Document

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
(Mark One)
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For The Fiscal Year Ended December 31, 2016
OR

¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  

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)
 
Registrant's telephone number, including area code: (212) 520-2300

Securities registered pursuant to Section 12(b) of the Act:
 
 
Name of each exchange on
Title of each class
which registered
Common units, $0 par
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

Common Units, no par value

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes ¨   No þ

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   Yes ¨   No þ

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 ¨



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) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.  (Check one): 
Large accelerated filer
o
 
Non-accelerated filer
o
Accelerated filer
þ
 
Smaller reporting company
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 aggregate market value of our common units held by non-affiliates of registrant as of June 30, 2016 totaled approximately $186.4 million based on the then-closing unit price.

On March 10, 2017, there were 26,152,976 common units outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Items 10, 11, 12, 13 and 14 of Part III will be incorporated by reference to certain portions of a definitive proxy statement, which will be filed by the Registrant within 120 days after the close of its fiscal year.

 




STEEL PARTNERS HOLDINGS L.P.
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
 
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
PART IV
Item 15.
Item 16.





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As used in this Form 10-K, unless the context otherwise requires the terms "we," "us," "our," "SPLP" and the "Company" refer to Steel Partners Holdings L.P., a Delaware limited partnership.

PART I
 
FORWARD-LOOKING STATEMENTS
 
This report includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including, in particular, forward-looking statements under the headings "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Item 8 - Financial Statements and Supplementary Data." These statements appear in a number of places in this report and include statements regarding the Company's intent, belief or current expectations with respect to (i) its financing plans, (ii) trends affecting its financial condition or results of operations, and (iii) the impact of competition. The words "expect," "anticipate," "intend," "plan," "believe," "seek," "estimate," and similar expressions are intended to identify such forward-looking statements; however, this report also contains other forward-looking statements in addition to historical information.

Item 1. Business
 
All monetary amounts used in this discussion are in thousands unless otherwise indicated.

The Company

Steel Partners, a private investment firm, was founded in February 1990 by Warren G. Lichtenstein. In December 2008, in order to preserve an investment strategy that successfully served the investment firm and its investors since inception, Steel Partners restructured its business. The result was the creation of Steel Partners Holdings L.P. ("SPLP" or the "Company"), a limited partnership formed in the State of Delaware on December 16, 2008. On April 10, 2012, after fulfilling stringent regulatory and financial reporting requirements, the Company became listed on the New York Stock Exchange (NYSE: SPLP).

SPLP 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 investments 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. Each of our companies has its own management team with significant experience in their industries. Our subsidiary, Steel Services Ltd (''Steel Services''), through management services agreements, provides services to us and some of our companies which include assignment of C-Level management personnel, legal, tax, accounting, treasury, consulting, auditing, administrative, compliance, environmental health and safety, human resources, marketing, investor relations, operating group management and other similar services. We work with our businesses to increase corporate value over the long term for all stakeholders by implementing our unique strategy discussed in more detail below.

SPLP is managed by SP General Services LLC (the "Manager"), pursuant to the terms of an amended and restated management agreement (the "Management Agreement") discussed in further detail in Note 19 – "Related Party Transactions" to the SPLP consolidated financial statements found elsewhere in this Form 10-K. From its founding in 1990, the Manager and its affiliates have focused on increasing value for investors in the entities it has managed. Our wholly-owned subsidiary, Steel Partners Holdings GP Inc., formerly known as Web LLC and Steel Partners Holdings GP LLC (the "General Partner"), is our general partner. The General Partner converted from a limited liability company to a corporation on September 21, 2010. The General Partner has a board of directors (the "Board of Directors"). The Board of Directors is currently comprised of seven members, five of whom are elected annually by our unitholders and two of whom are appointed by the Manager. Warren G. Lichtenstein, the Executive Chairman of our Manager, serves as the Chairman of the Board of Directors.

Handy & Harman Ltd. ("HNH") (NASDAQ (CM): HNH) is a diversified manufacturer of engineered niche industrial products with leading market positions in many of the markets it serves. As of December 31, 2016, we owned approximately 69.9% of HNH. Four of our representatives serve on HNH's seven-member board of directors, one of whom serves as Chairman. Our representatives also serve as the Vice Chairman (Principal Executive Officer), Chief Financial Officer (Principal Accounting Officer), Chief Legal Officer and as various Vice Presidents of HNH. HNH distributes products to customers through its sales personnel, outside sales representatives and distributors in North and South America, Europe, Australia, Asia and several other international markets.


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Through our subsidiary WebFinancial Holding Corporation ("WFHC"), we own approximately 91.2% of API Group plc ("API") as of December 31, 2016. API is part of our Diversified Industrial segment and manufacturers and distributes foils, films and laminates used to enhance the visual appeal of products and packaging.

Steel Excel Inc. ("Steel Excel"), a Delaware corporation formerly known as ADPT Corporation, provides drilling and production services to the oil and gas industry and owns a youth sports business. Steel Excel also continues to identify business acquisition opportunities in both the energy and sports industries as well as in other unrelated industries. As of December 31, 2016, we owned approximately 64.2% of Steel Excel. Steel Excel also has equity method investments in Aviat Networks, Inc. ("Aviat") (NASDAQ:AVNW), a global provider of microwave networking solutions and iGo, Inc., a mobile device accessories provider company. In February 2017, we completed a tender offer for the remaining shares of Steel Excel we did not previously own, bringing our ownership to 100% (for additional information, see Note 14 - "Capital and Accumulated Other Comprehensive Loss" found elsewhere in this Form 10-K).
    
Through our subsidiary WFHC, we own approximately 91.2% of WebBank. WebBank is a Utah chartered industrial bank subject to comprehensive regulation, examination and supervision of the Federal Deposit Insurance Corporation ("FDIC") and the State of Utah Department of Financial Institutions ("UDFI"). WebBank is not considered a "bank" for Bank Holding Company Act purposes and, as such, SPLP is not regulated as a bank holding company. WebBank's deposits are insured by the FDIC.

Corporate and Other consists of several consolidated subsidiaries, equity method investments as well as other various investments and cash and cash equivalents. Steel Services has management services agreements with HNH, Steel Excel, WebBank and other related companies. For additional information on these service agreements see Note 19 - "Related Party Transactions" to the SPLP consolidated financial statements found elsewhere in this Form 10-K. SPLP's and HNH's equity method investment in ModusLink Global Solutions, Inc. ("MLNK") (NASDAQ:MLNK), which provides supply chain and logistics services to companies in the consumer electronics, communications, software, storage and retail industries, is classified in Corporate and Other. Two members of SPLP's management team serve on the six-member MLNK board of directors, one of whom serves as chairman. Other consolidated subsidiaries included in Corporate and Other are DGT Holdings Corp. ("DGT") and BNS Holdings Liquidating Trust ("BNS"). DGT's operations consist of cash, investments, general and administrative expenses and one building which is held for sale at December 31, 2016. BNS has no operations.

Products and Product Mix

Diversified Industrial Segment

Joining Materials - HNH's Joining Materials business primarily fabricates precious metals and their alloys into brazing alloys. Brazing alloys are used to join similar and dissimilar metals, as well as specialty metals and some ceramics, with strong, hermetic joints. The Joining Materials business offers these metal joining products in a wide variety of alloys, including gold, silver, palladium, copper, nickel, aluminum and tin. Operating income from precious metal products is principally derived from the "value-added" of processing and fabricating and not from the purchase and resale of precious metals.

Tubing - HNH's Tubing business manufactures and produces value added fabrications for a wide variety of steel tubing products such as continuous seamless stainless steel tubing coils for the petrochemical infrastructure and shipbuilding markets and small diameter coil tubing for the aerospace, defense and semiconductor fabrication markets. This unit also manufactures welded carbon steel tubing in coiled and straight lengths with a primary focus on products for the transportation, appliance and heating and oil and gas industries. In addition to producing bulk tubing, it produces value-added fabrications for several of these industries.

Building Materials - HNH's Building Materials business manufactures and supplies products primarily to the commercial construction and building industries. It manufactures fasteners and fastening systems for the U.S. commercial low-slope roofing industry, which are sold to building and roofing material wholesalers, roofing contractors and private label roofing system manufacturers, and a line of engineered specialty fasteners for the building products industry for fastening applications in the remodeling and construction of homes, decking and landscaping.

Performance Materials - HNH's Performance Materials business manufactures sheet and mechanically formed glass, quartz, carbon and aramid materials for specialty applications in a wide expanse of markets requiring highly engineered components. Its products are used in a wide range of advanced composite applications, such as civilian and military aerospace components, printed electronic circuit boards, specialty commercial construction substrates, automotive and industrial components, and soft body armor for civilian and military applications.
    

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Electrical Products - HNH's Electrical Products business 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. Its products are generally incorporated into larger systems to improve operating performance, safety, reliability and efficiency. The reported operations of the Electrical Products business are comprised of the operations of SL Industries, Inc. ("SLI") and the Electromagnetic Enterprise division ("EME") of Hamilton Sundstrand Corporation, which were acquired on June 1, 2016 and September 30, 2016, respectively.

Kasco Blades and Route Repair Services ("Kasco") - HNH's Kasco business provides meat-room blade products, repair services and resale products for the meat and deli departments of supermarkets, restaurants, meat and fish processing plants, and for distributors of electrical saws and cutting equipment, principally in North America and Europe. HNH's Kasco business also provides wood cutting blade products for the pallet manufacturing, pallet recycler and portable saw mill industries in North America.

Foils, Films, Laminates and Holographics - API's laminates and foils businesses produce carton board laminates and foils for the packaging of consumer goods as well as the food and confectionery, tobacco, health and beauty, personal care, greeting cards, books, magazines, footwear and sports goods and office and promotional products industries. API's holographics business manufactures holographic products for use on premium branded goods in various industries.
    
Energy Segment

Steel Energy - Steel Excel's energy business provides drilling and production services to exploration and production companies in the oil and gas business. The services provided include well completion and recompletion, well maintenance and workover, snubbing, flow testing, down hole pumping, plug and abatement, and rental of auxiliary equipment.

Steel Sports - Steel Excel's sports business is a social impact organization that strives to provide a first-class youth sports experience emphasizing positive experiences and instilling the core values of discipline, teamwork, safety, respect, and integrity.

Financial Services Segment

WebBank - WebBank engages in a full range of banking activities including originating loans, issuing private label credit cards, and taking deposits that are federally insured. WebBank originates and funds consumer and small business loans through lending programs with unaffiliated companies that market and service the programs ("Marketing Partners"), where the Marketing Partners subsequently purchase the loans (or interests in the loans) that are originated by WebBank. WebBank also has private-label financing programs that are branded for a specific retailer, manufacturer, dealer channel, proprietary network and bank card programs. WebBank participates in syndicated commercial and industrial as well as asset based credit facilities and asset based securitizations through relationships with other financial institutions.

Business Strategy

We continuously evaluate the retention and disposition of existing operations and investigate possible acquisitions of new businesses, often focusing on businesses that are selling substantially below intrinsic value. We consider possible synergies and economies of scale in operating and/or making determinations to acquire or dispose of companies. We seek additional means to reduce costs and to encourage integration of operations and the building of business relationships among our companies, consistent with our desire that our unitholders benefit from the diversified holding company structure.

We strive to enhance the business operations of our companies and increase long-term value for unitholders and stakeholders through balance sheet improvements, strategic allocation of capital and operational and growth initiatives. We use a set of tools and processes called the Steel Business System to drive operational and commercial efficiencies across each of our businesses. The Steel Business System utilizes a strategy deployment process to execute strategic initiatives for each of our businesses to improve their performance, including objectives relating to manufacturing improvement, idea generation, product development, and global sourcing of materials and services.

Our operational initiatives include creating efficiencies through consolidated purchasing and materials sourcing provided by the Steel Partners Purchasing Council, which arranges shared purchasing programs and is reducing costs for, and providing other benefits to, a number of our companies. We strive to reduce our companies' operational costs, and enhance growth and profitability, through the implementation of Steel Partners Operational Excellence Programs, which include the deployment of Lean Manufacturing, Design for Six Sigma, Six Sigma and Strategy Deployment. We are focused on reducing corporate overhead

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of our companies by centralizing certain administrative and corporate services through Steel Services that provides management, consulting and advisory services.

Generally, we seek to actively acquire and maintain control over our companies through our ability to influence their policies. Depending on the size of our ownership interests in any given company, this may be achieved by obtaining board representation and overseeing and providing assistance to the existing management team. We generally view our companies as long-term holdings and we expect to realize value by operating them with a view towards fostering growth and maximizing their value rather than through the sale of ownership interests. The securities of some of the companies in which we have interests are traded on national securities exchanges, while others are privately held or not actively traded.

Customers

HNH is diversified across industrial markets and customers. HNH sells to customers in the construction, electrical, electronics, transportation, power control, utility, medical, oil and gas exploration, aerospace and defense, and food industries. No customer accounted for more than 10% of HNH's consolidated net sales in 2016, 2015 or 2014. HNH's 15 largest customers accounted for approximately 29% of consolidated HNH net sales in 2016.

 API's packaging solutions enable companies across a wide-range of industry sectors including premium drinks, confectionery, tobacco, perfumery, personal care, cosmetics and healthcare to empower their brands on the shelf and in the hand.
API had two customers that made up 35% of its consolidated net revenue in 2016 and no customers accounted for more than 10% of API's consolidated net revenue in 2015. API's 15 largest customers accounted for approximately 62% of consolidated API net sales in 2016.

The energy business primarily provides its services to customers' extraction and production operations in North Dakota and Montana in the Bakken basin, Colorado and Wyoming in the Niobrara basin, Texas in the Permian basin and New Mexico in the San Juan basin. Steel Excel relies primarily on its local operations to sell and market its services. In 2016, Steel Excel had two customers that made up 26% of its net revenue, and its top 15 customers made up 75%, 76% and 81% of its net revenue for the years ended December 31, 2016, 2015 and 2014, respectively.

WebBank earns interest income primarily from interest and fees earned on loans and investments and it earns non-interest income primarily from origination fees earned on loans, fee income on contractual lending arrangements, premiums on the sale of loans, and loan servicing fees. For the years ended December 31, 2016, 2015 and 2014, the two highest grossing contractual lending programs accounted for 47%, 46% and 35%, respectively, of WebBank's total revenue.

Raw Materials
    
Besides precious metals, the raw materials used in HNH's operations consist principally of stainless, galvanized silicon and carbon steel, aluminum, copper, tin, nickel alloys, a variety of high-performance alloys, permanent magnets, electronic and electrical components and various plastic compositions. The raw materials used in the operations of HNH's Performance Materials business consist principally of fiberglass, quartz and aramid yarns. HNH purchases all such raw materials at open market prices from domestic and foreign suppliers. HNH has not experienced any significant problem in obtaining the necessary quantities of raw materials. Prices and availability, particularly of raw materials purchased from foreign suppliers, are affected by world market conditions and government policies. The raw materials used by HNH in its non-precious metal products are generally readily available from more than one source.

The raw materials used in the operations of API consist principally of board, PET film, organic solvents, aluminum, resins, pigments and adhesives. API purchases all such raw materials at open market prices and has not experienced any significant problem in obtaining the necessary quantities of raw materials. Prices and availability of raw materials purchased are affected by world market conditions and government policies. The raw materials used are generally readily available from more than one source.

HNH and API require significant amounts of electricity, oil and natural gas to operate their facilities and they are subject to price changes in these commodities. A shortage of electricity, oil or natural gas, or a government allocation of supplies resulting in a general reduction in supplies, could increase costs of production and could cause some curtailment of production.

