Document
 


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT

PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2018

Commission File Number: 001-35493

STEEL PARTNERS HOLDINGS L.P.
(Exact name of registrant as specified in its charter)

Delaware
13-3727655
(State of Incorporation)
(I.R.S. Employer Identification No.)
 
 
590 Madison Avenue, 32nd Floor
 
New York, New York
10022
(Address of principal executive offices)
(Zip Code)

(212) 520-2300
(Registrant's telephone number)

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 o

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 þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12-b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o
Smaller reporting company o
(Do not check if a smaller reporting company)
 
 
Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes o No þ

The number of shares outstanding of the Registrant's common units as of May 2, 2018 was 26,164,143.

 



STEEL PARTNERS HOLDINGS L.P.
TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
Page
Item 1.
Financial Statements (unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 4.
 
 
 
PART II — OTHER INFORMATION
 
 
 
 
Item 1.
 
 
 
Item 2.
 
 
 
Item 6.
 
 
 




PART I - FINANCIAL INFORMATION
Item 1. Financial Statements

STEEL PARTNERS HOLDINGS L.P.
Consolidated Balance Sheets
(unaudited)
(in thousands, except common units)
 
March 31, 2018
 
December 31, 2017
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
322,833

 
$
418,755

Restricted cash
13,092

 
15,629

Marketable securities
15,120

 
58,313

Trade and other receivables - net of allowance for doubtful accounts of $2,655 and $3,633, respectively
216,288

 
188,487

Receivables from related parties
802

 
355

Loans receivable, including loans held for sale of $148,729 and $136,773, respectively, net
204,261

 
182,242

Inventories, net
160,473

 
142,635

Prepaid expenses and other current assets
29,436

 
19,597

Assets held for sale

 
2,549

Total current assets
962,305

 
1,028,562

Long-term loans receivable, net
106,208

 
87,826

Goodwill
182,810

 
170,115

Other intangible assets, net
213,481

 
199,317

Deferred tax assets
110,923

 
109,011

Other non-current assets
67,383

 
61,074

Property, plant and equipment, net
302,622

 
271,991

Long-term investments
274,769

 
236,144

Total Assets
$
2,220,501

 
$
2,164,040

LIABILITIES AND CAPITAL
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
123,699

 
$
105,221

Accrued liabilities
70,191

 
74,118

Financial instruments
13,092

 
15,629

Deposits
303,690

 
305,207

Payables to related parties
1,726

 
1,563

Short-term debt
2,602

 
1,624

Current portion of long-term debt
828

 
459

Other current liabilities
11,906

 
10,602

Liabilities of discontinued operations
450

 
450

Total current liabilities
528,184

 
514,873

Long-term deposits
200,441

 
205,793

Long-term debt
470,739

 
412,584

Preferred unit liability
173,121

 
176,512

Accrued pension liabilities
265,123

 
268,233

Deferred tax liabilities
3,482

 
3,007

Other non-current liabilities
20,836

 
16,002

Total Liabilities
1,661,926

 
1,597,004

Commitments and Contingencies


 


Capital:
 
 
 
Partners' capital common units: 26,164,143 and 26,348,420 issued and outstanding (after deducting 11,052,644 and 10,868,367 units held in treasury, at cost of $174,453 and $170,858), respectively
730,832

 
652,270

Accumulated other comprehensive loss
(193,977
)
 
(106,167
)
Total Partners' Capital
536,855

 
546,103

Noncontrolling interests in consolidated entities
21,720

 
20,933

Total Capital
558,575

 
567,036

Total Liabilities and Capital
$
2,220,501

 
$
2,164,040


See accompanying Notes to Consolidated Financial Statements

2


STEEL PARTNERS HOLDINGS L.P.
Consolidated Statements of Operations
(unaudited)
(in thousands, except common units and per common unit data)
 
Three Months Ended March 31,
 
2018
 
2017
Revenue:
 
 
 
Diversified industrial net sales
$
307,618

 
$
280,214

Energy net revenue
36,592

 
27,316

Financial services revenue
22,035

 
15,789

Total revenue
366,245

 
323,319

Costs and expenses:
 
 
 
Cost of goods sold
261,861

 
228,613

Selling, general and administrative expenses
88,382

 
90,522

Finance interest expense
1,778

 
881

Provision for loan losses
2,818

 
123

Interest expense
8,109

 
4,406

Realized and unrealized losses on securities, net
13,789

 
215

Other (income) expenses, net
(1,016
)
 
1,113

Total costs and expenses
375,721

 
325,873

Loss before income taxes and equity method investments
(9,476
)
 
(2,554
)
Income tax provision
1,330

 
6,846

Income of associated companies, net of taxes
(1,955
)
 
(6,302
)
Net loss
(8,851
)
 
(3,098
)
Net income attributable to noncontrolling interests in consolidated entities
(227
)
 
(984
)
Net loss attributable to common unitholders
$
(9,078
)
 
$
(4,082
)
Net loss per common unit - basic and diluted
 
 
 
Net loss attributable to common unitholders
$
(0.35
)
 
$
(0.16
)
Weighted-average number of common units outstanding - basic
26,264,101

 
26,145,711

Weighted-average number of common units outstanding - diluted
26,264,101

 
26,145,711


See accompanying Notes to Consolidated Financial Statements

3


STEEL PARTNERS HOLDINGS L.P.
Consolidated Statements of Comprehensive (Loss) Income
(unaudited)
(in thousands)
 
Three Months Ended March 31,
 
2018
 
2017
Net loss
$
(8,851
)
 
$
(3,098
)
Other comprehensive income, net of tax:
 
 
 
Gross unrealized gains on securities (a)

 
17,696

Reclassification of unrealized losses on securities (a),(b)

 
135

Gross unrealized gains on derivative financial instruments
185

 
307

Currency translation adjustments
3,304

 
1,227

Other comprehensive income
3,489

 
19,365

Comprehensive (loss) income
(5,362
)
 
16,267

Comprehensive income attributable to noncontrolling interests
(448
)
 
(2,064
)
Comprehensive (loss) income attributable to common unitholders
$
(5,810
)
 
$
14,203

 
 
 
 
Tax provision on gross unrealized gains on securities and derivative financial instruments
$
32

 
$
3,384

Tax provision on reclassification of unrealized losses on securities
$

 
$
80

Tax provision on currency translation adjustments
$
36

 
$
8

(a)
Effective January 1, 2018 upon adoption of ASU 2016-01, unrealized gains or losses on equity securities are no longer recorded in Other comprehensive income, but are instead recorded in Realized and unrealized losses on securities, net in the consolidated statement of operations.
(b)
For the three months ended March 31, 2017, unrealized losses of $215 were reclassified to Realized and unrealized losses on securities, net, due to the sale of the related investments.

See accompanying Notes to Consolidated Financial Statements

4


STEEL PARTNERS HOLDINGS L.P.
Consolidated Statement of Changes in Capital
(unaudited)
(in thousands, except common units and treasury units)
 
Steel Partners Holdings L.P. Common Unitholders
 
 
 
 
 
Common
 
Treasury Units
 
Partners'
 
Accumulated Other Comprehensive
 
Total Partners'
 
Noncontrolling Interests in Consolidated
 
Total
 
Units
 
Units
 
Dollars
 
Capital
 
Loss
 
Capital
 
Entities
 
Capital
Balance at December 31, 2017
37,216,787

 
(10,868,367
)
 
$
(170,858
)
 
$
652,270

 
$
(106,167
)
 
$
546,103

 
$
20,933

 
$
567,036

Net loss

 

 

 
(9,078
)
 

 
(9,078
)
 
227

 
(8,851
)
Cumulative effect of adopting ASU 2016-01 relating to net unrealized gains and losses on equity securities (a)

 

 

 
91,078

 
(91,078
)
 

 

 

Cumulative effect of adopting ASC 606 relating to revenue recognition (b)

 

 

 
1,034

 

 
1,034

 

 
1,034

Unrealized gains on derivative financial instruments

 

 

 

 
170

 
170

 
15

 
185

Currency translation adjustments

 

 

 

 
3,098

 
3,098

 
206

 
3,304

Equity compensation - restricted units

 

 

 
149

 

 
149

 

 
149

Purchases of SPLP common units

 
(184,277
)
 
(3,595
)
 
(3,595
)
 

 
(3,595
)
 

 
(3,595
)
Purchases of subsidiary shares from noncontrolling interests

 

 

 
(740
)
 

 
(740
)
 
339

 
(401
)
Other, net

 

 

 
(286
)
 

 
(286
)
 

 
(286
)
Balance at March 31, 2018
37,216,787

 
(11,052,644
)
 
$
(174,453
)
 
$
730,832

 
$
(193,977
)
 
$
536,855

 
$
21,720

 
$
558,575

(a)
Effective January 1, 2018 upon adoption of ASU 2016-01, a cumulative effect reclassification adjustment was made to remove the net unrealized gains and losses on equity securities from Accumulated other comprehensive loss and reclassify them to Partners' capital.
(b)
Effective January 1, 2018, the Company adopted ASC 606 for all contracts with customers using the modified retrospective transition method. The Company recognized a net increase of $1,034 to Partners' capital due to the cumulative impact of adopting ASC 606.

