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Related Party Transactions
3 Months Ended
Mar. 31, 2014
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 2014.
During both the three months ended March 31, 2014 and 2013, the Company recognized expense under the Management Consulting Agreement of $1. This amount is included in “Other operating expense (income), net” in the Company’s unaudited Condensed Consolidated Statements of Operations.
Transactions with MPM
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 three months ended March 31, 2014 and 2013, the Company incurred approximately $33 of net costs for shared services and MPM incurred approximately $25 and $23, respectively, of net costs for shared services. Included in the net costs incurred during the three months ended March 31, 2014 and 2013, were net billings from the Company to MPM of $9 and $6, 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 the required annual review by the Steering Committee in accordance with the terms of the Shared Services Agreement, the allocation percentage for 2014 remains unchanged from 2013, which was 57% for the Company and 43% for MPM. The Company had accounts receivable from MPM of $10 and $4 as of March 31, 2014 and December 31, 2013, respectively, and accounts payable to MPM of less than $1 at both March 31, 2014 and December 31, 2013. During the three months ended March 31, 2014 and 2013, the Company realized approximately $1 and $3, respectively, in cost savings as a result of the Shared Services Agreement.
Sales and Purchases 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 March 31, 2014 and 2013, the Company sold less than $1 of products to MPM and purchased $2 and $1, respectively. As of both March 31, 2014 and December 31, 2013, the Company had less than $1 of accounts receivable from MPM and $1 of accounts payable to MPM related to these agreements.
Other Transactions with MPM
In March 2014, the Company entered into a ground lease with a Brazilian subsidiary of MPM to lease a portion of MPM’s manufacturing site in Itatiba, Brazil for purposes of constructing and operating an epoxy production facility. In conjunction with the ground lease, the Company also entered into a site services agreement whereby MPM’s subsidiary will provide to the Company various services such as environmental, health and safety, security, maintenance and accounting, amongst others, to support the operation of this new facility. No amounts were transacted under these agreements during the three months ended March 31, 2014.
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 $46 and $30 for the three months ended March 31, 2014 and 2013, respectively. Accounts receivable from these affiliates were $33 and $17 at March 31, 2014 and December 31, 2013, respectively. The Company also purchases raw materials and services from various Apollo affiliates other than MPM. These purchases were $1 and $11 (as revised from $34 to correct for a data accumulation error, which the Company does not believe is material) for the three months ended March 31, 2014 and 2013, respectively. The Company had accounts payable to these affiliates of less than $1 at both March 31, 2014 and December 31, 2013.
Participation of Apollo Global Securities in Refinancing Transactions
In January 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 refinancing transactions in 2013.
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 either the three months ended March 31, 2014 or 2013. The Company had accounts payable to Momentive Holdings of $2 and $4 under these arrangements at March 31, 2014 and December 31, 2013, 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 $27 for both the three months ended March 31, 2014 and 2013. Accounts receivable from HAI were $18 and $16 at March 31, 2014 and December 31, 2013, respectively. Purchases from HAI were $7 and $7 (as revised from $21 to correct for a data accumulation error, which the Company does not believe is material) for the three months ended March 31, 2014 and 2013, respectively. The Company had accounts payable to HAI of $6 at both March 31, 2014 and December 31, 2013. Additionally, HAI declared dividends to the Company of $3 and $8 during the three months ended March 31, 2014 and 2013, respectively. No amounts remain outstanding related to these previously declared dividends as of March 31, 2014.
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 $56 and $50 at March 31, 2014 and December 31, 2013, respectively. The carrying value of HAI’s liabilities were $19 and $15 at March 31, 2014 and December 31, 2013, 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. During the three months ended March 31, 2014, the Company issued $1 of discounts to HAI under this agreement. As of March 31, 2014 and December 31, 2013, $11 and $12, respectively, remained outstanding under this agreement. As of both March 31, 2014 and December 31, 2013, $5 of the outstanding amount was classified in “Other current liabilities” in the unaudited Condensed Consolidated Balance Sheets, with the remaining amount included in “Other long-term liabilities.”
The Company had royalties receivable from its unconsolidated forest products joint venture in Russia of $6 as of both March 31, 2014 and December 31, 2013.
As of both March 31, 2014 and December 31, 2013, the Company had approximately $10 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.
In February 2014, the Company made a restricted purpose loan of $50 to Superholdco Finance Corp (“Finco”), a newly formed subsidiary of Momentive Holdings. The loan matures in February 2015, bears interest at LIBOR plus 3.75% per annum and is payable on a payment-in-kind basis. The loan is fully collateralized by the assets of Finco. As of March 31, 2014, the outstanding balance of this loan was $50. Interest incurred under the loan agreement was less than $1 for the three months ended March 31, 2014.
Finco is deemed to be a variable interest entity (“VIE”), and the Company’s loan to Finco represents a variable interest in Finco. The power to direct the activities that most significantly impact the VIE is shared between the Company and the other related party variable interest entity holder. However, as of March 31, 2014, the Company’s loan to Finco results in the Company absorbing the majority of the risk from potential losses or the majority of the gains from potential returns of the VIE and, therefore, the Company has consolidated Finco in its unaudited Condensed Consolidated Financial Statements as of March 31, 2014. As a result, as of March 31, 2014, the Company consolidated additional cash of $50 in its unaudited Condensed Consolidated Financial Statements. Under the accounting guidance for VIEs, the Company is required to periodically reassess the primary beneficiary of the VIE as changes in facts and circumstances warrant. 
On April 7, 2014, Finco entered into an agreement with MPM under which it purchased approximately $51 of accounts receivable from MPM, paying 95% of the proceeds in cash, with the remaining 5% to be paid in cash when the sold receivables are fully collected. The agreement also appointed MPM to act as the servicer of the receivables on behalf of Finco.
Subsequent Event
In April 2014, the Company purchased 100% of the interests in MPM’s Canadian subsidiary for a purchase price of approximately $12. As a part of the transaction the Company also entered into a non-exclusive distribution agreement with a subsidiary of MPM, whereby the Company will act as a distributor of certain of MPM’s products in Canada. The agreement has a term of 10 years, and is cancelable by either party with 180 days’ notice. The Company will be compensated for acting as distributor at a rate of 2% of the net selling price of the related products sold. Additionally, MPM will provide transitional services to the Company for a period of 6 months.