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 September 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, a 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 November 11, 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 1A.
 
 
 
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)
 
September 30, 2019
 
December 31, 2018
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
112,133

 
$
334,884

Restricted cash

 
12,434

Marketable securities
1,097

 
1,439

Trade and other receivables - net of allowance for doubtful accounts of $2,890 and $2,885, respectively
235,340

 
209,543

Receivables from related parties
1,019

 
425

Loans receivable, including loans held for sale of $230,336 and $188,143, respectively, net
489,133

 
341,890

Inventories, net
160,709

 
158,850

Prepaid expenses and other current assets
40,407

 
32,826

Total current assets
1,039,838

 
1,092,291

Long-term loans receivable, net
200,721

 
164,375

Goodwill
149,624

 
183,945

Other intangible assets, net
167,133

 
183,541

Deferred tax assets
69,789

 
96,040

Other non-current assets
76,575

 
80,356

Property, plant and equipment, net
288,125

 
297,467

Operating lease right-of-use assets
42,402

 

Long-term investments
311,511

 
258,044

Total Assets
$
2,345,718

 
$
2,356,059

LIABILITIES AND CAPITAL
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
107,088

 
$
106,261

Accrued liabilities
153,863

 
120,043

Financial instruments

 
12,434

Deposits
643,694

 
431,959

Payables to related parties
1,531

 
248

Short-term debt
4,678

 
3,094

Current portion of long-term debt
10,732

 
799

Current portion of preferred unit liability
38,898

 

Other current liabilities
30,320

 
21,943

Total current liabilities
990,804

 
696,781

Long-term deposits
54,211

 
279,352

Long-term debt
403,367

 
478,096

Preferred unit liability
144,805

 
180,340

Accrued pension liabilities
183,353

 
205,770

Deferred tax liabilities
3,108

 
2,225

Long-term operating lease liabilities
33,090

 

Other non-current liabilities
15,297

 
20,987

Total Liabilities
1,828,035

 
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
693,908

 
666,031

Accumulated other comprehensive loss
(179,975
)
 
(177,244
)
Total Partners' Capital
513,933

 
488,787

Noncontrolling interests in consolidated entities
3,750

 
3,721

Total Capital
517,683

 
492,508

Total Liabilities and Capital
$
2,345,718

 
$
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
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
Revenue:
 
 
 
 
 
 
 
Diversified industrial net sales
$
306,382

 
$
322,571

 
$
947,080

 
$
988,587

Energy net revenue
44,147

 
50,343

 
126,665

 
134,008

Financial services revenue
45,813

 
32,405

 
123,853

 
83,406

Total revenue
396,342

 
405,319

 
1,197,598

 
1,206,001

Costs and expenses:
 
 
 
 
 
 
 
Cost of goods sold
263,598

 
284,599

 
809,289

 
845,718

Selling, general and administrative expenses
82,309

 
89,135

 
273,018

 
265,700

Goodwill impairment charges
41,853

 

 
41,853

 

Asset impairment charges
725

 

 
915

 

Finance interest expense
4,568

 
2,889

 
12,693

 
6,999

Provision for loan losses
11,230

 
6,037

 
32,415

 
13,060

Interest expense
10,323

 
10,615

 
32,086

 
28,314

Realized and unrealized (gains) losses on securities, net
(30,234
)
 
22,416

 
(68,720
)
 
48,029

Other (income) expense, net
(795
)
 
(2,686
)
 
(788
)
 
(4,231
)
Total costs and expenses
383,577

 
413,005

 
1,132,761

 
1,203,589

Income (loss) before income taxes and equity method investments
12,765

 
(7,686
)
 
64,837

 
2,412

Income tax provision
13,674

 
104

 
31,353

 
9,040

Loss (income) of associated companies, net of taxes
1,855

 
(1,599
)
 
(408
)
 
(5,141
)
Net (loss) income
(2,764
)
 
(6,191
)
 
33,892

 
(1,487
)
Net (income) loss attributable to noncontrolling interests in consolidated entities
(114
)
 
96

 
(29
)
 
(644
)
Net (loss) income attributable to common unitholders
$
(2,878
)
 
$
(6,095
)
 
$
33,863

 
$
(2,131
)
Net (loss) income per common unit - basic
 
 
 
 
 
 
 
Net (loss) income attributable to common unitholders
$
(0.12
)
 
$
(0.23
)
 
$
1.36

 
$
(0.08
)
Net (loss) income per common unit - diluted
 
 
 
