AIG 2010 Annual Report Download - page 350

American International Group, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Noncontrolling interests
In connection with the ongoing execution of its orderly asset disposition plan, as well as plans to timely repay
the FRBNY Credit Facility, AIG transferred two of its wholly owned businesses, AIA and ALICO, to two newly
created special purpose vehicles (SPVs) in exchange for all the common and preferred interests of those SPVs. On
December 1, 2009, AIG transferred the preferred interests in the SPVs to the FRBNY in consideration for a
$25 billion reduction of the outstanding loan balance and of the maximum amount of credit available under the
FRBNY Credit Facility and amended the terms of the FRBNY Credit Facility. The remaining preferred interests,
with an aggregate liquidation preference of approximately $26.4 billion at December 31, 2010, were transferred by
the FRBNY to the Department of the Treasury as part of the closing of the Recapitalization. The remaining
preferred interests, which have an aggregate liquidation preference of approximately $20.3 billion following a
partial repayment on January 14, 2011 with proceeds from the sale of ALICO, were transferred by the FRBNY to
AIG and subsequently transferred to the Department of the Treasury as part of the Recapitalization. Under the
terms of the SPVs’ limited liability company agreements, the SPVs generally may not distribute funds to AIG until
the liquidation preferences and preferred returns on the preferred interests have been repaid in full and
concurrent distributions have been made on certain participating returns attributable to the preferred interests.
The common interests, which were retained by AIG, entitle AIG to 100 percent of the voting power of the
SPVs. The voting power allows AIG to elect the boards of managers of the SPVs, who oversee the management
and operation of the SPVs. Primarily due to the substantive participation rights of the preferred interests, the
SPVs were determined to be variable interest entities. As the primary beneficiary of the SPVs, AIG consolidates
the SPVs.
The rights held by the FRBNY through their ownership of the preferred interests are now held by the
Department of the Treasury. In connection with the Recapitalization, AIG a agreed to cause the proceeds of
certain asset dispositions to be used to redeem the remaining preferred interests.
For the years ended December 31, 2010 and 2009, the Noncontrolling interests balance declined by $2.2 billion
and $4.4 billion. In 2009, this decline reflected the deconsolidation of Transatlantic in the second quarter of 2009
following the public offering of 29.9 million shares of Transatlantic common stock, after which AIG retained
13.9 percent of Transatlantic common stock outstanding. AIG also restructured certain relationships within the
Institutional Asset Management business in 2009, resulting in the deconsolidation of a subsidiary and a related
decline in goodwill of $476 million and noncontrolling interests of $1.9 billion for the year ended December 31,
2009, due to deconsolidation of certain entities.
As a result of the closing of the Recapitalization on January 14, 2011, the SPV non-controlling interests are no
longer be considered permanent equity on AIG’s Consolidated Balance Sheet, and will be classified as redeemable
non-controlling interests in partially owned consolidated subsidiaries. See Notes 1 and 26 herein for a discussion
of the Recapitalization.
Earnings (Loss) Per Share (EPS)
Basic and diluted earnings (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 EPS 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. Basic
earnings (loss) per share is not affected by outstanding stock purchase contracts. Diluted earnings per share is
determined considering the potential dilution from outstanding stock purchase contracts using the treasury stock
method and will not be affected by outstanding stock purchase contracts until the applicable market value per
share exceeds $912.
In connection with the issuance of the Series C Preferred Stock, AIG began applying the two-class method for
calculating EPS. The two-class method is an earnings allocation method for computing EPS when a company’s
334 AIG 2010 Form 10-K