e10vk
United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
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Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For
the fiscal year ended December 31, 2006
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File Number: 1-8400
AMR Corporation
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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75-1825172
(IRS Employer
Identification Number) |
4333 Amon Carter Blvd.
Fort Worth, Texas 76155
(Address of principal executive offices, including zip code)
(817) 963-1234
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class |
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Name of Exchange on Which Registered |
Common Stock, $1 par value per share
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New York Stock Exchange |
9.00% Debentures due 2016
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New York Stock Exchange |
7.875% Public Income Notes due 2039
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New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. þ Yes o No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. o Yes þ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. þ Yes o No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of the registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act.
þ Large Accelerated
Filer o Accelerated
Filer o Non-accelerated Filer
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). o Yes þ No
The aggregate market value of the voting stock held by non-affiliates of the registrant as of June
30, 2006, was approximately $5.4 billion. As of February 16, 2007, 239,895,561 shares of the
registrants common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K incorporates by reference certain information from the Proxy Statement
for the Annual Meeting of Stockholders to be held May 16, 2007.
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS
AMR Corporation (AMR or the Company) was incorporated in October 1982. AMRs operations fall
almost entirely in the airline industry. AMRs principal subsidiary, American Airlines, Inc.
(American), was founded in 1934. American is the largest scheduled passenger airline in the world.
At the end of 2006, American provided scheduled jet service to approximately 150 destinations
throughout North America, the Caribbean, Latin America, Europe and Asia. American is also one of
the largest scheduled air freight carriers in the world, providing a wide range of freight and mail
services to shippers throughout its system.
In addition, AMR Eagle Holding Corporation (AMR Eagle), a wholly-owned subsidiary of AMR, owns two
regional airlines which do business as American Eagle American Eagle Airlines, Inc. and
Executive Airlines, Inc. (Executive) (collectively, the American Eagle® carriers). American also
contracts with three independently owned regional airlines, which do business as the American
Connection (the American Connection® carriers). The American Eagle carriers and the American
Connection carriers provide connecting service from eight of Americans high-traffic cities to
smaller markets throughout the United States, Canada, Mexico and the Caribbean.
American Beacon Advisors, Inc. (American Beacon), a wholly-owned subsidiary of AMR, is responsible
for the investment and oversight of assets of AMRs U.S. employee benefit plans, as well as AMRs
short-term investments. It also serves as the investment manager of the American Beacon Funds, a
family of mutual funds with both institutional and retail shareholders, and provides customized
fixed income portfolio management services. As of December 31, 2006, American Beacon was
responsible for the management of approximately $57.9 billion in assets, including direct
management of approximately $28.2 billion in short-term fixed income investments.
Recent Events
The Company recorded net earnings of $231 million in 2006 compared to a net loss of $857 million in
2005. The Companys 2006 results reflected an improvement in revenues somewhat offset by fuel
prices and certain other costs that were higher in 2006 compared to 2005. The Companys revenues
increased approximately $1.9 billion in 2006 compared to 2005. Americans passenger revenues
increased 7.5 percent despite a capacity (available seat mile) decrease of 1.2 percent. While
passenger yield showed significant year-over-year improvement as American implemented fare
increases to partially offset the continuing rise in the cost of fuel, passenger yield remains low
by historical standards.
The average price per gallon of fuel increased 51.9 cents from 2004 to 2005 and 27.9 cents from
2005 to 2006. These price increases negatively impacted fuel expense by $1.6 billion and $787
million in 2005 and 2006, respectively, as compared to the respective prior years. Continuing high
fuel prices, additional increases in the price of fuel, and/or disruptions in the supply of fuel
would further adversely affect the Companys financial condition and its results of operations.
AMR continues to recapitalize its balance sheet and in May 2006, issued 15 million shares of common
stock for net proceeds of $400 million. On January 26, 2007, AMR issued an additional 13 million
shares of common stock for net proceeds of $497 million.
The Companys ability to become consistently profitable and its ability to continue to fund its
obligations on an ongoing basis will depend on a number of factors, many of which are largely
beyond the Companys control. Certain risk factors that affect the Companys business and
financial results are discussed in the Risk Factors listed in Item 1A. In addition, four of the
Companys largest domestic competitors have filed for bankruptcy in the last several years and have
used this process to significantly reduce contractual labor and other costs. In order to remain
competitive and to improve its financial condition, the Company must continue to take steps to
generate additional revenues and to reduce its costs. Although the Company has a number of
initiatives underway to address its cost and revenue challenges, the ultimate success of these
initiatives is not known at this time and cannot be assured.
1
Competition
Domestic Air Transportation The domestic airline industry is fiercely competitive. Currently,
any U.S. air carrier deemed fit by the U.S. Department of Transportation (DOT) is free to operate
scheduled passenger service between any two points within the U.S. and its possessions. Most major
air carriers have developed hub-and-spoke systems and schedule patterns in an effort to maximize
the revenue potential of their service. American operates five hubs: Dallas/Fort Worth (DFW),
Chicago OHare, Miami, St. Louis and San Juan, Puerto Rico. United Air Lines (United) also has a
hub operation at Chicago OHare.
The American Eagle® carriers increase the number of markets the Company serves by providing
connections at Americans hubs and certain other major airports Boston, Los Angeles,
Raleigh/Durham and New Yorks LaGuardia (LaGuardia) and John F. Kennedy International (JFK)
Airports. The American Connection® carriers provide connecting service to American through St.
Louis. Americans competitors also own or have marketing agreements with regional carriers which
provide similar services at their major hubs and other locations.
On most of its domestic non-stop routes, the Company faces competing service from at least one, and
sometimes more than one, domestic airline including: AirTran Airways (Air Tran), Alaska Airlines
(Alaska), ATA Airlines, Continental Airlines (Continental), Delta Air Lines (Delta), Frontier
Airlines, JetBlue Airways (JetBlue), Northwest Airlines (Northwest), Southwest Airlines
(Southwest), United, US Airways and their affiliated regional carriers. Competition is even
greater between cities that require a connection, where the major airlines compete via their
respective hubs. In addition, the Company faces competition on some of its routes from carriers
operating point-to-point service on such routes. The Company also competes with all-cargo and
charter carriers and, particularly on shorter segments, ground and rail transportation. On all of
its routes, pricing decisions are affected, in large part, by the need to meet competition from
other airlines.
The Company must also compete with carriers that have recently reorganized or are reorganizing,
including under the protection of Chapter 11 of the U.S. Bankruptcy Code (Chapter 11). It is
possible that one or more other competitors may seek to reorganize in or out of Chapter 11.
Successful reorganizations present the Company with competitors with significantly lower operating
costs derived from renegotiated labor, supply and financing contracts.
International Air Transportation In addition to its extensive domestic service, the Company
provides international service to the Caribbean, Canada, Latin America, Europe and Asia. The
Companys operating revenues from foreign operations were approximately 37 percent of the Companys
total operating revenues in 2006, and 36 and 35 percent of the Companys total operating revenues
in 2005 and 2004, respectively. Additional information about the Companys foreign operations is
included in Note 14 to the consolidated financial statements.
In providing international air transportation, the Company competes with foreign investor-owned
carriers, foreign state-owned carriers and U.S. airlines that have been granted authority to
provide scheduled passenger and cargo service between the U.S. and various overseas locations. The
major U.S. air carriers have some advantage over foreign competitors in their ability to generate
traffic from their extensive domestic route systems. In some cases, however, foreign governments
limit U.S. air carriers rights to carry passengers beyond designated gateway cities in foreign
countries. To improve access to each others markets, various
U.S. and foreign air carriers
including American have established marketing relationships with other airlines and rail
companies. American currently has marketing relationships with Aer Lingus, Air Pacific, Air
Sahara, Air Tahiti Nui, Alaska Airlines, British Airways, Cathay Pacific, China Eastern Airlines,
Deutsche Bahn German Rail, EL AL, EVA Air, Finnair, Gulf Air, Hawaiian Airlines, Iberia, Japan
Airlines, LAN (includes LAN Airlines, LAN Argentina, LAN Ecuador and LAN Peru), Malév Hungarian
Airlines, Mexicana, Qantas Airways, Royal Jordanian, SN Brussels Airlines, SNCF French Rail, TAM,
Turkish Airlines and Vietnam Airlines.
2
American is also a founding member of the oneworld alliance, which includes Aer Lingus, British
Airways, Cathay Pacific, Finnair, Lan Airlines, Iberia, and Qantas. In addition, oneworld has
extended invitations to join oneworld to Japan Airlines, Malev and Royal Jordanian, all of which
are expected to begin offering benefits as members of the alliance in April 2007. The oneworld
alliance links the networks of the member carriers to enhance customer service and smooth
connections to the destinations served by the alliance, including linking the carriers frequent
flyer programs and access to the carriers airport lounge facilities. Several of Americans major
competitors are members of marketing/operational alliances that enjoy antitrust immunity. American
and British Airways, the largest members of the oneworld alliance, are restricted in their
relationship because they lack antitrust immunity. They are, therefore, at a competitive
disadvantage vis-à-vis other alliances that have antitrust immunity.
Price Competition The airline industry is characterized by substantial and intense price
competition. Fare discounting by competitors has historically had a negative effect on the
Companys financial results because the Company is generally required to match competitors fares
as failing to match would provide even less revenue due to customers price sensitivity.
In recent years, a number of low-cost carriers (LCCs) have entered the domestic market. Several
major airlines, including the Company, have implemented efforts to lower their costs since lower
cost structures enable airlines to offer lower fares. In addition, several air carriers have
recently reorganized or are reorganizing, including under Chapter 11, including United, Delta, US
Airways and Northwest Airlines. Reorganization allows these carriers to decrease operating costs.
In the past, lower cost structures have generally resulted in fare reductions. If fare reductions
are not offset by increases in passenger traffic, changes in the mix of traffic that improve yields
(passenger revenue per passenger mile) and/or cost reductions, the Companys operating results will
be negatively impacted.
Regulation
General The Airline Deregulation Act of 1978, as amended, eliminated most domestic economic
regulation of passenger and freight transportation. However, the DOT and the Federal Aviation
Administration (FAA) still exercise certain regulatory authority over air carriers. The DOT
maintains jurisdiction over the approval of international codeshare agreements, international route
authorities and certain consumer protection and competition matters, such as advertising, denied
boarding compensation and baggage liability.
The FAA regulates flying operations generally, including establishing standards for personnel,
aircraft and certain security measures. As part of that oversight, the FAA has implemented a
number of requirements that the Company has incorporated and is incorporating into its maintenance
programs. The Company is progressing toward the completion of over 100 airworthiness directives
including ATR Alpha thermal blanket replacements, enhanced ground proximity warning systems,
McDonnell Douglas MD-80 main landing gear piston improvements, Boeing 757 and Boeing 767 pylon
improvements, Boeing 737 elevator and rudder improvements and Airbus A300 structural improvements.
Based on its current implementation schedule, the Company expects to be in compliance with the
applicable requirements within the required time periods.
The Department of Justice (DOJ) has jurisdiction over airline antitrust matters. The U.S. Postal
Service has jurisdiction over certain aspects of the transportation of mail and related services.
Labor relations in the air transportation industry are regulated under the Railway Labor Act, which
vests in the National Mediation Board certain regulatory functions with respect to disputes between
airlines and labor unions relating to union representation and collective bargaining agreements.
3
International International air transportation is subject to extensive government regulation. The
Companys operating authority in international markets is subject to aviation agreements between
the U.S. and the respective countries or governmental authorities (such as the European Union), and
in some cases, fares and schedules require the approval of the DOT and/or the relevant foreign
governments. Moreover, alliances with international carriers may be subject to the jurisdiction
and regulations of various foreign agencies. Bilateral agreements between the U.S. and various
foreign governments of countries served by the Company are periodically subject to renegotiation.
Changes in U.S. or foreign government aviation policies could result in the alteration or
termination of such agreements, diminish the value of route authorities, or otherwise adversely
affect the Companys international operations. In addition, at some foreign airports, an air
carrier needs slots (landing and take-off authorizations) before the air carrier can introduce new
service or increase existing service. The availability of such slots is not assured and the
inability of the Company to obtain and retain needed slots could therefore inhibit its efforts to
compete in certain international markets.
The Company is one of four carriers that have exclusive rights to fly routes between London
Heathrow airport and the United States. The United States government and the European Union are
currently evaluating the possibility of allowing a greater number of carriers to fly these routes.
To the extent additional carriers are granted the right to fly between Heathrow and the United
States in the future, and are able to obtain the necessary slots and terminal facilities, the
Company could suffer an adverse financial impact. See Item 1A, Risk Factors, for additional
information.
Security In November 2001, the Aviation and Transportation Security Act (ATSA) was enacted in the
United States. The ATSA created a new government agency, the Transportation Security
Administration (TSA), which is part of the Department of Homeland Security and is responsible for
aviation security. The ATSA mandates that the TSA provide for the screening of all passengers and
property, including U.S. mail, cargo, carry-on and checked baggage, and other articles that will be
carried aboard a passenger aircraft. The ATSA also provides for security in flight decks of
aircraft and requires federal air marshals to be present on certain flights.
Effective February 1, 2002, the ATSA imposed a $2.50 per enplanement security service fee ($5
one-way maximum fee), which is being collected by the air carriers and submitted to the government
to pay for these enhanced security measures. Additionally, air carriers are annually required to
submit to the government an amount equal to what the air carriers paid for screening passengers and
property in 2000. In recent years, President Bush has sought to increase both of these fees under
spending proposals for the Department of Homeland Security. American and other carriers have
announced their opposition to these proposals as there is no assurance that any increase in fees
could be passed on to customers.
Airline Fares Airlines are permitted to establish their own domestic fares without governmental
regulation. The DOT maintains authority over certain international fares, rates and charges, but
applies this authority on a limited basis. In addition, international fares and rates are
sometimes subject to the jurisdiction of the governments of the foreign countries which the Company
serves. While air carriers are required to file and adhere to international fare and rate tariffs,
substantial commissions, fare overrides and discounts to travel agents, brokers and wholesalers
characterize many international markets.
Airport Access The FAA has designated JFK, LaGuardia, and Washington Reagan airports as
high-density traffic airports. The high-density rule limits the number of Instrument Flight Rule
operations take-offs and landings permitted per hour and requires that a slot support each
operation. In April 2000, the Wendell H. Ford Aviation Investment and Reform Act for the
21st Century (Air 21 Act) was enacted. It eliminated slot restrictions at JFK and
LaGuardia airports effective January 1, 2007. The Company expects that the elimination of these
slot restrictions could adversely impact the Company.
In 2006, the FAA issued an order requiring carriers to hold arrival authorizations to land during
certain hours at Chicago OHare. The FAA also issued two proposed rules to limit operations at
LaGuardia after January 1, 2007. The first will limit operations on an interim basis, and is not
expected to differ materially from the high-density rule. The second would replace the interim rule
and limit operations at LaGuardia indefinitely. The Company along with other carriers and
interested parties filed comments with the FAA in December 2006 seeking changes to the proposed
rules. The rules, as currently drafted, could require the Company to change the routes and service
it currently operates at LaGuardia, which could adversely impact the Company.
4
Under the high-density rule, the FAA permits the purchasing, selling, leasing or transferring of
slots, except those slots designated as international, and essential air service slots (certain
slots at JFK, LaGuardia, and Washington Reagan airports). Trading of any domestic slot is permitted
subject to certain parameters. The FAAs OHare order places some limits on the ability to buy and
sell arrival authorizations. The FAAs proposed orders for LaGuardia also contemplate certain
restrictions. Some foreign airports, including London Heathrow, a major European destination for
American, also have slot allocations. Most foreign authorities do not officially recognize the
purchasing, selling or leasing of slots.
Although the Company is constrained by slots, it currently has sufficient slot authorizations to
operate its existing flights. However, there is no assurance that the Company will be able to
obtain slots in the future to expand its operations or change its schedules because, among other
factors, slot allocations are subject to changes in government policies.
On October 13, 2006, the Wright Amendment Reform Act of 2006 (the Act) was signed into law by the
President. The Act is based on an agreement by the cities of Dallas and Fort Worth, Texas, DFW
International Airport, Southwest, and the Company to modify the Wright Amendment, which authorizes
certain flight operations at Dallas Love Field within limited geographic areas. Among other
things, the Act eventually eliminates domestic geographic restrictions on operations while limiting
the maximum number of gates at Love Field. The Company believes the Act is a pragmatic resolution
of the issues related to the Wright Amendment and the use of Love Field; however, the lifting of
geographic restrictions at Love Field could have an adverse financial impact on the Company.
5
Environmental Matters The Company is subject to various laws and government regulations
concerning environmental matters and employee safety and health in the U.S. and other countries.
U.S. federal laws that have a particular impact on the Company include the Airport Noise and
Capacity Act of 1990 (ANCA), the Clean Air Act, the Resource Conservation and Recovery Act, the
Clean Water Act, the Safe Drinking Water Act, and the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA or the Superfund Act). Certain operations of the Company
are also subject to the oversight of the Occupational Safety and Health Administration (OSHA)
concerning employee safety and health matters. The U.S. Environmental Protection Agency (EPA),
OSHA, and other federal agencies have been authorized to promulgate regulations that have an impact
on the Companys operations. In addition to these federal activities, various states have been
delegated certain authorities under the aforementioned federal statutes. Many state and local
governments have adopted environmental and employee safety and health laws and regulations, some of
which are similar to or stricter than federal requirements.
The ANCA recognizes the rights of airport operators with noise problems to implement local noise
abatement programs so long as they do not interfere unreasonably with interstate or foreign
commerce or the national air transportation system. Authorities in several cities have promulgated
aircraft noise reduction programs, including the imposition of nighttime curfews. The ANCA
generally requires FAA approval of local noise restrictions on aircraft. While the Company has had
sufficient scheduling flexibility to accommodate local noise restrictions imposed to date, the
Companys operations could be adversely affected if locally-imposed regulations become more
restrictive or widespread.
Many aspects of our operations are subject to increasingly stringent environmental regulations.
Concerns about climate change and greenhouse gas emissions, in particular, may result in the
imposition of additional regulation. For example, the European Commission is currently seeking to
impose emissions controls on all flights coming into Europe. Such regulatory action by the U.S. or
foreign governments in the future may adversely affect our business and financial results.
American is a named potentially responsible party (PRP) at the former Operating Industries, Inc.
Landfill in Monterrey Park, CA (OII). American is participating with a number of other PRPs in a
Steering Committee that has conducted extensive negotiations with the EPA and state officials in
recent years. Members of the Steering Committee, including American, have entered into a series of
partial consent decrees with EPA and the State of California which address specific aspects of
investigation and cleanup at OII. Americans alleged volumetric contributions at OII are small
when compared with those of other PRPs, and American expects that any future payments will be
immaterial.
American also has been named as a PRP for soil contamination at the Double Eagle Superfund Site in
Oklahoma City, OK (Double Eagle). Americans alleged volumetric contributions are small when
compared with those of other PRPs. American is participating with a number of other PRPs at Double
Eagle in a Joint Defense Group that is actively conducting settlement negotiations with the EPA and
state officials. The group is seeking a settlement on behalf of its members that will enable
American to resolve its past and present liabilities at Double Eagle in exchange for a one-time,
lump-sum settlement payment. American expects that its payment will be immaterial.
American, along with most other tenants at the San Francisco International Airport (SFIA), has been
ordered by the California Regional Water Quality Control Board to engage in various studies of
potential environmental contamination at the airport and to undertake remedial measures, if
necessary. In 1997, the SFIA pursued a cost recovery action in the U.S. District Court of Northern
California against certain airport tenants to recover past and future costs associated with
historic airport contamination. American entered an initial settlement for accrued past costs in
2000. In 2004, American resolved its liability for all remaining past and future costs. Based on
SFIAs cost projections, the value of Americans second settlement is immaterial and is payable
over a 30 year period.
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Miami-Dade County (the County) is currently investigating and remediating various environmental
conditions at MIA and funding the remediation costs through landing fees and various cost recovery
methods. American and AMR Eagle have been named PRPs for the contamination at MIA. See Item 3,
Legal Proceedings, for additional information regarding remediation efforts at MIA.
In 1999, American was ordered by the New York State Department of Environmental Conservation
(NYSDEC) to conduct remediation of environmental contamination located at Terminals 8 and 9 at JFK.
In 2004, American entered a Consent Order with NYSDEC for the remediation of a JFK off-terminal
hangar facility. American expects that the projected costs associated with the JFK remediations
will be immaterial.
In 1996, American and Executive, along with other tenants at the Luis Munoz Marin International
Airport in San Juan, Puerto Rico (SJU) were notified by the SJU Port Authority that it considered
them potentially responsible for environmental contamination at the airport. In 2003, the SJU Port
Authority requested that American, among other airport tenants, fund an ongoing subsurface
investigation and site assessment. American denied liability for the related costs. No further
action has been taken against American or Executive.
Pursuant to an Administrative Order on Consent entered into with NYSDEC, American Eagle is
implementing a final remedy to address contamination at an inactive hazardous waste site in
Poughkeepsie, New York. The costs of this final remedy are immaterial.
The Company does not expect these matters, individually or collectively, to have a material adverse
impact on the Company. See Note 4 to the consolidated financial statements for additional
information on accruals related to environmental issues.
Labor
The airline business is labor intensive. Wages, salaries and benefits represented approximately 32
percent of the Companys consolidated operating expenses for the year ended December 31, 2006. The
average full-time equivalent number of employees of the Companys subsidiaries for the year ended
December 31, 2006 was 86,600.
The majority of these employees are represented by labor unions and covered by collective
bargaining agreements. Relations with such labor organizations are governed by the Railway Labor
Act (RLA). Under this act, the collective bargaining agreements among the Companys subsidiaries
and these organizations generally do not expire but instead become amendable as of a stated date.
If either party wishes to modify the terms of any such agreement, it must notify the other party in
the manner agreed to by the parties. Under the RLA, after receipt of such notice, the parties must
meet for direct negotiations, and if no agreement is reached, either party may request the National
Mediation Board (NMB) to appoint a federal mediator. The RLA prescribes no set timetable for the
direct negotiation and mediation process. It is not unusual for those processes to last for many
months, and even for a few years. If no agreement is reached in mediation, the NMB in its
discretion may declare at some time that an impasse exists, and if an impasse is declared, the NMB
proffers binding arbitration to the parties. Either party may decline to submit to arbitration.
If arbitration is rejected by either party, a 30-day cooling off period commences. During that
period (or after), a Presidential Emergency Board (PEB) may be established, which examines the
parties positions and recommends a solution. The PEB process lasts for 30 days and is followed by
another cooling off period of 30 days. At the end of a cooling off period, unless an agreement
is reached or action is taken by Congress, the labor organization may strike and the airline may
resort to self-help, including the imposition of any or all of its proposed amendments and the
hiring of new employees to replace any striking workers.
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In April 2003, American reached agreements (the Labor Agreements) with its three major unions
the Allied Pilots Association (the APA) which represents Americans pilots, the Transport Workers
Union of America (AFL-CIO) (the TWU), which represents seven different employee groups, and the
Association of Professional Flight Attendants (the APFA), which represents Americans flight
attendants. The Labor Agreements substantially moderated the labor costs associated with the
employees represented by the unions. In conjunction with the Labor Agreements, American also
implemented various changes in the pay plans and benefits for non-unionized personnel, including
officers and other management (the Management Reductions). While the Labor Agreements do not become
amendable until 2008, they do allow the parties to begin contract discussions in or after 2006. In
2006, American and the APA commenced negotiations under the RLA. Also in 2006, American and the
TWU commenced negotiations with respect only to dispatchers, one of the seven groups at American
represented by the TWU. In January 2007, American and the TWU announced that in November 2007 they
would commence negotiations under the RLA with respect to TWU employees in addition to dispatchers.
The negotiations between American and the pilots and dispatchers are still in their early stages.
The Air Line Pilots Association (ALPA), which represents American Eagle pilots, reached agreement
with American Eagle effective September 1, 1997, to have all of the pilots of the American Eagle®
carriers (currently American Eagle Airlines, Inc. and Executive Airlines, Inc.) covered by a single
contract. This agreement lasts until October 31, 2013. The agreement provides to the parties the
right to seek limited changes in 2000, 2004, 2008 and 2012. If the parties are unable to agree on
the limited changes, the agreement provides that any issues would be resolved by interest
arbitration, without the exercise of self-help (such as a strike). ALPA and American Eagle
negotiated a tentative agreement in 2000, but that agreement failed in ratification. Thereafter,
the parties participated in interest arbitration. The interest arbitration panel determined the
limited changes that should be made and these changes were appropriately effected. In 2004, the
parties successfully negotiated limited changes that became effective on January 1, 2005.
The Association of Flight Attendants (AFA) represents the flight attendants of the American Eagle
carriers. The current agreement between the American Eagle carriers and the AFA is amendable on
October 27, 2009; however, the parties have agreed that contract openers may be exchanged 90 days
prior to that date.
The other union employees at the American Eagle carriers are covered by separate agreements with
the TWU. The agreements between the American Eagle carriers and the TWU are amendable beginning
with dates ranging from October 1, 2007 to January 26, 2008; the parties have agreed that contract
openers may be exchanged at least 60 days prior to October 1, 2007.
Fuel
The Companys operations and financial results are significantly affected by the availability and
price of jet fuel. The Companys fuel costs and consumption for the years 2004 through 2006 were:
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Gallons |
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Average Cost Per |
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Consumed |
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Total Cost |
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Gallon |
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Percent of AMRs |
Year |
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(in millions) |
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(in millions) |
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(in cents) |
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Operating Expenses |
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2004 |
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3,264 |
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3,969 |
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121.6 |
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21.1 |
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2005 |
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3,237 |
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5,615 |
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173.5 |
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27.0 |
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2006 |
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3,178 |
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6,402 |
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201.4 |
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29.8 |
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8
The impact of fuel price changes on the Company and its competitors depends on various factors,
including hedging strategies. The Company has a fuel hedging program in which it enters into jet
fuel, heating oil and crude oil hedging contracts to dampen the impact of the volatility of jet
fuel prices. During 2006, 2005 and 2004, the Companys fuel hedging program reduced the Companys
fuel expense by approximately $97 million, $64 million and $99 million, respectively. As of
December 31, 2006, the Company had hedged, with option contracts, including collars, approximately
14 percent of its estimated 2007 fuel requirements. The consumption hedged for 2007 is capped at
an average price of approximately $68 per barrel of crude oil. A deterioration of the Companys
financial position could negatively affect the Companys ability to hedge fuel in the future. See
the Risk Factors under Item 1A for additional information regarding fuel.
Additional information regarding the Companys fuel program is also included in Item 7(A)
Quantitative and Qualitative Disclosures about Market Risk and in Note 7 to the consolidated
financial statements.
Frequent Flyer Program
American established the AAdvantage frequent flyer program (AAdvantage) to develop passenger
loyalty by offering awards to travelers for their continued patronage. The Company believes that
the AAdvantage program is one of its competitive strengths. AAdvantage members earn mileage credits
by flying on American or American Eagle, or by using services of other program participants,
including bank credit card issuers, hotels, car rental companies and other retail companies.
American sells mileage credits and related services to the other companies participating in the
program. American reserves the right to change the AAdvantage program at any time without notice
and may end the program with six months notice.
Mileage credits can be redeemed for free, discounted or upgraded travel on American, American Eagle
or other participating airlines, or for other awards. Once a member accrues sufficient mileage for
an award, the member may book award travel. Most travel awards are subject to capacity controlled
seating. Mileage credit does not expire, provided a customer has any type of qualifying activity
at least once every 36 months. See Critical Accounting Policies and Estimates under Item 7 for
more information on AAdvantage.
Other Matters
Seasonality and Other Factors The Companys results of operations for any interim period are not
necessarily indicative of those for the entire year, since the air transportation business is
subject to seasonal fluctuations. Higher demand for air travel has traditionally resulted in more
favorable operating and financial results for the second and third quarters of the year than for
the first and fourth quarters. Fears of terrorism or war, fare initiatives, fluctuations in fuel
prices, labor actions, weather and other factors could impact this seasonal pattern. Unaudited
quarterly financial data for the two-year period ended December 31, 2006 is included in Note 15 to
the consolidated financial statements. In addition, the results of operations in the air
transportation business have also significantly fluctuated in the past in response to general
economic conditions.
No material part of the business of AMR and its subsidiaries is dependent upon a single customer or
very few customers. Consequently, the loss of the Companys largest few customers would not have a
materially adverse effect upon the Company.
Insurance The Company carries insurance for public liability, passenger liability, property
damage and all-risk coverage for damage to its aircraft.
As a result of the terrorist attacks of September 11, 2001 (the Terrorist Attacks), aviation
insurers significantly reduced the amount of insurance coverage available to commercial air
carriers for liability to persons other than employees or passengers for claims resulting from acts
of terrorism, war or similar events (war-risk coverage). At the same time, these insurers
significantly increased the premiums for aviation insurance in general.
9
The U.S. government has agreed to provide commercial war-risk insurance for U.S. based airlines
until August 31, 2007 covering losses to employees, passengers, third parties and aircraft. If the
U.S. government does not extend the policy beyond August 31, 2007, the Company will attempt to
purchase similar coverage with narrower scope from commercial insurers at an additional cost. To
the extent this coverage is not available at commercially reasonable rates, the Company would be
adversely affected. While the price of commercial insurance has declined since the premium
increases immediately after the Terrorist Attacks, in the event commercial insurance carriers
further reduce the amount of insurance coverage available to the Company, or significantly increase
its cost, the Company would be adversely affected.
Other Government Matters In time of war or during a national emergency or defense oriented
situation, American and other air carriers can be required to provide airlift services to the Air
Mobility Command under the Civil Reserve Air Fleet program. In the event the Company has to provide
a substantial number of aircraft and crew to the Air Mobility Command, its operations could be
adversely impacted.
Available Information The Company makes its annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K, and amendments to reports filed or furnished pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 available free of charge under the Investor
Relations page on its website, www.aa.com, as soon as reasonably practicable after such reports are
electronically filed with the Securities and Exchange Commission. In addition, the Companys code
of ethics, which applies to all employees of the Company, including the Companys Chief Executive
Officer (CEO), Chief Financial Officer (CFO) and Controller, is posted under the Investor Relations
page on its website, www.aa.com. The Company intends to disclose any amendments to the code
of ethics, or waivers of the code of ethics on behalf of the CEO, CFO or Controller, under the
Investor Relations page on the Companys website, www.aa.com. The charters for the AMR
Board of Directors standing committees (the Audit, Compensation, Diversity and
Nominating/Corporate Governance Committees), as well as the Board of Directors Governance Policies
(the Governance Policies), are likewise available on the Companys website, www.aa.com.
Upon request, copies of the charters or the Governance Policies are available at no cost.
Information on the Companys website is not incorporated into or otherwise made a part of this
Report.
10
ITEM 1A. RISK FACTORS
Our ability to become consistently profitable and our ability to continue to fund our obligations
on an ongoing basis will depend on a number of risk factors, many of which are largely beyond our
control. Some of the factors that may have a negative impact on us are described below:
As a result of significant losses in recent years, our financial condition has been materially
weakened.
Although we earned a profit in 2006, we incurred significant losses in recent prior years: $857
million in 2005, $751 million in 2004, $1.2 billion in 2003, $3.5 billion in 2002 and $1.8 billion
in 2001. As a result, our financial condition was materially weakened, and we remain vulnerable
both to unexpected events (such as additional terrorist attacks or a sudden spike in jet fuel
prices) and to general declines in the operating environment (such as that resulting from a
recession or significant increased competition).
Our initiatives to generate additional revenues and to reduce our costs may not be adequate or
successful.
As we seek to improve our financial condition, we must continue to take steps to generate
additional revenues and to reduce our costs. Although we have a number of initiatives underway to
address our cost and revenue challenges, some of these initiatives involve changes to our business
which we may be unable to implement. In addition, we expect that, as time goes on, it may be
progressively more difficult to identify and implement significant revenue enhancement and cost
savings initiatives. The adequacy and ultimate success of our initiatives to generate additional
revenues and reduce our costs are not known at this time and cannot be assured. Moreover, whether
our initiatives will be adequate or successful depends in large measure on factors beyond our
control, notably the overall industry environment, including passenger demand, yield and industry
capacity growth, and fuel prices. Given the competitive challenges we face and other factors, such
as high fuel prices, that are beyond our control, we must continue to aggressively pursue profit
improvement initiatives to achieve long-term success.
Our business is affected by many changing economic and other conditions beyond our control, and our
results of operations tend to be volatile and fluctuate due to seasonality.