 
 
 
 
Net (loss) income attributable to common unitholders
$
(0.12
)
 
$
(0.23
)
 
$
1.08

 
$
(0.08
)
Weighted-average number of common units outstanding - basic
25,011,142

 
26,020,617

 
24,947,814

 
26,143,056

Weighted-average number of common units outstanding - diluted
25,011,142

 
26,020,617

 
39,604,813

 
26,143,056


See accompanying Notes to Consolidated Financial Statements

3


STEEL PARTNERS HOLDINGS L.P.
Consolidated Statements of Comprehensive (Loss) Income
(unaudited)
(in thousands)
 
Three Months Ended
September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Net (loss) income
$
(2,764
)
 
$
(6,191
)
 
$
33,892

 
$
(1,487
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Gross unrealized gains (losses) on derivative financial instruments
71

 
(282
)
 
164

 
18

Currency translation adjustments
(2,401
)
 
(110
)
 
(2,895
)
 
(893
)
Other comprehensive loss
(2,330
)
 
(392
)
 
(2,731
)
 
(875
)
Comprehensive (loss) income
(5,094
)
 
(6,583
)
 
31,161

 
(2,362
)
Comprehensive (income) loss attributable to noncontrolling interests
(114
)
 
91

 
(29
)
 
(630
)
Comprehensive (loss) income attributable to common unitholders
$
(5,208
)
 
$
(6,492
)
 
$
31,132

 
$
(2,992
)

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 (loss)

 

 

 
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 (loss)

 

 

 
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

Net (loss) income

 

 

 
(2,878
)
 

 
(2,878
)
 
114

 
(2,764
)
Unrealized gains on derivative financial instruments

 

 

 

 
71

 
71

 

 
71

Currency translation adjustments

 

 

 

 
(2,401
)
 
(2,401
)
 

 
(2,401
)
Equity compensation - restricted units

 

 

 
243

 

 
243

 

 
243

Other, net

 

 

 
123

 

 
123

 

 
123

Balance as of September 30, 2019
37,659,006

 
(12,647,864
)
 
$
(198,781
)
 
$
693,908

 
$
(179,975
)
 
$
513,933

 
$
3,750

 
$
517,683


See accompanying Notes to Consolidated Financial Statements

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) income

 

 

 
(9,078
)
 

 
(9,078
)
 
227

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

 

 

 
91,078

 
(91,078
)
 

 

 

Cumulative effect of adopting ASC 606 relating to revenue recognition

 

 

 
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 as of June 30, 2018
37,424,545

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

 
(198,284
)
 
521,686

 
6,749

 
528,435

Net loss

 

 

 
(6,095
)
 

 
(6,095
)
 
(96
)
 
(6,191
)
Unrealized losses on derivative financial instruments

 

 

 

 
(282
)
 
(282
)
 

 
(282
)
Currency translation adjustments

 

 

 

 
(110
)
 
(110
)
 

 
(110
)
Equity compensation - restricted units

 

 

 
137

 

 
137

 

 
137

Purchases of SPLP common units

 
(410,062
)
 
(6,978
)
 
(6,978
)
 

 
(6,978
)
 

 
(6,978
)
Purchases of subsidiary shares from noncontrolling interests

 

 

 
(1,172
)
 
(458
)
 
(1,630
)
 
(5,741
)
 
(7,371
)
Other, net

 

 

 
(35
)
 
(5
)
 
(40
)
 
5

 
(35
)
Balance as of September 30, 2018
37,424,545

 
(11,642,144
)
 
$
(184,496
)
 
$
705,827

 
$
(199,139
)
 
$
506,688

 
$
917

 
$
507,605


See accompanying Notes to Consolidated Financial Statements

6


STEEL PARTNERS HOLDINGS L.P.
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
 
Nine Months Ended September 30,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income (loss)
$
33,892

 
$
(1,487
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Provision for loan losses
32,415

 
13,060

Income of associated companies, net of taxes
(408
)
 
(5,141
)
Realized and unrealized (gains) losses on securities, net
(68,720
)

48,029

Derivative gains on economic interests in loans
(10,746
)
 
(11,088
)
Deferred income taxes
27,197

 
3,375

Depreciation and amortization
53,755

 
59,932

Non-cash lease expense
8,594

 

Equity-based compensation
634

 
507

Goodwill impairment charges
41,853

 

Other
2,761

 
3,959

Net change in operating assets and liabilities:
 
 
 
