What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-10 compared with 2020-05-08 · 192 added, 118 removed, 237 unchanged (57% of the section changed)

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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 ended March 31, 2020 (this “Report”), as well as our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission on February 28, 2020.

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 ended June 30, 2020 (this “Report”), as well as our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission on February 28, 2020.

Executive Overview

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The COVID-19 pandemic, and actions taken by governments and others in response thereto, has negatively impacted the global economy, financial markets, and the industries in which our subsidiaries operate.

Our consolidated results of operations and financial condition have been impacted primarily by the net declines in fair value of investments held by our Investment segment and the Holding Company (primarily unrealized) as well as declines in the global demand for refined products, especially gasoline, with respect to our Energy segment.

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 (primarily unrealized) as well as declines 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, lowering current year forecasts across various segments and recording write-downs to inventories.

We believe that the current economic conditions will continue to impact our businesses through at least the first half of 2020, and likely through the remainder of the year.

We believe that the current economic conditions will continue to impact our businesses through at least the remainder of the year.

The extent and duration of impact on our future results of operations, liquidity and financial condition is uncertain and may be significant.

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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.

The comparability of our summarized consolidated financial results presented below is affected primarily by the performance of the Investment Funds (as defined below), our Holding Company’s realized and unrealized equity investment gains and losses and the result of operations of our Energy segment, impacted by the demand and pricing for its products.

The comparability of our summarized consolidated financial results presented below is affected primarily by the performance of the Investment Funds (as defined below), our Holding Company’s realized and unrealized equity investment gains and losses 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)

Net Income (Loss) From

Continuing Operations

Attributable to Icahn Enterprises

Three Months Ended March 31,

Three Months Ended June 30,

(in millions)

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Other operating segments

Net Income (Loss) From

Continuing Operations

Attributable to Icahn Enterprises

Six Months Ended June 30,

(in millions)

Holding Company

Other Operating Segments:

Food Packaging

Other operating segments

We invest our proprietary capital through various private investment funds (“Investment Funds”).

As of March 31, 2020 and December 31, 2019, we had investments with a fair market value of approximately $4.4 billion and $4.3 billion, respectively, in the Investment Funds.

As of March 31, 2020 and December 31, 2019, the total fair market value of investments in the Investment Funds made by Mr.

As of June 30, 2020 and December 31, 2019, we had investments with a fair market value of approximately $4.6 billion and $4.3 billion, respectively, in the Investment Funds.

As of June 30, 2020 and December 31, 2019, the total fair market value of investments in the Investment Funds made by Mr.

Icahn and his affiliates (excluding us) was approximately $5.4 billion and $4.5 billion, respectively.

During the three months ended March 31, 2020, we invested $1.0 billion in the Investment Funds and affiliates of Mr.

During the six months ended June 30, 2020, we invested $ 750 million in the Investment Funds, net of redemptions, and affiliates of Mr.

Icahn (excluding us) contributed approximately $1.2 billion of primarily like-kind investments in the Investment Funds.

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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

Future funds allocated to the Investment Funds may increase or decrease based on the contributions and redemptions by our Holding Company and by Mr.

Icahn and his affiliates.

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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 of March 31, 2020.

For the three months ended March 31, 2020 and 2019, our Investment Funds’ returns were (17.6%) and (5.8%), respectively.

For the three months ended June 30, 2020 and 2019, our Investment Funds’ returns were 11.7% and (3.1%), respectively, and for the six months ended June 30, 2020 and 2019, our Investment Funds’ returns were (7.9%) and (8.8%), 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 March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Long positions

Short positions

The following table presents net income (loss) for our Investment segment for the three months ended March 31, 2020 and 2019.

Three Months Ended March 31,

The following table presents net income (loss) for our Investment segment for the three and six months ended June 30, 2020 and 2019.

Three Months Ended June 30,

Six Months Ended June 30,

(in millions)

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Short positions

Three Months Ended March 31, 2020 and 2019

For the three months ended March 31, 2020, the Investment Funds’ negative performance was driven by net losses in their long positions, offset in part by net gains in their short positions.

The negative performance of our Investment segment’s long positions was driven by losses from a consumer, cyclical sector investment of $973 million, aggregate losses from four other consumer, cyclical sector investments of $585 million, two energy sector investments aggregating approximately $1.1 billion, two consumer, non-cyclical sector investments aggregating $850 million and four technology sector investments aggregating $693 million.

Three Months Ended June 30, 2020 and 2019

For the three months ended June 30, 2020, 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 by gains from a consumer, cyclical sector investment of $998 million, two energy sector investments aggregating $906 million and aggregate gains from four other consumer, cyclical sector investments of $552 million.

The aggregate performance of investments with net gains across various other 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 broad market hedges of approximately $2.1 billion and aggregate losses from short positions across various sectors, offset in part the positive performance of our Investment segment’s short exposure to commercial mortgage-backed securities through credit default swap contracts of $534 million.

For the three months ended June 30, 2019, the Investment Funds' negative performance was driven by net losses in their short positions offset in part by net gains in their long positions.

The negative performance of our Investment segment's short positions was driven by the negative performance of broad market hedges of $476 million and the aggregate performance of short positions with net losses across various sectors.

The positive performance of our Investment segment's long positions was driven by gains from a consumer, cyclical sector investment of $472 million offset in part by losses from a consumer, non-cyclical sector investment with a loss of $288 million and the aggregate performance of investments with net losses across various other sectors.

