ICAHN ENTERPRISES L.P. The following discussion is intended to assist you in understanding our present business and the results of operations together with our present financial condition. This section should be read in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes contained in this Quarterly Report on Form 10-Q for the period endedJune 30, 2022 (this "Report"), as well as our Annual Report on Form 10-K for the year endedDecember 31, 2021 filed with theSecurities and Exchange Commission onFebruary 25, 2022 . Executive Overview IntroductionIcahn Enterprises L.P. ("Icahn Enterprises ") is a master limited partnership formed inDelaware onFebruary 17, 1987 and headquartered inSunny Isles Beach, Florida . We are a diversified holding company owning subsidiaries currently engaged in the following continuing operating businesses: Investment, Energy, Automotive,Food Packaging , Real Estate, Home Fashion and Pharma. In addition, we operated our Metals segment until it was sold inDecember 2021 . We also report the results of our Holding Company, which includes the results of certain subsidiaries ofIcahn Enterprises (unless otherwise noted), and investment activity and expenses associated with our Holding Company. References to "we," "our" or "us" herein includeIcahn Enterprises and its subsidiaries, unless the context otherwise requires.Icahn Enterprises owns a 99% limited partner interest inIcahn Enterprises Holdings L.P. ("Icahn Enterprises Holdings ").Icahn Enterprises Holdings and its subsidiaries own substantially all of our assets and liabilities and conduct substantially all of our operations.Icahn Enterprises G.P. Inc. ("Icahn Enterprises GP"), which is indirectly owned and controlled by Mr.Carl C. Icahn , owns a 1% general partner interest in each ofIcahn Enterprises andIcahn Enterprises Holdings as ofJune 30, 2022 , representing an aggregate 1.99% general partner interest inIcahn Enterprises Holdings and us.Mr. Icahn and his affiliates owned approximately 86% ofIcahn Enterprises' outstanding depositary units as ofJune 30, 2022 .
Significant Transactions and Developments
Tender Offer
OnOctober 27, 2021 ,IEP Utility Holdings LLC ("IEP Utility"), a wholly owned subsidiary ofIcahn Enterprises Holdings , commenced a cash offer (the "SWX Tender Offer") to acquire, subject to certain terms and conditions, all of the issued and outstanding shares of common stock of Southwest Gas Holdings, Inc. ("Southwest Gas ") not held by affiliates ofIcahn Enterprises Holdings at a price of$75.00 per share. OnMarch 14, 2022 , IEP Utility amended its SWX Tender Offer purchase price to$82.50 per share. OnMay 23, 2022 , IEP Utility announced the completion of the SWX Tender Offer resulting in the acquisition by IEP Utility of 2,191,027 shares of Southwest Gas tendered representing approximately 3.3% of the outstanding shares of Southwest Gas, as ofApril 29, 2022 .
Debt Repayments
In
Results of Operations.
Consolidated Financial Results
Our operating businesses comprise consolidated subsidiaries which operate in
various industries and are managed on a decentralized basis. In addition to our
Investment segment's revenues from investment transactions, revenues for our
operating businesses primarily consist of net sales of various products,
services revenue, franchisor operations and leasing of real estate. Due to the
structure and nature of our business, we primarily discuss the results of
operations by
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individual reporting segment in order to better understand our consolidated operating performance. In addition to the summarized financial results below, refer to Note 12, "Segment Reporting," to the condensed consolidated financial statements for a reconciliation of each of our reporting segment's results of continuing operations to our consolidated results. Throughout 2020, 2021 and continuing in 2022, the COVID-19 pandemic, and actions taken by governments and others in response thereto, has negatively impacted the global economy, financial markets, and certain of the industries in which our subsidiaries operate. Our consolidated results of operations and financial condition have been impacted primarily by the volatility in the fair value of investments held by our Investment segment and the Holding Company as well as volatility in the global demand for refined products, especially gasoline and diesel fuels, with respect to our Energy segment. The impact on our businesses has also included the acceleration of selective planned store closures in our Automotive segment and recording write-downs to inventories. The economic conditions that persisted for much of 2020 have improved in 2021 and 2022 as more governments reduce restrictions and more businesses resume operations. InFebruary 2022 ,Russia invadedUkraine , disrupting the global oil, fertilizer, and agriculture markets, and leading to heightened uncertainty in the worldwide economy recovering from the COVID-19 pandemic. In response, many Western countries have formally or informally adopted sanctions on a number of Russian exports, including Russian oil and natural gas, and individuals affiliated with Russian government leadership. These sanctions, thus far, have resulted in higher oil prices and continued elevation of natural gas prices, and are likely to continue to impact commodity prices in the near-term, which could have a material effect on our financial condition, cash flows, or results of operations. A global recession stemming from market volatility could result in a reduction in demand, thereby lowering commodity prices. The ultimate outcome of theRussia -Ukraine conflict and any associated market disruptions are difficult to predict and may materially affect our business, operations, and cash flows in unforeseen ways. The comparability of our summarized consolidated financial results presented below is affected primarily by the performance of the Investment Funds (as defined below), and the results of operations of our Energy segment, impacted by the demand and pricing for its products. Refer to our respective segment discussions and "Other Consolidated Results of Operations," below for further discussion. Net Income (Loss) Revenues Net Income (Loss) Attributable to Icahn Enterprises Six Months Ended June 30, Six Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 2022 2021 (in millions) Investment $ 501$ 1,132 $ 402$ 1,007 $ 196 $ 459 Holding Company 52 21 (127) (313) (127) (313) Other Operating Segments: Energy 5,433 3,329 368 (81) 171 (44) Automotive 1,186 1,232 (43) (84) (43) (84) Food Packaging 206 199 3 1 3 1 Real Estate 58 44 4 (5) 4 (5) Home Fashion 124 92 (1) (6) (1) (6) Pharma 36 49 (8) 6 (8) 6 Metals - 274 - 12 - 12 Other operating segments 7,043 5,219 323 (157) 126 (120) Consolidated$ 7,596 $ 6,372 $ 598$ 537 $ 195 $ 26 Investment
We invest our proprietary capital through various private investment funds
("Investment Funds"). As of June 30, 2022 and December 31, 2021 , we had
investments with a fair market value of approximately $4.4 billion and $4.2
billion , respectively, in the Investment Funds. As of June 30, 2022 and
December 31, 2021 , the total fair market value of investments in the Investment
Funds made by Mr. Icahn and his affiliates (excluding us and Brett Icahn ) was
approximately $5.3 billion and $5.0 billion , respectively.
