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Related Party Transactions
3 Months Ended
Mar. 31, 2012
Related Party Transactions [Abstract]  
Related Party Transactions Disclosure [Text Block]
Related Party Transactions
Administrative Service, Management and Consulting Arrangements
The Company is subject to an Amended and Restated Management Consulting Agreement with Apollo (the “Management Consulting Agreement”) that renews on an annual basis, unless notice to the contrary is given by either party. Under the Management Consulting Agreement, the Company receives certain structuring and advisory services from Apollo and its affiliates. The Management Consulting Agreement provides indemnification to Apollo, its affiliates and their directors, officers and representatives for potential losses arising from these services. Apollo is entitled to an annual fee equal to the greater of $3 or 2% of the Company's Adjusted EBITDA. Apollo elected to waive payment of any portion of the annual management fee due in excess of $3 for the calendar year 2012.
During each of the three months ended March 31, 2012 and 2011 the Company recognized expense under the Management Consulting Agreement of $1. This amount is included in “Other operating expense, net” in the Company’s unaudited Condensed Consolidated Statements of Operations.
Apollo Notes Registration Rights Agreement
On November 5, 2010, in connection with the issuance of the Company's 9.00% Second-Priority Senior Secured Notes due 2020, the Company entered into a separate registration rights agreement with Apollo. The registration rights agreement gives Apollo the right to make three requests by written notice to the Company specifying the maximum aggregate principal amount of notes to be registered. The agreement requires the Company to file a registration statement with respect to the notes it issued to Apollo as promptly as possible following receipt of each such notice. There are no cash or additional penalties under the registration rights agreement resulting from delays in registering the notes.
In September 2011, the Company filed a registration statement on Form S-1 with the SEC to register the resale of $134 of Second-Priority Senior Secured Notes due 2020 held by Apollo.
Shared Services Agreement
On October 1, 2010, MSC Holdings and Momentive Performance Materials Holdings Inc. (“MPM Holdings”), the parent company of Momentive Performance Materials Inc. (“MPM”), became subsidiaries of Momentive Holdings. This transaction is referred to as the “Momentive Combination.”
In conjunction with the Momentive Combination, the Company entered into a shared services agreement, as amended on March 17, 2011, with MPM. Pursuant to the shared services agreement, the Company will provide to MPM, and MPM will provide to the Company, certain services, including, but not limited to, executive and senior management, administrative support, human resources, information technology support, accounting, finance, technology development, legal and procurement services. The shared services agreement establishes certain criteria upon which the costs of such services will be allocated between the Company and MPM. Allocation of service costs not demonstrably attributable to either the Company or MPM will initially be 51% to the Company and 49% to MPM, except to the extent that 100% of any cost was demonstrably attributable to or for the benefit of either MPM or the Company, in which case the total cost will be allocated 100% to such party. The Shared Services Agreement remains in effect until terminated according to its terms. MPM or the Company may terminate the agreement for convenience, without cause, by giving written notice not less than 30 days prior to the effective date of termination. It is also anticipated that the Company and MPM will cooperate to achieve favorable pricing with respect to purchases of raw materials and logistics services.
Pursuant to this agreement, during the three months ended March 31, 2012 and 2011, the Company incurred approximately $41 and $44, respectively, of costs for shared services and MPM incurred approximately $39 and $41, respectively, of costs for shared services (excluding, in each case, costs allocated 100% to one party), including estimates for shared service true-up billings. During the three months ended March 31, 2012, the Company realized approximately $7 in cost savings as a result of the Shared Services Agreement. During the three months ended March 31, 2012 and 2011, the Company billed MPM approximately $5 and $1, respectively, to bring the percentage of total net incurred costs for shared services under the Shared Services Agreement to 51% for the Company and 49% for MPM, as well as costs allocated 100% to one party. The true-up amount is included in “Selling, general and administrative expense” in the unaudited Condensed Consolidated Statements of Operations. The Company had accounts receivable from MPM of $7 and $15 as of March 31, 2012 and December 31, 2011, respectively, and accounts payable to MPM of $0 and $3 at March 31, 2012 and December 31, 2011, respectively.
Apollo Advance
In connection with the terminated Huntsman merger and related litigation settlement agreement and release among the Company, Huntsman and other parties entered into on December 14, 2008, the Company paid Huntsman $225. The settlement payment was funded to the Company by an advance from Apollo, while reserving all rights with respect to reallocation of the payments to other affiliates of Apollo. Under the provisions of the settlement agreement and release, the Company is only contractually obligated to reimburse Apollo for any insurance recoveries on the $225 settlement payment, net of expense incurred in obtaining such recoveries. Apollo has agreed that the payment of any such insurance recoveries will satisfy the Company’s obligation to repay amounts received under the $225 advance. The Company has recorded the $225 settlement payment advance as a long-term liability at March 31, 2012. As of March 31, 2012, the Company has not recovered any insurance proceeds related to the $225 settlement payment.
