Feb 29, 2016
Executives
Jesse Lynn - General Counsel Keith Cozza - President and CEO SungHwan Cho - Chief Financial Officer
Analysts
Dan Fannon - Jefferies Andrew Berg - Post Advisory Group Josh Lipchin - Eaton Vance Management
Operator
Good morning. And welcome to the Icahn Enterprises L.P.
Q4 2015 Earnings Call with Jesse Lynn, General Counsel; Keith Cozza, President and CEO; and SungHwan Cho, Chief Financial Officer. I would now like to hand the call to Jesse Lynn, who will read the opening statement.
Jesse Lynn
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 certain non-GAAP financial measures.
I will now turn the call over to Keith Cozza, our Chief Executive Officer.
Keith Cozza
Thanks, Jesse. Good morning.
And welcome to the fourth quarter 2015 Icahn Enterprises earnings conference call. Joining me on today's call is SungHwan Cho, our Chief Financial Officer.
I would like to begin by providing some brief highlights. Sung will then provide an in-depth review of our financial results and the performance of our business segments.
We will then be available to address your questions. Adjusted net loss attributable to Icahn Enterprises for 2015 was $1.2 billion or $9.28 per LP unit, compared to adjusted net loss of $221 million or $1.82 per LP unit in 2014.
For Q4, 2015 the net loss attributable to Icahn Enterprises was $1.1 billion as compared to a net loss of $478 million in the prior year period. Adjusted EBITDA attributable to Icahn Enterprises for 2015 was $929 million, compared to approximately $1 billion in 2014.
Our investment fund had a negative return of 18% in 2015, with returns being hampered by the performance of our long equity positions with significant exposure to the commodity market. Fourth quarter 2015 sales for automotive segment were $2 billion, an increase of 9% over the fourth quarter of 2014.
Net sales for the full year of 2015 were $7.8 billion, or 6% of above 2014 results. In addition to Federal-Mogul, 2015 results include the operation of IEH Auto, the auto part distribution business acquired in the second quarter of 2015.
Subsequent to yearend, Icahn Enterprises acquired a majority of the outstanding shares of Pep Boys, a leading after market provider of automotive services tyres, parts and accessories across the United States and Puerto Rico. This acquisition has tripled our corporate owned store front footprint and significantly enhanced our distribution capabilities.
We are in the early stages of integration Pep Boys with Auto Plus, and are excited about the opportunities to grow revenue and market share in both the do-it-yourself and do-it-for-me market. To finance the purchase we redeemed capital from our investment in the fund.
Similar to prior acquisitions, we will look to put in an appropriate capital structure at Pep Boys. We believe that we will be able to finance at attractive rate taking advantage of the inventory and real estate assets at Pep Boys.
We plan to redistribute cash back to the IEP level in order to increase liquidity at the holding company and replenish our investment in the fund. Yesterday Icahn Enterprises delivered to the Board of Federal-Mogul and offer to acquire the remaining shares outstanding of Federal-Mogul common stock for $7 in cash.
Federal-Mogul announced this morning that the Board will appoint special committee of independent directors who in consultation with independent financial and legal advisors will carefully review and evaluate our proposal. In our Energy segment, fourth quarter results were impacted by the downtime associated with the major schedule turnaround at CVR's Refining Coffeyville refinery.
For the full year 2015, consolidated adjusted EBITDA was $755 million compared to $716 million in 2014. CVR Partners continue to make progress and planning for the integration of Rentech Nitrogen East Dubuque facility.
Earlier this month, Rentech Nitrogen unitholders approved the completion of the merger subject to the sale and spin out Rentech Nitrogen's Pasadena facility prior to close. Our Railcar segment had record railcar shipments of approximately 8,900 in 2015.
The segment continues to build its lease fleet with over 45,000 railcars a yearend. Lease rates were consistent with the prior year.
And finally in our Gaming segment, Tropicana had a strong operational year especially at its Atlantic City property. Trop AC experienced higher gaming volumes as it has benefited from the closure of competitors and recent capital investment.
2015 was a challenging year to say the least. We are very disappointed in our results but quite optimistic regarding the existing composition of our portfolio and the opportunity for value creation going forward.
With that let me turn it over to Sung.
SungHwan Cho
Thanks, Keith. I will begin by briefly reviewing our consolidated results for the fourth quarter and full year 2015 and then highlight the performance of our operating segments and comment on the strength of our balance sheet.