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Our Investment segment's results of operations are reflected in net income in the condensed consolidated statements of operations. Our Investment segment's net income (loss) is driven by the amount of funds allocated to the Investment Funds and the performance of the underlying investments in the Investment Funds. Future funds allocated to the Investment Funds may increase or decrease based on the contributions and redemptions by our Holding Company,Mr. Icahn and his affiliates and byBrett Icahn ,Mr. Icahn's son. Additionally, historical performance results of the Investment Funds are not indicative of future results as past market conditions, investment opportunities and investment decisions may not occur in the future. Changes in general market conditions coupled with changes in exposure to short and long positions have significant impact on our Investment segment's results of operations and the comparability of results of operations year over year and as such, future results of operations will be impacted by our future exposures and future market conditions, which may not be consistent with prior trends. Refer to the "Investment Segment Liquidity" section of our "Liquidity and Capital Resources" discussion for additional information regarding our Investment segment's exposure as ofJune 30, 2022 . For the three months endedJune 30, 2022 and 2021, our Investment Funds' returns were (4.8)% and 1.4%, respectively. For the six months endedJune 30, 2022 and 2021, our Investment Funds' returns were 4.3% and 10.8%, respectively. Our Investment Funds' returns represent a weighted-average composite of the average returns, net of expenses. The following table sets forth the performance attribution for the Investment Funds' returns. Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Long positions (20.8) % 6.6 % (4.5) % 30.3 % Short positions 16.1 % (5.1) % 9.1 % (19.3) % Other (0.1) % (0.1) % (0.3) % (0.2) % (4.8) % 1.4 % 4.3 % 10.8 %
The following table presents net income (loss) for our Investment segment for
the three and six months ended
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(in millions)
Long positions $ (1,783) $ 992 $ (289) $ 2,906
Short positions 1,298 (837) 712 (1,879)
Other (8) (10) (21) (20)
$ (493) $ 145 $ 402 $ 1,007
Three Months Ended
For the three months endedJune 30, 2022 , the Investment Funds' negative performance was primarily driven by net losses in long positions, offset in part by net gains in short positions. The negative performance of our Investment segment's long positions was driven primarily by losses from one healthcare sector investment of approximately$819 million and one industrial sector investment of approximately$307 million . The aggregate performance of investments with net losses across various other sectors accounted for an additional negative performance of our Investment segment's long positions. The positive performance of our Investment segment's short positions was driven primarily by the positive performance of broad market hedges of$758 million . For the three months endedJune 30, 2021 , the Investment Funds' positive performance was driven by net gains in their long positions, offset in part by net losses in their short positions. The positive performance of our Investment segment's long positions was driven primarily by gains from two energy sector investments aggregating$494 million and a technology sector investment of$193 million . The aggregate performance of investments with net gains across various sectors accounted for an additional positive performance of our Investment segment's long positions. The negative performance of our Investment segment's short positions was driven primarily by the negative performance of 35
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broad market hedges of
Six Months Ended
For the six months endedJune 30, 2022 , the Investments Funds' positive performance was driven by net gains in their short positions, offset in part by net losses in certain long positions and credit default swaps. The positive performance of our Investment segment's short positions was driven primarily by a broad market hedge totaling$1.0 billion and the aggregate performance of short positions with net gains across various sectors. The negative performance of our Investment segment's long positions was driven primarily by the negative performance of one healthcare investment of approximately$1.1 billion and the aggregate performance of investments with net losses across various sectors accounted for additional negative performance, offset in part by gains in two energy sector investments aggregating approximately$1.8 billion . The positive performance of short positions was offset in part by the negative performance of an energy sector hedge totaling$400 million and the negative performance of certain credit default swap positions of$406 million . For the six months endedJune 30, 2021 , the Investment Funds' positive performance was driven by net gains in their long positions, offset in part by net losses in their short positions. The positive performance of our Investment segment's long positions was driven primarily by gains from two energy sector investments aggregating$1.6 billion . The aggregate performance of investments with net gains across various sectors accounted for an additional positive performance of our Investment segment's long positions. The negative performance of our Investment segment's short positions was driven primarily by the negative performance of an energy sector investment of$751 million and broad market hedges of$667 million . The aggregate performance of investments with net losses across various sectors accounted for an additional negative performance of our Investment segment's short positions. The negative performance of our Investment segment's short positions was offset in part by gains from a consumer, cyclical sector investment of$191 million .
