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. 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, 2022, representing an aggregate 1.99% general partner interest in Icahn Enterprises Holdings and us. Mr. Icahn and his affiliates owned approximately 85% of Icahn Enterprises’ outstanding depositary units as of December 31, 2022.
Significant Transactions and Developments
Debt Issuances and Repayments
In February 2022, we redeemed all of our $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. 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, 2021 and continuing in 2022, the COVID-19 pandemic, and actions taken by governments and others in response thereto, has negatively impacted the global economy, financial markets, and certain of the industries in which our subsidiaries operate. Our consolidated results of operations and financial condition have been impacted primarily by the volatility in the fair value of investments held by our Investment segment and the Holding Company as well as volatility in the global demand for refined products, especially gasoline and diesel fuels, with respect to our Energy segment. The impact on our businesses has also included the acceleration of selective planned store closures in our Automotive segment and recording write-downs to inventories. The economic conditions that persisted for much of 2020 have improved in 2021 and 2022 as more governments reduce restrictions and more businesses resume operations,
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although supply chain issues have continued to persist. Recent interest rate increases have increased the costs of borrowing.
In February 2022, Russia invaded Ukraine, disrupting the global oil, fertilizer, and agriculture markets, and leading to heightened uncertainty in the worldwide economy recovering from the COVID-19 pandemic. In response, many Western countries have formally or informally adopted sanctions on a number of Russian exports, including Russian oil and natural gas, and individuals affiliated with Russian government leadership. These sanctions, thus far, have resulted in oil prices and supply becoming volatile, continued elevation of natural gas prices, and are likely to continue to impact commodity prices in the near-term, which could have a material effect on our financial condition, cash flows, or results of operations. A global recession stemming from market volatility could result in a reduction in demand, thereby lowering commodity prices. The ultimate outcome of the Russia-Ukraine conflict and any associated market disruptions are difficult to predict and may materially affect our business, operations, and cash flows in unforeseen ways.
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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 sale of PSC Metals in 2021. 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,
2022
2021
2020
2022
2021
2020
2022
2021
2020
(in millions)
Investment
$
(23)
$
202
$
(1,249)
$
(223)
$
(32)
$
(1,447)
$
(89)
$
(16)
$
(765)
Holding Company
78
(25)
(70)
(175)
(402)
(476)
(175)
(402)
(476)
Other Operating Segments:
Energy
10,815
7,327
3,966
596
29
(327)
304
(5)
(194)
Automotive
2,398
2,370
2,465
(192)
(260)
(198)
(192)
(260)
(198)
Food Packaging
426
402
403
2
(2)
4
2
(2)
4
Real Estate
118
96
98
7
(8)
(16)
7
(8)
(16)
Home Fashion
217
197
190
(22)
(8)
(7)
(22)
(8)
(7)
Pharma
72
85
3
(18)
(3)
(1)
(18)
(3)
(1)
Metals
—
684
317
—
186
—
—
186
—
Other operating segments
14,046
11,161
7,442
373
(66)
(545)
81
(100)
(412)
Consolidated
$
14,101
$
11,338
$
6,123
$
(25)
$
(500)
$
(2,468)
$
(183)
$
(518)
$
(1,653)
Management’s Discussion and Analysis of Results of Operations discusses the comparisons between the years ended December 31, 2022 and 2021. Certain discussions of results of operations for the comparisons between the years ended December 31, 2021 and 2020 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, 2021, filed on February 25, 2022, 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, 2022 and 2021, we had investments with a fair market value of approximately $4.2 billion, in the Investment Funds. As of December 31, 2022 and 2021, the total fair market value of investments in the Investment Funds made by Mr. Icahn and his affiliates (excluding us and Brett Icahn), was approximately $4.9 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 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, 2022.
