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Table of Contents






UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2017
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
 
 
MPM HOLDINGS INC.
(Exact name of registrant as specified in its charter)
Commission File Number 333-201338
 
 
Delaware
 
47-1756080
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
MOMENTIVE PERFORMANCE MATERIALS INC.
(Exact name of registrant as specified in its charter)
Commission File Number 333-146093 
 
Delaware
 
20-5748297
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 

260 Hudson River Road
Waterford, NY 12188
 
(518) 233-3330
(Address of principal executive offices including zip code)
 
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    
MPM Holdings Inc.                Yes  x    No  o
Momentive Performance Materials Inc.    Yes  x    No  o


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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    
MPM Holdings Inc.                Yes  x    No  o
Momentive Performance Materials Inc.    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
MPM Holdings Inc.
Large accelerated filer
o
  
Accelerated filer
o
 
 
 
 
 
Non-accelerated filer
x
  
Smaller Reporting Company
o
 
 
 
 
 
 
 
 
Emerging Growth Company
o
    
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Momentive Performance Materials Inc.
Large accelerated filer
o
  
Accelerated filer
o
 
 
 
 
 
Non-accelerated filer
x
  
Smaller Reporting Company
o
 
 
 
 
 
 
 
 
Emerging Growth Company
o
    
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    
MPM Holdings Inc.                Yes  o    No  x
Momentive Performance Materials Inc.    Yes  o    No  x
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    
MPM Holdings Inc.                Yes  x    No  o
Momentive Performance Materials Inc.    Yes  x    No  o
The number of shares of common stock of MPM Holdings Inc., par value $0.01 per share, outstanding as of the close of business on August 4, 2017, was 48,121,634 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 August 4, 2017, was 48 shares, all of which were held by MPM Intermediate Holdings Inc.
This Form 10-Q is a combined quarterly report being filed separately by two registrants: MPM Holdings Inc. and Momentive Performance Materials Inc.


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MPM HOLDINGS INC. AND MOMENTIVE PERFORMANCE MATERIALS INC.

INDEX

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

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

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

 
MPM HOLDINGS INC.
 
MOMENTIVE PERFORMANCE MATERIALS INC.
(In millions, except share data)
June 30, 2017
 
December 31, 2016
 
June 30, 2017
 
December 31, 2016
Assets
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
Cash and cash equivalents (including restricted cash of $4)
$
132

 
$
228

 
$
132

 
$
228

Accounts receivable (net of allowance for doubtful accounts of $4)
332

 
280

 
332

 
280

Inventories:
 
 
 
 
 
 
 
Raw materials
137

 
119

 
137

 
119

Finished and in-process goods
292

 
271

 
292

 
271

Other current assets
67

 
50

 
67

 
50

Total current assets
960

 
948

 
960

 
948

Investment in unconsolidated entities
20

 
20

 
20

 
20

Deferred income taxes
13

 
9

 
13

 
9

Other long-term assets
10

 
20

 
10

 
20

Property, plant and equipment:
 
 
 
 
 
 
 
Land
77

 
74

 
77

 
74

Buildings
322

 
307

 
322

 
307

Machinery and equipment
1,048

 
959

 
1,048

 
959

 
1,447

 
1,340

 
1,447

 
1,340

Less accumulated depreciation
(323
)
 
(265
)
 
(323
)
 
(265
)
 
1,124

 
1,075

 
1,124

 
1,075

Goodwill
215

 
211

 
215

 
211

Other intangible assets, net
314

 
323

 
314

 
323

Total assets
$
2,656

 
$
2,606

 
$
2,656

 
$
2,606

Liabilities and Equity
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
Accounts payable
$
276

 
$
238

 
$
276

 
$
238

Debt payable within one year
36

 
36

 
36

 
36

Interest payable
12

 
11

 
12

 
11

Income taxes payable
7

 
8

 
7

 
8

Accrued payroll and incentive compensation
47

 
61

 
47

 
61

Other current liabilities
108

 
123

 
105

 
122

Total current liabilities
486

 
477

 
483

 
476

Long-term liabilities:
 
 
 
 
 
 
 
Long-term debt
1,179

 
1,167

 
1,179

 
1,167

Pension and postretirement benefit liabilities
342

 
341

 
342

 
341

Deferred income taxes
68

 
66

 
68

 
66

Other long-term liabilities
67

 
73

 
67

 
72

Total liabilities
2,142

 
2,124

 
2,139

 
2,122

Commitments and contingencies (See Note 7)
 
 
 
 
 
 
 
Equity
 
 
 
 
 
 
 
Common stock - $0.01 par value; 70,000,000 shares authorized; 48,121,634 and 48,058,114 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively

 

 

 

Common stock - $0.01 par value; 100 shares authorized; 48 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively

 

 

 

Additional paid-in capital
866

 
864

 
865

 
863

Accumulated other comprehensive loss
(35
)
 
(76
)
 
(35
)
 
(76
)
Accumulated deficit
(317
)
 
(306
)
 
(313
)
 
(303
)
Total equity
514

 
482

 
517

 
484

Total liabilities and equity
$
2,656

 
$
2,606

 
$
2,656

 
$
2,606


See Notes to Condensed Consolidated Financial Statements

4

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

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In millions, except share and per share data)
 
2017
 
2016
 
2017
 
2016
Net sales
 
$
594

 
$
586

 
$
1,138

 
$
1,122

Cost of sales
 
459

 
468

 
905

 
914

Gross profit
 
135

 
118

 
233

 
208

Costs and expenses:
 

 
 
 
 
 
 
Selling, general and administrative expense
 
85

 
78

 
169

 
159

Research and development expense
 
16

 
17

 
31

 
33

Restructuring and other costs (See Note 3)
 
(5
)
 
4

 

 
9

Other operating expense, net
 
1

 
2

 
4

 
8

Operating income (loss)
 
38

 
17

 
29


(1
)
Interest expense, net (See Note 6)
 
20

 
19

 
39

 
38

Gain on extinguishment of debt (See Note 6)
 

 

 

 
(9
)
Other non-operating (income) expense, net
 
(5
)
 
5

 
(4
)
 
2

Reorganization items, net
 

 

 

 
1

Income (loss) before income taxes and earnings from unconsolidated entities
 
23

 
(7
)
 
(6
)

(33
)
Income tax expense (benefit) (See Note 12)
 
