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Financial Instruments | 9 Months Ended
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Sep. 30, 2013
Financial Instruments [Abstract] |
Financial Instruments | Financial Instruments. Certain derivative contracts with a single counterparty executed by the Investment Funds, our Automotive or Energy segments, or by our Holding Company are reported on a net-by-counterparty basis where a legal right of offset exists under an enforceable netting agreement. Values for the derivative financial instruments, principally swaps, forwards, over-the-counter options and other conditional and exchange contracts, are reported on a net-by-counterparty basis. As a result, the net exposure to counterparties is reported in either other assets or accrued expenses and other liabilities in our consolidated balance sheets. Investment Segment and Holding Company The Investment Funds currently maintain cash deposits and cash equivalents with financial institutions. Certain account balances may not be covered by the Federal Deposit Insurance Corporation, while other accounts may exceed federally insured limits. The Investment Funds have prime broker arrangements in place with multiple prime brokers as well as a custodian bank. The Investment Funds also have relationships with several financial institutions with which they trade derivative and other financial instruments. In the normal course of business, the Investment Funds and the Holding Company may trade various financial instruments and enter into certain investment activities, which may give rise to off-balance-sheet risks, with the objective of capital appreciation or as economic hedges against other securities or the market as a whole. The Investment Funds' and the Holding Company's investments may include futures, options, swaps and securities sold, not yet purchased. These financial instruments represent future commitments to purchase or sell other financial instruments or to exchange an amount of cash based on the change in an underlying instrument at specific terms at specified future dates. Risks arise with these financial instruments from potential counterparty non-performance and from changes in the market values of underlying instruments. Securities sold, not yet purchased, at fair value represent obligations to deliver the specified security, thereby creating a liability to repurchase the security in the market at prevailing prices. Accordingly, these transactions result in off-balance-sheet risk, as the satisfaction of the obligations may exceed the amount recognized in our consolidated balance sheets. Our investments in securities and amounts due from brokers are partially restricted until we satisfy the obligation to deliver the securities sold, not yet purchased. The Investment Funds and the Holding Company may enter into derivative contracts, including swap contracts, futures contracts and option contracts. The Investment Funds may also enter into foreign currency derivative contracts with the objective of capital appreciation or to economically hedge against foreign currency exchange rate risks on all or a portion of their non-U.S. dollar denominated investments. The Investment Funds and the Holding Company have entered into various types of swap contracts with other counterparties. These agreements provide that they are entitled to receive or are obligated to pay in cash an amount equal to the increase or decrease, respectively, in the value of the underlying shares, debt and other instruments that are the subject of the contracts, during the period from inception of the applicable agreement to its expiration. In addition, pursuant to the terms of such agreements, they are entitled to receive or obligated to pay other amounts, including interest, dividends and other distributions made in respect of the underlying shares, debt and other instruments during the specified time frame. They are also required to pay to the counterparty a floating interest rate equal to the product of the notional amount multiplied by an agreed-upon rate, and they receive interest on any cash collateral that they post to the counterparty at the federal funds or LIBOR rate in effect for such period. The Investment Funds and the Holding Company may trade futures contracts. A futures contract is a firm commitment to buy or sell a specified quantity of a standardized amount of a deliverable grade commodity, security, currency or cash at a specified price and specified future date unless the contract is closed before the delivery date. Payments (or variation margin) are made or received by the Investment Funds and the Holding Company each day, depending on the daily fluctuations in the value of the contract, and the whole value change is recorded as an unrealized gain or loss by the Investment Funds and the Holding Company. When the contract is closed, the Investment Funds and the Holding Company record a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The Investment Funds and the Holding Company may utilize forward contracts to seek to protect their assets denominated in