Energy
Our Energy segment is primarily engaged in the petroleum refining and nitrogen fertilizer manufacturing businesses. The petroleum business accounted for approximately 92% and 94% of our Energy segment's net sales for the six months endedJune 30, 2022 and 2021, respectively. The results of operations of the petroleum business are primarily affected by the relationship between refined product prices and the prices for crude oil and other feedstocks that are processed and blended into petroleum products, such as gasoline, diesel fuel and jet fuel, that are produced by a refinery ("refined products"). The cost to acquire crude oil and other feedstocks and the price for which refined products are ultimately sold depend on factors beyond our Energy segment's control, including the supply of and demand for crude oil, as well as gasoline and other refined products. This supply and demand depend on, among other factors, changes in domestic and foreign economies, weather conditions, domestic and foreign political affairs, production levels, the availability of imports, the marketing of competitive fuels and the extent of government regulation. Because the petroleum business applies first-in, first-out accounting to value its inventory, crude oil price movements may impact gross margin in the short-term fluctuations in the market price of inventory. The effect of changes in crude oil prices on the petroleum business' results of operations is influenced by the rate at which the prices of refined products adjust to reflect these changes. In addition to recent market conditions, including the impact of theRussia /Ukraine conflict, there are long-term factors that may impact the demand for refined products. These factors include mandated renewable fuels standards, proposed climate change laws and regulations, and increased mileage standards for vehicles. The petroleum business is also subject to the Renewable Fuel Standard of theUnited States Environmental Protection Agency , which requires the operating companies in our Energy segment to either blend "renewable fuels" with their transportation fuels or purchase renewable identification numbers ("RINs"), to the extent available, in lieu of blending, or to seek other exemptions. The price of RINs has been extremely volatile and the future cost of RINs for the petroleum business is difficult to estimate. Additionally, the cost of RINs is dependent upon a variety of factors, which include the availability of RINs for 36 Table of Contents purchase, the price at which RINs can be purchased, transportation fuel production levels, the mix of the petroleum business' petroleum products, as well as the fuel blending performed at its refineries and downstream terminals, all of which can vary significantly from period to period. Refer to Note 16, "Commitments and Contingencies," to the condensed consolidated financial statements for further discussion of RINs. InDecember 2020 , our Energy segment approved a renewable diesel project at one of its refineries, which would convert the refinery's hydrocracker to a renewable diesel unit ("RDU") capable of producing 100 million gallons of renewable diesel per year and approximately 170 to 180 million RINs annually. As a result of conversion, the crude oil capacity of the refinery will be reduced. Further, the conversion enables our Energy segment to capture additional benefits associated with the existing blenders' tax credit that expires at the end of 2022 and low carbon fuel standard programs in states such asCalifornia . Our Energy segment has additional plans to add pretreating capabilities for the RDU and construction of a similar facility at its other refinery. These collective renewable diesel efforts could reduce our Energy segment's Renewable Fuels Standard ("RFS") exposure. However, any actions taken by theSupreme Court , resulting administration efforts under the RFS, such as denial of existing or previous waiver applications, and market conditions could significantly impact the amount by which our Energy segment's renewable diesel business mitigates our costs to comply with the RFS, if at all. Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (in millions) Net sales$ 3,144 $ 1,783 $ 5,517 $ 3,246 Cost of goods sold 2,715 1,757 4,838 3,336 Gross margin $ 429 $ 26 $ 679$ (90)
Three Months
Net sales for our Energy segment increased by$1.4 billion (76%) for the three months endedJune 30, 2022 as compared to the comparable prior year period due to an increase in our petroleum business' net sales, which increased$1.3 billion , as well as an increase in our nitrogen fertilizer business' net sales, which increased$106 million over the comparable periods. The increase in the petroleum business' net sales was primarily due to an increase in prices of gasoline and distillates mainly attributable to the ongoing conflict inUkraine resulting in a global increase in commodity prices. Volumes were lower in the comparable prior year period due to the reduced utilization of the refineries resulting from the startup of the RDU and minor plant outages in the current period. Our nitrogen fertilizer business' net sales increased primarily due to an increase in urea ammonium nitrate ("UAN") sales primarily due to favorable pricing conditions. Cost of goods sold for our Energy segment increased by$1.0 billion (55%) for the three months endedJune 30, 2022 as compared to the comparable prior year period. The increase was primarily due to our petroleum business as a result of higher cost of consumed crude oil. The higher cost of consumed crude oil was due to an increase in higher crude oil prices and lower derivative performance of$66 million compared to the prior period. Gross margin for our Energy segment improved by$403 million for the three months endedJune 30, 2022 as compared to the comparable prior year period. Gross margin as a percentage of net sales was 14% and 1% for the three months endedJune 30, 2022 and 2021, respectively. The improvement in the gross margin as a percentage of net sales was primarily attributable to the petroleum business, which was primarily due to higher crack spreads, in addition to higher net sales and pricing in the nitrogen fertilizer business.
Six Months
Net sales for our Energy segment increased by$2.3 billion (70%) for the six months endedJune 30, 2022 as compared to the comparable prior year period due to an increase in our petroleum business' net sales, which increased$2.0 billion , as well as an increase in our nitrogen fertilizer business' net sales, which increased$268 million over the comparable periods. The increase in the petroleum business' net sales was primarily due to an increase in prices of gasoline and distillates mainly attributable to the ongoing conflict inUkraine resulting in a global increase in commodity prices. Volumes were lower in the current year period due to the planned turnaround at one of the refineries,
the
startup
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of the RDU, and minor plant outages. Our nitrogen fertilizer business' net sales
increased primarily due to an increase in urea ammonium nitrate ("UAN") sales
primarily due to favorable pricing conditions.
