AIG 2007 Annual Report Download - page 89

American International Group, Inc. and Subsidiaries
charge resulting from the annual review of General Insurance loss tax) of expenses related to deferred advertising costs; and
and loss adjustment reserves. $125 million ($116 million after tax) of additional expense,
primarily related to other remediation activities.
Results in 2006 were also negatively affected by a one-time
Remediation
charge relating to the C.V. Starr & Co., Inc. (Starr) tender offer
Throughout 2007 and 2006, as part of its continuing remediation ($54 million before and after tax) and an additional allowance for
efforts, AIG recorded out of period adjustments which are detailed losses in AIG Credit Card Company (Taiwan) ($88 million before
below. In addition, certain revisions were made to the Consoli- and after tax), both of which were recorded in first quarter of
dated Statement of Cash Flows. 2006.
2007 Adjustments Cash Flows
During 2007, out of period adjustments collectively decreased pre- As part of its ongoing remediation activities, AIG has made
tax operating income by $372 million ($399 million after tax). The certain revisions to the Consolidated Statement of Cash Flows,
adjustments were comprised of a charge of $380 million primarily relating to the effect of reclassifying certain policyhold-
($247 million after tax) to reverse net gains on transfers of ers’ account balances, the elimination of certain intercompany
investment securities among legal entities consolidated within balances and revisions related to separate account assets.
AIGFP and a corresponding increase to accumulated other compre- Accordingly, AIG revised the previous periods presented to
hensive income (loss); $156 million of additional income tax conform to the revised presentation. See Note 24 to Consolidated
expense related to the successful remediation of the material Financial Statements for further information.
weakness in internal control over income tax accounting;
$142 million ($92 million after tax) of additional expense related Income Taxes
to insurance reserves and DAC in connection with improvements
in internal control over financial reporting and consolidation The effective tax rate declined from 30.1 percent in 2006 to
processes; $42 million ($29 million after tax) of additional 16.3 percent in 2007, primarily due to the unrealized market
expense, primarily related to other remediation activities; and valuation losses on AIGFP’s super senior credit default swap
$192 million ($125 million after tax) of net realized capital gains portfolio and other-than-temporary impairment charges. These
related to foreign exchange. losses, which are taxed at a U.S. tax rate of 35 percent and are
included in the calculation of income tax expense, reduced AIG’s
overall effective tax rate. In addition, other tax benefits, including
2006 Adjustments
tax exempt interest and effects of foreign operations are propor-
During 2006, out of period adjustments collectively increased pre- tionately larger in 2007 than in 2006 due to the decline in pre-tax
tax operating income by $313 million ($65 million after tax). The income in 2007. Furthermore, tax deductions taken in 2007 for
adjustments were comprised of $773 million ($428 million after SICO compensation plans for which the expense had been
tax) of additional investment income related to the accounting for recognized in prior years also reduced the effective tax rate in
certain interests in unit investment trusts (UCITS); $300 million 2007. AIG has now completed its claims for tax refunds
($145 million after tax) of charges primarily related to the attributable to adjustments made for 2004 and prior financial
remediation of the material weakness in internal control over the statements. Refund claims for tax years 1991-1996 were filed
accounting for certain derivative transactions under FAS 133; with the Internal Revenue Service in June 2007. Claims for tax
$58 million of additional income tax expense related to the years 1997-2004 will be filed before September 2008.
remediation of the material weakness in internal control over AIG expects to receive cash tax benefits in 2008 as a result of
income tax accounting; $85 million ($55 million after tax) of the unrealized market valuation losses on AIGFP’s super senior
interest income related to interest earned on deposit contracts; credit default swap portfolio, whether AIG is in a regular or
$61 million (before and after tax) of expenses related to the Starr alternative minimum tax position.
International Company, Inc. (SICO) Deferred Compensation Profit
Participation Plans (SICO Plans); $59 million ($38 million after
AIG 2007 Form 10-K 35