Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 consolidated financial statements and the accompanying notes contained in this Report.
Executive Overview
Introduction
Icahn Enterprises L.P. (“Icahn Enterprises”) is a master limited partnership formed in Delaware on February 17, 1987. Icahn Enterprises Holdings L.P. (“Icahn Enterprises Holdings”) is a limited partnership formed in Delaware on February 17, 1987. References to “we,” “our” or “us” herein include both Icahn Enterprises and Icahn Enterprises Holdings and their subsidiaries, unless the context otherwise requires.
Icahn Enterprises owns a 99% limited partner interest in Icahn Enterprises Holdings. Icahn Enterprises Holdings and its subsidiaries own substantially all of the assets and liabilities of Icahn Enterprises and conduct substantially all of its operations. Therefore, the financial results of Icahn Enterprises and Icahn Enterprises Holdings are substantially the same, with differences relating primarily to the allocation of the general partner interest. We do not discuss Icahn Enterprises and Icahn Enterprises Holdings separately unless we believe it is necessary to an understanding of the businesses.
We are a diversified holding company owning subsidiaries currently engaged in the following continuing operating businesses: Investment, Energy, Automotive, Food Packaging, Metals, Real Estate, Home Fashion and, as of December 2020, Pharma. We also report the results of our Holding Company, which includes the results of certain subsidiaries of Icahn Enterprises and Icahn Enterprises Holdings (unless otherwise noted), and investment activity and expenses associated with our Holding Company. Our historical results also report the results of our Mining segment, until sold on August 1, 2019, and our Railcar segment through the date we sold our last remaining railcars on lease, which occurred in the third quarter of 2018.
Significant Transactions and Developments
Current Economic Conditions
In March 2020, the World Health Organization categorized COVID-19 as a pandemic and the President of the United States declared the COVID-19 outbreak a national emergency. 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 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. The extent and duration of the impact on our future results of operations, liquidity and financial condition is uncertain and may be significant. However, we believe that we and our subsidiaries have sufficient available liquidity to meet anticipated cash requirements for at least the next twelve months.
Debt Issuances
In January 2020, Icahn Enterprises and Icahn Enterprises Finance Corp. (together the “Issuers”) issued an additional $600 million in aggregate principal amount of 4.750% senior unsecured notes due 2024 (the “New 2024 Notes”) and an additional $250 million in aggregate principal amount of 5.250% senior unsecured notes due 2027 (the “New 2027 Notes”) The proceeds from these notes, together with cash on hand, were used to redeem all of our prior outstanding $1.35 billion principal amount of 5.875% senior unsecured notes due 2022, and to pay accrued interest, related fees and expenses.
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In January 2021, the Issuers issued $750 million in aggregate principal amount of 4.375% senior unsecured notes due 2029 (the “New 2029 Notes”). The proceeds from these notes, together with cash on hand, were used to redeem $750 million principal amount of our 6.250% senior unsecured notes due 2022, and to pay accrued interest, related fees and expenses.
Acquisition of Vivus, Inc.
In December 2020, we acquired all of the outstanding common stock of Vivus, Inc. (“Vivus”) upon its emergence from bankruptcy. Prior to Vivus’ emergence from bankruptcy, we held an investment in all of Vivus’ convertible corporate debt securities as well as all of its other outstanding debt. As a result of this transaction, we consolidate the results of Vivus beginning December 2020 and report the results within our new Pharma segment.
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 continuing 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 individual reporting segment in order to better understand our consolidated operating performance. Certain other financial information is discussed on a consolidated basis following our segment discussion, including other revenues and expenses included in continuing operations as well as our results from discontinued operations. In addition to the summarized financial results below, refer to Note 13, “Segment and Geographic Reporting,” to the 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 by, among other factors, (i) the performance of the Investment Funds, (ii) the results of our Energy segment’s operations, impacted by the demand and prices for its products, (iii) impairment charges, primarily in our Automotive segment in 2018 and (iv) the sale of Ferrous Resources in 2019. Refer to our respective segment discussions and “Other Consolidated Results of Operations,” below for further discussion.
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Net Income (Loss) From
Continuing Operations
Net Income (Loss) From
Attributable to Icahn
Revenues
Continuing Operations
Enterprises
Year Ended December 31,
Year Ended December 31,
Year Ended December 31,
2020
2019
2018
2020
2019
2018
2020
2019
2018
(in millions)
Investment
$
(1,249)
$
(1,414)
$
737
$
(1,447)
$
(1,543)
$
679
$
(765)
$
(775)
$
319
Holding Company
(70)
(261)
(291)
(476)
(599)
(639)
(476)
(599)
(638)
Other Operating Segments:
Energy
3,966
6,385
7,135
(327)
314
334
(194)
246
213
Automotive
2,465
2,895
2,856
(198)
(197)
(230)
(198)
(197)
(230)
Food Packaging
403
377
379
4
(22)
(15)
4
(17)
(12)
Metals
317
341
467
—
(22)
5
—
(22)
5
Real Estate
98
103
212
(16)
16
112
(16)
16
112
Home Fashion
190
186
171
(7)
(17)
(11)
(7)
(17)
(11)
Pharma
3
—
—
(1)
—
—
(1)
—
—
Mining
—
382
106
—
311
1
—
299
3
Railcar
—
—
5
—
—
1
—
—
1
Other operating segments
7,442
10,669
11,331
(545)
383
197
(412)
308
81
Consolidated
$
6,123
$
8,994
$
11,777
$
(2,468)
$
(1,759)
$
237
$
(1,653)
$
(1,066)
$
(238)
Management’s Discussion and Analysis of Results of Operations discusses the comparisons between the years ended December 31, 2020 and 2019. Certain discussions of results of operations for the comparisons between the years ended December 31, 2019 and 2018 are not included in this Report. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed on February 28, 2020, which is incorporated by reference herein, for such discussions.
