Icahn Enterprises LP (IEP) 2010 Q4 法說會逐字稿

Good morning, and welcome to the Icahn Enterprises L.P. fourth-quarter 2010 earnings call with Felicia P. Buebel, Counsel; Daniel A. Ninivaggi, President; and Dominick Ragone, CFO and CAO. (Operator Instructions). Thank you. I would now like to turn the call over to Felicia Buebel, Counsel.

Good morning. I'll now read a forward-looking statement regarding our financials.

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 a copy of this presentation at www.IcahnEnterprises.com\investor.SHTML (sic).

And now, I'd like to turn the program over to our President, Daniel Ninivaggi.

Thanks, Felicia. Good morning, and welcome to the fourth-quarter 2010 Icahn Enterprises earnings conference call. Joining me on today's call is Dominick Ragone, our Chief Financial Officer.

I'd like to begin by providing some key highlights for the fourth-quarter and full-year 2010. Dominick will then provide a more in-depth review of our financial results and the performance of our business segments. We'll then be available to address your questions.

2010 was a busy year. We had the addition of three new segments from our majority-interest acquisitions of ARI, Viskase, and Tropicana, comprising our railcar, food packaging, and gaming segments, respectively. Additionally, we issued $2.5 billion in senior unsecured notes, maturing in 2016 and 2018; redeemed our 2012 and 2013 senior notes; and redeemed all of our outstanding preferred units for depository units of Icahn Enterprises.

Icahn Enterprises' net income for 2010 was $199 million, or $2.35 per depository unit, which was primarily driven by the performance of our investment management and automotive segments.

In our investment management segment, the private funds recorded a gross return of 15.2% in 2010. Our automotive segment experienced strong growth in its OE business in 2010, which drove a 17% increase in net sales over the prior year. Our food packaging segment had solid results for the year and increased its production capacity for future growth. Our metals segment had significant year-over-year revenue and earnings growth, and expanded its operations with several acquisitions during 2010.

Over the past two calendar years and through February of this year, we have had strong returns in our investment management segment. In fact, our gross return this year, just through February, was approximately 8.7%.

But as a result of providing our outside investors liquidity during the financial crisis, when many funds imposed gates, our fee-paying AUM stands at only 25% of total assets under management. As discussed in our 8-K filing I made earlier today, we have decided to return all fee-paying capital to our outside investors. Payments will be funded through cash on hand and borrowings under existing credit lines, not through the sale of securities held by the funds. I'd refer you to our 8-K filing for additional information on this topic.

With that, let me turn it over to Dominick, and as I said earlier, we'll be available to answer your questions at the end of the presentation.

Thanks, Dan. I'll begin by briefly reviewing our consolidated results for the fourth-quarter and full-year 2010, and then highlight the performance of our operating segments and comment on the strength of our balance sheet.

Net income attributable to Icahn Enterprises for 2010 was $199 million, compared to income of $253 million in 2009. For the fourth quarter, our net income attributable to Icahn Enterprises was $82 million, as compared to a net loss of $1 million in the prior-year period. We closed out the year with cash and cash equivalents of approximately $3 billion, and our direct investment in the private funds of $2.6 billion.

Reflective of our continued strong balance sheet, our Board of Directors approved a quarterly cash distribution of $0.25 per depository unit, payable on March 30, 2011.

I'll now provide more detail regarding the performance of our individual segments. As Dan mentioned earlier, the strong performance of the private funds was the largest driver of Icahn Enterprises' earnings in 2010. Our investment management segment had income attributable to Icahn Enterprises of $348 million in 2010, primarily due to the return on our direct investment in the private funds. The private funds had a gross return of 15.2% for the year.

Special profits interest for 2010 was $45 million and incentive allocation was $5 million.

During 2010, our net equity exposure increased to 82% from 16% at the end of 2009. Our long equity exposure had a 19% return for the year, while our short equity exposure had a negative 8% return. Our net credit exposure at the end of 2010 was approximately 16% and generated a return of 5%.

