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



 

FORM 10-Q



 

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

For the Quarterly Period Ended September 30, 2009

OR

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

For the Transition Period From  to 

Commission File Number 1-9516



 

ICAHN ENTERPRISES L.P.

(Exact Name of Registrant as Specified in Its Charter)

 
Delaware   13-3398766
(State or Other Jurisdiction
of Incorporation or Organization)
  (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 o 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 the definitions 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 November 2, 2009, there were 74,775,597 depositary units and 13,127,179 preferred units outstanding.

 

 


 
 

TABLE OF CONTENTS

INDEX
  
PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements

    1  
Notes to Consolidated Financial Statements
        

1.

Description of Business and Basis of Presentation

    6  

2.

Operating Units

    10  

3.

Discontinued Operations and Assets Held for Sale

    15  

4.

Related Party Transactions

    16  

5.

Investments and Related Matters

    18  

6.

Fair Value Measurements

    21  

7.

Financial Instruments

    22  

8.

Inventories, Net

    28  

9.

Goodwill and Intangible Assets, Net

    29  

10.

Property, Plant and Equipment, Net

    31  

11.

Equity Attributable to Non-Controlling Interests

    31  

12.

Debt

    32  

13.

Compensation Arrangements

    35  

14.

Pensions, Other Postemployment Benefits and Employee Benefit Plans

    37  

15.

Preferred Limited Partner Units

    37  

16.

Net Income per LP Unit

    37  

17.

Segment Reporting

    39  

18.

Income Taxes

    45  

19.

Accumulated Other Comprehensive Loss

    46  

20.

Commitments and Contingencies

    46  

21.

Subsequent Events

    48  
Reports of Independent Registered Public Accounting Firms     50  

Item 2.

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

    52  

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

    73  

Item 4.

Controls and Procedures

    74  
PART II. OTHER INFORMATION
 

Item 1.

Legal Proceedings

    75  

Item 1A.

Risk Factors

    75  

Item 6.

Exhibits

    76  
Signature     77  

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TABLE OF CONTENTS

Part I. Financial Information

Item 1. Financial Statements

ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
  
CONSOLIDATED BALANCE SHEETS
(In millions, except unit amounts)

   
  September 30,
2009
  December 31,
2008
     (unaudited)
ASSETS
 
Cash and cash equivalents   $ 2,093     $ 2,612  
Cash held at consolidated affiliated partnerships and restricted cash     3,264       3,947  
Investments     5,203       4,515  
Accounts receivable, net     1,242       1,057  
Due from brokers     32       54  
Inventories, net     1,017       1,093  
Property, plant and equipment, net     2,712       2,878  
Goodwill     1,045       1,086  
Intangible assets, net     1,005       943  
Other assets     641       630  
Total Assets   $ 18,254     $ 18,815  
LIABILITIES AND EQUITY
                 
Accounts payable   $ 555     $ 679  
Accrued expenses and other liabilities     1,929       2,805  
Securities sold, not yet purchased, at fair value     2,083       2,273  
Due to brokers     441       713  
Postemployment benefit liability     1,342       1,302  
Debt     4,634       4,571  
Preferred limited partner units     135       130  
Total liabilities     11,119       12,473  
Commitments and contingencies (Note 20)
                 
Equity:
                 
Limited partners:
                 
Depositary units: 92,400,000 authorized; issued 75,912,797 at September 30, 2009 and December 31, 2008; outstanding 74,775,597 at September 30, 2009 and December 31, 2008     2,847       2,582  
General partner     (167 )      (172 ) 
Treasury units at cost     (12 )      (12 ) 
Equity attributable to Icahn Enterprises     2,668       2,398  
Equity attributable to non-controlling interests     4,467       3,944  
Total equity     7,135       6,342  
Total Liabilities and Equity   $ 18,254     $ 18,815  

 
 
See notes to consolidated financial statements.

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TABLE OF CONTENTS

ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
  
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per unit amounts)

       
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
     2009   2008   2009   2008
     (unaudited)
Revenues:
                                   
Net sales   $ 1,619     $ 2,225     $ 4,491     $ 5,852  
Net gain (loss) from investment activities     452       (554 )      1,391       (1,359 ) 
Interest and dividend income     81       89       200       250  
Other income, net     30       36       89       48  
       2,182       1,796       6,171       4,791  
Expenses:
                                   
Cost of goods sold     1,384       1,884       3,898       4,909  
Selling, general and administrative     257       292       789       723  
Restructuring and impairment     10       20       76       38  
Interest expense     73       101       212       253  
       1,724       2,297       4,975       5,923  
Income (loss) from continuing operations before income tax benefit (expense)     458       (501 )      1,196       (1,132 ) 
Income tax benefit (expense)     5       (33 )      25       (109 ) 
Income (loss) from continuing operations     463       (534 )      1,221       (1,241 ) 
(Loss) income from discontinued operations     (1 )      (2 )      1       486  
Net income (loss)     462       (536 )      1,222       (755 ) 
Less: net (income) loss attributable to non-controlling interests     (352 )      559       (981 )      1,180  
Net income attributable to Icahn Enterprises   $ 110     $ 23     $ 241     $ 425  
Net income (loss) attributable to Icahn Enterprises from:
                                   
Continuing operations   $ 111     $ 25     $ 240     $ (61 ) 
Discontinued operations     (1 )      (2 )      1       486  
     $ 110     $ 23     $ 241     $ 425  
Net income attributable to Icahn Enterprises allocable to:
                                   
Limited partners   $ 108     $ 23     $ 236     $ 412  
General partner     2             5       13  
     $ 110     $ 23     $ 241     $ 425  
Basic income (loss) per LP unit:
                                   
Income (loss) from continuing operations   $ 1.45     $ 0.34     $ 3.13     $ (1.27 ) 
(Loss) income from discontinued operations     (0.01 )      (0.02 )      0.02       7.10  
     $ 1.44     $ 0.32     $ 3.15     $ 5.83  
Basic weighted average LP units outstanding     75       70       75       70  
Diluted income (loss) per LP unit:
                                   
Income (loss) from continuing operations   $ 1.40     $ 0.34     $ 3.04     $ (1.27 ) 
(Loss) income from discontinued operations     (0.01 )      (0.02 )      0.01       7.10  
     $ 1.39     $ 0.32     $ 3.05     $ 5.83  
Dilutive weighted average LP units outstanding     84       70       79       70  
Cash distributions declared per LP unit   $ 0.25     $ 0.25     $ 0.75     $ 0.75  

 
 
See notes to consolidated financial statements.

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TABLE OF CONTENTS

ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
  
CONSOLIDATED STATEMENT OF CHANGES
IN EQUITY AND COMPREHENSIVE INCOME
(Unaudited) (In millions)

             
             
  Equity Attributable to Icahn Enterprises    
     General
Partners’ Equity
(Deficit)
  Limited
Partners’ Equity -
Depositary Units
 
  
  
Held in Treasury
  Total
Partners’
Equity
  Non-Controlling
Interests
  Total
Equity
     Amount   Units
Balance, December 31, 2008   $ (172 )    $ 2,582     $ (12 )      1     $ 2,398     $ 3,944     $ 6,342  
Comprehensive income:
                                                              
Net income     5       236                   241       981       1,222  
Post employment benefits, net of tax              10                         10       3       13  
Hedge instruments, net of tax           21                   21       7       28  
Translation adjustments and other     1       51                   52       26       78  
Comprehensive income     6       318                   324       1,017       1,341  
Partnership distributions     (1 )      (56 )                  (57 )            (57 ) 
Investment Management distributions                                   (817 )      (817 ) 
Investment Management contributions                                   326       326  
Change in subsidiary equity and other           3                   3       (3 )       
Balance, September 30, 2009   $ (167 )    $ 2,847     $ (12 )      1     $ 2,668     $ 4,467     $ 7,135  

Accumulated other comprehensive loss was $633 and $752 at September 30, 2009 and December 31, 2008, respectively.

 
 
See notes to consolidated financial statements.

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TABLE OF CONTENTS

ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
  
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In millions)

   
  Nine Months Ended
September 30,
     2009   2008
Net income (loss)   $ 1,222     $ (755 ) 
Cash Flows from operating activities:
                 
Income (loss) from continuing operations   $ 1,221     $ (1,241 ) 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
                 
Investment (gains) losses     (1,391 )      1,359  
Amortization of debt discount     (74 )      (8 ) 
Purchases of securities     (1,470 )      (5,718 ) 
Proceeds from sales of securities     2,393       3,644  
Purchases to cover securities sold, not yet purchased     (3,995 )      (417 ) 
Proceeds from securities sold, not yet purchased     3,342       1,558  
Net premiums (paid) received on derivative contracts     (61 )      116  
Changes in receivables and payables relating to securities transactions     (657 )      1,973  
Depreciation and amortization     295       236  
Deferred income tax expense     (38 )      (2 ) 
Impairment loss on long-lived assets     23       6  
Other, net     91       381  
Changes in cash held at consolidated affiliated partnerships and restricted cash     666       (1,839 ) 
Changes in other operating assets and liabilities     (107 )      (88 ) 
Net cash provided by (used in) continuing operations     238       (40 ) 
Net cash used in discontinued operations     (1 )      (7 ) 
Net cash provided by (used in) operating activities     237       (47 ) 
Cash flows from investing activities:
                 
Capital expenditures     (158 )      (699 ) 
Purchases of marketable equity and debt securities           (4 ) 
Proceeds from sales of marketable equity and debt securities     1       215  
Net proceeds from the sale and disposition of long-lived assets           39  
Acquisitions of businesses, net of cash acquired           (68 ) 
Other     11        
Net cash used in investing activities from continuing operations     (146 )      (517 ) 
Net cash provided by investing activities from discontinued operations     2       1,119  
Net cash (used in) provided by investing activities     (144 )      602  

 
 
See notes to consolidated financial statements.

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TABLE OF CONTENTS

ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
  
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited) (In millions)

   
  Nine Months Ended
September 30,
     2009   2008
Cash flows from financing activities:
                 
Investment Management Equity:
                 
Capital subscriptions received in advance     5       1  
Capital distributions to non-controlling interests     (924 )      (431 ) 
Capital contributions by non-controlling interests     326       684  
Partnership distributions     (57 )      (54 ) 
Proceeds from sale of previously purchased subsidiary debt     60        
Repayments of borrowings     (35 )      (66 ) 
Other     (7 )      (18 ) 
Net cash (used in) provided by financing activities from continuing operations     (632 )      116  
Net cash used in financing activities from discontinued operations           (255 ) 
Net cash used in financing activities     (632 )      (139 ) 
Effect of exchange rate changes on cash     20       (12 ) 
Net (decrease) increase in cash and cash equivalents     (519 )      404  
Net increase in cash of assets held for sale           69  
Cash and cash equivalents, beginning of period     2,612       2,113  
Cash and cash equivalents, end of period   $ 2,093     $ 2,586  
Supplemental information:
                 
Cash payments for interest   $ 221     $ 276  
Net cash (refunds) payments for income taxes   $ (1 )    $ 166  
Net realized losses on available-for-sale securities   $ (3 )    $ (10 ) 
Redemptions payable to non-controlling interests   $ 47     $ 75  
Capital lease asset financing   $ 2     $  

 
 
See notes to consolidated financial statements.

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TABLE OF CONTENTS

ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009

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 September 30, 2009, affiliates of Mr. Icahn owned 68,760,427 of our depositary units and 11,360,173 of our preferred units, which represented approximately 92.0% and 86.5% of our outstanding depositary units and preferred units, respectively.

We are a diversified holding company owning subsidiaries currently engaged in the following continuing operating businesses: Investment Management, Automotive, 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 17, “Segment Reporting.”

The accompanying consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and related notes contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (“fiscal 2008”). The financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) related to interim financial statements. 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.

In accordance with United States generally accepted accounting principles (“U.S. GAAP”), assets transferred between entities under common control are accounted for at historical cost similar to a pooling of interests, and the financial statements of previously separate companies for all periods under common control prior to the acquisition are restated on a consolidated basis. The financial statements include such adjustments as a result of the acquisition of our automotive segment during the fiscal year ended December 31, 2008.