Investment
We invest our proprietary capital through various private investment funds (the “Investment Funds”). As of December 31, 2020 and 2019, we had investments with a fair market value of approximately $4.3 billion and $4.3 billion, respectively, in the Investment Funds. As of December 31, 2020 and 2019, the total fair market value of investments in the Investment Funds made by Mr. Icahn and his affiliates (excluding us), was approximately $5.0 billion and $4.5 billion, respectively.
Our Investment segment’s results of operations are reflected in net income (loss) in the 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 by Brett Icahn, son of Mr. Icahn. 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 of December 31, 2020.
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For the years ended December 31, 2020, 2019 and 2018, our Investment Funds’ returns were (14.3)%, (15.4)%, and 7.9%, 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:
Year Ended December 31,
2020
2019
2018
Long positions
0.6
%
16.4
%
(0.8)
%
Short positions
(14.9)
%
(31.9)
%
7.8
%
Other
—
%
0.1
%
0.9
%
(14.3)
%
(15.4)
%
7.9
%
The following table presents net income (loss) for our Investment segment:
Year Ended December 31,
2020
2019
2018
(in millions)
Long positions
$
(50)
$
1,492
$
(329)
Short positions
(1,400)
(3,045)
931
Other
3
10
77
$
(1,447)
$
(1,543)
$
679
For 2020, the Investment Funds’ negative performance was driven by net losses in their short positions and, to a lesser extent, net losses in their 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 $1.6 billion, losses from two consumer, non-cyclical sector investments aggregating $362 million, losses from a consumer, cyclical sector investment of $118 million and the aggregate performance of various other short positions with net losses aggregating $357 million across various sectors. The negative performance of our Investment segment’s short positions was partially offset by net gains from its short exposure to commercial mortgage-backed securities through credit default swap contracts of $902 million. The negative performance of our Investment Segment’s long positions was driven by losses from a consumer, non-cyclical sector investment of $637 million, and two technology sector investments aggregating $402 million, offset in part by gains from two consumer, cyclical sector investments aggregating $497 million, two consumer, non-cyclical sector investments aggregating $271 million and a technology sector investment of $162 million. Net losses in long positions were further offset in part by the aggregate performance of investments with net gains across various other sectors.
For 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 $2.5 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 a consumer, cyclical sector investment, two technology sector investments, two financial sector investments and a consumer, non-cyclical sector investment with gains aggregating approximately $1.7 billion. The aggregate performance of investments with net gains across various other sectors accounted for an additional $495 million positive performance of our Investment segment’s long positions. The positive performance of long positions was offset in part by losses from a consumer, non-cyclical sector investment, an energy sector investment and a technology sector investment with losses aggregating $727 million.
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Energy
Our Energy segment is primarily engaged in the petroleum refining and nitrogen fertilizer manufacturing businesses. The sale of petroleum products accounted for approximately 91%, 94% and 95% of our Energy segment’s net sales for the years ended December 31, 2020, 2019 and 2018, 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.
The COVID-19 pandemic, and the actions taken by governments and others, has negatively impacted the energy industry. The COVID-19 pandemic has also resulted in significant business and operational disruptions, including business closures, liquidity strains, destruction of non-essential demand, as well as supply chain challenges, travel restrictions, stay-at home orders, and limitations on the availability of the workforce. As a result, the demand for gasoline and diesel in the regions that our Energy segment operates have declined for 2020 compared to 2019. Continuing concerns over the negative effects of the COVID-19 pandemic on economic and business prospects across the world have contributed to increased market and price volatility and have diminished expectations for the global economy and may precipitate a prolonged economic slowdown or recession. The declines were amplified in the first quarter of 2020 by market plays between the world’s largest oil producers. The simultaneous shocks in oil supply and demand has resulted in a decline in the price of crude oil and lead to a significant decrease in the price of refined products sold by our Energy segment.
In addition to current market conditions, 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 the United States Environmental Protection Agency (“RFS”), which requires it to either blend “renewable fuels” with its transportation fuels or purchase renewable identification numbers (“RINs”), in lieu of blending. 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 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 18, “Commitments and Contingencies,” to the consolidated financial statements for further discussion of RINs.
In December 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 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 as California. 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 RFS exposure. However, any actions taken by the Supreme 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.
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The following table presents our Energy segment’s net sales, cost of goods sold and gross margin:
Year Ended December 31,
2020
2019
2018
(in millions)
Net sales
$
3,930
$
6,364
$
7,124
Cost of goods sold
4,164
5,707
6,508
Gross margin
$
(234)
$
657
$
616
Net sales for our Energy segment decreased by approximately $2.4 billion (38%) for the year ended December 31, 2020 as compared to the comparable prior year period, primarily due to a decrease in our petroleum business’ net sales, which decreased approximately $2.4 billion. The decrease in the petroleum business’ net sales was primarily due to a decrease in gasoline sales as well as a decrease in sales of distillates attributable to a decrease in volumes and unfavorable pricing conditions. These decreases were the result of reduced demand and excess supply attributable to the current market dynamics resulting from government actions to address the COVID-19 pandemic. Additionally, during 2020, scheduled maintenance at one refinery has contributed to the decline in volumes. Our nitrogen fertilizer business’ net sales decreased $54 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 approximately $1.5 billion (27%) for the year ended December 31, 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, reduced utilization at one refinery, lower crude oil prices and higher derivative gains of $36 million. These decreases were offset in part by a $58 million write-down of inventory to net realizable value in the first quarter of 2020 and a $147 million increase in the net cost of RINs. Gross margin for our Energy segment decreased by $891 million for the year ended December 31, 2020 as compared to the comparable prior year period. Gross margin as a percentage of net sales was (6)% and 10% for the year ended December 31, 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.
