Icahn Enterprises LP (IEP) 2012 Q1 法說會逐字稿

Good morning and welcome to the Icahn Enterprises L.P. quarter one 2012 earnings call with Felicia Buebel, Assistant General Counsel; Daniel A. Ninivaggi, President; and SungHwan Cho, Chief Financial Officer. As a reminder, this conference is being recorded. I would now like to hand the call over to Felicia Buebel who will read the opening statement.

Thank you. 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, www.icahnenterprises.com\investor.SHTML. Now I would like to turn the call over to Daniel Ninivaggi, our President.

Thanks, Felicia. Good morning and welcome to the first-quarter 2012 Icahn Enterprises conference call. Joining me on today's call is SungHwan Cho, our new Chief Financial Officer.

I would like to begin by providing some key highlights for the first quarter. Sung will then provide a more in-depth review of our financial results and the performance of our business segments. We will then be available to address your questions.

Icahn Enterprises' net income for the first quarter was $49 million, or $0.49 per depositary unit. Our investment funds recorded a gross return of 1% for the first quarter. We substantially hedged during the quarter with the performance of our equity long exposure offset by short equity positions.

Our Automotive segment recorded 8% OE sales growth on a constant dollar basis with marketshare gains in all major regions. Aftermarket sales in North America have stabilized and sales increases in other regions helped offset some of the weakness in Europe. Currently, Federal-Mogul is pursuing the creation of separate and independent OE and aftermarket segments. We believe this is the optimal direction for the Company as the two units have very different customer bases, business models and sales and distribution requirements.

In our Railcar segment, strong quarterly shipments and improved pricing drove up railcar manufacturing revenues by 138% from the prior-year period. ARI shipped 2200 railcars, including railcars for lease in the first quarter of 2012 as compared to 670 railcars in the prior-year period. ARI's backlog was approximately 6200 cars as of quarter-end. While orders in the industry have moderated somewhat over the last several months, demand remains robust.

Turning to our Food Packaging segment, Viskase continues to post solid results with sales volumes improving for NOJAX and [fibrous] productlines. We expect to open our Philippines shearing plant in the second quarter, which will strengthen our position in Asia. We are also seeing some improvement in the pricing environment and in our overall operating performance.

In our Gaming segment, Tropicana had a solid first quarter with operational EBITDA improving across all properties with the exception of Trop AC, which was impacted by the volatility of high-end table hold percentage, as well as a challenging market environment. Trop AC's slot marketshare, however, improved due to more effective marketing programs.

During Q1 2012, we were successful in raising $1.2 billion of new capital at the holding company -- $700 million through add-on offerings of our 2018 bonds and $500 million through an equity rights offering. At quarter-end, we had cash and cash equivalents at the holding company, as well as investments in the investment funds of over $5 billion in the aggregate.

Before moving on to our financial review, turning it over to Sung, I would like to address the status of our tender offer for CVR Energy. On April 18, Icahn Enterprises entered into an agreement with CVR pursuant to which we amended our tender offer to purchase all of the stock of CVR for a price of $30 per share in cash plus one nontransferable contingent cash payment right for each share. The offer expires tomorrow, May 4.

If over approximately 36% of the shares are tendered to us, we will purchase those shares. If following the closing of the offer, we own less than 90% of CVR, we will extend the tender for 10 business days for the same consideration. If following the closing of the offer or the subsequent offering period, we own at least 90% of CVR shares, we will acquire the remaining shares through a short-form merger.

After completion of the tender offer, we will solicit third-party proposals to acquire CVR for 60 days. IEP has agreed to support transactions equal to or exceeding $35 per share in cash. At this point, we can provide no assurances regarding the outcome of the tender offer or the subsequent sale process. If we are successful in acquiring CVR, it will become an operating segment of IEP.

We and our affiliates currently own approximately 14.5% of CVR. The total consideration for the potential purchase of all the remaining stock at $30 per share equals approximately $2.25 billion. We expect the purchase price will be funded through a combination of existing cash balances and a partial redemption of our interest in the investment funds.