foreign currencies and precious metals holdings from losses due to fluctuations in foreign exchange rates and spot rates. The Investment Funds' and the Holding Company's exposure to credit risk associated with non-performance of such forward contracts is limited to the unrealized gains or losses inherent in such contracts, which are recognized in other assets and accrued expenses and other liabilities in our consolidated balance sheets. The Investment Funds may also enter into foreign currency contracts for purposes other than hedging denominated securities. When entering into a foreign currency forward contract, the Investment Funds agree to receive or deliver a fixed quantity of foreign currency for an agreed-upon price on an agreed-upon future date unless the contract is closed before such date. The Investment Funds record unrealized gains or losses on the contracts as measured by the difference between the forward foreign exchange rates at the dates of entry into such contracts and the forward rates at the reporting date. The Investment Funds are parties to swap agreements (“Swaps”) with respect to shares of SPDR. On August 19, 2013, certain of the Investment Funds assigned their rights and obligations under certain of the Swaps to IEH Investments I LLC (“IEH Investments”), a wholly owned subsidiary of ours, and Koala, an affiliate of Mr. Icahn's. Certain of the Investment Funds assigned an aggregate 9.7 million SPDR shares to IEH Investments and an aggregate 7.7 million SPDR shares to Koala. In addition, the Investment Funds distributed an aggregate $234 million to IEH Investments and an aggregate $185 million to Koala, amounts equal to the underlying obligations under the assigned Swaps. The Investment Funds may also purchase and write option contracts. As a writer of option contracts, the Investment Funds receive a premium at the outset and then bear the market risk of unfavorable changes in the price of the underlying financial instrument. As a result of writing option contracts, the Investment Funds are obligated to purchase or sell, at the holder's option, the underlying financial instrument. Accordingly, these transactions result in off-balance-sheet risk, as the Investment Funds' satisfaction of the obligations may exceed the amount recognized in our consolidated balance sheets. At September 30, 2013, the maximum payout amounts relating to certain put options written by the Investment Funds were approximately $448 million. At December 31, 2012, the maximum payout amounts relating to certain put options written by the Investment Funds approximated $7.9 billion, of which approximately $6.8 billion related to covered put options on existing short positions on a certain stock index. As of September 30, 2013 and December 31, 2012, there were unrealized gains of less than $1 million and $180 million, respectively. Certain terms of the Investment Funds' contracts with derivative counterparties, which are standard and customary to such contracts, contain certain triggering events that would give the counterparties the right to terminate the derivative instruments. In such events, the counterparties to the derivative instruments could request immediate payment on derivative instruments in net liability positions. The aggregate fair value of all of the Investment Funds' derivative instruments with credit-risk-related contingent features that are in a liability position at September 30, 2013 and December 31, 2012 was $499 million and $84 million, respectively. At September 30, 2013 and December 31, 2012, the Investment Funds had $413 million and $148 million, respectively, posted as collateral for derivative positions, including those derivative instruments with credit-risk-related contingent features; these amounts are included in cash held at consolidated affiliated partnerships and restricted cash in our consolidated balance sheets. U.S. GAAP requires the disclosure of information about obligations under certain guarantee arrangements. Such guarantee arrangements requiring disclosure include contracts that contingently require the guarantor to make payments to the guaranteed party based on another entity's failure to perform under an agreement as well as indirect guarantees of the indebtedness of others. Each Investment Fund's assets may be held in one or more accounts maintained for the Investment Fund by its prime broker or at other brokers or custodian banks, which may be located in various jurisdictions. The prime broker and custodian banks are subject to various laws and regulations in the relevant jurisdictions in the event of their insolvency. Accordingly, the practical effect of these laws and their application to the Investment Funds' assets may be subject to substantial variations, limitations and uncertainties. The insolvency of any of the prime brokers, custodian banks or clearing corporations may result in the loss of all or a substantial portion of the Investment Funds' assets or in a significant delay in the Investment Funds' having access to those assets. Credit concentrations may arise from investment activities and may be