Capital Investments


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SPLP believes that in order to be and remain competitive, its businesses must continuously strive to increase revenue, improve productivity and product quality, and control and/or reduce manufacturing costs. Accordingly, SPLP expects to continue to make capital investments that reduce overall manufacturing costs, improve the quality of products produced and services provided and broaden the array of products offered to the industries SPLP serves, as well as replace equipment as necessary to maintain compliance with environmental, health and safety laws and regulations. SPLP's capital expenditures for 2016, 2015 and 2014 for continuing operations were $34,183, $23,252 and $28,769, respectively. SPLP anticipates funding its capital expenditures in 2017 from funds generated by operations and borrowed funds.

Employment

As of December 31, 2016, HNH employed 3,470 employees worldwide. Of these employees, 410 were sales employees, 774 were office employees, 265 were covered by collective bargaining agreements, and 2,021 were non-union operating employees. As of December 31, 2016, API employed 616 employees worldwide. Of these employees, 74 were sales employees, 79 were office employees, 443 were manufacturing employees and 20 were in other functions. A total of 269 of API's employees were covered by collective bargaining agreements.

As of December 31, 2016, Steel Excel had 645 employees, of which 633 were full-time employees and 12 were part-time employees. All of Steel Excel's employees are located in the United States. Steel Excel also hires additional full-time and part-time employees during peak seasonal periods. None of Steel Excel's employees are covered by collective bargaining agreements.

As of December 31, 2016, WebBank had 62 employees.

As of December 31, 2016, Steel Services had 64 employees.

Competition

There are many companies, larger and smaller, domestic and foreign, which manufacture products or provide services of the type offered by our subsidiaries. Some of these competitors are larger and have financial resources greater than our subsidiaries. Some of these competitors enjoy certain other competitive advantages, including greater name recognition, greater financial, technical, marketing and other resources, a larger installed base of customers and well-established relationships with current and potential customers.

Competition in the Diversified Industrial segment is based on quality, technology, service, reputation, price, and in some industries, new product introduction.

Steel Excel's Energy business operates in a highly competitive industry that is influenced by price, capacity, reputation, and experience. In times of high demand, capacity, reputation and experience are major competitive forces. In times of low demand, service providers will compete on price to attract customers. In addition, Steel Excel needs to maintain a safe work environment and a well-trained work force to remain competitive. Steel Excel's energy services are affected by seasonal factors, such as inclement weather, fewer daylight hours and holidays during the winter months. Heavy snow, ice, wind, or rain can make it difficult to operate and to move equipment between work sites, which can reduce its ability to provide services and generate revenues. These seasonal factors affect Steel Excel's competitors as well. Because they have conducted business together over several years, the members of its local operations have established strong working relationships with certain of their clients. These strong client relationships provide a better understanding of region-specific issues and enable Steel Excel to better address customer needs. The market for the Steel Excel's Sports business' baseball facility services and soccer camps and leagues is very fragmented, and its competitors are primarily small local or regional operations. The market for its strength and conditioning services is fragmented, and its competitors vary from large national providers of such services to local providers of comparable or other niche services.

WebBank competes with a broad range of banks, both larger and smaller, across its various lines of business.

Regulation
 
Certain of our business are subject to various regulations relating to protection of the environment, worker safety, the handling of hazardous materials, transportation standards, and banking. The Company does not presently anticipate that compliance with currently applicable environmental regulations and controls will significantly change its competitive position, capital spending or earnings during 2017. SPLP believes its subsidiaries are in compliance with all orders and decrees it has consented to with environmental regulatory agencies. These regulations are discussed in more detail below. Also, please see "Item 1A - Risk Factors,"

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"Item 3 - Legal Proceedings" and Note 18 - "Commitments and Contingencies" to the SPLP consolidated financial statements found elsewhere in this Form 10-K.

The Comprehensive Environmental Response, Compensation and Liability Act, as amended, and comparable state laws ("CERCLA") impose liability without regard to fault or the legality of the original conduct on certain defined parties, including current and prior owners or operators of a site where a release of hazardous substances occurred and entities that disposed of or arranged for the disposition of the hazardous substances found at the site. Under CERCLA, these parties may be subject to joint and several liability for the costs of cleaning up the hazardous substances that were released into the environment and for damages to natural resources. Further, claims may be filed for personal injury and property damages allegedly caused by the release of hazardous substances and other pollutants. We may encounter materials that are considered hazardous substances in the course of our operations. As a result, our businesses may incur CERCLA liability for cleanup costs and be subject to related third-party claims. We also may be subject to the requirements of the Resource Conservation and Recovery Act, as amended, and comparable state statutes ("RCRA") related to solid wastes. Under CERCLA or RCRA, our subsidiaries could be required to clean up contaminated property (including contaminated groundwater) or to perform remedial activities to prevent future contamination.

The Clean Water Act established the basic structure for regulating discharges of pollutants into the waters of the United States and quality standards for surface waters. In addition, the Oil Pollution Act of 1990 imposed a multitude of requirements on responsible parties related to the prevention of oil spills and liability for damages resulting from such spills in the waters of the United States. These and comparable state laws provide for administrative, civil, and criminal penalties for unauthorized discharges and impose stringent requirements for spill prevention and response planning, as well as considerable potential liability for the costs of removal and damages in connection with unauthorized discharges.

The Clean Air Act, as amended, and comparable state laws and regulations restrict the emission of air pollutants and impose various monitoring and reporting requirements. These laws and regulations may require our subsidiaries to obtain approvals or permits for construction, modification, or operation of certain projects or facilities and may require use of emission controls. Various scientific studies suggest that emissions of greenhouse gases, including, among others, carbon dioxide and methane, contribute to global warming. While it is not possible to predict how legislation or new regulations that may be adopted to address greenhouse gas emissions would impact the Company's businesses, any new restrictions on emissions that are imposed could result in increased compliance costs for, or additional operating restrictions on, the Company's customers, which could have an adverse effect on the Company's business.

The Occupational Safety and Health Act, as amended, and comparable state laws ("OSHA") regulate the protection of employee health and safety. OSHA's hazard communication standard requires that information about hazardous materials used or produced in its operations be maintained and provided to employees and state and local government authorities.

WebBank is subject to regulatory capital requirements administered by the FDIC. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, WebBank must meet specific capital guidelines that involve quantitative measures of WebBank's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. WebBank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Failure to meet minimum capital requirements can initiate certain actions by regulators that, if undertaken, could have a direct material adverse effect on WebBank's financial statements. In addition, federal banking laws and regulations generally would prohibit WebBank from making any capital distribution (including payment of a dividend) if WebBank would be under-capitalized thereafter. Undercapitalized depository institutions are subject to growth limitations and must submit a capital restoration plan, which must be guaranteed by the institution's holding company. In addition, an undercapitalized institution is subject to increased monitoring and greater regulatory approval requirements. Currently, WebBank meets or exceeds all applicable regulatory capital requirements.            

WebBank is also subject to legal requirements in connection with the consumer and business lending programs that it originates. These include disclosure requirements, prohibitions on certain activities, and a broad prohibition on engaging in unfair, deceptive or abusive acts or practices. These requirements are enforced by WebBank's regulators, the FDIC and the UDFI, as well as through private litigation.

Other Information

The amounts of revenue, earnings before taxes and identifiable assets attributable to the aforementioned business segments and additional information regarding SPLP's investments are included in Note 20 - "Segment Information" and Note 9 - "Investments" to the SPLP consolidated financial statements found elsewhere in this Form 10-K.
 

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Our common units are quoted on the New York Stock Exchange under the symbol "SPLP". Our business address is 590 Madison Avenue, 32nd Floor, New York, New York 10022, and our telephone number is (212) 520-2300. Our website is www.steelpartners.com. The information contained in, or that can be accessed through, the website is not part of this Form 10-K. This Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports, are available to you free of charge through our website as soon as reasonably practicable after those materials have been electronically filed with, or furnished to, the U.S. Securities and Exchange Commission ("SEC").

Item 1A. Risk Factors

Our business is subject to a number of risks. You should carefully consider the following risk factors, together with all of the other information included or incorporated by reference in this report, before you decide whether to purchase our common units. These factors are not intended to represent a complete list of the general or specific risks that may affect us. It should be recognized that other risks may be significant, presently or in the future, and the risks set forth below may affect us to a greater extent than indicated. If any of the following risks occur, our business, financial condition and results of operations could be materially adversely affected. In such case, the trading price of our common units could decline, and you may lose all or part of your investment.

Risks Related to Our Business

We could incur significant costs, including remediation costs, as a result of complying with environmental laws or failing to comply with other extensive regulations that our businesses are subject to.

Our businesses are subject to extensive regulation by U.S. and non-U.S. governmental and self-regulatory entities at the federal, state and local levels, including laws related to anti-corruption, environmental matters, health and safety, import laws and export control and economic sanctions, and the sale of products and services to government entities. Some of these laws and regulations pertain to the handling, storage and transportation of raw materials, products and wastes, and hazardous materials and wastes. Compliance with such requirements may make it necessary for us to retrofit existing facilities with additional pollution-control equipment, undertake new measures in connection with the storage, transportation, treatment and disposal of by-products and wastes or take other steps, which may be at a substantial cost to our subsidiaries. Although our subsidiaries maintain insurance coverage for certain environmental matters, they could incur substantial costs, including cleanup costs, fines or sanctions, and third-party claims for property damage or personal injury, as a result of violations of, or liabilities under, environmental laws. Any material violations of these laws can lead to substantial liability, revocations of discharge permits, fines or penalties, and any new laws, regulations, and enforcement policies could become more stringent and significantly increase our compliance costs or limit our future business opportunities, negatively impacting our financial condition, business and results of operations.

In addition, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") contains provisions to improve transparency and accountability concerning the supply of certain minerals, known as conflict minerals, originating from the Democratic Republic of Congo ("DRC") and adjoining countries. As a result, the SEC has adopted annual disclosure and reporting requirements for those companies who use conflict minerals mined from the DRC and adjoining countries in their products. The implementation of these rules could adversely affect the sourcing, supply and pricing of materials used in some of our subsidiaries' products. As there may be only a limited number of suppliers offering "conflict free" conflict minerals, we cannot be sure that our businesses will be able to obtain necessary conflict minerals from such suppliers in sufficient quantities or at competitive prices. Also, we may face reputational challenges if we determine that certain of our businesses' products contain minerals not determined to be conflict free or if we are unable to sufficiently verify the origins for all conflict minerals used in our businesses' products through the procedures we may implement.

These are not the only regulations that our businesses must comply with. Failure to comply with these or any other regulations could result in civil and criminal, monetary and non-monetary penalties, damage to our reputation, disruptions to our business, limitations on our ability to manufacture, import, export and sell products and services, disbarment from selling to certain federal agencies, damage to our reputation and loss of customers and could cause us to incur significant legal and investigatory fees. Compliance with these and other regulations may also require us to incur significant expenses. The products and operations of our businesses are also often subject to the rules of industrial standards bodies such as the International Organization for Standardization (ISO), and failure to comply with these rules could result in withdrawal of certifications needed to sell our products and services and otherwise adversely impact our financial condition.

Our businesses rely, and may rely, on their intellectual property and licenses to use others' intellectual property, for competitive advantage. If our businesses are unable to protect their intellectual property, are unable to obtain or retain licenses to use others' intellectual property, or if they infringe upon or are alleged to have infringed upon others' intellectual property, it could have a material adverse effect on their financial condition, business and results of operations.

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The success of each of our businesses depends in part on the trademarks and patents that they own, or their licenses to use others', brand names, proprietary technology and manufacturing techniques. In addition to trademark and patent protection, these businesses rely on copyrights, trade secrets, confidentiality procedures and contractual provisions to protect their intellectual property rights. The steps they have taken to protect their intellectual property rights may not prevent third parties from using their intellectual property without their authorization or independently developing intellectual property that is similar. In addition, the laws of foreign countries may not protect our businesses' intellectual property rights effectively. Stopping unauthorized use of proprietary information and intellectual property, and defending claims of unauthorized use of others' proprietary information or intellectual property, may be difficult, time-consuming and costly and could subject our businesses to significant liability for damages and invalidate their property rights. Such unauthorized use could reduce or eliminate any competitive advantage our businesses have developed, cause them to lose sales or otherwise harm their business.

We conduct operations or own interests in companies with operations outside of the U.S., which may expose us to additional risks not typically associated with companies that operate solely in the U.S.

We have operations or own interests in securities of companies with operations located outside the U.S. These holdings have additional risks, including risks relating to currency exchange, less developed or efficient financial markets than in the U.S., absence of uniform accounting, auditing and financial reporting standards, differences in the legal and regulatory environment, different publicly available information in respect of companies in non-U.S. markets, economic and political risks, and possible imposition of non-U.S. taxes. There can be no assurance that adverse developments with respect to such risks will not adversely affect our assets that are held in certain countries or the returns from these assets.

A significant disruption in, or breach in security of, our information technology systems could adversely affect our business.

We rely on information technology systems, some of which are managed by third parties, to process, transmit and store electronic information, and to manage or support a variety of critical business processes and activities. We also collect and store sensitive data, including confidential business information and personal data. These systems may be susceptible to damage, disruptions or shutdowns due to attacks by computer hackers, computer viruses, employee error or malfeasance, power outages, hardware failures, telecommunication or utility failures, catastrophes or other unforeseen events. Upgrading our information technology systems is costly and subject to delay, and there is no assurance new systems will provide the benefits expected. In addition, security breaches of our systems could result in the misappropriation or unauthorized disclosure of confidential information or personal data belonging to us or to our employees, partners, customers or suppliers. Any such events could disrupt our operations, delay production and shipments, result in defective products or services, damage customer relationships and our reputation and result in legal claims or proceedings, liability or penalties under privacy laws, each of which could adversely affect our business and our financial condition. State and federal laws may also require us to provide notice to affected individuals if their personal data is the subject of a breach in security, which would impose costs and could lead to additional liability and negative publicity.
    
HNH sponsors defined benefit pension plans which could subject it to substantial cash funding requirements in the future.

HNH's ongoing operating cash flow requirements include arranging for the funding of the minimum requirements of the WHX Corporation Pension Plan, the WHX Pension Plan II and the Retirement Plan for Employees of JPS Industries, Inc. ("JPS"). The performance of the financial markets and interest rates, as well as health care trends and associated mortality rates, impact our defined benefit pension plan expense and funding obligations. Significant changes in these factors, including adverse changes in discount rates, investment losses on plan assets and increases in participant life expectancy, may increase our funding obligations and adversely impact our financial condition. Required future contributions are estimated based upon assumptions such as discount rates on future obligations, assumed rates of return on plan assets and legislative changes. Actual future pension costs and required funding obligations will be affected by changes in the factors and assumptions described in the previous sentence, as well as other changes such as any plan termination or other acceleration events. See the Liquidity and Capital Resources section of this Form 10-K for additional information.

WebBank operates in a highly regulated environment and its lending programs are subject to extensive federal and state regulation. Ongoing legislative and regulatory actions may significantly affect our liquidity or financial condition.

The consumer and business lending programs offered by WebBank are subject to extensive legal requirements at the federal and state levels. Among the laws that may be applicable to some or all of the programs offered by WebBank are:


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the Federal Truth-in-Lending Act and Regulation Z promulgated thereunder, which require certain disclosures to borrowers regarding the terms of their loans;
the Dodd-Frank Act, the Federal Trade Commission Act, and state laws that prohibit unfair, deceptive, or abusive acts or practices;
the Federal Equal Credit Opportunity Act and Regulation B promulgated thereunder, which prohibit discrimination in the extension of credit on the basis of age, race, color, sex, religion, marital status, national origin, receipt of public assistance or the exercise of any right under the Consumer Credit Protection Act;
the Fair Credit Reporting Act, which governs the use of credit reports and the reporting of information to credit bureaus, and imposes restrictions on the marketing of credit products through prescreened solicitations based on credit report information;
the Servicemembers Civil Relief Act and the Military Lending Act, which impose rate limitations and other requirements in connection with the credit obligations of active duty military personnel and certain of their dependents;
federal and state laws relating to privacy and the safeguarding of personally identifiable consumer information and data breach notification;
the Bank Secrecy Act, which relates to compliance with anti-money laundering, customer due diligence and record-keeping policies and procedures; and
laws governing the permissibility of the interest rates and fees that are charged to borrowers.

