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 September 30, 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 every Interactive Data File required to be submitted 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, a 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 o
Non-accelerated filer o
Smaller reporting company þ
 
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 October 31, 2018 was 25,710,261.

 



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.
 
 
 
Items 5.
 
 
 
Item 6.
 
 
 




PART I - FINANCIAL INFORMATION
Item 1. Financial Statements

STEEL PARTNERS HOLDINGS L.P.
Consolidated Balance Sheets
(unaudited)
(in thousands, except common units)
 
September 30, 2018
 
December 31, 2017
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
289,016

 
$
418,755

Restricted cash
14,464

 
15,629

Marketable securities
3,182

 
58,313

Trade and other receivables - net of allowance for doubtful accounts of $2,794 and $3,633, respectively
227,468

 
188,487

Receivables from related parties
664

 
355

Loans receivable, including loans held for sale of $160,513 and $136,773, respectively, net
267,914

 
182,242

Inventories, net
164,481

 
142,635

Prepaid expenses and other current assets
31,209

 
19,597

Assets held for sale

 
2,549

Total current assets
998,398

 
1,028,562

Long-term loans receivable, net
168,077

 
87,826

Goodwill
182,940

 
170,115

Other intangible assets, net
197,918

 
199,317

Deferred tax assets
105,468

 
109,011

Other non-current assets
74,822

 
61,074

Property, plant and equipment, net
296,854

 
271,991

Long-term investments
289,866

 
236,144

Total Assets
$
2,314,343

 
$
2,164,040

LIABILITIES AND CAPITAL
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
118,041

 
$
105,221

Accrued liabilities
86,357

 
74,118

Financial instruments
14,464

 
15,629

Deposits
373,795

 
305,207

Payables to related parties
1,500

 
1,563

Short-term debt
2,149

 
1,624

Current portion of long-term debt
810

 
459

Other current liabilities
15,983

 
10,602

Liabilities of discontinued operations
450

 
450

Total current liabilities
613,549

 
514,873

Long-term deposits
242,303

 
205,793

Long-term debt
480,322

 
412,584

Preferred unit liability
179,175

 
176,512

Accrued pension liabilities
243,578

 
268,233

Deferred tax liabilities
1,977

 
3,007

Other non-current liabilities
18,970

 
16,002

Total Liabilities
1,779,874

 
1,597,004

Commitments and Contingencies


 


Capital:
 
 
 
Partners' capital common units: 25,782,401 and 26,348,420 issued and outstanding (after deducting 11,642,144 and 10,868,367 units held in treasury, at cost of $184,496 and $170,858), respectively
732,691

 
652,270

Accumulated other comprehensive loss
(199,139
)
 
(106,167
)
Total Partners' Capital
533,552

 
546,103

Noncontrolling interests in consolidated entities
917

 
20,933

Total Capital
534,469

 
567,036

Total Liabilities and Capital
$
2,314,343

 
$
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 September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Revenue:
 
 
 
 
 
 
 
Diversified industrial net sales
$
322,571

 
$
295,485

 
$
988,587

 
$
879,515

Energy net revenue
50,343

 
37,959

 
134,008

 
99,310

Financial services revenue
32,405

 
21,596

 
83,406

 
57,925

Total revenue
405,319

 
355,040

 
1,206,001

 
1,036,750

Costs and expenses:
 
 
 
 
 
 
 
Cost of goods sold
284,599

 
247,232

 
845,718

 
723,200

Selling, general and administrative expenses
89,135

 
80,118

 
265,700

 
249,169

Finance interest expense
2,889

 
1,176

 
6,999

 
3,117

Provision for loan losses
6,037

 
3,025

 
13,060

 
4,113

Interest expense
10,615

 
5,147

 
28,314

 
14,446

Realized and unrealized losses (gains) on securities, net
22,416

 
(402
)
 
48,029

 
(835
)
Other (income) expenses, net
(2,686
)
 
258

 
(4,231
)
 
1,542

Total costs and expenses
413,005

 
336,554

 
1,203,589

 
994,752

(Loss) income before income taxes and equity method investments
(7,686
)
 
18,486

 
2,412

 
41,998

Income tax provision
104

 
9,913

 
9,040

 
27,175

Income of associated companies, net of taxes
(1,599
)
 
(2,332
)
 
(5,141
)
 
(8,702
)
Net (loss) income
(6,191
)
 
10,905

 
(1,487
)
 
23,525

Net loss (income) attributable to noncontrolling interests in consolidated entities
96

 
(3,892
)
 
(644
)
 
(9,341
)
Net (loss) income attributable to common unitholders
$
(6,095
)
 
$
7,013

 
$
(2,131
)
 
$
14,184

Net (loss) income per common unit - basic
 
 
 
 
 
 
 