Our business and our results of operations are affected by many changing economic and other
conditions beyond our control, including among others:
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actual or potential changes in international, national, regional and local economic,
business and financial conditions, including recession, inflation and higher interest
rates, war, terrorist attacks or political instability; |
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changes in consumer preferences, perceptions, spending patterns or demographic trends; |
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changes in the competitive environment due to industry consolidation and other factors; |
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actual or potential disruptions to the air traffic control system; |
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increases in costs of safety, security and environmental measures; |
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outbreaks of diseases that affect travel behavior; or |
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weather and natural disasters. |
As a result, our results of operations tend to be volatile and subject to rapid and unexpected
change. In addition, due to generally greater demand for air travel during the summer, our
revenues in the second and third quarters of the year tend to be stronger than revenues in the
first and fourth quarters of the year.
Our indebtedness and other obligations are substantial and could adversely affect our business and
liquidity.
We have and will continue to have a significant amount of indebtedness and obligations to make
future payments on aircraft equipment and property leases, and a high proportion of debt to equity
capital. We may incur substantial additional debt, including secured debt, and lease obligations
in the future. We also have substantial pension funding obligations. Our substantial indebtedness
and other obligations could have important consequences. For example, they could:
11
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limit our ability to obtain additional financing for working capital, capital
expenditures, acquisitions and general corporate purposes, or adversely affect the terms on
which such financing could be obtained; |
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require us to dedicate a substantial portion of our cash flow from operations to
payments on our indebtedness and other obligations, thereby reducing the funds available
for other purposes; |
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make us more vulnerable to economic downturns; |
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limit our ability to withstand competitive pressures and reduce our flexibility in
responding to changing business and economic conditions; or |
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limit our flexibility in planning for, or reacting to, changes in our business and the
industry in which we operate. |
We may be unable to comply with our financial covenants.
American has a fully drawn $740 million Credit Facility, which consists of a $295 million Revolving
Facility with a final maturity on June 17, 2009 and a $445 million Term Loan Facility with a final
maturity on December 17, 2010. The Credit Facility contains a liquidity covenant and a ratio of
cash flow to fixed charges covenant. We complied with these covenants as of December 31, 2006 and
expect to be able to continue to comply with these covenants. However, given fuel prices that are
high by historical standards and the volatility of fuel prices and revenues, it is difficult to
assess whether we will, in fact, be able to continue to comply with these covenants, and there are
no assurances that we will be able to do so. Failure to comply with these covenants would result
in a default under the Credit Facility which if we did not take steps to obtain a waiver of, or
otherwise mitigate, the default could result in a default under a significant amount of our
other debt and lease obligations, and otherwise have a material adverse impact on us.
We are being adversely affected by increases in fuel prices, and we would be adversely affected by
disruptions in the supply of fuel.
Our results are very significantly affected by the price and availability of jet fuel, which are in
turn affected by a number of factors beyond our control. Although fuel prices have moderated
somewhat from the record high prices reached in July and August 2006, they are volatile and remain
high by historical standards.
Due to the competitive nature of the airline industry, we may not be able to pass on increased fuel
prices to customers by increasing fares. In fact, recent history would indicate that we have
limited ability to pass along the increased costs of fuel. If fuel prices decline in the future,
increased fare competition and lower revenues may offset any potential benefit of lower fuel
prices.
While we do not currently anticipate a significant reduction in fuel availability, dependency on
foreign imports of crude oil, limited refining capacity and the possibility of changes in
government policy on jet fuel production, transportation and marketing make it impossible to
predict the future availability of jet fuel. If there are additional outbreaks of hostilities or
other conflicts in oil producing areas or elsewhere, or a reduction in refining capacity (due to
weather events, for example), or governmental limits on the production or sale of jet fuel, there
could be reductions in the supply of jet fuel and significant increases in the cost of jet fuel.
Major reductions in the availability of jet fuel or significant increases in its cost, or a
continuation of current high prices for a significant period of time, would have a material adverse
impact on us.
While we seek to manage the price risk of fuel costs by using derivative contracts, there can be no
assurance that, at any given time, we will have derivatives in place to provide any particular
level of protection against increased fuel costs. In addition, a deterioration of our financial
position could negatively affect our ability to enter into derivative contracts in the future.
12
The airline industry is fiercely competitive and we are subject to increasing competition.
Service over almost all of our routes is highly competitive and fares remain at low levels by
historical standards. We face vigorous, and in some cases, increasing competition from major
domestic airlines, national, regional, all-cargo and charter carriers, foreign air carriers,
low-cost carriers and, particularly on shorter segments, ground and rail transportation. We also
face increasing and significant competition from marketing/operational alliances formed by our
competitors. The percentage of routes on which we compete with carriers having substantially lower
operating costs than ours has grown significantly over the past decade, and, as of December 31,
2006, we now compete with low-cost carriers on approximately 82 percent of our domestic network.
Certain alliances have been granted immunity from anti-trust regulations by governmental
authorities for specific areas of cooperation, such as joint pricing decisions. To the extent
alliances formed by our competitors can undertake activities that are not available to us, our
ability to effectively compete may be hindered.
Pricing decisions are significantly affected by competition from other airlines. Fare discounting
by competitors has historically had a negative effect on our financial results because we must
generally match competitors fares, since failing to match would result in even less revenue. More
recently, we have faced increased competition from carriers with simplified fare structures, which
are generally preferred by travelers. Any fare reduction or fare simplification initiative may not
be offset by increases in passenger traffic, a reduction in costs or changes in the mix of traffic
that would improve yields. Moreover, decisions by our competitors that increase or reduce
overall industry capacity, or capacity dedicated to a particular domestic or foreign region, market
or route, can have a material impact on related fare levels.
There have been numerous mergers and acquisitions within the U.S. airline industry since its
deregulation in 1978, and there may be additional mergers and acquisitions in the future. US
Airways recent bid to purchase Delta, and other factors, could spur consolidation within the
industry in the near term. Any airline industry consolidation could substantially alter the
competitive landscape and may result in changes in our corporate or business strategy. We cannot
reliably predict the impact on us of, and our role in or response to, airline industry
consolidation.
We compete with reorganized and reorganizing carriers, which may result in competitive
disadvantages for us or fare discounting.
We must compete with air carriers that have recently reorganized or are reorganizing, including
under the protection of Chapter 11, including United, the second largest U.S. air carrier, Delta,
the third largest U.S. air carrier and Northwest, the fourth largest U.S. air carrier. It is
possible that other competitors may seek to reorganize in or out of Chapter 11. With the Chapter
11 filings of Delta and Northwest, two out of the four largest U.S. air carriers are now operating
under the protection of the Bankruptcy Code, with United having emerged from Chapter 11 in the
first quarter of 2006. We cannot predict the outcome of any airline bankruptcy proceedings or the
consequences of such a large portion of the airline industrys capacity being provided by bankrupt
or recently reorganized air carriers.
Successful reorganizations by other carriers present us with competitors with significantly lower
operating costs and a stronger financial position derived from renegotiated labor, supply, and
financing contracts, which could lead to fare reductions. These competitive pressures may limit
our ability to adequately price our services, may require us to further reduce our operating costs,
and could have a material adverse impact on us.
13
Fares are at low levels and our reduced pricing power adversely affects our ability to achieve
adequate pricing, especially with respect to business travel.
While we have recently been able to implement some fare increases on certain domestic and
international routes, our passenger yield remains low by historical standards. We believe this is
due in large part to a corresponding decline in our pricing power. Our reduced pricing power is
the product of several factors including: greater cost sensitivity on the part of travelers
(particularly business travelers); pricing transparency resulting from the use of the Internet;
greater competition from low-cost carriers and from carriers that have recently reorganized or are
reorganizing including under the protection of Chapter 11; other carriers being well hedged against
rising fuel costs and able to better absorb the current high jet fuel prices; and, more recently,
fare simplification efforts by certain carriers. We believe that our reduced pricing power could
persist indefinitely.
We may need to raise additional funds to maintain sufficient liquidity, but we may be unable to do
so on acceptable terms.
To maintain sufficient liquidity as we continue to implement our restructuring and cost reduction
initiatives, and because we have significant debt, lease, pension and other obligations in the next
several years, we may need continued access to additional funding.
Our ability to obtain future financing has been reduced because we have fewer unencumbered assets
available than in years past. A very large majority of our aircraft assets (including virtually
all of our aircraft eligible for the benefits of Section 1110 of the U.S. Bankruptcy Code) have
been encumbered. Also, the market value of our aircraft assets has declined in recent years and
those assets may not maintain their current market value.
Since the terrorist attacks of September 2001, which we refer to as the Terrorist Attacks, our
credit ratings have been lowered to significantly below investment grade. These reductions have
increased our borrowing costs and otherwise adversely affected borrowing terms, and limited
borrowing options. Additional reductions in our credit ratings could further increase borrowing or
other costs and further restrict the availability of future financing.
A number of other factors, including our financial results in recent years, our substantial
indebtedness, the difficult revenue environment we face, our reduced credit ratings, high fuel
prices, and the financial difficulties experienced in the airline industry, adversely affect the
availability and terms of financing for us. As a result, there can be no assurance that financing
will be available to us on acceptable terms, if at all. An inability to obtain additional
financing on acceptable terms could have a material adverse impact on us and on our ability to
sustain our operations over the long term.
Our corporate or business strategy may change.
In light of the rapid changes in the airline industry, we evaluate our assets on an ongoing basis
with a view to maximizing their value to us and determining which are core to our operations. We
also regularly evaluate our corporate and business strategies, and they are influenced by factors
beyond our control, including changes in the competitive landscape we face. Our corporate and
business strategies are, therefore, subject to change.
Our business is subject to extensive government regulation, which can result in increases in our
costs, limits on our operating flexibility, reductions in the demand for air travel, and
competitive disadvantages.
Airlines are subject to extensive domestic and international regulatory requirements. Many of
these requirements result in significant costs. For example, the FAA from time to time issues
directives and other regulations relating to the maintenance and operation of aircraft, and
compliance with those requirements drives significant expenditures. In addition, the ability of
U.S. carriers to operate international routes is subject to change because the applicable
arrangements between the United States and foreign governments may be amended from time to time, or
because appropriate slots or facilities are not made available.
14
Moreover, additional laws, regulations, taxes and airport rates and charges have been enacted from
time to time that have significantly increased the costs of airline operations, reduced the demand
for air travel or restricted the way we can conduct our business. For example, the Aviation and
Transportation Security Act, which became law in 2001, mandated the federalization of certain
airport security procedures and resulted in the imposition of additional security requirements on
airlines. In addition, many aspects of our operations are subject to increasingly stringent
environmental regulations, and concerns about climate change, in particular, may result in the
imposition of additional regulation. For example, the European Commission is currently seeking to
impose emissions controls on all flights coming into Europe. Laws or regulations similar to those
described above or other U.S. or foreign governmental actions in the future may adversely affect
our business and financial results.
The results of our operations, demand for air travel, and the manner in which we conduct our
business each may be affected by changes in law and future actions taken by governmental agencies,
including:
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changes in law which affect the services that can be offered by airlines in particular
markets and at particular airports; |
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the granting and timing of certain governmental approvals (including foreign government
approvals) needed for codesharing alliances and other arrangements with other airlines; |
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restrictions on competitive practices (for example court orders, or agency regulations
or orders, that would curtail an airlines ability to respond to a competitor); |
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the adoption of regulations that impact customer service standards (for example new
passenger security standards); or |
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the adoption of more restrictive locally-imposed noise restrictions. |
In November 2005, the United States and the European Union reached a tentative air services
agreement that would provide airlines from the United States and E.U. member states open access to
each others markets, with freedom of pricing and unlimited rights to fly beyond the United States
and both within and beyond the E.U. The tentative agreement is subject to approval by the E.U.
Transport Council of Ministers. Under the agreement, every U.S. and E.U. airline would be
authorized to operate between airports in the United States and Londons Heathrow Airport. Only
three airlines besides American are currently allowed to provide that service and Heathrow routes
have historically been among our most profitable. The agreement, if approved, would result in our
facing increased competition in serving Heathrow if additional carriers are able to obtain
necessary slots and terminal facilities.
We could be adversely affected by conflicts overseas or terrorist attacks.
Actual or threatened U.S. military involvement in overseas operations has, on occasion, had an
adverse impact on our business, financial position (including access to capital markets) and
results of operations, and on the airline industry in general. The continuing conflict in Iraq, or
other conflicts or events in the Middle East or elsewhere, may result in similar adverse impacts.
The Terrorist Attacks had a material adverse impact on us. The occurrence of another terrorist
attack (whether domestic or international and whether against us or another entity) could again
have a material adverse impact on us.
Our international operations could be adversely affected by numerous events, circumstances or
government actions beyond our control.
Our current international activities and prospects could be adversely affected by factors such as
reversals or delays in the opening of foreign markets, exchange controls, currency and political
risks, taxation and changes in international government regulation of our operations, including the
inability to obtain or retain needed route authorities and/or slots.
15
We could be adversely affected by an outbreak of a disease that affects travel behavior.
In 2003, there was an outbreak of Severe Acute Respiratory Syndrome (SARS), which primarily had an
adverse impact on our Asia operations. More recently, there have been concerns about a potential
outbreak of avian flu. If there were another outbreak of a disease (such as SARS or avian flu)
that affects travel behavior, it could have a material adverse impact on us.
Our labor costs are higher than our competitors.
Wages, salaries and benefits constitute a significant percentage of our total operating expenses.
In 2006, they constituted approximately 32 percent of our total operating expenses. All of the
major hub-and-spoke carriers with whom American competes have achieved significant labor cost
savings through or outside of bankruptcy proceedings. We believe Americans labor costs are higher
than those of its primary competitors, and it is unclear how long this labor cost disadvantage may
persist.
We could be adversely affected if we are unable to maintain satisfactory relations with any
unionized or other employee work group.
Our operations could be adversely affected if we fail to maintain satisfactory relations with any
labor union representing our employees. In addition, any significant dispute we have with, or any
disruption by, an employee work group could adversely impact us. Moreover, one of the fundamental
tenets of our strategic Turnaround Plan is increased union and employee involvement in our
operations. To the extent that we are unable to maintain satisfactory relations with any unionized
or other employee work group, our ability to execute our strategic plans could be adversely
affected.
Our insurance costs have increased substantially and further increases in insurance costs or
reductions in coverage could have an adverse impact on us.
We carry insurance for public liability, passenger liability, property damage and all-risk coverage
for damage to our aircraft. As a result of the Terrorist Attacks, aviation insurers significantly
reduced the amount of insurance coverage available to commercial air carriers for liability to
persons other than employees or passengers for claims resulting from acts of terrorism, war or
similar events (war-risk coverage). At the same time, these insurers significantly increased the
premiums for aviation insurance in general.
The U.S. government has agreed to provide commercial war-risk insurance for U.S. based airlines
until August 31, 2007, covering losses to employees, passengers, third parties and aircraft. If
the U.S. government does not extend the policy beyond August 31, 2007, or if the U.S. government at
anytime thereafter ceases to provide such insurance, or reduces the coverage provided by such
insurance, we will attempt to purchase similar coverage with narrower scope from commercial
insurers at an additional cost. To the extent this coverage is not available at commercially
reasonable rates, we would be adversely affected.
While the price of commercial insurance has declined since the period immediately after the
Terrorist Attacks, in the event commercial insurance carriers further reduce the amount of
insurance coverage available to us, or significantly increase its cost, we would be adversely
affected.
We may be unable to retain key management personnel.
Since the Terrorist Attacks, a number of our key management employees have elected to retire early
or leave for more financially favorable opportunities at other companies, both within and outside
of the airline industry. There can be no assurance that we will be able to retain our key
management employees. Any inability to retain our key management employees, or attract and retain
additional qualified management employees, could have a negative impact on us.
16
We could be adversely affected by a failure or disruption of our computer, communications or other
technology systems.
We are heavily and increasingly dependent on technology to operate our business. The computer and
communications systems on which we rely could be disrupted due to various events, some of which are
beyond our control, including natural disasters, power failures, terrorist attacks, equipment
failures, software failures and computer viruses and hackers. We have taken certain steps to help
reduce the risk of some (but not all) of these potential disruptions. There can be no assurance,
however, that the measures we have taken are adequate to prevent or remedy disruptions or failures
of these systems. Any substantial or repeated failure of these systems could impact our operations
and customer service, result in the loss of important data, loss of revenues, and increased costs,
and generally harm our business. Moreover, a catastrophic failure of certain of our vital systems
(which we believe is unlikely) could limit our ability to operate our flights for an extended
period of time, which would have a material adverse impact on our operations and our business.
17
ITEM 1B. UNRESOLVED STAFF COMMENTS
The Company had no unresolved Securities and Exchange Commission staff comments at December 31,
2006.
ITEM 2. PROPERTIES
Flight Equipment Operating
Owned and leased aircraft operated by the Company at December 31, 2006 included:
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Average Seating |
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Average |
Equipment Type |
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Capacity |
|
Owned |
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Capital Leased |
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Operating Leased |
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Total |
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Age (Years) |
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|
American Airlines Aircraft |
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|
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|
Airbus A300-600R |
|
267 |
|
|
10 |
|
|
|
|
|
|
|
24 |
|
|
|
34 |
|
|
|
17 |
|
Boeing 737-800 |
|
148 |
|
|
67 |
|
|
|
|
|
|
|
10 |
|
|
|
77 |
|
|
|
7 |
|
Boeing 757-200 |
|
187 |
|
|
87 |
|
|
|
6 |
|
|
|
49 |
|
|
|
142 |
|
|
|
12 |
|
Boeing 767-200 Extended Range |
|
167 |
|
|
3 |
|
|
|
11 |
|
|
|
1 |
|
|
|
15 |
|
|
|
20 |
|
Boeing 767-300 Extended Range |
|
220 |
|
|
47 |
|
|
|
|
|
|
|
11 |
|
|
|
58 |
|
|
|
13 |
|
Boeing 777-200 Extended Range |
|
246 |
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
46 |
|
|
|
6 |
|
McDonnell Douglas MD-80 |
|
136 |
|
|
138 |
|
|
|
72 |
|
|
|
115 |
|
|
|
325 |
|
|
|
17 |
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|
|
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|
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|
|
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|
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|
|
|
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|
|
Total |
|
|
|
|
398 |
|
|
|
89 |
|
|
|
210 |
|
|
|
697 |
|
|
|
14 |
|
|
|
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|
AMR Eagle Aircraft |
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|
Bombardier CRJ-700 |
|
70 |
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
25 |
|
|
|
4 |
|
Embraer 135 |
|
37 |
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
39 |
|
|
|
7 |
|
Embraer 140 |
|
44 |
|
|
59 |
|
|
|
|
|
|
|
|
|
|
|
59 |
|
|
|
4 |
|
Embraer 145 |
|
50 |
|
|
108 |
|
|
|
|
|
|
|
|
|
|
|
108 |
|
|
|
4 |
|
Super ATR |
|
64/66 |
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
39 |
|
|
|
12 |
|
Saab 340B/340B Plus |
|
34 |
|
|
14 |
|
|
|
1 |
|
|
|
21 |
|
|
|
36 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
284 |
|
|
|
1 |
|
|
|
21 |
|
|
|
306 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of the
operating aircraft listed above, 25 McDonnell Douglas MD-80 aircraft 12 owned,
eight operating leased and five capital leased and ten operating leased Saab 340B Plus aircraft
were in temporary storage as of December 31, 2006.
A very large majority of the Companys owned aircraft are encumbered by liens granted in connection
with financing transactions entered into by the Company.
18
Flight Equipment Non-Operating
Owned and leased aircraft not operated by the Company at December 31, 2006 included:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment Type |
|
Owned |
|
Capital Leased |
|
Operating Leased |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American Airlines Aircraft |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boeing 777-200 Extended Range |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Boeing 767-200 |
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
2 |
|
Boeing 767-200 Extended Range |
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
2 |
|
Fokker 100 |
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
4 |
|
McDonnell Douglas MD-80 |
|
|
13 |
|
|
|
6 |
|
|
|
6 |
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
15 |
|
|
|
6 |
|
|
|
13 |
|
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMR Eagle Aircraft |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Embraer 145 |
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
10 |
|
Saab 340B/340B Plus |
|
|
31 |
|
|
|
2 |
|
|
|
|
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
41 |
|
|
|
2 |
|
|
|
|
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American leased its Boeing 777-200ER not operated by the Company at December 31, 2006, to The
Boeing Company through January 5, 2007. Subsequent to its return to the Company on January 5,
2007, the aircraft has been returned to operation.
AMR Eagle has leased its 10 owned Embraer 145s not operated by the Company to Trans States
Airlines, Inc.
For information concerning the estimated useful lives and residual values for owned aircraft, lease
terms for leased aircraft and amortization relating to aircraft under capital leases, see Notes 1
and 5 to the consolidated financial statements.
Lease expirations for the aircraft included in the table of capital and operating leased flight
equipment operated by the Company as of December 31, 2006 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 |
Equipment Type |
|
2007 |
|
2008 |
|
2009 |
|
2010 |
|
2011 |
|
and Thereafter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American Airlines Aircraft |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Airbus A300-600R |
|
|
|
|
|
|
3 |
|
|
|
3 |
|
|
|
9 |
|
|
|
9 |
|
|
|
|
|
Boeing 737-800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
Boeing 757-200 |
|
|
14 |
|
|
|
9 |
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
30 |
|
Boeing 767-200 Extended Range |
|
|
|
|
|
|
2 |
|
|
|
1 |
|
|
|
1 |
|
|
|
2 |
|
|
|
6 |
|
Boeing 767-300 Extended Range |
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
McDonnell Douglas MD-80 |
|
|
1 |
|
|
|
7 |
|
|
|
4 |
|
|
|
12 |
|
|
|
21 |
|
|
|
142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15 |
|
|
|
24 |
|
|
|
9 |
|
|
|
22 |
|
|
|
33 |
|
|
|
196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMR Eagle Aircraft |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Saab 340B/340B Plus |
|
|
14 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
Substantially all of the Companys aircraft leases include an option to purchase the aircraft
or to extend the lease term, or both, with the purchase price or renewal rental to be based
essentially on the market value of the aircraft at the end of the term of the lease or at a
predetermined fixed amount.
Ground Properties
The Company leases, or has built as leasehold improvements on leased property: most of its airport
and terminal facilities; its training facilities in Fort Worth, Texas; its principal overhaul and
maintenance bases at Tulsa International Airport (Tulsa, Oklahoma), Kansas City International
Airport (Kansas City, Missouri) and Alliance Airport (Fort Worth, Texas); its headquarters building
in Fort Worth, Texas; its regional reservation offices; and local ticket and administration offices
throughout the system. American has entered into agreements with the Tulsa Municipal Airport
Trust; the Alliance Airport Authority, Fort Worth, Texas; the New York City Industrial Development
Agency; and the Dallas/Fort Worth, Chicago OHare, Newark, San Juan, and Los Angeles airport
authorities to provide funds for constructing, improving and modifying facilities and acquiring
equipment which are or will be leased to the Company. The Company also uses public airports for
its flight operations under lease or use arrangements with the municipalities or governmental
agencies owning or controlling them and leases certain other ground equipment for use at its
facilities.
For information concerning the estimated lives and residual values for owned ground properties,
lease terms and amortization relating to ground properties under capital leases, and acquisitions
of ground properties, see Notes 1 and 5 to the consolidated financial statements.
20
ITEM 3. LEGAL PROCEEDINGS
On July 26, 1999, a class action lawsuit was filed, and in November 1999 an amended complaint was
filed, against AMR, American, AMR Eagle, Airlines Reporting Corporation, and the Sabre Group
Holdings, Inc. in the United States District Court for the Central District of California, Western
Division (Westways World Travel, Inc. v. AMR Corp., et al.). The lawsuit alleges that
requiring travel agencies to pay debit memos to American for violations of Americans fare rules
(by customers of the agencies): (1) breaches the Agent Reporting Agreement between American and
AMR Eagle and the plaintiffs; (2) constitutes unjust enrichment; and (3) violates the Racketeer
Influenced and Corrupt Organizations Act of 1970 (RICO). On July 9, 2003, the court certified a
class that included all travel agencies who have been or will be required to pay money to American
for debit memos for fare rules violations from July 26, 1995 to the present. The plaintiffs sought
to enjoin American from enforcing the pricing rules in question and to recover the amounts paid for
debit memos, plus treble damages, attorneys fees, and costs. On February 24, 2005, the court
decertified the class. The claims against Airlines Reporting Corporation have been dismissed, and
in September 2005, the Court granted Summary Judgment in favor of the Company and all other
defendants. Plaintiffs have filed an appeal to the United States Court of Appeals for the Ninth
Circuit. Although the Company believes that the litigation is without merit, a final adverse court
decision could impose restrictions on the Companys relationships with travel agencies, which could
have a material adverse impact on the Company.
Between April 3, 2003 and June 5, 2003, three lawsuits were filed by travel agents, some of whom
opted out of a prior class action (now dismissed) to pursue their claims individually against
American, other airline defendants, and in one case against certain airline defendants and Orbitz
LLC. The cases, Tam Travel et. al., v. Delta Air Lines et. al., in the United States
District Court for the Northern District of California, San Francisco (51 individual agencies),
Paula Fausky d/b/a Timeless Travel v. American Airlines, et. al, in the United States
District Court for the Northern District of Ohio, Eastern Division (29 agencies) and Swope
Travel et al. v. Orbitz et. al. in the United States District Court for the Eastern District of
Texas, Beaumont Division (71 agencies) were consolidated for pre-trial purposes in the United
States District Court for the Northern District of Ohio, Eastern Division. Collectively, these
lawsuits seek damages and injunctive relief alleging that the certain airline defendants and Orbitz
LLC: (i) conspired to prevent travel agents from acting as effective competitors in the
distribution of airline tickets to passengers in violation of Section 1 of the Sherman Act; (ii)
conspired to monopolize the distribution of common carrier air travel between airports in the
United States in violation of Section 2 of the Sherman Act; and that (iii) between 1995 and the
present, the airline defendants conspired to reduce commissions paid to U.S.-based travel agents in
violation of Section 1 of the Sherman Act. On September 23, 2005, the Fausky plaintiffs
dismissed their claims with prejudice. On September 14, 2006, the court dismissed with prejudice
28 of the Swope plaintiffs. American continues to vigorously defend these lawsuits. A
final adverse court decision awarding substantial money damages or placing material restrictions on
the Companys distribution practices would have a material adverse impact on the Company.
Miami-Dade County (the County) is currently investigating and remediating various environmental
conditions at the Miami International Airport (MIA) and funding the remediation costs through
landing fees and various cost recovery methods. American and AMR Eagle have been named as
potentially responsible parties (PRPs) for the contamination at MIA. During the second quarter of
2001, the County filed a lawsuit against 17 defendants, including American, in an attempt to
recover its past and future cleanup costs (Miami-Dade County, Florida v. Advance Cargo
Services, Inc., et al. in the Florida Circuit Court). The Company is vigorously defending the
lawsuit. In addition to the 17 defendants named in the lawsuit, 243 other agencies and companies
were also named as PRPs and contributors to the contamination. The case is currently stayed while
the parties pursue an alternative dispute resolution process. The County has proposed draft
allocation models for remedial costs for the Terminal and Tank Farm areas of MIA. While it is
anticipated that American and AMR Eagle will be allocated equitable shares of remedial costs, the
Company does not expect the allocated amounts to have a material adverse effect on the Company.
21
American is defending an appeal of a lawsuit, filed as a class action but not certified as such,
arising from allegedly improper failure to refund certain governmental taxes and fees collected by
American upon the sale of nonrefundable tickets when such tickets are not used for travel. In
Harrington v. Delta Air Lines, Inc., et al. (filed November 24, 2004 in the United States
District Court for the District of Massachusetts), the plaintiffs sought unspecified actual damages
(trebled), declaratory judgment, injunctive relief, costs, and attorneys fees. The suit asserted
various causes of action, including breach of contract, conversion, and unjust enrichment against
American and numerous other airline defendants. The defendants filed a motion to dismiss, which was
granted. The plaintiffs appealed to the First Circuit Court of Appeals. On February 7, 2007, the
First Circuit affirmed the dismissal. American is vigorously defending the suit and believes it to
be without merit. However, a final adverse court decision requiring American to refund collected
taxes and/or fees could have a material adverse impact on the Company.
On July 12, 2004, a consolidated class action complaint, that was subsequently amended on November
30, 2004, was filed against American and the Association of Professional Flight Attendants (APFA),
the union which represents the Americans flight attendants (Ann M. Marcoux, et al., v.
American Airlines Inc., et al. in the United States District Court for the Eastern District of
New York). While a class has not yet been certified, the lawsuit seeks on behalf of all of
Americans flight attendants or various subclasses to set aside, and to obtain damages allegedly
resulting from, the April 2003 Collective Bargaining Agreement referred to as the Restructuring
Participation Agreement (RPA). The RPA was one of three labor agreements American successfully
reached with its unions in order to avoid filing for bankruptcy in 2003. In a related case
(Sherry Cooper, et al. v. TWA Airlines, LLC, et al., also in the United States District
Court for the Eastern District of New York), the court denied a preliminary injunction against
implementation of the RPA on June 30, 2003. The Marcoux suit alleges various claims against
the APFA and American relating to the RPA and the ratification vote on the RPA by individual APFA
members, including: violation of the Labor Management Reporting and Disclosure Act (LMRDA) and the
APFAs Constitution and By-laws, violation by the APFA of its duty of fair representation to its
members, violation by American of provisions of the Railway Labor Act (RLA) through improper
coercion of flight attendants into voting or changing their vote for ratification, and violations
of the Racketeer Influenced and Corrupt Organizations Act of 1970 (RICO). On March 28, 2006, the
district court dismissed all of various state law claims against American, all but one of the LMRDA
claims against the APFA, and the claimed violations of RICO. This leaves the claimed violations of
the RLA and the duty of fair representation against American and the APFA (as well as one LMRDA
claim and one claim against the APFA of a breach of its constitution). Although the Company
believes the case against it is without merit and both American and the APFA are vigorously
defending the lawsuit, a final adverse court decision invalidating the RPA and awarding substantial
money damages would have a material adverse impact on the Company.
22
On February 14, 2006, the Antitrust Division of the United States Department of Justice (the DOJ)
served the Company with a grand jury subpoena as part of an ongoing investigation into possible
criminal violations of the antitrust laws by certain domestic and foreign air cargo carriers. At
this time, the Company does not believe it is a target of the DOJ investigation. The New Zealand
Commerce Commission notified the Company on February 17, 2006 that it is also investigating whether
the Company and certain other cargo carriers entered into agreements relating to fuel surcharges,
security surcharges, war risk surcharges, and customs clearance surcharges. On February 22, 2006,
the Company received a letter from the Swiss Competition Commission informing the Company that it
too is investigating whether the Company and certain other cargo carriers entered into agreements
relating to fuel surcharges, security surcharges, war risk surcharges, and customs clearance
surcharges. On December 19, 2006, the Company received a request for information from the European
Commission seeking information regarding the Companys revenue and pricing announcements for air
cargo shipments to and from the European Union. On January 23, 2007, the Brazilian competition
authorities, as part of an ongoing investigation, conducted an unannounced search of the Companys
cargo facilities in Sao Paulo, Brazil. The authorities are investigating whether the Company and
certain other foreign and domestic air carriers violated Brazilian competition laws by illegally
conspiring to set fuel surcharges on cargo shipments. The Company intends to cooperate fully with
these investigations. In the event that these or other investigations uncover violations of the
U.S. antitrust laws or the competition laws of some other jurisdiction, such findings and related
legal proceedings could have a material adverse impact on the Company. Approximately 44 purported
class action lawsuits have been filed in the U.S. against the Company and certain foreign and
domestic air carriers alleging that the defendants violated U.S. antitrust laws by illegally
conspiring to set prices and surcharges on cargo shipments. These cases, along with other
purported class action lawsuits in which the Company was not named, were consolidated in the United
States District Court for the Eastern District of New York as In re Air Cargo Shipping Services
Antitrust Litigation, 06-MD-1775 on June 20, 2006. Plaintiffs are seeking trebled
money damages and injunctive relief. The Company has not been named as a defendant in the
consolidated complaint filed by the plaintiffs. However, the plaintiffs have not released any
claims that they may have against the Company, and the Company may later be added as a defendant in
the litigation. If the Company is sued on these claims, it will vigorously defend the suit, but
any adverse judgment could have a material adverse impact on the Company. Also, on January 23,
2007, the Company was served with a purported class action complaint filed against the Company,
American, and certain foreign and domestic air carriers in the Supreme Court of British Columbia in
Canada (McKay v. Ace Aviation Holdings, et al.). The plaintiff alleges that the defendants
violated Canadian competition laws by illegally conspiring to set prices and surcharges on cargo
shipments. The complaint seeks compensatory and punitive damages under Canadian law. American
will vigorously defend these lawsuits; however, any adverse judgment could have a material adverse
impact on the Company.