In Q4, 2015, the net loss attributable to Icahn Enterprises was $1.1 billion compared to a net loss of $478 million in the prior year period. Full year adjusted net loss attributable to Icahn Enterprises for 2015 after adding back the loss on extinguishment of debt was $1.2 billion, or $9.28 per LP unit compared to an adjusted net loss of $221 million, $1.82 per LP unit in the prior year period.
As you can see on slide 5, in Q4, 2015 the increase in our net loss from prior year was driven by the performance of the investment funds which were negatively impacted by the performance of some of our core holdings, particularly in the energy sector. Also we incurred significant non-cash impairments of assets primarily in the auto, energy and mining segments.
Adjusted EBITDA attributable to Icahn Enterprises for Q4 2015 was a loss of $240 million compared to a loss of $221 million in Q4 2014. For the full year, the increase in our 2015 net loss from prior year's results was primarily due to the net losses from the investment activities and non-cash asset impairments in our auto, energy and mining segments.
Adjusted EBITDA attributable to Icahn Enterprises for 2015 was $929 million compared to $1 billion in 2014. I will now provide more detail regarding the performance of our individual segments.
Our Investment segment had a loss attributable to Icahn Enterprises of $641 million for Q4 2015 and a loss of $760 million for the full year. The Investment funds that we managed had a loss of 15.6% in Q4 2015 compared to 11.3% in Q4 2014.
Long positions lost 7.7% for the current quarter while short positions and other expenses had a negative performance attribution of 7.9%. For the full year 2015, the investment segment lost 18% compared to a 7.4% loss for 2014.
Long positions had 18.1% loss the full year 2015 while short positions and other expenses had a positive performance attribution of 0.1%. Since inception in November 2004 through the end of 2015, the Investment fund's gross return is 171% or 9.3% annualized.
The Investment Funds continue to be significantly hedged. At the end of 2015, the Fund's were net short 25% compared to a net long 14% at the end of 2014.
IEP's investments in the Funds were $3.4 billion as of December 31, 2015. In Q1, 2016, we redeemed $1.05 billion from the Funds to fund the purchase of our Pep Boys acquisition.
And now to the Energy segment. For Q4 2015, the Energy segment reported revenues of $1 billion and consolidated adjusted EBITDA of $53 million compared to revenues of $1.9 billion and consolidated adjusted EBITDA of $133 million for the prior year period.
Fourth quarter operating results were negatively affected by the downtime of associated with major schedule turnaround at CVR Refining's Coffeyville refinery. For the full year 2015, the Energy segment reported revenues of $5.4 billion in consolidated adjusted EBITDA of $755 million, compared to revenues of $9.3 billion in consolidated adjusted EBITDA of $716 million for 2014.
CVR Refining reported Q4, 2015 adjusted EBITDA of $16 million compared to $105 million in the prior year period. The decline is primary due to Coffeyville refinery turnaround downtime I mentioned earlier.
As well as narrowing crack spreads. Refining margin adjusted for FIFO impact for crude oil throughput barrel, a non-GAAP financial measure was $8.96 in Q4, 2015 compared to $11.28 in the prior year period.
This decrease was primarily driven by lower regional crack spreads. CVR Partners reported Q4 2015 adjusted EBITDA of $29 million compared to $34 million in Q4 2014.
CVR Partners experienced record production level for both ammonia and UI in Q4 made possible by the maintenance and upgrades made during the Q3 turnaround for the fertilizer facility. For Q4, 2014 average realized gate prices for UAN and ammonia were $221 per ton and $479 per ton respectively compared to $247 per ton and $547 per ton respectively for the same period in 2014.
Due to the challenging price environment for nitrogen fertilize during Q4, 2015, we performed interim impairment testing for the goodwill associated with the fertilizer operations and determine that we needed to write-off the entire goodwill balance of $253 million. Also during Q4, 2015 CVR Partners continue to make progress and planning for the integration of Rentech Nitrogen East Dubuque facility.
Despite the challenging price environment, we continue to believe that the CVR Partners will benefit from the geographic and feedstock diversification that will come with the addition facility. Now turning to our automotive segment.
Our Automotive segment's Q4 2015 net sales were $2 billion, up 9% from the prior year period. Net sales for the full year 2015 were $7.8 billion, or 6% above 2014 results.
