AIG 2008 Annual Report Download - page 129

Brokerage Services and Mutual Funds
Revenues and operating income related to Brokerage Services and Mutual Fund activities decreased in 2008
from 2007 due to lower fee income as a result of a lower asset base and a decline in commission income resulting
from difficult market conditions. In addition, restructuring expenses of $24 million were recorded in 2008 primarily
related to employee costs.
Other Asset Management Results
Revenues and operating income related to Other Asset Management activities declined in 2008 from 2007 and
increased in 2007 from 2006, due to changes in partnership income driven by weaker market conditions in 2008 and
2006 compared to strong market conditions in 2007.
Critical Accounting Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America (GAAP) requires the application of accounting policies that often involve a significant
degree of judgment. AIG considers that its accounting policies that are most dependent on the application of
estimates and assumptions, and therefore viewed as critical accounting estimates, to be those relating to items
considered by management in the determination of AIG’s ability to continue as a going concern, liability for general
insurance unpaid claims and claims adjustment expenses, future policy benefits for life and accident and health
contracts, recoverability of DAC, estimated gross profits for investment-oriented products, the allowance for
finance receivable losses, flight equipment recoverability, other-than-temporary impairments, goodwill impair-
ment, estimates with respect to income taxes and fair value measurements of certain financial assets and liabilities,
including credit default swaps. 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, AIG’s results of operations would be directly affected.
The major categories for which assumptions are developed and used to establish each critical accounting
estimate are highlighted below.
AIG’s Ability to Continue as a Going Concern
When assessing AIG’s ability to continue as a going concern, management must make judgments and
estimates about the following:
• the marketability of assets to be disposed of and the timing and amount of related cash proceeds to be used to
repay indebtedness;
• plans to raise new funds or restructure debt;
• projections of future profitability and the timing and amount of cash flows from operating activities;
• the funding needs of regulated subsidiaries;
• AIG’s ability to comply with debt covenants;
• plans to reduce expenditures;
• the effects of ratings agency actions on collateral requirements and other contractual conditions; and
• the future regulatory, business, credit, and competitive environments in which AIG operates around the
world.
These factors individually and collectively will have a significant effect on AIG’s ability to generate sufficient
cash to repay indebtedness as it becomes due and profitably operate its businesses as it executes its restructuring
initiatives.
AIG 2008 Form 10-K 123
American International Group, Inc., and Subsidiaries