Document
 

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

FORM 10-Q
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
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 May 6, 2020 was 24,927,560.
 



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)
 
March 31, 2020
 
December 31, 2019
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
395,822

 
$
139,467

Marketable securities
123

 
220

Trade and other receivables - net of allowance for doubtful accounts of $3,041 and $2,512, respectively
196,490

 
175,043

Receivables from related parties
2,772

 
2,221

Loans receivable, including loans held for sale of $68,756 and $225,013, respectively, net
380,909

 
546,908

Inventories, net
153,088

 
151,641

Prepaid expenses and other current assets
29,818

 
33,689

Assets of discontinued operations

 
41,012

Total current assets
1,159,022

 
1,090,201

Long-term loans receivable, net
189,267

 
196,145

Goodwill
151,921

 
149,626

Other intangible assets, net
153,749

 
158,593

Deferred tax assets
96,000

 
88,645

Other non-current assets
58,027

 
70,616

Property, plant and equipment, net
245,691

 
250,225

Operating lease right-of-use assets
33,487

 
34,324

Long-term investments
220,832

 
275,836

Assets of discontinued operations

 
18,143

Total Assets
$
2,307,996

 
$
2,332,354

LIABILITIES AND CAPITAL
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
103,462

 
$
85,817

Accrued liabilities
80,377

 
114,941

Deposits
513,457

 
615,495

Payables to related parties
1,032

 
481

Short-term debt
591

 
1,800

Current portion of long-term debt
14,135

 
14,208

Current portion of preferred unit liability

 
39,782

Other current liabilities
89,295

 
42,041

Liabilities of discontinued operations

 
21,256

Total current liabilities
802,349

 
935,821

Long-term deposits
155,434

 
139,222

Long-term debt
550,681

 
322,081

Preferred unit liability
143,347

 
144,247

Accrued pension liabilities
182,666

 
183,228

Deferred tax liabilities
3,614

 
2,497

Long-term operating lease liabilities
26,156

 
26,458

Other non-current liabilities
14,230

 
14,556

Liabilities of discontinued operations

 
87,825

Total Liabilities
1,878,477

 
1,855,935

Commitments and Contingencies


 


Capital:
 
 
 
Partners' capital common units: 25,013,274 and 25,023,128 issued and outstanding (after deducting 12,647,864 and 12,647,864 units held in treasury, at cost of $198,781 and $198,781), respectively
602,400

 
664,035

Accumulated other comprehensive loss
(176,877
)
 
(191,422
)
Total Partners' Capital
425,523

 
472,613

Noncontrolling interests in consolidated entities
3,996

 
3,806

Total Capital
429,519

 
476,419

Total Liabilities and Capital
$
2,307,996

 
$
2,332,354


See accompanying Notes to Consolidated Financial Statements

2


STEEL PARTNERS HOLDINGS L.P.
Consolidated Statements of Operations
(unaudited)
(in thousands, except common units and per common unit data)
 
Three Months Ended
March 31,
 
2020
 
2019
Revenue:
 
 
 
Diversified industrial net sales
$
262,300

 
$
280,921

Energy net revenue
38,602

 
38,986

Financial services revenue
46,998

 
35,906

Total revenue
347,900

 
355,813

Costs and expenses:
 
 
 
Cost of goods sold
221,079

 
238,467

Selling, general and administrative expenses
76,664

 
82,323

Asset impairment charges
617

 

Finance interest expense
3,434

 
3,924

Provision for loan losses
26,137

 
8,470

Interest expense
8,315

 
10,205

Realized and unrealized losses (gains) on securities, net
18,002

 
(2,109
)
Other (income) expense, net
(967
)
 
1,150

Total costs and expenses
353,281

 
342,430

(Loss) income from continuing operations before income taxes and equity method investments
(5,381
)
 
13,383

Income tax (benefit) provision
(3,429
)
 
3,002

Loss (income) of associated companies, net of taxes
34,507

 
(9,381
)
Net (loss) income from continuing operations
(36,459
)
 
19,762

Discontinued operations (see Note 3)
 
 
 
Loss from discontinued operations, net of taxes
(2,301
)
 
(4,140
)
Net loss on deconsolidation of discontinued operations
(22,847
)
 

Loss from discontinued operations, net of taxes
(25,148
)
 
(4,140
)
Net (loss) income
(61,607
)
 
15,622

Net (income) loss attributable to noncontrolling interests in consolidated entities (continuing operations)
(130
)
 
56

Net (loss) income attributable to common unitholders
$
(61,737
)
 
$
15,678

Net (loss) income per common unit - basic
 
 
 
Net (loss) income from continuing operations
$
(1.46
)
 
$
0.80

Net loss from discontinued operations
(1.01
)
 
(0.17
)
Net (loss) income attributable to common unitholders
$
(2.47
)
 
$
0.63

Net (loss) income per common unit - diluted
 
 
 
Net (loss) income from continuing operations
$
(1.46
)
 
$
0.58

Net loss from discontinued operations
(1.01
)
 
(0.10
)
Net (loss) income attributable to common unitholders
$
(2.47
)
 
$
0.48

Weighted-average number of common units outstanding - basic
25,020,854

 
24,846,653

Weighted-average number of common units outstanding - diluted
25,020,854

 
39,176,909


See accompanying Notes to Consolidated Financial Statements

3


STEEL PARTNERS HOLDINGS L.P.
Consolidated Statements of Comprehensive (Loss) Income
(unaudited)
(in thousands)
 
Three Months Ended
March 31,
 
2020
 
2019
Net (loss) income
$
(61,607
)
 
$
15,622

Other comprehensive income (loss), net of taxes:
 
 
 
Gross unrealized gains on derivative financial instruments

 
518

Currency translation adjustments
(2,936
)
 
1,303

Other comprehensive (loss) income
(2,936
)
 
1,821

Comprehensive (loss) income
(64,543
)
 
17,443

Comprehensive (income) loss attributable to noncontrolling interests
(130
)
 
56

Comprehensive (loss) income attributable to common unitholders
$
(64,673
)
 
$
17,499


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, 2019
37,670,992

 
(12,647,864
)
 
$
(198,781
)
 
$
664,035

 
$
(191,422
)
 
$
472,613

 
$
3,806

 
$
476,419

Net (loss) income

 

 

 
(61,737
)
 

 
(61,737
)
 
130

 
(61,607
)
Currency translation adjustments

 

 

 

 
(2,936
)
 
(2,936
)
 

 
(2,936
)
Equity compensation - restricted units
(9,854
)
 

 

 
104

 

 
104

 

 
104

Deconsolidation of API (see Note 3)

 

 

 

 
17,481

 
17,481

 

 
17,481

Other, net

 

 

 
(2
)
 

 
(2
)
 
60

 
58

Balance as of March 31, 2020
37,661,138

 
(12,647,864
)
 
$
(198,781
)
 
$
602,400

 
$
(176,877
)
 
$
425,523

 
$
3,996

 
$
429,519


 
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


See accompanying Notes to Consolidated Financial Statements

5


STEEL PARTNERS HOLDINGS L.P.
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
 
