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EX-32.2 - EXHIBIT 32.2 SPLP PRINCIPAL FINANCIAL OFFICER 906 CERTIFICATION - STEEL PARTNERS HOLDINGS L.P.ex322splp6301710q.htm
EX-32.1 - EXHIBIT 32.1 SPLP PRINCIPAL EXECUTIVE OFFICER 906 CERTIFICATION - STEEL PARTNERS HOLDINGS L.P.ex321splp6301710q.htm
EX-31.2 - EXHIBIT 31.2 SPLP PRINCIPAL FINANCIAL OFFICER 302 CERTIFICATION - STEEL PARTNERS HOLDINGS L.P.ex312splp6301710q.htm
EX-31.1 - EXHIBIT 31.1 SPLP PRINCIPAL EXECUTIVE OFFICER 302 CERTIFICATION - STEEL PARTNERS HOLDINGS L.P.ex311splp6301710-q.htm
 


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

FORM 10-Q

QUARTERLY REPORT

PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2017

Commission File Number: 001-35493

STEEL PARTNERS HOLDINGS L.P.
(Exact name of registrant as specified in its charter)

Delaware
13-3727655
(State of Incorporation)
(I.R.S. Employer Identification No.)
 
 
590 Madison Avenue, 32nd Floor
 
New York, New York
10022
(Address of principal executive offices)
(Zip Code)

(212) 520-2300
(Registrant's telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12-b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o
Smaller reporting company o
(Do not check if a smaller reporting company)
 
 
Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes o No þ

The number of shares outstanding of the Registrant's common units as of August 7, 2017 was 26,016,926.

 



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)
 
June 30, 2017
 
December 31, 2016
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
337,816

 
$
450,128

Restricted cash
13,979

 
12,640

Marketable securities
46,179

 
53,650

Trade and other receivables - net of allowance for doubtful accounts of $3,209 and $3,040, respectively
205,866

 
162,883

Receivables from related parties
464

 
328

Loans receivable, including loans held for sale of $138,133 and $80,692, respectively, net
152,556

 
91,260

Inventories, net
131,284

 
119,205

Prepaid expenses and other current assets
19,982

 
17,638

Assets held for sale
2,549

 
7,779

Total current assets
910,675

 
915,511

Long-term loans receivable, net
72,481

 
62,188

Goodwill
169,891

 
167,423

Other intangible assets, net
212,634

 
227,212

Deferred tax assets
176,296

 
182,605

Other non-current assets
45,974

 
30,698

Property, plant and equipment, net
264,393

 
261,412

Long-term investments
139,461

 
120,066

Total Assets
$
1,991,805

 
$
1,967,115

LIABILITIES AND CAPITAL
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
104,352

 
$
89,308

Accrued liabilities
72,765

 
81,509

Financial instruments
13,979

 
12,640

Deposits
184,655

 
196,944

Payables to related parties
1,060

 
1,066

Short-term debt
1,484

 
1,385

Current portion of long-term debt
57,158

 
62,928

Other current liabilities
20,924

 
19,536

Liabilities of discontinued operations
450

 
450

Total current liabilities
456,827

 
465,766

Long-term deposits
173,733

 
168,661

Long-term debt
330,670

 
330,126

Preferred unit liability
63,683

 

Accrued pension liabilities
276,748

 
284,901

Deferred tax liabilities
2,867

 
3,729

Other non-current liabilities
14,853

 
9,674

Total Liabilities
1,319,381

 
1,262,857

Commitments and Contingencies


 


Capital:
 
 
 
Partners' capital common units: 26,016,926 and 26,152,976 issued and outstanding (after deducting 10,718,072 and 10,558,687 units held in treasury, at cost of $167,885 and $164,900), respectively
648,169

 
617,502

Accumulated other comprehensive loss
(52,464
)
 
(68,761
)
Total partners' capital
595,705

 
548,741

Noncontrolling interests in consolidated entities
76,719

 
155,517

Total Capital
672,424

 
704,258

Total Liabilities and Capital
$
1,991,805

 
$
1,967,115


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 June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Revenue:
 
 
 
 
 
 
 
Diversified industrial net sales
$
303,816

 
$
241,472

 
$
584,030

 
$
448,072

Energy net revenue
34,035

 
21,715

 
61,351

 
41,714

Financial services revenue
20,540

 
18,215

 
36,329

 
38,409

Total revenue
358,391

 
281,402

 
681,710

 
528,195

Costs and expenses:
 
 
 
 
 
 
 
Cost of goods sold
247,355

 
198,015

 
475,968

 
368,938

Selling, general and administrative expenses
78,529

 
63,882

 
169,051

 
125,187

Asset impairment charges

 
7,000

 

 
8,470

Finance interest expense
1,060

 
663

 
1,941

 
1,192

Provision for loan losses
965

 
197

 
1,088

 
435

Interest expense
4,893

 
2,332

 
9,299

 
4,365

Realized and unrealized (gain) loss on derivatives
(285
)
 
416

 
75

 
539

Other (income) expenses, net
(192
)
 
(5,530
)
 
776

 
(6,875
)
Total costs and expenses
332,325

 
266,975

 
658,198

 
502,251

Income before income taxes, equity method (income) loss and other investments held at fair value
26,066

 
14,427

 
23,512

 
25,944

Income tax provision
10,416

 
6,288

 
17,262

 
10,023

(Income) loss of associated companies and other investments held at fair value, net of taxes
(68
)
 
(1,720
)
 
(6,370
)
 
3,718

Net income
15,718

 
9,859

 
12,620

 
12,203

Net income attributable to noncontrolling interests in consolidated entities
(4,465
)
 
(650
)
 
(5,449
)
 
(1,032
)
Net income attributable to common unitholders
$
11,253

 
$
9,209

 
$
7,171

 
$
11,171

Net income per common unit - basic
 
 
 
 
 
 
 
Net income attributable to common unitholders
$
0.43

 
$
0.35

 
$
0.27

 
$
0.42

Net income per common unit - diluted
 
 
 
 
 
 
 
Net income attributable to common unitholders
$
0.41

 
$
0.35

 
$
0.27

 
$
0.42

Weighted-average number of common units outstanding - basic
26,038,548

 
26,480,628

 
26,091,833

 
26,556,659

Weighted-average number of common units outstanding - diluted
29,763,796

 
26,480,628

 
26,412,487

 
26,556,659


See accompanying Notes to Consolidated Financial Statements

3


STEEL PARTNERS HOLDINGS L.P.
Consolidated Statements of Comprehensive Income
(unaudited)
(in thousands)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Net income
$
15,718

 
$
9,859

 
$
12,620

 
$
12,203

Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
Gross unrealized (losses) gains on available-for-sale securities
(4,090
)
 
7,763

 
13,606

 
13,564

Reclassification of unrealized (gains) losses on available-for-sale securities (a)
(408
)
 
(305
)
 
(273
)
 
706

Gross unrealized gains (losses) on derivative financial instruments
155

 
(805
)
 
462

 
(2,169
)
Currency translation adjustments
1,786

 
(898
)
 
3,013

 
(3,167
)
Change in pension liabilities and other post-retirement benefit obligations
97

 
161

 
97

 
341

Other comprehensive (loss) income
(2,460
)
 
5,916

 
16,905

 
9,275

Comprehensive income
13,258

 
15,775

 
29,525

 
21,478

Comprehensive income attributable to noncontrolling interests
(4,841
)
 
(279
)
 
(6,905
)
 
(1,906
)
Comprehensive income attributable to common unitholders
$
8,417

 
$
15,496

 
$
22,620

 
$
19,572

 
 
 
 
 
 
 
 
Tax (benefit) provision on gross unrealized (losses) gains on available-for-sale securities
$
(752
)
 
$
(414
)
 
$
2,632

 
$
572

Tax (benefit) provision on reclassification of unrealized (gains) losses on available-for-sale securities
$
(240
)
 
$
(176
)
 
$
(160
)
 
$
402

Tax benefit on foreign currency translation adjustments
$
(299
)
 
$
(436
)
 
$
(291
)
 
$
(460
)
Tax provision on change in pension liabilities and other post-retirement benefit obligations
$
57

 
$

 
$
57

 
$

(a)
For the three months ended June 30, 2017, unrealized holding gains of $648 were reclassified to Other (income) expenses, net. For the three months ended June 30, 2016, unrealized holding gains of $481 were reclassified to Other (income) expenses, net. For the six months ended June 30, 2017, net unrealized holding gains of $433 were reclassified to Other (income) expenses, net. For the six months ended June 30, 2016, unrealized holding gains of $362 and unrealized holding losses of $1,470 were reclassified to Other (income) expenses, net and Asset impairment charges, respectively.

