Icahn Enterprises LP (IEP) 2009 Q4 法說會逐字稿

Good morning and welcome to the Icahn Enterprises LP fourth-quarter 2009 earnings call with Felicia P Buebel, Counsel; Mr. Keith Meister, Principal Executive Officer and Vice Chairmen; and Dominick Ragone, CFO and CAO.

I would like now to hand over the call to Felicia Buebel.

Thank you. I will now read the forward-looking statement. 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 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.

Now would like to turn the program over to Keith Meister.

Thanks, Felicia. Good morning and welcome to the year-end 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 2009 and a review of our Investment Management segment, after which Dominick will provide an overview of our financial performance and the performance of our other business segments, after which we will be available to address your questions.

Moving to some brief highlights for 2009. As all on this call are well aware, 2009 represented a difficult year in the US economy. Nonetheless, we believe that each of our businesses did a first-rate job in managing their top and bottom lines during these difficult times and as a result ended the year in a stronger position than they had been in at the beginning of the year.

As Dominick will review in detail later, Federal-Mogul's fourth-quarter 2009 revenues and gross margins were up as compared to fourth-quarter 2008. PSC Metals' fourth-quarter 2009 revenues were up as well, driven by increases in volume and price for scrap metals as compared to the comparable period in 2008.

At WestPoint Stevens, despite significant cyclical pressures, gross margins improved in Q4 2009 versus Q4 2008. Our Real Estate operations continue to have, for the most part, steady and predictable performance.

We commend each of our subsidiaries' management teams in helping us navigate through these difficult times. Strong liquidity and balance sheets at each of our subsidiaries combined with significant Parent Company resources positions IEP well for growth in 2010 as the US economy starts to improve.

A key driver for IEP performance in 2009 as compared to 2008 was the strong recovery of earnings from our Private Funds. For 2009, our Investment Management segment generated income from continuing operations attributable to Icahn Enterprises of $469 million as compared to a loss of $335 million in 2008. Icahn Enterprises ended 2009 with strong liquidity, with liquid assets of $3.6 billion comprised of cash and cash equivalents of $1.9 billion and $1.7 billion of our direct investment in the Private Funds.

In the early part of 2010, we have been very busy. In January, we issued $2 billion in new senior unsecured notes maturing in 2016 and 2018 and used those proceeds to repay approximately $1.3 billion of notes which were due in 2012 and 2013. The transaction allowed us to extend the maturity date of our debt at reasonable interest rates and increase our net cash position by approximately $625 million.

In conjunction with our debt refinancing, we issued common units to acquire controlling interests in two new businesses from affiliates of Carl Icahn. We acquired an approximately 54% controlling interest in American Railcar and an approximately 72% controlling interest in Viskase.

ARI, American Railcar, is a leading North American designer and manufacturer of hopper and tank railcars. Viskase is a worldwide producer of nonedible cellulosic, fibrous, and plastic food casings.

Furthermore in conjunction with the debt refinancing transaction and the acquisitions of the controlling interests in ARI and Viskase, Icahn Enterprises committed to issue common units in lieu of cash to redeem all of our outstanding preferred units as of March 31, 2010, thereby further raising Icahn Enterprises' net equity by approximately $138 million. In February, we completed the acquisition of the Fontainebleau in Las Vegas and also invested an additional $250 million into our Private Funds.

We recently announced that Dan Ninivaggi will be joining our Company as our new President. We've known Dan for a while as he previously served in a variety of executive roles at Lear, a company in which we and our affiliates have had a significant investment in the past.

Lear is a leading manufacturer of automotive parts, specifically in the seating and electronics sectors. Dan previously served as general counsel, executive vice president (technical difficulty) officer at Lear. Dan currently serves on the board of directors of CIT, and we welcome Dan to Icahn Enterprises.

He will be joining us in the next few weeks and will be responsible for helping to oversee our portfolio of companies. We believe that Dan's experience will bring tremendous value to IEP.

Finally, reflective of our continued strong balance sheet, subsequent to quarter-end our Board of Directors approved a quarterly cash distribution of $0.25 per depository unit payable on March 30, 2010.

Moving to an overview of our Investment Management segment. As I mentioned earlier, 2009 represented a year of tremendous investment improvement as compared to 2008. Income from continuing operations attributable to Icahn Enterprises from our Investment Management segment was $469 million for 2009 as compared to a loss of $335 million for the comparable period in 2008.

The key driver in the improved financial performance was strong investment returns. In 2009, our Private Funds were up approximately 33.3%.

I would like to note that while we significantly outperformed the S&P Index in 2009, we did this while having lower net exposure levels. Our net exposure to equities during 2009 varied from approximately 0% to 20%.

What this means is that for every dollar of long positions we held, we had approximately $1 to $0.80 in short exposure. So we were pleased to have been able to outperform the market while being exposed to less market risk during 2009.

