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 and headquartered in Sunny Isles Beach, Florida. We are a diversified holding company owning subsidiaries currently engaged in the following continuing operating businesses: Investment, Energy, Automotive, Food Packaging, Real Estate, Home Fashion and Pharma. In addition, we operated our Metals segment until sold in December 2021. We also report the results of our Holding Company, which includes the results of certain subsidiaries of Icahn Enterprises (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. References to “we,” “our” or “us” herein include Icahn Enterprises and its subsidiaries, unless the context otherwise requires.
Icahn Enterprises owns a 99% limited partner interest in Icahn Enterprises Holdings L.P. (“Icahn Enterprises Holdings”). Icahn Enterprises Holdings and its subsidiaries own substantially all of our assets and liabilities and conduct substantially all of our operations. Icahn Enterprises G.P. Inc. (“Icahn Enterprises GP”), which is indirectly owned and controlled by Mr. Carl C. Icahn, owns a 1% general partner interest in each of Icahn Enterprises and Icahn Enterprises Holdings as of December 31, 2021, representing an aggregate 1.99% general partner interest in Icahn Enterprises Holdings and us. Mr. Icahn and his affiliates owned approximately 88% of Icahn Enterprises’ outstanding depositary units as of December 31, 2021.
Significant Transactions and Developments
Tender Offer
On October 27, 2021, IEP Utility Holdings LLC (“IEP Utility”), a wholly owned subsidiary of Icahn Enterprises Holdings, commenced a cash offer (the “SWX Tender Offer”) to acquire, subject to certain terms and conditions, all of the issued and outstanding shares of common stock of Southwest Gas Holdings, Inc. (“Southwest Gas”) not held by affiliates of Icahn Enterprises Holdings at a price of $75.00 per share. Southwest Gas, through its wholly owned subsidiaries, is engaged in the business of purchasing, distributing, and transporting natural gas for customers in portions of Arizona, Nevada, and California. Southwest Gas’ shares of common stock are listed on the New York Stock Exchange under the symbol “SWX.” The SWX Tender Offer has been extended and is scheduled to expire at 12:00 midnight, New York City Time, on March 23, 2022, unless the offer is further extended.
Sale of PSC Metals, LLC
On December 7, 2021, we closed on the previously announced sale of 100% of the equity interests in PSC Metals, LLC (“PSC Metals”). In connection with this sale, we received proceeds of $323 million and recorded a pretax gain on disposition of assets of $163 million in the fourth quarter of 2021. As a result of the sale of PSC Metals, we no longer operate a Metals segment.
29
Table of Contents
Debt Issuances and Repayments
In January 2021, Icahn Enterprises and Icahn Enterprises Finance Corp. (together the “Issuers”) issued $750 million in aggregate principal amount of 4.375% senior unsecured notes due 2029 (the “New 2029 Notes”). The proceeds from the New 2029 Notes were used to redeem $750 million principal amount of 6.250% senior unsecured notes due 2022, and to pay accrued interest, related fees and expenses.
In April 2021, the Issuers issued $455 million in aggregate principal amount of additional 5.250% senior unsecured notes due 2027. The proceeds from this issuance were used to redeem the remaining $455 million principal amount of 6.250% senior unsecured notes due 2022, and to pay accrued interest, related fees and expenses.
In February 2022, we repaid all of our outstanding $500 million aggregate principal amount of 6.750% senior unsecured notes due 2024 at par.
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.
Throughout 2020 and 2021, the COVID-19 pandemic, and actions taken by governments and others in response thereto, has negatively impacted the global economy, financial markets, and certain of the industries in which our subsidiaries operate. Our consolidated results of operations and financial condition have been impacted primarily by the volatility in the fair value of investments held by our Investment segment and the Holding Company as well as volatility in the global demand for refined products, especially gasoline and diesel fuels, with respect to our Energy segment. The impact on our businesses has also included the acceleration of selective planned store closures in our Automotive segment and recording write-downs to inventories. The economic conditions that persisted for much of 2020 have improved in 2021 as more governments reduce restrictions and more businesses resume operations.
30
Table of Contents
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 and (iii) the sales of PSC Metals in 2021 and Ferrous Resources in 2019. Refer to our respective segment discussions and “Other Consolidated Results of Operations,” below for further discussion.
