AIG 2008 Annual Report Download - page 158

Other derivatives. Valuation models that incorporate unobservable inputs initially are calibrated to the
transaction price. Subsequent valuations are based on observable inputs to the valuation model (e.g., interest rates,
credit spreads, volatilities, etc.). Model inputs are changed only when corroborated by market data.
Transfers into Level 3
During the year ended December 31, 2008, AIG transferred from Level 2 to Level 3 approximately $1.7 billion
of assets, primarily representing fixed maturity securities for which the significant inputs used to measure the fair
value of the securities became unobservable primarily as a result of the significant disruption in the credit markets.
See Note 4 to the Consolidated Financial Statements for additional information about transfers into Level 3.
Capital Resources and Liquidity
For a discussion of AIG’s liquidity see Overview — Liquidity.
Shareholders’ Equity
The changes in AIG’s consolidated shareholders’ equity were as follows:
2008 2007
Years Ended
December 31,
(In millions)
Beginning of year ............................................ $ 95,801 $101,677
Net income (loss) ........................................... (99,289) 6,200
Unrealized depreciation of investments, net of tax ................... (8,722) (5,708)
Cumulative translation adjustment, net of tax ...................... (1,067) 1,185
Dividends to shareholders . . ................................... (1,105) (1,964)
Payments advanced to purchase shares, net ........................ 912 (912)
Common share issuance . . . ................................... 7,343 —
Consideration received for preferred stock not yet issued(a)............ 23,000 —
Issuance of Series D preferred stock ............................. 20 —
Excess of proceeds over par value of preferred stock issued............ 39,889 —
Issuance of warrants ......................................... 91 —
Share purchases ............................................ (1,912) (5,104)
Cumulative effect of change in accounting principles, net of tax ........ (1,108) —
Other(b).................................................. (1,143) 427
End of year ................................................. $ 52,710 $ 95,801
(a) AIG expects to issue the Series C Preferred Stock in early March 2009.
(b) Reflects the effects of employee stock transactions and the present value of future contract adjustment
payments related to the issuance of Equity Units.
Share Repurchases
In February 2007, AIG’s Board of Directors increased AIG’s share repurchase program by authorizing the
purchase of shares with an aggregate purchase price of $8 billion. In November 2007, AIG’s Board of Directors
authorized the purchase of an additional $8 billion in common stock. In 2007, AIG entered into structured share
repurchase arrangements providing for the purchase of shares over time with an aggregate purchase price of
$7 billion.
A total of 37,926,059 shares were purchased during the first six months of 2008 to meet commitments that
existed at December 31, 2007. There were no repurchases during the third and fourth quarters of 2008.
152 AIG 2008 Form 10-K
American International Group, Inc., and Subsidiaries