Six Months Ended June 30, 2020 and 2019

For the six months ended June 30, 2020, the Investment Funds’ negative performance was driven by net losses in their long positions, offset in part by net gains in their short positions.

The negative performance of our Investment segment’s long positions was driven by losses from a consumer, non-cyclical sector investment of $637 million, aggregate losses from three technology sector investments of $745 million and an energy sector investment of $130 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 as well as short exposure to commercial mortgage-backed securities through credit default swap contracts.

For the three months ended March 31, 2019, the Investment Funds’ negative performance was driven by net losses in their short positions, offset in part by net gains in their long positions.

The negative performance of our Investment segment’s short positions was driven by the negative performance of broad market hedges of approximately $1.1 billion.

The aggregate performance of investments with net losses across various other sectors accounted for the additional negative performance of our Investment segment’s short positions.

The positive performance of our Investment segment’s long positions was driven by a technology sector investment and two energy sector investments with net gains aggregating $573 million.

The positive performance of our Investment segment’s short positions was driven by the positive performance of their short exposure to commercial mortgage-backed securities through credit default swap contracts of $1.3 billion, offset in part primarily by the negative performance of broad market hedges.

For the six months ended June 30, 2019, the Investment Funds' negative performance was driven by net losses in their short positions offset in part by net gains in their long positions.

The negative performance of our Investment segment's short positions was driven by the negative performance of broad market hedges of approximately $1.7 billion and the aggregate performance of short positions with net losses across various sectors.

The positive performance of our Investment segment's long positions was driven by gains from two consumer, cyclical sector investments, a technology sector investment and an energy sector investment with gains aggregating approximately $1.1 billion.

The aggregate performance of investments with net gains across various other sectors accounted for an additional positive performance of our Investment segment's long positions.

Gains in long positions

were offset in part by losses from a consumer, cyclical sector investment and a basic material sector investment aggregating $168 million.

The positive performance of long positions was offset in part by losses from a consumer, non-cyclical sector investment with a loss of $456 million.

Our Energy segment is primarily engaged in the petroleum refining and nitrogen fertilizer manufacturing businesses.

The petroleum business accounted for approximately 93% and 94% of our Energy segment’s net sales for the three months ended March 31, 2020 and 2019, respectively.

The petroleum business accounted for approximately 90% and 93% of our Energy segment’s net sales for the six months ended June 30, 2020 and 2019, 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”).

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Refer to Note 16, “Commitments and Contingencies,” to the condensed consolidated financial statements for further discussion of RINs.

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in millions)

Cost of goods sold

Three Months Ended March 31, 2020 and 2019

Net sales for our Energy segment decreased by $356 million (24%) for the three months ended March 31, 2020 as compared to the comparable prior year period, primarily due to a decrease in our petroleum business’ net sales which decreased $339 million.

Three Months Ended June 30, 2020 and 2019

Net sales for our Energy segment decreased by approximately $1.0 billion (60%) for the three months ended June 30, 2020 as compared to the comparable prior year period, primarily due to a decrease in our petroleum business’ net sales which decreased $979 million.

The decrease in the petroleum business’ net sales was primarily due to a decrease in sales of distillates as well as a decrease in gasoline sales attributable to a decrease in volumes and unfavorable pricing conditions.

During the quarter, scheduled maintenance at one of our petroleum business’ refineries as well as reduced utilization at another refinery due to the current market conditions have contributed to the decline in volumes.

In addition, in March 2020, a significant decline in gasoline demand resulted from government actions to address the COVID-19 pandemic.

During the quarter, one of our petroleum business’ refineries came online after a full, planned maintenance that began in the first quarter of 2020.

In addition, reduced utilization for the majority of the second quarter of 2020 at both refineries, which was due to the current market dynamics resulting from government actions to address the COVID-19 pandemic, have also contributed to the decline in volumes.

Our nitrogen fertilizer business’ net sales decreased $33 million primarily due to a decrease in urea ammonium nitrate (“UAN”) sales due to unfavorable pricing, partially offset by an increase in volumes.

Cost of goods sold for our Energy segment decreased by $53 million (4%) for the three months ended March 31, 2020 as compared to the comparable prior year period.

Cost of goods sold for our Energy segment decreased by $841 million (57%) for the three months ended June 30, 2020 as compared to the comparable prior year period.

The decrease was primarily due to our petroleum business as a result of lower cost of consumed crude oil.

The lower cost of consumed crude oil was due to a decrease in volumes resulting from the scheduled maintenance, as discussed above, and lower crude oil prices.

Cost of goods sold for our petroleum business was also lower due to higher derivative gains of $30 million, offset in part by a $58 million write-down of inventory to net realizable value and a $6 million increase in the net cost of RINs.

Gross margin for our Energy segment decreased by $303 million for the three months ended March 31, 2020 as compared to the comparable prior year period.

Gross margin as a percentage of net sales was (11)% and 12% for the three months ended March 31, 2020 and 2019, respectively.

The lower cost of consumed crude oil was due to a decrease in volumes resulting from the scheduled maintenance and reduced utilizations, as discussed above, and lower crude oil prices.

Cost of goods sold for our petroleum business was also lower due to higher derivative gains of $16 million and a $5 million decrease in the net cost of RINs.

Gross margin for our Energy segment decreased by $170 million for the three months ended June 30, 2020 as compared to the comparable prior year period.

Gross margin as a percentage of net sales was 4% and 12% for the three months ended June 30, 2020 and 2019, respectively.