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For the years ended December 31, 2022, 2021 and 2020, our Investment Funds’ returns were (2.4)%, (0.3)%, and (14.3)%, 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,
2022
2021
2020
Long positions
(3.3)
%
84.9
%
0.6
%
Short positions
0.1
%
(84.0)
%
(14.9)
%
Other
0.8
%
(1.2)
%
—
%
(2.4)
%
(0.3)
%
(14.3)
%
The following table presents net loss for our Investment segment:
Year Ended December 31,
2022
2021
2020
(in millions)
Long positions
$
(264)
$
2,916
$
(50)
Short positions
(38)
(2,906)
(1,400)
Other
79
(42)
3
$
(223)
$
(32)
$
(1,447)
For the year ended December 31, 2022, the Investment Funds’ negative performance was driven by net losses in long positions and short positions. The negative performance of long positions was primarily driven by the negative performance of a healthcare investment of approximately $1.3 billion and the aggregate performance of investments with net losses across various sectors of $1.0 billion, offset in part by gains from two energy sector investments aggregating $2.0 billion. The negative performance of our Investment segment’s short positions was driven by the negative performance of certain credit default swap positions of $742 million and an energy sector hedge totaling $420 million offset in part by gains from a broad market hedge totaling $1.0 billion.
For the year ended December 31, 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 primarily driven 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 primarily driven 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.
Energy
Our Energy segment is primarily engaged in the petroleum refining and nitrogen fertilizer manufacturing businesses. The sale of petroleum products accounted for approximately 92%, 93% and 91% of our Energy segment’s net sales for the years ended December 31, 2022, 2021 and 2020, 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
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conditions, domestic and foreign political affairs, production levels, the availability of imports, the marketing of competitive fuels and the extent of government regulation. Because the petroleum business applies first-in, first-out accounting to value its inventory, crude oil price movements may impact gross margin in the short-term fluctuations in the market price of inventory. The effect of changes in crude oil prices on the petroleum business’ results of operations is influenced by the rate at which the prices of refined products adjust to reflect these changes.
In addition to recent market conditions, including the impact of the Russia/Ukraine conflict, there are long-term factors that may impact the demand for refined products. These factors include mandated renewable fuels standards, proposed climate change laws and regulations, and increased mileage standards for vehicles. The petroleum business is also subject to the Renewable Fuel Standard of 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 April 2022, our Energy segment completed a renewable diesel project at one of its refineries, which converted 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 at a total cost of $179 million. The renewable diesel facility produces renewable diesel and has a capacity of approximately 7,500 barrels per day. Further, the conversion enables our Energy segment to capture additional benefits associated with the existing blenders’ tax credit that is currently set to expire at the end of 2024 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 is exploring potential additional renewables projects at its other facilities. These collective renewable diesel efforts could reduce our Energy segment’s Renewable Fuels Standard (“RFS”) exposure. However, any actions taken by the courts, the EPA or the Biden administration, and/or 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.
The following table presents our Energy segment’s net sales, cost of goods sold and gross margin:
Year Ended December 31,
2022
2021
2020
(in millions)
Net sales
$
10,896
$
7,242
$
3,930
Cost of goods sold
9,811
7,069
4,164
Gross profit
$
1,085
$
173
$
(234)
Net sales for our Energy segment increased by approximately $3.7 billion (50%) for the year ended December 31, 2022 as compared to the comparable prior year period due to an increase in our petroleum business’ net sales, which increased approximately $3.4 billion, as well as an increase in our nitrogen fertilizer business’ net sales, which increased $303 million over the comparable periods. The increase in the petroleum business’ net sales was primarily due to price increases resulting from tight inventory levels and increased demand in Europe, which is impacted by the ongoing Russia-Ukraine conflict. Further, net sales were lower in the comparable period due to the impact of Winter Storm Uri, resulting in reduced production rates at both refineries. Our nitrogen fertilizer business’ net sales increased primarily due to favorable pricing conditions for ammonia and urea ammonium nitrate (“UAN”).