Automotive
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.
Our Automotive segment is in the process of implementing a multi-year transformation plan, which includes the integration and restructuring of its businesses. The transformation plan includes operating the automotive services and aftermarket parts businesses as separate businesses, streamlining Icahn 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. Costs to implement the transformation plan will include restructuring charges, which will be recorded when specific plans are approved, and which may be significant.
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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 Icahn Automotive’s parts and tire 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 consolidated statements of operations; however, the sale of any installed parts or materials related to automotive services are included in net sales. Therefore, we discuss the combined results of our automotive net sales and automotive services labor revenues below.
Year Ended December 31,
2020
2019
2018
(in millions)
Net sales and other revenue from operations
$
2,478
$
2,884
$
2,858
Cost of goods sold and other expenses from operations
1,793
2,089
1,976
Gross margin
$
685
$
795
$
882
Net sales and other revenue from operations for our Automotive segment for the year ended December 31, 2020 decreased by $406 million (14%) as compared to the comparable prior year period. The decrease was attributable to a decrease in aftermarket parts sales of $261 million (17%) and a decrease in automotive services revenues of $145 million (11%). On an organic basis, aftermarket parts sales decreased $106 million over the comparable periods due to a decrease in commercial sales of $59 million (6%) and a decrease in retail sales of $47 million (12%). Store closures related to the transformation plan accounted for another $155 million decrease in aftermarket parts sales. The decrease in automotive services revenues represents a decrease on a primarily organic basis. 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 year ended December 31, 2020 decreased by $296 million (14%) 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 year ended December 31, 2020 decreased by $110 million (14%) as compared to the comparable prior year period. Gross margin as a percentage of net sales and other revenue from operations was 28% for each of the years ended December 31, 2020 and 2019. 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. This was offset by the acceleration of planned store closures, which resulted in a greater portion of our Automotive segment’s business being derived from higher margin automotive services, as described above.
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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.
Net sales for the year ended December 31, 2020 increased $24 million (6%) as compared to the comparable prior year period. The increase was due to an increase of $17 million in volumes and an increase of $7 million due to price and product mix. Cost of goods sold for the year ended December 31, 2020 increased by $15 million (5%) as compared to the comparable prior year period due to an increase in volumes and lower absorption of manufacturing costs. Gross margin as a percentage of net sales was 20% and 19% for the year ended December 31, 2020 and 2019, respectively.
Metal s
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.
Net sales for the year ended December 31, 2020 decreased by $27 million (8%) compared to the comparable prior year period due to lower shipping volumes driven by the impact of the COVID-19 pandemic. Cost of goods sold for the year ended December 31, 2020 decreased by $45 million (13%) compared to the comparable prior year period due to lower material costs due to lower volumes and market prices. Gross margin as a percentage of net sales was less than 5% and (1)% for the year ended December 31, 2020 and 2019, 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 years ended December 31, 2020 and 2019 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.
Net sales for the year ended December 31, 2020 increased by $1 million (1%) compared to the comparable prior year period due to a business acquired in the second quarter of 2019, which accounted for an increase of $21 million, and an increase in sales from newly added facemasks of $15 million, resulting from the COVID-19 pandemic, offset in part by a $35 million decrease from existing businesses, primarily as a result of the current economic conditions. Cost of goods sold for the year ended December 31, 2020 decreased by $9 million (6%) 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, such as facemasks, offset in part by an increase from the acquired business. Gross margin as a percentage of net sales was 20% and 15% for the year ended December 31, 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 higher margin facemask products.
Holding Company
Our Holding Company’s results of operations primarily reflect investment gains and losses from equity investments and the interest expense on its senior unsecured notes for each of the years ended December 31, 2020 and 2019.
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Other Consolidated Results of Operations
Gain On Disposition of Assets, Net
As discussed in Note 1, "Description of Business," to the consolidated financial statements, we sold Ferrous Resources, resulting in a pretax gain on disposition of assets of $252 million for the year ended December 31, 2019.
Selling, General and Administrative
Our consolidated selling, general and administrative during the year ended December 31, 2020 decreased by $184 million (13%) as compared to 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, (ii) lower deferred compensation and other payroll related costs for our Energy segment, (iii) lower compensation costs for our Investment segment and (iv) 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 demolition costs relating to a property not in service.
Restructuring
Our consolidated restructuring, net for the years ended December 31, 2020 and 2019 primarily relates to our Automotive segment’s transformation plan and restructuring activities at our Food Packaging segment. Our Automotive segment’s restructuring, net increased $2 million over the comparable periods as it continues to implement its multi-year transformation plan. Our Food Packaging segment’s restructuring, net was higher in 2019 by $7 million due to restructuring charges for employee costs relating to certain of its European operations. Refer to Note 13, “Segment and Geographic Reporting,” to the consolidated financial statements for net restructuring charges recorded by each of our segments.
Impairment
Refer to Note 5, “Fair Value Measurements,” and Note 9, “Goodwill and Intangible Assets, Net,” to the consolidated financial statements for a discussion of impairments of assets, which were not significant.
