AIG 2008 Annual Report Download - page 219

(p) Real Estate and Other Fixed Assets: The costs of buildings and furniture and equipment are depreciated
principally on the straight-line basis over their estimated useful lives (maximum of 40 years for buildings and ten
years for furniture and equipment). Expenditures for maintenance and repairs are charged to income as incurred;
expenditures for betterments are capitalized and depreciated. AIG periodically assesses the carrying value of its real
estate for purposes of determining any asset impairment.
Also included in Real Estate and Other Fixed Assets are capitalized software costs, which represent costs
directly related to obtaining, developing or upgrading internal use software. Such costs 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 in accordance with FAS 144
when certain impairment indicators exist.
Accumulated depreciation on real estate and other fixed assets was $5.8 billion and $5.4 billion at Decem-
ber 31, 2008 and 2007, respectively.
(q) Unrealized Gain and Unrealized Loss on Swaps, Options and Forward Transactions: Interest rate,
currency, equity and commodity swaps (including AIGFP’s super senior credit default swap portfolio), swaptions,
options and forward transactions are accounted for as derivatives recorded on a trade-date basis, and carried at fair
value. Unrealized gains and losses are reflected in income, when appropriate. In certain instances, when income is
not recognized at inception of the contract, income is recognized over the life of the contract and as observable
market data becomes available. Aggregate asset or liability positions are netted on the Balance Sheet to the extent
permitted by qualifying master netting arrangements in place with each respective counterparty. Cash collateral
posted by AIG with counterparties in conjunction with these transactions is reported as a reduction of the
corresponding net derivative liability, while cash collateral received by AIG in conjunction with these transactions
is reported as a reduction of the corresponding net derivative asset.
(r) 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. During 2008, AIG performed goodwill impairment tests at June 30,
September 30, and December 31.
The impairment assessment involves a two-step process in which an initial assessment for potential impair-
ment is performed and, if potential impairment is present, the amount of impairment is measured and recorded.
Impairment is tested at the reporting unit level or, when all reporting units that comprise an operating segment have
similar economic characteristics, impairment is tested at the operating segment level.
Management initially assesses the potential for impairment by estimating the fair value of each of AIG’s
reporting units or operating segments and comparing the estimated fair values with the carrying amounts of those
reporting units, including allocated goodwill. The estimate of a reporting unit’s fair value may be based on one or a
combination of approaches including market-based earning multiples of the unit’s peer companies, discounted
expected future cash flows, external appraisals or, in the case of reporting units being considered for sale, third-party
indications of fair value, if available. Management considers one or more of these estimates when determining the
fair value of a reporting unit to be used in the impairment test. As part of the impairment test, management compares
the sum of the estimated fair values of AIG’s reporting units with AIG’s fully diluted common stock market
capitalization as a basis for concluding on the reasonableness of the estimated reporting unit fair values.
If the estimated fair value of a reporting unit exceeds its carrying value, goodwill is not impaired. If the
carrying value of a reporting unit exceeds its estimated fair value, goodwill associated with that reporting unit
potentially is impaired. The amount of impairment, if any, is measured as the excess of the carrying value of
goodwill over the estimated fair value of the goodwill. The estimated fair value of the goodwill is measured as the
excess of the fair value of the reporting unit over the amounts that would be assigned to the reporting unit’s assets
and liabilities in a hypothetical business combination. An impairment charge is recognized in income to the extent
of the excess.
AIG 2008 Form 10-K 213
American International Group, Inc., and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)