Following the consummation of the transaction, we expect to retain ample liquidity at the holding company, satisfying known and reasonably foreseeable capital requirements. For further details regarding the CVR tender offer, please review our SEC filings.

In short, the investment funds were defensively positioned in Q1 and most of our operating segments posted solid results. We believe our operating model of activist investing and purchasing undervalued assets provides as much long-term opportunity today as ever and we look forward to the balance of the year. With that, I will turn it over to Sung.

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

As Dan stated earlier, the net income attributable to Icahn Enterprises for the first quarter of 2012 was $49 million, or $0.49 per depositary unit. We ended the quarter with consolidated cash and cash equivalents of approximately $3.5 billion and our direct investment in the investment funds of $3.2 billion.

To date, in 2012, we have successfully completed our rights offering and two debt offerings, which collectively have raised approximately $1.2 billion in cash. Our Board of Directors approved a quarterly distribution of $0.35 per depositary unit payable on May 31, 2012. This $0.35 distribution will consist of $0.10 payable in cash and $0.25 payable in depositary units.

I will now provide more detail regarding the performance of our individual segments. Our Investment segment had income attributable to Icahn Enterprises of $31 million for the first quarter of 2012 compared to income of $253 million in the prior-year period. The investment funds had a gross return of 1% for the quarter compared to 9.6% in the first quarter of 2011. As of March 31, 2012, our net equity exposure was 0.5%, down from 21% at the end of 2011.

Our long equity exposure had an 11.7% return for the quarter while our short equity exposure had a loss of 10.6%. Our net credit exposure at the end of the first quarter of 2012 was approximately 10.9% and generated a return of 0.5%. As of March 31, 2012, our Investment segment had approximately $6.6 billion of assets under management.

Now turning to Federal-Mogul. Net sales in the first quarter of 2012 were $1.8 billion, up 5% in constant dollars compared to the first quarter of '11, primarily due to continued growth in OE vehicle production. Sales to OE customers of $1.2 billion reflect the constant dollar increase of 8% from 1.1% -- sorry -- from $1.1 billion in the prior-year period. Federal-Mogul experienced OE sales growth in all major operating regions with US and Canada up 10%, Europe up 3% and all other regions up 16%.

Our Automotive segment's global aftermarket sales were down slightly on a constant dollar basis, primarily due to lower sales in Europe. Federal-Mogul's gross margin for the first quarter of 2012 was $277 million, or 15.7% of sales, as the Company was impacted by unfavorable product and regional mix. These factors were partially offset by initiatives to improve efficiency, attain normalized production rates on new programs and reduce direct material costs.

Federal-Mogul is well-positioned with customer, market and product diversity and revenues well-balanced between OE and aftermarket. Liquidity at our Automotive segment remains strong at approximately $1.3 billion, which is comprised of $849 million in cash and a $494 million undrawn revolver. This liquidity provides opportunities for organic growth, as well as acquisitions.

And now to our Gaming segment. Casino revenues for the first quarter of '12 were down slightly from the prior-year period due to a decline in consolidated table game hold percentage offset in part by an increase in consolidated Gaming volume. Tropicana's consolidated table hold percentage was 10.8% for the first quarter of '12, a 6.5% decrease as compared to the prior-year quarter, primarily due to volatility in the hold percentage associated with the high-end table games at Tropicana Atlantic City.

Consolidated Gaming volumes for the first quarter of 2012 were 3.3% higher than the prior-year period due to higher slot volumes in AC and Baton Rouge, higher slot and table volumes in Casino Aztar and the opening of a temporary casino in Aruba in December 2011. Casino expenses in the first quarter were down from the prior-year period, primarily due to cost-cutting measures related to payroll and benefits. SG&A also declined due to lower payroll and benefits expense, as well as lower depreciation and professional fees.

Operating profits increased from $5 million in Q1 2011 to $13 million in Q1 2012, primarily due to the lower operating expenses. In March 2012, Tropicana repaid its exit facility with a portion of the proceeds from a new $175 million term loan and closed out the first quarter with $218 million of cash and cash equivalents.

