Icahn Enterprises L.P.: Form 10-Q for the period ended Jun 30, 2011

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 this Quarterly Report on Form 10-Q, or Report, along with our Annual Report on Form 10-K for the fiscal year ended December 31, 2010, or our 2010 Form 10-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 June 30, 2011, affiliates of Mr. Icahn owned 78,238,262 of our depositary units which represented approximately 92.6% of our outstanding depositary units.

We are a diversified holding company owning subsidiaries engaged in the following operating businesses: Investment Management, Automotive, Gaming, Railcar, Food Packaging, Metals, Real Estate and Home Fashion. In addition to our operating businesses, we discuss 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.

Significant Events

Senior Notes - Investment Management

During the first quarter of the fiscal year ending December 31, 2011, or fiscal 2011, the Investment Funds (as defined herein) formed a special purpose investment vehicle, or the SPV, an exempted company incorporated with limited liability under the laws of the Cayman Islands, for the purpose of effecting certain transactions described herein. On March 10, 2011, the SPV issued at par an aggregate principal amount of $595 million of senior notes, or the SPV Notes. The SPV was formed for the sole purpose of issuing the SPV Notes, acquiring certain Collateral Assets, as defined in the SPV Indenture (as defined below), and engaging in certain related transactions, including certain swap transactions as described below. The SPV will not have any substantial assets other than Collateral Assets. The SPV Notes were sold in a private placement pursuant to Rule 144A of the Securities Act, and issued pursuant to an indenture dated as of March 10, 2011, or the SPV Indenture, by and between the SPV, as issuer, and U.S. Bank National Association, as trustee.

We control the SPV through our interests in the Investment Funds and, accordingly, we consolidated the results and financial position of the SPV.

The SPV Notes accrue interest in arrears at LIBOR plus 0.60%. Interest on the SPV Notes will be paid on the 10th of March, June, September and December of each year subject to priority of payments pursuant to the SPV Indenture. The initial maturity date of the SPV Notes is September 10, 2011, which date could have been extended in three-month-increments provided that the SPV obtained consent from holders of the SPV Notes. If such extensions had been granted, the maximum date through which the SPV Notes could have been extended would have been March 10, 2014, the final note maturity date. Subject to the satisfaction of certain redemption conditions as set forth in the SPV Indenture, the SPV may, in its discretion, cause a redemption of the SPV Notes. The SPV may redeem all or a portion of the SPV Notes in an amount equal to the sum of (a) the aggregate outstanding amount of the SPV Notes being redeemed, (b) accrued and unpaid interest thereon and (c) if applicable, a make-whole payment. During the three months ended June 30, 2011, the Investment Funds redeemed $203 million of the SPV Notes. We determined not to extend the SPV Notes beyond the initial maturity date of September 10, 2011 and, accordingly, outstanding principal amounts, including related accrued interest, in respect of the SPV Notes will be redeemed in full by September 10, 2011.

The net proceeds from the sale of the SPV Notes were used to purchase Collateral Assets, which principally consisted of leverage loans and participations or other interests therein. The SPV Notes are secured by and payable solely from Collateral Assets pursuant to the SPV Indenture. Payment priorities with respect to the Collateral Assets will be determined in accordance with the priority of payments pursuant to the SPV Indenture. To the extent that these amounts are insufficient to meet payments due in respect of the SPV Notes and fees and expenses following realization of all of the Collateral Assets, the obligation of the SPV to pay such deficiency with respect to the SPV Notes will be extinguished.

The SPV entered into swap transactions with a global financial services institution, or the Swap Counterparty, whose market capitalization exceeds $45 billion, that reference a portfolio of loans that are expected (but not required) to match the Collateral Assets of the SPV. Pursuant to the swap transactions, the Swap Counterparty will pay to the SPV the amount by which the total payments made on, or the sale price of, loans in the reference portfolio are less than the amount of the interest and principal due on the SPV Notes and amounts senior to the SPV Notes in right of payment. Pursuant to certain offsetting swap agreements, the equity holders of the SPV may be required to pay to the Swap Counterparty the amounts by which the total payments made on, or the sale price of, loans in the reference portfolio are less than the amount of the interest and principal due on the SPV Notes and amounts senior to the SPV Notes in right of payment.

Distributions-In-Kind

On April 29, 2011, the Investment Funds made a distribution-in-kind of 13,538,446 shares of Tropicana common stock with a value of $216 million to us in redemption of $216 million of our limited and general partner interests in the Investment Funds. The distribution transferred the ownership of the Tropicana common stock held by the Investment Funds to us. As a result of this transaction, we directly own 51.5% of Tropicana's outstanding common stock. This distribution increased equity attributable to Icahn Enterprises by $27 million and decreased equity attributable to non-controlling interests by $27 million, representing the basis difference between the redemption value determined as of April 29, 2011 and the application of purchase accounting to the controlling interest in Tropicana pursuant to ASC Topic 805, Business Combination on November 15, 2010.

In addition, on June 30, 2011, the Investment Funds made a distribution-in-kind of the loans under the Exit Facility with a value of approximately $71 million to us in redemption of approximately $71 million of our limited and general partner interests in the Investment Funds. The distribution transferred the ownership of the loans under the Exit Facility held by the Investment Funds directly to us. As a result of this transaction, we currently directly own over 50% of the loans under the Exit Facility.

Results of Operations

Consolidated Financial Results

The following table summarizes total revenues, net income (loss) and net income (loss) attributable to Icahn Enterprises for each of our reportable segments and our Holding Company:

(in millions)

53

(in millions)

(1) Revenues include net sales, other revenues from operations, interest and dividend income, and other income (loss), net.

(2) We consolidated the results of our Gaming segment effective as of November 15, 2010.

(3) Eliminations relate to the unrealized gains recorded by our Investment Management segment for its investment in Tropicana for the three and six months ended June 30, 2011.

Please refer to Note 2, “Operating Units,” to the consolidated financial statements contained in this Report for a description of each of our reportable segments.

Discussion of Financial Results

Incentive Allocations and Special Profits Interest Allocations

Historically, our Investment Management segment's revenues were affected by the combination of fee-paying assets under management, or AUM, and the investment performance of the Private Funds. The General Partners' incentive allocations and special profits interest allocations earned from the Investment Funds were accrued on a quarterly basis and were allocated to the General Partners at the end of the Investment Funds' fiscal year (or sooner on redemptions) assuming there were sufficient net profits to cover such amounts. As more fully disclosed in a letter to investors in the Private Funds filed with the SEC on Form 8-K on March 7, 2011, the Private Funds returned all fee-paying capital to its investors during fiscal 2011. Payments were funded through cash on hand and borrowings under existing credit lines. As a result, no further incentive allocations or special profits interest allocations will accrue for periods subsequent to March 31, 2011.

