IEP-3.31.12-10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended March 31, 2012

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)
 
(IRS Employer Identification No.)

 
767 Fifth Avenue, Suite 4700
New York, NY 10153
(Address of Principal Executive Offices) (Zip Code)

(212) 702-4300
(Registrant's Telephone Number, Including Area Code)

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     
Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer 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
 
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

As of April 30, 2012, there were 99,781,537 depositary units outstanding.



ICAHN ENTERPRISES L.P.
TABLE OF CONTENTS

 
 
Page
No.
 
PART I. FINANCIAL INFORMATION
 
 
 
 
 
PART II. OTHER INFORMATION
 




i


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

ICAHN ENTERPRISES L.P. AND SUBSIDIARIES

  CONSOLIDATED BALANCE SHEETS
 (In millions, except unit amounts)

 
March 31,
2012
 
December 31, 2011
ASSETS
(Unaudited)
 
 
Cash and cash equivalents
$
3,467

 
$
2,278

Cash held at consolidated affiliated partnerships and restricted cash
2,249

 
4,979

Investments
5,876

 
8,938

Accounts receivable, net
1,603

 
1,424

Due from brokers
187

 
30

Inventories, net
1,394

 
1,344

Property, plant and equipment, net
3,611

 
3,505

Goodwill
1,128

 
1,127

Intangible assets, net
889

 
899

Other assets
661

 
612

Total Assets
$
21,065

 
$
25,136

LIABILITIES AND EQUITY
 
 
 
Accounts payable
$
1,015

 
$
970

Accrued expenses and other liabilities
1,899

 
1,873

Securities sold, not yet purchased, at fair value
975

 
4,476

Due to brokers
5

 
2,171

Post-employment benefit liability
1,333

 
1,340

Debt
7,313

 
6,473

Total liabilities
12,540

 
17,303

 
 
 
 
Commitments and contingencies (Note 18)
 
 
 
 
 
 
 
Equity:
 
 
 
Limited partners: Depositary units: 99,781,537 units issued and outstanding at March 31, 2012 (including 619,585 units issued as a unit distribution on March 30, 2012) and 86,708,914 units issued and 85,571,714 units outstanding at December 31, 2011
4,645

 
4,038

General partner
(259
)
 
(271
)
Treasury units at cost: 1,137,200 depositary units at December 31, 2011

 
(12
)
Equity attributable to Icahn Enterprises
4,386

 
3,755

Equity attributable to non-controlling interests
4,139

 
4,078

Total equity
8,525

 
7,833

Total Liabilities and Equity
$
21,065

 
$
25,136




See notes to consolidated financial statements.


1


ICAHN ENTERPRISES L.P. AND SUBSIDIARIES

  CONSOLIDATED STATEMENTS OF OPERATIONS
 (In millions, except per unit amounts) (Unaudited)

 
Three Months Ended March 31,
 
2012
 
2011
Revenues:
 
   Net sales
$
2,399

 
$
2,251

   Other revenues from operations
192

 
193

   Net gain from investment activities
58

 
617

   Interest and dividend income
25

 
34

   Other income (loss), net
10

 
(17
)
 
2,684

 
3,078

Expenses:
 
 
 
   Cost of goods sold
2,072

 
1,925

   Other expenses from operations
106

 
108

   Selling, general and administrative
309

 
319

   Restructuring
7

 
3

   Impairment
2

 

   Interest expense
117

 
109

 
2,613

 
2,464

Income before income tax benefit (expense)
71

 
614

Income tax benefit (expense)
30

 
(18
)
Net income
101

 
596

Less: net income attributable to non-controlling interests
(52
)
 
(356
)
Net income attributable to Icahn Enterprises
$
49

 
$
240

 
 
 
 
Net income attributable to Icahn Enterprises allocable to:
 
 
 
   Limited partners
$
48

 
$
235

   General partner
1

 
5

 
$
49

 
$
240

 
 
 
 
Basic income per LP unit
$
0.49

 
$
2.73

Basic weighted average LP units outstanding
97

 
86

 
 
 
 
Diluted income per LP unit
$
0.49

 
$
2.65

Diluted weighted average LP units outstanding
97

 
91

Cash distributions declared per LP unit
$
0.10

 
$
0.25





See notes to consolidated financial statements.


2


ICAHN ENTERPRISES L.P. AND SUBSIDIARIES

  CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 (In millions) (Unaudited)

 
Three Months Ended March 31,
 
2012
 
2011
 
 
 
 
Net income
$
101

 
$
596

Other comprehensive income, net of tax:
 
 
 
Post-employment benefits
9

 
1

Hedge instruments
14

 
5

Translation adjustments and other
84

 
87

Other comprehensive income, net of tax
107

 
93

Comprehensive income
208

 
689

Less: Comprehensive income attributable to non-controlling interests
(79
)
 
(380
)
Comprehensive income attributable to Icahn Enterprises
$
129

 
$
309

 
 
 
 
Comprehensive income attributable to Icahn Enterprises allocable to:
 
 
 
   Limited partners
$
127

 
$
303

   General partner
2

 
6

 
$
129

 
$
309


Accumulated other comprehensive loss was $748 million and $855 million at March 31, 2012 and December 31, 2011, respectively.


























See notes to consolidated financial statements.



3


ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
  CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(In millions, except units) (Unaudited)

 
Equity Attributable to Icahn Enterprises
 
 
 
 
 
 
 
 
 
Held in Treasury
 
 
 
 
 
 
 
General Partner's Equity (Deficit)
 
Limited
Partners' Equity
 
Amount
 
Units
 
Total Partners' Equity
 
Non-controlling Interests
 
Total Equity
Balance, December 31, 2011
$
(271
)
 
$
4,038

 
$
(12
)
 
1,137,200

 
$
3,755

 
$
4,078

 
$
7,833

Net income
1

 
48

 

 

 
49

 
52

 
101

Other comprehensive income
1

 
79

 

 

 
80

 
27

 
107

Cancellation of treasury units

 
(12
)
 
12

 
(1,137,200
)
 

 

 

Partnership contributions
10

 
500

 

 

 
510

 

 
510

Partnership distributions

 
(10
)
 

 

 
(10
)
 

 
(10
)
Investment segment distributions

 

 

 

 

 
(17
)
 
(17
)
Changes in subsidiary equity and other

 
2

 

 

 
2

 
(1
)
 
1

Balance, March 31, 2012
$
(259
)
 
$
4,645

 
$

 

 
$
4,386

 
$
4,139

 
$
8,525


































See notes to consolidated financial statements.


4


ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions) (Unaudited)
 
Three Months Ended March 31,
 
2012
 
2011
Cash flows from operating activities:
 
 
 
Net income
$
101

 
$
596

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Net gain from securities transactions
(490
)
 
(617
)
Purchases of securities
(474
)
 
(1,405
)
Proceeds from sales of securities
4,218

 
1,114

Purchases to cover securities sold, not yet purchased
(4,317
)
 
(51
)
Proceeds from securities sold, not yet purchased
536

 
1,669

Changes in receivables and payables relating to securities transactions
(2,412
)
 
74

Depreciation and amortization
108

 
110

Deferred taxes
(42
)
 
1

Other, net
13

 
(15
)
Changes in cash held at consolidated affiliated partnerships and restricted cash
2,729

 
(1,718
)
Changes in other operating assets and liabilities
115

 
(205
)
Net cash provided by (used in) operating activities
85

 
(447
)
Cash flows from investing activities:
 
 
 
Capital expenditures
(197
)
 
(115
)
Acquisitions of businesses, net of cash acquired
(3
)
 
(31
)
Proceeds from sale of investments
170

 

Purchases of investments
(210
)
 

Other, net

 
7

Net cash used in investing activities
(240
)
 
(139
)
Cash flows from financing activities:
 
 
 
Investment segment distributions

 
(302
)
Partnership contributions
510

 

Partnership distributions
(10
)
 
(21
)
Proceeds from issuance of senior unsecured notes
716

 

Proceeds from other borrowings
174

 
602

Repayments of borrowings
(56
)
 
(9
)
Other, net
(8
)
 
1

Net cash provided by financing activities
1,326

 
271

Effect of exchange rate changes on cash and cash equivalents
18

 
19

Net increase (decrease) in cash and cash equivalents
1,189

 
(296
)
Net change in cash of assets held for sale

 
2

Cash and cash equivalents, beginning of period
2,278

 
2,963

Cash and cash equivalents, end of period
$
3,467

 
$
2,669

Supplemental information:
 
 
 
Cash payments for interest, net of amounts capitalized
$
161

 
$
162

Net cash payments for income taxes
$
30

 
$
24

Net unrealized gains on available-for-sale securities
$
3

 
$
1

Redemptions payable to non-controlling interests
$
17

 
$
1,861

See notes to consolidated financial statements.


