4. DIVESTED BUSINESSES, HELD-FOR-SALE CLASSIFICATION AND DISCONTINUED OPERATIONS

Divested Businesses

AIA Initial Public Offering and Subsequent Sales

On October 29, 2010, we completed an initial public offering (IPO) of 8.08 billion ordinary shares of AIA for aggregate gross proceeds of approximately $20.5 billion. Upon completion of the IPO, we owned 33 percent of the outstanding AIA ordinary shares. Accordingly, we deconsolidated AIA and recorded a pre-tax gain of $18.1 billion in 2010. During 2012, we sold our remaining AIA ordinary shares for aggregate gross proceeds of approximately $14.5 billion. As a result of these sales, we no longer held an interest in AIA as of December 31, 2012. Prior to the disposition, we accounted for our investment in AIA under the fair value option with gains and losses recorded in Net investment income. At December 31, 2011, the fair value of our retained interest in AIA was approximately $12.4 billion, and was included in Other invested assets.

The following table presents certain information relating to our sales of AIA ordinary shares:

(in billions, except share data)		Gross Proceeds



Sales:
March 7, 2012	1,720,000,000	$	6.0
September 11, 2012	591,866,000		2.0
December 20, 2012	1,648,903,201		6.5

Total Sales	3,960,769,201	$	14.5

Held-For-Sale Classification

We report a business as held for sale when management has approved or received approval to sell the business and is committed to a formal plan, the business is available for immediate sale, the business is being actively marketed, the sale is anticipated to occur during the next 12 months and certain other specified criteria are met. A business classified as held for sale is recorded at the lower of its carrying amount or estimated fair value less cost to sell. If the carrying amount of the business exceeds its estimated fair value, a loss is recognized. Depreciation is not recorded on assets of a business after it is classified as held for sale. Assets and liabilities related to a business classified as held for sale are segregated in the Consolidated Balance Sheet in the period in which the business is classified as held for sale.

At December 31, 2012, held-for-sale assets and liabilities consisted of ILFC.

The following table summarizes the components of assets and liabilities held-for-sale on the Consolidated Balance Sheet as of December 31, 2012:

(in millions)	December 31, 2012



Assets:
Equity securities	$	1
Mortgage and other loans receivable, net		117
Flight equipment primarily under operating leases, net of accumulated depreciation		34,468
Short-term investments		1,861
Cash		63
Premiums and other receivables, net of allowance		308
Other assets		1,864

Assets of businesses held for sale		38,682

Less: Loss Accrual		(6,717	)

Total assets held for sale	$	31,965

Liabilities:
Other liabilities	$	3,043
Other long-term debt		24,323

Total liabilities held for sale	$	27,366

Discontinued Operations

We report the results of operations of a business as discontinued operations if the business is classified as held for sale, the operations and cash flows of the business have been or will be eliminated from our ongoing operations as a result of a disposal transaction and we will not have any significant continuing involvement in the operations of the business after the disposal transaction. The results of discontinued operations are reported in Discontinued Operations in the Consolidated Statement of Operations for current and prior periods commencing in the period in which the business meets the criteria of a discontinued operation, and include any gain or loss recognized on closing or adjustment of the carrying amount to fair value less cost to sell.

The results of operations for the following businesses are presented as discontinued operations in our Consolidated Statement of Operations.

International Lease Finance Corporation Sale

On December 9, 2012, we entered into a definitive agreement with Jumbo Acquisition Limited for the sale of 80.1 percent of the common stock of ILFC for approximately $4.2 billion in cash. Jumbo Acquisition Limited may elect to purchase an additional 9.9 percent of the common stock of ILFC for $522.5 million (the Option) by the later of March 15, 2013 and ten days after approval of the ILFC Transaction and the Option by the Committee on Foreign Investment in the United States. We will retain a 19.9 percent ownership interest in ILFC, or a 10.0 percent ownership interest in ILFC, if the Option is exercised by Jumbo Acquisition Limited, in each case subject to dilution for management issuances (which, over time, would reduce our ownership interest by approximately one percentage point). The transaction is subject to required regulatory approvals and other customary closing conditions. We determined ILFC met the criteria at December 31, 2012 for held for sale and discontinued operations accounting and, consequently, we recorded a $4.4 billion after tax loss for the year ended December 31, 2012, which is reported in Income (loss) from discontinued operations in the Consolidated Statement of Operations. At the closing of the transaction, AIG will return $1.1 billion to ILFC in connection with the termination of intercompany arrangements between AIG and ILFC.

