Business Context and Reporting Period
This summary covers the Form 10-K for Icahn Enterprises L.P. for the fiscal year ended December 31, 2008. Icahn Enterprises is a diversified holding company operating through five primary segments: Investment Management, Automotive, Metals, Real Estate, and Home Fashion. The company is controlled by Carl C. Icahn, whose affiliates own approximately 91.8% of the depositary units and 86.5% of the preferred units.
Key strategic developments in 2008 included the acquisition of a controlling interest (75.7%) in Federal-Mogul Corporation (Automotive segment) and the divestiture of the remaining gaming operations via the sale of American Casino & Entertainment Properties (ACEP).
Key Financial Metrics
| Metric | 2008 | 2007 |
|---|---|---|
| Total Revenues | $5,027 million | $2,491 million |
| Net (Loss) Earnings | $(43) million | $308 million |
| Income from Continuing Operations | $(528) million | $219 million |
| Income from Discontinued Operations | $485 million | $89 million |
| EBITDA | $786 million | $545 million |
| Adjusted EBITDA | $837 million | $483 million |
| Total Debt | $4,571 million | $2,041 million |
| Cash and Cash Equivalents | $2,612 million | $2,113 million |
| Distributions per Depositary Unit | $1.00 | $0.55 |
Material Changes vs. Prior Period
- Automotive Segment Acquisition: The inclusion of Federal-Mogul (consolidated from March 1, 2008) added $5.7 billion in revenues but resulted in a $350 million loss from continuing operations for the segment. This loss was driven by $434 million in asset impairment charges (goodwill and intangibles) due to the global automotive downturn.
- Investment Management Losses: The segment reported a $335 million loss, a sharp reversal from the $170 million profit in 2007. This was caused by a -35.6% gross return in the Private Funds, primarily due to declines in major equity positions (Yahoo!, Motorola) and credit exposures.
- Discontinued Operations Gain: A $472 million after-tax gain was realized from the sale of ACEP (gaming properties), significantly offsetting the losses from continuing operations.
- Debt Increase: Total debt more than doubled to $4.57 billion, primarily due to the $2.47 billion in "Exit Facilities" debt assumed with the Federal-Mogul acquisition.
- Home Fashion Decline: Net sales dropped 37.8% to $425 million due to a weak retail environment and the elimination of unprofitable programs.
Guidance, Outlook, and Risks
- Outlook: Management expects continued downward pressure on automotive production volumes in 2009. The Investment Management segment anticipates opportunities in distressed investing but faces ongoing market volatility. The Home Fashion segment expects to continue incurring restructuring charges and operating losses in 2009.
- Restructuring: Federal-Mogul announced a plan to reduce its global workforce by approximately 8,600 positions, with $132 million in charges already recorded and up to $37 million expected through 2010. WestPoint International (Home Fashion) also anticipates continued restructuring costs.
- Liquidity: The company maintains $2.6 billion in cash and cash equivalents. Management believes cash on hand, operating cash flows, and available borrowings are sufficient to fund operations and capital expenditures through 2009.
- Key Risks:
- Market Volatility: Continued deterioration in global financial markets could further impact the Investment Management segment and asset valuations.
- Automotive Downturn: Severe declines in vehicle production and customer financial distress (e.g., GM, Ford, Chrysler) pose significant credit and volume risks to Federal-Mogul.
- Legal Proceedings: Ongoing litigation regarding the ownership of WestPoint International (WPI) could result in a loss of control, potentially requiring deconsolidation of WPI from the financial statements.
- Debt Covenants: While currently in compliance, the company faces significant debt maturities and interest obligations, particularly related to Federal-Mogul's variable-rate debt.
Investor Verification Checklist
- WPI Ownership Litigation: Verify the status of the Delaware and federal court proceedings challenging Icahn Enterprises' ownership of WestPoint International, as a loss of control could materially alter consolidated financials.
- Federal-Mogul Impairment Finalization: Confirm the finalization of the goodwill and intangible asset impairment assessment for Federal-Mogul, as preliminary charges of $352 million may be adjusted in Q1 2009.
- Private Fund Performance: Monitor the performance of the Private Funds and the "high water mark" status, which currently prevents the recognition of incentive allocations despite potential future gains.
- Debt Refinancing: Assess the company's ability to refinance the significant debt maturities coming due between 2012 and 2015, particularly given the high leverage of the Automotive segment.
- Environmental Liabilities: Review the adequacy of reserves for environmental remediation at Federal-Mogul and PSC Metals sites, where potential additional losses are estimated at $69 million and $24 million, respectively.