The Dodd-Frank Act, which was signed into law in 2010, is intended primarily to overhaul the financial regulatory framework and impacts all financial institutions, including WebBank. The Dodd-Frank Act, among other things, established the Bureau of Consumer Financial Protection and Financial Stability Oversight Council, consolidated certain federal bank regulators and imposed increased corporate governance and executive compensation requirements. The amount and complexity of this and other regulations has increased WebBank's regulatory compliance burden and therefore has increased its regulatory risk.

If WebBank or its programs do not comply with these laws, it may be subject to claims for damages, fines, or penalties, and may face regulatory scrutiny. In addition, some violations could result in an underlying loan being found invalid or unenforceable, or subject to payment defenses. Any of these violations could result in the imposition of liability on WebBank, although WebBank may have indemnification rights for certain claims. In addition, there could be limitations on WebBank's ongoing or future business.

WebBank offers lending programs through relationships with Marketing Partners. WebBank and its Marketing Partners are subject to supervision by the FDIC and the UDFI. The authority of the FDIC and the UDFI includes the ability to examine WebBank, the Marketing Partners, and the programs. The FDIC and UDFI also may bring enforcement actions against WebBank and its Marketing Partners if they detect any violations of law. These enforcement actions could result in monetary liability on WebBank, increased compliance obligations, or limitations on its ongoing and future business.

The U.S. Congress and state legislatures and federal and state regulatory authorities continually review banking laws, regulations and policies for possible changes. We cannot predict whether additional legislation or regulations will be enacted and, if enacted, the effect that it would have on our business, financial condition or results of operations.

WebBank's status as lender of the loans it offers, and the ability of assignees to collect interest, may be challenged, and these challenges could negatively impact WebBank's ongoing and future business.

WebBank's business includes lending programs with Marketing Partners, where the Marketing Partners provide origination servicing for the loans and subsequently purchase the loans (or interests in the loans) that are originated by WebBank. There have been litigation and regulatory actions which have challenged lending arrangements where a bank has made a loan and then sold and assigned it to an entity that is engaged in assisting with the origination and servicing of the loan. Some of these cases have alleged that the marketing and servicing entity should be viewed as the “true creditor” of the loans originated through the lending program, and the bank should be disregarded. If this type of challenge is successful, state law interest rate limitations and other requirements that apply to non-bank lenders would then be applicable, instead of the federal interest rate laws that govern bank lenders. Other cases have relied on the claim that even if a bank originated a loan based on the federal interest rate laws, an assignee of a bank is not permitted to rely on the federal law and is instead subject to state law limitations. Certain of these challenges have been brought or threatened in programs involving WebBank. Such cases or regulatory actions, if successfully brought against WebBank or its Marketing Partners or others could negatively impact WebBank's ongoing and future business. WebBank continues to structure its programs, and to exercise control over these programs, to address these risks, although there can be no assurance that additional cases or regulatory actions will not be brought in the future.
    
The Volcker Rule, which is part of the Dodd-Frank Act, restricts SPLP's flexibility to do business.
     

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The Dodd-Frank Act added a new Section 13 to the Bank Holding Company Act, the so-called "Volcker Rule," which generally restricts certain banking entities (including affiliates of depository institutions) from engaging in proprietary trading activities and acquiring or retaining ownership interests in, or sponsoring, any private equity or hedge fund (collectively, "covered funds"). Under the implementing regulations, WebBank (and its affiliates) are restricted from engaging in proprietary trading, or investing in or sponsoring covered funds unless their activities qualify for a specific exemption under the rule or satisfy certain requirements under the rule. Because SPLP controls WebBank, each of SPLP and all its subsidiaries, as well as its controlled entities, are banking entities under the Volcker Rule and therefore subject to these regulations, and therefore are restricted from doing business to the extent necessary to comply with them.

WebBank is subject to capital requirements and SPLP could be called upon by the FDIC to infuse additional capital into WebBank to the extent that WebBank fails to satisfy its capital requirements.

In July 2013, the Federal Reserve Board, the Office of the Comptroller of the Currency, and the FDIC issued rules that implemented the Basel III changes to the international regulatory capital framework and revised the U.S. risk-based and leverage capital requirements for U.S. banking organizations in order to strengthen identified areas of weakness in capital rules and to address relevant provisions of the Dodd-Frank Act. 

Effective January 1, 2015 for WebBank, FDIC regulations implementing the Basel III Accord modified WebBank's minimum capital requirements by adding a 4.5% Common Equity Tier 1 ratio and increased the Tier 1 capital ratio requirement from 4% to 6%. FDIC regulations also require WebBank to comply with a total capital ratio of 8% and a leverage ratio of 4%. Additionally, a Capital Conservation Buffer (composed solely of common equity Tier 1 capital) equal to 2.5% above the new regulatory minimum capital requirements will be phased in starting January 1, 2016 until fully implemented on January 1, 2019. The Capital Conservation Buffer is on top of the minimum risk-weighted asset ratios and will have the effect of increasing those ratios by 2.5% each when fully phased in. A failure of WebBank to maintain the aggregate minimum capital required by the Capital Conservation Buffer will impair its ability to make certain distributions (including dividends and stock repurchases) and discretionary bonus payments to executive officers. A failure of WebBank to maintain capital as required by the FDIC's minimum capital requirements would subject WebBank to the FDIC's prompt corrective action regime, which may further impair WebBank's ability to make payments or distributions and may require a capital restoration plan or other corrective regulatory measures.
     
The Company currently cannot predict the specific impact and long-term effects that Basel III and its implementation in the U.S. will have on WebBank and the banking industry more generally. Furthermore, the Dodd-Frank Act codified a longstanding policy that all companies that directly or indirectly control an FDIC-insured bank are required to serve as a source of financial strength for such institution. As a result, SPLP could be called upon by the FDIC to infuse additional capital into WebBank to the extent that WebBank fails to satisfy its capital requirements, including at times that SPLP might not otherwise be inclined to provide it and even if doing so may adversely affect SPLP's ability to meet its other obligations.

WebBank's lending programs depend on relationships with Marketing Partners.

WebBank offers its lending programs with Marketing Partners. If those Marketing Partners do not provide origination services or other services to WebBank, or provide those services in a faulty manner, that may negatively impact WebBank's ongoing and future business. In addition, if the Marketing Partners or other third parties do not purchase the loans (or interests in loans) that are originated by WebBank, then WebBank may need to retain those loans (or interests in loans) and that may negatively impact its ongoing and future business. Marketing Partners may rely on outside sources of capital to meet their obligations. Market conditions and other factors may affect the availability of capital for Marketing Partners. The availability of capital may also affect the volume of loans that can be originated through WebBank's lending programs. In 2016, the availability of capital has been more limited for several of WebBank's Marketing Partners, resulting in a decrease in loan volume and a negative impact on WebBank's business. 

Economic downturns could disrupt and materially harm our businesses.

Negative trends in the general economy could cause a downturn in the markets for our products and services. A significant portion of our revenues in the Diversified Industrial segment are received from customers in transportation, oil and gas exploration, and construction related industries, which have experienced significant financial downturns in the past. These industries are cyclical and demand for their products tends to fluctuate due to changes in national and global economic conditions, availability of credit and other factors. A worsening of customer demand in these industries would adversely affect our revenues, profitability, operating results and cash flows. In our Energy segment, the level of oil and natural gas exploration and production activity in the United States has declined in light of the decline in the price of oil. Reduced discovery rates of new oil and natural gas reserves, or a decrease in the development rate of reserves in our market areas, weakness in oil and natural gas prices, or our customers' perceptions that oil and natural gas prices will decrease in the future, could result in a reduction in the utilization of our equipment and result

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in lower revenues or rates for the services of our Energy segment. Our customers' willingness to undertake these activities depends largely upon prevailing industry conditions that are influenced by many factors over which we have no control. Our Financial Services segment could be impacted by tightening of the credit markets and other general economic declines that could result in a decrease in lending and demand for consumer loans. We may also experience a slowdown if some customers experience difficulty in obtaining adequate financing due to tightness in the credit markets. Furthermore, the financial stability of our customers or suppliers may be compromised, which could result in additional bad debts for us or non-performance by suppliers. Our assets may also be impaired or subject to write-down or write-off as a result of these conditions. These adverse effects would likely be exacerbated if global economic conditions worsen, resulting in wide-ranging, adverse and prolonged effects on general business conditions, and materially and adversely affect our operations, financial results and liquidity.

Increased regulation of hydraulic fracturing could have an adverse impact on the customers in our Energy segment. 

Many of the customers in our Energy segment utilize hydraulic fracturing services, which is the process of creating or expanding cracks, or fractures, in formations underground where water, sand, and other additives are pumped under high pressure into the formation. Although our Energy segment is not a provider of hydraulic fracturing services, many of its services complement the hydraulic fracturing process. Legislation for broader federal regulation of hydraulic fracturing operations and the reporting and public disclosure of chemicals used in the fracturing process could be enacted. Additionally, the United States Environmental Protection Agency has asserted federal regulatory authority over certain hydraulic fracturing activities involving diesel fuel under the Safe Drinking Water Act and is completing the process of drafting guidance documents related to this asserted regulatory authority. Our Energy segment's customers' operations could be adversely affected if additional regulation or permitting requirements were to be required for hydraulic fracturing activities, which could have an adverse effect on our results of operations.

Our business strategy includes acquisitions, and acquisitions entail numerous risks, including the risk of management diversion and increased costs and expenses, all of which could negatively affect the Company's profitability.

Our business strategy includes, among other things, strategic acquisitions, as well as potential opportunistic acquisitions. This element of our strategy entails several risks, including the diversion of management's attention from other business concerns and the need to finance such acquisitions with additional equity and/or debt.

In addition, once completed, acquisitions entail further risks, including: unanticipated costs and liabilities of the acquired businesses, including environmental liabilities that could materially adversely affect our results of operations; difficulties in assimilating acquired businesses; negative effects on existing business relationships with suppliers and customers; and losing key employees of the acquired businesses. If our acquisition strategy is not successful or if acquisitions are not well integrated into our existing operations, the Company's profitability could be negatively affected.

Our subsidiaries do not have long-term contracts with all of their customers, the loss of which customers could materially adversely affect our financial condition, business and results of operations.

Our businesses are based primarily upon individual orders, sales and service agreements with customers and not long-term contracts. As such, these customers could cease buying products or using our services at any time and for any reason, and we will have no recourse in the event a customer no longer wants to purchase products from us or use our services. If a significant number of our customers elect not to purchase products or use our services, or we have to make price concessions in order to retain certain customers, it could materially adversely affect our financial condition, business and results of operations.

We may sustain losses in our investment portfolio, which could have an adverse effect on our results of operations, financial condition, and liquidity. 

A portion of our assets consists of investments in available-for-sale securities which are adjusted to fair value each period. An adverse change in global economic conditions may result in a decline in the value of these investments. Such declines in value of available-for-sale securities will be recognized as losses upon the sale of such securities or if such declines are deemed to be other than temporary. Any adverse changes in the financial markets and resulting declines in value of our investments may result in additional impairment charges and could have an adverse effect on our results of operations, financial condition, and liquidity.

Future cash flows from operations or through financings may not be sufficient to enable the Company to meet its obligations, and this would likely have a material adverse effect on its businesses, financial condition and results of operations.

There can be no assurances that the Company or its subsidiaries will continue to have access to their lines of credit if their financial performance does not satisfy the financial covenants set forth in the applicable financing agreements. If the Company or

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its subsidiaries do not meet certain of its financial covenants, and if they are unable to secure necessary waivers or other amendments from the respective lenders on terms acceptable to management, their ability to access available lines of credit could be limited, their debt obligations could be accelerated by the respective lenders and liquidity could be adversely affected.

If the Company's or its subsidiaries' cash needs are significantly greater than anticipated or they do not materially meet their business plans, the Company or its subsidiaries may be required to seek additional or alternative financing sources. There can be no assurance that such financing will be available or available on acceptable terms. The inability to generate sufficient cash flows from operations or through financing could impair the Company's or its subsidiaries' liquidity and would likely have a material adverse effect on their businesses, financial condition and results of operations.

Credit market volatility may affect our ability to refinance our existing debt, borrow funds under our existing lines of credit or incur additional debt.

Future disruption and volatility in credit market conditions could have a material adverse impact on our ability or our subsidiaries' ability to refinance debt when it comes due on terms similar to our current credit facilities, or to draw upon existing lines of credit or incur additional debt if needed as a result of unanticipated downturns in the markets for our products and services, which may require us or our subsidiaries to seek other funding sources to meet our cash requirements. We cannot be certain that alternative sources of financing would be available in the future on terms and conditions that are acceptable.

Litigation or compliance failures could adversely affect our profitability.

The nature of our businesses expose us to various litigation matters. We contest these matters vigorously and make insurance claims where appropriate. However, litigation is inherently costly and unpredictable, making it difficult to accurately estimate the outcome of any litigation. These lawsuits may include claims for compensatory damages, punitive and consequential damages and/or injunctive relief. The defense of these lawsuits may divert our management's attention, we may incur significant expenses in defending these lawsuits, and we may be required to pay damage awards or settlements or become subject to equitable remedies that could adversely affect our operations and financial condition. Moreover, any insurance or indemnification rights that we may have may be insufficient or unavailable to protect us against such losses. In addition, developments in legal proceedings in any given period may require us to adjust the loss contingency estimates that we have recorded in our consolidated financial statements, record estimates or reserves for liabilities or assets previously not susceptible of reasonable estimates or pay cash settlements or judgments. Any of these developments could adversely affect our financial condition in any particular period. Although we make accruals as we believe warranted, the amounts that we accrue could vary significantly from any amounts we actually pay due to the inherent uncertainties in the estimation process.

Our internal controls over financial reporting may not be effective, and our independent auditors may not be able to certify as to their effectiveness, which could have a significant and adverse effect on our business and reputation.

We are subject to the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and the rules and regulations of the SEC thereunder ("Section 404"). Section 404 requires us to report on the design and effectiveness of our internal controls over financial reporting. Section 404 also requires an independent registered public accounting firm to test our internal controls over financial reporting and report on the effectiveness of such controls. There can be no assurance that our auditors will issue an unqualified report attesting to our internal controls over financial reporting. As a result, there could be a negative reaction in the financial markets due to a loss of confidence in the reliability of our consolidated financial statements or our consolidated financial statements could change. Further, HNH completed the acquisitions of SLI and EME on June 1, 2016, and September 30, 2016, respectively, and we have excluded the operations of these businesses from our evaluation of, and conclusion on, the effectiveness of our internal control over financial reporting as of December 31, 2016. Any failure to maintain or implement new or improved controls, or any difficulties we encounter in their implementation, could result in significant deficiencies or material weaknesses, and cause us to fail to meet our periodic reporting obligations, or result in material misstatements in our consolidated financial statements. We may also be required to incur costs to improve our internal control system and hire additional personnel. This could negatively impact our results of operations.

Risks Related to Our Structure

The unitholders have limited recourse to maintain actions against the General Partner, the Board of Directors, our officers and the Manager.

The Limited Partnership Agreement of SPLP, or the "Partnership Agreement," contains broad indemnification and exculpation provisions that limit the right of a unitholder to maintain an action against the General Partner, the Board of Directors,

13


our officers and the Manager, or to recover losses or costs incurred due to action or inaction by these parties which have a negative effect on the Company.

Our Partnership Agreement contains certain provisions that may limit the voting rights of some unitholders.

Our Partnership Agreement contains specific provisions that are intended to comply with regulatory limitations on the ownership of our securities as a result of our ownership of WebBank. Under the Partnership Agreement, a person or group that acquires beneficial ownership of 10% or more of the common units without the prior approval of the Board of Directors may lose voting rights with respect to all of its common units in excess of 9.9%.