Cost of goods sold for our Energy segment increased by $1.5 billion (45%) for
the six months ended June 30, 2022 as compared to the comparable prior year
period. The increase was primarily due to our petroleum business as a result of
higher cost of consumed crude oil. The higher cost of consumed crude oil was due
to an increase in higher crude oil prices offset in part by a decrease in the
net cost of RINs compared to the prior period. Gross margin for our Energy
segment improved by $769 million for the six months ended June 30, 2022 as
compared to the comparable prior year period. Gross margin as a percentage of
net sales was 12% and (3)% for the six months ended June 30, 2022 and 2021,
respectively. The improvement in the gross margin as a percentage of net sales
was primarily attributable to the petroleum business, which was primarily due to
higher crack spreads, in addition to higher net sales and pricing in the
nitrogen fertilizer business.
Automotive
Our Automotive segment's results of operations are generally driven by the demand for automotive service and maintenance and the distribution and installation of automotive aftermarket parts, and is affected by the relative strength of automotive part replacement trends, among other factors.
Our Automotive segment has been in the process of implementing a multi-year transformation plan, which includes the restructuring of its businesses. The transformation plan includes operating the automotive services and aftermarket parts businesses as separate businesses, streamliningIcahn Automotive's corporate and field support teams, facility closures, consolidations and conversions, inventory optimization actions, and the re-focusing of its automotive parts business on certain core markets. As part of this plan, in 2021Icahn Automotive entered into an agreement to sell certain inventory assets relating to its aftermarket parts business at 109 locations and a distribution center inCalifornia and certain other inventory and fixed assets inCalifornia . Costs to implement the transformation plan include restructuring charges, which are recorded when specific plans are approved, and which may be significant.
Our Automotive segment's priorities include:
? Positioning the service business to take advantage of opportunities in the
do-it-for-me market and vehicle fleets;
? Optimizing the value of the commercial parts distribution business in certain
high-volume core markets;
? Exiting the automotive parts distribution business in certain low volume,
non-core markets;
? Improving inventory management across
distribution network;
? Investment in customer experience initiatives and selective upgrades in
facilities;
? Investment in employees with focus on training and career development
investments; and
? Business process improvements, including investments in our supply chain and
information technology capabilities.
The following table presents our Automotive segment's operating revenue, cost of
revenue and gross margin. Our Automotive segment's results of operations also
include automotive services labor. Automotive services labor revenues are
included in other revenues from operations in our condensed consolidated
statements of operations, however, the sale of any installed parts or materials
related to automotive services are included in net sales. Automotive rental
revenues are included in other revenues from operations in our condensed
consolidated statements of operations, however, are
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excluded from the table below. Therefore, we discuss the combined results of our automotive net sales and automotive services labor revenues below.
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(in millions)
Net sales and other revenues from
operations $ 608 $ 637 $ 1,162 $ 1,235
Cost of goods sold and other
expenses from operations 422 461 815 886
Gross margin $ 186 $ 176 $ 347 $ 349
Three Months Ended
Net sales and other revenues from operations for our Automotive segment for the three months endedJune 30, 2022 decreased by$29 million (5%) as compared to the comparable prior year period. The decrease was attributable to a decrease in aftermarket parts sales of$75 million (26%), offset in part by an increase in automotive services revenue of$46 million (13%). The decrease in aftermarket part sales included a decrease in commercial sales of$25 million (15%) compared to the prior period. Cost of goods sold and other expenses from operations for the three months endedJune 30, 2022 decreased by$39 million (8%) as compared to the comparable prior year period. The decrease was primarily due to lower costs attributable to lower aftermarket parts sales which exceeded higher costs associated with higher services revenues. Gross margin on net sales and other revenue from operations for the three months endedJune 30, 2022 increased by$10 million (6%) as compared to the comparable prior year period. Gross margin as a percentage of net sales and other revenue from operations was 31% and 28% for the three months endedJune 30, 2022 and 2021, respectively.
Six Months Ended
Net sales and other revenues from operations for our Automotive segment for the six months endedJune 30, 2022 decreased by$73 million (6%) as compared to the comparable prior year period. The decrease was attributable to a decrease in aftermarket parts sales of$150 million (27%), offset in part by an increase in automotive services revenue of$77 million (12%). The decrease in aftermarket parts is mainly related to a decrease in commercial sales of$24 million (15%). Cost of goods sold and other expenses from operations for the six months endedJune 30, 2022 decreased by$71 million (8%) as compared to the comparable prior year period. The decrease was primarily due to lower costs attributable to lower aftermarket part sales which exceeded higher costs associated with higher services revenues. Gross margin on net sales and other revenue from operations for the six months endedJune 30, 2022 decreased by$2 million (1%) as compared to the comparable prior year period. Gross margin as a percentage of net sales and other revenue from operations was 30% and 28% for the six months endedJune 30, 2022 and 2021, respectively.
Our Food packaging segment's results of operations are primarily driven by the production and sale of cellulosic, fibrous and plastic casings for the processed meat and poultry industry and derives a majority of its total net sales from customers located outsidethe United States .
Three Months Ended
Net sales for the three months endedJune 30, 2022 increased$4 million (4%) as compared to the comparable prior year period. The increase was due to an increase of$13 million in price and product mix, offset by a decrease of$2 million due to unfavorable effects of foreign exchange and a decrease of$7 million due to lower volumes. Cost of goods sold for the three months endedJune 30, 2022 increased by$2 million (2%) as compared to the comparable prior year period due to the effects of raw material price inflation, manufacturing inefficiencies and distribution costs, offset in part 39
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by lower volumes. Gross margin as a percentage of net sales was 18% and 17% for
the three months ended
Six Months Ended
Net sales for the six months endedJune 30, 2022 increased$4 million (2%) as compared to the comparable prior year period. The increase was mostly due to an increase of$26 million in price and product mix, offset by a decrease of$5 million due to unfavorable effects of foreign exchange and a decrease of$16 million due to lower volumes. Cost of goods sold for the six months endedJune 30, 2022 increased by$3 million (2%) as compared to the comparable prior year period due to the effects of raw material price inflation, manufacturing inefficiencies and distribution costs. Gross margin as a percentage of net sales was 19% for the six months endedJune 30, 2022 and 2021, respectively.
