10-K
 

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, 2015
 OR

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

Commission File Number: 001-35493
______________
STEEL PARTNERS HOLDINGS L.P.
(Exact name of registrant as specified in its charter)
 
Delaware
13-3727655
(State of Incorporation)
(I.R.S. Employer Identification No.)
 
 
590 Madison Avenue, 32nd Floor
 
New York, New York
10022
(Address of principal executive offices)
(Zip Code)
 
Registrant’s telephone number, including area code: (212) 520-2300

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

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

Common Units, no par value

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

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

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



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

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

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one): 
Large accelerated filer
o
 
Non-accelerated filer
o
Accelerated filer
þ
 
Smaller reporting company
o
 
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes o No þ

The aggregate market value of our common units held by non-affiliates of registrant as of June 30, 2015 was approximately $240.6 million.

On March 7, 2016, there were 26,632,689 common units outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

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

 




STEEL PARTNERS HOLDINGS L.P.

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







As used in this Form 10-K, unless the context otherwise requires the terms “we,” “us,” “our,” “SPLP” and the “Company” refer to Steel Partners Holdings L.P., a Delaware limited partnership.
PART I
 
FORWARD-LOOKING STATEMENTS
 
This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including, in particular, forward-looking statements under the headings “Item 7- Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8 - Financial Statements and Supplementary Data.”  These statements appear in a number of places in this report and include statements regarding the Company’s intent, belief or current expectations with respect to (i) its financing plans, (ii) trends affecting its financial condition or results of operations, and (iii) the impact of competition.  The words “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” and similar expressions are intended to identify such forward-looking statements; however, this report also contains other forward-looking statements in addition to historical information.

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

Who We Are
Steel Partners Holdings L.P. ("SPLP" or the "Company") is a global diversified holding company that engages in multiple businesses through consolidated subsidiaries, associated companies and other interests. It owns and operates businesses, and has significant investments in companies, in various industries, including diversified industrial products, energy, defense, supply chain management and logistics, banking, and youth sports.
Each of our companies has its own management team with significant experience in their industries. Our subsidiary, SP Corporate Services LLC (“SP Corporate”), through Management Services Agreements, provides services to us and some of our companies which include assignment of C-Level management personnel, as well as a variety of services including legal, tax, accounting, treasury, consulting, auditing, administrative, compliance, environmental health and safety, human resources, marketing, investor relations and other similar services.
We work with our businesses to increase corporate value over the long term for all stakeholders by implementing our unique strategy discussed in more detail below.
Our History
Steel Partners, a private investment firm, was founded in February 1990 by Warren G. Lichtenstein. In December 2008, in order to preserve an investment strategy that successfully served the investment firm and its investors since inception, Steel Partners restructured its business. The result was the creation of SPLP, a limited partnership formed in the State of Delaware on December 16, 2008.

On April 10, 2012, after fulfilling stringent regulatory and financial reporting requirements, the company became listed on the New York Stock Exchange (NYSE: SPLP).

Our Structure
SPLP is managed by SP General Services LLC (the “Manager”), pursuant to the terms of an amended and restated management agreement (the “Management Agreement”) discussed in further detail in Note 13 – "Related Party Transactions" to the SPLP consolidated financial statements found elsewhere in this Form 10-K. From its founding in 1990, the Manager and its affiliates have focused on increasing value for investors in the entities it has managed, including SPLP and SPII.
Our wholly-owned subsidiary, Steel Partners Holdings GP Inc., formerly known as Web LLC and Steel Partners Holdings GP LLC (the “General Partner”), is our general partner. The General Partner converted from a limited liability company to a corporation on September 21, 2010. The General Partner has a board of directors (the “Board of Directors”). The Board of Directors is currently comprised of seven members, five of whom are elected annually by our unitholders and two of

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whom are appointed by the Manager. Warren G. Lichtenstein, the Executive Chairman 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. We use a set of tools and processes called the Steel Business System to drive operational and sales efficiencies across each of our business units. The Steel Business System is designed to drive strategy deployment and sales and marketing based on lean principles. Our operational initiatives include creating efficiencies through consolidated purchasing and materials sourcing provided by the Steel Partners Purchasing Council, which arranges shared purchasing programs and is reducing costs for, and providing other benefits to, a number of our companies. We strive to reduce our companies' operational costs, and enhance growth and profitability, through the implementation of Steel Partners Operational Excellence Programs, which include the deployment of Lean Manufacturing, Design for Six Sigma, Six Sigma and Strategy Deployment. We are focused on reducing corporate overhead 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 Businesses
The following table presents the composition of our operating segments, which include the operations of our consolidated subsidiaries, as well as income or loss from equity method investments and other investments.
Diversified Industrial
% Owned at December 31, 2015
Energy
% Owned at December 31, 2015
Financial Services
% Owned at December 31, 2015
Corporate and Other
% Owned at December 31, 2015
Handy & Harman Ltd. ("HNH") (1)
70.1
%
Steel Excel Inc. ("Steel Excel") (1)
58.3
%
WebBank (1), (3) 
90.7
%
SPH Services, Inc. ("SPH Services") (1)
100.0
%
WebFinancial Holding LLC ("WFH LLC")(1), (2), (3)
90.7
%
Aviat Networks, Inc. ("Aviat") (4)
12.9
%
 
 
DGT Holdings Corp. ("DGT") (1)
100.0
%
SL Industries, Inc. ("SLI") (4)
25.1
%
API Technologies Corp. ("API Tech") (4)
20.6
%
 
 
BNS Holdings Liquidating Trust ("BNS Liquidating Trust") (1)
84.9
%
 
 
iGo Inc. ("IGo") (4)
45.7
%
 
 
ModusLink Global Solutions, Inc. ("MLNK") (4)
31.5
%
 
 
 
 
 
 
Other Investments
Various

(1)
Consolidated subsidiary.
(2) WFH LLC was formerly known as CoSine Communications, Inc. ("CoSine") and consists of the operations of API Group plc ("API").
(3)
Wholly owned by WebFinancial Corporation ("WFHC"), a subsidiary of SPLP. On December 31, 2015 SPLP's ownership in WFHC decreased from 100.0% to 90.7%.
(4)
Equity method investment.

Description of Our Businesses
Diversified Industrial Segment
Our Diversified Industrial segment is comprised of our HNH and WFH LLC operations.

HNH (NASDAQ (CM): HNH) is a diversified manufacturer of engineered niche industrial products with leading market positions in many of the markets it serves. Four of our representatives serve on HNH's seven-member board of directors, one of whom serves as Chairman. Our representatives also serve as the Executive Chairman (Principal Executive Officer), Chief Financial

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Officer (Principal Accounting Officer), Chief Legal Officer and as various Vice Presidents of HNH. HNH distributes products to customers through its sales personnel, outside sales representatives and distributors in North and South America, Europe, Australia, Asia and several other international markets.    As of December 31, 2015 HNH employed 2,125 employees worldwide. Of these employees, 355 were sales employees, 466 were office employees, 79 were covered by collective bargaining agreements, and 1,225 were non-union operating employees. HNH is diversified across industrial markets and customers. HNH sells to customers in the construction, electrical, electronics, transportation, utility, medical, oil and gas exploration, aerospace and defense, and food industries. No customer accounted for more than 10% of HNH's consolidated net sales in 2015, 2014 or 2013. HNH's 15 largest customers accounted for approximately 33% of consolidated HNH net sales in 2015. Below is a description of HNH's products:

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

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

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

Performance Materials - HNH's Performance Materials business manufactures sheet and mechanically formed glass and aramid materials for specialty applications in a wide expanse of markets requiring highly engineered components. Its products are used in a wide range of advanced composite applications, such as civilian and military aerospace components, printed electronic circuit boards, filtration and insulation products, specialty commercial construction substrates, automotive and industrial components, and soft body armor for civilian and military applications. HNH's Performance Materials business is currently comprised solely of the operations of JPS Industries, Inc. ("JPS"), which HNH acquired on July 2, 2015.

Kasco Blades and Route Repair Services ("Kasco") - HNH's Kasco business provides meat-room blade products, repair services and resale products for the meat and deli departments of supermarkets, restaurants, meat and fish processing plants, and for distributors of electrical saws and cutting equipment, principally in North America and Europe. Kasco also provides wood cutting blade products for the pallet manufacturing, pallet recycler and portable saw mill industries in North America.
    
WFH LLC (formerly known as CoSine) operates through its subsidiary API, which CoSine obtained control over on April 17, 2015. On December 31, 2015 CoSine was merged into and with WFH LLC, with WFH LLC being the surviving company. API is a manufacturer and distributor of foils, films and laminates used to enhance the visual appeal and authenticating brands and packaging. API's Laminates and Foils businesses produce carton board laminates and foils for the packaging of consumer goods as well as the food & confectionery, health & beauty, personal care, greeting cards, books, magazines, footwear & sports goods and office & promotional products industries. API's Holographics business manufactures holographic products for use on premium branded goods in various industries, as well as use in government and institutional documents and currencies. No customer accounted for more than 10% of API's consolidated net sales in 2015 and API's 15 largest customers accounted for approximately 59% of consolidated API net sales in 2015. As of December 31, 2015 API employed 533 employees worldwide. Of these employees, 75 were sales employees, 64 were office employees, 377 were manufacturing employees and 17 were in other functions. A total of 270 of API's employees were covered by collective bargaining agreements. WFH LLC has no employees.

SPLP's investment in SLI (AMEX:SLI), a New Jersey corporation that designs, manufactures and markets power electronics, motion control, power protection and specialized communication equipment, is classified within the Diversified Industrial segment. We account for SLI as an equity method investment at fair value (see Note 2 - "Significant Accounting Policies" and Note 5 - "Investments" to the SPLP consolidated financial statements found elsewhere in this Form 10-K). SLI's products are

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used in a variety of medical, commercial and military aerospace, computer, datacom, industrial, telecom, transportation, utility, rail and highway equipment applications. Two of our representatives serve on SLI's five-member board of directors, one of whom serves as Chairman.

Energy Segment
Steel Excel is a Delaware corporation formerly known as ADPT Corporation (NASDAQ:SXCL). Three of our representatives serve on Steel Excel's six-member board of directors, one of whom serves as Chairman and another of whom serves as the Chief Executive Officer. Our representatives also serve as Chief Financial Officer and General Counsel. Through its wholly-owned subsidiary Steel Energy Ltd. ("Steel Energy"), Steel Excel’s Energy business provides drilling and production services to the oil and gas industry. Through its wholly-owned subsidiary Steel Sports Inc., Steel Excel’s Sports business is a social impact organization that strives to provide a first-class youth sports experience emphasizing positive experiences and instilling the core values of discipline, teamwork, safety, respect, and integrity. Steel Excel also makes significant non-controlling investments in entities in industries related to its existing businesses as well as entities in other unrelated industries, and continues to identify business acquisition opportunities in all these areas. As of December 31, 2015, Steel Excel had 763 employees, of which 658 were full-time employees and 105 were part-time employees. All of Steel Excel's employees are located in the United States. Steel Excel also hires additional full-time and part-time employees during peak seasonal periods. None of Steel Excel's employees are covered by collective bargaining agreements. Steel Excel considers its employee relations to be satisfactory.
    
