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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 June 30, 2005.
[ ]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, including area code (817) 963-1234
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 - 163,701,281 shares as of July 15, 2005.
INDEX
AMR CORPORATION
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations -- Three and six months ended
June 30, 2005 and 2004
Condensed Consolidated Balance Sheets -- June 30, 2005 and December
31, 2004
Condensed Consolidated Statements of Cash Flows -- Six months ended
June 30, 2005 and 2004
Notes to Condensed Consolidated Financial Statements -- June 30, 2005
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 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits
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 Six Months Ended
June 30, June 30,
2005 2004 2005 2004
Revenues
Passenger - American Airlines $ 4,264 $ 3,895 $ 8,106 7,573
- Regional Affiliates 561 505 1,012 925
Cargo 157 155 308 303
Other revenues 327 275 633 541
Total operating revenues 5,309 4,830 10,059 9,342
Expenses
Wages, salaries and benefits 1,671 1,703 3,315 3,343
Aircraft fuel 1,350 917 2,448 1,725
Other rentals and landing fees 319 301 619 606
Depreciation and amortization 286 320 576 646
Commissions, booking fees
and credit card expense 286 287 557 575
Maintenance, materials and
repairs 257 245 492 476
Aircraft rentals 147 153 295 306
Food service 127 139 252 276
Other operating expenses 637 600 1,253 1,182
Special charges - (31) - (31)
Total operating expenses 5,080 4,634 9,807 9,104
Operating Income 229 196 252 238
Other Income (Expense)
Interest income 29 14 64 28
Interest expense (223) (217) (457) (429)
Interest capitalized 24 20 47 38
Miscellaneous - net (1) (7) (10) (35)
(171) (190) (356) (398)
Income (Loss) Before Income Taxes 58 6 (104) (160)
Income tax - - - -
Net Earnings (Loss) $ 58 $ 6 $ (104) $ (160)
Earnings (Loss) Per Share
Basic $ 0.35 $ 0.04 $(0.64) $(1.00)
Diluted $ 0.30 $ 0.03 $(0.64) $(1.00)
The accompanying notes are an integral part of these financial statements.
-1-
AMR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (In millions)
June 30, December 31,
2005 2004
Assets
Current Assets
Cash $ 166 $ 120
Short-term investments 3,233 2,809
Restricted cash and short-term investments 492 478
Receivables, net 1,052 836
Inventories, net 488 488
Other current assets 358 240
Total current assets 5,789 4,971
Equipment and Property
Flight equipment, net 15,266 15,292
Other equipment and property, net 2,471 2,426
Purchase deposits for flight equipment 285 319
18,022 18,037
Equipment and Property Under Capital Leases
Flight equipment, net 988 1,016
Other equipment and property, net 86 84
1,074 1,100
Route acquisition costs and airport operating
and gate lease rights, net 1,209 1,223
Other assets 3,400 3,442
$ 29,494 $28,773
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities
Accounts payable $ 1,202 $ 1,003
Accrued liabilities 1,900 2,026
Air traffic liability 4,007 3,183
Current maturities of long-term debt 738 659
Current obligations under capital leases 172 147
Total current liabilities 8,019 7,018
Long-term debt, less current maturities 12,357 12,436
Obligations under capital leases, less
current obligations 965 1,088
Pension and postretirement benefits 4,754 4,743
Other liabilities, deferred gains
and deferred credits 4,014 4,069
Stockholders' Equity (Deficit)
Preferred stock - -
Common stock 182 182
Additional paid-in capital 2,380 2,521
Treasury stock (1,154) (1,308)
Accumulated other comprehensive loss (607) (664)
Accumulated deficit (1,416) (1,312)
(615) (581)
$ 29,494 $28,773
The accompanying notes are an integral part of these financial statements.
-2-
AMR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In millions)
Six Months Ended June 30,
2005 2004
Net Cash Provided by Operating Activities $1,064 $ 733
Cash Flow from Investing Activities:
Capital expenditures, including purchase
deposits for flight equipment (484) (514)
Net increase in short-term investments (424) (682)
Net (increase) decrease in restricted cash
and short-term investments (14) 38
Proceeds from sale of equipment and property 18 40
Other - (10)
Net cash used by investing activities (904) (1,128)
Cash Flow from Financing Activities:
Payments on long-term debt and capital
lease obligations (413) (370)
Proceeds from:
Issuance of long-term debt 287 836
Exercise of stock options 12 5
Net cash (used) provided by financing activities (114) 471
Net increase in cash 46 76
Cash at beginning of period 120 120
Cash at end of period $ 166 $ 196
Activities Not Affecting Cash
Capital lease obligations incurred $ 10 $ 10
Flight equipment acquired through seller financing $ - $ 18
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, 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 (i) its principal subsidiary American
Airlines, Inc. (American) and (ii) its regional airline subsidiary,
AMR Eagle Holding Corporation and its primary subsidiaries, American
Eagle Airlines, Inc., Executive Airlines, Inc. and AMR Leasing
Corporation (collectively, AMR Eagle). 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, 2004 (2004 Form 10-K).
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 earnings (loss) and earnings (loss)
per share amounts if the Company had applied the fair value
recognition provisions of SFAS 123 to stock-based employee
compensation (in millions, except per share amounts):
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
Net earnings (loss), as reported $ 58 $ 6 $(104) $(160)
Add: Stock-based employee
compensation expense included in
reported net earnings (loss) 11 6 18 17
Deduct: Total stock-based employee
compensation expense determined
under fair value based methods
for all awards (27) (22) (48) (49)
Pro forma net earnings (loss) $ 42 $ (10) $(134) $(192)
Earnings (loss) per share:
Basic - as reported $ 0.35 $ 0.04 $(0.64) $(1.00)
Diluted - as reported $ 0.30 $ 0.03 $(0.64) $(1.00)
Basic - pro forma $ 0.26 $(0.06) $(0.83) $(1.20)
Diluted - pro forma $ 0.23 $(0.06) $(0.83) $(1.20)
-4-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
In December 2004, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 (revised 2004),
"Share-Based Payment" (SFAS 123(R)). SFAS 123(R) requires all
share-based payments to employees, including grants of employee
stock options, to be recognized in the financial statements based
on their fair values. SFAS 123(R) is effective January 1, 2006 for
AMR. Under SFAS 123(R), the Company will recognize compensation
expense for the portion of outstanding awards for which service has
not yet been rendered, based on the grant-date fair value of those
awards calculated under SFAS 123 for pro forma disclosures. The
Company has not completed its evaluation of the impact of SFAS
123(R) on its financial statements.
3.As of June 30, 2005, the Company had commitments to acquire:
two Embraer regional jets in July 2005; two Boeing 777-200ERs in
2006; and an aggregate of 47 Boeing 737-800s and seven Boeing 777-
200ERs in 2013 through 2016. Future payments for all aircraft,
including the estimated amounts for price escalation, will
approximate $35 million during the remainder of 2005, $101 million
in 2006 and an aggregate of approximately $2.8 billion in 2011
through 2016. The Company has pre-arranged financing or backstop
financing for all aircraft deliveries in 2005 and 2006.
In 2003, the Company reached concessionary agreements with certain
lessors. Certain of these agreements provide that the Company's
obligations under the related leases will 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 $113 million in additional operating lease payments
and $119 million in additional payments related to capital leases
as of June 30, 2005. These amounts will decrease by approximately
$3 million 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.
4.Accumulated depreciation of owned equipment and property at June 30,
2005 and December 31, 2004 was $10.0 billion and $9.6 billion,
respectively. Accumulated amortization of equipment and property
under capital leases at both June 30, 2005 and December 31, 2004 was
$1.0 billion.
Effective January 1, 2005, in order to more accurately reflect the
expected useful life of its aircraft, the Company changed its
estimate of the depreciable lives of its Boeing 737-800, Boeing 757-
200 and McDonnell Douglas MD-80 aircraft from 25 to 30 years. As a
result of this change, Depreciation and amortization expense was
reduced by approximately $27 million and $54 million, respectively,
for the three and six months ended June 30, 2005. Also, year over
year net earnings for the second quarter 2005 increased $0.13 per
diluted share and the net loss for the six months ended June 30,
2005 decreased $0.33 per share.
5.As discussed in Note 8 to the consolidated financial statements
in the 2004 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 $6 million during the six
months ended June 30, 2005 to $839 million as of June 30, 2005. As a
result of historical and current losses, the Company did not provide
for a net tax benefit associated with its loss in the six month period
ended June 30, 2005.
6.During the six-month period ended June 30, 2005, AMR Eagle borrowed
approximately $287 million (net of discount), under various debt
agreements, related to the purchase of regional jet aircraft. These
debt agreements are secured by the related aircraft, have an
effective interest rate of 5.0 percent, are guaranteed by AMR and
mature over various periods of time through 2021.
-5-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
As of June 30, 2005, AMR has issued guarantees covering
approximately $928 million of American's tax-exempt bond debt and
American's fully drawn $819 million credit facility. American has
issued guarantees covering approximately $1.3 billion of AMR's
unsecured debt. In addition, as of June 30, 2005, AMR and American
have issued guarantees covering approximately $447 million of AMR
Eagle's secured debt and AMR has issued guarantees covering an
additional $2.9 billion of AMR Eagle's secured debt.
7.The following tables provide the components of net periodic
benefit cost for the three and six months ended June 30, 2005 and 2004
(in millions):
Pension Benefits
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
Components of net periodic benefit cost
Service cost $ 93 $ 90 $ 185 $ 179
Interest cost 153 141 305 283
Expected return on assets (164) (142) (329) (284)
Amortization of:
Prior service cost 4 3 8 7
Unrecognized net loss 13 15 26 29
Net periodic benefit cost $ 99 $ 107 $ 195 $ 214
Other Postretirement Benefits
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
Components of net periodic benefit cost
Service cost $ 19 $ 19 $ 37 $ 38
Interest cost 49 50 99 101
Expected return on assets (4) (3) (7) (6)
Amortization of:
Prior service cost (3) (2) (5) (5)
Unrecognized net loss 1 2 1 4
Net periodic benefit cost $ 62 $ 66 $125 $132
The Company expects to contribute approximately $310 million to its
defined benefit pension plans in 2005. This estimate reflects the
provisions of the Pension Funding Equity Act of 2004, which
deferred (to 2006 and later years) a portion of the minimum
required contributions that would have been due for the 2004 and
2005 plan years. Of the $310 million the Company expects to
contribute this year, the Company contributed $213 million during
the six months ended June 30, 2005.
-6-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
8.As a result of the events of September 11, 2001, the depressed
revenue environment, high fuel prices and the Company's
restructuring activities, the Company has recorded a number of
special charges during the last few years. The following table
summarizes the changes since December 31, 2004 in the accruals for
these charges (in millions):
Aircraft Facility Employee
Charges Exit Costs Charges Total
Remaining accrual at
December 31, 2004 $ 129 $ 26 $ 36 $ 191
Payments (10) (3) (31) (44)
Remaining accrual at
June 30, 2005 $ 119 $ 23 $ 5 $ 147
Cash outlays related to these accruals, as of June 30, 2005, for
aircraft charges, facility exit costs and employee charges will
occur through 2014, 2018 and 2005, 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 income
(loss). For the three months ended June 30, 2005 and 2004,
comprehensive income was $70 million and $6 million, respectively,
and for the six months ended June 30, 2005 and 2004, comprehensive
loss was $(47) million and $(177) million, respectively. The
difference between net earnings (loss) and comprehensive income
(loss) for the three and six months ended June 30, 2005 and 2004 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 earnings (loss) per share (in millions, except per share
data):
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
Numerator:
Net earnings (loss) - numerator
for basic earnings (loss) per share $ 58 $ 6 $(104) $(160)
Interest on senior convertible notes 6 - - -
Net earnings (loss) adjusted for
interest on convertible debt -
numerator for diluted earnings
(loss) per share $ 64 $ 6 $(104) $(160)
Denominator:
Denominator for basic earnings
(loss) per share - weighted-
average shares 163 160 162 160
Effect of dilutive securities:
Senior convertible notes 32 - - -
Employee options and shares 40 42 - -
Assumed treasury shares purchased (19) (19) - -
Dilutive potential common shares 53 23 - -
Denominator for diluted earnings
(loss) per share - adjusted
weighted-average shares 216 183 162 160
Basic earnings (loss) per share $0.35 $0.04 $(0.64) $(1.00)
Diluted earnings (loss) per share $0.30 $0.03 $(0.64) $(1.00)
Approximately 28 million shares related to employee stock options were
not added to the denominator for the three months ended June 30, 2005
because the options' exercise prices were greater than the average
market price of the common shares. Approximately 61 million shares
issuable upon conversion of the Company's convertible notes, employee
stock options and deferred stock were not added to the denominator
for the three months ended June 30, 2004. The inclusion of such shares
would be antidilutive.