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,
2021
2020
2019
2021
2020
2019
2021
2020
2019
(in millions)
Investment
$
202
$
(1,249)
$
(1,414)
$
(32)
$
(1,447)
$
(1,543)
$
(16)
$
(765)
$
(775)
Holding Company
(25)
(70)
(261)
(402)
(476)
(599)
(402)
(476)
(599)
Other Operating Segments:
Energy
7,327
3,966
6,385
29
(327)
314
(5)
(194)
246
Automotive
2,360
2,465
2,895
(260)
(198)
(197)
(260)
(198)
(197)
Food Packaging
402
403
377
(2)
4
(22)
(2)
4
(17)
Real Estate
96
98
103
(8)
(16)
16
(8)
(16)
16
Home Fashion
197
190
186
(8)
(7)
(17)
(8)
(7)
(17)
Pharma
85
3
—
(3)
(1)
—
(3)
(1)
—
Metals
684
317
341
186
—
(22)
186
—
(22)
Mining
—
—
382
—
—
311
—
—
299
Other operating segments
11,151
7,442
10,669
(66)
(545)
383
(100)
(412)
308
Consolidated
$
11,328
$
6,123
$
8,994
$
(500)
$
(2,468)
$
(1,759)
$
(518)
$
(1,653)
$
(1,066)
Management’s Discussion and Analysis of Results of Operations discusses the comparisons between the years ended December 31, 2021 and 2020. Certain discussions of results of operations for the comparisons between the years ended December 31, 2020 and 2019 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, 2020, filed on February 26, 2021 , 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, 2021 and 2020, we had investments with a fair market value of approximately $4.2 billion and $4.3 billion, respectively, in the Investment Funds. As of December 31, 2021 and 2020, the total fair market value of investments in the Investment Funds made by Mr. Icahn and his affiliates (excluding us and Brett Icahn), was approximately $5.0 billion and $5.0 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, Mr. Icahn’s son. Additionally, historical performance results of the Investment Funds are not indicative of future results as past market conditions, investment opportunities and investment decisions may not occur in the future. Changes in general market conditions coupled with changes in exposure to short
31
Table of Contents
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, 2021.
For the years ended December 31, 2021, 2020 and 2019, our Investment Funds’ returns were (0.3)%, (14.3)%, and (15.4)%, 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,
2021
2020
2019
Long positions
84.9
%
0.6
%
16.4
%
Short positions
(84.0)
%
(14.9)
%
(31.9)
%
Other
(1.2)
%
—
%
0.1
%
(0.3)
%
(14.3)
%
(15.4)
%
The following table presents net income (loss) for our Investment segment:
Year Ended December 31,
2021
2020
2019
(in millions)
Long positions
$
2,916
$
(50)
$
1,492
Short positions
(2,906)
(1,400)
(3,045)
Other
(42)
3
10
$
(32)
$
(1,447)
$
(1,543)
For 2021, the Investment Funds’ negative performance was driven by net losses in short positions, offset in part by net gains in long positions. The negative performance of our Investment segment’s short positions was driven primarily by the negative performance of broad market hedges of $1.2 billion, an energy sector investment of $752 million and a consumer, cyclical sector investment of $506 million. The aggregate performance of investments with net losses across various sectors accounted for an additional negative performance of our Investment segment’s short positions. The negative performance of our Investment segment’s short positions was offset in part by gains from a consumer, cyclical sector investment of $204 million. The positive performance of our Investment segment’s long positions was driven primarily by gains from two energy sector investments aggregating approximately $1.7 billion, a consumer, non-cyclical sector investment of $420 million and a utilities sector investment of $220 million. The aggregate performance of investments with net gains across various sectors accounted for an additional positive performance of our Investment segment’s long positions.
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.
32
Table of Contents
Energy
Our Energy segment is primarily engaged in the petroleum refining and nitrogen fertilizer manufacturing businesses. The sale of petroleum products accounted for approximately 93%, 91% and 94% of our Energy segment’s net sales for the years ended December 31, 2021, 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”). 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 declined beginning in the first quarter of 2020. 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 have 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. However, beginning in late 2020 and into 2021, the U.S. market for refined products has improved and demand has increased as travel restrictions and stay-at-home orders have been eased.
In addition to recent 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, which requires the operating companies in our Energy segment to either blend “renewable fuels” with their transportation fuels or purchase renewable identification numbers (“RINs”), to the extent available, in lieu of blending, or to seek other exemptions. The price of RINs has been extremely volatile and the future cost of RINs for the petroleum business is difficult to estimate. Additionally, the cost of RINs is dependent upon a variety of factors, which include the availability of RINs for 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 17, “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 170 to 180 million RINs annually. As a result of conversion, the crude oil capacity of the refinery will be reduced. Further, the conversion enables our Energy segment to capture additional benefits associated with the existing blenders’ tax credit that expires at the end of 2022 and low carbon fuel standard programs in states such 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 Renewable Fuels Standard (“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 mitigates our costs to comply with the RFS, if at all.
