AIG 2011 Annual Report Download - page 255

American International Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
depressed market value of Fuji’s common stock, which AIG believes was the result of macroeconomic, capital
market and regulatory factors in Japan coupled with Fuji’s financial condition and results of operations. The
acquisition was consistent with Chartis’ desire to increase its share in the substantial Japanese insurance market
and to achieve cost savings from synergies.
In March 2011, Chartis completed the acquisition of approximately 305 million shares of Fuji tendered in
response to a public offer at an offer price of 146 Yen per share ($1.76 per share) for a purchase price of
$538 million. In August 2011, Chartis acquired the remaining outstanding voting shares of Fuji. As a result of
these actions, Chartis now owns 100 percent of Fuji.
The 2011 purchases were accounted for as equity transactions because AIG previously consolidated Fuji due to
its controlling interest. Accordingly, the difference between the fair value of the total consideration paid of
$560 million and the carrying value of the noncontrolling interest acquired of $489 million was recognized as a
reduction of AIG’s equity. There was no gain or loss recorded in the Consolidated Statement of Operations for
the year ended December 31, 2011.
On October 7, 2011, AIG through ILFC acquired all of the issued and outstanding shares of capital stock of
AeroTurbine for an aggregate cash purchase price of $228 million. AeroTurbine is a provider of certified aircraft
engines, aircraft and engine parts and supply chain solutions. This acquisition is expected to further maximize the
value of ILFC’s aircraft by providing ILFC with in-house part-out and engine leasing capabilities. The acquisition
was recorded as a business combination and is not significant to AIG’s Consolidated Financial Statements.
AIG carries certain of its financial instruments at fair value. AIG defines the fair value of a financial instrument
as the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
The degree of judgment used in measuring the fair value of financial instruments generally inversely correlates
with the level of observable valuation inputs. AIG maximizes the use of observable inputs and minimizes the use
of unobservable inputs when measuring fair value. Financial instruments with quoted prices in active markets
generally have more pricing observability and less judgment is used in measuring fair value. Conversely, financial
instruments for which no quoted prices are available have less observability and are measured at fair value using
valuation models or other pricing techniques that require more judgment. Pricing observability is affected by a
number of factors, including the type of financial instrument, whether the financial instrument is new to the
market and not yet established, the characteristics specific to the transaction, liquidity and general market
conditions.
Assets and liabilities recorded at fair value in the Consolidated Balance Sheet are measured and classified for
disclosure purposes in accordance with a fair value hierarchy established in U.S. GAAP. The hierarchy consists of
three ‘‘levels’’ based on the observability of inputs available in the marketplace used to measure the fair values as
discussed below:
•Level 1: Fair value measurements that are quoted prices (unadjusted) in active markets that AIG has the
ability to access for identical assets or liabilities. Market price data generally is obtained from exchange or
dealer markets. AIG does not adjust the quoted price for such instruments. Assets and liabilities measured
at fair value on a recurring basis and classified as Level 1 include certain government and agency securities,
actively traded listed common stocks and futures and options contracts, most separate account assets and
most mutual funds.
AIG 2011 Form 10-K 241
6. FAIR VALUE MEASUREMENTS
FAIR VALUE MEASUREMENTS ON A RECURRING BASIS
FAIR VALUE HIERARCHY