During 2009, we also increased our positions in distressed debt investments, as we disclosed large debt positions in companies such as Tropicana, CIT, and Trump Entertainment, to name a few. We are hopeful that these positions will help to drive continued solid investment returns from our Investment Management segment in 2010.

We ended 2009 with total assets under management of approximately $5.8 billion, of which $2.2 billion were fee-paying assets.

Through December 31, 2009, Icahn Enterprises has made direct investments aggregating $1.7 billion in the Private Funds. With respect to these investments, we had an unrealized gain of $328 million for 2009. In addition, in 2009, we earned net profits of approximately $140 million from special profits interest allocations from 2008 and 2009 that were paid in 2009.

As we enter 2010, we continue to believe that the investment landscape sets up well for activist investing, specifically in distressed debt, and that we are well positioned to capitalize on this opportunity set. As such, we continue to have a significant amount of our capital invested in the Private Funds.

With that, let me turn it over to Dominick to discuss our financial performance in detail.

Thanks, Keith. I'll briefly review our consolidated results for the fourth-quarter and full-year 2009. I will then highlight the performances of our operating segments and comment on the strength of our balance sheet.

Icahn Enterprises' income from continuing operations for 2009 was $233 million compared to a loss of $528 million for 2008. The strong 2009 results were primarily due to the solid performance of the Investment Management segment.

The prior-year loss included restructuring expenses and impairment charges, primarily for goodwill and intangible assets, aggregating $453 million after noncontrolling interests. For the fourth quarter, our net loss from continuing operations was $7 million as compared to a loss of $467 million in the prior-year period.

Income from discontinued operations for 2009 was $1 million, compared to income of $485 million for 2008. Income from discontinued operations in 2008 was primarily due to the $472 million gain from the sale of our Las Vegas gaming properties in February of 2008. There was no income from discontinued operations for the fourth quarter of 2009, while the fourth quarter of 2008 had a $1 million loss.

As Keith mentioned, the strong performance of the Private Funds was the key driver to Icahn Enterprises' earnings in 2009. Additionally, our other operating segments have begun to stabilize from the peak of the financial crisis earlier in 2009, as I will detail on later slides.

I will now provide more detail regarding the performance of our Automotive, Metals, Real Estate, and Home Fashion segments.

Federal-Mogul had net sales of $5.3 billion for fiscal 2009 and a gross margin of $792 million or 15% of sales. During fiscal 2009, Federal-Mogul derived 56% of its sales from the OEM market and 44% from the aftermarket. In spite of the global production volume decline for both light and commercial vehicles, Federal-Mogul has maintained solid margins through proactive restructuring and effective cost reductions, in line with lower year-over-year sales.

Net sales were $1.4 billion in the fourth quarter, which was a 7% increase from the fourth quarter of 2008. The gross margin percentage also improved, going from 14% in Q4 of 2008 up to 16% in the fourth quarter of 2009.

Restructuring and impairment charges decreased by over $500 million in 2009 primarily due to the large charge-offs related to goodwill and indefinite-lived intangible assets at the end of the previous year, as well as a $100 million decrease in restructuring costs for restructuring initiatives that began in 2008. These initiatives were critical for improving operating performance and responding to increasingly challenging conditions in the global automotive market.

Cash flows from operations improved greatly from the low point of the first quarter of 2009. Federal-Mogul finished the year with over $1 billion in cash and $1.5 billion of total liquidity with its undrawn credit facilities.

This liquidity provides Federal-Mogul with the resources for acquisitions as well as organic growth. For those of you who are interested in more detailed information on Federal-Mogul's quarter or full year, I refrain refer you to their earnings presentation on February 23 that can be found at their website.

Turning to the Metals segment, declining ferrous revenues for 2009 led to an overall decrease of $857 million in net sales from the prior year. This 69% decrease was due to falling demand and market prices which impacted revenues in our Metals segment throughout 2009. First, average pricing was approximately $215 per gross ton lower, which represented a 47% pricing decline; and ferrous shipments were 946,000 gross tons lower, which represented a 51% drop in shipments.

Our Metals segment recorded $109 million of net sales in the fourth quarter of 2009, which was $13 million above the prior-year quarterly results.

Ferrous market prices fluctuated greatly in Q4 of 2009. In October and November, prices dropped to a low of $234 per gross ton before recovering to $286 per gross ton in December. Ferrous scrap prices were 7% higher in Q4 of 2009 compared to Q4 of 2008, and shipment volumes were up 6%.

Gross margin for 2009 decreased by $158 million due to declines in ferrous revenues as noted earlier.

As a percentage of net sales, cost of goods sold was 105% and 89% for fiscal 2009 and fiscal 2008, respectively. Cost of sales was 99% of net sales during the second half of fiscal 2009 as market conditions, though volatile, improved somewhat during the period and cost-reduction actions taken in the recycling yards earlier in the year took full effect.