For the six months ended June 30, 2005 and 2004, approximately 29
million shares related to employee stock options were not added to the
denominator because the options' exercise prices were greater than the
average market price of the common shares. Additionally,
approximately 51 million and 57 million shares issuable upon
conversion of the Company's convertible notes, employee stock options
and deferred stock were not added to the denominator because inclusion
of such shares would be antidilutive.
-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," "indicates," "believes," "forecast," "guidance,"
"outlook" 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 plans and needs, overall economic conditions,
plans and objectives for future operations, and the impact on the
Company of its results of operations in recent years and the
sufficiency of its financial resources to absorb that impact. Other
forward-looking statements include statements which do not relate
solely to historical facts, such as, without limitation, statements
which discuss the possible future effects of current known trends or
uncertainties or which indicate that the future effects of known
trends or uncertainties cannot be predicted, guaranteed or assured.
All forward-looking statements in this report are based upon
information available to the Company on the date of this report. The
Company undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information,
future events, or otherwise.
Forward-looking statements are subject to a number of factors that
could cause the Company's actual results to differ materially from the
Company's 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; continued high fuel prices and
the availability of fuel; further increases in the price of fuel; the
impact of events in Iraq; conflicts in the Middle East or elsewhere;
the highly competitive business environment faced by the Company,
characterized by increasing pricing transparency and competition from
low cost carriers and financially distressed carriers; historically
low fare levels and fare simplification initiatives (both of which
could result in a further deterioration of the revenue environment);
the ability of the Company to reduce its costs further without
adversely affecting 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 and
terms of future financing; the ability of the Company to reach
acceptable agreements with third parties; 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 2004 Form 10-K.
Overview
The Company recorded net earnings of $58 million during the second
quarter of 2005 compared to $6 million in the same period last year.
The Company's second quarter 2005 results were impacted by the
continuing increase in fuel prices, offset by an improvement in unit
revenues (passenger revenue per available seat mile) and a $27 million
decrease in depreciation expense related to a change in the
depreciable lives of certain aircraft types described in Note 4 to the
Condensed Consolidated Financial Statements.
Fuel price increases resulted in a year-over-year increase of 52.8
cents per gallon for the second quarter. This price increase
negatively impacted fuel expense by $434 million during the quarter
based on fuel consumption of 823 million gallons. Continuing high
fuel prices, additional increases in the price of fuel, and/or
disruptions in the supply of fuel would further adversely affect the
Company's financial condition and its results of operations.
-9-
Mainline passenger unit revenues increased 7.0 percent for the second
quarter due to a 3.8 point load factor increase and a 1.9 percent
increase in passenger yield (passenger revenue per passenger mile)
compared to the same period in 2004. Although load factor performance
continues to show significant year-over-year improvement, passenger
yield remains depressed by historical standards. The Company believes
this depressed passenger yield is due in large part to a corresponding
decline in the Company's pricing power. The Company's reduced pricing
power is the product of several factors, including: greater cost
sensitivity on the part of travelers (particularly business
travelers); greater competition from low-cost carriers and from
carriers that have recently reorganized or are reorganizing, including
under the protection of Chapter 11 of the Bankruptcy Code; significant
increases in overall capacity during 2004 and continuing into 2005
that exceeded economic growth; and, more recently, fare simplification
efforts by certain carriers. The Company believes that its reduced
pricing power will persist indefinitely and possibly permanently.
The Company continues to work - under the basic tenets of the
Turnaround Plan - with its unions and employees to identify and
implement additional initiatives designed to increase efficiencies and
revenues and reduce costs. During the second quarter, the Company's
numerous network, product and other initiatives implemented during the
past several years continued to benefit its financial results. In
addition, its employees showed a remarkable ability to efficiently and
courteously handle the record load factors during the quarter. The
Company will continue to work with its labor unions and employees as
its business partners on the need for continuous improvement under the
Turnaround Plan.
The Company's ability to become profitable and its ability to continue
to fund its obligations on an ongoing basis will depend on a number of
factors, some of which are largely beyond the Company's control. Some
of the risk factors that affect 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 35-38) in
the 2004 Form 10-K. As the Company seeks to improve its financial
condition, it must continue to take steps to generate additional
revenues and to significantly reduce its costs. Although the Company
has a number of initiatives underway to address its cost and revenue
challenges, the adequacy and ultimate success of these initiatives is
not known at this time and cannot be assured. It will be very
difficult, absent continued restructuring of its operations, for the
Company to continue to fund its obligations on an ongoing basis or to
become profitable if the overall industry revenue environment does not
improve and fuel prices remain at historically high levels for an
extended period.
LIQUIDITY AND CAPITAL RESOURCES
Significant Indebtedness and Future Financing
The Company remains heavily indebted and has significant obligations
(including substantial pension funding obligations) due in 2005 and
thereafter, as described more fully under Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" in the 2004 Form 10-K. The Company believes it should
have sufficient liquidity to fund its operations for the foreseeable
future, including repayment of debt and capital leases, capital
expenditures and other contractual obligations. Nonetheless, to
maintain sufficient liquidity as the Company continues to implement
its restructuring and cost reduction initiatives, the Company will
need access to additional funding. The Company's possible financing
sources primarily include: (i) a limited amount of additional secured
aircraft debt (a very large majority of the Company's owned aircraft,
including virtually all of the Company's Section 1110-eligible
aircraft, are encumbered) or sale-leaseback transactions involving
owned aircraft; (ii) debt secured by new aircraft deliveries; (iii)
debt secured by other assets; (iv) securitization of future operating
receipts; (v) the sale or monetization of certain assets; (vi)
unsecured debt; and (vii) equity and/or equity-like securities.
However, the availability and level of these financing sources cannot
be assured, particularly in light of the Company's and American's
reduced credit ratings, high fuel prices, the historically weak fare
environment and the financial difficulties being experienced in the
airline industry. The inability of the Company to obtain additional
funding would have a material negative impact on the ability of the
Company to sustain its operations over the long-term.
-10-
The Company's substantial indebtedness could have important
consequences. For example, it could: (i) limit the Company's ability
to obtain additional financing for working capital, capital
expenditures, acquisitions and general corporate purposes, or
adversely affect the terms on which such financing could be obtained;
(ii) require the Company to dedicate a substantial portion of its cash
flow from operations to payments on its indebtedness, thereby reducing
the funds available for other purposes; (iii) make the Company more
vulnerable to economic downturns; (iv) limit its ability to withstand
competitive pressures and reduce its flexibility in responding to
changing business and economic conditions; and (v) limit 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 credit facility (the Credit Facility) consisting of a
fully drawn $570 million senior secured revolving credit facility with
a final maturity on June 17, 2009 and a fully drawn $248.5 million
term loan facility with a final maturity on December 17, 2010. The
Credit Facility contains a covenant (the Liquidity Covenant) requiring
American to maintain, as defined, unrestricted cash, unencumbered
short term investments and amounts available for drawing under
committed revolving credit facilities of not less than $1.5 billion
for each quarterly period through September 30, 2005 and $1.25 billion
for each quarterly period thereafter. American was in compliance with
the Liquidity Covenant as of June 30, 2005 and expects to be able to
continue to comply with this covenant. In addition, the Credit
Facility contains a covenant (the EBITDAR Covenant) requiring AMR to
maintain a ratio of cash flow (defined as consolidated net income,
before interest expense (less capitalized interest), income taxes,
depreciation and amortization and rentals, adjusted for certain gains
or losses and non-cash items) to fixed charges (comprising interest
expense (less capitalized interest) and rentals). The required ratio
was 0.85 to 1.00 for the four quarter period ending June 30, 2005 and
will increase gradually to 1.50 to 1.00 for the four quarter period
ending March 31, 2008 and for each four quarter period ending on each
fiscal quarter thereafter. AMR was in compliance with the EBITDAR
covenant as of June 30, 2005 and expects to be able to continue to
comply with this covenant in the near term.
Given the historically high price of fuel and the volatility of fuel
prices and revenues, it is difficult to assess whether AMR and
American will be able to continue to comply with the Liquidity
Covenant and in particular the EBITDAR Covenant, and there are no
assurances that AMR and American will be able to do so. Failure to
comply with these covenants would result in a default under the Credit
Facility which - - if the Company did not take steps to obtain a
waiver of, or otherwise mitigate, the default - - could result in a
default under a significant amount of the Company's other debt and
lease obligations.
Pension Funding Obligation
The Company expects to contribute approximately $310 million to its
defined benefit pension plans in 2005. This estimate reflects the
provisions of the Pension Funding Equity Act of 2004. Due to
uncertainties regarding significant assumptions involved in estimating
future required contributions to its defined benefit pension plans,
such as interest rate levels, the amount and timing of asset returns,
and the impact of proposed legislation (discussed further below), the
Company is not able to reasonably estimate its future required
contributions beyond 2005. However, based on the current regulatory
environment and market conditions, the Company expects that its 2006
minimum required contributions will exceed its 2005 expected
contributions. Of the $310 million the Company expects to contribute
to its defined benefit pension plans in 2005, the Company contributed
$213 million during the first six months of 2005.
Various defined benefit pension reform proposals are currently under
consideration by the Government, which could have a significant - -
positive or negative - - impact on the Company's future required
pension contributions. The likely outcome of these proposals is
currently unclear.
-11-
Cash Flow Activity
At June 30, 2005, the Company had $3.4 billion in unrestricted cash
and short-term investments, an increase of $470 million from December
31, 2004. Net cash provided by operating activities in the six-month
period ended June 30, 2005 was $1.1 billion, an increase of $331
million over the same period in 2004. The increase was primarily the
result of an increase in the Air traffic liability due to a modest
improvement in the revenue environment, offset to a certain degree by
the $213 million pension contribution. Capital expenditures for the
first six months of 2005 were $484 million and included the
acquisition of 18 Embraer 145 aircraft and the cost of improvements at
New York's John F. Kennedy airport.
During the six-month period ended June 30, 2005, AMR Eagle borrowed
approximately $287 million (net of discount), under various debt
agreements, related to the purchase of regional jet aircraft. These
debt agreements are secured by the related aircraft, have an effective
interest rate of 5.0 percent, are guaranteed by AMR and mature over
various periods of time through 2021.
On July 1, 2005, American completed the re-marketing of $198 million
of DFW-FIC Series 2000A Unsecured Revenue Refunding Bonds in three
subseries which mature May 1, 2029. Certain municipalities originally
issued these special facility revenue bonds primarily to improve
airport facilities that are leased by American and accounted for as
operating leases. They were acquired by American in 2003 under a
mandatory tender provision; thus, American received the proceeds from
the remarketing in July and recorded the obligation in Other
liabilities, deferred gains and deferred credits.
