unrestricted), end of period	$	18		$	2			$	108			$	—		$	128

~~MOMENTIVE~~(a) ~~PERFORMANCE~~During ~~MATERIALS~~the ~~INC~~six months ended June 30, 2017, Momentive Performance Materials USA LLC contributed receivables of $23 to a non-guarantor subsidiary as capital contributions, resulting in a non-cash transaction. ~~(PREDECESSOR)~~During the six months ended June 30, 2017, 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.

NINE MONTHS ENDED SEPTEMBER 30, 2014

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

	Parent			Combined GuarantorSubsidiaries			Combined Non-GuarantorSubsidiaries			Eliminations			Consolidated
Net sales	$	—		$	850		$	1,480		$	(457	)	$	1,873
Costs and expenses:
Cost of sales, excluding depreciation and amortization	—			610			1,186			(457		)	1,339
Selling, general and administrative expense	30			201			186			—			417
Depreciation and amortization expense	—			51			86			—			137
Research and development expense	—			35			23			—			58
Restructuring and other costs	5			14			1			—			20
Operating loss	(35		)	(61		)	(2		)	—			(98		)
Interest expense (income), net	147			(92		)	98			—			153
Reorganization items, net	17			97			—			—			114
Loss before income taxes and earnings (losses) from unconsolidated entities	(199		)	(66		)	(100		)	—			(365		)
Income tax expense (benefit)	—			2			(4		)	—			(2		)
Loss before (losses) earnings from unconsolidated entities	(199		)	(68		)	(96		)	—			(363		)
(Losses) earnings from unconsolidated entities, net of taxes	(162		)	(94		)	2			256			2
Net loss	$	(361	)	$	(162	)	$	(94	)	$	256		$	(361	)
Comprehensive loss	$	(344	)	$	(145	)	$	(54	)	$	199		$	(344	)

~~Table~~MOMENTIVE ofPERFORMANCE ~~Contents~~MATERIALS INC.

~~MPM~~SIX ~~HOLDINGS~~MONTHS ~~INC.~~ENDED ~~AND~~JUNE ~~MOMENTIVE~~30, ~~PERFORMANCE~~2016 ~~MATERIALS INC.~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(In millions, except share data)

MOMENTIVE PERFORMANCE MATERIALS INC. (SUCCESSOR)

NINE MONTHS ENDED SEPTEMBER 30, 2015

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)

	Parent			Combined GuarantorSubsidiaries				Combined Non-GuarantorSubsidiaries				Eliminations			Consolidated
Cash flows (used in) provided by operating activities	$	(33	)	$	188			$	(39	)		$	(84	)	$	32
Cash flows provided by (used in) operating activities	$	74		$	(22	)		$	39			$	(37	)	$	54
Cash flows used in investing activities:
Cash flows (used in) provided by investing activities:
Capital expenditures	—			(40		)		(48		)		—			(88		)
Capital Expenditures	—			(22		)		(31		)		—			(53		)
Capitalized interest	—			(1		)		—				—			(1		)
Purchases of intangible assets	—			(1		)		—				—			(1		)
Purchases of intangible assets	—			(2		)		—				—			(2		)
Return of capital from subsidiary from sales of accounts receivable	—			31			(a)	—				(31		)	—
Proceeds from sale of assets	—			1				—				—			1
	—			8				(31		)		(31		)	(54		)
Return of capital from subsidiary from sales of accounts receivable	—			36			(a)	—				(36		)	—
Cash flows (used in) provided by financing activities:
	—			(6		)		(48		)		(36		)	(90		)
Net short-term debt (repayments) borrowings	(3		)	—				4				—			1
Cash flows provided by (used in) financing activities:
Repayments of long-term debt	(16		)	—				—				—			(16		)
Net short-term debt borrowings	1			—				2				—			3
Net intercompany loan (repayments) borrowings	(42		)	42				—				—			—
Net intercompany loan (repayments) borrowings	2			(113		)		111				—			—
Common stock dividends paid	—			(29		)		(8		)		37			—
Common stock dividends paid	—			(77		)		(7		)		84			—
Return of capital to parent from sales of accounts receivable	—			—				(31		)	(a)	31			—
Return of capital to parent from sales of accounts receivable	—			—				(36		)	(a)	36			—
	(61		)	13				(35		)		68			(15		)
	3			(190		)		70				120			3
Decrease in cash and cash equivalents	13			(1		)		(27		)		—			(15		)
Decrease in cash and cash equivalents	(30		)	(8		)		(17		)		—			(55		)
Effect of exchange rate changes on cash and cash equivalents	—			—				4				—			4
Effect of exchange rate changes on cash and cash equivalents	—			—				(7		)		—			(7		)
Cash and cash equivalents (unrestricted), beginning of period	57			2				158				—			217
Cash and cash equivalents (unrestricted), beginning of period	78			9				136				—			223
Cash and cash equivalents (unrestricted), end of period	$	70		$	1			$	135			$	—		$	206
Cash and cash equivalents (unrestricted), end of period	$	48		$	1			$	112			$	—		$	161
Supplemental disclosures of cash flow information
Non-cash financing activity:
Intercompany loan capitalizations	$	—		$	(602	)		$	602			$	—		$	—

(a) During the ~~nine~~six months ended ~~September~~June 30, ~~2015~~2016, Momentive Performance Materials USA LLC contributed receivables of $3631 to a non-guarantor subsidiary as capital contributions, resulting in a non-cash transaction. During the ~~nine~~six months ended ~~September~~June 30, ~~2015~~2016, 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.

Table of Contents

MPM HOLDINGS INC. AND MOMENTIVE PERFORMANCE MATERIALS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(In millions, except share data)

MOMENTIVE PERFORMANCE MATERIALS INC. (PREDECESSOR)

NINE MONTHS ENDED SEPTEMBER 30, 2014

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)

	Parent			Combined GuarantorSubsidiaries				Combined Non-GuarantorSubsidiaries				Eliminations			Consolidated
Cash flows (used in) provided by operating activities	$	(23	)	$	(153	)		$	56			$	(5	)	$	(125	)
Cash flows provided by (used in) investing activities:
Capital expenditures	—			(32		)		(38		)		—			(70		)
Consolidation of variable interest entity	—			—				50				—			50
Proceeds from sale of business	—			—				12				—			12
Purchase of intangible assets	—			(2		)		—				—			(2		)
Return of capital from subsidiary from sales of accounts receivable	—			41			(a)	—				(41		)	—
Proceeds from sale of assets	—			1				—				—			1
	—			8				24				(41		)	(9		)
Cash flows provided by (used in) financing activities:
Net short-term debt borrowings	305			—				—				—			305
Borrowings of long-term debt	—			118				90				—			208
Repayments of long-term debt	—			(153		)		(107		)		—			(260		)
Repayment of affiliated debt	—			—				(50		)		—			(50		)
DIP Facility financing fees	(19		)	—				—				—			(19		)
Net intercompany loan (repayments) borrowings	(258		)	191				67				—			—
Common stock dividends paid	—			(5		)		—				5			—
Return of capital to parent from sales of accounts receivable	—			—				(41		)	(a)	41			—
	28			151				(41		)		46			184
Increase in cash and cash equivalents	5			6				39				—			50
Effect of exchange rate changes on cash and cash equivalents	—			—				(5		)		—			(5		)
Cash and cash equivalents (unrestricted), beginning of period	2			—				87				—			89
Cash and cash equivalents (unrestricted), end of period	$	7		$	6			$	121			$	—		$	134

(a) During the nine months ended September 30, 2014, Momentive Performance Materials USA LLC contributed receivables of $41 to a non-guarantor subsidiary as capital contributions, resulting in a non-cash transaction. During the nine months ended September 30, 2014, 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.

Table of Contents

MPM HOLDINGS INC. AND MOMENTIVE PERFORMANCE MATERIALS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

(In millions, except share data)

15. Subsequent Events

On November 13, 2015, in light of significant market conditions, the Company announced that it is embarking on a global restructuring to reduce cost to serve. This global cost reduction program is designed to reduce costs by approximately $25 and will be achieved primarily through position eliminations and structural changes at the Company’s operating facilities. The Company expects the program costs, primarily severance related, to be approximately $10 and will be incurred in the fourth quarter of 2015 and into 2016. Substantially all of these charges will result in cash expenditures.

Table of Contents


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

(dollar amounts in millions)

The following commentary should be read in conjunction with the condensed consolidated financial statements ~~and notes thereto included in Part I~~, Item 1 of this quarterly report, 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 audited financial statements and the accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Momentive’s and MPM’s most recent Annual Report on Form 10-K and amendments thereto.

Within the following discussion, unless otherwise stated, “the ~~third~~second quarter of ~~2015~~2017” refers to the three months ended ~~September~~June 30, ~~2015~~2017, and “the ~~third~~second quarter of ~~2014~~2016” refers to the three months ended ~~September~~June 30, ~~2014~~2016.

