UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



 

FORM 10-K



 

 
(Mark One)     
x   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2007

OR

 
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From  to 

Commission File Number 1-9516



 

ICAHN ENTERPRISES L.P.

(Exact Name of Registrant as Specified in Its Charter)

 
Delaware   13-3398766
(State or Other Jurisdiction of
Incorporation or Organization)
  (I.R.S. Employer
Identification No.)

767 Fifth Avenue, Suite 4700
New York, New York 10153
(212) 702-4300

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)



 

Securities registered pursuant to Section 12(b) of the Act:

 
Title of Each Class   Name of Each Exchange on Which Registered
Depositary Units Representing Limited Partner Interests
5% Cumulative Pay-in-Kind Redeemable Preferred Units
  New York Stock Exchange
Representing Limited Partner Interests   New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None



 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o NO x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o NO x

Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by a check mark whether the registrant is a large accelerated filer, an accelerated file, a non-accelerated file, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

 
Large Accelerated Filer o   Accelerated Filer x
Non-accelerated Filer o
(Do not check if a smaller reporting company)
  Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o NO x

The aggregate market value of depositary units held by nonaffiliates of the registrant as of June 30, 2007, the last business day of the registrant’s most recently completed second fiscal quarter, based upon the closing price of depositary units on the New York Stock Exchange Composite Tape on such date was $630,935,320.

The number of depositary and preferred units outstanding as of the close of business on March 13, 2008 was 70,489.510 and 11,907,073, respectively.

 

 


TABLE OF CONTENTS

DEFINED TERMS

As used in this Annual Report on Form 10-K, the following terms shall have the following corresponding meanings:

ACE” means ACE Gaming LLC.

ACEP” means American Casino and Entertainment Properties LLC.

AEP” means American Entertainment Properties Corp.

Atlantic Coast” means Atlantic Coast Entertainment Holdings, Inc.

Contribution Agreement” means the Contribution and Exchange Agreement dated as of August 8, 2007 among Icahn Enterprises, the Contributors and Carl C. Icahn.

Contributors” means collectively Icahn Management, CCI Offshore and CCI Onshore.

Feeder Funds” refer to certain funds formed as Cayman Islands exempted limited companies that invest in the Offshore Master Funds, together with other funds that also invest in the Offshore Master Funds, including, but not limited to, the Offshore Fund.

General Partners” means collectively the Onshore GP and the Offshore GP.

Icahn Enterprises” means Icahn Enterprises L.P., which was formerly known as American Real Estate Partners, L.P.

“Investment Funds” means collectively the Onshore Fund and the Offshore Master Funds.

Investment Management Entities” means either Icahn Management (for the period prior to the acquisition of the Partnership Interests on August 8, 2007) or New Icahn Management (for the period subsequent to the acquisition of the Partnership Interests on August 8, 2007 through December 31, 2007) and, in either case, the General Partners.

NEGI” means National Energy Group, Inc.

New Icahn Management” means Icahn Capital Management L.P.

Offshore Fund” means Icahn Fund Ltd.

Offshore Fund II” means Icahn Fund II Ltd.

Offshore Fund III” means Icahn Fund III Ltd.

Offshore Funds” means collectively the Offshore Fund, Offshore Fund II and Offshore Fund III.

New Icahn Management Partnership Interests” means 100% of Icahn Management’s general partnership interests in New Icahn Management contributed by Icahn Management to Icahn Enterprises.

Offshore GP” means Icahn Offshore LP.

Offshore Master Fund I” means Icahn Partners Master Fund LP.

Offshore Master Fund II” means Icahn Partners Master Fund II L.P.

Offshore Master Fund III” means Icahn Partners Master Fund III L.P.

Offshore Master Funds” means collectively Offshore Master Fund I, Offshore Master Fund II and Offshore Master Fund III.

Offshore Partnership Interests” means 100% of CCI Offshore’s general partnership interests in the Offshore GP contributed by CCI Offshore to Icahn Enterprises.

Onshore Fund” means Icahn Partners LP.

Onshore GP” means Icahn Onshore LP.

Onshore Partnership Interests” means 100% of CCI Onshore’s general partnership interests in the Onshore GP contributed by CCI Onshore to Icahn Enterprises.

Partnership Interests” means collectively the Onshore Partnership Interests, the Offshore Partnership Interests and the New Icahn Management Partnership Interests.

Private Funds” means collectively the Investment Funds and the Feeder Funds.

WPI” means WestPoint International Inc.


TABLE OF CONTENTS

TABLE OF CONTENTS

 
  Page
PART I
        

Item 1.

Business

    1  
Introduction     1  
Business Strategy     1  
Key Company Developments     1  
Key Financing Developments     3  
Investment Management     3  
All Other Operations     7  
Metals     7  
Real Estate     8  
Home Fashion     9  
Holding Company     12  

Item 1A.

Risk Factors

    13  

Item 1B.

Unresolved Staff Comments

    32  

Item 2.

Properties

    32  

Item 3.

Legal Proceedings

    33  

Item 4.

Submission of Matters to a Vote of Security Holders

    34  
PART II
        

Item 5.

Market for Registrant’s Common Equity, Related Security Holder Matters and
Issuer Purchases of Equity Securities

    35  

Item 6.

Selected Financial Data

    37  

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of
Operations

    39  

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

    70  

Item 8.

Financial Statements and Supplementary Data

    73  

Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure

    148  

Item 9A.

Controls and Procedures

    148  

Item 9B.

Other Information

    150  
PART III
        

Item 10.

Directors, Executive Officers and Corporate Governance

    151  

Item 11.

Executive Compensation

    155  

Item 12.

Security Ownership of Certain Beneficial Owners and Management and
Related Security Holder Matters

    167  

Item 13.

Certain Relationships and Related Transactions, and Director Independence

    168  

Item 14.

Principal Accounting Fees and Services

    172  
PART IV
        

Item 15.

Exhibits and Financial Statement Schedules

    173  

i


TABLE OF CONTENTS

PART I

Item 1. Business

Introduction

Icahn Enterprises L.P., or Icahn Enterprises, is a master limited partnership formed in Delaware on February 17, 1987. On September 17, 2007, we changed our name from American Real Estate Partners, L.P. to Icahn Enterprises L.P. We are a diversified holding company owning subsidiaries engaged in the following continuing operating businesses: Investment Management, Metals, Real Estate and Home Fashion. In addition, as of December 31, 2007, we operated our Gaming segment, which under generally accepted accounting principles is considered discontinued operations as it was in the process of being sold at such date.

We own a 99% limited partnership interest in Icahn Enterprises Holdings L.P., or Icahn Enterprises Holdings, formerly known as American Real Estate Holdings Limited Partnership. Substantially all of our assets and liabilities are owned through Icahn Enterprises Holdings and substantially all of our operations are conducted through Icahn Enterprises Holdings and its subsidiaries. Icahn Enterprises G.P. Inc., or Icahn Enterprises GP, which was formerly known as American Property Investors, Inc., owns a 1% general partnership interest in both us and Icahn Enterprises Holdings, representing an aggregate 1.99% general partnership interest in us and Icahn Enterprises Holdings. Icahn Enterprises GP is owned and controlled by Mr. Carl C. Icahn. As of December 31, 2007, affiliates of Mr. Icahn owned 64,288,061 of our depositary units and 10,304,013 of our preferred units, which represented approximately 91.2% and 86.5% of our outstanding depositary units and preferred units, respectively.

Business Strategy

Our business strategy includes:

Grow Our Investment Management Business.  We intend to continue to grow and expand our investment management business.

Operate and Enhance Value of Core Businesses.  We continually evaluate our operating businesses with a view to maximizing their value to us. In each of our businesses, we place management with the expertise to run their businesses and we give management specific operating objectives that they must achieve.

Invest Capital to Grow Existing Operations or Add New Operating Platforms.  We may look to make acquisitions of assets or operations that complement our existing operations or look to acquire new business segments. Our management team has extensive experience in identifying, acquiring and developing undervalued businesses or assets.

Enhance Returns on Assets.  We continually look for opportunities to enhance returns on both liquid and operating assets.

2007 Key Company Developments

Acquisition of Investment Management Business

On August 8, 2007, we acquired the Partnership Interests consisting of the general partnership interests in the General Partners and Icahn Capital Management L.P., or New Icahn Management. These entities provide investment advisory and certain administrative and back office services to the Private Funds but do not provide such services to any other entities, individuals or accounts. Interests in the Private Funds are offered only to certain sophisticated and accredited investors on the basis of exemptions from the registration requirements of the federal securities laws and are not publicly available. Through December 31, 2007, these entities received management fees and incentive allocations from the Private Funds. Management fees were generally 2.5% of the net asset value of the fee-paying capital of certain Private Funds. Incentive allocations, which are performance-based and primarily earned on an annual basis, are generally 25% of the net profits generated by the Private Funds.

As further described below, effective January 1, 2008, the management agreements with the Private Funds were terminated as was the obligation to pay management fees thereunder resulting from the termination of such agreements. Additionally, effective January 1, 2008, the General Partners undertook to provide the services previously provided by New Icahn Management in consideration of which the General Partners will receive special profits interest allocations from the Investment Funds (as defined below).

1


TABLE OF CONTENTS

The total initial consideration paid for the acquisition was $810 million of our depositary units based on the volume-weighted average price of our depositary units on the New York Stock Exchange, or the NYSE, for the 20-trading-day period ending on August 7, 2007 (the day before the closing). In addition, we have agreed to make certain earn-out payments to the Contributors over a five-year period payable in additional depositary units based on our after-tax earnings from the General Partners and New Icahn Management subsequent to the acquisition. There is a potential maximum aggregate earn-out (including any catch-up) of $1.121 billion which is subject to achieving total after-tax earnings during the five-year period of at least $3.906 billion.

We entered into a Contribution and Exchange Agreement, or the Contribution Agreement, with CCI Offshore Corp., or CCI Offshore, CCI Onshore Corp., or CCI Onshore, Icahn Management LP, or Icahn Management, and Carl C. Icahn. CCI Onshore, CCI Offshore and Icahn Management are collectively referred to herein as the Contributors. Pursuant to the Contribution Agreement, we acquired the general partnership interests in Icahn Onshore LP, or the Onshore GP, and Icahn Offshore LP, or the Offshore GP (collectively referred to herein as the General Partners), acting as general partners of Icahn Partners L.P., or the Onshore Fund, and the Offshore Master Funds managed and controlled by Mr. Icahn. As referred to herein, the Offshore Master Funds consist of (i) Icahn Partners Master Fund LP, or Offshore Master Fund I, (ii) Icahn Partners Master Fund II L.P., or Offshore Master Fund II, and (iii) Icahn Partners Master Fund III L.P., or Offshore Master Fund III. The Onshore Fund and the Offshore Master Funds are collectively referred to herein as the Investment Funds.

The General Partners also act as general partners of certain funds formed as Cayman Islands exempted limited partnerships that invest in the Offshore Master Funds. These funds, together with other funds that also invest in the Offshore Master Funds, are collectively referred to herein as the Feeder Funds. The Feeder Funds and the Investment Funds are collectively referred to herein as the Private Funds. As referred to and discussed below, the Feeder Funds include, but are not limited to, Icahn Fund Ltd., Icahn Fund II Ltd. and Icahn Fund III Ltd.

We also acquired the general partnership interest in New Icahn Management, a newly formed management company that provided certain management and administrative services to the Private Funds. As referred to herein, the term Investment Management Entities includes Icahn Management (for the period prior to the acquisition on August 8, 2007) or New Icahn Management (for the period subsequent to the acquisition on August 8, 2007 through December 31, 2007) and, in either case, the General Partners.

The acquisition of the Investment Management business was approved by a special committee of independent members of our board of directors. The special committee was advised by its own legal counsel and independent financial adviser with respect to the transaction. The special committee received an opinion from its financial adviser as to the fairness to us, from a financial point of view, of the consideration paid by us.

Acquisition of PSC Metals

On November 5, 2007, through a wholly owned subsidiary, we acquired all of the issued and outstanding capital stock of PSC Metals Inc., or PSC Metals, for $335 million in cash from Philip Services Corporation, or Philip. Mr. Icahn indirectly owns a 95.6% interest and we indirectly own the remaining 4.4% interest in Philip. PSC Metals is principally engaged in the business of collecting, processing and selling ferrous and non-ferrous metals.

The transaction was approved by a special committee of independent members of our board of directors. The special committee was advised by its own legal counsel and independent financial adviser with respect to the transaction. The special committee received an opinion from its financial adviser as to the fairness to us, from a financial point of view, of the consideration paid by us.

Sale of Nevada Gaming Operations

On April 22, 2007, American Entertainment Properties Corp., or AEP, our wholly owned indirect subsidiary and the direct parent of ACEP, entered into a Membership Interest Purchase Agreement with W2007/ACEP Holdings, LLC, an affiliate of Whitehall Street Real Estate Funds, a series of real estate investment funds affiliated with Goldman, Sachs & Co., or Whitehall Street Real Estate Funds, to sell all of the issued and outstanding membership interests in ACEP.

2


TABLE OF CONTENTS

On February 20, 2008, we completed the sale of ACEP, resulting in a gain of approximately $700 million, before taxes, subject to resolution of post-closing adjustments.

Key Financing Developments

Senior Notes Offering

In January 2007, we and Icahn Enterprises Finance Corp., or Icahn Enterprises Finance, formerly known as American Real Estate Finance Corp., issued $500.0 million of 7 1/8% senior notes due 2013, or the Additional Notes. The Additional Notes were issued pursuant to an indenture dated February 7, 2005, among us, as issuer, Icahn Enterprises Finance, as co-issuer, Icahn Enterprises Holdings, as Guarantor, and Wilmington Trust Company, as trustee. The Additional Notes were issued by us at 99.5% of principal amount or at a 0.5 % discount, and the amount paid to us included accrued interest from August 15, 2006 through the issue date. The Additional Notes have a fixed annual interest rate of 7 1/8% per annum, which is payable every six months on February 15 and August 15 that commenced on February 15, 2007. The notes will mature on February 15, 2013.

Senior Unsecured Variable Rate Convertible Notes Due 2013

In April 2007, we issued $600.0 million of variable rate senior convertible notes due 2013, or the variable rate notes. The variable rate notes were sold in a private placement and issued pursuant to an indenture dated as of April 5, 2007, by and among us, as issuer, Icahn Enterprises Finance, as co-issuer, and Wilmington Trust Company, as trustee. The variable rate notes bear interest at a rate of three-month LIBOR minus 125 basis points; however, the all-in-rate can be no less than 4.0% nor higher than 5.5%. The variable rate notes are convertible into depositary units of Icahn Enterprises at a conversion price of $132.595 per share per $1,000 principal amount of variable rate notes, subject to adjustments in certain circumstances. As of December 31, 2007, the interest rate was 4.0%. The interest on the variable rate notes is payable quarterly on January 15, April 15, July 15 and Oct 15 that commenced on January 15, 2007. The variable rate notes mature on January 15, 2013 assuming they have not been converted to depositary units before their maturity date.

In the event that we declare a cash dividend or similar cash distribution in any calendar quarter with respect to our depositary units in an amount in excess of $0.10 per depositary unit (as adjusted for splits, reverse splits and/or stock dividends), the indenture requires that we simultaneously make such distribution to holders of the variable rate notes in accordance with a formula set forth in the indenture.

Investment Management

Background

As noted above, on August 8, 2007, we acquired the Investment Management business (i.e., Partnership Interests consisting of the general partnership interests in the General Partners and New Icahn Management). The Investment Management Entities provide investment advisory and certain administrative and back office services to the Private Funds.

The Private Funds began operations in November 2004 with the formation of the Onshore Fund, Offshore Master Fund I, a Cayman Island exempted limited partnership, and Icahn Fund Ltd., a Cayman Islands exempted limited liability company. Icahn Sterling Fund Ltd. was established in early 2006 and on October 1, 2006 its assets were contributed to Icahn Fund Ltd. In fiscal 2007 the following entities commenced operations: (i) Offshore Master Fund II, a Cayman Islands exempted limited partnership; (ii) Icahn Fund II Ltd., a Cayman Islands exempted limited liability company, that invests substantially all of its assets in Offshore Master Fund II; (iii) Offshore Master Fund III, a Cayman Islands exempted limited partnership; and (iv) Icahn Fund III Ltd., a Cayman Island exempted limited liability company, that invests substantially all of its assets in Offshore Master Fund III.

Pursuant to the Contribution Agreement, CCI Offshore contributed to us 100% of its general partnership interests in the Offshore GP, referred to herein as the Offshore Partnership Interests. In addition, CCI Onshore contributed to us 100% of its general partnership interests in Onshore GP, referred to herein as the Onshore Partnership Interests.

3


TABLE OF CONTENTS

Immediately prior to the execution and delivery of the Contribution Agreement, Icahn Management and New Icahn Management entered into an agreement pursuant to which Icahn Management contributed substantially all of its assets and liabilities, other than certain rights in respect of deferred management fees, to New Icahn Management in exchange for 100% of the general partnership interests in New Icahn Management. Such contribution included the assignment of certain management agreements with the Private Funds. Pursuant to the Contribution Agreement, Icahn Management contributed to us 100% of its general partnership interests in New Icahn Management, referred to herein as the New Icahn Management Partnership Interests. The Onshore Partnership Interests, the Offshore Partnership Interests and the New Icahn Management Partnership Interests are collectively referred to herein as the Partnership Interests.

In connection with the acquisition, Icahn Enterprises and New Icahn Management entered into an employment agreement with Mr. Icahn pursuant to which, over a five-year term, Mr. Icahn will serve as Chairman and Chief Executive Officer of New Icahn Management, in addition to his current role as Chairman of Icahn Enterprises. Mr. Icahn also serves as the Chief Executive Officer of the General Partners. New Icahn Management also assumed employment agreements with Mr. Vincent Intrieri, a member of Icahn Enterprises GP’s, board of directors, and Mr. Keith A. Meister, Vice Chairman of Icahn Enterprises GP’s board of directors and Icahn Enterprises’ Principal Executive Officer. See Part III, Item 11, “Executive Compensation — Employment Agreements,” for further discussion of the employment agreements.

The diagram below depicts our Investment Management operations’ organizational structure immediately following our acquisition(1) :

[GRAPHIC MISSING]

Note: Fund entities depicted as circles in the above diagram are collectively referred to as the “Investment Funds.”

(1) This diagram depicts consolidated entities only and does not include certain unconsolidated Feeder Funds.
(2) Effective December 10, 2007, Icahn Partners Holdings LP changed its name to Icahn Capital LP.

4


TABLE OF CONTENTS

(3) As described below, effective January 1, 2008, the management agreements between New Icahn Management and the Private Funds were terminated pursuant to which New Icahn Management provided administrative and back office services to the Private Funds.

Strategy

The investment strategy of the General Partners of the Private Funds is set and led by Mr. Icahn. The Private Funds seek to acquire securities in companies that trade at a discount to inherent value as determined by various metrics including replacement cost, break-up value, cash flow and earnings power and liquidation value.

The General Partners utilize a process-oriented, research-intensive, value-based investment approach. This approach generally involves three critical steps: (i) fundamental credit, valuation and capital structure analysis; (ii) intense legal and tax analysis of fulcrum issues such as litigation and regulation that often affect valuation; and (iii) combined business valuation analysis and legal and tax review to establish a strategy for gaining an attractive risk-adjusted investment position within a specific credit, industry or litigation segment. This approach focuses on exploiting market dislocations or misjudgments that may result from market euphoria, litigation, complex contingent liabilities, corporate malfeasance and weak corporate governance, general economic conditions or market cycles and complex and inappropriate capital structures.

The Private Funds are often activist investors ready to take the steps necessary to unlock value, including tender offers, proxy contests and demands for management accountability. The Private Funds may employ a number of strategies and are permitted to invest across a variety of industries and types of securities, including long and short equities, long and short bonds, bank debt and other corporate obligations, options, swaps and other derivative instruments thereof, risk arbitrage and capital structure arbitrage and other special situations. The Private Funds invest a material portion of their capital in publicly traded equity and debt securities of companies that the General Partners believe to be undervalued by the marketplace. The Private Funds sometimes take significant positions in the companies in which they invest.

Income

In general, the results of our Investment Management segment were primarily driven by assets under management, or AUM, and the performance of the Private Funds. Through December 31, 2007, revenues from this segment were principally derived from three sources: (1) management fees; (2) incentive allocations; (3) and gains and losses from our principal investments in the Private Funds.

Prior to January 1, 2008, the management agreements provided that management fees were generally 2.5% per annum of the net asset value of fee-paying capital in the Private Funds before the incentive allocation. These fees were paid by each Feeder Fund and the Onshore Fund to New Icahn Management at the beginning of each quarter in an amount equal to 0.625% of the balance of each capital account of a fee-paying limited partner.

Incentive allocations are generally 25% of the net profits (both realized and unrealized) generated by the Investment Funds and are subject to a “high water mark” (whereby the General Partners do not earn incentive allocations during a particular year even though the fund had a positive return in such year until losses in prior periods are recovered). These allocations are calculated and distributed to the Investment Management Entities annually other than incentive allocations earned as a result of investor redemption events during interim periods.

The Investment Management Entities and their affiliates may also earn income through their principal investments in the Investment Funds. Icahn Enterprises Holdings also may earn income through its investment in the Investment Funds. In both cases the income consists of realized and unrealized gains and losses on investment activities along with interest, dividends and other income.

Effective January 1, 2008, the management agreements between New Icahn Management and the Private Funds were terminated resulting in the termination of the Feeder Funds’ and the Onshore Fund’s obligations to pay management fees thereunder. In addition, the limited partnership agreements of the Investment Funds (the “Investment Fund LPAs”) were amended to provide that, as of January 1, 2008, the General Partners will provide or cause their affiliates to provide to the Private Funds the administrative and back office services that

5


TABLE OF CONTENTS

were formerly provided by New Icahn Management (the “Services”) and, in consideration of providing the Services, the General Partners will receive special profits interest allocations from the Investment Funds.

As noted above, prior to January 1, 2008, the management agreements provided for the management fees to be paid by each of the Feeder Funds and the Onshore Fund to New Icahn Management at the beginning of each quarter generally in an amount equal to 0.625% of the net asset value of each Investor’s (defined below) investment in the Feeder Fund or Onshore Fund, as applicable.

The Investment Fund LPAs provide, effective January 1, 2008, that the applicable General Partner will receive a special profits interest allocation at the end of each calendar year from each capital account maintained at the Investment Fund that is attributable to, in the case of the Onshore Fund, each limited partner in the Onshore Fund and, in the case of the Feeder Funds, each investor in the Feeder Funds (excluding certain investors that are affiliates of Mr. Icahn) (each, an “Investor”). This allocation is generally equal to 0.625% of the balance in each fee paying capital account as of the beginning of each quarter (for each Investor, the “Target Special Profits Interest Amount”) except that amounts are allocated to the General Partners in respect of special profits interest allocations only to the extent net increases (i.e., net profits) are allocated to an Investor for the fiscal year. Accordingly, any special profits interest allocations allocated to the General Partners in any year cannot exceed the net profits allocated to such Investor. In the event that sufficient net profits are not generated by an Investment Fund with respect to a capital account to meet the full Target Special Profits Interest Amount for an Investor for a calendar year, a special profits interest allocation will be made to the extent of such net profits, if any, and the shortfall will be carried forward (without interest or a preferred return) and added to the Target Special Profits Interest Amount determined for such Investor for the next calendar year. Appropriate adjustments will be made to the calculation of the special profits interest allocation for new subscriptions and withdrawals by Investors. In the event that an Investor withdraws or redeems in full from a Feeder Fund or the Onshore Fund before the full targeted Target Special Profits Interest Amount determined for such Investor has been allocated to the General Partner in the form of a special profits interest allocation, the Target Special Profits Interest Amount that has not yet been allocated to the General Partner will be eliminated and the General Partner will never receive it.

The Investment Management Entities waived the management fees and incentive allocations for Icahn Enterprises’ investments in the Private Funds and Mr. Icahn’s direct and indirect holdings and may, in their sole discretion, modify or may elect to reduce or waive such fees with respect to any shareholder that is an affiliate, employee or relative of Mr. Icahn or his affiliates, or for any other investor.

The Investment Management Entities will waive the special profits interest allocation and incentive allocations for Mr. Icahn’s direct and indirect holdings and may, in their sole discretion, modify or may elect to reduce or waive such fees with respect to any shareholder that is an affiliate, employee or relative of Mr. Icahn or his affiliates, or for any other investor.

Lock-up

Investors in the Private Funds are typically initially subject to a one-year absolute lock-up and may redeem in the second and third years with an early redemption fee of 8% and 4%, respectively, paid to the applicable Private Fund. After the lock-up period expires, investors may redeem on June 30th and December 31st provided they have given 90 days prior written notice. Certain investors with reduced fees are subject to a three-year absolute lock-up. Redemptions are subject to certain additional restrictions.

Affiliate Investments

We, along with the Private Funds, entered into a covered affiliate agreement, simultaneously with the closing of the transactions contemplated by the Contribution Agreement, pursuant to which we (and certain of our subsidiaries) agreed, in general, to be bound by certain restrictions on our investments in any assets that the General Partners deem suitable for the Private Funds, other than government and agency bonds, cash equivalents and investments in non-public companies. We and our subsidiaries will not be restricted from making investments in the securities of certain companies in which Mr. Icahn or companies he controlled had an interest as of the date of the initial launch of the Private Funds, and companies in which we had an interest on August 8, 2007, the date of acquisition. We and our subsidiaries, either alone or acting together with a group, will not be restricted from (i) acquiring all or any portion of the assets of any public company in

6


TABLE OF CONTENTS

connection with a negotiated transaction or series of related negotiated transactions or (ii) engaging in a negotiated merger transaction with a public company and, pursuant thereto, conducting and completing a tender offer for securities of the company. In addition, Mr. Icahn and his affiliates (other than Icahn Enterprises, Icahn Enterprises Holdings and their subsidiaries) continue to have the right to co-invest with the Private Funds. We have no interest in, nor do we generate any income from, any such co-investments, which have been and may continue to be substantial. The terms of the covered affiliate agreement may be amended, modified or waived with our consent and the consent of each of the Private Funds, provided, however, that a majority of the members of an investor committee maintained for certain of the Private Funds may (with our consent) amend, modify or waive any provision of the covered affiliate agreement with respect to any particular transaction or series of related transactions.