4

 
4

 
5

 
(4
)
Income (loss) before earnings from unconsolidated entities
 
19

 
(11
)
 
(11
)

(29
)
Earnings from unconsolidated entities, net of taxes
 

 
1

 

 
1

Net income (loss)
 
$
19

 
$
(10
)
 
$
(11
)
 
$
(28
)
 
 
 
 
 
 
 
 
 
Net income (loss) per share:
 
 
 
 
 
 
 
 
Net income (loss) per common share—basic
 
$
0.39

 
$
(0.21
)
 
$
(0.23
)
 
$
(0.58
)
Net income (loss) per common share—diluted
 
$
0.39

 
$
(0.21
)
 
$
(0.23
)
 
$
(0.58
)
Shares used in per-share calculation
 
 
 
 
 
 
 
 
Weighted average common shares outstanding—basic
 
48,117,894

 
48,055,194

 
48,103,386

 
48,041,894

Weighted average common shares outstanding—diluted
 
48,166,189

 
48,055,194

 
48,103,386

 
48,041,894


See Notes to Condensed Consolidated Financial Statements

5

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

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 (In millions)
 
2017
 
2016
 
2017
 
2016
Net sales
 
$
594

 
$
586

 
$
1,138

 
$
1,122

Cost of sales
 
459

 
468

 
905

 
914

Gross profit
 
135

 
118

 
233

 
208

Selling, general and administrative expense
 
85

 
78

 
168

 
158

Research and development expense
 
16

 
17

 
31

 
33

Restructuring and other costs (See Note 3)
 
(5
)
 
4

 

 
9

Other operating expense, net
 
1

 
2

 
4

 
8

Operating income
 
38

 
17

 
30

 

Interest expense, net (See Note 6)
 
20

 
19

 
39

 
38

Gain on extinguishment of debt (See Note 6)

 

 

 

 
(9
)
Other non-operating (income) expense, net
 
(5
)
 
5

 
(4
)
 
2

Reorganization items, net
 

 

 

 
1

Income (loss) before income taxes and earnings from unconsolidated entities
 
23

 
(7
)
 
(5
)
 
(32
)
Income tax expense (benefit) (See Note 12)
 
4

 
4

 
5

 
(4
)
Income (loss) before earnings from unconsolidated entities
 
19

 
(11
)
 
(10
)
 
(28
)
Earnings from unconsolidated entities, net of taxes
 

 
1

 

 
1

Net income (loss)
 
$
19

 
$
(10
)
 
$
(10
)
 
$
(27
)

See Notes to Condensed Consolidated Financial Statements


6

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

 
MPM HOLDINGS INC.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In millions)
2017
 
2016
 
2017
 
2016
Net income (loss)
$
19

 
$
(10
)
 
$
(11
)
 
$
(28
)
Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Foreign currency translation
9

 
21

 
31

 
59

Net prior service credit
(1
)
 

 
10

 
20

Other comprehensive income
8

 
21

 
41

 
79

Comprehensive income
$
27

 
$
11

 
$
30

 
$
51


 
MOMENTIVE PERFORMANCE MATERIALS INC.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In millions)
2017
 
2016
 
2017
 
2016
Net income (loss)
$
19

 
$
(10
)
 
$
(10
)
 
$
(27
)
Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Foreign currency translation
9

 
21

 
31

 
59

Net prior service credit
(1
)
 

 
10

 
20

Other comprehensive income
8

 
21

 
41

 
79

Comprehensive income
$
27

 
$
11

 
$
31

 
$
52


See Notes to Condensed Consolidated Financial Statements

7

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
MPM HOLDINGS INC.
 
MOMENTIVE PERFORMANCE MATERIALS INC.
 
Six Months Ended June 30,
 
Six Months Ended June 30,
(In millions)
2017
 
2016
 
2017
 
2016
Cash flows (used in) provided by operating activities
 
 
 
 
 
 
 
Net loss
$
(11
)
 
$
(28
)
 
$
(10
)
 
$
(27
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
 
 
 
Depreciation and amortization
75

 
84

 
75

 
84

Unrealized actuarial losses from pensions and other post retirement liabilities
1

 
5

 
1

 
5

Deferred income tax benefit
(9
)
 
(14
)
 
(9
)
 
(14
)
Unrealized foreign currency gains
(4
)
 

 
(4
)
 

Amortization of debt discount
12

 
12

 
12

 
12

Gain on the extinguishment of debt

 
(9
)
 

 
(9
)
Other non-cash adjustments
7

 
7

 
7

 
7

Net change in assets and liabilities:
 
 
 
 
 
 
 
Accounts receivable
(43
)
 
(14
)
 
(43
)
 
(14
)
Inventories
(27
)
 
(25
)
 
(27
)
 
(25
)
Accounts payable
36

 
(2
)
 
36

 
(2
)
Income taxes payable
(1
)
 
3

 
(1
)
 
3

Other assets, current and non-current
(4
)
 
(7
)
 
(4
)
 
(7
)
Other liabilities, current and non-current
(44
)
 
42

 
(43
)
 
41

Net cash (used in) provided by operating activities
(12
)
 
54

 
(10
)
 
54

Cash flows used in investing activities
 
 
 
 
 
 
 
Capital expenditures
(77
)
 
(53
)
 
(77
)
 
(53
)
Purchases of intangible assets
(2
)
 
(1
)
 
(2
)
 
(1
)
Dividend from MPM
1

 

 

 

Purchase of a business
(9
)
 

 
(9
)
 

Net cash used in investing activities
(87
)
 
(54
)
 
(88
)
 
(54
)
Cash flows used in financing activities
 
 
 
 
 
 
 
Net short-term debt borrowings

 
1

 

 
1

Repayments of long-term debt

 
(16
)
 

 
(16
)
Dividends paid

 

 
(1
)
 

Net cash used in financing activities


(15
)
 
(1
)
 
(15
)
Decrease in cash and cash equivalents
(99
)
 
(15
)
 
(99
)
 
(15
)
Effect of exchange rate changes on cash and cash equivalents
3


4

 
3

 
4

Cash and cash equivalents (unrestricted), beginning of period
224

 
217

 
224

 
217

Cash and cash equivalents (unrestricted), end of period
$
128

 
$
206

 
$
128

 
$
206

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

 
$
28

 
$
28

 
$
28

Income taxes, net of refunds
14

 
7

 
14

 
7

Non-cash investing activity:
 
 
 
 
 
