UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant to Section
13 or 15(d) of the Securities Exchange
Act of 1934
Date
of Report (Date of earliest event reported): June 9, 2010
ICAHN
ENTERPRISES L.P.
(Exact
Name of Registrant as Specified in Its Charter)
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Delaware
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1-9516
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13-3398766
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(State or Other Jurisdiction of Incorporation)
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(Commission File Number)
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(IRS Employer Identification No.)
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767
Fifth Avenue, Suite 4700, New York, NY 10153
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(Address
of Principal Executive Offices) (Zip
Code)
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(212)
702-4300
(Registrant’s
Telephone Number, Including Area Code)
N/A
(Former
Name or Former Address, if Changed Since Last Report)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
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o
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Written
communication pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
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o
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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o
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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o
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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This
Current Report on Form 8-K provides updated financial information for Item 8,
“Financial Statements and Supplementary Data,” for the periods contained in our
Annual Report on Form 10-K for the fiscal year ended December 31, 2009, or the
2009 Annual Report on Form 10-K, that was filed with the Securities and Exchange
Commission, or the SEC, on March 3, 2010. Specifically, we have amended and
adjusted our financial statements for the fiscal years ended December 31, 2009,
2008 and 2007 to reflect our acquisitions, in two separate transactions on
January 15, 2010, of controlling interests in American Railcar Industries, Inc.
(“ARI”) and Viskase Companies, Inc. (“Viskase”). ARI and Viskase are each
considered entities under common control. We are also providing Selected
Financial Data and Management’s Discussion and Analysis of Financial Condition
and Results of Operations to reflect the acquisitions for all periods
presented.
Section 8
– Other Events
Item
8.01 Other Events.
On
January 15, 2010, we filed a Current Report on Form 8-K disclosing that on
January 15, 2010, in two separate transactions, we acquired controlling
interests in ARI and Viskase, which are each considered entities under common
control.
As a
result of the acquisitions of ARI and Viskase that occurred on January 15, 2010,
our financial statements now include the results of ARI and Viskase effective
when common control (over 50% ownership) has been achieved which for ARI was in
May 1988 and for Viskase was in November 2006.
For
accounting purposes, ARI’s and Viskase’s earnings for the period of common
control up until our acquisition of the controlling interests in each of these
companies on January 15, 2010 have been allocated to Icahn Enterprises GP, our
general partner, and therefore are excluded from the historical computation of
basic and diluted income per LP unit.
This
Current Report on Form 8-K provides updated financial information for Item 8,
“Financial Statements and Supplementary Data,” for the periods contained in our
2009 Annual Report on Form 10-K. Specifically, we have amended and adjusted our
financial statements for the fiscal years ended December 31, 2009, 2008 and 2007
to reflect our acquisitions of ARI and Viskase. We are also providing Selected
Financial Data and Management’s Discussion and Analysis of Financial Condition
and Results of Operations to reflect the acquisitions for all periods
presented.
Section
9 - Financial Statements and Exhibits
Item
9.01 Financial Statements and Exhibits.
(c)
Exhibits.
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Exhibit
No.
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Description
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23.1
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Consent
of Grant Thornton LLP.
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23.2
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Consent
of Ernst & Young LLP.
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99.1
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Selected
Financial Data.
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99.2
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
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99.3
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Financial
Statements and Supplementary Data.
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99.4
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Schedule
I – Condensed Financial Information of
Parent.
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[Remainder
of page intentionally left blank; signature page follows]
1
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
| ICAHN ENTERPRISES L.P.
(Registrant)
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By:
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Icahn Enterprises G.P.
Inc.,
its general
partner
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By:
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/s/
Dominick Ragone
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Dominick
Ragone
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Chief
Financial
Officer
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Date:
June 9, 2010
2
EXHIBIT
23.1
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have
issued our report dated June 9, 2010, with respect to the consolidated financial
statements and schedule of Icahn Enterprises L.P. as of December 31, 2009 and
2008 and for the three years in the period ended December 31, 2009, included in
the Current Report on Form 8-K filed on June 9, 2010. We hereby consent to the
inclusion of said report in Icahn Enterprises L.P.’s Current Report on Form 8-K
and the incorporation by reference of said report in the Registration Statements
of Icahn Enterprises L.P. on Forms S-3 (File No. 333-158705, effective May 17,
2010 and File No. 333-143930, effective December 31, 2007).
/s/ Grant
Thornton LLP
New York,
New York
June 9,
2010
EXHIBIT
23.2
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
consent to the inclusion in Icahn Enterprises L.P.’s Current Report on Form 8-K
dated June 9, 2010 and the incorporation by reference in the Registration
Statements (Forms S-3 No. 333-143930 and 333-158705) of Icahn Enterprises L.P.
of our report dated February 23, 2010, with respect to the consolidated balance
sheets of Federal-Mogul Corporation and subsidiaries as of December 31, 2009 and
2008 (Successor), and the related consolidated statements of operations,
stockholders’ equity (deficit) and cash flows for the years ended December 31,
2009 and 2008 (Successor) and 2007 (Predecessor) of Federal-Mogul Corporation,
all of which are included in Federal-Mogul Corporation’s Form 10-K for the year
ended December 31, 2009.
/s/ Ernst
& Young LLP
Detroit,
Michigan
June 9,
2010
EXHIBIT
99.1
Selected
Financial Data.
The
following table contains our selected historical consolidated financial data,
which should be read in conjunction with our consolidated financial statements
and the related notes thereto, and Management’s Discussion and Analysis of
Financial Condition and Results of Operations contained in Exhibits 99.3 and
99.2, respectively, to the Current Report on Form 8-K. The selected financial
data as of December 31, 2009 and 2008 and for the fiscal years ended December
31, 2009, 2008 and 2007 have been derived from our audited consolidated
financial statements at those dates and for those periods contained in Exhibit
99.3 to the Current Report on Form 8-K. The historical selected financial data
as of December 31, 2007, 2006 and 2005 and for the fiscal years ended December
31, 2006 and 2005 have been derived from our audited consolidated financial
statements at those dates and for those periods not contained in the Form 8-K or
exhibits thereto, as adjusted retrospectively for our acquisitions of the
controlling interests in American Railcar Industries, Inc. (“ARI”) and Viskase
Companies, Inc. (“Viskase”).
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Year Ended December 31,
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||||||||||||||||||||
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2009
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2008
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2007
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2006
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2005
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(In Millions, Except Per Unit Amounts)
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Statement
of Operations Data:
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Total
revenues
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$ | 8,605 | $ | 6,138 | $ | 3,457 | $ | 3,693 | $ | 2,138 | ||||||||||
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Income
(loss) from continuing operations
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$ | 1,224 | $ | (3,142 | ) | $ | 510 | $ | 1,046 | $ | 288 | |||||||||
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Income
from discontinued operations
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1 | 485 | 84 | 850 | 23 | |||||||||||||||
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Net
income (loss)
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1,225 | (2,657 | ) | 594 | 1,896 | 311 | ||||||||||||||
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Less:
Net (income) loss attributable to non-controlling
interests
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(972 | ) | 2,631 | (272 | ) | (768 | ) | (227 | ) | |||||||||||
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Net
income (loss) attributable to Icahn
Enterprises
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$ | 253 | $ | (26 | ) | $ | 322 | $ | 1,128 | $ | 84 | |||||||||
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Net
income (loss) attributable to Icahn
Enterprises allocable to:
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||||||||||||||||||||
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Limited
partners
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$ | 229 | $ | (57 | ) | $ | 103 | $ | 507 | $ | (21 | ) | ||||||||
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General
partner
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24 | 31 | 219 | 621 | 105 | |||||||||||||||
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Net
income (loss) attributable to Icahn
Enterprises
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$ | 253 | $ | (26 | ) | $ | 322 | $ | 1,128 | $ | 84 | |||||||||
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Net
income (loss) attributable to Icahn
Enterprises from:
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Continuing
operations
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$ | 252 | $ | (511 | ) | $ | 233 | $ | 331 | $ | 56 | |||||||||
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Discontinued
operations
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1 | 485 | 89 | 797 | 28 | |||||||||||||||
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Net
income (loss) attributable to Icahn
Enterprises
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$ | 253 | $ | (26 | ) | $ | 322 | $ | 1,128 | $ | 84 | |||||||||
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Basic
income (loss) per LP Unit:
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Income
(loss) from continuing operations
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$ | 3.04 | $ | (7.84 | ) | $ | 0.24 | $ | 0.03 | $ | (0.87 | ) | ||||||||
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Income
from discontinued operations
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0.01 | 7.04 | 1.34 | 8.19 | 0.50 | |||||||||||||||
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Basic
income (loss) per LP unit
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$ | 3.05 | $ | (0.80 | ) | $ | 1.58 | $ | 8.22 | $ | (0.37 | ) | ||||||||
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Basic
weighted average LP units outstanding
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75 | 71 | 65 | 62 | 54 | |||||||||||||||
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Diluted
income (loss) per LP Unit:
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Income
(loss) from continuing operations
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$ | 2.96 | $ | (7.84 | ) | $ | 0.24 | $ | 0.03 | $ | (0.87 | ) | ||||||||
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Income
from discontinued operations
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0.01 | 7.04 | 1.34 | 8.19 | 0.50 | |||||||||||||||
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Diluted
income (loss) per LP unit
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$ | 2.97 | $ | (0.80 | ) | $ | 1.58 | $ | 8.22 | $ | (0.37 | ) | ||||||||
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Dilutive
weighted average LP units outstanding
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79 | 71 | 65 | 62 | 54 | |||||||||||||||
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Other
Financial Data:
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EBITDA attributable to Icahn
Enterprises(1)
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$ | 798 | $ | 866 | $ | 584 | $ | 1,432 | $ | 394 | ||||||||||
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Adjusted EBITDA attributable to Icahn
Enterprises(1)
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922 | 478 | 472 | 475 | 243 | |||||||||||||||
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Cash
distributions declared, per LP Unit
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1.00 | 1.00 | 0.55 | 0.40 | 0.20 | |||||||||||||||
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Balance
Sheet Data:
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Cash
and cash equivalents
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$ | 2,256 | $ | 2,917 | $ | 2,424 | $ | 1,929 | $ | 396 | ||||||||||
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Investments
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5,405 | 4,531 | 6,445 | 3,462 | 3,405 | |||||||||||||||
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Property,
plant and equipment, net
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2,958 | 3,179 | 801 | 777 | 610 | |||||||||||||||
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Total
assets
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18,886 | 19,730 | 13,318 | 9,841 | 7,526 | |||||||||||||||
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Debt
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5,186 | 4,977 | 2,441 | 1,063 | 958 | |||||||||||||||
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Preferred
limited partner units
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136 | 130 | 124 | 118 | 112 | |||||||||||||||
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Equity
attributable to Icahn Enterprises
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2,834 | 2,564 | 2,486 | 2,985 | 1,845 | |||||||||||||||
1
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(1)
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EBITDA
represents earnings before interest expense, income tax (benefit) expense
and depreciation, depletion and amortization. We define Adjusted EBITDA as
EBITDA excluding the effects of impairment, restructuring costs, expenses
associated with U.S. based funded pension plans, purchase accounting
inventory adjustments, discontinued operations and gains/losses on
extinguishment of debt. We present EBITDA and Adjusted EBITDA on a
consolidated basis, net of the effect of non-controlling interests. We
conduct substantially all of our operations through subsidiaries. The
operating results of our subsidiaries may not be sufficient to make
distributions to us. In addition, our subsidiaries are not obligated to
make funds available to us for payment of our indebtedness, payment of
distributions on our depositary units or otherwise, and distributions and
intercompany transfers from our subsidiaries to us may be restricted by
applicable law or covenants contained in debt agreements and other
agreements to which these subsidiaries currently may be subject or into
which they may enter into in the future. The terms of any borrowings of
our subsidiaries or other entities in which we own equity may restrict
dividends, distributions or loans to
us.
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We
believe that providing EBITDA and Adjusted EBITDA to investors have economic
substance as these measures provide important supplemental information of our
performance to investors and permits investors and management to evaluate the
operating performance of our business without regard to potential distortions
introduced by interest, taxes and depreciation and amortization and the effects
of impairment, restructuring costs, expenses associated with U.S. based funded
pension plans, purchase accounting inventory adjustments, discontinued
operations and gains/losses on extinguishment of debt. Additionally, we believe
this information is frequently used by securities analysts, investors and other
interested parties in the evaluation of companies that have issued debt.
Management uses, and believes that investors benefit from referring to these
non-GAAP financial measures in assessing our operating results, as well as in
planning, forecasting and analyzing future periods. Adjusting earnings for these
recurring charges allows investors to evaluate our performance from period to
period, as well as our peers, without the effects of certain items that may vary
depending on accounting methods and the book value of assets. Additionally,
EBITDA and Adjusted EBITDA present meaningful measures of corporate performance
exclusive of our capital structure and the method by which assets were acquired
and financed.
EBITDA
and Adjusted EBITDA have limitations as analytical tools, and you should not
consider them in isolation, or as substitutes for analysis of our results as
reported under generally accepted accounting principles in the United States, or
U.S. GAAP. For example, EBITDA and Adjusted EBITDA:
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·
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do
not reflect our cash expenditures, or future requirements for capital
expenditures, or contractual
commitments;
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·
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do
not reflect changes in, or cash requirements for, our working capital
needs; and
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·
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do
not reflect the significant interest expense, or the cash requirements
necessary to service interest or principal payments on our
debt.
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Although
depreciation, depletion and amortization are non-cash charges, the assets being
depreciated, depleted or amortized often will have to be replaced in the future,
and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such
replacements. Other companies in the industries in which we operate may
calculate EBITDA and Adjusted EBITDA differently than we do, limiting their
usefulness as comparative measures. In addition, EBITDA and Adjusted EBITDA do
not reflect the impact of earnings or charges resulting from matters we consider
not to be indicative of our ongoing operations.
EBITDA
and Adjusted EBITDA are not measurements of our financial performance under U.S.
GAAP and should not be considered as alternatives to net income or any other
performance measures derived in accordance with U.S. GAAP or as alternatives to
cash flow from operating activities as a measure of our liquidity. Given these
limitations, we rely primarily on our U.S. GAAP results and use EBITDA and
Adjusted EBITDA only as a supplemental measure of our financial performance. The
following table reconciles, on a basis attributable to Icahn Enterprises, net
income attributable to Icahn Enterprises to EBITDA and EBITDA to Adjusted EBITDA
for the periods indicated. In addition, Adjusted EBITDA for prior periods has
been revised to conform to our current calculation. EBITDA results for prior
periods have been adjusted in order to properly be reflected on a basis
attributable to Icahn Enterprises:
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For the Year Ended December 31,
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||||||||||||||||||||
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2009
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2008
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2007
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2006
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2005
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(In Millions)
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Net
income (loss) attributable to Icahn
Enterprises
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$ | 253 | $ | (26 | ) | $ | 322 | $ | 1,128 | $ | 84 | |||||||||
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Interest
expense
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268 | 295 | 177 | 137 | 121 | |||||||||||||||
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Income
tax (benefit) expense
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(40 | ) | 327 | 36 | 3 | 39 | ||||||||||||||
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Depreciation,
depletion and amortization
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317 | 270 | 49 | 164 | 150 | |||||||||||||||
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EBITDA
attributable to Icahn Enterprises
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$ | 798 | $ | 866 | $ | 584 | $ | 1,432 | $ | 394 | ||||||||||
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Impairment
of assets(a)
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$ | 34 | $ | 337 | $ | 20 | $ | 7 | $ | — | ||||||||||
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Restructuring
costs(b)
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37 | 117 | 13 | 8 | 2 | |||||||||||||||
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Purchase
accounting inventory adjustment(c)
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— | 54 | — | — | — | |||||||||||||||
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Expenses
associated with U.S. based funded pension plans(d)
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50 | 3 | — | — | — | |||||||||||||||
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Discontinued
operations(e)
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(1 | ) | (753 | ) | (145 | ) | (972 | ) | (153 | ) | ||||||||||
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Net
loss (gain) on extinguishment of debt(f)
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4 | (146 | ) | — | — | — | ||||||||||||||
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Adjusted
EBITDA attributable to Icahn Enterprises
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$ | 922 | $ | 478 | $ | 472 | $ | 475 | $ | 243 | ||||||||||
2
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(a)
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Represents
asset impairment charges, primarily relating to our Automotive segment for
the fiscal year ended December 31, 2008, or fiscal 2008, related to
goodwill and other indefinite-lived intangible
assets.
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(b)
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Restructuring
costs represent expenses incurred by our Automotive and Home Fashion
segments, relating to efforts to integrate and rationalize businesses and
to relocate manufacturing operations to best-cost
countries.
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(c)
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In
connection with the application of purchase accounting upon the
acquisition of Federal-Mogul, we adjusted Federal-Mogul’s inventory
balance as of March 1, 2008 to fair value. This resulted in an additional
non-cash charge to cost of goods sold during fiscal 2008 which is
reflected net of non-controlling
interests.
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(d)
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Represents
expense associated with Federal-Mogul’s U.S. based funded pension plans,
net of non-controlling interests.
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(e)
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Discontinued
operations primarily include the operating results of and gains on sales
of our former oil and gas operations which were sold in November, 2006 and
our former gaming segment, American Casino & Entertainment Properties,
LLC, which was sold in February
2008.
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(f)
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During
the fourth quarter of fiscal 2008, we purchased outstanding debt of
entities in our consolidated financial statements in the principal amount
of $352 million and recognized an aggregate gain of $146
million.
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3
EXHIBIT
99.2
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
Management’s
discussion and analysis of financial condition and results of operations is
comprised of the following sections:
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(1)
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Overview
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·
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Introduction
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·
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Other
Significant Events
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(2)
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Results
of Operations
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·
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Overview
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·
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Consolidated
Financial Results from Continuing
Operations
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·
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Investment
Management
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·
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Automotive
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·
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Railcar
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·
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Food
Packaging
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·
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Metals
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·
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Real
Estate
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·
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Home
Fashion
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·
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Holding
Company
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·
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Interest
Expense
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·
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Income
Taxes
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·
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Discontinued
Operations
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(3)
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Liquidity
and Capital Resources
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·
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Holding
Company
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·
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Consolidated
Cash Flows
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·
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Borrowings
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·
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Contractual
Commitments
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·
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Off-Balance
Sheet Arrangements
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·
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Discussion
of Segment Liquidity and Capital
Resources
|
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·
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Investment
Management
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·
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Automotive
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·
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Railcar
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·
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Food
Packaging
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·
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Metals
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·
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Real
Estate
|
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·
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Home
Fashion
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·
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Distributions
|
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(4)
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Critical
Accounting Policies and Estimates
|
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(5)
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Recently
Issued Accounting Standards Updates
|
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(6)
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Forward-Looking
Statements
|
1
The
following discussion is intended to assist you in understanding our present
business and the results of operations together with our present financial
condition. This section should be read in conjunction with our Consolidated
Financial Statements and the accompanying notes contained in Exhibit 99.3 to the
Current Report on Form 8-K.
Overview
Introduction
Icahn
Enterprises L.P., or Icahn Enterprises, 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., or 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., or Icahn Enterprises GP, our sole general partner, which is owned and
controlled by Mr. 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 December 31, 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. As referenced in Note 21,
“Subsequent Events,” to our consolidated financial statements contained in
Exhibit 99.3 to the Current Report on Form 8-K, we redeemed all of our
outstanding preferred units on March 31, 2010.
We are a
diversified holding company owning subsidiaries engaged in the following
operating businesses: Investment Management, Automotive, Railcar, Food
Packaging, Metals, Real Estate and Home Fashion. In addition to our operating
businesses, we discuss below 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.
Other
Significant Events
Senior
Notes Offering
On
January 15, 2010, we and Icahn Enterprises Finance Corp. (referred to
collectively as the Issuers), sold $850,000,000 aggregate principal amount of
Senior Unsecured 7.75% Notes due 2016, or the 2016 Notes, and $1,150,000,000
aggregate principal amount of Senior Unsecured 8% Notes due 2018, or the 2018
Notes and, together with the 2016 Notes, referred to as the New Notes, pursuant
to the purchase agreement, dated January 12, 2010, or the Purchase Agreement, by
and among the Issuers, Icahn Enterprises Holdings, as guarantor, or the
Guarantor, and Jefferies & Company, Inc., as initial purchaser, or the
Initial Purchaser. The 2016 Notes were priced at 99.411% of their face value and
the 2018 Notes were priced at 99.275% of their face value. The gross proceeds
from the sale of the New Notes were approximately $1,986,656,000, a portion of
which was used to purchase the approximately $1.28 billion in aggregate
principal amount (or approximately 97%) of the senior unsecured 7.125% notes due
2013, or the 2013 Notes, and the senior unsecured 8.125% notes due 2012, or the
2012 Notes, and, together with the 2013 Notes, referred to as the Senior
Unsecured Notes, that were tendered pursuant to certain cash tender offers and
consent solicitations and to pay related fees and expenses. Interest on the New
Notes will be payable on January 15 and July 15 of each year, commencing July
15, 2010. The Purchase Agreement contains customary representations, warranties
and covenants of the parties and indemnification and contribution provisions
whereby the Issuers and the Guarantor, on the one hand, and the Initial
Purchaser, on the other, have agreed to indemnify each other against certain
liabilities. The Senior Unsecured Notes were satisfied and discharged on January
15, 2010.
The New
Notes are issued under and are governed by an indenture, dated January 15, 2010,
or the Indenture, among the Issuers, the Guarantor and Wilmington Trust Company,
as trustee. The Indenture contains customary events of defaults and covenants
relating to, among other things, the incurrence of debt, affiliate transactions,
liens and restricted payments. On or after January 15, 2013, the Issuers may
redeem all of the 2016 Notes at a price equal to 103.875% of the principal
amount of the 2016 Notes, plus accrued and unpaid interest, with such optional
redemption prices decreasing to 101.938% on and after January 15, 2014 and 100%
on and after January 15, 2015. On or after January 15, 2014, the Issuers may
redeem all of the 2018 Notes at a price equal to 104.000% of the principal
amount of the 2018 Notes, plus accrued and unpaid interest, with such option
redemption prices decreasing to 102.000% on and after January 15, 2015 and 100%
on and after January 15, 2016. Before January 15, 2013, the Issuers may redeem
up to 35% of the aggregate principal amount of each of the 2016 Notes and 2018
Notes with the net proceeds of certain equity offerings at a price equal to
107.750% and 108.000%, respectively, of the aggregate principal amount thereof,
plus accrued and unpaid interest to the date of redemption, provided that at
least 65% of the aggregate principal amount of the 2016 Notes or 2018 Notes, as
the case may be, originally issued remains outstanding immediately after such
redemption. If the Issuers experience a change of control, the Issuers must
offer to purchase for cash all or any part of each holder’s New Notes at a
purchase price equal to 101% of the principal amount of the New Notes, plus
accrued and unpaid interest.
The New
Notes and the related guarantee are the senior unsecured obligations of the
Issuers and rank equally with all of the Issuers’ and the Guarantor’s existing
and future senior unsecured indebtedness and rank senior to all of the Issuers’
and the Guarantor’s existing and future subordinated indebtedness. The New Notes
and the related guarantee are effectively subordinated to the Issuers’ and the
Guarantor’s existing and future secured indebtedness to the extent of the
collateral securing such indebtedness. The New Notes and the related guarantee
are also effectively subordinated to all indebtedness and other liabilities of
the Issuers’ subsidiaries other than the Guarantor.
2
In
connection with the sale of the New Notes, the Issuers and the Guarantor entered
into a Registration Rights Agreement, dated January 15, 2010, or the
Registration Rights Agreement, with the Initial Purchaser. Pursuant to the
Registration Rights Agreement, the Issuers have agreed to file a registration
statement with the SEC, on or prior to 120 calendar days after the closing of
the offering of the New Notes, to register an offer to exchange the New Notes
for registered notes guaranteed by the Guarantor with substantially identical
terms, and to use commercially reasonable efforts to cause the registration
statement to become effective by the 210th day after the closing of the offering
of the New Notes. Additionally, the Issuers and the Guarantor may be required to
file a shelf registration statement to cover resales of the New Notes in certain
circumstances. If the Issuers and the Guarantor fail to satisfy these
obligations, the Issuers may be required to pay additional interest to holders
of the New Notes under certain circumstances.
Termination
of Indenture Governing Senior Unsecured 8.125% Notes due 2012
Effective
as of January 15, 2010, the indenture governing the 2012 Notes, dated as of May
12, 2004, or the 2012 Notes Indenture, among the Issuers, the Guarantor and
Wilmington Trust Company, as trustee, has been satisfied and discharged in
accordance with its terms by the Issuers. The Issuers deposited a total of
approximately $364 million with Wilmington Trust Company as trustee and
depository under the 2012 Notes Indenture for a cash tender offer to repay all
amounts outstanding under the 2012 Notes and to satisfy and discharge the 2012
Notes Indenture. Approximately $345 million was deposited with the depository to
purchase the 2012 Notes that were tendered pursuant to the cash tender offer. In
connection with the purchase of the tendered 2012 Notes, the Issuers paid total
consideration of approximately $355 million, which consisted of: (i) $345
million of base consideration for the aggregate principal amount tendered; (ii)
$3 million of accrued and unpaid interest on the tendered 2012 Notes; and (iii)
$7 million of consent payments in connection with the solicitation of consents
from holders of 2012 Notes to eliminate the incurrence of indebtedness and
issuance of preferred stock covenant in the 2012 Notes Indenture. The Issuers
also deposited approximately $8 million with the trustee in connection with the
redemption of the remaining 2012 Notes.
Termination
of Indenture Governing Senior Unsecured 7.125% Notes due 2013
Effective
as of January 15, 2010, the indenture governing the 2013 Notes, dated as of
February 7, 2005, or the 2013 Notes Indenture, among the Issuers, the Guarantor
and Wilmington Trust Company, as trustee, has been satisfied and discharged in
accordance with its terms by the Issuers. The Issuers deposited a total of
approximately $1,018 million with Wilmington Trust Company as trustee under the
2013 Notes Indenture and depositary for a cash tender offer to repay all
accounts outstanding under the 2013 Notes and to satisfy and discharge the 2013
Notes Indenture. Approximately $939 million was deposited with the depositary to
purchase the 2013 Notes that were tendered pursuant to the cash tender offer. In
connection with the purchase of the tendered 2013 Notes, the Issuers paid total
consideration of approximately $988 million, which consisted of: (i) $939
million of base consideration for the aggregate principal amount tendered; (ii)
$28 million of accrued and unpaid interest on the tendered 2013 Notes; and (iii)
$21 million of consent payments in connection with the solicitation of consents
from holders of 2013 Notes to eliminate the incurrence of indebtedness and
issuance of preferred stock covenant in the 2013 Notes Indenture. The Issuers
also deposited approximately $29 million with the trustee in connection with the
redemption of the remaining 2013 Notes.
Acquisition
of Controlling Interest in ARI
On
January 15, 2010, pursuant to a certain Contribution and Exchange Agreement
(referred to as the ARI Contribution and Exchange Agreement) among Icahn
Enterprises, Beckton Corp., a Delaware corporation (referred to as Beckton),
Barberry, Modal LLC, a Delaware limited liability company (referred to as
Modal), and Caboose Holding LLC, a Delaware limited liability company (referred
to as Caboose and, together with Barberry and Modal, referred to collectively as
the ARI Contributing Parties), the ARI Contributing Parties contributed to Icahn
Enterprises 11,564,145 shares of common stock of ARI, representing approximately
54.3% of ARI’s total outstanding common stock as of January 15, 2010,
collectively owned by the ARI Contributing Parties for aggregate consideration
consisting of 3,116,537 (or approximately $141 million based on the closing
price of our depositary units on January 15, 2010) of our depositary units,
subject to certain post-closing adjustments. ARI is a leading North American
designer and manufacturer of hopper and tank railcars. ARI also repairs and
refurbishes railcars, provides fleet management services and designs and
manufactures certain railcar and industrial components. The transactions
contemplated by the ARI Contribution and Exchange Agreement were previously
authorized by the Audit Committee of the board of directors of Icahn Enterprises
GP, our general partner, on January 11, 2010. The Audit Committee was advised by
independent counsel and an independent financial advisor which rendered a
fairness opinion.
3
Acquisition
of Controlling Interest in Viskase
On
January 15, 2010, pursuant to a certain Contribution and Exchange Agreement
(referred to as the Viskase Contribution and Exchange Agreement) among Icahn
Enterprises, Beckton, Barberry, Koala Holding Limited Partnership, a Delaware
limited partnership (referred to as Koala), High River Limited Partnership, a
Delaware limited partnership (referred to as High River), and Meadow Walk
Limited Partnership, a Delaware limited partnership (referred to as Meadow Walk
and, together with Barberry, Koala and High River, referred to collectively as
the Viskase Contributing Parties), the Viskase Contributing Parties contributed
to Icahn Enterprises 25,560,929 shares of common stock of Viskase, representing
approximately 71.4% of Viskase’s total outstanding common stock as of January
15, 2010, collectively owned by the Viskase Contributing Parties for aggregate
consideration consisting of 2,915,695 (or approximately $132 million based on
the closing price of our depositary units on January 15, 2010) of our depositary
units. Viskase is a leading worldwide producer of non-edible cellulosic, fibrous
and plastic casings used to prepare and package processed meat and poultry
products. The transactions contemplated by the Viskase Contribution and Exchange
Agreement were previously authorized by the Audit Committee of the board of
directors of Icahn Enterprises GP on January 11, 2010. The Audit Committee was
advised by independent counsel and an independent financial advisor which
rendered a fairness opinion.
Declaration
of Distribution on Depositary Units
On
February 26, 2010, the board of directors approved a payment of a quarterly cash
distribution of $0.25 per unit on our depositary units payable in the first
quarter of the fiscal year ended December 31, 2010, or fiscal 2010. The
distribution will be paid on March 30, 2010, to depositary unitholders of record
at the close of business on March 15, 2010. Under the terms of the indenture
dated April 5, 2007 governing our variable rate notes due 2013, we will also be
making a $0.15 distribution to holders of these notes in accordance with the
formula set forth in the indenture.
Results
of Operations
Overview
A summary
of the significant developments for fiscal 2009 is as follows:
|
·
|
Income
from continuing operations attributable to Icahn Enterprises for our
Investment Management segment of $469 million for fiscal 2009 due to
positive performance in the Private Funds compared to loss from continuing
operations attributable to Icahn Enterprises of $335 million for fiscal
2008;
|
|
·
|
Additional
investment of $750 million in the Private Funds in fiscal 2009, bringing
Icahn Enterprises’ cumulative direct investment through December 31, 2009
in the Private Funds to $1.7
billion;
|
|
·
|
Loss
from continuing operations attributable to Icahn Enterprises for our
Automotive segment of $29 million with restructuring expenses before
non-controlling interests of $32 million for fiscal
2009;
|
|
·
|
Income
from continuing operations attributable to Icahn Enterprises for our
Railcar segment of $8 million for fiscal
2009;
|
|
·
|
Income
from continuing operations attributable to Icahn Enterprises for our Food
Packaging segment of $11 million for fiscal
2009;
|
|
·
|
Loss
from continuing operations attributable to Icahn Enterprises for our
Metals segment of $30 million for fiscal 2009, including pretax impairment
charges of $13 million;
|
|
·
|
Loss
from continuing operations attributable to Icahn Enterprises for our Home
Fashion segment of $40 million for fiscal 2009 with restructuring and
impairment charges before non-controlling interests of $27 million for
fiscal 2009; and
|
|
·
|
Loss
from continuing operations attributable to Icahn Enterprises for our
Holding Company of $148 million for fiscal 2009, primarily due to interest
expense.
|
A summary
of the significant developments for fiscal 2008 is as follows:
|
·
|
Consummation
of the sale of ACEP on February 20, 2008 for $1.2 billion, realizing a
gain of $472 million, after taxes of $260
million;
|
|
·
|
Investment
of $465 million of the gross proceeds in a Code Section 1031 Exchange
transaction related to the sale of ACEP with the purchase of two net
leased properties within our Real Estate segment, resulting in a deferral
of $103 million in taxes;
|
|
·
|
$5.7
billion of revenues from our Automotive segment for the period March 1,
2008 through December 31, 2008. Additionally, our Automotive segment
results for the period March 1, 2008 through December 31, 2008 included
total asset impairment charges aggregating $434 million, of which $222
million related to goodwill and $130 million related to other
indefinite-lived intangible assets. These charges were principally
attributable to significant decreases in forecasted future cash flows as
Federal-Mogul adjusted to the known and anticipated changes in industry
volumes;
|
|
·
|
Increased
net sales from our Metals segment of $405 million for fiscal 2008 as
compared to fiscal 2007, resulting from an increase in the average selling
price of ferrous scrap, increased volume of shipped ferrous production and
the inclusion of financial results of acquisitions made during fiscal 2007
and early fiscal 2008;
|
|
·
|
Loss
from continuing operations from our Investment Management segment of $335
million during fiscal 2008 resulting from investment losses from the
Private Funds which were primarily affected by the decline in the value of
the Private Funds’ largest equity
positions;
|
4
|
·
|
Income
from continuing operations of $17 million for fiscal 2009 for our Railcar
segment; and
|
|
·
|
Reduced
net sales from our Home Fashion segment of $258 million for fiscal 2008 as
compared to fiscal 2007 due to the weak home textile retail environment
and the elimination of unprofitable
programs.
|
Consolidated
Financial Results from Continuing Operations
The
following tables summarize revenues and income (loss) attributable to Icahn
Enterprises from continuing operations for each of our reportable segments (in
millions of dollars):
|
Revenues(1)
|
||||||||||||
|
Year Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Investment
Management
|
$ | 1,596 | $ | (2,783 | ) | $ | 588 | |||||
|
Automotive(2)
|
5,397 | 5,727 | — | |||||||||
|
Railcar
|
444 | 821 | 713 | |||||||||
|
Food
Packaging
|
296 | 290 | 253 | |||||||||
|
Metals
|
384 | 1,243 | 834 | |||||||||
|
Real
Estate
|
96 | 103 | 113 | |||||||||
|
Home
Fashion
|
382 | 438 | 706 | |||||||||
|
Holding
Company
|
10 | 299 | 250 | |||||||||
|
Total
|
$ | 8,605 | $ | 6,138 | $ | 3,457 | ||||||
|
Income (Loss) Attributable to Icahn Enterprises
From Continuing Operations
|
||||||||||||
|
Year Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Investment
Management
|
$ | 469 | $ | (335 | ) | $ | 170 | |||||
|
Automotive(2)
|
(29 | ) | (350 | ) | — | |||||||
|
Railcar
|
8 | 17 | 19 | |||||||||
|
Food
Packaging
|
11 | — | (5 | ) | ||||||||
|
Metals
|
(30 | ) | 66 | 42 | ||||||||
|
Real
Estate
|
11 | 14 | 14 | |||||||||
|
Home
Fashion
|
(40 | ) | (55 | ) | (84 | ) | ||||||
|
Holding
Company
|
(148 | ) | 132 | 77 | ||||||||
|
Total
|
$ | 252 | $ | (511 | ) | $ | 233 | |||||
|
(1)
|
Revenues
include net sales, net gain (loss) from investment activities, interest,
dividend income and other income,
net.
|
|
(2)
|
Automotive
results for fiscal 2008 are for the period March 1, 2008 through December
31, 2008.
|
Investment
Management
Overview
Icahn
Onshore LP, or the Onshore GP, and Icahn Offshore LP, or the Offshore GP (and,
together with the Onshore GP, being referred to herein as the General Partners)
act as general partner of Icahn Partners LP, or the Onshore Fund, and the
Offshore Master Funds (as defined below), respectively. 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. 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 accredited investors on the basis of exemptions from the
registration requirements of the federal securities laws and are not publicly
available. As referred to herein, 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.
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.
The
Private Funds had a positive return for fiscal 2009. During fiscal 2009, the
Private Funds’ long equity and long credit exposures were positive, offset in
part by negative performance in the Private Funds’ short equity and short credit
exposures. We believe that there will be continued opportunities for the Private
Funds to become active in distressed investing.
5
Revenues
The
Investment Management segment derives revenues from three sources: (1) special
profits interest allocations; (2) incentive allocations and (3) gains and losses
from our investments in the Private Funds.
Prior to
January 1, 2008, the management agreements between Icahn Capital Management LP
(referred to as New Icahn Management) and the Private Funds provided for the
management fees to be paid by each of the Feeder Funds and the Onshore Fund to
New Icahn Management at the beginning of each quarter generally in an amount
equal to 0.625% (2.5% annualized) of the net asset value of each Investor’s
(defined below) investment in the Feeder Fund or Onshore Fund, as applicable,
and were recognized quarterly.
Effective
January 1, 2008, the limited partnership agreements of the Investment Funds
provide that the applicable General Partner is eligible to receive a special
profits interest allocation at the end of each calendar year from each capital
account maintained in the Investment Funds that is attributable to: (i) in the
case of the Onshore Fund, each fee-paying limited partner in the Onshore Fund
and (ii) in the case of the Feeder Funds, each fee-paying investor in the Feeder
Funds (that excludes certain investors that are affiliates of Mr. Icahn) (in
each case, referred to herein as an Investor). This allocation is generally
equal to 0.625% (prior to July 1, 2009), of the balance in each fee-paying
capital account as of the beginning of each quarter (for each Investor, the
Target Special Profits Interest Amount) except that amounts are allocated to the
General Partners in respect of special profits interest allocations only to the
extent that net increases (i.e., net profits) are allocated to an Investor for
the fiscal year. Accordingly, any special profits interest allocations allocated
to the General Partners in respect of an Investor in any year cannot exceed the
net profits allocated to such Investor in such year. (See below for discussion
of new fee structure effective July 1, 2009).
In the
event that sufficient net profits are not generated by an Investment Fund with
respect to a capital account to meet the full Target Special Profits Interest
Amount for an Investor for a calendar year, a special profits interest
allocation will be made to the extent of such net profits, if any, and the
shortfall will be carried forward and added to the Target Special Profits
Interest Amount determined for such Investor for the next calendar year.
Adjustments, to the extent appropriate, will be made to the calculation of the
special profits interest allocations for new subscriptions and withdrawals by
Investors. In the event that an Investor redeems in full from a Feeder Fund or
the Onshore Fund before the full targeted Target Special Profits Interest Amount
determined for such Investor has been allocated to the General Partner in the
form of a special profits interest allocation, the amount of the Target Special
Profits Interest Amount that has not yet been allocated to the General Partner
will be forfeited and the General Partner will never receive it.
Incentive
allocations are determined based on the aggregate amount of net profits earned
by each fee-paying investor in the Investment Funds (after the special profits
interest allocation is made). Incentive allocations are based on the investment
performance of the Private Funds, which is a principal determinant of the
long-term success of the Investment Management segment because it generally
enables assets under management, or AUM, to increase through retention of fund
profits and by making it more likely to attract new investment capital and
minimize redemptions by Private Fund investors. Incentive allocations are
generally 25% (prior to July 1, 2009) of the net profits (both realized and
unrealized) generated by fee-paying investors in the Investment Funds, and are
subject to a “high watermark” (whereby the General Partners do not earn
incentive allocations during a particular year even though the fund had a
positive return in such year until losses in prior periods are recovered). The
amount of these incentive allocations are calculated and allocated to the
capital accounts of the General Partners annually except for incentive
allocations earned as a result of investor redemption events during interim
periods, provided that, as discussed below, effective July 1, 2009, certain new
options do not provide for incentive allocations at the end of each fiscal year.
(See below for discussion of the new fee structure effective July 1,
2009).
Effective
July 1, 2009, certain limited partnership agreements and offering memoranda of
the Private Funds (referred to as the Fund Documents) were revised primarily to
provide existing investors and new investors, or Investors with various new
options for investments in the Private Funds (each being referred to as an
Option). Each Option has certain eligibility criteria for Investors and existing
investors are permitted to roll over their investments made in the Private Funds
prior to July 1, 2009 (referred to as the 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.
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, 2010 by
persons that were Investors prior to July 1, 2009. Effective with permitted
withdrawals on December 31, 2009, if an Investor did not roll over a
Pre-Election Investment into another Option when it was first eligible to do so
without the payment of a withdrawal fee, the Private Funds required such
Investor to withdraw such Pre-Election Investment.
The
General Partners waived the special profits interest allocations and incentive
allocations for Icahn Enterprises’ investments in the Private Funds and Mr.
Icahn’s direct and indirect holdings and may, in their sole discretion, modify
or may elect to reduce or waive such fees with respect to any investor that is
an affiliate, employee or relative of Mr. Icahn or his affiliates, or for any
other investor.
6
All of
the special profits interest allocations and incentive allocations are
eliminated in consolidation; however, our share of the net income from the
Private Funds includes the amount of these allocations.
Our
Investment Management results are driven by the combination of the Private
Funds’ AUM and the investment performance of the Private Funds, except, as
discussed above, that special profits interest allocations are only earned to
the extent that there are sufficient net profits generated from the Private
Funds to cover such allocations.
The
General Partners and their affiliates also earn income (or are subject to
losses) through their investments in the Investment Funds. We also earn income
(or are subject to losses) through our direct investment in the Investment
Funds. In both cases the income or losses consist of realized and unrealized
gains and losses on investment activities along with interest and dividend
income.
AUM
and Fund Performance
The table
below reflects changes to AUM for the fiscal years ended December 31, 2009, 2008
and 2007. The end-of-period balances represent total AUM, including any accrued
special profits interest allocations and any incentive allocations and our own
investments in the Private Funds, as well as investments of other affiliated
parties who have not been charged special profits interest allocations or
incentive allocations for the periods presented (in millions of
dollars):
|
Year Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Balance,
beginning of period
|
$ | 4,368 | $ | 7,511 | $ | 4,020 | ||||||
|
Net
in-flows (outflows)
|
(77 | ) | (274 | ) | 3,005 | |||||||
|
Appreciation
(depreciation)
|
1,514 | (2,869 | ) | 486 | ||||||||
|
Balance,
end of period
|
$ | 5,805 | $ | 4,368 | $ | 7,511 | ||||||
|
Fee-paying
AUM
|
$ | 2,152 | $ | 2,374 | $ | 5,050 | ||||||
The
following table sets forth performance information for the Private Funds that
were in existence for the comparative periods presented. These gross returns
represent a weighted-average composite of the average gross returns, net of
expenses for the Private Funds.
|
Gross Return(1) for the Year Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Private
Funds
|
33.3 | % | -35.6 | % | 12.3 | % | ||||||
|
(1)
|
These
returns are indicative of a typical investor who has been invested since
inception of the Private Funds. The performance information is presented
gross of any accrued special profits interest allocations and incentive
allocations but net of expenses. Past performance is not necessarily
indicative of future results.
|
The
Private Funds’ aggregate gross performance was 33.3% for fiscal 2009. During
fiscal 2009, the Private Funds’ performance was primarily driven by their long
exposure to the credit markets, including fixed income, bank debt and derivative
instruments, as well as an increase in the value of certain core equity
holdings. The Private Funds’ short equity and short credit exposure were
negative contributors to performance as both credit and equity markets continued
to rally.
We
believe that weak economic conditions and the lack of confidence resulting from
unprecedented systemic risks associated with derivative and financial leverage
may provide potential long-term opportunities for the Private
Funds.
The
Private Funds’ aggregate gross performance was -35.6% for fiscal 2008. During
fiscal 2008, losses were primarily a result of the decline in certain of the
Private Funds’ core holdings as well as the Private Funds’ long credit exposure.
For fiscal 2008, the Private Funds’ short exposure in equity produced gains due
to the negative U.S. equity markets. Short exposure to credit contributed gains
for fiscal 2008 and overall credit exposure was slightly positive, although such
gains were offset by long credit exposure.
The
Private Funds’ aggregate gross performance of 12.3% for fiscal 2007 was driven
by a few core equity positions. Additionally, short positions in high-yield
credit and the broad U.S. equity markets also added to performance as high-yield
spreads widened and the market declined in the last months of the year. However,
our long investments in energy more than offset the losses from the energy hedge
and, overall, the sector was positive.
Since
inception in November 2004, the Private Funds’ gross returns are 65.3%,
representing an annualized rate of return of 10.2% through December 31, 2009,
which is indicative of a typical investor who has invested since inception of
the Private Funds (excluding management fees, special profits interest
allocations and incentive allocations). Past performance is not necessarily
indicative of future results, particularly in the near term given current market
conditions.
7
Operating
Results
We
consolidate certain of the Private Funds into our results. Accordingly, in
accordance with U.S. GAAP, any special profits interest allocations, incentive
allocations and earnings on investments in the Private Funds are eliminated in
consolidation. These eliminations have no impact on our net income; however, as
our allocated share of the net income from the Private Funds includes the amount
of these allocations and earnings.
The
tables below provide a reconciliation of the unconsolidated revenues and
expenses of our interest in the General Partners and Icahn Capital L.P., or
Icahn Capital, to the consolidated U.S. GAAP revenues and expenses. The first
column represents the results of operations of our interest in the General
Partners and Icahn Capital without the impact of consolidating the Private Funds
or the eliminations arising from the consolidation of these funds. This includes
the gross amount of any special profits interest allocations, incentive
allocations and returns on investments in the Private Funds that is attributable
to us only. This also includes gains and losses on our direct investments in the
Private Funds. The second column represents the total consolidated income and
expenses of the Private Funds for all investors, including us, before
eliminations. 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.
Summarized
statements of operations for our Investment Management segment on a
deconsolidated basis reconciling to a U.S. GAAP basis for fiscal 2009, fiscal
2008 and fiscal 2007 is as follows (in millions of dollars):
|
Year Ended December 31, 2009
|
||||||||||||||||
|
Icahn
Enterprises’
Interests
|
Consolidated
Private
Funds
|
Eliminations
|
Total
U.S. GAAP
Results
|
|||||||||||||
|
Revenues:
|
||||||||||||||||
|
Special
profits interest allocations
|
$ | 154 | $ | — | $ | (154 | ) | $ | — | |||||||
|
Net
gain from investment activities
|
352 |
(1)
|
1,379 | (352 | ) | 1,379 | ||||||||||
|
Interest
and dividend income
|
— | 217 | — | 217 | ||||||||||||
| 506 | 1,596 | (506 | ) | 1,596 | ||||||||||||
|
Costs
and expenses
|
35 | 107 | — | 142 | ||||||||||||
|
Interest
expense
|
— | 4 | — | 4 | ||||||||||||
| 35 | 111 | — | 146 | |||||||||||||
|
Income
from continuing operations before income tax expense
|
471 | 1,485 | (506 | ) | 1,450 | |||||||||||
|
Income
tax expense
|
(2 | ) | — | — | (2 | ) | ||||||||||
|
Income
from continuing operations
|
469 | 1,485 | (506 | ) | 1,448 | |||||||||||
|
Less:
Income attributable to non-controlling interests from continuing
operations
|
— | (1,307 | ) | 328 | (979 | ) | ||||||||||
|
Income
attributable to Icahn Enterprises from continuing
operations
|
$ | 469 | $ | 178 | $ | (178 | ) | $ | 469 | |||||||
|
Year Ended December 31, 2008
|
||||||||||||||||
|
Icahn
Enterprises’
Interests
|
Consolidated
Private
Funds
|
Eliminations
|
Total
U.S. GAAP
Results
|
|||||||||||||
|
Revenues:
|
||||||||||||||||
|
Special
profits interest allocations
|
$ | — | $ | — | $ | — | $ | — | ||||||||
|
Net
loss from investment activities
|
(303 | )(1) | (3,025 | ) | 303 | (3,025 | ) | |||||||||
|
Interest
and dividend income
|
— | 242 | — | 242 | ||||||||||||
| (303 | ) | (2,783 | ) | 303 | (2,783 | ) | ||||||||||
|
Costs
and expenses
|
32 | 21 | — | 53 | ||||||||||||
|
Interest
expense
|
— | 12 | — | 12 | ||||||||||||
| 32 | 33 | — | 65 | |||||||||||||
|
Loss
from continuing operations before income tax expense
|
(335 | ) | (2,816 | ) | 303 | (2,848 | ) | |||||||||
|
Income
tax expense
|
— | — | — | — | ||||||||||||
|
Loss
from continuing operations
|
(335 | ) | (2,816 | ) | 303 | (2,848 | ) | |||||||||
|
Less:
Loss attributable to non-controlling interests from continuing
operations
|
— | 2,787 | (274 | ) | 2,513 | |||||||||||
|
Loss
attributable to Icahn Enterprises from continuing
operations
|
$ | (335 | ) | $ | (29 | ) | $ | 29 | $ | (335 | ) | |||||
8
|
Year Ended December 31, 2007
|
||||||||||||||||
|
Icahn
Enterprises’
Interests
|
Consolidated
Private
Funds
|
Eliminations
|
Total
U.S. GAAP
Results
|
|||||||||||||
|
Revenues:
|
||||||||||||||||
|
Management
fees
|
$ | 128 | $ | — | $ | (117 | ) | $ | 11 | |||||||
|
Incentive
allocations
|
71 | — | (71 | ) | — | |||||||||||
|
Net
gain from investment activities
|
21 |
(1)
|
355 | (21 | ) | 355 | ||||||||||
|
Interest
and dividend income
|
1 | 221 | — | 222 | ||||||||||||
| 221 | 576 | (209 | ) | 588 | ||||||||||||
|
Costs
and expenses
|
47 | 38 | — | 85 | ||||||||||||
|
Interest
expense
|
— | 15 | — | 15 | ||||||||||||
| 47 | 53 | — | 100 | |||||||||||||
|
Income
from continuing operations before income tax expense
|
174 | 523 | (209 | ) | 488 | |||||||||||
|
Income
tax expense
|
(4 | ) | — | — | (4 | ) | ||||||||||
|
Income
from continuing operations
|
170 | 523 | (209 | ) | 484 | |||||||||||
|
Less:
Income attributable to non-controlling interests from continuing
operations
|
— | (298 | ) | (16 | ) | (314 | ) | |||||||||
|
Income
attributable to Icahn Enterprises from continuing
operations
|
$ | 170 | $ | 225 | $ | (225 | ) | $ | 170 | |||||||
|
(1)
|
Through
December 31, 2009, we have made direct investments aggregating $1.7
billion in the Private Funds for which no special profits interest
allocations or incentive allocations are applicable. As of December 31,
2009, the total value of these investments was approximately $1.7 billion,
with an unrealized gain of $328 million for fiscal 2009, and unrealized
losses of $274 million and $16 million for fiscal 2008 and 2007,
respectively. These investments and related earnings are reflected in the
Private Funds’ net assets and
earnings.
|
9
Year
Ended December 31, 2009 Compared to the Year Ended December 31,
2008
As of
December 31, 2009, the full Target Special Profits Interest Amount was $154
million, which includes a carry-forward Target Special Profits Interest Amount
of $70 million from December 31, 2008, a Target Special Profits Interest Amount
of $54 million for fiscal 2009 and a hypothetical return on the full Target
Special Profits Interest Amount from the Investment Funds of $30 million. The
full Target Special Profits Interest Amount of $154 million at December 31, 2009
was allocated to the General Partners at December 31, 2009. No accrual for
special profits interest allocations was made for fiscal 2008 due to losses in
the Investment Funds.
Despite a
significant improvement in performance in the Private Funds in fiscal 2009 as
compared to fiscal 2008, incentive allocations were not material for fiscal 2009
as a result of “high watermarks” that were established for fee-paying investors
during fiscal 2008. Incentive allocations are calculated on an
investor-by-investor basis. (The General Partners do not earn incentive
allocations during a particular period even though the Private Funds may have a
positive return in such period until losses in prior periods have been
recovered.) The General Partners’ incentive allocations earned from the Private
Funds are accrued on a quarterly basis and are allocated to the General Partners
at the end of the Private Funds’ fiscal year (or sooner on redemptions),
provided that, effective July 1, 2009, certain new options do not provide for
incentive allocations at the end of each fiscal year.