Cost of goods sold for our Energy segment increased by approximately $2.7 billion (39%) for the year ended December 31, 2022 as compared to the comparable prior year period. The increase was primarily due to our petroleum business as a result of higher cost of consumed crude oil, which was primarily due to higher oil prices. Gross profit for our Energy segment improved by $912 million for the year ended December 31, 2022 as compared to the comparable prior year period. Gross margin as a percentage of net sales was 10% and 2% for the year ended December 31, 2022 and
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2021, respectively. The improvement in gross margin was primarily attributable to the petroleum business, which was primarily due to higher crack spreads.
Automotive
Our Automotive segment’s results of operations are generally driven by the demand for automotive service and maintenance and are affected by the relative strength of automotive replacement trends, among other factors.
Our Automotive segment has been in the process of a multi-year transformational plan. As part of this plan, during the year ended December 31, 2022, our Automotive segment completed the separation of certain of its automotive services and aftermarket parts businesses into two separate operating companies. In January 2023, Auto Plus filed a voluntary bankruptcy petition seeking relief under Chapter 11 of the Bankruptcy Code, which we anticipate will reduce the assets and negatively impact the net sales of our Automotive segment in future periods. 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;
● Improving inventory management across Icahn Automotive’s parts and tire distribution network;
● Investment in capital projects within Icahn Automotive’s owned and leased locations to increase leasing revenue and reduce occupancy costs;
● 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 goods sold and other expenses 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. Our Automotive segment’s revenues from operating leases and expenses are included in other revenues from operations and other expenses from operations, respectively, in our consolidated statements of operations, but are excluded from the table below. Therefore, we discuss the combined results of our automotive net sales and automotive services labor revenues below.
Year Ended December 31,
2022
2021
2020
(in millions)
Net sales and other revenue from operations
$
2,349
$
2,384
$
2,478
Cost of goods sold and other expenses from operations
1,729
1,804
1,793
Gross profit
$
620
$
580
$
685
Net sales and other revenues from operations for our Automotive segment for the year ended December 31, 2022 decreased by $35 million (1%) as compared to the comparable prior year period. The decrease was attributable to a decrease in aftermarket parts sales of $175 million (13%), offset in part by an increase in automotive services revenue of $210 million (21%). The decrease in aftermarket part sales was driven by lower volumes, offset in part by price increases. The increases in automotive services revenues was driven by price increases, offset in part by lower volumes.
Cost of goods sold and other expenses from operations for the year ended December 31, 2022 decreased by $75 million as compared to the comparable prior year period. The decrease was primarily driven by lower costs attributable to lower volumes for the year ended December 31, 2022. Gross profit on net sales and other revenue from operations for the year ended December 31, 2022 increased by $40 million (7%) as compared to the comparable prior year period. Gross margin as a percentage of net sales and other revenue from operations was 26% and 24% for the years ended December 31, 2022 and 2021, respectively. The increase in gross margin was primarily driven by price increases. In addition, cost of goods sold and other expenses from operations for the year ended December 31, 2022 was impacted by
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out-of-period adjustments substantially related to inventory write-downs totaling $51 million and current period inventory write-downs totaling $33 million. Cost of goods sold and other expenses from operations for the year ended December 31, 2021 was impacted by inventory write-downs of $56 million.
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, 2022 increased $15 million (4%) as compared to the comparable prior year period. The increase was due to an increase of $60 million in price and product mix, offset by a decrease of $16 million due to unfavorable effects of foreign exchange and a decrease of $29 million due to lower volume. Cost of goods sold for the year ended December 31, 2022 increased by $14 million (4%) as compared to the comparable prior year period due to inflation of raw material costs and lower absorption of manufacturing costs at Viskase plants due to labor and raw material supply shortages. Gross margin as a percentage of net sales was 17% and 18% for the year ended December 31, 2022 and 2021, respectively.
Real Estate
Our Real Estate segment consists primarily of investment properties, the development and sale of single-family homes, and the management of a country club. Sales of single-family homes are included in net sales in our consolidated statements of operations. Results from investment properties and country club operations are included in other revenues from operations in our consolidated statements of operations. Revenue from our real estate operations for each of the years ended December 31, 2022 and 2021 were primarily derived from the sale of single-family homes.