Now turning to our Railcar segment. While the order rate has moderated somewhat in the railcar industry, tank car orders remain relatively strong. With a large number of production slots for 2012 already booked for the industry, most orders currently being placed are for 2013 deliveries. The first quarter of 2012 marked the eighth consecutive quarter of sequentially higher delivery rates.

The combination of flattening orders with higher deliveries has resulted in a declining industry backlog in each of the last two quarters. The industry backlog fell to approximately 60,000 railcars at March 31, 2012 from approximately 65,000 railcars at the end of 2011.

ARI has seen strong railcar demand for both sale and leased railcars with orders of approximately 1,860 railcars received during the first quarter of 2012. ARI's backlog at the end of March 31, 2012 was 6,190 railcars compared to 6,530 railcars at December 31, 2011. Approximately 2,020 railcars in our backlog at the end of the first quarter are to be manufactured for lease. In addition, ARI received orders for an additional 2,300 railcars in April.

Total manufacturing revenues for the first quarter of 2012 increased by $95 million, or 138% as compared to the prior-year period. The primary reason for the increase in revenues from manufacturing operations was an increase in railcar shipments driven by strong customer demand and improved pricing.

In Q1 2012, ARI shipped 2,200 railcars as compared to 670 railcars in the prior-year period. Gross profit from manufacturing operations for the first quarter of 2012 was $27 million as compared to $2 million for the prior-year period. Gross margin for our manufacturing operations as a percentage of revenue was 16% for the first quarter as compared to 3% for the prior-year period. The improvement was primarily due to an increase in railcar shipments, improved pricing and better production efficiencies due to large production volumes. Revenues and gross margin for railcar services and leasing operations were essentially flat for the first quarter of 2012 as compared to the prior year.

Our Railcar segment's liquidity position is strong with $273 million of cash and cash equivalents as of March 31. This liquidity provides the segment with the necessary working capital required to meet our expected operating requirements, as well as the ability to invest in new leased railcars.

Now turning to our Food Packaging segment. Net sales for the first quarter of 2012 increased by $3 million, or 4% compared to the prior-year period. The increase was due to an increase in sales volume of $2 million and price and product mix of $2 million offset by foreign currency translation of $1 million. Gross profit increased by $1 million, or 5%, due to higher sales volume and price and product mix. Gross margin as a percent of revenue was 24% for both Q1 2012 and '11.

Construction is ongoing for a shearing plant in the Philippines to serve the Asian market. The plant is expected to open in Q2 2012 and will be scaled up over several years in accordance with our growth expectations for the Asian market. Cash and cash equivalents for our Food Packaging segment were $46 million as of March 31, 2012.

And now to our Metals segment. Net sales for the first quarter of 2012 increased by $53 million or 19% as compared to the prior year. The increase was driven by improved steel mill operating rates that drove existing business ferrous shipment volumes, an increase in ferrous brokerage transactions and volume and revenues from acquisitions made during fiscal 2011 subsequent to March 31, 2011.

Q1 ferrous shipments increased by 48,000 gross tons or 12% and average pricing was relatively flat compared to the prior year. Nonferrous volumes increased 22 million pounds, or 55%; though average selling price decreased $0.18 per pound, or 14% due to lower market pricing and the mix shift to lower-priced aluminum.

Gross margin as a percent of net sales was less than 1% for Q1 2012 compared to 6% for Q1 2011. The compressed margins during Q1 '12 were attributed to competitive pressures and reduced material spreads on both ferrous and nonferrous sales.

And now to Real Estate. Next is our Real Estate segment. Real Estate revenues were $20 million in the first quarter of 2012, which was down slightly from the comparable prior-year period. Our net lease portfolio continues to drive earnings in this segment with its 30 properties generating strong cash flows and our resort operations remain profitable quarter-over-quarter.

Now turning to the Home Fashion segment. Net sales for the first quarter of 2012 decreased by $42 million as compared to the prior year. The decline in sales reflects the impact of exiting non-core products and customers as the Company focuses on products and customers that match its manufacturing and distribution strengths.

