UNITED STATES

 

  

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2014

Commission File Number 1-8787

 

 

 

American International Group, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

13-2592361

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

175 Water Street, New York, New York

10038

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (212) 770-7000

________________

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes      No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes      No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☑ 

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company ☐

 

 

(Do not check if a

smaller reporting company)

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐     No  

 

As of October 29, 2014, there were 1,399,912,329 shares outstanding of the registrant’s common stock.

 


 

AMERICAN INTERNATIONAL GROUP, INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED

September 30, 2014

Table of Contents

FORM 10-Q

 

Item Number
Description
Page
PART I — FINANCIAL INFORMATION
 

Item 1

Condensed Consolidated Financial Statements

2

 

Note 1.

Basis of Presentation

7

 

Note 2.

Summary of Significant Accounting Policies

8

 

Note 3.

Segment Information

11

 

Note 4.  

Held-For-Sale Classification and Discontinued Operations

13

 

Note 5.

Fair Value Measurements

14

 

Note 6.

Investments

33

 

Note 7.

Lending Activities

41

 

Note 8.

Variable Interest Entities

42

 

Note 9.

Derivatives and Hedge Accounting

44

 

Note 10.

Contingencies, Commitments and Guarantees

51

 

Note 11.

Equity

59

 

Note 12.

Noncontrolling Interests

63

 

Note 13.

Earnings Per Share

64

 

Note 14.  

Employee Benefits

65

 

Note 15.

Income Taxes

66

 

Note 16.

Information Provided in Connection with Outstanding Debt

68

 

Note 17.

Subsequent Events

75

 

 

 

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of

  

 

Operations

76

 

·       Cautionary Statement Regarding Forward-Looking Information

76

 

·       Use of Non-GAAP Measures

79

 

·       Executive Overview

81

 

·       Results of Operations

93

 

·       Liquidity and Capital Resources

149

 

·       Investments

165

 

·       Enterprise Risk Management

183

 

·       Critical Accounting Estimates

188

 

·       Regulatory Environment

188

 

·       Glossary

190

 

·       Acronyms

194

 

 

 

Item 3

Quantitative and Qualitative Disclosures About Market Risk

195  

Item 4

Controls and Procedures

195  

PART II — OTHER INFORMATION
 

Item 1

Legal Proceedings

196  

Item 1A

Risk Factors

196

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

196

Item 4

Mine Safety Disclosures

196

Item 5

Other Information

196

Item 6

Exhibits

197  

SIGNATURES
198  

  

 

1


 

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

  

American International Group, Inc.

Condensed Consolidated Balance Sheets (unaudited)

 

September 30,

December 31,

(in millions, except for share data)

 

2014

 

2013

Assets:

 

 

 

 

Investments:

 

 

 

 

Fixed maturity securities:

 

 

 

 

Bonds available for sale, at fair value (amortized cost: 2014 - $249,920; 2013 - $248,531)

$

 265,786 

$

 258,274 

Other bond securities, at fair value (See Note 6)

 

 20,381 

 

 22,623 

Equity Securities:

 

 

 

 

Common and preferred stock available for sale, at fair value (cost: 2014 - $2,066; 2013 - $1,726)

 

 4,344 

 

 3,656 

Other common and preferred stock, at fair value (See Note 6)

 

 766 

 

 834 

Mortgage and other loans receivable, net of allowance (portion measured at fair value: 2014 - $6; 2013 - $0)

 

 23,397 

 

 20,765 

Other invested assets (portion measured at fair value: 2014 - $9,045; 2013 - $8,598)

 

 33,908 

 

 28,659 

Short-term investments (portion measured at fair value: 2014 - $4,191; 2013 - $6,313)

 

 17,852 

 

 21,617 

Total investments

 

 366,434 

 

 356,428 

 

 

 

 

 

Cash

 

 1,933 

 

 2,241 

Accrued investment income

 

 2,877 

 

 2,905 

Premiums and other receivables, net of allowance

 

 13,236 

 

 12,939 

Reinsurance assets, net of allowance

 

 23,864 

 

 23,829 

Deferred income taxes

 

 19,606 

 

 21,925 

Deferred policy acquisition costs

 

 9,603 

 

 9,436 

Derivative assets, at fair value

 

 1,588 

 

 1,665 

Other assets, including restricted cash of $1,238 in 2014 and $865 in 2013 (portion measured at fair value:

 

 

 

 

2014 - $0; 2013 - $418)

 

 10,239 

 

 9,366 

Separate account assets, at fair value

 

 77,810 

 

 71,059 

Assets held-for-sale

 

 - 

 

 29,536 

Total assets

$

 527,190 

$

 541,329 

Liabilities:

 

 

 

 

Liability for unpaid claims and claims adjustment expense

$

 78,674 

$

 81,547 

Unearned premiums

 

 23,695 

 

 21,953 

Future policy benefits for life and accident and health insurance contracts

 

 42,431 

 

 40,653 

Policyholder contract deposits (portion measured at fair value: 2014 - $1,044; 2013 - $384)

 

 123,744 

 

 122,016 

Other policyholder funds (portion measured at fair value: 2014 - $8; 2013 - $0)

 

 4,718 

 

 5,083 

Derivative liabilities, at fair value

 

 2,502 

 

 2,511 

Other liabilities (portion measured at fair value: 2014 - $402; 2013 - $933)

 

 28,410 

 

 29,155 

Long-term debt (portion measured at fair value: 2014 - $5,667; 2013 - $6,747)

 

 36,223 

 

 41,693 

Separate account liabilities

 