RESULTS OF OPERATIONS
For the Three Months Ended June 30, 2005 and 2004
Revenues
The Company's revenues increased approximately $479 million, or 9.9
percent, to $5.3 billion in the second quarter of 2005 from the same
period last year. American's passenger revenues increased by 9.5
percent, or $369 million, on a capacity (available seat mile) (ASM)
increase of 2.3 percent. American's passenger load factor increased
3.8 points to 79.5 percent and passenger revenue yield per passenger
mile increased by 1.9 percent to 11.91 cents. This resulted in an
increase in American's passenger revenue per available seat mile
(RASM) of 7.0 percent to 9.47 cents. Following is additional
information regarding American's domestic and international RASM and
capacity:
Three Months Ended June 30, 2005
RASM Y-O-Y ASMs Y-O-Y
(cents) Change (billions) Change
Domestic 9.48 8.0% 29.4 (1.6)%
International 9.47 5.1 15.6 10.7
Latin America 8.95 4.7 7.4 9.4
Europe 10.39 8.3 6.4 7.6
Pacific 8.36 (4.9) 1.8 30.5
Regional affiliates' passenger revenues, which are based on industry
standard proration agreements for flights connecting to American
flights, increased $56 million, or 11.1 percent, to $561 million as a
result of increased capacity and load factors. Regional affiliates'
traffic increased 24.8 percent to 2.3 billion revenue passenger miles
(RPMs), while capacity increased 20.5 percent to 3.2 billion ASMs,
resulting in a 2.5 point increase in the passenger load factor to 72.2
percent.
Cargo revenues increased 1.3 percent, or $2 million, due to a 3.3
percent increase in cargo revenue yield per ton miles somewhat offset
by a 1.6 percent decrease in cargo ton miles.
-12-
Operating Expenses
The Company's total operating expenses increased 9.6 percent, or $446
million, to $5.1 billion in the second quarter of 2005 compared to the
second quarter of 2004. American's mainline operating expenses per
ASM in the second quarter of 2005 increased 5.6 percent compared to
the second quarter of 2004 to 10.03 cents. These increases are due
primarily to a 46.9 percent increase in American's price per gallon of
fuel in the second quarter of 2005 relative to the second quarter of
2004. The Company's operating and financial results are significantly
affected by the price of jet fuel. Continuing high fuel prices,
additional increases in the price of fuel, or disruptions in the
supply of fuel, would further adversely affect the Company's financial
condition and results of operations. In addition, the Company
recorded an adjustment of approximately $31 million in Special charges
in the second quarter of 2004 (see explanation below).
(in millions) Three Months
Ended Change Percentage
Operating Expenses June 30, 2005 from 2004 Change
Wages, salaries and benefits $ 1,671 $ (32) (1.9)%
Aircraft fuel 1,350 433 47.2 (a)
Other rentals and landing fees 319 18 6.0
Depreciation and amortization 286 (34) (10.6) (b)
Commissions, booking fees
and credit card expense 286 (1) (0.3)
Maintenance, materials and
repairs 257 12 4.9
Aircraft rentals 147 (6) (3.9)
Food service 127 (12) (8.6)
Other operating expenses 637 37 6.2
Special charges - 31 NM (c)
Total operating expenses $ 5,080 $ 446 9.6%
(a)Aircraft fuel expense increased primarily due to a 46.9 percent
increase in American's price per gallon of fuel offset by a 1.7
percent decrease in American's fuel consumption.
(b)Depreciation and amortization expense decreased primarily due to
a change in the estimate of the depreciable lives of the Company's
Boeing 737-800, Boeing 757-200 and McDonnell Douglas MD-80 aircraft
from 25 to 30 years, which decreased depreciation and amortization
expense by approximately $27 million in the three months ended June
30, 2005.
(c)Special charges for 2004 included the reversal of reserves
previously established for (i) aircraft return costs of $20 million
and (ii) employee severance of $11 million.
Other Income (Expense)
Other income (expense), historically a net expense, decreased $19
million due primarily to an increase in interest income of $15 million
which resulted from increases in interest rates and short-term
investments.
Income Tax
The Company did not record a net tax provision associated with its
second quarter 2005 and 2004 earnings due to the Company providing a
valuation allowance, as discussed in Note 5 to the condensed
consolidated financial statements.
-13-
Operating Statistics
The following table provides statistical information for American and
Regional Affiliates for the three months ended June 30, 2005 and 2004.
Three Months Ended June 30,
2005 2004
American Airlines, Inc. Mainline Jet Operations
Revenue passenger miles (millions) 35,795 33,323
Available seat miles (millions) 45,018 43,997
Cargo ton miles (millions) 558 567
Passenger load factor 79.5% 75.7%
Passenger revenue yield per passenger
mile (cents) 11.91 11.69
Passenger revenue per available seat
mile (cents) 9.47 8.85
Cargo revenue yield per ton mile (cents) 28.14 27.24
Operating expenses per available seat mile,
excluding Regional Affiliates (cents) (*) 10.03 9.50
Fuel consumption (gallons, in millions) 749 762
Fuel price per gallon (cents) 163.4 111.2
Operating aircraft at period-end 727 748
Regional Affiliates
Revenue passenger miles (millions) 2,317 1,857
Available seat miles (millions) 3,211 2,665
Passenger load factor 72.2% 69.7%
(*) Excludes $627 million and $517 million of expense incurred
related to Regional Affiliates in 2005 and 2004, respectively.
Operating aircraft at June 30, 2005, included:
American Airlines Aircraft AMR Eagle Aircraft
Airbus A300-600R 34 Bombardier CRJ-700 25
Boeing 737-800 77 Embraer 135 39
Boeing 757-200 143 Embraer 140 59
Boeing 767-200 Extended Range 16 Embraer 145 106
Boeing 767-300 Extended Range 58 Super ATR 41
Boeing 777-200 Extended Range 45 Saab 340B Plus 25
McDonnell Douglas MD-80 354 Total 295
Total 727
The average aircraft age for American's and AMR Eagle's aircraft is
12.7 years and 5.6 years, respectively.
Of the operating aircraft listed above, 18 McDonnell Douglas MD-80s -
- - 11 owned, five operating leased and two capital leased - - were in
temporary storage as of June 30, 2005.
-14-
Owned and leased aircraft not operated by the Company at June 30,
2005, included:
American Airlines Aircraft AMR Eagle Aircraft
Boeing 767-200 2 Embraer 145 10
Boeing 767-200 Extended Range 3 Saab 340B/340B Plus 60
Fokker 100 4 Total 70
McDonnell Douglas MD-80 7
Total 16
As part of the Company's fleet simplification initiative, American has
agreed to sell certain aircraft. As of June 30, 2005, remaining owned
aircraft to be delivered under these agreements include two Boeing 767-
200 Extended Range and two Boeing 767-200 aircraft.
AMR Eagle has leased its 10 owned Embraer 145s that are not operated
by AMR Eagle to Trans States Airlines, Inc.
For the Six Months Ended June 30, 2005 and 2004
Revenues
The Company's revenues increased approximately $717 million, or 7.7
percent, to $10.1 billion for the six months ended June 30, 2005 from
the same period last year. American's passenger revenues increased by
7.0 percent, or $533 million, on a capacity (ASM) increase of 1.5
percent. American's passenger load factor increased 4.0 points to
77.5 percent while passenger revenue yield per passenger mile remained
constant at 11.90 cents. This resulted in an increase in American's
passenger RASM of 5.4 percent to 9.22 cents. Following is additional
information regarding American's domestic and international RASM and
capacity:
Six Months Ended June 30, 2005
RASM Y-O-Y ASMs Y-O-Y
(cents) Change (billions) Change
Domestic 9.18 6.0% 57.7 (2.9)%
International 9.31 4.2 30.2 11.0
Latin America 9.20 2.4 15.4 11.1
Europe 9.77 8.9 11.5 7.0
Pacific 8.23 (4.2) 3.3 27.8
Regional affiliates' passenger revenues, which are based on industry
standard proration agreements for flights connecting to American
flights, increased $87 million, or 9.4 percent, to $1.0 billion as a
result of increased capacity and load factors. Regional affiliates'
traffic increased 23.7 percent to 4.2 billion RPMs, while capacity
increased 19.7 percent to 6.1 billion ASMs, resulting in a 2.3 point
increase in the passenger load factor to 68.6 percent.
Cargo revenues increased 1.7 percent, or $5 million, due to a 0.9
percent increase in cargo ton miles in addition to a 0.9 percent
increase in cargo revenue yield per ton mile.
-15-
Operating Expenses
The Company's total operating expenses increased 7.7 percent, or $703
million, to $9.8 billion for the six months ended June 30, 2005
compared to the same period in 2004. American's mainline operating
expenses per ASM in the six months ended June 30, 2005 increased 4.5
percent compared to the same period in 2004 to 9.92 cents. These
increases are due primarily to a 41.4 percent increase in American's
price per gallon of fuel in the first half of 2005 relative to the
same period in 2004, including the impact of a $55 million fuel excise
tax refund received in March 2005.
(in millions) Six Months
Ended Change Percentage
Operating Expenses June 30, 2005 from 2004 Change
Wages, salaries and benefits $ 3,315 $ (28) (0.8)%
Aircraft fuel 2,448 723 41.9 (a)
Other rentals and landing fees 619 13 2.1
Depreciation and amortization 576 (70) (10.8) (b)
Commissions, booking fees and
credit card expense 557 (18) (3.1)
Maintenance, materials and repairs 492 16 3.4
Aircraft rentals 295 (11) (3.6)
Food service 252 (24) (8.7)
Other operating expenses 1,253 71 6.0
Special charges - 31 NM (c)
Total operating expenses $ 9,807 $ 703 7.7%
(a)Aircraft fuel expense increased primarily due to a 41.4 percent
increase in American's price per gallon of fuel (including the benefit
of a $55 million fuel excise tax refund received in March 2005 and the
impact of fuel hedging) offset by a 1.7 percent decrease in American's
fuel consumption.
(b)Depreciation and amortization expense decreased primarily due to a
change in the estimate of the depreciable lives of the Company's
Boeing 737-800, Boeing 757-200 and McDonnell Douglas MD-80 aircraft
from 25 to 30 years, which decreased depreciation and amortization
expense by approximately $54 million in the six months ended June 30,
2005.
(c)Special charges for 2004 included the reversal of reserves
previously established for (i) aircraft return costs of $20 million
and (ii) employee severance of $11 million.
Other Income (Expense)
Other income (expense), historically a net expense, decreased $42
million due primarily to the following: Interest income increased $36
million due primarily to a $14 million interest refund related to the
fuel excise tax refund discussed above and increases in interest rates
and short-term investments. Interest expense increased $28 million
due primarily to increases in variable interest rates. Miscellaneous-
net decreased $25 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.
Income Tax
The Company did not record a net tax benefit associated with its
losses for the six months ended June 30, 2005 and 2004 due to the
Company providing a valuation allowance, as discussed in Note 5 to the
condensed consolidated financial statements.
-16-
Operating Statistics
The following table provides statistical information for American and
Regional Affiliates for the six months ended June 30, 2005 and 2004.
Six Months Ended June 30,
2005 2004
American Airlines, Inc. Mainline Jet Operations
Revenue passenger miles (millions) 68,123 63,613
Available seat miles (millions) 87,872 86,594
Cargo ton miles (millions) 1,098 1,088
Passenger load factor 77.5% 73.5%
Passenger revenue yield per
passenger mile (cents) 11.90 11.90
Passenger revenue per available
seat mile (cents) 9.22 8.75
Cargo revenue yield per ton mile (cents) 28.08 27.83
Operating expenses per available seat mile,
excluding Regional Affiliates (cents) (*) 9.92 9.49
Fuel consumption (gallons, in millions) (**) 1,478 1,503
Fuel price per gallon (cents) 150.2 106.2
Regional Affiliates
Revenue passenger miles (millions) 4,202 3,396
Available seat miles (millions) 6,126 5,118
Passenger load factor 68.6% 66.3%
(*) Excludes $1.2 billion and $1.0 billion of expense incurred
related to Regional Affiliates in 2005 and 2004, respectively.
(**) Includes the benefit of the 3.7 cents per gallon impact of a
$55 million fuel excise tax refund in 2005.
Outlook
The Company currently expects third quarter 2005 mainline unit costs
to be approximately 10.37 cents and full year 2005 mainline unit costs
to be approximately 10.20 cents, including the impact of the $55
million fuel excise tax refund received in March 2005.
Capacity for American's mainline jet operations is expected to
increase about 2.7 percent in the third quarter of 2005 compared to
the third quarter of 2004 and about 2.4 percent for the full year 2005
compared to 2004.