Steel Excel's energy services are affected by seasonal factors, such as inclement weather, fewer daylight hours, and holidays during the winter months. Heavy snow, ice, wind, or rain can make it difficult to operate and to move equipment between work sites, which can reduce its ability to provide services and generate revenues. These seasonal factors affect Steel Excel's competitors as well.

Steel Excel relies primarily on its local operations to sell and market its services. Because they have conducted business together over several years, the members of its local operations have established strong working relationships with certain of their clients. These strong client relationships provide a better understanding of region-specific issues and enable Steel Excel to better address customer needs. In 2015, Steel Excel had two customers, that made up 28% or more of its net revenues, and its top 15 customers made up 76%, 81% and 81% of its net revenues for the years ended December 31, 2015, 2014 and 2013, respectively.

Steel Excel also has equity method investments in Aviat (NASDAQ:AVNW), a global provider of microwave networking solutions, API Tech (NASDAQ:ATNY), a designer and manufacturer of high performance systems, subsystems, modules, and components and iGo, a mobile device accessories provider company.

Financial Services Segment

The Financial Services segment activity during 2015 primarily consists of our subsidiary WFHC, which conducted its financial operations during 2015 through its wholly owned subsidiary WebBank. WebBank is a Utah chartered industrial bank subject to comprehensive regulation, examination, and supervision of the Federal Deposit Insurance Corporation (“FDIC”) and the State of Utah Department of Financial Institutions (“UDFI”). WebBank is not considered a “bank” for Bank Holding Company Act purposes and, as such, SPLP is not regulated as a bank holding company. WebBank's deposits are insured by the FDIC. As of December 31, 2015, WebBank had 58 employees.
WebBank engages in a full range of banking activities including originating loans, issuing credit cards, and taking deposits that are federally insured. WebBank originates and funds consumer and small business loans through lending programs with unaffiliated companies that market and service the programs (“Marketing Partners”), where the Marketing Partners subsequently purchase the loans (or interests in the loans) that are originated by WebBank. WebBank also has private-label financing programs that are branded for a specific retailer, manufacturer, dealer channel, or proprietary network and bank card programs. WebBank also participates in syndicated commercial and industrial as well as asset based credit facilities and asset based securitizations through relationships with other financial institutions.
WebBank's interest income is primarily derived from interest and origination fees earned on loans and investments. WebBank's non-interest income is primarily derived from fee income on contractual lending arrangements, premiums on the sale of loans, and loan servicing fees. For the years ended December 31, 2015, 2014 and 2013, the two highest grossing contractual lending programs accounted for 46%, 35% and 46%, respectively, of WebBank's total revenue.

5


Corporate and Other Segment
The Corporate and Other segment consists of several consolidated subsidiaries, equity method investments as well as other various investments and cash and cash equivalents. Below is a description of the Corporate and Other segment:
SPH Services - SPH Services, a wholly owned subsidiary of SPLP, provides legal, tax, accounting, treasury, consulting, auditing, administration, compliance, environmental health and safety, human resources, marketing, investor relations and similar services, to other affiliated companies. SP Corporate has management services agreements with HNH, Steel Excel, WebBank, WFH LLC, BNS, DGT and other related companies. For additional information on these service agreements see Note 13 - "Related Party Transactions" to the SPLP consolidated financial statements found elsewhere in this Form 10-K. As of December 31, 2015, SPH Services had 69 employees.

BNS Liquidating Trust - In June 2012, BNS Holding Inc. ("BNS") formed a liquidating trust, the BNS Liquidating Trust. BNS assigned its assets and liabilities to the BNS Liquidating Trust and initiated its dissolution. The BNS Liquidating Trust is owned by the BNS former shareholders in the same proportion as their former ownership in BNS. The BNS Liquidating Trust has no employees.

DGT - DGT's operations currently consist of investments, general and administrative expenses and one building which is held for sale at December 31, 2015.
    
SPLP's investment in MLNK (NASDAQ:MLNK), which provides supply chain and logistics services to companies in consumer electronics, communications, computing, medical devices, software, luxury goods and retail, is classified in the Corporate and Other segment. Two members of SPLP's management team serve on the six-member MLNK board of directors, one of whom serves as chairman. We account for MLNK as an equity method investment under the fair value option (see Note 2 - "Significant Accounting Policies" and Note 5 - "Investments" to the SPLP consolidated financial statements found elsewhere in this Form 10-K).

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

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

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

Capital Investments

SPLP 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, SPLP expects to continue to make capital investments that reduce overall manufacturing costs, improve the quality of products produced, services provided and broaden the array of products offered to the industries SPLP serves, as well as replace equipment as necessary to maintain compliance with environmental, health and safety laws and regulations. SPLP's capital expenditures for 2015, 2014 and 2013 for continuing operations were $23,252, $28,769 and $20,885, respectively. SPLP anticipates funding its capital expenditures in 2016 from funds generated by operations and borrowed funds.


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Competition

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

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

Steel Excel's Energy business operates in a highly competitive industry that is influenced by price, capacity, reputation, and experience. In times of high demand, capacity, reputation and experience are major competitive forces. In times of low demand, service providers will compete on price to attract customers. In addition, Steel Excel needs to maintain a safe work environment and a well-trained work force to remain competitive. The market for the Steel Excel's Sports business’ baseball facility services and soccer camps and leagues is very fragmented, and its competitors are primarily small local or regional operations. The market for its strength and conditioning services is fragmented, and its competitors vary from large national providers of such services to local providers of comparable or other niche services.

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

Regulation

Certain of our business are subject to various regulations relating to protection of the environment, worker safety, the handling of hazardous materials, transportation standards, and banking. The Company does not presently anticipate that compliance with currently applicable environmental regulations and controls will significantly change its competitive position, capital spending or earnings during 2016. SPLP believes it's subsidiaries are in compliance with all orders and decrees it has consented to with environmental regulatory agencies. These regulations are discussed in more detail below. Also, please see "Item 1A - Risk Factors," "Item 3 - Legal Proceedings" and Note 21 - "Commitments and Contingencies" to the SPLP consolidated financial statements found elsewhere in this Form 10-K.

The Comprehensive Environmental Response, Compensation and Liability Act, as amended, and comparable state    laws (“CERCLA” 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. We may encounter materials that are considered hazardous substances in the course of our operations. As a result, our businesses may incur CERCLA liability for cleanup costs and be subject to related third-party claims. We also may be subject to the requirements of the Resource Conservation and Recovery Act, as amended, and comparable state statutes (“RCRA”) related to solid wastes. Under CERCLA or RCRA, our subsidiaries could be required to clean up contaminated property (including contaminated groundwater) or to perform remedial activities to prevent future contamination.

The Clean Water Act established the basic structure for regulating discharges of pollutants into the waters of the United States and quality standards for surface waters.

The Oil Pollution Act of 1990 imposed a multitude of requirements on responsible parties related to the prevention of oil spills and liability for damages resulting from such spills in the waters of the United States.

The Clean Air Act, as amended, and comparable state laws and regulations restrict the emission of air pollutants and impose various monitoring and reporting requirements. These laws and regulations may require our subsidiaries to obtain approvals or permits for construction, modification, or operation of certain projects or facilities and may require use of emission controls.

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

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

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

Other Information Related to Our Businesses
The amounts of revenue, earnings before taxes and identifiable assets attributable to the aforementioned business segments and additional information regarding SPLP’s investments are included in Note 18 - "Segment Information" and Note 5 - "Investments" to the SPLP consolidated financial statements found elsewhere in this Form 10-K.
 
Our common units are quoted on the New York Stock Exchange (NYSE) under the symbol "SPLP". Our business address is 590 Madison Avenue, 32nd Floor, New York, New York 10022, and our telephone number is (212) 520-2300. Our website is www.steelpartners.com. The information contained in, or that can be accessed through, the website is not part of this Form 10-K. This Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports, are available to you free of charge through our website as soon as reasonably practicable after those materials have been electronically filed with, or furnished to, the SEC.

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Item 1A. Risk Factors

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

Risks Related to Our Business
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.
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.
We conduct operations or own interests in companies with operations outside of the U.S., which may expose us to additional risks not typically associated with companies that operate solely in the U.S.
We have operations or own interests in securities of companies with operations located outside the U.S. These holdings have additional risks, including risks relating to currency exchange, less developed or efficient financial markets than in the U.S., absence of uniform accounting, auditing and financial reporting standards, differences in the legal and regulatory environment, different publicly available information in respect of companies in non-U.S. markets, economic and political risks, and possible imposition of non-U.S. taxes. There can be no assurance that adverse developments with respect to such risks will not adversely affect our assets that are held in certain countries or the returns from these assets.
We are dependent on digital technologies to conduct our daily operations and maintain confidential information. Failure of these technologies could adversely affect our business.

The Company relies on information technology systems, some of which are managed by third parties, to both manage its daily operations and to secure its intellectual property. We use various protective measures to secure our systems from unauthorized access. However, a failure in or breach of operational or informational security systems or infrastructure, or those of our 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,

9


damage our 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 our businesses, financial condition and results of operations.
    
HNH sponsors defined benefit pension plans which could subject it to substantial cash funding requirements in the future.
HNH's ongoing operating cash flow requirements include arranging for the funding of the minimum requirements of the WHX Corporation Pension Plan, and the Retirement Plan for Employees of JPS Industries, Inc. The performance of the financial markets and interest rates, as well as health care trends and associated mortality rates, impact our defined benefit pension plan expense and funding obligations. Significant changes in these factors, including adverse changes in discount rates, investment losses on plan assets and increases in participant life expectancy, may increase our funding obligations and adversely impact our financial statements. 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 or other acceleration events. See the Liquidity and Capital Resources section of this Form 10-K for additional information.

WebBank’s Lending Programs Are Subject to Extensive Federal and State Regulation.
The consumer and business lending programs offered by WebBank are subject to extensive legal requirements at the federal and state levels. Among the laws that may be applicable to some or all of the programs offered by WebBank are:
the Federal Truth-in-Lending Act and Regulation Z promulgated thereunder, which require certain disclosures to borrowers regarding the terms of their loans;
the Dodd-Frank Act, the Federal Trade Commission Act, and state laws that prohibit unfair, deceptive, or abusive acts or practices;
the Federal Equal Credit Opportunity Act and Regulation B promulgated thereunder, which prohibit discrimination in the extension of credit on the basis of age, race, color, sex, religion, marital status, national origin, receipt of public assistance or the exercise of any right under the Consumer Credit Protection Act;
Federal and state laws relating to privacy and the safeguarding of personally identifiable consumer information and data breach notification; and
laws governing the permissibility of the interest rates and fees that are charged to borrowers.