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, 2022 increased by $20 million (10%) compared to the comparable prior year period primarily due to increased hospitality sales driven by leisure and business travel. Cost of goods sold for the year ended December 31, 2022 increased $27 million (17%) compared to the comparable prior year period due to higher material and freight costs. Gross margin as a percentage of net sales was 14% and 19% for the year ended December 31, 2022 and 2021, respectively. The decrease is due to higher material and freight costs and a decline in the sale of certain higher margin products.
Pharma
Our Pharma segment derives revenues primarily from the sale of its products directly to customers, wholesalers and pharmacies.
Net sales for the year ended December 31, 2022 decreased by $15 million (19%) compared to the comparable prior year period primarily due to a one-time sale of approximately $13 million in the first quarter of 2021. Cost of goods sold for the year ended December 31, 2022 decreased $2 million (4%) compared to the comparable prior year period due to lower volumes. Gross margin as a percentage of net sales was 27% and 38% for the year ended December 31, 2022 and 2021, respectively. The decrease is mostly due to the absence of the one-time sale in the first quarter of 2021 mentioned above.
Holding Company
Our Holding Company’s results of operations primarily reflect the interest expense on its senior unsecured notes and investment gains and losses from equity investments for each of the years ended December 31, 2022 and 2021.
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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 included in this Form 10-K, we sold PSC Metals, resulting in a pretax gain on disposition of assets of $163 million for the year ended December 31, 2021.
Selling, General and Administrative
Our consolidated selling, general and administrative during the year ended December 31, 2022 increased by $12 million (1%) as compared to the comparable prior year period primarily due to higher expenses of our Energy segment mainly related to increased personnel costs driven by higher share-based compensation.
Impairment
Refer to 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, 2022 decreased by $98 million (15%) as compared to the comparable prior year period. The decrease was primarily due to lower interest expense from our Investment segment due to lower balances on certain credit default swap positions, lower interest expense for our Energy segment due to lower weighted average interest rates resulting from their respective debt refinancings and lower interest expense for our Holding Company due to the redemption of $500 million of senior unsecured notes in February 2022.
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.
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As of December 31, 2022, our Holding Company had cash and cash equivalents of $1.7 billion and total debt of approximately $5.3 billion. As of December 31, 2022, 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.
Holding Company Borrowings and Availability
December 31,
2022
2021
(in millions)
6.750% senior unsecured notes due 2024
—
499
4.750% senior unsecured notes due 2024
1,103
1,105
6.375% senior unsecured notes due 2025
749
748
6.250% senior unsecured notes due 2026
1,250
1,250
5.250% senior unsecured notes due 2027
1,460
1,461
4.375% senior unsecured notes due 2029
747
747
$
5,309
$
5,810
Holding Company debt consists of various issues of fixed-rate senior unsecured notes issued by Icahn Enterprises and Icahn Enterprises Finance Corp. (together the “Issuers”) and guaranteed by Icahn Enterprises Holdings (the “Guarantor”). Interest on each tranche of senior unsecured notes is payable semi-annually.
In February 2022, we redeemed all of our $500 million in aggregate principal amount of 6.750% senior unsecured notes due 2024 at par. This transaction is expected to result in annual savings of approximately $34 million in future interest expense.
Each of our senior unsecured notes and the related guarantees are the senior unsecured obligations of the Issuers and rank equally with all of the Issuers’ and the Guarantor’s existing and future senior unsecured indebtedness and senior to all of the Issuers’ and the Guarantor’s existing and future subordinated indebtedness. Each of our senior unsecured notes and the related guarantees are effectively subordinated to the Issuers’ and the Guarantor’s existing and future secured indebtedness to the extent of the collateral securing such indebtedness. Each of our senior unsecured notes and the related guarantees are also effectively subordinated to all indebtedness and other liabilities of the Issuers’ subsidiaries other than the Guarantor.
