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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended June 28, 2009

OR



| ̈ | 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.)                
|                                                               | 
|22 Corporate Wood Blvd., 2nd Fl Albany, NY 12211               |  | (518) 533-4600                                      
|(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  þ    No   ̈

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   ̈    No   ̈

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   ̈ |  | Accelerated filer   ̈ |  | Non-accelerated filer  þ |  | Smaller Reporting Company   ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes   ̈    No  þ

The number of shares of common stock of the Company, par value $0.01 per share, outstanding as of the close of business on August 5, 2009 was 100 shares, all of which were held by Momentive Performance Materials Holdings Inc.









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TABLE OF CONTENTS



|           |  |                                                                                                                                   |  |     
|---------- |  | --------------------------------------------------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                                                                   |  | Page
|Part I     |  | Financial Information                                                                                                             |  |     
|           |  |                                                                                                                                  
|Item 1.    |  | Financial Statements                                                                                                              |  |     
|           |  | Condensed Consolidated Balance Sheets as of June 28, 2009 and December 31, 2008                                                   |  | 3   
|           |  | Condensed Consolidated Statements of Operations for the Fiscal Three and Six-month Periods Ended June 28, 2009 and June 29,
 2008 |  | 4   
|           |  | Condensed Consolidated Statements of Cash Flows for the Fiscal Six-Month Periods Ended June 28, 2009 and June 
29, 2008           |  | 5   
|           |  | Notes to Condensed Consolidated Financial Statements                                                                              |  | 6   
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                             |  | 25  
|Item 3.    |  | Quantitative and Qualitative Disclosures about Market Risk                                                                        |  | 35  
|Item 4T.   |  | Controls and Procedures                                                                                                           |  | 35  
|           |  |                                                                                                                                  
|Part II    |  | Other Information                                                                                                                 |  |     
|           |  |                                                                                                                                  
|Item 1.    |  | Legal Proceedings                                                                                                                 |  | 36  
|Item 1A.   |  | Risk Factors                                                                                                                      |  | 36  
|Item 2.    |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                       |  | 37  
|Item 3.    |  | Defaults Upon Senior Securities                                                                                                   |  | 37  
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                                               |  | 37  
|Item 5.    |  | Other Information                                                                                                                 |  | 37  
|Item 6.    |  | Exhibits                                                                                                                          |  | 38  
|           | 
|Signatures |  | 39                                                                                                                               



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MOMENTIVE PERFORMANCE MATERIALS INC.

Condensed Consolidated Balance Sheets (Unaudited)

(Dollar amounts in thousands)



|                                                                                                                                                        |  |              |            |   |                  |            |  
|------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ---------- | - | ---------------- | ---------- | -
|                                                                                                                                                        |  | June 28,2009 |            |   | December 31,2008 |           
|Assets                                                                                                                                                  |  |              |            |   |                  |            |  
|Current assets:                                                                                                                                         |  |              |            |   |                  |            |  
|Cash and cash equivalents                                                                                                                               |  | $            | 315,672    |   |                  | 340,542    |  
|Receivables, net (note 4)                                                                                                                               |  |              | 386,971    |   |                  | 408,851    |  
|Due from affiliates                                                                                                                                     |  |              | 3,923      |   |                  | 1,776      |  
|Inventories (note 5)                                                                                                                                    |  |              | 358,936    |   |                  | 377,162    |  
|Prepaid expenses                                                                                                                                        |  |              | 10,080     |   |                  | 10,295     |  
|Income tax receivable                                                                                                                                   |  |              | 2,745      |   |                  | 16,955     |  
|Deferred income taxes (note 7)                                                                                                                          |  |              | 12,986     |   |                  | 8,401      |  
|Other current assets                                                                                                                                    |  |              | 3,195      |   |                  | 5,932      |  
|                                                                                                                                                        |  |              |            |   |                  |            |  
|Total current assets                                                                                                                                    |  |              | 1,094,508  |   |                  | 1,169,914  |  
|Property and equipment (net of accumulated depreciation and amortization of $514,996 and $447,024 at June 28, 2009 and December 31,
2008, respectively) |  |              | 1,167,813  |   |                  | 1,225,256  |  
|Other long-term assets                                                                                                                                  |  |              | 70,398     |   |                  | 73,567     |  
|Deferred income taxes (note 7)                                                                                                                          |  |              | 29,527     |   |                  | 34,272     |  
|Investments in nonconsolidated affiliates                                                                                                               |  |              | 565        |   |                  | 592        |  
|Intangible assets (net of accumulated amortization of $109,875 and $89,078 at June 28, 2009 and December 31, 2008, respectively)                        |  |              | 646,440    |   |                  | 671,523    |  
|Goodwill                                                                                                                                                |  |              | 402,000    |   |                  | 409,239    |  
|                                                                                                                                                        |  |              |            |   |                  |            |  
|Total assets                                                                                                                                            |  | $            | 3,411,251  |   |                  | 3,584,363  |  
|                                                                                                                                                        |  |              |            |   |                  |            |  
|Liabilities and Shareholders Deficit                                                                                                                   |  |              |            |   |                  |            |  
|Current liabilities:                                                                                                                                    |  |              |            |   |                  |            |  
|Trade payables                                                                                                                                          |  | $            | 246,554    |   |                  | 320,994    |  
|Short-term borrowings (note 6)                                                                                                                          |  |              | 1,296      |   |                  | 6,726      |  
|Accrued expenses and other liabilities                                                                                                                  |  |              | 167,386    |   |                  | 178,952    |  
|Accrued interest                                                                                                                                        |  |              | 15,520     |   |                  | 18,615     |  
|Due to affiliates                                                                                                                                       |  |              | 1,839      |   |                  | 3,404      |  
|Accrued income taxes (note 7)                                                                                                                           |  |              | 6,489      |   |                  | 2,688      |  
|Deferred income taxes (note 7)                                                                                                                          |  |              | 22,502     |   |                  | 19,522     |  
|Current installments of long-term debt                                                                                                                  |  |              | 15,526     |   |                  | 68,378     |  
|                                                                                                                                                        |  |              |            |   |                  |            |  
|Total current liabilities                                                                                                                               |  |              | 477,112    |   |                  | 619,279    |  
|Long-term debt (note 6)                                                                                                                                 |  |              | 3,156,823  |   |                  | 3,164,732  |  
|Other liabilities                                                                                                                                       |  |              | 64,591     |   |                  | 72,283     |  
|Pension liabilities (note 9)                                                                                                                            |  |              | 206,545    |   |                  | 202,064    |  
|Deferred income taxes (note 7)                                                                                                                          |  |              | 58,069     |   |                  | 67,147     |  
|                                                                                                                                                        |  |              |            |   |                  |            |  
|Total liabilities                                                                                                                                       |  |              | 3,963,140  |   |                  | 4,125,505  |  
|                                                                                                                                                        |  |              |            |   |                  |            |  
|Shareholders deficit:                                                                                                                                  |  |              |            |   |                  |            |  
|Common stock                                                                                                                                            |  |              |           |   |                  |           |  
|Additional paid-in capital                                                                                                                              |  |              | 601,330    |   |                  | 601,017    |  
|Accumulated deficit                                                                                                                                     |  |              | (1,315,981 | ) |                  | (1,321,963 | )
|Accumulated other comprehensive income (note 8)                                                                                                         |  |              | 159,706    |   |                  | 175,960    |  
|                                                                                                                                                        |  |              |            |   |                  |            |  
|Total Momentive Performance Materials Inc. shareholders deficit                                                                                        |  |              | (554,945   | ) |                  | (544,986   | )
|Noncontrolling interest                                                                                                                                 |  |              | 3,056      |   |                  | 3,844      |  
|                                                                                                                                                        |  |              |            |   |                  |            |  
|Total shareholders deficit                                                                                                                             |  |              | (551,889   | ) |                  | (541,142   | )
|                                                                                                                                                        |  |              |            |   |                  |            |  
|Total liabilities and shareholders deficit                                                                                                             |  | $            | 3,411,251  |   |                  | 3,584,363  |  
|                                                                                                                                                        |  |              |            |   |                  |            |  

See accompanying notes to condensed consolidated financial statements.



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MOMENTIVE PERFORMANCE MATERIALS INC.

Condensed Consolidated Statements of Operations (Unaudited)

(Dollar amounts in thousands)



|                                                                       |  |                                |         |   |                              |         |   |              |          |   |              |           |  
|---------------------------------------------------------------------- |  | ------------------------------ | ------- | - | ---------------------------- | ------- | - | ------------ | -------- | - | ------------ | --------- | -
|                                                                       |  | Fiscal three-monthperiod ended |         |   | Fiscal six-monthperiod ended |        
|                                                                       |  | June 28,2009                   |         |   | June 29,2008                 |         |   | June 28,2009 |          |   | June 29,2008 |          
|Net sales                                                              |  | $                              | 490,008 |   |                              | 737,464 |   |              | 908,067  |   |              | 1,394,076 |  
|Cost of sales, excluding depreciation                                  |  |                                | 334,655 |   |                              | 515,680 |   |              | 646,137  |   |              | 948,739   |  
|                                                                       |  |                                |         |   |                              |         |   |              |          |   |              |           |  
|Gross profit                                                           |  |                                | 155,353 |   |                              | 221,784 |   |              | 261,930  |   |              | 445,337   |  
|Selling, general and administrative expenses                           |  |                                | 79,820  |   |                              | 95,927  |   |              | 172,299  |   |              | 199,251   |  
|Depreciation and amortization expenses                                 |  |                                | 46,627  |   |                              | 59,375  |   |              | 96,226   |   |              | 115,373   |  
|Research and development expenses                                      |  |                                | 15,038  |   |                              | 20,854  |   |              | 31,024   |   |              | 38,765    |  
|Restructuring and other costs (note 2(c))                              |  |                                | 10,231  |   |                              | 8,750   |   |              | 21,513   |   |              | 13,003    |  
|                                                                       |  |                                |         |   |                              |         |   |              |          |   |              |           |  
|Operating income (loss)                                                |  |                                | 3,637   |   |                              | 36,878  |   |              | (59,132  | ) |              | 78,945    |  
|Other income (expense):                                                |  |                                |         |   |                              |         |   |              |          |   |              |           |  
|Interest income                                                        |  |                                | 683     |   |                              | 1,378   |   |              | 1,671    |   |              | 2,728     |  
|Interest expense                                                       |  |                                | (60,290 | ) |                              | (71,947 | ) |              | (126,594 | ) |              | (140,235  | )
|Other income (expense), net                                            |  |                                | 1,285   |   |                              | 157     |   |              | 11,258   |   |              | (13,462   | )
|Gain on exchange of debt (note 6)                                      |  |                                | 178,732 |   |                              |        |   |              | 178,732  |   |              |          |  
|                                                                       |  |                                |         |   |                              |         |   |              |          |   |              |           |  
|Income (loss) before income taxes                                      |  |                                | 124,047 |   |                              | (33,534 | ) |              | 5,935    |   |              | (72,024   | )
|Income taxes (note 7)                                                  |  |                                | 21,068  |   |                              | 12,870  |   |              | 423      |   |              | 23,319    |  
|                                                                       |  |                                |         |   |                              |         |   |              |          |   |              |           |  
|Net income (loss)                                                      |  |                                | 102,979 |   |                              | (46,404 | ) |              | 5,512    |   |              | (95,343   | )
|Net income (loss) attributable to the noncontrolling interest          |  |                                | (178    | ) |                              | 299     |   |              | 470      |   |              | 360       |  
|                                                                       |  |                                |         |   |                              |         |   |              |          |   |              |           |  
|Net income (loss) attributable to Momentive Performance Materials Inc. |  | $                              | 102,801 |   |                              | (46,105 | ) |              | 5,982    |   |              | (94,983   | )
|                                                                       |  |                                |         |   |                              |         |   |              |          |   |              |           |  

See accompanying notes to condensed consolidated financial statements.



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MOMENTIVE PERFORMANCE MATERIALS INC.

Consolidated Statements of Cash Flows (Unaudited)

(Dollar amounts in thousands)



|                                                                                                   |  |                               |          |   |              |         |  
|-------------------------------------------------------------------------------------------------- |  | ----------------------------- | -------- | - | ------------ | ------- | -
|                                                                                                   |  | Fiscal six-month period ended |         
|                                                                                                   |  | June 28,2009                  |          |   | June 29,2008 |        
|Cash flows from operating activities:                                                              |  |                               |          |   |              |         |  
|Net income (loss)                                                                                  |  | $                             | 5,512    |   |              | (95,343 | )
|Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: |  |                               |          |   |              |         |  
|Depreciation and amortization                                                                      |  |                               | 96,226   |   |              | 115,373 |  
|Amortization of debt issuance costs                                                                |  |                               | 5,085    |   |              | 5,188   |  
|Deferred income taxes                                                                              |  |                               | (5,230   | ) |              | 15,039  |  
|Stock-based compensation expense                                                                   |  |                               | 384      |   |              | 626     |  
|Change in unrealized (gain) loss on derivative instruments                                         |  |                               | (6,188   | ) |              | 8,519   |  
|PIK interest election                                                                              |  |                               | 17,200   |   |              |        |  
|Gain on exchange of debt                                                                           |  |                               | (178,732 | ) |              |        |  
|Changes in operating assets and liabilities:                                                       |  |                               |          |   |              |         |  
|Receivables                                                                                        |  |                               | 19,167   |   |              | (36,339 | )
|Inventories                                                                                        |  |                               | 16,949   |   |              | (2,927  | )
|Due to/from affiliates                                                                             |  |                               | (5,921   | ) |              | (16,176 | )
|Prepaid expenses and other assets                                                                  |  |                               | 832      |   |              | (3,139  | )
|Trade payables                                                                                     |  |                               | (71,893  | ) |              | 28,435  |  
|Accrued expenses and other liabilities                                                             |  |                               | (10,572  | ) |              | (13,017 | )
|Accrued income taxes                                                                               |  |                               | 16,807   |   |              | 4,643   |  
|Pension liabilities                                                                                |  |                               | 6,604    |   |              | (2,590  | )
|                                                                                                   |  |                               |          |   |              |         |  
|Net cash (used in) provided by operating activities                                                |  |                               | (93,770  | ) |              | 8,292   |  
|                                                                                                   |  |                               |          |   |              |         |  
|Cash flows from investing activities:                                                              |  |                               |          |   |              |         |  
|Capital expenditures                                                                               |  |                               | (20,855  | ) |              | (82,521 | )
|Purchases of intangible assets                                                                     |  |                               | (1,493   | ) |              | (2,188  | )
|                                                                                                   |  |                               |          |   |              |         |  
|Net cash used in investing activities                                                              |  |                               | (22,348  | ) |              | (84,709 | )
|                                                                                                   |  |                               |          |   |              |         |  
|Cash flows from financing activities:                                                              |  |                               |          |   |              |         |  
|Debt issuance costs                                                                                |  |                               | (4,262   | ) |              |        |  
|Net decrease in short-term borrowings                                                              |  |                               | (5,103   | ) |              | (1,470  | )
|Proceeds from long-term debt                                                                       |  |                               | 103,503  |   |              | 31,550  |  
|Payments of long-term debt                                                                         |  |                               | (187     | ) |              | (14,400 | )
|Funds remitted to joint venture                                                                    |  |                               | (4,900   | ) |              | (4,900  | )
|                                                                                                   |  |                               |          |   |              |         |  
|Net cash provided by financing activities                                                          |  |                               | 89,051   |   |              | 10,780  |  
|                                                                                                   |  |                               |          |   |              |         |  
|Decrease in cash and cash equivalents                                                              |  |                               | (27,067  | ) |              | (65,637 | )
|Effect of exchange rate changes on cash                                                            |  |                               | 2,197    |   |              | (6,315  | )
|Cash and cash equivalents, beginning of period                                                     |  |                               | 340,542  |   |              | 249,056 |  
|                                                                                                   |  |                               |          |   |              |         |  
|Cash and cash equivalents, end of period                                                           |  | $                             | 315,672  |   |              | 177,104 |  
|                                                                                                   |  |                               |          |   |              |         |  

See accompanying notes to condensed consolidated financial statements.



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MOMENTIVE PERFORMANCE MATERIALS INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in thousands)



|(1) | Business and Basis of Presentation
|--- | ----------------------------------

Momentive
Performance Materials Inc. (the Company or Successor) was incorporated in Delaware on September 6, 2006 as a wholly-owned subsidiary of Momentive Performance Materials Holdings Inc. (Holdings and together with its subsidiaries the Momentive
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. Prior to November 21, 2006, the Company was known
as Nautilus Holdings Intermediate Corp. The acquisition was completed on December 3, 2006 (the Acquisition). Holdings is owned approximately 88% by Apollo Management VI, L.P. (Apollo), 10% by GE Capital Equity Investments, Inc. and 2% by
certain current and former employees and other service providers of the Company. GEAM was comprised of two businesses, GE Silicones and GE Quartz, and was an operating unit within the Industrial segment of GE.

The Company is comprised of two business segments, Silicones and Quartz. The Silicones segment (Silicones) is a global organization engaged in the
manufacture, sale and distribution of silanes, specialty silicones and urethane additives. The Quartz segment (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 Albany, 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; Pickering, Ontario, Canada; 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; Pickering, Ontario; 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; Shenzhen, China; Songjiang, China; Bergen op Zoom, Netherlands; Lostock, U.K.; Termoli, Italy and Antwerp, Belgium. 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 Willoughby, OH, Waterford, NY and Sistersville, WV facilities will expire in June, June and July 2010, respectively. The Company does not have any other significant collective bargaining
agreements that will expire during 2009.

The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In accordance with Rule 10-01, the unaudited
condensed consolidated financial statements do not include all of the information and footnotes required by U.S. GAAP for complete consolidated financial statements. In the opinion of management, all adjustments, consisting only of normal, recurring
adjustments, considered necessary for a fair presentation, have been included. These unaudited condensed consolidated financial statements should be read in conjunction with the Companys Annual Report on Form 10-K for the year ended
December 31, 2008. Results for the interim periods are not necessarily indicative of results for the full year. The balance sheet data as of December 31, 2008 was derived from audited financial statements as of December 31, 2008 but
does not include all of the information and notes required by U.S. GAAP for complete financial statements.

We evaluated subsequent events
through August 5, 2009, the date of financial statement issuance.



|(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 June 28, 2009 and December 31, 2008, and for the fiscal three and six-month periods ended June 28, 2009 and June 29, 2008.
Noncontrolling interests represent the noncontrolling shareholders proportionate share of the equity in the consolidated joint venture affiliates. All significant intercompany balances and transactions, including profit and loss as a result of
those transactions, have been eliminated in the consolidation.



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| | (b) | Income Taxes
| | --- | ------------

For the fiscal three and
six-month periods ended June 28, 2009 and June 29, 2008, 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 such as the gain on exchange of debt).

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) | 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, and initial stand-alone activities.

For the fiscal three-month periods ended June 28, 2009 and June 29, 2008, the Company recognized restructuring of $7,432 and $3,532,
respectively, and other costs of $2,799 and $5,218, respectively. For the fiscal six-month periods ended June 28, 2009 and June 29, 2008, the Company recognized restructuring of $22,768 and $3,775, respectively, and other costs of $(1,255)
and $9,228, respectively. Other costs of $(1,255) for the fiscal six-month period ended June 28, 2009 included a one-time benefit reduction and wage tax credits of $5,419 recorded during fiscal three-month period ended March 29, 2009.

The following table sets forth the changes in the restructuring reserve:



|                                         |  |           |         |   |        |        |   |       |         |  
|---------------------------------------- |  | --------- | ------- | - | ------ | ------ | - | ----- | ------- | -
|                                         |  | Silicones |         |   | Quartz |        |   | Total |        
|Balance as of January 1, 2008            |  | $         | 5,691   |   |        | 1,427  |   |       | 7,118   |  
|Additions                                |  |           | 16,760  |   |        | 1,736  |   |       | 18,496  |  
|Cash payments                            |  |           | (5,612  | ) |        | (2,641 | ) |       | (8,253  | )
|Foreign currency translation adjustments |  |           | (570    | ) |        |       |   |       | (570    | )
|                                         |  |           |         |   |        |        |   |       |         |  
|Balance as of December 31, 2008          |  |           | 16,269  |   |        | 522    |   |       | 16,791  |  
|Additions                                |  |           | 16,241  |   |        | 6,527  |   |       | 22,768  |  
|Cash payments                            |  |           | (14,114 | ) |        | (522   | ) |       | (14,636 | )
|Foreign currency translation adjustments |  |           | (306    | ) |        | 61     |   |       | (245    | )
|                                         |  |           |         |   |        |        |   |       |         |  
|Balance as of June 28, 2009              |  | $         | 18,090  |   |        | 6,588  |   |       | 24,678  |  
|                                         |  |           |         |   |        |        |   |       |         |  

| | (d) | 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.



| | (e) | Recently Issued Accounting Standards
| | --- | ------------------------------------

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 168 (SFAS 168), the FASB Accounting Standards CodificationTMand the Hierarchy of Generally Accepted Accounting Principles. SFAS 168 replaces
SFAS 162, The Hierarchy of Generally Accepted Accounting Principles. It names the FASB Accounting Standards Codification (Codification) as the single source of authoritative U.S. Generally Accepted Accounting Principles (GAAP) for
non-governmental entities recognized by the FASB. SFAS 168 is effective for reporting periods ending after September 15, 2009, and once effective, will supersede all U.S. GAAP accounting standards, aside from rules and interpretive releases
issued by the Securities and Exchange commission (SEC). The Codification is not intended to change GAAP; rather, it will change the referencing of U.S. GAAP. Therefore, the Company does not expect the adoption of SFAS 168 will have a material impact
to its financial statements.