 
 
Capital expenditures included in accounts payable
$
21

 
$
18

 
$
21

 
$
18


See Notes to Condensed Consolidated Financial Statements

8

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CONDENSED CONSOLIDATED STATEMENT OF EQUITY (Unaudited)

MPM HOLDINGS INC.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Loss
 
Accumulated
Deficit
 
Total
Equity
(In millions, except share data)
 
Shares
 
Amount
 
 
 
 
Balance as of December 31, 2016
 
48,058,114

 
$

 
$
864

 
$
(76
)
 
$
(306
)
 
$
482

Net loss
 

 

 

 

 
(11
)
 
(11
)
Other comprehensive income
 

 

 

 
41

 

 
41

Stock-based compensation expense
 

 

 
2

 

 

 
2

Issuance of common stock
 
63,520

 

 

 

 

 

Balance as of June 30, 2017
 
48,121,634

 
$

 
$
866

 
$
(35
)
 
$
(317
)
 
$
514


MOMENTIVE PERFORMANCE MATERIALS INC.
 
 
 
 
 
 
 
 
 
 
 
 
(In millions, except share data)
 
 
 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Loss
 
Accumulated
Deficit
 
Total
Equity
Balance as of December 31, 2016
 

 
$

 
$
863

 
$
(76
)
 
$
(303
)
 
$
484

Net loss
 

 

 

 

 
(10
)
 
(10
)
Other comprehensive income
 

 

 

 
41

 

 
41

Stock-based compensation expense
 

 

 
2

 

 

 
2

Capital contribution from parent
 

 

 

 


 

 

Balance as of June 30, 2017
 

 
$

 
$
865

 
$
(35
)
 
$
(313
)
 
$
517


See Notes to Condensed Consolidated Financial Statements

9

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MPM HOLDINGS INC. AND MOMENTIVE PERFORMANCE MATERIALS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In millions, except share and per share data)


1. Business and Basis of Presentation
MPM Holdings Inc. (“Momentive”) is a holding company that conducts substantially all of its business through its subsidiaries. Momentive’s wholly owned subsidiary, MPM Intermediate Holdings Inc. (“Intermediate Holdings”), is a holding company for its wholly owned subsidiary, Momentive Performance Materials Inc. (“MPM”) and its subsidiaries. Momentive became the indirect parent company of MPM in accordance with MPM’s plan of reorganization (the “Plan”) pursuant to MPM’s emergence from Chapter 11 bankruptcy on October 24, 2014 (the “Effective Date” or the “Emergence Date”). Prior to its reorganization, MPM, through a series of intermediate holding companies, was controlled by investment funds managed by affiliates of Apollo Management Holdings, L.P. (together with Apollo Global Management, LLC and subsidiaries, “Apollo”). Unless otherwise noted, references to “we,” “us,” “our” or the “Company” refer collectively to Momentive and MPM and their subsidiaries, and, unless otherwise noted, the information provided pertains to both Momentive and MPM. Differences between the financial results of Momentive and MPM represent certain management expenses of and cash received by Momentive and therefore are not consolidated within the results of MPM.
Based in Waterford, New York, the Company is comprised of two operating and reportable segments: Silicones and Quartz. Silicones is a global business engaged in the manufacture, sale and distribution of silicones, silicone derivatives and organo-functional silanes. Quartz, also a global business, is engaged in the manufacture, sale and distribution of high-purity fused quartz and ceramic materials.
On April 13, 2014 (the “Petition Date”), Momentive Performance Materials Holdings Inc. (MPM’s direct parent prior to October 24, 2014) (“Old MPM Holdings”), MPM and certain of its U.S. subsidiaries (collectively, the “Debtors”) filed voluntary petitions for reorganization (the “Bankruptcy Filing”) under Chapter 11 (“Chapter 11”) of the U.S. Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of New York (the “Court”). The Chapter 11 proceedings were jointly administered under the caption In re MPM Silicones, LLC, et al., Case No. 14-22503. The Debtors continued to operate their businesses as “debtors-in-possession” under the jurisdiction of the Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Court through the Effective Date.
The unaudited Condensed Consolidated Financial Statements include the accounts of the Company, its majority-owned subsidiaries in which minority shareholders hold no substantive participating rights. Intercompany accounts and transactions are eliminated upon consolidation. In the opinion of management, all adjustments consisting of normal, recurring adjustments considered necessary for a fair statement have been included. Results for the interim periods are not necessarily indicative of results for the entire year.
Year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”). Pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the accompanying notes included in Momentive, MPM and their subsidiaries’ most recent Annual Report on Form 10-K for the year ended December 31, 2016.
During the three months ended June 30, 2017, the Company recorded an out-of-period correction totaling approximately $1 related to the reversal of capitalized interest on a capital project in progress between November 2014 and March 2017.  Also during the three months ended March 31, 2017, the Company recorded an another out-of-period adjustment of $1 related to the correction of 2016 sales commissions to employees.  After evaluating the quantitative and qualitative aspects of the above adjustments, the Company concluded the effect of these adjustments was not material to the current periods presented as well as any previously issued consolidated financial statements or expected annual results for 2017.


2. Summary of Significant Accounting Policies
Use of Estimates—The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and also requires the disclosure of contingent assets and liabilities at the date of the financial statements. In addition, it requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Management’s estimates and assumptions are evaluated on an ongoing basis and are based on historical experience, current conditions and available information. Actual results could differ from these estimates.
Subsequent Events—As a public reporting company, the Company evaluates subsequent events and transactions through the date these unaudited Condensed Consolidated Financial Statements are issued.
Reclassifications—Certain prior period balances have been reclassified to conform with current presentations.
Net Income (Loss) Per Share—Momentive calculates earnings per share as the ratio of net income (loss) to weighted average basic and diluted common shares outstanding.

10


Stock-Based Compensation—The Company measures and recognizes the compensation expense for all share-based awards made to employees and directors based on estimated fair values, in accordance with ASC 718, Compensation – Stock Compensation. The fair value of stock options granted is calculated using a Monte Carlo option-pricing model on the date of the grant, and the fair value of Restricted Stock Units are valued using the fair market value of the Company’s common stock on the date of grant. Compensation expense is recognized over the employee’s requisite service period (generally the vesting period of the equity grant). See Note 8 for additional details regarding stock-based compensation.