impacted by changes in economic, industry or political factors. The Investment Funds and the Holding Company routinely execute transactions with counterparties in the financial services industry, resulting in credit concentration with respect to this industry. In the ordinary course of business, the Investment Funds and the Holding Company may also be subject to a concentration of credit risk to a particular counterparty. The Investment Funds and the Holding Company seek to mitigate these risks by actively monitoring exposures, collateral requirements and the creditworthiness of our counterparties. Automotive Interest Rate Risk During 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. During the first quarter of 2013, the majority of these interest swap agreements expired. As of September 30, 2013, the remaining five-year interest swap agreements have a total notional value of $40 million. As of September 30, 2013 and December 31, 2012, unrealized net losses of less than $1 million and $10 million, respectively, were recorded in accumulated other comprehensive loss as a result of these hedges. As of September 30, 2013, losses of less than $1 million are expected to be reclassified from accumulated other comprehensive loss to the consolidated statement of operations within the next three months. These interest rate swaps reduce Federal-Mogul's overall interest rate risk. However, due to the remaining outstanding borrowings on Federal-Mogul's debt facilities and other borrowing facilities that continue to have variable interest rates, management believes that interest rate risk to Federal-Mogul could be material if there are significant adverse changes in interest rates. To the extent that interest rates change by 25 basis points, Federal-Mogul's annual interest expense would show a corresponding change of approximately $7 million and $2 million for the years ending December 31, 2014 and 2015, respectively, representing the term of Federal-Mogul's variable-rate term loans. Commodity Price Risk Federal-Mogul's production processes are dependent upon the supply of certain raw materials that are exposed to price fluctuations on the open market. The primary purpose of Federal-Mogul's commodity price forward contract activity is to manage the volatility associated with forecasted purchases. Federal-Mogul monitors its commodity price risk exposures regularly to maximize the overall effectiveness of its commodity forward contracts. Principal raw materials hedged include natural gas, copper, nickel, tin, zinc, high-grade aluminum and aluminum alloy. Forward contracts are used to mitigate commodity price risk associated with raw materials, generally related to purchases forecast for up to 15 months in the future. Federal-Mogul had commodity price hedge contracts outstanding with combined notional values of $55 million and $45 million at September 30, 2013 and December 31, 2012, respectively, substantially all of which mature within one year in each of the respective periods and substantially all of which were designated as hedging instruments for accounting purposes. Unrealized net (losses) gains of $(1) million and $1 million were recorded in accumulated other comprehensive loss as of September 30, 2013 and December 31, 2012, respectively. Foreign Currency Risk Federal-Mogul manufactures and sells its products in North America, South America, Asia, Europe and Africa. As a result, Federal-Mogul's financial results can be significantly affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets in which Federal-Mogul manufactures and sells its products. Federal-Mogul's operating results are primarily exposed to changes in exchange rates between the U.S. dollar and European currencies. Federal-Mogul generally tries to use natural hedges within its foreign currency activities, including the matching of revenues and costs, to minimize foreign currency risk. Where natural hedges are not in place, Federal-Mogul considers managing certain aspects of its foreign currency activities and larger transactions through the use of foreign currency options or forward contracts. Principal currencies hedged have historically included the euro, British pound and Polish zloty. Federal-Mogul had notional values of $52 million and $160 million of foreign currency hedge contracts outstanding at September 30, 2013 and December 31, 2012, respectively, of which $14 million and $11 million, respectively, were designated as cash flow hedging instruments for accounting purposes. Net unrealized gains of less than $1 million were recorded in accumulated other comprehensive loss as of both September 30, 2013 and December 31, 2012, respectively, for the contracts designated as hedging instruments. The foreign currency contracts not designated as hedging instruments were entered into by Federal-Mogul in order to offset fluctuations in consolidated earnings caused by changes in currency rates used to translate earnings at foreign subsidiaries into U.S. dollars over 2013. These contracts are not designated as hedging instruments for accounting purposes and are marked to market through the income