See accompanying Notes to Consolidated Financial Statements

5


STEEL PARTNERS HOLDINGS L.P.
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
 
Three Months Ended March 31,
 
2018
 
2017
Cash flows from operating activities:
 
 
 
Net loss
$
(8,851
)
 
$
(3,098
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Provision for loan losses
2,818

 
123

Income of associated companies, net of taxes
(1,955
)
 
(6,302
)
Losses on securities, net
13,789


215

Deferred income taxes
(618
)
 
(1,118
)
Depreciation and amortization
18,702

 
18,280

Equity-based compensation
149

 
6,327

Other
1,996

 
1,937

Net change in operating assets and liabilities:
 
 
 
Trade and other receivables
(21,308
)
 
(24,559
)
Inventories
(9,005
)
 
(10,358
)
Prepaid expenses and other assets
(5,913
)
 
(3,040
)
Accounts payable, accrued and other current liabilities
1,477

 
(4,937
)
Net increase in loans held for sale
(11,956
)
 
(24,799
)
Net cash used in operating activities
(20,675
)
 
(51,329
)
Cash flows from investing activities:
 
 
 
Purchases of investments
(57,706
)
 
(10,139
)
Proceeds from sales of investments
33,718

 
1,458

Proceeds from maturities of marketable securities
8,146

 
3,428

Loan originations, net of collections
(31,261
)
 
(6,488
)
Purchases of property, plant and equipment
(12,010
)
 
(8,899
)
Proceeds from sales of assets
2,960

 
14,483

Acquisitions, net of cash acquired
(62,120
)
 
2,246

Proceeds from divestitures

 
1,975

Other
(134
)
 
(289
)
Net cash used in investing activities
(118,407
)
 
(2,225
)
Cash flows from financing activities:
 
 
 
Net revolver borrowings
56,510

 
5,773

Net repayments of term loans – domestic
(115
)
 
(248
)
Net borrowings (repayments) of term loans – foreign
85

 
(1,090
)
Proceeds from equipment lease financing

 
5,377

Purchases of the Company's common units
(3,595
)
 
(1,306
)
Purchase of subsidiary shares from noncontrolling interests
(4,360
)
 
(2,086
)
Common unit dividend payment

 
(3,923
)
Deferred finance charges
(430
)
 

Net decrease in deposits
(6,869
)
 
(14,900
)
Other
(1,198
)
 
(1,484
)
Net cash provided by (used in) financing activities
40,028

 
(13,887
)
Net change for the period
(99,054
)
 
(67,441
)
Effect of exchange rate changes on cash and cash equivalents
595

 
525

Cash, cash equivalents and restricted cash at beginning of period
434,384

 
462,768

Cash, cash equivalents, and restricted cash at end of period
$
335,925

 
$
395,852


See accompanying Notes to Consolidated Financial Statements

6


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

All amounts used in the Notes to Consolidated Financial Statements are in thousands, except common and preferred units, per common and preferred unit, share and per share data.

1. NATURE OF THE BUSINESS AND BASIS OF PRESENTATION

Nature of the Business

Steel Partners Holdings L.P. ("SPLP" or "Company") is a diversified global holding company that engages in multiple businesses through consolidated subsidiaries and other interests. It owns and operates businesses and has significant interests in companies in various industries, including diversified industrial products, energy, defense, supply chain management and logistics, banking and youth sports. SPLP operates through the following segments: Diversified Industrial, Energy, Financial Services, and Corporate and Other, which are managed separately and offer different products and services. For additional details related to the Company's reportable segments see Note 18 - "Segment Information." Steel Partners Holdings GP Inc. ("SPH GP"), a Delaware corporation, is the general partner of SPLP and is wholly-owned by SPLP. The Company is managed by SP General Services LLC ("Manager"), pursuant to the terms of an amended and restated management agreement ("Management Agreement") discussed in further detail in Note 17 - "Related Party Transactions."

Basis of Presentation

The consolidated balance sheet as of December 31, 2017, which has been derived from audited financial statements, and the unaudited consolidated financial statements included herein have been prepared by the Company in accordance with the rules and regulations of the Securities and Exchange Commission for interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") have been condensed or omitted in accordance with those rules and regulations. The Company believes that the disclosures made are adequate to make the information not misleading. This quarterly report on Form 10-Q should be read in conjunction with the Company's audited consolidated financial statements on Form 10-K for the year ended December 31, 2017. Certain amounts for the prior year have been reclassified to conform to the current year presentation, principally to conform with changes made in accordance with new accounting pronouncements adopted January 1, 2018, as discussed further below.

In the opinion of management, the interim financial statements reflect all normal and recurring adjustments necessary to present fairly the consolidated financial position and the results of operations and changes in cash flows for the interim periods. The preparation of the consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Estimates are based on historical experience, expected future cash flows and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The results of operations for the three months ended March 31, 2018 are not necessarily indicative of the operating results for the full year.

New or Recently Adopted Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606), and has since issued amendments thereto (collectively referred to herein as "ASC 606"). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, and the guidance defines a five-step process to achieve this core principle. ASC 606 also requires additional disclosure about the nature, amount, timing and uncertainty of revenues and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The Company adopted ASC 606 as of January 1, 2018 using the modified retrospective transition method. For additional information, see Note 2 - "Revenues."

In January 2016, the FASB issued ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10), which eliminates the requirement to classify equity securities with readily determinable market values as either available-for-sale securities or trading securities, and requires that equity investments, other than those accounted for under the traditional equity method of accounting, be measured at their fair value with changes in fair value recognized in net income or loss. In the past, changes in fair value were reported in the Company's consolidated statement of comprehensive income (loss) and in Accumulated other comprehensive

7


income (loss) ("AOCI"). Equity investments that do not have readily determinable market values may be measured at cost under ASU 2016-01, subject to an assessment for impairment. We adopted ASU 2016-01 effective January 1, 2018. Upon adoption, we recorded a cumulative effect reclassification adjustment from AOCI to Partners' capital of $91,078, which represented the accumulated net unrealized gain on equity securities that was held in AOCI as of December 31, 2017. See also Note 12 - "Capital and Accumulated Other Comprehensive Loss."

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new standard establishes a right-of-use ("ROU") model that requires a lessee to record a ROU asset and a lease liability, measured on a discounted basis, on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of operations. A modified retrospective transition approach is required for capital and operating leases existing at the date of adoption, with certain practical expedients available. The Company is currently evaluating the potential impact of this new guidance, which is effective for the Company's 2019 fiscal year.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The new standard changes the impairment model for most financial assets that are measured at amortized cost and certain other instruments, including trade receivables, from an incurred loss model to an expected loss model and adds certain new required disclosures. Under the expected loss model, entities will recognize estimated credit losses to be incurred over the entire contractual term of the instrument rather than delaying recognition of credit losses until it is probable the loss has been incurred. The new standard is effective for the Company's 2020 fiscal year with early adoption permitted for all entities in fiscal years beginning after December 15, 2018. The Company is currently evaluating the potential impact of this new guidance.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This new standard provided guidance to help decrease diversity in practice in how certain cash receipts and cash payments are classified in the statement of cash flows. The amendments in ASU 2016-15 provided guidance on eight specific cash flow issues. We adopted ASU 2016-15 effective January 1, 2018. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. This new standard provides guidance on the classification of restricted cash in the statement of cash flows. We adopted ASU 2016-18 effective January 1, 2018. As a result of the adoption of ASU 2016-18, in the consolidated statement of cash flows for the three months ended March 31, 2017, we reclassified $13,513 of restricted cash.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This new standard provides guidance to help determine more clearly what is a business acquisition, as opposed to an asset acquisition. The amendments provide a screen to help determine when a set of components is a business by reducing the number of transactions in an acquisition that need to be evaluated. The new standard states that to classify the acquisition of assets as a business, there must be an input and a substantive process that jointly contribute to the ability to create outputs, with outputs being defined as the key elements of the business. If all of the fair value of the assets acquired are concentrated in a single asset group, this would not qualify as a business. The Company adopted ASU 2017-01 effective January 1, 2018. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This new standard simplifies subsequent measurements of goodwill by eliminating Step 2 from the goodwill impairment test. Instead, entities will perform their interim or annual goodwill impairment testing by comparing the fair value of a reporting unit with its carrying amount and recognizing an impairment charge based on the amount that the carrying amount exceeds the reporting unit's fair value. The loss recognized should not exceed the total goodwill allocated to the reporting unit. The amendments in ASU 2017-04 are effective for the Company's 2020 fiscal year. The Company is currently evaluating the potential impact of this new guidance.

In March 2017, the FASB issued ASU 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This new standard requires the components of net benefit cost to be disaggregated within the statement of operations, with service cost being included in the same line item as other compensation costs, and any other components being presented outside of operating income. The Company adopted ASU 2017-07 effective January 1, 2018. Since the Company's significant pension plans have been frozen, there is no substantial service cost associated with such plans and therefore, the adoption of ASU 2017-07 did not have a material impact on the Company's consolidated financial statements.


8


In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting. This new standard provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The standard states that entities should account for the effects of a modification unless the fair value of the modified award is the same as the fair value of the original award, the vesting conditions do not change, and the classification as an equity instrument or a liability instrument is the same. We adopted ASU 2017-09 effective January 1, 2018. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This new standard was created to refine and expand hedge accounting for both financial and commodity risk in order to simplify the current application of hedge accounting guidance in current U.S. GAAP. This new standard creates more transparency around how hedging results are presented, both in the notes and on the face of the financial statements. The amendments in ASU 2017-12 are effective for the Company's 2019 fiscal year. The Company is currently evaluating the potential impact of this new guidance.

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The new standard provides financial statement preparers with an option to reclassify stranded tax effects within AOCI to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the federal Tax Cuts and Jobs Act ("TCJA") is recorded. The amendments in ASU 2018-02 are effective for the Company's 2019 fiscal year. The Company is currently evaluating the potential impact of this new guidance.