-17-
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Except as discussed below, 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 2004 Form
10-K.
The risk inherent in the Company's fuel related market risk sensitive
instruments and positions is the potential loss arising from adverse
changes in the price of fuel. The sensitivity analyses presented do
not consider the effects that such adverse changes may have on overall
economic activity, nor do they consider additional actions management
may take to mitigate the Company's exposure to such changes.
Therefore, actual results may differ. The Company does not hold or
issue derivative financial instruments for trading purposes.
Aircraft Fuel The Company's earnings are affected by changes in the
price and availability of aircraft fuel. In order to provide a
measure of control over price and supply, the Company trades and ships
fuel and maintains fuel storage facilities to support its flight
operations. The Company also manages the price risk of fuel costs
primarily by using jet fuel, heating oil, and crude oil hedging
contracts. Market risk is estimated as a hypothetical 10 percent
increase in the June 30, 2005 cost per gallon of fuel. Based on
projected 2005 and 2006 fuel usage through June 30, 2006, such an
increase would result in an increase to aircraft fuel expense of
approximately $514 million in the twelve months ended June 30, 2006,
inclusive of the impact of fuel hedge instruments outstanding at June
30, 2005, and assumes the Company's fuel hedging program remains
effective under Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities".
Comparatively, based on projected 2005 fuel usage, such an increase
would have resulted in an increase to aircraft fuel expense of
approximately $377 million in the twelve months ended December 31,
2005, inclusive of the impact of fuel hedge instruments outstanding at
December 31, 2004. The change in market risk is primarily due to the
increase in fuel prices.
As of June 30, 2005, the Company had hedged an insignificant
percentage of its estimated 2005, 2006 and 2007 fuel requirements with
option contracts.
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 June 30, 2005. 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 June 30, 2005. During the
quarter ending on June 30, 2005, 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.
-18-
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). On July 9, 2003, the court certified a class that
included all travel agencies who have been or will be required to pay
money to American for debit memos for fare rules violations from July
26, 1995 to the present. On February 24, 2005, the court decertified
the class. The remaining two 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 is vigorously defending 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.
Between April 3, 2003 and June 5, 2003, three lawsuits were filed by
travel agents some of whom opted out of a prior class action (now
dismissed) to pursue their claims individually against American
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.
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 Airlines, 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.
-19-
Miami-Dade County (the County) is currently investigating and
remediating various environmental conditions at the Miami
International Airport (MIA) and funding the remediation costs through
landing fees and various cost recovery methods. American and AMR
Eagle have been named as potentially responsible parties (PRPs) for
the contamination at MIA. During the second quarter of 2001, the
County filed a lawsuit against 17 defendants, including American
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). The Company is vigorously defending
the lawsuit. In addition to the 17 defendants named in the lawsuit,
243 other agencies and companies were also named as PRPs and
contributors to the contamination. The case is currently stayed while
the parties pursue an alternative dispute resolution process. The
County has proposed draft allocation models for remedial costs for the
Terminal and Tank Farm areas of MIA. While it is anticipated that
American and AMR Eagle will be allocated equitable shares of remedial
costs, the Company does not expect the allocated amounts to have a
material adverse effect on the Company.
Four cases (each being a purported class action) have been filed
against American arising from the disclosure of passenger name records
by a vendor of American. The cases are: Kimmell v. AMR, et al. (U.
S. District Court, Texas), Baldwin v. AMR, et al. (U. S. District
Court, Texas), Rosenberg v. AMR, et al. (U. S. District Court, New
York) and Anapolsky v. AMR, et al. (U.S. District Court, New York).
The Kimmell suit was filed in April 2004. The Baldwin and Rosenberg
cases were filed in May 2004. The Anapolsky suit was filed in
September 2004. The suits allege various causes of action, including
but not limited to, violations of the Electronic Communications
Privacy Act, negligent misrepresentation, breach of contract and
violation of alleged common law rights of privacy. In each case
plaintiffs seek statutory damages of $1000 per passenger, plus
additional unspecified monetary damages. The Court dismissed the
cases but allowed leave to amend, and the Kimmell and Rosenberg cases
have been refiled. The Company is vigorously defending these suits
and believes the suits are without merit. However, a final adverse
court decision awarding a maximum amount of statutory damages would
have an adverse impact on the Company.
American is defending three lawsuits, filed as class actions but not
certified as such, arising from allegedly improper failure to refund
certain governmental taxes and fees collected by the Company upon the
sale of nonrefundable tickets when such tickets are not used for
travel. The suits are: Coleman v. American Airlines, Inc., No.
101106, filed December 31, 2002, pending (on appeal) before the
Supreme Court of Oklahoma. The Coleman Plaintiffs seek actual damages
(not specified) and interest. Hayes v. American Airlines, Inc., No.
04-3231, pending in the United States District Court for the Eastern
District of New York, filed July 2, 2004. The Hayes Plaintiffs seek
unspecified damages, declaratory judgment, costs, attorneys' fees, and
interest. Harrington v. Delta Air Lines, Inc., et. al., No. 04-
12558, pending in the United States District Court for the District of
Massachusetts, filed November 4, 2004. The Harrington plaintiffs seek
unspecified actual damages (trebled), declaratory judgment, injunctive
relief, costs, and attorneys' fees. The suits assert various causes
of action, including breach of contract, conversion, and unjust
enrichment. The Company is vigorously defending the suits and
believes them to be without merit. However, a final adverse court
decision requiring the Company to refund collected taxes and/or fees
could have an adverse impact on the Company.
On March 11, 2004, a patent infringement lawsuit was filed against AMR
Corporation, American Airlines, Inc., AMR Eagle Holding Corporation,
and American Eagle Airlines, Inc. in the United States District Court
for the Eastern District of Texas (IAP Intermodal, L.L.C. v. AMR
Corp., et al.). The case was consolidated with eight similar lawsuits
filed against a number of other unaffiliated airlines, including
Continental, Northwest, British Airways, Air France, Pinnacle
Airlines, Korean Air and Singapore Airlines (as well as various
regional affiliates of the foregoing). The plaintiff alleges that the
airline defendants infringe three patents, each of which relates to a
system of scheduling vehicles based on freight and passenger
transportation requests received from remote computer terminals. The
plaintiff is seeking past and future royalties of over $30 billion
dollars, injunctive relief, costs and attorneys' fees. Although the
Company believes that the plaintiff's claims are without merit and is
vigorously defending the lawsuit, a final adverse court decision
awarding substantial money damages or placing material restrictions on
existing scheduling practices would have an adverse impact on the
Company.
-20-
On July 12, 2004, a consolidated class action complaint, that was
subsequently amended on November 30, 2004, was filed against American
Airlines, Inc. and the Association of Professional Flight Attendants
(APFA), the Union which represents the Company's flight attendants
(Ann M. Marcoux, et al., v. American Airlines Inc., et al. in the
United States District Court for the Eastern District of New York).
While a class has not yet been certified, the lawsuit seeks on behalf
of all of American's flight attendants or various subclasses to set
aside, and to obtain damages allegedly resulting from, the April 2003
Collective Bargaining Agreement referred to as the Restructuring
Participation Agreement (RPA). The RPA was one of three labor
agreements the Company successfully reached with its unions in order
to avoid filing for bankruptcy in 2003. In a related case (Sherry
Cooper, et al. v. TWA Airlines, LLC, et al., also in the United States
District Court for the Eastern District of New York), the court denied
a preliminary injunction against implementation of the RPA on June 30,
2003. The Marcoux suit alleges various claims against the Union and
American relating to the RPA and the ratification vote on the RPA by
individual Union members, including: violation of the Labor Management
Reporting and Disclosure Act (LMRDA) and the APFA's Constitution and
By-laws, violation by the Union of its duty of fair representation to
its members, violation by the Company of provisions of the Railway
Labor Act through improper coercion of flight attendants into voting
or changing their vote for ratification, and violations of the
Racketeer Influenced and Corrupt Organizations Act of 1970 (RICO).
Although the Company believes the case against it is without merit and
both the Company and the Union are vigorously defending the lawsuit, a
final adverse court decision invalidating the RPA and awarding
substantial money damages would have an adverse impact on the Company.
-21-
Item 4. Submission of Matters to a Vote of Security Holders
The owners of 145,835,117 shares of common stock, or 90.45 percent of
shares outstanding, were represented at the annual meeting of
stockholders on May 18, 2005 at the American Airlines Training &
Conference Center, Flagship Auditorium, 4501 Highway 360 South, Fort
Worth, Texas.
Elected as directors of the Company, each receiving a minimum of
102,645,549 votes were:
Gerard J. Arpey Michael A. Miles
John W. Bachmann Philip J. Purcell
David L. Boren Joe M. Rodgers
Edward A. Brennan Judith Rodin, Ph.D.
Armando M. Codina Matthew K. Rose
Earl G. Graves Roger T. Staubach
Ann M. Korologos
Stockholders ratified the Audit Committee's decision to retain Ernst
& Young LLP as independent auditors for the Company for the 2005
fiscal year. The vote was 144,834,159 in favor, 642,416 against, and
358,541 abstaining.
Stockholders rejected a proposal to limit the terms of future outside
directors. The proposal was submitted by Evelyn Y. Davis. The vote
was 4,410,390 in favor, 77,076,068 against, 612,872 abstaining and
63,735,787 not voting.
Item 5. Other Information
The 1999 Stock Appreciation Rights Plan for Directors grants
annually to each outside Director 1,185 stock appreciation
rights (SARs)(the "SAR Plan"). This SARs grant is a
component of an outside Director's compensation. As noted
in the Company's 2005 proxy statement (page 13, the "Proxy
Statement"), the American Jobs Creation Act has called into
doubt the viability of the SAR Plan. The Board has
determined to terminate the SAR Plan. In lieu of the annual
grant of 1,185 SARs, Directors will receive annually an
additional grant of units under the 2004 Directors Unit
Incentive Plan (the "DUIP"). The DUIP, as amended, is
attached as Exhibit 10.5 to this Form 10-Q. An attachment to
the DUIP notes the 2005 awards.
As discussed in the Proxy Statement, the Compensation
Committee of the Board annually conducts a comprehensive
review of compensation for the officers and other key
employees. At its July meeting the Compensation Committee
approved the following compensation initiatives (effective
July 25, 2005):
- The form of stock option agreement under the 1998 Long
Term Incentive Plan, as amended. The form is
attached as Exhibit 10.3 to this Form 10-Q. An attachment
to this form of stock option agreement notes the stock
option grants to the Company's executive officers;
- The form of deferred unit agreement for 2005. The form
is attached as Exhibit 10.2 to this Form 10-Q. An
attachment to this form of deferred unit agreement notes
the deferred unit grants to the Company's executive
officers;
- The form of performance unit agreement for the
2005/2007 performance period. The form is attached as
Exhibit 10.1 to this Form 10-Q. An attachment to this form
of performance unit agreement notes the performance unit
grants to the Company's executive officers; and
- A Career Performance Shares Award Agreement between the
Company and Gerard J. Arpey, its Chairman, President and
CEO. This agreement is attached as Exhibit 10.6 to this
Form 10-Q.
-22-
Item 6. Exhibits
The following exhibits are included herein:
10.1 Form of 2005 - 2007 Performance Unit Agreement (with awards to
executive officers noted)
10.2 Form of 2005 Deferred Unit Award Agreement (with awards to executive
officers noted)
10.3 Form of 2005 Stock Option under the 1998 Long Term Incentive
Plan, as amended (with awards to executive officers noted)
10.4 Form of 2005 Stock Option Agreement under the 2003 Employee Stock
Incentive Plan
10.5 2004 Directors Unit Incentive Plan, as amended
10.6 Career Performance Shares, Deferred Stock Award Agreement between AMR
Corporation and Gerard J. Arpey dated as of July 25, 2005
10.7 Letter Agreement dated May 5, 2005 between The Boeing Company and
American Airlines, Inc. Portions of this agreement have been omitted
pursuant to a request for confidential treatment filed with the
Securities and Exchange Commission.