We may have conflicts of interest with the minority shareholders of our businesses and decisions may need to be made by disinterested directors, without the participation of directors or officers associated with the Manager and the Company. These decisions may be different from the decisions we would make, and may or may not be in the best interests of our unitholders.

Because we own less than 100% of certain affiliates, and we may engage in transactions with these affiliates from time to time, the boards of directors and officers of those businesses, including directors and officers associated with our Manager and the Company, have fiduciary duties to their respective shareholders. As a result, they may make decisions that are in the best interests of their shareholders generally but which are not necessarily in the best interest of our unitholders. In dealings with us, the directors and officers of our businesses may have conflicts of interest and decisions may have to be made without their participation. Such decisions may be different from the decisions we would make and may not be in the best interests of our common unitholders, which may have an adverse effect on our business and results of operations.

There are certain interlocking relationships among us and certain affiliates of Warren G. Lichtenstein, our Executive Chairman, which may present potential conflicts of interest.

Warren G. Lichtenstein, our Executive Chairman and a substantial unitholder, is the Chief Executive Officer of our Manager. As of December 31, 2016, Mr. Lichtenstein directly owned approximately 14.4% of our outstanding common units. In addition, affiliates of our Manager beneficially own approximately 28.4% of our outstanding units, although Mr. Lichtenstein disclaims beneficial ownership of any common units not directly held by him. We have entered into transactions and/or agreements with these entities. There can be no assurance that such entities will not have interests in conflict with our own. 

Certain members of our management team may be involved in other business activities that may involve conflicts of interest, possibly diverting their attention from the Company's operations.

Certain individual members of our management team may, from time to time, be involved in the management of other businesses, including those owned or controlled by our Manager and its affiliates. Accordingly, these individuals may focus a portion of their time and attention on managing these other businesses. Conflicts may arise in the future between our interests and the interests of the other entities and business activities in which such individuals are involved.

Being classified as an "investment company" would subject us to numerous restrictions and requirements that would be inconsistent with the manner in which we operate our business, and could have a material adverse effect on our business and operations.

We plan to continue to conduct our business and operations in such a manner as not to be deemed an investment company under the Investment Company Act of 1940, as amended (the "Investment Company Act").

Investment companies are subject to extensive, restrictive and potentially adverse regulations relating to, among other things, operating methods, management, capital structure, dividends and transactions with affiliates. An entity may generally be deemed to be an investment company for purposes of the Investment Company Act if (a) it is or holds itself out as being engaged primarily in the business of investing, reinvesting or trading in securities; or (b) absent an applicable exemption, it owns investment securities having a value exceeding 40% of certain assets (the "40% Test"). As a result of an exchange transaction, on July 14, 2009, we could no longer definitively conclude that we passed the 40% Test or were able to rely on any exception from the definition of an investment company.

The Company has taken actions, including liquidating certain of our assets and acquiring additional interests in existing or new subsidiaries or controlled companies, to comply with the 40% Test, or a relevant exception. Also, since the Company operates as a diversified holding company engaged in a variety of operating businesses, we do not believe we are primarily engaged in an investment company type business, nor do we propose to primarily engage in such a business. Our intent to operate as a diversified

14


holding company, and comply with the 40% Test, may limit our ability to make certain investments, compel us to divest certain holdings, or to take or forego certain actions that could otherwise be beneficial to us.

If we were deemed to be an investment company under the Investment Company Act, we may need to further adjust our business strategy and assets, including divesting certain desirable assets immediately to fall outside of the definition or within an exemption, to register as an investment company (and subject to the aforementioned restrictions and requirements) or to cease operations.

Risks Related to Our Manager

We depend on Warren G. Lichtenstein, the Chairman and Chief Executive Officer of the Manager, and Jack Howard, the President of the Manager, in running our businesses. The loss of their services could have a material adverse effect on our business, results and financial condition.

Our success depends on the efforts, skills, reputation and business contacts of Warren G. Lichtenstein, the Chairman and Chief Executive Officer of the Manager and Jack Howard, the President of the Manager. While the key members of the Manager have worked for the Manager and its affiliates for many years, our Manager does not have any employment agreements with any of the key members of its management team and their continued service is not guaranteed. The loss of the services of Mr. Lichtenstein or Mr. Howard could have a material adverse effect on our asset value, revenues, net income and cash flows and could harm our ability to maintain or grow our existing operations or pursue additional opportunities in the future.

We cannot determine the amount of the Management Fee that will be paid over time with any certainty.

The Manager receives a fee (the "Management Fee") at an annual rate of 1.5% of total partners' capital. Our total partners' capital will be impacted by the performance of our businesses and other businesses we may acquire in the future, as well as the issuance of additional common units. Changes in our total partners' capital and in the resulting Management Fee could be significant, resulting in a material adverse effect on our results of operations. In addition, if our performance declines, assuming our total partners' capital remains the same, the Management Fee will increase as a percentage of our net income.

Our Manager's liability is limited under the Management Agreement, and we have agreed to indemnify our Manager against certain liabilities. Such indemnification may incentivize our Manager to take unnecessary risks with respect to actions for which it will be indemnified.

Under the Management Agreement, our Manager, its members, officers, employees, affiliates, agents and legal representatives are not liable for, and we have agreed to indemnify such persons from, any loss or expense, including without limitations, any judgment, settlement, reasonable attorneys' fees and other costs and expenses incurred in connection with the defense of any actual or threatened proceeding, other than losses resulting from willful misconduct or gross negligence in the performance of such indemnified person's obligations and duties. Such indemnification may incentivize our Manager to take unnecessary risks with respect to actions for which it will be indemnified.

Risks Related to our Common and Preferred Units

We may issue additional common units or preferred units, or other series of units, in the future without the consent of unitholders and at a discount to the market price of such units. In particular, sales of significant amounts of the common units or preferred units may cause the respective prices of the units to decline.

Under the terms of the Partnership Agreement, additional common or preferred units, or additional series of units, may be issued without the consent of unitholders at a discount to the market price. In addition, other classes of securities may be issued with rights that are senior to or which otherwise have preferential rights to the rights of the common and preferred units. Sales of significant amounts of the common or preferred units in the public market or the perception that such sales of significant amounts may occur could adversely affect their respective market prices. Moreover, the perceived risk of any potential dilution could cause common or preferred unitholders to attempt to sell their units and investors to "short" the common units, a practice in which an investor sells units that he or she does not own at prevailing market prices, hoping to purchase units later at a lower price to cover the sale. Any event that would cause the number of common or preferred units being offered for sale to increase would likely cause the respective units' market price to further decline. These sales might also make it more difficult for us to sell additional common or preferred units in the future at a time and price that we deem appropriate.


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Transfer restrictions contained in the Company's Partnership Agreement and other factors could hinder the development of an active market for our common or preferred units.

There can be no assurance as to the volume of our common or preferred units or the degree of price volatility for our common and preferred units traded on the New York Stock Exchange. There are transfer restrictions contained in the Company's Partnership Agreement to help protect net operating tax loss carryforwards of certain of the Company's corporate subsidiaries and other portfolio companies. The transfer restrictions will expire on February 7, 2020, and they could hinder development of an active market for our common and preferred units.

Risks Related to Taxation

All statutory references in this section are to the Internal Revenue Code of 1986, as amended, or the "Code."

Our unitholders may be subject to U.S. federal, state and other income tax on their share of our taxable income, regardless of whether they receive any cash distributions from us.

The Company operates, for U.S. federal income tax purposes, as a partnership and not a publicly traded partnership taxable as a corporation. Our unitholders will be subject to U.S. federal, state, local and possibly, in some cases, foreign income tax on their allocable share of our taxable income, whether or not they receive cash distributions from us. Any future determination to declare dividends on the Company's common units will remain at the discretion of the Board of Directors. Accordingly, our unitholders may be required to make tax payments in connection with their ownership of common units that significantly exceed their cash distributions in any given year.

Our tax treatment is not assured. If we are taxed as a corporation, it could adversely impact our results of operations.

A partnership is not a taxable entity, and distributions by a partnership to a partner are generally not taxable to the partnership or the partner unless the amount of cash distributed to such partner exceeds the partner's adjusted basis in its partnership interest. Section 7704 provides that generally publicly traded partnerships are taxed as corporations. However, an exception, referred to as the "Qualifying Income Exception," exists with respect to publicly traded partnerships of which 90 percent or more of the gross income for every taxable year consists of "qualifying income" as defined in the Code. We expect that we will meet the Qualifying Income Exception.

If the Qualifying Income Exception is not available to us, then we will be treated as a corporation instead of a partnership. In that event, the deemed incorporation of SPLP should be tax-free. If we were taxed as a corporation, (i) our net income would be taxed at corporate income tax rates, thereby substantially reducing our profitability, (ii) our unitholders would not be allowed to deduct their share of losses of SPLP and (iii) distributions to our unitholders, other than liquidating distributions, would constitute dividends to the extent of our current or accumulated earnings and profits, and would be taxable as such.

Our structure involves complex provisions of U.S. federal income tax law for which no clear precedent or authority may be available.

The U.S. federal income tax treatment of our unitholders depends in some instances on interpretations of complex provisions of U.S. federal income tax law for which no clear precedent or authority may be available. Our Partnership Agreement permits our General Partner to modify it from time to time, including the allocation of items of income, gain, loss and deduction (including unrealized gain and unrealized loss to the extent allowable under U.S. federal income tax law), without the consent of our unitholders, to address certain changes in U.S. federal income tax regulations, legislation or interpretation or to preserve the uniformity of our common units. In some circumstances, such revisions could have a material adverse impact on some or all unitholders. In addition, we formed a subsidiary partnership, to which we contributed certain of our assets ("Subsidiary Partnership"). To preserve the uniformity of common units, we (but not the Subsidiary Partnership) made an election permitted under Section 754 and we will adopt the remedial allocation method under Section 704(c) with respect to items of income, gain, loss and deduction attributable to assets contributed to us (which we will contribute to the Subsidiary Partnership), to account for any difference between the tax basis and fair market value of such assets at the time of contribution, or attributable to the "book-up" or "book-down" of our assets prior to their contribution to the Subsidiary Partnership, or while they were held by the Subsidiary Partnership, to account for the difference between the tax basis and fair market value of such assets at the time of a mark-to-market event. We intend generally to make allocations under Section 704(c) to our unitholders in accordance with their respective percentage interests. However, built-in gain or built-in loss in existence and allocable to the assets we contributed to the Subsidiary Partnership, when recognized, will be allocated to our unitholders as of the contribution date. We intend to prepare our tax returns on the basis that buyers of common units from such unitholders will not inherit such unitholders' built-in gains or built-in losses as of that date as a result of the election

16


under Section 754. However, it is not clear whether this position will be upheld if challenged by the Internal Revenue Service. While we believe it represents the right result, there is no law directly on point.

Tax-exempt entities face unique tax issues from owning common units that may result in adverse tax consequences to them.

A holder of common units that is a tax-exempt organization may be subject to U.S. federal income taxation to the extent that its allocable share of our income consists of unrelated business taxable income ("UBTI"). A tax-exempt partner of a partnership may be treated as earning UBTI if the partnership regularly engages in a trade or business that is unrelated to the exempt function of the tax-exempt partner, if the partnership derives income from debt-financed property (as we may borrow money) or if the tax-exempt organization's partnership interest itself is debt-financed.

Our subsidiaries may not be able to fully utilize their tax benefits, which could result in increased cash payments for taxes in future periods. 

Net operating losses ("NOLs") may be carried forward to offset federal and state taxable income in future years and reduce the amount of cash paid for income taxes otherwise payable on such taxable income, subject to certain limits and adjustments. If fully utilized, our subsidiaries' NOLs and other carryforwards could provide them with significant tax savings in future periods. Their ability to utilize these tax benefits in future years will depend upon their ability to generate sufficient taxable income and to comply with the rules relating to the preservation and use of NOLs. The potential benefit of the NOLs and other carryforwards may be limited or permanently lost as a result of the following:

the inability to generate sufficient taxable income in future years to use such benefits before they expire;
a change in control of our subsidiaries that would trigger limitations on the amount taxable income in future years that may be offset by NOLs and other carryforwards that existed prior to the change in control; and
examinations and audits by the Internal Revenue Service and other taxing authorities could reduce the amount of NOLs and other credit carryforwards that are available for future years.

Certain of our subsidiaries maintain a full valuation allowance against their NOLs and other carryforwards due to uncertainty regarding their ability to generate sufficient taxable income in future periods. Their inability to utilize the NOLs and other carryforwards could result in increased cash payments for taxes in future periods.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Diversified Industrial Segment

HNH

As of December 31, 2016, HNH had 28 active operating plants in the United States, Canada, China, United Kingdom, France, Poland and Mexico, with a total area of approximately 2,498,473 square feet, including warehouse, office, sales, service and laboratory space. HNH also owns or leases sales, service, office and warehouse facilities at 19 other locations in the United States, Canada, Germany and China which have a total area of approximately 521,163 square feet, and owns or leases 4 non-operating locations with a total area of approximately 680,743 square feet. Manufacturing facilities are located in: Camden, Delaware; Addison, Illinois; Evansville, Indiana; Agawam and Billerica, Massachusetts; Rockford and Montevideo, Minnesota; Middlesex, New Jersey; Arden and Statesville, North Carolina; Anderson, South Carolina; Kenosha and Cudahy, Wisconsin; Warwick, Rhode Island; Toronto, Canada; Matamoros, Mexicali and Tecate, Mexico; Welham Green and Gwent, Wales, United Kingdom; Riberac, France; Gliwice, Poland; and Xianghe and Suzhou, China. The following plants are leased: both Tecate plants, Addison, Middlesex, Kenosha, Arden, Rockford, one of two Matamoros plants, Mexicali, Xianghe, Suzhou and one of two Gliwice plants. The other plants are owned. HNH considers its manufacturing plants and service facilities to be well maintained and efficiently equipped, and therefore suitable for the work being done. The productive capacity and extent of utilization of its facilities is dependent in some cases on general business conditions and in other cases on the seasonality of the utilization of its products. Capacity can be expanded at some locations. HNH has approved the closure of its Lucas-Milhaupt Gliwice, Poland operating facility, which is expected to be completed in the second quarter of 2017.

17



API

API owns 5 active plants with a total area of approximately 548,604 square feet and leases 9 non-operating facilities with a total area of approximately 115,002 square feet. Two of the plants as of December 31, 2016 are located in Poynton and Livingston, United Kingdom. The remaining three plants as of December 31, 2016 are located in Lawrence, Kansas, Osgood, Indiana and Rahway, New Jersey. The Rahway, New Jersey plant was sold in January 2017.

Energy Segment

In September 2016, Steel Excel entered into a 62-month lease for 4,510 square feet of office space in Hermosa Beach, California. With SPLP's consent, Steel Excel has notified the landlord that it intends to cause this lease to be assigned to a subsidiary of SPLP. Following the assignment, Steel Excel's Sports business expects to occupy part of this space upon exiting its current Hermosa Beach office lease.

Steel Excel's Energy business owns four buildings in Williston, North Dakota, including one that serves as its headquarters and operations hub in the Bakken basin along with separate buildings with office and shop space. The Energy business also owns office and shop space in Texas that serves as its operations hub in the Permian basin. The Energy business leases shop space and office space in other locations under month-to-month arrangements on an as needed basis, and owns and leases housing for temporary living arrangements for certain of its employees.

Steel Excel's Sports business has a lease for approximately 27.9 acres of land in Yaphank, New York, for its baseball services operation that expires in December 2021. Under this lease Steel Excel has one extension option and a right of first refusal to purchase the parcel. The Sports business also has a lease for 9,940 square feet for its CrossFit® facility in Torrance, California, that expires in March 2023. In addition, the Sports business has a lease for office space in Cedar Knolls, New Jersey, that expires in February 2019, which serves as the headquarters for its youth soccer operation, and also has leases in various states for small administrative offices to support the soccer operation.