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 167 (SFAS 167),
Amendments to FASB Interpretation No. 46(R) (FIN 46(R)) (revised December 2003),Consolidation of Variable Interest Entities. This SFAS



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amends FIN 46(R) to require an enterprise to perform an analysis to determine whether the enterprises variable interest or interests give it a
controlling financial interest in a variable interest entity, and requires ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. This SFAS shall be effective as of the beginning of the first annual
reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. The Company is currently in
the process of evaluating this guidance.

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 166,
Accounting for Transfers of Financial Assetsan amendment of FASB Statement No. 140 (SFAS 166). SFAS 166 intends to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity
provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferors continuing involvement, if any, in transferred financial
assets. This Statement must be applied as of the beginning of each reporting entitys first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and
annual reporting periods thereafter. Earlier application is prohibited. This Statement must be applied to transfers occurring on or after the effective date. The Company is currently in the process of evaluating this guidance.

In May 2009, the FASB issued Statement of Financial Accounting Standards No. 165, Subsequent Events (SFAS 165). The objective of this
Statement is to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through
which an entity has evaluated subsequent events and the basis for that date, that is whether that date represents the date the financial statements were issued or were available to be issued. This disclosure should alert all users of financial
statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented. SFAS 165 is effective for interim or annual financial periods ending after June 15, 2009. The Company adopted the
provisions of SFAS 165 and it did not have a material impact to its financial statements.

In April 2009, the FASB issued FASB Staff
Position (FSP) FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments. This FSP amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, which requires disclosures about
fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, Interim Financial Reporting,which requires those
disclosures in summarized financial information at interim reporting periods. This FSP shall be effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. An
entity may early adopt this FSP only if it also elects to early adopt FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderly, and FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments. This FSP does not require disclosures for earlier periods presented for comparative purposes at initial adoption. In periods after
initial adoption, this FSP requires comparative disclosures only for periods ending after initial adoption. The Company adopted the provisions FSP FAS 107-1 and it did not have a material impact to its financial statements.

In April 2009, the FASB issued FASB Staff Position (FSP) FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. This FSP provides additional guidance for estimating fair value in accordance with Statement of Financial Accounting Standards No. 157, Fair Value
Measurements(SFAS 157), when the volume and level of activity for the asset or liability have significantly decreased. This FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. This FSP is
effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. Early adoption is permitted for periods ending after March 15, 2009. Earlier adoption for periods ending before
March 15, 2009, is not permitted. The Company adopted the provisions of FSP FAS 157-4 and it did not have a material impact to its financial statements.

In December 2008, the FASB issued FASB Staff Position (FSP) FAS 132(R)-1,which provides guidance on an employers disclosures about plan assets of a defined benefit pension or other postretirement plan
under Statement of Financial Accounting Standards No. 132(R), Employers Disclosures about Pensions and Other Postretirement Benefits(SFAS 132(R)). This FSP also includes a technical amendment to SFAS 132(R) that requires a
nonpublic entity to disclose net periodic benefit cost for each annual period for which a statement of income is presented. The disclosures about plan assets required by this FSP shall be provided for fiscal years ending after December 15,
2009. Upon initial application, the provisions of this FSP are not required for earlier periods that are presented for comparative purposes. Earlier application of the provisions of this FSP is permitted. The Company is currently in the process of
evaluating this guidance.

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures
about Derivative Instruments and Hedging Activitiesan amendment of FASB Statement No. 133(SFAS 161). SFAS 161 requires enhanced disclosures about derivative and hedging activities. SFAS 161 is effective for financial statements
issued for



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fiscal years and interim periods beginning after November 15, 2008. On January 1, 2009, the Company adopted the expanded disclosure requirements as
disclosed in Note 10.

In February 2008, the FASB issued FASB Staff Position (FSP) FAS 157-2, which defers the provisions of SFAS 157 for
non-financial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a non-recurring basis to fiscal years beginning after November 15, 2008. The Company adopted the provisions of FSP
FAS 157-2 on January 1, 2009 and it did not have a material impact on the Companys financial statements.

In December 2007, the
FASB issued Statement of Financial Accounting Standards No. 141R, Business Combinations (SFAS 141R), which requires most identifiable assets, liabilities, noncontrolling interests, and goodwill acquired in a business combination to be
recorded at full fair value. SFAS 141R applies to all business combinations, including combinations among mutual entities and combination by contract alone. SFAS 141R is effective for periods beginning on or after December 15, 2008 and should
be applied to business combinations occurring after the effective date. The Company adopted the provisions of SFAS 141R on January 1, 2009 and it did not have a material impact on the Companys financial statements.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Non-controlling Interests in Consolidated Financial
StatementsAn Amendment of ARB No. 51(SFAS 160). SFAS 160 requires non-controlling interests (previously referred to as minority interests) to be treated as a separate component of equity, not as a liability or other item outside of
permanent equity. SFAS 160 is effective for periods beginning on or after December 15, 2008. The Company adopted SFAS 160 on January 1, 2009.



| | (f) | Fair Value of Financial Instruments
| | --- | -----------------------------------

The
Companys financial instruments consist principally of cash and cash equivalents, accounts receivable and accounts payable and accrued expenses. 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 3.



|(3) | Fair Value Measurements
|--- | -----------------------

Statement of Financial
Accounting Standards No. 157 (SFAS 157) defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in
an orderly transaction between market participants on the measurement date. SFAS 157 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when
measuring fair value. SFAS 157 describes three levels of inputs that may be used to measure fair value:



|        |  |                                                                                                                                                                                                                                                                                                                                                  
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 included 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.                                                                                                                                                                                           

The following table presents liabilities at June 28, 2009 that the Company measures at fair
value on a recurring basis, by level within the fair value hierarchy:



|                                 |  |         |   |         |       |         |   |       |      
|-------------------------------- |  | ------- | - | ------- | ----- | ------- | - | ----- | -----
|                                 |  | Level 1 |   | Level 2 |       | Level 3 |   | Total
|Liabilities                      |  |         |   |         |       |         |   |       |      
|Interest rate swap               |  | $       |  |         | 3,073 |         |  |       | 3,073
|Natural gas derivative contracts |  |         |  |         | 1,995 |         |  |       | 1,995
|                                 |  |         |   |         |       |         |   |       |      
|Total liabilities at fair value  |  | $       |  |         | 5,068 |         |  |       | 5,068
|                                 |  |         |   |         |       |         |   |       |      

Certain financial instruments are carried at cost on the consolidated balance sheets, which
approximates fair value due to their short-term, highly liquid nature. These instruments include cash and cash equivalents, accounts receivable, accounts payable and accrued expenses. The fair value of the natural gas derivative contracts and
interest rate swap generally reflects the estimated amounts that the Company would receive or pay, on a pre-tax basis, to terminate the contracts and swap at the reporting date



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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 June 28, 2009 that would reduce the receivable amount owed, if any, to the Company.

At June 28, 2009, the Company estimates that the $1,632,151 of outstanding fixed rate senior notes had a fair value of approximately $620,157; the $1,063,307 of outstanding variable rate term loans had a fair
value of approximately $750,513; the $163,000 of outstanding fixed rate second-lien senior secured notes with a $200,000 aggregate principal amount had a fair value of approximately $160,000; and the fair value of the $3,501 outstanding medium term
loan, the $60,390 outstanding construction project financing loan and $250,000 borrowing under the revolving credit facility 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. 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.



|(4) | Receivables, net
|--- | ----------------

Receivables consisted of the
following at June 28, 2009 and December 31, 2008:



|                                |  |              |         |   |                  |         |  
|------------------------------- |  | ------------ | ------- | - | ---------------- | ------- | -
|                                |  | June 28,2009 |         |   | December 31,2008 |        
|Trade                           |  | $            | 333,058 |   |                  | 353,728 |  
|Other:                          |  |              |         |   |                  |         |  
|VAT                             |  |              | 32,771  |   |                  | 29,366  |  
|Advances                        |  |              | 5,648   |   |                  | 9,364   |  
|Other                           |  |              | 20,493  |   |                  | 20,706  |  
|                                |  |              |         |   |                  |         |  
|                                |  |              | 391,970 |   |                  | 413,164 |  
|Allowance for doubtful accounts |  |              | (4,999  | ) |                  | (4,313  | )
|                                |  |              |         |   |                  |         |  
|Total receivables, net          |  | $            | 386,971 |   |                  | 408,851 |  
|                                |  |              |         |   |                  |         |  



|(5) | Inventories
|--- | -----------

Inventories consisted of the following
at June 28, 2009 and December 31, 2008:



|                                  |  |              |         |                  |        
|--------------------------------- |  | ------------ | ------- | ---------------- | -------
|                                  |  | June 28,2009 |         | December 31,2008
|Raw materials and work-in-process |  | $            | 127,178 |                  | 133,618
|Finished goods                    |  |              | 231,758 |                  | 243,544
|                                  |  |              |         |                  |        
|Total inventories                 |  | $            | 358,936 |                  | 377,162
|                                  |  |              |         |                  |        



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|(6) | Indebtedness
|--- | ------------



| | (a) | Short-Term Borrowings
| | --- | ---------------------

At June 28,
2009, the Companys short-term borrowings consisted of bank borrowings of $1,296 with a weighted average interest rate of 7.80%. At December 31, 2008, the Companys short-term borrowings consisted of bank borrowings of $6,726 with a
weighted average interest rate of 6.53%.



| | (b) | Long-Term Debt
| | --- | --------------

On
June 15, 2009, the Company completed the private exchange offers announced on May 12, 2009 to exchange $200,000 aggregate principal amount of 121/2% Second-Lien Senior Secured Notes (the Second Lien Notes) due 2014
for certain of its outstanding unsecured notes. The Second Lien Notes were recorded at their fair value of $163,000 on the date of the exchange. Interest on the Second Lien Notes is payable semiannually on June 15 and December 15 of each
year, commencing on December 15, 2009. The purpose of the exchange offers was to reduce the outstanding principal amount of the Companys debt. The Company recognized a gain on the exchange offers of $178,732.

Approximately $48,400 in aggregate principal amount (or 6%) of 93/4% Senior Notes due 2014, 29,800 in aggregate principal amount (or 11%) of
9% Senior Notes due 2014, $140,900 in aggregate principal amount (or 42%) of 101/8/ 107/8% Senior Toggle Notes
due 2014 and $118,100 in aggregate principal amount (or 24%) of 111/2% Senior Subordinated Notes due 2016 were accepted in the exchange offers for $200,000 aggregate principal amount of 121/2% Second-Lien Senior Secured Notes due 2014.

The new Second Lien Notes are guaranteed on a senior secured basis by each of the Companys U.S. subsidiaries that is a borrower or a guarantor under the Companys existing senior secured credit facility. The new Second Lien Notes
are secured by a second-priority security interest in certain assets of the Company and such U.S. subsidiaries, which interest is junior in priority to the liens on substantially the same collateral securing the Companys existing senior
secured credit facility.

The Companys wholly-owned subsidiary, MPM Nantong, also has borrowings of approximately $60,390 outstanding
(based on exchange rates as of June 28, 2009) from the China Construction Bank, which were used to finance the construction of its finishing plant in Nantong, China. Such loans are secured by substantially all of MPM Nantongs assets. On
April 30, 2009, MPM Nantong was in breach of a financial covenant under its loan agreement with the China Construction Bank. On June 3, 2009, MPM Nantong and the China Construction Bank entered into a Supplemental Agreement, which amended
the loan agreement. Pursuant to the Supplemental Agreement, the parties (1) changed the first measurement date for the financial covenants under the loan agreement from December 31, 2008 to December 31, 2010 and (2) deferred
principal repayments originally due on June 30, 2009 and December 31, 2009, aggregating to approximately $6,200 (based on exchange rates at the time), until June 30, 2014, the final maturity date of the debt under the loan agreement.
As a result, MPM Nantong is now in compliance with the terms of the loan agreement as amended by the Supplemental Agreement. Accordingly, the Company reclassified all principal payments due under the loan from China Construction Bank as long-term
debt as of June 28, 2009.

On June 10, 2009, the Company drew down an additional $10,000 against the $300,000 revolving credit
facility, increasing the amounts drawn down to $250,000. The borrowing accrues interest at a rate of 3.19% per annum for an initial interest rate period through September 10, 2009. The outstanding letters of credit under the revolving
credit facility at June 28, 2009 were $26,370, leaving unused capacity of $23,630. Outstanding letters of credit issued under the synthetic letter of credit facility at June 28, 2009 were $30,551, leaving unused capacity of $3,749.

If business conditions in the third quarter do not significantly improve compared to the second quarter, the Company may not comply with
its senior secured leverage ratio covenant for the third quarter. The Company intends to pursue additional cost saving actions, restructuring initiatives or other business or capital structure optimization measures available to it to remain in
compliance with this covenant, but there can be no assurance that any such measures will be successful or will be sufficient to maintain compliance with the senior secured leverage ratio covenant. A breach of such covenant, if not cured or waived,
could lead to an acceleration of outstanding borrowings under the agreement governing the revolving credit facility and other indebtedness. At June 28, 2009, the Company is in compliance with the covenants of the credit agreement and note
indentures.

On March 17, 2009, Apollo Management VI, L.P. (Apollo) and the Company entered into a letter agreement
enabling the Company to purchase some or all of certain debt securities of the Company acquired by Apollo or its affiliates after that date for a period of 180 days unless such securities are sold or transferred to an unaffiliated third party. As of
the date of this filing, the Company has not exercised this right.



11



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|(7) | Income Taxes
|--- | ------------

The effective tax rate was 16.98% and
38.38% for the fiscal three-month periods ended June 28, 2009 and June 29, 2008, respectively. The effective tax rate was 7.13% and 32.38% for the fiscal six-month periods ended June 28, 2009 and June 29, 2008,
respectively. The change in the effective tax rate in 2009 was primarily due to a change in the amount of income (loss) before income taxes, changes in the tax rates applied in the various jurisdictions in which the Company operates, current period
foreign exchange gains and the maintenance of a full valuation allowance against a substantial amount of the Companys net deferred tax assets. The valuation allowance, which relates principally to 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.



|(8) | Comprehensive Income (Loss)
|--- | ---------------------------

The balances for each
classification of comprehensive income (loss) are as follows:



|                                                                                 |  |                                 |         |   |                               |         |   |              |         |   |              |         |  
|-------------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ----------------------------- | ------- | - | ------------ | ------- | - | ------------ | ------- | -
|                                                                                 |  | Fiscal three-month period ended |         |   | Fiscal six-month period ended |        
|                                                                                 |  | June 28,2009                    |         |   | June 29,2008                  |         |   | June 28,2009 |         |   | June 29,2008 |        
|Net income (loss)                                                                |  | $                               | 102,979 |   |                               | (46,404 | ) |              | 5,512   |   |              | (95,343 | )
|Foreign currency translation                                                     |  |                                 | 6,875   |   |                               | (33,317 | ) |              | (15,958 | ) |              | 61,437  |  
|Other comprehensive income adjustments, net                                      |  |                                 | 881     |   |                               | 3,164   |   |              | (614    | ) |              | 3,300   |  
|                                                                                 |  |                                 |         |   |                               |         |   |              |         |   |              |         |  
|Comprehensive income (loss)                                                      |  |                                 | 110,735 |   |                               | (76,557 | ) |              | (11,060 | ) |              | (30,606 | )
|Net (income) loss attributable to the noncontrolling interest                    |  |                                 | (178    | ) |                               | 299     |   |              | 470     |   |              | 360     |  
|Foreign currency translation attributable to the noncontrolling interest         |  |                                 | 4       |   |                               | (610    | ) |              | 318     |   |              | (867    | )
|                                                                                 |  |                                 |         |   |                               |         |   |              |         |   |              |         |  
|Comprehensive income (loss) attributable to Momentive Performance Materials Inc. |  | $                               | 110,561 |   |                               | (76,868 | ) |              | (10,272 | ) |              | (31,113 | )
|                                                                                 |  |                                 |         |   |                               |         |   |              |         |   |              |         |  

The following table details changes in shareholders equity, including changes in equity
(deficit) attributable to the Momentive Performance Materials Inc. shareholder and changes in equity attributable to the noncontrolling interests



|                                            |  |       |          |   |                                                                                  |   |                          |         |                    |            |   |                                      |         |   |                                              |       |  
|------------------------------------------- |  | ----- | -------- | - | -------------------------------------------------------------------------------- | - | ------------------------ | ------- | ------------------ | ---------- | - | ------------------------------------ | ------- | - | -------------------------------------------- | ----- | -
|                                            |  |       |          |   | Equity (deficit) attributable toMomentive Performance Materials
Inc. shareholder |   |                          |         |                   
|                                            |  | Total |          |   | Commonstock                                                                      |   | Additionalpaid-incapital |         | Accumulateddeficit |            |   | Accumulated othercomprehensiveIncome |         |   | Equity attributableto noncontrollingInterest |      
|Balance at January 1, 2009                  |  | $     | (541,142 | ) |                                                                                  |  |                          | 601,017 |                    | (1,321,963 | ) |                                      | 175,960 |   |                                              | 3,844 |  
|Stock-based compensation expense            |  |       | 313      |   |                                                                                  |  |                          | 313     |                    |           |   |                                      |        |   |                                              |      |  
|Comprehensive income (loss):                |  |       |          |   |                                                                                  |   |                          |         |                    |            |   |                                      |         |   |                                              |       |  
|Net income (loss)                           |  |       | 5,512    |   |                                                                                  |  |                          |        |                    | 5,982      |   |                                      |        |   |                                              | (470  | )
|Foreign currency translation adjustmentnet |  |       | (15,958  | ) |                                                                                  |  |                          |        |                    |           |   |                                      | (15,640 | ) |                                              | (318  | )
|Other comprehensive income adjustmentsnet  |  |       | (614     | ) |                                                                                  |  |                          |        |                    |           |   |                                      | (614    | ) |                                              |      |  
|                                            |  |       |          |   |                                                                                  |   |                          |         |                    |            |   |                                      |         |   |                                              |       |  
|Balance at June 28, 2009                    |  | $     | (551,889 | ) |                                                                                  |  |                          | 601,330 |                    | (1,315,981 | ) |                                      | 159,706 |   |                                              | 3,056 |  
|                                            |  |       |          |   |                                                                                  |   |                          |         |                    |            |   |                                      |         |   |                                              |       |  



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|(9) | 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 and six-month periods ended June 28, 2009 and June 29, 2008:



|                                             |  |                                 |        |   |                |        |   |              |       |   |              |      
|-------------------------------------------- |  | ------------------------------- | ------ | - | -------------- | ------ | - | ------------ | ----- | - | ------------ | -----
|                                             |  | Pension                         |        |   | Postretirement
|                                             |  | Fiscal three-month period ended
|                                             |  | June 28,2009                    |        |   | June 29,2008   |        |   | June 28,2009 |       |   | June 29,2008
|Service cost                                 |  | $                               | 5,247  |   |                | 4,957  |   |              | 350   |   |              | 656  
|Interest cost                                |  |                                 | 1,828  |   |                | 1,602  |   |              | 1,141 |   |              | 1,164
|Amortization of prior service cost (benefit) |  |                                 | (211   | ) |                | (215   | ) |              | 328   |   |              | 199  
|Expected return on plan assets               |  |                                 | (818   | ) |                | (849   | ) |              |      |   |              |     
|Amortization of actuarial gain               |  |                                 | (189   | ) |                | (292   | ) |              | (31   | ) |              |     
|Other                                        |  |                                 | 6      |   |                |       |   |              |      |   |              |     
|                                             |  |                                 |        |   |                |        |   |              |       |   |              |      
|                                             |  | $                               | 5,863  |   |                | 5,203  |   |              | 1,788 |   |              | 2,019
|                                             |  |                                 |        |   |                |        |   |              |       |   |              |      
|                                             |  |                                
|                                             |  | Pension                         |        |   | Postretirement
|                                             |  | Fiscal six-month period ended  
|                                             |  | June 28,2009                    |        |   | June 29,2008   |        |   | June 28,2009 |       |   | June 29,2008
|Service cost                                 |  | $                               | 10,633 |   |                | 9,873  |   |              | 700   |   |              | 1,312
|Interest cost                                |  |                                 | 3,712  |   |                | 3,160  |   |              | 2,282 |   |              | 2,328
|Amortization of prior service cost (benefit) |  |                                 | (426   | ) |                | (430   | ) |              | 656   |   |              | 398  
|Expected return on plan assets               |  |                                 | (1,655 | ) |                | (1,682 | ) |              |      |   |              |     
|Amortization of actuarial gain               |  |                                 | (378   | ) |                | (576   | ) |              | (62   | ) |              |     
|Other                                        |  |                                 | (120   | ) |                |       |   |              |      |   |              |     
|                                             |  |                                 |        |   |                |        |   |              |       |   |              |      
|                                             |  | $                               | 11,766 |   |                | 10,345 |   |              | 3,576 |   |              | 4,038
|                                             |  |                                 |        |   |                |        |   |              |       |   |              |      

In 2009, the Company expects to contribute approximately $12,671 and $3,253 to the Companys
Domestic and Foreign plans, respectively. The Company contributed $1,100 and $4,321 to its Domestic plans during the fiscal three and six-month periods ended June 28, 2009, respectively.



|(10) | Financial Instruments
|---- | ---------------------

The Companys business
and activities expose it to a variety of market risks, including risks related to changes in commodity prices, foreign-currency exchange rates and interest rates. These financial exposures are monitored and managed by the Company as an integral part
of its risk management program. This program recognizes the unpredictability of financial and commodity markets and seeks to reduce the potentially adverse effects that market volatility could have on operating results. As part of its risk
management strategy, the Company uses derivative instruments to protect cash flows from fluctuations caused by volatility in currency exchange rates, commodity prices and interest rates.