Net (loss) income attributable to common unitholders
$
(0.23
)
 
$
0.27

 
$
(0.08
)
 
$
0.54

Net (loss) income per common unit - diluted
 
 
 
 
 
 
 
Net (loss) income attributable to common unitholders
$
(0.23
)
 
$
0.27

 
$
(0.08
)
 
$
0.54

Weighted-average number of common units outstanding - basic
26,020,617

 
26,016,926

 
26,143,056

 
26,066,590

Weighted-average number of common units outstanding - diluted
26,020,617

 
26,273,846

 
26,143,056

 
26,365,999


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 September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Net (loss) income
$
(6,191
)
 
$
10,905

 
$
(1,487
)
 
$
23,525

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Gross unrealized gains on securities (a)

 
59,302

 

 
72,908

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

 
(253
)
 

 
(526
)
Gross unrealized (losses) gains on derivative financial instruments
(282
)
 
165

 
18

 
627

Currency translation adjustments
(110
)
 
2,471

 
(893
)
 
5,484

Changes in pension liabilities and other post-retirement benefit obligations

 

 

 
97

Other comprehensive (loss) income
(392
)
 
61,685

 
(875
)
 
78,590

Comprehensive (loss) income
(6,583
)
 
72,590

 
(2,362
)
 
102,115

Comprehensive loss (income) attributable to noncontrolling interests
91

 
(4,276
)
 
(630
)
 
(11,181
)
Comprehensive (loss) income attributable to common unitholders
$
(6,492
)
 
$
68,314

 
$
(2,992
)
 
$
90,934

 
 
 
 
 
 
 
 
Tax (benefit) provision on gross unrealized (losses) gains on securities and derivative financial instruments
$
(54
)
 
$
(199
)
 
$
1

 
$
2,433

Tax benefit on reclassification of unrealized gains on securities
$

 
$
(149
)
 
$

 
$
(309
)
Tax provision (benefit) on currency translation adjustments
$
1

 
$
43

 
$
(18
)
 
$
(248
)
Tax provision on changes in pension liabilities and other post-retirement benefit obligations
$

 
$

 
$

 
$
57

(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 (loss), but are instead recorded in Realized and unrealized losses (gains) on securities, net in the consolidated statement of operations.
(b)
For the three and nine months ended September 30, 2017, unrealized pretax gains of $402 and $835, respectively, were reclassified from Accumulated other comprehensive loss to Realized and unrealized losses (gains) on securities, net in the consolidated statement of operations 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) income

 

 

 
(2,131
)
 

 
(2,131
)
 
644

 
(1,487
)
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 (losses) gains on derivative financial instruments

 

 

 

 
(8
)
 
(8
)
 
26

 
18

Currency translation adjustments

 

 

 

 
(853
)
 
(853
)
 
(40
)
 
(893
)
Equity compensation - restricted units
22,351

 

 

 
507

 

 
507

 

 
507

Purchases of SPLP common units

 
(773,777
)
 
(13,638
)
 
(13,638
)
 

 
(13,638
)
 

 
(13,638
)
Purchases of subsidiary shares from noncontrolling interests
185,407

 

 

 
3,788

 
(1,033
)
 
2,755

 
(20,646
)
 
(17,891
)
Other, net

 

 

 
(217
)
 

 
(217
)
 

 
(217
)
Balance at September 30, 2018
37,424,545

 
(11,642,144
)
 
$
(184,496
)
 
$
732,691

 
$
(199,139
)
 
$
533,552

 
$
917

 
$
534,469

(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)
 
Nine Months Ended September 30,
 
2018
 
2017
Cash flows from operating activities:
 
 
 
Net (loss) income
$
(1,487
)
 
$
23,525

Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
 
 
 
Provision for loan losses
13,060

 
4,113

Income of associated companies, net of taxes
(5,141
)
 
(8,702
)
Losses (gains) on securities, net
48,029


(835
)
Deferred income taxes
3,375

 
10,942

Depreciation and amortization
59,932

 
54,213

Equity-based compensation
507

 
5,696

Other
3,959

 
3,460

Net change in operating assets and liabilities:
 
 
 
Trade and other receivables
(28,771
)
 
(30,585
)
Inventories
(12,582
)
 
(19,227
)
Prepaid expenses and other assets
(10,510
)
 
(7,282
)
Accounts payable, accrued and other liabilities
(8,965
)
 
(20,242
)
Net increase in loans held for sale
(23,740
)
 
(111,882
)
Net cash provided by (used in) operating activities
37,666

 
(96,806
)
Cash flows from investing activities:
 
 
 
Purchases of investments
(131,007
)
 
(30,387
)
Proceeds from sales of investments
46,027

 
14,956

Proceeds from maturities of marketable securities
29,792

 
12,900

Loan originations, net of collections
(155,244
)
 