5



ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 (Unaudited)



1.
Description of Business and Basis of Presentation.
General
Icahn Enterprises L.P. (“Icahn Enterprises” or the “Company”) is a master limited partnership formed in Delaware on February 17, 1987. We own a 99% limited partner interest in Icahn Enterprises Holdings L.P. (“Icahn Enterprises Holdings”). Icahn Enterprises Holdings and its subsidiaries own substantially all of our assets and liabilities and conduct substantially all of our operations. Icahn Enterprises G.P. Inc. (“Icahn Enterprises GP”), our sole general partner, which is owned and controlled by Mr. Carl C. Icahn, owns a 1% general partner interest in both us and Icahn Enterprises Holdings, representing an aggregate 1.99% general partner interest in us and Icahn Enterprises Holdings. As of March 31, 2012, affiliates of Mr. Icahn owned 92,812,051 of our depositary units which represented approximately 93.0% of our outstanding depositary units. In connection with a rights offering registered on Form S-3, which was declared effective on December 27, 2011, Mr. Icahn and his affiliates fully exercised their basic subscription rights and over-subscription rights allocated to them in January 2012 to acquire additional depositary units. Upon closing of the rights offering, Mr. Icahn and his affiliates owned 92,233,846, or 93.0%, of our outstanding depositary units. Refer to Note 13, "Net Income Per LP Unit," for further discussion.
We are a diversified holding company owning subsidiaries currently engaged in the following continuing operating businesses: Investment, Automotive, Gaming, Railcar, Food Packaging, Metals, Real Estate and Home Fashion. We also report the results of our Holding Company, which includes the unconsolidated results of Icahn Enterprises and Icahn Enterprises Holdings, and investment activity and expenses associated with the Holding Company. Further information regarding our continuing reportable segments is contained in Note 2, “Operating Units,” and Note 14, “Segment Reporting.”
The accompanying consolidated financial statements and related notes should be read in conjunction with our consolidated financial statements and related notes contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 (“fiscal 2011”). The consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) related to interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. The financial information contained herein is unaudited; however, management believes all adjustments have been made that are necessary to present fairly the results for the interim periods. All such adjustments are of a normal and recurring nature. Certain reclassifications from the prior year presentation have been made to conform to the current year presentation.
Our consolidated financial statements include the accounts of (i) Icahn Enterprises and (ii) the wholly and majority owned subsidiaries of Icahn Enterprises, in addition to those entities in which we have a controlling interest as a general partner interest or in which we may be the primary beneficiary of a variable interest entity (“VIE”). In evaluating whether we have a controlling financial interest in entities in which we would consolidate, we consider the following: (1) for voting interest entities, we consolidate these entities in which we own a majority of the voting interests; (2) for VIEs of which we may be considered the primary beneficiary of such entities (see Note 4, “Investments and Related Matters-Investment,” for further discussion regarding the accounting and reporting of our VIEs); and (3) for limited partnership entities that are not considered VIEs, we consolidate these entities if we are the general partner of such entities and for which no substantive kick-out rights (the rights underlying the limited partners' ability to dissolve the limited partnership or otherwise remove the general partners are collectively referred to as “kick-out” rights) or participating rights exist. All material intercompany accounts and transactions have been eliminated in consolidation.
 We conduct and plan to continue to conduct our activities in such a manner as not to be deemed an investment company under the Investment Company Act of 1940, as amended (the “'40 Act”). Therefore, no more than 40% of our total assets can be invested in investment securities, as such term is defined in the '40 Act. In addition, we do not invest or intend to invest in securities as our primary business. We intend to structure our investments 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, as amended (the “Code”).
Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, cash held at consolidated affiliated partnerships and restricted cash, accounts receivable, due from brokers, accounts payable, accrued expenses and other liabilities and due to brokers are deemed to be reasonable estimates of their fair values because of their short-term nature.
See Note 4, “Investments and Related Matters,” and Note 5, “Fair Value Measurements,” for a detailed discussion of our investments.


6



ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 (Unaudited)


The fair value of our long-term debt is based on the quoted market prices for the same or similar issues or on the current rates offered to us for debt of the same remaining maturities. The carrying value and estimated fair value of our long-term debt as of March 31, 2012 was approximately $7.3 billion and $7.5 billion, respectively. The carrying value and estimated fair value of our long-term debt as of December 31, 2011 was each approximately $6.5 billion.
Restricted Cash
Our restricted cash balance was approximately $1.6 billion and $4.8 billion as of March 31, 2012 and December 31, 2011, respectively.
Adoption of New Accounting Standards
In May 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2011-04, which amends Accounting Standards Codification ("ASC") Topic 820, Fair Value Measurements and Disclosures. This ASU clarifies among other things, the intent about the application of existing fair value requirements, including those related to highest and best use concepts, and also expands the disclosure requirements for fair value measurements categorized within Level 3 of the fair value hierarchy. This ASU clarifies that a reporting entity should disclose quantitative information about significant unobservable inputs used in a fair value measurement that is categorized within Level 3 of the fair value hierarchy. Additionally, this ASU expands the disclosures for fair value measurements categorized within Level 3 where a reporting entity is required to include a description of the valuation processes used and the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs, if any.  Additional disclosure is also required for any transfers between Level 1 and Level 2 of the fair value hierarchy of fair value measurements on a gross basis as well as additional disclosure of the level in the fair value hierarchy of assets and liabilities that are not recorded at fair value. For many of the requirements, the FASB does not intend for this ASU to result in a change in the application of the requirements in FASB ASC Topic 820.  This update is effective during interim and annual periods beginning after December 15, 2011. 
In June 2011, the FASB issued ASU No. 2011-05, which amends FASB ASC Topic 220, Comprehensive Income. This ASU is intended to increase the prominence of items reported in other comprehensive income in the financial statements by presenting the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. This ASU does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. This update is effective during interim and annual periods beginning after December 15, 2011. 
In September 2011, the FASB issued ASU No. 2011-08, which amends FASB ASC Topic 350, Intangibles-Goodwill and Other. This ASU permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in ASC Topic 350. Under the amendments in this ASU, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. This update is effective during interim and annual periods beginning after December 15, 2011. 
In December 2011, the FASB issued ASU No. 2011-12, which defers certain provisions contained in ASU No. 2011-05, as discussed above, requiring the requirement to present components of reclassifications of other comprehensive income on the face of the income statement or in the notes to the financial statements. However, this deferral does not impact the other requirements contained in the new standard on comprehensive income as described above. This update is effective during interim and annual periods beginning after December 15, 2011. 
Filing Status of Subsidiaries
Federal-Mogul Corporation (“Federal-Mogul”), American Railcar Industries, Inc. (“ARI”) and Tropicana Entertainment Inc. (“Tropicana”) are each a reporting entity under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and file annual, quarterly and current reports and proxy and information statements. Each of these reports is publicly available at www.sec.gov.





7



ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 (Unaudited)


2.
Operating Units.
Investment
Icahn Onshore LP (the “Onshore GP”) and Icahn Offshore LP (the “Offshore GP” and, together with the Onshore GP, the “General Partners”) act as general partner of Icahn Partners LP (the “Onshore Fund”) and the Offshore Master Funds (as defined herein), respectively. The General Partners provide investment advisory and certain administrative and back office services to the Investment Funds (as defined below) but do not provide such services to any other entities, individuals or accounts. Interests in the Investment Funds had been previously offered only to certain sophisticated and qualified investors on the basis of exemptions from the registration requirements of the federal securities laws and were not (and still are not) publicly available. The “Offshore Master Funds” consist of (i) Icahn Partners Master Fund LP ("Master Fund I"), (ii) Icahn Partners Master Fund II LP ("Master Fund II") and (iii) Icahn Partners Master Fund III LP ("Master Fund III"). The Onshore Fund and the Offshore Master Funds are collectively referred to herein as the “Investment Funds.” In addition, as discussed elsewhere in this Quarterly Report on Form 10-Q, the “Offshore Funds” consist of (i) Icahn Fund Ltd., (ii) Icahn Fund II Ltd. and (iii) Icahn Fund III Ltd.
Prior to March 31, 2011, our Investment segment's revenues were affected by the combination of fee-paying assets under management (“AUM”) and the investment performance of the Investment Funds. The General Partners were entitled to receive an incentive allocation and special profits interest allocation from the Investment Funds which were accrued on a quarterly basis and were allocated to the General Partners at the end of the Investment Funds' fiscal year (or sooner on redemptions) assuming there were sufficient net profits to cover such amounts. As a result of the return of fee-paying capital as described below, no further incentive allocations or special profits interest allocations will accrue for periods subsequent to March 31, 2011.
As more fully disclosed in a letter to investors in the Investment Funds filed with the SEC on Form 8-K on March 7, 2011, the Investment Funds returned all fee-paying capital to their investors during fiscal 2011. Payments were funded through cash on hand and borrowings under existing credit lines.
As a result of returning fee-paying capital to its investors on March 31, 2011, each of the Investment Funds no longer meets the criteria of an investment company as set forth in FASB ASC Paragraph 946-10-15-2, Financial Services-Investment Companies, and, therefore, the application of FASB ASC Section 946-810-45, Financial Services-Investment Companies-Consolidation, is no longer applicable effective March 31, 2011. This change has no material effect on our consolidated financial statements as the Investment Funds would account for their investments as trading securities pursuant to FASB ASC Topic 320, Investments-Debt and Equity Securities, effective March 31, 2011. For those investments that fall outside the scope of FASB ASC Topic 320, or for those investments in which the Investment Funds would otherwise have been required to account for under the equity method, the Investment Funds apply the fair value option to such investments. See Note 4, "Investments and Related Matters-Investment," for further discussion regarding this reconsideration event and its consolidation impact.
As a result of the return of fee-paying capital as described above, a special profits interest allocation of $9 million and an incentive allocation of $7 million were allocated to the General Partners at March 31, 2011. No further special profits interest allocation or incentive allocation will accrue in periods subsequent to March 31, 2011.
The fair value of our interest in the Investment Funds was approximately $3.2 billion and $3.1 billion as of March 31, 2012 and December 31, 2011, respectively.
Automotive
We conduct our Automotive segment through our majority ownership in Federal-Mogul.  Federal-Mogul is a leading global supplier of technology and innovation in vehicle and industrial products for fuel economy, emissions reduction, alternative energies, environment and safety systems. Federal-Mogul serves the world's foremost original equipment manufacturers and servicers (“OE”) of automotive, light, medium and heavy-duty commercial vehicles, off-road, agricultural, marine, rail, aerospace, power generation and industrial equipment, as well as the worldwide aftermarket.  As of March 31, 2012, Federal-Mogul was organized into four product groups: Powertrain Energy ("PTE"), Powertrain Sealing and Bearings ("PTSB"), Vehicle Safety and Protection ("VSP") and Global Aftermarket. 
Federal-Mogul's customers include the world's largest light and commercial vehicle OEs and major distributors and retailers in the independent aftermarket. Federal-Mogul has operations in established markets including Canada, France,