The decrease in the gross margin as a percentage of net sales was primarily attributable to the petroleum business, which was primarily due to unfavorable market pricing and crack spreads, offset in part by higher derivative gains over the comparable periods.

Six Months Ended June 30, 2020 and 2019

Net sales for our Energy segment decreased by approximately $1.4 billion (43%) for the six months ended June 30, 2020 as compared to the comparable prior year period, primarily due to a decrease in our petroleum business’ net sales which decreased approximately $1.3 billion.

During 2020, full scheduled maintenance at one refinery as well as reduced utilization for the majority of the second quarter of 2020 at both refineries, which was due to the current market dynamics resulting from government actions to address the COVID-19 pandemic, have contributed to the decline in volumes.

Our nitrogen fertilizer business’ net sales decreased $50 million primarily due to a decrease in UAN sales due to unfavorable pricing, partially offset by an increase in volumes.

Cost of goods sold for our Energy segment decreased by $895 million (32%) for the six months ended June 30, 2020 as compared to the comparable prior year period.

The decrease was primarily due to our petroleum business as a result of lower cost of consumed crude oil.

The lower cost of consumed crude oil was due to a decrease in volumes resulting from the scheduled maintenance and reduced utilizations, as discussed above, and lower crude oil prices.

Cost of goods sold for our petroleum business was also lower due to higher derivative gains of $45 million, offset in part by a $58 million write-down of inventory to net realizable value in the first quarter of 2020.

Gross margin for our Energy segment decreased by $473 million for the six months ended June 30, 2020 as compared to the comparable prior year period.

Gross margin as a percentage of net sales was (5)% and 12% for the six months ended June 30, 2020 and 2019, respectively.

Our Automotive segment’s results of operations are generally driven by the distribution and installation of automotive aftermarket parts and are affected by the relative strength of automotive part replacement trends, among other factors.

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Therefore, we discuss the combined results of our automotive net sales and automotive services labor revenues below.

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in millions)

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Cost of goods sold and other expenses from operations

Three Months Ended March 31, 2020 and 2019

Net sales and other revenue from operations for our Automotive segment for the three months ended March 31, 2020 decreased by $58 million (8%) as compared to the comparable prior year period.

Three Months Ended June 30, 2020 and 2019

Net sales and other revenue from operations for our Automotive segment for the three months ended June 30, 2020 decreased by $157 million (21%) as compared to the comparable prior year period.

The decrease was attributable to a decrease in aftermarket parts sales of $89 million (22%) and a decrease in automotive services revenues of $68 million (20%).

On an organic basis, aftermarket parts sales decreased $26 million over the comparable periods due to a decrease in retail sales of $19 million and a decrease in commercial sales of $7 million.

On an organic basis, aftermarket parts sales decreased $46 million over the comparable periods due to a decrease in commercial sales of $31 million (13%) and a decrease in retail sales of $15 million (16%).

Store closures related to the transformation plan accounted for another $43 million decrease in aftermarket parts sales.

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The COVID-19 pandemic, and the impacts of the actions taken by governments and others, have significantly contributed to the decline in revenues, in particular the automotive services revenues and commercial sales revenues which, until March 2020, were experiencing growth on an organic basis.

Cost of goods sold and other expenses from operations for the three months ended March 31, 2020 decreased by $19 million (4%) as compared to the comparable prior year period.

Cost of goods sold and other expenses from operations for the three months ended June 30, 2020 decreased by $96 million (18%) as compared to the comparable prior year period.

The decrease was due to lower sales volumes as described above.

Gross margin on net sales and other revenue from operations for the three months ended March 31, 2020 decreased by $39 million (20%) as compared to the comparable prior year period.

Gross margin as a percentage of net sales and other revenue from operations was 25% and 29% for the three months ended March 31, 2020 and 2019, respectively.

Our Automotive segment has experienced some margin rate contraction for its services and parts businesses due to the reduction in vendor support funds and other unfavorable margin adjustments, including from a shift in aftermarket parts sales from retail to commercial, as well as from the negative impact from the COVID-19 pandemic, as described above.

Gross margin on net sales and other revenue from operations for the three months ended June 30, 2020 decreased by $61 million (29%) as compared to the comparable prior year period.

Gross margin as a percentage of net sales and other revenue from operations was 26% and 29% for the three months ended June 30, 2020 and 2019, respectively.

Our Automotive segment has experienced some margin rate contraction for its aftermarket parts businesses due to the effect of stores that were in the process of closing down and the shift in aftermarket parts sales from retail to commercial, as well as from the negative impact from the COVID-19 pandemic, as described above.

Six Months Ended June 30, 2020 and 2019

Net sales and other revenue from operations for our Automotive segment for the six months ended June 30, 2020 decreased by $215 million (15%) as compared to the comparable prior year period.

The decrease was attributable to a decrease in aftermarket parts sales of $130 million (17%) and a decrease in automotive services revenues of $85 million (13%).

On an organic basis, aftermarket parts sales decreased $73 million over the comparable periods due to a decrease in commercial sales of $39 million (8%) and a decrease in retail sales of $34 million (17%).

Store closures related to the transformation plan accounted for another $57 million decrease in aftermarket parts sales.

The decrease in automotive services revenues represent a decrease on a primarily organic basis.

Cost of goods sold and other expenses from operations for the six months ended June 30, 2020 decreased by $115 million (11%) as compared to the comparable prior year period.

The decrease was due to lower sales volumes as described above.