(70,860
)
Purchases of property, plant and equipment
(33,597
)
 
(37,915
)
Proceeds from sales of assets
4,677

 
26,676

Acquisitions, net of cash acquired
(68,315
)
 
(2,008
)
Proceeds from divestitures

 
1,975

Other
695

 
58

Net cash used in investing activities
(306,972
)
 
(84,605
)
Cash flows from financing activities:
 
 
 
Net revolver borrowings (repayments)
67,569

 
(15,719
)
Net repayments of term loans – domestic
(344
)
 
(1,244
)
Net repayments of term loans – foreign
(1,027
)
 
(1,217
)
Proceeds from equipment lease financing
791

 
6,812

Purchases of the Company's common units
(13,638
)
 
(2,985
)
Purchase of subsidiary shares from noncontrolling interests
(18,068
)
 
(2,086
)
Common unit dividend payment

 
(3,923
)
Deferred finance charges
(1,054
)
 

Net increase in deposits
105,098

 
47,314

Other
(429
)
 
1,373

Net cash provided by financing activities
138,898

 
28,325

Net change for the period
(130,408
)
 
(153,086
)
Effect of exchange rate changes on cash and cash equivalents
(496
)
 
841

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

 
462,768

Cash, cash equivalents and restricted cash at end of period
$
303,480

 
$
310,523


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, 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 and nine months ended September 30, 2018 are not necessarily indicative of the operating results for the full year.

During the first quarter of 2018, the Company corrected an out-of-period misstatement related to the increase in the fair value of the Company's investment in Steel Connect, Inc. ("STCN") preferred stock for the period from December 15, 2017 to December 31, 2017. Had this correction been recorded at December 31, 2017, the Company's investment in STCN preferred stock would have increased to $46,208 at December 31, 2017, with a corresponding $11,208 increase in Income of associated companies, net of tax and Net income to $28,096 and $17,220, respectively. For the nine months ended September 30, 2018, the Company's Income of associated companies, net of taxes and Net loss would have changed to losses of $6,067 and $12,695, respectively.

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.

7


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 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 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." Furthermore, to have a comparable presentation in our prior-period financial statements after adoption of ASU 2016-01 in 2018, we reclassified realized gains of $402 and $835 for the three and nine months ended September 30, 2017, respectively, from Other (income) expenses, net to Realized and unrealized losses (gains) on securities, net in both the consolidated statement of operations and consolidated statement of cash flows for 2017.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Topic 842 is effective for public companies for annual reporting periods beginning after December 15, 2018, including interim periods within those fiscal years. 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. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, which clarified various aspects of the guidance under ASU 2016-02. Originally, entities were required to adopt ASU 2016-02 using a modified retrospective approach, which required prior periods to be presented under this new standard with certain practical expedients available. However, in July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which now allows entities the option of recognizing the cumulative effect of applying the new standard as an adjustment to the opening balance of retained earnings in the year of adoption (January 1, 2019) while continuing to present all prior periods under previous lease accounting guidance.

The Company's implementation plan for the new lease standard includes an information system, and business process and control changes, to accumulate the appropriate data in order to calculate and record the recognition of ROU assets, lease liabilities and the related expense recognition. The Company is creating an inventory of our existing portfolio of leases and continues to review other contracts to determine if they contain leases as defined by Topic 842. Until this effort is completed, the Company cannot determine the effect of the adoption of Topic 842 on our consolidated balance sheet. The Company does not expect that the adoption of Topic 842 will have a material impact on our results of operations or cash flow presentation. The Company will continue to assess any incremental disclosures that will be required in our consolidated financial statements.

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 nine months ended September 30, 2017, we reclassified $14,437 of restricted cash.


8


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.

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.

In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. This new standard was created to simplify the accounting for share-based payments to nonemployees. This standard provides guidance on how to account for share-based payment transactions with

9


nonemployees in which a grantor acquires goods or services to be used or consumed in the grantor's own operations by issuing share-based payment awards. The amendments in ASU 2018-07 are effective for the Company's 2019 fiscal year. The Company is currently evaluating the potential impact of this new guidance.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 modifies the disclosure requirements on fair value measurements. The amendments in ASU 2018-13 are effective for the Company's 2020 fiscal year, except that the standard permits an entity to early adopt any removed or modified disclosures upon issuance of ASU No. 2018-13 and delay adoption of the additional disclosures until the effective date. Because ASU 2018-13 affects disclosure only, management does not expect that the full adoption of this standard will have a material impact on the Company's consolidated financial statements.

In August 2018, the FASB issued ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans. ASU 2018-14 modifies the disclosure requirements on defined benefit pension and other post-retirement plans. The amendments in ASU 2018-14 are effective for the Company's 2021 fiscal year. Because ASU 2018-14 affects disclosure only, management does not expect that the adoption of this standard will have a material impact on the Company's consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force) to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The amendments in ASU 2018-15 are effective for the Company's 2020 fiscal year. The Company is currently evaluating the potential impact of this new guidance.

