Business Context and Reporting Period
Company: Icahn Enterprises L.P.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2009
Business Overview: A diversified holding company operating through five reportable segments: Investment Management, Automotive (Federal-Mogul), Metals (PSC Metals), Real Estate, and Home Fashion (WestPoint International). The company also reports a Holding Company segment.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2009 | Six Months Ended June 30, 2009 |
|---|---|---|
| Total Revenues | $2,223 million | $3,989 million |
| Net Income (Loss) | $633 million | $760 million |
| Net Income Attributable to Icahn Enterprises | $130 million | $131 million |
| Net Income per LP Unit (Diluted) | $1.59 | $1.66 |
| Cash and Cash Equivalents | $2,031 million (Balance Sheet) | N/A |
| Total Debt | $4,574 million (Balance Sheet) | N/A |
| Net Cash Used in Operating Activities | N/A | ($293 million) |
Material Changes vs. Prior Period
- Investment Management Performance: The segment generated significant income ($172 million for the quarter; $321 million for six months) driven by a 14.2% gross return for the Private Funds in Q2 2009, a sharp reversal from the -9.1% loss in Q2 2008. This was primarily due to long credit positions and gains in core equity holdings (Motorola, Yahoo!).
- Automotive Segment (Federal-Mogul): Net sales declined 34.6% year-over-year to $1,304 million due to reduced vehicle production volumes and a stronger U.S. dollar. The segment reported a loss from continuing operations attributable to Icahn Enterprises of $70 million for the six months ended June 30, 2009, compared to income of $30 million in the prior year period. Restructuring charges of $40 million were incurred.
- Metals Segment (PSC Metals): Net sales plummeted 85.3% to $64 million due to historically low scrap metal prices and demand. The segment recorded a $13 million impairment charge on goodwill and intangibles in Q1 2009.
- Home Fashion Segment (WPI): Net sales decreased 10.4% to $86 million. The segment reported a loss of $10 million for the quarter, with restructuring and impairment charges of $6 million.
- Discontinued Operations: The prior year period (six months ended June 30, 2008) included a $472 million gain from the sale of the Gaming subsidiary (ACEP). No such gain occurred in the current period.
Guidance, Outlook, and Risks
- Investment Management: Management expects continued opportunities in distressed investing due to constrained credit markets. New fee structures and investment options for Private Funds became effective July 1, 2009.
- Automotive: Federal-Mogul expects to incur an additional $17 million in restructuring charges through fiscal year 2010. Management believes cash on hand and available borrowings are sufficient to fund operations through the end of fiscal 2009.
- Metals: Management has suspended the exploration of strategic alternatives for PSC Metals. Demand remains weak due to low steel mill capacity utilization.
- Real Estate: Property development sales are expected to decline further in fiscal 2009. The company identified defective "Chinese drywall" in a limited number of Florida homes but believes repair costs are immaterial.
- Liquidity and Debt: As of June 30, 2009, the company could not incur additional indebtedness based on minimum financial ratios in its indentures. Preferred units must be redeemed by March 31, 2010; management believes it has sufficient cash or authorized units to meet this obligation.
- Legal Proceedings: Ongoing litigation includes challenges to ownership interests in WestPoint International (WPI) and environmental remediation claims against Federal-Mogul and PSC Metals.
Investor Verification Checklist
- Investment Fund Returns: Verify the sustainability of the Private Funds' 14.2% Q2 return and the impact of the new fee structure effective July 1, 2009.
- Automotive Restructuring: Monitor the execution of Federal-Mogul's "Restructuring 2009" plan and the realization of expected cost savings.
- Metals Valuation: Assess the impact of continued low scrap metal prices on PSC Metals' asset values and potential for further impairments.
- Debt Covenants: Confirm compliance with debt covenants, particularly given the restriction on incurring additional indebtedness as of the reporting date.
- Preferred Unit Redemption: Verify the company's liquidity position ahead of the mandatory March 31, 2010 redemption of preferred units.
- WPI Litigation: Track the status of lawsuits challenging Icahn Enterprises' ownership control of WestPoint International.