Three Months Ended March 31,
 
2020
 
2019
Cash flows from operating activities:
 
 
 
Net (loss) income from continuing operations
$
(36,459
)
 
$
19,762

Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 
 
 
Provision for loan losses
26,137

 
8,470

Loss (income) of associated companies, net of taxes
34,507

 
(9,381
)
Realized and unrealized losses (gains) on securities, net
18,002


(2,109
)
Derivative gains on economic interests in loans
(2,980
)
 
(2,886
)
Deferred income taxes
(4,627
)
 
654

Depreciation and amortization
16,235

 
16,231

Non-cash lease expense
2,285

 
2,864

Equity-based compensation
206

 
164

Asset impairment charges
617

 

Other
47

 
1,554

Net change in operating assets and liabilities:
 
 
 
Trade and other receivables
(22,247
)
 
(18,904
)
Inventories
(2,840
)
 
(6,635
)
Prepaid expenses and other assets
3,028

 
(3,525
)
Accounts payable, accrued and other liabilities
(22,122
)
 
13,364

Net decrease in loans held for sale
156,257

 
18,313

Net cash provided by operating activities - continuing operations
166,046

 
37,936

Net cash used in operating activities - discontinued operations
(1,391
)
 
(1,260
)
Total cash provided by operating activities
164,655

 
36,676

Cash flows from investing activities:
 
 
 
Purchases of investments
(4,925
)
 
(39,354
)
Proceeds from sales of investments
1,191

 

Proceeds from maturities of investments
15,739

 
30,415

Loan originations, net of collections
(10,398
)
 
(61,639
)
Purchases of property, plant and equipment
(6,994
)
 
(6,657
)
Proceeds from sales of assets
452

 
100

Acquisitions
(3,500
)
 

Other

 
33

Net cash used in investing activities - continuing operations
(8,435
)
 
(77,102
)
Net cash used in investing activities - discontinued operations

 
(664
)
Net cash used in investing activities
(8,435
)
 
(77,766
)
Cash flows from financing activities:
 
 
 
Net revolver borrowings
230,300

 
5,382

Net (repayments) borrowings of term loans
(2,846
)
 
259

Purchases of the Company's common units

 
(6,721
)
Redemption of SPLP preferred units
(40,000
)
 

Deferred finance charges
(1,474
)
 
(815
)
Net decrease in deposits
(85,826
)
 
(73,302
)
Other

 
(5,708
)
Net cash provided by (used in) financing activities - continuing operations
100,154

 
(80,905
)
Net cash provided by financing activities - discontinued operations

 
240

Net cash provided by (used in) financing activities
100,154

 
(80,665
)
Net change for the period
256,374

 
(121,755
)
Effect of exchange rate changes on cash and cash equivalents
(19
)
 
830

Cash, cash equivalents and restricted cash at beginning of period
139,467

 
347,318

Cash, cash equivalents and restricted cash at end of period
$
395,822

 
$
226,393


See accompanying Notes to Consolidated Financial Statements

6


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

1. NATURE OF THE BUSINESS AND BASIS OF PRESENTATION

Nature of the Business

Steel Partners Holdings L.P. ("SPLP" or "Company") is a diversified global holding company that engages in multiple businesses through consolidated subsidiaries and other interests. It owns and operates businesses and has significant interests in various companies, 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."

Risks and Uncertainties

In March 2020, the World Health Organization categorized COVID-19 as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. The spread of the outbreak has caused significant disruptions in the U.S. and global economies and economists expect the impact will be significant during the remainder of 2020. The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. The Company continues to evaluate the global risks and the slowdown in business activity related to COVID-19, including the potential impacts on its employees, customers, suppliers and financial results. As the situation surrounding COVID-19 remains fluid, it is expected to have a negative impact to the Company, however it is difficult to predict the duration of the pandemic and its impact on the Company's business, operations, financial condition and cash flows. There is no certainty that federal, state or local regulations regarding safety measures to address the spread of COVID-19 will not adversely impact the Company's operations. The Company has initiated cost reduction actions, including deferral of management and board fees, hiring freezes, employee furloughs, staffing and force reductions, salary reductions, bonus payment deferrals and 401(k) match suspension to help mitigate the financial impact of the COVID-19 pandemic. The Company has also frozen all discretionary spend, implemented strict approvals for capital expenditures and is aggressively managing working capital. The Company will evaluate further actions if circumstances warrant.

While the COVID-19 pandemic did not have a material adverse effect on our consolidated financial results for the first quarter, we anticipate the impact of the rapid deterioration of the U.S and global economies will most likely continue and have an adverse impact on our business through the second quarter. The severity of the impact of the COVID-19 pandemic on the Company's business in the remaining quarters of 2020 will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic, and the extent and severity of the impact on the Company's customers and suppliers, all of which are uncertain and cannot be predicted. The Company's future results of operations and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain disruptions and uncertain demand, and the impact of any initiatives or programs that the Company may undertake to address financial and operations challenges faced by its customers. As of the date of issuance of these consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact the Company's financial condition, liquidity or results of operations is uncertain. See Note 21 - "Subsequent Events" for further COVID-19 related discussion.

Basis of Presentation

The accompanying unaudited consolidated financial statements as of March 31, 2020 and for the three month periods ended March 31, 2020 and 2019, 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 months ended March 31, 2020 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, 2019, from which the consolidated balance sheet as of December 31, 2019 has been derived.


7


Certain financial information that is normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"), 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.

On January 31, 2020, the Company announced that API Group Limited and certain of its affiliates commenced administration proceedings in the United Kingdom. The purpose of the administration proceedings is to facilitate an orderly sale or wind-down of its United Kingdom operations, which include API Laminates Limited and API Foils Holdings Limited. In the United States, API Americas Inc. voluntarily filed for Chapter 11 proceedings in Bankruptcy Court on February 2, 2020, in order to facilitate the sale or liquidation of its U.S. assets. The API entities (collectively, "API") were wholly-owned subsidiaries of the Company and were included in the Diversified Industrial segment. The Company deconsolidated API on January 31, 2020 as it no longer held a controlling financial interest as of that date. The results of API's operations are included in Discontinued operations in the accompanying statement of operations. The assets and liabilities of API as of December 31, 2019, prior to their deconsolidation, are included in Assets and Liabilities of discontinued operations, respectively, in the accompanying consolidated balance sheet. All amounts associated with API have been removed from the Company's financial statements and footnotes, and reported in discontinued operations.

All references made to financial data in this Quarterly Report on Form 10-Q are to the Company's continuing operations, unless specifically noted. See Note 3 - "Discontinued Operations" for additional information.

Adoption of New Accounting Standards

In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. ("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 Company adopted ASU 2018-13 on January 1, 2020. Because ASU 2018-13 affects disclosure only, the adoption of this standard did not have a material impact on the Company's consolidated financial statements.