8



ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 (Unaudited)


Germany, Italy, Japan, Spain, Sweden, the United Kingdom and the United States, and emerging markets including Argentina, Brazil, China, Czech Republic, Hungary, India, Korea, Mexico, Poland, Russia, South Africa, Thailand, Turkey and Venezuela. The attendant risks of Federal-Mogul's international operations are primarily related to currency fluctuations, changes in local economic and political conditions and changes in laws and regulations.
As of March 31, 2012, we owned approximately 77.2% of the total outstanding common stock of Federal-Mogul.
Accounts Receivable, net
Federal-Mogul's subsidiaries in Brazil, France, Germany, Italy, Japan, Spain and the United States are party to accounts receivable factoring and securitization facilities. Gross accounts receivable transferred under these facilities were $234 million and $203 million as of March 31, 2012 and December 31, 2011, respectively. Of those gross amounts, $233 million and $202 million, respectively, qualify as sales as defined in FASB ASC Topic 860, Transfers and Servicing. The remaining transferred receivables were pledged as collateral and accounted for as secured borrowings and recorded in the consolidated balance sheets within accounts receivable, net and debt. Under the terms of these facilities, Federal-Mogul is not obligated to draw cash immediately upon the transfer of accounts receivable. As of both March 31, 2012 and December 31, 2011, Federal-Mogul had no outstanding transferred receivables for which cash had not yet been drawn. Proceeds from the transfers of accounts receivable qualifying as sales were approximately $414 million and $413 million for the three months ended March 31, 2012 and 2011, respectively.
For each of the three months ended March 31, 2012 and 2011, expenses associated with transfers of receivables were $2 million and were recorded in the consolidated statements of operations within other income (loss), net. Where Federal-Mogul receives a fee to service and monitor these transferred receivables, such fees are sufficient to offset the costs and as such, a servicing asset or liability is not incurred as a result of such activities. Certain of the facilities contain terms that require Federal-Mogul to share in the credit risk of the sold receivables. The maximum exposures to Federal-Mogul associated with certain of these facilities' terms were $25 million and $23 million as of March 31, 2012 and December 31, 2011, respectively. Based on Federal-Mogul's analysis of the creditworthiness of its customers on which such receivables were sold and outstanding as of March 31, 2012 and December 31, 2011, Federal-Mogul estimated the loss to be immaterial.
Restructuring
During the three months ended March 31, 2012 and 2011, Federal-Mogul recorded $6 million and $1 million in restructuring charges, respectively. The restructuring charges for the three months ended March 31, 2012 primarily consist of employee costs related to certain headcount reduction actions associated with the aftermarket.
 Thailand Manufacturing Facility Flood
In October 2011, a flood occurred at one of Federal-Mogul's manufacturing facilities in Ayutthaya, Thailand. This facility was partially submerged in the flood waters for a period of approximately six weeks, resulting in extensive damage to the facility and the loss of substantially all of its related equipment and inventory. Operations at the facility are currently suspended.
In addition to other coverage, Federal-Mogul believes its insurance policies provide for replacement of damaged property, sales value of destroyed inventory, reimbursement for losses due to interruption of business operations and reimbursement of expenditures incurred to restore operations. In February and April 2012, Federal-Mogul received $25 million and $5 million, respectively, in cash advances from its insurance carrier related to the flooding. Federal-Mogul has insurance recoverables of $3 million and $21 million recorded as of March 31, 2012 and December 31, 2011, respectively.
Gaming
We conduct our Gaming segment through our majority ownership in Tropicana. Tropicana currently owns and operates a diversified, multi-jurisdictional collection of casino gaming properties. The nine casino facilities it operates feature approximately 414,000 square feet of gaming space with 7,485 slot machines, 226 table games and 6,048 hotel rooms with three casino facilities located in Nevada, two in Mississippi and one in each of Indiana, Louisiana, New Jersey and Aruba.
On March 8, 2010, (the ''Effective Date''), Tropicana completed the acquisition of certain assets of its predecessor, Tropicana Entertainment, LLC, and certain subsidiaries and affiliates thereof (together, the ''Predecessors'') and Tropicana Resort and Casino-Atlantic City (''Tropicana AC''). Such transactions, referred to as the ''Restructuring Transactions,'' were effected pursuant to the Joint Plan of Reorganization of Tropicana Entertainment, LLC (''Tropicana LLC'') and Certain of Its Debtor Affiliates Under Chapter 11 of the Bankruptcy Code, filed with the United States Bankruptcy Court for the District of


9



ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 (Unaudited)


Delaware on January 8, 2009, as amended (the ''Plan''). As a result of the Restructuring Transactions pursuant to the Plan, the Investment Funds received shares of Tropicana common stock.
On November 15, 2010, the Investment Funds acquired 668,000 additional shares of Tropicana common stock. As a result of this purchase, the Investment Funds held, in the aggregate, 13,538,446 shares of Tropicana common stock, representing approximately 51.5% of the outstanding shares of Tropicana common stock. The additional purchase of shares of Tropicana common stock gave the Investment Funds a controlling interest and required us to consolidate Tropicana's financial results effective November 15, 2010, which now comprises our Gaming segment.
On April 29, 2011, the Investment Funds made a distribution-in-kind of 13,538,446 shares of Tropicana common stock with a value of $216 million to us in redemption of $216 million of our limited and general partner interests in the Investment Funds. The distribution transferred the ownership of the Tropicana common stock held by the Investment Funds directly to us. As a result of this transaction, we directly owned 51.5% of Tropicana's outstanding common stock. This distribution increased equity attributable to Icahn Enterprises by $27 million and decreased equity attributable to non-controlling interests by $27 million, representing the basis difference between the redemption value determined as of April 29, 2011 and the application to the controlling interest in Tropicana of purchase accounting pursuant to FASB ASC Topic 805, Business Combinations, on November 15, 2010.
During the three months ended March 31, 2012, we acquired additional shares of Tropicana common stock.  As of March 31, 2012, we owned approximately 65.1% of the total outstanding common stock of Tropicana.
In connection with Tropicana's completion of the Restructuring Transactions, Tropicana entered into a credit agreement, dated as of December 29, 2009 (the ''Exit Facility''). Each of the Investment Funds was a lender under the Exit Facility and, in the aggregate, collectively held over 50% of the loans thereunder. On June 30, 2011, the Investment Funds made a distribution-in-kind of the loans under the Exit Facility with a value of $71 million to us in redemption of $71 million of our general partner interests in the Investment Funds. The distribution transferred the ownership of the loans under the Exit Facility held by the Investment Funds directly to us. As a result of this transaction, we directly owned over 50% of the loans under the Exit Facility. In March 2012, Tropicana paid in full its Exit Facility and the Revolving Facility was canceled therewith. See Note 10, "Debt," for further discussion.
Railcar
We conduct our Railcar segment through our majority ownership in ARI. ARI manufactures railcars, which are offered for sale or lease, custom designed railcar parts and other industrial products, primarily aluminum and special alloy steel castings. These products are sold to various types of companies including leasing companies, railroads, industrial companies and other non-rail companies. ARI leases railcars that it manufactures to certain markets. ARI provides railcar repair and maintenance services for railcar fleets. In addition, ARI provides fleet management, maintenance, engineering and field services for railcars owned by certain customers. Such services include maintenance planning, project management, tracking and tracing, regulatory compliance, mileage audit, rolling stock taxes and online service access.
As of March 31, 2012, we owned approximately 55.5% of the total outstanding common stock of ARI.
Food Packaging
We conduct our Food Packaging segment through our majority ownership in Viskase Companies, Inc. ("Viskase"). Viskase is a worldwide leader in the production and sale of cellulosic, fibrous and plastic casings for the processed meat and poultry industry. Viskase currently operates seven manufacturing facilities and ten distribution centers throughout North America, Europe, South America and Asia and derives approximately 71% of its total net sales from customers located outside the United States. Viskase believes it is one of the two largest manufacturers of non-edible cellulosic casings for processed meats and one of the three largest manufacturers of non-edible fibrous casings. Viskase is building a shirring plant in the Philippines to serve the Asian market. The plant is expected to open in the second quarter of fiscal 2012 and will be scaled up over several years in accordance with our growth expectations for the Asian market.
As of March 31, 2012, we owned approximately 71.4% of the total outstanding common stock of Viskase.
Metals
We conduct our Metals segment through our indirect wholly owned subsidiary, PSC Metals, Inc. (“PSC 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. PSC


10



ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 (Unaudited)


