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 June 30, 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)

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

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

The number of common units outstanding as of August 7, 2019 was 25,011,142.
 



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)
 
June 30, 2019
 
December 31, 2018
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
206,171

 
$
334,884

Restricted cash

 
12,434

Marketable securities
1,439

 
1,439

Trade and other receivables - net of allowance for doubtful accounts of $3,047 and $2,885, respectively
254,398

 
209,543

Receivables from related parties
1,645

 
425

Loans receivable, including loans held for sale of $178,071 and $188,143, respectively, net
405,438

 
341,890

Inventories, net
163,294

 
158,850

Prepaid expenses and other current assets
40,343

 
32,826

Total current assets
1,072,728

 
1,092,291

Long-term loans receivable, net
213,289

 
164,375

Goodwill
192,191

 
183,945

Other intangible assets, net
172,901

 
183,541

Deferred tax assets
84,356

 
96,040

Other non-current assets
88,325

 
80,356

Property, plant and equipment, net
291,492

 
297,467

Operating lease right-of-use assets
44,697

 

Long-term investments
299,446

 
258,044

Total Assets
$
2,459,425

 
$
2,356,059

LIABILITIES AND CAPITAL
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
113,802

 
$
106,261

Accrued liabilities
153,764

 
120,043

Financial instruments

 
12,434

Deposits
570,155

 
431,959

Payables to related parties
1,058

 
248

Short-term debt
4,458

 
3,094

Current portion of long-term debt
10,742

 
799

Current portion of preferred unit liability
38,374

 

Other current liabilities
28,074

 
21,943

Total current liabilities
920,427

 
696,781

Long-term deposits
180,976

 
279,352

Long-term debt
443,532

 
478,096

Preferred unit liability
144,162

 
180,340

Accrued pension liabilities
194,339

 
205,770

Deferred tax liabilities
3,202

 
2,225

Long-term operating lease liabilities
34,516

 

Other non-current liabilities
15,860

 
20,987

Total Liabilities
1,937,014

 
1,863,551

Commitments and Contingencies


 


Capital:
 
 
 
Partners' capital common units: 25,011,142 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
696,420

 
666,031

Accumulated other comprehensive loss
(177,645
)
 
(177,244
)
Total Partners' Capital
518,775

 
488,787

Noncontrolling interests in consolidated entities
3,636

 
3,721

Total Capital
522,411

 
492,508

Total Liabilities and Capital
$
2,459,425

 
$
2,356,059


See accompanying Notes to Consolidated Financial Statements

2


STEEL PARTNERS HOLDINGS L.P.
Consolidated Statements of Income
(unaudited)
(in thousands, except common units and per common unit data)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Revenue:
 
 
 
 
 
 
 
Diversified industrial net sales
$
328,537

 
$
358,398

 
$
640,698

 
$
666,016

Energy net revenue
43,532

 
47,073

 
82,518

 
83,665

Financial services revenue
42,134

 
28,966

 
78,040

 
51,001

Total revenue
414,203

 
434,437

 
801,256

 
800,682

Costs and expenses:
 
 
 
 
 
 
 
Cost of goods sold
278,930

 
299,258

 
545,691

 
561,119

Selling, general and administrative expenses
102,345

 
88,183

 
190,709

 
176,565

Asset impairment charges
190

 

 
190

 

Finance interest expense
4,201

 
2,332

 
8,125

 
4,110

Provision for loan losses
12,715

 
4,205

 
21,185

 
7,023

Interest expense
10,955

 
9,590

 
21,763

 
17,699

Realized and unrealized (gains) losses on securities, net
(36,377
)
 
11,824

 
(38,486
)
 
25,613

Other (income) expense, net
(1,626
)
 
(529
)
 
7

 
(1,545
)
Total costs and expenses
371,333

 
414,863

 
749,184

 
790,584

Income before income taxes and equity method investments
42,870

 
19,574

 
52,072

 
10,098

Income tax provision
14,718

 
7,606

 
17,679

 
8,936

Loss (income) of associated companies, net of taxes
7,118

 
(1,587
)
 