The net
gain from investment activities from our investment in the Private Funds was
$352 million for fiscal 2009 as compared to a net loss from investment
activities of $303 million for fiscal 2008, each consisting of two components.
The first component reflects a net gain of $24 million for fiscal 2009 as
compared to a net loss of $29 million for fiscal 2008, primarily relating to the
change in the General Partners’ investment in the Private Funds as a result of
the return on earned incentive allocations from prior periods retained in the
funds. The second component includes a net investment gain of $328 million for
fiscal 2009 as compared to a net loss of $274 million for fiscal 2008, on our
cumulative direct investment through December 31, 2009 of $1.7 billion in the
Private Funds.
Net gains
on investment activities from the Private Funds were $1.4 billion for fiscal
2009 as compared to a net loss of $3.0 billion for fiscal 2008. The increase
relates to the positive performance of the Private Funds during fiscal
2009.
Interest
and dividend income was $217 million for fiscal 2009 and $242 million for fiscal
2008, with the decrease due to amounts earned on interest-paying
investments.
The
General Partners’ and Icahn Capital’s costs and expenses for fiscal 2009
increased by $3 million as compared to fiscal 2008. Included in the General
Partner’s and Icahn Capital’s costs and expenses is compensation expense which
increased in fiscal 2009 by $9 million over fiscal 2008, primarily attributable
to compensation awards relating to special profits interest allocations but was
offset in part by lower general and administrative costs incurred in fiscal 2009
as compared to corresponding prior year period.
The
Private Funds’ costs and expenses, including interest expense, for fiscal 2009
increased by $78 million as compared to fiscal 2008. This increase was primarily
attributable to an increase in dividend expense and appreciation of the deferred
management fee payable by the consolidated Offshore Fund in fiscal 2009 as
compared to the corresponding prior year period.
Income
attributable to non-controlling interests in fiscal 2009 was approximately $1.0
billion as compared to loss attributable to non-controlling interests of
approximately $2.5 billion in fiscal 2008. This change was due to the positive
performance of the Private Funds during fiscal 2009.
Year
Ended December 31, 2008 Compared to the Year Ended December 31,
2007
For
fiscal 2008, the Target Special Profits Interest Amount was $70 million, net of
a hypothetical loss from the Investment Funds and forfeited amounts based on
redemptions in full. No accrual for special profits interest allocation was made
for fiscal 2008 due to losses in the Investment Funds. There was no special
profits interest allocation for fiscal 2007 because the special profits interest
allocations commenced effective January 1, 2008.
There
were no management fees in fiscal 2008 as these fees were terminated on January
1, 2008. Management fees were $128 million for fiscal 2007.
There was
no incentive allocation to the General Partners in fiscal 2008 as compared to an
incentive allocation of $71 million in fiscal 2007. The decrease of $71 million
was due to the decline in performance of the Private Funds during fiscal 2008
compared to fiscal 2007 as the Private Funds’ largest core equity positions
declined in value. Incentive allocations earned from the Private Funds are
accrued on a quarterly basis and are generally allocated to the General Partners
at the end of the Private Funds’ fiscal year (or sooner on
redemptions).
The net
loss from investment activities in fiscal 2008 was $303 million compared to a
net gain of $21 million in fiscal 2007 and consists of two components. The first
component reflects a net loss of $29 million in fiscal 2008 relating to the
decrease in the General Partners’ investment in the Private Funds as a result of
the decline in the performance of the General Partners’ investment, compared to
a gain of $37 million in fiscal 2007. The second component includes a net
investment loss in fiscal 2008 of $274 million as compared to $16 million in
fiscal 2007 on our cumulative investment through December 31, 2008 of $950
million invested in the Private Funds by us.
10
Net
losses on investment activities of the Private Funds were $3.0 billion for
fiscal 2008, compared to a gain of $355 million for fiscal 2007. This decrease
relates primarily to the decline in performance of the Private Funds during
fiscal 2008 caused primarily by the decline in the value of the Private Funds’
largest equity positions.
Interest
and dividend income for fiscal 2008 increased by $20 million as compared to
fiscal 2007. The increase was primarily attributable to amounts earned on
interest-paying investments.
The
General Partners’ and Icahn Capital’s costs and expenses for fiscal 2008
decreased by $15 million for fiscal 2008 as compared to fiscal 2007. This
decrease is due to a decrease in compensation awards during fiscal 2008 that
were primarily tied to the performance of the Investment Funds and unpaid
re-invested compensation balances that declined in value.
Private
Funds’ costs and expenses, including interest expense, in fiscal 2008 decreased
by $20 million as compared to fiscal 2007. This decrease is primarily
attributable to net loss accrued on the deferred management fee payable by the
consolidated Offshore Fund.
Loss
attributable to non-controlling interests in fiscal 2008 was $2.5 billion as
compared to income attributable to non-controlling interests of $314 million in
fiscal 2007. This change was due to the decline in performance of the Private
Funds during fiscal 2008.
Automotive
We
conduct our Automotive segment through our majority ownership in Federal-Mogul.
Federal-Mogul is a leading global supplier of powertrain and safety
technologies, serving the world’s foremost original equipment manufacturers, or
OEM, of automotive, light commercial, heavy-duty, agricultural, marine, rail,
off-road and industrial vehicles, as well as the worldwide aftermarket.
Effective July 3, 2008, we acquired a majority interest in
Federal-Mogul.
Federal-Mogul
believes that its sales are well-balanced between OEM and aftermarket as well as
domestic and international. During fiscal 2009, Federal-Mogul derived 56% of its
sales from the OEM market and 44% from the aftermarket. Federal-Mogul’s
customers include the world’s largest automotive OEMs and major distributors and
retailers in the independent aftermarket. During fiscal 2009, Federal-Mogul
derived 40% of its sales in the United States and 60% internationally. As of
December 31, 2009, Federal-Mogul is organized into four product groups:
Powertrain Energy, Powertrain Sealing and Bearings, Vehicle Safety and
Protection, and Global Aftermarket. Federal-Mogul has operations in established
markets including Canada, France, Germany, Italy, Japan, Spain, the United
Kingdom and the United States, and emerging markets including Argentina, Brazil,
China, Czech Republic, Hungary, India, Korea, Mexico, Poland, Russia, South
Africa, Thailand, Turkey and Venezuela. The attendant risks of Federal-Mogul’s
international operations are primarily related to currency fluctuations, changes
in local economic and political conditions, and changes in laws and
regulations.
Federal-Mogul’s
Annual Report on Form 10-K for fiscal 2009 filed with the SEC on February 23,
2010 contains a detailed description of its business, products, industry,
operating strategy and associated risks.
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 Mr. 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.
Although
Federal-Mogul’s results are included in our consolidated financial statements as
of March 1, 2008, as discussed above, we believe that a meaningful discussion of
Federal-Mogul’s results should encompass its results for the entire fiscal 2008.
Further, the trends and events impacting the entire fiscal 2008 are
directionally consistent with the results for the period March 1, 2008 through
December 31, 2008, which are also provided below.
The four
product groups of our Automotive segment have been aggregated for purposes of
reporting our operating results below (in millions of dollars):
|
Year Ended
December 31,
|
Period
March 31, 2008
through
December 31,
|
|||||||||||
|
2009
|
2008
|
2008
|
||||||||||
|
Net
sales
|
$ | 5,330 | $ | 6,866 | $ | 5,652 | ||||||
|
Cost
of goods sold
|
4,538 | 5,742 | 4,730 | |||||||||
|
Gross
margin
|
792 | 1,124 | 922 | |||||||||
|
Expenses:
|
||||||||||||
|
Selling,
general and administrative
|
742 | 867 | 709 | |||||||||
|
Restructuring
and impairment
|
49 | 583 | 566 | |||||||||
| 791 | 1,450 | 1,275 | ||||||||||
|
Income
(loss) from continuing operations before interest, income taxes and other
income, net
|
$ | 1 | $ | (326 | ) | $ | (353 | ) | ||||
11
Year
Ended December 31, 2009 Compared to the Year Ended December 31,
2008
Net sales
in fiscal 2009 decreased by $1,536 million (22%) as compared to fiscal 2008.
Over 60% of Federal-Mogul’s net sales originate outside the United States;
therefore, the impact of the U.S. dollar strengthening in fiscal 2009, primarily
against the euro, decreased reported sales by $305 million. In general, light
and commercial vehicle original equipment, or OE, and hence demand from the
OEM’s for Federal-Mogul’s products, declined significantly in all regions. When
the regional year over year production declines in both light and commercial
vehicles are applied to the various markets in which Federal-Mogul’s OE products
are sold the weighted average drop in global OEM demand was 32%. Against this
global production volume decline, Federal-Mogul increased its OE market share in
all regions, with the result that on a constant dollar and constant pricing
basis, the reduction in Federal-Mogul’s sales to OEM’s was limited to 24%.
Global Aftermarket volumes decreased by 11% due to a combination of items
including macro-economic factors driving deferred maintenance spending at the
consumer level and the credit crisis impact on customers in various countries in
Eastern Europe and South America. In addition, global aftermarket’s fiscal 2008
volume included increased sales due to the geographic expansion of one of
Federal-Mogul’s North American customers due to an acquisition. The combined
impact of these factors was a net sales volume decline of $1,254 million. Net
customer price increases were $23 million.
Cost of
goods sold in fiscal 2009 decreased by $1,204 million (21%) as compared to
fiscal 2008. This was primarily due to a $748 million decrease in material,
manufacturing labor and variable overhead costs as a direct consequence of the
lower production volumes. Productivity in excess of labor and benefits inflation
of $62 million represents improvements in the total manufacturing cost base in
excess of those due to reduced production volume and mix changes. Other factors
contributing to this decrease were currency movements of $270 million, improved
materials and services sourcing of $82 million and the non-recurring 2008
fresh-start reporting impact on inventory of $68 million.
Gross
margin was $792 million, or 15% of net sales, in fiscal 2009 compared to $1,124
million, or 16% of net sales, in fiscal 2008. The most significant factor
affecting gross margin was that of reduced sales, where the impact of lower
volumes of $1,254 million was partially offset by lower cost of goods sold of
$748 million, resulting in lower gross margin of $506 million. Favorable
productivity in excess of labor and benefits inflation of $62 million, the
non-recurring 2008 fair value step-up impact on inventory of $68 million,
improved materials and services sourcing of $82 million and net customer price
increases of $23 million were more than offset by sales volume decreases that
reduced margins by $506 million, increased depreciation of $16 million,
increased pension expense of $10 million and currency movements of $35
million.
Selling,
general and administrative, or SG&A, expenses in fiscal 2009 decreased by
$125 million (14%) in fiscal 2009 as compared to fiscal 2008. Included within
SG&A is a charge of $37 million related to the U.S. funded pension plan. The
favorable impact of exchange movements decreased SG&A by $27 million,
leaving a constant-dollar decrease of $111 million which is due to reduced
employee costs and other productivity improvements, net of labor and benefits
inflation, partially offset by increased pension costs. Additionally,
amortization expense and Chapter 11 expenses, which are included in SG&A,
decreased by $41 million in fiscal 2009 as compared to fiscal 2008.
Federal-Mogul
maintains technical centers throughout the world designed to integrate its
leading technologies into advanced products and processes, to provide
engineering support for all of its manufacturing sites, and to provide
technological expertise in engineering and design development providing
solutions for customers and bringing new, innovative products to market.
Included in SG&A expense above were research and development, or R&D
costs, including product engineering and validation costs, of $140 million in
fiscal 2009 compared to $173 million in fiscal 2008. As a percentage of OEM
sales, research and development was 4.7% in fiscal 2009 and 4.1% in fiscal
2008.
Restructuring
and impairment decreased by $534 million (92%) in fiscal 2009 as compared to
fiscal 2008. The decrease is primarily due to a decrease in fiscal 2009 in
impairment charges of $434 million primarily related to goodwill and
indefinite-lived intangible assets. In addition, restructuring expenses in
fiscal 2009 decreased by $100 million primarily due to a decrease in
Restructuring 2009 (as defined below) expenses as compared to fiscal 2008. In
September 2008, Federal-Mogul announced a restructuring plan, herein referred to
as Restructuring 2009, designed to improve operating performance and respond to
increasingly challenging conditions in the global automotive market. It was
anticipated that this plan would reduce Federal-Mogul’s global workforce by
8,600 positions when compared with the workforce as of September 30, 2008.
Federal-Mogul expects to incur additional restructuring expenses up to $6
million through fiscal 2010 related to Restructuring 2009. Because the
significant majority of the Restructuring 2009 costs are related to severance
expenses, such activities are expected to yield future annual savings at least
equal to the incurred costs.
12
Railcar
Our
Railcar segment is conducted through our majority ownership in ARI. ARI
manufactures railcars, custom designed railcar parts and other industrial
products, primarily aluminum and special alloy steel castings. These products
are sold to various types of companies including leasing companies, railroads,
industrial companies and other non-rail companies. ARI also provides railcar
maintenance services for railcar fleets, including that of its affiliate,
American Railcar Leasing LLC. In addition, ARI provides fleet management and
maintenance services for railcars owned by certain customers. Such services
include inspecting and supervising the maintenance and repair of such
railcars.
The
economic downturn is continuing to have an adverse effect on the railcar and
other industrial manufacturing markets in which ARI competes, resulting in
substantially reduced orders in the marketplace, increased competition for those
fewer orders, increased pricing pressures and lower revenues. Consistent with
this market-wide trend, sales of ARI’s railcars and other products were
adversely affected and ARI received no new railcar orders during fiscal 2009,
which caused ARI to further slow its production rates. The economic downturn and
the significant number of railcars ARI believes to be currently in storage are
driving the low forecast for the industry of approximately 12,600 railcar
deliveries in 2010 down from approximately 22,900 railcar deliveries in fiscal
2009 and 60,000 railcar deliveries in fiscal 2008, as reported by an independent
third party industry analyst. The availability of these stored railcars to be
brought back into service would, ARI believes, delay a recovery in railcar
orders following an economic revival. Moreover, ARI believes restricted credit
markets may be making it more costly for purchasers of railcars to obtain
financing on reasonable terms, if at all. As a result of these current market
conditions, ARI’s backlog has been declining significantly and ARI estimates
that approximately 100% of ARI’s backlog at December 31, 2009 will be converted
to revenues during fiscal 2010. ARI expects its shipments and revenues to
significantly decrease in fiscal 2010 from fiscal 2009. In response, ARI reduced
production rates and workforce at its manufacturing facilities and continues to
evaluate ARI’s capacity and production schedules. If ARI is unable to obtain
significant new orders, it will be required to further curtail its manufacturing
operations. ARI continues to monitor expenses in an effort to reduce overhead
costs at all of its locations.
ARI’s
Railcar services operations has experienced growth primarily through expansion
projects, which have generated higher volumes. These higher volumes along with
ARI’s seasoned workforce have generated additional efficiencies in completing
repair projects. In addition, one of ARI’s railcar manufacturing facilities
utilized a portion of its capacity and highly skilled labor force to perform
certain repair projects in fiscal 2009. ARI plans to continue to utilize
available capacity at these facilities for certain repair projects in fiscal
2010.
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 May 1988 (the effective date of control by ARI Contributing Parties and,
indirectly, by Carl C. Icahn) and thereafter, as a result of our acquisition of
a majority interest in ARI on January 15, 2010, we consolidated the financial
position, results of operations and cash flows of ARI.
Summarized
statements of operations for our Railcar segment for fiscal 2009, fiscal 2008
and fiscal 2007 are as follows (in millions of dollars):
|
Year Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Revenues:
|
||||||||||||
|
Manufacturing
operations
|
$ | 365 | $ | 758 | $ | 648 | ||||||
|
Railcar
services
|
58 | 51 | 50 | |||||||||
| 423 | 809 | 698 | ||||||||||
|
Cost
of revenues:
|
||||||||||||
|
Manufacturing
operations
|
329 | 683 | 568 | |||||||||
|
Railcar
services
|
47 | 41 | 41 | |||||||||
| 376 | 724 | 609 | ||||||||||
|
Gross
margin:
|
||||||||||||
|
Manufacturing
operations
|
36 | 75 | 80 | |||||||||
|
Railcar
services
|
11 | 10 | 9 | |||||||||
| 47 | 85 | 89 | ||||||||||
|
Selling,
general and administrative
|
25 | 27 | 28 | |||||||||
|
Income
before interest, income taxes and other income, net
|
$ | 22 | $ | 58 | $ | 61 | ||||||
Year
Ended December 31, 2009 Compared to the Year Ended December 31,
2008
Manufacturing
and railcar services revenues in fiscal 2009 decreased by $386 million (48%) as
compared to the corresponding prior year period. The decrease was primarily due
to decreased revenues from manufacturing operations, partially offset by an
increase in revenues from railcar services. ARI’s manufacturing operations
revenues in fiscal 2009 decreased $393 million (52%) as compared to the
corresponding prior year period and was due to decreased railcar shipments
attributable to weak demand and a decrease in surcharges reflected in selling
prices, partially offset by a change in product mix. During fiscal 2009, ARI
decreased its workforce and production rates at its manufacturing plants due to
reduced demand resulting in lower shipments. ARI’s shipments in fiscal 2009 were
approximately 3,690 railcars as compared to approximately 7,970 railcars in
fiscal 2008. Approximately 220 of the shipments in fiscal 2009 were related to
ARI’s railcar manufacturing agreement with ACF Industries LLC, or ACF, which
generated $19 million in revenues, as compared to approximately 960 railcar
shipments in fiscal 2008, which generated $100 million in revenues. ARI’s
agreement with ACF terminated in March 2009. ARI’s railcar services
revenues in fiscal 2009 increased $7 million (14%) as compared to the
corresponding prior year period. This increase was primarily attributable to
expansions at ARI’s railcar repair facilities and the railcar repair work
performed at one of ARI’s railcar manufacturing facilities.
13
Manufacturing
and railcar services revenues from companies affiliated with Mr. Icahn were
approximately 28% and 25%, respectively, of total manufacturing operations and
railcar services for fiscal 2009 and fiscal 2008.
Gross
margin for our Railcar manufacturing operations in fiscal 2009 decreased $39
million (52%) as compared to the corresponding prior year period. The decrease
was primarily due to decreased railcar shipments attributable to weak demand and
a decrease in surcharges reflected in selling prices, partially offset by a
change in product mix. Gross margin as a percentage of revenues for
Railcar manufacturing operations for fiscal 2009 and fiscal 2008 was each
approximately 10%. This was primarily attributable to fixed overhead
cost control measures and strong labor efficiencies at most of our manufacturing
locations offset by lower volumes. Gross margin for our Railcar services
operations in fiscal 2009 increased $1 million as compared to the corresponding
prior year period primarily due to labor efficiencies, increased capacity and a
favorable mix of work.
SG&A
in fiscal 2009 decreased $2 million (7%) as compared to the corresponding prior
year period. The decrease was primarily attributable to decreased
workforce and other cost cutting measures.
Year
Ended December 31, 2008 Compared to the Year Ended December 31,
2007
Manufacturing
and railcar services revenues in fiscal 2008 increased by $111 million (16%) as
compared to the corresponding prior year period. The increase was primarily due
to increased revenues from manufacturing operations and railcar services. ARI’s
manufacturing operations revenues in fiscal 2008 increased $110 million (17%).
This increase was partially attributable to the delivery of approximately 910
more railcars in fiscal 2008 compared to fiscal 2007. The increase in shipments
reflects the completion of ARI’s Marmaduke expansion efforts and additional
railcars shipped under ARI’s ACF manufacturing agreement, partially offset by
the decline in hopper railcar shipments in fiscal 2008, due to less demand and
increased competition for hopper railcar products. Manufacturing operations
revenues also increased due to higher selling prices on most railcars caused by
increases in surcharges that we were able to pass on to most of ARI’s customers.
During fiscal 2008, ARI shipped approximately 7,970 railcars compared to
approximately 7,060 railcars in fiscal 2007. In fiscal 2008, ARI recognized
revenue of $100 million related to railcars that were manufactured under
the ACF manufacturing agreement. This agreement terminated on March 23,
2009 when ARI had satisfied its commitments under the
agreement. ARI’s railcar services revenues in fiscal 2008 increased
$1 million (2%) as compared to the corresponding prior year period. This
increase was primarily attributable to strong railcar repair
demand.
Manufacturing
and railcar services revenues from companies affiliated with Mr. Icahn were
approximately 25% and 22%, respectively, of total manufacturing operations and
railcar services for fiscal 2008 and fiscal 2007.
Gross
margin for our Railcar manufacturing operations in fiscal 2008 decreased $5
million (6%) as compared to the corresponding prior year
period. Gross margin as a percentage of revenues for Railcar
manufacturing operations for fiscal 2008 and fiscal 2007 was 10% and 12%,
respectively. This decrease was primarily attributable to lower
margins on hopper railcars as a result of competitive market conditions and
increased material costs and surcharges on some hopper railcars that ARI could
not recover through higher selling prices on fixed price contracts. The
increased material costs and surcharges that ARI was able to recover through
increased selling prices on most railcars had a negative effect on gross profit
margin, because ARI did not realize additional profit from these recoveries.
Partially offsetting these costs were higher tank railcar shipments in fiscal
2008 along with favorable labor efficiencies and overhead cost control at ARI’s
manufacturing facilities. Gross margin for our Railcar services operations in
fiscal 2008 increased by $1 million as compared to the corresponding prior year
period primarily due to labor efficiencies, increased capacity and a favorable
mix of work.
SG&A
in fiscal 2008 decreased $1 million (4%) as compared to the corresponding prior
year period. The decrease was primarily attributable to a decrease in
stock based compensation expense resulting from lower values of stock
appreciation rights due to ARI’s lower stock price during fiscal 2008. In
addition, income was recognized in fiscal 2008 from the reversal of expense for
forfeited stock options.
14
Food
Packaging
Our Food
Packaging segment is conducted through our majority ownership in Viskase.
Viskase is a worldwide leader in the production and sale of cellulosic, fibrous
and plastic casings for the processed meat and poultry industry. Viskase
currently operates seven manufacturing facilities and nine distribution centers
throughout North America, Europe and South America and derives approximately 68%
of total net sales from customers located outside the United States. Viskase
believes it is one of the two largest manufacturers of non-edible cellulosic
casings for processed meats and one of the three largest manufacturers of
non-edible fibrous casings. Viskase also manufactures heat-shrinkable plastic
bags for the meat, poultry and cheese industry.
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 November 2006 (the effective date of control by the Viskase Contributing
Parties and, indirectly, by Carl C. Icahn) and thereafter, as a result of our
acquisition of a majority interest in Viskase on January 15, 2010, we
consolidated the financial position, results of operations and cash flows of
Viskase.
Summarized
statements of operations for our Food Packaging segment for fiscal 2009, fiscal
2008 and fiscal 2007 are as follows (in millions of dollars):
|
Year Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2008
|
||||||||||
|
Net
sales
|
$ | 299 | $ | 283 | $ | 250 | ||||||
|
Cost
of goods sold
|
220 | 225 | 205 | |||||||||
|
Gross
margin
|
79 | 58 | 45 | |||||||||
|
Expenses:
|
||||||||||||
|
Selling,
general and administrative
|
42 | 40 | 35 | |||||||||
|
Impairment
|
1 | - | 1 | |||||||||
| 43 | 40 | 36 | ||||||||||
|
Income
before interest, income taxes and other income, net
|
$ | 36 | $ | 18 | $ | 9 | ||||||
Year
Ended December 31, 2009 Compared to the Year Ended December 31,
2008
Net
sales in fiscal 2009 increased by $16 million (6%) as compared to the
corresponding prior year period. The increase is primarily due an increase due
to price and product mix of $34 million, offset by a decrease of $12 million due
to foreign currency translation and $6 million due to reduced
volumes.
Our Food
Packaging segment is affected by changes in foreign exchange
rates. In addition to those markets in which Viskase prices its
products in U.S. dollars, it prices its products in certain of its foreign
operations in euros and Brazilian reals. As a result, a decline in
the value of the U.S. dollar relative to local currencies of profitable foreign
subsidiaries can have a favorable effect on its
profitability. Conversely, an increase in the value of the U.S.
dollar relative to the local currencies of profitable foreign subsidiaries can
have a negative effect on its
profitability.
Cost of
goods sold in fiscal 2009 decreased by $5 million (2%) as compared to the
corresponding prior year period. The decrease in cost of sales was
attributed to lower raw material costs. As a percentage of net sales,
gross margin was 26% and 20% for fiscal 2009 and fiscal 2008, respectively, and
was primarily due to price and product mix.
SG&A
in fiscal 2009 increased by $2 million (5%) as compared to the corresponding
prior year period. The increase was primarily due to an increase in
incentive compensation and pension plan expense.
Year
Ended December 31, 2008 Compared to the Year Ended December 31,
2007
Net
sales in fiscal 2008 increased by $33 million (13%) as compared to the
corresponding prior year period. The increase is primarily due an increase due
to price and product mix of $26 million $11 million due to foreign currency
translation, offset in part by a $4 million due to reduced volumes.
Cost of
goods sold in fiscal 2008 increased by $20 million (10%) as compared to the
corresponding prior year period. The increase in cost of goods sold
was attributed to an increase in volumes, raw material costs and labor
costs. As a percentage of net sales, gross margin was 20% and 18% for
fiscal 2008 and fiscal 2007, respectively, and was primarily due to price and
product mix.
SG&A
in fiscal 2008 increased by $5 million (14%) as compared to the corresponding
prior year period. The increase was primarily due to an increase in
incentive compensation.
Metals
Our
Metals segment is conducted through our indirect, wholly owned subsidiary, PSC
Metals, Inc., or PSC Metals. The scrap metals business is highly cyclical and is
substantially dependent upon the overall economic conditions in the U.S. and
other global markets. Ferrous and non-ferrous scrap has been historically
vulnerable to significant declines in consumption and product pricing during
prolonged periods of economic downturn. The current economic environment may
continue to significantly impact the demand and pricing of our scrap metal
products.
15
Summarized
statements of operations and performance data for PSC Metals for the fiscal
years ended December 31, 2009, 2008 and 2007 are as follows (in millions of
dollars, except for tons and pounds metrics):
|
Year Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Net
sales
|
$ | 382 | $ | 1,239 | $ | 834 | ||||||
|
Cost
of goods sold
|
403 | 1,102 | 778 | |||||||||
|
Gross
margin
|
(21 | ) | 137 | 56 | ||||||||
|
Expenses:
|
||||||||||||
|
Selling,
general and administrative
|
17 | 34 | 18 | |||||||||
|
Impairment
|
13 | — | — | |||||||||
| 30 | 34 | 18 | ||||||||||
|
(Loss)
income from continuing operations before interest, income taxes and other
income, net
|
$ | (51 | ) | $ | 103 | $ | 38 | |||||
|
Ferrous
tons sold (in ‘000s)
|
912 | 1,858 | 1,707 | |||||||||
|
Non-ferrous
pounds sold (in ‘000s)
|
100,916 | 125,140 | 120,470 | |||||||||
Year
Ended December 31, 2009 Compared to the Year Ended December 31,
2008
Net sales
for fiscal 2009 decreased by $857 million (69%) as compared to fiscal 2008. This
decrease was primarily due to declines in ferrous revenues. Net sales from all
product lines were significantly lower than in fiscal 2008 due to the impact of
the global recession on prices and demand in the steel, construction and other
market sectors served by the business and its customers. Ferrous average pricing
was approximately $215 per gross ton lower (47%) and ferrous shipments were
946,000 gross tons lower (51%) compared to those in fiscal 2008. The unfavorable
comparison of net sales in fiscal 2009 to fiscal 2008 was compounded by the
unprecedented growth in demand and pricing experienced by our Metals segment
during fiscal 2008, prior to the start of the global market downturn which began
during the latter part of the third quarter of fiscal 2008.
Cost of
goods sold for fiscal 2009 decreased by $699 million (63%) as compared to fiscal
2008. The decrease was primarily due to lower sales volume as compared to the
prior year period. Gross margin for fiscal 2009 decreased by $158 million as
compared to fiscal 2008. The decrease was primarily due to declines in ferrous
revenues resulting from a drop in ferrous average pricing coupled with lower
ferrous shipments over the comparative period as discussed above. As a
percentage of net sales, cost of goods sold was 105% and 89% for fiscal 2009 and
fiscal 2008, respectively. Cost of sales was 99% of net sales during the second
half of fiscal 2009, as market conditions, though volatile, improved somewhat
during the period, and cost reduction actions taken in the recycling yards
earlier in the year took full effect. The cost of goods sold included a lower of
cost or market inventory adjustments of $4 million for fiscal 2009 as compared
to $7 million in fiscal 2008.
PSC
Metals’ net sales for the first quarter of fiscal 2009 declined significantly
from fiscal 2008 levels 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. Given the indication of a potential
impairment, PSC Metals completed a valuation of its goodwill and other
indefinite-lived intangibles as of March 31, 2009, utilizing discounted cash
flows based on current market conditions. This valuation resulted in an
impairment loss for goodwill and other indefinite-lived intangibles of $13
million which was recorded in the first quarter of fiscal 2009.
SG&A
expenses for fiscal 2009 decreased by $17 million (50%) as compared to fiscal
2008. The decrease was primarily due to cost reduction initiatives implemented
during the first quarter of fiscal 2009. These initiatives included headcount
reductions, a salary freeze and temporary pay cuts, elimination of the current
year incentive program and suspension of spending for specific
items.
Year
Ended December 31, 2008 Compared to the Year Ended December 31,
2007
Net sales
for fiscal 2008 increased by $405 million (48%) to a record $1.2 billion as
compared to fiscal 2007. This increase was primarily driven by improvement in
ferrous revenues during fiscal 2008. Ferrous average pricing was approximately
$178 per gross ton higher and ferrous shipments were 151,000 gross tons (9%)
higher in fiscal 2008 as compared to fiscal 2007. Ferrous pricing reached
historically high levels during fiscal 2008, with shredded material prices
quoted as high as $594 per gross ton in the July American Metals Market Scrap
Composites Index. The increased prices were driven by strong worldwide demand
for recycled metals. All product lines except non-ferrous contributed to the
revenue increase in fiscal 2008. Scrap yards acquired during fiscal 2007 and
early fiscal 2008 contributed $141 million to the revenue increase in fiscal
2008.
Gross
profit for fiscal 2008 increased by $81 million (145%) to $137 million as
compared to fiscal 2007. As a percentage of net sales, cost of sales was 89% and
93% for fiscal 2008 and fiscal 2007, respectively. The increase in gross profit
and lower cost of sales percentage were primarily due to increased selling
prices during fiscal 2008 that exceeded the increased cost of scrap supply.
Yards acquired during fiscal 2007 and early fiscal 2008 also contributed to the
increase in gross profit in fiscal 2008.
16
SG&A
expenses for fiscal 2008 increased $16 million (89%) to $34 million as compared
to fiscal 2007. The increase was primarily attributable to employee-related
costs, which include headcount increases during fiscal 2008 supporting growth
and acquired yards and higher incentive compensation expenses relating to our
Metals segment’s strong operating performance, and increased professional
fees.
Real
Estate
Our Real
Estate segment is comprised of rental real estate, property development and
resort activities. The three related operating lines of our Real Estate segment
have been aggregated for purposes of reporting our operating results below.
Certain properties are reclassified as discontinued operations when subject to a
contract and are excluded from income from continuing operations.
The
following table summarizes the key operating data for our Real Estate segment
for the fiscal years ended December 31, 2009, 2008 and 2007 (in millions of
dollars):
|
Year Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Revenues(1)
|
$ | 96 | $ | 103 | $ | 113 | ||||||
|
Expenses
|
76 | 82 | 92 | |||||||||
|
Income
from continuing operations before interest and income
taxes
|
$ | 20 | $ | 21 | $ | 21 | ||||||
|
(1)
|
Revenues
include net sales from development and resort operations, rental and
financing lease income from rental operations, interest income and other
income, net.
|
Year
Ended December 31, 2009 Compared to the Year Ended December 31,
2008
Total
revenues for fiscal 2009 decreased by $7 million (7%) as compared to fiscal
2008, and were primarily due to a decrease in development sales activity
attributable to the general slowdown in residential and vacation homes, offset
in part by an increase in net lease revenues from properties acquired during the
third quarter of fiscal 2008 and other income, net. For fiscal 2009, we sold 21
residential units for approximately $15 million at an average price of $0.7
million compared to 39 residential units for $42 million at an average price of
$1.1 million in the corresponding prior period.
Total
expenses for fiscal 2009 decreased by $6 million (7%) as compared to fiscal
2008. The decrease was primarily due to lower operating expenses in development
and resort, offset in part by an increase in net lease expenses due to the
acquisition of properties during the third quarter of fiscal 2008.
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
that costs to repair these homes of defective Chinese drywall will be
immaterial.
Based on
current residential sales conditions, we anticipate that property development
sales will start to stabilize in fiscal 2010. We may incur additional asset
impairment charges if sales price assumptions and unit absorptions are not
achieved.
Year
Ended December 31, 2008 Compared to the Year Ended December 31,
2007
Total
revenues for fiscal 2008 decreased by $10 million (9%) to $103 million as
compared to fiscal 2007. The decrease was primarily attributable to a decrease
in property development sales activity due to the general slowdown in
residential and vacation home sales, and was partially offset by an increase in
rental income, due to the acquisitions of two net leased properties acquired in
August 2008. In fiscal 2008, we sold 39 residential units for $42 million at an
average price of $1.1 million. In fiscal 2007, we sold 76 residential units for
$61 million at an average price of $0.8 million.
Total
expenses for fiscal 2008 decreased by $10 million (11%) to $82 million as
compared to fiscal 2007. The decrease was primarily due to a decrease in
property development sales activity. In fiscal 2008, property development
expenses included asset impairment charges of $4 million, primarily attributable
to inventory units in our Grand Harbor and Oak Harbor, Florida subdivisions.
These decreases were partially offset by increased depreciation expenses
attributable to the acquisition of two net lease properties. In fiscal 2007,
property development expenses included an asset impairment charge of $3 million
related to certain condominium land in our Oak Harbor, Florida subdivision and a
litigation loss reserve of $2 million.
17
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.
Summarized
statements of operations from our Home Fashion operations for the fiscal years
ended December 31, 2009, 2008 and 2007 included in the consolidated statements
of operations are as follows (in millions of dollars):
|
Year Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Net
sales
|
$ | 369 | $ | 425 | $ | 683 | ||||||
|
Cost
of goods sold
|
338 | 394 | 681 | |||||||||
|
Gross
margin
|
31 | 31 | 2 | |||||||||
|
Expenses:
|
||||||||||||
|
Selling,
general and administrative
|
75 | 89 | 112 | |||||||||
|
Restructuring
and impairment
|
27 | 37 | 49 | |||||||||
| 102 | 126 | 161 | ||||||||||
|
Loss
from continuing operations before interest, income taxes and other income,
net
|
$ | (71 | ) | $ | (95 | ) | $ | (159 | ) | |||
Year
Ended December 31, 2009 Compared to the Year Ended December 31,
2008
Net sales
for fiscal 2009 decreased by $56 million (13%) as compared to fiscal 2008. Cost
of sales for fiscal 2009 decreased by $56 million (14%) as compared to fiscal
2008. The decreases were primarily due to lower sales volumes. Gross margin was
flat in fiscal 2009 compared to fiscal 2008. Gross margin as a percent of net
sales were 8.4% and 7.3% for fiscal 2009 and fiscal 2008, respectively. The
decrease in net sales during fiscal 2009 continued to reflect lower sales due to
the weak home textile retail environment, but has been mitigated by improvements
in operating earnings as a result of lowering SG&A expenditures and lower
restructuring and impairment charges. WPI will continue to realign its
manufacturing operations to optimize its cost structure, pursuing offshore
sourcing arrangements that employ a combination of owned and operated
facilities, joint ventures and third-party supply contracts.
SG&A
for fiscal 2009 decreased by $14 million (16%) as compared to fiscal 2008,
reflecting WPI’s continuing efforts to reduce its selling, warehousing, shipping
and general and administrative expenses. WPI continues to lower its SG&A
expenditures by consolidating its locations, reducing headcount and applying
more stringent oversight of expense areas where potential savings may be
realized.
Restructuring
and impairment charges for fiscal 2009 decreased by $10 million (27%) as
compared to fiscal 2008. Included in fiscal 2009 and 2008 results was a $5
million and $6 million impairment charge, respectively, related to WPI’s
trademarks. 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. Restructuring and impairment charges include
severance, benefits and related costs, non-cash impairment charges related to
plants that have been or will be closed and continuing costs of closed plants,
transition expenses and non-cash intangible asset impairment
charges.
WPI
continues its restructuring efforts and, accordingly, anticipates that
restructuring charges (particularly with respect to the carrying costs of closed
facilities until such time as these locations are sold) and operating losses
will continue to be incurred for fiscal 2010. If WPI’s restructuring efforts are
unsuccessful or its existing strategic manufacturing plans are amended, it may
be required to record additional impairment charges related to the carrying
value of long-lived assets.
WPI’s
business is significantly influenced by the overall economic environment,
including consumer spending, at the retail level, for home textile products.
Certain U.S. retailers continue to report comparable store sales that were
either negative or below their stated expectations. Many of these retailers are
customers of WPI. Based on prevailing difficult economic conditions, it will
likely be challenging for these same retailers during fiscal 2010. WPI believes
that it provides adequate reserves against its accounts receivable to mitigate
exposure to known or likely bad debt situations, as well as sufficient overall
reserves for reasonably estimated situations, should this arise.
Year
Ended December 31, 2008 Compared to the Year Ended December 31,
2007
Net sales
for fiscal 2008 decreased by $258 million (38%) as compared to fiscal 2007.
Gross margin for fiscal 2008 increased by $29 million to $31 million as compared
to fiscal 2007. The decrease in net sales reflected lower sales due to the weak
home textile retail environment and the elimination of unprofitable programs,
but has been mitigated by improvements in both gross margin and operating
earnings as a result of shifting manufacturing capacity from the United States
to lower-cost countries, lowering SG&A expenditures and reduced
restructuring and impairment charges. We shifted manufacturing capacity from the
United States to lower-cost countries and closed numerous U.S. plants during
fiscal 2007 and early fiscal 2008.
18
SG&A
expenses for fiscal 2008 decreased by $23 million (21%), as compared to fiscal
2007, reflecting WPI’s continued efforts to reduce its selling, warehousing,
shipping and general and administrative expenses.
Restructuring
and impairment charges for fiscal 2008 decreased by $12 million (25%), as
compared to fiscal 2007. The decrease in fiscal 2008 is due to lower impairment
charges, partially offset by higher restructuring charges. Restructuring and
impairment charges include severance costs, non-cash impairment charges related
to plants that have closed, and continuing costs of closed plants and transition
expenses. Additionally in fiscal 2008 and fiscal 2007, WPI reduced the fair
value of the trademarks and recorded intangible asset impairment charges of $6
million and $5 million, respectively.
Holding
Company
The
Holding Company engages in various investment activities. The activities include
those associated with investing its available liquidity, investing to earn
returns from increases or decreases in the market price of securities, and
investing with the prospect of acquiring operating businesses that we would
control. Holding Company expenses, excluding interest expense, are principally
related to payroll, legal and other professional fees.
Summarized
revenues and expenses for the Holding Company for the fiscal years ended
December 31, 2009, 2008 and 2007 are as follows (in millions of
dollars):
|
Year Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Net
gain from investment activities
|
$ | 3 | $ | 102 | $ | 84 | ||||||
|
Interest
and dividend income
|
7 | 51 | 129 | |||||||||
|
Gain
on extinguishment of debt
|
— | 146 | — | |||||||||
|
Other
income, net
|
— | — | 37 | |||||||||
|
Holding
Company revenues
|
10 | 299 | 250 | |||||||||
|
Holding
Company expenses
|
22 | 34 | 37 | |||||||||
|
(Loss)
income from continuing operations before interest expense and income
taxes
|
$ | (12 | ) | $ | 265 | $ | 213 | |||||
Year
Ended December 31, 2009 Compared to the Year Ended December 31,
2008
Net gain
from investment activities for fiscal 2009 decreased by $99 million (97%) as
compared to fiscal 2008. The decrease in net gain from investment activities was
primarily due to lower investment gains in fiscal 2009 as compared to fiscal
2008 as we have decreased our investments in securities at the Holding Company
level.
Interest
and dividend income for fiscal 2009 decreased by $44 million (86%) as compared
to fiscal 2008. The decrease was primarily due to lower yields on lower cash
balances.
Expenses,
excluding interest expense, for fiscal 2009 decreased by $12 million (35%) as
compared to fiscal 2008. The decrease was primarily due to lower legal
fees.
Year
Ended December 31, 2008 Compared to the Year Ended December 31,
2007
Net gain
from investment activities for fiscal 2008 increased by $18 million (22%) as
compared to fiscal 2007. The increase in net gain from investment activities was
primarily due to higher unrealized gains in fiscal 2008 recorded on the
investment portfolio as compared to fiscal 2007.
Interest
and dividend income for fiscal 2008 decreased by $78 million (61%) as compared
to fiscal 2007. The decrease was primarily due to lower yields and lower cash
balances.
Expenses,
excluding interest expense, for fiscal 2008 decreased by $3 million (8%) as
compared to fiscal 2007. The decrease is primarily due to lower professional and
legal fees.
Interest
Expense
Year
Ended December 31, 2009 Compared to the Year Ended December 31,
2008
Interest
expense for fiscal 2009 decreased by $39 million (11%) as compared to fiscal
2008. The decrease was primarily attributable to our Automotive segment which
incurred lower interest expense due to lower interest rates.
19
Year
Ended December 31, 2008 Compared to the Year Ended December 31,
2007
Interest
expense for fiscal 2008 increased by $174 million (95%) as compared to fiscal
2007. The increase was primarily due to $166 million in interest expense
incurred by our Automotive segment related to Federal-Mogul’s Exit Facilities
(as defined herein). Our Automotive segment results are included in our results
for the period March 1, 2008 through December 31, 2008.
Income
Taxes
For
fiscal 2009, we recorded an income tax benefit of $44 million on pre-tax income
from continuing operations of $1.2 billion. For fiscal 2008, we recorded an
income tax provision of $76 million on pre-tax loss from continuing operations
of $3.1 billion. For fiscal 2007, we recorded an income tax provision of $33
million on pre-tax income from continuing operations of $543 million. Our
effective income tax rate was (3.8)%, (2.5)% and 6.0% for the respective
periods. The difference between the effective tax rate and statutory federal
rate of 35% is principally due to changes in the valuation allowance and
partnership income not subject to taxation, as such taxes are the responsibility
of the partners.
Discontinued
Operations
Gaming
On
February 20, 2008, we consummated the sale of our subsidiary, ACEP, to an
affiliate of Whitehall Street Real Estate Fund for $1.2 billion, realizing a
gain of $472 million, after taxes. The sale of ACEP included the Stratosphere
and three other Nevada gaming properties, which represented all of our remaining
gaming operations.
In
connection with the closing, we repaid all of ACEP’s outstanding 7.85% senior
secured notes due 2012, that were tendered pursuant to ACEP’s previously
announced tender offer and consent solicitation. In addition, ACEP repaid in
full all amounts outstanding, and terminated all commitments, under its credit
facility with Bear Stearns Corporate Lending Inc., as administrative agent, and
the other lenders thereunder.
We
elected to deposit $1.2 billion of the gross proceeds from the sale into escrow
accounts to fund investment activities through tax-deferred exchanges under
Section 1031 of the Code. During the third quarter of fiscal 2008, we invested
$465 million of the gross proceeds to purchase two net leased properties,
resulting in a deferral of $103 million in taxes. The balance of escrow accounts
was subsequently released.
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. Upon
entry into a contract to sell a property, the operating results and cash flows
associated with the property are reclassified to discontinued operations and
historical financial statements are reclassified to conform to the current
classification.
Home
Fashion
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 of December 31, 2009 and 2008, the
accrued lease termination liability balance was $2 million and $3 million,
respectively, which is included in liabilities of discontinued operations in our
consolidated balance sheets.
Results
of Discontinued Operations
The
financial position and results of these operations are presented as other assets
and accrued expenses and other liabilities in the consolidated balance sheets
and income from discontinued operations in the consolidated statements of
operations, respectively, for all periods when certain criteria have been met.
For further discussion, see Note 4, “Discontinued Operations and Assets Held for
Sale,” to the consolidated financial statements contained in Exhibit 99.3 to
Form 8-K.
Total
revenues for our discontinued operations for fiscal 2008 and fiscal 2007 were
$61 million and $494 million, respectively, primarily relating to our former
gaming segment. There were no revenues from our discontinued operations for
fiscal 2009. Income from discontinued operations before income taxes and
non-controlling interests (including gain on dispositions before taxes) for
fiscal 2009, fiscal 2008, and fiscal 2007 was $1 million, $749 million, and $103
million, respectively. Results for fiscal 2008 included a gain on sale of
discontinued operations of $472 million, net of income taxes of $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. The
gain on sales of discontinued operations for fiscal 2007 includes $12 million of
gain on sales of real estate assets.
20
Liquidity
and Capital Resources
Holding
Company
As of
December 31, 2009, our Holding Company had cash and cash equivalents of $593
million and total debt of approximately $1.9 billion. Through December 31, 2009,
we have made direct investments aggregating $1.7 billion in the Private Funds
for which no special profits interest allocations or incentive allocations are
applicable. As of December 31, 2009, the total value of this investment is $1.7
billion, with unrealized gains of $328 million for fiscal 2009, unrealized
losses of $274 million and $16 million for fiscal 2008 and fiscal 2007,
respectively. These amounts are reflected in the Private Funds’ net assets and
earnings. As discussed elsewhere in this report, on January 15, 2010, pursuant
to an offering, we sold an aggregate gross amount of $2.0 billion in senior
notes and simultaneously redeemed our 2012 Notes and 2013 Notes, thereby
increasing our liquidity by an additional $625 million, after taking into effect
the redemption of the 2012 Notes and 2013 Notes and the payment of certain fees
and expenses related to the offering. Additionally, on January 15, 2010, in two
separate transactions, we acquired controlling interests in (i) ARI by issuing
3,116,537 of our depositary units and (ii)Viskase by issuing 2,915,695 of our
depositary units. As of December 31, 2009, based on certain minimum financial
ratios, we and Icahn Enterprises Holdings could not incur additional
indebtedness. See Note 12, “Debt,” to the consolidated financial statements
contained in Exhibit 99.3 to Form 8-K for additional information concerning
credit facilities for us and our subsidiaries.
Pursuant
to certain rights offerings, our preferred units must be redeemed by March 31,
2010, referred to as the Redemption Date. 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). On December 30, 2009, the Audit Committee of the board of directors of
Icahn Enterprises GP, our general partner, approved the redemption of the
preferred units payable in our depositary units, which will be valued at the
average price at which the depositary units are trading over the 20-day period
immediately preceding the Redemption Date. As of December 31, 2009, there were
13,127,179 preferred units issued and outstanding. We will have sufficient
authorized depositary units available for such redemption on the Redemption
Date.
We are a
holding company. Our cash flow and our ability to meet our debt service
obligations and make distributions with respect to depositary units and
preferred units likely will depend on the cash flow resulting from divestitures,
equity and debt financings, interest income and the payment of funds to us by
our subsidiaries in the form of loans, dividends and distributions. We may
pursue various means to raise cash from our subsidiaries. To date, such means
include payment of dividends from subsidiaries, obtaining loans or other
financings based on the asset values of subsidiaries or selling debt or equity
securities of subsidiaries through capital market transactions. To the degree
any distributions and transfers are impaired or prohibited, our ability to make
payments on our debt or distributions on our depositary units and preferred
units could be limited. The operating results of our subsidiaries may not be
sufficient for them to make distributions to us. In addition, our subsidiaries
are not obligated to make funds available to us, and distributions and
intercompany transfers from our subsidiaries to us may be restricted by
applicable law or covenants contained in debt agreements and other
agreements.
Consolidated
Cash Flows
Operating
Activities
Net cash
provided by operating activities from continuing operations in fiscal 2009 was
$366 million. Our Automotive segment provided $328 million due to net income
before non-cash charges of $370 million (including depreciation and amortization
of $349 million) and changes in operating assets and liabilities of $113
million, offset in part by restructuring payments of $94 million for fiscal
2009. Our Investment Management segment provided $101 million which was
primarily due to net income of approximately $1.5 billion (including
approximately $1.4 billion from net investment gains). Net cash used in
investment transactions for fiscal 2009 was $515 million, partially offsetting
the impact of changes in operating assets and liabilities of $588 million
(mostly due to a decrease in cash held at consolidated affiliated partnerships
and restricted cash). Our Holding Company used $133 million primarily to pay for
interest on debt. Compared to fiscal 2008, our consolidated net cash provided by
operating activities from continuing operations decreased $534 million primarily
due to decreases in our Automotive, Metals and Investment Management segments.
Reduced cash flows from our Investment Management segment were primarily due to
decreases in the net cash proceeds from securities transactions. Weak market
conditions in fiscal 2009 contributed to decreases in net cash from operating
activities from our remaining operations.
Investing
Activities
In fiscal
2009, we had consolidated net cash used in investing activities from continuing
operations of $256 million primarily resulting from capital expenditures of $230
million, of which $176 million related to our Automotive segment. Purchases of
investments at the Holding Company level were $34 million, of which $33 million
related to the purchase of debt securities. Net proceeds from other investing
transactions were $45 million in fiscal 2009.
Financing
Activities
Net cash
used in financing activities in fiscal 2009 was $792 million. This was primarily
due to capital distributions to non-controlling interests from our Investment
Management segment of approximately $1.2 billion offset in part by approximately
$0.3 billion of capital contributions by non-controlling interests.
Additionally, we distributed $75 million to our depositary LP unitholders in
fiscal 2009. In fiscal 2009, we received proceeds of $166 million from the sale
of previously purchased debt of entities included in our consolidated financial
statements. Our Food Packaging segment received $186 million of proceeds from
debt during fiscal 2009.
21
Borrowings
Debt
consists of the following (in millions of dollars):
|
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Senior
unsecured variable rate convertible notes due 2013 – Icahn
Enterprises
|
$ | 556 | $ | 556 | ||||
|
Senior
unsecured 7.125% notes due 2013 – Icahn Enterprises
|
963 | 961 | ||||||
|
Senior
unsecured 8.125% notes due 2012 – Icahn Enterprises
|
352 | 352 | ||||||
|
Exit
Facilities – Automotive
|
2,672 | 2,495 | ||||||
|
Senior
unsecured notes – Railcar
|
275 | 275 | ||||||
|
Senior
unsecured notes and revolving credit facility –
Food Packaging
|
174 | 129 | ||||||
|
Mortgages
payable
|
114 | 123 | ||||||
|
Other
|
80 | 86 | ||||||
|
Total
debt
|
$ | 5,186 | $ | 4,977 | ||||
See Note
12, “Debt,” to the consolidated financial statements contained in Exhibit 99.3
to Form 8-K for additional information concerning terms, restrictions and
covenants of our debt. As of December 31, 2009 and 2008, we are in compliance
with all debt covenants.