See accompanying Notes to Consolidated Financial Statements

4


STEEL PARTNERS HOLDINGS L.P.
Consolidated Statement of Changes in Capital
(unaudited)
(in thousands, except common units and treasury units)
 
Steel Partners Holdings L.P. Common Unitholders
 
 
 
 
 
Common
 
Treasury Units
 
Partners'
 
Accumulated Other Comprehensive
 
Total Partners'
 
Noncontrolling Interests in Consolidated
 
Total
 
Units
 
Units
 
Dollars
 
Capital
 
Loss
 
Capital
 
Entities
 
Capital
Balance at December 31, 2016
36,711,663

 
(10,558,687
)
 
$
(164,900
)
 
$
617,502

 
$
(68,761
)
 
$
548,741

 
$
155,517

 
$
704,258

Net income

 

 

 
7,171

 

 
7,171

 
5,449

 
12,620

Unrealized gains on available-for-sale securities

 

 

 

 
12,522

 
12,522

 
811

 
13,333

Unrealized gains derivative financial instruments

 

 

 

 
411

 
411

 
51

 
462

Currency translation adjustments

 

 

 

 
2,448

 
2,448

 
565

 
3,013

Changes in pension liabilities and other post-retirement benefit obligations

 

 

 

 
68

 
68

 
29

 
97

Equity compensation - incentive units and vesting of restricted units
23,335

 

 

 
5,267

 

 
5,267

 

 
5,267

Equity compensation - subsidiaries

 

 

 
502

 

 
502

 
282

 
784

Purchases of SPLP common units

 
(159,385
)
 
(2,985
)
 
(2,985
)
 

 
(2,985
)
 

 
(2,985
)
Purchases of subsidiary shares from noncontrolling interests

 

 

 
20,649

 
848

 
21,497

 
(87,086
)
 
(65,589
)
Other, net

 

 

 
63

 

 
63

 
1,101

 
1,164

Balance at June 30, 2017
36,734,998

 
(10,718,072
)
 
$
(167,885
)
 
$
648,169

 
$
(52,464
)
 
$
595,705

 
$
76,719

 
$
672,424


See accompanying Notes to Consolidated Financial Statements

5


STEEL PARTNERS HOLDINGS L.P.
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
 
Six Months Ended June 30,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net income
$
12,620

 
$
12,203

Adjustments to reconcile net income to net cash (used in) provided by operating activities:
 
 
 
Provision for loan losses
1,088

 
435

(Income) loss of associated companies and other investments held at fair value, net of taxes
(6,370
)
 
3,718

Deferred income taxes
3,607

 
5,376

Depreciation and amortization
35,708

 
27,329

Stock-based compensation
6,420

 
2,211

Asset impairment charges

 
9,328

Other
1,717

 
(2,156
)
Net change in operating assets and liabilities:
 
 
 
Trade and other receivables
(40,464
)
 
(30,994
)
Inventories
(11,262
)
 
(3,669
)
Prepaid expenses and other current assets
(5,725
)
 
(3,748
)
Accounts payable, accrued and other current liabilities
(5,953
)
 
7,635

Net (increase) decrease in loans held for sale
(57,441
)
 
75,839

Net cash (used in) provided by operating activities
(66,055
)
 
103,507

Cash flows from investing activities:
 
 
 
Purchases of investments
(22,508
)
 
(18,518
)
Proceeds from sales of investments
14,691

 
67,028

Proceeds from maturities of marketable securities
7,292

 
1,230

Loan originations, net of collections
(25,679
)
 
3,662

Purchases of property, plant and equipment
(24,990
)
 
(11,450
)
Reclassification of restricted cash
(1,339
)
 
9,783

Proceeds from sales of assets
22,829

 
2,697

Acquisitions, net of cash acquired
(2,008
)
 
(117,206
)
Proceeds from divestitures
1,975

 
6,644

Other
(19
)
 
(352
)
Net cash used in investing activities
(29,756
)
 
(56,482
)
Cash flows from financing activities:
 
 
 
Net revolver (repayments) borrowings
(3,987
)
 
127,864

Net repayments of term loans – domestic
(753
)
 
(640
)
Net repayments of term loans – foreign
(1,016
)
 
(161
)
Proceeds from equipment lease financing
5,377

 

Purchases of the Company's common units
(2,985
)
 
(7,297
)
Subsidiaries' purchases of their common stock

 
(20,666
)
Purchase of subsidiary shares from noncontrolling interests
(2,086
)
 

Common unit dividend payment
(3,923
)
 

Net (decrease) increase in deposits
(7,216
)
 
37,933

Other
(656
)
 
(2,005
)
Net cash (used in) provided by financing activities
(17,245
)
 
135,028

Net change for the period
(113,056
)
 
182,053

Effect of exchange rate changes on cash and cash equivalents
744

 
(473
)
Cash and cash equivalents at beginning of period
450,128

 
185,852

Cash and cash equivalents at end of period
$
337,816

 
$
367,432


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, and per share and per unit 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, associated companies and other interests. It owns and operates businesses and has significant interests in companies in various industries, including diversified industrial products, energy, defense, supply chain management and logistics, banking and youth sports. SPLP operates through the following segments: Diversified Industrial, Energy, Financial Services, and Corporate and Other, which are managed separately and offer different products and services. For additional details related to the Company's reportable segments see Note 17 - "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 16 - "Related Party Transactions."

Basis of Presentation

The consolidated balance sheet as of December 31, 2016, which has been derived from audited financial statements, and the unaudited consolidated financial statements included herein have been prepared by the Company in accordance with the rules and regulations of the Securities and Exchange Commission for interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") have been condensed or omitted in accordance with those rules and regulations. The Company believes that the disclosures made are adequate to make the information not misleading. This quarterly report on Form 10-Q should be read in conjunction with the Company's audited consolidated financial statements on Form 10-K for the year ended December 31, 2016. Certain amounts for the prior year have been reclassified to conform to the current year presentation.

In the opinion of management, the interim financial statements reflect all normal and recurring adjustments necessary to present fairly the consolidated financial position and the results of operations and changes in cash flows for the interim periods. The preparation of the consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Estimates are based on historical experience, expected future cash flows and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The results of operations for the three and six months ended June 30, 2017 are not necessarily indicative of the operating results for the full year.

The consolidated financial statements include the accounts of the Company and its majority or wholly-owned subsidiaries, which include the following:
 
Ownership as of
 
June 30, 2017
 
December 31, 2016
BNS Holdings Liquidating Trust ("BNS Liquidating Trust")
84.9
%
 
84.9
%
DGT Holdings Corp.
100.0
%
 
100.0
%
Handy & Harman Ltd. ("HNH")
70.0
%
 
69.9
%
Steel Services Ltd ("Steel Services")
100.0
%
 
100.0
%
Steel Excel Inc. ("Steel Excel") (a)
100.0
%
 
64.2
%
WebFinancial Holding Corporation ("WFHC") (b)
91.2
%
 
91.2
%
(a)
The Company acquired the remaining noncontrolling interest in Steel Excel during the first quarter of 2017. See Note 11 - "Capital and Accumulated Other Comprehensive Loss" for additional information.
(b)
WFHC owns 100% of WebBank and 100% of WebFinancial Holding LLC ("WFH LLC") (formerly CoSine Communications, Inc. ("CoSine")), which operates through its subsidiary API Group plc ("API").

On June 26, 2017, SPLP and Handy Acquisition Co., a Delaware corporation and a wholly-owned subsidiary of SPLP ("Merger Sub") entered into an Agreement and Plan of Merger ("Merger Agreement") with HNH, pursuant to which, among other things, SPLP and Merger Sub will make a tender offer ("Offer") to purchase any and all of the outstanding shares of common

7


stock, par value $0.01 per share ("Shares"), of HNH not already owned by SPLP or any entity that is an affiliate of SPLP, for 1.484 6.0% Series A preferred units, no par value ("SPLP Preferred Units"), of SPLP that currently trade on the New York Stock Exchange for each Share ("Offer Price"). SPH Group Holdings LLC, a wholly-owned subsidiary of SPLP, beneficially owns approximately 70.0% of the outstanding Shares.

Merger Sub's obligation to accept for payment and SPLP's obligation to pay for Shares pursuant to the Offer is subject to various conditions, including (a) a nonwaivable condition that there be validly tendered and not withdrawn prior to the expiration of the Offer that number of Shares that, when added to the Shares already owned by SPLP and its subsidiaries, would represent at least a majority of all then outstanding Shares, (b) a nonwaivable condition that there be validly tendered and not withdrawn prior to the expiration of the Offer that number of Shares that would represent at least a majority of all then outstanding Shares not owned by SPLP or any of its affiliates, (c) the SPLP Preferred Units issuable in the Offer and the Merger (as defined below) have been authorized for listing on the New York Stock Exchange, (d) Shares held by stockholders that have properly exercised appraisal rights under Delaware law do not exceed ten percent (10%) of the Shares outstanding immediately prior to the expiration of the Offer, and (e) other customary conditions. There is no financing condition to the obligations to consummate the Offer.