Forward-Looking and Cautionary Statements

Certain statements in this report, including without limitation, certain statements made under ~~the~~Item ~~caption~~2, “~~Overview~~Management’s Discussion and ~~Outlook~~Analysis of Financial Condition and Results of Operations,” are forward-looking statements within the meaning of and made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements related to our transformation and restructuring activities, growth and productivity initiatives, anticipated cost savings, growth, and market recovery, and competitiveness. In addition, our management may from time to time make oral forward-looking statements. All statements, other than statements of historical facts, are forward-looking statements. Forward-looking statements may be identified by the words “believe,” “expect,” “anticipate,” “project,” “plan,” “estimate,” “may,” “will,” “could,” “should,” “seek” or “intend” and similar expressions. Forward-looking statements reflect our current expectations and assumptions regarding our business, the economy and other future events and conditions and are based on currently available financial, economic and competitive data and our current business plans. Actual results could vary materially depending on risks and uncertainties that may affect our operations, markets, services, prices and other factors as discussed in the Risk Factors section of ~~this~~our ~~report~~most recent Annual Report on Form 10-K and our other filings with the Securities and Exchange Commission (the “SEC”)~~, and those described in filings made by the Company with the U~~.S. ~~Bankruptcy Court for the Southern District of New York.~~ While we believe our assumptions are reasonable, we caution you against relying on any forward-looking statements as it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to: ~~our ability to obtain additional financing, increased legal costs related to the Chapter 11 proceedings and other potential litigation,~~ a weakening of global economic and financial conditions, interruptions in the supply of or increased cost of raw materials, changes in governmental regulations or interpretations thereof and related compliance and litigation costs, adverse rulings in litigation, significant work stoppages, difficulties with the realization of cost savings in connection with our global restructuring, transformation, and strategic initiatives, including transactions with our affiliate, Hexion Inc., pricing actions by our competitors that could affect our operating margins, and ~~the~~our ~~other~~ability ~~factors~~to ~~listed~~obtain inadditional ~~the Risk Factors section of this report and in our other SEC filings~~financing. For a more detailed discussion of these and other risk factors, see the “Risk Factors” section inof ~~this~~Momentive’s ~~report~~ and ~~our~~MPM’s most recent ~~filings~~Annual ~~made~~Report ~~with~~on ~~the~~Form 10-K and in our other SEC filings. All forward-looking statements are expressly qualified in their entirety by this cautionary notice. The forward-looking statements made by us speak only as of the date on which they are made. Factors or events that could cause our actual results to differ may emerge from time to time. We undertake no obligation to publicly update or revise any forward -looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

Overview and Outlook

Business Overview

~~Momentive~~We ~~and MPM, together with their subsidiaries~~ are one of the world’s largest producers of silicones, silicone derivatives and silanes and a global leader in the development and manufacture of products derived from quartz and specialty ceramics. Silicones are a multi-functional family of materials used in a wide variety of products and serve as a critical ingredient in many construction, transportation, healthcare, personal care, electronic, consumer and agricultural uses. Silicones and silanes are generally used as an additive to a wide variety of end products in order to provide or enhance certain of their attributes, such as resistance (heat, ultraviolet light and chemical), lubrication, adhesion or viscosity. Some of the most well-known end-use product applications include bath and shower caulk, pressure-sensitive adhesive labels, polyurethane foam products, cosmetics and tires. Due to the versatility and high-performance characteristics of silicones and silanes, they are increasingly being used as a substitute for other materials. Our Quartz business manufactures quartz, specialty ceramics and crystal products for use in a number of high-technology industries, which typically require products made to precise specifications. The cost of our products typically represents a small percentage of the overall cost of our customers’ products.

We serve more than 4,~~500~~000 customers between our Silicones and Quartz businesses in over 100 countries. Our customers include leading companies in their respective industries~~, such as Procter & Gamble, Avery, Continental Tire, Saint Gobain, Unilever, BASF, SABIC, The Home Depot and Lowe's~~.

Unless otherwise noted, references to “we,” “us,” “our” or the “Company” refer collectively herein 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.

34Six Months Ended June 30, 2017 Overview

•

Net Sales—Net sales increased approximately $16 in the first half of 2017 as compared to the first half of 2016. The increase in net sales reflected an improved product mix in specialty silicone products and higher quartz business sales, which was partially offset by intentionally lower volumes of siloxane derivative products primarily as a result of ceasing siloxane production at our Leverkusen, Germany facility.


•	Net (Loss) Income —During the first half of 2017, net loss decreased by $17 for both Momentive and MPM, compared to the first half of 2016, primarily due to the increase in gross profit and the gain recognition from an insurance claim, offset by a gain

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Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

(dollar amounts in millions) (Continued)

~~Nine~~on ~~Months~~extinguishment ~~Ended~~of ~~September~~debt 30not recurring during the first half of 2017, ~~2015~~an ~~Overview~~increase in selling, general and administrative expense, and an increase in income tax expense.

• ~~Net~~Segment ~~Sales~~EBITDA—~~Net~~Segment ~~sales~~EBITDA ~~decreased~~increased by $~~133~~36 in the first ~~nine~~half ~~months~~ of ~~2015~~2017 for both Momentive and MPM, as compared to the first ~~nine~~half ~~months~~ of ~~2014~~2016. The ~~decrease~~increase ~~was~~in ~~primarily~~Segment EBITDA was driven primarily by ~~unfavorable~~improved ~~exchange~~demand ~~rate~~in ~~fluctuations~~automotive, ~~which~~consumer ~~were~~products, ~~primarily~~and ~~due~~electronics tomarkets, ~~the~~as ~~strengthening~~well ofas production efficiencies, and raw material deflation in the Usilicones segment.S. ~~dollar~~In ~~against~~addition, the ~~euro~~quartz ~~and~~business ~~Japanese~~segment ~~yen~~EBITDA ~~and~~improved ~~price~~by ~~mix~~$10 ~~differentials~~due to improved sales, ~~partially~~cost ~~offset~~controls byand ~~volume~~substantially ~~increases~~improved manufacturing efficiencies.

• Segment EBITDA—Segment EBITDA decreased by $24 and $23 for Momentive and MPM, respectively, in the first nine months of 2015 as compared to the first nine months of 2014, due primarily to net unfavorable exchange rate fluctuations and an increase in processing costs to improve plant reliability and to support new investments and growth, coupled with negative price and mix shift. These were partially offset by a one-time settlement gain, and deflation in certain of our raw material inputs.

• Recently completed growth initiatives include:

▪ The expansion of our Leverkusen, Germany facility serving liquid silicone rubber customers throughout Europe in the automotive, aerospace, energy, healthcare and consumer products industries.

Future growth initiatives include:

▪ The expansion of our capability to manufacture NXT* Silane, which is an innovative product used in the production of tires, and can offer tire manufacturers the ability to reduce rolling resistance without loss of wet traction, as well as deliver benefits in the tire manufacturing process. This expansion will double our current NXT* Silane manufacturing capacity and is expected to be completed in 2017.

Short-term Outlook

~~Our~~As ~~business~~we islook ~~impacted~~into bythe ~~general~~remaining ~~economic~~quarters ~~and~~of ~~industrial conditions~~2017, ~~including~~we ~~general~~expect ~~industrial~~continued ~~production,~~growth ~~automotive~~in ~~builds,~~demand ~~housing~~for ~~starts,~~our ~~construction~~specialty ~~activity~~silicones products, ~~consumer~~particularly ~~spending~~as ~~and~~we ~~semiconductor~~continue ~~capital~~to ~~equipment~~benefit from investment in new product development and expanding our capabilities. We ~~Our~~anticipate ~~business~~growth ~~has~~in ~~both~~these ~~geographic~~remaining quarters to be supported by improving global macroeconomic conditions and ~~end~~further ~~market~~bolstered ~~diversity~~by ~~which~~our ~~often~~recent ~~reduces~~acquisition of Sea Lion Technology. Additionally, we expect 2017 sales results to reflect significant mix improvement as we intentionally reduced exposure to under-performing siloxane derivative products and replaced capacity with higher margin specialty products. Our third quarter results will be impacted by the ~~impact~~intentional ofdelays ~~any~~in ~~one~~our ofturnarounds ~~these~~to ~~factors~~help onrebalance our ~~overall~~supply ~~performance~~chain after the work stoppage at our Waterford, NY facility.

