INVESTMENTS

A) Short-Term Investments

Marketable Securities

The Company's short-term investments primarily consist of its marketable securities portfolio held by its subsidiary, Steel Excel. These marketable securities as of June 30, 2015, and December 31, 2014, are classified as "available-for-sale" securities, with changes in fair value recognized in stockholders' equity as Other comprehensive income (loss), except for other-than-temporary impairments, which are reflected as a reduction of cost and charged to operations. The classification of marketable securities as a current asset is based on the intended holding period and realizability of the investment.

The Company's portfolio of marketable securities was as follows:



	June 30, 2015											December 31, 2014
	Cost			Gross Unrealized Gains		Gross Unrealized Losses			Fair value			Cost			Gross Unrealized Gains		Gross Unrealized Losses			Fair value
Available for sale securities
Short-term deposits	$	39,697		$	—	$	—		$	39,697		$	42,681		$	—	$	—		$	42,681
Mutual funds	11,835			4,526		—			16,361			17,030			4,262		(322		)	20,970
Equity securities	64,703			7,636		(2,499		)	69,840			103,761			7,821		(23,732		)	87,850
Corporate obligations	35,205			659		(1,566		)	34,298			32,486			592		(3,441		)	29,637
Total marketable securities	151,440			12,821		(4,065		)	160,196			195,958			12,675		(27,495		)	181,138
Amounts classified as cash equivalents	(39,697		)	—		—			(39,697		)	(42,681		)	—		—			(42,681		)
Amounts classified as marketable securities	$	111,743		$	12,821	$	(4,065	)	$	120,499		$	153,277		$	12,675	$	(27,495	)	$	138,457

Proceeds from sales of marketable securities were $26,804 and $55,200 in the three months ended June 30, 2015 and 2014, respectively, and were $49,902 and $95,700 in the six months ended June 30, 2015 and 2014, respectively. The Company determines gains and losses from sales of marketable securities based on specific identification of the securities sold. Gross realized gains and losses from sales of marketable securities, all of which are reported as a component of Other income, net in the Consolidated Statements of Operations, were as follows:



	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Gross realized gains	$	3,410		$	3,196		$	4,600		$	6,396
Gross realized losses	(418		)	(1,120		)	(793		)	(1,329		)
Realized gains, net	$	2,992		$	2,076		$	3,807		$	5,067

The fair value of marketable securities with unrealized losses at June 30, 2015, and the duration of time such losses had been unrealized were as follows:



	Less Than 12 Months					12 Months or Greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Corporate securities	$	18,790	$	(2,499	)	$	—	$	—		$	18,790	$	(2,499	)
Corporate obligations	8,507		(1,412		)	4,692		(154		)	13,199		(1,566		)
Total	$	27,297	$	(3,911	)	$	4,692	$	(154	)	$	31,989	$	(4,065	)

The fair value of marketable securities with unrealized losses at December 31, 2014, all of which had unrealized losses for periods of less than twelve months were as follows:



	Fair Value		Gross Unrealized Losses
Corporate securities	$	39,869	$	(23,732	)
Corporate obligations	13,530		(3,441		)
Mutual funds	4,873		(322		)
Total	$	58,272	$	(27,495	)

Gross unrealized losses primarily related to losses on corporate securities and corporate obligations, which primarily consist of investments in equity and debt securities of publicly-traded entities. Based on Steel Excel's evaluation of such securities, it determined that certain unrealized losses represented other-than-temporary impairments as of June 30, 2015. This determination was based on several factors, including adverse changes in the market conditions and economic environments in which the entities operate. Steel Excel recognized an impairment charge of approximately $22,700 for the three and six months ended June 30, 2015, equal to the cost basis of such securities in excess of their fair values. Steel Excel has determined that there was no indication of other-than-temporary impairments on its other investments with unrealized losses as of June 30, 2015. This determination was based on several factors, including the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the entity, and the intent and ability to hold the corporate securities for a period of time sufficient to allow for any anticipated recovery in market value.