In March 2018, the FASB issued ASU 2018-05, Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. ASU 2018-05 applies to income tax effects from the enactment of the TCJA in December 2017. ASU 2018-05 allows a Company to report as provisional those amounts where the Company does not have the necessary information available, prepared or analyzed in reasonable detail to complete the accounting under Accounting Standards Codification Topic 740. ASU 2018-05 further allows a measurement period, not to exceed one year from the enactment date of TCJA, during which an entity may need to reflect adjustments to its provisional amounts. ASU 2018-05 requires that any adjustments to provisional amounts during the measurement period be included in income from continuing operations as an adjustment to tax expense or benefit, and also requires certain disclosures. The provisions of ASU 2018-05 were effective as of the enactment date of the TCJA, December 22, 2017.

2. REVENUES

Adoption of ASC 606, "Revenue from Contracts with Customers"

On January 1, 2018, the Company adopted ASC 606 for all contracts with customers using the modified retrospective transition method. The Company recognized a net increase of $1,034 to Partners' capital due to the cumulative impact of adopting ASC 606. The impact to Partners' capital was primarily related to the timing of when revenue is recognized. While revenue from most contracts will continue to be recognized at a point in time, revenue from other contracts (for example, contracts for sale of custom manufactured goods that do not have an alternative use and for which the Company has an enforceable right to payment) will be recognized over time. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company does not expect the adoption of the new revenue standard to have a material impact to our net income on an ongoing basis.

For the three months ended March 31, 2018, ASC 606 did not have a material impact on the Company's consolidated statement of operations, including total revenue. As of March 31, 2018, and January 1, 2018, no accounts in the consolidated balance sheets, including the Company's return asset, contract asset and contract liability accounts, were materially impacted by ASC 606 (see "Contract Balances" below for further details).

Revenue Recognition Accounting Policies

Revenues are recognized when control of the promised goods or services are transferred to the customer, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.

The Company records all shipping and handling fees billed to customers as revenue. The Company has elected to account for shipping and handling activities that are performed after the customer obtains control of a good as activities to fulfill the promise to transfer the good. If revenue is recognized for the related good before the shipping and handling activities occur, the related costs of those shipping and handling activities are accrued.

9



Sales and usage-based taxes are excluded from revenues. The Company does not have any material service-type warranty arrangements. The expected costs associated with the Company's assurance warranties continue to be recognized as expense when the products are sold. The Company does not have any material significant financing arrangements as payment is received shortly after the goods are sold or services are performed.

Standalone Selling Price

Generally, the Company's sales contracts with customers contain only one performance obligation. In certain circumstances, contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines the standalone selling price based on the prices charged to similar customers or by using the expected cost plus margin approach.

Practical Expedients and Exemptions

The Company's performance obligations are generally part of contracts that have a duration of less than one year. Therefore, in accordance with the standard, the Company generally expenses sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within Selling, general and administrative expenses.

For certain of the services that the Company's Diversified Industrial segment and Energy segment provides, the Company has determined that it has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the Company's performance completed to date, and therefore, the Company recognizes revenue in the amount to which the entity has a right to invoice.

Disaggregation of Revenues

Revenues are disaggregated at the Company's segment level since the segment categories depict how the nature, amount, timing and uncertainty of revenues and cash flows are affected by economic factors. For additional details related to the Company's reportable segments see Note 18 - "Segment Information."

The following table presents the Company's revenues disaggregated by geography for the three months ended March 31, 2018 and 2017. The Company's revenues are primarily derived domestically. Foreign revenues are based on the country in which the legal subsidiary generating the revenue is domiciled. Revenue from any single foreign country was not material to the Company's consolidated financial statements.

 
Three Months Ended March 31,
 
2018
 
2017
United States
$
307,940

 
$
276,282

Foreign (a)
58,305

 
47,037

Total revenue
$
366,245

 
$
323,319

(a)
Foreign revenues are primarily related to the Company's API Group plc ("API") business, which is domiciled in the United Kingdom.

Diversified Industrial Revenues

The Diversified Industrial segment is comprised of manufacturers of engineered niche industrial products. The majority of revenues recognized are for the sale of manufactured goods in the United States. Other revenue recognized is for repair and maintenance services. Customer contracts are generally short-term in nature and are based on individual customer purchase orders. The terms and conditions of the customer purchase orders are dictated by either the Company's standard terms and conditions or by a master service agreement.

Diversified Industrial revenues related to product sales are recognized when control of the promised goods is transferred to the customer, in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those goods. This condition is usually met at a point-in-time when the product has been shipped to the customer, or in certain circumstances when the product has been delivered to the customer, depending on the terms of the contract. However, revenues for certain custom manufactured goods are recognized over time as the customer order is fulfilled (for example, contracts for sale of custom manufactured goods that do not have an alternative use and for which the Company has an enforceable right to payment). Generally, the units of delivery method is used to determine the timing of revenue recognition for over time arrangements since there is no

10


material work in progress and finished goods for those arrangements. Service revenues are primarily recognized in the amount to which the entity has a right to invoice.

Certain customers may receive sales incentives, such as right of return, rebates, volume discounts and early payment discounts, which are accounted for as variable consideration. The Company estimates these amounts based on the expected incentive amount to be provided to customers and reduces revenues. The Company adjusts its estimate of revenue at the earlier of when the expected value or most likely amount of consideration we expect to receive changes or when the consideration becomes fixed.

Energy Revenues

The Energy segment provides drilling and production services to the oil & gas industry in the United States. The services provided include well completion and recompletion, well maintenance and workover, snubbing, flow testing, down hole pumping, plug and abatement, well logging and perforating services. Service revenues are recognized in the amount to which the entity has a right to invoice. Consideration for Energy contracts is generally fixed.

A portion of Energy revenues are service revenues related to Energy's youth sports business. These service revenues are recognized when services are provided to the customer, in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those services. Consideration for the Energy's sports business contracts is generally fixed.

Financial Services Revenues

WebBank generates revenues through a combination of interest income and non-interest income. Interest income is derived from interest and fees earned on loans and investments. Interest income is accrued on the unpaid principal balance, including amortization of premiums and accretion of discounts. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield over the estimated life of the loan. Non-interest income is primarily derived from premiums on the sale of loans, loan servicing fees, origination fees earned on loans and fee income on contractual lending arrangements. WebBank's revenue streams are primarily accounted for outside of the scope of ASC 606.

Contract Balances

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets) and deferred revenue (contract liabilities) on the consolidated balance sheet.

Contract Assets

Unbilled receivables arise when the timing of billings to customers differs from the timing of revenue recognition, such as when the Company recognizes revenue over time before a customer can be billed. Contract assets are classified as Prepaid expenses and other current assets on the consolidated balance sheet. The balances of contract assets as of March 31, 2018 and January 1, 2018 were $3,798 and $3,480, respectively.

Contract Liabilities

The Company records deferred revenues when cash payments are received or due in advance of the Company's performance, including amounts which are refundable, which are recorded as contract liabilities. Contract liabilities are classified as Other current liabilities on the consolidated balance sheet based on the timing of when the Company expects to recognize revenue. The balances of contract liabilities as of March 31, 2018 and January 1, 2018 were $3,447 and $1,483, respectively. For the three months ended March 31, 2018, the Company recognized revenue of $890 that was included in the contract liability balance at the date of adoption.

3. ACQUISITIONS

2018 Acquisition

On February 16, 2018, the Company completed the acquisition of certain assets and liabilities of Dunmore Corporation in the U.S. and the share purchase of Dunmore Europe GmbH in Germany (collectively, "Dunmore") for a purchase price of $69,828, which includes assumed debt and is subject to a working capital adjustment and an earn-out based on future earnings during the period from January 1, 2018 through December 31, 2019, each as provided in the purchase agreement. In no case will the purchase price, including the potential earn-out, exceed $80,000. Dunmore is a global provider of specialty coated, laminated

11


and metallized films for the aircraft, spacecraft, photovoltaic, graphic arts, packaging, insulation, surfacing and fashion industries. Dunmore will report into the Company's packaging business in its Diversified Industrial segment. In connection with the Dunmore acquisition, which is not material to SPLP's operations, the Company recorded inventories, property, plant and equipment, other intangible assets (primarily customer relationships) and goodwill on a preliminary basis, totaling approximately $7,700, $29,700, $20,300 and $11,800, respectively, as well as other assets and liabilities. The preliminary purchase price allocation is subject to finalization of valuations of certain acquired assets and liabilities.

2017 Acquisition

On May 19, 2017, the Company acquired an 80% interest in Basin Well Logging Wireline Services, Inc. ("Basin") located in Farmington, New Mexico for approximately $5,100. Basin provides wireline services to major oil & gas exploration and production companies in the U.S. and specializes in cased-hole wireline logging and perforating services for exploration and production companies with wells in New Mexico, Texas, Utah, Arizona and Colorado. In connection with the Basin acquisition, which was not material to SPLP's operations, goodwill totaling approximately $758 was recorded on a preliminary basis.

4. DIVESTITURES

In January 2017, the Company sold its Micro-Tube Fabricators, Inc. business ("MTF") for approximately $2,500 and recorded a loss on sale of $400, which is included in Other (income) expenses, net in the Company's consolidated statements of operations. MTF specialized in the production of precision fabricated tubular components produced for medical device, aerospace, aircraft, automotive and electronic applications, and it was included in the Company's Diversified Industrial segment. The price was paid $2,000 in cash at closing and a $500 subordinated promissory note to the Company bearing 5% interest annually, which has been fully collected. In addition, the Company may receive up to $1,000 of additional contingent consideration if certain sales volume milestones are met between the sale date and December 31, 2019. In 2017, the Company earned $755 of additional contingent consideration. The operations of MTF were not significant to the Company's consolidated financial statements.