Gross margin on net sales and other revenue from operations for the six months ended June 30, 2020 decreased by $100 million (24%) as compared to the comparable prior year period.

Gross margin as a percentage of net sales and other revenue from operations was 26% and 29% for the six months ended June 30, 2020 and 2019, respectively.

Food Packaging

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 outside the United States.

Three Months Ended March 31, 2020 and 2019

Net sales for the three months ended March 31, 2020 increased $3 million (3%) as compared to the comparable prior year period.

The increase was due to an increase in volumes offset in part by the unfavorable effects of foreign exchange and price and product mix.

Cost of goods sold for the three months ended March 31, 2020 increased by $3 million (4%) as compared to the comparable prior year period due to an increase in volumes.

Gross margin as a percentage of net sales was 20% and 21% for the three months ended March 31, 2020 and 2019, respectively.

Three Months Ended June 30, 2020 and 2019

Net sales for the three months ended June 30, 2020 increased $6 million (6%) as compared to the comparable prior year period.

The increase was due to an increase in volumes and an increase due to price and product mix, offset in part by the unfavorable effects of foreign exchange.

Cost of goods sold for the three months ended June 30, 2020 increased by $6 million (8%) as compared to the comparable prior year period due to an increase in volumes.

Gross margin as a percentage of net sales was 21% and 23% for the three months ended June 30, 2020 and 2019, respectively.

Six Months Ended June 30, 2020 and 2019

Net sales for the six months ended June 30, 2020 increased $9 million (5%) as compared to the comparable prior year period.

The increase was due to an increase in volumes and an increase due to price and product mix, offset in part by the unfavorable effects of foreign exchange.

Cost of goods sold for the six months ended June 30, 2020 increased by $9 million (6%) as compared to the comparable prior year period due to an increase in volumes.

Gross margin as a percentage of net sales was 21% and 22% for the six months ended June 30, 2020 and 2019, respectively.

The scrap metals business is highly cyclical and is substantially dependent upon the overall economic conditions in the United States and other global markets.

Ferrous and non-ferrous scrap has been historically vulnerable to significant declines in consumption and product pricing during prolonged periods of economic downturn or stagnation.

Three Months Ended March 31, 2020 and 2019

Net sales for the three months ended March 31, 2020 decreased by $7 million (8%) compared to the comparable prior year period due to lower market selling prices for most grades of metal due to unfavorable market conditions that offset an increase in shipping volumes.

Cost of goods sold for the three months ended March 31, 2020 decreased by $7 million (8%) compared to the comparable prior year period.

The decrease was due to lower material costs due to lower market prices.

Gross margin as a percentage of net sales was 1% for each of the three months ended March 31, 2020 and 2019.

Three Months Ended June 30, 2020 and 2019

Net sales for the three months ended June 30, 2020 decreased by $61 million (64%) compared to the comparable prior year period due to lower shipping volumes and market selling prices for most grades of metal due to unfavorable market conditions.

Cost of goods sold for the three months ended June 30, 2020 decreased by $54 million (58%) compared to the comparable prior year period due to lower material costs due to lower volumes and market prices, as discussed above.

Gross margin as a percentage of net sales was (15%) and 2% for the three months ended June 30, 2020 and 2019, respectively, primarily due to the lower shipping volumes.

Six Months Ended June 30, 2020 and 2019

Net sales for the six months ended June 30, 2020 decreased by $68 million (36%) compared to the comparable prior year period due to lower shipping volumes and market selling prices for most grades of metal due to unfavorable market conditions.

Cost of goods sold for the six months ended June 30, 2020 decreased by $61 million (33%) compared to the comparable prior year period due to lower material costs due to lower volumes and market prices, as discussed above.

Gross margin as a percentage of net sales was (3)% and 2% for the six months ended June 30, 2020 and 2019, respectively, primarily due to the lower shipping volumes.

Real Estate revenues and expenses primarily include sales of residential units, results from club operations, rental operations, and hotel, timeshare and casino operations.

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Results from club and rental operations, and hotel, timeshare and casino operations are included in other revenues from operations in our condensed consolidated statements of operations.

Revenue from our real estate operations for each of the three months ended March 31, 2020 and 2019 were primarily derived from club and rental operations.

Revenue from our real estate operations for each of the three and six months ended June 30, 2020 were primarily derived from the sale of residential units and rental operations.

Revenue from our real estate operations for each of the three and six months ended June 30, 2019 were primarily derived from club and rental operations.

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 March 31, 2020 and 2019

Net sales for the three months ended March 31, 2020 increased by $11 million (28%) compared to the comparable prior year period due to a business acquired in the second quarter of 2019, which accounted for an increase of $13 million, offset in part by a $2 million decrease from existing businesses.

Cost of goods sold for the three months ended March 31, 2020 increased $8 million (24%) compared to the comparable prior year period which was also attributable to the acquired business.

Gross margin as a percentage of net sales was 18% and 15% for the three months ended March 31, 2020 and 2019, respectively.

The increase is due to higher margins from a new customer as well as the business acquired having higher margins than the existing businesses.

Three Months Ended June 30, 2020 and 2019

Net sales for the three months ended June 30, 2020 decreased by $7 million (16%) compared to the comparable prior year period due to a decrease in sales from existing businesses of $14 million, primarily as a result of the current economic conditions, offset in part by an increase in sales due to a business acquired in the second quarter of 2019, which accounted for an increase of $7 million in net sales.

