Icahn Enterprises LP (IEP) 2008 Q1 法說會逐字稿

Good morning, and welcome to the Icahn Enterprises L.P. first quarter 2008 earnings call.

I would now like to turn the call over to Felicia Buebel, Counsel.

Good morning. The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for forward-looking statements we make in this presentation, including statements regarding our future performances and plans for our business and potential acquisitions. These statements involve risks and uncertainties that are discussed in our filings with the SEC, including economic, competitive, legal and other factors. Accordingly, there's no assurances that our expectations will be realized. We assume no obligation to update or revise any forward-looking statements should circumstances change, except as otherwise required by law.

This presentation also includes non-GAAP financial measures. Please note that quantitative reconciliations between each non-GAAP financial measure contained in this presentation and its most directly comparable GAAP measure are available on our Website by viewing the copy of this presentation at www.icahnenterprises.com/investor.shtml. And I would now like to introduce Keith Meister, our Vice Chairman of the Board of Directors and Principal Executive Officer.

Thank you Felicia. Welcome to the first quarter of 2008 Icahn Enterprises earnings conference call. Joining me on today's call are Andy Skobe, our Interim CFO; and Peter Shea, our President. I am going to provide you a few brief highlights on the first quarter, as well as an update on our investment management business and then turn it over to Andy to walk through our financial results in more detail. And then, Peter will provide a brief overview of our other business segments. After that, we will be available to answer your questions.

For the first quarter 2008, Icahn Enterprises reported net income of $470 million. Our net income was predominantly driven by the sale of our interest in American Casino & Entertainment Properties for approximately $1.2 billion. Through this sale, we successfully divested ourselves of the last of our gaming assets. Once again, this transaction highlights our ability to acquire assets when they're out of favor, provide oversight to manage the assets more effectively and provide capital to grow them and then to exit as the cycle turns. Icahn Enterprises' involvement in the gaming space proved to be highly rewarding for our unit holders.

Driven by the successes of our divesture of American Casino & Entertainment Properties, our liquidity today is as strong as it has ever been. In total, we have approximately $4.2 billion of liquidity and liquid resources, which is comprised of; Approximately $2 billion of cash and cash equivalents. Another $1.1 billion in cash that is in escrow as we search for a 1031 opportunity to defer taxes from our American Casino & Entertainment Properties sale. $700 million invested in our private funds, the Icahn Funds. And over $400 million in securities we hold directly.

For the quarter, income from continuing operations decreased by $202 million to a loss of $19.3 million. Andy will walk you through the drivers here. But in summary, investment management performance was flat for the first quarter of 2008, as opposed to the strong gains in the first quarter of 2007. Our real estate operations have slowed, as a result of the macroeconomic effects of the housing downturn and our holding Company costs have increased as our organization has grown. As a reflection of the strength of our consolidated financial position, our Board of Directors approved a quarterly cash distribution of $0.25 per unit this quarter. Future distributions will be approved on a quarterly basis by the Board.

Moving forward to briefly discuss our investment management segment. Total assets under management increased by approximately $400 million during the first quarter of 2008 to $7.9 billion, as opposed to $7.5 billion at year end 2007. Gross returns were flat during the first quarter as compared to 9% during the first quarter of 2007.

During the quarter, the S&P 500 declined approximately 9% and global markets experienced tremendous volatility. While we are never happy to achieve flat returns, these results during the first quarter were significantly better than many and we believe we are well positioned for the remainder of the year. With that, let me turn it over to Andy to review our financial performance.

Thanks Keith. I will briefly review our consolidated results for the first quarter and then highlight the strength of our balance sheet. Net income for the first quarter of 2008 was $470.4 million, as compared to $221.4 million in the first quarter of 2007. As Keith mentioned, this increase in net income was primarily due to the successful sale our remaining gaming operations, our subsidiary American Casino & Entertainment Properties on February 20. We realized a net gain of approximately $476 million after taxes on this transaction.

For the first quarter of 2008, we reported a loss from continuing operations of $19.3 million, compared with income of $182.9 million for the same period in 2007. This quarter to quarter decrease in income from continuing operations was primarily due to; Flat performance of our investment management segment. The slowdown of the real estate development market, affecting our real estate segment. And lower realized gains on investments and lower yields on cash balances at our holding Company. This was partially offset by strong demand and increased pricing for ferrous materials at our metals segment and cost reduction measures and improved margins at our home fashion segment. Later, Peter Shea will provide more details regarding the performance of our metals, real estate and home fashion segments.

Now, I will highlight our debt and liquidity positions. We finished the quarter with a strong balance sheet with ample liquidity. Our cash, cash equivalents and liquid investments totaled approximately $3.1 billion, which excluded the cash and cash equivalents at our investment management segment and the $1.1 billion in restricted cash that is in escrow for potential 1031 exchange transactions. It should be noted that liquid investments including our holding Company investments, as well as cash we invested in our private funds. These investments have already market and could be liquidated quickly. After deducting our total debt of approximately $2 billion, we had approximately $1.1 billion in cash, cash equivalents and liquid investments as of March 31, 2008.

In summary, we continue to focus on having ample liquidity and a strong balance sheet to enable us to execute our strategy and to capitalize on opportunities. And now, I will turn it over to Peter Shea, our President, who will give more detail on the performance of our business segments.

Good morning. Turning to our metals business, net sales for the first quarter of 2008 increased by 45% to $302.8 million, as compared to $208.9 million for the first quarter of fiscal 2007. Operating income in the quarter more than doubled to $26.6 million from $13.2 million a year ago. This performance is largely due to exceptionally strong demand for ferrous scrap metal by domestic steel mills. The weak dollar and rapid industrial growth in emerging markets, especially China and India, were the primary factors contributing to the overall demand for steel.