~~During~~We ~~the~~are ~~remainder~~continuing ~~of 2015, we expect weakening in demand for our specialty silicones businesses due~~ to ~~global~~leverage ~~market conditions. The dramatic slowdown in industrial production in China has resulted in lower demand for~~ our ~~products~~research ~~utilized in consumer applications. The continued depression of oil prices has resulted in lower demand for our antifoams/related silicone products utilized by the oil~~ and ~~natural~~development ~~gas~~capabilities ~~industry~~ and ~~has~~invest ~~had a negative impact on earnings. While we initially benefited slightly from the price decline due to the corresponding decline~~ in ~~raw~~high-growth ~~material~~product ~~prices,~~lines ~~greater~~and ~~than~~geographical ~~70% of our raw material inputs are not petroleum-based~~regions, ~~and~~positioning ~~their prices do not fluctuate with~~ the ~~price~~Company ~~of crude oil. While we continue to remain well positioned~~ for long-term ~~growth, we anticipate inventory destocking trends and economic volatility will continue into the fourth quarter of 2015~~success. We ~~During~~are ~~the~~also ~~third~~focused ~~quarter of 2015, our Quartz business experienced production issues which have been since resolved, but will have a several million dollar impact~~ on ~~fourth~~gaining ~~quarter~~productivity ~~profitability.~~efficiencies Weto ~~also~~reduce ~~expect~~raw ~~continued~~material ~~softness~~costs inand ~~semiconductor~~improve ~~capital~~margins ~~equipment~~through ~~purchases,~~investments ~~which will adversely affect volumes~~ in ~~our~~improved ~~Quartz~~operational ~~business for the remainder of 2015~~reliability. ~~In addition, as we have emerged from Chapter 11 bankruptcy, we expect the related one-time negative impacts on our business to subside.~~ We ~~expect~~continue ~~the increase in liquidity and lower debt service requirements resulting from our successful restructuring efforts~~ to ~~increase~~evaluate ~~our~~additional ~~future operational and financial flexibility. As a result~~actions, weas ~~are~~ well ~~positioned~~as toproductivity ~~leverage our leadership positions~~measures, ~~optimize~~that ~~our~~could ~~portfolio~~support ~~and~~further ~~drive~~cost ~~new growth programs~~savings. Such ~~The~~actions ~~Company’s~~could ~~diversified~~include ~~portfolio~~additional ~~remains~~restructuring ~~strong~~ and isincremental ~~well~~exit ~~positioned~~and ~~when~~disposal ~~the markets recover~~costs.

We ~~are~~have ~~continuing~~implemented toapproximately ~~invest~~$48 in ~~growth~~annual ~~opportunities~~structural incost ~~our~~reduction ~~higher-growth~~initiatives ~~product~~through ~~lines and geographical regions, and will leverage the combination of~~ our ~~proprietary~~previously ~~technologies,~~announced ~~strategic investments in key assets and leading presence in high-growth end markets to benefit as the~~ global ~~economy~~restructuring recovers and for long-term success. We are also focused on gaining productivity efficiencies to reduce material costs and improve margins through investments in reliable and stable operations. We continue to evaluate additional actions as well as productivity measures and rightsizing inventoryprogram, ~~that~~which ~~could~~have ~~lead~~begun todelivering ~~further~~significant savings. Cumulatively Asthrough aJune 30, ~~result~~2017, weMomentive ~~are~~has ~~implementing~~achieved aapproximately ~~global restructuring program targeting~~ $2538 inof ~~structural~~savings ~~cost~~under ~~savings~~this program.

~~Shared~~We ~~Services~~remain ~~Agreement~~focused on driving free cash flow, defined as cash flows from operating activities less capital expenditures, and optimizing net working capital, as defined in the Liquidity and Capital Resources section below, in fiscal year 2017. We expect net working capital to be a source of cash for the remainder of 2017.

In October 2010, we 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”), pursuant to which we provide to Hexion, and Hexion provides to us, 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 was renewed for one year starting in October 2015 and is subject to termination by either us or Hexion, without cause, on not less than 30 days’ written notice, and expires in October 2016 (subject to one-year renewals every year thereafter; absent contrary notice from either party). The Shared Services Agreement establishes certain criteria upon which the costs of such services are allocated between us and Hexion and requires that the Steering Committee formed under the agreement meet no less than annually to evaluate and determine an equitable allocation percentage. The allocation percentage is reviewed by the Steering Committee pursuant to the terms of the Shared Services Agreement.

*NXT is a trademark of Momentive Performance Materials Inc.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

(dollar amounts in millions) (Continued)

The Shared Services Agreement has resulted in significant synergies for us, including shared services and logistics optimization, best-of-source contractual terms, procurement savings, regional site rationalization and administrative and overhead savings. We have realized a total of approximately $65 of cost savings per annum in connection with the Shared Services Agreement on a run-rate basis, and expect the savings from these synergies to continue. Despite the Bankruptcy Filing, the Shared Services Agreement has continued in effect along with the majority of the savings from these synergies. In conjunction with our emergence from Chapter 11 bankruptcy, on October 24, 2014, 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 Steering Committee with its annual review of billings and allocations.

Matters Impacting Comparability of Results

Fresh Start Accounting

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”). As a result of the application of fresh-start accounting pursuant to the Plan, at the Effective Date, our assets and liabilities were recorded at their estimated fair values which, in some cases, are significantly different than amounts included in our financial statements prior to the Effective Date. Accordingly, our financial condition and results of operations on and after the Effective Date are not comparable to our financial condition and results of operations prior to the Effective Date.

During the application of fresh start accounting, we re-evaluated our accounting policy with respect to which overhead costs were production-related, as well as the extent to which functional costs supported production-related activities. As a result, certain costs were recorded in cost of sales rather than selling, general and administrative expense in the successor period.

Other Comprehensive Income

Our other comprehensive income is significantly impacted by foreign currency translation. and re-measurement of actuarial gains and losses. The impact of foreign currency translation is driven by the translation of assets and liabilities of our foreign subsidiaries which are denominated in functional currencies other than the U.S. dollar. The primary assets and liabilities driving the adjustments are cash and cash equivalents; accounts receivable; inventory; property, plant and equipment; goodwill and other intangible assets; accounts payable and pension and other postretirement benefit obligations. The primary currencies in which these assets and liabilities are denominated are the euro and Japanese yen. ~~Prior~~Actuarial to October 24, 2014, other comprehensive income included the impact of defined benefit pension and postretirement benefit adjustments. Upon the application of fresh start accounting, beginning on and after October 24, 2014, actuarial gains and losses resulting from pension and postretirement liability re-measurements are recognized immediately in the unaudited Condensed Consolidated Statements of Operations~~, compared to our prior policy of deferring such gains and losses in accumulated other comprehensive income and amortizing them over future periods~~. The impact of defined benefit pension and postretirement benefit adjustments prior to October 24, 2014 were primarily driven by unrecognized actuarial gains and losses related to our defined benefit and other postretirement benefit plans, as well as the subsequent amortization of gains and losses from accumulated other comprehensive income in periods following the initial recording of such items. These actuarial gains and losses were determined using various assumptions, the most significant of which were (i) the weighted average rate used for discounting the liability, (ii) the weighted average expected long-term rate of return on pension plan assets, (iii) the weighted average rate of future salary increases and (iv) the anticipated mortality rate tables.

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Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

(dollar amounts in millions) (Continued)

