Icahn Enterprises LP (IEP) 2010 Q1 法說會逐字稿

Good morning, and welcome to the Icahn Enterprises L.P. first quarter 2010 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 P. Buebel, Counsel.

Thank you. I will now read a 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.

And now I'd like to turn over the call to our Principal Executive Officer, Keith Meister.

Thank, you, Felicia. Good morning, and welcome to the first quarter 2010 Icahn Enterprises earnings conference call. Joining me on today's call is Dominick Ragone, our Chief Financial Officer, and Daniel Ninivaggi, who recently joined our company as President, primarily responsible for overseeing our portfolio companies.

I will begin by providing a brief overview of some key highlights for the quarter and a review of our investment management segment, after which Dominick will provide an overview of our financial results and the performance of our other businesses. We will then be available to address your questions.

Moving to some brief highlights for the first quarter of 2010, we began this year with the acquisitions of controlling interests in two new operating companies, ARI and Viskase, and the successful refinancing of our holding company, Senior Debt. ARI, a leading North American designer and manufacturer of hopper and tank railcars, and Viskase, a leading worldwide producer of nonedible cellulosic, fibrous and plastic casings used in the food packaging industry, were acquired from affiliates of Carl Icahn on January 15, 2010, in exchange for depository units of Icahn Enterprises. These companies further diversify our portfolio of operating companies, and we look forward to their future contribution to our consolidated operations. Our prior period results have been restated to reflect these acquisitions.

Concurrent with the accusations of ARI and Viskase, we issued $2 billion in new unsecured senior notes with maturities of 2016 and 2018 and used those proceeds to repay our existing senior unsecured notes of approximately $1.3 billion. This refinancing helped bolster Icahn Enterprises' strong liquidity position and extend our debt maturities. In addition, as of March 31, 2010, we redeemed all outstanding preferred units for depository units of Icahn Enterprises. This transaction added $138 million to equity at March 31st.

We close out the quarter with cash and cash equivalents of $2.5 billion, and our direct investment in the Private Funds of approximately $2 billion. Our portfolio companies have successfully controlled costs and realigned their operations in response to the global downturn and are now well positioned to grow with a pickup in economic activity.

Many of our operating companies are beginning to see signs of a turnaround in their respective industries. We will get into the specifics of each operating segment later on in the presentation.

Now to our Investment Management segment. For the first quarter of 2010, our Investment Management segment generated income from continuing operations attributable to Icahn Enterprises of $15 million. This income was derived from our special profits interest allocation and our return on investment in the funds. During the first quarter, both our long equity and long credit positions produced positive returns, with the Private Funds yielding a gross return of 70 basis points. Our net equity exposure was gradually increased over the quarter to 31% from 16% at year end in response to an overall improvement in market conditions. The performance of our Private Funds was tempered by our defensively positioned portfolio which was negatively affected by the continued rally in both equity and debt markets.

Although our hedge positions have been pared down since year end, we still maintain sizeable defensive hedges to protect against a potential market reversal. While we believe there have been signs of improvement in the markets, lingering unemployment, sovereign credit issues in Europe, US federal and state government budget deficits and the likely adoption of increased financial legislation and regulation paint an uncertain picture of the trajectory the markets will take in the coming months. As such, we maintain a defensive, balanced posture.

During the first quarter, Icahn Enterprises invested $250 million into the Private Funds, bringing our cumulative direct investment to $2 billion. With respect to these investments, we had an unrealized gain of $9 million for the first quarter. Total assets under management at the end of the quarter were $6.3 billion, of which $2.2 billion were fee-paying assets. Even with the runup in values in various asset classes in the financial markets, we continue to believe that there will be selective opportunities to make exceptional risk return investments by capitalizing on our know-how in distressed situations.

Finally, reflective of our continued balance sheet strength subsequent to quarter end, our board of directors approved a quarterly cash distribution of $0.25 per depository unit payable on June 3, 2010.

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

Thanks, Keith. I will begin by briefly reviewing our consolidated results for the first quarter of 2010 and then highlight the performance of our operating segments and comment on the strength of our balance sheet.

Net loss attributable to Icahn Enterprises for the first quarter of 2010 was $65 million compared to income of $4 million for the same period in 2009. The exceptionally strong performance of the Private Funds in the prior year was the main driver of income, while the loss in the current quarter was primarily driven by the loss on debt retirement.

