10-Q/A 1 mpmi331201210qamendment411.htm 10-Q/A MPMI 3.31.2012 10Q Amendment 4.11.13 FOR FILING
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q/A
(Amendment No. 1)
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2012
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number 333-146093
 
 
Momentive Performance Materials Inc.
(Exact name of registrant as specified in its charter)
 
 
Delaware
 
20-5748297
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
260 Hudson River Road
Waterford, NY 12188
 
(518) 237-3330
(Address of principal executive offices including zip code)
 
(Registrant’s telephone number, including area code)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x     No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
o
  
Accelerated filer
o
 
 
 
 
 
Non-accelerated filer
x
  
Smaller Reporting Company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x
The number of shares of common stock of the Company, par value $0.01 per share, outstanding as of the close of business on May 7, 2012 was 100 shares, all of which were held by Momentive Performance Materials Holdings Inc.



Explanatory Note
We are filing this Amendment No. 1 on Form 10-Q/A (this “Form 10-Q/A”) to amend our Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 (the “Original Filing”), as originally filed with the Securities and Exchange Commission (the “SEC”) on May 7, 2012 (the “Original Filing Date”) to reflect a restatement of the following previously filed financial statements and data (and related disclosures):
Our condensed consolidated statements of cash flows for the three months ended March 31, 2012 and April 3, 2011, as discussed in Note 1 to the financial statements included in Item 1 of this 10-Q/A.
Our management's discussion and analysis of financial condition and results of operations for the three months ended March 31, 2012 and April 3, 2011 as discussed in Item 2 of this Form 10-Q/A.
The restatement corrects the following classification errors within the condensed consolidated statements of cash flows:
We included in cash used for capital expenditures amounts that resided in “Trade payables” which should be excluded as a non-cash item. These amounts have now been properly excluded from operating and investing activities.
We misclassified certain currency translation adjustments and other non-cash transactions within the “Effects of exchange rate changes on cash” line item. These amounts have now been properly reflected in operating activities.
We misclassified certain outstanding checks as “Trade payables.” The amounts have now been properly classified as a reduction to “Cash and cash equivalents.”
In connection with the restatement of our financial statements described herein, we have reported a material weakness in our internal controls and procedures with regard to the preparation and review of the statement of cash flows. Due to this material weakness, our principal executive officer and principal financial officer also concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report. For more information, see Item 4 included in this Form 10-Q/A.

In addition to the restatement of the condensed consolidated statement of cash flows, we have revised the condensed consolidated balance sheet to correct for the misclassification of outstanding checks as “Trade payables.”

We have also revised the Guarantor and Non-Guarantor Condensed Consolidating Financial Statements in Note 12 to correct the cash flow and balance sheet errors as noted above and certain misclassifications as described in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2012.
Although this Form 10-Q/A supersedes the Original Filing in its entirety, this Form 10-Q/A amends and restates only Items 1, 2 and 4 of Part I, solely as a result of, and to reflect, the restatement and revisions described above, and no other information in the Original Filing is amended hereby. This Form 10-Q/A speaks as of the Original Filing Date and does not reflect any events that may have occurred subsequent to the Original Filing Date. In addition, pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as amended, as a result of this Form 10-Q/A, the certifications pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002, filed and furnished, respectively, as exhibits to the Original Filing have been re-executed and re-filed as of the date of this Form 10-Q/A and are included as exhibits hereto.




TABLE OF CONTENTS
 
 
Page
Part I
Financial Information
 
 
 
 
Item 1.
Financial Statements
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
Part II
Other Information
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 
 


3






MOMENTIVE PERFORMANCE MATERIALS INC.
Condensed Consolidated Balance Sheets (Unaudited)
(Dollar amounts in millions)
 
March 31, 2012
 
December 31, 2011
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
118

 
$
199

Accounts receivable (net of allowance for doubtful accounts, of $3 at March 31, 2012 and December 31, 2011, respectively)
327

 
315

Due from affiliates
8

 
8

Inventories (note 6)
413

 
394

Prepaid expenses
11

 
14

Deferred income taxes (note 8)
9

 
10

Other current assets
49

 
49

Total current assets
935

 
989

Property and equipment (net of accumulated depreciation and amortization of $858 and $825 at March 31, 2012 and December 31, 2011, respectively)
1,067

 
1,084

Other long-term assets
88

 
89

Deferred income taxes (note 8)
25

 
25

Intangible assets (net of accumulated amortization of $229 and $219 at March 31, 2012 and December 31, 2011, respectively)
532

 
542

Goodwill
423

 
432

Total assets
$
3,070

 
$
3,161

Liabilities and Deficit
 
 
 
Current liabilities:
 
 
 
Trade payables
$
312

 
$
308

Short-term borrowings (note 7)
5

 
3

Accrued expenses and other liabilities
161

 
166

Accrued interest
48

 
62

Due to affiliates
11

 
15

Accrued income taxes
6

 
2

Deferred income taxes (note 8)
20

 
19

Current installments of long-term debt (note 7)
36

 
36

Total current liabilities
599

 
611

Long-term debt (note 7)
2,914

 
2,895

Other liabilities
51

 
51

Pension liabilities (note 10)
291

 
288

Deferred income taxes (note 8)
47

 
52

Total liabilities
3,902

 
3,897

Commitments and contingencies (note 9)

 

Deficit:
 
 
 
Common stock

 

Additional paid-in capital
605

 
605

Accumulated deficit
(1,634
)
 
(1,569
)
Accumulated other comprehensive income
197

 
228

Total Momentive Performance Materials Inc.'s deficit
(832
)
 
(736
)
Noncontrolling interests

 

Total deficit
(832
)
 
(736
)
Total liabilities and deficit
$
3,070

 
$
3,161

See accompanying notes to condensed consolidated financial statements.

4


MOMENTIVE PERFORMANCE MATERIALS INC.
Condensed Consolidated Statements of Operations (Unaudited)
(Dollar amounts in millions)
 
 
Fiscal three-month period ended
 
March 31, 2012
 
April 3, 2011
Net sales
$
593

 
$
660

Costs and expenses:
 
 

Cost of sales, excluding depreciation
425

 
417

Selling, general and administrative expenses
100

 
95

Depreciation and amortization expenses
46

 
50

Research and development expenses
18

 
20

Restructuring and other costs (note 3)
9

 
5

Operating (loss) income
(5
)
 
73

Other income (expense):
 
 
 
Interest expense, net
(62
)
 
(64
)
Other income, net
3

 

(Loss) income before income taxes and losses from unconsolidated entities
(64
)
 
9

Income taxes (note 8)

 
12

Loss before losses from unconsolidated entities
(64
)
 
(3
)
Losses from unconsolidated entities
(1
)
 

Net loss
(65
)
 
(3
)
Net income attributable to the noncontrolling interest

 

Net loss attributable to Momentive Performance Materials Inc.
$
(65
)
 
$
(3
)

See accompanying notes to condensed consolidated financial statements.