(2,263
)
 
(3,542
)
Net income
21,034

 
13,555

 
36,656

 
4,704

Net loss (income) attributable to noncontrolling interests in consolidated entities
29

 
(513
)
 
85

 
(740
)
Net income attributable to common unitholders
$
21,063

 
$
13,042

 
$
36,741

 
$
3,964

Net income per common unit - basic
 
 
 
 
 
 
 
Net income attributable to common unitholders
$
0.84

 
$
0.50

 
$
1.47

 
$
0.15

Net income per common unit - diluted
 
 
 
 
 
 
 
Net income attributable to common unitholders
$
0.61

 
$
0.42

 
$
1.09

 
$
0.15

Weighted-average number of common units outstanding - basic
24,982,728

 
26,147,125

 
24,915,446

 
26,205,290

Weighted-average number of common units outstanding - diluted
39,138,599

 
37,668,025

 
39,158,510

 
26,239,583


See accompanying Notes to Consolidated Financial Statements

3


STEEL PARTNERS HOLDINGS L.P.
Consolidated Statements of Comprehensive Income
(unaudited)
(in thousands)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Net income
$
21,034

 
$
13,555

 
$
36,656

 
$
4,704

Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
Gross unrealized (losses) gains on derivative financial instruments
(425
)
 
115

 
93

 
300

Currency translation adjustments
(1,797
)
 
(4,087
)
 
(494
)
 
(783
)
Other comprehensive loss
(2,222
)
 
(3,972
)
 
(401
)
 
(483
)
Comprehensive income
18,812

 
9,583

 
36,255

 
4,221

Comprehensive income attributable to noncontrolling interests

 
(273
)
 

 
(721
)
Comprehensive income attributable to common unitholders
$
18,812

 
$
9,310

 
$
36,255

 
$
3,500

 
 
 
 
 
 
 
 
Tax (benefit) provision on gross unrealized (losses) gains on derivative financial instruments
$
(90
)
 
$
23

 
$
2

 
$
55

Tax benefit on currency translation adjustments
$

 
$
(55
)
 
$

 
$
(19
)

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
)
 
$
666,031

 
$
(177,244
)
 
$
488,787

 
$
3,721

 
$
492,508

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
)
 
675,152

 
(175,423
)
 
499,729

 
3,665

 
503,394

Net income

 

 

 
21,063

 

 
21,063

 
(29
)
 
21,034

Unrealized losses on derivative financial instruments

 

 

 

 
(425
)
 
(425
)
 

 
(425
)
Currency translation adjustments

 

 

 

 
(1,797
)
 
(1,797
)
 

 
(1,797
)
Equity compensation - restricted units
52,475

 

 

 
227

 

 
227

 

 
227

Other, net

 

 

 
(22
)
 

 
(22
)
 

 
(22
)
Balance as of June 30, 2019
37,659,006

 
(12,647,864
)
 
$
(198,781
)
 
$
696,420

 
$
(177,645
)
 
$
518,775

 
$
3,636

 
$
522,411


5


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, 2017 (as previously reported)
37,216,787

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

 
$
(106,167
)
 
$
546,103

 
$
20,933

 
$
567,036

Adjustments (see Note 1)

 

 

 
(26,864
)
 

 
(26,864
)
 

 
(26,864
)
Adjusted balance as of December 31, 2017
37,216,787

 
(10,868,367
)
 
$
(170,858
)
 
$
625,406

 
$
(106,167
)
 
$
519,239

 
$
20,933

 
$
540,172

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
)
 
703,968

 
(193,977
)
 
509,991

 
21,720

 
531,711

Net income

 

 

 
13,042

 

 
13,042

 
513

 
13,555

Unrealized gains on derivative financial instruments

 

 

 

 
104

 
104

 
11

 
115

Currency translation adjustments

 

 

 

 
(3,841
)
 
(3,841
)
 
(246
)
 
(4,087
)
Equity compensation - restricted units
22,351

 

 