Employees

Our Investment Management business currently employs an experienced team of 28 professionals, including an investment, legal and operations group, which consists of the same individuals supporting the Private Funds’ operations prior to the acquisition. In many cases, team members have worked together successfully and have provided business, investing and legal acumen for a number of years with respect to the Private Funds’ operations.

All Other Operations

Metals

Background

PSC Metals is principally engaged in the business of collecting, processing and selling ferrous and non-ferrous metals.

PSC Metals collects industrial and obsolete scrap metal, processes it into reusable forms, and supplies the recycled metals to its customers, including electric-arc furnace mills, integrated steel mills, foundries, secondary smelters and metals brokers. These services are provided through PSC Metals’ recycling facilities located in eight states. PSC Metals’ ferrous products include shredded, sheared and bundled scrap metal and other purchased scrap metal such as turnings (steel machining fragments), cast furnace iron and broken furnace iron. PSC Metals also processes non-ferrous metals including aluminum, copper, brass, stainless steel and nickel-bearing metals. Non-ferrous products are a significant raw material in the production of aluminum and copper alloys used in manufacturing. PSC Metals also operates a secondary products business that includes the supply of secondary plate and structural grade pipe that is sold into niche markets for counterweights, piling and foundations, construction materials and infrastructure end-markets.

The Ferrous Scrap Metal Business

PSC Metals purchases ferrous scrap metal from various sources, including recycled aluminum cans, traditional “junk yards” for cars and appliances, industrial manufacturers who recycle the offal from their metal-forming processes and steel mills who look to PSC Metals to remarket secondary product they would otherwise scrap. PSC Metals sets the price paid to scrap suppliers based on market factors of the underlying metal contents of the scrap metal. Changes in scrap prices can cause collection rates of scrap to increase (when prices are higher) or decrease (when prices are lower). These variations have a significant affect on sales volumes through PSC Metals’ scrap yards. The scrap is then processed to separate between ferrous and non-ferrous metals. PSC Metals then sells processed ferrous scrap to end-users such as steel producing mini-mills and integrated steel makers and foundries, as well as brokers who aggregate materials for other large users.

Demand for processed ferrous scrap metal is highly dependent on the overall strength of the domestic steel industry, particularly producers utilizing electric-arc furnaces technology. Most of PSC Metals’ customers purchase processed ferrous scrap through negotiated spot sales contracts, which establishes the quantity purchased for the current month. The price PSC Metals charges for ferrous scrap depends upon market demand relative to the supply of scrap and scrap substitutes and transportation costs, as well as the quality and grade of scrap. In many cases, PSC Metals’ selling price also includes the cost of transportation to the end-user.

7


TABLE OF CONTENTS

The Non-ferrous Scrap Metal Business

The primary non-ferrous commodities that PSC Metals recycles are aluminum, copper, brass, stainless steel and other nickel-bearing metals. The geographic markets for non-ferrous scrap tend to be larger than those for ferrous scrap due to the higher selling prices of non-ferrous metals relative to their weight, which justify the cost of shipping over greater distances. Non-ferrous scrap is typically sold on a spot basis, either directly or through brokers, to intermediate or end-users, which include smelters, foundries and aluminum sheet and ingot manufacturers. Prices for non-ferrous scrap are driven by demand for finished non-ferrous metal goods and by the general level of economic activity, with prices generally related to the price of the primary metal on the London Metals Exchange or the New York Commodity Exchange.

Locations

PSC Metals is headquartered in Mayfield Heights, Ohio, and operates 27 yards, three mill service operations and one pipe storage center. PSC Metals’ facilities are strategically located in high volume scrap markets throughout the upper Midwestern and Southeastern United States, placing PSC Metals in proximity to both suppliers and consumers of scrap metals.

Strategy

PSC Metals’ business strategy consists of growing its core scrap yard business through expansion, ensuring a consistent supply to its customers through vertical integration by working closely with supply sources and owning distribution and transportation systems, and investing in PSC Metals’ infrastructure and operating equipment.

Sources of Raw Materials/Competition

The scrap metal recycling industry is highly competitive, cyclical in nature and commodity-based. Operating results tend to reflect and be amplified by changes in general economic conditions, which in turn drive domestic manufacturing and the consumption of scrap in the production of steel and foundry products. The demand for product and production activity of PSC Metals’ scrap consumers drives market pricing levels in PSC Metals’ ferrous and non-ferrous scrap sales. Demand is driven by mill production schedules related to regional manufacturing requirements and service center stocking levels. Due to its low price-to-weight ratio, raw ferrous scrap is generally purchased locally. Ferrous scrap prices are local and regional in nature. Where there are overlapping regional markets, however, the prices do not tend to differ significantly between the regions due to the ability of companies to ship scrap metal from one region to another. The most significant limitation on the size of the geographic market for the procurement of ferrous scrap is the transportation cost. This leads to significant fluctuations in demand and pricing for PSC Metals’ products. The secondary products business is less cyclical but is affected by the rate of secondary product generated by steel mills generating these products and the market demands in plate and pipe markets.

PSC Metals procures scrap inventory from numerous sources. These suppliers generally are not bound by long-term contracts and have no contractual obligation to sell scrap metals to us. In periods of low industry prices, suppliers may elect to hold scrap to wait for higher prices or intentionally slow their scrap collection activities. These activities will impact the volume and average pricing of scrap in PSC Metals’ scrap yard operations.

Employees

As of December 31, 2007, PSC Metals employed 1,085 persons, including 256 employees with collective bargaining agreements.

Real Estate

Background

Our Real Estate operations consist of rental real estate, property development and associated resort activities. The three related operating lines of our Real Estate operations are all individually immaterial and have been aggregated for purposes of presenting their financial results.

Our rental real estate operations consist primarily of retail, office and industrial properties leased to single corporate tenants. Historically, substantially all of our real estate assets leased to others have been net-leased

8


TABLE OF CONTENTS

under long-term leases. With certain exceptions, these tenants are required to pay all expenses relating to the leased property and, therefore, we are typically not responsible for payment of expenses, including maintenance, utilities, taxes, insurance or any capital items associated with such properties.

Our property development and resort operations are run primarily through Bayswater, a real estate investment, management and development subsidiary that focuses primarily on the construction and sale of single-family houses, multi-family homes, lots in subdivisions and planned communities and raw land for residential development. Our New Seabury development property in Cape Cod, Massachusetts and our Grand Harbor and Oak Harbor development property in Vero Beach, Florida each include land for future residential development of approximately 400 and 900 units of residential housing, respectively. Both developments operate golf and resort activities as well. We are also completing residential communities in Naples, Florida and Westchester County, New York. Our long-term investment horizon and operational expertise allow us to acquire properties with limited current income and complex entitlement and development issues.

Seasonality

Resort operations are highly seasonal with peak activity in Cape Cod from June to September and in Florida from November to February. Sales activity for our real estate developments in Cape Cod and New York typically peak in late winter and early spring, while in Florida our peak selling season is during the winter months.

Employees

Our real estate-related activities, including rental real estate, real estate development and hotel and resort operations, have approximately 400 full and part-time employees, which fluctuates due to the seasonal nature of certain of our businesses. No employees are covered by collective bargaining agreements.

Home Fashion

Background

We conduct our Home Fashion operations through WestPoint International Inc., or WPI, a manufacturer and distributor of home fashion consumer products based in New York, NY. On August 8, 2005, WPI and its subsidiaries completed the purchase of substantially all the assets of WestPoint Stevens Inc. and certain of its subsidiaries pursuant to an asset purchase agreement, or the Purchase Agreement, approved by The United States Bankruptcy Court for the Southern District of New York in connection with Chapter 11 proceedings of WestPoint Stevens. WestPoint Stevens was a premier manufacturer and marketer of bed and bath home fashions supplying leading U.S. retailers and institutional customers. Before the asset purchase transaction, WPI did not have any operations.

On August 8, 2005, we acquired 13.2 million, or 67.7%, of the 19.5 million outstanding common shares of WPI. In consideration for the shares, we paid $219.9 million in cash and received the balance in respect of a portion of the debt of WestPoint Stevens. Pursuant to the Purchase Agreement, rights to subscribe for an additional 10.5 million shares of common stock at a price of $8.772 per share, or the rights offering, were allocated among former creditors of WestPoint Stevens. Under the Purchase Agreement and the Bankruptcy Court order approving the sale, or the Sale Order, we would receive rights to subscribe for at least 2.5 million of such shares and we agreed to purchase up to an additional 8.0 million shares of common stock to the extent that any rights were not exercised by other holders of subscription rights. Accordingly, upon completion of the rights offering and depending upon the extent to which the other holders exercise certain subscription rights, we would beneficially own between 15.7 million and 23.7 million shares of WPI common stock representing between 52.3% and 79.0% of the 30.0 million shares that would then be outstanding.

On December 20, 2006, we acquired: (a) 1,000,000 shares of Series A-1 Preferred Stock of WPI for a purchase price of $100 per share, for an aggregate purchase price of $100.0 million, and (b) 1,000,000 shares of Series A-2 Preferred Stock of WPI for a purchase price of $100 per share, for an aggregate purchase price of $100.0 million. Each of the Series A-1 and Series A-2 Preferred Stock has a 4.50% annual dividend, which is paid quarterly. For the first two years after issuance, the dividends are to be paid in the form of additional preferred stock. Thereafter, the dividends are to be paid in cash or in additional preferred stock at the option of WPI. Each of the Series A-1 and Series A-2 Preferred Stock is convertible into common shares of WPI at a

9


TABLE OF CONTENTS

rate of $10.50 per share, subject to certain anti-dilution provisions, provided, however, that under certain circumstances, $92.1 million of the Series A-2 Preferred Stock may be converted at a rate of $8.772 per share.

WPI has its own board of directors and audit committee. We are the only holders of WPI’s preferred stock, and, in accordance with its terms, we have the right to elect six of the ten directors of the WPI board of directors. None of the independent directors of the board of directors of Icahn Enterprises GP serves on the WPI board of directors.

In 2005, certain of the first lien lenders of WestPoint Stevens appealed portions of the Bankruptcy Court’s Sale Order. In connection with that appeal, the subscription rights distributed to the second lien lenders at closing were placed in escrow. In 2006, these first lien lenders also filed a complaint in the Delaware Chancery Court together with the trustee for the first lien lenders, Beal Bank, S.S.O., seeking, among other things, an order to unwind the issuance of the preferred stock, or alternatively directing that such preferred stock be held in trust. We are vigorously contesting both proceedings. Depending on the implementation of any changes to the Sale Order or any action taken by the Delaware Chancery Court, ownership in WPI may be distributed in a different manner than described above, we may own less than a majority of WPI’s shares of common stock and our ownership of the preferred stock may change. Our loss of control of WPI could adversely affect WPI’s business and the value of our investment.

We consolidated WPI as of December 31, 2007, 2006 and 2005 and for the period from the date of acquisition through December 31, 2007. If we were to own less than 50% of the outstanding common stock, we would have to evaluate whether we should continue to consolidate WPI and our financial statements could be materially different than as presented as of December 31, 2007, 2006 and 2005 and for the periods then ended. See Item 1A, “Risk Factors” and Item 3, “Legal Proceedings.”

Business

WPI’s business consists of manufacturing, sourcing, distributing, marketing and selling home fashion consumer products. WPI differentiates itself in the $14.0 billion home fashion textile industry based on its nearly 200-year reputation for providing its customers with (1) a full assortment of home fashion products, (2) good customer service, (3) a superior value proposition and (4) branded and private label products with strong consumer recognition. WPI markets a broad range of manufactured and sourced bed, bath and basic bedding products, including sheets, pillowcases, bedspreads, quilts, comforters and duvet covers, bath towels, bath rugs, beach towels, bath accessories, bed skirts, bed pillows, flocked blankets, woven blankets and throws, and heated blankets and mattress pads. WPI continues to serve substantially all the former customers of WestPoint Stevens using assets acquired from WestPoint Stevens and through sourcing activities.

WPI manufactures and sources its products in a wide assortment of colors and patterns from a variety of fabrics, including chambray, twill, sateen, flannel and linen, and from a variety of fibers, including cotton, synthetics and cotton blends. WPI seeks to position its business as a single-source supplier to retailers of bed and bath products, offering a broad assortment of products across multiple price points. WPI believes that product and price point breadth allows it to provide a comprehensive product offering for each major distribution channel.

WPI has transitioned the majority of its manufacturing to low-cost countries and continues to maintain its corporate offices as well as distribution in the United States.

Strategy

WPI’s strategy is to lower its cost of goods sold and improve its long-term profitability by lessening its dependence upon higher-cost domestic sources of manufactured products through establishing offshore manufacturing and sourcing arrangements. This may entail further U.S. plant closings in addition to those already closed. WPI’s offshore sourcing arrangements employ a combination of owned and operated facilities, joint ventures and third-party supplier arrangements. In addition, WPI is lowering its general and administrative expense by consolidating its locations and its outsourcing initiative, reducing headcount and applying more stringent oversight of expense areas where potential savings may be realized. WPI is also seeking to increase its revenues by selling more licensed, differentiated and proprietary products to WPI’s existing customers. WPI believes that it can improve margins over time through upgraded marketing, selective product development, enhanced design and improved customer service capabilities.

10


TABLE OF CONTENTS

Beginning in late 2005, WPI began to identify potentially viable manufacturing and third-party sourcing opportunities outside of the United States. In 2006, WPI entered into an equity joint venture in Pakistan with Indus Dyeing & Manufacturing Ltd. This joint venture, Indus Home Ltd., began production in October 2006 of bath products and is in the process of expanding its existing capacity. In December 2006, WPI acquired bed products manufacturing facilities from Manama Textile Mills WLL in Bahrain, creating WestPoint Home (Bahrain) WLL. These initiatives have permitted WPI to replace certain of its higher cost U.S.-based manufacturing capacity.

Brands, Trademarks and Licenses

WPI markets its products under trademarks, brand names and private labels. WPI uses trademarks, brand names and private labels as merchandising tools to assist its customers in coordinating their product offerings and differentiating their products from those of their competitors.

WPI manufactures and sells its own branded line of home fashion products consisting of merchandise bearing trademarks that include Atelier Martex®, Grand Patrician®, Martex®, Patrician®, Lady Pepperell®, Luxor®, Seduction®, Utica®, Vellux®, Baby Martex® and Chatham®.

In addition, some of WPI’s home fashion products are manufactured and sold pursuant to licensing agreements under designer and brand names that include, among others, Lauren/Ralph Lauren, Charisma, Rachael Ray, Pink Panther, Little MissMatched, Scooby Doo and Harley Davidson.

Private label brands, also known as “store brands,” are controlled by individual retail customers through use of their own brands or through an exclusive license or other arrangement with brand owners. Private label brands provide retail customers with a way to promote consumer loyalty. As the brand is owned and controlled by WPI’s retail customers and not by WPI. As WPI’s customer base has experienced consolidation, there has been an increasing focus on proprietary branding strategies.

The percentage of WPI’s net sales derived from the sale of private label branded and unbranded products for fiscal 2007 was approximately 43%. For fiscal 2007, the percentage of WPI net sales derived from sales under brands it owns and controls was 33%, and the percentage of WPI net sales derived from sales under brands owned by third parties pursuant to licensing arrangements with WPI was 24%.

Marketing

WPI markets its products through leading department stores, mass merchants, specialty stores and institutional channels. Through marketing efforts directed towards retailers and institutional clients, WPI seeks to create products and services in direct response to recognized consumer trends by focusing on elements such as product design, product innovation, packaging, store displays and other marketing support.

WPI works closely with its major customers to assist them in merchandising and promoting WPI’s products to consumers. In addition, WPI periodically meets with its customers in an effort to maximize product exposure and sales and to jointly develop merchandise assortments and plan promotional events specifically tailored to the customer. WPI provides merchandising assistance with store layouts, fixture designs, advertising and point-of-sale displays. A national consumer and trade advertising campaign and comprehensive internet website have served to enhance brand recognition. WPI also provides its customers with suggested customized advertising materials designed to increase product sales. A heightened focus on consumer research provides needed products on a continual basis. WPI distributes finished products directly to retailers. The majority of WPI’s remaining sales of home fashion products are through the institutional channel, which includes hospitality and healthcare establishments, as well as laundry supply businesses.

Until October 2007, WPI also sold its and other manufacturer’s products through 30 retail stores. On October 18, 2007, WPI entered into an agreement to sell the inventory at all of its 30 retail outlet stores and as of December 31, 2007 had terminated the majority of the leases for the 28 leased locations. The operation of the retail stores business is included in the results from discontinued operations.

Distribution

In order to gain operating efficiencies, increase supply chain visibility and to achieve substantial cost savings, WPI engaged a third-party provider of logistics services to consolidate WPI’s domestic towel & sheet warehousing and distribution operations.

11


TABLE OF CONTENTS

Selling, General, and Administrative

WPI continues to focus on reducing its general and administrative costs by shifting its back office and manufacturing operations to offshore locations as well as outsourcing many of these job functions to third-party outsourcing providers.

Competition

The home fashion industry is highly competitive in terms of price, quality and service. Future success will, to a large extent, depend on WPI’s ability to be a competitive low-cost producer. WPI competes with both foreign and domestic companies on, among other factors, the basis of price, quality and customer service. In the sheet and towel markets, WPI competes with many suppliers. WPI may also face competition in the future from companies that are currently third-party suppliers to WPI. Future success depends on the ability to remain competitive in the areas of marketing, product development, price, quality, brand names, manufacturing capabilities, distribution and order processing. Additionally, the easing of trade restrictions over time has led to growing competition from low priced products imported from Asia and Latin America.

Seasonality and Cyclicality

The home fashion industry is somewhat seasonal, with a peak sales season in the fall with respect to WPI’s blanket products. In response to this seasonality, WPI increases its blanket inventory levels during the first six months of the year to meet customer demands for the peak fall season. In addition, the home fashion industry is cyclical and performance may be negatively affected by downturns in consumer spending.

Employees

WPI and its subsidiaries employed approximately 4,500 employees as of December 31, 2007. Currently, approximately 1% of WPI’s employees are unionized.

Holding Company

We seek to invest our available cash and cash equivalents in debt and equity securities with a view to enhancing returns as we continue to assess further acquisitions of operating businesses. During fiscal 2007, we had a net gain on investment activity of approximately $82.6 million, comprised of approximately $28.6 million in realized gains and $54.0 million in unrealized gains.

As of December 31, 2007, 29.9% of our total investments, or $153.5 million, were managed by an unaffiliated third-party investment manager. These investments are predominantly fixed income securities that have an average duration of less than one month, and, in total, are managed to have an average S&P credit quality of above A-. As of March 13, 2008, this portfolio was approximately 96% invested in cash and cash equivalents.

We made three equal investments in September, October and November 2007 aggregating $700 million in the Private Funds for which no management fees or incentive allocations were applicable. As of December 31, 2007, the total value of this investment is approximately $684.3 million, with an unrealized loss of $15.7 million for fiscal 2007. These amounts are reflected in the Investment Management Entities’ net assets, earnings and non-controlling interest but are eliminated at the Holding Company level. However, the Investment Management Entities’ allocated share of net assets and earnings from the Private Funds includes the amount of these eliminated amounts.

We conduct our activities in a manner so as not to be deemed an investment company under the Investment Company Act of 1940, as amended, or the Investment Company Act. Generally, this means that we do not invest or intend to invest in securities as our primary business and that no more than 40% of our total assets will be invested in investment securities as such term is defined in the Investment Company Act. In addition, we intend to structure our investments so as to continue to be taxed as a partnership rather than as a corporation under the applicable publicly traded partnership rules of the Internal Revenue Code of 1986, as amended.

12


TABLE OF CONTENTS

Item 1A. Risk Factors

Risks Relating to Our Structure

Our general partner and its control person could exercise their influence over us to your detriment.

Mr. Icahn, through affiliates, currently owns 100% of Icahn Enterprises GP, our general partner, and approximately 86.5% of our outstanding preferred units and approximately 91.2% of our depositary units and, as a result, has the ability to influence many aspects of our operations and affairs. Icahn Enterprises GP also is the general partner of Icahn Enterprises Holdings.

In addition, if Mr. Icahn were to sell, or otherwise transfer, some or all of his interests in us to an unrelated party or group, a change of control could be deemed to have occurred under the terms of the indentures governing our notes which would require us to offer to repurchase all outstanding notes at 101% of their principal amount plus accrued and unpaid interest and liquidated damages, if any, to the date of repurchase. However, it is possible that we will not have sufficient funds at the time of the change of control to make the required repurchase of notes.

We have engaged, and in the future may engage, in transactions with our affiliates.

We have invested and may in the future invest in entities in which Mr. Icahn also invests. We also have purchased and may in the future purchase entities or investments from him or his affiliates. Although Icahn Enterprises GP has never received fees in connection with our investments, our partnership agreement allows for the payment of these fees. Mr. Icahn may pursue other business opportunities in industries in which we compete and there is no requirement that any additional business opportunities be presented to us. We continuously identify, evaluate and engage in discussions concerning potential investments and acquisitions, including potential investments in and acquisitions of affiliates of Mr. Icahn. There cannot be any assurance that any potential transactions that we consider will be completed.

The market for our securities may be volatile.

The market for our equity securities may be subject to disruptions that could cause substantial volatility in their prices. Any such disruptions may adversely affect the value of your securities.

Future cash distributions to our unitholders, if any, can be affected by numerous factors.

While we made cash distributions with respect to the first quarter of fiscal 2007 in the amount of $0.10 per depositary unit, and the second, third and fourth quarters of fiscal 2007 in the amount of $0.15 per depositary unit,the payment of future distributions will be determined by the board of directors of Icahn Enterprises GP, our general partner, quarterly, based on a review of a number of factors, including those described below and other factors that it deems relevant at the time that declaration of a distribution is considered. On February 29, 2008, the board of directors of Icahn Enterprises GP approved an increase in the quarterly cash distribution from $0.15 to $0.25 per unit on its depositary units payable in the first quarter of fiscal 2008. The distribution is payable on April 1, 2008 to depositary unitholders of record at the close of business on March 18, 2008.

Our ability to pay distributions will depend on numerous factors, including the availability of adequate cash flow from operations; the proceeds, if any, from divestitures; our capital requirements and other obligations; restrictions contained in our financing arrangements; and our issuances of additional equity and debt securities. The availability of cash flow in the future depends as well upon events and circumstances outside our control, including prevailing economic and industry conditions and financial, business and similar factors. No assurance can be given that we will be able to make distributions or as to the timing of any distribution. If distributions are made, there can be no assurance that holders of depositary units may not be required to recognize taxable income in excess of cash distributions made in respect of the period in which a distribution is made.

Holders of our depositary units have limited voting rights, rights to participate in our management and control of us.

Our general partner manages and operates Icahn Enterprises. Unlike the holders of common stock in a corporation, holders of our outstanding depositary units have only limited voting rights on matters affecting

13


TABLE OF CONTENTS

our business. Holders of depositary units have no right to elect the general partner on an annual or other continuing basis, and our general partner generally may not be removed except pursuant to the vote of the holders of not less than 75% of the outstanding depositary units. In addition, removal of the general partner may result in a default under our debt securities. As a result, holders of depositary units have limited say in matters affecting our operations and others may find it difficult to attempt to gain control or influence our activities.

Holders of depositary units may not have limited liability in certain circumstances and may be liable for the return of distributions that cause our liabilities to exceed our assets.

We conduct our businesses through Icahn Enterprises Holdings in several states. Maintenance of limited liability will require compliance with legal requirements of those states. We are the sole limited partner of Icahn Enterprises Holdings. Limitations on the liability of a limited partner for the obligations of a limited partnership have not clearly been established in several states. If it were determined that Icahn Enterprises Holdings has been conducting business in any state without compliance with the applicable limited partnership statute or the possession or exercise of the right by the partnership, as limited partner of Icahn Enterprises Holdings, to remove its general partner, to approve certain amendments to the Icahn Enterprises Holdings partnership agreement or to take other action pursuant to the Icahn Enterprises Holdings partnership agreement, constituted “control” of Icahn Enterprises Holdings’ business for the purposes of the statutes of any relevant state, Icahn Enterprises and/or unitholders, under certain circumstances, might be held personally liable for Icahn Enterprises Holdings’ obligations to the same extent as our general partner. Further, under the laws of certain states, Icahn Enterprises might be liable for the amount of distributions made to Icahn Enterprises by Icahn Enterprises Holdings.

Holders of our depositary units may also have to repay Icahn Enterprises amounts wrongfully distributed to them. Under Delaware law, we may not make a distribution to holders of common units if the distribution causes our liabilities to exceed the fair value of our assets. Liabilities to partners on account of their partnership interests and nonrecourse liabilities are not counted for purposes of determining whether a distribution is permitted. Delaware law provides that a limited partner who receives such a distribution and knew at the time of the distribution that the distribution violated Delaware law will be liable to the limited partnership for the distribution amount for three years from the distribution date.

Additionally, under Delaware law an assignee who becomes a substituted limited partner of a limited partnership is liable for the obligations, if any, of the assignor to make contributions to the partnership. However, such an assignee is not obligated for liabilities unknown to him or her at the time he or she became a limited partner if the liabilities could not be determined from the partnership agreement.