The consolidated financial statements include the accounts of (i) Icahn Enterprises, (ii) the wholly and majority owned subsidiaries of Icahn Enterprises in which control can be exercised and (iii) entities in which we have a controlling interest as a general partner interest or in which we are the primary beneficiary of a variable interest entity. 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 variable interest entities (“VIEs”), we consolidate these entities in which we are considered the primary beneficiary because we absorb the majority of the VIE’s expected losses, receive a majority of the VIE’s expected residual returns, or both; and (3) for limited partnership entities, we consolidate these entities if we are the general partner of such entities and for which no substantive kick-out 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 (the “’40 Act”). Therefore, no more than 40% of our total assets will 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”).

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TABLE OF CONTENTS

ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009

1. Description of Business and Basis of Presentation  – (continued)

Because of the nature of our business, the results of operations for quarterly and other interim periods are not indicative of the results to be expected for the full year. Variations in the amount and timing of gains and losses on our investments can be significant.

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.

The fair values of investments and securities sold, not yet purchased are based on quoted market prices for those or similar investments. See Note 5, “Investments and Related Matters,” and Note 6, “Fair Value Measurements,” for further discussion.

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 September 30, 2009 are approximately $4.6 billion and $4.1 billion, respectively. The carrying value and estimated fair value of our long-term debt as of December 31, 2008 was approximately $4.6 billion and $2.3 billion, respectively.

Adoption of New Accounting Pronouncements

In July 2009, the Financial Accounting Standards Board (“FASB”) released the authoritative version of the FASB Accounting Standards Codification (“FASB ASC”) as the single source of authoritative generally accepted accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP. The FASB ASC supersedes all existing accounting standard documents recognized by the FASB. Rules and interpretative releases of the SEC under federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. All other non-SEC accounting literature not included in the ASC will be considered non-authoritative. The FASB ASC is effective for interim and annual periods ending after September 15, 2009. The adoption of the FASB ASC had no impact on our consolidated financial statements. We have prepared our financial statements and related footnotes in this Form 10-Q in accordance with U.S. GAAP as required by the FASB ASC.

In December 2007, the FASB issued guidance now codified within FASB ASC Topic 810, Consolidation, which requires a company to clearly identify and present ownership interests in subsidiaries held by parties other than the company in the consolidated financial statements within the equity section but separate from the company’s equity; non-controlling interests will be presented within the statement of changes in equity and comprehensive income as a separate equity component. It also requires that the amount of consolidated net income (loss) attributable to the parent and to the non-controlling interest be clearly identified and presented on the face of the consolidated statement of income; net income per LP unit be reported after the adjustment for non-controlling interest in net income (loss); changes in ownership interest be accounted for similarly as equity transactions; and, when a subsidiary is deconsolidated, any retained non-controlling equity investment in the former subsidiary and the gain or loss on the deconsolidation of the subsidiary be measured at fair value. The provisions of FASB ASC Topic 810 were applied prospectively as of January 1, 2009, except for the presentation and disclosure requirements which have been applied retrospectively for all periods presented. We adopted the provisions of FASB ASC Topic 810 as of January 1, 2009 with the presentation and disclosure requirements as discussed above reflected in our consolidated financial statements.

In March 2008, the FASB issued guidance now codified within FASB ASC Topic 815, Derivatives and Hedging, which requires enhanced disclosures about an entity’s derivative and hedging activities thereby improving the transparency of financial reporting. The provisions of FASB ASC Topic 815 were effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early

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TABLE OF CONTENTS

ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009

1. Description of Business and Basis of Presentation  – (continued)

adoption encouraged. We adopted the provisions of FASB ASC Topic 815 on a prospective basis as of January 1, 2009. The adoption of the provisions of FASB ASC Topic 815 did not affect our financial condition, results of operations or cash flows. See Note 7, “Financial Instruments,” for additional information.

In May 2009, the FASB issued guidance now codified within FASB ASC Topic 855, Subsequent Events, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The provisions of FASB ASC Topic 855 are effective for financial statements issued for fiscal years and interim periods ending after June 15, 2009. We adopted the provisions of FASB ASC Topic 855 during the quarter ended June 30, 2009. The adoption of the provisions of FASB ASC Topic 855 did not change subsequent events that we identify and disclose. In accordance with the provisions of FASB ASC Topic 855, we have evaluated subsequent events through November 4, 2009, which is the date on which our financial statements were issued.

In April 2009, the FASB issued guidance now codified within FASB ASC Topic 820, Fair Value Measurements and Disclosures, which provides guidance on determining whether a market for a financial asset is not active and a transaction is not distressed for fair value measurements. The provisions of FASB ASC Topic 820 will be applied prospectively and retrospective application will not be permitted. The provisions of FASB ASC Topic 820 are effective for interim and annual periods ending after June 15, 2009. We adopted the provisions of FASB ASC Topic 820 during the fiscal quarter ended June 30, 2009. The adoption of the provisions of FASB ASC Topic 820 did not have any material impact on our financial position, results of operations or cash flows.

In April 2009, the FASB issued guidance now codified within FASB ASC Topic 320, Investments — Debt and Equity Securities, which is intended to make the guidance more operational and improve the presentation and disclosure of other-than-temporary impairments (“OTTI”) on debt and equity securities in financial statements. The provisions of FASB ASC Topic 320 apply to debt securities and require that the total OTTI be presented in the statement of income with an offset for the amount of impairment that is recognized in other comprehensive income, which amount represents the noncredit component. Noncredit component losses are to be recorded in other comprehensive income if an investor can assess that (a) it does not have the intent to sell or (b) it is not more likely than not that it will have to sell the security prior to its anticipated recovery. The provisions of FASB ASC Topic 320 are effective for interim and annual periods ending after June 15, 2009. We adopted the provisions of FASB ASC Topic 320 during the fiscal quarter ended June 30, 2009 on a prospective basis. The adoption of the provisions of FASB ASC Topic 320 did not have any material impact on our financial position, results of operations or cash flows.

In April 2009, the FASB issued guidance now codified within FASB ASC Topic 825, Financial Instruments, which requires an entity to provide disclosures about the fair value of financial instruments in interim financial information. The provisions of FASB ASC Topic 825 require entities to disclose the method(s) and significant assumptions used to estimate the fair value of financial instruments, in both interim financial statements as well as annual financial statements. The provisions of FASB ASC Topic 825 are effective for interim and annual periods ending after June 15, 2009. We adopted the provisions of FASB ASC Topic 825 during the fiscal quarter ended June 30, 2009. Since the provisions of FASB ASC Topic 825 require disclosures about fair values in interim periods, the adoption of such provisions did not have any impact on our consolidated financial statements. See Note 1, “Description of Business and Basis of Presentation — Fair Value of Financial Instruments,” Note 5, “Investments and Related Matters,” and Note 6, “Fair Value Measurements,” for additional information.

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TABLE OF CONTENTS

ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009

1. Description of Business and Basis of Presentation  – (continued)

Recently Issued Accounting Pronouncements

In August 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-05, Fair Value Measurements and Disclosures — Measuring Liabilities at Fair Value, which updates FASB ASC subtopic 820-10, Fair Value Measurements and Disclosures — Overall, for the fair value measurement of liabilities. ASU No. 2009-05 provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using a valuation technique that uses (a) the quoted price of the identical liability when traded as an asset; (b) quoted prices for similar liabilities or similar liabilities when traded as assets; or (c) another valuation technique that is consistent with the principles of FASB ASC 820. Additionally, ASU No. 2009-05 also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability. The provisions in ASU No. 2009-05 are effective for the first reporting period (including interim periods) beginning after issuance. The adoption of the provisions of ASU will not have a material impact on our consolidated financial position, results of operations or cash flows.

The following pronouncements have not yet been incorporated into the FASB ASC:

In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (“SFAS No. 167”), which amends the consolidation guidance applicable to variable interest entities (“VIEs”). The amendments to the consolidation guidance affect all entities currently within the scope of FIN 46(R), as well as qualifying special-purpose entities (“QSPEs”) that are currently excluded from the scope of FIN 46(R). SFAS No. 167 replaces the quantitative-based risks and rewards calculation for determining which enterprise, if any, has a controlling financial interest in a VIE with an approach focused on identifying which enterprise has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. SFAS No. 167 is effective as of the beginning of the first fiscal year beginning after November 15, 2009. We are currently evaluating the impact, if any, that SFAS No. 167 would have on our financial condition, results of operations and cash flows upon adoption.

In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets — an amendment of FASB Statement No. 140 (“SFAS No. 166”). SFAS No. 166 amends the derecognition accounting and disclosure guidance relating to SFAS No. 140. SFAS No. 166 eliminates the exemption from consolidation for QSPEs; it also requires a transferor to evaluate all existing QSPEs to determine whether it must be consolidated in accordance with SFAS No. 167. SFAS No. 166 is effective for financial asset transfers occurring after the beginning of an entity’s first fiscal year beginning after November 15, 2009. We are currently evaluating the impact, if any, that SFAS No. 166 would have on our financial condition, results of operations and cash flows upon adoption.

Filing Status of Subsidiary

Federal-Mogul Corporation (“Federal-Mogul”) is a reporting company under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and files annual, quarterly and current reports. Each of these reports is separately filed with the SEC and is publicly available at www.sec.gov.

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2. Operating Units

a. Investment Management

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 “Offshore Master Funds” consist of (i) Icahn Partners Master Fund LP, (ii) Icahn Partners Master Fund II L.P. and (iii) Icahn Partners Master Fund III L.P. 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. (referred to herein as the Offshore Fund), (ii) Icahn Fund II Ltd. and (iii) Icahn Fund III Ltd. The Offshore GP also acts as general partner of a fund formed as a Cayman Islands exempted limited partnership that invests in the Offshore Master Funds. This fund, together with other funds that also invest in the Offshore Master Funds, constitute the “Feeder Funds” and, together with the Investment Funds, are referred to herein as the “Private Funds.”

Effective January 1, 2008, in addition to providing investment advisory services to the Private Funds, the General Partners provide or cause their affiliates to provide certain administrative and back office services to the Private Funds that had been previously provided by Icahn Capital Management LP (collectively, the “Services”) and, in consideration of providing the Services, the General Partners will receive special profits interest allocations from the Investment Funds. Prior to June 30, 2009 this allocation was generally equal to 0.625% of the balance in each fee-paying capital account as of the beginning of each quarter (for each investor of fee-paying capital account, the Target Special Profits Interest Amount) except that amounts are only allocated to the General Partners in respect of special profits interest allocations if there is sufficient net profits in the Investment Funds to cover such amounts. The General Partners may also receive incentive allocations, which prior to June 30, 2009, were generally 25% of the net profits generated by fee-paying investors in the Investment Funds, subject to a “high water mark” (whereby the General Partners do not earn incentive allocations during a particular year even though the fund had a positive return in such year until losses in prior periods have been recovered). (See below for discussion of new fee structure for special profits interest allocations and incentive allocations effective as of July 1, 2009). The General Partners do not provide such services to any other entities, individuals or accounts. Interests in the Private Funds are offered only to certain sophisticated and qualified investors on the basis of exemptions from the registration requirements of the federal securities laws and are not publicly available.

In June 2009, certain limited partnership agreements and offering memoranda of the Private Funds (the “Fund Documents”) were revised primarily to provide existing investors and new investors (“Investors”) with various new options for investments in the Private Funds effective July 1, 2009 (each an “Option”). Each Option has certain eligibility criteria for Investors and existing investors were permitted to roll over their investments made in the Private Funds prior to July 1, 2009 (“Pre-Election Investments”) into one or more of the new Options. For fee-paying investments, the special profits interest allocations will range from 1.5% to 2.25% per annum and the incentive allocations will range from 15% (in some cases subject to a preferred return) to 22% per annum. The new Options also have different withdrawal terms, with certain Options being permitted to withdraw capital every six months (subject to certain limitations on aggregate withdrawals) and other Options being subject to three-year rolling lock-up periods, provided that early withdrawals are permitted at certain times with the payment to the Private Funds of a fee. For those Options with rolling lock-ups, the General Partner will not be entitled to receive an incentive allocation for a period of two years or longer.