 
221

 

 
221

 

 
221

Units issued in the acquisition of WFHC noncontrolling interests
185,407

 

 

 
3,159

 

 
3,159

 

 
3,159

Purchases of SPLP common units

 
(179,438
)
 
(3,065
)
 
(3,065
)
 

 
(3,065
)
 

 
(3,065
)
Purchases of subsidiary shares from noncontrolling interests

 

 

 
2,541

 
(575
)
 
1,966

 
(15,244
)
 
(13,278
)
Other, net

 

 

 
104

 
5

 
109

 
(5
)
 
104

Balance at June 30, 2018
37,424,545

 
(11,232,082
)
 
$
(177,518
)
 
$
719,970

 
$
(198,284
)
 
$
521,686

 
$
6,749

 
$
528,435

(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


6


STEEL PARTNERS HOLDINGS L.P.
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
 
Six Months Ended June 30,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income
$
36,656

 
$
4,704

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Provision for loan losses
21,185

 
7,023

Income of associated companies, net of taxes
(2,263
)
 
(3,542
)
Realized and unrealized (gains) losses on securities, net
(38,486
)

25,613

Derivative gains on economic interests in loans
(6,677
)
 
(7,365
)
Deferred income taxes
12,638

 
3,936

Depreciation and amortization
35,391

 
38,321

Non-cash lease expense
5,751

 

Equity-based compensation
391

 
370

Other
2,321

 
1,398

Net change in operating assets and liabilities:
 
 
 
Trade and other receivables
(44,580
)
 
(48,256
)
Inventories
(4,341
)
 
(6,749
)
Prepaid expenses and other assets
(5,113
)
 
(1,892
)
Accounts payable, accrued and other liabilities
22,655

 
3,462

Net decrease (increase) in loans held for sale
10,072

 
(22,153
)
Net cash provided by (used in) operating activities
45,600

 
(5,130
)
Cash flows from investing activities:
 
 
 
Purchases of investments
(62,750
)
 
(119,507
)
Proceeds from sales of investments

 
46,027

Proceeds from maturities of investments
51,656

 
17,467

Loan originations, net of collections
(106,523
)
 
(99,015
)
Purchases of property, plant and equipment
(18,180
)
 
(21,979
)
Proceeds from sales of assets
303

 
3,910

Settlement of short positions, net
(14,611
)
 

Acquisitions, net of cash acquired
(45,559
)
 
(67,123
)
Other

 
438

Net cash used in investing activities
(195,664
)
 
(239,782
)
Cash flows from financing activities:
 
 
 
Net revolver (repayments) borrowings
(22,120
)
 
81,986

Net repayments of term loans
(1,160
)
 
(563
)
Purchases of the Company's common units
(6,721
)
 
(6,660
)
Purchase of subsidiary shares from noncontrolling interests

 
(10,666
)
Deferred finance charges
(815
)
 
(1,042
)
Net increase in deposits
39,820

 
85,644

Other

 
137

Net cash provided by financing activities
9,004

 
148,836

Net change for the period
(141,060
)
 
(96,076
)
Effect of exchange rate changes on cash and cash equivalents
(87
)
 
(7
)
Cash, cash equivalents and restricted cash at beginning of period
347,318

 
434,384

Cash, cash equivalents and restricted cash at end of period
$
206,171

 
$
338,301


See accompanying Notes to Consolidated Financial Statements

7


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 June 30, 2019 and for the three and six month periods ended June 30, 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 and six months ended June 30, 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 second quarter of 2019, the Company became aware of a misstatement related to its January 2015 sale of Arlon, LLC, whereby the tax basis of Arlon, LLC at the time of sale was calculated incorrectly. The misstatement was discovered in connection with an Internal Revenue Service ("IRS") examination of the Company's 2015 income tax filing. The accompanying consolidated statements of changes in capital have been adjusted to decrease the opening balance of Partners' capital as of December 31, 2017 by $26,864, with a corresponding increase to Other current liabilities at December 31, 2018. The adjustment includes the IRS' expected assessment for this matter, as well as associated state taxes and interest. The Company also recorded related interest expense within our Income tax provision of $1,456 as an out-of-period adjustment in the accompanying consolidated statement of income for the three months ended June 30, 2019. The adjustments recorded represent the Company's current best estimate of its potential liability, however, the Company continues to discuss this matter with the IRS, and any assessment may be subject to appeal. The accompanying footnotes affected by the correction of this misstatement have been revised, and the correction of this misstatement had no effect on the Company's consolidated statements of cash flows.