Business Acquisitions—In January 2017 the Company acquired the operating assets of Sea Lion Technology, Inc. to further support the Silanes business of its Silicones segment. The Company previously had a tolling relationship with Sea Lion Technology, Inc. on their site. The Company believes the acquisition will enable it to further strategically leverage these assets in support of the NXT* silane business. The Company paid $9 in cash to acquire Sea Lion Technology, Inc., and acquired substantially all of its property, plant and equipment. This acquisition was not significant in relation to the Company’s consolidated financial results and, therefore, pro forma financial information has not been presented.
    
The acquisition was accounted for using the purchase method of accounting and the allocation of the purchase price inclusive of identification and measurement of the fair value of tangible and intangible assets. The Company engaged specialists to assist in the valuation of tangible and intangible assets. The table below summarizes the initial purchase price allocation to the fair value of assets acquired at the acquisition date. Goodwill is calculated as the excess of the purchase price over the total assets recognized and represents the estimated future economic benefits arising from expected synergies and growth opportunities for the Company. All of the goodwill and intangible assets are deductible for tax purposes.

Property, plant & equipment
$
7

Goodwill
1

Intangible assets
1

Purchase price of the business acquisition
$
9

*NXT is a trademark of Momentive Performance Materials Inc.
    
Recently Issued Accounting Standards
In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Board Update No. 2014-09: Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 supersedes the existing revenue recognition guidance and most industry-specific guidance applicable to revenue recognition. According to the new guidance, an entity will apply a principles-based five step model to recognize revenue upon the transfer of promised goods or services to customers and in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. Additionally, in March 2016, the FASB issued Accounting Standards Board Update No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued Accounting Standards Board Update No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarifies the identification of performance obligations and the licensing implementation guidance. In May 2016, the FASB issued Accounting Standards Board Update No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which provides clarifying guidance in certain narrow areas and adds some practical expedients. In December 2016, the FASB issued Accounting Standards Board Update No. 2016-20, Technical Corrections and Improvements to Topic 606: Revenue from Contracts with Customers, which facilitates 13 technical corrections and improvements to Topic 606 and other Topics amended by ASU 2014-09 to increase stakeholders’ awareness of the proposals and to expedite improvements to ASU 2014-09. The effective dates for the ASUs issued in 2016 are the same as the effective date for ASU 2014-09. The revised effective date for ASU 2014-09 is for annual and interim periods beginning on or after December 15, 2017, and early adoption from the calendar year 2017 will be permitted. Entities will have the option of using either a full retrospective approach or a modified approach to adopt the guidance in ASU 2014-09. The Company has formed an implementation team and is currently evaluating the impact of the standard on its ongoing financial reporting. The Company has not yet selected a transition method for the standard. The Company will provide additional updates in future filings, as appropriate.

In July 2015, the FASB issued Accounting Standards Board Update No. 2015-11: Inventory (Topic 330) - Simplifying the Measurement of Inventory (“ASU 2015-11”). ASU 2015-11 has changed the measurement requirement of inventory within the scope of this guidance from lower of cost or market to the lower of cost and net realizable value. The guidance is also defining net realizable value as: the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The guidance is effective for annual periods beginning after December 15, 2016, including interim periods within that reporting period and amendments to be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The adoption of the requirements of ASU 2015-11 during 2017 did not significantly impact the Company’s financial statements.

11


In February 2016, the FASB issued Accounting Standards Board Update No. 2016-02: Leases (ASC 842) (“ASU 2016-02”). Lessees will need to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. It will be critical to identify leases embedded in a contract to avoid misstating the lessee’s balance sheet. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines. ASU 2016-02 is effective for public companies for annual reporting periods beginning after December 15, 2018, and interim periods within those fiscal years. The Company is currently evaluating the effect of the standard on its ongoing financial reporting.
In August 2016, the FASB issued Accounting Standards Board Update No. 2016-15: Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 provides new guidance designed to reduce existing diversity in practice of how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The ASU addresses eight specific cash flow issues, of which the following are expected to be applicable to the Company: 1) debt prepayment and extinguishment costs, 2) proceeds from settlement of insurance claims, 3) distributions received from equity method investments, and 4) separately identifiable cash flows and application of the predominance principle. In addition, in November 2016, the FASB issued Accounting Standards Board Update No. 2016-18: Statement of Cash Flows (Topic 230), Restricted Cash ("ASU 2016-18"). ASU 2016-18 clarifies certain existing principles in ASC 230, including providing additional guidance related to transfers between cash and restricted cash and how entities present, in their statement of cash flows, the cash receipts and cash payments that directly affect the restricted cash accounts. These ASUs will be effective for the Company’s fiscal year beginning January 1, 2018 and subsequent interim periods with retrospective application to each period presented is required and early adoption is permitted, the adoption of ASU 2016-15 and ASU 2016-18 will modify the Company's current disclosures and reclassifications within the consolidated statement of cash flows but they are not expected to have a material effect on the Company’s consolidated financial statements.
In January 2017, the FASB issued Accounting Standards Board Update No. 2017-01: Business Combinations (Topic 805) - Clarifying the Definition of a Business (“ASU 2017-01”). The ASU clarifies the definition of business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 will be effective for the Company’s fiscal year beginning January 1, 2018 and subsequent interim periods with prospective application with impacts on the Company’s consolidated financial statements that may vary depending on each specific acquisition. Early adoption is conditionally permitted.
  In January 2017, the FASB issued Accounting Standards Board Update No. 2017-04: Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendments in this ASU simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying value, which eliminates the current requirement to calculate a goodwill impairment charge by comparing the implied fair value of goodwill with its carrying amount. The amendments in this ASU are effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The amendments in this ASU should be applied on a prospective basis. The Company is currently evaluating whether to early adopt this ASU.
In February 2017 the FASB issued Accounting Standards Board Update No. 2017-05: Other Income - Gains and Loss from Derecognition of Nonfinancial Assets (subtopic 610-20). The amendments in this ASU provide clarification that nonfinancial assets within the scope of ASC 610-20 may include nonfinancial assets transferred within a legal entity to a counterparty and that an entity should allocate consideration to each distinct asset by applying the guidance in ASC 606 on allocating the transaction price to performance obligations. The amendments in this ASU also require entities to de-recognize a distinct non-financial asset or distinct in substance non-financial asset in a partial sale transaction when it (1) does not have (or ceases to have) a controlling financial interest in the legal entity that holds the asset in accordance with ASC 810 and (2) transfers control of the asset in accordance with ASC 606. The amendments to this ASU are effective in fiscal years beginning after December 15, 2017, including interim periods within those annual periods. The Company does not expect the adoption of the amendments in this ASU to have a significant impact on the Company’s consolidated financial statements.
In March 2017 the FASB issued Accounting Standards Update No. 2017-07: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The ASU requires entities to: 1) disaggregate the current-service-cost component from the other components of net benefit cost (the “other components”) and present it with other current compensation costs for related employees in the income statement and 2) present the other components elsewhere in the income statement and outside of income from operations if that subtotal is presented. In addition, the ASU requires entities to disclose the income statement lines that contain the other components if they are not presented on appropriately described separate lines. The ASU’s amendments are effective for interim and annual periods beginning after December 15, 2017. The Company is currently assessing this ASU’s impact on its financial statements.
In May 2017 the FASB issued Accounting Standards Update No. 2017-09: Compensation - Stock Compensation (Topic 718). The amendments in the ASU provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The ASU’s amendments are effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted. An entity should apply the amendments in this ASU on a prospective basis to an award modified on or after the adoption date. The impact on the Company’s consolidated financial statements would vary depending on the nature of any potential future changes to share-based payment awards.