Interest Expense
Our consolidated interest expense during the year ended December 31, 2020 increased by $83 million (14%) 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, which resulted in additional debt outstanding. These increases were offset in part by lower interest expense for our Automotive segment, due to lower debt outstanding and lower variable rate interest, as well as due to our Holding Company as a result of certain debt refinancings in the first quarter of 2020, which resulted in outstanding debt with lower interest rates.
Income Tax Expense
Certain of our subsidiaries are partnerships not subject to taxation in our consolidated financial statements and certain other subsidiaries are corporations, or subsidiaries of corporations, subject to taxation in our consolidated financial statements. Therefore, our consolidated effective tax rate generally differs from the statutory federal tax rate. Refer to Note 15, “Income Taxes,” to the consolidated financial statements for a discussion of income taxes.
In addition, in accordance with FASB ASC Topic 740, Income Taxes , we analyze all positive and negative evidence and maintain a valuation allowance on deferred tax assets that are not considered more likely than not to be realized.
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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 likely will depend on the cash flow resulting from divestitures, equity 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 of December 31, 2020, our Holding Company had cash and cash equivalents of $925 million and total debt of approximately $5.8 billion. As of December 31, 2020, our Holding Company had investments in the Investment Funds with a total fair market value of approximately $4.3 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
December 31,
2020
2019
(in millions)
5.875% senior unsecured notes due 2022
$
—
$
1,345
6.250% senior unsecured notes due 2022
1,209
1,211
6.750% senior unsecured notes due 2024
499
498
4.750% senior unsecured notes due 2024
1,106
498
6.375% senior unsecured notes due 2025
748
748
6.250% senior unsecured notes due 2026
1,250
1,250
5.250% senior unsecured notes due 2027
999
747
$
5,811
$
6,297
Holding Company debt consists of various issues of fixed-rate senior unsecured notes issued by the Issuers and guaranteed by Icahn Enterprises Holdings (the “Guarantor”). Interest on each tranche of senior unsecured notes are payable semi-annually.
In January 2020, the Issuers issued an additional $600 million in aggregate principal amount of the New 2024 Notes and an additional $250 million in aggregate principal amount of the New 2027 Notes. The additional proceeds from these notes, together with cash on hand, were used to redeem all of our prior outstanding $1.35 billion principal amount of 5.875% senior unsecured notes due 2022, and to pay accrued interest, related fees and expenses.
In January 2021, the Issuers issued $750 million in aggregate principal amount of the New 2029 Notes. The proceeds from these notes, together with cash on hand, were used to redeem $750 million principal amount of our 6.250% senior unsecured notes due 2022, and to pay accrued interest, related fees and expenses.
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
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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 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 only Icahn 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 of December 31, 2020, except for the New 2024 Notes, the New 2027 Notes and the New 2029 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 December 31, 2020 and 2019, we were in compliance with all covenants, including maintaining certain minimum financial ratios, as defined in the indentures. Additionally, as of December 31, 2020, 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.
Future Debt Service Obligations
In January 2021, we redeemed $750 million principal amount of our 6.250% senior unsecured notes due 2022, as described above, and our Holding Company has $455 million in principal amount remaining on such notes, which mature on February 1, 2022.
For 2021, interest payments on our Holding Company’s senior unsecured notes will be approximately $333 million, including the effects of the debt refinancing transaction in January 2021, as described above. Such interest payments, which do not contemplate any other potential future debt refinancings, will be approximately $311 million for 2022, $297 million for 2023 and an aggregate of $739 million for 2024 through 2029.
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 year ended December 31, 2020, Icahn Enterprises sold 1,908,099 depositary units pursuant to this agreement, resulting in gross proceeds of $101 million. As of December 31, 2020, Icahn Enterprises may sell its depositary units for up to an additional $244 million in aggregate sale proceeds pursuant to this agreement.
LP Unit Distributions
During the year ended December 31, 2020, we declared four quarterly distributions aggregating $8.00 per depositary unit. In connection with these distributions, aggregate cash distributions to all depositary unitholders was $516 million, of which $422 million relates to the distribution declared in the first quarter of 2020. Mr. Icahn and his affiliates have historically elected to receive their distributions in additional units; however, in the first quarter of 2020, they received their distribution in cash. For the distributions declared in the second, third and fourth quarters of 2020, Mr. Icahn and his affiliates elected to receive their distributions in additional units and cash distributions paid to other depositary unitholders was $30 million, $31 million and $33 million, respectively. Mr. Icahn and his affiliates may in the future elect to receive all or a portion of their distributions in cash or in additional depositary units.
On February 24, 2021, 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 April 28, 2021 to depositary
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unitholders of record at the close of business on March 26, 2021. Depositary unitholders will have until April 16, 2021 to make an election to receive either cash or additional depositary units; if a holder does not make an election, it will automatically be deemed to have elected to receive the distribution in additional depositary units.
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. 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.
Investment Segment Liquidity
During the year ended December 31, 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. In addition to investments by us and Mr. Icahn, the Investment Funds historically have access to significant amounts of cash available from prime brokerage lines of credit, subject to customary terms and market conditions.
Additionally, our Investment segment liquidity is driven by the investment activities and performance of the Investment Funds. As of December 31, 2020, the Investment Funds’ had a net short notional exposure of 52%. The Investment Funds’ long exposure was 90% (89% long equity and 1% long credit and other) and its short exposure was 142% (119% short equity and 23% 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 December 31, 2020.