On June 20, 2006, the DOJ served the Company with a grand jury subpoena as part of an ongoing
investigation into possible criminal violations of the antitrust laws by certain domestic and
foreign passenger carriers. At this time, the Company does not believe it is a target of the DOJ
investigation. The Company intends to cooperate fully with this investigation. In the event that
this or other investigations uncover violations of the U.S. antitrust laws or the competition laws
of some other jurisdiction, such findings and related legal proceedings could have a material
adverse impact on the Company. Approximately 52 purported class action lawsuits have been filed in
the U.S. against the Company and certain foreign and domestic air carriers alleging that the
defendants violated U.S. antitrust laws by illegally conspiring to set prices and surcharges for
passenger transportation. These cases, along with other purported class action lawsuits in which
the Company was not named, were consolidated in the United States District Court for the Northern
District of California as In re International Air Transportation Surcharge Antitrust
Litigation, M 06-01793 on October 25, 2006. Plaintiffs are seeking trebled money damages and
injunctive relief. American will vigorously defend these lawsuits; however, any adverse judgment
could have a material adverse impact on the Company.
American is defending a lawsuit (Love Terminal Partners, L.P. et al. v. The City of Dallas,
Texas et al.) filed on July 17, 2006 in the United States District Court in Dallas. The suit
was brought by two lessees of facilities at Dallas Love Field Airport against American, the cities
of Fort Worth and Dallas, Southwest Airlines, Inc., and the Dallas/Fort Worth International Airport
Board. The suit alleges that an agreement by and between the five defendants with respect to
Dallas Love Field violates Sections 1 and 2 of the Sherman Act. Plaintiffs seek injunctive relief
and compensatory and statutory damages. American will vigorously defend this lawsuit; however, any
adverse judgment could have a material adverse impact on the Company.
23
On August 21, 2006, a patent infringement lawsuit was filed against American and American Beacon
Advisors, Inc. (a wholly-owned subsidiary of the Company), in the United States District Court for
the Eastern District of Texas (Ronald A. Katz Technology Licensing, L.P. v. American Airlines,
Inc., et al.). The plaintiff alleges that American and American Beacon infringe a number of
the plaintiffs patents, each of which relates to automated telephone call processing systems. The
plaintiff is seeking past and future royalties, injunctive relief, costs and attorneys fees.
Although the Company believes that the plaintiffs claims are without merit and is vigorously
defending the lawsuit, a final adverse court decision awarding substantial money damages or placing
material restrictions on existing automated telephone call system operations would have a material
adverse impact on the Company.
American is defending a lawsuit (Kelley Kivilaan v. American Airlines, Inc.), filed on
September 16, 2004 in the United States District Court for the Middle District of Tennessee. The
suit was brought by a flight attendant who seeks to represent a purported class of current and
former flight attendants. The suit alleges that several of the Companys medical benefits plans
discriminate against females on the basis of their gender in not providing coverage in all
circumstances for prescription contraceptives. Plaintiff seeks injunctive relief and monetary
damages. The case has not been certified as a class action, but we anticipate that a motion for
class certification will be filed in the first quarter of 2007. American will vigorously defend
this lawsuit; however, any adverse judgment could have a material adverse impact on the Company.
24
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Companys security holders during the last quarter of
its fiscal year ended December 31, 2006.
Executive Officers of the Registrant
The following information relates to the executive officers of AMR as of the filing of this Form
10-K.
|
|
|
Gerard J. Arpey
|
|
Mr. Arpey was elected Chairman, President and Chief
Executive Officer of AMR and American in May 2004. He
was elected Chief Executive Officer of AMR and American
in April 2003. He served as President and Chief
Operating Officer of AMR and American from April 2002 to
April 2003. He served as Executive Vice President
Operations of American from January 2000 to April 2002,
Chief Financial Officer of AMR from 1995 through 2000 and
Senior Vice President Planning of American from 1992
to January 1995. Prior to that, he served in various
management positions at American since 1982. Age 48. |
|
|
|
Daniel P. Garton
|
|
Mr. Garton was elected Executive Vice President
Marketing of American in September 2002. He is also an
Executive Vice President of AMR. He served as Executive
Vice President Customer Services of American from
January 2000 to September 2002 and Senior Vice President
Customer Services of American from 1998 to January
2000. Prior to that, he served as President of AMR Eagle
from 1995 to 1998. Except for two years service as
Senior Vice President and Chief Financial Officer of
Continental between 1993 and 1995, he has been with the
Company in various management positions since 1984. Age
49. |
|
|
|
Thomas W. Horton
|
|
Mr. Horton was named Executive Vice President of Finance
and Planning and Chief Financial Officer of AMR
Corporation in March 2006 upon returning to American from
AT&T Corp., a telecommunications company, where he had
been Vice Chairman and Chief Financial Officer. Prior to
leaving for AT&T Corp., Mr. Horton was Senior Vice
President and Chief Financial Officer of AMR and American
from January 2000 to 2002. From 1994 to January 2000 Mr.
Horton served as a Vice President of American and has
served in various management positions of American since
1985. Age 45. |
|
|
|
Gary F. Kennedy
|
|
Mr. Kennedy was elected Senior Vice President and General
Counsel in January 2003. He is also the Corporations
Chief Compliance Officer. He served as Vice President
Corporate Real Estate of American from 1996 to January
2003. Prior to that, he served as an attorney and in
various management positions at American since 1984. Age
51. |
|
|
|
Robert W. Reding
|
|
Mr. Reding was elected Senior Vice President Technical
Operations for American Airlines in May 2003. He joined
the Company in March 2000 and served as Chief Operations
Officer of AMR Eagle through May 2003. Prior to joining
the Company, Mr. Reding served as President and Chief
Executive Officer of Reno Air from 1992 to 1998 and
President and Chief Executive Officer of Canadian
Regional Airlines from 1998 to March 2000. Age 57. |
There are no family relationships among the executive officers of the Company named above.
There have been no events under any bankruptcy act, no criminal proceedings, and no judgments or
injunctions material to the evaluation of the ability and integrity of any director or executive
officer during the past five years.
25
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Companys common stock is traded on the New York Stock Exchange (symbol AMR). The approximate
number of record holders of the Companys common stock at February 16, 2007 was 16,320.
The range of closing market prices for AMRs common stock on the New York Stock Exchange was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
|
High |
|
Low |
|
High |
|
Low |
Quarter Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31 |
|
$ |
28.88 |
|
|
$ |
18.76 |
|
|
$ |
11.04 |
|
|
$ |
7.83 |
|
June 30 |
|
|
28.76 |
|
|
|
21.88 |
|
|
|
14.16 |
|
|
|
10.11 |
|
September 30 |
|
|
27.66 |
|
|
|
18.83 |
|
|
|
14.47 |
|
|
|
10.32 |
|
December 31 |
|
|
34.10 |
|
|
|
24.10 |
|
|
|
22.71 |
|
|
|
11.08 |
|
No cash dividends on common stock were declared for any period during 2006 or 2005.
26
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 1,2 |
|
2005 1,3 |
|
2004 1,3 |
|
2003 1,4 |
|
2002 1,4,5 |
|
Total operating revenues |
|
$ |
22,563 |
|
|
$ |
20,712 |
|
|
$ |
18,645 |
|
|
$ |
17,440 |
|
|
$ |
17,420 |
|
Operating income (loss) |
|
|
1,060 |
|
|
|
(89 |
) |
|
|
(134 |
) |
|
|
(843 |
) |
|
|
(3,331 |
) |
Income (loss) before cumulative
effect of accounting change |
|
|
231 |
|
|
|
(857 |
) |
|
|
(751 |
) |
|
|
(1,227 |
) |
|
|
(2,524 |
) |
Net income (loss) |
|
|
231 |
|
|
|
(857 |
) |
|
|
(751 |
) |
|
|
(1,227 |
) |
|
|
(3,512 |
) |
Loss per share before cumulative
effect of accounting
change:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
1.13 |
|
|
|
(5.18 |
) |
|
|
(4.68 |
) |
|
|
(7.75 |
) |
|
|
(16.22 |
) |
Diluted |
|
|
0.98 |
|
|
|
(5.18 |
) |
|
|
(4.68 |
) |
|
|
(7.75 |
) |
|
|
(16.22 |
) |
Net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
1.13 |
|
|
|
(5.18 |
) |
|
|
(4.68 |
) |
|
|
(7.75 |
) |
|
|
(22.58 |
) |
Diluted |
|
|
0.98 |
|
|
|
(5.18 |
) |
|
|
(4.68 |
) |
|
|
(7.75 |
) |
|
|
(22.58 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
29,145 |
|
|
|
29,495 |
|
|
|
28,773 |
|
|
|
29,330 |
|
|
|
30,267 |
|
Long-term debt, less current
maturities |
|
|
11,217 |
|
|
|
12,530 |
|
|
|
12,436 |
|
|
|
11,901 |
|
|
|
10,888 |
|
Obligations under capital leases,
less current obligations |
|
|
824 |
|
|
|
926 |
|
|
|
1,088 |
|
|
|
1,225 |
|
|
|
1,422 |
|
Obligation for pension and
postretirement benefits |
|
|
5,341 |
|
|
|
4,998 |
|
|
|
4,743 |
|
|
|
4,803 |
|
|
|
4,730 |
|
Stockholders equity (deficit)
6 |
|
|
(606 |
) |
|
|
(1,430 |
) |
|
|
(537 |
) |
|
|
80 |
|
|
|
990 |
|
|
|
|
1 |
|
Includes the impact of adopting FSP AUG AIR-1 Accounting for Planned Major Maintenance
Activities as described in Note 1 to the consolidated financial statements. |
|
2 |
|
Includes the impact of adopting Statement of Financial Accounting Standards No. 123(R),
Share-Based Payment as described in Note 9 to the consolidated financial statements. |
|
3 |
|
Includes restructuring charges (for a further discussion of these items, see Item 7,
Managements Discussion and Analysis and Note 2 to the consolidated financial statements). |
|
4 |
|
Includes restructuring charges and U.S. government grant. |
|
5 |
|
Includes a one-time, non-cash charge, effective January 1, 2002, of $988 million, net of tax,
to write-off all of AMRs goodwill. This charge resulted from the adoption of Statement of
Financial Accounting Standards Board No. 142, Goodwill and Other Intangible Assets and was
reflected as a cumulative effect of accounting change in the consolidated financial
statements. |
|
6 |
|
For the year ended December 31, 2002, the Company recorded an additional minimum pension
liability adjustment resulting in an after tax charge to stockholders equity (deficit) of
approximately $1.0 billion. The Company recorded a reduction to the additional minimum pension
liability resulting in a credit to stockholders equity (deficit) of approximately $337
million for the year ended December 31, 2003 and $129 million for the year ended December 31,
2004. The Company recorded an additional charge resulting in a debit to stockholders equity
(deficit) of $379 million for the year ended December 31, 2005. Effective December 31, 2006,
the Company adopted SFAS 158 Employers Accounting for Defined Benefit Pension and Other
Postretirement Plans. This adoption decreased Stockholders equity by $1.0 billion and
increased the obligation for pension and other postretirement benefits by $880 million. |
No cash dividends were declared on AMRs common shares during any of the periods above.
Information on the comparability of results is included in Item 7, Managements Discussion and
Analysis and the notes to the consolidated financial statements.
27
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Information
The discussions under Business, Risk Factors, Properties and Legal Proceedings and the following
discussions under Managements Discussion and Analysis of Financial Condition and Results of
Operations and Quantitative and Qualitative Disclosures about Market Risk contain various
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which represent the
Companys expectations or beliefs concerning future events. When used in this document and in
documents incorporated herein by reference, the words expects, plans, anticipates,
indicates, believes, forecast, guidance, outlook, may, will, should, and similar
expressions are intended to identify forward-looking statements. Forward-looking statements
include, without limitation, the Companys expectations concerning operations and financial
conditions, including changes in capacity, revenues, and costs, future financing plans and needs,
overall economic conditions, plans and objectives for future operations, and the impact on the
Company of its results of operations in recent years and the sufficiency of its financial resources
to absorb that impact. Other forward-looking statements include statements which do not relate
solely to historical facts, such as, without limitation, statements which discuss the possible
future effects of current known trends or uncertainties, or which indicate that the future effects
of known trends or uncertainties cannot be predicted, guaranteed or assured. All forward-looking
statements in this report are based upon information available to the Company on the date of this
report. The Company undertakes no obligation to publicly update or revise any forward-looking
statement, whether as a result of new information, future events, or otherwise. The Risk Factors
listed in Item 1A, in addition to other possible factors not listed, could cause the Companys
actual results to differ materially from historical results and from those expressed in
forward-looking statements.
Overview
The Company recorded net earnings of $231 million in 2006 compared to a net loss of $857 million in
2005. In addition, the Companys unrestricted cash and short-term investments balance increased
$901 million, from $3.8 billion to $4.7 billion. The Companys 2006 results reflected an
improvement in revenues somewhat offset by fuel prices and certain other costs that were higher in
2006 compared to 2005. While the Company recorded positive earnings in 2006, AMR incurred total
losses of more than $8 billion in the five years prior to 2006 and remains heavily indebted.
The Companys 2006 earnings were due in part to the Companys success in implementing fare
increases to partially offset higher fuel prices. In 2006, mainline passenger load factor
increased 1.5 points year-over-year to 80.1 percent and mainline passenger revenue yield increased
6.7 percent year-over-year. However, passenger revenue yield remains low by historical standards.
The Company believes this is the result of excess industry capacity and its reduced pricing power
resulting from greater cost sensitivity on the part of travelers (especially business travelers),
increased competition from LCCs, the use of the internet, and other factors. The Company believes
its reduced pricing power could persist indefinitely.
Offsetting these fare increases, the Companys 2006 fuel expense increased $787 million compared to
2005 despite a decrease in mainline capacity of more than one percent. In 2006, the price of a
gallon of jet fuel was 129.7 percent higher than in 2003 and the Companys fuel expense was $3.6
billion higher in 2006 than in 2003 on a mainline capacity increase of approximately 5.0 percent.
The Companys 2006 earnings reflect the continuing joint efforts between the Company and its
employees to identify and implement initiatives designed to increase efficiencies and revenues and
reduce costs under the Turnaround Plan. The Turnaround Plan is the Companys strategic framework
for returning to sustained profitability and has four tenets: (i) lower costs to compete, (ii) fly
smart give customers what they value, (iii) pull together, win together and (iv) build a
financial foundation.
28
Under the Turnaround Plan, the Company has implemented hundreds of cost savings initiatives
estimated to save approximately $3.5 billion in annual expense. In combination with the Companys
2003 restructuring of labor and other contracts, these initiatives have more than offset the
Companys non-fuel inflationary and other cost pressures during this period. Employee productivity (measured in available seat miles per
equivalent head) and aircraft productivity (measured in miles flown per day) have consistently
increased under the Turnaround Plan and established new Company records in 2006.
The Company has also implemented numerous efforts to find additional revenue sources and increase
existing ones. In addition to improving core passenger and cargo revenues, these efforts have
contributed to a 36 percent increase in Other revenues since 2004 to $1.4 billion in 2006.
As part of its effort to build greater employee involvement, the Company has sought to make its
labor unions and its employees its business partners in working for continuous improvement under
the Turnaround Plan. Among other things, the senior management of the Company meets regularly with
union officials to discuss the Companys financial results as well as the competitive landscape.
These discussions include (i) the Companys own cost reduction and revenue enhancement initiatives,
(ii) a review of initiatives, in-place or contemplated, at other airlines and the impact of those
initiatives on the Companys competitive position, and (iii) benchmarking the Companys revenues
and costs against what would be considered best in class (the Companys Performance Leadership
Initiative).
The Companys ability to become consistently profitable and its ability to continue to fund it
obligations on an ongoing basis will depend on a number of factors, many of which are largely
beyond the Companys control. Certain risk factors that affect the Companys business and
financial results are discussed in the Risk Factors listed in Item 1A. In addition, four of the
Companys largest domestic competitors have filed for bankruptcy in the last several years and have
used this process to significantly reduce contractual labor and other costs. In order to remain
competitive and to improve its financial condition, the Company must continue to take steps to
generate additional revenues and to reduce its costs. Although the Company has a number of
initiatives underway to address its cost and revenue challenges, the ultimate success of these
initiatives is not known at this time and cannot be assured.
29
LIQUIDITY AND CAPITAL RESOURCES
Cash, Short-Term Investments and Restricted Assets
At December 31, 2006, the Company had $4.7 billion in unrestricted cash and short-term investments
and $468 million in restricted cash and short-term investments.
Significant Indebtedness and Future Financing
Substantial indebtedness is a significant risk to the Company as discussed in the Risk Factors
listed in Item 1A. During 2004, 2005 and 2006, in addition to refinancing its Credit Facility and
certain debt with an institutional investor (see Note 6 to the consolidated financial statements),
the Company raised an aggregate of approximately $3.2 billion of financing to fund capital
commitments (mainly for aircraft and ground properties), operating losses, debt maturities, and
employee pension obligations, and to bolster its liquidity. As of the date of this Form 10-K, the
Company believes that it should have sufficient liquidity to fund its operations for the
foreseeable future, including repayment of debt and capital leases, capital expenditures and other
contractual obligations. However, to maintain sufficient liquidity as the Company has significant
debt, lease and other obligations in the next several years, as well as substantial pension funding
obligations (refer to Contractual Obligations in this Item 7), the Company may need access to
additional funding. The Company also continues to evaluate the economic benefits and other aspects
of replacing some of the older aircraft in its fleet prior to 2013. The Companys possible
financing sources primarily include: (i) a limited amount of additional secured aircraft debt (a
very large majority of the Companys owned aircraft, including virtually all of the Companys
Section 1110-eligible aircraft, are encumbered) or sale-leaseback transactions involving owned
aircraft, (ii) debt secured by new aircraft deliveries, (iii) debt secured by other assets, (iv)
securitization of future operating receipts, (v) the sale or monetization of certain assets, (vi)
unsecured debt and (vii) issuance of equity and/or equity-like securities. However, the
availability and level of these financing sources cannot be assured, particularly in light of the
Companys and Americans recent financial results, substantial indebtedness, reduced credit
ratings, high fuel prices, revenues that are weak by historical standards, and the financial
difficulties being experienced in the airline industry. The inability of the Company to obtain
additional funding on acceptable terms could have a material adverse impact on the Company and on
the ability of the Company to sustain its operations over the long-term.
Credit Ratings
AMRs and Americans credit ratings are significantly below investment grade. Additional reductions
in AMRs or Americans credit ratings could further increase its borrowing or other costs and
further restrict the availability of future financing.
Credit Facility Covenants
American has a fully drawn $740 million credit facility which consists of a fully drawn $295
million senior secured revolving credit facility, with a final maturity on June 17, 2009, and a
fully drawn $445 million term loan facility, with a final maturity on December 17, 2010 (the
Revolving Facility and the Term Loan Facility, respectively, and collectively, the Credit
Facility). Americans obligations under the Credit Facility are guaranteed by AMR.
30
The Credit Facility contains a covenant (the Liquidity Covenant) requiring American to
maintain, as defined, unrestricted cash, unencumbered short term investments and amounts available
for drawing under committed revolving credit facilities of not less than $1.25 billion for each
quarterly period through the life of the Credit Facility. In addition, the Credit Facility contains
a covenant (the EBITDAR Covenant) requiring AMR to maintain a ratio of cash flow (defined as
consolidated net income, before interest expense (less capitalized interest), income taxes,
depreciation and amortization and rentals, adjusted for certain gains or losses and non-cash items)
to fixed charges (comprising interest expense (less capitalized interest) and rentals). The
required ratio was 1.20 to 1.00 for the four quarter period ending December 31, 2006 and will
increase gradually for each four quarter period ending on each fiscal quarter thereafter until it
reaches 1.50 to 1.00 for the four quarter period ending June 30, 2009. AMR and American were in
compliance with the Liquidity Covenant and the EBITDAR covenant as of December 31, 2006 and expect
to be able to continue to comply with these covenants. However, given fuel prices that are high by
historical standards and the volatility of fuel prices and revenues, it is difficult to assess
whether AMR and American will, in fact, be able to continue to comply with these covenants, and
there are no assurances that AMR and American will be able to do so. Failure to comply with these
covenants would result in a default under the Credit Facility which if the Company did not take
steps to obtain a waiver of, or otherwise mitigate, the default could result in a default under
a significant amount of the Companys other debt and lease obligations and otherwise have a
material adverse impact on the Company. See Note 6 to the consolidated financial statements for
the required ratios at each measurement date through the life of the Credit Facility.
Cash Flow Activity
The Companys cash flow from operating activities improved in 2006. Net cash provided by operating
activities during the year ended December 31, 2006 was $1.9 billion, an increase of $915 million
over 2005, due primarily to an improved revenue environment and the impact of certain Company
initiatives to improve revenue.
Capital expenditures during 2006 were $530 million and primarily included the acquisition of two
Boeing 777-200ER aircraft and the cost of improvements at JFK. Substantially all of the Companys
construction costs at JFK are being reimbursed through a fund established from a previous financing
transaction. See Note 6 to the consolidated financial statements for additional information.
During the second quarter of 2006, the Company issued and sold 15 million shares of its common
stock. The Company realized $400 million from the equity sale.
During 2006, the Company repurchased approximately $190 million of its debt and lease obligations.
Going forward, depending on market conditions, its cash position and other considerations, the
Company may from time to time redeem or repurchase its debt, or take other steps to reduce its debt
or lease obligations or otherwise improve its balance sheet.
Working Capital
AMR (principally American) historically operates with a working capital deficit, as do most other
airline companies. In addition, the Company has historically relied heavily on external financing
to fund capital expenditures. More recently, the Company has also relied on external financing to
fund operating losses, employee pension obligations and debt maturities.
Off Balance Sheet Arrangements
American has determined that it holds a significant variable interest in, but is not the primary
beneficiary of, certain trusts that are the lessors under 84 of its aircraft operating leases.
These leases contain a fixed price purchase option, which allows American to purchase the aircraft
at a predetermined price on a specified date. However, American does not guarantee the residual
value of the aircraft. As of December 31, 2006, future lease payments required under these leases
totaled $2.3 billion.
31
Certain special facility revenue bonds have been issued by certain municipalities primarily to
purchase equipment and improve airport facilities that are leased by American and accounted for as
operating leases. Approximately $1.8 billion of these bonds (with total future payments of
approximately $4.6 billion as of December 31, 2006) are guaranteed by American, AMR, or both.
Approximately $495 million of these special facility revenue bonds contain mandatory tender provisions that require American to make operating lease payments sufficient to
repurchase the bonds at various times: $100 million in 2007, $218 million in 2008, $112 million in
2014 and $65 million in 2015. Although American has the right to remarket the bonds, there can be
no assurance that these bonds will be successfully remarketed. Any payments to redeem or purchase
bonds that are not remarketed would generally reduce existing rent leveling accruals or be
considered prepaid facility rentals and would reduce future operating lease commitments.
In addition, the Company had other operating leases, primarily for aircraft and airport facilities,
with total future lease payments of $4.6 billion as of December 31, 2006. Entering into aircraft
leases allows the Company to obtain aircraft without immediate cash outflows.
32
Contractual Obligations
The following table summarizes the Companys obligations and commitments as of December 31, 2006
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Year(s) Ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and |
|
|
and |
|
|
|
|
Contractual Obligations |
|
Total |
|
|
2007 |
|
|
2009 |
|
|
2011 |
|
|
2012 and Beyond |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease payments for
aircraft and facility obligations1 |
|
$ |
11,484 |
|
|
$ |
1,098 |
|
|
$ |
1,961 |
|
|
$ |
1,715 |
|
|
$ |
6,710 |
|
Firm
aircraft commitments2 |
|
|
2,770 |
|
|
|
|
|
|
|
|
|
|
|
23 |
|
|
|
2,747 |
|
Capacity
purchase agreements 3 |
|
|
179 |
|
|
|
97 |
|
|
|
82 |
|
|
|
|
|
|
|
|
|
Long-term
debt 4 |
|
|
18,396 |
|
|
|
2,025 |
|
|
|
3,595 |
|
|
|
4,566 |
|
|
|
8,210 |
|
Capital lease obligations |
|
|
1,541 |
|
|
|
197 |
|
|
|
411 |
|
|
|
282 |
|
|
|
651 |
|
Other
purchase obligations 5 |
|
|
1,328 |
|
|
|
326 |
|
|
|
370 |
|
|
|
323 |
|
|
|
309 |
|
Other
long-term liabilities 6, 7 |
|
|
6,242 |
|
|
|
552 |
|
|
|
1,492 |
|
|
|
1,611 |
|
|
|
2,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total obligations and commitments |
|
$ |
41,940 |
|
|
$ |
4,295 |
|
|
$ |
7,911 |
|
|
$ |
8,520 |
|
|
$ |
21,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Certain special facility revenue bonds issued by municipalities
which are supported by operating leases executed by American are
guaranteed by AMR and/or American. The special facility revenue bonds with
mandatory tender provisions discussed above are included in this table
under their ultimate maturity date rather than their mandatory tender
provision date. See Note 5 to the consolidated financial statements for
additional information. |
|
2 |
|
As of December 31, 2006, the Company had commitments to acquire
an aggregate of 47 Boeing 737-800s and seven Boeing 777-200ERs in 2013
through 2016. |
|
3 |
|
The table reflects minimum required payments under capacity
purchase contracts between American and two regional airlines, Chautauqua
Airlines, Inc. (Chautauqua) and Trans States Airlines Inc. If the Company
terminates its contract with Chautauqua without cause, Chautauqua has the
right to put its 15 Embraer aircraft to the Company. If this were to
happen, the Company would take possession of the aircraft and become liable
for lease obligations totaling approximately $21 million per year with
lease expirations in 2018 and 2019. These lease obligations are not
included in the table above. See Note 4 to the consolidated financial
statements for additional information. |
|
4 |
|
Amounts represent contractual amounts due, including interest.
Interest on variable rate debt was estimated based on the current rate at
December 31, 2006. |
33
|
|
|
5 |
|
Includes noncancelable commitments to purchase goods or services, primarily
construction related costs at JFK and information technology related
support. Substantially all of the Companys construction costs at JFK will
be reimbursed through a fund established from a previous financing
transaction. The Company has made estimates as to the timing of certain
payments primarily for construction related costs. The actual timing of
payments may vary from these estimates. Substantially all of the Companys
purchase orders issued for other purchases in the ordinary course of
business contain a 30-day cancellation clause that allows the Company to
cancel an order with 30 days notice. |
|
6 |
|
Includes expected pension contributions based on actuarially
determined estimates and other postretirement benefit payments based on
estimated payments through 2015. See Note 10 to the consolidated financial
statements. |
|
7 |
|
Excludes a $2.2 billion accident liability, related to the
Terrorist Attacks and flight 587, recorded in Other liabilities and
deferred credits, as discussed in Note 2 to the consolidated financial
statements. This liability is offset in its entirety by a receivable,
recorded in Other assets, which the Company expects to receive from
insurance carriers as claims are resolved. |
Pension Obligations The Company is required to make contributions to its defined benefit pension
plans under the minimum funding requirements of the Employee Retirement Income Security Act
(ERISA). As included in the table above, the Companys estimated 2007 contributions to its defined
benefit pension plans are approximately $364 million. This estimate reflects the provisions of the
Pension Funding Equity Act of 2004 and the Pension Protection Act of 2006.
Results of Operations
The Company recorded net earnings of $231 million in 2006 compared to a net loss of $857 million in
2005. The Companys 2006 results reflected an improvement in revenues somewhat offset by fuel
prices and certain other costs that were higher in 2006 compared to 2005. The 2006 and 2005
results were impacted by a decrease in depreciation expense of $108 million in each year related to
a change in the depreciable lives of certain aircraft types discussed further below, in Critical
Accounting Policies in this Item 7, and in Note 1 to the consolidated financial statements, and
productivity improvements and other cost reductions resulting from progress under the Turnaround
Plan. The Companys 2005 results were also impacted by a $155 million aircraft charge, a $73
million facility charge, an $80 million charge for the termination of a contract, a $37 million
gain related to the resolution of a debt restructuring and a $22 million credit for the reversal of
an insurance reserve. All of these amounts are included in Other operating expenses in the
consolidated statement of operations, except for a portion of the facility charge which is included
in Other rentals and landing fees. Also included in the 2005 results was a $69 million fuel tax
credit. Of this amount, $55 million is included in Aircraft fuel expense and $14 million is
included in Interest income in the consolidated statement of operations. In addition, the Company
did not record a tax provision or benefit associated with its 2006 earnings or 2005 and 2004
losses.
Although the Company is currently receiving a depreciation expense benefit from the change in
estimate of depreciable lives discussed above, the Companys operating expenses excluding
depreciation will likely be higher during the extended life of the MD-80 aircraft than they would
be for new aircraft. For example, based on current estimates, the Companys MD-80 aircraft consume
more fuel and incur higher maintenance expense than a new aircraft that requires minimal
maintenance during the first several years of operation.
34
Revenues
2006 Compared to 2005 The Companys revenues increased approximately $1.9 billion, or 8.9
percent, to $22.6 billion in 2006 compared to 2005. Americans passenger revenues increased by 7.5
percent, or $1.2 billion, despite a capacity (available seat mile) (ASM) decrease of 1.2 percent.
Americans passenger load factor increased 1.5 points to 80.1 percent and passenger revenue yield
per passenger mile increased 6.7 percent to 12.81 cents. This resulted in an increase in passenger
revenue per available seat mile (RASM) of 8.8 percent to 10.26 cents. In 2006, American derived
approximately 64 percent of its passenger revenues from domestic operations and approximately 36
percent from international operations. Following is additional information regarding Americans
domestic and international RASM and capacity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006 |
|
|
RASM |
|
Y-O-Y |
|
ASMs |
|
Y-O-Y |
|
|
(cents) |
|
Change |
|
(billions) |
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DOT Domestic |
|
|
10.24 |
|
|
|
9.3 |
% |
|
|
111 |
|
|
|
(3.2 |
)% |
International |
|
|
10.30 |
|
|
|
7.8 |
|
|
|
63 |
|
|
|
2.7 |
|
DOT Latin America |
|
|
10.78 |
|
|
|
13.7 |
|
|
|
30 |
|
|
|
(2.1 |
) |
DOT Atlantic |
|
|
10.34 |
|
|
|
2.6 |
|
|
|
25 |
|
|
|
4.6 |
|
DOT Pacific |
|
|
8.49 |
|
|
|
4.6 |
|
|
|
8 |
|
|
|
16.7 |
|
Regional Affiliates passenger revenues, which are based on industry standard proration agreements
for flights connecting to American flights, increased $354 million, or 16.5 percent, to $2.5
billion as a result of increased capacity and load factors. Regional Affiliates traffic increased
11.5 percent to 10.0 billion revenue passenger miles (RPMs), while capacity increased 6.6 percent
to 13.6 billion ASMs, resulting in a 3.2 point increase in passenger load factor to 73.6 percent.
Cargo revenues increased 5.5 percent, or $43 million as a result of a $31 million increase in mail
revenue and a $26 million increase in freight fuel surcharges.
Other revenues increased 17.7 percent, or $206 million, to $1.4 billion due in part to increased
third-party maintenance contracts obtained by the Companys maintenance and engineering group and
increases in certain passenger fees.
35
2005 Compared to 2004 The Companys revenues increased approximately $2.1 billion, or 11.1
percent, to $20.7 billion in 2005 compared to 2004. Americans passenger revenues increased by 10.6
percent, or $1.6 billion, on a capacity (available seat mile) (ASM) increase of 1.2 percent.