 77,810 

 

 71,059 

Liabilities held-for-sale

 

 - 

 

 24,548 

Total liabilities

 

 418,207 

 

 440,218 

Contingencies, commitments and guarantees (see Note 10)

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests (see Note 12)

 

 - 

 

 30 

 

 

 

 

 

AIG shareholders’ equity:

 

 

 

 

Common stock, $2.50 par value; 5,000,000,000 shares authorized; shares issued: 2014 - 1,906,671,492 and

 

 

 

 

2013 - 1,906,645,689

 

 4,766 

 

 4,766 

Treasury stock, at cost; 2014 - 502,898,541 shares; 2013 - 442,582,366 shares

 

 (17,720) 

 

 (14,520) 

Additional paid-in capital

 

 80,904 

 

 80,899 

Retained earnings

 

 29,300 

 

 22,965 

Accumulated other comprehensive income

 

 11,331 

 

 6,360 

Total AIG shareholders’ equity

 

 108,581 

 

 100,470 

Non-redeemable noncontrolling interests (including $100 associated with businesses held for sale in 2013)

 

 402 

 

 611 

Total equity

 

 108,983 

 

 101,081 

Total liabilities and equity

$

 527,190 

$

 541,329 

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

2


TABLE OF CONTENTS 

 

Item 1 / Financial statements

 

American International Group, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME  (unaudited)

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

(dollars in millions, except per share data)

 

 

2014

 

 

2013

 

 

2014

 

 

2013

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Premiums

 

$

 9,453 

 

$

 9,352 

 

$

 27,949 

 

$

 27,924 

Policy fees

 

 

 743 

 

 

 645 

 

 

 2,136 

 

 

 1,883 

Net investment income

 

 

 4,028 

 

 

 3,573 

 

 

 12,108 

 

 

 11,581 

Net realized capital gains:

 

 

 

 

 

 

 

 

 

 

 

 

Total other-than-temporary impairments on available for sale securities

 

 

 (34) 

 

 

 (33) 

 

 

 (116) 

 

 

 (90) 

Portion of other-than-temporary impairments on available for sale

 

 

 

 

 

 

 

 

 

 

 

 

fixed maturity securities recognized in Other comprehensive income (loss)

 

 

 (1) 

 

 

 (6) 

 

 

 (21) 

 

 

 (17) 

Net other-than-temporary impairments on available for sale

 

 

 

 

 

 

 

 

 

 

 

 

securities recognized in net income

 

 

 (35) 

 

 

 (39) 

 

 

 (137) 

 

 

 (107) 

Other realized capital gains

 

 

 505 

 

 

 291 

 

 

 495 

 

 

 2,250 

Total net realized capital gains

 

 

 470 

 

 

 252 

 

 

 358 

 

 

 2,143 

Aircraft leasing revenue

 

 

 - 

 

 

 1,118 

 

 

 1,602 

 

 

 3,303 

Other income

 

 

 1,960 

 

 

 1,004 

 

 

 4,718 

 

 

 4,498 

Total revenues

 

 

 16,654 

 

 

 15,944 

 

 

 48,871 

 

 

 51,332 

Benefits, claims and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Policyholder benefits and claims incurred

 

 

 7,203 

 

 

 7,416 

 

 

 20,771 

 

 

 22,234 

Interest credited to policyholder account balances

 

 

 882 

 

 

 924 

 

 

 2,800 

 

 

 2,913 

Amortization of deferred acquisition costs

 

 

 1,288 

 

 

 1,220 

 

 

 3,989 

 

 

 3,859 

Other acquisition and insurance expenses

 

 

 2,117 

 

 

 2,251 

 

 

 6,447 

 

 

 6,734 

Interest expense

 

 

 430 

 

 

 516 

 

 

 1,372 

 

 

 1,628 

Aircraft leasing expenses

 

 

 - 

 

 

 1,119 

 

 

 1,585 

 

 

 3,243 

Loss on extinguishment of debt

 

 

 742 

 

 

 81 

 

 

 1,014 

 

 

 459 

Net (gain) loss on sale of divested businesses

 

 

 (18) 

 

 

 - 

 

 

 (2,196) 

 

 

 47 

Other expenses

 

 

 991 

 

 

 1,239 

 

 

 3,317 

 

 

 2,997 

Total benefits, claims and expenses

 

 

 13,635 

 

 

 14,766 

 

 

 39,099 

 

 

 44,114 

Income from continuing operations before income tax expense

 

 

 3,019 

 

 

 1,178 

 

 

 9,772 

 

 

 7,218 

Income tax expense (benefit)

 

 

 820 

 

 

 (970) 

 

 

 2,908 

 

 

 172 

Income from continuing operations

 

 

 2,199 

 

 

 2,148 

 

 

 6,864 

 

 

 7,046 

Income (loss) from discontinued operations, net of income tax expense

 

 

 2 

 

 

 (18) 

 

 

 (15) 

 

 

 73 

Net income

 

 

 2,201 

 

 

 2,130 

 

 

 6,849 

 

 

 7,119 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) from continuing operations attributable to

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests

 

 

 9 

 

 

 (40) 

 

 

 (25) 

 

 

 12 

Net income attributable to AIG

 

$

 2,192 

 

$

 2,170 

 

$

 6,874 

 

$

 7,107 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) per common share attributable to AIG:

 

 

 

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

 1.54 

 

$

 1.48 

 

$

 4.78 

 

$

 4.77 

Income (loss) from discontinued operations

 

$

 - 

 

$

 (0.01) 