Metals' ferrous products include busheling, plate and structural, 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 processes the scrap into a size, density and purity required by customers to meet their production needs. 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 steel 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.
Real Estate
Our Real Estate segment consists of rental real estate, property development and resort activities.
As of March 31, 2012, we owned 30 rental real estate properties. Our property development operations are run primarily through Bayswater Development LLC, a real estate investment, management and development subsidiary that focuses primarily on the construction and sale of single-family and 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 324 and 870 units of residential housing, respectively. Both developments operate golf and resort operations as well.
As of March 31, 2012 and December 31, 2011, $76 million and $77 million, respectively, of the net investment in financing leases and net real estate leased to others which is included in property, plant and equipment, net, were pledged to collateralize the payment of nonrecourse mortgages payable.
Home Fashion
We conduct our Home Fashion segment through our indirect wholly owned subsidiary, WestPoint Home LLC (“WPH”), a manufacturer and distributor of home fashion consumer products. WPH is engaged in the business of manufacturing, sourcing, designing, marketing, distributing and selling home fashion consumer products. WPH markets a broad range of manufactured and sourced bed, bath, basic bedding and kitchen textile products, including sheets, pillowcases, bedspreads, quilts, comforters and duvet covers, featherbeds, bath and beach towels, bath accessories, bed skirts, bed pillows, flocked blankets, woven blankets and throws, mattress pads, kitchen towels and kitchen accessories. WPH recognizes revenue primarily through the sale of home fashion products to a variety of retail and institutional customers. In addition, WPH receives a small portion of its revenues through the licensing of its trademarks.
Effective as of March 1, 2012, pursuant to an internal reorganization WestPoint Home, Inc. (a wholly owned indirect subsidiary of WestPoint International, LLC (“WPI”), a subsidiary through which we had previously conducted our Home Fashion business) merged into our newly created wholly owned indirect subsidiary (which was formed as a Delaware limited liability company solely for the purposes of such merger) and continued its business as a limited liability company under the name WestPoint Home LLC. In referencing WPH, we refer to WestPoint Home Inc. and WestPoint Home LLC interchangeably because the business profile of our Home Fashion segment's business did not change as a result of this reorganization.
WPH has transitioned the majority of its manufacturing to low-cost countries but continues to maintain its corporate offices and certain distribution operations in the United States.
A relatively small number of customers have historically accounted for a significant portion of WPH's net sales. WPH had five customers who accounted for approximately 62% and 54% of WPH's net sales for the three months ended March 31, 2012 and 2011, respectively.


3.
Related Party Transactions.
Our amended and restated agreement of limited partnership expressly permits us to enter into transactions with our general partner or any of its affiliates, including, without limitation, buying or selling properties from or to our general partner and any of its affiliates and borrowing and lending money from or to our general partner and any of its affiliates, subject to limitations contained in our partnership agreement and the Delaware Revised Uniform Limited Partnership Act. The indentures governing our indebtedness contain certain covenants applicable to transactions with affiliates.


11



ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 (Unaudited)


Investment
Until August 8, 2007, Icahn Management LP (“Icahn Management”) elected to defer most of the management fees from the Offshore Funds and such amounts remain invested in the Offshore Master Funds. Prior to March 31, 2011, the balance of the deferred management fees payable (included in accrued expenses and other liabilities) by Icahn Fund Ltd. to Icahn Management was included in our consolidated financial statements. As further discussed in Note 4, "Investments and Related Matters-Investment-Investment in Variable Interest Entities," because we are no longer considered the primary beneficiary of Icahn Fund Ltd. as of March 31, 2011, we deconsolidated the results and financial position of Icahn Fund Ltd. as of such date.  As a result of deconsolidating Icahn Fund Ltd., our consolidated financial statements will no longer contain this deferred management fee payable effective March 31, 2011.
Effective January 1, 2008, Icahn Capital LP (“Icahn Capital”) paid for salaries and benefits of certain employees who may also perform various functions on behalf of certain other entities beneficially owned by Mr. Icahn (collectively, “Icahn Affiliates”), including administrative and investment services.  Prior to January 1, 2008, Icahn & Co. LLC paid for such services.  Under a separate expense-sharing agreement, Icahn Capital charged Icahn Affiliates $0.5 million and $0.2 million for the three months ended March 31, 2012 and 2011, respectively. As of March 31, 2012, accrued expenses and other liabilities in our consolidated balance sheets included $0.5 million to be applied to Icahn Capital's charges to Icahn Affiliates for services to be provided to them. There was no balance as of December 31, 2011.
In addition, effective January 1, 2008, certain expenses borne by Icahn Capital are reimbursed by Icahn Affiliates, as appropriate, when such expenses are incurred. The expenses include investment-specific expenses for investments acquired by both the Investment Funds and Icahn Affiliates that are allocated based on the amounts invested by each party, as well as investment-related expenses that are allocated based on estimated usage agreed upon by Icahn Capital and Icahn Affiliates. For the three months ended March 31, 2012 and 2011, these reimbursement amounts were $0.2 million and $1 million, respectively.
Mr. Icahn, along with his affiliates, makes investments in the Investment Funds. As of both March 31, 2012 and December 31, 2011, the total fair market value of investments in the Investment Funds made by Mr. Icahn and his affiliates was approximately $3.2 billion. In addition, an affiliate of Mr. Icahn has a deferred management fee arrangement with certain feeder funds with balances of $190 million and $188 million as of March 31, 2012 and December 31, 2011, respectively. Such amounts are invested in and receive applicable returns thereon from the Investment Funds.
Effective April 1, 2011, based on a new expense-sharing arrangement, certain expenses borne by Icahn Capital are reimbursed by the Investment Funds, when such expenses are incurred. Such expenses relate to the operation, administration and investment activities of Icahn Capital for the benefit of the Investment Funds (including salaries, benefits and rent) and shall be allocated pro rata in accordance with each investor's capital accounts in the Investment Funds. For the three months ended March 31, 2012, $3 million was allocated to the Investment Funds based on this expense-sharing arrangement.
Railcar
Agreements with American Railcar Leasing LLC
Effective as of January 1, 2008, ARI entered into a fleet services agreement with American Railcar Leasing LLC ("ARL"), a company controlled by Mr. Icahn. Under the agreement, ARI provided ARL fleet management services for a fixed monthly fee and railcar repair and maintenance services for a charge of labor, components and materials. This agreement was replaced by a new agreement (referred to as the "Railcar Services Agreement"), which became effective April 16, 2011 for a term of three years that will automatically renew for additional one-year periods unless either party provides at least 60 days written prior notice of termination. As stipulated in the Railcar Services Agreement, ARI provides railcar repair, engineering, administrative and other services, on an as needed basis, for ARL's lease fleet at mutually agreed-upon prices. Railcar services revenues, included in other revenues from operations in our consolidated statements of operations, recorded by ARI were $5 million and $6 million under these agreements for the three months ended March 31, 2012 and 2011, respectively. The terms and pricing on services to related parties are not less favorable to ARI than the terms and pricing on services provided to unaffiliated third parties. The Railcar Services Agreement was unanimously approved by the independent directors of ARI's audit committee on the basis that the terms were no less favorable than those that would have been obtained in a comparable transaction with an unaffiliated third party.
ARI from time to time manufactures and sells railcars to ARL under long-term agreements as well as on a purchase order basis. For the three months ended March 31, 2012 and 2011, revenues from railcars sold to ARL were zero and $1 million, respectively. Revenues from railcars sold to ARL are included in net sales in our consolidated statements of operations. The


12



ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 (Unaudited)


terms and pricing on services to related parties are not less favorable to ARI than the terms and pricing on services provided to unaffiliated third parties. Any related party sales of railcars under an agreement or purchase order, have been and will be subject to the approval or review by ARI's audit committee.
On February 29, 2012, ARI entered into a Railcar Management Agreement (the Railcar Management Agreement) with ARL, pursuant to which ARI engaged ARL to sell or lease ARI's railcars in certain markets, subject to the terms and conditions of the Railcar Management Agreement. The Railcar Management Agreement was effective as of January 1, 2011, will continue through December 31, 2015 and may be renewed upon written agreement by both parties.
The Railcar Management Agreement also provides that ARL will manage ARI's leased railcars including arranging for services, such as repairs or maintenance, as deemed necessary. Subject to the terms and conditions of the agreement, ARL will receive, in respect of leased railcars, a fee consisting of a lease origination fee and a management fee based on the lease revenues, and, in respect of railcars sold by ARL, sales commissions. The Railcar Management Agreement was unanimously approved by ARI's special committee and Icahn Enterprises' independent director audit committee on the basis that the terms of the Railcar Management Agreement were not materially less favorable than those that would have been obtained in a comparable transaction with an unaffiliated third party.  
Fees incurred ARL in connection with the Railcar Management Agreement were immaterial for each of the three months ended March 31, 2012 and 2011.   As of March 31, 2012 and December 31, 2011, ARI had accounts receivable of $1 million and $4 million, respectively, due from ARL. These amounts are included in other assets in our consolidated balance sheets.
Food Packaging
Arnos Corporation, an affiliate of Mr. Icahn, was the lender on Viskase's Revolving Credit Facility as of December 31, 2009. In connection with our majority acquisition of Viskase on January 15, 2010, we assumed the Viskase Revolving Credit Facility from Arnos Corporation. On March 14, 2012, we entered into an agreement to further extend the Revolving Credit Facility from January 31, 2013 to January 31, 2014. See Note 10, “Debt,” for further discussion regarding Viskase's Revolving Credit Facility.
Holding Company - Administrative Services
For each of the three months ended March 31, 2012 and 2011, we paid an affiliate $1 million for the non-exclusive use of office space.
For each of the three months ended March 31, 2012 and 2011, we paid $0.2 million to XO Holdings, Inc., an affiliate of Icahn Enterprises GP, our general partner, for telecommunications services. XO Holdings, Inc. is controlled by Mr. Icahn.
The Holding Company provided certain professional services to an Icahn Affiliate for which it charged $0.5 million and $0.7 million for the three months ended March 31, 2012 and 2011, respectively. As of March 31, 2012 and December 31, 2011, accrued expenses and other liabilities in our consolidated balance sheets included $0.4 million and $1 million, respectively, for charges to the affiliate for services provided to it.
Icahn Sourcing
Icahn Sourcing, LLC ("Icahn Sourcing") is an entity formed and controlled by Carl C. Icahn in order to maximize the potential buying power of a group of entities with which Mr. Icahn has a relationship in negotiating with a wide range of suppliers of goods, services and tangible and intangible property. We are a member of the buying group and, as such, are afforded the opportunity to purchase goods, services and property from vendors with whom Icahn Sourcing has negotiated rates and terms. Icahn Sourcing does not guarantee that we will purchase any goods, services or property from any such vendors, and we are under no obligation to do so. We do not pay Icahn Sourcing any fees or other amounts with respect to the buying group arrangement. We have purchased a variety of goods and services as members of the buying group at prices and on terms that we believe are more favorable than those which would be achieved on a stand-alone basis.