The economic and withdrawal terms of the Pre-Election Investments remain the same, which include a special profits interest allocation of 2.5% per annum, an incentive allocation of 25% per annum and a three-year lock-up period (or sooner, subject to the payment of an early withdrawal fee). Certain of the Options will preserve each Investor’s existing high watermark with respect to its rolled over Pre-Election Investments and one of the Options establishes a hypothetical high watermark for new capital invested before December 31,

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2. Operating Units  – (continued)

2010 by persons that were Investors prior to June 30, 2009. Effective with permitted withdrawals on December 31, 2009, if an Investor does not roll over a Pre-Election Investment into another Option when it is first eligible to do so without the payment of a withdrawal fee, it is the current intention of the Private Funds to require such Investor to withdraw such Pre-Election Investment.

Our Investment Management segment’s revenues are affected by the combination of fee-paying assets under management (“AUM”) and the investment performance of the Private Funds. The General Partners’ incentive allocations and special profits interest allocations earned from the Private Funds are accrued on a quarterly basis and are allocated to the General Partners at the end of the Private Funds’ fiscal year (or sooner on redemptions). Such quarterly accruals may be reversed as a result of subsequent investment performance prior to date of such allocation. Effective July 1, 2009, certain new options provide for incentive allocations to be allocated less frequently than the end of each fiscal year, in which case, quarterly accruals may be reversed as described above prior to the date of allocation.

As of September 30, 2009, the full Target Special Profits Interest Amount was $116 million, which includes a carry-forward Target Special Profits Interest Amount of $70 million from December 31, 2008, a Target Special Profits Interest Amount for the first nine months of the fiscal year ending December 31, 2009 (“fiscal 2009”) and a hypothetical return on the full Target Special Profits Interest Amount from the Investment Funds. The full Target Special Profits Interest Amount of $116 million at September 30, 2009 is net of a crystallized amount of $28 million which was allocated to the General Partners during the third quarter of fiscal 2009. For the three and nine months ended September 30, 2009, our Investment Management segment accrued $23 million and $144 million, respectively, in special profits interest allocations. No accrual for special profits interest allocations was made for the three and nine months ended September 30, 2008 due to losses in the Investment Funds.

b. 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, alternative energies, environment and safety systems. Federal-Mogul serves the world’s foremost original equipment manufacturers (“OEM”) of automotive, light commercial, heavy-duty, industrial, agricultural, aerospace, marine, rail and off-road vehicles, as well as the worldwide aftermarket. As of September 30, 2009, Federal-Mogul is organized into four product groups: Powertrain Energy, Powertrain Sealing and Bearings, Vehicle Safety and Protection, and Global Aftermarket.

Federal-Mogul believes that its sales are well-balanced between OEM and aftermarket, as well as domestic and international markets. Federal-Mogul’s customers include the world’s largest light and commercial vehicle OEMs and major distributors and retailers in the independent aftermarket. Federal-Mogul has operations in established markets, such as Canada, France, Germany, Italy, Japan, Spain, the United Kingdom and the United States, and emerging markets, including Brazil, China, Czech Republic, Hungary, India, Korea, Mexico, Poland, Russia, Thailand and Turkey. 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.

In accordance with U.S. GAAP, assets transferred between entities under common control are accounted for at historical cost similar to a pooling of interests. As of February 25, 2008 (the effective date of control by Thornwood Associates Limited Partnership, or Thornwood, and, indirectly, by Carl C. Icahn) and thereafter, as a result of our acquisition of a majority interest in Federal-Mogul on July 3, 2008, we consolidated the financial position, results of operations and cash flows of Federal-Mogul. We evaluated the activity between February 25, 2008 and February 29, 2008 and, based on the immateriality of such activity, concluded that the use of an accounting convenience date of February 29, 2008 was appropriate.

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2. Operating Units  – (continued)

Accounts Receivable, net

Federal-Mogul’s subsidiaries in Brazil, France, Germany, Italy, Japan and Spain are parties to accounts receivable factoring arrangements. Gross accounts receivable factored under these facilities were $215 million and $222 million as of September 30, 2009 and December 31, 2008, respectively. Of those gross amounts, $194 million and $209 million, respectively, were factored without recourse and treated as sales. Under terms of these factoring arrangements, Federal-Mogul is not obligated to draw cash immediately upon the factoring of accounts receivable. Federal-Mogul had outstanding factored amounts of $3 million and $8 million for which cash had not yet been drawn as of September 30, 2009 and December 31, 2008, respectively. Expenses associated with receivables factored or discounted are recorded in the consolidated statements of operations within other income, net.

Restructuring

Federal-Mogul’s restructuring charges are comprised of two types: employee costs (principally contractual termination benefits) and facility closure costs. Contractual termination benefits are accounted for in accordance with FASB ASC paragraph 712.10.25-2 and are recorded when it is probable that employees will be entitled to benefits and the amounts can be reasonably estimated. Facility closure and other costs are accounted for in accordance with FASB ASC paragraphs 420.10.25-14 and 420.10.25-15 and are recorded when the liability is incurred.

Estimates of restructuring charges are based on information available at the time such charges are recorded. In certain countries where Federal-Mogul operates, statutory requirements include involuntary termination benefits that extend several years into the future. Accordingly, severance payments continue well past the date of termination at many international locations. Thus, these programs appear to be ongoing when, in fact, terminations and other activities under these programs have been substantially completed. Federal-Mogul expects that future savings resulting from execution of its restructuring programs will generally result in full pay back within 36 months.

Due to the inherent uncertainty involved in estimating restructuring expenses, actual amounts paid for such activities may differ from amounts initially estimated. Accordingly, previously recorded reserves of $39 million and $2 million were reversed for the nine months ended September 30, 2009 and 2008, respectively. Such reversals result from: changes in estimated amounts to accomplish previously planned activities; changes in expected outcome (based on historical practice) of negotiations with labor unions and government agencies, which reduced the level of originally committed actions; changes in ability to execute certain actions due to changes in business climate and changes in approach to accomplish restructuring activities.

Federal-Mogul’s restructuring activities are undertaken as necessary to execute its strategy and streamline operations, consolidate and take advantage of available capacity and resources, and ultimately achieve net cost reductions. Restructuring activities include efforts to integrate and rationalize Federal-Mogul’s businesses and to relocate manufacturing operations to best cost markets. These activities generally fall into one of the following categories:

1. Closure of Facilities and Relocation of Production — in connection with Federal-Mogul’s strategy, certain operations have been closed and related production relocated to best cost countries or to other locations with available capacity.
2. Consolidation of Administrative Functions and Standardization of Manufacturing Processes — as part of its productivity strategy, Federal-Mogul has acted to consolidate its administrative functions to reduce selling, general and administrative costs and change its manufacturing processes to improve operating efficiencies through standardization of processes.

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2. Operating Units  – (continued)

An unprecedented downturn in the global automotive industry and global financial markets led Federal-Mogul to announce, in September 2008 and December 2008, certain restructuring actions, herein referred to as “Restructuring 2009,” designed to improve operating performance and respond to increasingly challenging conditions in the global automotive market. This plan, when combined with other workforce adjustments, is expected to reduce Federal-Mogul’s global workforce by approximately 8,600 positions. For the three and nine months ended September 30, 2009, Federal-Mogul has recorded $(1) million and $38 million, respectively, in net restructuring charges associated with Restructuring 2009 and other restructuring programs, most of which primarily relate to employee costs consisting principally of contractual termination benefits. Federal-Mogul expects to incur additional restructuring charges, primarily related to facility closure costs, up to $7 million through the fiscal year ending December 31, 2010. As the majority of the Restructuring 2009 costs are related to severance, such activities are expected to yield future annual savings at least equal to the incurred costs.

Federal-Mogul expects to finance its restructuring programs over the next several years through cash generated from its ongoing operations or through cash available under its debt agreements, subject to the terms of applicable covenants. Federal-Mogul does not expect that the execution of these programs will have an adverse impact on its liquidity position.

As of December 31, 2008, the accrued liability balance relating to restructuring programs was $113 million. For the nine months ended September 30, 2009, Federal-Mogul incurred $38 million of restructuring charges and paid $78 million of restructuring charges. As of September 30, 2009, the accrued liability balance was $79 million, which is included in accrued expenses and other liabilities in our consolidated balance sheet.

Total cumulative restructuring charges related to Restructuring 2009 through September 30, 2009 were $164 million.

c. 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 Metals’ ferrous products include shredded, sheared and bundled scrap metal and other purchased scrap metal such as turnings (steel machining fragments), cast furnace iron and broken furnace iron. PSC Metals also processes non-ferrous metals including aluminum, copper, brass, stainless steel and nickel-bearing metals. Non-ferrous products are a significant raw material in the production of aluminum and copper alloys used in manufacturing. PSC Metals also operates a secondary products business that includes the supply of secondary plate and structural grade pipe that is sold into niche markets for counterweights, piling and foundations, construction materials and infrastructure end-markets. For the nine months ended September 30, 2009 and 2008, PSC Metals had three customers who accounted for approximately 29% of PSC Metals’ net sales and five customers who accounted for 40% of PSC Metals’ net sales, respectively.

d. Real Estate

Our Real Estate segment consists of rental real estate, property development and resort activities.

As of September 30, 2009 and December 31, 2008, we owned 30 and 31 rental real estate properties, respectively. Our property development operations are run primarily through Bayswater, a real estate investment, management and development subsidiary that focuses primarily on the construction and sale of single-family 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

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2. Operating Units  – (continued)

development of approximately 335 and 870 units of residential housing, respectively. Both developments operate golf and resort operations as well.

Our Real Estate operations compares the carrying value of its real estate portfolio, which includes commercial property for rent and residential property for current and future development, to its estimated realizable value to determine if its carrying costs will be recovered. In cases where our Real Estate operations do not expect to recover its carrying cost, an impairment charge is recorded as an expense and a reduction in the carrying cost of the asset. In developing assumptions as to estimated realizable value, our Real Estate operations consider current and future house prices, construction and carrying costs and sales absorptions for its residential inventory and current and future rental rates for its commercial properties.

For each of the three and nine months ended September 30, 2009 and 2008, our Real Estate operations recorded an impairment charge of $1 million and $2 million, respectively. The impairment charges were primarily attributable to inventory units at the Grand Harbor and Oak Harbor, Florida division.

During the second quarter of fiscal 2009, our Real Estate operations became aware that certain subcontractors had installed defective drywall manufactured in China (referred to herein as “Chinese drywall”) in a few of our Florida homes. Defective Chinese drywall appears to be an industry-wide issue as other homebuilders have publicly disclosed that they are experiencing problems related to defective Chinese drywall. Based on our assessment, we believe that only a limited number of previously constructed homes contain defective Chinese drywall. We believe the costs to repair homes containing defective Chinese drywall will be immaterial.

As of September 30, 2009 and December 31, 2008, $112 million and $121 million, respectively, of the net investment in financing leases, net real estate leased to others and resort properties, which is included in property, plant and equipment, net, were pledged to collateralize the payment of nonrecourse mortgages payable.

e. Home Fashion

We conduct our Home Fashion segment through our majority ownership in WestPoint International, Inc. (“WPI”), a manufacturer and distributor of home fashion consumer products. WPI is engaged in the business of manufacturing, sourcing, marketing and distributing bed and bath home fashion products, including, among others, sheets, pillowcases, comforters, blankets, bedspreads, pillows, mattress pads, towels and related products. WPI recognizes revenue primarily through the sale of home fashion products to a variety of retail and institutional customers. In addition, WPI receives a small portion of its revenues through the licensing of its trademarks.

A relatively small number of customers have historically accounted for a significant portion of WPI’s net sales. For the nine months ended September 30, 2009 and 2008 net sales to six and seven customers amounted to 57% and 56%, respectively, of total WPI’s net sales.

Restructuring and Impairment

To improve WPI’s competitive position, WPI management intends to continue to reduce its cost of goods sold by restructuring its operations in the plants located in the United States, increasing production within its non-U.S. facilities and joint venture operation and sourcing goods from lower cost overseas facilities. In the second quarter of fiscal 2008, WPI entered into an agreement with a third party to manage the majority of its U.S. warehousing and distribution operations, which WPI consolidated into its Wagram, NC facility. In April 2009, as part of its ongoing restructuring activities, WPI announced the closure of certain of its manufacturing facilities located in the United States. In the future, the vast majority of the products currently manufactured or fabricated in these facilities will be sourced from plants located outside of the United States. As of September 30, 2009, $165 million of WPI’s assets were located outside of the United States, primarily in Bahrain.

