Document
 

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

FORM 10-Q
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
or
¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________

Commission File Number: 001-35493

STEEL PARTNERS HOLDINGS L.P.
(Exact Name of Registrant as Specified in its Charter)

Delaware
13-3727655
(State or Other Jurisdiction of Incorporation or Organization)
(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, Including Area Code)

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 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 the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer þ
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 in Rule 12b-2 of the Act). Yes o No þ

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbols
Name of each exchange on which registered
Common Units, $0 par
SPLP
New York Stock Exchange
6.0% Series A Preferred Units
SPLP-PRA
New York Stock Exchange

The number of common units outstanding as of May 1, 2019 was 24,958,667.
 



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, 2019
 
December 31, 2018
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
212,340

 
$
334,884

Restricted cash
14,053

 
12,434

Marketable securities
1,671

 
1,439

Trade and other receivables - net of allowance for doubtful accounts of $3,213 and $2,885, respectively
225,637

 
209,543

Receivables from related parties
703

 
425

Loans receivable, including loans held for sale of $169,830 and $188,143, respectively, net
349,559

 
341,890

Inventories, net
166,617

 
158,850

Prepaid expenses and other current assets
36,376

 
32,826

Total current assets
1,006,956

 
1,092,291

Long-term loans receivable, net
191,563

 
164,375

Goodwill
186,061

 
183,945

Other intangible assets, net
176,356

 
183,541

Deferred tax assets
95,560

 
96,040

Other non-current assets
88,546

 
80,356

Property, plant and equipment, net
294,019

 
297,467

Operating lease right-of-use assets
43,641

 

Long-term investments
270,613

 
258,044

Total Assets
$
2,353,315

 
$
2,356,059

LIABILITIES AND CAPITAL
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
126,548

 
$
106,261

Accrued liabilities
81,548

 
93,179

Financial instruments
14,053

 
12,434

Deposits
421,465

 
431,959

Payables to related parties
1,808

 
248

Short-term debt
3,273

 
3,094

Current portion of long-term debt
10,795

 
799

Current portion of preferred unit liability
37,858

 

Other current liabilities
32,899

 
21,943

Total current liabilities
730,247

 
669,917

Long-term deposits
216,544

 
279,352

Long-term debt
474,383

 
478,096

Preferred unit liability
143,558

 
180,340

Accrued pension liabilities
202,140

 
205,770

Deferred tax liabilities
2,741

 
2,225

Long-term operating lease liabilities
33,651

 

Other non-current liabilities
19,793

 
20,987

Total Liabilities
1,823,057

 
1,836,687

Commitments and Contingencies


 


Capital:
 
 
 
Partners' capital common units: 24,958,667 and 25,294,003 issued and outstanding (after deducting 12,647,864 and 12,142,528 units held in treasury, at cost of $198,781 and $192,060), respectively
702,016

 
692,895

Accumulated other comprehensive loss
(175,423
)
 
(177,244
)
Total Partners' Capital
526,593

 
515,651

Noncontrolling interests in consolidated entities
3,665

 
3,721

Total Capital
530,258

 
519,372

Total Liabilities and Capital
$
2,353,315

 
$
2,356,059


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,
 
2019
 
2018
Revenue:
 
 
 
Diversified industrial net sales
$
312,161

 
$
307,618

Energy net revenue
38,986

 
36,592

Financial services revenue
35,906

 
22,035

Total revenue
387,053

 
366,245

Costs and expenses:
 
 
 
Cost of goods sold
266,761

 
261,861

Selling, general and administrative expenses
88,364

 
88,382

Finance interest expense
3,924

 
1,778

Provision for loan losses
8,470

 
2,818

Interest expense
10,808

 
8,109

Realized and unrealized (gains) losses on securities, net
(2,109
)
 
13,789

Other expense (income), net
1,633

 
(1,016
)
Total costs and expenses
377,851

 
375,721

Income (loss) before income taxes and equity method investments
9,202

 
(9,476
)
Income tax provision
2,961

 
1,330

Income of associated companies, net of taxes
(9,381
)
 
(1,955
)
Net income (loss)
15,622

 
(8,851
)
Net loss (income) attributable to noncontrolling interests in consolidated entities
56

 
(227
)
Net income (loss) attributable to common unitholders
$
15,678

 
$
(9,078
)
Net income (loss) per common unit - basic
 
 
 
Net income (loss) attributable to common unitholders
$
0.63

 
$
(0.35
)
Net income (loss) per common unit - diluted
 
 
 
Net income (loss) attributable to common unitholders
$
0.48

 
$
(0.35
)
Weighted-average number of common units outstanding - basic
24,846,653

 
26,264,101

Weighted-average number of common units outstanding - diluted
39,176,909

 
26,264,101


See accompanying Notes to Consolidated Financial Statements

3


STEEL PARTNERS HOLDINGS L.P.
Consolidated Statements of Comprehensive Income (Loss)
(unaudited)
(in thousands)
 
Three Months Ended March 31,
 
2019
 
2018
Net income (loss)
$
15,622

 
$
(8,851
)
Other comprehensive income, net of tax:
 
 
 
Gross unrealized gains on derivative financial instruments
518

 
185

Currency translation adjustments
1,303

 
3,304

Other comprehensive income
1,821

 
3,489

Comprehensive income (loss)
17,443

 
(5,362
)
Comprehensive loss (income) attributable to noncontrolling interests
56

 
(448
)
Comprehensive income (loss) attributable to common unitholders
$
17,499

 
$
(5,810
)
 
 
 
 
Tax provision on gross unrealized gains on derivative financial instruments
$
92

 
$
32

Tax provision on currency translation adjustments
$

 
$
36


See accompanying Notes to Consolidated Financial Statements

4


STEEL PARTNERS HOLDINGS L.P.
Consolidated Statements 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 as of December 31, 2018
37,436,531

 
(12,142,528
)
 