4.
Investments and Related Matters.
Investment
Investments, and securities sold, not yet purchased consist of equities, bonds, bank debt and other corporate obligations, and derivatives, all of which are reported at fair value in our consolidated balance sheets. The following table summarizes the


13



ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 (Unaudited)


Investment Funds' investments, securities sold, not yet purchased and unrealized gains and losses on derivatives:
  
March 31, 2012
 
December 31, 2011
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
 
(in millions)
Assets
 
 
 
 
 
 
 
Investments:
 
 
 
 
 
 
 
   Equity securities:
 
 
 
 
 
 
 
      Basic materials
$
117

 
$
124

 
$
129

 
$
128

      Communications
902

 
1,208

 
2,203

 
2,593

      Consumer, non-cyclical
1,270

 
1,402

 
1,642

 
1,804

      Consumer, cyclical
808

 
846

 
822

 
754

      Energy
534

 
644

 
1,194

 
1,673

      Financial
228

 
205

 
320

 
263

      Industrial

 

 
22

 
32

      Technology
169

 
282

 
169

 
254

      Utilities
160

 
74

 
171

 
104

 
4,188

 
4,785

 
6,672


7,605

   Corporate debt:
 
 
 
 
 
 
 
      Communications
92

 
91

 
89

 
84

      Consumer, cyclical
357

 
279

 
516

 
439

      Utilities
40

 
26

 
40

 
34

      Sovereign debt
6

 
5

 
10

 
10

      Financial
90

 
116

 
94

 
109

 
585

 
517

 
749

 
676

   Mortgage-backed securities:
 
 
 
 
 
 
 
      Financial
176

 
174

 
176

 
167

 
4,949

 
5,476

 
7,597

 
8,448

 
 
 
 
 
 
 
 
Derivative contracts, at fair value(1)

 

 

 
3

 
$
4,949

 
$
5,476

 
$
7,597

 
$
8,451

Liabilities
 
 
 
 
 
 
 
Securities sold, not yet purchased, at fair value:
 
 
 
 
 
 
 
   Equity securities:
 
 
 
 
 
 
 
      Consumer, cyclical
$
365

 
$
363

 
$

 
$

      Energy
41

 
41

 

 

      Funds
597

 
571

 
4,610

 
4,476

 
1,003

 
975

 
4,610

 
4,476

 
 
 
 
 
 
 
 
Derivative contracts, at fair value(2)

 
383

 

 
42

 
$
1,003

 
$
1,358

 
$
4,610

 
$
4,518


(1) 
Included in other assets in our consolidated balance sheets.
(2) 
Included in accrued expenses and other liabilities in our consolidated balance sheets.

The General Partners adopted FASB ASC Section 946-810-45, Financial Services-Investment Companies-Consolidation, as of January 1, 2007 which provides guidance on whether investment company accounting should be retained in the financial statements of a parent entity. Upon the adoption of FASB ASC Section 946-810-45, the General Partners lost their ability to retain specialized accounting. Prior to March 31, 2011, for those investments that (i) were deemed to be available-for-sale securities, (ii) fell outside the scope of FASB ASC Topic 320, Investments-Debt and Equity Securities, or (iii) the General Partners would otherwise have accounted for under the equity method, the General Partners applied the fair value option. The application of the fair value option is irrevocable.


14



ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 (Unaudited)


As further discussed in Note 2, "Operating Units-Investment," as a result of returning fee-paying capital to its investors on March 31, 2011, each of the Investment Funds no longer meets the criteria of an investment company as set forth in FASB ASC Paragraph 946-10-15-2, Financial Services-Investment Companies, and, therefore, the application of FASB ASC Section 946-810-45 is no longer applicable effective March 31, 2011. This change has no material effect on our consolidated financial statements.
Our Investment segment assesses the applicability of equity method accounting with respect to their investments based on a combination of qualitative and quantitative factors, including overall stock ownership of the Investment Funds combined with those of our affiliates along with board of directors representation.
Our Investment segment applied the fair value option to certain of its investments that would have otherwise been subject to the equity method of accounting.  As of March 31, 2012, the fair value of these investments was $250 million. During the three months ended March 31, 2012 and 2011, our Investment segment recorded gains of $41 million and $20 million, respectively, associated with these investments.  Such amounts are included in net gain from investment activities in our consolidated statements of operations. Included in these investments is the Investment Funds' investment in The Hain Celestial Group, Inc. (“Hain”). As of March 31, 2012, the Investment Funds, together with their affiliates held, in the aggregate, 7,130,563 shares of Hain, representing approximately 16% of the outstanding shares of Hain. The General Partners have applied the fair value option to their investments in Hain.
We believe that these investments to which we applied the fair value option are not material, individually or in the aggregate, to our consolidated financial statements. Hain is a registered SEC reporting company whose financial statement is available at www.sec.gov. 
Investments in Variable Interest Entities
In February 2010, the FASB issued guidance which amends the consolidation requirement of VIEs for certain entities meeting certain criteria. We determined that certain entities within our Investment segment previously met the criteria for the deferral of this new consolidation guidance. Accordingly, our Investment segment applied the overall guidance on the consolidation of VIEs with respect to applicable entities prior to the issuance of the standard. Effective March 31, 2011, we applied the consolidation guidance to certain entities within our Investment segment to determine whether such entities are considered VIEs, including the determination of who is deemed the primary beneficiary of such VIEs. The application of this consolidation guidance did not have an impact on our financial condition, results of operations and cash flows.
We consolidate certain VIEs when we are determined to be their primary beneficiary, either directly or indirectly through other consolidated subsidiaries. Prior to the 2011 Reconsideration Event (as discussed below), the assets of our consolidated VIEs were primarily classified within cash and cash equivalents and investments in our consolidated balance sheets. The liabilities of our consolidated VIEs were primarily classified within securities sold, not yet purchased, at fair value, and accrued expenses and other liabilities in our consolidated balance sheets.
As discussed in Note 2, "Operating Units-Investment," on March 7, 2011, the Investment Funds determined to return fee-paying capital to its investors. We evaluated the impact of this reconsideration event (referred to as the "2011 Reconsideration Event") with respect to the VIE and primary beneficiary status of each of the Investment Funds and the Offshore Funds. We determined that the 2011 Reconsideration Event impacted Master Fund II, Master Fund III and Icahn Fund Ltd. Prior to the 2011 Reconsideration Event, Master Fund II, Master Fund III and Icahn Fund Ltd. were each considered VIEs for which we were determined to be their primary beneficiary and therefore we consolidated them. As a result of the 2011 Reconsideration Event, Master Fund II and Master Fund III are no longer considered VIEs. However, the VIE status change in Master Fund II and Master Fund III did not impact their consolidation status. Because we control Master Fund II and Master Fund III through our general partner interests, we continue to consolidate Master Fund II and Master Fund III. There are no substantive kick-out or participating rights in either Master Fund II or Master Fund III. In addition, previously Icahn Fund Ltd. was considered a VIE and we consolidated it because the Offshore GP was its primary beneficiary. As a result of the 2011 Reconsideration Event, we determined that, although Icahn Fund Ltd. is still considered a VIE, the Offshore GP is no longer the primary beneficiary. We deconsolidated Icahn Fund Ltd. as of March 31, 2011, the result of which decreased consolidated total liabilities by $146 million and increased equity attributable to non-controlling interests by the same amount.