Trade and other receivables
(26,567
)
 
(28,771
)
Inventories
(2,070
)
 
(12,582
)
Prepaid expenses and other assets
(2,713
)
 
578

Accounts payable, accrued and other liabilities
6,816

 
(8,965
)
Net increase in loans held for sale
(42,193
)
 
(23,740
)
Net cash provided by operating activities
54,500

 
37,666

Cash flows from investing activities:
 
 
 
Purchases of investments
(79,731
)
 
(131,007
)
Proceeds from sales of investments
25,951

 
46,027

Proceeds from maturities of investments
73,745

 
29,792

Loan originations, net of collections
(136,614
)
 
(155,244
)
Purchases of property, plant and equipment
(29,108
)
 
(33,597
)
Proceeds from sales of assets
267

 
4,677

Settlement of short positions, net
(14,611
)
 

Acquisitions, net of cash acquired
(45,559
)
 
(68,315
)
Other

 
695

Net cash used in investing activities
(205,660
)
 
(306,972
)
Cash flows from financing activities:
 
 
 
Net revolver (repayments) borrowings
(58,173
)
 
67,569

Net repayments of term loans
(5,225
)
 
(1,371
)
Proceeds from equipment lease financing

 
791

Purchases of the Company's common units
(6,721
)
 
(13,638
)
Purchase of subsidiary shares from noncontrolling interests

 
(18,068
)
Deferred finance charges
(815
)
 
(1,054
)
Net (decrease) increase in deposits
(13,407
)
 
105,098

Other

 
(429
)
Net cash (used in) provided by financing activities
(84,341
)
 
138,898

Net change for the period
(235,501
)
 
(130,408
)
Effect of exchange rate changes on cash and cash equivalents
316

 
(496
)
Cash, cash equivalents and restricted cash at beginning of period
347,318

 
434,384

Cash, cash equivalents and restricted cash at end of period
$
112,133

 
$
303,480


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 September 30, 2019 and for the three and nine month periods ended September 30, 2019 and 2018, which have been prepared by the Company in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC") 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 nine months ended September 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 Accrued 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 nine months ended September 30, 2019. During the third quarter of 2019, following additional discussions with the IRS related to this matter, the Company reduced its Accrued liabilities by $4,294 with a corresponding adjustment to reduce the income tax provision by this amount. The Company continues to discuss this matter with the IRS. 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 loss for the nine months ended September 30, 2018 would have been changed to losses of $6,067 and $12,695, respectively.

Adoption of New Accounting Standards

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

8


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 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 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. The new standard did not have a material impact on the Company's consolidated financial statements upon adoption, although during the three months ended September 30, 2019, the goodwill of the Company's packaging business was fully impaired. See Note 7 - "Goodwill and Other Intangible Assets, Net" for further discussion.

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 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.


9


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.

Recently Issued Accounting Standards

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 were to be effective for the Company's 2020 fiscal year with early adoption permitted for all entities in fiscal years beginning after December 15, 2018. On October 16, 2019, the FASB voted to issue a final ASU that would amend the effective date of Topic 326 for smaller reporting companies until January 1, 2023. A company's determination about whether it is eligible to be a smaller reporting company would be based on its most recent filing determination in accordance with SEC regulations as of the date the final ASU becomes final. The Company currently meets the SEC definition of a smaller reporting company and believes it will do so as of the date the ASU becomes final. Therefore, the Company believes it will not be required to adopt Topic 326 until January 1, 2023. 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 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.

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 nine months ended September 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.

10


 
Three Months Ended
September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
United States
$
359,534

 
$
353,953

 
$
1,079,273

 
$
1,036,473

Foreign (a)
36,808

 
51,366

 
118,325

 
169,528

Total revenue
$
396,342

 
$
405,319

 
$
1,197,598

 
$
1,206,001

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

Contract Balances

Differences in the timing of revenue recognition, billings and cash collections result 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. As of September 30, 2019 and December 31, 2018, the contract asset balance was $9,142 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 September 30, 2019 and December 31, 2018, the contract liability was $4,381 and $5,900, respectively. The decrease in the nine months ended September 30, 2019 was primarily due to deferral of revenue of $14,940 offset by the recognition of $14,962 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:

11


 
Three Months Ended September 30, 2019
 
Nine Months Ended September 30, 2019
Operating lease cost
$
2,799

 
$
9,466

Short-term lease cost
$
126

 
$
657

 
 
 
 
Finance lease cost:
 
 
 