5. LOANS RECEIVABLE, INCLUDING LOANS HELD FOR SALE

Major classification of WebBank's loans receivable, including loans held for sale, at March 31, 2018 and December 31, 2017 are as follows:
 
Total
 
Current
 
Non-current
 
March 31, 2018
 
%
 
December 31, 2017
 
%
 
March 31, 2018
 
December 31, 2017
 
March 31, 2018
 
December 31, 2017
Loans held for sale
$
148,729

 


 
$
136,773

 


 
$
148,729

 
$
136,773

 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate loans
$
600

 
%
 
$
568

 
1
%
 
20

 
20

 
580

 
548

Commercial and industrial
84,070

 
50
%
 
84,726

 
61
%
 
28,002

 
28,315

 
56,068

 
56,411

Consumer loans
84,111

 
50
%
 
53,238

 
38
%
 
34,551

 
22,371

 
49,560

 
30,867

Total loans
168,781

 
100
%
 
138,532

 
100
%
 
62,573

 
50,706

 
106,208

 
87,826

Less:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses
(7,041
)
 
 
 
(5,237
)
 
 
 
(7,041
)
 
(5,237
)
 

 

Total loans receivable, net
$
161,740

 
 
 
$
133,295

 
 
 
55,532

 
45,469

 
106,208

 
87,826

Loans receivable, including loans held for sale (a)


 
 
 


 
 
 
$
204,261

 
$
182,242

 
$
106,208

 
$
87,826

(a)
The carrying value is considered to be representative of fair value because the rates of interest are not significantly different from market interest rates for instruments with similar maturities. The fair value of loans receivable, including loans held for sale, net was $309,046 and $270,068 at March 31, 2018 and December 31, 2017, respectively.

Commercial and industrial loans include unamortized premiums of $1 and unaccreted discounts of $494 at March 31, 2018. Consumer loans include unaccreted discounts of $172 at March 31, 2018. Loans with a carrying value of approximately $57,397 and $57,436 were pledged as collateral for potential borrowings at March 31, 2018 and December 31, 2017, respectively. WebBank serviced $3,109 in loans for others at March 31, 2018.

The allowance for loan losses ("ALLL") represents an estimate of probable and estimable losses inherent in the loan portfolio as of the balance sheet date. The amount of the ALLL is established by analyzing the portfolio at least quarterly and a provision for or reduction of loan losses is recorded so that the ALLL is at an appropriate level at the balance sheet date. The increase in the ALLL was due to an increase in existing impaired loans and an increase in the loan portfolio of held-to-maturity consumer loans. There have been no other significant changes in the credit quality of loans in the loan portfolio since December 31, 2017.

6. INVENTORIES, NET

12



A summary of inventories, net is as follows:
 
March 31, 2018
 
December 31, 2017
Finished products
$
53,216

 
$
49,053

In-process
28,677

 
25,037

Raw materials
59,258

 
53,015

Fine and fabricated precious metal in various stages of completion
20,347

 
16,757

 
161,498

 
143,862

LIFO reserve
(1,025
)
 
(1,227
)
Total
$
160,473

 
$
142,635


Fine and Fabricated Precious Metal Inventory

In order to produce certain of its products, the Company purchases, maintains and utilizes precious metal inventory. The Company records certain precious metal inventory at the lower of LIFO cost or market, with any adjustments recorded through Cost of goods sold. Remaining precious metal inventory is accounted for primarily at fair value.

During the third quarter of 2017, the Company began obtaining certain precious metals under a $29,500 fee consignment agreement with the Bank of Nova Scotia ("ScotiaBank"). As of March 31, 2018, the Company had approximately $7,700 of silver under consignment with ScotiaBank, which is recorded at fair value in Inventories, net with a corresponding liability for the same amount included in Accrued liabilities on the Company's consolidated balance sheet. Fees charged under the consignment agreement are recorded in Interest expense in the Company's consolidated statements of operations.
 
March 31, 2018
 
December 31, 2017
Supplemental inventory information:
 
 
 
Precious metals stated at LIFO cost
$
9,599

 
$
4,897

Precious metals stated under non-LIFO cost methods, primarily at fair value
$
9,723

 
$
10,633

Market value per ounce:
 
 
 
Silver
$
16.32

 
$
17.01

Gold
$
1,323.85

 
$
1,296.50

Palladium
$
970.00

 
$
1,056.00


7. GOODWILL AND OTHER INTANGIBLE ASSETS, NET

A reconciliation of the change in the carrying value of goodwill by reportable segment is as follows:
 
Diversified Industrial
 
Energy
 
Corporate and Other
 
Total
Balance at December 31, 2017
 
 
 
 
 
 
 
Gross goodwill
$
193,530

 
$
65,548

 
$
81

 
$
259,159

Accumulated impairments
(24,254
)
 
(64,790
)
 

 
(89,044
)
Net goodwill
169,276

 
758

 
81

 
170,115

Acquisitions (a)
11,819

 

 

 
11,819

Currency translation adjustments
876

 

 

 
876

Balance at March 31, 2018
 
 
 
 
 
 
 
Gross goodwill
206,225

 
65,548

 
81

 
271,854

Accumulated impairments
(24,254
)
 
(64,790
)
 

 
(89,044
)
Net goodwill
$
181,971

 
$
758

 
$
81

 
$
182,810

(a)
Goodwill related to the Dunmore acquisition. For additional information, see Note 3 - "Acquisitions."

A summary of Other intangible assets, net is as follows:

13


 
March 31, 2018
 
December 31, 2017
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net
Customer relationships
$
236,179

 
$
86,915

 
$
149,264

 
$
222,277

 
$
80,952

 
$
141,325

Trademarks, trade names and brand names
55,882

 
15,772

 
40,110

 
52,356

 
14,996

 
37,360

Developed technology, patents and patent applications
31,594

 
12,355

 
19,239

 
28,239

 
11,756

 
16,483

Other
17,312

 
12,444

 
4,868

 
16,131

 
11,982

 
4,149

Total
$
340,967

 
$
127,486

 
$
213,481

 
$
319,003

 
$
119,686

 
$
199,317


Other intangible assets, net as of March 31, 2018 includes approximately $20,300 in intangible assets, primarily customer relationships, associated with the Dunmore acquisition. These balances, and the related goodwill balance noted above, are subject to adjustment during the finalization of the purchase price allocations for the Dunmore acquisition.

Trademarks with indefinite lives as of March 31, 2018 and December 31, 2017 were $11,320 and $8,020, respectively. Amortization expense related to intangible assets was $7,351 and $8,119 for the three months ended March 31, 2018 and 2017, respectively.

8. INVESTMENTS

Short-Term Investments

Marketable Securities

The Company's short-term investments primarily consist of its marketable securities portfolio held by its subsidiary, Steel Excel Inc ("Steel Excel"). The classification of marketable securities as a current asset is based on the intended holding period and realizability of the investments. The Company's portfolio of marketable securities was as follows:
 
March 31, 2018
 
December 31, 2017
 
Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
 
Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Short-term deposits
$
24,972

 
$

 
$

 
$
24,972

 
$
35,834

 
$

 
$

 
$
35,834

Mutual funds

 

 

 

 
12,077

 
4,675

 

 
16,752

Corporate securities
12,689

 
5,697

 
(3,266
)
 
15,120

 
32,311

 
11,893

 
(2,643
)
 
41,561

Total marketable securities
37,661

 
5,697

 
(3,266
)
 
40,092

 
80,222

 
16,568

 
(2,643
)
 
94,147

Amounts classified as cash equivalents
(24,972
)
 

 

 
(24,972
)
 
(35,834
)
 

 

 
(35,834
)
Amounts classified as marketable securities
$
12,689

 
$
5,697

 
$
(3,266
)
 
$
15,120

 
$
44,388

 
$
16,568

 
$
(2,643
)
 
$
58,313


Proceeds from sales of marketable securities were approximately $33,718 and $1,200 in the three months ended March 31, 2018 and 2017, respectively. The Company determines gains and losses from sales of marketable securities based on specific identification of the securities sold. Gross realized gains and losses from sales of marketable securities, which are reported as a component of Realized and unrealized losses on securities, net in the Company's consolidated statements of operations, were as follows:
 
Three Months Ended March 31,
 
2018
 
2017
Gross realized gains
$
9,674

 
$
12

Gross realized losses
(2,910
)
 
(227
)
Realized gains (losses), net
$
6,764

 
$
(215
)

Effective with the current quarter ended March 31, 2018 upon adoption of ASU 2016-01, unrealized gains or losses due to changes in fair value of securities are being accounted for as a component of Realized and unrealized losses on securities, net in the Company's consolidated statements of operations. Prior to January 1, 2018, changes in fair value were recognized in Partners' capital as Other comprehensive income or loss, except for other-than-temporary impairments, which were reflected as a reduction of cost and charged to the consolidated statements of operations.