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2. Operating Units  – (continued)

WPI incurred restructuring costs of $3 million and $13 million for the three and nine months ended September 30, 2009, respectively. This compares to restructuring costs of $5 million and $17 million for the three and nine months ended September 30, 2008, respectively. Included in restructuring expenses are cash charges associated with the ongoing costs of closed plants, employee severance, benefits and related costs and transition expenses. The amount of accrued restructuring costs at December 31, 2008 was $1 million. WPI paid $12 million of restructuring charges for the nine months ended September 30, 2009. As of September 30, 2009, the accrued liability balance was $2 million, which is included in accrued expenses and other liabilities in our consolidated balance sheet.

Total cumulative restructuring charges from August 8, 2005 (acquisition date) through September 30, 2009 were $71 million.

WPI anticipates that restructuring charges will continue to be incurred for the remainder of fiscal 2009. WPI anticipates incurring restructuring costs and impairment charges (exclusive of intangible asset impairment charges) in fiscal 2009 relating to the current restructuring plan between $21 million and $24 million primarily related to the continuing costs of its closed facilities, employee severance, benefits and related costs, transition expenses and impairment charges. Restructuring costs could be affected by, among other things, WPI’s decision to accelerate or delay its restructuring efforts. As a result, actual costs incurred could vary materially from these anticipated amounts.

WPI incurred non-cash impairment charges of $6 million and $8 million for the three and nine months ended September 30, 2009, respectively. This compares to $3 million and $5 million for the three and nine months ended September 30, 2008. Included in these impairment charges were impairment charges related to WPI’s trademarks of $5 million for the three and nine months ended September 30, 2009. In recording the impairment charges related to its plants, WPI compared estimated net realizable values of property, plant and equipment to their current carrying values. In recording impairment charges related to its trademarks, WPI compared the fair value of the intangible asset with its carrying value. The estimates of fair value of trademarks are determined using a discounted cash flow valuation methodology referred to as the “relief from royalty” methodology. Significant assumptions inherent in the “relief from royalty” methodology employed include estimates of appropriate marketplace royalty rates and discount rates. WPI’s trademark valuations will be evaluated further during its annual testing in the fourth quarter of fiscal 2009.

3. Discontinued Operations and Assets Held for Sale

Gaming

On February 20, 2008, we consummated the sale of our subsidiary, American Casino & Entertainment Properties LLC (“ACEP”), for $1.2 billion to an affiliate of Whitehall Street Real Estate Fund, realizing a gain of approximately $472 million, after taxes. The sale of ACEP included the Stratosphere Hotel and Casino and three other Nevada gaming properties, which represented all of our remaining gaming operations.

Home Fashion — Retail Stores

WPI closed all of its retail stores based on a comprehensive evaluation of the stores’ long-term growth prospects and their on-going value to the business. On October 18, 2007, WPI entered into an agreement to sell the inventory at all of its retail stores and subsequently ceased operations of its retail stores. Accordingly, it has reported the retail outlet stores business as discontinued operations for all periods presented. As a result of the sale, WPI incurred charges related to the termination of the leases relating to its retail outlet stores facilities. As of September 30, 2009 and December 31, 2008, the accrued lease termination liability balance was $2 million and $3 million, respectively, which is included in accrued expenses and other liabilities in our consolidated balance sheets.

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3. Discontinued Operations and Assets Held for Sale  – (continued)

Real Estate

Operating properties are reclassified to held for sale when subject to a contract. The operations of such properties are classified as discontinued operations. There were no material changes to the properties classified as discontinued operations during the nine months ended September 30, 2009.

Results from Discontinued Operations

The financial position and results of operations for our former Gaming and certain portions of the Home Fashion and Real Estate segments described above are presented within other assets and accrued expenses and other liabilities in the consolidated balance sheets and discontinued operations in the consolidated statements of operations for all periods presented.

Results from discontinued operations for the three and nine months ended September 30, 2009 were a loss of $1 million and a gain of $1 million, respectively. Results from discontinued operations for the three and nine months ended September 30, 2008 were a loss of $2 million and a gain of $486 million, respectively. Results for the nine months ended September 30, 2008 included a gain on sale of discontinued operations of $472 million, net of income taxes of approximately $260 million, recorded on the sale of ACEP. With respect to the taxes recorded on the sale of ACEP, $103 million was recorded as a deferred tax liability pursuant to a Code 1031 Exchange transaction completed during the third quarter of fiscal 2008.

4. Related Party Transactions

Our amended and restated limited partnership agreement 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.

In accordance with U.S. GAAP, assets transferred between common control entities are accounted for at historical cost similar to a pooling of interests, and the financial statements of previously separate companies for periods prior to the acquisition are restated on a consolidated basis. Additionally, prior to the acquisition, the earnings, losses, capital contributions and distributions of the acquired entities are allocated to the general partner as an adjustment to equity, and the consideration in excess of the basis of net assets acquired is shown as a reduction to the general partner’s capital account.

a. Investment Management

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 Funds. At September 30, 2009, the balance of the deferred management fees payable (included in accrued expenses and other liabilities) by the Offshore Funds to Icahn Management was $126 million. The deferred management fee payable increased by $33 million and decreased by $25 million for the nine months ended September 30, 2009 and 2008, respectively, due to the performance of the Private Funds.

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 Carl C. 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 $0.4 million and $1.4 million for such services for the three and nine months ended September 30, 2009, respectively. For the three and nine months ended September 30, 2008, Icahn Capital charged Icahn Affiliates $0.5 million and $1.3 million, respectively. As of September 30, 2009,

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4. Related Party Transactions  – (continued)

accrued expenses and other liabilities in the consolidated balance sheet included $1 million to be applied to Icahn Capital’s charges to Icahn Affiliates for services to be provided to them.

Carl C. Icahn, along with his affiliates, makes investments in the Private Funds (other than the amounts invested by Icahn Enterprises and its affiliates). These investments are not subject to special profits interest allocations or incentive allocations. As of September 30, 2009 and December 31, 2008, the total fair value of these investments was approximately $1.5 billion and $1.1 billion, respectively.

b. Metals

For the three and nine months ended September 30, 2008, PSC Metals sold material to Alliance Castings aggregating $7 million and $16 million, respectively. Such amounts were not material for the three and nine months ended September 30, 2009. Mr. Icahn is a major shareholder of Alliance Castings.

c. Administrative Services — Holding Company

For the three and nine months ended September 30, 2009, we paid an affiliate approximately $0.5 million and $1.6 million, respectively, and for the three and nine months ended September 30, 2008, we paid $0.6 million and $1.5 million, respectively, for the non-exclusive use of office space.

For each of the three and nine months ended September 30, 2009, we paid $0.1 million and $0.5 million, respectively, and for the three and nine months ended September 30, 2008, we paid $0.2 million and $0.6 million, to XO Holdings, Inc., an affiliate of Icahn Enterprises GP, our general partner, for telecommunications services.

The Holding Company provided certain professional services to an Icahn Affiliate for which it charged approximately $0.7 million and $2.3 million for the three and nine months ended September 30, 2009, respectively, and for each of the three and nine months ended September 30, 2008, we charged approximately $0.6 million and $1.7 million, respectively. As of September 30, 2009, accrued expenses and other liabilities in the consolidated balance sheet included $1.7 million to be applied to the Holding Company’s charges to the affiliate for services to be provided to it.

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5. Investments and Related Matters

a. Investment Management

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 Private Funds’ investments, securities sold, not yet purchased and unrealized gains and losses on derivatives (in millions of dollars):

       
  September 30, 2009   December 31, 2008
     Amortized
Cost
  Fair
Value
  Amortized
Cost
  Fair
Value
Investments:
                                   
Common stock   $ 4,192     $ 3,130     $ 5,112     $ 2,826  
Convertible preferred stock     30       6       30       9  
Call options     8             41       41  
Corporate debt     1,828       1,806       1,830       1,385  
Total investments   $ 6,058     $ 4,942     $ 7,013     $ 4,261  
Securities sold, not yet purchased, at fair value:
                                   
Common stock   $ 1,870     $ 2,083     $ 2,821     $ 2,273  
Corporate debt                        
Total securities sold, not yet purchased, at fair value   $ 1,870     $ 2,083     $ 2,821     $ 2,273  
Unrealized gains on derivative contracts, at fair value(1)   $ 1     $ 6     $ 74     $ 79  
Unrealized losses on derivative contracts, at fair value(2)   $ 41     $ 112     $ 95     $ 440  

(1) Amounts are included in other assets in our consolidated financial statements.
(2) Amounts are included in accrued expenses and other liabilities in our consolidated financial statements.

The General Partners adopted FASB ASC paragraph 946-810-45, Financial Services — Investment Companies — Consolidation — Other Presentation Matters, as of January 1, 2007. FASB ASC paragraph 946-810-45 provides guidance on whether investment company accounting should be retained in the financial statements of a parent entity. Upon the adoption of FASB ASC Topic paragraph 946-810-45, the General Partners lost their ability to retain specialized accounting. For those investments that (i) were deemed to be available-for-sale securities, (ii) fall outside the scope of FAS ASC Topic 320, Investments — Debt and Equity Securities, or (iii) the Private Funds would otherwise account for under the equity method, the Private Funds apply the fair value option. The application of the fair value option is irrevocable.

The Private Funds assess 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 Private Funds combined with those of affiliates of Icahn Enterprises.

The Private Funds applied the fair value option to certain of its investments that would have otherwise been subject to the equity method of accounting. During the second quarter of fiscal 2009, the Private Funds determined that they no longer had significant influence over these investments based on a combination of qualitative and quantitative factors. As of September 30, 2009, the fair value of these investments was $14 million. For the three and nine months ended September 30, 2009, the Private Funds recorded an unrealized gain of $5 million and unrealized loss of $2 million, respectively, with respect to these investments.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009

5. Investments and Related Matters  – (continued)

For the three and nine months ended September 30, 2008, the Private Funds recorded $15 million and $47 million, respectively, of unrealized losses with respect to these investments. Such amounts are included in net gain (loss) from investment activities in the consolidated statements of operations.

Investments in Variable Interest Entities

The General Partners consolidate certain VIEs when they are determined to be their primary beneficiary, either directly or indirectly through other consolidated subsidiaries. The assets of the consolidated VIEs are primarily classified within cash and cash equivalents and investments in the consolidated balance sheets. The liabilities of the consolidated VIEs are primarily classified within securities sold, not yet purchased, at fair value, and accrued expenses and other liabilities in the consolidated balance sheets and are non-recourse to the General Partners’ general credit. Any creditors of VIEs do not have recourse against the general credit of the General Partners solely as a result of our including these VIEs in our consolidated financial statements.

The consolidated VIEs consist of the Offshore Fund and each of the Offshore Master Funds. The Offshore GP sponsored the formation of and manages each of these VIEs and, in some cases, has an investment therein. In evaluating whether the Offshore GP is the primary beneficiary of such VIEs, the Offshore GP has considered the nature and extent of its involvement with such VIEs and whether it absorbs the majority of losses among other variable interest holders, including those variable interest holders who are deemed related parties or de facto agents. In most cases, the Offshore GP was deemed to be the primary beneficiary of such VIEs because it would absorb the majority of expected losses among other variable interest holders and its close association with such VIEs, including the ability to direct the business activities of such VIEs.

The following table presents information regarding interests in VIEs for which the Offshore GP holds a variable interest as of September 30, 2009 (in millions of dollars):

         
  Offshore GP
is the Primary Beneficiary
  Offshore GP
is not the Primary Beneficiary
     Net Assets   Offshore GP’s
Interests(1)
  Pledged
Collateral(2)
  Net Assets   Offshore GP’s
Interests(1)
Offshore Funds and Offshore Master Funds   $ 2,442     $ 32     $ 504     $ 643     $ 0.7  

(1) Amount principally represents the Offshore GP’s reinvested incentive allocations and therefore its maximum exposure to loss. Such amounts are subject to the financial performance of the Offshore Funds and Offshore Master Funds and are included in the Offshore GP’s net assets.
(2) Includes collateral pledged in connection with securities sold, not yet purchased, derivative contracts and collateral held for securities loaned.

b. Automotive, Metals, Home Fashion and Holding Company

Investments for Automotive, Metals, Home Fashion and Holding Company consist of the following (in millions of dollars):

       
  September 30, 2009   December 31, 2008
     Amortized
Cost
  Carrying
Value
  Amortized
Cost
  Carrying
Value
Marketable equity and debt securities – available for sale   $ 23     $ 17     $ 26     $ 19  
Equity method investments and other     244       244       235       235  
Total investments   $ 267     $ 261     $ 261     $ 254  

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009

5. Investments and Related Matters  – (continued)

With the exception of our Automotive segment as discussed below, it is our 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 (loss) from investment activities in the consolidated statement operations. We believe that these investments, individually or in the aggregate, are not material to our consolidated financial statements.