Americans passenger load factor increased 3.8 points to 78.6 percent and passenger revenue yield
per passenger mile increased 4.0 percent to 12.01 cents. This resulted in an increase in passenger
revenue per available seat mile (RASM) of 9.3 percent to 9.43 cents. In 2005, American derived
approximately 65 percent of its passenger revenues from domestic operations and approximately 35
percent from international operations. Following is additional information regarding Americans
domestic and international RASM and capacity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2005 |
|
|
RASM |
|
Y-O-Y |
|
ASMs |
|
Y-O-Y |
|
|
(cents) |
|
Change |
|
(billions) |
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DOT Domestic |
|
|
9.37 |
|
|
|
10.6 |
% |
|
|
115 |
|
|
|
(2.3 |
)% |
International |
|
|
9.56 |
|
|
|
6.6 |
|
|
|
61 |
|
|
|
8.6 |
|
DOT Latin America |
|
|
9.48 |
|
|
|
7.9 |
|
|
|
30 |
|
|
|
6.0 |
|
DOT Atlantic |
|
|
10.08 |
|
|
|
9.0 |
|
|
|
24 |
|
|
|
6.7 |
|
DOT Pacific |
|
|
8.12 |
|
|
|
(7.7 |
) |
|
|
7 |
|
|
|
30.1 |
|
Regional Affiliates passenger revenues, which are based on industry standard proration agreements
for flights connecting to American flights, increased $272 million, or 14.5 percent, to $2.1
billion as a result of increased capacity and load factors. Regional Affiliates traffic increased
22.8 percent to 8.9 billion revenue passenger miles (RPMs), while capacity increased 17.3 percent
to 12.7 billion ASMs, resulting in a 3.2 point increase in passenger load factor to 70.4 percent.
Cargo revenues increased 6.2 percent, or $46 million, primarily due to a $49 million increase in
freight fuel surcharges and other service fees.
Other revenues increased 15.4 percent, or $156 million, to $1.2 billion due in part to increased
third-party maintenance contracts obtained by the Companys maintenance and engineering group and
increases in certain passenger fees.
36
Operating Expenses
2006 Compared to 2005 The Companys total operating expenses increased 3.4 percent, or $702
million, to $21.5 billion in 2006 compared to 2005. Americans mainline operating expenses per ASM
in 2006 increased 3.8 percent compared to 2005 to 10.90 cents. This increase in operating expenses
per ASM is due primarily to a 16.5 percent increase in Americans price per gallon of fuel (net of
the impact of a fuel tax credit and fuel hedging) in 2006 relative to 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended |
|
|
|
|
|
|
|
(in millions) |
|
December |
|
|
Change from |
|
|
Percentage |
|
Operating Expenses |
|
31, 2006 |
|
|
2005 |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wages, salaries and benefits |
|
$ |
6,813 |
|
|
$ |
58 |
|
|
|
0.9 |
% |
Aircraft fuel |
|
|
6,402 |
|
|
|
787 |
|
|
|
14.0 |
(a) |
Other rentals and landing fees |
|
|
1,283 |
|
|
|
21 |
|
|
|
1.7 |
|
Depreciation and amortization |
|
|
1,157 |
|
|
|
(7 |
) |
|
|
(0.6 |
) |
Commissions, booking fees and
credit card expense |
|
|
1,076 |
|
|
|
(37 |
) |
|
|
(3.3 |
) |
Maintenance, materials and repairs |
|
|
971 |
|
|
|
(14 |
) |
|
|
(1.4 |
) |
Aircraft rentals |
|
|
606 |
|
|
|
15 |
|
|
|
2.5 |
|
Food service |
|
|
508 |
|
|
|
1 |
|
|
|
0.2 |
|
Other operating expenses |
|
|
2,687 |
|
|
|
(122 |
) |
|
|
(4.3 |
)(b) |
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
$ |
21,503 |
|
|
$ |
702 |
|
|
|
3.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Aircraft fuel expense increased primarily due to a 16.5 percent increase in
Americans price per gallon of fuel (considering the benefit of a $55 million fuel
excise tax refund received in March 2005 and the impact of fuel hedging) offset by a
2.3 percent decrease in Americans fuel consumption. |
|
(b) |
|
Other operating expenses decreased due to charges taken in 2005. Included in 2005
expenses was a $155 million charge for the retirement of 27 MD-80 aircraft, facilities
charges of $56 million as part of the Companys restructuring initiatives and an $80
million charge for the termination of an airport construction contract. These charges
were somewhat offset by a $37 million gain related to the resolution of a debt
restructuring and a $22 million credit for the reversal of an insurance reserve. The
2006 expenses were impacted by a $38 million increase in costs associated with
third-party maintenance contracts obtained by the Companys maintenance and engineering
group. |
37
2005 Compared to 2004 The Companys total operating expenses increased 10.7 percent, or $2.0
billion, to $20.8 billion in 2005 compared to 2004. Americans mainline operating expenses per ASM
in 2005 increased 7.9 percent compared to 2004 to 10.50 cents. This increase in operating expenses
per ASM is due primarily to a 42.1 percent increase in Americans price per gallon of fuel (net of
the impact of a fuel tax credit and fuel hedging) in 2005 relative to 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended |
|
|
|
|
|
|
|
(in millions) |
|
December |
|
|
Change from |
|
|
Percentage |
|
Operating Expenses |
|
31, 2005 |
|
|
2004 |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wages, salaries and benefits |
|
$ |
6,755 |
|
|
$ |
36 |
|
|
|
0.5 |
% |
Aircraft fuel |
|
|
5,615 |
|
|
|
1,646 |
|
|
|
41.5 |
(a) |
Other rentals and landing fees |
|
|
1,262 |
|
|
|
75 |
|
|
|
6.3 |
|
Depreciation and amortization |
|
|
1,164 |
|
|
|
(128 |
) |
|
|
(9.9 |
)(b) |
Commissions, booking fees and
credit card expense |
|
|
1,113 |
|
|
|
6 |
|
|
|
0.5 |
|
Maintenance, materials and repairs |
|
|
985 |
|
|
|
24 |
|
|
|
2.5 |
|
Aircraft rentals |
|
|
591 |
|
|
|
(18 |
) |
|
|
(3.0 |
) |
Food service |
|
|
507 |
|
|
|
(51 |
) |
|
|
(9.1 |
) |
Other operating expenses |
|
|
2,809 |
|
|
|
432 |
|
|
|
18.2 |
(c) |
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
$ |
20,801 |
|
|
$ |
2,022 |
|
|
|
10.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Aircraft fuel expense increased primarily due to a 42.1 percent increase in Americans
price per gallon of fuel (including the benefit of a $55 million fuel excise tax refund
received in March 2005 and the impact of fuel hedging) offset by a 2.2 percent decrease in
Americans fuel consumption. |
|
(b) |
|
Effective January 1, 2005, in order to more accurately reflect the expected useful lives
of its aircraft, the Company changed its estimate of the depreciable lives of its Boeing
737-800, Boeing 757-200 and McDonnell Douglas MD-80 aircraft from 25 to 30 years. As a
result of this change, Depreciation and amortization expense was reduced by approximately
$108 million during the year and the per share net loss was $0.65 less than it otherwise
would have been. |
|
(c) |
|
Other operating expenses increased due to a $155 million charge for the retirement of 27
MD-80 aircraft, facilities charges of $56 million as part of the Companys restructuring
initiatives and an $80 million charge for the termination of an airport construction
contract. These charges were somewhat offset by a $37 million gain related to the
resolution of a debt restructuring and a $22 million credit for the reversal of an
insurance reserve. The account was also impacted by an increase in communications charges
of $53 million year-over-year due to increased international flying and higher rates. |
38
Other Income (Expense)
Other income (expense) consists of interest income and expense, interest capitalized and
miscellaneous net.
2006 Compared to 2005 Increases in both short-term investment balances and interest rates caused
an increase in Interest income of $130 million, or 87.2 percent, to $279 million. Interest expense
increased $73 million, or 7.6 percent, to $1.0 billion primarily as a result of increases in
interest rates. Miscellaneous net includes a charge of $102 million for changes in market value
of hedges that did not qualify for hedge accounting during certain periods in 2006. Gains deferred
in Accumulated other comprehensive loss prior to these hedges being deemed ineffective partially
offset this charge as the hedges settled in 2006 and settle in 2007.
2005 Compared to 2004 Increases in both short-term investment balances and interest rates caused
an increase in Interest income of $83 million, or 125.8 percent, to $149 million. Interest expense
increased $86 million, or 9.9 percent, to $957 million primarily as a result of increases in
interest rates. Miscellaneous-net for 2004 includes a $146 million gain on the sale of the
Companys remaining interest in Orbitz.
Income Tax Benefit
The Company did not record a net tax provision or benefit associated with its 2006 earnings or 2005
and 2004 losses due to the Company providing a valuation allowance, as discussed in Note 8 to the
consolidated financial statements.
39
Operating Statistics
The following table provides statistical information for American and Regional Affiliates for the
years ended December 31, 2006, 2005 and 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2006 |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
American Airlines, Inc. Mainline Jet Operations |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue passenger miles (millions) |
|
|
139,454 |
|
|
|
138,374 |
|
|
|
130,164 |
|
Available seat miles (millions) |
|
|
174,021 |
|
|
|
176,112 |
|
|
|
174,015 |
|
Cargo ton miles (millions) |
|
|
2,224 |
|
|
|
2,209 |
|
|
|
2,203 |
|
Passenger load factor |
|
|
80.1 |
% |
|
|
78.6 |
% |
|
|
74.8 |
% |
Passenger revenue yield per passenger mile (cents) |
|
|
12.81 |
|
|
|
12.01 |
|
|
|
11.54 |
|
Passenger revenue per available seat mile (cents) |
|
|
10.26 |
|
|
|
9.43 |
|
|
|
8.63 |
|
Cargo revenue yield per ton mile (cents) |
|
|
37.18 |
|
|
|
35.49 |
|
|
|
33.51 |
|
Operating expenses per available seat mile, excluding
Regional Affiliates (cents) (*) |
|
|
10.90 |
|
|
|
10.50 |
|
|
|
9.73 |
|
Fuel consumption (gallons, in millions) |
|
|
2,881 |
|
|
|
2,948 |
|
|
|
3,014 |
|
Fuel price per gallon (cents) |
|
|
200.8 |
|
|
|
172.3 |
|
|
|
121.2 |
|
Operating aircraft at year-end |
|
|
697 |
|
|
|
699 |
|
|
|
727 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regional Affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue passenger miles (millions) |
|
|
9,972 |
|
|
|
8,946 |
|
|
|
7,283 |
|
Available seat miles (millions) |
|
|
13,554 |
|
|
|
12,714 |
|
|
|
10,835 |
|
Passenger load factor |
|
|
73.6 |
% |
|
|
70.4 |
% |
|
|
67.2 |
% |
|
|
|
(*) |
|
Excludes $2.7 billion, $2.5 billion and $2.1 billion of expense incurred related to
Regional Affiliates in 2006, 2005 and 2004, respectively. |
Outlook
The Company currently expects first quarter mainline unit costs to decrease 1.3 percent compared to
the first quarter of 2006. Full year 2007 mainline unit costs are expected to increase 1.4 percent
compared to 2006. These costs are based on fuel prices resulting from the December forward curve
which generated a consolidated fuel price of $1.83 in the first quarter and $2.12 for all of 2007.
Capacity for Americans mainline jet operations is expected to be approximately flat in the first
quarter of 2007 versus first quarter 2006. Americans mainline capacity for the full year 2007 is
expected to decrease approximately one percent from 2006 with more than a one percent reduction in
domestic capacity and less than a one percent decrease in international capacity.
40
Other Information
Critical Accounting Policies and Estimates The preparation of the Companys financial statements
in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial statements and
accompanying notes. The Company believes its estimates and assumptions are reasonable; however,
actual results and the timing of the recognition of such amounts could differ from those estimates.
The Company has identified the following critical accounting policies and estimates used by
management in the preparation of the Companys financial statements: accounting for long-lived
assets, passenger revenue, frequent flyer program, stock compensation, pensions and other
postretirement benefits, and income taxes.
Long-lived assets The Company has approximately $19 billion of long-lived assets as of
December 31, 2006, including approximately $18 billion related to flight equipment and other
fixed assets. In addition to the original cost of these assets, their recorded value is
impacted by a number of estimates made by the Company, including estimated useful lives,
salvage values and the Companys determination as to whether aircraft are temporarily or
permanently grounded. In accordance with Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144), the Company
records impairment charges on long-lived assets used in operations when events and
circumstances indicate that the assets may be impaired, the undiscounted cash flows estimated
to be generated by those assets are less than the carrying amount of those assets and the net
book value of the assets exceeds their estimated fair value. In making these determinations,
the Company uses certain assumptions, including, but not limited to: (i) estimated fair value
of the assets; and (ii) estimated future cash flows expected to be generated by the assets,
generally evaluated at a fleet level, which are based on additional assumptions such as asset
utilization, length of service and estimated salvage values. A change in the Companys fleet
plan has been the primary indicator that has resulted in an impairment charge in the past.
On November 17, 2004, American deferred the delivery date of 54 Boeing aircraft by
approximately seven years which, in combination with numerous other factors, led American to
re-evaluate the expected useful lives of its aircraft. As a result of this evaluation,
American changed its estimate of the depreciable lives of its Boeing 737-800, Boeing 757-200
and McDonnell Douglas MD-80 aircraft from 25 to 30 years effective January 1, 2005. The
primary factors that supported changing the estimated useful life of these aircraft were (i)
the absence of scheduled narrow body deliveries until 2013 (even these 47 narrow body
deliveries would only replace less than ten percent of the Companys existing narrow body
fleet assuming the deliveries are not used to grow the Companys capacity at that time), (ii)
the financial condition of the Company, which significantly limits its flexibility to purchase
new aircraft and (iii) the absence of technology step change for narrow body aircraft, such as
technology that would allow the Company to fly its aircraft substantially more efficiently (as
was the case with replacements for previous generation aircraft such as the B-727 which had
three engines versus two on the replacement aircraft) that would clearly economically compel
the Company to replace the fleet. In addition, there are currently no government regulations,
such as noise reduction requirements, that would require aircraft replacement.
Subsequent to the change in depreciable lives on January 1, 2005, all of Americans fleet
types are depreciated over 30 years except for the Airbus A300 and the Boeing 767, which did
not generally meet the above conditions to support extending their lives.
41
It is possible that the ultimate lives of the Companys aircraft will be significantly
different than the current estimate due to unforeseen events in the future that impact the
Companys fleet plan, including positive or negative developments in the areas described
above. For example, operating the aircraft for a longer period will result in higher
maintenance, fuel and other operating costs than if the Company replaced the aircraft. At
some point in the future, higher operating costs and/or improvement in the Companys economic
condition could change the Companys analysis of the impact of retaining aircraft versus
replacing them with new aircraft.
Passenger revenue Passenger ticket sales are initially recorded as a component of Air
traffic liability. Revenue derived from ticket sales is recognized at the time service is
provided. However, due to various factors, including the industrys pricing structure and
interline agreements throughout the industry, certain amounts are recognized in revenue using
estimates regarding both the timing of the revenue recognition and the amount of revenue to be
recognized, including breakage. These estimates are generally based upon the evaluation of
historical trends, including the use of regression analysis and other methods to model the
outcome of future events based on the Companys historical experience, and are recognized at
the scheduled time of departure. The Companys estimation techniques have been applied
consistently from year to year. However, due to changes in the Companys ticket refund policy
and changes in the travel profile of customers, historical trends may not be representative of
future results.
Frequent flyer program American uses the incremental cost method to account for the portion
of its frequent flyer liability incurred when AAdvantage members earn mileage credits by
flying on American or its regional affiliates. During 2006, the Company performed a
comprehensive analysis of its frequent flyer accounting estimates. As a result of this
analysis, the Company adopted several changes in the various estimates used to calculate its
frequent flyer liability. The two most significant changes made were (1) valuing accounts
with balances of less than 25,000 miles in the incremental cost calculation, and (2) updating
to consider the addition of all accounts and for the Companys recent actual breakage history.
Prior to this analysis, Americans frequent flyer liability was accrued each time a member
accumulated sufficient mileage in his or her account to claim the lowest level of free travel
award (25,000 miles) and the award was expected to be used for free travel. The Company now
includes all miles in its estimate of the liability.
The second significant adjustment to the Companys frequent flyer liability is a change in the
method of estimating breakage for miles that are expected to never be redeemed. The Company
considers breakage in its incremental cost calculation and recognizes breakage on AAdvantage
miles sold over the estimated period of usage for sold miles that are ultimately redeemed.
The Company previously applied one breakage rate to miles in accounts with balances sufficient
to claim the lowest level of free travel award. Based on the decision to include all miles
and a review of trends for expired miles, the Company has modified the breakage estimate
including using separate breakage rates for miles earned by flying on American and miles
earned through other companies who have purchased AAdvantage miles for distribution to their
customers.
The adjustments to the Companys estimates described in the preceding paragraphs have been
applied as of December 31, 2006 and resulted in an insignificant adjustment to the frequent
flyer liability.
American includes fuel, food, passenger insurance and reservations/ticketing costs in the
calculation of incremental cost. These estimates are generally updated based upon the
Companys 12-month historical average of such costs. American also accrues a frequent flyer
liability for the mileage credits that are expected to be used for travel on participating
airlines based on historical usage patterns and contractual rates.
The Companys total liability for future AAdvantage award redemptions for free, discounted or
upgraded travel on American, American Eagle or participating airlines as well as unrecognized
revenue from selling AAdvantage miles to other companies was approximately $1.6 billion and
$1.5 billion (and is recorded as a component of Air traffic liability in the consolidated
balance sheets), representing 18.3 percent and 17.7 percent of AMRs total current
liabilities, at December 31, 2006 and 2005, respectively.
42
Revenue earned from selling AAdvantage miles to other companies is recognized in two
components. The first component represents the revenue for air transportation sold and is
valued at fair value. This revenue is deferred and recognized over the period the mileage is
expected to be used, which is currently estimated to be 28 months. The second revenue
component, representing the marketing services sold is recognized as related services are
provided.
The number of free travel awards used for travel on American and American Eagle was 2.6
million in both 2006 and 2005 representing approximately 7.5 percent and 7.2 percent of
passengers boarded. The Company believes displacement of revenue passengers is minimal given
the Companys load factors, its ability to manage frequent flyer seat inventory, and the
relatively low ratio of free award usage to total passengers boarded.
Changes to the percentage of the amount of revenue deferred, deferred recognition period,
percentage of awards expected to be redeemed for travel on participating airlines or cost per
mile estimates could have a significant impact on the Companys revenues or incremental cost
accrual in the year of the change as well as in future years.
Stock Compensation Effective January 1, 2006, the Company adopted the fair value
recognition provisions of Statement of Financial Accounting Standards No. 123(R) Share-Based
Payment. The Company grants awards under its various share based payment plans and utilizes
option pricing models or fair value models to estimate the fair value of its awards. Certain
awards contain a market performance condition, which is taken into account in estimating the
fair value on the date of grant. The fair value of those awards is estimated using a Monte
Carlo valuation model that estimates the probability of the potential payouts of these awards,
using the historical volatility of the Companys stock and the stock of other carriers in the
competitor group. The Company accounts for these awards over the three year term of the award
based on the grant date fair value, provided adequate shares are available to settle the
awards. For awards where adequate shares are not anticipated to be available or that only
permit settlement in cash, the fair value is re-measured each reporting period.
Pensions and other postretirement benefits On December 31, 2006, the Company adopted
Statement of Accounting Standard 158 Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans (SFAS 158). SFAS 158 required the Company to recognize the funded
status (i.e., the difference between the fair value of plan assets and the projected benefit
obligations) of its pension and postretirement plans in the consolidated balance sheet as of
December 31, 2006 with a corresponding adjustment to accumulated other comprehensive loss.
The Companys pension and other postretirement benefit costs and liabilities are calculated
using various actuarial assumptions and methodologies. The Company uses certain assumptions
including, but not limited to, the selection of the: (i) discount rate; (ii) expected return
on plan assets; and (iii) expected health care cost trend rate.
These assumptions as of December 31 were:
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
Discount rate |
|
|
6.00 |
% |
|
|
5.75 |
% |
Expected return on plan assets |
|
|
8.75 |
% |
|
|
8.75 |
% |
Expected health care cost trend rate: |
|
|
|
|
|
|
|
|
Pre-65 individuals |
|
|
|
|
|
|
|
|
Initial |
|
|
9.0 |
% |
|
|
4.5 |
% |
Ultimate |
|
|
4.5 |
% |
|
|
4.5 |
% |
Post-65 individuals |
|
|
|
|
|
|
|
|
Initial |
|
|
9.0 |
% |
|
|
9.0 |
% |
Ultimate (2010) |
|
|
4.5 |
% |
|
|
4.5 |
% |
43
The Companys discount rate is determined based upon the review of year-end high quality
corporate bond rates. Lowering the discount rate by 50 basis points as of December 31, 2006
would increase the Companys pension and postretirement benefits obligations by approximately
$738 million and $178 million, respectively, and increase estimated 2007 pension and
postretirement benefits expense by $62 million and $3 million, respectively.
The expected return on plan assets is based upon an evaluation of the Companys historical
trends and experience taking into account current and expected market conditions and the
Companys target asset allocation of 40 percent longer duration corporate bonds, 25 percent
U.S. value stocks, 20 percent developed international stocks, five percent emerging markets
stocks and bonds and ten percent alternative (private) investments. The expected return on
plan assets component of the Companys net periodic benefit cost is calculated based on the
fair value of plan assets and the Companys target asset allocation. The Company monitors its
actual asset allocation and believes that its long-term asset allocation will continue to
approximate its target allocation. The Companys historical annualized ten-year rate of
return on plan assets, calculated using a geometric compounding of monthly returns, is
approximately 11.8 percent as of December 31, 2006. Lowering the expected long-term rate of
return on plan assets by 50 basis points as of December 31, 2006 would increase estimated 2007
pension expense by approximately $43 million.
The health care cost trend rate is based upon an evaluation of the Companys historical trends
and experience taking into account current and expected market conditions. Increasing the
assumed health care cost trend rate by 100 basis points would increase estimated 2007
postretirement benefits expense by $33 million.
Income taxes The Company accounts for income taxes in accordance with Financial Accounting
Standards No. 109, Accounting for Income Taxes. Accordingly, the Company records a deferred
tax asset valuation allowance when it is more likely than not that some portion or all of its
deferred tax assets will not be realized. The Company considers its historical earnings,
trends, and outlook for future years in making this determination. The Company had a deferred
tax valuation allowance of $1.3 billion at both December 31, 2006 and 2005. See Note 8 to the
consolidated financial statements for additional information.
New Accounting Pronouncement In June 2006, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48
prescribes a recognition threshold that a tax position is required to meet before being recognized
in the financial statements and provides guidance on derecognition, measurement, classification,
interest and penalties, accounting in interim periods, disclosure and transition issues. The
Company believes the impact of adoption on its consolidated financial statements will be
immaterial.
44
ITEM 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk Sensitive Instruments and Positions
The risk inherent in the Companys market risk sensitive instruments and positions is the potential
loss arising from adverse changes in the price of fuel, foreign currency exchange rates and
interest rates as discussed below. The sensitivity analyses presented do not consider the effects
that such adverse changes may have on overall economic activity, nor do they consider additional
actions management may take to mitigate the Companys exposure to such changes. Therefore, actual
results may differ. The Company does not hold or issue derivative financial instruments for
trading purposes. See Note 7 to the consolidated financial statements for accounting policies and
additional information.
Aircraft Fuel The Companys earnings are affected by changes in the price and availability of
aircraft fuel. In order to provide a measure of control over price and supply, the Company trades
and ships fuel and maintains fuel storage facilities to support its flight operations. The Company
also manages the price risk of fuel costs primarily by using jet fuel, heating oil, and crude oil
hedging contracts. Market risk is estimated as a hypothetical 10 percent increase in the December
31, 2006 and 2005 cost per gallon of fuel. Based on projected 2007 fuel usage, such an increase
would result in an increase to aircraft fuel expense of approximately $531 million in 2007,
inclusive of the impact of effective fuel hedge instruments outstanding at December 31, 2006, and
assumes the Companys fuel hedging program remains effective under Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities.
Comparatively, based on projected 2006 fuel usage, such an increase would have resulted in an
increase to aircraft fuel expense of approximately $528 million in 2006, inclusive of the impact of
fuel hedge instruments outstanding at December 31, 2005. As of December 31, 2006, the Company had
hedged, with option contracts, including collars, approximately 14 percent of its estimated 2007
fuel requirements. The consumption hedged for 2007 is capped at an average price of approximately
$68 per barrel of crude oil. Comparatively, as of December 31, 2005 the Company had hedged, with
option contracts, approximately 17 percent of its estimated 2006 fuel requirements. A
deterioration of the Companys financial position could negatively affect the Companys ability to
hedge fuel in the future.
Foreign Currency The Company is exposed to the effect of foreign exchange rate fluctuations on
the U.S. dollar value of foreign currency-denominated operating revenues and expenses. The
Companys largest exposure comes from the British pound, Euro, Canadian dollar, Japanese yen and
various Latin American currencies. The Company does not currently have a foreign currency hedge
program related to its foreign currency-denominated ticket sales. A uniform 10 percent
strengthening in the value of the U.S. dollar from December 31, 2006 and 2005 levels relative to
each of the currencies in which the Company has foreign currency exposure would result in a
decrease in operating income of approximately $117 million and $105 million for the years ending
December 31, 2007 and 2006, respectively, due to the Companys foreign-denominated revenues
exceeding its foreign-denominated expenses. This sensitivity analysis was prepared based upon
projected 2007 and 2006 foreign currency-denominated revenues and expenses as of December 31, 2006
and 2005, respectively.
Interest The Companys earnings are also affected by changes in interest rates due to the impact
those changes have on its interest income from cash and short-term investments, and its interest
expense from variable-rate debt instruments. The Companys largest exposure with respect to
variable-rate debt comes from changes in the London Interbank Offered Rate (LIBOR). The Company had
variable-rate debt instruments representing approximately 33 percent and 32 percent of its total
long-term debt at December 31, 2006 and 2005, respectively. If the Companys interest rates
average 10 percent more in 2007 than they did at December 31, 2006, the Companys interest expense
would increase by approximately $29 million and interest income from cash and short-term
investments would increase by approximately $28 million. In comparison, at December 31, 2005, the
Company estimated that if interest rates averaged 10 percent more in 2006 than they did at December
31, 2005, the Companys interest expense would have increased by approximately $28 million and
interest income from cash and short-term investments would have increased by approximately $18
million. These amounts are determined by considering the impact of the hypothetical interest rates
on the Companys variable-rate long-term debt and cash and short-term investment balances at
December 31, 2006 and 2005.
45
Market risk for fixed-rate long-term debt is estimated as the potential increase in fair value
resulting from a hypothetical 10 percent decrease in interest rates, and amounts to approximately
$315 million and $385 million as of December 31, 2006 and 2005, respectively. The fair values of
the Companys long-term debt were estimated using quoted market prices or discounted future cash
flows based on the Companys incremental borrowing rates for similar types of borrowing
arrangements.
Other The Company holds investments in certain other entities which are subject to market risk.
However, the impact of such market risk on earnings is not significant due to the immateriality of
the carrying value and the geographically diverse nature of these holdings.