Of the Investment Funds’ 90% long exposure, 88% was comprised of the fair value of its long positions (with certain adjustments) and 2% was comprised of single name equity forward contracts and credit contracts. Of the Investment Funds’ 142% short exposure, 27% was comprised of the fair value of its short positions and 115% was comprised of short broad market index swap derivative contracts and short credit default swap contracts.
With respect to both our long positions that are not notionalized (88% long exposure) and our short positions that are not notionalized (27% short), 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 (115% short exposure), for short positions in an unrealized loss position, our liquidity would decrease by the balance sheet unrealized loss if we were to close the positions at year 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.
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Other Segment Liquidity
Segment Cash and Cash Equivalents
Segment cash and cash equivalents (excluding our Investment segment) consists of the following:
December 31,
2020
2019
(in millions)
Energy
$
667
$
652
Automotive
45
46
Food Packaging
16
22
Metals
1
3
Real Estate
21
53
Home Fashion
2
1
Pharma
8
—
$
760
$
777
Segment Borrowings and Availability
Segment debt consists of the following:
December 31,
2020
2019
(in millions)
Energy
$
1,691
$
1,195
Automotive
368
405
Food Packaging
151
268
Metals
16
7
Real Estate
1
2
Home Fashion
21
18
$
2,248
$
1,895
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 was 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.
In October 2020, Viskase entered into a credit agreement providing for a $150 million term loan and a $30 million revolving credit facility. The proceeds from the new term loan, plus cash received from the equity private placement in October 2020, as discussed in Note 1, “Description of Business,” to the consolidated financial statements, were used to repay in full Viskase’s existing term loan. The new term loan and credit facility mature in 2023.
As of December 31, 2020, all of our subsidiaries were in compliance with all debt covenants.
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Our segments have additional borrowing availability under certain revolving credit facilities as summarized below:
December 31,
2020
(in millions)
Energy
$
385
Automotive
96
Food Packaging
36
Metals
49
Home Fashion
20
$
586
The above outstanding debt and borrowing availability with respect to each of our continuing operating segments reflects third-party obligations. Certain terms of financings for certain of our businesses impose restrictions on the business’ ability to transfer funds to us, including restrictions on dividends, distribution, loans and other transactions. See Note 11, “Debt,” to the consolidated financial statements for further discussion regarding our segment debt, including information relating to maturities, interest rates and borrowing availabilities.
Future Debt Service Obligations
Future debt service obligations for our other operating segments are primarily within our Energy and Automotive segments.
As of December 31, 2020, our Energy segment’s future debt maturities (excluding financing leases) are $645 million for 2023, $600 million for 2025 and $400 million for 2028, and future interest payments for our Energy segment are expected to be approximately $120 million for each of 2021, 2022 and 2023. Interest payments are expected to be $60 million for 2024 and 2025 and an aggregate of $78 million for 2026 through 2028.
As of December 31, 2020, our Automotive segment’s future debt maturities are $351 million for 2021 and future interest payments for our Automotive segment are expected to be $9 million in 2021. Our Automotive segment intends to refinance its debt prior to maturity.
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 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 well 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, third and fourth quarters 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.
Subsidiary Stock Repurchase Program
On October 23, 2019, the Board of Directors of CVR Energy approved a stock repurchase program which would enable it to repurchase up to $300 million of its common stock from time to time through open market transactions, block trades, privately negotiated transactions or otherwise in accordance with applicable securities laws. The stock repurchase program has a duration of four years, which may be terminated by the Board of Directors of CVR Energy at any time. 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
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its common stock as of December 31, 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 $7 million. As of December 31, 2020, CVR Partners has $3 million remaining under its unit repurchase program. On February 22, 2021, the Board of Directors of CVR Partners authorized an additional $10 million under the unit repurchase program.
Purchase Obligations
Future purchase obligations for our other operating segments are primarily within our Energy and Pharma segments, as discussed in Note 18, “Commitments and Contingencies,” to the consolidated financial statements.
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 equity transactions with Icahn Enterprises’ depositary unitholders. 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 from Mr. Icahn and his affiliates (including Icahn Enterprises and Icahn Enterprises Holdings) and Brett 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.
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The following table summarizes cash flow information for Icahn Enterprises’ reporting segments and our Holding Company:
Year Ended December 31, 2020
Year Ended December 31, 2019
Year Ended December 31, 2018
Net Cash Provided By (Used In)
Net Cash Provided By (Used In)
Net Cash Provided By (Used In)
Operating
Investing
Financing
Operating
Investing
Financing
Operating
Investing
Financing
Activities
Activities
Activities
Activities
Activities
Activities
Activities
Activities
Activities
(in millions)
Holding Company
$
(351)
$
(954)
$
(911)
$
(322)
$
898
$
738
$
(315)
$
1,729
$
(102)
Investment
(191)
—
763
(1,873)
—
220
(116)
—
2,018
Other Operating Segments:
Energy
90
(423)
355
747
(121)
(642)
628
(108)
(334)
Automotive
(9)
53
(45)
(134)
(104)
241
(190)
(134)
315
Food Packaging
34
(19)
(18)
—
(17)
(5)
9
(25)
46
Metals
(14)
(1)
9
13
(30)
5
14
(20)
(1)
Real Estate
24
(4)
(46)
20
(22)
(8)
412
168
(552)
Home Fashion
3
(5)
2
(4)
(27)
36
3
(4)
—
Pharma
(2)
12
(2)
—
—
—
—
—
—
Mining
—
—
—
93
(14)
4
4
(40)
32
Other operating segments
126
(387)
255
735
(335)
(369)
880
(163)
(494)
Discontinued operations
—
—
—
—
—
—
474
(437)
(121)
Total before eliminations
(416)
(1,341)
107
(1,460)
563
589
923
1,129
1,301
Eliminations
—
760
(760)
—
23
(23)
—
1,458
(1,458)
Consolidated
$
(416)
$
(581)
$
(653)
$
(1,460)
$
586
$
566
$
923
$
2,587
$
(157)
The discussion of consolidated cash flows below primarily discusses the comparisons between the years ended December 31, 2020 and 2019. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed on February 28, 2020, which is incorporated by reference herein, for additional discussion of consolidated cash flows for the comparisons between the years ended December 31, 2019 and 2018.