2015 results included the operations of IEH Auto, the auto parts distribution business acquired in Q2, 2015. Consolidated adjusted EBITDA for our automotive segment was $169 million in Q4 2015 compared to $119 million in Q4 2014.
For the full year 2015, consolidated adjusted EBITDA was $650 million compared to $630 million for 2014. Federal-Mogul on a standalone basis reported Q4 sales of $1.8 billion, which was in line with the comparable prior year period.
Net sales increases driven largely from the acquired Valvetrain business as well as strong US and Canada domestic after market sales were offset by the impact of currency exchange rate fluctuations. Operational EBITDA in Q4, 2015 was $164 million, up $45 million or 38% compared to Q4 of 2014.
Despite $12 million of negative EBITDA impact due to currency exchange rate fluctuations. IEH Auto on a standalone basis had Q4, 2015 net sales of approximately $175 million and adjusted EBITDA of $5 million.
We put in place in asset-backed revolver facility in Q4, 2015. We closed on an initial $125 million in Q4 and subsequently in Q1, 2016 expanded the facility to a total $210 million.
We've drawn down on $100 million from the facility and have distributed the proceeds back to IEP $75 million in Q4, 2015 and $25 million in Q1, 2016. During Q4, 2015 we performed our annual impairment testing of goodwill for the automotive segment and recorded $312 million goodwill impairment associated with the motor parts division.
Now turning to our Railcar segment. Our Railcar segment had strong railcar shipments in 2015 of approximately 8,900 railcars including approximately 5,060 railcars to leasing customers as compared to 8,000 railcars for the prior year of which approximately 5,200 railcars were the leasing customers.
As of December 31, 2015, ARI had a backlog of approximately 7,080 railcars including 1,450 railcars for lease customers. According to the Railway Supply Institute, the railcar manufacturing backlog decreased from a record level of nearly 143,000 railcars at the end of 2014, down to approximately 111 railcars at the end of 2015.
79% of the current industry backlog is comprised of tank cars and covered Hopper cars, the two primary railcar types manufactured and leased by our Railcar segment. The leasing business is within the railcar segment continued to perform well.
In 2015, we grew the combined lease car portfolios to roughly 45,000 cars from approximately 39,000 cars at the end of 2014. Lease rates in 2015 were consistent with the prior year.
Adjusted EBITDA attributable to IEP grew to $318 million in 2015 compared to $269 million in the prior year. The increase was primarily driven by the growth of the leasing businesses.
Our Railcar segment's liquidity position is strong with $623 million of cash at the end of 2015. Now turning to our Gaming segment.
Total gaming segment operating revenues were $811 million in 2015 compared to $759 million in 2014. The increase was primarily due to higher gaming volumes at Trop Atlantic City as well as the impact of Lumière acquisition in April of 2014.
Tropicana Atlantic casino revenues have been benefited from the closer of several competitors in 2014. The Atlantic City market experienced year-over-year declines in casino win of 6.5%.
Tropicana's slot hold percentage was 9.6% for 2015 compared to 9.5% for 2014 and their table game hold percentage was 16.8% for 2015 compared to 17.6% for 2014. Tropicana's consolidated adjusted EBITDA for 2015 was $142 million compared to $99 million in the prior year.
The increase in EBITDA was primarily due to higher revenues in Atlantic City and a full year of the Lumière acquisition. We continue to reinvest in our properties.
We've completed major renovations in our Atlantic City and Lake Tahoe locations with positive results and have recently announced a $50 million investment to bring landside gaming to our location in Evansville Indiana. Tropicana had a solid balance sheet with $217 million in cash and cash equivalent as of December 31, 2015.
Now turning to Food Packaging. Net sales for 2015 decreased by $21 million, or 6% compared to the prior year.
The decrease was primarily due to unfavorable foreign currency translations and country sales mix offset in part by increased sales volume. Pricing globally has been weak due to competitors with weaker functional currency and some access capacity.
Consolidated adjusted EBITDA of $59 million in 2015 was down $7 million from the prior year period. Gross margin as a percentage of net sales was 24% in 2015 compared to 25% in 2014.
Viskase's cash balance at the end of 2015 was $37 million. And now to the Metal segment.
Net sales for the year ended December 31, 2015 decreased by $350 million, or 49% compared to the prior year. Shipment volumes and selling prices were lower in 2015 and in 2014 for all product lines, with the exception of non ferrous brokerage volume.