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 or loss on an ongoing basis. For the three and nine months ended September 30, 2018, ASC 606 did not have a material impact on the Company's consolidated financial statements, including total revenue.

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.

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

10


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. The Company's performance obligations are generally part of contracts with customers that have a duration of less than one year, and therefore, the Company has not provided disclosures with respect to remaining performance obligations.

Practical Expedients and Exemptions

Given the typical duration of the Company's contracts with customers, as noted directly above, is less than one year, 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 and Energy segments provide, 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 and nine months ended September 30, 2018. 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 September 30,
 
Nine Months Ended September 30,
 
2018
 
2018
United States
$
353,953

 
$
1,036,473

Foreign (a)
51,366

 
169,528

Total revenue
$
405,319

 
$
1,206,001

(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, a cost incurred input method is used to determine the timing of revenue recognition for over time 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, and these estimates are typically constrained. 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

11



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 trade receivables, unbilled receivables (contract assets) and deferred revenue (contract liabilities) on the consolidated balance sheet. As of September 30, 2018, and January 1, 2018, the Company's return asset account, located in the consolidated balance sheets, was not materially impacted by ASC 606.

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 September 30, 2018 and January 1, 2018 were $7,042 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 September 30, 2018 and January 1, 2018 were $6,609 and $3,920, respectively. For the three and nine months ended September 30, 2018, the Company recognized revenue of $655 and $3,865, respectively, that was included in the contract liability balance at the date of adoption.

3. ACQUISITIONS

On June 1, 2018, the Company completed the acquisition of PST Group, Inc. ("PST") located in Muskego, Wisconsin for approximately $4,620. PST manufactures precision-engineered threaded components and custom ball screw assemblies, providing linear motion and power transmission solutions across a range of industries. PST is included in the Company's Diversified Industrial segment. The preliminary purchase price allocation is subject to finalization of valuations of certain acquired assets and liabilities.

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 $69,604, which includes assumed debt and is subject to an earn-out based on future earnings during the period from January 1, 2018 through December 31, 2019, 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 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, the Company recorded inventories, property, plant and equipment, other intangible assets and goodwill on a preliminary basis, totaling approximately $7,700, $30,600, $19,900 and $11,423, respectively, as well as other assets and liabilities. Other intangible assets

12


consist of customer relationships of $12,600, trade names of $3,300, developed technology of $3,300 and customer order backlog of $700. The expected useful lives are 15 years for customer relationships, indefinite for trade names and 10 years for developed technology. The customer order backlog was amortized based on the expected period over which the orders were fulfilled of four months. The preliminary purchase price allocation is subject to finalization of valuations of certain acquired assets and liabilities.

4. DIVESTITURES

During 2017, API sold two facilities for approximately $12,500 and recorded gains on sale totaling approximately $650, which are recorded in Other (income) expenses, net in the Company's consolidated statements of operations. During 2017, the Company also sold its Micro-Tube Fabricators, Inc. business, which produced precision fabricated tubular components primarily for the medical industry and was included in the Company's Diversified Industrial segment, for approximately $2,500 and recorded a loss on sale of $400, which is also included in Other (income) expenses, net. The sales price was paid $2,000 in cash at closing and a $500 subordinated promissory note, 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.

5. LOANS RECEIVABLE, INCLUDING LOANS HELD FOR SALE

Major classification of WebBank's loans receivable, including loans held for sale, at September 30, 2018 and December 31, 2017 are as follows:
 
Total
 
Current
 
Non-current
 
September 30, 2018
 
%
 
December 31, 2017
 
%
 
September 30, 2018
 
December 31, 2017
 
September 30, 2018
 
December 31, 2017
Loans held for sale
$
160,513

 


 
$
136,773

 


 
$
160,513

 
$
136,773

 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate loans
$
619

 
%
 
$
568

 
1
%
 
21

 
20

 
598

 
548

Commercial and industrial
119,777

 
42
%
 
84,726

 
61
%
 
58,900

 
28,315

 
60,877

 
56,411

Consumer loans
169,058

 
58
%
 
53,238

 
38
%
 
62,456

 
22,371

 
106,602

 
30,867

Total loans
289,454

 
100
%
 
138,532

 
100
%
 
121,377

 
50,706

 
168,077

 
87,826

Less:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses
(13,976
)
 
 
 
(5,237
)
 
 
 
(13,976
)
 
(5,237
)
 

 

Total loans receivable, net
$
275,478

 
 
 
$
133,295

 
 
 
107,401

 
45,469

 
168,077

 
87,826

Loans receivable, including loans held for sale (a)


 
 
 


 
 
 
$
267,914

 
$
182,242

 
$
168,077

 
$
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.