Nan Shan Sale

On January 12, 2011, we entered into an agreement to sell our 97.57 percent interest in Nan Shan Life Insurance Company, Ltd. (Nan Shan) to a Taiwan-based consortium. The transaction was consummated on August 18, 2011 for net proceeds of $2.15 billion in cash. We recorded a pre-tax loss of $1.0 billion for the year ended December 31, 2011 largely offsetting Nan Shan operating results for the period, which is reflected in Income (loss) from discontinued operations in the Consolidated Statement of Operations. The net proceeds from the transaction were used to pay down a portion of the liquidation preference of the Department of the Treasury's preferred interests (AIA SPV Preferred Interests) in the special purpose vehicle holding the proceeds of the AIA initial public offering (the AIA SPV).

AIG Star and AIG Edison Sale

On September 30, 2010, we entered into a definitive agreement with Prudential Financial, Inc. for the sale of our Japan-based insurance subsidiaries, AIG Star and AIG Edison, for total consideration of $4.8 billion, including the assumption of certain outstanding debt totaling $0.6 billion owed by AIG Star and AIG Edison. The transaction closed on February 1, 2011 and we recognized a pre-tax gain of $3.5 billion on the sale that is reflected in Income (loss) from discontinued operations in the Consolidated Statement of Operations. In connection with the sale, we recorded a goodwill impairment charge of $1.3 billion in the third quarter of 2010.

AGF Sale

On August 10, 2010, we entered into a definitive agreement to sell an 80 percent economic interest (84 percent voting interest) in AGF for $125 million. The AGF sale closed on November 30, 2010. Our voting ownership interest in AGF was reduced to approximately 16 percent, and we do not otherwise have significant continuing involvement with or significant continuing cash flows from AGF. We are carrying our retained investment in AGF of approximately $30 million as a cost method investment in Other invested assets. As a result of this transaction, we recorded a pre-tax loss of $1.7 billion in 2010. The components of the $1.7 billion charge consisted of the difference between (i) the sum of the fair value of the agreed consideration and our retained 20 percent economic interest and (ii) the net book value of the assets.

ALICO Sale

On March 7, 2010, AIG and the special purpose vehicle holding the proceeds of the sale of ALICO (ALICO SPV) entered into a definitive agreement with MetLife for the sale of ALICO by the ALICO SPV to MetLife, and the sale of Delaware American Life Insurance Company by AIG to MetLife, for consideration then valued at approximately $15.5 billion, consisting of $6.8 billion in cash and the remainder in equity securities of MetLife, subject to closing adjustments. The ALICO sale closed on November 1, 2010. We do not have any significant continuing involvement with or significant continuing cash flows from ALICO. The fair value of the consideration at closing was approximately $16.2 billion. At December 31, 2010, a total of $6.5 billion was included in common and preferred stock trading.

On the closing date, as consideration for the ALICO sale, the ALICO SPV received net cash consideration of $7.2 billion (which included an upward price adjustment of approximately $400 million pursuant to the terms of the ALICO stock purchase agreement), 78,239,712 shares of MetLife common stock, 6,857,000 shares of newly issued MetLife participating preferred stock convertible into 68,570,000 shares of MetLife common stock upon the approval of MetLife shareholders and 40,000,000 equity units of MetLife with an aggregate stated value of $3.2 billion. AIG recorded a pre-tax gain of $7.9 billion on the transaction in 2010.

