UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X]Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 2004.
[ ]Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period From to .
Commission file number 1-8400.
AMR Corporation
(Exact name of registrant as specified in its charter)
Delaware 75-1825172
(State or other (I.R.S. Employer
jurisdiction Identification No.)
of incorporation or
organization)
4333 Amon Carter Blvd.
Fort Worth, Texas 76155
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, (817) 963-1234
including area code
Not Applicable
(Former name, former address and former fiscal year , if changed
since last report)
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. Yes X No .
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Exchange Act Rule 12b-2). Yes X No .
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Common Stock, $1 par value - 159,625,464 shares as of April 16, 2004.
INDEX
AMR CORPORATION
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations -- Three months ended March
31, 2004 and 2003
Condensed Consolidated Balance Sheets -- March 31, 2004 and
December 31, 2003
Condensed Consolidated Statements of Cash Flows -- Three months
ended March 31, 2004 and 2003
Notes to Condensed Consolidated Financial Statements -- March 31, 2004
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Item 4. Controls and Procedures
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
AMR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (In millions, except per share amounts)
Three Months Ended
March 31,
2004 2003
Revenues
Passenger - American Airlines $ 3,678 $ 3,394
- Regional Affiliates 420 326
Cargo 148 134
Other revenues 266 266
Total operating revenues 4,512 4,120
Expenses
Wages, salaries and benefits 1,640 2,098
Aircraft fuel 808 729
Depreciation and amortization 326 338
Other rentals and landing fees 305 291
Commissions, booking fees and credit
card expense 288 255
Maintenance, materials and repairs 231 231
Aircraft rentals 153 190
Food service 137 149
Other operating expenses 582 683
Special charges - 25
Total operating expenses 4,470 4,989
Operating Income (Loss) 42 (869)
Other Income (Expense)
Interest income 14 13
Interest expense (212) (192)
Interest capitalized 18 19
Miscellaneous - net (28) (14)
(208) (174)
Loss Before Income Taxes (166) (1,043)
Income tax - -
Net Loss $ (166) $ (1,043)
Basic and Diluted Loss Per Share $ (1.03) $ (6.68)
The accompanying notes are an integral part of these financial statements.
-1-
AMR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (In millions)
March 31, December 31,
2004 2003
Assets
Current Assets
Cash $ 152 $ 120
Short-term investments 3,074 2,486
Restricted cash and short-term investments 501 527
Receivables, net 965 796
Inventories, net 490 516
Other current assets 224 237
Total current assets 5,406 4,682
Equipment and Property
Flight equipment, net 15,264 15,319
Other equipment and property, net 2,383 2,411
Purchase deposits for flight equipment 356 359
18,003 18,089
Equipment and Property Under Capital Leases
Flight equipment, net 1,266 1,284
Other equipment and property, net 84 87
1,350 1,371
Route acquisition costs and airport operating
and gate lease rights, net 1,245 1,253
Other assets 3,946 3,935
$ 29,950 $ 29,330
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities
Accounts payable $ 1,022 $ 967
Accrued liabilities 2,072 1,989
Air traffic liability 3,201 2,799
Current maturities of long-term debt 619 603
Current obligations under capital leases 196 201
Total current liabilities 7,110 6,559
Long-term debt, less current maturities 12,403 11,901
Obligations under capital leases, less
current obligations 1,174 1,225
Pension and postretirement benefits 4,720 4,803
Other liabilities, deferred gains and
deferred credits 4,678 4,796
Stockholders' Equity (Deficit)
Preferred stock - -
Common stock 182 182
Additional paid-in capital 2,597 2,605
Treasury stock (1,395) (1,405)
Accumulated other comprehensive loss (802) (785)
Retained deficit (717) (551)
(135) 46
$ 29,950 $ 29,330
The accompanying notes are an integral part of these financial statements.
-2-
AMR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In millions)
Three Months Ended
March 31,
2004 2003
Net Cash Provided (Used) by Operating Activities $ 371 $ (537)
Cash Flow from Investing Activities:
Capital expenditures, including purchase
deposits for flight equipment (213) (229)
Net (increase) decrease in short-term investments (588) 731
Net decrease in restricted cash and short-term
investments 26 233
Proceeds from sale of equipment and property 18 29
Other (12) 23
Net cash (used) provided by investing activities (769) 787
Cash Flow from Financing Activities:
Payments on long-term debt and capital lease
obligations (199) (247)
Proceeds from:
Issuance of long-term debt 627 50
Exercise of stock options 2 -
Net cash provided (used) by financing activities 430 (197)
Net increase in cash 32 53
Cash at beginning of period 120 104
Cash at end of period $ 152 $ 157
Activities Not Affecting Cash
Flight equipment acquired through seller financing $ 18 $ 164
The accompanying notes are an integral part of these financial statements.
-3-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, these financial
statements contain all adjustments, consisting of normal recurring
accruals unless otherwise disclosed, necessary to present fairly the
financial position, results of operations and cash flows for the
periods indicated. Results of operations for the periods presented
herein are not necessarily indicative of results of operations for the
entire year. The condensed consolidated financial statements include
the accounts of AMR Corporation (AMR or the Company) and its wholly
owned subsidiaries, including its principal subsidiary American
Airlines, Inc. (American). For further information, refer to the
consolidated financial statements and footnotes thereto included in
the AMR Annual Report on Form 10-K for the year ended December 31,
2003 (2003 Form 10-K). Certain amounts have been reclassified to
conform with the 2004 presentation.
2.The Company accounts for its stock-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 is
recognized for stock option grants if the exercise price of the
Company's stock option grants is at or above the fair market value
of the underlying stock on the date of grant. The Company has
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 loss and 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):
Three Months Ended March 31,
2004 2003
Net loss, as reported $(166) $(1,043)
Add: Stock-based employee compensation
expense included in reported net loss 11 (3)
Deduct: Total stock-based employee
compensation expense determined under
fair value based methods for all awards (27) (7)
Pro forma net loss $(182) $(1,053)
Loss per share:
Basic and diluted - as reported $(1.03) $(6.68)
Basic and diluted - pro forma $(1.14) $(6.74)
3.As of March 31, 2004, the Company had commitments to acquire:
27 Embraer regional jets and five Bombardier CRJ-700 regional jets
in 2004; an aggregate of 38 Embraer regional jets in 2005 and 2006;
and an aggregate of 47 Boeing 737-800s and nine Boeing 777-200ERs
in 2006 through 2010. Future payments for all aircraft, including
the estimated amounts for price escalation, will approximate $576
million during the remainder of 2004, $699 million in 2005, $685
million in 2006 and an aggregate of approximately $2.0 billion in
2007 through 2010. The Company has pre-arranged financing or
backstop financing for all of its regional jet aircraft deliveries
through mid-July 2005. These deliveries include the remaining 32
aircraft in 2004 and 20 aircraft in 2005.
-4-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
The Company is subject to environmental issues at various airport
and non-airport locations for which it has accrued, in Accrued
liabilities on the accompanying condensed consolidated balance
sheets, $75 million and $72 million at March 31, 2004 and December
31, 2003, respectively. Management believes, after considering a
number of factors, that the ultimate disposition of these
environmental issues is not expected to materially affect the
Company's consolidated financial position, results of operations or
cash flows. Amounts recorded for environmental issues are based on
the Company's current assessments of the ultimate outcome and,
accordingly, could increase or decrease as these assessments
change.
In 2003, the Company reached concessionary agreements with certain
lessors. Certain of these agreements provide that the Company's
obligations under the related leases revert to the original terms
if certain events occur prior to December 31, 2005, including: (i)
an event of default under the related lease (which generally occurs
only if a payment default occurs), (ii) an event of loss with
respect to the related aircraft, (iii) rejection by the Company of
the lease under the provisions of Chapter 11 of the U.S. Bankruptcy
Code or (iv) the Company's filing for bankruptcy under Chapter 7 of
the U.S. Bankruptcy Code. If any one of these events were to
occur, the Company would be responsible for approximately $45
million in additional operating lease payments and $65 million in
additional payments related to capital leases as of March 31, 2004.
This amount will increase to approximately $119 million in
operating lease payments and $111 million in payments related to
capital leases prior to the expiration of the provision on December
31, 2005. These amounts are being accounted for as contingent
rentals and will only be recognized if they become payable.
Financial Accounting Standards Board Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others"
(Interpretation 45), requires disclosures in interim and annual
financial statements about obligations under certain guarantees
issued by the Company. The disclosures required by Interpretation
45 were included in Notes 4, 5 and 6 to the consolidated financial
statements in the 2003 Form 10-K. There have been no significant
changes to such disclosures.
4.Accumulated depreciation of owned equipment and property at March
31, 2004 and December 31, 2003 was $8.7 billion and $8.5 billion,
respectively. Accumulated amortization of equipment and property
under capital leases at March 31, 2004 and December 31, 2003 was
$1.1 billion.
5.As discussed in Note 8 to the consolidated financial statements in
the 2003 Form 10-K, the Company has a valuation allowance against
the full amount of its net deferred tax asset. The Company's
deferred tax asset valuation allowance increased $65 million during
the three months ended March 31, 2004 to $728 million as of March
31, 2004.
6.During the three-month period ended March 31, 2004, AMR Eagle
borrowed approximately $146 million (net of discount), under
various debt agreements, related to the purchase of regional jet
aircraft, including certain seller financed agreements. These debt
agreements are secured by the related aircraft, have interest rates
which are either fixed or variable based on LIBOR plus a spread,
and mature over various periods of time through 2020. As of March
31, 2004, the effective interest rates on these agreements range up
to 4.75 percent. These debt agreements are guaranteed by AMR.
In addition, in February 2004, American issued $180 million of
Fixed Rate Secured Notes due 2009. These notes are secured by
certain spare parts (with a net book value of $224 million as of
March 31, 2004) and bear interest at 7.25 percent.
-5-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Also in February 2004, the Company issued $324 million principal
amount of 4.50 percent senior convertible notes due 2024. Each note
is convertible into AMR common stock at a conversion rate of
45.3515 shares per $1,000 principal amount of notes (which
represents an equivalent conversion price of $22.05 per share),
subject to adjustment in certain circumstances. The notes are
convertible under certain circumstances, including if (i) the
closing sale price of the Company's common stock reaches a certain
level for a specified period of time, (ii) the trading price of the
notes as a percentage of the closing sale price of the Company's
common stock falls below a certain level for a specified period of
time, (iii) the Company calls the notes for redemption, or (iv)
certain corporate transactions occur. Holders of the notes may
require the Company to repurchase all or any portion of the notes
on February 15, 2009, 2014 and 2019 at a purchase price equal to
the principal amount of the notes being purchased plus accrued and
unpaid interest to the date of purchase. The Company may pay the
purchase price in cash, common stock or a combination of cash and
common stock. After February 15, 2009, the Company may redeem all
or any portion of the notes for cash at a price equal to the
principal amount of the notes being redeemed plus accrued and
unpaid interest as of the redemption date. These notes are
guaranteed by American. If the holders of these notes or the 4.25
percent senior convertible notes due 2023 require the Company to
repurchase all or any portion of the notes on the repurchase dates,
it is the Company's present intention to satisfy the requirement in
cash.
As of March 31, 2004, AMR has issued guarantees covering
approximately $932 million of American's tax-exempt bond debt and
American has issued guarantees covering approximately $1.3 billion
of AMR's unsecured debt. In addition, as of March 31, 2004, AMR
and American have issued guarantees covering approximately $484
million of AMR Eagle's secured debt, and AMR has issued guarantees
covering an additional $2.1 billion of AMR Eagle's secured debt.
7.The following table provides the components of net periodic
benefit cost for the three months ended March 31, 2004 and 2003 (in
millions):
Other Postretirement
Pension Benefits Benefits
2004 2003 2004 2003
Components of net periodic
benefit cost
Service cost $ 89 $ 109 $ 19 $ 24
Interest cost 142 152 51 56
Expected return on assets (142) (118) (3) (2)
Amortization of:
Prior service cost 4 7 (3) (2)
Unrecognized net loss 14 32 2 5
Net periodic benefit cost $ 107 $ 182 $ 66 $ 81
The Company expects to contribute a minimum of approximately $433
million and $412 million to its defined benefit pension plans in
2004 and 2005, respectively. The Company's estimates of its defined
benefit pension plan contributions reflect the provisions of the
Pension Funding Equity Act of 2004, which was enacted in April
2004. Of the $433 million minimum amount the Company expects to
contribute to its defined benefit pension plans in 2004, the
Company contributed approximately $213 million during the three
months ended March 31, 2004 and an additional $106 million on April
15, 2004.
-6-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
In December 2003, the President signed the Medicare Prescription
Drug, Improvement and Modernization Act of 2003 (the Modernization
Act), which introduces a prescription drug benefit under Medicare
into law. In January 2004, the Financial Accounting Standards Board
(FASB) issued a FASB Staff Position which permits companies to
elect to defer accounting for the effects of the Modernization Act.
The Company has not elected this deferral and has recognized the
effect of the Modernization Act in the calculation of its
postretirement benefit liability as of December 31, 2003. The
effect of the Modernization Act was to reduce the Company's
accumulated postretirement benefit obligation (APBO) by $415
million by decreasing unrecognized net actuarial losses. This
decrease is due to a reduction in the expected per capita claims
cost along with a reduction in the expected rates of participation
in the plan. The decrease in the APBO is reflected in the Company's
2004 postretirement benefits expense through amortization of
unrecognized gains/losses. Additionally, the service and interest
cost components of the Company's 2004 postretirement benefits
expense have been reduced as a result of the Modernization Act. The
effect of the Modernization Act was to decrease the Company's full
year 2004 postretirement benefits expense by approximately $60
million. Final authoritative guidance on accounting for the
Modernization Act has not been issued and could require the Company
to change previously reported information.
8.During the last three years, as a result of the events of
September 11, 2001 and the Company's continuing restructuring
activities, the Company has recorded a number of special charges
related to aircraft charges, facility exit costs and employee charges.
Special charges for the three months ended March 31, 2003 included
employee severance charges related to the Company's 2002 restructuring
initiatives. The following table summarizes the changes in the
remaining accruals for these charges (in millions):
Aircraft Facility Exit Employee
Charges Costs Charges Total
Remaining accrual
at December 31, 2003 $ 197 $ 56 $ 26 $ 279
Payments (27) (2) (4) (33)
Remaining accrual
at March 31, 2004 $ 170 $ 54 $ 22 $ 246
Cash outlays related to the accruals, as of March 31, 2004, for
aircraft charges, facility exit costs and employee charges will
occur through 2014, 2018 and 2004, respectively.
9.The Company includes changes in the fair value of certain
derivative financial instruments that qualify for hedge accounting,
changes in minimum pension liabilities and unrealized gains and
losses on available-for-sale securities in comprehensive loss. For
the three months ended March 31, 2004 and 2003, comprehensive loss
was $183 million and $1.1 billion, respectively. The difference
between net loss and comprehensive loss for the three months ended
March 31, 2004 and 2003 is due primarily to the accounting for the
Company's derivative financial instruments.
