American Airlines 2008 Annual Report Download - page 61

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58
1. Summary of Accounting Policies (Continued)
Intangible Assets Route acquisition costs and airport operating and gate lease rights represent the purchase
price attributable to route authorities (including international airport take-off and landing slots), domestic airport
take-off and landing slots and airport gate leasehold rights acquired. Indefinite-lived intangible assets (route
acquisition costs and international slots and related international take-off and landing slots) are tested for
impairment annually on December 31, rather than amortized, in accordance with Statement of Financial
Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (SFAS 142). Airport operating and gate
lease rights are being amortized on a straight-line basis over 25 years to a zero residual value.
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.
Measurement of Asset Impairments In accordance with Statement of Financial Accounting Standards No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS 144), the Company records impairment
charges on long-lived assets used in operations when events and circumstances indicate that the assets may be
impaired. An asset or group of assets is considered impaired when the undiscounted cash flows estimated to be
generated by the asset is less than the carrying amount of the asset and the net book value of the asset exceeds
its estimated fair value. In making these determinations, the Company uses certain assumptions, including, but
not limited to: (i) estimated fair value of the assets; and (ii) estimated future cash flows expected to be generated
by these assets, which are based on additional assumptions such as asset utilization, length of service the asset
will be used in the Company’s operations and estimated salvage values.
Equipment and Property The provision for depreciation of operating equipment and property is computed on
the straight-line method applied to each unit of property, except that major rotable parts, avionics and assemblies
are depreciated on a group basis. The depreciable lives used for the principal depreciable asset classifications
are:
Depreciable Life
American jet aircraft and engines
20 - 30 years
Other regional aircraft and engines
16 - 20 years
Major rotable parts, avionics and assemblies
Life of equipment to which applicable
Improvements to leased flight equipment
Lesser of lease term or expected useful
life
Buildings and improvements (principally on
leased land)
5 - 30 years or term of lease, including
estimated renewal options when renewal
is economically compelled at key
airports
Furniture, fixtures and other equipment
3 - 10 years
Capitalized software
3 - 10 years
Residual values for aircraft, engines, major rotable parts, avionics and assemblies are generally five to ten
percent, except when guaranteed by a third party for a different amount.
Equipment and property under capital leases are amortized over the term of the leases or, in the case of certain
aircraft, over their expected useful lives. Lease terms vary but are generally ten to 25 years for aircraft and seven
to 40 years for other leased equipment and property.
Regional Affiliates Revenue from ticket sales is generally recognized when service is provided. Regional
Affiliates revenues for flights connecting to American flights are based on industry standard proration agreements.
Passenger Revenue 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, including breakage. These estimates are generally based upon the evaluation of
historical trends, including the use of regression analysis and other methods to model the outcome of future
events based on the Company’s historical experience, and are recorded at the scheduled time of departure.