33
Table of Contents
The following table presents our Energy segment’s net sales, cost of goods sold and gross margin:
Year Ended December 31,
2021
2020
2019
(in millions)
Net sales
$
7,242
$
3,930
$
6,364
Cost of goods sold
7,069
4,164
5,707
Gross margin
$
173
$
(234)
$
657
Net sales for our Energy segment increased by approximately $3.3 billion (84%) for the year ended December 31, 2021 as compared to the comparable prior year period due to an increase in our petroleum business’ net sales, which increased approximately $3.1 billion, as well as an increase in our nitrogen fertilizer business’ net sales, which increased $183 million over the comparable periods. The increase in the petroleum business’ net sales was primarily due to an increase in sales of gasoline and distillates attributable to an increase in volumes and more favorable pricing conditions. Volumes were lower in the comparable prior year period due to the full planned turnaround at one of the refineries while another refinery experienced reduced utilization in response to demand reductions driven by the impacts of the COVID-19 pandemic. Our nitrogen fertilizer business’ net sales increased primarily due to an increase in urea ammonium nitrate (“UAN”) sales primarily due to favorable pricing conditions.
Cost of goods sold for our Energy segment increased by approximately $2.9 billion (70%) for the year ended December 31, 2021 as compared to the comparable prior year period. The increase was primarily due to our petroleum business as a result of higher cost of consumed crude oil. The higher cost of consumed crude oil was due to an increase in volumes, as discussed above, as well as a $245 million increase in the net cost of RINs and lower derivative performance of $99 million. Gross margin for our Energy segment improved by $407 million for the year ended December 31, 2021 as compared to the comparable prior year period. Gross margin as a percentage of net sales was 2% and (6)% for the year ended December 31, 2021 and 2020, respectively. The improvement in the gross margin as a percentage of net sales was primarily attributable to the petroleum business, which was primarily due to higher crack spreads, offset in part by an increase in the net cost of RINs and lower derivative performance.
Automotive
Our Automotive segment’s results of operations are generally driven by the distribution and installation of automotive aftermarket parts and the demand for automotive service and maintenance, and is affected by the relative strength of automotive part replacement trends, among other factors.
Our Automotive segment has been in the process of implementing a multi-year transformation plan, which includes the restructuring of its businesses. The transformation plan includes operating the automotive services and aftermarket parts businesses as separate businesses, 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. As part of this plan, in 2021 Icahn Automotive entered into an agreement to sell certain inventory assets relating to its aftermarket parts business at 109 locations and a distribution center in California and certain other inventory and fixed assets in California. Aftermarket parts sales from these locations aggregated $78 million during the year ended December 31, 2021. Costs to implement the transformation plan include restructuring charges, which are recorded when specific plans are approved.
34
Table of Contents
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,
2021
2020
2019
(in millions)
Net sales and other revenue from operations
$
2,384
$
2,478
$
2,884
Cost of goods sold and other expenses from operations
1,801
1,793
2,089
Gross margin
$
583
$
685
$
795
Net sales and other revenues from operations for our Automotive segment for the year ended December 31, 2021 decreased by $94 million (4%) as compared to the comparable prior year period. The decrease was attributable to a decrease in aftermarket parts sales of $243 million (19%), offset in part by an increase in automotive services revenue of $149 million (12%). Store closures related to the transformation plan accounted for a $249 million decrease in aftermarket parts sales, which was offset in part by a $6 million increase in aftermarket parts sales on an organic basis. The increase in automotive services revenues represents an increase on a primarily organic basis as sales have improved over the comparable prior year period. The COVID-19 pandemic, and the impacts of the actions taken by governments and others, have significantly contributed to a decline in revenues in 2020, which have recovered significantly in 2021.
Cost of goods sold and other expenses from operations for the year ended December 31, 2021 increased by $8 million as compared to the comparable prior year period. The increase was primarily due to a $56 million inventory obsolescence write-down and higher costs associated with higher services revenues, offset in part by lower costs attributable to lower aftermarket parts sales. Gross margin on net sales and other revenue from operations for the year ended December 31, 2021 decreased by $102 million (15%) as compared to the comparable prior year period. Gross margin as a percentage of net sales and other revenue from operations was 24% and 28% for the years ended December 31, 2021 and 2020, respectively. Gross margins were negatively impacted by the write down to inventory, as described above, and the continuation of store closures however, this was offset in part by an increase in services revenues, which had a positive impact on gross margins.