$
(192,060
)
 
$
692,895

 
$
(177,244
)
 
$
515,651

 
$
3,721

 
$
519,372

Net income

 

 

 
15,678

 

 
15,678

 
(56
)
 
15,622

Unrealized gains on derivative financial instruments

 

 

 

 
518

 
518

 

 
518

Currency translation adjustments

 

 

 

 
1,303

 
1,303

 

 
1,303

Equity compensation - restricted units
170,000

 

 

 
164

 

 
164

 

 
164

Purchases of SPLP common units

 
(505,336
)
 
(6,721
)
 
(6,721
)
 

 
(6,721
)
 

 
(6,721
)
Balance as of March 31, 2019
37,606,531

 
(12,647,864
)
 
$
(198,781
)
 
$
702,016

 
$
(175,423
)
 
$
526,593

 
$
3,665

 
$
530,258


 
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 as of 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 as of 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 Accounting Standards Update No. 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 Accounting Standards Codification 606 for all contracts with customers using the modified retrospective transition approach. The Company recognized a net increase of $1,034 to Partners' capital due to the cumulative impact of adopting Accounting Standards Codification 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,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income (loss)
$
15,622

 
$
(8,851
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
Provision for loan losses
8,470

 
2,818

Income of associated companies, net of taxes
(9,381
)
 
(1,955
)
Realized and unrealized (gains) losses on securities, net
(2,109
)

13,789

Derivative gains on economic interests in loans
(2,886
)
 
(3,281
)
Deferred income taxes
473

 
(618
)
Depreciation and amortization
17,535

 
18,702

Non-cash lease expense
2,864

 

Equity-based compensation
164

 
149

Other
1,225

 
1,996

Net change in operating assets and liabilities:
 
 
 
Trade and other receivables
(18,191
)
 
(21,308
)
Inventories
(7,116
)
 
(9,005
)
Prepaid expenses and other assets
(3,525
)
 
(2,632
)
Accounts payable, accrued and other liabilities
15,218

 
1,477

Net decrease (increase) in loans held for sale
18,313

 
(11,956
)
Net cash provided by (used in) operating activities
36,676

 
(20,675
)
Cash flows from investing activities:
 
 
 
Purchases of investments
(39,354
)
 
(57,706
)
Proceeds from sales of investments

 
33,718

Proceeds from maturities of investments
30,415

 
8,146

Loan originations, net of collections
(61,639
)
 
(31,261
)
Purchases of property, plant and equipment
(7,353
)
 
(12,010
)
Proceeds from sales of assets
132

 
2,960

Acquisitions, net of cash acquired

 
(62,120
)
Other
33

 
(134
)
Net cash used in investing activities
(77,766
)
 
(118,407
)
Cash flows from financing activities:
 
 
 
Net revolver borrowings
5,690

 
56,510

Net borrowings (repayments) of term loans
390

 
(30
)
Purchases of the Company's common units
(6,721
)
 
(3,595
)
Purchase of subsidiary shares from noncontrolling interests

 
(4,360
)
Deferred finance charges
(815
)
 
(430
)
Net decrease in deposits
(73,302
)
 
(6,869
)
Other
(5,907
)
 
(1,198
)
Net cash (used in) provided by financing activities
(80,665
)
 
40,028

Net change for the period
(121,755
)
 
(99,054
)
Effect of exchange rate changes on cash and cash equivalents
830

 
595

Cash, cash equivalents and restricted cash at beginning of period
347,318

 
434,384

Cash, cash equivalents and restricted cash at end of period
$
226,393

 
$
335,925


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 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, direct marketing, 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 accompanying unaudited consolidated financial statements as of March 31, 2019 and for the three-month periods ended March 31, 2019 and 2018, which have been prepared by the Company in accordance with the rules and regulations of the Securities and Exchange Commission for interim periods, include the accounts of the Company and its consolidated subsidiaries. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation have been reflected herein. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the operating results for the full year. The accompanying unaudited consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements on Form 10-K for the year ended December 31, 2018, from which the consolidated balance sheet as of December 31, 2018 has been derived.

Certain financial information that is normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles, but is not required for interim reporting purposes, has been condensed or omitted. Management must make estimates and assumptions that affect the consolidated financial statements and the related footnote disclosures. While management uses its best judgment, actual results may differ from those estimates. Certain reclassifications have been made to the prior period financial statements and notes to conform to the current period presentation.

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 as of December 31, 2017, Income of associated companies, net of taxes and Net loss for the three months ended March 31, 2018 would have changed to losses of $9,253 and $20,059, respectively.

New or Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. ("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 are classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of operations. 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 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 while continuing to present all prior periods under previous lease accounting guidance.

The Company adopted Topic 842 as of January 1, 2019 using the alternative modified transition approach. The Company elected to use the package of practical expedients permitted under the transition guidance, including carryforward of our historical lease classification, no reassessment of whether an expired or existing contract contains an embedded lease, no reassessment of initial direct costs for any leases that existed prior to the date of adoption of the new standard, and to consolidate lease and non-

7


lease components. As a result of the adoption of Topic 842, we recorded a ROU asset and lease liability of $45,357 and $46,024, respectively, on January 1, 2019. The Company did not record a cumulative effect adjustment to the opening balance of Partners' capital upon the adoption of Topic 842. For additional information, see Note 3 - "Leases."

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; however, it expects that it could have a significant impact on the Company's allowance for loan losses ("ALLL").