15



ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 (Unaudited)


Other Segments
Investments held by our Automotive, Gaming, Railcar, Home Fashion segments and Holding Company consist of the following:
 
March 31, 2012
 
December 31, 2011
 
Amortized Cost
 
Carrying Value
 
Amortized Cost
 
Carrying Value
 
(in millions)
Marketable equity and debt securities - available for sale
$
2

 
$
1

 
$
17

 
$
20

Trading securities
60

 
60

 

 

Investments in precious metals

 

 
150

 
150

Equity method investments and other
339

 
339

 
320

 
320

 
$
401

 
$
400

 
$
487

 
$
490


With the exception of certain operating segments, it is our general policy to apply the fair value option to all of our investments that would be subject to the equity method of accounting. We record unrealized gains and losses for the change in fair value of such investments as a component of net gain from investment activities in the consolidated statements of operations. We believe that these investments, individually or in the aggregate, are not material to our consolidated financial statements.
Investments in Non-Consolidated Affiliates
Automotive
Federal-Mogul maintains investments in several non-consolidated affiliates, which are located in China, France, Germany, India, Italy, Korea, Turkey and the United States. Federal-Mogul's direct ownership in such affiliates ranges from approximately 2% to 50%. The aggregate investments in these affiliates were $244 million and $228 million at March 31, 2012 and December 31, 2011, respectively.
Equity earnings from non-consolidated affiliates were $10 million for each of the three months ended March 31, 2012 and 2011, which are included in other income (loss), net in our consolidated statements of operations. For the three months ended March 31, 2012 and 2011, these entities generated sales of $198 million and $184 million, respectively, and net income of $25 million and $24 million, respectively. Distributed dividends to Federal-Mogul from non-consolidated affiliates were immaterial for each of the three months ended March 31, 2012 and 2011.
Federal-Mogul does not consolidate any entity for which it has a variable interest based solely on power to direct the activities and significant participation in the entity's expected results that would not otherwise be consolidated based on control through voting interests. Further, Federal-Mogul's joint ventures are businesses established and maintained in connection with its operating strategy and are not special purpose entities.
Federal-Mogul holds a 50% non-controlling interest in a joint venture located in Turkey. This joint venture was established in 1995 for the purpose of manufacturing and marketing automotive parts, including pistons, piston rings, piston pins, and cylinder liners to OE and aftermarket customers. Pursuant to the joint venture agreement, Federal-Mogul's partner holds an option to put its shares to a subsidiary of Federal-Mogul's at the higher of the current fair value or at a guaranteed minimum amount. The term of the contingent guarantee is indefinite, consistent with the terms of the joint venture agreement. However, the contingent guarantee would not survive termination of the joint venture agreement. The guaranteed minimum amount represents a contingent guarantee of the initial investment of the joint venture partner and can be exercised at the discretion of the partner. The total amount of the contingent guarantee, should all triggering events have occurred, approximated $61 million as of March 31, 2012. Federal-Mogul believes that this contingent guarantee is less than the estimated current fair value of the partners' interest in the affiliate. As such, the contingent guarantee does not give rise to a contingent liability and, as a result, no amount is recorded for this guarantee. If this put option were exercised, the consideration paid and net assets acquired would be accounted for in accordance with business combination accounting. Any value in excess of the guaranteed minimum amount of the put option would be the subject of negotiation between Federal-Mogul and its joint venture partner.


16



ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 (Unaudited)


Railcar
As of March 31, 2012, ARI was party to three joint ventures which are all accounted for using the equity method. ARI determined that, although these joint ventures are considered VIEs, it is not the primary beneficiary of such VIEs, does not have a controlling financial interest and does not have the ability to individually direct the activities of the VIEs that most significantly impact their economic performance. A significant factor in this determination was that ARI does not have the rights to a majority of returns, losses or votes.
The risk of loss to ARI is limited to its investment in these joint ventures, certain loans and related interest and fees due from these joint ventures to ARI. As of March 31, 2012, the carrying amount of these investments was $46 million and the maximum exposure to loss was $47 million. Maximum exposure to loss was determined based on ARI's carrying amounts in such investments, loans, accrued interest thereon and accrued unused line fee due from applicable joint ventures.


5.
Fair Value Measurements.
U.S. GAAP requires enhanced disclosures about investments and non-recurring non-financial assets and non-financial liabilities that are measured and reported at fair value and has established a hierarchal disclosure framework that prioritizes and ranks the level of market price observability used in measuring investments or non-financial assets and liabilities at fair value. Market price observability is impacted by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.
Investments and non-financial assets and/or liabilities measured and reported at fair value are classified and disclosed in one of the following categories:
Level 1 - Quoted prices are available in active markets for identical investments as of the reporting date. The types of investments included in Level 1 include listed equities and listed derivatives. We do not adjust the quoted price for these investments, even in situations where we hold a large position.
Level 2 - Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. Investments that are generally included in this category include corporate bonds and loans, less liquid and restricted equity securities and certain over-the-counter derivatives. The inputs and assumptions of our Level 2 investments are derived from market observable sources including: reported trades, broker/dealer quotes and other pertinent data.
Level 3 - Pricing inputs are unobservable for the investment and non-financial asset and/or liability and include situations where there is little, if any, market activity for the investment or non-financial asset and/or liability. The inputs into the determination of fair value require significant management judgment or estimation. Fair value is determined using comparable market transactions and other valuation methodologies, adjusted as appropriate for liquidity, credit, market and/or other risk factors.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the investment. Significant transfers, if any, between the levels within the fair value hierarchy are recognized at the beginning of the reporting period.


17



ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 (Unaudited)


Investment
The following table summarizes the valuation of the Investment Funds' investments by the above fair value hierarchy levels as of March 31, 2012 and December 31, 2011: 
 
March 31, 2012
 
December 31, 2011
  
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
(in millions)
Investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Basic materials
$
124

 
$

 
$

 
$
124

 
$
128

 
$

 
$

 
$
128

      Communications
1,208

 

 

 
1,208

 
2,593

 

 

 
2,593

      Consumer, non-cyclical
1,402

 

 

 
1,402

 
1,778

 
26

 

 
1,804

      Consumer, cyclical
396

 
450

 

 
846

 
376

 
378

 

 
754

      Energy
551

 
93

 

 
644

 
1,644

 
29

 

 
1,673

      Financial
205

 

 

 
205

 
263

 

 

 
263

      Industrial

 

 

 

 

 
32

 

 
32

      Technology
282

 

 

 
282

 
254

 

 

 
254

      Utilities
45

 
29

 

 
74

 
83

 
21

 

 
104

 
4,213

 
572

 

 
4,785

 
7,119

 
486

 

 
7,605

   Corporate debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Communications

 
91

 

 
91

 

 
84

 

 
84

      Consumer, cyclical

 
6

 
273

 
279

 

 
150

 
289

 
439

      Utilities

 
26

 

 
26

 

 
34

 

 
34

      Sovereign debt

 
5

 

 
5

 

 
10

 

 
10

      Financial

 
116

 

 
116

 

 
109

 

 
109

 

 
244

 
273

 
517

 

 
387

 
289

 
676

   Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Financial

 
174

 

 
174

 

 
167

 

 
167

 
4,213

 
990

 
273

 
5,476

 
7,119

 
1,040

 
289

 
8,448

Derivative contracts, at fair value(1):

 

 

 

 

 
3

 

 
3

 
$
4,213

 
$
990

 
$
273

 
$
5,476

 
$
7,119

 
$
1,043

 
$
289

 
$
8,451

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities sold, not yet purchased, at fair value:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Consumer, cyclical
$
363

 
$

 
$

 
$
363

 
$

 
$

 
$

 
$

      Energy
41

 

 

 
41

 

 

 

 

      Funds
486

 
85

 

 
571

 
4,466

 
10

 

 
4,476

 
890

 
85

 

 
975

 
4,466

 
10

 

 
4,476

Derivative contracts, at fair value(2):

 
383

 

 
383

 

 
42

 

 
42

 
$
890

 
$
468

 
$

 
$
1,358

 
$
4,466

 
$
52

 
$

 
$
4,518


(1) 
Included in other assets in our consolidated balance sheets.
(2) 
Included in accrued expenses and other liabilities in our consolidated balance sheets.



18



ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 (Unaudited)


The changes in investments measured at fair value for which the Investment segment has used Level 3 input to determine fair value are as follows:
 
Three Months Ended March 31,
  
2012
 
2011
 
(in millions)
Balance at January 1
$
289

 
$
329

Gross realized and unrealized losses
(13
)
 

Gross proceeds
(3
)
 
(10
)
Balance at March 31
$
273

 
$
319

Unrealized losses of $14 million are included in earnings related to Level 3 investments still held at March 31, 2012. Total realized and unrealized gains and losses recorded for Level 3 investments, if any, are reported in net gain from investment activities in our consolidated statements of operations.
The Investment Funds owned one Level 3 corporate debt investment at March 31, 2012.  Fair value was determined through yield analysis of comparable loans to which we applied a risk premium that we determined to be appropriate, which resulted in a lower valuation for our Level 3 investment.  Adjusting the risk premium by 1% in either direction would result in a 3% change in the fair value of the loan.
Other Segments
The following table summarizes the valuation of our Automotive segment and Holding Company investments and derivative contracts by the above fair value hierarchy levels as of March 31, 2012 and December 31, 2011: 
 
March 31, 2012
 
December 31, 2011
  
Level 1
 
Level 2
 
Total
 
Level 1
 
Level 2
 
Total
Assets
(in millions)
Marketable equity and debt securities
$

 
$
1

 
$
1

 
$
20

 
$

 
$
20

Trading securities

 
60

 
60

 

 

 

Investments in precious metals

 

 

 
150

 

 
150

Derivative contracts, at fair value(1):

 

 

 

 
3

 
3

 
$

 
$
61


$
61

 
$
170

 
$
3

 
$
173

Liabilities
 
 
 
 
 
 
 
 
 
 
 
Derivative contracts, at fair value(2):
$

 
$
43

 
$
43

 
$

 
$
57

 
$
57


(1) 
Amounts are classified within other assets in our consolidated balance sheets.
(2) 
Amounts are classified within accrued expenses and other liabilities in our consolidated balance sheets.

Assets measured at fair value on a nonrecurring basis during the three months ended March 31, 2012 are set forth in the table below:
 
 
March 31, 2012
 
 
Level 3
 
 
 
 
Asset
 
Recognized
Category
 
(Liability)
 
Loss
 
 
(in millions)
Property, plant and equipment
 
$
10

 
$
(2
)

Property, plant and equipment for our Automotive and Home Fashion segments with an aggregate carrying value of $12


19



ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 (Unaudited)


million were written down to their fair values of $10 million, resulting in an impairment charge of $2 million for the three months ended March 31, 2012. We determined the fair value of these assets by applying probability weighted, expected present value techniques to the estimated future cash flows using assumptions a market participant would utilize.