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, 2021 increased $7 million (2%) as compared to the comparable prior year period. The increase was due to an increase in price and product mix as well as the favorable effects of foreign exchange, offset in part by lower volumes. Cost of goods sold for the year ended December 31, 2021 increased by $16 million (5%) as compared to the comparable prior year period due to the effects raw material price inflation,
35
Table of Contents
manufacturing variances and distribution costs. Gross margin as a percentage of net sales was 18% and 20% for the year ended December 31, 2021 and 2020, 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, 2021 and 2020 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, 2021 increased by $9 million (5%) compared to the comparable prior year period primarily due to the reduced impact of the COVID-19 pandemic on our Home Fashion segment’s hospitality and department store businesses, offset in part by a decline resulting from lower demand for facemasks. Cost of goods sold for the year ended December 31, 2021 increased $9 million (6%) compared to the comparable prior year period due to higher material and freight costs. Gross margin as a percentage of net sales was 19% and 20% for the year ended December 31, 2021 and 2020, respectively. The decrease is due to higher material and freight costs and a decline in the sale of certain higher margin products.
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. As discussed above, we sold PSC Metals on December 7, 2021, which impacts the comparability of the results of operations discussed below.
Net sales for the year ended December 31, 2021 increased by $211 million (67%) compared to the comparable prior year period primarily due to higher volumes and higher selling prices. Cost of goods sold for the year ended December 31, 2021 increased by $183 million (61%) compared to the comparable prior year period due to higher volumes as well as higher material costs. Gross margin as a percentage of net sales was 8% and 5% for the year ended December 31, 2021 and 2020, respectively, with the improvement primarily due to higher material margins as the prior year period was negatively impacted by the effects of the COVID-19 pandemic.
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, 2021 and 2020.
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 PSC Metals, resulting in a pretax gain on disposition of assets of $163 million for the year ended December 31, 2021. In addition, we sold Ferrous Resources, resulting in a pretax gain on disposition of assets of $252 million for the year ended December 31, 2019.
36
Table of Contents
Selling, General and Administrative
Our consolidated selling, general and administrative during the year ended December 31, 2021 increased by $50 million (4%) as compared to the comparable prior year period primarily due to the addition of the results of our Pharma segment for a full year, our Energy segment, primarily due to higher share-based compensation as well as higher compensation costs for our Investment segment, offset in part by lower costs resulting from our Automotive segment, due to store closures and our Real Estate segment, which incurred additional costs in the second quarter of 2020 relating to the demolition of one of its properties.
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, 2021 decreased by $22 million (3%) as compared to the comparable prior year period. The decrease was primarily due to lower interest expense for our Holding Company and Energy segment due to lower weighted average interest rates resulting from their respective debt refinancings. This was offset in part by an increase in interest expense for our Investment segment relating to its derivatives and margin balances.
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 14, “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.
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, 2021, our Holding Company had cash and cash equivalents of $1.7 billion and total debt of approximately $5.8 billion. As of December 31, 2021, our Holding Company had investments in the Investment Funds with a total fair market value of approximately $4.2 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.
37
Table of Contents
Holding Company Borrowings and Availability
December 31,
2021
2020
(in millions)
6.250% senior unsecured notes due 2022
$
—
$
1,209
6.750% senior unsecured notes due 2024
499
499
4.750% senior unsecured notes due 2024
1,105
1,106
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
1,461
999
4.375% senior unsecured notes due 2029
747
—
$
5,810
$
5,811
Holding Company debt consists of various issues of fixed-rate senior unsecured notes issued by Icahn Enterprises and Icahn Enterprises Finance Corp. (together the “Issuers”) and guaranteed by Icahn Enterprises Holdings (the “Guarantor”). Interest on each tranche of senior unsecured notes is payable semi-annually.
In 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 the New 2029 Notes were used to redeem $750 million principal amount of 6.250% senior unsecured notes due 2022, and to pay accrued interest, related fees and expenses. Interest on the New 2029 Notes is payable semi-annually.