Contractual
Commitments
The
following table reflects, at December 31, 2009, our contractual cash
obligations, subject to certain conditions, due over the indicated periods and
when they come due (in millions of dollars):
|
2010
|
2011
|
2012
|
2013
|
2014
|
Thereafter
|
Total
|
||||||||||||||||||||||
|
Debt
obligations
|
$ | 99 | $ | 65 | $ | 942 | $ | 1,018 | $ | 2,100 | $ | 1,119 | $ | 5,343 | ||||||||||||||
|
Interest
payments
|
267 | 269 | 240 | 161 | 98 | 98 | 1,133 | |||||||||||||||||||||
|
Letters
of credit
|
96 | — | — | — | — | — | 96 | |||||||||||||||||||||
|
Payments
for settlement of liabilities subject to compromise
|
39 | — | — | — | — | — | 39 | |||||||||||||||||||||
|
Pension
and other postemployment benefit plans
|
155 | 158 | 193 | 166 | 156 | 6 | * | 834 | ||||||||||||||||||||
|
Lease
obligations
|
52 | 41 | 33 | 27 | 25 | 44 | 222 | |||||||||||||||||||||
|
Total
|
$ | 708 | $ | 533 | $ | 1,408 | $ | 1,372 | $ | 2,379 | $ | 1,267 | $ | 7,667 | ||||||||||||||
|
*
|
Funding
requirements beyond 2014 are not available for our Automotive segment and
therefore, are not included in the table beyond
2014.
|
As
described above, on January 15, 2010 we sold $850,000,000 of the 2016 Notes and
$1,150,000,000 of the 2018 Notes. A portion of the gross proceeds from the sale
of the New Notes were used to purchase all of the $353 million principal amount
of our 2012 Notes and $967 million principal amount of our 2013 Notes. The table
above includes our obligations as of December 31, 2009 and thus reflects our
2012 Notes and 2013 Notes as due in the years in which they were originally
due.
Certain
of PSC Metals’ and Federal-Mogul’s facilities are environmentally impaired. PSC
Metals and Federal-Mogul have estimated their liability to remediate these sites
to be $27 million and $22 million, respectively, at December 31, 2009.
Additionally, Federal-Mogul has identified sites with contractual obligations
and sites that are closed or expected to be closed and sold in connection with
its restructuring activities and has accrued $30 million as of December 31,
2009, primarily related to removing hazardous materials in buildings. For
further discussion regarding these commitments, see Note 20, “Commitments and
Contingencies,” to the consolidated financial statements contained in Exhibit
99.3 to Form 8-K.
ARI is
subject to comprehensive federal, state, local and international environmental
laws and regulations relating to the release or discharge of materials into the
environment, the management, use, processing, handling, storage, transport or
disposal of hazardous materials and wastes, or otherwise relating to the
protection of human health and the environment. These laws and regulations
not only expose ARI to liability for the environmental condition of its current
or formerly owned or operated facilities, and its own negligent acts, but also
may expose ARI to liability for the conduct of others or for ARI’s actions that
were in compliance with all applicable laws at the time these actions were
taken. In addition, these laws may require significant expenditures to
achieve compliance, and are frequently modified or revised to impose new
obligations. Civil and criminal fines and penalties and other sanctions
may be imposed for non-compliance with these environmental laws and
regulations. ARI’s operations that involve hazardous materials also raise
potential risks of liability under common law. ARI is involved in
investigation and remediation activities at a property that it now owns to
address historical contamination and potential contamination by third
parties. ARI is involved with a state agency in the cleanup of this site
under these laws. These investigations are in process but it is too early
to be able to make a reasonable estimate, with any certainty, of the timing and
extent of remedial actions that may be required, and the costs that would be
involved in such remediation. Substantially all of the issues identified
relate to the use of this property prior to its transfer to ARI in 1994 by ACF
and for which ACF has retained liability for environmental contamination that
may have existed at the time of transfer to ARI. ACF has also agreed to
indemnify ARI for any cost that might be incurred with those existing
issues. However, if ACF fails to honor its obligations to ARI, ARI would
be responsible for the cost of such remediation. ARI believes that its
operations and facilities are in substantial compliance with applicable laws and
regulations and that any noncompliance is not likely to have a material adverse
effect on its operations or financial condition and, accordingly, on our Railcar
segment operations.
22
ARI has
been named the defendant in a wrongful death lawsuit, Nicole Lerma v. American
Railcar Industries, Inc. The lawsuit was filed on August 17, 2007, in the
Circuit Court of Greene County, Arkansas Civil Division. Mediation on
January 6, 2009, was not successful and the trial has been scheduled for
May 14, 2010. ARI believes that it is not responsible and has meritorious
defenses against such liability. While it is reasonably possible that this case
could result in a loss, there is not sufficient information to estimate the
amount of such loss, if any, resulting from the lawsuit.
One of
ARI’s joint ventures entered into a credit agreement in December 2007.
Effective August 5, 2009, ARI and the other initial partner acquired this loan
from the lender parties thereto, with each party acquiring a 50.0% interest in
the loan. The total commitment under the term loan is $60 million with an
additional $10 million commitment under the revolving loan. ARI is
responsible to fund 50.0% of the loan commitments. The balance outstanding on
these loans, due to ARI, was $33 million of principal and accrued interest
as of December 31, 2009. ARI’s share of the remaining commitment on these loans
was $4 million as of December 31, 2009.
As
discussed in Note 6, “Investments and Related Matters,” to the consolidated
financial statements contained in Exhibit 99.3 to Form 8-K, we have contractual
liabilities of $2 billion related to securities sold, not yet purchased as of
December 31, 2009. This amount has not been included in the table above as their
maturity is not subject to a contract and cannot be properly
estimated.
Off-Balance
Sheet Arrangements
We have
off-balance sheet risk related to investment activities associated with certain
financial instruments, including futures, options, credit default swaps and
securities sold, not yet purchased. For additional information regarding these
arrangements, refer to Note 8, “Financial Instruments,” to our consolidated
financial statements contained in Exhibit 99.3 to Form 8-K.
Discussion
of Segment Liquidity and Capital Resources
Investment
Management
Effective
January 1, 2008, the General Partners are eligible to receive special profits
interest allocations which, to the extent that they are earned, will generally
be allocated at the end of each fiscal year. In the event that amounts earned
from special profits interest allocations are not sufficient to cover the
operating expenses of the Investment Management segment in any given year, the
Holding Company has and intends to continue to provide funding as needed. The
General Partners may also receive incentive allocations which are generally
calculated and allocated to the General Partners at the end of each fiscal year,
provided that, effective July 1, 2009, certain new options do not provide for
incentive allocations at the end of each fiscal year. To the extent that
incentive allocations are earned as a result of redemption events during interim
periods, they are made to the General Partners in such periods. Additionally,
certain incentive allocations earned by the General Partners have historically
remained invested in the Private Funds which may also serve as an additional
source of cash.
The
investment strategy utilized by the Investment Management segment is generally
not heavily reliant on leverage. As of December 31, 2009, the ratio of the
notional exposure of the Private Funds’ invested capital to net asset value of
the Private Funds was approximately 1.12 to 1.00 on the long side and 0.49 to
1.00 on the short side. The notional principal amount of an investment
instrument is the reference amount that is used to calculate profit or loss on
that instrument. The Private Funds historically have had, which we anticipate to
continue, access to significant amounts of cash from prime brokers, subject to
customary terms and market conditions.
Investment
related cash flows in the consolidated Private Funds are classified within
operating activities in our consolidated statements of cash flows. Therefore,
there are no cash flows attributable to investing activities presented in the
consolidated statements of cash flows.
Cash
inflows from and distributions to investors in the Private Funds are classified
within financing activities in our consolidated statements of cash flows. These
amounts are reported as contributions from and distributions to non-controlling
interests in consolidated affiliated partnerships. Net cash used in financing
activities was $94 million for fiscal 2009 due to approximately $1.2 billion in
capital distributions, offset in part by capital contributions of approximately
$1.1 billion (of which $750 million represents our additional investment in the
Private Funds and $25 million represents a general partner interest and capital
contributions by non-controlling interests of $287 million for fiscal 2009.) Our
additional contributions of $775 million in the Private Funds have been
eliminated in consolidation.
23
Automotive
Cash flow
provided by operating activities was $328 million for fiscal 2009 compared to
cash provided from operating activities of $483 million for the period March 1,
2008 through December 31, 2008. The decrease in cash flows provided by operating
activities in fiscal 2009 compared to the period March 1, 2008 through December
31, 2008 is primarily due to higher net restructuring payments and decreased
working capital in fiscal 2009 as compared to the period March 1, 2008 through
December 31, 2008.
Cash flow
used in investing activities was $166 million for fiscal 2009, compared to cash
used in investing activities of $258 million for the period March 1, 2008
through December 31, 2008. This decrease is due to reductions in capital
spending in fiscal 2009 compared to the period March 1, 2008 through December
31, 2008.
Cash flow
used in financing activities was $35 million for fiscal 2009, compared to cash
used in financing activities of $86 million for the period March 1, 2008 through
December 31, 2008, which included repayments on Federal-Mogul’s Exit Facilities
and other borrowings. The change in financing activities in fiscal 2009 as
compared to the period March 1, 2008 through December 31, 2008 was due to lower
repayments of borrowing in fiscal 2009 compared to the period March 1, 2008
through December 31, 2008.
In
connection with the consummation of the Fourth Amended Joint Plan of
Reorganization (As Modified), or the Plan, on December 27, 2007, referred to
herein as the Effective Date, Federal-Mogul entered into a Term Loan and
Revolving Credit Agreement, (referred to herein as the Exit Facilities). 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 were drawn on
January 3, 2008 for the purpose of refinancing obligations under the Tranche A
Term Loan Agreement (referred to herein as the Tranche A Facility Agreement). As
of December 31, 2009, there was $470 million of borrowing availability under the
revolving credit facility.
Federal-Mogul’s
ability to obtain cash adequate to fund its needs depends generally on the
results of its operations, restructuring initiatives and the availability of
financing. Federal-Mogul’s management believes that cash on hand, cash flow from
operations and available borrowings under the Exit Facilities will be sufficient
to fund capital expenditures and meet its operating obligations through the end
of fiscal 2010. Federal-Mogul believes that its base operating potential,
supplemented by the benefits from its announced restructuring programs, will
provide adequate long-term cash flows. However, there can be no assurance that
such initiatives are achievable in this regard.
Federal-Mogul
maintains investments in 14 non-consolidated affiliates, which are located in
China, Germany, 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
approximated $238 million and $221 million at December 31, 2009 and 2008,
respectively.
Federal-Mogul’s
joint ventures are businesses established and maintained in connection with its
operating strategy and are not special purpose entities. In general,
Federal-Mogul does not extend guarantees, loans or other instruments of a
variable nature that may result in incremental risk to Federal-Mogul’s liquidity
position. Furthermore, Federal-Mogul does not rely on dividend payments or other
cash flows from its non-consolidated affiliates to fund its operations and,
accordingly, does not believe that they have a material effect on
Federal-Mogul’s liquidity.
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 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 December 31, 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 guidance. 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.
24
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 contingencies on the future liquidity position of
Federal-Mogul.
Federal-Mogul’s
subsidiaries in Brazil, France, Germany, Italy, Japan and Spain are each a party
to accounts receivable factoring arrangements. Gross accounts receivable
factored under these facilities were $217 million and $222 million as of
December 31, 2009 and 2008, respectively. Of those gross amounts, $190 million
and $209 million, respectively, were factored without recourse and treated as
sales . Under the 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 $4 million and $8 million as of December 31,
2009 and 2008, respectively, for which cash had not yet been drawn.
Subsequent
Event
Federal-Mogul
has operated an aftermarket distribution center in Venezuela for several years,
supplying imported replacement automotive parts to the local independent
aftermarket. Since 2005, two exchange rates have existed in Venezuela: the
official rate, which has been frozen since 2005 at 2.15 bolivars per U.S.
dollar; and the parallel rate, which floats at a rate much higher than the
official rate. Given the existence of the two rates in Venezuela, Federal-Mogul
is required to assess which of these rates is the most appropriate for
converting the results of its Venezuelan operations into U.S. dollars at
December 31, 2009. Federal-Mogul has no positive intent to repatriate cash at
the parallel rate and has demonstrated the ability to repatriate cash at the
official rate in early January 2010; thus, the official rate was deemed
appropriate for the purposes of conversion into U.S. dollars.
Near the
end of 2009, the three year cumulative inflation rate for Venezuela was above
100%, which requires the Venezuelan operation to report its results as though
the U.S. dollar is its functional currency in accordance with applicable U.S.
GAAP, commencing January 1, 2010 (“inflationary accounting”). The impact of this
transition to a U.S. dollar functional currency is that any change in the U.S.
dollar value of bolivar denominated monetary assets and liabilities must be
recognized directly in earnings.
At
December 31, 2009, the summarized balance sheet of Federal-Mogul’s Venezuelan
operations is as follows (all balances are in millions of U.S. dollars,
converted at the official exchange rate of 2.15 bolivar per U.S.
dollar):
|
$
|
76
|
|||
|
Other
monetary assets, net
|
5
|
|||
|
Net
monetary assets
|
81
|
|||
|
Non-monetary
assets, net
|
5
|
|||
|
Total
|
$
|
86
|
In early
January 2010, prior to the bolivar devaluation, Federal-Mogul repatriated $14
million at the official rate of 2.15 bolivars to U.S. dollar. On January 8,
2010, subsequent to this cash repatriation, the official exchange rate was set
by the Venezuelan government at 4.3 bolivars per U.S. dollar, except for certain
“strategic industries” that are permitted to buy U.S. dollars at the rate of 2.6
bolivars per U.S. dollar. Subsequent to this devaluation, Federal-Mogul has
repatriated $11 million at this “strategic” rate.
Federal-Mogul
estimates that the immediate impact of inflationary accounting for its
Venezuelan operations in fiscal 2010 is a loss ranging between $13 million and
$30 million, largely dependent on its expected ability to continue to repatriate
cash at the “strategic” rate of 2.6 bolivars per U.S. dollar versus the official
rate of 4.3.
Railcar
As of
December 31, 2009, our Railcar segment had cash and cash equivalents of $347
million. During fiscal 2009, net cash provided by operating activities was $84
million, resulting primarily from changes in working capital of $57 million and
net income before non-cash items of $27 million. This compares to net cash
generated from operating activities of $45 million in fiscal 2008, resulting
primarily from earnings before non-cash items of $51 million offset in part by
changes in working capital of $6 million.
Net cash
used in investing activities for fiscal 2009 was $27 million, primarily due to
capital expenditures of $15 million and investments in joint ventures of $36
million offset in part by net proceeds from investment transactions of $24
million. This compares to net cash used in investing activities of $54 million
for fiscal 2008, primarily attributable to capital expenditures of $52
million.
Net cash
used in financing activities for fiscal 2009 was $2 million. This compares to
net cash used in financing activities of $3 million in fiscal 2008 as a result
of distribution of ARI common stock dividends.
25
Food
Packaging
As of
December 31, 2009, our Food Packaging segment had cash and cash equivalents of
$39 million. During fiscal 2009, net cash provided by operating activities was
$16 million, resulting primarily from net income compared to net cash generated
from operating activities of $7 million in fiscal 2008.
Net cash
used in investing activities for fiscal 2009 was $23 million, primarily due to
capital expenditures compared to net cash used in investing activities of $12
million for fiscal 2008 due to capital expenditures.
Net cash
provided by financing activities for fiscal 2009 was $33 million primarily due
to net proceeds from debt activity compared to $11 million in fiscal 2008
primarily due to issuance of common stock. During fiscal 2009, our Food
Packaging segment received proceeds from a debt offering of $174 million and
repaid its existing debt by $146 million.
Metals
The
primary source of cash from our Metals segment is from the operation of its
processing facilities.
As of
December 31, 2009, our Metals segment had cash and cash equivalents of $13
million. During fiscal 2009, net cash used in operating activities was $27
million, resulting primarily from $30 million attributable to net loss, offset
in part by $26 million in non-cash items. In addition, working capital increased
by $11 million, primarily consisting of a $18 million decrease in accounts
payable and accrued liabilities, partly offset by a decrease in inventory of $5
million and a decrease of $2 million in accounts receivable. This compares to
net cash generated from operating activities of $115 million in fiscal 2008,
resulting primarily from earnings before non-cash charges of $87 million and $28
million from changes in working capital.
Net cash
used in investing activities for fiscal 2009 was $11 million and was primarily
due to capital expenditures. This compares to net cash used in investing
activities of $39 million for fiscal 2008, primarily attributable to capital
expenditures and acquisitions totaling $44 million, offset by $6 million in
proceeds from sale of assets. Due to the current economic environment, PSC
Metals expects to manage its capital expenditures at maintenance level during
the next 12 months.
Net cash
used in financing activities for fiscal 2009 was $1 million. This compares to
net cash used in financing activities of $40 million in fiscal 2008 consisting
of $30 million in dividends to its shareholders and $10 million of net
repayments of intercompany borrowings from Icahn Enterprises.
Our
Metals’ segment believes that its current cash levels and cash flow from
operating activities are adequate to fund its ongoing operations and capital
plan for the next 12 months.
Real
Estate
Our Real
Estate segment generates cash through rentals, leases and asset sales
(principally sales of rental and residential properties) and the operation of
resorts. All of these operations generate cash flows from
operations.
At
December 31, 2009, our Real Estate segment had cash and cash equivalents of $137
million.
For
fiscal 2009, cash provided by operating activities from continuing operations
was $42 million resulting primarily from income from continuing operations of
$11 million, non-cash charges of $27 million and a decrease in property
development inventory of $5 million and changes in operating assets and
liabilities of $3 million. This compares to cash provided by operating
activities from continuing operations of $43 million, primarily consisting of
earnings before non-cash charges of $32 million and a decrease in property
development inventory of $9 million in fiscal 2008.
Cash
provided by investing activities from continuing operations was $2 million for
fiscal 2009 and was due to proceeds of $3 million from the sale of net lease
property, offset by $1 million in capital expenditures. This compares with cash
used in investing activities of $455 million in fiscal 2008 and was primarily
from capital expenditures to acquire two net leased properties. Included in
investing activities during fiscal 2008, three rental properties were sold
resulting in gross proceeds of $12 million.
Cash used
in financing activities for fiscal 2009 was $70 million due to a $60 million
intercompany distribution to the Holding Company (which has been eliminated in
consolidation) and $10 million for payments of mortgage debt. This compares with
cash provided by financing activities of $407 million for fiscal 2008 and was
primarily from a $465 million contribution from Icahn Enterprises to acquire two
net leased properties pursuant to a Code Section 1031 exchange utilizing a
portion of the gross proceeds from the sale of our Gaming segment, offset by $77
million of intercompany payments to Icahn Enterprises. Additionally, there were
proceeds from a mortgage refinancing of $44 million during fiscal 2008 which
were offset in part by mortgage payments of $25 million.
We
currently anticipate operating cash flows to be positive from our Real Estate
operations in fiscal 2010. In fiscal 2010, property development construction
expenditures needed to complete specified units currently under construction are
expected to be approximately $2 million, which we will fund from unit sales and,
if proceeds are insufficient, from available cash reserves.
26
Home
Fashion
At
December 31, 2009, WPI had $81 million of cash and cash equivalents. There were
no borrowings under the WestPoint Home revolving credit agreement as of December
31, 2009, but there were outstanding letters of credit of $11 million. Based
upon the eligibility and reserve calculations within the agreement, WestPoint
Home had unused borrowing availability of $46 million at December 31,
2009.
For
fiscal 2009, our Home Fashion segment had a negative operating cash flow from
continuing operations of $53 million. Negative operating cash flow for fiscal
2009 resulted primarily from loss from continuing operations (before non-cash
charges and gain on sale of assets) of $30 million and payments for
restructuring expenses of $19 million. This compares with negative cash flow in
fiscal 2008 from continuing operations of $4 million. Negative operating cash
flow for fiscal 2008 resulted primarily from the loss from continuing operations
(before non-cash charges and gain on sale of assets) of $70 million partially
offset by decreases in working capital of $67 million. WPI anticipates that its
operating losses and restructuring charges will continue to be incurred in
fiscal 2010.
In fiscal
2009, cash provided by investment activities of $3 million resulted primarily
from proceeds from the sale of fixed assets of $5 million offset by capital
expenditures, as compared to cash provided by investment activities in fiscal
2008 of $16 million that resulted primarily from proceeds of $28 million offset
by capital expenditures. Capital expenditures by WPI were $2 million for fiscal
2009 compared to $12 million for fiscal 2008. Capital expenditures for fiscal
2010 are expected to total $1 million.
For
fiscal 2009, cash used in financing activities was zero as compared to cash used
in financing activities in fiscal 2008 of $10 million which was for the
repayment of debt in full.
Through a
combination of its existing cash on hand and its borrowing availability under
the WestPoint Home senior secured revolving credit facility (together, an
aggregate of $127 million), WPI believes that it has adequate capital resources
and liquidity to meet its anticipated requirements to continue its operational
restructuring initiatives and for working capital and capital spending through
the next 12 months. In its analysis with respect to the sufficiency of adequate
capital resources and liquidity, WPI has considered that its retail customers
may continue to face either negative or flat comparable store sales for home
textile products during fiscal 2010. However, depending upon the levels of
additional acquisitions and joint venture investment activity, if any,
additional financing, if needed, may not be available to WPI or, if available,
may not be on terms favorable to WPI. WPI’s estimates of its anticipated
liquidity needs may not be accurate and new business opportunities or other
unforeseen events could occur, resulting in the need to raise additional funds
from outside sources.
Distributions
Depositary
Units
During
fiscal 2009, we paid quarterly distributions of $0.25 per LP unit ($1.00 per LP
unit in the aggregate), aggregating $75 million, to depositary
unitholders.
On
February 26, 2010, the board of directors approved a payment of a quarterly cash
distribution of $0.25 per unit on our depositary units payable in the first
quarter of fiscal 2010. The distribution will be paid on March 30, 2010 to
depositary unitholders of record at the close of business on March 15, 2010.
Under the terms of the indenture dated April 5, 2007 governing our variable rate
notes due 2013, we will also be making a $0.15 distribution to holders of these
notes in accordance with the formula set forth in the indenture.
Preferred
Units
Pursuant
to the terms of the preferred units, on March 31, 2009, we distributed 624,925
preferred units to holders of record of our preferred units at the close of
business on March 17, 2009.
Our
preferred units are subject to redemption at our option on any payment date, and
the preferred units must be redeemed by us on or before March 31, 2010. The
redemption price is payable, at our option, subject to the indenture, either all
in cash or by the issuance of depositary units, in either case, in an amount
equal to the liquidation preference of the preferred units plus any accrued but
unpaid distributions thereon.
On
December 30, 2009, the Audit Committee of the board of directors of Icahn
Enterprises GP, our general partner, approved the redemption of the preferred
units to be paid out in our depositary units, which will be valued at the
average price at which the depositary units are trading over the 20-day period
immediately preceding the Redemption Date.
Critical
Accounting Policies and Estimates
Our
significant accounting policies are described in Note 2, “Summary of Significant
Accounting Policies,” to the consolidated financial statements contained in
Exhibit 99.3 to Form 8-K. Our consolidated financial statements have been
prepared in accordance with U.S. GAAP. The preparation of financial statements
in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and the disclosure of contingent assets and liabilities. Among
others, estimates are used when accounting for valuation of investments and
pension expense. Estimates used in determining fair value measurements include,
but are not limited to, expected future cash flow assumptions, market rate
assumptions for contractual obligations, actuarial assumptions for benefit
plans, settlement plans for litigation and contingencies, and appropriate
discount rates. Estimates and assumptions are evaluated on an ongoing basis and
are based on historical and other factors believed to be reasonable under the
circumstances. The results of these estimates may form the basis of the carrying
value of certain assets and liabilities and may not be readily apparent from
other sources. Actual results, under conditions and circumstances different from
those assumed, may differ from estimates.
27
We
believe the following accounting policies are critical to our business
operations and the understanding of results of operations and affect the more
significant judgments and estimates used in the preparation of our consolidated
financial statements.
Consolidation
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 those
entities in which we own a majority of the voting interests; (2) for variable
interest entities, or VIEs, we consolidate those 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 those 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.
Our
consolidated financial statements also include the consolidated financial
statements of Icahn Capital and the General Partners (and, for the periods prior
to January 1, 2008, New Icahn Management and Icahn Management LP) and certain
consolidated Private Funds during the periods presented. The Investment
Management segment consolidate those entities in which (i) they have an
investment of more than 50% and have control over significant operating,
financial and investing decisions of the entity, (ii) they are the general
partner in certain limited partnership entities for which no substantive
kick-out rights exist or (iii) they are the primary beneficiary of a VIE. With
respect to the consolidated Private Funds, the limited partners and shareholders
have no substantive rights to impact ongoing governance and operating
activities.
The
analysis as to whether to consolidate an entity is subject to a significant
amount of judgment. Some of the criteria considered include the determination as
to the degree of control over an entity by its various equity holders, the
design of the entity, how closely related the entity is to each of its equity
holders, the relation of the equity holders to each other and a determination of
the primary beneficiary in entities in which we have a variable interest. These
analyses involve estimates, probability weighting of subjectively determined
cash flows scenarios and other estimates based on the assumptions of
management.
Revenue
Recognition on Special Profits Interest Allocation and Incentive
Allocation
The
General Partners generate income from amounts earned pursuant to contractual
arrangements with the Private Funds.
Prior to
January 1, 2008, such amounts typically included an annual management fee of
2.5% of the net asset value before a performance-based incentive allocation of
25% of capital appreciation (both realized and unrealized) earned by the Private
Funds subject to a “high watermark” (whereby the General Partners did not earn
incentive allocations during a particular year even though the fund had a
positive return in such year until losses in prior periods were recovered). Such
amounts have been (and may in the future be) modified or waived in certain
circumstances. The General Partners (and New Icahn Management prior to January
1, 2008) and their affiliates may also earn income through their investments in
the Private Funds. Effective January 1, 2008, the management fees were
eliminated and the General Partners are eligible to receive special profits
interest allocations as discussed below.
Effective
January 1, 2008, the Investment Fund LPAs provide that the applicable General
Partner is eligible to receive a special profits interest allocation at the end
of each calendar year from each capital account maintained at the Investment
Fund that is attributable to, (i) in the case of the Onshore Fund, each limited
partner in the Onshore Fund and, (ii) in the case of the Feeder Funds, each
investor in the Feeder Funds (excluding certain investors that were not charged
management fees including affiliates of Mr. Icahn) (in each case, referred to as
an Investor). This allocation is generally equal to 0.625% (prior to July 1,
2009) of the balance in each fee-paying capital account as of the beginning of
each quarter (for each Investor, referred to as the Target Special Profits
Interest Amount) except that amounts are allocated to the General Partners in
respect of special profits interest allocations only to the extent net increases
(i.e., net profits) are allocated to an Investor for the fiscal year.
Accordingly, any special profits interest allocations allocated to the General
Partners in respect of an Investor in any year cannot exceed the net profits
allocated to such Investor in such year. Effective July 1, 2009, certain limited
partnership agreements and offering memoranda of the Private Funds (referred to
as the Fund Documents) were revised to provide Investors with various new
options for investments in the Private Funds (each referred to herein as an
Option), as discussed further below.
28
Effective
July 1, 2009, certain Fund Documents were revised primarily to provide existing
Investors various new Options for investments in the Private Funds. 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 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. 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, 2010 by
persons that were Investors prior to July 1, 2009. Effective with permitted
withdrawals on December 31, 2009, if an Investor did not roll over a
Pre-Election Investment into another Option when it was first eligible to do so
without the payment of a withdrawal fee, the Private Funds required such
Investor to withdraw such Pre-Election Investment.
Each
Target Special Profits Interest Amount will be deemed contributed to a separate
hypothetical capital account (that is not subject to an incentive allocation or
a special profits interest allocation) in the applicable Investment Fund and any
gains or losses that would have been allocated on such amounts will be credited
or debited, as applicable, to such hypothetical capital account. The special
profits interest allocation attributable to an Investor will be deemed to be
made (and thereby debited) from such hypothetical capital account and,
accordingly, the aggregate amount of any special profits interest allocation
attributable to such Investor will also depend upon the investment returns of
the Investment Fund in which such hypothetical capital account is
maintained.
In the
event that sufficient net profits are not generated by an Investment Fund with
respect to a capital account to meet the full Target Special Profits Interest
Amount for an Investor for a calendar year, a special profits interest
allocation will be made to the extent of such net profits, if any, and the
shortfall will be carried forward and added to the Target Special Profits
Interest Amount determined for such Investor for the next calendar year.
Adjustments, to the extent appropriate, will be made to the calculation of the
special profits interest allocations for new subscriptions and withdrawals by
Investors. In the event that an Investor redeems in full from a Feeder Fund or
the Onshore Fund before the full targeted Target Special Profits Interest Amount
determined for such Investor has been allocated to the General Partner in the
form of a special profits interest allocation, the amount of the Target Special
Profits Interest Amount that has not yet been allocated to the General Partner
will be forfeited and the General Partner will never receive it.
The
General Partners’ special profits interest allocations and incentive allocations
earned from the Private Funds are accrued on a quarterly basis and are allocated
to the General Partners at the end of Private Funds’ fiscal year (or sooner on
redemptions). Such accruals may be reversed as a result of subsequent investment
performance prior to the conclusion of the Private Funds’ fiscal
year.
Compensation
Arrangements
The
Investment Management segment has entered into agreements with certain of its
employees whereby these 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) (and,
prior to January 1, 2008, management fees) and incentive allocations earned by
the Investment Management segment, typically net of certain expenses and
generally subject to various vesting provisions. These amounts remain invested
in the Private Funds and generally earn the rate of return of these funds,
before the effects of any levied special profits interest allocations or
incentive allocations, which are waived on such deferred amounts. Accordingly,
these rights are accounted for as liabilities and remeasured at fair value for
each reporting period until settlement.
The fair
value of amounts deferred under these rights is determined at the end of each
reporting period based, in part, on the (i) fair value of the underlying
fee-paying net assets of the Private Funds, upon which the respective management
fees are based and (ii) performance of the funds in which the deferred amounts
remain invested. The carrying value of such amounts represents the allocable
management fees initially deferred and the appreciation or depreciation on any
reinvested deferrals. These amounts approximate fair value because the
appreciation or depreciation on the deferrals is based on the fair value of the
Private Funds’ investments, which are marked-to-market through earnings on a
monthly basis.
Federal-Mogul
estimates fair value for shared-based payments in accordance with applicable
U.S. GAAP which requires its management to make assumptions regarding expected
volatility of the underlying shares, the risk-free rate over the life of the
share-based payment, and the date on which share-based payments will be settled.
Any differences in actual results from management’s estimates could result in
fair values different from estimated fair values, which could materially impact
our Automotive segment’s future results of operations and financial
condition.
Valuation
of Investments
The fair
value of our investments, including securities sold, not yet purchased, is based
on observable market prices when available. Securities owned by the Private
Funds that are listed on a securities exchange are valued at their last sales
price on the primary securities exchange on which such securities are traded on
such date. Securities that are not listed on any exchange but are traded
over-the-counter are valued at the mean between the last “bid” and “ask” price
for such security on such date. Securities and other instruments for which
market quotes are not readily available are valued at fair value as determined
in good faith by the applicable general partner. For some investments little
market activity may exist; management’s determination of fair value is then
based on the best information available in the circumstances, and may
incorporate management’s own assumptions and involves a significant degree of
management’s judgment.
29
Long-Lived
Assets
Long-lived
assets held and used by our various operating segments and long-lived assets to
be disposed of are reviewed for impairment whenever events or changes in
circumstances, such as vacancies and rejected leases and reduced production
capacity, indicate that the carrying amount of an asset may not be recoverable.
In performing the review for recoverability, we estimate the future cash flows
expected to result from the use of the asset and its eventual disposition. If
the sum of the expected future cash flows, undiscounted and without interest
charges, is less than the carrying amount of the asset an impairment loss is
recognized. Measurement of an impairment loss for long-lived assets that we
expect to hold and use is based on the fair value of the asset. Long-lived
assets to be disposed of are reported at the lower of carrying amount or fair
value less cost to sell.
Definite-lived
assets held by our various segments are periodically reviewed for impairment
indicators. If impairment indicators exist, we perform the required analysis and
record an impairment charge as required by applicable U.S. GAAP.
Indefinite-lived
intangible assets, such as goodwill and trademarks, held by our various segments
are reviewed for impairment annually, or more frequently if impairment
indicators exist. The impairment analysis compares the estimated fair value of
these assets to the related carrying value, and an impairment charge is recorded
for any excess of carrying value over estimated fair value. The estimated fair
value is 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. As of
December 31, 2009, our goodwill balance of $1,073 million pertains solely to our
Automotive segment. Our Automotive segment’s goodwill balance passed “Step 1” of
the annual goodwill impairment analysis, with fair values in excess of carrying
values of at least 15%.
Estimating
fair value for both long-lived and indefinite-lived assets requires management
to make assumptions regarding future sales volumes and pricing, capital
expenditures, useful lives and salvage values of related property, plant and
equipment, management’s ability to develop and implement productivity
improvements, discount rates, effective tax rates, market multiples and other
items. Any differences in actual results from estimates could result in fair
values different from estimated fair values, which could materially impact our
future results of operations and financial condition.
Commitments
and Contingencies — Litigation
On an
ongoing basis, we assess the potential liabilities related to any lawsuits or
claims brought against us. While it is typically very difficult to determine the
timing and ultimate outcome of such actions, we use our best judgment to
determine if it is probable that we will incur an expense related to the
settlement or final adjudication of such matters and whether a reasonable
estimation of such probable loss, if any, can be made. In assessing probable
losses, we make estimates of the amount of insurance recoveries, if any. We
accrue a liability when we believe a loss is probable and the amount of loss can
be reasonably estimated. Due to the inherent uncertainties related to the
eventual outcome of litigation and potential insurance recovery, it is possible
that certain matters may be resolved for amounts materially different from any
provisions or disclosures that we have previously made.
Environmental
Matters
Due to
the nature of the operations of our Automotive, Railcar and Metals segments, we
may be subject to environmental remediation claims. Our Automotive and Metals
segments are subject to federal, state, local and foreign environmental laws and
regulations concerning discharges to the air, soil, surface and subsurface
waters and the generation, handling, storage, transportation, treatment and
disposal of waste materials and hazardous substances. Our Automotive and Metals
operations are also subject to other federal, state, local and foreign laws and
regulations including those that require them to remove or mitigate the effects
of the disposal or release of certain materials at various sites. While it is
typically very difficult to determine the timing and ultimate outcome of such
actions, if any, our Automotive and Metals’ management use their best judgment
to determine if it is probable that they will incur an expense related to the
settlement or final adjudication of such matters and whether a reasonable
estimation of such probable loss, if any, can be made. In assessing probable
losses, our Automotive and Metals’ management make estimates of the amount of
insurance recoveries, if any. Our Automotive and Metals operations accrue a
liability when management believes a loss is probable and the amount of loss can
be reasonably estimated. Due to the inherent uncertainties related to the
eventual outcome of litigation and potential insurance recovery, it is possible
that certain matters may be resolved for amounts materially different from any
provisions or disclosures that have previously been made.
It is
impossible to predict precisely what effect these laws and regulations will have
on our Automotive and Metals’ operations in the future. Compliance with
environmental laws and regulations may result in, among other things, capital
expenditures, costs and liabilities. Management believes, based on past
experience and its best assessment of future events, that these environmental
liabilities and costs will be assessed and paid over an extended period of time.
Our Automotive and Metals operations believe that that recorded environmental
liabilities will be adequate to cover their estimated liability for its exposure
in respect to such matters. In the event that such liabilities were to
significantly exceed the amounts recorded, our Automotive and Metals’ results of
operations could be materially affected.
30
Use
of Estimates in Preparation of Financial Statements
The
preparation of the consolidated financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions that affect the
reported amount of assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the period.
The more significant estimates include: (1) the valuation allowances of accounts
receivable and inventory; (2) the valuation of goodwill, indefinite-lived
intangible assets and long-lived assets; (3) deferred tax assets; (4)
environmental liabilities; (5) fair value of derivatives; and (6) pension
liabilities. Actual results may differ from the estimates and assumptions used
in preparing the consolidated financial statements.
Pension
Plans and Other Postretirement Benefit Plans
Federal-Mogul
sponsors several defined benefit pension plans, or Pension Benefits, and health
care and life insurance benefits, or Other Benefits, for certain employees and
retirees around the world. As prescribed by applicable U.S. GAAP, Federal-Mogul
uses appropriate actuarial methods and assumptions in accounting for its defined
benefit pension plans, non-pension postemployment benefits, and disability,
early retirement and other postemployment benefits.
Actual
results that differ from assumptions used are accumulated and amortized over
future periods and, accordingly, generally affect recognized expense and the
recorded obligation in future periods. Therefore, assumptions used to calculate
benefit obligations as of the end of a fiscal year directly impact the expense
to be recognized in future periods. The primary assumptions affecting
Federal-Mogul’s accounting for employee benefits as of December 31, 2009 are as
follows:
|
|
·
|
Long-Term Rate of Return on
Plan Assets: The required use of the expected long-term
rate of return on plan assets may result in recognized returns that are
greater or less than the actual returns on those plan assets in any given
year. Over time, however, the expected long-term rate of return on plan
assets is designed to approximate actual earned long-term returns. Federal
Mogul uses long-term historical actual return information, the mix of
investments that comprise plan assets, and future estimates of long-term
investment returns by reference to external sources to develop an
assumption of the expected long-term rate of return on plan assets. The
expected long-term rate of return used to calculate net periodic pension
cost is 8.5% for U.S. plans and 5.79% for non-U.S.
plans.
|
|
|
·
|
Discount
Rate: The discount rate is used to calculate future
pension and postemployment obligations. Discount rate assumptions used to
account for pension and non-pension postemployment benefit plans reflect
the rates available on high-quality, fixed-income debt instruments on
December 31 of each year. In determining its pension and other benefit
obligations, Federal-Mogul uses weighted average discount rates of 5.75%
for U.S. plans and 5.13% for non-U.S.
plans.
|
|
|
·
|
Health Care Cost Trend:
For postretirement health care plan accounting, Federal-Mogul
reviews external data and its specific historical trends for health care
costs to determine the health care cost trend rate. The assumed health
care cost trend rate used to measure next year’s postemployment health
care benefits is 7.1% declining to an ultimate trend rate of 5.0% in 2014.
The assumed drug cost trend rate used to measure next year’s
postemployment health care benefits is 8.5% declining to an ultimate trend
rate of 5.0% in 2014.
|
The
following table illustrates the sensitivity to a change in certain assumptions
for projected benefit obligations, or PBO, associated expense and other
comprehensive loss, or OCL. The changes in these assumptions have no impact on
Federal-Mogul’s 2010 funding requirements.
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Pension Benefits
|
|||||||||||||||||||||||||||||||||
|
United States Plans
|
Non-U.S. Plans
|
Other Benefits
|
|||||||||||||||||||||||||||||||
|
Change
in 2010
Pension
Expense
|
Change
in
PBO
|
Change
in
Accumulated
OCL
|
Change
in 2010
Pension
Expense
|
Change
in
PBO
|
Change
in
Accumulated
OCL
|
Change
in 2010
Expense
|
Change
in
PBO
|
||||||||||||||||||||||||||
|
(Millions
of Dollars)
|
|||||||||||||||||||||||||||||||||
|
25
bp decrease in discount rate
|
$ | 2 | $ | 26 | $ | (26 | ) | $ | — | $ | 9 | $ | (9 | ) | $ | — | $ | 11 | |||||||||||||||
|
25
bp increase in discount rate
|
(2 | ) | (26 | ) | 26 | — | (9 | ) | 9 | — | (10 | ) | |||||||||||||||||||||
|
25
bp decrease in return on assets rate
|
2 | — | — | — | — | — | — | — | |||||||||||||||||||||||||
|
25
bp increase in return on assets rate
|
(2 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||
The
assumed health care trend rate has a significant impact on the amounts reported
for non-pension plans. The following table illustrates the sensitivity to a
change in the assumed health care trend rate:
31
|
Total Service and
Interest Cost
|
APBO
|
|||||||
|
(Millions
of Dollars)
|
||||||||
|
100
bp increase in health care trend rate
|
$ | 2 | $ | 24 | ||||
|
100
bp decrease in health care trend rate
|
(2 | ) | (22 | ) | ||||
Conditional
Asset Retirement Obligations
Federal-Mogul
has accrued conditional asset retirement obligations, or CARO, in accordance
with applicable U.S. GAAP. Federal-Mogul’s primary CARO activities relate to the
removal of hazardous building materials at its facilities. Federal-Mogul records
a CARO when the amount can be reasonably estimated, typically upon the
expectation that an operating site may be closed or sold. Federal-Mogul has
identified sites with contractual obligations and several sites that are closed
or expected to be closed and sold. In connection with these sites, Federal Mogul
has accrued $30 million and $27 million as of December 31, 2009 and 2008,
respectively, for CARO, primarily related to anticipated costs of removing
hazardous building materials, and has considered impairment issues that may
result from capitalization of CARO.
In
determining whether the estimated fair value of CARO can reasonably be
estimated, Federal-Mogul must determine if the obligation can be assessed in
relation to the acquisition price of the related asset or if an active market
exists to transfer the obligation. If the obligation cannot be assessed in
connection with an acquisition price and if no market exists for the transfer of
the obligation, Federal-Mogul must determine if it has sufficient information
upon which to estimate the obligation using expected present value techniques.
This determination requires Federal-Mogul to estimate the range of settlement
dates and the potential methods of settlement, and then to assign the
probabilities to the various potential settlement dates and
methods.
In cases
other than those included in the $30 million, where probability assessments
could not reasonably be made, Federal-Mogul cannot record and has not recorded a
liability for the affected CARO. If new information were to become available
whereby Federal-Mogul could make reasonable probability assessments for these
CARO, the amount accrued for CARO could change significantly, which could
materially impact Federal-Mogul’s statement of operations and/or financial
position and adversely impact our Automotive segment’s operations. Settlements
of CARO in the near-future at amounts other than Federal-Mogul’s best estimates
as of December 31, 2009 also could materially impact our Automotive segment’s
future results of operations and financial condition.
Income
Taxes
Except as
described below, no provision has been made for federal, state, local or foreign
income taxes on the results of operations generated by partnership activities as
such taxes are the responsibility of the partners. Our corporate subsidiaries
account for their income taxes under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carry forwards.
Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
Federal-Mogul
did not record taxes on its undistributed earnings of $617 million at December
31, 2009, since these earnings are considered by Federal-Mogul to be permanently
reinvested. If at some future date, these earnings cease to be permanently
reinvested, Federal-Mogul may be subject to U.S. income taxes and foreign
withholding taxes on such amounts. Determining the unrecognized deferred tax
liability on the potential distribution of these earnings is not practicable as
such liability, if any, is dependent on circumstances existing when remittance
occurs.
Management
periodically evaluates all evidence, both positive and negative, in determining
whether a valuation allowance to reduce the carrying value of deferred tax
assets is still needed. In fiscal 2009, fiscal 2008 and fiscal 2007, we
concluded, based on the projections of taxable income, that certain of our
corporate subsidiaries more likely than not will realize a partial benefit from
their deferred tax assets and loss carry forwards. Ultimate realization of the
deferred tax assets is dependent upon, among other factors, our corporate
subsidiaries’ ability to generate sufficient taxable income within the
carryforward periods and is subject to change depending on the tax laws in
effect in the years in which the carryforwards are used.
32
Recently
Issued Accounting Standards Updates
In
December 2009, the FASB issued amended standards for determining whether to
consolidate a VIE. This new standard affects all entities currently within the
scope of the Consolidation Topic of the FASB ASC, as well as qualifying
special-purpose entities that are currently excluded from the scope of the
Consolidation Topic of the FASB ASC. This new standard amends the evaluation
criteria to identify the primary beneficiary of the VIE and requires ongoing
reassessment of whether an enterprise is the primary beneficiary of such VIEs.
This new standard is effective as of the beginning of the first fiscal year
beginning after November 15, 2009. The adoption of this new standard will not
have a material impact on our financial condition, results of operations and
cash flows.
In
January 2010, the FASB issued new guidance on supplemental fair value
disclosures. The new disclosures require (1) a gross presentation of activities
within the Level 3 roll forward reconciliation, which will replace the net
presentation format and (2) detailed disclosures about the transfers between
Level 1 and Level 2 measurements. Additionally, the new guidance also provides
several clarifications regarding the level of disaggregation and disclosures
about inputs and valuation techniques. This new guidance is effective for the
first interim or annual reporting period beginning after December 15, 2009,
except for the gross presentation of the Level 3 roll forward, which is required
for annual reporting periods beginning after December 15, 2010 and for interim
reporting periods within those years. Early application is permitted and
comparative disclosures are not required in the period of initial adoption. The
adoption of this new standard will not have any impact on our financial
condition, results of operations and cash flows.
In
February 2010, the FASB issued new guidance which amends the consolidation
requirement discussed above. This amendment defers consolidation requirements
for a reporting entity’s interest in an entity if the reporting entity (1) has
all the attributes of an investment company or (2) represents an
entity for which it is industry practice to apply measurement principles for
financial reporting purposes that are consistent with those followed by
investment companies. The deferral does not apply in situations in which a
reporting entity has the explicit or implicit obligation to fund losses of an
entity that could be potentially significant to the entity. The deferral also
does not apply to interests in securitization entities, asset-backed financing
entities or entities formerly considered special-purpose entities. An entity
that qualifies for the deferral will continue to be assessed under the overall
guidance on the consolidation of VIEs or other applicable consolidation
guidance, such as the consolidation of partnerships. Entities are required,
however, to provide disclosures for all VIEs in which they hold a variable
interest. This includes variable interests in entities that qualify for the
deferral but are considered VIEs under the prior accounting provisions. This new
guidance is effective as of the beginning of a reporting entity’s first annual
period that begins after November 15, 2009, and for interim periods within that
first annual reporting period. We determined that certain entities within our
Investment Management segment met the deferral provisions of this new guidance.
Accordingly, these entities within our Investment Management segment will
continue to be subject to the overall guidance on the consolidation of VIEs
prior to the new standard described above or other applicable consolidation
guidance, such as the consolidation of partnerships.
In March
2010, the FASB issued new guidance on the accounting for credit derivatives that
are embedded in beneficial interests in securitized financial assets. The new
guidance eliminates the scope exception of certain credit derivative features
embedded in beneficial interests in securitized financial assets that are
currently not accounted for as derivatives within the Derivatives and Hedging
Topic of the FASB ASC. As a result, bifurcation and separate recognition may be
required for certain beneficial interests that are not currently accounted for
at fair value through earnings. This new guidance is effective for each
reporting entity at the beginning of its first fiscal quarter beginning after
June 15, 2010. Early adoption is permitted at each entity’s first fiscal quarter
beginning after issuance. The adoption of this new standard will not have a
material impact on our financial condition, results of operations and cash
flows.
Forward-Looking
Statements
Statements
included in “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” which are not historical in nature are intended to be,
and are hereby identified as, “forward-looking statements” for purposes of the
safe harbor provided by Section 27A of the Securities Act and Section 21E of the
Exchange Act, as amended by Public Law 104-67.
Forward-looking
statements regarding management’s present plans or expectations involve risks
and uncertainties and changing economic or competitive conditions, as well as
the negotiation of agreements with third parties, which could cause actual
results to differ from present plans or expectations, and such differences could
be material. Readers should consider that such statements speak only as of the
date hereof.
We have
in the past and may in the future make forward-looking statements. Certain of
the statements contained in this document involve risks and uncertainties. Our
future results could differ materially from those statements. Factors that could
cause or contribute to such differences include, but are not limited to those
discussed in this document. These statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
predicted. Also, please see Item 1A., “Risk Factors,” contained in our 2009
Annual Report on Form 10-K and Part II, Item 1A, “Risk Factors,” contained in
our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
2010.
33
EXHIBIT
99.3
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Partners of
Icahn
Enterprises L.P.
We have
audited the accompanying consolidated balance sheets of Icahn Enterprises L.P.
and Subsidiaries (the “Partnership”) (a Delaware limited partnership) as of
December 31, 2009 and 2008, and the related consolidated statements of
operations, changes in equity and comprehensive income (loss), and cash flows
for each of the three years in the period ended December 31, 2009. Our audits of
the basic consolidated financial statements included the financial statement
schedule listed in the index appearing under Item 9.01 (c). These financial
statements and financial statement schedule are the responsibility of the
Partnership’s management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
did not audit the financial statements of Federal-Mogul Corporation, a
subsidiary, which statements reflect total assets of $7.1 and $7.2 billion as of
December 31, 2009 and 2008, respectively, and total revenues of $5.4 billion for
the year ended December 31, 2009 and $5.7 billion for the period from March 1,
2008 (date of consolidation) through December 31, 2008, of the related
consolidated totals. Those statements were audited by other auditors, whose
report thereon has been furnished to us, and our opinion, insofar as it relates
to the amounts included for Federal-Mogul Corporation, is based solely on the
report of the other auditors.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the report of
the other auditors provide a reasonable basis for our opinion.
In our
opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Icahn Enterprises L.P.
and Subsidiaries as of December 31, 2009 and 2008, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2009 in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion, the
related financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
As
discussed in Note 1, the accompanying consolidated financial statements have
been adjusted to reflect the acquisition of entities under common control, which
have been accounted for in a manner similar to a
pooling-of-interests.
/s/ Grant
Thornton LLP
New York,
New York
June 9,
2010
1
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Shareholders of
Federal-Mogul
Corporation
We have
audited the consolidated balance sheets of Federal-Mogul Corporation (the
Company) as of December 31, 2009 and 2008 (Successor), and the related
consolidated statements of operations, shareholders’ equity (deficit), and cash
flows for the years ended December 31, 2009 and 2008 (Successor), and 2007
(Predecessor) (not presented herein). These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Federal-Mogul
Corporation at December 31, 2009 and 2008, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2009, in conformity with U.S. generally accepted accounting
principles.
As
discussed in Note 3 to the consolidated financial statements, on November 8,
2007, the U.S. Bankruptcy Court entered an order confirming the Plan of
Reorganization, which became effective on December 27, 2007. Accordingly, the
accompanying consolidated financial statements have been prepared in conformity
with Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) 852, Reorganizations , (formally
AICPA Statement of Position 90-7, Financial Reporting by Entities in
Reorganization under the Bankruptcy Code ), for the Successor as a new
entity with assets, liabilities and a capital structure having carrying values
not comparable with prior periods as described in Note 3.
As
discussed in Note 1 to the consolidated financial statements, in 2009 the
Successor changed its method of accounting for and presentation of consolidated
net income (loss) attributable to the parent and non-controlling
interest.
As
discussed in Note 15 to the consolidated financial statements, in 2007 the
Predecessor changed its method of accounting for tax uncertainties.
