Business Context and Reporting Period
Company: Icahn Enterprises L.P.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2009
Business Overview: A diversified holding company operating through five segments: Investment Management, Automotive (Federal-Mogul), Metals (PSC Metals), Real Estate, and Home Fashion (WestPoint International). The company is controlled by Carl C. Icahn, whose affiliates own approximately 92% of depositary units.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2009 | Nine Months Ended Sep 30, 2009 | Dec 31, 2008 (Balance Sheet) |
|---|---|---|---|
| Total Revenues | $2,182 million | $6,171 million | N/A |
| Net Income (Consolidated) | $462 million | $1,222 million | N/A |
| Net Income Attributable to Icahn Enterprises | $110 million | $241 million | N/A |
| Diluted EPS (LP Units) | $1.39 | $3.05 | N/A |
| Total Assets | N/A | N/A | $18,254 million |
| Total Debt | N/A | N/A | $4,634 million |
| Cash and Cash Equivalents | N/A | N/A | $2,093 million |
| Operating Cash Flow (9 Months) | N/A | $237 million | N/A |
Material Changes vs. Prior Period
- Profitability Turnaround: Net income attributable to Icahn Enterprises from continuing operations improved significantly from a loss of $61 million in the nine months ended September 30, 2008, to a profit of $240 million in the same period in 2009.
- Investment Management Performance: The Investment Management segment drove the recovery, generating $459 million in income for the nine months ended September 30, 2009, compared to a loss of $159 million in the prior year. This was due to a 34.1% gross return for the Private Funds, driven by long credit positions and equity gains.
- Automotive Segment Decline: Federal-Mogul reported a loss of $62 million for the nine months ended September 30, 2009, compared to income of $32 million in the prior year. Net sales decreased 29.3% due to global automotive production declines and currency headwinds.
- Metals Segment Volatility: The Metals segment reported a loss of $25 million for the nine months ended September 30, 2009, versus income of $74 million in the prior year. Sales dropped 76.2% due to historically low scrap metal prices and demand.
- Discontinued Operations: The prior year (2008) included a one-time gain of $472 million from the sale of the gaming subsidiary (ACEP). No such significant gain occurred in 2009.
Guidance, Outlook, and Risks
- Investment Management Outlook: Management expects the remainder of fiscal 2009 to present opportunities for distressed investing as default rates are expected to increase. The Private Funds received redemption notices for approximately 7.5% of Assets Under Management (AUM) payable by December 31, 2009.
- Automotive Restructuring: Federal-Mogul is executing "Restructuring 2009," expected to reduce the global workforce by 8,600 positions. Additional restructuring charges of up to $7 million are anticipated through fiscal 2010.
- Home Fashion Challenges: WestPoint International (WPI) anticipates continued restructuring charges and operating losses for the remainder of fiscal 2009 due to a difficult retail environment and the need to realign manufacturing operations.
- Liquidity and Debt: As of September 30, 2009, the company could not incur additional indebtedness at the holding company level due to minimum financial ratio covenants. However, Federal-Mogul had $518 million of borrowing availability under its revolving credit facility.
- Legal and Contingencies:
- Environmental: Federal-Mogul has accrued $23 million for environmental remediation, with an additional $47 million in reasonably possible losses.
- WPI Litigation: Ongoing lawsuits challenge the company's ownership interests in WPI. A loss of control could materially alter consolidated financial statements.
- Chinese Drywall: Real Estate segment identified defective drywall in a limited number of Florida homes; repair costs are expected to be immaterial.
Investor Verification Checklist
- Investment Fund Performance: Verify the sustainability of the 34.1% gross return in the Private Funds and the impact of the 7.5% redemption notices on future AUM.
- Automotive Restructuring Costs: Monitor the execution of Federal-Mogul's workforce reduction and the realization of projected cost savings versus the $38 million in restructuring charges already incurred.
- Metals Segment Valuation: Assess the impact of the $13 million goodwill impairment recorded in Q1 2009 and the potential for further write-downs if scrap metal prices remain depressed.
- WPI Ownership Dispute: Track the status of litigation challenging Icahn Enterprises' control of WestPoint International, as a loss could force deconsolidation.
- Debt Covenants: Confirm compliance with financial ratios, particularly given the holding company's inability to incur new debt and the upcoming redemption of preferred units in March 2010.