Real Estate
Our Real Estate segment consists primarily of investment properties, the development and sale of single-family homes, and the management of a country club. Sales of single-family homes are included in net sales in our consolidated statements of operations. Results from investment properties and country club operations are included in other revenues from operations in our consolidated statements of operations. Revenue from our real estate operations for each of the six months endedJune 30, 2022 and 2021 were primarily derived from the sale of residential units and rental operations.
Home Fashion
Our Home Fashion segment is significantly influenced by the overall economic environment, including consumer spending, at the retail level, for home textile products.
Three Months Ended
Net sales for the three months endedJune 30, 2022 increased by$18 million (35%) compared to the comparable prior year period primarily due to an increase in demand as leisure and business travel have increased due to the reduced impact of the COVID-19 pandemic on our Home Fashion segment's hospitality business. Cost of goods sold for the three months endedJune 30, 2022 increased$16 million (39%) compared to the comparable prior year period due to higher material and freight costs. Gross margin as a percentage of net sales was 17% and 20% for the three months endedJune 30, 2022 and 2021, respectively. The decrease is due to higher material and freight costs.
Six Months Ended
Net sales for the six months endedJune 30, 2022 increased by$32 million (35%) compared to the comparable prior year period primarily due to an increase in demand as leisure and business travel have increased due to the reduced impact of the COVID-19 pandemic on our Home Fashion segment's hospitality business. Cost of goods sold for the six months endedJune 30, 2022 increased$27 million (36%) compared to the comparable prior year period due to higher material and freight costs. Gross margin as a percentage of net sales was 18% for both six months endedJune 30, 2022 and 2021.
Pharma
Our Pharma segment derives revenues primarily from the sale of its products directly to customers, wholesalers and pharmacies.
Three Months Ended
Net sales for the three months endedJune 30, 2022 was flat compared to the comparable prior year period. Cost of goods sold for the three months endedJune 30, 2022 was flat compared to the prior year period. Gross margin as a percentage of net sales was 33% for both of three months endingJune 30, 2022 and 2021, respectively. 40 Table of Contents
Six Months Ended
Net sales for the six months endedJune 30, 2022 decreased$14 million (30%) compared to the comparable prior year period primarily due to the absence of a$13 million one-time sale of product to a single customer in the first quarter of 2021. Cost of goods sold for the six months endedJune 30, 2022 decreased$2 million (8%) compared to the prior year period due to lower volumes. Gross margin as a percentage of net sales was 27% and 45% for the six months endingJune 30, 2022 and 2021, respectively. The decrease is due to the absence of the one-time sale in the first quarter of 2021 mentioned above.
Holding Company
Our Holding Company's results of operations primarily reflect the interest
expense on its senior unsecured notes and investment gains and losses from
equity investments for each of the three months ended
Other Consolidated Results of Operations
Selling, General and Administrative
Three Months Ended
Our consolidated selling, general and administrative costs during the three months endedJune 30, 2022 increased by$11 million (4%) as compared to the comparable prior year period primarily due to higher expenses of our Energy segment mainly related to increased personnel costs driven by higher share-based compensation.
Six Months Ended
Our consolidated selling, general and administrative costs during the six months endedJune 30, 2022 decreased by$4 million (1%) as compared to the comparable prior year period primarily due to lower expenses of our Automotive segment mainly related to its transformation plan offset in part by higher expenses at our Energy segment mainly related to increased personnel costs driven by higher share-based compensation. Interest Expense
Three Months Ended
Our consolidated interest expense during the three months endedJune 30, 2022 decreased by$7 million (4%) as compared to the comparable prior year period. The decrease was primarily due to lower interest expense for our Holding Company due to the$500 million debt repayment inFebruary 2022 .
Six Months Ended
Our consolidated interest expense during the six months endedJune 30, 2022 decreased by$68 million (19%) as compared to the comparable prior year period. The decrease was primarily due to lower interest expense from our Investment segment due to lower balances on margin accounts and lower interest expense for our Holding Company due to the$500 million debt repayment inFebruary 2022 .
Income Tax Expense
Certain of our subsidiaries are partnerships not subject to taxation in our
condensed consolidated financial statements and certain other subsidiaries are
corporations, or subsidiaries of corporations, subject to taxation in our
condensed consolidated financial statements. Therefore, our consolidated
effective tax rate generally differs from the statutory federal tax rate. Refer
to Note 13, "Income Taxes," to the condensed consolidated financial statements
for a discussion of income taxes.