On March 2, 2009, the Company settled all of its outstanding foreign currency forward contracts and recognized a gain of $4,035.

Cash Flow Hedges

The Companys
commodity price risk management strategy is to use derivative instruments to minimize significant unanticipated earnings fluctuations that may arise from volatility in commodity prices. Price fluctuations in commodities, mainly in natural gas, can
cause the actual prices paid to natural gas vendors to differ from anticipated cash outlays. The Company uses commodity swap contracts to manage these risks. The Companys energy risk management strategy is to use derivative instruments to
minimize significant unanticipated manufacturing cost fluctuations that may arise from volatility in natural gas prices.

The
Companys interest rate risk management strategy is to use derivative instruments to minimize significant unanticipated earnings fluctuations that may arise from volatility in interest rates of the Companys borrowings and to manage the
interest rate sensitivity of its debt.

For derivative instruments that are designated and qualify as a cash flow hedge, the effective
portion of the gain or loss on the derivative is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or



13



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periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge
components excluded from the assessment of effectiveness are recognized in current earnings.

The maximum term over which the Company is
hedging exposures to the variability of cash flow (for all forecasted transactions, excluding interest payments on variable-rate debt) is 18 months for commodity hedges. No cash flow hedges were discontinued during the fiscal six-month period
ended June 28, 2009.

Derivatives Not Designated as Hedging Instruments

The Company uses commodity forward contracts to hedge a portion of its anticipated cash payments to natural gas vendors in the U.S., which can fluctuate
based on changes in natural gas prices. Since these forward contracts do not meet the provisions specified by Statement of Financial Accounting Standards No. 133, they do not qualify for hedge accounting treatment. Accordingly, the gain or loss
on these derivatives is recognized in current earnings.

Financial instruments are neither held nor issued by the Company for trading
purposes. The Companys natural gas hedge contracts and interest rate swap contract do not contain any credit related contingent features and accordingly, the Company is not required to post any collateral.

The notional amounts of the Companys derivative instruments outstanding as of June 28, 2009, were as follows:



|                                                                                                          |  |                        |                                       |            |   |      
|--------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------------------------------------- | ---------- | - | -----
|                                                                                                          |  | Notional Amount        |                                       |           
|Derivatives Designated as Hedges:                                                                         |  |                        |                                       |            |   |      
|Interest Rate Swap contract                                                                               |  | $                      | 185,000                               |            |   |      
|Natural Gas Hedge Contracts                                                                               |  |                        | 7,185                                 |            |   |      
|                                                                                                          |  |                        |                                       |            |   |      
|Total Derivatives Designated as Hedges                                                                    |  | $                      | 192,185                               |            |   |      
|                                                                                                          |  |                        |                                       |            |   |      
|                                                                                                          |  |                       
|Derivatives Not Designated as Hedges:                                                                     |  |                        |                                       |            |   |      
|Natural Gas Purchase Contracts                                                                            |  | $                      | 1,490                                 |            |   |      
|                                                                                                          |  |                        |                                       |            |   |      
|Total Derivatives Not Designated as Hedges                                                                |  | $                      | 1,490                                 |            |   |      
|                                                                                                          |  |                        |                                       |            |   |      
|The fair values of the Companys
derivative instruments outstanding as of June 28, 2009, were as follows:
|                                                                                                          |  | Balance Sheet Location |                                       | Fair Value
|Liability Derivatives:                                                                                    |  |                        |                                       |            |   |      
|Derivatives Designated as Hedges:                                                                         |  |                        |                                       |            |   |      
|Interest Rate Swap contract                                                                               |  |                        | Accrued expense and other liabilities |            | $ | 3,073
|Natural Gas Hedge Contracts                                                                               |  |                        | Accrued expense and other liabilities |            |   | 1,058
|                                                                                                          |  |                        |                                       |            |   |      
|Total Derivatives Designated as Hedges                                                                    |  |                        |                                       |            | $ | 4,131
|                                                                                                          |  |                        |                                       |            |   |      
|                                                                                                          |  |                       
|Derivatives Not Designated as Hedges:                                                                     |  |                        |                                       |            |   |      
|Natural Gas Purchase Contracts                                                                            |  |                        | Accrued expense and other liabilities |            | $ | 937  
|                                                                                                          |  |                        |                                       |            |   |      
|Total Derivatives Not Designated as Hedges                                                                |  |                        |                                       |            | $ | 937  
|                                                                                                          |  |                        |                                       |            |   |      
|Total Liability Derivatives                                                                               |  |                        |                                       |            | $ | 5,068
|                                                                                                          |  |                        |                                       |            |   |      



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The gains and losses on the Companys derivative instruments during the fiscal three and six-month
periods ended June 28, 2009 were as follows:

Fiscal three-month period ended June 28, 2009:



|                                           |  |                                                                  |     |                                     |                                       |                                             |   |        |  
|------------------------------------------ |  | ---------------------------------------------------------------- | --- | ----------------------------------- | ------------------------------------- | ------------------------------------------- | - | ------ | -
|                                           |  | Amount of Gain or(Loss) Recognized inAOCI (EffectivePortion) (1) |     | Income Statement Classification (2) |                                       | Amount of Gain or(Loss) Recognizedin Income |  
|Liability Derivatives:                     |  |                                                                  |     |                                     |                                       |                                             |   |        |  
|Derivatives Designated as Hedges:          |  |                                                                  |     |                                     |                                       |                                             |   |        |  
|Interest Rate Swap contract                |  | $                                                                | 368 |                                     | Interest Expense                      |                                             | $ | (964   | )
|Natural Gas Hedge Contracts                |  |                                                                  | 591 |                                     | Cost of sales, excluding depreciation |                                             |   | (484   | )
|                                           |  |                                                                  |     |                                     |                                       |                                             |   |        |  
|Total Derivatives Designated as Hedges     |  | $                                                                | 959 |                                     |                                       |                                             | $ | (1,448 | )
|                                           |  |                                                                  |    
|Derivatives Not Designated as Hedges:      |  |                                                                  |     |                                     |                                       |                                             |   |        |  
|Natural Gas Purchase Contracts             |  |                                                                  |    |                                     | Other income (expense)                |                                             |   | 895    |  
|Foreign Currency Contracts                 |  |                                                                  |    |                                     | Other income (expense)                |                                             |   |       |  
|                                           |  |                                                                  |     |                                     |                                       |                                             |   |        |  
|Total Derivatives Not Designated as Hedges |  |                                                                  |    |                                     |                                       |                                             |   | 895    |  
|                                           |  |                                                                  |     |                                     |                                       |                                             |   |        |  
|Total Derivatives                          |  | $                                                                | 959 |                                     |                                       |                                             | $ | (553   | )
|                                           |  |                                                                  |     |                                     |                                       |                                             |   |        |  

Fiscal six-month period ended June 28, 2009:



|                                           |  |                                                                  |        |   |                                    |                                       |                                             |   |        |  
|------------------------------------------ |  | ---------------------------------------------------------------- | ------ | - | ---------------------------------- | ------------------------------------- | ------------------------------------------- | - | ------ | -
|                                           |  | Amount of Gain or(Loss) Recognized inAOCI (EffectivePortion) (1) |        |   | Income StatementClassification (2) |                                       | Amount of Gain or(Loss) Recognizedin Income |  
|Liability Derivatives:                     |  |                                                                  |        |   |                                    |                                       |                                             |   |        |  
|Derivatives Designated as Hedges:          |  |                                                                  |        |   |                                    |                                       |                                             |   |        |  
|Interest Rate Swap contract                |  | $                                                                | 505    |   |                                    | Interest Expense                      |                                             | $ | (1,902 | )
|Natural Gas Hedge Contracts                |  |                                                                  | (1,058 | ) |                                    | Cost of sales, excluding depreciation |                                             |   | (670   | )
|                                           |  |                                                                  |        |   |                                    |                                       |                                             |   |        |  
|Total Derivatives Designated as Hedges     |  | $                                                                | (553   | ) |                                    |                                       |                                             | $ | (2,572 | )
|                                           |  |                                                                  |       
|Derivatives Not Designated as Hedges:      |  |                                                                  |        |   |                                    |                                       |                                             |   |        |  
|Natural Gas Purchase Contracts             |  |                                                                  |       |   |                                    | Other income (expense)                |                                             |   | 166    |  
|Foreign Currency Contracts                 |  |                                                                  |       |   |                                    | Other income (expense)                |                                             |   | 4,035  |  
|                                           |  |                                                                  |        |   |                                    |                                       |                                             |   |        |  
|Total Derivatives Not Designated as Hedges |  |                                                                  |       |   |                                    |                                       |                                             |   | 4,201  |  
|                                           |  |                                                                  |        |   |                                    |                                       |                                             |   |        |  
|Total Derivatives                          |  | $                                                                | (553   | ) |                                    |                                       |                                             | $ | 1,629  |  
|                                           |  |                                                                  |        |   |                                    |                                       |                                             |   |        |  



| | (1) | Accumulated other comprehensive income (loss) (AOCI)
| | --- | ----------------------------------------------------



| | (2) | For derivatives designated as cash flow hedges under SFAS 133, this represents the effective portion of the gain (loss) reclassified from AOCI into income during the period.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(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 serve. 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 andother items (c) |         |   | Total |          
|Fiscal three-month period ended June 28, 2009: |  |           |           |   |        |         |   |                              |         |   |       |           |  
|Net sales (a)                                  |  | $         | 454,407   |   |        | 35,601  |   |                              |        |   |       | 490,008   |  
|Operating income (loss) (b)                    |  |           | 21,600    |   |        | (16,502 | ) |                              | (1,461  | ) |       | 3,637     |  
|Depreciation and amortization                  |  |           | 39,368    |   |        | 7,259   |   |                              |        |   |       | 46,627    |  
|Interest expense and other financial charges   |  |           | 60,217    |   |        | 73      |   |                              |        |   |       | 60,290    |  
|Interest income                                |  |           | 625       |   |        | 58      |   |                              |        |   |       | 683       |  
|Provision for income taxes                     |  |           | 20,846    |   |        | 222     |   |                              |        |   |       | 21,068    |  
|Capital expenditures                           |  |           | 10,999    |   |        | 1,087   |   |                              |        |   |       | 12,086    |  
|                                               |  |           |           |  
|                                               |  | Silicones |           |   | Quartz |         |   | Corporate andother items (c) |         |   | Total |          
|Fiscal three-month period ended June 29, 2008: |  |           |           |   |        |         |   |                              |         |   |       |           |  
|Net sales (a)                                  |  | $         | 669,227   |   |        | 68,237  |   |                              |        |   |       | 737,464   |  
|Operating income (loss) (b)                    |  |           | 47,250    |   |        | 4,038   |   |                              | (14,410 | ) |       | 36,878    |  
|Depreciation and amortization                  |  |           | 50,383    |   |        | 8,992   |   |                              |        |   |       | 59,375    |  
|Interest expense and other financial charges   |  |           | 71,946    |   |        | 1       |   |                              |        |   |       | 71,947    |  
|Interest income                                |  |           | 1,149     |   |        | 229     |   |                              |        |   |       | 1,378     |  
|Provision for income taxes                     |  |           | 13,049    |   |        | (179    | ) |                              |        |   |       | 12,870    |  
|Capital expenditures                           |  |           | 41,215    |   |        | 5,520   |   |                              |        |   |       | 46,735    |  
|                                               |  |           |           |  
|                                               |  | Silicones |           |   | Quartz |         |   | Corporate andother items (c) |         |   | Total |          
|Fiscal six-month period ended June 28, 2009:   |  |           |           |   |        |         |   |                              |         |   |       |           |  
|Net sales (a)                                  |  | $         | 838,879   |   |        | 69,188  |   |                              |         |   |       | 908,067   |  
|Operating income (loss) (b)                    |  |           | (20,720   | ) |        | (40,659 | ) |                              | 2,247   |   |       | (59,132   | )
|Depreciation and amortization                  |  |           | 81,348    |   |        | 14,878  |   |                              |         |   |       | 96,226    |  
|Interest expense and other financial charges   |  |           | 126,398   |   |        | 196     |   |                              |         |   |       | 126,594   |  
|Interest income                                |  |           | 1,548     |   |        | 123     |   |                              |         |   |       | 1,671     |  
|Provision for income taxes                     |  |           | (416      | ) |        | 839     |   |                              |         |   |       | 423       |  
|Capital expenditures                           |  |           | 18,473    |   |        | 2,382   |   |                              |         |   |       | 20,855    |  
|                                               |  |           |           |  
|                                               |  | Silicones |           |   | Quartz |         |   | Corporate andother items (c) |         |   | Total |          
|Fiscal six-month period ended June 29, 2008:   |  |           |           |   |        |         |   |                              |         |   |       |           |  
|Net sales (a)                                  |  | $         | 1,258,986 |   |        | 135,090 |   |                              |        |   |       | 1,394,076 |  
|Operating income (loss) (b)                    |  |           | 97,963    |   |        | 9,272   |   |                              | (28,290 | ) |       | 78,945    |  
|Depreciation and amortization                  |  |           | 97,907    |   |        | 17,466  |   |                              |        |   |       | 115,373   |  
|Interest expense and other financial charges   |  |           | 140,230   |   |        | 5       |   |                              |        |   |       | 140,235   |  
|Interest income                                |  |           | 2,208     |   |        | 520     |   |                              |        |   |       | 2,728     |  
|Provision for income taxes                     |  |           | 21,473    |   |        | 1,846   |   |                              |        |   |       | 23,319    |  
|Capital expenditures                           |  |           | 73,009    |   |        | 9,512   |   |                              |        |   |       | 82,521    |  



|(a) | There were no intersegment sales during the fiscal three and six-month periods ended June 28, 2009 or June 29, 2008, respectively.
|--- | ----------------------------------------------------------------------------------------------------------------------------------



|(b) | A reconciliation of the segment operating income (loss) to income (loss) before income taxes would include interest income, interest expense, other income (expense), net and gain on
exchange of debt as presented in the Condensed Consolidated Statements of Operations.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(c) | Corporate and other items include pension expenses and headquarter costs, net of corporate assessments.
|--- | -------------------------------------------------------------------------------------------------------



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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 |         | Fiscal six-month period
|                  |  | June 28,2009              |         | June 29,2008            |         | June 28,2009 |         | June 29,2008
|Net sales:        |  |                           |         |                         |         |              |         |              |          
|United States     |  | $                         | 155,182 |                         | 217,971 |              | 298,660 |              | 432,629  
|Canada            |  |                           | 9,107   |                         | 11,662  |              | 17,274  |              | 22,643   
|Pacific           |  |                           | 147,342 |                         | 212,394 |              | 264,826 |              | 394,341  
|Europe            |  |                           | 158,825 |                         | 274,980 |              | 290,605 |              | 504,415  
|Mexico and Brazil |  |                           | 19,552  |                         | 20,457  |              | 36,702  |              | 40,048   
|                  |  |                           |         |                         |         |              |         |              |          
|                  |  | $                         | 490,008 |                         | 737,464 |              | 908,067 |              | 1,394,076
|                  |  |                           |         |                         |         |              |         |              |          



|                  |  |              |           |                  |          
|----------------- |  | ------------ | --------- | ---------------- | ---------
|                  |  | June 28,2009 |           | December 31,2008
|Long-lived assets |  |              |           |                  |          
|United States     |  | $            | 644,948   |                  | 677,705  
|Canada            |  |              | 23,101    |                  | 21,720   
|Pacific           |  |              | 808,206   |                  | 851,066  
|Europe            |  |              | 733,633   |                  | 749,333  
|Mexico and Brazil |  |              | 6,365     |                  | 6,194    
|                  |  |              |           |                  |          
|                  |  | $            | 2,216,253 |                  | 2,306,018
|                  |  |              |           |                  |          



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|(12) | Guarantor/Non-Guarantor Subsidiary Financial Information
|---- | --------------------------------------------------------

The Company has outstanding $200.0 million in aggregate principal amount of second-lien senior notes, $716.6 million in aggregate principal amount of senior notes, 245.2 million in aggregate principal amount of Euro senior notes,
$192.6 million in aggregate principal amount of senior toggle notes and $381.9 million in aggregate principal amount of senior subordinated notes (following the completion of the debt exchange on June 15, 2009). 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 June 28, 2009
and December 31, 2008, the Condensed Consolidated Statements of Operations for the fiscal three and six-month periods ended June 28, 2009 and June 29, 2008 and Condensed Consolidated Statements of Cash Flows for the fiscal six-month
periods ended June 28, 2009 and June 29, 2008 of (i) Momentive Performance Materials Inc. (Parent); (ii) the guarantor subsidiaries; (iii) the non-guarantor subsidiaries; and (iv) the Company on a consolidated basis.

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. 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.