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 Company has elected to early adopt this standard as of January 1, 2019; such adoption did not have an 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. The Company adopted ASU 2017-12 on January 1, 2019. The new standard includes amendments to enhance presentation and disclosures, including eliminating the separate measurement and reporting of hedge ineffectiveness, generally requiring the entire effect of the hedging instrument and hedged item to be presented in the same income statement line item. Amendments in the new standard to reduce the complexity of applying certain aspects of hedge accounting include giving entities additional time to complete certain aspects of their hedge documentation, expanding the nature of hedging relationships that can be subsequently assessed for hedge effectiveness on a qualitative basis, if elected, and simplifying the application of the critical terms match and shortcut methods. Certain aspects of the new standard are applied on a modified retrospective basis including recording a cumulative-effect adjustment in the opening balance of retained earnings for cash flow and net investment hedges, to eliminate the separate measurement of ineffectiveness, if any, to accumulated other comprehensive income or loss ("AOCI") with a corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year of adoption. The amended presentation and disclosure guidance is required on a prospective basis. The standard also provides a number of one-time transition elections that entities may choose to apply to certain existing hedging relationships without having to de-designate and re-designate the hedging relationship. The Company has elected to continue recording amounts excluded from the assessment of hedge effectiveness in earnings rather than using an amortization approach. For additional details on the Company's derivatives and hedging activities, see Note 10 - "Financial Instruments."

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 any stranded tax effects resulting from the Federal Tax Cuts and Jobs Act from AOCI to retained earnings. The amendments in ASU 2018-02 are effective beginning after December 15, 2018, and interim periods within those fiscal years. The Company adopted ASU 2018-02 on January 1, 2019 and elected not to reclassify stranded tax effects.

In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. This new standard provides guidance on how to account for share-based payment transactions with 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 new standard is effective for public companies for annual reporting periods beginning after December 15, 2018, including interim periods within those fiscal years. The Company adopted ASU 2018-07 on January 1, 2019. The adoption did not have an impact on the Company's consolidated financial statements.

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.


8


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 for employers that sponsor 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

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, 2019 and 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 March 31,
 
2019
 
2018
United States
$
345,089

 
$
307,940

Foreign (a)
41,964

 
58,305

Total revenue
$
387,053

 
$
366,245

(a)
Foreign revenues are primarily related to the Company's API Group plc and Dunmore Europe GmbH businesses, which are domiciled in the United Kingdom and Germany, respectively.

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 sheets.

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 sheets. The balances of contract assets as of both March 31, 2019 and December 31, 2018 was $8,969.

Contract Liabilities

The Company records deferred revenues when cash payments are received or due in advance of the Company's performance, including amounts that are refundable, which are recorded as contract liabilities. Contract liabilities are classified as Other current liabilities on the consolidated balance sheets, based on the timing of when the Company expects to recognize revenue. As of March 31, 2019 and December 31, 2018, the contract liability was $8,620 and $5,900, respectively. The increase in the three months ended March 31, 2019 was primarily due to deferral of revenue of $6,002 offset by the recognition of $1,792 of unearned revenue.

9



3. LEASES

The Company determines if an agreement qualifies as a lease or contains a lease in the period that the agreement is executed. ROU assets represent our right to use an underlying asset for the entirety of the lease term. Lease liabilities represent the Company's obligation to make payments over the life of the lease. A ROU asset and a lease liability are recognized at commencement of the lease based on the present value of the lease payments over the life of the lease. Since the interest rate implicit in a lease is generally not readily determinable, we use an incremental borrowing rate to determine the present value of the lease payments. The incremental borrowing rate represents the rate of interest the Company would have to pay to borrow on a collateralized basis over a similar lease term to obtain an asset of similar value. Our lease terms may include options to extend or terminate the lease when the Company is reasonably certain that we will exercise that option.

Initial direct costs are included as part of the ROU asset upon commencement of the lease. The Company has applied the practical expedient available for lessees in which lease and non-lease components are accounted for as a single lease component for all of our asset classes. We also elected the practical expedient to exclude short-term leases (leases with original terms of 12 months or less) from our ROU asset and lease liability accounts.

The Company has operating and finance leases for operating plants, warehouses, corporate offices, housing facilities, vehicles and equipment. Our leases have remaining lease terms of up to 54 years.

The components of lease cost are as follows:
 
Three Months Ended March 31, 2019
Operating lease cost
$
3,367

Short-term lease cost
$
306

 
 
Finance lease cost:
 
Amortization of right-of-use assets
$
250

Interest on lease liabilities
61

Total finance lease cost
$
311


Supplemental cash flow information related to leases is as follows:
 
Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows from operating leases
$
3,260

Operating cash flows from finance leases
$
61

Financing cash flows from finance leases
$
314

Operating lease liabilities arising from obtaining right-of-use assets
$
1,344

Finance lease liabilities arising from obtaining right-of-use-assets
$
323


Supplemental balance sheet information related to leases is as follows:

10


 
March 31, 2019
 
Location on
Consolidated Balance Sheet
Operating leases
 
 
 
Operating lease right-of-use assets
$
43,641

 
Operating lease right-of-use assets
 
 
 
 
Current operating lease liabilities
$
10,716

 
Other current liabilities
Non-current operating lease liabilities
33,651

 
Long-term operating lease liabilities
Total operating lease liabilities
$
44,367

 
 
 
 
 
 
Finance leases
 
 
 
Finance lease assets
$
6,711

 
Property, plant and equipment, net
 
 
 
 
Current finance lease liabilities
$
1,302

 
Other current liabilities
Non-current finance lease liabilities
4,925

 
Other non-current liabilities
Total finance lease liabilities
$
6,227

 
 
 
 
 
 
Weighted-average remaining lease term
 
 
 
Operating leases
8.41 years

 
 
Finance leases
5.11 years

 
 
Weighted-average discount rate
 
 
 
Operating leases
4.57
%
 
 
Finance leases
3.92
%
 
 

Future minimum operating lease obligations prior to the adoption of Topic 842, as of December 31, 2018, were as follows:
Payments Due by Period
 
Amount
2019
 
$
14,280

2020
 
11,131

2021
 
8,975

2022
 
6,174

2023
 
3,863

Thereafter
 
17,867

Total
 
$
62,290


Maturities of lease liabilities after the adoption of Topic 842, as of March 31, 2019, are as follows:
 
