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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 March 29, 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
May 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 March 29, 2009 and December 31, 2008                                           |  | 3   
|           |  | Condensed Consolidated Statements of Operations for the Fiscal Three-month Periods Ended March 29, 2009 and March 30, 2008 |  | 4   
|           |  | Condensed Consolidated Statements of Cash Flows for the Fiscal Three-Month Periods Ended March 29, 2009 and March 30, 2008 |  | 5   
|           |  | Notes to Condensed Consolidated Financial Statements                                                                       |  | 6   
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                      |  | 20  
|Item 3.    |  | Quantitative and Qualitative Disclosures about Market Risk                                                                 |  | 27  
|Item 4T.   |  | Controls and Procedures                                                                                                    |  | 27  
|           |  |                                                                                                                           
|Part II    |  | Other Information                                                                                                          |  |     
|           |  |                                                                                                                           
|Item 1.    |  | Legal Proceedings                                                                                                          |  | 28  
|Item 1A.   |  | Risk Factors                                                                                                               |  | 28  
|Item 2.    |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                |  | 36  
|Item 3.    |  | Defaults Upon Senior Securities                                                                                            |  | 36  
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                                        |  | 36  
|Item 5.    |  | Other Information                                                                                                          |  | 36  
|Item 6.    |  | Exhibits                                                                                                                   |  | 36  
|           | 
|Signatures |  | 37                                                                                                                        





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MOMENTIVE PERFORMANCE MATERIALS INC.

Condensed Consolidated Balance Sheets (Unaudited)

(Dollar amounts in thousands)



|                                                                                                                                                         |  |               |            |   |                  |            |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ---------- | - | ---------------- | ---------- | -
|                                                                                                                                                         |  | March 29,2009 |            |   | December 31,2008 |           
|Assets                                                                                                                                                   |  |               |            |   |                  |            |  
|Current assets:                                                                                                                                          |  |               |            |   |                  |            |  
|Cash and cash equivalents                                                                                                                                |  | $             | 381,097    |   |                  | 340,542    |  
|Receivables, net (note 4)                                                                                                                                |  |               | 348,655    |   |                  | 408,851    |  
|Due from affiliates                                                                                                                                      |  |               | 2,950      |   |                  | 1,776      |  
|Inventories (note 5)                                                                                                                                     |  |               | 348,274    |   |                  | 377,162    |  
|Prepaid expenses                                                                                                                                         |  |               | 9,970      |   |                  | 10,295     |  
|Income tax receivable                                                                                                                                    |  |               | 2,730      |   |                  | 16,955     |  
|Deferred income taxes (note 7)                                                                                                                           |  |               | 10,853     |   |                  | 8,401      |  
|Other current assets                                                                                                                                     |  |               | 5,076      |   |                  | 5,932      |  
|                                                                                                                                                         |  |               |            |   |                  |            |  
|Total current assets                                                                                                                                     |  |               | 1,109,605  |   |                  | 1,169,914  |  
|Property and equipment (net of accumulated depreciation and amortization of $472,712 and $447,024 at March 29, 2009 and December 31,
2008, respectively) |  |               | 1,175,633  |   |                  | 1,225,256  |  
|Other long-term assets                                                                                                                                   |  |               | 71,746     |   |                  | 73,567     |  
|Deferred income taxes (note 7)                                                                                                                           |  |               | 40,565     |   |                  | 34,272     |  
|Investments in nonconsolidated affiliates                                                                                                                |  |               | 549        |   |                  | 592        |  
|Intangible assets (net of accumulated amortization of $94,980 and $89,078 at March 29, 2009 and December 31, 2008, respectively)                         |  |               | 638,120    |   |                  | 671,523    |  
|Goodwill                                                                                                                                                 |  |               | 389,532    |   |                  | 409,239    |  
|                                                                                                                                                         |  |               |            |   |                  |            |  
|Total assets                                                                                                                                             |  | $             | 3,425,750  |   |                  | 3,584,363  |  
|                                                                                                                                                         |  |               |            |   |                  |            |  
|Liabilities and Shareholders Deficit                                                                                                                    |  |               |            |   |                  |            |  
|Current liabilities:                                                                                                                                     |  |               |            |   |                  |            |  
|Trade payables                                                                                                                                           |  | $             | 219,135    |   |                  | 320,994    |  
|Short-term borrowings (note 6)                                                                                                                           |  |               | 4,598      |   |                  | 6,726      |  
|Accrued expenses and other liabilities                                                                                                                   |  |               | 161,714    |   |                  | 178,952    |  
|Accrued interest                                                                                                                                         |  |               | 71,141     |   |                  | 18,615     |  
|Due to affiliates                                                                                                                                        |  |               | 4,369      |   |                  | 3,404      |  
|Accrued income taxes (note 7)                                                                                                                            |  |               | 4,682      |   |                  | 2,688      |  
|Deferred income taxes (note 7)                                                                                                                           |  |               | 15,570     |   |                  | 19,522     |  
|Current installments of long-term debt (note 6)                                                                                                          |  |               | 70,984     |   |                  | 68,378     |  
|                                                                                                                                                         |  |               |            |   |                  |            |  
|Total current liabilities                                                                                                                                |  |               | 552,193    |   |                  | 619,279    |  
|Long-term debt (note 6)                                                                                                                                  |  |               | 3,217,240  |   |                  | 3,164,732  |  
|Other liabilities                                                                                                                                        |  |               | 67,020     |   |                  | 72,283     |  
|Pension liabilities (note 9)                                                                                                                             |  |               | 197,107    |   |                  | 202,064    |  
|Deferred income taxes (note 7)                                                                                                                           |  |               | 55,001     |   |                  | 67,147     |  
|                                                                                                                                                         |  |               |            |   |                  |            |  
|Total liabilities                                                                                                                                        |  |               | 4,088,561  |   |                  | 4,125,505  |  
|                                                                                                                                                         |  |               |            |   |                  |            |  
|Shareholders deficit:                                                                                                                                   |  |               |            |   |                  |            |  
|Common stock                                                                                                                                             |  |               |           |   |                  |           |  
|Additional paid-in capital                                                                                                                               |  |               | 601,139    |   |                  | 601,017    |  
|Accumulated deficit                                                                                                                                      |  |               | (1,418,782 | ) |                  | (1,321,963 | )
|Accumulated other comprehensive income (note 8)                                                                                                          |  |               | 151,950    |   |                  | 175,960    |  
|                                                                                                                                                         |  |               |            |   |                  |            |  
|Total Momentive Performance Materials Inc. shareholder s deficit                                                                                        |  |               | (665,693   | ) |                  | (544,986   | )
|Noncontrolling interest                                                                                                                                  |  |               | 2,882      |   |                  | 3,844      |  
|                                                                                                                                                         |  |               |            |   |                  |            |  
|Total shareholders deficit                                                                                                                              |  |               | (662,811   | ) |                  | (541,142   | )
|                                                                                                                                                         |  |               |            |   |                  |            |  
|Total liabilities and shareholders deficit                                                                                                              |  | $             | 3,425,750  |   |                  | 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 |         
|                                                              |  | March 29,2009                  |          |   | March 30,2008 |        
|Net sales                                                     |  | $                              | 418,059  |   |               | 656,612 |  
|Cost of sales, excluding depreciation                         |  |                                | 311,482  |   |               | 433,059 |  
|                                                              |  |                                |          |   |               |         |  
|Gross profit                                                  |  |                                | 106,577  |   |               | 223,553 |  
|Selling, general and administrative expenses                  |  |                                | 92,479   |   |               | 103,324 |  
|Depreciation and amortization expenses                        |  |                                | 49,599   |   |               | 55,998  |  
|Research and development expenses                             |  |                                | 15,986   |   |               | 17,911  |  
|Restructuring and other costs (note 2(c))                     |  |                                | 11,282   |   |               | 4,253   |  
|                                                              |  |                                |          |   |               |         |  
|Operating (loss) income                                       |  |                                | (62,769  | ) |               | 42,067  |  
|Other income (expense):                                       |  |                                |          |   |               |         |  
|Interest income                                               |  |                                | 988      |   |               | 1,350   |  
|Interest expense                                              |  |                                | (66,304  | ) |               | (68,288 | )
|Other income (expense), net                                   |  |                                | 9,973    |   |               | (13,619 | )
|                                                              |  |                                |          |   |               |         |  
|Loss before income taxes                                      |  |                                | (118,112 | ) |               | (38,490 | )
|Income taxes (benefit) (note 7)                               |  |                                | (20,645  | ) |               | 10,449  |  
|                                                              |  |                                |          |   |               |         |  
|Net loss                                                      |  |                                | (97,467  | ) |               | (48,939 | )
|Net loss attributable to the noncontrolling interest          |  |                                | 648      |   |               | 61      |  
|                                                              |  |                                |          |   |               |         |  
|Net loss attributable to Momentive Performance Materials Inc. |  | $                              | (96,819  | ) |               | (48,878 | )
|                                                              |  |                                |          |   |               |         |  