In Q4, supply shortages drove up [buy] prices, resulting in compressed margins.

SG&A expenses for 2009 decreased by $17 million due to cost reduction initiatives implemented during the first quarter of fiscal 2009. For Q4, SG&A expenses were $5 million lower than Q4 of 2008, also due to cost-cutting initiatives. These initiatives included headcount reductions, a salary freeze and temporary pay cuts, elimination of current year incentive program, and suspension of spending for specific items.

Next is our Real Estate segment. Income from continuing operations for 2009 was $11 million as compared to $14 million in 2008, which includes depreciation and amortization of $26 million and $9 million, respectively. This decline primarily reflects the sharp drop-off in property development sales from the previous year, offset by the performance of our net lease portfolio, which benefited from the acquisition of the two large net lease office properties purchased in August of 2008.

For fiscal 2009, we sold 21 residential units for approximately $15 million at an average price of $700,000, compared to 39 residential units for approximately $41 million at an average price of $1.2 million in 2008. Our resorts operations at New Seabury and Vero Beach were essentially flat with the prior-year results.

Impairment charges fell from $4 million in 2008 down to $2 million in 2009 and were primarily related to writedowns of our inventory units in our Florida subdivisions for both periods. Revenues in the fourth quarter of 2009 were lower than comparable period in 2008, also due to sluggish development in development sales as noted earlier.

Turning to our Home Fashion segment, net sales of $369 million were 13% lower than prior-year results. The decrease in net sales during fiscal 2009 continued to reflect the lower sales due to the weak home textile retail environment, but has been mitigated by improvements in operating earnings as a result of lower SG&A expenditures and lower restructuring and impairment charges.

Gross margin was $31 million for 2009, which was flat to prior year. Gross margin as a percentage of net sales increased 1.1% from the prior year, going from 7.3% in 2008 up to 8.4% in 2009.

The operating loss for 2009 was $71 million compared to $95 million for 2008. The operating loss of 2009 includes $27 million of restructuring expenses and impairment charges as compared to $37 million for 2008.

Although we expect the retail environment to remain challenging in 2010, our Home Fashion segment will enter the year with a strong liquidity position. At the end of 2009, Home Fashion had $81 million of unrestricted cash and $46 million of unused borrowing availability under its working capital facility.

For the fourth quarter of 2009, net sales declined by 2% to $105 million. Operating losses before restructuring and impairment charges for the fourth quarter were $11 million compared to $15 million in the fourth quarter of 2008 due to improved gross margins and SG&A.

Now I will highlight our debt and liquidity position. We finished the year with strong liquidity. Our cash, cash equivalents, and liquid assets totaled approximately $3.6 billion, which includes our $1.7 billion investment in the Private Funds as well as our Holding Company investments.

We invested an additional $250 million in the Private Funds subsequent to year-end. These investments have a ready market and can be liquidated quickly.

In January of 2010, we issued $2 billion of new senior unsecured notes to replace our $1.3 billion of senior unsecured debt outstanding at year-end. This transaction added approximately $625 million of cash to our balance sheet and helped extend our debt maturities out to 2016 and 2018.

In addition to our strong cash position, we have undrawn credit facilities totaling $516 million as of December 31, 2009. In summary, we continue to focus on having ample liquidity and a strong balance sheet to enable us to execute on our strategy and to capitalize on opportunities.

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

(Operator Instructions) Ken Bann.

Good morning. I was wondering if you could comment at all about the performance of the investment funds in the first part of 2010.

Great. Hi, Ken; this is Keith Meister. We're not going to get into the specifics and granularity of the Funds' performance on a month-to-month basis. But I will say the Funds have had positive performance year-to-date.

Okay. On PSC Metals could you tell us -- has pricing continued to improve and volumes continued to improve there in the first part of 2010? Would they be -- is the company profitable at these kind of pricing levels?

Yes, Ken, it's Dominick. In the fourth quarter, we saw prices firm up in the fourth quarter, and we've seen prices continue to remain firm with similar type volumes that we've seen in the fourth quarter into the first quarter. So prices have firmed up.

With the cost-cutting that is done at these kind of levels, can you be profitable at that operation? Or do you need further price increases and volume increases to get back to profitability there?

We believe we can be profitable. Certainly we would appreciate higher volumes in the market.

Okay. At WestPoint, obviously with sales only being down 2%, that's the best performance in a long time. You've done a lot of cost-cutting there. Do you need sales to begin to grow at that operation to finally get to a breakeven point?

Or with the cost cutting that you have done can you be breakeven at these kind of sales levels?

