Icahn Enterprises LP (IEP) 2009 Q3 法說會逐字稿

Good morning and welcome to the Icahn Enterprises L.P. third-quarter 2009 earnings call with Felicia P. Buebel, Counsel; Keith A. Meister, Principal Executive Officer and Vice Chairman; and Dominick Ragone, CFO and CAO. I would now like to hand over the call to Felicia Buebel, Counsel.

Good morning. I will now read the forward-looking statements and non-GAAP financial measures. 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 performance and plans for our businesses and potential acquisitions.

These forward-looking statements involve risks and uncertainties that are discussed in our filings with the Securities and Exchange Commission including economic competitive, legal and other factors. Accordingly, there is no assurance that our expectations will we realized. We assume the 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 now I would like to turn the program over to Keith Meister, our Principal Executive Officer.

Thank you, Felicia. Good morning and welcome to the third-quarter 2009 Icahn Enterprises earnings conference call. Joining me on today's call is Dominick Ragone, our Chief Financial Officer. I will begin by providing a brief overview of some key highlights for the third quarter and a review of our investment management segment, after which Dominick will provide detail on our financial performance and a review of our business segments. Following our remarks we will be available to address your questions.

Moving to some brief highlights for the quarter. Year to date 2009 net income attributable to Icahn Enterprises from continuing operations was $240 million or $3.13 per depository unit. For the quarter net income attributable to Icahn Enterprises from continuing operations was $111 million or $1.45 per depository unit.

Liquidity at Icahn Enterprises remains strong. We ended the quarter with a strong balance sheet with significant liquid assets of approximately $3.3 billion. Reflective of our strong balance sheet, subsequent to quarter end our Board of Directors approved a quarterly cash distribution of $0.25 per depository unit payable on December 3, 2009.

Moving to an overview of our Investment Management segment. Our Investment Management segment had a very strong third quarter. Furthermore, we are very pleased with our year-to-date results. Income from continuing operations attributable to Icahn Enterprises from our Investment Management segment was $138 million for the quarter as compared to a loss of $70 million for the comparable period in 2008. These improved results were driven by strong fund performance.

Year to date through September 30, our funds performance was up approximately 34.1% on a gross basis, compared to 17.1% for the S&P 500. This positive performance goes a long way towards offsetting losses incurred in 2008. At September 30, total assets under management were approximately $5.7 billion of which $3.2 billion were non fee paying assets.

Through September 30, Icahn Enterprises has made investments aggregating $1.2 billion in the funds. With respect to these investments, we had an unrealized gain of $114 million and $323 million for the three and nine months ended September 30, 2009 respectively.

We continue to believe that the funds are well positioned with specific focus on distressed debt and the current distress cycle sets up well for us to invest, leveraging our skill sets as active investors with a view toward actively influencing change and acquiring controlling or influential positions in a handful of companies. Reflective of our positive view towards the current opportunity set for the funds, Icahn Enterprises, subsequent to quarter end, further invested in additional $500 million into the funds.

In conclusion, we believe we are well positioned with a solid team and significant know-how and experience to navigate through what we believe will be the coming distress cycle. With that let me turn it to Dominick to discuss our other business units.

Thanks, Keith. I will briefly review our consolidated results for the third quarter of 2009 and then highlight the performance of our operating segments and comment on the strength of our balance sheet.

Net income from continuing operations attributable to Icahn Enterprises for the third quarter of 2009 was $111 million compared to $25 million for the same period in 2008. As Keith mentioned earlier, the performance of the private funds showed significant improvement from prior year and our other operating segments had sequential improvements in income from continuing operations with the exception of home fashion which was flat from the previous quarter.

There was a loss of $1 million from discontinued operations attributable to Icahn Enterprises for the third quarter of 2009 compared to a loss of $2 million recorded in the third quarter of 2008. I'll now provide more detail regarding the performance of our automotive, metals, real estate and home fashion segments.

Net sales for Federal-Mogul decreased by $312 million or 18.4% to $1,380,000,000 for the third quarter of 2009 compared to $1,692,000,000 in the corresponding prior year period. Sequentially, however, net sales increased by $76 million or 5.8% over the second quarter of 2009.

Federal-Mogul had operating income of $28 million for the quarter compared to $53 million for the comparable period last year. The third-quarter operating income, however, was $18 million higher than the operating income recorded in the second quarter of 2009.