If WebBank or its programs do not comply with these laws, it may be subject to claims for damages, fines, or penalties, and may face regulatory scrutiny. In addition, some violations could result in an underlying loan being found invalid or unenforceable, or subject to payment defenses. Any of these violations could result in the imposition of liability on WebBank, although WebBank may have indemnification rights for certain claims. In addition, there could be limitations on WebBank’s ongoing or future business.
WebBank offers lending programs through relationships with Marketing Partners. WebBank and its Marketing Partners are subject to supervision by the FDIC and the UDFI. The authority of the FDIC and the UDFI includes the ability to examine WebBank, the Marketing Partners, and the programs. The FDIC and UDFI also may bring enforcement actions against WebBank and its Marketing Partners if they detect any violations of law. These enforcement actions could result in monetary liability on WebBank, increased compliance obligations, or limitations on its ongoing and future business.
WebBank’s Status as Lender of the Loans it Offers, and the Ability of Assignees to Collect Interest, May be Challenged
WebBank’s business includes lending programs with Marketing Partners, where the Marketing Partners provide origination servicing for the loans and subsequently purchases the loans (or interests in the loans) that are originated by WebBank. There has been litigation which has challenged lending arrangements where a bank has made a loan and then sells and assigns it to an entity that is engaged in assisting with the origination and servicing of the loan. In such challenges the issuing banks (such as WebBank) are not usually defendants. However, such cases if successfully brought against WebBank’s Marketing Partners or others could negatively impact WebBank’s ongoing and future business. WebBank has structured its Marketing Partners' programs, and exercises control over these programs, to address these risks. A challenge of this type was brought

10


against one of WebBank’s Marketing Partners previously. WebBank intervened in the case and, in 2014, the case was dismissed in favor of WebBank.
On May 22, 2015, in a case involving whether a debt buyer that purchased defaulted loans from a national bank could collect interest on those loans at the rate that the National Bank Act permitted the seller of the loans to charge, the United States Court of Appeals for the Second Circuit ruled that federal law did not preempt the application of state usury laws to the debt buyer. Madden v. Midland Funding LLC, 786 F.3d 246 (2d Cir. 2015). The Second Circuit remanded the case to the federal district court to determine whether the debt buyer violated state usury laws, including whether the interest rate collected by the debt buyer was permissible under state law because of a choice-of-law clause in the loan agreement. WebBank believes that the Madden case is inconsistent with established legal precedent, and also that WebBank’s operation of its business distinguishes its programs from the facts of the Madden case. In addition, there are additional state law arguments to support as assignee’s ability to collect interest on a loan, but these were not addressed by the Second Circuit in its decision. The defendant in the Madden case filed a petition for a writ of certiorari on November 10, 2015 seeking further review of the Second Circuit’s decision by the United States Supreme Court. It is uncertain, however, whether the Supreme Court will agree to hear the appeal and, if it does, how it will rule. If the Madden decision stands, then other courts may rule that federal usury law applicable to WebBank does not preempt state usury laws that otherwise may apply to interest collected by Marketing Partners or other assignees of loans originated by Bank by WebBank. This could negatively impact WebBank’s ongoing and future business.
WebBank operates in a highly regulated environment. Recent and ongoing legislative and regulatory actions 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 impacts all financial institutions, including WebBank. The Dodd-Frank Act, among other things, established the Bureau of Consumer Financial Protection and Financial Stability Oversight Council, consolidated certain federal bank regulators and imposed increased corporate governance and executive compensation requirements. While many of the provisions in the Dodd-Frank Act are aimed at financial institutions significantly larger than ours, the amount and complexity of regulations has increased our regulatory compliance burden and therefore has increased the Bank’s regulatory risk.

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 (including affiliates of depository institutions) from engaging in proprietary trading activities and acquiring or retaining ownership interests in, or sponsoring, any private equity or hedge fund (collectively, "covered funds"). The implementing regulations for the Volcker Rule were finalized by various regulatory agencies on December 10, 2013. Thereafter, the Federal Reserve extended the conformance period until July 21, 2015. On December 18, 2014, the Federal Reserve further extended the conformance period until July 21, 2016 with respect to investments in, and relationships with, covered funds and foreign funds (collectively, “legacy funds”) subject to the Volcker Rule that were in place prior to December 31, 2013. The Federal Reserve also indicated that it intends to further extend the conformance period for investments in, and relationships with, legacy funds until July 21, 2017. The end of the conformance period for proprietary trading activities and for investments in, and relationships with, non-legacy funds was July 21, 2015. Under the regulations, following the end of the applicable conformance period, we (and our affiliates) are restricted from engaging in proprietary trading, or investing in or sponsoring covered funds unless our activities qualify for a specific exemption under the rule or satisfy certain requirements under the rule. While we are a banking entity under the Volcker Rule, we do not expect the Volcker Rule to have a material impact on our business.
     
Furthermore, the Dodd-Frank Act codified a longstanding policy that all companies that directly or indirectly control an FDIC-insured bank are required to serve as a source of financial strength for such institution. As a result, SPLP could be called upon by the FDIC to infuse additional capital into WebBank to the extent that WebBank fails to satisfy its capital requirements, including at times that SPLP might not otherwise be inclined to provide it and even if doing so may adversely affect SPLP’s ability to meet its other obligations. Currently, WebBank meets or exceeds all such capital requirements.

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

WebBank is subject to capital requirements.

In July 2013, the Federal Reserve Board, the Office of the Comptroller of the Currency, and the FDIC issued rules that implemented the Basel III changes to the international regulatory capital framework and revised the U.S. risk-based and leverage

11


capital requirements for U.S. banking organizations in order to strengthen identified areas of weakness in capital rules and to address relevant provisions of the Dodd-Frank Act. 

Effective January 1, 2015 for WebBank, FDIC regulations implementing the Basel III Accord modified WebBank’s minimum capital requirements by adding a 4.5% Common Equity Tier 1 ratio and increased the Tier 1 capital ratio requirement from 4% to 6%.  FDIC regulations also require WebBank to comply with a total capital ratio of 8% and a leverage ratio of 4%. Additionally, a Capital Conservation Buffer (composed solely of common equity Tier 1 capital) equal to 2.5% above the new regulatory minimum capital requirements will be phased in starting January 1, 2016 until fully implemented on January 1, 2019. The Capital Conservation Buffer is on top of the minimum risk-weighted asset ratios and will have the effect of increasing those ratios by 2.5% each when fully phased in. A failure of WebBank to maintain the aggregate minimum capital required by the Capital Conservation Buffer will impair its ability to make certain distributions (including dividends and stock repurchases) and discretionary bonus payments to executive officers. A failure of WebBank to maintain capital as required by the FDIC’s minimum capital requirements would subject WebBank to the FDIC’s prompt corrective action regime, which may further impair WebBank’s ability to make payments or distributions and may require a capital restoration plan or other corrective regulatory measures.
     
Although the Company currently cannot predict the specific impact and long-term effects that Basel III and its implementation in the U.S. will have on WebBank and the banking industry more generally, WebBank is currently in compliance with the new regulations.

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, and has recently collapsed in light of the severe decline the price of oil. Reduced discovery rates of new oil and natural gas reserves, or a decrease in the development rate of reserves in our market areas, weakness in oil and natural gas prices, or our customers' perceptions that oil and natural gas prices will decrease in the future, could result in a reduction in the utilization of our equipment and result 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.

Risks Related to Our Structure
The unitholders have limited recourse to maintain actions against the General Partner, the Board of Directors, our officers and the Manager.
The Limited Partnership Agreement of SPLP, or the “Partnership Agreement,” contains broad indemnification and exculpation provisions that limit the right of a unitholder to maintain an action against the General Partner, the Board of Directors, our officers and the Manager, or to recover losses or costs incurred due to action or inaction by these parties which have a negative effect on the Company.
Our Partnership Agreement contains certain provisions that may limit the voting rights of some unitholders.
Our Partnership Agreement contains specific provisions that are intended to comply with regulatory limitations on the ownership of our securities as a result of our ownership of WebBank. Under the Partnership Agreement, a person or group that acquires beneficial ownership of 10% or more of the common units without the prior approval of the Board of Directors may lose voting rights with respect to all of its common units in excess of 9.9%.
We may have conflicts of interest with the minority shareholders of our businesses and decisions may need to be made by disinterested directors, without the participation of directors or officers associated with the Manager and the Company. These decisions may be different from the decisions we would make, and may or may not be in the best interests of our unitholders.
Because we own less than 100% of certain affiliates, and we may engage in transactions with these affiliates from time to time, the boards of directors and officers of those businesses, including directors and officers associated with our Manager and the Company, have fiduciary duties to their respective shareholders. As a result, they may make decisions that are in the best interests of their shareholders generally but which are not necessarily in the best interest of our unitholders. In dealings with us, the directors and officers of our businesses may have conflicts of interest and decisions may have to be made without their

12


participation. Such decisions may be different from the decisions we would make and may not be in the best interests of our common unitholders, which may have an adverse effect on our business and results of operations.
There are certain interlocking relationships among us and certain affiliates of Warren G. Lichtenstein, our Executive Chairman, which may present potential conflicts of interest.
Warren G. Lichtenstein, our Executive Chairman and a substantial unitholder, is the Chief Executive Officer of our Manager. As of December 31, 2015, Mr. Lichtenstein directly owned approximately 12.7% of our outstanding common units. In addition, affiliates of our Manager beneficially own approximately 25.6% of our outstanding units, although Mr. Lichtenstein disclaims beneficial ownership of any common units not directly held by him. We have entered into transactions and/or agreements with these entities. There can be no assurance that such entities will not have interests in conflict with our own. 
Certain members of our management team may be involved in other business activities that may involve conflicts of interest, possibly diverting their attention from the Company’s operations.

Certain individual members of our management team may, from time to time, be involved in the management of other businesses, including those owned or controlled by our Manager and its affiliates. Accordingly, these individuals may focus a portion of their time and attention on managing these other businesses. Conflicts may arise in the future between our interests and the interests of the other entities and business activities in which such individuals are involved.
Being classified as an “investment company” would subject us to numerous restrictions and requirements that would be inconsistent with the manner in which we operate our business, and could have a material adverse effect on our business and operations.
We plan to continue to conduct our business and operations in such a manner as not to be deemed an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”).
Investment companies are subject to extensive, restrictive and potentially adverse regulations relating to, among other things, operating methods, management, capital structure, dividends and transactions with affiliates. An entity may generally be deemed to be an investment company for purposes of the Investment Company Act if (a) it is or holds itself out as being engaged primarily in the business of investing, reinvesting or trading in securities; or (b) absent an applicable exemption, it owns investment securities having a value exceeding 40% of certain assets (the “40% Test”). As a result of 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.
The Company has taken actions, including liquidating certain of our assets and acquiring additional interests in existing or new subsidiaries or controlled companies, to comply with the 40% Test, or a relevant exception. Also, since the Company operates as a diversified holding company engaged in a variety of operating businesses, we do not believe we are primarily engaged in an investment company type business, nor do we propose to primarily engage in such a business. Our intent to operate as a diversified holding company, and comply with the 40% test, may limit our ability to make certain investments, compel us to divest certain holdings, or to take or forego certain actions that could otherwise be beneficial to us.
If we were deemed to be an investment company under the Investment Company Act, we may need to further adjust our business strategy and assets, including divesting certain desirable assets immediately to fall outside of the definition or within an exemption, to register as an investment company (and subject to the aforementioned restrictions and requirements) or to cease operations.
Risks Related to Our Manager

We depend on Warren G. Lichtenstein, the Chairman and Chief Executive Officer of the Manager, and Jack Howard, the President of the Manager, in running our businesses. The loss of their services could have a material adverse effect on our business, results and financial condition.
Our success depends on the efforts, skills, reputation and business contacts of Warren G. Lichtenstein, the Chairman and Chief Executive Officer of the Manager and Jack Howard, the President of the Manager. While the key members of the Manager have worked for the Manager and its affiliates for many years, our Manager does not have any employment agreements with any of the key members of its management team and their continued service is not guaranteed. The loss of the services of