The net sales decreased was primarily driven by lower ferrous and non-ferrous shipment volumes and selling prices. Adjusted EBITDA was a loss of $29 million in 2015 compared to a loss of $15 million in 2014.
Gross margin as a percentage of net sales was a loss of 12% for 2015 compared to a loss of 2% for the prior year. The market environment remains challenging with reduced demand from domestic steel mills, a weak export market, declining iron ore prices and competition for shredder feedstock.
The company continues to invest in its operations with the focus on strengthening our competitive position within our existing markets. And now to Real Estate.
2015 real estate revenues were $131 million which was $30 million above the comparable prior year period. The increase was primarily due to gains recorded from the sales of net leased properties and the Oak Harbor operations in 2015.
Offset partially by lower development sales, club revenues and net leased income. In 2015, we sold 14 net leased properties for net proceeds of $55 million generating a gain of $37 million.
Net leased income is down year-over-year due to the sales of properties in the real estate net leased portfolio. Revenues from our club operations were down from the prior year due to the sale of Oak Harbor operations in Q2, 2015.
Our net leased portfolio continues to drive earnings in the segment with its 15 properties generating cash flows. The real estate segment generated $45 million of adjusted EBITDA in 2015.
Now turning to Mining. As we discussed in our Q2, 2015 earnings call, IEP obtained control of Ferrous Resources Ltd during the second quarter of 2015 through a tender offer for outstanding shares.
Ferrous Resources owns right to certain iron ore mineral resources in Brazil and develop mining operations to produce and sell iron ore products to the global steel industry. Our mining segment has been concentrating sales in Brazil where the best margins are being captured.
During the second half of 2015 both domestic and global steel industries continue to show weakness as steel mill utilization rates have not recovered in the seaborne iron ore prices fell into under $45 per metric ton by year end. Our mining segment expects the foreseeable future to be challenging for the steel industry as it contends with slowing growth, over capacity and increased competition.
As a result of deteriorating market conditions, IEP recorded impairments to PP&E and fully impair the small amount of goodwill recorded with the purchase of the mining operations in Q2, 2015. Now turning to our Home Fashion, 2015 net sales increased by $17 million compared to the prior year period due to higher sales volumes.
We are continuing to concentrate on higher margin lines and believe we will have solid placements in 2016. Adjusted EBITDA was $6 million in 2015 compared to $5 million in a prior year.
Gross margin as a percentage of net sales was 16% for 2015 as compared to 14% in 2014. The improvement was primarily due to higher margins and more profitable programs and customers.
As of the end of 2015, WestPoint had $14 million of unrestricted cash. Now I will discuss our liquidity position.
We maintain ample liquidity at the holding company and at each of our operating subsidiaries to take advantage of attractive opportunities. We ended 2015 with cash, cash equivalents, liquid assets, our investment in the funds and availability on revolver of approximately $6.3 billion.
Our subsidiaries have approximately $1.9 billion in cash and $0.7 billion of undrawn credit facilities to enable them to take advantage of attractive opportunities. In summary, we continue to focus on building asset value and maintaining ample liquidity to enable us to capitalize on opportunities within and outside of our existing operating segments.
Thank you very much. Operator, can you please open the call for questions please.
Operator
[Operator Instructions] And our first question comes from the line of Dan Fannon with Jefferies. Your line is now open.
Dan Fannon
Thanks, good morning. I guess first just on liquidity, I guess maybe if you could kind of give us an update on discussions with the rating agencies and I believe you mentioned a little bit over $1 billion that came out of the fund to fund the Pep Boys.
Can we talk about just how subsequent to that you think about repayment of that or how we can see the fund potentially grow subsequent to that happening?
Keith Cozza
Sure. Hi, Dan.
It's Keith. As far as conversations with the rating agencies, we've those regularly obviously S&P issued the note putting us on negative watch and I think it pertains today, they recently issued in December if I am not mistaken new criteria covering holding companies that we've been classified as we are a bit of unique company as you know so it's hard to fit us into any particular criteria but nevertheless one of the items in the new criteria relates to total asset value coverage versus debt in that ratio.
And I think they put out in their note that it was around, hovering around the percentage that they were comfortable with. And since then the percentage has increased a little bit based on the publicly available trading prices of some of the subsidiaries and that's what prompted them to put it on credit watch.
So we've -- we continue to talk to them generally if they have any questions or give them how we are thinking about the world and availability and liquidity and things of that nature and they will make their decision in the next 90 days I guess one way or the other. As far as liquidity at Pep Boys and getting it back up.