Financial Services

As of December 31, 2016, WebBank leases 14,686 square feet of office space headquartered in Salt Lake City, Utah. The term of the lease expires in March 2023. WebBank also leases office space in New Jersey through March 2017. WebBank believes that these facilities are adequate for its current needs and that suitable additional space will be available as required.

Corporate and Other

As of December 31, 2016, Steel Services leases 15,660 square feet of office space headquartered in New York City, New York. The term of the lease expires in December 2025. Steel Services also leased office space in Los Gatos, California through January 2017. DGT owns 67,000 square feet of design and manufacturing space in Milan, Italy and currently leases the building. The building is held for sale as of December 31, 2016.

Item 3. Legal Proceedings

The information set forth under Note 18 - "Commitments and Contingencies" of our Notes to Consolidated Financial Statements, included in Part II, Item 8, Financial Statements, of this Report, is incorporated herein by reference. For an additional discussion of certain risks associated with legal proceedings, see the section entitled Part I, Item 1A, Risk Factors, of this Report.

Item 4. Mine Safety Disclosures
 
Not applicable.


18


PART II

Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

All monetary amounts in this section are in thousands, except for common unit and per common unit data.

Market Information
 
As of December 31, 2016, we had 26,152,976 common units issued and outstanding. Our common units, no par value, are quoted on the NYSE under the symbol "SPLP." The following table sets forth the information on the high and low sales prices of our common units during 2016 and 2015:
Fiscal year ending December 31, 2016
High
 
Low
First Quarter
$
16.49

 
$
12.86

Second Quarter
$
15.86

 
$
14.00

Third Quarter
$
15.42

 
$
14.25

Fourth Quarter
$
16.20

 
$
13.70

 
 
 
 
Fiscal year ending December 31, 2015
High
 
Low
First Quarter
$
19.50

 
$
16.30

Second Quarter
$
19.37

 
$
17.07

Third Quarter
$
17.79

 
$
16.05

Fourth Quarter
$
17.96

 
$
16.10


Holders
 
As of December 31, 2016, there were approximately 111 unitholders of record.
 
Unit Performance Graph
 
The following graph compares the cumulative total unitholder return on our common units with the cumulative total return of the Russell 2000 Index and a customized peer group of seven companies that includes: Blackstone Group L.P., Leucadia National Corporation, Apollo Investment Corporation, Compass Diversified Holdings LLC, Gladstone Capital Corporation, KCG Holdings, Inc. and Main Street Capital Corporation. The graph and table assume that $100 was invested on December 31, 2011 in each of our common units, the Russell 2000 Index and the peer group, and that all dividends were reinvested. We declared a one-time cash dividend of $0.15 per common unit on December 22, 2016. 

19


http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=11467559&doc=13
 
12/31/2011
 
12/31/2012
 
12/31/2013
 
12/31/2014
 
12/31/2015
 
12/31/2016
Steel Partners Holdings L.P.
$
100.00

 
$
97.84

 
$
143.98

 
$
146.56

 
$
135.93

 
$
129.87

Russell 2000 Index
$
100.00

 
$
116.35

 
$
161.52

 
$
169.42

 
$
161.95

 
$
196.45

Peer Group
$
100.00

 
$
109.47

 
$
175.02

 
$
173.96

 
$
158.84

 
$
177.36


The common unit price performance included in this graph is not necessarily indicative of future common unit price performance. The performance graph shall not be deemed to be incorporated by reference by means of any general statement incorporating by reference this Form 10-K into any filing under the Securities Act or the Exchange Act, except to the extent that we specifically incorporate such information by reference, and shall not otherwise be deemed filed under such acts.

Issuer Purchases of Equity Securities

On December 7, 2016, the Board of Directors of the general partner of the Company approved the repurchase of up to 2,000,000 of the Company's common units (the "Repurchase Program"). The Repurchase Program supersedes and cancels, to the extent any amounts remain available, all previously approved repurchase programs. Any purchases made under the Repurchase Program will be made from time to time on the open market at prevailing market prices or in negotiated transactions off the market, in compliance with applicable laws and regulations. In connection with the Repurchase Program, the Company may enter into a stock purchase plan. The Repurchase Program has no termination date. There were no repurchases of the Company's common units during the fourth quarter of 2016.

Item 6. Selected Financial Data
 
The following table contains our selected historical consolidated financial data, which should be read in conjunction with our consolidated financial statements and the related notes thereto, and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in this Annual Report on Form 10-K. The selected financial data as of and for the years ended December 31, 2016, 2015 and for the year ended December 31, 2014 has been derived from our audited consolidated financial statements at those dates and for those periods, contained elsewhere in this Annual Report on Form 10-K. The historical selected financial data as of December 31, 2014 and as of and for the years ended December 31, 2013 and 2012 has been derived from our audited consolidated financial statements adjusted for discontinued operations at those dates and for those periods, not contained in this Annual Report on Form 10-K. The table below presents discontinued operations as follows:

The year ended December 31, 2014 includes the operations of HNH's Arlon LLC ("Arlon") business through its sale date.

20


The year ended December 31, 2013 includes the operations of HNH's businesses: Arlon, Continental Industries, Inc., Canfield Metal Coating Corporation and Indiana Tube de Mexico, S. De R.L. de C.V., as well as one of Steel Excel's sports businesses, through their respective sale dates.
The year ended December 31, 2012 includes the aforementioned HNH operations, as well as DGT's RFI Corporation and Villa Sistemi Medicali S.p.A. through their respective sale dates.
CONSOLIDATED STATEMENT OF OPERATIONS DATA (a)
Year Ended December 31,
(in thousands, except common unit and per common unit data)
2016
 
2015
 
2014
 
2013
 
2012
Revenue (b)
$
1,163,549

 
$
965,059

 
$
847,263

 
$
719,378

 
$
612,702

Net income (loss) from continuing operations
$
2,571

 
$
70,311

 
$
(17,572
)
 
$
38,374

 
$
43,736

Income from discontinued operations

 
86,257

 
10,304

 
6,446

 
20,029

Net income (loss)
2,571

 
156,568

 
(7,268
)
 
44,820

 
63,765

Net loss (income) attributable to noncontrolling interests in consolidated entities
4,059

 
(19,833
)
 
(287
)
 
(25,360
)
 
(22,747
)
Net income (loss) attributable to common unitholders
$
6,630

 
$
136,735

 
$
(7,555
)
 
$
19,460

 
$
41,018

Net income (loss) per common unit - basic:
 
 
 
 
 
 
 
 
 
Net income (loss) from continuing operations
$
0.25

 
$
2.97

 
$
(0.48
)
 
$
0.51

 
$
1.01

Net income from discontinued operations

 
2.03

 
0.21

 
0.14

 
0.37

Net income (loss) attributable to common unitholders
$
0.25

 
$
5.00

 
$
(0.27
)
 
$
0.65

 
$
1.38

Basic weighted-average common units outstanding
26,353,714

 
27,317,974

 
28,710,220

 
29,912,993

 
29,748,746

Net income (loss) per common unit - diluted:
 
 
 
 
 
 
 
 
 
Net income (loss) from continuing operations
$
0.25

 
$
2.96

 
$
(0.48
)
 
$
0.49

 
$
1.01

Net income from discontinued operations

 
2.02

 
0.21

 
0.14

 
0.37

Net income (loss) attributable to common unitholders
$
0.25

 
$
4.98

 
$
(0.27
)
 
$
0.63

 
$
1.38

Diluted weighted-average common units outstanding
26,486,209

 
27,442,308

 
28,710,220

 
30,798,113

 
29,774,527

(a)
Statement of operations data includes the consolidation of the results of acquired entities from their respective acquisition dates: primarily, the acquisition of Steel Excel on May 31, 2012, HNH's acquisition of Wolverine Joining Technologies, LLC in April 2013, Steel Excel's acquisition of the assets of Black Hawk Energy Services, Inc. in December 2013, HNH's acquisition of JPS on July 2, 2015, SPLP's acquisitions of CoSine Communications, Inc. ("CoSine") and API on January 20, 2015 and April 17, 2015, respectively, HNH's acquisition of SLI on June 1, 2016 and EME on September 30, 2016 and API's acquisitions of Hazen Paper Company ("Hazen") and Amsterdam Metallized Products B.V. ("AMP") on July 27, 2016 and December 1, 2016, respectively.
(b) Certain prior period amounts have been reclassified to Other income, net to conform to the current-year presentation.    
BALANCE SHEET DATA
December 31,
(in thousands, except per common unit data)
2016
 
2015
 
2014
 
2013
 
2012
Cash and cash equivalents
$
450,128

 
$
185,852

 
$
188,983

 
$
203,980

 
$
198,027

Marketable securities
53,650

 
80,842

 
138,457

 
178,485

 
199,128

Long-term investments
120,066

 
167,214

 
311,951

 
295,440

 
199,865

Total assets
1,967,115

 
1,684,773

 
1,490,497

 
1,522,245

 
1,378,359

Long-term debt (a)
330,126

 
235,913

 
295,707

 
223,355

 
140,065

SPLP Partners' capital
548,741

 
558,034

 
494,859

 
616,582

 
527,344

SPLP Partners' capital per common unit
20.98

 
20.95

 
17.95

 
19.81

 
17.13

Dividends declared per common unit
0.15

 

 

 

 

(a) Excludes the current portion of long-term debt, which totaled $62,928 at December 31, 2016.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes thereto that are available elsewhere in this Annual Report on Form 10-K. The following is a discussion and analysis of SPLP's consolidated results of operations for the years ended December 31, 2016, 2015 and 2014. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in "Risk Factors" in Item 1A. All monetary amounts used in this discussion are in thousands except common unit, per common unit, share and per share amounts.

Business Segments


21


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 a more complete description of the Company's segments, see "Item 1 - Business - The Company" found elsewhere in this Form 10-K.

Recent Developments

Below is a summary of recent developments that impacted the Company. For additional information on the acquisitions described below, see Note 3 - "Acquisitions" to the SPLP consolidated financial statements found elsewhere in this Form 10-K.

HNH acquired SLI for $40.00 per share in cash, for a total purchase price of $161,985, resulting in a new electrical products business for HNH.
SLI subsequently acquired EME for a cash purchase price of $62,575, expanding SLI's capabilities in the hybrid electric vehicle, transportation refrigeration, aerospace and defense sectors.
API acquired Hazen for $14,000, which is 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. Also, API acquired AMP for $7,800, which 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 to API's offerings and providing an entry point into new packaging sectors.
On December 7, 2016, the Board of Directors of the general partner of the Company approved the repurchase of up to 2,000,000 of the Company's common units. The Repurchase Program supersedes and cancels, to the extent any amounts remain available, all previously approved repurchase programs. During 2016, the Company purchased 503,463 common units for an aggregate price of approximately $7,297.
On December 22, 2016, the Company declared a special one-time cash dividend of $0.15 per common unit, which totaled $3,923 and was paid in January 2017.
On December 23, 2016, the Company entered into an Amended Agreement and Plan of Merger with a subsidiary of the Company and Steel Excel to make a tender offer (the "Offer") to purchase any and all of the outstanding shares of common stock of Steel Excel not already owned by the Company or any of its affiliates. In exchange for each share of Steel Excel common stock, the Company offered 0.712 of new 6.0% Series A preferred units, no par value (the "SPLP Preferred Units"). The offer commenced on January 9, 2017 and expired on February 6, 2017. As a result of the completion of the Offer, the Company issued approximately 2,500,000 SPLP Preferred Units with a liquidation value of approximately $63,500 to Steel Excel shareholders and the Company now owns 100% of Steel Excel.
Due to a decline in market conditions and demand for certain of HNH' product lines in its performance materials business, as well as its continual focus to optimize infrastructure costs, HNH recorded goodwill and asset impairment charges totaling $35,711 during 2016.

RESULTS OF OPERATIONS

Comparison of the Years Ended December 31, 2016 and 2015

 
Year Ended December 31,
 
2016
 
2015
Revenue
$
1,163,549

 
$
965,059

Cost of goods sold
815,576

 
670,047

Selling, general and administrative expenses
282,298

 
230,199

Interest expense
11,052

 
8,862

Goodwill impairment charges
24,254

 
19,571

Asset impairment charges
17,259

 
68,092

All other income, net
(9,328
)
 
(55,081
)
Total costs and expenses
1,141,111

 
941,690

Income from continuing operations before income taxes and equity method income (loss)
22,438

 
23,369

Income tax provision (benefit)
23,952

 
(78,719
)
(Income) loss of associated companies and other investments held at fair value, net of taxes
(4,085
)
 
31,777

Net income from continuing operations
2,571

 
70,311

Income from discontinued operations

 
86,257

Net income
2,571

 
156,568

Net loss (income) attributable to noncontrolling interests in consolidated entities
4,059

 
(19,833
)
Net income attributable to common unitholders
$
6,630

 
$
136,735


22



Revenue

Revenue in 2016 increased $198,490, or 20.6%, when compared to 2015. Excluding growth from the acquisitions of SLI (including EME), JPS and API of 24.7% and other activity of 0.6%, primarily due to higher silver prices, revenues declined 4.7%. The revenue decrease of 4.7% was primarily due to decreases in the Energy and Diversified Industrial segments, partially offset by an increase in the Financial Services segment.
    
Cost of Goods Sold
    
Cost of goods sold in 2016 increased $145,529, or 21.7%, when compared to 2015 primarily due to an increase in the Diversified Industrial segment, which increased due to the acquisitions of SLI (including EME), JPS and API, as well as from higher duties paid on certain imports, amortization related to the fair value adjustment to acquisition-date inventories associated with HNH's SLI (including EME) acquisition and certain inventory write-downs at HNH due to the planned closure of two facilities. This increase was partially offset by a decrease in the Energy segment due to lower revenue.
    
Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") in 2016 increased $52,099, or 22.6%, when compared to 2015 primarily due to the acquisitions of SLI (including EME), JPS and API and higher personnel costs at WebBank to support the increase in their business. These SG&A increases were partially offset by a net decrease in the Energy segment due to the receipt of a litigation settlement in 2016, net of higher corporate overhead and legal fees, as well as a decrease in the Corporate and Other segment due to lower corporate employee costs and lower professional fees.
    
Interest Expense
    
Interest expense for the years ended December 31, 2016 and 2015 was $11,052 and $8,862, respectively. The higher interest expense was primarily due to higher borrowing levels in 2016, primarily to fund HNH's recent acquisitions.
    
Goodwill Impairment Charges

The Company recognized goodwill impairment charges of $24,254 and $19,571 in 2016 and 2015, respectively. The 2016 impairment charge related to the Diversified Industrial segment and resulted from a decline in market conditions and lower demand for certain product lines in the performance materials business. The 2015 impairment charge related to the Energy segment and resulted from the adverse effects the decline in energy prices had on the oil services industry and the projected future results of operations of the Energy segment.

Asset Impairment Charges

The asset impairment charges in 2016 are primarily due to the planned closure of two HNH facilities and an other-than-temporary decline in the fair value of certain marketable securities and other investments. The asset impairment charges in 2015 primarily relate to other-than-temporary impairments recorded on certain marketable securities and the impairment of a building owned by DGT.

All Other Income, Net
    
All other income, net decreased $45,753 in 2016, when compared to 2015, due to lower gains from investment activity, higher finance interest expense and higher provisions for loan losses recorded in the 2016 period. The lower gains on investment activity recorded in the 2016 period was primarily due to lower investment income recorded by Steel Excel, the non-recurrence of a gain on the sale of an available-for-sale security recorded in 2015 of approximately $25,400 and a gain on our investment in CoSine recorded in 2015 of approximately $6,900 resulting from the re-measurement of our investment upon the acquisition of a majority interest in CoSine in January 2015.
    