The equity and credit markets continued to rally in the fourth quarter of 2010. The private funds had a gross return of 3.6%, compared to a negative 0.6% for the fourth quarter of 2009. As of December 31, 2010, our investment management segment had approximately $6.6 billion of assets under management. Private funds continue to be focused on a limited number of core positions.

Now turning to Federal-Mogul. Our automotive segment sales, gross margin, and net income increased for the fourth-quarter and full-year 2010 as compared to the corresponding prior-year periods. Full-year revenue of $6.2 billion represents an increase of $889 million, or a 17% increase, driven by a 32% constant-dollar increase in sales to original equipment customers and a 2% increase in global aftermarket revenue before the impact of Venezuelan currency restrictions.

Sales in the fourth quarter increased $180 million to $1.6 billion with growth in all business segments and all markets, led by a 20% OE and 12% U.S. aftermarket sales increase versus the fourth quarter of 2009.

Our automotive segment's gross margin was more than $1 billion in 2010, an improvement of $215 million, or 27%. The higher margin was a result of increased sale and higher conversion of incremental revenue to profit. Gross margin was $240 million in the fourth quarter of 2010, a $15 million increase over the same period in 2009.

Full-year SG&A expenses improved to 11% of sales in 2010 from 12.9% of sales in 2009. SG&A expenses further improved to 10.6% of sales in the fourth quarter of 2010, demonstrating the efficiency of the company's lean cost structure. Federal-Mogul is well positioned with customer, market, and product diversity, and revenue is well balanced between OE and aftermarket.

Liquidity at our automotive segment remains strong at approximately $1.6 billion, which is comprised of $1.1 billion in cash and a $528 million undrawn revolver. This liquidity provides opportunities for organic growth as well as acquisitions.

And now for our gaming segment. In the fourth quarter of 2010, our consolidated private funds acquired a controlling interest in Tropicana Entertainment, which now comprises our gaming segment. The Tropicana's operating results from the acquisition date, November 15, 2010, have been included in our consolidated financial statements. For the period ending November 15, 2010, through December 31, 2010, Tropicana recorded $78 million in revenues. Over 85% of Tropicana's revenues are generated from its casino operations. As of December 31, 2010, Tropicana had over $154 million in cash and cash equivalents.

Now turning to our railcar segment. The railcar industry experienced modest improvements during 2010, in line with the economic recovery. Car loadings increased by almost 10% in 2010 over 2009. The reported idle U.S. railcar fleet decreased by approximately 130,000 railcars during 2010.

Our railcar segment was successful in securing orders for approximately 2,590 new railcars in 2010. The backlog at year-end was approximately 1,050 new railcars, and thus far in 2011, this segment has been successful in securing orders in excess of 4,500 new railcars and continues to actively quote on new railcars for both lease and purchase.

For the year ended December 31, 2010, revenues were $270 million, a decrease of 39% from the previous year. Deliveries in 2010 were approximately 2,090 new railcars, as compared to approximately 3,690 new railcars in 2009.

Manufacturing revenues decreased 44% in 2010 when compared to 2009, primarily due to the downturn in the railcar industry. Revenues for the fourth quarter of 2010 were $95 million, compared to revenues of $78 million in the fourth quarter of 2009, primarily due to an increase in demand for specialty railcars.

Revenues for our railcar services increased in the fourth-quarter and full-year 2010 as compared to the prior year, primarily due to increased volumes at our repair plant and railcar repair projects performed at our railcar manufacturing facilities.

Gross profit margin for manufacturing operations was a loss of 2% in 2010 from a profit of 10% in 2009. The decrease in margins reflects a decrease in railcar deliveries, a decrease in average selling prices, and the impact of fixed costs in a low production environment.