To service our indebtedness and pay distributions with respect to our depositary units, we require a significant amount of cash. Our ability to maintain our current cash position or generate cash depends on many factors beyond our control.

Our ability to make payments on and to refinance our indebtedness, to pay distributions with respect to our depositary units and to fund operations depends on existing cash balances and our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, regulatory and other factors that are beyond our control.

Our current businesses and businesses that we acquire may not generate sufficient cash to service our debt. In addition, we may not generate sufficient cash flow from operations or investments and future borrowings may not be available to us in an amount sufficient to enable us to service our indebtedness or to fund our other liquidity needs. Based on our current level of indebtedness which includes all of our unsecured senior notes and related interest payments due thereon, mortgage payable and credit facilities, approximately $437 million of indebtedness will come due in the three-year period ending December 31, 2010. We may need to refinance all or a portion of our indebtedness on or before maturity. We cannot assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all.

We are a holding company and depend on the businesses of our subsidiaries to satisfy our obligations.

We are a holding company. In addition to cash and cash equivalents, U.S. government and agency obligations, marketable equity and debt securities and other short-term investments, our assets consist primarily of

14


TABLE OF CONTENTS

investments in our subsidiaries. Moreover, if we make significant investments in operating businesses, it is likely that we will reduce the liquid assets at Icahn Enterprises and Icahn Enterprises Holdings in order to fund those investments and the ongoing operations of our subsidiaries. Consequently, our cash flow and our ability to meet our debt service obligations and make distributions with respect to depositary units and preferred units likely will depend on the cash flow of our subsidiaries and the payment of funds to us by our subsidiaries in the form of dividends, distributions, loans or otherwise.

The operating results of our subsidiaries may not be sufficient to make distributions to us. In addition, our subsidiaries are not obligated to make funds available to us and distributions and intercompany transfers from our subsidiaries to us may be restricted by applicable law or covenants contained in debt agreements and other agreements to which these subsidiaries may be subject or enter into in the future. The terms of any borrowings of our subsidiaries or other entities in which we own equity may restrict dividends, distributions or loans to us. For example, we have credit facilities for WPI, our majority owned subsidiary, and our real estate development properties that also restrict dividends, distributions and other transactions with us. To the degree any distributions and transfers are impaired or prohibited, our ability to make payments on our debt and to make distributions on our depository units will be limited.

We or our subsidiaries may be able to incur substantially more debt.

We or our subsidiaries may be able to incur substantial additional indebtedness in the future. The terms of the indentures governing our 8.125% senior notes due 2012, our 7.125% senior notes due 2013 and our variable rate notes due 2013 do not prohibit us or our subsidiaries from doing so. We and Icahn Enterprises Holdings may incur additional indebtedness if we comply with certain financial tests contained in the indentures that govern these notes. As of December 31, 2007, based upon these tests, we and Icahn Enterprises Holdings could have incurred up to approximately $1.7 billion of additional indebtedness. However, our subsidiaries other than Icahn Enterprises Holdings, are not subject to any of the covenants contained in the indentures with respect to our senior notes, including the covenant restricting debt incurrence. If new debt is added to our and our subsidiaries’ current debt levels, the related risks that we, and they, now face could intensify.

Our failure to comply with the covenants contained under any of our debt instruments, including the indentures governing our outstanding notes, including our failure as a result of events beyond our control, could result in an event of default which would materially and adversely affect our financial condition.

If there were an event of default under one of our debt instruments, the holders of the defaulted debt could cause all amounts outstanding with respect to that debt to be due and payable immediately. In addition, any event of default or declaration of acceleration under one debt instrument could result in an event of default under one or more of our other debt instruments. It is possible that, if the defaulted debt is accelerated, our assets and cash flow may not be sufficient to fully repay borrowings under our outstanding debt instruments and we cannot assure you that we would be able to refinance or restructure the payments on those debt securities.

We may be subject to the pension liabilities of our affiliates.

Mr. Icahn, through certain affiliates, currently owns 100% of Icahn Enterprises GP and approximately 91.2% of our outstanding depositary units and 86.5% of our outstanding preferred units. Applicable pension and tax laws make each member of a “controlled group” of entities, generally defined as entities in which there are at least an 80% common ownership interest, jointly and severally liable for certain pension plan obligations of any member of the controlled group. These pension obligations include ongoing contributions to fund the plan, as well as liability for any unfunded liabilities that may exist at the time the plan is terminated. In addition, the failure to pay these pension obligations when due may result in the creation of liens in favor of the pension plan or the Pension Benefit Guaranty Corporation, or the PBGC, against the assets of each member of the controlled group.

As a result of the more than 80% ownership interest in us by Mr. Icahn’s affiliates, we and our subsidiaries are subject to the pension liabilities of all entities in which Mr. Icahn has a direct or indirect ownership interest of at least 80%. One such entity, ACF Industries LLC, is the sponsor of several pension plans which,

15


TABLE OF CONTENTS

as of December 31, 2007, were not underfunded on an ongoing actuarial basis but would be underfunded by approximately $93.3 million if those plans were terminated, as most recently reported by the plans’ actuaries. These liabilities could increase or decrease, depending on a number of factors, including future changes in promised benefits, investment returns, and the assumptions used to calculate the liability. As members of the controlled group, we would be liable for any failure of ACF to make ongoing pension contributions or to pay the unfunded liabilities upon a termination of the ACF pension plans. In addition, other entities now or in the future within the controlled group that includes us may have pension plan obligations that are, or may become, underfunded and we would be liable for any failure of such entities to make ongoing pension contributions or to pay the unfunded liabilities upon a termination of such plans.

The current underfunded status of the ACF pension plans requires ACF to notify the PBGC of certain “reportable events,” such as if we cease to be a member of the ACF controlled group, or if we make certain extraordinary dividends or stock redemptions. The obligation to report could cause us to seek to delay or reconsider the occurrence of such reportable events.

Starfire Holding Corporation, or Starfire, which is 100% owned by Mr. Icahn, has undertaken to indemnify us and our subsidiaries from losses resulting from any imposition of certain pension funding or termination liabilities that may be imposed on us and our subsidiaries or our assets as a result of being a member of the Icahn controlled group. The Starfire indemnity (which does not extend to pension liabilities of our subsidiaries that would be imposed on us as a result of our interest in these subsidiaries and not as a result of Mr. Icahn and his affiliates more than 80% ownership interest in us) provides, among other things, that so long as such contingent liabilities exist and could be imposed on us, Starfire will not make any distributions to its stockholders that would reduce its net worth to below $250.0 million. Nonetheless, Starfire may not be able to fund its indemnification obligations to us.

We are subject to the risk of possibly becoming an investment company.

Because we are a holding company and a significant portion of our assets may, from time to time, consist of investments in companies in which we own less than a 50% interest, we run the risk of inadvertently becoming an investment company that is required to register under the Investment Company Act. Registered investment companies are subject to extensive, restrictive and potentially adverse regulations relating to, among other things, operating methods, management, capital structure, dividends and transactions with affiliates. Registered investment companies are not permitted to operate their business in the manner in which we operate our business, nor are registered investment companies permitted to have many of the relationships that we have with our affiliated companies.

In order not to become an investment company required to register under the Investment Company Act, we monitor the value of our investments and structure transactions with an eye toward the Investment Company Act. As a result, we may structure transactions in a less advantageous manner than if we did not have Investment Company Act concerns, or we may avoid otherwise economically desirable transactions due to those concerns. In addition, events beyond our control, including significant appreciation or depreciation in the market value of certain of our publicly traded holdings or adverse developments with respect to our ownership of certain of our subsidiaries, such as our potential loss of control of WPI, could result in our inadvertently becoming an investment company. See Part II, Item 8, Note 19, “Commitments and Contingencies,” and Part I, Item 3, “Legal Proceedings,” for further discussion.

If it were established that we were an investment company, there would be a risk, among other material adverse consequences, that we could become subject to monetary penalties or injunctive relief, or both, in an action brought by the SEC, that we would be unable to enforce contracts with third parties or that third parties could seek to obtain rescission of transactions with us undertaken during the period it was established that we were an unregistered investment company.

We may become taxable as a corporation.

We believe that we have been and are properly treated as a partnership for federal income tax purposes. This allows us to pass through our income and deductions to our partners. However, the Internal Revenue Service, or IRS, could challenge our partnership status and we could fail to qualify as a partnership for past years as well as future years. Qualification as a partnership involves the application of highly technical and

16


TABLE OF CONTENTS

complex provisions of the Internal Revenue Code of 1986, as amended. For example, a publicly traded partnership is generally taxable as a corporation unless 90% or more of its gross income is “qualifying” income, which includes interest, dividends, oil and gas revenues, real property rents, gains from the sale or other disposition of real property, gain from the sale or other disposition of capital assets held for the production of interest or dividends, and certain other items. We believe that in all prior years of our existence at least 90% of our gross income was qualifying income and we intend to structure our business in a manner such that at least 90% of our gross income will constitute qualifying income this year and in the future. However, there can be no assurance that such structuring will be effective in all events to avoid the receipt of more than 10% of non-qualifying income. If less than 90% of our gross income constitutes qualifying income, we may be subject to corporate tax on our net income, at a Federal rate of up to 35% plus possible state taxes. Further, if less than 90% of our gross income constituted qualifying income for past years, we may be subject to corporate level tax plus interest and possibly penalties. In addition, if we register under the Investment Company Act, it is likely that we would be treated as a corporation for U.S. federal income tax purposes. The cost of paying federal and possibly state income tax, either for past years or going forward, could be a significant liability and would reduce our funds available to make distributions to holders of units, and to make interest and principal payments on our debt securities. To meet the qualifying income test we may structure transactions in a manner which is less advantageous than if this were not a consideration, or we may avoid otherwise economically desirable transactions.

Legislation has been introduced into Congress which, if enacted, could have a material and adverse effect on us. These proposals include legislation which would tax publicly traded partnerships engaged in the investment management business, such as us, as corporations. Other proposals would treat the income from carried interests, when recognized for tax purposes, as ordinary income and as not qualifying as investment income for purposes of the 90% investment income test that publicly traded partnerships must meet to be classified as partnerships. It is unclear whether such legislation will be enacted. Moreover, it is unclear what specific provisions may be enacted, including what the effective date will be, and accordingly what any such legislation’s impact will be on us. It is possible that if such legislation were enacted we would be treated as an association, taxable as a corporation, which would materially increase our taxes. As an alternative, we might be required to restructure our operations, and possibly dispose of certain businesses, in order to avoid or mitigate the impact of any such legislation.

Holders of depositary units may be required to pay tax on their share of our income even if they did not receive cash distributions from us.

Because we are treated as a partnership for income tax purposes, holders of units are generally required to pay federal income tax, and, in some cases, state or local income tax, on the portion of our taxable income allocated to them, whether or not such income is distributed. Accordingly, it is possible that holders of depositary units may not receive cash distributions from us equal to their share of our taxable income, or even equal to their tax liability on the portion of our income allocated to them.

If we discover significant deficiencies in our internal controls over financial reporting or at any recently acquired entity, it may adversely affect our ability to provide timely and reliable financial information and satisfy our reporting obligations under federal securities laws, which also could affect the market price of our depositary units or our ability to remain listed on the NYSE.

Effective internal and disclosure controls are necessary for us to provide reliable financial reports and effectively prevent fraud and to operate successfully as a public company. If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results would be harmed. As of December 31, 2007, we completed remediation of previously reported significant deficiencies in internal controls, as defined under interim standards adopted by the Public Company Accounting Oversight Board, or PCAOB; in two instances at Icahn Enterprises and one at a subsidiary. A “significant deficiency” is a deficiency, or combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention of those responsible for oversight of the registrant’s financial reporting.

To the extent that any material weakness or significant deficiency exists in our or our consolidated subsidiaries internal control over financial reporting, such material weakness or significant deficiency may adversely affect our ability to provide timely and reliable financial information necessary for the conduct of

17


TABLE OF CONTENTS

our business and satisfaction of our reporting obligations under federal securities laws, which could affect our ability to remain listed on the NYSE. Ineffective internal and disclosure controls could cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our depositary units or the rating of our debt.

Since we are a limited partnership, you may not be able to pursue legal claims against us in U.S. federal courts.

We are a limited partnership organized under the laws of the state of Delaware. Under the federal rules of civil procedure, you may not be able to sue us in federal court on claims other than those based solely on federal law, because of lack of complete diversity. Case law applying diversity jurisdiction deems us to have the citizenship of each of our limited partners. Because we are a publicly traded limited partnership, it may not be possible for you to attempt to sue us in a federal court because we have citizenship in all 50 U.S. states and operations in many states. Accordingly, you will be limited to bringing any claims in state court.

Certain members of our management team may be involved in other business activities that may involve conflicts of interest.

Certain individual members of our management team may, from time to time, be involved in the management of other businesses, including those owned or controlled by Mr. Icahn and his affiliates. Accordingly, these individuals may focus a portion of their time and attention on managing these other businesses. Conflicts may arise in the future between our interests and the interests of the other entities and business activities in which such individuals are involved.

Risks Relating to Our Business

General

In addition to the following risk factors specific to each of our businesses, all of our businesses are subject to the effects of the following:

the continued threat of terrorism;
economic downturn;
loss of any of our or our subsidiaries key personnel;
the unavailability, as needed, of additional financing; and
the unavailability of insurance at acceptable rates.

Investment Management Operations

The historical financial information for our investment management operations is not necessarily indicative of the future performance of our investment management operations.

The financial results of our investment management operations are primarily driven by AUM and the performance of the Private Funds. The historical consolidated financial information contained elsewhere in our Annual Report on Form 10-K for our investment management operations is not indicative of the future financial results of our investment management operations. In particular, with respect to the historical returns of our investment management operations:

in the past few years, the rates of returns of certain of the Private Funds have benefited from favorable market conditions and profitable investment opportunities that may not repeat themselves;
the rates of return reflect the historical cost configuration of our investment management operations, which may change in the future due to factors beyond our control, including changes in laws; and
future returns may be affected by the risks described elsewhere in this report, including risks of the industries and businesses in which a particular fund invests.

18


TABLE OF CONTENTS

Poor performance of the Private Funds could cause a decline in our investment management operations revenue, may reduce or eliminate our incentive allocations for one or more periods, and may adversely affect AUM for the Private Funds.

Our revenue from our investment management operations is derived principally from three sources: (1) special profits interest allocations; (2) incentive allocations earned based upon the Private Funds’ performance; and (3) gains or losses in our investments in the Private Funds. In the event that one or more of the Private Funds were to perform poorly, our investment management operations revenue could decline and we may not receive special profits interest allocations or incentive allocations. Moreover, in the event that the performance of one or more Private Funds is negative, our investment management operations revenue could decline and we may not receive any incentive allocation. Furthermore, if a Private Fund has net losses (from net realized and unrealized losses), such losses will be carried forward and incentive allocations will not be earned until such losses are recovered. Moreover, we could experience losses on our investments of our own principal as a result of any such poor performance of the Private Funds. Poor performance could make it more difficult for the Private Funds to raise new capital. Poor performance may cause existing investors in the Private Funds to redeem their investments in the Private Funds. Investors and potential investors in the Private Funds continually assess the Private Funds’ performance. The ability of the Private Funds to raise capital, and the avoidance of excessive redemption levels, will depend on the Private Funds’ continued performance at a level that is satisfactory to investors and potential investors in the Private Funds.

Successful execution of the Private Funds’ activist investment activities involves many risks, certain of which are outside of our control.

The success of the Private Funds' investment strategy may require, among other things: (i) that the Investment Management Entities properly identify companies whose securities prices can be improved through corporate and/or strategic action; (ii) that the Private Funds acquire sufficient securities of such companies at a sufficiently attractive price; (iii) that the Private Funds avoid triggering anti-takeover and regulatory obstacles while aggregating their positions; (iv) that management of portfolio companies and other security holders respond positively to our proposals; and (v) that the market price of portfolio companies' securities increases in response to any actions taken by the portfolio companies. We cannot assure you that any of the foregoing will succeed.

Our investment management operations are materially affected by conditions in the global markets and economic conditions throughout the world. The global market and economic climate may deteriorate because of many factors beyond the control of the Investment Management Entities, including rising interest rates or inflation, terrorism or political uncertainty. In the event of a market downturn, the Private Funds could be affected in different ways. Furthermore, while difficult market conditions may increase opportunities to make certain distressed asset investments, such conditions may also increase the risk of default with respect to investments held by the Private Funds that have significant debt investments.

The Private Funds may fail to realize any profits from their investment activities for a considerable period of time and we may lose some or all of the principal amount we invest in the Private Funds. This risk may be magnified due to concentration of investments and investments in undervalued securities.

Our investment management operations revenue depends on the investments made by the Private Funds. Certain investment positions in which each Private Fund may have an interest may be illiquid. The Private Funds may own restricted or non-publicly traded securities and securities traded on foreign exchanges. These investments could prevent a Private Fund from liquidating unfavorable positions promptly and subject the Private Fund to substantial losses.

At any given time, a Private Funds’ assets may become highly concentrated within a particular company, industry, asset category, trading style or financial or economic market. In that event, the Private Fund’s investment portfolio will be more susceptible to fluctuations in value resulting from adverse economic conditions affecting the performance of that particular company, industry, asset category, trading style or economic market than a less concentrated portfolio would be. As a result, the Private Funds’ investment portfolio could become concentrated and its aggregate return may be volatile and may be affected substantially by the performance of only one or a few holdings.

19


TABLE OF CONTENTS

The Private Funds seek to invest in securities that are undervalued. The identification of investment opportunities in undervalued securities is a difficult task, and there are no assurances that such opportunities will be successfully recognized or acquired. While investments in undervalued securities offer the opportunity for above-average capital appreciation, these investments involve a high degree of financial risk and can result in substantial losses. Returns generated from the Private Funds’ investments may not adequately compensate for the business and financial risks assumed.

From time to time, each Private Fund may invest in bonds or other fixed income securities, such as commercial paper and higher yielding (and, therefore, higher risk) debt securities. It is likely that a major economic recession could disrupt severely the market for such securities and may have an adverse impact on the value of such securities. In addition, it is likely that any such economic downturn could adversely affect the ability of the issuers of such securities to repay principal and pay interest thereon and increase the incidence of default for such securities.

For reasons not necessarily attributable to any of the risks set forth in this Form 10-K (for example, supply/demand imbalances or other market forces), the prices of the securities in which the Private Funds invest may decline substantially. In particular, purchasing assets at what may appear to be undervalued levels is no guarantee that these assets will not be trading at even more undervalued levels at a time of valuation or at the time of sale.

The use of leverage in investments by the Private Funds poses a significant degree of risk and enhances the possibility of significant loss in the value of the investments in the Private Funds.

Each Private Fund may leverage its capital if its general partner believes that the use of leverage may enable the Private Fund to achieve a higher rate of return. Accordingly, a Private Fund may pledge its securities in order to borrow additional funds for investment purposes. Each Private Fund may also leverage its investment return with options, short sales, swaps, forwards and other derivative instruments. The amount of borrowings that each Private Fund may have outstanding at any time may be substantial in relation to its capital. While leverage may present opportunities for increasing a Private Fund’s total return, leverage may increase losses as well. Accordingly, any event that adversely affects the value of an investment by a Private Fund would be magnified to the extent such fund is leveraged. The cumulative effect of the use of leverage by each Private Fund in a market that moves adversely to the Private Fund’s investments could result in a substantial loss to the Private Fund that would be greater than if the Private Fund was not leveraged.

In general, the use of short-term margin borrowings results in certain additional risks to the Private Funds. For example, should the securities pledged to brokers to secure any Private Fund’s margin accounts decline in value, the Private Fund could be subject to a “margin call,” pursuant to which it must either deposit additional funds or securities with the broker, or suffer mandatory liquidation of the pledged securities to compensate for the decline in value. In the event of a sudden drop in the value of any of the Private Fund’s assets, the Private Fund might not be able to liquidate assets quickly enough to satisfy its margin requirements.

Any of the Private Funds may enter into repurchase and reverse repurchase agreements. When a Private Fund enters into a repurchase agreement, it “sells” securities issued by the U.S. or a non-U.S. government, or agencies thereof, to a broker-dealer or financial institution, and agrees to repurchase such securities for the price paid by the broker-dealer or financial institution, plus interest at a negotiated rate. In a reverse repurchase transaction, the Private Fund “buys” securities issued by the U.S. or a non-U.S. government, or agencies thereof, from a broker-dealer or financial institution, subject to the obligation of the broker-dealer or financial institution to repurchase such securities at the price paid by the Private Fund, plus interest at a negotiated rate. The use of repurchase and reverse repurchase agreements by any of the Private Funds involves certain risks. For example, if the seller of securities to a Private Fund under a reverse repurchase agreement defaults on its obligation to repurchase the underlying securities, as a result of its bankruptcy or otherwise, the Private Fund will seek to dispose of such securities, which action could involve costs or delays. If the seller becomes insolvent and subject to liquidation or reorganization under applicable bankruptcy or other laws, the Private Fund’s ability to dispose of the underlying securities may be restricted. Finally, if a seller defaults on its obligation to repurchase securities under a reverse repurchase agreement, the Private

20


TABLE OF CONTENTS

Fund may suffer a loss to the extent it is forced to liquidate its position in the market, and proceeds from the sale of the underlying securities are less than the repurchase price agreed to by the defaulting seller.

The financing used by each Private Fund to leverage its portfolio will be extended by securities brokers and dealers in the marketplace in which the Private Fund invests. While the Private Fund will attempt to negotiate the terms of these financing arrangements with such brokers and dealers, its ability to do so will be limited. The Private Fund is therefore subject to changes in the value that the broker-dealer ascribes to a given security or position, the amount of margin required to support such security or position, the borrowing rate to finance such security or position and/or such broker-dealer’s willingness to continue to provide any such credit to the Private Fund. Because each Private Fund currently has no alternative credit facility which could be used to finance its portfolio in the absence of financing from broker-dealers, it could be forced to liquidate its portfolio on short notice to meet its financing obligations. The forced liquidation of all or a portion of the Private Fund’s portfolios at distressed prices could result in significant losses to the Private Fund.

The possibility of increased regulatory focus could result in additional burdens on our investment management operations. Changes in tax law could adversely affect us.

As a result of highly publicized financial scandals, investors have exhibited concerns over the integrity of the U.S. financial markets, and the regulatory environment in which our investment management business operates is subject to further regulation in addition to the rules already promulgated. In particular, in recent years, there has been ongoing debate by U.S. and foreign governments regarding new rules and regulations for investment funds. Our investment management operations may be adversely affected by the enactment of new or revised regulations, or changes in the interpretation or enforcement of rules and regulations imposed by the SEC, other U.S. or foreign governmental regulatory authorities or self-regulatory organizations that supervise the financial markets. For example, the SEC may require all hedge fund managers to register under the Investment Advisors Act of 1940. Such changes could place limitations on the type of investor that can invest in the Private Funds. Further, such changes may limit the scope of investment activities that may be undertaken by the Private Funds’ managers. Any such changes could increase the cost of our investment management operations doing business and/or materially adversely impact our profitability. In addition, the securities and futures markets are subject to comprehensive statutes, regulations and margin requirements. The SEC, other regulators and self-regulatory organizations and exchanges are authorized to take extraordinary actions in the event of market emergencies. The regulation of derivatives transactions and funds that engage in such transactions is an evolving area of law and is subject to modification by government and judicial action. The effect of any future regulatory change on the Private Funds could be substantial and adverse.

In addition, changes in tax law could adversely affect us. Legislation has been introduced in Congress which, if enacted, could have a material and adverse effect on us. Proposals include legislation which would tax publicly traded partnerships engaged in the investment management business, such as us, as corporations. Other proposals would treat the income from carried interests, when recognized for tax purposes, as ordinary income and as not qualifying as investment income for purposes of the 90% investment income test that publicly traded partnerships must meet to be classified as partnerships. It is unclear whether such legislation will be enacted. Moreover, it is unclear what specific provisions may be enacted, including what the effective date will be, and accordingly what any such legislation’s impact will be on us. It is possible that if such legislation were enacted we would be treated as an association, taxable as a corporation, which would materially increase our taxes. As an alternative, we might be required to restructure our operations, and possibly dispose of certain businesses, in order to avoid or mitigate the impact of any such legislation.

The investment management business is intensely competitive.

The investment management business is intensely competitive, with competition based on a variety of factors, including investment performance, the quality and experience of investment professionals and business reputation. The Private Funds compete for fund investors, investment opportunities and talent with an increasing number of hedge funds, private equity funds, specialized funds, traditional asset managers, commercial banks and other financial institutions.

Several of our competitors have raised or are expected to raise, significant amounts of capital and many of them have investment objectives similar to the Private Funds, which may create additional competition for

21


TABLE OF CONTENTS

investment opportunities for the Private Funds and may reduce the size and duration of pricing inefficiencies that many alternative investment strategies seek to exploit. Our competitors may benefit from a lower cost of capital or have higher risk tolerance or different risk assessments, which may allow them to bid more aggressively than us.

The Private Funds may lose investment opportunities in the future if they do not match investment prices, structures and terms offered by competitors. Alternatively, the Private Funds may experience decreased rates of return and increased risks of loss if they match investment price structures and terms offered by competitors. In addition, changes in the global capital markets could diminish the attractiveness of the Private Funds relative to investments in other investment products. This competitive pressure could materially adversely affect the ability of the Investment Management Entities to make successful investments for the Private Funds and reduce the AUM of the Private Funds.

These and other factors could reduce our investment management operations revenue and earnings and materially adversely affect our investment management operations.

The failure of Mr. Icahn to participate in the management of the Private Funds could have a material adverse effect on the Private Funds and on us.