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. In addition, during January 2019, our Holding Company sold its direct investment in CVR Refining to CVR Energy, which is included in cash flows from investing activities for our Holding Company and cash flows from financing activities for our Energy segment.
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Holding Company
Year Ended December 31,
2020
2019
2018
(in millions)
Operating Activities:
Cash payments for interest on senior unsecured notes
$
(366)
$
(374)
$
(339)
Interest and dividend income
22
69
24
Net cash receipts for income taxes, net of payments
22
7
15
Operating transactions with subsidiaries
—
—
13
Operating costs and other
(29)
(24)
(28)
$
(351)
$
(322)
$
(315)
Investing Activities:
Proceeds from sale of businesses and assets
$
—
$
463
$
3,187
Purchases of investments
(197)
—
—
Proceeds from sale of investments
22
458
—
Proceeds from sale of CVR Refining common units to CVR Energy
—
60
—
Net investments in the Investment Funds
(750)
—
(1,708)
Net (investments in) distributions from other operating segments
(10)
(83)
250
Other investing activities, net
(19)
—
—
$
(954)
$
898
$
1,729
Financing Activities:
Partnership contributions
$
102
$
55
$
—
Partnership distributions
(526)
(112)
(97)
Payments to acquire additional interests in subsidiaries
—
—
(5)
Net debt transactions
(487)
795
—
$
(911)
$
738
$
(102)
(Decrease) increase in cash and cash equivalents and restricted cash and restricted cash equivalents
$
(2,216)
$
1,314
$
1,312
The decrease in interest payments during 2020 compared to 2019 is due to lower interest rates on certain of our senior unsecured notes due to certain debt refinancings in the first quarter of 2020.
Net cash receipts for income taxes, net of payments, is net of tax sharing receipts (payments) from certain of our consolidated subsidiaries aggregating $10 million, $(3) million and $27 million during the years ended December 31, 2020, 2019 and 2018, respectively.
Proceeds from the sale of businesses includes proceeds from the sales Ferrous Resources in 2019, Federal-Mogul, Tropicana and ARI in 2018 and residual sales of American Railcar Leasing LLC’s remaining railcars also in 2018. The cash flows with respect to each of Federal-Mogul, Tropicana and ARI are reported in discontinued operations for all periods presented and the cash proceeds from each of the sales remain with our Holding Company in continuing operations.
Purchase of investments in 2020 relates to the purchase of an equity investment and a debt investment. Proceeds from the sale of investments in 2020 primarily relates to proceeds from the sale of an equity investment. Proceeds from the sale of investments in 2019 related to the sale of a certain equity investment.
During 2020 and 2019, we received $102 million and $55 million, respectively, (including $2 million and $1 million, respectively, from our general partner) in connection with our “at-the-market” offering pursuant to our Open Market Sale Agreement announced in May 2019, as discussed above.
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Net (investments in) distributions from the Investment Funds, Net distributions from (investments in) other operating segments and Note (repayment) proceeds from other operating segments are eliminated in consolidation and discussed further below.
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 comparable periods were due to contributions from, and distributions to, our Holding Company, Mr. Icahn and his affiliates and Brett Icahn. Our Investment segment had net cash provided by financing activities of $763 million for the year ended December 31, 2020, including an investment from us of $750 million, net of redemptions, a contribution of $12 million from Brett Icahn in accordance with his manager agreement and $1 million from Mr. Icahn and his affiliates (excluding us). For the year ended December 31, 2019, our Investment segment had net cash provided by financing activities of $220 million, for contributions received from Mr. Icahn and his affiliates (excluding us). For the year ended December 31, 2018, our Investment segment had net cash provided by financing activities of $2.0 billion, which included our $1.7 billion net investment in the Investment Funds as well as $310 million received from Mr. Icahn and his affiliates (excluding us).
Other Operating Segments
Year Ended December 31,
2020
2019
2018
(in millions)
Operating Activities:
Net cash flow from operating activities before changes in operating assets and liabilities
$
(49)
$
652
$
784
Changes in operating assets and liabilities
175
83
104
Transactions with Holding Company
—
—
(8)
$
126
$
735
$
880
Investing Activities:
Capital expenditures
$
(197)
$
(250)
$
(272)
Turnaround expenditures
(159)
(38)
(8)
Acquisition of businesses, net of cash acquired
10
(39)
(15)
Purchases of investments
(140)
(50)
(60)
Proceeds from sale of investments
75
—
1
Proceeds from sale of assets
25
42
183
Other
(1)
—
8
$
(387)
$
(335)
$
(163)
Financing Activities:
Net debt and supply chain financing activity
$
302
$
(37)
$
(78)
Distributions to non-controlling interests
(36)
(119)
(139)
Payments to acquire additional interests in consolidated subsidiaries
—
(301)
—
Net contributions from (distributions to) Holding Company
10
83
(292)
Other
(21)
5
15
$
255
$
(369)
$
(494)
Effect of exchange rate changes on cash and cash equivalents and restricted cash and restricted cash equivalents
(4)
(2)
(2)
Add back change in cash and restricted cash of assets held for sale
—
—
(8)
Increase in cash and cash equivalents and restricted cash and restricted cash equivalents
$
(10)
$
29
$
213
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Our other operating segments’ net cash flow from operating activities before changes in operating assets and liabilities were primarily attributable to our Automotive segment’s negative results in 2020 and our Energy segment’s positive results from operations for 2019 and 2018.
