American Airlines 2004 Annual Report Download - page 66

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63
7. Financial Instruments and Risk Management (Continued)
Foreign Exchange Risk Management
The Company has entered into Japanese yen currency exchange agreements to hedge certain yen-based capital
lease obligations (effectively converting these obligations into dollar-based obligations). The Company accounts
for its Japanese yen currency exchange agreements as cash flow hedges whereby the fair value of the related
Japanese yen currency exchange agreements is reflected in Other liabilities and deferred credits and
Accumulated other comprehensive loss on the accompanying consolidated balance sheets. The Company has no
ineffectiveness with regard to its Japanese yen currency exchange agreements. The fair values of the Company’s
yen currency exchange agreements, representing the amount the Company would pay to terminate the
agreements, were $23 million and $33 million as of December 31, 2004 and 2003, respectively. The exchange
rates on the Japanese yen agreements range from 66.5 to 99.65 yen per U.S. dollar.
Fair Values of Financial Instruments
The fair values of the Company's long-term debt were estimated using quoted market prices where available. For
long-term debt not actively traded, fair values were estimated using discounted cash flow analyses, based on the
Company's current incremental borrowing rates for similar types of borrowing arrangements. The carrying
amounts and estimated fair values of the Company's long-term debt, including current maturities, were (in
millions):
December 31,
2004 2003
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
Secured variable and fixed rate
indebtedness $ 6,340 $ 5,333 $ 6,041 $ 5,399
Enhanced equipment trust
certificates 3,707 3,578 3,747 3,454
6.0% - 8.5% special facility revenue
bonds 946 797 947 797
Credit facility agreement 850 852 834 834
4.25% - 4.50 % senior convertible
notes 619 451 300 309
9.0% - 10.20% debentures 330 224 330 267
7.88% - 10.55% notes 303 197 303 257
Other - - 2 2
$ 13,095 $ 11,432 $ 12,504 $ 11,319