Federal-Mogul has been able to maintain profitability for the second straight quarter in spite of the severe economic downturn which has hurt light and commercial vehicle OE production and global aftermarket volumes. Gross margin increased sequentially by $15 million to $212 million or 15.4% of sales.

Management's restructuring program that began a year ago has lead to productivity improvements and cost reductions that have stabilized margins. Federal-Mogul's restructuring measures have helped maintain SG&A at approximately 13% of sales and build the current and prior year quarters in spite of declining sales volumes.

Federal-Mogul is well positioned with customer, market and product diversity. Revenue is well balanced between OE and aftermarket with no single customer accounting for greater than 5% of revenue. While the current market environment continues to be very challenging, Federal-Mogul has greatly improved its cash flows for total inflows in the third quarter of $112 million.

Liquidity at our automotive segment remains strong at approximately $1.3 billion which is comprised of $800 million in cash and $500 million in an undrawn revolver. This liquidity provides opportunities for both organic growth as well as acquisitions.

Now turning to our metals segments. Net sales for our metals segment were $132 million for the third quarter of 2009 which represented a 67.5% decrease from the $406 million recorded in the third quarter of 2008. Foreign demand and market prices continue to impact revenues in our metals segment. The extremely weak ferrous demand led to ferrous shipments dropping 39% in the third quarter of 2009 compared to the corresponding prior-year period and the average ferrous selling price fell by approximately 52%.

The unfavorable comparison of net sales in 2009 to 2008 is compounded by the unprecedented growth in demand and pricing experienced by our metals segment during 2008. Sequentially however, sales increased by $68 million from the second quarter of 2009.

Gross margin continued to improve during the third quarter of 2009 when compared to the first six months of 2009. This is primarily attributable to the favorable impact of cost reduction actions taken in the recycling yards during the first quarter of 2009. Cost reduction initiatives also helped lower SG&A expenses by 50% to $5 million in the third quarter of 2009 from $10 million in the third quarter of 2008.

These initiatives included headcount reductions, a salary freeze and temporary pay cuts, a limitation of the current year incentive program and suspension of spending for capital expenditures. Net cash used by continuing operations was only $2 million for the third quarter of 2009 as management has realigned operations throughout the year to preserve cash during this difficult operating environment.

Next is our real estate segment. Revenue was $2 million lower from the third quarter of 2009 compared to the comparable period last year. Declining revenues in our development operations were offset somewhat by an increase in our net lease revenues due to the acquisitions of properties in August of 2008.

Our resort operations at New Seabury and Vero Beach were flat from prior year period's results. Operating income generated by our rental properties helped keep segment operating income flat quarter over quarter. In the third quarter of 2009 we sold six presidential units for $4 million compared to nine units sold for $9 million in the third quarter of 2008. Based on current residential sales conditions we anticipate that property development sales will likely remain at current levels throughout the remainder of 2009.

Turning to our Home Fashion segment. Net sales declined by 13% to $94 million for the third quarter of 2009 compared to $108 million for the third quarter of 2008. Sequentially, however, sales were $8 million above the second-quarter results.

Although the weak home textile retail environment continues to hamper revenues in the segment, lower selling, general and administrative expenses have helped mitigate the effects of the economic downturn. Restructuring and impairment charges increased by $1 million or 12.5% to $9 million for the third quarter of 2009 as compared to the third quarter of 2008.

WPI had a $5 million impairment charge in the current quarter related to WPI trade marks. WPI will continue to realign its manufacturing operations to optimize its cost structure pursuing offshore sourcing arrangements that employ a combination of owned and operated facilities, joint ventures and third-party supply contracts.

Now I will highlight our debt liquidity position. We finished the quarter with excellent liquidity; our cash equivalents liquid assets totaled approximately $3.3 billion. It should been noted that liquid assets include our investment in the private funds as well as our holding company investments. In addition to our strong cash position, we have undrawn credit facilities totaling $565 million as of September 30, 2009.

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. Thank you. And operator, please open it up for questions.

(Operator Instructions). [Carlos Fagan].

A couple of quick questions. One on the investment management side. Can you help quantify what the impact on revenues and operating income was from changing I guess the fee structure? Because just as I look at fee paying assets quarter over quarter, it seems to me they were up about $200 million, yet your revenue line was significantly lower and that kind of bled through to operating income?