Commercial and industrial loans include net unaccreted discounts of $422 at September 30, 2018. Consumer loans include unaccreted discounts of $212 at September 30, 2018. Loans with a carrying value of approximately $57,198 and $57,436 were pledged as collateral for potential borrowings at September 30, 2018 and December 31, 2017, respectively. WebBank serviced $3,071 in loans for others at September 30, 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

A summary of Inventories, net is as follows:

13


 
September 30, 2018
 
December 31, 2017
Finished products
$
53,279

 
$
49,053

In-process
26,988

 
25,037

Raw materials
59,901

 
53,015

Fine and fabricated precious metal in various stages of completion
24,590

 
16,757

 
164,758

 
143,862

LIFO reserve
(277
)
 
(1,227
)
Total
$
164,481

 
$
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 September 30, 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.
 
September 30, 2018
 
December 31, 2017
Supplemental inventory information:
 
 
 
Precious metals stated at LIFO cost
$
13,912

 
$
4,897

Precious metals stated under non-LIFO cost methods, primarily at fair value
$
10,401

 
$
10,633

Market value per ounce:
 
 
 
Silver
$
14.69

 
$
17.01

Gold
$
1,187.25

 
$
1,296.50

Palladium
$
1,094.00

 
$
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)
11,423

 
1,595

 

 
13,018

Currency translation adjustments
(193
)
 

 

 
(193
)
Balance at September 30, 2018
 
 
 
 
 
 
 
Gross goodwill
204,760

 
67,143

 
81

 
271,984

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

 
(89,044
)
Net goodwill
$
180,506

 
$
2,353

 
$
81

 
$
182,940

(a)
Goodwill related to the Dunmore acquisition and purchase price adjustments related to the Company's 2017 acquisition of Basin Well Logging Wireline Services, Inc. See Note 3 - "Acquisitions" for additional information on the Company's 2018 acquisitions.

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

14


 
September 30, 2018
 
December 31, 2017
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net
Customer relationships
$
235,458

 
$
97,662

 
$
137,796

 
$
222,277

 
$
80,952

 
$
141,325

Trademarks, trade names and brand names
55,595

 
17,430

 
38,165

 
52,356

 
14,996

 
37,360

Developed technology, patents and patent applications
31,704

 
13,727

 
17,977

 
28,239

 
11,756

 
16,483

Other
17,345

 
13,365

 
3,980

 
16,131

 
11,982

 
4,149

Total
$
340,102

 
$
142,184

 
$
197,918

 
$
319,003

 
$
119,686

 
$
199,317


Other intangible assets, net as of September 30, 2018 includes approximately $19,900 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 allocation for the Dunmore acquisition.

Trademarks with indefinite lives as of September 30, 2018 and December 31, 2017 were $11,320 and $8,020, respectively. Amortization expense related to intangible assets was $7,591 and $7,159 for the three months ended September 30, 2018 and 2017, respectively, and $22,764 and $22,696 for the nine months ended September 30, 2018 and 2017, respectively.

8. INVESTMENTS

Short-Term Investments

Marketable Securities

The Company's short-term investments primarily consist of its marketable securities portfolio. 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:
 
September 30, 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
$
20,009

 
$

 
$

 
$
20,009

 
$
35,834

 
$

 
$

 
$
35,834

Mutual funds

 

 

 

 
12,077

 
4,675

 

 
16,752

Corporate securities
5,296

 
145

 
(2,259
)
 
3,182

 
32,311

 
11,893

 
(2,643
)
 
41,561

Total marketable securities
25,305

 
145

 
(2,259
)
 
23,191

 
80,222

 
16,568

 
(2,643
)
 
94,147

Amounts classified as cash equivalents
(20,009
)
 

 

 
(20,009
)
 
(35,834
)
 

 

 
(35,834
)
Amounts classified as marketable securities
$
5,296

 
$
145

 
$
(2,259
)
 
$
3,182

 
$
44,388

 
$
16,568

 
$
(2,643
)
 
$
58,313


Proceeds from sales of marketable securities were approximately $0 and $902 in the three months ended September 30, 2018 and 2017, respectively, and were approximately $46,000 and $15,593 in the nine months ended September 30, 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 (gains) on securities, net in the Company's consolidated statements of operations, were as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Gross realized gains
$

 
$
449

 
$
16,090

 
$
545

Gross realized losses

 
(46
)
 
(5,129
)
 
(409
)
Realized gains, net
$

 
$
403

 
$
10,961

 
$
136


Effective January 1, 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 (gains) 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.

