SPH 12.31.2012 10K

 

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, 2012
 OR

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

Commission File Number: 000-5465
______________
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 ý
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 ý
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 ý   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 ý  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. ý
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
þ
Accelerated filer
o
 
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 29, 2012 was approximately $244.3 million.

On March 15, 2013, there were 30,254,539 common units outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

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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.
EXHIBIT INDEX
 







As used in this Form 10-K, unless the context otherwise requires the terms “we,” “us,” “our,” “SPH” 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.

Who We Are
Steel Partners Holdings L.P. is a global diversified holding company that engages in multiple businesses through consolidated subsidiaries, associated companies and other interests. We own and operate businesses and have significant interests in leading companies in various industries, including diversified industrial products, energy, defense, banking, insurance, food products and services, and sports-related industries.
Each of our companies has its own management team with significant experience and proven success in their industries.  Our subsidiary, SP Corporate Services LLC (“SP Corporate”), provides certain executive and corporate management services to us and some of our companies. We seek to work with our companies to increase corporate value over the long term for our unitholders and all stakeholders by implementing our unique strategy discussed in more detail below.
As of December 31, 2012, our total equity attributable to our common unitholders is $527,344. Our capital structure enables us to manage our businesses with a long-term time horizon.
Our History
SPH is a limited partnership formed in the State of Delaware on December 16, 2008. SPH is the successor through a merger on December 31, 2008 with WebFinancial Corporation (formerly Rose's Holdings, Inc.), a Delaware corporation that was incorporated in 1997 to act as a holding company for Rose's Stores, Inc., an operator of general merchandise discount stores founded in 1927. WebFinancial Corporation (“Webfinancial”) completed the sale of its store operations in 1997 and acquired WebBank in 1998.
Effective as of July 15, 2009, we completed an exchange transaction in which we acquired the limited partnership interest of Steel Partners II, L.P. (“SPII”) pursuant to which we acquired net assets of $454,300 that were held by SPII, consisting of holdings in a variety of companies, in exchange for our common units which were distributed to certain former indirect investors in SPII (the “Exchange Transaction”). As a result, we became a global diversified holding company, with partners' capital of $367,100 as of July 15, 2009, which has increased to $527,344 as of December 31, 2012. Since July 15, 2009, we have concentrated our holdings into a select number of businesses.
In connection with the Exchange Transaction, we agreed to distribute to the holders of our common units a total of up to $87,500 (the “Target Distribution”), subject to certain limitations, during the period from July 16, 2009 to April 30, 2011, or the “Final Distribution Date.” On April 1, 2010, we distributed to our unitholders of record as of March 26, 2010 approximately $54,400 or $1.95 per common unit. On April 6, 2011, we distributed to our unitholders of record as of March 25, 2011 approximately $33,100, or $1.18 per common unit, representing the final required distribution in full satisfaction of the Target Distribution. We may, at our option, make further distributions to the unitholders although we currently have no plan to make any distributions in excess of the Target Distribution.

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Our Structure
SPH 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 the section entitled “Executive Compensation - The Management Agreement.” From its founding in 1990, the Manager and its affiliates have created significant increases in value for investors in the entities it has managed, including SPH and SPII.
Our wholly-owned subsidiary, Steel Partners Holdings GP Inc., formerly known as Web LLC and Steel Partners Holdings GP LLC, or 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 Chairman and Chief Executive Officer of our Manager, serves as the Chairman of the Board of Directors.
Our 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. 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 are reducing our companies' operational costs, and enhancing 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 of our companies by centralizing certain administrative and corporate services through Steel Partners Corporate 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.

Our Business Segments
The following table presents the composition of our segments, which include the operations of our consolidated subsidiaries, as well as income or loss from equity method investments and other investments. Our segments are categorized as follows:

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Diversified Industrial
Energy
Financial Services
Corporate
Handy & Harman Ltd. ("HNH") (1)
Steel Excel Inc. ("Steel Excel")(1)
WebBank (1) 
SPH Services, Inc. ("SPH Services") (1)
SL Industries, Inc. ("SLI") (2)
BNS Holding, Inc. ("BNS") (1), (3)
 
DGT Holdings Corp. ("DGT") (1)
 
 
 
BNS Holdings Liquidating Trust ("BNS Liquidating Trust") (1), (3)
 
 
 
CoSine Communications, Inc. ("CoSine")(2)
 
 
 
Fox & Hound Acquisition Corp. ("Fox & Hound") (2)
 
 
 
SPII Liquidating Trust (2)
 
 
 
Other Investments (4)
(1)
Consolidated subsidiary
(2)
Equity method investment
(3) The operations of BNS are included in the Energy segment through June 30, 2012. The results of the BNS Liquidating Trust are included in the Corporate and Other segment from July 1, 2012 through December 31, 2012
(4) Other investments classified in Corporate and Other include various investments in available-for-sale securities in the Computer Software and Services, Aerospace/Defense, Manufacturing and Restaurant industries. Included in these investments are two of the Company's available-for-sale investments, API Group PLC ("API") and JPS Industries, Inc. ("JPS"). Effective December 31, 2011, these investments were reclassified from equity method investments to available-for-sale securities, and accordingly are included in the Corporate and Other segment in 2012.

Our Businesses - Consolidated Subsidiaries
Handy & Harman Ltd.
Our Ownership Interest
We have an ownership interest of approximately 54.3% as of December 31, 2012 in Handy & Harman Ltd. (NASDAQ (CM): HNH), formerly known as WHX Corporation, a Delaware corporation (“HNH”). On May 7, 2010, our ownership interest in HNH exceeded 50%, and as a result, HNH became a controlled subsidiary of SPH and is consolidated from that date. At December 31, 2012, we hold $21,552 principal amount of 10% subordinated secured notes issued by a subsidiary of HNH that mature on October 15, 2017 (the “Subordinated Notes”), which are eliminated in consolidation, and warrants (the “Warrants”) to purchase 406,324 shares of HNH common stock. The Subordinated Notes bear interest at a rate of 10% per annum, 6% of which is payable in cash and 4% of which is payable in-kind. The Warrants have an exercise price of $11.00 per share and are exercisable beginning October 14, 2013.
Four of our representatives serve on HNH's eight-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 Vice Presidents of HNH.
Description of Business
HNH is a diversified manufacturer of engineered niche industrial products with leading market positions in many of the markets it serves. Through its operating subsidiaries, HNH focuses on high margin products and innovative technology and serves customers across a wide range of end markets. HNH sells its products and services through direct sales
forces, distributors and manufacturer's representatives. It serves a diverse customer base, including the construction, electronics,
telecommunications, home appliance, transportation, utility, medical, semiconductor, aerospace and aviation markets. Other
markets served include blade products and repair services for the food industry. HNH owns Handy & Harman Group Ltd. ("H&H Group"), which owns Handy & Harman ("H&H") and Bairnco Corporation ("Bairnco"). HNH manages its group of businesses on a decentralized basis with operations principally in North America. For the years ended December 31, 2012 and 2011, HNH generated net sales of $629,396 and $634,964, respectively.

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HNH Products and Product Mix
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. Joining Materials segment offers these metal joining products in a wide variety of alloys, including gold, silver, palladium, copper, nickel, aluminum and tin. These brazing alloys are fabricated into a variety of engineered forms and are used in many industries including electrical, appliance, transportation, construction and general industrial, where dissimilar material and metal joining applications are required. 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 metal. Joining Materials segment has limited exposure to the prices of precious metals due to the Company's hedging and pricing models. HNH believes that the business unit that comprises its Joining Materials business is the North American market leader in many of the markets that it serves. The Joining Materials business was formerly known as the Precious Metal business.

Tubing
HNH's tubing business manufactures a wide variety of steel tubing products. HNH believes that its Stainless Steel Tubing Group manufactures the world's longest continuous seamless stainless steel tubing coils, in excess of 5,000 feet, serving the petrochemical infrastructure and shipbuilding markets. HNH also believes it is the number one supplier of small diameter (<3mm) coil tubing to industry leading specifications serving the aerospace, defense and semiconductor fabrication markets. HNH's Specialty Tubing unit manufactures welded carbon steel tubing in coiled and straight lengths with a primary focus on products for the consumer and commercial refrigeration, automotive, heating, ventilation and cooling (HVAC), industrial heat exchanger, and oil and gas industries. In addition to producing bulk tubing, it produces value added fabrications for several of these industries.

Engineered Materials
HNH's Engineered Materials segment 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; a line of engineered specialty fasteners for the building products industry for fastening applications in the remodeling and construction of homes, decking and landscaping; and electro-galvanized and painted cold rolled sheet steel products primarily for the construction, entry door, container and appliance industries. HNH believes that its primary business unit in Engineered Materials is the market leader in fasteners and accessories for commercial low-slope roofing applications and that the majority of the net sales for the segment are for the commercial construction repair and replacement market. In January 2013, HNH divested substantially all of the assets and existing operations of our Continental Industries business unit, which manufactured plastic and steel fittings and connectors for natural gas, propane and water distribution service lines along with exothermic welding products for electrical grounding, cathodic protection and lightning protection.

Arlon Electronic Materials

HNH's Arlon Electronic Materials business provides high performance materials for the printed circuit board ("PCB") industry and silicone rubber-based insulation materials used in a broad range of industrial, military/aerospace, consumer and commercial markets. It also supplies high technology circuit substrate laminate materials to the PCB industry. Products are marketed principally to original equipment manufacturers (OEMs), distributors and PCB manufacturers globally. Arlon also manufactures a line of market leading silicone rubber materials used in a broad range of military, consumer, industrial and commercial products.

Kasco Blades and Route Repair Services
HNH's Kasco Blades and Route Repair Services 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. Kasco also provides wood cutting blade products for the pallet manufacturing, pallet recycler and portable saw mill industries in North America.




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Business Strategy
HNH's business strategy is to enhance the growth and profitability of the business units of HNH and to build upon their strengths through internal growth and strategic acquisitions. We expect HNH to continue to focus on high margin products and innovative technology. HNH also will continue to evaluate, from time to time, the sale of certain businesses and assets, as well as strategic and opportunistic acquisitions.

HNH uses a set of tools and processes called the HNH Business System to drive operational and sales efficiencies across each of its business units. The HNH Business System is designed to drive strategy deployment and sales and marketing based on lean principles. HNH pursues a number of ongoing strategic initiatives intended to improve its performance, including objectives relating to manufacturing improvement, idea generation, product development and global sourcing of materials and services. HNH utilizes lean tools and philosophies in operations and commercialization activities to increase sales, improve business processes, and reduce and eliminate waste, coupled with the tools targeted at variation reduction.

Customers
HNH is diversified across industrial markets and customers. HNH sells to customers in the construction, electronics, telecommunications, home appliance OEM, transportation, utility, medical, semiconductor, aerospace, military electronics, medical, automotive, railroad, and the food industry.
No customer accounted for more than 5% of consolidated sales in 2012, 2011 or 2010. However, HNH's 15 largest customers accounted for approximately 28% and 27% of consolidated HNH net sales in 2012 and 2011, respectively.
Foreign Revenue
The following table presents HNH revenue for the periods indicated; however, HNH revenue is only included in SPH's consolidation since May 7, 2010:
 
Revenue
 
Year Ended December 31,
 
2012
 
2011
 
2010
U.S.
$
562,338

 
$
560,783

 
$
487,251

Foreign (a)
67,058

 
74,181

 
53,220

 
$
629,396

 
$
634,964

 
$
540,471

(a)
Foreign revenue is based on the country in which the legal subsidiary is domiciled.

Raw Materials

Besides precious metals, the raw materials used in the operations of the Joining Materials, Tubing, Engineered Materials and Kasco operations consist principally of stainless, galvanized and carbon steel, nickel alloys, a variety of high-performance alloys and various plastic compositions. 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 essential raw materials used in the Arlon segment are silicone rubber, fiberglass cloths, non-woven glass mats, pigments, copper foils, various plastic films, special release liners, various solvents, Teflon™ or PTFE dispersion, skive PTFE film, polyimide resin, epoxy resins, other thermoset resins, ceramic fillers, as well as various chemicals. Generally, these materials are each available from several qualified suppliers. There are, however, several raw materials used in products that are purchased from chemical companies that are proprietary in nature. Other raw materials are purchased from a single approved vendor on a "sole source" basis, although alternative sources could be developed in the future if necessary. However, the qualification procedure for new suppliers can take several months or longer and could therefore interrupt production if the primary raw material source became unexpectedly unavailable. Current suppliers are located in the United States, Asia and Europe.




