Business context and reporting period
Icahn Enterprises L.P. (IEP) filed a joint Form 10-K with Icahn Enterprises Holdings L.P. for the fiscal year ended December 31, 2019. IEP is a diversified holding partnership with Investment, Energy, Automotive, Food Packaging, Metals, Real Estate and Home Fashion businesses. Mining was sold on August 1, 2019; Railcar was no longer active. The two partnerships’ results are substantially the same.
Financial performance and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Net sales | $9.720 billion | $10.576 billion |
| Total revenues | $8.992 billion | $11.777 billion |
| Continuing-operations net loss | $1.759 billion | Net income of $237 million |
| Continuing-operations loss attributable to IEP | $1.066 billion | $238 million |
| Net loss attributable to IEP, including discontinued operations | $1.098 billion | Net income of $1.482 billion |
| Basic and diluted loss per unit | $5.38 | Income of $11.33 |
| Operating cash flow | $(1.460) billion | $923 million |
| Cash and cash equivalents | $3.794 billion | $2.656 billion |
| Total debt | $8.192 billion | $7.326 billion |
Total revenues include investment gains and losses and asset-sale gains, so they are not comparable to net sales alone. The 2019 investment segment recorded a $1.543 billion loss; Investment Funds returned negative 15.4%, with losses on short positions more than offsetting gains on longs. The 2018 net income included substantial gains from discontinued-business sales.
Net sales fell about 8%. Energy segment net sales declined 11% to $6.364 billion, while gross margin rose to $657 million from $616 million (about 10% of sales versus 9%). Automotive revenue was broadly flat at $2.884 billion, but gross margin fell 10% to $795 million and its margin rate declined to 28% from 31%. Metals sales fell 27%, with gross margin rate declining to negative 1% from 5%. Food Packaging sales decreased 3%; Home Fashion sales increased 9%, mainly due to an acquisition.
At year-end, total assets were $24.639 billion and total equity was $10.942 billion. Holding Company cash was approximately $3.0 billion, with a $4.3 billion fair value investment in the Investment Funds. Operating subsidiaries reported $777 million of cash, $1.895 billion of debt and $607 million of additional revolving-credit availability. Cash held at affiliated partnerships or restricted was $1.151 billion and should not be treated as freely available corporate cash. IEP declared $8.00 per unit in 2019, with aggregate cash distributions of $110 million; Icahn affiliates generally elected units.
Material changes, outlook and risks
- IEP sold Ferrous Resources for proportionate net cash proceeds of $463 million and recorded a $252 million pretax gain. It also issued $2.5 billion of senior notes in 2019, refinancing $1.7 billion of notes due 2020 and raising additional general-purpose funding. In January 2020, further note issuances and cash were used to redeem $1.35 billion of notes due 2022.
- Automotive is implementing a multi-year restructuring and transformation plan, including facility closures and consolidation, inventory optimization and a focus on core markets. Management estimated 2020 capital spending of $133–$150 million for Energy, $69 million for Automotive and approximately $39 million across other segments. A major Energy refinery turnaround was planned for early 2020, with estimated total spending of $145–$155 million. The filing provides no consolidated earnings or revenue guidance.
- Energy’s results remain exposed to volatile refining margins, crude-oil differentials and renewable fuel credit (RIN) costs. RFS compliance expense was $43 million in 2019, versus $60 million in 2018. Environmental rules, commodity prices, foreign exchange and operational disruptions are material risks.
- IEP identified a material weakness in controls for identifying investees that may require summarized financial information or separate SEC financial statements. Management concluded disclosure controls and internal control over financial reporting were ineffective; the auditor issued an adverse opinion on IEP’s internal control, while expressing an unqualified opinion on the financial statements. A remediation plan was underway.
- Contingencies include a DOJ/EPA/Kansas environmental matter concerning the Coffeyville refinery for which potential costs could not be estimated; litigation over CVR Energy’s exercise of a CVR Refining call option; $34 million of recorded environmental liabilities; and potential controlled-group pension exposure. ACF pension plans were estimated to be underfunded by $71 million if terminated, with an affiliate indemnity that may not be collectible.
- IEP disclosed concentrated Investment Funds positions and significant use of derivatives and short exposure. The five largest holdings represented about 70% of Investment segment assets under management at year-end; the largest, Caesars, represented about 24%. Mr. Icahn and affiliates owned approximately 92% of IEP units, creating significant control and related-party considerations.
Key facts investors should verify
- Reconcile reported revenue, continuing results and total net loss, including investment marks and prior-year discontinued-operation sale gains.
- Assess the accessibility and volatility of cash, restricted collateral, Investment Funds assets and subsidiary cash transfers against debt maturities and covenants.
- Track Investment Funds performance, concentration, leverage, derivative exposures and potential collateral requirements.
- Monitor Automotive restructuring results, margin recovery, capital needs and the Energy turnaround and RIN-cost outlook.
- Follow remediation of the material weakness, the refinery environmental matter, CVR Refining litigation and the extent of any pension-related exposure.