 

$

 (0.01) 

 

$

 0.05 

Net income attributable to AIG

 

$

 1.54 

 

$

 1.47 

 

$

 4.77 

 

$

 4.82 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

 1.52 

 

$

 1.47 

 

$

 4.72 

 

$

 4.75 

Income (loss) from discontinued operations

 

$

 - 

 

$

 (0.01) 

 

$

 (0.01) 

 

$

 0.05 

Net income attributable to AIG

 

$

 1.52 

 

$

 1.46 

 

$

 4.71 

 

$

 4.80 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 1,419,239,774 

 

 

 1,475,053,126 

 

 

 1,440,148,774 

 

 

 1,476,007,034 

Diluted

 

 

 1,442,067,842 

 

 

 1,485,322,858 

 

 

 1,459,483,233 

 

 

 1,481,410,873 

Dividends declared per common share

 

$

 0.125 

 

$

 0.10 

 

$

 0.375 

 

$

 0.10 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

 

 

 

 

 

 

 

 

3


TABLE OF CONTENTS 

 

Item 1 / Financial statements

 

American International Group, Inc.

cONDENSED Consolidated Statements of Comprehensive Income (unaudited)

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

(in millions)

 

 

2014

 

 

2013

 

 

2014

 

 

2013

Net income

 

$

 2,201 

 

$

 2,130 

 

$

 6,849 

 

$

 7,119 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized appreciation (depreciation) of fixed maturity investments on

 

 

 

 

 

 

 

 

 

 

 

 

which other-than-temporary credit impairments were taken

 

 

 59 

 

 

 (23) 

 

 

 174 

 

 

 172 

Change in unrealized appreciation (depreciation) of all other investments

 

 

 (168) 

 

 

 (434) 

 

 

 4,972 

 

 

 (5,668) 

Change in foreign currency translation adjustments

 

 

 (78) 

 

 

 (49) 

 

 

 (189) 

 

 

 (627) 

Change in retirement plan liabilities adjustment

 

 

 6 

 

 

 (26) 

 

 

 13 

 

 

 35 

Other comprehensive income (loss)

 

 

 (181) 

 

 

 (532) 

 

 

 4,970 

 

 

 (6,088) 

Comprehensive income

 

 

 2,020 

 

 

 1,598 

 

 

 11,819 

 

 

 1,031 

Comprehensive income (loss) attributable to noncontrolling interests

 

 

 8 

 

 

 (42) 

 

 

 (26) 

 

 

 (11) 

Comprehensive income attributable to AIG

 

$

 2,012 

 

$

 1,640 

 

$

 11,845 

 

$

 1,042 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

4


TABLE OF CONTENTS 

 

Item 1 / Financial statements

 

American International Group, Inc.

CONDENSED Consolidated Statement of Equity  (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

Total AIG

 

redeemable

 

 

 

 

 

 

 

 

Additional

 

 

 

Other

 

Share-

 

Non-

 

 

 

 

Common

 

Treasury

 

Paid-in

 

Retained

Comprehensive

 

holders'

 

controlling

 

Total

(in millions)

 

Stock

 

Stock

 

Capital

 

Earnings

 

Income

 

Equity

 

Interests

 

Equity

Nine Months Ended September 30, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of year

$

 4,766 

$

 (14,520) 

$

 80,899 

$

 22,965 

$

 6,360 

$

 100,470 

$

 611 

$

 101,081 

Purchase of common stock

 

 - 

 

 (3,200) 

 

 - 

 

 - 

 

 - 

 

 (3,200) 

 

 - 

 

 (3,200) 

Net income (loss) attributable to AIG or other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests

 

 - 

 

 - 

 

 - 

 

 6,874 

 

 - 

 

 6,874 

 

 (25) 

 

 6,849 

Dividends

 

 - 

 

 - 

 

 - 

 

 (539) 

 

 - 

 

 (539) 

 

 - 

 

 (539) 

Other comprehensive income (loss)

 

 - 

 

 - 

 

 - 

 

 - 

 

 4,971 

 

 4,971 

 

 (1) 

 

 4,970 

Net decrease due to deconsolidation

 

 - 

 

 - 

 

 - 

 

 - 

 

 - 

 

 - 

 

 (123) 

 

 (123) 

Contributions from noncontrolling interests

 

 - 

 

 - 

 

 - 

 

 - 

 

 - 

 

 - 

 

 13 

 

 13 

Distributions to noncontrolling interests

 

 - 

 

 - 

 

 - 

 

 - 

 

 - 

 

 - 

 

 (78) 

 

 (78) 

Other

 

 - 

 

 - 

 

 5 

 

 - 

 

 - 

 

 5 

 

 5 

 

 10 

Balance, end of period

$

 4,766 

$

 (17,720) 

$

 80,904 

$

 29,300 

$

 11,331 

$

 108,581 

$

 402 

$

 108,983 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of year

$

 4,766 

$

 (13,924) 

$

 80,410 

$

 14,176 

$

 12,574 

$

 98,002 

$

 667 

$

 98,669 

Purchase of common stock

 

 - 

 

 (192) 

 

 - 

 

 - 

 

 - 

 

 (192) 

 

 - 

 

 (192) 

Net income attributable to AIG or other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests

 

 - 

 

 - 

 

 - 

 

 7,107 

 

 - 

 

 7,107 

 

 12 

 

 7,119 

Dividends

 

 - 

 

 - 

 

 - 

 

 (147) 

 

 - 

 

 (147) 

 

 - 

 

 (147) 

