American Airlines 1997 Annual Report Download - page 66

AMR CORPORATION
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The aircraft portion of the 1995 restructuring costs
includes a $145 million provision related to the write-
down of certain McDonnell Douglas DC-10 aircraft. Effec-
tive January 1, 1995, AMR adopted Statement of Financial
Accounting Standards No. 121, “Accounting for the
Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of,” which requires impairment
losses to be recorded on long-lived assets used in opera-
tions when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by
those assets are less than the assets’ carrying amount. In
1995, the Company evaluated its fleet operating plan with
respect to the DC-10-10 fleet and, as a result, believes that
the estimated future cash flows expected to be generated
by these aircraft will not be sufficient to recover their net
book value. Management estimated the undiscounted
future cash flows utilizing models used by the Company
in making fleet and scheduling decisions. As a result of
this analysis, the Company determined that a write-down
of the DC-10-10 aircraft to the net present value of their
estimated discounted future cash flows was warranted,
which resulted in a $112 million charge. In addition, the
Company recorded a $33 million charge to reflect a
diminution in the estimated market value of certain DC-
10 aircraft previously grounded by the Company. No cash
costs have been incurred or are expected as a result of
these DC-10 write-downs.
Also included in the aircraft restructuring costs is a $48
million charge related to the planned early retirement in
1996 of certain turboprop aircraft operated by AMR’s
regional carriers. The charge relates primarily to future
lease commitments on these aircraft past the dates they
will be removed from service and write-down of related
inventory to its estimated fair value. Cash payments on
the leases in 1997 and 1996 totaled approximately $20
million and $8 million, respectively, and additional pay-
ments will occur over the remaining lease terms.
13. Gain On Sale Of Stock By Subsidiary
Pursuant to a reorganization consummated on July 2,
1996 (the Reorganization), The SABRE Group Holdings,
Inc. (a holding company incorporated on June 25, 1996)
became the successor to the businesses of The SABRE
Group which were formerly operated as divisions or sub-
sidiaries of American or AMR. During October 1996, The
SABRE Group Holdings, Inc. completed an initial public
offering of 23,230,000 shares of its Class A Common
Stock, representing 17.8 percent of its economic interest,
at $27 per share for net proceeds of approximately $589
million. This transaction resulted in a reduction of the
Company’s economic interest in The SABRE Group from
100 percent to 82.2 percent. In accordance with the
Company’s policy of recognizing gains or losses on the
sale of a subsidiary’s stock based on the difference
between the offering price and the Company’s carrying
amount of such stock, the Company recorded a $497
million gain. The issuance of stock by The SABRE Group
Holdings, Inc. was not subject to federal income taxes. In
accordance with Statement of Financial Accounting Stan-
dards No. 109, “Accounting for Income Taxes,” no
income tax expense was recognized on the gain.
14. Other Income (Expense) - Miscellaneous
Other income (expense) - miscellaneous, net included the
following (in millions):
Year Ended December 31,
1997 1996 1995
Canadian Airlines charges $- $(251) $ -
Loss of aircraft --(41)
Litigation settlement -(21) -
Minority interest (36) (2) -
Other, net 17 (10) (14)
$(19) $(284) $ (55)
During 1996, the Company determined that the
decline in the value of its investment in the cumulative
mandatorily redeemable convertible preferred stock of
Canadian Airlines International Limited (Canadian) was