Income Taxes
As a limited partnership, we are generally not responsible for federal and state income taxes and our profits and losses are passed directly to our limited partners for inclusion in their respective income tax returns. Provision has been made for federal, state, local or foreign income taxes on the results of operations generated by our corporate subsidiaries and these are reflected within continuing and discontinued operations. The difference between the effective tax rate and statutory federal rate of 35% is principally

23


due to changes in the valuation allowances, various permanent differences included in the provisions of our subsidiaries, and partnership income not subject to taxation. The Company's tax provision represents the income tax expense or benefit of its consolidated subsidiaries. The Company's consolidated subsidiaries have recorded deferred tax valuation allowances to the extent that they believe that it is more likely than not that the benefits of its deferred tax assets will not be realized in future periods. Several of the Company's subsidiaries have net operating loss carryforwards.
For the year ended December 31, 2016, a tax provision of $23,952 from continuing operations was recorded. The increase in the effective tax rate in 2016, compared to 2015, was primarily due to the reversal of a deferred tax valuation allowance at WebFinancial Holding LLC (formerly CoSine) ("WFH LLC") in 2015 of approximately $111,881. For additional information see Note 15 - "Income Taxes" and Note 7 - "Goodwill and Other Intangible Assets, Net" to the SPLP financial statements found elsewhere in this Form 10-K.
Income (Loss) of Associated Companies and Other Investments Held At Fair Value, Net of Taxes
The income (loss) of associated companies and other investments held at fair value, net of taxes in 2016 decreased by $35,862, compared to 2015. The year-over-year change represents the impact of unrealized mark-to-market adjustments for various investments that are accounted for at fair value. For the details of each of these investments and the related mark-to-market adjustments in both periods, see Note 9 - "Investments" to the SPLP consolidated financial statements found elsewhere in this Form 10-K.    

Income from Discontinued Operations
Income from discontinued operations for the year ended December 31, 2015 represents the gain on sale of HNH's former Arlon business. For additional information on the Arlon disposition, see Note 4 - "Discontinued Operations and Asset Impairment Charges" to the SPLP consolidated financial statements found elsewhere in this Form 10-K.
Segment Analysis
 
Year Ended December 31,
 
2016
 
2015
Revenue:
 
 
 
Diversified industrial
$
998,556

 
$
763,009

Energy
93,995

 
132,620

Financial services
70,998

 
69,430

Total revenue
$
1,163,549

 
$
965,059

Net income (loss) by segment:
 
 
 
Diversified industrial
$
19,175

 
$
42,281

Energy
(11,459
)
 
(95,112
)
Financial services
42,518

 
46,314

Corporate and other
(23,711
)
 
(1,891
)
Net income (loss) from continuing operations before income taxes
26,523

 
(8,408
)
Income tax provision (benefit)
23,952

 
(78,719
)
Net income from continuing operations
2,571

 
70,311

Income from discontinued operations

 
86,257

Net loss (income) attributable to noncontrolling interests in consolidated entities
4,059

 
(19,833
)
Net income attributable to common unitholders
$
6,630

 
$
136,735


Diversified Industrial
    
Net sales in 2016 increased by $235,547, or 30.9%, when compared to 2015. The change in net sales reflects approximately $239,000 in incremental sales associated with the SLI (including EME), JPS and API acquisitions, as well as an increase of $5,400 at HNH as a result of higher average silver prices. Excluding the impact of the SLI (including EME), JPS and API acquisitions and the change in silver prices, net sales decreased by approximately $8,700 due to lower volume of $6,200 at HNH, primarily from the performance materials business, partially offset by growth from the building materials business, and lower revenue of approximately $2,500 at API due to the negative impact of foreign exchange rates. The average silver market price was approximately $17.11 per troy ounce in 2016, as compared to $15.70 per troy ounce in 2015.

Segment operating income in 2016 decreased by $23,106, or 54.6%, when compared to 2015, primarily due to the goodwill and asset impairment charges recorded in 2016 of $35,711 discussed above, of which $1,400 unfavorably impacted gross profit, as

24


well as higher SG&A of $59,522, principally due to the segment's recent acquisitions. These declines in segment operating income were partially offset by higher gross profit of $62,322 and higher income of $9,330 recorded from equity method investments. The higher gross profit and SG&A in 2016 were primarily driven by the SLI (including EME), JPS and API acquisitions. Gross profit was also favorably impacted by an increase at HNH of approximately $2,800 from its building materials business due to higher sales volume, partially offset by its joining materials business due to lower sales volume.

Energy
    
Weakness in the oil services industry had an adverse effect on the results of operations of the Company's Energy segment in 2016. The decline in energy prices that began in late 2014, particularly the significant decline in oil prices, has resulted in the Energy segment's customers, the oil and gas exploration and production companies ("E&P Companies"), cutting back on their capital expenditures, which has resulted in reduced drilling, completion, and work over activity. In addition, the E&P Companies sought price concessions from their service providers to offset their drop in revenue. Such actions on the part of the E&P Companies had an adverse effect on the operations of the Energy segment in 2016. Steel Excel has taken certain actions and instituted cost-reduction measures in an effort to mitigate these adverse effects. The Energy segment's results of operations going forward will be dependent on the price of oil in the future, the resulting well production and drilling rig count in the basins in which it operates, and Steel Excel's ability to return to the pricing and service levels of the past as oil prices increase. The drilling rig count in North America has declined significantly since its peak in 2014, which has directly impacted the segment's rig utilization, and the pricing for the segment's services has declined. The North American drilling rig count continued to decline during the first half of 2016, and is still substantially lower than in prior years. As a result, Steel Excel experienced a further decline in operating results in 2016, as compared to the 2015 results. However, the North American drilling rig count has since been steadily increasing in the latter half of 2016 and into 2017, resulting in a more favorable outlook for 2017.

In 2016, net revenue decreased $38,625, or 29.1%, when compared to 2015. The decrease in net revenue in 2016 was primarily due to a decrease of approximately $36,100 in Steel Excel's energy business due to the decline in rig utilization and the decline in prices that resulted from the adverse effects the decline in energy prices had on the oil services industry. Net revenue from Steel Excel's sports businesses decreased by $2,600 in 2016, when compared to 2015.

Segment operating loss in 2016 decreased $83,653, or 88.0%, when compared to 2015. Significant changes in the 2016 period were lower impairment charges of $52,579 related to marketable securities, lower goodwill impairment charges of $19,571, lower SG&A of $3,438, due to the receipt of a litigation settlement, net of higher corporate overhead costs, and higher income from equity method investments of $26,046. These changes were partially offset by a decrease in gross profit of $11,105 and lower gains on sales of investments of $7,787 in the year ended December 31, 2016, when compared to 2015. The decrease in gross profit was primarily due to the decline in revenue in the energy business.

Financial Services

Revenue in 2016 increased $1,568, or 2.3%, when compared to 2015. The net increase was due to higher non-interest income of approximately $1,700 in 2016, compared to 2015, as a result of the restructuring of programs, which created a gain on sale of certain loans, partially offset by lower interest income of approximately $200 in 2016, compared to 2015, due to declines in a number of WebBank's key programs caused by capital market disruptions and the restructuring of some arrangements.

Segment operating income in 2016 decreased $3,802, or 8.2%, when compared to 2015. The higher revenue was more than offset by higher costs and expenses including higher SG&A of $3,401 driven by higher personnel expenses due to growth in the number of WebBank's programs, supporting new initiatives, and the continued expansion of WebBank's compliance and oversight group to meet increasing regulatory expectations. In addition, finance interest expense and the provision for loan losses increased $1,145 and $824, respectively, in the year ended December 31, 2016, when compared to 2015. The higher finance interest expense was due to a larger deposit balance to support loan growth and an increase in interest rates, and the increase in the provision for loan losses was due to the addition of a loan portfolio of held-to-maturity consumer loans.

Net Interest Income, Margin and Interest Rate Spreads

Net interest income is the difference between interest earned on interest-bearing assets and interest incurred on interest-bearing liabilities. By its nature, net interest income is especially vulnerable to changes in the mix and amounts of interest-earning assets and interest bearing liabilities. In addition, changes in the interest rates and yields associated with these assets and liabilities can significantly impact net interest income. The following table summarizes the average balances, the amount of interest earned or incurred and the applicable yields for interest earning assets and the costs of interest-bearing liabilities that generate net interest income. For purposes of calculating the yields in these schedules, the average loan balances also include the principal amounts of

25


nonaccrual and restructured loans. However, interest received on nonaccrual loans is included in income only to the extent that cash payments have been received and not applied to principal reductions. In addition, interest on restructured loans is generally accrued at reduced rates.
 
Year Ended December 31,
 
2016
 
2015 (a)
 
2014 (a)
 
Average
Interest
 
 
Average
Interest
 
 
Average
Interest
 
 
Outstanding
Earned/
Yield/
 
Outstanding
Earned/
Yield/
 
Outstanding
Earned/
Yield/
 
Balance
Paid
Rate
 
Balance
Paid
Rate
 
Balance
Paid
Rate
Interest earning assets:
 
 
 
 
 
 
 
 
 
 
 
Loans receivable
$
213,034

$
27,203

12.8
%
 
$
197,467

$
28,128

14.2
%
 
$
94,489

$
12,575

13.3
%
Held-to-maturity securities
8,055

323

4.0
%
 
999

30

3.0
%
 
70


%
Available-for-sale investments
575

13

2.3
%
 
574

12

2.1
%
 
566

14

2.5
%
Federal funds sold
902

2

0.2
%
 
589

1

0.2
%
 
637

1

0.2
%
Interest bearing deposits
130,428

721

0.6
%
 
55,076

148

0.3
%
 
87,815

192

0.2
%
Total interest-earning assets
352,994

28,262

8.0
%
 
254,705

28,319

11.1
%
 
183,577

12,782

6.9
%
Non interest-earning assets
6,140

 
 
 
2,978

 
 
 
1,811

 
 
Total assets
$
359,134

 
 
 
$
257,683

 
 
 
$
185,388

 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Money market accounts
$
67,883

123

0.2
%
 
$
68,861

82

0.1
%
 
$
58,232

87

0.2
%
Time deposits
206,176

2,474

1.2
%
 
133,592

1,372

1.0
%
 
88,344

551

0.6
%
Total interest-bearing liabilities
274,059

2,597

1.0
%
 
202,453

1,454

0.7
%
 
146,576

638

0.4
%
Other non interest-bearing liabilities
8,349

 
 
 
6,339

 
 
 
3,923

 
 
Total liabilities
282,408

 
 
 
208,792

 
 
 
150,499

 
 
Shareholder's equity
76,726

 
 
 
48,891

 
 
 
34,889

 
 
Total liabilities and shareholder's equity
$
359,134

 
 
 
$
257,683

 
 
 
$
185,388

 
 
Net interest income
 
$
25,665

 
 
 
$
26,865

 
 
 
$
12,144

 
Spread on average interest-bearing funds
 
 
7.1
%
 
 
 
10.4
%
 
 
 
6.5
%
Net interest margin
 
 
7.3
%
 
 
 
10.5
%
 
 
 
6.6
%
Return on assets
 
 
8.1
%
 
 
 
12.2
%
 
 
 
8.4
%
Return on equity
 
 
38.0
%
 
 
 
64.3
%
 
 
 
44.5
%
Equity to assets
 
 
21.4
%
 
 
 
19.0
%
 
 
 
18.8
%
(a) Prior period amounts for Interest Earned/Paid and Yield/Rate for loans receivable have been adjusted to be comparable with current-year classifications of including origination fees earned on loans as non-interest revenue.

WebBank has several lending arrangements with companies where it originates private label credit card and other loans for consumers and small businesses. These loans are classified as held for sale and are typically sold after origination.

The following table presents the effects of changing rates and volumes on WebBank's net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately, based on the changes due to rate and the changes due to volume.

26


 
Year Ended December 31,
 
2016 vs 2015
 
2015 vs 2014 (a)
 
2014 vs 2013 (a)
 
Increase/(Decrease)
 
Increase/(Decrease)
 
Increase/(Decrease)
 
Due to Volume
Due to Rate
Total
 
Due to Volume
Due to Rate
Total
 
Due to Volume
Due to Rate
Total
Earning assets:
 
 
 
 
 
 
 
 
 
 
 
Loans receivable
$
2,950

$
(3,875
)
$
(925
)
 
$
14,612

$
943

$
15,555

 
$
4,027

$
(1,121
)
$
2,906

Held-to-maturity securities
280

13

293

 
2

28

30

 



Available-for-sale investments

1

1

 

(3
)
(3
)
 

1

1

Federal funds sold
1


1

 



 



Interest bearing deposits
321

252

573

 
(110
)
65

(45
)
 
26

(15
)
11

Total earning assets
3,552

(3,609
)
(57
)
 
14,504

1,033

15,537

 
4,053

(1,135
)
2,918

Money market accounts
(1
)
2

1

 
57

(61
)
(4
)
 
36

(11
)
25

Time deposits
841

258

1,099

 
363

457

820

 
97

21

118

Total funds
840

260

1,100

 
420

396

816

 
133

10

143

Net variance
$
2,712

$
(3,869
)
$
(1,157
)
 
$
14,084

$
637

$
14,721

 
$
3,920

$
(1,145
)
$
2,775

(a) Prior period amounts for Increase/(Decrease) due to Volume and Rate for loans receivable have been adjusted to be comparable with current-year classifications of including origination fees earned on loans as non-interest revenue.
.
Balance Sheet Analysis

Loan Portfolio

As of December 31, 2016, net loans accounted for 33% of WebBank's total assets compared to 69% at the end of 2015. The following table presents WebBank's loans outstanding by type of loan as of December 31, 2016 and the five most recent year-ends.
 
As of December 31,
 
2016
 
2015
 
2014
 
2013
 
2012
 
Amount
%
 
Amount
%
 
Amount
%
 
Amount
%
 
Amount
%
Real estate loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial - owner occupied
$
604

0.4
%
 
$
1,542

0.7
%
 
$
1,650

1.4
%
 
$
4,671

6.1
%
 
$
6,724

9.8
%
Commercial - other
266

0.2
%
 
281

0.1
%
 
264

0.2
%
 
242

0.3
%
 
318

0.5
%
Total real estate loans
870

0.6
%
 
1,823

0.8
%
 
1,914

1.6
%
 
4,913

6.4
%
 
7,042

10.3
%
Commercial and industrial
50,564

32.6
%
 
66,253

29.1
%
 
75,706

63.9
%
 
46,702

60.9
%
 
9,832

14.4
%
Consumer loans
22,805

14.7
%
 

%
 

%
 

%
 

%
Loans held for sale
80,692

52.1
%
 
159,592

70.1
%
 
40,886

34.5
%
 
25,125

32.7
%
 
51,505

75.3
%
Total loans
154,931

100.0
%
 
227,668

100.0
%
 
118,506

100.0
%
 
76,740

100.0
%
 
68,379

100.0
%
Less:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred fees and discounts

 
 
(15
)
 
 
(20
)
 
 

 
 
21

 
Allowance for loan losses
(1,483
)
 
 
(630
)
 
 
(557
)
 
 
(424
)
 
 
(285
)
 
Total loans receivable, net
$
153,448

 
 
$
227,023

 
 
$
117,929

 
 
$
76,316

 
 
$
68,115

 
    
The following table includes a maturity profile for the loans that were outstanding at December 31, 2016, substantially all of the real estate loans and commercial and industrial loans have floating or adjustable interest rates:
Due During Years Ending December 31,
Real Estate
 
Commercial & Industrial
 
Consumer
 
Loans Held for Sale
2017
$
43

 
$
3,059

 
$
8,950

 
$
80,692

2018-2022
827

 
45,305

 
13,855

 

2023 and following

 
2,200

 

 

Total
$
870

 
$
50,564

 
$
22,805

 
$
80,692

              
Nonperforming Lending Related Assets

Total nonaccrual loans at December 31, 2016 decreased by $343 from December 31, 2015. The decrease included $341 for commercial owner occupied loans and $2 for commercial and industrial loans.

