Business Context and Reporting Period
Company: ICAHN ENTERPRISES L.P.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 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 also reports a Holding Company segment.
Key Financial Metrics
| Metric | Q1 2009 | Q1 2008 |
|---|---|---|
| Total Revenues | $1,766 million | $1,130 million |
| Net Income (Consolidated) | $127 million | $448 million |
| Net Income Attributable to Icahn Enterprises | $1 million | $453 million |
| EPS (Basic & Diluted) | $0.01 | $6.88 |
| Total Assets | $16,438 million | $18,815 million (Dec 31, 2008) |
| Total Debt | $4,566 million | $4,571 million (Dec 31, 2008) |
| Cash & Cash Equivalents | $2,080 million | $2,612 million (Dec 31, 2008) |
| Operating Cash Flow | ($341 million) used | ($209 million) used |
Material Changes vs. Prior Period
- Investment Management: Revenues surged to $334 million from $14 million in Q1 2008. This was driven by a 7.0% gross return for the Private Funds, resulting in $87 million in special profits interest allocations and $67 million in unrealized gains on the company's investments. This contrasts with Q1 2008, which saw minimal performance.
- Automotive (Federal-Mogul): Net sales declined 33.4% to $1,238 million due to a global downturn in light and commercial vehicle production. The segment reported a loss of $74 million attributable to Icahn Enterprises, including $38 million in restructuring charges ("Restructuring 2009") aimed at reducing the global workforce by 8,600 positions.
- Metals (PSC Metals): Net sales plummeted 74.9% to $76 million as scrap metal prices and demand collapsed. The segment recorded a $13 million impairment charge on goodwill and indefinite-lived intangibles and a $13 million inventory write-down, resulting in a $23 million loss.
- Home Fashion (WPI): Net sales decreased 26.3% to $84 million. The segment incurred $6 million in restructuring and impairment charges related to plant closures, resulting in a $12 million loss.
- Discontinued Operations: Q1 2008 included a $476 million gain from the sale of the gaming subsidiary (ACEP). No such gains occurred in Q1 2009.
Guidance, Outlook, and Risks
- Outlook: Management expects the global recession and constrained credit markets to continue impacting asset values. The Investment Management segment anticipates opportunities in distressed investing. The Automotive and Home Fashion segments expect to continue incurring restructuring charges throughout fiscal 2009.
- Liquidity: The company holds approximately $1.1 billion in cash at the Holding Company level. Federal-Mogul has $494 million in borrowing availability under its revolving credit facility. Management believes current cash levels and operating cash flows are sufficient to fund operations for the next 12 months.
- Redemptions: The Private Funds received redemption notices for approximately 10% of net assets under management effective June 30, 2009.
- Legal Contingencies: Significant litigation includes challenges to ownership interests in WestPoint International (WPI) and environmental remediation liabilities for Federal-Mogul and PSC Metals. Federal-Mogul estimates reasonably possible additional environmental losses of $44 million beyond current accruals.
- Debt Covenants: As of March 31, 2009, the company is in compliance with all debt covenants. However, based on minimum financial ratios, the Holding Company cannot currently incur additional indebtedness.
Investor Verification Checklist
- Investment Fund Performance: Verify the sustainability of the 7.0% Q1 return for the Private Funds and the impact of the 10% redemption notices on future fee revenue.
- Restructuring Execution: Monitor the progress of Federal-Mogul's "Restructuring 2009" and WPI's plant closures to ensure anticipated cost savings are realized.
- Metals Segment Viability: Assess the recovery potential of the Metals segment given the severe decline in scrap prices and the $13 million goodwill impairment.
- WPI Ownership Litigation: Track the status of lawsuits challenging Icahn Enterprises' ownership of WPI, as a loss could force deconsolidation and materially alter financial statements.
- Environmental Liabilities: Review updates on Federal-Mogul's environmental remediation costs, specifically the $44 million in estimated additional losses.