15



The fair value of marketable securities with unrealized losses at September 30, 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
$
678

 
$
(40
)
 
$
1,595

 
$
(2,219
)
 
$
2,273

 
$
(2,259
)
Total
$
678

 
$
(40
)
 
$
1,595

 
$
(2,219
)
 
$
2,273

 
$
(2,259
)

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
)

The corporate securities with gross unrealized losses 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 September 30, 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 September 30,
 
Nine Months Ended September 30,
 
September 30, 2018
 
December 31, 2017
 
September 30, 2018
 
December 31, 2017
 
2018
 
2017
 
2018
 
2017
Corporate securities (a),(d)
 
 
 
 
$
176,162

 
$
131,307

 
$
21,638

 
$

 
$
45,652

 
$

STCN convertible notes (b),(e)
 
 
 
 
14,703

 
10,387

 

 
(97
)
 
42

 
(441
)
STCN preferred stock (c),(e)
 
 
 
 
45,700

 
35,000

 
(2,424
)
 

 
(10,700
)
 

STCN warrants (e)
 
 
 
 

 

 

 
8

 

 
18

Equity method investments: (e)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Carried at fair value:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  STCN common stock
30.3
%
 
30.4
%
 
38,730

 
45,275

 
486

 
(2,561
)
 
5,835

 
(6,327
)
  Aviat Networks, Inc. ("Aviat")
12.5
%
 
12.7
%
 
10,824

 
10,168

 
131

 
262

 
(571
)
 
(2,131
)
  Other
43.8
%
 
43.8
%
 
1,223

 
1,223

 

 

 

 

Long-term investments carried at fair value
 
 
 
 
287,342

 
233,360









Carried at cost:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Other equity method investments carried at cost (e)
 
 
 
 
2,524

 
2,784

 
209

 
56

 
253

 
179

Total
 
 
 
 
$
289,866

 
$
236,144

 

 

 

 

(a)
Cost basis totaled $100,379 at September 30, 2018 and $12,250 at December 31, 2017 and gross unrealized gains totaled $75,783 and $119,057 at September 30, 2018 and December 31, 2017, respectively.
(b)
Represents investment in STCN convertible notes. Cost basis totaled $13,262 at September 30, 2018 and $8,903 at December 31, 2017 and gross unrealized gains totaled $1,441 and $1,484 at September 30, 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.

16


(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 September 30, 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.
(d)
Loss (income) from these investments is included in Realized and unrealized losses (gains) on securities, net in the consolidated statements of operations.
(e)
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 (corporate securities) include common shares of Babcock & Wilcox Enterprises, Inc. ("BW"). The Company made investments totaling $76,261 in BW shares during 2018, increasing its ownership in BW to approximately 17.8%.

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 SPLP's investments in associated companies 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, medical devices, software and retail industries. STCN also owns IWCO Direct Holdings, Inc. ("IWCO"), a provider of data-driven marketing solutions that offers a full range of services including strategy, creative and production for multichannel marketing campaigns, along with postal logistics strategies for direct mail.
Aviat is a global provider of microwave networking solutions.
The Other investment represents the Company's investment in a Japanese real estate partnership.

The below summary balance sheet and statement of operations amounts include results for STCN (NASDAQ: STCN) for the nearest practicable corresponding period to the Company's fiscal period. STCN has not yet filed its Annual Report on Form 10-K for the year ended July 31, 2018. As a result of this delay, the financial information included herein is unaudited and subject to change and adjustments, and there can be no assurances that changes will not be made as the audit process is completed.
(Unaudited)
September 30, 2018
 
December 31, 2017
 
 
 
 
Summary of balance sheet amounts: (a)
 
 
 
 
 
 
 
Current assets
$
263,530

 
$
257,846

 
 
 
 
Non-current assets
563,520

 
23,452

 
 
 
 
Total assets
$
827,050

 
$
281,298

 
 
 
 
 
 
 
 
 
 
 
 
Current liabilities
$
290,612

 
$
149,155

 
 
 
 
Non-current liabilities
393,618

 
69,172

 
 
 
 
Total liabilities
684,230

 
218,327

 
 
 
 
Contingently redeemable preferred stock
35,192

 

 
 
 
 
Equity
107,628

 
62,971

 
 
 
 
Total liabilities and equity
$
827,050

 
$
281,298

 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(Unaudited)
2018
 
2017
 
2018
 
2017
Summary operating results: (a)
 
 
 
 
 
 
 
Net revenue
$
202,236

 
$
99,777

 
$
542,277

 
$
315,293

Gross profit
$
37,357

 
$
7,292

 
$
93,312

 
$
27,032

Net (loss) income (b)
$
(7,533
)
 
$
(9,311
)
 
$
47,223

 
$
(17,284
)
(a)
The increases in the 2018 amounts, as compared to the 2017 amounts, in the table above are principally due to STCN's acquisition of IWCO.
(b)
Net income in the 2018 nine-month period was favorably impacted by an income tax benefit related to STCN's acquisition of IWCO.