The General Partners waived the special profits interest allocations and incentive allocations for our interests in the Investment Funds and Mr. Icahn's direct and indirect holdings. On April 1, 2011, affiliates of Mr. Icahn made aggregate contributions of $250 million in the Investment Funds.

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.

We consolidate certain entities of the Private Funds. Accordingly, in accordance with U.S. GAAP, any special profits interest allocations, incentive allocations and earnings on investments in the Investment 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.

As a result of the return of fee-paying capital as described above, a special profits interest allocation of $9 million was allocated to the General Partners at March 31, 2011. No further special profits interest allocation accrued in periods subsequent to March 31, 2011. No special profits interest allocation accrual was made for the three and six months ended June 30, 2010.

As a result of the return of fee-paying capital as described above, an incentive allocation of $7 million was allocated to the General Partners at March 31, 2011. No further incentive allocation will accrue in periods subsequent to March 31, 2011. Incentive allocations for the three and six months ended June 30, 2010 were not material as a result of "high watermarks" that were established for fee-paying investors during fiscal 2008.

Our Interests in the Investment Funds

Our share of the Investment Funds' net profits and losses through our interests in the Investment Funds, excluding incentive allocations and special profits interest allocations earned for the three and six months June 30, 2011, was $289 million and $533 million for the three and six months ended June 30, 2011, respectively, and losses of $71 million and $60 million for the three and six months ended June 30, 2010, respectively.

As of June 30, 2011, we had investments with a fair market value of $2.9 billion in the Investment Funds.

Net Sales, Cost of Goods Sold and Gross Margin

(in millions)

(in millions)

55

Other Revenues From Operations and Other Expenses From Operations

(in millions)

(in millions)

(1) We consolidate the results of our Gaming segment effective as of November 15, 2010.

Automotive

Federal-Mogul's Annual Report on Form 10-K for fiscal 2010 filed with the SEC on February 23, 2011 contains a detailed description of its business, products, industry, operating strategy and associated risks. Federal-Mogul's most recent Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011 was filed with the SEC on July 28, 2011.

During the six months ended June 30, 2011, Federal-Mogul derived 66% of its net sales from the original equipment manufacturer and servicers, or OE, market and 34% from the aftermarket. Federal-Mogul's customers include the world's largest automotive OEs and major distributors and retailers in the independent aftermarket. During the six months ended June 30, 2011 Federal-Mogul derived 36% of its sales in the United States and 64% internationally. Federal-Mogul has operations in established markets including Canada, France, Germany, Italy, Japan, Spain, Sweden, the United Kingdom and the United States, and emerging markets including Argentina, Brazil, China, Czech Republic, Hungary, India, Korea, Mexico, Poland, Russia, South Africa, Thailand, Turkey and Venezuela. The attendant risks of Federal-Mogul's international operations are primarily related to currency fluctuations, changes in local economic and political conditions, and changes in laws and regulations.

Federal-Mogul operates one manufacturing facility and one technical center in Japan. Federal-Mogul did not experience any loss of property or other assets nor were any of its employees injured as a result of the natural disasters in Japan during the three and six months ended June 30, 2011. Federal-Mogul does not anticipate any significant impacts to its consolidated financial position, results of operations or cash flows, either direct or indirect, as a result of this crisis, and will continue to carefully monitor the situation over the coming months.

Federal-Mogul operates in an extremely competitive industry, driven by global vehicle production volumes and part replacement trends. Business is typically awarded to the supplier offering the most favorable combination of cost, quality, technology and service. Customers continue to require periodic cost reductions that require Federal-Mogul to continually assess, redefine and improve its operations, products, and manufacturing capabilities to maintain and improve profitability. Management continues to develop and execute initiatives to meet the challenges of the industry and to achieve its strategy for sustainable global profitable growth.

Net sales increased by $202 million (13%) and $437 million (14%) for the three and six months ended June 30, 2011 as compared to the three and six months ended June 30, 2010, respectively. The impact of the U.S. dollar weakening, primarily against the euro, increased reported sales by $98 million and $106 million for the three and six months ended June 30, 2011 as compared to the three and six months ended June 30, 2010, respectively.

In general, light and commercial vehicle OE production increased in most regions and, when combined with market share gains in all regions across all three manufacturing business units, resulted in increased OE sales of $129 million and $301 million for the three and six months ended June 30, 2011 as compared to the three and six months ended June 30, 2010, respectively. Aftermarket sales decreased by $42 million and $15 million for the three and six months ended June 30, 2011, respectively, as compared to the three and six months ended June 30, 2010 due to sales decreases in North America, partially offset by sales increases in all other regions. The acquisition of the Daros Group increased sales volume by $8 million and $16 million for the three and six months ended June 30, 2011, respectively, as compared to the three and six months ended June 30, 2010. Net changes in customer pricing increased sales by $9 million and decreased sales by $2 million for the three and six months ended June 30, 2011 as compared to the three and six months ended June 30, 2010, respectively.

Cost of goods sold increased by $177 million (13%) and $387 million (15%) for the three and six months ended June 30, 2011, respectively, as compared to the three and six months ended June 30, 2010. The impact of the relative weakness of the U.S. dollar increased cost of products sold by $89 million and $100 million for the three and six months ended June 30, 2011, respectively, as compared to the three and six months ended June 30, 2010. Manufacturing, labor and variable overhead costs increased by $95 million and $289 million as a direct consequence of the higher production volumes, inclusive of $6 million and $12 million of such costs associated with the Daros Group for the three and six months ended June 30, 2011, respectively, as compared to the three and six months of fiscal 2010. Additional increases were unfavorable productivity, net of labor and benefits inflation, of $4 million and $15 million and increased materials and services sourcing costs of $2 million and $10 million for the three and six months ended June 30, 2011, respectively, as compared to the three and six months ended June 30, 2010. These increases were partially offset by decreased depreciation of $13 million and $26 million for the three and six months ended June 30, 2011, respectively, as compared to the three and six months ended June 30, 2010.