Accounting Standards Not Yet Effective

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. In November 2019, the FASB issued ASU 2019-10, Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates. This new standard amended 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 is based on its most recent determination as of November 15, 2019, in accordance with SEC regulations. As of this date, the Company met the SEC definition of a smaller reporting company. Therefore, the Company 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 2018-14, 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 December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 removes specific exceptions to the general principles in Topic 740 in order to reduce the complexity of its

8


application. ASU 2019-12 also improves consistency and simplifies existing guidance by clarifying and amending certain specific areas of Topic 740. The amendments in ASU 2019-12 are effective for the Company's 2021 fiscal year although early adoption is permitted. The Company is currently evaluating the potential impact of this new guidance.

In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. ASU 2020-01 clarifies the interaction between accounting standards related to equity securities, equity method investments and certain derivatives, and is expected to reduce diversity in practice and increase comparability of the accounting for these interactions. The amendments in ASU 2020-01 are effective for the Company's 2021 fiscal year, including interim periods. The Company is currently evaluating the potential impact of this new guidance, but management does not expect that the adoption of this standard will have a material impact on the Company's consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 is intended to provide temporary optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by the discontinuation of the London Interbank Offered Rate, known as LIBOR, or by another reference rate expected to be discontinued. This guidance is effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact this guidance may have on its consolidated financial statements and related disclosures.

2. REVENUES

Disaggregation of Revenues

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

The following table presents the Company's revenues disaggregated by geography for the three months ended March 31, 2020 and 2019. The Company's revenues are primarily derived domestically. Foreign revenues are based on the country in which the legal subsidiary generating the revenue is domiciled. Revenue from any single foreign country was not material to the Company's consolidated financial statements.
 
Three Months Ended
March 31,
 
2020
 
2019
United States
$
328,289

 
$
334,218

Foreign (a)
19,611

 
21,595

Total revenue
$
347,900

 
$
355,813

(a)
For the three months ended March 31, 2020 and 2019, foreign revenues were primarily related to the Company's Dunmore Europe GmbH business, which is domiciled in Germany.

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 March 31, 2020 and December 31, 2019, the contract asset balance was $8,069 and $10,749, 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

9


revenue. As of March 31, 2020 and December 31, 2019, the contract liability balance was $10,614 and $6,737, respectively. The increase in the three months ended March 31, 2020 was primarily due to the deferral of revenue of $4,027 offset by the recognition of $147 of unearned revenue.

3. DISCONTINUED OPERATIONS

On January 31, 2020, the Company announced that API Group Limited and certain of its affiliates commenced administration proceedings in the United Kingdom. The purpose of the administration proceedings is to facilitate an orderly sale or wind-down of its United Kingdom operations, which include API Laminates Limited and API Foils Holdings Limited. In the United States, API Americas Inc. voluntarily filed for Chapter 11 proceedings in Bankruptcy Court on February 2, 2020, in order to facilitate the sale or liquidation of its U.S. assets. The API entities were wholly-owned subsidiaries of the Company and part of the Diversified Industrial segment. The Company deconsolidated API on January 31, 2020 as it no longer held a controlling financial interest as of that date. The Company recorded a net loss on deconsolidation of $22,847 for the three months ended March 31, 2020.

The components of Net loss on deconsolidation of discontinued operations in the accompanying consolidated statement of operations are:
 
Three Months Ended March 31, 2020
Gain upon initial deconsolidation of API
$
29,637

Loss from guarantee liability
(52,484
)
Net loss on deconsolidation of API
$
(22,847
)

The gain upon initial deconsolidation of $29,637 is based primarily on the Company's carrying value of API's assets, liabilities and accumulated other comprehensive loss at the time of deconsolidation. All amounts associated with API have been removed from the Company's financial statements and footnotes, and reported in discontinued operations as described herein.

As of the date of deconsolidation, API held approximately $69,220 of principal loans under the Company's senior credit agreement described in Note 9 - "Debt." Under the terms of the credit agreement, the Company and certain consolidated subsidiaries are guarantors, and accordingly, are responsible for the ultimate repayment of these loans. If the net proceeds from the sale of the assets of API are not sufficient to fully repay the loans, the Company will be responsible for any shortfall in their repayment, potentially up to their full outstanding balance. The Company recorded a guarantee liability of $52,484 as of March 31, 2020, which represents the Company's total estimated debt repayment obligation after considering actual and estimated recoveries from the sales of API's businesses and assets. The guarantee liability is included in Other current liabilities in the accompanying consolidated balance sheet as of March 31, 2020. The loss related to the guarantee is included in Net loss on deconsolidation of discontinued operations in the accompanying consolidated statement of operations for the three months ended March 31, 2020. Changes in the amount of the guarantee will be recorded in Net loss on deconsolidation of discontinued operations, until the earlier of such time that the API debt has been repaid from the proceeds from the sale of API's businesses and assets or when the Company becomes the obligor of the debt upon completion of API's administration and bankruptcy proceedings, which are expected to be completed by December 31, 2020. If the Company becomes the obligor of the debt, the guarantee liability will be removed from the Company's consolidated balance sheet, and the Company will record debt at that time for the amount of the remaining outstanding debt obligation. The Company will continue to pay interest monthly on API's outstanding debt until the debt has been repaid in full. Monthly interest is approximately $200.

On February 2, 2020, the Company became obligor to API's U.S. pension plans. Accordingly, the Company retained the previously recorded API pension obligation liability of approximately $5,238. These obligations remain recorded in Accrued pension liabilities in the accompanying consolidated balance sheet as of March 31, 2020.


10


The following represents the detail of Loss from discontinued operations, net of taxes in the accompanying consolidated statements of operations:
 
Three Months Ended
March 31,
 
2020
 
2019
Revenue:
$
6,388

 
$
31,240

Costs and expenses:
 
 
 
Cost of goods sold
6,085

 
28,294

Selling, general and administrative expenses
2,219

 
6,041

Other expenses, net
385

 
1,086

Total costs and expenses
8,689

 
35,421

Loss before income taxes
(2,301
)
 
(4,181
)
Income tax benefit

 
41

Net loss
$
(2,301
)
 
$
(4,140
)

The following is a summary of the assets and liabilities of discontinued operations:
Assets
December 31, 2019
Current assets:
 
Cash and cash equivalents
$
8,881

Trade and other receivables
13,367

Inventories, net
16,192

Prepaid expenses and other current assets
2,572

Total current assets
41,012

Other non-current assets
50

Property, plant and equipment, net
12,052

Operating lease right-of-use-assets
6,041

Total Assets
$
59,155

Liabilities
 
Current liabilities:
 
Accounts payable
$
14,027

Accrued liabilities
4,701

Short-term debt
1,397

Other current liabilities
1,131

Total current liabilities
21,256

Long-term debt
69,055

Deferred tax liabilities
1,117

Long-term operating lease liabilities
4,804

Accrued pension liabilities
12,849

Total Liabilities
$
109,081


On the date of the deconsolidation, the Company believes that API became a variable interest entity. As described above, as of this date the Company no longer held a controlling financial interest in API as it lacked significant decision-making ability. Therefore, the Company is not the primary beneficiary of API. The Company's total exposure to loss primarily relates to API's debt, and is described above.