Other comprehensive loss

 

 - 

 

 - 

 

 - 

 

 - 

 

 (6,065) 

 

 (6,065) 

 

 (6) 

 

 (6,071) 

Net increase due to consolidation

 

 - 

 

 - 

 

 - 

 

 - 

 

 - 

 

 - 

 

 1 

 

 1 

Contributions from noncontrolling interests

 

 - 

 

 - 

 

 - 

 

 - 

 

 - 

 

 - 

 

 25 

 

 25 

Distributions to noncontrolling interests

 

 - 

 

 - 

 

 - 

 

 - 

 

 - 

 

 - 

 

 (37) 

 

 (37) 

Other

 

 - 

 

 1 

 

 87 

 

 - 

 

 - 

 

 88 

 

 (6) 

 

 82 

Balance, end of period

$

 4,766 

$

 (14,115) 

$

 80,497 

$

 21,136 

$

 6,509 

$

 98,793 

$

 656 

$

 99,449 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

5


TABLE OF CONTENTS 

 

Item 1 / Financial statements

 

American International Group, Inc.

CONDENSED Consolidated Statements of Cash Flows (unaudited)

Nine Months Ended September 30,

 

 

 

 

(in millions)

 

2014

 

2013

Cash flows from operating activities:

 

 

 

 

Net income

$

 6,849 

$

 7,119 

(Income) loss from discontinued operations

 

 15 

 

 (73) 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

Noncash revenues, expenses, gains and losses included in income:

 

 

 

 

Net gains on sales of securities available for sale and other assets

 

 (602) 

 

 (2,159) 

Net (gain) loss on sale of divested businesses

 

 (2,196) 

 

 47 

Net losses on extinguishment of debt

 

 1,014 

 

 459 

Unrealized gains in earnings - net

 

 (797) 

 

 (7) 

Equity in income from equity method investments, net of dividends or distributions

 

 (1,106) 

 

 (944) 

Depreciation and other amortization

 

 3,372 

 

 3,558 

Impairments of assets

 

 415 

 

 408 

Changes in operating assets and liabilities:

 

 

 

 

Property casualty and life insurance reserves

 

 184 

 

 768 

Premiums and other receivables and payables - net

 

 41 

 

 (44) 

Reinsurance assets and funds held under reinsurance treaties

 

 (64) 

 

 (336) 

Capitalization of deferred policy acquisition costs

 

 (4,546) 

 

 (4,412) 

Current and deferred income taxes - net

 

 2,291 

 

 (206) 

Other, net

 

 (513) 

 

 (230) 

Total adjustments

 

 (2,507) 

 

 (3,098) 

Net cash provided by operating activities

 

 4,357 

 

 3,948 

Cash flows from investing activities:

 

 

 

 

Proceeds from (payments for)

 

 

 

 

Sales or distribution of:

 

 

 

 

Available for sale investments

 

 16,063 

 

 27,961 

Other securities

 

 3,936 

 

 4,174 

Other invested assets

 

 3,034 

 

 4,111 

Divested businesses, net

 

 2,348 

 

 - 

Maturities of fixed maturity securities available for sale

 

 18,628 

 

 19,907 

Principal payments received on and sales of mortgage and other loans receivable

 

 2,552 

 

 2,721 

Purchases of:

 

 

 

 

Available for sale investments

 

 (34,630) 

 

 (50,639) 

Other securities

 

 (301) 

 

 (1,880) 

Other invested assets

 

 (3,205) 

 

 (5,214) 

Mortgage and other loans receivable

 

 (4,945) 

 

 (3,109) 

Net change in restricted cash

 

 (660) 

 

 1,251 

Net change in short-term investments

 

 2,342 

 

 8,114 

Other, net

 

 (295) 

 

 (879) 

Net cash provided by investing activities

 

 4,867 

 

 6,518 

Cash flows from financing activities:

 

 

 

 

Proceeds from (payments for)

 

 

 

 

Policyholder contract deposits

 

 12,311 

 

 11,348 

Policyholder contract withdrawals

 

 (11,036) 

 

 (12,481) 

Issuance of long-term debt

 

 5,827 

 

 3,633 

Repayments of long-term debt

 

 (11,561) 

 

 (11,355) 

Purchase of Common Stock

 

 (3,403) 

 

 (192) 

Dividends paid

 

 (539) 

 

 (147) 

Other, net

 

 (1,200) 

 

 (278) 

Net cash used in financing activities

 

 (9,601) 

 

 (9,472) 

Effect of exchange rate changes on cash

 

 (19) 

 

 (79) 

Net increase (decrease) in cash

 

 (396) 

 

 915 

Cash at beginning of year

 

 2,241 

 

 1,151 

Change in cash of businesses held-for-sale

 

 88 

 

 (8) 

Cash at end of period

$

 1,933 

$

 2,058 

 

Supplementary Disclosure of Condensed Consolidated Cash Flow Information

 

 

 

 

Cash paid during the period for:

 

 

 

 

Interest

$

 2,496 

$

 2,951 

Taxes

$

 614 

$

 378 

Non-cash investing/financing activities:

 

 

 

 

Interest credited to policyholder contract deposits included in financing activities

$

 3,007 

$

 2,977 

Non-cash consideration received from sale of ILFC

$

 4,586 

$

 - 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

 

 

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Item 1 / NOTE 1. BASIS OF PRESENTATION

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

1. BASIS OF PRESENTATION

 

American International Group, Inc. (AIG) is a leading international insurance organization serving customers in more than 130 countries and jurisdictions. AIG companies serve commercial, institutional and individual customers through one of the most extensive worldwide property‑casualty networks of any insurer. In addition, AIG companies are leading providers of life insurance and retirement services in the United States. AIG Common Stock, par value $2.50 per share, (AIG Common Stock) is listed on the New York Stock Exchange (NYSE: AIG) and the Tokyo Stock Exchange. Unless the context indicates otherwise, the terms “AIG,” “we,” “us” or “our” mean American International Group, Inc. and its consolidated subsidiaries and the term “AIG Parent” means American International Group, Inc. and not any of its consolidated subsidiaries.