The indentures governing our senior unsecured notes described above restrict the payment of cash distributions, the purchase of equity interests or the purchase, redemption, defeasance or acquisition of debt subordinated to the senior 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, the 6.375% senior unsecured note due 2025 and the 6.250% senior unsecured note due 2026 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, 2022 and 2021, we were in compliance with all covenants, including maintaining certain minimum financial ratios, as defined in the indentures. Additionally, as of December 31, 2022, based on covenants in the indentures governing our senior unsecured notes, we are not permitted to incur additional indebtedness; however, we are permitted to issue new notes in connection with debt refinancings of existing notes.
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Future Debt Service Obligations
Interest payments on our Holding Company’s senior unsecured notes will be approximately $287 million for 2023, $272 million for 2024, $235 million for 2025, $138 million for 2026 and an aggregate of $97 million for 2026 through 2029.
At-The-Market Offerings
In May 2019, Icahn Enterprises entered into an 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, 2022, Icahn Enterprises sold 14,619,272 depositary units pursuant to these agreements, resulting in gross proceeds of $759 million. As of December 31, 2022, we continue to have an active Open Market Sale Agreement and Icahn Enterprises may sell its depositary units for up to an additional $325 million in aggregate gross sale proceeds pursuant to this agreement entered into on November 21, 2022. 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, 2022, there can be no assurance that any future capital will be available on acceptable terms or at all under this program.
LP Unit Distributions
During the year ended December 31, 2022, we declared four quarterly distributions aggregating $8.00 per depositary unit. In connection with these distributions, aggregate cash distributions to all depositary unitholders were $222 million.
On February 22, 2023, 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 19, 2023 to depositary unitholders of record at the close of business on March 13, 2023. Depositary unitholders will have until April 6, 2023 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 14, 2023. 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.
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Sale of Investments
During 2022, we received proceeds of $153 million from the sale of equity investments held by the Holding Company.
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, 2022, the Investment Funds’ had a net short notional exposure of 47%. The Investment Funds’ long exposure was 94% (71% long equity and 23% long credit) and its short exposure was 140% (128% short equity and 12% 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, 2022.
Of the Investment Funds’ 94% long exposure, 74% was comprised of the fair value of its long positions (with certain adjustments) and 20% was comprised of single name equity forward and swap contracts and an option contract. Of the Investment Funds’ 140% short exposure, 71% was comprised of the fair value of its short positions and 69% 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 (74% long exposure) and our short positions that are not notionalized (71% 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 (69% 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.
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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,
2022
2021
(in millions)
Energy
$
510
$
510
Automotive
32
28
Food Packaging
9
10
Real Estate
26
30
Home Fashion
5
3
Pharma
16
14
$
598
$
595
Segment Borrowings and Availability
Segment debt consists of the following:
December 31,
2022
2021
(in millions)
Energy
$
1,591
$
1,660
Automotive
21
26
Food Packaging
162
155
Real Estate
1
1
Home Fashion
12
40
$
1,787
$
1,882
In February 2022, CVR Partners redeemed the remaining $65 million aggregate principal amount of its 9.25% senior secured notes due June 2023 at par. This transaction is expected to result in annual savings of approximately $6 million in future interest expense.
As of December 31, 2022, all of our subsidiaries were in compliance with all debt covenants.
Our segments have additional borrowing availability under certain revolving credit facilities as summarized below:
December 31,
2022
(in millions)
Energy
$
287
Food Packaging
17
Home Fashion
1
$
305
As of December 31, 2022 and 2021, total availability under CVR Refining and CVR Partners variable rate asset based revolving credit facilities aggregated $287 million and $396 million, respectively. CVR Refining also had $23 million and $39 million of letters of credit outstanding as of December 31, 2022 and December 31, 2021, respectively.
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
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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 $91 million to $89 million for each of 2022, 2023 and $63 million for 2024. Interest payments are expected to be $59 million for each of 2025 and 2026, and an aggregate of $11 million for 2027 through 2028.