5


MOMENTIVE PERFORMANCE MATERIALS INC.
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(Dollar amounts in millions)

 
Fiscal three-month period ended
 
March 31, 2012
 
April 3, 2011
Net loss
$
(65
)
 
$
(3
)
Other comprehensive loss, net of tax:
 
 
 
Foreign currency translation
(30
)
 
(15
)
Other comprehensive income adjustments, net
(1
)
 
(1
)
Other comprehensive loss
(96
)
 
(19
)
Comprehensive income attributable to the noncontrolling interest

 

Foreign currency translation attributable to the noncontrolling interest

 

Comprehensive loss attributable to Momentive Performance Materials Inc.
$
(96
)
 
$
(19
)

See accompanying notes to condensed consolidated financial statements.


6


MOMENTIVE PERFORMANCE MATERIALS INC.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollar amounts in millions)

 
Fiscal three-month period ended
 
March 31, 2012 (as restated)
 
April 3, 2012 (as restated)
Cash flows from operating activities:
 
 
 
Net loss
$
(65
)
 
$
(3
)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

 

Depreciation and amortization
46

 
50

Amortization of debt discount and issuance costs
4

 
4

Deferred income taxes
(3
)
 
9

Losses from unconsolidated entities
1

 

Unrealized foreign currency gains
(3
)
 
(9
)
 Other non-cash adjustments
1

 
(3
)
Changes in operating assets and liabilities:

 

Accounts receivable
(12
)
 
(29
)
Inventories
(20
)
 
(46
)
Due to/from affiliates
(7
)
 
(4
)
Accrued income taxes
3

 
(1
)
Prepaid expenses and other assets
6

 
(10
)
Trade payables
15

 
12

Accrued expenses and other liabilities
(19
)
 
32

Pension liabilities
5

 
3

Net cash (used in) provided by operating activities
(48
)
 
5

Cash flows from investing activities:

 

Capital expenditures
(29
)
 
(27
)
Purchases of intangible assets
(1
)
 
(1
)
Net cash used in investing activities
(30
)
 
(28
)
Cash flows from financing activities:

 

Debt issuance costs

 
(5
)
Increase (decrease) in short-term borrowings
2

 
(2
)
Proceeds from long-term debt
25

 
37

Payments of long-term debt
(29
)
 
(55
)
Net cash used in financing activities
(2
)
 
(25
)
Decrease in cash and cash equivalents
(80
)
 
(48
)
Effect of exchange rate changes on cash
(1
)
 
4

Cash and cash equivalents, beginning of period
199

 
250

Cash and cash equivalents, end of period
$
118

 
$
206

Supplemental information
 
 
 
        Capital expenditures included in trade payables
$
17

 
$
14


See accompanying notes to condensed consolidated financial statements.

7


MOMENTIVE PERFORMANCE MATERIALS INC.
Condensed Consolidated Statements of Equity (Deficit) (Unaudited)
(Dollar amounts in millions)

 
 
 
 
 
 
 
 
 
 
Common
Shares
Common
Stock
 
Additional
paid-in
capital
 
Accumulated
deficit
 
Accumulated
other
comprehensive
income (loss)
 
Equity
attributable to
noncontrolling
interest
 
Total
equity
(deficit)
 
Balance December 31, 2011
 
100

$

 
$
605

 
$
(1,569
)
 
$
228

 
$

 
$
(736
)
 
Stock option activity and other
 


 

 

 

 

 

 
Comprehensive (loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 


 

 
(65
)
 

 

 
(65
)
 
Foreign currency translation adjustment—net
 


 

 

 
(30
)
 

 
(30
)
 
Other comprehensive income adjustments—net
 


 

 

 
(1
)
 

 
(1
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 


 
Balance at March 31, 2012
 
100

$

 
$
605

 
$
(1,634
)
 
$
197

 
$

 
$
(832
)
 


8




MOMENTIVE PERFORMANCE MATERIALS INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions)

