American Airlines 2009 Annual Report Download - page 59

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56
1. Summary of Accounting Policies (Continued)
Restricted Cash and Short-term Investments The Company has restricted cash and short-term investments
related primarily to collateral held to support projected workers’ compensation obligations.
Inventories Spare parts, materials and supplies relating to flight equipment are carried at average acquisition
cost and are expensed when used in operations. Allowances for obsolescence are provided - over the estimated
useful life of the related aircraft and engines - for spare parts expected to be on hand at the date aircraft are
retired from service. Allowances are also provided for spare parts currently identified as excess and obsolete.
These allowances are based on management estimates, which are subject to change.
Maintenance and Repair Costs Maintenance and repair costs for owned and leased flight equipment are
charged to operating expense as incurred, except costs incurred for maintenance and repair under flight hour
maintenance contract agreements, which are accrued based on contractual terms when an obligation exists.
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, or when a triggering event occurs, in accordance
with U.S. GAAP. Such triggering events may include significant changes to the Company’s network or capacity,
or the implementation of open skies agreements in countries where the Company operates flights. 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 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 are 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 asset; and (ii) estimated future cash flows expected to be generated by the asset, 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 remaining 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.