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Related Party Transactions
9 Months Ended
Sep. 30, 2013
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 2013.
During both the three months ended September 30, 2013 and 2012 and during both the nine months ended September 30, 2013 and 2012, the Company recognized expense under the Management Consulting Agreement of $1 and $2, respectively. This amount is included in “Other operating expense (income), net” in the Company’s unaudited Condensed Consolidated Statements of Operations.
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 nine months ended September 30, 2013 and 2012, the Company incurred approximately $90 and $111, respectively, of net costs for shared services and MPM incurred approximately $67 and $106, respectively, of net costs for shared services. Included in the net costs incurred during the nine months ended September 30, 2013 and 2012, were net billings from the Company to MPM of $21 and $16, respectively, to bring the percentage of total net incurred costs for shared services under the Shared Services Agreement to the applicable allocation percentage. The allocation percentage was initially set at 51% for the Company and 49% for MPM at the inception of the agreement. Following a routine review by the Steering Committee in accordance with the terms of the Shared Services Agreement, the allocation percentage for 2013 was set at 57% for the Company and 43% for MPM. During the nine months ended September 30, 2013 and 2012, the Company realized approximately $6 and $19, respectively, in cost savings as a result of the Shared Services Agreement. The Company had accounts receivable from MPM of $2 and less than $1 as of September 30, 2013 and December 31, 2012, respectively, and accounts payable to MPM of less than $1 at both September 30, 2013 and December 31, 2012.
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 was 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, the Company has not recorded accretion of the purchase discount or interest income, as ultimate receipt of these cash flows was under the control of MSC Holdings.
During the nine months ended September 30, 2013, in conjunction with the 2013 Refinancing Transactions (see Note 6), the loan receivable from MSC Holdings was settled for no consideration at the direction of MSC Holdings. As a result, the Company accounted for the settlement of the loan as a distribution to MSC Holdings of $24, which was recognized in “Paid-in Capital” in the unaudited Condensed Consolidated Balance Sheets. Additionally, during the nine months ended September 30, 2013, the Company declared a distribution to MSC Holdings of $208 in connection with the retirement of the outstanding $247 aggregate principal amount of the MSC Holdings LLC PIK Facility held by an unaffiliated third party, in conjunction with the 2013 Refinancing Transactions.
Purchases and Sales of Products and Services with MPM
The Company also sells products to, and purchases products from, MPM pursuant to a Master Buy/Sell Agreement dated as of September 6, 2012 (the “Master Buy/Sell Agreement”). Prices under the agreement are determined by a formula based upon certain third party sales of the applicable product, or in the event that no qualifying third party sales have taken place, based upon the average contribution margin generated by certain third party sales of products in the same or a similar industry. The standard terms and conditions of the seller in the applicable jurisdiction apply to transactions under the Master Buy/Sell Agreement. A subsidiary of MPM also acts as a non-exclusive distributor in India for certain of the Company’s subsidiaries pursuant to Distribution Agreements dated as of September 6, 2012 (the “Distribution Agreements”). Prices under the Distribution Agreements are determined by a formula based on the weighted average sales price of the applicable product less a margin. The Master Buy/Sell Agreement and Distribution Agreements have initial terms of 3 years and may be terminated for convenience by either party thereunder upon 30 days’ prior notice in the case of the Master/Buy Sell Agreement and upon 90 days’ prior notice in the case of the Distribution Agreements. Pursuant to these agreements and other purchase orders, during the three months ended September 30, 2013 and 2012, the Company sold $1 and less than $1, respectively, of products to MPM and purchased $2 and $4, respectively. During the nine months ended September 30, 2013 and 2012, the Company sold $1 and less than $1, respectively, of products to MPM and purchased $4 and $6, respectively. As of September 30, 2013 and December 31, 2012, the Company had less than $1 of accounts receivable from MPM and $1 and less than $1, respectively, of accounts payable to MPM related to these agreements.
Purchases and Sales of Products and Services with Affiliates Other than MPM
The Company sells products to various Apollo affiliates other than MPM. These sales were $25 and $5 for the three months ended September 30, 2013 and 2012, respectively, and $91 and $10 for the nine months ended September 30, 2013 and 2012, respectively. Accounts receivable from these affiliates were $10 and $26 at September 30, 2013 and December 31, 2012, respectively. The Company also purchases raw materials and services from various Apollo affiliates other than MPM. These purchases were $37 and $9 for the three months ended September 30, 2013 and 2012, respectively, and $103 and $25 for the nine months ended September 30, 2013 and 2012, respectively. The Company had accounts payable to these affiliates of $1 and $4 at September 30, 2013 and December 31, 2012, respectively.
Participation of Apollo Global Securities in Refinancing Transactions
During the nine months ended September 30, 2013, Apollo Global Securities, LLC (“AGS”), an affiliate of Apollo, acted as one of the initial purchasers and received approximately $1 in connection with the sale of an additional $1,100 aggregate principal amount of the Company’s 6.625% First-Priority Senior Secured Notes due 2020. AGS also received $1 in structuring fees in connection with the 2013 Refinancing Transactions.
During the nine months ended September 30, 2012, AGS acted as one of the initial purchasers and received approximately $1 in connection with the sale of $450 aggregate principal amount of the Company’s 6.625% First-Priority Senior Secured Notes due 2020.
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. Momentive Holdings billed the Company $13 for both the three and nine months ended September 30, 2013 and $12 for both the three and nine months ended September 30, 2012. The Company had accounts payable to Momentive Holdings of $6 and $4 under these arrangements at September 30, 2013 and December 31, 2012, respectively.
The Company sells finished goods to, and purchases raw materials from, its foundry joint venture between the Company and HA-USA 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 $25 and $28 for the three months ended September 30, 2013 and 2012, respectively, and $78 and $84 for the nine months ended September 30, 2013 and 2012, respectively. Accounts receivable from HAI were $17 and $16 at September 30, 2013 and December 31, 2012, respectively. Purchases from HAI were $21 and $6 for the three months ended September 30, 2013 and 2012, respectively, and $52 and $30 for the nine months ended September 30, 2013 and 2012, respectively. The Company had accounts payable to HAI of $7 and $6 at September 30, 2013 and December 31, 2012, respectively. Additionally, HAI declared dividends to the Company of $15 and $13 during the nine months ended September 30, 2013 and 2012, respectively. No amounts remain outstanding related to these previously declared dividends as of September 30, 2013.
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 $63 and $52 at September 30, 2013 and December 31, 2012, respectively. The carrying value of HAI’s liabilities were $22 and $18 at September 30, 2013 and December 31, 2012, respectively.
In February 2013, the Company and HAI resolved a dispute regarding raw material pricing. As part of the resolution, the Company will provide discounts to HAI on future purchases of dry and liquid resins totaling $16 over a period of three years. The $16 settlement was recorded net of $8 of income during the year ended December 31, 2012, which represented the Company’s benefit from the discounts due to its 50% ownership interest in HAI. During the three and nine months ended September 30, 2013, the Company issued $1 and $3, respectively, of discounts to HAI under this agreement.
The Company had a loan receivable from its unconsolidated forest products joint venture in Russia of less than $1 as of December 31, 2012. The Company also had royalties receivable from its unconsolidated forest products joint venture in Russia of $6 and $5 as of September 30, 2013 and December 31, 2012, respectively.
As of September 30, 2013, the Company had approximately $11 of cash on deposit as collateral for a loan that was extended by a third party to one of the Company’s unconsolidated joint ventures, which is classified as restricted cash.