01—Abstract
Summary
Summary of the 10-K/A filed April 30, 2009. Cited figures are marked; the original filing is the authoritative source.
This filing is Amendment No. 1 to AIG's 2008 Form 10-K, filed April 30, 2009, and it is narrow in scope.
It was filed solely to add the Part III information (directors, executive compensation, security ownership, related-party transactions, and accounting fees) that AIG had not included in its original annual report, to amend the Item 15 exhibit list, and to file three additional compensation exhibits. The financial statements, business description, and risk disclosures are not included and are unaffected. Investors should read it primarily as a governance and pay-disclosure document rather than as a source of new financial results.
The most important disclosures concern government control and compensation restraints. Following the September 2008 Federal Reserve credit facility, the U.S. Treasury holds Series C preferred stock (voting and dividend rights) and a warrant, and together these give the government 79.9% of AIG's voting power and total dividends payable on an as-converted basis. The $40 billiona Series D preferred issued to Treasury was exchanged in April 2009 for Series E preferred, and a $29.835 billion equity capital commitment facility was established through Series F preferred.
Common shareholders are therefore diluted and subordinated to government-held instruments. Ownership is also concentrated: the Starr Group holds about 10.06%b of common stock, and directors and executives hold roughly 0.31% as a group. Compensation is sharply reduced.
The CEO, Edward Liddy, receives a $1c salary and no cash or equity incentive pay. Annual performance bonuses for 2008 were waived by the Leadership Group, and the 2008 Summary Compensation Table is dominated by accounting expense for awards that were later forfeited or rescinded (for example, $24.5 million for former CEO Robert Willumstad's rescinded restricted stock). Severance for named executives has been eliminated, and ARRA rules now restrict bonuses and termination payments for the top executives.
Non-management director retainers were cut in 2009, and director deferred stock unit awards were eliminated. Because the 2008 Leadership Group performance pools were effectively zero, most of AIG's 2008 executive compensation reported here reflects legacy awards rather than current earnings performance.
02—Key points
Key Highlights
- Filing purpose: Amendment No. 1 to the 2008 Form 10-K, filed April 30, 2009, to add Part III information (governance, executive and director pay, ownership, related-party transactions, auditor fees) and to file three additional compensation exhibits.
- Government control: The U.S. Treasury, through the AIG Credit Facility Trust, holds Series C preferred stock and related rights giving it 79.9% of voting power and total dividends payable on an as-converted basis.
- Preferred capital structure: $40 billion Series D preferred was exchanged for Series E preferred in April 2009, and a $29.835 billion five-year equity capital commitment facility was established via Series F preferred.
- Executive pay reset: CEO Edward Liddy takes a $1 salary with no cash or equity incentive compensation; no 2008 annual performance bonuses were paid to the Leadership Group, and severance for named executives was eliminated.
- Equity awards largely worthless: Outstanding options are far out of the money, with AIG's year-end 2008 closing price at $1.57, and 2007-2008 Performance RSUs and Senior Partner Units were forfeited.
- Ownership: The Starr Group holds about 10.06% of common stock, and directors and executive officers as a group hold about 0.31%.
- Auditor fees: PricewaterhouseCoopers was paid $107.8 million in audit fees for 2008, with total fees (including audit-related, tax, and other) of about $131 million.
03—Questions
Frequently Asked Questions
Does this amendment contain new financial results or changes to AIG's 2008 financial statements?
No. The amendment is limited to Part III information, an updated Item 15 exhibit list, and three additional exhibits. All other items of the 2008 Form 10-K are stated to be unaffected and are omitted, so the financial statements are not restated here.
How much control does the U.S. government have over AIG?
Through the Series C preferred stock held by the AIG Credit Facility Trust for the Treasury, together with the Treasury's warrant and other convertible holdings, the government's stake represents 79.9% of AIG's voting power and of total dividends payable on an as-converted basis. This gives it dominant influence over shareholder votes and dividend economics.
Why was the CEO's pay so low in 2008, and what is his compensation arrangement?
Edward Liddy, who joined as CEO in September 2008, volunteered for a $1 salary and has received no cash incentive or equity compensation. He also declined a previously negotiated equity arrangement. AIG disclosed perquisite-related costs, such as commuting and housing in New York, that it said were necessary for his immediate service and do not represent an actual compensation benefit to him.
What do the large 2008 stock award figures for executives mean for investors?
Most of the large figures reflect accounting expense recognized at grant or accelerated for former executives, not value realized. For example, $24.5 million relates to a restricted stock award to former CEO Robert Willumstad that was rescinded in December 2008 with no shares delivered. AIG's own pro forma calculations at year-end 2008 prices show the stock awards' market value was far lower, so these amounts overstate the current economic value.
Are there new limits on executive pay because of government support?
Yes. Under AIG's TARP participation and the American Recovery and Reinvestment Act of 2009, AIG cannot pay bonuses, retention awards, or incentive compensation to the named executives and its 20 most highly paid employees beyond restricted stock capped at one-third of total pay while assistance continues. Termination payments are restricted for named executives and the five most highly paid other employees, and deductibility of named executives' pay above $500,000 is limited by Section 162(m)(5).
04—Continue