In April 2021, the Issuers issued $455 million in aggregate principal amount of additional 5.250% senior unsecured notes due 2027. The proceeds from this issuance were used to redeem the remaining $455 million principal amount of 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 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, 2021, except for the 4.750% senior unsecured notes due 2024, the 5.250% senior unsecured notes due 2027 and 4.375% senior unsecured notes due 2029, are subject to optional redemption premiums in the event we redeem any of the notes prior to certain dates as described in the indentures.
As of December 31, 2021 and 2020, we were in compliance with all covenants, including maintaining certain minimum financial ratios, as defined in the indentures. Additionally, as of December 31, 2021, 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.
In February 2022, we repaid all of our outstanding $500 million aggregate principal amount of 6.750% senior unsecured notes due 2024 at par.
38
Table of Contents
Future Debt Service Obligations
Interest payments on our Holding Company’s senior unsecured notes, including the effects of the debt repayment in January 2022, as described above, will be approximately $308 million for 2022, $290 million for each of 2023 and 2024, $237 million for 2025 and an aggregate of $276 million for 2026 through 2029.
At-The-Market Offerings
In May 2019, Icahn Enterprises entered into a new Open Market Sale Agreement, pursuant to which Icahn Enterprises was able to sell its depositary units, from time to time, for up to $400 million in aggregate sale proceeds, under its ongoing “at-the-market” offering. This agreement has been subsequently terminated and superseded by subsequent agreements with substantially the same terms. During the year ended December 31, 2021, Icahn Enterprises sold 15,170,519 depositary units pursuant to these agreements, resulting in gross proceeds of $833 million. As of December 31, 2021, we continue to have an active Open Market Sale Agreement and Icahn Enterprises may sell its depositary units for up to an additional $328 million in aggregate gross sale proceeds pursuant to this agreement entered into on December 3, 2021. No assurance can be made that any or all amounts will be sold during the term of this agreement, and we have no obligation to sell additional depositary units under this Open Market Sale Agreement. Depending on market conditions, we may continue to sell depositary units under the Open Market Sale Agreement, and, if appropriate, enter into a new Open Market Sale Agreement to continue our “at-the-market” sales program once we have sold the full amount of our existing Open Market Sale Agreement. Our ability to access remaining capital under our “at-the-market” program may be limited by market conditions at the time of any future potential sale. While we were able to sell shares during the year ended December 31, 2021, there can be no assurance that any future capital will be available on acceptable terms or at all under this program.
LP Unit Distributions
During the year ended December 31, 2021, we declared four quarterly distributions aggregating $8.00 per depositary unit. In connection with these distributions, aggregate cash distributions to all depositary unitholders were $132 million.
On February 23, 2022, the Board of Directors of the general partner of Icahn Enterprises declared a quarterly distribution in the amount of $2.00 per depositary unit, which will be paid on or about April 27, 2022 to depositary unitholders of record at the close of business on March 18, 2022. Depositary unitholders will have until April 14, 2022 to make a timely election to receive either cash or additional depositary units. If a unitholder does not make a timely election, it will automatically be deemed to have elected to receive the distribution in additional depositary units. Depositary unitholders who elect to receive (or who are deemed to have elected to receive) additional depositary units will receive units valued at the volume weighted average trading price of the units during the five consecutive trading days ending April 22, 2022. Icahn Enterprises will make a cash payment in lieu of issuing fractional depositary units to any unitholders electing to receive (or who are deemed to have elected to receive) depositary units.
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.
Sale of PSC Metals
On December 7, 2021, we closed on the previously announced sale of 100% of the equity interests in PSC Metals, LLC (“PSC Metals”). In connection with this sale, we received proceeds of $323 million.
39
Table of Contents
Sale of Investments
During 2021, we received proceeds of $405 million from the sale of equity investments held by the Holding Company.
Tender Offer
On October 27, 2021, IEP Utility, a wholly owned subsidiary of Icahn Enterprises Holdings, commenced the SWX Tender Offer. We estimate that the maximum amount of funds required to complete the SWX Tender Offer would be up to approximately $4.2 billion. IEP Utility and Icahn Enterprises Holdings intend to obtain such funds from cash, cash equivalents, and from their ability to make redemptions from their investment in the Investment Funds.
Investment Segment Liquidity
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, 2021, the Investment Funds’ had a net short notional exposure of 31%. The Investment Funds’ long exposure was 112% (111% long equity and 1% long credit) and its short exposure was 143% (121% short equity and 22% short credit). The notional exposure represents the ratio of the notional exposure of the Investment Funds’ invested capital to the net asset value of the Investment Funds at December 31, 2021.