Operating Leases
 
Finance Leases
2019 (excluding the three months ended March 31, 2019)
$
9,424

 
$
1,127

2020
10,386

 
1,362

2021
8,039

 
1,278

2022
6,346

 
1,179

2023
4,459

 
1,173

Thereafter
17,702

 
703

Total lease payments
56,356

 
6,822

 
 
 
 
Present value of current lease liabilities
10,716

 
1,302

Present value of long-term lease liabilities
33,651

 
4,925

Total present value of lease liabilities
44,367

 
6,227

 
 
 
 
Difference between undiscounted cash flows and discounted cash flows
$
11,989

 
$
595


4. ACQUISITIONS

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 manufactures and distributes coated, laminated and metallized films for engineered applications in the imaging, aerospace, insulation and solar photo-voltaic markets and also provides products for custom and special applications.

11


Dunmore reports 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 totaling approximately $7,700, $30,600, $17,300 and $15,409, respectively, as well as other assets and liabilities. Other intangible assets consist of customer relationships of $10,100, trade names of $3,300, developed technology of $3,300 and customer order backlog of $600. 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 goodwill from the Dunmore acquisition consists largely of the synergies expected from combining the operations of Dunmore and the Company's existing packaging business. The goodwill assigned to Dunmore Corporation of $7,126 is expected to be deductible for income tax purposes, while the goodwill assigned to Dunmore Europe GmbH of $8,283 is not tax deductible.

5. LOANS RECEIVABLE, INCLUDING LOANS HELD FOR SALE

Major classifications of loans receivable, including loans held for sale, held by our consolidated subsidiary, WebBank, as of March 31, 2019 and December 31, 2018 are as follows:
 
Total
 
Current
 
Non-current
 
March 31, 2019
 
%
 
December 31, 2018
 
%
 
March 31, 2019
 
December 31, 2018
 
March 31, 2019
 
December 31, 2018
Loans held for sale
$
169,830

 


 
$
188,143

 


 
$
169,830

 
$
188,143

 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate loans
$
636

 
%
 
$
632

 
%
 

 

 
636

 
632

Commercial and industrial
170,797

 
44
%
 
146,758

 
44
%
 
103,787

 
81,507

 
67,010

 
65,251

Consumer loans
222,287

 
56
%
 
188,391

 
56
%
 
98,370

 
89,899

 
123,917

 
98,492

Total loans
393,720

 
100
%
 
335,781

 
100
%
 
202,157

 
171,406

 
191,563

 
164,375

Less:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses
(22,428
)
 
 
 
(17,659
)
 
 
 
(22,428
)
 
(17,659
)
 

 

Total loans receivable, net
$
371,292

 
 
 
$
318,122

 
 
 
179,729

 
153,747

 
191,563

 
164,375

Loans receivable, including loans held for sale (a)


 
 
 


 
 
 
$
349,559

 
$
341,890

 
$
191,563

 
$
164,375

(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.

Loans with a carrying value of approximately $66,289 and $56,581 were pledged as collateral for potential borrowings as of March 31, 2019 and December 31, 2018, respectively. WebBank serviced $3,036 and $3,044 in loans for others as of March 31, 2019 and December 31, 2018, respectively.

WebBank sold loans classified as loans held for sale of $5,232,586 and $4,071,567 during the three months ended March 31, 2019 and 2018, respectively. The sold loans were derecognized from the consolidated balance sheets. Loans classified as loans held for sale primarily consist of consumer and small business loans. Amounts added to loans held for sale during these same periods were $5,214,272 and $4,074,090, respectively.

The 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 primarily due to 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, 2018.

6. INVENTORIES, NET

A summary of Inventories, net is as follows:
 
March 31, 2019
 
December 31, 2018
Finished products
$
53,244

 
$
55,723

In-process
28,094

 
25,392

Raw materials
62,662

 
58,569

Fine and fabricated precious metal in various stages of completion
24,278

 
20,790

 
168,278

 
160,474

LIFO reserve
(1,661
)
 
(1,624
)
Total
$
166,617

 
$
158,850


12



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 last-in-first-out ("LIFO") cost or market value, with any adjustments recorded through Cost of goods sold. Remaining precious metal inventory is accounted for primarily at fair value.

The Company obtains certain precious metals under a fee consignment agreement with the Bank of Nova Scotia ("ScotiaBank"). As of March 31, 2019 and December 31, 2018, the Company had approximately $7,300 and $6,700, respectively, of silver under consignment with ScotiaBank, which are recorded at fair value in Inventories, net with a corresponding liability for the same amount included in Accounts payable on the Company's consolidated balance sheets. Fees charged under the consignment agreement are recorded in Interest expense in the Company's consolidated statements of operations.
 
March 31, 2019
 
December 31, 2018
Supplemental inventory information:
 
 
 
Precious metals stated at LIFO cost
$
11,312

 
$
9,538

Precious metals stated under non-LIFO cost methods, primarily at fair value
$
11,305

 
$
9,628

Market value per ounce:
 
 
 
Silver
$
15.17

 
$
15.51

Gold
$
1,295.40

 
$
1,281.65

Palladium
$
1,390.00

 
$
1,263.00


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 as of December 31, 2018
 
 
 
 
 
 
 
Gross goodwill
$
205,765

 
$
67,143

 
$
81

 
$
272,989

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

 
(89,044
)
Net goodwill
181,511

 
2,353

 
81

 
183,945

Acquisitions (a)
2,403

 

 

 
2,403

Currency translation adjustments
(287
)
 

 

 
(287
)
Balance as of March 31, 2019
 
 
 
 
 
 
 
Gross goodwill
207,881

 
67,143

 
81

 
275,105

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

 
(89,044
)
Net goodwill
$
183,627

 
$
2,353

 
$
81

 
$
186,061

(a)
Purchase price adjustments related to the 2018 Dunmore acquisition. See Note 4 - "Acquisitions" for additional information.