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Condensed Consolidated Balance Sheet as of June 28, 2009:



|                                                                          |  |        |            |   |                       |            |   |                           |           |   |              |            |   |              |            |  
|------------------------------------------------------------------------- |  | ------ | ---------- | - | --------------------- | ---------- | - | ------------------------- | --------- | - | ------------ | ---------- | - | ------------ | ---------- | -
|                                                                          |  | Parent |            |   | GuarantorSubsidiaries |            |   | Non-GuarantorSubsidiaries |           |   | Eliminations |            |   | Consolidated |           
|Assets                                                                    |  |        |            |   |                       |            |   |                           |           |   |              |            |   |              |            |  
|Current assets:                                                           |  |        |            |   |                       |            |   |                           |           |   |              |            |   |              |            |  
|Cash and cash equivalents                                                 |  | $      | 187,973    |   |                       | 4,900      |   |                           | 122,799   |   |              |           |   |              | 315,672    |  
|Receivables, net                                                          |  |        |           |   |                       | 96,002     |   |                           | 290,969   |   |              |           |   |              | 386,971    |  
|Due from affiliates                                                       |  |        | 318        |   |                       | 86,507     |   |                           | 16,996    |   |              | (99,898    | ) |              | 3,923      |  
|Inventories                                                               |  |        |           |   |                       | 176,394    |   |                           | 193,622   |   |              | (11,080    | ) |              | 358,936    |  
|Prepaid expenses                                                          |  |        |           |   |                       | 5,417      |   |                           | 4,663     |   |              |           |   |              | 10,080     |  
|Income tax receivable                                                     |  |        |           |   |                       | 2,745      |   |                           |          |   |              |           |   |              | 2,745      |  
|Deferred income taxes                                                     |  |        |           |   |                       |           |   |                           | 11,200    |   |              | 1,786      |   |              | 12,986     |  
|Other current assets                                                      |  |        |           |   |                       | 1,384      |   |                           | 1,811     |   |              |           |   |              | 3,195      |  
|                                                                          |  |        |            |   |                       |            |   |                           |           |   |              |            |   |              |            |  
|Total current assets                                                      |  |        | 188,291    |   |                       | 373,349    |   |                           | 642,060   |   |              | (109,192   | ) |              | 1,094,508  |  
|Property and equipment, net                                               |  |        |           |   |                       | 543,982    |   |                           | 623,831   |   |              |           |   |              | 1,167,813  |  
|Other long-term assets                                                    |  |        | 37,744     |   |                       |           |   |                           | 32,654    |   |              |           |   |              | 70,398     |  
|Deferred income taxes                                                     |  |        |           |   |                       | 786        |   |                           | 28,741    |   |              |           |   |              | 29,527     |  
|Investments in nonconsolidated affiliates                                 |  |        |           |   |                       |           |   |                           | 565       |   |              |           |   |              | 565        |  
|Investment in affiliates                                                  |  |        | 1,280,780  |   |                       | (265,118   | ) |                           |          |   |              | (1,015,662 | ) |              |           |  
|Intercompany borrowings                                                   |  |        |           |   |                       | 1,119,342  |   |                           | 73,863    |   |              | (1,193,205 | ) |              |           |  
|Intangible assets, net                                                    |  |        |           |   |                       | 100,965    |   |                           | 545,475   |   |              |           |   |              | 646,440    |  
|Goodwill                                                                  |  |        |           |   |                       |           |   |                           | 402,000   |   |              |           |   |              | 402,000    |  
|                                                                          |  |        |            |   |                       |            |   |                           |           |   |              |            |   |              |            |  
|Total assets                                                              |  | $      | 1,506,815  |   |                       | 1,873,306  |   |                           | 2,349,189 |   |              | (2,318,059 | ) |              | 3,411,251  |  
|                                                                          |  |        |            |   |                       |            |   |                           |           |   |              |            |   |              |            |  
|Liabilities and Shareholders Equity (Deficit)                            |  |        |            |   |                       |            |   |                           |           |   |              |            |   |              |            |  
|Current liabilities:                                                      |  |        |            |   |                       |            |   |                           |           |   |              |            |   |              |            |  
|Trade payables                                                            |  | $      | 2,386      |   |                       | 60,291     |   |                           | 183,877   |   |              |           |   |              | 246,554    |  
|Short-term borrowings                                                     |  |        |           |   |                       |           |   |                           | 1,296     |   |              |           |   |              | 1,296      |  
|Accrued expenses and other liabilities                                    |  |        | 3,073      |   |                       | 60,538     |   |                           | 103,775   |   |              |           |   |              | 167,386    |  
|Accrued interest                                                          |  |        | 12,425     |   |                       | 246        |   |                           | 2,849     |   |              |           |   |              | 15,520     |  
|Due to affiliates                                                         |  |        |           |   |                       | 16,593     |   |                           | 85,144    |   |              | (99,898    | ) |              | 1,839      |  
|Accrued income taxes                                                      |  |        |           |   |                       |           |   |                           | 6,489     |   |              |           |   |              | 6,489      |  
|Deferred income taxes                                                     |  |        |           |   |                       | 786        |   |                           | 21,716    |   |              |           |   |              | 22,502     |  
|Current installments of long-term debt                                    |  |        |           |   |                       |           |   |                           | 15,526    |   |              |           |   |              | 15,526     |  
|                                                                          |  |        |            |   |                       |            |   |                           |           |   |              |            |   |              |            |  
|Total current liabilities                                                 |  |        | 17,884     |   |                       | 138,454    |   |                           | 420,672   |   |              | (99,898    | ) |              | 477,112    |  
|Long-term debt                                                            |  |        | 1,795,151  |   |                       | 250,000    |   |                           | 1,111,672 |   |              |           |   |              | 3,156,823  |  
|Other liabilities                                                         |  |        |           |   |                       | 7,283      |   |                           | 57,308    |   |              |           |   |              | 64,591     |  
|Pension liabilities                                                       |  |        |           |   |                       | 120,123    |   |                           | 86,422    |   |              |           |   |              | 206,545    |  
|Intercompany borrowings                                                   |  |        | 242,801    |   |                       | 73,296     |   |                           | 877,108   |   |              | (1,193,205 | ) |              |           |  
|Deferred income taxes                                                     |  |        |           |   |                       |           |   |                           | 58,069    |   |              |           |   |              | 58,069     |  
|                                                                          |  |        |            |   |                       |            |   |                           |           |   |              |            |   |              |            |  
|Total liabilities                                                         |  |        | 2,055,836  |   |                       | 589,156    |   |                           | 2,611,251 |   |              | (1,293,103 | ) |              | 3,963,140  |  
|                                                                          |  |        |            |   |                       |            |   |                           |           |   |              |            |   |              |            |  
|Shareholders equity (deficit):                                           |  |        |            |   |                       |            |   |                           |           |   |              |            |   |              |            |  
|Additional paid-in capital                                                |  |        | 601,330    |   |                       | 2,152,948  |   |                           | 539,340   |   |              | (2,692,288 | ) |              | 601,330    |  
|Accumulated deficit                                                       |  |        | (1,310,057 | ) |                       | (1,031,578 | ) |                           | (962,169  | ) |              | 1,987,823  |   |              | (1,315,981 | )
|Accumulated other comprehensive income                                    |  |        | 159,706    |   |                       | 162,780    |   |                           | 157,711   |   |              | (320,491   | ) |              | 159,706    |  
|                                                                          |  |        |            |   |                       |            |   |                           |           |   |              |            |   |              |            |  
|Total Momentive Performance Materials Inc. shareholders equity (deficit) |  |        | (549,021   | ) |                       | 1,284,150  |   |                           | (265,118  | ) |              | (1,024,956 | ) |              | (554,945   | )
|Noncontrolling Interest                                                   |  |        |           |   |                       |           |   |                           | 3,056     |   |              |           |   |              | 3,056      |  
|                                                                          |  |        |            |   |                       |            |   |                           |           |   |              |            |   |              |            |  
|Total shareholders equity (deficit)                                      |  |        | (549,021   | ) |                       | 1,284,150  |   |                           | (262,062  | ) |              | (1,024,956 | ) |              | (551,889   | )
|                                                                          |  |        |            |   |                       |            |   |                           |           |   |              |            |   |              |            |  
|Total liabilities and shareholders equity (deficit)                      |  | $      | 1,506,815  |   |                       | 1,873,306  |   |                           | 2,349,189 |   |              | (2,318,059 | ) |              | 3,411,251  |  
|                                                                          |  |        |            |   |                       |            |   |                           |           |   |              |            |   |              |            |  



19



---

##### Table of Contents

Condensed Consolidated Balance Sheet as of December 31, 2008:



|                                                                          |  |        |            |   |                       |           |   |                           |           |   |              |            |   |              |            |  
|------------------------------------------------------------------------- |  | ------ | ---------- | - | --------------------- | --------- | - | ------------------------- | --------- | - | ------------ | ---------- | - | ------------ | ---------- | -
|                                                                          |  | Parent |            |   | GuarantorSubsidiaries |           |   | Non-GuarantorSubsidiaries |           |   | Eliminations |            |   | Consolidated |           
|Assets                                                                    |  |        |            |   |                       |           |   |                           |           |   |              |            |   |              |            |  
|Current assets:                                                           |  |        |            |   |                       |           |   |                           |           |   |              |            |   |              |            |  
|Cash and cash equivalents                                                 |  | $      | 1,894      |   |                       | 200,667   |   |                           | 137,981   |   |              |           |   |              | 340,542    |  
|Receivables, net                                                          |  |        |           |   |                       | 96,572    |   |                           | 312,279   |   |              |           |   |              | 408,851    |  
|Due from affiliates                                                       |  |        |           |   |                       | 82,525    |   |                           | 19,254    |   |              | (100,003   | ) |              | 1,776      |  
|Inventories                                                               |  |        |           |   |                       | 178,114   |   |                           | 206,192   |   |              | (7,144     | ) |              | 377,162    |  
|Prepaid expenses                                                          |  |        |           |   |                       | 4,194     |   |                           | 6,101     |   |              |           |   |              | 10,295     |  
|Income tax receivable                                                     |  |        |           |   |                       | 16,955    |   |                           |          |   |              |           |   |              | 16,955     |  
|Deferred income taxes                                                     |  |        |           |   |                       |          |   |                           | 6,328     |   |              | 2,073      |   |              | 8,401      |  
|Other current assets                                                      |  |        |           |   |                       | 2,322     |   |                           | 3,610     |   |              |           |   |              | 5,932      |  
|                                                                          |  |        |            |   |                       |           |   |                           |           |   |              |            |   |              |            |  
|Total current assets                                                      |  |        | 1,894      |   |                       | 581,349   |   |                           | 691,745   |   |              | (105,074   | ) |              | 1,169,914  |  
|Property and equipment, net                                               |  |        |           |   |                       | 573,243   |   |                           | 652,013   |   |              |           |   |              | 1,225,256  |  
|Other long-term assets                                                    |  |        | 40,673     |   |                       |          |   |                           | 32,894    |   |              |           |   |              | 73,567     |  
|Deferred income taxes                                                     |  |        |           |   |                       | 786       |   |                           | 33,486    |   |              |           |   |              | 34,272     |  
|Investments in nonconsolidated affiliates                                 |  |        |           |   |                       |          |   |                           | 592       |   |              |           |   |              | 592        |  
|Investment in affiliates                                                  |  |        | 1,402,887  |   |                       | (166,689  | ) |                           |          |   |              | (1,236,198 | ) |              |           |  
|Intercompany borrowing                                                    |  |        | 7,245      |   |                       | 844,030   |   |                           | 83,774    |   |              | (935,049   | ) |              |           |  
|Intangible assets, net                                                    |  |        |           |   |                       | 104,342   |   |                           | 567,181   |   |              |           |   |              | 671,523    |  
|Goodwill                                                                  |  |        |           |   |                       |          |   |                           | 409,239   |   |              |           |   |              | 409,239    |  
|                                                                          |  |        |            |   |                       |           |   |                           |           |   |              |            |   |              |            |  
|Total assets                                                              |  | $      | 1,452,699  |   |                       | 1,937,061 |   |                           | 2,470,924 |   |              | (2,276,321 | ) |              | 3,584,363  |  
|                                                                          |  |        |            |   |                       |           |   |                           |           |   |              |            |   |              |            |  
|Liabilities and Shareholders Equity (Deficit)                            |  |        |            |   |                       |           |   |                           |           |   |              |            |   |              |            |  
|Current liabilities:                                                      |  |        |            |   |                       |           |   |                           |           |   |              |            |   |              |            |  
|Trade payables                                                            |  | $      |           |   |                       | 91,798    |   |                           | 229,196   |   |              |           |   |              | 320,994    |  
|Short-term borrowings                                                     |  |        |           |   |                       |          |   |                           | 6,726     |   |              |           |   |              | 6,726      |  
|Accrued expenses and other liabilities                                    |  |        | 3,579      |   |                       | 64,204    |   |                           | 111,169   |   |              |           |   |              | 178,952    |  
|Accrued interest                                                          |  |        | 18,204     |   |                       | 192       |   |                           | 219       |   |              |           |   |              | 18,615     |  
|Due to affiliates                                                         |  |        | 8,976      |   |                       | 21,489    |   |                           | 72,943    |   |              | (100,004   | ) |              | 3,404      |  
|Accrued income taxes                                                      |  |        |           |   |                       |          |   |                           | 2,688     |   |              |           |   |              | 2,688      |  
|Deferred income taxes                                                     |  |        |           |   |                       | 786       |   |                           | 18,736    |   |              |           |   |              | 19,522     |  
|Current installments of long-term debt                                    |  |        |           |   |                       |          |   |                           | 68,378    |   |              |           |   |              | 68,378     |  
|                                                                          |  |        |            |   |                       |           |   |                           |           |   |              |            |   |              |            |  
|Total current liabilities                                                 |  |        | 30,759     |   |                       | 178,469   |   |                           | 510,055   |   |              | (100,004   | ) |              | 619,279    |  
|Long-term debt                                                            |  |        | 1,961,279  |   |                       | 150,000   |   |                           | 1,053,453 |   |              |           |   |              | 3,164,732  |  
|Other liabilities                                                         |  |        |           |   |                       | 5,837     |   |                           | 66,446    |   |              |           |   |              | 72,283     |  
|Pension liabilities                                                       |  |        |           |   |                       | 112,728   |   |                           | 89,336    |   |              |           |   |              | 202,064    |  
|Intercompany Borrowings                                                   |  |        | 3,943      |   |                       | 83,774    |   |                           | 847,332   |   |              | (935,049   | ) |              |           |  
|Deferred income taxes                                                     |  |        |           |   |                       |          |   |                           | 67,147    |   |              |           |   |              | 67,147     |  
|                                                                          |  |        |            |   |                       |           |   |                           |           |   |              |            |   |              |            |  
|Total liabilities                                                         |  |        | 1,995,981  |   |                       | 530,808   |   |                           | 2,633,769 |   |              | (1,035,053 | ) |              | 4,125,505  |  
|                                                                          |  |        |            |   |                       |           |   |                           |           |   |              |            |   |              |            |  
|Shareholders equity (deficit):                                           |  |        |            |   |                       |           |   |                           |           |   |              |            |   |              |            |  
|Additional paid-in capital                                                |  |        | 601,017    |   |                       | 2,193,688 |   |                           | 535,622   |   |              | (2,729,310 | ) |              | 601,017    |  
|Accumulated deficit                                                       |  |        | (1,320,259 | ) |                       | (966,975  | ) |                           | (875,705  | ) |              | 1,840,976  |   |              | (1,321,963 | )
|Accumulated other comprehensive income                                    |  |        | 175,960    |   |                       | 179,540   |   |                           | 173,394   |   |              | (352,934   | ) |              | 175,960    |  
|                                                                          |  |        |            |   |                       |           |   |                           |           |   |              |            |   |              |            |  
|Total Momentive Performance Materials Inc. shareholders equity (deficit) |  |        | (543,282   | ) |                       | 1,406,253 |   |                           | (166,689  | ) |              | (1,241,268 | ) |              | (544,986   | )
|Noncontrolling Interest                                                   |  |        |           |   |                       |          |   |                           | 3,844     |   |              |           |   |              | 3,844      |  
|                                                                          |  |        |            |   |                       |           |   |                           |           |   |              |            |   |              |            |  
|Total shareholders equity (deficit)                                      |  |        | (543,282   | ) |                       | 1,406,253 |   |                           | (162,845  | ) |              | (1,241,268 | ) |              | (541,142   | )
|                                                                          |  |        |            |   |                       |           |   |                           |           |   |              |            |   |              |            |  
|Total liabilities and shareholders equity (deficit)                      |  | $      | 1,452,699  |   |                       | 1,937,061 |   |                           | 2,470,924 |   |              | (2,276,321 | ) |              | 3,584,363  |  
|                                                                          |  |        |            |   |                       |           |   |                           |           |   |              |            |   |              |            |  



20



---

##### Table of Contents

Condensed Consolidated Statements of Operations for the fiscal three-month periods ended June 28,
2009 and June 29, 2008:



|                                                                       |  |                                               |         |   |                       |         |   |                           |         |   |              |         |   |              |         |  
|---------------------------------------------------------------------- |  | --------------------------------------------- | ------- | - | --------------------- | ------- | - | ------------------------- | ------- | - | ------------ | ------- | - | ------------ | ------- | -
|                                                                       |  | Fiscal three-month period ended June 28, 2009 |        
|                                                                       |  | Parent                                        |         |   | GuarantorSubsidiaries |         |   | Non-GuarantorSubsidiaries |         |   | Eliminations |         |   | Consolidated |        
|Net sales                                                              |  | $                                             |        |   |                       | 207,870 |   |                           | 371,170 |   |              | (89,032 | ) |              | 490,008 |  
|Cost of sales, excluding depreciation                                  |  |                                               |        |   |                       | 141,579 |   |                           | 280,874 |   |              | (87,798 | ) |              | 334,655 |  
|                                                                       |  |                                               |         |   |                       |         |   |                           |         |   |              |         |   |              |         |  
|Gross profit                                                           |  |                                               |        |   |                       | 66,291  |   |                           | 90,296  |   |              | (1,234  | ) |              | 155,353 |  
|Selling, general and administrative expenses                           |  |                                               | 17,445  |   |                       | 39,869  |   |                           | 32,737  |   |              |        |   |              | 90,051  |  
|Depreciation and amortization                                          |  |                                               |        |   |                       | 21,011  |   |                           | 25,616  |   |              |        |   |              | 46,627  |  
|Research and development expenses                                      |  |                                               |        |   |                       | 9,723   |   |                           | 5,315   |   |              |        |   |              | 15,038  |  
|                                                                       |  |                                               |         |   |                       |         |   |                           |         |   |              |         |   |              |         |  
|Operating income (loss)                                                |  |                                               | (17,445 | ) |                       | (4,312  | ) |                           | 26,628  |   |              | (1,234  | ) |              | 3,637   |  
|Other income (expense):                                                |  |                                               |         |   |                       |         |   |                           |         |   |              |         |   |              |         |  
|Interest income                                                        |  |                                               |        |   |                       | 24,520  |   |                           | 2,103   |   |              | (25,940 | ) |              | 683     |  
|Interest expense                                                       |  |                                               | (48,552 | ) |                       | (3,242  | ) |                           | (34,436 | ) |              | 25,940  |   |              | (60,290 | )
|Other income (expense), net                                            |  |                                               | (8,472  | ) |                       | (25,086 | ) |                           | 438     |   |              | 34,405  |   |              | 1,285   |  
|Gain on exchange of debt                                               |  |                                               | 178,732 |   |                       |        |   |                           |        |   |              |        |   |              | 178,732 |  
|                                                                       |  |                                               |         |   |                       |         |   |                           |         |   |              |         |   |              |         |  
|Income (loss) before income taxes                                      |  |                                               | 104,263 |   |                       | (8,120  | ) |                           | (5,267  | ) |              | 33,171  |   |              | 124,047 |  
|Income taxes (benefit)                                                 |  |                                               |        |   |                       | 352     |   |                           | 20,485  |   |              | 231     |   |              | 21,068  |  
|                                                                       |  |                                               |         |   |                       |         |   |                           |         |   |              |         |   |              |         |  
|Net income (loss)                                                      |  |                                               | 104,263 |   |                       | (8,472  | ) |                           | (25,752 | ) |              | 32,940  |   |              | 102,979 |  
|Net income attributable to the noncontrolling interest                 |  |                                               |        |   |                       |        |   |                           | (178    | ) |              |        |   |              | (178    | )
|                                                                       |  |                                               |         |   |                       |         |   |                           |         |   |              |         |   |              |         |  
|Net income (loss) attributable to Momentive Performance Materials Inc. |  | $                                             | 104,263 |   |                       | (8,472  | ) |                           | (25,930 | ) |              | 32,940  |   |              | 102,801 |  
|                                                                       |  |                                               |         |   |                       |         |   |                           |         |   |              |         |   |              |         |  



|                                                                       |  |                                               |         |   |                       |         |   |                           |         |   |              |          |   |              |         |  
|---------------------------------------------------------------------- |  | --------------------------------------------- | ------- | - | --------------------- | ------- | - | ------------------------- | ------- | - | ------------ | -------- | - | ------------ | ------- | -
|                                                                       |  | Fiscal three-month period ended June 29, 2008 |        
|                                                                       |  | Parent                                        |         |   | GuarantorSubsidiaries |         |   | Non-GuarantorSubsidiaries |         |   | Eliminations |          |   | Consolidated |        
|Net sales                                                              |  | $                                             |        |   |                       | 280,408 |   |                           | 562,447 |   |              | (105,391 | ) |              | 737,464 |  
|Cost of sales, excluding depreciation                                  |  |                                               |        |   |                       | 209,917 |   |                           | 414,512 |   |              | (108,749 | ) |              | 515,680 |  
|                                                                       |  |                                               |         |   |                       |         |   |                           |         |   |              |          |   |              |         |  
|Gross profit                                                           |  |                                               |        |   |                       | 70,491  |   |                           | 147,935 |   |              | 3,358    |   |              | 221,784 |  
|Selling, general and administrative expenses                           |  |                                               | 3,673   |   |                       | 54,452  |   |                           | 46,552  |   |              |         |   |              | 104,677 |  
|Depreciation and amortization                                          |  |                                               |        |   |                       | 27,223  |   |                           | 32,152  |   |              |         |   |              | 59,375  |  
|Research and development expenses                                      |  |                                               |        |   |                       | 12,699  |   |                           | 8,155   |   |              |         |   |              | 20,854  |  
|                                                                       |  |                                               |         |   |                       |         |   |                           |         |   |              |          |   |              |         |  
|Operating income (loss)                                                |  |                                               | (3,673  | ) |                       | (23,883 | ) |                           | 61,076  |   |              | 3,358    |   |              | 36,878  |  
|Other income (expense):                                                |  |                                               |         |   |                       |         |   |                           |         |   |              |          |   |              |         |  
|Interest income                                                        |  |                                               | 23,969  |   |                       | 158     |   |                           | 1,133   |   |              | (23,882  | ) |              | 1,378   |  
|Interest expense                                                       |  |                                               | (53,711 | ) |                       | 98      |   |                           | (42,216 | ) |              | 23,882   |   |              | (71,947 | )
|Other income (expense), net                                            |  |                                               | (14,082 | ) |                       | 15,370  |   |                           | 222     |   |              | (1,353   | ) |              | 157     |  
|                                                                       |  |                                               |         |   |                       |         |   |                           |         |   |              |          |   |              |         |  
|Income (loss) before income taxes                                      |  |                                               | (47,497 | ) |                       | (8,257  | ) |                           | 20,215  |   |              | 2,005    |   |              | (33,534 | )
|Income taxes (benefit)                                                 |  |                                               |        |   |                       | 5,824   |   |                           | 5,079   |   |              | 1,967    |   |              | 12,870  |  
|                                                                       |  |                                               |         |   |                       |         |   |                           |         |   |              |          |   |              |         |  
|Net income (loss)                                                      |  |                                               | (47,497 | ) |                       | (14,081 | ) |                           | 15,136  |   |              | 38       |   |              | (46,404 | )
|Net loss attributable to the noncontrolling interest                   |  |                                               |        |   |                       |        |   |                           | 299     |   |              |         |   |              | 299     |  
|                                                                       |  |                                               |         |   |                       |         |   |                           |         |   |              |          |   |              |         |  
|Net income (loss) attributable to Momentive Performance Materials Inc. |  | $                                             | (47,497 | ) |                       | (14,081 | ) |                           | 15,435  |   |              | 38       |   |              | (46,105 | )
|                                                                       |  |                                               |         |   |                       |         |   |                           |         |   |              |          |   |              |         |  



