American Airlines 2001 Annual Report Download - page 24

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In addition, due primarily to fleet plan changes implemented by the Company as a result of the events of September 11,
2001, the Company recorded a charge of approximately $64 million related primarily to the write-down of certain other aircraft
and aircraft modifications to their estimated fair market value. Included in this charge is the write-down of five owned Boeing
727-200 non-operating aircraft and one owned McDonnell Douglas MD-80 non-operating aircraft.
As a result of the write-down of these aircraft to fair market value, as well as the acceleration of the retirement dates,
including the acceleration of the Company’s remaining 50 owned Boeing 727-200 aircraft to May 2002, and changes in salvage
values, depreciation and amortization expense will decrease by approximately $57 million on an annualized basis.
Due to the events of September 11, 2001, and subsequent impact on the Company and the rest of the airline industry,
during the fourth quarter of 2001, the Company completed an impairment analysis of its long-lived assets, including aircraft
fleets, route acquisition costs, airport operating and gate lease rights, and goodwill in accordance with applicable accounting
standards. The impairment analysis did not result in any additional impairment charges beyond those recorded in the second and
third quarters of 2001.
The Company also retired all McDonnell Douglas DC-9 aircraft and eight McDonnell Douglas MD-80 aircraft during the
third and fourth quarters of 2001, and accelerated the retirement of its entire Boeing 717-200 fleet to June 2002 (these aircraft
were acquired from TWA). In conjunction therewith, the Company recorded a charge of approximately $65 million related
primarily to future lease commitments and return condition costs on the operating leased aircraft past the dates they will be
removed from service. As of December 31, 2001, cash outlays are estimated to be approximately $58 million and will occur over
the remaining lease terms, which extend through 2010.
Facility exit costs Also in response to the September 11, 2001 terrorist attacks, the Company announced that it would
discontinue service at Dallas Love Field and discontinue or reduce service on several of its international routes. In addition,
the Company announced it would close six Admiral’s Clubs, five airport Platinum Service Centers and approximately 105 off-
airport Travel Centers in 37 cities, all effective September 28, 2001. As a result of these announcements, the Company recorded
an $87 million charge related primarily to future lease commitments and the write-off of leasehold improvements and fixed assets.
As of December 31, 2001, cash outlays related to the accrual of future lease commitments are estimated to be approximately
$20 million and will occur over the remaining lease terms, which extend through 2018.
In addition, in December 2001, American agreed to sell its terminal facilities lease rights at the Raleigh-Durham
International Airport to the Raleigh-Durham Airport Authority. As a result of this transaction, the Company recorded a
$28 million charge in the fourth quarter of 2001 to accrue the residual cost less sales proceeds.
Employee charges On September 19, 2001, the Company announced that it would be forced to reduce its workforce by
approximately 20,000 jobs across all work groups (pilots, flight attendants, mechanics, fleet service clerks, agents, management
and support staff personnel). The reduction in workforce, which the Company accomplished through various measures, including
leaves of absence, job sharing, elimination of open positions, furloughs in accordance with collective bargaining agreements and
permanent layoffs, resulted from the September 11, 2001 terrorist attacks and the Company’s subsequent reduction of its
operating schedule by approximately 20 percent. In connection therewith, the Company recorded a charge of approximately
$71 million for employee termination benefits. Cash outlays for the employee charges were incurred substantially during 2001
and approximated the amount of the charge recorded.
3. Acquisition of TWA Assets
On April 9, 2001, American purchased substantially all of the assets of TWA and assumed certain liabilities. TWA was the
eighth largest U.S. carrier, with a primary domestic hub in St. Louis. American funded the acquisition of TWA’s assets with its
existing cash and short-term investments. The acquisition of TWA was accounted for under the purchase method of accounting
and, accordingly, the operating results of TWA since the date of acquisition have been included in the accompanying consolidated
financial statements for the year ended December 31, 2001.
The accompanying consolidated financial statements reflect the allocation of the purchase price, which was based on
estimated fair values of the assets acquired and liabilities assumed. American paid approximately $742 million in cash (subject to
certain working capital adjustments) for the purchase of TWA, which included the $625 million purchase price paid to TWA and
various other acquisition costs, primarily the purchase of aircraft security deposits and prepaid rent, and assumed the following
obligations: $638 million in current liabilities, $734 million in postretirement benefits other than pensions, $519 million in
capital lease obligations and approximately $175 million of other long-term liabilities. The purchase price was allocated as follows:
approximately $812 million to current assets, $574 million to fixed assets, primarily capital lease aircraft, and approximately
$320 million to other assets, resulting in goodwill of approximately $1 billion, which is being amortized on a straight-line basis
over 40 years.