These unaudited condensed consolidated financial statements do not include all disclosures that are normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) and should be read in conjunction with the audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the year ended December 31, 2013 (2013 Annual Report). The condensed consolidated financial information as of December 31, 2013 included herein has been derived from audited consolidated financial statements in the 2013 Annual Report.

Certain of our foreign subsidiaries included in the condensed consolidated financial statements report on different fiscal-period bases. The effect on our condensed consolidated financial condition and results of operations of all material events occurring at these subsidiaries through the date of each of the periods presented in these condensed consolidated financial statements has been recorded. In the opinion of management, these condensed consolidated financial statements contain normal recurring adjustments, including eliminations of material intercompany accounts and transactions, necessary for a fair statement of the results presented herein.

Interim period operating results may not be indicative of the operating results for a full year. We evaluated the need to recognize or disclose events that occurred subsequent to September 30, 2014 and prior to the issuance of these condensed consolidated financial statements.

Sale of ILFC

 

On May 14, 2014, we completed the sale of 100 percent of the common stock of International Lease Finance Corporation (ILFC) to AerCap Ireland Limited, a wholly owned subsidiary of AerCap Holdings N.V. (AerCap), in exchange for total consideration of approximately $7.6 billion, including cash and 97.6 million newly issued AerCap common shares (the AerCap Transaction). The total value of the consideration was based in part on AerCap’s closing price per share of $47.01 on May 13, 2014. ILFC’s results of operations are reflected in Aircraft leasing revenue and Aircraft leasing expenses in the Condensed Consolidated Statements of Income through the date of the completion of the sale. ILFC’s assets and liabilities were classified as held-for-sale at December 31, 2013 in the Condensed Consolidated Balance Sheets. See Note 4 herein for further discussion.

Use of Estimates

 

The preparation of financial statements in accordance with GAAP requires the application of accounting policies that often involve a significant degree of judgment. Accounting policies that we believe are most dependent on the application of estimates and assumptions are considered our critical accounting estimates and are related to the determination of:

·          income tax assets and liabilities, including recoverability of our net deferred tax asset and the predictability of future tax operating profitability of the character necessary to realize the net deferred tax asset;

 

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Item 1 / NOTE 1. BASIS OF PRESENTATION

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

·          liability for unpaid claims and claims adjustment expense;

·          reinsurance assets;

·          valuation of future policy benefit liabilities and timing and extent of loss recognition;

·          valuation of liabilities for guaranteed benefit features of variable annuity products;

·          estimated gross profits to value deferred acquisition costs for investment‑oriented products;

·          impairment charges, including other‑than‑temporary impairments on available for sale securities, impairments on investments in life settlements and goodwill impairment;

·          liability for legal contingencies; and

·          fair value measurements of certain financial assets and liabilities.

These accounting estimates require the use of assumptions about matters, some of which are highly uncertain at the time of estimation. To the extent actual experience differs from the assumptions used, our consolidated financial condition, results of operations and cash flows could be materially affected.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Accounting Standards Adopted During 2014

 

Certain Obligations Resulting from Joint and Several Liability Arrangements

 

In February 2013, the Financial Accounting Standards Board (FASB) issued an accounting standard that requires us to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date as the sum of (i) the amount we agreed to pay on the basis of our arrangement among our co‑obligors and (ii) any additional amount we expect to pay on behalf of our co‑obligors.

We adopted the standard on its required effective date of January 1, 2014. The adoption of this standard had no material effect on our consolidated financial condition, results of operations or cash flows.

Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of an Investment within a Foreign Entity or of an Investment in a Foreign Entity

 

In March 2013, the FASB issued an accounting standard addressing whether consolidation guidance or foreign currency guidance applies to the release of the cumulative translation adjustment into net income when a parent sells all or a part of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or net assets that are a business (other than a sale of in‑substance real estate) within a foreign entity. The standard also resolves the diversity in practice for the cumulative translation adjustment treatment in business combinations achieved in stages involving foreign entities.

Under the standard, the entire amount of the cumulative translation adjustment associated with the foreign entity should be released into earnings when there has been: (i) a sale of a subsidiary or group of net assets within a foreign entity and the sale represents a complete or substantially complete liquidation of the foreign entity in which the subsidiary or the net assets had

 

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Item 1 / NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

resided; (ii) a loss of a controlling financial interest in an investment in a foreign entity; or (iii) a change in accounting method from applying the equity method to an investment in a foreign entity to consolidating the foreign entity.

We adopted the standard on its required effective date of January 1, 2014 on a prospective basis.  The adoption of this standard had no material effect on our consolidated financial condition, results of operations or cash flows.

Investment Company Guidance

 

In June 2013, the FASB issued an accounting standard that amends the criteria a company must meet to qualify as an investment company, clarifies the measurement guidance, and requires new disclosures for investment companies. An entity that is regulated by the Securities and Exchange Commission under the Investment Company Act of 1940 (the 1940 Act) qualifies as an investment company. Entities that are not regulated under the 1940 Act must have certain fundamental characteristics and must consider other characteristics to determine whether they qualify as investment companies. An entity’s purpose and design must be considered when making the assessment.