-7-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
10.The following table sets forth the computations of basic and
diluted loss per share (in millions, except per share data):
Three Months Ended
March 31,
2004 2003
Numerator:
Net loss - numerator for basic and diluted
loss per share $ (166) $ (1,043)
Denominator:
Denominator for basic and diluted loss per
share - weighted-average shares 160 156
Basic and diluted loss per share $(1.03) $ (6.68)
For the three months ended March 31, 2004, approximately 26 million
shares were not added to the denominator because inclusion of such
shares would be antidilutive. In addition, for the three months
ended March 31, 2004, approximately 32 million shares issuable upon
conversion of the Company's 4.50 percent convertible notes
(discussed in Note 6) and its 4.25 percent convertible notes were
not added to the denominator because the contingent conversion
conditions have not been met. For the three months ended March 31,
2003, shares excluded from the denominator because inclusion of
such shares would be antidilutive were insignificant.
-8-
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Forward-Looking Information
Statements in this report 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 Company's expectations or beliefs
concerning future events. When used in this document and in documents
incorporated herein by reference, the words "expects," "plans,"
"anticipates," "believes," and similar expressions are intended to
identify forward-looking statements. Forward-looking statements
include, without limitation, the Company's expectations concerning
operations and financial conditions, including changes in capacity,
revenues, and costs, future financing needs, overall economic
conditions, plans and objectives for future operations, and the impact
on the Company of its results of operations for the past three 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. Forward-looking statements are subject
to a number of risk factors that could cause actual results to differ
materially from our expectations. The following factors, in addition
to other possible factors not listed, could cause the Company's actual
results to differ materially from those expressed in forward-looking
statements: changes in economic, business and financial conditions;
the Company's substantial indebtedness; high fuel prices and the
availability of fuel; the residual effects of the war in Iraq;
conflicts in the Middle East or elsewhere; the highly competitive
business environment faced by the Company, with increasing competition
from low cost carriers and historically low fare levels; the ability
of the Company to implement its restructuring program and the effect
of the program on operational performance and service levels;
uncertainties with respect to the Company's international operations;
changes in the Company's business strategy; actions by U.S. or foreign
government agencies; the possible occurrence of additional terrorist
attacks; another outbreak of a disease (such as SARS) that affects
travel behavior; uncertainties with respect to the Company's
relationships with unionized and other employee work groups; the
inability of the Company to satisfy existing financial or other
covenants in certain of its credit agreements; the availability of
future financing; and increased insurance costs and potential
reductions of available insurance coverage. Additional information
concerning these and other factors is contained in the Company's
Securities and Exchange Commission filings, including but not limited
to the Company's Annual Report on Form 10-K for the year ended
December 31, 2003.
Overview
AMR's net loss was $166 million for the first quarter of 2004, an
improvement of $877 million over its $1.0 billion net loss for the
first quarter of 2003. AMR's operating income was $42 million for the
first quarter of 2004, an improvement of $911 million over its
operating loss of $869 million for the first quarter of 2003.
The year-over-year improvement in the Company's operating results
reflects the benefit of the cost reduction initiatives in the
Company's restructuring program, which is described more fully under
Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in the Company's Annual Report on Form 10-K
for the year ended December 31, 2003. In addition, passenger traffic
(revenue passenger miles) in the first quarter of 2004 exceeded the
Company's expectations, reflecting continuing improvement in the U.S.
economy and increasing demand for air travel. However, yield and unit
revenues (passenger revenues per available seat mile) remain depressed
relative to historical measures because of the Company's reduced
pricing power, resulting mainly from greater cost sensitivity on the
part of travelers, especially business travelers, and intensifying
competition arising in part from the growth of low-cost carriers and
in part from the effects of significant increases in overall industry
capacity in 2004. In addition, fuel prices remained high relative to
the past several years.
-9-
The Company continues to need to see improvement in the revenue
environment, additional cost reductions and further productivity
improvements before it can return to sustained profitability at
acceptable levels. In addition, the Company's ability to return to
sustained profitability at acceptable levels will depend on a number
of risk factors, many of which are largely beyond the Company's
control. Some of the risk factors that have had and/or may have a
negative impact on the Company's business and financial results are
referred to under "Forward-Looking Information" above and are
discussed in the Risk Factors listed in Item 7 (on pages 36-38) in the
Company's Annual Report on Form 10-K for the year ended December 31,
2003. In particular, if the revenue environment deteriorates beyond
normal seasonal trends, or the Company is unable to access the capital
markets to raise additional capital, it may be unable to fund its
obligations and sustain its operations in the long-term.
LIQUIDITY AND CAPITAL RESOURCES
Significant Indebtedness and Future Financing
During 2001, 2002 and 2003, the Company raised an aggregate of
approximately $10.0 billion of financing mostly to fund capital
commitments (mainly for aircraft and ground properties) and operating
losses. During the three months ended March 31, 2004, the Company
raised an additional $645 million of financing to fund capital
commitments and for general corporate purposes, and ended the quarter
with $3.2 billion of unrestricted cash and short-term investments. The
Company believes that it has sufficient liquidity to fund its
operations for the foreseeable future, including capital expenditures
and other contractual obligations. However, to maintain sufficient
liquidity over the long-term as the Company seeks to return to
sustained profitability at acceptable levels, the Company will need
continued access to additional funding. The Company's possible future
financing sources include: (i) a limited amount of additional secured
aircraft debt (virtually all of the Company's Section 1110-eligible
aircraft are encumbered), (ii) debt secured by other assets, (iii)
securitization of future operating receipts, (iv) sale-leaseback
transactions of owned aircraft, (v) the potential sale of certain non-
core assets, (vi) unsecured debt and (vii) equity and/or equity-like
securities. However, the availability and level of these financing
sources cannot be assured, particularly in light of the fact that the
Company has fewer unencumbered assets available than it has had in the
past.
The Company's significant indebtedness could have important future
consequences, such as (i) limiting the Company's ability to obtain
additional financing for working capital, capital expenditures,
acquisitions and general corporate purposes, (ii) requiring the
Company to dedicate a substantial portion of its cash flow from
operations to payments on its indebtedness, (iii) making the Company
more vulnerable to economic downturns, (iv) limiting its ability to
withstand competitive pressures and reducing its flexibility in
responding to changing business and economic conditions, and (v)
limiting the Company's flexibility in planning for, or reacting to,
changes in its business and the industry in which it operates.
Credit Facility Covenants
American has a fully drawn $834 million bank credit facility secured
by aircraft that expires December 15, 2005, which contains a liquidity
covenant and an EBITDAR (generally, earnings before interest, taxes,
depreciation, amortization and rentals, adjusted for certain non-cash
items) to fixed charges (generally, interest and total rentals) ratio
covenant. The required EBITDAR to fixed charges ratio was 1.1 to 1.0
for the three-month period ending March 31, 2004, and increases on a
quarterly basis up to 1.5 to 1.0 for each four consecutive quarters
ending after December 31, 2004. The liquidity covenant requires
American to maintain a minimum level of $1.0 billion of unrestricted
cash and short-term investments. The Company was in compliance with
these covenants as of March 31, 2004 and expects to be able to
continue to comply with these covenants. However, there are no
assurances that it will continue to be able to do so through the
expiration of the facility. Failure to comply with these covenants
would result in a default under this facility and could result in a
default under a significant amount of the Company's other debt.
-10-
Financing Activity
The Company, or its subsidiaries, issued the following debt during the
three months ended March 31, 2004 (in millions):
7.25% secured notes due 2009 $ 180
4.50% senior convertible notes due 2024
(net of discount) 319
Various debt agreements related to the
purchase of regional jet aircraft
(effective interest rates ranging up to
4.75%) (various maturities through 2020)
(net of discount) 146
$ 645
See Note 6 to the accompanying condensed consolidated financial
statements for additional information regarding the debt issuances
listed above.
Other Operating and Investing Activities
The Company's cost savings initiatives resulted in improved cash flow
from operations during the three months ended March 31, 2004, compared
to the same period in 2003. Net cash provided by operating activities
in the three-month period ended March 31, 2004 was $371 million, an
increase of $908 million over the same period in 2003. Net cash used
for operating activities for the three months ended March 31, 2003
included the receipt of a $572 million federal tax refund offset by
$216 million of redemption payments under operating leases for special
facility revenue bonds.
Capital expenditures for the first three months of 2004 were $231
million, $18 million of which was seller financed, and included the
acquisition of nine Embraer 145 and one Bombardier CRJ-700 aircraft.
Pension Funding Obligation
The Company expects to contribute a minimum of approximately $433
million and $412 million to its defined benefit pension plans in 2004
and 2005, respectively. The Company's estimates of its defined benefit
pension plan contributions reflect the provisions of the Pension
Funding Equity Act of 2004, which was enacted in April 2004. Of the
$433 million minimum amount the Company expects to contribute to its
defined benefit pension plans in 2004, the Company contributed
approximately $213 million during the three months ended March 31,
2004 and an additional $106 million on April 15, 2004.
-11-
RESULTS OF OPERATIONS
For the Three Months Ended March 31, 2004 and 2003
Revenues
The Company's revenues increased approximately $392 million, or 9.5
percent, to $4.5 billion in the first quarter of 2004 from the same
period last year. American's passenger revenues increased by 8.4
percent, or $284 million, on a capacity (available seat mile) (ASM)
increase of 5.8 percent. American's passenger load factor increased
2.0 points to 71.1 percent while passenger revenue yield per passenger
mile decreased by 0.4 percent to 12.14 cents. This resulted in an
increase in revenue per available seat mile (RASM) of 2.5 percent to
8.64 cents. Following is additional information regarding American's
domestic and international RASM and capacity:
Three Months Ended March 31, 2004
RASM Y-O-Y ASMs Y-O-Y
(cents) Change (billions) Change
Domestic 8.53 1.3% 29.5 2.5%
International 8.86 5.2 13.1 13.9
Latin America 9.40 (0.2) 7.1 21.8
Europe 8.21 8.0 4.9 5.8
Pacific 8.36 25.1 1.1 6.1
Regional affiliates' passenger revenues, which are based on industry
standard mileage proration agreements for flights connecting to
American flights, increased $94 million, or 28.8 percent, to $420
million as a result of increased capacity and load factors. Regional
affiliates' traffic increased 32.1 percent to 1.5 billion revenue
passenger miles (RPMs), while capacity increased 23.5 percent to 2.5
billion ASMs, resulting in a 4.1 point increase in the passenger load
factor to 62.7 percent.
Cargo revenues increased 10.4 percent, or $14 million, due to a 6.3
percent increase in cargo ton miles and a 4.0 percent increase in
cargo revenue yield per ton mile.
Operating Expenses
The Company's total operating expenses decreased 10.4 percent, or $519
million, to $4.5 billion in the first quarter of 2004 compared to the
first quarter of 2003. American's mainline operating expenses per ASM
in the first quarter of 2004 decreased 16.7 percent compared to the
first quarter of 2003 to 9.49 cents. These decreases are due
primarily to the Company's cost savings initiatives. The decrease in
operating expenses occurred despite a 7.4 percent increase in
American's price per gallon of fuel in the first quarter of 2004
relative to the first quarter of 2003. The Company's operating and
financial results are significantly affected by the price and
availability of jet fuel. Additional increases in the price of fuel,
or limits in the supply of fuel, would adversely affect the Company's
financial condition and results of operations.
-12-
(in millions) Three Months
Ended Change from Percentage
Operating Expenses March 31,2004 2003 Change
Wages, salaries and benefits $ 1,640 $(458) (21.8)% (a)
Aircraft fuel 808 79 10.8 (b)
Depreciation and amortization 326 (12) (3.6)
Other rentals and landing fees 305 14 4.8
Commissions, booking fees
and credit card expense 288 33 12.9 (c)
Maintenance, materials and
repairs 231 - -
Aircraft rentals 153 (37) (19.5) (d)
Food service 137 (12) (8.1)
Other operating expenses 582 (101) (14.8) (e)
Special charges - (25) NM (f)
Total operating expenses $ 4,470 $(519) (10.4)%
(a)Wages, salaries and benefits decreased primarily due to lower
wage rates and reduced headcount primarily as a result of the Labor
Agreements and Management Reductions, discussed in the Company's 2003
Form 10-K, which became effective in the second quarter of 2003.
(b)Aircraft fuel expense increased primarily due to a 7.4 percent
increase in American's price per gallon of fuel (net of the impact of
fuel hedging) and a 2.2 percent increase in American's fuel
consumption.
(c)Commissions, booking fees and credit card expense increased due
primarily to a 10.2 percent increase in the Company's passenger
revenues, particularly the 19.7 percent increase in American's
international passenger revenue.
(d)Aircraft rentals decreased due primarily to the removal of leased
aircraft from the fleet in the second half of 2003 as part of the
Company's restructuring initiatives and concessionary agreements with
certain lessors, which reduced future lease payment amounts and
resulted in the conversion of 30 operating leases to capital leases in
the second quarter of 2003.
(e)Other operating expenses decreased primarily due to decreases in
(i) technical and professional fees of $38 million, (ii) data
processing expenses of $16 million due primarily to introducing
further efficiencies into data processing environments resulting in
reduced consumption, and negotiating more favorable terms with vendors
in the second quarter of 2003; (iii) travel and incidental costs of
$11 million due primarily to decreased overnight stays for pilots and
flight attendants as a result of changes in the scheduling of flights,
lower average hotel rates, work rule changes and lower per diem
reimbursements; and increases in (iv) gains (or decreases in losses)
on disposal of assets of $23 million and (v) foreign exchange gains in
the first quarter of 2004 of $15 million.
(f)Special charges for 2003 included $25 million in severance
charges related to the Company's 2002 restructuring initiatives.
Other Income (Expense)
Other income (expense), historically a net expense, increased $34
million due primarily to the following: Interest expense increased
$20 million, or 10.4 percent, resulting primarily from the increase
in the Company's long-term debt. Miscellaneous-net increased $14 million,
due primarily to the accrual during the first quarter of 2004 of a $23
million award rendered by an independent arbitrator and relating to a
grievance filed by the Allied Pilots Association, somewhat offset by
the write-down during the first quarter of 2003 of certain investments
held by the Company.
Income Tax Benefit
The Company did not record a net tax benefit associated with its first
quarter 2004 and 2003 losses due to the Company providing a valuation
allowance, as discussed in Note 5 to the accompanying condensed
consolidated financial statements.
-13-
Operating Statistics
The following table provides statistical information for American and
Regional Affiliates for the three months ended March 31, 2004 and
2003.
Three Months Ended March 31,
2004 2003
American Airlines, Inc. Mainline Jet Operations
Revenue passenger miles (millions) 30,290 27,838
Available seat miles (millions) 42,597 40,274
Cargo ton miles (millions) 521 490
Passenger load factor 71.1% 69.1%
Passenger revenue yield per
passenger mile (cents) 12.14 12.19
Passenger revenue per available
seat mile (cents) 8.64 8.43
Cargo revenue yield per ton mile (cents) 28.47 27.38
Operating expenses per available seat mile,
excluding Regional Affiliates (cents) (*) 9.49 11.39
Fuel consumption (gallons, in millions) 741 725
Fuel price per gallon (cents) 101.0 94.0
Operating aircraft at period-end 759 812
Regional Affiliates
Revenue passenger miles (millions) 1,539 1,165
Available seat miles (millions) 2,453 1,987
Passenger load factor 62.7% 58.6%
(*) Excludes $487 million and $423 million of expense incurred
related to Regional Affiliates in 2004 and 2003, respectively.