46
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
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|
|
Page |
|
|
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|
|
|
|
48 |
|
|
|
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|
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|
|
49 |
|
|
|
|
|
|
|
|
|
5051 |
|
|
|
|
|
|
|
|
|
52 |
|
|
|
|
|
|
|
|
|
53 |
|
|
|
|
|
|
|
|
|
5483 |
|
47
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
AMR Corporation
We have audited the accompanying consolidated balance sheets of AMR Corporation as of December 31,
2006 and 2005 and the related consolidated statements of operations, stockholders equity (deficit)
and cash flows for each of the three years in the period ended December 31, 2006. Our audits also
included the financial statement schedule listed in the Index at Item 15(a)(2). These consolidated
financial statements and schedule are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of AMR Corporation at December 31, 2006 and 2005 and
the consolidated results of their operations and their cash flows for each of the three years in
the period ended December 31, 2006 in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
As discussed in Notes 1, 9, and 10 to the consolidated financial statements, in 2006 the Company
changed its method of accounting for share-based compensation as required by Statement of Financial
Accounting Standards No. 123(R), Share-Based Payment, changed its method of accounting for
retirement benefits as required by Statement of Financial Accounting Standard No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement Plans and changed its method of
accounting for planned major maintenance activities at one of its operating subsidiaries as
required by Financial Accounting Standards Board Staff Position No. AUG AIR-1, Accounting for
Planned Major Maintenance Activities.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of AMR Corporations internal control over financial
reporting as of December 31, 2006, based on criteria established in Internal ControlIntegrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated February 21, 2007 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Dallas, Texas
February 21, 2007
48
AMR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Passenger American Airlines |
|
$ |
17,862 |
|
|
$ |
16,614 |
|
|
$ |
15,021 |
|
Regional Affiliates |
|
|
2,502 |
|
|
|
2,148 |
|
|
|
1,876 |
|
Cargo |
|
|
827 |
|
|
|
784 |
|
|
|
738 |
|
Other revenues |
|
|
1,372 |
|
|
|
1,166 |
|
|
|
1,010 |
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
22,563 |
|
|
|
20,712 |
|
|
|
18,645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wages, salaries and benefits |
|
|
6,813 |
|
|
|
6,755 |
|
|
|
6,719 |
|
Aircraft fuel |
|
|
6,402 |
|
|
|
5,615 |
|
|
|
3,969 |
|
Other rentals and landing fees |
|
|
1,283 |
|
|
|
1,262 |
|
|
|
1,187 |
|
Depreciation and amortization |
|
|
1,157 |
|
|
|
1,164 |
|
|
|
1,292 |
|
Commissions, booking fees and credit card expense |
|
|
1,076 |
|
|
|
1,113 |
|
|
|
1,107 |
|
Maintenance, materials and repairs |
|
|
971 |
|
|
|
985 |
|
|
|
961 |
|
Aircraft rentals |
|
|
606 |
|
|
|
591 |
|
|
|
609 |
|
Food service |
|
|
508 |
|
|
|
507 |
|
|
|
558 |
|
Other operating expenses |
|
|
2,687 |
|
|
|
2,809 |
|
|
|
2,377 |
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
21,503 |
|
|
|
20,801 |
|
|
|
18,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) |
|
|
1,060 |
|
|
|
(89 |
) |
|
|
(134 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense) |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
279 |
|
|
|
149 |
|
|
|
66 |
|
Interest expense |
|
|
(1,030 |
) |
|
|
(957 |
) |
|
|
(871 |
) |
Interest capitalized |
|
|
29 |
|
|
|
65 |
|
|
|
80 |
|
Miscellaneous net |
|
|
(107 |
) |
|
|
(25 |
) |
|
|
108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(829 |
) |
|
|
(768 |
) |
|
|
(617 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes |
|
|
231 |
|
|
|
(857 |
) |
|
|
(751 |
) |
Income tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings (Loss) |
|
$ |
231 |
|
|
$ |
(857 |
) |
|
$ |
(751 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) Per Share |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.13 |
|
|
$ |
(5.18 |
) |
|
$ |
(4.68 |
) |
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.98 |
|
|
$ |
(5.18 |
) |
|
$ |
(4.68 |
) |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
49
AMR CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions, except shares and par value)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
Cash |
|
$ |
121 |
|
|
$ |
138 |
|
Short-term investments |
|
|
4,594 |
|
|
|
3,676 |
|
Restricted cash and short-term investments |
|
|
468 |
|
|
|
510 |
|
Receivables, less allowance for uncollectible
accounts (2006 - $45; 2005- $60) |
|
|
988 |
|
|
|
991 |
|
Inventories, less allowance for obsolescence
(2006 - $411; 2005 - $410) |
|
|
506 |
|
|
|
515 |
|
Other current assets |
|
|
225 |
|
|
|
334 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
6,902 |
|
|
|
6,164 |
|
|
|
|
|
|
|
|
|
|
Equipment and Property |
|
|
|
|
|
|
|
|
Flight equipment, at cost |
|
|
22,913 |
|
|
|
22,491 |
|
Less accumulated depreciation |
|
|
8,406 |
|
|
|
7,648 |
|
|
|
|
|
|
|
|
|
|
|
14,507 |
|
|
|
14,843 |
|
|
|
|
|
|
|
|
|
|
Purchase deposits for flight equipment |
|
|
178 |
|
|
|
278 |
|
|
|
|
|
|
|
|
|
|
Other equipment and property, at cost |
|
|
5,097 |
|
|
|
5,156 |
|
Less accumulated depreciation |
|
|
2,706 |
|
|
|
2,750 |
|
|
|
|
|
|
|
|
|
|
|
2,391 |
|
|
|
2,406 |
|
|
|
|
|
|
|
|
|
|
|
17,076 |
|
|
|
17,527 |
|
|
|
|
|
|
|
|
|
|
Equipment and Property Under Capital Leases |
|
|
|
|
|
|
|
|
Flight equipment |
|
|
1,744 |
|
|
|
1,881 |
|
Other equipment and property |
|
|
217 |
|
|
|
199 |
|
|
|
|
|
|
|
|
|
|
|
1,961 |
|
|
|
2,080 |
|
Less accumulated amortization |
|
|
1,096 |
|
|
|
1,061 |
|
|
|
|
|
|
|
|
|
|
|
865 |
|
|
|
1,019 |
|
|
|
|
|
|
|
|
|
|
Other Assets |
|
|
|
|
|
|
|
|
Route acquisition costs and airport
operating and gate lease rights, less
accumulated amortization (2006 - $361; 2005
- $331) |
|
|
1,167 |
|
|
|
1,194 |
|
Other assets |
|
|
3,135 |
|
|
|
3,591 |
|
|
|
|
|
|
|
|
|
|
|
4,302 |
|
|
|
4,785 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
29,145 |
|
|
$ |
29,495 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
50
AMR CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions, except shares and par value)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Liabilities and Stockholders Equity (Deficit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
1,073 |
|
|
$ |
1,078 |
|
Accrued salaries and wages |
|
|
551 |
|
|
|
635 |
|
Accrued liabilities |
|
|
1,750 |
|
|
|
1,705 |
|
Air traffic liability |
|
|
3,782 |
|
|
|
3,615 |
|
Current maturities of long-term debt |
|
|
1,246 |
|
|
|
1,077 |
|
Current obligations under capital leases |
|
|
103 |
|
|
|
162 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
8,505 |
|
|
|
8,272 |
|
|
|
|
|
|
|
|
|
|
Long-Term Debt, Less Current Maturities |
|
|
11,217 |
|
|
|
12,530 |
|
|
|
|
|
|
|
|
|
|
Obligations Under Capital Leases,
Less Current Obligations |
|
|
824 |
|
|
|
926 |
|
|
|
|
|
|
|
|
|
|
Other Liabilities and Credits |
|
|
|
|
|
|
|
|
Deferred gains |
|
|
372 |
|
|
|
421 |
|
Pension and postretirement benefits |
|
|
5,341 |
|
|
|
4,998 |
|
Other liabilities and deferred credits |
|
|
3,492 |
|
|
|
3,778 |
|
|
|
|
|
|
|
|
|
|
|
9,205 |
|
|
|
9,197 |
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity (Deficit) |
|
|
|
|
|
|
|
|
Preferred stock - 20,000,000 shares authorized; None issued |
|
|
|
|
|
|
|
|
Common stock $1 par value; 750,000,000 shares authorized;
shares issued: 2006 228,164,821; 2005 - 195,350,259 |
|
|
228 |
|
|
|
195 |
|
Additional paid-in capital |
|
|
2,718 |
|
|
|
2,258 |
|
Treasury shares at cost: 2006 5,940,399; 2005 - 12,617,908 |
|
|
(367 |
) |
|
|
(779 |
) |
Accumulated other comprehensive loss |
|
|
(1,291 |
) |
|
|
(979 |
) |
Accumulated deficit |
|
|
(1,894 |
) |
|
|
(2,125 |
) |
|
|
|
|
|
|
|
|
|
|
(606 |
) |
|
|
(1,430 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity (Deficit) |
|
$ |
29,145 |
|
|
$ |
29,495 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
51
AMR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Cash Flow from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
231 |
|
|
$ |
(857 |
) |
|
$ |
(751 |
) |
Adjustments to reconcile net income (loss) to net cash provided
(used) by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
1,022 |
|
|
|
1,033 |
|
|
|
1,139 |
|
Amortization |
|
|
135 |
|
|
|
131 |
|
|
|
153 |
|
Equity based stock compensation |
|
|
142 |
|
|
|
|
|
|
|
|
|
Provisions for asset impairments and restructuring charges |
|
|
|
|
|
|
134 |
|
|
|
21 |
|
Gain on sale of investments |
|
|
(13 |
) |
|
|
|
|
|
|
(146 |
) |
Redemption payments under operating leases for special
facility revenue bonds |
|
|
(28 |
) |
|
|
(104 |
) |
|
|
|
|
Change in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in receivables |
|
|
3 |
|
|
|
(156 |
) |
|
|
(89 |
) |
Decrease (increase) in inventories |
|
|
(7 |
) |
|
|
(59 |
) |
|
|
8 |
|
Increase (decrease) in accounts payable and accrued
liabilities |
|
|
(130 |
) |
|
|
246 |
|
|
|
(36 |
) |
Increase in air traffic liability |
|
|
168 |
|
|
|
432 |
|
|
|
377 |
|
Increase in other liabilities and deferred credits |
|
|
382 |
|
|
|
197 |
|
|
|
31 |
|
Other, net |
|
|
34 |
|
|
|
27 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
1,939 |
|
|
|
1,024 |
|
|
|
717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures, including purchase deposits on flight
equipment |
|
|
(530 |
) |
|
|
(681 |
) |
|
|
(1,027 |
) |
Net increase in short-term investments |
|
|
(918 |
) |
|
|
(867 |
) |
|
|
(323 |
) |
Net decrease (increase) in restricted cash and short-term
investments |
|
|
42 |
|
|
|
(32 |
) |
|
|
49 |
|
Proceeds from sale of equipment and property and investments |
|
|
49 |
|
|
|
40 |
|
|
|
265 |
|
Other |
|
|
(8 |
) |
|
|
1 |
|
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used for investing activities |
|
|
(1,365 |
) |
|
|
(1,539 |
) |
|
|
(1,048 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt and capital lease obligations |
|
|
(1,366 |
) |
|
|
(1,131 |
) |
|
|
(1,653 |
) |
Proceeds from: |
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock, net of issuance costs |
|
|
400 |
|
|
|
223 |
|
|
|
|
|
Reimbursement from construction reserve account |
|
|
145 |
|
|
|
|
|
|
|
|
|
Exercise of stock options |
|
|
230 |
|
|
|
56 |
|
|
|
7 |
|
Securitization transactions |
|
|
|
|
|
|
133 |
|
|
|
|
|
Issuance of long-term debt and special facility bond
transactions |
|
|
|
|
|
|
1,252 |
|
|
|
1,977 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
(591 |
) |
|
|
533 |
|
|
|
331 |
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
|
(17 |
) |
|
|
18 |
|
|
|
|
|
Cash at beginning of year |
|
|
138 |
|
|
|
120 |
|
|
|
120 |
|
|
|
|
|
|
|
|
|
|
|
Cash at end of year |
|
$ |
121 |
|
|
$ |
138 |
|
|
$ |
120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activities Not Affecting Cash |
|
|
|
|
|
|
|
|
|
|
|
|
Funding of construction and debt service reserve accounts |
|
$ |
|
|
|
$ |
284 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations incurred |
|
$ |
|
|
|
$ |
13 |
|
|
$ |
13 |
|
|
|
|
|
|
|
|
|
|
|
Flight equipment acquired through seller financing |
|
$ |
|
|
|
$ |
|
|
|
$ |
18 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
52
AMR CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
(in millions, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common |
|
|
Paid-in |
|
|
Treasury |
|
|
Accumulated Other |
|
|
Accumulated |
|
|
|
|
|
|
Stock |
|
|
Capital |
|
|
Stock |
|
|
Comprehensive Loss |
|
|
Deficit |
|
|
Total |
|
Balance at January 1, 2004 |
|
$ |
182 |
|
|
$ |
2,605 |
|
|
$ |
(1,405 |
) |
|
$ |
(785 |
) |
|
$ |
(517 |
) |
|
$ |
80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(751 |
) |
|
|
(751 |
) |
Minimum pension liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
129 |
|
|
|
|
|
|
|
129 |
|
Changes in fair value of
derivative financial instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
(4 |
) |
Unrealized loss on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(630 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of 1,573,715 shares
from Treasury to employees
pursuant to stock option and
deferred stock incentive plans |
|
|
|
|
|
|
(84 |
) |
|
|
97 |
|
|
|
|
|
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004 |
|
|
182 |
|
|
|
2,521 |
|
|
|
(1,308 |
) |
|
|
(664 |
) |
|
|
(1,268 |
) |
|
|
(537 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(857 |
) |
|
|
(857 |
) |
Minimum pension liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(379 |
) |
|
|
|
|
|
|
(379 |
) |
Changes in fair value of
derivative financial
instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58 |
|
|
|
|
|
|
|
58 |
|
Unrealized gain on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,172 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of 13,000,000 shares |
|
|
13 |
|
|
|
210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
223 |
|
Issuance of 8,576,404 shares
from Treasury to employees
pursuant to stock option and
deferred stock incentive plans |
|
|
|
|
|
|
(473 |
) |
|
|
529 |
|
|
|
|
|
|
|
|
|
|
|
56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005 |
|
|
195 |
|
|
|
2,258 |
|
|
|
(779 |
) |
|
|
(979 |
) |
|
|
(2,125 |
) |
|
|
(1,430 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
231 |
|
|
|
231 |
|
Pension liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
748 |
|
|
|
|
|
|
|
748 |
|
Adjustment resulting from
adoption of SFAS 158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(998 |
) |
|
|
|
|
|
|
(998 |
) |
Changes in fair value of
derivative financial instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62 |
) |
|
|
|
|
|
|
(62 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(81 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification and
amortization of stock
compensation plans |
|
|
|
|
|
|
275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
275 |
|
Issuance of 15,002,091 shares |
|
|
15 |
|
|
|
385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400 |
|
Issuance of 24,489,980 shares to
employees pursuant to stock
option and deferred stock
incentive plans |
|
|
18 |
|
|
|
(200 |
) |
|
|
412 |
|
|
|
|
|
|
|
|
|
|
|
230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006 |
|
$ |
228 |
|
|
$ |
2,718 |
|
|
$ |
(367 |
) |
|
$ |
(1,291 |
) |
|
$ |
(1,894 |
) |
|
$ |
(606 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Accounting Policies
Basis of Presentation The accompanying consolidated financial statements as of December 31, 2006
and for the three years ended December 31, 2006 include the accounts of AMR Corporation (AMR or the
Company) and its wholly owned subsidiaries, including (i) its principal subsidiary American
Airlines, Inc. (American) and (ii) its regional airline subsidiary, AMR Eagle Holding Corporation
and its primary subsidiaries, American Eagle Airlines, Inc., Executive Airlines, Inc. and AMR
Leasing Corporation (collectively, AMR Eagle). The consolidated financial statements as of and for
the year ended December 31, 2006 include the accounts of the Company and its wholly owned
subsidiaries as well as variable interest entities for which the Company is the primary
beneficiary. All significant intercompany transactions have been eliminated.
New Accounting Pronouncements During 2006, the Company adopted three new accounting standards
including Statement of Accounting Standard No. 123 (revised 2004), Share-Based Payment (SFAS
123(R)), SFAS 158, Employers Accounting for Defined Benefit Pension and Other Postretirement
Plans, and FASB Staff Position AUG AIR-1, Accounting for Planned Major Maintenance Activities.
SFAS 123(R) requires all share-based payments to employees, including grants of employee stock
options, to be recognized in the financial statements based on their fair values and modified the
accounting for certain other share-based payments. See Footnote 9 for further discussion of the
impact of adopting SFAS 123(R).
SFAS 158, among other things, requires the Company to recognize the funded status of the Companys
defined benefit plans in its consolidated financial statements and recognize as a component of
Other comprehensive loss the actuarial gains and losses and the prior service costs and credits
that arise during the period but are not immediately recognized as components of net periodic
benefit cost. See Footnote 10 for further discussion of the impact of adopting SFAS 158.
FASB Staff Position AUG AIR-1 reduces the number of acceptable methods of accounting for planned
major maintenance activities. Effective January 1, 2006, AMR Eagle adopted this standard to change
its method of accounting for some planned maintenance activities on certain aircraft types by
eliminating a $52 million accrual for future maintenance costs, of which approximately $38 million
pertained to periods prior to January 1, 2004 and have been reflected as an adjustment to
Accumulated deficit in the consolidated financial statements. The impact of adoption has been
applied retrospectively and is not material to any of the individual years presented in the
consolidated financial statements.
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 prescribes a recognition threshold
that a tax position is required to meet before being recognized in the financial statements and
provides guidance on derecognition, measurement, classification, interest and penalties, accounting
in interim periods, disclosure and transition issues. The Company believes the impact of adoption
on its consolidated financial statements will be immaterial.
Reclassifications The Company previously recorded cargo fuel and security surcharge revenues of
$162 million and $113 million in 2005 and 2004, respectively, in Other revenues in the consolidated
statement of operations. These revenues are now included in Cargo revenues. In addition, charges
of $11 million in 2004 resulting from the Terrorist Attacks and our related restructuring
activities were previously recorded in Special charges in the consolidated statement of operations.
These amounts are now included in Other operating expenses.
Use of Estimates The preparation of financial statements in conformity with generally accepted
accounting principles 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.
54
1. Summary of Accounting Policies (Continued)
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) are tested for impairment
annually on December 31, rather than amortized, in accordance with Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142). 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 In accordance with Statement of Financial Accounting Standards
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144), the Company
records impairment charges on long-lived assets used in operations when events and circumstances
indicate that the assets may be impaired, the undiscounted cash flows estimated to be generated by
those assets are less than the carrying amount of those assets and the net book value of the assets
exceeds their estimated fair value. In making these determinations, the Company uses certain
assumptions, including, but not limited to: (i) estimated fair value of the assets; and (ii)
estimated future cash flows expected to be generated by these assets, which are based on additional
assumptions such as asset utilization, length of service the asset will be used in the Companys
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 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 |
55
1. Summary of Accounting Policies (Continued)
Effective January 1, 2005, in order to more accurately reflect the expected useful life of its
aircraft, the Company changed its estimate of the depreciable lives of its Boeing 737-800, Boeing
757-200 and McDonnell Douglas MD-80 aircraft from 25 to 30 years. As a result of this change,
Depreciation and amortization expense was reduced by approximately $108 million in each of the
years ended December 31, 2006 and 2005, and per share net income for 2006 was approximately $0.41
more than it otherwise would have been and the per share net loss for 2005 was approximately $0.65
less than it otherwise would have been.
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.
Equipment and property under capital leases are amortized over the term of the leases or, in the
case of certain aircraft, over their expected useful lives. Lease terms vary but are generally ten
to 25 years for aircraft and seven to 40 years for other leased equipment and property.
Regional Affiliates Revenue from ticket sales is generally recognized when service is provided.
Regional Affiliates revenues for flights connecting to American flights are allocated based on
industry standard proration agreements.
Passenger Revenue Passenger ticket sales are initially recorded as a component of Air traffic
liability. Revenue derived from ticket sales is recognized at the time service is provided.
However, due to various factors, including the complex pricing structure and interline agreements
throughout the industry, certain amounts are recognized in revenue using estimates regarding both
the timing of the revenue recognition and the amount of revenue to be recognized, including
breakage. These estimates are generally based upon the evaluation of historical trends, including
the use of regression analysis and other methods to model the outcome of future events based on the
Companys historical experience, and are recorded at the scheduled time of departure.
Frequent Flyer Program The estimated incremental cost of providing free travel awards is accrued
for mileage credits earned by using Americans service that are expected to be redeemed in the
future. American also accrues a frequent flyer liability for the mileage credits that are expected
to be used for travel on participating airlines based on historical usage patterns and contractual
rates. American sells mileage credits and related services to companies participating in its
frequent flyer program. The portion of the revenue related to the sale of mileage credits,
representing the revenue for air transportation sold, is valued at current market rates and is
deferred and amortized over 28 months, which approximates the expected period over which the
mileage credits are used. Breakage of sold miles is recognized over the estimated period of usage.
The remaining portion of the revenue, representing the marketing services sold and administrative
costs associated with operating the AAdvantage program, is recognized upon sale as a component of
passenger revenues, as the related services have been provided. The Company recognizes this
revenue in passenger revenue because it is derived from the value of the Companys AAdvantage
passengers. The Companys total liability for future AAdvantage award redemptions for free,
discounted or upgraded travel on American, American Eagle or participating airlines as well as
unrecognized revenue from selling AAdvantage miles was approximately $1.6 billion and $1.5 billion
(and is recorded as a component of Air traffic liability on the accompanying consolidated balance
sheets) at December 31, 2006 and 2005, respectively. At December 31, 2006, the Company implemented
certain changes in the estimates it uses to calculate the frequent flyer liability. These changes
in estimate, which did not have a material impact on the liability at December 31, 2006, primarily
related to valuing all program miles and the associated breakage estimates and to consider recent
changes in trends for expiring miles.
Income Taxes The Company has reserves for taxes and associated interest that may become payable
in future years as a result of audits by tax authorities. Although the Company believes that the
positions taken on previously filed tax returns are reasonable, it nevertheless has established tax
and interest reserves in recognition that various taxing authorities may challenge the positions
taken by the Company resulting in additional liabilities for taxes and interest. The tax reserves
are reviewed as circumstances warrant and adjusted as events occur that affect the Companys
potential liability for additional taxes, such as lapsing of applicable statutes of limitations,
conclusion of tax audits, additional exposure based on current calculations, identification of new
issues, release of administrative guidance, or rendering of a court decision affecting a particular
tax issue.
56
1. Summary of Accounting Policies (Continued)
Advertising Costs The Company expenses on a straight-line basis the costs of advertising as
incurred throughout the year. Advertising expense was $154 million, $144 million and $146 million
for the years ended December 31, 2006, 2005 and 2004, respectively.
2. Restructuring Charges
As a result of the revenue environment, high fuel prices and the Companys restructuring
activities, the Company has recorded a number of charges during the last few years. The following
table summarizes the components of these charges and the remaining accruals for future lease
payments, aircraft lease return and other costs, facilities closure costs and employee severance
and benefit costs (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft Charges |
|
|
Facility Exit Costs |
|
|
Employee Charges |
|
|
Other |
|
|
Total |
|
Remaining accrual at
January 1,
2004 |
|
$ |
197 |
|
|
$ |
56 |
|
|
$ |
26 |
|
|
$ |
|
|
|
$ |
279 |
|
Restructuring charges |
|
|
21 |
|
|
|
|
|
|
|
42 |
|
|
|
|
|
|
|
63 |
|
Adjustments |
|
|
(20 |
) |
|
|
(21 |
) |
|
|
(11 |
) |
|
|
|
|
|
|
(52 |
) |
Non-cash charges |
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21 |
) |
Payments |
|
|
(48 |
) |
|
|
(9 |
) |
|
|
(21 |
) |
|
|
|
|
|
|
(78 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining accrual at
December 31,
2004 |
|
|
129 |
|
|
|
26 |
|
|
|
36 |
|
|
|
|
|
|
|
191 |
|
Restructuring charges |
|
|
155 |
|
|
|
19 |
|
|
|
|
|
|
|
(37 |
) |
|
|
137 |
|
Adjustments |
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
(2 |
) |
Non-cash charges |
|
|
(119 |
) |
|
|
|
|
|
|
|
|
|
|
37 |
|
|
|
(82 |
) |
Payments |
|
|
(13 |
) |
|
|
(7 |
) |
|
|
(36 |
) |
|
|
|
|
|
|
(56 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining accrual at
December 31,
2005 |
|
|
152 |
|
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
188 |
|
Adjustments |
|
|
(3 |
) |
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
(19 |
) |
Payments |
|
|
(21 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
(22 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining accrual at
December 31,
2006 |
|
$ |
128 |
|
|
$ |
19 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash outlays related to the accruals for aircraft charges and facility exit costs will occur
through 2017 and 2018, respectively.
Other
On September 22, 2001, President Bush signed into law the Air Transportation Safety and System
Stabilization Act (the Stabilization Act). The Stabilization Act provides that, notwithstanding
any other provision of law, liability for all claims, whether compensatory or punitive, arising
from the terrorist attacks of September 11, 2001 (the Terrorist Attacks), against any air carrier
shall not exceed the liability coverage maintained by the air carrier. Based upon estimates
provided by the Companys insurance providers, the Company recorded a liability of approximately
$2.3 billion for claims arising from the Terrorist Attacks, after considering the liability
protections provided for by the Stabilization Act. The balance, recorded in the accompanying
consolidated balance sheet, was $1.8 billion and $1.9 billion at December 31, 2006 and 2005,
respectively. The Company has also recorded a liability of approximately $397 million related to
flight 587, which crashed on November 12, 2001. The Company has recorded a receivable for all of
these amounts, which the Company expects to recover from its insurance carriers as claims are
resolved. These insurance receivables and liabilities are classified as Other assets and Other
liabilities and deferred credits, respectively, on the accompanying consolidated balance sheets,
and are based on reserves established by the Companys insurance carriers. These estimates may be
revised as additional information becomes available concerning the expected claims.
57
3. Investments
Short-term investments consisted of (in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
Overnight investments and time deposits |
|
$ |
29 |
|
|
$ |
210 |
|
Corporate and bank notes |
|
|
4,475 |
|
|
|
3,340 |
|
U. S. government agency mortgages |
|
|
7 |
|
|
|
74 |
|
U. S. government agency notes |
|
|
16 |
|
|
|
13 |
|
Other |
|
|
67 |
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
$ |
4,594 |
|
|
$ |
3,676 |
|
|
|
|
|
|
|
|
Short-term investments at December 31, 2006, by contractual maturity included (in millions):
|
|
|
|
|
Due in one year or less |
|
$ |
3,513 |
|
Due between one year and three years |
|
|
1,074 |
|
Due after three years |
|
|
7 |
|
|
|
|
|
|
|
|
$ |
4,594 |
|
|
|
|
|
All short-term investments are classified as available-for-sale and stated at fair value.
Unrealized gains and losses are reflected as a component of Accumulated other comprehensive loss.
In 2004, the Company sold its remaining interest in Orbitz, a travel planning website, resulting in
total proceeds of $185 million and a gain of $146 million, which is included in Miscellaneous-net
in the accompanying consolidated statement of operations.
58
4. Commitments, Contingencies and Guarantees
As of December 31, 2006, the Company had commitments to acquire an aggregate of 47 Boeing 737-800s
and seven Boeing 777-200ERs in 2013 through 2016. Future payments for all aircraft, including the
estimated amounts for price escalation, will be approximately $2.8 billion in 2011 through 2016.
American has granted Boeing a security interest in Americans purchase deposits with Boeing. These
purchase deposits totaled $177 million and $277 million at December 31, 2006 and 2005,
respectively.
The Company has contracts related to facility construction or improvement projects, primarily at
airport locations. The contractual obligations related to these projects totaled approximately $124
million as of December 31, 2006. The Company expects to make payments of $114 million and $8
million in 2007 and 2008, respectively. See Footnote 6 for information related to financing of JFK
construction costs which are included in these amounts. In addition, the Company has an
information technology support related contract that requires minimum annual payments of $152
million through 2013.
American has capacity purchase agreements with two regional airlines, Chautauqua Airlines, Inc.
(Chautauqua) and Trans States Airlines, Inc. (collectively the American Connection ® carriers) to
provide Embraer EMB-140/145 regional jet services to certain markets under the brand American
Connection. Under these arrangements, the Company pays the American Connection carriers a fee per
block hour to operate the aircraft. The block hour fees are designed to cover the American
Connection carriers fully allocated costs plus a margin. Assumptions for certain costs such as
fuel, landing fees, insurance, and aircraft ownership are trued up to actual values on a pass
through basis. In consideration for these payments, the Company retains all passenger and other
revenues resulting from the operation of the American Connection regional jets. Minimum payments
under the contracts are $97 million in 2007, $66 million in 2008 and $16 million in 2009. In
addition, if the Company terminates the Chautauqua contract without cause, Chautauqua has the right
to put its 15 Embraer aircraft to the Company. If this were to happen, the Company would take
possession of the aircraft and become liable for lease obligations totaling approximately $21
million per year with lease expirations in 2018 and 2019.
The Company is a party to many routine contracts in which it provides general indemnities in the
normal course of business to third parties for various risks. The Company is not able to estimate
the potential amount of any liability resulting from the indemnities. These indemnities are
discussed in the following paragraphs.
The Companys loan agreements and other London Interbank Offered Rate (LIBOR)-based financing
transactions (including certain leveraged aircraft leases) generally obligate the Company to
reimburse the applicable lender for incremental costs due to a change in law that imposes (i) any
reserve or special deposit requirement against assets of, deposits with, or credit extended by such
lender related to the loan, (ii) any tax, duty, or other charge with respect to the loan (except
standard income tax) or (iii) capital adequacy requirements. In addition, the Companys loan
agreements, derivative contracts and other financing arrangements typically contain a withholding
tax provision that requires the Company to pay additional amounts to the applicable lender or other
financing party, generally if withholding taxes are imposed on such lender or other financing party
as a result of a change in the applicable tax law.
These increased cost and withholding tax provisions continue for the entire term of the applicable
transaction, and there is no limitation on the maximum additional amounts the Company could be
obligated to pay under such provisions. Any failure to pay amounts due under such provisions
generally would trigger an event of default, and, in a secured financing transaction, would entitle
the lender to foreclose upon the collateral to realize the amount due.
59
4. Commitments, Contingencies and Guarantees (Continued)
In certain transactions, including certain aircraft financing leases and loans and derivative
transactions, the lessors, lenders and/or other parties have rights to terminate the transaction
based on changes in foreign tax law, illegality or certain other events or circumstances. In such
a case, the Company may be required to make a lump sum payment to terminate the relevant
transaction.
In its aircraft financing agreements, the Company generally indemnifies the financing parties,
trustees acting on their behalf and other relevant parties against liabilities (including certain
taxes) resulting from the financing, manufacture, design, ownership, operation and maintenance of
the aircraft regardless of whether these liabilities (or taxes) relate to the negligence of the
indemnified parties.
The Company has general indemnity clauses in many of its airport and other real estate leases where
the Company as lessee indemnifies the lessor (and related parties) against liabilities related to
the Companys use of the leased property. Generally, these indemnifications cover liabilities
resulting from the negligence of the indemnified parties, but not liabilities resulting from the
gross negligence or willful misconduct of the indemnified parties. In addition, the Company
provides environmental indemnities in many of these leases for contamination related to the
Companys use of the leased property.
Under certain contracts with third parties, the Company indemnifies the third party against legal
liability arising out of an action by the third party, or certain other parties. The terms of these
contracts vary and the potential exposure under these indemnities cannot be determined. Generally,
the Company has liability insurance protecting the Company for its obligations it has undertaken
under these indemnities.
AMR and American have event risk covenants in approximately $1.7 billion of indebtedness and
operating leases as of December 31, 2006. These covenants permit the holders of such obligations
to receive a higher rate of return (between 100 and 650 basis points above the stated rate) if a
designated event, as defined, should occur and the credit ratings of such obligations are
downgraded below certain levels within a certain period of time. No designated event, as defined,
had occurred as of December 31, 2006.
The Company is subject to environmental issues at various airport and non-airport locations for
which it has accrued $33 million and $40 million, which are included in Accrued liabilities on the
accompanying consolidated balance sheets, at December 31, 2006 and 2005, respectively. Management
believes, after considering a number of factors, that the ultimate disposition of these
environmental issues is not expected to materially affect the Companys consolidated financial
position, results of operations or cash flows. Amounts recorded for environmental issues are based
on the Companys current assessments of the ultimate outcome and, accordingly, could increase or
decrease as these assessments change.
The Company is involved in certain claims and litigation related to its operations. In the opinion
of management, liabilities, if any, arising from these claims and litigation will not have a
material adverse effect on the Companys consolidated financial position, results of operations, or
cash flows, after consideration of available insurance.
60
5. Leases
AMRs subsidiaries lease various types of equipment and property, primarily aircraft and airport
facilities. The future minimum lease payments required under capital leases, together with the
present value of such payments, and future minimum lease payments required under operating leases
that have initial or remaining non-cancelable lease terms in excess of one year as of December 31,
2006, were (in millions):
|
|
|
|
|
|
|
|
|
|
|
Capital |
|
|
Operating |
|
Year Ending December 31, |
|
Leases |
|
|
Leases |
|
|
|
|
|
|
|
|
|
|
2007 |
|
$ |
197 |
|
|
$ |
1,098 |
|
2008 |
|
|
236 |
|
|
|
1,032 |
|
2009 |
|
|
175 |
|
|
|
929 |
|
2010 |
|
|
140 |
|
|
|
860 |
|
2011 |
|
|
142 |
|
|
|
855 |
|
2012 and thereafter |
|
|
651 |
|
|
|
6,710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,541 |
|
|
$ |
11,484 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less amount representing interest |
|
|
614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of net minimum lease payments |
|
$ |
927 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As of December 31, 2006, included in Accrued liabilities and Other liabilities and
deferred credits on the accompanying consolidated balance sheet is approximately $1.4
billion relating to rent expense being recorded in advance of future operating lease
payments. |
At December 31, 2006, the Company was operating 210 jet aircraft and 21 turboprop aircraft
under operating leases and 89 jet aircraft and one turboprop aircraft under capital leases. The
aircraft leases can generally be renewed at rates based on fair market value at the end of the
lease term for one to five years. Some aircraft leases have purchase options at or near the end of
the lease term at fair market value, but generally not to exceed a stated percentage of the defined
lessors cost of the aircraft or a predetermined fixed amount.
Certain special facility revenue bonds have been issued by certain municipalities primarily to
improve airport facilities and purchase equipment. To the extent these transactions were committed
to prior to May 21, 1998 (the effective date of EITF 97-10, The Effect of Lessee Involvement in
Asset Construction) they are accounted for as operating leases under Financial Accounting
Standards Board Interpretation 23, Leases of Certain Property Owned by a Governmental Unit or
Authority. Approximately $1.8 billion of these bonds (with total future payments of approximately
$4.6 billion as of December 31, 2006) are guaranteed by American, AMR, or both. Approximately $495
million of these special facility revenue bonds contain mandatory tender provisions that require
American to make operating lease payments sufficient to repurchase the bonds at various times: $100
million in 2007, $218 million in 2008, $112 million in 2014 and $65 million in 2015. Although
American has the right to remarket the bonds, there can be no assurance that these bonds will be
successfully remarketed. Any payments to redeem or purchase bonds that are not remarketed would
generally reduce existing rent leveling accruals or be considered prepaid facility rentals and
would reduce future operating lease commitments. The special facility revenue bonds that contain
mandatory tender provisions are listed in the table above at their ultimate maturity date rather
than their mandatory tender provision date. Approximately $198 million of special facility revenue
bonds with mandatory tender provisions were successfully remarketed in 2005. They were acquired by
American in 2003 under a mandatory tender provision. Thus, the receipt by American of the proceeds
from the remarketing resulted in an increase to Other liabilities and deferred credits where the
tendered bonds had been classified pending their use to offset certain future operating lease
obligations.
61
5. Leases (Continued)
Rent expense, excluding landing fees, was $1.4 billion, $1.3 billion and $1.3 billion in 2006, 2005
and 2004, respectively.
American has determined that it holds a significant variable interest in, but is not the primary
beneficiary of, certain trusts that are the lessors under 84 of its aircraft operating leases.
These leases contain a fixed price purchase option, which allows American to purchase the aircraft
at a predetermined price on a specified date. However, American does not guarantee the residual
value of the aircraft. As of December 31, 2006, future lease payments required under these leases
totaled $2.3 billion.
6. Indebtedness
Long-term debt consisted of (in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
Secured variable and fixed rate indebtedness due through 2021
(effective rates from 5.41% 11.36% at December 31, 2006) |
|
$ |
6,000 |
|
|
$ |
6,473 |
|
Enhanced equipment trust certificates due through 2012
(rates from 3.86% 12.00% at December 31, 2006) |
|
|
2,968 |
|
|
|
3,424 |
|
6.0% 8.5% special facility revenue bonds due through 2036 |
|
|
1,697 |
|
|
|
1,697 |
|
Credit facility agreement due through 2010
(effective rate of 8.60% at December 31, 2006) |
|
|
740 |
|
|
|
788 |
|
4.25% 4.50% senior convertible notes due 2023 2024 |
|
|
619 |
|
|
|
619 |
|
9.0% 10.20% debentures due through 2021 |
|
|
213 |
|
|
|
320 |
|
7.88% 10.55% notes due through 2039 |
|
|
226 |
|
|
|
286 |
|
|
|
|
|
|
|
|
|
|
|
12,463 |
|
|
|
13,607 |
|
|
|
|
|
|
|
|
|
|
Less current maturities |
|
|
1,246 |
|
|
|
1,077 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current maturities |
|
$ |
11,217 |
|
|
$ |
12,530 |
|
|
|
|
|
|
|
|
Maturities of long-term debt (including sinking fund requirements) for the next five years are:
2007 $1.2 billion; 2008 $702 million; 2009 $1.6 billion; 2010 $1.4 billion; 2011 $2.2
billion.