Ken, it's Keith Meister again. I think the team has done a good job of cost cutting. You began to see some gross margin improvement, but at some point there is only so much cost you can take out and you need to begin to get some top-line momentum through new customer wins or a bigger share of wallet with existing customers.

We think our management team is making good progress from that perspective. So now hopefully we will stop getting a little headwind from the economy, and be able to see the new cost structure, and grow revenues and get to profitability in 2010.

And on that line, can you comment on whether there has been any new wins recently on the customer side?

We are not going to get into individual customers and that granularity. But we think the new team is doing a good job.

Okay. Then finally on the Fontainebleau, will that be folded into the Real Estate business or will it be a separate operation outside of the Real Estate?

Yes, the Fontainebleau will be folded into the Real Estate business.

Could you just comment a little bit on any of the plans there for that asset?

We're not going to get into tremendous detail on our plans there. I think you know what our core DNA is, which as we like to buy assets at discount to replacement cost, at discount to inherent value. And we tend to historically have not been developers. So take those two fact comments, and I think that will give you a lot of transparency into how we think of this asset.

Obviously, Las Vegas is a market that is having tremendous cyclical pressures today. But from a secular perspective over time we are big believers in Las Vegas. And the opportunity to buy approximately $2 billion of cost in the ground for approximately $150-odd-million we believe over a cycle is going to provide us with a compelling risk returning equation.

So we will ultimately do what we think is the best thing with that asset from an asset management perspective to realize value on our $150 million investment.

Great. Thank you very much.

Andrew Berg.

Hey, guys, if we can go back to Metals real quickly, Dominick, you said pricing continues to remain firm in the first quarter. What about on the cost side? I know that was causing some margin compression for you in the fourth quarter.

Are you getting a little bit of abatement from your cost side to hopefully get a little bit more margin expansion? I know it has been tough.

I mean the margins -- the buy side and the sell side are extremely volatile. I mean it goes week to week. So it's very difficult to provide any foresight as to where it is, where it is going to be, essentially.

But it's a very volatile market, and the buy side has firmed up. We like margins where they are. We would certainly like to have more volume.

Okay. Going back to Ken's question with respect to Fontainebleau. Between that, Trop, and who knows what happens in New Jersey with Trump, is there a reason to fold all of the gaming into Real Estate? Or is there a thought potentially of having it as a separate segment and not having the Real Estate make the casino look a little bit more murky from a reporting standpoint?

From a recording perspective, to the extent we ever end up with ownership, or control, call it ownership of more than 50% of the reorganized Tropicana -- or if any other assets the same were to occur -- we would then report those operations, that business, as its own segment.

If that business were owned through Investment Management we would report it as its own segment and back out a minority interest associated with the ownership of the funds that came from third-party LPs, i.e., not IEP. If that investment were at the Holding Company we would then only back out minority interest to the extent we had a partner in that investment.

As we look at the names you mentioned, I think there is a real distinction between two of the names you mentioned and the Fontainebleau. Two of the names you mentioned are operating businesses with P&Ls; and I think we would want to make sure that visibility and transparency were always given to them from that perspective.

The third asset you mentioned, the Fontainebleau, we view as a Real Estate play today, period. It is not an asset generating revenues or cash flows, and we will show it as such.

Okay. Well if you can get a way for it to generate cash flows, God bless you. Right now it is a big, beautiful, blue building that hopefully we will make some money on in the years coming.

Thanks, Andrew.

The last question. If I look at the balance sheet, and you break it out and do a good job between all the various segments, I see at the end of the year Holding Company -- let's just call it cash and short of cash consolidated partnerships of $610 million.

If I think about cash at the Holding Company pro forma for the transactions that have happened, $625 million of additional cash from the refinancings; less $250 million that was invested in the Funds; less let's call it $150 million for Fontainebleau. Should I think that pro forma cash level for the whole Company then would be something like $835 million on a pro forma basis?

If those were the only adjustments in your math, assuming you did your math right, that would be correct. But remember there's flows of funds every day going for things like interest; dividends; we may be buying and selling debt securities that may produce or deduct from cash flow.

But big-picture, I think you have the right adjustments. And then you need to put whatever either pluses and minuses would come from our ordinary business operations to that number.

Okay. Understood. Thanks a lot guys, appreciate it.

Ross Haberman.

Good morning, gentlemen. How are you? Just wanted to go over on the liability side at the Parent. With the new debt am I correct to say that you are going to have about $2.7 billion in total debt at the Parent with the new transaction, pro forma?

That's correct. I think you are slightly high, but you are very close to the ballpark.

Okay. All right. Thank you, guys.

There are no further questions at the present time.

Well, we want to thank everyone for joining us today and we look forward to speaking with you in a few months when we report our first-quarter 2010 results. Thank you for your continued interest in Icahn Enterprises.

This concludes today's conference call. You may now disconnect. Thank you.