AIG 2011 Annual Report Download - page 234

American International Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
public offering in 2010 and, at December 31, 2010, net cash proceeds from the ALICO sale held in escrow
pending the Closing and a prepaid commitment fee asset related to the FRBNY Credit Agreement. The prepaid
commitment fee asset related to the FRBNY Credit Agreement was amortized as interest expense ratably over the
five-year term of the agreement, accelerated for actual pay-downs that reduce the total credit available. The
remaining unamortized prepaid commitment fee asset of $3.6 billion at December 31, 2010 was derecognized by
AIG through earnings upon the closing of the Recapitalization on January 14, 2011.
Certain direct response advertising costs are deferred and amortized over the expected future benefit period.
When AIG can demonstrate that its customers have responded specifically to direct-response advertising, the
primary purpose of which is to elicit sales to customers, and when it can be shown such advertising results in
probable future economic benefits, the advertising costs are capitalized. Deferred advertising costs are amortized
on a cost-pool-by-cost-pool basis over the expected future economic benefit period and are reviewed regularly for
recoverability. Deferred advertising costs totaled $78 million and $200 million at December 31, 2011 and 2010,
respectively. The amount of expense amortized into income was $34 million, $40 million and $173 million, for the
years ended 2011, 2010 and 2009, respectively.
AIG offers sales inducements, which include enhanced crediting rates or bonus payments to contract holders
(bonus interest) on certain annuity and investment contract products. Sales inducements provided to the
contractholder are recognized as part of the liability for policyholders’ contract deposits in the Consolidated
Balance Sheet. Such amounts are deferred and amortized over the life of the contract using the same
methodology and assumptions used to amortize DAC. To qualify for such accounting treatment, the bonus interest
must be explicitly identified in the contract at inception, and AIG must demonstrate that such amounts are
incremental to amounts AIG credits on similar contracts without bonus interest, and are higher than the contract’s
expected ongoing crediting rates for periods after the bonus period. The deferred bonus interest and other
deferred sales inducement assets totaled $766 million and $856 million at December 31, 2011 and 2010,
respectively. The amortization expense associated with these assets is reported within Policyholder benefits and
claims incurred in the Consolidated Statement of Operations. Such amortization expense totaled $201 million,
$194 million and $215 million for the years ended December 31, 2011, 2010 and 2009, respectively.
All commodities are recorded at the lower of cost or fair value. The exposure to market risk may be reduced
through the use of forwards, futures and option contracts. Lower of cost or fair value reductions in commodity
positions and unrealized gains and losses in related derivatives are reflected in Other income.
See Note 12 herein for a discussion of derivatives.
The cost of buildings and furniture and equipment is depreciated principally on a straight-line basis over their
estimated useful lives (maximum of 40 years for buildings and 10 years for furniture and equipment). Expenditures
for maintenance and repairs are charged to income as incurred; expenditures for improvements are capitalized
and depreciated. AIG periodically assesses the carrying value of its real estate for purposes of determining any
asset impairment. Capitalized software costs, which represent costs directly related to obtaining, developing or
upgrading internal use software, are capitalized and amortized using the straight-line method over a period
generally not exceeding five years. Real estate, fixed assets and other long-lived assets are assessed for impairment
when impairment indicators exist. Accumulated depreciation on real estate and other fixed assets was $3.8 billion
and $3.6 billion at December 31, 2011 and 2010, respectively.
(j) Goodwill: Goodwill is the excess of the cost of an acquired business over the fair value of the identifiable
net assets of the acquired business. Goodwill is tested for impairment annually, or more frequently if
circumstances indicate an impairment may have occurred. Substantially all of AIG’s goodwill is associated with
and allocated to its Chartis segment at December 31, 2011.
220 AIG 2011 Form 10-K