Changes in operating assets and liabilities for 2020 were primarily attributable to our Automotive segment resulting from inventory reductions. Changes in operating assets and liabilities for 2019 were primarily attributable to our Energy segment resulting primarily from an increase in accounts payable.
Capital expenditures are primarily from our Energy and Automotive segments and are primarily for maintenance. Refer to Note 13, “Segment and Geographic Reporting,” for capital expenditures reported for each of our segments. Capital expenditures decreased in 2020 compared to 2019 due to a reduction in capital expenditures at our Metals segment resulting from a reduction in growth expenditures and due to a reduction at our Automotive segment due to fewer stores requiring maintenance expenditures. Turnaround expenditures relates to our Energy segment, which increased in 2020 due to planned maintenance at one of its refineries.
Acquisition of businesses, net of cash acquired, primarily relates to our Automotive segment. Our Automotive segment’s acquisitions included various service businesses aggregating $2 million in 2020, $10 million in 2019 and $15 million in 2018. In addition, our Home Fashion and Metals segments acquired businesses for $21 million and $8 million, respectively, in 2019. During 2020, Vivus’ emergence from bankruptcy included $12 million of cash acquired reported for our Pharma segment with the cash portion of the consideration paid included in the Holding Company discussion above.
Purchases of investments primarily relates to our Energy segment’s purchase of an equity investment in 2020 and our Automotive segment’s investments in 767 Leasing in 2019 and 2018. Proceeds from sale of investments relates to our Automotive segment’s cash received from 767 Leasing in 2020.
Proceeds from sale of assets are primarily due to our Automotive and Real Estate segments in 2020, our Energy segment in 2019 and our Real Estate segment’s dispositions of certain properties in 2018.
Distributions to non-controlling interests were from our Energy segment for the years ended December 31, 2020, 2019 and 2018, relating to its regular quarterly dividends and distributions, excluding payments made to us. Due to the current economic conditions, our Energy segment only paid dividends in 2020 relating to the fourth quarter of 2019 and a reduced dividend relating to the first quarter of 2020.
Net payments to acquire additional interests in consolidated subsidiaries relates to our Energy segment’s acquisition of the remaining common units of CVR Refining during 2019, which includes $60 million paid to us for our direct investment in CVR Refining.
Net contributions from and distributions to our Holding Company include the dividends and distributions paid by our Energy segment of $85 million, $217 million and $192 million for the years ended December 31, 2020, 2019 and 2018, respectively, as well as by our Real Estate segment of $68 million, $24 million and $543 million, respectively, and by our Automotive segment of $75 million in 2020. During the years ended December 31, 2020, 2019 and 2018, our Automotive segment received funds in the form of investments from our Holding Company of $115 million, $276 million and $365 million, respectively, primarily for the acquisition of businesses, investments in 767 Leasing and costs associated with our Automotive segment’s multi-year transformation plan. During 2020, our Food Packaging segment received funds in the amount of $100 million in connection with Viskase’s equity private placement in October 2020. Our other operating segments received funds in the form of loans and investments from our Holding Company aggregating $23 million, $17 million and $34 million during the years ended December 31, 2020, 2019 and 2018, respectively.
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Consolidated Capital Spending
Refer to Note 13, “Segment and Geographic Reporting,” for a reconciliation of our segments’ capital expenditures to consolidated capital expenditures for each of the years ended December 31, 2020, 2019 and 2018. In addition, our Energy segment had turnaround expenditures of $159 million, $38 million and $8 million during the years ended December 31, 2020, 2019 and 2018, respectively, which is reported separately from capital expenditures.
For 2021, we estimate our consolidated capital expenditures to be approximately $215 million to $230 million for our Energy segment, for both maintenance and growth, including $95 million to $100 million for our Energy segments’ renewable diesel unit capital expenditures, $89 million for our Automotive segment, primarily for maintenance and restructuring related activities, and approximately $48 million in the aggregate for all other segments. Our Energy segment also expects its turnaround expenditures to be approximately $18 million to $19 million in 2021.
In addition, 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 capable of producing 100 million gallons of renewable diesel per year. The total estimated costs for the project are currently $110 million and completion of the project is expected in June 2021.
Critical Accounting Estimates
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Among others, estimates are used when accounting for valuation of investments. Estimates used in determining fair value measurements include, but are not limited to, expected future cash flow assumptions, market rate assumptions for contractual obligations, actuarial assumptions for benefit plans, settlement plans for litigation and contingencies, and appropriate discount rates. Estimates and assumptions are evaluated on an ongoing basis and are based on historical and other factors believed to be reasonable under the circumstances. The results of these estimates may form the basis of the carrying value of certain assets and liabilities and may not be readily apparent from other sources. Actual results, under conditions and circumstances different from those assumed, may differ from estimates.
We believe the following accounting estimates are critical to our business operations and the understanding of results of operations and affect the more significant judgments and estimates used in the preparation of our consolidated financial statements.