An entity that no longer meets the requirements to be an investment company as a result of this standard should present the change in its status as a cumulative‑effect adjustment to retained earnings as of the beginning of the period of adoption. An entity that is an investment company should apply the standard prospectively as an adjustment to opening net assets as of the effective date. The adjustment to net assets represents both the difference between the fair value and the carrying amount of the entity’s investments and any amount previously recognized in Accumulated other comprehensive income.

We adopted the standard on its required effective date of January 1, 2014 on a prospective basis.  The adoption of this standard had no material effect on our consolidated financial condition, results of operations or cash flows.

Presentation of Unrecognized Tax Benefits

 

In July 2013, the FASB issued an accounting standard that requires a liability related to unrecognized tax benefits to be presented as a reduction to the related deferred tax asset for a net operating loss carryforward or a tax credit carryforward. When the carryforwards are not available at the reporting date under the tax law of the applicable jurisdiction or the tax law of the applicable jurisdiction does not require, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit will be presented in the financial statements as a liability and will not be combined with the related deferred tax asset.

We adopted the standard on its required effective date of January 1, 2014 on a prospective basis.   The adoption of this standard had no material effect on our consolidated financial condition, results of operations or cash flows.  

Future Application of Accounting Standards

 

Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure

 

In January 2014, the FASB issued an accounting standard that clarifies that a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, so that the loan is derecognized and the real estate property is recognized, when either (i) the creditor obtains legal title to the residential real estate property upon completion of a foreclosure or (ii) the borrower conveys all interest in the residential real estate property to the creditor to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement.  

 

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Item 1 / NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

The standard is effective for interim and annual reporting periods beginning after December 15, 2014. Early adoption is permitted. We plan to adopt the standard on its required effective date of January 1, 2015 and do not expect the adoption of the standard to have a material effect on our consolidated financial condition, results of operations or cash flows

Reporting Discontinued Operations

 

In April 2014, the FASB issued an accounting standard that changes the requirements for presenting a component or group of components of an entity as a discontinued operation and requires new disclosures. Under the standard, the disposal of a component or group of components of an entity should be reported as a discontinued operation if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. Disposals of equity method investments, or those reported as held-for-sale, must be presented as a discontinued operation if they meet the new definition. The standard also requires entities to provide disclosures about the disposal of an individually significant component of an entity that does not qualify for discontinued operations presentation. 

The standard is effective prospectively for all disposals of components (or classification of components as held-for-sale) of an entity that occur within interim and annual periods beginning on or after December 15, 2014. Early adoption is permitted, but only for disposals (or classifications of components as held-for-sale) that have not been reported in financial statements previously issued. We plan to adopt the standard on its required effective date of January 1, 2015 and do not expect the adoption of the standard to have a material effect on our consolidated financial condition, results of operations or cash flows.

Revenue Recognition

 

In May 2014, the FASB issued an accounting standard that supersedes most existing revenue recognition guidance. The standard excludes from its scope the accounting for insurance contracts, leases, financial instruments, and other agreements that are governed under other GAAP guidance, but affects the revenue recognition for certain of our other activities.

The standard is effective for interim and annual reporting periods beginning after December 15, 2016 and may be applied retrospectively or through a cumulative effect adjustment to retained earnings at the date of adoption. Early adoption is not permitted. We plan to adopt the standard on its required effective date of January 1, 2017 and are assessing the impact of the standard on our consolidated financial condition, results of operations and cash flows.

Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures

 

In June 2014, the FASB issued an accounting standard that changes the accounting for repurchase-to-maturity transactions and repurchase financing arrangements. It also requires additional disclosures about repurchase agreements and other similar transactions. The standard aligns the accounting for repurchase-to-maturity transactions and repurchase agreements executed as a repurchase financing with the accounting for other typical repurchase agreements such that they all will be accounted for as secured borrowings. The standard eliminates sale accounting for repurchase-to-maturity transactions and supersedes the standard under which a transfer of a financial asset and a contemporaneous repurchase financing could be accounted for on a combined basis as a forward agreement.

The accounting guidance and new disclosure requirements for certain transactions accounted for as sales are effective for interim and annual reporting periods beginning after December 15, 2014, while the disclosure requirements for transactions accounted for as secured borrowings are effective for annual reporting periods beginning after December 15, 2014 and for interim reporting periods beginning after March 15, 2015. Early adoption is not permitted. We plan to adopt the standard on its required effective dates and do not expect the adoption of the standard to have a material effect on our consolidated financial condition, results of operations or cash flows.

 

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Item 1 / NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

Accounting for Share-Based Payments with Performance Targets

 

In June 2014, the FASB issued an accounting standard that clarifies the accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. The standard requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition.

The standard is effective for interim and annual reporting periods beginning after December 15, 2015. Early adoption is permitted. The standard may be applied prospectively to all awards granted or modified after the effective date or retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. We plan to adopt the standard on its required effective date of January 1, 2016 and do not expect the adoption of the standard to have a material effect on our consolidated financial condition, results of operations or cash flows.

Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity

 

In August 2014, the FASB issued an accounting standard that allows a reporting entity to measure the financial assets and financial liabilities of a qualifying consolidated collateralized financing entity using the fair value of either its financial assets or financial liabilities, whichever is more observable.