(1)
Business and Basis of Presentation

Momentive Performance Materials Inc. (the "Company" or "MPM") was incorporated in Delaware on September 6, 2006 as a wholly-owned subsidiary of Momentive Performance Materials Holdings Inc. (MPM Holdings and together with its subsidiaries, the MPM Group) for the purpose of acquiring the assets and stock of various subsidiaries of General Electric Company (GE) that comprised GE's Advanced Materials (GEAM or the Predecessor) business. The acquisition was completed on December 3, 2006 (the GE Advanced Materials Acquisition). GEAM was comprised of two businesses, GE Silicones and GE Quartz, and was an operating unit within the Industrial segment of GE. On October 1, 2010, the newly formed holding companies of MPM Holdings and Momentive Specialty Chemicals Holdings LLC (formerly known as Hexion LLC), the parent company of Momentive Specialty Chemicals Inc. (formerly known as Hexion Specialty Chemicals, Inc.), merged, with the surviving entity renamed Momentive Performance Materials Holdings LLC. The Company refers to this transaction as the "Momentive Combination". As a result of the merger, Momentive Performance Materials Holdings LLC (Momentive Holdings) became the ultimate parent company of Momentive Performance Materials Inc. and Momentive Specialty Chemicals Inc. Momentive Holdings is controlled by investment funds managed by affiliates of Apollo Management Holdings, LP. (together with Apollo Global Management, LLC and subsidiaries, "Apollo").
The Company is comprised of two businesses, Silicones and Quartz. Silicones is a global business engaged in the manufacture, sale and distribution of silanes, specialty silicones and urethane additives. Quartz, also a global business, is engaged in the manufacture, sale and distribution of high-purity fused quartz and ceramic materials. The Company is headquartered in Waterford, New York.
Momentive Performance Materials Inc. is comprised of the following legal entities and their wholly-owned subsidiaries: Momentive Performance Materials USA Inc.; Momentive Performance Materials Worldwide Inc.; Momentive Performance Materials China SPV Inc.; Juniper Bond Holdings I LLC; Juniper Bond Holdings II LLC; Juniper Bond Holdings III LLC; and Juniper Bond Holdings IV LLC.
In the Americas, Silicones has manufacturing facilities in Waterford, New York; Sistersville, West Virginia; New Smyrna Beach, Florida; Itatiba, Brazil; and custom elastomers compounding operations in Chino, California and Garrett, Indiana. In the Americas, Quartz manufactures in Strongsville, Ohio; Willoughby, Ohio; Richmond Heights, Ohio and Newark, Ohio. A majority of the manufacturing personnel in Waterford, New York; Sistersville, West Virginia and Willoughby, Ohio are covered by collective bargaining agreements.
Silicones has manufacturing facilities outside the Americas in Leverkusen, Germany; Nantong, China; Ohta, Japan; Rayong, Thailand; Shanghai, China; Bergen op Zoom, Netherlands; Lostock, U.K.; Termoli, Italy; Antwerp, Belgium and Chennai, India. Quartz’ non-U.S. manufacturing facilities are located in Kozuki, Japan; Wuxi, China and Geesthacht, Germany. In Europe, employees at the Leverkusen, Bergen op Zoom, Termoli, and Geesthacht facilities are covered by collective bargaining agreements.
The collective bargaining agreements that cover the Willoughby, Ohio, Waterford, New York and Sistersville, West Virginia facilities will expire in 2013. The Company does not have significant collective bargaining agreements that will expire before the end of 2012.
The Company restated the condensed consolidated statements of cash flows for the three months ended March 31, 2012 and April 3, 2011. The tables below show the impact of correcting the financial statements for the specified periods for the following classification errors:
The Company included in cash used for capital expenditures amounts that resided in “Trade payables” which should be excluded as a non-cash item. These amounts have now been properly excluded from operating and investing activities.
The Company corrected for the misclassification of certain currency translation adjustments and other non-cash transactions within the “Effects of exchange rate changes on cash” line item. These amounts have now been properly reflected in operating activities.

9

MOMENTIVE PERFORMANCE MATERIALS INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)—(Continued)
(Dollar amounts in millions)


The Company corrected the balance sheets for the specified periods for the misclassification of certain outstanding checks as “Trade payables.” The amounts have now been properly classified as a reduction to “Cash and cash equivalents.”

Condensed Consolidated Balance Sheets:
 
As Previously Reported
 
Adjustments
 
As Restated
As of December 31, 2011
 
 
 
 
 
 
Cash and cash equivalents
 
$
203

 
 
$
(4
)
 
 
$
199

 
Trade payables
 
312
 
 
 
(4
)
 
 
308
 
 
As of March 31, 2012
 
 
 
 
 
 
Cash and cash equivalents
 
$
122

 
 
$
(4
)
 
 
$
118

 
Trade payables
 
316
 
 
 
(4
)
 
 
312
 
 

Condensed Consolidated Statements of Cash Flows:
 
As Previously Reported
 
Adjustments
 
As Restated
Fiscal Three-Month Period Ended March 31, 2012
 
 
 
 
 
 
Net cash used in operating activities
 
$
(55
)
 
 
$
7

 
 
$
(48
)
 
Net cash used in investing activities
 
(21
)
 
 
(9
)
 
 
(30
)
 
Effect of exchange rate changes on cash
 
(3
)
 
 
2
 
 
 
(1
)
 
Cash and cash equivalents at beginning of period
 
203
 
 
 
(4
)
 
 
199
 
 
Cash and cash equivalents at end of period
 
122
 
 
 
(4
)
 
 
118
 
 
 
 
 
 
 
 
 
Fiscal Three-Month Period Ended April 3, 2011
 
 
 
 
 
 
Net cash provided by operating activities
 
$
11

 
 
$
(6
)
 
 
$
5

 
Net cash used in investing activities
 
(19
)
 
 
(9
)
 
 
(28
)
 
Effect of exchange rate changes on cash
 
(11
)
 
 
15
 
 
 
4
 
 
Cash and cash equivalents at beginning of period
 
254
 
 
 
(4
)
 
 
250
 
 
Cash and cash equivalents at end of period
 
210
 
 
 
(4
)
 
 
206
 
 
Footnotes contained herein have been restated, where applicable, for the restatement discussed above.
(2)
Summary of Significant Accounting Policies
The following is an update of the significant accounting policies followed by the Company.
(a)
Consolidation
The condensed consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries as of March 31, 2012 and December 31, 2011, and for the fiscal three-month periods ended March 31, 2012 and April 3, 2011. Noncontrolling interests represent the noncontrolling shareholder’s proportionate share of the equity in a consolidated joint venture affiliate. During the fiscal three-month period ended July 3, 2011, the Company disposed of its interest in this affiliate. All significant intercompany balances and transactions, including profit and loss as a result of those transactions, have been eliminated in the consolidation.
The Company also has investments in nonconsolidated entities, primarily consisting of a subsidiary's investments in a siloxane joint venture in China.
(b)
Income Taxes
For the fiscal three-month periods ended March 31, 2012 and April 3, 2011, the Company’s provision for income taxes was calculated by applying an estimate of the annual effective tax rate for the full fiscal year to “ordinary” income or loss (pre-tax income or loss excluding unusual or infrequently occurring discrete items). Discrete items are recorded in the period in which they are incurred.

10

MOMENTIVE PERFORMANCE MATERIALS INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)—(Continued)
(Dollar amounts in millions)