Gross margin increased by $25 million to $299 million, or 17% of net sales, for the three months ended June 30, 2011 compared to $274 million, or 17% of net sales, for the three months ended June 30, 2010. This increase was due to decreased depreciation of $13 million, customer price increases of $9 million, currency movements of $9 million and $2 million directly related to the acquisition of the Daros Group, partially offset by unfavorable productivity, net of benefits and labor inflation, of $4 million, increased materials and services sourcing costs of $2 million and unfavorable sales mix of $2 million for the three months ended June 30, 2011 as compared to the three months ended June 30, 2010. Gross margin increased by $50 million to $578 million, or 16% of net sales, for the six months ended June 30, 2011 compared to $528 million, or 17% of net sales, for the six months ended June 30, 2010. This increase was due to sales volume increases which increased gross margin by $39 million, decreased depreciation of $26 million, currency movements of $6 million, $4 million directly related to the acquisition of the Daros Group and decreased pension expense of $1 million, partially offset by unfavorable productivity, net of benefits and labor inflation, of $15 million, increased materials and services sourcing costs of $10 million and customer price decreases of $1 million for the six months ended June 30, 2011 as compared to the six months ended June 30, 2010.

Gaming

Tropicana's Annual Report on Form 10-K for fiscal 2010 filed with the SEC on March 14, 2011 contains a detailed description of its business, products, industry, operating strategy and associated risks. Tropicana's filings with the SEC are available on the SEC's website at www.sec.gov (http://www.sec.gov).

As a result of our acquisition of additional shares of Tropicana common stock on November 15, 2010, we are required to consolidate the results of Tropicana as of such date. Tropicana contributed $145 million and $302 million to other revenues from operations for the three and six months ended June 30, 2011 for which no such revenue was present in the comparable prior year period.

Revenues are one of Tropicana's main performance indicators with more than 85% of net revenues generated from casino operations. Casino revenues represent the difference between wins and losses from gaming activities such as slot machines and table games. Key volume indicators include table game volumes and slot volumes, which refer to amounts wagered by Tropicana's customers. Win or hold percentage represents the percentage of the amounts wagered that is won by the casino, which is not fully controllable by Tropicana, and recorded as casino revenue. Most of Tropicana's revenues are cash-based, through customers wagering with cash or chips or paying for non-gaming services with cash or credit cards, and therefore are not subject to any significant or complex estimation. As a result, fluctuations in net revenues have a direct impact on cash flows from operating activities. Other performance indicators include hotel occupancy, which is a volume indicator for hotels, and the average daily rate, which is a price indicator for the amount customers paid for hotel rooms.

Other revenues from operations and other expenses from operations for our Gaming segment for the three and six months ended June 30, 2011 is summarized as follows:

(in millions)

Casino revenues were $127 million and $270 million for the three and six months ended June 30, 2011, respectively. Casino revenues are comprised primarily of slot machine and table game revenues. Slot machine revenue was $107 million and $215 million and table game revenue was $18 million and $50 million for the three and six months end June 30, 2011, respectively. Slot machine hold percentages were 9.0% and 8.9% and table games hold percentages were 9.7% and 13.5%, respectively, for the three and six months ended June 30, 2011.

Room, food and beverage revenues were $50 million and $97 million for the three and six months ended June 30, 2011, respectively. Hotel room occupancy percentage for the three and six months ended June 30, 2011 was 67% and 68%, respectively. Average daily room rates were $74 and $71 for the three and six months ended June 30, 2011, respectively. Rooms, food and beverages are offered to high-value guests on a complimentary basis. The retail value of rooms, food and beverage provided to guests on a complimentary basis is included in gross revenues and then deducted as promotional allowances to arrive at net revenues.

Weak economic conditions continue to adversely impact the gaming industry and Tropicana. We believe Tropicana's guests have reduced their discretionary spending as a result of uncertainty and instability relating to the employment and housing markets. We cannot predict whether, or how long, current market conditions will continue to persist. In addition, Tropicana AC's revenues have been negatively impacted by the introduction of table games in Pennsylvania in mid 2010 as well as increased marketing and promotional activity from competitors within the Atlantic City market. The Atlantic City market experienced year-over-year declines in casino revenue of 6.7% and 7.0% for the three and six months ended June 30, 2011.

Tropicana's financial results are highly dependent upon the number of customers that it attracts to its facilities and the amounts those customers spend per visit. Additionally, Tropicana's operating results may be affected by, among other things, overall economic conditions affecting the discretionary income of its customers, competitive factors, gaming tax increases and other regulatory changes, the opening of new gaming operations, the negative impact of certain predecessors' bankruptcy filings had on its facilities, Tropicana's ability to reinvest in its properties, potential future exposure for liabilities of its certain predecessors that it assumed, its limited operating history and general public sentiment regarding travel and gaming. Historically, Tropicana's operating results are the strongest in the third quarter and the weakest in the fourth quarter. In addition, weather and long-weekend holidays affect its operating results.

Railcar

ARI's Annual Report on Form 10-K for fiscal 2010 filed with the SEC on March 1, 2011 contains a detailed description of its business, products, industry, operating strategy and associated risks. ARI's most recent Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011 was filed with the SEC on August 2, 2011.

The North American railcar market has been, and ARI expects it to continue to be, highly cyclical. The recent economic downturn had a negative effect on the railcar manufacturing market in which ARI competes, resulting in increased competition and significant pricing pressures in the past couple of years.

ARI has seen improvement in the railcar manufacturing market with an increase in its backlog from approximately 1,050 railcars at December 31, 2010 to approximately 5,290 railcars at June 30, 2011, including 640 railcars that ARI will lease. Subsequent to June 30, 2011, ARI has received additional orders for over 2,200 railcars, including 435 railcars for lease. In response to increased customer demand, ARI has and intends to continue to increase production rates at its railcar manufacturing facilities. ARI defines backlog as the number of railcars that its customers have committed in writing to purchase or lease that have not been shipped.

Additionally, railcar loadings have continued to increase and the number of railcars in storage has continued to decrease, as reported by an independent third party industry analyst. ARI believes that these improvements, which may or may not continue, indicate that the railcar market has begun to and may continue to improve. During the first half of fiscal 2011, ARI's railcar shipments and manufacturing revenues increased compared to the corresponding prior year period and the gross margin from both manufacturing and railcar services operations also improved. Based in part on these factors, ARI currently expects its railcar shipments to increase in fiscal 2011 as compared to fiscal 2010. ARI cannot assure you that the railcar market will continue to improve or that its railcar orders and shipments will increase.

