UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K


þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, ~~2016~~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)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

______________________________________________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Act.

MPM Holdings Inc. Yes o No x

Momentive Performance Materials Inc. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

MPM Holdings Inc. Yes o No x

Momentive Performance Materials Inc. Yes o No x

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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

MPM Holdings Inc. Yes x No o

Momentive Performance Materials Inc. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

MPM Holdings Inc. Yes x No o

Momentive Performance Materials Inc. Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

MPM Holdings Inc. x

Momentive Performance Materials Inc. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer”, ~~and~~ “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

MPM Holdings Inc.

Large accelerated filer o Accelerated filer o Non-accelerated filer x Smaller ~~Reporting~~reporting ~~Company~~company o Emerging growth company o

Momentive Performance Materials Inc.

Large accelerated filer o Accelerated filer o Non-accelerated filer x Smaller ~~Reporting~~reporting ~~Company~~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.

MPM Holdings Inc. o

Momentive Performance Materials Inc. 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 February 15, ~~2017~~2018 was 48,~~058~~121,~~114~~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 February 15, ~~2017~~2018 was 48 shares, all of which were held by MPM Intermediate Holdings Inc.

This Form 10-K is a combined annual report being filed separately by two registrants: MPM Holdings Inc. and Momentive Performance Materials Inc.

Documents incorporated by reference: None

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MPM HOLDINGS INC. AND MOMENTIVE PERFORMANCE MATERIALS INC.

INDEX

		PAGE
PART I
Item 1.	Business	3
Item 1A.	Risk Factors	910
Item 1B.	Unresolved Staff Comments	2224
Item 2.	Properties	2325
Item 3.	Legal Proceedings	2427
Item 4.	Mine Safety Disclosures	2528
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	2629
Item 6.	Selected Financial Data	2730
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3134
Item 7A.	Quantitative And Qualitative Disclosures About Market Risk	5153
Item 8.	Financial Statements and Supplementary Data	5254
Consolidated Financial Statements of MPM Holdings Inc. and Momentive Performance Materials Inc.
	Consolidated Balance Sheets at December 31, 2016 and 2015	53
	Consolidated Balance Sheets at December 31, 2017 and 2016	55
	Consolidated Statements of Operations; year ended December 31, 2016; year ended December 31, 2015; Successor period from October 25, 2014 through December 31, 2014 and Predecessor period from January 1, 2014 through October 24, 2014	53
	Consolidated Statements of Operations for the years ended December 31, 2017, 2016, and 2015	56
	Consolidated Statements of Comprehensive (Loss) Income; year ended December 31, 2016; year ended December 31, 2015; Successor period from October 25, 2014 through December 31, 2014and Predecessor period from January 1, 2014 through October 24, 2014	55
	Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2017, 2016 and 2015	58
	Consolidated Statements of Cash Flows; year ended December 31, 2016; year ended December 31, 2015; Successor period from October 25, 2014 through December 31, 2014 and Predecessor period from January 1, 2014 through October 24, 2014	56
	Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015	59
	Consolidated Statements of Equity (Deficit); year ended December 31, 2016; year ended December 31, 2015; Successor period from October 25, 2014 through December 31, 2014 and Predecessor period from January 1, 2014 through October 24, 2014	58
	Consolidated Statements of Equity for the years ended December 31, 2017, 2016 and 2015	61
	Notes to Consolidated Financial Statements	6063
	Report of Independent Registered Public Accounting Firm	~~117~~104
Financial Statement Schedules:
	Schedule I - Condensed Parent Company Financial Statements	121
	Schedule I - Condensed Parent Company Financial Statements at December 31, 2017 and 2016, and for the years ended December 31, 2017, 2016, and 2015	106
	Schedule II - Valuation and Qualifying Accounts	124
	Schedule II - Valuation and Qualifying Accounts for the years ended December 31, 2017, 2016, and 2015	110
Item 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	~~124~~110
Item 9A.	Controls and Procedures	~~124~~110
Item 9B.	Other Information	~~125~~111
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	~~126~~112
Item 11.	Executive Compensation	~~130~~116
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	~~131~~117
Item 13.	Certain Relationships and Related Transactions, and Director Independence	~~134~~119
Item 14.	Principal Accounting Fees and Services	~~136~~121
PART IV
Item 15.	Exhibits and Financial Statement Schedules	~~137~~122
Item 16.	Form 10-K Summary	~~140~~124
	Signatures	~~141~~125

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PART I

(dollars in millions)

Forward-Looking and Cautionary Statements

Certain statements in this report, including without limitation, certain statements made under Item 1, “Business,” and Item 7, “Management’s Discussion and 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 report and our other filings with the Securities and Exchange Commission (the “SEC”). While we believe our assumptions are reasonable, we caution you against relying on any forward-looking statements as it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to: a weakening of global economic and financial conditions, interruptions in the supply of or increased cost of raw materials, the impact of work stoppages and other incidents on our operations, changes in governmental regulations or interpretations thereof and related compliance and litigation costs, 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, our ability to obtain additional financing, and the other factors listed in the Risk Factors section of this report. For a more detailed discussion of these and other risk factors, see the “Risk Factors” section of this report. 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.

ITEM 1. BUSINESS

Overview

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.

As a result of MPM’s reorganization and emergence from Chapter 11 bankruptcy on October 24, 2014 (the “Effective Date” or the “Emergence Date”) (described below), 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 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”).

Momentive ~~along with its subsidiaries~~ is one of the world'’s largest producers of specialty silicones, ~~silicone~~and ~~derivatives~~silanes and ~~functional~~a ~~silanes~~global leader in fused quartz and specialty ceramics products. Momentive is based in Waterford, New York and has a ~~global~~long ~~leader~~track inrecord of creating innovative products and solutions designed to meet the ~~development~~complex requirements of our more than 4,000 customers in over 100 countries. Our strategic network of 24 production sites and ~~manufacture~~12 R&D facilities supports our global leadership positions and facilitates our ability to serve our blue-chip customer base across a diverse array of ~~products~~consumer, ~~derived~~automotive ~~from~~and ~~quartz~~various industrial end-markets. We have invested significantly to develop and enhance our innovative and differentiated specialty ~~ceramics.~~product portfolio to address the evolving demands of the markets we serve and to maintain alignment with global megatrends.

Our value-added business model focuses on technical service, combined with our global footprint and long-term customer relationships uniquely positions us as a key innovation partner to our customers. Over our 75-year operating history, which began with the invention of silicone technologies by General Electric Company (“GE”) and includes our acquisitions of the silicone-based businesses of Bayer, Toshiba and Union Carbide, we have focused on investing in and developing technology to enable high performance applications in attractive end-markets. Our silanes and specialty silicones are used as additives and formulated products that provide or enhance certain attributes of the end product. Our products have a range of attractive properties including heat and chemical resistance, lubrication, adhesion and viscosity. These properties position our specialty silicones and silanes products as critical materials in many automotive, industrial, construction, healthcare, personal care, electronic, consumer and agricultural applications. Momentive’s advanced materials are ubiquitous in daily life and are instrumental inputs in a wide range of products, including applications in consumer and personal care (e.g., cosmetics, electronic displays, and foam mattresses), automotive (e.g., headlights, paneling, and tires) and healthcare (e.g., medical tubing). The diverse molecular characteristics of specialty silicones and silanes continually lead to new applications, and as a result are increasingly being used as a substitute for other materials.

Our value-added, technical service-oriented business model enables us to identify and participate in high-margin and high-growth specialty markets. We are focused on investing in our R&D capabilities, which enable us to develop new products and applications. Over the last three years, we have invested approximately $200 in R&D, dramatically upgrading our capabilities and facilities. For example, we implemented a full scale pilot line for our coatings business in Leverkusen, Germany and opened a new tire additives application development center in Charlotte, North Carolina. Our investments in strategically-located R&D centers of excellence enable us to quickly and effectively

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develop new products and maintain our technology leadership. We have long-term relationships with blue-chip customers which are leading innovations in their own industries, and work closely with their R&D teams to develop products uniquely suited to their needs.

We generate revenue in three of our segments, Performance Additives, Formulated and Basic Silicones and Quartz Technologies, using direct and indirect approaches to selling a broad base of products to our customers. We utilize technical and application support to enhance our value proposition to customers and drive penetration into attractive end-markets. We also work with original equipment manufacturers to achieve specification of our products into theirs, which results in higher pull-through demand.

Products and Markets

Our products are used in thousands of applications and are sold into diverse markets, such as industrial, building and construction, transportation, agriculture, electronics, healthcare, personal care, semiconductor and fiber optics. The diversity of our products limits our dependence on any one market or end-use. We have a history of product innovation and success in introducing new products to new markets, as evidenced by more than 3,400 patents, the majority of which relate to the development of new products and manufacturing processes.

As of December 31, ~~2016~~2017, we had 2324 production sites strategically located around the world, which allows us to produce the substantial majority of our key products locally in the Americas, Europe and Asia. Through this network of production facilities, we serve more than 4,000 customers between our Performance Additives, Formulated and Basic Silicones, and Quartz Technologies businesses in over 100 countries worldwide. We use our global platform to deliver products to companies efficiently on a worldwide basis. Many of our customers are expanding internationally to serve developing areas in Asia, Eastern Europe, Latin America, India and Russia. Maintaining close proximity to our international customers allows us to serve them more quickly and efficiently and thus build strong relationships. Our customers include leading companies in their respective industries.

We believe that our scale and global reach provide significant efficiencies in our fixed and variable cost structure and that our breadth of related products provides significant operational, technological and commercial advantages. Manufacturing capacity at our internal sites and our joint venture in China is sufficient to produce the majority of one of our key intermediates, siloxane, which facilitates a cost effective operating structure and security of supply.

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We believe we have created a value-added, technical service-oriented business model that enables us to target and participate in high-margin and high-growth specialty markets. These specialty markets account for the majority of our revenues and continue to be a growing part of our business.

Growth and Strategy

WeMomentive ~~believe~~has ~~that~~a weclear ~~have~~corporate ~~opportunities~~growth ~~for~~strategy and significant multi-dimensional earnings growth ~~through~~opportunities. We are focused on the following long-term strategies:

~~Expand~~Increase shift to high-margin specialty products. Our ~~Global~~strategy ~~Reach~~is to expand our product offerings in ~~Faster~~high-margin ~~Growing~~specialty ~~Regions—We~~silicones ~~intend~~and silanes and optimize production to ~~continue~~accommodate strategic investments in specialty growth products as the company rationalizes exposure to ~~grow~~lower bymargin ~~expanding~~products. ~~our~~We ~~sales~~are ~~presence~~actively selling fewer lower-margin basic silicone products and ~~application~~redeploying ~~support~~capital ~~around~~resources ~~the~~to ~~world~~grow our specialty products. ~~Specifically~~Accordingly, we ~~are~~have ~~focused~~deployed onapproximately ~~growing~~$120 of growth capital over the last three years to exploit our ~~business~~rich new product pipeline in ~~the~~innovative ~~high~~market ~~growth~~applications. ~~regions~~Areas of ~~Asia-Pacific,~~investment ~~Eastern~~focus ~~Europe~~include specialty silanes, ~~Latin~~automotive ~~America~~clear coats, ~~India~~optical displays and ~~the~~liquid ~~Middle~~silicone ~~East~~rubber (“LSR”). For example, ~~where~~construction of our recently announced approximately $30 investment in NXT* silane production capacity in Leverkusen has been completed and we expect that production will ramp up in the ~~usage~~second half of 2018. Simultaneously, we continue to expand our ~~products~~IP-protected isleadership ~~increasing~~position in next generation silanes for low-roll resistance tires. With these actions, we are continuing to invest strategically in our specialty growth platforms while optimizing our siloxane capacity.

~~Develop~~Expand ~~and Market New Products—We will continue~~ our ~~efforts~~global toreach ~~expand~~in ~~our~~faster ~~product~~growing ~~offerings~~regions ~~through research~~ and ~~development initiatives and research partnership formations with third parties~~markets. ~~Through~~We ~~these~~intend ~~innovation initiatives we expect~~ to ~~create new generations of products and services which will~~ continue to ~~drive~~grow ~~revenue~~by ~~and~~expanding ~~earnings~~our ~~growth~~sales ~~over~~presence ~~the long term. In 2016, 2015~~ and ~~2014,~~application wesupport ~~invested~~around ~~$64,~~the ~~$65 and $76, respectively, in research and development~~world. InWe ~~recent~~are ~~years~~focused weon ~~have~~growing ~~completed such initiatives as upgrading technology facilities at~~ our ~~Tarrytown,~~business NYby ~~site,~~making ~~implementing~~targeted ainvestments ~~full scale pilot line for our coatings business~~ in ~~Leverkusen,~~emerging ~~Germany~~markets, ~~expanding~~specifically ~~our~~certain ~~technology~~areas ~~center~~of inAsia ~~Seoul~~Pacific, ~~Korea,~~India and ~~opening~~Latin aAmerica. ~~research~~In ~~and development facility in Bangalore,~~ India, ~~all~~we ofhave ~~which~~increased ~~further~~sales ~~complement~~at ~~our~~an ~~network~~average ofannual ~~innovation~~growth ~~centers~~rate ~~strategically~~of ~~located~~10% toover ~~support~~the ~~our~~last ~~customers~~four ~~globally~~years.

~~Increase~~Develop ~~Shift~~new toapplications ~~High-Margin~~and ~~Specialty~~market ~~Products—~~new products. We ~~proactively~~intend ~~manage~~to ~~our~~maintain ~~product~~industry ~~portfolio~~leadership ~~with~~through anew ~~focus~~product ondevelopment ~~specialty,~~and ~~high-margin~~innovation ~~products~~initiatives. We ~~continue~~aim to ~~invest~~establish innew ~~growth~~relationships aswith ~~demonstrated~~customers byand ~~our~~third ~~recent~~parties ~~announcement~~to ~~related~~create tonext NXT*generation ~~silane~~solutions. ~~expansion~~In inthe ~~Leverkusen~~last five years, ~~Germany~~we ~~anticipated~~generated toapproximately be13% ~~operational~~of our revenue from new products, including several instances in ~~2017~~which we co-developed applications with our customers.

In addition, we ~~recently~~will ~~acquired~~continue ~~the~~to ~~operating~~invest ~~assets~~in ofR&D ~~Sea~~capabilities ~~Lion~~by ~~Technology,~~upgrading ~~Inc~~our totechnology ~~further~~facilities ~~support~~and ~~the~~expanding ~~Silanes~~our ~~business~~new product offerings. We ~~previously~~In ~~had~~2017, a2016, ~~tolling~~and ~~relationship~~2015, ~~with~~we ~~Sea~~invested ~~Lion~~$64, $64, ~~Technology~~and $65, ~~Inc~~respectively, in R&D. onIn ~~their~~recent years, we upgraded technology facilities at our Tarrytown, New York site, soimplemented ~~these~~a ~~assets~~full ~~are~~scale ~~well~~pilot ~~known~~line tofor ~~us.~~our Wecoatings ~~believe~~business ~~the~~in ~~acquisition~~Leverkusen, ~~will~~Germany ~~enable~~and usopened toa ~~further~~new ~~strategically~~tire ~~leverage~~additives ~~these~~application ~~assets~~development center in ~~support~~Charlotte, North Carolina, all of which further complement our NXT*network ~~silane~~of ~~business~~innovation centers strategically located to support our customers globally. Through these investments, we expect to continue to drive incremental revenue and earnings growth.

~~These~~Invest ~~actions~~in ~~enable~~high-return uscapital toprojects. ~~strategically~~We ~~invest~~have in a ~~specialty~~history ~~growth~~of ~~platform~~investing ~~and~~capital ~~rationalize~~in ~~commodity~~high-~~oriented~~ROI ~~siloxane~~growth ~~capacity.~~projects ~~The actions we are taking~~ to ~~lower~~expand ~~costs~~product sets, ~~transform~~customer ~~operations~~penetration and ~~invest~~increase incapacity ~~profitable~~to ~~growth~~service ~~will~~rapidly ~~enhance~~expanding ~~our~~sales. ~~competitiveness~~Over in the ~~current~~last ~~market~~three ~~environment~~years, ~~and~~we ~~position~~have usinvested ~~well~~approximately ~~when end markets recover.~~$120

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into growth capital projects. We constantly evaluate the highest and best use of each incremental growth capital dollar and consult with our partners to ensure we are prepared to efficiently get to market.

Continue portfolio optimization, targeted add-on acquisitions and joint ventures. We will continue to pursue acquisitions of attractive businesses and technologies that provide exposure to higher-end specialty products and services. For example, in 2017 we acquired the operating assets of Sea Lion Technology, Inc. (“Sea Lion”) to further support the silanes business. Sea Lion was a contract manufacturer that worked with Momentive to produce silane products, including NXT silane, for more than 10 years. We believe the acquisition of Sea Lion together with our expanded NXT capacity in Leverkusen will enable us to strategically leverage production assets in support of our high-growth NXT business.

We will continue to pursue other acquisitions and joint venture opportunities in the attractive specialty silicone and silane, quartz, and specialty ceramics spaces. As a leading manufacturer of performance materials we have an advantage in pursuing add-on acquisitions and joint ventures in areas that allow us to build upon our core strengths and expand our product, technology and geographic portfolio to better serve our customers. We believe we will have the opportunity to consummate acquisitions at relatively attractive valuations due to the scalability of our existing global operations and deal-related synergies.

*NXT is a trademark of Momentive Performance Materials Inc.

~~Continue~~Identify ~~Portfolio~~and ~~Optimization~~implement ~~and~~strategic ~~Pursue~~cost ~~Targeted~~reduction ~~Add-On~~initiatives. ~~Acquisitions~~We ~~and~~are ~~Joint~~committed ~~Ventures—As~~to adriving ~~large~~cost ~~manufacturer~~reductions ofand ~~performance~~efficiencies ~~materials~~throughout our global manufacturing footprint, ~~with~~including ~~leadership~~through inimplementing ~~the~~LEAN / Six Sigma initiatives and right sizing siloxane production. ofOur ~~silicone,~~management ~~silicone~~team ~~derivatives,~~has ~~quartz~~a ~~and~~robust ~~specialty~~process ~~ceramics,~~to weeffectuate ~~have~~cost anreduction ~~advantage~~plans inand ~~pursuing~~continuously ~~add-on~~reviews ~~acquisitions~~our operations to identify and ~~joint~~evaluate ~~ventures~~further incost ~~areas~~reduction ~~that~~opportunities. ~~allow~~The usteam todevelops ~~build~~detailed ~~upon~~process ~~our~~plans ~~core~~to ~~strengths,~~facilitate ~~expand~~staffing ~~our~~and ~~product~~execution, ~~technology~~appoints ~~and~~a ~~geographic~~team ~~portfolio~~leader and ~~better~~works ~~serve~~with ~~our~~a ~~customers~~steering committee to remain on track. WeThe ~~believe~~cost wereduction ~~will~~plan we have put in place over the ~~opportunity~~last totwo ~~consummate~~years ~~acquisitions~~is atjust ~~relatively~~the ~~attractive~~latest ~~valuations~~example ~~due~~of our ability to effectively implement such initiatives. We plan on achieving the ~~scalability~~approximately of$48 ~~our~~in ~~existing~~annual ~~global~~structural ~~operations~~cost ~~and~~reduction ~~deal-related~~initiatives ~~synergies~~during 2018. Cumulatively through December 31, 2017, we have achieved approximately $45 of savings under these initiatives.

Implement Strategic Cost Reduction Initiatives—Pursuant to our earlier announcements during the fourth quarter of 2015 and as expanded in March and May of 2016, approximately $35 in annual structural cost reduction initiatives through our global restructuring program have been implemented and have begun delivering savings, of which approximately $29 were delivered in 2016. At the same time, we initiated strategic actions to address our global siloxane manufacturing capacity including, transformation of our Leverkusen, Germany facility by rationalizing siloxane capacity and making further investments in specialty assets through the NXT* silanes expansion, which is on track. In the fourth quarter of 2016, we completed the siloxane rationalization at our Leverkusen, Germany facility and it will reduce operating costs by approximately $10 per year. We have incurred approximately $17 in costs associated with the restructuring initiative as of December 31, 2016, which primarily represents severance expenses. The targeted savings are being achieved primarily through a reduction in force and delayering of our organization mostly in selling, general and administrative roles, as well as productivity actions at our operating facilities.

Leverage Cost Savings from the Shared Services Agreement—The Shared Services Agreement with Hexion Inc. (“Hexion”) has resulted in significant synergies for us. The Shared Services Agreement remains in place between MPM and Hexion following completion of our balance sheet restructuring, and both companies will continue to work together to benefit from the optimized cost structure and services that it provides.

Industry and Competitors

We compete with a variety of companies, including large global chemical companies and small specialty chemical companies, in each of our product lines. The principal factors of competition in our industry include product quality, customer service and breadth of product offerings, product innovation, manufacturing efficiency, distribution and price.

Our Businesses

The following paragraphs discuss our reportable segments, their corresponding major product lines and the primary end-use applications of our key products as of December 31, ~~2016~~2017.

Performance 4Additives

~~Table~~2017 ofNet ~~Contents~~Sales: $900

~~Silicones~~Our Performance Additives segment is one of the leading manufacturers of urethane additives, silicone fluids and silanes. Our liquid additives are key ingredients in our customers’ products and are used to improve or enable the performance characteristics and processability of a variety of products across different end-markets including automotive, personal care, agriculture, consumer and construction. Our silicone fluids, silanes, and urethane additives product lines are developed using a range of raw material inputs and generally use less siloxane than Formulated and Basic Silicone products.

2016 Net Sales: $2,061

We believe we are one of the world’s largest producers of silicones, silicone derivatives and organofunctional silanes, with leading positions in various product lines and geographic areas. We manufacture a wide range of high-performing elastomers, engineered materials and fluids. Silicones 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. Silicones are used in product formulations primarily due to two distinguishing factors: (i) their high degree of inertness (resistance to heat, electricity and chemical reactions); and (ii) the ability during manufacturing to greatly modify their viscosity, enabling production of end-products with significant variation in levels of lubricity or adhesion. Silicones are developed using various finishing processes to generate a wide variety of different performance characteristics and are typically used in applications where traditional materials cannot perform under required conditions. Entirely new applications for silicones continue to emerge as a result of their versatility and broad range of both physical and chemical properties. We have a broad range of specialty silicones technologies, with highly advanced research, applications development and technical service capabilities.

Products

Our ~~silicones product~~ portfolio consists ~~primarily~~ of ~~those~~technology ~~set~~driven, ~~forth~~proprietary ~~below.~~products that enable high performance applications:

• ~~Fluids—~~Urethane ~~Fluids~~additives ~~products~~product ~~are~~lines— ~~polydimethylsiloxane~~Urethane ~~polymers,~~additives ~~co-polymers,~~include ~~elastomers~~silicone ~~and~~stabilizers ~~gel networks, high-performance antifoams~~ and ~~emulsions.~~tertiary ~~Silicone~~amine ~~fluids exhibit low surface tension~~catalysts, ~~excellent~~as ~~gloss,~~well ~~excellent~~as ~~sensory,~~organic-based ~~softening~~foam ~~and~~property ~~conditioning~~modifiers. ~~properties,~~Our ~~good~~products ~~thermal~~are ~~stability~~essential ~~and~~ingredients ~~excellent~~in ~~viscosity~~polyurethane ~~over~~foam ~~a wide temperature range~~processing, ~~which~~controlling ~~permits~~the ~~usage~~internal instructure ~~a number~~ of ~~applications.~~the ~~Fluids~~material ~~are~~to ~~used~~optimize ~~primarily~~properties insuch as the ~~personal~~insulation ~~care,~~performance ~~home~~of ~~care~~rigid ~~and~~foams ~~auto~~in ~~care,~~construction ~~textiles~~applications, ~~oil~~the ~~and~~firmness ~~gas, agriculture~~ and ~~industrial~~breathability ~~end-markets~~of ~~and~~a ~~are~~foam ~~sold~~mattress ~~under~~or the ~~Magnasoft,~~rebound ~~Sagtex,~~and ~~Formasil,~~cushioning ~~Silwet,~~in ~~Silsoft,~~a ~~Silshine,~~running ~~Tospearl and Velvesil brands~~shoe.

• ~~Silanes~~Specialty ~~and~~fluids ~~Resins~~product lines— ~~Silane~~Specialty ~~and~~silicone ~~resin~~fluids ~~products~~ are ~~primarily~~liquid ~~used~~polymeric asmaterials ~~components~~that inact alike ~~variety~~chains ofand ~~specialty~~can ~~applications~~vary ~~where~~in ~~improved~~lengths ~~performance~~to iscreate ~~desired.~~liquids ~~Resins~~that are ~~used~~very asthick ~~binders in the production of formulated products such as adhesives, laminates, paints~~ and ~~coatings,~~barely ~~and~~flow ~~sealants and caulks. Their use is generally focused on situations where required performance characteristics, such as paintability, high-temperature~~ or ~~harsh~~relatively ~~environmental~~thin ~~resistance,~~and ~~are~~flow ~~beyond~~like ~~the scope of traditional materials~~water. ~~Our~~Silicone ~~Tospearl~~fluids ~~resins~~ are ~~also~~ used ~~as light diffusion aids~~ in ~~LCD/LED~~personal ~~screens,~~care ~~lighting~~products ~~and~~ as ~~slip~~an ~~agents~~additive in ~~plastic~~shampoos ~~packaging materials~~ and ~~paints~~conditioners ~~and~~to ~~coatings.~~improve ~~Silanes~~the ~~are~~look ~~used~~and asfeel ~~high-performance~~of ~~coupling agents, adhesion promoters or as reactive intermediates~~hair. ~~Silane~~Silicone ~~and~~fluids ~~resin products~~ are ~~sold~~also ~~into~~used in a ~~diverse~~variety ~~range~~ of ~~end-markets~~industrial applications, including ~~aerospace,~~the ~~construction,~~production ~~coatings~~ and ~~inks,~~refining ~~paint,~~of ~~adhesives,~~crude ~~electronics~~oil, ~~motor~~to ~~vehicles,~~reduce ~~sealants,~~the ~~rubber~~formation ~~and~~of ~~plastics.~~foam Weor ~~sell~~separate ~~silane~~water ~~and~~from ~~specialty resins brands including: Silblock, A-Link,Wetlink, Silquest, NXT, Pearlene, SPUR, Tospearl, and CoatOSil~~oil.

• Intermediates— Intermediate products are a broad set of siloxane, silane, and by-product materials produced in chemical operation and primarily used as inputs for other product portfolios.

• Elastomers— Silicone elastomers are blends of silicone polymers and various fillers and include solid and liquid elastomers. Favorable performance characteristics include a broad temperature range, excellent resistance to weathering, low toxicity, good electrical insulation properties and acoustical damping qualities. Silicone elastomers are used in the production of a variety of products, including gaskets, seals, hoses and tubing, as well as numerous consumer items. Elastomers products are used primarily in the healthcare, consumer products, energy and automotive end-markets and are sold under the Tufel, Ultra Tufel, Silplus, LSR/LIM, Silopren, and Addisil brand names.

• Specialty Coatings— Specialty Coatings products are fully formulated solutions designed to enhance performance and drive productivity in various applications. Performance attributes include high-temperature resistance, abrasion resistance, pressure sensitive adhesion or release and weatherability. Specialty Coatings products are sold into a diverse range of end-markets, including construction, tape and label, adhesives, electronics and automotive. Specialty Coatings brands include SilForce, Silgrip, Silblock, Baysilone, and Anchorsil.

• Room Temperature Vulcanizers—Room Temperature Vulcanization (“RTV”) products consist of highly engineered gels, adhesives, encapsulants and sealants. Different types of chemistries are employed based on the application to cure the material at room temperature, with heat or by UV light. Custom fillers and additives are used to enhance performance in areas such as electrical and thermal conductivity, cure speed, adhesion to plastics and metals, optical clarity and resistance to heat. RTV products are used primarily in micro- and macro-electronics assembly, consumer electronics, automotive, aerospace, consumer goods and industrial sealing applications. RTV products include the TSE, SilCool, InvisiSil, and SnapSil brand names.

• Urethane Additives— Urethane Additive’s product portfolio includes silicone surfactants used essentially for stabilizing polyurethane foam and a diverse line of tertiary amines to provide blow, gel and balanced catalysis in polyurethane foam reaction. Polyurethane applications include furniture, bedding, auto interior, appliances, construction, carpet backing, footwear and polyurethane leather. Urethane additive products are sold under the Niax, and Geolite brands.

• Consumer and Construction Sealants— Consumer sealants are used by homeowners, builders and contractors for a variety of projects throughout the home including increasing energy efficiency, reducing damaging effects of moisture and protecting the home from pollen, pollution and pests. Construction sealants are used in structural glazing, weather-sealing, and insulated glass applications in new and remedial large-scale commercial building projects. We have a trademark license agreement with GE Monogram Licensing International which gives us an exclusive right to use the GE brand for these products through 2018, with a five-year renewal option through 2023. Our consumer and construction sealant products are also sold under various private labels for a number of hardware and paint retailers.

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•

Silanes product lines— Silanes are a group of additives that act as connectors or coupling agents. Our cross-linking agents form a three-dimensional network of siloxane bonds between constituents, which facilitates resistance to water or chemical intrusion, high temperatures, abrasion or other common deteriorating conditions, without compromising other important product features such as ductility. Examples include applications that enable stronger adhesion of rust-proof coatings to metal structures in construction and clear coat paints to automotive coatings. Our NXT silane product line connects silica-based fillers to the tire tread rubber, improving compound viscosity and resilience and maintaining dynamic properties at low temperatures, while simultaneously reducing mixing steps in the manufacturing process. Our NXT silane is uniquely positioned as a cost-effective patented solution that helps tire manufacturers meet U.S. and European green tire standards. We estimate the potential demand for NXT silane products in automobiles is approximately $1 billion and we estimate that we are approximately 10% penetrated into the opportunity.

End-Markets and Applications

The physical properties of ~~silicones,~~performance ~~such~~additives ~~as weather-ability, longevity and tolerance to a wide temperature range,~~ make them versatile products with broad commercial applications. In the ~~building~~automotive ~~and construction~~ industry, ~~silicone~~performance ~~sealants~~additives ~~and caulks~~ are used to ~~seal~~improve ~~expansion~~bonding ~~and~~performance ~~control~~of ~~joints~~clear incoat ~~pre-cast~~paints ~~exterior concrete panels~~ and ~~metal~~improve ~~curtain~~compound ~~walls,~~viscosity ~~as well as in siding, window~~ and ~~door~~resilience ~~perimeters. In the transportation industry, silicones are used in a variety~~ of ~~original~~tire ~~equipment~~tread ~~manufacturer and aftermarket applications~~rubber. In the electronics industry, silicones’ tolerance to high temperatures give them a considerable advantage relative to other traditional materials in a variety of computer and electronic manufacturing applications. In the personal care industry, ~~silicones~~performance additives are used in consumer goods such as hair care and shaving products, antiperspirants and deodorants, cosmetics and shower and bath products. In the ~~healthcare~~consumer goods industry, ~~silicones~~performance additives are used in ~~medical~~the ~~equipment,~~production asof ~~well~~foam asused in ~~surgeries~~mattresses and ~~other~~running ~~general~~shoes, ~~medical~~among ~~procedures~~other applications. We believe that such a broad range of commercial uses not only helps to maintain a steady demand for our products in industries that are less vulnerable to economic cycles, but also allows for continuous innovation leading into new applications for our products in high-growth industries.

~~Raw~~Formulated ~~Materials~~and Basic Silicones

•2017 ~~Silicon~~Net ~~Metal—~~Sales: ~~Silicon metal is an inorganic material that is not derived from petrochemicals. Major silicon metal suppliers include Ferroglobe PLC~~$1,229 Elkem ASA, Lao Silicon Ltd., CBC Co. Ltd., and other smaller vendors located around the world. We currently purchase silicon metal under short-term, one-year or multi-year contracts and in the spot market. We typically purchase silicon metal under formal contracts in the United States and in the spot market in Asia Pacific.

•Our ~~Siloxane—~~Formulated ~~Siloxane~~and isBasic aSilicones ~~key~~segment ~~intermediate~~produces ~~required~~coatings, electronic tomaterials, ~~produce~~elastomers, ~~silicone~~sealants, ~~polymers.~~and Webasic ~~are~~silicone ~~one~~fluids offocused ~~two~~on ~~producers~~automotive, inconsumer ~~the~~goods, ~~silicones~~construction, ~~market~~electronics ~~with~~and ~~global~~healthcare ~~siloxane~~end-markets. ~~production~~Our ~~capacity.~~products Weenable ~~produce~~key ~~siloxane~~design ~~for~~features, ~~our~~such ~~internal~~as ~~use~~extended inproduct ~~Waterford~~life, NYwear resistance, biocompatibility and ~~Ohta~~weight reduction. Our sealants, ~~Japan~~electronic materials and ~~source~~coatings ~~siloxane~~product ~~from~~lines are generally applied to our ~~joint~~customers’ ~~venture~~products, in ~~Jiande,~~the ~~China~~form ~~and~~of ~~third~~a ~~parties.~~high-tech Wecoating ~~also~~or ~~source~~adhesive, ~~siloxane~~while ~~under~~our aelastomers ~~purchase~~product ~~and~~lines ~~sale~~are ~~agreement~~fashioned ~~with~~into ~~Asia~~parts ~~Silicones~~by ~~Monomer~~extruding ~~Limited~~or ~~(“ASM”)~~molding ~~and~~them ~~from~~in ~~time~~items tosuch ~~time,~~as wegaskets ~~enter~~or ~~into~~tubing. ~~supply~~Formulated ~~agreements~~silicones ~~with~~product ~~other~~offerings ~~third~~are ~~parties~~typically used to ~~take~~seal, ~~advantage~~protect ofor ~~favorable~~adhere, ~~pricing~~ and ~~minimize~~often ~~our~~perform ~~costs~~multiple functions at once.

•Formulated ~~Methanol—~~silicones ~~Methanol~~products, isincluding acoatings, ~~key~~electronic ~~raw~~materials, ~~material~~elastomers ~~for~~and ~~the~~sealants, ~~production~~differ offrom ~~methyl~~basic ~~chloride,~~silicones ~~which~~products isin ~~used~~that tothey ~~produce~~contain ~~chlorosilanes.~~less ~~Major~~siloxane ~~methanol~~and ~~suppliers~~in ~~include~~final ~~Itochu~~form ~~Chemical~~end ~~Forontier~~up ~~Corporation,~~as ~~CBC~~non-flowing ~~Co.~~rubber ~~Ltd~~or gel type materials., ~~Southern~~Basic ~~Chemical~~silicones ~~Corporation,~~products ~~and~~contain ~~Mitsubishi~~higher ~~Gas~~levels ~~Chemicals.~~of Wesiloxane ~~typically~~than ~~enter~~formulated ~~into~~silicones ~~quarterly~~products orand ~~annual~~are ~~contracts~~typically ~~for~~formulated ~~methanol~~into our customers’ product.

Quartz

2016 Net Sales: $172

We believe that our Quartz business is a global leader in the development and manufacturing of fused quartz and ceramic materials. Fused quartz, a man-made glass manufactured principally from quartz sand, is used in processes requiring extreme temperature, high purity and other specific characteristics. Fused quartz and ceramic materials are used in a wide range of industries, including semiconductor, lamp tubing, manufacturing, packaging, cosmetics and fiber optics. We believe that our Quartz business is a leading global producer of quartz tubing, ingots and crucibles and high-performance, non-oxide ceramic powders, coatings and solids.

Products

Our ~~Quartz~~portfolio ~~business’~~consists products are used as a superior substitute for glass. On a microscopic level, normal glass is filled with impurities, bubbles and other flaws. For this reason, applications that require transparency and a high level of ~~purity~~five orproduct stress-resistance (such as process equipment for semiconductor manufacturing or lamp lenses for high intensity video projectors) require the use of quartz. A significant driver of our Quartz volumes derives from semiconductor chip manufacturers adding to or adjusting their manufacturing lines for newly developed products. The manufacture of quartz products for use in the production of semiconductors generated approximately 72% of our Quartz business’ revenue for the year ended December 31, 2016, compared to 71% and 65% in 2015 and 2014, respectively.families:

~~Raw~~• ~~Materials~~Coatings product lines — Our silicone-based coatings offer UV, thermal, chemical, solvent and abrasion resistance, as well as improved adhesion to substrates for applications from automotive glazing, headlights and trim, to sensitive electronic components, tapes and labels. Our hard coat products replace traditional glass and metal applications in cars, thereby providing significant weight reduction in automotive applications.

~~Naturally~~• ~~occurring~~Electronic ~~quartz~~materials ~~sand~~product islines ~~the~~— ~~key~~Our ~~raw~~thermal ~~material~~conductive ~~for~~adhesives ~~many~~have ofhigh ~~the~~thermal ~~products~~conductivity ~~manufactured~~and bycan ~~our~~augment ~~Quartz~~flow ~~business,~~control ~~which~~across isdifferent ~~currently~~substrates, ~~available~~while protecting from ahigh ~~limited~~impact ~~number~~and ofthermal ~~suppliers~~shocks. ~~The~~These ~~Unimin~~products ~~Corporation~~can ~~(“Unimin”),~~be aused ~~major~~in ~~producer of natural quartz sand, controls~~ a ~~significant~~range ~~portion~~ of ~~the~~consumer ~~market~~electronics ~~for~~applications, ~~this~~as ~~sand.~~well Asas ain ~~result,~~critical ~~Unimin~~aerospace ~~exercises~~and ~~significant~~aviation ~~control~~applications ~~over~~with ~~quartz~~high ~~sand~~temperature ~~prices,~~and ~~which~~stress ~~have been steadily increasing~~resistance. In ~~recent years, these increases have averaged approximately 3~~flat-~~5% per~~panel ~~year. In April 2015~~displays, weour ~~entered~~hardcoat ~~into~~products aprovide ~~purchase~~protection ~~agreement with Unimin, which expired on December 31, 2016. We are currently negotiating the terms of a new long term supply agreement with Unimin,~~ and ~~expect~~extend ~~to enter into an agreement within~~ the ~~first~~exterior ~~half~~durability of ~~2017.~~plastics, ~~Since~~while ~~the expiration of~~ our ~~agreement~~ultra-clear ~~with~~liquid ~~Unimin,~~silicone ~~purchases~~rubber ~~from~~delivers ~~Unimin~~high ~~have~~transmittance, ~~been~~low ~~handled~~cure ~~through~~shrinkage, ~~purchase~~good ~~orders~~elasticity ~~without disruption of supply to our Quartz business~~ and wehigh ~~expect~~stability ~~that~~in ~~process~~light toemitting ~~continue~~diodes ~~if we are unable to enter into a new agreement~~(“LEDs”). ~~We also use quartz sand from other global sand suppliers.~~

~~Raw~~• ~~Material~~Elastomers ~~Purchases~~product lines — Our chemically inert heat-cured elastomers have excellent mechanical properties for extrusion, molding and calendaring. Our low-viscosity, pumpable LSR can promote easier injection molding of complex articles. Our Ultra Clear LSRs provide heat and UV resistance without sacrificing optical clarity and are molded into lenses or light guides for automotive or other applications. Elastomers are also used as gasket material to seal and protect systems in under-hood applications in automotive and in appliances. Our LSR products, including medical tubing, enable cost-efficient, high-quality end-products for our customers in various applications across automotive, consumer goods, healthcare and electronics.

~~Overall,~~• inSealants ~~2016,~~product welines ~~purchased~~— ~~approximately~~Our ~~$846~~construction ofsealants ~~raw~~are ~~materials.~~used ~~Many~~in some of the ~~raw~~world’s ~~materials~~tallest weskyscrapers ~~use~~ to ~~manufacture~~adhere ~~our~~and ~~products~~seal ~~are~~the ~~available~~windows ~~from~~into ~~more~~the ~~than~~frames ~~one~~on ~~source,~~the ~~and~~sides ~~are~~of ~~readily available in~~ the ~~open market~~building. AsMomentive ~~discussed~~is ~~above,~~the weexclusive ~~currently~~global ~~purchase~~licensee ~~under~~of ~~short~~GE-~~term,~~branded ~~one-year~~silicone orproducts, ~~multi-year~~which ~~contracts~~are ~~and~~used in ~~the~~a ~~spot~~wide ~~market~~range soof asconstruction ~~to ensure competitive pricing~~ and ~~adequate~~consumer ~~supply~~applications.


•	Basic silicones product lines — Basic silicones, comprised of silicone-based cyclic or linear polymers, were the earliest materials developed by the industry. They are still utilized in a wide range of applications, including industrial lubricants and additives in personal and home care products. Basic silicones are a core input into our other formulated products.

End-Markets and Applications

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The physical properties of formulated and basic silicones make them versatile products with broad commercial applications. In the transportation industry, silicones are used in a variety of original equipment manufacturer and aftermarket applications. In the electronics industry, silicones’ tolerance to high temperatures give them a considerable advantage relative to other traditional materials in a variety of computer and electronic manufacturing applications. In the healthcare industry, silicones are used in medical equipment, as well as in surgeries and other general medical procedures. In the building and construction industry, silicone sealants and caulks are used to seal expansion and control joints in pre-cast exterior concrete panels and metal curtain walls, as well as in siding, window and door perimeters. We believe that such a broad range of commercial uses not only helps to maintain a steady demand for our products in industries that are less vulnerable to economic cycles, but also allows for continuous innovation leading into new applications for our products in high-growth industries.

Quartz Technologies

2017 Net Sales: $202

Our Quartz Technologies segment is a global leader in the development and manufacturing of fused quartz and non-oxide based ceramic powders and shapes. Fused quartz products are manufactured from quartz sand and are used in processes requiring extreme temperature and high purity. Momentive’s high-purity fused quartz materials are used for a diverse range of applications in which optical clarity, design flexibility and durability in extreme environments are critical, such as semiconductor, lighting, healthcare and aerospace. Our product line includes tubing, rods and other solid shapes, as well as fused quartz crucibles for growing single crystal silicon. Our Quartz Technologies segment’s products are the material solution for silicon chip semiconductor manufacturing.

We have recently expanded into the primary pharmaceutical packaging market, producing fused quartz vials used for safely packaging, transporting and storing sensitive liquid-based parenteral drug formulations. Our Quartz Technologies segment has developed a new, state-of-the-art process to mass-produce fused quartz vials, which we are in the process of commercializing under the PurQ brand. Quartz vials are 99.995% pure SiO2, a level of purity which not only ensures unparalleled chemical durability, but also ensures exceptional inertness which can minimize a drug formulation’s physical interaction with the vial surface, resulting in superior liquid drug stability.

Products

Our Quartz Technologies business’ products are used as a superior substitute for glass. On a microscopic level, normal glass is filled with impurities, bubbles and other flaws. For this reason, applications that require transparency and a high level of purity or stress-resistance (such as process equipment for semiconductor manufacturing or lamp lenses for high intensity video projectors) require the use of quartz. A significant driver of our Quartz Technologies volumes derives from semiconductor chip manufacturers adding to or adjusting their manufacturing lines for newly developed products. The manufacture of quartz products for use in the production of semiconductors generated approximately 74% of our Quartz Technologies business’ revenue for the year ended December 31, 2017, compared to 72% and 71% in 2016 and 2015, respectively.

Raw Material Purchases

Overall, in 2017, we purchased approximately $1.1 billion of raw materials. Many of the raw materials we use to manufacture our products are available from more than one source, and are readily available in the open market. As discussed above, we currently purchase under short-term, one-year or multi-year contracts and in the spot market so as to ensure competitive pricing and adequate supply.

Performance Additives and Formulated and Basic Silicones

•

Silicon Metal— Silicon metal is an inorganic material that is not derived from petrochemicals and represents approximately 9% of our 2017 raw materials purchases. Major silicon metal suppliers include Ferroglobe PLC, Elkem ASA, Lao Silicon Ltd., CBC Co. Ltd., and other smaller vendors located around the world. We currently purchase silicon metal under short-term, one-year or multi-year contracts and in the spot market. We typically purchase silicon metal under formal contracts in the United States and in the spot market in Asia Pacific.

•

Siloxane— Siloxane is a key intermediate required to produce silicone polymers. We are one of two producers in the silicones market with global siloxane production capacity. We produce siloxane for our internal use in Waterford, New York and Ohta, Japan and source siloxane from our joint venture in Jiande, China and third parties. We also source siloxane under a purchase and sale agreement with Asia Silicones Monomer Limited (“ASM”) and from time to time, we enter into supply agreements with other third parties to take advantage of favorable pricing and minimize our costs.


•	Methanol— Methanol is a key raw material for the production of methyl chloride, which is used to produce chlorosilanes. Major methanol suppliers include Itochu Chemical Forontier Corporation, CBC Co. Ltd., Southern Chemical Corporation, and Mitsubishi Gas Chemicals. We typically enter into quarterly or annual contracts for methanol.