As part of the Recapitalization, we used approximately $6.1 billion of the cash proceeds from the ALICO sale to pay down a portion of the liquidation preference of the SPV Preferred Interests.

ALICO, Nan Shan, AIG Star and AIG Edison previously were components of the Foreign Life Insurance & Retirement Services reportable segment and AGF previously was a component of the Financial Services reportable segment. Results from discontinued operations for 2011 and 2010 include the results of Nan Shan, AIG Star and AIG Edison through the date of disposition. Results from discontinued operations for 2010 also include the results of ALICO and AGF, which were sold during 2010. The results also include adjustments for guarantees and indemnifications related to these sold businesses.

See Note 16 herein for a discussion of guarantees and indemnifications associated with sales of businesses.

Certain other sales completed during 2011 and 2010 were not classified as discontinued operations because we continued to generate significant direct revenue-producing or cost-generating cash flows from the businesses or because associated assets, liabilities and results of operations were not material, individually or in the aggregate, to our consolidated financial position or results of operations.

The following table summarizes income (loss) from discontinued operations:




Years Ended December 31, (in millions)	2012			2011			2010

Revenues:
Premiums	$	–		$	5,012		$	18,296
Net investment income		–			1,632			6,924
Net realized capital gains		1			834			158
Aircraft leasing revenue		4,504			4,508			4,749
Other income		(18	)		(48	)		1,697

Total revenues		4,487			11,938			31,824

Benefits, claims and expenses, excluding Aircraft leasing expenses^*		1,596			7,910			30,458
Aircraft leasing expenses		2,587			3,876			4,050
Interest expense allocation		–			2			75

Income (loss) from discontinued operations		304			150			(2,759	)

Gain (loss) on sale		(6,733	)		2,338			5,389

Income (loss) from discontinued operations, before tax income tax expense (benefit)		(6,429	)		2,488			2,630

Income tax expense (benefit)		(2,377	)		698			3,599

Income (loss) from discontinued operations, net of income tax	$	(4,052	)	$	1,790		$	(969	)

* In 2010, includes goodwill impairment charges of $3.3 billion related to the sale of ALICO and $1.3 billion related to the sale of AIG Star and AIG Edison. In 2012, includes goodwill impairment charges of $23 million related to the ILFC Transaction. See Note 2 – Goodwill herein for further discussion.

Interest Expense Allocation

Interest expense allocated to discontinued operations gives effect to the provisions of the Recapitalization discussed in Note 25 for all periods presented. For this reason, an interest allocation to discontinued operations related to a portion of the ALICO and all the AGF proceeds was required.

The interest expense allocated to discontinued operations was based on the anticipated net proceeds that would be applied toward the repayment of the FRBNY Credit Facility from the sales of ALICO and AGF multiplied by the daily interest rate on the FRBNY Credit Facility for each respective period. The periodic amortization of the prepaid commitment fee allocated to discontinued operations was determined based on the ratio of funds committed to repay the FRBNY Credit Facility to the total amount of credit available under the FRBNY Credit Facility.

Prior to the Recapitalization, the terms of the FRBNY Credit Facility contractually required net proceeds from dispositions, after taxes and transaction expenses, to the extent such proceeds did not represent capital of AIG's insurance subsidiaries required for regulatory or ratings purposes, to be applied toward the repayment of the FRBNY Credit Facility as mandatory prepayments unless otherwise agreed with the FRBNY. Mandatory prepayments reduced the amount available to be borrowed under the FRBNY Credit Facility by the amount of the prepayment. In conjunction with anticipated prepayments, AIG allocated interest expense, including periodic amortization of the prepaid commitment fee asset, to Income (loss) from discontinued operations. As a result of the revised terms for repayment of the FRBNY Credit Facility, interest expense that was previously allocated to discontinued operations in connection with the sales of AIG Star, AIG Edison and Nan Shan was reclassified to continuing operations for all periods presented.