4. ACQUISITIONS

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 a potential $1,800 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 trade and other 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

11


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.

On January 23, 2020, the Company, through its wholly-owned subsidiary, OMG, Inc., completed the acquisition of Metallon, Inc. ("Metallon"), which is in the business of manufacturing plugs for the composite exterior deck market, for a cash purchase price of $3,500. The assets acquired included goodwill of $2,300, intangible assets, primarily unpatented technology, of $800 and property, plant and equipment of $400. No liabilities or contingent consideration were included in the acquisition. Prior to the acquisition, Metallon was the exclusive supplier of plugs to OMG, Inc. for composite exterior decks, and this acquisition will provide OMG, Inc. with additional control of its supply chain, production costs and overall product margin. OMG, Inc. is included in the Company's Diversified Industrial segment. The goodwill of $2,300 is expected to be deductible for income tax purposes.

5. LOANS RECEIVABLE, INCLUDING LOANS HELD FOR SALE

Major classifications of loans receivable, including loans held for sale, held by WebBank, as of March 31, 2020 and December 31, 2019 are as follows:
 
Total
 
Current
 
Non-current
 
March 31, 2020
 
%
 
December 31, 2019
 
%
 
March 31, 2020
 
December 31, 2019
 
March 31, 2020
 
December 31, 2019
Loans held for sale
$
68,756

 


 
$
225,013

 


 
$
68,756

 
$
225,013

 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate loans
$
663

 
%
 
$
659

 
%
 

 

 
663

 
659

Commercial and industrial
273,035

 
49
%
 
251,349

 
45
%
 
258,689

 
233,510

 
14,346

 
17,839

Consumer loans
280,145

 
51
%
 
302,714

 
55
%
 
105,887

 
125,067

 
174,258

 
177,647

Total loans
553,843

 
100
%
 
554,722

 
100
%
 
364,576

 
358,577

 
189,267

 
196,145

Less:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses
(52,423
)
 
 
 
(36,682
)
 
 
 
(52,423
)
 
(36,682
)
 

 

Total loans receivable, net
$
501,420

 
 
 
$
518,040

 
 
 
312,153

 
321,895

 
189,267

 
196,145

Loans receivable, including loans held for sale (a)


 
 
 


 
 
 
$
380,909

 
$
546,908

 
$
189,267

 
$
196,145

(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 $7,760 and $15,737 were pledged as collateral for potential borrowings as of March 31, 2020 and December 31, 2019, respectively. WebBank serviced $2,892 and $2,898 in loans for others as of March 31, 2020 and December 31, 2019, respectively.

WebBank sold loans classified as loans held for sale of $5,124,275 and $5,232,586 during the three months ended March 31, 2020 and 2019, 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 three months ended March 31, 2020 and 2019 were $4,969,689 and $5,214,272, respectively. The reduction in volume of loans held for sale as of March 31, 2020 reflects the impact of reduced lending by WebBank's partners, beginning in March 2020, due to the economic impact of COVID-19. Such factors include WebBank's partners experiencing reduced sales volume, as well as tightening their credit policies due to the increase in the U.S. unemployment rate and other factors. This in turn has reduced the volume of loans being initiated by, and then sold by, WebBank.

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. WebBank's ALLL increased $15,741, or 43%, during the first quarter of 2020, primarily driven by the impact of COVID-19. WebBank is observing and anticipating significant economic disruption and loan performance deterioration associated with the COVID-19 pandemic. WebBank believes this will have a broad negative impact on the macro-economy and will cause estimated credit losses to materially differ from historical loss experience.

12


6. INVENTORIES, NET

A summary of Inventories, net is as follows:
 
March 31, 2020
 
December 31, 2019
Finished products
$
47,502

 
$
48,484

In-process
35,790

 
30,913

Raw materials
46,958

 
46,440

Fine and fabricated precious metal in various stages of completion
25,393

 
29,202

 
155,643

 
155,039

LIFO reserve
(2,555
)
 
(3,398
)
Total
$
153,088

 
$
151,641


Fine and Fabricated Precious Metal Inventory

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

The Company obtains certain precious metals under a fee consignment agreement with the Bank of Nova Scotia ("ScotiaBank"). As of March 31, 2020 and December 31, 2019, the Company had approximately $13,910 and $6,880, respectively, of precious metals, principally 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.

The Company continues to monitor the impact of COVID-19 on our customers and our inventory levels and related reserves.
 
March 31, 2020
 
December 31, 2019
Supplemental inventory information:
 
 
 
Precious metals stated at LIFO cost
$
4,954

 
$
15,660

Precious metals stated under non-LIFO cost methods, primarily at fair value
$
17,884

 
$
10,144

Market value per ounce:
 
 
 
Silver
$
14.52

 
$
17.86

Gold
$
1,621.58

 
$
1,522.14

Palladium
$
2,283.75

 
$
1,935.19


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, 2019
 
 
 
 
 
 
 
 
 
Gross goodwill
$
180,855

 
$
67,143

 
$
6,515

 
$
81

 
$
254,594

Accumulated impairments
(40,178
)
 
(64,790
)
 

 

 
(104,968
)
Net goodwill
140,677

 
2,353

 
6,515

 
81

 
149,626

Acquisitions (a)
2,300

 

 

 

 
2,300

Currency translation adjustments
(5
)
 

 

 

 
(5
)
Balance as of March 31, 2020
 
 
 
 
 
 
 
 
 
Gross goodwill
183,150

 
67,143

 
6,515

 
81

 
256,889

Accumulated impairments
(40,178
)
 
(64,790
)
 

 

 
(104,968
)
Net goodwill
$
142,972

 
$
2,353

 
$
6,515

 
$
81

 
$
151,921

(a)
Related to the acquisition of Metallon. See Note 4 - "Acquisitions."


13


A summary of Other intangible assets, net is as follows:
 
March 31, 2020
 
December 31, 2019
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net
Customer relationships
$
213,610

 
$
110,348

 
$
103,262

 
$
216,428

 
$
109,701

 
$
106,727

Trademarks, trade names and brand names
51,094

 
18,667

 
32,427

 
51,414

 
18,469

 
32,945

Developed technology, patents and patent applications
32,012

 
17,610

 
14,402

 
31,984

 
17,176

 
14,808

Other
18,760

 
15,102

 
3,658

 
17,963

 
13,850

 
4,113

Total
$
315,476

 
$
161,727

 
$
153,749

 
$
317,789

 
$
159,196

 
$
158,593


Trademarks with indefinite lives as of both March 31, 2020 and December 31, 2019 were $11,320. Amortization expense related to intangible assets was $5,282 and $5,265 for the three months ended March 31, 2020 and 2019, respectively. As a result of COVID-19 related declines in our youth sports business within the Energy segment, intangible assets of $617, primarily customer relationships, were fully impaired during the quarter ended March 31, 2020. The impairment is included in Asset impairment charges in the accompanying statement of operations for the three months ended March 31, 2020.