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 income for the six months ended June 30, 2018 would have changed to losses of $7,666 and $6,504, 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

8


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 income. 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-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. This 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 over the entire contractual term of the instrument rather than delaying recognition of credit losses until it is probable the loss has been incurred. In May 2019, the FASB issued ASU 2019-05, Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief. ASU 2019-05 provides entities with an option to irrevocably elect the fair value option, applied on an instrument-by-instrument basis for eligible instruments, that are within the scope of Subtopic 326-20, upon the adoption of Topic 326. The fair value option election does not apply to held-to-maturity debt securities. The new standards are 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

9


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 equity-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.

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 adopted ASU 2018-15 on April 1, 2019. The adoption did not have a material impact on the Company's consolidated financial statements.

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 and six months ended June 30, 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 June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
United States
$
374,650

 
$
374,580

 
$
719,739

 
$
682,520

Foreign (a)
39,553

 
59,857

 
81,517

 
118,162

Total revenue
$
414,203

 
$
434,437

 
$
801,256

 
$
800,682

(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

10



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. As of June 30, 2019 and December 31, 2018, the contract asset balance was $9,161 and $8,969, respectively.

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 June 30, 2019 and December 31, 2018, the contract liability was $7,779 and $5,900, respectively. The increase in the six months ended June 30, 2019 was primarily due to deferral of revenue of $10,916 offset by the recognition of $7,543 of unearned revenue.

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 June 30, 2019
 
Six Months Ended June 30, 2019
Operating lease cost
$
3,300

 
$
6,667

Short-term lease cost
$
225

 
$
531

 
 
 
 
Finance lease cost:
 
 
 
Amortization of right-of-use assets
$
270

 
$
520

Interest on lease liabilities
67

 
128

Total finance lease cost
$
337

 
$
648


Supplemental cash flow information related to leases is as follows:
 
Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows from operating leases
$
6,640

Operating cash flows from finance leases
$
128

Financing cash flows from finance leases
$
656

Right-of-use assets obtained in exchange for lease obligations:
 
Operating leases
$
6,078

Finance leases
$
3,731



11


Supplemental balance sheet information related to leases is as follows:
 
June 30, 2019
 
Location on
Consolidated Balance Sheet
Operating leases
 
 
 
Operating lease right-of-use assets
$
44,697

 
Operating lease right-of-use assets
 
 
 
 
Current operating lease liabilities
$
10,875

 
Other current liabilities
Non-current operating lease liabilities
34,516

 
Long-term operating lease liabilities
Total operating lease liabilities
$
45,391

 
 
 
 
 
 
Finance leases
 
 
 
Finance lease assets
$
9,880

 
Property, plant and equipment, net
 
 
 
 
Current finance lease liabilities
$
1,724

 
Other current liabilities
Non-current finance lease liabilities
7,620

 
Other non-current liabilities
Total finance lease liabilities
$
9,344

 
 
 
 
 
 
Weighted-average remaining lease term
 
 
 
Operating leases
8.32 years

 
 
Finance leases
5.28 years

 
 
Weighted-average discount rate
 
 
 
Operating leases
4.58
%
 
 
Finance leases
4.20
%
 
 

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 June 30, 2019, are as follows:
 
 
Operating Leases
 
Finance Leases
2019 (excluding the six months ended June 30, 2019)
 
$
7,535

 
$
1,047

2020
 
10,952

 
1,961

2021
 
8,793

 
1,877

2022
 
7,111

 
1,762

2023
 
5,116

 
1,744

Thereafter
 
17,556

 
2,062

Total lease payments
 
57,063

 
10,453

 
 