The Holding Company previously had applied the fair value option to certain of its investments. The Holding Company held no positions with respect to these investments as of September 30, 2009. For the three and nine months ended September 30, 2008, the Holding Company recorded $99 million and $83 million, respectively, of unrealized gains with respect to these investments. Such amounts are included in net gain (loss) from investment activities in the consolidated statements of operations.

Investments in Non-Consolidated Affiliates

Federal-Mogul maintains investments in 14 non-consolidated affiliates, which are located in China, Germany, India, Italy, Japan, Korea, Turkey, the United Kingdom and the United States. Federal-Mogul’s direct ownership in such affiliates ranges from approximately 1% to 50%. The aggregate investment in these affiliates approximates $232 million and $221 million at September 30, 2009 and December 31, 2008, respectively.

Equity earnings from non-consolidated affiliates amounted to $9 million and $14 million for the nine months ended September 30, 2009 and 2008, respectively, which are included in other income, net in our consolidated financial statements. For the nine months ended September 30, 2009, these entities generated sales of $351 million, net income of $27 million, and at September 30, 2009 had total net assets of approximately $494 million. Distributed dividends to Federal-Mogul from non-consolidated affiliates were $6 million for the nine months ended September 30, 2009.

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. As of September 30, 2009, the total amount of the contingent guarantee, were all triggering events to occur, approximated $60 million. Federal-Mogul believes that this contingent guarantee is substantially less than the estimated current fair value of the guarantees’ 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.

If this put option were exercised at its estimated current fair value, such exercise could have a material effect on Federal-Mogul’s liquidity. 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.

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September 30, 2009

5. Investments and Related Matters  – (continued)

Federal-Mogul has determined that its investments in Chinese joint venture arrangements are considered to be “limited-lived” as such entities have specified durations ranging from 30 to 50 years pursuant to regional statutory regulations. In general, these arrangements call for extension, renewal or liquidation at the discretion of the parties to the arrangement at the end of the contractual agreement. Accordingly, a reasonable assessment cannot be made as to the impact of such arrangements on the future liquidity position of Federal-Mogul.

6. Fair Value Measurements

U.S. GAAP requires enhanced disclosures about investments 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 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 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.

Level 3 — Pricing inputs are unobservable for the investment and include situations where there is little, if any, market activity for the investment. 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009

6. Fair Value Measurements  – (continued)

The following table summarizes the valuation of the Private Funds’ investments by the above fair value hierarchy levels as of September 30, 2009 (in millions of dollars):

Investment Management

     
  Level 1   Level 2   Total
Assets
                          
Investments   $ 3,130     $ 1,812     $ 4,942  
Unrealized gains on derivative contracts(1)           6       6  
     $ 3,130     $ 1,818     $ 4,948  
Liabilities
                          
Securities sold, not yet purchased, at fair value   $ 2,083     $     $ 2,083  
Unrealized losses on derivative contracts(2)           112       112  
     $ 2,083     $ 112     $ 2,195  

The changes in investments measured at fair value for which the Investment Management operations has used Level 3 input to determine fair value are as follows (in millions of dollars):

 
Balance at December 31, 2008   $ 56  
Realized and unrealized losses, net     (56 ) 
Purchases, net      
Balance at September 30, 2009   $  
Unrealized losses included in earnings related to investments still held at reporting date   $ (56 ) 

Total realized and unrealized gains and losses recorded for Level 3 investments are reported in net gain (loss) from investment activities in the consolidated statements of operations.

Automotive, Holding Company and Other

     
  Level 1   Level 2   Total
Assets
                          
Marketable equity and debt securities   $ 17     $     $ 17  
Derivative financial instruments(1)           3       3  
     $ 17     $ 3     $ 20  
Liabilities(2)
                          
Derivative financial instruments   $     $ 59     $ 59  
     $     $ 59     $ 59  

(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.

7. Financial Instruments

Certain derivative contracts executed by the Private Funds with a single counterparty or by our Automotive operations 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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009

7. Financial Instruments  – (continued)

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.

a. Investment Management and Holding Company

The Private 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 Onshore Fund and the Offshore Master Funds have prime broker arrangements in place with multiple prime brokers as well as a custodian bank. These financial institutions are members of major securities exchanges. The Onshore Fund and Offshore Master Funds also have relationships with several financial institutions with which they trade derivative and other financial instruments.

In the normal course of business, the Private Funds trade various financial instruments and enter into certain investment activities, which may give rise to off-balance-sheet risk. Currently, the Private Funds’ investments include futures, options, credit default 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 of the Private Funds 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 Private Funds’ satisfaction of the obligations may exceed the amount recognized in the consolidated balance sheets. The Private Funds’ investments in securities and amounts due from brokers are partially restricted until the Private Funds satisfy the obligation to deliver the securities sold, not yet purchased.

The Private Funds 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 Private Funds also enter into foreign currency derivative contracts to economically hedge against foreign currency exchange rate risks on all or a portion of their non-U.S. dollar denominated investments.

The Private 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 Private Funds 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 Private Funds 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 Private Funds. When the contract is closed, the Private Funds record a realized gain or loss 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.

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September 30, 2009

7. Financial Instruments  – (continued)

The Private Funds utilize forward contracts to seek to protect their assets denominated in foreign currencies from losses due to fluctuations in foreign exchange rates. The Private Funds’ exposure to credit risk associated with non-performance of forward foreign currency 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 the consolidated balance sheets.

The Private Funds may also purchase and write option contracts. As a writer of option contracts, the Private 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 Private 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 Private Funds’ satisfaction of the obligations may exceed the amount recognized in the consolidated balance sheets. The Private Funds did not have any written put options at each of September 30, 2009 and December 31, 2008.

Certain terms of the Private 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 September 30, 2009 is $112 million.

At September 30, 2009, the Private Funds had approximately $449 million 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 within our consolidated balance sheet.

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 Private 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 Private Funds to make a payment to the swap counterparties. As of September 30, 2009 and December 31, 2008, the Private Funds have entered into such credit default swaps with a maximum notional amount of approximately $204 million and $604 million, respectively, with terms ranging from three months to three years. We estimate that our maximum exposure related to these credit default swaps approximates 25.6% of such notional amounts.

The following table presents the notional amount, fair value, underlying referenced credit obligation type and credit ratings for derivative contracts in which the Private Funds are assuming risk (in millions of dollars):

         
  September 30, 2009   December 31, 2008  
Credit Derivative Type Derivative Risk Exposure   Notional
Amount
  Fair Value   Notional
Amount
  Fair Value   Underlying
Reference Obligation
Single name credit default swaps:
                                            
Investment grade risk exposure   $ 40     $     $ 408     $ 7       Corporate Credit  
Below investment grade risk exposure     164       (22 )      196       (106 )      Corporate Credit  
     $ 204     $ (22 )    $ 604     $ (99 )       

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009

7. Financial Instruments  – (continued)

The following table presents the fair values of the Private Funds’ derivatives (in millions of dollars):

       
  Asset Derivatives(1)   Liability Derivatives(2)
Derivatives not designated as
hedging instruments
  September 30,
2009
  December 31,
2008
  September 30,
2009
  December 31,
2008
Interest rate contracts   $     $ 20     $     $ 18  
Foreign exchange contracts     2       8              
Equity contracts     4             6       17  
Credit contracts     47       176       153       530  
Sub-total     53       204       159       565  
Netting across contract types(3)     (47 )      (125 )      (47 )      (125 ) 
Total(4)   $ 6     $ 79     $ 112     $ 440  

(1) Asset derivatives are located within other assets in our consolidated balance sheets.
(2) Liability derivatives are located within accrued expenses and other liabilities in our consolidated balance sheets.
(3) Represents the netting of receivables balances with payable balances for the same counterparty across contract types pursuant to netting agreements.
(4) Excludes netting of cash collateral received and posted. The total collateral posted at September 30, 2009 was approximately $449 million across all counterparties.

The following table presents the effects of the Private Funds’ derivative instruments on the statement of operations for the three and nine months ended September 30, 2009 (in millions of dollars):

   
  Gain (Loss) Recognized in Income(1)
Derivatives not designated as hedging instruments   Three Months Ended
September 30, 2009
  Nine Months Ended September 30, 2009
Interest rate contracts   $ 5     $ 57  
Foreign exchange contracts     1       (5 ) 
Equity contracts     1       (66 ) 
Credit contracts     181       366  
     $ 188     $ 352  

(1) Gains (losses) recognized on the Private Funds’ derivatives are classified in net gain (loss) from investment activities within our consolidated statements of operations.

b. Automotive

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, Japanese yen and Canadian dollar. Federal-Mogul had notional values of approximately $10 million and $5 million of foreign currency hedge contracts outstanding at September 30,

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009

7. Financial Instruments  – (continued)

2009 and December 31, 2008, respectively, of which substantially all mature in less than one year and all were designated as hedging instruments for accounting purposes. Unrealized net losses of $0.3 million and unrealized net gains of $1.0 million were recorded in accumulated other comprehensive loss as of September 30, 2009 and December 31, 2008, respectively. No hedge ineffectiveness was recognized during the three and nine months ended September 30, 2009.

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 September 30, 2009 and December 31, 2008, unrealized net losses of $56 million and $67 million, respectively, were recorded in accumulated other comprehensive loss as a result of these hedges. As of September 30, 2009, losses of $34 million are expected to be reclassified from accumulated other comprehensive loss to the consolidated statement of operations within the next 12 months. No hedge ineffectiveness was recognized for the three and nine months ended September 30, 2009.

These interest rate swaps reduce Federal-Mogul’s overall interest rate risk. However, due to the remaining outstanding borrowings on Federal-Mogul’s debt agreements 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 these 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, lead, 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 214 and 364 commodity price hedge contracts outstanding with a combined notional value of $38 million and $91 million at September 30, 2009 and December 31, 2008, respectively, substantially all of which mature within one year. Of these outstanding contracts, 164 and 346 commodity price hedge contracts with a combined notional value of $26 million and $83 million at September 30, 2009 and December 31, 2008, respectively, were designated as hedging instruments for accounting purposes. Unrealized net losses of $2 million and $33 million were recorded in accumulated other comprehensive loss as of September 30, 2009 and December 31, 2008, respectively. Unrealized net gains of $0.2 million and $2 million were recognized in other income, net during the three and nine months ended September 30, 2009, respectively, associated with ineffectiveness on contracts designated as accounting hedges.

For derivatives designated as cash flow hedges, changes in the time value are excluded from the assessment of hedge effectiveness. Unrealized gains and losses associated with ineffective hedges, determined using the hypothetical derivative method, are recognized in other income, net. Derivative gains and losses included in accumulated other comprehensive loss for effective hedges are reclassified into operations upon recognition of the hedged transaction. Derivative gains and losses associated with undesignated hedges are recognized in other income, net for outstanding hedges and cost of goods sold upon hedge maturity. Federal-Mogul’s undesignated hedges are primarily commodity hedges and such hedges have become undesignated mainly due to forecasted volume declines.

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, retailers and installers of automotive aftermarket parts. Federal-Mogul’s credit evaluation process and the geographical

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009

7. Financial Instruments  – (continued)

dispersion of sales transactions help to mitigate credit risk concentration. No individual customer accounted for more than 5% of Federal-Mogul’s sales during the three and nine months ended September 30, 2009. 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 (in millions of dollars):

       
  Asset Derivatives(1)   Liability Derivatives(1)
Derivatives Designated as Cash Flow –  Hedging Instruments   September 30,
2009
  December 31,
2008
  September 30,
2009
  December 31,
2008
Interest rate swap contracts   $     $     $ (56 )    $ (67 ) 
Commodity contracts     3             (5 )      (37 ) 
Foreign exchange contracts           1              
     $ 3     $ 1     $ (61 )    $ (104 ) 

       
Derivatives not Designated as
Hedging Instruments
Commodity contracts   $ 1     $     $ (1 )    $ (7 ) 
     $ 1     $     $ (1 )    $ (7 ) 

(1) Federal-Mogul’s asset derivatives and liability derivatives are classified within accrued expenses and other liabilities on the consolidated balance sheets.