Operating aircraft at March 31, 2004, included:
American Airlines Aircraft* AMR Eagle Aircraft
Airbus A300-600R 34 ATR 42 9
Boeing 737-800 77 Bombardier CRJ-700 20
Boeing 757-200 140 Embraer 135 39
Boeing 767-200 Extended Range 16 Embraer 140 59
Boeing 767-300 Extended Range 58 Embraer 145 61
Boeing 777-200 Extended Range 45 Super ATR 42
Fokker 100 27 Saab 340B/340B Plus 43
McDonnell Douglas MD-80 362 Total 273
Total 759
* American Airlines aircraft totals include 55 McDonnell Douglas MD-80
aircraft on the TWA LLC operating certificate.
The average aircraft age for American's and AMR Eagle's aircraft is
11.6 years and 5.8 years, respectively.
Of the operating aircraft listed above, one Boeing 767-200ER, 28
McDonnell Douglas MD-80s and 11 Saab 340Bs were in temporary storage
as of March 31, 2004.
American and AMR Eagle have agreed to sell certain aircraft. As of
March 31, 2004, remaining aircraft to be delivered under these
agreements include: 14 Fokker 100 aircraft (four of which were non-
operating), nine ATR 42 aircraft and three Saab 340B aircraft, with
final deliveries in November 2004, December 2004 and June 2004,
respectively.
-14-
Owned and leased aircraft not operated by the Company at March 31,
2004, included:
American Airlines Aircraft AMR Eagle Aircraft
Boeing 757-200 6 Embraer 145 10
Boeing 767-200 9 Saab 340B/340B Plus 49
Boeing 767-200 Extended Range 4 Total 59
Fokker 100 4
McDonnell Douglas MD-80 1
Total 24
AMR Eagle has leased its 10 owned Embraer 145s not operated by the
Company to Trans States Airlines, Inc.
Outlook
Capacity for American's mainline jet operations is expected to
increase about eight percent in the second quarter of 2004 compared to
the second quarter of 2003 and about six percent for the full year
2004 compared to 2003, despite removing aircraft from the fleet and
reducing mainline departures. This is due to increased efficiencies,
driven by three factors: (i) American operated with a low base number
of flights in 2003 as a result of the war in Iraq and SARS, (ii)
American has added seats back to its Boeing 757 and Airbus A300
aircraft and (iii) as American realigns its mid-continent hubs and de-
peaks its Miami schedule, its aircraft productivity levels will
improve.
American previously stated a goal of improving its mainline unit costs
by ten percent for the full year, compared to 2003. However, based on
various factors, including primarily the Company's expectation that
fuel prices will remain high during 2004 compared to 2003, the
Company expects that American's mainline unit costs will improve by
approximately eight percent for the full year compared to 2003 to
approximately 9.3 cents for the full year. The Company expects AMR's unit
costs to be approximately 9.7 cents for the full year. Although the
Company will have a full year of labor savings from its Labor
Agreements and Management Reductions and more fully realize the savings
from its other strategic cost savings initiatives, in addition to high
fuel prices, there are significant cost challenges in 2004 that may
affect the Company's cost reduction efforts. These challenges include
medical benefits costs, airport fees and maintenance, materials and
repairs costs (due to flight hour agreement contractual rate increases
and the benefit from retiring aircraft subsiding).
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As of March 31, 2004, the Company had hedged, with option contracts,
approximately 16 percent of its estimated second quarter 2004 fuel
requirements, nine percent of its estimated third quarter 2004 fuel
requirements, four percent of its estimated fourth quarter 2004 fuel
requirements and an insignificant percentage of its estimated 2005 and
2006 fuel requirements.
There have been no material changes in market risk from the
information provided in Item 7A. Quantitative and Qualitative
Disclosures About Market Risk of the Company's 2003 Form 10-K.
Item 4. 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 Company's management, including the Chief
Executive Officer (CEO) and Chief Financial Officer (CFO), of the
effectiveness of the Company's disclosure controls and procedures as
of March 31, 2004. Based on that evaluation, the Company's
management, including the CEO and CFO, concluded that the Company's
disclosure controls and procedures were effective as of March 31,
2004. During the quarter ending on March 31, 2004, there was no
change in the Company's internal control over financial reporting that
has materially affected, or is reasonably likely to materially affect,
the Company's internal control over financial reporting.
-15-
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
On July 26, 1999, a class action lawsuit was filed, and in November
1999 an amended complaint was filed, against AMR Corporation, American
Airlines, Inc., AMR Eagle Holding Corporation, 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 American's 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). The certified class includes 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 seek 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. The Company intends
to vigorously defend the lawsuit. Although the Company believes that
the litigation is without merit, a final adverse court decision could
impose restrictions on the Company's relationships with travel
agencies, which could have an adverse impact on the Company.
On May 17, 2002, the named plaintiffs in Hall, et al. v. United
Airlines, et al., pending in the United States District Court for the
Eastern District of North Carolina, filed an amended complaint
alleging that between 1995 and the present, American and over 15 other
defendant airlines conspired to reduce commissions paid to U.S.-based
travel agents in violation of Section 1 of the Sherman Act. The
plaintiffs are seeking monetary damages and injunctive relief. The
court granted class action certification to the plaintiffs on
September 17, 2002, defining the plaintiff class as all travel agents
in the United States, Puerto Rico, and the United States Virgin
Islands, who, at any time from October 1, 1997 to the present, issued
tickets, miscellaneous change orders, or prepaid ticket advices for
travel on any of the defendant airlines. The case is stayed as to US
Airways and United Air Lines, since they filed for bankruptcy.
American is vigorously defending the lawsuit. Defendant carriers
filed a motion for summary judgment on December 10, 2002, which the
court granted on October 30, 2003. Plaintiffs have appealed that
order to the 4th Circuit Court of Appeals, and that appeal remains
pending. A final adverse court decision awarding substantial money
damages or placing restrictions on the Company's commission policies
or practices would have an adverse impact on the Company.
Between April 3, 2003 and June 5, 2003, three lawsuits were filed by
travel agents some of whom have opted out of the Hall class action
(above) to pursue their claims individually against American Airlines,
Inc., other airline defendants, and in one case against certain
airline defendants and Orbitz LLC. (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 (6 agencies)). 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. These cases have
been consolidated in the United States District Court for the Northern
District of Ohio Eastern Division. American is vigorously defending
these lawsuits. A final adverse court decision awarding substantial
money damages or placing restrictions on the Company's distribution
practices would have an adverse impact on the Company.
-16-
On April 25, 2002, a Quebec travel agency filed a motion seeking a
declaratory judgment of the Superior Court in Montreal, Canada
(Voyages Montambault (1989) Inc. v. International Air Transport
Association, et al.), that American and the other airline defendants
owe a "fair and reasonable commission" to the agency, and that
American and the other airline defendants breached alleged contracts
with the agency by adopting policies of not paying base commissions.
The motion was subsequently amended to add 40 additional travel
agencies as petitioners. The current defendants are the International
Air Transport Association, the Air Transport Association of Canada,
Air Canada, American, America West Airlines, Delta Air Lines, Grupo
TACA, Northwest Airlines/KLM Airlines, and Continental Airlines.
American is vigorously defending the lawsuit. Although the Company
believes that the litigation is without merit, a final adverse court
decision granting declaratory relief could expose the Company to
claims for substantial money damages or force the Company to pay
agency commissions, either of which would have an adverse impact on
the Company.
On May 13, 2002, the named plaintiffs in Always Travel, et. al. v. Air
Canada, et. al., pending in the Federal Court of Canada, Trial
Division, Montreal, filed a statement of claim alleging that between
1995 and the present, American, the other defendant airlines, and the
International Air Transport Association conspired to reduce
commissions paid to Canada-based travel agents in violation of Section
45 of the Competition Act of Canada. The named plaintiffs seek
monetary damages and injunctive relief and seek to certify a
nationwide class of travel agents. Plaintiffs have filed a motion for
class certification, but that motion has not yet been decided.
American is vigorously defending the lawsuit. A final adverse court
decision awarding substantial money damages or placing restrictions on
the Company's commission policies would have an adverse impact on the
Company.
On August 14, 2002, a class action lawsuit was filed against American
Airlines, Inc. in the United States District Court for the Central
District of California, Western Division (All World Professional
Travel Services, Inc. v. American Airlines, Inc.). The lawsuit
alleges that requiring travel agencies to pay debit memos for
refunding tickets after September 11, 2001: (1) breaches the Agent
Reporting Agreement between American and plaintiff; (2) constitutes
unjust enrichment; and (3) violates the Racketeer Influenced and
Corrupt Organizations Act of 1970 (RICO). The alleged class includes
all travel agencies who have or will be required to pay moneys to
American for an "administrative service charge," "penalty fee," or
other fee for processing refunds on behalf of passengers who were
unable to use their tickets in the days immediately following the
resumption of air carrier service after the tragedies on September 11,
2001. On April 1, 2004, the court denied plaintiff's motion for class
certification. The plaintiff seeks to enjoin American from collecting
the debit memos and to recover the amounts paid for the debit memos,
plus treble damages, attorneys' fees, and costs. The Company intends
to vigorously defend the lawsuit. Although the Company believes that
the litigation is without merit, a final adverse court decision could
impose restrictions on the Company's relationships with travel
agencies which could have an adverse impact on the Company.
On August 19, 2002, a class action lawsuit seeking monetary damages
was filed, and on May 7, 2003 an amended complaint was filed in the
United States District Court for the Southern District of New York
(Power Travel International, Inc. v. American Airlines, Inc., et al.)
against American, Continental Airlines, Delta Air Lines, United
Airlines, and Northwest Airlines, alleging that American and the other
defendants breached their contracts with the agency and were unjustly
enriched when these carriers at various times reduced their base
commissions to zero. The as yet uncertified class includes all travel
agencies accredited by the Airlines Reporting Corporation "whose base
commissions on airline tickets were unilaterally reduced to zero by"
the defendants. The case is stayed as to United Air Lines, since it
filed for bankruptcy. American is vigorously defending the lawsuit.
Although the Company believes that the litigation is without merit, a
final adverse court decision awarding substantial money damages or
forcing the Company to pay agency commissions would have an adverse
impact on the Company.
-17-
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 Airlines,
Inc. 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 Airlines, Inc., 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). 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. American's
and AMR Eagle's portion of the cleanup costs cannot be reasonably
estimated due to various factors, including the unknown extent of the
remedial actions that may be required, the proportion of the cost that
will ultimately be recovered from the responsible parties, and
uncertainties regarding the environmental agencies that will
ultimately supervise the remedial activities and the nature of that
supervision. The Company is vigorously defending the lawsuit.
In April 2004, a lawsuit was filed against American captioned Kimmell
v. AMR, et al. This is a purported class action filed in federal
district court in Dallas. The suit arises from the disclosure of
passenger name records by a vendor of American Airlines. It alleges
various causes of action, including but not limited to violations of
the Electric Communications Privacy Act, negligent misrepresentation,
breach of contract, and violation of alleged common law rights of
privacy. American has not yet been served with the suit.
-18-
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein:
10.1 American Airlines, Inc. 2004 Employee Profit Sharing Plan.
10.2 American Airlines, Inc. 2004 Annual Incentive Plan.
10.3 2004 - 2006 Performance Unit Plan for Officers and Key Employees.
10.4 AMR Corporation 2004 Directors Unit Incentive Plan.
10.5 Amended and Restated Executive Termination Benefits Agreement
between AMR, American Airlines and Jeffrey J. Brundage dated
April 1, 2004.
12 Computation of ratio of earnings to fixed charges for the three
months ended March 31, 2004 and 2003.
31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a).
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a).
32 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).
Form 8-Ks filed under Item 5 - Other Events
On March 18, 2004, AMR filed an amended report on Form 8-K (Form 8-K/A
No. 1) to provide actual fuel cost, unit cost and capacity and traffic
information for January and February as well as current fuel cost,
unit cost and capacity and traffic expectations for March, the first
quarter and the full year 2004.
Form 8-Ks filed under Item 7 - Financial Statements and Exhibits
On February 25, 2004, AMR filed a report on Form 8-K to provide
Exhibits with reference to the Registration Statement on Form S-3
(Registration No. 333-110760) of AMR Corporation.
Form 8-Ks furnished under Item 9 - Regulation FD Disclosure
On January 7, 2004, AMR furnished a report on Form 8-K to announce
AMR's intent to host a conference call on January 21, 2004 with the
financial community relating to its fourth quarter and full year 2003
results.
On January 28, 2004, AMR furnished a report on Form 8-K to provide
information regarding a presentation by Gerard Arpey at the Goldman,
Sachs & Co. 19th Annual Transportation Conference on February 5, 2004.
On February 27, 2004, AMR furnished a report on Form 8-K to provide
information regarding presentations by AMR's and American's senior
management at upcoming conferences.
On March 17, 2004, AMR furnished a report on Form 8-K to furnish
actual fuel cost, unit cost and capacity and traffic information for
January and February as well as current fuel cost, unit cost and
capacity and traffic expectations for March, the first quarter and the
full year 2004.
On March 18, 2004, AMR furnished a report on Form 8-K to provide
information regarding a presentation by James Beer at Prudential
Equity Group's "Inside our Best Ideas" conference on Monday, March 22, 2004.
-19-
Form 8-Ks filed under Item 12 - Disclosure of Results of Operations
and Financial Condition
On January 21, 2004, AMR furnished a report on Form 8-K to furnish a
press release issued by AMR to announce its fourth quarter and full
year 2003 results.
-20-
Signature
Pursuant to the requirements 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.
AMR CORPORATION
Date: April 23, 2004 BY: /s/ James A. Beer
James A. Beer
Senior Vice President and Chief
Financial Officer
(Principal Financial and Accounting Officer)
-21-
Exhibit 10.1
2004 EMPLOYEE PROFIT SHARING PLAN
Purpose
The purpose of the 2004 American Airlines Employee Profit Sharing
Plan ("Plan") is to provide participating employees with a sense
of commitment to, and direct financial interest in, the success
of American Airlines, Inc.
Definitions
Capitalized terms not otherwise defined in the Plan will have the
meanings set forth in the 2003 Employee Stock Incentive Plan (the
"2003 Stock Plan").
"AMR" is defined as AMR Corporation.
"Affiliate" is defined as a subsidiary of AMR or any entity that
is designated by the Committee as a participating employer under
the Plan, provided that AMR directly or indirectly owns at least
20% of the combined voting power of all classes of stock of such
entity.
"American" is defined as AMR less AMR subsidiaries other than
American Airlines, Inc. and its subsidiaries.
"American's Pre-Tax Earnings" is defined as American's earnings
before any applicable income tax expense and is exclusive of any
profit sharing payments, payments under the Annual Incentive Plan
and any special, extraordinary or one-time items as may be
determined by the Committee in its discretion, after consultation
with AMR's independent auditors.
"Committee" is defined as the AMR Incentive Compensation
Committee.
"Eligible Earnings" is defined by the nature of the work group.