Quartz Technologies

Naturally occurring quartz sand is the key raw material for many of the products manufactured by our Quartz Technologies business, which is currently available from a limited number of suppliers. While we also use quartz sand from several global sand suppliers, one of our suppliers, a major producer of natural quartz sand, controls a significant portion of the market for this sand. In December 2017, we entered into a purchase agreement with this supplier, which expires on December 31, 2021.

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Marketing, Customers and Seasonality

We market an extensive product line to meet a wide variety of customer needs. We focus on customers who are, or have the potential to be, leaders in their industries and have growth objectives that support our own growth objectives. In addition, we focus on customers who value our service-oriented business model. This approach includes high-quality, reliable products backed by local sales support and technical expertise. An important component of our strategy is to utilize our broad product capabilities to win high-end specialty business from our customers. These customers value these capabilities and, as a result, we are able to become a supplier of choice, given our relationship and ability to develop solutions to meet their precise needs.

In ~~2016~~2017, our largest customer accounted for less than 34% of our net sales, and our top twenty customers accounted for approximately 2823% of our net sales. Neither our overall Company nor any of our businesses depends on any single customer or a particular group of customers; therefore, the loss of any single customer would not have a material adverse effect on any of our businesses or the Company as a whole.

We do not experience significant seasonality of demand, although sales have historically been slightly higher during the second and fourth quarters due to increased industrial activity. Seasonality trends, however, have been skewed in recent years primarily due to volatile global economic conditions.

Research and Development

Research and development expenses include wages and benefits for research personnel, including engineers and chemists; payments to consultants and outside testing services; costs of supplies and chemicals used in in-house laboratories; and costs of research and development facilities. Our research and development efforts focus on the development of new applications for our existing products and technological advances that we hope will lead to new products. For the years ended December 31, ~~2016~~2017, ~~2015~~2016 and ~~2014~~2015, we spent $64, $6564 and $7665, respectively, on research and development.

Intellectual Property

We own, license or have rights to approximately 3,400 patents and approximately 170 trademarks registered in a variety of countries, along with various patent and trademark applications and technology licenses around the world. These patents will expire between ~~2017~~2018 and 2035. Our rights under such patents and licenses are a significant strategic asset in the conduct of our business. Patents, patent applications, trademarks and trademark applications relating to our Velvesil, Silwet, Silsoft, Tospearl, SPUR+ and NXT brands, technologies and products are considered material to our business.

Solely for convenience, the trademarks, service marks and tradenames referred to in this report are without the “®” and “TM” symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and tradenames.

Industry Regulatory Matters

Domestic and international laws regulate the production and marketing of chemical substances. Although almost every country has its own legal procedure for registration and import, laws and regulations in the European Union, the United States, and China are the most significant to our business. These laws typically prohibit the import or manufacture of chemical substances unless the substances are registered or are on the country'’s chemical inventory list, such as the European inventory of existing commercial chemical substances and the U.S. Toxic Substances Control Act inventory. Chemicals that are on one or more of these lists can usually be registered and imported without requiring additional testing in countries that do not have such lists, although additional administrative hurdles may exist. Under such laws, countries may also require toxicity testing to be conducted on chemicals in order to register them or may place restrictions on the import, manufacture and/or use of a chemical.

The European Commission enacted a regulatory system in 2006, known as ~~Registration, Evaluation, Authorization and Restriction of Chemical substances (“~~REACH”), which requires manufacturers, importers and consumers of certain chemicals to register these chemicals and evaluate their potential impact on human health and the environment. As REACH matures, significant market restrictions could be imposed on the current and future uses of chemical products that we use as raw materials, or that we sell as finished products in the European Union. Other countries may also enact similar regulations. See “Risk Factors—Risks Related to Our Business—Future chemical regulatory actions may decrease our profitability.”

In the European Union and other jurisdictions committed to compliance with the Kyoto Protocol to the United Nations Framework Convention on Climate Change, there is an increasing likelihood that our manufacturing sites will be affected in some way over the next few years by taxation of greenhouse gas, or GHG emissions. In addition, although the United States is not a signatory to the Kyoto Protocol, several states, including California and New York, are implementing their own GHG regulatory programs, and the enactment of federal climate change legislation in the United States is a possibility for the future. While only a small number of our sites are currently affected by existing GHG regulations, and none have experienced or anticipate significant cost increases as a result, it is likely that GHG emission restrictions will increase over time. Potential consequences of such restrictions include increases in energy costs above the level of general inflation, as well as direct compliance costs. Currently, however, it is not possible to estimate the likely financial impact of potential future regulation on any of our sites.

Environmental Regulations

~~Our~~In ~~policy~~the isEuropean toUnion ~~strive~~and other jurisdictions committed to ~~operate~~achieving the goals of the Paris Agreement under the United Nations Framework Convention on Climate Change, there is an increasing likelihood that our ~~plants~~manufacturing sites will be affected in asome ~~manner~~way ~~that~~over ~~protects~~the next few years by taxation of greenhouse gas emissions. In addition, although the ~~environment~~Trump ~~and~~administration announced in June 2017 its intent to withdraw the ~~health~~United States from the Paris Agreement, numerous cities and ~~safety~~businesses ofand ~~our~~several ~~employees~~states, ~~customers~~including California and ~~communities.~~New WeYork, have ~~implemented~~made ~~company-wide~~their ~~environmental,~~own ~~health~~commitments ~~and~~towards ~~safety~~reducing ~~policies~~greenhouse gas emissions, and ~~practices~~further ~~managed~~enactment of federal climate change legislation in the United States is a possibility for the future. While only a small number of our sites are currently affected by existing greenhouse gas regulations, and none have experienced or anticipate significant cost increases as a result, it is likely that greenhouse gas emission restrictions will increase over time. Potential consequences of such restrictions include increases in energy costs above the level of general inflation, as well as direct compliance costs. Currently, however, it is not possible to estimate the likely financial impact of potential future regulation on any of our sites.

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Our policy is to strive to operate our plants in a manner that protects the environment and the health and safety of our employees, customers and communities. We have implemented company-wide environmental, health and safety policies and practices managed by our Environmental, Health and Safety, or EH&S department, and overseen by the ~~EH&S~~Environment, Health and Safety Committee of the Board of Directors ~~of MPM Holdings Inc~~. Our EH&S department has the responsibility to ~~ensure~~monitor ~~that~~and enforce the compliance of our operations worldwide ~~comply~~ with environmental, health and safety laws and regulations. This responsibility is executed via training, communication of ~~EH&S~~environmental, health and safety policies, formulation of relevant policies and standards, ~~EH&S~~environmental, health and safety audits and incident response planning and implementation. Our ~~EH&S~~environmental, health and safety policies and practices include management systems and procedures relating to ~~environmental~~ emissions to air, water and other media, waste generation, process safety management, handling, storage and disposal of hazardous substances, worker health and safety requirements, emergency planning and response and product stewardship.

~~Our~~We and our operations involve the use, handling, processing, storage, transportation and disposal of hazardous materials and are subject to extensive environmental, health and safety regulation at the federal, state, local and international level. Our production facilities require operating permits that are subject to renewal or modification. Violations of environmental, health or safety laws or permits may result in, among other things, restrictions being imposed on operating activities, substantial fines, penalties, damages or other costs. In addition, statutes such as ~~the federal Comprehensive Environmental Response, Compensation and Liability Act, or~~ CERCLA, and comparable state and foreign laws impose strict, joint and several liability for investigating and remediating ~~the consequences of~~ spills and other releases of hazardous materials, substances and wastes at current and former facilities and at third-party disposal sites. Other laws permit individuals to seek recovery of damages for alleged personal injury or property damage due to exposure to hazardous substances and conditions at or from our facilities or to hazardous substances otherwise owned, sold or controlled by us. Therefore, ~~notwithstanding our commitment to environmental management, environmental health and safety,~~ we may incur liabilities in the future, and these liabilities may result in a material adverse effect on our business, financial condition, results of operations or cash flows.

Although our environmental, health and safety policies and practices are designed to ensure compliance with international, federal, state and ~~state~~local laws and environmental, health and safety regulations, future developments and increasingly stringent regulation could require us to make additional unforeseen environmental, health and safety expenditures, which expenditures could be material.

We expect to incur future costs for capital improvements and general compliance under environmental, health and safety laws, including costs to acquire, maintain and repair pollution control equipment. In ~~2016~~2017, we incurred capital expenditures of approximately $24 on an aggregate basis to comply with environmental, health and safety laws and regulations and to make other environmental, health and safety improvements. We estimate that our capital expenditures in ~~2017~~2018 for environmental, ~~controls~~health and safety improvements at our facilities will be approximately $2016. This estimate is based on current regulations and other requirements, but it is possible that a material amount of capital expenditures, in addition to those we currently anticipate, could be necessary if these regulations or other requirements or other facts change.

Employees

As of December 31, ~~2016~~2017, we had approximately 45,~~900~~200 employees~~, flat compared to 2015~~. Approximately 4543% of our employees are members of a labor union or have collective bargaining agreements. The new contract involving the Local 81359 and Local 81380 unions in our Waterford, NYNew York site and Local 84707 union in our Willoughby, OHOhio site was ratified by union membership in February 2017 and is effective until June 2019.

Chapter 11 Bankruptcy Filing and Emergence

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 our 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. MPM continued to operate our 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 until our emergence from the Chapter 11 proceedings.

On September 11, 2014, the Court confirmed the plan of reorganization proposed by the Debtors (the “Plan”), and on October 24, 2014 (the “Effective Date) the Plan became effective and MPM emerged from the Chapter 11 proceedings. Upon emergence from bankruptcy on the Effective Date, we adopted fresh-start accounting which resulted in the creation of a new entity (such entity, the “Successor Company”) for financial reporting purposes. Accordingly, the consolidated financial statements of the Company on or after October 24, 2014 are not comparable with the consolidated financial statements of the Company prior to that date (such entity, the “Predecessor Company”).

Where You Can Find More Information

The public may read and copy any materials that we file with the Securities and Exchange Commission (the “SEC”) aton the SEC's ~~Public~~website ~~Reference Room~~ at ~~100 F Street, NW, Washington, DC 20549~~www. ~~The public may obtain information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330~~sec. gov. In addition, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports are available free of charge to the public through our internet website at www.momentive.com under “Investor Relations - SEC Filings” ~~or on the SEC's website at www~~.~~sec.gov.~~

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Item 1A. Risk Factors

Following are our principal risks. These factors may or may not occur, and we cannot express a view on the likelihood that any of these may occur. Other factors may exist that we do not consider significant based on information that is currently available or that we are not currently able to anticipate. Any of the following risks could materially adversely affect our business, financial condition or results of operations and prospects.

Risks Related to Our Business

If global economic conditions weaken or deteriorate, it will negatively impact our business, results of operations and financial condition.

Global economic and financial market conditions, including severe market disruptions and the potential for a significant and prolonged global economic downturn, have impacted or could continue to impact our business operations in a number of ways including, but not limited to, the following:

• reduced demand in key customer ~~segments~~end-markets, such as automotive, ~~building~~which accounted for approximately 20% of our revenues in 2017, ~~oil~~consumer ~~and~~goods, ~~gas~~personal care, construction, ~~and~~ electronics, ~~compared~~oil toand ~~prior~~gas ~~years~~and healthcare;

•

payment delays by customers and reduced demand for our products caused by customer insolvencies and/or the inability of customers to obtain adequate financing to maintain operations. This situation could cause customers to terminate existing purchase orders and reduce the volume of products they purchase from us and further impact our customers’ ability to pay our receivables, requiring us to assume additional credit risk related to these receivables or limit our ability to collect receivables from that customer;


•	insolvency of suppliers or the failure of suppliers to meet their commitments resulting in product delays;


•	more onerous credit and commercial terms from our suppliers such as shortening the required payment period for outstanding accounts receivable or reducing or eliminating the amount of trade credit available to us; and

• potential delays in accessing our senior secured asset-based revolving credit facility (“ABL Facility”) (described in Item 7 of Part II of this Annual Report on Form 10-K) or obtaining new credit facilities on terms we deem commercially reasonable or at all, and the potential inability of one or more of the financial institutions included in our ABL Facility to fulfill their funding obligations. Should a bank in our ABL Facility be unable to fund a future draw request, we could find it difficult to replace that bank in the facility.

Global economic conditions may weaken or deteriorate. In such event, we may become subject to the negative effects described above and our liquidity, as well as our ability to maintain compliance with the financial maintenance covenants, if in effect, in the ABL Facility could be significantly affected. See “-Risks Related to Our Indebtedness ––--We may be unable to generate sufficient cash flows from operations to meet our consolidated debt service payments.” AsIn aApril ~~result~~2014, itwe ~~may~~sought ~~cause~~protection usunder toChapter ~~defer~~11 ~~needed~~of ~~capital~~the ~~expenditures,~~United ~~reduce~~States ~~research~~Bankruptcy ~~and~~Code ~~development~~following orour ~~other~~inability ~~spending, defer costs~~ to ~~achieve~~restructure ~~productivity and synergy programs, sell assets~~ or ~~incur~~refinance ~~additional~~our ~~borrowings~~significant ~~which~~indebtedness ~~may~~in ~~not~~light beof ~~available~~the orconfluence ~~may~~of ~~only~~several benegative ~~available~~economic ~~on terms significantly less advantageous than our current credit terms~~ and ~~could~~other ~~result~~factors, inincluding athe ~~wide-ranging~~flat ~~and~~sales ~~prolonged impact on general business conditions~~volumes, ~~thereby~~steep ~~negatively~~inflation ~~impacting~~in ~~our~~the ~~business,~~cost ~~results~~ of ~~operations~~materials and ~~financial~~significant ~~condition.~~price Inpressure ~~addition,~~stemming iffrom ~~the global economic environment deteriorates or remains slow for~~ an ~~extended~~increase ~~period~~in ofoverall ~~time,~~global ~~the~~supply. ~~fair~~A ~~value~~recurrence of ~~our~~such ~~reporting~~economic ~~units~~factors could behave ~~more~~a ~~adversely~~material ~~affected~~adverse ~~than~~effect weon ~~estimated in~~ our ~~analysis~~business, ofresults ~~reporting unit fair values at the Effective Date~~ of ~~October~~operations ~~24,~~and ~~2014.~~financial ~~This~~condition ~~could~~and ~~result~~may injeopardize ~~goodwill~~our orability ~~other~~to ~~asset~~service ~~impairments, which could negatively impact~~ our ~~business,~~debt ~~results of operations and financial condition~~obligations.

Weakening economic conditions may also cause us to defer needed capital expenditures, reduce research and development or other spending, defer costs to achieve productivity and synergy programs, sell assets or incur additional borrowings which may not be available or may only be available on terms significantly less advantageous than our current credit terms and could result in a wide-ranging and prolonged impact on general business conditions, thereby negatively impacting our business, results of operations and financial condition. In addition, if the global economic environment deteriorates or remains slow for an extended period of time, the fair value of our reporting units could be more adversely affected than we estimated in our analysis of reporting unit fair values at the Emergence Date of October 24, 2014. This could result in goodwill or other asset impairments, which could negatively impact our business, results of operations and financial condition.

Fluctuations in direct or indirect raw material costs could have an adverse impact on our business.

The prices of our direct and indirect raw materials have been, and we expect them to continue to be, volatile. If the cost of direct or indirect raw materials increases significantly and we are unable to offset the increased costs with higher selling prices, our profitability will decline. Increases in prices for our products could also hurt our ability to remain both competitive and profitable in the markets in which we compete.

~~Although~~The terms of some of our materials contracts ~~include~~limit ~~competitive~~our ~~price~~ability ~~clauses that allow us~~ to buy outside the contract if market pricing falls below contract pricing, and certain contracts have minimum-maximum monthly volume commitments that allow us to take advantage of spot pricing, we may be unable to purchase raw materials at favorable spot market prices. In addition, some of our customer contracts have fixed prices for a certain term, and as a result, we may not be able to pass on raw material price increases to our customers immediately, if at all. Due to differences in timing of the pricing trigger points between our sales and purchase contracts, there is often a “lead-lag” impact that can negatively impact our margins in the short term in periods of rising raw material prices and positively impact them in the short term in periods of falling raw material prices. Future raw material prices and transportation costs may be impacted by new laws or regulations, suppliers’ allocations to other purchasers, changes in our supplier manufacturing processes as some of our products are byproducts of these processes, interruptions in production by suppliers, natural disasters, volatility in the price of crude oil and related petrochemical products and changes in exchange rates.

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An inadequate supply of direct or indirect raw materials and intermediate products could have a material adverse effect on our business.

Our manufacturing operations require adequate supplies of raw materials and intermediate products on a timely basis. The loss of a key source or a delay in shipments could have a material adverse effect on our business. Raw material availability may be subject to curtailment or change due to, among other things:


•	new or existing laws or regulations;


•	suppliers’ allocations to other purchasers;

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•	interruptions in production by suppliers; and


•	natural disasters.

Many of our raw materials and intermediate products are available in the quantities we require from a limited number of suppliers.

For example, our ~~silicones~~Formulated and Basic Silicones business is highly dependent upon access to silicon metal, a key raw material, and siloxane, an intermediate product that is derived from silicon metal. ~~While silicon is itself abundant, silicon metal is produced through a manufacturing process and, in certain geographic areas, is currently available through a limited number of suppliers.~~ In North America, there is only one significant qualified silicon metal supplier, which in December 2015 completed a business combination with a significant European based silicon metal supplier. In 2009 and 2010, two of our competitors acquired silicon metal manufacturing assets in North America and Europe, respectively, becoming vertically integrated in silicon metal for a portion of their supply requirements and reducing the manufacturing base of certain independent silicon metal producers. In addition, silicon metal producers face a number of regulations that affect the supply or price of silicon metal in some or all of the jurisdictions in which we operate. For example, significant anti-dumping duties of up to 139.5% imposed by the U.S. Department of Commerce (the “DOC”) and the International Trade Commission (the “ITC”) against producers of silicon metal in China and Russia effectively block the sale by all or most producers in these jurisdictions to U.S. purchasers, which restricts the supply of silicon metal and results in increased prices. We currently purchase silicon metal under multi-year, one-year or short-term contracts and in the spot market. We typically purchase silicon metal under formal contracts in the United States and in the spot market in Asia Pacific.

~~Our~~On ~~silicones~~October ~~business~~4, ~~also~~2017, ~~relies~~the ~~heavily~~DOC issued affirmative preliminary determinations in the anti-dumping duty investigation on ~~siloxane~~silicon asmetal, anfinding ~~intermediate~~that ~~product.~~imports ~~Our~~of ~~manufacturing~~silicon ~~capacity~~metal from Australia, Brazil and Norway were sold at ~~our~~a ~~internal~~price ~~sites~~less ~~and~~than ~~our~~fair ~~joint~~value. ~~venture~~The inDOC ~~China~~has isinstructed ~~sufficient~~U.S. Customs and Border Protection to ~~meet~~collect ~~the~~cash ~~substantial~~deposits ~~majority~~from importers of ~~our~~silicon ~~current~~metal ~~siloxane~~from ~~requirements~~Australia (20.79%), WeBrazil ~~also~~(56.78% ~~source~~to a134.92%) ~~portion~~and ofNorway ~~our~~(3.74%). ~~requirements~~The ~~from~~DOC ~~ASM~~was ~~under~~scheduled anexpected ~~existing~~to ~~purchase~~make ~~and~~its ~~sale~~final ~~agreement~~anti-dumping determination on February 16, 2018. In ~~addition~~August 2017, ~~from~~the ~~time~~DOC topublished ~~time~~the wepreliminary ~~enter~~countervailing ~~into~~duties ~~supply~~rates ~~agreements~~for ~~with~~silicon ~~other~~metal ~~third~~from ~~parties~~Australia to(16.23%), ~~take~~Brazil ~~advantage~~(3.69% ofto ~~favorable~~52.07%) ~~pricing~~ and ~~minimize~~Kazakhstan ~~our cost~~(120%). ~~There~~The ~~are~~ITC is also ainvestigating ~~limited~~whether ~~number~~there ofis ~~third-party~~material ~~siloxane~~injury ~~providers,~~or ~~and~~threat of material injury to the ~~supply~~domestic industry by reason of ~~siloxane~~the ~~may~~dumped beor ~~limited~~subsidized imports from ~~time~~Australia, Brazil, Kazakhstan and Norway and is expected to ~~time.~~make Ina ~~addition,~~determination ~~regulation~~as ofto ~~siloxane~~whether ~~producers~~there ~~can~~is ~~also~~material ~~affect~~injury or threat to the ~~supply~~domestic ofmarket ~~siloxane~~by April 3, 2018. ~~For~~We ~~example~~currently purchase silicon metal under multi-year, one-year or short-term contracts and in ~~May 2009,~~the ~~China’s~~spot ~~Ministry~~market. ofWe ~~Commerce~~typically ~~concluded~~purchase ansilicon ~~anti-dumping~~metal ~~investigation~~under offormal ~~siloxane~~contracts ~~manufacturers~~for our United States’ operations from suppliers in ~~Thailand~~the United States and ~~South~~for ~~Korea,~~our ~~which~~Asia ~~resulted~~Pacific operations in anthe ~~imposition~~spot ofmarket afrom 5suppliers in Asia Pacific.4% ~~duty~~Some ~~against~~of our ~~supplier,~~formal ~~ASM,~~contracts inhave ~~Thailand,~~pricing amechanisms 21tied to global silicon metal indices.8% ~~duty~~Imposition ~~against~~of ~~other~~antidumping ~~Thailand~~or ~~companies~~countervailing ~~and~~duties ain 25connection with the foregoing investigations could lead to higher duties on such imports.1% Issuance ~~duty~~of ~~against~~relevant ~~Korean~~final ~~companies~~orders imposing duties, if any, are scheduled for April 10, 2018.

Our ~~quartz~~Performance ~~production~~Additives ~~relies~~and Formulated and Basic Silicones businesses also rely heavily on ~~naturally~~siloxane ~~occurring~~and ~~quartz~~related ~~sand,~~intermediate ~~which~~products. Our manufacturing capacity at our internal sites and at our joint venture in China is ~~currently~~sufficient ~~available~~to ~~from~~meet athe ~~limited~~substantial ~~number~~majority of ~~suppliers~~our current siloxane requirements. AWe ~~significant~~also ~~amount~~source a portion of ~~the~~our ~~market~~requirements ~~for~~from ~~this~~Asia ~~sand~~Silicones isMonomer ~~controlled~~Limited by(“ASM”) ~~Unimin~~under an existing long-term purchase and sale agreement. In ~~April 2015~~addition, from time to time we ~~entered~~enter into supply agreements with other third parties to take advantage of favorable pricing and minimize our cost. There are also a ~~long~~limited ~~term~~number ~~purchase~~of ~~agreement~~third-party ~~with~~siloxane ~~Unimin~~providers, ~~which~~and ~~expired~~the onsupply ~~December~~of ~~31,~~siloxane ~~2016~~may be limited from time to time. WeIn ~~are~~addition, ~~currently~~regulation ~~negotiating~~of siloxane producers can also affect the ~~terms~~supply of siloxane due to a ~~new~~few ~~long~~precedents ~~term~~in ~~supply~~the ~~agreement~~past. For ~~with~~example, ~~Unimin~~from May 2009 until May 2014, ~~and~~antidumping ~~expect~~duties towere ~~enter~~imposed ~~into~~by anChina ~~agreement~~on ~~within~~siloxane ~~the~~from ~~first~~Thailand ~~half~~and ofSouth ~~2017~~Korea.

Should any of our key suppliers fail to deliver these or other raw materials or intermediate products to us or no longer supply us, we may be unable to purchase these materials in necessary quantities, which could adversely affect our volumes, or may not be able to purchase them at prices that would allow us to remain competitive. During the past several years, certain of our suppliers have experienced force majeure events rendering them unable to deliver all, or a portion of, the contracted-for raw materials. On these occasions, we were forced to purchase replacement raw materials in the open market at significantly higher costs or place our customers on an allocation of our products. In addition, we cannot predict whether new regulations or restrictions may be imposed in the future on silicon metal, siloxane or other key materials, which may result in reduced supply or further increases in prices. We cannot assure investors that we will be able to renew our current materials contracts or enter into replacement contracts on commercially acceptable terms, or at all. Fluctuations in the price of these or other raw materials or intermediate products, the loss of a key source of supply or any delay in the supply could result in a material adverse effect on our business.

Our production facilities are subject to significant operating hazards which could cause environmental contamination, personal injury and loss of life, and severe damage to, or destruction of, property and equipment.

Our production facilities are subject to significant operating hazards associated with the manufacturing, handling, use, storage and transportation of chemical materials and products, including human exposure to hazardous substances, pipeline, storage tank and equipment leaks and ruptures, explosions, fires, inclement weather and natural disasters, mechanical failures, unscheduled downtime, transportation interruptions, remedial complications, chemical spills, discharges or releases of toxic or hazardous substances or gases, ~~storage tank leaks~~ and other environmental risks. Additionally, a number of our operations are adjacent to operations of independent entities that engage in hazardous and potentially dangerous activities. Our operations or adjacent operations could result in personal injury or loss of life, severe damage to or destruction of property or equipment, environmental damage, or a loss of the use of all or a portion of one of our key manufacturing facilities. Such events at our facilities or adjacent third-party facilities could have a material adverse effect on usour business or operations.

We may incur losses beyond the limits or coverage of our insurance policies for liabilities that are associated with these hazards. In addition, various kinds of insurance for companies in the chemical industry have not been available on commercially acceptable terms, or, in some cases, have been unavailable altogether. In the future, we may not be able to obtain coverage at current levels, and our premiums may increase significantly on coverage that we maintain.

Environmental obligations and liabilities could have a substantial negative impact on our financial condition, cash flows and profitability.

Our operations involve the use, handling, processing, storage, transportation and disposal of hazardous materials and are subject to extensive and complex U.S. federal, state, local and non-U.S. supra-national, national, provincial, and local environmental, health and safety laws and regulations. These environmental laws and regulations include those that govern the discharge of pollutants into the air and water, the generation, use, storage, transportation, treatment and disposal of hazardous materials and wastes, the cleanup of contaminated sites, occupational health and safety and those requiring permits, licenses, or other government approvals for specified operations or activities. Our products are

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also subject to a variety of international, national, regional, state, and provincial requirements and restrictions applicable to the manufacture, import, export or subsequent use of such products. In addition, we are required to maintain, and may be required to obtain in the future, environmental, health and safety permits, licenses, or government approvals to continue current operations at most of our manufacturing and research facilities throughout the world.

Compliance with environmental, health and safety laws and regulations, and maintenance of permits, can be costly and complex, and we have incurred and will continue to incur costs, including capital expenditures and costs associated with the issuance and maintenance of letters of credit, to comply with these requirements. In 2016, we incurred capital expenditures of approximately $24 to comply with environmental laws and regulations and to make other environmental improvements. If we are unable to comply with environmental, health and safety laws and regulations, or maintain our permits, we could incur substantial costs, including fines and civil or criminal sanctions, third party property damage or personal injury claims or costs associated with upgrades to our facilities or changes in our manufacturing processes in order to achieve and maintain compliance, and may also be required to halt permitted activities or operations until any necessary permits can be obtained or complied with. In addition, future developments or increasingly stringent regulations could require us to make additional unforeseen environmental expenditures, which could have a material adverse effect on our business.

Actual and alleged environmental violations have been identified at our facility in Waterford, NY. We are cooperating with the New York State Department of Environmental Conservation (the “NYSDEC”) and the U.S. Environmental Protection Agency (the “USEPA”) and the U.S. Department of Justice in their respective investigations of that facility’s compliance with certain applicable environmental requirements, including certain requirements governing the operation of the facility’s hazardous waste incinerators. Although we currently believe that the costs and potential penalties associated with these investigations will not have a material adverse impact on our business, these investigations may result in administrative, civil or criminal enforcement by the State of New York and/or the United States and resolution of such enforcement actions will likely require payment of a monetary penalty and/or the imposition of other civil or criminal sanctions.

Environmental, health and safety requirements change frequently and have tended to become more stringent over time. We cannot predict what environmental, health and safety laws and regulations or permit requirements will be enacted or amended in the future, how existing or future laws or regulations will be interpreted or enforced or the impact of such laws, regulations or permits on future production expenditures, supply chain or sales. Our costs of compliance with current and future environmental, health and safety requirements could be material. Such future requirements include legislation designed to reduce emissions of carbon dioxide and other substances associated with climate change (“greenhouse gases”). The European Union has enacted greenhouse gas emissions legislation, and continues to expand the scope of such legislation. The USEPA has promulgated regulations applicable to projects involving greenhouse gas emissions above a certain threshold, and the United States and certain states within the United States have enacted, or are considering, limitations on greenhouse gas emissions. These requirements to limit greenhouse gas emissions could significantly increase our energy costs, and may also require us to incur material capital costs to modify our manufacturing facilities.

In addition, we are subject to liability associated with hazardous substances in soil, groundwater and elsewhere at a number of sites. These include sites that we formerly owned or operated and sites where hazardous wastes and other substances from our current and former facilities and operations have been sent, treated, stored or disposed of, as well as sites that we currently own or operate. Depending upon the circumstances, our liability may be strict, joint and several, meaning that we may be held responsible for more than our proportionate share, or even all, of the liability involved regardless of our fault or whether we are aware of the conditions giving rise to the liability. Environmental conditions at these sites can lead to environmental cleanup liability and claims against us for personal injury or wrongful death, property damages and natural resource damages, as well as to claims and obligations for the investigation and cleanup of environmental conditions. The extent of any of these liabilities is difficult to predict, but in the aggregate such liabilities could be material.

We have been notified that we are or may be responsible for environmental remediation at certain sites in the United States. As the result of former, current or future operations, there may be additional environmental remediation or restoration liabilities or claims of personal injury by employees or members of the public due to exposure or alleged exposure to hazardous materials in connection with our operations, properties or products. Sites sold by us in past years may have significant site closure or remediation costs and our share, if any, may be unknown to us at this time. These environmental liabilities or obligations, or any that may arise or become known to us in the future, could have a material adverse effect on our financial condition, cash flows and profitability.

In addition, in the normal course of our business, we are required to provide financial assurances for contingent future costs associated with certain hazardous waste management and remedial activities. Pursuant to financial assurance requirements set forth in state hazardous waste permit regulations applicable to our manufacturing facilities in Waterford, NY and Sistersville, WV, we have provided letters of credit in the following amounts: approximately $43 for closure and postclosure care and accidental occurrences at the Waterford and the Sistersville facilities. A renewal of our Waterford facility’s hazardous waste permit was issued by the NYSDEC in March 2016 requiring approximately $26 in financial assurances for our Waterford facility. The renewal permit also requires a re-evaluation of the financial assurance amount within the next three years. One or more of our facilities may also in the future be subject to additional financial assurance requirements imposed by governmental authorities, including the USEPA. In this regard, the USEPA has identified chemical manufacturing as an industry for which it plans to develop, as necessary, proposed regulations identifying appropriate financial assurance requirements pursuant to §108(b) of CERCLA. Any increase in financial assurances required for our facilities in connection with environmental, health and safety laws or regulations or the maintenance of permits would likely increase our costs and could also materially impact our financial position. For example, to the extent we issue letters of credit under our ABL Facility to satisfy any financial assurance requirements, we would incur fees for the issuance and maintenance of these letters of credit and the amount of borrowings that would otherwise be available to us under such facility would be reduced.

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~~Future~~We may incur losses beyond the limits or coverage of our insurance policies for liabilities that are associated with these hazards. In addition, various kinds of insurance for companies in the chemical ~~regulatory~~industry ~~actions~~have not been available on commercially acceptable terms, or, in some cases, have been unavailable altogether. In the future, we may ~~decrease~~not be able to obtain coverage at current levels or at all, and our ~~profitability~~premiums may increase significantly on coverage that we maintain.

~~Several~~Environmental ~~governmental~~obligations entities have enacted, are considering or may consider in the future, regulations that may impact our ability to sell certain chemical products in certain geographic areas. In December 2006, the European Union enacted a regulation known as REACH. This regulation requires manufacturers, importers and ~~consumers~~liabilities ofcould certain chemicals manufactured in, or imported into, the European Union to register such chemicals and evaluate their potential impacts on human health and the environment. The implementing agency is currently in the process of determining if any chemicals should be further tested, regulated, restricted or banned from use in the European Union. Other countries have implemented, or are considering implementation of, similar chemical regulatory programs. When fully implemented, REACH and other similar regulatory programs may result in significant adverse market impacts on the affected chemical products. If we fail to comply with REACH or other similar laws and regulations, we may be subject to penalties or other enforcement actions, including fines, injunctions, recalls or seizures, which would have a ~~material~~substantial ~~adverse~~negative ~~effect~~impact on our financial condition, cash flows and profitability.

We ~~cannot~~and atour ~~this~~operations ~~time~~involve ~~estimate~~ the ~~impact~~manufacture, ofuse, ~~these~~handling, ~~regulations~~processing, ~~on our financial condition~~storage, ~~cash~~transportation ~~flows~~ and ~~profitability,~~disposal ~~but~~of ithazardous ~~could~~materials beand ~~material.~~are ~~The~~subject ~~European~~to ~~Union~~extensive isand ~~reviewing~~complex ~~octamethylcyclotetrasiloxane~~U.S. ~~(“D4”)~~federal, ~~as well as decamethylcyclopentasiloxane (“D5”)~~state, ~~another~~local ~~chemical~~and ~~substance~~non-U.S. ~~we manufacture~~supra-national, ~~and may~~national, ~~pursuant~~provincial toand ~~REACH~~local environmental, ~~regulate~~health ~~the~~and ~~use~~safety oflaws ~~these~~and ~~two~~regulations. ~~chemical~~These ~~substances~~environmental inlaws ~~the~~and ~~European~~regulations ~~Union.~~include ~~The~~those ~~USEPA has also stated~~ that ~~they~~govern ~~are reviewing~~ the ~~potential~~discharge ~~environmental~~of ~~risks~~pollutants ~~posed~~into bythe D4air ~~to determine whether regulatory measures are warranted. We~~ and ~~other~~water, ~~silicones industry members have entered into a consent order with~~ the ~~USEPA~~generation, touse, ~~conduct~~storage, ~~certain~~transportation, ~~studies~~treatment toand ~~obtain~~disposal ~~relevant data. Finally~~of, inand ~~March~~exposure ~~2016~~to, ~~the~~hazardous ~~European~~materials ~~Union~~and ~~Directorate-General~~wastes, ~~for Environment (“DG Environment”) proposed to~~ the ~~European~~cleanup ~~Commission~~of ~~that~~contaminated D4sites, beoccupational ~~nominated~~health asand asafety ~~persistent~~and ~~organic~~those ~~pollutant~~requiring ~~pursuant~~permits, tolicenses ~~the~~or ~~Stockholm~~other ~~Convention~~government onapprovals ~~Persistent~~for ~~Organic~~specified ~~Pollutants~~operations ~~(the~~or ~~“Stockholm Convention”)~~activities. ~~This~~Our ~~proposal~~products ~~was~~are ~~not~~also ~~acted~~subject ~~upon~~to bya ~~the~~variety ~~European~~of ~~Commission~~international, ~~but~~national, ~~continues~~regional, tostate, belocal ~~evaluated~~and byprovincial ~~the~~requirements DGand ~~Environment.~~restrictions ~~The~~applicable ~~Stockholm~~to ~~Convention~~the ismanufacture, animport, ~~international~~export, ~~treaty~~registration, ~~aimed~~labeling ~~at eliminating~~ or ~~minimizing~~subsequent ~~the~~use ~~release~~ of ~~organic~~such ~~chemicals~~products. ~~that~~In ~~are toxic~~addition, ~~resistant~~we toare ~~degradation~~required into ~~the environment~~maintain, and ~~transported~~may ~~and~~be ~~deposited~~required ~~far~~to ~~from~~obtain ~~the~~in ~~point of release. Regulation of our products containing such substances by~~ the ~~European Union~~future, ~~Canada~~environmental, ~~the~~health ~~United~~and ~~States~~safety permits, licenses or ~~parties~~government approvals to ~~the~~continue ~~Stockholm~~current ~~Convention~~operations ~~would~~at ~~likely~~most ~~reduce~~of our ~~sales~~manufacturing ~~within the respective jurisdiction~~ and ~~possibly~~research infacilities ~~other~~throughout ~~geographic areas as well. These reductions in sales could be material depending upon~~ the ~~extent of any such additional regulations~~world.

WeCompliance ~~participate~~ with ~~other~~environmental, ~~companies~~health inand ~~trade~~safety ~~associations~~laws and ~~regularly~~regulations, ~~contribute~~and tomaintenance ~~the~~of ~~research~~permits, ~~and~~can ~~study~~be ofcostly ~~the~~and ~~safety~~complex, and ~~environmental~~we ~~impact~~have ofincurred ~~our~~and ~~products~~will ~~and~~continue ~~raw~~to ~~materials~~incur costs, including ~~siloxanes.~~capital ~~These~~expenditures ~~programs~~and ~~are~~costs ~~part~~associated ofwith athe ~~program~~issuance toand ~~review~~maintenance ~~the~~of ~~environmental~~letters ~~impacts~~of credit, ~~safety~~to ~~and~~comply ~~efficacy~~with ofthese ~~our products~~requirements. In ~~addition~~2017, ~~government~~we ~~and~~incurred ~~academic~~capital ~~institutions~~expenditures ~~periodically~~of ~~conduct~~approximately ~~research~~$24 onto ~~potential~~comply with environmental laws and ~~health~~regulations ~~concerns~~and ~~posed~~to bymake ~~various~~other ~~chemical~~environmental ~~substances~~improvements, ~~including~~and ~~substances~~ we ~~manufacture~~expect ~~and~~to ~~sell.~~incur ~~These~~capital ~~research~~expenditures ~~results~~of ~~are~~approximately ~~periodically~~$16 in ~~reviewed~~2018. byIf ~~state~~we do not comply with environmental, ~~national~~health and ~~international~~safety ~~regulatory~~laws ~~agencies~~ and ~~potential~~regulations, ~~customers.~~or ~~Such~~maintain ~~research~~our permits, we could ~~result~~incur insubstantial ~~future~~costs, ~~regulations~~including ~~restricting~~fines ~~the~~and ~~manufacture~~civil or ~~use~~criminal ofsanctions, ~~our~~third ~~products,~~party ~~liability~~property ~~for~~or ~~adverse~~natural ~~environmental~~resource damage or ~~health~~personal ~~effects~~injury ~~linked~~claims or costs associated with upgrades to our ~~products~~facilities or changes in our manufacturing processes in order to achieve and maintain compliance, and/ may also be required to halt permitted activities or ~~de-selection~~operations ofuntil ~~our~~any ~~products~~necessary ~~for~~permits ~~specific~~can ~~applications~~be obtained or complied with. ~~These~~In ~~restrictions~~addition, ~~liability,~~future ~~and~~developments ~~product~~or ~~de-selection~~increasingly stringent regulations could require us to make additional unforeseen environmental expenditures, which could have a material adverse effect on our business~~, our financial condition and/or liquidity~~.

~~Scientists~~Actual ~~periodically~~and ~~conduct~~alleged ~~studies~~environmental onviolations ~~the~~have ~~potential~~been ~~human~~identified ~~health~~at ~~and~~our ~~environmental~~facility ~~impacts~~in Waterford, New York. In May of ~~chemicals~~2017, ~~including~~we ~~products~~entered weinto ~~manufacture~~a ~~and~~settlement ~~sell.~~with ~~Also,~~the ~~nongovernmental~~New ~~advocacy~~York ~~organizations~~State ~~and~~Department ~~individuals~~of ~~periodically~~Environmental ~~issue~~Conservation ~~public~~(the ~~statements~~“NYSDEC”), ~~alleging~~the ~~human~~U.S. ~~health~~Environmental Protection Agency (the “USEPA”) and ~~environmental~~the ~~impacts~~U.S. Department of ~~chemicals,~~Justice ~~including~~in ~~products~~connection wewith ~~manufacture~~their ~~and~~respective ~~sell.~~investigations ~~Based~~of ~~upon~~that ~~such~~facility’s ~~studies~~past orcompliance ~~public~~with ~~statements~~certain applicable environmental requirements, ~~our~~including ~~customers~~certain ~~may~~requirements ~~elect~~governing tothe ~~discontinue~~operation of the ~~purchase~~facility’s ~~and~~hazardous ~~use~~waste ofincinerators, ~~our~~under ~~products~~which we paid approximately $1. In addition, ~~even~~we inare currently cooperating with the ~~absence~~NYSDEC in its investigation of ~~any~~that ~~government~~facility’s ~~regulation.~~compliance ~~Such~~with ~~actions~~certain ~~could~~applicable ~~significantly~~environmental ~~decrease~~requirements ~~the~~as ~~demand~~identified ~~for~~in ~~our~~an ~~products~~administrative ~~and,~~complaint ~~accordingly,~~filed ~~have~~by athe ~~material~~NYSDEC ~~adverse~~in ~~effect~~May on2017. ~~our~~Resolution ~~business,~~of ~~financial~~such ~~condition,~~enforcement ~~cash~~action ~~flows~~will likely require payment of a monetary penalty and/or ~~profitability~~the imposition of other civil sanctions.

We are ~~subject~~currently toconducting investigations and/or cleanup of known or potential contamination at several of our facilities. In connection with our creation on December 3, 2006, through the acquisition of certain ~~risks~~assets, ~~related~~liabilities toand ~~litigation~~subsidiaries ~~filed~~of GE that comprised GE Advanced Materials, an operating unit within the Industrial Segment of GE, by orMomentive ~~against~~Performance usMaterials Holdings Inc. (the parent company of MPM prior to its emergence from Chapter 11 bankruptcy) and its subsidiaries (the “GE Advanced Materials Acquisition”), GE has agreed to indemnify us for liabilities associated with contamination at former properties and ~~adverse~~with ~~results~~third-party ~~may~~waste ~~harm~~disposal sites. GE has also agreed that if we suffer any losses that are the subject of an indemnification obligation under a third party contract with respect to which GE is an indemnitee, GE will pursue such indemnification on our ~~business~~behalf and provide us with any benefits received.

WeWhile ~~cannot~~we ~~predict~~do ~~with~~not ~~certainty~~anticipate ~~the~~material ~~cost~~costs ofin ~~defense,~~excess of ~~prosecution~~current orreserves ~~of the ultimate outcome of litigation~~ and ~~other proceedings filed by~~ /or ~~against~~available ~~us,~~indemnification including penalties or other civil or criminal sanctions, or remedies or damage awards, and adverse results in any litigation and other proceedings may materially harm our business. Litigation and other proceedings may include, but are not limited to, actions relating to ~~intellectual~~known ~~property,~~or ~~international~~potential ~~trade, commercial arrangements, product liability,~~ environmental, ~~health and safety~~contamination, ~~joint venture agreements, labor and employment or other harms resulting from~~ the ~~actions~~discovery of ~~individuals~~additional contamination or ~~entities outside of our control. In~~ the ~~case~~imposition of ~~intellectual~~more ~~property~~stringent ~~litigation~~cleanup ~~and proceedings~~requirements, ~~adverse outcomes~~ could ~~include~~require ~~the~~us ~~cancellation,~~to ~~invalidation~~make orsignificant ~~other~~expenditures ~~loss of material intellectual property rights used~~ in ~~our~~excess ~~business and injunctions prohibiting our use~~ of ~~business~~such ~~processes~~reserves and/or ~~technology~~indemnification. ~~that~~In ~~are~~addition, ~~subject~~we tocannot ~~third-party~~assure ~~patents~~you orthat ~~other~~GE ~~third-party~~will ~~intellectual~~continue ~~property rights. Litigation based on environmental matters or exposure~~ to ~~hazardous~~indemnify ~~substances~~us ~~in the workplace or based upon the use of our products could result in significant liability~~ for ~~us,~~such ~~which could have a material adverse effect on our business, financial condition and/or profitability~~liabilities.

Environmental, health and safety requirements change frequently and have tended to become more stringent over time. We ~~remain~~cannot ~~subject~~predict what environmental, health and safety laws and regulations or permit requirements will be enacted or amended in the future, how existing or future laws or regulations will be interpreted or enforced or the impact of such laws, regulations or permits on future production expenditures, operations, supply chain or sales. Our costs of compliance with current and future environmental, health and safety requirements could be material. Such future requirements include legislation designed to ~~litigation~~reduce ~~relating~~emissions of carbon dioxide and other substances associated with climate change (“greenhouse gases”). The European Union has enacted greenhouse gas emissions legislation, and continues to expand the ~~Chapter~~scope 11of ~~proceedings~~such legislation. The USEPA has promulgated regulations applicable to projects involving greenhouse gas emissions above a certain threshold, and the United States and certain states within the United States have enacted, or are considering, limitations on greenhouse gas emissions. These requirements to limit greenhouse gas emissions could significantly increase our energy costs, and may also require us to incur material capital costs to modify our manufacturing facilities.