/s/ Ernst
& Young LLP
Detroit,
Michigan
February
23, 2010
2
ICAHN
ENTERPRISES L.P. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
December
31, 2009 and 2008
|
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
(In Millions, Except Unit Amounts)
|
||||||||
|
ASSETS
|
||||||||
|
Cash
and cash equivalents
|
$ | 2,256 | $ | 2,917 | ||||
|
Cash
held at consolidated affiliated partnerships and restricted
cash
|
3,336 | 3,949 | ||||||
|
Investments
|
5,405 | 4,531 | ||||||
|
Accounts
receivable, net
|
1,139 | 1,152 | ||||||
|
Due
from brokers
|
56 | 54 | ||||||
|
Inventories,
net
|
1,091 | 1,233 | ||||||
|
Property,
plant and equipment, net
|
2,958 | 3,179 | ||||||
|
Goodwill
|
1,083 | 1,096 | ||||||
|
Intangible
assets, net
|
1,007 | 960 | ||||||
|
Other
assets
|
555 | 659 | ||||||
|
Total
Assets
|
$ | 18,886 | $ | 19,730 | ||||
|
LIABILITIES
AND EQUITY
|
||||||||
|
Accounts
payable
|
$ | 628 | $ | 753 | ||||
|
Accrued
expenses and other liabilities
|
1,993 | 2,876 | ||||||
|
Securities
sold, not yet purchased, at fair value
|
2,035 | 2,273 | ||||||
|
Due
to brokers
|
376 | 713 | ||||||
|
Postemployment
benefit liability
|
1,413 | 1,356 | ||||||
|
Debt
|
5,186 | 4,977 | ||||||
|
Preferred
limited partner units
|
136 | 130 | ||||||
|
Total
liabilities
|
11,767 | 13,078 | ||||||
|
Commitments
and contingencies (Note 20)
|
||||||||
|
Equity:
|
||||||||
|
Limited
partners:
|
||||||||
|
Depositary
units: 92,400,000 authorized; issued 75,912,797 at December 31, 2009 and
2008; outstanding 74,775,597 at December 31, 2009 and 2008
|
2,828 | 2,582 | ||||||
|
General
partner
|
18 | (6 | ) | |||||
|
Treasury
units at cost
|
(12 | ) | (12 | ) | ||||
|
Equity
attributable to Icahn Enterprises
|
2,834 | 2,564 | ||||||
|
Equity
attributable to non-controlling interests
|
4,285 | 4,088 | ||||||
|
Total
equity
|
7,119 | 6,652 | ||||||
|
Total
Liabilities and Equity
|
$ | 18,886 | $ | 19,730 | ||||
See
accompanying notes to the consolidated financial statements.
3
ICAHN
ENTERPRISES L.P. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
Years
Ended December 31, 2009, 2008 and 2007
|
Year Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
(In Millions, Except Per Unit Amounts)
|
||||||||||||
|
Revenues:
|
||||||||||||
|
Net
sales
|
$ | 6,790 | $ | 8,430 | $ | 2,506 | ||||||
|
Net
gain (loss) from investment activities
|
1,382 | (2,923 | ) | 439 | ||||||||
|
Interest
and dividend income
|
244 | 331 | 386 | |||||||||
|
(Loss)
gain on extinguishment of debt
|
(6 | ) | 146 | — | ||||||||
|
Other
income, net
|
195 | 154 | 126 | |||||||||
| 8,605 | 6,138 | 3,457 | ||||||||||
|
Expenses:
|
||||||||||||
|
Cost
of goods sold
|
5,844 | 7,166 | 2,278 | |||||||||
|
Selling,
general and administrative
|
1,170 | 1,073 | 398 | |||||||||
|
Restructuring
|
51 | 157 | 19 | |||||||||
|
Impairment
|
41 | 450 | 35 | |||||||||
|
Interest
expense
|
319 | 358 | 184 | |||||||||
| 7,425 | 9,204 | 2,914 | ||||||||||
|
Income
(loss) from continuing operations before income tax benefit
(expense)
|
1,180 | (3,066 | ) | 543 | ||||||||
|
Income
tax benefit (expense)
|
44 | (76 | ) | (33 | ) | |||||||
|
Income
(loss) from continuing operations
|
1,224 | (3,142 | ) | 510 | ||||||||
|
Income
from discontinued operations
|
1 | 485 | 84 | |||||||||
|
Net
income (loss)
|
1,225 | (2,657 | ) | 594 | ||||||||
|
Less:
net (income) loss attributable to non-controlling
interests
|
(972 | ) | 2,631 | (272 | ) | |||||||
|
Net
income (loss) attributable to Icahn Enterprises
|
$ | 253 | $ | (26 | ) | $ | 322 | |||||
|
Net
income (loss) attributable to Icahn Enterprises from:
|
||||||||||||
|
Continuing
operations
|
$ | 252 | $ | (511 | ) | $ | 233 | |||||
|
Discontinued
operations
|
1 | 485 | 89 | |||||||||
| $ | 253 | $ | (26 | ) | $ | 322 | ||||||
|
Net
income (loss) attributable to Icahn Enterprises allocable
to:
|
||||||||||||
|
Limited
partners
|
$ | 229 | $ | (57 | ) | $ | 103 | |||||
|
General
partner
|
24 | 31 | 219 | |||||||||
| $ | 253 | $ | (26 | ) | $ | 322 | ||||||
|
Basic
income (loss) per LP unit:
|
||||||||||||
|
Income
(loss) from continuing operations
|
$ | 3.04 | $ | (7.84 | ) | $ | 0.24 | |||||
|
Income
from discontinued operations
|
0.01 | 7.04 | 1.34 | |||||||||
| $ | 3.05 | $ | (0.80 | ) | $ | 1.58 | ||||||
|
Basic
weighted average LP units outstanding
|
75 | 71 | 65 | |||||||||
|
Diluted
income (loss) per LP unit:
|
||||||||||||
|
Income
(loss) from continuing operations
|
$ | 2.96 | $ | (7.84 | ) | $ | 0.24 | |||||
|
Income
from discontinued operations
|
0.01 | 7.04 | 1.34 | |||||||||
| $ | 2.97 | $ | (0.80 | ) | $ | 1.58 | ||||||
|
Dilutive
weighted average LP units outstanding
|
79 | 71 | 65 | |||||||||
|
Cash
distributions declared per LP unit
|
$ | 1.00 | $ | 1.00 | $ | 0.55 | ||||||
See
accompanying notes to the consolidated financial statements.
4
CONSOLIDATED
STATEMENT OF CHANGES
IN
EQUITY AND COMPREHENSIVE INCOME (LOSS)
Years
Ended December 31, 2009, 2008 and 2007
(In
Millions)
|
Equity Attributable to Icahn Enterprises
|
||||||||||||||||||||||||||||
|
General
Partner’s
Equity
|
Limited
Partners’
|
Held in Treasury
|
Total
Partners’
|
Non-
Controlling
|
Total
|
|||||||||||||||||||||||
|
(Deficit)
|
Equity
|
Amount
|
Units
|
Equity
|
Interests
|
Equity
|
||||||||||||||||||||||
|
Balance,
December 31, 2006 (as adjusted, Note
1)
|
$ | 749 | $ | 2,248 | $ | (12 | ) | 1 | $ | 2,985 | $ | 4,042 | $ | 7,027 | ||||||||||||||
|
Cumulative
effect of adjustment from adoption of fair value option
|
(1 | ) | (41 | ) | — | — | (42 | ) | — | (42 | ) | |||||||||||||||||
|
Comprehensive
income:
|
||||||||||||||||||||||||||||
|
Net
income
|
219 | 103 | — | — | 322 | 272 | 594 | |||||||||||||||||||||
|
Net
unrealized losses on available-for-sale securities
|
— | (24 | ) | — | — | (24 | ) | — | (24 | ) | ||||||||||||||||||
|
Other
comprehensive income
|
11 | — | — | — | 11 | 3 | 14 | |||||||||||||||||||||
|
Comprehensive
income
|
230 | 79 | — | — | 309 | 275 | 584 | |||||||||||||||||||||
|
General
partner contributions
|
16 | — | — | — | 16 | — | 16 | |||||||||||||||||||||
|
Partnership
distributions
|
(1 | ) | (36 | ) | — | — | (37 | ) | — | (37 | ) | |||||||||||||||||
|
Investment
Management distributions
|
— | — | — | — | — | (107 | ) | (107 | ) | |||||||||||||||||||
|
Investment
Management contributions
|
— | — | — | — | — | 2,759 | 2,759 | |||||||||||||||||||||
|
Investment
Management business acquisition
|
(810 | ) | 810 | — | — | — | — | — | ||||||||||||||||||||
|
Investment
Management business distributions
|
(445 | ) | — | — | — | (445 | ) | — | (445 | ) | ||||||||||||||||||
|
PSC
Metals acquisition
|
(335 | ) | — | — | — | (335 | ) | — | (335 | ) | ||||||||||||||||||
|
PSC
Metals capital contribution
|
39 | — | — | — | 39 | — | 39 | |||||||||||||||||||||
|
Change
in subsidiary equity
|
— | (3 | ) | — | — | (3 | ) | (91 | ) | (94 | ) | |||||||||||||||||
|
Cumulative
effect of adjustment from the adoption of the accounting for uncertainty
in income taxes
|
(1 | ) | — | — | — | (1 | ) | — | (1 | ) | ||||||||||||||||||
|
Balance,
December 31, 2007
|
(559 | ) | 3,057 | (12 | ) | 1 | 2,486 | 6,878 | 9,364 | |||||||||||||||||||
|
Comprehensive
loss:
|
||||||||||||||||||||||||||||
|
Net
income (loss)
|
31 | (57 | ) | — | — | (26 | ) | (2,631 | ) | (2,657 | ) | |||||||||||||||||
|
Net
unrealized losses on available-for-sale securities
|
— | (8 | ) | — | — | (8 | ) | — | (8 | ) | ||||||||||||||||||
|
Defined
benefit plans
|
(30 | ) | (254 | ) | — | — | (284 | ) | (87 | ) | (371 | ) | ||||||||||||||||
|
Translation
adjustments and other
|
(77 | ) | (244 | ) | — | — | (321 | ) | (103 | ) | (424 | ) | ||||||||||||||||
|
Comprehensive
loss
|
(76 | ) | (563 | ) | — | — | (639 | ) | (2,821 | ) | (3,460 | ) | ||||||||||||||||
|
Federal-Mogul
acquisition
|
615 | 153 | — | — | 768 | 627 | 1,395 | |||||||||||||||||||||
|
Partnership
distributions
|
(1 | ) | (71 | ) | — | — | (72 | ) | — | (72 | ) | |||||||||||||||||
|
General
partner contributions
|
3 | — | — | — | 3 | — | 3 | |||||||||||||||||||||
|
Investment
Management distributions
|
— | — | — | — | — | (1,351 | ) | (1,351 | ) | |||||||||||||||||||
|
Investment
Management contributions
|
— | — | — | — | — | 830 | 830 | |||||||||||||||||||||
|
Change
in subsidiary equity and other
|
12 | 6 | — | — | 18 | (75 | ) | (57 | ) | |||||||||||||||||||
|
Balance,
December 31, 2008
|
(6 | ) | 2,582 | (12 | ) | 1 | 2,564 | 4,088 | 6,652 | |||||||||||||||||||
|
Comprehensive
income:
|
||||||||||||||||||||||||||||
|
Net
income
|
24 | 229 | — | — | 253 | 972 | 1,225 | |||||||||||||||||||||
|
Defined
benefit plans
|
— | 12 | — | — | 12 | 4 | 16 | |||||||||||||||||||||
|
Hedge
instruments
|
— | 25 | — | — | 25 | 8 | 33 | |||||||||||||||||||||
|
Translation
adjustments and other
|
3 | 52 | — | — | 55 | 27 | 82 | |||||||||||||||||||||
|
Comprehensive
income
|
27 | 318 | — | — | 345 | 1,011 | 1,356 | |||||||||||||||||||||
|
Partnership
distributions
|
(2 | ) | (75 | ) | — | — | (77 | ) | — | (77 | ) | |||||||||||||||||
|
Investment
Management distributions
|
— | — | — | — | — | (1,107 | ) | (1,107 | ) | |||||||||||||||||||
|
Investment
Management contributions
|
— | — | — | — | — | 287 | 287 | |||||||||||||||||||||
|
Change
in subsidiary equity and other
|
(1 | ) | 3 | — | — | 2 | 6 | 8 | ||||||||||||||||||||
|
Balance,
December 31, 2009
|
$ | 18 | $ | 2,828 | $ | (12 | ) | 1 | $ | 2,834 | $ | 4,285 | $ | 7,119 | ||||||||||||||
Accumulated
Other Comprehensive Loss was $657 and $788 at December 31, 2009 and 2008,
respectively.
5
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Years
Ended December 31, 2009, 2008 and 2007
|
Year Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
(In Millions)
|
||||||||||||
|
Net
income (loss)
|
$ | 1,225 | $ | (2,657 | ) | $ | 594 | |||||
|
Cash
flows from operating activities:
|
||||||||||||
|
Income
(loss) from continuing operations
|
$ | 1,224 | $ | (3,142 | ) | $ | 510 | |||||
|
Adjustments
to reconcile net income (loss) to net cash provided by (used in) operating
activities:
|
||||||||||||
|
Investment
(gains) losses
|
(1,382 | ) | 2,923 | (439 | ) | |||||||
|
Purchases
of securities
|
(2,433 | ) | (9,104 | ) | (8,998 | ) | ||||||
|
Proceeds
from sales of securities
|
3,335 | 6,829 | 6,354 | |||||||||
|
Purchases
to cover securities sold, not yet purchased
|
(4,843 | ) | (654 | ) | (2,210 | ) | ||||||
|
Proceeds
from securities sold, not yet purchased
|
4,032 | 3,437 | 1,592 | |||||||||
|
Net
cash received (paid) on derivative contracts
|
5 | 661 | (46 | ) | ||||||||
|
Changes
in receivables and payables relating to securities
transactions
|
(611 | ) | 1,789 | 23 | ||||||||
|
Depreciation
and amortization
|
441 | 369 | 66 | |||||||||
|
Impairment
loss on long-lived assets
|
41 | 450 | 35 | |||||||||
|
Loss
(gain) on extinguishment of debt
|
6 | (146 | ) | — | ||||||||
|
Other,
net
|
(189 | ) | 48 | (29 | ) | |||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||
|
Cash
held at consolidated affiliated partnerships and restricted
cash
|
595 | (2,800 | ) | 47 | ||||||||
|
Accounts
receivable
|
37 | 223 | 8 | |||||||||
|
Inventories
|
165 | 208 | 42 | |||||||||
|
Other
assets
|
25 | (9 | ) | (90 | ) | |||||||
|
Accounts
payable, accrued expenses and other liabilities
|
(82 | ) | (182 | ) | 195 | |||||||
|
Net
cash provided by (used in) continuing operations
|
366 | 900 | (2,940 | ) | ||||||||
|
Net
cash (used in) provided by discontinued operations
|
(1 | ) | (7 | ) | 86 | |||||||
|
Net
cash provided by (used in) operating activities
|
365 | 893 | (2,854 | ) | ||||||||
|
Cash
flows from investing activities:
|
||||||||||||
|
Capital
expenditures
|
(230 | ) | (858 | ) | (128 | ) | ||||||
|
Purchases
of marketable equity and debt securities
|
(38 | ) | (30 | ) | (256 | ) | ||||||
|
Debtor-in-possession
financing
|
(33 | ) | — | — | ||||||||
|
Proceeds
from sales of marketable equity and debt securities
|
65 | 590 | 438 | |||||||||
|
Acquisitions
of businesses, net of cash acquired
|
— | (68 | ) | (48 | ) | |||||||
|
Other
|
(20 | ) | 54 | 19 | ||||||||
|
Net
cash (used in) provided by investing activities from continuing
operations
|
(256 | ) | (312 | ) | 25 | |||||||
|
Net
cash provided by (used in) investing activities from discontinued
operations
|
3 | 1,069 | (10 | ) | ||||||||
|
Net
cash (used in) provided by investing activities
|
(253 | ) | 757 | 15 | ||||||||
See
accompanying notes to the consolidated financial statements.
6
CONSOLIDATED
STATEMENTS OF CASH FLOWS – (continued)
Years
Ended December 31, 2009, 2008 and 2007
|
Year Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Cash
flows from financing activities:
|
||||||||||||
|
Investment
Management:
|
||||||||||||
|
Capital
distributions to partners
|
— | — | (156 | ) | ||||||||
|
Capital
subscriptions received in advance
|
7 | — | 145 | |||||||||
|
Capital
distributions to non-controlling interests
|
(1,163 | ) | (1,270 | ) | (43 | ) | ||||||
|
Capital
contributions by non-controlling interests
|
287 | 685 | 2,404 | |||||||||
|
Icahn
Enterprises Equity:
|
||||||||||||
|
Partnership
distributions
|
(77 | ) | (72 | ) | (37 | ) | ||||||
|
General
partner contributions
|
— | 3 | 16 | |||||||||
|
PSC
Metals acquisition
|
— | — | (335 | ) | ||||||||
|
Purchase
of treasury shares by subsidiary
|
— | (17 | ) | — | ||||||||
|
Dividends
paid to minority holders of subsidiary
|
— | — | (19 | ) | ||||||||
|
Proceeds
from borrowings
|
352 | 67 | 1,454 | |||||||||
|
Repayments
of borrowings
|
(192 | ) | (321 | ) | (45 | ) | ||||||
|
Other
|
(6 | ) | 11 | (1 | ) | |||||||
|
Net
cash (used in) provided by financing activities from continuing
operations
|
(792 | ) | (914 | ) | 3,383 | |||||||
|
Net
cash (used in) provided by financing activities from discontinued
operations
|
— | (255 | ) | (1 | ) | |||||||
|
Net
cash (used in) provided by financing activities
|
(792 | ) | (1,169 | ) | 3,382 | |||||||
|
Effect
of exchange rate changes on cash
|
19 | (57 | ) | 4 | ||||||||
|
Net
(decrease) increase in cash and cash equivalents
|
(661 | ) | 424 | 547 | ||||||||
|
Net
change in cash of assets held for sale
|
— | 69 | (52 | ) | ||||||||
|
Cash
and cash equivalents, beginning of period
|
2,917 | 2,424 | 1,929 | |||||||||
|
Cash
and cash equivalents, end of period
|
$ | 2,256 | $ | 2,917 | $ | 2,424 | ||||||
|
Supplemental
information:
|
||||||||||||
|
Cash
payments for interest
|
$ | 289 | $ | 372 | $ | 169 | ||||||
|
Net
cash payments (refunds) for income taxes
|
$ | — | $ | 261 | $ | 46 | ||||||
|
Net
unrealized gains (losses) on securities available for sale
|
$ | 3 | $ | (8 | ) | $ | (24 | ) | ||||
|
LP
unit issuance
|
$ | — | $ | 153 | $ | 810 | ||||||
|
Philip’s
contribution to redeem PSC Metals’ debt
|
$ | — | $ | — | $ | 35 | ||||||
|
Redemptions
payable to non-controlling interests
|
$ | 113 | $ | 169 | $ | 88 | ||||||
|
Capital
lease asset financing
|
$ | 2 | $ | — | $ | — | ||||||
See
accompanying notes to the consolidated financial statements.
7
1.
Description of Business and Basis of Presentation
General
As of
December 31, 2009, 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. As discussed
below, as a result of our acquisition of controlling interests in American
Railcar Industries, Inc. (‘‘ARI’’) and Viskase Companies, Inc. (‘‘Viskase’’),
our consolidated financial statements now include the results of ARI and Viskase
for all periods presented in these financial statements. ARI and Viskase
represent our Railcar and Food Packaging segments, respectively. 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 3, “Operating Units,” and
Note 17, “Segment and Geographic Reporting.”
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”).
Acquisitions
Acquisition
of Controlling Interest in American Railcar Industries, Inc.
On
January 15, 2010, pursuant to a Contribution and Exchange Agreement (the “ARI
Contribution and Exchange Agreement”) among Icahn Enterprises, Beckton Corp., a
Delaware corporation (“Beckton”), Barberry, Modal LLC, a Delaware limited
liability company (“Modal”), and Caboose Holding LLC, a Delaware limited
liability company (“Caboose” and, together with Barberry and Modal,
collectively, the “ARI Contributing Parties”), the ARI Contributing Parties
contributed to Icahn Enterprises 11,564,145 shares of common stock of ARI,
representing approximately 54.3% of ARI’s total outstanding common stock as of
January 15, 2010, collectively owned by the ARI Contributing Parties for
aggregate consideration consisting of 3,116,537 (or approximately $141 million
based on the closing price of our depositary units on January 15, 2010) of our
depositary units subject to certain post-closing adjustments. ARI is a leading
North American designer and manufacturer of hopper and tank railcars. ARI also
repairs and refurbishes railcars, provides fleet management services and designs
and manufactures certain railcar and industrial components. The transactions
contemplated by the ARI Contribution and Exchange Agreement were authorized by
the Audit Committee of the board of directors of Icahn Enterprises GP on January
11, 2010. The Audit Committee was advised by independent counsel and an
independent financial advisor which rendered a fairness
opinion.
8
Acquisition
of Controlling Interest in Viskase Companies, Inc.
On
January 15, 2010, pursuant to a Contribution and Exchange Agreement (the
“Viskase Contribution and Exchange Agreement”) among Icahn Enterprises, Beckton,
Barberry, Koala Holding Limited Partnership, a Delaware limited partnership
(“Koala”), High River Limited Partnership, a Delaware limited partnership (“High
River”), and Meadow Walk Limited Partnership, a Delaware limited partnership
(“Meadow Walk” and, together with Barberry, Koala and High River, collectively,
the “Viskase Contributing Parties”), the Viskase Contributing Parties
contributed to Icahn Enterprises 25,560,929 shares of common stock of Viskase,
representing approximately 71.4% of Viskase’s total outstanding common stock as
of January 15, 2010, collectively owned by the Viskase Contributing Parties for
aggregate consideration consisting of 2,915,695 (or approximately $132 million
based on the closing price of our depositary units on January 15, 2010) of our
depositary units. Viskase is a leading worldwide producer of non-edible
cellulosic, fibrous and plastic casings used to prepare and package processed
meat and poultry products. The transactions contemplated by the Viskase
Contribution and Exchange Agreement were authorized by the Audit Committee of
the board of directors of Icahn Enterprises GP on January 11, 2010. The Audit
Committee was advised by independent counsel and an independent financial
advisor which rendered a fairness opinion.
Change
in Reporting Entity
As
discussed above, on January 15, 2010, in two separate transactions, we acquired
controlling interests in ARI and Viskase, which are each considered entities
under common control. For accounting purposes, ARI’s and Viskase’s earnings for
the period of common control up until our acquisition of the controlling
interests in each of these companies on January 15, 2010 have been allocated to
Icahn Enterprises GP, our general partner. As a result of the acquisitions of
ARI and Viskase that occurred on January 15, 2010, our consolidated financial
statements now include the results of ARI and Viskase effective when common
control (over 50% ownership) has been achieved which for ARI was in May 1988 and
for Viskase was in November 2006.
Basis
of Presentation
We have
prepared the accompanying consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America (“U.S.
GAAP”).
The
consolidated financial statements include the accounts of (i) Icahn Enterprises
and (ii) the wholly and majority owned subsidiaries of Icahn Enterprises in
which control can be exercised, in addition to those entities in which Icahn
Enterprises has a substantive controlling, general partner interest or in which
it is the primary beneficiary of a variable interest entity, as described below.
Icahn Enterprises is considered to have control if it has a direct or indirect
ability to make decisions about an entity’s activities through voting or similar
rights. All material intercompany accounts and transactions have been eliminated
in consolidation.
As
further described in Note 2, “Summary of Significant Accounting Policies,” the
Investment Funds and the Offshore Fund (as each term is defined herein) are
consolidated into our financial statements even though we only have a minority
interest in the equity and income of these funds. The majority ownership
interests in these funds, which represent the portion of the consolidated net
assets and net income attributable to the limited partners and shareholders in
the consolidated Private Funds (as defined below) for the periods presented, are
reflected as non-controlling interests in the accompanying consolidated
financial statements.
In
accordance with U.S. GAAP, assets transferred between entities under common
control are accounted for at historical cost similar to a pooling of interests,
and the financial statements of previously separate companies for all periods
under common control prior to the acquisition are restated on a consolidated
basis.
2.
Summary of Significant Accounting Policies
As
discussed in Note 1, “Description of Business and Basis of Presentation,” we
operate in several diversified segments. The accounting policies related to the
specific segments or industries are differentiated, as required, in the list of
significant accounting policies set out below.
Principles
of Consolidation
General
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 (a “VIE”). In evaluating whether we
have a controlling financial interest in entities in which we would consolidate,
we consider the following: (1) for voting interest entities, we consolidate
those entities in which we own a majority of the voting interests; (2) for VIEs,
we consolidate those 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 that are not considered VIEs, we consolidate those 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.
9
For
investments in affiliates of 50% or less but greater than 20%, our Automotive
and Home Fashion segments account for such investments using the equity method,
while investments in affiliates of 20% or less are accounted for under the cost
method.
Investment
Management
Although
the Private Funds, as defined herein, are not investment companies within the
meaning of the ’40 Act, each of the consolidated Private Funds is, for purposes
of U.S. GAAP, an investment company pursuant to Financial Accounting Statements
Board (“FASB”) Accounting Standards Codification (“ASC”) Subtopic 946.10, Financial Services — Investment
Companies. The General Partners adopted FASB ASC Section 946.810.45,
Financial Services —
Investment Companies — Consolidation — Other Presentation Matters (“FASB
ASC Section 946.810.45”), as of January 1, 2007. FASB ASC Section 946.810.45
addresses whether the accounting principles of FASB ASC Section 946.810.45 may
be applied to an entity by clarifying the definition of an investment company
and whether those accounting principles may be retained by a parent company in
consolidation or by an investor in the application of the equity method of
accounting. Upon the adoption of FASB ASC Section 946.810.45, (i) the Offshore
GP lost its ability to retain specialized accounting pursuant to FASB ASC
Section 946.810.45 for either its equity method investment in Offshore Master
Fund I or for its consolidation of the Offshore Fund, Offshore Master Fund II
and Offshore Master Fund III, and (ii) the Onshore GP lost its ability to retain
specialized accounting for its consolidation of the Onshore Fund, in each case,
because both the Offshore GP and the Onshore GP do not meet the requirements for
retention of specialized accounting under FASB ASC Section 946.810.45, as the
Offshore GP and Onshore GP and their affiliates acquire interests for strategic
operating purposes in the same companies in which their subsidiary investment
companies invest.
However,
upon losing their ability to retain specialized accounting, the General Partners
account for their investments held by the consolidated Private Funds in debt
securities and in those equity securities with readily determinable fair values
pursuant to the Investment — Debt and Equity Securities Topic of the FASB ASC
and classified such investments as available-for-sale securities and then
elected the fair value option and reclassified such securities as trading
securities. For those equity securities that did not have readily determinable
fair values, the General Partners elected the fair value option. For those
investments in which the General Partners would otherwise account for such
investments under the equity method, the General Partners, in accordance with
their accounting policy, elected the fair value option. The election of the fair
value option was deemed to most accurately reflect the nature of our business
relating to investments.
The
special profits interest allocations (effective January 1, 2008), incentive
allocations and management fees earned (through December 31, 2007) from certain
consolidated entities and the incentive allocations are eliminated in
consolidation; however, our allocated share of the net income from the Private
Funds includes the amount of these eliminated fees and allocations. Accordingly,
the consolidation of the Private Funds has no material net effect on our
earnings from the Private Funds.
10
Use
of Estimates in Preparation of Financial Statements
The
preparation of the consolidated financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions that affect the
reported amount of assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the period.
The more significant estimates include: (1) the valuation allowances of accounts
receivable and inventory; (2) the valuation of goodwill, indefinite-lived
intangible assets and long-lived assets; (3) deferred tax assets; (4)
environmental liabilities; (5) fair value of derivatives; and (6) pension
liabilities. Actual results may differ from the estimates and assumptions used
in preparing the consolidated financial statements.
Cash
and Cash Equivalents
We
consider short-term investments, which are highly liquid with original
maturities of three months or less at date of purchase, to be cash
equivalents.
Cash
Held at Consolidated Affiliated Partnerships and Restricted Cash
Cash held
at consolidated affiliated partnerships primarily consists of cash and cash
equivalents held by the Onshore Fund and Offshore Master Funds (as defined
herein) that, although not legally restricted, is not available to fund the
general liquidity needs of the Investment Management segment or Icahn
Enterprises. Restricted cash primarily relates to cash pledged and held for
margin requirements on derivative transactions as well as cash related to
securities sold short, not yet purchased. A portion of the cash at brokers is
related to securities sold, not yet purchased; its use is therefore restricted
until the securities are purchased. Securities sold, not yet purchased are
collateralized by certain of the Private Funds’ investments in
securities.
The
restricted cash balance was approximately $2.8 billion and $3.3 billion as of
December 31, 2009 and 2008, respectively.
Investments
and Related Transactions – Investment Management
Investment Transactions and Related
Investment Income (Loss). Investment transactions of the Private Funds
are recorded on a trade date basis. Realized gains or losses on sales of
investments are based on the first-in, first-out or the specific identification
methods. Realized and unrealized gains or losses on investments are recorded in
the consolidated statements of operations. Interest income and expenses are
recorded on an accrual basis and dividends are recorded on the ex-dividend date.
Premiums and discounts on fixed income securities are amortized using the
effective yield method.
Valuation of Investments.
Securities of the Private Funds that are listed on a securities exchange are
valued at their last sales price on the primary securities exchange on which
such securities are traded on such date. Securities that are not listed on any
exchange but are traded over-the-counter are valued at the mean between the last
“bid” and “ask” price for such security on such date. Securities and other
instruments for which market quotes are not readily available are valued at fair
value as determined in good faith by the applicable General
Partner.
Foreign Currency
Transactions. The books and records of the Private Funds are maintained
in U.S. dollars. Assets and liabilities denominated in currencies other than
U.S. dollars are translated into U.S. dollars at the rate of exchange in effect
at the balance sheet date. Transactions during the period denominated in
currencies other than U.S. dollars are translated at the rate of exchange
applicable on the date of the transaction. Foreign currency translation gains
and losses are recorded in the consolidated statements of operations. The
Private Funds do not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in the market prices of securities. Such fluctuations are
reflected in “Net gain (loss) from investment activities” in the consolidated
statement of operations.
Fair Values of Financial
Instruments. The fair values of the Private Funds’ assets and liabilities
that qualify as financial instruments under applicable U.S. GAAP approximate the
carrying amounts presented in the consolidated balance sheets.
Securities Sold, Not Yet
Purchased. The Private Funds may sell an investment they do not own in
anticipation of a decline in the fair value of that investment. When the Private
Funds sell an investment short, they must borrow the investment sold short and
deliver it to the broker-dealer through which they made the short sale. A gain,
limited to the price at which the Private Funds sold the investment short, or a
loss, unlimited in amount, will be recognized upon the cover of the short
sale.
Due From Brokers. Due from
brokers represents cash balances with the Private Funds’ clearing brokers as
well as unrestricted balances with derivative counterparties
Due To Brokers. Due to
brokers represents margin debit balances collateralized by certain of the
Private Funds’ investments in securities.
Investments
— Other Operations
Investments
in equity and debt securities are classified as either trading or
available-for-sale based upon whether we intend to hold the investment for the
foreseeable future. Trading securities are valued at quoted market value at each
balance sheet date with the unrealized gains or losses reflected in the
consolidated statements of operations. Available-for-sale securities are carried
at fair value on our balance sheet. Unrealized holding gains and losses on
available-for-sale securities are excluded from earnings and reported as a
separate component of partners’ equity and when sold are reclassified out of
partners’ equity to the consolidated statements of operations. For purposes of
determining gains and losses, the cost of securities is based on specific
identification.
11
A decline
in the market value of any available-for-sale security below cost that is deemed
to be other than temporary results in an impairment that is charged to earnings
and the establishment of a new cost basis for the investment. Dividend income is
recorded when declared and interest income is recognized when
earned.
Fair
Value of Financial Instruments — Other Operations
The
carrying values of cash and cash equivalents, accounts receivable, accounts
payable, accrued expenses, and other liabilities 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 6, “Investments and
Related Matters,” and Note 7, “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 December 31, 2009 are approximately $5.2 billion and $4.8
billion, respectively. The carrying value and estimated fair value of our
long-term debt as of December 31, 2008 are approximately $5.0 billion and $2.8
billion, respectively.
Fair
Value Option for Financial Assets and Financial Liabilities
The fair
value option gives entities the option to measure eligible financial assets,
financial liabilities and firm commitments at fair value (i.e., the fair value
option), on an instrument-by-instrument basis, that are otherwise not permitted
to be accounted for at fair value pursuant to the provisions of the FASB ASC.
The election to use the fair value option is available when an entity first
recognizes a financial asset or financial liability or upon entering into a firm
commitment. Subsequent changes in fair value must be recorded in earnings. In
estimating the fair value for financial instruments for which the fair value
option has been elected, we use the valuation methodologies in accordance to
where the financial instruments are classified within the fair value hierarchy
as discussed in Note 7, “Fair Value Measurements.” Except for our Automotive and
Home Fashion segments as discussed above, we apply the fair value option to our
investments that would otherwise be accounted under the equity
method.
Derivatives
From time
to time, our subsidiaries enter into derivative contracts, including purchased
and written option contracts, swap contracts, futures contracts and forward
contracts entered into by our Investment Management and Automotive segments.
U.S. GAAP requires recognition of all derivatives as either assets or
liabilities in the balance sheet at their fair value. The accounting for changes
in fair value depends on the intended use of the derivative and its resulting
designation. For further information regarding our Investment Management and
Automotive segments’ derivative contracts, see Note 8, “Financial
Instruments.”
Accounts
Receivable, Net
An
allowance for doubtful accounts is determined through analysis of the aging of
accounts receivable at the date of the consolidated financial statements,
assessments of collectability based on an evaluation of historic and anticipated
trends, the financial condition of our customers, and an evaluation of the
impact of economic conditions. Our allowance for doubtful accounts is an
estimate based on specifically identified accounts as well as general reserves
based on historical experience.
Federal-Mogul
Corporation (“Federal-Mogul”), which comprises our Automotive segment, has
subsidiaries in Brazil, France, Germany, Italy and Spain that are party to
accounts receivable factoring arrangements. Gross accounts receivable factored
under these facilities were $217 million and $222 million as of December 31,
2009 and 2008, respectively. Of those gross amounts, $190 million and $209
million, respectively, were factored without recourse and treated as a sale.
Under terms of these factoring arrangements Federal-Mogul is not obligated to
draw cash immediately upon the factoring of accounts receivable. Thus, as of
December 31, 2009 and 2008, Federal-Mogul had outstanding factored amounts of $4
million and $8 million, respectively, for which cash had not yet been
drawn.
12
Inventories,
Net
Automotive Inventories. Upon
our acquisition of the controlling interest in Federal-Mogul during fiscal 2008,
inventories were revalued and resulted in an increase to inventory balances. The
increase to inventory resulting from our acquisition impacted cost of goods sold
as the related inventory was sold. During the period March 1, 2008 through
December 31, 2008, our Automotive segment recognized $60 million as additional
cost of goods sold, thereby reducing gross margin by the same amount. Cost is
determined using the first-in-first-out method. The cost of manufactured goods
includes material, labor and factory overhead. Federal-Mogul maintains reserves
for estimated excess, slow-moving and obsolete inventory as well as inventory
whose carrying value is in excess of net realizable value.
Railcar and Food Packaging
Inventories. Inventories at our Railcar and Food Packaging segments are
stated at lower of cost or market. Cost is determined using the first-in-first
out method and includes cost of materials, direct labor and manufacturing
overhead. Our Railcar and Food Packaging segments reserve for estimated excess,
slow-moving and obsolete inventory as well as inventory whose carrying value is
in excess of net realizable value.
Metals Inventories.
Inventories at our Metals segment are stated at the lower of cost or market.
Cost is determined using the average cost method. The production and accounting
process utilized by the Metals segment to record recycled metals inventory
quantities relies on significant estimates. Our Metals segment relies upon
perpetual inventory records that utilize estimated recoveries and yields that
are based upon historical trends and periodic tests for certain unprocessed
metal commodities. Over time, these estimates are reasonably good indicators of
what is ultimately produced; however, actual recoveries and yields can vary
depending on product quality, moisture content and source of the unprocessed
metal. To assist in validating the reasonableness of the estimates, our Metals
segment performs periodic physical inventories which involve the use of
estimation techniques. Physical inventories may detect significant variations in
volume, but because of variations in product density and production processes
utilized to manufacture the product, physical inventories will not generally
detect smaller variations. To help mitigate this risk, our Metals segment
adjusts its physical inventories when the volume of a commodity is low and a
physical inventory can more accurately estimate the remaining
volume.
Home Fashion Inventories.
Inventories at our Home Fashion segment are stated at the lower of cost or
market. Cost is determined using the first-in-first-out method. The cost of
manufactured goods includes material, labor and factory overhead. WestPoint
International, Inc. (“WPI”) maintains reserves for estimated excess, slow-moving
and obsolete inventory as well as inventory whose carrying value is in excess of
net realizable value. A portion of WPI’s inventories serves as collateral under
West Point Home Inc.’s unused senior secured revolving credit
facility.
Our
consolidated inventories, net consisted of the following (in millions of
dollars):
|
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Raw
materials:
|
||||||||
|
Automotive
|
$ | 136 | $ | 166 | ||||
|
Railcar
|
21 | 60 | ||||||
|
Food
Packaging
|
8 | 10 | ||||||
|
Home
Fashion
|
11 | 12 | ||||||
| 176 | 248 | |||||||
|
Work
in process:
|
||||||||
|
Automotive
|
107 | 125 | ||||||
|
Railcar
|
9 | 22 | ||||||
|
Food
Packaging
|
21 | 16 | ||||||
|
Home
Fashion
|
26 | 33 | ||||||
| 163 | 196 | |||||||
|
Finished
Goods:
|
||||||||
|
Automotive
|
580 | 603 | ||||||
|
Railcar
|
10 | 15 | ||||||
|
Food
Packaging
|
23 | 17 | ||||||
|
Home
Fashion
|
77 | 87 | ||||||
| 690 | 722 | |||||||
|
Metals:
|
||||||||
|
Ferrous
|
30 | 27 | ||||||
|
Non-ferrous
|
10 | 5 | ||||||
|
Secondary
|
22 | 35 | ||||||
| 62 | 67 | |||||||
|
Total
inventories, net
|
$ | 1,091 | $ | 1,233 | ||||
13
Property,
Plant and Equipment, Net
Land and
construction-in-progress costs are stated at the lower of cost or net realizable
value. Interest is capitalized on expenditures for long-term projects until a
salable condition is reached. The interest capitalization rate is based on the
interest rate on specific borrowings to fund the projects.
Buildings,
furniture and equipment are stated at cost less accumulated depreciation unless
declines in the values of the fixed assets are considered other than temporary,
at which time the property is written down to net realizable value. Depreciation
is principally computed using the straight-line method over the estimated useful
lives of the particular property or equipment, as follows: buildings and
improvements, four to 40 years; furniture, fixtures and equipment, one to 25
years. Leasehold improvements are amortized over the life of the lease or the
life of the improvement, whichever is shorter.
Maintenance
and repairs are charged to expense as incurred. The cost of additions and
improvements is capitalized and depreciated over the remaining useful lives of
the assets. The cost and accumulated depreciation of assets sold or retired are
removed from our consolidated balance sheet, and any gain or loss is recognized
in the year of disposal.
Real
estate properties held for use or investment purposes, other than those
accounted for under the financing method, are carried at cost less accumulated
depreciation. Where declines in the values of the properties are determined to
be other than temporary, the cost basis of the property is written down to net
realizable value. A property is classified as held for sale at the time
management determines that certain criteria have been met. Properties held for
sale are carried at the lower of cost or net realizable value. Such properties
are no longer depreciated and their results of operations are included in
discontinued operations. As a result of the reclassification of certain real
estate to properties held for sale during fiscal 2007, income and expenses of
such properties are reclassified to discontinued operations for all prior
periods. If management determines that a property classified as held for sale no
longer meets certain criteria, the property is reclassified as held for
use.
Goodwill
and Intangible Assets, Net
Goodwill
and indefinite lived intangible assets include trademarks and trade names
acquired in acquisitions. For a complete discussion of the impairment of
goodwill and indefinite intangible assets related to our various segments, see
Note 3, “Operating Units,” and Note 9, “Goodwill and Intangible Assets,
Net.”
Accounting
for the Impairment of Goodwill
We
evaluate the carrying value of goodwill during the fourth quarter of each year
and between annual evaluations if events occur or circumstances change that
would more likely than not reduce the fair value of the reporting unit below its
carrying amount. Such circumstances could include, but are not limited to: (1) a
significant adverse change in legal factors or in business climate, (2)
unanticipated competition, or (3) an adverse action or assessment by a
regulator. When evaluating whether goodwill is impaired, we compare the fair
value of the reporting unit to which the goodwill is assigned to the reporting
unit’s carrying amount, including goodwill. The fair value of the reporting unit
is estimated using a combination of the income, or discounted cash flows
approach and the market approach, which utilizes comparable companies’ data. If
the carrying amount of a reporting unit exceeds its fair value, then the amount
of the impairment loss must be measured. The impairment loss would be calculated
by comparing the implied fair value of reporting unit goodwill to its carrying
amount. In calculating the implied fair value of reporting unit goodwill, the
fair value of the reporting unit is allocated to all of the other assets and
liabilities of that unit based on their fair values. The excess of the fair
value of a reporting unit over the amount assigned to its other assets and
liabilities is the implied fair value of goodwill. An impairment loss would be
recognized when the carrying amount of goodwill exceeds its implied fair
value.
Accounting
for the Impairment of Intangible Assets
We
evaluate the recoverability of identifiable indefinite lived intangible assets
annually or more frequently if impairment indicators exist. The impairment
analysis compares the estimated fair value of these assets to the related
carrying value, and impairment charge is recorded for any excess of carrying
value over estimated fair value. The estimated fair value is based on
consideration of various valuation methodologies, including guideline
transaction multiples, multiples of earnings, and projected future cash flows
discounted at rates commensurate with risk involved.
Accounting
for the Impairment of Long-Lived Assets
We
evaluate the realizability of our long-lived assets whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Inherent in the reviews of the carrying amounts of the above assets
are various estimates, including the expected usage of the asset. Assets must be
tested at the lowest level for which identifiable cash flows exist. Future cash
flow estimates are, by their nature, subjective and actual results may differ
materially from our estimates. If our ongoing estimates of future cash flows are
not met, we may have to record impairment charges in future accounting periods
to write the asset down to fair value. Our estimates of cash flows are based on
the current regulatory, social and economic climates, recent operating
information and budgets of the operating properties.
14
Accounting
for Conditional Asset Retirement Obligations
We record
conditional asset retirement obligations (“CARO”) in accordance with applicable
U.S. GAAP. As defined in applicable U.S. GAAP, CARO refers to a legal obligation
to perform an asset retirement activity in which the timing and/or method of
settlement are conditional on a future event. An entity is required to recognize
a liability for the estimated fair value of a CARO when incurred if the fair
value can be reasonably estimated. Our Automotive segment’s primary asset
retirement activities relate to the removal of hazardous building materials at
its facilities. Our Automotive segment records the CARO liability when the
amount can be reasonably estimated, typically upon the expectation that a
facility may be closed or sold.
Pension
and Other Postemployment Obligations
Pension
and other postemployment benefit costs are dependent upon assumptions used in
calculating such costs. These assumptions include discount rates, health care
cost trends, expected returns on plan assets and other factors. In accordance
with U.S. GAAP, actual results that differ from the assumptions used are
accumulated and amortized over future periods and, accordingly, generally affect
recognized expense and the recorded obligation in future periods.
Allocation
of Net Profits and Losses in Consolidated Affiliated Partnerships — Investment
Management
Net
investment income and net realized and unrealized gains and losses on
investments of the Private Funds are allocated to the respective partners or
shareholders of the Private Funds based on their percentage ownership in such
Private Funds at the beginning of each allocation period. Except for our limited
partner interest, such allocations made to the limited partners or shareholders
of the Private Funds are represented as non-controlling interests in our
consolidated statements of operations. The beginning of an allocation period is
defined as the beginning of each fiscal year, the date of admission of any new
partner or shareholder of the Private Funds, the date of any additional
subscription or date that immediately follows redemption by a partner or
shareholder of the Private Funds. Upon such allocation to limited partners based
on their respective capital balances, generally 2.5% (prior to July 1, 2009) of
the capital appreciation (both realized and unrealized) allocated to the
Investment Funds’ limited partners or lesser amounts for certain limited
partners are then reallocated to the Investment Funds’ General Partners. Such
reallocation is referred to as the General Partners’ special profits interest
allocation. In addition, the General Partners may also generally be allocated,
25% (prior to July 1, 2009) of the net capital appreciation (both realized and
unrealized), such amounts being referred to as incentive allocations, provided,
however, that an incentive allocation with respect to a Private Fund shall not
be made in any year to the extent that the special profits interest allocation
relating to such Private Fund equal or exceeds the net capital appreciation for
such Private Fund for such year. Additionally, incentive allocations are subject
to a “high watermark” (whereby the General Partners do not earn incentive
allocations during a particular year even though the fund had a positive return
in such year until losses in prior periods are recovered). The total profits and
losses allocated to the respective General Partners of the Investment Funds are
included in the consolidated net income of Icahn Capital Management LP (“New
Icahn Management”) and the General Partners (as either the Onshore GP or
Offshore GP act as general partner to the Investment Funds) and are allocated in
a manner consistent with the manner in which capital is allocated to the
partners of the New Icahn Management and the General Partners as further
discussed below. As of January 1, 2008, New Icahn Management distributed its net
assets to Icahn Capital. Icahn Capital is the general partner of Icahn Onshore
GP and Icahn Offshore GP. See below (Revenue and Expense Recognition —
Investment Management) for discussion of new fee structure for special profits
interest allocations and incentive allocations effective July 1,
2009.
Partners’
Capital — Investment Management
Icahn
Capital, New Icahn Management, and the General Partners are each organized as a
limited partnership formed pursuant to the provisions of the Delaware Revised
Uniform Limited Partnership Act. As discussed above, effective January 1, 2008,
New Icahn Management distributed its net assets to Icahn Capital. Limited
partner interests have been granted in the General Partners to allow certain
employees and individuals to participate in a share of the special profits
interest allocations and incentive allocations earned by the General Partners
(and, prior to January 1, 2008, limited partner interests had been granted in
New Icahn Management to allow such employees to participate in a share of the
management fees and incentive allocations.) Prior to the completion of our
acquisition of the partnership interests on August 8, 2007, all limited
partnership admissions to New Icahn Management and the General Partners had been
determined by the respective general partner entity of New Icahn Management and
the General Partners, each of which was principally owned by Mr.
Icahn.
15
Icahn
Capital, New Icahn Management, and the General Partners, individually, intend to
be treated as partnerships for federal income tax purposes, and as such shall
maintain a capital account for each of their partners. Each partner of the
General Partners will be allocated an amount of special profits interest
allocations (and, prior to January 1, 2008, management fees) and incentive
allocations subject to, and as determined by, the provisions of such limited
partner’s agreements with each of the General Partners (and, prior to January 1,
2008, New Icahn Management.) Special profits interest allocations (and prior to
January 1, 2008, management fees) and incentive allocations not allocated to the
limited partners per their respective agreements are generally allocated to the
general partners. Other partnership profits and losses of Icahn Capital (and,
prior to January 1, 2008, New Icahn Management) and each of the General Partners
are generally allocated among the respective partners in Icahn Capital (and
prior to January 1, 2008, New Icahn Management) and each of the General Partners
pro rata in accordance with their capital accounts.
Income
allocations to all partners in each of the General Partners (and, prior to
January 1, 2008, New Icahn Management), except the general partner entity, are
accounted for as compensation expense as more fully described in Note 13,
“Compensation Arrangements.” All amounts allocated to these partners’ capital
accounts and their respective capital contributions are included in accounts
payable and accrued expenses and other liabilities on the consolidated balance
sheets until those amounts are paid out in accordance with the terms of each
respective partner’s agreement. Payments made to the respective general partner
and any limited partner interests held by Mr. Icahn are treated as equity
distributions.
Income
(Loss) Per LP Unit
Basic
income (loss) per LP unit are based on net income or loss attributable to Icahn
Enterprises allocable to limited partners after deducting preferred pay-in-kind
distributions to preferred unitholders. The resulting net income or loss
allocable to limited partners is divided by the weighted-average number of LP
units outstanding. The preferred units are considered to be equivalent units for
the purpose of calculating diluted income or loss per LP unit.
For
accounting purposes relating to acquisitions of entities under common control,
earnings from the Investment Management segment prior to the acquisition of the
partnership interests as described herein on August 8, 2007, earnings from PSC
Metals prior to its acquisition on November 5, 2007 and earnings from
Federal-Mogul prior to the acquisition of a majority interest on July 3, 2008
have been allocated to Icahn Enterprises GP, our general partner, and therefore
are excluded from the computation of basic and diluted income or loss per LP
unit.
Accounting
for the Acquisition and Disposition of Entities Under Common
Control
Acquisitions
of entities under common control are reflected in a manner similar to pooling of
interests. The general partner’s capital account is charged or credited for the
difference between the consideration we pay for the entity and the related
entity’s basis prior to our acquisition. Net gains or losses of an acquired
entity prior to its acquisition date are allocated to the general partner’s
capital account. In allocating gains and losses upon the sale of a previously
acquired common control entity, we allocate a gain or loss for financial
reporting purposes by first restoring the general partner’s capital account for
the cumulative charges or credits relating to prior periods recorded at the time
of our acquisition and then allocating the remaining gain or loss among the
general and limited partners in accordance with their respective percentages
under the Amended and Restated Agreement of Limited Partnership dated as of May
12, 1987, as amended from time to time (together with the partnership agreement
of Icahn Enterprises Holdings, the “Partnership Agreement”) (i.e., 98.01% to the
limited partners and 1.99% to the general partner).
General
Partnership Interest of Icahn Enterprises
The
general partner’s capital account generally consists of its cumulative share of
our net income less cash distributions plus capital contributions. Additionally,
in acquisitions of common control companies accounted for at historical cost
similar to a pooling of interests, the general partner’s capital account would
be charged (or credited) in a manner similar to a distribution (or contribution)
for the excess (or deficit) of the fair value of consideration paid over
historical basis in the business acquired.
Capital
Accounts, as defined under the Partnership Agreement, are maintained for our
general partner and our limited partners. The capital account provisions of our
Partnership Agreement incorporate principles established for U.S. federal income
tax purposes and are not comparable to the equity accounts reflected under U.S.
GAAP in our consolidated financial statements. Under our Partnership Agreement,
the general partner is required to make additional capital contributions to us
upon the issuance of any additional depositary units in order to maintain a
capital account balance equal to 1.99% of the total capital accounts of all
partners.
Generally,
net earnings for U.S. federal income tax purposes are allocated 1.99% and 98.01%
between the general partner and the limited partners, respectively, in the same
proportion as aggregate cash distributions made to the general partner and the
limited partners during the period. This is generally consistent with the manner
of allocating net income under our Partnership Agreement; however, it is not
comparable to the allocation of net income reflected in our consolidated
financial statements.
Pursuant
to the Partnership Agreement, in the event of our dissolution, after satisfying
our liabilities, our remaining assets would be divided among our limited
partners and the general partner in accordance with their respective percentage
interests under the Partnership Agreement (i.e., 98.01% to the limited partners
and 1.99% to the general partner). If a deficit balance still remains in the
general partner’s capital account after all allocations are made between the
partners, the general partner would not be required to make whole any such
deficit.
16
Income
Taxes
Except as
described below, no provision has been made for federal, state, local or foreign
income taxes on the results of operations generated by partnership activities,
as such taxes are the responsibility of the partners. Provision has been made
for federal, state, local or foreign income taxes on the results of operations
generated by our corporate subsidiaries and these are reflected within
continuing and discontinued operations. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Deferred
tax assets are limited to amounts considered to be realizable in future periods.
A valuation allowance is recorded against deferred tax assets if management does
not believe that we have met the “more likely than not” standard to allow
recognition of such an asset.
U.S. GAAP
provides that the tax effects from an uncertain tax position can be recognized
in the financial statements only if the position is “more-likely-than-not” to be
sustained if the position were to be challenged by a taxing authority. The
assessment of the tax position is based solely on the technical merits of the
position, without regard to the likelihood that the tax position may be
challenged. If an uncertain tax position meets the “more-likely-than-not”
threshold, the largest amount of tax benefit that is greater than 50 percent
likely to be recognized upon ultimate settlement with the taxing authority is
recorded. See Note 18, “Income Taxes,” for additional information.