For employees who are represented by a union, the definition of
Eligible Earnings will be the definition contained in the Letter
of Agreement between the union and the company. For employees
who are not represented by a union the definition of Eligible
Earnings will be identical to the term "Qualified Earnings" under
the 2003 American Airlines Employee Profit Sharing Plan.
"Fund" is defined as the profit sharing fund, if any, accumulated
in accordance with this Plan.
"Letter(s) of Agreement" is defined as the agreement(s) reached
with each union during the April 2003 restructuring process that
define the framework of the Plan.
1
"Plan Year" is the 2004 calendar year.
Eligibility for Participation
In order to be eligible to receive a profit sharing award, the
employee must:
- - Be a U.S. domestic employee (where domestic means the United
States, Puerto Rico and the U.S. Virgin Islands);
- - Have been employed as a regular full-time or part-time
employee at American in a participating workgroup (employees
other than management Level 5 and above), during 2004; and
- - Be employed at American or an Affiliate at the time awards
are paid. If at the time awards are paid under the Plan, an
individual has retired from American or an Affiliate (pursuant to
the terms and conditions of an applicable pension plan), has been
laid off, is on a leave of absence with re-instatement rights, is
disabled or has died, the award which the individual otherwise
would have received under the Plan but for such retirement, lay-
off, leave, disability or death may be paid (on a pro-rata basis)
to the individual or his/her estate in the event of death, at the
discretion of the Committee.
Notwithstanding the foregoing, however, an employee will not be
eligible to participate in the Plan if such employee is, at the
same time, eligible to participate in:
i) any incentive compensation, profit sharing, commission or
other bonus plan sponsored by an Affiliate of American; or
ii) any commission or bonus plan, with the exception of
American's Annual Incentive Plan, sponsored by American, any
division of American or any Affiliate of American
Awards under the Plan will be determined on a proportionate basis
for participation in more than one comparable plan during a Plan
Year. Employees who transfer from/to Affiliates or any other
plan described above during a Plan Year, and satisfy eligibility
requirements, will receive awards from such plans on a
proportionate basis.
The Profit Sharing Fund Accumulation
Performance will be measured by American's Pre-Tax Earnings and
the Fund will accumulate based on that performance. The Fund will
be established at 15% of every $1 exceeding $500 million in
American's Pre-Tax Earnings.
2
Award Distribution
For eligible domestic employees, individual awards will be
distributed based upon an employee's Eligible Earnings for the
Plan Year. Award percentages will be determined by dividing the
Fund by the aggregate Eligible Earnings of all eligible
employees. This percentage will be multiplied by the individual
employee's Eligible Earnings to determine the amount of an
individual award.
Administration
The Plan will be administered by the Committee. The Committee
will have authority to administer and interpret the Plan,
establish administrative rules, determine eligibility and take
any other action necessary for the proper and efficient operation
of the Plan, consistent with the Letters of Agreement reached
with each of the unions. The amount, if any, of the Fund shall
be based on a certification of American's Pre-Tax Earnings by
AMR's independent auditors. A summary of awards under the Plan
shall be provided to the Board of Directors of AMR at the first
regular meeting following determination of the awards.
Method of Payment
The Committee shall determine the method of payment of awards.
Subject to the terms of the Plan, awards shall be paid as soon as
practicable after audited financial statements for the year 2004
are available, but no later than April 15, 2005.
General
Neither this Plan nor any action taken hereunder shall be
construed as giving to any employee or participant the right to
be retained in the employ of American or an Affiliate.
Nothing in the Plan shall be deemed to give any employee any
right, contractually or otherwise, to participate in the Plan or
in any benefits hereunder, other than the right to receive
payment of such award as may have been expressly determined by
the Committee.
In consideration of the employee's privilege to participate in
the Plan, the employee agrees (i) not to disclose any trade
secrets of, or other confidential or restricted information of,
American or its Affiliates to any unauthorized party (ii) not to
make any unauthorized use of such trade secrets or confidential
or restricted information during his or her employment with
American or its Affiliates or after such employment is
terminated, and (iii) not to solicit any current employees of
American or any other Subsidiaries of AMR to join the employee at
his or her new place of employment after his or her employment
with American or its Affiliates is terminated.
Per the Letters of Agreement, nothing is intended to limit AMR's
rights under applicable laws to modify, annul or terminate the
Plan.
3
Exhibit 10.2
2004 ANNUAL INCENTIVE PLAN
Background
As part of the restructuring process that took place in
April 2003, three new broad-based variable compensation
plans were created: the Broad Based Employee Stock Option
Plan, a new Profit Sharing Plan and the Annual Incentive
Plan (the "Plan" or "AIP").
The framework for the Plan was developed during the
restructuring, but the specific plan metrics were left to
the discretion of the AMR Board of Directors (sometimes
referred to as the "Board").
The Board has determined that for 2004 there will be two
components to the Plan - customer service and financial.
While related, the two components will be treated
separately. The financial component will provide an award
if the company meets annual financial goals. The customer
service component will provide an award if the company meets
customer satisfaction and dependability goals, regardless of
its financial performance. Providing the opportunity for a
customer service payout without meeting financial hurdles
recognizes that the company's performance in the two areas
most important to our customers - dependability and customer
satisfaction - will contribute to improved profitability.
These broad-based compensation plans have been designed to
allow all employees throughout the American Airlines team to
share in the company's success. The Plan provides the
opportunity to share immediately in that success by taking
concrete steps in each employee's everyday work that will
move the company towards profitability.
With input from our employees, the unions and the Board,
these broad-based variable compensation programs will
continue to evolve. Today, they form the building blocks
necessary to ensure that everyone is able to share in the
company's success.
1
Definitions
Capitalized terms not otherwise defined in the Plan will
have the meanings set forth in the 2003 Employee Stock
Incentive Plan (the "2003 Stock Plan").
"AMR" is defined as AMR Corporation.
"Affiliate" is defined as a subsidiary of AMR or any entity
that is designated by the Committee as a participating
employer under the Plan, provided that AMR directly or
indirectly owns at least 20% of the combined voting power of
all classes of stock of such entity.
"American" is defined as AMR less AMR subsidiaries other
than American Airlines, Inc. and its subsidiaries.
"American's Pre-Tax Earnings Margin" is a percentage and is
defined as American's earnings, relative to its revenues,
before any applicable income tax expense and is exclusive of
any profit sharing payments, payments under the Plan and any
special, extraordinary or one-time items as may be
determined by the Committee in its discretion, after
consultation with AMR's independent auditors.
"Committee" is defined as the Compensation Committee of the
AMR Board of Directors.
"Competitor" is defined as one of AirTran Airways, American
Trans Air (ATA), America West Airlines, Alaska Airlines,
Continental Airlines, Delta Air Lines, JetBlue Airways,
Northwest Airlines, Southwest Airlines, United Air Lines and
US Airways.
"DOT Rank" is defined as American's relative rank with
respect to the Competitors in the category of "arrivals+14
(A+14)" as determined by the U.S. Department of
Transportation (DOT). This monthly ranking is based on
DOT's aggregated A+14 data for the period January 1, 2004
through December 31, 2004, inclusive. To the extent that at
any point during the year a Competitor ceases to report A+14
data, it will be excluded from the calculation for the month
in which it ceases to report A+14 data, and for future
months, until it begins to report A+14 data for a full
month.
"Eligible Earnings" is defined by the nature of the work
group. For employees who are represented by a union, the
definition of Eligible Earnings will be the definition
contained in the Letter of Agreement between the union and
the company. For employees who are not represented by a
union the definition of Eligible Earnings will be identical
to the term "Qualified Earnings" under the 2003 American
Airlines Employee Profit Sharing Plan.
2
"Fund" is defined as the fund, if any, accumulated in
accordance with this Plan.
"Letters of Agreement" is defined as the agreements reached
with the Allied Pilots Association, Association of
Professional Flight Attendants and the Transport Workers
Union during the April 2003 restructuring process that
define the framework of the Plan.
"Measure" is defined, as appropriate, as American's Pre-Tax
Earnings Margin, DOT Rank or Survey America Rank.
"Named Executive Officers" is defined as the officers of
American who are named in the AMR proxy statement that
reports income for the year in which awards under the Plan
are earned.
"Other Cash Compensation Programs" is defined as cash
payments to management employees that are not predicated
upon the criteria and thresholds contained in the Plan. Per
discussions and as specified in the Letters of Agreement,
this term does not include salary, stock-based compensation,
severance, retirement benefits or deferred payments of base
compensation, or eligible cash bonuses from prior years.
"Profit Sharing Plan" is defined as the 2004 Profit Sharing
Plan for Employees.
"Survey America Rank" is defined as American's relative rank
with respect to its Competitors in the category of "Overall
Travel Experience", using a blended ranking of first class
and coach cabin, as reported in Plog Inc.'s Survey America.
The Survey America ranking is based on monthly data for
American and the Competitors for the period January 1, 2004
through December 31, 2004, inclusive. To the extent that at
any point during such year a Competitor ceases to
participate, it will be excluded from the calculation for
the month in which it ceased to participate, and for future
months, until it begins to participate again for a full
month period.
"Target Award" is defined as the award (stated as a
percentage of Eligible Earnings) for an eligible participant
when target level is achieved on the financial measure. The
Target Award is determined by the employee's job level.
3
Plan Measures
As outlined earlier, the Plan is comprised of two
components: customer service and financial.
Customer Service Component
The customer service component of the Plan will include two
performance metrics - customer satisfaction and
dependability. The Plan will reward employees if American
achieves at least one of the two metrics.
The customer satisfaction metric will be based on American's
Survey America Rank. The dependability metric will be based
on American's DOT Rank.
Monthly awards will be based on the higher of the monthly
rankings for DOT Rank or for Survey America Rank, as per the
payout schedule below. These award levels are the same for
all employees regardless of full-time or part-time status or
job level.
Payout
Per Person
Monthly Rank Per Month
First $ 100
Second - Third $ 50
Fourth - Sixth $ 25
If both metrics are achieved in any single month, the awards
will not be additive. Awards will be based solely on the
higher ranking of the two metrics.
Awards under the customer service component will be paid
regardless of performance under the financial component.
The awards under the customer service component will be
paid, net of applicable taxes, as soon as feasible after the
end of a quarter.
For example:
Monthly Ranking
Survey Higher Rank
America DOT Achieved Payout
January 2 7 2 2nd place = $ 50
February 4 5 4 4th place = $ 25
March 3 1 1 1st place = $100
Quarterly Payout $175
4
Financial Component
The financial component of the Plan will be based upon
American's Pre-Tax Earnings Margin for the full-year 2004.
The measure has a threshold (performance below this level
earns no award), a target and a maximum as reflected below:
American's Pre-Tax
Earnings Margin
Threshold 5%
Target 10%
Maximum 15%
For non-management, support staff and management levels 1-4,
awards under the financial component, in combination with
the customer service awards, will provide total annual Plan
payouts ranging from 2.5% of Eligible Earnings at threshold,
5% of Eligible Earnings at target and 10% of Eligible
Earnings at Maximum. Award levels have a linear progression
as American's Pre-Tax Earnings Margin increases between the
threshold and target levels, and between the target and
maximum levels.
American's Pre-Tax Award as a % of
Earnings Margin Eligible Earnings
Threshold 5% 2.5%
Target 10% 5.0%
Maximum 15% 10.0%
For management Levels 5 and above, none of whom participate
in the Profit Sharing Plan, the Plan will be the successor
to the traditional Incentive Compensation Plan. As in the
past, the awards for employees at Level 5 and above will be
determined by the senior management of AMR or, in certain
instances, by the Board; will vary by level; and will be
based on an assessment of individual performance.
5
If the company does not achieve the threshold level of
American's Pre-Tax Earnings Margin, there will be no
financial performance payout. However, a participant retains
any awards earned in 2004 for customer service performance.
When the threshold level of American's Pre-Tax Earnings
Margin is met, participants may be entitled to a payment
under the Plan (refer to the example below). In this case,
any customer service awards earned during 2004 act as a
"deposit" against the amount to be awarded pursuant to the
financial component. The amount of the financial
performance payout a participant receives will be the
difference, if any, between what is earned under the
financial performance formula and what has already been
earned through the customer service awards.
For example (an individual employee's sample annual payout):
Customer Service
1 month ~ 1st Place 1 x $100 = $100
3 months ~ 2nd - 3rd Place 3 x $50 = $150
8 months ~ 4th - 6th Place 8 x $25 = $200
Customer Service Payout $450
Financial ~ achieve 5% American's pre-tax earnings threshold
and have $40,000 in Eligible Earnings
2.5% x $40,000 = $1,000
less Customer Service payout ($450)
Financial Payout $550
Total Annual payout is $1,000 ($450 + $550), or 2.5% of
Eligible Earnings.
The AIP Letters of Agreement provide that Other Cash
Compensation Programs for management employees may be no
more than 20% of the maximum possible award that was or
could have been earned by the individual management employee
under the Plan formula (the "20% Limitation").
The Board has established a program that, based on an
individual's performance, anticipates payouts to Level 5 and
above management employees up to the 20% Limitation. (Level
5 and above employees are not eligible for the Profit
Sharing Plan) This program is designed to commence payments
at $500 million in American's pre-tax earnings, the same
financial threshold as exists in the Profit Sharing Plan.
This is consistent with the company's past practice of
restricting payouts under any management incentive
compensation program until payouts occur under the
corresponding employee Profit Sharing Plan. Payouts under
this program will cease when the financial threshold under
the Plan (a 5% Pre-Tax Earnings Margin for American) is
achieved.
6
Although the Board has determined that a program to use the
flexibility provided for in the Letters of Agreement will
not commence until reaching a threshold of $500 million in
American's pre-tax earnings and will be discontinued when
the financial threshold of the Plan is achieved, the company
also retains the ability to make a payment to an individual
under the 20% Limitation as provided for in the Letters of
Agreement.
The Letters of Agreement and related discussions specify
that for purposes of the 20% Limitation, Other Cash
Compensation Programs does not include salary, stock-based
compensation, severance, retirement benefits or deferred
payments of base compensation, or eligible cash bonuses from
prior years.
Eligibility for Participation
Customer Service Component:
To earn an award under the customer service component of the
Plan, an individual must have been employed as a regular
full-time or part-time employee at American, in a
participating workgroup (employees in the United States,
Puerto Rico and the U.S. Virgin Islands) and must have an
adjusted seniority date prior to the first day in the
applicable month during 2004.
The Committee, at its discretion, may permit participation
by employees of Affiliates who have been so employed by the
Affiliate since the first day in the applicable month, if
they become employed by American during the applicable month
during 2004.
In addition to the terms listed above, in order for full-
time and part-time employees to earn a payout under the
customer service measure, an individual cannot be on any
type of leave during the applicable month, except approved
FMLA, injury on duty, military, overage or time-card leave,
as provided for under the company's policies, collective
bargaining agreement or state law as applicable.