In March 2006, American refinanced its bank credit facility. The credit facility consists of a
$295 million senior secured revolving credit facility and a $445 million term loan facility (the
Revolving Facility and the Term Loan Facility, respectively, and collectively, the Credit
Facility). Advances under either facility can be designated, at Americans election, as LIBOR rate
advances or base rate advances. Interest accrues at the LIBOR rate or base rate, as applicable,
plus, in either case, the applicable margin. The applicable margin with respect to the Revolving
Facility can range from 2.50 percent to 4.00 percent per annum, in the case of LIBOR advances, and
from 1.50 percent to 3.00 percent per annum, in the case of base rate advances, depending upon the
senior secured debt rating of the Credit Facility. Based on ratings as of December 31, 2006, the
applicable margin with respect to the Revolving Facility is 3.00 percent per annum in the case of
LIBOR advances, and 2.00 percent per annum in the case of base rate advances. The applicable
margin with respect to the Term Loan Facility is 3.25 percent per annum in the case of LIBOR
advances, and 2.25 percent per annum in the case of base rate advances. As of December 31, 2006,
the Credit Facility was fully drawn and had an effective interest rate of 8.60 percent. The
interest rate is reset at least every six months based on the current LIBOR rate election.
The Revolving Facility amortizes at a rate of $10 million quarterly through December 17, 2007 and
has a final maturity of June 17, 2009. Principal amounts repaid under the Revolving Facility may
be re-borrowed, up to the then-available aggregate amount of the commitments.
62
6. Indebtedness (Continued)
The Term Loan Facility matures on December 17, 2010 and amortizes quarterly at a rate of $1
million. Principal amounts repaid under the Term Loan Facility may not be re-borrowed.
The Credit Facility is secured by certain aircraft. The Credit Facility includes a covenant that
requires periodic appraisal of the aircraft at current market value and requires American to pledge
more aircraft or cash collateral if the loan amount is more than 50 percent of the appraised value
(after giving effect to sublimits for specified categories of aircraft). In addition, the Credit
Facility is secured by all of Americans existing route authorities between the United States and
Tokyo, Japan, together with certain slots, gates and facilities that support the operation of such
routes. Americans obligations under the Credit Facility are guaranteed by AMR, and AMRs guaranty
is secured by a pledge of all the outstanding shares of common stock of American.
The Credit Facility contains a covenant (the Liquidity Covenant) requiring American to maintain, as
defined, unrestricted cash, unencumbered short term investments and amounts available for drawing
under committed revolving credit facilities which have a final maturity of at least 12 months after
the date of determination, of not less than $1.25 billion for each quarterly period through the
remaining life of the Credit Facility.
In addition, the Credit Facility contains a covenant (the EBITDAR Covenant) requiring AMR to
maintain a ratio of cash flow (defined as consolidated net income, before interest expense (less
capitalized interest), income taxes, depreciation and amortization and rentals, adjusted for
certain gains or losses and non-cash items) to fixed charges (comprising interest expense (less
capitalized interest) and rentals) of at least the amount specified below for each period of four
consecutive quarters ending on the dates set forth below:
|
|
|
|
|
Four Quarter Period Ending |
|
Cash Flow Coverage Ratio |
March 31, 2007 |
|
|
1.30:1.00 |
|
June 30, 2007 |
|
|
1.30:1.00 |
|
September 30, 2007 |
|
|
1.35:1.00 |
|
December 31, 2007 |
|
|
1.40:1.00 |
|
March 31, 2008 |
|
|
1.40:1.00 |
|
June 30, 2008 |
|
|
1.40:1.00 |
|
September 30, 2008 |
|
|
1.40:1.00 |
|
December 31, 2008 |
|
|
1.40:1.00 |
|
March 31, 2009 |
|
|
1.40:1.00 |
|
June 30, 2009 (and each fiscal quarter thereafter) |
|
|
1.50:1.00 |
|
AMR and American were in compliance with the Liquidity Covenant and the EBITDAR Covenant at
December 31, 2006 and expect to be able to comply with these covenants. However, given fuel prices
that are high by historical standards and the volatility of fuel prices and revenues, it is
difficult to assess whether AMR and American will, in fact, be able to continue to comply with the
Liquidity Covenant and, in particular, the EBITDAR Covenant, and there are no assurances that they
will be able to do so. Failure to comply with these covenants would result in a default under the
Credit Facility which if the Company did not take steps to obtain a waiver of, or otherwise
mitigate, the default could result in a default under a significant amount of the Companys
other debt and lease obligations and have a material adverse impact on the Company.
In September 2005, American sold and leased back 89 spare engines with a book value of $105 million
to a variable interest entity (VIE). The net proceeds received from third parties were $133
million. American is considered the primary beneficiary of the activities of the VIE as American
has substantially all of the residual value risk associated with the transaction. As such,
American is required to consolidate the VIE in its financial statements. At December 31, 2006, the
book value of the engines was $94 million and was included in Flight equipment on the consolidated
balance sheet. The engines serve as collateral for the VIEs long-term debt of $123 million at
December 31, 2006, which has also been included in the consolidated balance sheet. The VIE has no
other significant operations.
63
6. Indebtedness (Continued)
In November 2005, the New York City Industrial Development Agency issued facilities sublease
revenue bonds for John F. Kennedy International Airport to provide reimbursement to American for
certain facility construction and other related costs. The Company recorded the issuance of $775
million (net of $25 million discount) as long-term debt on the consolidated balance sheet as of
December 31, 2005. The bonds bear interest at fixed rates, with an average effective rate of 8.06
percent, and mature over various periods of time, with a final maturity in 2031. Proceeds from the
offering are to be used to reimburse past and future costs associated with the Companys terminal
construction project at JFK. As of December 31, 2006, the Company had received approximately $645
million of the proceeds as reimbursements of certain facility construction and other related costs.
The remaining $139 million of bond issuance proceeds are classified as Other assets on the
consolidated balance sheet, of which $60 million are held by the trustee for reimbursement of
construction costs and will be available to the Company in the future, and $79 million are held in
a debt service reserve fund.
During the year ended December 31, 2005, AMR Eagle borrowed approximately $319 million, net of
discount, under various debt agreements related to the purchase of regional jet aircraft. These
debt agreements are secured by the related aircraft, have effective interest rates ranging from
5.00 percent to 5.13 percent, are guaranteed by AMR and mature over various periods of time through
2021.
In 2004, the Company issued $324 million principal amount of its 4.50 percent senior convertible
notes due 2024 (the 4.50 Notes) and in 2003 the Company issued $300 million principal amount of its
4.25 percent senior convertible notes due 2023 (the 4.25 Notes). Each note is convertible into AMR
common stock at a conversion rate of 45.3515 shares for the 4.50 Notes and 57.61 shares for the
4.25 Notes, per $1,000 principal amount of notes (which represents an equivalent conversion price
of $22.05 per share for the 4.50 Notes and $17.36 per share for the 4.25 Notes), subject to
adjustment in certain circumstances. These notes are guaranteed by American. The 4.25 and 4.50
notes have become convertible into shares of AMR common stock, and as a result the holders may
convert their notes at anytime prior to maturity. The conversion, if it occurs, may be settled by
the Company in cash, common stock or a combination of cash and common stock. After February 15,
2009 and September 23, 2008, the Company may call all or any portion of the 4.50 Notes and 4.25
Notes, respectively, for redemption. In such case, holders may elect to convert the notes into
shares of AMR common stock, in which cash settlement will occur as described above.
Certain debt is secured by aircraft, engines, equipment and other assets having a net book value of
approximately $13.1 billion as of December 31, 2006.
As of December 31, 2006, AMR has issued guarantees covering approximately $1.7 billion of
Americans tax-exempt bond debt and American has issued guarantees covering approximately $1.1
billion of AMRs unsecured debt. In addition, as of December 31, 2006, AMR and American have
issued guarantees covering approximately $388 million of AMR Eagles secured debt, and AMR has
issued guarantees covering an additional $2.6 billion of AMR Eagles secured debt.
Cash payments for interest, net of capitalized interest, were $944 million, $828 million and $729
million for 2006, 2005 and 2004, respectively.
64
7. Financial Instruments and Risk Management
As part of the Companys risk management program, AMR uses a variety of financial instruments,
primarily fuel option and collar contracts. The Company does not hold or issue derivative
financial instruments for trading purposes.
The Company is exposed to credit losses in the event of non-performance by counterparties to these
financial instruments, but it does not expect any of the counterparties to fail to meet its
obligations. The credit exposure related to these financial instruments is represented by the fair
value of contracts with a positive fair value at the reporting date, reduced by the effects of
master netting agreements. To manage credit risks, the Company selects counterparties based on
credit ratings, limits its exposure to a single counterparty under defined guidelines, and monitors
the market position of the program and its relative market position with each counterparty. The
Company also maintains industry-standard security agreements with a number of its counterparties
which may require the Company or the counterparty to post collateral if the value of selected
instruments exceed specified mark-to-market thresholds or upon certain changes in credit ratings.
The Companys outstanding posted collateral as of December 31, 2006 is included in restricted cash
and short-term investments and is not material. A deterioration of the Companys liquidity position
may negatively affect the Companys ability to hedge fuel in the future.
Fuel Price Risk Management
American enters into jet fuel, heating oil and crude oil hedging contracts to dampen the impact of
the volatility in jet fuel prices. These instruments generally have maturities of up to 24 months.
The Company accounts for its fuel derivative contracts as cash flow hedges and records the fair
value of its fuel hedging contracts in Other current assets and Accumulated other comprehensive
loss on the accompanying consolidated balance sheets. The Company determines the ineffective
portion of its fuel hedge contracts by comparing the cumulative change in the total value of the
fuel hedge contract, or group of fuel hedge contracts, to the cumulative change in a hypothetical
jet fuel hedge. If the total cumulative change in value of the fuel hedge contract more than
offsets the total cumulative change in a hypothetical jet fuel hedge, the difference is considered
ineffective and is immediately recognized as a component of Aircraft fuel expense. Effective gains
or losses on fuel hedging contracts are deferred in Accumulated other comprehensive loss and are
recognized in earnings as a component of Aircraft fuel expense when the underlying jet fuel being
hedged is used.
Ineffectiveness is inherent in hedging jet fuel with derivative positions based in crude oil or
other crude oil related commodities. As required by Statement of Financial Accounting Standard No.
133, Accounting for Derivative Instruments and Hedging Activities, the Company assesses, both at
the inception of each hedge and on an on-going basis, whether the derivatives that are used in its
hedging transactions are highly effective in offsetting changes in cash flows of the hedged items.
In doing so, the Company uses a regression model to determine the correlation of the change in
prices of the commodities used to hedge jet fuel (e.g. WTI Crude oil and NYMEX Heating oil) to the
change in the price of jet fuel. The Company also monitors the actual dollar offset of the hedges
market values as compared to hypothetical jet fuel hedges. The fuel hedge contracts are generally
deemed to be highly effective if the R-squared is greater than 80 percent and the dollar offset
correlation is within 80 percent to 125 percent. The Company discontinues hedge accounting
prospectively if it determines that a derivative is no longer expected to be highly effective as a
hedge or if it decides to discontinue the hedging relationship. During 2006, the Company
determined that certain of its derivatives settling during the remainder of 2006 and in 2007 were
no longer expected to be highly effective in offsetting changes in forecasted jet fuel purchased.
As a result of the ineffectiveness assessment on these derivatives, changes in market value were
recognized directly in earnings, while previously deferred gains in Other comprehensive loss were
deferred and recognized as a component of fuel expense when the originally hedged jet fuel was used
in operations. All of these derivatives settling after December 31, 2006, were re-designated as
hedges on October 26, 2006. Hedge accounting continues to be applied to derivatives used to hedge
forecasted jet fuel purchases that are expected to remain highly effective.
65
7. Financial Instruments and Risk Management (Continued)
For the years ended December 31, 2006, 2005 and 2004, the Company recognized net gains of
approximately $97 million, $64 million and $99 million, respectively, as a component of fuel
expense on the accompanying consolidated statements of operations related to its fuel hedging
agreements. In addition, in 2006, the Company recognized a loss of $102 million in Miscellaneous
net for changes in market value of hedges that did not qualify for hedge accounting during
certain periods in 2006. The fair value of the Companys fuel hedging agreements at December 31,
2006 and 2005, representing the amount the Company would receive to terminate the agreements,
totaled $23 million and $122 million, respectively.
Foreign Exchange Risk Management
The Company has entered into Japanese yen currency exchange agreements to hedge certain yen-based
capital lease obligations (effectively converting these obligations into dollar-based obligations).
The Company accounts for its Japanese yen currency exchange agreements as cash flow hedges whereby
the fair value of the related Japanese yen currency exchange agreements is reflected in Other
liabilities and deferred credits and Accumulated other comprehensive loss on the accompanying
consolidated balance sheets. The Company has no ineffectiveness with regard to its Japanese yen
currency exchange agreements. The fair values of the Companys yen currency exchange agreements,
representing the amount the Company would pay to terminate the agreements, were $35 million and $39
million as of December 31, 2006 and 2005, respectively. The exchange rates on the Japanese yen
agreements range from 75.05 to 99.65 yen per U.S. dollar. The actual exchange rate was 119.07 and
117.75 yen per U.S. dollar at December 31, 2006 and 2005, respectively.
Fair Values of Financial Instruments
The fair values of the Companys long-term debt were estimated using quoted market prices where
available. For long-term debt not actively traded, fair values were estimated using discounted
cash flow analyses, based on the Companys current incremental borrowing rates for similar types of
borrowing arrangements. The carrying amounts and estimated fair values of the Companys long-term
debt, including current maturities, were (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
Fair |
|
|
|
|
|
|
Fair |
|
|
|
Carrying Value |
|
|
Value |
|
|
Carrying Value |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured variable and
fixed rate indebtedness |
|
$ |
6,000 |
|
|
$ |
5,574 |
|
|
$ |
6,473 |
|
|
$ |
5,761 |
|
Enhanced equipment trust
certificates |
|
|
2,968 |
|
|
|
3,068 |
|
|
|
3,424 |
|
|
|
3,414 |
|
6.0% - 8.5% special
facility revenue bonds |
|
|
1,697 |
|
|
|
1,978 |
|
|
|
1,697 |
|
|
|
1,673 |
|
Credit facility agreement |
|
|
740 |
|
|
|
743 |
|
|
|
788 |
|
|
|
791 |
|
4.25% - 4.50 % senior
convertible notes |
|
|
619 |
|
|
|
1,037 |
|
|
|
619 |
|
|
|
800 |
|
9.0% - 10.20% debentures |
|
|
213 |
|
|
|
222 |
|
|
|
320 |
|
|
|
271 |
|
7.88% - 10.55% notes |
|
|
226 |
|
|
|
220 |
|
|
|
286 |
|
|
|
206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
12,463 |
|
|
$ |
12,842 |
|
|
$ |
13,607 |
|
|
$ |
12,916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
8. Income Taxes
The income tax benefit differed from amounts computed at the statutory federal income tax rate as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory income tax provision (benefit) |
|
$ |
81 |
|
|
$ |
(301 |
) |
|
$ |
(266 |
) |
State income tax expense/(benefit),
net of federal tax effect |
|
|
15 |
|
|
|
(8 |
) |
|
|
(14 |
) |
Meal expense |
|
|
7 |
|
|
|
9 |
|
|
|
9 |
|
Expiration of foreign tax credits |
|
|
|
|
|
|
|
|
|
|
|
|
Change in valuation allowance |
|
|
(124 |
) |
|
|
298 |
|
|
|
255 |
|
Other, net |
|
|
21 |
|
|
|
2 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
The change in valuation allowance in 2006, 2005 and 2004 related primarily to net operating loss
carryforwards, an unrealized benefit related to the implementation of SFAS 123(R) and the
resolution of certain tax contingencies.
The recording of other comprehensive income items, primarily the pension liability, resulted in
changes to the deferred tax asset and the related valuation allowance. The total increase
(decrease) in the valuation allowance was $(18) million, $506 million and $170 million in 2006,
2005 and 2004, respectively.
The Company provides a valuation allowance for deferred tax assets when it is more likely than not
that some portion, or all of its deferred tax assets, will not be realized. In assessing the
realizability of the deferred tax assets, management considers whether it is more likely than not
that some portion, or all of the deferred tax assets, will be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable income (including reversals
of deferred tax liabilities) during the periods in which those temporary differences will become
deductible.
67
8. Income Taxes (Continued)
The components of AMRs deferred tax assets and liabilities were (in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Postretirement benefits other than pensions |
|
$ |
988 |
|
|
$ |
1,113 |
|
Rent expense |
|
|
539 |
|
|
|
594 |
|
Alternative minimum tax credit carryforwards |
|
|
413 |
|
|
|
418 |
|
Operating loss carryforwards |
|
|
2,695 |
|
|
|
2,504 |
|
Pensions |
|
|
661 |
|
|
|
727 |
|
Frequent flyer obligation |
|
|
322 |
|
|
|
304 |
|
Gains from lease transactions |
|
|
135 |
|
|
|
158 |
|
Other |
|
|
833 |
|
|
|
698 |
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
6,586 |
|
|
|
6,516 |
|
Valuation allowance |
|
|
(1,321 |
) |
|
|
(1,339 |
) |
|
|
|
|
|
|
|
Net deferred tax assets |
|
|
5,265 |
|
|
|
5,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Accelerated depreciation and amortization |
|
|
(4,939 |
) |
|
|
(4,783 |
) |
Other |
|
|
(326 |
) |
|
|
(394 |
) |
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
(5,265 |
) |
|
|
(5,177 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
At December 31, 2006, the Company had available for federal income tax purposes an alternative
minimum tax credit carryforward of approximately $413 million, which is available for an indefinite
period, and federal net operating losses of approximately $7.5 billion for regular tax purposes,
which will expire, if unused, beginning in 2022. These net operating losses include an unrecorded
benefit of approximately $420 million related to the implementation of SFAS 123(R) that will be
recorded in equity when realized. The Company had available for state income tax purposes net
operating losses of $4.2 billion, which expire, if unused, in years 2007 through 2025. The amount
that will expire in 2007 is $148 million.
Cash payments for income taxes were $1 million, $7 million and $3 million for 2006, 2005 and 2004,
respectively.
68
9. Share Based Compensation
AMR grants stock compensation under three plans: the Pilots Stock Option Plan (the Pilot Plan), the
1998 Long Term Incentive Plan, and the 2003 Employee Stock Incentive Plan (the 2003 Plan). The
Company established the Pilot Plan in 1997 to grant members of the APA AMR stock options in
conjunction with a prior contract negotiation.
Under the 1998 Long Term Incentive Plan, as amended, officers and key employees of AMR and its
subsidiaries may be granted certain types of stock or performance based awards. At December 31,
2006, the Company had stock option/SSAR awards, performance share awards, deferred share awards and
other awards outstanding under this plan. The total number of common shares authorized for
distribution under the 1998 Long Term Incentive Plan is 23,700,000 shares. The 1998 Long Term
Incentive Plan, the successor to the 1988 Long Term Incentive Plan (collectively, the LTIP Plans),
will terminate no later than May 21, 2008.
In 2003, the Company established the 2003 Plan to provide equity awards to employees. Under the
2003 Plan, employees may be granted stock options/SSARs, restricted stock and deferred stock. At
December 31, 2006, the Company had stock options/SSARs and deferred awards outstanding under the
2003 Plan. The total number of shares authorized for distribution under the 2003 Plan is
42,680,000 shares.
In 2006, 2005 and 2004, the total charge for share-based compensation expense included in wages,
salaries and benefits expense was $219 million, $132 million and $21 million, respectively. In
2006, 2005 and 2004, the amount of cash used to settle equity instruments granted under share-based
compensation plans was $29 million, $6 million and $7 million, respectively.
Prior to January 1, 2006, the Company accounted for its share-based compensation plans in
accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25) and related Interpretations. Under APB 25, no compensation expense was
recognized for stock option grants if the exercise price of the Companys stock option grants was
at or above the fair market value of the underlying stock on the date of grant. Effective January
1, 2006, the Company adopted the fair value recognition provisions of Statement of Financial
Accounting Standards No. 123(R), Share-Based Payment (SFAS 123(R)) using the modified-prospective
transition method. Under this transition method, compensation cost recognized in 2006 includes:
(a) compensation cost for all share-based payments granted prior to, but not yet vested as of
January 1, 2006, based on the fair value used for pro forma disclosures and (b) compensation cost
for all share-based payments granted subsequent to January 1, 2006, based on the fair value
estimated in accordance with the provisions of SFAS 123(R). Results for prior periods have not
been restated. The adoption of SFAS 123(R) did not have a significant impact on the Companys net
income or basic and diluted amounts per share in 2006.
Prior to January 1, 2006, the Company had adopted the pro forma disclosure features of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123), as
amended by Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure. The following table illustrates the effect on net
earnings (loss) and earnings (loss) per share amounts if the Company had applied the fair value
recognition provisions of SFAS 123 to stock-based employee compensation (in millions, except per
share amounts):
69
9. Share Based Compensation (Continued)
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
Net earnings (loss), as reported |
|
$ |
(857 |
) |
|
$ |
(751 |
) |
Add: Stock-based employee
compensation expense included
in reported net earnings (loss) |
|
|
132 |
|
|
|
21 |
|
Deduct: Total stock-based
employee compensation expense
determined under fair value
based methods for all awards |
|
|
(174 |
) |
|
|
(85 |
) |
|
|
|
|
|
|
|
Pro forma net earnings (loss) |
|
$ |
(899 |
) |
|
$ |
(815 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share: |
|
|
|
|
|
|
|
|
Basic and diluted as reported |
|
$ |
(5.18 |
) |
|
$ |
(4.68 |
) |
Basic and diluted pro forma |
|
$ |
(5.44 |
) |
|
$ |
(5.07 |
) |
Stock Options/SSARs
During 2006, the AMR Board of Directors approved an amendment covering all of the outstanding stock
options previously granted under the LTIP Plans. The Amendment added to each of the outstanding
options an additional stock settled stock appreciation right (SSAR) in tandem with each of the then
outstanding stock options. The addition of the SSAR did not impact the fair value of the stock
options, but simply allowed the Company to settle the exercise of the option by issuing the net
number of shares equal to the in-the-money value of the option. This amendment is estimated to
make available enough shares to permit the Company to settle all outstanding performance and
deferred share awards in stock rather than cash.
Options/SSARs granted under the LTIP Plans and the 2003 Plan are awarded with an exercise price
equal to the fair market value of the stock on date of grant, become exercisable in equal annual
installments over periods ranging from two to five years and expire no later than ten years from
the date of grant. Expense for the options is recognized on a straight-line basis. The fair value
of each award is estimated on the date of grant using the modified Black-Scholes option valuation
model and the assumptions noted in the following table. Expected volatilities are based on implied
volatilities from traded options on the Companys stock, historical volatility of the Companys
stock, and other factors. The Company uses historical employee exercise data to estimate the
expected term of awards granted used in the valuation model. The risk-free rate is based on the
U.S. Treasury yield curve in effect at the time of grant. The dividend yield is assumed to be zero
based on the Companys history and expectation of not paying dividends.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility |
|
52.5% to 55.0% |
|
|
55.0 |
% |
|
|
55.0 |
% |
Expected term (in years) |
|
|
4.0 |
|
|
|
4.0 |
|
|
|
4.0 to 4.5 |
|
Risk-free rate |
|
4.35% to 5.07% |
|
3.71% to 3.98% |
|
2.79% to 3.69% |
Annual forfeiture rate |
|
|
10.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
70
9. Share Based Compensation (Continued)
A summary of stock option/SSARs activity under the LTIP Plans, the 2003 Plan and the Pilot Plan as
of December 31, 2006, and changes during the year then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTIP Plans |
|
|
The Pilot Plan and the 2003 Plan |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Exercise |
|
|
|
|
|
|
Price |
|
|
|
Options/SSARs |
|
|
Price |
|
|
Options |
|
|
Exercise |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1 |
|
|
19,279,192 |
|
|
$ |
25.70 |
|
|
|
39,773,837 |
|
|
$ |
8.35 |
|
Granted |
|
|
796,250 |
|
|
|
23.68 |
|
|
|
18,830 |
|
|
|
19.49 |
|
Exercised |
|
|
(4,053,551 |
) |
|
|
20.57 |
|
|
|
(18,061,415 |
) |
|
|
8.93 |
|
Forfeited or Expired |
|
|
(419,563 |
) |
|
|
22.03 |
|
|
|
(171,818 |
) |
|
|
6.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December
31 |
|
|
15,602,328 |
|
|
$ |
27.03 |
|
|
|
21,559,434 |
|
|
$ |
7.89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December
31 |
|
|
13,194,458 |
|
|
$ |
28.71 |
|
|
|
20,015,199 |
|
|
$ |
7.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
Remaining Contractual
Term of Options
Outstanding (in years) |
|
|
4.1 |
|
|
|
|
|
|
|
5.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Intrinsic
Value of Options
Outstanding |
|
$ |
49,943,248 |
|
|
|
|
|
|
$ |
481,669,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value of all vested options/SSARs is $472 million and those options have an
average remaining contractual life of 4.5 years. The weighted-average grant date fair value of
options/SSARs granted during 2006, 2005 and 2004 was $10.93, $6.28 and $4.23, respectively. The
total intrinsic value of options/SSARs exercised during 2006, 2005 and 2004 was $350 million, $75
million and $7 million, respectively.
A summary of the status of the Companys non-vested options/SSARs under all plans as of December
31, 2006, and changes during the year ended December 31, 2006, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Grant Date Fair |
|
|
|
Options/SSARs |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1 |
|
|
16,838,541 |
|
|
$ |
3.55 |
|
Granted |
|
|
815,080 |
|
|
|
10.90 |
|
Vested |
|
|
(13,396,444 |
) |
|
|
2.96 |
|
Forfeited |
|
|
(305,072 |
) |
|
|
4.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December
31 |
|
|
3,952,105 |
|
|
$ |
6.98 |
|
|
|
|
|
|
|
|
As of December 31, 2006, there was $17 million of total unrecognized compensation cost related to
non-vested stock options/SSARs granted under the LTIP Plans, the 2003 Plan and the Pilot Plan that
is expected to be recognized over a weighted-average period of 2.7 years. The total fair value of
stock options/SSARs vested during the years ended December 31, 2006, 2005 and 2004, was $25 million, $42 million and $64
million, respectively.
71
9. Share Based Compensation (Continued)
Cash received from exercise of stock options/SSARs for the years ended December 31, 2006, 2005 and
2004, was $230 million, $56 million and $7 million, respectively. No tax benefit was realized as a
result of stock options/SSARs exercised in 2006 due to the tax valuation allowance discussed in
Note 8.
Performance Share Awards
During 2006 and in early January 2007, the AMR Board of Directors approved the amendment and
restatement of all of the outstanding performance share plans, the related performance share
agreements and deferred share agreements that required settlement in cash (collectively, the
Amended Plans). The plans were amended to permit settlement in a combination of cash and/or stock;
however, the amendments did not impact the fair value of the awards under the Amended Plans. As a
result of these actions, any amounts accrued as liabilities at the time of conversion or at the
time it became probable that sufficient shares would be available to settle the Amended Plans were
reclassified from accrued liabilities to Additional paid-in capital. Accordingly, these awards are
now accounted for as market condition awards in accordance with SFAS 123(R).
Performance share awards are granted under the LTIP Plans, generally vest pursuant to a three year
measurement period and are settled on the vesting date. The number of awards ultimately issued
under performance share awards is contingent on AMRs relative stock price performance compared to
certain of its competitors over a three year period and can range from zero to 175 percent of the
awards granted. The fair value of performance awards is calculated using a Monte Carlo valuation
model that estimates the probability of the potential payouts using the historical volatility of
AMRs stock and the stock of other comparative carriers.
Activity during 2006 for performance awards accounted for as equity awards was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
|
|
|
|
Remaining |
|
|
Aggregate Intrinsic |
|
|
|
Awards |
|
|
Contractual Term |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1 |
|
|
|
|
|
|
|
|
|
|
|
|
Reclassified from liability
awards |
|
|
5,804,705 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
7,094 |
|
|
|
|
|
|
|
|
|
Settled |
|
|
(1,529,841 |
) |
|
|
|
|
|
|
|
|
Forfeited or Expired |
|
|
(86,369 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31 |
|
|
4,195,589 |
|
|
|
1.0 |
|
|
$ |
202,441,788 |
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value represents the Companys current estimate of the number of shares
(6,696,719 shares at December 31, 2006) that will ultimately be distributed for outstanding awards
computed using the market value of the Companys common stock at December 31, 2006. The
weighted-average grant date fair value per share of performance share awards granted during 2006
and 2004 was $25.01 and $26.54, respectively. Performance share awards granted in 2005 were
accounted for as a liability at December 31, 2006 and are included in the other awards section.
The total fair value of equity awards settled during the year ended December 31, 2006 was $66
million. As of December 31, 2006, there was $31 million of total unrecognized compensation cost
related to performance share awards that is expected to be recognized over a period of 2.3 years. |
The aggregate intrinsic value represents the Companys current estimate of the number of shares (6,696,719 shares at December 31, 2006) that will ultimately be distributed for
outstanding awards computed using the market value of the Companys common stock at December 31, 2006. The weighted-average grant date fair value per share of performance share awards granted during 2006 and 2004 was $25.01 and $26.54,
respectively. Performance share awards granted in 2005 were accounted for as a liability at December 31, 2006 and are included in the other awards section. The total fair value of equity awards settled during the year ended December 31, 2006 was
$66 million. As of December 31, 2006, there was $31 million of total unrecognized compensation cost related to performance share awards that is expected to be recognized over a period of 2.3 years.
72
9. Share Based Compensation (Continued)
Deferred Awards
The distribution of deferred share awards granted under the LTIP Plans is based solely on a
requisite service period (generally 36 months). Career equity awards granted to certain employees
of the Company vest upon the retirement of those individuals. The fair value of each deferred
award is based on AMRs stock price on the measurement date.
Activity during 2006 for deferred awards accounted for as equity awards was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
|
|
|
|
Remaining |
|
|
Aggregate Intrinsic |
|
|
|
Shares |
|
|
Contractual Term |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1 |
|
|
2,324,561 |
|
|
|
|
|
|
|
|
|
Reclassified from liability
awards |
|
|
1,262,382 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
92,600 |
|
|
|
|
|
|
|
|
|
Settled |
|
|
(132,922 |
) |
|
|
|
|
|
|
|
|
Forfeited or Expired |
|
|
(70,582 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31 |
|
|
3,476,039 |
|
|
|
5.4 |
|
|
$ |
105,080,658 |
|
|
|
|
|
|
|
|
|
|
|
The weighted-average grant date fair value per share of deferred awards granted during 2006, 2005
and 2004 was $24.93, $13.67 and $25.07, respectively. The total fair value of awards settled
during the years ended December 31, 2006, 2005 and 2004 was $4 million, $1 million and $3 million,
respectively. As of December 31, 2006, there was $27 million of total unrecognized compensation
cost related to deferred awards that is expected to be recognized over a weighted average period of
5.1 years.
Other Awards
As of December 31, 2006, certain performance share agreements and deferred share award agreements
were accounted for as a liability in the consolidated balance sheet as the plans only permit
settlement in cash or the awards required that the employee meet certain performance conditions
which were not subject to market measurement. As a result, FAS 123(R) required awards under these
agreements to be marked to current market value. As of December 31, 2006, the aggregate intrinsic
value of these awards was $183 million and the weighted average remaining contractual term of these
awards was 1.3 years. The total fair value of awards settled during the years ended December 31,
2006, 2005 and 2004 was $29 million, $7 million and $9 million, respectively. As of December 31,
2006, there was $76 million of total unrecognized compensation cost related to other awards that is
expected to be recognized over a weighted average period of 1.2 years.
On January 16, 2007, the AMR Board of Directors approved the amendment and restatement of two of
these plans as described above to permit settlement in a combination of cash and/or stock, and as a
result awards under these plans will be accounted for as equity awards in accordance with SFAS
123(R).
73
10. Retirement Benefits
All employees of the Company may participate in pension plans if they meet the plans eligibility
requirements. The defined benefit plans provide benefits for participating employees based on
years of service and average compensation for a specified period of time before retirement. The
Company uses a December 31 measurement date for all of its defined benefit plans. Americans pilots
also participate in a defined contribution plan for which Company contributions are determined as a
percentage (11 percent) of participant compensation. Certain non-contract employees (including all
new non-contract employees) participate in a defined contribution plan in which the Company will
match the employees before-tax contribution on a dollar-for-dollar basis, up to 5.5 percent of
their pensionable pay.