The gross profit margin for railcar services for 2010 was 19%, consistent with 2009. We experienced a breakeven gross profit margin from manufacturing operations in the fourth quarter of 2010, compared to the gross profit margin of 10% for the fourth quarter of 2009. The decrease in margin reflects a decrease in average selling prices and the impact of fixed costs in a low production environment. The gross profit margin for railcar services for the fourth quarter of 2010 was 18%, compared to 21% in the fourth quarter of 2009.

Our railcar segment's liquidity is strong with $319 million of cash and cash equivalents as of December 31, 2010, and total borrowings of $275 million of unsecured senior notes, which are due in 2014. This liquidity provides this segment the necessary working capital required for a ramp-up of production levels in 2011, as well as the ability to invest in a significant amount of new leased railcars. Our railcar segment will continue to manage costs and capabilities to match market demand.

Now turning to our food packaging segment. Net sales for 2010 increased by $17 million, or 6%, as compared to the corresponding prior-year period. The increase is primarily due to an increase in sales volume, partially offset by price and product mix and foreign currency translation.

Net sales for the fourth quarter of 2010 were $76 million, a decrease of $1 million from the prior-year period.

Gross margin for 2010 increased $3 million, or 4%, as compared to 2009. The increase in gross margin for 2010 was primarily due to higher sales volume, with cost of goods sold percentage remaining relatively flat as compared to the corresponding prior-year period. The gross margin for the fourth quarter of 2010 was $19 million, a decrease of $1 million from the prior-year period.

Cash and cash equivalents for the food packaging segment were $88 million as of December 31, 2010.

And now turning to our metals segment. Net sales for fiscal 2010 increased by $343 million, or 90%, as compared to the corresponding prior-year period. The increase was primarily due to increases in ferrous revenues attributed to demand generated by improved steel mill operating rates during 2010 as compared to the corresponding prior-year period.

During 2010, steel mill operating capacity utilization rates were estimated at approximately 70%, as compared to 52% for 2009. This increased ferrous demand resulted in higher ferrous average pricing of approximately $113 per gross ton, or 47%, and higher ferrous shipments of 353 gross tons, or 39%, in fiscal 2010 compared to the corresponding prior-year period. Additionally, increase in non-ferrous demand resulted in higher non-ferrous average pricing of approximately $0.30 per gross pound, or 43%, and higher non-ferrous shipments of 14,826 gross pounds, or 15%, in 2010 as compared to the corresponding prior-year period.

Revenues from substantially all product lines improved during 2010 compared to the corresponding prior-year period. Revenues for the fourth quarter of 2010 were $175 million, an increase of $65 million from the fourth quarter of 2009.

Gross margin for 2010 was $28 million, compared to a loss of $21 million in the corresponding prior-year period. The improvement in gross margin during 2010 was primarily due to the increase in ferrous revenues resulting from higher average pricing, coupled with higher ferrous shipments over the comparative period, as discussed above. As a percentage of net sales, gross margin was 4% for 2010 and a loss of 6% in the corresponding prior-year period. The gross margin for the fourth quarter of 2010 was $7 million, compared to a loss of $4 million in the prior-year period.

Next is our real estate segment. Total real estate revenues were $90 million for 2010, a decrease of $6 million compared to the prior year. This was primarily due to a drop in residential real estate sales. We sold 12 residential units in 2010 for approximately $9 million, compared to 21 units for approximately $15 million in the corresponding prior-year period.

Our net leased portfolio continues to drive earnings in this segment with its 30 properties generating strong cash flows. Revenues in the fourth quarter of 2010 decreased from the comparable period of 2009, also due to the drop in development sales.

Turning to our home fashion segment, net sales in 2010 were $429 million, an increase of 16% from the corresponding prior-year period. Sales improved sequentially in each quarter of 2010 as increased consumer spending drove the rebound of the retail sector.

