American Airlines 2000 Annual Report Download - page 22

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,
primarily 25 years for airport take-off and landing
slots, and the term of the lease for airport gate lease-
hold rights.
Passenger Revenues Passenger ticket sales are ini-
tially 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 advertising as incurred. Advertising expense was
$221 million, $206 million and $196 million for the
years ended December 31, 2000, 1999 and 1998,
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 rev-
enue related to the sale of mileage credits is deferred
and recognized over a period approximating the period
during which the mileage credits are used. The remain-
ing portion of the revenue is recognized upon receipt
as the related services have been provided.
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 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. IN VEST MEN TS
Short-term investments consisted of (in millions):
December 31,
200 0 1999
Overnight investments and
time deposits $361 $–
Corporate and bank notes 906 1,173
U.S. Government agency mortgages 442 94
Asset backed securities 361 145
U.S. Government agency notes –234
Other 74 60
$2,1 44 $1,706
Short-term investments at December 31, 2000, by
contractual maturity included (in millions):
Due in one year or less $994
Due between one year and three years 1 ,1 04
Due after three years 46
$2,1 44
All short-term investments are classified as avail-
able-for-sale and stated at fair value. Unrealized gains
and losses, net of deferred taxes, are reflected as an
adjustment to stockholders’ equity.
During 1999, the Company entered into an
agreement with priceline.com Incorporated (priceline)
whereby ticket inventory provided by the Company
may be sold through priceline’s e-commerce system. In
conjunction with this agreement, the Company received
warrants to purchase approximately 5.5 million shares
of priceline common stock. In the second quarter of
2000, the Company sold these warrants for proceeds
of approximately $94 million, and recorded a gain of
$57 million, which is included in Miscellaneous – net on
the accompanying consolidated statements of operations.
At December 31, 1998, the Company owned
approximately 3.1 million depository certificates con-
vertible, subject to certain restrictions, into the common
stock of Equant N.V. (Equant), which completed an ini-
tial public offering in July 1998. Approximately 1.7 mil-
lion of the certificates were held by the Company on
behalf of Sabre. During 1999, the Company acquired
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