Amortization of right-of-use assets
$
336

 
$
856

Interest on lease liabilities
97

 
225

Total finance lease cost
$
433

 
$
1,081


Supplemental cash flow information related to leases is as follows:
 
Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows from operating leases
$
9,832

Operating cash flows from finance leases
$
225

Financing cash flows from finance leases
$
1,089

Right-of-use assets obtained in exchange for lease obligations:
 
Operating leases
$
7,301

Finance leases
$
3,817


Supplemental balance sheet information related to leases is as follows:
 
September 30, 2019
 
Location on
Consolidated Balance Sheet
Operating leases
 
 
 
Operating lease right-of-use assets
$
42,402

 
Operating lease right-of-use assets
 
 
 
 
Current operating lease liabilities
$
10,231

 
Other current liabilities
Non-current operating lease liabilities
33,090

 
Long-term operating lease liabilities
Total operating lease liabilities
$
43,321

 
 
 
 
 
 
Finance leases
 
 
 
Finance lease assets
$
9,622

 
Property, plant and equipment, net
 
 
 
 
Current finance lease liabilities
$
1,721

 
Other current liabilities
Non-current finance lease liabilities
7,273

 
Other non-current liabilities
Total finance lease liabilities
$
8,994

 
 
 
 
 
 
Weighted-average remaining lease term
 
 
 
Operating leases
8.10 years

 
 
Finance leases
5.39 years

 
 
Weighted-average discount rate
 
 
 
Operating leases
4.60
%
 
 
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


12




13


Maturities of lease liabilities after the adoption of Topic 842, as of September 30, 2019, are as follows:
 
 
Operating Leases
 
Finance Leases
2019 (excluding the nine months ended September 30, 2019)
 
$
4,066

 
$
523

2020
 
13,249

 
1,985

2021
 
9,483

 
1,902

2022
 
7,418

 
1,781

2023
 
5,182

 
1,754

Thereafter
 
16,785

 
2,067

Total lease payments
 
56,183

 
10,012

 
 
 
 
 
Present value of current lease liabilities
 
10,231

 
1,721

Present value of long-term lease liabilities
 
33,090

 
7,273

Total present value of lease liabilities
 
43,321

 
8,994

 
 
 
 
 
Difference between undiscounted cash flows and discounted cash flows
 
$
12,862

 
$
1,018


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 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 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"). 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. The Dunmore purchase price of $69,604 included assumed debt and is subject to an earn-out based on 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. During the three months ended September 30, 2019, the Company recorded a reduction of $3,500 to the amount of the initial estimated earn-out liability, with a related reduction of expense in the consolidated statements of operations. In connection with the Dunmore acquisition, the Company had 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. During the three months ended September 30, 2019, the goodwill of the Company's packaging business, including the goodwill of Dunmore, was fully impaired. See Note 7 - "Goodwill and Other Intangible Assets, Net" for further discussion.

5. LOANS RECEIVABLE, INCLUDING LOANS HELD FOR SALE

Major classifications of loans receivable, including loans held for sale, held by WebBank, as of September 30, 2019 and December 31, 2018 are as follows:
 
Total
 
Current
 
Non-current
 
September 30, 2019
 
%
 
December 31, 2018
 
%
 
September 30, 2019
 
December 31, 2018
 
September 30, 2019
 
December 31, 2018
Loans held for sale
$
230,336

 


 
$
188,143

 


 
$
230,336

 
$
188,143

 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate loans
$
612

 
%
 
$
632

 
%
 

 

 
612

 
632

Commercial and industrial
202,965

 
41
%
 
146,758

 
44
%
 
178,175

 
81,507

 
24,790

 
65,251

Consumer loans
289,845

 
59
%
 
188,391

 
56
%
 
114,526

 
89,899

 
175,319

 
98,492

Total loans
493,422

 
100
%
 
335,781

 
100
%
 
292,701

 
171,406

 
200,721

 
164,375

Less:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses
(33,904
)
 
 
 
(17,659
)
 
 
 
(33,904
)
 
(17,659
)
 

 

Total loans receivable, net
$
459,518

 
 
 
$
318,122

 
 
 
258,797

 
153,747

 
200,721

 
164,375

Loans receivable, including loans held for sale (a)


 
 
 


 
 
 
$
489,133

 
$
341,890

 
$
200,721

 
$
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 $31,158 and $56,581 were pledged as collateral for potential borrowings as of September 30, 2019 and December 31, 2018, respectively. WebBank serviced $2,913 and $3,044 in loans for others as of September 30, 2019 and December 31, 2018, respectively.