As of March 31, 2020, the Company reviewed its goodwill, other intangible assets and long-lived assets for indicators of impairment as a result of the impact of the COVID-19 pandemic. As a result of the COVID-19 pandemic, the Company believes that indicators of impairment were present for all these asset classes due to a general deterioration in macroeconomic conditions, reduced cash flow projections and a significant decline in the Company's market capitalization. Therefore, we assessed whether it was more likely than not that our goodwill, other intangible assets and long-lived assets were impaired as of March 31, 2020. We reviewed our previous forecasts and assumptions based on our current projections that are subject to various risks and uncertainties, including forecasted revenues, expenses and cash flows, including the duration and extent of impact to our businesses from the COVID-19 pandemic and the reduction in the Company's market capitalization. Based on our interim impairment assessment as of March 31, 2020, we have determined that our goodwill, other intangible assets, except for our youth sports related intangibles described above, and long-lived assets are not impaired. However, as a result of the COVID-19 pandemic, it is possible in future periods that further declines in market conditions, customer demand or other potential changes in operations may increase the risk that these assets are impaired. In addition, at March 31, 2020, the goodwill related to the performance materials business, within our Diversified Industrial segment, is at risk of future impairment if the fair value of this reporting unit, and its associated assets, decrease in value due to further declines in market conditions or customer demand. The goodwill related to our energy business within our Energy segment is also at risk of future impairment if the fair value of this reporting unit, and its associated assets, decrease in value due to reductions in customer demand as a result of continued or sustained declines in the price of oil. See Note 21 - "Subsequent Events" for further discussion.

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 $123 and $220 as of March 31, 2020 and December 31, 2019, respectively. Unrealized (losses) gains on short-term investments for the three months ended March 31, 2020 and 2019 totaled $(97) and $232, respectively.

Realized Gains (Losses) on Investments

Proceeds from sales of equity securities were $1,191 and $0 in the three months ended March 31, 2020 and 2019, 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 losses (gains) on securities, net in the Company's consolidated statements of operations, were as follows:
 
Three Months Ended
March 31,
 
2020
 
2019
Gross realized gains
$

 
$

Gross realized losses
(16,352
)
 

Realized losses, net
$
(16,352
)
 
$



14


Long-Term Investments

The following table summarizes the Company's long-term investments as of March 31, 2020 and December 31, 2019.
 
Ownership %
 
Long-Term Investments Balance
 
(Income) Loss Recorded in the Consolidated Statements of Operations
 
 
 
 
 
 
 
 
 
Three Months Ended
March 31,
 
March 31, 2020
 
December 31, 2019
 
March 31, 2020
 
December 31, 2019
 
2020
 
2019
Corporate securities (a), (d)
 
 
 
 
$
167,806

 
$
186,777

 
$
1,553

 
$
(1,889
)
Collateralized debt securities
 
 
 
 
787

 
855

 
$

 
$

Steel Connect, Inc. ("STCN") convertible notes (b), (e)
 
 
 
 
8,189

 
11,839

 
$
3,650

 
$
343

STCN preferred stock (c), (e)
 
 
 
 
23,033

 
39,178

 
$
16,145

 
$
(4,117
)
Equity method investments: (e)
 
 
 
 
 
 
 
 
 
 
 
Carried at fair value:
 
 
 
 
 
 
 
 
 
 
 
  STCN common stock
29.2
%
 
29.4
%
 
13,637

 
26,547

 
$
11,452

 
$
(4,539
)
  Aviat Networks, Inc. ("Aviat")
12.4
%
 
12.4
%
 
5,697

 
9,417

 
$
3,720

 
$
(1,068
)
  Other
43.8
%
 
43.8
%
 
1,683

 
1,223

 
$
(460
)
 
$

Total
 
 
 
 
$
220,832

 
$
275,836

 


 


(a)
Cost basis totaled $41,076 and $58,495 at March 31, 2020 and December 31, 2019, respectively, and gross unrealized gains totaled $126,730 and $128,282 at March 31, 2020 and December 31, 2019, respectively. Primarily includes the Company's investments in the common stock of $165,230, or 5.0%, and $1,007, or 2.1%, of Aerojet Rocketdyne Holdings, Inc. and Babcock & Wilcox Enterprises, Inc., respectively, as of March 31, 2020 and $180,357, or 5.0%, and $4,989, or 3.0%, respectively, as of December 31, 2019.
(b)
Represents investment in STCN convertible notes. The convertible notes outstanding as of December 31, 2018 matured on March 1, 2019. The Company entered into a new convertible note with STCN ("New Note") on February 28, 2019, which matures on March 1, 2024. The cost basis of the New Note totaled $14,943 as of March 31, 2020 and the gross unrealized loss was $6,754 as of March 31, 2020. 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 investment was $14,943 as of December 31, 2019 and gross unrealized loss totaled $3,104 as of December 31, 2019. Changes in fair value are recorded in the Company's consolidated statements of operations as the Company elected the fair value option to account for this investment. The New Notes, if converted as of March 31, 2020, 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 48.9% of STCN's outstanding shares.
(c)
Represents investment in shares of STCN preferred stock with a cost basis of $35,634. 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 losses (gains) 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 months ended March 31, 2020 and 2019 that relate to equity securities still held as of March 31, 2020 and 2019, respectively, was as follows:
 
Three Months Ended
March 31,
 
2020
 
2019
Net (losses) gains recognized during the period on equity securities
$
(18,002
)
 
$
2,109

Less: Net losses recognized during the period on equity securities sold during the period
(16,352
)
 

Unrealized (losses) gains recognized during the period on equity securities still held at the end of the period
$
(1,650
)
 
$
2,109


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., which

15


delivers data-driven marketing solutions for its customers, including strategy, creative and execution for omnichannel marketing campaigns, along with postal logistics programs for direct mail.
Aviat designs, manufactures and sells a range of wireless networking solutions and services to mobile and fixed telephone service providers, private network operators, government agencies, transportation and utility companies, public safety agencies and broadcast system operators across the globe.

The following summary balance sheet amounts are for STCN as of January 31, 2020 and July 31, 2019, respectively, and the statement of operations amounts are for the three months ended January 31, 2020 and 2019, respectively, which are both STCN's nearest corresponding fiscal quarters to the Company's fiscal quarters ended March 31, 2020 and 2019:
(Unaudited)
2020
 
2019
Summary of balance sheet amounts:
 
 
 
Current assets
$
223,534

 
$
213,324

Non-current assets
565,361

 
518,239

Total assets
$
788,895

 
$
731,563

 
 
 
 
Current liabilities
$
268,113

 
$
256,850

Non-current liabilities
431,786

 
386,835

Total liabilities
699,899

 
643,685

Contingently redeemable preferred stock
35,181

 
35,186

Equity
53,815

 
52,692

Total liabilities and equity
$
788,895

 
$
731,563

 
 
 
 
 
Three Months Ended
March 31,
(Unaudited)
2020
 
2019
Summary operating results:
 
 
 
Net revenue
$
215,452

 
$
206,223

Gross profit
$
45,249

 
$
37,543

Net loss
$
(3,557
)
 
$
(11,753
)

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.
 