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 three-month period ended |        
|                                                                                          |  | March 29,2009                   |         |   | March 30,2008 |        
|Cash flows from operating activities:                                                     |  |                                 |         |   |               |         |  
|Net loss attributable to Momentive Performance Materials Inc.                             |  | $                               | (96,819 | ) |               | (48,878 | )
|Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |  |                                 |         |   |               |         |  
|Depreciation and amortization                                                             |  |                                 | 49,599  |   |               | 55,998  |  
|Amortization of debt issuance costs                                                       |  |                                 | 2,544   |   |               | 2,367   |  
|Deferred income taxes                                                                     |  |                                 | (23,954 | ) |               | 3,158   |  
|Stock-based compensation expense                                                          |  |                                 | 192     |   |               | 313     |  
|Change in the noncontrolling interests                                                    |  |                                 | (648    | ) |               | (61     | )
|Change in unrealized (gain) loss on derivative instruments                                |  |                                 | (5,293  | ) |               | 13,730  |  
|Changes in operating assets and liabilities:                                              |  |                                 |         |   |               |         |  
|Receivables                                                                               |  |                                 | 49,699  |   |               | (27,941 | )
|Inventories                                                                               |  |                                 | 21,690  |   |               | (26,020 | )
|Due to/from affiliates                                                                    |  |                                 | (889    | ) |               | (4,581  | )
|Prepaid expenses and other assets                                                         |  |                                 | (1,271  | ) |               | (5,312  | )
|Trade payables                                                                            |  |                                 | (91,851 | ) |               | 17,265  |  
|Accrued expenses and other liabilities                                                    |  |                                 | 45,544  |   |               | 55,183  |  
|Accrued income taxes                                                                      |  |                                 | 15,839  |   |               | 5,578   |  
|Pension liabilities                                                                       |  |                                 | (82     | ) |               | (5,513  | )
|                                                                                          |  |                                 |         |   |               |         |  
|Net cash (used in) provided by operating activities                                       |  |                                 | (35,700 | ) |               | 35,286  |  
|                                                                                          |  |                                 |         |   |               |         |  
|Cash flows from investing activities:                                                     |  |                                 |         |   |               |         |  
|Capital expenditures                                                                      |  |                                 | (8,769  | ) |               | (35,786 | )
|Purchases of intangible assets                                                            |  |                                 | (967    | ) |               | (836    | )
|                                                                                          |  |                                 |         |   |               |         |  
|Net cash used in investing activities                                                     |  |                                 | (9,736  | ) |               | (36,622 | )
|                                                                                          |  |                                 |         |   |               |         |  
|Cash flows from financing activities:                                                     |  |                                 |         |   |               |         |  
|Net (decrease) increase in short-term borrowings                                          |  |                                 | (1,813  | ) |               | 4,899   |  
|Proceeds from long-term debt                                                              |  |                                 | 91,971  |   |               | 20,007  |  
|Payments of long-term debt                                                                |  |                                 | (187    | ) |               | (14,400 | )
|Funds remitted to joint venture                                                           |  |                                 | (4,900  | ) |               | (4,900  | )
|                                                                                          |  |                                 |         |   |               |         |  
|Net cash provided by financing activities                                                 |  |                                 | 85,071  |   |               | 5,606   |  
|                                                                                          |  |                                 |         |   |               |         |  
|Increase in cash and cash equivalents                                                     |  |                                 | 39,635  |   |               | 4,270   |  
|Effect of exchange rate changes on cash                                                   |  |                                 | 920     |   |               | 3,309   |  
|Cash and cash equivalents, beginning of period                                            |  |                                 | 340,542 |   |               | 249,056 |  
|                                                                                          |  |                                 |         |   |               |         |  
|Cash and cash equivalents, end of period                                                  |  | $                               | 381,097 |   |               | 256,635 |  
|                                                                                          |  |                                 |         |   |               |         |  

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 Company does not have any 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.



|(2) | Summary of Significant Accounting Policies
|--- | ------------------------------------------

The
following is an update of the significant accounting policies followed by the Company.



| | (a) | Consolidation
| | --- | -------------

The condensed consolidated
financial statements include the accounts of the Company and its majority-owned subsidiaries as of March 29, 2009 and December 31, 2008, and for the fiscal three-month periods ended March 29, 2009 and March 30, 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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MOMENTIVE PERFORMANCE MATERIALS INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in
thousands)



|(2) | Summary of Significant Accounting Policies (contd)
|--- | ---------------------------------------------------



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

For the fiscal three-month
period ended March 29, 2009, the provision for income taxes during interim reporting periods was calculated by applying the discrete method, in accordance with FASB interpretation No. 18, Accounting for Income Taxes in Interim
Period (FIN 18).

For the fiscal three-month period ended March 30, 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).

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 March 29, 2009 and March 30, 2008, the Company recognized restructuring of $15,336 and $243 and other
service costs of $(4,054) and $4,010, respectively. Other service costs of $(4,054) for fiscal three-month period ended March 29, 2009 included a one-time benefit reduction and wage tax credits of $5,419.

The following table sets forth the changes in restructuring reserve:



|                                         |  |   |        |  
|---------------------------------------- |  | - | ------ | -
|Balance as of January 1, 2008            |  | $ | 7,118  |  
|Addition                                 |  |   | 18,496 |  
|Cash payments                            |  |   | (8,253 | )
|Foreign currency translation adjustments |  |   | (570   | )
|                                         |  |   |        |  
|Balance as of December 31, 2008          |  |   | 16,791 |  
|Addition                                 |  |   | 15,336 |  
|Cash payments                            |  |   | (5,114 | )
|Foreign currency translation adjustments |  |   | (729   | )
|                                         |  |   |        |  
|Balance as of March 29, 2009             |  | $ | 26,284 |  
|                                         |  |   |        |  



| | (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.



| |  |   |  |            
| |  | - |  | -----------
| |  | 7 |  | (Continued)



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MOMENTIVE PERFORMANCE MATERIALS INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in
thousands)



|(2) | Summary of Significant Accounting Policies (contd)
|--- | ---------------------------------------------------



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

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 is currently in the process of evaluating this guidance.

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 is currently in the process of evaluating this guidance.

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 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 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.



|(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 March 29, 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               |  | $       |  |         | 3,441 |         |  |       | 3,441
|Natural gas derivative contracts |  |         |   |         | 3,481 |         |   |       | 3,481
|                                 |  |         |   |         |       |         |   |       |      
|Total liabilities at fair value  |  | $       |  |         | 6,922 |         |  |       | 6,922
|                                 |  |         |   |         |       |         |   |       |      

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 based on broker quotes for the same or similar instruments.
Counterparties to these contracts are highly rated financial institutions, none of which experienced any significant downgrades in the fiscal three-month period ended March 29, 2009 that would reduce the receivable amount owed, if any, to the
Company.



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##### Table of Contents

MOMENTIVE PERFORMANCE MATERIALS INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in
thousands)



|(3) | Fair Value Measurements (contd)
|--- | --------------------------------

At
March 29, 2009, the Company estimates that the $1,946,118 of outstanding fixed rate senior notes had a fair value of approximately $464,906; the $1,039,695 of outstanding variable rate term loans had a fair value of approximately $573,772; and
the fair value of the $60,441 outstanding construction project financing loan and $240,000 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 March 29, 2009 and December 31, 2008:



March 29,2009


December 31,2008Trade

$
300,749


353,728Other:VAT


27,126


29,366Advances


6,478


9,364Other


18,344


20,706352,697


413,164Allowance for doubtful accounts


(4,042
)

(4,313
)Total receivables, net

$
348,655


408,851




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

Inventories consisted of the following
at March 29, 2009 and December 31, 2008:



March 29,2009

December 31,2008Raw materials and work-in-process

$
125,922

133,618Finished goods


222,352

243,544Total inventories

$
348,274

377,162




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



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

At March 29,
2009, the Companys short-term borrowings consisted of bank borrowings of $4,598 with a weighted average interest rate of 7.15%. 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 March 10, 2009, the
Company drew down an additional $90,000 against the $300,000 revolving credit facility, increasing the amounts drawn down to $240,000. The borrowing accrues interest at a rate of 3.81% per annum for an initial interest rate period through
June 10, 2009. The outstanding letters of credit under the revolving credit facility at March 29, 2009 were $29.4 million, leaving unused capacity of $30.6 million. Outstanding letters of credit issued under the synthetic letter of credit
facility at March 29, 2009 were $34.2 million, leaving unused capacity of $0.1 million.



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##### Table of Contents

MOMENTIVE PERFORMANCE MATERIALS INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in
thousands)



|(6) | Indebtedness (contd)
|--- | ---------------------



| | (b) | Long-Term Debt (contd)
| | --- | -----------------------

In the event
weak demand stemming from the global economic downturn continues in future quarter(s) and the Company continues to experience sufficient year-over-year declines in sales and EBITDA for which the Company cannot compensate with restructuring or
business optimization initiatives, the Company may have difficulty complying with the senior secured leverage ratio covenant in the future, potentially in fiscal year 2009. 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 March 29, 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.



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

The effective tax rate was 17.48% and
27.15% for the fiscal three-month periods ended March 29, 2009 and March 30, 2008, respectively. The change in the effective tax rate in 2009 was primarily due to a change in the amount of 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-monthperiod endedMarch 29,2009


March 30,2008Net loss

$
(97,467
)

(48,939
)Foreign currency translation


(22,515
)

94,498Other comprehensive income adjustments, net


(1,495
)

135Comprehensive income (loss)


(121,477
)

45,694Net loss attributable to the noncontrolling interest


648


61Comprehensive income (loss) attributable to Momentive Performance Materials Inc.

$
(120,829
)

45,755




|(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-month periods ended March 29, 2009 and March 30, 2008:



Pension


PostretirementFiscal three-month period endedMarch 29,2009


March 30,2008


March 29,2009


March 30,2008Service cost

$
4,413


4,916


350


656Interest cost


1,665


1,558


1,141


1,164Amortization of prior service cost (benefit)


(155
)

(215
)

328


199Expected return on plan assets


(686
)

(834
)




Amortization of actuarial gain


(174
)

(286
)

(31
)

Other


(126
)







$
4,937


5,139


1,788


2,019


In 2009, the Company expects to contribute approximately $13,762 and $3,253 to the
Companys Domestic and Foreign plans, respectively. The Company contributed $3,221 to its domestic employee benefit plans during the fiscal three-month period ended March 29, 2009.



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##### Table of Contents

MOMENTIVE PERFORMANCE MATERIALS INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in
thousands)



|(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.

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 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 first quarter of 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.

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

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 March 29, 2009, were as follows:



Notional AmountDerivatives Designated as Hedges:Interest Rate Swap contract

$
185,000Natural Gas Hedge Contracts


8,843Total Derivatives Designated as Hedges

$
193,843Derivatives Not Designated as Hedges:Natural Gas Purchase Contracts

$
3,136Total Derivatives Not Designated as Hedges

$
3,136




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##### Table of Contents

MOMENTIVE PERFORMANCE MATERIALS INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in
thousands)



|(10) | Financial instruments (contd)
|---- | ------------------------------

The fair
values of the Companys derivative instruments outstanding as of March 29, 2009, were as follows:



Balance Sheet Location

Fair ValueLiability Derivatives:Derivatives Designated as Hedges:Interest Rate Swap contract

Accrued expense and other liabilities

$
3,441Natural Gas Hedge Contracts

Accrued expense and other liabilities


1,649Total Derivatives Designated as Hedges



$
5,090Derivatives Not Designated as Hedges:Natural Gas Purchase Contracts

Accrued expense and other liabilities

$
1,832Total Derivatives Not Designated as Hedges



$
1,832Total Liability Derivatives



$
6,922


The gains and losses on the Companys derivative instruments during the fiscal
three-month period ended March 29, 2009 were as follows:



Amount of Gainor (Loss)Recognizedin AOCI(EffectivePortion) (1)


Income Statement Classification (2)

Amount of Gainor (Loss)Recognizedin IncomeLiability Derivatives:Derivatives Designated as Hedges:Interest Rate Swap contract

$
137


Interest Expense

$
(938
)Natural Gas Hedge Contracts


(1,649
)