Compensation
Arrangements
U.S. GAAP
requires that public entities to record non-cash compensation expense related to
payment for employee services by an equity award, such as stock options, in
their financial statements over the requisite service period and value such
equity awards based on fair-value methods. See Note 13, “Compensation
Arrangements,” for further discussion regarding compensation arrangements of our
Investment Management and Automotive segments.
Revenue
and Expense Recognition
Investment
Management
Revenue Recognition: The
Investment Management segment generates income from amounts earned pursuant to
contractual arrangements with the Private Funds. Such amounts include income
from (1) special profits interest allocations effective January 1, 2008 (and,
prior to January 1, 2008, management fees); (2) incentive allocations and (3)
gains and losses from our investments in the Private Funds.
17
Prior to
January 1, 2008, the management agreements between New Icahn Management and the
Private Funds provided for management fees to be paid by each of the Feeder
Funds (as defined herein) and the Onshore Fund to New Icahn Management at the
beginning of each quarter generally in an amount equal to 0.625% (2.5%
annualized) of the net asset value of each Investor’s (defined below) investment
in the Feeder Fund or Onshore Fund, as applicable, and were recognized
quarterly.
Effective
January 1, 2008, the management agreements were terminated resulting in the
termination of the Feeder Funds’ and the Onshore Fund’s obligations to pay
management fees. In addition, the limited partnership agreements of the
Investment Funds, or the Investment Fund LPAs, were amended to provide that, as
of January 1, 2008, the General Partners will provide or cause their affiliates
to provide to the Private Funds the administrative and back office services that
were formerly provided by New Icahn Management (referred to herein as the
Services) and, in consideration of providing the Services, the General Partners
will receive special profits interest allocations (as further discussed below)
from the Investment Funds.
Effective
January 1, 2008, the Investment Fund LPAs provide that the applicable General
Partner will receive a special profits interest allocation at the end of each
calendar year from each capital account maintained in the Investment Funds that
is attributable to: (i) in the case of the Onshore Fund, each fee-paying limited
partner in the Onshore Fund and (ii) in the case of the Feeder Funds, each
fee-paying investor in the Feeder Funds (that excludes certain investors that
are affiliates of Mr. Icahn) (in each case, referred to herein as an Investor).
This allocation is generally equal to 0.625% (prior to July 1, 2009) of the
balance in each fee-paying capital account as of the beginning of each quarter
(for each Investor, the Target Special Profits Interest Amount) except that
amounts are allocated to the General Partners in respect of special profits
interest allocations only to the extent that net increases (i.e., net profits)
are allocated to an Investor for the fiscal year. Accordingly, any special
profits interest allocations allocated to the General Partners in respect of an
Investor in any year cannot exceed the net profits allocated to such Investor in
such year. (See below for discussion of new fee structure for special profits
interest allocation effectively July 1, 2009).
Effectively
July 1, 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 (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.
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, 2010 by
persons that were Investors prior to July 1, 2009. Effective with permitted
withdrawals on December 31, 2009, if an Investor did not roll over a
Pre-Election Investment into another Option when it was first eligible to do so
without the payment of a withdrawal fee, the Private Funds required such
Investor to withdraw such Pre-Election Investment.
In the
event that sufficient net profits are not generated by an Investment Fund with
respect to a capital account to meet the full Target Special Profits Interest
Amount for an Investor for a calendar year, a special profits interest
allocation will be made to the extent of such net profits, if any, and the
shortfall will be carried forward (without interest or a preferred return
thereon) and added to the Target Special Profits Interest Amount determined for
such Investor for the next calendar year. Appropriate adjustments will be made
to the calculation of the special profits interest allocation for new
subscriptions and withdrawals by Investors. In the event that an Investor
redeems in full from a Feeder Fund or the Onshore Fund before the entire Target
Special Profits Interest Amount determined for such Investor has been allocated
to the General Partner in the form of a special profits interest allocation, the
Target Special Profits Interest Amount that has not yet been allocated to the
General Partner will be forfeited and the General Partner will never receive
it.
Each
Target Special Profits Interest Amount will be deemed contributed to a separate
hypothetical capital account (that is not subject to an incentive allocation or
a special profits interest allocation) in the applicable Investment Fund and any
gains or losses that would have been allocated on such amounts will be credited
or debited, as applicable, to such hypothetical capital account. The special
profits interest allocation attributable to an Investor will be deemed to be
made from (and thereby debited from) such hypothetical capital account and,
accordingly, the aggregate amount of any special profits interest allocation
attributable to such Investor will also depend upon the investment returns of
the Investment Fund in which such hypothetical capital account is
maintained.
The
General Partners waived the special profits interest allocations effective
January 1, 2008 (and for periods prior to January 1, 2008, New Icahn Management
waived management fees) and incentive allocations for Icahn Enterprises’
investments in the Private Funds and Mr. Icahn’s direct and indirect holdings
and may, in their sole discretion, modify or may elect to reduce or waive such
fees with respect to any investor that is an affiliate, employee or relative of
Mr. Icahn or his affiliates, or for any other investor.
18
Incentive
allocations are generally 25% (prior to July 1, 2009) of the net profits (both
realized and unrealized) generated by fee-paying investors in the Investment
Funds and were subject to a “high watermark” (whereby the General Partners do
not earn incentive allocations during a particular year even though the fund had
a positive return in such year until losses in prior periods are recovered).
These allocations are calculated and allocated to the capital accounts of the
General Partners at the end of each year except for incentive allocations earned
as a result of investor redemption events during interim periods. (See below for
discussion of new fee structure for incentive allocations effective as of July
1, 2009).
All of
the special profits interest allocations (effective January 1, 2008), if any,
substantially all of the management fees (prior to January 1, 2008), from
certain consolidated entities and all of the incentive allocations, if any, are
eliminated in consolidation; however, our share of the net income from the
Private Funds includes the amount of these eliminated fees and
allocations.
The
special profits interest allocations and incentive allocations from the Onshore
Fund and Offshore Master Funds, if any, are accrued on a quarterly basis and are
allocated to the Onshore GP and the Offshore GP, respectively, at the end of the
Onshore Fund’s and each Offshore Master Funds’ fiscal year (or sooner on
redemptions). Such quarterly accruals may be reversed as a result of subsequent
investment performance prior to the conclusion of the Onshore Fund’s and
Offshore Master Funds’ fiscal year at December 31.
Automotive
Revenue Recognition:
Federal-Mogul records sales when products are shipped and title has transferred
to the customer, the sales price is fixed and determinable, and the
collectability of revenue is reasonably assured. Accruals for sales returns and
other allowances are provided at the time of shipment based upon past
experience. Adjustments to such returns and allowances are made as new
information becomes available.
Rebates/Sales Incentives:
Federal-Mogul accrues for rebates pursuant to specific arrangements with certain
of its customers, primarily in the aftermarket. Rebates generally provide for
price reductions based upon the achievement of specified purchase volumes and
are recorded as a reduction of sales as earned by such customers.
Shipping and Handling Costs:
Federal-Mogul recognizes shipping and handling costs as incurred as a component
of cost of goods sold in the statements of operations.
Engineering and Tooling
Costs: Pre-production tooling and engineering costs that Federal-Mogul
will not own and that will be used in producing products under long-term supply
arrangements are expensed as incurred unless the supply arrangement provides
Federal-Mogul with the noncancelable right to use the tools, or the
reimbursement of such costs is agreed to by the customer. Pre-production tooling
costs that are owned by Federal-Mogul are capitalized as part of machinery and
equipment, and are depreciated over the shorter of the tools’ expected life or
the duration of the related program.
Research and Development:
Federal-Mogul expenses research and development (“R&D”) costs and costs
associated with advertising and promotion as incurred. R&D expense,
including product engineering and validation costs, was $140 million for fiscal
2009 and $142 million for the period March 1, 2008 through December 31, 2008. As
a percentage of original equipment manufacturer (“OEM”) sales, R&D expense
was 4.7% for fiscal 2009 and 4.1% for the period March 1, 2008 through December
31, 2008.
Restructuring:
Federal-Mogul’s restructuring costs are comprised of two types: employee costs
(contractual termination benefits) and facility closure costs. Termination
benefits are recorded when it is probable that employees will be entitled to
benefits and the amounts can be reasonably estimated. Estimates of termination
benefits are based on the frequency of past termination benefits, the similarity
of benefits under the current plan and prior plans, and the existence of
statutory required minimum benefits. Facility closure and other costs are
recorded when the liability is incurred.
Railcar
Revenue Recognition: Revenues
from railcar sales are recognized following completion of manufacturing,
inspection, customer acceptance and title transfer, which is when the risk for
any damage or loss with respect to the railcars passes to the customer. Paint
and lining work may be outsourced and, as a result, the sale for the railcar may
be recorded after customer acceptance when it leaves the manufacturing plant and
the sale for the lining work may be separately recorded following completion of
that work by the independent contractor, customer acceptance and final shipment.
Revenues from railcar and industrial components are recorded at the time of
product shipment, in accordance with ARI’s contractual terms. Revenue for
railcar maintenance services is recognized upon completion and shipment of
railcars from ARI’s plants. ARI does not currently bundle railcar service
contracts with new railcar sales. Revenue for fleet management services is
recognized as performed. ARI records amounts billed to customers for shipping
and handling as part of sales and records related costs in cost of goods
sold.
19
Food
Packaging
Revenue Recognition: Revenues
are recognized at the time products are shipped to the customer, under F.O.B
Shipping point terms or under F.O.B. Port terms. Revenues are net of any
discounts, rebates and allowances. Viskase periodically bills customers for
shipping charges. These amounts are included in revenue with related costs
included in cost of goods sold.
Metals
Revenue Recognition: PSC
Metals’ primary source of revenue is from the sale of processed ferrous and
non-ferrous scrap metals. PSC Metals also generates revenues from sales of
secondary plate and pipe, the brokering of scrap metals and from services
performed. All sales are recognized when title passes to the customer. Revenues
from services are recognized as the service is performed. Sales adjustments
related to price and weight differences are reflected as a reduction of revenues
when settled.
Home
Fashion
Revenue Recognition: WPI
records revenue when the following criteria are met: persuasive evidence of an
arrangement exists, delivery has occurred, the price to the customer is fixed
and determinable and collectability is reasonably assured. Unless otherwise
agreed in writing, title and risk of loss pass from WPI to the customer when WPI
delivers the merchandise to the designated point of delivery, to the designated
point of destination or to the designated carrier, free on board. Provisions for
certain rebates, sales incentives, product returns and discounts to customers
are recorded in the same period the related revenue is recorded.
Sales Incentives: Customer
incentives are provided to major WPI customers. These incentives begin to accrue
when a commitment has been made to the customer and are recorded as a reduction
to sales.
Real
Estate
Revenue
Recognition: Revenue from real estate sales and related costs
are recognized at the time of closing primarily by specific identification.
Substantially all of the property comprising our net lease portfolio is leased
to others under long-term net leases and we account for these leases in
accordance with applicable U.S. GAAP. We account for our leases as follows: (i)
under the financing method, (x) minimum lease payments to be received plus the
estimated value of the property at the end of the lease are considered the gross
investment in the lease and (y) unearned income, representing the difference
between gross investment and actual cost of the leased property, is amortized to
income over the lease term so as to produce a constant periodic rate of return
on the net investment in the lease; and (ii) under the operating method, revenue
is recognized as rentals become due, and expenses (including depreciation) are
charged to operations as incurred.
Environmental
Liabilities
We
recognize environmental liabilities when a loss is probable and reasonably
estimable. Such accruals are estimated based on currently available information,
existing technology and enacted laws and regulations. Such estimates are based
primarily upon the estimated cost of investigation and remediation required and
the likelihood that other potentially responsible parties will be able to
fulfill their commitments at the sites where we may be jointly and severally
liable with such parties. We regularly evaluate and revise estimates for
environmental obligations based on expenditures against established reserves and
the availability of additional information.
Foreign
Currency Translation
Exchange
adjustments related to international currency transactions and translation
adjustments for international subsidiaries whose functional currency is the U.S.
dollar (principally those located in highly inflationary economies) are
reflected in the consolidated statements of operations. Translation adjustments
of international subsidiaries for which the local currency is the functional
currency are reflected in the consolidated balance sheets as a component of
accumulated other comprehensive income. Deferred taxes are not provided on
translation adjustments as the earnings of the subsidiaries are considered to be
permanently reinvested.
Adoption
of New Accounting Standards
In July
2009, the FASB released the authoritative version of the 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 FASB 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 contained in this Exhibit 99.3 to the Current Report on
Form 8-K in accordance with U.S. GAAP as required by the FASB ASC.
20
In
December 2007, the FASB issued new guidance 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 this new guidance 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 this new guidance as of January 1, 2009 with the
presentation and disclosure requirements as discussed above reflected in our
consolidated financial statements.
Recently
Issued Accounting Standards
In
December 2009, the FASB issued amended standards for determining whether to
consolidate a VIE. This new standard affects all entities currently within the
scope of the Consolidation Topic of the FASB ASC, as well as qualifying
special-purpose entities that are currently excluded from the scope of the
Consolidation Topic of the FASB ASC. This new standard amends the evaluation
criteria to identify the primary beneficiary of the VIE and requires ongoing
reassessment of whether an enterprise is the primary beneficiary of such VIEs.
This new standard is effective as of the beginning of the first fiscal year
beginning after November 15, 2009. The adoption of this new standard will not
have a material impact on our financial condition, results of operations and
cash flows.
In
January 2010, the FASB issued new guidance on supplemental fair value
disclosures. The new disclosures require (1) a gross presentation of activities
within the Level 3 roll forward reconciliation, which will replace the net
presentation format and (2) detailed disclosures about the transfers between
Level 1 and Level 2 measurements. Additionally, the new guidance also provides
several clarifications regarding the level of disaggregation and disclosures
about inputs and valuation techniques. This new guidance is effective for the
first interim or annual reporting period beginning after December 15, 2009,
except for the gross presentation of the Level 3 roll forward, which is required
for annual reporting periods beginning after December 15, 2010 and for interim
reporting periods within those years. Early application is permitted and
comparative disclosures are not required in the period of initial adoption. The
adoption of this new standard will not have any impact on our financial
condition, results of operations and cash flows.
In
February 2010, the FASB issued new guidance which amends the consolidation
requirement discussed above. This amendment defers consolidation requirements
for a reporting entity’s interest in an entity if the reporting entity (1) has
all the attributes of an investment company or (2) represents an
entity for which it is industry practice to apply measurement principles for
financial reporting purposes that are consistent with those followed by
investment companies. The deferral does not apply in situations in which a
reporting entity has the explicit or implicit obligation to fund losses of an
entity that could be potentially significant to the entity. The deferral also
does not apply to interests in securitization entities, asset-backed financing
entities or entities formerly considered special-purpose entities. An entity
that qualifies for the deferral will continue to be assessed under the overall
guidance on the consolidation of VIEs or other applicable consolidation
guidance, such as the consolidation of partnerships. Entities are required,
however, to provide disclosures for all VIEs in which they hold a variable
interest. This includes variable interests in entities that qualify for the
deferral but are considered VIEs under the prior accounting provisions. This new
guidance is effective as of the beginning of a reporting entity’s first annual
period that begins after November 15, 2009, and for interim periods within that
first annual reporting period. We determined that certain entities within our
Investment Management segment met the deferral provisions of this new guidance.
Accordingly, these entities within our Investment Management segment will
continue to be subject to the overall guidance on the consolidation of VIEs
prior to the new standard described above or other applicable consolidation
guidance, such as the consolidation of partnerships.
In March
2010, the FASB issued new guidance on the accounting for credit derivatives that
are embedded in beneficial interests in securitized financial assets. The new
guidance eliminates the scope exception of certain credit derivative features
embedded in beneficial interests in securitized financial assets that are
currently not accounted for as derivatives within the Derivatives and Hedging
Topic of the FASB ASC. As a result, bifurcation and separate recognition may be
required for certain beneficial interests that are not currently accounted for
at fair value through earnings. This new guidance is effective for each
reporting entity at the beginning of its first fiscal quarter beginning after
June 15, 2010. Early adoption is permitted at each entity’s first fiscal quarter
beginning after issuance. The adoption of this new standard will not have a
material impact on our financial condition, results of operations and cash
flows.
21
3.
Operating Units
a.
Investment Management
On August
8, 2007, we entered into a Contribution and Exchange Agreement (the
“Contribution Agreement”) with CCI Offshore Corp., CCI Onshore Corp., Icahn
Management, a Delaware limited partnership, and Mr. Icahn. Pursuant to the
Contribution Agreement, we acquired the general partnership interests in Icahn
Onshore LP (the “Onshore GP”) and Icahn Offshore LP (the “Offshore GP” and,
together with the Onshore GP, the “General Partners”), acting as general
partners of Onshore Fund and the Offshore Master Funds, respectively. We also
acquired the general partnership interest in New Icahn Management, a Delaware
limited partnership.
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. 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.
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 within the notes
to the consolidated financial statements, 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.”
As of
December 31, 2009, the full Target Special Profits Interest Amount was $154
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 fiscal year ended December 31, 2009 (“fiscal 2009”) of $54 million and a
hypothetical return on the full Target Special Profits Interest Amount from the
Investment Funds of $30 million. The full Target Special Profits Interest Amount
of $154 million at December 31, 2009 was allocated to the General Partners at
December 31, 2009. No accrual for special profits interest allocations was made
for fiscal 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 December 31, 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.
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.
Acquisition
History
On July
3, 2008, pursuant to a stock purchase agreement with Thornwood Associates
Limited Partnership (“Thornwood”) and Thornwood’s general partner, Barberry
Corp. (“Barberry”), we acquired a majority interest in Federal-Mogul for an
aggregate price of $862,750,000 (or $17.00 per share, which represented a
discount to Thornwood’s purchase price of such shares). Thornwood and Barberry
are wholly owned by Mr. Icahn. Prior to our majority interest acquisition of
Federal-Mogul, Thornwood owned an aggregate of 75,241,924 shares of stock of
Federal-Mogul (“Federal-Mogul Shares.”) Thornwood had acquired such shares as
follows: (i) 50,100,000 Federal-Mogul Shares pursuant to the exercise of two
options on February 25, 2008 acquired in December 2007 from the Federal-Mogul
Asbestos Personal Injury Trust; and (ii) 25,141,924 Federal-Mogul Shares
pursuant to and in connection with Federal-Mogul’s Plan of Reorganization under
Chapter 11 of the United States Code, which became effective on December 27,
2007.
22
On
December 2, 2008, we acquired an additional 24,491,924 Federal-Mogul Shares from
Thornwood, which represented the remaining Federal-Mogul Shares owned by
Thornwood. As a result of this transaction, we beneficially own 75,241,924
Federal-Mogul Shares, or 75.7% of the total issued and outstanding capital stock
of Federal-Mogul. In consideration of the acquisition of the additional
Federal-Mogul Shares, we issued to Thornwood 4,286,087 of our depositary units
(or $153 million based on the opening price of $35.60 on our depositary units on
December 2, 2008).
Each of
the acquisitions was approved by the audit committee of the independent
directors of Icahn Enterprises GP. The audit committee was advised by its own
legal counsel and independent financial advisor with respect to the transaction.
The audit committee received an opinion from its financial advisor as to the
fairness to us, from a financial point of view, of the consideration
paid.
Investment
in Federal-Mogul
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 Mr. 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.
The
initial fair values of the assets acquired are based on estimated fair values of
Federal-Mogul upon emergence from bankruptcy on December 27, 2007, as modified
by Federal-Mogul’s operating results for the period January 1, 2008 through
February 29, 2008. Goodwill was increased by $20 million as a result of our
required utilization of Thornwood’s underlying basis in such assets. As
discussed below, Federal-Mogul recorded impairment charges related to its
goodwill in the fourth quarter of fiscal 2008. Accordingly, as of December 31,
2008, we had written off $20 million of our goodwill related to our acquisition
of the controlling interest in Federal-Mogul in conjunction with Federal-Mogul’s
goodwill impairment charges.
History
of Federal-Mogul Prior to Acquisition
Federal-Mogul,
during December 2007, completed its financial restructuring under Chapter 11 of
Title 11 of the United States Code. On December 27, 2007, the Fourth Amended
Joint Plan of Reorganization for Debtors and Debtors-in-Possession (as Modified)
(the “Plan”) became effective (the “Effective Date”) and, in accordance with the
Plan, the predecessor to Federal-Mogul (the “Predecessor Company”) merged with
and into New Federal-Mogul Corporation. Pursuant to the merger: (i) the separate
corporate existence of the Predecessor Company ceased; (ii) New Federal-Mogul
Corporation became the surviving corporation and continues to be governed by the
laws of the State of Delaware; and (iii) New Federal-Mogul Corporation was
renamed “Federal-Mogul Corporation.”
In
accordance with U.S. GAAP, Federal-Mogul was required to adopt fresh-start
reporting effective upon emergence from bankruptcy on December 27, 2007. Upon
adoption of fresh-start reporting, the recorded amounts of assets and
liabilities were adjusted to reflect their estimated fair values.
The
Bankruptcy Court confirmed the Plan based upon a reorganization value of
Federal-Mogul between $4,369 million and $4,715 million, which was estimated
using various valuation methods, including (i) a comparison of Federal-Mogul and
its projected performance to the market values of comparable companies; (ii) a
review and analysis of several recent transactions of companies in similar
industries to Federal-Mogul; and (iii) a calculation of the present value of the
future cash flows of Federal-Mogul under its projections. Based upon a
reevaluation of relevant factors used in determining the range of reorganization
value and updated expected cash flow projections, Federal-Mogul concluded that
$4,369 million should be used for fresh-start reporting purposes as it most
closely approximated fair value.
In
accordance with fresh-start reporting, Federal-Mogul’s reorganization value has
been allocated to existing assets using the measurement applicable U.S. GAAP
guidance. In addition, liabilities, other than deferred taxes, have been
recorded at the present value of amounts estimated to be paid. The excess of
reorganization value over the value of net tangible and identifiable intangible
assets and liabilities was recorded as goodwill.
23
Other
Restructuring
Federal-Mogul’s
restructuring charges are comprised of two types: employee costs (contractual
termination benefits) and facility closure costs. Termination benefits are
recorded when it is probable that employees will be entitled to benefits and the
amounts can be reasonably estimated. Estimates of termination benefits are based
on the frequency of past termination benefits, the similarity of benefits under
the current and prior plans, and the existence of statutory required minimum
benefits. Facility closure and other costs are recorded when the liability is
incurred.
Estimates
of restructuring expenses 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 $47 million for fiscal 2009 and $3
million were reversed for the period March 1, 2008 through December 31, 2008.
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, which reduced the level of
originally committed actions; newly implemented government employment programs,
which lowered the expected cost; and changes in approach to accomplish
restructuring activities.
Federal-Mogul
expects to finance these restructuring programs over the next several years
through cash generated from its ongoing operations or through cash available
under its existing credit facility, 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.
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:
|
·
|
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.
|
|
·
|
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.
|
An
unprecedented downturn in the global automotive industry and global financial
markets led Federal-Mogul to announce, in September 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. It was anticipated that this plan would reduce
Federal-Mogul’s global workforce by approximately 8,600 positions when compared
with the workforce as of September 30, 2008. For fiscal 2009 and for the period
March 1, 2008 through December 31, 2008, Federal-Mogul has recorded $32 million
and $132 million, respectively, in net restructuring expenses associated with
Restructuring 2009 and other restructuring programs, of which $30 million and
$130 million, respectively, were employee costs, and $2 million were facility
closure costs for each of the respective periods. The facility closure costs
were paid within the year of incurrence and there were no reversals.
Federal-Mogul expects to incur additional restructuring expense, primarily
related to facility closure costs, up to $6 million through the fiscal year
ended December 31, 2010, or fiscal 2010, of which $4 million are expected to be
facility closure costs and $2 million are expected to be employee-related costs.
Because the majority of the Restructuring 2009 costs are related to severance
expenses, 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 fiscal 2009, Federal-Mogul incurred $79 million
of restructuring charges, reversed $47 million of restructuring charges and paid
$94 million of restructuring charges. As of December 31, 2009, the accrued
liability balance was $55 million, which includes $4 million of foreign currency
adjustments and is included in accrued expenses and other liabilities in our
consolidated balance sheet.
Total
cumulative restructuring charges related to Restructuring 2009 through December
31, 2009 were $158 million.
24
Impairment
Our
Automotive segment recorded total impairment charges of $17 million and $434
million for the fiscal year ended December 31, 2009 and the period March 1, 2008
through December 31, 2008, respectively, as follows:
|
Year Ended
December 31,
2009
|
For the period
March 1, 2008
through
December 31,
2008
|
|||||||
|
Property,
plant and equipment
|
$ | 20 | $ | 18 | ||||
|
Goodwill
|
(3 | ) | 222 | |||||
|
Other
indefinite-lived intangible assets
|
— | 130 | ||||||
|
Investments
in non-consolidated affiliates
|
— | 64 | ||||||
| $ | 17 | $ | 434 | |||||
Federal-Mogul
recorded impairment charges of $20 million for fiscal 2009 and $18 million for
the period March 1, 2008 through December 31, 2008 to adjust property, plant and
equipment to its estimated fair values. In recording the impairment charges,
Federal-Mogul compared estimated net realizable values of property, plant and
equipment based on future undiscounted cash flows to its current carrying
values. Federal-Mogul determined the fair value of the assets by applying a
probability weighted, expected present value technique to the estimated future
cash flows. Impairment charges are included in expenses within our consolidated
statements of operations.
Federal-Mogul’s
impairment of goodwill and other indefinite-lived intangible assets are
discussed further in Note 9, “Goodwill and Intangible Assets, Net.” Impairments
of investments in non-consolidated affiliates are discussed further in Note 6,
“Investments and Related Matters — Automotive.”
c.
Railcar
We
conduct our Railcar segment through our majority ownership in ARI. ARI
manufactures railcars, custom designed railcar parts and other industrial
products, primarily aluminum and special alloy steel castings. These products
are sold to various types of companies including leasing companies, railroads,
industrial companies and other non-rail companies. ARI also provides railcar
maintenance services for railcar fleets, including that of its affiliate,
American Railcar Leasing LLC (‘‘ARL’’). In addition, ARI provides fleet
management and maintenance services for railcars owned by certain customers.
Such services include inspecting and supervising the maintenance and repair of
such railcars. ARI’s three largest customers (including an affiliate) accounted
for 84%, 82%, 80%, respectively, of total manufacturing operations and services
revenue for fiscal 2009, fiscal 2008 and fiscal 2007.
ARI is a
reporting company under the Exchange Act and files annual, quarterly and current
reports. Each of these reports is separately filed with the SEC is
publicly available at www.sec.gov.
d.
Food Packaging
We
conduct our Food Packaging segment through our majority ownership in Viskase.
Viskase is a worldwide leader in the production and sale of cellulosic, fibrous
and plastic casings for the processed meat and poultry industry. Viskase
currently operates seven manufacturing facilities and nine distribution centers
throughout North America, Europe and South America and derives approximately 68%
of total net sales from customers located outside the United States. Viskase
believes it is one of the two largest manufacturers of non-edible cellulosic
casings for processed meats and one of the three largest manufacturers of
non-edible fibrous casings. Viskase also manufactures heat-shrinkable plastic
bags for the meat, poultry and cheese industry. As of December 31, 2009, $120
million of Viskase’s assets were located outside of the United States, primarily
in France.
25
e.
Metals
On
November 5, 2007, we acquired all of the issued and outstanding capital stock of
PSC Metals, Inc. (“PSC Metals”) for a total consideration of $335 million in
cash. We conduct our Metals segment through our indirect wholly owned
subsidiary, 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 fiscal 2009, PSC Metals had three
customers who accounted for approximately 27% of net sales. For fiscal 2008, PSC
Metals had five customers who accounted for approximately 39% of net sales. For
fiscal 2007, PSC Metals had five customers who accounted for approximately 38%
of net sales.
During
fiscal 2008 and fiscal 2007, PSC Metals completed the acquisitions of
substantially all of the assets of four scrap metal recyclers. The aggregate
purchase price for the acquisitions was $55 million, the most significant of
which was $42 million relating to the September 2007 acquisition of
substantially all of the assets of WIMCO Operating Company, Inc., a full service
scrap metal recycler located in Ohio. A total of $10 million of goodwill was
recorded related to these acquisitions based on final purchase price
allocations. The results of operations for yards acquired are reflected in the
consolidated results of PSC Metals from the dates of acquisition.
f.
Real Estate
Our Real
Estate segment consists of rental real estate, property development and resort
activities.
As of
December 31, 2009 and 2008, we owned 30 and 31 rental real estate properties,
respectively. In August 2008, the Real Estate segment acquired two net leased
properties for $465 million pursuant to the Code Section 1031 exchange. The
acquisition of these two net leased properties was funded from a portion of the
gross proceeds received from the sale of our Gaming segment. (See Note 9,
“Goodwill and Intangible Assets, Net — Real Estate” for additional information).
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 development of approximately 327 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.
Our Real
Estate operations recorded an impairment charge of $2 million for fiscal 2009
and $4 million for each of fiscal 2008 and fiscal 2007. 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
December 31, 2009 and 2008, $110 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.
The
following is a summary of the anticipated future receipts of the minimum lease
payments receivable under the financing and operating method at December 31,
2009 (in millions of dollars):
|
Year
|
Amount
|
|||
|
2010
|
$ | 50 | ||
|
2011
|
50 | |||
|
2012
|
50 | |||
|
2013
|
50 | |||
|
2014
|
47 | |||
|
Thereafter
|
295 | |||
| $ | 542 | |||
26
g.
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. During the fourth quarter of fiscal 2007, WPI sold
the inventory at all of its 30 retail outlet stores and subsequently ceased
operations of its retail stores. Therefore, the portion of the business related
to the retail operations has been classified for all periods presented as
discontinued operations.
A
relatively small number of customers have historically accounted for a
significant portion of WPI’s net sales. For fiscal 2009, fiscal 2008 and fiscal
2007 net sales to six, seven and six customers amounted to 59%, 57% and 54%,
respectively, of WPI’s total net sales.
Acquisition
History
On August
8, 2005, we acquired 13.2 million, or 67.7%, of the 19.5 million outstanding
common shares of WPI. Pursuant to the asset purchase agreement between WPI and
WestPoint Stevens Inc. (“WPS”), rights to subscribe for an additional 10.5
million shares of common stock at a price of $8.772 per share, or the rights
offering, were allocated among former creditors of WPS. Depending upon the
extent to which the other holders exercise certain subscription rights, we may
acquire additional shares and may beneficially own between 15.7 million and 23.7
million shares of WPI common stock representing between 52.3% and 79.0% of the
30.0 million common shares that would then be outstanding.
On
December 20, 2006, we acquired: (a) 1,000,000 shares of Series A-1 Preferred
Stock of WPI for a purchase price of $100 per share, for an aggregate purchase
price of $100.0 million, and (b) 1,000,000 shares of Series A-2 Preferred Stock
of WPI for a purchase price of $100 per share, for an aggregate purchase price
of $100.0 million. Each of the Series A-1 and Series A-2 Preferred Stock has a
4.50% annual dividend, which is paid quarterly. For the first two years after
issuance, the dividends are to be paid in the form of additional preferred
stock. Thereafter, the dividends are to be paid in cash or in additional
preferred stock at the option of WPI. Each of the Series A-1 and Series A-2
Preferred Stock is convertible into common shares of WPI at a rate of $10.50 per
share, subject to certain anti-dilution provisions; provided, however, that
under certain circumstances, $92.1 million of the Series A-2 Preferred Stock may
be converted at a rate of $8.772 per share.
As
discussed in Note 20, “Commitments and Contingencies,” legal proceedings with
respect to the acquisition are ongoing.
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 operations 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, North Carolina facility. In
April 2009, as part of its ongoing restructuring activities, WPI announced the
closure of three of its then remaining four 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 December 31, 2009, $157 million of
WPI’s assets were located outside of the United States, primarily in
Bahrain.
WPI
incurred restructuring costs of $19 million, $25 million and $19 million for
fiscal 2009, fiscal 2008 and fiscal 2007, 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 $19 million of restructuring charges for fiscal 2009. As of
December 31, 2009, the accrued liability balance was $1 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
December 31, 2009 were $77 million.
WPI
incurred non-cash impairment charges of $8 million, $12 million and $30 million
for fiscal 2009, fiscal 2008 and fiscal 2007, respectively. Included in these
impairment charges were impairment charges related to WPI’s trademarks of $5
million, $6 million and $5 million for fiscal 2009, fiscal 2008 and fiscal 2007,
respectively. 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 are evaluated
further during its annual testing in the fourth quarter of each fiscal
year.
27
WPI
anticipates that restructuring charges will continue to be incurred throughout
fiscal 2010. WPI anticipates incurring restructuring costs in fiscal 2010
relating to the current restructuring plan of approximately $11 million,
primarily related to the continuing costs of its closed facilities, employee
severance, benefits and related costs and transition expenses. 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.
4.
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 December 31, 2009 and 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.
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 fiscal 2009.
Results
of 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 income from discontinued operations in the
consolidated statements of operations for all periods presented.
Total
revenues for our discontinued operations for fiscal 2008 and fiscal 2007 were
$61 million and $494 million, respectively, primarily relating to our former
gaming segment. There were no revenues from our discontinued operations for
fiscal 2009. Income from discontinued operations before income taxes and
non-controlling interest (including gain on dispositions before taxes) for
fiscal 2009, fiscal 2008, and fiscal 2007 was $1 million, $749 million, and $103
million, respectively. Results for fiscal 2008 included a gain on sale of
discontinued operations of $472 million, net of income taxes of $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. The
gain on sales of discontinued operations for fiscal 2007 includes $12 million of
gain on sales of real estate assets.
5.
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.
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 December 31, 2009, the balance of the deferred
management fees payable (included in accrued expenses and other liabilities) by
the Offshore Funds to Icahn Management was $125 million. The deferred management
fee payable increased (decreased) by $32 million, $(51) million and $14 million
for fiscal 2009, fiscal 2008 and fiscal 2007, 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 Mr. Icahn (collectively, “Icahn
Affiliates”), including administrative and investment services. Prior to January
1, 2008, Icahn & Co. LLC paid for such services. Under a separate
expense-sharing agreement, Icahn Capital charged Icahn Affiliates $4 million for
such services for each of fiscal 2009 and fiscal 2008. As of December 31, 2009,
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.
28
In
addition, effective January 1, 2008, certain expenses borne by Icahn Capital
have been reimbursed by Icahn Affiliates, as appropriate, when such expenses
were incurred. The expenses included investment-specific expenses for
investments acquired by both the Private Funds and Icahn Affiliates that were
allocated based on the amounts invested by each party, as well as investment
management-related expenses that were allocated based on estimated usage agreed
upon by Icahn Capital and Icahn Affiliates.
Mr.
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 December 31, 2009 and 2008, the total fair value of these
investments was approximately $1.5 billion and $1.1 billion,
respectively.
b.
Railcar
As
described in Note 1, ‘‘Description of Business and Basis of Presentation,’’ in
January 2010, we acquired a controlling interest in ARI from affiliates of Mr.
Icahn. As a result of this acquisition, we have the following related party
transactions:
Agreements
with ACF Industries LLC and American Railcar Leasing LLC
ARI has
or had various agreements with ACF Industries LLC (‘‘ACF’’) and ARL, companies
controlled by Mr. Icahn. The most significant agreements include the
following:
Under the
manufacturing services agreement entered into in 1994 and amended in 2005, ACF
agreed to manufacture and distribute, at ARI’s instruction, various railcar
components. In consideration for these services, ARI agreed to pay ACF based on
certain agreed-upon rates. For fiscal 2009, fiscal 2008 and fiscal 2007, ARI
purchased inventory of $14 million, $45 million and $47 million, respectively,
of components from ACF. The agreement automatically renews unless written notice
is provided by ARI.
In May
2007, ARI entered into a manufacturing agreement with ACF, pursuant to which ARI
agreed to purchase approximately 1,390 tank railcars from ACF. The profit
realized by ARI upon sale of the tank railcars to ARI customers was first paid
to ACF in reimbursement for the start-up costs involved in implementing the
manufacturing arrangements evidenced by the agreement and thereafter, the profit
was split evenly between ARI and ACF. The commitment under this agreement was
satisfied in March 2009 and the agreement was terminated at that time. For the
fiscal 2009, fiscal 2008 and fiscal 2007, ARI incurred costs under this
agreement of $4 million, $24 million and $4 million, respectively, in connection
with railcars that were manufactured and delivered to customers during these
periods, which includes payments made to ACF for its share of the profits along
with ARI costs. ARI recognized revenues of $19 million, $100 million and $17
million, respectively, related to railcars shipped under this agreement for
fiscal 2009, fiscal 2008 and fiscal 2007.
Effective
as of January 1, 2008, ARI entered into a fleet services agreement with ARL,
which replaced a 2005 railcar servicing agreement between the parties. The 2008
agreement reflects a reduced level of fleet management services, relating
primarily to logistics management services, for which ARL now pays a fixed
monthly fee. Additionally, under the agreement, ARI continues to provide railcar
repair and maintenance services to ARL for a charge of labor, components and
materials. ARI currently provides such repair and maintenance services for
approximately 26,000 railcars for ARL. The agreement extends through December
31, 2010, and is automatically renewable for additional one-year periods unless
either party gives at least 60 days’ prior notice of termination. There is no
termination fee if ARI elects to terminate the agreement. For fiscal 2009 and
fiscal 2008, revenues of $14 million and $15 million, respectively, were
recorded under this agreement. Profit margins on sales to related parties
approximate the margins on sales to other large customers.
ARI from
time to time manufactures and sells railcars to ARL under long-term agreements
as well as on a purchase order basis. Revenue from railcars sold to ARL was $105
million, $183 million and $140 million, respectively, for fiscal 2009, fiscal
2008 and fiscal 2007.
As of
December 31, 2009 and 2008, ARI had accounts payable of $1 million and $5
million, respectively, due to ACF and ARL.
As of
December 31, 2009 and 2008, ARI had accounts receivable of $1 million and $9
million, respectively, due from ACF and ARL.
29
c.
Food Packaging
As
described in Note 1, ‘‘Description of Business and Basis of Presentation,’’ in
January 2010 we acquired a controlling interest in Viskase from affiliates of
Mr. Icahn. As a result of this acquisition, we have the following related party
transactions: Arnos Corporation, an affiliate of Mr. Icahn, was the lender on
Viskase’s Revolving Credit Facility as of December 31, 2009. Viskase paid Arnos
Corporation interest and unused commitment fees of $1 million for each of fiscal
2009 and fiscal 2008. In connection with our majority
acquisition of Viskase on January 15, 2010, we assumed the Viskase Revolving
Credit Facility from Arnos Corporation. See Note 12, ‘‘Debt,’’ for further
discussion regarding Viskase’s Revolving Credit Facility.
In
November 2008, Barberry, an affiliate of Carl C. Icahn, entered into
a master lease agreement with Viskase. During July 2009, Viskase
completed the construction of the cellulosic casing extrusion equipment in
France. The total amount financed under the lease agreement,
including accrued interest, was $6 million. Viskase has repaid the capital lease
with Barberry in conjunction with the Viskase 9.875% Senior Secured bond
offering during December 2009. The total payments, including fees and
interest, amounted to $6 million during fiscal 2009.
d.
Administrative Services — Holding Company
For each
of fiscal 2009, fiscal 2008 and fiscal 2007 we paid an affiliate approximately
$2 million for the non-exclusive use of office space.
For each
of fiscal 2009, fiscal 2008 and fiscal 2007, we paid $1 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 $3 million for each of fiscal 2009 and 2008 and
$1 million for fiscal 2007. As of December 31, 2009, accrued expenses and other
liabilities in the consolidated balance sheet included $1 million to be applied
to the Holding Company’s charges to the affiliate for services to be provided to
it.
6.
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):
|
December 31, 2009
|
December 31, 2008
|
|||||||||||||||
|
Amortized Cost
|
Fair Value
|
Amortized Cost
|
Fair Value
|
|||||||||||||
|
Investments:
|
||||||||||||||||
|
Equity
securities
|
$ | 3,671 | $ | 2,908 | $ | 5,183 | $ | 2,876 | ||||||||
|
Corporate
debt
|
1,797 | 2,015 | 1,668 | 1,225 | ||||||||||||
|
Mortgage
backed securities
|
140 | 168 | 162 | 160 | ||||||||||||
|
Total
investments
|
$ | 5,608 | $ | 5,091 | $ | 7,013 | $ | 4,261 | ||||||||
|
Securities
sold, not yet purchased, at fair value:
|
||||||||||||||||
|
Equity
securities
|
$ | 1,811 | $ | 2,035 | $ | 2,821 | $ | 2,273 | ||||||||
|
Total
securities sold, not yet purchased, at fair value
|
$ | 1,811 | $ | 2,035 | $ | 2,821 | $ | 2,273 | ||||||||
|
Unrealized
gains on derivative contracts, at fair value
(1)
|
$ | 2 | $ | 6 | $ | 74 | $ | 79 | ||||||||
|
Unrealized
losses on derivative contracts, at fair value
(2)
|
$ | 24 | $ | 111 | $ | 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.
|
30
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 December 31, 2009, the fair value of
these investments was $11 million. For fiscal 2009, fiscal 2008 and fiscal 2007
the Private Funds recorded a loss of $6 million, $60 million and $103 million,
respectively, 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 December 31, 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
|
$ | 2,222 | $ | 35 | $ | 967 | $ | 3,008 | $ | 125 | ||||||||||
|
(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. Pledged
amounts may be in excess of margin
requirements.
|
b.
Automotive, Railcar, Holding Company and Other
Investments
for Automotive, Railcar, Holding Company and other operations’ consist of the
following (in millions of dollars):
|
December 31, 2009
|
December 31, 2008
|
|||||||||||||||
|
Amortized
Cost
|
Carrying
Value
|
Amortized
Cost
|
Carrying
Value
|
|||||||||||||
|
Marketable
equity and debt securities – available for sale
|
$ | 23 | $ | 23 | $ | 26 | $ | 22 | ||||||||
|
Equity
method investments and other
|
291 | 291 | 248 | 248 | ||||||||||||
|
Total
investments
|
$ | 314 | $ | 314 | $ | 274 | $ | 270 | ||||||||
31
With the
exception of our Automotive, Railcar and Home Fashion segments 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
following information relates to certain investment activities transacted by our
operating units:
Proceeds
from the sales of available-for-sale securities were $61 million, $59 million
and $382 million for fiscal 2009, fiscal 2008 and fiscal 2007, respectively. The
gross realized gains (losses) on available-for-sale securities sold for fiscal
2009, fiscal 2008 and fiscal 2007 were$24 millions, $(17) million and $3
million, respectively. For purposes of determining gains and losses to be
reclassified out of accumulated other comprehensive income into earnings, the
cost of securities is based on specific identification. Net unrealized holding
gains (losses) on available-for-sale securities in the amount of $4 million,
$(11) million and $(24) million for fiscal 2009, fiscal 2008 and fiscal 2007,
respectively, have been included in accumulated other comprehensive
income.
Investment
in Lear Corporation
In the
third quarter of fiscal 2007, we adopted the fair value option for Lear
Corporation (“Lear”) common stock which became eligible for the fair value
option at the time we first recognized them in our consolidated financial
statements. We adopted the fair value option to our investment in Lear common
stock to be consistent with the Private Funds’ accounting for its investment in
Lear common stock. We recorded unrealized gains and losses for the change in
fair value of such shares as a component of Holding Company revenues in the
consolidated statements of operations. In the fourth quarter of fiscal 2008, we
sold all of our Lear common stock and realized a net loss of $12 million. For
fiscal 2007, we recorded $3 million in unrealized losses resulting from the
change in market value of Lear common stock.
Investment
in ImClone Systems Incorporated
We
adopted the provisions of the fair value option as of January 1, 2007 and
elected to apply the fair value option to our investment in ImClone Systems
Incorporated (“ImClone”). 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. In
the fourth quarter of fiscal 2006, we first applied the equity method of
accounting to our investment in ImClone due to changes in ImClone’s board,
resulting in our having the ability to exercise significant influence over
ImClone.
As of the
date of adoption, the carrying value of our investment in ImClone was
approximately $164 million and the fair value of our investment was $122
million. In accordance with the transition requirements, we recorded a
cumulative effect adjustment to beginning partners’ equity for the difference
between the fair value and carrying value on the date of adoption, which reduced
partners’ equity by $42 million.
In the
fourth quarter of fiscal 2008, we received $319 million pursuant to a tender
offer from Bristol-Myers Squibb Company as consideration for their purchase of
all of the ImClone shares held by us. For fiscal 2008, we recorded a realized
gain of $197 million in the sale of all of the ImClone shares. In fiscal 2007,
we recorded $74 million of unrealized gains resulting from the change in the
market value of ImClone’s stock. Such gains are reflected as a component of net
gain (loss) from investment activities in the consolidated statements of
operations.
c.
Automotive
Investments
in Non-Consolidated Affiliates
Federal-Mogul
maintains investments in 14 non-consolidated affiliates, that 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 investments in these affiliates were $238
million and $221 million at December 31, 2009 and 2008, respectively. Upon our
purchase of the controlling interest in Federal-Mogul, Federal-Mogul’s
investments in non-consolidated affiliates were adjusted to estimated fair value
during fiscal 2008. These estimated fair values were determined based upon
internal and external valuations considering various relevant market rates and
transactions, and discounted cash flow valuations methods, among other factors,
as further described in Note 3, “Operating Units.”
Federal-Mogul
evaluated the recorded value of its investments in non-consolidated affiliates
for potential impairment as of December 31, 2009 and 2008. Given the economic
downturn in the global automotive industry and the related declines in
anticipated production volumes during fiscal 2008, Federal-Mogul concluded that
its investments in non-consolidated affiliates were impaired, and an impairment
charge of $64 million was recorded for the period March 1, 2008 through December
31, 2008.
32
Included
in the aggregate investments in non-consolidated affiliates of $238 million is
the remaining fair value step-up (net of impairment, amortization and foreign
currency) of $61 million, which represents a difference between the amounts of
these investments and underlying equity. This difference is comprised of $34
million of definite-lived intangible and tangible assets with a weighted average
remaining useful life of 17 years, and $27 million of indefinite-lived
intangible and tangible assets. There were no such impairments for fiscal
2009.
Equity
earnings from non-consolidated affiliates amounted to $16 million and $19
million for fiscal 2009 and for the period March 1, 2008 through December 31,
2008, respectively, which are included in other income, net in our consolidated
financial statements. For fiscal 2009, these entities generated sales of $504 million, net income of $45 million, and at December 31,
2009 had total net assets of approximately $511 million. Distributed dividends
to Federal-Mogul from non-consolidated affiliates were $7 million and $28
million for fiscal 2009 and for the period March 1, 2008 through December 31,
2008, respectively.
Federal-Mogul
does not hold a controlling interest in an entity based on exposure to economic
risks and potential rewards (variable interests) for which it is the primary
beneficiary. Further, Federal-Mogul’s joint ventures are businesses established
and maintained in connection with its operating strategy and are not special
purpose entities.
Federal-Mogul
holds a 50% non-controlling interest in a joint venture located in Turkey. This
joint venture was established in 1995 for the purpose of manufacturing and
marketing automotive parts, including pistons, piston rings, piston pins, and
cylinder liners to OE and aftermarket customers. Pursuant to the joint venture
agreement, Federal-Mogul’s partner holds an option to put its shares to a
subsidiary of Federal-Mogul’s at the higher of the current fair value or at a
guaranteed minimum amount. The term of the contingent guarantee is indefinite,
consistent with the terms of the joint venture agreement. However, the
contingent guarantee would not survive termination of the joint venture
agreement.
The
guaranteed minimum amount represents a contingent guarantee of the initial
investment of the joint venture partner and can be exercised at the discretion
of the partner. As of December 31, 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.
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.
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.
d.
Railcar
As of
December 31, 2009, ARI was party to three joint ventures which are all accounted
for using the equity method. ARI determined that, although these joint ventures
are considered VIEs, it is not the primary beneficiary of such
VIEs. The significant factors in this determination were that no
partners, including ARI, has rights to the majority of returns, losses or
votes.
The risk
of loss to ARI is limited to its investment in these joint ventures, certain
loans due from these joint ventures to ARI and ARI’s guarantee of certain loans.
As of December 31, 2009 and 2008, the carrying amount of these investments was
$41 million and $13 million, respectively, and the maximum exposure to loss was
$42 million and $13 million, respectively. Maximum exposure to loss was
determined based on ARI’s carrying amounts in such investments, loans and
accrued interest thereon due from applicable joint ventures and loan guarantees
made to the applicable joint ventures.
33
7.
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.
reported
trades, broker/dealer quotes and other pertinent data.
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.
Investment
Management
The
following table summarizes the valuation of the Private Funds’ investments by
the above fair value hierarchy levels measured on a recurring basis as of
December 31, 2009 and 2008 (in millions of dollars):
|
December
31, 2009
|
December
31, 2008
|
|||||||||||||||||||||||||||||||
|
Level
1
|
Level
2
|
Level
3
|
Total
|
Level
1
|
Level
2
|
Level
3
|
Total
|
|||||||||||||||||||||||||
|
Assets
|
||||||||||||||||||||||||||||||||
|
Investments:
|
||||||||||||||||||||||||||||||||
|
Equity
securities
|
$ | 2,875 | $ | 33 | $ | — | $ | 2,908 | $ | 2,826 | $ | 49 | $ | — | $ | 2,875 | ||||||||||||||||
|
Corporate
debt
|
— | 1,787 | 228 | 2,015 | 16 | 1,154 | 56 | 1,226 | ||||||||||||||||||||||||
|
Mortgage
backed securities
|
— | 168 | — | 168 | — | 160 | — | 160 | ||||||||||||||||||||||||
| 2,875 | 1,988 | 228 | 5,091 | 2,842 | 1,363 | 56 | 4,261 | |||||||||||||||||||||||||
|
Unrealized gains on derivative contracts(1)
|
— | 6 | — | 6 | — | 79 | — | 79 | ||||||||||||||||||||||||
| $ | 2,875 | $ | 1,994 | $ | 228 | $ | 5,097 | $ | 2,842 | $ | 1,442 | $ | 56 | $ | 4,340 | |||||||||||||||||
|
Liabilities
|
||||||||||||||||||||||||||||||||
|
Securities
sold, not yet purchased:
|
||||||||||||||||||||||||||||||||
|
Equity
securities
|
$ | 2,035 | $ | — | $ | — | $ | 2,035 | $ | 2,273 | $ | — | $ | — | $ | 2,273 | ||||||||||||||||
|
Unrealized losses on derivative contracts(2)
|
— | 111 | — | 111 | 1 | 439 | — | 440 | ||||||||||||||||||||||||
| $ | 2,035 | $ | 111 | $ | — | $ | 2,146 | $ | 2,274 | $ | 439 | $ | — | $ | 2,713 | |||||||||||||||||
The
changes in investments measured at fair value for which the Investment
Management operations has used Level 3 inputs to determine fair value are as
follows (in millions of dollars):
|
2009
|
2008
|
|||||||
|
Balance
at January 1
|
$ | 56 | $ | — | ||||
|
Realized
and unrealized losses, net
|
(56 | ) | (67 | ) | ||||
|
Purchases,
net
|
228 | 123 | ||||||
|
Balance
at December 31
|
$ | 228 | $ | 56 | ||||
34
There
were no unrealized losses included in earnings related to Level 3 investments
still held at December 31, 2009. Changes in unrealized losses included in
earnings for fiscal 2008 related to Level 3 investments still held as of
December 31, 2008 were $67 million. Total realized losses recorded for Level 3
investments are reported in net gain (loss) from investment activities in the
consolidated statements of operations.