Well, this is Keith, thank you for the question. In terms of impact on the financials from changing of our fee structures I would say that it was substantially immaterial. The changes we made in our fee structures were material in so much as, one, they're forward-looking and most of that begins as of the end of this year. But secondly, the incentive fee has not been earned because we're below our high water mark. So by lowering the incentive fee there's no affect on our financials because we have not accrued any incentive fee for this year.

What we do is we consolidate the results of the funds and then we back out the interest, which is held by third-party investors. So the biggest component of our financial performance from our investment management segment this quarter wasn't fees, it wasn't incentive fees or special profits interest allocation, but it was the performance on the capital that Icahn Enterprises has invested in the funds.

So we've had very solid performance with 34% gross returns year to date and plus 10% in the third quarter. But most of the returns for the year come from our capital being invested. If you look at our third-party assets and assume everyone rolled into a new class and their management fee equivalent or special profits interest allocation were to go from one number down by 50 basis points, you could think of that costing $10 million per $1 billion on a forward basis.

Okay, perfect. And what are your thoughts on the piece of the capital structure that becomes convertible in March of 2010? How are you thinking of dealing with that? I guess it can be either cash or equity?

Sure. You're referring to the 100 -- slightly in excess of $100 million of preferred that we (multiple speakers).

Yes, 135-ish I think.

(multiple speakers) that we can redeem in either cash or stock?

That's right.

I think what we'll do is we'll make an assessment at the time as to what represents the most efficient means for Icahn Enterprises to deal with that and then we'll pursue that at the time. We have no pre-arranged plan on that.

Okay, good. Thank you very much.

Ross Haberman.

Good morning, gentlemen. Just two quick questions. In the $4.6 billion of total debt, the only debt related to the operating subs is the $2.5 billion related to the Federal-Mogul, is that correct?

Correct.

And so all of the rest of it plus that -- I guess that preferred is at the parent holding company?

Yes. The only slight distinction is there is a small amount of mortgages payable -- I think it's approximately $100 million, $115 million that are mortgages secure against specific triple net lease real estate properties we own that are non-recourse to Icahn Enterprises. But that's correct.

Okay. Can I ask how things are going at Federal-Mogul in terms of business? And you see much expected turnaround over the next year or so, what are your hopes there?

So, for starters I'd refer you to the third-quarter conference call that Federal-Mogul hosted and to their website. I think the tone you will hear from that and be able to infer or imply was despite a challenging environment and despite the conditions that the automotive industry has gone through over the last 18 to 24 month, Federal-Mogul has emerged from it we believe as well positioned as any US Tier 1 parts supplier.

So I think they're very optimistic about their opportunity to expand margins and perform subject to a reasonable level of North American automotive production or global automotive production. So they've cut a lot of costs, they've maintained profitability in the last several quarters, they have tremendous liquidity. Now if there's a little rebound in global production I believe they're well positioned.

And you have how many shares of that again?

We own approximately 76%. So I think call it 76 million shares.

Okay. And just one last question. Are you guys -- is the fund or any of these other entities involved with the CIT bankruptcy and can you tell us what your exposure is there?

Sure. Without being specific we have disclosed that we believe we are the largest senior unsecured bond holder in CIT. It is a core position in the funds, core positions in our funds tend to be in the 10% to 20% range. And that's all I'll say about our CIT position. I think we publicly have been very active with regard to the pre-pack plan, and I think we feel like we've got into quite a good answer for our funds ultimately.

And just one final question. In terms of home fashion or any of the other divisions, any thoughts on spinning them out, selling them over the next year or so assuming the operations significantly turn around?

The way I'd answer that question is, I think we have a history of demonstrating that we have a willingness to sell assets at the right time and right place in the cycle if we look back to what we did with our gaming and with our oil and gas investments. But we also have the benefits of permanent capital and the ability to hold things until the right time. With regard to everything we own, we own it, we'll continue to own it until it doesn't make sense to own it. But there are no plans or anything of that sort that I would mention at this point.

Okay. Thank you.

There are no further audio questions at this time.

Well, thank everyone for your time and we look forward to chatting with you in the early part of next year to update you on the full-year results for Icahn Enterprises. Thank you for your time.

This concludes today's third-quarter 2009 earnings call. You may now disconnect.