Moreover, an individual will not be eligible to earn a
customer service award if such individual is, at the same
time, eligible to participate in:
i) any incentive compensation, profit sharing,
commission or other bonus plan sponsored by an
Affiliate of American
ii) any commission or bonus plan, with the exception of
American's Profit Sharing Plan or provisions of the Annual
Incentive Plan, sponsored by American, any division of
American or any Affiliate of American
7
In order to earn a customer service award under the Plan, an
individual must satisfy the aforementioned eligibility
requirements and must be an employee of American or an
Affiliate at the time an award under the Plan is paid. If
at the time awards are paid under the Plan, an individual
has retired from American or an Affiliate, has been laid
off, is on leave of absence with reinstatement rights, is
disabled, or has died, the award which the individual
otherwise would have received under the Plan but for such
retirement, lay-off, leave, disability, or death will be
paid (on a pro rata basis) to the individual, or his/her
estate in the event of death.
The percentage of the payout that an individual receives for
any given month will be determined based upon the percentage
of his/her schedule that the individual fulfills in that
month. For Plan purposes, an individual will be considered
to have fulfilled his/her schedule if he/she actually works
at least 50% of his/her scheduled time (50% of monthly
guarantee hours for flight crew) or takes a scheduled
vacation or time-card leave, which, together with his/her
actual work time, amounts to at least 50% of his/her
scheduled time for the month. If an individual does not
fulfill his scheduled time due to one of the aforementioned
leaves, his award will be pro rated based on actual hours
worked in that month (vis-a-vis hours scheduled in that
month); otherwise, no payment will be made.
Financial Component
To earn an award under the financial component of the Plan,
an individual must have been employed as a regular full-time
or part-time employee at American, in a participating
workgroup (employees in the United States, Puerto Rico and
the U.S. Virgin Islands) during 2004 to be eligible to
participate in the Plan.
The Committee, at its discretion, may permit participation
by employees of Affiliates who have been so employed by the
Affiliate during the Plan year, if they become employed by
American during the Plan year. In such instances, only
eligible earnings at American will be included in the payout
calculation.
Notwithstanding the forgoing, however, an individual will
not be eligible to participate in the Plan if such
individual is, at the same time, eligible to participate in:
i) any incentive compensation, profit sharing, commission
or other bonus plan sponsored by an Affiliate of American
ii) any commission or bonus plan, with the exception of
American's Employee Profit Sharing Plan or provisions of the
Annual Incentive Plan, sponsored by American, any division
of American or any Affiliate of American
8
In order to earn an award under the financial component of
the Plan, an individual must satisfy the aforementioned
eligibility requirements and must be an employee of American
or an Affiliate at the time such financial award under the
Plan is paid. If at the time such awards are paid under the
Plan, an individual has retired from American or an
Affiliate, has been laid off, is on leave of absence with
reinstatement rights, is disabled, or has died, the award
which the individual otherwise would have received under the
Plan but for such retirement, lay-off, leave, disability, or
death may be paid (on a pro rata basis) to the individual,
or his/her estate in the event of death, at the discretion
of the Committee.
Allocation of Individual Awards
The Committee, in consultation with the President and CEO of
American, will approve awards for officers of American,
including the Named Executive Officers. The award for an
officer will be equal to an amount calculated in accordance
with this Plan, as adjusted for individual performance.
Provided, however, that the sum of all awards made to
officers may not exceed the sum of officer awards as
calculated in accordance with this Plan. Awards for the
Named Executive Officers will be equal to the award earned
under the financial component of the Plan. An award under
the Plan to an officer may not exceed the amount set forth
in Section 11 of the 1998 Long Term Incentive Plan, as
amended.
The President and CEO of American, in consultation with the
executive and senior vice presidents of American, will
approve awards for non-officer eligible employees (Level 5
and above). An award for a non-officer will be equal to an
amount calculated in accordance with this Plan, as adjusted
for individual performance. Provided, however, that the sum
of all awards made to non-officers may not exceed the sum of
non-officer awards calculated in accordance with this Plan.
Administration
The Committee shall have authority to administer and
interpret the Plan, establish administrative rules, approve
eligible participants, and take any other action necessary
for the proper and efficient operation of the Plan,
consistent with the Letters of Agreement reached with each
of the unions. The amount, if any, of the Fund shall be
audited by the General Auditor of American based on a
certification of American's Pre-Tax Earnings Margin by AMR's
independent auditors. For the Financial Measure, a summary
of awards under the Plan shall be provided to the Committee
at the first regular meeting following determination of the
awards. To the extent a Measure is no longer compiled by
the DOT or Survey America as applicable, during a Plan year,
the Committee will substitute a comparable performance
measure for the remainder of the Plan year.
9
Method of Payment
The Committee will determine the method of payment of
awards. The financial awards shall be paid as soon as
practicable after audited financial statements for the year
2004 are available, but no later than March 15, 2005. The
customer service measure is paid independently of the
financial measure. The customer service award will be paid
quarterly as soon as practicable after the DOT Rank and
Survey America Rank are available and employee eligibility
is established.
General
Neither this Plan nor any action taken hereunder shall be
construed as giving any employee or participant the right to
be retained in the employ of American or an Affiliate.
Nothing in the Plan shall be deemed to give any employee any
right, contractually or otherwise, to participate in the
Plan or in any benefits hereunder, other than the right to
receive payment of such incentive compensation as may have
been expressly awarded by the Committee.
In consideration of the employee's privilege to participate
in the Plan, the employee agrees (i) not to disclose any
trade secrets of, or other confidential/restricted
information of, American or its Affiliates to any
unauthorized party and (ii) not to make any unauthorized use
of such trade secrets or confidential or restricted
information during his or her employment with American or
its Affiliates or after such employment is terminated, and
(iii) not to solicit any then current employees of American
or any other subsidiaries of AMR to join the employee at his
or her new place of employment after his or her employment
with American or its Affiliates is terminated.
10
Exhibit 10.3
2004 - 2006 PERFORMANCE UNIT PLAN
FOR OFFICERS AND KEY EMPLOYEES
Purpose
The purpose of the 2004 - 2006 AMR Corporation Performance Unit
Plan ("Plan") for Officers and Key Employees is to provide
greater incentive to officers and key employees of the
subsidiaries and affiliates of AMR Corporation ("AMR" or "the
Corporation") to achieve the highest level of individual
performance and to meet or exceed specified goals which will
contribute to the success of the Corporation.
Definitions
For purposes of the Plan, the following definitions will control:
"Affiliate" is defined as a subsidiary of AMR or any entity that
is designated by the Committee as a participating employer under
the Plan, provided that AMR directly or indirectly owns at least
20% of the combined voting power of all classes of stock of such
entity.
"Committee" is defined as the Compensation Committee, or its
successor, of the AMR Board of Directors.
"Comparator Group" is defined as the following seven U.S. based
carriers including AMR Corporation, Continental Airlines, Inc.,
Delta Air Lines, Inc., JetBlue Airways, Northwest Airlines Corp.,
Southwest Airlines Co. and US Airways Group, Inc.
"Measurement Period" is defined as the three year period
beginning January 1, 2004 and ending December 31, 2006.
"Total Shareholder Return (TSR)" is defined as the rate of return
reflecting stock price appreciation plus reinvestment of
dividends over the Measurement Period. The average Daily Closing
Stock Price (adjusted for splits and dividends) for the three
months prior to the beginning and ending points of the
Measurement Period will be used to smooth out market
fluctuations.
"Daily Closing Stock Price" is defined as the stock price at the
close of trading (4:00 PM EST) of the National Exchange on which
the stock is traded.
"National Exchange" is defined as either the New York Stock
Exchange (NYSE), the National Association of Stock Dealers and
Quotes (NASDAQ), or the American Stock Exchange (AMEX).
1
Accumulation of Units
Any payment under the Plan will be determined by (i) the
Corporation's TSR rank within the Comparator Group and (ii) the
terms and conditions of the award agreement between the
Corporation and the employee. The distribution percentage of
target units, based on rank, is specified below:
Granted Shares - Percent of Target Based on Rank
Rank 7 6 5 4 3 2 1
Payout% 0% 25% 50% 75% 100% 135% 175%
In the event that a carrier (or carriers) in the Comparator Group
ceases to trade on a National Exchange at any point in the
Measurement Period, the following distribution percentage of
target units, based on rank and the number of remaining
comparators, will be used accordingly.
6 Comparators
Granted Shares - Percent of Target Based on Rank
Rank 6 5 4 3 2 1
Payout% 0% 50% 75% 100% 135% 175%
5 Comparators
Granted Units - Percent of Target Based on Rank
Rank 5 4 3 2 1
Payout% 50% 75% 100% 135% 175%
4 Comparators
Granted Units - Percent of Target Based
on Rank
Rank 4 3 2 1
Payout% 75% 100% 135% 175%
3 Comparators
Granted Units - Percent of Target Based
on Rank
Rank 3 2 1
Payout% 100% 135% 175%
2
Administration
The Committee shall have authority to administer and interpret
the Plan, establish administrative rules, approve eligible
participants, and take any other action necessary for the proper
and efficient operation of the Plan. The distribution percentage
of units, if any, will be determined based on an audit of AMR's
TSR rank by the General Auditor of American Airlines, Inc. A
summary of awards under the Plan shall be provided to the Board
of Directors at the first regular meeting following determination
of the awards. The awards will be paid in cash.
General
Neither this Plan nor any action taken hereunder shall be
construed as giving any employee or participant the right to be
retained in the employ of American Airlines, Inc. or an
Affiliate.
Nothing in the Plan shall be deemed to give any employee any
right, contractually or otherwise, to participate in the Plan or
in any benefits hereunder, other than the right to receive an
award as may have been expressly awarded by the Committee subject
to the terms and conditions of the award agreement between the
Corporation and the employee.
In the event of any act of God, war, natural disaster, aircraft
grounding, revocation of operating certificate, terrorism,
strike, lockout, labor dispute, work stoppage, fire, epidemic or
quarantine restriction, act of government, critical materials
shortage, or any other act beyond the control of the Corporation,
whether similar or dissimilar, (each a "Force Majeure Event"),
which Force Majeure Event affects the Corporation or its
Subsidiaries or its Affiliates, the Committee, in its sole
discretion, may (i) terminate or (ii) suspend, delay, defer (for
such period of time as the Committee may deem necessary), or
substitute any awards due currently or in the future under the
Plan, including, but not limited to, any awards that have accrued
to the benefit of participants but have not yet been paid.
In consideration of the employee's privilege to participate in
the Plan, the employee agrees (i) not to disclose any trade
secrets of, or other confidential/restricted information of,
American Airlines, Inc. or its Affiliates to any unauthorized
party and, (ii) not to make any unauthorized use of such trade
secrets or confidential or restricted information during his or
her employment with American Airlines, Inc. or its Affiliates or
after such employment is terminated, and (iii) not to solicit any
then current employees of American Airlines, Inc. or any other
Subsidiaries of AMR to join the employee at his or her new place
of employment after his or her employment with American Airlines,
Inc. or its Affiliates is terminated.
The Committee may amend, suspend, or terminate the Plan at any
time.
3
Exhibit 10.4
AMR CORPORATION
2004 DIRECTORS UNIT INCENTIVE PLAN
1. Purposes
The purposes of this AMR Corporation 2004 Directors
Unit Incentive Plan (the "Plan") are to enable AMR
Corporation (the "Company") to attract, retain and motivate
the best qualified directors and to enhance a long-term
mutuality of interest between the directors and stockholders
of the Company by providing the directors with an interest
in the economic well-being of the Company as evidenced by
the price of the Company's Common Stock.
2. Definitions
Unless the context requires otherwise, the following
words as used in the Plan shall have the meanings ascribed
to each below, it being understood that masculine, feminine
and neuter pronouns are used interchangeably, and that each
comprehends the other.
(a) "Award" shall mean any Unit awarded under the
Plan.
(b) "Board" shall mean the Board of Directors of the
Company.
(c) "Code" shall mean the Internal Revenue Code of
1986, as amended.
(d) "Common Stock" shall mean the common stock of the
Company, par value $1.00, any common stock into which such
common stock may be changed, and any common stock resulting
from any reclassification of such common stock.
(e) "Unit" shall mean a contractual right to receive a
cash payment equal to the Fair Market Value of one Share at
the time and subject to the conditions set forth in Section
6.
(f) "Eligible Director" shall mean a director of the
Company who is not an officer or employee of the Company or
any of its subsidiaries.
(g) "Fair Market Value" as of any given date shall
mean the mean between the highest and lowest quoted selling
prices, regular way, of a Share on the New York Stock
Exchange on such date or, if no Shares are sold on such
date, on the last preceding business day on which any such
sale was reported.
(h) "Share" shall mean a share of Common Stock.
1
3. Effective Date
The effective date of the Plan shall be May 20, 2004.
4. Administration
(a) Powers of the Board. This Plan shall be administered
by the Nominating/Corporate Governance Committee, a
standing committee of the Board, or its successor (the
Committee). These administrative duties include, by way of
example: the full authority to interpret this Plan; to establish,
amend and rescind rules for carrying out this Plan; to
administer this Plan; and to make all other determinations
and to take such steps in connection with this Plan as the
Committee, in its discretion, deems necessary or desirable.
Notwithstanding the first sentence of this Section 4(a), at
any time the Board may, by a majority vote of its members,
assume the foregoing administrative duties as to the Plan.
In the event the Board determines to so assume the
administrative duties as to the Plan, references in this
Plan to the Committee, shall thereafter be read as
references to the Board.
(b) Delegation. The Corporate Secretary of the
Company and any other officer designated by the Chief
Executive Officer will assist the Committee in the
administration of this Plan.
(c) Agents and Indemnification. The Committee may
employ such legal counsel, consultants and agents as it may
deem desirable for the administration of this Plan, and may
rely upon any opinion received from any such counsel or
consultant or agent. No member or former member of the
Committee or the Corporate Secretary or any other officer
designated pursuant to Section 4(b) shall be liable for any
action or determination made in good faith with respect to
this Plan. To the maximum extent permitted by applicable
law and the Company's Certificate of Incorporation and By-
Laws, each member or former member of the Committee or the
Corporate Secretary or any other officer designated pursuant
to Section 4(b) shall be indemnified and held harmless by
the Company against any cost or expense (including counsel
fees) or liability (including any sum paid in settlement of
a claim with the approval of the Company) arising from any
act or omission to act in connection with this Plan, unless
arising from such person's own fraud or bad faith. Such
indemnification shall be in addition to any rights of
indemnification the person may have as a director or officer
under the Company's Certificate of Incorporation or By-Laws.
Expenses incurred by the Committee in the engagement of any
such counsel, consultant or agent shall be paid by the
Company.
5. Units; Adjustment Upon Certain Events
(a) Units Available. The aggregate number of Units
that may be issued under this Plan shall not exceed 500,000
Units, except as provided in Section 5(c).
2
(b) No Limit on Corporate Action. The existence of
this Plan and the Units granted hereunder shall not affect
in any way the right or power of the Board or the
stockholders of the Company to make or authorize any
adjustment, recapitalization, reorganization or other change
in the Company's capital structure or its business, any
merger or consolidation of the Company, any issue of bonds,
debentures, preferred or prior preference stocks ahead of or
affecting Common Stock, the dissolution or liquidation of
the Company or any sale or transfer of all or part of its
assets or business, or any other corporate act or
proceeding.