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Capital Investments

HNH believes that in order to be and remain competitive, its businesses must continuously strive to improve productivity and product quality, and control and/or reduce manufacturing costs. Accordingly, HNH expects to continue to incur capital investments that reduce overall manufacturing costs, improve the quality of products produced and broaden the array of products offered to the industries HNH serves, as well as replace equipment as necessary to maintain compliance with environmental, health and safety laws and regulations. HNH's capital expenditures for 2012, 2011 or 2010 for continuing operations were $20,900, $12,700 and $10,400, respectively. HNH anticipates funding its capital expenditures in 2013 from funds generated by operations and borrowed funds. HNH anticipates its capital expenditures to be in the range between $13,000 and $26,000 per year for the next several years.

HNH requires significant amounts of electricity and natural gas to operate its facilities and is subject to price changes in these commodities. A shortage of electricity 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.

Employees

As of December 31, 2012, HNH employed 1,648 employees worldwide. Of these employees, 355 were sales employees, 479 were office employees, 160 were covered by collective bargaining agreements, and 654 were non-union operating employees.

Competition

There are many companies, both domestic and foreign, which manufacture products of the type HNH manufactures. Some of these competitors are larger than HNH and have financial resources greater than it does. 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 is based on quality, technology, service and price, and in some industries, new product introduction, each of which is of equal importance. HNH may not be able to compete successfully, and competition may have a negative impact on its business, operating results or financial condition by reducing volume of products sold and/or selling prices, and accordingly reducing revenues and profits.

Sales Channels

HNH distributes products to customers through its sales personnel, outside sales representatives and distributors in North and South America, Europe, Australia, the Far East and several other international markets.

Patents and Trademarks

HNH owns patents and registered trademarks under which certain of its products are sold. In addition, HNH owns a number of U.S. and foreign mechanical patents related to certain of its products, as well as a number of design patents. HNH does not believe that the loss of any or all of these trademarks would have a material adverse effect on its businesses. HNH's patents have remaining durations ranging from less-than-one year to 17 years, with expiration dates occurring in 2013 through 2030.

Environmental Regulation

HNH is subject to laws and regulations relating to the protection of the environment. HNH does not presently anticipate that compliance with currently applicable environmental regulations and controls will significantly change its competitive position, capital spending or earnings during 2013. HNH believes it is in compliance with all orders and decrees it has consented to with environmental regulatory agencies. Please see "Item 1A - Risk Factors," "Item 3 - Legal Proceedings" and Note 21 - "Commitments and Contingencies" to the SPH consolidated financial statements included in "Item 8 - Financial Statements and Supplementary Data."
        
Steel Excel Inc.

Our Ownership Interest
We have an ownership interest of approximately 51.2% as of December 31, 2012 in Steel Excel, a Delaware corporation formerly known as ADPT Corporation (OTC: SXCL.PK). Three of our representatives serve on Steel Excel's six-

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member board of directors, one of whom serves as Chairman and another of whom serves as the Chief Executive Officer. One of our representatives also serves as Chief Financial Officer.
Description of Business
Steel Excel is primarily focused on capital redeployment and identification of new business operations in which they can utilize their existing working capital and maximize the use of their net tax operating losses (“NOLs”) in the future. The identification of new business operations includes, but is not limited to, the oilfield services, sports, training, education, entertainment, and lifestyle businesses. During Steel Excel's fiscal year ended December 31, 2012, they acquired two oilfield services businesses (Eagle Well Services and Sun Well Service, Inc.) and two sports-related businesses (Cross Fit South Bay and Cross Fit Torrance). On May 31, 2012, our ownership percentage exceeded 50%, and Steel Excel became a majority-owned subsidiary and is consolidated from that date forward (see Note 3 - "Acquisitions" to the SPH financial statements located elsewhere in this Form 10-K). In addition, Steel Excel owns several sports businesses. The results of Steel Excel are included in the Energy segment for the year ended December 31, 2012.
Sales
Steel Excel's sales and marketing activities are performed through its local operations in each geographic region within the United States. Steel Excel believes its local personnel can more effectively target marketing activities because they have an excellent understanding of region-specific issues and customer operations. Steel Excel's energy business customer base is concentrated and the loss of a significant customer could cause its revenue to decline substantially. Steel Excel has two customers, that make up 10% or more of its net revenues, and its top 15 customers made up 89% of net revenues during the seven month period owned by SPH in 2012.

Government Regulation
Steel Excel's operations are subject to multiple federal, state and local laws and regulations pertaining to worker safety, the handling of hazardous materials, transportation standards and the environment. Steel Excel cannot predict the level of enforcement or the interpretation of existing laws and regulations by enforcement agencies in the future, or the substance of future court rulings or permitting requirements. In addition, Steel Excel cannot predict what additional laws and regulations may be put in place in the future, or the effect of those laws and regulations on our business and financial condition. Steel Excel believes we are in substantial compliance with applicable environmental laws and regulations. While Steel Excel does not believe that the cost of compliance is material to our business or financial condition, it is possible that substantial costs for compliance or penalties for non-compliance may be incurred in the future.

Among other environmental laws, Steel Excel is subject to the Clean Water Act that establishes the basic structure for regulating discharges of pollutants into the waters of the United States and quality standards for surface waters. Steel Excel's operations could require permits for discharges of wastewater and/or stormwater. In addition, the Oil Pollution Act of 1990 imposes 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 similar 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 Comprehensive Environmental Response, Compensation and Liability Act, as amended, and comparable state laws (“CERCLA” or “Superfund”) 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 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. Steel Excel may encounter  materials that are considered hazardous substances in the course of our operations. As a result, Steel Excel may incur CERCLA liability for cleanup costs and be subject to related third-party claims. Steel Excel 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, Steel Excel could be required to clean up contaminated property (including contaminated groundwater) or to perform remedial activities to prevent future contamination.

Steel Excel's operations are also subject to the Clean Air Act, as amended, and similar state laws and regulations that restrict the emission of air pollutants and impose various monitoring and reporting requirements. These laws and regulations may

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require it 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 (climate change). While it is not possible to predict how legislation or new regulations that may be adopted to address greenhouse gas emissions would impact Steel Excel's business, any new restrictions on emissions that are imposed could result in increased compliance costs for, or additional operating restrictions on, Steel Excel's customers and hence, affect its business.

Steel Excel is also subject to the federal Occupational Safety and Health Act, as amended, (“OSHA”) and comparable state laws that regulate the protection of employee health and safety. OSHA's hazard communication standard requires that information about hazardous materials used or produced in Steel Excel's operations be maintained and provided to employees and state and local government authorities. Steel Excel believes they are in substantial compliance with the OSHA and comparable state law requirements, including general industry standards, recordkeeping requirements and monitoring of occupational exposure to regulated substances.

Competition
Steel Excel operates in a highly competitive industry that is influenced by price, capacity, reputation and experience. Because oil and natural gas prices and drilling activities are at high levels and service companies are seeing increased demand for their services and attractive returns on investment, oilfield services companies are ordering new equipment to expand their capacity. To be successful, Steel Excel must provide services that meet the specific needs of oil and gas exploration and production companies at competitive prices. In addition, a safe and well-trained work force provides a competitive advantage. Steel Excel strives to provide high-quality services and value to our customers by combining our state of the art equipment with highly-skilled and experienced personnel.

Steel Excel's services are affected by seasonal factors, such as inclement weather, fewer daylight hours, and holidays during the winter months. Heavy snow, ice, or rain can make it difficult to move equipment between work sites, which can reduce Steel Excel's ability to provide services and generate revenues. These seasonal factors affect Steel Excel's competitors as well. Demand for services in Steel Excel's industry as a whole fluctuates with the supply and demand for oil and natural gas. The oil and natural gas producers attempt to take advantage of a higher-priced environment when demand exceeds supply, which leads to the need for Steel Excel's services. Conversely, as supply equals or exceeds demand, the oil and natural gas producers become more risk-intolerant and will cut back on their well servicing needs.

Employees
As of December 31, 2012, Steel Excel had 360 employees that were all located in the United States, including nine part-time employees. Steel Excel considers its employee relations to be good and they are not party to any collective bargaining agreements.

WebBank
Our Ownership Interest
SPH's wholly owned subsidiary, WebFinancial Holding Corporation, conducts financial operations through its wholly-owned subsidiary, WebBank (“WebBank”). One of our representatives serves as the Chairman of the board of directors of WebBank.
Description of Business
WebBank is a Utah chartered industrial bank subject to the 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, SPH is not regulated as a bank holding company. WebBank, whose deposits are insured by the FDIC, generates commercial, real estate, government guaranteed and consumer loans.
WebBank continues to evaluate its different business lines and consider various alternatives to maximize the aggregate value of its businesses and increase value, including seeking acquisitions and/or merger transactions, as well as product line extensions, additions and/or divestitures.

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Sales
WebBank generates revenue through a combination of interest income and non-interest income. Interest income is primarily derived from interest and origination fees earned on loans, factored receivables and investments. Non-interest income is primarily derived from strategic partner fee income and loan servicing fees. For the years ended December 31, 2012, 2011 and 2010, two contractual lending programs accounted for 56%, 58% and 54%, respectively, of WebBank's total revenue.
Government Regulation
WebBank is subject to various regulatory capital requirements administered by the FDIC. 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. 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. Currently, WebBank meets or exceeds all of its capital requirements.
Competition
WebBank competes with a broad range of local and regional banks and finance companies across its various lines of business.
Employees
As of December 31, 2012, WebBank had 33 employees.
BNS Liquidating Trust
Our Ownership Interest
We have an ownership interest of approximately 84.9% as of December 31, 2012 in BNS Liquidating Trust (previously BNS Holding, Inc.). In June 2012, BNS, in accordance with its shareholder approval plan, distributed its assets and commenced its liquidation. See "Description of Business" section below for additional details.
Description of Business
BNS is a holding company with no operations as of June 1, 2012 due to the sale of Sun Well to Steel Excel on May 31, 2012 (see Note 3 - "Acquisitions" to the SPH consolidated financial statements found elsewhere in this Form 10-K). BNS' results include the operations of Sun Well (acquired on February 2, 2011) through the date of sale to Steel Excel. On June 18, 2012, BNS completed a distribution to its shareholders, pursuant to shareholder approval, and distributed cash of approximately $10,300 to its minority shareholders and 2,027,500 shares of Steel Excel common stock to its majority shareholder. In June 2012, BNS formed a liquidating trust, the BNS Liquidating Trust, assigned its assets and liabilities to the Trust and initiated its dissolution. The Trust is owned by the BNS former shareholders in the same proportion as their former shareholdings.
Prior to the acquisition of Sun Well on February 2, 2011, BNS operated primarily through its 80% ownership of Collins Industries, Inc. (“Collins”), a North American manufacturer of small school, activity and shuttle buses, ambulances, and terminal trucks/road construction equipment, until its disposition of Collins in February 2010.
Employees
The BNS had no employees as of December 31, 2012.

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DGT Holdings Corp.
Our Ownership Interest
We have an ownership interest of approximately 59.2% as of December 31, 2012 in DGT Holdings Corp. (OTC: DGTC.OB), a New York corporation (“DGT”). On July 5, 2011, our ownership interest in DGT exceeded 50%, and as a result, DGT became a controlled subsidiary of SPH and is consolidated from that date. Two of our representatives serve on DGT's five-member board of directors, one of which serves as DGT's President, Chief Executive Officer and Chief Financial Officer.
Description of Business
As a result of the following transactions, DGT is currently a holding company whose primary assets are the two buildings mentioned below. In addition to management of these buildings, DGT's business is expected to consist primarily of capital redeployment and identification of new profitable operations where it can utilize its existing working capital and maximize the use of their net operating losses.

After obtaining the required two-thirds vote approval by its shareholders on August 16, 2012, DGT completed the sale of its Power Conversion business operated by RFI Corporation ("RFI") to EMS Development Corporation (“EMS”), a New York corporation and an affiliate of Ultra Electronics Defense, Inc. (“UEDI”). DGT retained the RFI facility and entered into a lease with EMS. The lease has a term of 5 years, with payments of $33,000 per month net to RFI, terminable by EMS, as the tenant, upon 30 days prior written notice. As a result, the operations of RFI are reflected as discontinued operations in our consolidated financial statements for the year ended December 31, 2012 and the period from July 5, 2011 to December 31, 2011.

In November 2011, DGT sold its subsidiary, Villa Sistemi Medicali S.p.A. (“Villa”), which comprised its Medical Systems Group division. As a result, the operations of Villa are reflected as discontinued operations in our consolidated financial statements for the period from July 5, 2011 to December 31, 2012. DGT retained the building in Milan, Italy, housing Villa’s operations, which is subject to an initial six-year lease with VIV and an option for a subsequent six-year period. Under the terms of the lease, the Company will receive €335 in annual rent, payable quarterly.

