STEEL PARTNERS HOLDINGS L.P.
Unaudited Pro Forma Condensed Consolidated Financial Information
On January 22, 2015, Handy & Harman Ltd. ("HNH"), a subsidiary of Steel Partners Holdings L.P., (SPLP), completed the previously announced sale of Arlon LLC ("Arlon") to Rogers Corporation ("Rogers") for $157 million in cash. The operations of Arlon were reported within SPLP's Diversified Industrial segment and comprised substantially all of HNH's former Arlon Electronic Materials business, which manufactured high performance materials for the printed circuit board industry and silicone rubber-based materials. The following unaudited pro forma condensed consolidated financial statements of SPLP are being presented to give effect to the disposition of Arlon.
• | The unaudited pro forma condensed consolidated balance sheet of SPLP as of September 30, 2014 was prepared as if the disposition of Arlon occurred as of September 30, 2014 and the pro forma adjustments give effect to events that are directly attributable to the transaction, regardless if they have a continuing impact or are nonrecurring. |
• | The unaudited pro forma condensed consolidated income statements of SPLP for the nine months ended September 30, 2014 and the years ended December 31, 2013, 2012 and 2011 reflect the removal of Arlon's historical results from continuing operations and were prepared as if the disposition of Arlon had occurred on January 1, 2013. The pro forma adjustments give effect to events that are directly attributable to the transaction and have a continuing impact on the results of operations of SPLP. |
These unaudited pro forma condensed consolidated financial statements of SPLP are derived from the audited and unaudited consolidated financial statements of SPLP included in its Annual Report on Form 10-K for the year ended December 31, 2013 and its Quarterly Report on Form 10-Q for the quarter ended September 30, 2014. The pro forma adjustments are based on factually supportable available information and certain assumptions that management believes are reasonable.
These unaudited pro forma condensed consolidated statements do not purport to represent what the results of operations or financial position of SPLP would actually have been had the transaction occurred on the dates noted above, or to project the results of operations or financial position of HNH for any future periods. In the opinion of management, all necessary adjustments to the unaudited pro forma financial information have been made.
These unaudited pro forma condensed consolidated financial statements should be read in conjunction with the related notes to these financial statements and with Management’s Discussion and Analysis of Financial Condition and the historical financial statements and related notes thereto of SPLP included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and its Quarterly Report on Form 10-Q for the quarter ended September 30, 2014.
Beginning with SPLP's Annual Report on Form 10-K for the fiscal year ended December 31, 2014, Arlon's historical financial results for periods prior to the sale will be reflected in SPLP's consolidated financial statements within discontinued operations.
STEEL PARTNERS HOLDINGS L.P.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2014
(in thousands) | (A) Historical SPLP | (B) Arlon Operations | Pro Forma Adjustments | Pro Forma SPLP | |||||||||||
ASSETS | |||||||||||||||
Current assets: | |||||||||||||||
Cash and cash equivalents | $ | 164,074 | $ | — | $ | — | $ | 164,074 | |||||||
Restricted cash | 44,723 | — | — | 44,723 | |||||||||||
Marketable securities | 169,635 | — | — | 169,635 | |||||||||||
Trade and other receivables (net of allowance for doubtful accounts of $1,981) | 127,349 | (16,772 | ) | — | 110,577 | ||||||||||
Receivable from related parties | 931 | — | — | 931 | |||||||||||
