AIG 2008 Annual Report Download - page 302

If the applicable market value is: then AIG is obligated to issue:
•Greater than or equal to $45.60 •0.54823 shares per stock purchase contract
•Between $45.60 and $38.00 •Shares equal to $25 divided by the applicable
market value
•Less than or equal to $38.00 •0.6579 shares per stock purchase contract
Basic earnings (loss) per share (EPS) will not be affected by outstanding stock purchase contracts. Diluted EPS
will be determined considering the potential dilution from outstanding stock purchase contracts using the treasury
stock method, and therefore diluted EPS will not be affected by outstanding stock purchase contracts until the
applicable market value exceeds $45.60.
AIG is obligated to pay quarterly contract adjustment payments to the holders of the stock purchase contracts,
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 pay interest at rates of 5.67 percent,
5.82 percent and 5.89 percent, respectively. AIG allocated the proceeds of the Equity Units between the stock
purchase contracts and the junior subordinated debentures on a relative fair value basis. AIG determined that the fair
value of the stock purchase contract at issuance was zero, and therefore all of the proceeds were allocated to the
junior subordinated debentures.
Earnings (Loss) Per Share (EPS)
Basic earnings (loss) per share and diluted loss per share are based on the weighted average number of common
shares outstanding, adjusted to reflect all stock dividends and stock splits. Diluted earnings per share is based on
those shares used in basic earnings (loss) per share plus shares that would have been outstanding assuming issuance
of common shares for all dilutive potential common shares outstanding, adjusted to reflect all stock dividends and
stock splits.
The computation of basic and diluted EPS was as follows:
2008 2007 2006
Years Ended December 31,
(In millions, except per share data)
Numerator for EPS:
Income (loss) before cumulative effect of change in accounting principles . . . $(99,289) $6,200 $14,014
Cumulative effect of change in accounting principles, net of tax........... — — 34
Dividends on Series D Preferred Stock ............................. (400) ——
Net income (loss) applicable to common stock for basic EPS ............. (99,689) 6,200 14,048
Interest on contingently convertible bonds, net of tax ................... — — 10
Net income (loss) applicable to common stock for diluted EPS ........... (99,689) 6,200 14,058
Cumulative effect of change in accounting principles, net of tax........... — — (34)
Income (loss) before cumulative effect of change in accounting principles
applicable to common stock for diluted EPS ....................... $(99,689) $6,200 $14,024
296 AIG 2008 Form 10-K
American International Group, Inc., and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)