Results of Operations

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	MPM HOLDINGS INC.										MOMENTIVE PERFORMANCE MATERIALS INC.
	Three Months Ended September 30,										Three Months Ended September 30,
	Three Months Ended June 30,										Three Months Ended June 30,
	2015					2014					2015					2014
	2017					2016					2017					2016
	Successor					Predecessor					Successor					Predecessor
	$			% of Net Sales		$			% of Net Sales		$			% of Net Sales		$			% of Net Sales
Net sales	$	~~559~~594		100	%	$	~~631~~586		100	%	$	~~559~~594		100	%	$	~~631~~586		100	%
Cost of sales	~~469~~459			8477	%	468			80	%	~~469~~459			8477	%	468			80	%
Gross profit	90135			1623	%	118			20	%	90135			1623	%	118			20	%
Cost of sales, excluding depreciation and amortization						445			71	%						445			71	%
Selling, general and administrative expense	85			15	%	78			13	%	85			15	%	78			13	%
Selling, general and administrative expense	76			14	%	249			40	%	75			13	%	249			40	%
Research and development expense	16			3	%	17			3	%	16			3	%	17			3	%
Depreciation and amortization expense						54			9	%						54			9	%
Restructuring and other costs	(5		)	(1	)%	4			1	%	(5		)	(1	)%	4			1	%
Research and development expense	17			3	%	19			3	%	17			3	%	19			3	%
Other operating expense, net	1			—	%	2			—	%	1			—	%	2			—	%
Restructuring and other costs	4			1	%	6			1	%	4			1	%	6			1	%
Operating income	38			6	%	17			3	%	38			6	%	17			3	%
Other operating income, net	(2		)	—	%	—			—	%	(2		)	—	%	—			—	%
Interest expense, net	20			3	%	19			3	%	20			3	%	19			3	%
Operating loss	(5		)	(1	)%	(142		)	(24	)%	(4		)	(1	)%	(142		)	(24	)%
Gain on extinguishment of debt	—			—	%	—			—	%	—			—	%	—			—	%
Interest expense, net	20			4	%	36			6	%	20			4	%	36			6	%
Other non-operating (income) expense, net	(5		)	(1	)%	5			1	%	(5		)	(1	)%	5			1	%
Other non-operating income, net	—			—	%	—			—	%	—			—	%	—			—	%
Reorganization items, net	—			—	%	—			—	%	—			—	%	—			—	%
Reorganization items, net	1			—	%	44			7	%	1			—	%	44			7	%
Total non-operating expense	15			2	%	24			4	%	15			2	%	24			4	%
Total non-operating expense	21			4	%	80			13	%	21			4	%	80			13	%
Income (loss) before income taxes and earnings from unconsolidated entities	23			4	%	(7		)	(1	)%	23			4	%	(7		)	(1	)%
Loss before income taxes and earnings from unconsolidated entities	(26		)	(5	)%	(222		)	(37	)%	(25		)	(5	)%	(222		)	(37	)%
Income tax expense	4			1	%	4			1	%	4			1	%	4			1	%
Income tax expense (benefit)	6			1	%	(23		)	(4	)%	6			1	%	(23		)	(4	)%
Income (loss) before earnings from unconsolidated entities	19			3	%	(11		)	(2	)%	19			3	%	(11		)	(2	)%
Loss before earnings from unconsolidated entities	(32		)	(6	)%	(199		)	(33	)%	(31		)	(6	)%	(199		)	(33	)%
Earnings from unconsolidated entities, net of taxes	—			—	%	1			—	%	—			—	%	1			—	%
Earnings from unconsolidated entities, net of taxes	—			—	%	—			—	%	—			—	%				—	%
Net Income (loss)	$	19		3	%	$	(10	)	(2	)%	$	19		3	%	$	(10	)	(2	)%
Net loss	$	(32	)	(6	)%	$	(199	)	(33	)%	$	(31	)	(6	)%	$	(199	)	(33	)%
Other comprehensive income	$	8				$	21				$	8				$	21
Other comprehensive (loss) income	$	(14	)			$	30				$	(14	)			$	30

Three Months Ended ~~September~~June 30, ~~2015~~2017 vs. Three Months Ended ~~September~~June 30, ~~2014~~2016

Net Sales

Net sales in the ~~third~~second quarter of ~~2015~~2017 ~~decreased~~increased $728, or 111%, compared to the ~~third~~second quarter of ~~2014~~2016. This ~~decrease~~increase was primarily due to ~~unfavorable~~a ~~exchange~~favorable ~~rate~~price/mix ~~fluctuations~~shift of approximately $4425, ~~due~~which towas ~~the~~offset ~~strengthening~~by ofa ~~the~~volume ~~U.S.~~decrease ~~dollar against the euro and Japanese yen in the third quarter~~ of ~~2015~~approximately ~~as compared to third quarter of 2014~~$12, asboth ~~well~~driven asby ~~negative~~our ~~price~~intentional ~~and~~ mix shift oftowards ~~$23,~~higher-margin ~~triggered~~products byversus ~~China~~less ~~market~~profitable ~~slowdown,~~commodity products and ~~volume~~unfavorable ~~decrease~~foreign ofexchange $3rate ~~caused~~fluctuations byof ~~softening end markets and global inventory destocking compounded with traditional European slowdown~~$5.

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Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

(dollar amounts in millions) (Continued)

Operating ~~Loss~~income

~~During~~In the ~~third~~second quarter of ~~2015~~2017, operating ~~loss~~income ~~decreased~~increased by $~~137~~21 ~~and $138~~ for both Momentive and MPM, ~~respectively,~~ compared to the ~~third~~second quarter of ~~2014~~2016. Cost of sales ~~(excluding~~decreased ~~depreciation~~by ~~and amortization of~~ $289 infor ~~the~~both ~~successor~~Momentive ~~period due to the change in presentation of depreciation~~ and ~~amortization~~MPM, ~~as described in Note 1 to the unaudited Condensed Consolidated Financial Statements) decreased by $4~~ compared to the ~~third~~second quarter of ~~2014.~~2016 Inprimarily ~~conjunction~~due ~~with the application of fresh start accounting, we re-evaluated our accounting policy with respect~~ to ~~which~~savings ~~overhead costs were production-~~related, ~~as well as the extent~~ to which functional costs supported production-related activities. As a result, in the Successor period, certain costs were recorded in cost of sales rather than in selling, general and administrative expense. Cost of sales was positively impacted by favorable exchange rate fluctuations ~~of $28 driven by the strengthening of the U~~.S. dollar against the euro and Japanese yen, savings of $19 due to price/mix trigger in sales, material productivity initiatives of $14, and raw material cost deflation of $11 contributed to the reduction in cost of sales. This reduction in cost of sales was offset by higher processing costs of $33 related to improvement in plant reliability and to support new investments and growth. Selling, general and administrative expense ~~(excluding~~increased ~~depreciation and amortization of $14 due to the presentation change discussed above) decreased~~ by $~~187~~7 ~~and $188~~ for both Momentive and MPM, ~~respectively,~~ compared to the ~~third~~second quarter of ~~2014.~~2016 Asprimarily ~~discussed~~due ~~above,~~to inthe ~~2015,~~impact ~~certain~~of ~~costs~~a ~~which~~merit ~~previously~~increase ~~had~~implemented ~~been recorded~~ in ~~selling~~2016, timing ~~general and administrative expense are being recorded in cost~~ of ~~sales. Additionally~~services, ~~selling, general~~ and ~~administrative~~unfavorable ~~expense benefited from favorable~~ exchange rate fluctuations of $~~7 as discussed above and adjustments in compensation accruals~~2. Research ~~Selling, general~~ and ~~administrative~~development expense infor the ~~third~~second quarter of ~~2014~~2017 ~~included~~decreased ~~foreign~~by ~~currency losses of approximately~~ $~~138~~1 ~~related to certain intercompany arrangements~~ for ~~which~~both weMomentive ~~were~~and ~~unable~~MPM compared to ~~assert~~the ~~permanent~~second ~~reinvestment~~quarter ~~during~~of ~~the~~2016 ~~Predecessor~~primarily ~~period~~related ~~due~~ to the ~~substantial~~timing ~~doubt~~of ~~about~~new ~~our~~projects. Restructuring ~~ability~~and toother ~~continue~~costs asdecreased aby ~~going~~$9 ~~concern~~for ~~under~~both ~~our~~Momentive ~~prior capital structure. Depreciation~~ and ~~amortization~~MPM, ~~expense~~mainly indue to the ~~third~~gain ~~quarter~~related ~~of 2015 was $42 compared~~ to ~~$54~~an ininsurance ~~the~~reimbursement ~~third quarter~~ of ~~2014.~~$10 ~~Depreciation~~during ~~and amortization expense in~~ the ~~third~~ quarter ofended ~~2014~~June ~~included~~30, ~~$12 of accelerated depreciation~~ 2017, related to ~~certain~~fire ~~long-lived~~damage ~~assets~~at ~~that~~our ~~were~~Leverkusen, ~~disposed~~Germany offacility. Other ~~before~~operating ~~the~~expense ~~end~~decreased ofby ~~their~~$1 ~~estimated~~for ~~useful~~both ~~lives.~~Momentive ~~Research~~ and ~~development~~MPM, ~~expense~~during ~~for~~ the ~~third~~second quarter of ~~2015~~2017 ~~decreased by $2~~ compared to the ~~third~~second quarter of ~~2014~~2016, ~~primarily~~mainly ~~related~~due to the ~~timing~~non-recurrence of ~~new~~impairment ~~projects. Restructuring and other costs for the third quarter~~ of ~~2015~~certain ~~decreased~~assets ~~by $2 compared to the third quarter of 2014 which was primarily due to a decrease~~ in ~~one-time expenses~~2017.

Non-Operating Expense

In the ~~third~~second quarter of ~~2015~~2017, total non-operating expense decreased by $599 compared to the ~~third~~second quarter of ~~2014.~~2016 ~~The~~for ~~decrease~~both ~~was~~Momentive ~~driven~~and ~~by a decrease in interest expense of $16~~MPM, ~~which~~mainly ~~was primarily~~ due to afavorable ~~reduction~~foreign inexchange ~~total~~fluctuations ~~debt~~on ~~outstanding~~certain asintercompany aarrangements ~~result~~during ~~of restructuring our capital structure in conjunction with~~ the ~~implementation~~second ~~of the Plan, as well as a reduction in reorganization items of $43. Reorganization items in the third~~ quarter of ~~2014 primarily consisted of professional fees related to the Bankruptcy Filing~~2017.