13


Mr. Lichtenstein or Mr. Howard could have a material adverse effect on our asset value, revenues, net income and cash flows and could harm our ability to maintain or grow our existing operations or pursue additional opportunities in the future.
We cannot determine the amount of the Management Fee that will be paid over time with any certainty.
The Management Fee is calculated by reference to our total partners' capital. Our total partners' capital will be impacted by the performance of our businesses and other businesses we may acquire in the future, as well as the issuance of additional common units. Changes in our total partners' capital and in the resulting Management Fee could be significant, resulting in a material adverse effect on our results of operations. In addition, if our performance declines, assuming our total partners' capital remains the same, the Management Fee will increase as a percentage of our net income.
Our Manager's liability is limited under the Management Agreement, and we have agreed to indemnify our Manager against certain liabilities. Such indemnification may incentivize our Manager to take unnecessary risks with respect to actions for which it will be indemnified.
Under the Management Agreement, our Manager, its members, officers, employees, affiliates, agents and legal representatives are not liable for, and we have agreed to indemnify such persons from, any loss or expense, including without limitations, any judgment, settlement, reasonable attorneys' fees and other costs and expenses incurred in connection with the defense of any actual or threatened proceeding, other than losses resulting from willful misconduct or gross negligence in the performance of such indemnified person's obligations and duties. Such indemnification may incentivize our Manager to take unnecessary risks with respect to actions for which it will be indemnified.
Risks Related to our Common Units
We may issue additional common units, or other series of units, in the future without the consent of unitholders and at a discount to the market price of such units. In particular, sales of significant amounts of the common units may cause the price of the common units to decline.
Under the terms of the Partnership Agreement, additional common units, or additional series of units, may be issued without the consent of unitholders at a discount to the market price. In addition, other classes of securities may be issued with rights that are senior to or which otherwise have preferential rights to the rights of the common 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, state and other income tax on their share of our taxable income, regardless of whether they receive any cash distributions from us.
The Company operates, for U.S. federal income tax purposes, as a partnership and not a publicly traded partnership taxable as a corporation. Our unitholders will be subject to U.S. federal, state, local and possibly, in some cases, foreign income tax on their allocable share of our taxable income, whether or not they receive cash distributions from us. We do not anticipate making any 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

14


exception, referred to as the “Qualifying Income Exception,” exists with respect to publicly traded partnerships of which 90 percent or more of the gross income for every taxable year consists of “qualifying income” as defined in the Code. We expect that we will meet the Qualifying Income Exception.
If the Qualifying Income Exception is not available to us, then we will be treated as a corporation instead of a partnership. In that event, the deemed incorporation of SPLP should be tax-free. If we were taxed as a corporation, (i) our net income would be taxed at corporate income tax rates, thereby substantially reducing our profitability, (ii) our unitholders would not be allowed to deduct their share of losses of SPLP and (iii) distributions to our unitholders, other than liquidating distributions, would constitute dividends to the extent of our current or accumulated earnings and profits, and would be taxable as such.
Our structure involves complex provisions of U.S. federal income tax law for which no clear precedent or authority may be available.
The U.S. federal income tax treatment of our unitholders depends in some instances on interpretations of complex provisions of U.S. federal income tax law for which no clear precedent or authority may be available. Our Partnership Agreement permits our General Partner to modify it from time to time, including the allocation of items of income, gain, loss and deduction (including unrealized gain and unrealized loss to the extent allowable under U.S. federal income tax law), without the consent of our unitholders, to address certain changes in U.S. federal income tax regulations, legislation or interpretation or to preserve the uniformity of our common units. In some circumstances, such revisions could have a material adverse impact on some or all unitholders. In addition, we formed a subsidiary partnership, to which we contributed certain of our assets ("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.
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.

Item 1B. Unresolved Staff Comments

None.


Item 2. Properties

HNH
As of December 31, 2015, HNH had 23 active operating plants in the United States, Canada, China, United Kingdom, Germany, France, Poland and Mexico, with a total area of approximately 2,676,389 square feet, including warehouse, office, sales, service and laboratory space. HNH also owns or leases sales, service, office and warehouse facilities at 10 other locations in the United States, which have a total area of approximately 290,828 square feet, and owns or leases 4 non-operating locations with a total area of approximately 535,350 square feet. Manufacturing facilities are located in: Camden, Delaware; Addison,

15


Illinois; Evansville, Indiana; Agawam, Massachusetts; Rockford, Minnesota; Middlesex, New Jersey; Arden and Statesville, North Carolina; St. Louis, Missouri; Anderson and Slater, South Carolina; Cudahy, Wisconsin; Warwick, Rhode Island; Toronto and Montreal, Canada; Matamoros, Mexico; Gwent, Wales, United Kingdom; Pansdorf, Germany; Riberac, France; Gliwice, Poland; and Suzhou, China. All plants are owned except for the Addison, Middlesex, Arden, Montreal, Suzhou and one of two Gliwice 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.
WFH LLC
WFH LLC, through its API subsidiary, owns 5 plants with a total area of approximately 520,627 square feet and leases 9 non-operating facilities with a total area of approximately 115,002 square feet. Three of the plants are located in Poynton, Salford and Livingston, United Kingdom. The remaining two plants are located in Rahway, N.J. and Lawrence, Kansas.
Steel Excel
Steel Excel's Energy business owns four buildings in Williston, ND, including one that serves as its headquarters and operations hub in the Bakken basin along with separate buildings with office and shop space. To support its operations in other locations, the Energy business owns shop space Texas and leases shop space in Colorado under an arrangement that expires in November 2016. The Energy business also leases shop space and office space under month-to-month arrangements on an as needed basis and owns and leases housing for temporary living arrangements for certain of its employees.

Steel Excel's Sports business has a lease for office space in Hermosa Beach, CA, that expires in June 2015, which serves as its headquarters, and a month-to-month arrangement in Sacramento, CA, for executive office space. Steel Excel's Sports business has a lease for approximately 27.9 acres of land in Yaphank, NY, for its baseball services operation that expires in December 2016. Under this lease Steel Excel has two extension options and a right of first refusal to purchase the parcel. The Sports business also has a lease for 9,940 square feet for its CrossFit® facility in Torrance, CA, that expires in March 2023. In addition, the Sports business has a lease for office space in Cedar Knolls, NJ, that expires in February 2019, which serves as the headquarters for its youth soccer operation, and also has leases in various states for small administrative offices to support the soccer operation.

WebBank
As of December 31, 2015, WebBank leases 14,686 square feet of office space headquartered in Salt Lake City, Utah. The term of the lease expires in March 2023. WebBank also leases office space in New Jersey through March 2017. WebBank believes that these facilities are adequate for its current needs and that suitable additional space will be available as required.
SPH Services
As of December 31, 2015, SPH Services leases 15,660 square feet of office space headquartered in New York City, New York. The term of the lease expires in December 2025. SPH Services also leases office space in Los Gatos, California through January 2017.
BNS
As of December 31, 2015, BNS did not own or lease any properties.
DGT
As discussed elsewhere in this Form 10-K, on November 3, 2011 DGT completed the sale of Villa Sistemi Medicali S.p.A. ("Villa"), its former Italian subsidiary. DGT continues to own 67,000 square feet of design and manufacturing space in Milan, Italy and currently leases the building to the buyer of Villa. The building is held for sale as of December 31, 2015.

16


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

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

Market Information
 
As of December 31, 2015, we had 26,632,689 common units issued and outstanding. Our common units, no par value, are quoted on the NYSE under the symbol “SPLP”.  The following table sets forth the information on the high and low sales prices of our common units during 2015 and 2014.  
Fiscal year ending December 31, 2015
 
High
 
Low
First Quarter
 
$
19.30

 
$
16.74

Second Quarter
 
$
19.10

 
$
17.51

Third Quarter
 
$
17.84

 
$
16.45

Fourth Quarter
 
$
17.87

 
$
16.15

Fiscal year ending December 31, 2014
 
High
 
Low
First Quarter
 
$
17.57

 
$
15.70

Second Quarter
 
$
17.21

 
$
15.91

Third Quarter
 
$
16.92

 
$
16.27

Fourth Quarter
 
$
18.55

 
$
15.65


Holders
 
As of December 31, 2015, there were approximately 124 unitholders of record.
 

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, 2015.  We did not declare or pay any dividends during the comparison period. 


17


 
4/19/2011
 
12/31/2011
 
12/31/2012
 
12/31/2013
 
12/31/2014
 
12/31/2015
Steel Partners Holdings L.P.
$
100

 
$
74.92

 
$
73.30

 
$
107.87

 
$
109.80

 
$
101.84

Russell 2000 Index
$
100

 
$
90.96

 
$
105.83

 
$
146.91

 
$
154.11

 
$
147.30

Peer Group
$
100

 
$
72.48

 
$
79.34

 
$
126.85

 
$
126.08

 
$
115.12


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.

Issuer Purchases of Equity Securities

On December 24, 2013, the Board of Directors of the General Partner of the Company approved the repurchase of up to an aggregate of $5,000 of the Company's common units (the “Repurchase Program”). Any purchases made under the Repurchase Program will be made from time to time on the open market at prevailing market prices or in negotiated transactions off the market, in compliance with applicable laws and regulations. In connection with the Repurchase Program, the Company entered into a Stock Purchase Plan which expired on March 26, 2014. The Repurchase Program has no termination date.
 
(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 (2)
October 1, 2015 through October 31, 2015
494,631
$
17.76


$
513

November 1, 2015 through November 30, 2015
$


$
513

December 1, 2015 through December 31, 2015
$


$
513

Total
494,631
 



(1) All units were purchased by Steel Excel, a subsidiary of the Company. The purchases were made in open market transactions for their own accounts.
(2) Approximate dollar value of common units available for purchase under the Repurchase Program.


18


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, 2015, 2014 and 2013 has been derived from our audited consolidated financial statements at those dates and for those periods, contained elsewhere in this Annual Report on Form 10-K. The historical selected financial data as of and for the years ended December 31, 2012 and 2011 has been derived from our audited consolidated financial statements adjusted for discontinued operations at those dates and for those periods, not contained in this Annual Report on Form 10-K. The table below presents discontinued operations as follows:

The year ended December 31, 2014 includes the operations of HNH's Arlon LLC ("Arlon") business.
The year ended December 31, 2013 includes the operations of HNH's businesses: Arlon, Continental Industries ("Continental"), Canfield Metal Coating Corporation ("CMCC") and Indiana Tube de Mexico, S. De R.L. de C.V. ("ITM") through their respective sale dates, as well as one of Steel Excel's sports businesses.
The year ended December 31, 2012 includes the aforementioned HNH operations, as well as DGT's RFI subsidiary and DGT's Villa subsidiary through their respective sale dates.
The year ended December 31, 2011 includes the aforementioned operations, as well as DGT's operations from July 5, 2011.