Prices for ferrous scrap, used in most steel making processes, reached historically high levels in the quarter and averaged 29% over last year, while tonnage increased by 28%. Non-ferrous prices are off 3% from a year ago but still at historically strong levels and tonnage increased by 32%, also driven by overseas demand. Revenues include $43.7 million from scrap yards acquired since Q1 of '07. Operating margins improved for the quarter from 6.3% to 8.8%, as selling prices more than exceeded the increased cost of scrap supply.

Next is our real estate segment. Results declined in the first quarter, reflecting decreased property development activity resulting from the current real estate slowdown. Revenues in total decreased by 19% to $22 million and operating income decreased to $2.8 million from $4 million in the same quarter a year ago. For the development segment in total, we sold 11 units in the quarter versus 37 last year.

Our Florida properties at Vero Beach and Falling Waters are seeing very soft demand. However our property in New Seabury, Massachusetts, while experiencing reduced visitor traffic, did perform better than a year ago. We sold three rental properties in the first quarter for $11.8 million, compared to one property for $4.4 million last year. Gains on the sale of rental property of $5.7 million this year and $3.9 million in 2007, are reported in discontinued operations.

Next is home fashion. First quarter net revenues of $113.9 million compared to $196.6 million a year ago. The primary contributors to the overall year on year revenue decline were; The discontinuation of unprofitable bed and bath programs in 2007. Increased price competition from overseas suppliers. Certain retailers deciding to directly source product. And a very weak retail environment for home textile products. Operating losses for the quarter were reduced by $12.8 million from 2007 to $23.9 million as a direct result of reducing manufacturing costs by shifting production capacity to lower cost locations overseas, and closing numerous U.S. based plants during 2007 and early 2008. As of March of this year, the Company's principal business lines of towels and bedding are 100% and 70% respectively produced in other countries. Only value-added bedding fabrication and specialty products are presently produced in the U.S.

In the other areas of cost reduction, the Company will begin realizing the benefits late this year from consolidating and logistics operations and from SG&A outsourcing initiatives, as we've previously reported. WestPoint has made long strides i in restructuring operations and is now capable of delivering products to market that are competitive with low-cost suppliers. The Company has focused on the gradual process of relationship building with key accounts, recapturing loss programs at attractive margins and building new winning programs for our customers. Finally, WestPoint's liquidity remains at a high level, with the Company ending the quarter with approximately $135 million in unrestricted cash and had an unused borrowing availability of $74 million under its working capital facility. Thank you. Operator, we're ready for questions.

(OPERATOR INSTRUCTIONS) And your first question comes from Mr. Andrew Berg. Sir, your line is open.

Thanks, guys. I want to work in reverse order. On home fashion, the direct sourcing that you lost, can you tell me how much that was?

That was one of our larger accounts. The amount, I'd prefer not to state, but it's over -- in whole scheme of things by itself, it's not a material amount.

Okay. And do you guys have any direct exposure to Linen 'n Things with their bankruptcy?

Our exposure was reduced to a minimum level. I believe the final amount was $55,000.

All right, so their filing is a non-event for you guys then? And you still feel comfortable with overall the percentage cost savings margin improvement you think you can get out of home fashion at this point? I know it's still work in progress.

It's work in progress but on the manufacturing side, I'd say we're about 85% to 90% of the way there. We continue to identify opportunities but the hard work, the hard lifting is basically behind us. On SG&A and logistics, we're well on our way and by the end of the year, we should have realized the majority of those savings also.

If you had to quantify where you are on the SG&A side?

As of right now, it's early in the stream. The work has been done. All of the opportunities have been identified. We've brought in an outside party to handle the outsourcing for us and -- but it's too early to really quantify what those savings are.

Okay. When you guys talk about liquidity, on page eight, the $683 million that's Icahn Funds investment that gets eliminated. How liquid is that for you guys? What's your ability to pull that out of there? Are there the same sort of penalties associated with that that there would be with other investors in the fund or can you guys get access to that whenever you really need?

This is Keith Meister. Andrew, that's money that can be accessed when required without friction associated with accessing that capital. But clearly, we believe it's well invested. So, as we think of our liquidity, that's probably the last place we would draw capital form.

Understood. Just wanted to make sure what the ability was there. And then, going back to the proceeds from American Entertainment. What was the thought process on putting that into the 1031?

Sure. As you will recall, we have a sizeable gain to the transaction, so our sales price was well in excess of our tax basis. And what we're looking to do, is if we can find an asset to acquire that's consistent with our core competency in evaluating and assessing the transaction and can defray a large amount of taxes; we feel it's positioned as a competitive buyer. And we're looking at it. Obviously, there's process for that and there be no assurances that we'll succeed in finding an appropriately priced asset. I do believe that volatility in the real estate markets and our access to capital should provide us a good shot at getting that done.

And the limitations on that in terms of how long you have to put that to work before a tax bill kicks in?

I'd prefer not to get into the details but if you think of the whole process as a six month process, you'd have a pretty good frame.

Okay. And then, just lastly with respect to the metals business. Obviously, you had a great quarter. Can you give any comment on where the second quarter is heading and how you feel the rest of the year is going to work out?

I'd say we're off to a good start in the second quarter but this is a business that is highly volatile. And so, it's hard to predict where that market is going to track from month to month. And accordingly, how the spreads are going to behave but we're off to a good start.

Great, thanks, guys, appreciate the update.

Thanks, Andrew.

(OPERATOR INSTRUCTIONS) And currently, I have no other questions in queue.

Great. Thanks everyone for joining us and we look forward to chatting with you when we post second quarter results. Thanks again.

This now concludes your Icahn Enterprises L.P. first quarter 2008 earnings conference call. You may now disconnect.