In ~~connection with the Bankruptcy Cases~~addition, ~~three~~we ~~appeals~~are ~~were~~subject ~~filed~~to ~~relating~~liability toassociated ~~the~~with ~~confirmation~~releases of ~~the~~hazardous ~~Plan.~~substances ~~Specifically,~~in ~~on September 15~~soil, ~~2014,~~groundwater ~~U.S.~~and ~~Bank~~elsewhere ~~National~~at Association (“U.S. Bank”) as trustee for our previously issued 11.5% Senior Subordinated Notes due 2016 (the “Subordinated Notes”) filed its appeal (the “U.S. Bank Appeal”) before the U.S. District Court for the Southern District of New York (the “District Court”) seeking a ~~reversal~~number of ~~the~~sites. ~~Court’s~~These ~~determination~~include sites that ~~the~~we ~~Debtors’~~formerly ~~Plan~~owned, ~~properly~~leased ~~denied~~or ~~recovery~~operated toand ~~holders~~sites ofwhere ~~the~~hazardous ~~Subordinated~~wastes ~~Notes~~and onother ~~the~~substances ~~basis~~from ~~that those debt securities are contractually subordinated to~~ our ~~previously~~current ~~issued~~and ~~9.00%~~former ~~Second-Priority~~facilities ~~Springing Lien Notes due 2021~~ and ~~9.50%~~operations ~~Second-Priority~~have ~~Springing~~been ~~Lien Notes due 2021 (collectively~~sent, ~~the “Old Second Lien Notes”). In addition~~treated, onstored ~~September~~or ~~16,~~disposed ~~2014~~of, ~~BOKF,~~as ~~NA,~~well as ~~trustee~~sites ~~for~~that ~~our~~we ~~previously~~currently ~~issued~~own, ~~8.875%~~lease ~~First-Priority~~or ~~Senior~~operate. ~~Secured~~Depending ~~Notes~~upon ~~due 2020 (~~the ~~“Old First Lien Notes”) (“First Lien Indenture Trustee”) and Wilmington Trust~~circumstances, ~~National Association, as trustee for~~ our ~~previously~~liability ~~issued~~may ~~10%~~be ~~Senior~~strict, ~~Secured~~joint ~~Notes due 2020 (the “Old Secured Notes”) (together with U.S. Bank~~ and ~~First Lien Trustee~~several, ~~the~~meaning ~~“Appellants”)~~that ~~filed~~we ~~their~~may ~~joint~~be ~~appeal~~held ~~(together~~responsible ~~with~~for ~~the~~more ~~U.S.~~than ~~Bank~~our

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~~Appeal~~proportionate share, ~~the~~or ~~“District~~even ~~Court~~all, ~~Appeals”)~~of ~~before~~ the ~~District~~liability ~~Court~~involved ~~seeking~~regardless ~~reversal~~ of ~~the~~our ~~Bankruptcy~~fault ~~Court’s~~or ~~determinations~~whether ~~that~~we ~~(i) the Debtors~~ were ~~not~~aware ~~required to compensate holders~~ of the ~~Old~~conditions ~~First~~giving ~~Lien~~rise ~~Notes~~to ~~and Old Secured Notes for any prepayment premiums and (ii)~~ the ~~interest rates on the 3~~liability.~~88%~~ ~~First~~Environmental ~~Lien~~conditions ~~Notes~~at ~~due~~these ~~2022~~sites ~~(the~~can ~~“First~~lead ~~Lien Notes”) and the 4.69% Second Lien Notes due 2022 (the “Second Lien Notes”) provided~~ to ~~holders~~environmental ofcleanup ~~the~~liability ~~Old First Lien Notes~~ and ~~Old~~claims ~~Secured~~against ~~Notes~~us ~~under~~for ~~the~~personal ~~Plan~~injury ~~was~~or ~~proper~~wrongful ~~and in accordance with United States Bankruptcy Code. On November 11~~death, ~~2014,~~property the Debtors also filed a motion to dismiss the District Court Appeals (the “District Court Motion to Dismiss”) with the District Court asserting, inter alia, that granting the relief requested by the Appellants would be inequitable under the legal doctrine of equitable mootness. On May 5, 2015, the District Court dismissed the District Court Appeals (the “District Court Decision”) and ~~affirmed~~natural ~~the~~resource ~~Bankruptcy Court Rulings. Because the District Court Appeals were decided on their merits~~damages, ~~the~~as ~~District~~well ~~Court also terminated the District Court Motion to Dismiss~~ as ~~moot. All the Appellants appealed the District Court Decision~~ to ~~the~~claims ~~United~~and ~~States~~obligations ~~Court of Appeals~~ for the ~~Second~~investigation ~~Circuit (the “Second Circuit”,~~ and ~~the~~cleanup appeals, the “Second Circuit Appeals”). On September 3, 2015, the Debtors filed motions to dismiss the Second Circuit Appeals (the “Second Circuit Motions to Dismiss”) with the Second Circuit asserting, inter alia, that granting the relief requested by the Appellants would be inequitable under the legal doctrine of ~~equitable~~environmental ~~mootness~~conditions. OnThe ~~December~~extent ~~16, 2015, the Second Circuit denied the Second Circuit Motions to Dismiss but permitted the Debtors to raise issues~~ of ~~equitable~~any ~~mootness in their briefs on the merits~~ of ~~the~~these ~~Second~~liabilities ~~Circuit~~is ~~Appeals.~~difficult The merits briefing of the Second Circuit Appeals has been completed, and oral argument on the Second Circuit Appeals was held on November 9, 2016. The Second Circuit has not yet issued a decision with respect to ~~the Second Circuit Appeals. We cannot~~ predict, ~~with~~but ~~certainty~~in the ~~ultimate~~aggregate ~~outcome~~such ofliabilities ~~the Second Circuit Appeals. An adverse outcome~~ could ~~negatively~~be ~~affect our business, results of operations and financial condition by reducing our liquidity and/or increasing our interest costs~~material.

We have been notified that we are or may be responsible for environmental remediation at certain sites in the United States. As the result of our former, current or future operations or properties, there may be additional environmental remediation or restoration liabilities or claims of personal injury by employees or members of the public due to exposure or alleged exposure to hazardous materials in connection with our operations, properties or products. Sites sold by us in past years may have significant site closure or remediation costs and our share, if any, may be unknown to us at this time. These environmental liabilities or obligations, or any that may arise or become known to us in the future, could have a material adverse effect on our financial condition, results of operations, cash flows and profitability.

In addition, in the normal course of our business, we are required to provide financial assurances for contingent future costs associated with certain hazardous waste management, post-closure and remedial activities. Pursuant to financial assurance requirements set forth in state hazardous waste permit regulations applicable to our manufacturing facilities in Waterford, New York and Sistersville, West Virginia, we have provided letters of credit in the following amounts: approximately $44 for closure and post-closure care and accidental occurrences at the Waterford and the Sistersville facilities. A renewal of our Waterford facility’s hazardous waste permit was issued by the NYSDEC, which required us to provide approximately $27 in financial assurances for our Waterford facility. The renewal permit also requires a re-evaluation of the financial assurance amount within the next three years. One or more of our facilities may also in the future be subject to additional financial assurance requirements imposed by governmental authorities, including the USEPA. In this regard, in January 2017, the USEPA identified chemical manufacturing as an industry for which it plans to develop, as necessary, proposed regulations identifying appropriate financial assurance requirements pursuant to §108(b) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA”). Any increase in financial assurances required for our facilities in connection with environmental, health and safety laws or regulations or the maintenance of permits would likely increase our costs and could also materially impact our financial condition. For example, to the extent we issue letters of credit under our ABL Facility to satisfy any financial assurance requirements, we would incur fees for the issuance and maintenance of these letters of credit and the amount of borrowings that would otherwise be available to us under such facility would be reduced.

Future chemical regulatory actions may decrease our profitability.

Several governmental entities have enacted, are considering or may consider in the future, regulations that may impact our ability to sell certain chemical products in certain geographic areas. In December 2006, the European Union enacted a regulation known as Registration, Evaluation, Authorisation and Restriction of Chemicals (“REACH”). This regulation requires manufacturers, importers and consumers of certain chemicals manufactured in, or imported into, the European Union to register such chemicals and evaluate their potential impacts on human health and the environment. The implementing agency is currently in the process of determining if any chemicals should be further tested, regulated, restricted or banned from use in the European Union. Other countries have implemented, or are considering implementation of, similar chemical regulatory programs. When fully implemented, REACH and other similar regulatory programs may result in significant adverse market impacts on the affected chemical products. If we fail to comply with REACH or other similar laws and regulations, we may be subject to bans, sanctions, penalties or other enforcement actions, including fines, injunctions, recalls or seizures, which would have a material adverse effect on our financial condition, cash flows and profitability.

We cannot at this time estimate the impact of these regulations on our financial condition, results of operations, cash flows and profitability but it could be material. The European Union is conducting ongoing reviews of octamethylcyclotetrasiloxane (“D4”) and decamethylcyclopentasiloxane (“D5”) each of which are chemical substances we manufacture and are utilized as key ingredients in many of our products and by the silicone industry. In January, 2018 the European Union adopted a proposal by the United Kingdom to limit the levels of D4 and D5 in personal care products that are intended to be washed off. The European Commission has also recently directed the European Chemicals Agency to develop a proposal restricting the use of D4, D5 and dodecamethylcyclohexasiloxane (“D6”) in leave on personal care products. Additionally, Competent Authorities in Germany have completed a Risk Management Option Analysis (RMOA) on D4 and D5 and have proposed to designate D4 and D5 as a Substance of Very High Concern (SVHC) without intention for Annex XIV listing (Authorization). The USEPA has also stated that they are reviewing the potential environmental risks posed by D4 to determine whether regulatory measures are warranted. Finally, in March 2016 and March 2017, the European Union Directorate General for Environment (“DG Environment”) proposed to the European Commission that D4 be nominated as a persistent organic pollutant pursuant to the Stockholm Convention on Persistent Organic Pollutants (the “Stockholm Convention”). This proposal was not acted upon by the European Commission, but continues to be evaluated by the DG Environment. The Stockholm Convention is an international treaty aimed at eliminating or minimizing the release of organic chemicals that are toxic, resistant to degradation in the environment, and transported and deposited far from the point of release. We and other silicone industry members have entered into a consent order with the USEPA to conduct certain studies to obtain relevant data, the results of which were submitted to the USEPA in September 2017. Regulation of our products containing such substances by the European Union, Canada, the United States or parties to the Stockholm Convention would likely reduce our sales within the respective jurisdiction and possibly in other geographic areas as well. These reductions in sales could be material depending upon the extent of any such additional regulations.

We participate with other companies in trade associations and regularly contribute to the research and study of the safety and environmental impact of our products and raw materials. These programs are part of a program to review the environmental impacts, safety and efficacy of our products. In addition, government and academic institutions periodically conduct research on potential environmental and health concerns posed by various chemical substances, including substances we manufacture and sell. These research results are periodically reviewed by state, national and international regulatory agencies and potential customers. Such research could result in future regulations restricting the manufacture or use of our products, liability for adverse environmental or health effects linked to our products and/or de-selection of our products

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for specific applications. These restrictions, liability and product de-selection could have a material adverse effect on our business, financial condition, results of operations and/or liquidity.

Scientists periodically conduct studies on the potential human health and environmental impacts of chemicals, including products we manufacture and sell. Also, nongovernmental advocacy organizations and individuals periodically issue public statements alleging human health and environmental impacts of chemicals, including products we manufacture and sell. Based upon such studies or public statements, our customers may elect to discontinue the purchase and use of our products, even in the absence of any government regulation. Such actions could significantly decrease the demand for our products and, accordingly, have a material adverse effect on our business, financial condition, cash flows and profitability.

Because we manufacture and use materials that are known to be hazardous, we are subject to, or affected by, certain product and manufacturing regulations, for which compliance can be costly and time consuming. In addition, we may be subject to personal injury or product liability claims as a result of human exposure to such hazardous materials.

We produce hazardous chemicals ~~that~~which ~~require care in handling and use that are~~ subject us to regulation by many U.S. and non-U.S. national, supra-national, state and local governmental authorities. In some circumstances, these authorities must review and, in some cases approve, our products and/or manufacturing processes and facilities before we may manufacture and sell some of these chemicals. To be able to manufacture and sell certain new chemical products, we may be required, among other things, to demonstrate to the relevant authority that the product does not pose an unreasonable risk during its intended uses and/or that we are capable of manufacturing the product in compliance with current regulations. The process of seeking any necessary approvals can be costly, time consuming and subject to unanticipated and significant delays. Approvals may not be granted to us on a timely basis, or at all. Any delay in obtaining, or any failure to obtain or maintain, these approvals would adversely affect our ability to introduce new products and to generate revenue from those products. New laws and regulations may be introduced in the future that could result in additional compliance costs, bans on product sales or use, seizures, confiscation, recall or monetary fines, any of which could prevent or inhibit the development, distribution or sale of our products and could increase our customers’ efforts to find less hazardous substitutes for our products. We are subject to ongoing reviews of our products and manufacturing processes.

Products we have made or used could be the focus of legal claims based upon allegations of harm to human health. ~~While~~We we cannot predict the outcome of suits and claims, ~~we believe that we maintain adequate reserves, in accordance with our policy, to address litigation~~ and ~~are adequately insured to cover foreseeable future claims. However,~~ an unfavorable outcome in these litigation matters could exceed reserves or have a material adverse effect on our business, financial condition, results of operations and/or profitability and cause our reputation to decline.

We are subject to claims from our customers and their employees, environmental action groups and neighbors living near our production facilities.

We produce and use hazardous chemicals that require appropriate procedures and care to be used in handling them or in using them to manufacture other products. As a result of the hazardous nature of some of the products we produce and use, we may face claims relating to incidents that involve our customers’ improper handling, storage and use of our products. Additionally, we may face lawsuits alleging personal injury or property damage by neighbors living near our production facilities. These lawsuits could result in substantial damage awards against us, which in turn could encourage additional lawsuits and could cause us to incur significant legal fees to defend such lawsuits, either of which could have a material adverse effect on our business, financial condition and/or profitability. In addition, the activities of environmental action groups could result in litigation or damage to our reputation.

We are subject to certain risks related to litigation filed by or against us, and adverse results may harm our business.

We cannot predict with certainty the cost of defense, of prosecution or of the ultimate outcome of litigation and other proceedings filed by or against us, including penalties or other civil or criminal sanctions, or remedies or damage awards, and adverse results in any litigation and other proceedings may materially harm our business. Litigation and other proceedings may include, but are not limited to, actions relating to intellectual property, international trade, commercial arrangements, product liability, toxic exposure, environmental, health and safety, joint venture agreements, labor and employment or other harms resulting from the actions of individuals or entities outside of our control. In the case of intellectual property litigation and proceedings, adverse outcomes could include the cancellation, invalidation or other loss of material intellectual property rights used in our business and injunctions prohibiting our use of business processes or technology that are subject to third-party patents or other third-party intellectual property rights. Any loss, denial or reduction in scope of any of our material intellectual property may have a material adverse effect on our business, financial condition and/or profitability. In addition, litigation based on environmental matters or exposure to hazardous substances in the workplace or based upon the use of our products could result in significant liability for us, which could have a material adverse effect on our business, financial condition, results of operations and/or profitability.

We remain subject to litigation relating to the Chapter 11 proceedings.

In connection with the bankruptcy cases, the following appeals were filed relating to the confirmation of the Plan.

Make-Whole. In 2014, BOKF, NA, as trustee (“First Lien Trustee”) for our previously issued 8.875% First-Priority Senior Secured Notes due 2020 (the “Old First Lien Notes”), and Wilmington Trust, National Association, as trustee for our previously issued 10% Senior Secured Notes due 2020 (the “Old Secured Notes”) (“1.5 Lien Trustee” and together with the First Lien Trustee, the “Appellants”) jointly appealed to the U.S. District Court for the Southern District of New York (the “District Court”) seeking reversal of the Bankruptcy Court of the Southern District of New York’s (the “Bankruptcy Court”) determinations that Momentive Performance Materials Holdings Inc. and certain of

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its domestic subsidiaries (the “Debtors”) were not required to compensate holders of the Old First Lien Notes and Old Secured Notes for any prepayment premiums (the “Make-Whole Determination”).

Interest rate. The Appellants also appealed to the District Court seeking reversal of the Bankruptcy Court’s determination that the interest rates on the 3.88% First Lien Notes due 2021 (the “First Lien Notes”) and the 4.69% Second Lien Notes due 2022 (the “Second Lien Notes”) provided to holders of the Old First Lien Notes and Old Secured Notes under the Plan was proper and in accordance with the Bankruptcy Code (the “Interest Rate Determination”).

On October 20, 2017, Second Circuit affirmed the Make-Whole Determination. In November 2017, the Appellants requested a rehearing en banc by the Second Circuit with respect to the Make-Whole Determination (the “En Banc Request”). On December 11, 2017, the Second Circuit issued an order denying the En Banc Request and upheld the Company's position that no make-whole payments were due.

On October 20, 2017, the Second Circuit reversed the Interest Rate Determination and remanded the issue to the Bankruptcy Court for further proceedings (the “Remand”). The Second Circuit held that, on remand, the Bankruptcy Court should assess whether an efficient market rate can be ascertained, and, if so, apply it to the First Lien Notes and Second Lien Notes. On December 22, 2017, the Second Circuit issued its mandate remanding the Interest Rate Determination to the Bankruptcy Court. No further proceedings have yet been held in the Bankruptcy Court regarding the Interest Rate Determination.

We cannot predict with certainty whether Appellants may file a petition of certiorari with the Supreme Court of the United States (the “Supreme Court”) with respect to the Make-Whole Determination. While we do not believe an adverse outcome is probable, an adverse outcome could negatively affect our business, results of operations, and financial condition by reducing our liquidity and/or increasing our interest costs.

We cannot predict with certainty the timing or outcome of the Remand. An adverse outcome could increase our interest costs (including by potentially requiring us to make a catch-up payment for past due interest).

As a global business, we are subject to numerous risks associated with our international operations that could have a material adverse effect on our business.

We have significant manufacturing and other operations outside the United States. Some of these operations are in jurisdictions with unstable political or economic conditions. There are numerous inherent risks in international operations, including, but not limited to:


•	exchange controls and currency restrictions;


•	currency fluctuations and devaluations;


•	tariffs and trade barriers;


•	export duties and quotas;


•	changes in local economic conditions;

• ~~changes~~laws inand ~~laws~~regulations, including tax, environmental, health and safety regulations;


•	exposure to possible expropriation or other government actions;


•	hostility from local populations;


•	diminished ability to legally enforce our contractual rights in non-U.S. countries;

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•	restrictions on our ability to repatriate dividends from our subsidiaries;


•	unsettled political conditions and possible terrorist attacks against U.S. interests; and


•	natural disasters or other catastrophic events.

Our international operations expose us to different local political and business risks and challenges. For example, we face potential difficulties in staffing and managing local operations, and we have to design local solutions to manage credit risks of local customers and distributors. In addition, some of our operations are located in regions that may be politically unstable, having particular exposure to riots, civil commotion or civil unrests, acts of war (declared or undeclared) or armed hostilities or other national or international calamity. In some of these regions, our status as a U.S. company also exposes us to increased risk of sabotage, terrorist attacks, interference by civil or military authorities or to greater impact from the national and global military, diplomatic and financial response to any future attacks or other threats.

Some of our operations are located in regions with particular exposure to natural disasters such as storms, floods, fires and earthquakes. It would be difficult or impossible for us to relocate these operations and, as a result, any of the aforementioned occurrences could materially adversely affect our business.

In addition, intellectual property rights may be more difficult to enforce in non-U.S. or non-Western Europe countries due to a number of factors, including less favorable intellectual property laws and increased vulnerability to the theft of, and reduced protection for, intellectual property rights including trade secrets in such countries.

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Our overall success as a global business depends, in part, upon our ability to succeed under different economic, social and political conditions. We may fail to develop and implement policies and strategies that are effective in each location where we do business, and failure to do so could have a material adverse effect on our business, financial condition and results of operations.

Our business is subject to foreign currency risk.

In ~~2016~~2017, approximately 6766% of our net sales originated outside the United States. In our consolidated financial statements, we translate our local currency financial results into U.S. dollars based on average exchange rates prevailing during a reporting period or the exchange rate at the end of that period. During times of a strengthening U.S. dollar, at a constant level of business, our reported international revenues and earnings would be reduced because the local currency would translate into fewer U.S. dollars.

In addition to currency translation risks, we incur a currency transaction risk whenever one of our operating subsidiaries enters into a purchase or a sales transaction or indebtedness transaction using a different currency from the currency in which it records revenues. Given the volatility of exchange rates, we may not manage our currency transaction and/or translation risks effectively, and volatility in currency exchange rates may materially adversely affect our financial condition or results of operations, including our tax obligations. Since most of our indebtedness is denominated in U.S. dollars, a strengthening of the U.S. dollar could make it more difficult for us to repay our indebtedness.

We have entered and expect to continue to enter into various hedging and other programs in an effort to protect against adverse changes in the non-U.S. exchange markets and attempt to minimize potential material adverse effects. These hedging and other programs may be unsuccessful in protecting against these risks. Our results of operations could be materially adversely affected if the U.S. dollar strengthens against non-U.S. currencies and our protective strategies are not successful. Likewise, a strengthening U.S. dollar provides opportunities to source raw materials more cheaply from foreign countries.

The European debt crisis and related European financial restructuring efforts have contributed to instability in global credit markets and may cause the value of the Euro to further deteriorate. If global economic and market conditions, or economic conditions in Europe, the United States or other key markets remain uncertain or deteriorate further, the value of the Euro and the global credit markets may weaken. While we do not transact a significant amount of business in Greece, Italy or Spain, the general financial instability in those countries could have a contagion effect on the region and contribute to the general instability and uncertainty in the European Union. If this were to occur, it could adversely affect our European customers and suppliers and in turn have a materially adverse effect on our international business and results of operations.

Fluctuations in energy costs could have an adverse impact on our profitability and negatively affect our financial condition.

Oil and natural gas prices have fluctuated greatly over the past several years and we anticipate that they will continue to do so. Natural gas and electricity are essential to our manufacturing processes, which are energy-intensive. Our energy costs represented approximately 5% of our total cost of sales for the ~~year~~years ended December 31, ~~2016,~~2017 6%and ~~for the year ended December 31~~2016, ~~2015~~respectively, and 76% for the year ended ~~2014~~December 31, ~~respectively~~2015.

Our operating expenses will increase if our energy prices increase. Increased energy prices may also result in greater raw materials costs. If we cannot pass these costs through to our customers, our profitability may decline. In addition, increased energy costs may also negatively affect our customers and the demand for our products.

If our energy prices decrease, we expect benefits in the short-run with decreased operating expenses and increased operating income, but may face increased pricing pressure from competitors that are similarly impacted by energy prices and could see reduced demand for certain of our products that are sold to participants in the energy sector. As a result, profitability may decrease over an extended period of time of lower energy prices. Moreover, any future increases in energy prices after a period of lower energy prices may have an adverse impact on our profitability for the reasons described above.

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We face increased competition from other companies and from substitute products, which could force us to lower our prices, which would adversely affect our profitability and financial condition.

The markets that we operate in are highly competitive, and this competition could harm our results of operations, cash flows and financial condition. Our competitors include major international producers as well as smaller regional competitors. We may be forced to lower our selling price based on our competitors’ pricing decisions, which would reduce our profitability. This has been further magnified by the impact of the recent global economic downturn, as companies have focused more on price to retain business and market share. In addition, we face competition from a number of products that are potential substitutes for our products. Growth in substitute products could adversely affect our market share, net sales and profit margins.

There is also a trend in our industries toward relocating manufacturing facilities to lower cost regions, such as Asia, which may permit some of our competitors to lower their costs and improve their competitive position. Furthermore, there has been an increase in new competitors based in these regions.

Some of our competitors are larger, have greater financial resources, have a lower cost structure, and/or have less debt than we do. As a result, those competitors may be better able to withstand a change in conditions within our industry and in the economy as a whole. If we do not compete successfully, our operating margins, financial condition, cash flows and profitability could be adversely affected. Furthermore, if we do not have adequate capital to invest in technology, including expenditures for research and development, our technology could be rendered uneconomical or obsolete, negatively affecting our ability to remain competitive.

We have achieved significant cost savings as a result of the Shared Services Agreement with Hexion. If the Shared Services Agreement is terminated or further amended, if we have material disputes with Hexion regarding its implementation or if we are unable to implement new initiatives under the amended agreement, it could have a material adverse effect on our business operations, results of operations, and financial condition.16

In October 2010, we entered into the Shared Services Agreement with Hexion. Under this agreement, 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, legal, and procurement services. We have realized significant cost savings under the Shared Service Agreement, including savings related to shared services and logistics optimization, best-of-source contractual terms, procurement savings, regional site rationalization, administrative and overhead savings. The Shared Services Agreement is subject to termination by Hexion (or us), without cause, on not less than thirty days prior written notice, and expires in October 2017 (subject to one-year renewals every year thereafter, absent contrary notice from either party). In conjunction with the consummation of the Plan and our emergence from Chapter 11, 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 Shared Services Steering Committee with its annual review of billings and allocations.

If the Shared Services Agreement is terminated, or if the parties to the amended agreement have material disagreements with its implementation, it could have a material adverse effect on our business operations, results of operations and financial condition, as we would need to replace the services no longer being provided by Hexion, and would lose a portion of the benefits being generated under the agreement at the time.

We expect additional cost savings from our other strategic initiatives, and if we are unable to achieve these cost savings, or sustain our current cost structure, it could have a material adverse effect on our business operations, results of operations and financial condition.

We have not yet realized all of the cost savings and synergies we expect to achieve from our other strategic initiatives. A variety of risks could cause us not to realize the expected cost savings and synergies, including but not limited to, higher than expected severance costs related to staff reductions; higher than expected retention costs for employees that will be retained; higher than expected stand-alone overhead expenses; delays in the anticipated timing of activities related to our cost-saving plan; and other unexpected costs associated with operating our business.

If we are unable to achieve these cost savings or synergies it could adversely affect our profitability and financial condition. In addition, while we have been successful in reducing costs and generating savings, factors may arise that may not allow us to sustain our current cost structure. As market and economic conditions change, we may also make changes to our operating cost structure.

Our success depends in part on our ability to protect our intellectual property rights, and our inability to enforce these rights could have a material adverse effect on our competitive position.

We rely on the patent, trademark, copyright and trade-secret laws of the United States and the countries where we do business to protect our intellectual property rights. We may be unable to prevent third parties from using our intellectual property without our authorization. The unauthorized use of our intellectual property could reduce any competitive advantage we have developed, reduce our market share or otherwise harm our business. In the event of unauthorized use of our intellectual property, litigation to protect or enforce our rights could be costly, and we may not prevail.

Many of our technologies are not covered by any patent or patent application, and our issued and pending U.S. and non-U.S. patents may not provide us with any competitive advantage and could be challenged by third parties. Our inability to secure issuance of our pending

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~~patent~~We ~~applications~~expect ~~may~~cost ~~limit~~savings from our ~~ability~~strategic toinitiatives, ~~protect~~and ~~the~~if ~~intellectual~~we ~~property~~are ~~rights~~unable ~~these pending patent applications were intended~~ to ~~cover.~~achieve ~~Our~~these ~~competitors~~cost ~~may~~savings, ~~attempt~~or tosustain ~~design around~~ our ~~patents~~current tocost ~~avoid liability for infringement and~~structure, ifit ~~successful,~~could ~~our~~have ~~competitors~~a ~~could~~material ~~adversely~~adverse ~~affect~~effect on our ~~market~~business ~~share. Furthermore~~operations, ~~the~~results ~~expiration~~ of ~~our~~operations ~~patents~~and ~~may~~financial ~~lead to increased competition~~condition.

We have not yet realized all of the cost savings and synergies we expect to achieve from our strategic initiatives. A variety of risks could cause us not to realize the expected cost savings and synergies, including but not limited to, higher than expected severance costs related to staff reductions; higher than expected retention costs for employees that will be retained; higher than expected stand-alone overhead expenses; delays in the anticipated timing of activities related to our cost-saving plan; and other unexpected costs associated with operating our business. In addition, if the Shared Services Agreement is unexpectedly terminated, or if the parties to the agreement have material disagreements with its implementation, it could have an adverse effect on our business operations, results of operations and financial condition, as we would need to replace the services no longer being provided by Hexion Inc. (“Hexion”), and would lose a portion of the benefits being generated under the agreement at the time.

If we are unable to achieve these cost savings or synergies it could adversely affect our profitability and financial condition. In addition, factors may arise that may not allow us to sustain our current cost structure. As market and economic conditions change, we may also make changes to our operating cost structure.

Our history of operations includes periods of net losses, and we may incur net losses in the future. Such losses may impact our liquidity and the trading price of our common stock.

Although we did not generate a net loss for the year ended December 31, 2017, for the years ended December 31, 2016 and 2015, we generated net losses of $163 and $83, respectively. If we continue to suffer net losses, our liquidity may suffer and we may not be able to fund all of our obligations. Our ability to generate sufficient cash flows from operations to make scheduled debt service payments depends on a range of economic, competitive and business factors, many of which are outside of our control. In addition, if we continue to experience net losses, the trading price of our common stock may decline significantly.

Our success depends in part on our ability to protect our intellectual property rights, and our inability to enforce these rights could have a material adverse effect on our competitive position.

We rely on the patent, trademark, copyright and trade-secret laws of the United States and the countries where we do business to protect and enforce our intellectual property rights. We may be unable to prevent third parties from infringing or misappropriating our intellectual property or otherwise violating our intellectual property rights, which could reduce any competitive advantage we have developed, reduce our market share or otherwise harm our business. In the event of such infringement, misappropriation or other violation of our intellectual property rights, litigation to protect or enforce our rights could be costly, and we may not prevail.

Many of our technologies are not protected by any patent or patent application, and our issued and pending U.S. and non-U.S. patents may not provide us with any competitive advantage and could be challenged by third parties. Our inability to secure issuance of our pending patent applications may limit our ability to protect the intellectual property rights such pending patent applications were intended to cover. Our competitors may attempt to design around our patents to avoid liability for infringement and, if successful, our competitors could adversely affect our market share. Also, despite the steps taken by us to protect our intellectual property and technology, it may be possible for unauthorized third parties to copy or reverse-engineer aspects of our products, develop similar intellectual property or technology independently or otherwise obtain and use information that we regard as proprietary and we may be unable to successfully identify or enforce against unauthorized uses of our intellectual property and technology. Furthermore, the expiration of our patents may lead to increased competition.

Our pending trademark applications may not be approved by the responsible governmental authorities and, even if these trademark applications are granted, third parties may seek to oppose or otherwise challenge these trademark applications. A failure to obtain trademark registrations in the United States and in other countries could limit our ability to protect our products and their associated trademarks and impede our marketing efforts in those jurisdictions.

In addition, effective patent, trademark, copyright and trade secret protection may be unavailable or limited in some foreign countries. In some countries we do not apply for patent, trademark or copyright protection. We also rely on unpatented proprietary manufacturing expertise, continuing technological innovation and other trade secrets to develop and maintain our competitive position. While we generally enter into confidentiality agreements with our employees and third parties to protect our intellectual property, these confidentiality agreements are limited in duration and could be breached, and may not provide meaningful protection of our trade secrets or proprietary manufacturing expertise. Adequate remedies may not be available if there is an unauthorized use or disclosure of our trade secrets, ~~and~~ manufacturing expertise and other proprietary information. In addition, others may obtain knowledge about our trade secrets through independent development or by legal means. The failure to protect our processes, apparatuses, technology, trade secrets and proprietary manufacturing expertise, methods and compounds could have a material adverse effect on our business by jeopardizing critical intellectual property.

Where a product formulation or process is kept as a trade secret, third parties may independently develop or invent and patent products or processes identical to our trade-secret products or processes. This could have an adverse impact on our ability to make and sell products or use such processes and could potentially result in costly litigation in which we might not prevail.

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We could face intellectual property infringement claims that could result in significant legal costs and damages and impede our ability to produce key products, which could have a material adverse effect on our business, financial condition and results of operations.

Our production processes and products are specialized; however, we ~~could~~may ~~face~~become ~~intellectual~~subject ~~property~~to ~~infringement~~ claims ~~from~~that ~~our~~we ~~competitors~~infringe, misappropriate or ~~others~~otherwise ~~alleging~~violate ~~that~~the intellectual property rights of our ~~processes~~competitors or ~~products~~others ~~infringe~~in onthe ~~their~~future. ~~proprietary~~Any ~~technology.~~claim Ifof weinfringement, ~~were~~misappropriation ~~subject~~or toother anviolation ~~infringement~~could ~~suit,~~require weus ~~may~~to bepay ~~required~~substantial todamages and change our processes or products, or stop using certain technologies or producing the ~~infringing~~applicable product entirely. Additionally, an adverse judgment against us could require us to seek licenses of intellectual property from third parties, which may not be available on commercially reasonable terms or at all. Even if we ultimately prevail in ansuch ~~infringement suit~~claims, the existence of the suit could cause our customers to seek other products that are not subject to ~~infringement~~such ~~suits~~claims. Any claim of infringement, ~~suit~~misappropriation or other violation could result in significant legal costs and damages and the diversion of significant management time, and impede our ability to produce key products, which could have a material adverse effect on our business, financial condition and results of operations.

If we fail to extend or renegotiate our collective bargaining agreements with our works councils and labor unions as they expire from time to time, if disputes with our works councils or unions arise, or if our unionized or represented employees were to engage in a strike or other work stoppage, our business and operating results could be materially adversely affected.

As of December 31, ~~2016~~2017, approximately 4543% of our employees were unionized or represented by works councils that were covered by collective bargaining agreements. In addition, some of our employees reside in countries in which employment laws provide greater bargaining or other employee rights than the laws of the United States. These rights may require us to expend more time and money altering or amending employees’ terms of employment or making staff reductions. For example, most of our employees in Europe are represented by works councils, which generally must approve changes in conditions of employment, including restructuring initiatives and changes in salaries and benefits. A significant dispute could divert our management’s attention and otherwise hinder our ability to conduct our business or to achieve planned cost savings.

We may be unable to timely extend or renegotiate our collective bargaining agreements as they expire. For example, a majority of our manufacturing personnel at our Sistersville, WVWest Virginia site are covered by a collective bargaining agreement that expires in July ~~2017~~2018. We also may be subject to strikes or work stoppages by, or disputes with, our labor unions in connection with these collective bargaining agreements or otherwise. In November 2016, approximately 600 workers at our Waterford, NYNew York facility went on strike in response to not reaching agreement on the terms for a new contract after the existing agreement expired in June 2016. In November 2016, the union at our Willoughby, OHOhio facility representing approximately 50 employees also went on strike for two weeks in response to not reaching agreement on the terms for a new contract. The new contract involving the Local 81359 and Local 81380 unions in our Waterford, NYNew York site and Local 84707 union in our Willoughby, OHOhio site was ratified by union membership in February 2017 and is effective until June 2019.

If we fail to extend or renegotiate our collective bargaining agreements, if additional disputes with our works councils or unions arise or if our unionized or represented workers engage in a further strike or other work stoppage, we could incur higher labor costs or experience a significant disruption of operations, which could have a material adverse effect on our business, financial position and results of operations.

Our pension plans are unfunded or under-funded and our required cash contributions could be higher than we expect, each of which could have a material adverse effect on our financial condition and liquidity.

We sponsor various pension and similar benefit plans worldwide. As of December 31, 2017, our U.S. and non-U.S. defined benefit pension plans were under-funded in the aggregate by $105 and $199, respectively. We are legally required to make contributions to our pension plans in the future, and those contributions could be material.

AsOur future funding obligations for our employee benefit plans depend upon the levels of ~~December 31,~~benefits ~~2016~~provided for by the plans, ~~our~~the ~~U.S.~~future ~~and~~performance ~~non-U.S.~~of ~~defined~~assets ~~benefit~~set ~~pension~~aside for these plans, ~~were~~the ~~under-funded~~rates inof interest used to determine funding levels, the ~~aggregate~~impact byof ~~$119~~potential ~~and~~business ~~$172~~dispositions, ~~respectively.~~actuarial Wedata ~~are~~and ~~legally~~experience ~~required~~and toany ~~make~~changes ~~contributions~~in togovernment laws and regulations. In addition, certain of our ~~pension~~funded employee benefit plans inhold a significant amount of equity securities. If the ~~future~~market values of these securities decline, our pension expense and ~~those~~funding ~~contributions~~requirements would increase and, as a result, could behave a material adverse effect on our business.

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Our future funding obligations for our employee benefit plans depend upon the levels of benefits provided for by the plans, the future performance of assets set aside for these plans, the rates of interest used to determine funding levels, the impact of potential business dispositions, actuarial data and experience, and any changes in government laws and regulations. In addition, certain of our funded employee benefit plans hold a significant amount of equity securities. If the market values of these securities decline, our pension expense and funding requirements would increase and, as a result, could have a material adverse effect on our business.

If the performance of assets in the funded plans does not meet our expectations, our cash contributions for these plans could be higher than we expect, which could have a material adverse effect on our financial condition and liquidity.

Natural or other disasters have, and could in the future disrupt our business and result in loss of revenue or higher expenses.

Any serious disruption at any of our facilities or our suppliers’ facilities due to hurricane, fire, earthquake, flood, terrorist attack or any other natural or man-made disaster could impair our ability to use our facilities and have a material adverse impact on our revenues and increase our costs and expenses. If there is a natural disaster or other serious disruption at any of our facilities or our suppliers’ facilities, it could impair our ability to adequately supply our customers and negatively impact our operating results.

For example, our manufacturing facility in Leverkusen, Germany was impacted by the effects of a fire on November 12, 2016. We produce a variety of finished silicone products at this plant, including highly specialized silicone products.

Also, our manufacturing facility in Ohta, Japan and the manufacturing facilities of certain of our suppliers were impacted by the effects of the earthquake and tsunami in Japan on March 11, 2011 and related events. Our Ohta facility is one of two facilities globally where we internally produce siloxane, a key intermediate required in our manufacturing process of silicones. We also produce a variety of finished silicone products at this plant, including highly specialized silicone products. We were able to shift only certain amounts of production to our other facilities throughout the world over the short term. Our Ohta plant, which is approximately 230 kilometers away from the nuclear power plant at Fukushima, Japan that incurred significant damage as a result of the earthquake, was our closest facility to the area affected by the earthquake and tsunami. We also have manufacturing and research facilities in Kozuki and Kobe, Japan that produce ceramic products, and administration offices in Tokyo, Nagoya and Fukuoka, Japan, none of which were significantly impacted by the earthquake. In addition, our manufacturing facilities, primarily those located in the Asia Pacific region, purchase certain raw materials from suppliers throughout Japan. Normal plant operations at our Ohta facility were restored in early May 2011, but uncertainty in Japan continued primarily with respect to the country’s energy infrastructure. To the extent further events or actions in Japan occur that impact its energy supply, including, but not limited to: rolling blackouts, restrictions on power usage, radiation exposure from nuclear power plants or the imposition of evacuation zones around such plants, it could materially and adversely affect our operations, operating results and financial condition.

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internally produce siloxane, a key intermediate required in our manufacturing process of silicones. We also produce a variety of finished silicone products at this plant, including highly specialized silicone products. We were able to shift only certain amounts of production to our other facilities throughout the world over the short term. Our Ohta plant, which is approximately 230 kilometers away from the nuclear power plant at Fukushima, Japan that incurred significant damage as a result of the earthquake, was our closest facility to the area affected by the earthquake and tsunami. We also have manufacturing and research facilities in Kozuki and Kobe, Japan that produce ceramic products, and administration offices in Tokyo, Nagoya and Fukuoka, Japan, none of which were significantly impacted by the earthquake. In addition, our manufacturing facilities, primarily those located in the Asia Pacific region, purchase certain raw materials from suppliers throughout Japan. Normal plant operations at our Ohta facility were restored in early May 2011, but uncertainty in Japan continued primarily with respect to the country’s energy infrastructure. To the extent further events or actions in Japan occur that impact its energy supply, including, but not limited to: rolling blackouts, restrictions on power usage, radiation exposure from nuclear power plants or the imposition of evacuation zones around such plants, it could materially and adversely affect our operations, operating results and financial condition.

In addition, many of our current and potential customers are concentrated in specific geographic areas. A disaster in one of these regions could have a material adverse impact on our operations, operating results and financial condition. Our business interruption insurance may not be sufficient to cover all of our losses from a disaster, in which case our unreimbursed losses could be substantial.

Acquisitions and joint ventures that we pursue may present unforeseen integration obstacles and costs, increase our leverage and negatively impact our performance. Divestitures that we pursue also may present unforeseen obstacles and costs.

We have made acquisitions of related businesses, and entered into joint ventures in the past and we may do so in the future. Acquisitions may require us to assume or incur additional debt financing, resulting in additional leverage and complex debt structures. If such acquisitions are consummated, the risk factors we describe above and below, and for our business generally, may be intensified.

Our ability to implement our growth strategy is limited by covenants in our ABL Facility, indentures and other indebtedness, our financial resources, including available cash and borrowing capacity, and our ability to integrate or identify appropriate acquisition and joint venture candidates.

The expense incurred in consummating acquisitions of related businesses, or our failure to integrate such businesses successfully into our existing businesses, could result in our incurring unanticipated expenses and losses. Furthermore, we may not be able to realize any anticipated benefits, or we may incur unanticipated liabilities, from acquisitions or joint ventures. The process of integrating acquired operations into our existing operations may result in unforeseen operating difficulties and may require significant financial resources that would otherwise be available for the ongoing development or expansion of existing operations.

In addition we may pursue divestitures of certain of our businesses as one element of our portfolio optimization strategy. Divestitures may require us to separate integrated assets and personnel from our retained businesses and devote our resources to transitioning assets and services to purchasers, resulting in disruptions to our ongoing business and distraction of management.

Security breaches and other disruptions to our information technology infrastructure could interfere with our operations, and could compromise our information and the information of our customers and suppliers, exposing us to liability which would cause our business and reputation to suffer.

In the ordinary course of business, we rely upon information technology networks and systems, some of which are managed by third parties, to process, transmit and store electronic information, and to manage or support a variety of business processes and activities, including supply chain, manufacturing, distribution, invoicing, and collection of payments from customers. We use information technology systems to record, process and summarize financial information and results of operations for internal reporting purposes and to comply with regulatory financial reporting, legal and tax requirements. Additionally, we collect and store sensitive data, including intellectual property, proprietary business information, the propriety business information of our customers and suppliers, as well as personally identifiable information of our customers and employees, in data centers and on information technology networks. The secure operation of these information technology networks, and the processing and maintenance of this information is critical to our business operations and strategy. Despite security measures and business continuity plans, our information technology networks and infrastructure may be vulnerable to damage, disruptions or shutdowns due to attacks by hackers or breaches due to employee error or malfeasance or other disruptions during the process of upgrading or replacing computer software or hardware, power outages, computer viruses, telecommunication or utility failures or natural disasters or other catastrophic events. The occurrence of any of these events could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information or failure to comply with applicable laws, directives, or regulations could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, disrupt operations and damage our reputation, which could adversely affect our business, financial condition and results of operations.

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business information, the propriety business information of our customers and suppliers, as well as personally identifiable information of our customers and employees, in data centers and on information technology networks. The secure operation of these information technology networks, and the processing and maintenance of this information is critical to our business operations and strategy. Despite security measures and business continuity plans, our information technology networks and infrastructure may be vulnerable to damage, disruptions or shutdowns due to attacks by hackers or breaches due to employee error or malfeasance, or other disruptions during the process of upgrading or replacing computer software or hardware, power outages, computer viruses, telecommunication or utility failures or natural disasters or other catastrophic events. The occurrence of any of these events could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, disrupt operations, and damage our reputation, which could adversely affect our business, financial condition and results of operations.

Limitations on our use of certain product-identifying information, including the GE name and monogram, could adversely affect our business and profitability.

Prior to December 2006, substantially all of our products and services were marketed using the GE brand name and monogram, and we believe the association with GE provided our products and services with preferred status among our customers and employees due to GE’s globally recognized brands and perceived high quality. We and GE Monogram Licensing International (“GE Monogram”) are parties to a trademark license agreement, which was entered into in December 2006 and amended in May 2013, that grants us a limited right to, among other things, use the GE mark and monogram on our sealant, adhesive and certain other products. These rights extend for a term of five years through December 3, 2018, with options that allow us to renew the license through 2023, subject to certain terms and conditions, including the payment of royalties. We also have the right to use numerous product specifications that contain the letters “GE” for the life of the respective products. While we continue to use the GE mark and monogram on these products and continue to use these product specifications, we are not able to use the GE mark and monogram on other products, use GE as part of our name or advertise ourselves as a GE company. While we have not yet experienced any significant loss of business as a result of our limited use of the GE mark and monogram, our business could be disadvantaged in the future by the loss of association with the GE name on our sealant, adhesive and certain other products.

