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Related Party Transactions
6 Months Ended
Jun. 30, 2012
Related Party Transactions [Abstract]  
Related Party Transactions Disclosure [Text Block]
Related Party Transactions
Administrative Service, Management and Consulting Arrangement
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 charges of any portion of the annual management fee due in excess of $3 for the calendar year 2012.
During the three and six months ended June 30, 2012 the Company recognized expense under the Management Consulting Agreement of $1 and $2, respectively. These amounts are included in “Other operating (income) 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, which was subsequently declared effective on May 7, 2012.
Shared Services Agreement
On October 1, 2010, in conjunction with the Momentive Combination, the Company entered into a shared services agreement with MPM, as amended on March 17, 2011 (the “Shared Services Agreement”). Under this agreement, the Company provides to MPM, and MPM provides to the Company, certain services, including, but not limited to, executive and senior management, administrative support, human resources, information technology support, accounting, finance, technology development, legal and procurement services. The Shared Services Agreement establishes certain criteria upon which the costs of such services are allocated between the Company and MPM. Pursuant to this agreement, during the six months ended June 30, 2012 and 2011, the Company incurred approximately $79 and $90, respectively, of net costs for shared services and MPM incurred approximately $75 and $86, respectively, of net costs for shared services. Included in the net costs incurred during the six months ended June 30, 2012 and 2011, were net billings from MSC to MPM of $9 and $3, 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 to reflect costs allocated 100% to one party. During the six months ended June 30, 2012 and 2011, the Company realized approximately $12 and $14, respectively, in cost savings as a result of the Shared Services Agreement. The Company had accounts receivable from MPM of $7 and $15 as of June 30, 2012 and December 31, 2011, respectively, and accounts payable to MPM of $1 and $3 at June 30, 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 June 30, 2012.
In April 2012, the Company agreed to a settlement with its insurers to recover $10 in proceeds associated with the $225 settlement payment made to Huntsman in 2008. During the three months ended June 30, 2012, the Company recognized the $10 settlement, which was recorded net of approximately $2 of fees related to the settlement, and is included in “Other operating (income) expense, net” in the unaudited Condensed Consolidated Statements of Operations. In July 2012, the Company received approximately $1 from its insurers for reimbursement of expenses incurred in obtaining the recoveries, and Apollo received the remaining approximately $7 of the settlement from the Company's insurers. Following receipt of the settlement payment from the Company's insurers, Apollo acknowledged the satisfaction of the Company's obligations to Apollo with respect to the $225 advance. The remaining $218 will be reclassified from a long-term liability to equity as a capital contribution from Apollo in August 2012.
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 Balance Sheets as MSC Holdings is the Company’s parent. In addition, at June 30, 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 $4 and less than $1 for the three months ended June 30, 2012 and 2011, respectively, and $6 and $1 for the six months ended June 30, 2012 and 2011, respectively. Accounts receivable from these affiliates were $3 and $1 at June 30, 2012 and December 31, 2011, respectively. The Company also purchases raw materials and services from certain Apollo affiliates. These purchases were $11 and $14 for the three months ended June 30, 2012 and 2011, respectively, and $18 and $20 for the six months ended June 30, 2012 and 2011, respectively. The Company had accounts payable to Apollo affiliates of $1 at both June 30, 2012 and December 31, 2011.
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 by Momentive Holdings for the three or six months ended June 30, 2012. The Company had accounts payable to Momentive Holdings of less than $1 and $3 under these arrangements at June 30, 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 $48 for the three months ended June 30, 2012 and 2011, respectively, and $56 and $77 for the six months ended June 30, 2012 and 2011, respectively. Accounts receivable from HAI were $23 and $14 at June 30, 2012 and December 31, 2011, respectively. Purchases from HAI were $14 and $32 for the three months ended June 30, 2012 and 2011, respectively, and $24 and $46 for the six months ended June 30, 2012 and 2011, respectively. The Company had accounts payable to HAI of $2 and $4 at June 30, 2012 and December 31, 2011, respectively. Additionally, HAI declared dividends to the Company of $3 and $5 during the three months ended June 30, 2012 and 2011, respectively, and $13 and $5 during the six months ended June 30, 2012 and 2011, respectively. $3 remains outstanding related to these previously declared dividends as of June 30, 2012.
The Company’s purchase contracts with HAI represent a significant portion of HAI’s total revenue, and this factor results in the Company absorbing the majority of the risk from potential losses or the majority of the gains from potential returns. However, the Company does not have the power to direct the activities that most significantly impact HAI, and therefore, does not consolidate HAI. The carrying value of HAI’s assets were $50 and $48 at June 30, 2012 and December 31, 2011, respectively. The carrying value of HAI’s liabilities were $31 and $21 at June 30, 2012 and December 31, 2011, respectively.
The Company had a loan receivable from its unconsolidated forest products joint venture in Russia of $2 and $3 as of June 30, 2012 and December 31, 2011, respectively. The Company had royalties receivable from its unconsolidated forest products joint venture in Russia of $3 and $2 as of June 30, 2012 and December 31, 2011, respectively.