Business Context and Reporting Period
Company: ICAHN ENTERPRISES L.P.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 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 (WestPoint International). The company also reports a Holding Company segment.
Key Financial Metrics
| Metric (in millions) | Three Months Ended June 30, 2010 |
Six Months Ended June 30, 2010 |
Six Months Ended June 30, 2009 |
|---|---|---|---|
| Net Sales | $2,066 | $3,952 | $3,284 |
| Net (Loss) Gain from Investment Activities | $(252) | $(253) | $939 |
| Total Revenues | $1,891 | $3,806 | $4,399 |
| Net (Loss) Income | $(222) | $(272) | $771 |
| Net (Loss) Income Attributable to Icahn Enterprises | $(116) | $(181) | $138 |
| Basic (Loss) Income per LP Unit | $(1.35) | $(2.16) | $1.71 |
| Total Assets | $18,295 | As of June 30, 2010 | |
| Total Debt | $5,962 | ||
| Cash and Cash Equivalents | $2,491 | As of June 30, 2010 | |
| Restricted Cash | $1,225 |
Material Changes vs. Prior Period
- Investment Management Performance: The segment reported a net loss of $90 million for the quarter and $75 million for the six months, driven by a net loss from investment activities of $243 million and $253 million, respectively. This contrasts sharply with the prior year, which saw net gains of $684 million and $943 million. Private Fund gross returns were -3.1% for the quarter and -2.4% for the six months.
- Automotive Segment: Net sales increased 23% ($294 million) for the quarter and 21% ($545 million) for the six months compared to the prior year, driven by increased OEM production volumes. Income attributable to Icahn Enterprises improved to $36 million (quarter) and $45 million (six months) from $4 million and $(70) million, respectively.
- Debt Refinancing: In January 2010, the company issued $2.0 billion in new senior unsecured notes (7.75% due 2016 and 8% due 2018) to refinance approximately $1.28 billion of existing debt (2012 and 2013 Notes). This resulted in a $40 million loss on extinguishment of debt recorded in the six-month period.
- Acquisitions: The company consolidated results for American Railcar Industries (ARI) and Viskase Companies effective January 15, 2010, following the acquisition of controlling interests from affiliates of Mr. Icahn. These are now reported as the Railcar and Food Packaging segments.
- Preferred Units: All outstanding preferred limited partner units were redeemed on March 31, 2010, for a total liability of $138 million, settled via the issuance of depositary units.
Guidance, Outlook, and Risks
- Investment Management: The company notes that variations in investment gains and losses can be significant. The Private Funds were defensively positioned in the second quarter, with short exposure contributing positively to performance, though long equity exposure resulted in losses.
- Automotive: Federal-Mogul expects to incur additional restructuring charges of up to $4 million through fiscal 2010. Management believes cash on hand and operating cash flows will be sufficient to fund operations through the end of fiscal 2010.
- Railcar: ARI expects shipments and revenues to significantly decrease in fiscal 2010 compared to fiscal 2009 due to the economic downturn and restricted credit markets. Production rates and workforce have been reduced accordingly.
- Home Fashion: WestPoint International (WPI) anticipates continuing restructuring charges and operating losses for the remainder of fiscal 2010. The segment faces challenges from difficult economic conditions affecting retail customers.
- Legal Proceedings: A significant victory was obtained in March 2010 regarding WPI control, with the Second Circuit ruling in favor of Icahn Enterprises. However, related litigation in Delaware Chancery Court remains pending with a trial scheduled for December 2010.
- Climate Change Risk: The filing introduces a new risk factor regarding potential regulatory and financial impacts of climate change legislation on the Automotive segment.
Investor Verification Checklist
- Investment Fund Performance: Verify the sustainability of the Investment Management segment's losses and the impact of the Private Funds' negative returns on future fee accruals (special profits interest allocations were reversed or not accrued due to losses).
- Debt Covenants: Confirm compliance with financial covenants, particularly for the Automotive and Railcar segments, which have specific restrictions on additional indebtedness based on financial ratios.
- Restructuring Costs: Monitor the execution of restructuring plans at Federal-Mogul and WestPoint International to ensure anticipated cost savings are realized and additional charges do not exceed estimates.
- WPI Litigation: Track the outcome of the Delaware Chancery Court proceedings regarding WPI, as the resolution could impact ownership percentages and control.
- Real Estate Asset: Assess the valuation and potential impairment risks associated with the Former Fontainebleau Property acquired in February 2010, given the current market conditions for residential development.