March 31, 2020
 
Amortized Cost
 
Gross Unrealized Gains (Losses)
 
Estimated Fair Value
 
Carrying Value
Collateralized securities
$
27,025

 
$
(583
)
 
$
26,442

 
$
27,025

 
 
 
 
 
 
 
 
Contractual maturities within:
 
 
 
 
 
 
 
One year to five years
 
 
 
 
 
 
11,079

Five years to ten years
 
 
 
 
 
 
14,092

After ten years
 
 
 
 
 
 
1,854

Total
 
 
 
 
 
 
$
27,025

 
 
 
 
 
 
 
 
 
December 31, 2019
 
Amortized Cost
 
Gross Unrealized Gains (Losses)
 
Estimated Fair Value
 
Carrying Value
Collateralized securities
$
37,896

 
$
(3
)
 
$
37,893

 
$
37,896

 
 
 
 
 
 
 
 
Contractual maturities within:
 
 
 
 
 
 
 
One year to five years
 
 
 
 
 
 
23,339

Five years to ten years
 
 
 
 
 
 
12,373

After ten years
 
 
 
 
 
 
2,184

Total
 
 
 
 
 
 
$
37,896



16


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

9. DEBT

Debt consists of the following:
 
March 31, 2020
 
December 31, 2019
Short term debt:
 
 
 
Foreign
$
591

 
$
1,800

Short-term debt
591

 
1,800

Long-term debt:
 
 
 
Credit Agreement
559,352

 
330,700

Other debt - foreign
433

 
444

Other debt - domestic
5,031

 
5,145

Subtotal
564,816

 
336,289

Less: portion due within one year
14,135

 
14,208

Long-term debt
550,681

 
322,081

Total debt
$
565,407

 
$
338,089


Long-term debt as of March 31, 2020 matures in each of the next five calendar-years as follows:
 
 
Total
 
2020
 
2021
 
2022
 
2023
 
2024
 
Thereafter
Long-term debt (a)
 
$
564,816

 
$
11,588

 
$
10,305

 
$
542,923

 
$

 
$

 
$

(a)
As of March 31, 2020, long term debt of $14,135 is expected to mature over the following twelve months.

As of March 31, 2020, the Company's senior credit agreement, as amended ("Credit Agreement"), includes a revolving credit facility in an aggregate principal amount not to exceed $500,000 and a $190,000 term loan. The Credit Agreement covers substantially all of the Company's subsidiaries, with the exception of WebBank, and includes a $55,000 sub-facility for swing line loans and a $50,000 sub-facility for standby letters of credit. The term loan requires quarterly amortization equating to $2,500 per quarter. Borrowings under the Credit Agreement bear interest, at the borrower's option, at annual rates of either the Base Rate or the Euro-Rate, as defined, plus an applicable margin as set forth in the Credit Agreement (1.25% and 2.25%, respectively, for Base Rate and Euro-Rate borrowings at March 31, 2020), and the Credit Agreement provides for a commitment fee to be paid on unused borrowings. The weighted average interest rate on the Credit Agreement was 3.50% at March 31, 2020. At March 31, 2020, letters of credit totaling $10,578 had been issued under the Credit Agreement, including $3,262 of the letters of credit guaranteeing various insurance activities, and $7,316 for environmental and other matters. The Credit Agreement permits SPLP, the parent, to fund the dividends on its preferred units and its routine corporate expenses. Upon filing the first quarter bank certification, the Company's total availability under the Credit Agreement, which is based upon earnings and certain covenants as described in the Credit Agreement, will be approximately $57,301 as of March 31, 2020.

On November 14, 2022, the Credit Agreement will expire, and all outstanding amounts will be due and payable. The Credit Agreement is guaranteed by substantially all existing and thereafter acquired assets of the borrowers and the guarantors, as defined in the agreement, and a pledge of all of the issued and outstanding shares of capital stock of each of the borrowers' and guarantors' subsidiaries, and is fully guaranteed by the guarantors. The Credit Agreement is subject to certain mandatory prepayment provisions and restrictive and financial covenants, which include a maximum ratio limit on Total Leverage and a minimum ratio limit on Interest Coverage, as defined. The Company was in compliance with all financial covenants as of March 31, 2020.

On March 16, 2020 and March 20, 2020, the Company borrowed approximately $38,000 and $100,000, respectively, under the Credit Agreement as part of a comprehensive precautionary approach to increase the Company's cash position and maximize its financial flexibility in light of the current volatility in the global markets resulting from the COVID-19 outbreak. These borrowings may be used for working capital, general corporate or other permitted purposes.

The tables above do not include the debt of API as it was deconsolidated. See Note 3 - "Discontinued Operations" for further details.


17


10. FINANCIAL INSTRUMENTS

WebBank - Economic Interests in Loans

WebBank's derivative financial instruments represent on-going economic interests in loans made after they are sold. These derivatives are carried at fair value on a gross basis in Other non-current assets on the Company's consolidated balance sheets and are classified within Level 3 in the fair value hierarchy (see Note 15 - "Fair Value Measurements"). As of March 31, 2020, outstanding derivatives mature within 3 to 5 years. Gains and losses resulting from changes in the fair value of derivative instruments are accounted for in the Company's consolidated statements of operations in Financial services revenue. Fair value represents the estimated amounts that WebBank would receive or pay to terminate the contracts at the reporting date based on a discounted cash flow model for the same or similar instruments. WebBank does not enter into derivative contracts for speculative or trading purposes.

Precious Metal and Commodity Inventories

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

As of March 31, 2020, the Company had the following outstanding forward contracts with settlement dates through April 2020. There were no futures contracts outstanding as of March 31, 2020.
Commodity
Amount
 
Notional Value
Silver
135,354 ounces
 
$
1,955

Gold
1,941 ounces
 
$
3,126

Palladium
573 ounces
 
$
1,299

Copper
215,000 pounds
 
$
565

Tin
30 metric tons
 
$
462


Fair Value Hedges. Certain forward contracts are accounted for as fair value hedges under Accounting Standards Codification ("ASC") 815 for the Company's precious metal inventory carried at fair value. These contracts hedge 41,414 ounces of silver and a majority of the Company's ounces of copper. The fair values of these derivatives are recognized as derivative assets and liabilities on the Company's consolidated balance sheets. The net changes in fair value of the derivative assets and liabilities, and the changes in the fair value of the underlying hedged inventory, are recognized in the Company's consolidated statements of operations, and such amounts principally offset each other due to the effectiveness of the hedges.

Economic Hedges. The remaining outstanding forward contracts for silver, and all the contracts for gold, palladium and tin, are accounted for as economic hedges. As these derivatives are not designated as accounting hedges under ASC 815, they are accounted for as derivatives with no hedge designation. The derivatives are marked to market with gains and losses recorded in earnings in the Company's consolidated statements of operations. The economic hedges are associated primarily with the Company's precious metal inventory valued using the LIFO method.