Subsidiary Dividends
During the year ended December 31, 2022, our Energy segment paid three quarterly distributions aggregating $1.20 per share. Our portion of the dividend aggregated to $85 million. In addition, in the second, third and fourth quarters of 2022, our Energy segment paid a special dividend which included $256 million in cash for our portion. Furthermore, during the year ended December 31, 2022, our energy segment had aggregate distributions to non-controlling interests of $129 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, 2022.
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 2022, CVR Partners repurchased common units on the open market at a cost of $12 million. As of December 31, 2022, CVR Partners has a nominal amount remaining under its unit repurchase program.
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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, 2022
Year Ended December 31, 2021
Year Ended December 31, 2020
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
$
(315)
$
282
$
40
$
(368)
$
507
$
704
$
(351)
$
(954)
$
(911)
Investment
461
—
(14)
381
—
74
(191)
—
763
Other Operating Segments:
Energy
967
(271)
(696)
396
(238)
(315)
90
(423)
355
Automotive
(88)
(110)
195
(119)
77
42
(9)
53
(45)
Food Packaging
15
(22)
6
3
(17)
4
34
(19)
(18)
Real Estate
26
(10)
(23)
18
(9)
3
24
(4)
(46)
Home Fashion
(13)
(2)
21
(20)
(2)
18
3
(5)
2
Pharma
2
—
—
6
—
—
(2)
12
(2)
Metals
—
—
—
24
(11)
(16)
(14)
(1)
9
Other operating segments
909
(415)
(497)
308
(200)
(264)
126
(387)
255
Total before eliminations
1,055
(133)
(471)
321
307
514
(416)
(1,341)
107
Eliminations
—
(127)
127
—
221
(221)
—
760
(760)
Consolidated
$
1,055
$
(260)
$
(344)
$
321
$
528
$
293
$
(416)
$
(581)
$
(653)
The discussion of consolidated cash flows below primarily discusses the comparisons between the years ended December 31, 2022 and 2021. 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, 2021, filed on February 23, 2022, which is incorporated by reference herein, for additional discussion of consolidated cash flows for the comparisons between the years ended December 31, 2021 and 2020.
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
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activities for our Investment segment. Similarly, our Holding Company’s net distributions from (investments in) our other operating segments are included in cash flows from investing activities for our Holding Company and cash flows from financing activities for our other operating segments.
Holding Company
Year Ended December 31,
2022
2021
2020
(in millions)
Operating Activities:
Cash payments for interest on senior unsecured notes
$
(306)
$
(339)
$
(366)
Interest and dividend income
31
5
22
Net cash receipts for income taxes, net of payments
(3)
—
22
Operating costs and other
(37)
(34)
(29)
$
(315)
$
(368)
$
(351)
Investing Activities:
Proceeds from sale of businesses and assets
$
—
$
323
$
—
Purchases of investments
—
—
(197)
Proceeds from sale of investments
153
405
22
Net investments in the Investment Funds
—
—
(750)
Net distributions from (investments in) other operating segments
129
(221)
(10)
Other investing activities, net
—
—
(19)
$
282
$
507
$
(954)
Financing Activities:
Partnership contributions
$
768
$
835
$
102
Partnership distributions
(226)
(134)
(526)
Payments to acquire additional interests in subsidiaries
(1)
—
—
Net debt transactions
(500)
3
(487)
Other financing activities, net
(1)
—
—
$
40
$
704
$
(911)
Increase (decrease) in cash and cash equivalents and restricted cash and restricted cash equivalents
$
7
$
843
$
(2,216)
The decrease in interest payments during 2022 compared to 2021 was due to the redemption of $500 million of senior secured unsecured notes in February 2022.
Proceeds from the sale of investments includes proceeds from the sale of equity investments in 2022 and 2021.
Proceeds from the sale of businesses and assets includes proceeds from the sale of PSC Metals in 2021.
Net distributions from (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.
Net debt transactions includes the redemption of our $500 million aggregate principal amount of 6.750% senior unsecured notes due 2024.