21



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##### Table of Contents

Condensed Consolidated Statements of Operations for the fiscal six-month periods ended June 28, 2009
and June 29, 2008:



|                                                                       |  |                                             |          |   |                       |         |   |                           |         |   |              |          |   |              |          |  
|---------------------------------------------------------------------- |  | ------------------------------------------- | -------- | - | --------------------- | ------- | - | ------------------------- | ------- | - | ------------ | -------- | - | ------------ | -------- | -
|                                                                       |  | Fiscal six-month period ended June 28, 2009 |         
|                                                                       |  | Parent                                      |          |   | GuarantorSubsidiaries |         |   | Non-GuarantorSubsidiaries |         |   | Eliminations |          |   | Consolidated |         
|Net sales                                                              |  | $                                           |         |   |                       | 398,847 |   |                           | 672,309 |   |              | (163,089 | ) |              | 908,067  |  
|Cost of sales, excluding depreciation                                  |  |                                             |         |   |                       | 279,578 |   |                           | 525,713 |   |              | (159,154 | ) |              | 646,137  |  
|                                                                       |  |                                             |          |   |                       |         |   |                           |         |   |              |          |   |              |          |  
|Gross profit                                                           |  |                                             |         |   |                       | 119,269 |   |                           | 146,596 |   |              | (3,935   | ) |              | 261,930  |  
|Selling, general and administrative expenses                           |  |                                             | 2,217    |   |                       | 74,614  |   |                           | 116,981 |   |              |         |   |              | 193,812  |  
|Depreciation and amortization                                          |  |                                             |         |   |                       | 44,692  |   |                           | 51,534  |   |              |         |   |              | 96,226   |  
|Research and development expenses                                      |  |                                             |         |   |                       | 20,033  |   |                           | 10,991  |   |              |         |   |              | 31,024   |  
|                                                                       |  |                                             |          |   |                       |         |   |                           |         |   |              |          |   |              |          |  
|Operating loss                                                         |  |                                             | (2,217   | ) |                       | (20,070 | ) |                           | (32,910 | ) |              | (3,935   | ) |              | (59,132  | )
|Other income (expense):                                                |  |                                             |          |   |                       |         |   |                           |         |   |              |          |   |              |          |  
|Interest income                                                        |  |                                             |         |   |                       | 48,523  |   |                           | 4,027   |   |              | (50,879  | ) |              | 1,671    |  
|Interest expense                                                       |  |                                             | (101,710 | ) |                       | (5,880  | ) |                           | (69,883 | ) |              | 50,879   |   |              | (126,594 | )
|Other income (expense), net                                            |  |                                             | (64,603  | ) |                       | (86,392 | ) |                           | 11,184  |   |              | 151,069  |   |              | 11,258   |  
|Gain on exchange of debt                                               |  |                                             | 178,732  |   |                       |        |   |                           |        |   |              |         |   |              | 178,732  |  
|                                                                       |  |                                             |          |   |                       |         |   |                           |         |   |              |          |   |              |          |  
|Income (loss) before income taxes                                      |  |                                             | 10,202   |   |                       | (63,819 | ) |                           | (87,582 | ) |              | 147,134  |   |              | 5,935    |  
|Income taxes (benefit)                                                 |  |                                             |         |   |                       | 784     |   |                           | (648    | ) |              | 287      |   |              | 423      |  
|                                                                       |  |                                             |          |   |                       |         |   |                           |         |   |              |          |   |              |          |  
|Net income (loss)                                                      |  |                                             | 10,202   |   |                       | (64,603 | ) |                           | (86,934 | ) |              | 146,847  |   |              | 5,512    |  
|Net loss attributable to the noncontrolling interest                   |  |                                             |         |   |                       |        |   |                           | 470     |   |              |         |   |              | 470      |  
|                                                                       |  |                                             |          |   |                       |         |   |                           |         |   |              |          |   |              |          |  
|Net income (loss) attributable to Momentive Performance Materials Inc. |  | $                                           | 10,202   |   |                       | (64,603 | ) |                           | (86,464 | ) |              | 146,847  |   |              | 5,982    |  
|                                                                       |  |                                             |          |   |                       |         |   |                           |         |   |              |          |   |              |          |  



|                                                                       |  |                                             |          |   |                       |         |   |                           |           |   |              |          |   |              |           |  
|---------------------------------------------------------------------- |  | ------------------------------------------- | -------- | - | --------------------- | ------- | - | ------------------------- | --------- | - | ------------ | -------- | - | ------------ | --------- | -
|                                                                       |  | Fiscal six-month period ended June 29, 2008 |         
|                                                                       |  | Parent                                      |          |   | GuarantorSubsidiaries |         |   | Non-GuarantorSubsidiaries |           |   | Eliminations |          |   | Consolidated |          
|Net sales                                                              |  | $                                           |         |   |                       | 557,603 |   |                           | 1,045,390 |   |              | (208,917 | ) |              | 1,394,076 |  
|Cost of sales, excluding depreciation                                  |  |                                             |         |   |                       | 391,466 |   |                           | 765,852   |   |              | (208,579 | ) |              | 948,739   |  
|                                                                       |  |                                             |          |   |                       |         |   |                           |           |   |              |          |   |              |           |  
|Gross profit                                                           |  |                                             |         |   |                       | 166,137 |   |                           | 279,538   |   |              | (338     | ) |              | 445,337   |  
|Selling, general and administrative expenses                           |  |                                             | 31,905   |   |                       | 107,097 |   |                           | 73,252    |   |              |         |   |              | 212,254   |  
|Depreciation and amortization                                          |  |                                             |         |   |                       | 52,177  |   |                           | 63,196    |   |              |         |   |              | 115,373   |  
|Research and development expenses                                      |  |                                             |         |   |                       | 23,723  |   |                           | 15,042    |   |              |         |   |              | 38,765    |  
|                                                                       |  |                                             |          |   |                       |         |   |                           |           |   |              |          |   |              |           |  
|Operating income (loss)                                                |  |                                             | (31,905  | ) |                       | (16,860 | ) |                           | 128,048   |   |              | (338     | ) |              | 78,945    |  
|Other income (expense):                                                |  |                                             |          |   |                       |         |   |                           |           |   |              |          |   |              |           |  
|Interest income                                                        |  |                                             | 47,927   |   |                       | 511     |   |                           | 2,520     |   |              | (48,230  | ) |              | 2,728     |  
|Interest expense                                                       |  |                                             | (106,091 | ) |                       | 378     |   |                           | (82,752   | ) |              | 48,230   |   |              | (140,235  | )
|Other income (expense), net                                            |  |                                             | (4,350   | ) |                       | 23,434  |   |                           | (13,424   | ) |              | (19,122  | ) |              | (13,462   | )
|                                                                       |  |                                             |          |   |                       |         |   |                           |           |   |              |          |   |              |           |  
|Income (loss) before income taxes                                      |  |                                             | (94,419  | ) |                       | 7,463   |   |                           | 34,392    |   |              | (19,460  | ) |              | (72,024   | )
|Income taxes (benefit)                                                 |  |                                             |         |   |                       | 11,846  |   |                           | 11,248    |   |              | 225      |   |              | 23,319    |  
|                                                                       |  |                                             |          |   |                       |         |   |                           |           |   |              |          |   |              |           |  
|Net income (loss)                                                      |  |                                             | (94,419  | ) |                       | (4,383  | ) |                           | 23,144    |   |              | (19,685  | ) |              | (95,343   | )
|Net loss attributable to the noncontrolling interest                   |  |                                             |         |   |                       |        |   |                           | 360       |   |              |         |   |              | 360       |  
|                                                                       |  |                                             |          |   |                       |         |   |                           |           |   |              |          |   |              |           |  
|Net income (loss) attributable to Momentive Performance Materials Inc. |  | $                                           | (94,419  | ) |                       | (4,383  | ) |                           | 23,504    |   |              | (19,685  | ) |              | (94,983   | )
|                                                                       |  |                                             |          |   |                       |         |   |                           |           |   |              |          |   |              |           |  



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Condensed Consolidated Statement of Cash Flows for the fiscal six-month period ended June 28, 2009:



|                                                           |  |                                             |         |   |                       |          |   |                           |         |   |              |   |              |         |  
|---------------------------------------------------------- |  | ------------------------------------------- | ------- | - | --------------------- | -------- | - | ------------------------- | ------- | - | ------------ | - | ------------ | ------- | -
|                                                           |  | Fiscal six-month period ended June 28, 2009 |        
|                                                           |  | Parent                                      |         |   | GuarantorSubsidiaries |          |   | Non-GuarantorSubsidiaries |         |   | Eliminations |   | Consolidated |        
|Net cash (used in) provided by operating activities        |  | $                                           | (98,558 | ) |                       | 46,942   |   |                           | (42,154 | ) |              |  |              | (93,770 | )
|                                                           |  |                                             |         |   |                       |          |   |                           |         |   |              |   |              |         |  
|Cash flows from investing activities:                      |  |                                             |         |   |                       |          |   |                           |         |   |              |   |              |         |  
|Capital expenditures                                       |  |                                             |        |   |                       | (10,546  | ) |                           | (10,309 | ) |              |  |              | (20,855 | )
|Purchases of intangible assets                             |  |                                             |        |   |                       | (1,098   | ) |                           | (395    | ) |              |  |              | (1,493  | )
|                                                           |  |                                             |         |   |                       |          |   |                           |         |   |              |   |              |         |  
|Net cash used in investing activities                      |  |                                             |        |   |                       | (11,644  | ) |                           | (10,704 | ) |              |  |              | (22,348 | )
|                                                           |  |                                             |         |   |                       |          |   |                           |         |   |              |   |              |         |  
|Cash flows from financing activities:                      |  |                                             |         |   |                       |          |   |                           |         |   |              |   |              |         |  
|Capital contribution to affiliates                         |  |                                             |        |   |                       | (4,925   | ) |                           | 4,925   |   |              |  |              |        |  
|Dividends paid within Momentive Performance Materials Inc. |  |                                             | 48,300  |   |                       | 1,136    |   |                           | (49,436 | ) |              |  |              |        |  
|Debt issuance costs                                        |  |                                             | (4,262  | ) |                       |         |   |                           |        |   |              |  |              | (4,262  | )
|Net change in short-term borrowings                        |  |                                             |        |   |                       |         |   |                           | (5,103  | ) |              |  |              | (5,103  | )
|Proceeds from long-term debt                               |  |                                             |        |   |                       | 100,001  |   |                           | 3,502   |   |              |  |              | 103,503 |  
|Payments of long-term debt                                 |  |                                             |        |   |                       |         |   |                           | (187    | ) |              |  |              | (187    | )
|Funds remitted to joint venture                            |  |                                             |        |   |                       |         |   |                           | (4,900  | ) |              |  |              | (4,900  | )
|Net borrowings with affiliates                             |  |                                             | 238,859 |   |                       | (327,277 | ) |                           | 88,418  |   |              |  |              |        |  
|                                                           |  |                                             |         |   |                       |          |   |                           |         |   |              |   |              |         |  
|Net cash provided by (used in) financing activities        |  |                                             | 282,897 |   |                       | (231,065 | ) |                           | 37,219  |   |              |  |              | 89,051  |  
|                                                           |  |                                             |         |   |                       |          |   |                           |         |   |              |   |              |         |  
|Increase (decrease) in cash and cash equivalents           |  |                                             | 184,339 |   |                       | (195,767 | ) |                           | (15,639 | ) |              |  |              | (27,067 | )
|Effect of exchange rate changes on cash                    |  |                                             | 1,740   |   |                       |         |   |                           | 457     |   |              |  |              | 2,197   |  
|Cash and cash equivalents, beginning of period             |  |                                             | 1,894   |   |                       | 200,667  |   |                           | 137,981 |   |              |  |              | 340,542 |  
|                                                           |  |                                             |         |   |                       |          |   |                           |         |   |              |   |              |         |  
|Cash and cash equivalents, end of period                   |  | $                                           | 187,973 |   |                       | 4,900    |   |                           | 122,799 |   |              |  |              | 315,672 |  
|                                                           |  |                                             |         |   |                       |          |   |                           |         |   |              |   |              |         |  



23



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Condensed Consolidated Statement of Cash Flows for the fiscal six-month period ended June 29, 2008:



|                                                           |  |                                             |          |   |                       |         |   |                           |         |   |              |   |              |         |  
|---------------------------------------------------------- |  | ------------------------------------------- | -------- | - | --------------------- | ------- | - | ------------------------- | ------- | - | ------------ | - | ------------ | ------- | -
|                                                           |  | Fiscal six-month period ended June 29, 2008 |         
|                                                           |  | Parent                                      |          |   | GuarantorSubsidiaries |         |   | Non-GuarantorSubsidiaries |         |   | Eliminations |   | Consolidated |        
|Net cash (used in) provided by operating activities        |  | $                                           | (102,891 | ) |                       | 43,246  |   |                           | 67,937  |   |              |   |              | 8,292   |  
|                                                           |  |                                             |          |   |                       |         |   |                           |         |   |              |   |              |         |  
|Cash flows from investing activities:                      |  |                                             |          |   |                       |         |   |                           |         |   |              |   |              |         |  
|Capital expenditures                                       |  |                                             |         |   |                       | (30,903 | ) |                           | (51,618 | ) |              |  |              | (82,521 | )
|Purchase of intangible assets                              |  |                                             |         |   |                       | (1,675  | ) |                           | (513    | ) |              |  |              | (2,188  | )
|                                                           |  |                                             |          |   |                       |         |   |                           |         |   |              |   |              |         |  
|Net cash used in investing activities                      |  |                                             |         |   |                       | (32,578 | ) |                           | (52,131 | ) |              |  |              | (84,709 | )
|                                                           |  |                                             |          |   |                       |         |   |                           |         |   |              |   |              |         |  
|Cash flows from financing activities:                      |  |                                             |          |   |                       |         |   |                           |         |   |              |   |              |         |  
|Dividends paid within Momentive Performance Materials Inc. |  |                                             | 59,900   |   |                       | (55,828 | ) |                           | (4,072  | ) |              |  |              |        |  
|Capital contribution                                       |  |                                             |         |   |                       | 4,261   |   |                           | (4,261  | ) |              |  |              |        |  
|Net change in short-term borrowings                        |  |                                             |         |   |                       |        |   |                           | (1,470  | ) |              |  |              | (1,470  | )
|Proceeds of long-term debt                                 |  |                                             |         |   |                       |        |   |                           | 31,550  |   |              |  |              | 31,550  |  
|Payments of long-term debt                                 |  |                                             |         |   |                       |        |   |                           | (14,400 | ) |              |  |              | (14,400 | )
|Funds remitted to joint venture                            |  |                                             |         |   |                       |        |   |                           | (4,900  | ) |              |  |              | (4,900  | )
|Net borrowings with affiliates                             |  |                                             | 2,579    |   |                       | 26,097  |   |                           | (28,676 | ) |              |   |              |        |  
|                                                           |  |                                             |          |   |                       |         |   |                           |         |   |              |   |              |         |  
|Net cash provided by (used in) financing activities        |  |                                             | 62,479   |   |                       | (25,470 | ) |                           | (26,229 | ) |              |  |              | 10,780  |  
|                                                           |  |                                             |          |   |                       |         |   |                           |         |   |              |   |              |         |  
|Decrease in cash and cash equivalents                      |  |                                             | (40,412  | ) |                       | (14,802 | ) |                           | (10,423 | ) |              |  |              | (65,637 | )
|Effect of exchange rate changes on cash                    |  |                                             | 33,018   |   |                       |        |   |                           | (39,333 | ) |              |  |              | (6,315  | )
|Cash and cash equivalents, beginning of period             |  |                                             | 8,051    |   |                       | 47,514  |   |                           | 193,491 |   |              |  |              | 249,056 |  
|                                                           |  |                                             |          |   |                       |         |   |                           |         |   |              |   |              |         |  
|Cash and cash equivalents, end of period                   |  | $                                           | 657      |   |                       | 32,712  |   |                           | 143,735 |   |              |  |              | 177,104 |  
|                                                           |  |                                             |          |   |                       |         |   |                           |         |   |              |   |              |         |  



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations.
|------- | --------------------------------------------------------------------------------------

The following discussion of our results of operations and financial condition should be read in conjunction with the financial statements and notes
thereto included in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2008.

Forward-Looking and Cautionary Statements

Certain statements included in this report may constitute forward-looking
statements within the meaning of and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. In addition, our management may from time to time make oral forward-looking statements. All statements other than statements of historical facts are statements that could be forward-looking statements.
Forward-looking statements may be identified by the words believe, expect, anticipate, project, plan, estimate, will or intend and similar words or
expressions. These forward-looking statements reflect our current views with respect to future events and are based on currently available financial, economic and competitive data and our current business plans. Actual results could vary materially
depending on risks and uncertainties that may affect our operations, markets, services, prices and other factors. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are
not limited to: our substantial leverage; limitations in operating our business contained in the documents governing our indebtedness, including the restrictive covenants therein; uncertainty regarding our ability to reach a definitive amendment
and/or waiver with respect to our revolving credit facility, if necessary; an event of default under our senior secured credit facility; the recent global financial crisis and economic slowdown; changes in prices and availability of raw materials
and key intermediates; rising energy costs, increases in interest rates; fluctuations in currency exchange rates; changes in government regulation or the costs of compliance with such regulation; our reliance on patents, unpatented proprietary
know-how and trade secrets; risks of exposure of workers, customers or users of end-products to hazardous materials; and disputes with the unions or works councils to which our employees belong and other factors listed under Risk Factors
in this Quarterly Report on Form 10-Q. For a more detailed discussion of these and other risk factors, see Part II, Item 1A of this Quarterly Report on Form 10-Q and our Quarterly Report on Form 10-Q for the fiscal three-month period ended
March 29, 2009 filed with the Securities and Exchange Commission. All forward-looking statements are expressly qualified in their entirety by this cautionary notice. You are cautioned not to place undue reliance on any forward-looking
statements, which speak only as of the date of this report. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

Critical Accounting Policies

Our
principal accounting policies are described under the Notes to Condensed Consolidated Financial StatementsSummary of Significant Accounting Policies. The preparation of financial statements in accordance with GAAP requires
management to make estimates and assumptions that affect the reported amounts of some assets and liabilities and, in some instances, the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these
estimates. We have discussed our most significant estimates and assumptions in our Annual Report on Form 10-K for the year ended December 31, 2008 filed with the Securities and Exchange Commission. There have been no material changes to our
critical accounting policies or in such estimates and assumptions.

Recently Issued Accounting Standards

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 168 (SFAS 168), the FASB Accounting Standards
CodificationTMand the Hierarchy of Generally Accepted Accounting
Principles. SFAS 168 replaces SFAS 162, The Hierarchy of Generally Accepted Accounting Principles. It names the FASB Accounting Standards Codification (Codification) as the single source
of authoritative U.S. Generally Accepted Accounting Principles (GAAP) for non-governmental entities recognized by the FASB. SFAS 168 is effective for reporting periods ending after September 15, 2009, and once effective, will supersede all U.S.
GAAP accounting standards, aside from rules and interpretive releases issued by the Securities and Exchange commission (SEC). The Codification is not intended to change GAAP; rather, it will change the referencing of U.S. GAAP. Therefore, we do not
expect the adoption of SFAS 168 will have a material impact to our financial statements.