Cost of sales, excluding depreciation


(186
)Total Derivatives Designated as Hedges

$
(1,512
)



$
(1,124
)Derivatives Not Designated as Hedges:Natural Gas Purchase Contracts





Other income (expense)


(729
)Foreign Currency Contracts





Other income (expense)


4,035Total Derivatives Not Designated as Hedges








3,306Total Derivatives

$
(1,512
)



$
2,182




|(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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##### Table of Contents

MOMENTIVE PERFORMANCE MATERIALS INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in
thousands)



|(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)


TotalFiscal three-month period ended March 29, 2009:Net sales (a)

$
384,472


33,587





418,059Operating income (loss) (b)


(42,320
)

(25,123
)

4,674


(62,769
)Depreciation and amortization


41,980


7,619





49,599Interest expense and other financial charges


66,181


123





66,304Interest income


923


65





988Provision for income taxes


(21,262
)

617





(20,645
)Capital expenditures


7,474


1,295





8,769Silicones


Quartz


Corporate andother items (c)


TotalFiscal three-month period ended March 30, 2008:Net sales (a)

$
589,759


66,853





656,612Operating income (loss) (b)


50,713


5,234


(13,880
)

42,067Depreciation and amortization


47,524


8,474





55,998Interest expense and other financial charges


68,284


4





68,288Interest income


1,059


291





1,350Provision for income taxes


8,424


2,025





10,449Capital expenditures


31,794


3,992





35,786




|(a) | There were no intersegment sales during the fiscal three-month periods ended March 29, 2009 or March 30, 2008, respectively.
|--- | ----------------------------------------------------------------------------------------------------------------------------



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



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



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##### Table of Contents

MOMENTIVE PERFORMANCE MATERIALS INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in
thousands)



|(11) | Operating Segments (contd)
|---- | ---------------------------

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, intangibles and goodwill.



Fiscal three-month period endedMarch 29,2009

March 30,2008Net sales:United States

$
143,478

214,658Canada


8,167

10,981Pacific


117,484

181,947Europe


131,780

229,435Mexico and Brazil


17,150

19,591$
418,059

656,612




March 29,2009

December 31,2008Long-lived assetsUnited States

$
658,254

677,705Canada


21,462

21,720Pacific


806,786

851,066Europe


710,643

749,333Mexico and Brazil


6,140

6,194$
2,203,285

2,306,018




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

The Company has outstanding $765 million of senior notes, 275 million of Euro senior notes, $316.3 million of senior toggle notes and $500 million of senior subordinated notes, which are fully, jointly, severally and
unconditionally guaranteed by the Companys domestic subsidiaries (the guarantor subsidiaries). The following condensed consolidated financial information presents the Condensed Consolidated Balance Sheets as of March 29, 2009 and
December 31, 2008, the Condensed Consolidated Statements of Operations for the fiscal three-month periods ended March 29, 2009 and March 30, 2008 and Condensed Consolidated Statements of Cash Flows for the fiscal three-month periods
ended March 29, 2009 and March 30, 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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##### Table of Contents

MOMENTIVE PERFORMANCE MATERIALS INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in
thousands)



|(12) | Guarantor/ Non-Guarantor Subsidiary Financial Information (contd)
|---- | ------------------------------------------------------------------

Condensed Consolidated Balance Sheet as of March 29, 2009:



Parent


GuarantorSubsidiaries


Non-GuarantorSubsidiaries


Eliminations


ConsolidatedAssetsCurrent assets:Cash and cash equivalents

$
249,963


945


130,189





381,097Receivables, net





95,572


253,083





348,655Due from affiliates





86,476


16,223


(99,749
)

2,950Inventories





172,110


186,009


(9,845
)

348,274Prepaid expenses





5,248


4,722





9,970Income tax receivable





2,730








2,730Deferred income taxes








8,836


2,017


10,853Other current assets





3,288


1,788





5,076Total current assets


249,963


366,369


600,850


(107,577
)

1,109,605Property and equipment, net





555,568


620,065





1,175,633Other long-term assets


39,048





32,698





71,746Deferred income taxes





786


39,779





40,565Investments in nonconsolidated affiliates








549





549Investment in affiliates


1,329,973


(244,850
)




(1,085,123
)

Intercompany borrowings





1,133,748


83,026


(1,216,774
)

Intangible assets, net





102,687


535,433





638,120Goodwill








389,532





389,532Total assets

$
1,618,984


1,914,308


2,301,932


(2,409,474
)

3,425,750Liabilities and Shareholders Equity (Deficit)Current liabilities:Trade payables

$



58,051


161,084





219,135Short-term borrowings








4,598





4,598Accrued expenses and other liabilities


3,441


54,150


104,123





161,714Accrued interest


67,775


284


3,082





71,141Due to affiliates





18,855


85,263


(99,749
)

4,369Accrued income taxes








4,682





4,682Deferred income taxes





786


14,784





15,570Current installments of long-term debt








70,984





70,984Total current liabilities


71,216


132,126


448,600


(99,749
)

552,193Long-term debt


1,946,118


240,000


1,031,122





3,217,240Other liabilities





10,679


56,341





67,020Pension liabilities





115,252


81,855





197,107Intercompany borrowings


262,883


82,910


870,981


(1,216,774
)

Deferred income taxes








55,001





55,001Total liabilities


2,280,217


580,967


2,543,900


(1,316,523
)

4,088,561Shareholders equity (deficit):Additional paid-in capital


601,139


2,201,056


540,476


(2,741,532
)

601,139Accumulated deficit


(1,414,322
)

(1,023,106
)

(936,237
)

1,954,883


(1,418,782
)Accumulated other comprehensive income


151,950


155,391


150,911


(306,302
)

151,950Total Momentive Performance Materials Inc. shareholders equity (deficit)


(661,233
)

1,333,341


(244,850
)

(1,092,951
)

(665,693
)Noncontrolling Interest








2,882





2,882Total shareholders equity (deficit)


(661,233
)

1,333,341


(241,968
)

(1,092,951
)

(662,811
)Total liabilities and shareholders equity (deficit)

$
1,618,984


1,914,308


2,301,932


(2,409,474
)

3,425,750




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##### Table of Contents

MOMENTIVE PERFORMANCE MATERIALS INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in
thousands)



|(12) | Guarantor/Non-Guarantor Subsidiary Financial Information (contd)
|---- | -----------------------------------------------------------------

Condensed Consolidated Balance Sheet as of December 31, 2008:



Parent


GuarantorSubsidiaries


Non-GuarantorSubsidiaries


Eliminations


ConsolidatedAssetsCurrent assets:Cash and cash equivalents

$
1,894


200,667


137,981





340,542Receivables, net





96,572


312,279





408,851Due from affiliates





82,525


19,254


(100,003
)

1,776Inventories





178,114


206,192


(7,144
)

377,162Prepaid expenses





4,194


6,101





10,295Income tax receivable





16,955








16,955Deferred income taxes








6,328


2,073


8,401Other current assets





2,322


3,610





5,932Total current assets


1,894


581,349


691,745


(105,074
)

1,169,914Property and equipment, net





573,243


652,013





1,225,256Other long-term assets


40,673





32,894





73,567Deferred income taxes





786


33,486





34,272Investments in nonconsolidated affiliates








592





592Investment 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





671,523Goodwill








409,239





409,239Total assets

$
1,452,699


1,937,061


2,470,924


(2,276,321
)

3,584,363Liabilities and Shareholders Equity (deficit)Current liabilities:Trade payables

$



91,798


229,196





320,994Short-term borrowings








6,726





6,726Accrued expenses and other liabilities


3,579


64,204


111,169





178,952Accrued interest


18,204


192


219





18,615Due to affiliates


8,976


21,489


72,943


(100,004
)

3,404Accrued income taxes








2,688





2,688Deferred income taxes





786


18,736





19,522Current installments of long-term debt








68,378





68,378Total current liabilities


30,759


178,469


510,055


(100,004
)

619,279Long-term debt


1,961,279


150,000


1,053,453





3,164,732Other liabilities





5,837


66,446





72,283Pension liabilities





112,728


89,336





202,064Intercompany Borrowings


3,943


83,774


847,332


(935,049
)

Deferred income taxes








67,147





67,147Total liabilities


1,995,981


530,808


2,633,769


(1,035,053
)

4,125,505Shareholders equity (deficit):Additional paid-in capital


601,017


2,193,688


535,622


(2,729,310
)

601,017Accumulated 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
)

175,960Total Momentive Performance Materials Inc. shareholders equity (deficit)


(543,282
)

1,406,253


(166,689
)

(1,241,268
)

(544,986
)Noncontrolling Interest








3,844





3,844Total 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




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| |  | -- |  | -----------
| |  | 16 |  | (Continued)



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##### Table of Contents

MOMENTIVE PERFORMANCE MATERIALS INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in
thousands)



|(12) | Guarantor/Non-Guarantor Subsidiary Financial Information (contd)
|---- | -----------------------------------------------------------------

Condensed Consolidated Statements of Operations for the fiscal three-month periods ended March 29, 2009 and March 30, 2008:



Fiscal three-month period ended March 29, 2009Parent


GuarantorSubsidiaries


Non-GuarantorSubsidiaries


Eliminations


ConsolidatedNet sales

$



190,977


301,139


(74,057
)

418,059Cost of sales, excluding depreciation





137,999


244,839


(71,356
)

311,482Gross profit





52,978


56,300


(2,701
)

106,577Selling, general and administrative expenses


(15,228
)

34,745


84,244





103,761Depreciation and amortization





23,681


25,918





49,599Research and development expenses





10,310


5,676





15,986Operating income (loss)


15,228


(15,758
)

(59,538
)

(2,701
)

(62,769
)Other income (expense):Interest income





24,003


1,924


(24,939
)

988Interest expense


(53,158
)

(2,638
)

(35,447
)

24,939


(66,304
)Other income (expense), net


(56,133
)

(61,306
)

10,748


116,664


9,973Income (loss) before income taxes


(94,063
)

(55,699
)

(82,313
)

113,963


(118,112
)Income taxes (benefit)





432


(21,133
)

56


(20,645
)Net loss


(94,063
)

(56,131
)

(61,180
)

113,907


(97,467
)Net loss attributable to the noncontrolling interest








648





648Net loss attributable to Momentive Performance Materials Inc.