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Liquidity and Capital Resources
Holding Company Liquidity
We are a holding company. Our cash flow and our ability to meet our debt service obligations and make distributions with respect to depositary units depends on the cash flow resulting from divestitures, equity offerings and debt financings, interest income, returns on our interests in the Investment Funds and the payment of funds to us by our subsidiaries in the form of loans, dividends and distributions. We may pursue various means to raise cash from our subsidiaries. To date, such means include receipt of dividends and distributions from subsidiaries, obtaining loans or other financings based on the asset values of subsidiaries or selling debt or equity securities of subsidiaries through capital market transactions. To the degree any distributions and transfers are impaired or prohibited, our ability to make payments on our debt or distributions on our depositary units could be limited. The operating results of our subsidiaries may not be sufficient for them to make distributions to us. In addition, our subsidiaries are not obligated to make funds available to us and distributions and intercompany transfers from our subsidiaries to us may be restricted by applicable law or covenants contained in debt agreements and other agreements. As ofJune 30, 2022 , our Holding Company had cash and cash equivalents of approximately$1.4 billion and total debt of approximately$5.3 billion . As ofJune 30, 2022 , our Holding Company had investments in the Investment Funds with a total fair market value of approximately$4.4 billion . We may redeem our direct investment in the Investment Funds upon notice. See "Investment Segment Liquidity" below for additional information with respect to our Investment segment liquidity. See "Consolidated Cash Flows" below for additional information with respect to our Holding Company liquidity.
Holding Company Borrowings and Availability
June 30, December 31,
2022 2021
(in millions)
6.750% senior unsecured notes due 2024 $ - $ 499
4.750% senior unsecured notes due 2024 1,104 1,105
6.375% senior unsecured notes due 2025 749 748
6.250% senior unsecured notes due 2026 1,250 1,250
5.250% senior unsecured notes due 2027 1,460 1,461
4.375% senior unsecured notes due 2029 747 747
$ 5,310 $ 5,810
Holding Company debt consists of various issues of fixed-rate senior unsecured
notes issued by Icahn Enterprises and Icahn Enterprises Finance Corp. (together
the "Issuers") and guaranteed by Icahn Enterprises Holdings (the "Guarantor").
Interest on each tranche of senior unsecured notes is payable semi-annually.
In February 2022 , we redeemed all of our $500 million in aggregate principal
amount of 6.750% senior unsecured notes due 2024 at par. This transaction is
expected to result in annual savings of approximately $34 million in future
interest expense.
Each of our senior unsecured notes and the related guarantees are the senior
unsecured obligations of the Issuers and rank equally with all of the Issuers'
and the Guarantor's existing and future senior unsecured indebtedness and senior
to all of the Issuers' and the Guarantor's existing and future subordinated
indebtedness. Each of our senior unsecured notes and the related guarantees are
effectively subordinated to the Issuers' and the Guarantor's existing and future
secured indebtedness to the extent of the collateral securing such
indebtedness. Each of our senior unsecured notes and the related guarantees are
also effectively subordinated to all indebtedness and other liabilities of the
Issuers' subsidiaries other than the Guarantor.
The indentures governing our senior unsecured notes described above restrict the
payment of cash distributions, the purchase of equity interests or the purchase,
redemption, defeasance or acquisition of debt subordinated to the senior
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unsecured notes. The indentures also restrict the incurrence of debt or the issuance of disqualified stock, as defined in the indentures, with certain exceptions. In addition, the indentures require that on each quarterly determination date,Icahn Enterprises and the guarantor of the notes (currently onlyIcahn Enterprises Holdings ) maintain certain minimum financial ratios, as defined therein. The indentures also restrict the creation of liens, mergers, consolidations and sales of substantially all of our assets, and transactions with affiliates. Additionally, each of the senior unsecured notes outstanding as ofJune 30, 2022 , except for the 4.750% senior unsecured notes due 2024, the 5.250% senior unsecured notes due 2027 and 4.375% senior unsecured notes due 2029, are subject to optional redemption premiums in the event we redeem any of the notes prior to certain dates as described in the indentures. As ofJune 30, 2022 andDecember 31, 2021 , we were in compliance with all covenants, including maintaining certain minimum financial ratios, as defined in the indentures. Additionally, as ofJune 30, 2022 , based on covenants in the indentures governing our senior unsecured notes, we are not permitted to incur additional indebtedness; however, we are permitted to issue new notes in connection with debt refinancings of existing notes.
At-The-Market Offerings
During the six months endedJune 30, 2022 ,Icahn Enterprises sold 7,546,779 depositary units pursuant to its Open Market Sale Agreement, resulting in gross proceeds of$394 million . As ofJune 30, 2022 , we continue to have an activeOpen Market Sale Agreement andIcahn Enterprises may sell its depositary units for up to an additional$291 million in aggregate gross sale proceeds pursuant to this agreement. No assurance can be made that any or all amounts will be sold during the term of the agreement, and we have no obligation to sell additional depositary units under the Open Market Sale Agreement. Depending on market conditions, we may continue to sell depositary units under the Open Market Sale Agreement, and, if appropriate, enter into a new Open Market Sale Agreement to continue our "at-the-market" sales program once we have sold the full amount of our existing Open Market Sale Agreement. Our ability to access remaining capital under our "at-the-market" program may be limited by market conditions at the time of any future potential sale. While we were able to sell shares during the six months endedJune 30, 2022 , there can be no assurance that any future capital will be available on acceptable terms or at all under this program.
LP Unit Distributions
During the six months ended June, 30, 2022,Icahn Enterprises declared two quarterly distributions aggregating$4.00 per depositary unit in which each depositary unitholder had the option to make an election to receive either cash or additional depositary units. In connection with this distribution, aggregate cash distributions to all depositary unitholders that made a timely election to receive cash was$100 million during the six months endedJune 30, 2022 . OnAugust 3, 2022 , the Board of Directors of the general partner ofIcahn Enterprises declared a quarterly distribution in the amount of$2.00 per depositary unit, which will be paid on or aboutSeptember 28, 2022 to depositary unitholders of record at the close of business onAugust 20, 2022 . Depositary unitholders will have untilSeptember 16, 2022 to make a timely election to receive either cash or additional depositary units. If a unitholder does not make a timely election, it will automatically be deemed to have elected to receive the distribution in additional depositary units. Depositary unitholders who elect to receive (or who are deemed to have elected to receive) additional depositary units will receive units valued at the volume weighted average trading price of the units during the five consecutive trading days endingSeptember 23, 2022 .Icahn Enterprises will make a cash payment in lieu of issuing fractional depositary units to any unitholders electing to receive (or who are deemed to have elected to receive) depositary units.