A summary of Other intangible assets, net is as follows:
 
March 31, 2019
 
December 31, 2018
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net
Customer relationships
$
217,813

 
$
99,512

 
$
118,301

 
$
220,709

 
$
95,796

 
$
124,913

Trademarks, trade names and brand names
55,021

 
18,563

 
36,458

 
54,950

 
17,923

 
37,027

Developed technology, patents and patent applications
31,770

 
15,114

 
16,656

 
31,743

 
14,435

 
17,308

Other
17,843

 
12,902

 
4,941

 
17,884

 
13,591

 
4,293

Total
$
322,447

 
$
146,091

 
$
176,356

 
$
325,286

 
$
141,745

 
$
183,541


Trademarks with indefinite lives as of both March 31, 2019 and December 31, 2018 were $11,320. Amortization expense related to intangible assets was $5,466 and $7,351 for the three months ended March 31, 2019 and 2018, respectively.


13


8. INVESTMENTS

Short-Term Investments

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 investments are carried at fair value and totaled $1,671 as of March 31, 2019 and $1,439 as of December 31, 2018.

Proceeds from sales of marketable securities were $0 and $33,718 in the three months ended March 31, 2019 and 2018, 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 (gains) losses on securities, net in the Company's consolidated statements of operations, were as follows:
 
Three Months Ended March 31,
 
2019
 
2018
Gross realized gains
$

 
$
9,674

Gross realized losses

 
(2,910
)
Realized gains, net
$

 
$
6,764


Long-Term Investments

The following table summarizes the Company's long-term investments as of March 31, 2019 and December 31, 2018.
 
Ownership %
 
Long-Term Investments Balance
 
(Income) Loss Recorded in the Consolidated Statements of Operations
 
 
 
 
 
 
 
 
 
Three Months Ended March 31,
 
March 31, 2019
 
December 31, 2018
 
March 31, 2019
 
December 31, 2018
 
2019
 
2018
Corporate securities (a), (d)
 
 
 
 
$
162,383

 
$
159,841

 
$
(1,889
)
 
$
13,805

Collateralized debt securities
 
 
 
 
1,693

 
1,958

 
$

 
$

STCN convertible notes (b), (e)
 
 
 
 
14,600

 
14,943

 
$
343

 
$
315

STCN preferred stock (c), (e)
 
 
 
 
43,537

 
39,420

 
$
(4,117
)
 
$
(7,449
)
Equity method investments: (e)
 
 
 
 
 
 
 
 
 
 
 
Carried at fair value:
 
 
 
 
 
 
 
 
 
 
 
  STCN common stock
29.4
%
 
29.6
%
 
36,547

 
31,457

 
$
(4,539
)
 
$
5,998

  Aviat Networks, Inc. ("Aviat")
12.5
%
 
12.4
%
 
10,295

 
8,881

 
$
(1,068
)
 
$
(849
)
  Other
43.8
%
 
43.8
%
 
1,223

 
1,223

 
$

 
$

Long-term investments carried at fair value
 
 
 
 
270,278

 
257,723







  Other equity method investments
 
 
 
 
335

 
321

 
$

 
$
30

Total
 
 
 
 
$
270,613

 
$
258,044

 


 


(a)
Cost basis totaled $98,690 as of March 31, 2019 and $98,037 as of December 31, 2018 and gross unrealized gains totaled $63,693 and $61,804 as of March 31, 2019 and December 31, 2018, respectively.
(b)
Represents investment in STCN convertible notes. The convertible notes outstanding as of December 31, 2018 matured on March 1, 2019. The Company entered into a new convertible note with STCN ("New Note") on February 28, 2019, which matures on March 1, 2024. The cost basis of the New Note totaled $14,943 as of March 31, 2019 and the gross unrealized loss was $343 as of March 31, 2019. The New Note is convertible into shares of STCN's common stock at an initial conversion rate of 421.2655 shares of common stock per $1,000 principal amount of the New Note (which is equivalent to an initial conversion price of approximately $2.37 per share), subject to adjustment upon the occurrence of certain events. The cost basis of the Company's prior investment was $13,262 as of December 31, 2018 and gross unrealized gains totaled $1,681 as of December 31, 2018. 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 New Notes, if converted as of March 31, 2019, when combined with STCN common and preferred shares, also if converted, owned by the Company, would result in the Company having a direct interest of approximately 49.3% of STCN's outstanding shares.
(c)
Represents investment in shares of STCN preferred stock with a cost basis 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 adjustment upon the occurrence of certain events. 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.
(d)
(Income) loss from these investments is included in Realized and unrealized (gains) losses on securities, net in the consolidated statements of operations.
(e)
(Income) loss from these investments is included in Income of associated companies, net of taxes in the consolidated statements of operations.

14



The amount of unrealized gains (losses) for the three months ended March 31, 2019 and 2018 that relate to equity securities still held as of March 31, 2019 and March 31, 2018, respectively, was as follows:
 
Three Months Ended
March 31,
 
2019
 
2018
Net gains (losses) recognized during the period on equity securities
$
2,109

 
$
(13,789
)
Less: Net gains recognized during the period on equity securities sold during the period

 
6,764

Unrealized gains (losses) recognized during the period on equity securities still held at the end of the period
$
2,109

 
$
(20,553
)

Equity Method Investments

The Company's investments in associated companies are eligible to be accounted for under the equity method of accounting; however, the Company has elected the fair value option for most of these investments. Associated companies are included in the Corporate and Other segment. Certain associated companies have a fiscal year end that differs from December 31. Additional information for SPLP's significant investments in associated companies follows:

STCN is a supply chain business process management company serving clients in markets such as consumer electronics, communications, computing, medical devices, software and retail. STCN also owns IWCO Direct Holdings, Inc. ("IWCO"), which delivers data-driven marketing solutions for its customers, including strategy, creative and execution for omnichannel marketing campaigns, along with postal logistics programs for direct mail.
Aviat designs, manufactures and sells a range of wireless networking solutions and services to mobile and fixed telephone service providers, private network operators, government agencies, transportation and utility companies, public safety agencies and broadcast system operators across the globe.