The amortized cost and estimated fair value of available-for-sale debt securities and marketable securities with no contractual maturities as of June 30, 2015, by contractual maturity, were as follows:



	Cost		Estimated Fair Value
Mature in one year or less	$	—	$	—
Mature after one year through three years	—		—
Mature after three years	35,205		34,298
Total debt securities	35,205		34,298
Securities with no contractual maturities	116,235		125,898
	$	151,440	$	160,196

B) Long-Term Investments

The following table summarizes the Company's long-term investments as of June 30, 2015 and December 31, 2014. For those investments at fair value, the carrying amount of the investment equals its respective fair value.



					Investment Balance				Income (Loss) Recorded in Statement of Operations
									Three Months Ended June 30,						Six Months Ended June 30,
(A) AVAILABLE-FOR-SALE SECURITIES					June 30, 2015		December 31, 2014		2015			2014			2015			2014
Fair Value Changes Recorded in Accumulated Other Comprehensive Income:
Equity securities - U.S. (1)
Aerospace/Defense					$	86,170	$	76,512
Restaurants					—		35,637
Manufacturing					431		—
Other					569		572
					87,170		112,721
Fair Value Changes Recorded in Consolidated Statement of Operations:
API (1)					—		18,373		$	—		$	159		$	4,450		$	160
					87,170		131,094		$	—		$	159		$	4,450		$	160
(B) EQUITY METHOD INVESTMENTS
Investments in Associated Companies:	June 30, 2015		December 31, 2014
At Cost:	Ownership
CoSine	80.6	%	48.3	%	—		5,521		$	—		$	(80	)	$	(602	)	$	(206	)
Other (5)					6,805		5,705		(149		)	(665		)	(286		)	(2,098		)
At Fair Value:
ModusLink Global Solutions, Inc. ("MLNK") (1)	31.5	%	27.7	%	56,865		54,086		(5,779		)	(5,182		)	(4,053		)	(22,460		)
SL Industries, Inc. ("SLI") (1)	25.3	%	24.0	%	38,411		38,799		(4,119		)	4,915			(388		)	2,388
JPS Industries, Inc. ("JPS") (1)	38.7	%	38.7	%	43,835		38,406		3,660			(201		)	5,429			3,016
API Technologies Corp. ("API Tech") (1)	20.6	%	20.6	%	28,700		24,355		5,031			3,539			4,345			3,539
Aviat Networks, Inc. ("Aviat") (1)	12.9	%	—	%	10,134		—		563			—			(724		)	—
Other (2)	43.8	%	43.8	%	2,271		2,163		(27		)	(51		)	108			(162		)
					187,021		169,035		$	(820	)	$	2,275		$	3,829		$	(15,983	)
Other Investments at Fair Value - Related Party:
SPII Liquidating Trust - Series D ( Fox & Hound) (3)					—		—		$	—		$	(3	)	$	—		$	(3	)
SPII Liquidating Trust - Series G (SPCA) (2), (3)					—		6,811		(36		)	558			447			456
SPII Liquidating Trust - Series H (SPJSF) (2), (4)					—		2,812		(2		)	920			(86		)	1,020
					—		9,623		$	(38	)	$	1,475		$	361		$	1,473
(C) OTHER INVESTMENTS
ModusLink Warrants (2)					1,636		2,199		$	(527	)	$	(951	)	$	(564	)	$	(3,398	)

Total Long-Term Investments					$	275,827	$	311,951

(1) Level 1 investment. Equity securities totaling $87,170 and $112,721 were classified as Level 1 investments as of June 30, 2015 and December 31, 2014, respectively.

(2) Level 3 investment. For additional information related to the Company's Level 3 investments, see Note 5 - "Fair Value Measurements."

(3) Steel Partners China Access I L.P. Trust H was liquidated during the first quarter of 2015.

(4) Steel Partners Japan Strategic Fund, L.P. Trust G was liquidated during the second quarter of 2015.

(5) Represents Steel Excel's investments in a sports business and iGo, Inc. ("iGo") of 40.0% and 46.9%, respectively and a 50% investment in API Optix s.r.o ("API Optix"), a joint venture investment held by CoSine's API subsidiary.