For additional information, see Note 4 - "Discontinued Operations" to the SPH financial statements found elsewhere in this Form 10-K.
Employees
As of December 31, 2012, DGT had no employees.
SPH Services, Inc.
Our Ownership Interest
SPH Services, Inc. (“SPH Services”) is our wholly-owned subsidiary. Three of our representatives serve as members, including as the Chairman, of the board of directors of SPH Services. These representatives also serve as SPH Services' Chief Executive Officer, President, Secretary, Chief Financial Officer and Treasurer.
Description of Business
SPH Services is a subsidiary of SPH, which commenced operations on January 1, 2012. It was created to consolidate the executive and corporate functions of SPH and certain of our affiliates, including SP Corporate and Steel Partners LLC, to provide legal, tax, accounting, treasury, consulting, auditing, administration, compliance, environmental health and safety, human resources, marketing, investor relations and similar services, to other affiliated companies. In connection with the formation of SPH Services, we acquired SP Corporate and Steel Partners LLC, our former manager, as well as certain assets from HNH.
SP Corporate has management services agreements with HNH, BNS, CoSine (as defined below), DGT, Steel Excel and WebBank, (as defined below) and other related companies. Services provided to SPH and its consolidated subsidiaries for the twelve months ended December 31, 2012 are eliminated in consolidation. For additional information on these service

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agreements see Note 13 - "Related Party Transactions" to the SPH consolidated financial statements found elsewhere in this Form 10-K.
By consolidating corporate overhead and back office functions, SPH believes it will achieve cost savings over time for its affiliated companies while delivering more efficient and effective services.  As a result of the synergies associated with SP Corporate's specialization and capabilities across a broad range of corporate and executive functions that are provided to SPH and other companies, SP Corporate believes that it will be able to create high value business partnerships by delivering higher quality services and more efficient professional transaction processing which will result in significant cost savings that can be achieved through standardization, clear processes and procedures, the elimination of non-value adding activities and economies of scale.
Employees
As of December 31, 2012, SPH Services had 61 employees.
Our Business - Equity Method Investments
Associated Companies
Associated companies are investments in operating companies in which we own between 20% and 50% of the outstanding equity and have the ability to exercise significant influence, but not control, over the investee. As such, the investments in these operating companies are accounted for under the equity method of accounting (see Note 2 - "Summary of Significant Accounting Policies" - to the SPH financial statements found elsewhere in this Form 10-K). The investments in associated companies are classified as Long-term investments in the Consolidated Balance Sheets (see Note 5 - "Investments" to the SPH financial statements found elsewhere in this Form 10-K).
Additional information related to the investments that are classified as associated companies as of December 31, 2012 is as follows:
SL Industries, Inc.
We have an ownership interest of approximately 24.1% as of December 31, 2012 in SL Industries, Inc. (AMEX:SLI), a New Jersey corporation (“SLI”). Two of our representatives serve on SLI's six-member board of directors, one of whom serves as Chairman. SLI designs, manufactures and markets power electronics, motion control, power protection, power quality electromagnetic and specialized communication equipment. SLI's products are used in a variety of medical, commercial and military aerospace, computer, datacom, industrial, telecom, transportation, utility, rail and highway equipment applications.
CoSine Communications, Inc.
We have an ownership interest of approximately 46.8% as of December 31, 2012 in CoSine Communications, Inc. (OTC: COSN.PK), a Delaware corporation (“CoSine”). Two of our representatives serve on CoSine's four-member board of directors, one of whom serves as the Chief Executive Officer and Chief Financial Officer. CoSine is currently in the business of seeking to acquire one or more business operations.
Fox & Hound Restaurant Group
We have an indirect ownership interest of approximately 50.0% as of December 31, 2012 in Fox & Hound Restaurant Group, a Delaware corporation (“Fox & Hound”). Two of our representatives serve on Fox & Hound's four-member board of directors. Fox & Hound is a privately held owner and operator of a chain of approximately 130 company-owned and 14 franchised social destination casual dining and entertainment-based restaurants in 32 states. On March 19, 2012, the Company invested $10,923 to acquire an indirect interest in Fox & Hound as part of a recapitalization, which involved the issuance by Fox & Hound of new common equity in conjunction with a long-term refinancing of Fox & Hound's debt. The Company elected to record its investment in Fox & Hound on the equity method at fair value in order to more appropriately reflect the value of Fox & Hound in its financial statements.




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SP II Liquidating Trust
The Company's investment in each series of the SPII Liquidating Trust is accounted for at fair value under the equity method (see Note 2 - "Summary of Significant Accounting Policies" and Note 13 - “Related Party Transactions” to the SPH financial statements found elsewhere in this Form 10-K). The purpose of the SPII Liquidating Trust is to effect the orderly liquidation of certain assets previously held by SPII. SPH's financial position, financial performance and cash flows will be affected by the extent to which the operations of the SPII Liquidating Trust results in realized or unrealized gains (losses) and by distributions it makes in each reporting period. The investments in associated companies are classified as Long-term investments in the Consolidated Balance Sheets and the gains (losses) are recorded in Income (Loss) from other investments - related party in the Consolidated Statements of Operations (see Note 5 - "Investments" to the SPH financial statements found elsewhere in this Form 10-K).

Our Business - Other Investments
We also hold various investments in available for sale securities in the Computer Software and Services, Aerospace/Defense, Manufacturing and Restaurant industries (see Note 5 - "Investments" to the SPH financial statements found elsewhere in this Form 10-K). Included in those investments are our investments in API and JPS, which were reclassified to available for sale securities effective December 31, 2011.
Our Common Units
Our common units are quoted on the New York Stock Exchange (NYSE) under the symbol "SPLP".
Other Information
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 SEC.

Item 1A. Risk Factors

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 Structure
For annual periods from January 1, 2009 to July 15, 2009 and for the year ended December 31, 2008 presented in Item 6. Selected Financial Data, our consolidated financial statements will not include meaningful comparisons to prior years.
The Exchange Transaction, pursuant to which SPII became a wholly-owned subsidiary of SPH on July 15, 2009, is accounted for as a transaction between entities under common control and as such SPII's accounts are consolidated with SPH for all periods presented. SPH's operations prior to July 16, 2009 and operations related to the assets acquired as a result of the acquisition of SPII as of July 15, 2009 are presented in the consolidated financial statements as “Diversified Industrial, Financial Services and Other”. The Company accounts for the consolidation of SPII in the consolidated financial statements as “Investment Operations” for all periods presented through July 15, 2009. Due to differences between the operating company accounting policies of Diversified Industrial, Financial Services and Other operations and the accounting policies of Investment

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Operations, our consolidated financial statements will not include meaningful comparisons to 2009 and 2008 presented in Item 6. Selected Financial Data.
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”). An entity will 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, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities; or (b) absent an applicable exemption, it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis (the “40% Test”). Since we operate as a diversified holding company engaged in a variety of operating businesses through our subsidiaries and controlled companies, we do not believe that 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 in this manner may have a material adverse effect on us, as it may limit our ability to make certain investments or take certain actions or 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 could suffer adverse consequences, including a need to further adjust our business strategy and assets, including by divesting certain desirable assets immediately to fall outside of the definition or within an exemption, to register as an investment company or to cease operations.
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. If we were required to register as an investment company under the Investment Company Act, we would be subject to numerous restrictions and requirements that would be inconsistent with the manner in which we operate our business and which may have a material adverse effect on our operations, financial conditions and prospects, including restrictions on our capital structure and restrictions on our ability to transact business with affiliates, including our operating subsidiaries and controlled companies.
As a result of the 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. Since then, we have taken reasonable actions to alter our holdings so that we can comply with the 40% Test or a relevant exception as soon as reasonably practicable. These actions have included liquidating certain of our assets and acquiring additional interests in existing or new subsidiaries or controlled companies. Due to market conditions and other factors beyond our reasonable control, we were unable to complete all actions necessary to comply with the 40% Test or a relevant exception within the one-year grace period permitted under the Investment Company Act. As a result, on July 8, 2010, prior to the conclusion of the grace period, we filed an application with the SEC for an extended temporary exemption from the Investment Company Act. On April 27, 2012, the SEC posted a notice indicating an order granting the application will be issued unless the Commission orders a hearing. On May 23, 2012, the SEC granted the Company's request.
Our revenue, net income and cash flow are highly variable, which may prevent us from achieving steady earnings growth on a quarterly basis and may cause the price of the common units to be volatile.
Our revenue, net income and cash flow are highly variable. We may experience fluctuations in our results from quarter to quarter due to a number of factors, including changes in the values of our various operations, changes in our operating expenses, changes in asset values, changes in the competitive environment, and general economic and market conditions. Such fluctuations may lead to volatility in the trading price of the common units and cause our results for a particular period not to be indicative of our future performance. It may be difficult for us to achieve steady growth in net income and cash flow on a quarterly basis, which could lead to volatility in the price of the common units.
As our revenue, net income and cash flow are highly variable from period to period, we do not expect to provide any guidance. The lack of guidance may affect the expectations of analysts and could cause increased volatility in the price of the common units. Many of our operating companies are small cap and micro cap companies that are thinly traded and may trade at prices that do not reflect their intrinsic value. Such prices may affect the price at which the common units trade. In addition, some of our holdings are private companies for which there is no trading market.
The requirements of being a public entity and sustaining our growth may result in increased costs over prior years.

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Effective as of February 13, 2012, we became subject to the reporting requirements of the Exchange Act. Consequently, we are required to file annual, quarterly and current reports with respect to our business and financial condition. In addition, sustained growth may require us to commit additional management, operational and financial resources to identifying new professionals to join us and to maintain adequate operational and financial systems to support expansion. These requirements may divert management's attention. We may incur significant additional annual expenses related to these steps, including additional directors' and officers' liability insurance, Exchange Act reporting costs, transfer agent fees, salaries and expenses for additional accounting, legal and administrative personnel.
Once we are required to comply with all of the requirements of Section 404 of the Sarbanes-Oxley Act, failure to comply with these requirements may have a material adverse effect on our results of operations.
We are required to comply with the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”), and have furnished a report by our management on internal control over financial reporting. Beginning with our fiscal year ended December 31, 2013, our report must contain a statement that our auditors have attested to management's assessment of such internal control over financial reporting. We will be required to provide such auditor's attestation on management's assessment of internal controls as part of our 2013 Form 10-K.
If our auditors fail to issue an opinion that our internal controls over financial reporting are effective, this may trigger a negative reaction in the financial markets. We may also be required to incur costs to improve our internal control system and hire additional personnel.
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 SPH, 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, our officers and the Manager, or to recover losses or costs incurred by us as a result of their actions or failures to act.
If we are dissolved, unitholders may not realize the value that may otherwise be realized over time.
We may be dissolved at the election of the Board of Directors by a majority of the directors. If we are dissolved, unitholders may not realize the value that may otherwise be realized over time.
Our ability to timely file financial results will require the cooperation of certain of the companies in which we have interests. Our failure to timely file financial statements may have an adverse effect on our business and operations.
We require the financial results of certain of the companies in which we have interests in order to report our own financial results. As such, our ability to timely file financial statements will depend on the cooperation of those companies. There can be no assurance that those companies will produce financial results in a timely manner. Our failure to timely file financial statements may have an adverse effect on our business and operations.
Our Partnership Agreement contains certain limitations on the voting rights of 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%. Please see “Material Provisions of Steel Partners Holdings L.P. Partnership Agreement -- Limitations on Voting Rights.”
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 SPH Services, which may be different from the decisions we would make. Companies in which we have interests but we do not control may make decisions that do not serve our interests and those of our unitholders.
The boards of directors and officers of our respective businesses, including directors and officers associated with our Manager and SPH Services, have fiduciary duties to their shareholders. As a result, they may make decisions that are in the best interests of their shareholders generally but which are not necessarily in our best interest or that 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