12


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

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

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

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

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

The following table sets forth the changes in the restructuring reserve related to severance. Included in this table are also other minor restructuring programs that were undertaken by the Company in different locations, none of which were individually material. These costs are primarily related to workforce reductions:
 
 
Total
Accrued liability at December 31, 2016
 
4

Restructuring charges
 
1

Adjustments
 

Payments
 

Accrued liability at March 31, 2017
 
5

Restructuring charges
 

Adjustments
 

Payments
 
(1
)
Accrued liability at June 30, 2017
 
$
4


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


4. Related Party Transactions
Transactions with Hexion
Shared Services Agreement

In October 2010, the Company entered into a shared services agreement with Hexion Inc. (“Hexion”) (which, from October 1, 2010 through October 24, 2014, was a subsidiary under a common parent and thereafter, an entity controlled by a significant shareholder of the Company) (the “Shared Services Agreement”). Under this agreement, the Company provides to Hexion, and Hexion provides to the Company, certain services, including, but not limited to, human resources, information technology, accounting, finance, legal, and procurement services. The Shared Services Agreement establishes certain criteria upon which the cost of such services are allocated between the Company and Hexion. The Shared Services Agreement was renewed for one year starting in October 2016, is subject to termination by either the Company 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).

13


Pursuant to the Shared Services Agreement, during the six months ended June 30, 2017 and 2016, the Company incurred approximately $23 and $29, respectively, of net costs for shared services and Hexion incurred approximately $31 and $39, respectively, of net costs for shared services. Included in the net costs incurred during the six months ended June 30, 2017 and 2016, were net billings from Hexion to the Company of $15 and $16, respectively, to bring the percentage of total net incurred costs for shared services under the Shared Services Agreement to the applicable allocation percentage. The allocation percentages are reviewed by the Steering Committee pursuant to the terms of the Shared Services Agreement. The Company had accounts payable to Hexion of $2 and $5 at June 30, 2017 and December 31, 2016, respectively, and no accounts receivable from Hexion under this agreement.
Other Transactions with Hexion
In April 2014, the Company sold 100% of its interest in its Canadian subsidiary to a subsidiary of Hexion for a purchase price of $12. As a part of the transaction the Company also entered into a non-exclusive distribution agreement with a subsidiary of Hexion, whereby the subsidiary of Hexion will act as a distributor of certain of the Company’s products in Canada. The agreement has a term of 10 years, and is cancelable by either party with 180 days’ notice. The Company compensates the subsidiary of Hexion for acting as distributor at a rate of 2% of the net selling price of the related products sold. During the three and six months ended June 30, 2017, the Company sold $6 and $11, respectively, of products to Hexion under this distribution agreement, and paid less than $1 to Hexion as compensation for acting as distributor of the products for all periods. During the three and six months ended June 30, 2016, the Company sold $6 and $13, respectively, of products to Hexion under this distribution agreement, and paid less than $1 to Hexion as compensation for acting as distributor of the products for all periods. As of both June 30, 2017 and December 31, 2016, the Company had $2 of accounts receivable from Hexion related to the distribution agreement.
    
The Company also sells other products to, and purchases products from Hexion. These transactions were not material as of June 30, 2017.
Purchases and Sales of Products and Services with Affiliates other than Hexion.

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

5. Fair Value Measurements
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value hierarchy exists, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are:
Level 1: Inputs are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2: Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date.
Level 3: Unobservable inputs, that are supported by little or no market activity and are developed based on the best information available in the circumstances. For example, inputs derived through extrapolation or interpolation that cannot be corroborated by observable market data.

Recurring Fair Value Measurements
At both June 30, 2017 and December 31, 2016, the Company had less than $1 of natural gas derivative contracts, which are measured using Level 2 inputs, and are included in “Other current assets” in the unaudited Condensed Consolidated Balance Sheets. The fair value of the natural gas derivative contracts generally reflects the estimated amounts that the Company would receive or pay, on a pre-tax basis, to terminate the contracts at the reporting date based on broker quotes for the same or similar instruments. Counter-parties to these contracts are highly rated financial institutions, none of which experienced any significant downgrades that would reduce the fair value receivable amount owed, if any, to the Company. There were no transfers between Level 1, Level 2 or Level 3 measurements during the three or six months ended June 30, 2017.

Non-derivative Financial Instruments
The following table summarizes the carrying amount and fair value of the Company’s non-derivative financial instruments:

14


 
 
Carrying Amount
 
Fair Value
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
June 30, 2017
 
 
 
 
 
 
 
 
 
 
Debt
 
$
1,215

 
$

 
$
1,319

 
$

 
$
1,319

December 31, 2016
 
 
 
 
 
 
 
 
 
 
Debt
 
$
1,203

 
$

 
$
1,243

 
$

 
$
1,243

Fair values of debt classified as Level 2 are determined based on other similar financial instruments, or based upon interest rates that are currently available to the Company for the issuance of debt with similar terms and maturities. Fair values of debt are based upon the aggregate principal amount of each instrument, and do not include any unamortized debt discounts or premiums. The carrying amount of cash and cash equivalents, accounts receivable, accounts payable and other accrued liabilities are considered reasonable estimates of their fair values due to the short-term maturity of these financial instruments.

