American Airlines 1999 Annual Report Download - page 45

44
Maintenance and Repair Costs Maintenance and repair costs
for owned and leased flight equipment are charged to operating
expense as incurred, except engine overhaul costs incurred by
AMR Eagle Holding Corporation (AMR Eagle) and costs incurred
for maintenance and repair under power by the hour mainte-
nance contract agreements, which are accrued on the basis of
hours flown.
Intangible Assets 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 airport
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 service 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.
Advertising Costs The Company expenses the costs of adver-
tising as incurred. Advertising expense was $206 million, $196
million and $181 million for the years ended December 31, 1999,
1998 and 1997, 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 frequent 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.
Statements of Cash Flows Short-term investments, without
regard to remaining maturity at acquisition, are not considered as
cash equivalents for purposes of the statements of cash flows.
Stock Options The Company accounts for its stock-based
compensation plans in accordance with Accounting Principles
Board Opinion No. 25, “ Accounting for Stock Issued to
Employees” (APB 25) and related Interpretations. 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,
1999 1998
Overnight investments and time deposits $ – $ 133
Corporate and bank notes 1,173 705
U.S. Government agency notes 234 –
Asset backed securities 145 353
U.S. Government agency mortgages 94 102
Other 60 155
$1,706 $1,448
Short-term investments at December 31, 1999, by contractual
maturity included (in millions):
Due in one year or less $ 750
Due between one year and three years 899
Due after three years 57
$1,706