A portion of ARI's manufacturing and services revenue are derived from companies affiliated with Mr. Icahn. Such revenues from companies affiliated with Mr. Icahn accounted for approximately 6% and 7% of total manufacturing and service revenues for the three and six months ended June 30, 2011, respectively. Total revenues from companies affiliated with Mr. Icahn accounted for approximately 60% and 46% of total manufacturing and service revenues for the three and six months ended June 30, 2010, respectively. See Note 3, "Related Party Transactions-Railcar," to our consolidated financial statements for further discussion.

Total railcar manufacturing revenues for the three and six months ended June 30, 2011 increased by $51 million (119%) and $84 million (106%) as compared to the three and six months ended June 30, 2010, respectively. (Manufacturing revenues are included in net sales in our consolidated statements of operations.) The primary reason for the increase in revenues from manufacturing operations was an increase in railcar shipments. Railcar shipments for the three months ended June 30, 2011 were approximately 1,040 railcars as compared to approximately 370 railcars for the three months ended June 30, 2010. Railcar shipments for the six months ended June 30, 2011 were approximately 1,720 railcars as compared to approximately 710 railcars for the six months ended June 30, 2010.

Gross margin from manufacturing operations for the three and six months ended June 30, 2011 was $8 million and $10 million, respectively, as compared to a loss of $2 million and $3 million for the three and six months ended June 30, 2010, respectively. The improvement over the respective periods was primarily due to an increase in railcar shipments, improved pricing and efficiencies created by larger volumes. Gross margin for manufacturing operations as a percentage of manufacturing operations revenues was 9% for the three months ended June 30, 2011 as compared to loss of 5% for the three months ended June 30, 2010. Gross margin for manufacturing operations as a percentage of manufacturing operations revenues was 6% for the six months ended June 30, 2011 as compared to a loss of 4% for the six months ended June 30, 2010.

Gross margin for railcar services operations for each of the three months ended June 30, 2011 and 2010 was $5 million. Gross margin for railcar services operations for the six months ended June 30, 2011 and 2010 was $8 million and $7 million, respectively. Gross margin for railcar services operations as a percentage of railcar services operations revenues was 28% for the three months ended June 30, 2011 as compared to 26% for the three months ended June 30, 2010. Gross margin for railcar services operations as a percentage of railcar services operations revenues was 24% for the six months ended June 30, 2011 as compared to 20% for the six months ended June 30, 2010. The improvement over the respective periods is primarily attributable to an increase in volumes and efficiencies at railcar repair facilities and a decrease in repair projects performed at railcar manufacturing facilities.

Food Packaging

Viskase currently operates seven manufacturing facilities and nine distribution centers throughout North America, Europe and South America and derives approximately 70% of total net sales from customers located outside the United States. Viskase is starting to build a shirring plant in the Philippines to serve the Asian market. The plant is expected to open in the first quarter of the fiscal year ended December 31, 2012 and will be scaled up over several years as demand in the Asian market continues to grow. The first year capital investment, including machinery, will be approximately $14 million and it is anticipated that an additional $11 million of equipment will be added over the subsequent five years.

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 Viskase's 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 Viskase's profitability.

Net sales for each of the three and six months ended June 30, 2011 increased by $8 million (10% and 5%, respectively) compared to the corresponding prior year periods. The increases for the three and six months ended June 30, 2011 as compared to the three and six months ended June 30, 2010 were primarily due to an increase in sales volume of $7 million and $9 million, foreign currency translation of $4 million and $3 million, offset by a decrease of $3 million and $4 million due to product mix, respectively. Cost of sales for the three and six months ended June 30, 2011 increased by $8 million (14%) and $9 million (8%), respectively, for the three and six months ended June 30, 2011 as compared to the three and six months ended June 30, 2010. The increases were primarily due to growth in sales volume, higher raw material costs, rising energy prices and foreign currency translation, partially offset by improved manufacturing efficiencies. Gross margin as a percent of net sales was 26% and 28% for the three months ended June 30, 2011 and 2010, respectively, and 25% and 27% for the six months ended June 30, 2011 and 2010, respectively.

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. While the economic climate improved in the first half of fiscal 2011 relative to fiscal 2010 and fiscal 2009, we cannot predict whether, or how long, current market conditions will continue to persist.

On January 5, 2011, PSC Metals acquired substantially all the assets and certain liabilities of Cash's Scrap Metal and Iron Corp., or CSMI, for $32 million. CSMI is a scrap recycler and operates in five different locations in Missouri. On May 2, 2011, PSC Metals acquired substantially all the assets of Wedel Iron and Metal, LLC, or Wedel, for $3 million. Wedel is a scrap metals recycler operating in Crossville, Tennessee.

On July 30, 2011, PSC Metals executed an asset purchase agreement to acquire substantially all of the assets of Shapiro Brothers, Inc., or Shapiro, for a total purchase price of approximately $22 million, with closing expected to occur in the third quarter of fiscal 2011. Shapiro operates four scrap yards located in Missouri, Arkansas and Illinois. Shapiro buys, sells and processes ferrous and non-ferrous scrap, including industrial and obsolete grades of scrap. This acquisition is complimentary to PSC Metal's acquisition of CSMI in the first quarter of fiscal 2011 and strengthens PSC Metals' presence in its mid-west region of the United States.

Summarized ferrous tons and non-ferrous pounds sold for the three and six months ended June 30, 2011 and 2010 are as follows:

Net sales for the three and six months ended June 30, 2011 increased by $81 million (39%) and $186 million (49%), respectively, as compared to the three and six months ended June 30, 2010. The increases were primarily due to increases in ferrous revenues attributed to higher prices and stronger volumes driven by continued improvement in steel mill operating rates. Acquisitions made since June 2010 also contributed to shipment volume and revenue growth. Increased ferrous demand and higher market pricing resulted in ferrous average pricing of approximately $63 per gross ton higher (17%) and ferrous shipments of 57,000 gross tons higher (16%) in the three months ended June 30, 2011 as compared to the three months ended June 30, 2010. Increased ferrous demand and higher market pricing resulted in ferrous average pricing of approximately $78 per gross ton higher (22%) and ferrous shipments of 137,000 gross tons higher (20%) for the six months ended June 30, 2011 as compared to the six months ended June 30, 2010. Increased non-ferrous demand and higher market pricing resulted in non-ferrous average price of $0.20 per pound higher (21%) and non-ferrous shipments of 13,732,000 pounds higher (45%) for the three months ended June 30, 2011 as compared to the three months ended June 30, 2010. Increased non-ferrous demand and higher market pricing resulted in non-ferrous average price of $0.22 per pound higher (23%) and non-ferrous shipments of 26,466,000 pounds higher (46%)for the six months ended June 30, 2011 as compared to the six months ended June 30, 2010. Revenues from substantially all product lines increased for the six months ended June 30, 2011 as compared to the six months ended June 30, 2010 and were primarily attributable to increased volumes and higher average selling prices.

