2007 Annual Report - AIG.com

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American International Group, Inc. and Subsidiaries Management’s Discussion and Analysis of Financial Condition and Results of Operations Continued At December 31, 2007 and 2006, AIG’s net borrowings amounted to $20.3 billion and $15.4 billion, respectively, as follows: (in millions) 2007 2006 AIG’s total borrowings $176,049 $148,679 Less: Junior subordinated debt 5,809 — Liabilities connected to trust preferred stock 1,435 1,440 MIP matched notes and bonds payable 14,267 5,468 Series AIGFP matched notes and bonds payable 874 72 AIGFP GIAs 19,908 20,664 Notes and bonds payable 36,676 37,528 Loans and mortgages payable 1,384 — Hybrid financial instrument liabilities* 7,479 8,856 Borrowings not guaranteed by AIG 67,881 59,277 AIG’s net borrowings $ 20,336 $ 15,374 * Represents structured notes issued by AIGFP that are accounted for at fair value. A roll forward of long-term borrowings, excluding borrowings of consolidated investments, for the year ended December 31, 2007 is as follows: Balance at Maturities Effect of Balance at December 31, and Foreign Other December 31, (in millions) 2006 Issuances Repayments Exchange Changes 2007 AIG Notes and bonds payable $ 8,915 $ 5,591 $ (165) $ 122 $ 125 $ 14,588 Junior subordinated debt — 5,590 — 218 1 5,809 Loans and mortgages payable 841 600 (724) 12 — 729 MIP matched notes and bonds payable 5,468 8,092 — (4) 711 14,267 Series AIGFP matched notes and bonds payable 72 810 (10) — 2 874 AIGFP GIAs 20,664 8,830 (10,172) 43 543 19,908 Notes and bonds payable and hybrid financial instrument liabilities 46,384 50,854 (53,540) 321 136 44,155 Loans and mortgages payable — 1,388 (9) 9 (4) 1,384 AIGLH notes and bonds payable 797 — — — — 797 Liabilities connected to trust preferred stock 1,440 — — — (5) 1,435 ILFC notes and bonds payable 25,592 3,783 (3,938) 295 5 25,737 ILFC junior subordinated debt 999 — — — — 999 AGF notes and bonds payable 19,261 7,481 (4,824) 255 196 22,369 AGF junior subordinated debt — 349 — — — 349 AIGCFG loans and mortgages payable 1,453 3,941 (3,647) 98 (6) 1,839 Other subsidiaries 672 189 (189) 3 100 775 Total $132,558 $97,498 $(77,218) $1,372 $1,804 $156,014 AIG (Parent Company) AIG intends to continue its customary practice of issuing debt securities from time to time to meet its financing needs and those of certain of its subsidiaries for general corporate purposes, as well as for the MIP. As of December 31, 2007, AIG had up to $17.5 billion of debt securities, preferred stock and other securities, and up to $12.0 billion of common stock, registered and available for issuance under its universal shelf registration statement. AIG maintains a medium-term note program under its shelf registration statement. As of December 31, 2007, approximately $7.3 billion principal amount of senior notes were outstanding under the medium-term note program, of which $3.2 billion was used for AIG’s general corporate purposes, $873 million was used by AIGFP (referred to as ‘‘Series AIGFP’’ in the preceding tables) and $3.2 billion was used to fund the MIP. The maturity dates of these notes range from 2008 to 2052. To the extent deemed appropriate, AIG may enter into swap transactions to manage its effective borrowing rates with respect to these notes. AIG also maintains a Euro medium-term note program under which an aggregate nominal amount of up to $20.0 billion of senior notes may be outstanding at any one time. As of December 31, 2007, the equivalent of $12.7 billion of notes were outstanding under the program, of which $9.8 billion were used to fund the MIP and the remainder was used for AIG’s general 90 AIG 2007 Form 10-K
American International Group, Inc. and Subsidiaries corporate purposes. The aggregate amount outstanding includes obligations of AIGFP under AIGFP’s notes and bonds and GIA $1.1 billion loss resulting from foreign exchange translation into borrowings. See Liquidity herein and Note 8 to Consolidated U.S. dollars, of which $332 million loss relates to notes issued by Financial Statements. AIG for general corporate purposes and $726 million loss relates AIGFP has a Euro medium-term note program under which an to notes issued to fund the MIP. AIG has economically hedged the aggregate nominal amount of up to $20.0 billion of notes may be currency exposure arising from its foreign currency denominated outstanding at any one time. As of December 31, 2007, notes. $6.2 billion of notes were outstanding under the program. The During 2007, AIG issued in Rule 144A offerings an aggregate notes issued under this program are guaranteed by AIG and are of $3.0 billion principal amount of senior notes, of which included in AIGFP’s notes and bonds payable in the table of total $650 million was used to fund the MIP and $2.3 billion was used borrowings. for AIG’s general corporate purposes. AIG maintains a shelf registration statement in Japan, providing AIG Funding for the issuance of up to Japanese Yen 300 billion principal AIG Funding, Inc. (AIG Funding) issues commercial paper that is amount of senior notes, of which the equivalent of $450 million guaranteed by AIG in order to help fulfill the short-term cash was outstanding as of December 31, 2007 and was used for requirements of AIG and its subsidiaries. The issuance of AIG AIG’s general corporate purposes. AIG also maintains an Austra- Funding’s commercial paper, including the guarantee by AIG, is lian dollar debt program under which senior notes with an subject to the approval of AIG’s Board of Directors or the Finance aggregate principal amount of up to 5 billion Australian dollars Committee of the Board if it exceeds certain pre-approved limits. may be outstanding at any one time. Although as of Decem- As backup for the commercial paper program and for other ber 31, 2007 there were no outstanding notes under the general corporate purposes, AIG and AIG Funding maintain Australian program, AIG intends to use the program opportunistirevolving credit facilities, which, as of December 31, 2007, had cally to fund the MIP or for AIG’s general corporate purposes. an aggregate of $9.3 billion available to be