Of the Investment Funds’ 112% long exposure, 95% was comprised of the fair value of its long positions (with certain adjustments) and 17% was comprised of single name equity forward contracts and credit contracts. Of the Investment Funds’ 143% short exposure, 57% was comprised of the fair value of its short positions and 86% 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 (95% long exposure) and our short positions that are not notionalized (57% short exposure), each 1% change in exposure as a result of purchases or sales (assuming no change in value) would have a 1% impact on our cash and cash equivalents (as a percentage of net asset value). Changes in exposure as a result of purchases and sales as well as adverse changes in market value would also have an effect on funds available to us pursuant to prime brokerage lines of credit.
With respect to the notional value of our other short positions (86% short exposure), our liquidity would decrease by the balance sheet unrealized loss if we were to close the positions at quarter end prices. This would be offset by a release of restricted cash balances collateralizing these positions as well as an increase in funds available to us pursuant to certain prime brokerage lines of credit. If we were to increase our short exposure by adding to these short positions, we would be required to provide cash collateral equal to a small percentage of the initial notional value at counterparties that require cash as collateral and then post additional collateral equal to 100% of the mark to market on adverse changes in fair value. For our counterparties who do not require cash collateral, funds available from lines of credit would decrease.
40
Table of Contents
Other Segment Liquidity
Segment Cash and Cash Equivalents
Segment cash and cash equivalents (excluding our Investment segment) consists of the following:
December 31,
2021
2020
(in millions)
Energy
$
510
$
667
Automotive
28
25
Food Packaging
10
16
Real Estate
30
21
Home Fashion
3
2
Pharma
14
8
Metals
—
1
$
595
$
740
Segment Borrowings and Availability
Segment debt consists of the following:
December 31,
2021
2020
(in millions)
Energy
$
1,660
$
1,691
Automotive
26
368
Food Packaging
155
151
Real Estate
1
1
Home Fashion
40
21
Metals
—
16
$
1,882
$
2,248
In June 2021, CVR Partners issued $550 million in aggregate principal amount of 6.125% senior secured notes due 2028. Proceeds from these notes were used to fund a partial redemption of its existing 9.25% senior secured notes due 2023. Subsequent to this, an additional $30 million of CVR Partners’ existing 9.25% senior secured notes due 2023 were redeemed in 2021 and the remaining $65 million outstanding was redeemed in February 2022. These senior secured notes issued by CVR Partners are guaranteed on a senior secured basis by all of CVR Partners’ existing domestic subsidiaries, excluding CVR Nitrogen Finance Corporation. The indenture governing these notes contain certain covenants that restrict the ability of the issuers and their restricted subsidiaries from incurring additional debt or issuing certain disqualified equity, create liens on certain assets to secure debt, pay dividends/distributions or make other equity distributions, purchase or redeem capital stock/common units, make certain investments, transfer and sell assets, agree to certain restrictions on the ability of restricted subsidiaries to make distributions, loans, or other asset transfers to the issuers, consolidate, merge, sell, or otherwise dispose of all or substantially all of their assets, engage in transactions with affiliates and designate restricted subsidiaries as unrestricted subsidiaries.
In August 2021, all of our Automotive segment’s outstanding credit facility was repaid in full in the amount of $350 million.
As of December 31, 2021, all of our subsidiaries were in compliance with all debt covenants.
41
Table of Contents
Our segments have additional borrowing availability under certain revolving credit facilities as summarized below:
December 31,
2021
(in millions)
Energy
$
396
Food Packaging
19
Home Fashion
8
$
423
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 segment.
After giving effect to certain debt activity in February 2022, as discussed above, our Energy segment’s future debt maturities (excluding financing leases) are $600 million for 2025 and $950 million for 2028. Future interest payments for our Energy segment are expected to be approximately $88 million to $89 million for each of 2022, 2023 and 2024. Interest payments are expected to be $62 million for 2025, $57 million for 2026 and an aggregate of $77 million for 2027 through 2028.
Subsidiary Dividends
In the second quarter of 2021, our Energy segment paid a special dividend, which was comprised of $241 million in cash as well as the common stock of an equity investment with a fair value of $251 million. Our portion of the dividend included $171 million in cash and the common stock of an equity investment with a fair value of $177 million. In addition, in the third and fourth quarters of 2021, our Energy segment had aggregate distributions to non-controlling interests of $31 million as a result of distributions paid by CVR Partners to its common unit holders.
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 its common stock as of December 31, 2021.
