AIG 2010 Annual Report Download - page 235

American International Group, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For contracts accounted for at fair value, policy acquisition costs are expensed as incurred and not deferred or
amortized.
(i) Real estate and other fixed assets — net: The cost of buildings and furniture and equipment is 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 when impairment indicators
exist.
Accumulated depreciation on real estate and other fixed assets was $3.6 billion and $5.4 billion at December 31,
2010 and 2009, respectively.
(j) Unrealized gain and Unrealized loss on swaps, options and forward transactions: Interest rate, currency,
equity and commodity swaps, credit contracts (including Capital Markets’ 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, a contract’s transaction price is the best indication of initial fair value. Aggregate asset or liability
positions are netted on the Consolidated Balance Sheet only 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.
(k) 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 2010, AIG performed goodwill impairment tests
at March 31, June 30, September 30, in connection with the announced sales of ALICO, AIG Star and AIG
Edison and again at December 31, 2010.
The impairment assessment involves a two-step process in which an initial assessment for potential impairment
is performed and, if potential impairment is present, the amount of impairment is measured (if any) and recorded.
Impairment is tested at the reporting unit level.
Management initially assesses the potential for impairment by estimating the fair value of each of AIG’s
reporting units 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.
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 earnings to the extent of the excess.
AIG 2010 Form 10-K 219