“Look through the footnotes in American International Group Inc. (AIG)’s latest annual report, and you will see a long section analyzing the company’s ability to use past losses to offset future income-tax obligations.
The gist: AIG’s executives have gazed into their crystal ball and concluded that the company’s prospects don’t look good. That dim outlook may help explain why the U.S. Treasury Department seems so anxious to begin reducing its 92 percent stake in the bailed-out insurance company, after a 36 percent drop in AIG’s stock price this year.
The disclosures to watch here have to do with an item known asdeferred-tax assets. Typically these consist of tax- deductible losses and expenses carried forward from prior periods. Companies can use these to lower future tax bills.
Under generally accepted accounting principles, such carry- forwards are valuable only to companies that are profitable and paying income taxes. If a company doesn’t expect to fully use these assets, it’s required to record what’s called a valuation allowance on its balance sheet to reduce their carrying amount.”
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