AIG 2009 Annual Report Download - page 225

American International Group, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
stock of AIA and ALICO. The preferred interests were measured at fair value on their issuance date. AIG transferred
the preferred interests in the SPVs to the FRBNY in consideration for a $25 billion reduction of the FRBNY Credit
Facility. The preferred interests have a liquidation preference of $25 billion and have a preferred return of 5 percent
per year compounded quarterly through September 22, 2013 and 9 percent thereafter. The preferred return is
reflected in Income (loss) from continuing operations attributable to noncontrolling nonvoting, callable, junior and
senior preferred interests held by the FRBNY in the Consolidated Statement of Income (Loss). The difference
between the preferred interests’ fair value and the initial liquidation preference will be amortized and included in
Income (loss) from continuing operations attributable to noncontrolling nonvoting, callable, junior and senior
preferred interests held by the FRBNY.
Other Noncontrolling interests: Includes the equity interest of outside shareholders in AIG’s consolidated
subsidiaries and includes the preferred shareholders’ equity in outstanding preferred stock of ILFC, a wholly owned
subsidiary of AIG. Cash distributions on such preferred stock or interest are accounted for as interest expense. This
preferred stock consists of 1,000 shares of market auction preferred stock (MAPS) in two series (Series A and B) of
500 shares each. Each of the MAPS shares has a liquidation value of $100,000 per share and is not convertible. The
dividend rate, other than the initial rate, for each dividend period for each series is reset approximately every seven
weeks (49 days) on the basis of orders placed in an auction. At December 31, 2009, the dividend rate for each of the
Series A and Series B MAPS was 0.44 percent.
(x) Earnings (Loss) per Share: Basic earnings or 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 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.
See Note 16 herein for additional earnings (loss) per share disclosures.
(y) Recent Accounting Standards:
Accounting Changes
AIG adopted the following accounting standards during 2007:
Deferred Acquisition Costs
In September 2005, the American Institute of Certified Public Accountants issued an accounting standard that
provides guidance on accounting for internal replacements of insurance and investment contracts other than those
specifically described in the accounting standard for certain long-duration contracts issued by insurance enterprises.
The statement defines an internal replacement as a modification in product benefits, features, rights, or coverage that
occurs by the exchange of a contract for a new contract, or by amendment, endorsement, or rider to a contract, or by
the election of a feature or coverage within a contract. Internal replacements that result in a substantially changed
contract are accounted for as a termination and a replacement contract.
The statement became effective on January 1, 2007 and generally affects the accounting for internal replacements
occurring after that date. In the first quarter of 2007, AIG recorded a cumulative effect reduction of $82 million, net
of tax, to the opening balance of retained earnings on the date of adoption. This adoption reflected changes in
unamortized DAC, VOBA, deferred sales inducement assets, unearned revenue liabilities and future policy benefits
for life and accident and health insurance contracts resulting from a shorter expected life related to certain group life
and health insurance contracts and the effect on the gross profits of investment-oriented products related to
previously anticipated future internal replacements. This cumulative effect adjustment affected only the domestic and
foreign life insurance & retirement services operations.
217 AIG 2009 Form 10-K