Other Investments


17


WebBank had $42,649 and $32,816 of held-to-maturity securities at September 30, 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 $17,826, after five years through ten years is $22,873 and after ten years is $1,950. 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 $42,545 and $32,842 at September 30, 2018 and December 31, 2017, respectively.

9. LONG-TERM DEBT

Debt consists of the following:
 
September 30, 2018
 
December 31, 2017
Short term debt:
 
 
 
Foreign
$
2,149

 
$
1,624

Short-term debt
2,149

 
1,624

Long-term debt:
 
 
 
SPLP revolving facility
474,504

 
406,981

Other debt - foreign
909

 

Other debt - domestic
5,719

 
6,062

Subtotal
481,132

 
413,043

Less portion due within one year
810

 
459

Long-term debt
480,322

 
412,584

Total debt
$
483,281

 
$
414,667


On November 14, 2017, SPH Group Holdings LLC, Steel Excel Inc. ("Steel Excel"), API Americas Inc., Handy & Harman Group Ltd. and Cedar 2015 Limited (collectively, the "Borrowers"), each a direct or indirect subsidiary of the Company, entered into a credit agreement ("Credit Agreement") that consolidated 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 provided for a revolving credit facility in an aggregate principal amount not to exceed $600,000, including 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 (1.25% and 2.25%, respectively, for Base Rate and Euro-Rate borrowings at September 30, 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 4.40% at September 30, 2018. At September 30, 2018, letters of credit totaling $11,195 had been issued under the Credit Agreement, including $3,751 of the letters of credit guaranteeing various insurance activities, and $7,444 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 $73,300 as of September 30, 2018.

On April 27, 2018, the Company entered into an amendment to the Credit Agreement to allow the Company to (i) exercise certain subscription rights in BW common shares, (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 financial covenants at September 30, 2018.

10. FINANCIAL INSTRUMENTS

At September 30, 2018 and December 31, 2017, financial instrument liabilities and related restricted cash consisted of $14,464 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:

18


 
September 30,
 
2018
 
2017
Balance, beginning of period
$
15,629

 
$
12,640

Settlement of short sales of corporate securities
(3,100
)
 
(69
)
Short sales of corporate securities
26

 
129

Net investment losses
1,909

 
1,737

Balance, end of period
$
14,464

 
$
14,437


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 certain 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 December 2019 at September 30, 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 September 30, 2018, there were contracts in place to buy Sterling and sell Euros in the amount of €9,500. 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 September 30, 2018, there were contracts in place to hedge the value of future sales denominated in Euros in the amount of €25,200 and the value of future purchases denominated in USD in the amount of $6,000. 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 September 30, 2018 and are classified within Level 3 in the fair value hierarchy (see Note 15 - "Fair Value Measurements"). At September 30, 2018, outstanding derivatives mature within 3 to 5 years. Gains and losses resulting from changes in the 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.

Precious Metal and Commodity Inventories

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 September 30, 2018, the Company had the following outstanding forward contracts with settlement dates through October 2018. There were no futures contracts outstanding at September 30, 2018.

19


Commodity
Amount
 
Notional Value
Silver
351,760 ounces
 
$
5,039

Gold
3,902 ounces
 
$
4,630

Palladium
678 ounces
 
$
730

Copper
225,000 pounds
 
$
637

Tin
35 metric tons
 
$
665


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, palladium 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 Aa2 by Moody's. 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 which varies in amount depending on the value of open contracts.

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
 
September 30, 2018
 
December 31, 2017
Commodity contracts (a),(b)
 
Prepaid expenses and other current assets/(Accrued liabilities)
 
$
4

 
$
(49
)
Commodity contracts (c)
 
Accrued liabilities
 
(139
)
 
(78
)
Foreign exchange forward contracts (a),(d)
 
(Accrued liabilities)/Prepaid expenses and other current assets
 
(25
)
 
166

Foreign exchange forward contracts (a),(b)
 
Accrued liabilities
 
(47
)
 
(188
)
Economic interests in loans (c)
 
Other non-current assets
 
16,640

 
13,126

Call options
 
Other current liabilities
 

 
(258
)
Put options
 
Prepaid expenses and other current assets
 

 
3

Total derivatives
 
 
 
$
16,433

 
$
12,722

 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
 
 
2018
 
2017
 
2018
 
2017
Derivative
 
Statement of Operations Location
 
Gain (Loss)
 
Gain (Loss)
 
Gain (Loss)
 
Gain (Loss)
Commodity contracts (a),(b)
 
Cost of goods sold
 
$
70

 
$
(123
)
 
$
221

 
$
(302
)
Commodity contracts (c)
 
Cost of goods sold
 
52

 
(39
)
 