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. A valuation allowance is established, as needed, to reduce deferred tax assets to the amount expected to be realized.
(c)
Use of Estimates
The preparation of the unaudited condensed consolidated financial statements requires management of the Company to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimates and assumptions include the carrying amount of property and equipment, goodwill and intangibles, valuation allowances for receivables, inventories, deferred income tax assets and assets and obligations related to employee benefits. Actual results could differ from those estimates.
(d)
Recently Issued Accounting Standards
Newly Adopted Accounting Standards
On January 1, 2012, the Company adopted the provisions of Accounting Standards Update No. 2011-05: Comprehensive Income ("ASU 2011-05"), which was issued by the FASB in June 2011 and amended by Accounting Standards    Update No. 2011-12: Comprehensive Income ("ASU 2011-12") issued in December 2011. ASU 2011-05 amended presentation guidance by eliminating the option for an entity to present the components of comprehensive income as part of the statements of changes in stockholders' equity and required presentation of comprehensive income in a single continuous financial statement or two separate consecutive financial statements. ASU 2011-12 deferred the effective date for amendments to the presentation of reclassifications of items out of accumulated other comprehensive income in ASU 2011-05. The amendments in ASU 2011-05 did not change the items that must be reported in other comprehensive income or when an item of comprehensive income must be reclassified to net income. The Company has presented comprehensive income in a separate and consecutive statement entitled, "Condensed Consolidated Statements of Comprehensive Income (Loss)".
Newly Issued Accounting Standards
Except as discussed in (d) above, there were no newly issued accounting standards in the first quarter of 2012 applicable to the Company's unaudited Condensed Consolidated Financial Statements.
(e)
Fair Value of Financial Instruments
The Company’s financial instruments consist principally of cash and cash equivalents, accounts receivable, trade payables, short-term borrowings and accrued expenses and other liabilities. Carrying amounts approximate fair value due to the short-term maturity of these instruments. The fair value of long-term debt is disclosed in Note 5.
(f) Reclassifications
Certain prior period balances have been reclassified to conform to the current year presentation. Certain prior period non-trade accounts receivable balances were reclassed to other current assets in the current period. In addition, certain pension liabilities were reclassed to accrued expenses and other liabilities in the current period.

(3)     Restructuring and Other Costs

Included in restructuring and other costs are costs related to restructuring (primarily severance payments associated with workforce reductions), consulting services associated with transformation savings activities.

For the fiscal three-month periods ended March 31, 2012 and April 3, 2011, the Company recognized restructuring of $4 and $2, respectively, and other costs of $5 and $3, respectively.

The following table sets forth the changes in the restructuring reserve, which is recorded in accrued expenses and other liabilities on the condensed consolidated balance sheets:
 
 
Silicones
 
Quartz
 
Total
Balance as of January 1, 2011
$
3

 
$

 
$
3

Additions
9

 

 
9

Cash payments
(4
)
 

 
(4
)
Balance as of December 31, 2011
8

 

 
8

Additions
4

 

 
4

Cash payments
(1
)
 

 
(1
)
Balance as of March 31, 2012
$
11

 
$

 
$
11


The restructuring costs above are primarily related to the Momentive Combination and are expected to be paid in 2012 and 2013.

(4) Related Party Transactions

On October 1, 2010 in connection with the closing of the Momentive Combination, the Company entered into a shared services agreement with MSC. Under this agreement, as amended on March 17, 2011 (the "Shared Services Agreement"), the Company provides to MSC, and MSC provides to the Company, certain services, including, but not limited to, executive and senior management, administrative support, human resources, information technology support, accounting, finance, technology development, legal and procurement services. The Shared Services Agreement establishes certain criteria upon which the costs of such services are allocated between MSC and the Company. Pursuant to this agreement, during the three months ended March 31, 2012 and April 3, 2011, the Company incurred approximately $39 and $41, respectively, of costs for shared services and MSC incurred approximately $41 and 44, respectively, of costs for shared services (excluding, in each case, costs allocated 100% to one party), including estimated shared service true-up billings. During the three months ended March 31, 2012 and April 3, 2011, MSC billed the Company approximately $5 and $1, respectively, to bring the percentage of total net incurred costs for shared services under the Shared Services Agreement to 49% for the Company and 51% for MSC as well as costs allocated 100% to one party. The true-up amount is included in Selling, general and administrative expense in the Consolidated Statements of Operations. The Company had accounts receivable of $0 and $3 as of March 31, 2012 and December 31, 2011, respectively, and accounts payable to MSC of $7 and $15 at March 31, 2012 and December 31, 2011, respectively.

On March 17, 2011, the Company entered into an amendment to the Shared Services Agreement with MSC to reflect the terms of the Master Confidentiality and Joint Development Agreement by and between MSC and the Company entered into on the same date.

In connection with the GE Advanced Materials Acquisition, MPM Holdings entered into a management consulting and advisory services agreement with Apollo and its affiliates for the provision of management and advisory services for an initial term of up to twelve years. The Company also agreed to indemnify Apollo and its affiliates and their directors, officers, and representatives for potential losses relating to the services contemplated under these agreements. Terms of the agreement provide for annual fees of $3.5 plus out of pocket expenses, payable in one lump sum annually, and provide for a lump-sum settlement equal to the net present value of the remaining annual management fees payable under the remaining term of the agreement in connection with a sale or initial public offering by the Company. These fees are included within Selling, general and administrative expenses in the Company's Consolidated Statements of Operations.

11



The Company sells products to various affiliated businesses (affiliates). For the three months ended March 31, 2012, sales to affiliates amounted to $5. Receivables from affiliates were $4 at March 31, 2012.

The Company purchases products and services from various affiliates. Purchases under these agreements amounted to $4 for the three months ended March 31, 2012. Payables to affiliates as of March 31, 2012, resulting from procurement activity and services was $1.

The Company is presently a party to an off-take agreement that provides for Asia Silicones Monomer Limited (“ASM”), which is owned 50% by GE Monomer (Holdings) Pte Ltd. and its affiliates to supply siloxane and certain related products to the Company through 2014 (or until certain ASM financing obligations are satisfied). At the closing of the GE Advanced Materials Acquisition, the Company entered into a long-term supply agreement with GE and GE Monomer (Holdings)Pte. Ltd. regarding the supply of siloxane and certain related products. Pursuant to the long-term siloxane supply agreement for the period through December 2026, GE and GE Monomer (Holdings) Pte. Ltd. will ensure the Company a minimum annual supply of siloxane and certain related products at least equal to the amount purchased by GE Toshiba Silicones (Thailand) Limited during the twelve month period ending November 30, 2006, subject to customary force majeure provisions and certain other limited exceptions. Under the current arrangement, the Company is committed to purchase approximately $113 for 2012 and $113 each year thereafter of off-take product, assuming total ASM production is equal to current volumes, without taking into account inflation and changes in foreign exchange rates. The Company purchased approximately $21of supply from ASM for the three months ended March 31, 2012. Pursuant to an Assignment and Assumption Agreement, GE Monomer (Holdings) Pte. Ltd. also assigned its interest as licensor under a certain Technology License Agreement with ASM to the Company. Under this Technology License Agreement, the Company received royalties from ASM of less than $1 for the three months ended March 31, 2012.

