American Airlines 1997 Annual Report Download - page 55

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AMR CORPORATION
53
Intangible Assets The Company continually evaluates
intangible assets to determine whether current events and
circumstances warrant adjustment of the carrying values
or amortization periods.
Route acquisition costs and airport operating and gate
lease rights represent the purchase price attributable to
route authorities, airport take-off and landing slots and air-
port gate leasehold rights acquired. These assets are being
amortized on a straight-line basis over 40 years for route
authorities, 25 years for airport take-off and landing slots,
and the term of the lease for airport gate leasehold rights.
Passenger Revenues Passenger ticket sales are initially
recorded as a component of air traffic liability. Revenue
derived from ticket sales is recognized at the time trans-
portation is provided. However, due to various factors,
including the complex pricing structure and interline
agreements throughout the industry, certain amounts are
recognized in revenue using estimates regarding both the
timing of the revenue recognition and the amount of
revenue to be recognized. Actual results could differ from
those estimates.
Electronic Travel Distribution Revenues Revenues for
airline travel reservations are recognized at the time of the
booking of the reservation, net of estimated future can-
cellations. Revenues for car rental and other travel
providers are recognized at the time the reservation is
used by the customer. Fees billed on service contracts are
recognized as revenue in the month earned.
Information Technology Solutions Revenues Revenue
from information technology services is recognized in the
period earned. Revenue from software license fees for
standard software products is recognized when the soft-
ware is delivered, provided no significant future vendor
obligations exist and collection is probable. Revenue on
long-term software development and consulting contracts
is recognized under the percentage of completion method
of accounting. Losses, if any, on long-term contracts are
recognized when the current estimate of total contract
costs indicates a loss on a contract is probable. Fixed fees
for software maintenance are recognized ratably over the
life of the contract.
Advertising Costs The Company expenses the costs of
advertising as incurred. Advertising expense was $207
million, $205 million and $192 million for the years
ended December 31, 1997, 1996 and 1995, respectively.
Frequent Flyer Program The estimated incremental cost
of providing free travel awards is accrued when such
award levels are reached. American sells mileage credits
and related services to companies participating in its fre-
quent flyer program. The portion of the revenue related
to the sale of mileage credits is deferred and recognized
over a period approximating the period during which the
mileage credits are used.
Statement of Cash Flows Short-term investments, with-
out regard to remaining maturity at acquisition, are not
considered as cash equivalents for purposes of the
statement of cash flows.
Stock Options The Company accounts for its stock-
based compensation plans in accordance with Account-
ing Principles Board Opinion No. 25, “Accounting for
Stock Issued to Employees’’ (APB 25) and related Inter-
pretations. Under APB 25, no compensation expense is
recognized for stock option grants if the exercise price of
the Company’s stock option grants is at or above the fair
market value of the underlying stock on the date of grant.
2. Investments
Short-term investments consisted of (in millions):
December 31,
1997 1996
Overnight investments and time deposits $674 $81
Corporate notes 950 1,302
Other debt securities 746 360
$2,370 $1,743
Short-term investments at December 31, 1997, by
contractual maturity included (in millions):
Due in one year or less $1,403
Due after one year through three years 662
Due after three years 305
$2,370
All short-term investments are classified as available-
for-sale and stated at fair value. Net unrealized gains and
losses, net of deferred taxes, are reflected as an adjustment
to stockholders’ equity.