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. On February 22, 2021, the Board of Directors of CVR Partners authorized an additional $10 million under the unit repurchase program. During 2021, CVR Partners repurchased common units on the open market at a cost of $1 million. As of December 31, 2021, CVR Partners has $12 million remaining under its unit repurchase program.
42
Table of Contents
Purchase Obligations
Future purchase obligations for our other operating segments are primarily within our Energy and Pharma segments, as discussed in Note 17, “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 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.
The following table summarizes cash flow information for Icahn Enterprises’ reporting segments and our Holding Company:
Year Ended December 31, 2021
Year Ended December 31, 2020
Year Ended December 31, 2019
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
$
(368)
$
507
$
704
$
(351)
$
(954)
$
(911)
$
(322)
$
898
$
738
Investment
381
—
74
(191)
—
763
(1,873)
—
220
Other Operating Segments:
Energy
396
(238)
(315)
90
(423)
355
747
(121)
(642)
Automotive
(119)
77
42
(9)
53
(45)
(134)
(104)
241
Food Packaging
3
(17)
4
34
(19)
(18)
—
(17)
(5)
Real Estate
18
(9)
3
24
(4)
(46)
20
(22)
(8)
Home Fashion
(20)
(2)
18
3
(5)
2
(4)
(27)
36
Pharma
6
—
—
(2)
12
(2)
—
—
—
Metals
24
(11)
(16)
(14)
(1)
9
13
(30)
5
Mining
—
—
—
—
—
—
93
(14)
4
Other operating segments
308
(200)
(264)
126
(387)
255
735
(335)
(369)
Total before eliminations
321
307
514
(416)
(1,341)
107
(1,460)
563
589
Eliminations
—
221
(221)
—
760
(760)
—
23
(23)
Consolidated
$
321
$
528
$
293
$
(416)
$
(581)
$
(653)
$
(1,460)
$
586
$
566
The discussion of consolidated cash flows below primarily discusses the comparisons between the years ended December 31, 2021 and 2020. 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, 2020, filed on February 26, 2021 , which is incorporated by reference herein, for additional discussion of consolidated cash flows for the comparisons between the years ended December 31, 2020 and 2019.
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
43
Table of Contents
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.
Holding Company
Year Ended December 31,
2021
2020
2019
(in millions)
Operating Activities:
Cash payments for interest on senior unsecured notes
$
(339)
$
(366)
$
(374)
Interest and dividend income
5
22
69
Net cash receipts for income taxes, net of payments
—
22
7
Operating costs and other
(34)
(29)
(24)
$
(368)
$
(351)
$
(322)
Investing Activities:
Proceeds from sale of businesses and assets
$
323
$
—
$
463
Purchases of investments
—
(197)
—
Proceeds from sale of investments
405
22
458
Proceeds from sale of CVR Refining common units to CVR Energy
—
—
60
Net investments in the Investment Funds
—
(750)
—
Net (investments in) distributions from other operating segments
(221)
(10)
(83)
Other investing activities, net
—
(19)
—
$
507
$
(954)
$
898
Financing Activities:
Partnership contributions
$
835
$
102
$
55
Partnership distributions
(134)
(526)
(112)
Net debt transactions
3
(487)
795
$
704
$
(911)
$
738
(Decrease) increase in cash and cash equivalents and restricted cash and restricted cash equivalents
$
843
$
(2,216)
$
1,314
The decrease in interest payments during 2021 compared to 2020 is due to lower interest rates on certain of our senior unsecured notes due to certain debt refinancings in the first and second quarters of 2021.
Proceeds from the sale of businesses and assets includes proceeds from the sales PSC Metals in 2021 and Ferrous Resources in 2019.
Net (investments in) distributions from the Investment Funds and Net distributions from (investments in) other operating segments are eliminated in consolidation and discussed further below.
Partnership contributions represent sales in connection with our “at-the-market” offerings pursuant to our Open Market Sale Agreements entered into beginning May 2019, as discussed above.
Partnership distributions represent cash paid to depositary unitholders in connection with our regularly quarterly distributions. Mr. Icahn and his affiliates have historically elected to receive their distributions in additional units; however, for the first quarter of 2020, they elected to receive their distribution in cash. For distributions declared for all other quarters in 2021, 2020 and 2019, Mr. Icahn and his affiliates elected to receive their distributions in additional depositary units.
44
Table of Contents
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 $74 million for the year ended December 31, 2021, as a result of contributions from Brett Icahn in accordance with his manager agreement. For the year ended December 31, 2020, our Investment segment had net cash provided by financing activities of $763 million, 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).