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

Net sales for Federal-Mogul increased by $251 million, or 20%, to $1.489 billion for the first quarter of 2010 compared to $1.238 billion in the corresponding prior period. During the three months ended March 31, 2010, Federal-Mogul derived 63% of its sales from the OEM market and 37% from the aftermarket. Light and commercial vehicle OE production increased in all regions, and when combined with market share in all regions across all three manufacturing segments, increased OE sales by $259 million.

The impact of the US dollar weakening primarily against the euro increased reported sales by $51 million as compared to the corresponding prior period. Aftermarket sales fell by $50 million, $22 million of which is due to reduced sales in Venezuela as a direct consequence of the currency restrictions. The remainder of the reduction reflects the impact of lower demand for high-quality replacement parts.

Gross margin for the three months ended March 31, 2010, increased by $96 million, or 61%, as compared to the corresponding prior year period. As a percentage of net sales, gross margin was 17% for the first three months ended March 31, 2010, as compared to 13% in the corresponding prior year. Improved margins were primarily due to productivity gain in excess of labor and benefit inflation and material sourcing savings.

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 flow for a total inflow in the first quarter of 2010 of $80 million. Liquidity at our Automotive segment remains strong at approximately $1.5 billion, which is comprised of $1 billion in cash and a $493 million undrawn revolver. This liquidity provides opportunities for both organic growth as well as acquisitions.

Now turning to our Railcar segment. Revenues from manufacturing operations and railcar services for the first three months ended March 31, 2010, decreased by $105 million, or 67%, as compared to the corresponding prior year period. The decrease was primarily due to decreased revenues from manufacturing operations partially offset by increase in revenues from railcar services. Revenue from manufacturing operations for the three months ended March 31, 2010, decreased by $109 million, or 75%, due to a decrease in railcar shipments and an overall decrease in average selling prices. During the three months ended March 31, 2010, ARI shipped 340 railcars as compared to approximately 1,490 railcars in the corresponding prior year.

Revenue from railcar services increased by $4 million, or 33%, for the first three months ended March 31, 2010, and were primarily attributable to higher volumes due to the completion of expansion projects at repair facilities and the utilization of ARI's railcar manufacturing facilities for railcar repair projects.

Gross margin from our railcar manufacturing operations decreased by $16 million for the first three months ended March 31, 2010, as compared to the corresponding prior year period and was primarily due to reduced railcar shipments and lower average selling prices attributable to pricing pressure and a change in product mix. Gross margin as a percentage of revenues of railcar manufacturing operations decreased to negative 3% as compared to positive 10% in the corresponding prior year period. This decrease is primarily due to lower shipments, lower selling prices and the impact of fixed costs in a low-production environment.

Gross margin for railcar service operations increased by $1 million for the three months ended March 31st as compared to the same period in 2009, and was primarily due to an increase in revenue. Gross margin as a percentage of revenues for railcar service operations was approximately 16% for the three months ended March 31, 2010, as compared to approximately 15% in the corresponding prior year, due primarily to efficiencies created by increased volume from the completion of expansion projects and the repair projects performed at railcar manufacturing facilities.

The economic downturn and restricted credit markets continue to have an adverse effect on the railcar and other industrial manufacturing markets in which ARI competes, resulting in substantially reduced orders in the marketplace, increased competition and pricing pressures for those orders and lower revenues. While activity has picked up somewhat in recent weeks, ARI expects its shipments and revenues to significantly decrease in fiscal 2010 from fiscal 2009. In response, ARI has reduced production rates and work force at its manufacturing facilities. Absent significant new railcar orders in addition to the railcar orders received to date, ARI expects to continue to incur net losses and to further curtail its railcar manufacturing operations.

Now turning to our Food Packaging segment. Net sales for the three months ended March 31, 2010, increased by $11 million, or 16%, as compared to the corresponding prior year period. The increase is primarily due to an increase in sales volume and the impact of foreign currency translation from some of our segments' foreign subsidiaries. Our Food Packaging segment derives approximately 68% of total net sales from customers located outside the United States.