The fair value of marketable securities with unrealized losses at March 31, 2018, and the duration of time that such losses had been unrealized, were as follows:
 
Less than 12 Months
 
12 Months or Greater
 
Total
 
Fair Value
 
Gross Unrealized Losses
 
Fair Value
 
Gross Unrealized Losses
 
Fair Value
 
Gross Unrealized Losses
Corporate securities
$
3,340

 
$
(3,266
)
 
$

 
$

 
$
3,340

 
$
(3,266
)
Total
$
3,340

 
$
(3,266
)
 
$

 
$

 
$
3,340

 
$
(3,266
)

The fair value of marketable securities with unrealized losses at December 31, 2017, and the duration of time that such losses had been unrealized, were as follows:
 
Less than 12 Months
 
12 Months or Greater
 
Total
 
Fair Value
 
Gross Unrealized Losses
 
Fair Value
 
Gross Unrealized Losses
 
Fair Value
 
Gross Unrealized Losses
Corporate securities
$
5,801

 
$
(2,558
)
 
$
398

 
$
(85
)
 
$
6,199

 
$
(2,643
)
Total
$
5,801

 
$
(2,558
)
 
$
398

 
$
(85
)
 
$
6,199

 
$
(2,643
)

14



The gross unrealized losses related to losses on corporate securities, which primarily consist of investments in equity securities of publicly-traded entities. The Company evaluated such securities to determine if certain unrealized losses represented other-than-temporary impairments. This determination was based on several factors, including any adverse changes in the market conditions and economic environments in which the entities operate. The Company determined that there was no indication of other-than-temporary impairments on its investments with unrealized losses that had not been previously recorded as impairment charges. This determination was based on several factors, including the length of time and extent to which fair value had been less than the cost basis, the financial condition and near-term prospects of the entities, and the intent and ability to hold the corporate securities for a period of time sufficient to allow for any anticipated recovery in market value.

Long-Term Investments

The following table summarizes the Company's long-term investments as of March 31, 2018 and December 31, 2017. For those investments at fair value, the carrying amount of the investment equals its respective fair value.
 
Ownership %
 
Long-Term Investments Balance
 
Loss (Income) Recorded in the Consolidated Statements of Operations
 
 
 
 
 
 
 
Three Months Ended March 31,
 
March 31, 2018
December 31, 2017
 
March 31, 2018
December 31, 2017
 
2018
 
2017
Corporate securities (a),(e)
 
 
 
$
164,105

$
131,307

 
$
13,805

 
$

Steel Connect, Inc. ("STCN") convertible notes (b),(f)
 
 
 
14,431

10,387

 
315

 
(369
)
STCN preferred stock (c),(f)
 
 
 
42,449

35,000

 
(7,449
)
 

STCN warrants (f)
 
 
 


 

 
(12
)
Equity method investments: (f)
 
 
 
 
 
 
 
 
 
Carried at fair value:
 
 
 
 
 
 
 
 
 
  STCN common stock
30.2
%
30.4
%
 
38,547

45,275

 
5,998

 
(5,122
)
  Aviat Networks, Inc. ("Aviat")
12.7
%
12.7
%
 
11,233

10,168

 
(849
)
 
(825
)
  Other 
43.8
%
43.8
%
 
1,223

1,223

 

 

Long-term investments carried at fair value
 
 
 
271,988

233,360





Carried at cost:
 
 
 
 
 
 
 
 
 
  Other equity method investments carried at cost (d)
 
 
 
2,781

2,784

 
30

 
26

Total
 
 
 
$
274,769

$
236,144

 

 

(a)
Cost basis totaled $56,295 at March 31, 2018 and $12,250 at December 31, 2017 and gross unrealized gains totaled $107,810 and $119,057 at March 31, 2018 and December 31, 2017, respectively.
(b)
Represents investment in STCN convertible notes. Cost basis totaled $13,262 at March 31, 2018 and $8,903 at December 31, 2017 and gross unrealized gains totaled $1,169 and $1,484 at March 31, 2018 and December 31, 2017, respectively. Changes in fair value are recorded in the Company's consolidated statements of operations as the Company elected the fair value option to account for this investment.
(c)
Represents investment in STCN preferred stock. On December 15, 2017, the Company entered into an agreement pursuant to which STCN issued Series C convertible voting preferred stock for an aggregate purchase consideration of $35,000. Each share of preferred stock can be converted into shares of STCN's common stock at an initial conversion price equal to $1.96 per share, subject to appropriate adjustments for any stock dividend, stock split, stock combination, reclassification or similar transaction, among other things. Changes in fair value are recorded in the Company's consolidated statements of operations as the Company elected the fair value option to account for this investment. The convertible preferred shares, if converted as of March 31, 2018, when combined with the common shares owned by the Company, would result in the Company having a direct interest of approximately 46% of STCN's outstanding shares. During the first quarter of 2018, the Company recorded an $11,208 out-of-period adjustment related to the increase in the fair value of the Company’s investment in STCN preferred stock for the period from December 15, 2017 to December 31, 2017. Had this adjustment been recorded at December 31, 2017, the Company’s investment in STCN preferred stock would have been valued at $46,208 at December 31, 2017, and the Company’s Income from associated companies, net of taxes for the three months ended March 31, 2018 would be reduced by $11,208.
(d)
Represents investments in iGo, Inc. ("iGo") of 45% and a 50% investment in API Optix s.r.o ("API Optix"), a joint venture investment held by the Company.
(e)
Loss (income) from these investments is included in Realized and unrealized losses on securities, net in the consolidated statements of operations.
(f)
Loss (income) from these investments is included in Income of associated companies, net of taxes in the consolidated statements of operations.

The Company's long-term investments include common shares of Babcock & Wilcox Enterprises, Inc. ("BW"). BW commenced a rights offering, as amended, pursuant to which BW distributed nontransferable subscription rights to each of its common stockholders. Each subscription right allowed BW shareholders to purchase 2.8 common shares of BW at a subscription price of $2.00 per common share. The rights have been recorded at fair value as of March 31, 2018 and are included in the table

15


above under Corporate securities. As of March 31, 2018, the Company owned 6,993,219 shares of BW common stock, constituting approximately 15.8% of BW's outstanding shares. Vintage Capital Management, LLC ("Vintage") and BW entered into an agreement under which Vintage agreed to provide a backstop commitment to purchase any BW common shares that were not subscribed for in the rights offering. On April 12, 2018, the Company entered into an agreement with Vintage pursuant to which it agreed to backstop Vintage's obligation under its backstop commitment. SPLP committed, subject to specified conditions, to fund a portion of Vintage's backstop commitment up to a maximum aggregate amount of $46,500, but not to exceed such number of BW common shares as would result in SPLP, together with its affiliates and associates, beneficially owning more than 29.95% of BW's outstanding shares immediately following consummation of the rights offering. Upon the completion of the rights offering, the Company purchased 22,981,822 BW common shares at an aggregate price of $45,964, including $6,802 to fund its backstop commitment, increasing the Company's ownership in BW to approximately 17.8% of the outstanding shares.

Equity Method Investments

The Company's investments in associated companies are accounted for under the equity method of accounting. Certain associated companies have a fiscal year end that differs from December 31. Additional information for each of SPLP's investments in associated companies that have impacted the Company's consolidated statements of operations during March 31, 2018 and March 31, 2017 is as follows:

Equity Method, Carried At Fair Value:

STCN (formerly ModusLink Global Solutions, Inc.) provides supply chain and logistics services to companies in the consumer electronics, communications, computing, software, storage and retail industries. STCN had issued the Company warrants to purchase an additional 2,000,000 shares at $5.00 per share. Such warrants were terminated in 2017.
Aviat is a global provider of microwave networking solutions.
The Other investment represents the Company's investment in a Japanese real estate partnership.

Equity Method, Carried At Cost:

iGo is a provider of accessories for mobile devices. This investment is being accounted for under the traditional equity method. Based on the closing market price of iGo's publicly-traded shares, the fair value of the investment in iGo was approximately $2,288 and $2,317 at March 31, 2018 and December 31, 2017, respectively.
The Company has a 50% joint venture in API Optix with IQ Structures s.r.o. API Optix provides development and origination services in the field of micro and nano-scale surface relief technology. The investment, based in Prague, Czech Republic, is being accounted for under the equity method as an associated company.

The below summary balance sheet and statement of operations amounts include results for the major associated companies for the periods in which they were accounted for as an associated company or the nearest practicable corresponding period to the Company's fiscal period.
 
March 31, 2018
 
December 31, 2017
Summary of balance sheet amounts: (a)
 
 
 
Current assets
$
292,756

 
$
257,846

Non-current assets
577,354

 
23,452

Total assets
$
870,110

 
$
281,298

 
 
 
 
Current liabilities
$
222,153

 
$
149,155

Non-current liabilities
478,730

 
69,172

Total liabilities
700,883

 
218,327

Contingently redeemable preferred stock
35,259

 

Equity
133,968

 
62,971

Total liabilities and equity
$
870,110

 
$
281,298

 
 
 
 
 
Three Months Ended March 31,
 
2018
 
2017
Summary operating results:
 
 
 
Net revenue
$
151,119

 
$
117,568

Gross profit
$
16,950

 
$
11,198

Net income (loss) (b)
$
64,830

 
$
(2,906
)

16


(a)
The increase in the amounts of assets and liabilities in the table above is principally due to a major acquisition made by STCN.
(b)
Net income (loss) in the 2018 period was favorably impacted principally by an income tax benefit related to the acquisition made by STCN.

Other Investments

WebBank had $37,695 and $32,816 of held-to-maturity securities at March 31, 2018 and December 31, 2017, respectively. WebBank records these securities at amortized cost, and they are included in Other non-current assets on the Company's consolidated balance sheets. The dollar value of these securities with maturities less than five years is $9,806, after five years through ten years is $26,325 and after ten years is $1,564. Actual maturities may differ from expected or contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The securities are collateralized by unsecured consumer loans. These securities had an estimated fair value of $35,956 and $32,842 at March 31, 2018 and December 31, 2017, respectively.

