2007 Annual Report - AIG.com

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American International Group, Inc. and Subsidiaries Notes to Consolidated Financial Statements Continued 13. Preferred Shareholders’ Equity in Subsidiary 14. Shareholders’ Equity and Earnings Per Companies Share At December 31, 2007, preferred shareholders’ equity in subsidi- Shareholders’ Equity ary companies represents preferred stocks issued by ILFC, a wholly owned subsidiary of AIG. At December 31, 2007, the 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. During 2006, ILFC extended each of the MAPS dividend periods for three years. At December 31, 2007, the dividend rate for Series A MAPS was 4.70 percent and the dividend rate for Series B MAPS was 5.59 percent. AIG parent depends on its subsidiaries for cash flow in the form of loans, advances, reimbursement for shared expenses, and dividends. AIG’s insurance subsidiaries are subject to regulatory restrictions on the amount of dividends that can be remitted to AIG parent. These restrictions vary by jurisdiction. For example, unless permitted by the New York Superintendent of Insurance, general insurance companies domiciled in New York may not pay dividends to shareholders that, in any twelve-month period, exceed the lesser of ten percent of such company’s statutory policyholders’ surplus or 100 percent of its ‘‘adjusted net investment income,’’ as defined. Generally, less severe restrictions applicable to both general and life insurance companies exist in most of the other states in which AIG’s insurance subsidiaries are domiciled. Certain foreign jurisdictions have restrictions that could delay or limit the remittance of dividends. There are also various local restrictions limiting cash loans and advances to AIG by its subsidiaries. Largely as a result of these restrictions, approximately 81 percent of the aggregate equity of AIG’s consolidated subsidiaries was restricted from immediate transfer to AIG parent at December 31, 2007. Dividends declared per common share were $0.77, $0.65, and $0.63 in 2007, 2006, and 2005, respectively. During 2007 and 2005, AIG repurchased 76 million and 2 million shares of its common stock, respectively, at a total cost of $5.1 billion and $165 million, respectively. The average price paid per share for repurchased shares was $66.84 and $66.46 in 2007 and 2005, respectively. During 2006, AIG did not purchase any shares of its common stock under its existing share repurchase authorization. At December 31, 2007, there were 6,000,000 shares of AIG’s $5 par value serial preferred stock authorized, issuable in series, none of which were outstanding. 180 AIG 2007 Form 10-K
American International Group, Inc. and Subsidiaries 14. Shareholders’ Equity and Earnings Per Share Continued Earnings Per Share Basic earnings per share is 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. The computation of earnings per share for the years ended December 31, 2007, 2006 and 2005 was as follows: Years Ended December 31, (in millions, except per share data) 2007 2006 2005 Numerator for earnings per share: Income before cumulative effect of an accounting change $6,200 $14,014 $10,477 Cumulative effect of an accounting change, net of tax — 34 — Net income applicable to common stock for basic EPS 6,200 14,048 10,477 Interest on contingently convertible bonds, net of tax — 10 11 Net income applicable to common stock for diluted EPS 6,200 14,058 10,488 Cumulative effect of an accounting change, net of tax — (34) — Income before cumulative effect of an accounting change applicable to common stock for diluted EPS $6,200 $14,024 $10,488 Denominator for earnings per share: Weighted average shares outstanding used in the computation of EPS: Common stock issued 2,751 2,751 2,751 Common stock in treasury (179) (153) (155) Deferred shares 13 10 1 Weighted average shares outstanding — basic 2,585 2,608 2,597 Incremental shares from potential common stock: Weighted average number of shares arising from outstanding employee stock plans (treasury stock method) * 13 7 21 Contingently convertible bonds — 8 9 Weighted average shares outstanding — diluted * 2,598 2,623 2,627 Earnings per share: Basic: Income before cumulative effect of an accounting change $ 2.40 $ 5.38 $ 4.03 Cumulative effect of an accounting change, net of tax — 0.01 — Net income $ 2.40 $ 5.39 $ 4.03 Diluted: Income before cumulative effect of an accounting change $ 2.39 $ 5.35 $ 3.99 Cumulative effect of an accounting change, net of tax — 0.01 — Net income $ 2.39 $ 5.36 $ 3.99 * Certain shares arising from employee stock plans were not included in the computation of diluted earnings per share if the exercise price of the options exceeded the average market price and were antidilutive. The number of shares excluded were 8 million, 13 million and 19 million for the years ended December 31, 2007, 2006 and 2005, respectively. AIG 2007 Form 10-K 181
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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 183 and 184: American International Group, Inc.
Page 191 and 192: Index of Notes to Consolidated Fina
Page 233: American International Group, Inc.
Page 275 and 276: SHAREHOLDER INFORMATION Corporate H
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2007 Annual Report - AIG.com

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