ICAHN ENTERPRISES L.P. annual report, FY2021

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Icahn Enterprises L.P. — FY2021 Form 10-K

Reporting period: Year ended December 31, 2021; filed February 25, 2022. This is an annual report, not a standalone Q4 report. Icahn Enterprises is a diversified holding company with Investment, Energy, Automotive, Food Packaging, Real Estate, Home Fashion and Pharma segments. It sold PSC Metals in December 2021 and no longer operates a Metals segment. Carl Icahn and affiliates held approximately 88% of the depositary units at year-end.

Financial performance and condition

  • Revenue: Total reported revenues were $11.328 billion, up from $6.123 billion in 2020. Net sales were $10.304 billion versus $6.815 billion. The increase largely reflected stronger Energy sales and improved investment results; total revenue also includes investment gains and other items.
  • Profit: Net loss was $500 million, improved from a $2.468 billion loss. Loss attributable to Icahn Enterprises was $518 million, or $2.32 per LP unit, versus $1.653 billion, or $7.33 per unit, in 2020. Results remained affected by Investment segment losses and Automotive losses.
  • Cash flow: Operating cash flow was $321 million, compared with cash used of $416 million in 2020. Investing activities provided $528 million and financing activities provided $293 million. Cash, cash equivalents and restricted cash totaled $4.436 billion at year-end; this includes cash restricted for purposes such as investment margin collateral.
  • Liquidity and debt: Consolidated debt was $7.692 billion, down from $8.059 billion; total liabilities were $18.403 billion and total assets $27.746 billion. The Holding Company reported $1.7 billion cash and $5.8 billion debt, plus a $4.2 billion fair value investment in the Investment Funds. Subsidiaries had $423 million of revolving-credit availability. The company and subsidiaries reported compliance with debt covenants at year-end.
  • Margins and segment results: Energy gross margin improved to $173 million from a $234 million loss; margin was 2% of segment net sales versus negative 6%. Automotive gross margin fell to $583 million from $685 million, with margin declining to 24% from 28%. Food Packaging margin declined to 18% from 20%; Home Fashion margin was 19% versus 20%. Automotive reported a $260 million loss attributable to Icahn Enterprises; Energy reported a $5 million loss attributable to Icahn Enterprises.
  • Distributions and unit issuance: Four 2021 distributions totaled $8.00 per unit; $132 million was paid in cash to unitholders. The company issued 15.2 million units through at-the-market offerings for $833 million gross proceeds. Year-end units outstanding rose to 293.4 million from 241.3 million.

Material changes versus 2020

  • Investment Funds returned negative 0.3% in 2021 versus negative 14.3% in 2020. Long positions gained $2.916 billion while short positions lost $2.906 billion, leaving Investment segment net loss of $32 million, compared with $1.447 billion in 2020.
  • Energy net sales rose 84% to $7.242 billion as fuel demand, volumes and pricing improved from pandemic-disrupted 2020. Energy gross margin improved by $407 million, but RIN compliance expense increased to $435 million from $190 million.
  • Automotive combined net sales and other operating revenue fell 4% to $2.384 billion. Lower aftermarket parts sales, including store closures under a restructuring plan, more than offset service revenue growth; a $56 million inventory write-down weighed on margins.
  • PSC Metals was sold for $323 million of proceeds, generating a $163 million pretax gain. The sale contributed to the year’s results and ended the Metals segment.
  • Holding Company refinanced 2022 notes with new 2029 notes and additional 2027 notes. In February 2022 it repaid $500 million of 6.75% notes due 2024 at par. Automotive also repaid its $350 million credit facility in August 2021.

Outlook, risks and unusual items

  • Capital spending: Management estimated 2022 capital expenditures of $212–$241 million for Energy, $140 million for Automotive and approximately $89 million for all other segments. Energy also forecast $28–$33 million of turnaround spending. A renewable diesel unit project was estimated at $160 million, with completion expected in Q2 2022; a related pretreater project was estimated at $60 million, with completion expected in Q4 2022.
  • Southwest Gas tender offer: A subsidiary launched a $75-per-share cash offer for shares it did not already hold. The offer, which could require up to approximately $4.2 billion, was extended to March 23, 2022. The filing says funding was intended from cash and Investment Funds redemptions; completion and final funding were not assured.
  • Key exposures: Investment results are highly sensitive to market movements, concentrated positions, short exposure, leverage and margin requirements. Energy earnings face volatile refining margins, commodity prices and RIN obligations. COVID-19 effects, supply-chain and inflation pressures, environmental regulation, foreign exchange, labor disruptions and subsidiary debt restrictions remain risks.
  • Contingencies: CVR Refining faces federal and Kansas environmental claims concerning alleged refinery violations; the outcome and potential financial effect were not estimable. Separate litigation over CVR Energy’s exercise of a call option seeks alleged damages exceeding $300 million; the company disputes the claims, and an adverse outcome could be material. Environmental liabilities were $13 million at year-end. Pension plans within the Icahn-controlled group would be underfunded by approximately $66 million if terminated; an affiliate indemnity exists but may not be funded.
  • Other investor considerations: Future distributions are discretionary and subject to cash flow, financing restrictions and other factors. Unitholders may owe tax on allocated partnership income without equivalent cash distributions. The filing highlights potential conflicts and concentrated control, as well as risks related to maintaining partnership tax status and avoiding Investment Company Act registration.
  • Audit and controls: The auditor gave an unqualified opinion on the financial statements and internal controls; management also concluded disclosure controls and internal control over financial reporting were effective. No critical audit matters were identified.

Most important facts for investors to verify

  • Current status, conditions and financing of the Southwest Gas tender offer, including any effect on liquidity or Investment Funds assets.
  • Post-year-end debt repayment and maturities, covenant capacity, and the extent to which subsidiary cash can be transferred to the Holding Company.
  • Investment Funds’ subsequent performance, concentration and short/derivative exposures, collateral needs and liquidity under adverse market scenarios.
  • Energy’s RIN costs and obligations, renewable diesel project spending and schedule, and developments in the refinery environmental and call-option litigation.
  • Automotive restructuring progress, store closures, inventory write-downs and whether service growth can offset declining parts sales.
  • Distribution policy and dilution from additional unit issuance, including whether future distributions are paid in cash or units.