The Merger Agreement further provides that upon the terms and subject to the conditions set forth therein, following completion of the Offer, Merger Sub will merge with and into HNH, with HNH continuing as the surviving corporation and as an indirect wholly-owned subsidiary of SPLP ("Merger"). In the Merger, each outstanding Share (other than Shares held by HNH or any of its subsidiaries, SPLP, Merger Sub or any other subsidiary of SPLP, or held by stockholders who are entitled to demand, and who properly demand, appraisal rights under Delaware law), will be converted into the right to receive the Offer Price, without interest. The Merger is subject to the following closing conditions: (i) Merger Sub having accepted for payment all Shares validly tendered and not withdrawn in the Offer and (ii) there being in effect no law or order which makes the Merger illegal or otherwise prohibits the consummation of the Merger.

The Merger Agreement includes customary representations, warranties and covenants of HNH, SPLP and Merger Sub, including, among other things, a covenant of HNH not to solicit alternative transactions or to provide information or enter into discussions in connection with alternative transactions, subject to certain exceptions to allow the Board of Directors of HNH to exercise its fiduciary duties. The Merger Agreement may be terminated under certain circumstances, including in connection with superior proposals as set forth therein. If HNH terminates the Merger Agreement to enter into an agreement for a superior proposal and in other specified circumstances, it would be required to pay SPLP a $3,800 termination fee and its transaction expenses up to $1,000.

New or Recently Adopted Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, and the guidance defines a five step process to achieve this core principle. ASU No. 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenues and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASU No. 2015-14, which deferred the effective date of ASU No. 2014-09 by one year. ASU No. 2014-09 is effective for the Company's 2018 fiscal year and may be applied either (i) retrospectively to each prior reporting period presented with an election for certain specified practical expedients, or (ii) retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application, with additional disclosure requirements. The Company expects to confirm its method of adoption by the period ended September 30, 2017 and will include any known quantitative information on transition method impact. The Company will complete its assessment of the full financial impact of ASU No. 2014-09 during the next six months and will adopt ASU No. 2014-09 when it becomes effective for the Company on January 1, 2018.

The Company is in the process of evaluating the qualitative and quantitative disclosure guidance of ASU No. 2014-09 for possible enhancements to the Company's consolidated financial statements that will enable users to better understand the nature, amount, timing and uncertainty of revenues and cash flows arising from contracts with customers. The Company is also in the process of assessing and implementing appropriate changes to its business processes and controls to support revenue recognition and disclosures under the new standard. The Company expects that the adoption of ASU No. 2014-09 will have an impact on its business processes, financial reporting disclosures and internal controls over financial reporting. As part of the assessment performed through the date of this filing, the Company has implemented a cross-functional team consisting of representatives from across its businesses, and the Company is progressing towards the completion of the diagnostic assessment of the impact of the standard, including review of customer contracts, as well as the Company's current accounting policies and procedures to identify where

8


there may be potential differences to its revenue that may result from applying ASU No. 2014-09. As part of the implementation, the Company has developed an implementation project plan that will allow the Company to adopt the new revenue accounting standard on its effective date.

The Company's implementation plan includes the development of a phased project plan, an understanding of the new standard and its requirements, assessment of the Company's revenue streams and specific contracts in the streams. Additionally, the Company continues to monitor modifications, clarifications and interpretations issued by the FASB that may impact its assessment. The Company continues to assess the impact of ASU No. 2014-09 on the costs to acquire and fulfill its customer contracts, including whether the Company can apply the practical expedient of expensing contract costs when incurred if the amortization period of the asset that it would have recognized is one year or less. Currently, the Company's accounting policy is to expense contract costs as they are incurred.

Significant assessment and implementation matters to be addressed prior to adopting ASU No. 2014-09 include completing a review of customer contracts, determining the impact the new accounting standard will have on the Company's consolidated financial statements and related disclosures, and updating, as needed, the Company's business processes, systems and controls required to comply with ASU No. 2014-09 upon its effective date of January 1, 2018. The Company will update the implementation status related to the impact of ASU No. 2014-09 on the consolidated financial statements and related footnotes in the future quarterly and year-end disclosures. Upon completion of the Company's implementation plan and evaluation of the remaining revenue contracts, the Company may adopt additional internal control procedures over financial reporting and its business processes for any new revenue arrangements that the Company enters.

In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, which requires an entity to measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The amendments do not apply to inventory that is measured using the last in, first out ("LIFO") cost method. On January 1, 2017, the Company began applying the inventory measurement provisions of the new ASU, and such provisions did not have and are not expected to have a material impact on the Company's consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10), which eliminates the requirement to classify equity securities with readily determinable market values as either available-for-sale securities or trading securities, and requires that equity investments, other than those accounted for under the traditional equity method of accounting, be measured at their fair value with changes in fair value recognized in net income or loss. Equity investments that do not have readily determinable market values may be measured at cost, subject to an assessment for impairment. ASU No. 2016-01 also requires enhanced disclosures about such equity investments. ASU No. 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption prohibited. Upon adoption, a reporting entity should apply the provisions of ASU No. 2016-01 by means of a cumulative effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The Company is evaluating the potential impact on its consolidated financial statements of adopting ASU No. 2016-01.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard establishes a right-of-use ("ROU") model that requires a lessee to record a ROU asset and a lease liability, measured on a discounted basis, on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of operations. A modified retrospective transition approach is required for capital and operating leases existing at the date of adoption, with certain practical expedients available. The Company is currently evaluating the potential impact of this new guidance, which is effective for the Company's 2019 fiscal year.

In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This new standard simplifies the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification in the statement of cash flows, among other things. The new standard is effective for the Company's 2017 fiscal year, and the Company has adopted its provisions as of January 1, 2017. The impacts of certain amendments in ASU No. 2016-09, such as those related to the treatment of tax windfalls from stock-based compensation that are included in net operating loss carryforwards and elections made for accounting for forfeitures, are required to be adopted on a modified retrospective basis through a cumulative-effect adjustment to partners' capital. Upon adoption, on January 1, 2017, the Company recorded a deferred tax asset of approximately $4,600 and a corresponding valuation allowance resulting in no net impact on Partners' capital. In addition, the Company elected to continue to estimate forfeitures under its current policy, therefore, there was no modified retrospective adjustment required for accounting for forfeitures upon adoption. The other provisions of ASU No. 2016-09, such as classification of certain items in the statement of cash flows, are being applied in 2017, with reclassification of prior period amounts where applicable.

9



In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The new standard changes the impairment model for most financial assets that are measured at amortized cost and certain other instruments, including trade receivables, from an incurred loss model to an expected loss model and adds certain new required disclosures. Under the expected loss model, entities will recognize estimated credit losses to be incurred over the entire contractual term of the instrument rather than delaying recognition of credit losses until it is probable the loss has been incurred. The new standard is effective for the Company's 2020 fiscal year with early adoption permitted for all entities in fiscal years beginning after December 15, 2018. The Company is currently evaluating the potential impact of this new guidance.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This new standard provides guidance to help decrease diversity in practice in how certain cash receipts and cash payments are classified in the statement of cash flows. The amendments in ASU No. 2016-15 provide guidance on eight specific cash flow issues. The new standard is effective for the Company's 2018 fiscal year. The Company is currently evaluating the potential impact of this new guidance.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. This new standard provides guidance on the classification of restricted cash in the statement of cash flows. The amendments in ASU No. 2016-18 are effective for the Company's 2018 fiscal year. The Company is currently evaluating the potential impact of this new guidance.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This new standard provides guidance to help determine more clearly what is a business acquisition, as opposed to an asset acquisition. The amendments provide a screen to help determine when a set of components is a business by reducing the number of transactions in an acquisition that need to be evaluated. The new standard states that to classify the acquisition of assets as a business, there must be an input and a substantive process that jointly contribute to the ability to create outputs, with outputs being defined as the key elements of the business. If all of the fair value of the assets acquired are concentrated in a single asset group, this would not qualify as a business. The amendments in ASU No. 2017-01 are effective for the Company's 2018 fiscal year. The Company is currently evaluating the potential impact of this new guidance.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This new standard simplifies subsequent measurements of goodwill by eliminating Step 2 from the goodwill impairment test. Instead, entities will perform their interim or annual goodwill impairment testing by comparing the fair value of a reporting unit with its carrying amount and recognizing an impairment charge based on the amount that the carrying amount exceeds the reporting unit's fair value. The loss recognized should not exceed the total goodwill allocated to the reporting unit. The amendments in ASU No. 2017-04 are effective for the Company's 2020 fiscal year. The Company is currently evaluating the potential impact of this new guidance.

In March 2017, the FASB issued ASU No. 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This new standard requires the components of net benefit cost to be disaggregated within the statement of operations, with service cost being included in the same line item as other compensation costs, and any other components being presented outside of operating income. The amendments in ASU No. 2017-07 are effective for the Company's 2018 fiscal year. The Company is currently evaluating the potential impact of this guidance.