The following table presents activity for the available-for-sale securities presented in the table above for the three and six months ended June 30, 2015 and 2014:



	Three Months Ended June 30,					Six Months Ended June 30,
	2015			2014		2015		2014
(A) AVAILABLE-FOR-SALE SECURITIES
Fair Value Changes Recorded in Accumulated Other Comprehensive (Loss) Income:
Proceeds from sales	$	—		$	468	$	—	$	468
Gross gains from sales	$	—		$	31	$	—	$	31
Gross losses from sales	—			—		—		—
Net investment gain	$	—		$	31	$	—	$	31
Change in net unrealized holding (losses) gains included in Accumulated other comprehensive (loss) income	$	(10,830	)	$	5,719	$	9,651	$	6,240
Reclassified out of Accumulated other comprehensive (loss) income :
Unrealized gains	$	7,185		$	86	$	29,663	$	86
Unrealized losses	—			—		—		—
Total	$	7,185		$	86	$	29,663	$	86

(A) AVAILABLE-FOR-SALE SECURITIES

Fair Value Changes Recorded in Accumulated Other Comprehensive (Loss) Income

For purposes of determining gross realized gains and losses, the cost of securities sold is based on specific identification. Gross unrealized gains and gross unrealized losses are reported in Accumulated other comprehensive (loss) income in the Company's Consolidated Balance Sheets. In January 2015 the Company contributed Nathan’s, one if its available -for-sale securities, to CoSine in exchange for additional CoSine equity (see Note 2 - "Acquisitions" for additional information). Also, in the first six months of 2015, Cosine sold all 445,456 shares of Nathan's for proceeds of approximately $33,202 and received a special dividend of approximately $5,500 which is included in Other income, net in the Consolidated Statement of Operations for the six months ended June 30, 2015. As a result, management determined there to be an other-than-temporary impairment in the stock price and recorded an impairment charge of approximately $5,500.

The cost basis and unrealized gains and losses related to our available-for-sale securities which are classified as long-term investments are as follows:



	June 30, 2015									December 31, 2014
	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Aerospace/Defense	$	11,675	$	74,495	$	—		$	86,170	$	11,675	$	64,837	$	—		$	76,512
Restaurants	—		—		—			—		5,974		29,663		—			35,637
Manufacturing	435		—		(4		)	431		—		—		—			—
Other	575		—		(6		)	569		575		—		(3		)	572
	$	12,685	$	74,495	$	(10	)	$	87,170	$	18,224	$	94,500	$	(3	)	$	112,721

Fair Value Changes Recorded in Consolidated Statement of Operations

Available-for-sale securities that are classified as long-term investments also included the Company's investment in API prior to its acquisition by CoSine. Changes in the fair value of this investment were reported in the Company's Consolidated Statements of Operations as Income (loss) from investments held at fair value. In January 2015, the Company contributed its investment in API to CoSine in exchange for additional CoSine equity. CoSine subsequently acquired all of the remaining outstanding shares of API which became a consolidated subsidiary in the second quarter of 2015 (see Note 2 - "Acquisitions" for additional information).

(B) EQUITY METHOD INVESTMENTS

Investments in Associated Companies

The Company’s investments in associated companies are accounted for under the equity method of accounting. The Company elected to record certain investments under the equity method at fair value beginning on the dates these investments became subject to the equity method. Associated companies are included in the Diversified Industrial, Energy or Corporate segments. Certain associated companies have a fiscal year end that differs from December 31. Additional information for each of SPLP's investments in associated companies that have impacted the Company's Consolidated Statements of Operations during 2015 or 2014 follows:

Equity Method


•	Prior to acquiring a controlling interest in CoSine in the first quarter of 2015, the Company's investment in CoSine was accounted for under the traditional equity method. For additional information on the acquisition of CoSine and its related tender offer for the shares of API, see Note 2 - "Acquisitions."

•

Steel Excel has an investment in a sports business and in iGo, a provider of accessories for mobile devices. These investments are being accounted for under the traditional equity method as associated companies. Based on the closing market price of iGo's publicly-traded shares, the value of the investment in iGo was approximately $2,870 and $3,400 at June 30, 2015 and December 31, 2014, respectively.