Cost of goods sold for the three months ended March 31, 2010, increased by $8 million, or 15%, as compared to the corresponding prior year period. The increase was primarily due to higher sales volume offset by stable raw material and energy costs and plant efficiencies. As a percentage of net sales, gross margin was 25% for both the three months ended March 31, 2010, and 2009.

Gross margin for the three months ended March 31, 2010, increased by $3 million, or 18%, as compared to the corresponding prior year period, primarily due to higher sales volume.

And now I'll turn to our Metal segment. Net sales for our Metal segment were $174 million for the first quarter of 2010 which represented 129% increase from the $76 million recorded in the first quarter of 2009. The increase was primarily due to increases in ferris revenue attributable to demand generated by improved steel mill operating rates during the first quarter of 2010 and compared to the corresponding prior year period. During the first three months of 2009, steel mill capacity utilization rates were in the low 40% range. This compares to capacity utilization rates improving from the mid 60% range in January of 2010 to 71% by the end of March 2010.

Steel mills were also destocking raw materials in the first quarter of 2009 in order to bring their inventory levels in line with their significantly lower demand which adversely impacted demand during 2009. Increased ferris demand resulted in higher ferris average pricing of approximately $123 per gross ton, an increase of 56%, and higher ferris shipments of 118,000 gross tons, an increase of 57% in the first quarter of 2010 compared to the corresponding prior year period.

Gross margin for the three months ended March 31, 2010, increased by $31 million as compared to the corresponding prior year period. The increases were primarily due to increases in ferris revenues resulting from higher average pricing, coupled with higher ferris shipments over the comparative period. As a percentage of net sales, gross margin was 5% for the three months ended March 31, 2010, compared to a negative 29% for the three months ended March 31, 2009.

During the first quarter of 2009, falling demand and production levels increased operating costs per unit despite concerted efforts to align costs with volume. Included in cost of sales for the three months ended March 31, 2009, was a $13 million inventory writedown resulting from decreasing market prices in the first quarter of 2009. There were no such inventory adjustments in the first quarter of 2010.

Next is our Real Estate segment. Total real estate revenues were $21 million for the first quarter of 2010, which were $1 million below revenues recorded in the comparable period last year. This was due primarily to declining revenues in our development operations attributable to the general slowdown in residential and vacation homes.

For the first three months ended March 31, 2010, we sold two residential units for approximately $2 million compared to three residential units for approximately $3 million in the corresponding prior year period. Total expenses for the three months ended March 31, 2010, increased by $44 million, or 29%, as compared to the prior year. The increase was primarily due to an increase in development expenses related to the one-time costs associated with the acquisition of the former Fontainebleu property in Las Vegas. Our real estate operations acquired this property for an aggregate purchase price of approximately $148 million. The property includes an unfinished building of approximately 9 million square feet situated on approximately 25 acres of land and inventory. Our Real Estate operations intends to secure the property until market conditions improve.

Turning to our Home Fashion segment, net sales of $83 million for the first quarter of 2010 were essentially flat with the prior year period. Increases in first quality sales during the quarter were largely offset by increased returns and lower sales of excess inventory. Gross margin as a percentage of net sales were 6%, 7% and 6% for the three months ended March 31, 2010, and 2009 respectively. The increase in gross margins was due to lower losses on sales of excess inventory. WPI continues 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.

SG&A for the three months ended March 31, 2010, and 2009 remain flat at $17 million. Restructuring and impairment charges for the three months ended March 31, 2010, decreased by $3 million, or 50%, as compared to the corresponding prior year period. Restructuring and impairment charges include severance, benefits and related costs, non-cash impairment charges related to plants that have been or will be closed and continuing costs to close plants and transition expenses. WPI continues to restructure its efforts and accordingly anticipates that restructuring charges will continue to be incurred for the remainder of 2010.

Now I will highlight our debt and liquidity position. We finished the quarter with excellent liquidity. Our cash, cash equivalents, liquid assets and our investment in the hedge fund total $4.5 billion. In addition to our strong cash position, we have undrawn credit facilities totaling $539 million as of March 31, 2010. In summary, we continue to focus on liquidity and having a strong balance sheet to enable us to execute our strategy and capitalize on opportunities.

Thank you. Operator, can you please open it up for questions?

For today's conference, we'll be taking questions both on the web and through the phones. (Operator Instructions). We will now pause for a brief moment to compile the Q&A roster. Your first question comes from the line of Ken Bann. Your line is now open.