In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting. This new standard provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The standard states that entities should account for the effects of a modification unless the fair value of the modified award is the same as the fair value of the original award, the vesting conditions do not change, and the classification as an equity instrument or a liability instrument is the same. The amendments in ASU No. 2017-09 are effective for the Company's 2018 fiscal year. The Company is currently evaluating the potential impact of this new guidance.

2. ACQUISITIONS

2017 Acquisition

On May 19, 2017, Steel Excel acquired an 80% interest in Basin Well Logging Wireline Services, Inc. ("Basin") located in Farmington, New Mexico for approximately $5,100. Basin provides wireline services to major oil and gas exploration and

10


production companies in the U.S. and specializes in cased-hole wireline logging and perforating services for exploration and production companies with wells in New Mexico, Texas, Utah, Arizona and Colorado. In connection with the Basin acquisition, which was not material to SPLP's operations, goodwill totaling approximately $1,224 was recorded on a preliminary basis as of June 30, 2017.

2016 Acquisitions

HNH's Acquisition of EME

On September 30, 2016, SL Montevideo Technology, Inc. ("SMTI"), a subsidiary of SL Industries, Inc. ("SLI") (which was acquired by HNH in June 2016 as discussed further below), entered into an asset purchase agreement ("Purchase Agreement") with Hamilton Sundstrand Corporation ("Hamilton"). Pursuant to the Purchase Agreement, SMTI acquired from Hamilton certain assets of its Electromagnetic Enterprise division ("EME") used or useful in the design, development, manufacture, marketing, service, distribution, repair, and sale of electric motors, starters and generators for certain commercial applications, including for use in commercial hybrid electric vehicles and refrigeration and in the aerospace and defense sectors. The acquisition of EME expands SLI's product portfolio and diversifies its customer base. SMTI purchased the acquired net assets for $60,329 in cash and assumption of certain ordinary course business liabilities, subject to adjustments related to working capital at closing and quality of earnings of the acquired business for the period of January 1, 2016 to June 30, 2016, each as provided in the Purchase Agreement, including a reduction of approximately $2,200 received during the six months ended June 30, 2017. The Purchase Agreement includes a guarantee by Hamilton of a minimum level of product purchases from SMTI by an affiliate of Hamilton for calendar years 2017, 2018 and 2019, in exchange for compliance by SMTI with certain operating covenants. The transaction was financed with additional borrowings under HNH's senior secured revolving credit facility. The following table summarizes the amounts of the assets acquired and liabilities assumed at the acquisition date:
 
Amount
Assets:
 
Trade and other receivables
$
4,249

Inventories
3,047

Prepaid expenses and other current assets
265

Property, plant and equipment
2,321

Goodwill
30,994

Other intangible assets
28,370

Total assets acquired
69,246

Liabilities:
 
Accounts payable
6,036

Accrued liabilities
2,881

Total liabilities assumed
8,917

Net assets acquired
$
60,329


The goodwill of $30,994 arising from the acquisition consists largely of the synergies expected from combining the operations of SLI and EME. The goodwill is assigned to the Company's Diversified Industrial segment and is expected to be deductible for income tax purposes. Other intangible assets consist of customer relationships of approximately $27,200 and customer order backlog of approximately $1,200. The customer order backlog was amortized based on the expected period over which the orders were fulfilled of four months. The customer relationships have been assigned a useful life of 15 years based on the limited turnover and long-standing relationships EME has with its existing customer base. The acquired customer relationships were valued using an excess earnings approach, and significant assumptions used in the valuation included the customer attrition rate assumed and the expected level of future sales. The amount of net sales and operating income of the acquired business included in the Company's consolidated statement of operations for the three months ended June 30, 2017 were approximately $11,000 and $1,000, respectively. The amount of net sales and operating income of the acquired business included in the Company's consolidated statement of operations for the six months ended June 30, 2017 were approximately $27,500 and $2,300, respectively. The results of operations are reported within the Company's Diversified Industrial segment.

API's Acquisitions of AMP and Hazen

On December 1, 2016, API acquired the manufacturing assets and business of Amsterdam Metallized Products B.V. ("AMP") in the Netherlands for approximately $7,800. AMP is a leading global provider of packaging technologies for brand enhancement. The acquisition, which is not material to SPLP's operations, is part of API's strategy to further strengthen its brand enhancement mission of utilizing high-end material substrates for luxury packaging and other niche markets, adding new products

11


to API's offerings and providing an entry point into new packaging sectors. In connection with the AMP acquisition, the Company has recorded inventories, property, plant and equipment, other intangible assets (primarily customer relationships) and goodwill totaling approximately $1,500, $1,900, $1,400 and $3,000, respectively.

On July 27, 2016, API acquired Hazen Paper Company's ("Hazen") lamination facility and business in Osgood, Indiana for approximately $14,000. The acquisition, which is not material to SPLP's operations, was part of API's strategy to focus on brand enhancement solutions for the packaging market, and it enables API to provide a combined foils and laminate offering to customers in the U.S., while giving broader coverage for its global customers. In connection with the Hazen acquisition, the Company has recorded inventories, property, plant and equipment, other intangible assets (primarily customer relationships) and goodwill totaling approximately $1,000, $6,200, $2,700 and $4,100, respectively.

HNH's Acquisition of SLI

On April 6, 2016, HNH entered into a definitive merger agreement with SLI, pursuant to which it commenced a cash tender offer to purchase all the outstanding shares of SLI's common stock, at a purchase price of $40.00 per share in cash ("SLI Offer"). SLI designs, manufactures and markets power electronics, motion control, power protection, power quality electromagnetic equipment, and custom gears and gearboxes used in a variety of medical, commercial and military aerospace, computer, datacom, industrial, architectural and entertainment lighting, and telecom applications. Consummation of the SLI Offer was subject to certain conditions, including the tender of a number of shares that constituted at least (1) a majority of SLI's outstanding shares and (2) 60% of SLI's outstanding shares not owned by HNH or any of its affiliates, as well as other customary conditions. SPLP beneficially owned approximately 25.1% of SLI's outstanding shares at the time of the SLI Offer.

On June 1, 2016, the conditions noted above, as well as all other conditions to the SLI Offer were satisfied, and HNH successfully completed its tender offer through a wholly-owned subsidiary. Pursuant to the terms of the merger agreement, the wholly-owned subsidiary merged with and into SLI, with SLI being the surviving corporation ("SLI Merger"). Upon completion of the SLI Merger, SLI became a wholly-owned subsidiary of HNH.

The aggregate merger consideration was $161,985, excluding related transaction fees and expenses. The merger consideration represents the aggregate cash merger consideration of $122,191 paid by HNH to non-affiliates and the fair value of SPLP's previously held interest in SLI of $39,794, which represented the Company's previously held equity interest at a value of $40.00 per share. The funds necessary to consummate the SLI Offer, the SLI Merger and to pay related fees and expenses were financed with additional borrowings under HNH's senior secured revolving credit facility. The following table summarizes the amounts of the assets acquired and liabilities assumed at the acquisition date:
 
Amount
Assets:
 
Cash and cash equivalents
$
4,985

Trade and other receivables
32,680

Inventories
24,295

Prepaid expenses and other current assets
8,258

Property, plant and equipment
23,950

Goodwill
54,231

Other intangible assets
92,326

Other non-current assets
257

Total assets acquired
240,982

Liabilities:
 
Accounts payable
18,433

Accrued liabilities
21,306

Long-term debt
9,500

Deferred tax liabilities
23,567

Other non-current liabilities
6,191

Total liabilities assumed
78,997

Net assets acquired
$
161,985


The goodwill of $54,231 arising from the acquisition consists largely of the synergies expected from combining the operations of HNH and SLI. The goodwill is assigned to the Company's Diversified Industrial segment and is not expected to be deductible for income tax purposes. Other intangible assets consist primarily of acquired trade names of approximately $14,700, customer relationships of approximately $59,900, developed technology and patents of approximately $10,700 and customer order

12


backlog of approximately $6,900. The customer order backlog was amortized based on the expected period over which the orders were fulfilled, ranging from two to eight months. The remaining intangible assets have been assigned useful lives ranging from 10 to 15 years based on the long operating history, broad market recognition and continued demand for the associated brands, and the limited turnover and long-standing relationships SLI has with its existing customer base. The valuations of acquired trade names, developed technology and patents were performed utilizing a relief from royalty method, and significant assumptions used in the valuation included the royalty rate assumed and the expected level of future sales, as well as the rate of technical obsolescence for the developed technology and patents. The acquired customer relationships were valued using an excess earnings approach, and significant assumptions used in the valuation included the customer attrition rate assumed and the expected level of future sales. Included in Accrued liabilities and Other non-current liabilities above was a total of $10,900 for existing and contingent liabilities relating to SLI's environmental matters, which are further discussed in Note 15 - "Commitments and Contingencies." The amount of net sales and operating income of the acquired business included in the Company's consolidated statement of operations for the three months ended June 30, 2017 were approximately $50,500 and $5,400, respectively. The amount of net sales and operating income of the acquired business included in the Company's consolidated statement of operations for the six months ended June 30, 2017 were approximately $95,400 and $7,800, respectively. The amount of net sales and operating loss of the acquired business included in the consolidated statements of operations for both the three and six months ended June 30, 2016 were approximately $11,800 and $3,300. The operating loss in 2016 included $1,900 of expenses associated with the acceleration of SLI's previously outstanding stock-based compensation awards, which became fully vested on the date of acquisition pursuant to the terms of the merger agreement, and which are included in Selling, general and administrative expenses ("SG&A") in the 2016 consolidated statements of operations. The results of operations are reported within the Company's Diversified Industrial segment.