Loans receivable, net | 47,051 | — | — | 47,051 | |||||||||||
Inventories, net | 76,499 | (8,623 | ) | — | 67,876 | ||||||||||
Deferred tax assets - current | 22,291 | (1,241 | ) | (18,600 | ) | (C) | 2,450 | ||||||||
Prepaid and other current assets | 17,291 | (734 | ) | — | 16,557 | ||||||||||
Assets of discontinued operations | 3,172 | — | — | 3,172 | |||||||||||
Total current assets | 673,016 | (27,370 | ) | (18,600 | ) | 627,046 | |||||||||
Long-term loans receivable, net | 63,428 | — | — | 63,428 | |||||||||||
Goodwill | 93,995 | (6,582 | ) | — | 87,413 | ||||||||||
Intangible assets, net | 136,392 | (14,502 | ) | — | 121,890 | ||||||||||
Deferred tax assets - non-current | 25,014 | 7,974 | — | 32,988 | |||||||||||
Other non-current assets | 47,579 | 280 | — | 47,859 | |||||||||||
Property, plant and equipment, net | 212,427 | (28,055 | ) | — | 184,372 | ||||||||||
Long-term investments | 298,885 | — | — | 298,885 | |||||||||||
Total Assets | $ | 1,550,736 | $ | (68,255 | ) | $ | (18,600 | ) | $ | 1,463,881 | |||||
LIABILITIES AND CAPITAL | |||||||||||||||
Current liabilities: | |||||||||||||||
Accounts payable | $ | 53,349 | $ | (6,439 | ) | $ | — | $ | 46,910 | ||||||
Accrued liabilities | 46,933 | (4,021 | ) | (190 | ) | (D) | 42,722 | ||||||||
Financial instruments | 44,723 | — | — | 44,723 | |||||||||||
Deposits | 86,530 | — | — | 86,530 | |||||||||||
Payable to related parties | 873 | — | — | 873 | |||||||||||
Short-term debt | 629 | — | — | 629 | |||||||||||
Current portion of long-term debt | 13,566 | — | — | 13,566 | |||||||||||
Deferred tax liabilities - current | 3,096 | — | — | 3,096 | |||||||||||
Other current liabilities | 6,852 | — | — | 6,852 | |||||||||||
Liabilities of discontinued operations | 1,007 | — | — | 1,007 | |||||||||||
Total current liabilities | 257,558 | (10,460 | ) | (190 | ) | 246,908 | |||||||||
Long-term deposits | 57,420 | — | 57,420 | ||||||||||||
Long-term debt | 323,330 | — | (145,695 | ) | (E) | 177,635 | |||||||||
Accrued pension liability | 124,522 | (997 | ) | — | 123,525 | ||||||||||
Deferred tax liabilities - non-current | 5,252 | — | — | 5,252 | |||||||||||
Other liabilities | 12,757 | (726 | ) | — | 12,031 | ||||||||||
Total Liabilities | 780,839 | (12,183 | ) | (145,885 | ) | 622,771 | |||||||||
Commitments and Contingencies | — | — | — | — | |||||||||||
Capital: | |||||||||||||||
Partners’ capital common units: 27,711,201 issued and outstanding (after deducting 8,800,330 held in treasury, at cost of $135,694) | 510,655 | (56,214 | ) | (F) | 127,285 | (F) | 581,726 | ||||||||
Accumulated other comprehensive income | 41,922 | 142 | — | 42,064 | |||||||||||
Total Partners’ Capital | 552,577 | (56,072 | ) | 127,285 | 623,790 | ||||||||||
Noncontrolling interests in consolidated entities | 217,320 | — | — | 217,320 | |||||||||||
Total Capital | 769,897 | (56,072 | ) | 127,285 | 841,110 | ||||||||||
Total Liabilities and Capital | $ | 1,550,736 | $ | (68,255 | ) | $ | (18,600 | ) | $ | 1,463,881 |
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
STEEL PARTNERS HOLDINGS L.P.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014
(in thousands except per common unit data) | (A) Historical SPLP | (B) Arlon Operations | Pro Forma Adjustments | Pro Forma SPLP | |||||||||||
Revenue | |||||||||||||||
Diversified industrial net sales | $ | 546,040 | $ | (77,483 | ) | $ | — | $ | 468,557 | ||||||
Energy net sales | 155,666 | — | — | 155,666 | |||||||||||
Financial services revenue | 24,298 | — | — | 24,298 | |||||||||||
Investment and other income | 1,215 | — | — | 1,215 | |||||||||||
Net investment gains | 647 | — | — | 647 | |||||||||||
Total revenue | 727,866 | (77,483 | ) | — | 650,383 | ||||||||||
Costs and expenses | |||||||||||||||
Cost of goods sold | 502,594 | (52,716 | ) | — | 449,878 | ||||||||||