In June 2009, the FASB issued Statement of
Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46(R) (FIN 46(R)) (revised December 2003),Consolidation of Variable Interest Entities. This SFAS amends FIN 46(R) to require an enterprise to
perform an analysis to determine whether the enterprises variable interest or interests give it a controlling financial interest in a variable interest entity, and requires ongoing reassessments of whether an enterprise is the primary
beneficiary of a variable interest entity. This SFAS shall be effective as of the beginning of the first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim
and annual reporting periods thereafter. Earlier application is prohibited. We are currently in the process of evaluating this guidance.

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 166, Accounting for Transfers of Financial Assetsan amendment of FASB Statement No. 140 (SFAS 166). SFAS 166 intends to improve the
relevance, representational



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faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the
effects of a transfer on its financial position, financial performance, and cash flows; and a transferors continuing involvement, if any, in transferred financial assets. This Statement must be applied as of the beginning of each reporting
entitys first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlier application is prohibited. This
Statement must be applied to transfers occurring on or after the effective date. We are currently in the process of evaluating this guidance.

In May 2009, the FASB issued Statement of Financial Accounting Standards No. 165, Subsequent Events (SFAS 165). The objective of this Statement is to establish general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, that is whether
that date represents the date the financial statements were issued or were available to be issued. This disclosure should alert all users of financial statements that an entity has not evaluated subsequent events after that date in the set of
financial statements being presented. SFAS 165 is effective for interim or annual financial periods ending after June 15, 2009. We adopted the provisions of SFAS 165 and it did not have a material impact to our financial statements.

In April 2009, the FASB issued FASB Staff Position (FSP) FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments.
This FSP amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, which requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in
annual financial statements. This FSP also amends APB Opinion No. 28, Interim Financial Reporting,which requires those disclosures in summarized financial information at interim reporting periods. This FSP shall be effective for interim
reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. An entity may early adopt this FSP only if it also elects to early adopt FSP FAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, and FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments.
This FSP does not require disclosures for earlier periods presented for comparative purposes at initial adoption. In periods after initial adoption, this FSP requires comparative disclosures only for periods ending after initial adoption. We adopted
the provisions of FSP FAS 107-1 and APB 28-1 and it did not have a material impact to our financial statements.

In April 2009, the FASB
issued FASB Staff Position (FSP) FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. This FSP provides additional
guidance for estimating fair value in accordance with Statement of Financial Accounting Standards No. 157, Fair Value Measurements(SFAS 157), when the volume and level of activity for the asset or liability have significantly decreased.
This FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. This FSP is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. Early
adoption is permitted for periods ending after March 15, 2009. Earlier adoption for periods ending before March 15, 2009, is not permitted. We adopted the provisions of FSP FAS 157-4 and it did not have a material impact to our financial
statements.

In December 2008, the FASB issued FASB Staff Position (FSP) FAS 132(R)-1,which provides guidance on an employers
disclosures about plan assets of a defined benefit pension or other postretirement plan under Statement of Financial Accounting Standards No. 132(R), Employers Disclosures about Pensions and Other Postretirement Benefits(SFAS
132(R)). This FSP also includes a technical amendment to SFAS 132(R) that requires a nonpublic entity to disclose net periodic benefit cost for each annual period for which a statement of income is presented. The disclosures about plan assets
required by this FSP shall be provided for fiscal years ending after December 15, 2009. Upon initial application, the provisions of this FSP are not required for earlier periods that are presented for comparative purposes. Earlier application
of the provisions of this FSP is permitted. We are currently in the process of evaluating this guidance.

In March 2008, the FASB
issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activitiesan amendment of FASB Statement No. 133(SFAS 161). SFAS 161 requires enhanced disclosures
about derivative and hedging activities. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. On January 1, 2009, we adopted the expanded disclosure requirements of
SFAS 161 as disclosed in Note 10 to the unaudited Condensed Consolidated Financial Statements.

In February 2008, the FASB issued FASB
Staff Position (FSP) FAS 157-2, which defers the provisions of SFAS 157 for non-financial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a non-recurring basis to fiscal years
beginning after November 15, 2008. We adopted the provisions of FSP FAS 157-2 on January 1, 2009 and it did not have a material impact to our financial statements.



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In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141R, Business
Combinations (SFAS 141R), which requires most identifiable assets, liabilities, noncontrolling interests, and goodwill acquired in a business combination to be recorded at full fair value. SFAS 141R applies to all business combinations,
including combinations among mutual entities and combination by contract alone. SFAS 141R is effective for periods beginning on or after December 15, 2008 and should be applied to business combinations occurring after the effective date. We
adopted the provisions of SFAS 141R on January 1, 2009 and it did not have a material impact on our financial statements.

In December
2007, the FASB issued Statement of Financial Accounting Standards No. 160, Non-controlling Interests in Consolidated Financial StatementsAn Amendment of ARB No. 51 (SFAS 160). SFAS 160 requires non-controlling
interests (previously referred to as minority interests) to be treated as a separate component of equity, not as a liability or other item outside of permanent equity. SFAS 160 is effective for periods beginning on or after December 15, 2008.
We adopted SFAS 160 on January 1, 2009.

Business Outlook

We continue to believe in the strength of the long-term fundamentals of our business. However, due to the impact of the global recession, the short- and mid-term outlook for our business and the industry remains
uncertain. During the second quarter of 2009, we experienced significant year-over-year decreases in sales of approximately 32% and 48% in our Silicones and Quartz businesses, respectively, and relatively weak demand has continued into the
third quarter of 2009, although sales have improved from a low base since the beginning of the year. Sluggish economic conditions have resulted in more cautious customer spending behavior and significantly lower demand for our products compared to
last year across a majority of our end markets, with particular weakness in the automotive, construction, textiles and furniture sectors. Our ability to forecast the depth and length of the current global recession, its impact on our business and
demand for our products, as well as raw material pricing, is very limited due to the many factors involved which are outside of our control.

Results of
Operations

The following table sets forth certain historical consolidated financial information, in both dollars and percentages of net
sales, for the fiscal three-month periods ended June 28, 2009 and June 29, 2008:

Fiscal three-month period ended
June 28, 2009 compared to fiscal three-month period ended June 29, 2008 (Unaudited)



|                                                                       |  |                                     |       |   |               |       |    |  |   |       |   |  |       |   
|---------------------------------------------------------------------- |  | ----------------------------------- | ----- | - | ------------- | ----- | -- |  | - | ----- | - |  | ----- | --
|                                                                       |  | For fiscal three-month period ended |      
|                                                                       |  | June 28, 2009                       |       |   | June 29, 2008 |      
|                                                                       |  | (dollars in millions)               |      
|Net sales                                                              |  | $                                   | 490.0 |   |               | 100.0 | %  |  | $ | 737.5 |   |  | 100.0 | % 
|Cost of sales, excluding depreciation                                  |  |                                     | 334.7 |   |               | 68.3  | %  |  |   | 515.7 |   |  | 69.9  | % 
|                                                                       |  |                                     |       |   |               |       |    |  |   |       |   |  |       |   
|Gross profit                                                           |  |                                     | 155.3 |   |               | 31.7  | %  |  |   | 221.8 |   |  | 30.1  | % 
|                                                                       |  |                                     |       |  
|Selling, general and administrative expenses                           |  |                                     | 126.5 |   |               | 25.8  | %  |  |   | 155.3 |   |  | 21.1  | % 
|Research and development expenses                                      |  |                                     | 15.0  |   |               | 3.1   | %  |  |   | 20.9  |   |  | 2.8   | % 
|Restructuring and other costs                                          |  |                                     | 10.2  |   |               | 2.1   | %  |  |   | 8.7   |   |  | 1.2   | % 
|                                                                       |  |                                     |       |   |               |       |    |  |   |       |   |  |       |   
|Operating income (loss)                                                |  |                                     | 3.6   |   |               | 0.7   | %  |  |   | 36.9  |   |  | 5.0   | % 
|Other income (expenses)                                                |  |                                     |       |   |               |       |    |  |   |       |   |  |       |   
|Interest expense, net                                                  |  |                                     | (59.5 | ) |               | (12.1 | )% |  |   | (70.6 | ) |  | (9.6  | )%
|Other income (expense), net                                            |  |                                     | 180.0 |   |               | 36.7  | %  |  |   | 0.2   |   |  | 0.0   | % 
|                                                                       |  |                                     |       |   |               |       |    |  |   |       |   |  |       |   
|Income (loss) before income taxes                                      |  |                                     | 124.1 |   |               | 25.3  | %  |  |   | (33.5 | ) |  | (4.5  | )%
|                                                                       |  |                                     |       |  
|Income taxes                                                           |  |                                     | 21.1  |   |               | 4.3   | %  |  |   | 12.9  |   |  | 1.7   | % 
|                                                                       |  |                                     |       |   |               |       |    |  |   |       |   |  |       |   
|                                                                       |  |                                     |       |  
|Net income (loss)                                                      |  |                                     | 103.0 |   |               | 21.0  | %  |  |   | (46.4 | ) |  | (6.3  | )%
|Net (income) loss attributable to the noncontrolling interest          |  |                                     | (0.2  | ) |               | (0.0  | )% |  |   | 0.3   |   |  |      |   
|                                                                       |  |                                     |       |   |               |       |    |  |   |       |   |  |       |   
|Net income (loss) attributable to Momentive Performance Materials Inc. |  | $                                   | 102.8 |   |               | 21.0  | %  |  | $ | (46.1 | ) |  | (6.3  | )%
|                                                                       |  |                                     |       |   |               |       |    |  |   |       |   |  |       |   
|                                                                       |  |                                     |       |  
|Net Sales by Segment                                                   |  |                                     |       |   |               |       |    |  |   |       |   |  |       |   
|Silicones                                                              |  | $                                   | 454.4 |   |               | 92.7  | %  |  | $ | 669.2 |   |  | 90.7  | % 
|Quartz                                                                 |  |                                     | 35.6  |   |               | 7.3   | %  |  |   | 68.3  |   |  | 9.3   | % 
|                                                                       |  |                                     |       |   |               |       |    |  |   |       |   |  |       |   
|Total                                                                  |  | $                                   | 490.0 |   |               | 100.0 | %  |  | $ | 737.5 |   |  | 100.0 | % 
|                                                                       |  |                                     |       |   |               |       |    |  |   |       |   |  |       |   



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Net Sales. Net sales in the fiscal three-month period ended June 28, 2009 were
$490.0 million, compared to $737.5 million for the same period in 2008, a decrease of 33.6%. The decrease was primarily due to a decrease in sales volume of 32.2% and unfavorable exchange rate fluctuations of 5.0%, partially offset by an increase in
selling prices.

Net sales for our Silicones segment in the fiscal three-month period ended June 28, 2009 were $454.4 million,
compared to $669.2 million for the same period in 2008, a decrease of 32.1%. The decrease was primarily due to the impact of the global recession on sales volume, which declined by 30.7% and unfavorable exchange rate fluctuations of 5.0%, partially
offset by an increase in selling prices.

Net sales for our Quartz segment in the fiscal three-month period ended June 28, 2009 were
$35.6 million, compared to $68.3 million for the same period in 2008, a decrease of 47.9%. The decrease was primarily a result of weak overall demand for semiconductor related products.

Cost of Sales, excluding depreciation. Cost of sales, excluding depreciation, in the fiscal three-month period ended June 28,
2009 was $334.7 million, compared to $515.7 million for the same period in 2008, a decrease of 35.1%. The decrease was primarily due to lower sales volume and deflation in raw material, energy and transportation costs, partially offset by
significantly lower factory capacity utilization. In addition, cost of sales was favorably impacted by changes in foreign currency exchange rates.

Gross Profit.Gross profit in the fiscal three-month period ended June 28, 2009 was $155.3 million, compared to $221.8 million for the same period in 2008, a decrease of 30.0%. The decrease was primarily due to declining
sales, offset by the effects described above in cost of sales.

Selling, General and Administrative Expenses. Selling,
general and administrative expenses in the fiscal three-month period ended June 28, 2009 were $126.5 million, compared to $155.3 million for the same period in 2008, a decrease of 18.5%. The decrease was due to managements efforts to
reduce operating expenses through productivity and cost reduction initiatives, lower depreciation and amortization expense and favorable foreign currency exchange.

Research and Development Expenses. Research and development expenses in the fiscal three-month period ended June 28, 2009 were $15.0 million, compared to $20.9 million for the same period in
2008, a decrease of 28.2%. The decrease was primarily due to timing of program expenditures related to new projects, efficiencies and other cost reduction initiatives.

Restructuring and Other Costs.Restructuring and other costs in the fiscal three-month period ended June 28, 2009 were $10.2 million, compared to $8.7 million for the same period in 2008. For the
fiscal three-month period ended June 28, 2009, these costs were comprised of restructuring costs (primarily severance payments associated with previously announced workforce reductions) of $7.4 million and other costs of $2.8 million. For the
fiscal three-month period ended June 29, 2008, these costs were comprised of restructuring costs of $3.5 million and other costs of $5.2 million.

Interest Expense, net. Interest expense, net in the fiscal three-month period ended June 28, 2009 was $59.5 million, compared to $70.6 million for the same period in 2008, a decrease of
15.7%. The decrease was primarily due to overall lower interest rates on our variable-rate term loans and favorable foreign currency exchange rate fluctuations.

Other Income (Expense), net.Other Income, net in the fiscal three-month period ended June 28, 2009 was $180.0 million, compared to $0.2 million for the same period in 2008. For the fiscal
three-month period ended June 28, 2009, other income (expense), net included a gain on exchange of debt of $178.7 million. For the fiscal three-month period ended June 29, 2008, other income (expense), net included an unrealized gain
of $5.3 million offset by a realized loss of $6.1 million related to foreign currency forward contracts.

Income
taxes. The effective tax rate was 16.98% and 38.38% for the fiscal three-month periods ended June 28, 2009 and June 29, 2008, respectively. The change in the effective tax rate in 2009 was primarily due to a change in
the amount of income (loss) before income taxes, changes in the tax rates applied in the various jurisdictions in which we operate, current period foreign exchange gains and the maintenance of a full valuation allowance against a substantial amount
of our net deferred tax assets. The valuation allowance, which relates principally to U.S. deferred tax assets, was established and maintained based on our assessment that the net deferred tax assets will likely not be realized.

Net income (loss) attributable to Momentive Performance Materials Inc. Net income in the fiscal three-month period ended
June 28, 2009 was $102.8 million, compared to a net loss of $46.1 million for the same period in 2008. The change in net income (loss) was a result of the effects described above.



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##### Table of Contents

Fiscal six-month period ended June 28, 2009 compared to fiscal six-month period
ended June 29, 2008 (Unaudited)



|                                                                       |  |                                   |        |   |               |       |    |  |   |         |   |  |       |   
|---------------------------------------------------------------------- |  | --------------------------------- | ------ | - | ------------- | ----- | -- |  | - | ------- | - |  | ----- | --
|                                                                       |  | For fiscal six-month period ended |       
|                                                                       |  | June 28, 2009                     |        |   | June 29, 2008 |      
|                                                                       |  | (dollars in millions)             |       
|Net sales                                                              |  | $                                 | 908.0  |   |               | 100.0 | %  |  | $ | 1,394.1 |   |  | 100.0 | % 
|Cost of sales, excluding depreciation                                  |  |                                   | 646.1  |   |               | 71.2  | %  |  |   | 948.8   |   |  | 68.1  | % 
|                                                                       |  |                                   |        |   |               |       |    |  |   |         |   |  |       |   
|Gross profit                                                           |  |                                   | 261.9  |   |               | 28.8  | %  |  |   | 445.3   |   |  | 31.9  | % 
|                                                                       |  |                                   |        |  
|Selling, general and administrative expenses                           |  |                                   | 268.5  |   |               | 29.6  | %  |  |   | 314.5   |   |  | 22.6  | % 
|Research and development expenses                                      |  |                                   | 31.0   |   |               | 3.4   | %  |  |   | 38.8    |   |  | 2.8   | % 
|Restructuring and other costs                                          |  |                                   | 21.5   |   |               | 2.4   | %  |  |   | 13.0    |   |  | 0.9   | % 
|                                                                       |  |                                   |        |   |               |       |    |  |   |         |   |  |       |   
|Operating income (loss)                                                |  |                                   | (59.1  | ) |               | (6.5  | )% |  |   | 79.0    |   |  | 5.7   | % 
|Other income (expenses)                                                |  |                                   |        |   |               |       |    |  |   |         |   |  |       |   
|Interest expense, net                                                  |  |                                   | (124.9 | ) |               | (13.8 | )% |  |   | (137.6  | ) |  | (9.9  | )%
|Other income (expense), net                                            |  |                                   | 189.9  |   |               | 20.9  | %  |  |   | (13.4   | ) |  | (1.0  | )%
|                                                                       |  |                                   |        |   |               |       |    |  |   |         |   |  |       |   
|Income (loss) before income taxes                                      |  |                                   | 5.9    |   |               | 0.6   | %  |  |   | (72.0   | ) |  | (5.2  | )%
|                                                                       |  |                                   |        |  
|Income taxes                                                           |  |                                   | 0.4    |   |               | 0.0   | %  |  |   | 23.4    |   |  | 1.7   | % 
|                                                                       |  |                                   |        |   |               |       |    |  |   |         |   |  |       |   
|                                                                       |  |                                   |        |  
|Net income (loss)                                                      |  |                                   | 5.5    |   |               | 0.6   | %  |  |   | (95.4   | ) |  | (6.8  | )%
|Net (income) loss attributable to the noncontrolling interest          |  |                                   | 0.5    |   |               | 0.1   | %  |  |   | 0.4     |   |  | 0.0   | % 
|                                                                       |  |                                   |        |   |               |       |    |  |   |         |   |  |       |   
|Net income (loss) attributable to Momentive Performance Materials Inc. |  | $                                 | 6.0    |   |               | 0.7   | %  |  | $ | (95.0   | ) |  | (6.8  | )%
|                                                                       |  |                                   |        |   |               |       |    |  |   |         |   |  |       |   
|                                                                       |  |                                   |        |  
|Net Sales by Segment                                                   |  |                                   |        |   |               |       |    |  |   |         |   |  |       |   
|Silicones                                                              |  |                                   | 838.8  |   |               | 92.4  | %  |  |   | 1,259.0 |   |  | 90.3  | % 
|Quartz                                                                 |  |                                   | 69.2   |   |               | 7.6   | %  |  |   | 135.1   |   |  | 9.7   | % 
|                                                                       |  |                                   |        |   |               |       |    |  |   |         |   |  |       |   
|Total                                                                  |  | $                                 | 908.0  |   |               | 100   | %  |  | $ | 1,394.1 |   |  | 100.0 | % 
|                                                                       |  |                                   |        |   |               |       |    |  |   |         |   |  |       |   

Net Sales. Net sales in the fiscal six-month period ended June 28, 2009
were $908.0 million, compared to $1,394.1 million for the same period in 2008, a decrease of 34.9%. The decrease was primarily due to a decrease in sales volume of 35.5% and unfavorable exchange rate fluctuations of 3.4%, partially offset by an
increase in selling prices.

Net sales for our Silicones segment in the fiscal six-month period ended June 28, 2009 were $838.8
million, compared to $1,259.0 million for the same period in 2008, a decrease of 33.4%. The decrease was primarily due to the impact of the global recession on sales volume, which declined by 34.2% and unfavorable exchange rate fluctuations of 3.5%,
partially offset by an increase in selling prices.

Net sales for our Quartz segment in the fiscal six-month period ended June 28,
2009 were $69.2 million, compared to $135.1 million for the same period in 2008, a decrease of 48.8%. The decrease primarily was a result of weak overall demand for semiconductor related products.

Cost of Sales, excluding depreciation. Cost of sales, excluding depreciation, in the fiscal six-month period ended June 28,
2009 was $646.1 million, compared to $948.8 million for the same period in 2008, a decrease of 31.9%. The decrease was primarily due to lower sales volume and deflation in raw material, energy and transportation costs, partially offset by
significantly lower factory capacity utilization. In addition, cost of sales was favorably impacted by changes in foreign currency exchange rates.

Gross Profit.Gross profit in the fiscal six-month period ended June 28, 2009 was $261.9 million, compared to $445.3 million for the same period in 2008, a decrease of 41.2%. The decrease was primarily due to declining
sales, offset by the effects described above in cost of sales.