Cost of sales for the three and six months ended June 30, 2011 increased by $80 million (40%) and $176 million (48%), respectively, as compared to the three and six months ended June 30, 2010. The increases were primarily due to higher sales volume and material purchase prices as compared to the corresponding prior year period. Contributing to the higher cost of sales were newly opened and acquired recycling yards and the start-up of a new shredder in addition to increased processing volumes at existing facilities. Material prices increased due to higher market prices and continued constraints on material flows. Gross margin for the three months ended June 30, 2011 increased by $1 million (11%) compared to the three months ended June 30, 2010. Gross margin for the six months ended June 30, 2011 increased by $10 million (56%) compared to the six months ended June 30, 2010. Gross margin as a percentage of net sales was 3% for the three months ended June 30, 2011 compared to 4% for the three months ended June 30, 2010. Gross margin as a percentage of net sales was 5% for each of the six months ended June 30, 2011 and 2010.

Real Estate

Included in net sales in our consolidated statements of operations for our Real Estate segment is revenue from resort operations and the sale of residential units in our property development operations. For the three months ended June 30, 2011, net sales increased $1 million compared to the three months ended June 30, 2010 primarily due to an increase in revenues from the sale of residential units. We sold four residential units for approximately $5 million during the three months ended June 30, 2011 as compared to seven residential units for $4 million for the three months ended June 30, 2010. Net sales remained flat for the six months ended June 30, 2011 as compared to the six months ended June 30, 2010.

WPI's business is significantly influenced by the overall economic environment, including consumer spending, at the retail level, for home textile products. Many of the larger retailers are customers of WPI. WPI has been negatively impacted by higher raw material and transportation costs as well as by continued weakness in the housing market. At the end of fiscal 2010, WPI announced price increases to be implemented during the first quarter of fiscal 2011 to offset the increased raw material and transportation costs. In early fiscal 2011, WPI announced additional price increases to be implemented during the second quarter of fiscal 2011. 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. While current economic indicators project continued volatility with commodity and fuel costs, we cannot predict whether, or how long, current market conditions will continue to persist.

Net sales for the three and six months ended June 30, 2011 decreased by $25 million (23%) and $10 million (5%), respectively, as compared to the three and six months ended June 30, 2010. Cost of sales for the three and six months ended June 30, 2011 decreased by $20 million (21%) and $7 million (4%), respectively, as compared to the three and six months ended June 30, 2010. Gross margin for the three and six months ended June 30, 2011 decreased by $5 million (42%) and $3 million (17%), respectively, as compared to the three and six months ended June 30, 2010. Gross margin as a percent of net sales was 9% and 8% for the three and six months ended June 30, 2011, respectively, and was 11% and 9% for the three and six months ended June 30, 2010, respectively. The decrease in net sales during the three and six months ended June 30, 2011 as compared to the three and six months ended June 30, 2010 primarily reflects the continued weak economy and housing market and the impact of exiting certain unprofitable programs, partially offset by price increases as discussed above. The decrease in cost of goods sold for the three and six months ended June 30, 2011 as compared to the three and six months ended June 30, 2010 is primarily due to lower sales volume, offset in part by higher raw material costs.

Net Gain (Loss) From Investment Activities

(in millions)

61

Investment Management

The following table sets forth performance information for the Investment Funds 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.

The Investment Funds' aggregate gross return was 10.2% and 20.8% for the three and six months ended June 30, 2011, respectively. During the three and six months ended June 30, 2011, gains were primarily due to the Investment Funds' long exposure to the equity markets which were primarily driven by certain core holdings.

The Investment Funds' aggregate gross return was -3.1% and -2.4% for the three and six months ended June 30, 2010, respectively. During the three and six months ended June 30, 2010, losses were primarily due to the Investments Funds' long exposure to certain core equity positions. The Investment Funds' long and short exposure to credit markets, including fixed income, bank debt and derivative instruments, produced gains for the first six months of fiscal 2010. The Investment Funds continued to be generally defensively positioned and short exposure was a positive contributor to performance in the second quarter of fiscal 2010 but contributed to losses over the first six months of fiscal 2010.

Since inception in November 2004, the Investment Funds' gross return is 129.9%, representing an annualized rate of return of 13.3% through June 30, 2011.

Net realized and unrealized gains of the Investment Funds on investment activities were $575 million and $1,191 million for the three and six months ended June 30, 2011, respectively. This compares with a net realized and unrealized loss of $243 million and $253 million for the three and six months ended June 30, 2010, respectively. The improvement over the respective periods was primarily due to the positive performance in the Investment Funds during fiscal 2011.

Interest and Dividend Income

Interest and dividend income decreased by $26 million (48%) and $59 million (48%) for the three and six months ended June 30, 2011 and 2010, respectively. The decreases over the respective periods were primarily due to decreases in interest income resulting from a reduction in fixed-income investments from our Investment Management segment.

Selling, General and Administrative

(in millions)

Investment Management

SG&A for the three and six months ended June 30, 2011 increased by $16 million (133%) and $33 million (97%), respectively, as compared to the three and six months ended June 30, 2010. This increase over the respective periods was primarily attributable to an increase in dividends expense due to securities sold, not yet purchased and an increase in compensation expense associated with profit-sharing that references a portfolio of securities that are funded by the Investment Funds.

Automotive

SG&A for the three and six months ended June 30, 2011 increased by $8 million (5%) and $1 million, respectively, as compared to the three and six months ended June 30, 2010. The increase for the three months ended June 30, 2011 of $8 million was due to currency movements of $9 million, partially offset by lower pension and other post-employment benefits expense of $3 million, materials and services sourcing savings of $1 million, reduced depreciation expense of $1 million and $4 million of other post-employment benefit curtailment gain as discussed below. The increase for the six months ended June 30, 2011 as compared to the six months ended June 30, 2010 of $1 million was due to lower pension and other post-employment benefits expense of $7 million, lower stock-based compensation expense of $6 million, materials and services sourcing savings of $2 million, reduced depreciation expense of $2 million and other reductions of $5 million, $4 million of other post-employment benefit curtailment gain as discussed below, partially offset by unfavorable overhead costs of $10 million and currency movements of $9 million.

Included in SG&A for each of the three and six months ended June 30, 2010 was $4 million of other post-employment benefit curtailment gain which did not recur during the three and six months ended June 30, 2011.