Selling, general and administrative expenses | 153,752 | (11,413 | ) | (397 | ) | (D) | 141,942 | ||||||||
Impairment charges | 1,224 | — | — | 1,224 | |||||||||||
Finance interest expense | 569 | — | — | 569 | |||||||||||
Recovery of loan losses | (52 | ) | — | — | (52 | ) | |||||||||
Interest expense | 4,162 | (28 | ) | — | 4,134 | ||||||||||
Realized and unrealized gain on derivatives | (854 | ) | — | — | (854 | ) | |||||||||
Other income, net | (2,227 | ) | 25 | — | (2,202 | ) | |||||||||
Total costs and expenses | 659,168 | (64,132 | ) | (397 | ) | 594,639 | |||||||||
Income from continuing operations before income taxes and equity method income (loss) | 68,698 | (13,351 | ) | 397 | 55,744 | ||||||||||
Income tax provision (benefit) | 23,831 | (4,713 | ) | 159 | (G) | 19,277 | |||||||||
Income (Loss) from equity method investments and investments held at fair value: | |||||||||||||||
Loss of associated companies, net of taxes | (3,328 | ) | — | — | (3,328 | ) | |||||||||
Income from other investments - related party | 2,086 | — | — | 2,086 | |||||||||||
Loss from investments held at fair value | (13,226 | ) | — | — | (13,226 | ) | |||||||||
Net income from continuing operations | $ | 30,399 | $ | (8,638 | ) | $ | 238 | $ | 21,999 | ||||||
Net income per common unit - basic and diluted: | |||||||||||||||
Net income from continuing operations | $ | 0.38 | $ | 0.21 |
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
STEEL PARTNERS HOLDINGS L.P.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2013
(in thousands except per common unit data) | (H) Historical SPLP | (B) Arlon Operations | Pro Forma SPLP | ||||||||
Revenue | |||||||||||
Diversified industrial net sales | $ | 655,224 | $ | (84,060 | ) | $ | 571,164 | ||||
Energy net sales | 120,029 | 120,029 | |||||||||
Financial services revenue | 28,185 | 28,185 | |||||||||
Investment and other income | 665 | 665 | |||||||||
Net investment gains | 1,071 | 1,071 | |||||||||
Total revenue | 805,174 | (84,060 | ) | 721,114 | |||||||
Costs and expenses | |||||||||||
Cost of goods sold | 556,374 | (59,617 | ) | 496,757 | |||||||
Selling, general and administrative expenses | 216,092 | (13,971 | ) | 202,121 | |||||||
Impairment charges | 2,689 | 2,689 | |||||||||
Finance interest expense | 698 | 698 | |||||||||
Recovery of loan losses | (80 | ) | (80 | ) | |||||||
Interest expense | 5,786 | (43 | ) | 5,743 | |||||||
Realized and unrealized gain on derivatives | (1,195 | ) | (1,195 | ) | |||||||
Other income, net | (2,093 | ) | (51 | ) | (2,144 | ) | |||||
Total costs and expenses | 778,271 | (73,682 | ) | 704,589 | |||||||
Income from continuing operations before income taxes and equity method income (loss) | 26,903 | (10,378 | ) | 16,525 | |||||||
Income tax provision | 10,244 | (3,767 | ) | 6,477 | |||||||
Income (Loss) from equity method investments and investments held at fair value: | |||||||||||
Income of associated companies, net of taxes | 27,786 | 27,786 | |||||||||
Loss from other investments - related party | (271 | ) | (271 | ) | |||||||
Income from investments held at fair value | 811 | 811 | |||||||||
Net income from continuing operations | $ | 44,985 | $ | (6,611 | ) | $ | 38,374 | ||||
Net income per common unit - basic: | |||||||||||
Net income from continuing operations | $ | 0.63 | $ | 0.51 | |||||||
Net income per common unit - diluted: | |||||||||||
Net income from continuing operations | $ | 0.61 | $ | 0.49 |
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
STEEL PARTNERS HOLDINGS L.P.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2012
(in thousands except per common unit data) | (H) Historical SPLP | (B) Arlon Operations | Pro Forma SPLP | ||||||||
Revenue | |||||||||||
Diversified industrial net sales | $ | 579,528 | $ | (80,815 | ) | $ | 498,713 | ||||
Energy net sales | 92,834 | 92,834 | |||||||||