Other Operating Segments
Year Ended December 31,
2021
2020
2019
(in millions)
Operating Activities:
Net cash flow from operating activities before changes in operating assets and liabilities
$
158
$
(49)
$
652
Changes in operating assets and liabilities
150
175
83
$
308
$
126
$
735
Investing Activities:
Capital expenditures
$
(305)
$
(197)
$
(250)
Turnaround expenditures
(5)
(159)
(38)
Acquisition of businesses, net of cash acquired
(20)
10
(39)
Purchases of investments
—
(140)
(50)
Proceeds from sale of investments
40
75
—
Proceeds from sale of assets
91
25
42
Other
(1)
(1)
—
$
(200)
$
(387)
$
(335)
Financing Activities:
Net debt and supply chain financing activity
$
(380)
$
302
$
(37)
Distributions to non-controlling interests
(101)
(36)
(119)
Payments to acquire additional interests in consolidated subsidiaries
—
—
(301)
Net contributions from (distributions to) Holding Company
221
10
83
Other
(4)
(21)
5
$
(264)
$
255
$
(369)
Effect of exchange rate changes on cash and cash equivalents and restricted cash and restricted cash equivalents
3
(4)
(2)
(Decrease) increase in cash and cash equivalents and restricted cash and restricted cash equivalents
$
(153)
$
(10)
$
29
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 2021 and 2020 and our Energy segment’s positive results from operations for 2021.
Changes in operating assets and liabilities for 2021 were primarily attributable to our Energy segment resulting primarily from an increase in crude oil prices during 2021 and increase in its open RFS position. Changes in operating assets and liabilities for 2020 were primarily attributable to our Automotive segment resulting from inventory reductions.
45
Table of Contents
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. Turnaround expenditures relates to our Energy segment, which were higher in 2020 due to planned maintenance at one of its refineries.
Purchases of investments primarily relates to our Energy segment’s purchase of an equity investment in 2020. Proceeds from sale of investments relates to our Automotive segment’s cash received from 767 Leasing in 2021 and 2020.
Proceeds from sale of assets are primarily due to our Automotive segment in 2021 and our Automotive and Real Estate segments in 2020. Our Automotive segment continues to sell stores and other assets in connection with its transformation plan.
Distributions to non-controlling interests were from our Energy segment relating to its regular quarterly dividends and distributions, excluding payments made to us, as well as a special dividend made in 2021. Due to the recent 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 contributions from and distributions to our Holding Company include the dividends and distributions paid by our Energy segment of $171 million in 2021 compared to $85 million in 2020, as well as by our Automotive segment of $36 million in 2021 compared to $75 million in 2020. During 2021, Automotive segment received funds in the form of investments and loans from our Holding Company of $425 million compared to $115 million for 2020, primarily for the refinancing of its debt 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 $3 million in 2021 compared to $23 million in 2020.
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, 2021, 2020 and 2019. In addition, our Energy segment had turnaround expenditures of $5 million, $159 million and $38 million during the years ended December 31, 2021, 2020 and 2019, respectively, which is reported separately from capital expenditures in our consolidated statements of cash flows.
For 2022, we estimate our consolidated capital expenditures to be approximately $212 million to $241 million for our Energy segment, for both maintenance and growth, including $70 million to $80 million for our Energy segments’ renewable diesel unit capital expenditures, $140 million for our Automotive segment and approximately $89 million in the aggregate for all other segments. Our Energy segment also expects its turnaround expenditures to be approximately $28 million to $33 million in 2022.
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 (“RDU”) capable of producing 100 million gallons of renewable diesel per year. The total estimated costs for the project are currently $160 million and completion of the project is expected in in the second quarter to 2022. In May 2021, our Energy segment approved $10 million to complete the process design and ordering of certain long-lead equipment relating to a potential project to add pretreating capabilities for the RDU at one of its refineries and to complete process design to potentially convert an existing hydrotreater at another refinery to renewable diesel service. In November 2021, our Energy segment approved a pretreater project at one of its refineries, which is expected to be completed in the fourth quarter of 2022 at an estimated cost of $60 million.
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
46
Table of Contents
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, 2021 and 2020, 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 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 14, “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.
47
Table of Contents
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, 2021, our long-lived assets did not have any impairment indicators.
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 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, 2021, our consolidated goodwill was $290 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, 2021, our Automotive segment had remaining goodwill of $250 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.
48
Table of Contents
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.