Business Context and Reporting Period
Company: Icahn Enterprises L.P.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2010
Business Overview: A diversified holding company operating through seven segments: Investment Management, Automotive (Federal-Mogul), Railcar (ARI), Food Packaging (Viskase), Metals (PSC Metals), Real Estate, and Home Fashion (WPI). The company is controlled by Carl C. Icahn, whose affiliates own approximately 92.3% of outstanding depositary units.
Key Financial Metrics
| Metric | Q1 2010 | Q1 2009 |
|---|---|---|
| Net Sales | $1,870 million | $1,621 million |
| Total Revenues | $1,915 million | $1,992 million |
| Net (Loss) Income | $(50) million | $132 million |
| Net (Loss) Income Attributable to Icahn Enterprises | $(65) million | $4 million |
| Basic/Diluted (Loss) per LP Unit | $(0.80) | $0.01 |
| Cash and Cash Equivalents | $2,495 million | $2,256 million |
| Total Debt | $5,921 million | $5,186 million |
| Operating Cash Flow | $(390) million | $(331) million |
Material Changes vs. Prior Period
- Acquisitions: On January 15, 2010, the company acquired controlling interests in American Railcar Industries, Inc. (ARI) and Viskase Companies, Inc. (Viskase) from affiliates of Mr. Icahn. These are now reported as the Railcar and Food Packaging segments, respectively. Results are consolidated from the dates of common control (May 1988 for ARI, November 2006 for Viskase).
- Debt Refinancing: Issued $2.0 billion in new senior unsecured notes (7.75% due 2016 and 8% due 2018). Proceeds were used to redeem approximately $1.28 billion of existing 2012 and 2013 notes. This resulted in a $40 million loss on extinguishment of debt.
- Preferred Units: Redeemed all outstanding preferred limited partner units on March 31, 2010, settling a $138 million liability by issuing depositary units.
- Investment Management Performance: Net gain from investment activities turned to a net loss of $1 million in Q1 2010, compared to a $251 million gain in Q1 2009. Private Funds gross return was 0.70% in Q1 2010 versus 7.0% in Q1 2009.
- Automotive Segment: Net sales increased 20% to $1,489 million driven by higher OEM production volumes. Restructuring charges dropped significantly to $1 million from $38 million in the prior year.
- Metals Segment: Net sales surged 129% to $174 million due to improved steel mill capacity utilization and higher scrap prices, reversing the significant losses seen in Q1 2009.
Guidance, Outlook, and Risks
- Outlook: Management notes that quarterly results are not indicative of full-year results due to variations in investment gains/losses. The Railcar segment expects shipments and revenues to decrease significantly in fiscal 2010 due to the economic downturn, though modest market improvements were noted.
- Liquidity: The company maintains significant liquidity with $2.5 billion in cash and equivalents at the Holding Company level. Automotive segment has $493 million available under its revolving credit facility.
- Legal Proceedings:
- WPI Litigation: The Second Circuit Court of Appeals ruled in favor of Icahn Enterprises, confirming control of WestPoint International (WPI). Related Delaware litigation remains pending with plaintiffs seeking to amend complaints.
- NEGI Settlement: A settlement agreement in principle for approximately $9 million regarding National Energy Group, Inc. is expected to be finalized in Q2 or Q3 2010.
- Environmental Risks: Federal-Mogul and PSC Metals face potential environmental liabilities. Federal-Mogul estimates reasonably possible additional losses of approximately $43 million beyond accrued amounts.
- Climate Change: New risk factor disclosed regarding potential regulatory and financial risks related to climate change and greenhouse gas emissions, particularly affecting the Automotive segment.
Investor Verification Checklist
- Debt Covenants: Verify compliance with financial ratios for the new 2016 and 2018 notes and the Automotive segment's debt facilities.
- Investment Fund Flows: Monitor redemption notices (7.8% of AUM payable June 30, 2010) and the impact on the Investment Management segment's cash flow.
- Railcar Market Recovery: Assess the sustainability of the "modest improvements" in railcar loadings and the segment's ability to avoid further losses.
- WPI Control: Track the status of the Delaware Chancery Court proceedings following the Second Circuit's ruling to ensure no dilution of control.
- Environmental Accruals: Review updates on Federal-Mogul's environmental remediation costs, specifically the $43 million in reasonably possible additional losses.