drawn and which are During 2007, AIG issued an aggregate of $5.6 billion of junior summarized below under Revolving Credit Facilities. subordinated debentures in five series of securities. Substantially all of the proceeds from these sales, net of expenses, are being used to repurchase shares of AIG’s common stock. In connection ILFC with each series of junior subordinated debentures, AIG entered ILFC fulfills its short-term cash requirements through operating into a Replacement Capital Covenant (RCC) for the benefit of the cash flows and the issuance of commercial paper. The issuance holders of AIG’s 6.25 percent senior notes due 2036. The RCCs of commercial paper is subject to the approval of ILFC’s Board of provide that AIG will not repay, redeem, or purchase the Directors and is not guaranteed by AIG. ILFC maintains syndicated applicable series of junior subordinated debentures on or before a revolving credit facilities which, as of December 31, 2007, totaled specified date, unless AIG has received qualifying proceeds from $6.5 billion and which are summarized below under Revolving the sale of replacement capital securities. Credit Facilities. These facilities are used as back up for ILFC’s In October 2007, AIG borrowed a total of $500 million on an maturing debt and other obligations. unsecured basis pursuant to a loan agreement with a third-party As a well-known seasoned issuer, ILFC has filed an automatic bank. The entire amount of the loan remained outstanding at shelf registration statement with the SEC allowing ILFC immediate December 31, 2007 and matures in October 2008. access to the U.S. public debt markets. At December 31, 2007, AIG began applying hedge accounting for certain AIG parent $4.7 billion of debt securities had been issued under this transactions in the first quarter of 2007. registration statement and $5.9 billion had been issued under a prior registration statement. In addition, ILFC has a Euro medium- AIGFP term note program for $7.0 billion, under which $3.8 billion in notes were outstanding at December 31, 2007. Notes issued AIGFP uses the proceeds from the issuance of notes and bonds under the Euro medium-term note program are included in ILFC and GIA borrowings, as well as the issuance of Series AIGFP notes and bonds payable in the preceding table of borrowings. notes by AIG, to invest in a diversified portfolio of securities and The cumulative foreign exchange adjustment loss for the foreign derivative transactions. The borrowings may also be temporarily currency denominated debt resulting from the effect of hedging invested in securities purchased under agreements to resell. activities that did not qualify for hedge accounting treatment under AIGFP’s notes and bonds include structured debt instruments FAS 133 was $969 million at December 31, 2007 and $733 milwhose payment terms are linked to one or more financial or other lion at December 31, 2006. ILFC has substantially eliminated the indices (such as an equity index or commodity index or another currency exposure arising from foreign currency denominated measure that is not considered to be clearly and closely related to notes by economically hedging the portion of the note exposure the debt instrument). These notes contain embedded derivatives not already offset by Euro-denominated operating lease payments. that otherwise would be required to be accounted for separately ILFC had a $4.3 billion Export Credit Facility for use in under FAS 133. Upon AIG’s early adoption of FAS 155, AIGFP connection with the purchase of approximately 75 aircraft delivelected the fair value option for these notes. The notes that are ered through 2001. This facility was guaranteed by various accounted for using the fair value option are reported separately European Export Credit Agencies. The interest rate varies from under hybrid financial instrument liabilities. AIG guarantees the AIG 2007 Form 10-K 91
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AMERICAN INTERNATIONAL GROUP, INC.
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FINANCIAL HIGHLIGHTS (in millions,
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overall financial condition, althou
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Group Executive Committee We are ad
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AIG’s life insurance network is t
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We have also begun to address the e
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WHAT WE SEE The ability to see and
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The Major Accounts Practice within
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Around the world, the middle class
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WE SEE GROWTH OPPORTUNITIES IN EMER
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To grow the strength of the AIG glo
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Since 2003, the AIG Disaster Relief
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RESPECT Respect encompasses how we
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Life Insurance & Retirement Service
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Domestic Brokerage Group— Gross P
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In the summer of 2007, widespread f
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in gross premiums written. It launc
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It grew new business premiums from
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emerging markets for its services,
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ILFC—Revenues by Region Total = $
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AIG Investments acquired a 94 perce
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and changing interest rates, as wel
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American International Group, Inc.
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UNITED STATES SECURITIES AND EXCHAN
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SHAREHOLDER INFORMATION Corporate H
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