STATEMENTS OF OPERATIONS DATA (a)
Year Ended December 31,
(in thousands, except common unit and per common unit data)
2015
 
2014
 
2013
 
2012
 
2011
Revenues
$
998,037

 
$
849,530

 
$
721,114

 
$
630,771

 
$
542,902

Net income (loss) from continuing operations
$
70,311

 
$
(17,572
)
 
$
38,374

 
$
43,736

 
$
71,298

Income from discontinued operations
86,257

 
10,304

 
6,446

 
20,029

 
9,979

Net income (loss)
156,568

 
(7,268
)
 
44,820

 
63,765

 
81,277

Less: Net income attributable to non-controlling interests:
(19,833
)
 
(287
)
 
(25,360
)
 
(22,747
)
 
(45,808
)
Net income (loss) attributable to common unitholders
$
136,735

 
$
(7,555
)
 
$
19,460

 
$
41,018

 
$
35,469

Net income (loss) per common unit - basic:
 
 
 
 

Net income (loss) from continuing operations
$
2.97

 
$
(0.48
)
 
$
0.51

 
$
1.01

 
$
1.19

Net income from discontinued operations
2.03

 
0.21

 
0.14

 
0.37

 
0.22

Net income (loss) attributable to common unitholders
$
5.00

 
$
(0.27
)
 
$
0.65

 
$
1.38

 
$
1.41

Basic weighted average common units outstanding
27,317,974

 
28,710,220

 
29,912,993

 
29,748,746

 
25,232,985

Net (loss) income per common unit - diluted:
 
 
 
 

Net income (loss) from continuing operations
$
2.96

 
$
(0.48
)
 
$
0.49

 
$
1.01

 
$
0.81

Net income from discontinued operations
2.02

 
0.21

 
0.14

 
0.37

 
0.18

Net income (loss) attributable to common unitholders
$
4.98

 
$
(0.27
)
 
$
0.63

 
$
1.38

 
$
0.99

Diluted weighted average common units outstanding
27,442,308

 
28,710,220

 
30,798,113

 
29,774,527

 
29,669,582

 (a) Statement of operations data includes the consolidation of the results of acquired entities from their respective acquisition dates: primarily, the acquisition of SWH, Inc. ("SWH") by BNS on February 2, 2011, the acquisition of DGT on July 5, 2011, the acquisition of Steel Excel on May 31, 2012, HNH's acquisition of Wolverine Joining Technologies in April 2013, Steel Excel's acquisition of the assets of Black Hawk Energy Services, Inc. in December 2013, HNH's acquisition of JPS on July 2, 2015 and SPLP's acquisitions of CoSine and API in January and April of 2015, respectively.  
BALANCE SHEET DATA
December 31,
(in thousands, except per common unit data)
2015
 
2014
 
2013
 
2012
 
2011
Cash and cash equivalents
$
185,852

 
$
188,983

 
$
203,980

 
$
198,027

 
$
127,027

Marketable securities
80,842

 
138,457

 
178,485

 
199,128

 

Long-term investments
167,214

 
311,951

 
295,440

 
199,865

 
320,891

Total assets
1,684,773

 
1,490,497

 
1,522,245

 
1,378,359

 
1,129,843

Long-term debt
235,913

 
295,707

 
223,355

 
140,065

 
130,955

SPLP Partners’ capital
558,034

 
494,859

 
616,582

 
527,344

 
415,797

SPLP Partners’ capital per common unit
$
20.95

 
$
17.95

 
$
19.81

 
$
17.13

 
$
16.51



19


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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes thereto that are available elsewhere in this Annual Report on Form 10-K. The following is a discussion and analysis of SPLP's consolidated results of operations for the years ended December 31, 2015, 2014 and 2013. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in “Risk Factors” in Item 1A. All monetary amounts used in this discussion are in thousands except common unit, per common unit and share amounts.
RESULTS OF OPERATIONS

Significant 2015 Events

Below is a summary of significant 2015 events that impacted the Company. For additional information on the acquisitions described below, see Note 3 - "Acquisitions" to the SPLP consolidated financial statements found elsewhere in this Form 10-K.

HNH completed the sale of Arlon in January 2015, which operations comprised substantially all of HNH's former Arlon business, for $155,500 in cash, reflecting transaction fees, a final working capital adjustment and certain reductions as provided in the stock purchase agreement.
SPLP acquired CoSine on January 20, 2015 by contributing 24,807,203 shares of API and 445,456 shares of common stock of Nathan’s Famous, Inc. ("Nathan's") to CoSine in exchange for 16,500,000 shares of newly issued CoSine common stock and 12,761 shares of newly issued 7.5% series B non-voting preferred stock, which increased our ownership of CoSine to approximately 80%.
HNH acquired ITW Polymers Sealants North America Inc. (“ITW”) on March 31, 2015 for $27,400 in cash, including a final working capital adjustment. ITW was the exclusive supplier of certain adhesive products to HNH's Building Materials business, and the acquisition will provide HNH with greater control of their supply chain and allow them to expand their product development initiatives.
On April 17, 2015, CoSine obtained control over the operations of API as the result of a tender offer of 60 pence in cash per API share not already owned.
On July 2, 2015, HNH acquired JPS through a combination of cash and the issuance of its shares to the Company in exchange for the Company's shares of JPS. Prior to the acquisition, the Company accounted for JPS as an equity method investment. As a result of the transaction, SPLP's ownership of HNH increased by approximately 4%.
During 2015, one of the Company's subsidiaries, Steel Excel, identified an error related to the manner in which the provision for income taxes had reflected the tax effects related to unrealized gains and losses on available for sale securities during 2014 and 2013. As a result, the Company recorded an adjustment to its tax provision of approximately $3,500 in the twelve months ended December 31, 2015 to correct the error.
In December 2015, the Company and its CoSine and WFHC subsidiaries entered into a series of transactions that impacted SPLP's ownership interest in both entities. Prior to these transactions SPLP owned 100% of WFHC and 80.6% of CoSine. After these transactions SPLP owned 90.7% of WFHC and WFHC owned 100% of WFH LLC, a Company that was merged into and with CoSine. For additional details of these transactions, see Note 16 – "Capital and Accumulated Other Comprehensive (Loss) Income" to the SPLP consolidated financial statements found elsewhere in this Form 10-K.

20


CONSOLIDATED RESULTS OF OPERATIONS

 
Year Ended December 31,
 
2015
 
2014
 
2013
Revenues
$
998,037

 
$
849,530

 
$
721,114

Cost of goods sold
670,047

 
588,209

 
496,757

Selling, general and administrative expenses
230,199

 
188,355

 
202,121

Goodwill impairment
19,571

 
41,450

 

Asset impairment charges
68,092

 
2,537

 
2,689

All other (income) expenses, net
(13,241
)
 
3,706

 
3,022

Total costs and expenses
974,668

 
824,257

 
704,589

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

 
25,273

 
16,525

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

 
6,477

Income (Loss) from equity method investments and investments held at fair value:
 
 
 
 
 
(Loss) Income of associated companies, net of taxes
(34,931
)
 
(3,379
)
 
27,786

Income (Loss) from other investments - related party
361

 
891

 
(271
)
Income (Loss) from investments held at fair value
2,793

 
(16,069
)
 
811

Net income (loss) from continuing operations
70,311

 
(17,572
)
 
38,374

Income from discontinued operations
86,257

 
10,304

 
6,446

Net income (loss)
156,568

 
(7,268
)
 
44,820

Net income attributable to noncontrolling interests in consolidated entities
(19,833
)
 
(287
)
 
(25,360
)
Net income (loss) attributable to common unitholders
$
136,735

 
$
(7,555
)
 
$
19,460


Revenues

Revenues in 2015 increased $148,507, or 17.5%, as compared to 2014. Growth from the acquisitions of API and JPS was 20.6% and other growth was 1.6%, primarily due to investment gains recorded in the Corporate and Other segment, net of decreases at HNH in the Diversified Industrial segment due to silver prices. These growth factors were partially offset by a net decline in core revenues of 4.7% primarily due to a decrease in the Energy segment, partially offset by increases in core revenue at HNH in the Diversified Industrial segment and in the Financial Services segment.
 
Revenues in 2014 increased $128,416, or 17.8%, as compared to 2013 due to growth from acquisitions of 15.1% and core growth of 6.1%, partially offset by a decrease of 3.4%, due to other factors, primarily precious metal prices. Acquisition growth was due to PAM Fastening Technology, Inc. ("PAM") (acquired November 2013) and Wolverine Joining Technologies, LLC ("Wolverine Joining") (acquired April 2013) in the Diversified Industrial segment and the acquisition of the assets of Black Hawk Energy Services, Inc. ("Black Hawk Inc.") (acquired December 2013) and UK Elite Soccer, Inc. ("UK Elite") (acquired June 2013) in the Energy segment.

Costs and Expenses

Costs and expenses in 2015 increased $150,411, or 18.2%, as compared to 2014 , primarily due to the acquisitions of API and JPS, both in the Diversified Industrial segment, partially offset by a decrease in the Energy segment, due to lower revenues. Costs and expenses increased $119,668, or 17.0% in 2014, as compared to 2013, primarily due to increases in our Diversified Industrial and Energy segments principally as a result of acquisitions.

Cost of Goods Sold
    
Cost of goods sold in 2015 increased $81,838, or 13.9%, as compared to 2014 primarily due to the acquisitions of API and JPS, both in the Diversified Industrial segment, partially offset by a decrease in the Energy segment, due to lower revenues.
    
Cost of goods sold in 2014 increased $91,452, or 18.4%, as compared to 2013 primarily due to increases in our Diversified Industrial and Energy segments principally as a result of the acquisitions of Wolverine Joining, PAM and the assets of Black Hawk Inc., as well as additional costs due to core growth.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") in 2015 increased $41,844, or 22.2%, as compared to 2014 primarily due to an increase in the Diversified Industrial segment due to the acquisitions of API and JPS, as well as an increase in the Financial Services segment.

21


SG&A expenses in 2014 decreased $13,766, or 6.8%, as compared to 2013 primarily due to a decrease in the Corporate and Other segment due to lower non-cash incentive unit expense recorded in 2014, compared to 2013, as well as a decrease in the Diversified Industrial segment. The Diversified Industrial decrease was due to a decrease from HNH's core business primarily due to the recording of insurance reimbursements, as well as lower benefit costs and reduced business development expenses, which were partially offset by higher incremental expenses from the Wolverine Joining and PAM acquisitions. These decreases were partially offset by an increase in our Financial Services segment due to higher personnel costs and an increase in our Energy segment principally as a result of the acquisition of the assets of Black Hawk Inc., additional costs due to core growth, higher business development costs and certain non-recurring benefits that were recorded in the prior year period.

Goodwill Impairment

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

Asset Impairment Charges

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

All Other (Income) Expenses, Net
    
All other income increased $16,947 in 2015, compared to 2014, due to higher investment gains and lower interest expense recorded in the 2015 period. All other expenses increased $684 in 2014, compared to 2013, primarily from primarily from higher interest expense.

(Loss) Income of Associated Companies, Net of Taxes

The (Loss) Income of associated companies, net of taxes in 2015 decreased by $31,552, compared to 2014, primarily due to net year-over-year decreases in fair value recorded for SLI of $19,000, for JPS of $8,000 and other Steel Excel investments of $10,000, partially offset by a lower loss of $6,000 recorded for MLNK in the 2015 period (see Note 5 - "Investments" to the SPLP consolidated financial statements found elsewhere in this Form 10-K for additional information).

The Income (Loss) of associated companies, net of taxes in 2014 increased by $31,165, compared to 2013, primarily due to a higher reduction in the 2014 period in the fair value of MLNK of approximately $46,100 and a higher reduction in the 2014 period in the fair value of certain investments held by Steel Excel of approximately $5,200, partially offset by higher increases in the fair value of JPS of approximately $5,100 and SLI of approximately $3,000 and the non-recurrence of a reduction in fair value recorded in the 2013 period of approximately $11,500 related to Fox & Hound (see Note 5 - "Investments" to the SPLP consolidated financial statements found elsewhere in this Form 10-K for additional information).