In addition to pension benefits, other postretirement benefits, including certain health care and
life insurance benefits (which provide secondary coverage to Medicare), are provided to retired
employees. The amount of health care benefits is limited to lifetime maximums as outlined in the
plan. Substantially all regular employees of American and employees of certain other subsidiaries
may become eligible for these benefits if they satisfy eligibility requirements during their
working lives.
Certain employee groups make contributions toward funding a portion of their retiree health care
benefits during their working lives. The Company funds benefits as incurred and makes
contributions to match employee prefunding.
On December 31, 2006, the Company adopted the recognition and disclosure provisions of SFAS 158.
SFAS 158 required the Company to recognize the funded status (i.e., the difference between the fair
value of plan assets and the projected benefit obligations) of its pension plans in the
consolidated balance sheet as of December 31, 2006 with a corresponding adjustment to accumulated
other comprehensive loss. The adjustment to accumulated other comprehensive loss at adoption
primarily represents the net unrecognized actuarial losses and unrecognized prior service costs.
These amounts will be subsequently recognized as net periodic pension cost pursuant to the
Companys historical accounting policy of amortizing such amounts. Further, actuarial gains and
losses that arise in subsequent periods and are not recognized as net periodic pension cost in the
same periods will be recognized as a component of other comprehensive income. Those amounts will
be subsequently recognized as a component of net periodic pension cost on the same basis as the
amounts recognized in accumulated other comprehensive loss at adoption of SFAS 158.
The incremental effects of adopting the provisions of SFAS 158 on the Companys consolidated
balance sheet at December 31, 2006 are presented in the following table. The adoption of SFAS 158
had no effect on the Companys consolidated statement of operations for the year ended December 31,
2006, or for any prior period presented, and it will not affect the Companys operating results in
future periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to adopting |
|
Effect of adopting |
|
As Reported at |
|
|
SFAS 158 |
|
SFAS 158 |
|
December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible asset (pension) |
|
$ |
118 |
|
|
$ |
(118 |
) |
|
$ |
|
|
Accrued pension and postretirement
benefits liability |
|
|
4,657 |
|
|
|
880 |
|
|
|
5,537 |
|
Total liabilities |
|
|
28,871 |
|
|
|
880 |
|
|
|
29,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss |
|
|
(458 |
) |
|
|
(998 |
) |
|
|
(1,456 |
) |
Total stockholders equity (deficit) |
|
|
392 |
|
|
|
(998 |
) |
|
|
(606 |
) |
74
10. Retirement Benefits (Continued)
The following table provides a reconciliation of the changes in the pension and other benefit
obligations and fair value of assets for the years ended December 31, 2006 and 2005, and a
statement of funded status as of December 31, 2006 and 2005 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
Other Benefits |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of benefit obligation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligation at January 1 |
|
$ |
11,003 |
|
|
$ |
10,022 |
|
|
$ |
3,384 |
|
|
$ |
3,303 |
|
Service cost |
|
|
399 |
|
|
|
372 |
|
|
|
78 |
|
|
|
75 |
|
Interest cost |
|
|
641 |
|
|
|
611 |
|
|
|
194 |
|
|
|
197 |
|
Actuarial (gain) loss |
|
|
(390 |
) |
|
|
649 |
|
|
|
(212 |
) |
|
|
(12 |
) |
Plan amendments |
|
|
|
|
|
|
|
|
|
|
(27 |
) |
|
|
|
|
Benefit payments |
|
|
(605 |
) |
|
|
(651 |
) |
|
|
(161 |
) |
|
|
(179 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligation at December 31 |
|
$ |
11,048 |
|
|
$ |
11,003 |
|
|
$ |
3,256 |
|
|
$ |
3,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of fair value of plan assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at January 1 |
|
$ |
7,778 |
|
|
$ |
7,335 |
|
|
$ |
161 |
|
|
$ |
151 |
|
Actual return on plan assets |
|
|
1,063 |
|
|
|
779 |
|
|
|
31 |
|
|
|
11 |
|
Employer contributions |
|
|
329 |
|
|
|
315 |
|
|
|
171 |
|
|
|
178 |
|
Benefit payments |
|
|
(605 |
) |
|
|
(651 |
) |
|
|
(161 |
) |
|
|
(179 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at December 31 |
|
$ |
8,565 |
|
|
$ |
7,778 |
|
|
$ |
202 |
|
|
$ |
161 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at December 31 |
|
$ |
(2,483 |
) |
|
$ |
(3,225 |
) |
|
$ |
(3,054 |
) |
|
$ |
(3,223 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the
consolidated balance sheets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liability |
|
$ |
8 |
|
|
$ |
251 |
|
|
$ |
187 |
|
|
$ |
|
|
Noncurrent liability |
|
|
2,475 |
|
|
|
2,012 |
|
|
|
2,867 |
|
|
|
2,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,483 |
|
|
$ |
2,263 |
|
|
$ |
3,054 |
|
|
$ |
2,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in
other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss (gain) |
|
$ |
1,310 |
|
|
$ |
|
|
|
$ |
70 |
|
|
$ |
|
|
Prior service cost (credit) |
|
|
153 |
|
|
|
|
|
|
|
(77 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,463 |
|
|
$ |
|
|
|
$ |
(7 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For plans with accumulated benefit
obligations exceeding the fair value
of plan assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation (PBO) |
|
$ |
11,048 |
|
|
$ |
11,003 |
|
|
$ |
|
|
|
$ |
|
|
Accumulated benefit obligation (ABO) |
|
|
10,153 |
|
|
|
10,041 |
|
|
|
|
|
|
|
|
|
Accumulated postretirement benefit
obligation (APBO) |
|
|
|
|
|
|
|
|
|
|
3,256 |
|
|
|
3,384 |
|
Fair value of plan assets |
|
|
8,565 |
|
|
|
7,778 |
|
|
|
202 |
|
|
|
161 |
|
ABO less fair value of plan assets |
|
|
1,588 |
|
|
|
2,263 |
|
|
|
|
|
|
|
|
|
75
10. Retirement Benefits (Continued)
At December 31, 2006 and 2005, pension benefit plan assets of $149 million and $48 million,
respectively, and other benefit plan assets of $200 million and $159 million, respectively, were
invested in shares of mutual funds managed by a subsidiary of AMR.
The following tables provide the components of net periodic benefit cost for the years ended
December 31, 2006, 2005 and 2004 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of net periodic benefit cost |
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit plans: |
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
399 |
|
|
$ |
372 |
|
|
$ |
358 |
|
Interest cost |
|
|
641 |
|
|
|
611 |
|
|
|
567 |
|
Expected return on assets |
|
|
(669 |
) |
|
|
(658 |
) |
|
|
(569 |
) |
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
Transition asset |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
Prior service cost |
|
|
16 |
|
|
|
16 |
|
|
|
14 |
|
Unrecognized net loss |
|
|
81 |
|
|
|
52 |
|
|
|
58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost for
defined benefit plans |
|
|
467 |
|
|
|
392 |
|
|
|
427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined contribution plans |
|
|
164 |
|
|
|
167 |
|
|
|
163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
631 |
|
|
$ |
559 |
|
|
$ |
590 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Benefits |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of net periodic benefit cost |
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
78 |
|
|
$ |
75 |
|
|
$ |
75 |
|
Interest cost |
|
|
194 |
|
|
|
197 |
|
|
|
202 |
|
Expected return on assets |
|
|
(15 |
) |
|
|
(14 |
) |
|
|
(11 |
) |
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost |
|
|
(10 |
) |
|
|
(10 |
) |
|
|
(10 |
) |
Unrecognized net loss |
|
|
1 |
|
|
|
2 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
248 |
|
|
$ |
250 |
|
|
$ |
264 |
|
|
|
|
|
|
|
|
|
|
|
The estimated net loss and prior service cost for the defined benefit pension plans that will be
amortized from accumulated other comprehensive income into net periodic benefit cost over the next
fiscal year are $25 million and $16 million, respectively. The estimated net gain and prior
service credit for the other postretirement plans that will be amortized from accumulated other
comprehensive income into net periodic benefit cost over the next fiscal year are $7 million and
$13 million, respectively.
76
10. Retirement Benefits (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
Other Benefits |
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
assumptions used to
determine benefit
obligations as of
December 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
6.00 |
% |
|
|
5.75 |
% |
|
|
6.00 |
% |
|
|
5.75 |
% |
Salary scale (ultimate) |
|
|
3.78 |
|
|
|
3.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
Other Benefits |
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions
used to determine net
periodic benefit cost for the
years ended December 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
5.75 |
% |
|
|
6.00 |
% |
|
|
5.75 |
% |
|
|
6.00 |
% |
Salary scale (ultimate) |
|
|
3.78 |
|
|
|
3.78 |
|
|
|
|
|
|
|
|
|
Expected return on plan assets |
|
|
8.75 |
|
|
|
9.00 |
|
|
|
8.75 |
|
|
|
9.00 |
|
As of December 31, 2006, the Companys estimate of the long-term rate of return on plan assets was
8.75 percent based on the target asset allocation. Expected returns on longer duration bonds are
based on yields to maturity of the bonds held at year-end. Expected returns on other assets are
based on a combination of long-term historical returns, actual returns on plan assets achieved over
the last ten years, current and expected market conditions, and expected value to be generated
through active management, currency overlay and securities lending programs. The Companys
annualized ten-year rate of return on plan assets as of December 31, 2006, was approximately 11.8
percent.
The Companys pension plan weighted-average asset allocations at December 31, by asset category,
are as follows:
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
Long duration bonds |
|
|
37 |
% |
|
|
37 |
% |
U.S. stocks |
|
|
30 |
|
|
|
31 |
|
International stocks |
|
|
21 |
|
|
|
21 |
|
Emerging markets stocks and bonds |
|
|
6 |
|
|
|
6 |
|
Alternative (private) investments |
|
|
6 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
The Companys target asset allocation is 40 percent longer duration corporate and U.S.
government/agency bonds, 25 percent U.S. value stocks, 20 percent developed international stocks,
five percent emerging markets stocks and bonds, and ten percent alternative (private) investments.
Each asset class is actively managed and the plans assets have produced returns, net of management
fees, in excess of the expected rate of return over the last ten years. Stocks and emerging market
bonds are used to provide diversification and are expected to generate higher returns over the
long-term than longer duration U.S. bonds. Public stocks are managed using a value investment
approach in order to participate in the returns generated by stocks in the long-term, while
reducing year-over-year volatility. Longer duration U.S. bonds are used to partially hedge the
assets from declines in interest rates. Alternative (private) investments are used to provide
expected returns in excess of the public markets over the long-term. Additionally, the Company
engages currency overlay managers in an attempt to increase returns by protecting non-U.S. dollar
denominated assets from a rise in the relative value of the U.S. dollar. The Company also
participates in securities lending programs in order to generate additional income by loaning plan
assets to borrowers on a fully collateralized basis.
77
10. Retirement Benefits (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-65 Individuals |
|
Post-65 Individuals |
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed health care
trend rates at
December 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health care cost
trend rate assumed
for next year |
|
|
9.0 |
% |
|
|
4.5 |
% |
|
|
9.0 |
% |
|
|
9.0 |
% |
Rate to which the
cost trend rate is
assumed to decline
(the ultimate trend
rate) |
|
|
4.5 |
% |
|
|
4.5 |
% |
|
|
4.5 |
% |
|
|
4.5 |
% |
Year that the rate
reaches the
ultimate trend rate |
|
|
2010 |
|
|
|
|
|
|
|
2010 |
|
|
|
2010 |
|
A one percentage point change in the assumed health care cost trend rates would have the following
effects (in millions):
|
|
|
|
|
|
|
|
|
|
|
One Percent Increase |
|
One Percent Decrease |
|
Impact on 2006 service and interest cost |
|
$ |
26 |
|
|
$ |
(24 |
) |
Impact on postretirement benefit obligation
as of December 31, 2006 |
|
$ |
243 |
|
|
$ |
(235 |
) |
The Company expects to contribute approximately $364 million to its defined benefit pension plans
and $13 million to its postretirement benefit plan in 2007. In addition to making contributions to
its postretirement benefit plan, the Company funds the majority of the benefit payments under this
plan. This estimate reflects the provisions of the Pension Funding Equity Act of 2004 and the
Pension Protection Act of 2006.
The following benefit payments, which reflect expected future service as appropriate, are expected
to be paid:
|
|
|
|
|
|
|
|
|
|
|
Pension |
|
Other |
|
2007 |
|
$ |
543 |
|
|
$ |
187 |
|
2008 |
|
|
584 |
|
|
|
196 |
|
2009 |
|
|
689 |
|
|
|
204 |
|
2010 |
|
|
681 |
|
|
|
214 |
|
2011 |
|
|
662 |
|
|
|
223 |
|
2012 2016 |
|
|
3,843 |
|
|
|
1,163 |
|
78
11. Intangible Assets
The Company had route acquisition costs (including international slots) of $829 million as of
December 31, 2006 and 2005 that are considered indefinite life assets under Financial Accounting
Standard 142, Goodwill and Other Intangible Assets. The Companys impairment analysis for route
acquisition costs did not result in an impairment charge in 2006 or 2005.
The following tables provide information relating to the Companys amortized intangible assets as
of December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Cost |
|
|
Amortization |
|
|
Net Book Value |
|
Amortized intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Airport operating rights |
|
$ |
517 |
|
|
$ |
261 |
|
|
$ |
256 |
|
Gate lease rights |
|
|
182 |
|
|
|
100 |
|
|
|
82 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
699 |
|
|
$ |
361 |
|
|
$ |
338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Cost |
|
|
Amortization |
|
|
Net Book Value |
|
Amortized intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Airport operating rights |
|
$ |
517 |
|
|
$ |
241 |
|
|
$ |
276 |
|
Gate lease rights |
|
|
179 |
|
|
|
90 |
|
|
|
89 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
696 |
|
|
$ |
331 |
|
|
$ |
365 |
|
|
|
|
|
|
|
|
|
|
|
Airport operating and gate lease rights are being amortized on a straight-line basis over 25 years
to a zero residual value. The Company recorded amortization expense related to these intangible
assets of approximately $28 million, $28 million and $29 million for the years ended December 31,
2006, 2005 and 2004, respectively. The Company expects to record annual amortization expense of
approximately $28 million in each of the next five years related to these intangible assets.
79
12. Accumulated Other Comprehensive Loss
The components of Accumulated other comprehensive loss are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain/(Loss) on |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Derivative |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain/(Loss) on |
|
|
Financial |
|
|
Income |
|
|
|
|
|
|
Pension Liability |
|
|
Investments |
|
|
Instruments |
|
|
Tax Benefit |
|
|
Total |
|
|
Balance at January 1, 2004 |
|
$ |
(956 |
) |
|
$ |
1 |
|
|
$ |
25 |
|
|
$ |
145 |
|
|
$ |
(785 |
) |
Current year net change |
|
|
129 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
125 |
|
Reclassification of
derivative financial
instruments into
earnings |
|
|
|
|
|
|
|
|
|
|
(89 |
) |
|
|
|
|
|
|
(89 |
) |
Change in fair value of
derivative financial
instruments |
|
|
|
|
|
|
|
|
|
|
85 |
|
|
|
|
|
|
|
85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004 |
|
|
(827 |
) |
|
|
(3 |
) |
|
|
21 |
|
|
|
145 |
|
|
|
(664 |
) |
Current year net change |
|
|
(379 |
) |
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
(373 |
) |
Reclassification of
derivative financial
instruments into
earnings |
|
|
|
|
|
|
|
|
|
|
(50 |
) |
|
|
|
|
|
|
(50 |
) |
Change in fair value of
derivative financial
instruments |
|
|
|
|
|
|
|
|
|
|
108 |
|
|
|
|
|
|
|
108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005 |
|
|
(1,206 |
) |
|
|
3 |
|
|
|
79 |
|
|
|
145 |
|
|
|
(979 |
) |
Current year net change |
|
|
748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
748 |
|
Reclassification of
derivative financial
instruments into
earnings |
|
|
|
|
|
|
|
|
|
|
(88 |
) |
|
|
|
|
|
|
(88 |
) |
Change in fair value of
derivative financial
instruments |
|
|
|
|
|
|
|
|
|
|
26 |
|
|
|
|
|
|
|
26 |
|
Adjustment resulting
from adoption of SFAS
158 |
|
|
(998 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(998 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006 |
|
$ |
(1,456 |
) |
|
$ |
3 |
|
|
$ |
17 |
|
|
$ |
145 |
|
|
$ |
(1,291 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006, the Company estimates during the next twelve months it will reclassify
from Accumulated other comprehensive loss into net earnings (loss) approximately $21 million in net
gains related to its cash flow hedges.
80
13. Earnings (Loss) Per Share
The following table sets forth the computation of basic and diluted earnings (loss) per share (in
millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) numerator
for basic earnings (loss) per
share |
|
$ |
231 |
|
|
$ |
(857 |
) |
|
$ |
(751 |
) |
Interest on senior convertible
notes |
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) adjusted for
interest on senior convertible
notes numerator for diluted
earnings per share |
|
$ |
258 |
|
|
$ |
(857 |
) |
|
$ |
(751 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings
(loss) per share weighted
average shares |
|
|
205 |
|
|
|
165 |
|
|
|
161 |
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Senior convertible notes |
|
|
32 |
|
|
|
|
|
|
|
|
|
Employee options and shares |
|
|
44 |
|
|
|
|
|
|
|
|
|
Assumed treasury shares purchased |
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted potential common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings
loss per share weighted-average
shares |
|
|
264 |
|
|
|
165 |
|
|
|
161 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share |
|
$ |
1.13 |
|
|
$ |
(5.18 |
) |
|
$ |
(4.68 |
) |
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share |
|
$ |
0.98 |
|
|
$ |
(5.18 |
) |
|
$ |
(4.68 |
) |
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2006, approximately 10 million shares related to employee stock
options were not added to the denominator because the options exercise prices were greater than
the average market price of the common shares. Approximately 78 million and 52 million shares
issuable upon conversion of the Companys convertible notes, employee stock options and deferred
stock were not added to the denominator for the years ended December 31, 2005 and 2004,
respectively, because inclusion of such shares would be antidilutive.
14. Segment Reporting
The Companys operations of American and AMR Eagle are treated as an integrated route network and
the route scheduling system maximizes the operating results of the Company. The Companys chief
operating decision maker makes resource allocation decisions to maximize the Companys consolidated
financial results. Based on the way the Company treats the network and the manner in which
resource allocation decisions are made, the Company has only one operating segment for financial
reporting purposes consisting of the operations of American and AMR Eagle.
American is the largest scheduled passenger airline in the world. At the end of 2006, American
provided scheduled jet service to approximately 150 destinations throughout North America, the
Caribbean, Latin America, Europe and Asia. American is also one of the largest scheduled air
freight carriers in the world, providing a full range of freight and mail services to shippers
throughout its system. AMR Eagle owns two regional airlines, which do business as American Eagle
- American Eagle Airlines, Inc. and Executive Airlines, Inc. The American Eagle® carriers provide
connecting service from eight of Americans high-traffic cities to smaller markets throughout the
United States, Canada, Mexico and the Caribbean.
81
14. Segment Reporting (Continued)
Revenues from other segments are below the quantitative threshold for determining reportable
segments and consist primarily of revenues from American Beacon Advisors, Inc. and Americas Ground
Services, Inc. The difference between the financial information of the Companys one reportable
segment and the financial information included in the accompanying consolidated statements of
operations and balance sheets as a result of these entities is not material.
The Companys operating revenues by geographic region (as defined by the Department of
Transportation) are summarized below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DOT Domestic |
|
$ |
14,159 |
|
|
$ |
13,245 |
|
|
$ |
12,192 |
|
DOT Latin America |
|
|
4,024 |
|
|
|
3,568 |
|
|
|
3,115 |
|
DOT Atlantic |
|
|
3,409 |
|
|
|
3,115 |
|
|
|
2,678 |
|
DOT Pacific |
|
|
971 |
|
|
|
784 |
|
|
|
660 |
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated revenues |
|
$ |
22,563 |
|
|
$ |
20,712 |
|
|
$ |
18,645 |
|
|
|
|
|
|
|
|
|
|
|
The Company attributes operating revenues by geographic region based upon the origin and
destination of each flight segment. The Companys tangible assets consist primarily of flight
equipment, which are mobile across geographic markets and, therefore, have not been allocated.
15. Quarterly Financial Data (Unaudited)
Unaudited summarized financial data by quarter for 2006 and 2005 (in millions, except per share
amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First |
|
Second |
|
Third |
|
Fourth |
|
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
5,344 |
|
|
$ |
5,975 |
|
|
$ |
5,847 |
|
|
$ |
5,397 |
|
Operating income (loss) |
|
|
115 |
|
|
|
476 |
|
|
|
284 |
|
|
|
185 |
|
Net earnings (loss) |
|
|
(92 |
) |
|
|
291 |
|
|
|
15 |
|
|
|
17 |
|
Earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
(0.49 |
) |
|
|
1.44 |
|
|
|
0.07 |
|
|
|
0.08 |
|
Diluted |
|
|
(0.49 |
) |
|
|
1.14 |
|
|
|
0.06 |
|
|
|
0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
4,750 |
|
|
$ |
5,309 |
|
|
$ |
5,485 |
|
|
$ |
5,168 |
|
Operating income (loss) |
|
|
23 |
|
|
|
229 |
|
|
|
39 |
|
|
|
(380 |
) |
Net earnings (loss) |
|
|
(162 |
) |
|
|
58 |
|
|
|
(153 |
) |
|
|
(600 |
) |
Earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
(1.00 |
) |
|
|
0.35 |
|
|
|
(0.93 |
) |
|
|
(3.47 |
) |
Diluted |
|
|
(1.00 |
) |
|
|
0.30 |
|
|
|
(0.93 |
) |
|
|
(3.47 |
) |
The Company incurred certain charges in the fourth quarter of 2005. For a further discussion of
these charges, see Note 2 to the consolidated financial statements. The third quarter 2006 results
include a charge of $99 million for changes in market value of hedges that did not qualify for
hedge accounting during the quarter. The 2006 and 2005 results include the immaterial impact of
adopting FSP AUG AIR-1 Accounting for Planned Major Maintenance Activities, as adjusted in the
fourth quarter of each year.
82
16. Subsequent Event
On January 26, 2007, AMR completed a public offering of 13 million shares of its common stock. The
Company realized $497 million from the sale of equity.
83
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Managements Evaluation of Disclosure Controls and Procedures
The term disclosure controls and procedures is defined in Rules 13a-15(e) and 15d-15(e) of the
Securities Exchange Act of 1934, or the Exchange Act. This term refers to the controls and
procedures of a company that are designed to ensure that information required to be disclosed by a
company in the reports that it files under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified by the Securities and Exchange Commission. An evaluation
was performed under the supervision and with the participation of the Companys management,
including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness
of the Companys disclosure controls and procedures as of December 31, 2006. Based on that
evaluation, the Companys management, including the CEO and CFO, concluded that the Companys
disclosure controls and procedures were effective as of December 31, 2006. During the quarter
ending on December 31, 2006, there was no change in the Companys internal control over financial
reporting that has materially affected, or is reasonably likely to materially affect, the Companys
internal control over financial reporting.
Managements Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining effective internal
control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of
1934. The Companys internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Therefore, even those systems determined to be effective can provide only
reasonable assurance with respect to financial statement preparation and presentation.
Management assessed the effectiveness of the Companys internal control over financial reporting as
of December 31, 2006 using the criteria set forth in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this
assessment, management believes that, as of December 31, 2006, the Companys internal control over
financial reporting was effective based on those criteria.
Managements assessment of the effectiveness of internal control over financial reporting as of
December 31, 2006, has been audited by Ernst & Young LLP, the independent registered public
accounting firm who also audited the Companys consolidated financial statements. Ernst & Young
LLPs attestation report on managements assessment of the Companys internal control over
financial reporting appears below.
|
|
|
|
|
|
|
|
/s/ Gerard J. Arpey
|
|
|
Gerard J. Arpey |
|
|
Chairman, President and Chief Executive Officer |
|
|
|
|
|
|
/s/ Thomas W. Horton
|
|
|
Thomas W. Horton |
|
|
Executive Vice President and Chief Financial Officer |
|
|
84
Report of Independent Registered Public Accounting Firm
The Board
of Directors and Shareholders
AMR Corporation
We have audited managements assessment, included in the accompanying Managements Report on
Internal Control over Financial Reporting, that AMR Corporation maintained effective internal
control over financial reporting as of December 31, 2006, based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). AMR Corporations management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting. Our responsibility is to express an opinion on
managements assessment and an opinion on the effectiveness of the companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating managements assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that AMR Corporation maintained effective internal control
over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based
on the COSO criteria. Also, in our opinion, AMR Corporation maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2006, based on the COSO
criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of AMR Corporation as of December 31, 2006
and 2005 and the related consolidated statements of operations, stockholders equity (deficit) and
cash flows for each of the three years in the period ended December 31, 2006 and related financial
statement schedule and our report dated February 21, 2007 expressed an unqualified opinion thereon.
Dallas, Texas
February 21, 2007
85
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference from the Companys definitive proxy statement for the annual
meeting of stockholders on May 16, 2007. Information concerning the executive officers is included
in Part I of this report on page 25 and information concerning the Companys code of ethics in
included in Part I of this report on page 10.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference from the Companys definitive proxy statement for the annual
meeting of stockholders on May 16, 2007.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Equity Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
securities |
|
|
|
|
|
|
|
|
|
|
|
remaining available |
|
|
|
Number of |
|
|
|
|
|
|
for future issuance |
|
|
|
securities to be |
|
|
|
|
|
|
under equity |
|
|
|
issued upon |
|
|
Weighted-average |
|
|
compensation plans |
|
|
|
exercise of |
|
|
exercise price of |
|
|
(excluding |
|
|
|
outstanding |
|
|
outstanding |
|
|
securities |
|
|
|
options, warrants |
|
|
options, warrants |
|
|
reflected in the |
|
|
|
and rights |
|
|
and rights |
|
|
first column) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation
plans approved by
security holders |
|
|
15,602,328 |
|
|
$ |
27.03 |
|
|
|
7,732,543 |
** |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation
plans not approved
by security holders |
|
|
21,559,434 |
* |
|
$ |
7.89 |
|
|
|
1,084,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
37,161,762 |
|
|
$ |
15.92 |
|
|
|
8,816,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Represents 4,042,482 options granted under the Pilot Stock Option Plan and
17,516,952 options granted under the 2003 Employee Stock Incentive Plan (the ESIP).
The Pilot Stock Option Plan and the ESIP were implemented in accordance with the rules
of the New York Stock Exchange. |
|
** |
|
Additional shares may become available for future use as certain employee stock
options are settled as SSARs. |
See Note 9 to the consolidated financial statements for additional information regarding the
equity compensation plans included above.
The information required by Item 403 of Regulation S-K is incorporated herein by reference from the
Companys definitive proxy statement for the annual meeting of stockholders on May 16, 2007.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference from the Companys definitive proxy statement for the annual
meeting of stockholders on May 16, 2007.
86
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Incorporated herein by reference from the Companys definitive proxy statement for the annual
meeting of stockholders on May 16, 2007.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) |
|
(1) The following financial statements and Independent Auditors Report are filed as part of this report: |
|
|
|
|
|
|
|
Page |
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
48 |
|
|
|
|
|
|
Consolidated Statements of Operations for the Years Ended
December 31, 2006, 2005 and 2004
|
|
|
49 |
|
|
|
|
|
|
Consolidated Balance Sheets at December 31, 2006 and 2005
|
|
|
50-51 |
|
|
|
|
|
|
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2006, 2005 and 2004
|
|
|
52 |
|
|
|
|
|
|
Consolidated Statements of Stockholders Equity (Deficit) for the Years Ended
December 31, 2006, 2005 and 2004
|
|
|
53 |
|
|
|
|
|
|
Notes to Consolidated Financial Statements
|
|
|
54-83 |
|
(2) |
|
The following financial statement schedule is filed as part of this report: |
|
|
|
|
|
|
|
Page |
|
|
|
|
|
Schedule II Valuation and Qualifying Accounts and
Reserves
|
|
|
99 |
|
Schedules not included have been omitted because they are not applicable or because the
required information is included in the consolidated financial statements or notes
thereto.