27


 
As of December 31,
 
2016
 
2015
 
2014
 
2013
 
2012
Non-accruing loans:
 
 
 
 
 
 
 
 
 
Commercial real estate - owner occupied
$

 
$
341

 
$
374

 
$
403

 
$
147

Commercial real estate - other

 

 

 

 

Commercial and industrial

 
2

 
16

 
109

 
94

Other

 

 

 

 

Total

 
343

 
390

 
512

 
241

Accruing loans delinquent:
 
 
 
 
 
 
 
 
 
90 days or more
3

 

 
52

 

 
2,581

Total
3

 

 
52

 

 
2,581

Foreclosed assets:
 
 
 
 
 
 
 
 
 
Commercial real estate - owner occupied

 
11

 
111

 
149

 
68

Total

 
11

 
111

 
149

 
68

Total non-performing assets
$
3

 
$
354

 
$
553

 
$
661

 
$
2,890

Total as a percentage of total assets
%
 
0.1
%
 
0.2
%
 
0.4
%
 
2.11
%

Summary of Loan Loss Experience

The methodologies used to estimate the allowance for loan losses ("ALLL") depend upon the impairment status and portfolio segment of the loan. Loan groupings are created for each loan class and are then graded against historical and industry loss rates. After applying historic loss experience, as described above, we review the quantitatively derived level of ALLL for each segment using qualitative criteria. We track various risk factors that influence our judgment regarding the level of the ALLL across the portfolio segments. The following table summarizes activity in WebBank's allowance for loan and lease losses for the periods indicated:
 
As of December 31,
 
2016
 
2015
 
2014
 
2013
 
2012
Balance at beginning of period
$
630

 
$
557

 
$
424

 
$
285

 
$
529

Charge offs:
 
 
 
 
 
 
 
 
 
Commercial real estate - owner occupied

 

 

 

 
(1
)
Commercial and industrial

 

 
(3
)
 
(64
)
 

Total charge offs

 

 
(3
)
 
(64
)
 
(1
)
Recoveries:
 
 
 
 
 
 
 
 
 
Commercial real estate - owner occupied
14

 
25

 
65

 
23

 
48

Commercial real estate - other
35

 
44

 
40

 
44

 
44

Commercial and industrial
30

 
54

 
81

 
216

 
80

Total recoveries
79

 
123

 
186

 
283

 
172

Net recoveries (charge offs)
79

 
123

 
183

 
219

 
171

Additions charged to operations
774

 
(50
)
 
(50
)
 
(80
)
 
(415
)
Balance at end of period
$
1,483

 
$
630

 
$
557

 
$
424

 
$
285

Ratio of net charge offs during the period to average loans outstanding during the period
(0.04
)%
 
(0.06
)%
 
(0.2
)%
 
(0.4
)%
 
(0.4
)%

The distribution of WebBank's allowance for losses on loans at the dates indicated is summarized as follows:

28


 
As of December 31,
 
2016
 
2015
 
2014
 
2013
 
2012
 
Amount
% of Loans in Each Category of Total Loans
 
Amount
% of Loans in Each Category of Total Loans
 
Amount
% of Loans in Each Category of Total Loans
 
Amount
% of Loans in Each Category of Total Loans
 
Amount
% of Loans in Each Category of Total Loans
Commercial real estate - owner occupied
$
22

0.4
%
 
$
39

0.68
%
 
$
64

1.4
%
 
$
77

6.1
%
 
$
187

9.8
%
Commercial real estate - other
7

0.2
%
 
9

0.12
%
 
12

0.2
%
 
28

0.3
%
 
34

0.5
%
Commercial and industrial
880

32.6
%
 
582

29.1
%
 
481

63.9
%
 
319

60.9
%
 
64

14.4
%
Other consumer loans
574

14.7
%
 

%
 

%
 


 

%
Loans held for sale

52.1
%
 

70.1
%
 

34.5
%
 

32.7
%
 

75.3
%
Total loans
$
1,483

100.0
%
 
$
630

100
%
 
$
557

100
%
 
$
424

100
%
 
$
285

100
%

Corporate and Other

Segment operating loss increased $21,820 in 2016, when compared to 2015, primarily as a result of higher net investment gains of $36,355 recorded in the 2015 period. The gains in 2015 were primarily due to a gain on the sale of an available-for-sale security of approximately $25,400 and a gain on our investment in CoSine of approximately $6,900 resulting from the re-measurement of our investment upon the acquisition of a majority interest in CoSine in January 2015. This reduction to segment operating income was partially offset by the non-recurrence of $6,913 of impairment charges recorded in 2015, which included a charge of $1,400 to adjust an asset held for sale by DGT to its net realizable value and a charge of approximately $5,500 related to an other-than-temporary decline in an available-for-sale security, and lower SG&A as a result of lower corporate employee costs and lower professional fees in 2016, compared to 2015.    

Comparison of the Years Ended December 31, 2015 and 2014
 
Year Ended December 31,
 
2015
 
2014
Revenue
$
965,059

 
$
847,263

Cost of goods sold
670,047

 
588,209

Selling, general and administrative expenses
230,199

 
188,355

Interest expense
8,862

 
11,073

Goodwill impairment charges
19,571

 
41,450

Asset impairment charges
68,092

 
2,537

All other income, net
(55,081
)
 
(9,634
)
Total costs and expenses
941,690

 
821,990

Income from continuing operations before income taxes and equity method income (loss)
23,369

 
25,273

Income tax (benefit) provision
(78,719
)
 
24,288

Loss of associated companies and other investments held at fair value, net of taxes
31,777

 
18,557

Net income (loss) from continuing operations
70,311

 
(17,572
)
Income from discontinued operations
86,257

 
10,304

Net income (loss)
156,568

 
(7,268
)
Net income attributable to noncontrolling interests in consolidated entities
(19,833
)
 
(287
)
Net income (loss) attributable to common unitholders
$
136,735

 
$
(7,555
)

Revenue

Revenue in 2015 increased $117,796, or 13.9%, when compared to 2014. Excluding the growth from the acquisitions of API and JPS of 20.7% and other factors (primarily silver prices) of 2.0%, revenues declined 4.8%. The 4.8% decline in revenue was primarily due to a decrease in the Energy segment, partially offset by increases in revenue the Diversified Industrial segment and in the Financial Services segment.

Cost of Goods Sold
    
Cost of goods sold in 2015 increased $81,838, or 13.9%, when compared to 2014 primarily due the acquisitions of API and JPS in 2015, both in the Diversified Industrial segment, partially offset by a decrease in the Energy segment, due to lower revenues.

29



Selling, General and Administrative Expenses

SG&A in 2015 increased $41,844, or 22.2%, when compared to 2014 primarily due to a an increase in the Diversified Industrial segment due to the acquisitions of API and JPS in 2015, as well as an increase in the Financial Services segment.

Interest Expense

Interest expense for the years ended December 31, 2015 and 2014 was $8,862 and $11,073, respectively. The lower interest expense in 2015 was primarily due to lower borrowing levels at HNH in 2015 and lower average interest rates.

Goodwill Impairment Charges

The Company recognized goodwill impairment charges of $19,571 and $41,450 in 2015 and 2014, respectively, related to the goodwill associated with its Energy segment. The impairments resulted from the adverse effects the decline in energy prices had on the oil services industry and the projected future results of operations of the Energy segment.

Asset Impairment Charges

The impairment charges in 2015 primarily relate to other-than-temporary impairments recorded on available-for-sale securities in our Energy segment.     

All Other Income, Net
    
All other income, net increased $45,447 in 2015, when compared to 2014, primarily due to higher investment gains recorded in the 2015 period. The higher investment gains in 2015 were primarily due to a gain on the sale of an available-for-sale security of approximately $25,400 and a gain on our investment in CoSine of approximately $6,900 resulting from the re-measurement of our investment upon the acquisition of a majority interest in CoSine in January 2015.

Income Taxes

For the year ended December 31, 2015 a tax benefit of $78,719 from continuing operations was recorded and for the year ended December 31, 2014 a tax provision of $24,288 from continuing operations was recorded. The change in the effective tax rate in 2015 was primarily due to the reversal of a deferred tax valuation allowance at WFH LLC (formerly CoSine) of approximately $111,881, partially offset by the tax effect of the non-deductible portion of the goodwill impairment recorded in 2015 (see Note 15 - "Income Taxes" and Note 7 - "Goodwill and Other Intangible Assets, Net" to the SPLP financial statements found elsewhere in this Form 10-K).

Loss of Associated Companies and Other Investments Held at Fair Value, Net of Taxes

The loss of associated companies and other investments held at fair value, net of taxes, increased by $13,220 in 2015, when compared to 2014. The year-over-year change represents the impact of unrealized mark-to-market adjustments for various investments that are accounted for at fair value. For comprehensive details relating to each of these investments and the related mark-to-market adjustments for each, see Note 9 - "Investments" to the SPLP consolidated financial statements found elsewhere in this Form 10-K.    
    
Income from Discontinued Operations

Income from discontinued operations for the year ended December 31, 2015 represents the gain on sale of HNH's former Arlon business. For additional information on the Arlon disposition, see Note 4 - "Discontinued Operations and Asset Impairment Charges" to the SPLP financial statements found elsewhere in this Form 10-K.

Segment Analysis

30


 
Year Ended December 31,
 
2015
 
2014
Revenue:
 
 
 
Diversified industrial
$
763,009

 
$
600,468

Energy
132,620

 
210,148

Financial services
69,430

 
36,647

Total revenue
$
965,059

 
$
847,263

Net income (loss) by segment:
 
 
 
Diversified industrial
$
42,281

 
$
65,543

Energy
(95,112
)
 
(26,254
)
Financial services
46,314

 
24,251

Corporate and other
(1,891
)
 
(56,824
)
Net (loss) income from continuing operations before income taxes
(8,408
)
 
6,716

Income tax (benefit) provision
(78,719
)
 
24,288

Net income (loss) from continuing operations
70,311

 
(17,572
)
Income from discontinued operations
86,257

 
10,304

Net income attributable to noncontrolling interests in consolidated entities
(19,833
)
 
(287
)
Net income (loss) attributable to common unitholders
$
136,735

 
$
(7,555
)

Diversified Industrial

Net sales in 2015 increased by $162,541, or 27.1%, when compared to 2014. The change in net sales reflects the acquisition of API and JPS, as well as a net increase from core growth at HNH of approximately $6,500, which was partially offset by a reduction of approximately $17,100 in HNH's net sales due to lower average silver prices. Excluding the impact of its JPS acquisition and the change in silver prices, net sales increased by approximately $6,500 on higher volume, primarily from its building materials business. The average silver market price was approximately $15.70 per troy ounce in 2015, as compared to $19.05 per troy ounce in 2014.        

Segment operating income in 2015 decreased by $23,262, or 35.5%, when compared to 2014, primarily due to higher SG&A in 2015 of $35,715 and lower income of $27,367 recorded from equity method investments, partially offset by higher gross profit of $34,592 in 2015 and lower interest expense in 2015 of $2,306 due to lower borrowing levels and lower average interest rates at HNH. The increase in SG&A in 2015 was driven by the addition of the API and JPS operations, which contributed approximately $28,000 to the increase, higher personnel costs and higher business development expenses at HNH, primarily associated with its 2015 acquisitions, which were partially offset by lower stock-based compensation charges. The higher gross profit reflects the addition of the API and JPS operations, as well as a net increase at HNH of approximately $5,500 from core growth, and the incremental lower manufacturing costs resulting from HNH's ITW acquisition, which were partially offset by a reduction of approximately $2,300 in gross profit due to lower average silver prices. Higher sales volume from the building materials and Kasco businesses led to the increase in gross profit in HNH's business. Gross profit for the year ended December 31, 2015 also reflects $3,400 of nonrecurring expense associated with the amortization of the fair value adjustment to acquisition-date inventories associated with HNH's JPS acquisition.

Energy

In 2015, net revenue decreased $77,528, or 36.9%, when compared to 2014. This was due to a decrease in the energy businesses of $80,200 primarily from the decline in rig utilization and the decline in prices that resulted from the adverse effects the decline in energy prices had on the oil services industry. Net revenue in the sports businesses increased by $2,700 from an increase in revenues from its UK Elite soccer operation, primarily as a result of operating the businesses acquired during 2014 for the full year in 2015 and an increase in revenue at another sports business.

Segment operating loss in 2015 increased $68,858, or 262.3%, when compared to 2014, due to higher asset impairment charges of $59,781 related to marketable securities due to the determination that certain unrealized losses in available-for-sale-securities represented other-than-temporary impairments as of December 31, 2015, lower gross profit of $31,472 due to the decline in revenue in the energy business and higher losses from equity method investments of $10,032 in 2015. Gross profit from energy businesses decreased by $31,200 and as a percentage of revenue declined to 16.5% in 2015 from 25.9% in 2014. Gross profit in the energy businesses decreased as a result of the decline in revenues. Gross profit in the sports businesses in 2015 decreased by $300 primarily as a result of a decrease in gross profit of $200 from UK Elite. These decreases to segment operating income were partially offset by lower goodwill impairment charges in 2015 of $21,879, lower SG&A in 2015 of $1,984, higher gains from investments in 2015 of $7,842 and lower interest expense of $722 in 2015 as a result of the repayment of long-term debt. SG&A

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in the energy business decreased by $2,300, primarily from cost reduction initiatives and the receipt of a purchase price adjustment of $500 related to a 2013 acquisition. SG&A also decreased $300 from corporate and other business activities. Such decreases were partially offset by SG&A in the sports business that increased by $900 primarily from UK Elite as a result of the businesses acquired during the 2014 period and additional segment management costs.

Financial Services

Revenue in 2015 increased $32,783, or 89.5%, when compared to 2014. The increase was due to an increase in interest income of approximately $15,000 in 2015, compared to 2014, due primarily to the addition of new lending programs and increased volume in the existing lending programs. In addition, noninterest income increased approximately $17,000 in 2015, compared to 2014, due primarily to the addition of origination fees from new lending programs and increased volume in the existing lending programs.

Segment operating income in 2015 increased $22,063, or 91.0%, when compared to 2014. The increase in segment operating income was due to the higher revenue in 2015, partially offset by higher SG&A of $9,908 to support the growth in WebBank's business and higher finance interest of $812 due to a larger deposit balance to support loan growth and an increase in interest rates.

Corporate and Other

Segment operating loss decreased $54,933 in 2015, when compared to 2014, primarily as a result of higher other income recorded in 2015 of $35,290, due to higher net investment gains of approximately $30,000, lower SG&A of $1,794 due to higher service fees collected from affiliated companies, partially offset by higher employee and professional fees, and lower losses of $24,179 from associated companies and other investments at fair value. These reductions to segment operating loss were partially offset by higher asset impairment charges of $5,690 and higher interest expense of $640 in 2015 due to higher revolver borrowings. The higher asset impairment charges in 2015 were due to the adjustment an asset held for sale by DGT to its net realizable value and the recording of an impairment charge for an other-than-temporary decline in an available-for-sale security.

FINANCIAL CONDITION

We rely on our available liquidity to meet our short-term and long-term needs, and to make acquisitions of new businesses and additional investments in existing businesses. Except as otherwise disclosed herein, our operating businesses do not generally require material funds from us to support their operating activities, and we do not depend on positive cash flow from our operating segments to meet our liquidity needs. The components of our consolidated businesses and investments may change frequently as a result of acquisitions or divestitures, the timing of which is impossible to predict, but which often have a material impact on our consolidated statements of cash flows in any one period. Further, the timing and amounts of distributions from certain of our investments accounted for under the equity method are generally outside our control. As a result, reported cash flows from operating, investing and financing activities do not generally follow any particular pattern or trend, and reported results in the most recent period should not be expected to recur in any subsequent period.