statement. Losses of $2 million and $1 million related to these contracts were recorded in other income (loss), net for the three and nine months ended September 30, 2013, respectively. Concentrations of Credit Risk Financial instruments, which potentially subject Federal-Mogul to concentrations of credit risk, consist primarily of accounts receivable and cash investments. Federal-Mogul's customer base includes virtually every significant global light and commercial vehicle manufacturer and a large number of distributors, installers and retailers of automotive aftermarket parts. Federal-Mogul's credit evaluation process and the geographical dispersion of sales transactions help to mitigate credit risk concentration. No individual customer accounted for more than 6% of Federal-Mogul's direct sales during the nine months ended September 30, 2013. Federal-Mogul had one VCS customer that accounted for 14% of its net accounts receivable balance as of September 30, 2013. Federal-Mogul requires placement of cash in financial institutions evaluated as highly creditworthy. Energy CVR is subject to price fluctuations caused by supply conditions, weather, economic conditions, interest rate fluctuations and other factors. To manage price risk on crude oil and other inventories and to fix margins on certain future production, CVR from time to time enters into various commodity derivative transactions. CVR has adopted accounting standards that impose extensive record-keeping requirements in order to designate a derivative financial instrument as a hedge. CVR holds derivative instruments, such as exchange-traded crude oil futures and certain over-the-counter forward swap agreements, which it believes provide an economic hedge on future transactions, but such instruments are not designated as hedges for GAAP purposes. Gains or losses related to the change in fair value and periodic settlements of these derivative instruments are included in other income (loss), net in the consolidated statements of operations. CVR maintains a margin account to facilitate other commodity derivative activities. A portion of this account may include funds available for withdrawal. These funds are included in cash and cash equivalents within the consolidated balance sheets. The maintenance margin balance is included within other assets in consolidated balance sheets. Depending upon the position of the open commodity derivatives as of the reporting date, the amounts are classified either as an asset or liability within the consolidated balance sheets. From time to time, CVR may be required to deposit additional funds into this margin account. The fair value of the open commodity positions as of each of September 30, 2013 and December 31, 2012 was a net loss of less than $1 million which is included in accrued expenses and other liabilities in the consolidated balance sheets. For the three and nine months ended September 30, 2013, CVR recognized a net realized and unrealized gain of less than $1 million and a net loss of $2 million, respectively, which is included in other income (loss), net in the consolidated statements of operations. For the three months ended September 30, 2012 and the period May 5, 2012 through September 30, 2012, CVR recognized a net realized and unrealized loss of $7 million and $4 million, respectively, which is included in other income (loss), net in the consolidated statements of operations. Commodity Swap In September 2011, CVR Refining entered into several commodity swap contracts with effective periods beginning in January 2012. The physical volumes are not exchanged and these contracts are net settled with cash. The contract fair value of the commodity swaps is reflected on the consolidated balance sheets with changes in fair value currently recognized in the consolidated statement of operations. Quoted prices for similar assets or liabilities in active markets (Level 2) are considered to determine the fair values for the purpose of marking to market the hedging instruments at each period end. As of September 30, 2013 and December 31, 2012, CVR had open commodity hedging instruments consisting of 20.6 million and 23.3 million barrels, respectively, of crack spreads primarily to fix the margin on a portion of its future gasoline and distillate production. The fair value of the outstanding contracts at September 30, 2013 and December 31, 2012 was a net unrealized gain and unrealized loss of $110 million and $67 million, respectively. For the three and nine months ended September 30, 2013, CVR recognized net realized and unrealized gains of $72 million and $175 million, respectively, which is included in other income (loss), net in the consolidated statements of operations. For the three months ended September 30, 2012 and the period May 5, 2012 through September 30, 2012, CVR recognized net realized and unrealized loss of $162 million and $168 million, respectively, which is included in other income (loss), net in the consolidated statements of operations. Interest Rate Swap On June 30, 2011 and July 1, 2011, Coffeyville Resources Nitrogen Fertilizers, LLC ("CRNF") entered into two floating-to-fixed interest rate swap agreements for the purpose of hedging the interest rate risk associated with a portion of its $125 million floating rate term debt, which matures in April 2016. The aggregate notional amount covered under these agreements totals $63 million (split evenly between the two agreement dates) and commenced on August 12, 2011 and expires on February 12, 2016. Under the terms of the interest rate swap agreement entered into on June 30, 2011, CRNF will receive a floating rate based on three-month LIBOR and pay a fixed rate of 1.94%. Under the terms of the interest rate swap agreement entered into on July 1, 2011, CRNF will receive a floating rate based on three-month LIBOR and pay a fixed rate of 1.975%. Both swap agreements are settled every 90 days. The effect of these swap agreements is to lock in a fixed rate of interest of approximately 1.96% plus the applicable margin paid to lenders over three-month LIBOR as governed by the CRNF credit agreement. As of both September 30, 2013 and December 31, 2012, the effective rate was approximately 4.6%. The agreements were designated as cash flow hedges at inception and accordingly, the effective portion of the gain or loss on the swap is reported as a component of accumulated other comprehensive income (loss) and will be reclassified into interest expense when the interest rate swap transaction affects earnings. The ineffective portion of the gain or loss will be recognized immediately in interest expense in the consolidated statements of operations. The realized loss on the interest rate swap reclassified from accumulated other comprehensive loss into interest expense was less than $1 million for the nine months ended September 30, 2013. Consolidated Derivative Information At September 30, 2013, the volume of our derivative activities based on their notional exposure, categorized by primary underlying risk, are as follows:
| Long Notional Exposure |  | Short Notional Exposure
Primary underlying risk: | (in millions)
Equity swaps | $ | 1 |  |  | $ | 8,516 |
Foreign currency forwards | 52 |  |  | 1,644 |
Interest rate swap contracts | — |  |  | 103 |
Commodity contracts | 58 |  |  | 580 |
The following table presents the consolidated fair values of our derivatives that are not designated as hedging instruments:
Derivatives Not Designated as Hedging Instruments |  | Asset Derivatives(1) |  | Liability Derivatives(2)
| September 30, 2013 |  | December 31, 2012 |  | September 30, 2013 |  | December 31, 2012
|  | (in millions)
Equity contracts |  | $ | 26 |  |  | $ | 21 |  |  | $ | 757 |  |  | $ | 35 |
Foreign exchange contracts |  | — |  |  | — |  |  | 8 |  |  | 59 |
Commodity contracts |  | 112 |  |  | 8 |  |  | 2 |  |  | 74 |
Sub-total |  | 138 |  |  | 29 |  |  | 767 |  |  | 168 |
Netting across contract types(3) |  | (2 | ) |  | (7 | ) |  | (2 | ) |  | (7 | )
Total(3) |  | $ | 136 |  |  | $ | 22 |  |  | $ | 765 |  |  | $ | 161 |
(1) | Net asset derivatives are located within other assets in our consolidated balance sheets.
(2) | Net liability derivatives are located within accrued expenses and other liabilities in our consolidated balance sheets.
(3) | Excludes netting of cash collateral received and posted. The total collateral posted at September 30, 2013 and December 31, 2012 was $413 million and $148 million, respectively, across all counterparties.
The following table presents the effects of our derivative instruments not designated as hedging instruments on the statements of operations for the three and nine months ended September 30, 2013 and 2012:
|  | Gain (Loss) Recognized in Income(1)
Derivatives Not Designated as Hedging Instruments |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2013 |  | 2012 |  | 2013 |  | 2012
|  | (in millions)
Equity contracts |  | $ | (254 | ) |  | $ | (680 | ) |  | $ | (1,077 | ) |  | $ | (1,120 | )
Foreign exchange contracts |  | (82 | ) |  | (44 | ) |  | (52 | ) |  | (19 | )
Commodity contracts |  | 68 |  |  | (170 | ) |  | 169 |  |  | (172 | )
|  | $ | (268 | ) |  | $ | (894 | ) |  | $ | (960 | ) |  | $ | (1,311 | )
(1) | Gains (losses) recognized on derivatives are classified in net gain from investment activities in our consolidated statements of operations for our Investment segment and are included in other income (loss), net for all other segments.
The following table presents the consolidated fair values of our derivative instruments that are designated as cash flow hedging instruments:
Derivatives Designated as Cash Flow Hedging Instruments |  | Asset Derivatives(1) |  | Liability Derivatives(2)
| September 30, 2013 |  | December 31, 2012 |  | September 30, 2013 |  | December 31, 2012
|  | (in millions)
Interest rate swap contracts |  | $ | — |  |  | $ | — |  |  | $ | 2 |  |  | $ | 13 |
Commodity contracts |  | 1 |  |  | 2 |  |  | 2 |  |  | 1 |
Sub-total |  | 1 |  |  | 2 |  |  | 4 |  |  | 14 |
Netting across contract types |  | (1 | ) |  | (2 | ) |  | (1 | ) |  | (2 | )
Total |  | $ | — |  |  | $ | — |  |  | $ | 3 |  |  | $ | 12 |
(1) | Located within other assets in our consolidated balance sheets.