12 Computation of ratio of earnings to fixed charges for the three
and six months ended June 30, 2005 and 2004.
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).
-23-
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: July 25, 2005 BY: /s/ James A. Beer
James A. Beer
Senior Vice President and Chief
Financial Officer
(Principal Financial and Accounting Officer)
-24-
Exhibit 10.1
2005 - 2007
PERFORMANCE UNIT AGREEMENT
This performance unit agreement (this "Agreement") is
made as of this date, July 25, 2005, by and between AMR
Corporation, a Delaware corporation (the "Corporation"), and
FNAME LNAME (the "Employee"), employee number 000000.
WHEREAS, pursuant to the 2005/2007 Performance Unit
Plan for Officers and Key Employees (the "2005 Unit Plan")
attached to this Agreement as Schedule A and incorporated
herein, and the Performance Unit Program (the "Program")
adopted by the Board of Directors of the Corporation (the
"Board"), the Compensation Committee of the Board (the
"Committee") has determined to make a Program grant to the
Employee of performance units (subject to the terms of the
Program and this Agreement), as an inducement for the
Employee to remain an employee of the Corporation (or a
Subsidiary or Affiliate thereof), and to retain and motivate
such Employee during such employment.
This Agreement sets forth the terms and conditions
attendant to the performance units granted under the 2005
Unit Plan.
1. Grant of Award. The Employee is hereby granted as
of July 25, 2005, (the "Grant Date") performance units (the
"Award"), subject to the terms and conditions of this
Agreement with respect to 0,000 performance units
(collectively, the "Units"). The Units covered by the Award
shall vest, if at all, in accordance with Section 2. On the
date the Units vest (if at all), the Employee will receive,
net of applicable withholding or applicable social security
taxes, a payment representing the product of (i) the number
of vested Units and (ii) the average of the high and low
price of the Corporation's Common Stock, $1.00 par value per
share, as of the date the Units vest (payment shall be made
as defined below).
2. Vesting.
(a) The Units will vest and be paid, if at all, in
accordance with the terms of the Program attached as
Schedule A, which is made a part of this Agreement.
(b) In the event Employee's employment with the
Corporation (or a Subsidiary or Affiliate thereof) is
terminated prior to the end of the three year measurement
period set forth in Schedule A (the "Measurement Period")
due to the Employee's death, "Disability" (as defined in
section 409A(a)(2)(C) of the Internal Revenue Code of 1986,
as amended (the "Code")), Retirement or termination not for
Cause (each an "Early Termination") the Award will vest, if
at all, on a pro-rata basis and will be paid to the Employee
(or, in the event of the Employee's death, the Employee's
designated beneficiary for purposes of the Award, or in the
absence of an effective beneficiary designation, the
Employee's estate). The pro-rata basis will be a percentage
where the denominator is 36 and the numerator is the number
of months from January 1, 2005 through the month of Early
Termination, inclusive. This pro-rata Award will be paid to
the Employee at the same time as payments are made to then
current employees who have been granted Units under the 2005
Unit Plan, subject to Section 2(f) of this Agreement.
(c) In the event the Employee's employment with the
Corporation (or a Subsidiary or Affiliate thereof) is
terminated for Cause, or if the Employee terminates his/her
employment with the Corporation (or a Subsidiary or
Affiliate thereof), each occurring prior to the payment
contemplated by this Agreement, the Award shall be forfeited
in its entirety.
(d) If, prior to the payment contemplated by this
Agreement, the Employee becomes an employee of a Subsidiary
that is not wholly owned, directly or indirectly, by the
Corporation, or if the Employee begins a leave of absence
without reinstatement rights, then in each case the Award
shall be forfeited in its entirety.
(e) In the event of a Change in Control of the Corporation
prior to the complete distribution of the Award, the Award
will be paid within 60 days of the date of the Change in
Control. In such event, the Vesting Date shall be the date
of the Change in Control. The term "Change in Control" is
defined for purposes of this Agreement in Section 6.
(f) Notwithstanding the provisions of Section 2(b), if the
Employee is a person subject to section 409A(a)(2)(B)(i) of
the Code, any payment on account of Retirement or
termination not for Cause of the Employee shall be delayed
until the sixth month anniversary of the date of separation
from employment due to Retirement or termination not for
Cause.
3. Transfer Restrictions. Unless otherwise permitted
by the Committee, this Award is non-transferable other than
by will or by the laws of descent and distribution, and may
not otherwise be assigned, pledged or hypothecated and shall
not be subject to execution, attachment or similar process.
Upon any attempt by the Employee (or the Employee's
successor in interest after the Employee's death) to effect
any such disposition, or upon any such process, the Award
may immediately become null and void, at the discretion of
the Committee.
4. Miscellaneous. This Agreement (a) shall be binding
upon and inure to the benefit of any successor of the
Corporation, (b) shall be governed by the laws of the State
of Texas and any applicable laws of the United States, and
(c) may not be amended without the written consent of both
the Corporation and the Employee. No contract or right of
employment shall be implied by this Agreement.
In the event the Employee's employment is terminated by
reason of Retirement and the Employee subsequently is
employed by a competitor of the Corporation prior to
complete payment of the Award, the Corporation reserves the
right, upon notice to the Employee, to declare the Award
forfeited and of no further validity.
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. ("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 the Corporation to join the Employee at his
or her new place of employment after his or her employment
with American or its Affiliates is terminated. The Employee
shall not have the right to defer payment of the Award.
Except as provided in this Agreement, the Committee and
Corporation shall not accelerate payment of the Award.
5. Adjustments in Awards. In the event of a Stock
dividend, Stock split, merger, consolidation, re-
organization, re-capitalization or other change in the
corporate structure of the Corporation, appropriate
adjustments may be made by the Board of Directors in the
number of Units awarded.
6. Definitions. Capitalized terms not otherwise defined
in this Agreement shall have the meanings set forth for such
terms in the Corporation's 2003 Employee Stock Incentive
Plan. For purposes of Section 2(e), the term "Change in
Control" shall mean a "change in ownership" or "change in
effective control", or "change in ownership of the assets"
of the Corporation, as determined pursuant to Internal
Revenue Service Notice 2005-1 (or successor guidance thereto
under section 409A of the Code).
7. American Jobs Creation Act. Amendments to this
Agreement may be made by the Corporation, without the
Employee's consent, in order to ensure compliance with the
American Jobs Creation Act of 2004.
IN WITNESS HEREOF, the Employee and the Corporation
have executed this Performance Unit Agreement as of the day,
month and year set forth above.
EMPLOYEE AMR CORPORATION
_____________________________
Charles D. MarLett
Corporate Secretary
Grant of Performance Units
July 25, 2005
Officer # of Performance
Name Units Granted
Gerard Arpey 140,000
James Beer 77,600
Daniel Garton 77,600
Gary Kennedy 57,000
Charles Marlett 17,800
SCHEDULE A
2005 - 2007 PERFORMANCE UNIT PLAN
FOR OFFICERS AND KEY EMPLOYEES
Purpose
The purpose of the 2005 - 2007 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 six U.S.
based carriers including AMR Corporation, Continental
Airlines, Inc., Delta Air Lines, Inc., JetBlue Airways,
Northwest Airlines Corp. and Southwest Airlines Co.
"Corporate Objectives" is defined as being the
objectives established by the Committee at the beginning of
each fiscal year during the Measurement Period.
"Measurement Period" is defined as the three year
period beginning January 1, 2005 and ending December 31,
2007.
"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).
Accumulation of Units
Any payment under the Plan with respect to the units
will be determined by (i) the Corporation's TSR rank within
the Comparator Group and/or (ii) the Corporation's
attainment of the Corporate Objectives during each year of
the Measurement Period and (iii) the terms and conditions of
the award agreement between the Corporation and the
employee. The distribution percentage of units pursuant to
the TSR metric and based on rank, is specified below:
Granted Shares - Percent of Target Based on Rank
Rank 6 5 4 3 2 1
Payout % 0% 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.
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%
At the end of each fiscal year during the Measurement
Period, the Committee will determine whether the Corporate
Objectives have been achieved. At the end of the Measurement
Period the Committee will determine the distribution of
units based upon the TSR metric and, with respect to senior
officer awards, the Corporate Objectives. The number of
units that may vest will range from 0% to 175% of the target
award.
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 TSR
metric 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, within five days after the end of the Measurement
Period.
Corporate Objectives will be used as a metric for
determining the distribution of units only for senior
officers of the Corporation (or a Subsidiary thereof) unless
the Committee determines otherwise.
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.
Exhibit 10.2
DEFERRED UNIT AWARD AGREEMENT
This AGREEMENT made this date, July 25, 2005, by and
between AMR Corporation, a Delaware corporation (the
"Corporation"), and First Last (the "Employee"), employee
number 000000.
WHEREAS, the Compensation Committee (the "Committee")
of the Board of Directors has determined that the Employee
is a key employee and has further determined to make an
award of Deferred Units to the Employee as an inducement for
the Employee to remain with the Corporation (or a Subsidiary
or Affiliate thereof) and to motivate the Employee during
such employment.
NOW, THEREFORE, the Corporation and the Employee hereby
agree as follows:
1. Grant of Award.
The Employee is hereby granted as of July 25, 2005 (the
"Grant Date") a Deferred Unit Award (the "Award"), subject
to the terms and conditions of this Agreement, with respect
to 0,000 Deferred Units (the "Units"). The Units covered by
the Award will vest, if at all, in accordance with Section 2
hereof. July 25, 2008, is hereby established as the
"Vesting Date" of the Award.
2. Distribution of Award.
Payment with respect to the Award, on the Vesting Date,
will occur, if at all, in accordance with the following
terms and conditions:
(a) If the Employee is on the payroll of a Subsidiary
that is wholly owned by the Corporation as of the Vesting
Date, a payment (determined in accordance with Section 4 of
this Agreement) will be made to the Employee in accordance
with the following schedule:
Number of Units Vesting Date
0,000 7/25/2008
Payment under this Section 2(a) will be made within 30
days of the Vesting Date.
(b) In the event the Employee's employment with the
Corporation (or a Subsidiary or Affiliate thereof) is
terminated prior to the Vesting Date due to the Employee's
death, Disability, Retirement or termination not for Cause
(each an "Early Termination"), the Award will vest on a pro-
rata basis and will be paid to the Employee (or, in the
event of the Employee's death, the Employee's designated
beneficiary for the purposes of the Award, or in the absence
of an effective beneficiary designation, the Employee's
estate). The pro-rata basis will be a percentage where the
denominator is 36 and the numerator is the number of months
from the Grant Date through the month of Early Termination,
inclusive. The pro-rata Award will be paid to the Employee
(or, in the event of the Employee's death, the Employee's
designated beneficiary for the purposes of the Award, or in
the absence of an effective beneficiary designation, the
Employee's estate) within 60 days after the Employee's
death, date of separation from employment due to Retirement
or termination not for Cause or Disability subject in all
cases to Section 2(e). For purposes of this Section 2(b),
"Disability" shall mean "disability" as defined in section
409A(a)(2)(C) of the Internal Revenue Code of 1986, as
amended (the "Code"). The amount of the payout will be
calculated in accordance with Section 4.
(c) In the event of a Change in Control of the
Corporation prior to the complete distribution of the Award,
the Award will be paid within 60 days of the date of the
Change in Control. In such event, the Vesting Date referred
to in Sections 1 and 4 of this Agreement shall be the date
of the Change in Control. The term "Change in Control" is
defined for purposes of this Agreement in Section 7.
(d) Notwithstanding the terms of Section 2(a), 2(b) or
2(c), the Award will be forfeited in its entirety if prior
to the Vesting Date:
(i) The Employee's employment with the
Corporation (or a Subsidiary or Affiliate
thereof) is terminated for Cause, or if the
Employee terminates his/her employment with
the Corporation (or a Subsidiary or Affiliate
thereof);
(ii) The Employee becomes an employee of a
Subsidiary that is not wholly owned by the
Corporation; or
(iii)The Employee takes a leave of absence without
reinstatement rights, unless otherwise agreed in writing
between the Corporation (or a Subsidiary or Affiliate
thereof) and the Employee.