Income (Loss) from Investment Held at Fair Value

Income (Loss) from investments held at fair value for the years ended December 31, 2015, 2014 and 2013 includes income or loss that the Company recognizes on its direct investment in investment in MLNK warrants and amounts that were previously recognized on API when its was classified as an available-for-sale security and accounted for under the fair value option. WFH LLC (formerly known as CoSine) acquired API in the second quarter of 2015 and it is currently a consolidated subsidiary. For additional information on CoSine's acquisition of API and these investments, see Note 3 - "Acquisitions" and see Note 5 - "Investments" to the SPLP consolidated financial statements found elsewhere in this Form 10-K.
Income from Discontinued Operations

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


22


SEGMENT RESULTS OF OPERATIONS

The following is a summary of SPLP’s consolidated operating results by segment:
 
Year Ended December 31,
 
2015
 
2014
 
2013
Revenue:
 
 
 
 
 
Diversified industrial
$
763,009

 
$
600,468

 
$
571,164

Energy
132,620

 
210,148

 
120,029

Financial services
69,430

 
36,647

 
28,185

Corporate and other
32,978

 
2,267

 
1,736

Total Revenue
$
998,037

 
$
849,530

 
$
721,114

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

 
$
65,543

 
$
51,900

Energy
(95,112
)
 
(26,254
)
 
12,641

Financial services
46,314

 
24,251

 
17,668

Corporate
(1,891
)
 
(56,824
)
 
(37,358
)
Net (loss) income from continuing operations before income taxes
(8,408
)
 
6,716

 
44,851

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

 
6,477

Net income (loss) from continuing operations
70,311

 
(17,572
)
 
38,374

Income from discontinued operations
86,257

 
10,304

 
6,446

Net income attributable to noncontrolling interests in consolidated entities
(19,833
)
 
(287
)
 
(25,360
)
Net income (loss) attributable to common unitholders
$
136,735

 
$
(7,555
)
 
$
19,460



Diversified Industrial Segment

Our Diversified Industrial segment consists of the operations of HNH and WFH LLC (formerly CoSine). HNH is a diversified holding company that owns a variety of manufacturing operations encompassing joining materials, tubing, building materials, performance materials and cutting replacement products and services businesses. The performance materials operation is currently comprised solely of the operations of JPS, which was acquired on July 2, 2015 (see Note 3 - "Acquisitions" to the SPLP consolidated financial statements found elsewhere in this Form 10-K). The Diversified Industrial segment includes the operations of WFH LLC (formerly CoSine) beginning in the second quarter of 2015, which, through its subsidiary API, is a manufacturer and distributor of foils, films and laminates used to enhance the visual appeal of products and packaging. In addition, the segment results include income or loss from SPLP's equity method investment in SLI. The following presents a summary of the Diversified Industrial segment operating results as reported in our consolidated financial statements:    
 
Year Ended December 31,
 
2015
 
2014
 
2013
Net Sales
$
763,009

 
$
600,468

 
$
571,164

Cost of sales
564,863

 
436,914

 
411,859

Gross profit
198,146

 
163,554

 
159,305

Selling, general and administrative expenses
152,109

 
116,394

 
117,920

Asset impairment charges
1,398

 
1,314

 

Interest expense
5,238

 
7,544

 
8,593

Derivative activity income
(588
)
 
(1,307
)
 
(1,195
)
Other (income) expense, net
(3,544
)
 
181

 
344

Net income from continuing operations before income taxes
43,533

 
39,428

 
33,643

Income (loss) from associated companies:
 
 
 
 
 
JPS
5,831

 
14,277

 
9,204

SLI
(7,083
)
 
11,838

 
9,053

Total Segment Income
$
42,281

 
$
65,543

 
$
51,900


Comparison of the Years ended December 31, 2015 and 2014

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

23


Building Materials group. The average silver market price was approximately $15.70 per troy ounce in 2015, as compared to $19.05 per troy ounce in 2014.

Gross profit in 2015 increased by $34,592, or 21.2%, when compared to 2014, and, as a percentage of net sales, decreased to 26.0% as compared to 27.2% in 2014. The change in gross profit reflects the addition of the API operations and JPS, as well as a net increase from core growth at HNH of approximately $5,500 and the incremental lower manufacturing costs resulting from HNH's ITW acquisition, which was partially offset by a reduction of approximately $2,300 in gross profit due to lower average silver prices. Higher sales volume from the Building Materials and Kasco groups led to the increase in gross profit from HNH's core business. Gross profit for the year ended December 31, 2015 also reflects $3,400 of nonrecurring expense associated with the amortization of the fair value adjustment to acquisition-date inventories associated with HNH's JPS acquisition.

SG&A expenses increased by $35,715, or 30.7%, in 2015, compared to 2014. The higher SG&A expense in 2015 was driven by the addition of the API operations and JPS, which contributed approximately $28,000 to the increase. The increase was also impacted by HNH which had higher personnel costs and higher business development expenses, primarily associated with its 2015 acquisitions, which were partially offset by lower stock-based compensation charges.

Asset impairment charges in 2015 represent a non-cash asset impairment charge related to certain unused, real property located in Norristown, Pennsylvania to reflect its current market value. Asset impairment charges in 2014 represent a non-cash asset impairment charge of approximately $700 related to certain equipment owned by HNH's Joining Materials group located in Toronto, Canada, which will either be sold or scrapped as part of HNH's integration activities associated with the Wolverine Joining acquisition. In addition, HNH recorded an asset impairment charge of approximately $600 associated with certain unused, real property owned by one of HNH's businesses located in Atlanta, Georgia in the fourth quarter of 2014.

Interest expense decreased by $2,306, or 30.6%, in 2015, compared to 2014, primarily due to lower borrowing levels and lower average interest rates at HNH in 2015.
 
Derivative activity income was $588 in 2015 and $1,307 in 2014. The amounts in both periods were attributable to HNH's commodity contracts. HNH utilizes commodity forward and futures contracts to mitigate the impact of price fluctuations on its precious metal and certain non-precious metal inventories. The factors that affect the gain or loss on these derivative instruments are changes in the price of the associated metals and the amount of ounces hedged.

Comparison of the Years ended December 31, 2014 and 2013
Net sales in 2014 increased by $29,304, or 5.1% when compared to 2013. The change in net sales reflects approximately $26,700 in incremental sales associated with HNH's historical acquisitions and a net increase from core growth of approximately $27,800, which were partially offset by a reduction of approximately $25,200 in net sales due to lower average precious metal prices, principally due to silver. The acquisitions of Wolverine Joining and PAM, net of sales volume transferred to or from the acquired business units as part of HNH's integration activities, provided incremental net sales of approximately $16,700 and $10,000, respectively, during the year ended December 31, 2014. Excluding the impact of these acquisitions, value added sales, defined as net sales less revenue from the direct purchase and resale of precious metals, increased by approximately $27,800 on higher volume, primarily from the Building Materials and Joining Materials groups, which were partially offset by lower sales volume from the Tubing group. The average silver market price was approximately $19.05 per troy ounce in 2014, as compared to $23.79 per troy ounce in 2013.

Gross profit in 2014 increased by $4,249, or 2.7%, when compared to 2013, and, as a percentage of net sales, decreased to 27.2% as compared to 27.9% in 2013. The decrease was principally due to unfavorable production variances in the Tubing group driven by lower sales volume, along with higher international freight costs and a change in product mix in the Building Materials group, which were partially offset by favorable sales mix in the Joining Materials group. The change in gross profit reflects approximately $4,000 in incremental gross profit associated with HNH's historical acquisitions and a net increase from core growth of approximately $4,000, which were partially offset by a reduction of approximately $3,000 in gross profit due to lower average precious metal prices. The acquisitions of Wolverine Joining and PAM, net of sales volume transferred to or from the acquired business units as part of HNH's integration activities, provided incremental gross profit of approximately $1,200 and $2,800, respectively, for the year ended December 31, 2014. Higher sales volume from the Building Materials and Joining Materials groups led to the increase in gross profit from our core business, which was partially offset by unfavorable production variances, leading to a decline in gross profit margin, in the Tubing group due to lower sales volume.

SG&A expenses decreased by $1,526, or 1.3%, in 2014, compared to 2013. The lower SG&A expense in 2014 was driven by a decrease of approximately $3,400 from HNH's core business in 2014, primarily due to the recording of insurance

24


reimbursements totaling $3,100, as compared to similar reimbursements of $1,100 in 2013, as well as lower benefit costs and reduced business development expenses, which were partially offset by approximately $3,100 in incremental expenses from the Wolverine Joining and PAM acquisitions.

In the fourth quarter of 2014, non-cash asset impairment charge of approximately $700 was recorded related to certain equipment owned by the Company's Joining Materials group located in Toronto, Canada, which will either be sold or scrapped as part of HNH's continued integration activities associated with the Wolverine Joining acquisition. In addition, HNH recorded an asset impairment charge of approximately $600 associated with certain unused, real property owned by one of HNH's businesses located in Atlanta, Georgia in the fourth quarter of 2014.

Interest expense decreased by $1,049, or 12.2%, in 2014, compared to 2013. Interest expense for 2013 included a loss associated with HNH's redemption of its 10% subordinated secured notes due 2017 ("Subordinated Notes"), including the redemption premium and the write-off of remaining deferred finance costs and unamortized debt discounts. HNH's average interest rate was also lower for 2014 principally due to HNH's redemption of the Subordinated Notes and a decrease in the applicable interest rate margin associated with HNH's new senior credit facility, but was offset by increased average borrowing levels in the second half of 2014.

Derivative activity income was $1,307 in 2014 and $1,195 in 2013. The income in 2014 was attributable to HNH's commodity contracts, driven by a 19.9% average silver price decrease during the year. Of the income in 2013, approximately $1,988 was attributable to precious metal contracts driven by a 23.7% average silver price decrease during the year, partially offset by a loss of $793 on the embedded derivative features of HNH's Subordinated Notes and related warrants.

Energy Segment

The results of SPLP's Energy segment consists of its consolidated subsidiary Steel Excel. Steel Excel provides drilling and production services to the oil and gas industry. Through its wholly-owned subsidiary Steel Sports Inc., Steel Excel's sports business is a social impact organization that strives to provide a first-class youth sports experience emphasizing positive experiences and instilling the core values of discipline, teamwork, safety, respect, and integrity. SXCL also makes significant non-controlling investments in entities in industries related to its businesses as well as entities in other unrelated industries and continues to identify business acquisition opportunities in both the Energy and Sports industries as well as in other unrelated industries. The operations of Steel Sports are not considered material to SPLP and are included in our Energy segment. The following presents a summary of the Energy segment operating results:
 
Year Ended December 31,
 
2015
 
2014
 
2013
Net revenues
$
132,620

 
$
210,148

 
$
120,029

Cost of sales
105,007

 
151,063

 
84,197

Gross profit
27,613

 
59,085

 
35,832

Selling, general and administrative expenses
39,674

 
41,658

 
27,591

Goodwill impairment
19,571

 
41,450

 

Interest expense
2,455

 
3,177

 
1,725

Asset impairment charges
59,781

 

 

Other income, net
(14,858
)
 
(7,016
)
 
(6,988
)
Net (loss) income from continuing operations before income taxes
(79,010
)
 
(20,184
)
 
13,504

Loss from associated companies (a)
(16,102
)
 
(6,070
)
 
(863
)
Total segment (loss) income
$
(95,112
)
 
$
(26,254
)
 
$
12,641

(a) Amount in 2015 represents Steel Excel's investments in Aviat, API Tech, a sports business and iGo.
Amount in 2014 represents Steel Excel's investments in API Tech, a sports business and iGo.
Amount in 2013 represents Steel Excel's investments in a sports business and iGo.
    
