American Airlines 2008 Annual Report Download - page 50

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47
New Accounting Pronouncements
In May 2008, the Financial Accounting Standards Board (FASB) affirmed the consensus of FASB Staff Position
APB 14-1 (FSP APB 14-1), “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon
Conversion (Including Partial Cash Settlement),” which applies to all convertible debt instruments that have a ‘‘net
settlement feature’’, which means that such convertible debt instruments, by their terms, may be settled either
wholly or partially in cash upon conversion. FSP APB 14-1 requires issuers of convertible debt instruments that
may be settled wholly or partially in cash upon conversion to separately account for the liability and equity
components in a manner reflective of the issuers’ nonconvertible debt borrowing rate. FSP APB 14-1 is effective
for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within
those fiscal years. Early adoption is not permitted and retroactive application to all periods presented is required.
The adoption of FSP APB 14-1 will affect the historical accounting for the 4.25 percent senior convertible notes
due 2023 (the 4.25 Notes) and the 4.50 percent senior convertible notes due 2024 (the 4.50 Notes), and will result
in increased interest expense of approximately $5 million in 2009, as well as a $47 million, $48 million and $42
million increase to 2008, 2007 and 2006 interest expense, respectively, upon retrospective application in the first
quarter of 2009. When the Company applies this FSP APB 14-1 retroactively in the first quarter of 2009, a Form
8-K will be filed to reflect the adjustments due to its adoption for 2007 and 2008. The impact on the balance sheet
will not be significant.