$
(94,063
)

(56,131
)

(60,532
)

113,907


(96,819
)Fiscal three-month period ended March 30, 2008Parent


GuarantorSubsidiaries


Non-GuarantorSubsidiaries


Eliminations


ConsolidatedNet sales

$



277,195


482,943


(103,526
)

656,612Cost of sales, excluding depreciation





181,549


351,340


(99,830
)

433,059Gross profit





95,646


131,603


(3,696
)

223,553Selling, general and administrative expenses


28,232


52,645


26,700





107,577Depreciation and amortization





24,954


31,044





55,998Research and development expenses





11,024


6,887





17,911Operating income (loss)


(28,232
)

7,023


66,972


(3,696
)

42,067Other income (expense):Interest income





24,311


1,387


(24,348
)

1,350Interest expense


(52,380
)

280


(40,536
)

24,348


(68,288
)Other income (expense), net


33,690


8,064


(13,646
)

(41,727
)

(13,619
)Income (loss) before income taxes


(46,922
)

39,678


14,177


(45,423
)

(38,490
)Income taxes (benefit)





6,022


6,169


(1,742
)

10,449Net income (loss)


(46,922
)

33,656


8,008


(43,681
)

(48,939
)Net loss attributable to the noncontrolling interest








61





61Net loss attributable to Momentive Performance Materials Inc.

$
(46,922
)

33,656


8,069


(43,681
)

(48,878
)




| |  |    |  |            
| |  | -- |  | -----------
| |  | 17 |  | (Continued)



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##### Table of Contents

MOMENTIVE PERFORMANCE MATERIALS INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in
thousands)



|(12) | Guarantor/Non-Guarantor Subsidiary Financial Information (contd)
|---- | -----------------------------------------------------------------

Condensed Consolidated Statement of Cash Flows for the fiscal three-month period ended March 29, 2009:



Fiscal three-month period ended March 29, 2009Parent


GuarantorSubsidiaries


Non-GuarantorSubsidiaries


Eliminations

ConsolidatedNet cash (used in) provided by operating activities

$
4,289


2,909


(42,898
)



(35,700
)Cash flows from investing activities:Capital expenditures





(3,572
)

(5,197
)



(8,769
)Purchases of intangible assets





(572
)

(395
)



(967
)Net cash used in investing activities





(4,144
)

(5,592
)



(9,736
)Cash flows from financing activities:Capital contribution to affiliates





(4,925
)

4,925




Net change in short-term borrowings








(1,813
)



(1,813
)Proceeds from long-term debt





90,000


1,971




91,971Payments of long-term debt








(187
)



(187
)Funds remitted to joint venture








(4,900
)



(4,900
)Net borrowings with affiliates


258,941


(283,562
)

24,621




Net cash provided by (used in) financing activities


258,941


(198,487
)

24,617




85,071(Decrease) increase in cash and cash equivalents


263,230


(199,722
)

(23,873
)



39,635Effect of exchange rate changes on cash


(15,161
)




16,081




920Cash and cash equivalents, beginning of period


1,894


200,667


137,981




340,542Cash and cash equivalents, end of period

$
249,963


945


130,189




381,097




| |  |    |  |            
| |  | -- |  | -----------
| |  | 18 |  | (Continued)



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##### Table of Contents

MOMENTIVE PERFORMANCE MATERIALS INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in
thousands)



|(12) | Guarantor/Non-Guarantor Subsidiary Financial Information (contd)
|---- | -----------------------------------------------------------------

Condensed Consolidated Statement of Cash Flows for the fiscal three-month period ended March 30, 2008:



Fiscal three-month period ended March 30, 2008Parent


GuarantorSubsidiaries


Non-GuarantorSubsidiaries


Eliminations

ConsolidatedNet cash provided by (used in) operating activities

$
(7,382
)

(1,020
)

43,688




35,286Cash flows from investing activities:Capital expenditures





(13,386
)

(22,400
)



(35,786
)Purchase of intangible assets





(820
)

(16
)



(836
)Net cash used in investing activities





(14,206
)

(22,416
)



(36,622
)Cash flows from financing activities:Dividends paid within MPM Inc.





1,987


(1,987
)



Capital contribution





(4,900
)

4,900




Net change in short-term borrowings








4,899




4,899Payments of long-term debt








(14,400
)



(14,400
)Proceeds of long-term debt








20,007




20,007Funds remitted to joint venture








(4,900
)



(4,900
)Net borrowings with affiliates


(22,720
)

4,661


18,059




Net cash (used in) provided by financing activities


(22,720
)

1,748


26,578




5,606Increase in cash and cash equivalents


(30,102
)

(13,478
)

47,850




4,270Effect of exchange rate changes on cash


30,195





(26,886
)



3,309Cash and cash equivalents, beginning of period


8,051


47,514


193,491




249,056Cash and cash equivalents, end of period

$
8,144


34,036


214,455




256,635




19



---

##### Table of Contents

|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; an event of default under our senior secured credit facility;
repercussions from our Chinese subsidiarys breach of a financial covenant under a loan agreement with the China Construction Bank on April 30, 2009; 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. 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 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 are currently in the process of evaluating this guidance.

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 are currently in the process of evaluating this guidance.

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 on our 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. We adopted the provisions of SFAS 141R 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 financial crisis that began in the latter half of 2008 restricting credit availability and
the ensuing global economic slowdown, the short- and mid-term outlook for our business and the industry remains uncertain. During the first quarter of 2009, we experienced significant year-over-year decreases in sales of approximately 35% and
50% in our Silicones and Quartz businesses, respectively, and weak demand has continued into the second quarter of 2009. Deteriorating economic conditions have resulted in more cautious customer



20



---

##### Table of Contents

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 economic downturn, 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 March 29, 2009 and March 30, 2008:

Fiscal three-month period ended March 29, 2009 compared to fiscal
three-month period ended March 30, 2008 (Unaudited)



|                                                              |  |                                     |        |   |                |       |    |  |   |       |   |  |       |   
|------------------------------------------------------------- |  | ----------------------------------- | ------ | - | -------------- | ----- | -- |  | - | ----- | - |  | ----- | --
|                                                              |  | For fiscal three-month period ended |       
|                                                              |  | March 29, 2009                      |        |   | March 30, 2008 |      
|                                                              |  | (dollars in millions)               |       
|Net sales                                                     |  | $                                   | 418.1  |   |                | 100.0 | %  |  | $ | 656.6 |   |  | 100.0 | % 
|Cost of sales, excluding depreciation                         |  |                                     | 311.5  |   |                | 74.5  | %  |  |   | 433.1 |   |  | 66.0  | % 
|                                                              |  |                                     |        |   |                |       |    |  |   |       |   |  |       |   
|Gross profit                                                  |  |                                     | 106.6  |   |                | 25.5  | %  |  |   | 223.5 |   |  | 34.0  | % 
|Selling, general and administrative expenses                  |  |                                     | 142.1  |   |                | 34.0  | %  |  |   | 159.2 |   |  | 24.2  | % 
|Research and development expenses                             |  |                                     | 16.0   |   |                | 3.8   | %  |  |   | 17.9  |   |  | 2.7   | % 
|Restructuring and other costs                                 |  |                                     | 11.3   |   |                | 2.7   | %  |  |   | 4.3   |   |  | 0.7   | % 
|                                                              |  |                                     |        |   |                |       |    |  |   |       |   |  |       |   
|Operating income (loss)                                       |  |                                     | (62.8  | ) |                | (15.0 | )% |  |   | 42.1  |   |  | 6.4   | % 
|Other income (expenses)                                       |  |                                     |        |   |                |       |    |  |   |       |   |  |       |   
|Interest expense, net                                         |  |                                     | (65.2  | ) |                | (15.6 | )% |  |   | (67.0 | ) |  | (10.2 | )%
|Other income (expense), net                                   |  |                                     | 10.0   |   |                | 2.4   | %  |  |   | (13.6 | ) |  | (2.1  | )%
|                                                              |  |                                     |        |   |                |       |    |  |   |       |   |  |       |   
|Loss before income taxes                                      |  |                                     | (118.0 | ) |                | (28.2 | )% |  |   | (38.5 | ) |  | (5.9  | )%
|Income taxes (benefit)                                        |  |                                     | (20.6  | ) |                | (4.9  | )% |  |   | 10.5  |   |  | 1.6   | % 
|                                                              |  |                                     |        |   |                |       |    |  |   |       |   |  |       |   
|Net loss                                                      |  |                                     | (97.4  | ) |                | (23.3 | )% |  |   | (49.0 | ) |  | (7.5  | )%
|Net loss attributable to the noncontrolling interest          |  |                                     | 0.6    |   |                | 0.1   | %  |  |   | 0.1   |   |  |      |   
|                                                              |  |                                     |        |   |                |       |    |  |   |       |   |  |       |   
|Net loss attributable to Momentive Performance Materials Inc. |  | $                                   | (96.8  | ) |                | (23.2 | )% |  | $ | (48.9 | ) |  | (7.4  | )%
|                                                              |  |                                     |        |   |                |       |    |  |   |       |   |  |       |   
|Net Sales by Segment                                          |  |                                     |        |   |                |       |    |  |   |       |   |  |       |   
|Silicones                                                     |  | $                                   | 384.5  |   |                | 92.0  | %  |  | $ | 589.7 |   |  | 89.8  | % 
|Quartz                                                        |  |                                     | 33.6   |   |                | 8.0   | %  |  |   | 66.9  |   |  | 10.2  | % 
|                                                              |  |                                     |        |   |                |       |    |  |   |       |   |  |       |   
|Total                                                         |  | $                                   | 418.1  |   |                | 100.0 | %  |  | $ | 656.6 |   |  | 100.0 | % 
|                                                              |  |                                     |        |   |                |       |    |  |   |       |   |  |       |   

Net Sales. Net sales in the fiscal three-month period ended March 29,
2009 were $418.1 million, compared to $656.6 million for the same period in 2008, a decrease of 36.3%. The decrease was primarily due to a decrease in sales volume of 39.3% and unfavorable exchange rate fluctuations of 1.4%, partially offset by an
increase in selling prices.

Net sales for our Silicones segment in the fiscal three-month period ended March 29, 2009 were $384.5
million, compared to $589.7 million for the same period in 2008, a decrease of 34.8%. The decrease was primarily due to the impact of the global recession on sales volume which declined by 38.1% and unfavorable exchange rate fluctuations of 1.5%,
partially offset by an increase in selling prices.

Net sales for our Quartz segment in the fiscal three-month period ended March 29,
2009 were $33.6 million, compared to $66.9 million for the same period in 2008, a decrease of 49.8%. 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 three-month period ended March 29,
2009 was $311.5 million, compared to $433.1 million for the same period in 2008, a decrease of 28.1%. 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.