Sale of Investments
During the six months ended
Investment Segment Liquidity
In addition to investments by us and
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Additionally, our Investment segment liquidity is driven by the investment
activities and performance of the Investment Funds. As of June 30, 2022 , the
Investment Funds had a net short notional exposure of 28%. The Investment Funds'
long exposure was 72% (71% long equity and 1% long credit) and its short
exposure was 100% (86% short equity and 14% short credit). The notional exposure
represents the ratio of the notional exposure of the Investment Funds' invested
capital to the net asset value of the Investment Funds at June 30, 2022 .
Of the Investment Funds' 72% long exposure, 59% was comprised of the fair value
of its long positions and 13% was comprised of single name equity forward
contracts and credit contracts. Of the Investment Funds' 100% short exposure,
41% was comprised of the fair value of its short positions (with certain
adjustments) and 59% was comprised of single name equity forward contracts and
credit contracts.
With respect to both our long positions that are not notionalized (59% long
exposure) and our short positions that are not notionalized (41% short
exposure), each 1% change in exposure as a result of purchases or sales
(assuming no change in value) would have a 1% impact on our cash and cash
equivalents (as a percentage of net asset value). Changes in exposure as a
result of purchases and sales as well as adverse changes in market value would
also have an effect on funds available to us pursuant to prime brokerage lines
of credit.
With respect to the notional value of our other short positions (59% short
exposure), our liquidity would decrease by the balance sheet unrealized loss if
we were to close the positions at quarter end prices. This would be offset by a
release of restricted cash balances collateralizing these positions as well as
an increase in funds available to us pursuant to certain prime brokerage lines
of credit. If we were to increase our short exposure by adding to these short
positions, we would be required to provide cash collateral equal to a
small percentage of the initial notional value at counterparties that require
cash as collateral and then post additional collateral equal to 100% of the mark
to market on adverse changes in fair value. For our counterparties who do not
require cash collateral, funds available from lines of credit would decrease.
Other Segment Liquidity
Segment Cash and Cash Equivalents
Segment cash and cash equivalents (excluding our Investment segment) consists of
the following:
June 30, December 31,
2022 2021
(in millions)
Energy $ 893 $ 510
Automotive 35 28
Food Packaging 8 10
Real Estate 30 30
Home Fashion 3 3
Pharma 17 14
$ 986 $ 595
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Segment Borrowings and Availability
Segment debt consists of the following:
June 30, December 31,
2022 2021
(in millions)
Energy $ 1,594 $ 1,660
Automotive 18 26
Food Packaging 162 155
Real Estate 1 1
Home Fashion 49 40
$ 1,824 $ 1,882
Refer to our Annual Report on Form 10-K for the year ended
Our segments have additional borrowing availability under certain revolving credit facilities as summarized below:
June 30,
2022
(in millions)
Energy $ 281
Food Packaging 4
Home Fashion 10
$ 295
The above outstanding debt and borrowing availability with respect to each of our continuing operating segments reflects third-party obligations.
InFebruary 2022 , CVR Partners redeemed the remaining$65 million aggregate principal amount of its 9.25% senior secured notes dueJune 2023 at par. This transaction is expected to result in annual savings of approximately$6 million in future interest expense. As ofJune 30, 2022 andDecember 31, 2021 , total availability underCVR Refining and CVR Partners variable rate asset based revolving credit facilities aggregated$281 million and$396 million , respectively. CVR Refining also had$29 million and$39 million of letters of credit outstanding as ofJune 30, 2022 andDecember 31, 2021 , respectively.
Subsidiary Stock Repurchase Program
OnMay 6, 2020 , the Board of Directors of CVR Partners' general partner approved a unit repurchase program which would enable it to repurchase up to$10 million of its common units from time to time through open market transactions, block trades, privately negotiated transactions or otherwise in accordance with applicable securities laws. OnFebruary 22, 2021 , the Board of Directors of CVR Partners authorized an additional$10 million under the unit repurchase program. During the three months endedJune 30, 2022 and 2021, CVR Partners did not repurchase any common units. During the six months endedJune 30, 2022 and 2021, CVR Partners repurchased 111,695 and 24,378 common units, respectively, on the open market at a cost of$12 million and$1 million , respectively. As ofJune 30, 2022 , CVR Partners has a nominal amount remaining under its unit repurchase program. 45 Table of Contents Subsidiary Dividend For the first quarter of 2022, our Energy segment paid a cash dividend of$0.40 per share, which was paidMay 23, 2022 to shareholders of record as ofMay 13, 2022 . Our portion of the dividend included approximately$28 million in cash. For the second quarter of 2022, our Energy segment declared a cash dividend of$0.40 per share, or$40 million , which is payableAugust 22, 2022 to shareholders of record as ofAugust 12, 2022 . Our portion of the dividend will include approximately$28 million in cash. In addition, for the second quarter of 2022, our Energy segment declared a special dividend of$2.60 per share, or$261 million , which is payableAugust 22, 2022 to shareholders of record as ofAugust 12, 2022 . Our portion of the dividend will include approximately$185 million in cash. For the second quarter of 2022, CVR Partners declared a distribution of$10.05 per common unit, or$106 million , which is payableAugust 22, 2022 to shareholders of record as ofAugust 12, 2022 . Of this amount, CVR Energy will receive approximately$39 million in cash.