The success of the Private Funds depends upon the ability of the Investment Management Entities to develop and implement investment strategies that achieve the Private Funds’ investment objectives. Subjective decisions made by employees of the Investment Management Entities may cause the Private Funds to incur losses or to miss profit opportunities on which the Private Funds would otherwise have capitalized. In the event that Mr. Icahn ceases to participate in the management of the Private Funds, the consequences to the Private Funds and our investment in them could be material and adverse and could lead to the premature termination of the Private Funds. In the event that Mr. Icahn dies, or is unable, by reason of illness or injury, to perform his duties as chief executive officer of the General Partners for 90 consecutive days, or for any reason other than death, illness or injury ceases to perform those duties, the investors in each of the Private Funds will have certain redemption rights. The occurrence of such an event could have a material adverse effect on the revenues and earnings of our investment management business, and the ability of the Private Funds to maintain or grow their AUM. Such redemptions could lead possibly to a liquidation of one or more of the Private Funds and a corresponding elimination of our special profits interest allocations and potential to earn incentive allocations. The loss of Mr. Icahn could, therefore, ultimately result in a loss of substantially all of the earnings of our investment management business.

The Private Funds make investments in companies we do not control.

Investments by the Private Funds include investments in debt or equity securities of publicly traded companies that we do not control. Such investments may be acquired by a Private Fund through open market trading activities or through purchases of securities from the issuer. These investments will be subject to the risk that the company in which the investment is made may make business, financial or management decisions with which the Investment Management Entities disagree or that the majority of stakeholders or the management of the company may take risks or otherwise act in a manner that does not serve the best interests of the Private Fund. In addition, a Private Fund may make investments in which it shares control over the investment with co-investors, which may make it more difficult for it to implement its investment approach or exit the investment when it otherwise would. If any of the foregoing were to occur, the values of the investments by the Private Funds could decrease and our investment management operations revenues could suffer as a result.

The ability to hedge investments successfully is subject to numerous risks.

The Private Funds may utilize financial instruments, both for investment purposes and for risk management purposes in order to (i) protect against possible changes in the market value of a Private Fund’s investment portfolios resulting from fluctuations in the securities markets and changes in interest rates; (ii) protect a Private Fund’s unrealized gains in the value of the their investment portfolios; (iii) facilitate the sale of any such investments; (iv) enhance or preserve returns, spreads or gains on any investment in the Private Fund’s portfolio; (v) hedge the interest rate or currency exchange rate on any of the Private Fund's

22


TABLE OF CONTENTS

liabilities or assets; (vi) protect against any increase in the price of any securities the Investment Management Entities anticipate purchasing at a later date; or (vii) for any other reason that the Investment Management Entities deem appropriate.

The success of any hedging activities will depend, in part, upon the degree of correlation between the performance of the instruments used in the hedging strategy and the performance of the portfolio investments being hedged. Since the characteristics of many securities change as markets change or time passes, the success of the our investment management operations’ hedging strategy will also be subject to the ability of the Investment Management Entities to continually recalculate, readjust and execute hedges in an efficient and timely manner. While a Private Fund may enter into hedging transactions to seek to reduce risk, such transactions may result in a poorer overall performance for the Private Fund than if it had not engaged in such hedging transactions. For a variety of reasons, a Private Fund may not seek to establish a perfect correlation between the hedging instruments utilized and the portfolio holdings being hedged. Such an imperfect correlation may prevent the Private Fund from achieving the intended hedge or expose the Private Fund to risk of loss. A Private Fund may determine not to hedge against a particular risk because it does not regard the probability of the risk occurring to be sufficiently high as to justify the cost of the hedge. The Investment Management Entities may not foresee the occurrence of the risk and therefore may not hedge against all risks.

We are subject to third-party litigation risks attributable to our investment management operations that could result in significant liabilities, which could adversely affect our results of operations, financial condition and liquidity.

Some of the tactics that the Private Funds may use involve litigation. The Private Funds could be a party to lawsuits that they initiate or that are initiated by a company in which the Private Funds invest, other shareholders, or state and federal governmental bodies. There can be no assurance that litigation, once begun, would be resolved in favor of the Private Funds.

In addition, we will be exposed to risk of litigation by a Private Fund’s investors if the Investment Management Entities’ management of the Private Fund is alleged to constitute gross negligence, willful misconduct or dishonesty or breach of contract or organizational documents. Further, the Private Fund may be subject to third-party litigation arising from investors’ dissatisfaction with the performance of the Private Fund or based on claims that it improperly exercised control or influence over portfolio investments. The Private Funds and the Investment Management Entities may also be exposed to the risk of litigation or investigation by investors or regulators relating to transactions which presented conflicts of interest that were not properly addressed. In such actions, we would be obligated to bear legal, settlement and other costs (which may exceed our available insurance coverage). In addition, our rights to indemnification from the applicable Private Funds may be challenged.

Certain of the Private Funds are incorporated or formed under the laws of the Cayman Islands. Cayman Islands laws, particularly with respect to shareholder rights, partner rights and bankruptcy, may differ from the laws of the United States and could change possibly to the detriment of the applicable Private Fund.

The Private Funds may invest in companies that are based outside of the United States, which may expose the Private Funds to additional risks not typically associated with investing in companies that are based in the United States.

Investments in securities of non-U.S. issuers (including non-U.S. governments) and securities denominated or whose prices are quoted in non-U.S. currencies pose, to the extent not successfully hedged, currency exchange risks (including blockage, devaluation and non-exchangeability), as well as a range of other potential risks, which could include expropriation, confiscatory taxation, imposition of withholding or other taxes on dividends, interest, capital gains or other income, political or social instability, illiquidity, price volatility and market manipulation. In addition, less information may be available regarding securities of non-U.S. issuers, and non-U.S. issuers may not be subject to accounting, auditing and financial reporting standards and requirements comparable to, or as uniform as, those of U.S. issuers. Transaction costs of investing in non-U.S. securities markets are generally higher than in the United States. There is generally less government supervision and regulation of exchanges, brokers and issuers than there is in the United States. The Private Funds may have greater difficulty taking appropriate legal action in non-U.S. courts. Non-U.S. markets also have

23


TABLE OF CONTENTS

different clearance and settlement procedures which in some markets have at times failed to keep pace with the volume of transactions, thereby creating substantial delays and settlement failures that could adversely affect the Private Funds’ performance. Investments in non-U.S. markets may result in imposition of non-U.S. taxes or withholding on income and gains recognized with respect to such securities. There can be no assurance that adverse developments with respect to such risks will not materially adversely affect the Private Funds’ investments that are held in certain countries or the returns from these investments.

The Private Funds’ investments are subject to numerous additional risks.

Generally, there are few limitations on the execution of the Private Funds’ investment activities, which are subject to the sole discretion of the Investment Management Entities.
A Private Fund may buy or sell (or write) both call options and put options, and when it writes options, it may do so on a covered or an uncovered basis. When the Private Fund sells (or writes) an option, the risk can be substantially greater than when it buys an option. The seller of an uncovered call option bears the risk of an increase in the market price of the underlying security above the exercise price. The risk is theoretically unlimited unless the option is covered. If it is covered, the Private Fund would forego the opportunity for profit on the underlying security should the market price of the security rise above the exercise price. Swaps and certain options and other custom instruments are subject to the risk of non-performance by the swap counterparty, including risks relating to the creditworthiness of the swap counterparty, market risk, liquidity risk and operations risk.
The Private Funds may engage in short-selling, which is subject to a theoretically unlimited risk of loss because there is no limit on how much the price of a security may appreciate before the short position is closed out. The Private Funds may be subject to losses if a security lender demands return of the borrowed securities and an alternative lending source cannot be found or if the Private Funds are otherwise unable to borrow securities that are necessary to hedge its positions.
The Private Funds may effect transactions through over-the-counter or interdealer markets. The participants in such markets are typically not subject to credit evaluation and regulatory oversight as are members of exchange-based markets. This exposes the Private Funds to the risk that a counterparty will not settle a transaction in accordance with its terms and conditions because of a dispute over the terms of the contract (whether or not bona fide) or because of a credit or liquidity problem, thus causing the Private Fund to suffer a loss. Such “counterparty risk” is accentuated for contracts with longer maturities where events may intervene to prevent settlement, or where a Private Fund has concentrated its transactions with a single or small group of its counterparties. The Private Funds are not restricted from dealing with any particular counterparty or from concentrating any or all of the Private Funds transactions with one counterparty.
Credit risk may arise through a default by one of several large institutions that are dependent on one another to meet their liquidity or operational needs, so that a default by one institution causes a series of defaults by other institutions. This systemic risk may materially adversely affect the financial intermediaries (such as prime brokers, clearing agencies, clearing houses, banks, securities firms and exchanges) with which the Private Funds interact on a daily basis.
The efficacy of investment and trading strategies depends largely on the ability to establish and maintain an overall market position in a combination of financial instruments. The Private Funds’ trading orders may not be executed in a timely and efficient manner due to various circumstances, including systems failures or human error. In such event, the Private Funds might only be able to acquire some but not all of the components of the position, or if the overall positions were to need adjustment, the Private Funds might not be able to make such adjustment. As a result, the Private Funds would not be able to achieve the market position selected by the Investment Management Entities and might incur a loss in liquidating their position.

24


TABLE OF CONTENTS

Metals Operations

The principal markets served by our scrap metals operations are highly competitive. We may have difficulty competing with companies that have a lower cost structure than ours.

Our scrap metals business operates in a highly competitive environment. We primarily provide services to industrial companies. Many other companies offer the same or similar services and compete with our metals business on a number of bases including, but not limited to: (i) price; (ii) quality of service; (iii) proximity to the consumer; (iv) proximity to sources of supply; (v) local or regional presence; (vi) technology; (vii) safety performance; and (viii) financial strength. Many of these competitors have greater financial resources than we do either nationally or in the particular locale in which they operate. Some of these competitors are larger and have more diverse businesses than we do. In addition, we also face increased competition from steel mills that are vertically integrated into the scrap metal business. Some of our foreign competitors may be able to pursue business opportunities without regard for the laws and regulations with which we must comply, such as environmental regulations. These companies may have a lower cost structure, more operating flexibility and consequently they may be able to offer better prices and more services than we can. We cannot assure you that we will be able to compete successfully with these companies. In addition to larger companies, we compete with many smaller competitors operating locally in this highly fragmented market. Some of the companies may have lower operating costs and may be able to compete more effectively on price.

Prices of commodities are volatile and markets are competitive.

We are exposed to commodity price risk during the period that we have title to products that are held in inventory for processing and/or resale. Prices of commodities, including scrap metals, can be volatile due to numerous factors beyond our control, including:

general economic conditions;
labor costs;
competition;
financial condition of our major customers;
access and costs associated with transportation systems;
the availability of imports;
the availability and relative pricing of scrap metal substitutes; and
import duties, ocean freight costs, tariffs and currency exchange rates.

In an increasing price environment for raw materials, competitive conditions may limit our ability to pass on price increases to our consumers. In a decreasing price environment for processed scrap, we may not have the ability to fully recoup the cost of raw scrap metal we process and sell to our customers. New entrants into our markets could result in higher purchase prices for raw materials and lower margins from our scrap metals. Prices in the scrap metal industry are established and adjusted monthly by the major steel producers. The price of ferrous scrap is a significant factor influencing the profitability of the scrap metals industry.

Increases in steel imports could adversely affect the demand for scrap metals domestically.

Our scrap metals operations may be adversely affected by increases in steel imports into the United States, which will have an adverse impact on domestic steel production and a corresponding adverse impact on the demand for scrap metals domestically. Additionally, our scrap metals business could be negatively affected by strengthening in the U.S. dollar or increased freight costs which could negatively impact export sales and a stronger U.S. dollar could also attract imports of scrap or scrap substitutes, reducing demand for our scrap metals.

A significant increase in the use of scrap metals alternatives by consumers of processed scrap metals could reduce demand for our products.

During periods of high demand for scrap metals, tightness can develop in the supply and demand for ferrous scrap. The relative scarcity of ferrous scrap, particularly prime or industrial grades, and its high price

25


TABLE OF CONTENTS

during such periods have created opportunities for producers of alternatives to scrap metals, such as pig iron and direct reduced iron pellets and others. Although these alternatives have not been a major factor in the industry to date, we cannot assure you that the use of alternatives to scrap metals may not proliferate in the future if the prices for scrap metals rise, if the supplies of available unprepared ferrous scrap tighten or if costs to import scrap decline precipitously.

The profitability of our scrap recycling operations depends, in part, on the availability of an adequate source of supply.

As part of our scrap metals operations, we procure scrap inventory from numerous sources. These suppliers generally are not bound by long-term contracts and have no obligation to sell scrap metals to us. In periods of low industry prices, suppliers may elect to hold scrap to wait for higher prices or intentionally slow their scrap collection activities. If a substantial number of scrap suppliers cease selling scrap metals to us, our scrap metals operations could be materially and adversely affected. In addition, a slowdown of industrial production in the United States would reduce the supply of industrial grades of scrap metal to the scrap metals recycling industry, resulting in our metals operations having less scrap to process and market.

Our scrap metals operations present significant risk of injury or death.

Because of the heavy industrial activities conducted at our facilities, there exists a risk of serious injury or death to our employees or other visitors notwithstanding the safety precautions we take. Our scrap metals operations are subject to regulation by federal, state and local agencies responsible for employee health and safety, including the Occupational Safety and Health Administration. While we have in place policies to minimize such risks, we may nevertheless be unable to avoid material liabilities for any death or injury that may occur in the future and these types of incidents may have a material adverse effect on our scrap metals operations.

Our scrap metals operations are subject to stringent regulations, particularly under applicable environmental laws.

We are subject to comprehensive local, state and federal statutory and regulatory environmental requirements relating to, among others:

the acceptance, storage, handling and disposal of solid, hazardous and Toxic Substances Control Act waste;
the discharge of materials into the air;
the management and treatment of wastewater and storm water;
the remediation of soil and groundwater contamination;
the restoration of natural resource damages; and
the protection of our employees’ health and safety.

We believe that we are currently in material compliance with applicable statutes and regulations governing the protection of human health and the environment, including employee health and safety. We can give you no assurance, however, that we will continue to be in material compliance or avoid material fines, penalties and expenses associated with compliance issues in the future.

Such laws and regulations also require manifests to be completed and delivered in connection with any shipment of prescribed materials so that the movement and disposal of such materials can be traced and the persons responsible for any mishandling of such materials identified. Regulatory requirements may also be imposed as conditions of operating permits or licenses both initially and upon renewal or modification. As part of our scrap metals business, we must properly remove, handle, recycle or dispose of waste materials or incur liability. Transportation, transfer, storage and disposal of waste are difficult and accidents may occur. These laws and regulations are stringent and are likely to become more stringent. Existing and new laws and regulations may require our scrap metals operations to modify, supplement, replace or curtail its operating methods or to modify or replace facilities or equipment at costs that may be substantial without any corresponding increase in revenues.

26


TABLE OF CONTENTS

Hazardous substances are present in some of the processing, transfer and storage facilities owned or leased by our scrap metal business and landfill facilities used by our scrap metals business. Remediation may be required at these sites at substantial cost. We cannot assure you that the ultimate cost and expense of corrective action will not substantially exceed any reserves and have a material adverse impact on our scrap metals operations. In addition, governments have from time to time required companies to remediate sites where materials were properly disposed because those governments have instituted higher standards.

We are required to obtain, and must comply with, various permits and licenses to conduct our scrap metals operations. Failure to obtain or violations of any permit or license, if not remedied, could result in our incurring substantial fines, suspension of our scrap metals operations or closure of a site. Further, our scrap metals operations are conducted primarily outdoors and as such, depending on the nature of the ground cover, involve the risk of releases of wastes and other regulated materials to the soil and, possibly, to groundwater. From time to time, as part of our continuous improvement programs, we incur costs to improve environmental control systems.

Our scrap metals operations may be subject to public opposition and adverse publicity that could delay or limit our scrap metals development and expansion.

A high level of public concern exists over industrial by-products recovery operations, including the location and operation of transfer, processing, storage and disposal facilities and the collection, processing or handling of industrial by-products and waste materials, particularly hazardous materials. Zoning, permit and licensing applications and proceedings and regulatory enforcement proceedings are all matters open to public scrutiny and comment. As a result, from time to time, our scrap metals operations may be subject to citizen opposition and adverse publicity that may have a negative effect on operations and delay or limit the expansion and developing of operating properties, and could have a material adverse effect on our scrap metals operation.

We may be unable to obtain adequate environmental insurance.

Our scrap metals business is subject to potential liability for personal injuries and property damage caused by releases of hazardous substances and for remediation of risks posed by hazardous substances. Consistent with industry trends, we may be unable to obtain an adequate amount of environmental impairment insurance for our scrap metals business at a reasonable premium to cover liability to third persons for environmental damage. Accordingly, if our scrap metals operations were to incur liability for environmental damage either not provided for under such coverage or in excess of such coverage, our scrap metals operations could be materially or adversely affected.

Real Estate Operations

Our investment in property development may be more costly than anticipated.

We have invested and expect to continue to invest in unentitled land, undeveloped land and distressed development properties. These properties involve more risk than properties on which development has been completed. Unentitled land may not be approved for development. These investments do not generate any operating revenue, while costs are incurred to obtain government approvals and develop the properties. Construction may not be completed within budget or as scheduled and projected rental levels or sales prices may not be achieved and other unpredictable contingencies beyond our control could occur. We will not be able to recoup any of such costs until such time as these properties, or parcels thereof, are either disposed of or developed into income-producing assets. In addition, we may not be able to recoup our investment in our inventory of unsold residential units and credit market disruptions may negatively impact commercial real estate values.

We may be subject to environmental liability as an owner or operator of development and rental real estate.

Under various federal, state and local laws, ordinances and regulations, an owner or operator of real property may become liable for the costs of removal or remediation of certain hazardous substances, pollutants and contaminants released on, under, in or from its property. These laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release of such substances. To

27


TABLE OF CONTENTS

the extent any such substances are found in or on any property invested in by us, we could be exposed to liability and be required to incur substantial remediation costs. The presence of such substances or the failure to undertake proper remediation may adversely affect the ability to finance, refinance or dispose of such property. We generally conduct a Phase I environmental site assessment on properties in which we are considering investing. A Phase I environmental site assessment involves record review, visual site assessment and personnel interviews, but does not typically include invasive testing procedures such as air, soil or groundwater sampling or other tests performed as part of a Phase II environmental site assessment. Accordingly, there can be no assurance that any assessments we conduct will disclose all potential liabilities or that future property uses or conditions or changes in applicable environmental laws and regulations or activities at nearby properties will not result in the creation of environmental liabilities with respect to a property.

Home Fashion Operations

Pending legal proceedings may result in our ownership of WPI’s common stock being reduced to less than 50%. A legal action in Delaware challenges the issuance to us of the preferred stock of WPI. Uncertainties arising from these proceedings may adversely affect WPI’s operations and prospects and the value of our investment in it.

As of December 31, 2007, we owned approximately 67.7% of the outstanding shares of common stock and 100% of the preferred stock of WPI. As a result of a decision of the U.S. District Court for the Southern District of New York reversing certain provisions of the Bankruptcy Court order pursuant to which we acquired our ownership of a majority of the common stock of WPI, the proceedings in the Bankruptcy Court on remand and the proceedings filed in the Court of Chancery in the State of Delaware, our percentage of the outstanding shares of common stock of WPI could be reduced to less than 50% and perhaps substantially less and our ownership of the preferred stock of WPI could also be affected.

If we were to lose control of WPI, it could adversely affect the business and prospects of WPI and the value of our investment in it. In addition, we consolidated the balance sheet of WPI as of December 31, 2007 and WPI’s results of operations for the period from the date of acquisition (August 8, 2005) through December 31, 2007. If we were to own less than 50% of the outstanding common stock or the challenge to our preferred stock ownership is successful, we would have to evaluate whether we should consolidate WPI and if so our financial statements could be materially different than as presented as of December 31, 2007, December 31, 2006 and December 31, 2005 and for the periods then ended.

We cannot assure you that WPI will be able to operate profitably.

WPI operated at a loss during fiscal 2007, and we expect that WPI will continue to operate at a loss during fiscal 2008. We cannot assure you that it will be able to operate profitably in the future.

The loss of any of WPI’s large customers could have an adverse effect on WPI’s business.

During fiscal 2007, WPI’s six largest customers accounted for approximately 51% of its net sales. Other retailers have indicated that they intend to significantly increase their direct sourcing of home fashion products from foreign sources. The loss of any of WPI’s largest accounts, or a material portion of sales to those accounts, would have an adverse effect upon WPI’s business, which could be material.

A portion of WPI’s sales are derived from licensed designer brands. The loss of a significant license could have an adverse effect on WPI’s business.

A portion of WPI’s sales is derived from licensed designer brands. The license agreements for WPI’s designer brands generally are for a term of two or three years. Some of the licenses are automatically renewable for additional periods, provided that sales thresholds set forth in the license agreements are met. The loss of a significant license could have an adverse effect upon WPI’s business, which could be material. Under certain circumstances, these licenses can be terminated without WPI’s consent due to circumstances beyond WPI’s control.

28


TABLE OF CONTENTS

A shortage of the principal raw materials WPI uses to manufacture its products could force WPI to pay more for those materials and, possibly, cause WPI to increase its prices, which could have an adverse effect on WPI’s operations.

Any shortage in the raw materials WPI uses to manufacture its products could adversely affect its operations. The principal raw materials that WPI uses in the manufacture of its products are cotton of various grades and staple lengths and polyester and nylon in staple and filament form. Since cotton is an agricultural product, its supply and quality are subject to weather patterns, disease and other factors. The price of cotton is also influenced by supply and demand considerations, both domestically and worldwide, and by the cost of polyester. Although WPI has been able to acquire sufficient quantities of cotton for its operations in the past, any shortage in the cotton supply by reason of weather patterns, disease or other factors, or a significant increase in the price of cotton, could adversely affect its operations. The price of man-made fibers, such as polyester and nylon, is influenced by demand, manufacturing capacity and costs, petroleum prices, cotton prices and the cost of polymers used in producing these fibers. In particular, the effect of increased energy prices may have a direct impact upon the cost of dye and chemicals, polyester and other synthetic fibers. Any significant prolonged petrochemical shortages could significantly affect the availability of man-made fibers and could cause a substantial increase in demand for cotton. This could result in decreased availability of cotton and possibly increased prices and could adversely affect WPI’s operations.

The home fashion industry is highly competitive and WPI’s success depends on its ability to compete effectively in the market.

The home fashion industry is highly competitive. WPI’s future success will, to a large extent, depend on its ability to remain a low-cost producer and to remain competitive. WPI competes with both foreign and domestic companies on, among other factors, the basis of price, quality and customer service. In the home fashion market, WPI competes with many companies. WPI’s future success depends on its ability to remain competitive in the areas of marketing, product development, price, quality, brand names, manufacturing capabilities, distribution and order processing. We cannot assure you of WPI’s ability to compete effectively in any of these areas. Any failure to compete effectively could adversely affect WPI’s sales and, accordingly, its operations. Additionally, the easing of trade restrictions over time has led to growing competition from low priced products imported from Asia and Latin America. The lifting of import quotas in 2005 has accelerated the loss of WPI’s market share. There can be no assurance that the foreign competition will not grow to a level that could have an adverse effect upon WPI’s ability to compete effectively.

WPI has increased the percentage of its products that are made outside of the United States and is subject to additional risks relating to doing business overseas.

WPI has increased the percentage of its products that are made overseas and faces additional risks associated with these efforts. Adverse factors that WPI may encounter include:

logistical challenges caused by distance;
language and cultural differences;
legal and regulatory restrictions;
the difficulty of enforcing agreements with overseas suppliers;
currency exchange rate fluctuations;
political and economic instability; and
potential adverse tax consequences.

WPI continues to restructure its operations but these efforts may not be successful.

To improve WPI’s competitive position, WPI intends to continue to significantly reduce its cost of goods sold by restructuring its operations in the plants located in the United States, increasing production within its non-U.S. facilities and joint venture operation and sourcing goods from lower-cost overseas facilities. There is no assurance that WPI will be successful in its continuing restructuring efforts, the failure of which could adversely impact WPI’s profitability and ability to compete effectively.

29


TABLE OF CONTENTS

There has been consolidation of retailers of WPI’s products that may reduce its profitability.

Retailers of consumer goods have consolidated and become more powerful over time. As buying power has become more concentrated, pricing pressure on vendors has grown. With the ability to buy imported products directly from foreign sources, retailers’ pricing leverage has increased and also allowed for growth in private label brands that displace and compete with WPI proprietary brands. Retailers’ pricing leverage has resulted in a decline in WPI’s unit pricing and margins and resulted in a shift in product mix to more private label programs. If WPI is unable to diminish the decline in its pricing and margins, it may not be able to achieve or maintain profitability.

The retail industry in the U.S. is highly competitive and subject to the various economic cycles of consumer demand. WPI is subject to the retailers’ demand for products as manifest by underlying consumer spending.

Retailers of consumer goods are dependent upon consumer spending. In turn, consumer spending is broadly a function of the overall economic environment. Given the reported weaknesses, both in the overall economy and of comparable retail store sales, WPI’s financial results are subject to changes in the level of consumer retail spending for home textile products.

WPI may incur adverse financial consequences if its retail store customers experience adverse financial results.

To the extent that WPI’s retail store company customers are faced with financial difficulties due to weakened consumer demand, depending upon the amount of business that WPI does with any such customer, WPI’s financial results may be adversely affected. This adverse impact could arise out of the potential recoverability of a receivable from a financially impaired retail store customer or from this customer doing less business with WPI or other of its vendors. WPI believes it maintains adequate receivable reserves for specifically known events and an overall general provision for unknown circumstances. However, depending upon the magnitude of any future unknown event, these reserves may or may not be sufficient.