The standard is effective for interim and annual reporting periods beginning after December 15, 2015. Early adoption is permitted. The standard may be applied retrospectively to all relevant prior periods presented starting with January 1, 2010 or through a cumulative effect adjustment to retained earnings at the date of adoption. We plan to adopt the standard on its required effective date of January 1, 2016 and are assessing the impact of the standard on our consolidated financial condition, results of operations or cash flows.

3. SEGMENT INFORMATION

 

 

We report the results of our operations consistent with the manner in which our chief operating decision makers review the business to assess performance and to allocate resources through two reportable segments: AIG Property Casualty and AIG Life and Retirement. We evaluate performance based on revenues and pre‑tax income (loss), excluding results from discontinued operations, because we believe this provides more meaningful information on how our operations are performing.

 

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Item 1 / NOTE 3. SEGMENT INFORMATION

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

The following tables present our operations by reportable segment:

 

 

2014

 

 

2013

Three Months Ended September 30,

 

 

 

 

Pre-tax Income (Loss)

 

 

 

 

 

Pre-tax Income (Loss)

(in millions)

 

Total Revenues

 

 

from continuing operations

 

 

Total Revenues

 

 

from continuing operations

AIG Property Casualty

 

 

 

 

 

 

 

 

 

 

 

Commercial Insurance

$

 5,971 

 

$

 573 

 

$

 5,760 

 

$

 610 

Consumer Insurance

 

 3,362 

 

 

 131 

 

 

 3,359 

 

 

 93 

Other

 

 674 

 

 

 503 

 

 

 585 

 

 

 423 

Total AIG Property Casualty

 

 10,007 

 

 

 1,207 

 

 

 9,704 

 

 

 1,126 

AIG Life and Retirement

 

 

 

 

 

 

 

 

 

 

 

Retail

 

 3,318 

 

 

 1,160 

 

 

 2,884 

 

 

 941 

Institutional

 

 1,756 

 

 

 771 

 

 

 1,760 

 

 

 300 

Total AIG Life and Retirement

 

 5,074 

 

 

 1,931 

 

 

 4,644 

 

 

 1,241 

Other Operations

 

 

 

 

 

 

 

 

 

 

 

Mortgage Guaranty

 

 262 

 

 

 135 

 

 

 236 

 

 

 43 

Global Capital Markets

 

 72 

 

 

 58 

 

 

 87 

 

 

 29 

Direct Investment book

 

 430 

 

 

 228 

 

 

 147 

 

 

 52 

Corporate & Other

 

 978 

 

 

 (676) 

 

 

 217 

 

 

 (1,347) 

Aircraft Leasing

 

 - 

 

 

 - 

 

 

 1,118 

 

 

 (1) 

Consolidation and elimination

 

 (9) 

 

 

 (1) 

 

 

 (9) 

 

 

 1 

Total Other Operations

 

 1,733 

 

 

 (256) 

 

 

 1,796 

 

 

 (1,223) 

AIG Consolidation and elimination

 

 (160) 

 

 

 137 

 

 

 (200) 

 

 

 34 

Total AIG Consolidated

$

 16,654 

 

$

 3,019 

 

$

 15,944 

 

$

 1,178 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2014

 

 

2013

Nine Months Ended September 30,

 

 

 

 

Pre-tax Income (Loss)

 

 

 

 

 

Pre-tax Income (Loss)

(in millions)

 

Total Revenues

 

 

from continuing operations

 

 

Total Revenues

 

 

from continuing operations

AIG Property Casualty

 

 

 

 

 

 

 

 

 

 

 

Commercial Insurance

$

 17,502 

 

$

 2,149 

 

$

 17,229 

 

$

 2,186 

Consumer Insurance

 

 9,962 

 

 

 315 

 

 

 10,212 

 

 

 337 

Other

 

 2,159 

 

 

 1,542 

 

 

 2,032 

 

 

 1,422 

Total AIG Property Casualty

 

 29,623 

 

 

 4,006 

 

 

 29,473 

 

 

 3,945 

AIG Life and Retirement

 

 

 

 

 

 

 

 

 

 

 

Retail

 

 9,056 

 

 

 2,563 

 

 

 9,326 

 

 

 3,114 

Institutional

 

 4,939 

 

 

 1,849 

 

 

 6,106 

 

 

 1,416 

Total AIG Life and Retirement

 

 13,995 

 

 

 4,412 

 

 

 15,432 

 

 

 4,530 

Other Operations

 

 

 

 

 

 

 

 

 

 

 

Mortgage Guaranty

 

 771 

 

 

 423 

 

 

 710 

 

 

 162 

Global Capital Markets

 

 417 

 

 

 332 

 

 

 592 

 

 

 431 

Direct Investment book

 

 1,260 

 

 

 855 

 

 

 1,373 

 

 

 1,084 

Corporate & Other

 

 1,771 

 

 

 (544) 

 

 

 1,123 

 

 

 (3,093) 

Aircraft Leasing

 

 1,602 

 

 

 17 

 

 

 3,303 

 

 

 60 

Consolidation and elimination

 

 (24) 

 

 

 1 

 

 

 (28) 

 

 

 3 

Total Other Operations

 

 5,797 

 

 

 1,084 

 

 

 7,073 

 

 

 (1,353) 

AIG Consolidation and elimination

 

 (544) 

 

 

 270 

 

 

 (646) 

 

 

 96 

Total AIG Consolidated

$

 48,871 

 

$

 9,772 

 

$

 51,332 

 

$

 7,218 

 

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Item 1 / NOTE 4. HELD-FOR-SALE CLASSIFICATION AND DISCONTINUED OPERATIONS