~~Our~~ ~~financial condition or results of operations will not be comparable to the financial condition or results of operations reflected in our historical financial statements.~~19

~~Since~~Table October 24, 2014, we have been operating under a new capital structure. In addition, as required by fresh-start accounting, at October 24, 2014 our assets and liabilities were recorded at fair value, which are significantly different than amounts in our historical financial statements. Accordingly, our financial condition and results of operations from and after the Effective Date will not be comparable to the financial condition or results of operations reflected in our historical financial statements included in this Annual Report on Form 10-K.Contents

other things, use the GE mark and monogram solely in connection with our sealant, adhesive and certain other products, subject to certain conditions. These rights extend through December 3, 2018, with options that allow us to renew the license through 2023, subject to certain terms and conditions, including the payment of royalties. We also have the right to use numerous specific product trademarks that contain the letters “GE” for the life of the respective products subject to the terms of the license. While we continue to use the GE mark and monogram on these products and continue to use these product specifications, we are not able to use the GE mark and monogram on other products, use GE as part of our name or advertise ourselves as a GE company. While we have not yet experienced any significant loss of business as a result of our limited use of the GE mark and monogram, our business could be disadvantaged in the future by the loss of association with the GE name on our sealant, adhesive and certain other products.

Risks Related to Our Indebtedness

We may be unable to generate sufficient cash flows from operations to meet our consolidated debt service payments.

We have substantial consolidated indebtedness. As of December 31, ~~2016~~2017, we had $1,~~203~~228 of consolidated outstanding indebtedness. Our projected annualized cash interest expense is approximately $55 based on our consolidated indebtedness and letters of credit outstanding and interest rates at December 31, ~~2016~~2017 without giving effect to any subsequent borrowings under our ABL Facility, substantially all of which represents cash interest expense on fixed-rate obligations.

Our ability to generate sufficient cash flows from operations to make scheduled debt service payments depends on a range of economic, competitive and business factors, many of which are outside of our control. Continued or increased weakness in economic conditions and our performance beyond our expectations would exacerbate these risks. Our business may generate insufficient cash flows from operations to meet our debt service and other obligations, and currently anticipated cost savings, capital investment plans, working capital reductions and operating improvements may not be realized on schedule, or at all. To the extent our cash flow from operations is insufficient to fund our debt service obligations, aside from our current liquidity, we would be dependent on outside capital to meet the funding of our debt service obligations and to fund capital expenditures and other obligations. We were previously forced to take actions to restructure and refinance our indebtedness and there can be no assurance we will be able to meet our scheduled debt service obligations in the future.

If we are unable to meet our expenses and debt service obligations, we may need to refinance all or a portion of our indebtedness on or before maturity, sell assets or issue additional equity securities. We may be unable to refinance any of our indebtedness, sell assets or issue equity securities on commercially reasonable terms, or at all, which could cause us to default on our obligations and result in the acceleration of our debt obligations. Our inability to generate sufficient cash flows to satisfy our outstanding debt obligations, or to refinance our obligations on commercially reasonable terms, would have a material adverse effect on our business, financial condition and results of operations.

Availability under the ABL Facility is subject to a borrowing base based on a specified percentage of eligible accounts receivable and inventory and, in certain foreign jurisdictions, machinery and equipment. As of December 31, ~~2016~~2017, the borrowing base (including various reserves) was determined to be approximately $~~215~~214, and we had approximately $5556 of drawn letters of credit and no revolver borrowings under the ABL Facility. The borrowing base (including various reserves) is updated on a monthly basis, so the actual borrowing base could be lower in the future. To the extent the borrowing base is lower than we expect, that could significantly impair our liquidity.

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Our substantial indebtedness could adversely affect our ability to raise additional capital to fund our operations and limit our ability to react to changes in the economy or our industry.

Our substantial consolidated indebtedness and other commitments and obligations could have other important consequences, including but not limited to the following:


•	it may limit our flexibility in planning for, or reacting to, changes in our operations or business;


•	we are more highly leveraged than many of our competitors, which may place us at a competitive disadvantage;


•	it may make us more vulnerable to downturns in our business or the economy;


•	a substantial portion of our cash flows from operations will be dedicated to the repayment of our indebtedness and will not be available for other purposes;


•	it may restrict us from making strategic acquisitions, introducing new technologies, or exploiting business opportunities;


•	it may make it more difficult for us to satisfy our obligations with respect to our existing indebtedness;


•	it may adversely affect terms under which suppliers provide material and services to us; and


•	it may limit our ability to borrow additional funds or dispose of assets.

There would be a material adverse effect on our business and financial condition if we were unable to service our indebtedness or obtain additional financing, as needed.

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Despite our substantial indebtedness, we may still be able to incur significant additional indebtedness. This could intensify the risks described above and below.

We may be able to incur substantial additional indebtedness in the future. Although the terms governing our indebtedness contain restrictions on our ability to incur additional indebtedness, these restrictions are subject to numerous qualifications and exceptions, and the indebtedness we may incur in compliance with these restrictions could be substantial. Increasing our indebtedness could intensify the risks described above and below.

The terms governing our outstanding debt, including restrictive covenants, may adversely affect our operations.

The terms governing our outstanding debt contain, and any future indebtedness we incur would likely contain, numerous restrictive covenants that impose significant operating and financial restrictions on our ability to, among other things:


•	incur or guarantee additional debt;


•	pay dividends and make other distributions to our stockholders;


•	create or incur certain liens;


•	make certain loans, acquisitions, capital expenditures or investments;


•	engage in sales of assets and subsidiary stock;


•	enter into sale/leaseback transactions;


•	enter into transactions with affiliates; and


•	transfer all or substantially all of our assets or enter into merger or consolidation transactions.

As a result of these covenants, we are limited in the manner in which we conduct our business, and we may be unable to engage in favorable business activities or finance future operations or capital needs.

If the availability under the ABL Facility falls below certain thresholds, we will be subject to a minimum fixed charge coverage ratio. If we are unable to maintain compliance with such ratio or other covenants in the ABL Facility, an event of default could result.

The credit agreement governing the ABL Facility requires us to maintain a minimum fixed charge coverage ratio of 1.0 to 1.0 at any time when the 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. The fixed charge coverage ratio under the agreement governing the ABL Facility is generally defined as the ratio of (a) Adjusted EBITDA minus non-financed capital expenditures and cash taxes to (b) debt service plus cash interest expense plus certain restricted payments, each measured on a last twelve months, or LTM, basis.

A breach of our fixed charge coverage ratio, if in effect, ~~could~~would, if not waived, result in an event of default under our ABL Facility. Pursuant to the terms of the credit agreement governing the ABL Facility, our direct parent company will have the right, but not the obligation, to cure such default through the purchase of additional equity in up to three of any four consecutive quarters. If a breach of a fixed charge coverage ratio covenant is not cured or waived, or if any other event of default under the ABL Facility occurs, the lenders under such credit facility:


•	would not be required to lend any additional amounts to us;


•	could elect to declare all borrowings outstanding under such ABL Facility, together with accrued and unpaid interest and fees, due and payable and could demand cash collateral for all letters of credit issued thereunder;


•	could apply all of our available cash that is subject to the cash sweep mechanism of the ABL Facility to repay these borrowings; and/or

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•	could prevent us from making payments on our notes;

any or all of which could result in an event of default under our notes.

The ABL Facility also provides for “springing control” over the cash in our deposit accounts constituting collateral for the ABL Facility, and such cash management arrangements include a cash sweep at any time that availability under the ABL Facility is less than the greater of (1) 12.5% of the lesser of the borrowing base and the total ABL Facility commitments at such time and (2) $27. Such cash sweep, if in effect, will cause all our available cash to be applied to outstanding borrowings under the ABL Facility. If we satisfy the conditions to borrowing under the ABL Facility while any such cash sweep is in effect, we may be able to make additional borrowings under the ABL Facility to satisfy our working capital and other operational needs. If we do not satisfy the conditions to borrowing, we will not be permitted to make additional borrowings under the ABL Facility, and we will not have sufficient cash to satisfy our working capital and other operational needs. The availability threshold for triggering a cash sweep is the same availability threshold for triggering the fixed charge coverage ratio covenant under the ABL Facility.

The terms governing our indebtedness limit our ability to sell assets and also restrict the use of proceeds from that sale. We may be unable to sell assets quickly enough or for sufficient amounts to enable us to meet our obligations. Furthermore, a substantial portion of our assets is, and may continue to be, intangible assets. Therefore, it may be difficult for us to pay our consolidated debt obligations in the event of an acceleration of any of our consolidated indebtedness.

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If the indebtedness under the ABL Facility or our existing notes were to be accelerated after an event of default, our respective assets may be insufficient to repay such indebtedness in full and our lenders could foreclose on the assets pledged under the applicable facility, which would have a material adverse effect on our business, financial condition and results of operations.

Repayment of our debt, including required principal and interest payments, depends on cash flows generated by our subsidiaries, which may be subject to limitations beyond our control.

Our subsidiaries own a significant portion of our consolidated assets and conduct a significant portion of our consolidated operations. Repayment of our indebtedness depends, to a significant extent, on the generation of cash flows and the ability of our subsidiaries to make cash available to us by dividend, debt repayment or otherwise. Our subsidiaries may not be able to, or may not be permitted to, make distributions to enable us to make payments on our indebtedness. Each subsidiary is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from subsidiaries. While there are limitations on the ability of our subsidiaries to incur consensual restrictions on their ability to pay dividends or make intercompany payments, these limitations are subject to certain qualifications and exceptions. In the event that we are unable to receive distributions from our subsidiaries, we may be unable to make required principal and interest payments on our indebtedness.

A downgrade in our debt ratings could restrict our access to, and negatively impact the terms of, current or future financings or trade credit.

S&P Global Ratings (“S&P”) and Moody’s Investors Service (“Moody’s”) maintain credit ratings on us and certain of our debt. ~~Subsequent~~Our ~~to the Emergence our~~ ratings were ~~downgraded~~upgraded by Moody’s in ~~January~~February ~~2016~~2018. The ratings assigned by both ratings agencies to our debt ~~issued in connection with the Emergence~~ are currently below investment grade. Any decision by these ratings agencies to ~~further~~ downgrade such ratings or put them on negative watch in the future could restrict our access to, and negatively impact the terms of, current or future financings and trade credit extended by our suppliers of raw materials or other vendors.

Risks Related to ~~Momentive’s~~Our Common Stock

There is a limited public market for our common stock.

There are substantial risks in investing in our common stock given the general illiquid nature of such securities. There is a limited public trading market for our securities. In March 2016, our common stock was approved to trade on the OTCQX market. Holders of our securities may nevertheless find it difficult or impossible to find a qualified purchaser for such securities at any price. Because of this, the quoted prices of our stock on the OTCQX may not reflect exactly the value of our common stock.

Our stock price may be volatile or may decline regardless of our operating performance, and stockholders may not be able to resell shares at or above the price at which the shares were acquired.

The price for our common stock may be volatile and may fluctuate significantly in response to a number of factors, most of which we cannot control, including, among others:


•	changes in economic trends or the continuation of current economic conditions;


•	industry cycles and trends;


•	changes in government and environmental regulation;


•	adverse resolution of new or pending litigation against us;


•	changes in laws or regulations governing our business and operations;


•	the sustainability of an active trading market for our common stock; and


•	future sales of our common stock by our stockholders.

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These and other factors may lower the price of our common stock, regardless of our actual operating performance. In the event of a drop in the price of our common stock, you could lose a substantial part or all of your investment in our common stock.

In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, we could incur substantial costs and our resources and the attention of management could be diverted from our business.

Future sales of our common stock, or the perception that these sales may occur, may depress the price of our common stock.

Additional sales of a substantial number of our shares of common stock, or the perception that such sales may occur, could have a material adverse effect on the price of our common stock and could materially impair our ability to raise capital through the sale of additional shares. As of February 15, ~~2017~~2018, we had 48,~~058~~121,~~114~~634 shares of common stock issued and outstanding. Substantially all of these shares have either been registered by Momentive’s registration statement on Form S-1 (Registration No. 333-201338) filed December 31, 2014 (“Form S-1”), which became effective on July 2, 2015, or otherwise are freely tradable. The selling stockholders covered by the Form S-1 beneficially own a significant amount of our common stock. The sale of all or a portion of the shares by the selling stockholders or our other stockholders, or the perception that these sales may occur, could cause the price of our common stock to decrease significantly.

~~Pursuant~~ to the Company’s Registration Rights Agreement, the selling stockholders have certain demand and piggyback rights that may require us to file additional registration statements registering their common stock or to include sales of such common stock in registration statements that we may file for ourselves or other stockholders. Any shares of common stock sold under these registration statements or this prospectus will be freely tradable. In the event such registration rights are exercised and a large number of shares of common stock is sold, such sales could reduce the trading price of our common stock. These sales also could impede our ability to raise future capital. Additionally, we will bear all expenses in connection with this registration and any such registrations, except that the selling stockholders may be responsible for their pro rata shares of underwriters’ discounts and commissions, stock transfer taxes and certain legal expenses.22

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Pursuant to the Company’s Registration Rights Agreement, the selling stockholders have certain demand and piggyback rights that may require us to file additional registration statements registering their common stock or to include sales of such common stock in registration statements that we may file for ourselves or other stockholders. Any shares of common stock sold under these registration statements will be freely tradable. In the event such registration rights are exercised and a large number of shares of common stock is sold, such sales could reduce the trading price of our common stock. These sales also could impede our ability to raise future capital. Additionally, we will bear all expenses in connection with this registration and any such registrations, except that the selling stockholders may be responsible for their pro rata shares of underwriters’ discounts and commissions, stock transfer taxes and certain legal expenses.

As a holding company, our only material assets will be our equity interests in our operating subsidiaries, and our principal source of revenue and cash flow will be distributions from such subsidiaries, which may be limited by law and/or contract in making such distributions.

As a holding company, our principal source of revenue and cash flow ~~will~~is be distributions from our subsidiaries. Therefore, our ability to carry out our business plan, to fund and conduct our business, service our debt and pay dividends (if any) in the future will depend on the ability of our subsidiaries to generate sufficient net income and cash flows to make upstream cash distributions to us. Our subsidiaries are separate legal entities, and although they may be wholly owned or controlled by us, they have no obligation to make any funds available to us, whether in the form of loans, dividends or otherwise. The ability of our subsidiaries to distribute cash to us may also be subject to, among other things, future restrictions that are contained in our subsidiaries’ agreements (as entered into from time to time), availability of sufficient funds in such subsidiaries and applicable laws and regulatory restrictions. Claims of creditors of our subsidiaries generally will have priority as to the assets of such subsidiaries over our claims and claims of our creditors and stockholders. To the extent the ability of our subsidiaries to distribute dividends or other payments to us could be limited in any way, this could materially limit our ability to fund and conduct our business, service our debt and pay dividends (if any).

Apollo is our largest stockholder and has significant influence over us, and its interests may conflict with or differ from your interests as a stockholder.

As of December 31, ~~2016~~2017, Apollo ~~and its affiliates~~ beneficially ~~own~~owns approximately 4039.7% of our common stock. In connection with our emergence from the ~~Emergence~~Chapter 11 proceedings, Apollo designated four of our eleven directors. As a result of that representation, Apollo has the ability to exert significant influence over us. The interests of Apollo could conflict with or differ from the interests of our other stockholders. For example, the concentration of ownership held by Apollo could delay, defer, cause or prevent a change of control of us or impede a merger, takeover or other business combination that ~~you~~other asstockholders ~~a stockholder~~ may otherwise view favorably. Apollo is in the business of making or advising on investments in companies and holds, and may from time to time in the future acquire, interests in or provide advice to businesses that may directly or indirectly compete with certain portions of our business or are suppliers or customers of ours. Apollo may also pursue acquisitions that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us. Our Amended and Restated Certificate of Incorporation (“Certificate of Incorporation”) provides that we expressly renounce any interest or expectancy in any business opportunity, transaction or other matter in which Apollo, ~~the~~The Ad Hoc Group (as defined in the Certificate of Incorporation) or any of their respective affiliates (with respect to Apollo~~, the “Apollo Group”~~) participates or desires or seeks to participate in, even if the opportunity is one that we would reasonably be deemed to have pursued if given the opportunity to do so.

Provisions in our organizational documents may delay or prevent our acquisition by a third party.

Our Certificate of Incorporation and our ~~amended~~Amended and ~~restated~~Restated ~~bylaws~~By-laws (“~~Bylaws~~By-laws”), contain several provisions that may make it more difficult or expensive for a third party to acquire control of us without the approval of our ~~board~~Board of ~~directors~~Directors. These provisions also may delay, prevent or deter a merger, acquisition, tender offer, proxy contest or other transaction that might otherwise result in our stockholders receiving a premium over the market price for their common stock. These provisions include, among others:

• provisions relating to the appointment of directors for a period of time following the ~~Emergence~~emergence from Chapter 11;

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•	provisions requiring stockholders to hold at least 33% of our outstanding common stock in the aggregate to request special meetings;

• provisions that provide that the doctrine of “corporate opportunity” will not apply with respect to Apollo, the Ad Hoc Group, ~~(as defined in the Certificate of Incorporation)~~ and their respective affiliates with respect to the Company; and


•	provisions that require a non-interim Chief Executive Officer to review any business combination transaction.

These provisions of our Certificate of Incorporation and Bylaws could discourage potential takeover attempts and reduce the price that investors might be willing to pay for our common stock in the future, which could reduce the market price of our common stock.

Our designation of the Delaware Court of Chancery as the exclusive forum for certain types of stockholder legal proceedings could limit our stockholders’ ability to obtain a more favorable forum.

Our Certificate of Incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will, to the fullest extent permitted by applicable law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or stockholders to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law (“DGCL”), our Certificate of Incorporation or our By-laws or (iv) any action asserting a claim governed by the internal affairs doctrine or

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as to which the DGCL otherwise confers jurisdiction upon the Court of Chancery. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock will be deemed to have notice of, and consented to, the provisions of our Certificate of Incorporation described in the preceding sentence. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, employees or agents, which may discourage such lawsuits against us and such persons. Alternatively, if a court were to find these provisions of our Certificate of Incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs that we do not currently anticipate associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition and results of operations.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

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ITEM 2. PROPERTIES

Our headquarters is located in Waterford, NYNew York. Our major manufacturing facilities are primarily located in North America, Europe and Asia. We ~~operate 9 domestic production and manufacturing facilities in 6 states and 14 foreign production and manufacturing facilities, primarily in China, Germany, Italy and Japan. We~~ also have 5 standalone technology research centers spread globally.

We believe our production and manufacturing facilities are well maintained and effectively utilized and are adequate to operate our business. Following are our production and manufacturing facilities, executive offices and technology research centers:

Location	Real PropertyInterest	Business in WhichProperty is Used
Americas:
Waterford, NY	Owned	Silicones
Waterford, NY (2)	Owned	Performance Additives, Formulated and Basic Silicones
Tarrytown, NY (1)	Leased	~~Silicones~~Performance Additives
Sistersville, WV	Owned	Silicones
Sistersville, WV (2)	Owned	Performance Additives
Chino, CA	Leased	Formulated and Basic Silicones
Garrett, IN	Leased	Formulated and Basic Silicones
New Smyrna Beach, FL	Owned	Formulated and Basic Silicones
Charlotte, NC (1)	Leased	~~Silicones~~Performance Additives
Itatiba, Brazil	Owned	~~Silicones~~Performance Additives
Strongsville, OH (2)	Owned	Quartz
Texas City, TX	Owned	Performance Additives
Willoughby, OH	Owned	Quartz
Strongsville, OH (2)	Owned	Quartz Technologies
Richmond Heights, OH	Owned	Quartz
Willoughby, OH	Owned	Quartz Technologies
Newark, OH	Owned	Quartz
Richmond Heights, OH (2)	Owned	Quartz Technologies
Newark, OH	Owned	Quartz Technologies
Europe:
Leverkusen, Germany (2)	Leased	Performance Additives, Formulated and Basic Silicones
Bergen op Zoom, Netherlands	Leased	Formulated and Basic Silicones
Lostock, United Kingdom	Leased	Formulated and Basic Silicones
Termoli, Italy	Owned	~~Silicones~~Performance Additives
Antwerp, Belgium	Leased	~~Silicones~~Performance Additives
Geesthacht, Germany	Owned	Quartz Technologies
Asia Pacific:
Nantong, China	Leased	Performance Additives, Formulated and Basic Silicones
Ohta, Japan (2)	Owned	Performance Additives, Formulated and Basic Silicones
Rayong, Thailand	Leased	Formulated and Basic Silicones
Bangalore, India (1)	Leased	Performance Additives, Formulated and Basic Silicones
Chennai, India	Owned	~~Silicones~~Performance Additives
Shanghai, China (1)	Leased	Silicones, Quartz
Singapore, Singapore (1)	Leased	Silicones
Kobe, Japan	Leased	Quartz
Kozuki, Japan	Owned	Quartz
Wuxi, China	Leased	Quartz

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Location	Real Property Interest	Business in Which Property is Used
Shanghai, China ⁽¹⁾	Leased	Performance Additives, Formulated and Basic Silicones, Quartz Technologies
Seoul, Korea ⁽³⁾	Leased	Performance Additives, Formulated and Basic Silicones
Kobe, Japan ⁽²⁾	Leased	Quartz Technologies
Kozuki, Japan	Owned	Quartz Technologies
Wuxi, China	Leased	Quartz Technologies


(1)	Technology research center.


(2)	Manufacturing facility and technology research center.

(3) 23Sales and technology research center.

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ITEM 3. LEGAL PROCEEDINGS

Various claims, lawsuits and administrative proceedings are pending or threatened against us and/or our subsidiaries, arising from the ordinary course of business with respect to commercial, product liability, employee, environmental and toxic exposure matters. Historically, we have not faced any litigation matters or series of litigation matters that have had a material adverse impact on our business. In addition, we do not believe that there is any pending or threatened litigation, either individually or in the aggregate, that is likely to have a material adverse effect on our business. We cannot predict with certainty the outcome of any litigation or the potential for future litigation and any such matters, if they occur, could materially adversely affect our business and operations.

Appeals Relating to the Confirmation of the Plan in the Bankruptcy Cases

In connection with the ~~Bankruptcy~~bankruptcy ~~Cases~~cases, ~~three~~the following appeals were filed relating to the confirmation of the Plan. Specifically, on September 15, 2014, U.S. Bank National Association (“U.S. Bank”) as trustee for the Subordinated Notes filed its appeal (the “U.S. Bank Appeal”) before the U.S. District Court for the Southern District of New York (the “District Court”) seeking a reversal of the Court’s determination that the Debtors’ Plan properly denied recovery to holders of the Subordinated Notes on the basis that those debt securities are contractually subordinated to the Old Second Lien Notes. In addition, on September 16, 2014, BOKF, NA, as trustee for the Old First Lien Notes (“First Lien Indenture Trustee”) and Wilmington Trust, National Association, as trustee for the Old Secured Notes (together with U.S. Bank and First Lien Trustee, the “Appellants”) filed their joint appeal (together with the U.S. Bank Appeal, the “District Court Appeals”) before the District Court seeking reversal of the Bankruptcy Court’s determinations that (i) the Debtors were not required to compensate holders of the Old First Lien Notes and Old Secured Notes for any prepayment premiums and (ii) the interest rates on First Lien Notes and Second Lien Notes provided to holders of the Old First Lien Notes and Old Secured Notes under the Plan was proper and in accordance with United States Bankruptcy Code. On November 11, 2014, the Debtors also filed a motion to dismiss the District Court Appeals (the “District Court Motion to Dismiss”) with the District Court asserting, inter alia, that granting the relief requested by the Appellants would be inequitable under the legal doctrine of equitable mootness. On May 5, 2015, the District Court dismissed the District Court Appeals (the “District Court Decision”) and affirmed the Bankruptcy Court Rulings. Because the District Court Appeals were decided on their merits, the District Court also terminated the District Court Motion to Dismiss as moot. All the Appellants appealed the District Court Decision to the United States Court of Appeals for the Second Circuit (the “Second Circuit”, and the appeals, the “Second Circuit Appeals”). On September 3, 2015, the Debtors filed motions to dismiss the Second Circuit Appeals (the “Second Circuit Motions to Dismiss”) with the Second Circuit asserting, inter alia, that granting the relief requested by the Appellants would be inequitable under the legal doctrine of equitable mootness. On December 16, 2015, the Second Circuit denied the Second Circuit Motions to Dismiss but permitted the Debtors to raise issues of equitable mootness in their briefs on the merits of the Second Circuit Appeals. The merits briefing of the Second Circuit Appeals is has been completed, and oral argument on the Second Circuit Appeals was held on November 9, 2016. The Second Circuit has not yet issued a decision with respect to the Second Circuit Appeals. We cannot predict with certainty the ultimate outcome of the Second Circuit Appeals.

Make-Whole. In 2014, the Appellants jointly appealed to the District Court seeking reversal of the Make-Whole Determination.

Interest rate. The Appellants also appealed to the District Court seeking reversal of Interest Rate Determination.

In May 2015, the District Court dismissed both of Appellants’ appeals and affirmed the Bankruptcy Court’s rulings. The Appellants appealed the District Court’s decision to dismiss to the United States Court of Appeals for the Second Circuit (the “Second Circuit”). On October 20, 2017, Second Circuit affirmed the Make-Whole Determination. In November 2017, the Appellants requested a rehearing en banc by the Second Circuit with respect to the Make-Whole Determination (the “En Banc Request”). On December 11, 2017, the Second Circuit issued an order denying the En Banc Request and upheld the Company’s position that no make-whole payments were due. On October 20, 2017, the Second Circuit reversed the Interest Rate Determination and remanded the issue to the Bankruptcy Court for further proceedings (the “Remand”). The Second Circuit held that, on remand, the Bankruptcy Court should assess whether an efficient market rate can be ascertained, and, if so, apply it to the First Lien Notes and Second Lien Notes. On December 22, 2017, the Second Circuit issued its mandate remanding the Interest Rate Determination to the Bankruptcy Court. No further proceedings have yet been held in the Bankruptcy Court regarding the Interest Rate Determination.

Environmental Matters

~~Our~~We and our operations are subject to extensive environmental, health and safety regulation at the federal, state, local and international level and our production facilities require operating permits that are subject to renewal or modification. Our operations also involve the use, handling, processing, storage, transportation and disposal of hazardous materials, and we may be exposed to the risk of claims for environmental remediation or restoration.

We have adopted and implemented environmental health, ~~safety~~ and ~~environmental~~safety policies, which include systems and procedures governing ~~environmental~~ emissions to air, water and other media, waste generation, process safety management, handling, storage and disposal of hazardous substances, worker health and safety requirements, emergency planning and response, and product stewardship. In order to comply with environmental, health and safety laws and regulations, ~~and~~including ~~maintenance~~obtaining ofand maintaining permits, we have incurred and will continue to incur costs, including capital expenditures for projects related to environmental, health and safety improvements. In addition, pursuant to applicable hazardous waste regulations, we are required to provide financial assurances for contingent future costs associated with certain hazardous waste management and remedial activities. WePursuant ~~have~~to ~~obtained~~financial ~~$43~~assurance inrequirements ~~letters~~set offorth ~~credit~~in ~~for~~state ~~financial~~hazardous ~~assurance~~waste ~~required~~permit ~~under~~regulations applicable ~~hazardous~~to ~~waste~~our ~~regulations~~manufacturing facilities in Waterford, ~~including~~New York and Sistersville, West Virginia, we have provided letters of credit in the following amounts: approximately $3344 for closure and ~~postclosure~~post-closure care and accidental occurrences at the Waterford, NY and ~~Sisterville,~~the WVSistersville facilities. A renewal of our Waterford facility’s hazardous waste permit was issued by the NYSDEC, ~~and~~which required us to provide approximately $1027 ~~(annual~~in ~~aggregate)~~financial assurances for ~~accidental~~our ~~occurrences~~Waterford atfacility. ~~those~~The ~~facilities~~renewal permit also requires a re-evaluation of the financial assurance amount within the next three years. One or more of our ~~U.S.~~ facilities may also in the future be subject to additional financial assurance requirements imposed by governmental authorities, including the USEPA. In this regard, in January 2017, the USEPA ~~has~~ identified chemical manufacturing, among others, as an industry for which it plans to develop, as necessary, proposed regulations identifying appropriate financial assurance requirements pursuant to §108(b) of CERCLA.

We are currently conducting investigations and/or cleanup of known or potential contamination at several of our facilities~~, and have been named as a potentially responsible party at several third party Superfund sites~~. In connection with our creation on December 3, 2006, through the acquisition of certain assets, liabilities and subsidiaries of GE that comprised GE Advanced Materials, an operating unit within the Industrial Segment of GE, by Momentive Performance Materials Holdings Inc. (the parent company of MPM prior to its emergence from Chapter 11 bankruptcy) and its subsidiaries (the “GE Advanced Materials Acquisition”), GE has agreed to indemnify us for liabilities associated with contamination at former properties and ~~for liabilities associated~~ with third-party waste disposal sites. GE has also agreed that if we suffer any losses that are the subject of an indemnification obligation under a third party contract with respect to which GE is an indemnitee, GE will pursue such indemnification on our behalf and provide us with any benefits received.

~~While~~ we do not anticipate material costs in excess of current reserves and/or available indemnification relating to known or potential environmental contamination, the discovery of additional contamination, or the imposition of more stringent cleanup requirements, could require us to make significant expenditures in excess of such reserves and/or indemnification.27

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While we do not anticipate material costs in excess of current reserves and/or available indemnification relating to known or potential environmental contamination, the discovery of additional contamination or the imposition of more stringent cleanup requirements, could require us to make significant expenditures in excess of such reserves and/or indemnification.

We have been named as a defendant in a series of multi-defendant lawsuits based on our alleged involvement in the supply of allegedly hazardous materials. The plaintiffs seek damages for alleged personal injury resulting from exposure to various chemicals. These claims have not resulted in material judgments or settlements historically and we do not anticipate that these claims present any material risk to our business in the future. In addition, we have been indemnified by GE for any liability arising from any such claims existing prior to the consummation of the GE Advanced Materials Acquisition. However, we cannot predict with certainty the outcome of any such claims or the involvement we might have in such matters in the future.

In 2008, we became aware and disclosed to the NYSDEC that, in certain instances, our Waterford, NYNew York, facility may have failed to comply with ~~the~~state ~~State~~ and federal regulatory requirements governing the treatment of hazardous waste. During 2008, the NYSDEC initiated an investigation into these disclosures and issued a notice of violation alleging certain noncompliances. Subsequently, in the second quarter 2009, the USEPA and the U.S. Department of Justice sought, through search warrant and subpoena, additional information related to the alleged noncompliances. WeIn ~~are~~May ~~cooperating~~of ~~fully~~2017, ~~with~~we ~~the~~entered ~~State~~into ~~and~~a ~~federal~~settlement ~~authorities.~~with ~~State~~the ~~and~~NYSDEC, ~~federal~~the ~~authorities~~USEPA ~~have~~and the ~~statutory~~U.S. ~~authority~~Department toof ~~seek~~Justice ~~civil~~with ~~and~~respect ~~criminal~~to ~~sanctions,~~such ~~including~~matters ~~but~~under ~~not~~which ~~limited~~we topaid ~~monetary~~approximately ~~penalties, for any noncompliances identified~~$1.

We are currently cooperating with the NYSDEC in its investigation of the Waterford, New York facility’s compliance with certain applicable environmental requirements as identified in an administrative complaint filed by the NYSDEC in May 2017. Although we currently believe that the costs and potential penalties associated with the investigation will not have a material adverse impact on our business, resolution of such enforcement action will likely require payment of a monetary penalty and/or the imposition of other civil sanctions.

ITEM 4. MINE SAFETY DISCLOSURES

This item is not applicable to the registrant.

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PART II

(dollars in millions, except per share data, or as otherwise noted)

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

On March 4, 2016, Momentive’s common stock began trading on the OTCQX market, operated by OTC Markets Group Inc.

As of February 15, ~~2017~~2018, there were 3725 stockholders of record of our common stock, one of which was Cede & Co., a nominee for The Depository Trust Company. All of our common stock held by brokerage firms, banks and other financial institutions as nominees for beneficial owners are considered to be held of record by Cede & Co., who is considered to be one stockholder of record. A greater number of holders of our common stock are “street name” or beneficial holders, whose shares of common stock are held of record by banks, brokers and other financial institutions. Because such shares of common stock are held on behalf of stockholders, and not by the stockholders directly, and because a stockholder can have multiple positions with different brokerage firms, banks and other financial institutions, we are unable to determine the total number of stockholders we have. MPM’s direct parent, MPM Intermediate Holdings Inc., is MPM’s sole stockholder.

The following ~~table~~tables ~~sets~~set forth for the periods indicated, the range of high and low ~~closing~~ bid prices for our common stock:

Year 2016	High	Low
Year 2017	High	Low
First quarter (from March 4, 2016)	$9.00	$6.70
First quarter	$10.12	$8.00
Second quarter	$914.5090	$79.0025
Third quarter	$1316.0035	$913.5075
Fourth quarter	$1022.6070	$715.6505



Year 2016	High	Low
First quarter (from March 4, 2016)	$9.00	$6.00
Second quarter	$9.50	$7.00
Third quarter	$13.00	$9.50
Fourth quarter	$10.60	$7.20

Momentive has not paid any dividends since Momentive’s incorporation in 2014. MPM has not declared or paid any dividends since our emergence from bankruptcy in October 2014. For the foreseeable future, we intend to retain any earnings to finance our business and we do not anticipate paying any cash dividends on our common stock. Any future determination to pay dividends will be at the discretion of our board of directors in accordance with applicable law and will be dependent upon then-existing conditions, including our financial condition and results of operations, capital requirements, contractual restrictions, business prospects and other factors that our board of directors considers relevant. Our ABL Facility and the indentures that govern our notes impose restrictions on our ability to pay dividends. Therefore, our ability to pay dividends on our common stock will depend on, among other things, certain financial tests and whether we are in default under any of our debt instruments. Our future dividend policy will also depend on the requirements of any future financing agreements to which we may be a party and other factors that our board of directors considers relevant. Any decision to declare and pay dividends in the future will be made at the discretion of our board of directors and will depend on, among other things, our results of operations, cash requirements, financial condition, business opportunities, provision of applicable law and other factors that our board of directors may consider relevant. For a discussion of our cash resources and liquidity needs, see Item 7 of Part II of this Annual Report on Form 10-K.

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ITEM 6. SELECTED FINANCIAL DATA

The following table presents Momentive’s and MPM’s summary historical financial information as of and for the periods presented. Prior to the Emergence Date, Momentive had not conducted any business operations. Accordingly, unless otherwise noted or suggested by context, all financial information and data and accompanying financial statements and corresponding notes, as of and prior to the Emergence Date, as contained herein, reflect the actual historical consolidated results of operations and financial condition of MPM for the periods presented and do not give effect to the Plan of Reorganization or any of the transactions contemplated thereby or the adoption of “fresh-start” accounting.

Upon emergence from bankruptcy on the Effective Date, we adopted fresh start accounting, which resulted in the creation of a new entity for financial reporting purposes. As a result of the application of fresh start accounting, as well as the effects of the implementation of the Plan, the consolidated financial statements on or after October 24, 2014 are not comparable with the consolidated financial statements prior to that date. ~~Refer to Note 2 to the Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for more information.~~

The consolidated statement of operations data for the years ended December 31, ~~2016~~2017, December 31, 2016, December 31, 2015, successor period from October 25, 2014 through December 31, 2014, the predecessor period from January 1, 2014 through October 24, 2014 and the ~~years~~year ended December 31, 2013 and ~~2012 and~~ the consolidated balance sheet data as of December 31, 2017, 2016, 2015, 2014, ~~2013~~ and ~~2012~~2013 have been derived from our audited consolidated financial statements.

You should read the following selected historical financial data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors” and our consolidated financial statements and related notes and other financial information included elsewhere in this Annual Report on Form 10-K.

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	MPM HOLDINGS INC.
	Successor											~~Predecessor~~			Predecessor
	Year Ended December 31, 2016				Year Ended December 31, 2015			Period from October 25, 2014 through December 31, 2014				Period from January 1, 2014 through October 24, 2014			Year Ended December 31, 2013			Year Ended December 31, 2012
	Year Ended December 31, 2017				Year Ended December 31, 2016			Year Ended December 31, 2015			Period from October 25, 2014 through December 31, 2014				Period from January 1, 2014 through October 24, 2014			Year Ended December 31, 2013
(In millions, except per share data)
Statement of Operations Data:
Net sales	$	2,~~233~~331			$	2,~~289~~233		$	~~465~~2,289		$	$465	~~2,011~~		$	2,~~398~~011		$	2,~~357~~398
Cost of sales	1,~~845~~831				1,~~894~~845			~~402~~1,894			402
Gross profit	~~388~~500				~~395~~388			63395			63
Cost of sales, excluding depreciation and amortization												~~1,439~~			1,~~732~~439			1,~~705~~732
Selling, general and administrative expense	~~347~~333				~~285~~347			80285			80	~~434~~			~~373~~434			~~392~~373
Depreciation and amortization expense												~~147~~			~~171~~147			~~187~~171
Research and development expense	64				6564			1365			13	63			7063			6970
Restructuring and other costs	42				32			5				20			21			43
Restructuring and discrete costs	6				42			32			5				20			21
Other operating loss (income), net	199				219			(12		)	(1	—	)		—			—
Operating income (loss)	~~(84~~88		)		11(84		)	~~(34~~11		)	(34	~~(92~~	)	)	31(92		)	~~(39~~31		)
Interest expense, net	7680				7976			1579			15	~~162~~			~~394~~162			~~277~~394
Other non-operating expense (income), net	(7		)		3			8				—			—			(11		)
Non-operating expense (income), net	(8		)		(7		)	3			8				—			—
(Gain) loss on extinguishment and exchange of debt	(9		)		(7		)	—				—			—			57
Gain on extinguishment and exchange of debt	—				(9		)	(7		)	—				—			—
Reorganization items, net	21				82			38			3	~~(1,972~~		)	—(1,972		)	—
(Loss) income before income tax and earnings (losses) from unconsolidated entities	(146		)		(72		)	(60		)		1,718			(363		)	(362		)
(Loss) income before income tax and earnings from unconsolidated entities	15				(146		)	(72		)	(60		)		1,718			(363		)
Income tax expense	1815				1318			—13			—	36			~~104~~36			8104
(Loss) income before earnings (losses) from unconsolidated entities	(164		)		(85		)	(60		)		1,682			(467		)	(370		)
(Loss) income before earnings from unconsolidated entities	—				(164		)	(85		)	(60		)		1,682			(467		)
Earnings (losses) from unconsolidated entities, net of taxes	1				2			—				3			3			5
Earnings from unconsolidated entities, net of taxes	—				1			2			—				3			3
Net (loss) income	~~(163~~$	—	)		$	(83163	)	(6083		)	(60	~~1,685~~	)		~~(464~~1,685		)	(~~365~~464		)
(Loss) earnings per share, basic and diluted	$	~~(3.39~~—	)		$	(13.7339	)	$	(1.2573	)	$	$(1.25	~~16,850,000~~)		$	(416,~~640~~850,000	)	$	(34,~~650~~640,000	)
Dividends declared per common share	$	—			$	—		$	—		$	$—	—		$	~~4,600~~—		$	34,~~185~~600
Cash Flow provided by (used in):
Operating activities	$	~~142~~113			$	~~128~~142		$	(3128	)	$	$(3	~~(207~~)	)	$	(~~150~~207	)	$	(95150	)
Investing activities	(~~117~~168		)		(~~116~~117		)	(17116		)	(17	~~(18~~	)	)	(8818		)	(~~102~~88		)
Financing activities	(161		)		(1016		)	(110		)	(1	~~390~~	)		~~220~~390			~~111~~220
Balance Sheet Data (at end of period):
Cash and cash equivalents	$	~~228~~174			$	~~221~~228		$	~~228~~221		$	228			$	94		$	~~110~~94
Working capital (1)	~~432~~482			470	~~450~~432			~~611~~450			611				~~(2,884~~		)	~~290~~(2,884		)
Total assets	2,~~606~~717				2,~~663~~606			2,~~884~~663			2,884				~~2,694~~			2,~~904~~694
Total long term debt	1,~~167~~192				1,~~169~~167			1,~~163~~169			1,163				7			~~3,081~~7
Total net debt (2)	~~975~~1,054				~~984~~975			~~973~~984			973				~~3,163~~			3,~~006~~163
Total liabilities	2,~~124~~173				2,~~037~~124			2,~~115~~037			2,115				~~4,174~~			4,~~052~~174
Total equity (deficit)	~~482~~544				~~626~~482			~~769~~626			769				~~(1,480~~		)	(1,~~148~~480		)

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	MOMENTIVE PERFORMANCE MATERIALS INC.
	Successor										~~Predecessor~~			Predecessor
	Year Ended December 31, 2016			Year Ended December 31, 2015			Period from October 25, 2014 through December 31, 2014				Period from January 1, 2014 through October 24, 2014			Year Ended December 31, 2013			Year Ended December 31, 2012
	Year Ended December 31, 2017			Year Ended December 31, 2016			Year Ended December 31, 2015			Period from October 25, 2014 through December 31, 2014				Period from January 1, 2014 through October 24, 2014			Year Ended December 31, 2013
(In millions, except per share data)
Statement of Operations Data:
Net sales	$	2,~~233~~331		$	2,~~289~~233		$	~~465~~2,289		$	$465	~~2,011~~		$	2,~~398~~011		$	2,~~357~~398
Cost of sales	1,~~845~~831			1,~~894~~845			~~402~~1,894			402
Gross profit	~~388~~500			~~395~~388			63395			63
Cost of sales, excluding depreciation and amortization											~~1,439~~			1,~~732~~439			1,~~705~~732
Selling, general and administrative expense	~~345~~332			~~284~~345			80284			80	~~434~~			~~373~~434			~~392~~373
Depreciation and amortization expense											~~147~~			~~171~~147			~~187~~171
Research and development expense	64			6564			1365			13	63			7063			6970
Restructuring and other costs	42			32			5				20			21			43
Restructuring and discrete costs	6			42			32			5				20			21
Other operating loss (income), net	199			219			(12		)	(1	—	)		—			—
Operating income (loss)	~~(82~~89		)	12(82		)	~~(34~~12		)	(34	~~(92~~	)	)	31(92		)	~~(39~~31		)
Interest expense, net	7680			7976			1579			15	~~162~~			~~394~~162			~~277~~394
Other non-operating expense (income), net	(7		)	3			8				—			—			(11		)
Non-operating expense (income), net	(8		)	(7		)	3			8				—			—
(Gain) loss on extinguishment and exchange of debt	(9		)	(7		)	—				—			—			57
Gain on extinguishment and exchange of debt	—			(9		)	(7		)	—				—			—
Reorganization items, net	21			82			38			3	~~(1,972~~		)	—(1,972		)	—
(Loss) income before income tax and earnings (losses) from unconsolidated entities	(144		)	(71		)	(60		)		1,718			(363		)	(362		)
(Loss) income before income tax and earnings from unconsolidated entities	16			(144		)	(71		)	(60		)		1,718			(363		)
Income tax expense	1815			1318			—13			—	36			~~104~~36			8104
(Loss) income before earnings (losses) from unconsolidated entities	(162		)	(84		)	(60		)		1,682			(467		)	(370		)
(Loss) income before earnings from unconsolidated entities	1			(162		)	(84		)	(60		)		1,682			(467		)
Earnings (losses) from unconsolidated entities, net of taxes	1			2			—				3			3			5
Earnings from unconsolidated entities, net of taxes	—			1			2			—				3			3
Net (loss) income	~~(161~~$	1	)	~~(82~~$	(161	)	~~(60~~$	(82	)	(60	~~1,685~~	)		~~(464~~1,685		)	(~~365~~464		)
Dividends declared per common share	$	—		$	—		$	—		$	$—	—		$	~~4,600~~—		$	34,~~185~~600
Cash Flow provided by (used in):
Operating activities	$	~~144~~115		$	~~129~~144		$	(3129	)	$	$(3	~~(207~~)	)	$	(~~150~~207	)	$	(95150	)
Investing activities	(~~118~~169		)	(~~116~~118		)	(17116		)	(17	~~(18~~	)	)	(8818		)	(~~102~~88		)
Financing activities	(172		)	(1117		)	(111		)	(1	~~390~~	)		~~220~~390			~~111~~220
Balance Sheet Data (at end of period):
Cash and cash equivalents	$	~~228~~174		$	~~221~~228		$	~~228~~221		$	228			$	94		$	~~110~~94
Working capital (1)	~~432~~482			~~450~~432			~~611~~450			611				~~(2,884~~		)	~~290~~(2,884		)
Total assets	2,~~606~~717			2,~~663~~606			2,~~884~~663			2,884				~~2,694~~			2,~~904~~694
Total long term debt	1,~~167~~192			1,~~169~~167			1,~~163~~169			1,163				7			~~3,081~~7
Total net debt (2)	~~975~~1,054			~~984~~975			~~973~~984			973				~~3,163~~			3,~~006~~163
Total liabilities	2,~~122~~172			2,~~037~~122			2,~~115~~037			2,115				~~4,174~~			4,~~052~~174
Total equity (deficit)	~~484~~545			~~626~~484			~~769~~626			769				~~(1,480~~		)	(1,~~148~~480		)


(1)	Working capital is defined as accounts receivable plus inventories less accounts payable.