Automotive,
Railcar, Holding Company and Other
The
following table summarizes the valuation of our Automotive, Holding Company and
other operations’ investments by the above fair value hierarchy levels measured
on a recurring basis as of December 31, 2009 and 2008 (in millions of
dollars):
|
December 31, 2009
|
December 31, 2008
|
|||||||||||||||||||||||
|
Level 1
|
Level 2
|
Total
|
Level 1
|
Level 2
|
Total
|
|||||||||||||||||||
|
Assets
|
||||||||||||||||||||||||
|
Marketable
equity and debt securities
|
$ | 23 | $ | — | $ | 23 | $ | 22 | $ | — | $ | 22 | ||||||||||||
|
Derivative
financial instruments(1)
|
— | 13 | 13 | — | 1 | 1 | ||||||||||||||||||
| $ | 23 | $ | 13 | $ | 36 | $ | 22 | $ | 1 | $ | 23 | |||||||||||||
|
Liabilities(2)
|
||||||||||||||||||||||||
|
Derivative
financial instruments
|
$ | — | $ | 51 | $ | 51 | $ | — | $ | 99 | $ | 99 | ||||||||||||
|
Unrealized
losses on derivative contracts
|
— | — | — | — | 10 | 10 | ||||||||||||||||||
|
|
$ | — | $ | 51 | $ | 51 | $ | — | $ | 109 | $ | 109 | ||||||||||||
|
(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.
|
The
following table presents Federal-Mogul’s defined benefit plan assets measured at
fair value on a recurring basis as of December 31, 2009:
|
Total
|
Level
1
|
Level
2
|
||||||||||
|
(Millions
of Dollars)
|
||||||||||||
|
U.S.
Plans:
|
||||||||||||
|
Investments
with Registered Investment Companies
|
||||||||||||
|
Equity
securities
|
$ | 448 | $ | 448 | $ | — | ||||||
|
Fixed
income securities
|
142 | 142 | — | |||||||||
| $ | 590 | $ | 590 | $ | — | |||||||
|
Non-U.S.
Plans:
|
||||||||||||
|
Insurance
contracts
|
$ | 32 | $ | — | $ | 32 | ||||||
|
Investments
with Registered Investment Companies
|
||||||||||||
|
Fixed
income securities
|
8 | 8 | — | |||||||||
|
Equity
securities
|
1 | 1 | — | |||||||||
|
Government
bonds
|
2 | — | 2 | |||||||||
|
Equity
securities
|
1 | 1 | — | |||||||||
|
Cash
|
1 | 1 | — | |||||||||
| $ | 45 | $ | 11 | $ | 34 | |||||||
The
following table presents ARI’s pension plan assets measured at fair value on a
recurring basis as of December 31, 2009:
|
Total
|
Level 1
|
Level 2
|
||||||||||
|
Asset
Category:
|
||||||||||||
|
Equity
securities
|
$ | 2 | $ | 2 | $ | - | ||||||
|
Funds
|
10 | 1 | 9 | |||||||||
| $ | 12 | $ | 3 | $ | 9 | |||||||
35
The
following table presents Viskase’s pension plan assets measured at fair value on
a recurring basis as of December 31, 2009:
|
Total
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
|
Asset
Category:
|
||||||||||||||||
|
Cash
and cash equivalents
|
$ | 3 | $ | 3 | $ | - | $ | - | ||||||||
|
Equity
securities
|
34 | 17 | 17 | - | ||||||||||||
|
Debt
securities
|
30 | 11 | 19 | - | ||||||||||||
|
Hedge
funds
|
25 | - | - | 25 | ||||||||||||
| $ | 92 | $ | 31 | $ | 36 | $ | 25 | |||||||||
The
changes in Viskase’s pension plan assets for which Viskase has used Level 3
inputs to determine fair value are as follows (in millions of
dollars):
|
Level 3
|
||||
|
Beginning
balance at December 31, 2008
|
$ | 15 | ||
|
Actual
return on plan assets:
|
||||
|
Relating
to assets still held at the reporting date
|
5 | |||
|
Purchases,
sales and settlements
|
5 | |||
|
Ending
balance at December 31, 2009
|
$ | 25 | ||
In
addition to items that are measured at fair value on a recurring basis, there
are also assets and liabilities that are measured at fair value on a
nonrecurring basis. As these assets and liabilities are not measured at fair
value on a recurring basis, they are not included in the tables above. Assets
and liabilities that are measured at fair value on a nonrecurring basis include
certain long-lived assets (see Notes 3, “Operating Units” and Note 9, “Goodwill
and Intangible Assets, Net”), investments in non-consolidated affiliates (see
Note 6, “Investment and Related Matters — Automotive”) and CARO (see Note 20,
“Commitments and Contingencies”). We determined that the fair value measurements
included in each of these assets and liabilities rely primarily on our
assumptions as unobservable inputs that are not publicly available. As such, we
have determined that each of these fair value measurements reside within Level 3
of the fair value hierarchy.
8.
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 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.
36
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.
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. At December 31, 2009, the maximum payout amounts relating to written put
options were $268 million. The Private Funds did not have any written put
options at 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 December 31, 2009 is
$111 million.
At
December 31, 2009, the Private Funds had approximately $436 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.
37
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 December 31, 2009 and 2008, the Private Funds
have entered into such credit default swaps with a maximum notional amount of
approximately $164 million and $604 million, respectively, with terms of
approximately three years as of December 31, 2009. We estimate that our maximum
exposure related to these credit default swaps approximates 33.8% of such
notional amounts as of December 31, 2009.
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):
|
December 31, 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
|
$ | — | $ | — | $ | 408 | $ | 7 |
Corporate Credit
|
||||||||
|
Below
investment grade risk exposure
|
164 | (16 | ) | 196 | (106 | ) |
Corporate
Credit
|
||||||||||
| $ | 164 | $ | (16 | ) | $ | 604 | $ | (99 | ) | ||||||||
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
|
December 31,
2009
|
December 31,
2008
|
December 31,
2009
|
December 31,
2008
|
||||||||||||
|
Interest
rate contracts
|
$ | — | $ | 20 | $ | — | $ | 18 | ||||||||
|
Foreign
exchange contracts
|
— | 8 | — | — | ||||||||||||
|
Equity
contracts
|
9 | — | — | 17 | ||||||||||||
|
Credit
contracts
|
26 | 176 | 140 | 530 | ||||||||||||
|
Sub-total
|
35 | 204 | 140 | 565 | ||||||||||||
|
Netting across contract types(3)
|
(29 | ) | (125 | ) | (29 | ) | (125 | ) | ||||||||
|
Total(4)
|
$ | 6 | $ | 79 | $ | 111 | $ | 440 | ||||||||
|
(1)
|
Net
asset derivatives are located within other assets in our consolidated
balance sheets.
|
|
(2)
|
Net
liability derivatives are located within accrued expenses and other
liabilities in our consolidated balance
sheets.
|
|
(3)
|
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 December 31, 2009 was approximately $436 million across all
counterparties.
|
The
following table presents the effects of the Private Funds’ derivative
instruments on the statement of operations for fiscal 2009 (in millions of
dollars):
|
Derivatives Not Designated as Hedging Instruments
|
Gain (Loss)
Recognized in
Income(1)
|
|||
|
Interest
rate contracts
|
$ | 57 | ||
|
Foreign
exchange contracts
|
(7 | ) | ||
|
Equity
contracts
|
(61 | ) | ||
|
Credit
contracts
|
323 | |||
| $ | 312 | |||
|
(1)
|
Gains
(losses) recognized on the Private Funds’ derivatives are classified in
net gain (loss) from investment activities within our consolidated
statements of operations.
|
38
Each
Private Fund’s assets may be held in one or more accounts maintained for the
Private Fund by its prime broker or at other brokers or custodian banks, which
may be located in various jurisdictions. The prime broker and custodian banks
are subject to various laws and regulations in the relevant jurisdictions in the
event of their insolvency. Accordingly, the practical effect of these laws and
their application to the Fund’s assets may be subject to substantial variations,
limitations and uncertainties. The insolvency of any of the prime brokers,
custodian banks or clearing corporations may result in the loss of all or a
substantial portion of the Private Fund’s assets or in a significant delay in
the Private Fund having access to those assets.
Credit
concentrations may arise from investment activities and may be impacted by
changes in economic, industry or political factors. The Private Funds routinely
execute transactions with counterparties in the financial services industry,
resulting in credit concentration with respect to this industry. In the ordinary
course of business, the Private Funds may also be subject to a concentration of
credit risk to a particular counterparty.
The
Private Funds seek to mitigate these risks by actively monitoring exposures,
collateral requirements and the creditworthiness of our
counterparties.
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 December 31,
2009 and 2008, respectively, that were designated as hedging instruments for
accounting purposes. Unrealized net gains of $1 million were recorded in
accumulated other comprehensive loss as of December 31, 2008. Immaterial
unrealized net losses were recorded in accumulated other comprehensive loss as
of December 31, 2009. No hedge ineffectiveness was recognized during fiscal
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 December 31, 2009 and 2008,
unrealized net losses of $50 million and $67 million, respectively, were
recorded in accumulated other comprehensive loss as a result of these hedges. As
of December 31, 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 fiscal
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, platinum, 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 140 and 364 commodity price hedge contracts outstanding with a combined
notional value of $28 million and $91 million at December 31, 2009 and 2008,
respectively, substantially all of which mature within one year. Of these
outstanding contracts, 112 and 346 commodity price hedge contracts with a
combined notional value of $26 million and $83 million at December 31, 2009 and
2008, respectively, were designated as hedging instruments for accounting
purposes. Unrealized net gains of $5 million and unrealized net losses of $33
million were recorded in accumulated other comprehensive loss as of December 31,
2009 and 2008, respectively. Unrealized net gains of $3 million were recognized
in other income, net during fiscal 2009, 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.
39
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 retailers,
distributors, retailers and installers of automotive aftermarket parts.
Federal-Mogul’s credit evaluation process and the geographical dispersion of
sales transactions help to mitigate credit risk concentration. No individual
customer accounted for more than 5% of Federal-Mogul’s sales during fiscal 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&
amp;
#160;Flow – Hedging Instruments
|
December 31,
2009</
fon
t>
|
December 31,
2008</
fon
t>
|
December 31,
2009</
fon
t>
|
December 31,
2008</
fon
t>
|
||||||||||||
|
Interest
rate swap contracts
|
$ | — | $ | — | $ | (50 | ) | $ | (67 | ) | ||||||
|
Commodity
contracts
|
6 | — | (1 | ) | (36 | ) | ||||||||||
|
Foreign
currency contracts
|
— | 1 | — | — | ||||||||||||
| $ | 6 | $ | 1 | $ | (51 | ) | $ | (103 | ) | |||||||
|
Derivatives
not Designated as Hedging Instruments
|
||||||||||||||||
|
Commodity
contracts
|
$ | 1 | $ | — | $ | — | $ | (7 | ) | |||||||
| $ | 1 | $ | — | $ | — | $ | (7 | ) | ||||||||
|
(1)
|
Federal-Mogul’s
asset derivatives and liability derivatives are classified within accrued
expenses and other liabilities on the consolidated balance
sheets.
|
40
The
following tables present the effect of Federal-Mogul’s derivative instruments on
the consolidated statement of operations for fiscal 2009 (in millions of
dollars):
|
For the Year Ended December 31, 2009
|
||||||||||||||
|
Derivatives Designated as
Hedging Instruments
|
Amount of
Gain (Loss)
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)
|
Location of Gain
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
|
$
|
(11
|
)
|
Interest
expense
|
$
|
(37
|
)
|
$
|
—
|
|||||
|
Commodity
contracts
|
20
|
Cost
of goods sold
|
(18
|
)
|
Other
income, net
|
3
|
||||||||
|
Foreign
exchange contracts
|
—
|
Cost
of goods sold
|
1
|
—
|
||||||||||
|
$
|
9
|
$
|
(54
|
)
|
$
|
3
|
||||||||
|
Derivatives Not Designated as Hedging Instruments
|
Location of Gain (Loss)
Recognized in
Income on
Derivatives
|
Gain (Loss)
Recognized in Income on
Derivatives
|
||||
|
Commodity
contracts
|
Cost
of goods sold
|
$
|
(7
|
)
|
||
|
Commodity
contracts
|
Other
income, net
|
4
|
||||
|
$
|
(3
|
)
|
||||
9.
Goodwill and Intangible Assets, Net
Goodwill
and intangible assets, net consist of the following (in millions of
dollars):
|
December 31, 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 | $ | (125 | ) | $ | 515 | $ | 640 | $ | (76 | ) | $ | 564 | |||||||||||
|
Food
Packaging
|
6 –
13.5 years
|
23 | (9 | ) | 14 | 23 | (8 | ) | 15 | |||||||||||||||||
|
Metals
|
5 –
15 years
|
11 | (4 | ) | 7 | 11 | (2 | ) | 9 | |||||||||||||||||
|
Real
Estate
|
12 –
12.5 years
|
121 | (14 | ) | 107 | — | — | — | ||||||||||||||||||
| $ | 795 | $ | (152 | ) | 643 | $ | 674 | $ | (86 | ) | 588 | |||||||||||||||
|
Indefinite-lived
intangible assets:
|
||||||||||||||||||||||||||
|
Automotive
|
354 | 354 | ||||||||||||||||||||||||
|
Food
Packaging
|
2 | 2 | ||||||||||||||||||||||||
|
Metals
|
— | 3 | ||||||||||||||||||||||||
|
Home
Fashion
|
8 | 13 | ||||||||||||||||||||||||
| 364 | 372 | |||||||||||||||||||||||||
|
Total
intangible assets, net
|
$ | 1,007 | $ | 960 | ||||||||||||||||||||||
41
|
December 31, 2009
|
December 31, 2008
|
|||||||||||||||||||||||
|
Gross
Carrying
Amount
|
Accumulated
Impairment
Losses
|
Net
Carrying
Value
|
Gross
Carrying
Amount
|
Accumulated
Impairment
Losses
|
Net
Carrying
Value
|
|||||||||||||||||||
|
Goodwill:
|
||||||||||||||||||||||||
|
Automotive:
|
||||||||||||||||||||||||
|
Balance
at January 1
|
$ | 1,298 | $ | (222 | ) | $ | 1,076 | $ | — | $ | — | $ | — | |||||||||||
|
Acquisitions
|
— | — | — | 1,527 | — | 1,527 | ||||||||||||||||||
|
Fresh-start
adjustments
|
(6 | ) | — | (6 | ) | (229 | ) | — | (229 | ) | ||||||||||||||
|
Impairment
|
— | 3 | 3 | — | (222 | ) | (222 | ) | ||||||||||||||||
|
Balance
at December 31
|
1,292 | (219 | ) | 1,073 | 1,298 | (222 | ) | 1,076 | ||||||||||||||||
|
Railcar
|
7 | — | 7 | 7 | — | 7 | ||||||||||||||||||
|
Food
Packaging
|
3 | — | 3 | 3 | — | 3 | ||||||||||||||||||
|
Metals:
|
||||||||||||||||||||||||
|
Balance
at January 1
|
10 | — | 10 | 16 | — | 16 | ||||||||||||||||||
|
Impairment
|
— | (10 | ) | (10 | ) | — | — | — | ||||||||||||||||
|
Finalize
purchase allocation
|
— | — | — | (6 | ) | — | (6 | ) | ||||||||||||||||
|
Balance
at December 31
|
10 | (10 | ) | — | 10 | — | 10 | |||||||||||||||||
|
Total
goodwill
|
$ | 1,312 | $ | (229 | ) | $ | 1,083 | $ | 1,318 | $ | (222 | ) | $ | 1,096 | ||||||||||
The
aggregate amortization expense related to our definite-live intangible assets
was $66 million, $69 million and $3 million for fiscal 2009, fiscal 2008 and
fiscal 2007, respectively. We utilize the straight line method of amortization,
recognized over the estimated useful lives of the assets.
The
estimated future amortization expense for our definite-lived intangible assets
is as follows (in millions of dollars):
|
Year
|
Amount
|
|||
|
2010
|
$
|
62
|
||
|
2011
|
61
|
|||
|
2012
|
59
|
|||
|
2013
|
57
|
|||
|
2014
|
56
|
|||
|
Thereafter
|
349
|
|||
|
$
|
644
|
|||
42
Automotive
Given the
complexity of the calculation and significance of fourth quarter economic
activity during fiscal 2008, Federal-Mogul had not yet completed its annual
impairment assessment for fiscal 2008 prior to filing its Annual Report on Form
10-K. Based upon the draft valuations and preliminary assessment, our Automotive
segment recorded estimated impairment charges of $222 million and $130 million
for goodwill and other indefinite-lived intangible assets, respectively, for the
period March 1, 2008 through December 31, 2008. During the quarter ended March
31, 2009, Federal-Mogul completed this assessment, and recorded a reduction to
its goodwill impairment of $3 million. These 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, giving
appropriate consideration to the unprecedented economic downturn in the
automotive industry that continued throughout the fourth quarter of fiscal 2008.
The 2008 impairment charge was primarily attributable to significant decreases
in forecasted future cash flows as Federal-Mogul adjusts to known and
anticipated changes in industry production volumes.
During
fiscal 2009, Federal-Mogul identified $6 million of adjustments, principally
related to foreign currency translation, associated with the pushdown of final
fresh-start values to the individual operating entities that were necessary to
properly state goodwill. Accordingly, Federal-Mogul recorded these adjustments
during fiscal 2009, which reduced its goodwill balance by $6
million.
Federal-Mogul
has assigned $115 million to technology, including value for patented and
unpatented proprietary know-how and expertise as embodied in the processes,
specifications and testing of products. The value assigned is based on the
relief-from-royalty method which applies a fair royalty rate for the technology
group to forecasted revenue. Royalty rates were determined based on discussions
with management and a review of royalty data for similar or comparable
technologies. The amortization periods between 10 and 14 years are based on the
expected useful lives of the products or product families for which the
technology relate.
Aftermarket
products are sold to a wide range of wholesalers, retailers and installers as
replacement parts for vehicles in current production and for older vehicles. For
its aftermarket customers, Federal-Mogul generally establishes product line
arrangements that encompass all products offered within a particular product
line. These are typically open-ended arrangements that are subject to
termination by either Federal-Mogul or the customer at any time. The generation
of repeat business from any one aftermarket customer depends upon numerous
factors, including but not limited to the speed and accuracy of order
fulfillment, the availability of a full range of product, brand recognition, and
market responsive pricing adjustments. Predictable recurring revenue is
generally not heavily based upon prior relationship experience. As such,
distinguishing revenue between that attributable to customer relationships as
opposed to revenue attributable to recognized customer brands is
difficult.
During
fiscal 2008, Federal-Mogul completed its analysis of its various aftermarket
revenue streams and bifurcated those streams between revenues associated with
brand recognition and revenues associated with customer relationships.
Valuations for brand names and customer relationships were then determined based
upon the estimated revenue streams. As a result of the valuations, Federal-Mogul
recorded $484 million for its trademarks and brand names. As part of fresh-start
reporting, value was assigned to trademarks or brand names based on its earnings
potential or relief from costs associated with licensing the trademarks or brand
names. As Federal-Mogul expects to continue using each trademark or brand name
indefinitely with respect to the related product lines, the trademarks or brand
names have been assigned indefinite lives and are tested annually for
impairment. Based on its 2008 annual impairment test, Federal-Mogul recorded a
$130 million impairment charge related to these trademarks and brand
names.
Federal-Mogul
has assigned $519 million to its customer relationships, of which $62 million
relates to original equipment (“OE”) customer relationships and $457 million
relates to aftermarket customer relationships. The values assigned to customer
relationships are based on the propensity of these customers to continue to
generate predictable future recurring revenue and income. The value was based on
the present value of the future earnings attributable to the intangible assets
after recognition of required returns to other contributory assets. The
amortization periods of between 1 and 16 years are based on the expected cash
flows and historical attrition rates, as determined within each of the separate
product groups.
Federal-Mogul
evaluates recorded goodwill and other indefinite-lived assets for impairment
annually in October of each year. Federal-Mogul concluded that there was no
impairment as a result of its annual assessment for fiscal 2009. Federal-Mogul’s
goodwill balance of $1,073 million as of December 31, 2009 passed “Step 1” of
its annual goodwill impairment analysis, with fair values in excess of carrying
values of at least 15%.
Railcar
On
March 31, 2006, ARI acquired all of the common stock of Custom Steel, Inc.
(“Custom Steel”), a subsidiary of Steel Technologies, Inc. Custom Steel operates
a facility located adjacent to ARI’s component manufacturing facility in
Kennett, Missouri, which produces value-added fabricated parts that primarily
support ARI’s railcar manufacturing operations. Prior to this acquisition, ARI
was Custom Steel’s primary customer. The acquisition resulted in goodwill of
$7 million.
43
ARI
performs its annual goodwill impairment test as of March 1 of each fiscal year.
The valuation uses a combination of methods to determine the fair value of the
reporting unit including prices of comparable businesses, a present value
technique and recent transactions involving businesses similar to
ARI.
During
the fourth quarter of fiscal 2008, there were severe disruptions in the credit
markets and reductions in global economic activity, which had significant
adverse impacts on stock markets, which contributed to a significant decline in
ARI’s stock price and corresponding market capitalization. For most of the
fourth quarter of fiscal 2008, ARI’s market capitalization value was
significantly below the recorded net book value of ARI’s consolidated balance
sheet, including goodwill. Based on these overriding factors, indicators existed
that ARI had experienced a significant adverse change in the business climate,
which was determined to be a triggering event requiring ARI to review its
goodwill for impairment. ARI performed a goodwill impairment test as of
December 31, 2008 and determined no impairment existed. ARI also performed
the annual impairment test as of March 1, 2009, noting no adjustment was
required.
Food
Packaging
As
discussed in Note 1, “Description of Business and Basis of Presentation,” we
acquired a majority interest in Viskase on January 15, 2010. As a result of our
acquisition of a controlling interest in Viskase, certain long-term assets have
been adjusted by a total of $18 million as a result of our required utilization
of common control parties’ underlying basis in such assets as of the effective
date of common control (November 2006) as follows: increase of $3 million for
goodwill, increase of $20 million for intangible assets and decrease of $5
million for building and equipment.
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 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 a 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.
44
Home
Fashion
For
fiscal 2009, fiscal 2008 and fiscal 2007 WPI recorded an impairment charge of $5
million, $6 million and $5 million, respectively, 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.
10.
Property, Plant and Equipment, Net
Property,
plant and equipment, net consists of the following:
|
December 31,
|
|||||||||||
|
Useful Life
|
2009
|
2008
|
|||||||||
|
(Years)
|
(In
Millions)
|
||||||||||
|
Land
|
$ | 304 | $ | 312 | |||||||
|
Buildings
and improvements
|
4 –
40
|
700 | 639 | ||||||||
|
Machinery,
equipment and furniture
|
1 –
25
|
2,121 | 1,881 | ||||||||
|
Assets
leased to others
|
484 | 601 | |||||||||
|
Construction
in progress
|
229 | 290 | |||||||||
| 3,838 | 3,723 | ||||||||||
|
Less
accumulated depreciation and amortization
|
(880 | ) | (544 | ) | |||||||
|
Property,
plant and equipment, net
|
$ | 2,958 | $ | 3,179 | |||||||
Total
rental expense for continuing operations under operating leases for fiscal 2009,
fiscal 2008 and fiscal 2007 was $76 million, $70 million and $23 million,
respectively.
11.
Equity Attributable to Non-Controlling Interests
Equity
attributable to non-controlling interests consists of the following (in millions
of dollars):
|
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Investment
Management
|
$ | 3,719 | $ | 3,560 | ||||
|
Automotive
|
324 | 276 | ||||||
|
Other
|
242 | 252 | ||||||
|
Total
equity attributable to non-controlling interests
|
$ | 4,285 | $ | 4,088 | ||||
Debt
consists of the following (in millions of dollars):
|
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Senior
unsecured variable rate convertible notes due 2013 – Icahn
Enterprises
|
$ | 556 | $ | 556 | ||||
|
Senior
unsecured 7.125% notes due 2013 – Icahn Enterprises
|
963 | 961 | ||||||
|
Senior
unsecured 8.125% notes due 2012 – Icahn Enterprises
|
352 | 352 | ||||||
|
Exit
Facilities – Automotive
|
2,672 | 2,495 | ||||||
|
Senior
unsecured notes – Railcar
|
275 | 275 | ||||||
|
Senior
unsecured notes and Revolving Credit Facility –
Food Packaging
|
174 | 129 | ||||||
|
Mortgages
payable
|
114 | 123 | ||||||
|
Other
|
80 | 86 | ||||||
|
Total
debt
|
$ | 5,186 | $ | 4,977 | ||||
45
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 December 31, 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. We paid an aggregate cash
distribution of $3 million for each of fiscal 2009 and fiscal 2008, and $1
million for fiscal 2007, 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 “2013 Notes”), priced at 100% of principal
amount. The 2013 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 “2013 Notes Indenture”). Other than Icahn Enterprises
Holdings, no other subsidiaries guaranteed payment on the notes.
On
January 16, 2007, we issued an additional $500 million aggregate principal
amount of 2013 Notes (the “additional 2013 Notes” and, together with the 2013
Notes, the “notes”), priced at 98.4% of par, or at a discount of 1.6%, pursuant
to the 2013 Notes Indenture. The notes had a fixed annual interest rate of
7.125%, which was paid every six months on February 15 and August 15, and was
due to mature on February 15, 2013.
The 2013
Notes Indenture restricted 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.
Effective
January 15, 2010, pursuant to certain cash tender offers, the 2013 Notes
Indenture was satisfied and discharged in accordance with its terms. See Note
21, “Subsequent Events — Senior Notes Offering,” for further discussion of the
cash tender offers and termination of the 2013 Notes Indenture.
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 (“2012 Notes”) in the aggregate principal amount
of $353 million. The 2012 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 “2012 Notes Indenture”). The 2012 Notes were priced at 99.266% of principal
amount and had a fixed annual interest rate of 8.125%, which was paid every six
months on June 1 and December 1. The 2012 Notes was due to mature on June 1,
2012. Other than Icahn Enterprises Holdings, no other subsidiaries guarantee
payment on the notes.
The 2012
Notes Indenture restricted 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.
Effective
January 15, 2010, pursuant to certain cash tender offers, the 2012 Notes
Indenture was satisfied and discharged in accordance with its terms. See Note
21, “Subsequent Events — Senior Notes Offering,” for further discussion of the
cash tender offers and termination of the 2012 Notes Indenture.
46
Senior
Unsecured Notes Restrictions and Covenants
The
indenture governing the variable rates notes restricts 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 indenture also restricts the incurrence of debt or the issuance of
disqualified stock, as defined in the indenture, with certain exceptions. In
addition, the indenture governing our variable rate notes requires 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 indenture also restricts the creation
of liens, mergers, consolidations and sales of substantially all of our assets,
and transactions with affiliates. Each of the 2013 Notes Indenture and the 2012
Notes Indenture contained similar restrictions and covenants prior to their
termination on June 15, 2010.
As of
December 31, 2009 and 2008, we were in compliance with all covenants, including
maintaining certain minimum financial ratios, as defined in the applicable
indentures. Additionally, as of December 31, 2009, based on certain minimum
financial ratios, we and Icahn Enterprises Holdings could not incur additional
indebtedness.
On
January 15, 2010, we sold $2.0 billion in principal amount of new senior debt
securities (the “New Notes”) for issuance in a private placement not registered
under the Securities Act. The indenture governing the New Notes in general
contain restrictions and covenants similar to those contained in the 2012 Notes
Indenture and the 2013 Notes Indenture as described above. See Note 21,
“Subsequent Events — Senior Notes Offering,” for further
discussion.
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%.
Exit
Facilities — Automotive
On 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. 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.
Federal-Mogul
had $50 million and $57 million of letters of credit outstanding at December 31,
2009 and 2008, respectively, all of which pertain to the term loan credit
facility. As of December 31, 2009 and 2008, the borrowing availability under the
revolving credit facility was $470 million and $475 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.
47
The
weighted average cash interest rates for debt were approximately 3.5% and 4.6%
as of December 31, 2009 and 2008, respectively.
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 December 31, 2009 and
2008, Federal-Mogul was in compliance with all debt covenants under the Exit
Facilities.
Senior
Unsecured Notes — Railcar
In
February 2007, ARI issued $275 million unsecured senior fixed rate notes that
were subsequently exchanged for registered notes in March 2007 (the ‘‘ARI
Notes’’).
The ARI
Notes bear a fixed interest rate of 7.5% and are due in 2014. Interest on the
ARI Notes is payable semi-annually in arrears on March 1 and September 1. The
indenture governing the ARI Notes (the ‘‘ARI Notes Indenture’’) contains
restrictive covenants that limit ARI’s ability to, among other things, incur
additional debt, make certain restricted payments and enter into certain
significant transactions with stockholders and affiliates. ARI was in compliance
with all of its covenants under the ARI Notes Indenture as of December 31,
2009.
Prior to
March 1, 2011, ARI may redeem the ARI Notes in whole or in part at a redemption
price equal to 100.0% of the principal amount, plus an applicable premium based
upon a present value calculation using an applicable treasury rate plus 0.5%,
plus accrued and unpaid interest. Commencing on March 1, 2011, the redemption
price is set at 103.75% of the principal amount of the ARI Notes plus accrued
and unpaid interest, and declines annually until it is reduced to 100.0% of the
principal amount of the ARI Notes plus accrued and unpaid interest from and
after March 1, 2013. The ARI Notes are due in full plus accrued unpaid interest
on March 1, 2014.
Secured
Notes and Revolving Credit Facility – Food Packaging
9.875%
Senior Secured Notes due 2018
In
December 2009, Viskase issued $175 million of 9.875% Senior Secured Notes due
2018 (the ‘‘Viskase 9.875% Notes’’). The Viskase 9.875% Notes bear interest at a
rate of 9.875% per annum, payable semi-annually in cash on January 15 and July
15, commencing on July 15, 2010. The Viskase 9.875% Notes have a maturity date
of January 15, 2018.
The notes
and related guarantees by any of Viskase’s future domestic restricted
subsidiaries are secured by substantially all of Viskase’s and such domestic
restricted subsidiaries’ current and future tangible and intangible assets. The
indenture governing the Viskase 9.875% Notes (the “Viskase 9.875% Notes
Indenture’’) permits Viskase to incur other senior secured indebtedness and to
grant liens on its assets under certain circumstances.
Prior to
January 15, 2014, Viskase may redeem, at its option, up to 35% of the aggregate
principal amount of the Viskase 9.875% Notes issued under the Viskase 9.875%
Notes Indenture with the net proceeds of any equity offering at 109.875% of
their principal amount, plus accrued and unpaid interest to the date of
redemption, provided that at least 65% of the aggregate principal amount of the
Viskase 9.875% Notes issued under the Viskase 9.875% Notes Indenture dated
December 21, 2009 remains outstanding immediately following the
redemption.
48
11.5%
Senior Secured Notes due 2011
In June
2004, Viskase issued $90 million of 11.5% Senior Secured Notes due 2011 (the
“Viskase 11.5% Senior Secured Notes”) and 90 million warrants (the “New
Warrants”) to purchase an aggregate of approximately 805 thousand shares of
common stock of Viskase. The proceeds of the Viskase 11.5% Senior Secured Notes
and the 90 million New Warrants totaled $90 million. In December 2009, Viskase
filed a notice of redemption effectively discharging the entire aggregate
principal amount outstanding of its Viskase 11.5% Senior Secured Notes plus
accrued interest.
Each of
the 90 million New Warrants entitles the holder to purchase 8.947 shares of
Viskase’s common stock at an exercise price of $.01 per share. The New Warrants
were valued for accounting purposes using a fair value method. Using a fair
value method, each of the 90 million New Warrants was valued at $11.117 for an
aggregate fair value of the warrant issuance of $1,001. The New Warrants expire
on June 15, 2011. The remaining $89 million of aggregate proceeds was
allocated to the carrying value of the Viskase 11.5% Senior Secured Notes as of
June 29, 2004.
In June
2008, Viskase exchanged $8.0 million aggregate principal amount of its 8% Senior
Notes plus accrued interest for $7.8 million principal amount of its 11.5%
Senior Secured Notes. The holders of the exchanged 8% Senior Notes
agreed that any accrued but unpaid interest on the exchanged 8% Senior Notes was
reflected in the principal amount of the new 11.5% Senior Secured Notes that
were issued, and accordingly the holders were not entitled to any separate
payment with respect to such accrued but unpaid interest. The
issuance of the Viskase 11.5% Senior Secured Notes in exchange for the exchanged
8% Senior Notes was in full satisfaction and discharge of the Viskase’s
obligations to such holders with respect to the exchanged 8% Senior
Notes.
On
October 1, 2008, in connection with a tender and exchange offer of the 8% Senior
Notes, Viskase issued $2.6 million of 11.5% Senior Secured Notes.
In
December 2008, in connection with the redemption of the 8% Senior
Notes, Viskase issued $10.2 of Viskase 11.5% Senior Secured Notes to an
affiliate of Carl C. Icahn at a purchase price of $8.1 million. The
discount of $2 million was amortized using the effective interest
method.
Revolving
Credit Facility
In
November 2007, Viskase entered into a $25 million secured revolving credit
facility (the ‘‘Viskase Revolving
Credit Facility’’) with Arnos Corporation, an affiliate of Mr. Icahn. In
connection with our majority acquisition of Viskase on January 15, 2010, we
assumed the Viskase Revolving Credit Facility from Arnos Corporation. On April
27, 2010, we entered into an agreement with Viskase, extending the maturity date
of the Viskase Revolving Credit Facility from January 31, 2011 to January 31,
2012. Borrowings under the loan and security agreement governing the Viskase
Revolving Credit Facility are subject to a borrowing base formula based on
percentages of eligible domestic receivables and eligible domestic inventory.
Under the Viskase Revolving Credit Facility, the interest rate is LIBOR plus a
margin of 2.00% currently (which margin will be subject to performance based
increases up to 2.50%); provided that the minimum interest rate shall be at
least equal to 3.00%. The weighted average interest rate as of December 31, 2009
was 3.00%. The Viskase Revolving Credit facility also provides for an
unused line fee of 0.375% per annum. There were no borrowings under the Viskase
Revolving Credit Facility at December 31, 2009 and $20 million of borrowings at
December 31, 2008.
Indebtedness
under the Viskase Revolving Credit Facility is secured by liens on substantially
all of Viskase’s domestic and Mexican assets, with liens on certain assets that
are contractually senior to the Viskase 9.875% Notes and the related guarantees
pursuant to an intercreditor agreement and the Viskase 9.875% Notes. The Viskase
Revolving Credit Facility contains various covenants which restrict Viskase’s
ability to, among other things, incur indebtedness, enter into mergers or
consolidation transactions, dispose of assets (other than in the ordinary course
of business), acquire assets, make certain restricted payments, create liens on
our assets, make investments, create guarantee obligations and enter into sale
and leaseback transactions and transactions with affiliates, in each case
subject to permitted exceptions. The Viskase Revolving Credit Facility also
requires that Viskase complies with various financial covenants. Viskase was in
compliance with these requirements as of December 31, 2009.
In its
foreign operations, Viskase has unsecured lines of credit with various banks
providing approximately $6 million of availability. Borrowings under the lines
of credit at December 31, 2009 were immaterial. Letters of credit in the amount
of $2 million were outstanding under facilities with a commercial bank, and were
cash collateralized at December 31, 2009.
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.
49
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
December 31, 2009, there were no borrowings under the agreement, but there were
outstanding letters of credit of $11 million. Based upon the eligibility and
reserve calculations within the agreement, WestPoint Home had unused borrowing
availability of $46 million at December 31, 2009.
Debt
Extinguishment
During
the fourth quarter of fiscal 2008, we purchased outstanding debt of entities
included in our consolidated financial statements in the principal amount of
$352 million and recognized an aggregate gain of $146 million representing the
difference between the fair value of the consideration issued in the settlement
transaction.
Sale
of Previously Purchased Subsidiary Debt
During
fiscal 2009, we received proceeds of $166 million from the sale of previously
purchased debt of entities included in our consolidated financial statements in
the principal amount of $215 million.
Maturities
The
following is a summary of the maturities of our debt obligations (in millions of
dollars):
|
Year
|
Amount
|
|||
|
2010
|
$ | 99 | ||
|
2011
|
65 | |||
|
2012
|
942 | |||
|
2013
|
1,018 | |||
|
2014
|
2,100 | |||
|
Thereafter
|
1,119 | |||
| $ | 5,343 | |||
As
described in Note 21, “Subsequent Events,” on January 15, 2010 we sold
$850,000,000 of the 2016 Notes and $1,150,000,000 of the 2018 Notes. A portion
of the gross proceeds from the sale of the notes were used to purchase all of
the $353 million principal amount of our 2012 Notes and $967 million principal
amount of our 2013 Notes. The table above includes our obligations as of
December 31, 2009 and thus reflects our 2012 Notes and 2013 Notes as due in the
years in which they were originally due.
13.
Compensation Arrangements
Investment
Management
Prior to
January 1, 2008, the General Partners, Icahn Management (for periods through
August 8, 2007) and New Icahn Management (for the period August 8, 2007 through
December 31, 2007) had agreements with certain of their employees whereby these
employees had been granted rights to participate in a portion of the management
fees and incentive allocations earned by the General Partners, Icahn Management
and New Icahn Management. As discussed below, effective January 1, 2008, these
employee rights to receive a portion of the management fees were terminated. As
discussed further in Note 3, “Operating Units — Investment Management,”
effective January 1, 2008, (i) the management agreements and the management fees
payable thereunder were terminated and (ii) the partnership agreements of the
Offshore Master Funds and the Onshore Fund were amended to provide that the
General Partners will provide, or direct their affiliates to provide, the
Services to the Private Funds and in consideration thereof the General Partners
will receive special profits interest allocations from the Onshore Fund and the
Offshore Master Funds. In addition, we amended the Contribution Agreement and
the employment agreements of certain employees to accommodate the termination of
the management agreements.
50
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.
Prior to
January 1, 2008, certain employees were granted rights to participate in a
portion of the management fees and incentive allocations earned by the General
Partners, Icahn Management (for periods through August 8, 2007) and New Icahn
Management (for the period August 8, 2007 through December 31, 2007). The
vesting period of such rights was generally between two and seven years and
expired at the end of the contractual term of each respective employment
agreement. Up to 100% of the amounts earned annually under such rights in
respect of management fees were eligible to be deferred for a period not to
exceed ten years from the date of deferral, based on an annual election made by
the employee. Effective January 1, 2008, the employees’ rights to receive a
portion of the management fees were terminated.
The fair
value of unvested and vested amounts that have not been withdrawn by the
employee in respect of special profits interest allocations (and, prior to
January 1, 2008, management fees) is determined at the end of each reporting
period based, in part, on the (i) fair value of the underlying net assets of the
Private Funds, upon which the respective special profits interest allocations
(and prior to January 1, 2008, management fees) are based and (ii) performance
of the funds in which such amounts are reinvested. The carrying value of such
amounts represents the allocable special profits interest allocation (and, prior
to January 1, 2008, management fees) and the appreciation or depreciation
thereon. These amounts approximate fair value because the appreciation or
depreciation on such amounts is based on the fair value of the Private Funds’
investments, which are marked-to-market through earnings on a quarterly
basis.
The
General Partners, Icahn Capital, Icahn Management (for periods through August 8,
2007) and New Icahn Management (for the period August 8, 2007 through December
31, 2007) recorded compensation expense of $13 million, $2 million and $22
million related to these rights for fiscal 2009, fiscal 2008 and fiscal 2007,
respectively. Compensation expense is included in “Selling, general and
administrative expenses” in the consolidated statements of operations.
Compensation expense arising from grants in special profits interest allocations
is recognized in the consolidated financial statements over the vesting period.
Accordingly, unvested balances of special profits interest allocations effective
January 1, 2008, if any, (and, prior to January 1, 2008, management fees)
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 $1 million and $4 million as of
December 31, 2009 and 2008, respectively. That cost is expected to be recognized
over a weighted average of 3.8 years. Cash paid to settle rights that were
withdrawn for fiscal 2009, fiscal 2008 and fiscal 2007 was $8 million, $6
million and $14 million, respectively.
The
liabilities incurred by Icahn Management related to the rights granted to
certain employees to participate in a portion of the management fees earned by
Icahn Management remained with Icahn Management upon the execution of the
Contribution Agreement on August 8, 2007. However, because the employees to whom
these rights were granted became employees of New Icahn Management on August 8,
2007, New Icahn Management recognized the future compensation expense associated
with the unvested portion of rights granted by Icahn Management through December
31, 2007, even though such liability will be settled by Icahn Management, with a
corresponding increase to partners’ equity.
As of
January 1, 2008, New Icahn Management distributed its net assets to Icahn
Capital. Accordingly, effective January 1, 2008, employees of New Icahn
Management became employees of Icahn Capital and such future compensation
expense associated with the unvested portion of rights granted by Icahn
Management were recognized by Icahn Capital.
Automotive
Stock
Based Compensation
On
February 2, 2005, the Predecessor Company entered into a five-year employment
agreement with José Maria Alapont, effective March 23, 2005, whereby Mr. Alapont
was appointed as the Predecessor Company’s president and chief executive
officer. In connection with this agreement, the Plan Proponents agreed to amend
the Plan to provide that the reorganized Federal-Mogul would grant to Mr.
Alapont stock options equal to at least 4% of the value of the Successor Company
at the reorganization date (the “Employment Agreement Options”). The Employment
Agreement Options vest ratably over the life of the employment agreement, such
that one-fifth of the Employment Agreement Options will vest on each anniversary
of the employment agreement effective date. For purposes of estimating fair
value, the Employment Agreement Options were deemed to expire on December 27,
2014.
51
Additionally,
one-half of the Employment Agreement Options had an additional feature allowing
for the exchange of one half of the options for shares of stock of the Successor
Company, at the exchange equivalent of four options for one share of Common
Stock. The Employment Agreement Options without the exchange feature are
referred to herein as “plain vanilla options” and those Employment Agreement
Options with the exchange feature are referred to as “options with
exchange.”
On the
Effective Date and in accordance with the Plan, Federal-Mogul granted to Mr.
Alapont stock options to purchase four million shares of Successor Company
Common Stock at an exercise price of $19.50 (the “Granted Options”). Pursuant to
the Stock Option Agreement dated as of December 27, 2007 between Federal-Mogul
and Mr. Alapont (the “Initial CEO Stock Option Agreement”), the Granted Options
do not have an exchange feature. In lieu of “options with exchange” under the
Employment Agreement Options, the Successor Company entered into a deferred
compensation agreement with Mr. Alapont intended to be the economic equivalent
of the options with exchange. Under the terms of this deferred compensation
agreement, Mr. Alapont is entitled to certain distributions of Common Stock, or,
at the election of Mr. Alapont, certain distributions of cash upon certain
events as set forth in the Deferred Compensation Agreement dated as of December
27, 2007 between Federal-Mogul and Mr. Alapont (the “Deferred Compensation
Agreement”). The amount of the distributions shall be equal to the fair value of
500,000 shares of Common Stock, subject to certain adjustments and offsets,
determined as of the first to occur of (1) the date on which Mr. Alapont’s
employment with Federal-Mogul terminates, (2) March 23, 2010, the date on which
Mr. Alapont’s employment agreement with Federal-Mogul expires, (3) Mr. Alapont’s
death, (4) the date Mr. Alapont becomes disabled (as defined for purposes of
Section 409A of the Code), (5) at the election of Mr. Alapont, a change in
control (as defined for purposes of Section 409A of the Code), or (6) the
occurrence of an unforeseeable emergency (as defined for purposes of Section
409A of the Code).
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 December 31, 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 December 31, 2009, resulting in a
revised fair value of $29 million. For fiscal 2009 and for the period March 1,
2008 through December 31, 2008, Federal-Mogul recognized $25 million in expense
and $17 million in income, respectively, associated with these options.
(Federal-Mogul recognized income associated with these options due to a revised
lower fair value during fiscal 2008.) 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 $28 million, has been recorded as a liability as of December 31,
2009. The remaining $1 million of total unrecognized compensation cost as of
December 31, 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:
|
December 31, 2009 Valuation
|
||||||||||||
|
Valuation Model
|
Plain Vanilla
Options
Black-Scholes
|
Options
Connected
to Deferred
Compensation
Monte Carlo
|
Deferred
Compensation
Monte Carlo
|
|||||||||
|
Expected
volatility
|
61 | % | 61 | % | 61 | % | ||||||
|
Expected
dividend yield
|
0 | % | 0 | % | 0 | % | ||||||
|
Risk-free
rate over the estimated expected option life
|
1.41 | % | 1.47 | % | 1.47 | % | ||||||
|
Expected
option life (in years)
|
2.52 | 2.61 | 2.61 | |||||||||
Expected
volatility is based on the average of five-year historical volatility (71%) and
implied volatility (50%) for a group of auto industry comparator companies as of
the measurement date. Risk-free rate is determined based upon U.S. Treasury
rates over the estimated expected option lives. Expected dividend yield is zero
as Federal-Mogul has not pay dividends to holders of its common stock in the
recent past nor does it expect to do so in the future. Expected option lives are
primarily equal to one-half of the time to the end of the option
term.
52
14.
Pensions, Other Postemployment Benefits and Employee Benefit Plans
Federal-Mogul,
ARI and Viskase each sponsors several defined benefit pension plans (‘‘Pension
Benefits’’) (and, in the case of Viskase, such pension plans include defined
contribution plans). Additionally, Federal-Mogul, ARI and Viskase each sponsors
health care and life insurance benefits (‘‘Other Benefits’’) for certain
employees and retirees around the world. The Pension Benefits are funded based
on the funding requirements of federal and international laws and regulations,
as applicable, in advance of benefit payments and the Other Benefits as benefits
are provided to participating employees. As prescribed by
applicable U.S. GAAP, Federal-Mogul, ARI and Viskase each uses, as
applicable, appropriate actuarial methods and assumptions in
accounting for its defined benefit pension plans, non-pension post-employment
benefits, and disability, early retirement and other post-employment
benefits. The measurement date for all defined benefit plans is
December 31.
Effective
December 31, 2009, Federal-Mogul, ARI and Viskase each adopted the new
disclosure requirements relating to postretirement benefit plan
assets. As discussed below, among other disclosure requirements, this
standard requires disclosures about the inputs and valuation techniques used to
develop fair value measurements of plan assets as of the reporting
date. For further discussion regarding fair value measurements,
including inputs and valuation techniques, of our financial instruments, see
Note 7, “Fair Value Measurements.”
On March
23, 2010, the Patient Protection and Affordable Care Act was signed into law and
on March 30, 2010, a companion bill, the Health Care and Education
Reconciliation Act of 2010, was also signed into law. The newly
enacted acts contain provisions which could impact our accounting for retiree
medical benefits in future periods, however, the extent of that impact, if any,
cannot be determined until regulations are promulgated under these acts and
additional interpretations of these acts become available. We will continue to
assess the accounting implications of these acts. See Note 21, ‘‘Subsequent
Events,’’ below for further discussion on the impact of these acts.
The
following provides disclosures for each of our Automotive, Railcar and Food
Packaging segments’ benefit obligations, plan assets, funded status, recognition
in the consolidated balance sheets and inputs and valuation
assumptions:
|
a.
|
Automotive
|
|
Pension Benefits
|
||||||||||||||||||||||||
|
United States Plans
|
Non-U.S. Plans
|
Other Benefits
|
||||||||||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||||||||
|
(Millions
of Dollars)
|
||||||||||||||||||||||||
|
Change
in benefit obligation:
|
||||||||||||||||||||||||
|
Benefit
obligation, beginning of year
|
$ | 986 | $ | 1,006 | $ | 334 | $ | 348 | $ | 494 | $ | 523 | ||||||||||||
|
Service
cost
|
26 | 24 | 8 | 7 | 2 | 1 | ||||||||||||||||||
|
Interest
cost
|
63 | 61 | 18 | 19 | 31 | 30 | ||||||||||||||||||
|
Employee
contributions
|
— | — | — | — | 2 | 2 | ||||||||||||||||||
|
Benefits
paid
|
(79 | ) | (75 | ) | (24 | ) | (23 | ) | (50 | ) | (50 | ) | ||||||||||||
|
Medicare
subsidies received
|
— | — | — | — | 3 | 4 | ||||||||||||||||||
|
Curtailment
|
— | — | (2 | ) | (1 | ) | — | — | ||||||||||||||||
|
Plan
amendments
|
— | 1 | — | — | (7 | ) | (8 | ) | ||||||||||||||||
|
Actuarial
losses (gains) and changes in actuarial assumptions
|
75 | (31 | ) | 5 | 1 | 28 | (3 | ) | ||||||||||||||||
|
Net
transfer in
|
— | — | 6 | — | — | — | ||||||||||||||||||
|
Currency
translation
|
— | — | 7 | (17 | ) | 3 | (5 | ) | ||||||||||||||||
|
Benefit
obligation, end of year
|
$ | 1,071 | $ | 986 | $ | 352 | $ | 334 | $ | 506 | $ | 494 | ||||||||||||
|
Change
in plan assets:
|
||||||||||||||||||||||||
|
Fair
value of plan assets, beginning of year
|
$ | 541 | $ | 907 | $ | 40 | $ | 42 | $ | — | $ | — | ||||||||||||
|
Actual
return on plan assets
|
126 | (295 | ) | 2 | 2 | — | — | |||||||||||||||||
|
Company
contributions
|
2 | 4 | 23 | 23 | 45 | 44 | ||||||||||||||||||
|
Benefits
paid
|
(79 | ) | (75 | ) | (24 | ) | (23 | ) | (50 | ) | (50 | ) | ||||||||||||
|
Medicare
subsidies received
|
— | — | — | — | 3 | 4 | ||||||||||||||||||
|
Employee
contributions
|
— | — | — | — | 2 | 2 | ||||||||||||||||||
|
Net
transfer in
|
— | — | 3 | — | — | — | ||||||||||||||||||
|
Currency
translation
|
— | — | 1 | (4 | ) | — | — | |||||||||||||||||
|
Fair
value of plan assets at end of year
|
$ | 590 | $ | 541 | $ | 45 | $ | 40 | $ | — | $ | — | ||||||||||||
|
Funded
status of the plan
|
$ | (481 | ) | $ | (445 | ) | $ | (307 | ) | $ | (294 | ) | $ | (506 | ) | $ | (494 | ) | ||||||
|
Amounts
recognized in the consolidated balance sheets:
|
||||||||||||||||||||||||
|
Net
liability recognized
|
$ | (481 | ) | $ | (445 | ) | $ | (307 | ) | $ | (294 | ) | $ | (506 | ) | $ | (494 | ) | ||||||
|
Amounts
recognized in accumulated other comprehensive loss, inclusive of tax
impacts:
|
||||||||||||||||||||||||
|
Net
actuarial loss (gain)
|
$ | 319 | $ | 348 | $ | 6 | $ | 2 | $ | 13 | $ | (2 | ) | |||||||||||
|
Prior
service cost (credit)
|
1 | 1 | — | — | (14 | ) | (8 | ) | ||||||||||||||||
|
Total
|
$ | 320 | $ | 349 | $ | 6 | $ | 2 | $ | (1 | ) | $ | (10 | ) | ||||||||||
53
Weighted-average
assumptions used to determine the benefit obligation as of December
31:
|
Pension Benefits
|
||||||||||||||||||||||||
|
United States Plans
|
International Plans
|
Other Benefits
|
||||||||||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||||||||
|
Discount
rate
|
5.75 | % | 6.45 | % | 5.13 | % | 5.59 | % | 5.65 | % | 6.40 | % | ||||||||||||
|
Rate
of compensation increase
|
3.50 | % | 3.50 | % | 3.14 | % | 3.18 | % | — | — | ||||||||||||||
Federal-Mogul
evaluates its discount rate assumption annually as of December 31 for each of
its retirement-related benefit plans based upon the yield of high quality,
fixed-income debt instruments, the maturities of which correspond to expected
benefit payment dates.