Good morning. In the Metal segment, have you seen -- are prices and volumes continuing to improve into the second quarter so far?

Well, it slowed down a bit in April and in the early part of May, but we're expecting improvement as the year progresses, particularly in June.

And, Ken, that's Daniel Ninivaggi speaking.

Okay. And also on -- in the -- in this case, you talked about improved volumes. Have you seen also any price increases this year?

Yes, pricing has been pretty flat for the year.

Okay. But are volumes going into -- again, in the second quarter, are they still continuing to improve, especially with the new plant in France?

Uh, yes, volumes are up, especially in [no jacks].

Okay. And is -- do you have EBITDA numbers for this case for the quarter?

We do, but we don't disclose them.

Okay.

But cash flow is a little bit stronger this year over last year.

Right, right. Okay. And then could you talk about the -- in the Real Estate segment, the -- what will be the ongoing sort of quarterly costs for the Fontainebleu within the real estate segment?

We're not going to get into -- this is Keith, Ken. We're not going to get into specific guiDanielce. There will be some lumpiness to costs up front associated with stabilization.

Right.

But I will make the following statement, we have been very pleasantly surprised with the actual costs associated with both stabilization and managing on a forward basis. What we're finding out the real costs are, are a loss less than what we thought they'd be at the time we underwrote the acquisition. So while a couple million dollar swing in costs may have a meaningful effect on what the actual operating income looks like in any one corner from our real estate segment --

Right.

-- across hundreds and hundreds of millions of dollars of asset-based value, it's relatively immaterial. So we're not going to give it an exact guiDanielce on the numbers. They will move the needle a lot for the segment. But in terms of driving value, they'll be very, very small.

Right. Okay. Okay. Thank you very much.

Thank you.

Your next question comes from the line of Andrew Berg. Your line is now open.

Hey, guys, with respect to metals, I know you said that it's going to be a little bit -- I'm sorry, not metals, railcar, it's going to continue to be challenging. Should we think that the rest of the year is going to kind of run along where the first quarter was, at least on the manufacturing operations side?

Well, actually, the backlog started to pick up on the latter part of the quarter, so we do expect the backlog to be a little stronger as the year progresses, but still significantly down year over year.

Okay. And can you guys save me the trouble of having to dig through all the bankruptcy documents and tell me how many shares of Tropicana you own?

If you use a number and call approximately 50% of those outstanding, you'll be very close.

Okay. Thank you.

Your next question comes from the line of [Ehud Miller]. Your line is now open.

Good morning. I was flipping through the queue, but I wanted to know if there is any change in the book value of the private subsidiaries that are attributable to Icahn Enterprises.

I'm not sure what you mean by that question.

The value of the assets that are all attributable back to Icahn.

So what we do -- stepping back. I'm -- let me try to give you a little transparency. I don't fully understand the question. But what we do is we consolidate onto our balance sheet everything that we either own or have control of and then we back out the proportionate share of those assets that are not ours. The two big places on our financials where you see interests that are backed out are either the proportionate share of the funds which we do not own, so the shares that are held by our LPs, the interest held by our LPs, which are both the fee-paying assets plus the interest held by Carl Icahn directly. And we also then back out the minority interests, the ownership interests in our operating businesses that are not 100% owned by Icahn Enterprises. So at Federal-Mogul, at Viskase, at ARI, as examples, we own control, but not all, so we back out the proportions.

As a result of the operations of each of those businesses and/or the P&L performance of the funds during a quarter, that will drive what the book value is of those segments and how much gets proportionally deducted. We obviously hope we're deducting a larger piece every quarter because that means our share of the profits in the businesses are going up. So that's how that would work.

Okay. That answered my question. Thank you.

(Operator Instructions). Your next question comes from the line of Kent [Collier]. Your line is now open.

Hi, guys. Could you delineate between the holdco cash and equivalents and how much the holdcos invest in the private fund?

Yes. Cash and cash equivalents at holdco is about $840 million. And the investment in the funds is about $2 billion.

Okay, great. Thank you.

There are no further questions on the phone, so I turn the call back over to leadership.

So we thank everyone for their interest, and we look forward to chatting with you all again as we report our second quarter financial performance. Thank you for your interest in Icahn Enterprises.

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