The forward contracts were made with a counterparty rated Aa2 by Moody's. Accordingly, the Company has determined that there is minimal credit risk of default. The Company estimates the fair value of its derivative contracts through the use of market quotes or with the assistance of brokers when market information is not available. The Company maintains collateral on account with the third-party broker which varies in amount depending on the value of open contracts.


18


The fair value and carrying amount of derivative instruments on the Company's consolidated balance sheets are as follows:
 
Fair Value of Derivative Assets (Liabilities)
 
March 31, 2020
 
December 31, 2019
 
Location on Consolidated Balance Sheet
 
Fair Value
 
Location on Consolidated Balance Sheet
 
Fair Value
Derivatives designated as ASC 815 hedges
 
 
 
 
 
 
 
Commodity contracts
Prepaid and other current assets
 
$
94

 
Accrued liabilities
 
$
(46
)
Derivatives not designated as ASC 815 hedges
 
 
 
 
 
 
 
Commodity contracts
Accrued liabilities
 
$
(6
)
 
Accrued liabilities
 
$
(335
)
Economic interests in loans
Other non-current assets
 
$
17,501

 
Other non-current assets
 
$
18,633


The effects of fair value hedge accounting on the consolidated statements of operations for the three months ended March 31, 2020 and 2019 are not material. The effects of derivatives not designated as ASC 815 hedging instruments on the consolidated statements of operations for the three months ended March 31, 2020 and 2019 are as follows:
Derivatives Not Designated as Hedging Instruments:
 
Location of Gain (Loss) Recognized in Income
 
Amount of Gain (Loss) Recognized in Income
 
Three Months Ended
March 31,
 
2020
 
2019
Commodity contracts
 
Other income (expense), net
 
$
(407
)
 
$
(56
)
Economic interests in loans
 
Financial services revenue
 
2,980

 
2,886

Total
 
 
 
$
2,573

 
$
2,830


Financial Instruments with Off-Balance Sheet Risk

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

As of March 31, 2020 and December 31, 2019, WebBank's undisbursed loan commitments totaled $90,980 and $125,861, respectively. Commitments to extend credit are agreements to lend to a borrower who meets the lending criteria through one of WebBank's lending agreements, provided there is no violation of any condition established in the contract with the counterparty to the lending arrangement.

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

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

11. PENSION AND OTHER POST-RETIREMENT BENEFITS

The Company maintains several qualified and non-qualified pension plans and other post-retirement benefit plans. The following table presents the components of pension expense for the Company's significant pension plans. The Company's other pension and post-retirement benefit plans are not significant individually or in the aggregate.
 
Three Months Ended
March 31,
 
2020
 
2019
Interest cost
$
3,275

 
$
4,449

Expected return on plan assets
(5,574
)
 
(4,964
)
Amortization of actuarial loss
2,849

 
2,484

Total
$
550

 
$
1,969


Pension expense is included in Selling, general and administrative expenses in the consolidated statements of operations. Required future pension contributions are estimated based upon assumptions such as discount rates on future obligations, assumed rates of return on plan assets and legislative changes. Actual future pension costs and required funding obligations will be affected by changes in the factors and assumptions described in the previous sentence, including the expected impact of declines in pension plan assets and interest rates which occurred during the three months ended March 31, 2020 and may continue into the future, as well as other changes such as any plan termination or other acceleration events. On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security ("CARES") Act into law. As a result of the CARES Act, U.S. pension plan contributions that were expected to be made after March 2020 have been deferred until January 1, 2021. The Company's current expected future minimum pension contributions to its significant pension plans are $0 for the remainder of 2020, and $63,600, $32,400, $25,900, $15,700 and $5,800 in 2021, 2022, 2023, 2024 and for the five years thereafter, respectively.

19



12. CAPITAL AND ACCUMULATED OTHER COMPREHENSIVE LOSS

As of March 31, 2020, the Company had 25,013,274 Class A units (regular common units) outstanding.

Common Unit Repurchase Program

The Board of Directors of SPH GP has approved the repurchase of up to an aggregate of 3,000,000 of the Company's common units ("Repurchase Program"). The Repurchase Program supersedes and cancels, to the extent any amounts remain available, all previously approved repurchase programs. Any purchases made under the Repurchase Program will be made from time to time on the open market at prevailing market prices or in negotiated transactions off the market, in compliance with applicable laws and regulations. In connection with the Repurchase Program, the Company may enter into a stock purchase plan. The Repurchase Program has no termination date. The Company has purchased 2,089,177 common units for an aggregate price of approximately $33,881 under the Repurchase Program.

Incentive Award Plan

On May 24, 2018, the Company's unitholders approved the adoption of the Company's 2018 Incentive Award Plan ("2018 Plan"). The 2018 Plan provides equity-based compensation through the grant of options to purchase the Company's limited partnership units, unit appreciation rights, restricted units, phantom units, substitute awards, performance awards, other unit-based awards, and includes, as appropriate, any tandem distribution equivalent rights granted with respect to an award (collectively, "LP Units"). The 2018 Plan allows for issuance of up to 500,000 LP Units. In 2019, 207,499 restricted units were granted under the 2018 Plan. Such units were valued based upon the market value of the Company's LP Units on the date of grant, and collectively represent approximately $2,905 of unearned compensation that will be recognized as expense ratably over the vesting period of the units. The grants have vesting periods that range from three to ten years from the date of grant.

Preferred Units

The Company's 6.0% Series A preferred units, no par value ("SPLP Preferred Units") entitle the holders to a cumulative quarterly cash or in-kind (or a combination thereof) distribution. The Company declared cash distributions of approximately $2,725 and $2,970 to preferred unitholders for the three months ended March 31, 2020 and 2019, respectively. The SPLP Preferred Units have a term of nine years, ending February 2026, and are redeemable at any time at the Company's option at a $25 liquidation value per unit, plus any accrued and unpaid distributions (payable in cash or SPLP common units, or a combination of both, at the Company's discretion). If redeemed in common units, the number of common units to be issued will be equal to the liquidation value per unit divided by the volume weighted-average price of the common units for 60 days prior to the redemption. On February 6, 2020 ("Redemption Date"), the Company redeemed 1,600,000 units of the SPLP Preferred Units at a price equal to $25 per unit, plus an amount of $0.22 per unit, equal to any accumulated and unpaid distributions up to, but excluding, the Redemption Date, for a total payment of approximately $40,400.

The SPLP Preferred Units have no voting rights, except that holders of the preferred units have certain voting rights in limited circumstances relating to the election of directors following the failure to pay six quarterly distributions. The SPLP Preferred Units are recorded as liabilities, including accrued interest expense, on the Company's consolidated balance sheets because they have an unconditional obligation to be redeemed for cash or by issuing a variable number of SPLP common units for a monetary value that is fixed and known at inception. Because the SPLP Preferred Units are classified as liabilities, distributions thereon are recorded as a component of Interest expense in the Company's consolidated statements of operations. As of March 31, 2020, there were 6,327,288 SPLP Preferred Units outstanding and as of December 31, 2019, there were 7,927,288 SPLP Preferred Units outstanding.

