AIG 2011 Annual Report Download - page 346

American International Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
shares sold by the Department of the Treasury. The balance of the net proceeds was used for general corporate
purposes. As a result of the sale of AIG Common Stock in this offering, the Series G Drawdown Right was
terminated, the Series G Preferred Stock was cancelled and the ownership by the Department of the Treasury was
reduced from approximately 92 percent to approximately 77 percent of the AIG Common Stock outstanding after
the completion of the offering.
Repurchases
In November 2011, AIG’s Board of Directors authorized the repurchase of shares of AIG Common Stock, with
an aggregate purchase amount of up to $1 billion from time to time in the open market, through derivative or
automatic purchase contracts or otherwise. This authorization replaces all prior Common Stock repurchase
authorizations.
AIG repurchased a total of 3,074,031 shares of AIG Common Stock for approximately $70 million in 2011. The
timing of additional repurchases will depend on market conditions, AIG’s financial condition, results of operations,
liquidity, rating agency considerations and other factors.
Equity Units
In May 2008, AIG sold 78.4 million equity units (the Equity Units) at a price per unit of $75 for gross proceeds
of $5.88 billion. The Equity Units included a stock purchase contract obligating the holder of an Equity Unit to
purchase, and obligating AIG to sell, a variable number of shares of AIG Common Stock for $25 in cash.
AIG was obligated to pay quarterly contract adjustment payments to the holders of the stock purchase contracts
under the Equity Units, at an initial annual rate of 2.71 percent applied to the stated amount. The present value
of the contract adjustment payments, $431 million, was recognized at inception as a liability (a component of
Other liabilities), and was recorded as a reduction to Additional paid-in capital.
In addition to the stock purchase contracts, as part of the Equity Units, AIG issued $1.96 billion of each of the
Series B-1, B-2 and B-3 junior subordinated debentures, which initially paid interest at rates of 5.67 percent,
5.82 percent and 5.89 percent, respectively.
The junior subordinated debentures were recorded as Other long-term debt in the Consolidated Balance Sheet.
The principal amount owed by AIG on the subordinated debentures was equal to the amount owed to AIG under
the related stock purchase contract.
On November 23, 2010, AIG commenced an offer to exchange up to 74,480,000 of its Equity Units for
consideration per Equity Unit equal to 0.09867 share of AIG Common Stock plus $3.2702 in cash (the Exchange
Offer). The stock and cash received was the result of netting payments from two separate transactions, a
repurchase of the subordinated debentures and a cancellation of the stock purchase contracts.
On November 29, 2010, holders of 49,474,600 Equity Units accepted the Exchange Offer and their units were
tendered in exchange for 4,881,667 shares of AIG Common Stock and $162 million in cash. Following the
completion of the exchange offer, a total of 28,925,400 Equity Units remained outstanding. The execution of the
Exchange Offer resulted in a loss on the extinguishment of the subordinated debentures of approximately
$104 million and an increase to equity of approximately $3.7 billion.
In 2011, AIG remarketed the three series of debentures included in the Equity Units. AIG purchased and
retired all of the Series B-1, B-2 and B-3 Debentures representing $2.2 billion in aggregate principal and as a
result, no Series B-1, B-2 or B-3 Debentures remain outstanding. As of December 31, 2011, AIG had issued
approximately 1.8 billion shares of AIG Common Stock in connection with the settlement of the stock purchase
contracts underlying its Equity Units.
332 AIG 2011 Form 10-K