WebBank sold loans classified as loans held for sale of $17,710,442 and $14,929,832 during the nine months ended September 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 the nine months ended September 30, 2019 and 2018 were $17,752,636 and $14,953,571, 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:
 
September 30, 2019
 
December 31, 2018
Finished products
$
51,979

 
$
55,723

In-process
30,582

 
25,392

Raw materials
57,666

 
58,569

Fine and fabricated precious metal in various stages of completion
23,305

 
20,790

 
163,532

 
160,474

LIFO reserve
(2,823
)
 
(1,624
)
Total
$
160,709

 
$
158,850



14


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 September 30, 2019 and December 31, 2018, the Company had approximately $7,400 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.
 
September 30, 2019
 
December 31, 2018
Supplemental inventory information:
 
 
 
Precious metals stated at LIFO cost
$
8,414

 
$
9,538

Precious metals stated under non-LIFO cost methods
$
12,068

 
$
9,628

Market value per ounce:
 
 
 
Silver
$
17.59

 
$
15.51

Gold
$
1,502.33

 
$
1,281.65

Palladium
$
1,674.61

 
$
1,263.00


7. GOODWILL AND OTHER INTANGIBLE ASSETS, NET

A reconciliation of the change in the carrying amount 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

Impairments (c)
(41,853
)
 

 

 

 
(41,853
)
Currency translation adjustments
(1,386
)
 

 

 

 
(1,386
)
Balance as of September 30, 2019
 
 
 
 
 
 
 
 
 
Gross goodwill
206,782

 
67,143

 
6,515

 
81

 
280,521

Accumulated impairments
(66,107
)
 
(64,790
)
 

 

 
(130,897
)
Net goodwill
$
140,675

 
$
2,353

 
$
6,515

 
$
81

 
$
149,624

(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.
(c)
As a result of declines in customer demand and in the performance of the packaging business, which includes the operations of API and Dunmore, the Company determined that it was more likely than not that the fair value of the packaging business was below its carrying amount as of September 30, 2019. Accordingly, the Company performed an assessment using a discounted cash flow method with consideration of market comparisons, and determined that the fair value of the packaging business was less than its carrying amount. The Company fully impaired the packaging business' goodwill, included in the Diversified Industrial segment, as of September 30, 2019 and recorded a $41,853 charge in Goodwill impairment charges in the accompanying consolidated statements of operations for the three and nine months ended September 30, 2019.

A summary of Other intangible assets, net is as follows:
 
September 30, 2019
 
December 31, 2018
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net
Customer relationships
$
219,363

 
$
106,828

 
$
112,535

 
$
220,709

 
$
95,796

 
$
124,913

Trademarks, trade names and brand names
55,217

 
19,556

 
35,661

 
54,950

 
17,923

 
37,027

Developed technology, patents and patent applications
31,883

 
16,234

 
15,649

 
31,743

 
14,435

 
17,308

Other
17,961

 
14,673

 
3,288

 
17,884

 
13,591

 
4,293

Total
$
324,424

 
$
157,291

 
$
167,133

 
$
325,286

 
$
141,745

 
$
183,541


15



Trademarks with indefinite lives as of both September 30, 2019 and December 31, 2018 were $11,320. Amortization expense related to intangible assets was $5,644 and $7,591 for the three months ended September 30, 2019 and 2018, respectively, and $16,748 and $22,764 for the nine months ended September 30, 2019 and 2018, respectively.

During the three months ended September 30, 2019, as a result of declines in market conditions and customer demand at API, the Company performed a recoverability test as of September 30, 2019 to determine if the carrying amount of API's long-lived and other intangible assets were recoverable based on their undiscounted cash flows over their future service potential. The testing performed indicated that the undiscounted cash flows exceeded the carrying amount of these assets and were therefore recoverable as of September 30, 2019. Further declines in market conditions, customer demand or other potential changes in operations at API in future periods may increase the risk that API's long-lived and other intangible assets, totaling approximately $47,758 in aggregate as of September 30, 2019, are not recoverable and may potentially be impaired.

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 $1,097 and $1,439 as of September 30, 2019 and December 31, 2018, respectively. Unrealized gains (losses) on short-term investments for the three months ended September 30, 2019 and 2018 totaled $(342) and $(778), respectively, and for the nine months ended September 30, 2019 and 2018 totaled $(342) and $(13,338), respectively.