(c) Recapitalization and Similar Events. The Units
awarded pursuant to the Plan derive their value by reference
to Shares of Common Stock as presently constituted, but if
and whenever the Company shall effect a subdivision,
recapitalization or consolidation of Shares or the payment
of a stock dividend on Shares without receipt of
consideration, the number and kind of Units to be awarded
under Section 6 and the aggregate number of Units previously
awarded but not yet paid in cash shall be proportionately
adjusted.
(d) No Adjustment If Value Received. Except as here
inbefore expressly provided, the issuance by the Company of
shares of stock of any class of securities convertible into
shares of stock of any class, for cash, property, labor or
services, upon direct sale, upon the exercise of rights or
warrants to subscribe therefor, or upon conversion of shares
or other securities, and in any case whether or not for fair
value, shall not affect, and no adjustment by reason thereof
shall be made with respect to, the number of Units to be
awarded to a Participant pursuant to Section 6.
6. Unit Awards
(a) Awards to Eligible Directors. On the first busi
ness day after each annual meeting of stockholders of the
Company occurring during the term of the Plan, each Eligible
Director shall receive an award of Units as follows: For
Eligible Directors first elected to the Board prior to May
15, 1996, 1422 Units. For Eligible Directors first elected
to the Board after May 15, 1996, 2133 Units.
(b) Distribution of Shares. An Eligible Director
who ceases to be a member of the Board (or, in the case of a
deceased Eligible Director, the beneficiary or beneficiaries
of the Eligible Director) shall receive a cash payment equal
to the Fair Market Value of one Share for each of the
Eligible Director's Units held by him or her on the date he
or she ceased to be a member of the Board. The Fair Market
Value shall be determined as of the date the Eligible
Director ceases to be a member of the Board and the cash
payment contemplated by this Section 6(b) will be made
within 30 days of the Directors cessation of service on the
Board.
3
7. Non-transferability of Awards
No Award shall be transferable by the Eligible Director
otherwise than by will or under the applicable laws of
descent and distribution prior to the time the cash payment
is made under Section 6(b). During the period prior to such
payment, such Award shall not be sold, assigned, negotiated,
pledged or hypothecated in any way (whether by operation of
law or otherwise) and shall not be subject to execution,
attachment or similar process. Upon any attempt to sell,
assign, negotiate, pledge or hypothecate any Award, or in
the event of any levy upon any Award by reason of any
attachment or similar process, in either case contrary to
the provisions hereof, such Award shall immediately become
null and void.
8. Rights as a Stockholder
An Eligible Director shall have no rights as a stock
holder with respect to any Units.
9. Determinations
Each determination, interpretation or other action made
or taken pursuant to the provisions of this Plan by the
Committee shall be final and binding for all purposes and
upon all persons, including, without limitation, the
Company, the directors, officers and other employees of the
Company, the Eligible Director and their respective heirs,
executors, administrators, personal representatives and
other successors in interest.
10. Termination, Amendment and Modification
(a) Termination and Amendment. This Plan shall
terminate at the close of business on May 20, 2024, unless
sooner terminated by action of the stockholders of the
Company, and no Awards shall be granted under this Plan
thereafter.
(b) No Effect on Existing Rights. Except as required
by law, no termination, amendment or modification of this
Plan may, without the consent of an Eligible Director or the
permitted transferee of an Award, alter or impair the rights
and obligations arising under any then outstanding Award.
11. Non-Exclusivity
The adoption of this Plan by the Board shall not be
construed as creating any limitations on the power of the
Board to adopt such other compensatory arrangements as it
may, in its discretion, deem desirable.
4
12. General Provisions
(a) No Right to Serve as a Director. This Plan shall
not impose any obligations on the Company to retain any
Eligible Director as a director nor shall it impose any
obligation on the part of any Eligible Director to remain as
a director of the Company, provided that each Eligible
Director by accepting each Award shall represent to the
Company that it is his/her good faith intention to continue
to serve as a director of the Company until the next annual
meeting of stockholders and that he/she intends to do so
unless a change in circumstances arises.
(b) No Right to Particular Assets. Nothing contained
in this Plan and no action taken pursuant to this Plan shall
create or be construed to create a trust of any kind or any
fiduciary relationship between the Company and any Eligible
Director, the executor, administrator or other personal
representative or designated beneficiary of such Eligible
Director, or any other persons. Any reserves that may be
established by the Company in connection with this Plan
shall continue to be part of the general funds of the
Company, and no individual or entity other than the Company
shall have any interest in such funds until paid to an
Eligible Director. To the extent that any Eligible Director
or his executor, administrator, or other personal represen
tative, as the case may be, acquires a right to receive any
payment from the Company pursuant to this Plan, such right
shall be no greater than the right of an unsecured general
creditor of the Company.
(c) Notices. Each Eligible Director shall be responsible
for furnishing the Corporate Secretary with the
current and proper address for the mailing of notices and
payments in respect of Units. Any notices required or
permitted to be given shall be deemed given if directed to
the person to whom addressed at such address and mailed by
regular United States mail, first-class and prepaid. If any
item mailed to such address is returned as undeliverable to
the addressee, mailing will be suspended until the Eligible
Director furnishes the proper address.
(d) Severability of Provisions. If any provision of
this Plan shall be held invalid or unenforceable, such
invalidity or un-enforceability shall not affect any other
provisions hereof, and this Plan shall be construed and
enforced as if such provision had not been included.
(e) Incapacity. Any benefit payable to or for the
benefit of an incompetent person or other person incapable
of acknowledging such benefit shall be deemed paid when paid
to such person's guardian or to the party providing or
reasonably appearing to provide for the care of such person,
and such payment shall fully discharge the Board, the
Company and other parties with respect thereto.
5
(f) Headings and Captions. The headings and captions
herein are provided for reference and convenience only,
shall not be considered part of this Plan, and shall not be
employed in the construction of this Plan.
(g) Controlling Law. This Plan shall be construed and
enforced according to the laws of the State of Texas.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
6
Exhibit 10.5
AMENDED AND RESTATED
EXECUTIVE TERMINATION BENEFITS AGREEMENT
THIS AMENDED AND RESTATED EXECUTIVE TERMINATION BENEFITS
AGREEMENT (this "Agreement"), dated as of the 1st day of April,
2004, is among AMR CORPORATION, a Delaware corporation, AMERICAN
AIRLINES, INC., a Delaware corporation (collectively the
"Company"), and JEFFREY J. BRUNDAGE (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company considers it essential to the best
interests of the Company and its stockholders that its management
be encouraged to remain with the Company and to continue to
devote full attention to the Company's business in the event an
effort is made to obtain control of the Company through a tender
offer or otherwise;
WHEREAS, the Company recognizes that the possibility of a
change in control and the uncertainty and questions which it may
raise among management may result in the departure or distraction
of management personnel to the detriment of the Company and its
stockholders;
WHEREAS, the Company's Board of Directors (the "Board") has
determined that appropriate steps should be taken to reinforce
and encourage the continued attention and dedication of members
of the Company's management to their assigned duties without
distraction in the face of the potentially disturbing
circumstances arising from the possibility of a change in control
of the Company;
WHEREAS, the Executive is a key Executive of the Company;
WHEREAS, the Company believes the Executive has made
valuable contributions to the productivity and profitability of
the Company;
WHEREAS, should the Company receive any proposal from a
third person concerning a possible business combination with or
acquisition of equity securities of the Company, the Board
believes it imperative that the Company and the Board be able to
rely upon the Executive to continue in his position, and that the
Company be able to receive and rely upon his advice as to the
best interests of the Company and its stockholders without
concern that he might be distracted by the personal uncertainties
and risks created by such a proposal; and
WHEREAS, should the Company receive any such proposals, in
addition to the Executive's regular duties, he may be called upon
to assist in the assessment of such proposals, advise management
and the Board as to whether such proposals would be in the best
interests of the Company and its stockholders, and to take such
other actions as the Board might determine to be appropriate.
NOW, THEREFORE, to assure the Company that it will have the
continued undivided attention and services of the Executive and
the availability of his advice and counsel notwithstanding the
possibility, threat or occurrence of a bid to take over control
of the Company, and to induce the Executive to remain in the
employ of the Company, and for other good and valuable
consideration, the Company and the Executive agree as follows:
1. Change in Control
For purposes of this Agreement, a Change in Control of the
Company shall be deemed to have taken place if:
(a) any person as defined in Section 3(a)(9) of the
Securities Exchange Act of 1934, as amended from time to time
2
(the "Exchange Act"), and as used in Sections 13(d) and 14(d)
thereof, including a "group" as defined in Section 13(d) of the
Exchange Act (a "Person"), but excluding the Company, any
subsidiary of the Company and any employee benefit plan sponsored
or maintained by the Company or any subsidiary of the Company
(including any trustee of such plan acting as trustee), directly
or indirectly, becomes the "beneficial owner" (as defined in Rule
13(d)-3 under the Exchange Act, as amended from time to time) of
securities of the Company representing 15% or more of the
combined voting power of the Company's then outstanding
securities; or
(b) individuals who, as of the date hereof, constitute
the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however,
that any individual becoming a director subsequent to the date
hereof whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result
of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person
other than the Board; or
(c) consummation of a reorganization, merger or
consolidation or sale or other disposition of all or
substantially all of the assets of the Company or the acquisition
of the assets of another corporation (a "Business Combination"),
in each case, unless, following such Business Combination,
(i) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the then outstanding
shares of common stock of the Company and the combined voting
power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors
immediately prior to such Business Combination beneficially own,
3
directly or indirectly, more than 60% of, respectively, the then
outstanding shares of common stock and the combined voting power
of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of
the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result
of such transaction owns the Company or all or substantially all
of the Company's assets either directly or through one or more
subsidiaries), (ii) no Person (excluding any employee benefit
plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns,
directly or indirectly, 15% or more of, respectively, the then
outstanding shares of common stock of the corporation resulting
from such Business Combination or the combined voting power of
the then outstanding voting securities of such corporation except
to the extent that such ownership existed prior to the Business
Combination, and (iii) at least a majority of the members of the
board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the
time of the execution of the initial agreement, or of the action
of the Incumbent Board, providing for such Business Combination;
or
(d) approval by the stockholders of the Company of a
complete liquidation or dissolution of the Company.
2. Circumstances Triggering Receipt of Severance Benefits
(a) Subject to Section 2(c), the Company will provide
the Executive with the benefits set forth in Section 4 upon any
termination of the Executive's employment:
(i) by the Company at any time within the first
24 months after a Change in Control;
4
(ii) by the Executive for "Good Reason" (as
defined in Section 2(b) below) at any time within the
first 24 months after a Change in Control;
(iii) by the Executive pursuant to Section
2(d); or
(iv) by the Company or the Executive pursuant to
Section 2(e).
(b) In the event of the occurrence of a Change in
Control, the Executive may terminate employment with the Company
and/or any subsidiary for "Good Reason" with the right to
benefits set forth in Section 4 upon the occurrence of one or
more of the following events (regardless of whether any other
reason, other than Cause as provided below, for such termination
exists or has occurred, including without limitation other
employment):
(i) Failure to elect or reelect or otherwise to
maintain the Executive in the office or the position,
or a substantially equivalent office or position, of or
with the Company and/or a subsidiary, as the case may
be, which the Executive held immediately prior to a
Change in Control, or the removal of the Executive as a
director of the Company and/or a subsidiary (or any
successor thereto) if the Executive shall have been a
director of the Company and/or a subsidiary immediately
prior to the Change in Control;
(ii) (A) A significant adverse change in the
nature or scope of the authorities, powers, functions,
responsibilities or duties attached to the position
with the Company and/or any subsidiary which the
Executive held immediately prior to the Change in
Control, (B) a reduction in the aggregate of the
Executive's annual base salary rate and annual
incentive compensation target to be received from the
Company and/or any subsidiary, or (C) the termination
or denial of the Executive's rights to Employee
5
Benefits (as defined below) or a reduction in the scope
or value thereof, any of which is not remedied by the
Company within 10 calendar days after receipt by the
Company of written notice from the Executive of such
change, reduction or termination, as the case may be;
(iii) A determination by the Executive (which
determination will be conclusive and binding upon the
parties hereto provided it has been made in good faith
and in all events will be presumed to have been made in
good faith unless otherwise shown by the Company by
clear and convincing evidence) that a change in
circumstances has occurred following a Change in
Control, including, without limitation, a change in the
scope of the business or other activities for which the
Executive was responsible immediately prior to the
Change in Control, which has rendered the Executive
substantially unable to carry out, has substantially
hindered Executive's performance of, or has caused the
Executive to suffer a substantial reduction in, any of
the authorities, powers, functions, responsibilities or
duties attached to the position held by the Executive
immediately prior to the Change in Control, which
situation is not remedied within 10 calendar days after
written notice to the Company from the Executive of
such determination;
(iv) The liquidation, dissolution, merger,
consolidation or reorganization of the Company or
transfer of all or substantially all of its business
and/or assets, unless the successor or successors (by
liquidation, merger, consolidation, reorganization,
transfer or otherwise) to which all or substantially
all of its business and/or assets have been transferred
(directly or by operation of law) assumed all duties
6
and obligations of the Company under this Agreement
pursuant to Section 9(a);
(v) The Company relocates its principal executive
offices, or requires the Executive to have his
principal location of work changed, to any location
that is in excess of 50 miles from the location
thereof immediately prior to the Change in Control, or
requires the Executive to travel away from his office
in the course of discharging his responsibilities or
duties hereunder at least 20% more (in terms of
aggregate days in any calendar year or in any calendar
quarter when annualized for purposes of comparison to
any prior year) than was required of Executive in any
of the three full years immediately prior to the Change
in Control without, in either case, his prior written
consent; or
(vi) Without limiting the generality or effect of
the foregoing, any material breach of this Agreement by
the Company or any successor thereto, which breach is
not remedied within 10 calendar days after written
notice to the Company from the Executive describing the
nature of such breach.
(c) Notwithstanding Sections 2(a) and (b) above, no
benefits shall be payable by reason of this Agreement in the
event of:
(i) Termination of the Executive's employment
with the Company and its subsidiaries by reason of the
Executive's death or Disability, provided that the
Executive has not previously given a valid "Notice of
Termination" pursuant to Section 3. For purposes
hereof, "Disability" shall be defined as the inability
of Executive due to illness, accident or other physical
or mental disability to perform his duties for any
period of six consecutive months or for any period of
7
eight months out of any 12-month period, as determined
by an independent physician selected by the Company and
reasonably acceptable to the Executive (or his legal
representative), provided that the Executive does not
return to work on substantially a full-time basis
within 30 days after written notice from the Company,
pursuant to Section 3, of an intent to terminate the
Executive's employment due to Disability;
(ii) Termination of the Executive's employment
with the Company and its subsidiaries on account of the
Executive's retirement at or after age 65, pursuant to
the Company's Retirement Benefit Plan; or
(iii) Termination of the Executive's
employment with the Company and its subsidiaries for
Cause. For the purposes hereof, "Cause" shall be
defined as a felony conviction of the Executive or the
failure of the Executive to contest prosecution for a
felony, or the Executive's wilful misconduct or
dishonesty, any of which is directly and materially
harmful to the business or reputation of the Company or
any subsidiary or affiliate. Notwithstanding the
foregoing, the Executive shall not be deemed to have
been terminated for "Cause" hereunder unless and until
there shall have been delivered to the Executive a copy
of a resolution duly adopted by the affirmative vote of
not less than three quarters of the Board then in
office at a meeting of the Board called and held for
such purpose, after reasonable notice to the Executive
and an opportunity for the Executive, together with his
counsel (if the Executive chooses to have counsel
present at such meeting), to be heard before the Board,
finding that, in the good faith opinion of the Board,
the Executive had committed an act constituting "Cause"
8
as herein defined and specifying the particulars
thereof in detail. Nothing herein will limit the right
of the Executive or his beneficiaries to contest the
validity or propriety of any such determination.