(e) Notwithstanding the provisions of Section 2(b), if the
Employee is a person subject to section 409A(a)(2)(B)(i) of
the Code, any payment on account of Retirement or
termination not for Cause of the Employee shall be delayed
until the sixth month anniversary of the date of the
Employee's separation from employment due to Retirement or
termination not for Cause.
3. Transfer Restrictions.
Unless otherwise permitted by the Committee, this award
is non-transferable other than by will or by the laws of
descent and distribution, and may not be assigned, pledged
or hypothecated and will not be subject to execution,
attachment or similar process. Upon any attempt by the
Employee (or the Employee's successor in the interest after
the Employee's death) to effect any such disposition, or
upon the commencement of any such process, the Award may
immediately become null and void, at the discretion of the
Committee.
4. Determining the payment.
The amount of the payment shall be determined by the
product of: [the number of Units that have vested] and [the
Fair Market Value of one share of the Corporation's Common
Stock on the Vesting Date]. The Corporation will withhold
from the cash payment any and all taxes.
5. Miscellaneous.
This Agreement (a) will be binding upon and inure to
the benefit of any successor of the Corporation, (b) will be
governed by the laws of the State of Texas and any
applicable laws of the United States, and (c) may not be
amended without the written consent of both the Corporation
and the Employee. No contract or right of employment will
be implied by this Agreement.
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. ("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 the Corporation to join the Employee at his
or her place of employment after his or her employment with
American or its Affiliates is terminated.
The Employee shall not have the right to defer payment
of the Award. Except as provided in this Agreement, the
Committee and Corporation shall not accelerate payment of
the Award.
6. Adjustments in Awards.
In the event of a Stock dividend, Stock split, merger,
consolidation, re-organization, re-capitalization or other
change in the corporate structure of the Corporation,
appropriate adjustments may be made by the Committee in the
number of Units awarded.
7. Definitions.
Capitalized terms not otherwise defined in this
Agreement shall have the meanings set forth for such terms
in the Corporation's 2003 Employee Stock Incentive Plan.
For purposes of Section 2(c), the term "Change in Control"
shall mean a "change in ownership or effective control", or
"change in ownership of the assets" of the Corporation, as
determined pursuant to Internal Revenue Service Notice 2005-
1 (or successor guidance thereto under section 409A of the
Code).
8. American Jobs Creation Act.
Amendments to this Agreement may be made by the
Corporation, without the Employee's consent, in order to
ensure compliance with the American Jobs Creation Act of
2004.
IN WITNESS HEREOF, the Employee and the Corporation
have executed this Deferred Unit Agreement as of the day and
year first above written.
Employee AMR CORPORATION
______________________________ _____________________
Charles D. MarLett
Corporate Secretary
Grant of Deferred Units
July 25, 2005
# of Deferred
Officer Name Units Granted
Gerard Arpey 24,000
James Beer 16,500
Daniel Garton 16,500
Gary Kennedy 10,000
Charles Marlett 4,200
Exhibit 10.3
STOCK OPTION
1998 Long Term Incentive Plan, as amended
STOCK OPTION granted July 25, 2005, by AMR Corporation, a
Delaware corporation (the "Corporation"), and FName LName,
employee number 000000, an employee of the Corporation or one of
its Subsidiaries or Affiliates (the "Optionee").
W I T N E S S E T H:
WHEREAS, the stockholders of the Corporation approved the
1998 Long Term Incentive Plan at the Corporation's annual meeting
held on May 20, 1998 (such plan, as may be amended from time to
time, to be referenced the "1998 Plan");
WHEREAS, the 1998 Plan provides for the grant of an option to
purchase shares of the Corporation's Common Stock (as later
defined) to those individuals selected by the Compensation
Committee or, in lieu thereof, the Board of Directors of the
Corporation (the "Board"); and
WHEREAS, the Board has determined that the Optionee is
eligible under the 1998 Plan and that it is to the advantage and
interest of the Corporation to grant the option provided for
herein to the Optionee as an incentive for Optionee to remain in
the employ of the Corporation or one of its Subsidiaries or
Affiliates, and to encourage ownership by the Optionee of the
Corporation's Common Stock, $1 par value (the "Common Stock").
NOW, THEREFORE:
1. Option Grant. The Corporation hereby grants to the
Optionee a non-qualified stock option, subject to the terms and
conditions hereinafter set forth, to purchase all or any part of
an aggregate of xx,000 shares of Common Stock at a price of $x.xx
per share (being the fair market value of the Common Stock on the
date hereof), exercisable in approximately equal installments on
and after the following dates and with respect to the following
number of shares of Common Stock:
Exercisable On and After Number of Shares
7/25/2006 X,xxx
7/25/2007 X,xxx
7/25/2008 X,xxx
7/25/2009 X,xxx
7/25/2010 X,xxx
provided, that in no event shall this option be exercisable in
whole or in part ten years from the date hereof and that the
Corporation shall in no event be obligated to issue fractional
shares. The right to exercise this option and to purchase the
number of shares comprising each such installment shall be
cumulative, and once such right has become exercisable it may be
exercised in whole at any time and in part from time to time until
the date of termination of the Optionee's rights hereunder.
2. Restriction on Exercise. Notwithstanding any other
provision hereof, this option shall not be exercised if at such
time such exercise or the delivery of certificates representing
shares of Common Stock purchased pursuant hereto shall constitute
a violation of any rule of the Corporation, any provision of any
applicable Federal or State statute, rule or regulation, or any
rule or regulation of any securities exchange on which the Common
Stock may be listed.
3. Manner of Exercise. This option may be exercised with
respect to all or any part of the shares of Common Stock then
subject to such exercise pursuant to whatever procedures may be
adopted by the Corporation. In the event that at the time of such
exercise the shares of Common Stock as to which this option is
exercisable have not been registered under the Securities Act of
1933, the Optionee will make a representation that he/she is
acquiring the shares of Common Stock for investment only and not
with a view to distribution. Subject to compliance by the Optionee
with all the terms and conditions hereof, the Corporation or its
agent shall promptly thereafter deliver to the Optionee a
certificate or certificates for such shares with all requisite
transfer stamps attached. (In the event of a cashless exercise,
the Corporation or its agent will pay to the Optionee the
appropriate cash amount, less required withholdings.)
4. Termination of Option. This option shall terminate and
may no longer be exercised if (i) the Optionee ceases to be an
employee of the Corporation or one of its Subsidiaries or
Affiliates; or (ii) the Optionee becomes an employee of a
Subsidiary that is not wholly owned, directly or indirectly, by
the Corporation; or (iii) the Optionee takes a leave of absence
without reinstatement rights, unless otherwise agreed in writing
between the Corporation (or one of its Subsidiaries or Affiliates)
and the Optionee; except that
(a) If the Optionee's employment by the Corporation (or any
Subsidiary or Affiliate) terminates by reason of death, the
vesting of the option will be accelerated and the option will
remain exercisable until its expiration;
(b) If the Optionee's employment by the Corporation (or any
Subsidiary or Affiliate) terminates by reason of Disability, the
option will continue to vest in accordance with its terms and may
be exercised until its expiration; provided, however, that if the
Optionee dies after such Disability the vesting of the option
will be accelerated and the option will remain exercisable until
its expiration;
(c) Subject to Section 7(c), if the Optionee's employment
by the Corporation (or any Subsidiary or Affiliate) terminates by
reason of Normal or Early Retirement, the option will continue to
vest in accordance with its terms and may be exercised until its
expiration; provided, however, that if the Optionee dies after
Retirement the vesting of the option will be accelerated and the
option will remain exercisable until its expiration;
(d) If the Optionee's employment by the Corporation (or any
Subsidiary or Affiliate) is involuntarily terminated by the
Corporation or a Subsidiary or Affiliate (as the case may be)
without Cause, the option may thereafter be exercised, to the
extent it was exercisable at the time of termination, for a
period of three months from the date of such termination of
employment or until the stated term of such option, whichever
period is shorter; and
(e) In the event of a Change in Control or a Potential
Change in Control of the Corporation, this option shall become
exercisable in accordance with the 1998 Plan, or its successor.
5. Adjustments in Common Stock. In the event of a Stock
dividend, Stock split, merger, consolidation, reorganization,
recapitalization or other change in the corporate structure,
appropriate adjustments may be made by the Board in the number of
shares, class or classes of securities and the price per share.
6. Non-Transferability of Option. Unless the Board shall
permit (on such terms and conditions as it shall establish), an
option may not be transferred except by will or the laws of
descent and distribution to the extent provided herein. During the
lifetime of the Optionee this option may be exercised only by him
or her (unless otherwise determined by the Board).
7. Miscellaneous.
(a) This option (i) shall be binding upon and inure to the
benefit of any successor of the Corporation, (ii) shall be
governed by the laws of the State of Texas, and any applicable
laws of the United States, and (iii) may not be amended without
the written consent of both the Corporation and the Optionee. No
contract or right of employment shall be implied by this option.
(b) If this option is assumed or a new option is substituted
therefore in any corporate reorganization (including, but not
limited to, any transaction of the type referred to in Section
425(a) of the Internal Revenue Code of 1986, as amended),
employment by such assuming or substituting corporation or by a
parent corporation or a subsidiary thereof shall be considered for
all purposes of this option to be employment by the Corporation.
(c) In the event the Optionee's employment is terminated by
reason of Early or Normal Retirement and the Optionee subsequently
is employed by a competitor of the Corporation, the Corporation
reserves the right, upon notice to the Optionee, to declare the
option forfeited and of no further validity.
(d) In consideration of the Optionee's privilege to
participate in the 1998 Plan, the Optionee agrees (i) not to
disclose any trade secrets of, or other confidential/restricted
information of, American Airlines, Inc. ("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 the Corporation to join the Optionee at his
or her new place of employment after his or her employment with
American or its Affiliates is terminated.
8. Securities Law Requirements. The Corporation shall not
be required to issue shares upon the exercise of this option
unless and until (a) such shares have been duly listed upon each
stock exchange on which the Corporation's Stock is then registered
and (b) a registration statement under the Securities Act of 1933
with respect to such shares is then effective.
The Board may require the Optionee to furnish to the
Corporation, prior to the issuance of any shares of Stock in
connection with the exercise of this option, an agreement, in such
form as the Board may from time to time deem appropriate, in which
the Optionee represents that the shares acquired by him upon such
exercise are being acquired for investment and not with a view to
the sale or distribution thereof.
9. Option Subject to 1998 Plan. This option shall be subject
to all the terms and provisions of the 1998 Plan and the Optionee
shall abide by and be bound by all rules, regulations and
determinations of the Board now or hereafter made in connection
with the administration of the 1998 Plan. Capitalized terms not
otherwise defined herein shall have the meanings set forth for
such terms in the 1998 Plan.
10. American Jobs Creation Act. Amendments to this Agreement
may be made by the Corporation, without the Employee's consent, in
order to ensure compliance with the American Jobs Creation Act of
2004. And, further, amendments may be made to the 1998 Plan to
ensure such compliance which amendments may impact this Agreement.
IN WITNESS WHEREOF, the Corporation has executed this Stock
Option as of the day and year first above written.
AMR Corporation
______________________________ ____________________________
Optionee Charles D. MarLett
Corporate Secretary
Grant of Stock Options
July 25, 2005
Officer # of Options Exercise
Name Granted Price
Gerard Arpey 95,000 $13.665
James Beer 59,200 13.665
Daniel Garton 59,200 13.665
Gary Kennedy 38,500 13.665
Charles Marlett 13,000 13.665
Exhibit 10.4
STOCK OPTION
2003 Employee Stock Incentive Plan
STOCK OPTION granted July 25, 2005, by AMR Corporation, a
Delaware corporation (the "Corporation"), and FNAME LNAME,
employee number 000000, an employee of the Corporation or one of
its Subsidiaries or Affiliates (the "Optionee").