Financial services revenue | 21,155 | 21,155 | |||||||||
Investment and other income | 2,347 | 2,347 | |||||||||
Net investment gains | 15,722 | 15,722 | |||||||||
Total revenue | 711,586 | (80,815 | ) | 630,771 | |||||||
Costs and expenses | |||||||||||
Cost of goods sold | 470,885 | (54,234 | ) | 416,651 | |||||||
Selling, general and administrative expenses | 169,776 | (14,254 | ) | 155,522 | |||||||
Impairment charges | 1,602 | 1,602 | |||||||||
Finance interest expense | 1,176 | 1,176 | |||||||||
Recovery of loan losses | (415 | ) | (415 | ) | |||||||
Interest expense | 13,429 | (31 | ) | 13,398 | |||||||
Realized and unrealized gain on derivatives | (1,352 | ) | (1,352 | ) | |||||||
Deferred fee liability to related party - increase | 11,448 | 11,448 | |||||||||
Other expenses, net | 609 | (5 | ) | 604 | |||||||
Total costs and expenses | 667,158 | (68,524 | ) | 598,634 | |||||||
Income from continuing operations before income taxes and equity method income (loss) | 44,428 | (12,291 | ) | 32,137 | |||||||
Income tax provision | 16,833 | (3,712 | ) | 13,121 | |||||||
Income (Loss) from equity method investments and investments held at fair value: | |||||||||||
Income of associated companies, net of taxes | 14,204 | 14,204 | |||||||||
Loss from other investments - related party | (8,329 | ) | (8,329 | ) | |||||||
Income from investments held at fair value | 18,967 | 18,967 | |||||||||
Net income from continuing operations | $ | 52,437 | $ | (8,579 | ) | $ | 43,858 | ||||
Net income per common unit - basic: | |||||||||||
Net income from continuing operations | $ | 1.17 | $ | 1.02 | |||||||
Net income per common unit - diluted: | |||||||||||
Net income from continuing operations | $ | 1.17 | $ | 1.02 |
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
STEEL PARTNERS HOLDINGS L.P.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2011
(in thousands except per common unit data) | (H) Historical SPLP | (B) Arlon Operations | Pro Forma SPLP | ||||||||
Revenue | |||||||||||
Diversified industrial net sales | $ | 579,764 | $ | (81,282 | ) | $ | 498,482 | ||||
Energy net sales | 32,984 | 32,984 | |||||||||
Financial services revenue | 14,921 | 14,921 | |||||||||
Investment and other income | 867 | 867 | |||||||||
Net investment losses | (4,352 | ) | (4,352 | ) | |||||||
Total revenue | 624,184 | (81,282 | ) | 542,902 | |||||||
Costs and expenses | |||||||||||
Cost of goods sold | 440,965 | (58,195 | ) | 382,770 | |||||||
Selling, general and administrative expenses | 137,797 | (13,172 | ) | 124,625 | |||||||
Impairment charges | 1,505 | 1,505 | |||||||||
Finance interest expense | 1,571 | 1,571 | |||||||||
Provision for loan losses | 8 | 8 | |||||||||
Interest expense | 12,424 | (79 | ) | 12,345 | |||||||
Realized and unrealized loss on derivatives | 397 | 397 | |||||||||
Deferred fee liability to related party - decrease | (6,107 | ) | (6,107 | ) | |||||||
Other income, net | (7,808 | ) | 7 | (7,801 | ) | ||||||
Total costs and expenses | 580,752 | (71,439 | ) | 509,313 | |||||||
Income from continuing operations before income taxes and equity method income (loss) | 43,432 | (9,843 | ) | 33,589 | |||||||
Income tax benefit | (64,968 | ) | (2,618 | ) | (67,586 | ) | |||||
Loss from equity method investments and investments held at fair value: | |||||||||||
Loss of associated companies, net of taxes | (13,823 | ) | (13,823 | ) | |||||||
Loss from other investments - related party | (15,743 | ) | (15,743 | ) | |||||||
Loss from investments held at fair value | (183 | ) | (183 | ) | |||||||
Net income from continuing operations | $ | 78,651 | $ | (7,225 | ) | $ | 71,426 | ||||
Net income per common unit - basic: | |||||||||||
Net income from continuing operations | $ | 1.35 | $ | 1.19 | |||||||
Net income per common unit - diluted: | |||||||||||