9. LONG-TERM DEBT

Debt consists of the following:
 
March 31, 2018
 
December 31, 2017
Short term debt:
 
 
 
Foreign
$
2,602

 
$
1,624

Short-term debt
2,602

 
1,624

Long-term debt:
 
 
 
SPLP revolving facility
464,478

 
406,981

Other debt - foreign
1,141

 

Other debt - domestic
5,948

 
6,062

Subtotal
471,567

 
413,043

Less portion due within one year
828

 
459

Long-term debt
470,739

 
412,584

Total debt
$
474,169

 
$
414,667


On November 14, 2017, SPH Group Holdings, Steel Excel, API Americas Inc., Handy & Harman Ltd. ("HNH") and Cedar 2015 Limited (collectively, the "Borrowers"), each a direct or indirect subsidiary of the Company, entered into a credit agreement ("Credit Agreement") that consolidates a number of the Company's existing credit facilities into one combined, revolving credit facility covering substantially all of the Company's subsidiaries, with the exception of WebBank. The Credit Agreement provides for a revolving credit facility in an aggregate principal amount not to exceed $600,000 at March 31, 2018, which includes a $55,000 subfacility for swing line loans and a $50,000 subfacility for standby letters of credit. The Credit Agreement also permits the Borrowers, under certain circumstances, to increase the aggregate principal amount of revolving credit commitments under the Credit Agreement by up to $150,000. Borrowings under the Credit Agreement bear interest, at the Borrower's option, at annual rates of either the Base Rate or the Euro-Rate, as defined, plus an applicable margin as set forth in the Credit Agreement (1.00% and 2.00%, respectively, for Base Rate and Euro-Rate borrowings at March 31, 2018), and the Credit Agreement provides for a commitment fee to be paid on unused borrowings. The weighted average interest rate on the Credit Agreement was 3.77% at March 31, 2018. At March 31, 2018, letters of credit totaling $10,837 had been issued under the Credit Agreement, including $3,724 of the letters of credit guaranteeing various insurance activities, and $7,113 for environmental and other matters. The Credit Agreement permits SPLP, the parent, to fund the dividends on its preferred units and its routine corporate expenses. The Company's total availability under the Credit Agreement, which is based upon earnings and certain covenants as described in the Credit Agreement, was approximately $69,700 as of March 31, 2018.

On April 27, 2018, the Company entered into an amendment to the Credit Agreement to allow the Company to (i) exercise its BW subscription rights discussed in Note 8 - "Investments," (ii) increase the maximum aggregate principal amount to $700,000, (iii) increase the defined leverage ratios under the Credit Agreement by 0.25 "turns" for the fiscal quarters ending June 30, 2018, September 30, 2018 and December 31, 2018, and (v) make certain administrative changes.

The Credit Agreement will expire with all amounts outstanding due and payable, on November 14, 2022. The Credit Agreement is guaranteed by substantially all existing and thereafter acquired assets of the Borrowers and the Guarantors, as defined in the agreement, and a pledge of all of the issued and outstanding shares of capital stock of each of the Borrowers' and Guarantors' subsidiaries, and is fully guaranteed by the Guarantors. The Credit Agreement is subject to certain mandatory prepayment provisions and restrictive and financial covenants, which include a maximum ratio limit on Total Leverage and a minimum ratio limit on Interest Coverage, as defined. The Company was in compliance with all debt covenants at March 31, 2018.


17


10. FINANCIAL INSTRUMENTS

At March 31, 2018 and December 31, 2017, financial instrument liabilities and related restricted cash consisted of $13,092 and $15,629, respectively, related to short sales of corporate securities. Year-to-date activity is summarized below for financial instrument liabilities and related restricted cash:
 
March 31,
 
2018
 
2017
Balance, beginning of period
$
15,629

 
$
12,640

Settlement of short sales of corporate securities
(3,100
)
 
(23
)
Short sales of corporate securities
26

 
48

Net investment losses
537

 
848

Balance, end of period
$
13,092

 
$
13,513


Short Sales of Corporate Securities

From time to time, the Company enters into short sale transactions on certain corporate securities in which it receives proceeds from the sale of such securities and incurs obligations to deliver such securities at a later date. Upon initially entering into such short sale transactions, the Company recognizes a liability equal to the fair value of the obligation, with a comparable amount of cash and cash equivalents reclassified as restricted cash. Subsequent changes in the fair value of such obligations, determined based on the closing market price of the securities, are recognized currently as gains or losses, with a comparable adjustment made between unrestricted and restricted cash.

Foreign Currency Forward Contracts

API enters into foreign currency forward contracts to hedge certain of its receivables and payables denominated in other currencies. In addition, API enters into foreign currency forward contracts to hedge the value of its future sales denominated in Euros and the value of certain of its future purchases denominated in USD. These hedges have settlement dates ranging through June 2019 at March 31, 2018. The forward contracts that are used to hedge the risk of foreign exchange movement on its receivables and payables are accounted for as fair value hedges. At March 31, 2018, there was a contract in place to buy Sterling and sell Euros in the amount of €9,250. The fair values of these derivatives are recognized as derivative assets and liabilities on the Company's consolidated balance sheets. The net change in fair value of the derivative assets and liabilities are recognized in the Company's consolidated statements of operations. The forward contracts that are used to hedge the value of API's future sales and purchases are accounted for as cash flow hedges. At March 31, 2018, there were contracts in place to hedge the value of future sales denominated in Euros in the amount of €19,800 and the value of future purchases denominated in USD in the amount of $4,950. These hedges are fully effective, and accordingly, the changes in fair value are recorded in AOCI, and at maturity, any gain or loss on the forward contract is reclassified from AOCI into the Company's consolidated statements of operations.

WebBank - Economic Interests in Loans

WebBank's derivative financial instruments represent on-going economic interests in loans made after they are sold. These derivatives are carried at fair value on a gross basis in Other non-current assets on the Company's consolidated balance sheets at March 31, 2018 and are classified within Level 3 in the fair value hierarchy (see Note 15 - "Fair Value Measurements"). At March 31, 2018, outstanding derivatives mature within 3 to 5 years. Gains and losses resulting from changes in fair value of derivative instruments are accounted for in the Company's consolidated statements of operations in Financial services revenue. Fair value represents the estimated amounts that WebBank would receive or pay to terminate the contracts at the reporting date based on a discounted cash flow model for the same or similar instruments. WebBank does not enter into derivative contracts for speculative or trading purposes.

Call and Put Options

The options are traded in active markets, and accordingly, the Company records the fair value of the options through the use of quoted prices and records any changes in fair value in the consolidated statements of operations in Other (income) expenses, net.

Precious Metal and Commodity Inventories


18


The Company's precious metal and commodity inventories are subject to market price fluctuations. The Company enters into commodity futures and forward contracts to mitigate the impact of price fluctuations on its precious and certain non-precious metal inventories that are not subject to fixed price contracts. The Company's hedging strategy is designed to protect it against normal volatility; therefore, abnormal price changes in these commodities or markets could negatively impact the Company's earnings.

As of March 31, 2018, the Company had the following outstanding forward contracts with settlement dates through April 2018. There were no futures contracts outstanding at March 31, 2018.
Commodity
Amount
 
Notional Value
Silver
253,895 ounces
 
$
4,147

Gold
2,400 ounces
 
$
3,187

Copper
275,000 pounds
 
$
885

Tin
30 metric tons
 
$
621


Fair Value Hedges. Of the total forward contracts outstanding, 18,895 ounces of silver and substantially all the copper contracts are designated and accounted for as fair value hedges and are associated primarily with the Company's precious metal inventory carried at fair value. The fair values of these derivatives are recognized as derivative assets and liabilities on the Company's consolidated balance sheets. The net change in fair value of the derivative assets and liabilities, and the change in the fair value of the underlying hedged inventory, are recognized in the Company's consolidated statements of operations, and such amounts principally offset each other due to the effectiveness of the hedges.

Economic Hedges. The remaining outstanding forward contracts for silver, and all the contracts for gold and tin, are accounted for as economic hedges. As these derivatives are not designated as accounting hedges, they are accounted for as derivatives with no hedge designation. The derivatives are marked to market, and both realized and unrealized gains and losses are recorded in current period earnings in the Company's consolidated statements of operations. The economic hedges are associated primarily with the Company's precious metal inventory valued using the LIFO method.

The forward contracts were made with a counterparty rated A+ by Standard & Poors. Accordingly, the Company has determined that there is minimal credit risk of default. The Company estimates the fair value of its derivative contracts through the use of market quotes or with the assistance of brokers when market information is not available. The Company maintains collateral on account with the third-party broker. Such collateral consists of both cash that varies in amount depending on the value of open contracts, as well as ounces of precious metal held on account by the broker.

