AIG 2009 Annual Report Download - page 26

American International Group, Inc., and Subsidiaries
Credit Agreement), and the TARP preferred stock issued to the Department of the Treasury. AIG’s asset disposition plan
could be adversely affected by an inability to complete asset dispositions due to, among other things:
• an inability of purchasers to obtain funding;
• a general unwillingness of potential buyers to commit capital;
• an adverse change in interest rates and borrowing costs; and
• declines in AIG asset values and deterioration in its businesses.
Further, AIG may be unable to negotiate favorable terms in connection with asset sales, including with respect to
price. As a result, AIG may need to modify its asset disposition plan to sell additional or different assets.
As part of its restructuring efforts, AIG may need to materially alter its capital structure. In connection with its
restructuring efforts, AIG may need to materially alter its current capital structure. This could include the issuance of
additional shares of AIG common stock, par value $2.50 per share (AIG Common Stock) or other equity securities
that may dilute, perhaps significantly, the current holders of AIG Common Stock.
The complexity of executing AIG’s asset disposition plan, combined with the challenges of operating AIG’s
businesses in the current environment, could place further stress on AIG’s internal controls, increase AIG’s costs and
divert the attention of AIG management and employees from their normal duties. The execution of AIG’s asset
disposition plan has introduced a large number of complex and non-standard transactions which are placing a strain
on existing resources, systems and communication channels. Furthermore, AIG’s employees are operating in an
environment where the frequency and uncertainty of developments could decrease the attention devoted to internal
controls over financial reporting. Although AIG is taking steps to mitigate these risks, including through the use of
third party consultants and advance planning, it is possible that these risks could delay AIG from preparing timely
financial statements and making required filings in a timely manner, and otherwise adversely affect AIG’s internal
controls over financial reporting.
The restructuring of AIG’s businesses is a complex undertaking requiring the creation of standalone infrastructure
and systems at certain subsidiaries. The duplication of infrastructure and systems will continue to increase AIG’s costs.
Highly Leveraged Capital Structure
AIG has a highly leveraged capital structure and has significant preferred stock outstanding. As of December 31, 2009,
AIG had approximately $141.5 billion of consolidated indebtedness, including $23.4 billion and $4.7 billion
outstanding under the FRBNY Credit Facility (all of which is secured indebtedness) and the FRBNY Commercial
Paper Funding Facility (CPFF), respectively. In addition, as of the same date, AIG had $41.6 billion and $5.3 billion
aggregate liquidation preference of AIG Series E Preferred Stock and AIG Series F Preferred Stock, respectively. The
market capitalization of the AIG Common Stock was $4.0 billion as of December 31, 2009 and $3.6 billion at
February 17, 2010.
This highly leveraged capital structure may have several important consequences on AIG’s future operations,
including, but not limited to:
• The obligations of AIG under the AIG Series E Preferred Stock and AIG Series F Preferred Stock are
significantly in excess of the market capitalization of the AIG Common Stock, and, in the event of a liquidation,
dissolution or winding up of AIG, all of these preferred stock obligations would have to be paid before any
payment could be made on the AIG Common Stock. Moreover, AIG may make further drawdowns on the
commitment of the Department of the Treasury under the AIG Series F Preferred Stock (the Department of the
Treasury Commitment) and thereby increase its preferred stock obligations.
• AIG does not anticipate paying dividends on the AIG Common Stock in the foreseeable future.
• The trading market for the AIG Common Stock has been extremely volatile and this volatility may continue for
the foreseeable future.
AIG 2009 Form 10-K 18