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Corporation (the
"Board"), has approved the 2003 Employee Stock Incentive Plan
(such plan, as may be amended from time to time, to be referenced
the "2003 Plan"); and
WHEREAS, the 2003 Plan provides for the grant of an option to
purchase shares of the Corporation's Common Stock (as later
defined) to those individuals selected by the Compensation
Committee or, in lieu thereof, the Board of Directors of the
Corporation (the "Board"); and
WHEREAS, the Board has determined that the Optionee is
eligible under the 2003 Plan and that it is to the advantage and
interest of the Corporation to grant the option provided for
herein to the Optionee as an incentive for Optionee to remain in
the employ of the Corporation or one of its Subsidiaries or
Affiliates, and to encourage ownership by the Optionee of the
Corporation's Common Stock, $1 par value (the "Common Stock").
NOW, THEREFORE:
1. Option Grant. The Corporation hereby grants to the
Optionee a non-qualified stock option, subject to the terms and
conditions hereinafter set forth, to purchase all or any part of
an aggregate of 0,000 shares of Common Stock at a price of $x.xx
per share (being the fair market value of the Common Stock on the
date hereof), exercisable in approximately equal installments
on and after the following dates and with respect to the following
number of shares of Common Stock:
Exercisable On and After Number of Shares
7/25/2006 X,000
7/25/2007 X,000
7/25/2008 X,000
7/25/2009 X,000
7/25/2010 x,000
provided, that in no event shall this option be exercisable in
whole or in part ten years from the date hereof and that the
Corporation shall in no event be obligated to issue fractional
shares. The right to exercise this option and to purchase the
number of shares comprising each such installment shall be
cumulative, and once such right has become exercisable it may be
exercised in whole at any time and in part from time to time until
the date of termination of the Optionee's rights hereunder.
2. Restriction on Exercise. Notwithstanding any other
provision hereof, this option shall not be exercised if at such
time such exercise or the delivery of certificates representing
shares of Common Stock purchased pursuant hereto shall constitute
a violation of any rule of the Corporation, any provision of any
applicable Federal or State statute, rule or regulation, or any
rule or regulation of any securities exchange on which the Common
Stock may be listed.
3. Manner of Exercise. This option may be exercised with
respect to all or any part of the shares of Common Stock then
subject to such exercise pursuant to whatever procedures may be
adopted by the Corporation. In the event that at the time of such
exercise the shares of Common Stock as to which this option is
exercisable have not been registered under the Securities Act of
1933, the Optionee will make a representation that he/she is
acquiring the shares of Common Stock for investment only and not
with a view to distribution. Subject to compliance by the Optionee
with all the terms and conditions hereof, the Corporation or its
agent shall promptly thereafter deliver to the Optionee a
certificate or certificates for such shares with all requisite
transfer stamps attached. (In the event of a cashless exercise,
the Corporation or its agent will pay to the Optionee the
appropriate cash amount, less required withholdings.)
4. Termination of Option. This option shall terminate and
may no longer be exercised if (i) the Optionee ceases to be an
employee of the Corporation or one of its Subsidiaries or
Affiliates; or (ii) the Optionee becomes an employee of a
Subsidiary that is not wholly owned, directly or indirectly, by
the Corporation; or (iii) the Optionee takes a leave of absence
without reinstatement rights, unless otherwise agreed in writing
between the Corporation (or one of its Subsidiaries or Affiliates)
and the Optionee; except that
(a) If the Optionee's employment by the Corporation (or any
Subsidiary or Affiliate) terminates by reason of death, the
vesting of the option will be accelerated and the option will
remain exercisable until its expiration;
(b) If the Optionee's employment by the Corporation (or any
Subsidiary or Affiliate) terminates by reason of Disability, the
option will continue to vest in accordance with its terms and may
be exercised until its expiration; provided, however, that if the
Optionee dies after such Disability the vesting of the option
will be accelerated and the option will remain exercisable until
its expiration;
(c) Subject to Section 7(c), if the Optionee's employment
by the Corporation (or any Subsidiary or Affiliate) terminates by
reason of Normal or Early Retirement, the option will continue to
vest in accordance with its terms and may be exercised until its
expiration; provided, however, that if the Optionee dies after
Retirement the vesting of the option will be accelerated and the
option will remain exercisable until its expiration;
(d) If the Optionee's employment by the Corporation (or any
Subsidiary or Affiliate) is involuntarily terminated by the
Corporation or a Subsidiary or Affiliate (as the case may be)
without Cause, the option may thereafter be exercised, to the
extent it was exercisable at the time of termination, for a
period of three months from the date of such termination of
employment or until the stated term of such option, whichever
period is shorter; and
(e) In the event of a Change in Control or a Potential
Change in Control of the Corporation, this option shall become
exercisable in accordance with the 2003 Plan, or its successor.
5. Adjustments in Common Stock. In the event of a Stock
dividend, Stock split, merger, consolidation, reorganization,
recapitalization or other change in the corporate structure,
appropriate adjustments may be made by the Board in the number of
shares, class or classes of securities and the price per share.
6. Non-Transferability of Option. Unless the Board shall
permit (on such terms and conditions as it shall establish), an
option may not be transferred except by will or the laws of
descent and distribution to the extent provided herein. During the
lifetime of the Optionee this option may be exercised only by him
or her (unless otherwise determined by the Board).
7. Miscellaneous.
(a) This option (i) shall be binding upon and inure to the
benefit of any successor of the Corporation, (ii) shall be
governed by the laws of the State of Texas, and any applicable
laws of the United States, and (iii) may not be amended without
the written consent of both the Corporation and the Optionee. No
contract or right of employment shall be implied by this option.
(b) If this option is assumed or a new option is substituted
therefore in any corporate reorganization (including, but not
limited to, any transaction of the type referred to in Section
425(a) of the Internal Revenue Code of 1986, as amended),
employment by such assuming or substituting corporation or by a
parent corporation or a subsidiary thereof shall be considered for
all purposes of this option to be employment by the Corporation.
(c) In the event the Optionee's employment is terminated by
reason of Early or Normal Retirement and the Optionee subsequently
is employed by a competitor of the Corporation, the Corporation
reserves the right, upon notice to the Optionee, to declare the
option forfeited and of no further validity.
(d) In consideration of the Optionee's privilege to
participate in the 2003 Plan, the Optionee agrees (i) not to
disclose any trade secrets of, or other confidential/restricted
information of, American Airlines, Inc. ("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 the Corporation to join the Optionee at his
or her new place of employment after his or her employment with
American or its Affiliates is terminated.
8. Securities Law Requirements. The Corporation shall not
be required to issue shares upon the exercise of this option
unless and until (a) such shares have been duly listed upon each
stock exchange on which the Corporation's Stock is then registered
and (b) a registration statement under the Securities Act of 1933
with respect to such shares is then effective.
The Board may require the Optionee to furnish to the
Corporation, prior to the issuance of any shares of Stock in
connection with the exercise of this option, an agreement, in such
form as the Board may from time to time deem appropriate, in which
the Optionee represents that the shares acquired by him upon such
exercise are being acquired for investment and not with a view to
the sale or distribution thereof.
9. Option Subject to 2003 Plan. This option shall be
subject to all the terms and provisions of the 2003 Plan and the
Optionee shall abide by and be bound by all rules, regulations and
determinations of the Board now or hereafter made in connection
with the administration of the 2003 Plan. Capitalized terms not
otherwise defined herein shall have the meanings set forth for
such terms in the 2003 Plan.
10. American Jobs Creation Act. Amendments to this Agreement
may be made by the Corporation, without the Employee's consent,
in order to ensure compliance with the American Jobs Creation Act
of 2004. And, further, amendments may be made to the 2003 Plan to
ensure such compliance which amendments may impact this Agreement.
IN WITNESS WHEREOF, the Corporation has executed this Stock Option
as of the day and year first above written.
AMR Corporation
______________________________ ____________________________
Optionee Charles D. MarLett
Corporate Secretary
Exhibit 10.5
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 Companys 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 and who has been elected a director
of the Company at its most recent annual meeting of
stockholders.
(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.
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 admini-
stered 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 estab-
lish, 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 indem
nification 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).
(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. Each Eligible
Director shall receive an award of Units as follows: For
Eligible Directors first elected to the Board prior to May
15, 1996, 2610 Units. For Eligible Directors first elected
to the Board after May 15, 1996, 3320 Units. The date of
such awards will be the same date on which the Company makes
its annual award of stock-based compensation to its
executive officers. If such awards to executive officers
have not occurred on or before July 31 of any calendar year
during the term of this Plan, the Committee will determine
the grant date for the Units for such year.
(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 separates from service as a member of the Board and
the cash payment contemplated by this Section 6(b) will be
made on or after the sixth month anniversary of the
Directors separation from service on the Board.
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.
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 respon
sible 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.
(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]
Unit Awards
July 25, 2005
For David L. Boren, Edward A. Brennan, Armando M. Codina,
Earl G. Graves, Ann M. Korologos and Joe M. Rodgers: 2,610
Units
For John W. Bachmann, Michael A. Miles, Philip J. Purcell,
Judith Rodin, Matthew K. Rose and Roger T. Staubach: 3,320
Units
Exhibit 10.6
CAREER PERFORMANCE SHARES
DEFERRED STOCK AWARD AGREEMENT
This AGREEMENT made as of July 25, 2005 (the "Grant Date"),
by and between AMR Corporation, a Delaware corporation (the
"Corporation"), and Gerard J. Arpey ("Arpey").
WHEREAS, the 1998 Long Term Incentive Plan was approved by
the shareholders of the Corporation at the Corporation's annual
meeting held on May 20, 1998 (such Plan, as may be amended from
time to time, is referenced the "1998 Plan"); and
WHEREAS, the Board of Directors of the Corporation
(the "Board") and the Board's Compensation Committee has
determined that it is in the best interests of the Corporation
and its stockholders to align Arpey's long term interests with
those of the Corporation's stockholders and to provide incentives
for Arpey to remain with the Corporation as its Chairman,
President and/or Chief Executive Officer (collectively, the
"CEO"); and
WHEREAS, the Committee has determined to make initial
grants to Arpey of deferred stock (subject to the terms of the
1998 Plan and this Agreement), as the first steps to induce Arpey
to remain as the CEO and to motivate him during his tenure as the
CEO.
NOW, THEREFORE, the Corporation and Arpey hereby agree as
follows:
1. Grant of Award (a) As of the date hereof Arpey is granted
58,000 deferred shares of the Corporation's Common Stock, $1.00
par value (such shares to be referenced as "Deferred Shares" and
the grant to be referenced as the "2005 Award"). The 2005 Award
and the Subsequent Awards (as later defined in this Agreement)
will be collectively referenced as the "Awards" and may be
individually referenced as an "Award".
(b) Any Award will vest in accordance with Sections 2 and 4 of
this Agreement.
2. Performance Period/Vesting The Awards will vest, if at
all, on July 25, 2015 (the "Vesting Date")(subject to earlier
vesting as detailed in Sections 3 and 4 of this Agreement).
Prior to any vesting of the Awards pursuant to this Section 2,
but as soon as feasible after the Vesting Date, the Committee
will determine that the performance criteria (the "Criteria")
established for the Awards have been satisfied, in whole or in
part. Based upon the foregoing determination, the number of
Deferred Shares for each Award will vest on a percentage basis
from 0% to 175%. The Criteria to be used by the Committee in
determining the vesting of each Award are set forth in Appendix A
to this Agreement. Provided Arpey has paid all applicable taxes
with respect to each Award, the shares of Common Stock that vest
pursuant to this Section 2 will be issued and delivered to Arpey
as soon as feasible following the determination of the Committee
as to satisfaction of the Criteria. Upon delivery of the Common
Stock to Arpey, this Agreement will terminate.