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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.
Our assets include interests in companies that we do not control. The majority stakeholders or the management of such companies may make decisions we do not agree with or which do not serve our interests. If any of the foregoing were to occur, the values of interests held by us may decrease and our financial condition, results of operations and cash flow may suffer as a result.
There are certain interlocking relationships among us and certain affiliates of Warren G. Lichtenstein, our Chairman and Chief Executive Officer, 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, 2012 Mr. Lichtenstein directly owned approximately 5.2% of our outstanding common units.  Affiliates of our Manager beneficially own an additional 22.0% 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.  For more information regarding these relationships and other relationships between us and related parties, see “Certain Relationships and Related Transactions.”
We have engaged, and in the future may engage, in transactions with our affiliates and may choose to purchase additional securities of entities that we control, and we could have to expend substantial resources in resolving any challenges to those transactions.
Generally, Delaware law, under which we are governed, requires that any transactions between us and any of our affiliates be on terms that, when taken as a whole, are substantially as favorable to us as those then reasonably obtainable from a person who is not an affiliate in an arms-length transaction. We believe that the terms of the agreements we have entered into with our affiliates satisfy the requirements of Delaware law, but in the event that one or more parties challenges the fairness of such terms we could have to expend substantial resources in resolving the challenge and we can make no guarantees as to the result. Similarly, we currently own significant equity positions in a number of companies. We may choose in the future to purchase additional securities of such companies. We intend to engage in any such transactions on terms that are fair to all shareholders and are the result of arms-length negotiations. However, one or more minority shareholders may choose to challenge the fairness of such purchases by a controlling shareholder. Defending against such potential challenges may cause us to expend substantial resources in resolving the challenge and we can make no guarantees as to the result.
Certain members of our management team may be involved in other business activities that may involve conflicts of interest.
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.
We, as a diversified holding company, may have substantial limitations on our ability to sell interests in the underlying operating companies.
We accumulate significant positions in underlying operating companies and have a significant role in the management of various underlying operating companies. As a result, we may face significant legal and market restrictions on selling our interests in the underlying operating companies. For example, employees of the Manager and SPH Services may also serve as managers or members of the board of directors of the underlying operating companies, and, thus, may receive material and confidential information concerning the operating companies that would preclude us, under federal securities laws, from trading securities of the relevant operating company. Some privately held businesses may be subject to shareholders agreements which may limit our ability to sell our interests in such companies. In addition, we may be limited in our ability to sell securities in an underlying operating company in light of the size of our ownership interest and the absence of liquidity in the market to absorb our ownership interest, or, alternatively, may be required to sell our ownership interest at a discounted and unfavorable price.
We hold and expect to continue to hold illiquid assets with a limited market for resale and, therefore, may be unable to dispose of such assets at a time and at a price that we deem desirable.

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We may hold assets that have a limited market for resale. We may be unable to dispose of such assets at a time and at a price that we deem desirable. In the event that we desire to sell such assets on an expedited basis, we may not be able to obtain a price for such assets that are equal to or greater than what we could receive if there was a public market for such assets.
Risks Related to Our Business
We may not be able to fund future acquisitions of new businesses or raise funds for operating expenses due to the lack of availability of debt or equity financing on acceptable terms, which could materially adversely impact our financial condition, business and results of operations.
In order to make future acquisitions and fund operations, we may need to raise capital primarily through debt or equity financings. Since the timing and size of acquisitions or the need for additional capital cannot be readily predicted, we may need to obtain funding on short notice to benefit fully from attractive acquisition opportunities or to address business needs. Such funding may not be available on acceptable terms, or at all. In addition, the level of our indebtedness may impact our ability to borrow. Also, depending on market conditions and investor demand for the common units, we may not be able to raise capital by selling additional common units at prices that we consider to be in our interest. These risks may materially adversely affect our ability to pursue our acquisition strategy successfully and materially adversely affect our financial condition, business and results of operations.
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. and they present certain risks not typically associated with U.S. operations, including risks relating to currency exchange matters, 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.
If certain of our operating subsidiaries are unable to access funds generated by their respective subsidiaries, such operating subsidiaries may not be able to meet their financial obligations.
Because certain of our operating subsidiaries are holding companies that conduct operations through their subsidiaries, such operating subsidiaries depend on those entities for dividends, distributions and other payments to generate the funds necessary to meet their financial obligations. Certain of such operating subsidiaries may face restrictions on their ability to transfer cash to their parent company pursuant to the terms of any credit agreement to which they are a party. Failure by one of those subsidiaries to generate sufficient cash flow and meet the requirements of their respective credit facilities could have a material adverse effect on our business, financial condition and results of operations.
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.
The success of each of our businesses depends in part on its, or licenses to use others' brand names, proprietary technology and manufacturing techniques. These businesses rely on a combination of patents, trademarks, 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.
If our businesses are unable to continue the technological innovation and successful commercial introduction of new products and services, their financial condition, business and results of operations could be materially adversely affected.

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The industries in which our businesses operate experience periodic technological changes and ongoing product improvements. Their results of operations depend significantly on the development of commercially viable new products, product upgrades and their ability to integrate new technologies. Our future growth will depend on their ability to gauge the direction of, and effectively respond to, the technological progress in key end-use markets and upon their ability to successfully develop new generations of products. Our businesses must make ongoing capital investments and may need to seek better educated and trained workers, who may not be available in sufficient numbers. Failure to effectively respond to technological developments may result in reduced sales and sunk developmental costs.
We are dependent on digital technologies to conduct our daily operations and maintain confidential information.

The Company relies on information technology systems to both manage its daily operations and to secure its intellectual property. A failure in or breach of operational or informational security systems or infrastructure, or those of its third party vendors and other service providers, as a result of information system failures or cyber attack, could disrupt business, result in the disclosure or misuse of confidential or proprietary information, including customer and vendor lists, damage its reputation and investor confidence, increase security and remediation costs and cause losses, including potential lawsuits, all of which could have a material adverse effect on its businesses, financial condition and results of operations.

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

Our businesses are based primarily upon individual orders and sales with our customers and clients and not long-term supply contracts. As such, our customers and clients could cease using services or buying products at any time and for any reason and we will have no recourse in the event a customer or client no longer wants to use our businesses' services or purchase products from us. If a significant number of our customers or clients elect not to use such services or purchase products, it could materially adversely affect our financial condition, business and results of operations.
Our businesses are and may be subject to federal, state and foreign environmental laws and regulations that expose them to potential financial liability. Complying with applicable environmental laws requires significant resources, and if our businesses fail to comply, they could be subject to substantial liability.
Some of the facilities and operations of our businesses are, and may be, subject to a variety of federal, state and foreign environmental laws and regulations, including laws and regulations pertaining to the handling, storage and transportation of raw materials, products and wastes, and hazardous materials and wastes, which require and will continue to require significant expenditures to remain in compliance with such laws and regulations. Any material violations of these laws can lead to substantial liability, revocations of discharge permits, fines or penalties, which could negatively impact our financial condition, business and results of operations.
Defects in the products provided by our businesses could result in financial or other damages to our customers, which could result in reduced demand for our businesses' products and/or liability claims against our businesses.
Some of our businesses manufacture products to customer specifications that are highly complex and critical to customer operations. Defects in products could result in product liability suits, compensation for damages, or a reduction or cancellation of future purchases due to customer dissatisfaction. If these defects occur frequently, our reputation may be impaired. Any of these outcomes could negatively impact our financial condition, business and results of operations.
Some of our businesses are subject to certain risks associated with the movement of businesses offshore.
Some of our businesses are potentially at risk of losing business to competitors operating in lower cost countries. An additional risk is the movement offshore of some of our businesses' customers, leading them to procure products or services from more closely located companies. Either of these factors could negatively impact our financial condition, business and results of operations.
Loss of key customers of some of our businesses could negatively impact our financial condition.
Some of our businesses have significant exposure to certain key customers, the loss of which could negatively impact our financial condition, business and results of operations.
Our business strategy includes acquisitions which entail numerous risks.

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Our business strategy and the strategy of our businesses includes acquisitions and 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. Any future acquisitions may also result in material changes in the composition of our assets and liabilities or the assets and liabilities of our businesses and if unsuccessful could reduce the value of our common units. In addition, once found, acquisitions entail further risks, including unanticipated costs and liabilities of the acquired businesses 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.
HNH sponsors a defined benefit pension plan which could subject it to substantial cash funding requirements in the future.
HNH's ongoing operating cash flow requirements consist of arranging for the funding of the minimum requirements of its defined benefit plan (the "WHX Pension Plan") and paying HNH's administrative costs. The significant decline in market value of stocks and other investments starting in 2008 across a cross-section of financial markets contributed to an unfunded pension liability of the WHX Pension Plan, which totaled $217,100 as of December 31, 2012 and $186,200 as of December 31, 2011. In addition, a reduction in interest rates has caused a change in the discount rate that is used to value the pension liability on the consolidated balance sheet. HNH expects to have required minimum pension plan contributions to the WHX Pension Plan for 2013, 2014, 2015, 2016, 2017 and thereafter of $13,400, $19,200, $20,400, $17,400, $16,900 and $49,000, respectively. Such required future contributions are determined based upon assumptions regarding such matters 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.

Difficult economic, market and industry specific conditions may adversely affect our operations, which could materially reduce our revenue, cash flow and asset value, and adversely affect our financial condition.
We operate in a variety of competitive industries and market sectors, which are susceptible to economic and industry specific volatility. Our operations and assets are materially affected by conditions in the financial, manufacturing and energy markets, as well as economic conditions throughout the world that are outside our control, such as interest rates, availability of credit, inflation rates, economic and/or uncertainty, changes in laws, trade barriers, commodity prices, currency exchange rates and controls and national and international political circumstances. These factors may affect the level and volatility of securities prices and the liquidity and the value of our operations and assets, and we may not be able to or may choose not to manage our exposure to these market conditions.
Our operations' revenues and assets could also be affected by a continued economic downturn. Our operations may also have difficulty expanding and be unable to meet our debt service and pension obligations or other expenses as they become due. In addition, during periods of adverse economic conditions, it may be more difficult and costly or impossible to obtain funding for our operations. Furthermore, such conditions could also increase the risk of default with respect to our operations that have significant debt.
Legislative and regulatory actions taken now or in the future to address the current liquidity and credit crisis in the financial industry may significantly affect our liquidity or financial condition.
On July 21, 2010, President Barack Obama signed the Dodd-Frank Act into law. The Dodd-Frank Act is intended primarily to overhaul the financial regulatory framework following the global financial crisis and will impact all financial institutions, including WebBank. The Dodd-Frank Act contains provisions that has, among other things, established a Bureau of Consumer Financial Protection, will establish a systemic risk regulator, consolidate certain federal bank regulators and impose increased corporate governance and executive compensation requirements. While many of the provisions in the Dodd-Frank Act are aimed at financial institutions significantly larger than ours, it will likely increase our regulatory compliance burden and may have a material adverse effect on us.
The Dodd-Frank Act also required the Government Accountability Officer (“GAO”) to conduct a study, within 18 months of the enactment, of the various exemptions in the Bank Holding Company Act for certain types of depository institutions, including industrial banks such as WebBank. SPH is not regulated as a bank holding company as a result of this exemption. The GAO completed its study in January, 2012. It is not clear, what impact, if any, the GAO study would have on the continued availability of this exemption.
In addition, 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, and their subsidiaries or affiliates, from engaging in proprietary trading

19


activities and owning equity in or sponsoring any private equity or hedge fund. The Volcker Rule became effective July 21, 2012. The draft implementing regulations for the Volcker Rule were issued by various regulatory agencies on October 11 and 12, 2011. Under the regulations, we (or our affiliates) may be restricted from engaging in proprietary trading, investing in third party hedge or private equity funds or sponsoring new funds unless we qualify for an exemption from the rule. We will not know the full impact of the Volcker Rule on our operations or financial condition until the final implementing regulations are adopted sometime in 2013.
Furthermore, effective July 21, 2011, 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, SPH could be called upon by the FDIC to infuse additional capital into WebBank to the extent that WebBank fails to satisfy its capital requirements. Currently, WebBank meets or exceeds all such requirements.
Further, 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 will be enacted and, if enacted, the effect that it would have on our business, financial condition or results of operations.
Increased volatility in raw materials costs and availability may continue to reduce revenues and profitability in our diversified industrial businesses.
Certain of our Diversified Industrial operations are subject to risks associated with increased volatility in raw material prices and availability of key raw materials. If the price for raw materials continues to increase and our operations are not able to pass these price increases to their customers, or are unable to obtain key raw materials, our results of operations may be negatively impacted.
Our energy segment is highly dependent on the activity level of the North American oil and gas industry. Our markets may be adversely affected by industry conditions that are beyond our control.

The level of oil and natural gas exploration and production activity in the United States is volatile. 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 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.

We and our businesses operate in highly competitive markets.
Many of our competitors and the competitors of our businesses are substantially larger and have considerably greater financial, technical and marketing resources than we do. Some competitors may have a lower cost of funds than we or our businesses do and access to financing sources that may not be available to us or our businesses. In addition, some of our competitors and the competitors of our businesses may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of business opportunities than we or our businesses can.
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, the loss of whose 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.
Certain members of the Manager's management team may be involved in other business activities that may involve conflicts of interest.

