2007 Annual Report - AIG.com

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American International Group, Inc. and Subsidiaries Notes to Consolidated Financial Statements Continued 2. Segment Information Continued The following table summarizes AIG’s Financial Services operations by major internal reporting unit for the years ended December 31, 2007, 2006 and 2005: Financial Services Total Consolidation Total Aircraft Capital Consumer Reportable and Financial (in millions) Leasing (a) Markets (b) Finance (c) Other Segment Elimination Services 2007 Total revenues (d)(e)(f)(g) $ 4,694 $ (9,979) $ 3,655 $ 1,471 $ (159) $ (1,150) $ (1,309) Interest expense (e) 1,650 4,644 1,437 63 7,794 — 7,794 Operating income (loss) (e)(f)(g) 873 (10,557) 171 (2) (9,515) — (9,515) Depreciation expense 1,751 24 41 15 1,831 — 1,831 Capital expenditures 4,164 21 62 322 4,569 — 4,569 Year-end identifiable assets 44,970 115,487 36,822 17,357 214,636 (10,742) 203,894 2006 Total revenues (d)(e) $ 4,082 $ (186) $ 3,587 $ 320 $ 7,803 $ (26) $ 7,777 Interest expense (e) 1,442 3,215 1,303 108 6,068 (63) 6,005 Operating income (loss) 578 (873) 668 10 383 — 383 Depreciation expense 1,584 19 41 11 1,655 — 1,655 Capital expenditures 6,012 15 52 199 6,278 — 6,278 Year-end identifiable assets 41,975 121,243 32,702 12,368 208,288 (5,803) 202,485 2005 Total revenues (d)(e) $ 3,668 $ 3,260 $ 3,563 $ 206 $ 10,697 $ (20) $ 10,677 Interest expense (e) 1,125 3,033 1,005 201 5,364 (200) 5,164 Operating income 769 2,661 922 72 4,424 — 4,424 Depreciation expense 1,384 20 38 5 1,447 — 1,447 Capital expenditures 6,193 3 54 50 6,300 — 6,300 Year-end identifiable assets 37,515 90,090 30,704 7,984 166,293 (4,374) 161,919 (a) Both revenues and operating income include gains (losses) from hedging activities that did not qualify for hedge accounting treatment under FAS 133, including the related foreign exchange gains and losses. In 2007, 2006 and 2005, the effect was $(37) million, $(73) million and $93 million, respectively. These amounts result primarily from interest rate and foreign currency derivatives that are effective economic hedges of borrowings. In the second quarter of 2007, ILFC began applying hedge accounting to most of its derivatives hedging interest rate and foreign exchange risks associated with its floating rate and foreign currency denominated borrowings. (b) Both revenues and operating income include gains (losses) from hedging activities that did not qualify for hedge accounting treatment under FAS 133, including the related foreign exchange gains and losses. In 2007, 2006 and 2005, the effect was $211 million, $(1.82) billion and $2.01 billion, respectively. The year ended December 31, 2007 includes a $380 million out of period charge to reverse net gains recognized on transfers of available for sale securities among legal entities consolidated within AIGFP. The year ended December 31, 2006 includes an out of period charge of $223 million related to the remediation of the material weakness in internal control over the accounting for certain derivative transactions under FAS 133. In the first quarter of 2007, AIGFP began applying hedge accounting for certain of its interest rate swaps and foreign currency forward contracts hedging its investments and borrowings. (c) Both revenues and operating income include gains (losses) from hedging activities that did not qualify for hedge accounting treatment under FAS 133, including the related foreign exchange gains and losses. In 2007, 2006 and 2005, the effect was $(20) million, $(94) million and $75 million, respectively. These amounts result primarily from interest rate and foreign currency derivatives that are effective economic hedges of borrowings. In the second quarter of 2007, AGF began applying hedge accounting to most of its derivatives hedging interest rate and foreign exchange risks associated with its floating rate and foreign currency denominated borrowings. (d) Represents primarily the sum of aircraft lease rentals from ILFC, AIGFP hedged financial positions entered into in connection with counterparty transactions, the effect of hedging activities that did not qualify for hedge accounting treatment under FAS 133, including the related foreign exchange gains and losses, and finance charges from consumer finance operations. (e) Interest expense for the Capital Markets business is included in Revenues above and in Other income in the consolidated statement of income. (f) Both revenues and operating income (loss) include an unrealized market valuation loss of $11.5 billion on AIGFP’s super senior credit default swap portfolio and an other-than-temporary impairment charge of $643 million on AIGFP’s available for sale investment securities reported in other income. (g) Includes a pre-tax charge of $178 million in connection with domestic consumer finance’s mortgage banking activities. 152 AIG 2007 Form 10-K
American International Group, Inc. and Subsidiaries 2. Segment Information Continued A substantial portion of AIG’s operations is conducted in countries other than the United States and Canada. The following table summarizes AIG’s operations by major geographic segment. Allocations have been made on the basis of the location of operations and assets. Geographic Segments Other (in millions) Domestic (a) Far East Foreign Consolidated 2007 Total revenues $46,402 $36,512 $27,150 $110,064 Real estate and other fixed assets, net of accumulated depreciation 3,202 1,404 912 5,518 Flight equipment primarily under operating leases, net of accumulated depreciation (b) 41,984 — — 41,984 2006 Total revenues $57,984 $33,883 $21,520 $113,387 Real estate and other fixed assets, net of accumulated depreciation 2,432 1,082 867 4,381 Flight equipment primarily under operating leases, net of accumulated depreciation (b) 39,875 — — 39,875 2005 Total revenues $59,858 $32,076 $16,847 $108,781 Real estate and other fixed assets, net of accumulated depreciation 1,905 929 807 3,641 Flight equipment primarily under operating leases, net of accumulated depreciation (b) 36,245 — — 36,245 (a) Including revenues from insurance operations in Canada of $1.3 billion, $1.1 billion and $968 million in 2007, 2006 and 2005, respectively. (b) Approximately 90 percent of ILFC’s fleet is operated by foreign airlines. 3. Investments (b) Net Investment Income: An analysis of net investment income follows: (a) Statutory Deposits: Cash and securities with carrying Years Ended December 31, values of $13.6 billion and $14.8 billion were deposited by AIG’s (in millions) 2007 2006 2005 insurance subsidiaries under requirements of regulatory authori- Fixed maturities (a) $22,330 $20,393 $18,690 ties at December 31, 2007 and 2006, respectively. Equities 2,361 1,733 1,716 Interest on mortgage and other loans 1,423 1,253 1,177 Partnerships 1,986 1,596 1,056 Mutual funds 650 845 4 Other invested assets (b) 941 1,293 820 Total investment income 29,691 27,113 23,463 Investment expenses 1,072 1,043 879 Net investment income $28,619 $26,070 $22,584 (a) Includes short-term investments. (b) Includes net investment income from securities lending activities, representing interest earned on securities lending invested collateral offset by interest expense on securities lending payable. AIG 2007 Form 10-K 153
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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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Page 155 and 156: American International Group, Inc.
Page 191 and 192: Index of Notes to Consolidated Fina
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SHAREHOLDER INFORMATION Corporate H
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