•	CoSine's API subsidiary has a 50% joint venture in API Optix with IQ Structures s.r.o. API Optix provides development and origination services in the field of micro and nano-scale surface relief technology. The investment, based in Prague, Czech Republic, is being accounted for under the traditional equity method as an associated company.

Equity Method, At Fair Value:

•

MLNK provides supply chain and logistics services to companies in consumer electronics, communications, computing, medical devices, software, luxury goods and retail. MLNK also issued the Company warrants to purchase an additional 2,000,000 shares at $5.00 per share. See the "Other Investments" section of this Note for a further description of these warrants and their valuation for financial statement reporting. These warrants will expire in March 2018.


•	SLI is a publicly traded company that designs, manufactures and markets power electronics, motion control, power protection and specialized communication equipment.


•	JPS is a U.S. manufacturer of extruded urethanes, ethylene vinyl acetates and mechanically formed glass and aramid substrate materials for specialty applications in a wide expanse of markets requiring highly engineered components.

On June 1, 2015, HNH announced that it entered into a definitive merger agreement to acquire the outstanding shares of JPS, other than the shares owned by the Company, for $11.00 per share. Following the consummation of the merger, pursuant to a separate agreement between HNH and the Company, the Company will exchange its shares of JPS common stock for shares of common stock of HNH, based on an $11.00 per share valuation for the JPS shares, so that HNH will own 100% of the shares of JPS. HNH completed its merger with JPS in July 2015 and the Company exchanged its shares of JPS for shares of HNH in August 2015 (see Note 21 - "Subsequent Events" for additional information).

•

In May 2014, Steel Excel increased its holdings of the common stock of API Tech to 20.6%. API Tech is a designer and manufacturer of high performance systems, subsystems, modules, and components. Effective as of that date, the investment in API Tech has been accounted for as an equity method investment using the fair value option. Steel Excel elected the fair value option to account for its investment in API Tech in order to more appropriately reflect the value of API Tech in its financial statements. Prior to such time, the investment in API Tech was accounted for as an available-for-sale security, and upon the change in classification the Company recognized a loss of approximately $600 that had previously been included as a component of Accumulated other comprehensive (loss) income.

•

In January 2015, two members of Steel Excel's board of directors were appointed to the eight-member board of directors of Aviat Networks, Inc. ("Aviat"), a global provider of microwave networking solutions. At the time of the appointment, Steel Excel held 8,041,892 shares of Aviat, or approximately 12.9% of the total outstanding common stock. Effective as of the date of the appointment, the investment in Aviat has been accounted for as an equity-method investment as Steel Excel’s voting interest and board representation provide it with significant influence over Aviat's operations. Steel Excel elected the fair value option to account for its investment in Aviat, with changes in fair value based on the market price of Aviat's common stock recognized currently as income or loss from equity method investees, in order to more appropriately reflect the value of Aviat in its financial statements. Prior to such time the investment in Aviat was accounted for as an available-for-sale security, and upon the change in classification Steel Excel recognized a loss of approximately $2,800 that had previously been included as a component of Accumulated other comprehensive (loss) income.


•	The Other investment represents the Company's investment in a Japanese real estate partnership.

Associated Company Information

The below summary balance sheet amounts are for the nearest practicable period. The below summary income statement amounts include results for associated companies for the periods in which they were accounted for as an associated company, or the nearest practicable corresponding period. This summary data may be derived from unaudited financial statements and may contain a lag.