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
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other quarters in 2022, 2021 and 2020, Mr. Icahn and his affiliates elected to receive their distributions in additional depositary units.
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 used in financing activities of $14 million for the year ended December 31, 2022, as a result of net redemptions from Brett Icahn in accordance with his manager agreement. For the year ended December 31, 2021, our Investment segment had net cash provided by financing activities of $74 million, as a result of contributions from Brett Icahn in accordance with his manager agreement.
Other Operating Segments
Year Ended December 31,
2022
2021
2020
(in millions)
Operating Activities:
Net cash flow from operating activities before changes in operating assets and liabilities
$
938
$
158
$
(49)
Changes in operating assets and liabilities
(29)
150
175
$
909
$
308
$
126
Investing Activities:
Capital expenditures
$
(338)
$
(305)
$
(197)
Turnaround expenditures
(83)
(5)
(159)
Acquisition of businesses, net of cash acquired
—
(20)
10
Purchases of investments
—
—
(140)
Proceeds from sale of investments
—
40
75
Proceeds from sale of assets
4
91
25
Other
2
(1)
(1)
$
(415)
$
(200)
$
(387)
Financing Activities:
Net debt and supply chain financing activity
$
(113)
$
(380)
$
302
Distributions to non-controlling interests
(270)
(101)
(36)
Payments to acquire additional interests in consolidated subsidiaries
—
—
—
Net contributions from (distributions to) Holding Company
(127)
221
10
Other
13
(4)
(21)
$
(497)
$
(264)
$
255
Effect of exchange rate changes on cash and cash equivalents and restricted cash and restricted cash equivalents
(1)
3
(4)
(Decrease) increase in cash and cash equivalents and restricted cash and restricted cash equivalents
$
(4)
$
(153)
$
(10)
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 2022, 2021 and 2020 and our Energy segment’s positive results from operations for 2022 and 2021.
Changes in operating assets and liabilities for 2022 and 2021 were primarily attributable to our Energy segment resulting primarily from an increase in crude oil prices and increase in its open RFS position. Changes in operating
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assets and liabilities for 2020 were primarily attributable to our Automotive segment resulting from inventory reductions.
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 2022 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 both 2022 and 2021.
Net contributions from and distributions to our Holding Company include the dividends and distributions paid by our Energy segment of $342 million in 2022 compared to $171 million in 2021, as well as by our Automotive segment of $36 million in 2021. During 2022, Automotive segment received funds in the form of investments and loans from our Holding Company of $187 million compared to $425 million for 2021, primarily for the refinancing of its debt and costs associated with our Automotive segment’s multi-year transformation plan. During 2022, our Home Fashion segment received funds in the amount of $50 million primarily for the refinancing of its debt.
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, 2022, 2021 and 2020. In addition, our Energy segment had turnaround expenditures of $83 million, $5 million and $159 million during the years ended December 31, 2022, 2021 and 2020, respectively, which is reported separately from capital expenditures in our consolidated statements of cash flows.
For 2023, we estimate our consolidated capital expenditures to be approximately $200 million to $225 million for our Energy segment, for both maintenance and growth, including $39 million to $47 million for our Energy segments’ renewable diesel unit capital expenditures, $127 million for our Automotive segment and approximately $59 million in the aggregate for all other segments.
In addition, our Energy segment completed 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 at a total cost of $179 million. In November 2021, our Energy segment approved a pretreater project at one of its refineries, which is expected to be completed in the third quarter of 2023 at an estimated cost of $95 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 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
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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, 2022 and 2021, 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.
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
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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, 2022, 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, 2022, our consolidated goodwill was $288 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 qualitative annual goodwill impairment analysis for our Automotive segment, we determined it was not more likely than not that the fair value of the Service reporting unit was below its carrying amount and therefore, no impairment is required. As of December 31, 2022, 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 9, “Goodwill and Intangible Assets, Net,” to the consolidated financial statements for further discussion regarding 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.