The continuing weakness in the oil services industry had an adverse effect on the results of operations of the Company's Energy segment in 2015. The decline in energy prices, particularly the significant decline in oil prices, has resulted in the Energy segment's customers, the oil and gas exploration and production companies (the "E&P Companies"), cutting back on their capital expenditures, which has resulted in reduced drilling activity. In addition, the E&P Companies have sought price concessions from their service providers to offset their drop in revenue. Such actions on the part of the E&P Companies had an adverse effect on the operations of the Energy segment in 2015 and will further adversely impact its operations in 2016. The Energy segment has experienced a decline in rig utilization in all of its operations and prices for its services have declined. Steel Excel has taken certain actions and instituted cost-reduction measures in an effort to mitigate these adverse effects. The Energy segment's results of operations going forward will be dependent on the price of oil in the future, the resulting well production and drilling rig count in the basins in which it operates, and Steel Excel's ability to return to the pricing and service levels of the past as oil prices

25


increase. The drilling rig count in North America has declined significantly, which has directly impacted the segment's rig utilization, and the pricing for the segment's services has declined. The North American drilling rig count has continued to decline in early 2016, and as a result, the Company expects the Energy segment to experience a further decline in operating income in 2016 as compared to the 2015 results. As a result of the adverse effects the decline in energy prices had on the oil services industry and the projected future results of operations of the Energy segment, the Company recognized goodwill impairment charges of $19,571 and $41,450 in the fourth quarters of 2015 and 2014, respectively. After the impairment charge, the carrying value of the goodwill in the Energy segment was $0 at December 31, 2015.

Comparison of the Years ended December 31, 2015 and 2014
    
In 2015, net revenues decreased $77,528, or 36.9%, when compared to 2014. This was due to a decrease in the energy businesses of $80,200 primarily from the decline in rig utilization and the decline in prices that resulted from the adverse effects the decline in energy prices had on the oil services industry. Net revenues in the sports businesses increased by $2,700 from an increase in revenues from UK Elite primarily as a result of operating the businesses acquired during 2014 for the full year in 2015 and an increase in revenue at another sports business.

Gross profit in 2015, decreased by $31,472, or 53.3%, as compared to 2014, and as a percentage of revenue declined to 20.8% from 28.1%. Gross profit from energy businesses decreased by $31,200 and as a percentage of revenue declined to 16.5% in 2015 from 25.9% in 2014. Gross profit in the energy businesses decreased as a result of the decline in revenues. Gross profit in the sports businesses in 2015 decreased by $300 primarily as a result of a decrease in gross profit of $200 from UK Elite.

SG&A expenses in 2015 decreased by $1,984, as compared to 2014. SG&A expenses in the energy business decreased by $2,300, primarily from cost reduction initiatives and the receipt of a purchase price adjustment of $500 related to a 2013 acquisition. SG&A expenses also decreased $300 from corporate and other business activities. Such decreases were partially offset by SG&A expenses in the sports business that increased by $900 primarily from UK Elite as a result of the businesses acquired during the 2014 period and additional segment management costs.
    
Goodwill impairment charges of $19,571 and $41,450 were recorded in the fourth quarter of 2015 and 2014, respectively, as a result of the adverse effects the decline in energy prices had on the oil services industry and the projected future results of operations of the Energy segment.
    
Interest expense of $2,455 in 2015 decreased by $722, as compared to 2014, primarily as a result of the repayment of long term debt.
    
Steel Excel incurred impairment charges of $59,781 related to its marketable securities during 2015. The impairment charge resulted from Steel Excel's determination that certain unrealized losses in available-for-sale-securities represented other-than-temporary impairments as of December 31, 2015.
    
Other income, net of $14,858 in 2015 primarily represented a realized gain on a non-monetary exchange of $9,300, investment income of $4,700 and realized gains on marketable securities of $5,200, partially offset by a loss of $2,800 recognized upon initially accounting for an investment under the equity method of accounting at fair value, a foreign exchange loss of $700, and a loss of $500 recognized on financial instrument obligations.

Comparison of the Years ended December 31, 2014 and 2013
    
In 2014, net revenues increased $90,119, or 75.1%, when compared to 2013. The increase was primarily due to $75,500 in revenues from the acquisition of the assets of Black Hawk Inc., which was acquired in December 2013, and an increase in revenues of $6,500 in other energy operations due primarily to an increase in rig utilization for its snubbing services and an increase in revenues from its flow back services related to new equipment purchased in 2014. Net revenues from Steel Excel's sports businesses increased by $8,100 primarily as a result of $6,800 in revenues from UK Elite, which was acquired in June 2013, and an increase in revenues of $1,100 from baseball operations.
    
Gross profit in 2014, increased by $24,393, or 68.1%, as compared to 2013, and as a percentage of revenue declined slightly to 28.7% from 29.9%. Gross profit from Steel Excel's energy businesses increased by $21,100, and as a percentage of revenue declined slightly to 26.5% in 2014 from 27.0% in 2013. The gross profit increase was as a result of $22,400 in gross profit from the acquisition of the assets of Black Hawk Inc., which was acquired in December 2013, partially offset by a decrease in gross profit of $1,200 in Steel Excel's other energy operations. Gross profit from Steel Excel's sports businesses in

26


the 2014 period increased by $3,400 primarily as a result of $2,700 in gross profit from UK Elite and an increase in gross profit of $600 from baseball operations.

SG&A expenses in 2014 increased by $15,207, as compared to 2013. SG&A expenses in Steel Excel's energy businesses increased by $3,100 as a result of $3,000 of costs incurred at Black Hawk Inc. in the 2014 period, whose assets were acquired in December 2013. SG&A expenses in Steel Excel's sports businesses increased by $3,800 primarily as a result of costs incurred at UK Elite, including costs associated with operating the businesses acquired in the current period. Other SG&A expenses increased by $6,100 primarily as a result of increased costs incurred for services provided by affiliates of Steel Excel and an increase in stock-based compensation expense in 2014.
    
A goodwill impairment charge of $41,450 was recorded in the fourth quarter of 2014 as a result of the adverse effects the decline in energy prices had on the oil services industry and the projected future results of operations of the Energy segment.
    
Interest expense of $3,177 in 2014 increased by $1,452, as compared to 2013, primarily as a result of the borrowings under Steel Excel's Amended Credit Agreement being outstanding for the full year in 2014.
    
Other income, net of $7,016 in 2014 primarily represented investment income of $6,600 and realized gains on the sale of marketable securities of $3,800, partially offset by a loss of $1,800 recognized on financial instrument obligations, a loss of $600 recognized upon initially accounting for an investment under the equity method of accounting at fair value, and a foreign exchange loss of $1,100.

Financial Services Segment

The Financial Services segment, for financial reporting purposes, consists of our consolidated subsidiary WFHC, which conducted its financial operations in 2015 through its wholly owned subsidiary, WebBank, and WF Asset Corp. WebBank originates and funds consumer and small business loans through lending programs with Marketing Partners, where the Marketing Partners provide marketing and servicing for the loans and subsequently purchases the loans (or interests in the loans) that are originated by WebBank. WebBank also has private-label financing programs that are branded for a specific retailer, manufacturer, dealer channel, or proprietary network and bank card programs. WebBank also participates in syndicated commercial and industrial, as well as asset based credit facilities and asset based securitizations through relationships with other financial institutions. WF Asset Corp. owns a portfolio of investments. WebBank’s deposits are insured by the FDIC up to the current limits, and the bank is examined and regulated by the FDIC and the UDFI. The following presents a summary of the Financial Services segment operating results as reported in our consolidated financial statements:
 
Year Ended December 31,
 
2015
 
2014
 
2013
Revenue:
 
 
 
 
 
Interest income (including fees)
$
60,468

 
$
24,640

 
$
18,898

Non-interest income
8,962

 
12,007

 
9,287

 
69,430

 
36,647

 
28,185

Costs and expenses:
 
 
 
 
 
Selling, general and administrative expenses
21,716

 
11,808

 
9,933

Interest expense
1,450

 
638

 
496

Recovery of loan losses
(50
)
 
(50
)
 
(80
)
Asset impairment charge

 

 
168

 
23,116

 
12,396

 
10,517

Total segment income
$
46,314

 
$
24,251

 
$
17,668

Interest Income

Interest income increased by $35,828, or 145.4%, in 2015, compared to 2014 due primarily to the addition of new lending programs, increased volume in the existing lending programs, and the restructuring of programs which both increased revenue and changed the classification of the revenue from noninterest income to interest income. Interest income increased by $5,742, or 30.4%, in 2014, compared to 2013 due primarily to the addition of new lending programs and to increased volume in the existing lending programs. For a description and additional details on net interest income see the "Net Interest Income, Margin and Interest Rate Spreads" section below.


27


Noninterest Income

Noninterest income decreased $3,045, or 25.4% in 2015, compared to 2014, due primarily to the restructuring of a program which changed the classification of the revenue from noninterest income to interest income. Noninterest income increased $2,720, or 29.3% in 2014, compared to 2013, due primarily to the addition of new lending programs and increased volume in the existing lending programs.

Selling General and Administrative Expenses

The increase in SG&A expenses of $9,908, or 83.9%, in 2015, compared to 2014, was due primarily to higher personnel expense in 2015 due to growth in the business. The increase in SG&A expenses of $1,875, or 18.9%, in 2014, compared to 2013, was due primarily to higher personnel expense in 2014 due to growth in the business.
Interest Expense

Interest expense represents interest accrued on WebBank depositor accounts. Interest expense increased $812, or 127.3%, in 2015, compared to 2014, primarily due to a larger deposit balance to support loan growth and in increase in interest rates. Interest expense increased $142, or 28.6%, in 2014, compared to 2013, primarily due to a larger deposit balance to support loan growth.

Recovery of Loan Losses

At December 31, 2015, WebBank had an estimated $1,599 of impaired loans and an allowance for loan losses of $630. At December 31, 2014 WebBank had an estimated $457 of impaired loans, of which $4 was guaranteed by USDA or SBA, and an allowance for loan losses of $557. 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 reduced its commercial loan balance in 2015 and was able to recover previously charged off loans and workout or sell nonperforming loans resulting in net benefit in the provision for loan losses of $50, $50 and $80 in 2015, 2014 and 2013 respectively.

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.