6. Debt Obligations
As of June 30, 2017 and December 31, 2016, the Company had no outstanding borrowings under its senior secured asset-based revolving loan facility (the “ABL Facility”). Outstanding letters of credit under the ABL Facility at June 30, 2017 were $56, leaving an unused borrowing capacity of $214.
As of June 30, 2017, the Company was in compliance with all the covenants included in the agreements governing its outstanding indebtedness.
During the first quarter of 2016, the Company repurchased in the open market $29 aggregate principal amount of the Company’s 4.69% Second-Priority Senior Secured Notes due 2022 (the “Second Lien Notes”) for $16. The Company recorded a gain of $9 net of associated discount on these notes, as a result of paying down this debt at less than its aggregate principal amount. All repurchased notes were canceled reducing the aggregate principal amount of Second Lien Notes outstanding from $231 to $202.
At June 30, 2017, the weighted average interest rate of the Company’s long term debt was 4.42%.
Debt outstanding at June 30, 2017 and December 31, 2016 was as follows:
 
June 30, 2017
 
December 31, 2016
 
Long-Term
 
Due Within One Year
 
Long-Term
 
Due Within One Year
Senior Secured Credit Facilities:
 
 
 
 
 
 
 
ABL Facility
$

 
$

 
$

 
$

Secured Notes:
 
 
 
 
 
 
 
3.88% First-Priority Senior Secured Notes due 2021 (includes $95 and $105 of unamortized debt discount, respectively)
1,005

 

 
995

 

4.69% Second-Priority Senior Secured Notes due 2022 (includes $28 and $30 of unamortized debt discount, respectively)
174

 

 
172

 

Other Borrowings:
 
 
 
 
 
 
 
China bank loans

 
36

 

 
36

Total debt
$
1,179

 
$
36

 
$
1,167

 
$
36

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

7. Commitments and Contingencies
Non-Environmental Legal Matters
The Company is involved in various legal proceedings in the ordinary course of business and had reserves of $2 and $3 at June 30, 2017 and December 31, 2016, respectively, for all non-environmental legal defense costs incurred and settlement costs that it believes are probable and estimable, all of which are included in “Other current liabilities” in the unaudited Condensed Consolidated Balance Sheets.

15



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 June 30, 2017 and December 31, 2016, the Company had recognized total obligations of approximately $12 and $13, respectively, for remediation costs at the Company’s manufacturing facilities and off-site landfills. These amounts are included in “Other long-term liabilities” in the unaudited Condensed Consolidated Balance Sheets.
Included in these liabilities is $8 related to groundwater treatment at the Company’s Waterford, NY site. In 1988, a consent decree was signed with the State of New York which requires recovery of groundwater at the site to contain migration of specified contaminants in the groundwater. A groundwater pump and treat system and groundwater monitoring program are currently operational to implement the requirements of this consent decree.
Due to the long-term nature of the project and the uncertainty inherent in estimating future costs of implementing this program, this liability was recorded at its net present value, which assumes a 3% discount rate and an estimated time period of 50 years and is included in our total obligations as discussed above. The undiscounted obligations, which are expected to be paid over the estimated period, are approximately $17. Over the next five years the Company expects to make ratable payments totaling approximately $2.

8. Equity Plans and Stock Based Compensation
Management Equity Plan
On March 12, 2015, the Board of Directors of Momentive approved the MPM Holdings Inc. Management Equity Plan (the “MPMH Equity Plan”). Under the MPMH Equity Plan, Momentive can award no more than 3,818,182 shares which may consist of options, restricted stock units, restricted stock and other stock-based awards, qualifying as equity classified awards in accordance with ASC 718 “Compensation - Stock Compensation”. The restricted stock units are non-voting units of measurement which are deemed to be equivalent to one common share of Momentive. The options are options to purchase common shares of Momentive. The awards contain restrictions on transferability and other typical terms and conditions. The purpose of the MPMH Equity Plan is to assist the Company in attracting, retaining, incentivizing and motivating employees and to promote the success of the Company’s business by providing such participating individuals with a proprietary interest in the performance of the Company.
The Compensation Committee of the Board of Directors of Momentive has approved grants under the MPMH Equity Plan of restricted stock units and options to certain of the Company’s key managers, including the Company’s named executive officers (“NEOs”) and certain directors of the Company.
The following is a summary of key terms of the stock-based awards granted under the MPMH Equity Plan:
Award
 
Vesting Terms
 
Option/Unit Terms
Stock Options—Tranche A
 
Performance-based and market-based upon achievement of targeted common stock prices either through a Sale or an IPO with certain conditions as such terms are defined by the MPMH Equity Plan
 
10 years
Stock Options—Tranche B
 
Performance-based and market-based upon achievement of targeted common stock prices either through a Sale or an IPO with certain conditions as such terms are defined by the MPMH Equity Plan
 
10 years
Employees and NEOs Restricted Stock Units grant
 
Cliff vest four years after grant date; Immediate vesting upon a Sale and ratable vesting in the event of an IPO as defined in the MPMH Equity Plan
 
NA
Directors Restricted Stock Units grant
 
Cliff vest annually after grant date; Immediate vesting upon a Sale as defined in the MPMH Equity Plan
 
NA
Stock Options
In May 2016, the Company’s Board of Directors approved a re-pricing of the granted stock options reducing the strike price to $10.25 from $20.33 based on the fair market value of Momentive’s shares on May 19, 2016 and changing the market conditions vesting thresholds of Tranche A and Tranche B to be $20 per share and $25 per share, down from $30.50 per share and $40.66 per share, respectively.  Momentive treated the repricing as a modification of the original awards and calculated additional compensation costs for the difference between the fair value of the modified award and the fair value of the original award on the modification date. The repricing triggered changes in fair value of Tranche A from $7.93 per option to $9.83 per option and in Tranche B from $7.62 per option to $8.93 per option resulting in an incremental increase of $3 in unrecognized compensation expense related to these non-vested stock options, to $15 at May 19, 2016.