In April 2012, the Company agreed to a settlement with its insurers to recover $10 in proceeds associated with the $225 settlement payment paid to Huntsman in 2008.
Preferred Equity Commitment and Issuance
In December, 2011, in conjunction with a previous commitment, Momentive Holdings issued 28,785,935 preferred units and 28,785,935 warrants to purchase common units of Momentive Holdings to affiliates of Apollo for a purchase price of $205 (the “Preferred Equity Issuance”), representing the initial $200 face amount, plus amounts earned from the interim liquidity facilities, less related fees and expenses. Momentive Holdings contributed $189 of the proceeds from the Preferred Equity Issuance to MSC Holdings and MSC Holdings contributed the amount to the Company. As of December 31, 2011, the Company had recognized a capital contribution of $204, representing the total proceeds from the Preferred Equity Issuance, less related fees and expenses. The remaining $16 was held in a reserve account at December 31, 2011 by Momentive Holdings to redeem any additional preferred units from Apollo equal to the aggregate number of preferred units and warrants subscribed for by all other members of Momentive Holdings. In January 2012, the remaining $16 of proceeds held in the reserve account were contributed to the Company.
Purchase of MSC Holdings debt
In 2009, the Company purchased $180 in face value of the outstanding MSC Holdings LLC PIK Debt Facility for $24, including accrued interest. The loan receivable from MSC Holdings has been recorded at its acquisition value of $24 as a reduction of equity in the unaudited Condensed Consolidated Statement of Deficit as MSC Holdings is the Company’s parent. In addition, at March 31, 2012 the Company has not recorded accretion of the purchase discount or interest income as ultimate receipt of these cash flows is under the control of MSC Holdings. The Company will continue to assess the collectibility of these cash flows to determine future amounts to record, if any.
Purchases and Sales of Products and Services with Apollo Affiliates and Other Related Parties
The Company sells products to certain Apollo affiliates, members of Momentive Holdings and other related parties. These sales were $1 for each of the three months ended March 31, 2012 and 2011. Accounts receivable from these affiliates were $1 at both March 31, 2012 and December 31, 2011. The Company also purchases raw materials and services from certain Apollo affiliates. These purchases were $7 and $6 for the three months ended March 31, 2012 and 2011, respectively. The Company had accounts payable to Apollo affiliates of $2 and $1 at March 31, 2012 and December 31, 2011, respectively.
Other Transactions and Arrangements
Momentive Holdings purchases insurance policies which also cover the Company and MPM. Amounts are billed to the Company based on the Company's relative share of the insurance premiums. No amounts were billed to the Company from Momentive Holdings for the three months ended March 31, 2012. The Company had accounts payable to Momentive Holdings of less than $1 and $3, under these arrangements at March 31, 2012 and December 31, 2011, respectively.
The Company sells finished goods to and purchases raw materials from its foundry joint venture between the Company and Delta-HA, Inc. (“HAI”). The Company also provides toll-manufacturing and other services to HAI. The Company’s investment in HAI is recorded under the equity method of accounting and the related sales and purchases are not eliminated from the Company’s unaudited Condensed Consolidated Financial Statements. However, any profit on these transactions is eliminated in the Company’s unaudited Condensed Consolidated Financial Statements to the extent of the Company’s 50% interest in HAI. Sales and services provided to HAI were $28 and $29 for the three months ended March 31, 2012 and 2011, respectively. Accounts receivable from HAI were $11 and $14 at March 31, 2012 and December 31, 2011, respectively. Purchases from HAI were $10 and $14 for the three months ended March 31, 2012 and 2011, respectively. The Company had accounts payable to HAI of $8 and $4 at March 31, 2012 and December 31, 2011, respectively. Additionally, HAI declared dividends of $10 and $0 during the three months ended March 31, 2012 and 2011, respectively. Dividends of $5 remain outstanding related to these previously declared dividends as of March 31, 2012.
The Company’s purchase contracts with HAI represent a significant portion of HAI’s total revenue. In addition, the Company has pledged its member interest in HAI as collateral on HAI’s revolving line of credit. These factors result in the Company absorbing the majority of the risk to potential losses or gains from a majority of the expected returns. However, the Company does not have the power to direct the activities that most significantly impact HAI, and therefore, does not consolidated HAI. The carrying value of HAI’s assets were $49 and $48 at March 31, 2012 and December 31, 2011, respectively. The carrying value of HAI’s liabilities were $33 and $21 at March 31, 2012 and December 31, 2011, respectively.
The Company had a loan receivable from its unconsolidated forest products joint venture in Russia of $4 and $3 as of March 31, 2012 and December 31, 2011, respectively