Cash Flow Summary
 
Year Ended December 31,
 
2016
 
2015
 
2014
Net cash provided by (used in) operating activities
$
194,920

 
$
(15,753
)
 
$
78,033

Net cash (used in) provided by investing activities
(160,502
)
 
64,539

 
(63,058
)
Net cash provided by (used in) financing activities
231,128

 
(51,192
)
 
(29,667
)
Change in period
$
265,546

 
$
(2,406
)
 
$
(14,692
)
    
Cash Flows from Operating Activities

Net cash provided by in operating activities for the year ended December 31, 2016 was $194,920. Net income from continuing operations of $2,571 was impacted by certain non-cash items and a net decrease of $70,668 relating to changes in certain operating assets and liabilities. The decrease in operating assets and liabilities was primarily due to a decrease of $78,900 in loans held for sale due to the timing of loan originations and the level of activity at WebBank. This decrease was partially offset by an increase of $11,747 in trade and other receivables due to the timing of receipts and an increase in prepaid expenses and other current assets of $8,246.


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Net cash used in operating activities for the year ended December 31, 2015 was $15,753. Net income from continuing operations of $70,311 was impacted by certain non-cash items and a net increase of $113,175 relating to changes in certain operating assets and liabilities. Of this increase, $118,706 was from an increase in loans held for sale, $23,504 was from a decrease in accounts payable and accrued and other liabilities and $666 was from an increase in prepaid and other assets. These operating asset and liability increases were partially offset by a $17,167 decrease in trade and other receivables and a $12,534 decrease in inventories. Net cash used in operating activities was also impacted by $2,254 in cash used in operating activities of discontinued operations.

Net cash provided by operating activities for the year ended December 31, 2014 was $78,033. Net loss from continuing operations of $17,572 was impacted by certain non-cash items and a net increase of $43,581 relating to changes in certain operating assets and liabilities. Of this increase, $21,172 was from a decrease in accounts payable and accrued and other liabilities, $17,251 was due to an increase on loans held for sale, $3,268 was from an increase in trade and other receivables and $4,697 was from an increase in inventories, partially offset by a decrease of $2,807 in prepaid and other assets. Net cash provided by operating activities was also impacted by $18,588 in cash provided by operating activities of discontinued operations.

Cash Flows from Investing Activities

Net cash used in investing activities for the year ended December 31, 2016 was $160,502. Significant items included net cash paid for HNH's acquisition of SLI, including EME, and API's acquisitions of Hazen and AMP, which totaled an aggregate of $200,137, purchases of property, plant and equipment of $34,183, an increase in loan originations, net of collections of $26,895, and investments in associated company, MLNK, of $2,440, partially offset by net proceeds from sales of investments, primarily by Steel Excel, of $61,641 and proceeds from sale of assets of $32,247, primarily as a result of sales of loans by WebBank and the sale of API's security holographics business.

Net cash provided by investing activities for the year ended December 31, 2015 was $64,539. Significant items included proceeds received from HNH's sale of Arlon of $155,517, net proceeds from investments of $42,623 and proceeds from the sale of assets of $10,657. The net proceeds from sales of investments were primarily due to CoSine's sale of its shares of Nathan's Famous, Inc. and net proceeds from investment sales by Steel Excel. In addition, cash flows from investing activities were impacted by purchases of property, plant and equipment of $23,252, acquisitions of $116,135, primarily due to the API and JPS acquisitions, and additional investments in associated companies, primarily MLNK, of $7,607.

Net cash used in investing activities for the year ended December 31, 2014 was $63,058. Significant items included cash paid for acquisitions made by HNH and Steel Excel, of $517, investments in associated companies of $1,643, which primarily relates to our investment in MLNK and Steel Excel's investment in an associated company, a net increase in loans receivable of $25,805, purchases of property, plant and equipment of $28,769 and settlements of financial instruments of $24,429. These cash uses from investing activities were partially offset by cash increases due to proceeds from the sales of discontinued operations of $3,732 and net proceeds from investment sales and maturities of $12,941.

Cash Flows from Financing Activities
    
Net cash provided by financing activities for the year ended December 31, 2016 was $231,128, including net revolver borrowings of $146,648, primarily by HNH to fund the acquisitions of SLI and EME, proceeds from term loans of $9,217, primarily to fund API's Hazen acquisition, and a net increase in deposits of $113,432. These increases were partially offset by cash used to purchase the Company's common units of $7,297 and subsidiaries' purchases of their common stock of $20,956.

Net cash used in financing activities for the year ended December 31, 2015 was $51,192. This was due primarily to net revolver payments of $66,368, repayments of term loans of $38,519, subsidiaries' purchases of the Company's common units of $17,323, purchases of the Company's common units of $1,917 and subsidiaries' purchases of their common stock of $17,031, partially offset by a net increase in deposits of $87,312.

Net cash used in financing activities for the year ended December 31, 2014 was $29,667. This was due primarily to repayments of term loans of $182,080 and repurchases of subordinated notes of $346, subsidiaries' purchases of their common stock of $78,488, purchases of the Company's common units of $51,465 primarily due to the tender offer for SPLP units in 2014, a subsidiary's purchases of the Company's common units of $7,921, partially offset by proceeds from term loans of $52,600, proceeds from revolver borrowings of $196,212 and a net increase in deposits of $46,654.

LIQUIDITY AND CAPITAL RESOURCES


33


SPLP (excluding its operating subsidiaries, "Holding Company") is a global diversified holding company whose assets principally consist of the stock of its direct subsidiaries, noncontrolling investments in equity securities, and cash and cash equivalents. SPLP strives to enhance the liquidity and business operations of its companies and increase long-term value for unitholders and stakeholders through balance sheet improvements, strategic allocation of capital and operational and growth initiatives. The Company uses a set of tools and processes called the Steel Business System to drive operational and sales efficiencies across each of its business units. The Steel Business System is designed to drive strategy deployment and sales and marketing based on lean principles. SPLP's operational initiatives include creating efficiencies through consolidated purchasing and materials sourcing provided by the Steel Partners Purchasing Council, which arranges shared purchasing programs and is reducing costs for, and providing other benefits to, a number of SPLP's companies. The Company strives to reduce our companies' operational costs and enhance growth and profitability through the implementation of Steel Partners Operational Excellence Programs, which include the deployment of Lean Manufacturing, Design for Six Sigma, Six Sigma and Strategy Deployment. SPLP is focused on reducing corporate overhead of our companies by centralizing certain administrative and corporate services through Steel Services that provides management, consulting and advisory services.

The Holding Company's principal sources of funds, a portion of which are used to pay its overhead expenses, are available cash resources, servicing contracts with subsidiaries and affiliates, borrowings, investments, public and private capital market transactions, distributions or dividends from subsidiaries and/or investments, as well as dispositions of existing businesses. Investments, which are generally recorded at fair value, are not as liquid as cash and cash equivalents, but they are generally convertible into cash within a reasonable period of time. As of December 31, 2016, the Holding Company had cash and cash equivalents of approximately $3,736 and investments of approximately $94,870, of which approximately $89,000 is either pledged as collateral under the credit facility with PNC Bank, National Association ("PNC Credit Facility") or restricted. The PNC Credit Facility provides for a revolving credit facility with borrowing availability of up to $105,000. The Holding Company's availability under the PNC Credit Facility was approximately $34,000 as of December 31, 2016. Any amounts outstanding under the PNC Credit Facility are due and payable in full on October 23, 2017, and accordingly, the amount outstanding is classified in Current portion of long-term debt on the Company's consolidated balance sheet as of December 31, 2016.

The Holding Company generally does not have access to the cash flow generated by the Company's operating businesses for its needs, and the operating businesses generally do not rely on the Holding Company to support their operating activities. The Holding Company and its operating businesses believe that they have access to adequate resources to meet their needs for normal operating costs, capital expenditures, pension payments, debt obligations, working capital for their existing business and acquisitions for at least the next twelve months. These resources include cash and cash equivalents, investments, cash provided by operating activities and unused lines of credit. The Holding Company and its operating businesses' ability to satisfy their debt service obligations, to fund planned capital expenditures and required pension payments, and to make acquisitions will depend upon their future operating performance, which will be affected by prevailing economic conditions in the markets in which they operate, as well as financial, business and other factors, some of which are beyond their control. There can be no assurances that the Holding Company and its operating businesses will continue to have access to their lines of credit if their financial performance does not satisfy the financial covenants set forth in their respective financing agreements, which could also result in the acceleration of their debt obligations by their respective lenders, adversely affecting liquidity.

Management is utilizing the following strategies to continue to enhance liquidity: (1) continuing to implement improvements using the Steel Business System throughout all the Company's operations to increase sales and operating efficiencies, (2) supporting profitable sales growth both internally and potentially through acquisitions and (3) evaluating from time to time and as appropriate, strategic alternatives with respect to its businesses and/or assets. The Company continues to examine all of its options and strategies, including acquisitions, divestitures and other corporate transactions, to increase cash flow and stockholder value.

Below are liquidity discussions for each of our operating businesses:

As of December 31, 2016, HNH's working capital was $137,526, as compared to working capital of $119,246 as of December 31, 2015. HNH's principal source of liquidity is its cash flows from operations. HNH's ongoing operating cash flow requirements include funding of the minimum requirements of its pension plans, and paying HNH's administrative costs. HNH expects to have required minimum contributions to the WHX Corporation Pension Plan of $26,900, $22,900, $34,300, $32,700, $29,800 and $69,100 in 2017, 2018, 2019, 2020, 2021 and for the five years thereafter, respectively. HNH does not currently expect to make any future minimum contributions for the WHX Pension Plan II. For JPS' pension plan, HNH expects to have required minimum contributions of $7,300, $8,200, $5,600, $3,300, $2,900 and $11,500 in 2017, 2018, 2019, 2020, 2021 and for the five years thereafter, respectively. Required future pension contributions are estimated based upon assumptions such as discount rates on future obligations, assumed rates of return on plan assets and legislative changes. Actual future pension costs and required funding obligations will be affected by changes in the factors and assumptions described in the previous sentence, as well as other changes such as any plan termination or other acceleration events. On March 23, 2016, HNH entered into an amendment to its

34


senior secured revolving credit facility to increase the size of the credit facility by $35,000 to an aggregate amount of $400,000. As of December 31, 2016, HNH's availability under its senior secured revolving credit facility was $70,100. Also during 2016, HNH entered into a master lease agreement, which establishes the general terms and conditions for a $10,000 credit facility under which HNH may lease equipment and other property pursuant to the terms of individual lease schedules. As of December 31, 2016, no leases had been entered into under the master lease agreement. On December 21, 2016, HNH entered into an additional amendment to its senior secured revolving credit facility to enter into a precious metal consignment arrangement and permit the loan parties under the agreement to enter into certain additional factoring arrangements on the same conditions upon which such arrangements are already permitted under the agreement. On February 24, 2017, HNH entered into an amendment to its senior secured revolving credit facility, which permits its primary operating subsidiaries to fund the minimum annual pension requirements of the WHX Pension Plan II.

During 2016, HNH utilized its remaining U.S. federal income tax NOLs, excluding NOLs of approximately $37,800 at December 31, 2016 resulting from the JPS acquisition, which are subject to certain annual limitations under the ownership change rules of Section 382 of the Internal Revenue Code. Accordingly, HNH expects that its requirement to make cash payments for federal income taxes will increase significantly in future periods.

As of December 31, 2016, API's working capital was approximately $18,000. API, in the UK, has a multi-currency revolving agreement of £13,500 (approximately $16,500) that expires on December 31, 2017. At December 31, 2016, approximately $10,800 was outstanding under the facility. API also has a revolving facility in the U.S. that expires in June 2018, of up to approximately $4,500. At December 31, 2016, $1,500 was outstanding under the facility.

As of December 31, 2016, Steel Excel's working capital was approximately $162,000. Steel Excel's principal source of liquidity is cash, cash equivalents and marketable securities on hand. The marketable securities included short-term deposits, corporate debt and equity instruments and mutual funds. Steel Excel's credit agreement, as amended, ("Amended Credit Agreement") 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. At December 31, 2016, $36,195 was outstanding under the Amended Credit Agreement, all of which represented the Term Loan, and $10,000 was available for future borrowing under the Revolving Loans.

WebBank manages its liquidity to provide adequate funds to meet anticipated financial obligations, such as certificate of deposit maturities and to fund customer credit needs. WebBank had $277,054 and $80,226 in cash at the Federal Reserve Bank and in its Federal Funds account at its correspondent banks at December 31, 2016 and December 31, 2015, respectively. WebBank had $17,400 in lines of credit from its correspondent banks at both December 31, 2016 and December 31, 2015 and had $33,826 and $38,667 available from the Federal Reserve discount window at December 31, 2016 and December 31, 2015, respectively. WebBank had a total of $328,280 and $136,293 in cash, lines of credit and access to the Federal Reserve Bank discount window at December 31, 2016 and December 31, 2015, respectively, which represents approximately 70.7% and 41.6%, respectively, of WebBank's total assets.

Contractual Commitments and Contingencies
    
Our consolidated contractual obligations as of December 31, 2016 are identified in the table below:
 
Payments Due By Period
 
Less Than 1 Year
 
1 - 3 Years
 
3 - 5 Years
 
Thereafter
 
Total
Debt obligations (1)
$
64,313

 
$
319,676

 
$
6,341

 
$
4,253

 
$
394,583

Estimated interest expense (1), (2)
12,103

 
19,053

 
856

 
1,846

 
33,858

Deposits (3)
196,944

 
168,661

 

 

 
365,605

Operating lease obligations
9,411

 
12,660

 
7,591

 
12,321

 
41,983

Capital lease obligations
948

 
895

 

 

 
1,843

Minimum pension contributions (4)
35,058

 
72,715

 
69,773

 
80,600

 
258,146

Total
$
318,777

 
$
593,660

 
$
84,561

 
$
99,020

 
$
1,096,018

(1)
Assumes repayment of the $267,200 balance outstanding on HNH's senior secured revolving credit facility on its August 29, 2019 contractual maturity date and does not include unamortized debt issuance costs. The outstanding balances for HNH's and our other subsidiaries' revolving credit facilities will fluctuate before maturity, and the repayment date and amount may differ.
(2)
Estimated interest expense does not include non-cash amortization of debt issuance costs, which is included in interest expense in the Company's consolidated financial statements. The interest rates used to estimate future interest expense were based on interest rates at December 31, 2016. As the majority of the Company's long-term debt bears interest at variable rates, any future interest rate fluctuations will impact future cash payments.
(3)
Excludes interest.

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(4)
Represents total expected required minimum pension plan contributions to the WHX Corporation Pension Plan, the WHX Pension Plan II, the JPS Pension Plan and API's pension plan in the United Kingdom for 2017, 2018, 2019, 2020, 2021 and for the five years thereafter. Actual future pension costs and required funding obligations will be affected by changes in the factors and assumptions described elsewhere in this Annual Report on Form 10-K, as well as other changes such as any plan termination or other acceleration events.

Environmental Liabilities

Certain of BNS' and HNH's facilities are subject to environmental remediation obligations. BNS and HNH have estimated their liability to remediate these sites to be $800 and $9,600, respectively, at December 31, 2016. For further discussion regarding these commitments, among others, see Note 18 - "Commitments and Contingencies," to the Company's consolidated financial statements found elsewhere in this Form 10-K.

Deposits

Deposits at WebBank at December 31, 2016, and 2015 were as follows:
 
2016
 
2015
Current
$
196,944

 
$
155,112

Long-term
168,661

 
97,060

Total
$
365,605

 
$
252,172

    
The increase in deposits at December 31, 2016 compared with 2015 is due to WebBank's asset growth. The average original maturity for time deposits at December 31, 2016 was 29 months compared with 30 months at December 31, 2015.

The following table details the maturity of time deposits as of December 31, 2016:
 
Maturity
 
< 3 Months
 
3 to 6 Months
 
6 to 12 Months
 
> 12 Months
 
Total
Certificate of deposits less than $100
$
37,992

 
$
9,239

 
$
28,976

 
$
168,660

 
$
244,867

Certificate of deposits of $100 or more
13,826

 
4,583

 
10,539

 

 
28,948