Pro Forma Disclosures

Unaudited pro forma revenue and net income attributable to common unitholders of the combined entities is presented below as if SLI and EME had both been acquired January 1, 2015.
 
Six Months Ended June 30,
 
2016
Total revenue
$
644,481

Net income attributable to common unitholders
$
6,285

Net income attributable to common unit holders per common unit - basic and diluted
$
0.24


This unaudited pro forma data is presented for informational purposes only and does not purport to be indicative of the results of future operations or of the results that would have occurred had the SLI and EME acquisitions taken place on January 1, 2015. The information for the six months ended June 30, 2016 is based on historical financial information with respect to the acquisitions and does not include operational or other changes which might have been effected by the Company. The unaudited pro forma earnings were adjusted to reflect incremental depreciation and amortization expense based on the fair value adjustments for the acquired property, plant and equipment and intangible assets, which are amortized using the double-declining balance method for customer relationships and the straight line method for other intangibles, over periods principally ranging from 10 to 15 years. The unaudited pro forma earnings were also adjusted to reflect incremental interest expense on the borrowings made to finance the acquisitions, and to exclude acquisition-related costs incurred by both the Company and the acquired entities during the period presented.

3. DIVESTITURES AND ASSET IMPAIRMENT CHARGES

Divestitures

In the second quarter of 2017, API sold a facility in Salford, UK for approximately $5,000 and recorded a gain on sale of approximately $450, which is recorded in Other (income) expenses, net in the Company's consolidated statements of operations. Also, in the first quarter of 2017, API sold a facility in Rahway, N.J. for approximately $7,500 and recorded a gain on sale of approximately $200, which is recorded in Other (income) expenses, net in the Company's consolidated statements of operations.

In January 2017, HNH sold its Micro-Tube Fabricators, Inc. business ("MTF") for approximately $2,500 and recorded a loss on sale of $400, which is included in Other (income) expenses, net in the Company's consolidated statements of operations. MTF specialized in the production of precision fabricated tubular components produced for medical device, aerospace, aircraft, automotive and electronic applications, and it was included in the Company's Diversified Industrial segment. The price was payable $2,000 in cash at closing and a $500 subordinated promissory note to HNH bearing 5% interest annually. Half the note will be paid to HNH 6-months after closing and the remainder paid 1-year after closing. In addition, HNH may receive up to $1,000 of

13


additional contingent consideration if certain sales volume milestones are met between the sale date and December 31, 2019. The operations of MTF were not significant to the Company's consolidated financial statements.

In April 2016, API sold its security holographics business for approximately $8,000 and recorded a gain of approximately $2,800, which is recorded in Other (income) expenses, net in the Company's consolidated statements of operations. API's security holographics business created custom optical security solutions to protect secure documents and premium products against counterfeit and fraud, and it was included in the Company's Diversified Industrial segment. The sale was part of API's strategy to focus on its decorative holographic offerings for the packaging market. The operations of this business were not significant to the Company's consolidated financial statements.

Asset Impairment Charges

In connection with HNH's integration of JPS Industries, Inc. ("JPS") after its acquisition in July 2015, HNH approved the closure of JPS' Slater, South Carolina operating facility during the second quarter of 2016 and recorded impairment charges totaling $7,900 associated with the planned closure, including write-downs of $6,600 to property, plant and equipment and $400 to intangible assets, as well as a $900 inventory write-down, which was recorded in Cost of goods sold in the Company's consolidated statements of operations.

In the six months ended June 30, 2016, the Company recorded non-cash asset impairment charges of $1,470 related to other-than-temporary impairments on certain investments. This determination was based on several factors, including adverse changes in the market conditions and economic environments in which the entities operate. For additional information, see Note 7 - "Investments."

4. LOANS RECEIVABLE, INCLUDING LOANS HELD FOR SALE

Major classification of WebBank's loans receivable, including loans held for sale, at June 30, 2017 and December 31, 2016 are as follows:
 
Total
 
Current
 
Non-current
 
June 30, 2017
 
%
 
December 31, 2016
 
%
 
June 30, 2017
 
December 31, 2016
 
June 30, 2017
 
December 31, 2016
Loans held for sale
$
138,133

 


 
$
80,692

 


 
$
138,133

 
$
80,692

 
$

 
$

Real estate loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial – owner occupied
$
323

 
%
 
$
604

 
1
%
 
20

 
43

 
303

 
561

Commercial – other
275

 
%
 
266

 
%
 

 

 
275

 
266

Total real estate loans
598

 
%
 
870

 
1
%
 
20

 
43

 
578

 
827

Commercial and industrial
53,115

 
60
%
 
50,564

 
68
%
 
2,184

 
3,059

 
50,931

 
47,505

Consumer loans
35,374

 
40
%
 
22,805

 
31
%
 
14,402

 
8,949

 
20,972

 
13,856

Total loans
89,087

 
100
%
 
74,239

 
100
%
 
16,606

 
12,051

 
72,481

 
62,188

Less:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses
(2,183
)
 
 
 
(1,483
)
 
 
 
(2,183
)
 
(1,483
)
 

 

Total loans receivable, net
$
86,904

 
 
 
$
72,756

 
 
 
14,423

 
10,568

 
72,481

 
62,188

Loans receivable, including loans held for sale (a)


 
 
 


 
 
 
$
152,556

 
$
91,260

 
$
72,481

 
$
62,188

(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. The fair value of loans receivable, including loans held for sale, net was $226,513 and $153,488 at June 30, 2017 and December 31, 2016, respectively.

Commercial and industrial loans include unaccreted discounts of $403 at June 30, 2017. Consumer loans include unaccreted discounts of $172 at June 30, 2017. Loans with a carrying value of approximately $49,182 and $47,237 were pledged as collateral for potential borrowings at June 30, 2017 and December 31, 2016, respectively. WebBank serviced $3,540 in loans for others at June 30, 2017.

The allowance for loan losses ("ALLL") represents an estimate of probable and estimable losses inherent in the loan portfolio as of the balance sheet date. The amount of the ALLL is established by analyzing the portfolio at least quarterly and a provision for or reduction of loan losses is recorded so that the ALLL is at an appropriate level at the balance sheet date. The increase in the ALLL was due to an increase in existing impaired loans and the addition of a 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, 2016.

14



5. INVENTORIES, NET

A summary of Inventories, net is as follows:
 
June 30, 2017
 
December 31, 2016
Finished products
$
43,923

 
$
42,824

In-process
25,628

 
19,160

Raw materials
44,656

 
42,881

Fine and fabricated precious metal in various stages of completion
17,981

 
15,019

 
132,188

 
119,884

LIFO reserve
(904
)
 
(679
)
Total
$
131,284

 
$
119,205


Fine and Fabricated Precious Metal Inventory

In order to produce certain of its products, HNH purchases, maintains and utilizes precious metal inventory. HNH records certain of its precious metal inventory at the lower of LIFO cost or market, with any adjustments recorded through Cost of goods sold. Remaining precious metal inventory is accounted for primarily at fair value.

Certain customers and suppliers of HNH choose to do business on a "pool" basis and furnish precious metal to HNH for return in fabricated form or for purchase from or return to the supplier. When the customer's precious metal is returned in fabricated form, the customer is charged a fabrication charge. The value of this customer metal is not included on the Company's consolidated balance sheets. To the extent HNH is able to utilize customer precious metal in its production processes, such customer metal replaces the need for HNH to purchase its own inventory. As of June 30, 2017, customer metal in HNH's custody consisted of 139,747 ounces of silver, 513 ounces of gold and 1,391 ounces of palladium.
 