Cost of goods sold for the three months ended June 30, 2020 decreased $11 million (28%) compared to the comparable prior year period due to a decrease in sales, as discussed above, as well as a shift to lower cost products, offset in part by an increase from the acquired business.

Gross margin as a percentage of net sales was 24% and 13% for the three months ended June 30, 2020 and 2019, respectively.

The increase is due to the reduction in sales to certain lower margin customers, the business acquired having higher margins than the existing businesses and due to the addition of newly added higher margin products.

Six Months Ended June 30, 2020 and 2019

Net sales for the six months ended June 30, 2020 increased by $4 million (5%) compared to the comparable prior year period due to a business acquired in the second quarter of 2019, which accounted for an increase of $20 million, offset in part by a $16 million decrease from existing businesses, primarily as a result of the current economic conditions.

Cost of goods sold for the six months ended June 30, 2020 decreased by $3 million (4%) compared to the comparable prior year period due to a decrease in sales from existing businesses, as discussed above, as well as a shift to lower cost products, offset in part by an increase from the acquired business.

Gross margin as a percentage of net sales was 21% and 13% for the six months ended June 30, 2020 and 2019, respectively.

Holding Company

Our Holding Company’s results of operations primarily reflect the interest expense on its senior unsecured notes for each of the three months ended March 31, 2020 and 2019.

In addition, our Holding Company has investment gains and losses from equity investments.

During the three months ended March 31, 2020, net gains and losses from investment activities were primarily attributable to unrealized losses from its equity investments.

During the three months ended March 31, 2019, net losses from investment activities were primarily attributable to unrealized losses from an equity investment offset in part by realized gains from an equity investment.

Our Holding Company’s results of operations primarily reflect investment gains and losses from debt and equity investments.

During the three and six months ended June 30, 2020, net gains and losses from investment activities were primarily attributable to unrealized gains and losses from its equity investments.

During the six months ended June 30, 2019, net losses from investment activities were offset in part by realized gains from an equity investment that was sold in the first quarter of 2019.

In addition, our Holding Company’s results of operations reflects the interest expense on its senior unsecured notes for each of the three and six months ended June 30, 2020 and 2019.

Other Consolidated Results of Operations

Selling, General and Administrative

Three Months Ended March 31, 2020 and 2019

Our consolidated selling, general and administrative during the three months ended March 31, 2020 decreased by $28 million (8%) as compared the comparable prior year period primarily due to (i) lower compensation costs for our Investment segment, (ii) lower occupancy costs for various locations and other general and administrative costs due to the current market conditions for our Automotive segment and (iii) the sale of our former Mining segment in August 2019.

Three Months Ended June 30, 2020 and 2019

Our consolidated selling, general and administrative during the three months ended June 30, 2020 decreased by $48 million (14%) as compared the comparable prior year period primarily due to lower occupancy costs for various locations and other general and administrative costs due to the current market conditions for our Automotive segment offset in part by an increase attributable to our Real Estate segment primarily for the accrual of demolition costs relating to a property not in service.

Six Months Ended June 30, 2020 and 2019

Our consolidated selling, general and administrative during the six months ended June 30, 2020 decreased by $76 million (11%) as compared the comparable prior year period primarily due to (i) lower occupancy costs for various locations and other general and administrative costs due to the current market conditions for our Automotive segment and the sale of our former Mining segment in August 2019 offset in part by an increase attributable to our Real Estate segment primarily for the accrual of demolition costs relating to a property not in service.

Interest Expense

Three Months Ended March 31, 2020 and 2019

Our consolidated interest expense during the three months ended March 31, 2020 increased by $32 million (23%) as compared the comparable prior year period.

The increase was primarily due to higher interest expense from our Investment segment attributable to an increase in average due to broker balances over the respective periods as well as higher interest expense at our Holding Company as a result of certain debt offerings in the second and fourth quarters of 2019 and additional debt offerings in the first quarter of 2020.

Three Months Ended June 30, 2020 and 2019

Our consolidated interest expense during the three months ended June 30, 2020 increased by $23 million (15%) as compared the comparable prior year period.

The increase was primarily due to higher interest expense from our Investment segment attributable to an increase in average due to broker balances over the respective periods as well as higher interest expense from our Energy segment as a result of certain debt offerings in the first quarter of 2020.

Six Months Ended June 30, 2020 and 2019

Our consolidated interest expense during the six months ended June 30, 2020 increased by $56 million (19%) as compared the comparable prior year period.

The increase was primarily due to higher interest expense from our

Investment segment attributable to an increase in average due to broker balances over the respective periods as well as higher interest expense from our Energy segment as a result of certain debt offerings in the first quarter of 2020.

Income Tax Expense

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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 of March 31, 2020, our Holding Company had cash and cash equivalents of approximately $1.4 billion and total debt of approximately $5.8 billion.

During the three months ended March 31, 2020, we invested $1.0 billion in the Investment Funds.

As of March 31, 2020, our Holding Company had investments in the Investment Funds with a total fair market value of approximately $4.4 billion, including $250 million in redemptions which did not settle until April 2020.

As of June 30, 2020, our Holding Company had cash and cash equivalents of approximately $1.1 billion and total debt of approximately $5.8 billion.

During the six months ended June 30, 2020, we invested $750 million in the Investment Funds, net of redemptions.

As of June 30, 2020, our Holding Company had investments in the Investment Funds with a total fair market value of approximately $4.6 billion.

We may redeem our direct investment in the Investment Funds upon notice.

