Steel Partners(US:SPLP)2022-03-10 22:30Financial Risks - The company faces significant volatility in crude oil prices, which could materially affect its financial condition and results of operations[18]. - The company’s investment portfolio may suffer losses due to rising interest rates and market volatility[18]. - The company’s ability to meet obligations under its senior credit facility may be impacted by future cash flows and credit market volatility[18]. - Future cash flows may not be sufficient to meet obligations under the senior credit facility, which could materially affect the company's financial condition[85]. - Rising interest rates could negatively impact the company's investments and increase borrowing costs, affecting financial results[94]. - The company may experience losses in its investment portfolio, which could adversely affect its financial condition and liquidity[92]. - Economic downturns in sectors such as transportation and oil and gas exploration could materially harm the company's revenues and profitability[122]. Regulatory Compliance - The company is subject to extensive regulations, including environmental, health, and safety laws, which may require substantial compliance costs[69]. - The company may incur significant costs due to compliance with extensive regulations, including banking regulations[76]. - The company is subject to various regulatory compliance burdens, increasing its regulatory risk[81]. - The company may face increased regulatory scrutiny and potential enforcement actions due to violations by its Marketing Partners, which could adversely affect its business[83]. - Compliance with various international laws and regulations, including data privacy and labor relations, poses a risk of inadvertent breaches that could lead to fines and penalties[100]. - Regulatory compliance related to personal data protection, such as the GDPR, may increase operational costs and liability risks[110]. - WebBank's lending programs are subject to extensive federal and state regulations, which could impact liquidity and financial condition if not complied with[79]. - WebBank's lending practices face legal challenges that could affect its business model and compliance with state and federal regulations[115]. Operational Challenges - The company is exposed to risks related to climate change legislation, which could increase costs and reduce demand for its services in the Energy segment[73]. - The company maintains multiple sources of supply for major raw materials to mitigate dependence on a few suppliers, but higher commodity prices could disrupt supply and increase production costs[67]. - The company could face increased liability and costs due to labor disputes or unionization of its workforce and suppliers[18]. - Labor disruptions due to federal vaccine mandates could adversely affect business operations, especially in areas with low vaccination rates among employees[101]. - Labor disputes and potential unionization could result in work stoppages, impacting the company's ability to deliver products on time[112]. - The company experienced reduced customer demand for its products, which led to disruptions in manufacturing operations in 2020, although all facilities were operational at normal capacities by the end of 2021[133]. Financial Structure and Capital - As of December 31, 2021, the company had $321,000 available under its senior credit facility and $269,850 of outstanding indebtedness under this credit facility[85]. - The company may need to seek additional financing if cash needs exceed expectations or if market conditions deteriorate[86]. - The company may be required to infuse additional capital into WebBank if it fails to meet capital requirements set by regulatory bodies[116]. - SPLP could be required to infuse additional capital into WebBank if it fails to meet its capital requirements, potentially affecting SPLP's ability to meet other obligations[118]. - WebBank's minimum capital requirements include a 4.5% Common Equity Tier 1 ratio and a total capital ratio of 8%[117]. Management and Governance - The company has identified material weaknesses in its internal control over financial reporting, which could result in material misstatements in financial statements[124]. - The Management Fee is set at an annual rate of 1.5% of total partners' capital, which could significantly impact the Company's results of operations depending on performance and capital changes[138]. - The Partnership Agreement limits the voting rights of unitholders who acquire beneficial ownership of 10% or more of the common units without prior approval[132]. - The Company may issue additional common or preferred units without unitholder consent, potentially causing a decline in market prices due to perceived dilution risks[141]. - Transfer restrictions in the Company's Partnership Agreement may hinder the development of an active market for its common and preferred units, set to expire on February 7, 2023[142]. Taxation and Financial Implications - Changes in tax laws, including the U.S. Tax Cuts and Jobs Act, could adversely affect the Company's business operations and profitability[145]. - The Company operates under complex provisions of U.S. federal income tax law, which may lead to material adverse impacts on common unitholders due to potential modifications in the Partnership Agreement[149]. - If the Qualifying Income Exception is not available, the Company would be taxed as a corporation, significantly reducing profitability and affecting distributions to common unitholders[148]. - Tax-exempt entities may face U.S. federal income taxation on unrelated business taxable income (UBTI) from common units[151]. - Subsidiaries may not fully utilize their net operating losses (NOLs), potentially leading to increased cash tax payments in future periods[152]. - Valuation allowances are maintained against NOLs due to uncertainty in generating sufficient taxable income[153]. Workforce and Human Resources - Loss of essential employees could significantly negatively impact the company's business and financial condition[154]. - The company relies on a skilled workforce, which is in high demand, affecting its ability to operate efficiently[155]. - High employee turnover rates or widespread dissatisfaction could adversely affect the company's financial performance[155]. Cybersecurity - The company is subject to evolving cybersecurity threats, which could lead to operational disruptions and financial losses if systems are compromised[106]. - The company has implemented various cybersecurity measures, but the unpredictability of cyber threats remains a concern for its operational integrity[109]. COVID-19 Impact - The COVID-19 pandemic had significant adverse impacts on the company's consolidated financial results for the fiscal year ended December 31, 2020[128]. - The company continues to monitor and comply with COVID-19 guidelines, but has not experienced significant disruptions to its businesses as of the fiscal year ended December 31, 2021[127]. - The severity of the impact of the COVID-19 pandemic on the company's business in 2022 and beyond remains uncertain and depends on various factors[130].