21



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##### Table of Contents

Gross Profit.Gross profit in the fiscal three-month period ended March 29, 2009 was
$106.6 million, compared to $223.5 million for the same period in 2008, a decrease of 52.3%. 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
March 29, 2009 were $142.1 million, compared to $159.2 million for the same period in 2008, a decrease of 10.7%. The decrease was primarily due to lower depreciation and amortization expense and managements efforts to reduce operating
expenses through productivity and cost reduction initiatives, partially offset by foreign currency exchange rate fluctuations.

Research and Development Expenses. Research and development expenses in the fiscal three-month period ended March 29, 2009 were $16.0 million, compared to $17.9 million for the same period in 2008, a decrease of
10.6%. The decrease was primarily due to timing of program expenditures related to new projects and cost reduction initiatives.

Restructuring and Other Costs.Restructuring and other costs in the fiscal three-month period ended March 29, 2009 were $11.3 million, compared to $4.3 million for the same period in 2008. For the fiscal three-month
period ended March 29, 2009, these costs were comprised of restructuring costs (primarily severance payments associated with a workforce reduction) of $15.3 million and other services of $(4.0) million. Other service costs of $(4.0) million for
fiscal three-month period ended March 29, 2009 included a one-time benefit reduction and wage tax credits of $5.4 million. For the fiscal three-month period ended March 30, 2008, these costs were comprised of restructuring costs of
$0.3 million and other services of $4.0 million.

Interest Expense, net. Interest expense, net in the fiscal
three-month period ended March 29, 2009 was $65.2 million, compared to $67.0 million for the same period in 2008, a decrease of 2.5%. 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 March 29, 2009 was $10.0 million, compared to other expense, net of $13.6 million for the same period in 2008. The change in other income (expense), net was primarily due to a gain associated with our foreign currency forward contracts
during the fiscal three-month period ended March 29, 2009 compared to a loss for the same period in 2008. For the fiscal three-month period ended March 29, 2009, other income, net included an unrealized gain of $6.0 million and realized
gain of $4.0 million. For the fiscal three-month period ended March 30, 2008, other expense, net included an unrealized loss of $13.7 million.

Income taxes. The effective tax rate was 17.48% and 27.15% for the fiscal three-month periods ended March 29, 2009 and March 30, 2008, respectively. The change in the effective tax
rate in 2009 was primarily due to a change in the amount of 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 loss attributable to Momentive Performance Materials Inc. Net loss in the fiscal
three-month period ended March 29, 2009 was $96.8 million, compared to a net loss of $48.9 million for the same period in 2008. The increase in net loss was a result of the effects described above.



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Liquidity and Capital Resources



|                                                                                      |  |                                 |       |   |                |       |  
|------------------------------------------------------------------------------------- |  | ------------------------------- | ----- | - | -------------- | ----- | -
|                                                                                      |  | Fiscal three-month period ended |      
|                                                                                      |  | March 29, 2009                  |       |   | March 30, 2008 |      
|                                                                                      |  | (dollars in millions)           |      
|Cash provided by (used in) operating activities                                       |  | $                               | (35.7 | ) |                | 35.3  |  
|Cash used in investing activities                                                     |  |                                 | (9.7  | ) |                | (36.6 | )
|Cash provided by financing activities                                                 |  |                                 | 85.0  |   |                | 5.6   |  
|                                                                                      |  |                                 |       |   |                |       |  
|Increase in cash and cash equivalents, before effect of exchange rate changes on cash |  | $                               | 39.6  |   |                | 4.3   |  
|                                                                                      |  |                                 |       |   |                |       |  

Operating activities. Cash used in operating activities was $35.7 million in the
fiscal three-month period ended March 29, 2009, compared to cash provided by operating activities of $35.3 million in the fiscal three-month period ended March 30, 2008. Cash used in operating activities in the fiscal three-month period
ended March 29, 2009 was primarily due to a decline in operating income and decreases in accounts payable (primarily due to lower material purchases and capital projects in the quarter), partially offset by decreases in accounts receivables and
inventory as a result of management efforts to reduce working capital requirements. Cash provided by operating activities in the fiscal three-month period ended March 30, 2008 was primarily due to increases in accrued expenses and accounts
payable as a result of extension in vendor payment terms and timing of payments, offset by cash used in funding our pension plan, an increase in accounts receivable and an increase in inventory due to escalation in raw materials costs.

Investing activities. Cash used in investing activities was $9.7 million in the fiscal three-month period ended March 29, 2009,
compared to $36.6 million in the fiscal three-month period ended March 30, 2008. Cash used in investing activities in the fiscal three-month period ended March 29, 2009 was primarily due to ongoing expenditures for environmental health and
safety compliance and maintenance projects. During the fiscal three-month period ended March 29, 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 $70.0 million excluding restructuring activities. Cash used in investing activities in the fiscal three-month period ended March 30, 2008 was primarily due to cash spent on the
construction of our Nantong facility in China which commenced operations in late 2008.

Financing activities. Cash provided
by financing activities was $85.0 million in the fiscal three-month period ended March 29, 2009, compared to $5.6 million in the fiscal three-month period ended March 30, 2008. Cash provided by financing activities in the fiscal
three-month period ended March 29, 2009 was primarily due to an additional $90.0 million draw down under our revolving credit facility, partially offset by a $4.9 million capital contribution to our Xinan joint venture in Jiande, China. Cash
provided by financing activities in the fiscal three-month period ended March 30, 2008 was primarily due to additional long-term borrowings of $20.0 million associated with the Nantong construction project and additional short-term borrowings
of $4.9 million, offset by $14.4 million of principal payments on our term loans under our senior secured 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 $3,288.2 million of indebtedness (excluding short-term borrowings), at March 29, 2009. Accordingly, we have significant debt service
obligations.

Our senior secured credit facility at March 29, 2009 consists of two variable-rate term loans in an aggregate principal
amount of approximately $1,039.7 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 $240.0 million of borrowings under the revolving credit facility as of March 29, 2009. The outstanding letters of credit under the revolving credit facility at March 29, 2009 were $29.4 million,
leaving unused borrowing capacity of $30.6 million. Outstanding letters of credit issued under the synthetic letter of credit facility at March 29, 2009 were $34.2 million, leaving unused capacity of $0.1 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. 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



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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 eliminates our obligation to make required quarterly principal repayments through the first quarter of 2009 and reduces 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).

We have issued $765.0 million in aggregate principal amount of 93/4% Senior Notes due 2014 (the Dollar Fixed-Rate Notes), 275.0 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), $316.3 million in aggregate principal amount of 101/8%/107/8% Senior Toggle Notes due 2014 (the Senior Toggle
Notes), and $500.0 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, which are unsecured senior
obligations of the Company, mature in 2014. 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 to holders of record.

The Senior Toggle Notes, which are unsecured senior obligations of the Company, mature in 2014 and
interest on the Senior Toggle Notes is payable semiannually to holders of record. 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. On May 28, 2008, we made the permitted election under the
indenture governing the Senior Toggle Notes to pay all interest in kind under the Senior Toggle Notes that was due on December 1, 2008 for the interest period beginning on June 1, 2008 and ending on November 30, 2008. The accrued
interest for this interest period was $16.3 million and the principal balance of the Senior Toggle Notes increased by this amount on December 1, 2008. On November 20, 2008, we made another permitted election to pay all interest in kind
that is due on June 1, 2009. 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, which are unsecured senior subordinated obligations of the Company, mature in 2016. Each Senior Subordinated Note bears interest at 111/2% per annum, payable semiannually to holders of record.

Our senior
secured credit facility contains various restrictive covenants that prohibit us and/or restrict our ability to prepay indebtedness, including our Senior Notes and Senior Subordinated 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, MPM Nantong, also has borrowings of approximately $60 million outstanding (based on exchange rates as of March 29, 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. MPM Nantong was in breach of a financial covenant under its loan agreement with the China Construction Bank on April 30, 2009. The financial
covenant is based on a measure of MPM Nantongs free cash flow in calendar year 2008 and was tested upon delivery of MPM Nantongs audited financial



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statements for the year ended December 31, 2008, which were submitted on April 30, 2009. Under the terms of the loan agreement, China Construction
Bank could require accelerated payment of the loan if MPM Nantong is in breach of a financial covenant and it is not cured within 30 days after notice from the bank. Although management is currently in negotiations with China Construction Bank and
does not believe that the bank will give notice of a breach of this financial covenant (or accelerate the loan following notice and expiration of the 30-day cure period), no assurance can be given that such event or events will not occur. Therefore,
in the absence of a waiver from China Construction Bank, we have classified all principal payments due under the loan from China Construction Bank as current debt as of March 29, 2009 and December 31, 2008. In the event that the bank
accelerates the loan, we believe that we would have sufficient cash to repay the outstanding loan balance, or that we could refinance the loan through another lender or choose another available alternative. A breach or acceleration under the loan
agreement with China Construction Bank would not trigger any cross default provisions under our senior secured credit facility and indentures.

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 2009 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, will be adequate to meet our liquidity needs for the next twelve months. However, if weak demand stemming from the global economic downturn continues in future quarter(s) and we continue to experience sufficient
year-over-year declines in sales and EBITDA for which we cannot compensate with restructuring or business optimization initiatives, we may have difficulty complying with our senior secured leverage ratio covenant in the future, potentially in fiscal
year 2009. A breach of such covenant, 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 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

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 our outstanding debt, such as
debt for debt exchanges and other similar 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 March 29, 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;
| | - |  | -----------------------------------



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



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



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



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



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



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



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

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
March 29, 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 weak demand stemming from the global economic downturn continues in future quarter(s) and we continue to experience sufficient year-over-year declines in sales and EBITDA for which we cannot compensate with restructuring or business
optimization initiatives, we may have difficulty complying with our senior secured leverage ratio covenant under our credit agreement in the future, potentially in fiscal year 2009. 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.



