Fair Value Measurements

3 Months Ended

Mar. 31, 2013

Fair Value Disclosures [Abstract]

Fair Value Measurements

FAIR VALUE MEASUREMENTS

Financial assets and liabilities measured at fair value on a recurring basis in the consolidated financial statements as of March 31, 2013 and December 31, 2012 are summarized by type of inputs applicable to the fair value measurements as follows:

March 31, 2013	Level 1		Level 2		Level 3		Total
Assets:
Marketable securities (a)	$	187,587	$	54,756	$	21,725	$	264,068
Long-term investments (a)	129,328		69,182		20,660		219,170
Non-controlling interests in certain funds	—		—		1,021		1,021
Commodity contracts on precious metals	88		—		—		88
Total	$	317,003	$	123,938	$	43,406	$	484,347
Liabilities:
Financial instruments	$	—	$	23,150	$	—	$	23,150
Interest rate swap agreement	—		277		—		277
Total	$	—	$	23,427	$	—	$	23,427

December 31, 2012	Level 1		Level 2		Level 3		Total
Assets:
Marketable securities (a)	$	128,123	$	69,222	$	1,783	$	199,128
Long-term investments (a)	112,030		59,383		21,784		193,197
Non-controlling interests in certain funds (b)	—		—		1,021		1,021
Commodity contracts on precious metals	127		—		—		127
Total	$	240,280	$	128,605	$	24,588	$	393,473
Liabilities:
Financial instruments	$	—	$	24,742	$	—	$	24,742
Derivative features of subordinated notes	—		—		184		184
Commodity contracts on precious metals	—		27		—		27
Total	$	—	$	24,769	$	184	$	24,953

(a) For additional detail of the marketable securities and long-term investments see Note 4 - "Investments."

Investments measured and reported at fair value are classified and disclosed in one of the following categories:

Level 1 - Quoted prices are available in active markets for identical investments as of the reporting date. The types of investments included in Level 1 are listed debt and equity securities.

Level 2 - Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. Investments which are generally included in this category include corporate bonds and loans, less liquid and restricted equity securities.

Level 3 - Pricing inputs are unobservable for the investment and include situations where there is little, if any, market activity for the investment. The inputs into the determination of fair value require significant management judgment or estimation and due to lack of observable inputs, the assumptions used may impact the fair value of these investments in future periods. Investments which are generally included in this category include private investments, non-exchange traded derivative contracts, and currency and interest rate swaps.

Investments with a fair value of approximately $3,800 were transferred from Level 1 to Level 2 based upon a reduction in the number of shares traded. There were no investments transferred from Level 2 to Level 1. The futures contracts are Level 1 measurements since they are traded on a commodity exchange. The forward contracts are entered into with a counterparty, and are considered Level 2 measurements.

Following is a summary of changes in financial assets measured using Level 3 inputs:

	Long - Term Investments
	Investments in Associated Companies (a)			Other Investments - Related Party (b)			ModusLink Warrants (c)			Marketable Securities and Other (d)		Other Investments		Total
Assets
Balance at December 31, 2011	$	—		$	42,653		$	—		$	—	$	13,623	$	56,276
Purchases	10,923			—			—			—		—		10,923
Sales	—			—			—			—		—		—
Unrealized gains	29,760			740			—			—		96		30,596
Unrealized losses	—			(11,540		)	—			—		—		(11,540		)
Balance at March 31, 2012	$	40,683		$	31,853		$	—		$	—	$	13,719	$	86,255
Balance at December 31, 2012	$	10,521		$	11,263		$	—		$	2,804	$	—	$	24,588
Purchases	—			—			3,184			19,900		—		23,084
Sales	—			—			—					—		—
Unrealized gains	—			1,118			—			42		—		1,160
Unrealized losses	(5,239		)	(49		)	(138		)			—		(5,426		)
Balance at March 31, 2013	$	5,282		$	12,332		$	3,046		$	22,746	$	—	$	43,406

(a) Unrealized losses are recorded in (Loss) Income of associated companies, net of taxes in the Consolidated Statement of Operations.

(b) Unrealized gains and losses are recorded in Income (Loss) from other investments-related party in the Consolidated Statement of Operations.

(c) Unrealized losses are recorded in Other income in the Consolidated Statement of Operations.

(d) There were no unrealized gains recorded in the Consolidated Statement of Operations in the first quarter of 2013.

Long-Term Investments - Valuation Techniques

The Company primarily uses two valuation methods to estimate the fair value of its equity securities measured using Level 3 inputs. The Company estimates the value of its indirect investment in Fox & Hound primarily using a discounted cash flow method using a market risk premium of 30%. The Company estimates the value of its interest in the SPII Liquidating Trust based on the net asset value of each series of the Trust. There are no unfunded capital commitments with respect to these investments. The ModusLink Warrants are valued using the the Black-Scholes option pricing model (for additional information see Note 4 - "Investments").

Marketable Securities and Other - Investment Techniques

The increase in Marketable Securities and Other during the three-month period ended March 31, 2013 was primarily the result of a debtor-in-possession loan. In November 2012, Steel Excel purchased $11,900 face amount of 3.75% Unsecured Convertible Subordinated Debentures Due 2026 in School Specialty Inc., a market leader in school supplies and educational materials (“School Specialties”), at a total cost of $6,000. On January 28, 2013, School Specialties filed a Chapter 11 bankruptcy petition. On February 26, 2013, Steel Excel committed to participate, with a share in the amount of approximately $22,000, in a $155,000 debtor-in-possession loan to School Specialties. Steel Excel believes the loan, in conjunction with other sources of financing, will enable School Specialties to successfully execute a plan of reorganization or other alternative transaction. While there is no active trading of this investment, it will be marked to fair value based on quoted interest rates and other observable inputs. Based on the limited period such investment was outstanding, cost was deemed to be a reasonable approximation of fair value at March 31, 2013.

Steel Excel periodically monitors its two venture capital funds based on quarterly statements they receive from each of the funds. The statements are generally received one quarter in arrears, as more timely valuations are not practical. The statements reflect the net asset value, which Steel Excel uses to determine the fair value for these investments, which (a) do not have a readily determinable fair value and (b) either have the attributes of an investment company or prepare their financial statements consistent with the measurement principles of an investment company.

Level 3 Liabilities

During the three months ended March 31, 2013, the Company recognized a $184 decrease in fair value for the derivative features of the HNH Subordinated notes which reduced the balance from $184 at December 31, 2012 to $0 at March 31, 2013. As of March 31, 2013, the Company no longer holds any financial liabilities that are measured using Level 3 inputs.

Assets Measured at Fair Value on a Nonrecurring Basis

The Company’s non-financial assets measured at fair value on a non-recurring basis include the assets acquired and liabilities assumed in the acquisitions described in Note 3 – “Acquisitions”. Significant judgments and estimates are made to determine the acquisition date fair values which may include the use of appraisals, discounted cash flow techniques or other information the Company considers relevant to the fair value measurement. Subsequent to initial measurement, the Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate, in management’s judgment, that carrying values may not be recoverable. Circumstances that could trigger an interim impairment test include but are not limited to: the occurrence of a significant change in circumstances, such as continuing adverse business conditions or legal factors; an adverse action or assessment by a regulator; unanticipated competition; loss of key personnel; the likelihood that a reporting unit or significant portion of a reporting unit will be sold or otherwise disposed; or results of testing for recoverability of a significant asset group within a reporting unit.

As of March 31, 2013 and December 31, 2012, WebBank has impaired loans of $2,752, of which $2,198 is guaranteed by the USDA or SBA and $2,915, of which $2,328 is guaranteed by the USDA or SBA, respectively. These loans are measured at fair value on a nonrecurring basis using Level 3 inputs. Loans are considered impaired when, based on current information and events, it is probable that WebBank will be unable to collect all amounts due according to the contractual terms of loan agreements, including scheduled interest payments. When a loan has been identified as being impaired, the amount of impairment is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, when appropriate, the loan’s observable fair value or the fair value of the collateral (less any selling costs) if the loan is collateral-dependent. If the measurement of the impaired loan is less than the recorded investment in the loan (including accrued interest, net of deferred loan fees or costs and unamortized premium or discount), an impairment is recognized by creating or adjusting an existing allocation of the allowance for loan losses, or by charging down the loan to its value determined in accordance with generally accepted accounting principles. There were no amounts charged against the allowance for loan losses for the three months ended March 31, 2013 and 2012, respectively.