Icahn Enterprises L.P. — FY2020 Form 10-K
Reporting period: Year ended December 31, 2020; comparisons are primarily with FY2019. This is an annual filing, not a standalone fourth-quarter report. Icahn Enterprises is a diversified holding company with Investment, Energy, Automotive, Food Packaging, Metals, Real Estate, Home Fashion and, from December 2020, Pharma segments. Carl Icahn and affiliates held approximately 92% of its depositary units at year-end.
Financial performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net sales | $6.815 billion | $9.722 billion |
| Total reported revenues | $6.123 billion | $8.994 billion |
| Net loss from continuing operations | $2.468 billion | $1.759 billion |
| Net loss attributable to Icahn Enterprises | $1.653 billion | $1.098 billion |
| Loss per limited-partner unit | $7.33 | $5.38 |
| Net cash used in operating activities | $416 million | $1.460 billion |
| Capital expenditures; Energy turnaround spending | $199 million; $159 million | $250 million; $38 million |
| Total debt at year-end | $8.059 billion | $8.192 billion |
Total reported revenues include investment and other gains or losses and therefore should not be read as sales alone. The consolidated loss widened, despite a smaller Investment-segment loss, as operating results—especially Energy—deteriorated and interest expense increased. Consolidated interest expense was $688 million, up 14%. FY2020 income-tax benefit was $116 million.
Segments and material changes
- Investment: Funds returned negative 14.3% in 2020 versus negative 15.4% in 2019. The segment recorded a $1.447 billion loss, mainly from short positions, including broad-market hedges; gains on short exposure to commercial mortgage-backed securities partly offset losses. Icahn Enterprises’ Investment Funds interest was valued at approximately $4.3 billion at year-end. The portfolio’s reported net short notional exposure was 52%.
- Energy: Net sales fell 38% to $3.930 billion; gross margin moved to negative $234 million from positive $657 million, with gross margin rate declining to negative 6% from 10%. COVID-related demand weakness, unfavorable pricing and crack spreads, reduced refinery utilization and maintenance weighed on results. Renewable-fuel compliance costs rose to $190 million from $43 million.
- Automotive: Net sales and other operating revenue declined 14% to $2.478 billion; gross margin fell 14% to $685 million, while the margin rate remained 28%. Pandemic-related weakness and transformation-plan store closures affected revenue. The company continued restructuring and separating parts and service operations.
- Food Packaging: Sales increased 6% to $403 million; gross margin rate improved to 20% from 19%. In October, Icahn Enterprises invested $100 million in Viskase, increasing ownership from about 79% to 89%.
- Metals: Sales decreased 8% to $317 million amid lower shipping volumes. Gross margin rate improved to below 5% from negative 1%.
- Home Fashion: Sales were approximately flat at $190 million. Gross margin rate increased to 20% from 15%, helped by facemask sales and product/customer mix.
- Pharma: Vivus was acquired upon its emergence from bankruptcy in December; the segment contributed $3 million of revenue and a $1 million loss in the reported period.
Cash, debt and distributions
At December 31, 2020, consolidated cash and cash equivalents were $1.699 billion, with another $1.592 billion in cash held at consolidated affiliated partnerships and restricted cash. Combined cash, cash held at funds and restricted cash totaled $3.291 billion, down from $4.945 billion a year earlier; much of the latter balance is not freely available for general liquidity. Holding Company cash was $925 million, debt was $5.811 billion, and its Investment Funds interest was valued at approximately $4.3 billion. Operating subsidiaries held $760 million of cash and had $2.248 billion of debt; reported unused revolving-facility availability was $586 million, subject to facility terms and restrictions on transfers.
In January 2020, the Holding Company issued additional 2024 and 2027 notes and redeemed $1.35 billion of 2022 notes. In January 2021, it issued $750 million of 4.375% notes due 2029 and used proceeds and cash to redeem $750 million of 2022 notes. The Automotive segment had $351 million of debt maturities in 2021 and intended to refinance before maturity. The company reported compliance with debt covenants at year-end; its Holding Company indentures restricted additional debt, subject to refinancing provisions.
FY2020 distributions were $8.00 per unit, declared across four quarters. Aggregate cash distributions were $516 million; Icahn and affiliates elected to receive units for the second through fourth-quarter distributions. In February 2021, the board declared a further $2.00-per-unit distribution, payable in cash or units; non-election defaults to units.
Outlook, risks and unusual items
- Management said liquidity was sufficient for anticipated cash needs for at least the next 12 months, while cautioning that the duration and financial effects of COVID-19 remained uncertain and could be significant.
- For 2021, estimated consolidated capital spending was approximately $215–$230 million for Energy, $89 million for Automotive and $48 million for other segments. Energy also expected $18–$19 million of turnaround spending.
- Energy approved a renewable-diesel conversion project estimated at $110 million, with completion expected in June 2021. The planned unit was designed for annual output of 100 million gallons; project economics and RFS benefits depend on execution, regulation and market conditions.
- Material risks include volatile refining margins, commodity prices and RIN costs; investment portfolio concentration, leverage and short-position exposure; subsidiary debt and refinancing needs; limits on cash transfers from subsidiaries; COVID-19 effects; environmental regulation and litigation; and the partnership’s dependence on its controlled general partner.
- At year-end, environmental liabilities were $37 million. CVR Refining faced disputed Clean Air Act and consent-decree claims, with negotiations ongoing and funds placed in escrow; the filing said the outcome and potential financial impact could not be determined. Separate CVR call-option lawsuits were also unresolved.
- Viskase and ACF pension plans were estimated to be underfunded by an aggregate $122 million if voluntarily terminated. Icahn Enterprises may share controlled-group pension liability; an affiliate indemnity exists, but its ability to fund obligations is not assured.
- Auditors issued unqualified opinions on the financial statements and, for Icahn Enterprises L.P., internal controls. The Coffeyville nitrogen-fertilizer asset group had a $703 million carrying value at June 2020; management recorded no impairment after its recoverability test, which the auditor identified as a critical audit matter.
Most important facts for investors to verify
- Whether Investment Funds performance, short exposure and concentrated holdings materially change after year-end.
- Whether Energy refining margins, fuel demand and RIN costs recover, and whether the renewable-diesel project meets its cost and timing estimates.
- How the Automotive transformation, 2021 debt refinancing and operating recovery affect liquidity and results.
- Whether subsidiary cash and revolving availability can be transferred to the Holding Company when needed, considering covenants and restrictions.
- Developments in environmental and call-option litigation, pension exposure, and the assumptions supporting impairment and valuation estimates.
- The cash-versus-unit mix of future distributions, unit issuance and resulting dilution; FY2020 outstanding units increased to 241.3 million from 214.1 million.