June 30, 2017
 
December 31, 2016
Supplemental inventory information:
 
 
 
Precious metals stated at LIFO cost
$
5,403

 
$
5,001

Precious metals stated under non-LIFO cost methods, primarily at fair value
$
11,674

 
$
9,339

Market value per ounce:
 
 
 
Silver
$
16.64

 
$
16.05

Gold
$
1,242.25

 
$
1,159.10

Palladium
$
841.00

 
$
676.00


6. GOODWILL AND OTHER INTANGIBLE ASSETS, NET

A reconciliation of the change in the carrying value of goodwill by reportable segment is as follows:
 
Diversified Industrial
 
Energy
 
Corporate and Other
 
Total
Balance at December 31, 2016
 
 
 
 
 
 
 
Gross goodwill
$
167,342

 
$

 
$
81

 
$
167,423

Accumulated impairments

 

 

 

Net goodwill
167,342

 

 
81

 
167,423

Acquisitions

 
1,224

 

 
1,224

Impairments

 

 

 

Currency translation adjustments
793

 

 

 
793

Other adjustments
451

 

 

 
451

Balance at June 30, 2017
 
 
 
 
 
 
 
Gross goodwill
168,586

 
1,224

 
81

 
169,891

Accumulated impairments

 

 

 

Net goodwill
$
168,586

 
$
1,224

 
$
81

 
$
169,891


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

15


 
June 30, 2017
 
December 31, 2016
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net
Customer relationships
$
221,633

 
$
69,624

 
$
152,009

 
$
220,890

 
$
57,978

 
$
162,912

Trademarks
52,003

 
13,546

 
38,457

 
51,717

 
11,682

 
40,035

Patents and technology
28,124

 
10,530

 
17,594

 
27,947

 
9,332

 
18,615

Other
16,143

 
11,569

 
4,574

 
16,652

 
11,002

 
5,650

 
$
317,903

 
$
105,269

 
$
212,634

 
$
317,206

 
$
89,994

 
$
227,212


Trademarks with indefinite lives as of both June 30, 2017 and December 31, 2016 were $8,020. Amortization expense related to intangible assets was $7,418 and $4,648 for the three months ended June 30, 2017 and 2016, respectively, and $15,537 and $8,972 for the six months ended June 30, 2017 and 2016, respectively. The increase in amortization expense during 2017 was principally due to the Company's recent acquisitions discussed in Note 2 - "Acquisitions."

7. INVESTMENTS

Short-Term Investments

Marketable Securities

The Company's short-term investments primarily consist of its marketable securities portfolio held by its subsidiary, Steel Excel. These marketable securities as of June 30, 2017 and December 31, 2016 are classified as available-for-sale securities, with changes in fair value recognized in Partners' capital as Other comprehensive income (loss), except for other-than-temporary impairments, which are reflected as a reduction of cost and charged to the consolidated statement of operations. The classification of marketable securities as a current asset is based on the intended holding period and realizability of the investments. The Company's portfolio of marketable securities was as follows:
 
June 30, 2017
 
December 31, 2016
 
Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
 
Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Available-for-sale securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Short-term deposits
$
75,366

 
$

 
$

 
$
75,366

 
$
73,270

 
$

 
$

 
$
73,270

Mutual funds
11,997

 
4,126

 

 
16,123

 
11,997

 
2,279

 

 
14,276

Corporate securities
22,876

 
6,908

 
(734
)
 
29,050

 
17,516

 
4,586

 
(586
)
 
21,516

Corporate obligations
631

 
375

 

 
1,006

 
17,232

 
734

 
(108
)
 
17,858

Total marketable securities
110,870

 
11,409

 
(734
)
 
121,545

 
120,015

 
7,599

 
(694
)
 
126,920

Amounts classified as cash equivalents
(75,366
)
 

 

 
(75,366
)
 
(73,270
)
 

 

 
(73,270
)
Amounts classified as marketable securities
$
35,504

 
$
11,409

 
$
(734
)
 
$
46,179

 
$
46,745

 
$
7,599

 
$
(694
)
 
$
53,650


Proceeds from sales of marketable securities were approximately $13,500 and $12,700 in the three months ended June 30, 2017 and 2016, respectively, and were approximately $14,700 and $44,200 in the six months ended June 30, 2017 and 2016, respectively. The Company determines gains and losses from sales of marketable securities based on specific identification of the securities sold. Gross realized gains and losses from sales of marketable securities, all of which are reported as a component of Other (income) expenses, net in the Company's consolidated statements of operations, were as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Gross realized gains
$
85

 
$
1,938

 
$
96

 
$
2,003

Gross realized losses
(135
)
 
(248
)
 
(362
)
 
(1,641
)
Realized (losses) gains, net
$
(50
)
 
$
1,690

 
$
(266
)
 
$
362


The fair value of marketable securities with unrealized losses at June 30, 2017, and the duration of time that such losses had been unrealized, were as follows:

16


 
Less than 12 Months
 
12 Months or Greater
 
Total
 
Fair Value
 
Gross Unrealized Losses
 
Fair Value
 
Gross Unrealized Losses
 
Fair Value
 
Gross Unrealized Losses
Corporate securities
$
4,304

 
$
(654
)
 
$
298

 
$
(80
)
 
$
4,602

 
$
(734
)
Total
$
4,304

 
$
(654
)
 
$
298

 
$
(80
)
 
$
4,602

 
$
(734
)

The fair value of marketable securities with unrealized losses at December 31, 2016, and the duration of time that such losses had been unrealized, were as follows:
 
Less than 12 Months
 
12 Months or Greater
 
Total
 
Fair Value
 
Gross Unrealized Losses
 
Fair Value
 
Gross Unrealized Losses
 
Fair Value
 
Gross Unrealized Losses
Corporate securities
$
2,316

 
$
(384
)
 
$
662

 
$
(202
)
 
$
2,978

 
$
(586
)
Corporate obligations
12,481

 
(108
)
 

 

 
12,481

 
(108
)
Total
$
14,797

 
$
(492
)
 
$
662

 
$
(202
)
 
$
15,459

 
$
(694
)

The gross unrealized losses primarily related to losses on corporate securities and corporate obligations, which primarily consist of investments in equity and debt securities of publicly-traded entities. Based on the Company's evaluation of similar securities in the first quarter of 2016, it determined that certain unrealized losses represented other-than-temporary impairments. This determination was based on several factors, including adverse changes in the market conditions and economic environments in which the entities operate. The Company recognized asset impairment charges of $1,470 for the six months ended June 30, 2016, equal to the cost basis of such securities in excess of their fair values. The Company has determined that there was no indication of other-than-temporary impairments on its investments with unrealized losses as of June 30, 2017. This determination was based on several factors, including the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the entities, and the intent and ability to hold the corporate securities for a period of time sufficient to allow for any anticipated recovery in market value.

The amortized cost and estimated fair value of available-for-sale debt securities and marketable securities as of June 30, 2017, by contractual maturity, were as follows:
 
Cost
 
Estimated Fair Value
Debt securities maturing after one year through three years
$
631

 
$
1,006

Securities with no contractual maturities
110,239

 
120,539

 
$
110,870

 
$
121,545


In April 2017, an entity in which the Company held publicly-traded equity securities and debt securities emerged from previously filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Pursuant to the plan of reorganization for this entity, all equity securities were extinguished, and holders of the debt securities received a combination of cash and new equity securities in the post-bankruptcy entity. In connection with this transaction, the Company recognized a gain of $699 on the exchange of the debt securities based on the fair value of the new equity securities and cash received. The Company also recognized a loss of $79 for the write-off of the remaining carrying value of the predecessor equity securities. The equity securities received as part the exchange are reported with the Company's marketable securities and are classified as available-for-sale securities as of June 30, 2017.

Long-Term Investments

The following table summarizes the Company's long-term investments as of June 30, 2017 and December 31, 2016. For those investments at fair value, the carrying amount of the investment equals its respective fair value.

17


 
Ownership %
 
Long-Term Investments Balance
 
(Income) Loss Recorded in the Consolidated Statements of Operations
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
June 30, 2017
 
December 31, 2016
 
June 30, 2017
 
December 31, 2016
 
2017
 
2016
 
2017
 
2016
Corporate securities (1)
 
 
 
 
$
87,832

 
$
75,608

 
$

 
$

 
$

 
$

Corporate obligations (2)
 
 
 
 
4,694

 
4,350

 
24

 
(59
)
 
(344
)
 
(59
)
ModusLink Global Solutions, Inc. ("MLNK") warrants
 
 
 
 
9

 
19

 
23

 
49

 
10

 
516

Equity method investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Carried at fair value:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  ModusLink Global Solutions, Inc.
32.7
%
 
32.9
%
 
31,092

 
26,547

 
1,356

 
4,164

 
(3,766
)
 
16,912

  Aviat Networks, Inc. ("Aviat")
12.7
%
 
12.7
%
 
11,662

 
9,269

 
(1,568
)
 
496

 
(2,393
)
 
961

  Other 
43.8
%
 
43.8
%
 
1,223

 
1,223

 

 
(125
)
 

 
517

  SL Industries, Inc.
100.0
%
 
100.0
%
 

 

 

 
(5,969
)
 

 
(8,078
)
  API Technologies Corp. ("API Tech")
%
 
%
 

 

 

 
(343
)
 

 
(7,089
)
Long-term investments carried at fair value
 
 
 
 
136,512

 
117,016









Carried at cost:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Other equity method investments (3)
 
 
 
 
2,949

 
3,050

 
97

 
67

 
123

 
38

Total
 
 
 
 
$
139,461

 
$
120,066

 
$
(68
)
 
$
(1,720
)
 
$
(6,370
)
 
$
3,718

(1)
Represents available-for-sale securities at June 30, 2017 and December 31, 2016. Cost basis totaled $12,550 at June 30, 2017 and $12,250 at December 31, 2016 and gross unrealized gains totaled $75,282 and $63,358 at June 30, 2017 and December 31, 2016, respectively.
(2)
Cost basis totaled $3,480 at both June 30, 2017 and December 31, 2016 and gross unrealized gains totaled $1,214 and $870 at June 30, 2017 and December 31, 2016, respectively. Changes in fair value are recorded in the Company's consolidated statements of operations as the Company elected the fair value option to account for this investment.
(3)
Represents Steel Excel's investments in iGo, Inc. ("iGo") of 45% and a 50% investment in API Optix s.r.o ("API Optix"), a joint venture investment held by API.