(2)	Net debt is defined as long-term debt plus debt payable within one year less cash and cash equivalents including unamortized debt discounts. A summary of the components of our net debt is as follows:

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	Year Ended December 31, 2016			Year Ended December 31, 2015			Period from October 25, 2014 through December 31, 2014				Period from January 1, 2014 through October 24, 2014		Year Ended December 31, 2013			Year Ended December 31, 2012
	Year Ended December 31, 2017			Year Ended December 31, 2016			Year Ended December 31, 2015			Period from October 25, 2014 through December 31, 2014					Period from January 1, 2014 through October 24, 2014	Year Ended December 31, 2013
Long-term debt (including unamortized debt discounts)	$	1,~~167~~192		$	1,~~169~~167		$	1,~~163~~169		$	1,163		$	7		$	~~3,081~~7
Debt payable within one year	36			36			3836			38			~~3,250~~			353,250
Cash and cash equivalents	(~~228~~174		)	(~~221~~228		)	(~~228~~221		)	(228		)	~~(94~~		)	(~~110~~94		)
Net debt	~~975~~1,054			~~984~~975			~~973~~984			973			~~3,163~~			3,~~006~~163

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (dollar amounts in millions)

You should read the following discussion and analysis of our results of operations and financial condition for the years ended December 31, ~~2016~~2017, ~~and~~ December 31, ~~2015,~~2016 ~~successor~~and ~~period from October 25, 2014 through~~ December 31, ~~2014~~2015 and ~~the predecessor period from January 1, 2014 through October 24, 2014~~ with the audited consolidated financial statements and related notes included elsewhere herein. The following discussion and analysis contains forward-looking statements that reflect our plans, estimates and beliefs, and which involve numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in Item 1A, “Risk Factors.” Actual results may differ materially from those contained in any forward-looking statements. See “Forward-Looking and Cautionary Statements.”

Overview and Outlook

MPM Holdings Inc. (“Momentive”) and Momentive Performance Materials Inc. (“MPM”), both Delaware corporations, together with their subsidiaries (collectively referred to herein as “we,” “us,” “our,” or the “Company”), are one of the world’s largest producers of silicones, and silicone derivatives and ~~organofunctional 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~~automotive, industrial, healthcare, personal care, electronic, consumer and agricultural uses. Silicones ~~and silanes~~ are generally used as ~~additives~~an additive to or formulated product in a wide variety of, end products in order to provide or enhance certain of their attributes, such as resistance (~~heat~~temperature, 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~~their versatility and high-performance characteristics, of silicones ~~and silanes, they~~ are increasingly being used as a substitute for other materials. Our Quartz ~~business~~Technologies segment manufactures quartz, and 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 4,000 customers between our Performance Additives, Formulated and Basic Silicones, and Quartz Technologies businesses in over 100 countries. Our customers include leading companies in their respective industries.

Chapter 11 Bankruptcy and Emergence

On April 13, 2014, the Debtors filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code in the Court. The Chapter 11 proceedings were jointly administered under the caption In re MPM Silicones, LLC, et al., Case No. 14-22503. During the bankruptcy proceedings, we continued to operate our business 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 until MPM’s emergence from the Chapter 11 proceedings on October 24, 2014 (the “Effective Date”).

On September 11, 2014, the Court confirmed the Plan, and on the Effective Date the Plan became effective and MPM emerged from the Chapter 11 proceedings. Upon emergence, we reduced our total aggregate debt obligations from approximately $3.2 billion at December 31, 2013 to approximately $1.2 billion at December 31, 2014, and reduced our annual cash interest payments from nearly $300 to approximately $58. As of December 31, 2016, we had $2,606 of total assets, $2,122 of total liabilities, and $484 of total equity.

Reportable Segments

In the third quarter of 2017, we reorganized our segment structure and bifurcated our Silicones segment into Performance Additives and Formulated and Basic Silicones to better reflect our specialty chemical portfolio and related performance. This reorganization included a change in our reportable segments from two to four segments. Our ~~business~~operations were previously organized in two segments: Silicones and Quartz. Our reorganized segments are based on the products that we offer and the markets that we serve. At December 31, ~~2016~~2017, we had ~~two~~four reportable segments: ~~Silicones~~Performance Additives, Formulated and Basic Silicones, Quartz Technologies, and Corporate.

~~The~~Our ~~Company's~~Performance ~~organizational~~Additives ~~structure~~segment ~~continues~~is toone ~~evolve.~~of Wethe ~~are~~leading ~~also~~manufacturers ~~continuing~~of tospecialty ~~refine~~silanes, ~~our~~silicone ~~business~~fluids, and ~~operating~~urethane ~~structure~~additives. toOur ~~better~~liquid ~~align~~additives ~~our~~are ~~services~~key toingredients in our customers’ products and are used to improve ~~our~~or ~~cost~~enable ~~position~~the performance characteristics and processability of a variety of products across different end-markets including automotive, ~~while~~personal ~~continuing~~care, toagriculture, ~~invest~~consumer inand ~~global~~construction. ~~growth~~Our ~~opportunities~~silicone fluids, silanes, and urethane additives Performance Additives product lines are developed using a range of raw material inputs and generally use more limited siloxane than Formulated and Basic Silicone products.

~~2016~~Our ~~Overview~~Formulated and Basic Silicones segment produces sealants, electronic materials, coatings, elastomers, and basic silicone fluids focused on automotive, consumer goods, construction, electronics and healthcare end-markets. Our products enable key design features, such as extended product life, wear resistance, biocompatibility and weight reduction. Our electronic materials, coatings and sealants product lines are generally applied to our customers’ products, in the form of a high-tech coating or adhesive, while our elastomers product lines are fashioned into parts by extruding or molding them in items such as gaskets or tubing. Formulated silicones product offerings are typically used to seal, protect or adhere, and often perform multiple functions at once.

•Our ~~Net~~Quartz ~~Sales—Net~~Technologies ~~sales~~segment inis ~~2016~~a ~~were~~global ~~$2,233,~~leader ain ~~decrease~~the development and manufacturing of 2%fused ~~compared~~quartz ~~with~~and ~~$2,289~~non-oxide inbased ~~2015~~ceramic powders and shapes. ~~This~~Fused ~~decrease~~quartz ~~was~~products ~~primarily~~are ~~due~~manufactured tofrom ~~volume~~quartz ~~decrease~~sand ofand ~~$42~~are used in ~~line~~processes ~~with~~requiring ~~our~~extreme ~~intentional~~temperature ~~efforts~~and tohigh ~~reduce~~purity. ~~under~~Momentive’s high-~~performing~~purity ~~siloxane~~fused ~~derivative~~quartz ~~products,~~materials asare ~~well~~used asfor ~~negative~~a ~~price~~diverse ~~and~~range ~~mix~~of ~~shift~~applications ofin ~~$16~~which optical clarity, ~~caused~~design byflexibility ~~declines~~and durability in ~~oil~~extreme ~~and~~environments ~~gas~~are ~~markets~~critical, such as semiconductor, lighting, healthcare and aerospace. InOur ~~addition~~product line includes tubing, ~~there~~rods ~~were~~and ~~favorable~~other ~~exchange~~solid ~~rate~~shapes, ~~fluctuations~~as ofwell $2as ~~due~~fused toquartz ~~the~~crucibles ~~weakening~~for ofgrowing ~~the~~single Ucrystal silicon.S. ~~dollar~~Our ~~against~~Quartz ~~other~~Technologies ~~currencies~~segment’s products are the material solution for silicon chip semiconductor manufacturing.

•Our ~~Net~~organizational ~~Loss—Net~~structure ~~loss~~continues into ~~2016~~evolve. ~~was~~We ~~$163~~are ~~and~~also ~~$161~~continuing ~~for~~to ~~Momentive~~refine ~~and~~our ~~MPM,~~business ~~respectively, an increase of $80~~ and ~~$79,~~operating ~~respectively,~~structure ~~compared~~ to ~~$83~~better ~~and~~align ~~$82,~~our ~~respectively~~services ~~in 2015. This was due~~ to ~~lower~~our ~~sales,~~customers ~~higher selling, general~~ and ~~administrative~~improve ~~expense,~~our ~~higher~~cost ~~restructuring and other costs~~position, ~~and~~while ~~higher~~continuing ~~other~~to ~~operating~~invest ~~expense~~in ~~offset~~global bygrowth ~~lower cost of sales~~opportunities.

•2017 ~~Segment~~Overview EBITDA—Segment EBITDA in 2016 was $238 and $240 for Momentive and MPM, respectively, an increase of $44 and $45, respectively, compared to $194 and $195, respectively in 2015. This increase was primarily due to improved demand in automotive and electronics market, production efficiencies, and raw material deflation.

• ~~Recently~~Net ~~completed~~Sales—Net ~~initiatives~~sales ~~include:~~in 2017 were $2,331, an increase of 4% compared with $2,233 in 2016. The increase in net sales was driven by volume gains in our Performance Additives segment and the specialty portion of our Formulated and Basic Silicones product portfolio, partially offset by our strategic decision to deemphasize the sale of lower margin products. Volume gains were driven by increased demand in consumer, automotive, and electronics end markets.

▪• ~~The~~Net ~~expansion~~Income of(Loss)—Net ~~our~~income ~~Leverkusen,~~in ~~Germany~~2017 ~~facility~~was ~~serving~~$0 ~~liquid~~and ~~silicone~~$1 ~~rubber~~for ~~customers~~Momentive ~~throughout~~and ~~Europe~~MPM, inrespectively, ~~the~~an ~~automotive,~~increase ~~aerospace~~of $163 and $162, ~~energy~~respectively, ~~healthcare~~compared to net loss $163 and ~~consumer~~$161, ~~products~~respectively ~~industries~~in 2016. This was due to the increase in gross profit, the gain

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (dollar amounts in millions) (Continued)

recognition from an insurance claim, and costs due to a fire at our Leverkusen, Germany facility not recurring during 2017, partially offset by a gain on extinguishment of debt also not recurring during 2017.

•

Segment EBITDA—Segment EBITDA in 2017 was $293 and $294 for Momentive and MPM, respectively, an increase of $55 and $54, respectively, compared to $238 and $240, respectively in 2016. The increase in Segment EBITDA was driven by volume growth in the specialty portion of our Formulated and Basic Silicones product portfolio, operating leverage within the Quartz Technologies segment, and strategic capital investments.


•	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~~has ~~double~~been ~~our~~completed ~~current NXT* silane manufacturing capacity~~ and production is expected to beramp ~~completed~~up in ~~2017~~the second half of 2018.

~~2017~~2018 Outlook

As we look into ~~2017~~2018, we expect continued ~~growth~~strong in demand, insolid ~~our~~and ~~specialty~~improved ~~silicones~~industry ~~businesses~~fundamentals, ~~particularly~~and growth as wea ~~continue~~result ~~our~~of ~~investment~~the incapital ~~developing~~investments ~~new~~we ~~products~~have tomade ~~support~~in ~~future~~our ~~growth. We~~specialty ~~anticipate~~product ~~that~~portfolio ~~our~~over ~~first~~the ~~quarter~~last ~~volumes~~several ~~and~~years. We ~~revenues~~have ~~will~~implemented beprice ~~similar~~increases toacross ~~rates~~our weentire ~~experienced~~silicones inproduct ~~the~~portfolio ~~second~~which ~~half~~are ofexpected ~~2016~~to ~~and~~benefit weus ~~anticipate~~in ~~growth~~2018 inand ~~subsequent~~offset ~~quarters~~inflation ~~due~~we toare ~~improving~~experiencing ~~global~~for ~~economic~~certain ~~conditions~~raw materials. We are well positioned to leverage our leadership positions, optimize our portfolio, and invest in and drive new growth programs. Additionally, we expect ~~2017~~2018 sales ~~results~~to continue to reflect ~~our~~a ~~intentional~~mix ~~efforts~~improvement toas we reduce exposure to under-performing siloxane derivative products and grow our higher margin specialty ~~portions of our portfolio~~products.

~~Our~~We ~~business~~are iscontinuing ~~impacted~~to byleverage ~~general~~our ~~economic~~research and ~~industrial~~development ~~conditions,~~capabilities ~~including~~and ~~general~~invest ~~industrial~~in ~~production,~~high-growth ~~automotive~~product ~~builds,~~lines ~~housing~~and ~~starts~~geographical regions, ~~construction~~positioning ~~activity,~~the ~~consumer~~Company ~~spending~~for ~~and~~long-term ~~semiconductor~~success. We ~~capital~~are ~~equipment~~also ~~investment~~focused ~~and~~on ~~these~~gaining ~~factors~~productivity ~~could~~efficiencies ~~have~~and ~~negative~~improving ~~effects~~margins tothrough ~~our~~investments ~~profitability~~in ~~and~~improved ~~liquidity~~operational reliability. ~~Our~~We ~~business~~continue ~~has~~to ~~both~~evaluate ~~geographic~~additional ~~and~~actions, ~~end~~as ~~market~~well ~~diversity~~as ~~which~~productivity ~~often~~measures, ~~reduces~~that ~~the~~could ~~impact~~support offurther ~~any~~cost ~~one~~savings. Such ofactions ~~these~~could ~~factors~~include onadditional ~~our~~restructuring ~~overall~~and ~~performance~~incremental exit and disposal costs.

We ~~are~~have ~~continuing~~implemented toapproximately ~~invest~~$48 in ~~growth~~annual ~~opportunities~~structural incost ~~our~~reduction ~~higher-growth~~initiatives ~~product~~through ~~lines~~our ~~and~~previously ~~geographical~~announced ~~regions,~~global ~~and~~restructuring ~~will leverage the combination of our proprietary technologies~~program, ~~strategic~~which ~~investments~~has inbegun ~~key~~delivering ~~assets~~significant ~~and leading presence in high-growth end markets to benefit as the global economy recovers and for long-term success~~savings. WeCumulatively ~~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~~December 31, ~~as well as productivity measures~~2017, ~~that~~Momentive ~~could~~has ~~lead~~achieved toapproximately ~~further~~$45 ~~saving~~of ~~and~~savings ~~such~~under ~~actions~~this ~~could result in more significant restructuring, exit and disposal costs and asset impairments in the future~~program.

~~Pursuant~~We toremain ~~our~~focused ~~earlier~~on ~~announcements~~driving ~~during~~free ~~the~~cash ~~fourth~~flow, ~~quarter~~defined ~~of 2015 and~~ as ~~expanded~~cash inflows ~~March~~from ~~and~~operating ~~May~~activities ofless ~~2016~~capital expenditures, ~~approximately $35 in annual structural cost reduction initiatives through our global restructuring program have been implemented~~ and ~~have~~optimizing ~~begun~~net ~~delivering~~working ~~savings~~capital, ofas ~~which~~described ~~approximately $29 were delivered~~ in ~~2016. At~~ the ~~same~~Liquidity ~~time,~~and weCapital ~~initiated~~Resources ~~strategic~~section ~~actions to address our global siloxane manufacturing capacity including transformation of our Leverkusen~~below, ~~Germany facility by rationalizing siloxane capacity and making further investments~~ in ~~specialty~~fiscal ~~assets~~year ~~through the NXT* silanes expansion, which is on track~~2018. In ~~the fourth quarter of 2016, we completed the siloxane rationalization at our Leverkusen, Germany facility and it will reduce operating costs by approximately $10 per year.~~

*NXT is a trademark of Momentive Performance Materials Inc.

Shared Services Agreement

In October 2010, we entered into a shared services agreement with Hexion (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, legal and procurement services. The Shared Services Agreement was renewed for one year starting in October 2016 and is subject to termination by either us or Hexion, without cause, on not less than 30 days’ written notice, and expires in October 2017 (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.

The Shared Services Agreement has resulted in significant synergies for us, including shared services and logistics optimization, procurement savings, regional site rationalization and administrative and overhead savings. 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 the Plan upon MPM’s emergence from Chapter 11 on October 24, 2014 (the “Effective Date”). As a result of the application of fresh start accounting, 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.

Table of Contents

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. 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 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.

Raw Materials

In ~~2016~~2017, we purchased approximately $~~846~~1.1 billion of raw materials. The largest raw material used in our ~~Silicones~~ business is silicon metal. The cost of silicon metal comprised approximately 219% of our total raw material costs in ~~our Silicones' manufacturing processes in 2016~~2017. Heading ~~Raw~~into ~~materials~~2018, ~~continue~~the toenvironment ~~trend favorably~~ for uscertain ~~and~~raw ~~for~~materials ~~silicon~~is ~~metal~~inflationary. However, ~~industry and we have continually worked~~ to ~~review~~limit ~~our~~and ~~existing~~minimize ~~global~~exposure ~~supply agreements~~ to ~~seek~~inflation, ~~more favorable terms and~~ we ~~expect~~contracted todirectly ~~significantly~~or ~~benefit~~indirectly ~~year~~for onmuch ~~year~~of ~~from~~our ~~improved~~key raw material ~~pricing in 2017~~purchases.

~~The~~Naturally ~~largest~~occurring quartz sand is the key raw material ~~used~~for inmany ~~our~~of ~~Quartz~~the ~~business~~products ismanufactured aby ~~specific~~our ~~type~~Quartz ofTechnologies ~~sand~~business, which is currently available from a limited number of suppliers. While ~~Because~~we ~~Unimin~~also ~~controls~~use ~~a significant amount of the~~ quartz sand ~~market,~~from itseveral ~~exercises~~global ~~significant control over quartz~~ sand ~~prices~~suppliers, ~~which~~one ~~have~~of ~~been~~our ~~steadily increasing. In April 2015~~suppliers, ~~we entered into~~ a ~~purchase~~major ~~agreement~~producer ~~with~~of ~~Unimin,~~natural ~~which~~quartz ~~expired on December 31~~sand, ~~2016.~~controls Wea ~~are~~significant ~~currently~~portion ~~negotiating~~of the ~~terms~~market offor athis ~~new~~sand. In ~~long~~December ~~term supply agreement with Unimin~~2017, ~~and~~we ~~expect~~entered ~~to enter~~ into ana ~~agreement~~purchase ~~within the first half of 2017. Since the expiration of our~~ agreement with ~~Unimin~~this supplier, ~~purchases~~which ~~from~~expires ~~Unimin~~on ~~have~~December ~~been~~31, ~~handled through purchase orders without disruption of supply to our Quartz business and we expect that process to continue if we are unable to enter into a new agreement~~2021.

We expect long-term raw material cost fluctuations to continue because of price movements of key feedstocks. To help mitigate the fluctuations in raw material pricing, we have purchase and sale contracts and commercial arrangements with many of our vendors and customers that contain periodic price adjustment mechanisms. Due to differences in the timing of pricing mechanism trigger points between our sales and purchase contracts, there is often a “lead-lag” impact. In many cases this “lead-lag” impact can negatively impact our margins in the short term in periods of rising raw material prices and positively impact them in the short term in periods of falling raw material prices.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (dollar amounts in millions) (Continued)

Results of Operations

CONSOLIDATED STATEMENTS OF OPERATIONS

	MPM HOLDINGS INC.
	Successor									Predecessor
	Year Ended December 31,
	Year Ended December 31, 2016			Year Ended December 31, 2015			Period from October 25, 2014 through December 31, 2014			Period from January 1, 2014 through October 24, 2014
(In millions)	2017			2016			2015
(In millions)
Net sales	$	2,331		$	2,233		$	2,289
Net sales	$	2,233		$	2,289		$	465		$	2,011
Cost of sales	1,831			1,845			1,894
Cost of sales	1,845			1,894			402
Gross profit	500			388			395
Gross profit	388			395			63
Selling, general and administrative expense	333			347			285
Cost of sales, excluding depreciation and amortization										1,439
Research and development expense	64			64			65
Selling, general and administrative expense	347			285			80			434
Restructuring and discrete costs	6			42			32
Depreciation and amortization expense										147
Other operating loss (income), net	9			19			2
Research and development expense	64			65			13			63
Operating income (loss)	88			(84		)	11
Restructuring and other costs	42			32			5			20
Operating (loss) income as a percentage of net sales	4		%	(4		)%	—		%
Other operating loss (income), net	19			2			(1		)	—
Interest expense, net	80			76			79
Operating (loss) income	(84		)	11			(34		)	(92		)
Non-operating expense, net	(8		)	(7		)	3
Operating (loss) income as a percentage of net sales	(4		)%	—		%	(7		)%	(5		)%
Gain on extinguishment of debt	—			(9		)	(7		)
Interest expense, net	76			79			15			162
Reorganization items, net	1			2			8
Other non-operating expense, net	(7		)	3			8			—
Total non-operating expense	73			62			83
Gain on extinguishment of debt	(9		)	(7		)	—			—
(Loss) income before income taxes and earnings from unconsolidated entities	15			(146		)	(72		)
Reorganization items, net	2			8			3			(1,972		)
Income tax expense	15			18			13
Total non-operating expense (income)	62			83			26			(1,810		)
(Loss) income before earnings from unconsolidated entities	—			(164		)	(85		)
(Loss) income before income taxes and earnings from unconsolidated entities	(146		)	(72		)	(60		)	1,718
Earnings from unconsolidated entities, net of taxes	—			1			2
Income tax expense	18			13			—			36
Net (loss) income	$	—		$	(163	)	$	(83	)
(Loss) income before earnings from unconsolidated entities	(164		)	(85		)	(60		)	1,682
Other comprehensive income (loss)	$	58		$	16		$	(64	)
Earnings from unconsolidated entities, net of taxes	1			2			—			3
Net (loss) income	$	(163	)	$	(83	)	$	(60	)	$	1,685
Other comprehensive income (loss)	$	16		$	(64	)	$	(28	)	$	(202	)

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	MOMENTIVE PERFORMANCE MATERIALS INC.
	Successor									Predecessor
(In millions)	Year Ended December 31, 2016			Year Ended December 31, 2015			Period from October 25, 2014 through December 31, 2014			Period from January 1, 2014 through October 24, 2014
Net sales	$	2,233		$	2,289		$	465		$	2,011
Cost of sales	1,845			1,894			402
Gross profit	388			395			63
Cost of sales, excluding depreciation and amortization										1,439
Selling, general and administrative expense	345			284			80			434
Depreciation and amortization expense										147
Research and development expense	64			65			13			63
Restructuring and other costs	42			32			5			20
Other operating loss (income), net	19			2			(1		)	—
Operating (loss) income	(82		)	12			(34		)	(92		)
Operating (loss) income as a percentage of net sales	(4		)%	1		%	(7		)%	(5		)%
Interest expense, net	76			79			15			162
Other non-operating expense, net	(7		)	3			8			—
Gain on extinguishment of debt	(9		)	(7		)	—			—
Reorganization items, net	2			8			3			(1,972		)
Total non-operating expense (income)	62			83			26			(1,810		)
(Loss) income before income taxes and earnings from unconsolidated entities	(144		)	(71		)	(60		)	1,718
Income tax expense	18			13			—			36
(Loss) income before earnings from unconsolidated entities	(162		)	(84		)	(60		)	1,682
Earnings from unconsolidated entities, net of taxes	1			2			—			3
Net (loss) income	$	(161	)	$	(82	)	$	(60	)	$	1,685
Other comprehensive income (loss)	$	16		$	(64	)	$	(28	)	$	(202	)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (dollar amounts in millions) (Continued)



	MOMENTIVE PERFORMANCE MATERIALS INC.
	Year Ended December 31,
(In millions)	2017			2016			2015
Net sales	$	2,331		$	2,233		$	2,289
Cost of sales	1,831			1,845			1,894
Gross profit	500			388			395
Selling, general and administrative expense	332			345			284
Research and development expense	64			64			65
Restructuring and discrete costs	6			42			32
Other operating loss (income), net	9			19			2
Operating income (loss)	89			(82		)	12
Operating (loss) income as a percentage of net sales	4		%	(4		)%	1		%
Interest expense, net	80			76			79
Non-operating expense, net	(8		)	(7		)	3
Gain on extinguishment of debt	—			(9		)	(7		)
Reorganization items, net	1			2			8
Total non-operating expense (income)	73			62			83
(Loss) income before income taxes and earnings from unconsolidated entities	16			(144		)	(71		)
Income tax expense	15			18			13
(Loss) income before earnings from unconsolidated entities	1			(162		)	(84		)
Earnings from unconsolidated entities, net of taxes	—			1			2
Net (loss) income	$	1		$	(161	)	$	(82	)
Other comprehensive income (loss)	$	58		$	16		$	(64	)

Net Sales

In ~~2016~~2017, net sales ~~decreased~~increased by $5698, or 24%, compared to ~~2015~~2016. This ~~decrease~~increase was primarily ~~due~~driven toby ~~volume~~our ~~decrease~~intentional ofshift ~~$42~~toward inhigher-margin ~~line~~products ~~with~~due ~~our intentional efforts~~ to ~~reduce~~increased ~~under-performing~~demand ~~siloxane~~in ~~derivative~~automotive, ~~products~~electronics, as ~~well~~and asconsumer ~~negative~~end ~~price~~markets ~~and~~versus ~~mix~~less ~~shift~~profitable ofcommodity ~~$16~~products, ~~caused~~resulting ~~by declines~~ in ~~oil~~a ~~and~~volume ~~gas~~increase ~~markets.~~of Inapproximately ~~addition~~$46, ~~there were~~ favorable ~~exchange~~price/mix ~~rate~~shift ~~fluctuations~~ of $246, ~~due~~and toexchange ~~the~~rate ~~weakening~~fluctuations of ~~the~~approximately U$6.~~S. dollar against other currencies.~~

In ~~2015~~2016, net sales decreased by $~~187~~56, or 82%, compared to ~~2014~~2015. This decrease was primarily due to ~~unfavorable~~volume ~~exchange~~decrease ~~rate fluctuations~~ of $~~156~~22 ~~due~~in toline ~~the~~with ~~strengthening~~our ofintentional ~~the~~efforts ~~U.S.~~to ~~dollar~~reduce ~~against~~under-performing ~~the~~siloxane ~~euro~~derivative ~~and Japanese yen during 2015 as compared to 2014~~products, as well as negative price and mix shift, ~~which~~of ~~negatively impacted net sales by~~ $4636, caused by ~~economic~~declines ~~downturns~~ in ~~China,~~agriculture ~~slowness~~and inoil ~~Asian~~and ~~high~~gas ~~end automotive~~ markets. ~~and~~In aaddition, ~~downturn~~there inwere ~~the~~favorable ~~oil~~exchange ~~and~~rate ~~gas~~fluctuations ~~market.~~of ~~These~~$2 due ~~decreases~~to ~~were~~the ~~partially~~weakening ~~offset~~of bythe ~~volume~~U.S. ~~increases~~dollar ofagainst ~~$17~~other currencies.

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~~Operating~~ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (~~Loss)~~dollar ~~Income~~amounts in millions) (Continued)

Operating Income (Loss)

2017 vs 2016 Operating Results

In 2017, operating income increased by $172 and $171 for Momentive and MPM, respectively, from an operating loss of $84 and $82, respectively, to an operating income of $88 and $89, respectively. Cost of sales decreased by $14 compared to 2016, primarily due to lower accelerated depreciation of $29, favorable exchange rate fluctuations of $17 and raw material deflation of $5, partially offset by the related impacts of increased sales and higher net processing costs.

Selling, general and administrative expense decreased by $14 and $13 for Momentive and MPM, respectively, compared to 2016 primarily due to $38 in favorable re-measurement of our pension liabilities offset by the impact of a merit increase implemented in 2016 and unfavorable exchange rate fluctuations of $5. Research and development expense for 2017 was flat compared to 2016.

A summary of the components of depreciation and amortization expense on our consolidated statements of operations for the years ended December 31, 2017 and 2016 is as follows:



	Year Ended December 31,
	2017		2016
Cost of sales	$	110	$	137
Selling, general and administrative expense	44		48
Total depreciation and amortization expense	$	154	$	185

Restructuring and discrete costs for 2017 decreased by $36 compared to 2016 mainly due to the gain related to an insurance reimbursement of $24 related to fire damage at our Leverkusen, Germany facility and $13 for one-time costs in 2016 triggered by the siloxane capacity transformation programs not recurring in 2017.

Other operating expense decreased by $10, primarily due to a decrease of $8 in impairments and disposals of certain assets and equipment and a settlement gain of $2 related to the resolution of a take or pay arrangement and certain sales and use tax refunds.

2016 vs 2015 Operating Results

In 2016, operating income decreased by $95 and $94 for Momentive and MPM, respectively, from an operating income of $11 and $12, respectively to an operating loss of $84 and $82, respectively. Cost of sales decreased by $49 compared to 2015 primarily due to a decrease in net processing costs of $80, partially offset by $35 in accelerated depreciation primarily related to certain long-lived assets mainly triggered by siloxane capacity transformation programs in Germany.

Selling, general and administrative expense increased by $62 and $61 for Momentive and MPM, respectively, compared to 2015 primarily due to $49 in re-measurement of our pension and other postretirement liabilities. The incremental increase was driven by increased merit and incentive compensation, partially offset by various cost reduction actions. Research and development expense for 2016 decreased by $1 compared to 2015 primarily related to the timing of new projects.

A summary of the components of depreciation and amortization expense on our consolidated statements of operations for the years ended December 31, 2016 and 2015 is as follows:



	Year Ended December 31,
	2016		2015
Cost of sales	$	137	$	105
Selling, general and administrative expense	48		48
Total depreciation and amortization expense	$	185	$	153

Restructuring and other costs for 2016 increased by $10 compared to 2015 mainly due to costs arising from a fire at our Leverkusen, Germany facility and $13 for one-time costs triggered by the siloxane capacity transformation programs. These were partially offset by $11 in reduced severance costs compared to 2015.

Other operating expense increased by $17, primarily due to an increase of $11 in impairments and disposals of certain assets and equipment. In addition, in 2015 there was a settlement gain of $6 related to the resolution of a customer dispute.

~~2015~~ ~~vs 2014 Operating Results~~38

InTable ~~2015, operating income increased $137 and $138, for Momentive and MPM, respectively, from an operating loss~~ of $126 to an operating income of $11 and $12, respectively, for Momentive and MPM, respectively. Cost of sales (excluding depreciation and amortization of $105 and $14 in the successor year ended December 31, 2015 and successor period from October 25, 2014 through December 31, 2014, respectively, due to the change in presentation of depreciation and amortization, as described in Note 1 to the Consolidated Financial Statements) decreased by $38 compared to 2014. In conjunction with 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, in the Successor period, certain costs were recorded in cost of sales rather than in selling, general and administrative expense. In addition, in 2014, $35 of non cash one-time costs related to fresh start accounting were recorded in cost of sales. Cost of sales was positively impacted by favorable exchange rate fluctuations of $115 driven by the strengthening of the U.S. dollar against the euro and Japanese yen and production mix of $13. This reduction in cost of sales was partially offset by higher net processing costs of $15.Contents

Selling, general and administrative expense (excluding depreciation and amortization of $48 and $8 in the successor year ended December 31, 2015 and period from October 25, 2014 through December 31, 2014, respectively, due to the presentation change discussed above) decreased by $269 and $270 for Momentive and MPM, respectively, compared to 2014ITEM 7. AsMANAGEMENT’S ~~discussed~~DISCUSSION ~~above,~~AND inANALYSIS ~~2015,~~OF ~~certain~~FINANCIAL ~~costs~~CONDITION ~~which~~AND ~~previously~~RESULTS ~~had~~OF ~~been~~OPERATIONS ~~recorded~~(dollar inamounts ~~selling, general and administrative expense are being recorded~~ in cost of sales. Additionally, selling, general and administrative expense benefited from favorable exchange rate fluctuations of $25 as discussed above and $31 related to the re-measurement of our pension and other postretirement liabilities. Selling, general and administrative expense in 2014 included foreign currency losses of approximately $94 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 to continue as a going concern under our prior capital structure. millions) (Continued)

Depreciation and amortization expense during 2015 was $153 compared to $169 in 2014. Depreciation and amortization expense in 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 2015 decreased by $11compared to 2014 primarily related to the timing of new projects. Restructuring and other costs for 2015 increased by $7 compared to 2014 which was primarily due to severance benefits related to the global restructuring announced in November 2015.

Non-Operating Expense (Gain)

In 2017, total non-operating expense increased by $11, from an expense of $62 to an expense of $73, compared to 2016. The increase was primarily due to the gain on extinguishment of Second Lien Notes not recurring in 2017.

In 2016, total non-operating expense decreased by $21, from an expense of $83 to an expense of $62, compared to 2015. The decrease was primarily due to a gain of $9 related to recovery of a tax claim from GE, $6 due to lower reorganization expense in 2016 and $3 in lower interest expense.

In 2015, total non-operating expense increased by $1,867, from an income of $1,784 to an expense of $83, compared to 2014. The increase was primarily driven by reorganization income items, net of $1,969 in 2014 (see Note 4 to the Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for more information). This increase was offset by a decrease in interest expense of $98, 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.

Income Tax Expense

InOn ~~2016~~December 22, ~~income~~2017, ~~tax~~the ~~expense~~Tax ~~increased~~Cuts by& $5Jobs ~~compared~~Act to(the ~~2015~~“TCJA”) was enacted into law. The ~~effective~~TCJA ~~income~~decreased the U.S statutory tax rate ~~was~~for ~~(13%)~~years ~~for~~beginning ~~2016~~after ~~compared~~December to31, ~~(18%)~~2017, ~~for~~and ~~2015.~~included ~~The~~other ~~change~~domestic inand international tax provisions that affect the ~~effective~~measurement of our deferred tax ~~rate~~asset ~~was~~and ~~primarily~~liabilities. ~~attributable~~As toa ~~the~~result, ~~amount~~we ~~and~~revalued ~~distribution~~our ofdeferred ~~income~~tax assets and ~~loss~~liabilities ~~among~~as ~~the~~of ~~various~~December ~~jurisdictions~~31, in2017 ~~which~~and wereduced ~~operate.~~our ~~The~~net ~~effective~~deferred tax ~~rate~~assets by $113, which was ~~also~~fully ~~impacted~~offset by ~~the~~a ~~movement~~similar reduction in ~~the~~our valuation allowance. ~~The~~Please ~~valuation~~refer ~~allowance,~~to ~~which~~detailed ~~relates~~discussions ~~principally~~on tothe ~~U.S.~~TCJA ~~and~~in ~~certain~~Note ~~non-U.S.~~10 ~~deferred~~to ~~tax~~the ~~assets,~~Consolidated ~~was~~Financial ~~established~~Statements ~~and~~in ~~maintained~~Item ~~based~~8 onof ~~our~~Part ~~assessment~~II ~~that~~of athis ~~portion~~Annual Report on Form 10-K.

In 362017, income tax expense decreased by $3 compared to 2016. The effective income tax rate was 100% and 94% for Momentive and MPM, respectively, for 2017 compared to (13%) for 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 we operate. The effective tax rate was also impacted by the movement in the valuation allowance. The valuation allowance, which relates principally to U.S. and certain non-U.S. deferred tax assets, was established and maintained based on our assessment that a portion of the deferred tax assets will likely not be realized. Due to fluctuations in pre-tax income or loss between jurisdictions with and without a valuation allowance established, our historical effective tax rates are likely not indicative of our future effective tax rates.

~~Table~~In 2016, income tax expense increased by $5 compared to 2015. The effective income tax rate was (13%) for 2016 compared to (18%) for 2015. The change in the effective tax rate was primarily attributable to the amount and distribution of ~~Contents~~income and loss among the various jurisdictions in which we operate. The effective tax rate was also impacted by the movement in the valuation allowance. The valuation allowance, which relates principally to U.S. and certain non-U.S. deferred tax assets, was established and maintained based on our assessment that a portion of the deferred tax assets will likely not be realized.

ofFor ~~the~~2017, ~~deferred~~profits and losses incurred in foreign jurisdictions with statutory tax ~~assets~~rates ~~will~~less ~~likely~~than ~~not~~35% be(primarily ~~realized.~~China, ~~Due~~Thailand toand ~~fluctuations~~Japan) incomprised ~~pre-tax~~the ~~income~~largest orportion ~~loss~~of ~~between~~the ~~jurisdictions~~foreign ~~with~~rate differential. For 2016, China, Germany, and ~~without~~Thailand acomprised ~~valuation~~the ~~allowance~~largest ~~established,~~portion ~~our~~of ~~historical~~the ~~effective~~foreign ~~tax~~rate ~~rates~~differential. ~~are~~For ~~likely~~2015, ~~not~~China ~~indicative~~comprised ofthe ~~our~~largest ~~future~~portion ~~effective~~of ~~tax~~the ~~rates~~foreign rate differential.

InWe ~~2015,~~are ~~income~~recognizing ~~tax~~the ~~expense~~earnings ~~decreased~~of bynon-U.S. ~~$23~~operations ~~compared~~currently toin ~~2014~~our U.S. ~~The~~consolidated ~~effective~~ income tax ~~rate~~return ~~was~~as ~~(18%)~~of ~~for~~December ~~2015~~31, ~~compared~~2017 toand 2%are ~~for~~expecting ~~2014.~~that, ~~The~~with ~~change~~the inexception ~~the~~of ~~effective~~Germany ~~tax~~and ~~rate~~Japan, ~~was~~all ~~primarily~~earnings ~~attributable~~will be repatriated to the ~~amount~~United ~~and~~States. ~~distribution~~We ofhave ~~income~~accrued ~~and~~the ~~loss~~incremental ~~among~~tax ~~the~~expense ~~various~~expected ~~jurisdictions~~to inbe ~~which~~incurred weupon ~~operate~~the repatriation of these earnings. ~~The~~In ~~effective~~addition, ~~tax~~we ~~rate~~have ~~was~~certain ~~also~~intercompany ~~impacted~~arrangements bythat, ~~the~~if ~~tax~~settled, ~~impact~~may oftrigger ~~the~~taxable ~~reorganization~~gains ~~and~~or ~~fresh~~losses ~~start~~based ~~accounting~~on ~~net~~foreign ofcurrency ~~the~~exchange ~~movement~~rates in ~~valuation~~place ~~allowance~~at the time of settlement. ~~The~~As ~~valuation~~a ~~allowance~~result, ~~which~~we ~~relates~~are ~~principally~~asserting topermanent ~~U.S.~~reinvestment ~~and~~with respect to certain ~~non-U~~intercompany arrangements considered indefinite.S. Since ~~deferred~~the ~~tax~~currency ~~assets~~translation impact is considered indefinite, ~~was~~we ~~established~~have ~~and~~not ~~maintained~~provided ~~based~~deferred taxes on ~~our~~gains ~~assessment~~of ~~that~~$9, which could result in a ~~portion~~tax obligation of $3, based on currency exchange rates as of December 31, 2017. Should the ~~deferred~~intercompany arrangement be settled or we change our assertion, the actual tax ~~assets~~impact will ~~likely~~depend ~~not~~on bethe ~~realized.~~currency exchange rate at the time of settlement or change in assertion.

For 2016, profits and losses incurred in foreign jurisdictions with statutory tax rates less than 35% (primarily China, Germany and Thailand) comprised the largest portion of the foreign rate differential. For 2015, China comprised the largest portion of the foreign rate differential. For 2014, Germany comprised the largest portion of the foreign rate differential.

We are recognizing the earnings of non-U.S. operations currently in our U.S. consolidated income tax return as of December 31, 2016 and are expecting that, with the exception of Germany and Japan, all earnings will be repatriated to the United States. We have accrued the incremental tax expense expected to be incurred upon the repatriation of these earnings. In addition, we have certain intercompany arrangements that, if settled, may trigger taxable gains or losses based on foreign currency exchange rates in place at the time of settlement. As a result, we are asserting permanent reinvestment with respect to certain intercompany arrangements considered indefinite.

Other Comprehensive (Loss) Income

For the year ended December 31, 2017, foreign currency translation positively impacted other comprehensive income by $45 for both Momentive and MPM, primarily due to the impact of the weakening of the U.S. dollar against other currencies. Also, for the year ended December 31, 2017, pension and postretirement benefit adjustments positively impacted other comprehensive income by $13, primarily due to the recognition of net prior service benefit related to the effect of certain plan provision changes.

For the year ended December 31, 2016, pension and postretirement benefit adjustments positively impacted other comprehensive income by $17, primarily due to the recognition of net prior service credit related to the effect of plan redesign triggered by certain changes to company sponsored post-retiree medical, dental, vision and life insurance benefit plans.

For the year ended December 31, 2015, foreign currency translation negatively impacted other comprehensive loss by $65, primarily due to the impact of the strengthening of the U.S. dollar against the euro. In 2015, pension and postretirement benefit negative impact on other comprehensive loss was $1 compared to $69 in 2014 due to the recognition of prior service costs in 2014 following provision changes to our U.S. pension plan.

~~For~~ the year ended December 31, 2014, foreign currency translation negatively impacted other comprehensive income by $2, primarily due to the impact of the strengthening of the U.S. dollar against the euro and Japanese yen. For the year ended December 31, 2014, pension and postretirement benefit adjustments negatively impacted other comprehensive income by $70, primarily due to net unrecognized actuarial losses driven by a decrease in the discount rate at October 24, 2014, partially offset by favorable asset experience. In connection with the application of fresh start accounting, on October 24, 2014, total accumulated unrecognized net gains of $162 were eliminated from accumulated other comprehensive income (see Note 3 to the Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for more information).39

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (dollar amounts in millions) (Continued)

Results of Operations by Segment

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 a principle profitability measure used to set management and executive incentive compensation goals. EBITDA and Segment EBITDA should not be considered asubstitutes ~~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. Segment EBITDA for all periods presented was retrospectively revised to conform with the current presentation.



	MPM HOLDINGS INC.
	Year Ended December 31,
	2017			2016			2015
Net Sales⁽¹⁾:
Performance Additives	$	900		$	849		$	835
Formulated and Basic Silicones	1,229			1,212			1,277
Quartz Technologies	202			172			177
Total	$	2,331		$	2,233		$	2,289

Segment EBITDA:
Performance Additives	$	188		$	187		$	176
Formulated and Basic Silicones	105			70			25
Quartz Technologies	40			20			27
Corporate	(40		)	(39		)	(33		)
Total	$	293		$	238		$	194

	MPM HOLDINGS INC.
	MOMENTIVE PERFORMANCE MATERIALS INC.
	Successor									Predecessor
	Year Ended December 31,
	Year Ended December 31, 2016			Year Ended December 31, 2015			Period from October 25, 2014 through December 31, 2014			Period from January 1, 2014 through October 24, 2014
	2017			2016			2015
Net Sales(1):
Silicones	$	2,061		$	2,112		$	431		$	1,866
Performance Additives	$	900		$	849		$	835
Quartz	172			177			34			145
Formulated and Basic Silicones	1,229			1,212			1,277
Total	$	2,233		$	2,289		$	465		$	2,011
Quartz Technologies	202			172			177
Segment EBITDA:
Total	$	2,331		$	2,233		$	2,289
Silicones(2)	$	257		$	201		$	44		$	213
Segment EBITDA:
Quartz	20			27			6			17
Performance Additives	$	188		$	187		$	176
Corporate	(39		)	(34		)	(4		)	(38		)
Formulated and Basic Silicones	105			70			25
Total	$	238		$	194		$	46		$	192
Quartz Technologies	40			20			27
Corporate	(39		)	(37		)	(33		)
Total	$	294		$	240		$	195

	MOMENTIVE PERFORMANCE MATERIALS INC.
	Successor									Predecessor
	Year Ended December 31, 2016			Year Ended December 31, 2015			Period from October 25, 2014 through December 31, 2014			Period from January 1, 2014 through October 24, 2014
Net Sales(1):
Silicones	$	2,061		$	2,112		$	431		$	1,866
Quartz	172			177			34			145
Total	$	2,233		$	2,289		$	465		$	2,011
Segment EBITDA:
Silicones(2)	$	257		$	201		$	44		$	213
Quartz	20			27			6			17
Corporate	(37		)	(33		)	(4		)	(38		)
Total	$	240		$	195		$	46		$	192

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

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~~2016 vs~~ITEM 7. ~~2015~~MANAGEMENT’S ~~Segment~~DISCUSSION ~~Results~~AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (dollar amounts in millions) (Continued)

~~Following~~2017 isvs. an2016 ~~analysis~~Segment ~~of the percentage change in sales by segment from 2015 to 2016:~~Results

	Volume		Price/Mix		CurrencyTranslation		Total
Silicones	(1	)%	(1	)%	—	%	(2	)%
Quartz	(4	)%	—	%	1	%	(3	)%

Following is an analysis of the percentage change in sales by segment from 2016 to 2017:

Silicones



	Volume		Price/Mix		Currency Translation		Total
Performance Additives	7	%	(1	)%	—	%	6	%
Formulated and Basic Silicones	(4	)%	5	%	—	%	1	%
Quartz Technologies	18	%	—	%	—	%	18	%

~~Net~~Performance sales in 2016 decreased $51, or 2%, compared to 2015. This decrease was primarily due to a volume decrease of $35 in line with our intentional efforts to reduce under-performing siloxane derivative products, as well as negative price and mix shift of $16, caused by declines in agriculture and oil and gas markets.Additives

~~Segment~~Net ~~EBITDA~~sales in ~~2016~~2017 increased by $5651, toor ~~$257~~6% compared to ~~2015~~2016. This increase was primarily due to ~~improved~~a volume increase of $59 related to demand in consumer, automotive, and ~~electronics~~personal ~~market,~~care ~~production~~markets ~~efficiencies~~reflecting our growth initiatives across our entire portfolio, and ~~raw~~$4 ~~material~~due ~~deflation~~to the weakening of the U.S. dollar against other currencies, offset by adverse price/mix variance of $12.

