Bring on tomorrow - AIG.com

ITEM 7 / RESULTS OF OPERATIONS.....................................................................................................................................................................................AIG 2011 and 2010 ComparisonIncome from continuing operations before income taxes for 2011 and 2010 reflected the following:• pre-tax income from insurance operations of $4.8 billion in 2011 which included the catastrophe losses describedabove, compared to $2.6 billion in 2010, which included catastrophe losses of $1.1 billion;• a $3.3 billion net loss on extinguishment of debt from the termination of the FRBNY Credit Facility on January 14,2011. This was partially offset by a $484 million gain on extinguishment of debt in the fourth quarter of 2011 due tothe exchange of junior subordinated debt;• $604 million in unfavorable fair value adjustments on AIG’s economic interest in ML II and equity interest in ML III(together, the Maiden Lane Interests);• our 2010 results included gains of $19.6 billion on sales of divested businesses. These included a $18.1 billiongain from the initial public offering and listing of AIA ordinary shares on the Hong Kong Stock Exchange onOctober 29, 2010, and a gain of $1.3 billion recognized in 2010 related to the sale of our headquarters building inTokyo in 2009, which gain had been deferred until the expiration of certain lease provisions; and• we had income in 2010 from divested businesses prior to their sale totaling $2.4 billion, primarily representing AIA.Partially offsetting these declines were:• a decrease in interest expense of $4.1 billion primarily resulting from the January 2011 repayment of the FRBNYCredit Facility;• an increase in the fair value of AIA ordinary shares; and• a reduction in realized capital losses in 2011 compared to 2010.As discussed above, AIG released $18.4 billion of the deferred tax asset valuation allowance for the U.S.consolidated income tax group in 2011.For the year ended December 31, 2010, the effective tax rate on pre-tax income from continuing operations was34.5 percent. This rate differs from the statutory rate primarily due to tax benefits of $1.3 billion associated with ourinvestment in subsidiaries and partnerships, principally the AIA SPV which is treated as a partnership for U.S. taxpurposes, and $587 million associated with tax exempt interest, partially offset by an increase in the deferred taxasset valuation allowance attributable to continuing operations of $1.4 billion.In 2011, AIG recorded income from discontinued operations net of taxes of $1.8 billion, which included a pre-tax gainof $3.5 billion recorded in the first quarter of 2011 on the sale of AIG Star Life Insurance Co., Ltd. (AIG Star) andAIG Edison Life Insurance Company (AIG Edison). This compared to a net loss of $969 million in 2010, whichincluded goodwill impairment charges of $4.6 billion associated with the sale of American Life Insurance Company(ALICO), AIG Star and AIG Edison...................................................................................................................................................................................................................................70 AIG 2012 Form 10-K