Accumulated Other Comprehensive Loss

Changes, net of tax, where applicable, in AOCI are as follows:

20


 
Unrealized loss on available-for-sale debt securities
 
Unrealized (loss) gain on derivative financial instruments
 
Cumulative translation adjustments
 
Change in net pension and other benefit obligations
 
Total
Balance at December 31, 2019
$
(274
)
 
$
(14
)
 
$
(25,166
)
 
$
(165,968
)
 
$
(191,422
)
Net other comprehensive loss attributable to common unitholders

 

 
(2,936
)
 

 
(2,936
)
Deconsolidation of API (see Note 3)

 
14

 
10,522

 
6,945

 
17,481

Balance at March 31, 2020
$
(274
)
 
$

 
$
(17,580
)
 
$
(159,023
)
 
$
(176,877
)

 
Unrealized loss on available-for-sale securities
 
Unrealized (loss) gain on derivative financial instruments
 
Cumulative translation adjustments
 
Change in net pension and other benefit obligations
 
Total
Balance at December 31, 2018
$
(274
)
 
$
(277
)
 
$
(23,476
)
 
$
(153,217
)
 
$
(177,244
)
Net other comprehensive income attributable to common unitholders 

 
518

 
1,303

 

 
1,821

Balance at March 31, 2019
$
(274
)
 
$
241

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

Incentive Unit Expense

SPLP has issued to the Manager partnership profits interests in the form of incentive units, a portion of which will be classified as Class C common units of SPLP upon the attainment of certain specified performance goals by SPLP, which are determined as of the last day of each fiscal year. If the performance goals are not met for a fiscal year, no portion of the incentive units will be classified as Class C common units for that year. The number of outstanding incentive units is equal to 100% of the common units outstanding, including common units held by non-wholly-owned subsidiaries. The performance goals and expense related to the classification of a portion of the incentive units as Class C units is measured on an annual basis, but is accrued on a quarterly basis. Accordingly, the expense accrued is adjusted to reflect the fair value of the Class C common units on each interim calculation date. In the event the cumulative incentive unit expense calculated quarterly or for the full year is an amount less than the total previously accrued, the Company records a negative incentive unit expense in the quarter when such over accrual is determined. The expense is recorded in Selling, general and administrative expenses in the Company's consolidated statements of operations. No incentive unit expense was recorded in the three months ended March 31, 2020 and 2019.

13. INCOME TAXES

The Company recorded an income tax benefit of $3,429 and an income tax provision of $3,002 for the three months ended March 31, 2020 and 2019, respectively. The Company's tax provision represents the income tax expense or benefit of its consolidated subsidiaries that are taxable entities. Significant differences between the statutory rate and the effective tax rate include partnership losses for which no tax benefit is recognized, changes in deferred tax valuation allowances and other permanent differences. The Company's consolidated subsidiaries have recorded deferred tax valuation allowances to the extent that they believe it is more likely than not that the benefits of certain deferred tax assets will not be realized in future periods.

The CARES Act contains modifications on the limitation of business interest for tax years beginning in 2019 and 2020. The modifications to Section 163(j) increase the allowable business interest deduction from 30% of adjusted taxable income to 50% of adjusted taxable income. This modification would increase the allowable interest expense deduction of the Company and result in less taxable income. As a result of the CARES Act, it is anticipated that the Company will fully utilize all interest expense for the year ended December 31, 2020. The CARES Act, among other things, permits U.S. net operating loss ("NOL") carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019 and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company is currently evaluating the impact of the CARES Act, but at present does not expect that the NOL carryback provision of the CARES Act would result in a material cash benefit to it.

14. NET (LOSS) INCOME PER COMMON UNIT

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

21


 
Three Months Ended
March 31,
 
2020
 
2019
Net (loss) income from continuing operations
$
(36,459
)
 
$
19,762

Net (income) loss attributable to noncontrolling interests in consolidated entities (continuing operations)
(130
)
 
56

Net (loss) income from continuing operations attributable to common unitholders
(36,589
)
 
19,818

Net loss from discontinued operations attributable to common unitholders
(25,148
)
 
(4,140
)
Net (loss) income attributable to common unitholders
(61,737
)
 
15,678

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

 
2,973

Net (loss) income attributable to common unitholders – assuming dilution
$
(61,737
)
 
$
18,651

Net (loss) income per common unit – basic
 
 
 
Net (loss) income from continuing operations
$
(1.46
)
 
$
0.80

Net loss from discontinued operations
(1.01
)
 
(0.17
)
Net (loss) income attributable to common unitholders
$
(2.47
)
 
$
0.63

Net (loss) income per common unit – diluted
 
 
 
Net (loss) income attributable to common unitholders
$
(1.46
)
 
$
0.58

Net loss from discontinued operations
(1.01
)
 
(0.10
)
Net (loss) income attributable to common unitholders
$
(2.47
)
 
$
0.48

Denominator for net (loss) income per common unit – basic
25,020,854

 
24,846,653

Effect of dilutive securities:
 
 
 
Unvested restricted common units

 
379

SPLP Preferred Units (a)

 
14,329,877

Denominator for net (loss) income per common unit – diluted (a), (b)
25,020,854

 
39,176,909

(a)
Assumes the SPLP Preferred Units were redeemed in common units as described in Note 12 - "Capital and Accumulated Other Comprehensive Loss."
(b)
For the three months ended March 31, 2020, the diluted per unit calculation does not include 32,104,497 of SPLP Preferred Units and 32,933 of unvested restricted common units, since the impact would have been anti-dilutive.

15. FAIR VALUE MEASUREMENTS

Assets and liabilities measured at fair value on a recurring basis in the Company's consolidated financial statements as of March 31, 2020 and December 31, 2019 are summarized by type of inputs applicable to the fair value measurements as follows:
March 31, 2020
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Marketable securities (a)
$
105

 
$
18

 
$

 
$
123

Long-term investments (a)
186,451

 

 
34,381

 
220,832

Precious metal and commodity inventories recorded at fair value
19,540

 

 

 
19,540

Economic interests in loans

 

 
17,501

 
17,501

Commodity contracts on precious metal and commodity inventories

 
94

 

 
94

Warrants

 

 
2,086

 
2,086

Total
$
206,096

 
$
112

 
$
53,968

 
$
260,176

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Commodity contracts on precious metal and commodity inventories
$

 
$
6

 
$

 
$
6

Other precious metal liabilities
16,270

 

 

 
16,270

Total
$
16,270

 
$
6

 
$

 
$
16,276


22


December 31, 2019
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Marketable securities (a)
$
170

 
$
50

 
$

 
$
220

Long-term investments (a)
222,178

 

 
53,658

 
275,836

Precious metal and commodity inventories recorded at fair value
11,377

 

 

 
11,377

Economic interests in loans

 

 
18,633

 
18,633

Warrants

 

 
2,086

 
2,086

Total
$
233,725

 
$
50

 
$
74,377

 
$
308,152

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Commodity contracts on precious metal and commodity inventories
$

 
$
381

 
$

 
$
381

Other precious metal liabilities
11,481

 

 

 
11,481

Total
$
11,481

 
$
381<