Federal-Mogul’s
expected return on assets is established annually through analysis of
anticipated future long-term investment performance for the plan based upon the
asset allocation strategy. While the study gives appropriate consideration to
recent fund performance and historical returns, the assumption is primarily a
long-term prospective rate.
Information
for defined benefit plans with projected benefit obligations in excess of plan
assets:
|
Pension Benefits
|
||||||||||||||||||||||||
|
United States Plans
|
Non-U.S. Plans
|
Other Benefits
|
||||||||||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||||||||
|
Projected
benefit obligation
|
$ | 1,071 | $ | 986 | $ | 351 | $ | 331 | $ | 506 | $ | 494 | ||||||||||||
|
Fair
value of plan assets
|
590 | 541 | 41 | 35 | — | — | ||||||||||||||||||
Information
for pension plans with accumulated benefit obligations in excess of plan
assets:
|
Pension Benefits
|
||||||||||||||||
|
United States Plans
|
Non-U.S. Plans
|
|||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
(Millions
of Dollars)
|
||||||||||||||||
|
Projected
benefit obligation
|
$ | 1,071 | $ | 986 | $ | 327 | $ | 311 | ||||||||
|
Accumulated
benefit obligation
|
1,058 | 972 | 313 | 297 | ||||||||||||
|
Fair
value of plan assets
|
590 | 541 | 22 | 18 | ||||||||||||
The
accumulated benefit obligation for all pension plans is $1,391 million and
$1,289 million as of December 31, 2009 and 2008, respectively.
Components
of net periodic benefit cost for the fiscal years ended December
31:
|
Pension Benefits
|
||||||||||||||||||||||||
|
United States Plan
|
Non-U.S. Plans
|
Other Benefits
|
||||||||||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||||||||
|
(Millions of Dollars)
|
||||||||||||||||||||||||
|
Service
cost
|
$ | 26 | $ | 24 | $ | 8 | $ | 7 | $ | 2 | $ | 1 | ||||||||||||
|
Interest
cost
|
63 | 61 | 18 | 19 | 31 | 30 | ||||||||||||||||||
|
Expected
return on plan assets
|
(43 | ) | (74 | ) | (2 | ) | (3 | ) | — | — | ||||||||||||||
|
Amortization
of actuarial losses
|
30 | — | — | — | — | — | ||||||||||||||||||
|
Amortization
of prior service cost (credit)
|
— | — | — | — | (1 | ) | — | |||||||||||||||||
|
Settlement
and curtailment gain
|
— | — | (2 | ) | — | — | — | |||||||||||||||||
|
Net
periodic cost
|
$ | 76 | $ | 11 | $ | 22 | $ | 23 | $ | 32 | $ | 31 | ||||||||||||
54
Weighted-average
assumptions used to determine net periodic benefit cost for the fiscal years
ended December 31, 2009 and 2008:
|
Pension Benefits
|
||||||||||||||||||||||||
|
United States Plans
|
Non-U.S. Plans
|
Other Benefits
|
||||||||||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||||||||
|
Discount
rate
|
6.45 | % | 6.25 | % | 5.59 | % | 5.67 | % | 6.40 | % | 6.20 | % | ||||||||||||
|
Expected
return on plan assets
|
8.50 | % | 8.50 | % | 5.79 | % | 6.33 | % | — | — | ||||||||||||||
|
Rate
of compensation increase
|
3.50 | % | 3.70 | % | 3.18 | % | 2.74 | % | — | — | ||||||||||||||
Amounts
in accumulated other comprehensive (loss) income expected to be recognized as
components of net periodic benefit cost over the next fiscal year:
|
Pension
Benefits
|
||||||||
|
United
States
|
Other
Benefits
|
|||||||
|
(Millions
of Dollars)
|
||||||||
|
Amortization
of actuarial losses
|
$ | 25 | $ | — | ||||
|
Amortization
of prior service credit
|
— | (2 | ) | |||||
|
Total
|
$ | 25 | $ | (2 | ) | |||
The
assumed health care and drug cost trend rates used to measure next year’s
postemployment healthcare benefits are as follows:
|
Other Benefits
|
||||||||
|
2009
|
2008
|
|||||||
|
Health
care cost trend rate
|
7.1 | % | 7.5 | % | ||||
|
Ultimate
health care cost trend rate
|
5.0 | % | 5.0 | % | ||||
|
Year
ultimate health care cost trend rate reached
|
2014
|
2014
|
||||||
|
Drug
cost trend rate
|
8.5 | % | 9.2 | % | ||||
|
Ultimate
drug cost trend rate
|
5.0 | % | 5.0 | % | ||||
|
Year
ultimate drug cost trend rate reached
|
2014
|
2014
|
||||||
The
assumed health care cost trend rate has a significant impact on the amounts
reported for Other Benefits plans. The following table illustrates the
sensitivity to a change in the assumed health care cost trend rate:
|
Total Service
and
Interest Cost
|
APBO
|
|||||||
|
(Millions of Dollars)
|
||||||||
|
100
basis point (“bp”) increase in health care cost trend rate
|
$ | 2 | $ | 24 | ||||
|
100
bp decrease in health care cost trend rate
|
(2 | ) | (22 | ) | ||||
The
following table illustrates the sensitivity to a change in certain assumptions
for projected benefit obligations (“PBO”), associated expense and other
comprehensive loss (“OCL”). The changes in these assumptions have no impact on
Federal-Mogul’s 2009 funding requirements.
|
Pension Benefits
|
||||||||||||||||||||||||||||||||
|
United States Plans
|
International Plans
|
Other Benefits
|
||||||||||||||||||||||||||||||
|
Change
in 2010
Pension
Expense
|
Change
in
PBO
|
Change
in
Accumulated
OCL
|
Change
in 2010
Pension
Expense
|
Change
in
PBO
|
Change
in
Accumulated
OCL
|
Change
in 2010
Expense
|
Change
in
PBO
|
|||||||||||||||||||||||||
|
(Millions
of Dollars)
|
||||||||||||||||||||||||||||||||
|
25
bp decrease in discount rate
|
$ | 2 | $ | 26 | $ | (26 | ) | $ | — | $ | 9 | $ | (9 | ) | $ | — | $ | 11 | ||||||||||||||
|
25
bp increase in discount rate
|
(2 | ) | (26 | ) | 26 | — | (9 | ) | 9 | — | (10 | ) | ||||||||||||||||||||
|
25
bp decrease in return on assets rate
|
2 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
|
25
bp increase in return on assets rate
|
(2 | ) | — | — | — | — | — | — | — | |||||||||||||||||||||||
55
Federal-Mogul’s
pension plan weighted-average asset allocations at the measurement dates as of
December 31, 2009 and 2008, by asset category are as follows:
|
United States Plan Assets
December 31,
|
Non-U.S. Plan Assets
December 31,
|
|||||||||||||||||||||||
|
Actual
|
Target
|
Actual
|
Target
|
|||||||||||||||||||||
|
2009
|
2008
|
2010
|
2009
|
2008
|
2010
|
|||||||||||||||||||
|
Asset Category
|
||||||||||||||||||||||||
|
Equity
securities
|
76 | % | 71 | % | 75 | % | 4 | % | 4 | % | 4 | % | ||||||||||||
|
Debt
securities
|
24 | % | 29 | % | 25 | % | 25 | % | 26 | % | 25 | % | ||||||||||||
|
Insurance
contracts
|
— | — | — | 71 | % | 70 | % | 71 | % | |||||||||||||||
| 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | |||||||||||||
The U.S.
investment strategy mitigates risk by incorporating diversification across
appropriate asset classes to meet the plan’s objectives. It is intended to
reduce risk, provide long-term financial stability for the plan and maintain
funded levels that meet long-term plan obligations while preserving sufficient
liquidity for near-term benefit payments. Risk assumed is considered appropriate
for the return anticipated and consistent with the total diversification of plan
assets. Approximately 73% of plan assets are invested in actively managed
investment funds.
The
majority of the assets of the non-U.S. plans are invested through insurance
contracts. The insurance contracts guarantee a minimum rate of return.
Federal-Mogul has no input into the investment strategy of the assets underlying
the contracts, but they are typically heavily invested in active bond markets
and are highly regulated by local law.
Projected
benefit payments from the plans are estimated as follows:
|
Pension Benefits
|
||||||||||||
|
United
States
|
Non-U.S.
Plans
|
Other
Benefits
|
||||||||||
|
(Millions
of Dollars)
|
||||||||||||
|
2010
|
$ | 71 | $ | 22 | $ | 44 | ||||||
|
2011
|
74 | 21 | 45 | |||||||||
|
2012
|
75 | 22 | 44 | |||||||||
|
2013
|
79 | 24 | 44 | |||||||||
|
2014
|
76 | 25 | 43 | |||||||||
|
Years
2015 – 2019
|
406 | 127 | 202 | |||||||||
Federal-Mogul
expects to contribute approximately $105 million to its pension plans in fiscal
2010.
Federal-Mogul
also maintains certain defined contribution pension plans for eligible
employees. The total expense attributable to the Federal-Mogul’s defined
contribution savings plan was $20 million and $21 million fiscal 2009 and the
period March 1, 2008 through December 31, 2008, respectively.
Other
Postemployment Benefits
Federal-Mogul
accounts for benefits to former or inactive employees paid after employment but
before retirement under applicable U.S. GAAP. The liabilities for such U.S. and
European postemployment benefits for each of the fiscal years ended December 31,
2009 and 2008 were $42 million.
|
|
b.
|
Railcar
|
|
Pension
Benefits
|
Postretirement
Benefits
|
|||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
(Millions
of Dollars)
|
||||||||||||||||
|
Change
in benefit obligation:
|
||||||||||||||||
|
Benefit
obligation — beginning of year
|
$
|
17
|
$
|
17
|
$
|
3
|
$
|
4
|
||||||||
|
Service
cost
|
—
|
—
|
—
|
—
|
||||||||||||
|
Interest
cost
|
1
|
1
|
—
|
—
|
||||||||||||
|
Plan
amendment
|
—
|
—
|
—
|
(1
|
)
|
|||||||||||
|
Adjustment
to benefits
|
—
|
—
|
(3
|
)
|
—
|
|||||||||||
|
Actuarial
loss (gain)
|
1
|
—
|
—
|
—
|
||||||||||||
|
Benefits
paid
|
(1
|
)
|
(1
|
)
|
—
|
—
|
||||||||||
|
Benefit
obligation — end of year
|
$
|
18
|
$
|
17
|
$
|
—
|
$
|
3
|
||||||||
|
Change
in plan assets:
|
||||||||||||||||
|
Plan
assets — beginning of year
|
$
|
11
|
$
|
14
|
$
|
—
|
$
|
—
|
||||||||
|
Actual
return (loss) on plan assets
|
2
|
(3
|
)
|
—
|
—
|
|||||||||||
|
Employer
contributions
|
1
|
2
|
—
|
—
|
||||||||||||
|
Benefits
paid
|
(1
|
)
|
(1
|
)
|
—
|
—
|
||||||||||
|
Plan
assets at fair value — end of year
|
$
|
12
|
$
|
11
|
$
|
—
|
$
|
—
|
||||||||
|
Funded
status
|
||||||||||||||||
|
Benefit
obligation in excess of plan assets at year end
|
$
|
(6
|
)
|
$
|
(6
|
)
|
$
|
—
|
$
|
(3
|
)
|
|||||
|
Pension
Benefits
|
Postretirement
Benefits
|
|||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
(Millions
of Dollars)
|
||||||||||||||||
|
Amounts
recognized in the consolidated balance sheets are as
follows:
|
||||||||||||||||
|
Net
liability recognized
|
$ | 6 | $ | 6 | $ | — | $ | 3 | ||||||||
|
Amounts
recognized in accumulated other comprehensive (loss) income
pre-tax:
|
||||||||||||||||
|
Net
actuarial (loss) gain
|
$ | (5 | ) | $ | (6 | ) | $ | 1 | $ | 1 | ||||||
|
Net
prior service (cost) credit
|
— | — | 3 | 1 | ||||||||||||
|
Total
|
$ | (5 | ) | $ | (6 | ) | $ | 4 | 2 | |||||||
The components of net periodic
benefit cost for fiscal 2009, fiscal 2008 and fiscal 2007 are
immaterial.
Pension
and other postretirement benefit costs and liabilities are dependent on
assumptions used in calculating such amounts. The primary assumptions include
factors such as discount rates, expected return on plan assets, mortality rates
and retirement rates, as discussed below.
Discount
Rates
ARI
reviews these rates annually and adjusts them to reflect current conditions. ARI
deemed these rates appropriate based on the Citigroup Pension Discount curve
analysis along with expected payments to retirees.
Expected
Return On Plan Assets
ARI’s
expected return on plan assets is derived from detailed periodic studies, which
include a review of asset allocation strategies, anticipated future long-term
performance of individual asset classes, risks (standard deviations) and
correlations of returns among the asset classes that comprise the plans’ asset
mix. While the studies give appropriate consideration to recent plan performance
and historical returns, the assumptions are primarily long-term, prospective
rates of return.
Mortality
and Retirement Rates
Mortality
and retirement rates are based on actual and anticipated plan
experience.
|
Pension Benefits
|
Postretirement Benefits
|
|||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
Discount
rate
|
5.75
|
%
|
6.25
|
%
|
5.83
|
%
|
5.60
|
%
|
||||||||
|
Pension Benefits
|
Postretirement Benefits
|
|||||||||||||||||||||||
|
2009
|
2008
|
2007
|
2009
|
2008
|
2007
|
|||||||||||||||||||
|
Discount
rate
|
6.25
|
%
|
6.25
|
%
|
5.75
|
%
|
5.83
|
%
|
6.30
|
%
|
5.75
|
%
|
||||||||||||
|
Expected
return on plan assets
|
7.25
|
%
|
8.00
|
%
|
8.00
|
%
|
N/A
|
N/A
|
N/A
|
|||||||||||||||
57
The
overall objective of the pension plans’ investments is to grow plan assets in
relation to liabilities, while prudently managing the risk of a decrease in the
pension plans’ assets. The pension plans’ management committee has established a
target investment mix with upper and lower limits for investments in equities,
fixed-income and other appropriate investments. Assets will be re-allocated
among asset classes from time-to-time to maintain an investment mix as
established for each plan. The committee has established an average target
investment mix of approximately 65% equities and approximately 35% fixed-income
for the plans.
The
following benefit payments, which reflect expected future service, as
appropriate, are expected to be paid as follows:
|
Pension Benefits
|
||||
|
(Millions of
Mollars)
|
||||
|
2010
|
$ | 1 | ||
|
2011
|
1 | |||
|
2012
|
1 | |||
|
2013
|
1 | |||
|
2014
|
1 | |||
|
2015
and thereafter
|
7 | |||
|
Total
|
$ | 12 | ||
ARI
expects to contribute $1 million to its pension plans in fiscal
2010.
|
c.
|
Food
Packaging
|
|
Pension Benefits
|
||||||||
|
2009
|
2008
|
|||||||
|
(Millions of Dollars)
|
||||||||
|
Change
in benefit obligation:
|
||||||||
|
Projected
benefit obligation at beginning of year
|
$ | 119 | $ | 122 | ||||
|
Service
cost
|
- | - | ||||||
|
Interest
cost
|
8 | 8 | ||||||
|
Actuarial
loss (gain)
|
13 | (3 | ) | |||||
|
Benefits
paid
|
(8 | ) | (8 | ) | ||||
|
Benefit
obligation at end of year
|
$ | 132 | $ | 119 | ||||
|
Change
in plan assets:
|
||||||||
|
Fair
value of plan assets at beginning of year
|
$ | 80 | $ | 103 | ||||
|
Actual
return (loss) on plan assets
|
15 | (21 | ) | |||||
|
Employer
contribution
|
4 | 5 | ||||||
|
Benefits
paid
|
(8 | ) | (7 | ) | ||||
|
Fair
value of plan assets at end of year
|
$ | 91 | $ | 80 | ||||
|
Unfunded
status of the plan
|
$ | (41 | ) | $ | (39 | ) | ||
|
Net
liability recognized in consolidated balance sheets
|
$ | (41 | ) | $ | (39 | ) | ||
58
|
Pension Benefits
|
||||||||
|
2009
|
2008
|
|||||||
|
(Millions of Dollars)
|
||||||||
|
Projected
benefit obligation
|
$ | 132 | $ | 119 | ||||
|
Accumulated
benefit obligation
|
132 | 118 | ||||||
|
Fair
value of plan assets
|
92 | 79 | ||||||
Included
in accumulated other comprehensive income, net of tax, as of December 31, 2009
are the following amounts not yet recognized in net periodic benefit cost (in
millions of dollars):
|
Net
actuarial loss
|
$ | 28 | ||
|
Prior
service (credit)
|
(1 | ) |
Amounts
included in other comprehensive income expected to be recognized as a component
of net periodic benefit cost for the fiscal year ending December 31, 2010 are
net actuarial loss of $2 million.
Components
of net periodic benefit cost for the fiscal years ended December
31:
|
Pension Benefits
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
(Millions of Dollars)
|
||||||||||||
|
Component
of net periodic benefit cost:
|
||||||||||||
|
Interest
cost
|
$ | 8 | $ | 8 | $ | 7 | ||||||
|
Expected
return on plan assets
|
(7 | ) | (9 | ) | (8 | ) | ||||||
|
Benefits
paid
|
2 | - | - | |||||||||
|
Benefit
obligation at end of year
|
$ | 3 | $ | (1 | ) | $ | (1 | ) | ||||
Weighted
average assumptions used to determine the benefit obligation and net periodic
benefit cost as of December 31:
|
Pension Benefits
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Discount
rate
|
5.90 | % | 6.90 | % | 6.55 | % | ||||||
|
Expected
return on plan assets
|
8.25 | % | 8.50 | % | 8.50 | % | ||||||
|
Rate
of compensation increase
|
3.00 | % | 3.50 | % | 3.50 | % | ||||||
59
Viskase
evaluates its discount rate assumption annually as of December 31 for each of
its retirement-related benefit plans based upon a Hewitt yield
curve.
Viskase’s
expected return on plan assets is evaluated annually based upon a study which
includes a review of anticipated future long-term performance of
individual asset classes, and consideration of the appropriate asset allocation
strategy to provide for the timing and amount of benefits included in
the projected benefit obligation. While the study gives appropriate
consideration to recent fund performance and historical returns, the assumption
is primarily a long-term prospective rate.
Viskase’s
overall investment strategy is to achieve growth through a mix of approximately
67% of investments for long-term growth and 33% for near-term benefit payments
with a wide diversification of asset types, fund strategies and fund
managers. The target allocations for plan assets are 37% equity
securities, 30% hedge funds and 33% to debt securities.
The
following table provides a summary of the estimated benefit payments for the
postretirement plans for the next five fiscal years individually and for the
following five fiscal years in the aggregate:
|
Year
|
Total Estimated Benefit
Payments
|
|||
|
2010
|
$ | 8 | ||
|
2011
|
8 | |||
|
2012
|
8 | |||
|
2013
|
8 | |||
|
2014
|
9 | |||
Viskase
expects to contribute $4 million to its pension plans in fiscal
2010.
Holding
Company and other
We and
certain of our subsidiaries have retirement savings plans under Section 401(k)
of the Code covering our non-union employees. Under the plans, employees are
entitled to defer, within prescribed limits, a portion of their income on a
pre-tax basis through contributions to the plans. We currently match the
deferrals based upon certain criteria, including levels of participation by our
employees. We recorded charges for matching contributions of $1 million for each
of fiscal 2009 and fiscal 2008 and $2 million for fiscal 2007.
15.
Preferred 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.
These preferred units are classified as a liability in the accompanying
consolidated balance sheets.
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
December 31, 2009, the number of authorized preferred units was 14,100,000. As
of December 31, 2009 and 2008, 13,127,179 and 12,502,254 preferred units were
issued and outstanding, respectively.
We
recorded $6 million of interest expense in each of fiscal 2009, fiscal 2008 and
fiscal 2007 in connection with the preferred units distribution.
As
referenced elsewhere in this report, we are required to redeem all of our
outstanding preferred units by March 31, 2010. Please see Item 5, “Market for
Registrant’s Common Equity, Related Security Holder Matters and Issuer Purchases
of Equity Securities — Distributions,” for further discussion.
16.
Net Income per LP Unit
Basic
income (loss) per LP unit is based on net income or loss attributable to Icahn
Enterprises allocable to limited partners after deducting preferred pay-in-kind
distributions to preferred unitholders. Net income or loss 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 or loss per LP
unit.
60
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):
|
Year Ended December 31,
|
|||||||||||||
|
2009
|
2008
|
2007
|
|||||||||||
|
Income
(loss) attributable to Icahn Enterprises from continuing
operations
|
$ | 252 | $ | (511 |
)
|
$ | 233 | ||||||
|
Less:
Income from common control acquisitions allocated to general
partner
|
(19 | ) | (57 |
)
|
(217 | ) | |||||||
| 233 | (568 |
)
|
16 | ||||||||||
|
Basic
income (loss) attributable to Icahn Enterprises from continuing operations
allocable to limited partners (98.01% share of income or
loss)
|
$ | 228 | $ | (557 |
)
|
$ | 16 | ||||||
|
Basic
income attributable to Icahn Enterprises from discontinued operations
allocable to limited partners
|
$ | 1 | $ | 500 |
(1)
|
$ | 87 | ||||||
|
Basic
income (loss) per LP Unit:
|
|||||||||||||
|
Income
(loss) from continuing operations
|
$ | 3.04 | $ | (7.84 |
)
|
$ | 0.24 | ||||||
|
Income
from discontinued operations
|
0.01 | 7.04 | 1.34 | ||||||||||
| $ | 3.05 | $ | (0.80 |
)
|
$ | 1.58 | |||||||
|
Basic
weighted average LP units outstanding
|
75 | 71 | 65 | ||||||||||
|
Diluted
income (loss) per LP Unit:
|
|||||||||||||
|
Income
(loss) from continuing operations
|
$ | 2.96 | $ | (7.84 |
)
|
$ | 0.24 | ||||||
|
Income
from discontinued operations
|
0.01 | 7.04 | 1.34 | ||||||||||
| $ | 2.97 | $ | (0.80 |
)
|
$ | 1.58 | |||||||
|
Dilutive
weighted average LP units outstanding
|
79 | 71 | 65 | ||||||||||
|
(1)
|
Includes
a charge of $25 allocated to the general partner relating to the sale of
ACEP.
|
The
effect of dilutive securities in computing diluted income (loss) per LP unit is
as follows (in millions):
|
Year Ended December 31,
|
||||||
|
2009
|
2008
|
2007
|
||||
|
Redemption
of preferred LP units
|
4
|
—
|
—
|
|||
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):
|
Year
Ended December 31,
|
|||||||||
|
2009
|
2008
|
2007
|
|||||||
|
Redemption
of preferred LP units
|
—
|
2
|
1
|
||||||
|
Variable
rate notes
|
5
|
5
|
3
|
||||||
61
17.
Segment and Geographic Reporting
As of
December 31, 2009, our five reportable segments were: (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. As discussed in Note 1, “Description of
Business and Basis of Presentation,”, as a result of our acquisition of
controlling interests in ARI and Viskase, our consolidated financial statements
now include the results of ARI and Viskase for all periods in these financial
statements and related notes. ARI and Viskase represent our Railcar and Food
Packaging segments, respectively. In addition, 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, Railcar, Food
Packaging, 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.
Condensed
statements of operations by reportable segment for fiscal 2009, fiscal 2008 and
fiscal 2007 are presented below (in millions of dollars).
|
Year Ended December 31, 2009
|
||||||||||||||||||||||||||||||||||||
|
Investment
Management
|
Automotive
|
Railcar
|
Food
Packaging
|
Metals
|
Real Estate
|
Home
Fashion
|
Holding
Company
|
Consolidated
Results
|
||||||||||||||||||||||||||||
|
Revenues:
|
||||||||||||||||||||||||||||||||||||
|
Net
sales
|
$ | - | $ | 5,330 | $ | 365 | $ | 299 | $ | 382 | $ | 45 | $ | 369 | $ | - | $ | 6,790 | ||||||||||||||||||
|
Net
gain from investment activities
|
1,379 | - | - | - | - | - | - | 3 | 1,382 | |||||||||||||||||||||||||||
|
Interest
and dividend income
|
217 | 8 | 7 | - | - | 5 | - | 7 | 244 | |||||||||||||||||||||||||||
|
Loss
on extinguishment of debt
|
- | - | - | (6 | ) | - | - | - | - | (6 | ) | |||||||||||||||||||||||||
|
Other
income, net
|
- | 59 | 72 | 3 | 2 | 46 | 13 | - | 195 | |||||||||||||||||||||||||||
| 1,596 | 5,397 | 444 | 296 | 384 | 96 | 382 | 10 | 8,605 | ||||||||||||||||||||||||||||
|
Expenses:
|
- | |||||||||||||||||||||||||||||||||||
|
Cost
of goods sold
|
- | 4,538 | 329 | 220 | 403 | 16 | 338 | - | 5,844 | |||||||||||||||||||||||||||
|
Selling,
general and administrative
|
142 | 742 | 72 | 42 | 17 | 58 | 75 | 22 | 1,170 | |||||||||||||||||||||||||||
|
Restructuring
and impairment
|
- | 49 | - | 1 | 13 | 2 | 27 | - | 92 | |||||||||||||||||||||||||||
|
Interest
expense
|
4 | 135 | 21 | 16 | - | 9 | 1 | 133 | 319 | |||||||||||||||||||||||||||
| 146 | 5,464 | 422 | 279 | 433 | 85 | 441 | 155 | 7,425 | ||||||||||||||||||||||||||||
|
Income
(loss) before income tax (expense) benefit
|
1,450 | (67 | ) | 22 | 17 | (49 | ) | 11 | (59 | ) | (145 | ) | 1,180 | |||||||||||||||||||||||
|
Income
tax (expense) benefit
|
(2 | ) | 39 | (7 | ) | (2 | ) | 19 | - | - | (3 | ) | 44 | |||||||||||||||||||||||
|
Net
income (loss) from continuing operations
|
1,448 | (28 | ) | 15 | 15 | (30 | ) | 11 | (59 | ) | (148 | ) | 1,224 | |||||||||||||||||||||||
|
Less:
net (income) loss attributable to non-controlling
interests
|
(979 | ) | (1 | ) | (7 | ) | (4 | ) | - | - | 19 | - | (972 | ) | ||||||||||||||||||||||
|
Net
income (loss) attributable to Icahn Enterprises from continuing
operations
|
$ | 469 | $ | (29 | ) | $ | 8 | $ | 11 | $ | (30 | ) | $ | 11 | $ | (40 | ) | $ | (148 | ) | $ | 252 | ||||||||||||||
|
Year Ended December 31, 2008
|
||||||||||||||||||||||||||||||||||||
|
Investment
Management
|
Automotive(1)
|
Railcar
|
Food
Packaging
|
Metals
|
Real Estate
|
Home
Fashion
|
Holding
Company
|
Consolidated
Results
|
||||||||||||||||||||||||||||
|
Revenues:
|
||||||||||||||||||||||||||||||||||||
|
Net
sales
|
$ | - | $ | 5,652 | $ | 758 | $ | 283 | $ | 1,239 | $ | 73 | $ | 425 | $ | - | $ | 8,430 | ||||||||||||||||||
|
Net
(loss) gain from investment activities
|
(3,025 | ) | - | - | - | - | - | - | 102 | (2,923 | ) | |||||||||||||||||||||||||
|
Interest
and dividend income
|
242 | 19 | 8 | - | - | 9 | 2 | 51 | 331 | |||||||||||||||||||||||||||
|
Gain
on extinguishment of debt
|
- | - | - | - | - | - | - | 146 | 146 | |||||||||||||||||||||||||||
|
Other
income, net
|
- | 56 | 55 | 7 | 4 | 21 | 11 | - | 154 | |||||||||||||||||||||||||||
| (2,783 | ) | 5,727 | 821 | 290 | 1,243 | 103 | 438 | 299 | 6,138 | |||||||||||||||||||||||||||
|
Expenses:
|
- | |||||||||||||||||||||||||||||||||||
|
Cost
of goods sold
|
- | 4,730 | 683 | 225 | 1,102 | 32 | 394 | - | 7,166 | |||||||||||||||||||||||||||
|
Selling,
general and administrative
|
53 | 709 | 68 | 40 | 34 | 46 | 89 | 34 | 1,073 | |||||||||||||||||||||||||||
|
Restructuring
and impairment
|
- | 566 | - | - | - | 4 | 37 | - | 607 | |||||||||||||||||||||||||||
|
Interest
expense
|
12 | 166 | 20 | 15 | 1 | 7 | 2 | 135 | 358 | |||||||||||||||||||||||||||
| 65 | 6,171 | 771 | 280 | 1,137 | 89 | 522 | 169 | 9,204 | ||||||||||||||||||||||||||||
|
(Loss)
income before income tax (expense) benefit
|
(2,848 | ) | (444 | ) | 50 | 10 | 106 | 14 | (84 | ) | 130 | (3,066 | ) | |||||||||||||||||||||||
|
Income
tax (expense) benefit
|
- | (9 | ) | (19 | ) | (10 | ) | (40 | ) | - | - | 2 | (76 | ) | ||||||||||||||||||||||
|
Net
(loss) income from continuing operations
|
(2,848 | ) | (453 | ) | 31 | - | 66 | 14 | (84 | ) | 132 | (3,142 | ) | |||||||||||||||||||||||
|
Less:
Net loss attributable to non-controlling interests
|
2,513 | 103 | (14 | ) | - | - | - | 29 | - | 2,631 | ||||||||||||||||||||||||||
|
Net
income (loss) attributable to Icahn Enterprises from continuing
operations
|
$ | (335 | ) | $ | (350 | ) | $ | 17 | $ | - | $ | 66 | $ | 14 | $ | (55 | ) | $ | 132 | $ | (511 | ) | ||||||||||||||
62
|
Year Ended December 31, 2007
|
||||||||||||||||||||||||||||||||
|
Investment
Management
|
Railcar
|
Food
Packaging
|
Metals
|
Real Estate
|
Home
Fashion
|
Holding
Company
|
Consolidated
Results
|
|||||||||||||||||||||||||
|
Revenues:
|
||||||||||||||||||||||||||||||||
|
Net
sales
|
$ | - | $ | 648 | $ | 250 | $ | 834 | $ | 91 | $ | 683 | $ | - | $ | 2,506 | ||||||||||||||||
|
Management
fee
|
11 | - | - | - | - | - | - | 11 | ||||||||||||||||||||||||
|
Net
gain from investment activities
|
355 | - | - | - | - | - | 84 | 439 | ||||||||||||||||||||||||
|
Interest
and dividend income
|
222 | 14 | - | 1 | 13 | 7 | 129 | 386 | ||||||||||||||||||||||||
|
Other
income, net
|
- | 51 | 3 | (1 | ) | 9 | 16 | 37 | 115 | |||||||||||||||||||||||
| 588 | 713 | 253 | 834 | 113 | 706 | 250 | 3,457 | |||||||||||||||||||||||||
|
Expenses:
|
||||||||||||||||||||||||||||||||
|
Cost
of goods sold
|
- | 568 | 205 | 778 | 46 | 681 | - | 2,278 | ||||||||||||||||||||||||
|
Selling,
general and administrative
|
85 | 69 | 35 | 18 | 42 | 112 | 37 | 398 | ||||||||||||||||||||||||
|
Restructuring
and impairment
|
- | - | 1 | - | 4 | 49 | - | 54 | ||||||||||||||||||||||||
|
Interest
expense
|
15 | 17 | 17 | 1 | 7 | 2 | 125 | 184 | ||||||||||||||||||||||||
| 100 | 654 | 258 | 797 | 99 | 844 | 162 | 2,914 | |||||||||||||||||||||||||
|
Income
(loss) before income tax (expense) benefit
|
488 | 59 | (5 | ) | 37 | 14 | (138 | ) | 88 | 543 | ||||||||||||||||||||||
|
Income
tax (expense) benefit
|
(4 | ) | (22 | ) | (2 | ) | 5 | - | - | (10 | ) | (33 | ) | |||||||||||||||||||
|
Net
income (loss) from continuing operations
|
484 | 37 | (7 | ) | 42 | 14 | (138 | ) | 78 | 510 | ||||||||||||||||||||||
|
Less:Net
(income) loss attributable to non-controlling interests
|
(314 | ) | (18 | ) | 2 | - | - | 54 | (1 | ) | (277 | ) | ||||||||||||||||||||
|
Net
income (loss) attributable to Icahn Enterprises from continuing
operations
|
$ | 170 | $ | 19 | $ | (5 | ) | $ | 42 | $ | 14 | $ | (84 | ) | $ | 77 | $ | 233 | ||||||||||||||
|
(1)
|
Automotive
results are for the period March 1, 2008 through December 31,
2008.
|
Condensed
balance sheets by reportable segment as of December 31, 2009 and 2008 are
presented below (in millions of dollars).
|
December 31, 2009
|
||||||||||||||||||||||||||||||||||||
|
Investment
Management
|
Automotive
|
Railcar
|
Food
Packaging
|
Metals
|
Real Estate
|
Home
Fashion
|
Holding
Company
|
Consolidated
|
||||||||||||||||||||||||||||
|
ASSETS
|
||||||||||||||||||||||||||||||||||||
|
Cash
and cash equivalents
|
$ | 12 | $ | 1,034 | $ | 347 | $ | 39 | $ | 13 | $ | 137 | $ | 81 | $ | 593 | $ | 2,256 | ||||||||||||||||||
|
Cash
held at consolidated affiliated partnerships and restricted
cash
|
3,306 | - | - | 2 | 7 | 4 | - | 17 | 3,336 | |||||||||||||||||||||||||||
|
Investments
|
5,091 | 238 | 45 | - | 3 | - | 12 | 16 | 5,405 | |||||||||||||||||||||||||||
|
Accounts
receivable, net
|
- | 950 | 13 | 47 | 49 | 6 | 74 | - | 1,139 | |||||||||||||||||||||||||||
|
Inventories,
net
|
- | 823 | 40 | 52 | 62 | - | 114 | - | 1,091 | |||||||||||||||||||||||||||
|
Property,
plant and equipment, net
|
- | 1,834 | 199 | 105 | 107 | 570 | 140 | 3 | 2,958 | |||||||||||||||||||||||||||
|
Goodwill
and intangible assets, net
|
- | 1,942 | 7 | 19 | 7 | 107 | 8 | - | 2,090 | |||||||||||||||||||||||||||
|
Other
assets
|
95 | 306 | 12 | 29 | 51 | 13 | 36 | 69 | 611 | |||||||||||||||||||||||||||
|
Total
assets
|
$ | 8,504 | $ | 7,127 | $ | 663 | $ | 293 | $ | 299 | $ | 837 | $ | 465 | $ | 698 | $ | 18,886 | ||||||||||||||||||
|
LIABILITIES
AND EQUITY
|
||||||||||||||||||||||||||||||||||||
|
Accounts
payable, accrued expenses and other liabilities
|
$ | 420 | $ | 1,812 | $ | 47 | $ | 62 | $ | 49 | $ | 30 | $ | 53 | $ | 284 | $ | 2,757 | ||||||||||||||||||
|
Securities
sold, not yet purchased, at fair value
|
2,035 | - | - | - | - | - | - | - | 2,035 | |||||||||||||||||||||||||||
|
Due
to brokers
|
376 | - | - | - | - | - | - | - | 376 | |||||||||||||||||||||||||||
|
Post-employment
benefit liability
|
- | 1,359 | 6 | 46 | 2 | - | - | - | 1,413 | |||||||||||||||||||||||||||
|
Debt
|
- | 2,747 | 275 | 176 | 2 | 115 | - | 1,871 | 5,186 | |||||||||||||||||||||||||||
|
Total
liabilities
|
2,831 | 5,918 | 328 | 284 | 53 | 145 | 53 | 2,155 | 11,767 | |||||||||||||||||||||||||||
|
Equity
attributable to Icahn Enterprises
|
1,954 | 885 | 181 | 5 | 246 | 692 | 352 | (1,481 | ) | 2,834 | ||||||||||||||||||||||||||
|
Equity
attributable to non-controlling interests
|
3,719 | 324 | 154 | 4 | - | - | 60 | 24 | 4,285 | |||||||||||||||||||||||||||
|
Total
equity
|
5,673 | 1,209 | 335 | 9 | 246 | 692 | 412 | (1,457 | ) | 7,119 | ||||||||||||||||||||||||||
|
Total
liabilities and equity
|
$ | 8,504 | $ | 7,127 | $ | 663 | $ | 293 | $ | 299 | $ | 837 | $ | 465 | $ | 698 | $ | 18,886 | ||||||||||||||||||
63
|
December 31, 2008
|
||||||||||||||||||||||||||||||||||||
|
Investment
Management
|
Automotive
|
Railcar
|
Food
Packaging
|
Metals
|
Real Estate
|
Home
Fashion
|
Holding
Company
|
Consolidated
|
||||||||||||||||||||||||||||
|
ASSETS
|
||||||||||||||||||||||||||||||||||||
|
Cash
and cash equivalents
|
$ | 5 | $ | 888 | $ | 292 | $ | 13 | $ | 52 | $ | 167 | $ | 131 | $ | 1,369 | $ | 2,917 | ||||||||||||||||||
|
Cash
held at consolidated affiliated partnerships and restricted
cash
|
3,862 | 40 | - | 2 | 7 | 2 | 1 | 35 | 3,949 | |||||||||||||||||||||||||||
|
Investments
|
4,261 | 221 | 16 | - | 4 | - | 13 | 16 | 4,531 | |||||||||||||||||||||||||||
|
Accounts
receivable, net
|
- | 939 | 50 | 45 | 52 | 7 | 59 | - | 1,152 | |||||||||||||||||||||||||||
|
Inventories,
net
|
- | 894 | 97 | 43 | 67 | - | 132 | - | 1,233 | |||||||||||||||||||||||||||
|
Property,
plant and equipment, net
|
- | 1,911 | 207 | 94 | 107 | 707 | 150 | 3 | 3,179 | |||||||||||||||||||||||||||
|
Goodwill
and intangible assets, net
|
- | 1,994 | 7 | 20 | 22 | - | 13 | - | 2,056 | |||||||||||||||||||||||||||
|
Other
assets
|
236 | 335 | 11 | 18 | 37 | 13 | 33 | 30 | 713 | |||||||||||||||||||||||||||
|
Total
assets
|
$ | 8,364 | $ | 7,222 | $ | 680 | $ | 235 | $ | 348 | $ | 896 | $ | 532 | $ | 1,453 | $ | 19,730 | ||||||||||||||||||
|
LIABILITIES
AND EQUITY
|
||||||||||||||||||||||||||||||||||||
|
Accounts
payable, accrued expenses and other liabilities
|
$ | 1,106 | $ | 2,068 | $ | 81 | $ | 66 | $ | 66 | $ | 30 | $ | 58 | $ | 284 | $ | 3,759 | ||||||||||||||||||
|
Securities
sold, not yet purchased, at fair value
|
2,273 | - | - | - | - | - | - | - | 2,273 | |||||||||||||||||||||||||||
|
Due
to brokers
|
713 | - | - | - | - | - | - | - | 713 | |||||||||||||||||||||||||||
|
Post-employment
benefit liability
|
- | 1,302 | 9 | 43 | 2 | - | - | - | 1,356 | |||||||||||||||||||||||||||
|
Debt
|
- | 2,576 | 275 | 131 | 3 | 123 | - | 1,869 | 4,977 | |||||||||||||||||||||||||||
|
Total
liabilities
|
4,092 | 5,946 | 365 | 240 | 71 | 153 | 58 | 2,153 | 13,078 | |||||||||||||||||||||||||||
|
Equity
attributable to Icahn Enterprises
|
712 | 1,000 | 171 | (5 | ) | 277 | 743 | 390 | (724 | ) | 2,564 | |||||||||||||||||||||||||
|
Equity
attributable to non-controlling interests
|
3,560 | 276 | 144 | - | - | - | 84 | 24 | 4,088 | |||||||||||||||||||||||||||
|
Total
equity
|
4,272 | 1,276 | 315 | (5 | ) | 277 | 743 | 474 | (700 | ) | 6,652 | |||||||||||||||||||||||||
|
Total
liabilities and equity
|
$ | 8,364 | $ | 7,222 | $ | 680 | $ | 235 | $ | 348 | $ | 896 | $ | 532 | $ | 1,453 | $ | 19,730 | ||||||||||||||||||
Total
capital expenditures and depreciation and amortization by reportable segment
were as follows for the periods indicated:
|
Capital Expenditures
|
Depreciation and Amortization
|
|||||||||||||||||||||||
|
Year Ended December 31,
|
Year Ended December 31,
|
|||||||||||||||||||||||
|
2009
|
2008(1)
|
2007
|
2009
|
2008(1)
|
2007
|
|||||||||||||||||||
|
(In
Millions)
|
||||||||||||||||||||||||
|
Automotive
|
$ | 176 | $ | 276 | $ | — | $ | 349 | $ | 290 | $ | — | ||||||||||||
|
Railcar
|
15 | 52 | 59 | 24 | 21 | 15 | ||||||||||||||||||
|
Food
Packaging
|
24 | 12 | 9 | 16 | 16 | 15 | ||||||||||||||||||
|
Metals
|
12 | 38 | 27 | 13 | 16 | 10 | ||||||||||||||||||
|
Real
Estate
|
1 | 468 | 3 | 25 | 9 | 6 | ||||||||||||||||||
|
Home
Fashion
|
2 | 12 | 30 | 10 | 12 | 16 | ||||||||||||||||||
|
Holding
Company
|
— | — | — | 4 | 5 | 4 | ||||||||||||||||||
| $ | 230 | $ | 858 | $ | 128 | $ | 441 | $ | 369 | $ | 66 | |||||||||||||
|
(1)
|
Automotive
results are for the period March 1, 2008 through December 31,
2008.
|
The
following table presents our segment’s geographic net sales from external
customers and property, plant and equipment, net for the periods
indicated:
|
Net Sales(1)
|
Property, Plant and
Equipment, Net
|
|||||||||||||||||||
|
Year Ended December 31,
|
December 31,
|
|||||||||||||||||||
|
2009
|
2008
|
2007
|
2009
|
2008
|
||||||||||||||||
|
(In
Millions)
|
||||||||||||||||||||
|
United
States
|
$ | 3,355 | $ | 4,697 | $ | 2,265 | $ | 1,526 | $ | 1,751 | ||||||||||
|
Germany
|
893 | 1,133 | 11 | 422 | 447 | |||||||||||||||
|
Other
|
2,542 | 2,600 | 230 | 1,010 | 981 | |||||||||||||||
| $ | 6,790 | $ | 8,430 | $ | 2,506 | $ | 2,958 | $ | 3,179 | |||||||||||
|
(1)
|
Net
sales are attributed to countries based on location of
customer.
|
18.
Income Taxes
The
difference between the book basis and the tax basis of our net assets, not
directly subject to income taxes, is as follows (in millions of
dollars):
64
|
Year Ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Book
basis of net assets
|
$ | 2,834 | $ | 2,564 | ||||
|
Book/tax
basis difference
|
(467 | ) | (100 | ) | ||||
|
Tax
basis of net assets
|
$ | 2,367 | $ | 2,464 | ||||
Our
corporate subsidiaries recorded the following income tax (expense) benefit
attributable to operations for our taxable subsidiaries (in millions of
dollars):
|
Year Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Continuing
Operations
|
||||||||||||
|
Current
|
||||||||||||
|
Domestic
|
$ | (14 | ) | $ | (55 | ) | $ | (47 | ) | |||
|
International
|
(30 | ) | (35 | ) | (7 | ) | ||||||
|
Total
current
|
(44 | ) | (90 | ) | (54 | ) | ||||||
|
Deferred
|
||||||||||||
|
Domestic
|
49 | 44 | 16 | |||||||||
|
International
|
39 | (30 | ) | 5 | ||||||||
|
Total
deferred
|
88 | 14 | 21 | |||||||||
| $ | 44 | $ | (76 | ) | $ | (33 | ) | |||||
|
Year Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Discontinued
Operations
|
||||||||||||
|
Current
|
$ | — | $ | — | $ | (16 | ) | |||||
|
Deferred
|
— | (4 | ) | (3 | ) | |||||||
| $ | — | $ | (4 | ) | $ | (19 | ) | |||||
65
The tax
effect of significant differences representing deferred tax assets (liabilities)
(the difference between financial statement carrying value and the tax basis of
assets and liabilities) is as follows (in millions of dollars):
|
Year Ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Deferred
tax assets:
|
||||||||
|
Property,
plant and equipment
|
$ | 10 | $ | 24 | ||||
|
Net
operating loss
|
907 | 702 | ||||||
|
Tax
credits
|
103 | 52 | ||||||
|
Postemployment
benefits, including pensions
|
406 | 422 | ||||||
|
Reorganization
costs
|
100 | 110 | ||||||
|
Other
|
62 | 106 | ||||||
|
Total
deferred tax assets
|
1,588 | 1,416 | ||||||
|
Less:
Valuation allowance
|
(1,125 | ) | (1,031 | ) | ||||
|
Net
deferred tax assets
|
$ | 463 | $ | 385 | ||||
|
Deferred
tax liabilities:
|
||||||||
|
Property,
plant and equipment
|
$ | (217 | ) | $ | (228 | ) | ||
|
Intangible
assets
|
(320 | ) | (336 | ) | ||||
|
Investment
in U.S. subsidiaries
|
(367 | ) | (367 | ) | ||||
|
Other
|
(50 | ) | — | |||||
|
Total
deferred tax liabilities
|
(954 | ) | (931 | ) | ||||
| $ | (491 | ) | $ | (546 | ) | |||
We
recorded deferred tax assets and deferred tax liabilities of $121 million and
$612 million as of December 31, 2009, respectively, and $124 million and $670
million, respectively, as of December 31, 2008. Deferred tax assets and deferred
tax liabilities are included in other assets and accrued expenses and other
liabilities, respectively, in our consolidated balance sheets.
A
reconciliation of the effective tax rate on continuing operations as shown in
the consolidated statements of operations to the federal statutory rate is as
follows:
|
Years Ended December 31,
|
|||||||||
|
2009
|
2008
|
2007
|
|||||||
|
Federal
statutory rate
|
35.0
|
%
|
35.0
|
%
|
35.0
|
%
|
|||
|
Foreign
operations
|
3.1
|
(0.4
|
)
|
(0.3
|
)
|
||||
|
Goodwill
impairment
|
—
|
(2.8
|
)
|
—
|
|||||
|
Valuation
allowance
|
(0.4
|
)
|
(2.5
|
)
|
3.9
|
||||
|
Gain
on settlement of liabilities subject to compromise
|
(0.2
|
)
|
(0.9
|
)
|
—
|
||||
|
Income
not subject to taxation
|
(38.8
|
)
|
(31.1
|
)
|
(33.8
|
)
|
|||
|
Other
|
(2.5
|
)
|
0.2
|
1.2
|
|||||
|
(3.8
|
)%
|
(2.5
|
)%
|
6.0
|
%
|
||||
For
fiscal 2009, the valuation allowance on deferred tax assets increased $94
million. The increase is attributable to a $78 million increase in the valuation
allowance recorded by Federal-Mogul and a $23 million increase in valuation
allowance recorded by WPI, offset in part by a $7 million decrease in the
valuation allowance recorded by Viskase. For fiscal 2008, the valuation
allowance on deferred tax assets increased $821 million. The increase is
primarily attributable to a $484 million increase from our acquisition of a
controlling interest in Federal-Mogul as of March 1, 2008, plus additional
valuation allowances established during fiscal 2008 of $303 million and $34
million, respectively, on the deferred tax assets of Federal-Mogul and
WPI.
Automotive
Federal-Mogul
did not record taxes on its undistributed earnings from foreign subsidiaries of
$617 million at December 31, 2009 since these earnings are considered to be
permanently reinvested. If at some future date, these earnings cease to be
permanently reinvested, Federal-Mogul may be subject to U.S. income taxes and
foreign withholding taxes on such amounts. Determining the unrecognized deferred
tax liability on the potential distribution of these earnings is not practicable
as such liability, if any, is dependent on circumstances existing when
remittance occurs.
66
At
December 31, 2009, Federal-Mogul had a deferred tax asset of $726 million for
tax loss carryforwards and tax credits, including $316 million in the United
States with expiration dates from fiscal 2010 through fiscal 2029; $201 million
in the United Kingdom with no expiration date; and $209 million in other
jurisdictions with various expiration dates. Prior to January 1, 2009, any
reduction in the valuation allowance as a result of the recognition of deferred
tax assets were adjusted through goodwill. Effective January 1, 2009, pursuant
to revised business combination standards, any reduction to the valuation
allowance will be reflected through continuing operations.
Home
Fashion, Food Packaging and Other
At
December 31, 2009, WPI had a deferred tax asset of $197 million for federal and
state net operating loss carryforwards with expiration dates from years 2025
through 2029. WPI evaluated all positive and negative evidence associated with
its deferred tax assets and concluded that a valuation allowance on all its
deferred tax assets should be established.
At
December 31, 2009, Viskase had federal and state net operating loss
carryforwards totaling $106 million, which will begin expiring in the year 2023
and forward.
At
December 31, 2009, Atlantic Coast had federal net operating loss carryforwards
totaling $17 million, which will begin expiring in the year 2024 and
forward.
Accounting
for Uncertainty in Income Taxes
Upon the
adoption of U.S. GAAP for the accounting for uncertainty in income taxes, we
recognized approximately $1 million increase in the liability for unrecognized
tax benefits, which was accounted for as a reduction to the January 1, 2007
balance of partners’ equity. On March 1, 2008, approximately $252 million of
unrecognized tax benefits were added pursuant to our acquisition of a
controlling interest in Federal-Mogul, $92 million of which would have affected
the annual effective tax rate.
A summary
of the changes in the gross amounts of unrecognized tax benefits for the fiscal
years ended December 31, 2009, 2008 and 2007 are as follows (in millions of
dollars):
|
Years Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Balance
at January 1
|
$ | 467 | $ | 11 | $ | 16 | ||||||
|
Addition
from acquisition of Federal-Mogul
|
— | 252 | — | |||||||||
|
Addition
based on tax positions related to the current year
|
20 | 41 | 1 | |||||||||
|
Increase
for tax positions of prior years
|
13 | 210 | — | |||||||||
|
Decrease
for tax positions of prior years
|
(45 | ) | (18 | ) | (4 | ) | ||||||
|
Decrease
for statute of limitation expiration
|
(26 | ) | (19 | ) | (2 | ) | ||||||
|
Impact
of currency translation and other
|
1 | (10 | ) | — | ||||||||
|
Balance
at December 31, 2009
|
$ | 430 | $ | 467 | $ | 11 | ||||||
At
December 31, 2009, 2008 and 2007, we had unrecognized tax benefits of $430
million, $467 million and $11 million, respectively. Of these totals, $94
million, $94 million and $6 million, respectively, represents the amount of
unrecognized tax benefits that if recognized, would affect the annual effective
tax rate in the respective periods. The total unrecognized tax benefits differ
from the amount which would affect the effective tax rate primarily due to the
impact of valuation allowances.