16


The estimated fair values of Stock Options granted and the assumptions used for the Monte Carlo option-pricing model were as follows:
 
 
June 30, 2017
 
June 30, 2016
 
 
Tranche A
 
Tranche B
 
Tranche A
 
Tranche B
Estimated fair values
 
$
9.83

 
$
8.93

 
$
9.83

 
$
8.93

Assumptions:
 
 
 
 
 
 
 
 
Strike Price
 
$
10.25

 
$
10.25

 
$
10.25

 
$
10.25

Risk-free interest rate
 
0.80
%
 
0.80
%
 
0.80
%
 
0.80
%
Expected term
 
1.62 years

 
1.62 years

 
1.62 years

 
1.62 years

Expected volatility
 
60.00
%
 
60.00
%
 
60.00
%
 
60.00
%
Tranche Market Threshold
 
$
20.00

 
$
25.00

 
$
20.00

 
$
25.00


Information on Stock Options activity is as follows:
 
 
Tranche A
Tranche B
 
 
Units
 
Weighted-Average
Exercise Price per Share

Units
 
Weighted-Average
Exercise Price per Share

Balance at January 1, 2017
 
782,040

 
$
10.33

782,040

 
$
10.33

Granted
 

 


 

Exercised
 

 


 

Forfeited
 

 


 

Expired
 

 



 


Balance as of June 30, 2017
 
782,040

 
$
10.33

782,040

 
$
10.33


As there have been no performance and market based achievements since the date of the original grant, there has been no compensation expense recorded during the three months and six months ended June 30, 2017 and the three months and six months ended June 30, 2016 with respect to stock options. At both June 30, 2017 and December 31, 2016, unrecognized compensation expense related to non-vested stock options was $15. Stock-based compensation cost related to stock options will be recognized once the satisfaction of the performance and market conditions becomes probable.
Restricted Stock Units
Information on Restricted Stock Units activity is as follows:
 
 
Units
Weighted-Average
Grant Date Fair Value per Share

Aggregate Fair Value

Balance at January 1, 2017
 
733,840

$
19.23


Granted
 
42,056

18.28


Vested
 
(63,520
)
10.35

1

Forfeited
 



Expired
 




Balance as of June 30, 2017
 
712,376

$
19.92


The fair market values related to the RSUs at the different grant dates were derived from material financial weighted analysis of the Company’s value as implied at emergence from Chapter 11 Bankruptcy or by the sales of stock completed with related parties and adjusted to reflect current and future market conditions and the expected Company’s financial performances at the grant date. The material financial weighted analysis consisted of (i) a discounted cash flow analysis, (ii) a selected publicly traded company analysis and (iii) a selected transactions analysis. The employees’ and named executive officers’ RSUs are 100% vested upon the fourth anniversary of the date of grant (“Scheduled Vesting

17


Date”) provided that the grantee remains continuously employed in active service by the Company or one of its affiliates from the date of grant through the Scheduled Vesting Date. The directors’ RSUs are 100% vested upon the first anniversary of the date of grant.
Additionally, vesting of the RSU grants could be accelerated: (i) upon a Sale of the Company occurring prior to the Scheduled Vesting Date, the RSUs, to the extent unvested, shall become fully vested, subject to the grantee’s continued employment through the effective date of such Sale; or (ii) upon an IPO occurring prior to the Scheduled Vesting Date, a graded percentage of the employees’ RSUs, shall become vested subject to the grantee’s continued employment through the effective date of the IPO.
There were no performance-based achievements during the three and six months ended June 30, 2017. The fair value of the Company’s RSUs, net of forfeitures, is expensed on a straight-line basis over the required service period.
Stock-based compensation expense related to the RSU awards was approximately $1 for both the three months ended June 30, 2017 and June 30, 2016 and $2 for both the six months ended June 30, 2017 and June 30, 2016. As of June 30, 2017, unrecognized compensation related to RSU awards was $7 and expense will be recognized over the remaining 1.79 years vesting period. Stock-based compensation cost related to RSU awards may be accelerated once the satisfaction of one of the performance conditions outlined becomes probable.
Although the MPMH Equity Plan, under which the above awards were granted, was issued by Momentive, substantially all of the underlying compensation cost represents compensation costs paid for by Momentive on MPM’s behalf, as a result of the MPM’s employees’ services to MPM. Upon vesting of awards, Momentive will issue new stock to deliver shares under the MPMH Equity Plan.


9. Pension and Postretirement Benefit Plans
The following are the components of the Company’s net pension and postretirement (benefit) expense for the three and six months ended June 30, 2017 and 2016:
 
Pension Benefits
 
Non-Pension Postretirement Benefits
 
Three Months Ended June 30,
 
Three Months Ended June 30,
 
2017
 
 
2016
 
2017
 
 
2016
 
U.S. Plans
 
Non-U.S. Plans
 
 
U.S. Plans
 
Non-U.S. Plans
 
U.S. Plans
 
Non-U.S. Plans
 
 
U.S. Plans
 
Non-U.S. Plans
Service cost
$
1

 
$
3

 
 
$
1

 
$
3

 
$

 
$

 
 
$
1

 
$

Interest cost on projected benefit obligation
3

 
1

 
 
2

 
1

 
1

 

 
 

 

Expected return on assets
(3
)
 

 
 
(2
)
 

 

 

 
 

 

Amortization of prior service credit

 

 
 

 

 
(1
)
 

 
 
(1
)
 

Net periodic benefit cost
$
1

 
$
4

 
 
$
1

 
$
4

 
$

 
$

 
 
$

 
$


 
Pension Benefits
 
Non-Pension Postretirement Benefits
 
Six Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
 
2016
 
2017
 
 
2016
 
U.S. Plans
 
Non-U.S. Plans
 
 
U.S. Plans
 
Non-U.S. Plans
 
U.S. Plans
 
Non-U.S. Plans
 
 
U.S. Plans
 
Non-U.S. Plans
Service cost
$
3

 
$
6

 
 
$
3

 
$
5

 
$

 
$

 
 
$
1

 
$

Interest cost on projected benefit obligation
5

 
2

 
 
4

 
2

 
1

 

 
 
1

 

Expected return on assets
(5
)
 

 
 
(4
)
 

 

 

 
 

 

Amortization of prior service credit

 

 
 

 

 
(2
)
 

 
 
(1
)
 

Actuarial loss (1)

 


 
 

 

 
1

 

 
 
5

 

Net periodic benefit cost
$
3

 
$
8

 
 
$
3

 
$
7

 
$

 
$

 
 
$
6

 
$


(1)
The actuarial loss on non-pension post-retirement benefits of $1 and $5 during the six months ended June 30, 2017 and 2016, respectively relates to the decrease in discount rate as a result of the re-measurement of the accumulated postretirement benefit obligation on company sponsored post-retiree medical, dental, vision and life insurance benefit plans. These were triggered by plan provision changes for active retirees and employees. The Company recorded this expense in Selling, general and administrative expense in the unaudited Consolidated Statements of Operations.



