American Airlines 2003 Annual Report Download - page 76

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74
11. Goodwill and Other Intangible Assets
Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, “Goodwill
and Other Intangible Assets” (SFAS 142). SFAS 142 requires the Company to test goodwill and indefinite-lived
intangible assets (for AMR, route acquisition costs) for impairment rather than amortize them. In so doing, the
Company determined its entire goodwill balance of $1.4 billion was impaired. In arriving at this conclusion, the
Company’s net book value was determined to be in excess of the Company’s fair value at January 1, 2002, using
AMR as the reporting unit for purposes of the fair value determination. The Company determined its fair value as
of January 1, 2002 using market capitalization as the primary indicator of fair value. As a result, the Company
recorded a one-time, non-cash charge, effective January 1, 2002, of $988 million ($6.35 per share, net of a tax
benefit of $363 million) to write-off all of AMR’s goodwill. The tax benefit of $363 million differed from the amount
computed at the statutory federal income tax rate due to a portion of AMR’s goodwill not being deductible for
federal tax purposes. The charge is nonoperational in nature and is reflected as a cumulative effect of accounting
change in the accompanying consolidated statements of operations.
The pro forma effect of discontinuing amortization of goodwill and route acquisition costs under SFAS 142 -
assuming the Company had adopted this standard as of January 1, 2001 – results in an adjusted net loss of
approximately $1,722 million, or $11.17 per share for the year ended December 31, 2001.
The Company had route acquisition costs (including international slots) of $829 million as of December 31, 2003
and 2002. The Company’s impairment analysis for route acquisition costs did not result in an impairment charge in
2003 or 2002.
The following tables provide information relating to the Company’s amortized intangible assets as of December 31
(in millions):
2003
Cost
Accumulated
Amortization
Net Book
Value
Amortized intangible assets:
Airport operating rights $ 517 $ 199 $ 318
Gate lease rights 191 85 106
Total $ 708 $ 284 $ 424
2002
Cost
Accumulated
Amortization
Net Book
Value
Amortized intangible assets:
Airport operating rights $ 516 $ 178 $ 338
Gate lease rights 204 79 125
Total $ 720 $ 257 $ 463
Airport operating and gate lease rights are being amortized on a straight-line basis over 25 years to a zero residual
value. The Company recorded amortization expense related to these intangible assets of approximately $28
million for each of the years ended December 31, 2003 and 2002 and $29 million for the year ended December 31,
2001. The Company expects to record annual amortization expense of approximately $28 million in each of the
next five years related to these intangible assets.