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The following table reconciles net loss to EBITDA and Adjusted EBITDA for the periods presented:



|                                                                               |  |    |   |  |                                 |       |   |                |       |  
|------------------------------------------------------------------------------ |  | -- | - |  | ------------------------------- | ----- | - | -------------- | ----- | -
|                                                                               |  |    |   |  | Fiscal three-month period ended |      
|                                                                               |  |    |   |  | March 29, 2009                  |       |   | March 30, 2008 |      
|                                                                               |  |    |   |  | (dollars in millions)           |      
|Net loss attributable to Momentive                                             |  |    |   |  |                                 |       |   |                |       |  
|Performance Materials Inc.                                                     |  |    |   |  | $                               | (96.8 | ) |                | (48.9 | )
|Interest expense, net                                                          |  |    |   |  |                                 | 65.2  |   |                | 67.0  |  
|Income taxes                                                                   |  |    |   |  |                                 | (20.6 | ) |                | 10.5  |  
|Depreciation and amortization                                                  |  |    |   |  |                                 | 49.6  |   |                | 56.0  |  
|                                                                               |  |    |   |  |                                 |       |   |                |       |  
|EBITDA                                                                         |  |    |   |  |                                 | (2.6  | ) |                | 84.6  |  
|                                                                               |  |    |   |  |                                 |       |   |                |       |  
|Net income (loss) attributable to the noncontrolling interest                  |  | (a | ) |  |                                 | (0.6  | ) |                | 0.1   |  
|Restructuring and non-recurring                                                |  | (b | ) |  |                                 | 11.3  |   |                | 4.3   |  
|Cost Savings and Inventory Optimization                                        |  | (c | ) |  |                                 | 6.9   |   |                | 17.4  |  
|Non-cash and purchase accounting effects                                       |  | (d | ) |  |                                 | (1.0  | ) |                | 7.8   |  
|Management fee and other                                                       |  | (e | ) |  |                                 | 0.9   |   |                | 2.9   |  
|                                                                               |  |    |   |  |                                 |       |   |                |       |  
|Adjusted EBITDA                                                                |  |    |   |  | $                               | 14.9  |   |                | 117.1 |  
|                                                                               |  |    |   |  |                                 |       |   |                |       |  
|                                                                               |  |    |  
|Total Senior Secured Net Debt                                                  |  |    |   |  |                                 | 912.8 |   |                |       |  
|Senior Secured Leverage Ratio for the twelve-month period ended March 29, 2009 |  |    |   |  |                                 | 3.07  |   |                |       |  



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



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



|(c) | Represents estimated cost savings from initiatives being implemented by management, including headcount reductions, indirect cost savings, and inventory optimization programs. For
the fiscal three-month periods ended March 29, 2009 and March 30, 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 March 29, 2009, non-cash items include: (i) FAS 123 (R) expense of $0.2, (ii) unrealized gain of $6.0 on foreign currency forward contracts,
unrealized foreign currency exchange loss of $4.0, and (iii) unrealized loss on natural gas hedges of $0.7. For the fiscal three-month period ended March 30, 2008, non-cash items include: FAS 123 (R) expense of $0.3;
(ii) unrealized loss of $13.7 on foreign currency forward contracts and unrealized foreign currency exchange loss of $6.2.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(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
March 29, 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.
|------- | ------------------

Information regarding our legal
proceedings 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 1A. | Risk Factors.
|-------- | -------------

We have updated the risk factors
previously disclosed in Part I Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2008, which was filed with the Securities and Exchange Commission on March 16, 2009, as set forth below.

Our substantial indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the
economy or our industry and prevent us from making debt-service payments.

We
have a substantial amount of long-term indebtedness. As of March 29, 2009, we had $3,288.2 million of outstanding long-term indebtedness (including payments due within the next twelve months). Based on the amount of indebtedness outstanding at
March 29, 2009, our annualized cash interest expense is approximately $232.9 million based on interest rates at March 29, 2009, of which $186.9 million represents cash interest expense on fixed-rate obligations (including variable
rate debt subject to interest rate swap agreements and our 101/8%/107/8% Senior Toggle Notes due 2014 except for the payment due on June 1, 2009, which we have committed to pay in kind). Our ability to generate sufficient cash flow from operations
to make scheduled payments on our debt depends on a range of economic, competitive and business factors, many of which are outside of our control. Our business may not generate sufficient cash flow from operations to meet our debt service and other
obligations, and currently anticipated cost savings, working capital reductions and operating improvements may not be realized on schedule, or at all. If we are unable to meet our expenses and debt service obligations, we may need to refinance all
or a portion of our indebtedness on or before maturity, sell assets or raise equity. We may not be able to refinance any of our indebtedness, sell assets or raise equity on commercially reasonable terms, or at all, which could cause us to default on
our obligations and result in the acceleration of our debt obligation. Our inability to generate sufficient cash flow to satisfy our debt obligations, or to refinance our obligations on commercially reasonable terms, would have a material adverse
effect on our business, financial condition and results of operations.

Our substantial indebtedness could have important
consequences, including the following:



| |  |  | it may limit our ability to borrow money or sell stock for our working capital, capital expenditures, debt service requirements, strategic initiatives or other
purposes;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | we are more highly leveraged than some of our competitors, which may place us at a competitive disadvantage;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | it may make us more vulnerable to downturns in our business or the economy;
| | - |  | ---------------------------------------------------------------------------



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



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



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



| |  |  | it may adversely affect terms under which suppliers provide material and services to us;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | it may limit, along with the financial and other restrictive covenants in our indebtedness, among other things, our ability to borrow additional funds or dispose of
assets; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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

If we do not have sufficient earnings or cash flows, we may be required to refinance all or part of our existing
debt, sell assets, borrow money or sell securities, none of which we can guarantee we will be able to do.

Restrictive covenants under our senior
secured credit facility and indentures may adversely affect our operations.

The credit agreement governing our senior secured credit
facility and the indentures governing the notes contain, and any future indebtedness we incur would likely contain, a number of restrictive covenants that will impose significant operating and financial restrictions on our ability to, among other
things:



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



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



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



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



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



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



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



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

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

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 March 29, 2009, we had a senior secured leverage ratio of 3.07 to 1 and were in compliance with all covenants under the credit agreement governing the senior secured credit facility and the covenants under the indentures
governing the notes. However, if weak demand stemming from the global economic downturn continues in future quarter(s) and we continue to experience sufficient year-over-year declines in sales and EBITDA for which we cannot compensate with
restructuring or business optimization initiatives, we may have difficulty complying with our senior secured leverage ratio covenant in the future, potentially in fiscal year 2009.

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 which, if not cured or waived, would have a material adverse affect 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 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, to be 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);
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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.



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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.

Our subsidiarys breach of a
financial covenant under its loan agreement with China Construction Bank may lead to the acceleration of approximately $60 million of debt, which would negatively affect our liquidity.

Our wholly-owned subsidiary, Momentive Performance Nantong Co., Ltd. (MPM Nantong), has borrowings of approximately $60 million outstanding
(based on exchange rates as of March 29, 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. MPM
Nantong was in breach of a financial covenant under its loan agreement with the China Construction Bank on April 30, 2009. The financial covenant is based on a measure of MPM Nantongs free cash flow in calendar year 2008 and was tested
upon delivery of MPM Nantongs audited financial statements for the year ended December 31, 2008, which were submitted on April 30, 2009. Under the terms of the loan agreement, China Construction Bank could require accelerated payment
of the loan if MPM Nantong is in breach of a financial covenant and it is not cured within 30 days after notice from China Construction Bank. If China Construction Bank provides notice and accelerates the loan, we may be required to repay the
outstanding loan balance in full, refinance the loan through another lender or choose another available alternative. 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. In the event that we repay the loan balance in full, our liquidity would be negatively affected. A breach or acceleration under the loan agreement with China Construction Bank would not trigger any cross
default provisions under our senior secured credit facility and indentures.

The recent global financial crisis and economic slowdown have negatively
affected and could continue to negatively affect our business, results of operations and financial condition.

The recent global
financial crisis affecting the banking system and financial markets and the going concern threats to investment banks and other financial institutions have resulted in a tightening in the credit markets, a low level of liquidity in many financial
markets, extreme volatility in fixed income, credit, equity and commodity markets, and a global economic recession. This global financial crisis and resulting economic slowdown has negatively affected and could continue to negatively affect our
business in a number of ways including, but not limited to, the following:



| |  |  | Reduced demand in key customer segments such as building and construction, automotive and electronics. Such declines have significantly reduced our orders and
revenue in the fourth quarter of 2008 and the first quarter of 2009.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Payment delays by customers and reduced demand for our products caused by customer insolvencies and the inability of our customers to obtain credit to finance
purchases of our products.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Insolvency of suppliers resulting in product delays.
| | - |  | ----------------------------------------------------



| |  |  | More onerous credit and commercial terms from our suppliers.
| | - |  | ------------------------------------------------------------



| |  |  | Delays in accessing our current credit facilities or obtaining new credit facilities on terms we deem commercially reasonable or at all, and an inability of one or
more of the financial institutions included in our syndicated revolving credit facility to fulfill their funding obligations. Should a bank in our syndicated revolving credit facility be unable to fund a future draw request, we could find it
difficult to replace that bank in the facility. A similar situation could arise in our insurance portfolio, where we have significant counterparty exposure to certain large providers for our global insurance needs.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In addition, while we have announced a number of initiatives to reduce our costs in 2009 and we expect that these initiatives will help ensure adequate liquidity
for the business in 2009, further initiatives, including reductions in our workforce and idling of our assets, might be necessary.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We are unable to predict the duration and severity of the current financial crisis and resulting economic slowdown, and these adverse business conditions may continue throughout 2009 and beyond. Any further
deterioration of economic conditions would likely exacerbate the negative effects described above and could result in a wide-ranging and prolonged impact on general business conditions, thereby negatively impacting our business, results of
operations and financial condition.

Changes in pricing or supply of silicon metal may adversely affect the results of our operations.

Our Silicones business is highly dependent upon access to silicon metal. While silicon is itself abundant, silicon metal is produced through a
manufacturing process and, in certain geographic areas, is currently available through a limited number of suppliers. There are only two significant silicon metal suppliers in North America. Silicon metal producers face a number of regulations that
affect the supply or price of silicon metal in some or all of the jurisdictions in which we operate. For example, significant anti-dumping duties of up to 139.5% imposed by the United States Department of Commerce and the International Trade
Commission against producers of silicon metal in China, Russia and Brazil effectively block the sale by all or most producers in these jurisdictions to U.S. purchasers, which restricts the supply of silicon metal and results in increased prices. In
late 2006, the ITC revoked anti-dumping duties against Brazilian producers. We cannot predict whether additional restrictions may be imposed in the future, which may result in reduced supply of silicon metal or further increases in silicon metal
prices. We generally enter into one-year or short-term fixed-price contracts for the supply of silicon metal in the Americas and Europe and cannot assure investors that we will be able to renew our current contracts or enter into replacement
contracts on commercially acceptable terms, or at all. Fluctuations in the price of silicon metal, the loss of a key source of supply or any delay in the supply of silicon metal could result in a material adverse effect on our business. See
Recent or new regulations may increase our compliance costs and reduce our ability to compete in certain markets.

Changes in the
pricing, supply or regulation of intermediates such as siloxane may adversely affect the results of our operations.