Realized Gains (Losses) on Investments

Proceeds from sales of equity securities were $25,400 and $0 in the three months ended September 30, 2019 and 2018, respectively, and $25,400 and $46,027 in the nine months ended September 30, 2019 and 2018, respectively. The Company determines gains and losses from sales of equity securities based on specific identification of the securities sold. Gross realized gains and losses from sales of equity 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
September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Gross realized gains
$
13,687

 
$

 
$
13,687

 
$
16,090

Gross realized losses
(7,996
)
 

 
(7,996
)
 
(5,129
)
Realized gains, net
$
5,691

 
$

 
$
5,691

 
$
10,961


Long-Term Investments

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

16


 
Ownership %
 
Long-Term Investments Balance
 
(Income) Loss Recorded in the Consolidated Statements of Operations
 
 
 
 
 
 
 
 
 
Three Months Ended
September 30,
 
Nine Months Ended September 30,
 
September 30, 2019
 
December 31, 2018
 
September 30, 2019
 
December 31, 2018
 
2019
 
2018
 
2019
 
2018
Corporate securities (a), (d)
 
 
 
 
$
213,340

 
$
159,841

 
$
(24,885
)
 
$
21,638

 
$
(63,371
)
 
$
45,652

Collateralized debt securities
 
 
 
 
1,251

 
1,958

 
$

 
$

 
$

 
$

STCN convertible notes (b), (e)
 
 
 
 
13,191

 
14,943

 
$
246

 
$

 
$
1,752

 
$
42

STCN preferred stock (c), (e)
 
 
 
 
41,538

 
39,420

 
$
456

 
$
(2,424
)
 
$
(1,612
)
 
$
(10,700
)
Equity method investments: (e)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Carried at fair value:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  STCN common stock
29.4
%
 
29.6
%
 
31,819

 
31,457

 
$
1,128

 
$
486

 
$
(346
)
 
$
5,835

  Aviat Networks, Inc. ("Aviat")
12.5
%
 
12.4
%
 
9,149

 
8,881

 
$
25

 
$
131

 
$
(202
)
 
$
(571
)
  Other
43.8
%
 
43.8
%
 
1,223

 
1,223

 
$

 
$

 
$

 
$

Long-term investments carried at fair value
 
 
 
 
311,511

 
257,723













  Other equity method investments
 
 
 
 

 
321

 
$

 
$
209

 
$

 
$
253

Total
 
 
 
 
$
311,511

 
$
258,044

 


 


 

 

(a)
Cost basis totaled $88,165 and $98,037 as of September 30, 2019 and December 31, 2018, respectively, and gross unrealized gains totaled $125,175 and $61,804 as of September 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 September 30, 2019 and the gross unrealized loss was $1,752 as of September 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 operations as the Company elected the fair value option to account for this investment. The New Notes, if converted as of September 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 49.2% of STCN's outstanding shares.
(c)
Represents investment in shares of STCN preferred stock with a cost basis of $35,508. 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 Loss (income) of associated companies, net of taxes in the consolidated statements of operations.

The amount of unrealized gains (losses) for the three and nine months ended September 30, 2019 and 2018 that relate to equity securities still held as of September 30, 2019 and 2018, respectively, was as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Net gains (losses) recognized during the period on equity securities
$
30,234

 
$
(22,416
)
 
$
68,720

 
$
(48,029
)
Less: Net gains recognized during the period on equity securities sold during the period
5,691

 

 
5,691

 
10,961

Unrealized gains (losses) recognized during the period on equity securities still held at the end of the period
$
24,543

 
$
(22,416
)
 
$
63,029

 
$
(58,990
)

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.

17


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 July 31, 2019 and July 31, 2018, respectively, and the statement of income amounts are for the three and nine months ended July 31, 2019 and 2018, respectively, which are both STCN's nearest corresponding fiscal quarters to the Company's fiscal quarters ended September 30, 2019 and 2018:
(Unaudited)
2019
 
2018
 
 
 
 
Summary of balance sheet amounts:
 
 
 
 
 
 
 
Current assets
$
213,324

 
$
264,281

 
 
 
 
Non-current assets
518,239

 
562,769

 
 
 
 
Total assets
$
731,563

 
$
827,050

 
 
 
 
 
 
 
 
 
 
 
 
Current liabilities
$
256,850

 
$
290,612

 
 
 
 
Non-current liabilities
386,835

 
393,618

 
 
 
 
Total liabilities
643,685

 
684,230