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 were research and development, or R&D, costs, including product and validation costs, of $43 million and $38 million for the three months ended June 30, 2011 and 2010, respectively, $87 million and $77 million for the six months ended June 30, 2011 and 2010, respectively. As a percentage of OE sales, R&D was 4% for each of the three and six months ended June 30, 2011 and 2010.

Gaming

As a result of our acquisition of additional shares of Tropicana common stock on November 15, 2010, we are required to consolidate the results of Tropicana as of such date. Tropicana recognized $65 million and $138 million of SG&A during the three and six months ended June 30, 2011 for which no such SG&A was present in the comparable prior year period. SG&A for our Gaming segment is summarized as follows:

(in millions)

Tropicana continues to monitor and reduce its SG&A expenses to maintain profitability in response to declining revenues due to the current weak economic conditions.

Railcar

SG&A for the three months ended June 30, 2011 decreased by $1 million (17%) as compared to the three months ended June 30, 2010 and was primarily due to a decrease in stock-based compensation expense. SG&A for the six months ended June 30, 2011 was flat as compared to the six months ended June 30, 2010.

Food Packaging

SG&A for the three and six months ended June 30, 2011 remained flat as compared to the three and six months ended June 30, 2010.

SG&A for the three and six months ended June 30, 2011 increased by $2 million (40%) and $3 million (30%), respectively, as compared to the three and six months ended June 30, 2010. The increase was primarily due to an increase in compensation-related costs and business development activities.

Real Estate

SG&A for the three months ended June 30, 2011 decreased by $1 million (9%) as compared to the three months ended June 30, 2010. SG&A for the six months ended June 30, 2011 decreased by $3 million (14%) as compared to the six months ended June 30, 2010. The decreases were primarily due to lower operating expenses associated with our Fontainebleau property during the six months ended June 30, 2011 as compared to the six months ended June 30, 2010.

Home Fashion

SG&A decreased by $4 million (21%) and $5 million (14%) for the three and six months ended June 30, 2011, respectively, as compared to the three and six months ended June 30, 2010, primarily due to lower selling expenses and fulfillment costs related to cost-cutting initiatives and decreased sales volume.

Impairment and Restructuring

(in millions)

(in millions)

Automotive

Federal-Mogul recorded $3 million of impairment charges for each of the three and six months ended June 30, 2011 and $4 million and $8 million for the three and six months ended June 30, 2010, respectively.

The $3 million in impairment charges for the three and six months ended June 30, 2011 include a $2 million impairment charge related to an asset retirement obligation for a facility that is closed. As the fair value of the facility did not support the capitalization of this asset retirement obligation, it was impaired. The remaining $1 million in impairment charges recorded during the second quarter of 2011 was comprised of immaterial fixed assets impairments at several facilities.

The impairment charges of $4 million and $8 million for the three and six months ended June 30, 2010, respectively, relate to certain equipment where the assessment of future undiscounted cash flows of such equipment, when compared to the current carrying value of the equipment, indicated the assets were not recoverable. Federal-Mogul determined the fair value of the assets by applying a probability weighted, expected present value technique to the estimated future cash flows using assumptions a market participant would utilize. The discount rate used is consistent with other long-lived asset fair value measurements.

Restructuring charges for the six months ended June 30, 2011 was $1 million. Federal-Mogul did not record any net restructuring charges for the three months ended June 30, 2011. Restructuring charges for the three and six months ended June 30, 2010 were $5 million and $6 million, respectively. Restructuring charges were related to facility closure costs and employee costs.

Restructuring and impairment for the three and six months ended June 30, 2011 decreased by $2 million (67%) and $3 million (50%) as compared to the three and six months ended June 30, 2010. 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. 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 and transition expenses.

WPI anticipates incurring approximately $2 million of additional restructuring costs in fiscal 2011, particularly with respect to the carrying costs of closed facilities until such time as these locations are sold. 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. 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.

Interest Expense

Interest expense for the three months ended June 30, 2011 increased by $18 million (19%) as compared to the three months ended June 30, 2010. The increase over the comparable period was primarily due to higher interest expense incurred on certain debt issued on November 12, 2010 and interest on the SPV Notes.

Interest expense for the six months ended June 30, 2011 increased by $32 million (17%) as compared to the six months ended June 30, 2010. The increase over the comparable period was primarily due to higher interest expense incurred on certain debt issued on November 12, 2010 and January 15, 2010 and interest on the SPV Notes.

Income Tax Expense

For the three months ended June 30, 2011, we recorded an income tax provision of $24 million on pre-tax income of $608 million compared to an income tax provision of $19 million on pre-tax loss of $203 million for the three months ended June 30, 2010. Our effective income tax rate was 4.0% and (9.4)% for the three months ended June 30, 2011 and 2010, respectively.

For the six months ended June 30, 2011, we recorded an income tax provision of $42 million on pre-tax income of $1,222 million compared to an income tax provision of $12 million on pre-tax loss of $260 million for the six months ended June 30, 2010. Our effective income tax rate was 3.4% and (4.6)% for the six months ended June 30, 2011 and 2010, respectively.

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.

Federal-Mogul believes that it is reasonably possible that its unrecognized tax benefits in multiple jurisdictions, which primarily relates to transfer pricing, corporate reorganization and various other matters, may decrease by approximately $321 million within the next 12 months due to audit settlements or statute expirations, of which approximately $46 million, if recognized, could impact the effective tax rate.

In conjunction with Federal-Mogul's ongoing review of its actual results and anticipated future earnings, Federal-Mogul reassesses the possibility of releasing valuation allowances. Based upon this assessment, Federal-Mogul has concluded that there is more than a remote possibility that existing valuation allowances in certain jurisdictions of up to $250 million as of June 30, 2011 could be released within the next 12 months. If releases of such valuation allowances occur, it may have a significant impact on net income in the quarter in which it is deemed appropriate to release the reserve.

Liquidity and Capital Resources

Holding Company

As of June 30, 2011, we had cash and cash equivalents of $929 million and total debt of approximately $3.1 billion. We have made investments in Investment Funds and the total value of these investments was approximately $2.9 billion as of June 30, 2011.

As of June 30, 2011 based on covenants in the indenture governing our senior notes, we may incur approximately $1.3 billion in additional indebtedness. See Note 10, “Debt,” to our consolidated financial statements for additional information concerning credit facilities for us and our subsidiaries.

We are a holding company. Our cash flow and our ability to meet our debt service obligations and make distributions with respect to depositary units 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 receipt 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 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.