Income Taxes
Except as described below, no provision has been made for federal, state, local or foreign income taxes on the results of operations generated by partnership activities as such taxes are the responsibility of the partners. Our corporate subsidiaries account for their income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Management periodically evaluates all evidence, both positive and negative, in determining whether a valuation allowance to reduce the carrying value of deferred tax assets is still needed. For each of December 31, 2020 and 2019, we concluded, based on the projections of taxable income, that certain of our corporate subsidiaries more likely than not will realize a partial benefit from their deferred tax assets and loss carry forwards. Ultimate realization of the deferred
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tax assets is dependent upon, among other factors, our corporate subsidiaries’ ability to generate sufficient taxable income within the carryforward periods and is subject to change depending on the tax laws in effect in the years in which the carryforwards are used.
See Note 15, “Income Taxes,” to the consolidated financial statements for further discussion regarding our income taxes.
Valuation of Investments
The fair value of our investments, including securities sold, not yet purchased, is based on observable market prices when available. Securities owned by the Investment Funds that are listed on a securities exchange are valued at their last sales price on the primary securities exchange on which such securities are traded on such date. Securities that are not listed on any exchange but are traded over-the-counter are valued at the mean between the last “bid” and “ask” price for such security on such date. Securities and other instruments for which market quotes are not readily available are valued at fair value as determined in good faith by the applicable general partner. For some investments little market activity may exist; management’s determination of fair value is then based on the best information available in the circumstances and may incorporate management’s own assumptions and involves a significant degree of judgment.
Long-Lived Assets and Goodwill
We calculate depreciation and amortization on a straight-line basis over the estimated useful lives of the various definite-lived assets. When assets are placed in service, we make estimates of what we believe are their reasonable useful lives.
Long-Lived Assets
Long-lived assets held and used by our various operating segments and long-lived assets to be disposed of are reviewed for impairment whenever events or changes in circumstances indicate a possible significant deterioration in future expected cash flows that could result in the carrying amount of an asset not being recoverable. In performing the review for recoverability, we estimate the future cash flows expected to result from the remaining useful life of the asset and its eventual disposition. Assumptions used in the review of recoverability require the exercise of significant judgment, including judgment about terminal values, growth rates, and the amount and timing of expected future cash flows. The forecasted cash flows are based on current plans and for years beyond that plan, the estimates are based on assumed growth rates. If the sum of the estimated future cash flows, undiscounted and without interest charges, is less than the carrying amount of the asset, a fair value assessment is performed. If the carrying amount of the asset exceeds its fair value, an impairment loss is recognized in accordance with U.S. GAAP. Similarly, long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell. As of December 31, 2020, our long-lived assets did not have any impairment indicators. However, during the second quarter of 2020, two primary products of our Energy segment’s nitrogen fertilizer business experienced significant pricing declines resulting from the broader economic conditions caused by the COVID-19 pandemic. There was significant uncertainty as to the nature and extent of the impacts on the overall demand for corn and soybean given reduced ethanol production and broader economic conditions which could negatively impact demand for its products. As a result, we evaluated the long-lived assets of our Energy Segment’s nitrogen fertilizer business to determine if the carrying value of the asset group exceeded its recoverability. Based on our assessment, which included estimating the recoverability of the asset group using an undiscounted cash flow model, we determined that the recoverability of the asset group was significantly in excess of its carrying value and no impairment was necessary.
Goodwill
Indefinite-lived intangible assets, such as goodwill and trademarks, held by our various segments are reviewed for impairment annually, or more frequently if impairment indicators exist. Goodwill impairment testing consists of (i) a qualitative analysis to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill, and/or, if necessary, (ii) a quantitative analysis which involves comparing the fair value of our reporting units to their respective carrying values. If the fair value of the reporting unit exceeds its carrying
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value, no impairment is necessary. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss, equal to the difference (limited to the total amount of goodwill allocated to the tested reporting unit), is recognized in accordance with U.S. GAAP. As of December 31, 2020, our consolidated goodwill was $298 million, primarily within our Automotive segment’s Service reporting unit. We perform the annual goodwill impairment test for our Automotive segment as of October 1 of each year. Based on our annual goodwill impairment analysis for our Automotive segment, we determined that the fair value of our Automotive segment’s Service reporting unit was significantly in excess of its carrying value and therefore, no impairment is required. As of December 31, 2020, our Automotive segment had remaining goodwill of $254 million, which is allocated entirely to its Service reporting unit.
When performing the quantitative analysis for goodwill impairment testing, we base the fair value of our reporting units on consideration of various valuation methodologies, including projecting future cash flows discounted at rates commensurate with the risks involved (“DCF”). Assumptions used in a DCF require the exercise of significant judgment, including judgment about appropriate discount rates and terminal values, growth rates, and the amount and timing of expected future cash flows. The forecasted cash flows are based on current plans and for years beyond that plan, the estimates are based on assumed growth rates. We believe that our assumptions are consistent with the plans and estimates used to manage the underlying businesses. The discount rates, which are intended to reflect the risks inherent in future cash flow projections, used in a DCF are based on estimates of the weighted-average cost of capital of a market participant. Such estimates are derived from our analysis of peer companies and consider the industry weighted average return on debt and equity from a market participant perspective. The inputs used to determine the fair values of our reporting units, including future cash flows, discount rates and growth rates and other assumptions involves a significant degree of judgment.
See Note 5, “Fair Value Measurements,” and Note 9, “Goodwill and Intangible Assets, Net,” to the consolidated financial statements for further discussion regarding the fair value measurements of our long-live assets as well as goodwill and intangible assets.
Recently Issued Accounting Standards
See Note 2, “Basis of Presentation and Summary of Significant Accounting Policies,” to the consolidated financial statements for a discussion of recent accounting pronouncements applicable to us.
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