This Section 2(c) shall not preclude the payment of any
amounts otherwise payable to the Executive under any of the
Company's employee benefit plans, stock plans, programs and
arrangements and/or under any Employment Agreement.
(d) Notwithstanding anything contained in this
Agreement to the contrary, in the event of a Change in Control,
the Executive may terminate employment with the Company and any
subsidiary for any reason, or without reason, by providing Notice
of Termination pursuant to Section 3 during the 30-day period
immediately following the first anniversary of the first
occurrence of a Change in Control with the right to the benefits
set forth in Section 4.
(e) Any termination of employment of the Executive,
including a termination for "Good Reason," but excluding a
termination for "Cause," or the removal of the Executive from the
office or position in the Company or any subsidiary that occurs
(i) not more than 180 days prior to the date on which a Change in
Control occurs and (ii) following the commencement of any
discussion with a third person that ultimately results in a
Change in Control shall be deemed to be a termination or removal
of the Executive after a Change in Control for purposes of this
Agreement.
3. Notice of Termination
Any termination of the Executive's employment with the
Company and its subsidiaries as contemplated by Section 2 shall
be communicated by written "Notice of Termination" to the other
party hereto. Any "Notice of Termination" shall indicate the
effective date of termination which shall not be less than 30
days or more than 60 days after the date the Notice of
9
Termination is delivered (the "Termination Date"), the specific
provision in this Agreement relied upon, and, except for a
termination pursuant to Section 2(d), will set forth in
reasonable detail the facts and circumstances claimed to provide
a basis for such termination including, if applicable, the
failure after provision of written notice by the Executive to
effect a remedy pursuant to the final clause of Section 2(b)(ii),
2(b)(iii) or 2(b)(vi).
4. Termination Benefits
Subject to the conditions set forth in Section 2, the
following benefits shall be paid or provided to the Executive:
(a) Compensation
The Company shall pay to the Executive two times the
sum of (i) "Base Pay", which shall be an amount equal to the
greater of (A) the Executive's effective annual base salary at
the Termination Date or (B) the Executive's effective annual base
salary immediately prior to the Change in Control, plus (ii)
"Incentive Pay" equal to the greater of (x) the target annual
bonus payable to the Executive under the Company's Incentive
Compensation Plan or any other annual bonus plan for the fiscal
year of the Company in which the Change in Control occurred or
(y) the highest annual bonus earned by the Executive under the
Company's Incentive Compensation Plan or any other annual bonus
plan (whether paid currently or on a deferred basis) with respect
to any 12 consecutive month period during the three fiscal years
of the Company immediately preceding the fiscal year of the
Company in which the Change in Control occurred.
10
(b) Welfare Benefits
For a period of 36 months following the Termination
Date (the "Continuation Period"), the Company shall arrange to
provide the Executive with benefits, including travel accident,
major medical, dental, vision care and other welfare benefit
programs in effect immediately prior to the Change in Control
("Employee Benefits") substantially similar to those that the
Executive was receiving or entitled to receive immediately prior
to the Termination Date (or, if greater, immediately prior to the
reduction, termination, or denial described in Section
2(b)(ii)(C)). If and to the extent that any benefit described in
this Section 4(b) is not or cannot be paid or provided under any
policy, plan, program or arrangement of the Company or any
subsidiary, as the case may be, then the Company will itself pay
or provide for the payment to the Executive, his dependents and
beneficiaries, of such Employee Benefits along with, in the case
of any benefit which is subject to tax because it is not or
cannot be paid or provided under any such policy, plan, program
or arrangement of the Company or any subsidiary, an additional
amount such that after payment by the Executive, or his
dependents or beneficiaries, as the case may be, of all taxes so
imposed, the recipient retains an amount equal to such taxes.
Employee Benefits otherwise receivable by the Executive pursuant
to this Section 4(b) will be reduced to the extent comparable
welfare benefits are actually received by the Executive from
another employer during the Continuation Period, and any such
benefits actually received by the Executive shall be reported by
the Executive to the Company.
(c) Retirement Benefits
The Executive shall be deemed to be completely vested
in Executive's currently accrued benefits under the Company's
Retirement Benefit Plan and Supplemental Executive Retirement
Plan ("SERP") in effect as of the date of Change in Control
11
(collectively, the "Plans"), regardless of his actual vesting
service credit thereunder. In addition, the Executive shall be
deemed to earn service credit for benefit calculation purposes
thereunder for the Continuation Period. Benefits under the Plans
will become payable at any time designated by the Executive
following termination of the Executive's employment with the
Company and its subsidiaries after the Executive reaches age 55,
subject to the terms of the Plans regarding the actuarial
adjustment of benefit payments commencing prior to normal
retirement age. The benefits to be paid pursuant to the Plans
shall be calculated as though the Executive's compensation rate
for each of the five years immediately preceding his retirement
equaled the sum of Base Pay plus Incentive Pay. Any benefits
payable pursuant to this Section 4(c) that are not payable out of
the Plans for any reason (including but not limited to any
applicable benefit limitations under the Employee Retirement
Income Security Act of 1974, as amended, or any restrictions
relating to the qualification of the Company's Retirement Benefit
Plan under Section 401(a) of the Internal Revenue Code of 1986,
as amended (the "Code")) shall be paid directly by the Company
out of its general assets.
(d) Relocation Benefits
If the Executive moves his residence in order to pursue
other business or employment opportunities during the
Continuation Period and requests in writing that the Company
provide relocation services, he will be reimbursed for any
expenses incurred in that initial relocation (including taxes
payable on the reimbursement) which are not reimbursed by another
employer. Benefits under this provision will include assistance
in selling the Executive's home and all other assistance and
benefits which were customarily provided by the Company to
transferred executives prior to the Change in Control.
(e) Executive Outplacement Counseling
12
At the request of the Executive made in writing during
the Continuation Period, the Company shall engage an outplacement
counseling service of national reputation to assist the Executive
in obtaining employment.
(f) Stock Based Compensation Plans
(i) Any issued and outstanding Stock Options (to
the extent they have not already become exercisable)
shall become exercisable as of the date on which the
Change in Control occurs, unless otherwise specifically
provided at the time such options are granted.
(ii) The Company's right to rescind any award of
stock to the Executive under the Company's 1988 Long
Term Incentive Plan or the Company=s 1998 Long Term
Incentive Plan (or any successor plan) shall terminate
upon a Change in Control, and all restrictions on the
sale, pledge, hypothecation or other disposition of
shares of stock awarded pursuant to such plan shall be
removed at the Termination Date, unless otherwise
specifically provided at the time such award(s) are
made.
(iii) The Executive's rights under any other
stock based compensation plan shall vest (to the extent
they have not already vested) and any performance
criteria shall be deemed met at target as of the date
on which a Change in Control occurs, unless otherwise
specifically provided at the time such right(s) are
granted.
(g) Split Dollar Life Insurance
The Company shall pay to the Executive a lump sum equal
to the cost on the Termination Date of purchasing, at standard
13
independent insurance premium rates, an individual paid up
insurance policy providing benefits equal to the benefits
provided by the Company's Split Dollar Life Insurance coverage
immediately prior to the date of the Change in Control.
(h) Other Benefits
(i) The Executive shall have all flight
privileges provided by the Company to Directors as of
the date of Change in Control until the Executive
reaches age 55, at which time he shall have all flight
privileges provided by the Company to its retirees who
held the same or similar position as the Executive
immediately prior to the Change in Control.
(ii) The Executive, at the Executive's option,
shall be entitled to continue the use of the
Executive's Company-provided automobile during the
Continuation Period under the same terms that applied
to the automobile immediately prior to the Change in
Control, or to purchase the automobile at its book
value as of the Termination Date.
(iii) The Company shall pay to the Executive
an amount equal to the cost to the Company of providing
any other perquisites and benefits of the Company in
effect immediately prior to the Change in Control,
calculated as if such benefits were continued during
the Continuation Period.
(i) Accrued Amounts
The Company shall pay to the Executive all other
amounts accrued or earned by the Executive through the
Termination Date and amounts otherwise owing under the then
existing plans and policies of the Company, including but not
limited to all amounts of compensation previously deferred by the
Executive (together with any accrued interest thereon) and not
yet paid by the Company, and any accrued vacation pay not yet
paid by the Company.
14
(j) The Company shall pay to the Executive the amounts
due pursuant to Sections 4(a), 4(g) and 4(h)(iii) in a lump sum
on the first business day of the month following the Termination
Date. The Company shall pay to the Executive the amounts due
pursuant to Section 4(i) in accordance with the terms and
conditions of the existing plans and policies of the Company.
5. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, but subject to Section 5(h), in the event that
this Agreement shall become operative and it shall be determined
(as hereafter provided) that any payment (other than the Gross-Up
payments provided for in this Section 5) or distribution by the
Company or any of its subsidiaries to or for the benefit of the
Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise pursuant to or by reason of any other agreement,
policy, plan, program or arrangement, including without
limitation any stock option, stock appreciation right or similar
right, restricted stock, deferred stock or the lapse or
termination of any restriction on, deferral period or the vesting
or exercisability of any of the foregoing (a "Payment"), would be
subject to the excise tax imposed by Section 4999 of the Code (or
any successor provision thereto) by reason of being considered
"contingent on a change in ownership or control" of the Company,
within the meaning of Section 280G of the Code (or any successor
provision thereto) or to any similar tax imposed by state or
local law, or any interest or penalties with respect to such tax
(such tax or taxes, together with any such interest and
penalties, being hereafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an
additional payment or payments (collectively, a "Gross-Up
Payment"). The Gross-Up Payment shall be in an amount such that,
after payment by the Executive of all taxes (including any
15
interest or penalties imposed with respect to such taxes),
including any Excise Tax and any income tax imposed upon the
Gross-Up Payment, the Executive retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payment.
(b) Subject to the provisions of Section 5(f), all
determinations required to be made under this Section 5,
including whether an Excise Tax is payable by the Executive and
the amount of such Excise Tax and whether a Gross-Up Payment is
required to be paid by the Company to the Executive and the
amount of such Gross-Up Payment, if any, shall be made by a
nationally recognized accounting firm (the "Accounting Firm")
selected by the Executive in his sole discretion. The Executive
shall direct the Accounting Firm to submit its determination and
detailed supporting calculations to both the Company and the
Executive within 30 calendar days after the Change in Control
Date, the Termination Date, if applicable, and any such other
time or times as may be requested by the Company or the
Executive. If the Accounting Firm determines that any Excise Tax
is payable by the Executive, the Company shall pay the required
Gross-Up Payment to the Executive within five business days after
receipt of such determination and calculations with respect to
any Payment to the Executive. If the Accounting Firm determines
that no Excise Tax is payable by the Executive, it shall, at the
same time as it makes such determination, furnish the Company and
the Executive an opinion that the Executive has substantial
authority not to report any Excise Tax on his federal, state or
local income or other tax return. As a result of the uncertainty
in the application of Section 4999 of the Code (or any successor
provision thereto) and the possibility of similar uncertainty
regarding applicable state or local tax law at the time of any
determination by the Accounting Firm hereunder, it is possible
that Gross-Up Payments which will not have been made by the
Company should have been made (an "Underpayment"), consistent
with the calculations required to be made hereunder. In the
16
event that the Company exhausts or fails to pursue its remedies
pursuant to Section 5(f) and the Executive thereafter is required
to make a payment of any Excise Tax, the Executive shall direct
the Accounting Firm to determine the amount of the Underpayment
that has occurred and to submit its determination and detailed
supporting calculations to both the Company and the Executive as
promptly as possible. Any such Underpayment shall be promptly
paid by the Company to, or for the benefit of, the Executive
within five business days after receipt of such determination and
calculations.
(c) The Company and the Executive shall each provide
the Accounting Firm access to and copies of any books, records
and documents in the possession of the Company or the Executive,
as the case may be, reasonably requested by the Accounting Firm,
and otherwise cooperate with the Accounting Firm in connection
with the preparation and issuance of the determinations and
calculations contemplated by Section 5(b). Any determination by
the Accounting Firm as to the amount of the Gross-Up Payment
shall be binding upon the Company and the Executive.
(d) The federal, state and local income or other tax
returns filed by the Executive shall be prepared and filed on a
consistent basis with the determination of the Accounting Firm
with respect to the Excise Tax payable by the Executive. The
Executive shall make proper payment of the amount of any Excise
Payment, and at the request of the Company, provide to the
Company true and correct copies (with any amendments) of his
federal income tax return as filed with the Internal Revenue
Service and corresponding state and local tax returns, if
relevant, as filed with the applicable taxing authority, and such
other documents reasonably requested by the Company, evidencing
such payment. If prior to the filing of the Executive's federal
income tax return, or corresponding state or local tax return, if
17
relevant, the Accounting Firm determines that the amount of the
Gross-Up Payment should be reduced, the Executive shall within
five business days pay to the Company the amount of such
reduction.
(e) The fees and expenses of the Accounting Firm for
its services in connection with the determinations and
calculations contemplated by Section 5(b) shall be borne by the
Company. If such fees and expenses are initially paid by the
Executive, the Company shall reimburse the Executive the full
amount of such fees and expenses within five business days after
receipt from the Executive of a statement therefor and reasonable
evidence of his payment thereof.
(f) The Executive shall notify the Company in writing
of any claim by the Internal Revenue Service or any other taxing
authority that, if successful, would require the payment by the
Company of a Gross-Up Payment or any additional Gross-Up Payment.
Such notification shall be given as promptly as practicable but
no later than 10 business days after the Executive actually
receives notice of such claim and the Executive shall further
apprise the Company of the nature of such claim and the date on
which such claim is requested to be paid (in each case, to the
extent known by the Executive). The Executive shall not pay such
claim prior to the earlier of (x) the expiration of the
30-calendar-day period following the date on which he gives such
notice to the Company and (y) the date that any payment of amount
with respect to such claim is due. If the Company notifies the
Executive in writing prior to the expiration of such period that
it desires to contest such claim, the Executive shall:
(i) provide the Company with any written records
or documents in his possession relating to such claim
reasonably requested by the Company;
(ii) take such action in connection with
contesting such claim as the Company shall reasonably
18
request in writing from time to time, including without
limitation accepting legal representation with respect
to such claim by an attorney competent in respect of
the subject matter and reasonably selected by the
Company;
(iii) cooperate with the Company in good faith
in order effectively to contest such claim; and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly
all costs and expenses (including interest and penalties)
incurred in connection with such contest and shall indemnify and
hold harmless the Executive, on an after-tax basis, for and
against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such
contest and payment of costs and expenses. Without limiting the
foregoing provisions of this Section 5(f), the Company shall
control all proceedings taken in connection with the contest of
any claim contemplated by this Section 5(f) and, at its sole
option, may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority
in respect of such claim (provided, however, that the Executive
may participate therein at his own cost and expense) and may, at
its option, either direct the Executive to pay the tax claimed
and sue for a refund or contest the claim in any permissible
manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company
directs the Executive to pay the tax claimed and sue for a
refund, the Company shall advance the amount of such payment to
the Executive on an interest-free basis and shall indemnify and
hold the Executive harmless, on an after-tax basis, from any
19
Excise Tax or income or other tax, including interest or
penalties with respect thereto, imposed with respect to such
advance; and provided further, however, that any extension of the
statute of limitations relating to payment of taxes for the
taxable year of the Executive with respect to which the contested
amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of any such contested
claim shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing
authority.