20


Certain individual members of the Manager's management team are involved in the management of other businesses. 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.
The interests of our Manager may not be aligned with our interests or those of our unitholders.
Our Manager receives a quarterly Management Fee at a rate of 1.5% of total partner's capital, payable on the first day of each quarter, subject to quarterly adjustment. Our Manager is entitled to receive a Management Fee regardless of our net income. In addition and as more fully described in “Management Agreement - Management Fees and Incentive Compensation”, our Manager was granted certain incentive units to receive Class B common units of SPH. The Manager may consider entering into or recommending riskier transactions that represent a potential higher reward in order for the Manager's units to be profitable. Any such riskier investment decisions or recommendations, if unsuccessful, could result in losses to us and a decline in the value of the common units.
We cannot determine the amount of the Management Fee that will be paid over time with any certainty.
The Management Fee is calculated by reference in part to our total partner's capital. Our total partner's 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 partner's 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 partner's 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 Units
We may issue additional common units in the future without the consent of unitholders and at a discount to the market price of such common units. In particular, sales of significant amounts of the common units may cause the price of the common units to decline.
Under the terms of the Partnership Agreement, additional common 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 units. Sales of significant amounts of the common units in the public market or the perception that such sales of significant amounts may occur could adversely affect its market price. Moreover, the perceived risk of any potential dilution could cause common unit holders to attempt to sell their common units and investors to “short” the common units, a practice in which an investor sells common units that he or she does not own at prevailing market prices, hoping to purchase common units later at a lower price to cover the sale. Any event that would cause the number of common units being offered for sale to increase would likely cause the common units' market price to further decline. These sales might also make it more difficult for us to sell additional common units in the future at a time and price that we deem appropriate.
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 and other income tax on their share of our taxable income, regardless of whether they receive any cash distributions from us.

21


It is anticipated that we will be treated, 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. We do not anticipate making any additional cash distributions or paying any cash dividends. 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. However, the Qualifying Income Exception will not apply if we register, or are required to register, as an investment company under the Investment Company Act.
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 SPH should be tax-free, unless the corporation is an investment company for tax purposes and the partners are treated as diversifying their interests. 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 SPH 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, or the “Subsidiary Partnership.” To preserve the uniformity of common units, we (but not the Subsidiary Partnership) will make 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 under Section 754. However, it is not clear whether this position will be upheld if challenged by the IRS. While we believe it represents the right result, there is no law directly on point.
We will prorate our items of income, gain, loss and deduction between transferors and transferees of our common units each month based upon the ownership of our common units on the first day of each month, instead of on the basis of the date a particular common unit is transferred. The IRS might challenge this treatment, which could change the allocation of items of income, gain, loss and deduction among our unitholders.
We will apply certain assumptions and conventions in an attempt to comply with applicable rules and to report income, gain, loss, deduction and credit to our unitholders in a manner that reflects such unitholders' beneficial ownership of partnership items, taking into account variation in unitholder ownership interests during each taxable year because of trading activity. Our allocations of items of taxable income and loss between transferors and transferees of our common units generally will be

22


determined annually, will be prorated on a monthly basis and will be subsequently apportioned among the unitholders in proportion to the number of common units owned by each of them as of the opening of trading of our common units on any national exchange on which we are listed, on the first business day of every month. As a result, a unitholder transferring common units may be allocated items of income, gain, loss, deduction and credit realized after the date of transfer. However, those assumptions and conventions may not be in compliance with all aspects of applicable U.S. federal income tax requirements. If the IRS were to challenge this method or new Treasury Regulations were issued, we might be required to change the allocation of items of income, gain, loss, deduction and credit among our unitholders in a manner that adversely affects them.
Non-U.S. persons face unique U.S. tax issues from owning common units that may result in adverse tax consequences to them.
We generally do not intend to engage in activities that will cause us to be treated as engaged in a U.S. trade or business for U.S. federal income tax purposes. However, it is possible that we may acquire the stock of U.S. corporations owning significant U.S. real property. The gain from the sale of the stock of such corporations may be treated as effectively connected income (“ECI”) with respect to non-U.S. unitholders. In addition, it is possible that we may acquire interests in U.S. real property (other than through corporations) as long as the income from the property is “qualifying income” under Section 7704. The income from such real property, including the gain from the sale of such property, may be ECI to non-U.S. unitholders. To the extent our income is treated as ECI, non-U.S. unitholders generally will be subject to withholding tax on their allocable share of such income when such income is distributed, will be required to file a U.S. federal income tax return for such year reporting their allocable share of income effectively connected with such trade or business and any other income treated as ECI, and will be subject to U.S. federal income tax at regular U.S. tax rates on any such income (state and local income taxes and filings may also apply in that event). Non-U.S. unitholders that are corporations may also be subject to a 30 percent branch profits tax on their allocable share of such income, which branch profits tax may be reduced or eliminated pursuant to an income tax treaty.
Certain passive income received by us, such as U.S. source dividends and interest that does not qualify as “portfolio interest,” that is allocable to non-U.S. unitholders will be subject to U.S. federal withholding tax of 30 percent (in the absence of relief under an income tax treaty). We are required to pay to the IRS such withholding tax on such income allocable to non-U.S. unitholders even if we do not make distributions to them. We will apply this withholding tax in a manner intended to preserve the uniformity of our common units.
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”). We may borrow money. 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 or if the tax-exempt organization's partnership interest itself is debt-financed.
Unitholders may be subject to state and local taxes and return filing requirements as a result of investing in our common units.
In addition to U.S. federal income taxes, our unitholders may be subject to other taxes, including state and local taxes, unincorporated business taxes and estate, inheritance or intangible taxes that are imposed by the various jurisdictions in which we conduct activities or own property, if any, now or in the future, even if our unitholders do not reside in any of those jurisdictions. Our unitholders may be required to file state and local income tax returns and pay state and local income taxes in some or all of these jurisdictions. Further, unitholders may be subject to penalties for failure to comply with those requirements. It is the responsibility of each unitholder to file all U.S. federal, state and local tax returns that may be required of such unitholder.

Item 1B. Unresolved Staff Comments

Not applicable.


Item 2. Properties

23



All dollars used in this discussion are in thousands.
HNH
As of December 31, 2012, HNH had 25 active operating plants in the United States, Canada, China, United Kingdom, Germany, France, Poland and Mexico, with a total area of approximately 1,680,321 square feet, including warehouse, office and laboratory space. HNH also owns or leases sales, service and warehouse facilities at 8 other locations in the United States, which have a total area of approximately 284,201 square feet, and owns or leases 4 non-operating locations with a total area of approximately 266,950 square feet. Manufacturing facilities are located in: Camden and Bear, Delaware; Evansville, Indiana; Agawam, Massachusetts; Middlesex, New Jersey; Arden, North Carolina; Canfield, Ohio; Rancho Cucamonga, California; St. Louis, Missouri; Tulsa and Broken Arrow, Oklahoma; Cudahy, Wisconsin; Toronto and Montreal, Canada; Coahuila and Matamoros, Mexico; Gwent, Wales, United Kingdom; Pansdorf, Germany; Riberac, France; Gliwice, Poland; and Suzhou, People's Republic of China. All plants are owned except for the Middlesex, Arden, Rancho Cucamonga, Montreal, Coahuila and two of the Suzhou plants, which are leased.

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.

Steel Excel
As of December 31, 2012, Steel Excel leases 10 facilities, comprising an aggregate of 51,585 square feet of leased space in North Dakota and California.
Steel Excel's sports business leases its 2,038 square foot headquarters in Hermosa Beach, California, which expires November 30, 2014 and it leases 27.9 acres in Yaphank, New York where it has built four full-size and three youth-size fields along with a restaurant. Steel Excel's sports business recently began construction on an approximately 12,000 square foot indoor training facility on the property. The indoor training facility is expected to be completed by mid-June 2013. The lease in Yaphank expires December 13, 2016, with two options to extend and a first right of refusal to purchase the property. CrossFit South Bay leases a 2,300 square foot facility in Hermosa Beach, California, which expires on July 15, 2015.

BNS
As of December 31, 2012, BNS did not own or lease any properties.
DGT
As discussed elsewhere in this Form 10-K, on August 16, 2012 DGT completed the sale of its RFI subsidiary. DGT continues to own 55,000 square feet of real estate property in Bay Shore, New York and entered into a lease with the buyer of RFI.
As discussed elsewhere in this Form 10-K, on November 3, 2011 DGT completed the sale of Villa, its former Italian subsidiary. DGT continues to own 67,000 square feet of design and manufacturing space in Milan, Italy and has entered into a lease with the buyer.
WebBank
As of December 31, 2012, WebBank leases 8,000 square feet of office space headquartered in Salt Lake City, Utah. The term of the lease expires in March 2017. WebBank also leases office space in New Jersey through March 2014. WebBank believes that these facilities are adequate for its current needs and that suitable additional space will be available as required.

24


Item 3. Legal Proceedings

The information set forth under Note 21 - "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.

PART II



Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
Market Information
 
As of December 31, 2012, we had 30,786,100 common units issued and outstanding. Beginning on April 10, 2012, 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 2012.
 
Fiscal year ending December 31, 2012
 
High
 
Low
First Quarter (a)
 
$
12.85

 
$
11.69

Second Quarter
 
$
13.50

 
$
10.67

Third Quarter
 
$
11.59

 
$
10.15

Fourth Quarter
 
$
12.50

 
$
11.15

 (a) Our common units were quoted on the over-the-counter market on the Pink Sheets until April 10, 2012.

During 2011, our common units, no par value, were quoted on the over-the-counter market on the Pink Sheets under the symbol “SPNHU.PK”. The following table sets forth the high and low bid prices for our common units for the periods indicated as reported by the OTC Bulletin Board. Prior to April 19, 2011, there was no active trading market for our common units. The prices state inter-dealer quotations, which do not include retail mark-ups, mark-downs or commissions. These prices do not necessarily represent actual transactions.
Fiscal year ending December 31, 2011
 
High
 
Low
Second Quarter
 
$
16.75

 
$
15.50

Third Quarter
 
$
16.75

 
$
14.60

Fourth Quarter
 
$
14.78

 
$
11.50

Holders
 
As of December 31, 2012, there were approximately 170 unitholders of record.
 
Distributions
 
In connection with the Exchange Transaction, we agreed to distribute to the holders of our common units the Target Distribution, subject to certain limitations, during the period from July 16, 2009 to the Final Distribution Date.  On April 1, 2010, we distributed to our unitholders of record as of March 26, 2010, approximately $54.4 million, or $1.95 per common unit.  On April 6, 2011, we distributed to our unitholders of record as of March 25, 2011, approximately $33.1 million, or $1.18 per common unit, representing the final required distribution in full satisfaction of the Target Distribution.


25


We may, at our option, make further distributions to the unitholders although we currently have no plan to make any distributions in excess of the Target Distribution.
 
Unit Performance Graph
 
The following graph compares the cumulative total return provided to unitholders on our common units since the common units began trading on April 19, 2011, relative to the cumulative total returns 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, Knights Capital Group, Inc. and Main Street Capital Corporation.  An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common units, in the peer group, and the index on April 19, 2011 and its relative performance is tracked through December 31, 2011.  We did not declare or pay any dividends during the comparison period. 


 
 
12/31/2011
 
3/31/2012
 
6/30/2012
 
9/30/2012
 
12/31/2012
Steel Partners Holdings L.P.
 
$
74.92

 
$
73.99

 
$
67.77

 
$
71.94

 
$
73.30

Russell 2000 Index
 
$
90.96

 
$
102.27

 
$
98.72

 
$
103.90

 
$
105.83

Peer Group
 
$
76.44

 
$
83.05

 
$
73.80

 
$
76.71

 
$
82.25


The unit price performance included in this graph is not necessarily indicative of future 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.






26


Issuer Purchases of Equity Securities
 
(a)
(b)
(c)
(d)
Period
Total Number of Shares (or Units) Purchased (1)
Average Price Paid per Share (or Unit)
Total Number of Shares (or Units) Purchased as part of Publicly Announced Plans or Programs
Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
 
 
 
 
 
October 1, 2012 through October 31, 2012
10,500
$11.22
N/A
N/A
November 1, 2012 through November 30, 2012
262,814
12.01
N/A
N/A
December 1, 2012 through December 31, 2012
268,747
12.22
N/A
N/A
Total
542,061
 
N/A
N/A
(1) All units were purchased by DGT Holdings Corp., an affiliate of the Company, in open market transactions for its own account.