The fair value and carrying amount of derivative instruments on the Company's consolidated balance sheets and the effect of derivative instruments in the Company's consolidated statements of operations are shown in the following tables:
Derivative
 
Balance Sheet Location
 
March 31, 2018
 
December 31, 2017
Commodity contracts (a),(b)
 
Prepaid expenses and other current assets (Accrued liabilities)
 
$
56

 
$
(49
)
Commodity contracts (c)
 
Prepaid expenses and other current assets (Accrued liabilities)
 
10

 
(78
)
Foreign exchange forward contracts (a),(d)
 
Prepaid expenses and other current assets

 
143

 
166

Foreign exchange forward contracts (a),(b)
 
Prepaid expenses and other current assets (Accrued liabilities)
 
69

 
(188
)
Economic interests in loans (c)
 
Other non-current assets
 
14,190

 
13,126

Call options
 
Other current liabilities
 

 
(258
)
Put options
 
Prepaid expenses and other current assets
 

 
3

Total derivatives
 
 
 
$
14,468

 
$
12,722


19


 
 
 
 
Three Months Ended March 31,
 
 
 
 
2018
 
2017
Derivative
 
Statement of Operations Location
 
Gain (Loss)
 
Gain (Loss)
Commodity contracts (a),(b)
 
Cost of goods sold
 
$
77

 
$
(1,183
)
Commodity contracts (c)
 
Cost of goods sold
 
(47
)
 
95

Commodity contracts (c)
 
Other income (expenses), net
 
146

 
(360
)
Foreign exchange forward contracts (a),(d)
 
Revenue
 
(20
)
 
(405
)
Foreign exchange forward contracts (a),(b)
 
Other income (expenses), net
 
4

 
(11
)
Economic interests in loans (c)
 
Revenue
 
3,281

 
2,497

Call options
 
Other income (expenses), net
 
250

 
48

Put options
 
Other income (expenses), net
 
(3
)
 
(334
)
Total derivatives
 
 
 
$
3,688

 
$
347

(a)
Designated as hedging instruments.
(b)
Fair value hedge.
(c)
Economic hedge.
(d)
Cash flow hedge.

Financial Instruments with Off-Balance Sheet Risk

WebBank is a party to financial instruments with off-balance sheet risk. In the normal course of business, these financial instruments include commitments to extend credit in the form of loans as part of WebBank's lending arrangements. Those instruments involve to varying degrees, elements of credit and interest rate risk in excess of the amount recognized on the consolidated balance sheets. The contract amounts of those instruments reflect the extent of involvement WebBank has in particular classes of financial instruments.

At March 31, 2018 and December 31, 2017, WebBank's undisbursed loan commitments under these instruments totaled $183,931 and $148,529, respectively. Commitments to extend credit are agreements to lend to a borrower who meets the lending criteria through one of WebBank's lending agreements, provided there is no violation of any condition established in the contract with the counterparty to the lending arrangement.

Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since certain of the commitments are expected to expire without the credit being extended, the total commitment amounts do not necessarily represent future cash requirements. WebBank evaluates each prospective borrower's credit worthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by WebBank upon extension of credit is based on management's credit evaluation of the borrower and WebBank's counterparty.

WebBank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. WebBank uses the same credit policy in making commitments and conditional obligations as it does for on-balance sheet instruments.

WebBank estimates an allowance for potential losses on off-balance sheet contingent credit exposures related to the guaranteed amount of its Small Business Administration ("SBA") and United States Department of Agriculture ("USDA") loans and whether or not the SBA/USDA honors the guarantee. WebBank determines the allowance for these contingent credit exposures based on historical experience and portfolio analysis. The allowance is included in Other non-current liabilities on the Company's consolidated balance sheets, with any related increases or decreases in the reserve included in the Company's consolidated statements of operations. The allowance was $188 at both March 31, 2018 and December 31, 2017.


20


11. PENSION BENEFIT PLANS

HNH maintains several qualified and non-qualified pension plans and other post-retirement benefit plans. API maintains a pension plan in the United Kingdom and a pension plan in the U.S. which is not significant. The Company's other pension and postretirement benefit plans are not significant individually or in the aggregate. The following table presents the components of pension expense for HNH's and API's pension plans:
 
Three Months Ended March 31,
 
2018
 
2017
Interest cost
$
5,378

 
$
5,453

Expected return on plan assets
(7,009
)
 
(6,169
)
Amortization of actuarial loss
2,539

 
2,288

Total
$
908

 
$
1,572


Pension expense is included in Selling, general and administrative expenses in the consolidated statements of operations for all periods presented. Required future pension contributions are estimated based upon assumptions such as discount rates on future obligations, assumed rates of return on plan assets and legislative changes. Actual future pension costs and required funding obligations will be affected by changes in the factors and assumptions described in the previous sentence, as well as other changes such as any plan termination or other acceleration events. Required minimum pension contributions are as follows:

HNH expects to contribute approximately $27,200 for the remainder of 2018, and $33,400, $35,800, $31,400, $32,100 and $43,200 in 2019, 2020, 2021, 2022 and for the five years thereafter, respectively.
API expects to contribute approximately $697 for the remainder of 2018, and $989 in each year 2019, 2020, 2021, 2022 and 2023.

12. CAPITAL AND ACCUMULATED OTHER COMPREHENSIVE LOSS

As of March 31, 2018, the Company had 26,164,143 Class A units (regular common units) outstanding.

Common Unit Repurchase Program

On December 7, 2016, the Board of Directors of SPH GP approved the repurchase of up to an aggregate of 2,000,000 of the Company's common units ("Repurchase Program"). The Repurchase Program supersedes and cancels, to the extent any amounts remain available, all previously approved repurchase programs. Any purchases made under the Repurchase Program will be made from time to time on the open market at prevailing market prices or in negotiated transactions off the market, in compliance with applicable laws and regulations. In connection with the Repurchase Program, the Company may enter into a stock purchase plan. The Repurchase Program has no termination date. During the first three months of 2018, the Company purchased 184,277 units for an aggregate price of approximately $3,595.

Common Unit Dividend

On January 13, 2017, the Company paid dividends of approximately $3,923 to common unitholders of record as of January 3, 2017, excluding a consolidated affiliate. This special one-time cash dividend of $0.15 per common unit was declared on December 22, 2016. Any future determination to declare dividends on its common units will remain at the discretion of the Company's Board of Directors and will be dependent upon a number of factors, including the Company's results of operations, cash flows, financial position and capital requirements, among others.

Preferred Units

The 6.0% Series A preferred units, no par value ("SPLP Preferred Units"), which were issued during 2017 in connection with the Steel Excel and HNH transactions discussed below, entitle the holders to a cumulative quarterly cash or in-kind (or a combination thereof) distribution. The Company declared cash distributions of approximately $2,900 and $380 to preferred unitholders for the three months ended March 31, 2018 and 2017, respectively. The SPLP Preferred Units have a term of nine

21


years and are redeemable at any time at the Company's option at the liquidation value, plus any accrued and unpaid distributions (payable in cash or SPLP common units, or a combination of both, at the Company's discretion). If redeemed in common units, the number of common units to be issued will be equal to the liquidation value per unit divided by the volume weighted-average price of the common units for 60 days prior to the redemption. In addition, the holders can require the Company to repurchase up to 1,600,000 of the SPLP Preferred Units, in cash on a pro rata basis, on the third anniversary of the original issuance date, reduced by any preferred units called for redemption by the Company, in cash on a pro rata basis, prior to that time.

The SPLP Preferred Units have no voting rights, except that holders of the preferred units have certain voting rights in limited circumstances relating to the election of directors following the failure to pay six quarterly distributions. The SPLP Preferred Units are recorded as a non-current liability, including accrued interest expense, on the Company's consolidated balance sheets as of March 31, 2018 and December 31, 2017 because they have an unconditional obligation to be redeemed for cash or by issuing a variable number of SPLP common units for a monetary value that is fixed and known at inception. Because the SPLP Preferred Units are classified as a liability, distributions thereon are recorded as a component of Interest expense in the Company's consolidated statement of operations. As of March 31, 2018, there were 7,741,017 SPLP Preferred Units outstanding.

Steel Excel Transaction

On December 23, 2016, the Company entered into an Amended Agreement and Plan of Merger with a subsidiary of the Company and Steel Excel to make a tender offer to purchase any and all of the outstanding shares of common stock of Steel Excel not already owned by the Company or any of its affiliates. In exchange for each share of Steel Excel common stock, the Company offered 0.712 SPLP Preferred Units. The offer commenced on January 9, 2017 and expired on February 6, 2017. As a result of the completion of the offer, the Company issued approximately 2,500,000 SPLP Preferred Units with a fair value and liquidation value of $25.00 per SPLP Preferred Unit, or approximately $63,500, to Steel Excel shareholders and paid approximately $2,100 in cash for any remaining unvested restricted shares of Steel Excel. As a result of this transaction, the Company owns 100% of Steel Excel.

HNH Transaction

On June 26, 2017, the Company entered into an Agreement and Plan of Merger with a subsidiary of the Company and HNH to make a tender offer to purchase any and all of the outstanding shares of common stock of HNH not already owned by the Company or any of its affiliates. In exchange for each share of HNH common stock, the Company offered 1.484 SPLP Preferred Units. The offer expired on October 12, 2017, and as a result of the completion of the offer, the Company issued approximately 5,400,000 SPLP Preferred Units with a fair value of approximately $112,000 and liquidation value of approximately $135,000 to HNH shareholders. As a result of this transaction, the Company owns 100% of HNH. Certain former stockholders of HNH made a demand for appraisal of the tender offer consideration under the laws of the State of Delaware. In the first quarter of 2018, this matter was settled. As a result, 211,643 SPLP Preferred Units were retired and the preferred unit liability was reduced with respect to these units, and $931 was charged to the consolidated statement of operations in Selling, general and administrative expenses.

For both the Steel Excel and HNH transactions, in accordance with the accounting standard on consolidation, changes in a parent's ownership interest where the parent retains a controlling financial interest in its subsidiary were accounted for as equity transactions. The carrying amount of the noncontrolling interests in Steel Excel and in HNH were eliminated to reflect the change in SPLP's ownership interest in each subsidiary, and the difference between the fair value of the consideration paid and the amount by which the noncontrolling interest was adjusted was recognized in Partners' capital.