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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 of March 31, 2020, except for the New 2024 Notes and the New 2027 Notes, 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 of March 31, 2020 and December 31, 2019, we were in compliance with all covenants, including maintaining certain minimum financial ratios, as defined in the indentures.

Additionally, as of March 31, 2020, based on covenants in the indentures governing our senior unsecured notes, we are not permitted to incur additional indebtedness.

Additionally, each of the senior unsecured notes outstanding as of June 30, 2020, except for the New 2024 Notes and the New 2027 Notes, 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 of June 30, 2020 and December 31, 2019, we were in compliance with all covenants, including maintaining certain minimum financial ratios, as defined in the indentures.

Additionally, as of June 30, 2020, based on covenants in the indentures governing our senior unsecured notes, we are not permitted to incur additional indebtedness.

2019 At-The-Market Offering

On May 2, 2019, Icahn Enterprises announced the commencement of its “at-the-market” offering pursuant to its Open Market Sale Agreement, pursuant to which Icahn Enterprises may sell its depositary units, from time to time, during the term of the program ending on March 31, 2021, for up to $400 million in aggregate sale proceeds.

During the three months ended March 31, 2020, Icahn Enterprises sold 107,131 depositary units pursuant to this agreement, resulting in gross proceeds of $7 million.

As of March 31, 2020, Icahn Enterprises may sell its depositary units for up to an additional $339 million in aggregate sale proceeds pursuant to this agreement.

During the six months ended June 30, 2020, Icahn Enterprises sold 481,244 depositary units pursuant to this agreement, resulting in gross proceeds of $26 million.

As of June 30, 2020, Icahn Enterprises may sell its depositary units for up to an additional $320 million in aggregate sale proceeds pursuant to this agreement.

No assurance can be made that any or all amounts will be sold during the term of the program.

LP Unit Distributions

During the three months ended March 31, 2020, we declared a quarterly distribution of $2.00 per depositary unit.

In connection with this distribution, aggregate cash distributions to all depositary unitholders was $423 million in April 2020.

Icahn and his affiliates owned approximately 92.0% of Icahn Enterprises' outstanding depositary units as of March 31, 2020.

On April 29, 2020, the Board of Directors of the general partner of Icahn Enterprises declared a quarterly distribution in the amount of $2.00 per depositary unit.

The quarterly distribution is payable in either cash or additional depositary units, at the election of each depositary unitholder and will be paid on or about June 25, 2020 to depositary unitholders of record at the close of business on May 19, 2020.

During the six months ended June 30, 2020, we declared two quarterly distributions aggregating $4.00 per depositary unit.

In connection with these distributions, aggregate cash distributions to all depositary unitholders was $452 million, primarily due to Mr.

Icahn and his affiliates’ significant ownership of Icahn Enterprises’ depositary units.

On August 4, 2020, the Board of Directors of the general partner of Icahn Enterprises declared a quarterly distribution in the amount of $2.00 per depositary unit.

The quarterly distribution is payable in either cash or additional depositary units, at the election of each depositary unitholder and will be paid on or about September 29, 2020 to depositary unitholders of record at the close of business on August 21, 2020.

The declaration and payment of distributions is reviewed quarterly by Icahn Enterprises GP’s board of directors based upon a review of our balance sheet and cash flow, our expected capital and liquidity requirements, the provisions of our partnership agreement and provisions in our financing arrangements governing distributions, and keeping in mind that limited partners subject to U.S.

federal income tax have recognized income on our earnings even if they do not receive distributions that could be used to satisfy any resulting tax obligations.

The payment of future distributions will be determined by the board of directors quarterly, based upon the factors described above and other factors that it deems relevant at the time that declaration of a distribution is considered.

The payment of future distributions will be determined by the board of directors quarterly, based upon the factors described above and other factors that it deems

relevant at the time that declaration of a distribution is considered.

Payments of distributions are subject to certain restrictions, including certain restrictions on our subsidiaries which limit their ability to distribute dividends to us.

There can be no assurance as to whether or in what amounts any future distributions might be paid.

Subsequent Events

Subsequent to March 31, 2020, CVR Energy declared a quarterly dividend which we expect to result in an additional $28 million in dividends payable to us in the second quarter of 2020, which represents a 50% reduction in its quarterly dividend, as discussed below.

Investment Segment Liquidity

During the three months ended March 31, 2020, we invested $1.0 billion in the Investment Funds and affiliates of Mr.

During the six months ended June 30, 2020, we invested $750 million in the Investment Funds, net of redemptions, and affiliates of Mr.

Icahn (excluding us) contributed approximately $1.2 billion of primarily like-kind investments in the Investment Funds.

Subsequent to March 31, 2020, we received $250 million from redemptions from the Investment Funds that settled in April 2020.

In addition to investments by us and Mr.

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Additionally, our Investment segment liquidity is driven by the investment activities and performance of the Investment Funds.

As of March 31, 2020, the Investment Funds’ had a net short notional exposure of 73%.

As of June 30, 2020, the Investment Funds’ had a net short notional exposure of 48%.

The Investment Funds’ long exposure was 95% (94% long equity and 1% long credit) and its short exposure was 143% (119% short equity and 24% short credit and other).

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 March 31, 2020.

Of the Investment Funds’ 89% long exposure, 84% was comprised of the fair value of its long positions (with certain adjustments) and 5% was comprised of single name equity forward contracts and credit contracts.

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, 2020.

Of the Investment Funds’ 95% long exposure, 87% was comprised of the fair value of its long positions (with certain adjustments) and 8% was comprised of single name equity forward contracts.

