AIG 2014 Annual Report Download - page 194

ITEM 7 / CRITICAL ACCOUNTING ESTIMATES
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The major assumptions used to establish each critical accounting estimate are discussed below.
Classification of ILFC as Held for Sale and Related Fair Value Measurement
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, which may require significant judgment, 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.
On December 16, 2013, AIG Parent and Seller entered into a definitive agreement with AerCap Holdings N.V. (AerCap) and
AerCap Ireland Limited for the sale of 100 percent of the common stock of ILFC (the AerCap Agreement) for consideration
consisting of $3.0 billion of cash and approximately 97.6 million newly issued AerCap common shares. The consideration had
a value of approximately $5.4 billion based on AerCap’s pre-announcement closing price per share of $24.93 on December
13, 2013. Upon closing of the transaction on May 14, 2014, we recorded the 97.6 million AerCap shares received at their then
fair value of $47.01 and, together with the next cash received, recorded pre-tax and after-tax gains of approximately $2.2
billion and $1.4 billion, respectively for the year ended December 31, 2014. We determined ILFC met the criteria for held-for-
sale accounting at December 31, 2013. Because we received approximately 46 percent of the common stock of AerCap upon
closing of the transaction and we continued to hold such percentage at December 31, 2014, ILFC does not qualify for
discontinued operations presentation in the Consolidated Statements of Income. Consequently, ILFC’s operating results are
presented in continuing operations for all periods presented.
Income Taxes
Recoverability of Net Deferred Tax Asset
The evaluation of the recoverability of our net deferred tax asset and the need for a valuation allowance requires us to weigh
all positive and negative evidence to reach a conclusion that it is more likely than not that all or some portion of the net
deferred tax asset will not be realized. The weight given to the evidence is commensurate with the extent to which it can be
objectively verified. The more negative evidence that exists, the more positive evidence is necessary and the more difficult it is
to support a conclusion that a valuation allowance is not needed.
We consider a number of factors to reliably estimate future taxable income, so we can determine the extent of our ability to
realize net operating losses (NOLs), foreign tax credits (FTCs), capital loss and other carryforwards. These factors include
forecasts of future income for each of our businesses and actual and planned business and operational changes, both of
which include assumptions about future macroeconomic and AIG-specific conditions and events. We subject the forecasts to
stresses of key assumptions and evaluate the effect on tax attribute utilization. We also apply stresses to our assumptions
about the effectiveness of relevant prudent and feasible tax planning strategies. Our income forecasts, coupled with our tax
planning strategies, all resulted in sufficient taxable income to achieve realization of the U.S. tax attributes prior to their
expiration.
See Note 24 to the Consolidated Financial Statements for a discussion of our framework for assessing the recoverability of our
deferred tax asset.
Uncertain Tax Positions
Our accounting for income taxes, including uncertain tax positions, represents management’s best estimate of various events
and transactions, and requires judgment. FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48)
(now incorporated into Accounting Standards Codification, 740, Income Taxes) prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of an income tax position taken or expected to
be taken in a tax return. The standard also provides guidance on derecognition, classification, interest and penalties and
additional disclosures. We determine whether it is more likely than not that a tax position will be sustained, based on technical