Our Silicones
business relies heavily on siloxane as an intermediate product. We manufacture approximately 83% of our siloxane requirements and purchase the remainder from Asia Silicones Monomer Limited (ASM) under an existing off-take agreement.
There are a limited number of third-party siloxane providers, and the supply of siloxane is limited. If we were unable to produce enough siloxane to meet our requirements or if ASM, General Electric Company or GE Monomer (Holdings) Pte. Ltd.
(formerly GETOS Singapore Pte. Ltd.) failed to perform under our off-take or long-term supply agreements to provide us with siloxane in Asia to meet our requirements, our results of operations could be adversely affected. In addition, regulation of
siloxane producers



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can also affect the supply of siloxane. For example, in January 2006, the Ministry of Commerce of the Peoples Republic of China issued a final
determination of an anti-dumping investigation that imposed anti-dumping duties on all siloxane manufacturers, including us, ranging from 13% to 22%. Chinas Ministry of Commerce also recently conducted an anti-dumping investigation of siloxane
manufacturers in Thailand and Korea, which could result in the imposition of dumping duties. We cannot predict any future actions by Chinas Ministry of Commerce or other government or regulatory bodies that may reduce the supply of siloxane or
increase our costs, which may adversely affect the results of our operations.

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

Standard and Poors Ratings Services and Moodys Investors
Service maintain credit ratings on the Company and certain of our debt. Each of these ratings is currently below investment grade. Any decision by these ratings agencies to downgrade such ratings in the future could restrict our access to, and
negatively impact the terms of, current or future financings.

Our Quartz division is dependent upon a particular type of sand currently available from
a single source.

Our Quartz production relies heavily on a specific type of sand, which is currently available in the necessary quality
and quantity from one supplier, Unimin Corporation. We have entered into a contract with Unimin, which provides for sufficient sand to continue production and growth through 2010. The price we pay for quartz sand under this contract generally
increases on a yearly basis. We cannot assure investors that we will be able to renew this contract on reasonable terms or at all. If Unimin breaches its supply contract with us, we would not be able to produce quartz on a cost-effective basis or at
all, and our business could suffer a material adverse effect.

Any rise in energy costs could increase our operating expenses, reduce net income and
negatively affect our financial condition.

Natural gas and electricity are essential to our manufacturing processes, which are
energy-intensive. The costs of these resources can vary widely and unpredictably. Our energy costs represented approximately 7% of our total cost of sales for the fiscal years ended December 31, 2008, 2007 and 2006, respectively. Energy costs
have fluctuated greatly over the past several years due to volatility in the prices of oil and natural gas. As a result of the increases in energy prices in 2008 and 2007, our operating expenses increased in 2008 and 2007 and will increase further
if prices of oil and natural gas rise. Increased energy prices may also result in greater costs for our raw materials. If we cannot pass these costs through to our customers, our profitability may decline. In addition, any rise in energy prices may
also negatively affect our customers and the demand for our products.

Variable rate indebtedness subjects us to interest rate risk, which could cause
our debt service obligations to increase significantly.

Certain of our borrowings, primarily borrowings under our senior secured credit
facility, are at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net
income would decrease. Assuming the amount of our variable rate indebtedness remains the same after taking into consideration the interest rate swap we entered into on March 10, 2008 (whereby the Company receives one-month LIBOR and pays a
fixed rate of 2.48% on a notional value of $185 million), an increase of 1% in the interest rates payable on our variable rate indebtedness would increase our annual estimated debt-service requirements by approximately $11.6 million. Accordingly, an
increase in interest rates from current levels could cause our annual debt-service obligations to increase significantly.

As a global business, we are
subject to risks associated with our operations that are not present in the United States.

We have significant manufacturing and other
operations outside the United States. Some of these operations are in jurisdictions with unstable political or economic conditions. There are inherent risks in international operations due to:



| |  |  | exchange controls and currency restrictions;
| | - |  | --------------------------------------------



| |  |  | currency fluctuations and devaluations;
| | - |  | ---------------------------------------



| |  |  | tariffs and trade barriers;
| | - |  | ---------------------------



| |  |  | export duties and quotas;
| | - |  | -------------------------



| |  |  | changes in local economic conditions;
| | - |  | -------------------------------------



| |  |  | changes in laws and regulations;
| | - |  | --------------------------------



| |  |  | exposure to possible expropriation or other government actions;
| | - |  | ---------------------------------------------------------------



| |  |  | hostility from local populations;
| | - |  | ---------------------------------



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



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| |  |  | restrictions on our ability to repatriate dividends from our subsidiaries; and
| | - |  | ------------------------------------------------------------------------------



| |  |  | unsettled political conditions and possible terrorist attacks against American interests.
| | - |  | -----------------------------------------------------------------------------------------

Our international operations expose us to different local political and business risks and challenges. For example, we are faced with potential
difficulties in staffing and managing local operations, and we have to design local solutions to manage credit risks of local customers and distributors. In addition, certain jurisdictions in which we operate may be politically unstable. We also
operate in jurisdictions where our status as a United States company may expose us to increased risk of terrorist attacks, or to greater impact from the national and global military, diplomatic and financial response to any future attacks or
other threats.

Some of our operations are located in regions with particular exposure to storms, floods, riots, fires, sabotage,
terrorism, civil commotion or civil unrest, interference by civil or military authorities, acts of war (declared or undeclared) or armed hostilities or other national or international calamity, or failure of energy sources. Production efficiency
prevents us from relocating such operations, and as a result any of the aforementioned occurrences could materially adversely affect our business.

In addition, intellectual property rights may be more difficult to enforce in non-U.S. countries.

Our overall success as a global
business depends, in part, upon our ability to succeed in different economic, social and political conditions. We may not continue to succeed in developing and implementing policies and strategies that are effective in each location where we do
business, and failure to do so could have a material adverse effect on our business financial condition and results of operations.

Our business is
subject to foreign currency risk.

In 2008, approximately 69% of our revenues originated outside the United States compared to 67% in
2007. In our consolidated and combined financial statements, we translate our local currency financial results into U.S. dollars based on average exchange rates prevailing during a reporting period or the exchange rate at the end of that period.
During times of a strengthening U.S. dollar, at a constant level of business, our reported international revenues and earnings would be reduced because the local currency would translate into fewer U.S. dollars.

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

We have various hedging and other programs in place to protect against adverse changes in the non-U.S. exchange markets
to attempt to minimize potential adverse effects. We cannot ensure that these programs will be successful in protecting against these risks. Our results of operations could be materially adversely affected if the U.S. dollar strengthens against
non-U.S. currencies and our protective strategies are not successful. Likewise, a strengthening dollar provides opportunities to source raw materials cheaper from foreign countries.

Apollo and GE (our Sponsors) control us and may have conflicts of interest with our investors or us in the future.

Our Sponsors, together with our management, beneficially own substantially all of the common equity of Holdings, which owns 100% of our common equity. As a result, our Sponsors control our ability to enter into any
corporate transaction and can prevent any transaction that requires the approval of equity holders, regardless of whether the holders of our notes believe that any such transactions are beneficial to their interests. For example, our Sponsors could
cause us to make acquisitions that increase the amount of indebtedness that is secured or senior to the senior subordinated notes or to sell revenue-generating assets, impairing our ability to make payments under the notes. Additionally, Apollo is
in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete, directly or indirectly, with us. Our Sponsors may also pursue acquisition opportunities that may be complementary to
our business, and as a result, those acquisition opportunities may not be available to us. So long as our Sponsors continue to own a significant amount of the equity of Holdings, even if such amount is less than 50%, they will continue to be able to
strongly influence or effectively control our decisions. Because our equity securities are not and will not be registered under the securities laws of the United States or in any other jurisdiction and are not listed on any U.S. securities exchange,
we are not subject to certain of the corporate governance requirements of U.S. securities authorities or to any corporate governance requirements of any U.S. securities exchanges.



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We may be required to expend greater time and expense than other companies in dealing with our employees, some of whom
are unionized, represented by works councils or subject to local laws that are less favorable to employers than the laws of the United States.

As of March 29, 2009, approximately 60% of our employees were unionized or represented by works councils that have collective bargaining agreements. In addition, some of our employees reside in countries in which employment laws
provide greater bargaining or other rights to employees than the laws of the United States. These employment rights may require us to expend more time and money altering or amending employees terms of employment or making staff reductions. For
example, most of our employees in Europe are represented by works councils, which generally must approve changes in conditions of employment, including restructuring initiatives and changes in salaries and benefits. While we believe that we maintain
good relationships with our employees and their representatives, a significant dispute could divert managements attention and otherwise hinder our ability to conduct our business or to achieve planned cost savings.

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

We cannot assure
investors that we will be able to successfully extend or renegotiate our collective bargaining agreements as they expire from time to time. A majority of the manufacturing personnel at our Waterford, New York; Pickering, Ontario; Sistersville, West
Virginia and Willoughby, Ohio sites are covered by collective bargaining agreements that expire in 2010. If we fail to extend or renegotiate our collective bargaining agreements, if disputes with our unions arise or if our unionized workers engage
in a strike or other work stoppage, we could incur higher labor costs or experience a significant disruption of operations, which could have a material adverse effect on our business, financial position and results of operations. In addition, in
January 2009, IUE-CWA Local 81359 located at our Waterford, NY facility filed a variety of unfair labor practice charges against us with the National Labor Relations Board arising from our implementation of a new wage rate schedule and a new job
classification structure. The outcome of these charges could result in higher labor costs, or in our unionized workers engaging in a strike or other work stoppage causing disruption at the facility, either of which could have a material adverse
effect on our business, financial position and results of operations.

Our future success will depend in part on our ability to protect our intellectual
property rights, and our inability to enforce these rights could have an adverse effect on our competitive advantage.

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

Although we have numerous issued and pending U.S. and non-U.S. patents, these patents, issued or pending, may not provide us with any competitive advantage and could be challenged by third parties. Our inability to secure issuance of our
pending patent applications may limit our ability to protect the intellectual property rights these pending patent applications were intended to cover. Our competitors may attempt to design around our patents to avoid liability for infringement, and
if successful our competitors could adversely affect our competitive advantage and market share. Moreover, the expiration of our patents may lead to increased competition.

We have obtained and applied for several U.S. and non-U.S. trademark registrations, and we will continue to evaluate the registration of additional
trademarks and service marks where appropriate. Our pending trademark applications may not be approved by the responsible governmental authorities and, even if these trademark applications are granted, third parties may seek to oppose or otherwise
challenge these trademark applications. A failure to obtain trademark registrations in the United States and in other countries could limit our ability to protect our products and their associated trademarks and impede our marketing efforts in those
jurisdictions.