Net income from continuing operations | $ | 0.94 | $ | 0.81 |
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
STEEL PARTNERS HOLDINGS L.P.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
(A) | Represents the unaudited consolidated balance sheet as of September 30, 2014 and the unaudited consolidated income statement for the nine months ended September 30, 2014 reported in SPLP's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2014. |
(B) | Reflects the elimination of the assets and liabilities and results of operations of Arlon in accordance with Accounting Standards Codification 205-20, Discontinued Operations. |
(C) | Reflects the utilization of $20,600 of HNH's U.S. federal net operating tax loss carryforwards in connection with the taxable gain on the sale of Arlon. The tax provision on the sale of Arlon is expected to total approximately $16,867, including the write-off of net current and non-current deferred tax assets (liabilities) totaling $1,241 and ($7,974), respectively, associated with the operations of Arlon and $5,000 in currently payable taxes. The unaudited pro forma condensed consolidated balance sheet assumes all cash taxes payable associated with the sale of Arlon were paid as of September 30, 2014. |
(D) | Represents the elimination of one-time transaction costs associated with the sale of Arlon accrued ($190) as of September 30, 2014 and expensed ($397) by HNH during the nine months ended September 30, 2014. No similar adjustments are required for the years ended December 31, 2013, 2012 or 2011. The unaudited pro forma condensed consolidated balance sheet assumes all cash transaction costs, which include the broker's commission and other closing-related costs and exclude the non-cash stock-based compensation charges discussed below, associated with the sale of Arlon were paid as of September 30, 2014. |
(E) | Represents the net cash proceeds, assuming payment of all cash taxes payable and one-time cash transaction costs, expected to be received in connection with the sale of Arlon. HNH is required to utilize the net cash proceeds to pay down amounts outstanding under its senior secured revolving credit facility. The amount of long-term debt to be repaid is comprised of the following: |
Proceeds from the sale of Arlon | $ | 157,000 | |
Reduction in sale proceeds for certain Indebtedness, as defined in the stock purchase agreement | (2,052 | ) | |
One-time cash transaction costs, excluding amounts paid prior to September 30, 2014 | (4,253 | ) | |
Estimated cash taxes payable associated with the sale of Arlon | (5,000 | ) | |
Total repayment of long-term debt | $ | 145,695 |
(F) | Net adjustments to Partners' Capital in connection with the sale of Arlon are comprised of the following: |
Proceeds from the sale of Arlon | $ | 157,000 | |
Reduction in sale proceeds for certain Indebtedness, as defined in the stock purchase agreement | (2,052 | ) | |
One-time transaction costs, including the acceleration of restricted stock options | (4,322 | ) | |
Book value of Arlon net assets transferred to Rogers, excluding deferred taxes | (62,805 | ) | |
Estimated tax expense associated with the sale of Arlon | (16,867 | ) | |
Reclassification of accumulated other comprehensive loss to income | (142 | ) | |
Estimated impact of the acceleration of unvested restricted stock grants | 259 | ||
Total adjustments to Partners' Capital | $ | 71,071 |
(G) | Represents the tax effect of the elimination of one-time transaction costs associated with the sale of Arlon recorded by HNH during the nine months ended September 30, 2014 using HNH's effective tax rate for the period. |
(H) | Represents the consolidated income statements for the years ended December 31, 2013, 2012 and 2011 reported in SPLP's Annual Report on Form 10-K for the fiscal year ended December 31, 2013. |