~~Quartz~~Segment EBITDA in 2017 increased by $1 to $188 compared to 2016. The increase was impacted by temporary raw material lead/lag being addressed by pricing actions and the one-time impact of Hurricane Harvey.

~~Net~~Formulated ~~sales~~and inBasic ~~2016 decreased $5, or 3%, compared to 2015. The decrease was primarily due to a volume decrease of $7 caused by softening of the end user demand offset by favorable currency impacts.~~Silicones

~~Segment~~Net ~~EBITDA~~sales in ~~2016~~2017 ~~decreased~~increased by $717 toor ~~$20~~1%, compared to ~~2015~~2016. This ~~The~~increase ~~decrease~~ was primarily driven by a favorable mix/price shift of $58 towards higher-margin products versus less profitable commodity products and $2 due to the ~~inclusion~~weakening of athe ~~settlement~~U.S. ~~gain~~dollar against other currencies, offset by volume decrease of $643 related to ~~the~~our ~~resolution~~intentional ofefforts ~~customer~~to ~~dispute~~reduce under-performing siloxane derivative products and focus on our specialties products driven by increased demand in ~~the~~electronic ~~first~~materials, ~~quarter~~elastomers, ofsealants, ~~2015~~and coatings end markets.

Segment EBITDA in 2017 increased by $35 to $105 compared to 2016. This increase was primarily due to higher sales of higher margin products and improved demand in automotive, consumer products, and electronic markets, improved efficiencies and raw material deflation.

Quartz Technologies

Net sales in 2017 increased $30, or 18%, compared to 2016. The increase was primarily due to an increase in sales volume of $30, mainly driven by improved demand in semiconductor and aerospace end markets.

Segment EBITDA in 2017 increased by $20 to $40 compared to 2016. This increase was primarily due to the sales volume increase, operating leverage, and improved manufacturing efficiencies. Fiscal year 2017 also reflects full benefit of 2016 restructuring initiatives.

Corporate

Corporate charges are primarily general and administrative expenses that are not allocated to the segments, such as shared service and administrative functions. Compared to ~~2015~~2016, Corporate charges increased by $51 and $42 for Momentive and MPM, respectively, to $3940 and $3739, respectively, mainly due to ~~merit~~ increase ~~and~~in ~~higher~~employee ~~incentive~~headcount ~~based~~and related compensation expenses.

~~2015~~2016 vs ~~2014~~2015 Segment Results

Following is an analysis of the percentage change in sales by segment from ~~2014~~2015 to ~~2015~~2016:

	Volume		Price/Mix		CurrencyTranslation		Total
Silicones	(1	)%	(2	)%	(5	)%	(8	)%
Performance Additives	6	%	(4	)%	—	%	2	%
Quartz	4	%	—	%	(5	)%	(1	)%
Formulated and Basic Silicones	(5	)%	—	%	—	%	(5	)%
Quartz Technologies	(4	)%	—	%	1	%	(3	)%

~~Silicones~~ 41

Net sales in 2015 decreased $185, or 8%, compared to 2014. The decrease was primarily due to unfavorable exchange rate fluctuations of $147 due to the strengthening of the U.S. dollar against the euro and Japanese yen, as well as adverse price and mix shift of $46 due to economic downturns in China, slowness in Asian high end automotive markets and a downturn in the oil and gas market. These decreases were partially offset by an increase in sales volume.

Segment EBITDA in 2015 decreased by $56 to $201 compared to 2014. The decrease was primarily due to net unfavorable exchange rate fluctuations, negative price and mix shift and higher net processing costs. The decrease was partially offset by reductions in selling, general and administrative and research and development expenses.

Quartz

Net sales in 2015 decreased $2, or 1%, compared to 2014. The decrease was primarily due to net unfavorable exchange rate fluctuations of $9, partially offset by an increase in sales volume of $7.

Segment EBITDA in 2015 increased by $4 to $27 compared to 2014. The increase was primarily due to a settlement gain related to the resolution of a customer dispute in the first quarter of 2015, increase in sales volume and reductions in selling, general and administrative expenses partially offset by higher net processing costs.

Table of Contents

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (dollar amounts in millions) (Continued)

Performance Additives

Net sales in 2016 increased $14, or 2%, compared to 2015. This increase was primarily due to a volume increase of $47 driven by demand in consumer, automotive, construction, and industrial markets, partially offset by negative price and mix shift of $32, caused by declines in agriculture and oil and gas markets, and $1 due to the strengthening U.S. dollar.

Segment EBITDA in 2016 increased by $11 to $187 compared to 2015. This increase was primarily due to higher sales, production efficiencies and raw material deflation.

Formulated and Basic Silicones

Net sales in 2016 decreased $65, or 5%, compared to 2015. This decrease was primarily due to volume decrease of $62 due to our intentional efforts to reduce under-performing siloxane derivative products and negative price and mix shift of $4 partially offset by $1 of exchange rate fluctuations.

Segment EBITDA in 2016 increased by $45 to $70 compared to 2015. This increase was primarily due to our intentional efforts to reduce under-performing siloxane derivative products, production efficiencies and raw material deflation.

Quartz Technologies

Net sales in 2016 decreased $5, or 3%, compared to 2015. The decrease was primarily due to a volume decrease of $7 caused by softening of the end user demand primarily due to declines in the semiconductor market offset by favorable currency impacts.

Segment EBITDA in 2016 decreased by $7 to $20 compared to 2015. The decrease was primarily due to the inclusion of a one-time settlement gain of $6 related to the resolution of customer dispute in the first quarter of 2015.

Corporate

Corporate charges are ~~primarily~~corporate, general and administrative expenses that are not allocated to the other segments, such as certain shared service and administrative functions. Compared to 2015, Corporate charges ~~decreased~~increased by $95 and $4 to $3339 ~~compared~~and to$37 ~~2014~~for Momentive and MPM, ~~primarily~~respectively, mainly due to ~~net~~merit ~~favorable~~increase ~~exchange rate fluctuations~~ and ~~lower~~higher ~~administrative~~incentive ~~costs~~based ~~to serve~~compensation.

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

	MPM HOLDINGS INC.
	Successor									Predecessor
	Year Ended December 31,
	Year Ended December 31, 2016			Year Ended December 31, 2015			Period from October 25, 2014 through December 31, 2014			Period from January 1, 2014 through October 24, 2014
	2017			2016			2015
Net (loss) income	$	(163	)	$	(83	)	$	(60	)	$	1,685
Net income (loss)	$	—		$	(163	)	$	(83	)
Interest expense, net	7680			7976			1579			~~162~~
Income tax expense	1815			1318			—13			36
Depreciation and amortization	~~185~~154			~~153~~185			22153			~~147~~
Gain on extinguishment and exchange of debt	(9—		)	(79		)	—(7		)	—
EBITDA	$	107		$	155		$	(23	)	$	2,030
Items not included in Segment EBITDA:
Items not included in Segment EBITDA:
Non-cash charges and other income and expense	$	12		$	26		$	15
Non-cash charges and other income and expense	$	26		$	15		$	46		$	114
Unrealized (gains) losses on pension and postretirement benefits	(5		)	33			(16		)
Unrealized gains (losses) on pension and postretirement benefits	33			(16		)	15			—
Restructuring and discrete costs	36			70			32
Restructuring and other costs	70			32			5			20
Reorganization items, net	1			2			8
Reorganization items, net	2			8			3			(1,972		)
Segment EBITDA	$	293		$	238		$	194
Total adjustments	131			39			69			(1,838		)
Segment EBITDA	$	238		$	194		$	46		$	192
Segment EBITDA:
Silicones	257			201			44			213
Quartz	20			27			6			17
Corporate	(39		)	(34		)	(4		)	(38		)
Total	$	238		$	194		$	46		$	192

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	MOMENTIVE PERFORMANCE MATERIALS INC.
	Successor									Predecessor
	Year Ended December 31, 2016			Year Ended December 31, 2015			Period from October 25, 2014 through December 31, 2014			Period from January 1, 2014 through October 24, 2014
Net (loss) income	$	(161	)	$	(82	)	$	(60	)	$	1,685
Interest expense, net	76			79			15			162
Income tax expense	18			13			—			36
Depreciation and amortization	185			153			22			147
Gain on extinguishment and exchange of debt	(9		)	(7		)	—			—
EBITDA	$	109		$	156		$	(23	)	$	2,030
Items not included in Segment EBITDA:
Non-cash charges and other income and expense	$	26		$	15		$	46		$	114
Unrealized gains (losses) on pension and postretirement benefits	33			(16		)	15			—
Restructuring and other costs	70			32			5			20
Reorganization items, net	2			8			3			(1,972		)
Total adjustments	131			39			69			(1,838		)
Segment EBITDA	$	240		$	195		$	46		$	192
Segment EBITDA:
Silicones	257			201			44			213
Quartz	20			27			6			17
Corporate	(37		)	(33		)	(4		)	(38		)
Total	$	240		$	195		$	46		$	192

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (dollar amounts in millions) (Continued)



	MOMENTIVE PERFORMANCE MATERIALS INC.
	Year Ended December 31,
	2017			2016			2015
Net income (loss)	$	1		$	(161	)	$	(82	)
Interest expense, net	80			76			79
Income tax expense	15			18			13
Depreciation and amortization	154			185			153
Gain on extinguishment and exchange of debt	—			(9		)	(7		)

Items not included in Segment EBITDA:
Non-cash charges and other income and expense	$	12		$	26		$	15
Unrealized (gains) losses on pension and postretirement benefits	(5		)	33			(16		)
Restructuring and discrete costs	36			70			32
Reorganization items, net	1			2			8
Segment EBITDA	$	294		$	240		$	195

Items Not Included in Segment EBITDA

Not included in Segment EBITDA are certain non-cash and other income and expenses. For the years ended December 31, 2016 and December 31, 2015, the successor period from October 25, 2014 through December 31, 2014 and the predecessor period from January 1, 2014 through October 24, 2014, these charges primarily represented net realized and unrealized foreign currency transaction losses and losses on the disposal and impairment of certain assets. For the years ended December 31, 2016 and December 31, 2015, these charges also include stock based compensation expenses.

~~Unrealized~~For ~~gains (losses) on pension and postretirement benefits represented non-cash actuarial losses recognized upon~~ the ~~re-measurement~~years ofended ~~our~~December ~~pension and postretirement benefit obligations~~31, ~~which after the Effective Date~~2017, ~~are~~2016 ~~recognized in the Consolidated Statements of Operations,~~ and ~~were driven by a decrease in discount rates~~2015, ~~other~~non-cash ~~demographic~~charges ~~assumptions and asset performance. Restructuring and other costs for all periods~~ primarily included ~~expenses~~asset ~~from~~impairment ~~our restructuring and cost optimization programs. For the year ended December 31~~charges, ~~2016,~~loss ~~these amounts also included costs arising from the union strikes inclusive of unfavorable manufacturing variances at our Waterford, NY and Willoughby, OH facilities, costs~~ due to ascrapping ~~fire at our Leverkusen, Germany facility, and recovery~~ of ~~Italian~~certain ~~tax claims from GE. For the predecessor period from January 1~~assets, ~~2014~~stock ~~through~~based ~~October~~compensation 24expense, ~~2014, these amounts also included costs associated with restructuring the Company’s capital structure incurred prior to the Bankruptcy Filing,~~ and ~~were partially offset by a gain related to a claim settlement. Reorganization items,~~ net ~~represented~~foreign ~~incremental~~exchange ~~costs~~transaction ~~incurred~~gains ~~directly as a result of the Bankruptcy Filing. For the successor years ended December 31, 2016~~ and ~~December~~losses ~~31, 2015, successor period from October 25, 2014 through December 31 2014, these amounts were primarily~~ related to certain ~~professional~~intercompany ~~fees~~arrangements. For the predecessor period from January 1, 2014 through October 24, 2014, these amounts included certain professional fees, the BCA Commitment Premium and financing fees related to our DIP Facilities, as well as the impact of the Reorganization Adjustments and the Fresh Start Adjustments (see Note 3).

For 41the years ended December 31, 2017, 2016 and 2015, unrealized (gains) on pension and postretirement benefits represented non-cash actuarial losses recognized upon the re-measurement of our pension and postretirement benefit obligations.

Restructuring and discrete costs for all periods primarily included expenses from restructuring and integration. For the years ended December 31, 2017 and 2016, these amounts included costs arising from the work stoppage inclusive of unfavorable manufacturing variances at our Waterford, New York facility. For the year ended December 31, 2017, these costs also included a gain of $24 related to insurance reimbursement related to fire damage at our Leverkusen, Germany facility and $3 related to a postponed offering of our securities. For the year ended December 31, 2016, these costs also included exit costs due to siloxane capacity transformation programs at our Leverkusen, Germany facility, loss of $10 due to a fire at our Leverkusen, Germany facility, and recovery of Italian tax claims from GE.

Reorganization items, net represent incremental costs incurred directly as a result of the Bankruptcy Filing. For the years ended December 31, 2017, 2016 and 2015 these amounts were primarily related to certain professional fees.

Segment Realignment

The Financial Standards Accounting Board Accounting Standards Codification Topic 280, Segment Reporting, defines operating segments as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.


•	financial information is prepared separately and regularly for each of the four segments; and


•	the CEO would regularly review the results of operations and assesses the performance of each of these segments.

Our operations were previously organized in two segments: Silicones and Quartz. The four segments model is composed of the following:


•	a new Performance Additives segment realigned from the former Silicones Segment;


•	a new Formulated and Basic Silicones segment realigned from the former Silicones segment;


•	a Quartz Technologies segment, which has been renamed from the existing Quartz segment; and


•	a Corporate segment.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (dollar amounts in millions) (Continued)

Liquidity and Capital Resources

Our primary sources of liquidity are cash on hand, cash flows 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 December 31, ~~2016~~2017, we had $1,~~203~~228 of indebtedness. In addition, at December 31, ~~2016~~2017, we had $~~439~~387 in liquidity consisting of the following:

•$~~224~~173 of unrestricted cash and cash equivalents (of which $~~184~~158 is maintained in foreign jurisdictions); and

• $~~215~~214 of availability under the ABL Facility ($270 borrowing base, less $5556 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).

AsIn ~~part of~~ the ~~Bankruptcy~~fourth ~~Filing,~~quarter weof 2015 and ~~certain~~first quarter of ~~our~~2016, ~~subsidiaries~~we ~~obtained~~initiated ~~the~~a ~~DIP~~debt ~~Facilities. The~~buyback ~~DIP~~program ~~Facilities~~and ~~were~~repurchased ~~used~~$48 in ~~part~~aggregate toprincipal ~~repay~~amount inof ~~full the outstanding obligations under~~ our ~~existing~~Second ~~ABL~~Lien ~~facility~~Notes ~~(the~~for ~~“Old~~approximately ~~ABL~~$26, ~~Facility”).~~resulting ~~The~~in ~~DIP~~a ~~Facilities~~net ~~were~~gain ~~comprised~~ of a $~~270~~16. ~~asset-based~~All ~~revolving~~repurchased ~~loan~~notes ~~(the~~were ~~“DIP~~canceled ~~ABL~~at ~~Facility”)~~the ~~and~~time aof ~~$300~~repurchase, ~~term~~reducing ~~loan (~~the ~~“DIP~~aggregate ~~Term~~principal ~~Loan~~amount ~~Facility”).~~of Inthese ~~conjunction~~notes ~~with~~outstanding ~~our emergence~~ from ~~Chapter~~$250 11at ~~bankruptcy,~~the onend ~~October~~of ~~24,~~third ~~2014,~~quarter ~~the~~of ~~DIP~~2015 ~~Term~~to ~~Loan~~$202 ~~Facility~~as ~~was~~of ~~paid~~December ~~in full and terminated~~31, ~~and the DIP ABL Facility was converted into the ABL Facility~~2016.

InOur ~~addition,~~net inworking ~~the~~capital ~~fourth~~(defined ~~quarter~~as ofaccounts ~~2015~~receivable and ~~first~~inventories ~~quarter~~less ofaccounts ~~2016,~~payable) weat ~~initiated~~December 31, a2017 ~~debt buyback program~~ and ~~repurchased~~2016 was $48482 inand ~~aggregate principal amount of our Second Lien Notes for approximately~~ $26432, ~~resulting in a net gain of $16~~respectively. ~~All~~A ~~repurchased~~summary ~~notes were canceled at the time~~ of ~~repurchase, reducing~~ the ~~aggregate~~components ~~principal amount~~ of ~~these~~our ~~notes~~net ~~outstanding~~working ~~from~~capital ~~$250~~as ~~at the end~~ of ~~third~~December 31, ~~quarter~~2017 ofand ~~2015~~2016 tois ~~$202~~ as ~~of December 31, 2016.~~follows:

Our net working capital (defined as accounts receivable and inventories less accounts payable) at December 31, 2016 and 2015 was $432 and $450, respectively. A summary of the components of our net working capital as of December 31, 2016 and 2015 is as follows:



	December 31, 2017			% of LTM Net Sales		December 31, 2016			% of LTM Net Sales
Accounts receivable	$	323		14	%	$	280		13	%
Inventories	445			19	%	390			17	%
Accounts payable	(286		)	(12	)%	(238		)	(11	)%
Net working capital	$	482		21	%	$	432		19	%

	December 31, 2016			% of LTM Net Sales		December 31, 2015			% of LTM Net Sales
Accounts receivable	$	280		13	%	$	292		13	%
Inventories	390			17	%	381			17	%
Accounts payable	(238		)	(11	)%	(223		)	(10	)%
Net working capital	$	432		19	%	$	450		20	%

The increase in net working capital of $50 from December 31, 2016 was due to an increase in accounts receivable because of timing of sales in the period and increased inventory to meet forecast volume, offset by an increase in accounts payable due to strategic efforts to improve payment terms. Exchange rate fluctuations of $21 due to the weakening of the U.S. dollar against the euro and Japanese yen also contributed to this increase in net working capital.

~~The~~We ~~decrease~~remain infocused ~~net~~on ~~working~~driving ~~capital~~positive offree ~~$18~~cash ~~from~~flow ~~December 31, 2015 was due to various market driven factors: a decrease~~ in ~~accounts~~2018 ~~receivable~~through ~~due~~our toglobal ~~lower~~cost ~~sales,~~control ainitiatives ~~higher mix of vendors with longer than average payment terms~~ and ~~the~~aggressively ~~results~~managing ofnet working capital ~~optimization triggering a reduction in inventory costs~~. To ~~The~~minimize ~~decrease~~the ~~was~~impact ~~offset~~of ~~by:~~net ~~strategic~~working ~~investment~~capital inon ~~profitable~~cash ~~products~~flows, awe ~~safety~~continue ~~stock increase~~ to ~~support~~review ~~our~~inventory ~~Leverkusen,~~safety ~~Germany~~stock ~~site~~levels ~~transformation~~where ~~and~~possible. We ~~due~~also continue to ~~the~~focus ~~strike~~on atreceivable ~~our~~collections ~~Waterford,~~by NYaccelerating ~~site,~~receipts ~~and~~through athe ~~higher~~sale ~~mix~~ of ~~customers~~receivables ~~with~~at ~~longer~~a ~~than average payment terms~~discount.

We ~~remain~~have ~~focused~~the onability ~~driving~~to ~~positive~~borrow ~~free~~from ~~cash~~the ~~flow~~ABL inFacility ~~2017~~to ~~through~~support our ~~global~~short-term ~~cost~~liquidity ~~control~~requirements, ~~initiatives~~particularly ~~and~~when ~~aggressively managing~~ net working capital. Torequirements ~~minimize~~increase ~~the~~in ~~impact~~response ~~of net working capital on cash flows, we continue~~ to ~~review~~seasonality ~~inventory~~of ~~safety~~our ~~stock~~volumes ~~levels~~in ~~where~~the ~~possible~~summer months. WeAs ~~also~~of ~~continue~~December 31, to2017, ~~focus~~we onhad ~~receivable~~no ~~collections~~outstanding byborrowings ~~accelerating~~under ~~receipts through~~ the ~~sale~~ABL ~~of receivables at a discount~~Facility.

WeIn ~~have~~February ~~the~~2018, ~~ability~~we received commitments to ~~borrow~~extend ~~from~~the maturity of the ABL Facility from October 2019 to ~~support~~five ~~our~~years ~~short-term~~from ~~liquidity~~the ~~requirements.~~closing ~~During~~date ~~2015~~of ~~and~~the ~~2016~~extension, wesubject ~~did~~to ~~not~~a ~~draw~~springing ~~from~~maturity ~~our~~91 ~~ABL~~days ~~Facility.~~prior Asto the scheduled maturity date for each of ~~December 31,~~the ~~2016,~~First weLien ~~had~~Notes noand the Second Lien Notes if the principal amount outstanding ~~borrowings~~for ~~under~~such series of notes exceeds $50 million. The commitments are subject to customary closing conditions and there is no assurance that the ~~ABL~~extension ~~Facility~~of the maturity will become effective on the terms currently contemplated, or at all.

~~2017~~2018 Outlook

~~Following,~~We ~~and as a result of, our emergence from the Chapter 11 proceedings, we~~ believe we are favorably positioned to fund our ongoing liquidity requirements. We believe that due to our businesses operating cash flows as well as our $~~439~~387 of liquidity in the form of cash and our ABL facility, our long-term debt maturities in 2021 and 2022, and our annual debt service costs of approximately $5455, our business has adequate capital resources to meet material commitments coming due during the next 12-month period. ~~The~~We ~~additional~~are liquidity provided by the rights offerings in connection with the Chapter 11 process (the “Rights Offerings”) and the impact of the Plan on our capital structure, resulting in reduced annual debt service obligations of approximately $240, increased our future operational and financial flexibility and left us well positioned to make strategic capital investments, leverage our leadership positions with both our customers and suppliers, optimize our portfolio and drive new growth programs. Our business is impacted by general economic and industrial conditions, including general industrial production, automotive builds, housing starts, construction activity, consumer spending and semiconductor capital equipment investment, and these factors could have negative effects to our liquidity. Our business has both geographic and end market diversity, which often reduces the impact of any one of these factors on our overall performance.

Capital spending in ~~2017~~2018 is expected to be approximately ~~between~~ $125 ~~and $130~~, approximately $5045 of which relates to certain growth and productivity projects. We ~~continue~~remain tofocused ~~focus~~ on ~~optimizing~~continuing ~~our~~to ~~working~~balance ~~capital~~opportunistic and ~~expect~~accretive itgrowth investments with our commitment to becontinued ade-leveraging ~~source~~and ofmaintaining ~~cash~~significant infinancial ~~2017~~flexibility.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (dollar amounts in millions) (Continued)

We expect to have adequate liquidity to fund our operations for the foreseeable future from cash on our balance sheet, cash flows provided by operating activities and amounts available for borrowings under the ABL Facility.

Debt Repurchases and Other Transactions

From time to time, depending upon market, pricing and other conditions, as well as on our cash balances and liquidity, we or our affiliates may seek to acquire (and have acquired) our outstanding equity and/or debt securities or other indebtedness of the Company through open market purchases, privately negotiated transactions, tender offers, redemption or otherwise, upon such terms and at such prices as we or our affiliates may determine (or as may be provided for in the indentures governing our notes if applicable), for cash or other consideration. For example, in the fourth quarter of 2015 and first quarter of 2016, we repurchased $48 in aggregate principal amount of our Second Lien Notes for approximately $26, resulting in a net gain of $16. All repurchased notes were canceled at the time of repurchase, reducing the aggregate principal amount of these notes outstanding from $250 at the end of third quarter of 2015 to $202 as of December 31, 2016. In addition, we have considered and will continue to evaluate potential transactions to reduce net debt, such as debt for debt exchanges and other transactions. There can be no assurance as to which, if any, of these alternatives or combinations thereof we or our affiliates may choose to pursue in the future as the pursuit of any alternative will depend upon numerous factors such as market conditions, our financial performance and the limitations applicable to such transactions under our financing documents.

Sources and Uses of Cash

Following are highlights from our Consolidated Statements of Cash Flows:

MPM HOLDINGS INC.
	Successor									Predecessor
	Year Ended December 31,
	Year Ended December 31, 2016			Year Ended December 31, 2015			Period from October 25, 2014 through December 31, 2014			Period from January 1, 2014 through October 24, 2014
	2017			2016			2015
Sources (uses) of cash:
Operating activities	$	~~142~~113		$	~~128~~142		$	(3128	)	$	~~(207~~	)
Investing activities	(~~117~~168		)	(~~116~~117		)	(17116		)	~~(18~~		)
Financing activities	(161		)	(1016		)	(110		)	~~390~~
Effect of exchange rates on cash flow	(25		)	(82		)	(48		)	(6		)
Net (decrease) increase in cash and cash equivalents	$	7(51	)	$	(67	)	$	(256	)	$	~~159~~

MOMENTIVE PERFORMANCE MATERIALS INC.
	Successor									Predecessor
	Year Ended December 31,
	Year Ended December 31, 2016			Year Ended December 31, 2015			Period from October 25, 2014 through December 31, 2014			Period from January 1, 2014 through October 24, 2014
	2017			2016			2015
Sources (uses) of cash:
Operating activities	$	~~144~~115		$	~~129~~144		$	(3129	)	$	~~(207~~	)
Investing activities	(~~118~~169		)	(~~116~~118		)	(17116		)	~~(18~~		)
Financing activities	(172		)	(1117		)	(111		)	~~390~~
Effect of exchange rates on cash flow	(25		)	(82		)	(48		)	(6		)
Net (decrease) increase in cash and cash equivalents	$	7(51	)	$	(67	)	$	(256	)	$	~~159~~

Operating Activities

In ~~2016~~2017, operations generated $~~142~~113 and $~~144~~115 of cash for Momentive and MPM, respectively. Net income of $~~163~~0 and $~~161~~1 for Momentive and MPM, respectively, included $~~234~~168 of net non-cash items, of which $~~185~~154 was for depreciation and amortization, $3325 for amortization of ~~unrealized~~debt ~~losses~~discount costs, $4 and $3 related to ~~the re~~stock-~~measurement~~based ofcompensation ~~our~~expense ~~pension~~for ~~benefit~~Momentive ~~liabilities~~and MPM, respectively, and $2314 ~~for~~due ~~amortization~~to ofloss ~~debt~~on ~~discount~~impaired ~~costs,~~and scrapped assets offset by: $125 ~~due~~of unrealized losses related to ~~loss~~the onre-measurement ~~impaired~~of ~~assets~~our retirement benefit obligations, $36 of unrealized foreign currency gains, ~~and~~ $9 related to ~~gain~~capital onreimbursed ~~the~~from ~~extinguishment~~insurance ofproceeds and ~~debt.~~$9 related to deferred income tax benefit. Net working capital ~~generated~~used $725 of cash primarily, ~~driven~~due byto ~~customer~~increases ~~mix~~in accounts receivable and ~~timing~~inventories of ~~collections~~$30 and ~~strategic~~ ~~investment~~$36, ~~in profitable products~~respectively, ~~safety~~offset ~~stock~~by an increase toin ~~support~~accounts ~~our~~payable ~~Leverkusen~~of $41, primarily ~~Germany site transformation and~~ due to ~~the~~reasons ~~strike~~stated atin ~~our~~the ~~Waterford,~~preceding ~~NY site~~paragraphs. Changes in other assets and liabilities that primarily included interest expense, ~~due~~taxes and pension plan contributions were driven by the timing of when items were expensed versus paid and impact of foreign currency fluctuations.

In 432016, operations generated $142 and $144 of cash for Momentive and MPM, respectively. Net income of $163 and $161 for Momentive and MPM, respectively, included $234 of net non-cash items, of which $185 was for depreciation and amortization, $33 of unrealized

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~~to/from~~ITEM 7. ~~affiliates~~MANAGEMENT’S ~~and~~DISCUSSION ~~income~~AND ~~taxes~~ANALYSIS ~~payable~~OF ~~are~~FINANCIAL ~~driven~~CONDITION byAND ~~the~~RESULTS ~~timing~~OF ofOPERATIONS ~~when~~(dollar ~~items~~amounts ~~were~~in ~~expensed versus paid, which primarily included incentive compensation, certain liabilities related to siloxane capacity transformation programs, interest expense, pension plan contributions and taxes.~~millions) (Continued)

losses related to the re-measurement of our pension benefit liabilities, $23 for amortization of debt discount costs, offset by: $12 due to loss on impaired assets, $3 of unrealized foreign currency gains, and $9 related to gain on the extinguishment of debt. Net working capital generated $7 of cash primarily driven by customer mix and timing of collections and strategic investment in profitable products, safety stock increase to support our Leverkusen, Germany site transformation and due to the strike at our Waterford, NY site. Changes in other assets and liabilities, due to/from affiliates and income taxes payable are driven by the timing of when items were expensed versus paid, which primarily included incentive compensation, certain liabilities related to siloxane capacity transformation programs, interest expense, pension plan contributions and taxes.

In 2015, operations generated $128 and $129 of cash for Momentive and MPM, respectively. Net income of $83 and $82 for Momentive and MPM, respectively, included $147 of net non-cash items, of which mainly $153 was for depreciation and amortization and $22 was for amortization of debt discount costs, offset primarily by $10 of unrealized foreign currency gains, $16 of unrealized gains related to the re-measurement and curtailment related to our pension liabilities and $7 related to gain on the extinguishment of debt. Net working capital generated $30 of cash driven by customer mix and timing of collections as well as a decrease in accounts payable due to longer payment terms with vendors following our emergence from Chapter 11. Changes in other assets and liabilities, due to/from affiliates and income taxes payable are driven by the timing of when items were expensed versus paid, which primarily included interest expense, pension plan contributions and taxes.

In 2014, operations used $210 of cash. Net income of $1,625 included $1,755 of net non-cash income items, of which $2,078 was for non-cash reorganization items, which were partially offset by other various non-cash expenses. These other non-cash expenses included $169 for depreciation and amortization, a $19 reclassification of DIP Facility financing fees to “Financing Activities”, a $15 non-cash charge for unrealized losses related to the re-measurement of our pension liabilities, $101 of unrealized foreign currency losses, $10 of deferred tax expense and $4 for the amortization of debt discount. Net working capital used $80 of cash primarily driven by increases in sales volumes and the related impact on accounts receivable and inventory, as well as a decrease in accounts payable of $14. Changes in other assets and liabilities, due to/from affiliates and income taxes payable remained flat. These changes are driven by the timing of when items were expensed versus paid, which primarily included interest expense, pension plan contributions and taxes.

Investing Activities

In ~~2016~~2017, investing activities used $~~117~~168 and $~~118~~169 of cash for Momentive and MPM, respectively., Weprimarily ~~spent~~due to $~~117~~161 ~~for~~related to ongoing capital expenditures, ~~related~~net toof ~~growth,~~$9 ~~environmental,~~of ~~health~~capital ~~and~~reimbursed ~~safety~~from ~~compliance~~insurance proceeds and ~~maintenance~~$9 ~~projects~~related ~~(represented~~to byour acquisition of a business. Capital expenditures used $~~125~~73 inrelated ~~current~~to ~~year~~growth ~~asset~~and ~~additions,~~productivity ~~reduced~~initiatives byand the ~~capital~~remaining ~~expenditure~~$88 ~~financed~~related ~~through~~to ~~accounts~~maintenance, ~~payable)~~environmental, health and safety compliance.

In ~~2015~~2016, investing activities used $~~116~~117 and $118 of cash for Momentive and MPM, respectively. We spent $~~114~~117 for ongoing capital expenditures, ~~(including~~out ~~capitalized~~of ~~interest)~~which $46 related to ~~environmental,~~growth ~~health~~ and ~~safety~~productivity ~~compliance~~initiatives and ~~maintenance~~the ~~projects~~remaining ~~(of which~~ $~~111~~71 ~~represented~~related ~~current~~to ~~year~~maintenance, ~~asset additions~~environmental, ~~with~~health ~~the~~and ~~remainder~~safety ~~being the change in the accounts payable related to capital spending)~~compliance.

In ~~2014~~2015, investing activities used $88116 of cash. We spent $96115 for ongoing capital expenditures ~~(including capitalized interest) related to environmental~~, ~~health~~out ~~and safety compliance and maintenance projects (~~of which $8729 ~~represented~~related ~~current~~to ~~year~~growth ~~asset~~and ~~additions,~~productivity ~~with~~initiatives ~~the~~and ~~remainder being~~ the ~~change~~remaining in$86 ~~the accounts payable~~ related to ~~capital spending). We also spent $2 on the acquisition of intangible assets. These expenditures were partially offset by the consolidation of Superholdco Finance Corp. (“Finco”)~~maintenance, ~~which provided a $50 increase in cash~~environmental, ashealth ~~well~~and assafety ~~$12 in proceeds received from the sale of a subsidiary to Hexion~~compliance.

Financing Activities

In 2017, Momentive and MPM used $1 related to net short-term debt.

In 2016, financing activities used $16 and $17 of cash for Momentive and MPM, respectively, mainly due to the buyback of $29 in aggregate principal amount of our Second Lien Notes for $16.

In 2015, financing activities used $10 and $11 of cash for Momentive and MPM, respectively, mainly due to the buyback of $19 in aggregate principal amount of our Second Lien Notes for $10.

InAt ~~2014~~December 31, ~~financing~~2017, ~~activities~~there ~~provided~~were $~~389~~56 ofin ~~cash.~~outstanding ~~Proceeds~~letters ~~from the Rights Offerings provided cash~~ of ~~$600.~~credit ~~Net~~and ~~long-term~~no ~~debt~~borrowings ~~repayments~~outstanding ~~were $135, which primarily consisted of net repayments~~ under ~~the~~our ~~Old~~$270 ABL Facility ~~and a $75 revolving credit facility (the “Cash Flow Facility”)~~, ~~and~~leaving ~~net~~unused ~~short-term~~borrowing ~~debt~~capacity ~~repayments were $7. Additionally, the repayment~~ of ~~an affiliated loan in conjunction with various transactions with Finco used cash of~~ $50214. ~~We also paid $19 in financing fees related to our DIP Facilities.~~

At December 31, 2016, there were $55 in outstanding letters of credit and no borrowings outstanding under our $270 ABL Facility, leaving unused borrowing capacity of $215.

The credit agreement governing the ABL Facility contains various restrictive covenants that prohibit us and/or restrict our ability to prepay indebtedness, including our First Lien Notes and Second Lien Notes (collectively, the “notes”). In addition, the credit agreement governing the ABL Facility and the indentures governing our notes, among other things, restrict our ability to incur indebtedness or liens, make investments or declare or pay any dividends. However, all of these restrictions are subject to exceptions.

There are certain restrictions on the ability of certain of our subsidiaries to transfer funds to the parent of such subsidiaries in the form of cash dividends, loans or otherwise, which primarily arise as a result of certain foreign government regulations or as a result of restrictions within certain subsidiaries’ financing agreements that limit such transfers to the amounts of available earnings and profits or otherwise limit the amount of dividends that can be distributed. In either case, we have alternative methods to obtain cash from these subsidiaries in the form of intercompany loans and/or returns of capital in such instances where payment of dividends is limited to the extent of earnings and profits.

We are recognizing the earnings of non-U.S. operations currently in our U.S. consolidated income tax return as of December 31, ~~2016~~2017 and are expecting that, with the exception of Germany and Japan, all earnings will be repatriated to the United States. We have accrued the incremental tax expense expected to be incurred upon the repatriation of these earnings. In addition, we have certain intercompany arrangements that, if settled, may trigger taxable gains or losses based on foreign currency exchange rates in place at the time of settlement. As a result, are asserting permanent reinvestment with respect to certain intercompany arrangements considered indefinite. Since the currency translation impact is considered indefinite, we have not provided deferred taxes on gains of $9, which could result in a tax obligation of $3, based on currency exchange rates as of December 31, 2017. Should the intercompany arrangement be settled or we change our assertion, the actual tax impact will depend on the currency exchange rate at the time of settlement or change in assertion.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (dollar amounts in millions) (Continued)

Covenants Under the ABL Facility and the Notes

The instruments that govern our indebtedness contain, among other provisions, restrictive covenants (and incurrence tests in certain cases) regarding indebtedness, dividends and distributions, mergers and acquisitions, asset sales, affiliate transactions, capital expenditures and, under certain circumstances, the maintenance of a fixed charge coverage ratio, as further described below. Payment of borrowings under the ABL Facility and our notes may be accelerated if there is an event of default as determined under the governing debt instrument. Events of default under the credit agreement governing the ABL Facility include the failure to pay principal and interest when due, a material breach of a representation or warranty, events of bankruptcy, a change of control and most covenant defaults. Events of default under the indentures governing our notes include the failure to pay principal and interest, a failure to comply with covenants, subject to a 30-day grace period in certain instances, and certain events of bankruptcy.

The ABL Facility does not have any financial maintenance covenant other than a minimum fixed charge coverage ratio of 1.0 to 1.0 that would only apply if our availability under the ABL Facility at any time was 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. The fixed charge coverage ratio (the “Fixed Charge Coverage Ratio”) is generally defined as the ratio of (a) Adjusted EBITDA minus non-financed capital expenditures and cash taxes to (b) debt service plus cash interest expense plus certain restricted payments, each measured on a last twelve months, or LTM, basis and calculated as of the last day of the applicable fiscal quarter.

In addition to the financial maintenance covenant described above, we are also subject to certain incurrence tests under the indentures governing our notes that restrict our ability to take certain actions if we are unable to meet specified ratios. For instance, the indentures governing our notes contain an incurrence test that restricts our ability to incur indebtedness or make investments, among other actions, if we do not maintain an Adjusted EBITDA to Fixed Charges ratio (measured on a LTM basis) of at least 2.0 to 1.0. The Adjusted EBITDA to Fixed Charges ratio under the indentures is generally defined as the ratio of (a) Adjusted EBITDA to (b) net interest expense excluding the amortization or write-off of deferred financing costs, each measured on a LTM basis. The restrictions on our ability to incur indebtedness or make investments under the indentures that apply as a result, however, are subject to exceptions, including exceptions that permit indebtedness under the ABL Facility.

At December 31, ~~2016~~2017, we were in compliance with all covenants under the credit agreement governing the ABL Facility and under the indentures governing the notes.

Adjusted EBITDA is defined as EBITDA adjusted for certain non-cash and certain non-recurring items and other adjustments calculated on a pro-forma basis, including the expected future cost savings from business optimization or other programs and the expected future impact of acquisitions, in each case as determined under the governing debt instrument. We ~~As we are highly leveraged, we~~ believe that including the supplemental adjustments that are made to calculate Adjusted EBITDA provides additional information to investors about our ability to comply with our financial covenants and to obtain additional debt in the future. Adjusted EBITDA, like EBITDA and Segment EBITDA, is not a defined term under U.S. GAAP. Adjusted EBITDA is not a measure of financial condition, liquidity or profitability, and should not be considered as an alternative to net income (loss) determined in accordance with U.S. GAAP or operating cash flows determined in accordance with U.S. GAAP. Additionally, EBITDA is not intended to be a measure of free cash flow for management’s discretionary use, as it does not take into account certain items such as interest and principal payments on our indebtedness, depreciation and amortization expense (because we use capital assets, depreciation and amortization expense is a necessary element of our costs and ability to generate revenue), working capital needs, tax payments (because the payment of taxes is part of our operations, it is a necessary element of our costs and ability to operate), non-recurring expenses and capital expenditures. Fixed Charges under the indentures should not be considered as an alternative to interest expense.

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~~The~~ITEM 7. ~~following~~MANAGEMENT’S ~~table~~DISCUSSION ~~reconciles~~AND ~~Net~~ANALYSIS ~~loss~~OF toFINANCIAL ~~EBITDA~~CONDITION ~~and~~AND ~~Adjusted~~RESULTS ~~EBITDA,~~OF ~~and~~OPERATIONS ~~calculates~~(dollar ~~the~~amounts ~~ratio~~in ~~of Adjusted EBITDA to Fixed Charges as calculated under our indentures for the period presented:~~millions) (Continued)

	Year Ended
	December 31, 2016
Net loss	$	(161	)
Interest expense, net	76
Gain on the extinguishment of debt	(9		)
Income tax expense	18
Depreciation and amortization	185
EBITDA	109
Adjustments to EBITDA:
Restructuring and other costs (a)	70
Reorganization items, net (b)	2
Non-cash compensation and related expenses (c)	36
Pro forma cost savings from other initiatives (d)	16
Other non-cash charges and other income and expense (e)	23
Exclusion of Unrestricted Subsidiary results (f)	(33		)
Adjusted EBITDA	$	223
Pro forma fixed charges (g)	$	54
Ratio of Adjusted EBITDA to Fixed Charges (h)	4.13

The following table reconciles Net income to EBITDA and Adjusted EBITDA, and calculates the ratio of Adjusted EBITDA to Fixed Charges as calculated under our indentures for the period presented:

(a) Primarily includes one-time expenses related to our global restructuring program, siloxane production transformation, union strike and certain other non-operating income and expenses.



	Year Ended
	December 31, 2017
Net income	$	1
Interest expense, net	80
Income tax expense	15
Depreciation and amortization	154
EBITDA	250
Adjustments to EBITDA
Restructuring and discrete costs^(a)	36
Reorganization items, net^(b)	1
Unrealized gains on pension and postretirement benefits ^(c)	(5		)
Pro forma cost savings ^(d)	3
Acquisitions ^(e)	1
Non-cash charges ^(f)	12
Adjusted EBITDA^(g)	$	298
Adjusted EBITDA less Capital Expenditures and Cash Taxes	$	113
Pro forma fixed charges^(h)	$	56
Ratio of Adjusted EBITDA to Fixed Charges⁽ⁱ⁾	5.32
Pro forma Fixed Charge Coverage Ratio^(j)	2.02


(a)	Primarily includes expenses related to our global restructuring program, siloxane production transformation, work stoppage and certain other non-operating income and expenses.


(b)	Represents professional fees related to our reorganization.

(c) Represents non-cash actuarial ~~losses~~gains resulting from pension and postretirement liability curtailment and re-measurements~~, and stock-based compensation expense~~.

(d) Represents estimated cost savings, on a pro forma basis, from initiatives implemented or being implemented by management~~, including headcount reductions and indirect cost savings~~.

(e) ~~Non-cash~~Reflects ~~charges~~pro ~~primarily~~forma ~~include~~unrealized EBITDA related to Momentive’s acquisition of the ~~effects~~operating assets of ~~foreign~~Sea ~~exchange~~Lion ~~gains~~Technology, ~~and~~Inc. ~~losses~~as ~~and~~if ~~impacts~~the ofbusiness ~~asset~~was ~~impairments~~acquired ~~and~~at ~~disposals~~the beginning of the LTM period.

(f) ~~Reflects~~Non-cash ~~the~~charges ~~exclusion~~primarily ofinclude the ~~EBITDA~~effects of ~~our~~foreign ~~subsidiaries~~exchange ~~that~~gains ~~are~~and ~~designated~~losses asand ~~Unrestricted~~impacts ~~Subsidiaries~~of ~~under~~asset ~~the~~impairments ~~ABL~~and ~~Facility~~disposals, and ~~the~~stock-based ~~indentures~~compensation ~~that govern our notes~~expense.

(g) ~~Reflects~~Effective ~~pro~~September ~~forma~~30, ~~interest~~2017, ~~expense~~our ~~based~~Nantong, onChina ~~outstanding~~subsidiary ~~indebtedness~~was no longer designated as an Unrestricted Subsidiary under the ABL Facility and ~~interest~~the ~~rates~~indentures atthat ~~December~~govern 31our notes, ~~2016~~resulting in an increase of $15 in Adjusted EBITDA.

(h) ~~MPM’s~~Reflects ~~ability~~pro toforma ~~incur~~interest ~~additional~~expense ~~indebtedness,~~based ~~among~~on ~~other~~outstanding ~~actions,~~indebtedness isand ~~restricted~~interest ~~under~~rates ~~the~~at ~~indentures governing our notes, unless MPM has an Adjusted EBITDA to Fixed Charges ratio of 2.0 to 1.0. As of~~ December 31, ~~2016,~~2017 weadjusted ~~were~~for ~~able~~applicable torestricted ~~satisfy this test and incur additional indebtedness under these indentures~~payments.

(i) 46MPM’s ability to incur additional indebtedness, among other actions, is restricted under the indentures governing our notes, unless MPM has an Adjusted EBITDA to Fixed Charges ratio of at least 2.0 to 1.0. As of December 31, 2017, we were able to satisfy this test and incur additional indebtedness under these indentures.