Selling, General and Administrative Expenses. Selling,
general and administrative expenses in the fiscal six-month period ended June 28, 2009 were $268.5 million, compared to $314.5 million for the same period in 2008, a decrease of 14.6%. The decrease was primarily due to lower depreciation and
amortization expense, favorable foreign currency exchange and managements efforts to reduce operating expenses through productivity and cost reduction initiatives.



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Research and Development Expenses. Research and development expenses in the fiscal
six-month period ended June 28, 2009 were $31.0 million, compared to $38.8 million for the same period in 2008, a decrease of 20.1%. The decrease was primarily due to timing of program expenditures related to new projects, efficiencies and
other cost reduction initiatives.

Restructuring and Other Costs.Restructuring and other costs in the fiscal six-month
period ended June 28, 2009 were $21.5 million, compared to $13.0 million for the same period in 2008. For the fiscal six-month period ended June 28, 2009, these costs were comprised of restructuring costs (primarily severance payments
associated with previously announced workforce reductions) of $22.7 million and other costs of $(1.2) million. Other costs of $(1.2) million for the fiscal six-month period ended June 28, 2009 included a one-time benefit reduction and wage tax
credits of $5.4 million. For the fiscal six-month period ended June 29, 2008, these costs were comprised of restructuring costs of $3.8 million and other costs of $9.2 million.

Interest Expense, net. Interest expense, net in the fiscal six-month period ended June 28, 2009 was $124.9 million, compared to
$137.6 million for the same period in 2008, a decrease of 9.2%. The decrease was primarily due to overall lower interest rates on our variable-rate term loans and favorable foreign currency exchange rate fluctuations.

Other Income (Expense), net.Other Income, net in the fiscal six-month period ended June 28, 2009 was $189.9 million, compared to
other expense, net of $13.4 million for the same period in 2008. For the fiscal six-month period ended June 28, 2009, other income, net included a gain on exchange of debt of $178.7 million. In addition, other income (expense), net also
included a realized gain of $4.0 million and an unrealized gain of $6.0 million due to the settlement of our foreign currency forward contracts in March 2009. For the fiscal six-month period ended June 29, 2008, other expense, net included
an unrealized loss of $8.5 million and a realized loss of $6.1 million related to the foreign currency forward contracts.

Income
taxes. The effective tax rate was 7.13% and 32.38% for the fiscal six-month periods ended June 28, 2009 and June 29, 2008, respectively. The change in the effective tax rate in 2009 was primarily due to a change in the
amount of income (loss) before income taxes, changes in the tax rates applied in the various jurisdictions in which we operate, current period foreign exchange gains and the maintenance of a full valuation allowance against a substantial amount of
our net deferred tax assets. The valuation allowance, which relates principally to U.S. deferred tax assets, was established and maintained based on our assessment that the net deferred tax assets will likely not be realized.

Net income (loss) attributable to Momentive Performance Materials Inc. Net income in the fiscal six-month period ended
June 28, 2009 was $6.0 million, compared to a net loss of $95.0 million for the same period in 2008. The change in net income (loss) was a result of the effects described above.

Liquidity and Capital Resources



|                                                                                      |  |                              |       |   |              |       |  
|------------------------------------------------------------------------------------- |  | ---------------------------- | ----- | - | ------------ | ----- | -
|                                                                                      |  | Fiscal six-monthperiod ended |      
|                                                                                      |  | June 28,2009                 |       |   | June 29,2008 |      
|                                                                                      |  | (dollars in millions)        |      
|Cash (used in) provided by operating activities                                       |  | $                            | (93.8 | ) |              | 8.3   |  
|Cash used in investing activities                                                     |  |                              | (22.4 | ) |              | (84.7 | )
|Cash provided by financing activities                                                 |  |                              | 89.1  |   |              | 10.8  |  
|                                                                                      |  |                              |       |   |              |       |  
|Decrease in cash and cash equivalents, before effect of exchange rate changes on cash |  | $                            | (27.1 | ) |              | (65.6 | )
|                                                                                      |  |                              |       |   |              |       |  

Operating activities. Cash used in operating activities was $93.8 million in the
fiscal six-month period ended June 28, 2009, compared to cash provided by operating activities of $8.3 million in the fiscal six-month period ended June 29, 2008. Cash used in operating activities in the fiscal six-month period ended
June 28, 2009 was primarily due to a decline in operating income and decreases in accounts payable (primarily due to lower material purchases and capital projects during the first half of 2009), partially offset by decreases in accounts
receivables as a result of a decline in sales and inventory as a result of management efforts to reduce working capital requirements. Cash provided by operating activities in the fiscal six-month period ended June 29, 2008 was primarily due to
increases in deferred income taxes and increases in accounts payable as a result of extension in vendor payment terms and timing of payments, offset by a payment made to a related party and increases in accounts receivables as a result of price
increases and higher non-U.S. sales.

Investing activities. Cash used in investing activities was $22.4 million in the fiscal
six-month period ended June 28, 2009, compared to $84.7 million in the fiscal six-month period ended June 29, 2008. Cash used in investing activities in the fiscal six-month period ended June 28, 2009 was primarily due to ongoing
expenditures for environmental health and safety compliance and maintenance projects. During the fiscal six-month period ended June 28, 2009, management made a concerted effort to preserve cash as a result of economic conditions impacting our
industry and reduced capital spending. Capital spending in 2009 is expected to be approximately $65 million, excluding restructuring activities. Cash used in investing activities in the fiscal six-month period ended



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June 29, 2008 was primarily due to capital expenditures related to the construction of our Nantong facility in China which commenced limited operation
in June 2008 and ongoing environmental, health and safety compliance and maintenance projects.

Financing activities. Cash
provided by financing activities was $89.1 million in the fiscal six-month period ended June 28, 2009, compared to $10.8 million in the fiscal six-month period ended June 29, 2008. Cash provided by financing activities in the fiscal
six-month period ended June 28, 2009 was primarily due to an additional $100.0 million draw down under our revolving credit facility and $3.5 million borrowing by our subsidiary in India, partially offset by $4.3 million expenses associated
with the exchange of our debt, principal payment of $5.1 million on short-term borrowings and a $4.9 million capital contribution to our Xinan joint venture in Jiande, China. Cash provided by financing activities in the fiscal six-month period ended
June 29, 2008 was primarily due to additional long-term borrowings of $31.6 million associated with the Nantong construction project, offset by $14.4 million of principal payments on our term loans under our senior credit facility and a $4.9
million capital contribution to our Xinan joint venture in Jiande, China.

Liquidity

Our primary sources of liquidity are cash on hand, cash flow from operations and funds available under a senior secured credit facility. Our primary
continuing liquidity needs are to finance our working capital, capital expenditures and debt service.

We had $3,172.3 million of
indebtedness (excluding short-term borrowings), at June 28, 2009. Accordingly, we have significant debt service obligations.

On June 15, 2009, we issued $200.0 million in aggregate principal amount of new 121/2% Second-Lien Senior Secured Notes due 2014 (the Second Lien Notes) in exchange for approximately $350 million in aggregate principal amount of our outstanding
unsecured notes. The unsecured notes accepted in the exchange included $48.4 million in aggregate principal amount (or 6% of the total) of our 93/4% Senior Notes due 2014, 29.8 million in aggregate principal amount
(or 11% of the total) of our 9% Senior Notes due 2014, $140.9 million in aggregate principal amount (or 42% of the total) of our 101/8/ 107/8% Senior Toggle Notes due 2014 and $118.1 million in aggregate principal amount (or 24% of the total) of our 111/2% Senior Subordinated Notes due 2016. Interest on the Second Lien
Notes is payable semiannually on June 15 and December 15 of each year, commencing on December 15, 2009. We recognized a gain on the exchange of approximately $178.7 million.

The Second Lien Notes are guaranteed on a senior secured basis by each of our U.S. subsidiaries that is a borrower or guarantor under our existing senior
secured credit facility described below. The Second Lien Notes are secured by a second-priority security interest in certain assets of the Company and such U.S. subsidiaries, which interest is junior in priority to the liens on substantially the
same collateral securing our existing senior secured credit facility.

Our senior secured credit facility at June 28, 2009 consists of
two variable-rate term loans in an aggregate principal amount of approximately $1,063.3 million, a $300.0 million revolving credit facility that includes borrowing capacity available for letters of credit of up to $100.0 million, and a $34.3 million
synthetic letter of credit facility. One of our term loans is denominated in euros. There were $250.0 million of borrowings outstanding under the revolving credit facility as of June 28, 2009. The outstanding letters of credit under the
revolving credit facility at June 28, 2009 were $26.4 million, leaving unused borrowing capacity of $23.6 million. Outstanding letters of credit issued under the synthetic letter of credit facility at June 28, 2009 were $30.6 million,
leaving unused capacity of $3.7 million.

Principal repayments on our term loans are due and payable in quarterly installments of
approximately $2.8 million (depending on exchange rates), 0.25% of the original principal amounts, on the last day of each calendar quarter. The remaining balance of the term loans will be due and payable in full on December 4, 2013. The
revolving credit facility is available until December 3, 2012. The synthetic letter of credit facility amortizes at a rate of $350,000 per annum, 1% of the original commitment, and is due and payable in full on December 4, 2013. We must
also prepay the term loans, subject to certain exceptions, with (1) 50% (which percentage may be reduced depending on the achievement of certain ratios of our net first-lien secured indebtedness to Adjusted EBITDA) of excess cash flow (as
defined in the credit agreement) less the amount of certain voluntary prepayments as described in the credit agreement (beginning with the second half of the fiscal year ending December 31, 2007); (2) 100% of the net cash proceeds of any
incurrence of debt other than excluded debt issuances (as defined in the credit agreement) and (3) 100% of the net cash proceeds of all non-ordinary course asset sales and casualty and condemnation events, to the extent the Company does not
reinvest or commit to reinvest those proceeds in assets to be used in its business or to make certain other permitted investments within 15 months (and, if committed to be reinvested, actually reinvested within 36 months). As a result of our
obligation to prepay the terms loans dependent on our excess cash flow described above, we prepaid approximately $14.4 million of our term loans on March 28, 2008. This prepayment essentially eliminated our obligation to make required quarterly
principal repayments through the first quarter of 2009 and reduced our required quarterly principal payment due on June 30, 2009. On March 10, 2008, we entered into an interest rate swap agreement, whereby we receive one-month LIBOR and
pay a fixed rate of 2.48% on a notional value of $185.0 million. The interest rate swap matures on March 31, 2010. We designated the interest rate swap as a cash flow hedge of variable interest rate risk associated with the first $185.0 million
of our U.S. dollar denominated term loan (tranche B-1).



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After factoring in the results of the debt exchange described above, as of
June 28, 2009, we have outstanding $716.6 million in aggregate principal amount of 93/4% Senior Notes due 2014 (the Dollar Fixed-Rate Notes), 245.2 million in aggregate principal amount of 9% Senior Notes due 2014 (the Euro Fixed-Rate Notes and together with the Dollar
Fixed-Rate Notes, the Senior Notes), $192.6 million in aggregate principal amount of 101/8% / 107/8% Senior Toggle Notes due 2014 (the Senior Toggle Notes), and $381.9 million in aggregate principal amount of 111/2% Senior Subordinated Notes due 2016 (the Senior Subordinated Notes). The Dollar Fixed-Rate Senior Notes, the Euro Fixed-Rate Senior Notes, the Senior Toggle
Notes and the Senior Subordinated Notes are four separate series of notes issued under separate indentures, including for purposes of, among other things, payments of principal and interest, events of default and consents to amendments to the
applicable indenture and the applicable notes.

The Senior Notes are unsecured senior
obligations of the Company, which mature on December 1, 2014. The Senior Notes are guaranteed on an unsecured senior basis by each of our U.S. subsidiaries that is a borrower or guarantor under our senior secured credit facility. The portion of
the Senior Notes which represent Dollar Fixed-Rate Notes and Euro Fixed-Rate Notes bear interest at a rate per annum of 93/4% and 9%, respectively, payable semiannually on June 1 and December 1 of each year.

The Senior Toggle Notes are unsecured senior obligations of the Company, which mature on December 1, 2014. The Senior Toggle
Notes are guaranteed on an unsecured senior basis by each of our U.S. subsidiaries that is a borrower or guarantor under our senior secured credit facility. Interest on the Senior Toggle Notes is payable semiannually on June 1 and
December 1 of each year. For any interest payment period after the initial interest payment period and through December 1, 2010, we may, at our option, elect to pay interest on the Senior Toggle Notes (1) entirely in cash (Cash
Interest) or (2) entirely by increasing the principal amount of the outstanding Senior Toggle Notes or by issuing additional Senior Toggle Notes (PIK Interest). We must elect the form of interest payment with respect to each
interest period by delivering a notice to the trustee prior to the beginning of each interest period. After December 1, 2010, we are required to make all interest payments on the Senior Toggle Notes entirely in cash. Cash Interest on the Senior
Toggle Notes accrues at a rate of 101/8% per annum. PIK
Interest on the Senior Toggle Notes accrues at a rate of 107/8% per annum. Prior to June 1, 2009, we made the permitted election under the indenture governing the Senior Toggle Notes to pay interest that is due on December 1, 2009 as PIK Interest. Previously, we also made this
pay-in-kind election for the interest payments due on June 1, 2009 and December 1, 2008, thereby increasing the outstanding balance of the Senior Toggle Notes by $17.2 million and $16.3 million on such dates, respectively. For future
interest periods beginning prior to December 1, 2010, pursuant to the terms of the Senior Toggle Notes, interest on the Senior Toggle Notes will remain due and payable as elected during the immediately preceding interest rate period unless we
make a new election prior to the beginning of the applicable interest period. Under the indenture for the Senior Toggle Notes, we are required to redeem for cash a portion of the Senior Toggle Notes equal to the Mandatory Principal Redemption
Amount (as defined below) on dates beginning June 1, 2012. The redemption price for the portion of the Senior Toggle Notes required to be redeemed will be 100% of the principal amount of the Senior Toggle Notes plus any accrued interest
thereon on the date of redemption. The Mandatory Principal Redemption Amount means the portion of the Senior Toggle Notes required to be redeemed to prevent such notes from being treated as an applicable high yield discount
obligation within the meaning of Section 163(i)(l) of the Internal Revenue Code. The payment of interest in the form of PIK Interest may result in us being required to redeem a portion of the Senior Toggle Notes pursuant to those
provisions.

The Senior Subordinated Notes are unsecured senior subordinated obligations of the Company,
which mature on December 1, 2016. The Senior Subordinated Notes are guaranteed on an unsecured senior subordinated basis by each of our U.S. subsidiaries that is a borrower or guarantor under our senior secured credit facility. Each Senior
Subordinated Note bears interest at 111/2% per annum, payable semiannually on June 1 and December 1 of each
year.

Our senior secured credit facility contains various restrictive covenants that prohibit us and/or restrict our ability to
prepay indebtedness, including our Second Lien Notes, Senior Notes and Senior Subordinated Notes (collectively, the notes). If there are any borrowings under the revolving credit agreement (or outstanding letters of credit that have not
been cash collateralized), our credit facility requires us to maintain a specified net first-lien indebtedness to Adjusted EBITDA ratio. See Covenants under our Senior Secured Credit Facility and the Notes below. In addition, our senior
secured credit facility and notes, among other things, restrict our ability to incur indebtedness or liens, make investments or declare or pay any dividends. However, all of these restrictions are subject to significant exceptions.

Our wholly-owned subsidiary, Momentive Performance Materials (Nantong) Co., Ltd. (MPM Nantong), also has borrowings of approximately $60.4
million outstanding (based on exchange rates as of June 28, 2009) from the China Construction Bank, which were used to finance the construction of its finishing plant in Nantong, China. Such loans are secured by substantially all of MPM
Nantongs assets. On April 30, 2009, MPM Nantong was in breach of a financial covenant under its loan agreement with the China Construction Bank. On June 3, 2009, MPM Nantong and the China Construction Bank entered into a Supplemental
Agreement, which amended the loan agreement. Pursuant to the Supplemental Agreement, the parties (1) changed the first measurement date for the financial covenants under the loan agreement from December 31, 2008 to December 31, 2010
and (2) deferred principal repayments originally due on June 30, 2009 and December 31, 2009, aggregating to approximately $6.2 million (based on exchange rates at the time), until June 30, 2014, the final maturity date of the
debt under the loan agreement. As a result, MPM Nantong is now in compliance with the terms of the loan agreement as amended by the Supplemental Agreement. Accordingly, we reclassified all principal payments due under the loan from China
Construction Bank as long-term debt as of June 28, 2009.



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Our ability to make scheduled payments of principal, to pay interest on, or to refinance our
indebtedness, including the notes, or to fund planned capital expenditures, will depend on our ability to generate cash in the future. This ability is subject to general economic, financial, competitive, legislative, regulatory and other factors
that are beyond our control.

Based on our current assessment of the economic outlook for the next twelve months and our ability to
institute restructuring and cash-preservation initiatives, we believe that cash flow from operations and available cash, together with available borrowings under our senior secured credit facility, willbe adequate to meet our liquidity needs
for the next twelve months. However, a breach of the senior secured leverage ratio covenant under our Credit Agreement in the third quarter, if not cured or waived, could lead to an acceleration of outstanding borrowings under our revolving credit
facility and other indebtedness, which would have a material adverse affect on our business, financial condition and results of operations. For additional information, see Covenants under our Senior Secured Credit Facility and the Notes
below and Risk FactorsAn event of default under our senior secured credit facility may adversely affect our business, results of operations and financial condition included in Part II, Item 1A of this Quarterly Report on Form 10-Q.

We cannot assure investors, however, that our business will generate sufficient cash flow from operations or that borrowings will be
available to us under our senior secured credit facility in an amount sufficient to enable us to pay our indebtedness, including the notes issued, or to fund our other liquidity needs. In addition, upon the occurrence of certain events, such as a
change of control, we could be required to repay or refinance our indebtedness. We cannot assure investors that we will be able to refinance any of our indebtedness, including our senior secured credit facility and the notes issued, on commercially
reasonable terms or at all.

Potential Debt Repurchases and Other Transactions

From time to time, depending upon market, pricing and other conditions, as well as on our cash balances and liquidity, we or our affiliates, including
Apollo, may seek to acquire (and have acquired) notes or other indebtedness of Momentive through open market purchases, privately negotiated transactions, tender offers, redemption or otherwise, upon such terms and at such prices as we or our
affiliates may determine (or as may be provided for in the indentures governing the notes), for cash or other consideration. In addition, we have considered and will continue to evaluate potential transactions to reduce net debt, such as debt for
debt exchanges and other transactions. There can be no assurance as to which, if any, of these alternatives or combinations thereof we or our affiliates may choose to pursue in the future as the pursuit of any alternative will depend upon numerous
factors such as market conditions, our financial performance and the limitations applicable to such transactions under our financing documents.

Contractual Obligations

Information related to our contractual obligations at December 31, 2008 can be found in our
Annual Report on Form 10-K for the year ended December 31, 2008 filed with the Securities and Exchange Commission. There have been no material changes in our contractual obligations to our previous disclosures made on this matter.

Effect of Inflation

Inflation in certain costs,
such as silicon metal, have impacted our operating results during the fiscal three-month period ended June 28, 2009 compared to the same period in 2008, but the overall effect on our operating results have been more than offset through
increased selling prices, lower costs for certain petroleum based raw materials and our ongoing cost reduction actions. We cannot assure investors, however, that we will be able to offset general inflation with increased selling prices and cost
reduction actions in the future.

Covenants under our Senior Secured Credit Facility and the Notes

The credit agreement governing our senior secured credit facility and the indentures governing the notes contain various covenants that limit our ability
to, among other things:



| |  |  | incur or guarantee additional debt;
| | - |  | -----------------------------------



| |  |  | pay dividends and make other distributions to our stockholders;
| | - |  | ---------------------------------------------------------------



| |  |  | create or incur certain liens;
| | - |  | ------------------------------



| |  |  | make certain loans, acquisitions, capital expenditures or investments;
| | - |  | ----------------------------------------------------------------------



33



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| |  |  | engage in sales of assets and subsidiary stock;
| | - |  | -----------------------------------------------



| |  |  | enter into sale/leaseback transactions;
| | - |  | ---------------------------------------



| |  |  | enter into transactions with affiliates; and
| | - |  | --------------------------------------------



| |  |  | transfer all or substantially all of our assets or enter into merger or consolidation transactions.
| | - |  | ---------------------------------------------------------------------------------------------------

In addition, at any time that loans or letters of credit are outstanding (and not cash collateralized) thereunder, our revolving credit facility (which
is part of our senior secured credit facility) requires us to maintain a Senior Secured Leverage Ratio below a specified level. Specifically, the ratio of our Total Senior Secured Net Debt (as defined in the credit agreement
governing the senior secured credit facility) to trailing twelve-month Adjusted EBITDA (as adjusted per the credit agreement governing the senior secured credit facility) may not exceed 4.25 to 1 as of the last day of any fiscal quarter. On
June 28, 2009, we were in compliance with the senior secured leverage ratio covenant, the other covenants under the credit agreement governing the senior secured credit facility and the covenants under the indentures governing the notes.
However, if business conditions in the third quarter do not significantly improve compared to the second quarter, we may not comply with our senior secured leverage ratio covenant for the third quarter. We intend to pursue additional cost saving
actions, restructuring initiatives or other business or capital structure optimization measures available to us to remain in compliance with this covenant, but there can be no assurance that any such measures will be successful or will be sufficient
to maintain compliance with our senior secured leverage ratio. We are presently in discussions with certain lenders under our senior secured credit facility to, among other things, amend and/or waive (if necessary) the senior secured leverage ratio
covenant. No definitive agreement with respect to an amendment or waiver has been reached, and there can be no assurance that such agreement will be reached. For additional information, see Risk FactorsAn event of default under our
senior secured credit facility may adversely affect our business, results of operations and financial condition included in Part II, Item 1A of this Quarterly Report on Form 10-Q.