 
 
 
Present value of current lease liabilities
 
10,875

 
1,724

Present value of long-term lease liabilities
 
34,516

 
7,620

Total present value of lease liabilities
 
45,391

 
9,344

 
 
 
 
 
Difference between undiscounted cash flows and discounted cash flows
 
$
11,672

 
$
1,109


4. ACQUISITIONS

2019 Acquisition

On April 1, 2019, the Company, through its wholly-owned subsidiary, WebBank, completed the acquisition of National Partners PFco, LLC ("National Partners"), located in Denver, Colorado, for consideration of $47,725, which includes assumed

12


debt, including debt with a third-party that WebBank had a preexisting $10,000 participation, and is subject to an earn-out based on future performance through June 30, 2020, as provided in the purchase agreement. National Partners provides commercial premium finance solutions for national insurance brokerages, independent insurance agencies and insureds in key markets throughout the United States.

National Partners is included with WebBank in the Company's Financial Services segment. In connection with the acquisition, the Company recorded receivables, other intangible assets and goodwill associated with the acquisition, totaling approximately $37,195, $2,230 and $6,515, respectively, as well as other assets and liabilities. Other intangible assets consist of agent relationships of $1,800 and trade names of $430. The goodwill from the acquisition consists largely of the synergies expected from combining the operations of the two businesses. The goodwill assigned to WebBank of $6,515 is expected to be deductible for income tax purposes. The preliminary purchase price allocation is subject to finalization of valuations of certain acquired assets and liabilities.

2018 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.

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. 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 WebBank, as of June 30, 2019 and December 31, 2018 are as follows:
 
Total
 
Current
 
Non-current
 
June 30, 2019
 
%
 
December 31, 2018
 
%
 
June 30, 2019
 
December 31, 2018
 
June 30, 2019
 
December 31, 2018
Loans held for sale
$
178,071

 


 
$
188,143

 


 
$
178,071

 
$
188,143

 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate loans
$
632

 
%
 
$
632

 
%
 

 

 
632

 
632

Commercial and industrial
206,815

 
44
%
 
146,758

 
44
%
 
151,818

 
81,507

 
54,997

 
65,251

Consumer loans
262,645

 
56
%
 
188,391

 
56
%
 
104,985

 
89,899

 
157,660

 
98,492

Total loans
470,092

 
100
%
 
335,781

 
100
%
 
256,803

 
171,406

 
213,289

 
164,375

Less:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses
(29,436
)
 
 
 
(17,659
)
 
 
 
(29,436
)
 
(17,659
)
 

 

Total loans receivable, net
$
440,656

 
 
 
$
318,122

 
 
 
227,367

 
153,747

 
213,289

 
164,375

Loans receivable, including loans held for sale (a)


 
 
 


 
 
 
$
405,438

 
$
341,890

 
$
213,289

 
$
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.


13


Loans with a carrying value of approximately $59,170 and $56,581 were pledged as collateral for potential borrowings as of June 30, 2019 and December 31, 2018, respectively. WebBank serviced $3,013 and $3,044 in loans for others as of June 30, 2019 and December 31, 2018, respectively.

WebBank sold loans classified as loans held for sale of $11,306,443 and $9,475,608 during the six months ended June 30, 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 $11,296,371 and $9,497,762, 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:
 
June 30, 2019
 
December 31, 2018
Finished products
$
52,969

 
$
55,723

In-process
30,307

 
25,392

Raw materials
61,596

 
58,569

Fine and fabricated precious metal in various stages of completion
20,423

 
20,790

 
165,295

 
160,474

LIFO reserve
(2,001
)
 
(1,624
)
Total
$
163,294

 
$
158,850


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 both June 30, 2019 and December 31, 2018, the Company had approximately $6,700 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 income.
 