The following tables present the effect of Federal-Mogul’s derivative instruments on the consolidated statement of operations for the three and nine months ended September 30, 2009 (in millions of dollars):

For the three months ended September 30, 2009

         
Derivatives Designated as Hedging Instruments   Amount of
Gain (Loss)
Recognized
in OCI on
Derivatives
(Effective
Portion)
  Location of Gain (Loss)
Reclassified from
AOCI into Income
(Effective Portion)
  Amount of
Gain (Loss)
Reclassified
from AOCI
into Income
(Effective
Portion)
  Location of Gain
(Loss) Recognized in
Income on Derivatives
(Ineffective Portion and
Amount Excluded from
Effectiveness Testing)
  Amount of Gain (Loss)
Recognized in
Income on
Derivatives
(Ineffective
Portion and
Amount
Excluded from
Effectiveness
Testing)
Interest rate swap contracts   $ (20 )      Interest expense     $ (10 )             $  
Commodity contracts     5       Cost of goods sold       (3 )      Other income, net       0.2  
Foreign exchange contracts     (1 )      Cost of goods sold       1              
     $ (16 )          $ (12 )          $ 0.2  

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September 30, 2009

7. Financial Instruments  – (continued)

For the nine months ended September 30, 2009

         
Derivatives Designated as Hedging Instruments   Amount of
Gain
Recognized
in OCI on
Derivatives
(Effective
Portion)
  Location of Gain
Reclassified from
AOCI into Income
(Effective Portion)
  Amount of
Gain (Loss)
Reclassified
from AOCI
into Income
(Effective
Portion)
  (Loss) Recognized in
Income on Derivatives
(Ineffective Portion and
Amount Excluded from
Effectiveness Testing)
  Recognized in
Income on
Derivatives
(Ineffective
Portion and
Amount
Excluded from
Effectiveness
Testing
Interest rate swap contracts   $ (17 )      Interest expense     $ (27 )             $  
Commodity contracts     18       Cost of goods sold       (16 )      Other income, net       2  
Foreign exchange contracts           Cost of goods sold       1              
     $ 1           $ (42 )          $ 2  

     
    Gain (Loss) Recognized
in Income on Derivatives
Derivatives Not Designated as
Hedging Instruments
  Location of Loss
Recognized in Income
on Derivatives
  Three Months
Ended
September 30, 2009
  Nine Months
Ended
September 30, 2009
Commodity contracts     Cost of goods sold     $ (2 )    $ (6 ) 
Commodity contracts     Other income, net       3       3  
           $ 1     $ (3 ) 

8. Inventories, Net

Our consolidated inventories, net consist of the following (in millions of dollars):

   
  September 30,
2009
  December 31,
2008
Raw materials:
                 
Automotive   $ 150     $ 166  
Home Fashion     11       12  
       161       178  
Work in process:
                 
Automotive     119       125  
Home Fashion     29       33  
       148       158  
Finished Goods:
                 
Automotive     572       603  
Home Fashion     84       87  
       656       690  
Metals:
                 
Ferrous     20       27  
Non-ferrous     8       5  
Secondary     24       35  
       52       67  
Total inventories, net   $ 1,017     $ 1,093  

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009

9. Goodwill and Intangible Assets, Net

Goodwill and Intangible assets, net consist of the following (in millions of dollars):

             
    September 30, 2009   December 31, 2008
Description   Amortization
Periods
  Gross
Carrying
Amount
  Accumulated
Amortization
  Net
Carrying
Value
  Gross
Carrying
Amount
  Accumulated
Amortization
  Net
Carrying
Value
Definite-lived intangible assets:
                                                              
Automotive     1 – 22 years     $ 640     $ (113 )    $ 527     $ 640     $ (76 )    $ 564  
Metals     5 – 15 years       11       (4 )      7       11       (2 )      9  
Real Estate     12 – 12.5 years       121       (12 )      109                    
           $ 772     $ (129 )      643     $ 651     $ (78 )      573  
Indefinite-lived intangible assets:
                                                              
Automotive                                354                         354  
Metals                                                        3  
Home Fashion                       8                   13  
                         362                   370  
Total intangible assets, net                     $ 1,005                 $ 943  
Goodwill:
                                                              
Automotive                              $ 1,045                       $ 1,076  
Metals                                         10  
Total goodwill                     $ 1,045                 $ 1,086  

Automotive

Given the complexity of the calculation of goodwill impairment and the significance of fourth quarter economic activity, Federal-Mogul had not completed its annual impairment assessment for fiscal 2008 prior to filing its annual report on Form 10-K. During the first quarter of fiscal 2009, Federal-Mogul completed this assessment and recorded a reduction to its goodwill impairment charge of $3 million. The goodwill impairment charges were required to adjust the carrying value of goodwill and other indefinite-lived intangible assets to estimated fair value. The estimated fair values were determined based upon consideration of various valuation methodologies, including guideline transaction multiples, multiples of current earnings and projected future cash flows discounted at rates commensurate with the risk involved.

During fiscal 2009, Federal-Mogul identified $35 million of corrections associated with the pushdown of final fresh-start values to the individual operating entities pertaining to certain balance sheet accounts (principally deferred taxes and accumulated other comprehensive loss) that were necessary to properly state goodwill. Accordingly, Federal-Mogul recorded these balance sheet corrections during fiscal 2009, which reduced its goodwill balance by $35 million.

For the three and nine months ended September 30, 2009, Federal-Mogul recorded amortization expense of $12 million and $37 million, respectively, associated with definite-lived intangible assets. For the three months ended September 30, 2008 and for the period March 1, 2008 through September 30, 2008, Federal-Mogul recorded amortization expense of $22 million and $46 million, respectively. Federal-Mogul utilizes the straight line method of amortization, recognized over the estimated useful lives of the assets.

Metals

Our Metals segment tests indefinite-lived intangible assets for impairment annually as of September 30 or more frequently if it believes indicators of impairment exist. Our Metals segment determines the fair value of its indefinite-lived intangible assets utilizing discounted cash flows. The resultant fair value is compared to its carrying value and an impairment loss is recorded if the carrying value exceeds its fair value.

Our Metals segment’s sales for the first quarter of fiscal 2009 declined significantly as the demand and prices for scrap fell to extremely low levels due to historically low steel mill capacity utilization rates and declines in other sectors of the economy served by our Metals segment. Given the indication of a potential impairment, our Metals segment completed a valuation utilizing discounted cash flows based on current

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009

9. Goodwill and Intangible Assets, Net  – (continued)

market conditions. This valuation resulted in an impairment loss for goodwill and other indefinite-lived intangible assets of $13 million which was recorded in the first quarter of fiscal 2009, eliminating all goodwill and indefinite-lived intangibles from our Metals segment’s balance sheet.

Real Estate

Acquisitions of real estate properties are accounted for utilizing the purchase method. Our Real Estate operations allocate the purchase price of each acquired property between land, buildings and improvements, and identifiable intangible assets and liabilities such as amounts related to in-place leases, acquired above- and below-market leases, and tenant relationships. The allocation of the purchase price requires judgment and significant estimates. Our Real Estate operations use information contained in independent appraisals as the primary basis for its purchase price allocations. Our Real Estate operations determine whether any rental rates are above or below market based upon comparison to similar financing terms for similar investment properties.

Values of properties are determined on an as-if vacant basis at acquisition date. The estimated fair value of acquired in-place leases are the costs our Real Estate operations would have incurred to lease the properties to the occupancy level of the properties at the date of acquisition. Such estimates include the fair value of leasing commissions, operating costs and other direct costs that would be incurred to lease the properties to such occupancy levels. Additionally, our Real Estate operations evaluates the time period over which such occupancy levels would be achieved. Such evaluation includes an estimate of the net lost market-based rental revenues and net operating costs (primarily consisting of real estate taxes, insurance and utilities) that would have been incurred during the lease-up period. Our Real Estate operations allocate a portion of the purchase price to tenant relationships considering various factors including tenant profile and the credit risk of the tenant. Acquired in-place leases and tenant relationships as of the date of acquisition are amortized over the remaining terms of the respective leases.

In August 2008, our Real Estate operations acquired two net leased properties for $465 million pursuant to an Internal Revenue Code Section 1031 exchange. The results of operations of the properties have been included in the consolidated financial statements since the date of acquisition. The aggregate purchase price of $465 million was allocated to the following assets acquired, based on their fair values: land $90 million, buildings and improvements $254 million and $121 million attributable to definite-lived intangible assets relating to values determined for in-place leases and tenant relationships. The allocation of the purchase price was completed in the second quarter of fiscal 2009, resulting in a reclassification of $121 million to definite-lived intangible assets which were initially classified as property, plant and equipment, net. The definite-lived intangible assets are being amortized over the 12 – 12.5 year initial term of the respective leases.

Home Fashion

During the third quarter of fiscal 2009, WPI recorded an impairment charge of $5 million related to its trademarks. In recording impairment charges related to its trademarks, WPI compared the fair value of the intangible asset with its carrying value. The estimates of fair value of trademarks are determined using a discounted cash flow valuation methodology referred to as the “relief from royalty” methodology. Significant assumptions inherent in the “relief from royalty” methodology employed include estimates of appropriate marketplace royalty rates and discount rates. WPI’s trademark valuations will be evaluated further during its annual testing in the fourth quarter of fiscal 2009.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009

10. Property, Plant and Equipment, Net

Property, plant and equipment, net consists of the following (in millions of dollars):

   
  September 30,
2009
  December 31,
2008
Land   $ 307     $ 307  
Buildings and improvements     524       492  
Machinery, equipment and furniture     1,772       1,605  
Assets leased to others     474       590  
Construction in progress     267       275  
       3,344       3,269  
Less accumulated depreciation and amortization     (632 )      (391 ) 
Property, plant and equipment, net   $ 2,712     $ 2,878  

Depreciation and amortization expense from continuing operations related to property, plant and equipment for the three and nine months ended September 30, 2009 was $71 million and $215 million, respectively. For the three and nine months ended September 30, 2008, depreciation and amortization expense was $72 million and $169 million, respectively.

11. Equity Attributable to Non-Controlling Interests

Equity attributable to non-controlling interests consists of the following (in millions of dollars):

   
  September 30,
2009
  December 31,
2008
Investment Management   $ 4,079     $ 3,560  
Automotive     300       276  
Home Fashion and other     88       108  
Total equity attributable to non-controlling interests   $ 4,467     $ 3,944  

Investment Management

The Investment Management segment consolidates those entities in which it (i) has an investment of more than 50% and has control over significant operating, financial and investing decisions of the entity, (ii) has a controlling general partner interest or (iii) is the primary beneficiary of a VIE. The Investment Funds and the Offshore Fund are consolidated into our financial statements even though we have only a minority interest in the equity and income of these funds. As a result, our consolidated financial statements reflect the assets, liabilities, revenues, expenses and cash flows of these funds on a gross basis, rather than reflecting only the value of our investments in such funds. As of September 30, 2009, the net asset value of the consolidated Private Funds on our consolidated balance sheet was approximately $5.5 billion, which includes the net asset value of our investments in these consolidated funds of approximately $1.4 billion.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009

12. Debt

Debt consists of the following (in millions of dollars):

   
  September 30,
2009
  December 31,
2008
Senior unsecured variable rate convertible notes due 2013 –  Icahn Enterprises   $ 556     $ 556  
Senior unsecured 7.125% notes due 2013 – Icahn Enterprises     962       961  
Senior unsecured 8.125% notes due 2012 – Icahn Enterprises     352       352  
Exit facilities – Federal-Mogul     2,567       2,495  
Mortgages payable     115       123  
Other     82       84  
Total debt   $ 4,634     $ 4,571  

Senior Unsecured Variable Rate Convertible Notes Due 2013 — Icahn Enterprises

In April 2007, we issued an aggregate of $600 million of variable rate senior convertible notes due 2013 (the “variable rate notes”). The variable rate notes were sold in a private placement pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and issued pursuant to an indenture dated as of April 5, 2007, by and among us, as issuer, Icahn Enterprises Finance Corp. (“Icahn Enterprises Finance”), as co-issuer, and Wilmington Trust Company, as trustee. Icahn Enterprises Finance, our wholly owned subsidiary, was formed solely for the purpose of serving as a co-issuer of our debt securities in order to facilitate offerings of the debt securities. Other than Icahn Enterprises Holdings, no other subsidiaries guarantee payment on the variable rate notes. The variable rate notes bear interest at a rate of three-month LIBOR minus 125 basis points, but the all-in-rate can be no less than 4.0% nor more than 5.5%, and are convertible into our depositary units at a conversion price of $132.595 per depositary unit per $1,000 principal amount, subject to adjustments in certain circumstances. Pursuant to the indenture governing the variable rate notes, on October 5, 2008, the conversion price was adjusted downward to $105.00 per depositary unit per $1,000 principal amount. As of September 30, 2009, the interest rate was 4.0%. The interest on the variable rate notes is payable quarterly on each January 15, April 15, July 15 and October 15. The variable rate notes mature on August 15, 2013, assuming they have not been converted to depositary units before their maturity date.