Distributions on Depositary Units

On March 2, 2011, the Board of Directors approved a payment of a quarterly cash distribution of $0.25 per unit on our depositary units. The distribution was paid on March 30, 2011 to depositary unitholders of record at the close of business on March 15, 2011. 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, 2011, the board of directors declared a quarterly distribution of $0.50 per depositary unit, comprised of a combination of $0.10 payable in cash and $0.40 payable in depositary units. The distribution was paid on May 31, 2011 to depositary unitholders of record at the close of business on May 16, 2011. We calculated the depositary units to be distributed based on the 20-trading-day volume weighted average price of our depositary units ending on May 3, 2011, resulting in .009985 of a unit being distributed per depositary unit. To the extent that the aggregate units to be distributed to any holder would include a fraction of a unit, that fractional unit will be settled in cash. As a result, we distributed 843,295 depositary units on May 31, 2011 in connection with this distribution.

On August 8, 2011, the board of directors declared a quarterly cash distribution of $0.10 per unit on our depositary units. The distribution will be paid on September 1, 2011 to depositary unitholders of record at the close of business on August 19, 2011.

Borrowings

Debt consists of the following:

(in millions)

See Note 10, “Debt,” to our consolidated financial statements of this Report for additional information concerning terms, restrictions and covenants of our debt. As of June 30, 2011 we are in compliance with all debt covenants.

Contractual Commitments and Contingencies

As described elsewhere in this Report, on March 10, 2011, the SPV sold an aggregate principal amount of $595 million of SPV Notes. Pursuant to the SPV Indenture, the SPV Notes will accrue interest in arrears at LIBOR plus 0.60%. Interest on the SPV Notes will be paid the 10th of March, June, September and December of each year subject to certain terms. The initial maturity date of the SPV Notes is September 10, 2011, which date may have been extended in three-month increments provided that the SPV obtained consent from holders of the SPV Notes and, if such extensions had been granted, the maximum date through which the SPV Notes could have been extended would have been March 10, 2014, the final note maturity date. Subject to the satisfaction of certain redemption conditions as set forth in the SPV Indenture, the SPV may, in its discretion, cause a redemption of the SPV Notes. During the three months ended June 30, 2011, the Investment Funds redeemed $203 million of the SPV Notes. We determined not to extend the SPV Notes beyond the initial maturity date of September 10, 2011, and accordingly, outstanding principal amounts, including related accrued interest, in respect of the SPV Notes will be redeemed in full by September 10, 2011.

Except for the SPV Notes, there were no other material changes in our contractual obligations or any other liabilities reflected on our consolidated balance sheet during the six months ended June 30, 2011 as compared to those reported in our 2010 Form-10K.

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 6, “Financial Instruments,” to the consolidated financial statements contained in this Report.

Consolidated Cash Flows

The following table summarizes cash flow information for the three months ended June 30, 2011 and cash and cash equivalents as of June 30, 2011 for each of our operating segments and our Holding Company:

(in millions)

Operating Activities

Net cash provided by operating activities for the six months ended June 30, 2011 was primarily attributable to our Investment Management segment which had net cash provided from investing transactions of approximately $3.1 billion offset by a change in cash held at consolidated affiliated partnerships and restricted cash of approximately $1.7 billion. Our Automotive segment had net cash provided by operating activities of $90 million which included $234 million of net income before charges for non-cash items, offset in part by changes in operating assets and liabilities of $144 million.

Our Holding Company had net cash used in operating activities of $124 million primarily due to payment of interest expense during the six months ended June 30, 2011.

Investing Activities

Net cash used in investing activities for the six months ended June 30, 2011 was primarily attributable to capital expenditures of $218 million, which includes $177 million attributable to our Automotive segment. Additionally, our Metals segment had acquisitions of $35 million, net of cash acquired, during the six months ended June 30, 2011.

Financing Activities

Net cash used in financing activities during the six months ended June 30, 2011 was primarily attributable to our Investment Management segment which had net distributions to non-controlling interests of approximately $1.8 billion offset in part by net proceeds from its SPV Notes of $392 million. Our remaining segments had net repayments of debt of $41 million. Additionally, we paid an aggregate of $31 million in distributions during the six months ended June 30, 2011 to holders of our depositary units.

Discussion of Segment Liquidity and Capital Resources

The following contains certain information regarding our segment liquidity and capital resources:

Investment Management

The investment strategy utilized by the Investment Management segment is generally not heavily reliant on leverage. As of June 30, 2011, the ratio of the notional exposure of the Investment Funds' invested capital to net asset value of the Investment Funds was approximately 1.35 to 1.00 on the long side and 0.56 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 access to significant amounts of cash from prime brokers, subject to customary terms and market conditions.

As more fully disclosed in a letter to investors in the Private Funds filed with the SEC on Form 8-K on March 7, 2011, the Private Funds returned all fee-paying capital to its investors during fiscal 2011. Payments were funded through cash on hand and borrowings under existing credit lines.

Automotive

As of June 30, 2011 and December 31, 2010, the borrowing availability under the revolving credit facility was $540 million and $528 million, respectively. Federal-Mogul had $41 million and $43 million of letters of credit outstanding as of June 30, 2011 and December 31, 2010, pertaining to the term loan credit facility.

Federal-Mogul maintains investments in several non-consolidated affiliates, which are located in China, France, Germany, India, Italy, Korea, Turkey and the United States. Federal-Mogul's direct ownership in such affiliates ranges from approximately 2% to 50%. The aggregate investments in these affiliates were $243 million and $210 million at June 30, 2011 and December 31, 2010, respectively. Dividends received from non-consolidated affiliates by Federal-Mogul during the six months ended June 30, 2011 and 2010 were less than $1 million and $24 million, 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 June 30, 2011, the total amount of the contingent guarantee, were all triggering events to occur, approximated $65 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.

Federal-Mogul's subsidiaries in Brazil, France, Germany, Italy, Japan, Spain and the United States are party to accounts receivable factoring and securitization facilities. Gross accounts receivable transferred under these facilities were $336 million and $211 million as of June 30, 2011 and December 31, 2010, respectively. Of those gross amounts, $334 million and $210 million, respectively, qualify as sales as defined in FASB ASC Topic 860, Transfers and Servicing. The remaining transferred receivables were pledged as collateral and accounted for as secured borrowings and recorded in the consolidated balance sheets within “Accounts receivable, net” and “Debt.” Under the terms of these facilities, Federal-Mogul is not obligated to draw cash immediately upon the transfer of accounts receivable. Thus, as of each of June 30, 2011 and December 31, 2010, Federal-Mogul had outstanding transferred receivables for which cash of $1 million had not yet been drawn. Proceeds from the transfers of accounts receivable qualifying as sales were $923 million and $629 million for the six months ended June 30, 2011 and 2010, respectively.