Income Tax Expense

The effective tax rate was ~~(23)~~17% for both Momentive and ~~10%~~MPM, for the ~~third quarter~~ ofthree months ended June ~~2015 and 2014~~30, ~~respectively.~~2017 and (57)% for the comparable prior year period. 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 we operate. 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, and tax impact of recognition of net prior service benefit following certain plan provision changes (see Note 11), legislative changes in Italy and the resolution of certain tax matters in non-U.S. jurisdictions.

During the year the company reviewed its global unrecognized tax benefit reserves and identified $6 of reserve that should be released. Of this release $4 was recorded in prior quarters and $2 was recorded during the quarter. For the ~~third~~three ~~quarter~~months ofended ~~2014~~June 30, 2017, income taxes included favorable discrete tax adjustments of $235 pertaining to ~~related~~legislative ~~party~~changes ~~transaction~~in ~~costs,~~Italy ~~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 June ~~September~~ 30, ~~2015~~2017, 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. In addition, the Company has certain intercompany arrangements that if settled may trigger taxable gains or losses based on currency exchange rates in place at the time of settlement. Since the currency translation impact is considered indefinite, the Company has not provided for deferred taxes on gains of $11, which could result in a tax obligation of $3, based on currency exchange rates as of June 30, 2017. Should the intercompany arrangement be settled or the Company change its assertion, the actual tax impact will depend on the currency exchange rate at the time of settlement or change in assertion.

Other Comprehensive Income (Loss)

In the ~~third~~second quarter of ~~2015~~2017, foreign currency translation ~~negatively~~positively impacted other comprehensive ~~loss~~income by $149 for both Momentive and MPM, primarily due to the impact of the weakening of the U.S. dollar against ~~the~~other ~~euro~~currencies. Also, ~~partially~~for ~~offset~~the byfirst ~~strengthening~~quarter of ~~the~~2017, ~~U.S.~~amortization ~~dollar~~of ~~against~~net ~~the~~prior ~~Japanese~~service ~~yen~~benefit following certain plan provision changes also impacted other comprehensive income by $1.

In the ~~third~~second quarter of ~~2014~~2016, foreign currency translation positively impacted other comprehensive income by $5221 for both Momentive and MPM, primarily due to the impact of the weakening of the U.S. dollar against the Japanese yen, ~~particularly in the last month of the third quarter, partially offset by the strengthening of the U.S. dollar against the euro. For the third quarter of 2014, pension~~ and ~~postretirement benefit adjustments negatively impacted other comprehensive income by $22, primarily due to unrecognized actuarial losses related to~~ the ~~re-measurement of the defined benefit pension obligations in conjunction with the ratification of a new collective bargaining agreement in August 2014~~Euro.

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Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

(dollar amounts in millions) (Continued)

	MPM HOLDINGS INC.										MOMENTIVE PERFORMANCE MATERIALS INC.
	Nine Months Ended September 30,										Nine Months Ended September 30,
	2015					2014					2015					2014
	Successor					Predecessor					Successor					Predecessor
	$			% of Net Sales		$			% of Net Sales		$			% of Net Sales		$			% of Net Sales
Net sales	$	1,740		100	%	$	1,873		100	%	$	1,740		100	%	$	1,873		100	%
Cost of sales	1,438			83	%						1,438			83	%
Gross profit	302			17	%						302			17	%
Cost of sales, excluding depreciation and amortization						1,339			72	%						1,339			72	%
Selling, general and administrative expense	210			12	%	417			22	%	209			12	%	417			22	%
Depreciation and amortization expense						137			7	%						137			7	%
Research and development expense	53			3	%	58			3	%	53			3	%	58			3	%
Restructuring and other costs	13			1	%	20			1	%	13			1	%	20			1	%
Other operating income, net	(7		)	—	%	—			—	%	(7		)	—	%	—			—	%
Operating income (loss)	33			2	%	(98		)	(5	)%	34			1	%	(98		)	(5	)%
Interest expense, net	59			3	%	153			8	%	59			3	%	153			8	%
Other non-operating expense, net	2			—	%	—			—	%	2			—	%	—			—	%
Reorganization items, net	8			1	%	114			6	%	8			1	%	114			6	%
Total non-operating expense	69			4	%	267			14	%	69			4	%	267			14	%
Loss before income taxes and earnings from unconsolidated entities	(36		)	(2	)%	(365		)	(19	)%	(35		)	(2	)%	(365		)	(19	)%
Income tax expense (benefit)	11			1	%	(2		)	—	%	11			1	%	(2		)	—	%
Loss before earnings from unconsolidated entities	(47		)	(3	)%	(363		)	(19	)%	(46		)	(3	)%	(363		)	(19	)%
Earnings from unconsolidated entities, net of taxes	1			—	%	2			—	%	1			—	%	2			—	%
Net loss	$	(46	)	(3	)%	$	(361	)	(19	)%	$	(45	)	(3	)%	$	(361	)	(19	)%
Other comprehensive (loss) income	$	(53	)			$	17				$	(53	)			$	17

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Nine Months Ended September 30, 2015 vs. Nine Months Ended September 30, 2014



	MPM HOLDINGS INC.										MOMENTIVE PERFORMANCE MATERIALS INC.
	Six Months Ended June 30,										Six Months Ended June 30,
	2017					2016					2017					2016
	$			% of Net Sales		$			% of Net Sales		$			% of Net Sales		$			% of Net Sales
Net sales	$	1,138		100	%	$	1,122		100	%	$	1,138		100	%	$	1,122		100	%
Cost of sales	905			80	%	914			81	%	905			80	%	914			81	%
Gross profit	233			20	%	208			19	%	233			20	%	208			19	%
Selling, general and administrative expense	169			14	%	159			14	%	168			14	%	158			14	%
Research and development expense	31			3	%	33			3	%	31			3	%	33			3	%
Restructuring and other costs	—			—	%	9			1	%	—			—	%	9			1	%
Other operating expense	4			—	%	8			1	%	4			—	%	8			1	%
Operating income (loss)	29			3	%	(1		)	—	%	30			3	%	—			—	%
Interest expense, net	39			4	%	38			3	%	39			4	%	38			3	%
Gain on extinguishment of debt	—			—	%	(9		)	(1	)%	—			—	%	(9		)	(1	)%
Other non-operating (income) expense, net	(4		)	—	%	2			—	%	(4		)	—	%	2			—	%
Reorganization items, net	—			—	%	1			—	%	—			—	%	1			—	%
Total non-operating expense	35			4	%	32			2	%	35			4	%	32			2	%
Loss before income taxes and earnings from unconsolidated entities	(6		)	(1	)%	(33		)	(2	)%	(5		)	(1	)%	(32		)	(2	)%
Income tax expense (benefit)	5			—	%	(4		)	—	%	5			—	%	(4		)	—	%
Loss before earnings from unconsolidated entities	(11		)	(1	)%	(29		)	(2	)%	(10		)	(1	)%	(28		)	(2	)%
Earnings from unconsolidated entities, net of taxes	—			—	%	1			—	%	—			—	%	1			—	%
Net loss	$	(11	)	(1	)%	$	(28	)	(2	)%	$	(10	)	(1	)%	$	(27	)	(2	)%
Other comprehensive income	$	41				$	79				$	41				$	79

Six Months Ended June 30, 2017 vs. Six Months Ended June 30, 2016

Net Sales

Net sales ~~during~~in the first ~~nine~~half ~~months~~ of ~~2015~~2017 ~~decreased~~increased $~~133,~~16 or 71%, compared to the first ~~nine~~half ~~months~~ of ~~2014~~2016. This ~~decrease~~increase was primarily due to ~~unfavorable~~a ~~exchange~~favorable ~~rate~~price/mix ~~fluctuations~~shift of $~~129~~42, ~~due~~which towas ~~the~~offset ~~strengthening~~by ofa ~~the~~volume ~~U.S.~~decrease ~~dollar against the euro and Japanese yen in the first nine months~~ of ~~2015~~approximately ~~as compared to first nine months of 2014~~$19, asdriven ~~well~~by asour ~~negative~~intentional ~~price and~~ mix shift, ~~which~~towards ~~negatively~~higher-margin ~~impacted~~products ~~net~~versus ~~sales~~less byprofitable ~~$18.~~commodity ~~These~~products ~~decreases~~and ~~were~~unfavorable ~~partially~~exchange ~~offset~~rate byfluctuations ~~volume increases~~ of approximately $157.