The following summary balance sheet amounts are for STCN as of January 31, 2019 and July 31, 2018, respectively, and the statements of operations amounts are for the three months ended January 31, 2019 and 2018, respectively, which are both STCN's nearest corresponding fiscal quarters to the Company's fiscal quarters ended March 31, 2019 and 2018:
(Unaudited)
2019
 
2018
Summary of balance sheet amounts:
 
 
 
Current assets
$
268,275

 
$
264,281

Non-current assets
542,769

 
562,769

Total assets
$
811,044

 
$
827,050

 
 
 
 
Current liabilities
$
276,209

 
$
290,612

Non-current liabilities
405,100

 
393,618

Total liabilities
681,309

 
684,230

Contingently redeemable preferred stock
35,198

 
35,192

Equity
94,537

 
107,628

Total liabilities and equity
$
811,044

 
$
827,050

 
 
 
 
(Unaudited)
2019
 
2018
Summary operating results: (a)
 
 
 
Net revenue
$
206,223

 
$
153,738

Gross profit
$
37,543

 
$
15,823

Net (loss) income (a)
$
(11,753
)
 
$
59,818

(a)
Net income in the 2018 period was favorably impacted by an income tax benefit related to STCN's acquisition of IWCO in December 2017.

Other Investments

WebBank has held-to-maturity ("HTM") debt securities which are carried at amortized cost and included in Other non-current assets on the Company's consolidated balance sheets. The amount and contractual maturities of HTM debt securities are noted in the table below. Actual maturities may differ from expected or contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties. The securities are collateralized by unsecured consumer loans.

15


 
March 31, 2019
 
Amortized Cost
 
Gross Unrealized Gains (Losses)
 
Estimated Fair Value
 
Carrying Value
Collateralized securities
$
56,030

 
$
6

 
$
56,036

 
$
56,030

 
 
 
 
 
 
 
 
Contractual maturities within:
 
 
 
 
 
 
 
One year to five years
 
 
 
 
 
 
36,784

Five years to ten years
 
 
 
 
 
 
17,462

After ten years
 
 
 
 
 
 
1,784

Total
 
 
 
 
 
 
$
56,030

 
 
 
 
 
 
 
 
 
December 31, 2018
 
Amortized Cost
 
Gross Unrealized Gains (Losses)
 
Estimated Fair Value
 
Carrying Value
Collateralized securities
$
48,005

 
$
(119
)
 
$
47,886

 
$
48,005

 
 
 
 
 
 
 
 
Contractual maturities within:
 
 
 
 
 
 
 
One year to five years
 
 
 
 
 
 
22,866

Five years to ten years
 
 
 
 
 
 
23,189

After ten years
 
 
 
 
 
 
1,950

Total
 
 
 
 
 
 
$
48,005


WebBank regularly evaluates each HTM debt security whose value has declined below amortized cost to assess whether the decline in fair value is other-than-temporary. If there is an other-than-temporary impairment in the fair value of any individual security classified as HTM, WebBank writes down the security to fair value with a corresponding credit loss portion charged to earnings, and the non-credit portion charged to AOCI.

9. DEBT

Debt consists of the following:
 
March 31, 2019
 
December 31, 2018
Short term debt:
 
 
 
Foreign
$
3,273

 
$
3,094

Short-term debt
3,273

 
3,094

Long-term debt:
 
 
 
SPLP revolving facility
478,948

 
472,495

Other debt  foreign
741

 
796

Other debt  domestic
5,489

 
5,604

Subtotal
485,178

 
478,895

Less: portion due within one year
10,795

 
799

Long-term debt
474,383

 
478,096

Total debt
$
488,451

 
$
481,989


Long-term debt as of March 31, 2019 matures in each of the next five years as follows:
 
 
Total
 
2019
 
2020
 
2021
 
2022
 
2023
 
Thereafter
Long-term debt (a)
 
$
485,178

 
$
8,180

 
$
14,243

 
$
10,236

 
$
452,519

 
$

 
$

(a)
As of March 31, 2019, long term debt of $10,795 is expected to mature over the following twelve months.

On January 31, 2019, the Company entered into an amendment to its senior secured revolving credit facility ("Credit Agreement") to allow the Company to (i) convert $200,000 of the revolving credit commitments into a term loan with quarterly amortization equating to 5.0% per annum, (ii) amend certain defined leverage ratios under the Credit Agreement, increasing allowable leverage by 0.25 "turns" on a permanent basis through the maturity of the Credit Agreement, (iii) eliminate certain previously allowed investments, which would have reduced collateral available to the Company's lenders and (iv) make certain administrative changes.

Accordingly, as of March 31, 2019, the Company's Credit Agreement includes a revolving credit facility in an aggregate principal amount not to exceed $500,000 and a $200,000 term loan. The Credit Agreement covers substantially all of the Company's subsidiaries, with the exception of WebBank, and includes a $55,000 subfacility for swing line loans and a $50,000 subfacility for

16


standby letters of credit. Borrowings under the Credit Agreement bear interest, at the Company'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 (1.50% and 2.50%, respectively, for Base Rate and Euro-Rate borrowings as of March 31, 2019), 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 4.95% as of March 31, 2019. As of March 31, 2019, letters of credit totaling $10,278 had been issued under the Credit Agreement, including $2,834 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 $60,700 as of March 31, 2019.

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 as of March 31, 2019.