An affiliate of GE is one of the lenders under the Company's revolving credit facility representing approximately $160 of the lenders' $300 revolving credit facility commitment.

(5)
Fair Value Measurements
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value hierarchy exists, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are:

Level 1
  
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
 
 
Level 2
  
Quoted prices for similar assets or liabilities in active markets; or observable prices which are based on observable market data, based on, directly or indirectly market-corroborated inputs. The Company’s level 2 liabilities include interest rate swaps and natural gas derivative contracts that are traded in an active exchange market.
 
 
Level 3
  
Unobservable inputs that are supported by little or no market activity and are developed based on the best information available in the circumstances.
 
At March 31, 2012 and December 31, 2011, the Company had less than $1 of natural gas derivative contracts included in level 2. The fair value of the natural gas derivative contracts generally reflects the estimated amounts that the Company would receive or pay, on a pre-tax basis, to terminate the contracts at the reporting date based on broker quotes for the same or similar instruments. Counterparties to these contracts are highly rated financial institutions, none of which experienced any significant downgrades in the fiscal three-month period ended March 31, 2012 that would reduce the fair value receivable amount owed, if any, to the Company.
At March 31, 2012, the Company estimates that the $1,337 of outstanding springing lien notes had a fair value of approximately $1,158; the $379 of outstanding fixed rate senior subordinated notes had a fair value of approximately $313; the $1,003 of outstanding variable rate term loans had a fair value of approximately $963; the $181 of outstanding fixed rate second-lien senior secured notes with a $200 aggregate principal amount had a fair value of approximately $213; and the fair value of the $4 outstanding medium term loan, the $30 outstanding fixed asset loan and the $16 of outstanding working capital loans were approximately the same as their outstanding balances. The Company determined the estimated fair value amounts by using available market information for the senior notes and commonly accepted valuation methodologies for the term loans.

12

MOMENTIVE PERFORMANCE MATERIALS INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)—(Continued)
(Dollar amounts in millions)


However, considerable judgment is required in interpreting market data to develop estimates of fair value. Accordingly, the fair value estimates presented herein are not necessarily indicative of the amount that the Company or the debt-holders could realize in a current market exchange. The use of different assumptions, changes in market conditions and/or estimation methodologies may have a material effect on the estimated fair value.

(6)
Inventories
Inventories consisted of the following at March 31, 2012 and December 31, 2011:
 
 
March 31, 2012
 
December 31, 2011
Raw materials and work in process
$
124

 
$
135

Finished goods
289

 
259

Total inventories
$
413

 
$
394



(7)
Indebtedness
(a)
Short-Term Borrowings
At March 31, 2012, the Company's short-term borrowings consisted of bank borrowings of $5 with a weighted average interest rate of 10.20%. At December 31, 2011, the Company's short-term borrowings consisted of bank borrowings of $3 with a weighted average interest rate of 9.90%.
(b)
Long-Term Debt
As of March 31, 2012, the Company had no outstanding borrowings under the revolving credit facility. The outstanding letters of credit under the revolving credit facility at March 31, 2012 were $44, leaving an unused borrowing capacity of $256. Outstanding letters of credit issued under the synthetic letter of credit facility at March 31, 2012 were $30, leaving an unused capacity of $3.
At March 31, 2012, the Company was in compliance with the covenants of all long-term debt agreements.


(8)
Income Taxes
The effective tax rate was 0% and 133% for the fiscal three-month periods ended March 31, 2012 and April 3, 2011, respectively. The change in the effective tax rate was primarily due to the maintenance of a full valuation allowance against a substantial amount of the Company's net deferred tax assets and a valuation allowance release in certain non-U.S. jurisdictions in 2011, in addition to a change in the amount of income (loss) before income taxes and changes in the tax rates applied in the various jurisdictions in which the Company operates.  The valuation allowance, which relates principally to the U.S. deferred tax assets, was established and maintained based on the Company's assessment that the net deferred tax assets will likely not be realized.
For the fiscal three month periods ended March 31, 2012 and April 3, 2011, income taxes include unfavorable discrete tax adjustments of $0 and $8, respectively, pertaining to foreign currency exchange gains in certain jurisdictions that generated tax expense and hedged currency exchange losses in other jurisdictions for which no net tax benefit is recognized due to a full valuation allowance in those jurisdictions, partially offset by the resolution of certain tax matters in the U.S. and non-U.S. jurisdictions.
The Company is recognizing the earnings of non-U.S. operations currently in its U.S. consolidated income tax return as of December 31, 2011 and is expecting, with the exception of certain operations in China, that all earnings not required to service debt of the Company’s operations in non-U.S. jurisdictions will be repatriated to the U.S. The Company has accrued the incremental tax expense expected to be incurred upon the repatriation of these earnings. In addition, the Company has certain intercompany arrangements that if settled may trigger taxable gains or losses based on currency exchange rates in place at the time of settlement. Since the currency translation impact is considered indefinite, the Company has not provided deferred taxes on gains of $336, which could result in a tax obligation of $119, based on currency exchange rates as of March 31, 2012. Should the intercompany arrangement be settled or the Company change its assertion, the actual tax impact will depend on the currency exchange rate at the time of settlement or change in assertion.

13



(9) Commitments and Contingencies
(a) Litigation
The Company is subject to various claims and legal actions arising in the ordinary course of business, none of which management believes is likely to have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity.
(b) Environmental Matters
The Company is involved in certain remediation actions to clean up hazardous wastes as required by federal and state laws. Liabilities for remediation costs at each site are based on the Company's best estimate of discounted future costs. As of March 31, 2012 and December 31, 2011, the Company had recognized obligations of $8 and $8, respectively, for remediation costs at the Company's manufacturing facilities and offsite landfills. These amounts are included in Other liabilities in the accompanying Condensed Consolidated Balance Sheets.

(10)
Pension Plans and Other Postretirement Benefits
The following are the components of the Company’s net pension and postretirement benefit expense for the fiscal three-month periods ended March 31, 2012 and April 3, 2011:
 
 
Pension
 
Postretirement
 
Fiscal three-month period ended
 
March 31, 2012
 
April 3, 2011
 
March 31, 2012
 
April 3, 2011
Service cost
$
7

 
$
6

 
$
1

 
$
1

Interest cost
3

 
2

 
1

 
1

Expected return on plan assets
(2
)
 
(1
)
 

 

Other
1

 

 

 

          Total
$
9

 
$
7

 
$
2

 
$
2


In 2012, the Company expects to contribute approximately $16 and $3 to the Company’s Domestic and Foreign plans, respectively. The Company contributed $4 to its Domestic plans during the fiscal three-month period ended March 31, 2012.