Of the Investment Funds’ 143% short exposure, 18% was comprised of the fair value of our short positions and 125% was comprised of short broad market index swap derivative contracts and short credit default swap contracts.

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Refer to our Annual Report on Form 10-K for the year ended December 31, 2019 for information concerning terms, restrictions and covenants pertaining to our subsidiaries’ debt.

As of March 31, 2020, all of our subsidiaries were in compliance with all debt covenants.

As of June 30, 2020, all of our subsidiaries were in compliance with all debt covenants.

In January 2020, CVR Energy issued $600 million in aggregate principal amount of 5.25% senior unsecured notes due 2025 and $400 million in aggregate principal amount of 5.75% senior unsecured notes due 2028.

A portion of the net proceeds from the issuance of these notes were used to fund the redemption of CVR Energy’s existing senior unsecured notes due 2022.

A portion of the net proceeds from the issuance of these notes were used to fund the redemption of CVR Refining’s existing senior unsecured notes due 2022.

The remaining net proceeds will be used for CVR Energy’s general corporate purposes, which may include funding (i) acquisitions, (ii) capital projects, and/or (iii) share repurchases or other distributions to CVR Energy’s stockholders.

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Subsidiary Dividends

In view of the uncertainty of the depth and extent of the contraction in oil demand due to the COVID-19 pandemic, combined with the weaker commodity price environment, CVR Energy has remained focused on cash conservation and protecting its balance sheet.

As a result of these factors, and in light of the uncertainty of the current economic environment as we as potential future cash requirements of CVR Energy, the Board of Directors of CVR Energy approved a 50% reduction in its cash dividend for the first quarter of 2020.

The revised dividend supports CVR Energy’s continued focus on financial discipline through a balanced approach of shareholder distributions and strategic investments while providing the flexibility to weather the uncertain environment.

In view of the uncertainty of the depth and extent of the contraction in oil demand due to the COVID-19 pandemic, combined with the weaker commodity price environment, CVR Energy has remained focused on safe and reliable operations, cash conservation and protecting its balance sheet.

As a result of these factors, and in light of the uncertainty of the current economic environment as we as potential future cash requirements of CVR Energy, the Board of Directors of CVR Energy approved a reduction in its cash dividend for the first quarter of 2020 and elected not to declare a cash dividend for the second quarter of 2020.

These decisions support CVR Energy’s continued focus on financial discipline through a balanced approach of stockholder distributions and strategic investments while providing the flexibility to weather the uncertain environment.

The Board of Directors of CVR Energy will continue to evaluate the economic environment, CVR Energy’s cash needs, and other applicable factors, and may elect to make additional changes to CVR Energy’s dividend in future periods.

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Repurchases, if any, including the timing, price and amount, may be made at the discretion of CVR Energy management and CVR Energy is not obligated to make any repurchases.

CVR Energy did not repurchase any shares of its common stock as of March 31, 2020.

CVR Energy did not repurchase any shares of its common stock as of June 30, 2020.

Due to the market and oil price volatility, coupled with the current economic conditions, CVR Energy does not currently intend to repurchase any stock if these, and other, conditions continue.

On May 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.

During 2020, CVR Partners repurchased common units on the open market at a cost of $1 million.

As of June 30, 2020, CVR Partners has $9 million remaining under its unit repurchase program.

Consolidated Cash Flows

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The following table summarizes cash flow information for Icahn Enterprises’ reporting segments and our Holding Company:

Three Months Ended March 31, 2020

Three Months Ended March 31, 2019

Six Months Ended June 30, 2020

Six Months Ended June 30, 2019

Net Cash Provided By (Used In)

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Holding Company

Our Holding Company’s cash flows from operating activities for each of the three months ended March 31, 2020 and 2019 were primarily attributable to our semi-annual interest payments on our senior unsecured notes.

The decrease in interest payments over the comparable periods is due to the timing of the payment of the semi-annual interest.

Our recent debt transactions resulted in a change in certain payment dates for our semi-annual interest.

Our Holding Company’s cash flows from investing activities for the three months ended March 31, 2020 were primarily due to our investment in the Investment Funds of $1.0 billion, our purchase of an equity investment for $114 million and contributions and loans to our operating subsidiaries aggregating $64 million, including an investment in our Automotive segment of $55 million.

This was offset in part by dividends from our Energy segment of $57 million in the first quarter of 2020.

Our Holding Company’s cash flows from investing activities for the three months ended March 31, 2019 were primarily due to our sale of a certain equity investment for which we received $424 million as well as the sale of our direct investment in CVR Refining to CVR Energy for $60 million.

During the three months ended March 31, 2019, we also received cash dividends and distributions from our Energy and Real Estate segments aggregating $77 million and we had aggregate investments in our Automotive segment of $126 million.

Our Holding Company’s cash flows from financing activities for the three months ended March 31, 2020 included the issuances of additional senior unsecured notes and proceeds from our “at-the-market” offering, offset in part by the repayment of senior unsecured notes and related fees and expenses, as described above.

Our Holding Company’s cash flows from operating activities for each of the six months ended June 30, 2020 and 2019 were primarily attributable to our semi-annual interest payments on our senior unsecured notes.

The increase in interest payments over the comparable periods is due to the timing of the payment of the semi-annual interest as our recent debt transactions resulted in a change in certain interest payment dates.