I mean I would say this so we paid approximately $1 billion for Pep Boys and they have a great own real estate portfolio. They have rough numbers $500 million to $600 million of inventory, our other business Auto Plus has $300 million plus of inventory.
And we are working on integrating both businesses and harvesting additional synergies. So that obviously when you have all that as background information that capital structure would be inefficient to be all equity right.
So we are working with banks on all avenues and but whether it be the ABL market, the term-loan market or whether be something in the real estate market with sale lease back or something of that nature to come with what make -- what the optimal structure will be from a cost perspective. And the use of those -- so we will determine that probably in the next three to six months.
And the use of those proceeds, a good portion of them would be to return at back up to IEP to the holding company, and replenish the balance sheet there and we don't want to maintain too much at the balance sheet. So a good portion of that would -- inevitably go back into the fund.
So that's kind of how we are thinking about it.
Dan Fannon
Okay. That's helpful.
And then on the fund itself, looks like the short position, the hedges is kind of consistent with last quarter. I assume they are working more in your favor to start the year.
Could you give any color on kind of year-to-date either the fund?
Keith Cozza
Yes. I can't.
I think you asked that every quarter but we are just not in a position to comment on forward looking guidance regarding the fund. But as far as year end goes we've continue to maintain that hope that cautious view of the general macro environment which is illustrated by the debt exposures.
Dan Fannon
Got it .And then I guess within the Energy segment, just hedging within that, I assume there's not a lot of forward hedging going on, given some of the actual commodity prices. But things that potentially that were put on last year that potentially still provides some help in terms of the current decline in commodity prices?
Keith Cozza
Yes. They have a handful, it's not a large number but they have handful of hedges put on from whether 12 to 18 months ago that obviously are way in the money and it will provide some benefit.
You can see it on CBI's financials which probably recoded as unrealized gains on hedges something along those lines, but it's not material. As far a putting anything on at these levels, it is to us it doesn't make sense.
Operator
Thank you. [Operator Instructions] And our next question comes from the line of Andrew Berg with Post Advisory Group.
Your line is now open.
Andrew Berg
Hi, guys. Just a question going back to Pep Boys.
I think you said $500 million to $600 million inventory at PBY, I know $300 million at Auto Plus, and then you made a comment with respect to the real estate. Can you provide any ballpark estimates of what the owned value of the real estate is?
Keith Cozza
Yes. In Pep Boys if you go through their old public disclosures.
They had appraisal that put the owned real estate north of $700 million.
Andrew Berg
Okay. So in terms of capital and what you could potentially bring back up through the holdco, and either put down the hedge fund, you get the inventory then plus that, that real estate amount?
So it's a fair amount of borrowing capacity down there.
Keith Cozza
Yes. That's right.
Yes.
Andrew Berg
Okay. Just want to confirm that.
Thank you.
Operator
Thank you. And our next question comes from the line of Josh Lipchin with Eaton Vance.
Your line is now open.
Josh Lipchin
Hi, great. If you're successful with the Federal-Mogul tender, how would you fund that?
Keith Cozza
So it is not a tender first of all but if we ultimately can work out the acquisition to a mutually agreed deal with the special committee, it would be funded from cash on cash at holdco. The answer just depends on timing.
If you ask me - if we were closing it tomorrow we would probably take a couple hundred million bucks out of the investment segment to fund it. But I told you there as we stated regarding Pep Boys our intention over the next three to six months are to significantly optimize that capital structure which should lead to some cash excesses at holdco.
So it just really depends on timing but it's not a -- everything is relative but it's not a billion dollar acquisition at the $7 offer price, it's approximately $210 million.
Josh Lipchin
Okay. And are there any circumstances which you would consider issuing additional shares out of IEP?
Keith Cozza
I mean it just depends. The answer is it depends.
Historically, we have shown a willingness to do that if we think it's at a fair valuation. I am doing this from memory.
I believe we did a rights offering in 2012 and we obviously did three separate equity offerings in 2013 I believe. So it really just depends on our view of valuation and balancing between valuation and dilution and the opportunities set at hand.
Operator
Thank you. And I currently have no more questions in queue.
Keith Cozza
Okay. Thanks everybody.
We look forward to talking to you after the first quarter result. Thank you.
Operator
Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program.
You may all disconnect. Everyone have a great day.