(11)     Operating Segments
The Company operates in two independent business segments: Silicones and Quartz. The Silicones segment is engaged in the manufacture, sale and distribution of silanes, specialty silicones and urethane additives. The Quartz segment is engaged in the manufacture, sale and distribution of high-purity fused quartz and ceramic materials. The Company’s operating segments are organized based on the nature of the products they produce. The segments are managed separately because each business requires different technology and marketing strategies.
An update of the accounting policies of the Silicones and Quartz segments are as described in the summary of significant accounting policies in Note 2.

 
Silicones
 
Quartz
 
Corporate and
other items (d)
 
Total
Fiscal three-month period ended March 31, 2012:
 
 
 
 
 
 
 
Net sales (a)
$
536

 
$
57

 
$

 
$
593

Operating income (loss) (b)
7

 
2

 
(14
)
 
(5
)
Depreciation and amortization
40

 
6

 

 
46

Capital expenditures (c)
15

 
5

 

 
20


 

14

MOMENTIVE PERFORMANCE MATERIALS INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)—(Continued)
(Dollar amounts in millions)


 
Silicones
 
Quartz
 
Corporate and other items (d)
 
Total
Fiscal three-month period ended April 3, 2011:
 
 
 
 
 
 
 
Net sales (a)
$
572

 
$
88

 
$

 
$
660

Operating income (loss) (b)
51

 
22

 

 
73

Depreciation and amortization
43

 
7

 

 
50

Capital expenditures (c)
15

 
3

 

 
18


__________________
(a)
There were no intersegment sales during the fiscal three-month periods ended March 31, 2012 or April 3, 2011, respectively.
(b)
A reconciliation of the segment operating income (loss) to income (loss) before income taxes would include interest expense, net and other income (expense), net as presented in the Condensed Consolidated Statements of Operations.
(c)
Capital expenditures are presented on an accrual basis.
(d)
Corporate and other items include pension and postretirement expenses and headquarter costs, net of corporate assessments.
 
The following tables show data by geographic area. Net sales are based on the location of the operation recording the final sale to the customer. Total long-lived assets consist of property and equipment, net of accumulated depreciation and amortization, intangible assets, net of accumulated amortization, and goodwill.
 
 
Fiscal three-month period ended
 
March 31, 2012
 
April 3, 2011
Net sales:
 
 
 
United States
$
185

 
$
215

Canada
10

 
12

Pacific
178

 
192

Europe
192

 
213

Mexico and Brazil
28

 
28

 
$
593

 
$
660

 
 
March 31, 2012
 
December 31, 2011
Total long-lived assets:
 
 
 
United States
$
571

 
$
579

Canada
19

 
18

Pacific
784

 
826

Europe
641

 
628

Mexico and Brazil
7

 
7

 
$
2,022

 
$
2,058


(12)     Guarantor and Non-Guarantor Condensed Consolidating Financial Statements
As of March 31, 2012, the Company had outstanding $200 in aggregate principal amount of second-lien senior notes, $1,161 in aggregate principal amount of springing lien Dollar notes, €133 in aggregate principal amount of springing lien Euro notes and $382 in aggregate principal amount of senior subordinated notes. The notes are fully, jointly, severally and unconditionally guaranteed by the Company’s domestic subsidiaries (the guarantor subsidiaries). The following condensed consolidated financial information presents the Condensed Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011, the Condensed Consolidated Statements of Operations for the fiscal three-month periods ended March 31, 2012 and April 3, 2011 and Condensed Consolidated Statements of Cash Flows for the fiscal three-month periods ended

15


March 31, 2012 and April 3, 2011 of (i) Momentive Performance Materials Inc. (Parent); (ii) the guarantor subsidiaries; (iii) the non-guarantor subsidiaries; and (iv) the Company on a consolidated basis.
These financial statements are prepared on the same basis as the consolidated financial statements of the Company except that investments in subsidiaries are accounted for using the equity method for purposes of the consolidating presentation. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions. The guarantor subsidiaries are 100% owned by Parent and all guarantees are full and unconditional, subject to certain customary release provisions set forth in the applicable Indenture. Additionally, substantially all of the assets of the guarantor subsidiaries and certain non-guarantor subsidiaries are pledged under the senior secured credit facility, and consequently will not be available to satisfy the claims of the Company’s general creditors.
For the presentation of this footnote prior to the second quarter of 2011, the Company had displayed the intercompany profit elimination (ICP) and its related deferred tax impact in the Elimination column. As a result, the ICP elimination and its related tax deferred impact did not get pushed up to the Parent column for presentation purposed; thereby causing equity (deficit) in the Parent column to not agree with equity (deficit) in the Consolidated column. Also, as a result, the net income (loss) attributable to Momentive Performance Materials Inc. in the Parent column did not agree with the corresponding amount in the Consolidated column.
The Company has revised the presentation of this footnote for all historical periods presented to display the ICP elimination and its deferred tax impact in the column for which it directly relates, as opposed to the Eliminations column. As a result of this revision, equity (deficit) in the Parent column agrees with equity (deficit) in the Consolidated column for all periods presented. In addition, net income (loss) attributable to Momentive Performance Materials Inc. in the Parent column agrees with the corresponding amount in the Consolidated column for all periods presented.    

The Company also revised its condensed consolidating balance sheet as of March 31, 2012 and December 31, 2011 to correctly reflect the Investment in affiliates line item. The revisions were made to appropriately classify the balance sheet credit arising from recognition of losses in excess of investment as a liability balance. These amounts were previously classified as a credit to the asset in the Guarantor Subsidiaries column. In the Guarantor column, as of March 31, 2012 and December 31, 2011, the correction resulted in an increase of $123 and $85, respectively, to “Investment in affiliates”, with a corresponding increase to “Accumulated losses from unconsolidated subsidiaries in excess of investment”.    