WPI is subject to various federal, state and local environmental and health and safety laws and regulations. If it does not comply with these regulations, it may incur significant costs in the future to become compliant.

WPI is subject to various federal, state and local laws and regulations governing, among other things, the discharge, storage, handling, usage and disposal of a variety of hazardous and non-hazardous substances and wastes used in, or resulting from, its operations, including potential remediation obligations under those laws and regulations. WPI’s operations are also governed by federal, state and local laws and regulations relating to employee safety and health which, among other things, establish exposure limitations for cotton dust, formaldehyde, asbestos and noise, and which regulate chemical, physical and ergonomic hazards in the workplace. Consumer product safety laws, regulations and standards at the federal and state level govern the manufacture and sale of products by WPI. Although WPI does not expect that compliance with any of these laws and regulations will adversely affect its operations, we cannot assure you that regulatory requirements will not become more stringent in the future or that WPI will not incur significant costs to comply with those requirements.

Holding Company Investments

We may not be able to identify suitable investments, and our investments may not result in favorable returns or may result in losses.

Our partnership agreement allows us to take advantage of investment opportunities we believe exist outside of our operating businesses. The equity securities in which we may invest may include common stock, preferred stock and securities convertible into common stock, as well as warrants to purchase these securities. The debt securities in which we may invest may include bonds, debentures, notes or non-rated mortgage-related securities, municipal obligations, bank debt and mezzanine loans. Certain of these securities may include lower rated or non-rated securities which may provide the potential for higher yields and therefore may entail higher risk and may include the securities of bankrupt or distressed companies. In addition, we

30


TABLE OF CONTENTS

may engage in various investment techniques, including derivatives, options and futures transactions, foreign currency transactions, “short” sales and leveraging for either hedging or other purposes. We may concentrate our activities by owning significant or controlling interest in certain investments. We may not be successful in finding suitable opportunities to invest our cash and our strategy of investing in undervalued assets may expose us to numerous risks.

We have entered into a covered affiliate agreement, pursuant to which we (and certain of our subsidiaries) have agreed, in general, to be bound by certain restrictions on our investments in any assets that the General Partners deem suitable for the Private Funds, other than government and agency bonds, cash equivalents and investments in non-public companies. We and our subsidiaries will not be restricted from making investments in the securities of certain companies in which Mr. Icahn or companies he controlled had an interest in as of the date of the initial launch of the Private Funds, and companies in which we had an interest as of the date of the acquisition on August 8, 2007 of our investment management operations. We and our subsidiaries, either alone or acting together with a group, will not be restricted from (i) acquiring all or any portion of the assets of any public company in connection with a negotiated transaction or series of related negotiated transactions or (ii) engaging in a negotiated merger transaction with a public company and, pursuant thereto, conducting and completing a tender offer for securities of the company.

Our investments may be subject to significant uncertainties.

Our investments may not be successful for many reasons including, but not limited to:

fluctuations of interest rates;
lack of control in minority investments;
worsening of general economic and market conditions;
lack of diversification;
fluctuations of U.S. dollar exchange rates; and
adverse legal and regulatory developments that may affect particular businesses.

31


TABLE OF CONTENTS

Item 1B. Unresolved Staff Comments.

There are no unresolved SEC staff comments.

Item 2. Properties

Metals

PSC Metals is headquartered in Mayfield Heights, Ohio, and operates 27 yards, three mill service operations and one pipe storage center. PSC Metals’ facilities are strategically located in high volume scrap markets throughout the upper Midwestern and Southeastern United States, placing PSC Metals in proximity to both suppliers and consumers of scrap metals.

Real Estate

As of December 31, 2007, we owned 32 retail, office and industrial properties, the majority of which are net leased to single corporate tenants. These primarily consist of fee and leasehold interests in 16 states. Approximately 88% of these properties are currently net-leased, 3% are operating properties and 9% are vacant as of December 31, 2007.

We own, primarily through our subsidiary, Bayswater Development LLC, residential development properties. Bayswater, a real estate investment, management and development company, focuses primarily on the construction and sale of single-family houses, multi-family homes and lots in subdivisions and planned communities and raw land for residential development.

Our residential development properties consist of our New Seabury Resort in Cape Cod, Massachusetts, the waterfront communities of Grand Harbor and Oak Harbor in Vero Beach, Florida and communities in Westchester County, New York and Naples, Florida. These communities include properties in various stages of development. We also own 400 acres of developable land adjacent to Grand Harbor.

At our New Seabury Resort we operate a golf club, with two championship golf courses, the Popponesset Inn, a private beach club, a fitness center and a tennis facility.

We also own three golf courses, a tennis complex, fitness center, beach club and clubhouses and an assisted living facility located adjacent to the Intercoastal Waterway in Vero Beach, Florida.

Home Fashion

WPI’s properties are indirectly owned or leased through its subsidiaries. Its properties include approximately 85,425 square feet of leased office, showroom and design space in New York, New York. WPI leases approximately 33,663 square feet elsewhere for other administrative, storage and office space. WPI owns and utilizes four manufacturing facilities located in Alabama, Florida, Maine and North Carolina which contain, in the aggregate, approximately 1.0 million square feet. WPI leases and utilizes two manufacturing facilities which contain, in the aggregate, approximately 237,000 square feet. In 2007, WPI closed the following manufacturing operations, including: Carter bath facility; Lanier, bath facility; Opelika, bed facility; Abbeville, bed facility; Marianna, bed facility; Bob Stevens, bath facility; Bob Stevens, bath facility; WestPoint Graphics; Transportation Center; Grifftex Chemicals; and 30 retail outlet stores. Four manufacturing facilities remain after these closures. WPI also sold its facilities in Burlington, NC and Clemson, SC.

WPI also owns a manufacturing facility in Bahrain containing approximately 764,000 square feet. The facility is located on land leased from the Kingdom of Bahrain under various long-term leases.

WPI owns and operates six distribution centers and warehouses for its operations which contain, in the aggregate, approximately two and a half million square feet of floor space and leases and operates one warehouse containing approximately 280,000 square feet of floor space.

Gaming

Until the consummation of the sale on February 20, 2008, through our ownership interest in ACEP, we owned and operated four hotel and casino properties in Nevada. The Stratosphere Casino Hotel & Tower, located in Las Vegas, Nevada, is centered around the Stratosphere Tower and contains the tallest free-standing observation tower in the United States. The hotel and entertainment facility is located on 34 acres, has 2,444 rooms and suites, an 80,000 square foot casino and related amenities.

32


TABLE OF CONTENTS

We also owned Arizona Charlie’s Decatur and Arizona Charlie’s Boulder. Arizona Charlie’s Decatur is located on 17 acres, has 258 hotel rooms and a 52,000 square foot casino and related amenities. Arizona Charlie’s Boulder is located on 24 acres, has 303 hotel rooms and a 47,000 square foot casino and related amenities.

Our fourth property was the Aquarius located on approximately 18 acres next to the Colorado River in Laughlin, Nevada. The Aquarius features the largest hotel in Laughlin with 1,907 hotel rooms, a 57,000 square foot casino, seven dining options, 2,420 parking spaces, over 35,000 square feet of meeting space and a 3,300-seat outdoor amphitheater.

Item 3. Legal Proceedings.

We are from time to time party to various legal proceedings arising out of our businesses. We believe however, that other than the proceedings discussed below, there are no proceedings pending or threatened against us which, if determined adversely, would have a material adverse effect on our business, financial condition, results of operations or liquidity.

WPI Litigation

Federal Proceedings

In November and December 2005, the U.S. District Court for the Southern District of New York, or the District Court, rendered a decision in Contrarian Funds LLC v. WestPoint Stevens, Inc. et al., and issued orders reversing certain provisions of the Bankruptcy Court Sale Order, pursuant to which we acquired our ownership of a majority of the common stock of WPI. WPI acquired substantially all of the assets of WestPoint Stevens, Inc. The District Court remanded to the Bankruptcy Court for further proceedings.

On April 13, 2006, the Bankruptcy Court entered a remand order (the “Remand Order”), which provided, among other things, that all of the shares of common stock and rights to acquire shares of common stock of WPI issued to us and the other first lien lenders or held in escrow pursuant to the Sale Order constituted “replacement collateral.” The Bankruptcy Court held that the 5,250,000 shares of common stock that we acquired for cash were not included in the replacement collateral. The Bankruptcy Court also held that, in the event of a sale of the collateral, including the sale of the shares we received upon exercise of certain subscription rights, or the Exercise Shares, all proceeds would be distributed, pro rata, among all first lien lenders, including us, until the first lien debt was satisfied, in full. The parties filed cross-appeals of the Remand Order.

On October 9, 2007, the District Court entered an Order, or the October 9th Order, on the appeal and cross-appeal. The District Court affirmed the Remand Order but held that, as to the Exercise Shares, any sale proceeds would be divided between us and the first lien lenders (including us), generally based upon the ratio of the amount we paid to exercise the rights to the total value of the Exercise Shares on the date they were acquired. We are holders of approximately 39.99% of the outstanding first lien debt and approximately 51.21% of the outstanding second lien debt.

Each of the parties has filed a notice of appeal with the United States Court of Appeals for the Second Circuit. As part of that appeal, the parties have the right to raise issues relating to the District Court’s November 2005 Opinion, and the Orders entered thereon, as well as issues relating to the October 9th Order.

Delaware Proceedings

On October 3, 2007, the Court of Chancery of the State of Delaware in and for New Castle County, or the Chancery Court, issued a Limited Status Quo Order (“the Order”) in Beal Bank, S.S.B., et. al. v. WestPoint International, Inc. et. al., in connection with the complaint filed on January 19, 2007, as amended, by Beal Bank, S.S.B. and certain creditors of WestPoint Stevens, Inc., collectively, the Plaintiffs. The Order required that WPI and subsidiaries seek a further court order, obtain consent, or give notice before engaging in certain actions. On October 15, 2007, the Chancery Court issued a Modified Limited Status Quo Order, or the Modified Order, modifying certain provisions of the prior order to permit WPI and its subsidiaries to conduct ordinary course of business activities without further notice, consent, or order, including (i) ordinary course of business sales and purchases provided any particular transaction does not exceed $20,000,000 and (ii) transfers of excess inventory, unused equipment and/or unused real property to an unrelated third party provided the sale price for any particular real property transaction does not exceed $30,000,000.

33


TABLE OF CONTENTS

We continue to vigorously defend against all claims asserted in the Federal and Delaware proceedings and believe that we have valid defenses. However, we cannot predict the outcome of these proceedings or the ultimate impact on our investment in WPI and its subsidiaries or the business prospects of WPI and its subsidiaries.

Lear Corporation

Icahn Enterprises was named as a defendant in various actions filed in connection with its merger agreement with Lear Corporation, or Lear. The Lear shareholders rejected the merger and the merger agreement has terminated. Icahn Enterprises remains a party to an action filed in the Court of Chancery of the State of Delaware challenging the payment to us of a break-up fee as provided in the merger agreement. We intend to vigorously defend the Delaware action but we cannot predict the outcome of the action.

National Energy Group, Inc.

National Energy Group, Inc., or NEGI, was informed that on February 1, 2008 a purported stockholder derivative and class action lawsuit styled Andrew T. Berger v. Icahn Enterprises LP, et al. (Case No. 3522-VCS) was filed in the Delaware Court of Chancery against NEGI, as a nominal defendant, Icahn Enterprises and various individual including one of our current directors. Icahn Enterprises indirectly beneficially owns 50.1% of the NEGI’s outstanding common stock. The complaint alleges, among other things, that certain of NEGI’s current and former officers and directors breached their fiduciary duties to NEGI and its stockholders in connection with NEGI’s previously announced November 21, 2006 sale to NEG Oil & Gas LLC, or NEG Oil & Gas, of NEGI’s former unconsolidated non-controlling 50% limited liability company interest in NEG Holding LLC, or NEG Holding, as a result of the exercise by NEG Oil & Gas of its contractual redemption option under the operating agreement governing NEG Holding.

Since the redemption of NEGI’s former interest in NEG Holding, NEGI has had no business operations and its principal assets consist of its cash and short-term investment balances, which currently aggregate approximately $47.8 million. As a result, on November 12, 2007, NEGI’s board of directors concluded that the liquidation and dissolution of NEGI, or the Dissolution, and the distribution of NEGI’s assets, or the Distribution, in connection therewith was in the best interests of the NEGI stockholders when compared to other alternatives. A special meeting of NEGI’s shareholders was scheduled for February 7, 2008 for all shareholders of record on December 27, 2007, or the Record Date, to consider and vote Dissolution and the Distribution.

As a result of the filing of the complaint, NEGI adjourned the special meeting to March 14, 2008 to permit the shareholders of NEGI to evaluate the lawsuit.

On March 14, 2008, the shareholders voted to approve the Dissolution. NEGI anticipates filing a Form 15 with the Securities and Exchange Commission, on or about March 26, 2008 for the purpose of deregistering its securities under the ’34 Act. As a result, NEGI suspended the filing of any further periodic reports under the ’34 Act and, absent contrary action by the SEC, its status as a public company will be terminated. No cash distributions will be made to NEGI's shareholders until the NEGI board determines that NEGI has paid, or made adequate provision for the payment of its liabilities and obligations, including any liabilities relating to the lawsuit.

NEGI believes it has meritorious defenses to all claims and will vigorously defend the action; however, the lawsuit is in its early stages and we cannot predict the outcome of the litigation on us or on our interest in NEGI.

Item 4. Submission of Matters to a Vote of Security Holders.

No matters were submitted to our security holders during the fourth quarter of fiscal 2007.

34


TABLE OF CONTENTS

PART II

Item 5. Market for Registrant’s Common Equity, Related Security Holder Matters and Issuer Purchases of Equity Securities.

Our depositary units are traded on the NYSE under the new symbol “IEP.” The range of high and low sales prices for the depositary units on the New York Stock Exchange Composite Tape (as reported by The Wall Street Journal) for each quarter from January 1, 2006 through December 31, 2007 is as follows:

     
Quarter Ended:   High   Low   Dividends per Depositary Unit
March 31, 2006   $ 47.37     $ 33.54     $ 0.10  
June 30, 2006     47.60       35.25       0.10  
September 30, 2006     54.50       40.50       0.10  
December 31, 2006     87.98       53.40       0.10  
March 31, 2007     128.69       86.92       0.10  
June 30, 2007     117.25       84.68       0.15  
September 30, 2007     120.71       87.25       0.15  
December 31, 2007     134.00       117.10       0.15  

As of December 31, 2007, there were approximately 11,000 record holders of the depositary units.

There were no repurchases of our depositary units during fiscal 2006 or fiscal 2007.

Distributions

During fiscal 2007, we paid four quarterly distributions to holders of our depositary units. The first distribution was $0.10 per depositary unit and the remaining three distributions were each $0.15 per depositary unit.

On February 29, 2008 the board of directors of Icahn Enterprises GP approved an increase in the quarterly cash distribution from $0.15 to $0.25 per unit on its depositary units payable in the first quarter of fiscal 2008. The distribution is payable on April 1, 2008 to depositary unitholders of record at the close of business on March 18, 2008.

The declaration and payment of distributions is reviewed quarterly by Icahn Enterprises GP’s board of directors based upon a review of our balance sheet and cash flow, the ratio of current assets to current liabilities, our expected capital and liquidity requirements, the provisions of our partnership agreement and provisions in our financing arrangements governing distributions, and keeping in mind that limited partners subject to U.S. federal income tax have recognized income on our earnings without receiving distributions that could be used to satisfy any resulting tax obligations. The payment of future distributions will be determined by the board of directors quarterly, based upon the factors described above and other factors that it deems relevant at the time that declaration of a distribution is considered. There can be no assurance as to whether or in what amounts any future distributions might be paid.

As of March 13, 2008, there were 70,489,510 depositary units and 11,907,073 preferred units outstanding. Our preferred units trade on the NYSE under the new symbol “IEP-P.” The preferred units represent limited partner interests in Icahn Enterprises and have certain rights and designations, generally as follows. Each preferred unit has a liquidation preference of $10.00 and entitles the holder to receive distributions payable solely in additional preferred units, at a rate of $0.50 per preferred unit per annum (which is equal to a rate of 5% of the liquidation preference of the unit) payable annually on March 31 of each year, each referred to as a payment date.

On any payment date, with the approval of our audit committee, we may opt to redeem all, but not less than all, of the preferred units for a price, payable either in all cash or by issuance of additional depositary units, equal to the liquidation preference of the preferred units, plus any accrued but unpaid distributions thereon. On March 31, 2010, we must redeem all, but not less than all, of the preferred units on the same terms as any optional redemption.

35


TABLE OF CONTENTS

On March 31, 2007, we distributed to holders of record of our preferred units as of March 15, 2007, 566,830 additional preferred units. Pursuant to the terms of the preferred units, on February 29, 2008, we declared our scheduled annual preferred unit distribution payable in additional preferred units at the rate of 5% of the liquidation preference of $10.00. The distribution will be paid on March 29, 2008 to holders of record as of March 14, 2008. On February 29, 2008, the board of directors approved an increase in the number of authorized preferred units to 13,000,000.

Each depositary unitholder will be taxed on the unitholder’s allocable share of our taxable income and gains and, with respect to preferred unitholders, accrued guaranteed payments, whether or not any cash is distributed to the unitholder.

36


TABLE OF CONTENTS

Item 6. Selected Financial Data.

SELECTED FINANCIAL DATA

The following table contains our selected historical consolidated financial data, which should be read in conjunction with our consolidated financial statements and the related notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in this annual report on Form 10-K. The selected historical consolidated financial data as of December 31, 2007 and 2006 and for the years ended December 31, 2007, 2006 and 2005 have been derived from our audited consolidated financial statements at those dates and for those periods, contained elsewhere in this annual report on Form 10-K. The selected historical consolidated financial data as of December 31, 2005, 2004 and 2003 and for the years ended December 31, 2004 and 2003 have been derived from our audited consolidated financial statements at those dates and for those periods, not contained in this annual report on Form 10-K, as adjusted retrospectively for (1) our acquisitions of PSC Metals and the Partnership Interests, which consist of the general partnership interests in the General Partners and New Icahn Management and which now constitute our Investment Management business and (2) reclassifications of our Oil and Gas and Atlantic City and Nevada gaming properties, certain real estate operations and the retail stores within our Home Fashion segment’s results of operations as discontinued operations.

         
  For the Year Ended December 31,
     2007   2006   2005   2004   2003
     (In 000s Except Per Unit Amounts)
Statement of Operations Data:
                                            
Total revenues   $ 2,487,626     $ 3,003,980     $ 1,524,705     $ 852,446     $ 44,983  
Income from continuing operations   $ 217,272     $ 309,185     $ 52,287     $ 153,891     $ 15,636  
Total income from discontinued operations, net of income taxes   $ 91,047     $ 798,541     $ 29,601     $ 110,370     $ 52,784  
Earnings before cumulative effect of accounting change   $ 308,319     $ 1,107,726     $ 81,888     $ 264,261     $ 68,420  
Cumulative effect of accounting change                             1,912  
Net earnings   $ 308,319     $ 1,107,726     $ 81,888     $ 264,261     $ 70,332  
Net earnings (loss) attributable to:
                                            
Limited partner   $ 102,982     $ 506,925     $ (20,726 )    $ 130,850     $ 51,074  
General partner     205,337       600,801       102,614       133,411       19,258  
Net earnings   $ 308,319     $ 1,107,726     $ 81,888     $ 264,261     $ 70,332  
Basic and Diluted Earnings:
                                            
Income (loss) from continuing operations
per LP unit
  $ 0.21     $ 0.01     $ (0.91 )    $ 0.49     $ (0.07 ) 
Income from discontinued operations
per LP unit
    1.37       8.21       0.54       2.35       1.12  
Basic and diluted earnings (loss) per LP unit   $ 1.58     $ 8.22     $ (0.37 )    $ 2.84     $ 1.05  
Weighted average limited partnership
units outstanding
    65,286       61,857       54,085       46,098       46,098  
Other Financial Data:
                                            
EBITDA(1)   $ 544,948     $ 1,463,438     $ 375,872     $ 438,590     $ 171,806  
Adjusted EBITDA(1)     482,842       1,451,500       436,598       447,769       174,420  
Cash dividends declared (per LP unit)     0.55       0.40       0.20              

37


TABLE OF CONTENTS

         
  December 31,
     2007   2006   2005   2004   2003
     (In 000s)
Balance Sheet Data:
                                            
Cash and cash equivalents   $ 2,112,832     $ 1,884,477     $ 367,065     $ 787,274     $ 410,240  
Investments     512,560       700,595       816,868       350,527       167,727  
Property, plant and equipment, net     513,304       535,273       497,033       600,262       298,784  
Total assets     12,433,646       9,279,970       7,256,670       3,056,191       2,156,892  
Long-term debt     2,028,574       939,802       903,987       737,358       303,043  
Liability for preferred limited
partnership units
    123,538       117,656       112,067       106,731       101,649  
Partners' equity     2,313,028       2,832,462       1,738,437       1,786,490       1,499,205  

(1) EBITDA represents earnings before interest expense, income tax (benefit) expense and depreciation, depletion and amortization. We define Adjusted EBITDA as EBITDA excluding the effect of unrealized losses or gains on derivative contracts. We present EBITDA and Adjusted EBITDA because we consider them important supplemental measures of our performance and believe they are frequently used by securities analysts, investors and other interested parties in the evaluation of companies that have issued debt, many of which present EBITDA and Adjusted EBITDA when reporting their results. We present EBITDA and Adjusted EBITDA on a consolidated basis. However, we conduct substantially all of our operations through subsidiaries. The operating results of our subsidiaries may not be sufficient to make distributions to us. In addition, our subsidiaries are not obligated to make funds available to us for payment of our indebtedness, payment of distributions on our depository units or otherwise, and distributions and intercompany transfers from our subsidiaries to us may be restricted by applicable law or covenants contained in debt agreements and other agreements to which these subsidiaries currently may be subject or into which they may enter into in the future. The terms of any borrowings of our subsidiaries or other entities in which we own equity may restrict dividends, distributions or loans to us.

EBITDA and Adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation, or as substitutes for analysis of our results as reported under generally accepted accounting principles in the United States, or U.S. GAAP. For example, EBITDA and Adjusted EBITDA:

do not reflect our cash expenditures, or future requirements for capital expenditures, or contractual commitments;
do not reflect changes in, or cash requirements for, our working capital needs; and
do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debts.

Although depreciation, depletion and amortization are non-cash charges, the assets being depreciated, depleted or amortized often will have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements. Other companies in the industries in which we operate may calculate EBITDA and Adjusted EBITDA differently than we do, limiting their usefulness as comparative measures. In addition, EBITDA and Adjusted EBITDA do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations.

EBITDA and Adjusted EBITDA are not measurements of our financial performance under U.S. GAAP and should not be considered as an alternative to net earnings or any other performance measures derived in accordance with U.S. GAAP or as an alternative to cash flow from operating activities as a measure of our liquidity. Given these limitations, we rely primarily on our U.S. GAAP results and use EBITDA only supplementally in measuring our financial performance.

38


TABLE OF CONTENTS

The following table reconciles net earnings to EBITDA and EBITDA to Adjusted EBITDA for the periods indicated (in $000s):

         
  For the Year Ended December 31,
     2007   2006   2005   2004   2003
Net earnings   $ 308,319     $ 1,107,726     $ 81,888     $ 264,261     $ 70,332  
Interest expense     170,451       142,926       105,500       68,100       38,865  
Income tax expense (benefit)     27,113       39,067       30,889       (556 )      (15,792 ) 
Depreciation, depletion and amortization     39,065       173,719       157,595       106,785       78,401  
EBITDA     544,948       1,463,438       375,872       438,590       171,806  
Unrealized (gains) losses on derivative contracts     (62,106 )      (11,938 )      60,726       9,179       2,614  
Adjusted EBITDA   $ 482,842     $ 1,451,500     $ 436,598     $ 447,769     $ 174,420  

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Management’s discussion and analysis of financial condition and results of operations is comprised of the following sections:

(1) Overview
Introduction
Acquisitions
Divestitures
(2) Results of Operations
Overview
Other Significant Events
Consolidated Financial Results of Continuing Operations
Investment Management Operations
All Other Operations
Metals
Real Estate
Home Fashion
Holding Company
All Other Operations-Interest and other income, interest expense and income tax
Discontinued Operations
(3) Liquidity and Capital Resources
Consolidated Liquidity and Capital Resources
Cash Flows
Borrowings
Contractual Commitments
Metals and Home Fashion Purchase Orders
Obligations Related to Securities
Off-Balance Arrangements
Segment Liquidity and Capital Resources

39


TABLE OF CONTENTS

Investment Management Operations
All Other Operations
Metals
Real Estate
Home Fashion
Discontinued Operations
Distributions
(4) Critical Accounting Policies and Estimates
(5) Forward-Looking Statements
(6) Certain Trends and Uncertainties

The following discussion is intended to assist you in understanding our present business and the results of operations together with our present financial condition. This section should be read in conjunction with our Consolidated Financial Statements and the accompanying notes.

Overview

Introduction

We are a master limited partnership formed in Delaware on February 17, 1987. On September 17, 2007, we changed our name from American Real Estate Partners, L.P. to Icahn Enterprises L.P., or Icahn Enterprises. We own a 99% limited partnership interest in Icahn Enterprises Holdings L.P., or Icahn Enterprises Holdings, formerly known as American Real Estate Holdings Limited Partnership. Icahn Enterprises Holdings and its subsidiaries hold our investments and substantially all of our operations are conducted through Icahn Enterprises Holdings and its subsidiaries. Icahn Enterprises G.P. Inc., or Icahn Enterprises GP, formerly known as American Property Investors, Inc., owns a 1% general partnership interest in both us and Icahn Enterprises Holdings, representing an aggregate 1.99% general partnership interest in us and Icahn Enterprises Holdings. Icahn Enterprises GP is owned and controlled by Mr. Carl C. Icahn. As of December 31, 2007, affiliates of Mr. Icahn beneficially owned approximately 91.2% of our outstanding depositary units and approximately 86.5% of our outstanding preferred units.