Equity Method Investments

The Company's investments in associated companies are accounted for under the equity method of accounting. Associated companies are included in the Diversified Industrial, Energy, or Corporate and Other segments. Certain associated companies have a fiscal year end that differs from December 31. Additional information for each of SPLP's investments in associated companies as of June 30, 2017 are as follows:

Equity Method, Carried At Fair Value:

MLNK provides supply chain and logistics services to companies in consumer electronics, communications, computing, medical devices, software and retail. MLNK also issued the Company warrants to purchase an additional 2,000,000 shares at $5.00 per share, which expire in March 2018.
Aviat is a global provider of microwave networking solutions.
The Other investment represents the Company's investment in a Japanese real estate partnership.
SLI, which was previously classified as an equity method investment, was acquired by HNH in 2016.
API Tech is a designer and manufacturer of high performance systems, subsystems, modules and components. In April 2016, API Tech consummated a merger pursuant to which holders of its common stock received $2.00 for each share held. Upon consummation of the merger, Steel Excel received $22,900 for its investment in API Tech, and Steel Excel no longer holds an investment in API Tech.

Equity Method, Carried At Cost:

Steel Excel has an investment in iGo, a provider of accessories for mobile devices. This investment is being accounted for under the traditional equity method. Based on the closing market price of iGo's publicly-traded shares, the fair value of the investment in iGo was approximately $4,000 and $3,900 at June 30, 2017 and December 31, 2016, respectively.
WFH LLC's API subsidiary has a 50% joint venture in API Optix with IQ Structures s.r.o. API Optix provides development and origination services in the field of micro and nano-scale surface relief technology. The investment, based in Prague, Czech Republic, is being accounted for under the traditional equity method.


18


The below summary balance sheet and statement of operations amounts include results for associated companies for the periods in which they were accounted for as an associated company, or the nearest practicable corresponding period to the Company's fiscal period.
 
June 30, 2017
 
December 31, 2016
 
 
 
 
Summary of balance sheet amounts:
 
 
 
 
 
 
 
Current assets
$
271,667

 
$
317,014

 
 
 
 
Non-current assets
24,804

 
28,169

 
 
 
 
Total assets
$
296,471

 
$
345,183

 
 
 
 
 
 
 
 
 
 
 
 
Current liabilities
$
159,633

 
$
200,966

 
 
 
 
Non-current liabilities
67,909

 
67,483

 
 
 
 
Total liabilities
227,542

 
268,449

 
 
 
 
Equity
68,929

 
76,734

 
 
 
 
Total liabilities and equity
$
296,471

 
$
345,183

 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Summary operating results:
 
 
 
 
 
 
 
Net revenue
$
97,948

 
$
145,955

 
$
215,516

 
$
318,705

Gross profit
$
8,542

 
$
4,946

 
$
19,740

 
$
27,779

Net loss
$
(5,067
)
 
$
(11,253
)
 
$
(7,973
)
 
$
(21,753
)

Other Investments

WebBank had $23,016 and $11,558 of held-to-maturity securities at June 30, 2017 and December 31, 2016, respectively. WebBank records these securities at amortized cost, and they are included in Other non-current assets on the Company's consolidated balance sheets. The dollar value of these securities with maturities less than five years is $8,253, after five years through ten years, is $13,505 and after ten years is $1,258. Actual maturities may differ from expected or contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The securities are collateralized by unsecured consumer loans. These securities had an estimated fair value of $23,058 and $11,556 at June 30, 2017 and December 31, 2016, respectively.

8. LONG-TERM DEBT

Debt consists of the following:
 
June 30, 2017
 
December 31, 2016
Short term debt:
 
 
 
API - foreign
$
836

 
$
832

HNH - foreign
648

 
553

Short-term debt
1,484

 
1,385

Long-term debt:
 
 
 
SPLP revolving facility
50,396

 
58,651

HNH revolving facilities
274,101

 
267,224

HNH other debt - domestic
6,281

 
6,493

HNH foreign loan facilities

 
1,019

Steel Excel term loan, net of unamortized debt issuance costs
36,243

 
36,195

API revolving facilities
10,223

 
12,330

API term loans
10,584

 
11,142

Subtotal
387,828

 
393,054

Less portion due within one year
57,158

 
62,928

Long-term debt
330,670

 
330,126

Total debt
$
389,312

 
$
394,439


SPLP Revolving Credit Facility


19


The Company's amended credit facility with PNC Bank, National Association ("PNC Credit Facility") provides for a revolving credit facility with borrowing availability of up to $105,000. Amounts outstanding under the PNC Credit Facility bear interest at SPLP's option at either LIBOR or the Base Rate, as defined, plus an applicable margin under the loan agreement (1.63% and 0.63%, respectively, for LIBOR and Base Rate borrowings as of June 30, 2017) and requires a commitment fee to be paid on unused borrowings. The borrowings are collateralized by first priority security interests of certain of the Company's deposit accounts and investments, including investments in majority-owned, consolidated subsidiaries. The pledged collateral as of June 30, 2017 totaled approximately $360,000. The average interest rate on the PNC Credit Facility was 3.13% as of June 30, 2017. The PNC Credit Facility also contains customary affirmative and negative covenants, including a minimum cash balance covenant and customary events of default. Any amounts outstanding under the PNC Credit Facility are due and payable in full on October 23, 2017, and accordingly, the total amount outstanding is classified in Current portion of long-term debt on the Company's consolidated balance sheets as of June 30, 2017 and December 31, 2016. The PNC Credit Facility also includes provisions for the issuance of letters of credit up to $10,000, with any such issuances reducing total borrowing availability. The Company's availability under the PNC Credit Facility was approximately $33,900 as of June 30, 2017.

HNH Debt

Senior Credit Facility

HNH's amended and restated senior credit agreement ("Senior Credit Facility") provides for an up to $400,000 senior secured revolving credit facility, including a $20,000 sublimit for the issuance of letters of credit and a $20,000 sublimit for the issuance of swing loans. Borrowings under the Senior Credit Facility bear interest at HNH's option, at either LIBOR or the Base Rate, as defined, plus an applicable margin as set forth in the loan agreement (2.25% and 1.25%, respectively, for LIBOR and Base Rate borrowings at June 30, 2017), and the revolving facility provides for a commitment fee to be paid on unused borrowings. The weighted-average interest rate on the revolving facility was 3.49% at June 30, 2017. HNH's availability under the Senior Credit Facility was $66,100 as of June 30, 2017.

The Senior Credit Facility will expire, with all amounts outstanding due and payable, on August 29, 2019. The Senior Credit Facility is guaranteed by substantially all existing and thereafter acquired or created domestic wholly-owned subsidiaries and certain foreign wholly-owned subsidiaries of HNH, and obligations under the Senior Credit Facility are collateralized by first priority security interests in and liens upon present and future assets of these subsidiaries. The Senior Credit Facility restricts these subsidiaries' ability to transfer cash or other assets to HNH, the parent company, subject to certain exceptions, including required pension payments to the WHX Corporation Pension Plan and the WHX Pension Plan II. The Senior Credit Facility 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 Fixed Charge Coverage, as defined, as well as a minimum liquidity level. HNH was in compliance with all debt covenants at June 30, 2017.

Master Lease Agreement

In 2016, HNH entered into a master lease agreement with TD Equipment Finance, Inc. ("TD Equipment"), which establishes the general terms and conditions for a $10,000 credit facility under which HNH may lease equipment and other property from TD Equipment pursuant to the terms of individual lease schedules. As of June 30, 2017, $5,400 was outstanding under the master lease agreement. No leases had been entered into as of December 31, 2016 under the agreement.