Gross margin for the first quarter of 2012 decreased by $6 million as compared to the prior year. Gross margin as a percentage of net sales was 4% in Q1 2012 as compared to 8% in Q1 '11. Q1 2012 losses attributable to Icahn Enterprises were $9 million compared to $6 million in the prior year. The increase in loss is due solely to the increase of our ownership of WestPoint to 100% in 2011. Without the change in ownership, the loss would have remained flat.

WestPoint implemented the more customer-focused organizational structure during the first quarter of 2012 with the intent of expanding key customer relationships and rebuilding the Company's sales backlog. Management will continue to focus on lowering SG&A by investigating the potential for further consolidation of WPI's locations, reducing headcount and applying more stringent oversight of expense areas where potential savings may be realized.

At the end of the first quarter, Home Fashion had $52 million of unrestricted cash and the ability to borrow $4 million under a revolving credit facility. In February 2012, WestPoint Home was merged with a single member LLC under one of our wholly-owned income-generating subsidiaries. The merger resulted in a $48 million partial release of the valuation allowance against WestPoint's deferred tax asset. Over $200 million of valuation allowances remain in place against WestPoint's deferred tax asset.

Now I will highlight our liquidity position. We continue to maintain excellent liquidity as we ended the quarter with cash, cash equivalents, liquid assets and our investment in the investment funds totaling approximately $6.6 billion. In addition to our strong cash position, our subsidiaries have undrawn credit facilities totaling $506 million as of March 31.

In summary, we continue to focus on building asset value and maintaining 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 to questions please?

(Operator Instructions). Sachin Shah, Tullett Prebon.

Hi, good morning. So I just wanted to get an update on the tender offer for CVR. I wanted to see if there was any indication before the deadline tomorrow.

Yes, as we said earlier, the tender offer expires tomorrow at 11.59 p.m., so we will know them.

Okay, so there is no indication right now where it stands?

No, we really can't comment on that.

Okay, all right. And I just wanted to ask about -- so if you get the tender -- shareholders to tender, how quickly can you close the transaction? And have you stated publicly what you are going to do if the Company -- if you get the 90% threshold or above, if CVI is going to continue to trade publicly?

No, so you may have missed the early part of the presentation. So if we get more than 50% tomorrow, including the shares that we currently hold, we will close the tender early next week. There is a 10-day subsequent offering period were other shareholders can get in at the same price. If we get over 90% either in the original offer tomorrow or through the subsequent offering period, we will do a short-form merger and own 100%.

Okay. And then so the CVI stock will cease to be traded?

Correct.

Okay, thank you very much.

(Operator Instructions). Ken Bann, Jefferies & Co.

Good morning. I know you like to keep a lot of cash on the balance sheet at the holding company. Post the CVR tender offer, assuming it is successful, how much cash do you think you will hold onto at the holding company after that transaction?

Yes, so currently we have about $2 billion at the holding company. We have -- we said earlier that it would cost about $2.2 billion to close the tender offer in addition to the shares that we have. We would draw probably the holding company cash down to $500 million, $600 million and the rest would be redeemed from the hedge funds. And we sort of target minimum liquidity at the holding company of about $500 million.

Okay. And if CVR then doesn't get sold in the subsequent 60-day period, would you look at all to sell any other assets in order to bring your cash back up or provide additional liquidity?

There would be no compelling reason to do it. I mean we will sell assets if we can get the right price in the right environment, but we wouldn't accelerate the sale of any assets because of that. We think $500 million is plenty of liquidity there and obviously, we could hit the market later in the year with other financings.

Right, okay. And then just in the Food Packaging area, there were some production problems at one of the plants last year. Can you give us an update on that? Has that been fixed through the first quarter and is that plant up and running at full capacity at this point?

Yes, so some of those problems were in our Osceola plant. Those problems were largely corrected in the first quarter and the plant is doing much better. It is running at full capacity.

Okay. Is Viskase still basically sold out on its production for most of the rest of the year?

Yes.

Okay, great. Thank you very much.

Thank you. I currently have no more questions in queue.

Okay, well, thank you very much for joining the call. We look forward again to the balance of the year and thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may all disconnect. Have a great rest of the day.