We are a diversified holding company owning subsidiaries engaged in the following operating businesses: Investment Management (effective August 8, 2007), Metals (effective November 5, 2007), Real Estate and Home Fashion. As of December 31, 2007, we also operated discontinued operations, including our former Gaming segment. In addition to our operating businesses, we discuss the Holding Company. The Holding Company includes the unconsolidated results of Icahn Enterprises and Icahn Enterprises Holdings, and investment activity and expenses associated with the activities of the Holding Company.

In accordance with U.S. GAAP, assets transferred between entities under common control are accounted for at historical cost similar to a pooling of interests, and the financial statements of previously separate companies for all periods under common control prior to the acquisition are restated on a consolidated basis.

Acquisitions

Acquisition of Investment Management Business

As discussed elsewhere in this annual report on Form 10-K, on August 8, 2007, we acquired the Partnership Interests, which consisted of the general partnership interests in the General Partners and New Icahn Management. See Part I, Item 1, “Acquisition of Investment Management Business,” for further discussion. We entered into the Contribution Agreement with the Contributors and Mr. Icahn. Pursuant to the Contribution Agreement, we acquired general partnership interests in the General Partners, acting as general partners of the Onshore Fund and the Offshore Master Funds managed and controlled by Mr. Icahn.

We also acquired the Partnership Interests consisting of the general partnership interest in New Icahn Management, a newly formed management company that provided certain administrative and back office

40


TABLE OF CONTENTS

services to the Private Funds. Prior to the acquisition on August 8, 2007, Icahn Management performed such services. As referred to herein, the term Investment Management Entities includes Icahn Management (for the period prior to the acquisition on August 8, 2007) and New Icahn Management (for the period subsequent to the acquisition on August 8, 2007 through December 31, 2007) and, in either case, the General Partners. The Investment Management Entities do not provide investment advisory or other administrative and back office services to any other entities, individuals or accounts. Interests in the Private Funds are offered only to certain sophisticated and accredited investors on the basis of exemptions from the registration requirements of the federal securities laws and are not publicly available.

The total initial consideration paid for the acquisition was $810 million of our depositary units. In addition, we have agreed to make certain earn-out payments to the Contributors over a five-year period payable in additional depositary units based on our after-tax earnings from the General Partners and New Icahn Management subsequent to the acquisition. There is a potential maximum aggregate earn-out (including any catch-up) of $1.121 billion which is subject to achieving total after-tax earnings during the five-year period of at least $3.906 billion. As of December 31, 2007, there has been no earn-out paid to the Contributors.

Acquisition of PSC Metals

On November 5, 2007, we acquired, through a subsidiary, all of the issued and outstanding capital stock of PSC Metals from Philip, an affiliate of Carl C. Icahn, for $335 million in cash. Mr. Icahn indirectly owned a 95.6% interest and we indirectly owned the remaining 4.4% interest in Philip. PSC Metals is principally engaged in the business of collecting, processing and selling ferrous and non-ferrous metals. As a result of Mr. Icahn’s and our ownership interests in Philip, the former parent of PSC Metals, PSC Metals is considered a company under common control. Accordingly, the accompanying consolidated financial statements and footnotes include the assets and operations of PSC Metals for all periods presented.

Divestitures

On April 22, 2007, we entered into an agreement to sell our remaining gaming operations, which transaction was consummated on February 20, 2008. During the fourth quarter of fiscal 2006, we divested our Oil and Gas segment and our Atlantic City gaming properties. These segments are discussed below as part of our discontinued operations.

Results of Operations

Overview

A summary of the significant events for fiscal 2007 is as follows:

The acquisition of the Investment Management business (i.e., the Partnership Interests) on August 8, 2007 for an initial consideration of 8,632,679 of our depositary units, valued at $810 million;
The acquisition of PSC Metals from Philip on November 5, 2007 for a total consideration of $335 million in cash;
An increase in the Investment Management segment’s AUM of $3.5 billion compared to December 31, 2006;
The issuance of $500 million of additional 7.125% senior unsecured notes in January 2007;
The issuance of $600 million of variable rate notes in April 2007;
The sale of our position in common stock of SandRidge Energy, Inc., or SandRidge, for total cash consideration of $243.2 million on April 4, 2007;
The execution of an agreement to sell ACEP, comprising our remaining Gaming segment, which transaction was consummated on February 20, 2008;
Income from continuing operations from our Investment Management segment of approximately $170.2 million due to overall positive returns of the Private Funds despite broad, volatile market conditions in fiscal 2007; and
The continued restructuring efforts of WPI, including the closure of all of WPI’s retail stores and related inventory disposal. WPI recorded a charge of approximately $14.0 million related to this restructuring effort, which is included in discontinued operations.

41


TABLE OF CONTENTS

A summary of the significant events for fiscal 2006 is as follows:

The sale of our former Oil and Gas operating unit and Atlantic City gaming properties in the fourth quarter of fiscal 2006, which resulted in a gain of $663.7 million;
Enhancement of our liquidity — our total Holding Company cash and cash equivalents and investments as of December 31, 2006 increased to approximately $2.6 billion, as compared to $1.2 billion as of December 31, 2005, resulting from the proceeds from the sale of our Oil and Gas and Atlantic City gaming properties;
Execution of a credit agreement providing for additional borrowings by Icahn Enterprises of up to $150.0 million;
The acquisition of the Aquarius Casino Resort in Laughlin, Nevada in May 2006;
Increase in our investment in WPI through the purchase of $200.0 million of preferred stock, the proceeds of which, in part, WPI used to acquire a manufacturing facility in Bahrain;
Increased loss from continuing operations of $61.8 million from our Home Fashion segment, of which $44.0 million relates to restructuring costs consisting primarily of impairment charges in connection with the closing of plants, the effect of which on net earnings was offset in part by the $56.4 million increase in the minority interests’ share in WPI’s losses;
Net realized and unrealized gains on investments of $91.3 million in fiscal 2006 compared to net realized and unrealized losses on investments of $21.3 million in fiscal 2005 in our all other operations; and
Recording $56.4 million of income tax benefits in fiscal 2006 as a result of the reversal of deferred tax valuation allowances for our Metals segment, our former Oil and Gas operating unit and our former Atlantic City gaming operations.

Other Significant Events

Investment Management Operations

Amendments to Management Agreements

Effective January 1, 2008, the management agreements between New Icahn Management and the Private Funds were terminated resulting in the termination of the Feeder Funds’ and the Onshore Fund’s obligations to pay management fees thereunder. In addition, the limited partnership agreements of the Investment Funds (the “Investment Fund LPAs”) were amended to provide that, as of January 1, 2008, the General Partners will provide or cause their affiliates to provide to the Private Funds the administrative and back office services that were formerly provided by New Icahn Management (the “Services”) and in consideration of providing the Services, the General Partners will receive special profits interest allocations from the Investment Funds.

Prior to January 1, 2008, the management agreements provided for the Management Fees to be paid by each of the Feeder Funds and the Onshore Fund to New Icahn Management at the beginning of each quarter generally in an amount equal to 0.625% of the net asset value of each Investor’s (defined below) investment in the Feeder Fund or Onshore Fund, as applicable.

The Investment Fund LPAs provide, effective January 1, 2008, that, the applicable General Partner will receive a special profits interest allocation at the end of each calendar year from each capital account maintained at the Investment Fund that is attributable to, in the case of the Onshore Fund, each limited partner in the Onshore Fund and, in the case of the Feeder Funds, each investor in the Feeder Funds (excluding certain investors that are not charged fees including affiliates of Mr. Icahn) (each, an “Investor”). This allocation is generally equal to 0.625% of the balance in each capital account as of the beginning of each quarter (for each Investor, the “Target Special Profits Interest Amount”) except that amounts are allocated to the General Partners in respect of special profits interest allocations only to the extent net increases (i.e., net profits) are allocated to an Investor for the fiscal year. Accordingly, any special profits interest allocation allocated to the General Partners in any year cannot exceed the net profits allocated to such Investor in such year. In the event that sufficient net profits are not generated by an Investment Fund with respect to a capital account to meet the full Target Special Profits Interest Amount for an Investor for a calendar year, a special profits interest allocation will be made to the extent of such net profits, if any, and the shortfall will be carried forward

42


TABLE OF CONTENTS

(without interest or a preferred return) and added to the Target Special Profits Interest Amount determined for such Investor for the next calendar year. Appropriate adjustments will be made to the calculation of the special profits interest allocation for new subscriptions and withdrawals by Investors. In the event that an Investor withdraws or redeems in full from a Feeder Fund or the Onshore Fund before the full targeted Target Special Profits Interest Amount determined for such Investor has been allocated to the General Partner in the form of a special profits interest allocation, the Target Special Profits Interest Amount that has not yet been allocated to the General Partner will be eliminated and the General Partner will never receive it.

Effective January 1, 2008, we amended the Contribution Agreement and certain employment agreements to accommodate the termination of the management agreements. See, Part III, Item 11, “Additional Information Regarding Executive Compensation—Employment Agreements,” for further discussion regarding changes to Mr. Keith Meister’s and Mr. Vince Intrieri’s employment agreements.

Effective January 1, 2008, the Company entered into an agreement with Carl C. Icahn, CCI Onshore, CCI Offshore, Icahn Management LP and Icahn Management. This agreement, (the “Icahn Amendment Agreement”) amends certain provisions of (A) the Contribution Agreement and (B) the Icahn Employment Agreement, as defined herein, dated as of August 8, 2007 among us, the New Icahn Management and Carl Icahn. Pursuant to the Icahn Amendment Agreement, the reference to “(i) management fees payable to New Icahn Management with respect to the Private Funds pursuant to the management agreements in the definition of “Hedge Fund Earnings” in the Contribution Agreement was deleted and replaced with “(i) special profits interest allocation made to the Onshore GP and the Offshore GP with respect to the Investment pursuant to the limited partnership agreement of each Master Fund in effect from time to time. Similarly, the references to “management fee” in Section 1(a) and Section 2(a) of Exhibit A of the Icahn Employment Agreement were deleted and replaced with “special profits interest allocation.” Furthermore, although the obligation of the Onshore Fund and the Feeder Funds to pay management fees was terminated, it was agreed in the Icahn Amendment Agreement provides that Mr. Icahn would continue to be obligated to pay a 2% fee on (i) the fifty percent of his annual bonus incentive that under the Icahn Employment Agreement is deferred and deemed invested in the Private Funds, and (ii) the amount of his personal funds that Mr. Icahn is required to keep invested in the Private Funds if prior to August 8, 2012 he, for any reason, ceases to serve as Chief Executive Officer of New Icahn Management and as the individual primarily responsible for the management of the Private Funds’ investment portfolios.

Other

See Note 20, “Subsequent Events,” of our consolidated financial statements for additional information regarding the Private Funds’ capital contributions and withdrawals made subsequent to December 31, 2007.

Consummation of ACEP Sale

On February 20, 2008, we consummated on the sale of our subsidiary, ACEP, which owns the Stratosphere and three other Nevada gaming properties. The purchaser was an affiliate of Whitehall Street Real Estate Fund. With the consummation of this transaction at a purchase price of $1.2 billion, we anticipate realizing a gain of approximately $700 million, subject to post-closing adjustments, before taxes. See Note 20, “Subsequent Events,” of our consolidated financial statements for additional information.

NEGI

On February 1, 2008, NEGI was informed that a purported stockholder derivative and class action lawsuit styled Andrew T. Berger v. Icahn Enterprises LP, et al. (Case No. 3522-VCS) was filed in the Delaware Court of Chancery against NEGI, as a nominal defendant, and Icahn Enterprises and one of our current directors, as additional defendants. We indirectly beneficially own 50.1% of NEGI’s outstanding common stock. The complaint alleges, among other things, that certain of NEGI’s current and former officers and directors breached their fiduciary duties to NEGI and its stockholders in connection with NEGI’s previously announced November 21, 2006 sale to NEG Oil & Gas of NEGI’s former unconsolidated non-controlling 50% limited liability company interest in NEG Holding, as a result of the exercise by NEG Oil & Gas of its contractual redemption option under the operating agreement governing NEG Holding.

43


TABLE OF CONTENTS

NEGI believes it has meritorious defenses to all claims; however, the lawsuit is in its early stages and we cannot predict the outcome of the litigation on our interest in NEGI. See Note 19, “Commitments and Contingencies,” of our consolidated financial statements for additional information.

Declaration of Dividends on Preferred Units

On February 29, 2008, we declared our scheduled annual preferred unit distribution payable in additional preferred units at the rate of 5% of the liquidation preference of $10.00. The distribution is payable on March 29, 2008 to holders of record as of March 14, 2008. We also increased the number of authorized preferred units by 900,000 to 13,000,000 required for the distribution.

Declaration of Distribution on Depositary Units

On February 29, 2008, the board of directors of Icahn Enterprises GP approved an increase in the quarterly cash distribution from $0.15 to $0.25 per unit on its depositary units payable in the first quarter of fiscal 2008. The distribution will be paid on April 1, 2008 to depositary unitholders of record at the close of business on March 18, 2008.

Consolidated Financial Results of Continuing Operations

Year Ended December 31, 2007 Compared to the Year Ended December 31, 2006

Total revenues in fiscal 2007 decreased by approximately $516.4 million, or 17.2%, to $2.5 billion as compared to fiscal 2006. The decrease is primarily due to decreased Investment Management segment revenues of approximately $516.0 million as a result of reduced investment profits. Results were also negatively affected by decreased Home Fashion segment revenues of approximately $207.2 million as a result of efforts to reduce revenue from less profitable programs, a weaker home textile retail environment and competition from other manufacturers. In addition, Real Estate segment revenues decreased by approximately $29.7 million, primarily attributable to the current residential slowdown of real estate development sales and decreased rental renewal rates at certain commercial properties. Offsetting these decreases in revenues were an increase in Metals segment revenues of approximately $124.1 million and an increase in the Holding Company’s interest, dividends and other income of approximately $86.1 million due to higher cash balances from the issuance of $500 million of additional 7.125% senior unsecured notes in January 2007 and $600 million of variable rate notes in April 2007. The increase in Metals segment revenues was primarily due to the increase in ferrous revenues generated by both an increase in average selling price of ferrous scrap and an increased volume of shipped ferrous production.

Total expenses for fiscal 2007 increased by approximately $2.7 million, or 0.1%, as compared to fiscal 2006. Contributing to this increase was an increase in our Metals segment expenses of approximately $129.1 million primarily due to higher metals prices and higher volume, and an increase in interest expense of $53.5 million due to the issuance of $500 million of additional 7.125% senior unsecured notes in January 2007 and $600 million of variable rate notes in April 2007. Additionally, Investment Management segment expenses increased by $20.1 million, primarily attributable to interest and dividend expense relating to securities sold, not yet purchased and an increase in fees paid to the Private Funds’ administrator which are based on AUM, coupled with an increase in compensation expense resulting from compensation awards relating to earned incentive income. The overall increase in total expenses was offset by a decrease in Home Fashion segment expenses of $192.0 million, which was primarily due to lower cost of sales and lower selling, general administrative expenses.

Income from continuing operations decreased by approximately $91.9 million, or 29.7%, for fiscal 2007 as compared to fiscal 2006. The decrease resulted primarily from decreased Investment Management segment earnings of $89.5 million resulting primarily from decreased gains from investment activities due to lower performance of the Private Funds in fiscal 2007. The overall decrease in income from continuing operations also included decreases in earnings in the Home Fashion segment ($13.8 million), Real Estate segment ($11.5 million) and Metals segment ($8.9 million) in fiscal 2007 compared to fiscal 2006. The decrease in Home Fashion earnings for fiscal 2007 was primarily attributable to WPI’s continuing efforts to reduce revenues from less profitable programs and a weaker retail sales environment. The decrease in Real Estate earnings for fiscal 2007 was primarily due to the slowdown in residential real estate sales and decreased rental renewal rates at certain commercial properties. The decrease in Metals’ segment earnings was due to reduced margin and increased general and administrative expenses due to increased personnel costs and professional fees.

44


TABLE OF CONTENTS

Year Ended December 31, 2006 Compared to the Year Ended December 31, 2005

Total revenues for fiscal 2006 increased by $1.5 billion, or 97%, as compared to fiscal 2005. The increase was primarily due to higher Investment Management segment revenues of $751.4 million in fiscal 2006 compared to fiscal 2005 resulting from the positive performance of the Private Funds during fiscal 2006. This increase also reflects the inclusion of WPI, comprising our Home Fashion segment, which we acquired in August 2005, for the entire year in fiscal 2006. Increases in revenues were also recorded in our Metals segment ($109.1 million), our Real Estate segment ($34.2 million) and net gains on investment activities from all other operations ($112.6 million).

Total expenses for fiscal 2006 increased $768.8 million, or 62.5%, as compared to fiscal 2005. The increase was primarily due to the inclusion of the Home Fashion segment, which we acquired in August 2005, for the entire year in fiscal 2006. Of the $768.8 million increase in fiscal 2006 compared to fiscal 2005, $572.1 was due to the inclusion of our Home Fashion segment. Expenses in our Metals segment increased by $97.3 million due to higher metals prices and an increase in volume.

Income from continuing operations for fiscal 2006 increased $256.9 million, or 491.3%, as compared to fiscal 2005. The increase was primarily due to higher income from the Investment Management segment of $175.1 million, primarily due to positive performance of the Private Funds and higher AUM compared to fiscal 2005. The Holding Company contributed $104.8 million to this increase primarily from an increase in the net gains from investment activities compared to fiscal 2005. The Metals segment contributed $27.3 million to the increase due to increased metals volume and increases in metals prices. The overall increase in fiscal 2006 was partially offset by losses incurred by the Home Fashion segment compared to fiscal 2005.

Investment Management Operations

Overview

The Investment Management Entities provide investment advisory and certain administrative and back office services to the Private Funds. The Investment Management Entities do not provide investment advisory or other administrative and back office services to any other entities, individuals or accounts, and interests in the Private Funds are offered only to certain sophisticated and accredited investors on the basis of exemptions from the registration requirements of the federal securities laws and are not publicly available.

The Investment Management Entities generated income from amounts earned pursuant to contractual arrangements with the Private Funds through December 31, 2007. Such amounts typically included an annual management fee of 2.5% of the net asset value of fee-paying capital in the Private Funds before a performance-based incentive allocation of 25% of the net profits earned by the Private Funds subject to a “high water mark” (whereby the General Partners do not earn incentive allocations during a particular year even though the fund had a positive return in such year until losses in prior periods are recovered). The Investment Management Entities may modify or waive such amounts in certain circumstances including where (a) an investor has reduced fees based on the amount invested and related lock-up periods or (b) investments are made by Mr. Icahn or his affiliates. The Investment Management Entities and their affiliates may also earn income through their principal investments in the Private Funds. Substantially all of the management fees earned from certain consolidated entities by New Icahn Management through December 31, 2007 (and, prior to the acquisition of the Partnership Interests on August 8, 2007, by Icahn Management) and the incentive allocations earned by the Onshore GP and the Offshore GP from the Onshore Fund and the Offshore Master Funds, respectively, are eliminated in consolidation; however, the Investment Management Entities’ share of the net income from the Private Funds includes the amount of these eliminated fees and allocations. Any management fees earned from unconsolidated Private Funds are recorded and reflected separately on the consolidated statements of operations.

Through December 31, 2007, our Investment Management results were driven by the combination of the Private Funds’ AUM and the investment performance of the Private Funds. As AUM increased, management fee revenues generally increased in tandem because New Icahn Management charged management fees based on the net asset value of fee-paying capital in the Private Funds, generally at the beginning of each quarter. Incentive allocations were determined based on the aggregate amount of net profits earned by the Investment Funds. Incentive allocations were determined by the investment performance of the Private Funds, which was a principal determinant of the long-term success of the investment management operations because it enabled

45


TABLE OF CONTENTS

AUM to be increased through retention of fund profits and by making it more likely to attract new investment capital and minimize redemptions by Private Fund investors.

Effective January 1, 2008, the management agreements and the management fees payable thereunder by the Onshore Fund and the Feeder Funds were terminated. In addition, the partnership agreements of the Offshore Master Funds and the Onshore Fund were amended to provide that the General Partners would provide, or direct their affiliates to provide, the administrative and back office services to the Private Funds and in consideration thereof the General Partners would receive special profits interest allocations in the Onshore Fund and the Offshore Master Funds (as such term is defined in their respective limited partnership agreements). See above, “Other Significant Events—Investment Management Operations,” for further discussion.

AUM and Fund Performance

The table below reflects changes to AUM for the years ended December 31, 2007, 2006 and 2005. The end of period balances represent total AUM, including deferred management fees and incentive allocations and our own investments in the Private Funds as well as investments of other affiliated parties who have not been charged management fees or incentive allocations for the periods presented (in $000s).

     
  Years Ended December 31,
     2007   2006   2005
Balance, beginning of period   $ 4,019,993     $ 2,646,652     $ 1,166,578  
Net in-flows     3,005,084       332,173       1,150,158  
Appreciation (depreciation)     485,593       1,041,168       329,916  
Balance, end of period   $ 7,510,670     $ 4,019,993     $ 2,646,652  
Fee-paying AUM   $ 5,049,767     $ 3,193,415     $ 2,136,354  

The following table sets forth performance information for the Private Funds that were in existence for the comparative periods presented. These gross returns represent a weighted average composite of the average gross returns, net of expenses for the Private Funds.

     
  Gross Return(1) for the Year Ended December 31,
     2007   2006   2005
Private Funds     12.3 %       37.8 %       17.9 %  

(1) These returns are indicative of a typical investor who has been invested since inception of the funds. The performance information is presented gross of management fees but net of expenses. Past performance is not necessarily indicative of future results.

The Private Funds’ aggregate gross performance of 12.3% for 2007 was driven by a few core equity positions(2), including: Anadarko, Medimmune and BEA Systems. Additionally, short positions in high-yield credit and the broad U.S. equity markets also added to performance as high-yield spreads widened and the market declined in the last months of the year. However, our long investments in energy more than offset the losses from the energy hedge and overall, the sector was positive.

The Private Funds’ aggregate gross performance of 37.8% for 2006 was driven by a few core activist positions as well as strong U.S. equity and credit markets. Investments in five positions(2) — Time Warner, Kerr McGee, Lear Corporation, Cigna and KT&G — were the main drivers of our performance, contributing over 62% of our total profits. Profits were somewhat mitigated by hedged positions in energy and shorts against a few long hotel and retail positions. Volatility was reduced as a result, as is our intent with these short positions.

The Private Funds’ gross performance for fiscal 2005 of 17.9% was lower than in fiscal 2006 as we were in the process of investing the Private Funds. In addition, equity market returns were less robust in fiscal 2005 compared to fiscal 2006. Returns for the Private Funds were largely driven by their investments in the following positions(2): Kerr McGee, Fairmont Hotels and Temple Inland. The Private Funds had a large position in

(2) These equity positions have been previously disclosed in other SEC filings.

46


TABLE OF CONTENTS

Time Warner during fiscal 2005, however, which slightly detracted from performance. The Private Funds’ investment in Blockbuster also detracted from their overall performance.

Since inception in November 2004, the Private Funds’ gross returns are 92.5%, representing an annualized rate of return of 23.0% through December 31, 2007, which is indicative of a typical investor who has invested since inception of the Private Funds. These returns have been the result of bottom-up security selection, largely driven by our core activist equity positions. Past performance is not necessarily indicative of future results.

Operating Results

We consolidate certain of the Private Funds into our results. Accordingly, in accordance with U.S. GAAP, substantially all management fees, incentive allocations and earnings on investments in the Private Funds are eliminated in consolidation. These eliminations had no impact on our net income, however, as our allocated share of the net income from the Private Funds includes the amount of these eliminated fees and allocations.

The tables below provide a reconciliation of the unconsolidated revenues and expenses of our interest in the Investment Management Entities to the consolidated U.S. GAAP revenues and expenses. The first column represents the results of operations of our interest in the Investment Management Entities without the impact of consolidating the Private Funds or the eliminations arising from the consolidation of these funds. This includes the gross amount of management fees, incentive allocations and returns on investments in the Private Funds that is attributable to Icahn Enterprises only. This also includes gains and losses on Icahn Enterprises’ direct investments in the Private Funds. The second column represents the total consolidated income and expenses of the Private Funds for all investors, including Icahn Enterprises, before eliminations. The third column represents the eliminations required in order to arrive at our consolidated U.S. GAAP reported income for the segment.

Summarized income statement information on a deconsolidated basis and on a U.S. GAAP basis for the years ended December 31, 2007, 2006 and 2005 is as follows ($000s):

       
  For the Year Ended December 31, 2007
     Icahn Enterprises' Interests   Consolidated Private Funds   Eliminations   Total U.S. GAAP Reported Income
Revenues:
                                   
Management fees   $ 127,994     $     $ (117,377 )    $ 10,617  
Incentive allocations     71,329             (71,329 )       
Net gain from investment activities     21,234 (1)      354,873       (21,234 )      354,873  
Interest, dividends and other income     752       222,012             222,764  
       221,309       576,885       (209,940 )      588,254  
Costs and expenses     46,824       38,442             85,266  
Interest expense           14,521             14,521  
Income from continuing operations before income taxes and     174,485       523,922       (209,940 )      488,467  
Income tax expense     (4,311 )                  (4,311 ) 
Non-controlling interests in income           (298,277 )      (15,705 )      (313,982 ) 
Income from continuing operations   $ 170,174     $ 225,645     $ (225,645 )    $ 170,174  

(1) The Holding Company made three equal investments in September, October and November 2007 aggregating $700 million in the Private Funds for which no management fees or incentive allocations are applicable. The net gain from investment activities of $21.2 million earned by the interests of Icahn Enterprises in the Investment Management Entities in fiscal 2007 consists of two components. The first reflects a net gain of $36.9 million relating to the increase in the General Partners’ investment in the Private Funds as a result of earned incentive allocations and the return on the General Partners’ investment. The second component, which is eliminated in our consolidated financial statements, includes a net investment loss in fiscal 2007 of $15.7 million on the $700 million invested in the Private Funds by the Holding Company.