6.
Financial Instruments.
Certain derivative contracts executed by the Investment Funds with a single counterparty or by our Automotive segment with a single counterparty or by our Holding Company with a single counterparty are reported on a net-by-counterparty basis where a legal right of offset exists under an enforceable netting agreement. Values for the derivative financial instruments, principally swaps, forwards, over-the-counter options and other conditional and exchange contracts are reported on a net-by-counterparty basis. As a result, the net exposure to counterparties is reported in either other assets or accrued expenses and other liabilities in our consolidated balance sheets.
Investment Segment and Holding Company
The Investment Funds currently maintain cash deposits and cash equivalents with major financial institutions. Certain account balances may not be covered by the Federal Deposit Insurance Corporation, while other accounts may exceed federally insured limits. The Investment Funds have prime broker arrangements in place with multiple prime brokers as well as a custodian bank. The Investment Funds also have relationships with several financial institutions with which they trade derivative and other financial instruments.
In the normal course of business, the Investment Funds and the Holding Company may trade various financial instruments and enter into certain investment activities, which may give rise to off-balance-sheet risk. The Investment Funds and the Holding Company's investments may include futures, options, swaps and securities sold, not yet purchased. These financial instruments represent future commitments to purchase or sell other financial instruments or to exchange an amount of cash based on the change in an underlying instrument at specific terms at specified future dates. Risks arise with these financial instruments from potential counterparty non-performance and from changes in the market values of underlying instruments.
Securities sold, not yet purchased, at fair value represent obligations to deliver the specified security, thereby creating a liability to repurchase the security in the market at prevailing prices. Accordingly, these transactions result in off-balance-sheet risk, as the satisfaction of the obligations may exceed the amount recognized in our consolidated balance sheets. Our investments in securities and amounts due from brokers are partially restricted until we satisfy the obligation to deliver the securities sold, not yet purchased.
The Investment Funds and the Holding Company may enter into derivative contracts, including swap contracts, futures contracts and option contracts, with the objective of capital appreciation or as economic hedges against other securities or the market as a whole. The Investment Funds may also enter into foreign currency derivative contracts with the objective of capital appreciation or to economically hedge against foreign currency exchange rate risks on all or a portion of their non-U.S. dollar denominated investments.
The Investment Funds and the Holding Company have entered into various types of swap contracts with other counterparties. These agreements provide that they are entitled to receive or are obligated to pay in cash an amount equal to the increase or decrease, respectively, in the value of the underlying shares, debt and other instruments that are the subject of the contracts, during the period from inception of the applicable agreement to its expiration. In addition, pursuant to the terms of such agreements, they are entitled to receive other payments, including interest, dividends and other distributions made in respect of the underlying shares, debt and other instruments during the specified time frame. They are also required to pay to the counterparty a floating interest rate equal to the product of the notional amount multiplied by an agreed-upon rate, and they receive interest on any cash collateral that they post to the counterparty at the federal funds or LIBOR rate in effect for such period.
The Investment Funds and the Holding Company may trade futures contracts. A futures contract is a firm commitment to buy or sell a specified quantity of a standardized amount of a deliverable grade commodity, security, currency or cash at a specified price and specified future date unless the contract is closed before the delivery date. Payments (or variation margin) are made or received by the Investment Funds and the Holding Company each day, depending on the daily fluctuations in the value of the contract, and the whole value change is recorded as an unrealized gain or loss by the Investment Funds and the Holding Company. When the contract is closed, the Investment Funds and the Holding Company record a realized gain or loss


20



ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 (Unaudited)


equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.
The Investment Funds and the Holding Company may utilize forward contracts to seek to protect their assets denominated in foreign currencies and precious metals holdings from losses due to fluctuations in foreign exchange rates and spot rates. The Investment Funds' and the Holding Company's exposure to credit risk associated with non-performance of such forward contracts is limited to the unrealized gains or losses inherent in such contracts, which are recognized in unrealized gains or losses on derivative, futures and foreign currency contracts, at fair value in our consolidated balance sheets.
The Investment Funds may also enter into foreign currency contracts for purposes other than hedging denominated securities. When entering into a foreign currency forward contract, the Investment Funds agree to receive or deliver a fixed quantity of foreign currency for an agreed-upon price on an agreed-upon future date unless the contract is closed before such date. The Investment Funds record unrealized gain or loss on the contracts as measured by the difference between the forward foreign exchange rates at the dates of entry into such contracts and the forward rates at the reporting date.
The Investment Funds may also purchase and write option contracts. As a writer of option contracts, the Investment Funds receive a premium at the outset and then bear the market risk of unfavorable changes in the price of the underlying financial instrument. As a result of writing option contracts, the Investment Funds are obligated to purchase or sell, at the holder's option, the underlying financial instrument. Accordingly, these transactions result in off-balance-sheet risk, as the Investment Funds' satisfaction of the obligations may exceed the amount recognized in our consolidated balance sheets. At March 31, 2012, the maximum payout amounts relating to certain put options written by the Investment Funds were approximately $3.8 billion, of which approximately $3.6 billion related to covered put options on existing short positions on a certain stock index.  At December 31 2011, the maximum payout amounts relating to certain put options written by the Investment Funds approximated $1.7 billion, of which approximately $1.4 billion related to covered put options on existing short positions on a certain stock index. As of March 31, 2012 and December 31, 2011, there were unrealized gains of $79 million and $24 million, respectively.
Certain terms of the Investment Funds' contracts with derivative counterparties, which are standard and customary to such contracts, contain certain triggering events that would give the counterparties the right to terminate the derivative instruments. In such events, the counterparties to the derivative instruments could request immediate payment on derivative instruments in net liability positions. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a liability position on March 31, 2012 and December 31, 2011 was $383 million and $42 million, respectively.
At March 31, 2012 and December 31, 2011, the Investment Funds had $709 million and $257 million, respectively, posted as collateral for derivative positions, including those derivative instruments with credit-risk-related contingent features; these amounts are included in cash held at consolidated affiliated partnerships and restricted cash in our consolidated balance sheets.
U.S. GAAP requires the disclosure of information about obligations under certain guarantee arrangements. Such guarantee arrangements requiring disclosure include contracts that contingently require the guarantor to make payments to the guaranteed party based on another entity's failure to perform under an agreement as well as indirect guarantees of the indebtedness of others.
The Investment Funds have entered into certain derivative contracts, in the form of credit default swaps, which meet the accounting definition of a guarantee, whereby the occurrence of a credit event with respect to the issuer of the underlying financial instrument may obligate the Investment Funds to make a payment to the swap counterparties. As of both March 31, 2012 and December 31, 2011, the Investment Funds have entered into such credit default swaps with a maximum notional amount of $8 million, with terms of approximately one year and two years, respectively. We estimate that our maximum exposure related to these credit default swaps approximates 48.1% and 48.0% of such notional amounts as of March 31, 2012 and December 31, 2011, respectively.


21



ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 (Unaudited)


The following table presents the notional amount, fair value, underlying referenced credit obligation type and credit ratings for derivative contracts in which the Investment Funds are assuming risk:
 
 
March 31, 2012
 
December 31, 2011
 
 
Credit Derivative Type Risk Exposure
 
Notional Amount
 
Fair Value
 
Notional Amount
 
Fair Value
 
Underlying Reference Obligation
 
 
(in millions)
 
 
Single name credit default swaps:
 
 
 
 
 
 
 
 
 
 
Below investment grade risk exposure
 
$
8

 
$
0.2

 
$
8

 
$
0.1

 
Corporate credit

The following table presents the fair values of our Investment segment and Holding Company's derivatives:
 
 
Asset Derivatives(1)
 
Liability Derivatives(2)
Derivatives Not Designated as Hedging Instruments
 
March 31, 2012
 
December 31, 2011
 
March 31, 2012
 
December 31, 2011
 
 
(in millions)
Equity contracts
 
$

 
$
3

 
$
379

 
$
42

Foreign exchange contracts
 

 
3

 
4

 

Total(3)
 
$

 
$
6

 
$
383

 
$
42


(1) 
Net asset derivatives are located within other assets in our consolidated balance sheets.
(2) 
Net liability derivatives are located within accrued expenses and other liabilities in our consolidated balance sheets.
(3) 
Excludes netting of cash collateral received and posted.  The total collateral posted at March 31, 2012 and December 31, 2011 was $709 million and $257 million, respectively, across all counterparties.

The following table presents the effects of the Investment segment and the Holding Company's derivative instruments on the statements of operations for the three months ended March 31, 2012 and 2011:
 
 
Gain (Loss) Recognized in Income(1)
 
 
Three Months Ended March 31,
Derivatives Not Designated as Hedging Instruments
 
2012
 
2011
 
 
(in millions)
Equity contracts
 
$
(402
)
 
$
(1
)
Foreign exchange contracts
 
(41
)
 
(10
)
Credit contracts
 

 
25

 
 
$
(443
)
 
$
14

 
(1) 
Gains (losses) recognized on derivatives are classified in net gain from investment activities in our consolidated statements of operations.

