American Airlines 2012 Annual Report Download - page 74

Table of Contents
Liabilities.” This update creates new disclosure requirements about the nature of an entity’s rights of setoff and related arrangements associated with its
financial instruments and derivative instruments. The disclosure requirements in this update are effective for annual reporting periods, and interim periods
within those years, beginning on or after January 1, 2013. The Company is currently evaluating the impact this update will have on its disclosures.
In July 2012, the FASB issued ASU 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment.” This update amends ASC 350, “Intangibles
—Goodwill and Other” to allow entities an option to first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment
test. Under that option, an entity no longer would be required to calculate the fair value of the intangible asset unless the entity determines, based on that
qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments in this update are effective for
annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The Company is currently evaluating the impact this
update may have on its indefinite-lived intangibles impairment testing.
In August of 2012, the SEC issued a final rule implementing Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act that imposes
reporting requirements on issuers who use or may use “Conflict Minerals,” defined as columbite-tantalite (the metal ore from which tantalum is extracted),
cassiterite (the metal ore from which tin is extracted), gold, and wolframite (the metal ore from which tungsten is extracted), or their derivatives, originating
from the Democratic Republic of the Congo and neighboring countries (collectively, “covered countries”). The rule was mandated in response to humanitarian
concerns that trade in conflict minerals are used to finance armed groups in the covered countries. The rule describes assessment and reporting requirements
for all issuers for which conflict minerals originating in a covered country are necessary to the functionality or production of a product manufactured, or
contracted to be manufactured, by the issuer. Such issuers are required to file a newly created Form SD annually by May 31 for the prior calendar year. Initial
Form SDs are required to be filed by May 31, 2014 for the calendar year 2013. The Company is currently in the process of assessing whether it will be
required to file a Form SD for calendar year 2013 and determining necessary processes and procedures to collect information necessary to make any required
filing. The Company does not anticipate that any requirement to file this new Form SD will have a material impact on its consolidated financial statements.
Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that
affect the amounts reported in the accompanying consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
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 and funds held for certain tax 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,
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