June 30, 2019
 
December 31, 2018
Supplemental inventory information:
 
 
 
Precious metals stated at LIFO cost
$
8,819

 
$
9,538

Precious metals stated under non-LIFO cost methods
$
9,603

 
$
9,628

Market value per ounce:
 
 
 
Silver
$
15.32

 
$
15.51

Gold
$
1,409.00

 
$
1,281.65

Palladium
$
1,524.00

 
$
1,263.00



14


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
 
Financial Services
 
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), (b)
2,403

 

 
6,515

 

 
8,918

Currency translation adjustments
(672
)
 

 

 

 
(672
)
Balance as of June 30, 2019
 
 
 
 
 
 
 
 
 
Gross goodwill
207,496

 
67,143

 
6,515

 
81

 
281,235

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

 

 
(89,044
)
Net goodwill
$
183,242

 
$
2,353

 
$
6,515

 
$
81

 
$
192,191

(a)
Diversified Industrial - Purchase price adjustments related to the 2018 Dunmore acquisition. See Note 4 - "Acquisitions" for additional information.
(b)
Financial Services - Goodwill related to the National Partners acquisition. See Note 4 - "Acquisitions" for additional information.

A summary of Other intangible assets, net is as follows:
 
June 30, 2019
 
December 31, 2018
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net
Customer relationships
$
219,527

 
$
103,576

 
$
115,951

 
$
220,709

 
$
95,796

 
$
124,913

Trademarks, trade names and brand names
55,318

 
19,092

 
36,226

 
54,950

 
17,923

 
37,027

Developed technology, patents and patent applications
31,841

 
15,805

 
16,036

 
31,743

 
14,435

 
17,308

Other
17,964

 
13,276

 
4,688

 
17,884

 
13,591

 
4,293

Total
$
324,650

 
$
151,749

 
$
172,901

 
$
325,286

 
$
141,745

 
$
183,541


Trademarks with indefinite lives as of both June 30, 2019 and December 31, 2018 were $11,320. Amortization expense related to intangible assets was $5,638 and $7,822 for the three months ended June 30, 2019 and 2018, respectively, and $11,104 and $15,173 for the six months ended June 30, 2019 and 2018, respectively.

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 $1,439 as of both June 30, 2019 and December 31, 2018.

Proceeds from sales of marketable securities were $0 and $12,300 in the three months ended June 30, 2019 and 2018, respectively, and $0 and $46,027 in the six months ended June 30, 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 income, were as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Gross realized gains
$

 
$
6,416

 
$

 
$
16,090

Gross realized losses

 
(2,219
)
 

 
(5,129
)
Realized gains, net
$

 
$
4,197

 
$

 
$
10,961


Long-Term Investments

The following table summarizes the Company's long-term investments as of June 30, 2019 and December 31, 2018.

15


 
Ownership %
 
Long-Term Investments Balance
 
(Income) Loss Recorded in the Consolidated Statements of Income
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
June 30, 2019
 
December 31, 2018
 
June 30, 2019
 
December 31, 2018
 
2019
 
2018
 
2019
 
2018
Corporate securities (a), (d)
 
 
 
 
$
199,259

 
$
159,841

 
$
(36,603
)
 
$
8,317

 
$
(38,486
)
 
$
24,014

Collateralized debt securities
 
 
 
 
1,443

 
1,958

 
$

 
$

 
$

 
$

STCN convertible notes (b), (e)
 
 
 
 
13,437

 
14,943

 
$
1,163

 
$
(272
)
 
$
1,506

 
$
42

STCN preferred stock (c), (e)
 
 
 
 
41,809

 
39,420

 
$
2,049

 
$
(827
)
 
$
(2,068
)
 
$
(8,276
)
Equity method investments: (e)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Carried at fair value:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  STCN common stock
29.4
%
 
29.6
%
 
33,093

 
31,457

 
$
3,065

 
$
(649
)
 
$
(1,474
)
 
$
5,350

  Aviat Networks, Inc. ("Aviat")
12.5
%
 
12.4
%
 
9,182

 
8,881

 
$
841

 
$
147

 
$
(227
)
 