Financial Measures that Supplement GAAP

EBITDA
consists of earnings before interest, taxes and depreciation and amortization. EBITDA is a measure commonly used in our industry and we present EBITDA to enhance your understanding of our operating performance. We use EBITDA as one criterion for
evaluating our performance relative to that of our peers. We believe that EBITDA is an operating performance measure, and not a liquidity measure, that provides investors and analysts with a measure of operating results unaffected by differences in
capital structures, capital investment cycles and ages of related assets among otherwise comparable companies. Adjusted EBITDA is defined as EBITDA further adjusted for unusual items and other pro forma adjustments permitted in calculating covenant
compliance in the credit agreement governing our credit facilities and indentures governing the notes to test the permissibility of certain types of transactions. Adjusted EBITDA as presented in the table below corresponds to the definition of
EBITDA calculated on a Pro Forma Basis used in the credit agreement and substantially conforms to the definition of EBITDA calculated on a pro forma basis used in the indentures. Adjusted EBITDA is intended to
show our unleveraged, pre-tax operating results and therefore reflects our financial performance based on operational factors, excluding non-operational, non-cash or non-recurring losses or gains. Adjusted EBITDA has important limitations as an
analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. For example, Adjusted EBITDA does not reflect: (a) our capital expenditures, future requirements for capital
expenditures or contractual commitments; (b) changes in, or cash requirements for, our working capital needs; (c) the significant interest expenses, or the cash requirements necessary to service interest or principal payments, on our debt;
(d) tax payments that represent a reduction in cash available to us; (e) any cash requirements for the assets being depreciated and amortized that may have to be replaced in the future; (f) management fees that may be paid to Apollo;
or (g) the impact of earnings or charges resulting from matters that we and the lenders under our secured senior credit facility may not consider indicative of our ongoing operations. In particular, our definition of Adjusted EBITDA allows us
to add back certain non-cash, non-operating or non-recurring charges that are deducted in calculating net income, even though these are expenses that may recur, vary greatly and are difficult to predict and can represent the effect of long-term
strategies as opposed to short-term results. In addition, certain of these expenses can represent the reduction of cash that could be used for other corporate purposes. Further, as included in the calculation of Adjusted EBITDA below, the measure
allows us to add estimated cost savings and operating synergies related to operational changes ranging from restructuring to acquisitions to dispositions as if such event occurred on the first day of the four consecutive fiscal quarter period ended
on or before the occurrence of such event and/or exclude one-time transition expenditures that we anticipate we will need to incur to realize cost savings before such savings have occurred.

EBITDA and Adjusted EBITDA are not measurements of financial performance under U.S. GAAP, and our EBITDA and Adjusted EBITDA may not be comparable to
similarly titled measures of other companies. You should not consider our EBITDA or Adjusted EBITDA, which are non-GAAP financial measures, as an alternative to operating or net income, determined in accordance with U.S. GAAP, as an indicator
of our operating performance, or as an alternative to cash flows from operating activities, determined in accordance with U.S. GAAP, as an indicator of our cash flows or as a measure of liquidity.



34



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The following table reconciles net income (loss) attributable to Momentive Performance Materials Inc. to
EBITDA and Adjusted EBITDA for the periods presented



|                                                                              |  |    |   |  |                                |         |   |                              |       |   |          |        |   |          |       |  
|----------------------------------------------------------------------------- |  | -- | - |  | ------------------------------ | ------- | - | ---------------------------- | ----- | - | -------- | ------ | - | -------- | ----- | -
|                                                                              |  |    |   |  | Fiscal three-monthperiod ended |         |   | Fiscal six-monthperiod ended |      
|                                                                              |  |    |   |  | June 28,                       |         |   | June 29,                     |       |   | June 28, |        |   | June 29, |      
|                                                                              |  |    |   |  | 2009                           |         |   | 2008                         |       |   | 2009     |        |   | 2008     |      
|                                                                              |  |    |   |  | (dollars in millions)          |        
|Net income (loss) attributable to Momentive Performance Materials Inc.        |  |    |   |  | $                              | 102.8   |   |                              | (46.1 | ) |          | 6.0    |   |          | (95.0 | )
|Gain on exchange of debt                                                      |  |    |   |  |                                | (178.7  | ) |                              |      |   |          | (178.7 | ) |          |      |  
|Interest expense, net                                                         |  |    |   |  |                                | 59.5    |   |                              | 70.6  |   |          | 124.9  |   |          | 137.6 |  
|Income taxes                                                                  |  |    |   |  |                                | 21.1    |   |                              | 12.9  |   |          | 0.4    |   |          | 23.4  |  
|Depreciation and amortization                                                 |  |    |   |  |                                | 46.6    |   |                              | 59.4  |   |          | 96.2   |   |          | 115.4 |  
|                                                                              |  |    |   |  |                                |         |   |                              |       |   |          |        |   |          |       |  
|EBITDA                                                                        |  |    |   |  |                                | 51.3    |   |                              | 96.8  |   |          | 48.8   |   |          | 181.4 |  
|                                                                              |  |    |   |  |                                |         |   |                              |       |   |          |        |   |          |       |  
|                                                                              |  |    |   |  |                               
|Net income (loss) attributable to the noncontrolling interest                 |  | (a | ) |  |                                | 0.2     |   |                              | (0.3  | ) |          | (0.5   | ) |          | (0.4  | )
|Restructuring and non-recurring                                               |  | (b | ) |  |                                | 10.2    |   |                              | 6.0   |   |          | 21.5   |   |          | 10.2  |  
|Cost Savings and Inventory Optimization                                       |  | (c | ) |  |                                | 6.1     |   |                              | 20.6  |   |          | 15.9   |   |          | 38.0  |  
|Non cash and purchase accounting effects                                      |  | (d | ) |  |                                | (3.6    | ) |                              | (12.5 | ) |          | (4.7   | ) |          | (4.6  | )
|Management fee and other                                                      |  | (e | ) |  |                                | (0.6    | ) |                              | 2.1   |   |          | 0.2    |   |          | 4.9   |  
|                                                                              |  |    |   |  |                                |         |   |                              |       |   |          |        |   |          |       |  
|Adjusted EBITDA                                                               |  |    |   |  | $                              | 63.6    |   |                              | 112.7 |   |          | 81.2   |   |          | 229.5 |  
|                                                                              |  |    |   |  |                                |         |   |                              |       |   |          |        |   |          |       |  
|                                                                              |  |    |   |  |                               
|Total Senior Secured Net Debt                                                 |  |    |   |  | $                              | 1,006.8 |   |                              |       |   |          |        |   |          |       |  
|                                                                              |  |    |   |  |                               
|Senior Secured Leverage Ratio for the twelve-month period ended June 28, 2009 |  |    |   |  |                                | 3.90    |   |                              |       |   |          |        |   |          |       |  
|                                                                              |  |    |   |  |                               
|Adjusted EBITDA for the twelve-month period ended June 28, 2009               |  |    |   |  | $                              | 258.4   |   |                              |       |   |          |        |   |          |       |  



|(a) | Reflects the elimination of minority interests resulting from the Shenzhen joint venture.
|--- | -----------------------------------------------------------------------------------------



|(b) | Relates primarily to restructuring and non-recurring one-time costs.
|--- | --------------------------------------------------------------------



|(c) | Represents estimated cost savings, on a pro forma basis, from initiatives implemented or being implemented by management, including headcount reductions, indirect cost savings, and
inventory optimization programs. For the fiscal three-month periods ended June 28, 2009 and June 29, 2008, estimated cost savings includes facility closures and contractor and headcount reductions.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(d) | Non-cash items include the effects of (i) FAS 123 (R) expense, (ii) purchase accounting, (iii) non-cash mark-to-market revaluation of foreign currency forward
contracts and unrealized gains or losses on revaluations of the U.S. dollar denominated debt of our foreign subsidiaries and the Euro denominated debt of our U.S. subsidiary, (iv) unrealized natural gas derivative gains or losses, and
(v) reserve changes and impairment charges. For the fiscal three-month period ended June 28, 2009, non-cash items include: (i) FAS 123 (R) expense of $0.2, (ii) unrealized foreign currency exchange gain of $5.5,
(iii) unrealized gain on natural gas hedges of $0.9, and (iv) realized foreign currency exchange loss of $2.6 due to exchange of debt. For the fiscal three-month period ended June 29, 2008, non-cash items include: FAS 123 (R) expense
of $0.3; (ii) unrealized gain of $5.3 on foreign currency forward contracts and unrealized foreign currency exchange gain of $7.5.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(e) | Management Fees and Other include (i) management and other fees to Apollo and affiliates, (ii) transition service agreements with General Electric, and (iii) the
exclusion of our unrestricted subsidiary.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Item 3. | Quantitative and Qualitative Disclosures About Market Risks.
|------- | ------------------------------------------------------------

Information regarding our market risk as of December 31, 2008 was provided in our Annual Report on Form 10-K for the year ended December 31,
2008. There have been no material changes to such disclosure.



|Item 4T. | Controls and Procedures.
|-------- | ------------------------

We maintain disclosure controls and procedures (as defined in Rules 13(a)-15(e) or 15(d)-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), that are designed to ensure that information required to
be disclosed in our reports filed or furnished under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable SEC rules and forms of the SEC and that such information is accumulated and
communicated to our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter
how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives.



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We carried out the evaluation required by paragraph (b) of the Exchange Act Rules 13(a)-15 or
15(d)-15, under the supervision and with the participation of our management, including the CEO and CFO, of the effectiveness of our disclosure controls and procedures. Based on that evaluation, the CEO and CFO concluded that, as of the end of the
period covered by this report, our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is (1) accumulated and
communicated to management, including our CEO and CFO, to allow timely decisions regarding required disclosures and (2) recorded, processed, summarized and reported, within the time periods specified in the Commissions rules and forms.

There have been no changes in our internal control over financial reporting that occurred during the fiscal three-month period ended
June 28, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II.
Other Information.



|Item 1. | Legal Proceedings.
|------- | ------------------

There
have been no material changes to our previous disclosures on this matter, with the exception of the following:

In 2008, the Company became
aware and disclosed to the New York State Department of Environmental Conservation (NYSDEC) that, in certain instances, the Companys Waterford, New York, facility may have failed to comply with the State and Federal regulatory
requirements governing the treatment of hazardous waste. During 2008, the NYSDEC initiated an investigation into these disclosures and issued a notice of violation alleging certain noncompliances. Subsequently, in the second quarter 2009, the United
States Environmental Protection Agency and the United States Department of Justice sought, through search warrant and subpoena, additional information related to the alleged noncompliances. The Company is cooperating fully with the State and Federal
authorities. State and Federal authorities have the statutory authority to seek civil and criminal sanctions, including but not limited to monetary penalties, for any noncompliances identified.



|Item 1A. | Risk Factors.
|-------- | -------------

There have
been no material changes to our previous disclosures on this matter, with the exception of the following:

An event of default under our senior secured
credit facility may adversely affect our business, results of operations and financial condition.

At any time that loans or letters of
credit are outstanding (and not cash collateralized) thereunder, the agreement governing our revolving credit facility (which is part of our senior secured credit facility) requires us to maintain a Senior Secured Leverage Ratio below a
specified level. Specifically, the ratio of our Total Senior Secured Net Debt (as defined) to trailing twelve-month Adjusted EBITDA (as adjusted per the credit agreement governing the senior secured credit facility) may not exceed 4.25
to 1 as of the last day of any fiscal quarter. At June 28, 2009, we had a senior secured leverage ratio of 3.9 to 1 and were in compliance with all covenants under the credit agreement governing the senior secured credit facility. However, if
business conditions in the third quarter do not significantly improve compared to the second quarter, we may not comply with our senior secured leverage ratio covenant for the third quarter. We intend to pursue additional cost saving actions,
restructuring initiatives or other business or capital structure optimization measures available to us to remain in compliance with this covenant, but there can be no assurance that any such measures will be successful or will be sufficient to
maintain compliance with our senior secured leverage ratio covenant.

A failure to comply with the covenants contained in our senior secured
credit facility, the indentures governing the notes or our other existing indebtedness could result in an event of default under the existing agreements that, if not cured or waived, would have a material adverse effect on our business, financial
condition and results of operations.

In particular, a breach of our senior secured leverage ratio covenant would result in an event of
default under our revolving credit facility. Pursuant to the credit agreement, our parent company, Momentive Performance Materials Holdings Inc. (Holdings), has the right but not the obligation to cure such default through the purchase
of additional equity in the Company in up to three of any four consecutive quarters. If a breach of the senior secured leverage ratio covenant is not cured or waived, or if any other event of default under our senior secured credit facility
occurred, the lenders under the credit agreement:



| |  |  | would not be required to lend any additional amounts to us;
| | - |  | -----------------------------------------------------------



| |  |  | could elect to declare all borrowings outstanding under the revolving credit facility, together with accrued and unpaid interest and fees, due and payable and could
demand cash collateral for all letters of credit issued thereunder;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | could elect to declare all borrowings outstanding under the term loan facility, together with accrued and unpaid interest and fees, due and payable and could demand
cash collateral for all letters of credit issued under the synthetic letter of credit facility (provided, that if triggered by a breach of the senior secured leverage ratio covenant, certain other conditions are met);
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | could require us to apply all of our available cash to repay these borrowings; and/or
| | - |  | -------------------------------------------------------------------------------------



| |  |  | could prevent us from making payments on the notes;
| | - |  | ---------------------------------------------------

all of which could result in an event of default under the notes.

If the indebtedness under our senior secured credit facility or
the notes were to be accelerated after an event of a default, our assets may not be sufficient to repay such indebtedness in full and our lenders could foreclose on our pledged assets. Under these circumstances, we cannot give assurance that a
refinancing would be possible or that any additional financing could be obtained on acceptable terms or at all and we may be forced to explore a restructuring.

We are presently in discussions with certain lenders under our senior secured credit facility to, among other things, amend and/or waive (if necessary) the senior secured leverage ratio covenant. No definitive
agreement with respect to an amendment or waiver has been reached, and there can be no assurance that such agreement will be reached.

Despite our
substantial indebtedness, we may still be able to incur significantly more debt. This could intensify the risks described above.

We and
our subsidiaries may be able to incur substantial indebtedness in the future. Although the terms of the agreements governing our indebtedness contain restrictions on our ability to incur additional indebtedness, these restrictions are subject to a
number of important qualifications and exceptions, and the indebtedness incurred in compliance with these restrictions could be substantial.

We may be
unable to achieve the cost savings that we expect to achieve from our strategic initiatives.

We have not yet realized all of the cost
savings we expect to achieve as a result of our current strategic initiatives related to workforce restructuring and reduction of indirect costs, and may not be able to realize such cost savings. Approximately $16 million of estimated future annual
savings related to initiatives begun in the second quarter of 2009 are included, on a pro forma basis, in our Adjusted EBITDA for the twelve-month period ended June 28, 2009, as permitted by our credit agreement, and as described in
Covenant Compliance in Part I, Item 2 of this Quarterly Report on Form 10-Q. A variety of risks could cause us not to realize the expected cost savings, including, among others, the following:



| |  |  | higher than expected severance costs related to staff reductions;
| | - |  | -----------------------------------------------------------------



| |  |  | higher than expected retention costs for employees that will be retained;
| | - |  | -------------------------------------------------------------------------



| |  |  | higher than expected stand-alone overhead expenses;
| | - |  | ---------------------------------------------------



| |  |  | delays in the anticipated timing of activities related to our cost-saving plan; and
| | - |  | -----------------------------------------------------------------------------------



| |  |  | other unexpected costs associated with operating the business.
| | - |  | --------------------------------------------------------------

In addition, subsequent to the quarter ended June 28, 2009, we successfully implemented certain cost savings initiatives and, as permitted under our credit agreement, our Adjusted EBITDA for the twelve-month
period ended June 28, 2009 also includes approximately $38 million of pro forma impact of these measures. A similar variety of risks could cause us not to realize these additional cost savings.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds.
|------- | ------------------------------------------------------------

None.



|Item 3. | Defaults Upon Senior Securities.
|------- | --------------------------------

None.



|Item 4. | Submission of Matters to a Vote of Security Holders.
|------- | ----------------------------------------------------

None.



|Item 5. | Other Information.
|------- | ------------------

Not
applicable.



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|Item 6. | Exhibits.
|------- | ---------

INDEX TO EXHIBITS



|              |  |                                                                                                                                                                                                                                                                                                                                                                                                 
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                                                                                                                     
|4.17          |  | Agreement of registration, appointment and acceptance, effective as of June 8, 2009, by and among Momentive Performance Materials Inc., Wells Fargo Bank, N.A. and The Bank of New York Mellon
Trust Company, N.A (filed as exhibit 4.1 to our Form 8-K, filed on June 12, 2009)                                                                                                                
|              | 
|4.18          |  | Indenture, dated as of June 15, 2009, by and among Momentive Performance Materials Inc., the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as trustee and as
collateral trustee (filed as exhibit 4.1 to our Form 8-K, filed on June 15, 2009)                                                                                                                  
|              | 
|4.19          |  | Collateral Agreement, dated as of June 15, 2009, by and among Momentive Performance Materials Inc., the subsidiaries of Momentive Performance Materials Inc. party thereto and The Bank of New
York Mellon Trust Company, N.A., as collateral trustee (filed as exhibit 4.2 to our Form 8-K, filed on June 15, 2009)                                                                            
|              | 
|4.20          |  | Intercreditor Agreement, dated as of June 15, 2009, by and among JPMorgan Chase Bank, N.A., as first priority representative, Momentive Performance Materials Inc., the subsidiaries of Momentive
Performance Materials Inc. party thereto and The Bank of New York Mellon Trust Company, N.A., as second priority representative (filed as exhibit 4.3 to our Form 8-K, filed on June 15, 2009)
|              | 
|4.21          |  | Registration Rights Agreement, dated as of June 15, 2009, by and among Momentive Performance Materials Inc., the subsidiaries of Momentive Performance Materials Inc. party thereto and J.P.
Morgan Securities Inc., J.P. Morgan Securities Ltd., UBS Securities LLC and UBS Limited, as dealer managers (filed as exhibit 4.4 to our Form 8-K, filed on June 15, 2009)                         
|              | 
|31.1*         |  | Rule 13a-14(a)/15d-14(a) certification of Principal Executive Officer                                                                                                                                                                                                                                                                                                                           
|              | 
|31.2*         |  | Rule 13a-14(a)/15d-14(a) certification of Principal Financial Officer                                                                                                                                                                                                                                                                                                                           
|              | 
|32*           |  | Section 1350 certification of Principal Executive Officer and Principal Financial Officer                                                                                                                                                                                                                                                                                                       



|* | Filed herewith
|- | --------------



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

August 5, 2009



MOMENTIVE PERFORMANCE MATERIALS INC.BY:

/s/ JONATHAN D. RICHJonathan D. RichChief Executive Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated below.



|                             |  |                                                                               |  |               
|---------------------------- |  | ----------------------------------------------------------------------------- |  | --------------
|Signature                    |  | Title                                                                         |  | Date          
|                             |  |                                                                              
|/s/    JONATHAN D. RICH      |  | Chief Executive Officer, President and Director (Principal Executive Officer) |  | August 5, 2009
|Jonathan D. Rich             |  |                                                                              
|                             |  |                                                                              
|/s/    ANTHONY S. COLATRELLA |  | Chief Financial Officer (Principal Financial Officer)                         |  | August 5, 2009
|Anthony S. Colatrella        |  |                                                                              
|                             |  |                                                                              
|/s/    WILLIAM L. TORRENCE   |  | Controller (Principal Accounting Officer)                                     |  | August 5, 2009
|William L. Torrence          |  |                                                                              



39