In the event that we declare a cash dividend or similar cash distribution in any calendar quarter with respect to our depositary units in an amount in excess of $0.10 per depositary unit (as adjusted for splits, reverse splits and/or stock dividends), the indenture governing the variable rate notes requires that we simultaneously make such distribution to holders of the variable rate notes in accordance with a formula set forth in the indenture. For the nine months ended September 30, 2009, we paid an aggregate cash distribution of $3 million to holders of our variable rate notes in respect to our distributions payment to our depositary unitholders. Such amounts have been classified as interest expense.

Senior Unsecured Notes — Icahn Enterprises

Senior Unsecured 7.125% Notes Due 2013

On February 7, 2005, we issued $480 million aggregate principal amount of 7.125% senior unsecured notes due 2013 (the “7.125% notes”), priced at 100% of principal amount. The 7.125% notes were issued pursuant to an indenture dated February 7, 2005 among us, as issuer, Icahn Enterprises Finance, as co-issuer, Icahn Enterprises Holdings, as guarantor, and Wilmington Trust Company, as trustee (referred to herein as the “2005 Indenture”). Other than Icahn Enterprises Holdings, no other subsidiaries guarantee payment on the notes.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009

12. Debt  – (continued)

On January 16, 2007, we issued an additional $500 million aggregate principal amount of 7.125% notes (the “additional 7.125% notes” and, together with the 7.125% notes, the “notes”), priced at 98.4% of par, or at a discount of 1.6%, pursuant to the 2005 Indenture. The notes have a fixed annual interest rate of 7.125%, which is paid every six months on February 15 and August 15, and will mature on February 15, 2013.

As described below, the 2005 Indenture restricts the ability of Icahn Enterprises and Icahn Enterprises Holdings, subject to certain exceptions, to, among other things: incur additional debt; pay dividends or make distributions; repurchase units; create liens; and enter into transactions with affiliates.

Senior Unsecured 8.125% Notes Due 2012

On May 12, 2004, Icahn Enterprises and Icahn Enterprises Finance co-issued senior unsecured 8.125% notes due 2012 (“8.125% notes”) in the aggregate principal amount of $353 million. The 8.125% notes were issued pursuant to an indenture, dated as of May 12, 2004, among Icahn Enterprises, Icahn Enterprises Finance, Icahn Enterprises Holdings, as guarantor, and Wilmington Trust Company, as trustee. The 8.125% notes were priced at 99.266% of principal amount and have a fixed annual interest rate of 8.125%, which is paid every six months on June 1 and December 1. The 8.125% notes will mature on June 1, 2012. Other than Icahn Enterprises Holdings, no other subsidiaries guarantee payment on the notes.

As described below, the indenture governing the 8.125% notes restricts the ability of Icahn Enterprises and Icahn Enterprises Holdings, subject to certain exceptions, to, among other, things: incur additional debt; pay dividends or make distributions; repurchase units; create liens and enter into transactions with affiliates.

Senior Unsecured Notes Restrictions and Covenants

The 2005 Indenture governing our senior unsecured 7.125% notes and the indenture governing our senior unsecured 8.125% notes restrict the payment of cash distributions, the purchase of equity interests or the purchase, redemption, defeasance or acquisition of debt subordinated to the senior unsecured notes. The indentures also restrict the incurrence of debt or the issuance of disqualified stock, as defined in the indentures, with certain exceptions. In addition, the indentures governing our senior unsecured notes require that on each quarterly determination date that we and the guarantor of the notes (currently only Icahn Enterprises Holdings) maintain certain minimum financial ratios, as defined in the applicable indenture. The indentures also restrict the creation of liens, mergers, consolidations and sales of substantially all of our assets, and transactions with affiliates.

As of September 30, 2009 and December 31, 2008, we are in compliance with all covenants, including maintaining certain minimum financial ratios, as defined in the applicable indentures. Additionally, as of September 30, 2009, based on certain minimum financial ratios, we and Icahn Enterprises Holdings could not incur additional indebtedness.

Senior Secured Revolving Credit Facility — Icahn Enterprises

On August 21, 2006, we and Icahn Enterprises Finance as the borrowers, and certain of our subsidiaries, as guarantors, entered into a credit agreement with Bear Stearns Corporate Lending Inc., as administrative agent, and certain other lender parties. On July 20, 2009, we terminated the credit agreement as we determined that it was no longer necessary. There were no borrowings under the facility as of the termination date. We did not incur any early termination penalties.

Under the credit agreement, we were permitted to borrow up to $150 million, including a $50 million sub-limit that could be used for letters of credit. Borrowings under the agreement, which were based on our credit rating, bore interest at LIBOR plus 1.0% to 2.0%. We paid an unused line fee of 0.25% to 0.5%.

Obligations under the credit agreement were guaranteed and secured by liens on substantially all of the assets of certain of our indirect wholly owned holding company subsidiaries. The term of the credit agreement was for four years, with all amounts due and payable on August 21, 2010. The credit agreement included

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009

12. Debt  – (continued)

covenants that, among other things, restricted the creation of liens and certain dispositions of property by holding company subsidiaries that are guarantors. Obligations under the credit agreement were immediately due and payable upon the occurrence of certain events of default.

Exit Facilities — Federal-Mogul

On December 27, 2007 (the “Effective Date”), Federal-Mogul entered into a Term Loan and Revolving Credit Agreement (the “Exit Facilities”) with Citicorp U.S.A. Inc. as Administrative Agent, JPMorgan Chase Bank, N.A. as Syndication Agent and certain lenders. The Exit Facilities include a $540 million revolving credit facility (which is subject to a borrowing base and can be increased under certain circumstances and subject to certain conditions) and a $2,960 million term loan credit facility divided into a $1,960 million tranche B loan and a $1,000 million tranche C loan. Federal-Mogul borrowed $878 million under the term loan facility on the Effective Date and the remaining $2,082 million of term loans, which were available for up to 60 days after the Effective Date, have been fully drawn.

The obligations under the revolving credit facility mature December 27, 2013 and bear interest for the six months at LIBOR plus 1.75% or at the alternate base rate (“ABR,” defined as the greater of Citibank, N.A.’s announced prime rate or 0.50% over the Federal Funds Rate) plus 0.75%, and thereafter shall be adjusted in accordance with a pricing grid based on availability under the revolving credit facility. Interest rates on the pricing grid range from LIBOR plus 1.50% to LIBOR plus 2.00% and ABR plus 0.50% to ABR plus 1.00%. The tranche B term loans mature December 27, 2014 and the tranche C term loans mature December 27, 2015; provided, however, that in each case, such maturity may be shortened to December 37, 2013 under certain circumstances. In addition, the tranche C term loans are subject to a pre-payment premium, should Federal-Mogul choose to prepay the loans prior to December 27, 2011. All Exit Facilities term loans bear interest at LIBOR plus 1.9375% or at ABR plus 0.9375% at Federal-Mogul’s election.

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 under the Exit Facilities. 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. Since the interest rate swaps hedge the variability of interest payments on variable rate debt with the same terms, they qualify for cash flow hedge accounting treatment.

Under the Exit Facilities, Federal-Mogul had $50 million and $57 million of letters of credit outstanding at September 30, 2009 and December 31, 2008, respectively. As of September 30, 2009 and December 31, 2008, the borrowing availability under the revolving credit facility was $518 million and $476 million, respectively.

The obligations of Federal-Mogul under the Exit Facilities are guaranteed by substantially all of its domestic subsidiaries and certain foreign subsidiaries, and are secured by substantially all personal property and certain real property of Federal-Mogul and such guarantors, subject to certain limitations. The liens granted to secure these obligations and certain cash management and hedging obligations have first priority.

The Exit Facilities contain certain affirmative and negative covenants and events of default, including, subject to certain exceptions, restrictions on incurring additional indebtedness, mandatory prepayment provisions associated with specified asset sales and dispositions, and limitations on (i) investments; (ii) certain acquisitions, mergers or consolidations; (iii) sale and leaseback transactions; (iv) certain transactions with affiliates; and (v) dividends and other payments in respect of capital stock. At each of September 30, 2009 and December 31, 2008, Federal-Mogul was in compliance with all debt covenants under the Exit Facilities.

Mortgages Payable

Mortgages payable, all of which are non-recourse to us, bear interest at rates between 4.97% and 7.99% and have maturities between June 30, 2011 and October 1, 2028.

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September 30, 2009

12. Debt  – (continued)

Secured Revolving Credit Agreement — WestPoint Home, Inc.

On June 16, 2006, WestPoint Home, Inc., an indirect wholly owned subsidiary of WPI, entered into a $250 million loan and security agreement with Bank of America, N.A., as administrative agent and lender. On September 18, 2006, The CIT Group/Commercial Services, Inc., General Electric Capital Corporation and Wells Fargo Foothill, LLC were added as lenders under this credit agreement. Under the five-year agreement, borrowings are subject to a monthly borrowing base calculation and include a $75 million sub-limit that may be used for letters of credit. Borrowings under the agreement bear interest, at the election of WestPoint Home, either at the prime rate adjusted by an applicable margin ranging from minus 0.25% to plus 0.50% or LIBOR adjusted by an applicable margin ranging from plus 1.25% to 2.00%. WestPoint Home pays an unused line fee of 0.25% to 0.275%. Obligations under the agreement are secured by WestPoint Home’s receivables, inventory and certain machinery and equipment.

The agreement contains covenants including, among others, restrictions on the incurrence of indebtedness, investments, redemption payments, distributions, acquisition of stock, securities or assets of any other entity and capital expenditures. However, WestPoint Home is not precluded from effecting any of these transactions if excess availability, after giving effect to such transaction, meets a minimum threshold.

As of September 30, 2009, there were no borrowings under the agreement, but there were outstanding letters of credit of $13 million. Based upon the eligibility and reserve calculations within the agreement, WestPoint Home had unused borrowing availability of $47 million at September 30, 2009.

Sale of Previously Purchased Debt

During the third quarter of fiscal 2009, we received proceeds of $60 million from the sale of previously purchased debt of entities included in our consolidated financial statements in the principal amount of $80 million.

13. Compensation Arrangements

Investment Management

Effective January 1, 2008, the General Partners amended employment agreements with certain of their employees whereby such employees have been granted rights to participate in a portion of the special profits interest allocations (in certain cases, whether or not such special profits interest is earned by the General Partners) effective January 1, 2008 and incentive allocations earned by the General Partners, typically net of certain expenses and generally subject to various vesting provisions. The vesting period of these rights is generally between two and seven years, and such rights expire at the end of the contractual term of each respective employment agreement. The unvested amounts and vested amounts that have not been withdrawn by the employee generally remain invested in the Investment Funds and earn the rate of return of these funds, before the effects of any special profits interest allocations effective January 1, 2008 or incentive allocations, which are waived on such amounts. Accordingly, these rights are accounted for as liabilities and are remeasured at fair value each reporting period until settlement.