The Company also revised its condensed consolidating balance sheet as of March 31, 2012 and December 31, 2011 to correctly present intercompany borrowings. The revisions were made to present all intercompany borrowings on a gross basis. In the Parent column, as of March 31, 2012 and December 31, 2011, the revisions resulted in an increase of $9 and $20, respectively, to the "Intercompany borrowings" asset with a corresponding increase to the "Intercompany borrowings" liability. In the Guarantor Subsidiaries column, as of March 31, 2012 and December 31, 2011, the revisions resulted in an increase of $62 and a decrease of $12, respectively, to the "Intercompany borrowings" asset with a corresponding increase and decrease to the "Intercompany borrowings" liability. In the Non-Guarantor Subsidiaries column, as of March 31, 2012 and December 31, 2011, the revisions resulted in an increase of $224 and $196, respectively, to the "Intercompany borrowings" asset with a corresponding increase to the "Intercompany borrowings" liability. These corrections, which the Company determined are not material, had no impact on any financial statements or footnotes, except for the columns of the condensed consolidating balance sheet.




16


Condensed Consolidating Balance Sheet as of March 31, 2012:
 
  
Parent
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
6

 
$

 
$
112

 
$

 
$
118

Accounts receivable

 
84

 
243

 

 
327

Due from affiliates

 
69

 
46

 
(107
)
 
8

Inventories
 
 
191

 
222

 

 
413

Prepaid expenses

 
9

 
2

 

 
11

Deferred income taxes

 
1

 
8

 

 
9

Other current assets

 
6

 
43

 

 
49

Total current assets
6

 
360

 
676

 
(107
)
 
935

Property and equipment, net

 
489

 
578

 

 
1,067

Other long-term assets
54

 
8

 
26

 

 
88

Deferred income taxes

 

 
25

 

 
25

Investment in affiliates
1,379

 

 

 
(1,379
)
 

Intercompany borrowing
9

 
1,165

 
287

 
(1,461
)
 

Intangible assets, net

 
82

 
450

 

 
532

Goodwill

 

 
423

 

 
423

Total assets
$
1,448

 
$
2,104

 
$
2,465

 
$
(2,947
)
 
$
3,070

Liabilities and Equity (Deficit)
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Trade payables
$

 
$
97

 
$
215

 
$

 
$
312

Short-term borrowings

 

 
5

 

 
5

Accrued expenses and other liabilities

 
66

 
95

 

 
161

Accrued interest
48

 

 

 

 
48

Due to affiliates
5

 
49

 
64

 
(107
)
 
11

Accrued income taxes

 

 
6

 

 
6

Deferred income taxes

 

 
20

 

 
20

Current installments of long-term debt

 

 
36

 

 
36

Total current liabilities
53

 
212

 
441

 
(107
)
 
599

Long-term debt
1,898

 

 
1,016

 

 
2,914

Other liabilities

 
9

 
42

 

 
51

Pension liabilities

 
186

 
105

 

 
291

Intercompany Borrowings
329

 
195

 
937

 
(1,461
)
 

Deferred income taxes

 

 
47

 

 
47

Accumulated losses of unconsolidated subsidiaries in excess of investment

 
123

 

 
(123
)
 

Total liabilities
2,280

 
725

 
2,588

 
(1,691
)
 
3,902

Equity (deficit):
 
 
 
 
 
 
 
 
 
Additional paid-in capital
605

 
1,906

 
560

 
(2,466
)
 
605

Accumulated deficit
(1,634
)
 
(724
)
 
(927
)
 
1,651

 
(1,634
)
Accumulated other comprehensive income
197

 
197

 
244

 
(441
)
 
197

Total Momentive Performance Materials Inc.’s equity (deficit)
(832
)
 
1,379

 
(123
)
 
(1,256
)
 
(832
)
Noncontrolling interests

 

 

 

 

Total equity (deficit)
(832
)
 
1,379

 
(123
)
 
(1,256
)
 
(832
)
Total liabilities and equity (deficit)
$
1,448

 
$
2,104

 
$
2,465

 
$
(2,947
)
 
$
3,070

 

17


Condensed Consolidating Balance Sheet as of December 31, 2011:
 
Parent
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
40

 
$

 
$
159

 
$

 
$
199

Accounts receivable

 
82

 
233

 

 
315

Due from affiliates
3

 
60

 
30

 
(85
)
 
8

Inventories

 
193

 
201

 

 
394

Prepaid expenses

 
11

 
3

 

 
14

Deferred income taxes

 
1

 
9

 

 
10

Other current assets

 
11

 
38

 

 
49

Total current assets
43

 
358

 
673

 
(85
)
 
989

Property and equipment, net

 
495

 
589

 

 
1,084

Other long-term assets
55

 
9

 
25

 

 
89

Deferred income taxes

 

 
25

 

 
25

Investment in affiliates
1,415

 

 

 
(1,415
)
 

Intercompany borrowing
20

 
1,091

 
259

 
(1,370
)
 

Intangible assets, net

 
84

 
458

 

 
542

Goodwill

 

 
432

 

 
432

Total assets
$
1,533

 
$
2,037

 
$
2,461

 
$
(2,870
)
 
$
3,161

Liabilities and Equity (Deficit)
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Trade payables
$

 
$
89

 
$
219

 
$

 
$
308

Short-term borrowings

 

 
3

 

 
3

Accrued expenses and other liabilities
1

 
66

 
99

 

 
166

Accrued interest
61

 

 
1

 

 
62

Due to affiliates
14

 
26

 
60

 
(85
)
 
15

Accrued income taxes

 

 
2

 

 
2

Deferred income taxes

 

 
19

 

 
19

Current installments of long-term debt

 

 
36

 

 
36

Total current liabilities
76

 
181

 
439

 
(85
)
 
611

Long-term debt
1,891

 

 
1,004

 

 
2,895

Other liabilities

 
9

 
42

 

 
51

Pension liabilities

 
183

 
105

 

 
288

Intercompany Borrowings
302

 
164

 
904

 
(1,370
)
 

Deferred income taxes

 

 
52

 

 
52

Accumulated losses of unconsolidated subsidiaries in excess of investment

 
85

 

 
(85
)
 

Total liabilities
2,269

 
622

 
2,546

 
(1,540
)
 
3,897

Equity (deficit):
 
 
 
 
 
 
 
 
 
Common stock

 

 

 

 

Additional paid-in capital
605

 
1,911

 
567

 
(2,478
)
 
605

Accumulated deficit
(1,569
)
 
(724
)
 
(925
)
 
1,649

 
(1,569
)
Accumulated other comprehensive income
228

 
228

 
273

 
(501
)
 