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, 2012, 2011 and 2010 have 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, 2009 and 2008 and the periods from January 1, 2009 to July 15, 2009 and July 16, 2009 to December 31, 2009 and for the fiscal year ended December 31, 2008 have been derived from our audited consolidated financial statements at those dates and for those periods, not contained in this Annual Report on Form 10-K.

SPH entered into the Exchange Transaction pursuant to which SPII became a wholly-owned subsidiary of SPH on July 15, 2009, subject to no further conditions.  The Exchange Transaction is accounted for as a transaction between entities under common control and as such SPII’s accounts are consolidated with SPH for all periods presented. The operations of SPH prior to taking into account the assets acquired as a result of the Exchange Transaction (the “Pre-Exchange Operations”), together with the operations related to the assets acquired as a result of the acquisition of SPII as of July 15, 2009 are accounted for and presented on an operating company basis of accounting, in accordance with U.S. generally accepted accounting principles (“GAAP”).  These operations are presented in the consolidated financial statements as “Diversified Industrial, Financial Services and Other”.
 
SPH accounts for the consolidation of SPII in the consolidated financial statements as “Investment Operations” on the basis of the specialized GAAP prescribed in ASC 946, “Financial Services – Investment Companies” for all periods presented through July 15, 2009.  After July 15, 2009, the date which SPII became a subsidiary of SPH, SPH accounts for the assets it acquired as part of the Exchange Transaction in accordance with its accounting policies as an operating company, and therefore it does not report Investment Operations in its consolidated financial statements after July 15, 2009.
 
SPH acquired a controlling interest in HNH, which has been consolidated as of May 7, 2010.  In addition, as discussed elsewhere in this Form 10-K, on February 2, 2011, through BNS, SPH acquired SWH, on July 5, 2011 SPH acquired a controlling interest in DGT and on May 31, 2012 SPH acquired a controlling interest in Steel Excel. These businesses have been consolidated since their acquisition dates and affect the comparability of our selected financial data presented below.

The table below presents discontinued operations as follows:

The year ended December 31, 2012 includes the operations of RFI and Villa through their respective sale dates as well as the gain on sale of Villa and RFI. In addition, 2012 includes the operations of HNH's business, Continental.
The year ended December 31, 2011 includes the operations of RFI, Villa, Continental and various other HNH discontinued operations.

27


The year ended December 31, 2010 includes Continental and various other HNH operations as well as the gain on sale of BNS' former subsidiary, Collins, which was sold on February 18, 2010.
The years ended December 2009 and 2008 include the operations of Collins.
 
Year Ended December 31,
 
July 16,
2009 to
December 31,
 
January 1,
2009 to
July 15,
 
Year Ended December 31,
 
2012
 
2011
 
2010
 
2009
 
2009
 
2008
STATEMENTS OF OPERATIONS DATA (a)
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Diversified Industrial, Energy, Financial Services and Other
$
761,454

 
$
679,384

 
$
406,395

 
$
14,424

 
$
2,225

 
$
23,445

Investment Operations

 

 

 

 
(51,681
)
 
(736,747
)
Total revenues
$
761,454

 
$
679,384

 
$
406,395

 
$
14,424

 
$
(49,456
)
 
$
(713,302
)
Net income (loss) from continuing operations
$
53,330

 
$
78,389

 
$
16,802

 
$
(4,254
)
 
$
(57,527
)
 
$
(756,949
)
Income from discontinued operations
10,435

 
2,888

 
29,644

 
1,177

 

 

Net income (loss)
63,765

 
81,277

 
46,446

 
(3,077
)
 
(57,527
)
 
(756,949
)
Net income attributable to redeemable partners' capital

 

 

 

 
54,064

 
767,812

Less: Net (income) loss attributable to non-controlling interests:
(22,747
)
 
(45,808
)
 
(14,699
)
 
(442
)
 

 
100

Net income (loss) attributable to common unitholders
$
41,018

 
$
35,469

 
$
31,747

 
$
(3,519
)
 
$
(3,463
)
 
$
10,963

Per common unit and per share
 
 
 

 
 

 
 

 
 

 
 

Net income (loss) per common unit - basic
 
 
 

 
 

 
 

 
 

 
 

Net income (loss) from continuing operations
$
1.19

 
$
1.34

 
$
0.66

 
$
(0.16
)
 
$
(1.59
)
 
$
5.02

Net income from discontinued operations
0.19

 
0.07

 
0.60

 
0.02

 

 

Net income (loss) attributable to common unitholders
$
1.38

 
$
1.41

 
$
1.26

 
$
(0.14
)
 
$
(1.59
)
 
$
5.02

Basic weighted average common units outstanding
29,748,746

 
25,232,985

 
25,234,827

 
25,219,420

 
2,183,366

 
2,183,366

Net income (loss) per common unit - diluted
 
 
 

 
 

 
 

 
 

 
 

Net income (loss) from continuing operations
$
1.19

 
$
0.94

 
$
0.60

 
$
(0.16
)
 
$
(1.59
)
 
$
5.02

Net income from discontinued operations
0.19

 
0.05

 
0.56

 
0.02

 

 

Net income (loss) attributable to common unitholders
$
1.38

 
$
0.99

 
$
1.16

 
$
(0.14
)
 
$
(1.59
)
 
$
5.02

Diluted weighted average common units outstanding
29,774,527

 
29,669,582

 
27,482,804

 
25,219,420

 
2,183,366

 
2,183,366

 
 

28


 
December 31,
 
2012
 
2011
 
2010
 
2009
 
2008
BALANCE SHEET DATA
(In thousands, except per unit data)
Diversified Industrial, Energy, Financial Services and Corporate and Other:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
198,027

 
$
127,027

 
$
180,684

 
$
114,247

 
$
30,072

Marketable securities
199,128

 

 

 

 

   Long-term investments
199,865

 
320,891

 
235,142

 
321,163

 
6,391

Investment Operations:
 
 
 

 
 

 
 

 
 

Investments

 

 

 

 
1,118,294

Total assets
1,378,359

 
1,129,843

 
1,091,865

 
731,903

 
1,442,618

Redeemable partners’ capital (b)

 

 

 

 
1,258,725

SPH Partners’ capital
527,344

 
415,797

 
405,732

 
416,913

 
42,090

SPH Partners’ capital per common unit
$
17.13

 
$
16.51

 
$
16.07

 
$
16.53

 
$
19.28


(a)
Statement of operations data for the Diversified Industrial segment includes the consolidation of the results of acquired entities from their respective acquisition dates: the acquisition of HNH effective May 7, 2010, the acquisition of SWH by BNS on February 2, 2011, the acquisition of DGT on July 5, 2011 and the acquisition of Steel Excel on May 31, 2012.  On February 18, 2010, BNS sold its interest in Collins. 
(b)
The Exchange Transaction was subject to being unwound, in whole or part, until July 15, 2009.  Accordingly, the entire partners’ capital of SPII represented a redeemable interest in SPH and is presented as “Redeemable Partners’ Capital” until July 15, 2009, when the capital relating to SPII was no longer subject to redemption.


































29


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 SPH's consolidated results of operations for the years ended December 31, 2012, 2011, and 2010. 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 units and share amounts.
Overview
We are a global diversified holding company that engages in multiple businesses through consolidated subsidiaries, associated companies and other interests. We have interests in a variety of businesses, including diversified industrial products, energy, defense, banking, insurance, food products and services, sports, training, education, and the entertainment and lifestyle industries. The securities of some of the companies in which we have interests are traded on national securities exchanges, while others are privately held or less liquid. We seek to work with our companies to increase corporate value over the long term for all stakeholders and shareholders by implementing Steel Partners Operational Excellence programs, the Steel Partners Purchasing Council, Steel Partners Corporate Services, balance sheet improvements, capital allocation policies and growth initiatives. We also own interests directly and indirectly in other companies and certain other interests that are accounted for as available-for-sale securities or held by the SPII Liquidating Trust.
Segment Information

The Company’s reportable segments as of December 31, 2012 are outlined in the table below. Additional detail related to each one of the Company's reportable segments can be found in the "Diversified Industrial," "Energy", "Financial Services" and "Corporate" sections later in this Management's Discussion and Analysis.

Diversified Industrial
Energy
Financial Services
Corporate
Handy & Harman Ltd. ("HNH") (1)
Steel Excel Inc. ("Steel Excel") (1)
WebBank (1) 
SPH Services, Inc. ("SPH Services") (1)
SL Industries, Inc. ("SLI") (2)
BNS Holding, Inc. ("BNS") (1), (3)
 
DGT Holdings Corp. ("DGT") (1)
 
 
 
BNS Holdings Liquidating Trust ("BNS Liquidating Trust") (1), (3)
 
 
 
CoSine Communications, Inc. ("CoSine")(2)
 
 
 
Fox & Hound Acquisition Corp. ("Fox & Hound") (2)
 
 
 
SPII Liquidating Trust (2)
 
 
 
Other Investments (4)
_______________
(1)
Consolidated subsidiary
(2)
Equity method investment
(3) The operations of BNS are included in the Energy segment through June 30, 2012. The results of the BNS Liquidating Trust are included in the Corporate and Other segment from July 1, 2012 through December 31, 2012
(4) Other investments classified in Corporate and Other include various investments in available-for-sale securities in the Computer Software and Services, Aerospace/Defense, Manufacturing and Restaurant industries. Included in these investments are two of the Company's available-for-sale investments, API Group PLC ("API") and JPS Industries, Inc. ("JPS"). Effective December 31, 2011, these investments were reclassified from equity method investments to available-for-sale securities, and accordingly are included in the Corporate and Other segment in 2012.





30


RESULTS OF OPERATIONS

The following is a summary of SPH’s consolidated operating results:
 
Year Ended December 31,
 
2012
 
2011
 
2010
Revenue:
 
 
 
 
 
Diversified industrial
$
629,396

 
$
634,964

 
$
367,124

Energy
92,834

 
32,984

 

Financial services
21,155

 
14,921

 
10,803

Corporate
18,069

 
(3,485
)
 
28,468

Total Revenue
$
761,454

 
$
679,384

 
$
406,395

Net income (loss) from continuing operations before income taxes:
 
 
 
 
 
Diversified industrial
$
41,610

 
$
46,568

 
$
28,874

Energy
25,034

 
6,558

 

Financial services
12,913

 
6,165

 
4,381

Corporate
(8,580
)
 
(46,021
)
 
(13,931
)
Total
70,977

 
13,270

 
19,324

Income tax provision (benefit)
17,647

 
(65,119
)
 
2,522

Net income from continuing operations
53,330

 
78,389

 
16,802

Income from discontinued operations
10,435

 
2,888

 
29,644

Net income attributable to noncontrolling interests in consolidated entities
(22,747
)
 
(45,808
)
 
(14,699
)
Net income attributable to common unitholders
41,018

 
35,469

 
31,747

Other comprehensive loss
(6,125
)
 
(19,499
)
 
(45,580
)
Comprehensive income (loss) attributable to common unitholders
$
34,893

 
$
15,970

 
$
(13,833
)


Diversified Industrial Segment

The following presents a summary of the Diversified Industrial segment operating results as reported in our consolidated financial statements:
 
Year Ended December 31,
 
2012
 
2011
 
2010
Revenue:
 
 
 
 
 
HNH
$
629,396

 
$
634,964

 
$
367,124

Total Revenue
$
629,396

 
$
634,964

 
$
367,124

Net income (loss) from continuing operations before income taxes:
 
 
 
 
 
HNH
$
39,814

 
$
37,856

 
$
7,696

Income of associated companies
1,796

 
8,712

 
21,178

Total
$
41,610

 
$
46,568

 
$
28,874


As of December 31, 2012, the Diversified Industrial segment for financial reporting purposes consists of HNH, which is a consolidated subsidiary, and SLI which is an associated company. BNS' 2012 and 2011 results have been reclassified from the Diversified Industrial segment to the newly formed Energy segment (see below) for comparability. BNS was included in Corporate and Other in 2010 since it was a holding company with no continuing operations prior to its February of 2011 acquisition of Sun Well. For the years ended December 31, 2011 and 2010, Diversified Industrial results include the income or loss associated with its investments in API Group PLC (“API”), a leading manufacturer of specialized materials for packaging and JPS Industries, Inc. (“JPS”), a manufacturer of extruded urethanes, polypropylenes and mechanically formed glass. The investments in both API and JPS were accounted for as equity method investments throughout 2011 and 2010. Effective December 31, 2011, the Company's investments in API and JPS were reclassified from equity method investments to available for sale securities, and accordingly are currently classified in the Corporate and Other segment in 2012.