28


 
Year Ended December 31,
 
2015
 
2014
 
2013
 
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
$
197,467

$
60,277

30.5
%
 
$
94,484

$
24,433

25.9
%
 
$
62,110

$
18,704

30.1
%
Held-to-Maturity Securities
999

30

3.0
%
 
70


%
 
58


0.1
%
Available for Sale Investments
574

12

2.1
%
 
566

14

2.5
%
 
577

13

2.3
%
Fed Funds Sold
589

1

0.2
%
 
637

1

0.1
%
 
692

1

0.1
%
Interest Bearing Deposits in other Banks
55,076

148

0.3
%
 
87,820

192

0.2
%
 
73,345

180

0.3
%
Total Interest-Earning Assets
254,705

60,468

23.7
%
 
183,577

24,640

13.4
%
 
136,782

18,898

11.4
%
Non Interest-Earning Assets
2,978

 
 
 
1,811

 
 
 
1,286

 
 
Total Assets
$
257,683

 
 
 
$
185,388

 
 
 
$
138,068

 
 
Interest-Bearing Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Money Market Accounts
$
68,861

82

0.1
%
 
$
58,232

87

0.2
%
 
$
29,312

62

0.2
%
Time Deposits
133,592

1,372

1.0
%
 
88,344

551

0.6
%
 
72,754

434

0.6
%
Other Borrowings



 



 



Total Interest-Bearing Liabilities
202,453

1,454

0.7
%
 
146,576

638

0.4
%
 
102,066

496

1.3
%
Other Non Interest-Bearing Liabilities
6,339

 
 
 
3,923

 
 
 
3,347

 
 
Total Liabilities
208,792

 
 
 
150,499

 
 
 
105,413

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shareholder's Equity
48,891

 
 
 
34,889

 
 
 
32,655

 
 
Total Liabilities & Shareholder's Equity
$
257,683

 
 
 
$
185,388

 
 
 
$
138,068

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Interest Income
 
$
59,014

 
 
 
$
24,002

 
 
 
$
18,402

 
Spread on Average Interest-Bearing Funds
 
 
23.0
%
 
 
 
13.0
%
 
 
 
13.3
%
Net Interest Margin
 
 
23.2
%
 
 
 
13.1
%
 
 
 
13.5
%
Return on Assets
 
 
12.2
%
 
 
 
8.4
%
 
 
 
8.2
%
Return on Equity
 
 
64.3
%
 
 
 
44.5
%
 
 
 
29.5
%
Equity to Assets
 
 
19.0
%
 
 
 
18.8
%
 
 
 
23.2
%

WebBank has several lending arrangements with companies where it originates private label credit card and other loans for consumers and small businesses. These loans are classified as held for sale and are typically sold after origination. As part of these arrangements WebBank earns origination fees that are recorded in interest income, and which increase WebBank's yield on loans. 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,
 
2015 vs 2014
 
2014 vs 2013
 
2013 vs. 2012
 
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
$
30,752

$
5,089

$
35,841

 
$
7,860

$
(2,130
)
$
5,730

 
$
4,572

$
(1,691
)
$
2,881

Held-to-Maturity Securities
2

28

30

 



 



Available For Sale Investments

(3
)
(3
)
 

1

1

 
5

(8
)
(3
)
Fed Funds Sold



 



 
(1
)
1


Interest Bearing Deposits in other Banks
(110
)
65

(45
)
 
26

(15
)
11

 
(24
)
(5
)
(29
)
Total Interest-Earning Assets
30,644

5,179

35,823

 
7,886

(2,144
)
5,742

 
4,552

(1,703
)
2,849

 
 
 
 
 
 
 
 
 
 
 
 
Interest-Bearing Liabilities:
 
 


 
 
 
 
 
 
 
 
Money Market Accounts
57

(61
)
(4
)
 
36

(11
)
25

 
10

(5
)
5

Time Deposits
363

457

820

 
97

21

118

 
27

(493
)
(466
)
Total Interest-Bearing Liabilities
420

396

816

 
133

10

143

 
37

(498
)
(461
)
Net Effect on Net Interest Income
$
30,224

$
4,783

$
35,007

 
$
7,753

$
(2,154
)
$
5,599

 
$
4,515

$
(1,205
)
$
3,310


29


Balance Sheet Analysis

Loan Portfolio

As of December 31, 2015, net loans accounted for 69% of WebBank's total assets compared to 52% at the end of 2014. The following table presents WebBank's loans outstanding by type of loan as of December 31, 2015 and the five most recent year-ends.
 
As of December 31,
 
2015
 
2014
 
2013
 
2012
 
2011
 
Amount
%
 
Amount
%
 
Amount
%
 
Amount
%
 
Amount
%
Real Estate Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial - Owner Occupied
$
1,542

0.7
%
 
$
1,650

1.4
%
 
$
4,671

6.1
%
 
$
6,724

9.8
%
 
$
8,340

18.8
%
Commercial - Other
281

0.1
%
 
264

0.2
%
 
242

0.3
%
 
318

0.5
%
 
300

0.7
%
Total Real Estate Loans
1,823

0.8
%
 
1,914

1.6
%
 
4,913

6.4
%
 
7,042

10.3
%
 
8,640

19.5
%
Commercial and Industrial:
66,253

29.1
%
 
75,706

63.9
%
 
46,702

60.9
%
 
9,832

14.4
%
 
4,344

9.8
%
Total Commercial and Industrial
66,253

29.1
%
 
75,706

63.9
%
 
46,702

60.9
%
 
9,832

14.4
%
 
4,344

9.8
%
Loans Held for Sale:
159,592

70.1
%
 
40,886

34.5
%
 
25,125

32.7
%
 
51,505

75.3
%
 
31,363

70.7
%
Total Loans
227,668

100.0
%
 
118,506

100.0
%
 
76,740

100.0
%
 
68,379

100
%
 
44,347

100.0
%
Less:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred Fees and Discounts
(15
)
 
 
(20
)
 
 

 
 
21

 
 
(56
)
 
Allowance for Loan Losses
(630
)
 
 
(557
)
 
 
(424
)
 
 
(285
)
 
 
(529
)
 
Total Loans Receivable, Net
$
227,023

 
 
$
117,929

 
 
$
76,316

 
 
$
68,115

 
 
$
43,762

 
    
The following table includes a maturity profile for the loans that were outstanding at December 31, 2015, substantially all of of the Real Estate Loans and Commercial & Industrial Loans have floating or adjustable interest rates:
Due During Years Ending December 31,
Real Estate
 
Commercial & Industrial
 
Loans Held for Sale
2016
$
97

 
$
5,943

 
$
159,592

2017-2021
678

 
7,945

 

2022 and following
1,048

 
52,365

 

Total
$
1,823

 
$
66,253

 
$
159,592

              
Nonperforming Lending Related Asset

Total nonaccrual loans at December 31, 2015 decreased by $47 from December 31, 2014. The decrease included $33 for commercial owner occupied loans and $14 for commercial and industrial loans.
 
As of December 31,
 
2015
 
2014
 
2013
 
2012
 
2011
Non-Accruing Loans:
 
 
 
 
 
 
 
 
 
Commercial Real Estate - Owner Occupied
$
341

 
$
374

 
$
403

 
$
147

 
$
914

Commercial and Industrial
2

 
16

 
109

 
94

 
97

Total
343

 
390

 
512

 
241

 
1,011

Accruing Loans Delinquent:
 
 
 
 
 
 
 
 
 
90 Days or More

 
52

 

 
2,581

 

Total

 
52

 

 
2,581

 

Restructured Loans:
 
 
 
 
 
 
 
 
 
Commercial Real Estate - Owner Occupied

 

 

 

 
1

Total

 

 

 

 
1

Foreclosed Assets:
 
 
 
 
 
 
 
 
 
Commercial Real Estate - Owner Occupied
11

 
111

 
149

 
68

 
333

Total
11

 
111

 
149

 
68

 
333

Total Non-Performing Assets
$
354

 
$
553

 
$
661

 
$
2,890

 
$
1,345

Total as a Percentage of Total Assets
0.1
%
 
0.2
%
 
0.4
%
 
2.1
%
 
1.1
%

Summary of Loan Loss Experience

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

30


 
As of December 31,
 
2015
 
2014
 
2013
 
2012
 
2011
Balance at Beginning of Period
$
557

 
$
424

 
$
285

 
$
529

 
$
1,541

Charge Offs:
 
 
 
 
 
 
 
 
 
Commercial Real Estate - Construction

 

 

 

 
(440
)
Commercial Real Estate - Owner Occupied

 

 

 
(1
)
 
(422
)
Commercial and Industrial

 
(3
)
 
(64
)
 

 
(727
)
Total Charge Offs

 
(3
)
 
(64
)
 
(1
)
 
(1,589
)
Recoveries:
 
 
 
 
 
 
 
 
 
Commercial Real Estate - Construction

 

 

 

 
466

Commercial Real Estate - Owner Occupied
25

 
65

 
23

 
48

 
27

Commercial Real Estate - Other
44

 
40

 
44

 
44

 
44

Commercial and Industrial
54

 
81

 
216

 
80

 
32

Total Recoveries
123

 
186

 
283

 
172

 
569

Net Recoveries (Charge Offs)
123

 
183

 
219

 
171

 
(1,020
)
Additions Charged to Operations
(50
)
 
(50
)
 
(80
)
 
(415
)
 
8

Balance at End of Period
$
630

 
$
557

 
$
424

 
$
285

 
$
529

Ratio of Net Charge Offs During the Period to Average Loans Outstanding During the Period
0.1
%
 
(0.2
)%
 
(0.4
)%
 
(0.4
)%
 
2.6
%

The distribution of WebBank's allowance for losses on loans at the dates indicated is summarized as follows:
 
As of December 31,
 
2015
 
2014
 
2013
 
2012
 
2011
 
Amount
% of Loans in Each Category of Total Loans
 
Amount
% of Loans in Each Category of Total Loans
 
Amount
% of Loans in Each Category of Total Loans
 
Amount
% of Loans in Each Category of Total Loans
 
Amount
% of Loans in Each Category of Total Loans
Commercial Real Estate - Owner Occupied
$
40

0.7
%
 
$
64

1.4
%
 
$
77

6.1
%
 
$
187

9.8
%
 
$
346

18.8
%
Commercial Real Estate - Other
8

0.1
%
 
12

0.2
%
 
28

0.3
%
 
34

0.5
%
 
47

0.7
%
Commercial and Industrial
582

29.1
%
 
481

63.9
%
 
319

60.9
%
 
64

14.4
%
 
136

9.8
%
Loans Held for Sale

70.1
%
 

34.5
%
 

32.7
%
 

75.3
%
 

70.7
%
Total Loans
$
630

100
%
 
$
557

100
%
 
$
424

100
%
 
$
285

100
%
 
$
529

100
%


Corporate and Other

The Corporate and Other segment consists of several consolidated subsidiaries, including DGT and the BNS Liquidating Trust, as well as various investments and cash and cash equivalents. Corporate revenues primarily consist of investment and other income, investment gains and losses and rental income. See Note 5 - "Investments" to the SPLP consolidated financial statements included elsewhere in this Form 10-K for additional information on the equity method investments and other investments classified within this segment. SPH services provides legal, tax, accounting, treasury, consulting, auditing, administration, compliance, environmental health and safety, human resources, marketing, investor relations and similar services, to other affiliated companies.

31


The table below presents a summary of Corporate and Other segment operating results as reported in our consolidated financial statements:
 
Year Ended December 31,
Revenue:
2015
 
2014
 
2013
Investment and other income
$
711

 
$
1,346

 
$
665

Net investment gains
32,267

 
921

 
1,071

 
32,978

 
2,267