Steel Excel Credit Agreement

Steel Excel's energy business has a credit agreement, as amended ("Amended Credit Agreement"), that provides for a borrowing capacity of $105,000, consisting of a $95,000 secured term loan ("Term Loan") and up to $10,000 in revolving loans ("Revolving Loans"), subject to a borrowing base of 85% of the eligible trade receivables.

Borrowings under the Amended Credit Agreement are collateralized by substantially all the assets of Steel Energy Ltd. ("Steel Energy") and its wholly-owned subsidiaries, Sun Well Service, Inc. ("Sun Well"), Rogue Pressure Services, Ltd. ("Rogue") and Black Hawk Energy Services Ltd. ("Black Hawk Ltd"), and a pledge of all of the issued and outstanding shares of capital stock of Sun Well, Rogue and Black Hawk Ltd. Borrowings under the Amended Credit Agreement are fully guaranteed by Sun Well, Rogue and Black Hawk Ltd. The carrying value as of June 30, 2017 of the assets pledged as collateral by Steel Energy and its subsidiaries under the Amended Credit Agreement was approximately $125,411.

The Amended Credit Agreement has a term that runs through July 2018, with the Term Loan amortizing in quarterly installments of $3,300 and a balloon payment due on the maturity date. As a result of Term Loan prepayments made by Steel Excel

20


in prior periods, no quarterly installment payments are due until 2018. Steel Excel only has an amount outstanding under the Term Loan at June 30, 2017. Borrowings under the Amended Credit Agreement bear interest at annual rates of either (i) the Base Rate, as defined, plus an applicable margin of 1.50% to 2.25% or (ii) LIBOR plus an applicable margin of 2.50% to 3.25%. The applicable margin for both Base Rate and LIBOR is determined based on the leverage ratio calculated in accordance with the Amended Credit Agreement. LIBOR-based borrowings are available for interest periods of one, three or six months. In addition, Steel Excel is required to pay commitment fees of between 0.375% and 0.50% per annum on the daily unused amount of the Revolving Loans. The interest rate on the borrowings under the Amended Credit Agreement was 3.80% at June 30, 2017.

API Long-Term Debt Facilities

Revolving Facilities

API, in the UK, has a multi-currency revolving agreement of £13,500 (approximately $17,350) that expires on June 30, 2018 ("UK Facility"). At June 30, 2017, approximately $10,223 was outstanding under the UK Facility. Borrowings under the UK Facility bear interest at LIBOR plus a margin of between 1.50% to 2.40%, and the interest rate was approximately 2.35% at June 30, 2017. These borrowings are secured by certain UK assets, which totaled approximately $47,300 at June 30, 2017, and include certain debt covenants, including leverage and interest coverage. API was in compliance with all covenants at June 30, 2017.

API also has a revolving facility in the U.S. that expires in June 2018 ("U.S. Facility"), with availability of up to approximately $5,400 as of June 30, 2017. There was no amount outstanding under the U.S. Facility at June 30, 2017. Borrowings under the U.S Facility bear interest at LIBOR plus 3.00%. The U.S. facility is secured by certain inventories and receivables, which totaled approximately $30,000 at June 30, 2017. API received a temporary waiver after failing to meet one of the debt covenants under this facility as of December 31, 2016. The facility was amended in February 2017 to modify and add certain covenants and provisions that will be in place until June 30, 2018.

Term Loans

In the third quarter of 2016, API entered into a term loan in the U.S. totaling approximately $9,000 to partially fund its acquisition of Hazen (see Note 2 - "Acquisitions"). This term loan bears interest at LIBOR plus 3.00% and had an interest rate of 4.21% at June 30, 2017. In addition, API has certain term loans for equipment for approximately $1,200 and $800 at June 30, 2017. These loans had interest rates of 4.06% and 4.26% at June 30, 2017, respectively, and are secured over the related equipment.

9. FINANCIAL INSTRUMENTS

At June 30, 2017 and December 31, 2016, financial instrument obligations and related restricted cash consist primarily of $13,979 and $12,640, respectively, of short sales of corporate securities. Activity is summarized below for financial instrument liabilities and related restricted cash:
 
June 30,
 
2017
 
2016
Balance, beginning of period
$
12,640

 
$
21,639

Settlement of short sales of corporate securities
(59
)
 
(9,194
)
Short sales of corporate securities
99

 
93

Net investment losses (gains)
1,299

 
(682
)
Balance of financial instrument liabilities and related restricted cash, end of period
$
13,979

 
$
11,856


Short Sales of Corporate Securities

From time to time, Steel Excel enters into short sale transactions on certain corporate securities in which Steel Excel receives proceeds from the sale of such securities and incurs obligations to deliver such securities at a later date. Upon initially entering into such short sale transactions, Steel Excel recognizes a liability equal to the fair value of the obligation, with a comparable amount of cash and cash equivalents reclassified as restricted cash. Subsequent changes in the fair value of such obligations, determined based on the closing market price of the securities, are recognized currently as gains or losses, with a comparable adjustment made between unrestricted and restricted cash.

Foreign Currency Forward Contracts


21


API enters into foreign currency forward contracts to hedge its receivables and payables denominated in other currencies. In addition, API enters into foreign currency forward contracts to hedge the value of its future sales denominated in Euros and the value of its future purchases denominated in USD. These hedges have settlement dates ranging through December 2017. The forward contracts that are used to hedge the risk of foreign exchange movement on its receivables and payables are accounted for as fair value hedges. At June 30, 2017, there were contracts in place to buy Sterling and sell Euros in the amount of €11,150. The fair values of these derivatives are recognized as derivative assets and liabilities on the Company's consolidated balance sheets. The net change in fair value of the derivative assets and liabilities are recognized in the Company's consolidated statements of operations. The forward contracts that are used to hedge the value of API's future sales and purchases are accounted for as cash flow hedges. At June 30, 2017, there were contracts in place to hedge the value of future sales denominated in Euros in the amount of €8,910 and the value of future purchases denominated in USD in the amount of $750. These hedges are fully effective, and, accordingly the changes in fair value are recorded in accumulated other comprehensive income ("AOCI") and, at maturity, any gain or loss on the forward contract is reclassified from AOCI into the Company's consolidated statements of operations.

WebBank - Derivative Financial Instruments

WebBank's derivative financial instruments represent on-going economic interests in loans made after they are sold. These derivatives are carried at fair value on a gross basis in Other non-current assets on the Company's consolidated balance sheets at June 30, 2017 and are classified within Level 3 in the fair value hierarchy (see Note 14 - "Fair Value Measurements"). At June 30, 2017, derivatives outstanding mature within 3 to 5 years. Gains and losses resulting from changes in 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.

Call and Put Options

During the six months ended June 30, 2017, the Company sold call options for proceeds of approximately $230 and purchased put options totaling $783 related to an exchange traded index fund. The options are traded in active markets, and accordingly, the Company records the fair value of the options through the use of quoted prices and records any changes in fair value in the consolidated statements of operations in Other (income) expenses, net. These derivative financial instruments are classified within Level 1 in the fair value hierarchy.

Precious Metal and Commodity Inventories

HNH's precious metal and commodity inventories are subject to market price fluctuations. HNH 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. HNH's hedging strategy is designed to protect it against normal volatility; therefore, abnormal price changes in these commodities or markets could negatively impact HNH's earnings.

As of June 30, 2017, HNH had the following outstanding forward contracts with settlement dates through July 2017. There were no futures contracts outstanding at June 30, 2017.
Commodity
Amount
 
Notional Value
Silver
728,710 ounces
 
$
12,100

Gold
600 ounces
 
$
700

Copper
375,000 pounds
 
$
1,000

Tin
30 metric tons
 
$
600


Fair Value Hedges. Of the total forward contracts outstanding, 573,710 ounces of silver and substantially all the copper contracts are designated and accounted for as fair value hedges. The fair values of these derivatives are recognized as derivative assets and liabilities on the Company's consolidated balance sheets. The net change in fair value of the derivative assets and liabilities, and the change in the fair value of the underlying hedged inventory, are recognized in the Company's consolidated statements of operations, and such amounts principally offset each other due to the effectiveness of the hedges. The fair value hedges are associated primarily with HNH's precious metal inventory carried at fair value.

Economic Hedges. The remaining outstanding forward contracts for silver, and all the contracts for gold and tin, are accounted for as economic hedges. As these derivatives are not designated as accounting hedges, they are accounted for as derivatives with no hedge designation. The derivatives are marked to market, and both realized and unrealized gains and losses are recorded

22


in current period earnings in the Company's consolidated statements of operations. The economic hedges are associated primarily with HNH's precious metal inventory valued using the LIFO method.

The forward contracts were made with a counterparty rated A+ by Standard & Poors. Accordingly, HNH has determined that there is minimal credit risk of default. HNH 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. HNH maintains collateral on account with the third-party broker. Such collateral consists of both cash that varies in amount depending on the value of open contracts, as well as ounces of precious metal held on account by the broker.

The fair value and carrying amount of derivative instruments on the Company's consolidated balance sheets and th