47


TABLE OF CONTENTS

       
  For the Year Ended December 31, 2006
     Icahn
Enterprises' Interests
  Consolidated Private Funds   Eliminations   Total U.S. GAAP Reported Income
Revenues:
                                   
Management fees   $ 82,415     $     $ (82,415 )    $  
Incentive allocations     190,478             (190,478 )       
Net gain from investment activities     25,822       1,030,740       (25,822 )      1,030,740  
Interest, dividends and other income     345       73,218             73,563  
       299,060       1,103,958       (298,715 )      1,104,303  
Costs and expenses     37,629       32,205             69,834  
Interest expense           9,901             9,901  
Income from continuing operations before income taxes and non-controlling interests     261,431       1,061,852       (298,715 )      1,024,568  
Income tax expense     (1,763 )                  (1,763 ) 
Non-controlling interests in income           (763,137 )            (763,137 ) 
Income from continuing operations   $ 259,668     $ 298,715     $ (298,715 )    $ 259,668  

       
  For the Year Ended December 31, 2005
     Icahn
Enterprises' Interests
  Consolidated Private Funds   Eliminations   Total U.S. GAAP Reported Income
Revenues:
                                   
Management fees   $ 44,201     $     $ (44,201 )    $  
Incentive allocations     57,302             (57,302 )       
Net gain from investment activities     1,887       305,440       (1,887 )      305,440  
Interest, dividends and other income     168       47,268             47,436  
       103,558       352,708       (103,390 )      352,876  
Costs and expenses     18,093       7,914             26,007  
Interest expense           43             43  
Income from continuing operations before income taxes and non-controlling interests     85,465       344,751       (103,390 )      326,826  
Income tax expense     (890 )                  (890 ) 
Non-controlling interests in income           (241,361 )            (241,361 ) 
Income from continuing operations   $ 84,575     $ 103,390     $ (103,390 )    $ 84,575  

Year Ended December 31, 2007 Compared to the Year Ended December 31, 2006

Management fees increased by $45.6 million, or 55.3%, to $128.0 million for fiscal 2007 from $82.4 million in fiscal 2006. The increase was attributable to increased AUM due mainly to net capital inflows but also capital appreciation.

Incentive allocations decreased by $119.2 million, or 62.6%, to $71.3 million for fiscal 2007, compared to $190.5 million in fiscal 2006. This decrease relates to the decline in performance of the Private Funds during fiscal 2007. The General Partners’ incentive allocations earned from the Private Funds are accrued on a quarterly basis and are allocated to the General Partners at the end of the Private Funds’ fiscal year (or sooner on redemptions).

The net gain from investment activities of $21.2 million earned by the interests of Icahn Enterprises in the Investment Management Entities in fiscal 2007 consists of two components. The first reflects a net gain of $36.9 million relating to the increase in the General Partners’ investment in the Private Funds as a result of

48


TABLE OF CONTENTS

earned incentive allocations and the return on the General Partners’ investment. This compares with $25.8 million in fiscal 2006. The second component includes a net investment loss in fiscal 2007 of $15.7 million on the $700 million invested in the Private Funds by the Holding Company. The Holding Company made three equal investments in September, October and November 2007 aggregating to the $700 million.

Net realized and unrealized gains of the Private Funds on investment activities were $354.9 million for fiscal 2007, compared to $1.0 billion for fiscal 2006. This decrease relates to the decline in performance of the Private Funds during fiscal 2007 relating to the economic and market factors discussed above but partially offset by increased AUM.

Interest, dividends and other income increased by $149.2 million, or 202.8%, to $222.8 million for fiscal 2007, compared to $73.6 million for fiscal 2006. The increase was primarily attributable to increases in AUM and the amounts invested in interest-paying investments.

Investment Management Entities’ costs and expenses increased by $9.2 million, or 24.4%, to $46.8 million for fiscal 2007, compared to $37.6 million for fiscal 2006. This increase is primarily due to vested compensation awards relating to management fees and earned incentive allocations and the return thereon.

Private Funds’ costs and expenses increased by $10.9 million, or 25.8%, to $53.0 million for fiscal 2007, compared to $42.1 million for fiscal 2006. This increase is primarily attributable to increases in financing expenses and interest expense relating to securities sold, not yet purchased and an increase in fees paid to the Private Funds’ administrator that are based on AUM.

Non-controlling interests in income was $314.0 million for fiscal 2007, as compared to $763.1 million for fiscal 2006. This decrease was due to the decline in performance of the Private Funds during fiscal 2007 as discussed above.

Year Ended December 31, 2006 Compared to the Year Ended December 31, 2005

Management fees increased by $38.2 million, or 86.5%, to $82.4 million for fiscal year 2006, from $44.2 million for fiscal 2005. The increase was attributable to increases in fee-paying AUM as noted above.

Incentive allocations increased by $133.2 million, or 232.4%, to $190.5 million for fiscal 2006, compared to $57.3 million for fiscal 2005. This increase was primarily attributable to the positive performance of the Private Funds during fiscal 2006 as a result of the economic and market factors discussed above, as well as an increase in fee-paying AUM.

The net gain of $25.8 million, an increase of $23.9 million, or 1,268%, for fiscal 2006 compared to $1.9 million for fiscal 2005, earned by the Investment Management Entities from their investments in affiliates represents the increase in the value, both realized and unrealized, of their investments in the Private Funds. This increase relates to the positive performance of the Private Funds during fiscal 2006 relating to the economic and market factors discussed above.

Net realized and unrealized gains earned by the Private Funds on investments and derivative contracts were $1.0 billion for fiscal 2006, as compared to net realized and unrealized gains on investment activities of $305.4 million for fiscal 2005. This increase relates to the positive performance of the Private Funds during fiscal 2006 as a result of the economic and market factors discussed above.

Interest, dividends and other income increased by $26.1 million, or 55.1%, to $73.6 million for fiscal 2006, compared to $47.4 million for fiscal 2005. The increase was attributable to increases in AUM and the amounts invested in interest and dividend-paying investments.

Investment Management Entities’ costs and expenses increased by $19.5 million, or 108.0%, to $37.6 million for fiscal 2006, compared to $18.1 million for fiscal 2005. This increase was primarily due to increased compensation expense, much of which is determined by the performance of the Private Funds.

Private Funds’ total costs and expenses increased by $34.1 million, or 426.2%, to $42.1 million for fiscal 2006, compared to $8.0 million for fiscal 2005. This increase is attributable to interest and dividend expense relating to securities sold, not yet purchased and an increase in financing and other investment expenses.

49


TABLE OF CONTENTS

Non-controlling interests in income were $763.1 million for fiscal 2006, as compared to $241.4 million for fiscal 2005. This increase relates to the positive performance of the Private Funds during fiscal 2006 relating to the economic and market factors discussed above.

All Other Operations

Metals

Our Metals segment is conducted through our indirect, wholly-owned subsidiary, PSC Metals. During fiscal 2007, PSC Metals completed the acquisitions of substantially all of the assets of three scrap metal recyclers. The aggregate purchase price for the acquisitions was approximately $47.7 million, the most significant of which was approximately $40 million relating to the September 2007 acquisition of substantially all of the assets of WIMCO Operating Company, Inc., a full-service scrap metal recycler in Ohio. The results of operations for yards acquired are reflected in the consolidated results of PSC Metals from the dates of acquisition.

Summarized statements of operations and performance data for PSC Metals for fiscal 2007, fiscal 2006 and fiscal 2005 are as follows (in 000s):

     
  Year Ended December 31,
     2007   2006   2005
Net Sales   $ 834,106     $ 710,054     $ 600,989  
Cost of sales     777,955       652,090       555,311  
Gross profit     56,151       57,964       45,678  
Selling, general and administrative expenses     18,218       15,028       14,525  
Income from continuing operations before interest, income taxes and non-controlling interests in income   $ 37,933     $ 42,936     $ 31,153  
Ferrous tons sold     1,707       1,560       1,551  
Non-ferrous pounds sold     120,470       114,086       89,960  

Year Ended December 31, 2007 Compared to the Year Ended December 31, 2006

Net sales for fiscal 2007 increased by $124.0 million, or 17.5%, to $834.1 million as compared to $710.1 million for fiscal 2006. The increase was primarily due to the increase in ferrous sales generated by both an increase in the average selling price of ferrous scrap and increased volume of shipped ferrous production. For fiscal 2007, average pricing increased approximately $35 per gross ton while ferrous shipments increased by 147,000 gross tons compared to fiscal 2006. The average selling price of non-ferrous scrap increased $.04 per pound, and non-ferrous shipments increased by 6.4 million pounds in fiscal 2007 compared to fiscal 2006. In fiscal 2007, our non-ferrous operations benefited from higher prices for copper. The increase in price was evident in data published by the London Market Exchange (“LME”) and COMEX. We believe the non-ferrous prices were higher than historical average prices due to continued increases in industrial production and demand from industrializing countries such as China.

Gross profit for fiscal 2007 decreased by $1.8 million, or 3.1%, to $56.2 million compared to fiscal 2006. As a percentage of net sales, the cost of sales was 93.3% and 91.8% in fiscal 2007 and fiscal 2006, respectively. The increase is due to increased cost of secondary products caused by reduced supply of material from PSC Metals’ key suppliers.

Selling, general and administrative expenses increased approximately $3.2 million, or 21.2%, to $18.2 million in fiscal 2007 compared to fiscal 2006. The increase is primarily due to additional headcount and employee-related costs of $2.2 million and professional fees of $0.8 million.

Year Ended December 31, 2006 Compared to the Year Ended December 31, 2005

Net sales for fiscal 2006 increased by $109.1 million, or 18.1%, as compared to fiscal 2005. The increase was primarily attributable to an increase in non-ferrous sales generated by increased average selling prices and an increase in shipped volume. In fiscal 2006, the average selling price of non-ferrous products increased $0.49 per pound, or 71%, to $1.19 per pound, while non-ferrous shipments increased by 24.1 million pounds,

50


TABLE OF CONTENTS

or 27%, compared to fiscal 2005. In fiscal 2006, PSC Metals’ non-ferrous operations benefited from higher prices for copper, aluminum and stainless steel. The increase in non-ferrous prices was evident in data published by the LME and COMEX. According to LME data (high grade, spot bid), average aluminum prices were 35% higher in fiscal 2006 compared to fiscal 2005. According to COMEX data (high grade cathode, spot price, close), average prices for copper were 84% higher in fiscal 2006 compared to fiscal 2005. We believe the non-ferrous prices were significantly higher than historical average prices due, in part, to increases in industrial production and demand from industrializing countries such as China.

Gross profit in fiscal 2006 increased by $12.3 million, or 27.0%, to $58.0 million as compared to fiscal 2005. As a percentage of net sales, cost of sales was 91.8% and 92.4% for fiscal 2006 and 2005, respectively. The primary improvement in the gross profit was due to the strength of the non-ferrous markets which generated an increase of $7.4 million in non-ferrous contribution. The improvements in the average ferrous pricing were offset by increased competition which required higher average buying prices for ferrous scrap supply. The increased competition for available scrap supply increasingly requires the downstream integration into PSC Metals’ supply chain of collection yards for low-cost material. Also offsetting the ferrous margin was the lost contribution from the PSC Metals’ joint venture with Royal Green which expired in April 2006 resulting in a $1.0 million reduction from fiscal 2005, and reduced contribution of $1.2 million from fiscal 2005 during the installation and start-up of the new shredder in PSC Metals’ Canton, Ohio operation completed in September 2006.

Selling, general and administrative expenses in fiscal 2006 of $15.0 million were relatively consistent with the $14.5 million in fiscal 2005. The fiscal 2006 expenses included $0.7 million for the costs of a marketing campaign from April through September. In addition, PSC Metals’ incurred $1.2 million in fiscal 2006 due to staff bonus incentives associated with a company-wide incentive plan. There were no bonuses accrued or paid in fiscal 2005. Largely offsetting the bonus incentive payments was the additional recovery of $1.2 million associated with the bankruptcy settlement of Keystone Consolidated Industries, Inc.

Real Estate

Our Real Estate segment is comprised of rental real estate, property development and associated resort activities associated with property development. The three related operating lines of our real estate segment are all individually immaterial and have been aggregated for purposes of reporting our operating results below.

The following table summarizes the key operating data for real estate activities for the years ended December 31, 2007, 2006 and 2005 (in $000s):

     
  Year Ended December 31,
     2007   2006   2005
Revenues:
                          
Rental real estate   $ 12,298     $ 13,528     $ 13,000  
Property development     60,796       90,955       58,270  
Resort activities     29,828       28,127       27,122  
Total revenues     102,922       132,610       98,392  
Expenses:
                          
Rental real estate     5,190       4,622       4,065  
Property development     57,488       73,041       48,679  
Resort operations     29,215       28,162       28,852  
Total expenses     91,893       105,825       81,596  
Income from continuing operations before interest, income taxes and non-controlling interests in income   $ 11,029     $ 26,785     $ 16,796  

51


TABLE OF CONTENTS

Year Ended December 31, 2007 Compared to the Year Ended December 31, 2006

Total revenues decreased by $29.7 million, or 22.4%, to $102.9 million in fiscal 2007 from $132.6 million in fiscal 2006. The decrease was primarily attributable to a decrease in property development sales activity due to the general slowdown in residential and vacation home sales. In fiscal 2007, we sold 76 units for approximately $60.8 million at an average price of $0.8 million with a profit margin of 5.4%. Our profit margin was negatively impacted by impairment charges of $2.5 million and a litigation loss reserve of $1.6 million. In fiscal 2006, we sold 128 units for approximately $91.0 million at an average price of $0.7 million with a profit margin of 19.7%. In fiscal 2006, our New Seabury, MA property sales and margins were stronger principally due to closings from its grand opening in fiscal 2005.

Total expenses decreased by $13.9 million, or 13.2%, to $91.9 million in fiscal 2007 from $105.8 million in fiscal 2006. The decrease was primarily due to a decrease in property development sales activity. Contributing to the overall decrease in fiscal 2007 was the reversal of a prior year hurricane loss provision of $0.9 million related to our rental properties. Included in total expenses for fiscal 2007 was a litigation loss reserve of $1.6 million, an impairment charge of $2.5 million related to our development properties and a $1.4 million impairment charge related to our rental properties. Impairment charges in our property development segment primarily related to decreased condominium land values in our Oak Harbor, FL subdivision caused by the current real estate slowdown. Impairment charges in our rental real estate were primarily due to a decrease in rental renewal rates at certain of our commercial properties.

Based on current residential sales conditions, coupled with the pending completion of our Westchester, NY properties and the depressed Florida real estate market, we expect property development sales and profits to decline in fiscal 2008 from levels achieved in fiscal 2007. We may incur additional asset impairment charges if sales price assumptions and unit absorptions are not achieved, and if the current credit market continues to have a negative impact on commercial real estate valuations.

Certain properties are reclassified as discontinued operations when subject to a contract or letter of intent and are excluded from income from continuing operations.

Year Ended December 31, 2006 Compared to the Year Ended December 31, 2005

Total revenues increased by $34.2 million, or 34.8%, to $132.6 million in fiscal 2006 from $98.4 million compared to the fiscal 2005. The increase was primarily attributable to an increase in property development sales activity.

In fiscal 2006, we sold 128 units for approximately $91.0 million at an average price of $0.7 with a profit margin of 19.7%, reflecting a greater sales mix of higher priced units in New Seabury, MA. In fiscal 2005, we sold 104 units for $58.3 million at an average price of $0.6 with a profit margin of 16.5%, which included a greater sales mix of lower priced condominium units in Naples, FL.

Total expenses increased by $24.2 million, or 29.7%, to $105.8 million in fiscal 2006 from $81.6 million in fiscal 2005. The increase was primarily attributable to an increase in property development sales activity.

The primary driver of our increased revenues and income from continuing operations was the approval of our New Seabury property for residential development.

Home Fashion

Historically, WPI has been adversely affected by a variety of unfavorable conditions, including the following items that continue to have an impact on its operating results:

adverse competitive conditions for U.S. manufacturing facilities compared to manufacturing facilities located outside of the United States;
growth of low-priced imports from Asia and Latin America resulting from lifting of import quotas;
fewer and more powerful retailers of consumer goods over time; and
a difficult retail market for home textiles.

For fiscal 2007, gross earnings were primarily affected by reduced revenue due to a weaker home textile retail environment and lower manufacturing plant utilizations at our U.S. bedding and towel plants, which were closed during the year. WPI will continue to realign its manufacturing operations to optimize its cost

52


TABLE OF CONTENTS

structure, pursuing offshore sourcing arrangements that employ a combination of owned and operated facilities, joint ventures and third-party supply contracts.

During fiscal 2007, WPI continued to successfully implement its strategic plans to shift manufacturing capacity from the United States to lower-cost countries. WPI’s bedding operation in Bahrain is producing product as planned, with significantly lower production costs than its U.S. operations. Additionally, the expansion of WPI’s joint venture bath manufacturing operation in Pakistan is proceeding to build its output volume of finished goods. Moreover, WPI continues to dispose of its closed plants, thereby lowering its cash expenses related to maintaining these facilities. WPI anticipates improvements in gross earnings through both lower costs of production and declining factory underutilization charges for the fiscal year ending December 31, 2008, or fiscal 2008.

Summarized statement of operations for fiscal 2007, fiscal 2006 and the period from August 8, 2005 (acquisition date) to December 31, 2005 is as follows (in $000s):

     
  Year Ended December 31, 2007   Year Ended December 31, 2006   August 8, 2005 to December 31, 2005
Net sales   $ 683,670     $ 890,840     $ 441,771  
Cost of sales     681,281       857,947       401,576  
Gross earnings     2,389       32,893       40,195  
Expenses
                          
Selling, general and administrative expenses     111,557       130,622       58,881  
Restructuring and impairment charges     49,345       45,647       1,658  
Total expenses     160,902       176,269       60,539  
Loss from continuing operations before interest, income taxes and non-controlling interests in income   $ (158,513 )    $ (143,376 )    $ (20,344 ) 

Year Ended December 31, 2007 Compared to Year Ended December 31, 2006

Fiscal 2007 represented a challenging combination of efforts to reduce revenue from less profitable programs, a weaker home textile retail environment, competition from other manufacturers, repositioning WPI’s manufacturing operations offshore and realigning selling, general and administrative expenditures. Net sales were $683.7 million, a decrease of 23.3% compared to $890.8 million for fiscal 2006. The decrease, which affected all lines of business, was primarily attributable to our continuing efforts to reduce revenues from less profitable programs coupled with a continued weaker retail sales environment in the United States for home textile products. Bed products net sales for fiscal 2007 were $445.8 million, a decrease of $126.8 million from $572.6 million. Bath products net sales were $235.6 million, a decrease of $76.2 million compared to $311.8 million, and other net sales were $2.3 million, a decrease of $4.1 million compared to $6.4 million for fiscal 2006.

Total depreciation expense for fiscal 2007 was $14.3 million, of which $11.4 million was included in cost of sales and $2.9 million was included in selling, general and administrative expenses. Total depreciation expense for fiscal 2006 was $30.7 million, of which $25.5 million was included in cost of sales and $5.2 million was included in selling, general and administrative expenses. The reduction in depreciation expenses was primarily due to plant closures during fiscal 2006 and continuing through fiscal 2007.

Gross earnings for fiscal 2007 were $2.4 million, or 0.4% of net sales, compared with $32.9 million, or 3.7% of net sales, during fiscal 2006. Gross earnings were affected by competitive pricing and a continued weaker retail environment, and lower manufacturing plant utilizations at our U.S. plants, which were closed in fiscal 2007. WPI will continue 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.

Selling, general and administrative expenses for fiscal 2007 were $111.6 million as compared to $130.6 million for fiscal 2006, reflecting WPI’s continuing efforts to reduce its selling, warehousing, shipping and

53


TABLE OF CONTENTS

general and administrative expenses. WPI is continuing to lower its selling, general and administrative expenditures by consolidating its locations, reducing headcount and applying more stringent oversight of expense areas where potential savings may be realized, including the headcount reductions taken during the second quarter of fiscal 2007.

Total expenses for fiscal 2007 include $24.8 million of non-cash fixed asset and other impairment charges related to plants that have been or will be closed and $19.3 million of restructuring charges (of which $3.6 million related to severance costs and $15.7 million related to continuing costs of closed plants). Additionally, in accordance with SFAS No. 142, WPI reduced the carrying value of the trademarks and recorded intangible asset impairment charges of $5.2 million. Total expenses for fiscal 2006 included $33.3 million of non-cash fixed asset impairment charges related to plant closures during fiscal 2006 and $12.3 million of restructuring charges (of which $3.4 million related to severance costs and $8.9 million related to continuing costs of closed plants).

We continue our restructuring efforts and, accordingly, expect that restructuring charges (particularly with respect to the carrying costs of closed facilities until such time as these locations are sold) and operating losses will continue to be incurred throughout fiscal 2008. If our restructuring efforts are unsuccessful or our existing strategic manufacturing plans are amended, we may be required to record additional impairment charges related to the carrying value of long-lived assets.

WPI’s business continues to be significantly influenced by the overall economic environment, including consumer spending, at the retail level, for home textile products. During fiscal 2007, certain U.S. retailers reported comparable store sales that were either negative or below their stated expectations. Many of these retailers are customers of WPI. The initial indications are that fiscal 2008 will continue to be a challenging year for these same retailers. WPI believes that it provides adequate reserves against its accounts receivable to mitigate exposure to known or likely bad debt situations, as well as sufficient overall reserve for reasonably estimated situations, should this arise.

WPI closed all of its 30 retail stores based on a comprehensive evaluation of the stores’ long-term growth prospects and their on-going value to the business. On October 18, 2007, WPI entered into an agreement to sell the inventory at all of its retail stores. The net impact of these closings during fiscal 2007 was $14.0 million of related closure charges and impairments (including lease terminations), which has been included as part of discontinued operations.

Results of the discontinued operations are excluded from the consolidated financial statements for all periods presented.

Year Ended December 31, 2006 Compared to the Period from August 8, 2005 (Acquisition Date) to December 31, 2005

Net sales for fiscal 2006 were $890.8 million. Bed products net sales were $572.6 million, bath products net sales were $311.8 million and other net sales were $6.4 million. Net sales for the period August 8, 2005 (acquisition date) to December 31, 2005 were $441.8 million. Bed products net sales were $294.9 million, bath products net sales were $144.0 million and other net sales were $2.9 million.

Total depreciation expense for fiscal 2006 was $30.7 million, of which $25.5 million was included in cost of sales and $5.2 million was included in selling, general and administrative expenses. Total depreciation expense for the period from August 8, 2005 (acquisition date) to December 31, 2005 was $19.0 million, of which $16.0 million was included in cost of sales and $3.0 million was included in selling, general and administrative expenses.

Gross earnings for fiscal 2006 were $32.9 million, and reflect gross margins of 3.7%. Gross earnings during fiscal 2006 were negatively impacted by the carrying costs of certain U.S.-based manufacturing facilities that were closed in fiscal 2006 or were scheduled to be closed during fiscal 2007. Gross earnings before selling, general and administrative expenses for the period August 8, 2005 (acquisition date) to December 31, 2005 were $40.2 million, and reflect gross margins of 9.1%.

Selling, general and administrative expenses were $130.6 million for fiscal 2006. Selling, general and administrative expenses were $58.9 million for the period from August 8, 2005 (acquisition date) to December 31, 2005.

54


TABLE OF CONTENTS

Total expenses for fiscal 2006 included $33.3 million of non-cash impairment charges related to the fixed assets of plants that were closed or were scheduled to be closed and $12.3 million of restructuring charges (of which $3.4 million related to severance costs and $8.9 million related to continuing costs of closed plants). Total expenses for the period from August 8, 2005 (acquisition date) to December 31, 2005 included $1.7 million of restructuring charges (of which $0.1 million related to severance costs and $1.6 million related to continuing costs relating to closed plants).

Holding Company

The Holding Company engages in various investment activities. The activities include those associated with investing its available liquidity, investing to earn returns from increases or decreases in the market price of securities, and investing with the prospect of acquiring operating businesses that we would control. Holding Company expenses, excluding interest expense, are principally related to payroll, legal and other professional fees and general expenses of the Holding Company.

Year Ended December 31, 2007 Compared to the Year Ended December 31, 2006

Net gain from investment activities decreased by $8.7 million, or 9.5%, to $82.6 million in fiscal 2007 as compared to $91.3 million in fiscal 2006. The decrease was primarily due to lower realized gains recorded on the investment portfolio in fiscal 2007.

Expenses, excluding interest expense, increased by $10.8 million, or 41.6%, to $36.6 million for fiscal 2007 as compared to $25.8 million for fiscal 2006. The increase is primarily attributable to professional fees and legal expenses related to the acquisition of the Investment Management business (i.e., Partnership Interests) on August 8, 2007.

Year Ended December 31, 2006 Compared to the Year Ended December 31, 2005

Net gain from investment activities were $91.3 million during fiscal 2006 as compared to a net loss of $21.3 million in fiscal 2005. The change is primarily due to the higher gains on investment sales in fiscal 2006.