At March 31, 2012, the volume of the Investment Funds' derivative activities based on their notional exposure, categorized by primary underlying risk, are as follows:
  
Long Notional Exposure
 
Short Notional Exposure
Primary underlying risk:
(in millions)
Credit default swaps
$
8

 
$

Equity swaps
4

 
(4,893
)
Foreign currency forwards

 
(1,202
)


22



ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 (Unaudited)


Each Investment Fund's assets may be held in one or more accounts maintained for the Investment Fund by its prime broker or at other brokers or custodian banks, which may be located in various jurisdictions. The prime broker and custodian banks are subject to various laws and regulations in the relevant jurisdictions in the event of their insolvency. Accordingly, the practical effect of these laws and their application to the Investment Fund's assets may be subject to substantial variations, limitations and uncertainties. The insolvency of any of the prime brokers, custodian banks or clearing corporations may result in the loss of all or a substantial portion of the Investment Fund's assets or in a significant delay in the Investment Fund's having access to those assets.
Credit concentrations may arise from investment activities and may be impacted by changes in economic, industry or political factors. The Investment Funds and the Holding Company routinely execute transactions with counterparties in the financial services industry, resulting in credit concentration with respect to this industry. In the ordinary course of business, the Investment Funds and the Holding Company may also be subject to a concentration of credit risk to a particular counterparty.
The Investment Funds and the Holding Company seek to mitigate these risks by actively monitoring exposures, collateral requirements and the creditworthiness of our counterparties.
Automotive
During fiscal 2008, Federal-Mogul entered into a series of five-year interest rate swap agreements with a total notional value of $1,190 million to hedge the variability of interest payments associated with its variable-rate term loans. Through these swap agreements, Federal-Mogul has fixed its base interest and premium rate at a combined average interest rate of approximately 5.37% on the hedged principal amount of $1,190 million. As of March 31, 2012 and December 31, 2011, unrealized net losses of $37 million and $44 million, respectively, were recorded in accumulated other comprehensive loss as a result of these hedges. As of March 31, 2012, losses of $35 million are expected to be reclassified from accumulated other comprehensive loss to the consolidated statement of operations within the next 12 months.
These interest rate swaps reduce Federal-Mogul's overall interest rate risk. However, due to the remaining outstanding borrowings on Federal-Mogul's debt facilities and other borrowing facilities that continue to have variable interest rates, management believes that interest rate risk to Federal-Mogul could be material if there are significant adverse changes in interest rates.
Federal-Mogul's production processes are dependent upon the supply of certain raw materials that are exposed to price fluctuations on the open market. The primary purpose of Federal-Mogul's commodity price forward contract activity is to manage the volatility associated with forecasted purchases. Federal-Mogul monitors its commodity price risk exposures regularly to maximize the overall effectiveness of its commodity forward contracts. Principal raw materials hedged include natural gas, copper, nickel, tin, zinc, high-grade aluminum and aluminum alloy. Forward contracts are used to mitigate commodity price risk associated with raw materials, generally related to purchases forecast for up to 15 months in the future.
Federal-Mogul had commodity price hedge contracts outstanding with combined notional values of $90 million and $117 million at March 31, 2012 and December 31, 2011, respectively, of which substantially all mature within one year and $85 million and $117 million were designated as hedging instruments for accounting purposes, respectively. Unrealized net losses of $6 million and $15 million were recorded in accumulated other comprehensive loss as of March 31, 2012 and December 31, 2011, respectively.
Federal-Mogul manufactures and sells its products in North America, South America, Asia, Europe and Africa. As a result, Federal-Mogul's financial results could be significantly affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets in which Federal-Mogul manufactures and sells its products. Federal-Mogul's operating results are primarily exposed to changes in exchange rates between the U.S. dollar and European currencies.
Federal-Mogul generally tries to use natural hedges within its foreign currency activities, including the matching of revenues and costs, to minimize foreign currency risk. Where natural hedges are not in place, Federal-Mogul considers managing certain aspects of its foreign currency activities and larger transactions through the use of foreign currency options or forward contracts. Principal currencies hedged have historically included the euro, British pound and Polish zloty. Federal-Mogul had notional values of $19 million and $27 million of foreign currency hedge contracts outstanding at March 31, 2012 and December 31, 2011, respectively, of which substantially all mature in less than one year and substantially all were designated as hedging instruments for accounting purposes. Unrealized net gains of less than $1 million were recorded in accumulated other comprehensive loss as of March 31, 2012. Unrealized net gains of $3 million were recorded in accumulated other comprehensive loss as of December 31, 2011.


23



ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 (Unaudited)


Financial instruments, which potentially subject Federal-Mogul to concentrations of credit risk, consist primarily of accounts receivable and cash investments. Federal-Mogul's customer base includes virtually every significant global light and commercial vehicle manufacturer and a large number of distributors, installers and retailers of automotive aftermarket parts. Federal-Mogul's credit evaluation process and the geographical dispersion of sales transactions help to mitigate credit risk concentration. No individual customer accounted for more than 5% of Federal-Mogul's direct sales during the three months ended March 31, 2012. Federal-Mogul requires placement of cash in financial institutions evaluated as highly creditworthy.
The following table presents the fair values of Federal-Mogul's derivative instruments:
 
 
Asset Derivatives(1)
 
Liability Derivatives(2)
Derivatives Designated as Cash Flow Hedging Instruments
 
March 31, 2012
 
December 31, 2011
 
March 31, 2012
 
December 31, 2011
 
 
(in millions)
Interest rate swap contracts
 
$

 
$

 
$
37

 
$
44

Commodity contracts
 

 

 
5

 
16

Foreign currency contracts
 

 
3

 

 

        Sub-total
 

 
3

 
42

 
60

        Netting across contract types
 

 
(3
)
 

 
(3
)
Total
 
$

 
$

 
$
42

 
$
57


(1) 
Located within other assets in our consolidated balance sheets.
(2) 
Located within accrued expenses and other liabilities in our consolidated balance sheets.

In addition to the above, our Automotive segment has $1 million in commodity contracts at March 31, 2012 that are not designated as cash flow hedging instruments which are included in accrued expenses and other liabilities in our consolidated balance sheets.
The following tables present the effect of Federal-Mogul's derivative instruments in our consolidated financial statements for the three months ended March 31, 2012 and 2011:

Three Months Ended March 31, 2012
Derivatives Designated as Hedging Instruments
 
Amount of (Loss) Gain Recognized in OCI on Derivatives (Effective Portion)
 
Amount of (Loss) Gain Reclassified from AOCI into Income (Effective Portion)
 
Location of (Loss) Gain Reclassified from AOCI into Income (Effective Portion)
 
 
(in millions)
 
(in millions)
 
 
Interest rate swap contracts
 
$
(3
)
 
$
(10
)
 
Interest expense
Commodity contracts
 
7

 
(3
)
 
Cost of goods sold
Foreign currency contracts
 
(3
)
 

 
Cost of goods sold
 
 
$
1

 
$
(13
)
 
 



24



ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 (Unaudited)


Three Months Ended March 31, 2011
Derivatives Designated as Hedging Instruments
 
Amount of (Loss) Gain Recognized in OCI on Derivatives (Effective Portion)
 
Amount of (Loss) Gain Reclassified from AOCI into Income (Effective Portion)
 
Location of (Loss) Gain Reclassified from AOCI into Income (Effective Portion)
 
 
(in millions)
 
(in millions)
 
 
Interest rate swap contracts
 
$
(1
)
 
$
(10
)
 
Interest expense
Commodity contracts
 
2

 
5

 
Cost of goods sold
Foreign currency contracts
 
(1
)
 

 
Cost of goods sold
 
 
$

 
$
(5
)
 
 


7.
Inventories, Net.
Inventories, net consists of the following:
  
March 31, 2012
 
December 31, 2011
 
(in millions)
Raw materials
$
262

 
$
248

Work in process
206

 
202

Finished goods
767

 
731

 
1,235

 
1,181

Other:
 
 
 
Ferrous metals
81

 
92

Non-ferrous metals
43

 
33

Secondary metals
35

 
38

 
159

 
163

Total inventories, net
$
1,394

 
$
1,344



8.
Goodwill and Intangible Assets, Net.
Goodwill consists of the following:
 
March 31, 2012
 
December 31, 2011
  
Gross
Carrying
Amount
 
Accumulated
Impairment
 
Net
Carrying
Value
 
Gross
Carrying
Amount
 
Accumulated
Impairment
 
Net
Carrying
Value
 
(in millions)
Automotive
$
1,332

 
$
(226
)
 
$
1,106

 
$
1,323

 
$
(226
)
 
$
1,097

Railcar
7

 

 
7

 
7

 

 
7

Food Packaging
3

 

 
3

 
3

 

 
3

Metals
12

 

 
12

 
20

 

 
20

 
$
1,354

 
$
(226
)
 
$
1,128

 
$
1,353

 
$
(226
)
 
$
1,127




25



ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 (Unaudited)


Intangible assets, net consists of the following:
 
 
 
March 31, 2012
 
December 31, 2011
  
Useful Life
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Value
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Value
 
(in years)
 
(in millions)
Definite-lived intangible assets:
  
 
 
  

 
  

 
  

 
  

 
  

 
  

   Automotive
1 - 22
 
$
657

 
$
(234
)
 
$
423

 
$
656

 
$
(222
)
 
$
434

   Gaming
3 - 42
 
25

 
(3
)
 
22

 
25

 
(2
)
 
23

   Food Packaging
6 - 12
 
23

 
(14
)
 
9

 
23

 
(14
)
 
9

   Metals
5 - 15
 
19

 
(7
)
 
12

 
15

 
(7
)
 
8

   Real Estate
12 - 12.5
 
121

 
(36
)
 
85

 
121

 
(34
)
 
87

 
 
 
$
845

 
$
(294
)
 
551

 
$
840

 
$
(279
)
 
561

Indefinite-lived intangible assets:
 
 
  

 
  

 
  

 
  

 
  

 
  

   Automotive
  
 
  

 
  

 
277

 
  

 
  

 
277

   Gaming
  
 
  

 
  

 
54

 
  

 
  

 
54

   Food Packaging