(10
)
 
25

Commodity contracts (c)
 
Other income (expenses), net
 
552

 
18

 
1,054

 
(57
)
Foreign exchange forward contracts (a),(d)
 
Revenue
 
71

 
(427
)
 
128

 
(1,223
)
Foreign exchange forward contracts (a),(b)
 
Other income (expenses), net
 
(22
)
 
(22
)
 
(36
)
 
(253
)
Economic interests in loans (c)
 
Revenue
 
3,676

 
3,384

 
11,040

 
8,902

Call options
 
Other income (expenses), net
 

 
(79
)
 
250

 
(7
)
Put options
 
Other income (expenses), net
 

 
(196
)
 
(3
)
 
(717
)
Total derivatives
 
 
 
$
4,399

 
$
2,516

 
$
12,644

 
$
6,368

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

Financial Instruments with Off-Balance Sheet Risk

20



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 September 30, 2018 and December 31, 2017, WebBank's undisbursed loan commitments under these instruments totaled $155,398 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 September 30, 2018 and December 31, 2017.

11. PENSION BENEFIT PLANS

Handy & Harman Ltd. ("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 post-retirement 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 significant pension plans:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Interest cost
$
5,158

 
$
5,594

 
$
15,887

 
$
16,529

Expected return on plan assets
(6,965
)
 
(7,267
)
 
(20,992
)
 
(19,590
)
Amortization of actuarial loss
2,116

 
2,346

 
7,194

 
6,921

Total
$
309

 
$
673

 
$
2,089

 
$
3,860


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 $5,800 for the remainder of 2018, and $33,400, $36,300, $31,800, $32,100 and $33,600 in 2019, 2020, 2021, 2022 and for the five years thereafter, respectively.
API expects to contribute approximately $93 for the remainder of 2018, and $922 in each year 2019, 2020, 2021, 2022 and 2023.

12. CAPITAL AND ACCUMULATED OTHER COMPREHENSIVE LOSS

As of September 30, 2018, the Company had 25,782,401 Class A units (regular common units) outstanding.


21


Common Unit Repurchase Program

In December 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. In November 2018, the Board of Directors approved the repurchase of up to an additional 1,000,000 of the Company's common units (collectively, with the December 2016 approval, "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 nine months of 2018, the Company purchased 773,777 units for an aggregate price of approximately $13,638.

Incentive Award Plan

On May 24, 2018, the Company's unitholders approved the adoption of the Company's 2018 Incentive Award Plan ("2018 Plan"). The 2018 Plan provides equity-based compensation through the grant of options to purchase the Company's limited partnership ("LP") units, unit appreciation rights, restricted units, phantom units, substitute awards, performance awards, other unit-based awards, and includes, as appropriate, any tandem distribution equivalent rights granted with respect to an award. The 2018 Plan allows for issuance of up to 500,000 LP units. As of September 30, 2018, no awards had been granted under the 2018 Plan.

Preferred Units

The 6.0% Series A preferred units, no par value ("SPLP Preferred Units"), which were issued in connection with the Steel Excel, HNH and WebFinancial Holding Corporation ("WFHC") 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 $8,800 and $2,300 to preferred unitholders for the nine months ended September 30, 2018 and 2017, respectively. The SPLP Preferred Units have a term of nine years and are redeemable at any time at the Company's option at the $25 liquidation value per unit, 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 of February 7, 2017, 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 September 30, 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 September 30, 2018, there were 7,927,288 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

22


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.

WFHC Transactions

During 2018, the Company entered into purchase agreements with minority stockholders of its subsidiary, WFHC, pursuant to which the Company purchased shares of common and preferred stock of WFHC in exchange for aggregate consideration totaling approximately $20,680, comprised of cash of $13,708, 185,407 common units of SPLP and 186,271 SPLP Preferred Units. As a result of these transactions, the Company now owns 100% of WFHC.

For each of the Steel Excel, HNH and WFHC transactions described above, 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 acquired noncontrolling interests 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.

Accumulated Other Comprehensive Loss

Changes, net of tax, in Accumulated other comprehensive loss are as follows:
 
Nine Months Ended September 30, 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
)
Net other comprehensive loss attributable to common unitholders (a),(b)

 
(8
)
 
(853
)
 

 
(861
)
Cumulative effect of adopting ASU 2016-01 relating to net unrealized gains and losses on equity securities (c)
(91,078
)
 

 

 

 
(91,078
)
Acquisition of AOCI from noncontrolling interests


 
(130
)
 
(524
)
 
(379
)
 
(1,033
)
Balance at end of period
$

 
$
(2,039
)
 
$
(19,636
)
 
$
(177,464
)
 
$
(199,139
)
(a)
Net of a tax benefit of approximately $17.
(b)
Does not include the net unrealized gain on derivative f