(j)	Represents Pro forma Fixed Charge Coverage Ratio as defined in the credit agreement for the ABL Facility. If the availability under the ABL Facility is less than the greater of (a) 12.5% of the lesser of the borrowing base and the total ABL Facility commitments at such time and, (b) $27, then such ratio must be greater than 1.0 to 1.0.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (dollar amounts in millions) (Continued)

Off-Balance Sheet Arrangements

At December 31, 2017, we had no off-balance sheet arrangements.

Contractual Obligations

The following table presents our contractual cash obligations at December 31, ~~2016~~2017. Our contractual cash obligations consist of legal commitments at December 31, ~~2016~~2017 that require us to make fixed or determinable cash payments, regardless of the contractual requirements of the specific vendor to provide us with future goods or services. This table does not include information about most of our recurring purchases of materials used in our production; our raw material purchase contracts do not meet this definition since they generally do not require fixed or minimum quantities. Contracts with cancellation clauses are not included, unless a cancellation would result in a major disruption to our business. These contractual obligations are grouped in the same manner as they are classified in the Consolidated Statements of Cash Flows in order to provide a better understanding of the nature of the obligations.

	Payments Due By Year
Contractual Obligations	~~2017~~2018		~~2018~~2019		~~2019~~2020		~~2020~~2021		~~2021~~2022		~~2022~~2023 and beyond		Total
Operating activities:
Purchase obligations (1)	$	~~127~~146	$	~~111~~143	$	97110	$	9185	$	7282	$	~~352~~328	$	~~850~~894
Interest on fixed rate debt obligations	53		52		52		5244		443		3—		~~256~~204
Operating lease obligations	1518		1114		912		710		67		1510		6371
Funding of pension and other postretirement obligations (2)	3325		2926		3026		3128		3331				~~156~~136
Financing activities:
Long-term debt, including current maturities (3)	36		—		—		—1,100		~~1,100~~202		~~202~~—		1,338
Total	$	~~264~~278	$	~~203~~235	$	~~188~~200	$	~~181~~1,267	$	~~1,255~~325	$	~~572~~338	$	2,~~663~~643

(1)

Purchase obligations are comprised of the fixed or minimum amounts of goods and/or services under long-term contracts and assumes that certain contracts are terminated in accordance with their terms after giving the requisite notice which is generally two to three years for most of these contracts; however, under certain circumstances, some of these minimum commitment term periods could be further reduced which would significantly decrease these contractual obligations.

(2) Pension and other postretirement contributions have been included in the above table for the next five years. These amounts include estimated benefit payments to be made for unfunded foreign defined benefit pension plans as well as estimated contributions to our funded defined benefit plans. The assumptions used by our actuaries in calculating these projections includes a weighted average annual return on pension assets of approximately 6% for the years ~~2017~~2018 – ~~2021~~2022 and the continuation of current law and plan provisions. These estimated payments may vary based on the actual return on our plan assets or changes in current law or plan provisions. See Note 1512 to the Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for more information on our pension and postretirement obligations.


(3)	Long-term debt amounts above represent gross repayments, and are exclusive of any unamortized debt discounts.

The table above excludes payments for income taxes and environmental obligations since, at this time, we cannot determine either the timing or the amounts of all payments beyond ~~2016~~2017. At December 31, ~~2016~~2017, we recorded unrecognized tax benefits and related interest and penalties of $4539. We estimate that we will pay approximately $25 in ~~2017~~2018 for local, state and international income taxes. ~~We expect non-capital environmental expenditures for 2017 through 2021 totaling $25.~~ See Notes 1310 and 1411 to the Consolidated Financial Statements in Item 8 of Part II of this Annual Report on 10-K for more information on these obligations.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (dollar amounts in millions) (Continued)

Critical Accounting Estimates

In preparing our financial statements in conformity with accounting principles generally accepted in the United States, we have to make estimates and assumptions about future events that affect the amounts of reported assets, liabilities, revenues and expenses, as well as the disclosure of contingent assets and liabilities in the financial statements and accompanying notes. Some of these accounting policies require the application of significant judgment by management to select the appropriate assumptions to determine these estimates. By their nature, these judgments are subject to an inherent degree of uncertainty; therefore, actual results may differ significantly from estimated results. We base these judgments on our historical experience, advice from experienced consultants, forecasts and other available information, as appropriate. Our significant accounting policies are more fully described in Note 52 to the Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment dates. Deferred tax assets are subject to valuation allowances based upon management's estimates of realizability.

At December 31, ~~2016~~2017 and ~~2015~~2016, we had valuation allowances of $~~484~~371 and $~~419~~484, respectively, against our deferred income tax assets. At December 31, ~~2016~~2017, we had a $~~297~~181 valuation allowance against a portion of our net U.S. federal and state deferred tax assets, as well as a valuation allowance of $~~187~~190 against a portion of our net foreign deferred income tax assets, primarily in Germany and Japan. At December 31, ~~2015~~2016, we had a $~~243~~297 valuation allowance against all of our net U.S. federal and state deferred tax assets, as well as a valuation allowance of $~~176~~187 against a portion of our net foreign deferred income tax assets, primarily in Germany and Japan. The valuation allowances require an assessment of both negative and positive evidence, such as operating results during the most recent three-year period. This evidence is given more weight than our expectations of future profitability, which are inherently uncertain.

We considered all available evidence, both positive and negative, in assessing the need for a valuation allowance for deferred tax assets. The Company evaluated four possible sources of taxable income when assessing the realization of deferred tax assets:


•	Taxable income in prior carryback years;


•	Future reversal of existing taxable temporary differences;


•	Tax planning strategies; and


•	Future taxable income exclusive of reversing temporary differences and carryforwards.

The accounting guidance for uncertainty in income taxes is recognized in the financial statements. The guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in its tax return. We also apply the guidance relating to de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

The calculation of our income tax liabilities involves dealing with uncertainties in the application of complex domestic and foreign income tax regulations. Unrecognized tax benefits are generated when there are differences between tax positions taken in a tax return and amounts recognized in the Consolidated Financial Statements. Tax benefits are recognized in the Consolidated Financial Statements when it is more likely than not that a tax position will be sustained upon examination. Tax benefits are measured as the largest amount of benefit that is greater than 50% likely to be realized upon settlement. To the extent we prevail in matters for which liabilities have been established, or are required to pay amounts in excess of our liabilities, our effective income tax rate in a given period could be materially impacted. An unfavorable income tax settlement would require the use of cash and result in an increase in our effective income tax rate in the year it is resolved. A favorable income tax settlement would be recognized as a reduction in the effective income tax rate in the year of resolution. At December 31, ~~2016~~2017 and ~~2015~~2016, we recorded unrecognized tax benefits and related interest and penalties of $4539 and $4045, respectively.

Pensions

The amounts that we recognize in our financial statements for pension benefit obligations are determined by actuarial valuations. Inherent in these valuations are certain assumptions, the more significant of which are:


•	The weighted average rate used for discounting the liability;


•	The weighted average expected long-term rate of return on pension plan assets;


•	The method used to determine market-related value of pension plan assets;


•	The weighted average rate of future salary increases; and


•	The anticipated mortality rate tables.

The discount rate reflects the rate at which pensions could be effectively settled. When selecting a discount rate, our actuaries provide us with a cash flow model that uses the yields of high-grade corporate bonds with maturities consistent with our anticipated cash flow projections.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (dollar amounts in millions) (Continued)

The expected long-term rate of return on plan assets is determined based on the various plans’ current and projected asset mix. To determine the expected overall long-term rate of return on assets, we take into account the rates on long-term debt investments that are held in the portfolio, as well as expected trends in the equity markets, for plans including equity securities.

The rate of increase in future compensation levels is determined based on salary and wage trends in the chemical and other similar industries, as well as our specific compensation targets.

The mortality tables that are used represent the best estimated mortality projections for each particular country and reflect projected mortality improvements.

We believe the current assumptions used to estimate plan obligations and pension expense are appropriate in the current economic environment. However, as economic conditions change, we may change some of our assumptions, which could have a material impact on our financial condition and results of operations.

The following table presents the sensitivity of our projected pension benefit obligation (“PBO”), accumulated benefit obligation (“ABO”), ~~equity (“Equity”)~~ and ~~2017~~2018 pension expense to the following changes in key assumptions:

	Increase / (Decrease) at						Increase /(Decrease)			~~Increase /(Decrease)~~
	December 31, 2016
	December 31, 2017
	PBO			ABO			~~Equity~~2018 Expense			~~2016 Expense~~
Assumption:
Increase in discount rate of 0.5%	$	(3742	)	$	(3540	)	$	37(1	)	$	(1	)
Decrease in discount rate of 0.5%	4348			4045			~~(43~~1		)	1
Increase in estimated return on assets of 1.0%							(2		)	(2		)
Decrease in estimated return on assets of 1.0%							$	2		$	2

For the relative asset allocations of plan assets in each investment category see Note 12 to the Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K.

Impairment of Long-Lived Assets, Goodwill and Other Intangible Assets

As events warrant, we evaluate the recoverability of long-lived assets, other than goodwill and other indefinite-lived intangibles, by assessing whether the carrying value can be recovered over their remaining useful lives through the expected future undiscounted operating cash flows of the underlying asset groups. Impairment indicators include, but are not limited to, a significant decrease in the market price of a long-lived asset; a significant adverse change in the manner in which the asset is being used or in its physical condition; a significant adverse change in legal factors or the business climate that could affect the value of a long-lived asset; an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset; current period operating or cash flow losses combined with a history of operating or cash flow losses associated with the use of the asset; or a current expectation that it is more likely than not that a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. As a result, future decisions to change our manufacturing process, exit certain businesses, reduce excess capacity, temporarily idle facilities and close facilities could result in material impairment charges. Long-lived assets are grouped together at the lowest level for which identifiable cash flows are largely independent of cash flows of other groups of long-lived assets. Any impairment loss that may be required is determined by comparing the carrying value of the assets to their estimated fair value.

We perform an annual assessment of qualitative factors to determine whether the existence of any events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than the carrying amount of the reporting unit’s net assets. If, after assessing all events and circumstances, we determine it is more likely than not that the fair value of a reporting unit is less than the carrying amount of the reporting unit’s net assets, we use a probability weighted market and income approach to estimate the fair value of the reporting unit. Our market approach is a comparable analysis technique commonly used in the investment banking and private equity industries based on the EBITDA multiple technique. Under this technique, estimated fair value is the result of a market based EBITDA multiple that is applied to an appropriate historical EBITDA amount, adjusted for the additional fair value that would be assigned by a market participant obtaining control over the reporting unit. Our income approach is a discounted cash flow model. The discounted cash flow model requires management to project revenues, operating expenses, working capital investment, capital spending and cash flows over a multiyear period, as well as determine the weighted average cost of capital to be used as a discount rate. Applying this discount rate to the multiyear projections provides an estimate of fair value for the reporting unit. The discounted cash flow model does not include cash flows related to interest payments and debt service, as the related debt has not been pushed down to the reporting unit level. Our reporting units ~~are~~ for the ~~same~~evaluation asof our goodwill recoverability are our following operating segments: Performance Additives, Formulated and Basic Silicones, and Quartz Technologies.

At October 1, ~~2016~~2017, the fair value of ~~the~~all reporting units exceeded the ~~respective~~ carrying ~~values~~value by 9%more tothan 4610% ~~("headroom")~~. It is possible that the conclusions regarding the impairment or recoverability of goodwill at either reporting unit could change in future periods if, for example, the reporting unit does not perform as projected, the results of strategic plans and certain cost saving initiatives are not fully achieved, or the overall economic or business conditions are worse than current assumptions (including inputs to the discount rate or market based EBITDA multiples). If our assumptions and related estimates change in the future, or if we change our reporting structure or other events and circumstances change, we ~~may be required to record impairment charges in future periods. Any impairment charges that we may take in the future could be material to our results of operations and financial condition.~~

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~~The Quartz reporting unit, which had headroom of 9%, was the only reporting unit with fair value in excess of carrying value of less than 20%~~ITEM 7. AsMANAGEMENT’S ofDISCUSSION ~~December~~AND ~~31,~~ANALYSIS ~~2016,~~OF ~~the~~FINANCIAL ~~carrying~~CONDITION ~~value~~AND ofRESULTS ~~goodwill~~OF ~~assigned~~OPERATIONS to(dollar ~~the~~amounts ~~Quartz reporting unit was $18. Management will continue to monitor this reporting unit for changes~~ in ~~the business environment that could impact recoverability.~~ millions) (Continued)

~~Fresh~~may ~~Start~~be ~~Accounting~~required to record impairment charges in future periods. Any impairment charges that we may take in the future could be material to our results of operations and financial condition.

The application of fresh start accounting requires that the assets and liabilities of the successor entity be recorded at the date of the emergence at their respective fair values. Fair value is defined as 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. Accordingly, we may be required to value assets at fair value measures that do not reflect our intended use of those assets. The fair value of in-process research and development, identifiable intangible assets and certain tangible assets requires the use of significant estimates and assumptions, including, but not limited to, estimating future cash flows and developing appropriate discount rates. Accordingly, for significant items, we typically obtain assistance from third party valuation specialists. Fair value measurements can be highly subjective and the reasonable application may result in a range of alternative estimates using the same facts and circumstances. Any excess of the enterprise value over the estimated fair values of the net assets is recorded as goodwill. As a result, we adjusted the carrying value of goodwill to $224 which represents the reorganizational value of assets in excess of amounts allocated to identified tangible and intangible assets.

Recently Issued Accounting Standards

The nature and impact of recent accounting pronouncements is discussed in Note 52 to ~~our~~the ~~consolidated~~Consolidated ~~financial~~Financial ~~statements~~Statements in this Annual Report on Form 10-K, which is incorporated herein by reference.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks arising from our normal business activities. These market risks principally involve the possibility of changes in interest rates, currency exchange rates or commodity prices that would adversely affect the value of our financial assets and liabilities or future cash flows and earnings. Market risk is the potential loss arising from adverse changes in market rates and prices.

Foreign Exchange Risk

Our international operations accounted for approximately 6766% of our net sales in ~~2016~~2017, 6667% in ~~2015~~2016 and 6866% in ~~2014~~2015. As a result, we have significant exposure to foreign exchange risk related to transactions that can potentially be denominated in many foreign currencies. These transactions include foreign currency denominated imports and exports of raw materials and finished goods (both intercompany and third party) and loan repayments. The functional currency of our operating subsidiaries is generally the related local currency.

We aim to reduce foreign currency cash flow exposure due to exchange rate fluctuations by hedging foreign currency transactions when economically feasible. Our use of forward and option contracts is designed to protect our cash flows against unfavorable movements in exchange rates, to the extent of the amount under contract. We do not attempt to hedge foreign currency exposure in a manner that would entirely eliminate the effect of changes in foreign currency exchange rates on net income and cash flow. We do not speculate in foreign currency, nor do we hedge the foreign currency translation of our international businesses to the U.S. dollar for purposes of consolidating our financial results or other foreign currency net asset or liability positions. The counter-parties to our hedge contracts are financial institutions with investment-grade credit ratings.

Our foreign exchange risk is also mitigated because we operate in many foreign countries, which reduces the concentration of risk in any one currency. In addition, certain of our foreign operations have limited imports and exports, which reduces the potential impact of foreign currency exchange rate fluctuations.

Interest Rate Risk

As of December 31, ~~2016~~2017, none of our borrowings were at variable interest rates. If we make borrowings at variable interest rates in the future, we will be subject to the variations in interest rates in respect of our variable rate debt. While we may enter into agreements intending to limit our exposure to higher interest rates, any such agreements may not offer complete protection from this risk. See additional discussion about interest rate risk in Item 1A of Part I of this Annual Report on Form 10-K.

Following is a summary of our outstanding debt as of December 31, ~~2016~~2017 and ~~2015~~2016 (see Note 107 to the Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for additional information on our debt). The fair value of our publicly held debt is based on the price at which the bonds are traded or quoted at December 31, ~~2016~~2017 and ~~2015~~2016. All other debt fair values are based on other similar financial instruments, or based upon interest rates that are currently available to us for the issuance of debt with similar terms and maturities.

	2016						2015
	2017						2016
Year	Debt Maturities		WeightedAverageInterestRate(1)		Fair Value		Debt Maturities		WeightedAverageInterestRate(1)		Fair Value
2016							$	36	4.1	%	$	36
2017							$	36	4.1	%	$	36
2017	$	36	4.1	%	$	36	—		—	%	—
2018	$	36	4.1	%	$	36	—		—	%	—
2018	—		—	%	—		—		—	%	—
2019	—		—	%	—		—		—	%	—
2020	—		—	%	—		—		—	%	—
2021	1,100		4.32	%	1,~~034~~144		1,100		4.43	%	~~759~~1,034
2022 and beyond	202		5.5	%	173		231		5.6	%	114
2022	202		5.3	%	211		202		5.5	%	173
	$	1,338			$	1,~~243~~391	$	1,~~367~~338			$	~~909~~1,243


(1)	Calculated based on the book value of debt.

Commodity Risk

We are exposed to price risks on raw material purchases. We pursue ways to diversify and minimize material costs through strategic raw material purchases, and through commercial and contractual pricing agreements and customer price adjustments. For our commodity raw materials, we have purchase contracts that have periodic price adjustment provisions. We rely on key suppliers for most of our raw materials. The loss of a key source of supply or a delay in shipments could have an adverse effect on our business. Should any of our suppliers fail to deliver or should any key supply contracts be canceled, we would be forced to purchase raw materials in the open market, and no assurances can be given that we would be able to make these purchases or make them at prices that would allow us to remain competitive. Also, we will consider hedging strategies that minimize risk or reduce volatility when available.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements

	Page Number
Consolidated Financial Statements of Momentive Holdings Inc. and Momentive Performance Materials Inc.
Consolidated Financial Statements of MPM Holdings Inc. and Momentive Performance Materials Inc.
Consolidated Balance Sheets at December 31, 2016 and 2015	53
Consolidated Balance Sheets at December 31, 2017 and 2016	55
Consolidated Statements of Operations; year ended December 31, 2016; year ended December 31, 2015; successor period from October 25, 2014 through December 31, 2014 and predecessor period from January 1, 2014 through October 24, 2014	53
Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015	56
Consolidated Statements of Comprehensive (Loss) Income; year ended December 31, 2016; year ended December 31, 2015; successor period from October 25, 2014 through December 31, 2014 and predecessor period from January 1, 2014 through October 24, 2014	55
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2017, 2016 and 2015	58
Consolidated Statements of Cash Flows; year ended December 31, 2016; year ended December 31, 2015; successor period from October 25, 2014 through December 31, 2014 and predecessor period from January 1, 2014 through October 24, 2014	56
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015	59
Consolidated Statements of Equity (Deficit); year ended December 31, 2016; year ended December 31, 2015; successor period from October 25, 2014 through December 31, 2014 and predecessor period from January 1, 2014 through October 24, 2014	58
Consolidated Statements of Equity for the years ended December 31, 2017, 2016 and 2015	61
Notes to Consolidated Financial Statements	6063
Report of Independent Registered Public Accounting Firm	~~117~~104
Schedule I – Condensed Parent Company Financial Statements	~~121~~106
Schedule II - Valuation and Qualifying Accounts	~~124~~110

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CONSOLIDATED BALANCE SHEETS

	MPM HOLDINGS INC.						MOMENTIVE PERFORMANCE MATERIALS INC.
(In millions, except share data)	December 31, ~~2016~~2017			December 31, ~~2015~~2016			December 31, ~~2016~~2017			December 31, ~~2015~~2016
Assets
Current assets:
Cash and cash equivalents (including restricted cash of $4 at both December 31, 2016 and 2015)	$	228		$	221		$	228		$	221
Cash and cash equivalents (including restricted cash of $1 and $4 at December 31, 2017 and 2016, respectively)	$	174		$	228		$	174		$	228
Accounts receivable (net of allowance for doubtful accounts of less than $1 at both December 31, 2016 and 2015)	280			292			280			292
Accounts receivable (net of allowance for doubtful accounts of $4 at both December 31, 2017 and 2016)	323			280			323			280
Inventories:
Raw materials	~~119~~153			~~143~~119			~~119~~153			~~143~~119
Finished and in-process goods	~~271~~292			~~238~~271			~~271~~292			~~238~~271
Other current assets	5051			4850			5051			4850
Total current assets	~~948~~993			~~942~~948			~~948~~993			~~942~~948
Investment in unconsolidated entities	2019			1920			2019			1920
Deferred income taxes (see Note 13)	9			9			9			9
Deferred income taxes (see Note 10)	11			9			11			9
Other long-term assets	2011			1920			2011			1920
Property and equipment:
Land	7477			7374			7477			7374
Buildings	~~307~~338			~~293~~307			~~307~~338			~~293~~307
Machinery and equipment	~~959~~1,135			~~875~~959			~~959~~1,135			~~875~~959
	1,340			1,241			1,340			1,241
	1,550			1,340			1,550			1,340
Less accumulated depreciation	(~~265~~383		)	(~~134~~265		)	(~~265~~383		)	(~~134~~265		)
	1,075			1,107			1,075			1,107
	1,167			1,075			1,167			1,075
Goodwill (see Note 9)	211			211			211			211
Goodwill (see Note 6)	216			211			216			211
Other intangible assets, net (see Note 9)	323			356			323			356
Other intangible assets, net (see Note 6)	300			323			300			323
Total assets	$	2,~~606~~717		$	2,~~663~~606		$	2,~~606~~717		$	2,~~663~~606
Liabilities and Equity
Current liabilities:
Accounts payable	$	~~238~~286		$	~~223~~238		$	~~238~~286		$	~~223~~238
Debt payable within one year (See Note 10)	36			36			36			36
Debt payable within one year (See Note 7)	36			36			36			36
Interest payable	1112			11			1112			11
Income taxes payable (see Note 13)	8			5			8			5
Income taxes payable (see Note 10)	7			8			7			8
Accrued payroll and incentive compensation	6168			4361			6168			4361
Other current liabilities	~~123~~103			83123			~~122~~102			83122
Total current liabilities	~~477~~512			~~401~~477			~~476~~511			~~401~~476
Long-term liabilities:
Long-term debt (see Note 10)	1,167			1,169			1,167			1,169
Long-term debt (see Note 7)	1,192			1,167			1,192			1,167
Pension liabilities (see Note 15)	341			333			341			333
Pension liabilities (see Note 12)	335			341			335			341
Deferred income taxes (see Note 13)	66			70			66			70
Deferred income taxes (see Note 10)	60			66			60			66
Other long-term liabilities	7374			6473			7274			6472
Total liabilities	2,~~124~~173			2,~~037~~124			2,~~122~~172			2,~~037~~122
Commitments and contingencies (see Note 14)
Commitments and contingencies (see Note 11)
Equity
Common stock - $0.01 par value; 70,000,000 shares authorized; 48,058,114 and 48,028,594 shares issued and outstanding at December 31, 2016 and 2015, respectively	—			—
Common stock - $0.01 par value; 70,000,000 shares authorized; 48,121,634 and 48,058,114 shares issued and outstanding at December 31, 2017 and 2016, respectively	—			—
Common stock - $0.01 par value; 100 shares authorized; 48 issued and outstanding at December 31, 2016 and 2015, respectively							—			—
Common stock - $0.01 par value; 100 shares authorized; 48 issued and outstanding at December 31, 2017 and 2016, respectively							—			—
Additional paid-in capital	~~864~~868			~~861~~864			~~863~~866			~~860~~863
Accumulated other comprehensive loss	(7618		)	(9276		)	(7618		)	(9276		)
Accumulated deficit	(306		)	(~~143~~306		)	(303		)	(~~142~~303		)
Total equity	~~482~~544			~~626~~482			~~484~~545			~~626~~484
Total liabilities and equity	$	2,~~606~~717		$	2,~~663~~606		$	2,~~606~~717		$	2,~~663~~606

See Notes to Consolidated Financial Statements

Table of Contents

MPM HOLDINGS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Successor									Predecessor
	Year Ended December 31,
(In millions, except per share data)	~~Year Ended December 31, 2016~~2017			~~Year Ended December 31, 2015~~2016			~~Period from October 25, 2014 through December 31, 2014~~2015			~~Period from January 1, 2014 through October 24, 2014~~
Net sales	$	2,~~233~~331		$	2,~~289~~233		$	~~465~~2,289		$	~~2,011~~
Cost of sales	1,~~845~~831			1,~~894~~845			~~402~~1,894
Gross profit	~~388~~500			~~395~~388			63395
Cost of sales, excluding depreciation and amortization										1,439
Selling, general and administrative expense	333			347			285
Selling, general and administrative expense	347			285			80			434
Research and development expense	64			64			65
Depreciation and amortization expense										147
Restructuring and discrete costs (see Note 3)	6			42			32
Research and development expense	64			65			13			63
Other operating loss (income), net	9			19			2
Restructuring and other costs (see Note 6)	42			32			5			20
Operating income (loss)	88			(84		)	11
Other operating loss (income), net	19			2			(1		)	—
Interest expense, net (see Note 7)	80			76			79
Operating (loss) income	(84		)	11			(34		)	(92		)
Non-operating (income) expense, net	(8		)	(7		)	3
Interest expense, net (see Note 10)	76			79			15			162
Gain on extinguishment of debt (see Note 7)	—			(9		)	(7		)
Other non-operating (income) expense, net	(7		)	3			8			—
Reorganization items, net	1			2			8
Gain on extinguishment of debt (see Note 10)	(9		)	(7		)	—			—
Income (loss) before income taxes and earnings from unconsolidated entities	15			(146		)	(72		)
Reorganization items, net (see Note 4)	2			8			3			(1,972		)
Income tax expense (see Note 10)	15			18			13
(Loss) income before income taxes and earnings from unconsolidated entities	(146		)	(72		)	(60		)	1,718
Income (loss) before earnings from unconsolidated entities	—			(164		)	(85		)
Income tax expense (see Note 13)	18			13			—			36
Earnings from unconsolidated entities, net of taxes	—			1			2
(Loss) income before earnings from unconsolidated entities	(164		)	(85		)	(60		)	1,682
Net income (loss)	$	—		$	(163	)	$	(83	)
Earnings from unconsolidated entities, net of taxes	1			2			—			3
Net income (loss) per share:
Net (loss) income	$	(163	)	$	(83	)	$	(60	)	$	1,685
Net income (loss) per common share—basic	$	—		$	(3.39	)	$	(1.73	)
Net (loss) income per share:
Net income (loss) per common share—diluted	$	—		$	(3.39	)	$	(1.73	)
Net (loss) income per common share—basic	$	(3.39	)	$	(1.73	)	$	(1.25	)	$	16,850,000
Shares used in per-share calculation
Net (loss) income per common share—diluted	$	(3.39	)	$	(1.73	)	$	(1.25	)	$	16,850,000
Weighted average common shares outstanding—basic	48,112,584			48,050,048			48,015,685
Shares used in per-share calculation
Weighted average common shares outstanding—diluted	48,341,916			48,050,048			48,015,685
Weighted average common shares outstanding—basic	48,050,048			48,015,685			47,989,000			100
Weighted average common shares outstanding—diluted	48,050,048			48,015,685			47,989,000			100

See Notes to Consolidated Financial Statements

5356

Table of Contents

MOMENTIVE PERFORMANCE MATERIALS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Successor									Predecessor
	Year Ended December 31,
(In millions, except per share data)	~~Year Ended December 31, 2016~~2017			~~Year Ended December 31, 2015~~2016			~~Period from October 25, 2014 through December 31, 2014~~2015			~~Period from January 1, 2014 through October 24, 2014~~
Net sales	$	2,~~233~~331		$	2,~~289~~233		$	~~465~~2,289		$	~~2,011~~
Cost of sales	1,~~845~~831			1,~~894~~845			~~402~~1,894
Gross profit	~~388~~500			~~395~~388			63395
Cost of sales, excluding depreciation and amortization										1,439
Selling, general and administrative expense	332			345			284
Selling, general and administrative expense	345			284			80			434
Research and development expense	64			64			65
Depreciation and amortization expense										147
Restructuring and discrete costs (see Note 3)	6			42			32
Research and development expense	64			65			13			63
Other operating loss (income), net	9			19			2
Restructuring and other costs (see Note 6)	42			32			5			20
Operating income (loss)	89			(82		)	12
Other operating loss (income), net	19			2			(1		)	—
Interest expense, net (see Note 7)	80			76			79
Operating (loss) income	(82		)	12			(34		)	(92		)
Non-operating (income) expense, net	(8		)	(7		)	3
Interest expense, net (see Note 10)	76			79			15			162
Gain on extinguishment of debt (see Note 7)	—			(9		)	(7		)
Other non-operating (income) expense, net	(7		)	3			8			—
Reorganization items, net	1			2			8
Gain on extinguishment of debt (see Note 10)	(9		)	(7		)	—			—
Income (loss) before income taxes and earnings from unconsolidated entities	16			(144		)	(71		)
Reorganization items, net (see Note 4)	2			8			3			(1,972		)
Income tax expense (see Note 10)	15			18			13
(Loss) income before income taxes and earnings from unconsolidated entities	(144		)	(71		)	(60		)	1,718
Income (loss) before earnings from unconsolidated entities	1			(162		)	(84		)
Income tax expense (see Note 13)	18			13			—			36
Earnings from unconsolidated entities, net of taxes	—			1			2
(Loss) income before earnings from unconsolidated entities	(162		)	(84		)	(60		)	1,682
Net income (loss)	$	1		$	(161	)	$	(82	)
Earnings from unconsolidated entities, net of taxes	1			2			—			3
Net (loss) income	$	(161	)	$	(82	)	$	(60	)	$	1,685

See Notes to Consolidated Financial Statements

5457

Table of Contents

MPM HOLDINGS INC.

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

	Successor									Predecessor
	Year Ended December 31,
(In millions)	~~Year Ended December 31, 2016~~2017			~~Year Ended December 31, 2015~~2016			~~Period from October 25, 2014 through December 31, 2014~~2015			~~Period from January 1, 2014 through October 24, 2014~~
Net (loss) income	$	(163	)	$	(83	)	$	(60	)	$	1,685
Net income (loss)	$	—		$	(163	)	$	(83	)
Other comprehensive income (loss), net of tax:
Foreign currency translation	(145		)	(631		)	(2963		)	31
Gain (loss) recognized from pension and postretirement benefits	1713			(117		)	(1		)	~~(71~~		)
Reclassification adjustment for net fresh start gain related to accumulated other comprehensive income included in net (loss) income	—			—			—			(162		)
Other comprehensive income (loss)	58			16			(64		)
Other comprehensive income (loss)	16			(64		)	(28		)	(202		)
Comprehensive income (loss)	$	58		$	(147	)	$	(147	)
Comprehensive (loss) income	$	(147	)	$	(147	)	$	(88	)	$	1,483

MOMENTIVE PERFORMANCE MATERIALS INC.

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

	Successor									Predecessor
	Year Ended December 31,
(In millions)	~~Year Ended December 31, 2016~~2017			~~Year Ended December 31, 2015~~2016			~~Period from October 25, 2014 through December 31, 2014~~2015			~~Period from January 1, 2014 through October 24, 2014~~
Net (loss) income	$	(161	)	$	(82	)	$	(60	)	$	1,685
Net income (loss)	$	1		$	(161	)	$	(82	)
Other comprehensive income (loss), net of tax:
Foreign currency translation	(145		)	(631		)	(2963		)	31
Gain (loss) recognized from pension and postretirement benefits	1713			(117		)	(1		)	~~(71~~		)
Reclassification adjustment for net fresh start gain related to accumulated other comprehensive income included in net (loss) income	—			—			—			(162		)
Other comprehensive income (loss)	58			16			(64		)
Other comprehensive income (loss)	16			(64		)	(28		)	(202		)
Comprehensive income (loss)	$	59		$	(145	)	$	(146	)
Comprehensive (loss) income	$	(145	)	$	(146	)	$	(88	)	$	1,483

See Notes to Consolidated Financial Statements

5558

Table of Contents

MPM HOLDINGS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Successor									Predecessor
	Year Ended December 31,
(In millions)	~~Year Ended December 31, 2016~~2017			~~Year Ended December 31, 2015~~2016			~~Period from October 25, 2014 through December 31, 2014~~2015			~~Period from January 1, 2014 through October 24, 2014~~
Cash flows provided (used) in operating activities
Cash flows provided by operating activities
Net (loss) income	$	(163	)	$	(83	)	$	(60	)	$	1,685
Net income (loss)	$	—		$	(163	)	$	(83	)
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	~~185~~154			~~153~~185			22153			~~147~~
Non-cash reorganization items	—			—			—			(2,078		)
Gain on insurance proceeds received for capital (See Note 3)	(9		)	—			—
Gain on the extinguishment of debt (see Note 10)	(9		)	(7		)	—			—
Gain on the extinguishment of debt (see Note 7)	—			(9		)	(7		)
Amortization of debt discount and issuance costs	23			22			4			—
Amortization of debt discount	25			23			22
DIP Facility financing fees included in net income	—			—			—			19
Unrealized actuarial (gains) losses	(5		)	33			(13		)
Unrealized actuarial losses (gains)	33			(13		)	15			—
Deferred income tax benefit	(9		)	(17		)	(6		)
Deferred income tax (benefit) expense	(17		)	(6		)	(10		)	20
Stock-based compensation expense	4			3			3
Stock-based compensation expense	3			3			—			—
Pension curtailment gain	—			—			(3		)
Pension curtailment gain	—			(3		)	—			—
Unrealized foreign currency gains	(6		)	(3		)	(10		)
Unrealized foreign currency (gains) losses	(3		)	(10		)	2			99
Loss due to impaired and scrapped assets	14			20			10
Loss due to impaired assets	12			4			—			—
Other non-cash adjustments	—			(1		)	(2		)
Other non-cash adjustments	7			4			—			5
Net change in assets and liabilities:
Net change in assets and liabilities:
Accounts receivable	(30		)	11			17
Accounts receivable	11			17			4			(27		)
Inventories	(36		)	(12		)	2
Inventories	(12		)	2			52			(95		)
Accounts payable	41			8			11
Accounts payable	8			11			(82		)	68
Income taxes payable	1			7			(2		)
Income taxes payable	7			(2		)	1			—
Other assets, current and non-current	8			(15		)	18
Other assets, current and non-current	(15		)	18			9			(6		)
Other liabilities, current and non-current	(39		)	72			18
Other liabilities, current and non-current	72			18			40			(44		)
Net cash provided by operating activities	113			142			128
Net cash provided by (used in) operating activities	142			128			(3		)	(207		)
Cash flows used in investing activities
Cash flows used in investing activities
Capital expenditures	(170		)	(117		)	(115		)
Capital expenditures	(115		)	(114		)	(17		)	(78		)
Capital reimbursed from insurance proceeds (See Note 3)	9			—			—
Capitalized interest	(2		)	(1		)	—			(1		)
Purchases of intangible assets	(2		)	(2		)	(3		)
Proceeds from sale of business (see Note 7)	—			—			—			12
Dividend from MPM	1			1			—
Consolidation of variable interest entity (see Note 7)	—			—			—			50
Purchase of a business	(9		)	—			—
Purchases of intangible assets	(2		)	(3		)	—			(2		)
Change in restricted cash	3			—			—
Dividend from MPM	1			—			—			—
Proceeds from sale of assets	—			1			2
Proceeds from sale of assets	1			2			—			1
Net cash used in investing activities	(168		)	(117		)	(116		)
Net cash used in investing activities	(117		)	(116		)	(17		)	(18		)
Cash flows used in financing activities
Cash flows (used in) provided by financing activities
Net short-term debt repayments	(1		)	—			(1		)
Net short-term debt repayments	—			(1		)	(1		)	(6		)
Repayments of long-term debt	—			(16		)	(10		)
Borrowings of long-term debt	—			—			—			180
Common stock issuance proceeds	—			—			1
Repayments of long-term debt	(16		)	(10		)	—			(315		)
Net cash used in financing activities	(1		)	(16		)	(10		)
Repayment of affiliated debt (see Note 7)	—			—			—			(50		)
Increase (decrease) in cash and cash equivalents	(56		)	9			2
Common stock issuance proceeds (see Note 2)	—			1			—			600
Effect of exchange rate changes on cash	5			(2		)	(8		)
DIP Facility financing fees	—			—			—			(19		)
Cash and cash equivalents, beginning of period	224			217			223
Net cash (used in) provided by financing activities	(16		)	(10		)	(1		)	390
Cash and cash equivalents, end of period	$	173		$	224		$	217
Increase (decrease) in cash and cash equivalents	9			2			(21		)	165
Supplemental disclosures of cash flow information
Effect of exchange rate changes on cash	(2		)	(8		)	(4		)	(6		)
Cash paid for:
Cash and cash equivalents, beginning of period	217			223			248			89
Interest	$	57		$	56		$	57
Cash and cash equivalents, end of period	$	224		$	217		$	223		$	248
Income taxes, net of refunds	24			27			21
Supplemental disclosures of cash flow information
Non-cash investing activity:
Cash paid for:
Capital expenditures included in accounts payable	$	23		$	25		$	17
Interest	$	56		$	57		$	1		$	250
Income taxes, net of refunds	27			21			3			12
Non-cash investing activity:
Capital expenditures included in accounts payable	$	25		$	17		$	20		$	13
Non-cash financing activity:
Conversion of BCA Commitment Premium (see Note 2)	—			—			—			30

See Notes to Consolidated Financial Statements

5659

Table of Contents

MOMENTIVE PERFORMANCE MATERIALS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Successor									Predecessor
	Year Ended December 31,
(In millions)	~~Year Ended December 31, 2016~~2017			~~Year Ended December 31, 2015~~2016			~~Period from October 25, 2014 through December 31, 2014~~2015			~~Period from January 1, 2014 through October 24, 2014~~
Cash flows provided (used) in operating activities
Cash flows provided by operating activities
Net (loss) income	$	(161	)	$	(82	)	$	(60	)	$	1,685
Net income (loss)	$	1		$	(161	)	$	(82	)
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization	~~185~~154			~~153~~185			22153			~~147~~
Non-cash reorganization items	—			—			—			(2,078		)
Gain on insurance proceeds received for capital (See Note 3)	(9		)	—			—
Gain on the extinguishment of debt (see Note 10)	(9		)	(7		)	—			—
Gain on the extinguishment of debt (see Note 7)	—			(9		)	(7		)
Amortization of debt discount and issuance costs	2325			2223			422			—
DIP Facility financing fees included in net income	—			—			—			19
Unrealized actuarial (gains) losses	(5		)	33			(13		)
Unrealized actuarial losses (gains)	33			(13		)	15			—
Deferred income tax benefit	(9		)	(17		)	(6		)
Deferred income tax (benefit) expense	(17		)	(6		)	(10		)	20
Stock-based compensation expense	3			3			3
Stock-based compensation expense	3			3			—			—
Pension curtailment gain	—			—			(3		)
Pension curtailment gain	—			(3		)	—			—
Unrealized foreign currency gains	(6		)	(3		)	(10		)
Unrealized foreign currency (gains) losses	(3		)	(10		)	2			99
Loss due to impaired and scrapped assets	14			20			10
Loss due to impaired assets	12			4			—			—
Other non-cash adjustments	—			(1		)	(2		)
Other non-cash adjustments	7			4			—			5
Net change in assets and liabilities:
Net change in assets and liabilities:
Accounts receivable	(30		)	11			17
Accounts receivable	11			17			4			(27		)
Inventories	(36		)	(12		)	2
Inventories	(12		)	2			52			(95		)
Accounts payable	41			8			11
Accounts payable	8			11			(82		)	68
Income taxes payable	1			7			(2		)
Income taxes payable	7			(2		)	1			—
Other assets, current and non-current	8			(15		)	18
Other assets, current and non-current	(15		)	18			9			(6		)
Other liabilities, current and non-current	(37		)	72			18
Other liabilities, current and non-current	72			18			40			(44		)
Net cash provided by operating activities	115			144			129
Net cash provided (used) in operating activities	144			129			(3		)	(207		)
Cash flows used in investing activities
Cash flows used in investing activities
Capital expenditures	(170		)	(117		)	(115		)
Capital expenditures	(115		)	(114		)	(17		)	(78		)
Capital reimbursed from insurance proceeds (See Note 3)	9			—			—
Capitalized interest	(2		)	(1		)	—			(1		)
Purchases of intangible assets	(2		)	(2		)	(3		)
Proceeds from sale of business (See Note 7)	—			—			—			12
Purchase of a business	(9		)	—			—
Consolidation of variable interest entity (see Note 7)	—			—			—			50
Change in restricted cash	3			—			—
Purchases of intangible assets	(2		)	(3		)	—			(2		)
Proceeds from sale of assets	—			1			2
Change in restricted cash	—			—			—			—
Net cash used in investing activities	(169		)	(118		)	(116		)
Proceeds from sale of assets	1			2			—			1
Cash flows used in financing activities
Net cash used in investing activities	(118		)	(116		)	(17		)	(18		)
Net short-term debt repayments	(1		)	—			(1		)
Cash flows (used in) provided by financing activities
Repayments of long-term debt	—			(16		)	(10		)
Net short-term debt repayments	—			(1		)	(1		)	(6		)
Dividends paid	(1		)	(1		)	—
Borrowings of long-term debt	—			—			—			180
Net cash used in provided by financing activities	(2		)	(17		)	(11		)
Repayments of long-term debt	(16		)	(10		)	—			(315		)
Increase (decrease) in cash and cash equivalents	(56		)	9			2
Repayment of affiliated debt (see Note 7)	—			—			—			(50		)
Effect of exchange rate changes on cash	5			(2		)	(8		)
Proceeds from Rights Offerings (see Note 2)	—			—			—			600
Cash and cash equivalents, beginning of period	224			217			223
DIP Facility financing fees	—			—			—			(19		)
Cash and cash equivalents, end of period	$	173		$	224		$	217
Dividend paid to Momentive	(1		)	—			—			—
Supplemental disclosures of cash flow information
Net cash (used in) provided by financing activities	(17		)	(11		)	(1		)	390
Cash paid for:
Increase (decrease) in cash and cash equivalents	9			2			(21		)	165
Interest	$	57		$	56		$	57
Effect of exchange rate changes on cash	(2		)	(8		)	(4		)	(6		)
Income taxes, net of refunds	24			27			21
Cash and cash equivalents, beginning of period	217			223			248			89
Non-cash investing activity:
Cash and cash equivalents, end of period	$	224		$	217		$	223		$	248
Capital expenditures included in accounts payable	$	23		$	25		$	17
Supplemental disclosures of cash flow information
Cash paid for:
Interest	$	56		$	57		$	1		$	250
Income taxes, net of refunds	27			21			3			12
Non-cash investing activity:
Capital expenditures included in accounts payable	$	25		$	17		$	20		$	13
Non-cash financing activity:
Conversion of BCA Commitment Premium (see Note 2)	—			—			—			30

See Notes to Consolidated Financial Statements

5760

Table of Contents

MPM HOLDINGS INC.

CONSOLIDATED STATEMENTS OF EQUITY

	Common Stock			Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total ~~(Deficit)~~ Equity
(In millions)	Shares	Amount
Predecessor
Balance as of December 31, 2014	47,989,000	$	—	$	857		$	(60	)	$	(28	)	769
Balance at December 31, 2013	—	$	—	$	716		$	(2,398	)	$	202		$	(1,480	)
Net income							1,685						1,685
Other comprehensive loss										(40		)	(40		)
Sale of business to related party (see Note 7)				(3		)							(3		)
Cancellation of Predecessor Company equity (see Note 3)				(713		)	713			(162		)	(162		)
Balance at October 24, 2014	—	$	—	$	—		$	—		$	—		$	—
Successor
Issuance of Successor Company common stock (see Notes 2 and 3)	47,989,000			857									857
Balance at October 25, 2014	47,989,000	$	—	$	857		$	—		$	—		$	857
Net loss							(60		)				(60		)
Other comprehensive loss										(28		)	(28		)
Balance as of December 31, 2014	47,989,000	$	—	$	857		$	(60	)	$	(28	)	$	769
Net loss							(83		)				(83		)
Other comprehensive loss										(64		)	(64		)
Stock-based compensation expense				3									3
Proceeds from sale of common stock	39,594	—		1									1
Balance as of December 31, 2015	48,028,594	$	—	$	861		$	(143	)	$	(92	)	$	626
Net loss							(163		)				(163		)
Other comprehensive income										16			16
Stock-based compensation expense				3									3
Proceeds from sale of common stock	29,520												—
Common stock issued	29,520	—											—
Balance as of December 31, 2016	48,058,114	$	—	$	864		$	(306	)	$	(76	)	$	482
Net income							—						—
Other comprehensive income										58			58
Stock-based compensation expense				4									4
Common stock issued	63,520	—											—
Balance as of December 31, 2017	48,121,634	$	—	$	868		$	(306	)	$	(18	)	$	544

See Notes to Consolidated Financial Statements

5861

Table of Contents

MOMENTIVE PERFORMANCE MATERIALS INC.