During
the next 12 months, we do not anticipate any significant changes to the amount
of our unrecognized tax benefits. However, due to ongoing tax examinations, it
is not possible to estimate additional net increases or decreases to our
unrecognized tax benefits.
We
recognize interest accrued related to unrecognized tax benefits in interest
expense and record penalties as a component of income tax expense. We recorded
$15 million, $11 million and $2 million as of December 31, 2009, 2008 and 2007,
respectively, in liabilities for tax related net interest and penalties in our
consolidated balance sheets. Income tax expense related to interest and
penalties were $4 million and $3 million for fiscal 2009 and fiscal 2008,
respectively. Income tax expense related to interest and penalties for fiscal
2007 was immaterial.
We or
certain of our subsidiaries file income tax returns in the U.S. federal
jurisdiction, various state jurisdictions and various non-U.S. jurisdictions. We
and our subsidiaries are no longer subject to U.S. federal tax examinations for
years before 2005 or state and local examinations for years before 2001, with
limited exceptions. We, or our subsidiaries, are currently under various income
tax examinations in several states and foreign jurisdictions, but are no longer
subject to income tax examinations in major foreign tax jurisdictions for years
prior to 1998.
67
19.
Accumulated Other Comprehensive Loss
Accumulated
other comprehensive loss consists of the following (in millions of
dollars):
|
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Postemployment
benefits, net of tax
|
$ | (347 | ) | $ | (363 | ) | ||
|
Hedge
instruments
|
(68 | ) | (101 | ) | ||||
|
Translation
adjustments and other
|
(242 | ) | (324 | ) | ||||
| $ | (657 | ) | $ | (788 | ) | |||
20.
Commitments and Contingencies
Federal-Mogul
Environmental
Matters
Federal-Mogul
has been designated as a potentially responsible party (“PRP”) by the United
States Environmental Protection Agency, other national environmental agencies
and various provincial and state agencies with respect to certain sites with
which Federal-Mogul may have had a direct or indirect involvement. PRP
designation typically requires the funding of site investigations and subsequent
remedial activities.
Many of
the sites that are likely to be the costliest to remediate are often current or
former commercial waste disposal facilities to which numerous companies sent
wastes. Despite the joint and several liability that might be imposed on
Federal-Mogul pertaining to these sites, Federal-Mogul’s share of the total
waste sent to these sites has generally been small. Federal-Mogul believes its
exposure for liability at these sites is limited.
Federal-Mogul
has also identified certain other present and former properties at which it may
be responsible for cleaning up or addressing environmental contamination, in
some cases as a result of contractual commitments. Federal-Mogul is actively
seeking to resolve these actual and potential statutory, regulatory and
contractual obligations. Although difficult to quantify based on the complexity
of the issues, Federal-Mogul has accrued amounts corresponding to its best
estimate of the costs associated with such regulatory and contractual
obligations on the basis of available information from site investigations and
best professional judgment of consultants.
Total
environmental liabilities were $22 million and $26 million at December 31, 2009
and 2008, respectively, and are included in accrued expenses and other
liabilities in our consolidated balance sheet.
Federal-Mogul
believes that recorded environmental liabilities will be adequate to cover its
estimated liability for its exposure in respect to such matters. In the event
that such liabilities were to significantly exceed the amounts recorded by
Federal-Mogul, our Automotive segment’s results of operations could be
materially affected. At December 31, 2009, Federal-Mogul estimates reasonably
possible material additional losses above and beyond its best estimate of
required remediation costs as recorded approximately $45 million.
Conditional
Asset Retirement Obligations
Federal-Mogul
records conditional asset retirement obligations (“CARO”) in accordance with
applicable U.S. GAAP. Federal-Mogul’s primary CARO activities related to the
removal of hazardous building materials at its facilities. Federal-Mogul records
a CARO when the amount can be reasonably estimated, typically upon the
expectation that an operating site may be closed or sold. Federal-Mogul has
identified sites with contractual obligations and several sites that are closed
or expected to be closed and sold. In connection with these sites, Federal-Mogul
has accrued $30 million and $27 million as of December 31, 2009 and 2008,
respectively, for CARO, primarily related to anticipated costs of removing
hazardous building materials, and has considered impairment issues that may
result from capitalization of CARO.
Federal-Mogul
has additional CARO, also primarily related to removal costs of hazardous
materials in buildings, for which it believes reasonable cost estimates cannot
be made at this time because Federal-Mogul does not believe it has a reasonable
basis to assign probabilities to a range of potential settlement dates for these
retirement obligations. Accordingly, Federal-Mogul is currently unable to
determine amounts to accrue for CARO at such sites.
For those
sites that Federal-Mogul identifies in the future for closure or sale, or for
which it otherwise believes it has a reasonable basis to assign probabilities to
a range of potential settlement dates, Federal-Mogul will review these sites for
both CARO and impairment issues.
A roll
forward of the CARO liability for fiscal 2009 is as follows (in millions of
dollars):
|
Balance
at January 1, 2009
|
$
|
27
|
||
|
Liabilities
incurred
|
5
|
|||
|
Liabilities
settled/adjustments
|
(2
|
)
|
||
|
Balance
at December 31, 2009
|
$
|
30
|
68
Other
Matters
Federal-Mogul
is involved in other legal actions and claims, directly and through its
subsidiaries. We do not believe that the outcomes of these other actions or
claims are likely to have a material adverse effect on the operating results or
cash flows of our Automotive segment. However, we cannot predict the outcome of
these proceedings or the ultimate impact on our investment in Federal-Mogul and
its subsidiaries.
WPI
Litigation
As of
December 31, 2009 we are defendants in two lawsuits, one in federal court in New
York and one in the Delaware state court, challenging, among other matters, the
status of our ownership interests in the common and preferred stock of
WPI.
On March
26, 2010, the United States Court of Appeals for the Second Circuit (the
‘‘Second Circuit’’) issued an Opinion in our favor, holding that we (through
Aretex LLC) are entitled to own a majority of the common stock in, and thus have
control of WPI.
We had
acquired ownership of a majority of the common stock in WPI through a July 2005
Sale Order entered by the United States Bankruptcy Court for the Southern
District of New York. Under that Sale Order, WPI acquired substantially all of
the assets of WestPoint Stevens, Inc. The losing bidders at the Bankruptcy Court
auction that led to the Sale Order challenged the Sale Order. In November 2005,
the United States District Court for the Southern District of New York modified
portions of the Sale Order in a manner that could have reduced our ownership of
WPI stock below 50%. In its March 26, 2010 decision, the Second Circuit held
that we are entitled to own a majority of the common stock of WPI, and thus have
control of WPI. The Second Circuit ordered the Bankruptcy Court’s Sale Order
reinstated, to ensure that our percentage ownership of the common stock of WPI
will be at least 50.5%. The Second Circuit modified the distribution of certain
Subscription Rights in WPI. The manner in which those Subscription Rights are
distributed, and whether or not they are exercised, could modify our percentage
ownership of WPI’s common stock, so that our percentage could range from 50.5%
to 79%. The Second Circuit ordered the District Court to remand the matter back
to the Bankruptcy Court for further proceedings consistent with its
ruling.
There is
a related proceeding in Delaware Chancery Court, brought by the same “losing
bidders” who are parties to the case decided by the Second Circuit. The
Delaware case had been stayed pending a decision from the Second
Circuit. In prior proceedings in the Delaware Court, the Court dismissed
breach of fiduciary duty claims, held that WPI had a contractual obligation
to proceed with a Registration Statement for its stock, and also declined to
dismiss a Delaware statutory claim and other claims. In their claim
relating to the Registration Statement, plaintiffs had maintained that they held
liens on a majority of WPI common stock, and were entitled to have all of
that common stock registered to facilitate its sale. On April 19,
2010, the plaintiffs in the Delaware case requested leave to amend their
complaint in light of the Second Circuit's decision. The plaintiffs
asked that they be permitted to plead new claims for breach of fiduciary duty
(and aiding and abetting such alleged breach) against WPI, Icahn Enterprises
L.P., Icahn Enterprises Holdings Limited Partnership, Carl C. Icahn and others,
based on WPI’s not having proceeded with a Registration
Statement. Plaintiffs asked for leave to amend their contractual
claim against WPI relating to the Registration Statement, so that the claim
would relate to the stock which the Second Circuit held that plaintiffs own,
rather than the stock upon which plaintiffs had claimed a
lien. Plaintiffs seek to allege that because WPI did not proceed with
the Registration Statement, plaintiffs were unable to sell their stock in WPI,
and seek to recover the diminution in the value of that
stock. Plaintiffs also seek to maintain, with amendment, their claim
for unjust enrichment against all defendants, including WPI, Icahn Enterprises
L.P, Icahn Enterprises Holdings Limited Partnership, Carl C. Icahn and
others. Plaintiffs have stated that they will withdraw certain other
claims, including the Delaware statutory claim. The Delaware Court
held a conference on April 21, 2010, and requested that WPI and other defendants
advise the Court by April 30, 2010 as to how they will respond to plaintiffs’
motion to amend the complaint. On April 29, 2010, WPI and other
defendants advised the Court that they will not oppose filing of the proposed
amended complaint, but will bring a motion to dismiss or for summary judgment
after the amended complaint is filed. In light of the Second Circuit’s decision
holding that we own a majority of common stock in WPI, and are entitled to
control, the Delaware Court vacated a prior “Limited Status Quo Order” which had
required WPI to give notice to plaintiffs of certain corporate actions. On
May 20, 2010, WPI and other defendants filed their motion to dismiss the amended
complaint. Briefs on the motion have not yet been
filed.
National
Energy Group, Inc.
National
Energy Group, Inc. (“NEGI”) is a defendant, together with Icahn Enterprises and
various individuals, including one of our current directors, as additional
defendants, in a purported stockholder derivative and class action lawsuit
alleging that among other things, certain of NEGI’s current and former officers
and directors breached their fiduciary duties to NEGI and its stockholders in
connection with NEGI’s sale of its 50% interest in an oil and gas holding
company. Following such disposition, NEGI has had no business and its principal
assets consist of cash and short-term investments which currently aggregate
approximately $48 million. In March, 2008, NEGI dissolved and filed a Form 15
with the SEC deregistering its securities with the SEC under the Exchange Act.
As a result, NEGI’s status as a public company has been suspended. No cash
distributions will be made to NEGI’s shareholders until the NEGI board
determines that NEGI has paid, or made adequate provision for the payment of,
its liabilities and obligations, including any liabilities relating to the
lawsuit.
69
The
parties to the lawsuit have reached an agreement in principle to settle the
lawsuit which is subject to court approval, pursuant to which we will pay
approximately $9 million and all claims against all defendants will be
dismissed. We expect the settlement to be approved and finalized in the second
quarter of fiscal 2010.
PSC
Metals
Environmental
Matters
PSC
Metals has been designated as a PRP under U.S. federal and state superfund laws
with respect to certain sites with which PSC Metals may have had a direct or
indirect involvement. It is alleged that PSC Metals and its subsidiaries or
their predecessors transported waste to the sites, disposed of waste at the
sites or operated the sites in question. PSC Metals has reviewed the nature and
extent of the allegations, the number, connection and financial ability of other
named and unnamed PRPs and the nature and estimated cost of the likely remedy.
Based on reviewing the nature and extent of the allegations, PSC Metals has
estimated its liability to remediate these sites to be immaterial at each of
December 31, 2009 and 2008. If it is determined that PSC has liability to
remediate those sites and that more expensive remediation approaches are
required in the future, PSC Metals could incur additional obligations, which
could be material.
Certain
of PSC Metals’ facilities are environmentally impaired in part as a result of
operating practices at the sites prior to their acquisition by PSC Metals and as
a result of PSC Metals’ operations. PSC Metals has established procedures to
periodically evaluate these sites, giving consideration to the nature and extent
of the contamination. PSC Metals has provided for the remediation of these sites
based upon management’s judgment and prior experience. PSC Metals has estimated
the liability to remediate these sites to be $27 million and $24 million of
December 31, 2009 and 2008, respectively. Management believes, based on past
experience, that the vast majority of these environmental liabilities and costs
will be assessed and paid over an extended period of time. PSC Metals believes
that it will be able to fund such costs in the ordinary course of
business.
Estimates
of PSC Metals’ liability for remediation of a particular site and the method and
ultimate cost of remediation require a number of assumptions that are inherently
difficult to make, and the ultimate outcome may be materially different from
current estimates. Moreover, because PSC Metals has disposed of waste materials
at numerous third-party disposal facilities, it is possible that PSC Metals will
be identified as a PRP at additional sites. The impact of such future events
cannot be estimated at the current time.
ARI
Environmental
Matters
ARI is
subject to comprehensive federal, state, local and international environmental
laws and regulations relating to the release or discharge of materials into the
environment, the management, use, processing, handling, storage, transport or
disposal of hazardous materials and wastes, or otherwise relating to the
protection of human health and the environment. These laws and regulations not
only expose ARI to liability for the environmental condition of its current or
formerly owned or operated facilities, and its own negligent acts, but also may
expose ARI to liability for the conduct of others or for ARI’s actions that were
in compliance with all applicable laws at the time these actions were taken. In
addition, these laws may require significant expenditures to achieve compliance,
and are frequently modified or revised to impose new obligations. Civil and
criminal fines and penalties and other sanctions may be imposed for
non-compliance with these environmental laws and regulations. ARI’s operations
that involve hazardous materials also raise potential risks of liability under
common law. ARI management believes that there are no current environmental
issues identified that would have a material adverse affect on ARI.
ARI is
involved in investigation and remediation activities at a property that it now
owns to address historical contamination and potential contamination by third
parties. ARI is also involved with a state agency in the cleanup of this site
under these laws. These investigations are in process but it is too early to be
able to make a reasonable estimate, with any certainty, of the timing and extent
of remedial actions that may be required, and the costs that would be involved
in such remediation. Substantially all of the issues identified relate to the
use of this property prior to its transfer to ARI in 1994 by ACF and for which
ACF has retained liability for environmental contamination that may have existed
at the time of transfer to ARI. ACF has also agreed to indemnify ARI for any
cost that might be incurred with those existing issues. However, if ACF fails to
honor its obligations to ARI, ARI would be responsible for the cost of such
remediation. ARI believes that its operations and facilities are in substantial
compliance with applicable laws and regulations and that any noncompliance is
not likely to have a material adverse effect on its operations or financial
condition.
70
Other
ARI has
been named the defendant in a wrongful death lawsuit, Nicole
Lerma v. American Railcar Industries, Inc. The lawsuit was filed on
August 17, 2007, in the Circuit Court of Greene County, Arkansas Civil Division.
Mediation on January 6, 2009, was not successful and the trial has been
scheduled for May 14, 2010. ARI believes that it is not responsible and has
meritorious defenses against such liability. While it is reasonably possible
that this case could result in a loss, there is not sufficient information to
estimate the amount of such loss, if any, resulting from the lawsuit. Refer to
Note 21, “Subsequent Events,” for an update on the outcome of this
lawsuit.
One of
ARI’s joint ventures entered into a credit agreement in December 2007. Effective
August 5, 2009, ARI and the other initial partner acquired this loan from the
lender parties thereto, with each party acquiring a 50.0% interest in the loan.
The total commitment under the term loan is $60 million with an additional $10
million commitment under the revolving loan. ARI is responsible to fund 50.0% of
the loan commitments. The balance outstanding on these loans, due to ARI, was
$33 million of principal and accrued interest as of December 31, 2010. ARI’s
share of the remaining commitment on these loans was $4 million as of December
31, 2009.
Investment
Management
In
connection with Tropicana Entertainment Inc.’s (“Tropicana”) completion of the
Restructuring Transactions (see Note 21, ‘‘Subsequent Events’’), Tropicana
entered into a credit agreement, dated as of December 29, 2009 (the ‘‘Exit
Facility’’) which consists of (i) a $130 million Term Loan Facility issued at a
discount of 7%, which was funded on March 8, 2010, the Effective Date, and (ii)
a $20 million Revolving Facility. Each of Investment Funds is a lender under the
Exit Facility and, in the aggregate, hold over 50% of the loans under the Term
Loan Facility and is obligated to provide 100% of any amounts
borrowed by Tropicana under the Revolving Facility. As of December 31, 2009,
Tropicana has not borrowed any amounts from the Revolving Facility.
Leases
Future
minimum lease payments under operating leases with initial terms of one or more
years consist of the following at December 31, 2009 (in millions of
dollars):
|
Year
|
Operating
Leases
|
|||
|
2010
|
$
|
52
|
||
|
2011
|
41
|
|||
|
2012
|
32
|
|||
|
2013
|
26
|
|||
|
2014
|
25
|
|||
|
Thereafter
|
43
|
|||
|
$
|
219
|
|||
Other
In the
ordinary course of business, we, our subsidiaries and other companies in which
we invest are parties to various legal actions. In management’s opinion, the
ultimate outcome of such legal actions will not have a material effect on our
consolidated financial statements taken as a whole.
21.
Subsequent Events
Senior
Notes Offering
On
January 15, 2010, we and Icahn Enterprises Finance Corp. (collectively, the
“Issuers”), sold $850,000,000 aggregate principal amount of 7.75% Senior Notes
due 2016 (the “2016 Notes”) and $1,150,000,000 aggregate principal amount of 8%
Senior Notes due 2018 (the “2018 Notes” and, together with the 2016 Notes,
referred to as the “New Notes”) pursuant to the purchase agreement, dated
January 12, 2010 (the “Purchase Agreement”), by and among the Issuers, Icahn
Enterprises Holdings, as guarantor (the “Guarantor”), and Jefferies &
Company, Inc., as initial purchaser (the “Initial Purchaser”). The 2016 Notes
were priced at 99.411% of their face value and the 2018 Notes were priced at
99.275% of their face value. The gross proceeds from the sale of the New Notes
were approximately $1,986,656,000, a portion of which was used to purchase the
approximately $1.28 billion in aggregate principal amount (or approximately 97%)
of the 2013 Notes and the 2012 Notes that were tendered pursuant to cash tender
offers and consent solicitations and to pay related fees and expenses. Interest
on the New Notes will be payable on January 15 and July 15 of each year,
commencing July 15, 2010. The Purchase Agreement contains customary
representations, warranties and covenants of the parties and indemnification and
contribution provisions whereby the Issuers and the Guarantor, on the one hand,
and the Initial Purchaser, on the other, have agreed to indemnify each other
against certain liabilities. The 2012 Notes and 2013 Notes were satisfied and
discharged pursuant to their respective indentures on January 15,
2010.
71
The New
Notes were issued under and are governed by an indenture, dated January 15, 2010
(the “Indenture”), among the Issuers, the Guarantor and Wilmington Trust
Company, as trustee. The Indenture contains customary events of defaults and
covenants relating to, among other things, the incurrence of debt, affiliate
transactions, liens and restricted payments. On or after January 15, 2013, the
Issuers may redeem all of the 2016 Notes at a price equal to 103.875% of the
principal amount of the 2016 Notes, plus accrued and unpaid interest, with such
optional redemption prices decreasing to 101.938% on and after January 15, 2014
and 100% on and after January 15, 2015. On or after January 15, 2014, the
Issuers may redeem all of the 2018 Notes at a price equal to 104.000% of the
principal amount of the 2018 Notes, plus accrued and unpaid interest, with such
option redemption prices decreasing to 102.000% on and after January 15, 2015
and 100% on and after January 15, 2016. Before January 15, 2013, the Issuers may
redeem up to 35% of the aggregate principal amount of each of the 2016 Notes and
2018 Notes with the net proceeds of certain equity offerings at a price equal to
107.750% and 108.000%, respectively, of the aggregate principal amount thereof,
plus accrued and unpaid interest to the date of redemption, provided that at
least 65% of the aggregate principal amount of the 2016 Notes or 2018 Notes, as
the case may be, originally issued remains outstanding immediately after such
redemption. If the Issuers experience a change of control, the Issuers must
offer to purchase for cash all or any part of each holder’s New Notes at a
purchase price equal to 101% of the principal amount of the New Notes, plus
accrued and unpaid interest.
The New
Notes and the related guarantee are the senior unsecured obligations of the
Issuers and rank equally with all of the Issuers’ and the Guarantor’s existing
and future senior unsecured indebtedness and rank senior to all of the Issuers’
and the Guarantor’s existing and future subordinated indebtedness. The New Notes
and the related guarantee are effectively subordinated to the Issuers’ and the
Guarantor’s existing and future secured indebtedness to the extent of the
collateral securing such indebtedness. The New Notes and the related guarantee
are also effectively subordinated to all indebtedness and other liabilities of
the Issuers’ subsidiaries other than the Guarantor.
In
connection with the sale of the New Notes, the Issuers and the Guarantor entered
into a Registration Rights Agreement, dated January 15, 2010 (the “Registration
Rights Agreement”), with the Initial Purchaser. Pursuant to the Registration
Rights Agreement, the Issuers have agreed to file a registration statement with
the SEC, on or prior to 120 calendar days after the closing of the offering of
the New Notes, to register an offer to exchange the New Notes for registered
notes guaranteed by the Guarantor with substantially identical terms, and to use
commercially reasonable efforts to cause the registration statement to become
effective by the 210th day after the closing of the offering of the Notes.
Additionally, the Issuers and the Guarantor may be required to file a shelf
registration statement to cover resales of the New Notes in certain
circumstances. If the Issuers and the Guarantor fail to satisfy these
obligations, the Issuers may be required to pay additional interest to holders
of the New Notes under certain circumstances.
Termination
of Indenture Governing Senior Unsecured 8.125% Notes due 2012
Effective
January 15, 2010, the 2012 Notes Indenture, among the Issuers, the Guarantor and
Wilmington Trust Company, as trustee, was satisfied and discharged in accordance
with its terms by the Issuers. The Issuers deposited a total of approximately
$364 million with Wilmington Trust Company as trustee under the 2012 Notes
Indenture and depositary for a cash tender offer to repay all amounts
outstanding under the 2012 Notes and to satisfy and discharge the 2012 Notes
Indenture. Approximately $345 million was deposited with the depositary to
purchase the 2012 Notes that were tendered pursuant to the cash tender offer. In
connection with the purchase of the tendered 2012 Notes, the Issuers paid total
consideration of approximately $355 million, which consisted of: (i) $345
million of base consideration for the aggregate principal amount tendered; (ii)
$3 million of accrued and unpaid interest on the tendered 2012 Notes; and (iii)
$7 million of consent payments in connection with the solicitation of consents
from holders of 2012 Notes to eliminate the incurrence of indebtedness and
issuance of preferred stock covenant in the 2012 Notes Indenture. The Issuers
also deposited approximately $8 million with the trustee in connection with the
redemption of the remaining 2012 Notes.
Termination
of Indenture Governing Senior Unsecured 7.125% Notes due 2013
Effective
January 15, 2010, the 2013 Notes Indenture, among the Issuers, the Guarantor and
Wilmington Trust Company, as trustee, has been satisfied and discharged in
accordance with its terms by the Issuers. The Issuers deposited a total of
approximately $1,018 million with Wilmington Trust Company as trustee under the
2013 Notes Indenture and depositary for cash tender offer to repay all accounts
outstanding under the 2013 Notes and to satisfy and discharge the 2013 Notes
Indenture. Approximately $939 million was deposited with the depositary to
purchase the 2013 Notes that were tendered pursuant to the cash tender offer. In
connection with the purchase of the tendered 2013 Notes, the Issuers paid total
consideration of approximately $988 million, which consisted of: (i) $939
million of base consideration for the aggregate principal amount tendered; (ii)
$28 million of accrued and unpaid interest on the tendered 2013 Notes; and (iii)
$21 million of consent payments in connection with the solicitation of consents
from holders of 2013 Notes to eliminate the incurrence of indebtedness and
issuance of preferred stock covenant in the 2013 Notes Indenture. The Issuers
also deposited approximately $29 million with the trustee in connection with the
redemption of the remaining 2013 Notes.
Debt
Extinguishment — 2012 Notes and 2013 Notes
In
connection with the debt extinguishment related to our 2012 Notes and 2013 Notes
as discussed above, we recorded a $40 million loss on debt extinguishment in the
first quarter of fiscal 2010.
72
Acquisition
of Non-Controlling Interest in Tropicana Entertainment Inc.
On March
8, 2010, (the ‘‘Effective Date’’), Tropicana completed the acquisition of
certain assets of its predecessor, Tropicana Entertainment, LLC, and certain
subsidiaries and affiliates thereof (together, the ‘‘Predecessors’’)
and Tropicana Resort and Casino-Atlantic City (‘‘Tropicana AC’’). Such
transactions, referred to as the ‘‘Restructuring Transactions,’’ were effected
pursuant to the Joint Plan of Reorganization of Tropicana Entertainment, LLC
(‘‘Tropicana LLC’’) and Certain of Its Debtor Affiliates Under Chapter 11 of the
Bankruptcy Code, filed with the United States Bankruptcy Court for the District
of Delaware on January 8, 2009, as amended (the ‘‘Plan’’). Prior to the
Restructuring Transactions, Icahn Partners LP (‘‘Icahn Partners’’), Icahn
Partners Master Fund LP (‘‘Icahn Master Fund’’), Icahn Partners Master Fund II
LP (‘‘Icahn Master Fund II’’), Icahn Partners Master Fund III LP (‘‘Icahn Master
Fund III’’), each an indirectly held subsidiary of Icahn Enterprises L.P., held
positions in certain debt securities and instruments in the Predecessors. As a
result of the Restructuring Transactions pursuant to the Plan, Icahn Partners,
Icahn Master Fund, Icahn Master Fund II and Icahn Master Fund III received a
combined amount of 11,880,021 shares of Tropicana (‘‘Tropicana
Shares’’).
In
addition, in connection with Tropicana’s completion of the Restructuring
Transactions, Tropicana entered into a credit agreement, dated as of December
29, 2009 (the ‘‘Exit Facility’’). Icahn Partners, Icahn Master Fund, Icahn
Master Fund II and Icahn Master Fund III each is a lender under the Exit
Facility, and in the aggregate, hold over 50% of the loans under the Exit
Facility. Furthermore, Icahn Agency Services LLC, an indirect subsidiary of the
Company, is the administrative agent under the Exit Facility. Pursuant to the
terms of the Exit Facility, the lenders, including Icahn Partners, Icahn Master
Fund, Icahn Master Fund II and Icahn Master Fund III, were issued warrants to
purchase Tropicana Shares (the ‘‘Warrants’’). On March 9, 2010, Icahn Partners,
Icahn Master, Icahn Master Fund II and Icahn Master Fund III exercised their
Warrants in their entirety and received an additional combined amount of 784,158
Tropicana Shares. As a result of the Tropicana Shares issued pursuant to the
Restructuring Transactions and the Tropicana Shares issued pursuant to the
exercise of the Warrants, Icahn Partners, Icahn Master Fund, Icahn Master Fund
II and Icahn Master Fund III hold, in the aggregate, 12,664,179 Tropicana
Shares, representing 49.1% of the outstanding shares of Tropicana.
Declaration
of Distribution on Depositary Units
On
February 26, 2010, the board of directors approved a payment of a quarterly cash
distribution of $0.25 per unit on our depositary units payable in the first
quarter of fiscal 2010. The distribution was paid on March 30, 2010, to
depositary unitholders of record at the close of business on March 15, 2010.
Under the terms of the indenture dated April 5, 2007 governing our variable rate
notes due 2013, we also made a $0.15 distribution to holders of these notes in
accordance with the formula set forth in the indenture.
On April
29, 2010, the board of directors approved a payment of a quarterly cash
distribution of $0.25 per unit on our depositary units payable in the second
quarter of fiscal 2010. The distribution was paid on June 3, 2010, to depositary
unitholders of record at the close of business on May 20, 2010. Under the terms
of the indenture dated April 5, 2007 governing our variable rate notes due 2013,
we also made a $0.15 distribution to holders of these notes in accordance with
the formula set forth in the indenture.
Redemption
of Preferred Units
On March
31, 2010, we redeemed all of our outstanding preferred units for an amount equal
to the liquidation preference of $10.00 per unit, plus any accrued but unpaid
distributions thereon. The total liability of our preferred units of $138
million was settled by issuing 2,947,092 of our depositary units, based on an
average price of $46.77 per depositary unit, which amount was calculated based
on the closing price of our depositary units over the 20-trading days
immediately preceding March 31, 2010.
Investment
Management
Subsequent
to December 31, 2009, our Private Funds received $675 million in subscriptions
from investors, of which $7 million was received prior to January 1, 2010 and is
reflected as a liability in the consolidated balance sheets. Of the total
subscriptions received, $600 million relates to non-fee paying investors,
including our direct investment in the Private Funds of $250
million.
Based on
the values as of March 31, 2010, the Private Funds have received redemption
notices of approximately 7.8% of the assets under management payable on June 30,
2010.
Subsequent
to December 31, 2009, we evaluated the VIE and primary beneficiary status of
Icahn Partners Master Fund LP and determined that it no longer is a VIE.
Previously, Icahn Partners Master Fund LP was considered to be a VIE because (i)
the managing general partner, Icahn Offshore GP, had substantially all of the
decision-making rights that impacted Icahn Partners Master Fund LP’s operations
and investment activities but did not absorb the majority of the residuals or
losses of Icahn Partners Master Fund LP and (ii) substantially all of the
activities of Icahn Partners Master Fund LP were conducted on behalf of Icahn
Fund Ltd. Icahn Fund Ltd. provided substantially all of the capital at the
commencement of Icahn Partners Master Fund LP’s operations but had no
substantive kick-out or participating rights. However, the composition of the
limited partners in Icahn Partners Master Fund LP has changed. Based on our
evaluation, we determined that Icahn Partners Master Fund LP is no longer a VIE
because substantially all of the activities of Icahn Partners Master Fund LP are
no longer deemed to be performed for the primary benefit of Icahn Fund Ltd, but
rather for the benefit of all limited partners, including those of their related
party groups and de facto agents. However, because Icahn Offshore LP is the
managing general partner of Icahn Partners Master Fund LP, it would consolidate
it. These changes had no effect on our consolidated financial
statements.
73
Federal-Mogul
Federal-Mogul
has operated an aftermarket distribution center in Venezuela for several years,
supplying imported replacement automotive parts to the local independent
aftermarket. Since 2005, two exchange rates have existed in Venezuela: the
official rate, which has been frozen since 2005 at 2.15 bolivars per U.S.
dollar; and the parallel rate, which floats at a rate much higher than the
official rate. Given the existence of the two rates in Venezuela, Federal-Mogul
is required to assess which of these rates is the most appropriate for
converting the results of its Venezuelan operations into U.S. dollars at
December 31, 2009. Federal-Mogul has no positive intent to repatriate cash at
the parallel rate and has demonstrated the ability to repatriate cash at the
official rate in early January 2010; thus, the official rate was deemed
appropriate for the purposes of conversion into U.S. dollars.
Near the
end of 2009, the three year cumulative inflation rate for Venezuela was above
100%, which requires the Venezuelan operation to report its results as though
the U.S. dollar is its functional currency in accordance with applicable U.S.
GAAP, commencing January 1, 2010 (“inflationary accounting”). The impact of this
transition to a U.S. dollar functional currency is that any change in the U.S.
dollar value of bolivar denominated monetary assets and liabilities must be
recognized directly in earnings.
At
December 31, 2009, the summarized balance sheet of the Federal-Mogul’s
Venezuelan operations is as follows (all balances are in millions U.S. dollars,
converted at the official exchange rate of 2.15 bolivar per U.S.
dollar):
|
Cash
and cash equivalents
|
$
|
76
|
||
|
Other
monetary assets, net
|
5
|
|||
|
Net
monetary assets
|
81
|
|||
|
Non-monetary
assets, net
|
5
|
|||
|
Total
|
$
|
86
|
In early
January 2010, prior to the bolivar devaluation, Federal-Mogul repatriated $14
million at the official rate of 2.15 bolivars to U.S. dollar. On January 8,
2010, subsequent to this cash repatriation, the official exchange rate was set
by the Venezuelan government at 4.3 bolivars per U.S. dollar, except for certain
“strategic industries” that are permitted to buy U.S. dollars at the rate of 2.6
bolivars per U.S. dollar. Subsequent to this devaluation, Federal-Mogul has
repatriated $11 million at this “strategic” rate.
Federal-Mogul
estimates that the immediate impact of inflationary accounting for its
Venezuelan operations in fiscal 2010 is a loss ranging between $13 million and
$30 million, largely dependent on its expected ability to continue to repatriate
cash at the “strategic” rate of 2.6 bolivars per U.S. dollar versus the official
rate of 4.3.
WPI
Litigation
On March
26, 2010, the United States Court of Appeals for the Second Circuit issued an
Opinion in our favor. Refer to Note 20, “Commitments and
Contingencies,” for further discussion.
Viskase
On May 3,
2010, Viskase issued an additional $40 million aggregate principal amount of
Viskase 9.875% Notes under the Viskase 9.875% Notes Indenture. The additional
notes constitute the same series of securities as the initial Viskase 9.875%
Notes. Holders of the initial and additional Viskase 9.875% Notes will vote
together on all matters and the initial and additional Viskase 9.875% Notes will
be equally and ratably secured by all collateral. The net proceeds from the
issuance of additional notes will be used for general corporate purposes,
including working capital, further plant expansion and possible
acquisitions.
Other
On April
27, 2010, we entered into an agreement with Viskase, extending the maturity date
of the Viskase Revolving Credit Facility from January 31, 2011 to January 31,
2012.
Other
As
discussed in Note 20, “Commitments and Contingencies,” ARI was named the
defendant in a wrongful death lawsuit, Nicole Lerma v. American Railcar
Industries, Inc., filed on
August 17, 2007 in the Circuit Court of Greene County, Arkansas Civil
Division. The court
reached a verdict in favor of ARI on May 24, 2010. The plaintiff has 30 days to
appeal the decision, following the filing of the judgment.
On
February 18, 2010, our Real Estate operations acquired from Fontainebleau Las
Vegas, LLC (“Fontainebleau”), and certain affiliated entities, certain assets
associated with property and improvements ( the “Former Fontainebleau
Property”), located in Las Vegas, Nevada for an aggregate purchase price of
approximately $148 million. The Former Fontainebleau Property
includes (i) an unfinished building of approximately nine million square feet
situated on approximately 25 acres of land and (ii) inventory.
74
On March
23, 2010, the Patient Protection and Affordable Care Act was signed into law and
on March 30, 2010, a companion bill, the Health Care and Education
Reconciliation Act of 2010, was also signed into law. The newly enacted acts
will reduce the tax deduction available to Federal-Mogul to the extent of
receipt of Medicare Part D subsidy. Although this legislation does not take
effect until 2012, Federal-Mogul is required to recognize the impact in its
financial statements in the period in which it is signed. Due to the full
valuation allowance recorded against deferred tax assets in the United States,
this legislation will not impact Federal-Mogul’s 2010 effective tax rate. We do
not believe that the provisions of these laws will have a material effect on our
other segments.
22.
Quarterly Financial Data (Unaudited) (In Millions of Dollars, Except per Unit
Data)
|
Three Months Ended
|
||||||||||||||||||||||||||||||||
|
March 31,
|
June 30,
|
September 30,
|
December 31,
|
|||||||||||||||||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||||||||||||||
|
Net
sales
|
$ | 1,621 | $ | 1,320 | $ | 1,635 | $ | 2,810 | $ | 1,758 | $ | 2,504 | $ | 1,776 | $ | 1,796 | ||||||||||||||||
|
Gross
margin
|
180 | 172 | 240 | 497 | 262 | 373 | 264 | 222 | ||||||||||||||||||||||||
|
Total
revenues
|
1,992 | 1,389 | 2,407 | 2,145 | 2,343 | 2,090 | 1,863 | 514 | ||||||||||||||||||||||||
|
Income
(loss) from continuing operations
|
132 | (30 | ) | 637 | (657 | ) | 473 | (526 | ) | (18 | ) | (1,929 | ) | |||||||||||||||||||
|
Income
(loss) from discontinued operations
|
— | 489 | 2 | (1 | ) | (1 | ) | (2 | ) | — | (1 | ) | ||||||||||||||||||||
|
Net
income (loss)
|
132 | 459 | 639 | (658 | ) | 472 | (528 | ) | (18 | ) | (1,930 | ) | ||||||||||||||||||||
|
Less:
net (income) loss attributable to non-controlling
interests
|
(128 | ) | — | (505 | ) | 613 | (355 | ) | 555 | 16 | 1,463 | |||||||||||||||||||||
|
Net
income (loss) attributable to Icahn Enterprises
|
$ | 4 | $ | 459 | $ | 134 | $ | (45 | ) | $ | 117 | $ | 27 | $ | (2 | ) | $ | (467 | ) | |||||||||||||
|
Basic
income (loss) per LP unit (1):
|
||||||||||||||||||||||||||||||||
|
Income
(loss) from continuing operations
|
$ | 0.01 | $ | (0.26 | ) | $ | 1.67 | $ | (1.35 | ) | $ | 1.45 | $ | 0.34 | $ | (0.09 | ) | $ | (6.49 | ) | ||||||||||||
|
(Loss)
Income from discontinued operations
|
(0.00 | ) | 7.14 | 0.03 | (0.02 | ) | (0.01 | ) | (0.02 | ) | (0.00 | ) | (0.02 | ) | ||||||||||||||||||
|
Basic
income (loss) per LP unit
|
$ | 0.01 | $ | 6.88 | $ | 1.70 | $ | (1.37 | ) | $ | 1.44 | $ | 0.32 | $ | (0.09 | ) | $ | (6.51 | ) | |||||||||||||
|
Diluted
income (loss) per LP unit(1)
:
|
||||||||||||||||||||||||||||||||
|
Income
(loss) from continuing operations
|
$ | 0.01 | $ | (0.26 | ) | $ | 1.56 | $ | (1.35 | ) | $ | 1.40 | $ | 0.34 | $ | (0.09 | ) | $ | (6.49 | ) | ||||||||||||
|
(Loss)
Income from discontinued operations
|
(0.00 | ) | 7.14 | 0.03 | (0.02 | ) | (0.01 | ) | (0.02 | ) | (0.00 | ) | (0.02 | ) | ||||||||||||||||||
|
Diluted
income (loss) per LP unit
|
$ | 0.01 | $ | 6.88 | $ | 1.59 | $ | (1.37 | ) | $ | 1.39 | $ | 0.32 | $ | (0.09 | ) | $ | (6.51 | ) | |||||||||||||
75
EXHIBIT
99.4
Schedule
I – Condensed Financial Information of Parent.
ICAHN
ENTERPRISES, L.P.
(Parent
Company)
CONDENSED
BALANCE SHEETS
December
31, 2009 and 2008
|
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
(In
Millions, Except Unit Amounts)
|
||||||||
|
ASSETS
|
||||||||
|
Investments
in subsidiary, net
|
$ | 4,926 | $ | 4,645 | ||||
|
Other
investments
|
— | 1 | ||||||
|
Deferred
financing costs
|
7 | 9 | ||||||
|
Total
Assets
|
$ | 4,933 | $ | 4,655 | ||||
|
LIABILITIES
AND EQUITY
|
||||||||
|
Accrued
interest expense
|
$ | 34 | $ | 34 | ||||
|
Debt
|
1,929 | 1,927 | ||||||
|
Preferred
limited partner units
|
136 | 130 | ||||||
| 2,099 | 2,091 | |||||||
|
Equity:
|
||||||||
|
Limited
partners:
|
||||||||
|
Depositary
units: 92,400,000 authorized; issued 75,912,797 at December 31, 2009 and
2008; outstanding 74,775,597 at December 31, 2009 and 2008
|
2,828 | 2,582 | ||||||
|
General
partner
|
18 | (6 | ) | |||||
|
Treasury
units, at cost
|
(12 | ) | (12 | ) | ||||
|
Total
Equity
|
2,834 | 2,564 | ||||||
|
Total
Liabilities and Equity
|
$ | 4,933 | $ | 4,655 | ||||
1
ICAHN
ENTERPRISES, L.P.
(Parent
Company)
CONDENSED
STATEMENTS OF OPERATIONS
Years
Ended December 31, 2009, 2008 and 2007
|
Year Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
(In
Millions)
|
||||||||||||
|
Interest
expense
|
$ | (136 | ) | $ | (136 | ) | $ | (125 | ) | |||
|
Other
expense
|
(1 | ) | — | — | ||||||||
|
Equity
in earnings of subsidiary
|
390 | 110 | 447 | |||||||||
|
Net
income (loss)
|
$ | 253 | $ | (26 | ) | $ | 322 | |||||
|
Net
income (loss) allocable to:
|
||||||||||||
|
Limited
partners
|
$ | 229 | $ | (57 | ) | $ | 103 | |||||
|
General
partner
|
24 | 31 | 219 | |||||||||
| $ | 253 | $ | (26 | ) | $ | 322 | ||||||
2
ICAHN
ENTERPRISES, L.P.
(Parent
Company)
CONDENSED
STATEMENTS OF CASH FLOWS
Years
Ended December 31, 2009, 2008 and 2007
|
Year Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
(In
Millions)
|
||||||||||||
|
Cash
flows from operating activities:
|
||||||||||||
|
Net
income (loss)
|
$ | 253 | $ | (26 | ) | $ | 322 | |||||
|
Adjustments
to reconcile net income (loss) to net cash provided by operating
activities:
|
||||||||||||
|
Preferred
LP unit interest expense
|
6 | 6 | 6 | |||||||||
|
Amortization
of deferred financing costs
|
2 | 2 | 2 | |||||||||
|
Amortization
of debt discount
|
2 | 2 | 2 | |||||||||
|
Equity
in earnings of subsidiary
|
(390 | ) | (110 | ) | (447 | ) | ||||||
|
Net
changes in assets and liabilities
|
127 | 126 | 115 | |||||||||
|
Net
cash provided by operating activities
|
— | — | — | |||||||||
|
Cash
flows from investing activities:
|
||||||||||||
|
Net
investment in and advances from (to) subsidiary
|
76 | 69 | (1,063 | ) | ||||||||
|
Net
cash provided by (used in) investing activities
|
76 | 69 | (1,063 | ) | ||||||||
|
Cash
flows from financing activities:
|
||||||||||||
|
Partnership
distributions
|
(76 | ) | (71 | ) | (37 | ) | ||||||
|
General
partner contribution
|
— | 2 | 8 | |||||||||
|
Proceeds
from borrowings
|
— | — | 1,092 | |||||||||
|
Net
cash provided by financing activities
|
(76 | ) | (69 | ) | 1,063 | |||||||
|
Net
change in cash and cash equivalents
|
— | — | — | |||||||||
|
Cash
and cash equivalents, beginning of period
|
— | — | — | |||||||||
|
Cash
and cash equivalents, end of period
|
$ | — | $ | — | $ | — | ||||||
3
1.
Description of Business and Basis of Presentation
Icahn
Enterprises, L.P. (“Icahn Enterprises”) is a master limited partnership formed
in Delaware on February 17, 1987. Icahn Enterprises is a diversified holding
company. Our primary subsidiary is Icahn Enterprises Holdings L.P. (“Icahn
Enterprises Holdings”). Icahn Enterprises Holdings, the operating partnership,
holds our investments and conducts our business operations. Substantially all of
our assets and liabilities are owned by Icahn Enterprises Holdings and
substantially all of our operations are conducted through Icahn Enterprises
Holdings. Icahn Enterprises Holdings is engaged in the following continuing
operating businesses: Investment Management, Automotive, Railcar, Food
Packaging, Metals, Real Estate and Home Fashion.
The
condensed financial statements of the Registrant should be read in conjunction
with the consolidated financial statements and notes thereto.
2.
Long-Term Debt
See Note
12, “Debt,” to the consolidated financial statements contained in Exhibit 99.3
to Form 8-K. Parent company debt is reported gross in the condensed financial
statements whereas it appears in our consolidated financial statements net of
$58 million as of December 31, 2009 and 2008, of principal amount purchased in
fiscal 2008 that is held by an Icahn Enterprises subsidiary.
Debt
consists of the following (in millions):
|
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Senior
unsecured variable rate convertible notes due 2013
|
$ | 600 | $ | 600 | ||||
|
Senior
unsecured 7.125% notes due 2013
|
977 | 975 | ||||||
|
Senior
unsecured 8.125% notes due 2012
|
352 | 352 | ||||||
|
Total
debt
|
$ | 1,929 | $ | 1,927 | ||||
3.
Commitments and Contingencies
See Note
20, “Commitments and Contingencies,” to the consolidated financial statements
contained in Exhibit 99.3 to Form 8-K.
4.
Preferred Units
See Note
15, “Preferred Units,” to the consolidated financial statements contained in
Exhibit 99.3 to Form 8-K.
5.
Subsequent Events
Senior
Notes Offering
On
January 15, 2010, we and Icahn Enterprises Finance Corp. (collectively, the
“Issuers”), sold $850,000,000 aggregate principal amount of 7.75% Senior Notes
due 2016 (the “2016 Notes”) and $1,150,000,000 aggregate principal amount of 8%
Senior Notes due 2018 (the “2018 Notes” and, together with the 2016 Notes,
referred to as the “New Notes”) pursuant to the purchase agreement, dated
January 12, 2010 (the “Purchase Agreement”), by and among the Issuers, Icahn
Enterprises Holdings, as guarantor (the “Guarantor”), and Jefferies &
Company, Inc., as initial purchaser (the “Initial Purchaser”). The 2016 Notes
were priced at 99.411% of their face value and the 2018 Notes were priced at
99.275% of their face value. The gross proceeds from the sale of the New Notes
were approximately $1,986,656,000, a portion of which was used to purchase the
approximately $1.28 billion in aggregate principal amount (or approximately 97%)
of the 2013 Notes and the 2012 Notes that were tendered pursuant to cash tender
offers and consent solicitations and to pay related fees and expenses. Interest
on the New Notes will be payable on January 15 and July 15 of each year,
commencing July 15, 2010. The Purchase Agreement contains customary
representations, warranties and covenants of the parties and indemnification and
contribution provisions whereby the Issuers and the Guarantor, on the one hand,
and the Initial Purchaser, on the other, have agreed to indemnify each other
against certain liabilities. The 2012 Notes and 2013 Notes were satisfied and
discharged pursuant to their respective indentures on January 15,
2010.
The New
Notes were issued under and are governed by an indenture, dated January 15, 2010
(the “Indenture”), among the Issuers, the Guarantor and Wilmington Trust
Company, as trustee. The Indenture contains customary events of defaults and
covenants relating to, among other things, the incurrence of debt, affiliate
transactions, liens and restricted payments. On or after January 15, 2013, the
Issuers may redeem all of the 2016 Notes at a price equal to 103.875% of the
principal amount of the 2016 Notes, plus accrued and unpaid interest, with such
optional redemption prices decreasing to 101.938% on and after January 15, 2014
and 100% on and after January 15, 2015. On or after January 15, 2014, the
Issuers may redeem all of the 2018 Notes at a price equal to 104.000% of the
principal amount of the 2018 Notes, plus accrued and unpaid interest, with such
option redemption prices decreasing to 102.000% on and after January 15, 2015
and 100% on and after January 15, 2016. Before January 15, 2013, the Issuers may
redeem up to 35% of the aggregate principal amount of each of the 2016 Notes and
2018 Notes with the net proceeds of certain equity offerings at a price equal to
107.750% and 108.000%, respectively, of the aggregate principal amount thereof,
plus accrued and unpaid interest to the date of redemption, provided that at
least 65% of the aggregate principal amount of the 2016 Notes or 2018 Notes, as
the case may be, originally issued remains outstanding immediately after such
redemption. If the Issuers experience a change of control, the Issuers must
offer to purchase for cash all or any part of each holder’s New Notes at a
purchase price equal to 101% of the principal amount of the New Notes, plus
accrued and unpaid interest.
4
The New
Notes and the related guarantee are the senior unsecured obligations of the
Issuers and rank equally with all of the Issuers’ and the Guarantor’s existing
and future senior unsecured indebtedness and rank senior to all of the Issuers’
and the Guarantor’s existing and future subordinated indebtedness. The New Notes
and the related guarantee are effectively subordinated to the Issuers’ and the
Guarantor’s existing and future secured indebtedness to the extent of the
collateral securing such indebtedness. The New Notes and the related guarantee
are also effectively subordinated to all indebtedness and other liabilities of
the Issuers’ subsidiaries other than the Guarantor.
In
connection with the sale of the New Notes, the Issuers and the Guarantor entered
into a Registration Rights Agreement, dated January 15, 2010 (the “Registration
Rights Agreement”), with the Initial Purchaser. Pursuant to the Registration
Rights Agreement, the Issuers have agreed to file a registration statement with
the SEC, on or prior to 120 calendar days after the closing of the offering of
the New Notes, to register an offer to exchange the New Notes for registered
notes guaranteed by the Guarantor with substantially identical terms, and to use
commercially reasonable efforts to cause the registration statement to become
effective by the 210th day after the closing of the offering of the Notes.
Additionally, the Issuers and the Guarantor may be required to file a shelf
registration statement to cover resales of the New Notes in certain
circumstances. If the Issuers and the Guarantor fail to satisfy these
obligations, the Issuers may be required to pay additional interest to holders
of the New Notes under certain circumstances.
Termination
of Indenture Governing Senior Unsecured 8.125% Notes due 2012
Effective
January 15, 2010, the 2012 Notes Indenture, among the Issuers, the Guarantor and
Wilmington Trust Company, as trustee, was satisfied and discharged in accordance
with its terms by the Issuers. The Issuers deposited a total of approximately
$364 million with Wilmington Trust Company as trustee under the 2012 Notes
Indenture and depositary for a cash tender offer to repay all amounts
outstanding under the 2012 Notes and to satisfy and discharge the 2012 Notes
Indenture. Approximately $345 million was deposited with the depositary to
purchase the 2012 Notes that were tendered pursuant to the cash tender offer. In
connection with the purchase of the tendered 2012 Notes, the Issuers paid total
consideration of approximately $355 million, which consisted of: (i) $345
million of base consideration for the aggregate principal amount tendered; (ii)
$3 million of accrued and unpaid interest on the tendered 2012 Notes; and (iii)
$7 million of consent payments in connection with the solicitation of consents
from holders of 2012 Notes to eliminate the incurrence of indebtedness and
issuance of preferred stock covenant in the 2012 Notes Indenture. The Issuers
also deposited approximately $8 million with the trustee in connection with the
redemption of the remaining 2012 Notes.
Termination
of Indenture Governing Senior Unsecured 7.125% Notes due 2013
Effective
January 15, 2010, the 2013 Notes Indenture, among the Issuers, the Guarantor and
Wilmington Trust Company, as trustee, has been satisfied and discharged in
accordance with its terms by the Issuers. The Issuers deposited a total of
approximately $1,018 million with Wilmington Trust Company as trustee under the
2013 Notes Indenture and depositary for cash tender offer to repay all accounts
outstanding under the 2013 Notes and to satisfy and discharge the 2013 Notes
Indenture. Approximately $939 million was deposited with the depositary to
purchase the 2013 Notes that were tendered pursuant to the cash tender offer. In
connection with the purchase of the tendered 2013 Notes, the Issuers paid total
consideration of approximately $988 million, which consisted of: (i) $939
million of base consideration for the aggregate principal amount tendered; (ii)
$28 million of accrued and unpaid interest on the tendered 2013 Notes; and (iii)
$21 million of consent payments in connection with the solicitation of consents
from holders of 2013 Notes to eliminate the incurrence of indebtedness and
issuance of preferred stock covenant in the 2013 Notes Indenture. The Issuers
also deposited approximately $29 million with the trustee in connection with the
redemption of the remaining 2013 Notes.
5