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

Our production facilities are subject to operating hazards.

Our production facilities are subject to hazards associated with the manufacturing, handling, storage and transportation of chemical materials and
products, including exposure to hazardous substances, pipeline leaks and ruptures, explosions, fires, inclement weather and natural disasters, mechanical failures, unscheduled downtime, transportation interruptions, remedial complications, chemical
spills, discharges or releases of toxic or hazardous substances or gases, storage tank leaks and other environmental risks. Additionally, some of our operations, such as those in Antwerp, Belgium; Bergen Op Zoom, Netherlands; Leverkusen, Germany and
Map Ta Phut, Thailand, are adjacent to operations of independent entities that engage in hazardous and potentially dangerous activities. While we manufacture our products in a large number of diversified facilities and maintain insurance covering
our facilities, including business interruption insurance, a loss of the use of all or a portion of one of our key manufacturing facilities due to accident, labor issues, weather conditions, natural disaster or otherwise, at our facilities or
adjacent third-party facilities, could have a



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material adverse effect on us. Moreover, while we believe that we have effective management systems and engineering controls in place at all of our
production facilities to minimize risk, these systems and controls may not be successful in preventing all potential hazards and could fail to prevent personal injury and loss of life, severe damage to or destruction of property and equipment and
environmental damage, each of which could have a material adverse effect on our business.

We may be adversely affected by environmental, health,
safety, production and product regulations or concerns.

Our operations are subject to a wide variety of U.S. federal, state, local and
non-U.S. national, provincial, and local environmental, health and safety laws and regulations, including those governing emissions to air, discharges to waters, the generation, use, storage, transportation, treatment and disposal of hazardous
materials and wastes, and employee health and safety matters and those requiring permits, licenses, or other government approvals necessary for specified operations or activities. Our products are also subject to a variety of national, regional,
state, and provincial requirements and restrictions applicable to the manufacture, import, export or subsequent use of such products. In addition, we are required to maintain, and may be required to obtain in the future, one or more environmental,
health and safety permits, licenses, or government approvals to continue current operations at most of our manufacturing and research facilities throughout the world. Compliance with environmental, health and safety laws and regulations, and
maintenance of permits can be costly, and we have incurred and will continue to incur costs, including capital expenditures, to comply with these requirements. If we are unable to comply with environmental, health and safety laws and regulations, or
maintain our permits, we could incur substantial costs, including fines and civil or criminal sanctions, or costs associated with upgrades to our facilities or changes in our manufacturing processes in order to achieve and maintain compliance, and
may also be required to halt permitted activities or operations until any necessary permits can be obtained or complied with. Environmental violations have previously been and continue to be identified at the Waterford facility. Momentive is
cooperating with the New York State Department of Environmental Conservation in its investigation of certain issues relating to hazardous waste management. These violations may result in administrative, civil, or criminal enforcement by the state of
New York, and resolution of these violations will likely require payment of a penalty. In addition, environmental, health and safety requirements change frequently and have tended to become more stringent over time. We cannot predict what
environmental, health and safety laws and regulations or permit requirements will be enacted or amended in the future, how existing or future laws or regulations will be interpreted or enforced or the amount of future expenditures that may be
required to comply with such laws, regulations or permit requirements. We therefore cannot assure investors that our costs of compliance with current and future environmental, health and safety requirements will not be material. In addition, as an
owner and operator of real property and a generator of hazardous waste, we may be subject to environmental cleanup liability, regardless of fault, pursuant to Superfund or analogous state or non-U.S. laws. Thus, we could incur substantial costs,
including cleanup costs and costs arising from third-party property damage, personal injury claims, or claims for damages to natural resources, relating to environmental contamination at properties currently or formerly operated by us or at
third-party sites at which wastes from our operations have been disposed. Contaminants have been discovered in soil and groundwater at some of our facilities.

We have created a reserve in the amount of approximately $3.7 million to cover the costs associated with environmental contamination identified at our facilities. Because some of the costs of environmental
contamination are not yet estimable, they are not reflected in our current reserve and, as a result, we will likely incur additional costs above the reserve amount. In addition, there is a risk the cost of remediation work for which a reserve has
been created may ultimately exceed the amount of the reserve. While we are not aware of any contaminated sites as to which material outstanding claims or obligations exist, the discovery of additional contaminants or the imposition of additional
cleanup obligations at these or other sites could result in significant liability.

Future chemical regulatory actions may decrease profitability.

Several governmental entities have enacted, are considering or may consider in the future, regulations that may impact our ability to sell
certain chemical products in certain geographic areas. In December 2006, the European Commission enacted a regulation known as REACH, which stands for Registration, Evaluation and Authorization of Chemicals. This regulation requires manufacturers,
importers, and consumers of certain chemicals manufactured in, or imported into, the European Union to register such chemicals and evaluate their potential impacts on human health and the environment. The implementing agency is currently in the
process of determining if any chemicals should be further tested, regulated, restricted or banned from use in the European Union. When fully implemented, REACH may result in significant adverse market impacts on the Momentive chemical products sold,
used, or distributed in the European Union. Momentive may also incur significant costs in complying with REACH. If we fail to comply with REACH or other similar laws and regulations, we may be subject to civil remedies, including fines, injunctions,
recalls or seizures, which would have an adverse effect on our financial condition, cash flows and profitability. Similarly, the Canadian government is implementing an initiative to review certain chemical products for potential environmental and
human health and safety impacts. The list of products being reviewed includes several chemicals sold by Momentive. Momentive is part of an industry organization that is working with the Canadian government to develop relevant data and information.
Upon review of such data and information, the Canadian government may enact regulations that would limit Momentives ability to sell the affected chemicals in Canada. As part of this initiative, the Canadian Ministry of Environment has
recommended promulgation of regulations that would limit the discharge into the environment of two chemicals substances manufactured by Momentive. These regulations may include limitations on the import into Canada, or the use in Canada, of products
containing more than a specified amount of these chemical substances.

Recent or new regulations may increase our compliance costs and reduce our
ability to compete in certain markets.

On October 4, 2006, President Bush signed a bill authorizing the Department of Homeland
Security to regulate security at certain chemical facilities. Momentives U.S. chemical manufacturing facilities are subject to this law. Momentive has implemented a



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variety of security measures at its facilities. However, it is likely that one or more of Momentives facilities will be required to implement
additional security measures to comply with the law. The cost of such new measures may be significant.

We participate with other companies
in trade associations and regularly contribute to the research and study of the safety and environmental impact of our products and raw materials, including siloxanes and silica. These programs are part of a program to review the environmental
impacts, safety, and efficacy of our products. The test results are periodically reviewed by state, national, and international regulatory agencies, and there is some risk that regulations could be adopted in the future restricting the manufacture
or use of our products.

Some of our pension plans are unfunded or underfunded.

We sponsor various pension plans worldwide. All of our non-U.S. defined benefit plans are underfunded, except for the German plans, which are unfunded.
Our non-U.S. defined benefit pension plans are underfunded in the aggregate by approximately $84 million as of December 31, 2008, which has been recorded as a liability in the Companys consolidated financial statements in accordance of
Statement of Financial Accounting Standards No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement PlansAn Amendment of FASB Statements No. 87, 88, 106, and 132(R). In 2009, we expect to
contribute approximately $3.3 million to the non-U.S. defined benefit pension plans, which will be sufficient to meet the minimum funding requirements as set forth in employee benefit and tax laws.

We assumed certain pension obligations from GE for our U.S. employees of approximately $43.8 million. These obligations were underfunded as of
December 31, 2008. We established our pension plan for U.S. employees in August 2007. The pension obligations assumed from GE and those arising from subsequent employee service will be administered under this plan. Our U.S. defined benefit
pension plans are underfunded in the aggregate by approximately $39.9 million as of December 31, 2008, which has been recorded as a liability in the Companys consolidated financial statements in accordance of Statement of Financial
Accounting Standards No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement PlansAn Amendment of FASB Statements No. 87, 88, 106, and 132(R). We intend to meet the minimum funding requirements
in 2009 for our U.S. defined benefit pension plans of approximately $13.7 million by October 2009.

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

We are dependent on certain of our key executives and our ability to attract and retain qualified employees.

Our ability to operate our business and implement our strategies depends, in part, on the efforts of our chief executive officer and key members of our
leadership team. In addition, our future success will depend on, among other factors, our ability to attract and retain other qualified personnel, particularly research scientists, technical sales professionals and engineers. The loss of the
services of any of our key employees or the failure to attract or retain other qualified personnel could have a material adverse effect on our business or business prospects.

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

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

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 $30.0 million of these estimated savings are included in our Adjusted EBITDA for the twelve-month period ended March 29, 2009 as permitted in our credit
agreement and indentures. 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
| | - |  | -----------------------------------------------------------------------------------



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

If we fail to maintain effective internal control over financial reporting, it could have a material adverse effect on our business in the future.

If we are unable to maintain an effective internal control environment or to remediate any deficiencies or weaknesses that may arise in the future, it
could have a material adverse effect on our financial condition and results of operations as well as the time and cost involved in complying with Section 404 of the Sarbanes Oxley Act of 2002 (Section 404). In addition
beginning with our 2009 annual report, our independent public registered accounting firm will be required to provide an attestation of our assessment of our internal control over financial reporting pursuant to Section 404.

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

Historically, we have marketed our products and services using the GE brand name and monogram, and we believe the association with GE has
provided us with preferred status among our customers and employees due to GEs globally recognized brands and perceived high-quality products and services.

GE and Holdings are parties to a trademark license agreement that granted us a limited right to, among other things, use the GE mark and monogram on our sealant, adhesive and certain other products. These rights will
extend for an initial term of seven years, commencing from December 3, 2006, with a one-time option that will allow us to renew the license for an additional five-year period, subject to certain terms and conditions. We also retained the right
to use numerous product specifications that contain the letters GE for the life of the respective products. While we continue to use the GE mark and monogram on these products and continue to use these product specifications, we will not
be able to use the GE mark and monogram on other products, use GE as part of our name or advertise ourselves as a GE company. While we have not yet experienced any significant loss of business as a result of our limited use of the GE mark and
monogram, our business could be disadvantaged in the future by the loss of association with the GE name.



|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.



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

INDEX TO EXHIBITS



|              |  |                                                                                                                    
|------------- |  | -------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                        
|              | 
|10.20         |  | Letter Agreement, dated March 17, 2009, between Momentive Performance Materials Inc. and Apollo Management VI, L.P.
|              | 
|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                          



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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.

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



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