(2) | Located within accrued expenses and other liabilities in our consolidated balance sheets.
The following tables present the effect of our derivative instruments that are designated as cash flow hedging instruments on our consolidated financial statements for the three and nine months ended September 30, 2013 and 2012:
Three Months Ended September 30, 2013
Derivatives Designated as Hedging Instruments |  | Amount of (Loss) Gain Recognized in OCI on Derivatives (Effective Portion) |  | Amount of (Loss) Gain Reclassified from AOCI into Income (Effective Portion) |  | Location of (Loss) Gain Reclassified from AOCI into Income (Effective Portion)
|  | (in millions) |  | (in millions) |  |
Interest rate swap contracts |  | $ | — |  |  | $ | (1 | ) |  | Interest expense
Commodity contracts |  | 3 |  |  | (2 | ) |  | Cost of goods sold
Foreign currency contracts |  | — |  |  | — |  |  |
|  | $ | 3 |  |  | $ | (3 | ) |  |
Three Months Ended September 30, 2012
Derivatives Designated as Hedging Instruments |  | Amount of (Loss) Gain Recognized in OCI on Derivatives (Effective Portion) |  | Amount of (Loss) Gain Reclassified from AOCI into Income (Effective Portion) |  | Location of (Loss) Gain Reclassified from AOCI into Income (Effective Portion)
|  | (in millions) |  | (in millions) |  |
Interest rate swap contracts |  | $ | (1 | ) |  | $ | (10 | ) |  | Interest expense
Commodity contracts |  | 4 |  |  | (3 | ) |  | Cost of goods sold
Foreign currency contracts |  | — |  |  | 1 |  |  | Cost of goods sold
|  | $ | 3 |  |  | $ | (12 | ) |  |
Nine Months Ended September 30, 2013
Derivatives Designated as Hedging Instruments |  | Amount of (Loss) Gain Recognized in OCI on Derivatives (Effective Portion) |  | Amount of (Loss) Gain Reclassified from AOCI into Income (Effective Portion) |  | Location of (Loss) Gain Reclassified from AOCI into Income (Effective Portion)
|  | (in millions) |  | (in millions) |  |
Interest rate swap contracts |  | $ | 1 |  |  | $ | (9 | ) |  | Interest expense
Commodity contracts |  | (5 | ) |  | (3 | ) |  | Cost of goods sold
Foreign currency contracts |  | — |  |  | — |  |  |
|  | $ | (4 | ) |  | $ | (12 | ) |  |
Nine Months Ended September 30, 2012
Derivatives Designated as Hedging Instruments |  | Amount of (Loss) Gain Recognized in OCI on Derivatives (Effective Portion) |  | Amount of (Loss) Gain Reclassified from AOCI into Income (Effective Portion) |  | Location of (Loss) Gain Reclassified from AOCI into Income (Effective Portion)
|  | (in millions) |  | (in millions) |  |
Interest rate swap contracts |  | $ | (4 | ) |  | $ | (29 | ) |  | Interest expense
Commodity contracts |  | 7 |  |  | (9 | ) |  | Cost of goods sold
Foreign currency contracts |  | (2 | ) |  | 1 |  |  | Cost of goods sold
|  | $ | 1 |  |  | $ | (37 | ) |  |

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- Definition The entire disclosure for financial instruments. This disclosure includes, but is not limited to, fair value measurements of short and long term marketable securities, international currencies forward contracts, and auction rate securities. Financial instruments may include hedging and non-hedging currency exchange instruments, derivatives, securitizations and securities available for sale at fair value. Also included are investment results, realized and unrealized gains and losses as well as impairments and risk management disclosures. + References No definition available. + Details
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