	June 30, 2015			December 31, 2014
Summary of balance sheet amounts:
Current assets	$	589,652		$	556,571
Noncurrent assets	139,934			160,202
Total assets	$	729,586		$	716,773
Current liabilities	$	294,784		$	257,559
Noncurrent liabilities	114,358			113,217
Total liabilities	409,142			370,776
Parent equity	320,444			345,997
Total liabilities and equity	$	729,586		$	716,773
	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Summary income statement amounts:
Revenue	$	197,805		$	269,715		$	418,872		$	553,114
Gross profit	32,339			40,714			63,527			87,789
Loss from continuing operations	(8,146		)	(5,049		)	(6,256		)	(3,204		)
Net (loss) income after noncontrolling interests	(8,308		)	2,721			(1,313		)	5,170

Other Investments at Fair Value - Related Party

Other investments - related party, consist of the Company’s investment in each series of the SPII Liquidating Trust (see Note 12 - “Related Party Transactions”) accounted for under the equity method. In February 2015, the SPII Liquidating Trust comprising Trust H was fully liquidated. As a result, the Company received its proportional interest of the cash and investments in Trust H totaling approximately $2,730. There was no gain or loss recorded on the transaction. Also, in June 2015, the SPII Liquidating Trust comprising Trust G was fully liquidated. As a result, the Company received its proportional interest of the cash and investments in Trust G totaling approximately $6,913. There was no gain or loss recorded on the transaction. All series of the SP II Liquidating Trust have now been liquidated.

The purpose of the SPII Liquidating Trust was to effect the orderly liquidation of certain assets previously held by Steel Partners II, L.P. ("SPII"). SPLP’s financial position, financial performance and cash flows were affected by the extent to which the operations of the SPII Liquidating Trust results in realized or unrealized gains (losses) and by distributions it makes in each reporting period. The Company held variable interests in each series of the SPII Liquidating Trust.

Each series of the SPII Liquidating Trust was separate and distinct with respect to its assets, liabilities and net assets. Each individual series had no liability or claim with respect to the liabilities or assets of the other series. Each series shared in the costs, assets and liabilities, if any, that are not specifically attributable to a particular series. Each series generally held the securities related to a specific investment and cash for operating expenses of the series. The fair values for the investments in the SPII Liquidating Trust were been estimated using the net asset value of such interests as reported by the SPII Liquidating Trust.

The following tables provide combined summarized data with respect to the other investments - related party accounted for under the equity method, at fair value:



	June 30, 2015			December 31, 2014
Summary of balance sheet amounts:
Total assets	$	943		$	21,966
Total liabilities	(943		)	—
Net Asset Value	$	—		$	21,966

	Three Months Ended June 30,					Six Months Ended June 30,
	2015			2014		2015		2014
Summary income statement amounts:
Net (decrease) increase in net assets from operations	$	(53	)	$	3,246	$	826	$	3,254

In connection with the acquisition of MLNK common shares in March 2013, the Company received warrants ("ModusLink Warrants") to acquire an additional 2,000,000 shares at an exercise price of $5.00 per share. The ModusLink Warrants are accounted for as an asset at fair value with changes in fair value recognized each period in Income (Loss) from investments held at fair value in the Company's Consolidated Statements of Operations. The ModusLink warrants have a life of 5 years and are valued using the Black-Scholes option pricing model. Assumptions used in the current valuation were as follows: 1) volatility of 52.4% 2) term of 2.7 years 3) risk free interest rate of 1.630% based on the U.S. Treasury bill yield, and 4) an expected dividend of $0.

LIMITED PARTNERSHIP INVESTMENT AND PROMISSORY NOTE

Steel Excel also has other investments which include a $25,000 cost-method investment in a limited partnership that co-invested with other private investment funds in a public company. This investment is included in Prepaid and other current assets in the Company's Consolidated Balance Sheets at June 30, 2015, as the limited partnership will be liquidated in August 2015, with Steel Excel to receive either cash or its proportionate share of equity of the public company investee.This investment was previously classified in Other non-current assets at December 31, 2014. Upon liquidation, Steel Excel will recognize a gain or loss equal to the difference between the fair value of the assets received and the carrying value. The investment in the limited partnership had an approximate fair value of $33,400 and $28,600 at June 30, 2015 and December 31, 2014, respectively, based on the net asset value included in the monthly statement it receives from the partnership. Steel Excel's other investments at June 30, 2015, include an investment in a venture capital fund totaling $500 and a promissory note with an amortized cost of $3,000, which is a reasonable approximation of fair value at June 30, 2015. This amount is included in Other non-current assets in the Company's Consolidated Balance Sheets.