10. FINANCIAL INSTRUMENTS

As of March 31, 2019 and December 31, 2018, financial instrument liabilities and related restricted cash consisted of $14,053 and $12,434, respectively, related to short sales of corporate securities. Year-to-date activity is summarized below for financial instrument liabilities and related restricted cash:
 
Three Months Ended March 31,
 
2019
 
2018
Balance, beginning of period
$
12,434

 
$
15,629

Settlement of short sales of corporate securities

 
(3,100
)
Short sales of corporate securities

 
26

Net investment losses
1,619

 
537

Balance, end of period
$
14,053

 
$
13,092


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 as gains or losses in the consolidated statements of operations, with a comparable adjustment made between unrestricted and restricted cash.

Foreign Currency Forward Contracts

The Company enters into foreign currency forward contracts to hedge certain of its receivables and payables denominated in other currencies. In addition, the Company 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 are associated with certain of the Company's operations located in the United Kingdom and have settlement dates ranging through December 2019. The forward contracts that are used to hedge the risk of foreign exchange movement on its receivables and payables are accounted for as economic hedges. As of March 31, 2019, there were contracts in place to buy Sterling and sell Euros in the amount of €6,550. The fair values of these derivatives are recognized as derivative assets and liabilities on the Company's consolidated balance sheets. The net changes 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 the Company's future sales and purchases are accounted for as cash flow hedges. As of March 31, 2019, there were contracts in place to hedge the value of future sales denominated in Euros in the amount of €7,900. 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. There were no contracts in place as of March 31, 2019 to hedge future purchases denominated in USD.

WebBank - Economic Interests in Loans


17


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 and are classified within Level 3 in the fair value hierarchy (see Note 15 - "Fair Value Measurements"). As of March 31, 2019, 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 March 31, 2019, the Company had the following outstanding forward contracts with settlement dates through April 2019. There were no futures contracts outstanding as of March 31, 2019.
Commodity
Amount
 
Notional Value
Silver
398,194 ounces
 
$
5,995

Gold
3,231 ounces
 
$
4,181

Palladium
932 ounces
 
$
1,257

Copper
225,000 pounds
 
$
621

Tin
15 metric tons
 
$
320


Fair Value Hedges. Certain forward contracts are accounted for as fair value hedges under Accounting Standards Codification ("ASC") 815 for the Company's precious metal inventory carried at fair value. These contracts hedge 53,650 ounces of silver and a majority of the Company's ounces of copper. The fair values of these derivatives are recognized as derivative assets and liabilities on the Company's consolidated balance sheets. The net changes in fair value of the derivative assets and liabilities, and the changes 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 under ASC 815, they are accounted for as derivatives with no hedge designation. The derivatives are marked to market with gains and losses recorded in 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 are as follows:
 
Fair Value of Derivative Assets (Liabilities)
 
March 31, 2019
 
December 31, 2018
 
Location on Consolidated Balance Sheet
 
Fair Value
 
Location on Consolidated Balance Sheet
 
Fair Value
Derivatives designated as ASC 815 hedges
 
 
 
 
 
 
 
Foreign exchange contracts
Prepaid expenses and other current assets
 
$
397

 
Accrued liabilities
 
$
(95
)
Commodity contracts
Accrued liabilities
 
$
(42
)
 
Accrued liabilities
 
$
(14
)
 
 
 
 
 
 
 
 
Derivatives not designated as ASC 815 hedges
 
 
 
 
 
 
 
Foreign exchange contracts
Prepaid expenses and other current assets
 
$
273

 
Accrued liabilities
 
$
(81
)
Commodity contracts
Accrued liabilities
 
$
(46
)
 
Accrued liabilities
 
$
(145
)
Economic interests in loans
Other non-current assets
 
$
16,883

 
Other non-current assets
 
$
17,156


18



The effect of cash flow hedge accounting on AOCI for the three months ended March 31, 2019 and 2018 is as follows:
 
Amount of Gain (Loss) Recognized in AOCI on Derivatives
 
Location of Gain (Loss) Reclassified from AOCI into Income
 
Amount of Gain (Loss) Reclassified from AOCI into Income
Derivatives in Cash Flow Hedging Relationships:
2019
 
2018
 
 
 
2019
 
2018
Foreign exchange forward contracts
$
635

 
$
165

 
Diversified industrial net sales
 
$
117

 
$
(20
)
Total
$
635

 
$
165

 
 
 
$
117

 
$
(20
)

The effects of fair value and cash flow hedge accounting on the consolidated statements of operations for the three months ended March 31, 2019 and 2018 are not material.

The effects of derivatives not designated as ASC 815 hedging instruments on the consolidated statements of operations for the three months ended March 31, 2019 and 2018 are as follows:
Derivatives Not Designated as Hedging Instruments:
 
Location of Gain (Loss) Recognized in Income
 
Amount of Gain (Loss) Recognized in Income
 
Three Months Ended March 31,
 
2019
 
2018
Foreign exchange forward contracts
 
Other income (expense), net
 
$

 
$
4

Commodity contracts
 
Other income (expense), net
 
(56
)
 
99

Economic interests in loans
 
Financial services revenue
 
2,886

 
3,281

Call options
 
Other income (expense), net
 

 
250

Put options
 
Other income (expense), net
 

 
(3
)
Total
 
 
 
$
2,830

 
$
3,631


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 amounts recognized on the consolidated balance sheets. The contractual amounts of those instruments reflect the extent of involvement WebBank has in particular classes of financial instruments.

As of March 31, 2019 and December 31, 2018, WebBank's undisbursed loan commitments totaled $147,826 and $130,697, 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.

11. PENSION AND OTHER POST-RETIREMENT BENEFITS

The Company maintains several qualified and non-qualified pension plans and other post-retirement benefit plans. The following table presents the components of pension expense for the Company's significant pension plans. The Company's other pension and post-retirement benefit plans are not significant individually or in the aggregate.