Our Holding Company’s cash flows from investing activities for the six months ended June 30, 2020 were primarily due to our investment in the Investment Funds of $750 million (net of redemptions), our purchase of an equity investment for $114 million and contributions and loans to our operating subsidiaries aggregating $130 million, including an investment in our Automotive segment of $115 million.

This was offset in part by dividends from our operating subsidiaries aggregating $93 million, including $85 million from our Energy segment, in the first half of 2020.

Our Holding Company’s cash flows from investing activities for the six months ended June 30, 2019 were primarily due to our sale of a certain equity investment for which we received $458 million as well as the sale of our direct investment in CVR Refining to CVR Energy for $60 million.

During the six months ended June 30, 2019, we also received net cash dividends and distributions from our Energy and Real Estate segments aggregating $126 million and we had aggregate investments in our Automotive segment of $176 million and an investment in our Home Fashion segment of $31 million.

Our Holding Company’s cash flows from financing activities for the six months ended June 30, 2020 included the issuances of additional senior unsecured notes and proceeds from our “at-the-market” offering, offset in part by the repayment of senior unsecured notes and related fees and expenses, as described above, as well as payments on our aggregate quarterly distributions.

Our Holding Company’s cash flows from financing activities for the six months ended June 30, 2019 included the issuances of additional senior unsecured notes and proceeds from our “at-the-market” offering, offset in part by payments on our aggregate quarterly distributions.

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 three months ended March 31, 2020 were attributable to our investment in the Investment Funds in the first quarter of 2020 of $1.0 billion, as described above, and $1 million from Mr.

Our Investment segment’s cash flows from financing activities for the six months ended June 30, 2020 were attributable to our investment in the Investment Funds of $750 million, net of redemptions, and $1 million from Mr.

Icahn and his affiliates (excluding us).

Our Investment segment’s cash flows from financing activities for the six months ended June 30, 2019 were attributable to Mr.

Icahn and his affiliates’ (excluding us) investments in the Investment Funds of $70 million.

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 $(72) million and $171 million for the three months ended March 31, 2020 and 2019, respectively, primarily attributable to our Automotive segment in 2020 and our Energy segment in 2019.

The change in cash flows from operating activities for the three months ended March 31, 2020 as compared to the comparable prior year period was primarily due to a decline in the operating results of our Energy segment as well as unfavorable changes in working capital also attributable to our Energy segment.

In addition, our cash flows from operating activities decreased by $30 million as a result of the exclusion of Ferrous Resources in 2020, which was sold in August 2019.

Our other operating segments’ cash flows from operating activities included net cash flows from operating activities before changes in operating assets and liabilities of $(11) million and $411 million for the six months ended June 30, 2020 and 2019, respectively.

The change in cash flows from operating activities for the six months ended June 30, 2020 as compared to the comparable prior year period was primarily due to a decline in the operating results of our Energy segment as well as unfavorable changes in working capital also attributable to our Energy segment.

In addition, our cash

flows from operating activities decreased by $77 million as a result of the exclusion of Ferrous Resources in 2020, which was sold in August 2019.

Our other operating segments’ cash flows from investing activities were primarily due to the purchase of investments of $140 million in 2020 compared to $45 million in 2019 and due to capital expenditures of $115 million in 2020 and $132 million in 2019, primarily within our Energy and Automotive segments for both periods.

In addition, our other operating segments had net payments for the acquisitions of businesses of $10 million, net of cash acquired.

In addition, our Energy segment had payments for scheduled turnaround expenses of $147 million in 2020 compared to $24 million in 2019.

Our other operating segments also had net payments for the acquisitions of businesses in 2020 of $1 million, net of cash acquired, compared to $51 million, net of cash acquired in 2019.

Our other operating segments’ cash flows from continuing financing activities were primarily due to our Energy segment.

In 2020, our Energy segment had net proceeds from senior debt transactions of $500 million and in 2019 our Energy segment had payments to acquire the remaining common units of CVR Refining not already owned by CVR Energy of $301 million, including $60 million paid to our Holding Company for our direct ownership in CVR Refining.

In addition, our other operating segments also had net contributions from our Holding Company of $7 million and $49 million for the three months ended March 31, 2020 and 2019, respectively, as described above.

For the three months ended March 31, 2020 and 2019, our Energy segment had distributions to non-controlling interests of $23 million and $30 million, respectively.

In addition, our other operating segments also had net contributions from our Holding Company of $37 million and $81 million for the six months ended June 30, 2020 and 2019, respectively, as described above.

For the six months ended June 30, 2020 and 2019, our Energy segment had distributions to non-controlling interests of $36 million and $56 million, respectively.

Consolidated Capital Expenditures

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Consolidated Contractual Commitments and Contingencies

There have been no material changes to our contractual commitments and contingencies during the three months ended March 31, 2020 as compared to those reported in our Annual Report on Form 10-K for the year ended December 31, 2019 .

There have been no material changes to our contractual commitments and contingencies during the six months ended June 30, 2020 as compared to those reported in our Annual Report on Form 10-K for the year ended December 31, 2019 .

Consolidated Off-Balance Sheet Arrangements

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The critical accounting policies and 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 ended December 31, 2019.

There have been no material changes to our critical accounting policies and estimates during the three months ended March 31, 2020 as compared to those reported in our Annual Report on Form 10-K for the year ended December 31, 2019.

There have been no material changes to our critical accounting policies and estimates during the six months ended June 30, 2020 as compared to those reported in our Annual Report on Form 10-K for the year ended December 31, 2019.

Recently Issued Accounting Standards

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis