ICAHN ENTERPRISES L.P. quarterly report, Q2 FY2022

Icahn Enterprises L.P. — Q2 2022 Form 10-Q

Business context and period. This unaudited quarterly report covers the three and six months ended June 30, 2022. Icahn Enterprises is a diversified holding company with Investment, Energy, Automotive, Food Packaging, Real Estate, Home Fashion and Pharma businesses. It sold its Metals business in December 2021. Carl Icahn and affiliates owned approximately 86% of outstanding depositary units at quarter-end.

Financial performance and liquidity

Metric	Q2 2022	Q2 2021	Six months 2022	Six months 2021
Net sales	$3.796 billion	$2.612 billion	$6.764 billion	$4.830 billion
Total reported revenues, including investment gains/losses	$3.503 billion	$2.988 billion	$7.596 billion	$6.372 billion
Net income (loss) attributable to Icahn Enterprises	$(128) million	$(136) million	$195 million	$26 million
Basic and diluted income (loss) per LP unit	$(0.41)	$(0.53)	$0.64	$0.10
Interest expense	$151 million	$158 million	$285 million	$353 million

Q2 total revenue included a $442 million net loss from investment activities, versus a $206 million gain in Q2 2021. For the first half, investment activities produced a $497 million gain, down from $1.212 billion. Consolidated net income was $598 million for the first half, compared with $537 million a year earlier.

Margins: Energy gross margin was $429 million, or 14% of segment net sales, in Q2 (versus $26 million, or 1%); first-half gross margin was $679 million, or 12% (versus a $90 million loss, or negative 3%). Automotive gross margin was $186 million, or 31%, in Q2 and $347 million, or 30%, for the first half. The filing does not provide a single comparable consolidated operating-margin measure.
Cash flow: Operating cash flow was $2.629 billion for the first half, versus cash used of $364 million in 2021. Investing activities used $69 million; financing activities used $333 million. Operating cash flow reflects substantial securities transactions in the Investment segment.
Balance sheet and debt: At June 30, cash and cash equivalents were $2.453 billion; cash held at consolidated affiliated partnerships and restricted cash was another $4.216 billion, some of which was not available for general liquidity. Total debt was $7.134 billion, down from $7.692 billion at year-end 2021. Total assets were $26.895 billion and total equity was $10.158 billion.
Liquidity: Holding Company cash was approximately $1.4 billion, against $5.310 billion of Holding Company debt. Subsidiaries reported $295 million of revolving-credit availability, including $281 million for Energy. The filing notes that transfers from subsidiaries may be restricted and subsidiaries are not obligated to provide funds to the Holding Company.

Material changes versus the prior comparable period

Energy net sales rose 76% in Q2 and 70% in the first half, principally reflecting higher refined-product prices and favorable fertilizer pricing. Higher crude costs and refinery outages/turnaround work were offsets; improved crack spreads lifted segment margins.
Investment Funds returned negative 4.8% in Q2 2022 versus positive 1.4% in Q2 2021, but positive 4.3% for the first half versus positive 10.8% a year earlier. Q2 losses in long positions were partly offset by gains in short positions and broad-market hedges.
Automotive first-half revenue declined 6%: services revenue increased, but aftermarket-parts sales fell 27%. The segment continued a multi-year transformation and restructuring plan.
Home Fashion first-half sales increased 35% with recovering hospitality demand, while higher material and freight costs constrained Q2 margins. Pharma first-half sales fell 30%, primarily because the prior-year period included a one-time $13 million product sale.
Icahn Enterprises redeemed $500 million of 6.75% notes in February 2022; management cited approximately $34 million in expected annual interest savings. CVR Partners also redeemed its remaining $65 million of 9.25% notes, with approximately $6 million in expected annual savings.
During the first half, the partnership sold 7.55 million units through its at-the-market program for $394 million gross proceeds. Outstanding units increased to 322.8 million from 293.4 million at year-end 2021. The partnership declared $4.00 per unit in distributions for the first half, with holders able to elect cash or additional units.

Outlook, risks, contingencies and unusual items

The filing gives no specific consolidated earnings or revenue guidance. Management reported no material change to planned 2022 capital expenditures from its 2021 Form 10-K estimates.
Management highlighted uncertainty from inflation, supply-chain and labor constraints, COVID-19 effects, and the Russia-Ukraine conflict. Commodity-price volatility may affect Energy results, while recession or lower demand could pressure businesses and investment performance.
Energy’s Renewable Fuel Standard exposure is significant: recognized compliance expense was $259 million in the first half, and its RFS position was $708 million at June 30, versus $494 million at year-end. The filing says adverse outcomes in pending RFS matters could materially affect Energy; related costs and RIN prices are volatile.
CVR Refining faced Clean Air Act and consent-decree proceedings. A $6.8 million stipulated-penalty amount had been deposited in escrow; the company was evaluating its response to a court ruling, and a motion to dismiss other claims remained pending.
CVR Energy and affiliates entered a binding term sheet to settle call-option litigation for $79 million, subject to court approval and other conditions. The amount was accrued at June 30; insurance-recovery litigation remains pending. The filing also reports an $89 million legal-settlement loss in Q2 other loss, net.
Environmental liabilities were $25 million at June 30. Viskase and an Icahn affiliate’s pension plans had an estimated aggregate $82 million underfunding if voluntarily terminated; the filing describes potential controlled-group liability and a Starfire indemnity, while cautioning that Starfire may not be able to fund it.
Investment activity uses derivatives and short positions and is exposed to market, counterparty and collateral risk. Management estimated that a 10% adverse fair-value change would affect securities owned by approximately $572 million, securities sold short by $406 million, and derivatives by $943 million before considering the partnership’s share of Investment Funds’ results.
The partnership disclosed risks of inadvertently becoming an investment company if asset values or transactions change its asset mix. It also added cybersecurity risks, including potential threats associated with the Russia-Ukraine conflict. Management said disclosure controls were effective and reported no material change in internal control over financial reporting.

After quarter-end, the partnership declared a $2.00-per-unit distribution payable in September 2022, with a cash-or-units election. CVR Energy and CVR Partners also declared second-quarter distributions, including a CVR Energy special dividend; the partnership’s stated expected share of the CVR Energy payments was approximately $213 million.

Most important facts for investors to verify

How Investment Funds’ positions, short exposure, derivatives and collateral requirements evolve, and how volatile investment results affect earnings and liquidity.
Whether Energy’s elevated RFS liability, pending EPA matters and RIN costs change, and whether the call-option settlement receives court approval or produces insurance recoveries.
Holding Company liquidity and debt-service capacity, including restrictions on subsidiary transfers, future unit issuance, and the cash-versus-unit mix of distributions.
Whether higher Energy margins persist as crude, refined-product and fertilizer prices change, and whether planned refinery work or renewable-diesel projects affect volumes and costs.
Potential obligations from controlled-group pensions and environmental matters, and the scope and outcome of the disclosed legal proceedings.