$
(702
)
  Other
43.8
%
 
43.8
%
 
1,223

 
1,223

 
$

 
$

 
$

 
$

Long-term investments carried at fair value
 
 
 
 
299,446

 
257,723













  Other equity method investments
 
 
 
 

 
321

 
$

 
$
14

 
$

 
$
44

Total
 
 
 
 
$
299,446

 
$
258,044

 


 


 

 

(a)
Cost basis totaled $98,969 as of June 30, 2019 and $98,037 as of December 31, 2018 and gross unrealized gains totaled $100,290 and $61,804 as of June 30, 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 June 30, 2019 and the gross unrealized loss was $1,506 as of June 30, 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 income as the Company elected the fair value option to account for this investment. The New Notes, if converted as of June 30, 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 $35,321. 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 income 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 income.
(e)
(Income) loss from these investments is included in Loss (income) of associated companies, net of taxes in the consolidated statements of income.

The amount of unrealized gains (losses) for the three and six months ended June 30, 2019 and 2018 that relate to equity securities still held as of June 30, 2019 and June 30, 2018, respectively, was as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Net gains (losses) recognized during the period on equity securities
$
36,377

 
$
(11,824
)
 
$
38,486

 
$
(25,613
)
Less: Net gains recognized during the period on equity securities sold during the period

 
4,197

 

 
10,961

Unrealized gains (losses) recognized during the period on equity securities still held at the end of the period
$
36,377

 
$
(16,021
)
 
$
38,486

 
$
(36,574
)

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.

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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 April 30, 2019 and July 31, 2018, respectively, and the statement of income amounts are for the three and six months ended April 30, 2019 and 2018, respectively, which are both STCN's nearest corresponding fiscal quarters to the Company's fiscal quarters ended June 30, 2019 and 2018:
(Unaudited)
2019
 
2018
 
 
 
 
Summary of balance sheet amounts:
 
 
 
 
 
 
 
Current assets
$
202,441

 
$
264,281

 
 
 
 
Non-current assets
532,309

 
562,769

 
 
 
 
Total assets
$
734,750

 
$
827,050

 
 
 
 
 
 
 
 
 
 
 
 
Current liabilities
$
220,499

 
$
290,612

 
 
 
 
Non-current liabilities
386,667

 
393,618

 
 
 
 
Total liabilities
607,166

 
684,230

 
 
 
 
Contingently redeemable preferred stock
35,198

 
35,192

 
 
 
 
Equity
92,386

 
107,628

 
 
 
 
Total liabilities and equity
$
734,750

 
$
827,050

 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(Unaudited)
2019
 
2018
 
2019
 
2018
Summary operating results: (a)
 
 
 
 
 
 
 
Net revenue
$
194,003

 
$
188,922

 
$
400,226

 
$
340,041

Gross profit
$
36,861

 
$
39,005

 
$
74,404

 
$
55,955

Net (loss) income (a)
$
(9,627
)
 
$
(10,333
)
 
$
(21,380
)
 
$
54,497

(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.
 
June 30, 2019
 
Amortized Cost
 
Gross Unrealized Gains (Losses)
 
Estimated Fair Value
 
Carrying Value
Collateralized securities
$
58,144

 
$
123

 
$
58,267

 
$
58,144

 
 
 
 
 
 
 
 
Contractual maturities within:
 
 
 
 
 
 
 
One year to five years
 
 
 
 
 
 
42,188

Five years to ten years
 
 
 
 
 
 
14,172

After ten years
 
 
 
 
 
 
1,784

Total
 
 
 
 
 
 
$
58,144

 
 
 
 
 
 
 
 
 
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

17


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:
 
June 30, 2019
 
December 31, 2018
Short term debt:
 
 
 
Foreign
$
4,458

 
$
3,094

Short-term debt
4,458

 
3,094

Long-term debt:
 
 
 
Credit Agreement
448,274

 
472,495

Other debt  foreign
625

 
796

Other debt  domestic
5,375

 
5,604

Subtotal
454,274

 
478,895