While we are pleased with our topline growth in 2010, gross margin decreased to $29 million in 2010 from $31 million in 2009, representing a 6% decrease, primarily due to higher raw material and transportation costs. Cotton prices finished in 2010 at historic highs due to supply issues as well as market speculation. WPI has sought and will continue to seek recovery of higher raw material and transportation costs from its customers.

Gross margin as a percent of net sales was 7% in 2010, compared to 8% in 2009. Cost controls helped keep SG&A expenses flat at $75 million for 2010, in spite of higher sales volumes.

Net sales for the fourth quarter of 2010 were $123 million, compared to $105 million for the prior-year period. Gross margin in the fourth quarter of 2010 was also impacted by the higher raw material and transportation costs, as noted earlier. Gross margin as a percentage of sales was 4% in the fourth quarter of 2010, compared to 9% in the fourth quarter of 2009.

At the end of 2010, home fashion had $32 million of unrestricted cash and $44 million of unused borrowing availability under its working capital facility.

Now I will highlight our debt and liquidity position. We finished the year with excellent liquidity. Our cash, cash equivalents, liquid assets, and our investment in the private funds totaled approximately $5.6 billion. In addition to our strong cash position, our subsidiaries have undrawn credit facilities totaling $580 million as of December 31, 2010.

In summary, we continue to focus on building asset value and having ample liquidity to enable us to capitalize on opportunities within and outside our existing operating segments. Thank you. Operator, can you please open it up for questions?

(Operator Instructions). Andrew Berg, Post Advisory Group.

With respect to West Point, can you talk about what kind of response you're seeing from your customers? I know everyone's trying to pass along the huge increases in cotton. Are you actually able to -- are you getting those increases, or are you getting significant pushback and not getting as much as you'd like?

This is Dan. The negotiations with the customers are always difficult, but we are having some success passing along price increases. Obviously it's been a moving target, but we've made a lot of progress on that front.

And with respect to gaming, anything new on Fontainebleau?

No.

[Charles Fischer], [LF Partners].

This is more of a broad-based analysis question. When looking at the Company, how do you guys think about book value? About half of book value, let's call it $80 or $90 a share, is invested and the other half is essentially property, plant, and equipment. Just could you give us any color on how valuable you think that property, plant, and equipment might be?

We look at asset value and we tend to look at it on a fair-value basis, not book value. We think on a fair-value basis the stock is undervalued. I guess that's what I would say.

Okay. Can you give us any additional color on -- is this a market call by giving back the $1.6 billion, or is there something else that maybe you might be able to tell us about the return of the funds?

No, I'd just refer you to Carl's letter that we filed with the 8-K this morning. I think it's self-explanatory.

Okay, I just read the letter. And okay, thank you.

Ken Bann, Jefferies & Company.

I was just wondering, given the strength in some of the stock values at some of your investments, specifically, say, Federal-Mogul, are you looking to monetize that or any of those investments at any time soon?

We know there's been some speculation on that, but it's our policy not to comment, so I can't give you a comment on that at this point.

(Operator Instructions).

Or Tina, we could take a question from the Web here. From [Tim Cronin] at SSgA, the question is, please discuss how Carl Icahn's letter affects IEP and will you be holding more cash going forward?

I don't see a material change in that. We've always valued liquidity. We exited the year with $3 billion of cash on the balance sheet. I'm sure we'll continue to have plenty of liquidity. I don't see a significant change in that. Is there another question?

There is another question. I don't have a name on this question. The question is, what are the long-term plans with CHK Investment. Do you see other opportunities in energy?

Chesapeake -- Chesapeake is a core investment in the fund. Obviously, we got into it when we believed that it was trading substantially below its intrinsic value. It remains a core investment. Beyond that, we don't comment, obviously, on our investment strategy, but we're very happy, obviously, with the investment.

And that's all the questions we have from the web at this time.

There are currently no questions in the queue.

Thank you. We appreciate the support of our unitholders and look forward to talking to you at the end of next quarter. Take care.