Icahn Enterprises L.P. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; unaudited. Icahn Enterprises is a diversified holding company with Investment, Energy, Automotive, Food Packaging, Metals, Real Estate and Home Fashion businesses. Icahn Enterprises Holdings owns substantially all operating assets and liabilities; its results are substantially the same as Icahn Enterprises’. All figures below are U.S. dollars unless stated otherwise.
Financial performance and position
| Metric | Q1 2020 | Q1 2019 / prior year-end |
|---|---|---|
| Net sales | $1.860 billion | $2.300 billion |
| Reported total revenues | $(60) million | $1.855 billion |
| Net loss | $(2.306) billion | $(664) million |
| Net loss attributable to Icahn Enterprises | $(1.384) billion | $(394) million |
| Loss per limited partner unit | $(6.34) | $(2.02) |
| Operating cash flow | $(1.373) billion | $(288) million |
| Cash and cash equivalents | $2.381 billion | $3.794 billion at Dec. 31, 2019 |
| Debt | $8.227 billion | $8.192 billion at Dec. 31, 2019 |
| Total equity | $9.417 billion | $10.942 billion at Dec. 31, 2019 |
Reported total revenues were negative because they include a $2.128 billion net loss from investment activities; net sales alone fell 19%. The filing does not present a single consolidated operating margin. Segment results show Energy gross margin of $(120) million, or (11)% of sales, versus $183 million, or 12%, a year earlier. Automotive gross margin was $160 million, or 25% of segment revenue, versus $199 million, or 29%.
Cash held at consolidated affiliated partnerships and restricted cash was an additional $876 million at quarter-end, bringing cash and restricted cash reported in the cash flow statement to $3.257 billion. This includes restricted cash and Investment Funds cash that is not generally available for the company’s overall liquidity needs. Investing cash flow was $(324) million and financing cash flow was $7 million. Due to brokers increased to $2.938 billion from $54 million at year-end.
Material changes and notable items
- Investment Funds returned (17.6)% in Q1, compared with (5.8)% in Q1 2019. Losses on long positions were partly offset by gains on short positions. The Investment segment reported a $1.802 billion net loss; the Holding Company also recorded substantial investment-related losses.
- Energy sales fell 24% to $1.130 billion, amid lower refined-product demand and prices, unfavorable pricing and crack spreads, refinery maintenance and reduced utilization. A $58 million inventory write-down was recorded.
- Automotive revenue fell 8% to $635 million. COVID-19 disruption contributed to lower service and commercial sales, alongside previously planned store closures and margin pressure.
- Cash distributions declared were $2.00 per unit, equal to the prior-year quarter. The Q1 distribution was paid in April, primarily in cash; a further $2.00-per-unit distribution was declared for payment in June, with cash or units available by election.
- Quarter-end total assets were $24.306 billion, down from $24.639 billion at year-end. Investment assets declined to $8.197 billion from $9.945 billion.
Liquidity, debt and outlook
- Holding Company cash was approximately $1.4 billion and Holding Company debt approximately $5.8 billion at March 31. The Holding Company refinanced $1.35 billion of 5.875% notes due 2022 using new 2024 and 2027 notes and cash on hand. The filing says it was in compliance with debt covenants, but was not permitted to incur additional indebtedness under the applicable note covenants at quarter-end.
- Subsidiary debt rose to $2.413 billion from $1.895 billion at year-end. Subsidiaries reported $583 million of additional availability under revolving credit facilities and were in compliance with covenants.
- Management expected pandemic-related economic conditions to affect businesses through at least the first half of 2020 and likely the rest of the year; duration and financial impact were uncertain and could be significant. No consolidated earnings guidance was provided.
- Energy reduced planned 2020 capital expenditures by approximately 30%, deferring most growth projects and limiting maintenance spending to critical or required work. CVR Energy cut its quarterly cash dividend by 50%; management cited cash conservation and uncertainty.
- The company noted risks from volatile investment values, oil-demand and commodity-price declines, operating disruption, customer and supplier stress, liquidity and funding needs, and market volatility. Investment Funds’ top five holdings represented approximately 55% of segment assets under management; Caesars was the largest holding.
Contingencies and controls
- CVR-related litigation includes former CVR Refining unitholder lawsuits concerning exercise of a call option; a further federal lawsuit was filed in April 2020. The company disputes the claims and says outcomes and potential financial effects cannot currently be determined.
- Environmental liabilities were $36 million. CVR Refining could not estimate potential penalties or costs associated with alleged Clean Air Act and consent-decree violations at its Coffeyville refinery.
- Because of Mr. Icahn’s affiliates’ ownership, the company may be jointly liable for certain controlled-group pension obligations. ACF pension plans were estimated to be underfunded by approximately $97 million upon voluntary termination; Starfire indemnified the company, but may not be able to fund its obligations.
- Management reported disclosure controls were not effective because of an existing material weakness in internal control over financial reporting. A remediation plan was operating during the quarter; management expected remediation before year-end 2020, subject to successful testing.
Important facts for investors to verify
- How investment marks, derivatives, portfolio concentration and counterparties affect earnings, collateral needs and liquidity; the filing estimates a 10% adverse change could materially affect investment values.
- Whether operating cash generation and accessible liquidity can support debt service and distributions, given restricted cash, broker balances, subsidiary restrictions and Holding Company borrowing limits.
- The duration and severity of COVID-19 effects on investment valuations, refining demand and margins, automotive operations, and planned capital expenditures.
- Developments in the CVR litigation, environmental matter, controlled-group pension exposure and internal-control remediation.
- Whether future unit distributions and CVR Energy dividends are maintained; the filing states future distributions are reviewed quarterly and are not assured.