American Airlines 1998 Annual Report Download - page 46

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44
2.INVESTMENTS
Short-term investments consisted of (in millions):
December 31,
1998 1997
Overnight investments and time deposits $133 $322
Corporate notes 950 921
Asset backed securities 498 428
U. S. Government agency mortgages 169 305
Other 228 394
$1,978 $2,370
Short-term investments at December 31, 1998, by
contractual maturity included (in millions):
Due in one year or less $494
Due after one year through three years 1,470
Due after three years 14
$1,978
All short-term investments are classified as available-
for-sale and stated at fair value. Net unrealized gains and
losses, net of deferred taxes, are reflected as an adjustment
to stockholders’ equity.
At December 31, 1998, the Company owned approx-
imately 3.1 million depository certificates convertible,
subject to certain restrictions, into the common stock of
Equant N.V. (Equant), which completed an initial public
offering in July 1998. As of December 31, 1998, the esti-
mated fair value of these depository certificates was
approximately $210 million, based upon the publicly-
traded market value of Equant common stock. The
estimated fair value of the certificates was not readily deter-
minable as of December 31, 1997. The carrying value (cost
basis) of the Company’s investment in the depository certifi-
cates as of December 31, 1998 and 1997 was de minimis.
In connection with a secondary offering of Equant,
the Company sold approximately 900,000 depository cer-
tificates in February 1999 for net proceeds of $66 million.
The remaining depository certificates are subject to a final
reallocation between the owners of the certificates during
1999 and thus, the number of certificates owned by the
Company is subject to change.
3.COMMITMENTS AND CONTINGENCIES
At December 31, 1998, the Company had commitments to
acquire the following aircraft: 100 Boeing 737-800s, 34
Boeing 777-200IGWs, six Boeing 757-200s, four Boeing 767-
300ERs, 75 Embraer EMB-135s, 30 Embraer EMB-145s and
25 Bombardier CRJ-700s. Deliveries of these aircraft com-
mence in 1999 and will continue through 2005. Future
payments, including estimated amounts for price escalation
through anticipated delivery dates for these aircraft and related
equipment, will approximate $2.7 billion in 1999, $2.0 billion
in 2000, $1.6 billion in 2001 and an aggregate of approxi-
mately $1.5 billion in 2002 through 2005. In addition to
these commitments for aircraft, the Company’s Board of
Directors has authorized expenditures of approximately $2.1
billion over the next five years related to modifications to air-
craft, renovations of -- and additions to -- airport and office
facilities, and the acquisition of various other equipment and
assets. AMR expects to spend approximately $625 million of
this authorized amount in 1999.
The Miami International Airport Authority is currently
remediating various environmental conditions at the Miami
International Airport (the Airport) and funding the remedia-
tion costs through landing fee revenues. Future costs of the
remediation effort may be borne by carriers operating at the
Airport, including American, through increased landing fees
and/or other charges since certain of the potentially responsi-
ble parties are no longer in business. The future increase in
landing fees and/or other charges may be material but cannot
be reasonably estimated due to various factors, including the
unknown extent of the remedial actions that may be required,
the proportion of the cost that will ultimately be recovered
from the responsible parties, and uncertainties regarding the
environmental agencies that will ultimately supervise the
remedial activities and the nature of that supervision.
In April 1995, American announced an agreement to
sell 12 of its McDonnell Douglas MD-11 aircraft to Federal
Express Corporation (FedEx). In addition, in March 1998, the
Company exercised its option to sell its remaining seven MD-
11 aircraft to FedEx. No significant gain or loss is expected to
be recognized as a result of these transactions. Eight aircraft
had been delivered as of December 31, 1998. The remaining