For the six months ended June 30, 2011 and 2010, expenses associated with transfers of receivables of $5 million and $2 million, respectively, were recorded in the consolidated statements of operations within other income (loss), net. Where Federal-Mogul receives a fee to service and monitor these transferred receivables, such fees are sufficient to offset the costs and as such, a servicing asset or liability is not incurred as a result of such activities. Certain of the facilities contain terms that require Federal-Mogul to share in the credit risk of the sold receivables. The maximum exposures to Federal-Mogul associated with certain of these facilities' terms were $34 million and $32 million as of June 30, 2011 and December 31, 2010, respectively. Based on Federal-Mogul's analysis of the creditworthiness of its customers on which such receivables were sold and outstanding as of June 30, 2011 and December 31, 2010, Federal-Mogul estimated the loss to be immaterial.

On June 15, 2011, WPI through WestPoint Home, Inc., or WPH, executed an amended and restated senior secured revolving credit facility, or WPI Revolving Credit Facility, with Bank of America, NA. This new one-year senior credit facility is for $50 million with a maximum borrowing availability of $45 million, subject to monthly borrowing base calculations. See Note 10, “Debt-Home Fashion,” in our consolidated financial statements for further discussion regarding this new senior credit facility.

At June 30, 2011, WPI had $32 million of unrestricted cash and cash equivalents. There were no borrowings under the WPH Revolving Credit Facility agreement as of June 30, 2011, but there were outstanding letters of credit of $9 million. Based upon the eligibility and reserve calculations within the agreement, WPH had unused borrowing availability of $36 million at June 30, 2011.

Through a combination of its existing cash on hand and its borrowing availability under the WPI Revolving Credit Facility (together, an aggregate of $68 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 for the foreseeable future. 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 2011. 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.

Critical Accounting Policies and Estimates

Except for the changes discussed below, there have been no other material changes to our critical accounting policies and estimates during the six months ended June 30, 2011 compared to those reported in our 2010 Form 10-K.

As a result of returning fee-paying capital to its investors on March 31, 2011 as discussed elsewhere in this Report, each of the Private Funds no longer meets the criteria of an investment company as set forth in FASB ASC Section 946-10-15-2, Financial Services-Investment Companies-Scope and Scope Exceptions and, therefore, the application of FASB ASC Section 946-810-45, Financial Services-Investment Companies-Consolidation-Other Presentation Matters, is no longer applicable effective March 31, 2011. This change has no material effect on our consolidated financial statements as the Private Funds would account for its investments as trading securities pursuant to FASB ASC Topic 320, Investments-Debt and Equity Securities effective March 31, 2011. For those investments that fall outside the scope of FASB ASC Topic 320 or would otherwise have required the Private Funds account for under the equity method, the Private Funds apply the fair value option to such investments. See Note 4, "Investments and Related Matters-Investment Management," to the consolidated financial statements for further discussion regarding this reconsideration event and its consolidation impact.

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 of 1934, or 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.

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” in our 2010 Form 10-K.

Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. Our significant market risks are primarily associated with interest rates and security prices. Reference is made to Part II, Item 7A of our 2010 Form 10-K for disclosures relating to interest rates and our equity prices. Except for the items discussed below, there have been no other material changes to our market risk during the six months ended June 30, 2011.

Investment Management

The Investment Funds hold investments that are reported at fair value as of the reporting date, which include securities owned, securities sold, not yet purchased and derivatives as reported on our consolidated balance sheets. Based on their respective balances as of June 30, 2011, we estimate that, in the event of a 10% adverse change in the fair value of these investments, the fair values of securities owned, securities sold, not yet purchased, and derivatives would decrease by $731 million, $333 million and $13 million, respectively. However, as of June 30, 2011 we estimate that the impact to our share of the net gain or loss from investment activities reported in our consolidated statement of operations would be significantly less than the change in fair value since we have an investment of approximately 48.3% in the Investment Funds, and the non-controlling interests in income would correspondingly offset approximately 51.7% of the change in fair value.

Automotive

The translated values of revenue and expense from the Federal-Mogul's international operations are subject to fluctuations due to changes in currency exchange rates. During the six months ended June 30, 2011, Federal-Mogul derived 36% of its sales in the United States and 64% internationally. Of these international sales, 38% are denominated in the euro, with no other single currency representing more than 5%. To minimize foreign currency risk, Federal-Mogul generally maintains natural hedges within its non-U.S. activities, including the matching of operational revenues and costs. Where natural hedges are not in place, Federal-Mogul manages certain aspects of its foreign currency activities and larger transactions through the use of foreign currency options or forward contracts. We estimate that a hypothetical 10% adverse movement of all foreign currencies in the same direction against the U.S. dollar over the six months ended June 30, 2011 would have decreased net income attributable to Icahn Enterprises for our Automotive segment by approximately $14 million.

Federal-Mogul operates one manufacturing facility and one technical center in Japan. Federal-Mogul did not experience any loss of property or other assets nor were any of its employees injured as a result of the natural disasters in Japan during the six months ended June 30, 2011. Federal-Mogul does not anticipate any significant impacts to its consolidated financial position, results of operations or cash flows, either directly or indirectly, as a result of this crisis, and will continue to carefully monitor the situation over the coming months.

As of June 30, 2011, our management, including our Principal Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of Icahn Enterprises' and our subsidiaries' disclosure controls and procedures pursuant to the Rule 13a-15(e) and 15d-15(e) promulgated under the Exchange Act. Based upon that evaluation, our Principal Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are currently effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the first six months of fiscal 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The risk factors in our 2010 Form 10-K did not materially change during the period covered by this Report other than those noted below for our Home Fashion segment:

In light of the recent operating performance and challenging industry conditions, our Home Fashion segment is considering various strategic alternatives which may include, without limitation, joint ventures, other forms of strategic alliances and/or a sale or divestiture of all or a significant portion of its assets.

In light of WPI's recent operating performance and challenging industry conditions, we are considering various strategic alternatives which may include, without limitation, joint ventures, other forms of strategic alliances, and/or a sale or divestiture of all or a significant portion of WPI's assets. We cannot determine whether any of these transactions will be consummated or, if so, upon what terms. Any sale of WPI may result in consideration that is materially less than the carrying value of our investment in WPI.