31


Total revenue for the Diversified Industrial segment increased to $629,396 for the year ended December 31, 2012, as compared to $634,964 in the prior year. Total revenue for the Diversified Industrial segment increased to $634,964 for the year ended December 31, 2011, as compared to $367,124 in the prior year period. This was a result of the consolidation of HNH effective May 7, 2010.

HNH

We consolidated HNH effective May 7, 2010, the date that our interest in HNH exceeded 50%. For comparative purposes however, unaudited pro forma revenues and earnings of HNH are presented in the tables and discussion below for the year ended December 31, 2010. We believe this presentation is more meaningful for management's discussion and analysis in that it allows comparability to prior periods.

The pro forma results of HNH for the year ended December 31, 2010 has been prepared as if the acquisition of the controlling interest in HNH had occurred on January 1, 2010. The pro forma information is not necessarily indicative of the results that actually would have occurred if the above transactions had been consummated for the periods, nor do they purport to represent the financial position and results of operations for future periods. The unaudited pro forma condensed combined statements of operations of HNH for the year ended December 31, 2010 has been derived from the financial statements of HNH which are included as exhibit 99.1 in this Form 10-K. The pro forma adjustments are described below.
The following presents a summary of HNH:
 
Year Ended December 31,
 
2012
 
2011
 
2010
 
(Historical)

 
(Historical)

 
(Pro Forma)

Sales
$
629,396

 
$
634,964

 
$
540,471

Cost of sales
454,201

 
473,765

 
399,455

Gross profit
175,195

 
161,199

 
141,016

Selling, general and administrative expenses
122,038

 
109,047

 
100,314

Restructuring and impairment charges

 
460

 
507

Interest expense, net
14,166

 
11,926

 
13,808

Derivative activity (income) loss
(1,353
)
 
397

 
5,983

Other expense, net
530

 
1,513

 
(1,069
)
Net income from continuing operations before income taxes
$
39,814

 
$
37,856

 
$
21,473

Pro forma adjustments
Unaudited pro forma information in the above table includes adjustments to HNH's operating results as reflected in the financial statements of HNH for the applicable periods. In accordance with ASC Topic 805, Business Combinations, the application of purchase accounting required us to allocate the total purchase price of HNH to the fair value of assets acquired and liabilities assumed based on their fair values at the acquisition date. Therefore, the amounts of assets, liabilities and expenses reflected for HNH at their acquisition date fair value in SPH's consolidated financial statements differ in certain respects from that reflected in HNH's separate financial statements. A summary of the key differences are as follows:
1.
Property, plant and equipment and intangible assets were increased to their fair value, which impacted selling, general and administrative expenses. During the year ended December 31, 2010, SPH reflected pro forma additional depreciation and amortization expense amounts of approximately $680. In addition, asset impairment charges recorded by HNH of $1,643 in 2010 were not required on the SPH basis due to a lower SPH value for certain specified assets.
2.
Amortizable intangible assets were recognized at fair value that resulted in additional amortization expense of $5,159 in 2010.
3.
Pension expense recorded by HNH was reduced by SPH due to the application of purchase accounting. As a result, the pro forma pension income reflected in the above table is $4,573 for the year ended December 31, 2010, which is included in selling, general and administrative expenses.

32


4.
Interest expense recorded by HNH of $12,502 in 2010, relating to debt payable to two series of the SPII Liquidating Trust was eliminated.
Comparison of the Years ended December 31, 2012 and 2011
Net sales for the year ended December 31, 2012 decreased by $5,568, or 0.9% when compared to 2011.  Value added sales for the year ended December 31, 2012 increased $5,800 driven by higher demand for our products, primarily in the Engineered Materials segment. Lower average precious metal prices, principally silver, had a negative effect of $11,400 on net sales for the year ended December 31, 2012. The average silver price was approximately $31.22 per troy ounce in 2012, as compared to $35.40 per troy ounce for the year ended December 31, 2011.

Gross profit for the year ended December 31, 2012 increased by $13,996, or 8.7%, when compared to 2011, and, as a percentage of net sales, increased to 27.8% as compared to 25.4% in the same period in 2011. The gross margin improvement of 2.4% for the year ended December 31, 2012, was principally due to favorable product mix, effective cost control and improved operating efficiency at HNH's manufacturing plants, across all of its segments. In addition, lower average precious metal prices, principally silver, also contributed to the increase in gross margin by 0.7% during 2012. Since HNH's precious metal inventory is hedged and the cost of silver is passed through to the customer principally at market, lower silver prices generally result in an increase in the Joining Materials segment's gross profit margin.

Selling, general and administrative ("SG&A") expenses increased by $12,991, or 11.9%, for the year ended December 31, 2012, compared to 2011. SG&A as a percentage of net sales was 2.2% higher for the year ended December 31, 2012. The increase in SG&A as a percentage of net sales in 2012 was primarily due to higher selling and promotion costs related to product sales of the Engineered Materials segment, higher 2012 restricted stock awards, higher self-insured employee medical and workers' compensation insurance claim costs compared to 2011, as well as costs associated with the Company's business development activities in 2012, which resulted in the Inmet and Hickman business combinations. Also, the lower average precious metal prices had a negative impact on SG&A as a percentage of net sales, as compared to the prior year.

Interest expense increased by $2,240, or 18.8%, for the year ended December 31, 2012, compared to 2011. As a result of certain Subordinated Note repurchases during both 2012 and 2011, interest expense included a $1,400 loss for the year ended December 31, 2012 and a $200 gain in the year ended December 31, 2011 related to such repurchases. In addition, the Company wrote-off $1,100 in prior debt issuance costs based on the Company's fourth quarter of 2012 debt refinancing. These unfavorable impacts on interest expense were partially offset by a lower average amount of borrowings outstanding and lower average interest rates on outstanding debt in 2012.

Derivative activity income was $1,353 for the year ended December 31, 2012, and was a loss of $397 in the same period of 2011. Of the income in 2012, approximately $522 was attributable to precious metal contracts and approximately $831 was attributable to embedded derivative features of HNH's Subordinated Notes and related warrants. Of the loss in 2011, approximately $839 was attributable to a gain on the embedded derivative features of HNH's Subordinated Notes and approximately $1,236 was attributable to a loss on precious metal contracts. The gain related to precious metal derivative contracts for the year ended December 31, 2012 resulted principally from an average silver price decrease during the year. While decreasing the use of hedging contracts with brokers, HNH has entered into more fixed-price sales agreements with its customers; thereby hedging silver prices in that manner.

Comparison of the Years ended December 31, 2011 and 2010
Net sales for the year ended December 31, 2011 increased by $94,493, or 17.5%, to $634,964, as compared to $540,471 for the year ended December 31, 2010. The higher sales volume from most of the Company's segments was driven by both higher demand for HNH's products, and the impact of higher silver prices, which accounted for approximately $46,300 of the increase in sales for the year ended December 31, 2011. Higher sales were also driven by the impact of an increase in the average market price of silver, which increased by 75.6% in 2011 ($35.40 per troy oz.) as compared to 2010 ($20.16 per troy oz).
In addition, incremental sales were driven by higher volume of commercial roofing products and fasteners, increased sales of printed circuit board materials related to the telecommunications infrastructure in China, increased sales of flex heater and coil insulation products for the general industrial market, and higher sales of tubing to the petrochemical and ship building markets and the medical industry markets. This was partially offset by weakness in tubing sales to the refrigeration market.
Gross profit for the year ended December 31, 2011 increased to $161,199 as compared to $141,016 for the same period of 2010. Gross profit margin for the year ended December 31, 2011 decreased to 25.4% as compared to 26.1% during the same

33


period of 2010. The lower gross margin was primarily due to higher silver costs from the Joining Materials segment. Since HNH's precious metal inventory is hedged and the cost of silver is passed-through to the customer principally at market, higher silver prices generally result in moderation or, at times, a reduction in the Joining Materials segment's gross profit margin.  
SG&A expenses were $8,733 higher for the year ended December 31, 2011 compared to the same period of 2010, reflecting higher variable selling costs and non-cash restricted stock expense of approximately $3,100. SG&A as a percentage of net sales was 17.2% for the year ended December 31, 2011 as compared to 18.6% for the same period of 2010.
Realized and unrealized loss on derivatives totaled $397 for the year ended December 31, 2011, compared to a loss of $5,983 in the same period of 2010. The lower loss in 2011 was primarily driven by a reduction in the amount of ounces under contract in 2011 as compared to 2010.  The derivative financial instruments utilized by HNH are precious metal forward and future contracts which are used to economically hedge HNH's precious metal inventory against price fluctuations. The trend in the market price of silver could significantly affect the income from continuing operations of the Company. If there is a material increase in silver prices, it could reasonably be expected to cause a loss on HNH's open silver derivatives contracts.
Interest expense was $11,926 for the year ended December 31, 2011, compared to $13,808 in the same period of 2010. The decrease was primarily due to lower interest rates as a result of the Company's debt refinancing during the fourth quarter of 2010.
Income (loss) of Associated Companies

Income (loss) of associated companies includes income or loss we recognize on investments where we own between 20% and 50% of the outstanding equity and have the ability to exercise influence, but not control, over the investee. Income (loss) of associated companies included in the Diversified Industrial segment net income from continuing operations includes the following:
 
Ownership at
 
 
 
 
 
December 31,
 
Year Ended December 31,
 
2012
 
2012
 
2011
 
2010
HNH (a)
54.3%
 
$

 
$

 
$
8,670

DGT (b)
59.2%
 

 
213

 
886

JPS (c)
39.3%
 

 

 
1,228

API (d)
32.4%
 

 
9,809

 
2,615

SLI (e)
24.1%
 
1,796

 
(1,310
)
 
7,779

 
 
 
$
1,796

 
8,712

 
$
21,178

(a)
Effective May 7, 2010 we consolidated HNH. Prior to this date the investment in HNH was accounted for under the equity method at fair value.
(b) Effective July 5, 2011, we consolidated DGT. Prior to this date the investment in DGT was accounted for under the equity method.
(c) Effective December 31, 2011 the Company discontinued the equity method of accounting and reclassified JPS to Investments at fair value and began classifying JPS as an available for sale security. No income or loss was recorded in 2011, as the information was not available. Changes in fair value of JPS are reported in Accumulated Other Comprehensive Income.
(d) Effective December 31, 2011 the Company discontinued the equity method of accounting and reclassified API to Investments at fair value and began classifying API as an available for sale security. Changes in fair value of API continue to be reported in the consolidated statement of operations.
(e) Associated company.










34




Energy Segment

The following presents a summary of the Energy segment operating results on a pro forma basis:
 
Year Ended December 31,
 
2012
 
2011
 
(Pro Forma)
 
(Pro Forma)
Revenue:
 
 
 
Steel Excel (Pro Forma) (a)
$
103,444

 
$
49,771

BNS (Historical) (b)
20,432

 
32,984

Total Revenue
123,876

 
$
82,755

Net income from continuing operations before income taxes:
 
 
 
Steel Excel (Pro Forma) (a)
$
11,181

 
$
5,832

BNS (Historical) (b)
3,678

 
6,558

Income of associated companies (c)
13,139

 

Total
$
27,998

 
$
12,390


(a) Steel Excel's reported revenue and net income from continuing operations before income taxes, included in SPH's consolidated financial statements was $72,402 and $8,217 for the year ended December 31, 2012.
(b) Includes five months and eleven months of Sun Well's operating results in 2012 and 2011, respectively.
(c) Effective January 1, 2012, equity method income or loss for Steel Excel was reclassified to the Energy segment due to acquisitions of oil field servicing companies. During 2011, equity method income or losses from Steel Excel are classified in the Corporate and other segment as Steel Excel did not have any significant operations at that time. As discussed below, the Company consolidated Steel Excel effective May 31, 2012, the date that its interest in Steel Excel exceeded 50%.
    
SPH's newly formed Energy segment consists of its consolidated subsidiary Steel Excel, which was acquired on May 31, 2012, and BNS. For comparability, BNS's results for 2012 (from January, 2012 through June 30, 2012) and 2011, have been reclassified from the Diversified Industrial segment to the Energy segment since the results of BNS for the years ended December 31, 2012 and 2011 include the results of Sun Well prior to its sale to Steel Excel. BNS was included in Corporate and Other in 2010 since it was a holding company with no continuing operations, prior to its February 2011 acquisition of Sun Well.