Expenses, excluding interest expense, increased by $8.7 million, or 50.6%, to $25.8 million in fiscal 2006 as compared to $17.1 million in fiscal 2005 due largely to the impact of a compensation charge related to the cancellation of unit options of $6.2 million and increased legal and other professional fees of $3.2 million and $2.8 million, respectively.

All Other Operations—Interest and other income, interest expense and income tax

Year Ended December 31, 2007 Compared to the Year Ended December 31, 2006

Interest and other income increased by $92.7 million, or 183.9%, to $143.2 million in fiscal 2007 as compared to $50.4 million in fiscal 2006. This increase was primarily due to the increase in the Holding Company’s cash position relating to the sale of our Oil and Gas operations and Atlantic City gaming operations in the fourth quarter of fiscal 2006 and the proceeds from the issuance of additional 7.125% senior notes in January 2007 and variable rate notes in April 2007.

Interest expense increased by $48.8 million, or 57.2%, to $134.3 million in fiscal 2007 as compared to $85.5 million in fiscal 2006. This increase is a result of interest incurred on the $500 million of additional 7.125% senior notes issued in January 2007 and the $600 million of variable rate notes issued in April 2007.

For fiscal 2007, we recorded an income tax provision of $8.4 million on pre-tax income of $486.7 million. For fiscal 2006, we recorded an income tax benefit of $0.7 million on pre-tax income of $1.0 billion. Our effective income tax rate was 1.7% and (0.1)% for the respective periods. The difference between the effective tax rate and statutory federal rate of 35% is principally due to changes in the valuation allowance and partnership income not subject to taxation, as such taxes are the responsibility of the partners.

55


TABLE OF CONTENTS

Non-controlling interests in income for fiscal 2007 decreased $12.9 million, or 19.5%, compared to fiscal 2006, primarily as a result of the impact of the minority interests’ share of the losses incurred by WPI.

Year Ended December 31, 2006 Compared to the Year Ended December 31, 2005

Interest and other income increased by $7.8, or 18.3%, to $50.4 million in fiscal 2006 as compared to $42.6 million in fiscal 2005. This was primarily due to the substantial increase in the Holding Company’s cash position from the sale of our Oil and Gas operations and Atlantic City gaming operations in the fourth quarter of fiscal 2006.

Interest expense increased by $12.9 million, or 17.7%, to $85.5 million during fiscal 2006 as compared to $72.6 million in fiscal 2005. This increase reflects increased borrowings in fiscal 2006 as a result of margin expense of $7.9 million, borrowing under the ACEP revolving credit facility, which was increased to $60.0 million in May 2006, and a $32.5 million mortgage obtained in June 2006.

For fiscal 2006, we recorded an income tax benefit of $0.7 million on pre-tax income of $1.0 billion. For the year ended December 31, 2005, we recorded an income tax provision of $11.2 million on pre-tax income of $295.4 million. Our effective income tax rate was (0.1)% and 3.8% for the respective periods. The difference between the effective tax rate and statutory federal rate of 35% is principally due to changes in the valuation allowance and partnership income not subject to taxation.

Non-controlling interests in income for fiscal 2006 increased $56.4 million, or 595.4%, compared to fiscal 2005, primarily as a result of the impact of the minority interests’ share of the losses incurred by WPI.

Discontinued Operations

The Sands and Related Assets

On November 17, 2006, our indirect majority owned subsidiary, Atlantic Coast, ACE Gaming LLC, a New Jersey limited liability company and a wholly owned subsidiary of Atlantic Coast which owns The Sands Hotel and Casino in Atlantic City, Icahn Enterprises Holdings and certain other entities owned by or affiliated with Icahn Enterprises Holdings completed the sale to Pinnacle Entertainment, Inc., of the outstanding membership interests in ACE and 100% of the equity interests in certain subsidiaries of Icahn Enterprises Holdings that own parcels of real estate adjacent to The Sands, including 7.7 acres of land known as the Traymore site. We owned, through subsidiaries, approximately 67.6% of Atlantic Coast, which owns 100% of ACE. The aggregate price was approximately $274.8 million, of which approximately $200.6 million was paid to Atlantic Coast and approximately $74.2 million was paid to affiliates of Icahn Enterprises Holdings for subsidiaries that owned the Traymore site and the adjacent properties. $51.8 million of the amount paid to Atlantic Coast was deposited into an escrow account to fund indemnification obligations, of which $50 million related to claims of creditors and stockholders of GB Holdings Inc., or GBH, a holder of stock in Atlantic Coast. On February 22, 2007, we resolved all outstanding litigation involving GBH, resulting in a release of all claims against us. After the settlement, our ownership of Atlantic Coast increased from 67.6% to 96.9% and $50.0 million of the amount placed into escrow was released to us. In the second quarter of fiscal 2007, we and several other investors exercised warrants to purchase shares of common stock of Atlantic Coast, resulting in an increase of the minority interest in Atlantic Coast, and a decrease in our ownership to 94.2%.

On November 15, 2007, ACE HI Merger Corp., or Merger Corp, our indirect wholly owned subsidiary and the owner of approximately 94.2% of the outstanding shares of Atlantic Coast common stock, completed a short-form merger transaction, or the Merger, under Section 253 of Delaware Law, pursuant to which Merger Corp merged with and into Atlantic Coast and Atlantic Coast became our wholly owned subsidiary. Pursuant to the Merger, the holders of Atlantic Coast common stock (other than Merger Corp) are entitled to receive $21.19 per share in cash in exchange for their shares.

On November 16, 2007, Atlantic Coast filed a Form 15 with the SEC, thereby terminating its reporting obligations under the Securities Exchange Act of 1934, or the ’34 Act, and its status as a public company.

56


TABLE OF CONTENTS

Oil and Gas Operations

On November 21, 2006, our indirect wholly owned subsidiary, AREP O & G Holdings LLC, completed the sale of all of the issued and outstanding membership interests of NEG Oil & Gas LLC to SandRidge for consideration consisting of $1.025 billion in cash, 12,842,000 shares of SandRidge’s common stock, valued at $18 per share on the date of closing, and the repayment by SandRidge of $300.0 million of debt of NEG Oil & Gas. On April 4, 2007, we sold our entire position in SandRidge for cash consideration of approximately $243.2 million.

On November 21, 2006, pursuant to an agreement dated October 25, 2006 among Icahn Enterprises Holdings, NEG Oil & Gas and NEGI, NEGI sold its membership interest in NEG Holding LLC to NEG Oil & Gas in consideration of approximately $261.1 million paid in cash. Of that amount, $149.6 million was used to repay the NEGI 10.75% senior notes due 2007, including principal and accrued interest, all of which was held by us.

On November 12, 2007, the board of directors of NEGI determined that it is in the best interests of NEGI’s shareholders to liquidate all of NEGI’s assets and approved the dissolution of NEGI and a plan of dissolution and liquidation, or the Plan, subject to required shareholder approval.

A special meeting of shareholders was scheduled for February 7, 2008 for all shareholders of record on December 27, 2007 to consider and vote on the Plan. On February 5, 2008, NEGI was informed that on February 1, 2008 a purported stockholder derivative and class action lawsuit was filed in the Delaware Court of Chancery against NEGI, as a nominal defendant, Icahn Enterprises, and certain current and former officers and members of the board of directors of NEGI. The lawsuit alleges, among other things, that certain of NEGI’s current and former officers and directors breached their fiduciary duties to NEGI and its stockholders in connection with NEGI’s November 21, 2006 sale of its membership interest in NEG Holding LLC to NEG Oil & Gas. See Note 20, “Subsequent Events,” of our consolidated financial statements for further discussion.

As a result of the filing of the complaint, NEGI adjourned the special meeting to March 14, 2008 to permit the shareholders of NEGI to evaluate the lawsuit.

On March 14, 2008, the shareholders voted to approve the Dissolution. NEGI anticipates filing a Form 15 with the Securities and Exchange Commission, on or about March 26, 2008 for the purpose of deregistering its securities under the ’34 Act. As a result, NEGI suspended the filing of any further periodic reports under the ’34 Act and, absent contrary action by the SEC, its status as a public company will be terminated. No cash distributions will be made to NEGI's shareholders until the NEGI board determines that NEGI has paid, or made adequate provision for the payment of its liabilities and obligations, including any liabilities relating to the lawsuit.

American Casino & Entertainment Properties LLC

On April 22, 2007, American Entertainment Properties Corp., or AEP, a wholly owned indirect subsidiary of Icahn Enterprises, entered into a Membership Interest Purchase Agreement with W2007/ACEP Holdings, LLC, an affiliate of Whitehall Street Real Estate Funds, a series of real estate investment funds affiliated with Goldman Sachs & Co., to sell all of the issued and outstanding membership interests of ACEP, which comprises our gaming operations, for $1.3 billion, plus or minus certain adjustments such as working capital, as more fully described in the agreement. The purchase price was subsequently adjusted to $1.2 billion in an agreement dated February 8, 2008. ACEP’s casino assets were comprised of the Stratosphere Casino Hotel & Tower, the Arizona Charlie’s Decatur, the Arizona Charlie’s Boulder and the Aquarius Casino Resort. Pursuant to the terms of the agreement, AEP caused ACEP to repay from funds provided by AEP, the principal, interest, prepayment penalty or premium due under the terms of ACEP’s 7.85% senior secured notes due 2012 and ACEP’s senior secured credit facility. The transaction was consummated on February 20, 2008, resulting in a gain of approximately $700 million on our investment in ACEP, before income taxes.

Real Estate

Operating properties are reclassified to held for sale when subject to a contract or letter of intent. The operations of such properties are classified as discontinued operations. Upon entry into a contract or letter of intent to sell a property, the operating results and cash flows associated with the property, are reclassified to

57


TABLE OF CONTENTS

discontinued operations and historical financial statements are reclassified to conform to the current classification. In addition, during fiscal 2007, seven properties were reclassified to held for sale.

Home Fashion

We closed all of our WPI retail stores based on a comprehensive evaluation of the stores’ long-term growth prospects and their on-going value to the business. On October 18, 2007, we entered into an agreement to sell the inventory at all of our retail stores. Accordingly, we have reported the retail outlet stores business as discontinued operations for all periods presented.

Results of Discontinued Operations

The financial position and results of these operations are presented as assets and liabilities of discontinued operations held for sale in the consolidated balance sheets and discontinued operations in the consolidated statements of operations, respectively, for all periods presented in accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Asset. (“SFAS No. 144”). For further discussion, see Note 5, “Discontinued Operations and Assets Held for Sale,” to our consolidated financial statements.

Summarized financial information for discontinued operations for the years ended December 31, 2007, 2006 and 2005 is set forth below (in 000s):

     
  Year Ended December 31,
     2007   2006   2005
Revenues:
                          
Oil and Gas   $     $ 353,539     $ 198,854  
Gaming     444,208       524,077       490,321  
Real Estate     6,064       7,108       8,847  
Home Fashion – retail stores     47,398       66,816       30,910  
Total revenues   $ 497,670     $ 951,540     $ 728,932  
Income (loss) from discontinued operations:
                          
Oil and Gas   $     $ 183,281     $ 37,521  
Gaming     99,945       45,624       60,179  
Real Estate     4,800       5,300       5,170  
Home Fashion – retail stores     (20,003 )      (7,261 )      (2,085 ) 
Total income from discontinued operations before income taxes, interest and other income     84,742       226,944       100,785  
Interest expense     (21,634 )      (47,567 )      (32,851 ) 
Interest and other income     20,710       13,004       7,539  
Impairment loss on GBH bankruptcy                 (52,366 ) 
Income from discontinued operations before income taxes and non-controlling interests in income     83,818       192,381       23,107  
Income tax expense     (18,677 )      (17,119 )      (19,711 ) 
       65,141       175,262       3,396  
Non-controlling interest in (income) loss     5,108       (53,165 )      4,356  
Gain on sales of discontinued operations, net of income tax expense     20,798       676,444       21,849  
     $ 91,047     $ 798,541     $ 29,601  

58


TABLE OF CONTENTS

Liquidity and Capital Resources

Consolidated Liquidity and Capital Resources

As of December 31, 2007, the Holding Company had a cash and cash equivalents balance of $2.1 billion, investments of $512.6 million and total debt of $2.0 billion. The Holding Company made three equal investments in September, October and November 2007 aggregating $700 million in the Private Funds for which no management fee or incentive allocations are applicable. As of December 31, 2007, the total value of this investment is approximately $684.3 million, with an unrealized loss of $15.7 million for fiscal 2007. These amounts are eliminated in our consolidated financial statements. In addition, we also have the ability to draw down on our credit facility. In August 2006, we entered into a credit agreement with a consortium of banks pursuant to which we will be permitted to borrow up to $150.0 million. As of December 31, 2007, there were no borrowings under the facility. See “Borrowings” below for more additional information concerning credit facilities for our subsidiaries.

We are a holding company. Our cash flow and our ability to meet our debt service obligations and make distributions with respect to depositary units and preferred units likely will depend on the cash flow resulting from divestitures, equity and debt financings, interest income, and the payment of funds to us by our subsidiaries in the form of loans, dividends and distributions. We may pursue various means to raise cash from our subsidiaries. To date, such means include payment of dividends from subsidiaries, obtaining loans or other financings based on the asset values of subsidiaries or selling debt or equity securities of subsidiaries through capital market transactions. To the degree any distributions and transfers are impaired or prohibited, our ability to make payments on our debt or distributions on our depositary units and preferred units could be limited. The operating results of our subsidiaries may not be sufficient for them to make distributions to us. In addition, our subsidiaries are not obligated to make funds available to us, and distributions and intercompany transfers from our subsidiaries to us may be restricted by applicable law or covenants contained in debt agreements and other agreements to which our subsidiaries may be subject or enter into the future.

During fiscal 2007, we consummated the following transactions that provided aggregate proceeds of approximately $1.3 billion:

On January 16, 2007, we issued $500.0 million aggregate principal amount of additional 7.125% senior notes due 2013. The additional 7.125% senior notes were issued pursuant to an indenture dated February 7, 2005, between us, as issuer, and Icahn Enterprises Finance Corp, which was formerly known as American Real Estate Finance Corp., as co-issuer, Icahn Enterprises Holdings, as guarantor, and Wilmington Trust Company, as trustee. The additional 7.125% senior notes have a fixed annual interest rate of 7.125%, which will be paid every six months on February 15 and August 15 and will mature on February 15, 2013.
In April 2007, we issued $600.0 million aggregate principal amount of variable rate notes due 2013. The notes bear interest of LIBOR minus 125 basis points, but the all-in-rate can be no less than 4% nor higher than 5.5%, and are convertible into depositary units of Icahn Enterprises at a conversion price of $132.595 per share, subject to adjustments in certain circumstances.
On April 4, 2007, our subsidiaries executed agreements to sell their entire position in the common stock of SandRidge to a consortium of investors in a series of private transactions. The per share selling price was $18, and total cash consideration received at closing was approximately $243.2 million.

On April 22, 2007, AEP, a wholly owned indirect subsidiary of Icahn Enterprises, entered into an agreement to sell all of the issued and outstanding membership interests of ACEP, which comprises the remainder of Icahn Enterprises’ gaming operations, for $1.3 billion, plus or minus certain adjustments such as working capital, more fully described in the agreement. The purchase price was subsequently adjusted to $1.2 billion in an agreement dated February 8, 2008. ACEP’s Nevada casino assets are comprised of the Stratosphere Casino Hotel & Tower, the Arizona Charlie’s Decatur, the Arizona Charlie’s Boulder and the Aquarius Casino Resort. Pursuant to the terms of the agreement, AEP caused ACEP to repay from funds provided by AEP, the principal, interest, prepayment penalty or premium due under the terms of ACEP’s 7.85% senior secured notes due 2012 and ACEP’s senior secured credit facility. The sale was consummated on February 20, 2008, resulting in

59


TABLE OF CONTENTS

a gain of approximately $700 million on our investments in ACEP, before income taxes, subject to resolution of post-closing adjustments. In connection with the ACEP sale in fiscal 2008, we elected to deposit approximately $1.156 billion of the gross proceeds from the sale into escrow accounts to fund investment activities through tax-deferred exchanges under Section 1031 of the Internal Revenue Code. Such proceeds were received into the escrow accounts pending the fulfillment of Section 1031 exchange requirements. There are no assurances that we will fulfill our Section 1031 exchange obligations using the entire amount of proceeds placed into escrow.

Cash Flows

Operating Activities:

Net cash used in operating activities for fiscal 2007 was approximately $2.9 billion compared to $17.7 million for fiscal 2006 due primarily from activity within our Investment Management segment. Cash used in continuing operations from our Investment Management segment was approximately $3.0 billion for 2007 compared to approximately $0.4 billion for fiscal 2006. The net cash resulting from continuing operations for our Investment Management segment primarily relates to purchases and proceeds from securities transactions for the Private Funds. Purchases of securities in fiscal 2007 was approximately $9.0 billion compared to $4.3 billion in fiscal 2006, while proceeds from sales of securities were approximately $6.4 billion and $5.2 billion in fiscal 2007 and 2006, respectively. Additionally, purchases to cover securities sold, not yet purchased were approximately $2.2 billion in fiscal 2007 compared to $0.8 billion in fiscal 2006, while proceeds from securities sold, not yet purchased, were approximately $1.6 billion in fiscal 2007 compared to $1.0 billion in fiscal 2006. The net cash provided by continuing operations from all other operations was $24.8 million for fiscal 2007 compared to approximately $111.9 million for fiscal 2006 primarily due to changes in our operating assets and liabilities offset in part by a change in cash resulting from activities on trading securities.

Investing Activities:

Net cash provided by investing activities for fiscal 2007 was approximately $90.9 million as compared to $1.0 billion in fiscal 2006. The primary driver was greater net proceeds from the sales and disposition of assets classified as discontinued operations offset by a decrease in capital expenditures resulting from the discontinued operation of our Gaming segment. Net cash provided by investing activities from continuing operations decreased approximately $118.5 million due to changes in our purchases and proceeds from sales of marketable securities.

Financing Activities:

Net cash provided by financing activities for fiscal 2007 improved approximately $2.8 billion to $3.1 billion when compared to $0.3 billion for fiscal 2006. This increase is primarily due to proceeds from senior notes of approximately $1.1 billion in fiscal 2007 and capital contributions relating to our Investment Management operations of approximately $2.4 billion for fiscal 2007 compared to $0.3 billion of capital contributions for fiscal 2006. These increases were partially offset by a distribution of $335.0 million relating to the acquisition of PSC Metals.

We are continuing to pursue the purchase of businesses and assets, including businesses and assets that may not generate positive cash flow, are difficult to finance or may require additional capital, such as properties for development, non-performing loans, securities of companies that are undergoing or that may undergo restructuring, and companies that are in need of capital. All of these activities require us to maintain a strong capital base and liquidity.

60


TABLE OF CONTENTS

Borrowings

Long-term debt consists of the following (in $000s):

   
  December 31,
     2007   2006
Senior unsecured variable rate convertible notes due 2013 – 
Icahn Enterprises
  $ 600,000     $  
Senior unsecured 7.125% notes due 2013 – Icahn Enterprises     973,387       480,000  
Senior unsecured 8.125% notes due 2012 – Icahn Enterprises     351,570       351,246  
Senior secured 7.85% notes due 2012 – ACEP     215,000       215,000  
Borrowings under credit facility – ACEP     40,000       40,000  
Mortgages payable     104,030       109,289  
Other     14,796       15,684  
Total long-term debt     2,298,783       1,211,219  
Less debt related to assets held for sale     (270,209 )      (271,417 ) 
     $ 2,028,574     $ 939,802  

See Note 12, “Long-Term Debt,” of our consolidated financial statements for additional information concerning terms, restrictions and covenants of our long-term debt. As of December 31, 2007, we are in compliance with all debt covenants.

Contractual Commitments

The following table reflects, at December 31, 2007, our contractual cash obligations, subject to certain conditions, due over the indicated periods and when they come due ($ in millions):

         
  Less Than 1 Year   1 – 3 Years   3 – 5 Years   After 5 Years   Total
Senior unsecured 7.125% notes
due 2013 – Icahn Enterprises
  $     $     $     $ 980.0     $ 980.0  
Senior unsecured 8.125% notes
due 2012 – Icahn Enterprises
                353.0             353.0  
Senior unsecured variable rate convertible notes due 2013 – 
Icahn Enterprises
                      600.0       600.0  
Senior secured 7.85% notes – ACEP     215.0                         215.0  
Senior debt interest     125.4       245.0       215.7       14.5       600.6  
Borrowing under credit facilities – ACEP     40.0                         40.0  
Mortgages payable     36.6       8.0       32.3       27.1       104.0  
Lease obligations     9.4       12.2       19.8             41.4  
Unused lines or letters of credit     95.5                         95.5  
Construction and development obligations     8.1                         8.1  
Other     21.4       5.9       1.4       2.5       31.2  
Total   $ 551.4     $ 271.1     $ 622.2     $ 1,624.1     $ 3,068.8  

On February 20, 2008, AEP, our wholly owned indirect subsidiary, sold all of the issued and outstanding membership interests of ACEP, which comprises our remaining gaming operations. As a result, we no longer have the senior secured 7.85% notes or borrowings under credit facilities — ACEP as summarized in the above table.

61


TABLE OF CONTENTS

Certain of PSC Metals’ facilities are environmentally impaired in part as a result of operating practices at the sites prior to their acquisition by PSC Metals and as a result of PSC Metals operations. PSC Metals has established procedures to periodically evaluate these sites, giving consideration to the nature and extent of the contamination. PSC Metals has provided for the remediation of these sites based upon management’s judgment and prior experience. PSC Metals has estimated the liability to remediate these sites to be $24.3 million at December 31, 2007.

Estimates of PSC Metals’ liability for remediation of a particular site and the method and ultimate cost of remediation require a number of assumptions and are inherently difficult to make, and the ultimate outcome may differ from current estimates. As additional information becomes available, estimates are adjusted. It is possible that technological, regulatory or enforcement developments, the results of environmental studies or other factors could alter estimates and necessitate the recording of additional liabilities, which could be material. In addition, because PSC Metals has disposed of waste materials at numerous third-party disposal facilities, it is possible that PSC Metals will be identified as a potentially responsible party at additional sites. The impact of such future events cannot be estimated at the current time.

Metals and Home Fashion Purchase Orders

Purchase orders or contracts for the purchase of certain inventory and other goods and services are not included in the table above. We are not able to determine the aggregate amount of such purchase orders that represent contractual obligations, as purchase orders may represent authorizations to purchase rather than binding agreements. Purchase orders are based on our current needs and are fulfilled by vendors within short time horizons. We do not have significant agreements for the purchase of inventory or other goods that specify minimum quantities or set prices that exceed expected requirements.

Obligations Related to Securities

As discussed in Note 7, “Investments and Related Matters,” to the consolidated financial statements as of December 31, 2007, we have contractual liabilities of $0.2 billion related to securities sold not yet purchased as of December 31, 2007. This amount has not been included in the table above as their maturity is not subject to a contract and cannot properly be estimated.

Off-Balance Sheet Arrangements

We do not maintain any off-balance sheet transactions, arrangements, obligations or other relationships with unconsolidated entities or others.

Discussion of Segment Liquidity and Capital Resources

Investment Management Operations

The growth in the AUM of the Private Funds for fiscal 2007, fiscal 2006 and fiscal 2005 resulted from gains on investments made in the Private Funds as well as from capital from new investors. Such growth directly impacted our cash flows due to management fees paid to Icahn Management (and after August 8, 2007, New Icahn Management). Positive performance also resulted in higher incentive allocations paid to the General Partners.

The Private Funds have historically not utilized significant amounts of leverage. As of December 31, 2007, for example, the ratio of the notional exposure of our invested capital to net asset value of the Private Funds was approximately 0.92 to 1.00 on the long side and 0.85 to 1.00 on the short side. Due to the low leverage, we believe that we have access to significant amounts of cash from prime brokers, subject to customary conditions.

Historically, the management fees generated by our Investment Management Entities have been more than sufficient to cover operating expenses.

Net cash used in operating activities is largely comprised of purchases of securities and sales proceeds from securities transactions. Purchases of securities during fiscal 2007 were approximately $9.0 billion compared to $4.3 billion for the comparable prior year period while proceeds from sales of securities were approximately $6.4 billion and $5.2 billion for fiscal 2007 and fiscal 2006, respectively. Net cash used in operating activities was $3.0 billion and $0.4 billion for fiscal 2007 and fiscal 2006, respectively.

62


TABLE OF CONTENTS

Purchases of securities by the Private Funds were $4.3 billion and $3.2 billion for fiscal 2006 and fiscal 2005, respectively, while proceeds from sales of securities were $5.2 billion and $1.3 billion, for fiscal 2006 and fiscal 2005, respectively. Net cash used in operating activities was $0.4 billion and $0.9 billion for fiscal 2006 and fiscal 2005, respectively.

There were no cash flows attributable to investing activities during any of the relevant periods, as investments-related cash flows in the consolidated Private Funds are classified within operating activities in our consolidated statements of cash flows.

Cash inflows from investors in the Private Funds are classified within financing activities in our consolidated statements of cash flows. These amounts are reported as contributions to and distributions from non-controlling interests in consolidated affiliated partnerships. Net cash provided by financing activities was $2.3 billion and $0.4 billion for fiscal 2007 and fiscal 2006, respectively. The increase in fiscal 2007 was due to increased capital contributions from investors in the Private Funds of $2.1 billion compared to fiscal 2006.

Net cash provided from financing activities was $0.4 billion and $0.9 billion for fiscal 2006 and fiscal 2005, respectively. This decrease in cash provided by financing activities was primarily a result of lower net cash inflows from investors in the Private Funds in fiscal 2006.

All Other Operations