19


 
Three Months Ended March 31,
 
2019
 
2018
Interest cost
$
5,474

 
$
5,378

Expected return on plan assets
(6,124
)
 
(7,009
)
Amortization of actuarial loss
2,515

 
2,539

Total
$
1,865

 
$
908


Pension expense is included in Selling, general and administrative expenses in the consolidated statements of operations. 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. The Company's expected future minimum pension contributions to its significant pension plans are $28,500 for the remainder of 2019, and $35,600, $34,900, $37,600, $29,400 and $23,700 in 2020, 2021, 2022, 2023 and for the five years thereafter, respectively.

12. CAPITAL AND ACCUMULATED OTHER COMPREHENSIVE LOSS

As of March 31, 2019, the Company had 24,958,667 Class A units (regular common units) outstanding.

Common Unit Repurchase Program

The Board of Directors of SPH GP has approved the repurchase of up to an aggregate of 3,000,000 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 2019, the Company purchased 505,336 units for an aggregate price of approximately $6,721.

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 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 (collectively, "LP Units"). The 2018 Plan allows for issuance of up to 500,000 LP Units. On March 11, 2019, 170,000 restricted units were granted under the 2018 Plan. Such units were valued based upon the market value of the Company's LP Units on the date of grant, and collectively represent approximately $2,380 of unearned compensation that will be recognized as expense ratably over the vesting period of the units. The grants have vesting periods that range from five to ten years from the date of grant.

Preferred Units

The Company's 6.0% Series A preferred units, no par value ("SPLP Preferred Units") entitle the holders to a cumulative quarterly cash or in-kind (or a combination thereof) distribution. The Company declared cash distributions of approximately $2,970 and $2,900 to preferred unitholders for the three months ended March 31, 2019 and 2018, respectively. The SPLP Preferred Units have a term of nine years and are redeemable at any time at the Company's option at a $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, upon 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. This contingent redemption of preferred units in February 2020 comprises the Current portion of preferred unit liability on the Company's consolidated balance sheet as of March 31, 2019.

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 liabilities, including accrued interest expense, on the Company's consolidated balance sheets 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 liabilities, distributions thereon are recorded as a component of Interest expense in the Company's consolidated statements of operations. As of March 31, 2019, there were 7,927,288 SPLP Preferred Units outstanding.

Accumulated Other Comprehensive Loss

Changes, net of tax, in AOCI are as follows:
 
Three Months Ended March 31, 2019
 
Unrealized loss on available-for-sale debt securities
 
Unrealized (loss) gain on derivative financial instruments
 
Cumulative translation adjustments
 
Change in net pension and other benefit obligations
 
Total
Balance at beginning of period
$
(274
)
 
$
(277
)
 
$
(23,476
)
 
$
(153,217
)
 
$
(177,244
)
Net other comprehensive income attributable to common unitholders (a)

 
518

 
1,303

 

 
1,821

Balance at end of period
$
(274
)
 
$
241

 
$
(22,173
)
 
$
(153,217
)
 
$
(175,423
)

20


(a)
Net of tax provision of approximately $92.

 
Three Months Ended March 31, 2018
 
Unrealized gain on available-for-sale debt securities
 
Unrealized (loss) gain on derivative financial instruments
 
Cumulative translation adjustments
 
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 income attributable to common unitholders (a), (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 AOCI 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 records 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. No incentive unit expense was recorded in the three months ended March 31, 2019 or 2018.

13. INCOME TAXES

The Company recorded tax provisions of $2,961 and $1,330 for the three months ended March 31, 2019 and 2018, respectively. The Company's tax provision represents the income tax expense or benefit of its consolidated subsidiaries that are taxable entities. 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 certain deferred tax assets will not be realized in future periods.

14. NET INCOME (LOSS) PER COMMON UNIT

The following data was used in computing net income (loss) per common unit shown in the Company's consolidated statements of operations:

21


 
Three Months Ended March 31,
 
2019
 
2018
Net income (loss)
$
15,622

 
$
(8,851
)
Net loss (income) attributable to noncontrolling interests in consolidated entities
56

 
(227
)
Net income (loss) attributable to common unitholders
15,678

 
(9,078
)
Effect of dilutive securities:
 
 
 
Interest expense from SPLP Preferred Units (a), (b)
2,973

 

Net income attributable to common unitholders – assuming dilution
$
18,651

 
$
(9,078
)
Net income (loss) per common unit – basic
 
 
 
Net income (loss) attributable to common unitholders
$
0.63

 
$
(0.35
)
Net income (loss) per common unit – diluted
 
 
 
Net income (loss) attributable to common unitholders
$
0.48

 
$
(0.35
)
Denominator for net income (loss) per common unit – basic
24,846,653

 
26,264,101

Effect of dilutive securities:
 
 
 
Unvested restricted common units
379

 

SPLP Preferred Units (a)
14,329,877

 

Denominator for net income (loss) per common unit – diluted (a), (b)
39,176,909

 
26,264,101

(a)
Assumes the SPLP Preferred Units were redeemed in common units as described in Note 12 - "Capital and Accumulated Other Comprehensive Loss."
(b)
For the three months ended March 31, 2018, the diluted per unit calculation was based on the weighted-average number of common units outstanding 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.

15. FAIR VALUE MEASUREMENTS

Assets and liabilities measured at fair value on a recurring basis in the Company's consolidated financial statements as of March 31, 2019 and December 31, 2018 are summarized by type of inputs applicable to the fair value measurements as follows:
March 31, 2019
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Marketable securities (a)
$
1,018

 
$
653

 
$

 
$
1,671

Long-term investments (a)
209,225

 

 
61,053

 
270,278

Precious metal and commodity inventories recorded at fair value
11,930

 

 

 
11,930

Economic interests in loans

 

 
16,883

 
16,883

Foreign currency forward exchange contracts

 
670

 

 
670

Warrants

 

 
1,738

 
1,738

Total
$
222,173

 
$
1,323

 
$