American Airlines 2002 Annual Report Download - page 64

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62
3. Special charges and U.S. Government grant (Continued)
Summary
The following table summarizes the components of special charges and the remaining accruals for the
years ended December 31, 2002 and 2001 (in millions):
Aircraft
Charges
Facility
Exit Costs
Employee
Charges Other Total
2001
Special charges $ 1,237 $ 115 $ 71 $ 43 $ 1,466
Non-cash charges (1,179) (93) - - (1,272)
Payments - (2) (71) (43) (116)
Remaining accrual at
December 31, 2001 58 20 - - 78
2002
Special charges 658 3 57 - 718
Non-cash charges (460) (3) - - (463)
Payments (47) (3) (13) - (63)
Remaining accrual at
December 31, 2002 $ 209 $ 17 $ 44 $ - $ 270
4. Goodwill and Other Intangible Assets
Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142,
“Goodwill and Other Intangible Assets” (SFAS 142). SFAS 142 requires the Company to test goodwill and
indefinite-lived intangible assets (for AMR, route acquisition costs) for impairment rather than amortize them.
During the first quarter of 2002, the Company completed its impairment analysis for route acquisition costs in
accordance with SFAS 142. The analysis did not result in an impairment charge. During the third quarter of 2002,
the Company completed its impairment analysis related to its $1.4 billion of goodwill and determined the
Company’s entire goodwill balance was impaired. In arriving at this conclusion, the Company’s net book value
was determined to be in excess of the Company’s fair value at January 1, 2002, using AMR as the reporting unit
for purposes of the fair value determination. The Company determined its fair value as of January 1, 2002, using
various valuation methods, ultimately using market capitalization as the primary indicator of fair value. As a result,
the Company recorded a one-time, non-cash charge, effective January 1, 2002, of $988 million ($6.35 per share,
net of a tax benefit of $363 million) to write-off all of AMR’s goodwill. The tax benefit of $363 million differed from
the amount computed at the statutory federal income tax rate due to a portion of AMR’s goodwill not being
deductible for federal tax purposes. The charge to write-off all of AMR’s goodwill is nonoperational in nature and
is reflected as a cumulative effect of accounting change in the consolidated statements of operations.