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

4. HELD-FOR-SALE CLASSIFICATION AND DISCONTINUED OPERATIONS

 

Held-For-Sale Classification

 

On May 14, 2014, we completed the sale of 100 percent of the common stock of ILFC to AerCap Ireland Limited, a wholly owned subsidiary of AerCap, in exchange for total consideration of approximately $7.6 billion, including cash and 97.6 million newly issued AerCap common shares, valued at approximately $4.6 billion based on AerCap’s closing price per share of $47.01 on May 13, 2014. Net cash proceeds to AIG were $2.4 billion after the settlement of intercompany loans, and AIG recorded pre-tax and after-tax gains of approximately $2.2 billion and $1.4 billion, respectively, for the nine-month period ended September 30, 2014. In connection with the AerCap Transaction, we entered into a five-year credit agreement for a senior unsecured revolving credit facility between AerCap Ireland Capital Limited, as borrower, and AIG Parent as lender (the Revolving Credit Facility). The Revolving Credit Facility provides for an aggregate commitment of $1.0 billion and permits loans for general corporate purposes after the closing of the AerCap Transaction. At September 30, 2014, no amounts were outstanding under the Revolving Credit Facility.

As a result of the AerCap Transaction, we own approximately 46 percent of the outstanding common stock of AerCap. This common stock is subject to certain restrictions as to the amount and timing of potential sales as set forth in the Stockholders’ Agreement and Registration Rights Agreement between AIG and AerCap. We account for our interest in AerCap using the equity method of accounting. The difference between the carrying amount of our investment in AerCap common stock and our share of the underlying equity in the net assets of AerCap was approximately $1.4 billion at September 30, 2014. Approximately $0.4 billion of this difference was allocated to the assets and liabilities of AerCap based on their respective fair values and is being amortized into income over the estimated lives of the related assets and liabilities.  The remainder was allocated to goodwill. 

ILFC’s results of operations are reflected in Aircraft leasing revenue and Aircraft leasing expenses in the Condensed Consolidated Statements of Income through the date of the completion of the sale. ILFC’s assets and liabilities were classified as held-for-sale at December 31, 2013 in the Condensed Consolidated Balance Sheets.

The following table summarizes the components of ILFC assets and liabilities held-for-sale:

 

 

December 31,

(in millions)

 

2013

Assets:

 

 

Equity securities

$

 3 

Mortgage and other loans receivable, net

 

 229 

Flight equipment primarily under operating leases, net of accumulated depreciation

 

 35,508 

Short-term investments

 

 658 

Cash

 

 88 

Premiums and other receivables, net of allowance

 

 318 

Other assets

 

 2,066 

Assets held-for-sale

 

 38,870 

Less: Loss accrual

 

 (9,334) 

Total assets held-for-sale

$

 29,536 

Liabilities:

 

 

Other liabilities

$

 3,127 

Long-term debt

 

 21,421 

Total liabilities held-for-sale

$

 24,548 

 

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TABLE OF CONTENTS

 

Item 1 / NOTE 4. HELD-FOR-SALE CLASSIFICATION AND DISCONTINUED OPERATIONS

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

Discontinued Operations

 

In connection with the 2010 sale of American Life Insurance Company (ALICO) to MetLife, Inc. (MetLife), we recognized the following income (loss) from discontinued operations:

 

Three Months Ended

Nine Months Ended

 

September 30,

September 30,

(in millions)

 

2014

 

2013

 

2014

 

2013

Revenues:

 

 

 

 

 

 

 

 

Gain (loss) on sale

$

 5 

$

 (27) 

$

 56 

$

 119 

Income (loss) from discontinued operations, before income tax

 

 

 

 

 

 

 

 

(benefit) expense

 

 5 

 

 (27) 

 

 56 

 

 119 

Income tax (benefit) expense

 

 3 

 

 (9) 

 

 71 

 

 46 

Income (loss) from discontinued operations, net of income tax

$

 2 

$

 (18) 

$

 (15) 

$

 73 

5. FAIR VALUE MEASUREMENTS

 

  

Fair Value Measurements on a Recurring Basis

 

Assets and liabilities recorded at fair value in the Condensed Consolidated Balance Sheets are measured and classified in accordance with a fair value hierarchy consisting of three “levels” based on the observability of valuation inputs:

·     Level 1:  Fair value measurements based on quoted prices in active markets that we have the ability to access for identical assets or liabilities. Market price data generally is obtained from exchange or dealer markets. We do not adjust the quoted price for such instruments.

·     Level 2:  Fair value measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.

·     Level 3:  Fair value measurements based on valuation techniques that use significant inputs that are unobservable. Both observable and unobservable inputs may be used to determine the fair values of positions classified in Level 3. The circumstances for using these measurements include those in which there is little, if any, market activity for the asset or liability. Therefore, we must make certain assumptions about the inputs a hypothetical market participant would use to value that asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

 

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TABLE OF CONTENTS

 

Item 1 / NOTE 5. FAIR VALUE MEASUREMENTS

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

Assets and Liabilities Measured at Fair Value on a Recurring Basis

 

The following table presents information about assets and liabilities measured at fair value on a recurring basis and indicates the level of the fair value measurement based on the observability of the inputs used:

September 30, 2014

 

  

 

  

 

  

Counterparty

Cash

 

(in millions)

 

 Level 1

 

Level 2

 

Level 3

 

Netting(a)

Collateral

 

Total

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Bonds available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and government sponsored entities

$

 15 

$

 2,783 

$

 - 

$

 - 

$

 -