228

Total Momentive Performance Materials Inc.’s equity (deficit)
(736
)
 
1,415

 
(85
)
 
(1,330
)
 
(736
)
Noncontrolling interests

 

 

 

 

Total equity (deficit)
(736
)
 
1,415

 
(85
)
 
(1,330
)
 
(736
)

18


Total liabilities and equity (deficit)
$
1,533

 
$
2,037

 
$
2,461

 
$
(2,870
)
 
$
3,161


Condensed Consolidating Statements of Operations for the fiscal three-month periods ended March 31, 2012 and April 3, 2011:
 
Fiscal three-month period ended March 31, 2012:
 
Parent
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$

 
$
252

 
$
452

 
$
(111
)
 
$
593

Costs and expenses:
 
 
 
 
 
 
 
 
 
Cost of sales, excluding depreciation

 
192

 
344

 
(111
)
 
425

Selling, general and administrative expenses
13

 
51

 
45

 

 
109

Depreciation and amortization expenses

 
18

 
28

 

 
46

Research and development expenses

 
12

 
6

 

 
18

Operating income (loss)
(13
)
 
(21
)
 
29

 

 
(5
)
Other income (expense):
 
 
 
 
 
 
 
 
 
Interest income

 
26

 
1

 
(27
)
 

Interest expense
(52
)
 
(3
)
 
(34
)
 
27

 
(62
)
Other income (expense), net

 
(2
)
 
3

 
2

 
3

Income (loss) before income taxes and losses from unconsolidated entities
(65
)
 

 
(1
)
 
2

 
(64
)
Income taxes (benefit)

 

 

 

 

Income (loss) before losses from unconsolidated entities
(65
)
 

 
(1
)
 
2

 
(64
)
Losses from unconsolidated entities

 

 
(1
)
 

 
(1
)
Net income (loss)
(65
)
 

 
(2
)
 
2

 
(65
)
Net income (loss) attributable to noncontrolling interests

 

 

 

 

Net income (loss) attributable to Momentive Performance Materials Inc.
$
(65
)
 
$

 
$
(2
)
 
$
2

 
$
(65
)
Comprehensive (loss) income
$
(31
)
 
$
(31
)
 
$
(29
)
 
$
60

 
$
(31
)
 
 
 
 
 
 
 
 
 
 
 
Fiscal three-month period ended April 3, 2011:
 
Parent
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$

 
$
305

 
$
510

 
$
(155
)
 
$
660

Costs and expenses:
 
 
 
 
 
 
 
 
 
Cost of sales, excluding depreciation

 
204

 
368

 
(155
)
 
417

Selling, general and administrative expenses
16

 
46

 
38

 

 
100

Depreciation and amortization expenses

 
19

 
31

 

 
50

Research and development expenses

 
14

 
6

 

 
20

Operating income (loss)
(16
)
 
22

 
67

 

 
73

Other income (expense):
 
 
 
 
 
 
 
 
 
Interest income

 
26

 
2

 
(28
)
 

Interest expense
(54
)
 
(3
)
 
(35
)
 
28

 
(64
)
Other income (expense), net
67

 
19

 
(2
)
 
(84
)
 


19


Income (loss) before income taxes
(3
)
 
64

 
32

 
(84
)
 
9

Income taxes (benefit)

 

 
12

 

 
12

Net income (loss)
(3
)
 
64

 
20

 
(84
)
 
(3
)
Net income (loss) attributable to noncontrolling interests

 

 

 

 

Net income (loss) attributable to Momentive Performance Materials Inc.
$
(3
)
 
$
64

 
$
20

 
$
(84
)
 
$
(3
)
Comprehensive (loss) income
$
(16
)
 
$
(15
)
 
$
(15
)
 
$
30

 
$
(16
)



20


Condensed Consolidating Statement of Cash Flows for the fiscal three-month period ended March 31, 2012:
 
Fiscal three-month period ended March 31, 2012:
 
Parent
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net cash provided by (used in) operating activities
$
(81
)
 
$
12

 
$
21

 
$

 
$
(48
)
Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Capital expenditures

 
(13
)
 
(16
)
 

 
(29
)
Purchases of intangible assets

 
(1
)
 

 

 
(1
)
Net cash used in investing activities

 
(14
)
 
(16
)
 

 
(30
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Increase in short-term borrowings

 

 
2

 

 
2

Proceeds from long-term debt
25

 

 

 

 
25

Payments of long-term debt
(25
)
 

 
(4
)
 

 
(29
)
Net borrowings with affiliates
47

 
2

 
(49
)
 

 

Net cash provided by (used in) financing activities
47

 
2

 
(51
)
 

 
(2
)
Increase (decrease) in cash and cash equivalents
(34
)
 

 
(46
)
 

 
(80
)
Effect of exchange rate changes on cash

 

 
(1
)
 

 
(1
)
Cash and cash equivalents, beginning of period
40

 

 
159

 

 
199

Cash and cash equivalents, end of period
$
6

 
$

 
$
112

 
$

 
$
118



21


Condensed Consolidating Statement of Cash Flows for the fiscal three-month period ended April 3, 2011:
 
Fiscal three-month period ended April 3, 2011:
 
Parent
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net cash provided by (used in) operating activities
$
(22
)
 
$
46

 
$
(17
)
 
$
(2
)
 
$
5

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Capital expenditures

 
(15
)
 
(12
)
 

 
(27
)
Purchases of intangible assets

 
(1
)
 

 

 
(1
)
Net cash used in investing activities

 
(16
)
 
(12
)
 

 
(28
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Debt issuance costs
(5
)
 

 

 

 
(5
)
Dividends paid within MPM Inc., net

 

 
(2
)
 
2

 

Decrease in short-term borrowings

 

 
(2
)
 

 
(2
)
Proceeds from long-term debt

 

 
37

 

 
37

Payments of long-term debt

 

 
(55
)
 

 
(55
)
Net borrowings between affiliates
40

 
(30
)
 
(10
)
 

 

Net cash provided by (used in) financing activities
35

 
(30
)
 
(32
)
 
2

 
(25
)
Increase (decrease) in cash and cash equivalents
13

 

 
(61
)
 

 
(48
)
Effect of exchange rate changes on cash

 

 
4

 

 
4

Cash and cash equivalents, beginning of period
28

 

 
222

 

 
250

Cash and cash equivalents, end of period
$
41

 
$

 
$
165

 
$

 
$
206



(13)
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