3936

Table of Contents


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

(dollar amounts in millions) (Continued)

Operating Income

During the first ~~nine~~half ~~months~~ of ~~2015~~2017, operating income increased ~~$131~~by ~~and~~ $~~132~~30 for both Momentive and MPM, ~~respectively,~~ compared to the first ~~nine~~half ~~months~~ of ~~2014~~2016. Cost of sales ~~(excluding~~decreased depreciation and amortization of $82 in the successor period due to the change in presentation of depreciation and amortization, as described in Note 1 to the unaudited Condensed Consolidated Financial Statements) increased by $179 compared to the first ~~nine~~half ~~months~~ of ~~2014.~~2016 Infor ~~conjunction~~both ~~with~~Momentive ~~the~~and ~~application of fresh start accounting~~MPM, weprimarily ~~re-evaluated~~due ~~our accounting policy with respect~~ to ~~which~~raw ~~overhead~~material ~~costs were production-related, as well as the extent to which functional costs supported production-related activities. As a result, in the Successor period, certain costs were recorded in~~ cost deflation of ~~sales~~$20 ~~rather than in selling, general~~ and ~~administrative~~$15 ~~expense. Cost~~ of ~~sales~~savings ~~was~~related ~~positively~~to ~~impacted by~~ favorable exchange rate fluctuations ofoffset ~~$89 driven~~ by ~~the strengthening of the U.S. dollar against the euro and Japanese yen, material productivity initiatives of~~ $~~23,~~26 ~~raw material cost deflation~~ of ~~$15, and savings of $5 due to price/mix trigger in sales offset by~~ higher net processing costs ofdriven ~~$41~~by ~~related~~the towork ~~improvement~~stoppage in ~~plant~~the ~~reliability~~first ~~and~~quarter toof ~~support new investments and growth~~2017. Selling, general and administrative expense ~~(excluding~~increased ~~depreciation and amortization of $36 due to the presentation change discussed above) decreased~~ by $~~243~~10 ~~and $244~~ for both Momentive and MPM, ~~respectively,~~ compared to the first ~~nine~~half ~~months~~ of ~~2014. In 2015~~2016, ~~certain~~primarily ~~costs~~due ~~which~~to ~~previously~~the ~~had~~impact ~~been~~of ~~recorded~~a inmerit ~~selling,~~increase ~~general~~implemented ~~and administrative expense are being recorded~~ in ~~cost of sales~~2016, astiming ~~discussed~~of ~~above. Additionally~~services, ~~selling, general~~ and ~~administrative~~unfavorable ~~expense benefited from favorable~~ exchange rate fluctuations of $~~18 as discussed above, adjustments in compensation accruals, unrealized curtailment gains of $~~3 asoffset aby ~~result~~lower ~~of freezing pension benefits for certain U.S. pension plan participants and~~ actuarial ~~gains of $10 related to the~~ re-measurement ofloss ~~our pension liabilities. Selling, general and administrative expense in the first nine months~~ of ~~2014 included foreign currency losses of approximately~~ $~~102~~4 related to ~~certain intercompany arrangements for which we were unable to assert permanent reinvestment during the Predecessor period due to the substantial doubt about~~ our ~~ability~~pension ~~to continue as a going concern under our prior capital structure. Depreciation~~ and ~~amortization~~post ~~expense~~retirement ~~in the first nine months of 2015 was $118 compared to $137 in the first nine months of 2014~~liabilities. Depreciation and amortization expense in the first nine months of 2014 included $12 of accelerated depreciation related to certain long-lived assets that were disposed of before the end of their estimated useful lives. Research and development expense for the first ~~nine~~half ~~months~~ of ~~2015~~2017 decreased by $52 compared to the first ~~nine~~half ~~months~~ of ~~2014~~2016 for both Momentive and MPM, primarily related to the timing of new projects. Restructuring and other costs ~~for the first nine months of 2015~~ decreased by $79 ~~compared~~for toboth ~~the~~Momentive ~~first~~and ~~nine~~MPM, ~~months~~mainly ~~of 2014 primarily~~ due to ~~non~~the ~~recurrence~~gain ofrelated ~~one-time~~to ~~expenses~~an ~~associated~~insurance ~~with~~reimbursement ~~restructuring~~of ~~our~~$10, during ~~capital~~the ~~structure~~quarter ~~prior~~ended toJune ~~our~~30, ~~Chapter~~2017, 11related ~~bankruptcy~~to ~~during~~fire ~~the~~damage ~~second~~at ~~quarter~~our ofLeverkusen, ~~2014.~~Germany facility. Other operating ~~income~~expense ~~included~~decreased aby ~~settlement~~$4 ~~gain~~for ofboth $6Momentive ~~related~~and MPM, mainly due to the ~~resolution~~non-recurrence of aimpairment ~~customer~~of ~~dispute~~certain assets in ~~the first quarter of 2015~~2017.

Non-Operating Expense

In the first ~~nine~~half ~~months~~ of ~~2015~~2017, total non-operating expense ~~decreased~~increased by $~~198~~3 compared to the first ~~nine~~half ~~months~~ of ~~2014.~~2016 The decrease was driven by a decrease in interest expense of $94, which was primarily due to a reduction in total debt outstanding as a result of restructuring our capital structure in conjunction with the implementation of the Plan, as well as a reduction in reorganization items of $106. Reorganization items in the first nine months of 2015 primarily consisted of professional fees and rating fees for ~~the~~both ~~new~~Momentive ~~first~~ and ~~second lien notes~~MPM. The ~~Reorganization~~increase ~~items~~was ~~in the first nine months of 2014~~ primarily ~~consisted~~due ~~of professional fees related~~ to the ~~Bankruptcy~~gain ~~Filing~~on ofextinguishment $62, a $30 premium related to the Backstop Commitment Agreement (the “Backstop Commitment Premium”), financing fees related to our senior secured debtor-in-possession term loan agreement (the “DIP Term Loan Facility”) and amended and restated senior secured debtor-in-possession and exit asset-based revolving credit agreement (together with the DIP Term Loan Facility, the “DIP Facilities”) of ~~$19,~~Second asLien ~~well~~Notes asnot ~~other~~recurring ~~fees related to the Bankruptcy Filing of $3. The decrease was partially offset by an increase~~ in ~~other non-operating expense of $2 in the first nine months of 2015, which primarily consisted of realized and unrealized foreign currency transaction losses~~2017.

Income Tax Expense

The effective tax rate was (2883)% and 1(100)% for ~~the~~Momentive ~~first~~and ~~nine~~MPM, ~~months~~respectively, ~~of 2015 and~~for the ~~first~~six ~~nine~~ months ofended June ~~2014~~30, ~~respectively.~~2017 and 12% and 13% for the comparable prior year period. 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 we operate. 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, tax impact of recognition of net prior service benefit following certain plan provision changes (see Note 11), and legislative changes in Italy and Japan.

~~During~~For the ~~year~~six ~~the~~months ~~company~~ended ~~reviewed~~June 30, ~~its~~2017, ~~global~~income ~~unrecognized~~taxes ~~tax~~included ~~benefit~~favorable ~~reserves~~discrete ~~and~~tax ~~identified~~adjustments $6 of ~~reserve~~$10 ~~that~~pertaining ~~should~~to bebenefits ~~released.~~curtailment, Oflegislative ~~this~~changes ~~release,~~in $4Italy ~~relates~~and toJapan, ~~prior~~and ~~quarters~~the ~~and~~resolution $2of ~~relates~~certain totax ~~prior~~matters ~~years~~in non-U.S. jurisdictions. For the ~~first~~six ~~nine~~ months ofended ~~2014~~June 30, 2016, income taxes included favorable discrete tax adjustments of $913 pertaining to a change in tax law in Japan 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 ~~September~~June 30, ~~2015~~2017, 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. In addition, the Company has certain intercompany arrangements that if settled may trigger taxable gains or losses based on currency exchange rates in place at the time of settlement. Since the currency translation impact is considered indefinite, the Company has not provided deferred taxes on gains of $11, which could result in a tax obligation of $3, based on currency exchange rates as of June 30, 2017. Should the intercompany arrangement be settled or the Company change its assertion, the actual tax impact will depend on the currency exchange rate at the time of settlement or change in assertion.

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

(dollar amounts in millions) (Continued)

Other Comprehensive Income (Loss)

In the first ~~nine~~half ~~months~~ of ~~2015~~2017, foreign currency translation ~~negatively~~positively impacted other comprehensive ~~loss~~income by $5131 for both Momentive and MPM, primarily due to the impact of the ~~strengthening~~weakening of the U.S. dollar against the Japanese yen and the euro. Also, Infor the first ~~nine~~half ~~months~~ of ~~2015~~2017, pension and postretirement benefit ~~losses~~adjustments ~~negatively~~positively impacted other comprehensive ~~loss~~income by $210, primarily due to the recognition of net prior service ~~costs~~benefit ~~following~~related ~~provision changes~~ to ~~our~~the ~~U.S.~~effect ~~pension~~of certain plan provision changes.