CONSOLIDATED STATEMENTS OF EQUITY

(In millions)	Common Stock	Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total ~~(Deficit)~~ Equity
Predecessor
Balance at December 31, 2013	—	$	716		$	(2,398	)	$	202		$	(1,480	)
Net income					1,685						1,685
Other comprehensive loss								(40		)	(40		)
Sale of business to related party (see Note 7)		(3		)							(3		)
Cancellation of Predecessor Company equity (see Note 3)		(713		)	713			(162		)	(162		)
Balance at October 24, 2014	—	$	—		$	—		$	—		$	—
Successor
Issuance of Successor Company common stock (see Notes 2 and 3)	—	857									857
Balance at October 25, 2014	—	$	857		$	—		$	—		$	857
Net loss					(60		)				(60		)
Other comprehensive loss								(28		)	(28		)
Balance as of December 31, 2014	—	$	857		$	(60	)	$	(28	)	$	769
Net loss					(82		)				(82		)
Other comprehensive loss								(64		)	(64		)
Capital contribution from parent		3									3
Balance as of December 31, 2015	—	$	860		$	(142	)	$	(92	)	$	626
Net loss					(161		)				(161		)
Other comprehensive income								16			16
Capital contribution from parent		3									3
Balance as of December 31, 2016	—	$	863		$	(303	)	$	(76	)	$	484
Net income					1						1
Other comprehensive income								58			58
Dividends					(1		)				(1		)
Capital contribution from parent		3									3
Balance as of December 31, 2017	—	$	866		$	(303	)	$	(18	)	$	545

See Notes to Consolidated Financial Statements

5962

Table of Contents

MPM HOLDINGS INC. AND MOMENTIVE PERFORMANCE MATERIALS INC.

Notes to Consolidated Financial Statements

(In millions, except share data)

1. Business and Basis of Presentation

~~Based~~MPM inHoldings ~~Waterford~~Inc. (“Momentive”) is a holding company that conducts substantially all of its business through its subsidiaries. Momentive’s wholly owned subsidiary, NYMPM Intermediate Holdings Inc. (“Intermediate Holdings”), is a holding company for its wholly owned subsidiary, Momentive Performance Materials Inc. (“MPM”) and its subsidiaries. Momentive became the indirect parent company of MPM in accordance with MPM’s plan of reorganization (the “~~Company~~Plan”) pursuant to MPM’s emergence from Chapter 11 bankruptcy on October 24, 2014 (the “Effective Date” or the “~~MPM~~Emergence Date”). Prior to its reorganization, isMPM, ~~comprised~~through a series of ~~two~~intermediate ~~reportable~~holding ~~segments:~~companies, ~~Silicones~~was ~~and~~controlled ~~Quartz.~~by ~~Silicones~~investment isfunds amanaged ~~global~~by ~~business~~affiliates ~~engaged~~of inApollo ~~the~~Management ~~manufacture~~Holdings, ~~sale~~L.P. (together with Apollo Global Management, LLC and ~~distribution~~subsidiaries, of“Apollo”). Unless ~~silanes~~otherwise noted, ~~specialty~~references ~~silicones~~to “we,” “us,” “our” or the “Company” refer collectively to Momentive and ~~urethane~~MPM ~~additives.~~and ~~Quartz~~their subsidiaries, ~~also~~and, aunless ~~global~~otherwise ~~business~~noted, isthe ~~engaged~~information inprovided pertains to both Momentive and MPM. Differences between the ~~manufacture,~~financial ~~sale~~results of Momentive and ~~distribution~~MPM represent certain management expenses of ~~high-purity~~and ~~fused~~cash ~~quartz~~received by Momentive and ~~ceramic~~therefore ~~materials~~are not consolidated within the results of MPM.

Based in Waterford, New York, Momentive Performance Materials Inc. (the “Company” or “MPM”), is comprised of four reportable segments: Performance Additives, Formulated and Basic Silicones, Quartz Technologies and Corporate. Performance Additives is a global business engaged in the manufacture, sale and distribution of specialty silanes, silicone fluids and urethane additives. Formulated and Basic Silicones is a global business engaged in the manufacture, sale and distribution of sealants, electronics materials, coatings, elastomers and basic silicone fluids. Quartz Technologies, also a global business, is engaged in the manufacture, sale and distribution of high-purity fused quartz and ceramic materials. Corporate includes corporate, general and administrative expenses that are not allocated to the other segments, such as certain shared service and other administrative functions.

As a result of the Company’s reorganization and emergence from Chapter 11 bankruptcy on October 24, 2014 (the “Effective Date”), the Company’s direct parent became MPM Intermediate Holdings Inc., a holding company and wholly owned subsidiary of MPM Holdings Inc. (“Momentive”), the ultimate parent entity of MPM. Prior to its reorganization, the Company, 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”).

~~Upon~~During ~~emergence~~2017, ~~from~~the ~~bankruptcy~~Company onidentified ~~the~~an ~~Effective~~error ~~Date,~~in the ~~Company~~rental ~~adopted~~expense ~~fresh~~disclosed ~~start~~in ~~accounting~~Footnote ~~which~~7 ~~resulted~~and inhas revised the ~~creation~~prior ofperiod aamounts. The ~~new~~Company ~~entity~~has ~~for~~evaluated ~~financial~~the ~~reporting~~impact ~~purposes.~~of Asthis aerror and ~~result~~determined ofit ~~the~~is ~~application~~not ofmaterial ~~fresh~~to ~~start~~previously ~~accounting,~~issued asfinancial ~~well~~statements. These ascorrections ~~the~~did ~~effects~~not ofimpact the ~~implementation~~current ofand ~~the~~previously ~~Plan,~~reported ~~the~~ Consolidated ~~Financial~~Balance ~~Statements~~Sheets, onConsolidated orStatements ~~after~~of ~~October 24~~Operations, ~~2014~~Consolidated ~~are~~Statements ~~not~~of ~~comparable~~Comprehensive ~~with~~Income, ~~the~~ Consolidated ~~Financial~~ Statements ~~prior~~of toCash ~~that~~Flows ~~date.~~and ~~Refer~~Consolidated toStatements ~~Note~~of ~~2 for additional information~~Equity.

~~References to “Successor” or “Successor Company” relate to the financial position and results of operations of the reorganized Company subsequent to October 24, 2014~~2. ~~References~~Summary ~~to “Predecessor” or “Predecessor Company” refer to the financial position and results~~ of ~~operations~~Significant ofAccounting ~~the Company prior to October 24, 2014.~~Policies

~~During~~Principals ~~the~~of ~~three~~Consolidation—The ~~months~~Consolidated ~~ended~~Financial ~~December~~Statements ~~31,~~include ~~2015,~~ the ~~Company~~accounts ~~recorded out-~~of~~-period~~ ~~adjustments~~the ~~totaling~~Company ~~approximately~~and ~~$3. A~~its $2majority-owned ~~adjustment~~subsidiaries ~~related~~in towhich ~~property~~minority ~~taxes~~shareholders ~~should~~hold ~~have~~no ~~been~~substantive ~~originally~~participating ~~recorded~~right. inIntercompany ~~each~~accounts ~~of the second~~ and ~~third~~transactions ~~quarters~~are ofeliminated ~~2015~~in ~~($1)~~consolidation. The ~~remaining~~Company’s $1share ~~adjustment~~of ~~related~~net toearnings ~~income~~of ~~taxes~~20% ~~and~~to ~~should~~50% ~~have~~owned ~~been~~companies, ~~originally~~for ~~recorded~~which init has the ~~second~~ability ~~quarter~~to ofexercise ~~2015. The~~significant ~~adjustments~~influence ~~decreased~~over ~~pretax~~operating ~~income~~ and ~~net~~financial ~~income~~policies ~~for~~(but ~~the~~not ~~three~~control), ~~months~~are ~~ended~~included ~~December~~in ~~31,~~“Earnings ~~2015~~from byunconsolidated ~~$2 and $3~~entities, ~~respectively. After~~net ~~evaluating the quantitative and qualitative aspects~~ of ~~the~~taxes” ~~adjustments,~~in the ~~Company~~Consolidated ~~concluded~~Statements ~~the effect~~ of ~~these~~Operations. ~~adjustments~~Investments ~~was~~in ~~not~~the ~~material~~other tocompanies ~~any~~are ~~previously~~carried ~~issued~~at ~~consolidated financial statements or the annual results for 2015~~cost.

2. Emergence From Chapter 11 Bankruptcy

On April 13, 2014 (the “Petition Date”), Momentive Performance Materials Holdings Inc. (the Company’s direct parent prior to October 24, 2014, “Old MPM Holdings”), the Company, and certain of our 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 Company continued to operate its 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.

On June 23, 2014, the Company filed with the Court an amended version of the Chapter 11 plan of reorganization proposed by the Debtors (as amended, supplemented, or modified, the “Plan”) and accompanying disclosure statement (the “Disclosure Statement”). On the Effective Date, the Plan became effective and the Company emerged from the Chapter 11 proceedings.

On or following the Effective Date, and pursuant to the terms of the Plan, the following occurred:

• payment in full in cash to general unsecured creditors (including trade creditors) and holders of claims arising from the $75 senior secured revolving credit facility (the “Cash Flow Facility”) and the $300 senior secured debtor-in-possession term loan facility (the “DIP Term Loan Facility”);

• conversion of the Company’s then-existing asset-based revolving facility into an exit $270 asset-based revolving facility (the “ABL Facility”);

• issuance of new 3.88% First-Priority Senior Secured Notes due 2021 (the “First Lien Notes”) and new 4.69% Second-Priority Senior Secured Notes due 2022 (the “Second Lien Notes”) to holders of the Company’s 8.875% First-Priority Senior Secured Notes due 2020 (the “Old First Lien Notes”) and 10% Senior Secured Notes due 2020 (the “Old Secured Notes”), respectively, and the cancellation of the Old First Lien Notes and the Old Secured Notes;

• conversion of the Company’s 9.00% Springing Lien Dollar Notes due 2021 and 9.50% Springing Lien Euro Notes due 2021 (collectively, “Old Second Lien Notes”) into the new equity of the Successor Company (resulting in the issuance of 11,791,126 shares of common stock), subject to dilution by the management incentive plan and common stock issued in the rights offerings;

• issuance of 36,197,874 shares of Successor Company common stock (including shares issued in connection with the backstop commitment of the rights offerings (the “Backstop Commitment”)) resulting from the exercise of subscription rights issued to holders of the Old Second Lien Notes in the $600 rights offerings and the “commitment premium” paid in shares to the backstop parties in respect of their backstop commitment;

• exchange of all shares of Successor Company common stock for common stock of MPM Holdings Inc. and the contribution by MPM Holdings Inc. of all shares of the Successor Company common stock to its wholly-owned subsidiary, MPM Intermediate Holdings Inc., a result of which the Company became a wholly owned subsidiary of MPM Intermediate Holdings Inc.;

• cancellation of the equity of the Predecessor Company;

• cancellation of the Company’s 11.5% Senior Subordinated Notes due 2016 (the “Subordinated Notes”);

• a recovery to the holders of Old MPM Holdings’ 11% Senior Discount Note due June 4, 2017 (“PIK Notes”) of $9, which represents the amount of the cash available at Old MPM Holdings as of the Effective Date, after taking into account administrative expenses; and

• appointment of a new chief executive officer, chief financial officer and general counsel.

Backstop Commitment Agreement and Rights Offerings

Backstop Commitment Agreement

On May 9, 2014, the Company entered into the Backstop Commitment Agreement, as subsequently amended (the “BCA”), among the Company, Old MPM Holdings, and the commitment parties party thereto (the “Commitment Parties,” and each individually, a “Commitment Party”). The BCA provided that upon the satisfaction of certain terms and conditions, including the confirmation of the Plan, the Company would have the option to require each Commitment Party to purchase from the Company (on a several and not joint basis) its pro rata portion, based on such Commitment Party’s backstop commitment percentage, of the common stock of the reorganized Company (the “New Common Stock”) that is not otherwise purchased in connection with the Rights Offerings (described below) which were made in connection with the Plan (the “Unsubscribed Shares”). In consideration for their commitment to purchase the Unsubscribed Shares, the Commitment Parties received a commitment premium equal to $30 (the “BCA Commitment Premium”). The BCA Commitment Premium was payable in shares of New Common Stock; provided, that, if the BCA was terminated under certain circumstances, the BCA Commitment Premium would have been payable in cash. Pursuant to the terms of the BCA, the BCA Commitment Premium was deemed earned, nonrefundable and non-avoidable upon entry of the approval order by the Court.

The Company had recognized a $30 liability for the BCA Commitment Premium under the guidance for accounting for liability instruments. This amount is included in “Reorganization items, net” in the Consolidated Statements of Operations. Upon application of fresh-start accounting (see Note 3), on October 24, 2014, the BCA Commitment Premium was converted to equity in the Consolidated Balance Sheets.

The Company has agreed to reimburse the Commitment Parties for all reasonable fees and expenses incurred in connection with, among other things, the negotiation, preparation and implementation of the Rights Offerings, the Plan and any related efforts. In addition, the BCA requires that the Company and the other Debtors indemnify the Commitment Parties for certain losses, claims, damages, liabilities, costs and expenses arising out of or in connection with the BCA, the Plan and the related transactions. On June 23, 2014, the Court found that the terms and conditions of MPM’s Restructuring Support Agreement were fair, reasonable and the best available to the Debtors under the circumstances, and issued an order authorizing and directing the Debtors to enter into, execute, deliver and implement the BCA.The Court’s Order approving the Plan, entered on September 11, 2014, also requires the Company and the Debtors to indemnify the Commitment Parties for all fees, expenses, costs and liabilities incurred in connection with certain cases. The indenture trustees for the Old First Lien Notes and the Old Secured Notes commenced actions against certain of the Commitment Parties for alleged breaches of the applicable intercreditor agreement governing the rights and priorities of such parties.

Rights Offerings

On the Effective Date, all previously issued and outstanding shares of the Predecessor Company’s common stock were canceled, as were all other previously issued and outstanding equity interests. On the Effective Date, the Company issued 7,475,000 shares (the “1145 Rights Offering Stock”) of a new class of common stock, par value $0.01 per share, of the Company (the “New Common Stock”) pursuant to the rights offering under Section 1145 of the Bankruptcy Code (the “Section 1145 Rights Offering”) and 26,662,690 shares (the “4(a)(2) Rights Offering Stock”) of New Common Stock pursuant to the rights offering under section 4(a)(2) (the “4(a)(2) Rights Offering”) of the Securities Act of 1933, as amended (the “Securities Act). Additionally, the Company issued 2,060,184 shares of New Common Stock pursuant to the Backstop Commitment, including 1,475,652 shares of New Common Stock issued as consideration for the BCA Commitment Premium. A portion of the 1145 Rights Offering Stock issued to the Commitment Parties, and all of the 4(a)(2) Rights Offering Stock, are restricted securities under the Securities Act, and may not be offered, sold or otherwise transferred except in accordance with applicable restrictions. In addition, upon effectiveness of the Plan, the Company issued 11,791,126 shares of New Common Stock to holders of the Second Lien Notes pursuant to the Second Lien Notes Equity Distribution. Collectively, the Section 1145 Rights Offering and the 4(a)(2) Rights Offering are referred to as the “Rights Offerings”.

In accordance with the Plan, all shares of New Common Stock were automatically exchanged for one share of common stock, par value $0.01 per share, of Momentive, which contributed the shares of New Common Stock to its wholly-owned subsidiary, MPM Intermediate Holdings. As a result, the Company is a wholly owned subsidiary of MPM Intermediate Holdings.

The shares of New Common Stock described above were exempt from registration under the Securities Act pursuant to (i) Section 1145 of the Bankruptcy Code, which generally exempts from such registration requirements the issuance of securities under a plan of reorganization, and/or (ii) Section 4(a)(2) of the Securities Act because the issuance did not involve any public offering.

Registration Rights Agreement

On October 24, 2014, in connection with the emergence from Chapter 11, Momentive entered into a registration rights agreement with certain of its stockholders (the “Registration Rights Agreement”), which provides the stockholders party thereto certain registration rights.

Under the Registration Rights Agreement, Momentive is required to file a shelf registration statement (on Form S-3 if permitted) and use its reasonable best efforts to cause the registration statement to become effective for the benefit of all stockholders party to the Registration Rights Agreement. Any individual holder or holders of Momentive’s outstanding common stock party thereto can demand an unlimited number of “shelf takedowns,” which may be conducted in underwritten offerings so long as the total offering size is reasonably expected to exceed $50. To satisfy its obligations under the Registration Rights Agreement, Momentive filed a registration statement on Form S-1 (File No. 333-201338) on December 31, 2014, which became effective on July 2, 2015.

Each holder or holders party to the Registration Rights Agreement who own at least 10% of Momentive’s outstanding common stock, or held at least 10% of Momentive’s common stock as of the date of the Registration Rights Agreement and could reasonably be considered our affiliate, have Form S-1 demand registration rights, which may be conducted in an underwritten offering, as long as the total offering price is reasonably expected to be at least $50, and which may not exceed two in any six month period or eight in total, subject to certain exceptions and to customary cutback provisions. In addition, a holder of at least 10% of Momentive’s common stock has unlimited Form S-3 demand registration rights, which may be conducted in underwritten offerings, as long as the total offering price is reasonably expected to be at least $50, subject to customary cutback provisions.

Each stockholder party to the Registration Rights Agreement has unlimited piggyback registration rights with respect to underwritten offerings, subject to certain exceptions and limitations.

The foregoing registration rights are subject to certain cutback provisions and customary suspension/blackout provisions. We have agreed to pay all registration expenses under the Registration Rights Agreement. In connection with the registrations described above, Momentive has agreed to indemnify the stockholders against certain liabilities.

The Registration Rights Agreement also contains certain holdback agreements that apply to each stockholder party to the Registration Rights Agreement. Generally, without Momentive’s prior consent and subject to limited exceptions, the stockholders party to the Registration Rights Agreement have agreed to, if requested, enter into an agreement not to publicly sell or distribute Momentive’s equity securities beginning ten days prior to the pricing of Momentive’s initial public offering for the 180-day period following the closing date of Momentive’s initial public offering and, if participating in a future shelf takedown or other underwritten public offering, beginning ten days prior to the pricing of that offering and for the 90-day period following the closing date of such offering.

3. Fresh Start Accounting

In connection with the Company’s emergence from Chapter 11, the Company applied the provisions of fresh start accounting to its financial statements as (i) the holders of existing voting shares of the Predecessor Company received less than 50% of the voting shares of the emerging entity and (ii) the reorganization value of the Company’s assets immediately prior to confirmation was less than the post-petition liabilities and allowed claims. The Company applied fresh start accounting as of October 24, 2014.

Upon the application of fresh start accounting, the Company allocated the reorganization value to its individual assets based on their estimated fair values. Reorganization value represented the fair value of the Successor Company’s assets before considering liabilities. The excess reorganization value over the fair value of identified tangible and intangible assets was reported as goodwill.

Reorganization Value

In support of the Plan, the enterprise value of the Successor Company was estimated to be in the range of $2.0 billion to $2.4 billion as of the Effective Date. Based on the estimates and assumptions used in determining the enterprise value, as further discussed below, the Company estimated the enterprise value to be $2.2 billion, which was approved by the Court.

The Company estimated the enterprise value of the Successor Company utilizing the discounted cash flow method. To estimate fair value utilizing the discounted cash flow method, the Company established an estimate of future cash flows based on the financial projections and assumptions utilized in the Company’s disclosure statement, which were derived from earnings forecasts and assumptions regarding growth and margin projections. A terminal value was included, and was calculated using the constant growth method based on the projected cash flows of the final year of the forecast period.

The discount rate of 11% was estimated based on an after-tax weighted average cost of capital (“WACC”) reflecting the rate of return that would be expected by a market participant. The WACC also takes into consideration a company-specific risk premium, reflecting the risk associated with the overall uncertainty of the financial projections used to estimate future cash flows.

The fair value of debt obligations represents $36 of debt payable within one year and $1,166 of long-term debt. The fair value of long-term debt was determined based on a market approach utilizing current market yields, and was estimated to be approximately 87% of par value.

The fair value of pension liabilities was determined based upon assumptions related to discount rates and expected return on assets, as well as certain other assumptions related to various demographic factors.

The following table reconciles the enterprise value to the estimated reorganization value as of the Effective Date:

Enterprise value	$	2,200
Plus: Excess cash and cash equivalents	80
Plus: Excess working capital	124
Plus: Fair value of non-debt and non-pension liabilities	646
Reorganization value of Successor assets	$	3,050

The fair value of non-debt liabilities represents total liabilities of the Successor Company on the Effective Date, less debt payable within one year, long-term debt and pension and postretirement benefit obligations.

Consolidated Statement of Financial Position

The adjustments set forth in the following consolidated Balance Sheet reflect the effect of the consummation of the transactions contemplated by the Plan (reflected in the column “Reorganization Adjustments”) as well as fair value adjustments as a result of the adoption of fresh-start accounting (reflected in the column “Fresh Start Adjustments”). The explanatory notes highlight methods used to determine fair values or other amounts of the assets and liabilities as well as significant assumptions or inputs.

	Predecessor Company			Reorganization Adjustments				Fresh Start Adjustments				Successor Company
Assets
Current assets:
Cash and cash equivalents	$	162		$	91		(a)	$	—			$	253
Accounts receivable	335			—				—				335
Inventories:
Raw materials	131			—				3			(a)	134
Finished and in-process goods	315			—				15			(a)	330
Deferred income taxes	9			56			(b)	(11		)	(b)	54
Other current assets	74			—				—				74
Total current assets	1,026			147				7				1,180
Investment in unconsolidated entities	10			—				8			(c)	18
Deferred income taxes	4			—				5			(b)	9
Other long-term assets	24			—				—				24
Property and equipment:
Land	71			—				8			(d)	79
Buildings	371			—				(74		)	(d)	297
Machinery and equipment	1,479			—				(684		)	(d)	795
	1,921			—				(750		)		1,171
Less accumulated depreciation	(1,050		)	—				1,050			(d)	—
	871			—				300				1,171
Goodwill	358			—				(134		)	(e)	224
Other intangible assets, net	398			—				26			(f)	424
Total assets	$	2,691		$	147			$	212			$	3,050
Liabilities and (Deficit) Equity
Current liabilities:
Accounts payable	$	260		$	38		(c)	$	—			$	298
Debt payable within one year	1,850			(1,814		)	(d)	—				36
Interest payable	6			(6		)	(e)	—				—
Income taxes payable	5			—				—				5
Deferred income taxes	9			—				9			(g)	18
Accrued payroll and incentive compensation	44			12			(f)	—				56
Other current liabilities	86			(25		)	(g)	6			(h)	67
Total current liabilities	2,260			(1,795		)		15				480
Long-term liabilities:
Long-term debt	7			1,159			(h)	—				1,166
Pension liabilities	133			165			(i)	41			(h)	339
Deferred income taxes	55			57			(j)	28			(g)	140
Other long-term liabilities	54			9			(k)	5			(i)	68
Liabilities subject to compromise	2,026			(2,026		)	(l)	—				—
Total liabilities	4,535			(2,431		)		89				2,193
(Deficit) Equity
Common stock (Successor)	—			—			(m)	—				—
Additional paid-in capital (Successor)	—			857			(m)	—				857
Common stock (Predecessor)	—			—			(n)	—				—
Additional paid-in capital (Predecessor)	713			(713		)	(n)	—				—
Accumulated other comprehensive income	211			—				(211		)	(j)	—
(Accumulated deficit) retained earnings	(2,768		)	2,434			(o)	334			(j)	—
Total (deficit) equity	(1,844		)	2,578				123				857
Total liabilities and (deficit) equity	$	2,691		$	147			$	212			$	3,050

Reorganization Adjustments

(a) Reflects the net cash received as of the Effective Date from implementation of the Plan:

Sources:
Proceeds from the Rights Offerings	$	600
Uses:
Claims paid at emergence	(11		)
Repayment of DIP Term Loan	(300		)
Repayment of DIP ABL Facility	(144		)
Repayment of Cash Flow Facility	(20		)
Other fees and expenses	(34		)
Total uses	(509		)
Net cash received	$	91

Other fees and expenses primarily represent $6 of accrued and unpaid interest and $28 for success and other professional fees which is included in “Reorganization items, net” in the Consolidated Statements of Operations. A portion of the net cash received has been earmarked for future use and was not paid out on the Effective Date.

(b) Represents the deferred tax asset impact of the reorganization adjustments, resulting from recognizing certain reorganization costs deductible in future periods in addition to the change in valuation allowance resulting from the tax attribute reduction.

(c) Represents $53 of claims expected to be satisfied in cash that were reclassified from “Liabilities subject to compromise”. Also represents the payment of $21 of previously accrued professional fees related to the Bankruptcy Filing and the accrual of an additional $6 of success fees.

(d) On the Effective Date, the Company repaid $300 in outstanding DIP Term Loans, $144 in outstanding borrowings under the DIP ABL Facility and $20 in outstanding borrowings under the Cash Flow Facility in full, and issued replacement notes to holders of the $1,100 in outstanding Old First Lien Notes and $250 in outstanding Old Second Lien Notes (which are classified as “Long-term debt”). The Company’s Senior Subordinated Notes were canceled on account of the subordination provisions set forth in the indenture to such notes.

(e) On the Effective Date, the Company repaid $6 of accrued unpaid interest.

(f) Represents $12 of accrued incentive compensation expected to be satisfied in cash that was reclassified from “Liabilities subject to compromise”.

(g) Represents the reclassification of the BCA Commitment Premium of $30 to equity, partially offset by $5 of other current liabilities that were reclassified from “Liabilities subject to compromise”.

(h) Represents the issuance of replacement notes to holders of the $1,100 in outstanding Old First Lien Notes due 2021 and $250 in outstanding Old Second Lien Notes due 2022. The replacement notes were recorded at estimated fair value, which was determined based on a market approach utilizing current market yields.

(i) Represents $165 of pension liabilities that were reclassified from “Liabilities subject to compromise”.

(j) Represents the deferred tax liability impact of the reorganization adjustments, resulting from the reduction of the Company’s tax attributes and tax basis of fixed assets and intangibles as a result of the cancellation of debt excluded from taxable income, net of valuation allowance previously recorded.

(k) Represents $9 of other long-term liabilities that were reclassified from “Liabilities subject to compromise”.

(l) Liabilities subject to compromise were settled as follows in accordance with the Plan:

Liabilities subject to compromise (“LSTC”)	$	2,026
Cash payments at emergence from LSTC	(11		)
Liabilities reinstated at emergence:
Pension liabilities	(165		)
Accounts payable	(53		)
Accrued payroll and incentive compensation	(12		)
Other current liabilities	(5		)
Other long-term liabilities	(9		)
Total liabilities reinstated at emergence	(244		)
Fair value of equity issued at emergence	(227		)
Gain on settlement of LSTC	$	1,544

(m) Reflects the issuance of 47,989,000 shares of New Common Stock pursuant to the Rights Offerings, Second Lien Notes Equity Distribution and Backstop Commitment.

(n) Reflects the cancellation of Predecessor Company equity to accumulated deficit.

(o) Reflects the cumulative impact of the reorganization adjustments discussed above:

Gain on settlement of LSTC	$	1,544
Fair value adjustments to debt	191
Success and other fees recognized at emergence	(13		)
Net gain on reorganization adjustments	1,722
Tax impact on reorganization adjustments	(1		)
Cancellation of Predecessor Company equity	713
Net impact to Accumulated deficit	$	2,434

The net gain on reorganization adjustments has been included in “Reorganization items, net” in the Consolidated Statements of Operations.

Fresh Start Adjustments

(a) Reflects the adjustments made to record inventories at their estimated fair value, which was determined as follows:

• Fair value of finished goods inventory was determined based on the estimated selling price less costs to sell, including disposal and holding period costs, and a reasonable profit margin on the selling and disposal effort.

• Fair value of in-process goods inventory was determined based on the estimated selling price once completed less total costs to complete the manufacturing effort, costs to sell, including disposal and holding period costs, and a reasonable profit margin on the remaining manufacturing, selling and disposal effort.

• Fair value of raw materials inventory was determined based on current replacement costs.

(b) Represents the deferred tax asset impact of the fresh start adjustments, resulting from the recognition of deductible goodwill in the U.S. and foreign jurisdictions, net of valuation allowance.

(c) Reflects the adjustment made to record the Company’s ownership interest in Zhejiang Xinan Momentive Performance Materials Co., Ltd, a joint venture in China which manufactures siloxane, at its estimated fair value.

(d) Reflects the adjustments made to record property, plant and equipment at its estimated fair value. Depreciable lives were also revised to reflect the remaining estimated useful lives of the related property, plant and equipment which range from 1 to 40 years. Fair value was determined as follows:

• The market, sales comparison or trended cost approach was utilized to estimate fair value for land and buildings. This approach relies upon recent sales, offerings of similar assets or a specific inflationary adjustment to original purchase price to arrive at a probable selling price.

• The cost approach was utilized to estimate fair value for machinery and equipment. This approach considers the amount required to construct or purchase a new asset of equal utility at current market prices, with adjustments in value for physical deterioration and functional and economic obsolescence. Physical deterioration is an adjustment made in the cost approach to reflect the real operating age of an asset with regard to wear and tear, decay and deterioration that is not prevented by maintenance. Functional obsolescence is an adjustment made to reflect the loss in value or usefulness of an asset caused by inefficiencies or inadequacies of the asset, as compared to a more efficient or less costly replacement asset with newer technology. Economic obsolescence is an adjustment made to reflect the loss in value or usefulness of an asset due to factors external to the asset, such as the economics of the industry, reduced demand, increased competition or similar factors. The estimated fair value of machinery and equipment reflects an economic obsolescence adjustment of $343.

Depreciable lives were revised to reflect the remaining estimated useful lives as follows (in years):

Buildings	10 to 40 years
Machinery and equipment	1 to 20 years

(e) Reflects the adjustments made to record the elimination of the Predecessor goodwill balance of $358 and to record Successor goodwill of $224, which represents the reorganizational value of assets in excess of amounts allocated to identified tangible and intangible assets.

(f) Reflects the adjustments made to write-off Predecessor other intangible assets of $398 and to record $424 in estimated fair value of Successor other intangible assets. Fair value was comprised of the following:

•Trademarks of $60 were valued using the relief from royalty income approach based on the following significant assumptions:

i) Forecasted net sales attributable to the trademarks for the period ranging from October 24, 2014 to December 31, 2033;

ii) Royalty rates ranging from 0.25% to 1.5% of expected net sales determined with regard to comparable market transactions and profitability analysis;

iii) Discount rates ranging from 12.0% to 14.0%, which were based on the after-tax weighted average cost of capital (“WACC”); and

iv) Economic lives ranging from 6 to 11 years.

• Technology based intangible assets of $105 were valued using the relief from royalty income approach based on the following significant assumptions:

i) Forecasted net sales attributable to the respective technologies for the period ranging from October 24, 2014 to December 31, 2033;

ii) Royalty rates ranging from 1.0% to 3.5% of expected net sales determined with regard to expected cash flows of the respective technologies and the overall importance of respective technologies to product offering;

iii) Discount rates ranging from 12.0% to 14.0%, which were based on the after-tax WACC; and

iv) Economic lives ranging from 8 to 11 years.

• Customer related intangible assets of $223 were valued using the multi-period excess earnings income approach, incorporating distributor inputs, and were based on the following significant assumptions:

i) Forecasted net sales and profit margins attributable to the current customer base for the period ranging from October 24, 2014 to December 31, 2034;

ii) Attrition rates ranging from 5.0% to 15.0%;

iii) Discount rates ranging from 14.0% to 15.0%, which were based on the after-tax WACC; and

iv) Economic lives ranging from 6 to 13 years.

• In-process research and development (“IPR&D”) of $36 was valued using a cost approach based on the following significant assumptions:

i) The estimated cost to recreate the respective IPR&D projects, incorporating a margin based on a reasonable developer’s profit; and

ii) An indefinite economic life until the respective IPR&D projects are completed and placed in service, at which time each project will be assigned an estimated useful life.

(g) Represents the deferred tax liability impact of the fresh start adjustments, resulting primarily from the book adjustment made to property, plant, and equipment that increases the future taxable temporary differences recorded net of valuation allowances.

(h) Reflects the adjustment made to remeasure pension liabilities, which was determined based upon assumptions related to discount rates and expected return on assets, as well as certain other assumptions related to various demographic factors. The resulting adjustment was recoded in “Other comprehensive loss” in the Predecessor Company’s Consolidated Statement of Other Comprehensive Income.

(i) Primarily reflects the adjustment made to record certain environmental liabilities at estimated fair value.

(j) Reflects the cumulative impact of the fresh start accounting adjustments discussed above and the elimination of the Predecessor Company’s accumulated other comprehensive income:

Establishment of Successor goodwill	$	224
Elimination of Predecessor goodwill	(358		)
Establishment of Successor other intangible assets	424
Elimination of Predecessor other intangible assets	(398		)
Property, plant and equipment fair value adjustment	300
Pension liability remeasurement adjustment	(47		)
Other assets and liabilities fair value adjustment	21
Elimination of Predecessor Company accumulated other comprehensive income	211
Net gain on fresh start adjustments	377
Tax impact on fresh start adjustments	(43		)
Net impact on accumulated deficit	$	334

The net gain on fresh start adjustments has been included in “Reorganization items, net” in the Consolidated Statements of Operations.

4. Reorganization Items, Net

Incremental costs incurred directly as a result of the Bankruptcy Filing, gains on the settlement of liabilities under the Plan and the net impact of fresh start accounting adjustments are classified as “Reorganization items, net” in the Consolidated Statements of Operations. The following table summarizes reorganization items:

	Successor						Predecessor
	Year Ended December 31, 2016		Year Ended December 31, 2015		Period from October 25, 2014 through December 31, 2014		Period from January 1, 2014 through October 24, 2014
Professional fees	$	2	$	8	$	3	$	78
DIP Facility financing costs	—		—		—		19
BCA Commitment Premium	—		—		—		30
Net gain on reorganization adjustments	—		—		—		(1,722		)
Net gain on fresh start adjustments	—		—		—		(377		)
Total	$	2	$	8	$	3	$	(1,972	)

5. Summary of Significant Accounting Policies

Principals of Consolidation—The Consolidated Financial Statements include the accounts of the Company and its majority-owned subsidiaries in which minority shareholders hold no substantive participating right, and variable interest entities in which the Company is the primary beneficiary. Intercompany accounts and transactions are eliminated in consolidation. The Company’s share of net earnings of 20% to 50% owned companies, for which it has the ability to exercise significant influence over operating and financial policies (but not control), are included in “Earnings from unconsolidated entities, net of taxes” in the Consolidated Statements of Operations. Investments in the other companies are carried at cost.

The Company’s unconsolidated investment accounted for under the equity method of accounting is a partial ownership interest in Zhejiang Xinan Momentive Performance Materials Co., Ltd, a joint venture in China which manufactures siloxane, one of our key intermediate materials. The Company’s current ownership interest in the joint venture is 25%.

~~Income~~Foreign ~~Statement~~Currency ~~Presentation~~Translations—Assets Asand aliabilities ~~result~~ of ~~the~~foreign ~~adoption~~affiliates ofare ~~fresh~~translated ~~start~~at ~~accounting~~the ~~upon~~exchange ~~the~~rates ~~Company’s~~in ~~emergence~~effect ~~from~~at ~~Chapter~~the 11balance sheet date. Income, ~~management~~expenses ~~elected~~and tocash ~~change~~flows ~~its~~are ~~accounting~~translated ~~policy~~at ~~related~~average toexchange ~~its~~rates ~~income~~during ~~statement~~the ~~presentation~~year. ofThe ~~costs~~Company ofrecognized ~~goods~~translation ~~sold~~gain ~~beginning~~(losses) inof ~~the~~$5, ~~successor~~$3, ~~period~~and ~~from~~$(6) ~~October~~for ~~25,~~the ~~2014~~years ~~through~~ended December 31, ~~2014~~2017, 2016, and ~~all~~2015, ~~periods~~respectively, ~~thereafter.~~which Asare included as a ~~result~~component of “Net income (loss).” In addition, gains or losses related to the ~~“Depreciation~~Company’s intercompany loans payable and ~~amortization~~receivable ~~expense”~~denominated ~~caption~~in ~~has~~a ~~been~~foreign ~~eliminated~~currency ~~and~~other than the ~~related~~subsidiary’s ~~expense~~functional ~~has~~currency ~~been~~that ~~allocated~~are deemed to ~~“Cost~~be ofpermanently ~~sales”~~invested are remeasured to cumulative translation and recorded in “~~Selling,~~Accumulated ~~general~~other ~~and~~comprehensive ~~administrative~~income” ~~expense~~in the Consolidated Balance Sheets. The effect of translation is also included in “Accumulated other comprehensive income”.

Foreign Currency Translations—Assets and liabilities of foreign affiliates are translated at the exchange rates in effect at the balance sheet date. Income, expenses and cash flows are translated at average exchange rates during the year. The Company recognized translation gain (losses) of $3, $(6), $(8), and $(99) for the years ended December 31, 2016, December 31, 2015, the successor period from October 25, 2014 through December 31, 2014 and the predecessor period from January 1, 2014 through October 24, 2014, respectively, which are included as a component of “Net loss.” In addition, gains or losses related to the Company’s intercompany loans payable and receivable denominated in a foreign currency other than the subsidiary’s functional currency that are deemed to be permanently invested are remeasured to cumulative

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translation and recorded in “Accumulated other comprehensive income” in the Consolidated Balance Sheets. The effect of translation is also included in “Accumulated other comprehensive income”.

Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and also 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. The most significant estimates that are included in the financial statements are legal liabilities, deferred tax assets and liabilities and related valuation allowances, income tax accruals, pension and postretirement assets and liabilities, valuation allowances for accounts receivable and inventories, general insurance liabilities, asset impairments, fair value of stock awards and fair values of assets acquired and liabilities assumed in business acquisitions. Actual results could differ from these estimates.

~~Cash~~ and Cash Equivalents—The Company considers all highly liquid investments that are purchased with an original maturity of three months or less to be cash equivalents. At December 31, 2016 and December 31, 2015, the Company had interest-bearing time deposits and other cash equivalent investments of $3 and $5, respectively. These amounts are included in the Consolidated Balance Sheets as a component of “Cash and cash equivalents”.63

Allowance for Doubtful Accounts—The allowance for doubtful accounts is estimated using factors such as customer credit ratings and past collection history. Receivables are charged against the allowance for doubtful accounts when it is probable that the receivable will not be collected. Upon recording the assets of the Company at their estimated fair value in connection with the application of fresh start accounting, the amount of accounts receivable expected to be unrecoverable were written-off, resulting in the remeasurement of the allowance for doubtful accounts to $0 as of October 24, 2014 (see Note 3).

Inventories—Inventories are stated at lower of cost or market using the first-in, first-out method. Costs include direct material, direct labor and applicable manufacturing overheads, which are based on normal production capacity. Abnormal manufacturing costs are recognized as period costs and fixed manufacturing overheads are allocated based on normal production capacity. An allowance is provided for excess and obsolete inventories based on management’s review of inventories on-hand compared to estimated future usage and sales. Inventories in the Consolidated Balance Sheets are presented net of an allowance for excess and obsolete inventory of $22 and $4 at December 31, 2016 and December 31, 2015, respectively. Upon recording the assets of the Company at their estimated fair value in connection with the application of fresh start accounting, the amount of excess and obsolete inventory was written-off, resulting in the re-measurement of the reserve for excess and obsolete inventory to $0 as of October 24, 2014 (see Note 3).

Deferred Expenses—Deferred debt financing costs are included in “Other long-term assets” in the Consolidated Balance Sheets and are amortized over the life of the related debt or credit facility using the effective interest method. Upon extinguishment of any debt, the related debt issuance costs are written off. At both December 31, 2016 and 2015, the Company had no unamortized deferred financing costs.

Property and Equipment—Land, buildings and machinery and equipment are stated at cost less accumulated depreciation. Depreciation is recorded on a straight-line basis over the estimated useful lives of the properties (the average estimated useful lives for buildings and machinery are 20 years and 15 years, respectively). Assets under capital leases are amortized over the lesser of their useful life or the lease term. Major renewals and betterments are capitalized. Maintenance, repairs, minor renewals and turnarounds (periodic maintenance and repairs to major units of manufacturing facilities) are expensed as incurred. When property and equipment is retired or disposed of, the asset and related depreciation are removed from the accounts and any gain or loss is reflected in operating income. The Company capitalizes interest costs that are incurred during the construction of property and equipment. Property and equipment was recorded at its estimated fair value in connection with the application of fresh start accounting, resulting in the remeasurement of accumulated depreciation to $0 as of October 24, 2014 (see Note 3). Depreciation expense was $143, $117, $17, and $113 for the years ended December 31, 2016 and December 31, 2015; the successor period from October 25, 2014 through December 31, 2014 and the predecessor period from January 1, 2014 through October 24, 2014, respectively. Depreciation expense for the year ended included accelerated depreciation of $35 primarily related to to certain long-lived assets mainly triggered by siloxane capacity transformation programs in Germany.

Capitalized Software—The Company capitalizes certain costs, such as software coding, installation and testing, that are incurred to purchase or create and implement computer software for internal use. Amortization is recorded on the straight-line basis over the estimated useful lives, which range from 1 to 5 years.

Goodwill and Intangibles—The excess of purchase price over net tangible and identifiable intangible assets of businesses acquired is carried as “Goodwill” in the Consolidated Balance Sheets. Separately identifiable intangible assets that are used in the operations of the business (e.g., patents and technology, customer lists and contracts) are recorded at cost (fair value at the time of acquisition) and reported as “Other intangible assets, net” in the Consolidated Balance Sheets. Costs to renew or extend the term of identifiable intangible assets are expensed as incurred. The Company does not amortize goodwill or indefinite-lived intangible assets. Intangible assets with determinable lives are amortized on a straight-line basis over the shorter of the legal or useful life of the assets, which range from 6 to 13 years (see Note 9).

The Company performs an annual assessment of qualitative factors to determine whether the existence of any events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than the carrying amount of the reporting unit’s net assets. If, after assessing all events and circumstances, the Company determines it is more likely than not that the fair value of a reporting unit is less than the carrying amount of the reporting unit’s net assets, the Company uses a probability weighted market and income approach

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toCash ~~estimate~~and ~~the~~Cash ~~fair value of the reporting unit.~~ Equivalents—The Company’s ~~market~~considers ~~approach~~all ishighly aliquid ~~comparable~~investments ~~analysis~~that ~~technique~~are ~~commonly~~purchased ~~used~~with inan ~~the~~original ~~investment~~maturity ~~banking~~of ~~and~~three ~~private~~months ~~equity~~or ~~industries~~less ~~based~~to onbe ~~the~~cash ~~EBITDA~~equivalents. ~~(earnings~~At ~~before interest~~December 31, ~~income~~2017 ~~taxes, depreciation~~ and ~~amortization)~~December 31, ~~multiple technique. Under this technique~~2016, ~~estimated fair value is~~ the ~~result~~Company ofhad ~~a market~~interest-~~based~~bearing ~~EBITDA~~time ~~multiple~~deposits ~~that~~and isother ~~applied~~cash toequivalent aninvestments ~~appropriate~~of ~~historical~~$1 ~~EBITDA~~and ~~amount~~$3, ~~adjusted~~respectively. ~~for~~These ~~the~~amounts ~~additional~~are ~~fair~~included ~~value~~in ~~that would be assigned by a market participant obtaining control over~~ the ~~reporting~~Consolidated ~~unit.~~Balance ~~The~~Sheets ~~Company’s~~as ~~income approach is~~ a ~~discounted~~component ~~cash flow model. When the carrying amount~~ of ~~the~~“Cash ~~reporting~~and ~~unit’s~~cash ~~goodwill is greater than the estimated fair value of the reporting unit’s goodwill, an impairment loss is recognized for the difference~~equivalents”.

AtAllowance ~~October~~for 1,Doubtful ~~2016,~~Accounts—The ~~the~~allowance ~~fair~~for ~~value~~doubtful ofaccounts ~~the reporting units exceeded the respective carrying values by 9% to 46% ("headroom"). It~~ is ~~possible~~estimated ~~that~~using ~~the~~factors ~~conclusions~~such ~~regarding the impairment or recoverability of goodwill at either reporting unit could change in future periods if, for example, the reporting unit does not perform~~ as ~~projected,~~customer ~~the~~credit ~~results~~ratings ~~of strategic plans~~ and ~~certain~~past ~~cost~~collection ~~saving~~history. ~~initiatives~~Receivables are ~~not~~charged ~~fully~~against ~~achieved, or~~ the ~~overall~~allowance ~~economic~~for ordoubtful ~~business~~accounts ~~conditions~~when ~~are~~it ~~worse~~is ~~than~~probable ~~current~~that ~~assumptions (including inputs to~~ the

Filing Compare · Momentive Performance Materials Inc.