Consolidated Cash Flows
Our Holding Company's cash flows are generally driven by payments and proceeds associated with our senior unsecured debt obligations and payments and proceeds associated with issuances of equity byIcahn Enterprises . Additionally, our Holding Company's cash flows include transactions with our Investment and other operating segments. Our Investment segment's cash flows are primarily driven by investment transactions, which are included in net cash flows from operating activities due to the nature of its business, as well as contributions to and distributions fromMr. Icahn and his affiliates (includingIcahn Enterprises andIcahn Enterprises Holdings ) andBrett Icahn , which are included in net cash flows from financing activities. Our other operating segments' cash flows are driven by the activities and performance of each business as well as transactions with our Holding Company, as discussed below.
The following table summarizes cash flow information for
Six Months Ended June 30, 2022 Six Months Ended June 30, 2021
Net Cash Provided By (Used In) Net Cash Provided By (Used In)
Operating Investing Financing Operating Investing Financing
Activities Activities Activities Activities Activities Activities
(in millions)
Holding Company $ (183) $ 120 $ (204) $ (193) $ 500 $ 319
Investment 2,106 - 5 (384) - 46
Other Operating Segments:
Energy 712 (156) (173) 243 (141) (250)
Automotive (11) (50) 66 (11) 23 14
Food Packaging (5) (9) 6 (13) (6) 6
Metals - - - (7) (1) 7
Real Estate 25 (7) (18) 14 (4) 7
Home Fashion (18) - 18 (14) (1) 11
Pharma 3 - - 1 - -
Other operating segments 706 (222) (101) 213 (130) (205)
Total before eliminations 2,629 (102) (300) (364) 370 160
Eliminations - 33 (33) - (124) 124
Consolidated $ 2,629 $ (69) $ (333) $ (364) $ 246 $ 284
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Eliminations
Eliminations in the table above relate to certain of our Holding Company's transactions with our Investment and other operating segments. Our Holding Company's net (investments in) distributions from the Investments Funds, when applicable, are included in cash flows from investing activities for our Holding Company and cash flows from financing activities for our Investment segment. Similarly, our Holding Company's net distributions from (investments in) our other operating segments are included in cash flows from investing activities for our Holding Company and cash flows from financing activities for our other operating segments. Holding Company
Our Holding Company's cash flows from operating activities for each of six months endedJune 30, 2022 and 2021 were primarily attributable to our semi-annual interest payments on our senior unsecured notes. The decrease in interest payments over the comparable period is primarily due to the redemption of$500 million of senior unsecured notes inFebruary 2022 . Our Holding Company's cash flows from investing activities for the six months endedJune 30, 2022 were primarily attributable to proceeds from the sale of equity investments aggregating$153 million . Our Holding Company's cash flows from investing activities for the six months endedJune 30, 2021 were primarily attributable to proceeds from the sale of equity investments of$376 million and dividends from our Energy segment of$171 million offset in part by investments in/contributions to our operating subsidiaries aggregating$47 million . Our Holding Company's cash flows used in financing activities for the six months endedJune 30, 2022 were due to the redemption of$500 million of senior unsecured notes offset in part by proceeds from our "at-the-market" offering. Our Holding Company's cash flows from financing activities for the six months endedJune 30, 2021 were due to proceeds from our "at-the-market" offering, offset in part by the net effect of a debt refinancing transaction.
Investment Segment
Our Investment segment's cash flows from operating activities for the comparable periods were attributable to its net investment transactions.
Our Investment segment's cash flows from financing activities for the six months endedJune 30, 2022 and 2021 were attributable toBrett Icahn's contribution to the Funds of$5 million and$46 million , respectively.
Other Operating Segments
Our other operating segments' cash flows from operating activities included net cash flows from operating activities before changes in operating assets and liabilities of$597 million and$(74) million for the six months endedJune 30, 2022 and 2021, respectively, primarily due to the results of our Energy segment during both periods. The change in cash flows from operating activities for the six months endedJune 30, 2022 as compared to the comparable prior year was primarily due to an increase in the operating results of our Energy segment primarily associated with increased crude oil prices during 2022.
Our other operating segments' cash flows from investing activities were
primarily due to capital expenditures and turnaround expenditures of
Our other operating segments' cash flows from financing activities were primarily due to our Energy segment. For the six months endedJune 30, 2022 , our Energy segment redeemed senior notes of$65 million , compared to proceeds from senior notes of$500 million for the six months endedJune 30, 2021 . In addition, our Energy segment paid a distribution to noncontrolling interests of$62 million and$70 million for the six months endedJune 30, 2022 and 2021, respectively. 47 Table of Contents
Consolidated Capital Expenditures
There have been no material changes to our planned capital expenditures as
compared to the estimated capital expenditures for 2022 reported in our Annual
Report on Form 10-K for the year ended
Critical Accounting Estimates
The critical accounting estimates used in the preparation of our condensed consolidated financial statements that we believe affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements presented in this Report are described in Management's Discussion and Analysis of Financial Condition and Results of Operations and in the Notes to the consolidated financial statements included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 .
There have been no material changes to our critical accounting policies and
estimates during the three months ended
Recently Issued Accounting Standards
Refer to Note 2, "Basis of Presentation and Summary of Significant Accounting Policies," to the condensed consolidated financial statements for a discussion of recent accounting pronouncements applicable to us.
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