In the first ~~nine~~half ~~months~~ of ~~2014~~2016, foreign currency translation ~~positively~~negatively impacted other comprehensive ~~income~~loss by $3859 for both Momentive and MPM, primarily due to the ~~strengthening~~impact of the weakening of the U.S. dollar against the Japanese yen, ~~particularly~~and in the ~~last month of the period, partially offset by the strengthening of the U.S. dollar against the~~ euro. Also, ~~For~~for the first ~~nine~~half ~~months~~ of ~~2014~~2016, pension and postretirement benefit adjustments ~~negatively~~positively impacted other comprehensive income by $2120, primarily due to ~~unrecognized~~the ~~actuarial~~recognition ~~losses~~of a net prior service credit related to the ~~remeasurement~~effect of ~~the~~plan ~~defined~~redesign ~~benefit~~triggered ~~pension~~by ~~obligations~~certain inchanges ~~conjunction~~to ~~with~~company ~~the~~sponsored ~~ratification~~post-retiree ofmedical, adental, ~~new~~vision ~~collective~~and ~~bargaining~~life ~~agreement~~insurance ofbenefit ~~August 2014~~plans.

Results of Operations by Segment

Our segments are based on the products that we offer and the markets that we serve. At ~~September~~June 30, ~~2015~~2017, we had two reportable segments: Silicones and Quartz.

Following are net sales and Segment EBITDA by reportable segment. Segment EBITDA is defined as EBITDA (earnings before interest, income taxes, depreciation and amortization) adjusted for certain non-cash items and certain other income and expenses. Segment EBITDA is the primary performance measure used by our 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. Segment EBITDA should not be considered a substitute for net income (loss) or other results reported in accordance with U.S. GAAP. Segment EBITDA may not be comparable to similarly titled measures reported by other companies.

In 2015, we redefined our internal reporting structure and now allocate 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 segments, such as certain shared service and administrative functions. The presentation of Segment EBITDA for the three and nine months ended September 30, 2014 was retrospectively revised to conform with the current presentation.37

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
	Successor		Predecessor		Successor		Predecessor
Net Sales(1):
Silicones	$	514	$	587	$	1,605	$	1,736
Quartz	45		44		135		137
Total	$	559	$	631	$	1,740	$	1,873

Table of Contents


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

(dollar amounts in millions) (Continued)



	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Net Sales⁽¹⁾:
Silicones	$	542	$	539	$	1,037	$	1,039
Quartz	52		47		101		83
Total	$	594	$	586	$	1,138	$	1,122


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

	MPM HOLDINGS INC.
	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
	2017			2016			2017			2016
	Successor			Predecessor			Successor			Predecessor
Segment EBITDA:
Silicones	$	4275		$	70		$	~~154~~146		$	~~195~~120
Quartz	610			56			2617			177
Corporate	(711		)	(1210		)	(2720		)	(3520		)
Total	$	4174		$	6366		$	~~153~~143		$	~~177~~107



	MOMENTIVE PERFORMANCE MATERIALS INC.
	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Segment EBITDA:
Silicones	$	75		$	70		$	146		$	120
Quartz	10			6			17			7
Corporate	(11		)	(10		)	(19		)	(19		)
Total	$	74		$	66		$	144		$	108

Table of Contents


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

(dollar amounts in millions) (Continued)

	MOMENTIVE PERFORMANCE MATERIALS INC.
	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	Successor			Predecessor			Successor			Predecessor
Segment EBITDA:
Silicones	$	42		$	70		$	154		$	195
Quartz	6			5			26			17
Corporate	(7		)	(12		)	(26		)	(35		)
Total	$	41		$	63		$	154		$	177

Segment Results

Three Months Ended ~~September~~June 30, ~~2015~~2017 vs. Three Months Ended ~~September~~June 30, ~~2014~~2016

Following is an analysis of the percentage change in sales by business from the three months ended ~~September~~June 30, ~~2014~~2016 to the three months ended ~~September~~June 30, ~~2015~~2017:

	Volume		Price/Mix		CurrencyTranslation		Total
Silicones	(13	)%	(45	)%	(71	)%	~~(12~~1	)%
Quartz	911	%	(1—	)%	(6—	)%	211	%

Silicones

Net sales in the ~~third~~second quarter of ~~2015~~2017 ~~decreased~~increased $733, or 121%, compared to the ~~third~~second quarter of ~~2014~~2016. This ~~The~~increase ~~decrease~~ was primarily due to ~~unfavorable~~favorable ~~exchange~~price/mix ~~rate~~shift ~~fluctuations~~ of approximately $4225 ~~due~~driven toby ~~the~~intentional ~~strengthening~~mix ofshift ~~the~~towards ~~U.S.~~higher-margin ~~dollar~~products ~~against~~versus ~~the~~less ~~euro~~profitable ~~and~~commodity ~~Japanese yen~~products,as ~~well~~which aswas offset by volume ~~decreases~~decrease of $717 ~~caused~~related byto ~~softening~~our ~~end~~actions ~~markets~~to ~~and~~migrate ~~global~~our ~~inventory~~sales ~~destocking~~portfolio ~~compounded~~into ~~with~~high ~~traditional~~growth ~~European~~specialty ~~slowdown~~markets and ~~negative~~$5 ~~price~~due ~~and~~to ~~mix~~the ~~shift~~strengthening of ~~$23~~the ~~triggered by China market slowdown~~U.S. dollar.

Segment EBITDA in the ~~third~~second quarter of ~~2015~~2017 ~~decreased~~increased by $285 to $4275 compared to the ~~third~~second quarter of ~~2014~~2016. This ~~The~~increase ~~decrease~~ was primarily due to ~~net~~improved ~~unfavorable~~demand ~~exchange~~in ~~rate fluctuations~~automotive, ~~higher~~consumer ~~processing~~products ~~costs related to improvement of plant reliability~~ and toelectronic ~~support new investments and growth~~markets, ~~volume~~production ~~decrease~~efficiencies and ~~negative price and mix differentials triggered by China market slowdown and related global destocking. These were partially offset by~~ raw material ~~cost~~ deflation.

Quartz

Net sales in the ~~third~~second quarter of ~~2015~~2017 increased $15, or 211%, compared to the ~~third~~second quarter of ~~2014~~2016. The increase was primarily due to volume ~~increases~~increase of $45 ~~offset~~mainly ~~by unfavorable exchange rate fluctuations of $3~~ due to ~~the~~improved ~~strengthening~~market ofconditions ~~the~~in ~~U.S. dollar against~~ the ~~euro~~electronics ~~and Japanese yen~~market.

Segment EBITDA in the ~~third~~second quarter of ~~2015~~2017 increased by $14 to $610 compared to the ~~third~~second quarter of ~~2014~~2016. This ~~The~~ increase was primarily due to ~~increase~~the in sales volume ~~and~~increase, ~~reductions~~cost incontrols, ~~processing costs~~ and improved manufacturing efficiencies ~~and selling, general and administrative expenses~~.

Corporate

Corporate charges ~~decreased~~increased by $51 in the ~~third~~second quarter of ~~2015~~2017 asfor ~~compared~~both toMomentive ~~the~~and ~~third quarter of 2014~~MPM, ~~primarily~~as ~~due~~compared to ~~favorable~~the ~~exchange~~second ~~rate~~quarter ~~fluctuations~~of ~~and decreased expenses that are not assessed to the segments~~2016.

42Six Months Ended June 30, 2017 vs. Six Months Ended June 30, 2016

~~Table~~Following is an analysis of ~~Contents~~the percentage change in sales by business from the six months ended June 30, 2016 to the six months ended June 30, 2017:

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations



	Volume		Price/Mix		Currency Translation		Total
Silicones	(3	)%	4	%	(1	)%	—	%
Quartz	22	%	—	%	—	%	22	%

(dollar amounts in millions) (Continued)

Nine Months Ended September 30, 2015 vs. Nine Months Ended September 30, 2014

Following is an analysis of the percentage change in sales by business from the nine months ended September 30, 2014 to the nine months ended September 30, 2015:

	Volume		Price/Mix		CurrencyTranslation		Total
Silicones	—	%	(1	)%	(7	)%	(8	)%
Quartz	5	%	—	%	(6	)%	(1	)%

Silicones

Net sales in the first ~~nine~~half ~~months~~ of ~~2015~~2017 decreased $~~131~~2, ~~or 8%,~~ compared to the first ~~nine~~half ~~months~~ of ~~2014~~2016. This ~~The~~ decrease was primarily due to ~~unfavorable~~volume ~~exchange~~decrease ~~rate fluctuations~~ of $~~121~~37 ~~due~~related to ~~the~~our ~~strengthening~~actions ofto ~~the~~migrate ~~U.S.~~our ~~dollar~~sales ~~against~~portfolio ~~the~~into ~~euro~~high ~~and~~growth ~~Japanese~~specialty ~~yen,~~markets ~~as well as price~~ and ~~mix~~$7 ~~shift,~~due ~~which~~to ~~negatively~~the ~~impacted~~strengthening ~~net~~of ~~sales~~the ~~by $18~~U.S. ~~The~~dollar, ~~decrease~~offset ~~was~~by ~~partially~~approximately ~~offset~~$42 driven by ~~volume~~intentional ~~increases~~mix/price ofshift $8towards ~~from~~higher-margin ~~improved~~products ~~demand~~versus inless ~~Europe~~profitable ~~and~~commodity ~~Asia~~products.