22


Accumulated Other Comprehensive Loss

Changes, net of tax, in Accumulated other comprehensive loss are as follows:
 
Three Months Ended March 31, 2018
 
Unrealized gain on available-for-sale securities
 
Unrealized loss on derivative financial instruments
 
Cumulative translation adjustment
 
Change in net pension and other benefit obligations
 
Total
Balance at beginning of period
$
91,078

 
$
(1,901
)
 
$
(18,259
)
 
$
(177,085
)
 
$
(106,167
)
Other comprehensive income, net of tax - before reclassifications (a)

 
170

 
3,098

 

 
3,268

Reclassification adjustments, net of tax

 

 

 

 

Net other comprehensive income attributable to common unitholders (b)

 
170

 
3,098

 

 
3,268

Cumulative effect of adopting ASU 2016-01 relating to net unrealized gains and losses on equity securities (c)
(91,078
)
 

 

 

 
(91,078
)
Balance at end of period
$

 
$
(1,731
)
 
$
(15,161
)
 
$
(177,085
)
 
$
(193,977
)
(a)
Net of a tax provision of approximately $68.
(b)
Amounts do not include the cumulative translation adjustments of $221 which are attributable to noncontrolling interests.
(c)
Effective January 1, 2018 upon adoption of ASU 2016-01, a cumulative effect reclassification adjustment was made to remove the net unrealized gains and losses on equity securities from Accumulated other comprehensive loss and reclassify them to Partners' capital.

Incentive Unit Expense

Effective January 1, 2012, SPLP issued to the Manager partnership profits interests in the form of incentive units, a portion of which will be classified as Class C common units of SPLP upon the attainment of certain specified performance goals by SPLP, which are determined as of the last day of each fiscal year. If the performance goals are not met for a fiscal year, no portion of the incentive units will be classified as Class C common units for that year. The number of outstanding incentive units is equal to 100% of the common units outstanding, including common units held by non-wholly-owned subsidiaries. The performance goals and expense related to the classification of a portion of the incentive units as Class C units is measured on an annual basis, but is accrued on a quarterly basis. Accordingly, the expense accrued is adjusted to reflect the fair value of the Class C common units on each interim calculation date. In the event the cumulative incentive unit expense calculated quarterly or for the full year is an amount less than the total previously accrued, the Company would record a negative incentive unit expense in the quarter when such over accrual is determined. The expense is recorded in Selling, general and administrative expenses in the Company's consolidated statements of operations. The Company recorded $0 and $5,114 of incentive unit expense in the three months ended March 31, 2018 and 2017, respectively.

13. INCOME TAXES

The Company recorded tax provisions of $1,330 and $6,846 for the three months ended March 31, 2018 and 2017, respectively. The Company's tax provision represents the income tax expense or benefit of its consolidated subsidiaries that are taxable entities. The consolidated subsidiaries' effective tax rates for the three months ended March 31, 2018 were reduced as compared to the same period of 2017 because of the lower U.S. federal income tax rates enacted in December 2017 under the TCJA. The Company's consolidated subsidiaries have recorded deferred tax valuation allowances to the extent that they believe it is more likely than not that the benefits of the deferred tax assets will not be realized in future periods. There have not been any significant changes in deferred tax valuation allowances during the three months ended March 31, 2018 or 2017.

The TCJA includes a transition tax on the deemed distribution of previously untaxed accumulated and current earnings and profits ("E&P") of certain foreign subsidiaries. For the year ended December 31, 2017, the Company recorded a provisional amount for the one-time mandatory repatriation tax liability of $2,165. The Company has not yet finalized its calculation of the total post-1986 E&P and non-U.S. income taxes paid on such earnings for these foreign subsidiaries. Further, the transition tax is based on the amount of those earnings that are held in cash and other specified illiquid assets. This amount may change when the calculation of post-1986 net accumulated foreign E&P previously deferred from U.S. federal taxation and the amounts held in cash or other specified illiquid assets are finalized, and is subject to further refinement if further guidance is issued by federal and state taxing authorities. U.S. GAAP and the Securities and Exchange Commission ("SEC") allow for a measurement period not to exceed one year from the enactment date of the TCJA in order for companies to complete their accounting for the effects of the TCJA. For the three months ended March 31, 2018, the Company has not recorded any adjustments to its previously recorded provisional amounts. The Company intends to complete its accounting during the allowed measurement period permitted under U.S. GAAP and SEC guidance.

23


14. NET LOSS PER COMMON UNIT

The following data was used in computing net income per common unit shown in the Company's consolidated statements of operations:
 
Three Months Ended March 31,
 
2018
 
2017
Net loss
$
(8,851
)
 
$
(3,098
)
Net income attributable to noncontrolling interests in consolidated entities
(227
)
 
(984
)
Net loss attributable to common unitholders
$
(9,078
)
 
$
(4,082
)
Net loss per common unit – basic and diluted:
 
 
 
Net loss attributable to common unitholders
$
(0.35
)
 
$
(0.16
)
Denominator for net loss per common unit - basic
26,264,101

 
26,145,711

Effect of dilutive securities: (a)
 
 
 
Incentive units

 

Unvested restricted units

 

SPLP Preferred Units 

 

Denominator for net loss per common unit - diluted
26,264,101

 
26,145,711

(a)
For the three months ended March 31, 2018, the diluted per unit calculation was based on the basic weighted-average units only since the impact of SPLP Preferred Units (10,811,476 common unit equivalents) and unvested restricted stock units (41,985 common unit equivalents), would have been anti-dilutive. For the three months ended March 31, 2017, SPLP Preferred Units (1,910,964 common unit equivalents), 266,342 accrued incentive units and unvested restricted stock units (41,085 common unit equivalents) were omitted from the calculation because their effects would have been anti-dilutive.

15. FAIR VALUE MEASUREMENTS

Financial assets and liabilities measured at fair value on a recurring basis in the Company's consolidated financial statements as of March 31, 2018 and December 31, 2017 are summarized by type of inputs applicable to the fair value measurements as follows:
March 31, 2018
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Marketable securities (a)
$
1,433

 
$
1,906

 
$
11,781

 
$
15,120

Long-term investments (a)
200,472

 
27,844

 
43,672

 
271,988

Investments in certain funds

 

 
482

 
482

Precious metal and commodity inventories recorded at fair value
10,303

 

 

 
10,303

Economic interests in loans

 

 
14,190

 
14,190

Warrants

 

 
206

 
206

Investment in private company

 

 
250

 
250

Commodity contracts on precious metal and commodity inventories

 
66

 

 
66

Foreign currency forward exchange contracts

 
212

 

 
212

Total
$
212,208

 
$
30,028

 
$
70,581

 
$
312,817

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Financial instrument obligations
$
13,092

 
$

 
$

 
$
13,092

Total
$
13,092

 
$

 
$

 
$
13,092


24


December 31, 2017
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Marketable securities (a)
$
44,371

 
$
1,988

 
$
11,954

 
$
58,313

Long-term investments (a)
186,750

 
10,387

 
36,223

 
233,360

Investments in certain funds

 

 
407

 
407

Precious metal and commodity inventories recorded at fair value
10,993

 

 

 
10,993

Economic interests in loans

 

 
13,126

 
13,126

Foreign currency forward exchange contracts

 
166

 

 
166

Warrants

 

 
206

 
206

Long put options
3

 

 

 
3

Total
$
242,117

 
$
12,541

 
$
61,916

 
$
316,574

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Financial instrument obligations
$
15,629

 
$

 
$

 
$
15,629

Commodity contracts on precious metal and commodity inventories

 
127

 

 
127

Foreign currency forward exchange contracts

 
188

 

 
188

Short call options
258

 

 
 
 
258

Total
$
15,887

 
$
315

 
$

 
$
16,202

(a)
For additional detail of the marketable securities and long-term investments see Note 8 - "Investments."

There were no transfers of securities among the various measurement input levels during the three months ended March 31, 2018.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e. the "exit price") in an orderly transaction between market participants at the measurement date. Fair value measurements are broken down into three levels based on the reliability of inputs as follows:

Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. The valuation under this approach does not entail a significant degree of judgment ("Level 1").

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (e.g. interest rates and yield curves observable at commonly quoted intervals or current market) and contractual prices for the underlying financial instrument, as well as other relevant economic measures ("Level 2").

Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date ("Level 3").

The fair value of the Company's financial instruments such as cash and cash equivalents, trade and other receivables and accounts payable, approximates carrying value due to the short-term maturities of these assets and liabilities. Carrying cost approximates fair value for long-term debt which has variable interest rates.

The precious metal and commodity inventories associated with the Company's fair value hedges (see Note 10 - "Financial Instruments") are reported at fair value. Fair values of these inventories are based on quoted market prices on commodity exchanges and are considered Level 1 measurements. The derivative instruments that the Company purchases in connection with its precious metal and commodity inventories, specifically commodity futures and forward contracts, are also valued at fair value. The futures contracts are Level 1 measurements since they are traded on a commodity exchange. The forward contracts are entered into with a counterparty and are considered Level 2 measurements.


25


Following is a summary of changes in financial assets measured using Level 3 inputs:
 
Long-Term Investments
 
 
 
 
 
Investments in Associated Companies (a)
 
STCN Warrants (a)
 
Marketable Securities and Other (b)
 
Total
Assets
 
 
 
 
 
 
 
Balance at December 31, 2016
$
1,223

 
$
19

 
$
30,789

 
$
32,031

Sales and cash collections

 

 
(1,249
)
 
(1,249
)
Realized gains

 

 
2,497

 
2,497

Unrealized gains

 
13

 
2,452