Steel Excel owns several oil field services companies, including Sun Well as of May 31, 2012, providing premium well services to exploration and production (“E&P”) companies operating primarily in the Williston Basin in North Dakota and eastern Montana. Steel Excel provides critical services needed by E&P operators, including well completion, well maintenance and workover, well recompletion, hydrostatic tubular testing and plug and abandonment services. In addition, Steel Excel has a sports business ("Steel Sports") which is a network of branded participatory and experience-based businesses engaged in sports, training, entertainment and consumer lifestyle. The operations of Steel Sports are not considered material and are included in the Energy segment. Steel Excel was previously accounted for as an associated company at fair value prior to SPH increasing its ownership over 50%. Seven months of Steel Excel's results are included in the Energy segment for the year ended December 31, 2012.




Financial Services Segment

The Financial Services segment, for financial reporting purposes, consists of our consolidated and wholly-owned subsidiary WebBank (which operates in niche banking markets), and WF Asset Corp (which consists of a portfolio of investments). WebBank provides commercial and consumer loans and services. WebBank's deposits are insured by the FDIC, and the bank is examined and regulated by the FDIC and UDFI.

35


The following presents a summary of the Financial Services segment operating results as reported in our consolidated financial statements:
 
Year Ended December 31,
 
2012
 
2011
 
2010
Revenue:
 
 
 
 
 
Interest income (including fees)
$
16,051

 
$
10,749

 
$
8,055

Non-interest income
5,104

 
4,172

 
2,748

 
21,155

 
14,921

 
10,803

Costs and expenses:
 
 
 
 
 
Interest
957

 
941

 
796

(Recovery of) provision for loan losses
(416
)
 
8

 
(420
)
Selling, general and administrative expenses
7,700

 
6,763

 
6,046

Asset impairment charge
1

 
1,044

 

 
8,242

 
8,756

 
6,422

Net income from continuing operations before income taxes
$
12,913

 
$
6,165

 
$
4,381


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 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.








36


 
Year Ended December 31,
 
2012
 
2011
 
2010
 
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
$
45,377

$
15,822

34.8
%
 
$
39,666

$
10,598

26.7
%
 
$
35,819

$
7,978

22.3
%
Mortgaged-Backed Security



 
1



 
1



Available for Sale Investments
523

16

3.1
%
 
507

19


 



Fed Funds Sold
1,634

2

0.1
%
 
1,438

2


 
4,854

8

0.2
%
Interest Bearing Deposits in other Banks
83,127

209

0.3
%
 
52,916

130


 
28,369

69

0.2
%
Total Interest-Earning Assets
130,661

16,049

12.3
%
 
94,528

10,749

11.4
%
 
69,043

8,055

11.7
%
 
 
 
 
 
 
 
 
 
 
 
 
Non Interest-Earning Assets
1,240

 
 
 
865

 
 
 
984

 
 
Total Assets
$
131,901

 
 
 
$
95,393

 
 
 
$
70,027

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-Bearing Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Money Market Accounts
$
13,789

57

0.4
%
 
$
8,902

31

0.3
%
 
$
6,280

23

0.4
%
Time Deposits
70,677

900

1.3
%
 
61,476

910

1.5
%
 
45,510

773

1.7
%
Other Borrowings



 



 
10



Total Interest-Bearing Liabilities
84,466

957

1.1
%
 
70,378

941

1.3
%
 
51,800

796

1.5
%
 
 
 
 
 
 
 
 
 
 
 
 
Other Non Interest-Bearing Liabilities
18,887

 
 
 
3,148

 
 
 
2,483

 
 
Total Liabilities
103,353

 
 
 
73,526

 
 
 
54,283

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shareholder's Equity
28,548

 
 
 
21,867

 
 
 
15,744

 
 
Total Liabilities & Shareholder's Equity
$
131,901

 
 
 
$
95,393

 
 
 
$
70,027

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Interest Income
 
$
15,092

 
 
 
$
9,808

 
 
 
$
7,259

 
 
 
 
 
 
 
 
 
 
 
 
 
Spread on Average Interest-Bearing Funds
 
 
11.2
%
 
 
 
10.1
%
 
 
 
10.1
%
Net Interest Margin
 
 
11.6
%
 
 
 
13.9
%
 
 
 
10.5
%
Return on Assets
 
 
6.2
%
 
 
 
7.5
%
 
 
 
6.2
%
Return on Equity
 
 
24.4
%
 
 
 
28.3
%
 
 
 
27.6
%
Equity to Assets
 
 
21.5
%
 
 
 
26.4
%
 
 
 
25.9
%

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 a few days after origination. As part of these arrangements WebBank earns origination fees that are recorded in interest income, and which increase WebBank's yield on loans.
Interest Income

Interest income increased by $5,302, or 49.3%, in the year ended December 31, 2012, compared to 2011. The increases were due primarily to two new lending programs with favorable rates. The programs began in the third quarter of 2012.

Interest income increased by $2,694, or 33.4%, in 2011 compared to 2010 due primarily to a new lending program. The program began in the third quarter of 2010.


37


Interest Expense

Interest expense represents interest accrued on WebBank depositor accounts.

Interest expense increased $16, or 1.7%, for the twelve months ended December 31, 2012, compared to 2011, due to increased deposits to fund asset growth.

Interest expense increased $145, or 18.2%, for the year ended December 31, 2011, compared to 2010, largely due to growth in average deposits partially offset by a decrease in average interest rates on certificates of deposits. Deposits increased $34,003, or 54.9%, from December 31, 2010 to December 31, 2011. The increase in deposits occurred late in the third quarter in order to fund the increased liquidity needs of an existing lending program.
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.
 
Year Ended December 31,
 
2012 vs 2011
 
2011 vs. 2010
 
2010 vs. 2009
 
Increase/
Increase/
Total
 
Increase/
Increase/
Total
 
Increase/
Increase/
Total
Rate/Volume
(Decrease)
(Decrease)
Increase/
 
(Decrease)
(Decrease)
Increase/
 
(Decrease)
(Decrease)
Increase/
 
Due to Volume
Due to Rate
(Decrease)
 
Due to Volume
Due to Rate
(Decrease)
 
Due to Volume
Due to Rate
(Decrease)
 
 
 
 
 
 
 
 
 
 
 
 
Interest Earning Assets:
 
 
 
 
 
 
 
 
 
 
 
Loans Receivable
$
1,675

$
3,549

$
5,224

 
$
917

$
1,702

$
2,619

 
$
115

$
4,706

$
4,821

Available For Sale Investments



 
19


19

 



Fed Funds Sold



 
(5
)
(1
)
(6
)
 
(3
)
(7
)
(10
)
Interest Bearing Deposits in other Banks
75

1

76

 
60

2

62

 
63

4

67

Total Interest-Earning Assets
1,750

3,550

5,300

 
991

1,703

2,694

 
175

4,703

4,878

 
 
 
 
 
 
 
 
 
 
 
 
Interest-Bearing Liabilities:
 
 


 
 
 
 
 
 
 
 
Money Market Accounts
19

6

25

 
9

(1
)
8

 
6

14

20

Time Deposits
(139
)
130

(9
)
 
216

(79
)
137

 
340

(36
)
304

Total Interest-Bearing Liabilities
(120
)
136

16

 
225

(80
)
145

 
346

(22
)
324

Net Effect on Net Interest Income
$
1,870

$
3,414

$
5,284

 
$
766

$
1,783

$
2,549

 
$
(171
)
$
4,725

$
4,554


Noninterest Income

Noninterest income increased $932, or 22.3% for the year ended December 31, 2012, compared to 2011, due primarily to increased fee income from a new lending program.

Noninterest income increased $1,424, or 51.8%, for the year ended December 30, 2011 compared to 2010, due primarily to increased fee income on existing lending programs and one new lending program.
(Recovery of) Provision for Loan Losses

At December 31, 2012, WebBank had an estimated $2,915 of impaired loans (of which $2,328 is guaranteed by the USDA or SBA) and an allowance for loan losses of $284.

The (recovery of) provision for loan losses is primarily related to WebBank's portfolio of local real estate loans. WebBank routinely obtains appraisals on underlying collateral of nonperforming loans and records a provision for losses if the value of the collateral declines below the value of the loans. WebBank recorded a reduction of provision for loan losses resulting from recoveries of principal amounts previously allowed against of $416 for the year ended December 31, 2012, compared to a provision of $8 for the year ended December 31, 2011.

38


WebBank recorded a provision for loan losses of $8 for the year ended December 31, 2011, compared to a reduction of $(420) for the year ended December 31, 2010.
Selling General and Administrative Expenses

The increase in SG&A expenses of $937, or 13.9%, for the year ended December 31, 2012, compared to the year ended December 31, 2011, was due to higher personnel expense in 2012, partially offset by a benefit in the reserve for off balance sheet credit exposures of $440, lower professional fees and other costs in 2012.
The increase in selling, general and administrative expenses of $717, or 11.9% for the year ended December 31, 2011 compared to 2010 was due primarily to higher personnel expense in 2011 partially offset by no expense in 2011 as compared to $775 of expense in 2010 related to the reserve for off balance sheet credit exposures.
Balance Sheet Analysis
Loan Portfolio
As of December 31, 2012, net loans accounted for 49% of WebBank's total assets compared to 35% at the end of 2011. The following table presents WebBank's loans outstanding by type of loan as of December 31, 2012 and the five most recent year-ends.
 
As of December 31,
 
2012
 
2011
 
2010
 
2009
 
2008
 
Amount
%
 
Amount
%
 
Amount
%
 
Amount
%
 
Amount
%
Real Estate Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction
$


 
$


 
$
988

3.3
%
 
$
3,646

10.2
%
 
$
7,927

20.6
%
Commercial - Owner Occupied
6,724

9.8
%
 
8,340

18.8
%
 
9,546

31.9
%
 
10,425

29.3
%
 
10,978

28.5
%
Commercial - Other
318

0.5
%
 
300

0.7
%
 
276

0.9
%
 
2,273

6.4
%
 
902

2.4
%
Total Real Estate Loans
7,042

10.3
%
 
8,640

19.5
%
 
10,810

36.1
%
 
16,344

45.9
%
 
19,807

51.5
%
Commercial and Industrial:
9,832

14.4
%
 
4,344

9.8
%
 
6,219

20.8
%
 
9,340

26.2
%
 
16,887

43.9
%
Total Commercial and Industrial
9,832

14.4
%
 
4,344

9.8
%
 
6,219

20.8
%
 
9,340

26.2
%
 
16,887

43.9
%
Consumer:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit Cards


 


 


 
517

1.5
%
 
568

1.5
%
Total Consumer


 


 


 
517

1.5
%
 
568

1.5
%
Loans Held for Sale:
51,505

75.3
%
 
31,363

70.7
%
 
12,903

43.1
%
 
9,404

26.4
%
 
1,198

3.1
%
Total Loans
68,379

100
%
 
44,347

100
%
 
29,932

100
%
 
35,605

100
%
 
38,460

100
%
Less:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred Fees and Discounts
21

 
 
(56
)
 
 
(64
)
 
 
(188
)
 
 
(263
)
 
Allowance for Loan Losses
(285
)
 
 
(529
)
 
 
(1,541
)
 
 
(2,193
)
 
 
(2,302
)
 
Total Loans Receivable, Net
$
68,115

 
 
$
43,762

 
 
$
28,327

 
 
$
33,224

 
 
$
35,895

 

The following table includes a maturity profile for the loans that were outstanding at December 31, 2012, substantially all of which have floating or adjustable interest rates:
Due During Years Ending December 31,
Real Estate
 
Commercial & Industrial
 
Loans Held for Sale
2013
$
207

 
$
451

 
$
51,505

2014-2018
2,235

 
2,928

 

2019 and following
4,599

 
6,453

 

Total
$
7,041

 
$
9,832

 
$
51,505


39


Nonperforming Lending Related Assets
Total nonaccrual loans at December 31, 2012 decreased by $770 from December 31, 2011. The decrease included $767 for commercial owner occupied loans and $3 for commercial and industrial loans.
 
December 31,
 
2012
 
2011
 
2010
 
2009
 
2008
Non-Accruing Loans:
 
 
 
 
 
 
 
 
 
Commercial Real Estate - Construction
$

 
$

 
$
988

 
$
3,131

 
$
544

Commercial Real Estate - Owner Occupied
147

 
914

 
207

 
705

 
47

Commercial Real Estate - Other

 

 

 
213

 
40

Commercial and Industrial
94

 
97

 
419

 
610

 
447

Other

 

 

 
114

 

Total
241

 
1,011

 
1,614

 
4,773

 
1,078

Accruing Loans Delinquent :
 
 
 
 
 
 
 
 
 
90 Days or More
2,581

 

 

 
401

 
2,073

Total
2,581

 

 

 
401

 
2,073

Restructured Loans:
 
 
 
 
 
 
 
 
 
Commercial Real Estate - Owner Occupied

 
1

 
18

 

 

Commercial and Industrial