(g) If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 5(f), the
Executive receives any refund with respect to such claim, the
Executive shall (subject to the Company's complying with the
requirements of Section 5(f)) promptly pay to the Company the
amount of such refund (together with any interest paid or
credited thereon after any taxes applicable thereto). If, after
the receipt by the Executive of an amount advanced by the Company
pursuant to Section 5(f), a determination is made that the
Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify the Executive in
writing of its intent to contest such denial or refund prior to
the expiration of 30 calendar days after such determination, then
such advance shall be forgiven and shall not be required to be
repaid and the amount of any such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be
paid by the Company to the Executive pursuant to this Section 5.
(h) Notwithstanding any provision of this Agreement to
the contrary, if (i) but for this sentence, the Company would be
obligated to make a Gross-Up Payment to the Executive, (ii) the
20
aggregate "present value" of the "parachute payments" to be paid
or provided to the Executive under this Agreement or otherwise
does not exceed 1.15 multiplied by two times the Executive's
"base amount," and (iii) but for this sentence, the net after-tax
benefit to the Executive of the Gross-Up Payment would not exceed
$50,000 (taking into account both income taxes and any Excise
Tax), then the payments and benefits to be paid or provided under
this Agreement (including any stock based compensation pursuant
to Section 4(f)) will be reduced to the minimum extent necessary
(but in no event to less than zero) so that no portion of any
payment or benefit to the Executive, as so reduced, constitutes
an "excess parachute payment." For purposes of this Section
5(h), the terms "excess parachute payment," "present value,"
"parachute payment," and "base amount" will have the meanings
assigned to them by Section 280G of the Code. The determination
of whether any reduction in such payments or benefits to be
provided under this Agreement is required pursuant to the
preceding sentence will be made at the expense of the Company, if
requested by the Executive or the Company, by the Accounting
Firm. The fact that the Executive's right to payments or
benefits may be reduced by reason of the limitations contained in
this Section 5(h) will not of itself limit or otherwise affect
any other rights of the Executive other than pursuant to this
Agreement. In the event that any payment or benefit intended to
be provided under this Agreement or otherwise is required to be
reduced pursuant to this Section 5(h), the Executive will be
entitled to designate the payments and/or benefits to be so
reduced in order to give effect to this Section 5(h). The
Company will provide the Executive with all information
reasonably requested by the Executive to permit the Executive to
make such designation. In the event that the Executive fails to
make such designation within 10 business days of the Termination
Date, the Company may effect such reduction in any manner it
deems appropriate.
21
6. No Mitigation Obligation. The Company hereby
acknowledges that it will be difficult and may be impossible for
the Executive to find reasonably comparable employment following
the Termination Date. Accordingly, the payment of the severance
compensation by the Company to the Executive in accordance with
the terms of this Agreement is hereby acknowledged by the Company
to be reasonable, and the Executive will not be required to
mitigate the amount of any payment provided for in this Agreement
by seeking other employment or otherwise, nor will any profits,
income, earnings or other benefits from any source whatsoever
create any mitigation, offset, reduction or any other obligation
on the part of the Executive hereunder or otherwise, except as
expressly provided in the last sentence of Section 4(b).
7. Legal Fees and Expenses.
(a) It is the intent of the Company that the Executive
not be required to incur legal fees and the related expenses
associated with the interpretation, enforcement or defense of
Executive's rights under this Agreement by litigation or
otherwise because the cost and expense thereof would
substantially detract from the benefits intended to be extended
to the Executive hereunder. Accordingly, if it should appear to
the Executive that the Company has failed to comply with any of
its obligations under this Agreement or in the event that the
Company or any other person takes or threatens to take any action
to declare this Agreement void or unenforceable, or institutes
any litigation or other action or proceeding designed to deny, or
to recover from, the Executive any or all of the benefits
provided or intended to be provided to the Executive hereunder,
the Company irrevocably authorizes the Executive from time to
time to retain counsel of Executive's choice, at the expense of
the Company as hereafter provided, to advise and represent the
Executive in connection with any such interpretation, enforcement
22
or defense, including without limitation the initiation or
defense of any litigation or other legal action, whether by or
against the Company or any director, officer, stockholder or
other person affiliated with the Company, in any jurisdiction.
Notwithstanding any existing or prior attorney-client
relationship between the Company and such counsel, the Company
irrevocably consents to the Executive's entering into an
attorney-client relationship with such counsel, and in that
connection the Company and the Executive agree that a
confidential relationship shall exist between the Executive and
such counsel. Without respect to whether the Executive prevails,
in whole or in part, in connection with any of the foregoing, the
Company will pay and be solely financially responsible for any
and all attorneys' and related fees and expenses incurred by the
Executive in connection with any of the foregoing.
(b) Without limiting the obligations of the Company
pursuant to Section 7(a) hereof, in the event a Change in Control
occurs, the performance of the Company's obligations under this
Section 7 shall be secured by amounts deposited or to be
deposited in trust pursuant to certain trust agreements to which
the Company shall be a party, which amounts deposited shall in
the aggregate be not less than $2,000,000, providing that the
fees and expenses of counsel selected from time to time by the
Executive pursuant to Section 7(a) shall be paid, or reimbursed
to the Executive if paid by the Executive, either in accordance
with the terms of such trust agreements, or, if not so provided,
on a regular, periodic basis upon presentation by the Executive
to the trustee of a statement or statements prepared by such
counsel in accordance with its customary practices. Any failure
by the Company to satisfy any of its obligations under this
Section 7(b) shall not limit the rights of the Executive
hereunder. Subject to the foregoing, the Executive shall have
the status of a general unsecured creditor of the Company and
shall have no right to, or security interest in, any assets of
the Company or any subsidiary.
23
8. Continuing Obligations
(a) The Executive hereby agrees that all documents,
records, techniques, business secrets and other information which
have come into his possession from time to time during his
employment with the Company shall be deemed to be confidential
and proprietary to the Company and, except for personal documents
and records of the Executive, shall be returned to the Company.
The Executive further agrees to retain in confidence any
confidential information known to him concerning the Company and
its subsidiaries and their respective businesses so long as such
information is not publicly disclosed, except that Executive may
disclose any such information required to be disclosed in the
normal course of his employment with the Company or pursuant to
any court order or other legal process.
(b) The Executive hereby agrees that during the
Continuation Period, he will not directly or indirectly solicit
any employee of the Company or any of its subsidiaries or
affiliated companies to join the employ of any entity that
competes with the Company or any of its subsidiaries or
affiliated companies.
9. Successors
(a) The Company shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or
assets of the Company, by agreement in form and substance
satisfactory to the Executive to expressly assume and agree to
perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such
succession had taken place. Failure of such successor entity to
enter into such agreement prior to the effective date of any such
succession (or, if later, within three business days after first
receiving a written request for such agreement) shall constitute
a breach of this Agreement and shall entitle the Executive to
24
terminate his employment pursuant to Section 2(a)(ii) and to
receive the payments and benefits provided under Section 4. As
used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or
assets as aforesaid which executes and delivers the Agreement
provided for in this Section 9 or which otherwise becomes bound
by all the terms and provisions of this Agreement by operation of
law.
(b) This Agreement shall inure to the benefit of and
be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive dies while
any amounts are payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to his devisee, legatee or other
designee or, if there is no such designee, to his estate.
10. Notices
For all purposes of this Agreement, all communications,
including without limitation notices, consents, requests or
approvals, required or permitted to be given hereunder will be in
writing and will be deemed to have been duly given when hand
delivered or dispatched by electronic facsimile transmission
(with receipt thereof orally confirmed), or five business days
after having been mailed by United States registered or certified
mail, return receipt requested, postage prepaid, or three
business days after having been sent by a nationally recognized
overnight courier service addressed to the Company (to the
attention of the Secretary of the Company, with a copy to the
General Counsel of the Company) at its principal executive office
and to the Executive at his principal residence, or to such other
address as any party may have furnished to the other in writing
and in accordance herewith, except that notices of changes of
address shall be effective only upon receipt.
25
11. Governing Law
THE VALIDITY, INTERPRETATION, CONSTRUCTION AND PERFORMANCE
OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
DELAWARE.
12. Miscellaneous
No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and the Company. No
waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or any prior or subsequent time. No
agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made
by either party which are not set forth expressly in this
Agreement (or in any employment or other written agreement
relating to the Executive). Notwithstanding any provision of
this Agreement to the contrary, the parties' respective rights
and obligations under Sections 4, 5 and 7 will survive any
termination or expiration of this Agreement or the termination of
the Executive's employment following a Change in Control for any
reason whatsoever. Nothing expressed or implied in this
Agreement will create any right or duty on the part of the
Company or the Executive to have the Executive remain in the
employment of the Company or any subsidiary prior to or following
any Change in Control. The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other
taxes as the Company is required to withhold pursuant to any law
or government regulation or ruling. In the event that the
Company refuses or otherwise fails to make a payment when due and
it is ultimately decided that the Executive is entitled to such
26
payment, such payment shall be increased to reflect an interest
factor, compounded annually, equal to the prime rate in effect as
of the date the payment was first due plus two points. For this
purpose, the prime rate shall be based on the rate identified by
Chase Manhattan Bank as its prime rate.
13. Separability
The invalidity or unenforceability of any provisions of this
Agreement shall not affect the validity or enforceability of any
other provision of this Agreement, which shall remain in full
force and effect.
14. Non-assignability
This Agreement is personal in nature and neither of the
parties hereto shall, without the consent of the other, assign or
transfer this Agreement or any rights or obligations hereunder,
except as provided in Section 9. Without limiting the foregoing,
the Executive's right to receive payments hereunder shall not be
assignable or transferable, whether by pledge, creation of a
security interest or otherwise, other than a transfer by his will
or by the laws of descent or distribution, and in the event of
any attempted assignment or transfer by Executive contrary to
this Section 14 the Company shall have no liability to pay any
amount so attempted to be assigned or transferred to any person
other than the Executive or, in the event of his death, his
designated beneficiary or, in the absence of an effective
beneficiary designation, the Executive's estate.
15. Effectiveness; Term
This Agreement will be effective and binding as of the date
first above written immediately upon its execution, but, anything
in this Agreement to the contrary notwithstanding, this Agreement
will not be operative unless and until a Change in Control
27
occurs. Upon the occurrence of a Change in Control at any time
during the Term (as defined below), without further action, this
Agreement shall become immediately operative. For purposes of
this Agreement, "Term" means the period commencing as of the date
first above written and expiring as of the later of (i) the fifth
anniversary of the date first above written or (ii) the second
anniversary of the first occurrence of a Change in Control;
provided, however, that (A) commencing on the fifth anniversary
of the date first above written and each fifth anniversary date
thereafter, the Term of this Agreement will automatically be
extended for an additional five years unless, not later than 180
days preceding each such fifth anniversary date, the Company or
the Executive shall have given notice that it or the Executive,
as the case may be, does not wish to have the Term extended and
(B) subject to Section 2(e), if, prior to a Change in Control,
the Executive ceases for any reason to be an employee of the
Company and any subsidiary, thereupon without further action the
Term shall be deemed to have expired and this Agreement will
immediately terminate and be of no further effect. For purposes
of this Section 15, the Executive shall not be deemed to have
ceased to be an employee of the Company and any subsidiary by
reason of the transfer of Executive's employment between the
Company and any subsidiary, or among any subsidiaries.
16 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the
same agreement.
17 Prior Agreement. This Agreement supersedes and
terminates any and all prior Executive Termination Benefits
28
Agreements by and among Company and the Executive.
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed and delivered as of the day and year first above
set forth, thereby mutually and voluntarily agreeing that this
Agreement supersedes and replaces any prior similar agreements
for such termination benefits.
AMR CORPORATION
By: /s/ Gerard J. Arpey
Gerard J. Arpey
AMERICAN AIRLINES, INC.
By: /s/ Gerard J. Arpey
Gerard J. Arpey
JEFFREY J. BRUNDAGE
/s/ Jeffrey J. Brundage
29
Exhibit 12
AMR CORPORATION
Computation of Ratio of Earnings to Fixed Charges
(in millions)
Three Months Ended March 31,
2004 2003
Earnings (loss):
Loss before income taxes $ (166) $(1,043)
Add: Total fixed charges (per below) 435 438
Less: Interest capitalized 18 19
Total earnings (loss) before income taxes $ 251 $ (624)
Fixed charges:
Interest $ 201 $ 183
Portion of rental expense representative
of the interest factor 220 244
Amortization of debt expense 14 11
Total fixed charges $ 435 $ 438
Coverage deficiency $ 184 $ 1,062
Exhibit 31.1
I, Gerard J. Arpey, certify that:
1.I have reviewed this quarterly report on Form 10-Q of AMR
Corporation;
2.Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report;
3.Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this report;
4.The registrant's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b)Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and
(c)Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5.The registrant's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: April 23, 2004 /s/ Gerard J. Arpey
Gerard J. Arpey
President and Chief Executive Officer
Exhibit 31.2
I, James A. Beer, certify that:
1.I have reviewed this quarterly report on Form 10-Q of AMR
Corporation;
2.Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report;
3.Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this report;
4.The registrant's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b)Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and
(c)Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5.The registrant's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: April 23, 2004 /s/ James A. Beer
James A. Beer
Senior Vice President and Chief
Financial Officer
Exhibit 32
AMR CORPORATION
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18,
United States Code)
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002
(subsections (a) and (b) of section 1350, chapter 63 of title 18,
United States Code), each of the undersigned officers of AMR
Corporation, a Delaware corporation (the Company), does hereby
certify, to such officer's knowledge, that:
The Quarterly Report on Form 10-Q for the quarter ended March 31,
2004 (the Form 10-Q) of the Company fully complies with the
requirements of section 13(a) or 15(d) of the Securities Exchange Act
of 1934 and information contained in the Form 10-Q fairly presents,
in all material respects, the financial condition and results of
operations of the Company.
Date: April 23, 2004 /s/ Gerard J. Arpey
Gerard J. Arpey
President and Chief Executive Officer
Date: April 23, 2004 /s/ James A. Beer
James A. Beer
Senior Vice President and Chief
Financial Officer
The foregoing certification is being furnished solely pursuant to
section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and
(b) of section 1350, chapter 63 of title 18, United States Code) and
is not being filed as part of the Form 10-Q or as a separate
disclosure document.