18


10. Segment Information and Customers
The Company’s segments are based on the products that the Company offers and the markets that it serves. At June 30, 2017, the Company’s had two reportable segments: Silicones and Quartz. The Silicones business is engaged in the manufacture, sale and distribution of silicones, silicone derivatives and silanes. The Quartz business is engaged in the manufacture, sale and distribution of high-purity fused quartz and ceramic materials. The Company’s segments are organized based on the nature of the products they produce. In addition, Corporate is primarily corporate, general and administrative expenses that are not allocated to the operating segments, such as certain shared service and administrative functions.
Following are net sales and Segment EBITDA (earnings before interest, income taxes, depreciation and amortization) by segment. Segment EBITDA is defined as EBITDA adjusted for certain non-cash items and certain other income and expenses. Segment EBITDA is the primary performance measure used by the Company’s senior management, the chief operating decision-maker and the board of directors to evaluate operating results and allocate capital resources among segments. Segment EBITDA is also the profitability measure used to set management and executive incentive compensation goals.

Net Sales(1):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Silicones
$
542

 
$
539

 
$
1,037

 
$
1,039

Quartz
52

 
47

 
101

 
83

Total
$
594

 
$
586

 
$
1,138

 
$
1,122

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

Segment EBITDA:
 
MPM HOLDINGS INC.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Silicones
$
75

 
$
70

 
$
146

 
$
120

Quartz
10

 
6

 
17

 
7

Corporate
(11
)
 
(10
)
 
(20
)
 
(20
)
Total
$
74

 
$
66

 
$
143

 
$
107


 
MOMENTIVE PERFORMANCE MATERIALS INC.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Silicones
$
75

 
$
70

 
$
146

 
$
120

Quartz
10

 
6

 
17

 
7

Corporate
(11
)
 
(10
)
 
(19
)
 
(19
)
Total
$
74

 
$
66

 
$
144

 
$
108



19


Reconciliation of Net Income (Loss) to Segment EBITDA:
 
MPM HOLDINGS INC.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
 
2016
 
2017
 
 
2016
Net income (loss)
$
19

 
 
$
(10
)
 
$
(11
)
 
 
$
(28
)
Interest expense, net
20

 
 
19

 
39

 
 
38

Income tax expense (benefit)
4

 
 
4

 
5

 
 
(4
)
Depreciation and amortization
37

 
 
42

 
75

 
 
84

Gain on extinguishment and exchange of debt

 
 

 

 
 
(9
)

 
 
 
 
 
 
 
 
 
Items not included in Segment EBITDA:
 
 
 
 
 
 
 
 
 
Non-cash charges and other income and expense
$
(2
)
 
 
$
7

 
$
4

 
 
$
11

Unrealized losses on pension and postretirement benefits

 
 

 
1

 
 
5

Restructuring and other costs
(4
)
 
 
4

 
30

 
 
9

Reorganization items, net

 
 

 

 
 
1

Segment EBITDA
$
74

 
 
$
66

 
$
143

 
 
$
107



 
 

 

 
 

Segment EBITDA:

 
 


 

 
 

Silicones
$
75

 
 
$
70

 
$
146

 
 
$
120

Quartz
10

 
 
6

 
17

 
 
7

Corporate
(11
)
 
 
(10
)
 
(20
)
 
 
(20
)
Total
$
74

 
 
$
66

 
$
143

 
 
$
107


 
MOMENTIVE PERFORMANCE MATERIALS INC.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
 
2016
 
2017
 
 
2016
Net income (loss)
$
19

 
 
$
(10
)
 
$
(10
)
 
 
$
(27
)
Interest expense, net
20

 
 
19

 
39

 
 
38

Income tax expense (benefit)
4

 
 
4

 
5

 
 
(4
)
Depreciation and amortization
37

 
 
42

 
75

 
 
84

Gain on extinguishment and exchange of debt

 
 

 

 
 
(9
)
 
 
 
 
 
 
 
 
 
 
Items not included in Segment EBITDA:
 
 
 
 
 
 
 
 
 
Non-cash charges and other income and expense
$
(2
)
 
 
$
7

 
$
4

 
 
$
11

Unrealized losses on pension and postretirement benefits

 
 

 
1

 
 
5

Restructuring and other costs
(4
)
 
 
4

 
30

 
 
9

Reorganization items, net

 
 

 

 
 
1

Segment EBITDA
$
74

 
 
$
66

 
$
144

 
 
$
108

 
 
 
 
 
 
 
 
 
 
Segment EBITDA:
 
 
 
 
 
 
 
 
 
Silicones
75

 
 
70

 
146

 
 
120

Quartz
10

 
 
6

 
17

 
 
7

Corporate
(11
)
 
 
(10
)
 
(19
)
 
 
(19
)
Total
$
74

 
 
$
66

 
$
144

 
 
$
108


Items Not Included in Segment EBITDA
Not included in Segment EBITDA are certain non-cash items and other income and expenses.

20


For the three and six months ended June 30, 2017 and June 30, 2016, non-cash charges primarily included asset impairment charges, stock based compensation expense and net foreign exchange transaction gains and losses related to certain intercompany arrangements.
For the six months ended June 30, 2017 and June 30, 2016, unrealized gains (losses) on pension and postretirement benefits represented non-cash actuarial losses recognized upon the remeasurement of our pension and postretirement benefit obligations.
For the three and six months ended June 30, 2017 and June 30, 2016, restructuring and other costs included expenses from restructuring and integration. In addition, for the three months ended June 30, 2017, these costs also included a gain related to an insurance reimbursement of $10 related to fire damage at our Leverkusen, Germany facility and for the six months ended June 30, 2017, these costs also included costs arising from the work stoppage inclusive of unfavorable manufacturing variances at our Waterford, NY facility.
  
11. Changes in Other Comprehensive (Loss) Income
Following is a summary of changes in “Accumulated other comprehensive (loss) income” for the three and six months ended June 30, 2017 and 2016:
 
Three Months Ended June 30,
 
2017
 
 
2016
 
Defined Benefit Pension and Postretirement Plans
 
Foreign Currency Translation Adjustments