(3) |
|
Exhibits required to be filed by Item 601 of Regulation S-K. (Where the amount of
securities authorized to be issued under any of AMRs long-term debt agreements does not
exceed 10 percent of AMRs assets, pursuant to paragraph (b)(4) of Item 601 of Regulation
S-K, in lieu of filing such as an exhibit, AMR hereby agrees to furnish to the Commission
upon request a copy of any agreement with respect to such long-term debt.) |
Exhibit
|
|
|
3.1
|
|
Restated Certificate of Incorporation of AMR, incorporated by reference
to AMRs Registration Statement on Form S-4, file number 33-55191. |
|
|
|
3.2
|
|
Bylaws of AMR Corporation, amended as of April 24, 2003, incorporated by
reference to Exhibit 3.2 to AMRs report on Form 10-Q for the quarterly period ended
September 30, 2003. |
87
|
|
|
|
|
|
3.3
|
|
Amendments to the AMR Corporation Certificate of Incorporation, incorporated
by reference to AMRs report on Form 10-Q for the quarterly period ended
September 30, 2003. |
|
|
|
10.1
|
|
Compensation and Benefit Agreement relative to the retirement of Robert
L. Crandall, between AMR and Robert L. Crandall, dated September 18, 1998,
incorporated by reference to Exhibit 10.3 to AMRs report on Form 10-K for the year
ended December 31, 1998. |
|
|
|
10.2
|
|
Description of informal arrangement relating to deferral of payment of
directors fees, incorporated by reference to Exhibit 10(c)(11) to Americans
Registration Statement No. 2-76709. |
|
|
|
10.3
|
|
AMR Corporation 2004 Directors Unit Incentive Plan, as amended,
incorporated by reference to Exhibit 10.5 to AMRs report on Form 10-Q for the
quarterly period ended June 30, 2005; the successor to the AMR Corporation 1994
Directors Stock Incentive Plan, as amended, incorporated by reference to Exhibit
10.9 to AMRs report on Form 10-K for the year ended December 31, 1996, and the AMR
Corporation 1999 Directors Stock Appreciation Rights Plan, incorporated by
reference to Exhibit 10.1 to AMRs report on Form 10-Q for the quarterly period
ended March 31, 1999. |
|
|
|
10.4
|
|
Deferred Compensation Agreement, dated as of December 18, 2001 between
AMR and John W. Bachmann, incorporated by reference to Exhibit 10.5 to AMRs report
on Form 10-Q for the quarterly period ended June 30, 2002, as filed on July 19,
2002. |
|
|
|
10.5
|
|
Deferred Compensation Agreement, dated as of November 16, 2002 between
AMR and John W. Bachmann, incorporated by reference to Exhibit 10.27 to AMRs report
on Form 10-K for the year ended December 31, 2002. |
|
|
|
10.6
|
|
Deferred Compensation Agreement, dated as of January 12, 2004 between AMR
and John W. Bachmann, incorporated by reference to Exhibit 10.5 to AMRs report on
Form 10-K for the year ended December 31, 2003. |
|
|
|
10.7
|
|
Deferred Compensation Agreement, dated as of December 8, 2004 between AMR
and John W. Bachmann, incorporated by reference to Exhibit 10.7 to AMRs report on
Form 10-K for the year ended December 31, 2004. |
|
|
|
10.8
|
|
Deferred Compensation Agreement, dated as of November 29, 2005 between
AMR and John W. Bachmann, incorporated by reference to Exhibit 10.8 to AMRs report
on Form 10-K for the year ended December 31, 2005. |
|
|
|
10.9
|
|
Deferred Compensation Agreement, dated as of November 29, 2006 between
AMR and John W. Bachmann. |
|
|
|
10.10
|
|
Deferred Compensation Agreement, dated as of June 1, 1998, between AMR
and Edward A. Brennan, incorporated by reference to Exhibit 10.15 to AMRs report on
Form 10-K for the year ended December 31, 1998. |
|
|
|
10.11
|
|
Deferred Compensation Agreement, dated as of January 11, 2000, between
AMR and Edward A. Brennan, incorporated by reference to Exhibit 10.15(a) to AMRs
report on Form 10-K for the year ended December 31, 1999. |
|
|
|
10.12
|
|
Changes to the Deferred Compensation Agreement, dated as of June 2,
1998, between AMR and Edward A. Brennan, incorporated by reference to Exhibit 10.14
to AMRs report on Form 10-K for the year ended December 31, 2000. |
88
|
|
|
|
|
|
10.13
|
|
Deferred Compensation Agreement, dated as of December 18, 2001 between
AMR and Edward A. Brennan, incorporated by reference to Exhibit 10.2 to AMRs report
on Form 10-Q for the quarterly period ended June 30, 2002, as filed on July 19,
2002. |
|
|
|
10.14
|
|
Deferred Compensation Agreement, dated as of November 14, 2002 between
AMR and Edward A. Brennan incorporated by reference to Exhibit 10.24 to AMRs report
on Form 10-K for the year ended December 31, 2002. |
|
|
|
10.15
|
|
Deferred Compensation Agreement, dated as of January 12, 2004 between
AMR and Edward A. Brennan, incorporated by reference to Exhibit 10.11 to AMRs
report on Form 10-K for the year ended December 31, 2003. |
|
|
|
10.16
|
|
Deferred Compensation Agreement, dated as of December 8, 2004 between
AMR and Edward A. Brennan, incorporated by reference to Exhibit 10.14 to AMRs
report on Form 10-K for the year ended December 31, 2004. |
|
|
|
10.17
|
|
Deferred Compensation Agreement, dated as of November 29, 2005 between
AMR and Edward A. Brennan, incorporated by reference to Exhibit 10.16 to AMRs
report on Form 10-K for the year ended December 31, 2005. |
|
|
|
10.18
|
|
Deferred Compensation Agreement, dated as of November 29, 2006 between
AMR and Edward A. Brennan. |
|
|
|
10.19
|
|
Deferred Compensation Agreement, dated as of April 30, 2003 between AMR
and David L. Boren, incorporated by reference to Exhibit 10.1 to AMRs report on
Form 10-Q for the quarterly period ended March 31, 2003. |
|
|
|
10.20
|
|
Deferred Compensation Agreement, dated as of January 12, 2004 between
AMR and David L. Boren, incorporated by reference to Exhibit 10.13 to AMRs report
on Form 10-K for the year ended December 31, 2003. |
|
|
|
10.21
|
|
Deferred Compensation Agreement, dated as of December 8, 2004 between
AMR and David L. Boren, incorporated by reference to Exhibit 10.17 to AMRs report
on Form 10-K for the year ended December 31, 2004. |
|
|
|
10.22
|
|
Deferred Compensation Agreement, dated as of November 29, 2005 between
AMR and David L. Boren, incorporated by reference to Exhibit 10.20 to AMRs report
on Form 10-K for the year ended December 31, 2005. |
|
|
|
10.23
|
|
Deferred Compensation Agreement, dated as of November 29, 2006 between
AMR and David L. Boren. |
|
|
|
10.24
|
|
Deferred Compensation Agreement, dated as of February 19, 1998, between
AMR and Armando M. Codina, incorporated by reference to Exhibit 10.15 to AMRs
report on Form 10-K for the year ended December 31, 1997. |
|
|
|
10.25
|
|
Deferred Compensation Agreement, dated as of January 13, 1999, between
AMR and Armando M. Codina, incorporated by reference to Exhibit 10.19 to AMRs
report on Form 10-K for the year ended December 31, 1998. |
|
|
|
10.26
|
|
Deferred Compensation Agreement, dated as of January 12, 2000, between
AMR and Armando M. Codina, incorporated by reference to Exhibit 10.20 to AMRs
report on Form 10-K for the year ended December 31, 1999. |
|
|
|
10.27
|
|
Deferred Compensation Agreement, dated as of January 22, 2001, between
AMR and Armando M. Codina, incorporated by reference to Exhibit 10.20 to AMRs
report on Form 10-K for the year ended December 31, 2000. |
89
|
|
|
|
|
|
10.28
|
|
Deferred Compensation Agreement, dated as of December 18, 2001 between
AMR and Armando M. Codina, incorporated by reference to Exhibit 10.6 to AMRs report
on Form 10-Q for the quarterly period ended June 30, 2002, as filed on July 19,
2002. |
|
|
|
10.29
|
|
Deferred Compensation Agreement, dated as of December 13, 2002 between
AMR and Armando M. Codina, incorporated by reference to Exhibit 10.28 to AMRs
report on Form 10-K for the year ended December 31, 2002. |
|
|
|
10.30
|
|
Deferred Compensation Agreement, dated as of January 12, 2004 between
AMR and Armando M. Codina, incorporated by reference to Exhibit 10.20 to AMRs
report on Form 10-K for the year ended December 31, 2003. |
|
|
|
10.31
|
|
Deferred Compensation Agreement, dated as of December 8, 2004 between
AMR and Armando M. Codina, incorporated by reference to Exhibit 10.25 to AMRs
report on Form 10-K for the year ended December 31, 2004. |
|
|
|
10.32
|
|
Deferred Compensation Agreement, dated as of November 29, 2005 between
AMR and Armando M. Codina, incorporated by reference to Exhibit 10.29 to AMRs
report on Form 10-K for the year ended December 31, 2005. |
|
|
|
10.33
|
|
Deferred Compensation Agreement, dated as of December 21, 2006 between
AMR and Armando M. Codina. |
|
|
|
10.34
|
|
Deferred Compensation Agreement, dated as of December 21, 2006 between
AMR and Armando M. Codina. |
|
|
|
10.35
|
|
Deferred Compensation Agreement, dated as of April 30, 2003 between AMR
and Earl G. Graves, incorporated by reference to Exhibit 10.2 to AMRs report on
Form 10-Q for the quarterly period ended March 31, 2003. |
|
|
|
10.36
|
|
Deferred Compensation Agreement, dated as of January 12, 2004 between
AMR and Earl G. Graves, incorporated by reference to Exhibit 10.22 to AMRs report
on Form 10-K for the year ended December 31, 2003. |
|
|
|
10.37
|
|
Deferred Compensation Agreement, dated as of December 8, 2004 between
AMR and Earl G. Graves, incorporated by reference to Exhibit 10.28 to AMRs report
on Form 10-K for the year ended December 31, 2004. |
|
|
|
10.38
|
|
Deferred Compensation Agreement, dated as of November 29, 2005 between
AMR and Earl G. Graves, incorporated by reference to Exhibit 10.33 to AMRs report
on Form 10-K for the year ended December 31, 2005. |
|
|
|
10.39
|
|
Deferred Compensation Agreement, dated as of November 29, 2006 between
AMR and Earl G. Graves. |
|
|
|
10.40
|
|
Deferred Compensation Agreement, dated as of April 30, 2003 between AMR
and Ann M. Korologos, incorporated by reference to Exhibit 10.3 to AMRs report on
Form 10-Q for the quarterly period ended March 31, 2003. |
|
|
|
10.41
|
|
Deferred Compensation Agreement, dated as of January 12, 2004 between
AMR and Ann M. Korologos, incorporated by reference to Exhibit 10.24 to AMRs report
on Form 10-K for the year ended December 31, 2003. |
|
|
|
10.42
|
|
Deferred Compensation Agreement, dated as of December 8, 2004 between
AMR and Ann M. Korologos, incorporated by reference to Exhibit 10.31 to AMRs report
on Form 10-K for the year ended December 31, 2004. |
90
|
|
|
|
|
|
10.43
|
|
Deferred Compensation Agreement, dated as of November 29, 2005 between
AMR and Ann M. Korologos, incorporated by reference to Exhibit 10.37 to AMRs report
on Form 10-K for the year ended December 31, 2005. |
|
|
|
10.44
|
|
Deferred Compensation Agreement, dated as of November 29, 2006 between
AMR and Ann M. Korologos. |
|
|
|
10.45
|
|
Deferred Compensation Agreement, dated as of April 30, 2003 between AMR
and Michael A. Miles, incorporated by reference to Exhibit 10.4 to AMRs report on
Form 10-Q for the quarterly period ended March 31, 2003. |
|
|
|
10.46
|
|
Deferred Compensation Agreement, dated as of January 12, 2004 between
AMR and Michael A. Miles, incorporated by reference to Exhibit 10.26 to AMRs report
on Form 10-K for the year ended December 31, 2003. |
|
|
|
10.47
|
|
Deferred Compensation Agreement, dated as of December 8, 2004 between
AMR and Michael A. Miles, incorporated by reference to Exhibit 10.34 to AMRs report
on Form 10-K for the year ended December 31, 2004. |
|
|
|
10.48
|
|
Deferred Compensation Agreement, dated as of November 29, 2005 between
AMR and Michael A. Miles, incorporated by reference to Exhibit 10.41 to AMRs report
on Form 10-K for the year ended December 31, 2005. |
|
|
|
10.49
|
|
Deferred Compensation Agreement, dated as of November 29, 2006 between
AMR and Michael A. Miles. |
|
|
|
10.50
|
|
Deferred Compensation Agreement, dated as of January 19, 2001, between
AMR and Philip J. Purcell, incorporated by reference to Exhibit 10.26 to AMRs
report on Form 10-K for the year ended December 31, 2000. |
|
|
|
10.51
|
|
Deferred Compensation Agreement, dated as of December 18, 2001 between
AMR and Philip J. Purcell, incorporated by reference to Exhibit 10.7 to AMRs report
on Form 10-Q for the quarterly period ended June 30, 2002, as filed on July 19,
2002. |
|
|
|
10.52
|
|
Deferred Compensation Agreement, dated as of November 15, 2002 between
AMR and Philip J. Purcell, incorporated by reference to Exhibit 10.29 to AMRs
report on Form 10-K for the year ended December 31, 2002. |
|
|
|
10.53
|
|
Deferred Compensation Agreement, dated as of January 12, 2004 between
AMR and Philip J. Purcell, incorporated by reference to Exhibit 10.30 to AMRs
report on Form 10-K for the year ended December 31, 2003. |
|
|
|
10.54
|
|
Deferred Compensation Agreement, dated as of December 8, 2004 between
AMR and Philip J. Purcell, incorporated by reference to Exhibit 10.39 to AMRs
report on Form 10-K for the year ended December 31, 2004. |
|
|
|
10.55
|
|
Deferred Compensation Agreement, dated as of November 29, 2005 between
AMR and Philip J. Purcell, incorporated by reference to Exhibit 10.47 to AMRs
report on Form 10-K for the year ended December 31, 2005. |
|
|
|
10.56
|
|
Deferred Compensation Agreement, dated as of November 29, 2006 between
AMR and Philip J. Purcell. |
|
|
|
91
|
|
|
|
|
|
10.57
|
|
Deferred Compensation Agreement, dated as of November 29, 2005 between
AMR and Ray M. Robinson, incorporated by reference to Exhibit 10.48 to AMRs report
on Form 10-K for the year ended December 31, 2005. |
10.58
|
|
Deferred Compensation Agreement, dated as of November 29, 2006 between
AMR and Ray M. Robinson. |
|
|
|
10.59
|
|
Deferred Compensation Agreement, dated as of July 16, 1997, between AMR
and Judith Rodin, incorporated by reference to Exhibit 10.22 to AMRs report on Form
10-K for the year ended December 31, 1997. |
|
|
|
10.60
|
|
Deferred Compensation Agreement, dated as of February 19, 1998, between
AMR and Judith Rodin, incorporated by reference to Exhibit 10.23 to AMRs report on
Form 10-K for the year ended December 31, 1997. |
|
|
|
10.61
|
|
Deferred Compensation Agreement, dated as of January 7, 1999, between
AMR and Judith Rodin, incorporated by reference to Exhibit 10.30 to AMRs report on
Form 10-K for the year ended December 31, 1998. |
|
|
|
10.62
|
|
Deferred Compensation Agreement, dated as of January 12, 2000, between
AMR and Judith Rodin, incorporated by reference to Exhibit 10.29 to AMRs report on
Form 10-K for the year ended December 31, 1999. |
|
|
|
10.63
|
|
Deferred Compensation Agreement, dated as of January 22, 2001, between
AMR and Judith Rodin, incorporated by reference to Exhibit 10.25 to AMRs report on
Form 10-K for the year ended December 31, 2000. |
|
|
|
10.64
|
|
Deferred Compensation Agreement, dated as of December 18, 2001 between
AMR and Judith Rodin, incorporated by reference to Exhibit 10.4 to AMRs report on
Form 10-Q for the quarterly period ended June 30, 2002, as filed on July 19, 2002. |
|
|
|
10.65
|
|
Deferred Compensation Agreement, dated as of November 20, 2002 between
AMR and Judith Rodin, incorporated by reference to Exhibit 10.26 to AMRs report on
Form 10-K for the year ended December 31, 2002. |
|
|
|
10.66
|
|
Deferred Compensation Agreement, dated as of January 12, 2004 between
AMR and Judith Rodin, incorporated by reference to Exhibit 10.42 to AMRs report on
Form 10-K for the year ended December 31, 2003. |
|
|
|
10.67
|
|
Deferred Compensation Agreement, dated as of December 8, 2004 between
AMR and Judith Rodin, incorporated by reference to Exhibit 10.53 to AMRs report on
Form 10-K for the year ended December 31, 2004. |
|
|
|
10.68
|
|
Deferred Compensation Agreement, dated as of November 29, 2005 between
AMR and Judith Rodin, incorporated by reference to Exhibit 10.64 to AMRs report on
Form 10-K for the year ended December 31, 2005. |
|
|
|
10.69
|
|
Deferred Compensation Agreement, dated as of November 29, 2006 between
AMR and Judith Rodin. |
|
|
|
10.70
|
|
Deferred Compensation Agreement, dated as of December 8, 2004 between
AMR and Matthew K. Rose, incorporated by reference to Exhibit 10.65 to AMRs report
on Form 10-K for the year ended December 31, 2005. |
|
|
|
10.71
|
|
Deferred Compensation Agreement, dated as of November 29, 2005 between
AMR and Matthew K. Rose, incorporated by reference to Exhibit 10.66 to AMRs report
on Form 10-K for the year ended December 31, 2005. |
|
|
|
92
|
|
|
|
|
|
10.72
|
|
Deferred Compensation Agreement, dated as of November 29, 2006 between
AMR and Matthew K. Rose. |
|
|
|
10.73
|
|
Deferred Compensation Agreement, dated as of December 18, 2001 between
AMR and Roger T. Staubach, incorporated by reference to Exhibit 10.1 to AMRs report
on Form 10-Q for the quarterly period ended June 30, 2002, as filed on July 19,
2002. |
|
|
|
10.74
|
|
Deferred Compensation Agreement, dated as of November 18, 2002 between
AMR and Roger T. Staubach, incorporated by reference to Exhibit 10.23 to AMRs
report on Form 10-K for the year ended December 31, 2002. |
|
|
|
10.75
|
|
Deferred Compensation Agreement, dated as of January 12, 2004 between
AMR and Roger T. Staubach, incorporated by reference to Exhibit 10.45 to AMRs
report on Form 10-K for the year ended December 31, 2003. |
|
|
|
10.76
|
|
Deferred Compensation Agreement, dated as of December 8, 2004 between
AMR and Roger T. Staubach, incorporated by reference to Exhibit 10.57 to AMRs
report on Form 10-K for the year ended December 31, 2004. |
|
|
|
10.77
|
|
Deferred Compensation Agreement, dated as of November 29, 2005 between
AMR and Roger T. Staubach, incorporated by reference to Exhibit 10.71 to AMRs
report on Form 10-K for the year ended December 31, 2005. |
|
|
|
10.78
|
|
Deferred Compensation Agreement, dated as of November 29, 2006 between
AMR and Roger T. Staubach. |
|
|
|
10.79
|
|
American Airlines, Inc. 2004 Employee Profit Sharing Plan, incorporated
by reference to Exhibit 10.1 to AMRs report on Form 10-Q for the quarterly period
ended March 31, 2004. |
|
|
|
10.80
|
|
American Airlines, Inc. 2006 Annual Incentive Plan, incorporated by
reference to Exhibit 99.1 to AMRs current report on Form 8-K dated February 10,
2006. |
|
|
|
10.81
|
|
Current form of Stock Option Agreement under the 1998 Long-Term
Incentive Plan, as amended, incorporated by reference to Exhibit 10.64 to AMRs
report on Form 10-K for the year ended December 31, 2004. |
|
|
|
10.82
|
|
Current form of Stock Option Agreement under the 2003 Employee Stock
Incentive Plan, incorporated by reference to Exhibit 10.49 to AMRs report on Form
10-K for the year ended December 31, 2003. |
|
|
|
10.83
|
|
Current form of 2003 Stock Option Agreement under the 1998 Long-Term
Incentive Plan, as amended, incorporated by reference to Exhibit 10.1 to AMRs
report on Form 10-Q for the quarterly period ended September 30, 2003. |
|
|
|
10.84
|
|
Current form of 2004 Stock Option Agreement under the 1998 Long-Term
Incentive Plan, as amended, incorporated by reference to Exhibit 10.64 to AMRs
report on Form 10-K for the year ended December 31, 2004. |
|
|
|
10.85
|
|
Current form of 2005 Stock Option Agreement under the 1998 Long-Term
Incentive Plan, as amended, incorporated by reference to Exhibit 10.3 to AMRs
report on Form 10-Q for the quarterly period ended June 30, 2005. |
|
|
|
10.86
|
|
Current form of 2003 Stock Option Agreement under the 2003 Employee
Stock Incentive Plan, incorporated by reference to Exhibit 10.49 to AMRs report on
Form 10-K for the year ended December 31, 2003. |
|
|
|
93
|
|
|
10.87
|
|
Current form of 2004 Stock Option Agreement under the 2003 Employee
Stock Incentive Plan, incorporated by reference to Exhibit 10.66 to AMRs report on
Form 10-K for the year ended December 31, 2004. |
|
|
|
10.88
|
|
Current form of 2005 Stock Option Agreement under the 2003 Employee
Stock Incentive Plan, incorporated by reference to Exhibit 10.4 to AMRs report on
Form 10-Q for the quarterly period ended June 30, 2005. |
|
|
|
10.89
|
|
Current form of Amendment of Stock Option Agreements under the 1998
Long-Term Incentive Plan to Add Stock Appreciation Rights, incorporated by reference
to AMRs report on Form 10-Q for the quarterly period ended September 30, 2006. |
|
|
|
10.90
|
|
Career Performance Shares, Deferred Stock Award Agreement between AMR
Corporation and Gerard J. Arpey dated as of July 25, 2005, incorporated by reference
to Exhibit 10.6 to AMRs report on Form 10-Q for the quarterly period ended June 30,
2005. |
|
|
|
10.91
|
|
Current form of Career Equity Program Deferred Stock Award Agreement for
Corporate Officers under the AMR 1998 Long-Term Incentive Plan, incorporated by
reference to Exhibit 10.41 to AMRs report on Form 10-K for the year ended December
31, 1998. |
|
|
|
10.92
|
|
Current form of Career Equity Program Deferred Stock Award Agreement for
non-officers under the AMR 1998 Long-Term Incentive Plan, incorporated by reference
to Exhibit 10.42 to AMRs report on Form 10-K for the year ended December 31, 1998. |
|
|
|
10.93
|
|
Current form of Career Equity Program Deferred Stock Award Agreement for
Senior Officers under the AMR 1998 Long-Term Incentive Plan, incorporated by
reference to Exhibit 10.42(a) to AMRs report on Form 10-K for the year ended
December 31, 1998. |
|
|
|
10.94
|
|
Current form of Career Equity Program Deferred Stock Award Agreement for
Employees under the AMR 1998 Long-Term Incentive Plan, incorporated by reference to
Exhibit 10.44 to AMRs report on Form 10-K for the year ended December 31, 1999. |
|
|
|
10.95
|
|
Current form of Deferred Stock Award Agreement, incorporated by
reference to Exhibit 10.54 to AMRs report on Form 10-K for the year ended December
31, 2003. |
|
|
|
10.96
|
|
Current form of Deferred Unit Award Agreement, incorporated by reference
to Exhibit 10.73 to AMRs report on Form 10-K for the year ended December 31, 2004. |
|
|
|
10.97
|
|
Current form of 2006 Deferred Share Award Agreement (with awards to
executive officers noted), incorporated by reference to Exhibit 10.3 to AMRs report
on Form 10-Q for the quarterly period ended June 30, 2006. |
|
|
|
10.98
|
|
Current form of Stock Appreciation Right Agreement under the 1998 Long
Term Incentive Plan, as Amended (with awards to executive officers noted),
incorporated by reference to Exhibit 10.1 to AMRs report on Form 10-Q for the
quarterly period ended June 30, 2006. |
|
|
|
10.99
|
|
Amended and Restated Executive Termination Benefits Agreement between
AMR, American Airlines and Gerard J. Arpey, dated May 21, 1998, incorporated by
reference to Exhibit 10.61 to AMRs report on Form 10-K for the year ended December
31, 1998. |
|
|
|
10.100
|
|
Amended and Restated Executive Termination Benefits Agreement between AMR,
American Airlines and Peter M. Bowler, dated May 21, 1998, incorporated by reference
to Exhibit 10.63 to AMRs report on Form 10-K for the year ended December 31, 1998. |
|
|
|
94
|
|
|
10.101
|
|
Amended and Restated Executive Termination Benefits Agreement between AMR,
American Airlines and Daniel P. Garton, dated May 21, 1998, incorporated by
reference to Exhibit 10.66 to AMRs report on Form 10-K for the year ended December
31, 1998. |
|
|
|
10.102
|
|
Amended and Restated Executive Termination Benefits Agreement between AMR,
American Airlines and Monte E. Ford, dated November 15, 2000, incorporated by
reference to Exhibit 10.74 to AMRs report on Form 10-K for the year ended December
31, 2000. |
|
|
|
10.103
|
|
Amended and Restated Executive Termination Benefits Agreement between AMR,
American Airlines and Henry C. Joyner, dated January 19, 2000, incorporated by
reference to Exhibit 10.74 to AMRs report on Form 10-K for the year ended December
31, 1999. |
|
|
|
10.104
|
|
Amended and Restated Executive Termination Benefits Agreement between AMR,
American Airlines and Charles D. MarLett, dated May 21, 1998, incorporated by
reference to Exhibit 10.70 to AMRs report on Form 10-K for the year ended December
31, 1998. |
|
|
|
10.105
|
|
Amended and Restated Executive Termination Benefits Agreement between AMR,
American Airlines and William K. Ris, Jr., dated October 20, 1999, incorporated by
reference to Exhibit 10.79 to AMRs report on Form 10-K for the year ended December
31, 1999. |
|
|
|
10.106
|
|
Amended and Restated Executive Termination Benefits Agreement between AMR,
American Airlines and Ralph L. Richardi dated September 26, 2002, incorporated by
reference to Exhibit 10.54 to AMRs report on Form 10-K for the year ended December
31, 2002. |
|
|
|
10.107
|
|
Amended and Restated Executive Termination Benefits Agreement between AMR,
American Airlines and Gary F. Kennedy dated February 3, 2003, incorporated by
reference to Exhibit 10.55 to AMRs report on Form 10-K for the year ended December
31, 2002. |
|
|
|
10.108
|
|
Amended and Restated Executive Termination Benefits Agreement between AMR,
American Airlines and Robert W. Reding dated May 20, 2003, incorporated by reference
to Exhibit 10.71 to AMRs report on Form 10-K for the year ended December 31, 2003. |
|
|
|
10.109
|
|
Employment agreement between AMR, American Airlines and William K. Ris, Jr. dated
November 11, 1999, incorporated by reference to Exhibit 10.73 to AMRs report on
Form 10-K for the year ended December 31, 2003. |
|
|
|
10.110
|
|
Employment agreement between AMR, American Airlines and Robert W. Reding dated May
21, 2003, incorporated by reference to Exhibit 10.94 to AMRs report on Form 10-K
for the year ended December 31, 2004. |
|
|
|
10.111
|
|
Amended and Restated Executive Termination Benefits Agreement between AMR,
American Airlines and Jeffrey J. Brundage dated April 1, 2004, incorporated by
reference to Exhibit 10.5 to AMRs report on Form 10-Q for the quarterly period
ended March 31, 2004. |
|
|
|
10.112
|
|
Employment agreement between AMR, American Airlines and Thomas W. Horton dated
March 29, 2006, incorporated by reference to Exhibit 10.1 to AMRs current report on
Form 8-K dated March 31, 2006. |
|
|
|
95
|
|
|
10.113
|
|
Supplemental Executive Retirement Program for Officers of American Airlines, Inc.,
as amended on October 15, 2002, incorporated by reference to Exhibit 10.60 to AMRs
report on Form 10-K for the year ended December 31, 2002. |
|
|
|
10.114
|
|
Trust Agreement Under Supplemental Retirement Program for Officers of American
Airlines, Inc., dated October 14, 2002, incorporated by reference to Exhibit 10.61
to AMRs report on Form 10-K for the year ended December 31, 2002. |
|
|
|
10.115
|
|
Trust Agreement Under Supplemental Executive Retirement Program for Officers of
American Airlines, Inc Participating in the $uper $aver Plus Plan, incorporated by
reference to Exhibit 10 to AMRs report on Form 10-Q for the quarterly period ended
September 30, 2005. |
|
|
|
10.116
|
|
Aircraft Purchase Agreement by and between American Airlines, Inc. and The Boeing
Company, dated October 31, 1997, incorporated by reference to Exhibit 10.48 to AMRs
report on Form 10-K for the year ended December 31, 1997. Confidential treatment
was granted as to a portion of this document. |
|
|
|
10.117
|
|
Letter Agreement dated November 17, 2004 and Purchase Agreement Supplements dated
January 11, 2005 between the Boeing Company and American Airlines, Inc.,
incorporated by reference to Exhibit 10.99 to AMRs report on Form 10-K for the year
ended December 31, 2004. Confidential treatment was granted as to a portion of
these agreements. |
|
|
|
10.118
|
|
Letter Agreement between the Boeing Company and American Airlines, Inc. dated May
5, 2005, incorporated by reference to Exhibit 10.7 to AMRs report on Form 10-Q for
the quarterly period ended June 30, 2005. Confidential treatment was granted as to
a portion of this agreement. |
|
|
|
10.119
|
|
Aircraft Purchase Agreement by and between AMR Eagle Holding Corporation and
Bombardier Inc., dated January 31, 1998, incorporated by reference to Exhibit 10.49
to AMRs report on Form 10-K for the year ended December 31, 1997. Confidential
treatment was granted as to a portion of this agreement. |
|
|
|
10.120
|
|
Amended and Restated Credit Agreement dated March 27, 2006, incorporated by
reference to Exhibit 10 to AMRs report on Form 10-Q for the quarterly period ended
March 31, 2006. |
|
|
|
10.121
|
|
Directors Stock Equivalent Purchase Plan, incorporated by reference to Exhibit
10(g)(g) to AMRs report on Form 10-K for the year ended December 31, 1989. |
|
|
|
10.122
|
|
2006 2008 Performance Share Plan for Officers and Key Employees, incorporated
by reference to Exhibit 99.6 to AMRs current report on Form 8-K dated March 31,
2006. |
|
|
|
10.123
|
|
Current form of Performance Share Agreement under the 2006 2008 Performance
Share Plan for Officers and Key Employees (with awards to executive officers noted),
incorporated by reference to Exhibit 10.4 to AMRs report on Form 10-Q for the
quarterly period ended June 30, 2006. |
|
|
|
10.124
|
|
2004 2006 Performance Share Plan for Officers and Key Employees, as Amended and
Restated March 29, 2006, incorporated by reference to Exhibit 99.4 to AMRs current
report on Form 8-K dated March 31, 2006. |
|
|
|
10.125
|
|
Form of 2004 2006 Performance Share Agreement, as Amended and Restated March
29, 2006 (with awards to executive officers noted), incorporated by reference to
Exhibit 99.5 to AMRs current report on Form 8-K dated March 31, 2006. |
|
|
|
96
|
|
|
10.126
|
|
Current form of Deferred Share Award Agreement as Amended and Restated March 29,
2006 (with awards to executive officers noted), incorporated by reference to Exhibit
99.7 to AMRs current report on Form 8-K dated March 31, 2006. |
|
|
|
10.127
|
|
2007 Annual Incentive Plan for American, as amended February 21, 2007. |
|
|
|
10.128
|
|
2005-2007 Performance Share Plan for Officers and Key Employees, as Amended and
Restated as of January 16, 2007, incorporated by reference to Exhibit 99.2 to AMRs
current report on Form 8-K dated January 17, 2007. |
|
|
|
10.129
|
|
Form of 2005-2007 Performance Share Agreement, as Amended and Rested as of January
16, 2007 (with awards to executive officers noted), incorporated by reference to
Exhibit 99.3 to AMRs current report on Form 8-K dated January 17, 2007. |
|
|
|
10.130
|
|
Form of 2005 Deferred Share Award Agreement, as Amended and Restated as of January
16, 2007, incorporated by reference to Exhibit 99.4 to AMRs current report on Form
8-K dated January 17, 2007. |
|
|
|
10.131
|
|
AMR Corporation 1998 Long-Term Incentive Plan, as Amended. |
|
|
|
10.132
|
|
Amendment of Stock Option Agreements Under the 1998 Long-Term Incentive Plan to
Add Stock Appreciation Rights. |
|
|
|
10.133
|
|
American Airlines 2007 Employee Profit Sharing Plan. |
|
|
|
12
|
|
Computation of ratio of earnings to fixed charges for the years ended
December 31, 2006, 2005, 2004, 2003 and 2002. |
|
|
|
21
|
|
Significant subsidiaries of the registrant as of December 31, 2005. |
|
|
|
23
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Consent of Independent Registered Public Accounting Firm. |
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31.1
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Certification of Chief Executive Officer pursuant to Rule 13a-14(a). |
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31.2
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Certification of Chief Financial Officer pursuant to Rule 13a-14(a). |
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32
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Certification pursuant to Rule 13a-14(b) and section 906 of the
Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of
title 18, United States Code). |
97
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
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AMR CORPORATION
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By: |
/s/ Gerard J. Arpey
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Gerard J. Arpey |
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Chairman, President and Chief Executive Officer
(Principal Executive Officer) |
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Date: February 23, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates
noted:
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/s/ Gerard J. Arpey
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/s/ Thomas W Horton
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Gerard
J. Arpey
Director, Chairman and Chief Executive Officer
(Principal Executive Officer)
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Thomas W. Horton
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) |
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/s/ John W. Bachmann
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/s/ Michael A. Miles |
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John W. Bachmann, Director
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Michael A. Miles, Director |
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/s/ David L. Boren
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/s/ Philip J. Purcell |
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David L. Boren, Director
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Philip J. Purcell, Director |
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/s/ Edward A. Brennan
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/s/ Ray M. Robinson |
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Edward A. Brennan, Director
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Ray M. Robinson, Director |
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/s/ Armando M. Codina
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/s/ Judith Rodin |
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Armando M. Codina, Director
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Judith Rodin, Director |
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/s/ Earl G. Graves
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/s/ Matthew K. Rose |
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Earl G. Graves, Director
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Matthew K. Rose, Director |
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/s/ Ann McLaughlin Korologos
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/s/ Roger T. Staubach |
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Ann McLaughlin Korologos, Director
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Roger T. Staubach, Director |
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Date: February 23, 2007
98
AMR CORPORATION
Schedule II Valuation and Qualifying Accounts and Reserves
(in millions)
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Changes |
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Balance |
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charged to |
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Sales, |
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Balance |
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at |
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statement of |
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Write-offs |
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retire- |
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at |
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beginning |
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operations |
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(net of |
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ments |
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end of |
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of year |
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accounts |
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Payments |
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recoveries) |
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and transfers |
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year |
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Year ended December 31, 2006 |
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Allowance for
obsolescence of inventories |
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$ |
410 |
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$ |
24 |
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$ |
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$ |
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$ |
(23 |
) |
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$ |
411 |
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Allowance for
uncollectible accounts |
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60 |
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3 |
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(25 |
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7 |
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45 |
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Reserves for environmental
remediation costs |
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40 |
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2 |
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(9 |
) |
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33 |
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Year ended December 31, 2005 |
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Allowance for
obsolescence of inventories |
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$ |
379 |
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$ |
31 |
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$ |
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$ |
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$ |
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$ |
410 |
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Allowance for
uncollectible accounts |
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59 |
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6 |
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(5 |
) |
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60 |
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Reserves for environmental
remediation costs |
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62 |
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(18 |
) |
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(4 |
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40 |
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Allowance for insurance
receivable |
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22 |
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(22 |
) |
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Year ended December 31, 2004 |
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Allowance for
obsolescence of inventories |
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$ |
428 |
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$ |
38 |
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$ |
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$ |
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$ |
(87 |
) |
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$ |
379 |
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Allowance for
uncollectible accounts |
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62 |
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9 |
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(12 |
) |
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59 |
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Reserves for environmental
remediation costs |
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72 |
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(2 |
) |
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(8 |
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62 |
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Allowance for insurance
receivable |
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22 |
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22 |
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99