Steel Partners(SPLP) - 2022 Q4 - Annual Report

Economic Risks and Financial Condition - The company faces significant risks related to economic downturns, inflation, and supply chain disruptions, which could materially affect its financial condition and results of operations[18]. - Rising interest rates have increased borrowing costs, potentially impacting the company's ability to raise funds and affecting its financial condition[66]. - The company is subject to substantial cash funding requirements for defined benefit pension plans, which could adversely impact its financial condition due to market performance and interest rate changes[68]. - The company’s investment portfolio may suffer losses due to market volatility, which could adversely affect its financial results[18]. - Future cash flows may not be sufficient to meet obligations under the senior credit facility, potentially affecting liquidity and financial condition[87]. - The company’s investment portfolio may sustain losses due to adverse economic conditions, impacting results of operations and liquidity[94]. Regulatory and Compliance Risks - Compliance with environmental, health, and safety regulations may require substantial costs, impacting the company's operations and financial results[69]. - The company is exposed to risks associated with climate change legislation, which could increase operational costs and reduce demand for services in its Energy segment[74]. - The company faces increased regulatory compliance burdens due to extensive regulations, including the Dodd-Frank Act, which impacts all financial institutions[82]. - The company’s ability to comply with extensive regulations may impact its liquidity and financial condition, particularly through its subsidiary WebBank[18]. - The company may incur substantial additional compliance costs if new climate-related regulations are adopted[76]. - Regulatory scrutiny may increase due to enforcement actions against marketing partners, impacting the company's operations[85]. - The company may experience significant legal and investigatory fees due to compliance failures with extensive regulations[80]. - Compliance with evolving data protection regulations, such as the GDPR, may increase operational costs and legal liabilities[110]. Operational and Market Risks - The company is at risk of significant disruptions from global trade issues and changes in trade policies, which could impact its operations and financial performance[18]. - Global trade issues, including tariffs and trade sanctions, may increase operational costs and disrupt supply chains, negatively impacting financial results[100]. - Cybersecurity threats pose a risk to the company's technology systems, potentially leading to operational disruptions and financial losses[104]. - Labor disputes and unionization efforts could disrupt operations and increase labor costs, adversely affecting business performance[111]. - The COVID-19 pandemic has had adverse effects on business operations, including reduced customer demand and supply chain disruptions[125]. - The ongoing conflict in Ukraine has caused volatility in crude oil and natural gas prices, potentially impacting the global economy and the company's business[126]. Strategic and Management Risks - The company’s acquisition strategy entails risks, including management diversion and increased costs, which could negatively affect profitability[89]. - The company has identified material weaknesses in internal controls over financial reporting, which were addressed through a remediation plan[124]. - Loss of essential employees could negatively impact business operations and financial performance[154]. - High demand for skilled employees may lead to challenges in attracting and retaining necessary personnel, affecting operational efficiency[155]. Financial Structure and Taxation Risks - The Partnership Agreement limits unitholder recourse against the General Partner and Board of Directors, potentially affecting shareholder rights[127]. - The Management Fee is set at an annual rate of 1.5% of total partners' capital, which may significantly impact the company's results of operations depending on business performance and capital changes[134]. - The company may issue additional common or preferred units without unitholder consent, potentially leading to a decline in market prices due to perceived dilution risks[137]. - Changes in U.S. tax laws, such as the Tax Cuts and Jobs Act, could adversely affect the company's business, including a reduction in the corporate income tax rate from 35% to 21%[144]. - The company operates as a partnership for U.S. federal income tax purposes, and any change in this status could lead to significant reductions in profitability and cash flow available for distribution[146]. - If taxed as a corporation, the company would face a corporate income tax rate of 21%, which would substantially reduce cash available for unitholders[147]. - The IRS may challenge the company's tax treatment, leading to potential reallocations of income, gain, loss, and deduction that could adversely affect unitholders[149]. - Tax-exempt entities may face U.S. federal income taxation on unrelated business taxable income (UBTI) from common units[150]. - Non-U.S. persons may be subject to withholding taxes at the highest applicable effective tax rate on distributions if engaged in a U.S. trade or business[151]. - Subsidiaries have generated significant net operating losses (NOLs) that could provide tax savings if fully utilized in future periods[152]. - Valuation allowances against NOLs may limit the ability of subsidiaries to utilize these tax benefits, potentially increasing future tax payments[153]. WebBank Specific Risks - Challenges to WebBank's lending practices could impact its business operations and compliance with interest rate regulations[113]. - WebBank's two highest grossing contractual lending programs accounted for approximately 18% of total net revenue in 2022, up from 7% in 2021[118]. - WebBank is required to maintain a Common Equity Tier 1 ratio of 4.5%, a Tier 1 capital ratio of 6%, and a total capital ratio of 8% as per FDIC regulations[116]. - The Capital Conservation Buffer for WebBank is set at 2.5% above the new regulatory minimum capital requirements, impacting its ability to make distributions if not maintained[116]. - WebBank's lending programs are heavily reliant on Marketing Partners, and limited capital availability for these partners has resulted in decreased loan volume[118]. - The Paycheck Protection Program (PPP) included a $349 million loan program, exposing WebBank to litigation risks regarding its processing of loans[119]. - WebBank faces credit risk on PPP loans if the SBA determines deficiencies in loan origination or servicing, which could lead to loss recovery claims[121].