The General Partners recorded compensation expense of $2 million and $12 million related to these rights for the three and nine months ended September 30, 2009, respectively. This compares to $1 million and $3 million for the three and nine months ended September 30, 2008, respectively. Compensation expense is included in selling, general and administrative expenses within our consolidated statements of operations. Compensation expense arising from grants in special profits interest allocations and incentive allocations are recognized in the consolidated financial statements over the vesting period. Accordingly, unvested balances of special profits interest allocations and incentive allocations allocated to certain employees are not reflected in the consolidated financial statements. Unvested amounts not yet recognized as compensation expense within the consolidated statements of operations were $2 million as of September 30, 2009 and $4 million as of

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September 30, 2009

13. Compensation Arrangements  – (continued)

December 31, 2008. That cost is expected to be recognized over a weighted average of 3.0 years as of September 30, 2009. Cash paid to settle rights that had been withdrawn for the nine months ended September 30, 2009 was $7 million. Cash paid to settle rights that had been withdrawn for the nine months ended September 30, 2008 was $5 million.

Automotive

Stock-Based Compensation

On December 27, 2007, Federal-Mogul entered into a deferred compensation agreement with Mr. José Maria Alapont, its President and Chief Executive Officer. Under the terms of this deferred compensation agreement, Mr. Alapont is entitled to certain distributions of Federal-Mogul Common Stock or, at the election of Mr. Alapont, certain distributions of cash upon certain events as set forth in the agreement. The amount of the distributions shall be equal to the fair value of 500,000 shares of Federal-Mogul Common Stock, subject to certain adjustments and offsets.

On February 15, 2008, Federal-Mogul entered into a Stock Option Agreement with Mr. Alapont (the “CEO Stock Option Agreement”), which was subsequently approved by Federal-Mogul’s stockholders effective July 28, 2008. The CEO Stock Option Agreement grants Mr. Alapont a non-transferable, non-qualified option (the “CEO Option”) to purchase up to 4,000,000 shares of Federal-Mogul’s common stock subject to the terms and conditions described below. The exercise price for the CEO Option is $19.50 per share, which is at least equal to the fair market value of a share of Federal-Mogul’s common stock on the date of grant of the CEO Option. In no event may the CEO Option be exercised, in whole or in part, after December 27, 2014. The CEO Stock Option Agreement provides for vesting as follows: 80% of the shares of common stock subject to the CEO Option vested as of September 30, 2009 and the final 20% of the shares of common stock subject to the CEO Option shall vest on March 23, 2010.

Federal-Mogul revalued the options granted to Mr. Alapont at September 30, 2009, resulting in a revised fair value of $18 million. During the three and nine months ended September 30, 2009, Federal-Mogul recognized $6 million and $13 million, respectively, in expense associated with these options. As a result of lower revised value of options during fiscal 2008, Federal-Mogul recognized income of $4 million and $6 million for the three months ended September 30, 2008 and for the period March 1, 2008 through September 30, 2008, respectively. Since the deferred compensation agreement provides for net cash settlement at the option of Mr. Alapont, the CEO Option is treated as a liability award and the vested portion of the CEO Option, aggregating $16 million, has been recorded as a liability as of September 30, 2009. The remaining $2 million of total unrecognized compensation cost as of September 30, 2009 related to non-vested stock options is expected to be recognized ratably over the remaining term of Mr. Alapont’s employment agreement.

Key assumptions and related option-pricing models used by Federal-Mogul are summarized in the following table:

     
  September 30, 2009 Valuation
     Plain Vanilla
Options
  Options
Connected to
Deferred
Compensation
  Deferred
Compensation
Valuation Model   Black-Scholes   Monte Carlo   Monte Carlo
Expected volatility     67 %      67 %      67 % 
Expected dividend yield     0 %      0 %      0 % 
Risk-free rate over the estimated expected option life     1.32 %      1.43 %      1.43 % 
Expected option life (in years)     2.68       2.87       2.87  

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14. Pensions, Other Postemployment Benefits and Employee Benefit Plans

Automotive

Federal-Mogul sponsors several defined benefit pension plans (“Pension Benefits”) and health care and life insurance benefits (“Other Benefits”) for certain employees and retirees around the world. Federal-Mogul funds the Pension Benefits based on the funding requirements of federal and international laws and regulations in advance of benefit payments and the Other Benefits as benefits are provided to participating employees. The net periodic benefit costs for the three and nine months ended September 30, 2009 were $33 million and $98 million, respectively. For the three months ended September 30, 2008 and for the period March 1, 2008 through September 30, 2008 the net periodic benefit costs were $16 million and $39 million, respectively.

15. Preferred Limited Partner Units

Pursuant to certain rights offerings consummated in 1995 and 1997, preferred units were issued. Each preferred unit has a liquidation preference of $10.00 and entitles the holder to receive distributions, payable solely in additional preferred units, at the rate of $0.50 per preferred unit per annum (which is equal to a rate of 5% of the liquidation preference thereof), payable annually at the end of March (each referred to herein as a Payment Date). On any Payment Date, we, subject to the approval of the Audit Committee, may opt to redeem all of the preferred units for an amount, payable either in all cash or by issuance of our depositary units, equal to the liquidation preference of the preferred units, plus any accrued but unpaid distributions thereon. On March 31, 2010, we must redeem all of the preferred units on the same terms as any optional redemption.

Pursuant to the terms of the preferred units, on February 23, 2009, we declared our scheduled annual preferred unit distribution payable in additional preferred units at the rate of 5% of the liquidation preference per preferred unit of $10.00. The distribution was paid on March 31, 2009 to holders of record as of March 17, 2009. A total of 624,925 additional preferred units were issued. As of September 30, 2009, the number of authorized preferred units was 14,100,000. As of September 30, 2009 and December 31, 2008, 13,127,179 and 12,502,254 preferred units were issued and outstanding, respectively.

We recorded $2 million and $5 million of interest expense for the three and nine months ended September 30, 2009, respectively, and $2 million and $5 million for the three and nine months ended September 30, 2008, respectively, in connection with the preferred units distribution.

16. Net Income per LP Unit

Basic income (loss) per LP unit is based on net income attributable to Icahn Enterprises allocable to limited partners after deducting preferred pay-in-kind distributions to preferred unitholders. Net income allocable to limited partners is divided by the weighted-average number of LP units outstanding. Diluted income (loss) per LP unit is based on basic income (loss) adjusted for interest charges applicable to the variable rate notes and earnings before the preferred pay-in-kind distributions as well as the weighted-average number of units and equivalent units outstanding. The preferred units are considered to be equivalent units for the purpose of calculating income (loss) per LP unit.

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ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009

16. Net Income per LP Unit  – (continued)

The following table sets forth the allocation of net income (loss) attributable to Icahn Enterprises from continuing operations allocable to limited partners and the computation of basic and diluted income (loss) per LP unit for the periods indicated (in millions of dollars, except per unit data):

       
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
     2009   2008   2009   2008
Income (loss) attributable to Icahn Enterprises from continuing operations   $ 111     $ 25     $ 240     $ (61 ) 
Less: Income from common control acquisitions allocated to general partner                       (30 ) 
       111       25       240       (91 ) 
Basic income (loss) attributable to Icahn Enterprises from continuing operations allocable to limited partners (98.01% share of income or loss)   $ 109     $ 25     $ 235     $ (89 ) 
Basic (loss) income attributable to Icahn Enterprises from discontinued operations allocable to limited partners   $ (1 )    $ (2 )    $ 1     $ 501 (1) 
Basic income (loss) per LP Unit:
                                   
Income (loss) from continuing operations per LP unit   $ 1.45     $ 0.34     $ 3.13     $ (1.27 ) 
(Loss) income from discontinued operations per LP unit     (0.01 )      (0.02 )      0.02       7.10  
     $ 1.44     $ 0.32     $ 3.15     $ 5.83  
Basic weighted average LP units outstanding     75       70       75       70  
Diluted income (loss) per LP Unit:
                                   
Income (loss) from continuing operations per LP unit   $ 1.40     $ 0.34     $ 3.04     $ (1.27 ) 
(Loss) income from discontinued operations per LP unit     (0.01 )      (0.02 )      0.01       7.10  
     $ 1.39     $ 0.32     $ 3.05     $ 5.83  
Dilutive weighted average LP units outstanding     84       70       79       70  

(1) Includes a charge of $25 allocated to the general partner relating to the sale of ACEP.

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ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009

16. Net Income per LP Unit  – (continued)

The effect of dilutive securities in computing diluted income (loss) per LP unit is as follows (in millions):

       
  Three Months Ended
September 30, 2009
  Nine Months Ended
September 30, 2009
     Income   Shares   Income   Shares
Redemption of preferred LP units   $ 2       4     $ 5       4  
Variable rate notes     7       5              

The income effect from the redemption of preferred LP units and the variable rate notes represents the add-back to income for interest expense accruals.

As their effect would have been anti-dilutive, the following equivalent units have been excluded from the weighted average LP units outstanding for the periods indicated (in millions):

       
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
     2009   2008   2009   2008
Redemption of preferred LP units           2             2  
Variable rate notes           5       5       5  

17. Segment Reporting

As of September 30, 2009, our five reportable segments are: (1) Investment Management; (2) Automotive; (3) Metals; (4) Real Estate and (5) Home Fashion. Our Investment Management segment provides investment advisory and certain administrative and back office services to the Private Funds, but does not provide such services to any other entities, individuals or accounts. Our Automotive segment consists of Federal-Mogul. Our Metals segment consists of PSC Metals. Our Real Estate segment consists of rental real estate, residential property development and the operation of resort properties associated with our residential developments. Our Home Fashion segment consists of WPI. In addition to our five reportable segments, we present the results of the Holding Company which includes the unconsolidated results of Icahn Enterprises and Icahn Enterprises Holdings, and investment activity and expenses associated with the activities of the Holding Company.

We assess and measure segment operating results based on segment earnings as disclosed below. Segment earnings from operations are not necessarily indicative of cash available to fund cash requirements, nor synonymous with cash flow from operations. Certain terms of financings for our Automotive, Home Fashion and Real Estate segments impose restrictions on the segments’ ability to transfer funds to us, including restrictions on dividends, distributions, loans and other transactions.

In the tables below, the Investment Management segment is represented by the first four columns. The first column, entitled Icahn Enterprises’ Interests, represents our interests in the results of operations of the Investment Management segment without the impact of eliminations arising from the consolidation of the Private Funds. This includes the gross amount of any special profits interest allocations, incentive allocations and returns on investments in the Private Funds that are attributable to Icahn Enterprises only. This also includes gains and losses on Icahn Enterprises’ direct investments in the Private Funds. The second column represents the total consolidated income and expenses of the Private Funds for all investors, including Icahn Enterprises, before eliminations. Additionally, the second column includes the results of the General Partners and Icahn Capital. The third column represents the eliminations required in order to arrive at our consolidated U.S. GAAP reported results for the segment, which is provided in the fourth column (amounts are in millions of dollars).

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ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009

17. Segment Reporting  – (continued)

  

                   
                   
  Three Months Ended September 30, 2009
     Investment Management   Automotive   Metals   Real
Estate
  Home
Fashion
  Holding
Company
  Consolidated
Results
     Icahn
Enterprises’
Interests
  Consolidated
Private
Funds
  Eliminations   U.S. GAAP
Investment
Management
Revenues
                                                                                         
Net sales   $     $     $     $     $ 1,380     $ 132     $ 13     $ 94     $     $ 1,619  
Special profits interest allocations     23             (23 )                                           
Incentive allocations                                                            
Net gain from investment activities     123 (1)      448       (123 )      448                               4       452  
Interest and dividend income           74             74       2             2             3       81  
Other income, net                             15             11       4             30  
       146       522       (146 )      522       1,397       132       26       98       7       2,182  
Expenses
                                                                                         
Cost of goods sold                             1,168       126       4       86             1,384  
Selling, general and administrative     8       24             32       184       5       15       18       3       257  
Restructuring and impairment                                         1       9             10  
Interest expense           2             2       34             2             35       73  
       8       26             34       1,386       131       22       113       38       1,724  
Income (loss) from continuing operations before income tax (expense) benefit     138       496       (146 )      488       11       1       4       (15 )      (31 )      458  
Income tax benefit (expense)                             5       1             (1 )            5  
Income (loss) from continuing operations     138       496