Business context and reporting period
Icahn Enterprises L.P. (IEP) filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2021. It is a diversified holding company with Investment, Energy, Automotive, Food Packaging, Metals, Real Estate, Home Fashion and Pharma businesses. Icahn Enterprises Holdings owns substantially all operating assets and liabilities; its results are substantially the same as IEP’s.
Financial performance and liquidity
Amounts below are in millions, except per-unit data. Comparisons are with the corresponding 2020 periods.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $2,657 | $1,764 | $7,487 | $4,951 |
| Total reported revenues | $2,646 | $723 | $9,018 | $3,372 |
| Net income (loss) | $(211) | $(1,400) | $326 | $(2,842) |
| Net income (loss) attributable to IEP | $(148) | $(714) | $(122) | $(1,799) |
| Loss per LP unit | $(0.55) | $(3.14) | $(0.47) | $(8.12) |
- Investment-activity results were a $177 million loss in Q3 2021 versus a $1.259 billion loss in Q3 2020; for the first nine months, they were a $1.035 billion gain versus a $2.152 billion loss. This volatility materially affects consolidated revenue and earnings comparisons.
- Energy improved: Q3 gross margin was $197 million, or 10% of net sales, versus a $35 million loss and negative 3% margin. Nine-month gross margin was $107 million, or 2%, versus a $123 million loss and negative 4%. Management cited better refined-product pricing/crack spreads and higher volumes; higher crude costs, RIN costs and weaker derivative performance partly offset gains.
- Automotive Q3 net sales and other operating revenue fell 10% to $591 million; gross margin was $173 million, down $21 million, with the margin rate flat at 29%. For nine months, revenue fell 3% to $1.826 billion, while gross margin increased 3% to $522 million and the margin rate improved to 29% from 27%. Store closures reduced parts sales; services revenue increased.
- Other nine-month segment results included Metals net income attributable to IEP of $19 million versus a $10 million loss, Food Packaging income of $2 million versus $3 million, and Home Fashion a $9 million loss versus a $2 million loss. Pharma contributed $1 million of attributable income after being consolidated from Q4 2020.
- At September 30, total assets were $27.973 billion and total liabilities $17.966 billion; total debt was $7.712 billion, down from $8.059 billion at year-end 2020. Debt’s estimated fair value was $7.9 billion. Q3 interest expense was $158 million; nine-month interest expense was $511 million.
- Cash and cash equivalents were $1.945 billion, with another $1.747 billion held at consolidated affiliated partnerships or restricted. Combined cash and restricted cash was $3.692 billion, versus $3.291 billion at year-end. Much of the restricted balance supports investment margin requirements and is not freely available for general liquidity.
- Nine-month cash from operating activities was $66 million versus $724 million; investing activities provided $220 million versus using $551 million; financing activities provided $110 million versus using $568 million. Capital expenditures were $239 million, including spending primarily for Energy’s renewable diesel project.
- IEP’s Holding Company had approximately $1.3 billion cash, $5.8 billion debt and $4.6 billion invested in the Investment Funds. Subsidiaries reported $483 million of additional borrowing availability; all debt covenants were reported in compliance.
Material changes, outlook and risks
- IEP refinanced $1.205 billion of 6.25% notes due 2022 with $750 million of 4.375% notes due 2029 and $455 million of additional 5.25% notes due 2027. CVR Partners issued $550 million of 6.125% secured notes due 2028 to help refinance higher-rate debt. Automotive repaid its $350 million credit facility in August.
- IEP sold 10.8 million depositary units through its at-the-market program in the first nine months for $604 million gross proceeds; up to $180 million remained available under the August 2021 agreement. Units outstanding rose to 278.6 million from 241.3 million at year-end 2020. Quarterly distributions were $2 per unit, with holders able to elect cash or additional units.
- After quarter-end, IEP commenced a tender offer for Southwest Gas shares at $75 per share; the filing estimates up to approximately $4.2 billion could be required to complete it. IEP said it intends to fund the offer with cash and proceeds from sales of liquid securities. The offer was scheduled to expire December 27, 2021, unless extended.
- After quarter-end, IEP agreed to sell PSC Metals for approximately $290 million, including debt to be repaid at closing and subject to customary adjustments and approvals. Closing was expected in Q4 2021.
- No formal earnings guidance is provided in the supplied filing text. Management said economic conditions improved in 2021 as restrictions eased, while continuing to identify COVID-19 effects, supply-chain issues, inflation, higher raw-material and shipping costs, and labor availability as risks.
- Energy’s RFS compliance costs were $335 million for the first nine months of 2021 versus $71 million in 2020; its recorded RFS position was $442 million at September 30 versus $214 million at year-end. Renewable diesel investment may reduce exposure, but management cautioned that regulatory decisions and market conditions could affect the benefit.
- Material contingencies include Clean Air Act and related claims involving CVR Refining, with outcome and potential financial effect undetermined; post-trial proceedings in CVR-related Delaware litigation; and potential controlled-group pension liabilities. Viskase and ACF plans were underfunded by approximately $110 million on a voluntary termination basis, although minimum funding requirements had been met.
- Management identified the risk that market-value changes or asset transactions could cause IEP to be deemed an investment company under the Investment Company Act. It also highlighted market exposure from its Investment Funds’ leveraged long and short positions. No material changes to reported risk factors were noted; disclosure controls were assessed as effective.
Important facts for investors to verify
- Separate operating-business performance from volatile investment gains and losses when assessing reported revenue and earnings.
- Review the availability and restrictions on cash, the Investment Funds’ margin collateral and short-position exposures, and whether the Southwest Gas offer proceeds or funding needs change.
- Track RIN prices and regulatory developments, Energy’s renewable diesel project, and the resolution or financial impact of the disclosed CVR legal matters.
- Assess unit issuance and distribution elections, including the potential dilution from distributions paid in units and further at-the-market sales.
- Confirm completion and final proceeds of the PSC Metals sale, and monitor the potential controlled-group pension exposure and adequacy of the Starfire indemnity.