Segment EBITDA in the first ~~nine~~half ~~months~~ of ~~2015~~2017 ~~decreased~~increased by $4126 to $~~154~~146 compared to the first ~~nine~~half ~~months~~ of ~~2014~~2016. This ~~The~~increase ~~decrease~~ was primarily due to ~~net~~improved ~~unfavorable~~demand ~~exchange~~in ~~rate fluctuations~~automotive, ~~higher~~consumer ~~processing~~products, ~~costs related to improvement in plant reliability~~ and toelectronic ~~support new investments and growth~~markets, and ~~negative~~improved ~~price/mix~~production ~~differentials.~~efficiencies ~~The~~and ~~decrease was partially offset by~~ raw material ~~cost~~ deflation.

Quartz

Net sales in the first ~~nine~~half ~~months~~ of ~~2015~~2017 ~~decreased~~increased $218, or 122%, compared to the first ~~nine~~half ~~months~~ of ~~2014~~2016. The ~~decrease~~increase was primarily due to ~~unfavorable~~volume ~~exchange~~increase ~~rate fluctuations~~ of $818 mainly due to ~~the~~improved ~~strengthening~~market ofconditions ~~the~~in ~~U.S. dollar against~~ the ~~euro~~electronics ~~and Japanese yen, which was offset by volume increases of $6~~market.

Segment EBITDA in the first ~~nine~~half ~~months~~ of ~~2015~~2017 ~~increased~~decreased by $910 to $2617 compared to the first ~~nine~~half ~~months~~ of ~~2014~~2016. This ~~The~~ increase was primarily due to ~~a settlement gain of $6 related to~~ the ~~resolution of a customer dispute in the first quarter of 2015, increase in~~ sales volume increase, ~~and~~cost ~~reductions in processing costs and selling~~controls, ~~general~~ and ~~administrative~~improved ~~expenses~~manufacturing efficiencies.

~~Corporate~~39

Corporate charges decreased by $8 and $9 for Momentive and MPM, respectively, in the first nine months of 2015 as compared to the first nine months of 2014, primarily due to favorable exchange rate fluctuations and decreased expenses that are not assessed to the segments.

Table of Contents


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

(dollar amounts in millions) (Continued)

Reconciliation of ~~Segment~~Net ~~EBITDA~~Income (Loss) to ~~Net~~Segment ~~Loss~~EBITDA:

	MPM HOLDINGS INC.
	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
	2017			2016			2017			2016
	Successor			Predecessor			Successor			Predecessor
Net income (loss)	$	19		$	(10	)	$	(11	)	$	(28	)
Segment EBITDA:
Interest expense, net	20			19			39			38
Silicones	$	42		$	70		$	154		$	195
Income tax expense (benefit)	4			4			5			(4		)
Quartz	6			5			26			17
Depreciation and amortization	37			42			75			84
Corporate	(7		)	(12		)	(27		)	(35		)
Gain on extinguishment and exchange of debt	—			—			—			(9		)
Total	$	41		$	63		$	153		$	177
Reconciliation:
Items not included in Segment EBITDA:
Non-cash charges	$	—		$	(145	)	$	(3	)	$	(116	)
Non-cash charges and other income and expense	$	(2	)	$	7		$	4		$	11
Unrealized actuarial and curtailment gains from pension liabilities	—			—			13			—
Unrealized losses on pension and postretirement benefits	—			—			1			5
Restructuring and other costs	(4		)	(64		)	~~(13~~30		)	~~(20~~9		)
Reorganization items, net	(1—		)	~~(44~~—		)	(8—		)	~~(114~~1		)
Total adjustments	(5		)	(195		)	(11		)	(250		)
Segment EBITDA	$	74		$	66		$	143		$	107
Interest expense, net	(20		)	(36		)	(59		)	(153		)
Segment EBITDA:
Income tax (expense) benefit	(6		)	23			(11		)	2
Silicones	$	75		$	70		$	146		$	120
Depreciation and amortization	(42		)	(54		)	(118		)	(137		)
Quartz	10			6			17			7
Net loss	$	(32	)	$	(199	)	$	(46	)	$	(361	)
Corporate	(11		)	(10		)	(20		)	(20		)
Total	$	74		$	66		$	143		$	107

	MOMENTIVE PERFORMANCE MATERIALS INC.
	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
	2017			2016			2017			2016
	Successor			Predecessor			Successor			Predecessor
Net income (loss)	$	19		$	(10	)	$	(10	)	$	(27	)
Segment EBITDA:
Interest expense, net	20			19			39			38
Silicones	$	42		$	70		$	154		$	195
Income tax expense (benefit)	4			4			5			(4		)
Quartz	6			5			26			17
Depreciation and amortization	37			42			75			84
Corporate	(7		)	(12		)	(26		)	(35		)
Gain on extinguishment and exchange of debt	—			—			—			(9		)
Total	$	41		$	63		$	154		$	177
Reconciliation:
Items not included in Segment EBITDA:
Non-cash charges	$	1		$	(145	)	$	(3	)	$	(116	)
Non-cash charges and other income and expense	$	(2	)	$	7		$	4		$	11
Unrealized actuarial and curtailment gains from pension liabilities	—			—			13			—
Unrealized losses on pension and postretirement benefits	—			—			1			5
Restructuring and other costs	(4		)	(64		)	~~(13~~30		)	~~(20~~9		)
Reorganization items, net	(1—		)	~~(44~~—		)	(8—		)	~~(114~~1		)
Total adjustments	(4		)	(195		)	(11		)	(250		)
Segment EBITDA	$	74		$	66		$	144		$	108
Interest expense, net	(20		)	(36		)	(59		)	(153		)
Segment EBITDA:
Income tax (expense) benefit	(6		)	23			(11		)	2
Silicones	$	75		$	70		146			120
Depreciation and amortization	(42		)	(54		)	(118		)	(137		)
Quartz	10			6			17			7
Net loss	$	(31	)	$	(199	)	$	(45	)	$	(361	)
Corporate	(11		)	(10		)	(19		)	(19		)
Total	$	74		$	66		$	144		$	108

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Table of Contents


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

(dollar amounts in millions) (Continued)

Items Not Included in Segment EBITDA

~~Not included in Segment EBITDA are certain non-cash and other income and expenses.~~ For the three and ~~nine~~six months ended ~~September~~June 30, ~~2015~~2017 and ~~September~~June 30, ~~2014~~2016, non-cash charges primarily included ~~net~~asset ~~unrealized~~impairment charges, stock based compensation expense and net foreign exchange transaction gains and losses related to certain intercompany arrangements. Restructuring and other costs primarily included expenses from our restructuring and cost optimization programs. For the three and nine months ended September 30, 2014, these amounts also included costs associated with restructuring our capital structure incurred prior to the Bankruptcy Filing. For the nine months ended September 30, 2014, these costs were partially offset by a gain related to a claim settlement. Reorganization items, net represented incremental costs incurred directly as a result of the Bankruptcy Filing. For the three and nine months ended September 30, 2015, reorganization items, net included professional fees and rating fees for the new debt issued on the Emergence Date.

Liquidity and Capital Resources

Our primary sources of liquidity are cash on hand, cash flow from operations and funds available under the ABL Facility. Our primary continuing liquidity needs are to finance our working capital, debt service and capital expenditures.

At ~~September~~June 30, ~~2015~~2017, we had $1,~~220~~215 of outstanding indebtedness. In addition, at ~~September~~June 30, ~~2015~~2017, we had $~~374~~342 in liquidity, consisting of the following:

•$~~161~~128 of unrestricted cash and cash equivalents (of which $~~112~~108 is maintained in foreign jurisdictions); and

• $~~213~~214 of availability under the ABL Facility ($270 borrowing base, less $5756 of outstanding letters of credit and subject to a fixed charge coverage ratio of 1.0 to 1.0 that will only apply if our availability is less than the greater of (a) 12.5% of the lesser of the borrowing base and the total ABL Facility commitments at such time and (b) $27).

A summary of the components of our net working capital (defined as accounts receivable and inventories less accounts payable) at ~~September~~June 30, ~~2015~~2017 and December 31, ~~2014~~2016 is as follows:

September 30, 2015

% of LTM Net Sales

December 31, 2014

% of LTM Net Sales

June 30, 2017

% of LTM Net Sales

December 31, 2016

% of LTM Net Sales

Accounts receivable

~~319~~

Filing Compare · Momentive Performance Materials Inc.