3. Early Termination (a) For purposes of this Agreement, an
Early Termination is the occurrence of one of the following
events prior to the Vesting Date:
(i) Arpey ceases to be the Corporation's CEO due to an
approved Early Retirement (which is defined as retirement from
employment with the Corporation, or a Subsidiary or Affiliate
thereof, at or after age 55 but before the age of 60 and with the
express approval of the then existing Board);
(ii) Arpey ceases to be the Corporation's CEO due to his
death or Disability (as Disability is defined in section
401A(a)(2)(C) of the Internal Revenue Code of 1986, as amended,
(the "IRC");
(iii) The Board replaces Arpey as the Corporation's CEO for
reasons other than for Cause;
(iv) Arpey resigns as CEO for Good Reason (as such term
is defined in this Section 3); or
(v) A Change in Control (as such term is defined in Section 10
of this Agreement) of the Corporation.
(b) As used in this Agreement, "Good Reason" means one of the
following has occurred without Arpey's consent prior to the
Vesting Date: (i) his base salary in effect as of the Grant
Date is reduced (provided, a reduction in Arpey's base salary
that is part of a salary reduction program that affects the other
senior officers of the Corporation, will not qualify as Good
Reason); (ii) Arpey suffers a significant reduction in the
authority, duties and responsibilities as CEO and he concludes in
good faith that he can no longer perform the duties of CEO as was
contemplated on the Grant Date; and (iii) the material
benefits provided Arpey as of the Grant Date are materially
reduced. Upon an event of Good Reason occurring, Arpey will
provide the Board with written notice of such occurrence. If the
Board has not taken action to cure such an event of Good Reason
within 30 days following its receipt of Arpey's written notice,
then Arpey's subsequent resignation (provided it occurs with 60
days of his written notice to the Board), will be deemed
conclusively to be for Good Reason. Any notice to the Board as
contemplated by this paragraph, will be sent to the Board via the
Corporation's Corporate Secretary.
(c) Upon the occurrence of an Early Termination, the Early
Termination Date will be deemed to be, as appropriate: the date
of Early Retirement; the date of death; the date of Disability;
the date Arpey is replaced as CEO;or the date of his resignation
for Good Reason; or the date of the Change in Control of the
Corporation. Notwithstanding the foregoing, the determination
by the Board of the Early Termination Date will in all cases be
determinative.
4. Vesting for Early Termination (a) Upon the occurrence
of an Early Termination, an Award that has been granted to Arpey
prior to the Early Termination Date will be deemed to have vested
as of such Early Termination Date. Thereafter, the Committee will
review the Criteria to determine whether and to what extent the
Criteria have been satisfied as of the Early Termination Date.
Based upon the foregoing determination, the Committee may, in its
sole discretion, adjust the number of Deferred Shares vesting
for each such Award by a percentage factor between 0% and 175%
(the vested portion of each such Award as so determined by the
Committee will, in the aggregate, be referenced as the "Vested
Award").
(b) In the event of an Early Termination on account of Early
Retirement (Section 3(a)(i)), replacement without Cause (Section
3(a)(iii)) or termination for Good Reason (Section
3(a)(iv)), and provided that Arpey has paid all applicable
taxes with respect to the Vested Award, shares of the
Corporation's Common Stock, $1.00 par value, in an amount equal
to the Vested Award, will be delivered to Arpey on or after the
sixth month anniversary of the date of Arpey's separation from
employment as a result of such Early Termination. Upon delivery
of the Common Stock to Arpey, this Agreement will terminate.
(c) In the event of an Early Termination on account of death or
Disability (Section 3(a)(ii)) or Change in Control of the
Corporation (Section 3(a)(v)), and provided that Arpey has
paid all applicable taxes with respect to the Vested Award,
shares of the Corporation's Common Stock, $1.00 par value, in an
amount equal to the Vested Award, will be delivered to Arpey within
30 days of such Early Termination Date. Upon delivery of the Common
Stock to Arpey, this Agreement will terminate.
5. Subsequent Awards Provided Arpey remains an employee
of the Corporation, he will receive a minimum of 58,000 Deferred
Shares in each of the succeeding four years after 2005
(collectively, the "Subsequent Awards" and individually a
"Subsequent Award"). The grant date for each Subsequent Award
will be the first Monday following the regular meeting of the
Board in July of such succeeding year. In the event the Board
does not meet in July of any succeeding year, the grant date for
the Subsequent Award in that year will be deemed to be the last
business day of July. Vesting of a Subsequent Award will be in
accordance with Sections 2, 3 and 4 of this Agreement and the
number of Deferred Shares vesting for each Subsequent Award may
range from 0% to 175%.
6. Termination for Cause; Other If prior to the Vesting
Date and provided there has been no event of Early Termination,
then in the event (a) the Board decides to replace Arpey as the
Corporation's CEO for reasons of Cause or (b) Arpey resigns as
CEO for reasons other than Good Reason, each Award made prior to
such replacement or resignation will be forfeited in its entirety
and this Agreement will terminate immediately.
7. Transfer Restrictions This Award is non-transferable
otherwise than by will or by the laws of descent and
distribution, and may not otherwise be assigned, pledged or
hypothecated and will not be subject to execution, attachment or
similar process. Upon any attempt by Arpey (or his successor in
interest after his death) to effect any such disposition, or upon
the commencement of any such process, the Award will
immediately become null and void, at the discretion of the
Committee.
8. Miscellaneous This Agreement (a) will be binding upon
and inure to the benefit of any successor of the Corporation, (b)
will be governed by the laws of the State of Texas and any
applicable laws of the United States, and (c) may not be amended
without the written consent of both the Corporation and Arpey.
No contract or right of employment will be implied by this
Agreement. If Arpey does not forward to the Corporation, within
the applicable period, required taxes with respect to any shares
of Common Stock which have vested pursuant to this Agreement, the
Corporation may withhold from any payments to be made to him by
the Corporation (or any Subsidiary or Affiliate thereof), an
amount(s) equal to such taxes or it may withhold the delivery of
any shares of the Common Stock, $1.00 par value, as contemplated
by Sections 2 or 4, until such time as such required taxes have
been paid.
9. Securities Law Requirements (a) The Corporation
will not be required to issue shares pursuant to this Award
unless and until (i) such shares have been duly listed upon each
stock exchange on which the Corporation's Stock is then
registered; and (ii) a registration statement under the
Securities Act of 1933 with respect to such shares is then
effective.
(b) The Board may require Arpey to furnish to the Corporation,
prior to the issuance of any shares of Common Stock, $1.00 par
value, in connection with this Agreement, an agreement, in such
form as the Board may from time to time deem appropriate, in
which he represents that the shares acquired by him are being
acquired for investment and not with a view to the sale or
distribution thereof.
10. Incorporation of 1998 Plan Provisions This Agreement is
made pursuant to the 1998 Plan and is subject to all of the terms
and provisions of the 1998 Plan as if the same were fully set
forth herein. Capitalized terms not otherwise defined herein
will have the meanings set forth for such terms in the 1998 Plan.
For purposes of this Agreement, (a) the term "Change in Control"
will mean a "change in ownership or effective control", or a
"change in ownership of assets" of the Corporation as determined
pursuant to Internal Revenue Service Notice 2005-1 (or successor
guidance thereto under Section 409A of the IRC) and (b) "Cause"
will have the meaning set forth in the 1998 Plan.
Plan. Notwithstanding the provisions of the 1998 Plan, (y) Arpey
cannot defer payment of an Award and (z) the payment of an Award
cannot be accelerated by the Committee or the Corporation, except
as provided in this Agreement.
GERARD J. ARPEY AMR CORPORATION
_____________________________ ____________________________
C. D. MarLett
Corporate Secretary
Appendix A to that CAREER PERFORMANCE SHARE PROGRAM DEFERRED
STOCK AWARD AGREEMENT dated July 25, 2005, between AMR
Corporation and Gerard J. Arpey (the "Agreement")
The Agreement, Sections 2 and 4, contemplates the existence of
performance criteria that will be considered by the Committee
when determining the vesting of Award.
In making its vesting determination the Committee will consider
the following performance criteria:
1. The Corporation's overall cash flow;
2. The Corporation's earnings (operating, net or otherwise);
3. The per share price of the Common Stock;
4. The operating performance of the Corporation and its
Subsidiaries (including safety and other issues concerning
regulatory compliance);
5. The rate of return on investment and/or equity;
6. Measures of employee engagement and/ or satisfaction;
7. The overall state of relations between the Corporation and
the representatives of organized labor groups;
8. The Corporation's balance sheet;
9. The overall state of relations between the Corporation and
its largest shareholders;
10. The Corporation's revenues; and
11. Such other factors as the Committee may in its discretion
deem material.
In making its vesting determination, the Committee may, in its
discretion, consider the foregoing factors (a) on a relative
basis vis-a-vis the Corporation's major competitors or (b) on a
stand-alone basis. Furthermore, the Committee may, in its
discretion, consider each criterion equally or may assign greater
significance to certain criterion.
Exhibit 10.7
American Airlines, Inc.
P.O. Box 619616
Dallas-Fort Worth Airport, Texas 75261-9616
Subject: Business Considerations
Reference: a) Purchase Agreement No. 1977 between
The Boeing Company (Boeing) and American
Airlines, Inc. (Customer) relating to
Model 737-823 Aircraft
b) Letter Agreement No. 6-1162-AKP-074R1,
dated July 17, 1998, Same Subject
This letter agreement (Letter Agreement) is entered into
on the date below and amends and supplements the Reference
(a) Purchase Agreement. Furthermore, this Letter
Agreement cancels and supersedes in full the Reference (b)
Letter Agreement. All capitalized terms used herein but
not otherwise defined in this Letter Agreement shall have
the same meanings assigned thereto in Exhibit C to the
Purchase Agreement or elsewhere in such Purchase
Agreement.
1. Model 737-823
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT].
2. Model 737-723 [CONFIDENTIAL PORTION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT].
If Customer purchases one or more Model 737-723
Aircraft pursuant to Letter Agreement No. 6-1162-AKP-075,
then Boeing will [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT].
3. Model 737-623 [CONFIDENTIAL PORTION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT].
If Customer purchases one or more Model 737-623
Aircraft pursuant to Letter Agreement No. 6-1162-AKP-075,
then Boeing will [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT].
4. [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT].
4.1 If Customer purchases one or more Model 737-823
Aircraft after the date of this Letter Agreement,
Boeing shall [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT].
4.2 If Customer purchases one or more Model 737-723
Aircraft after the date of this Letter Agreement,
Boeing shall [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT].
4.3 At the execution of this revised Letter
Agreement, Boeing has not [CONFIDENTIAL PORTION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT].
5. Application [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT].
Customer will be entitled to [CONFIDENTIAL PORTION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT]
6. Confidential Treatment.
Customer and Boeing understand that certain
commercial and financial information contained in this
Letter Agreement are considered by Boeing and Customer as
confidential. Customer and Boeing agree that each will
treat this Letter Agreement and the information contained
herein as confidential and will not, without the prior
written consent of the other, disclose this Letter
Agreement or any information contained herein to any other
person or entity, except as provided in this Letter
Agreement or the Purchase Agreement.
Very truly yours,
THE BOEING COMPANY
By [Lyn A. Johnson]
Its Attorney-In-Fact
ACCEPTED AND AGREED TO this
Date: May 5 , 2005
AMERICAN AIRLINES, INC.
By [Beverly Goulet]
Its Vice President - Corp. Dev. & Treasurer
Exhibit 12
AMR CORPORATION
Computation of Ratio of Earnings to Fixed Charges
(in millions)
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
Earnings (loss):
Earnings (loss) before income taxes $ 58 $ 6 $(104) $(160)
Add: Total fixed charges (per below) 438 441 891 876
Less: Interest capitalized 24 20 47 38
Total earnings before income taxes $ 472 $ 427 $ 740 $ 678
Fixed charges:
Interest $ 208 $ 205 $ 428 $ 406
Portion of rental expense
representative of the interest factor 212 221 428 441
Amortization of debt expense 18 15 35 29
Total fixed charges $ 438 $ 441 $ 891 $ 876
Ratio of earnings to fixed charges 1.08 - - -
Coverage deficiency $ - $ 14 $ 151 $ 198
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))
and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
(c) 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
(d) 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: July 25, 2005 /s/ Gerard J. Arpey
Gerard J. Arpey
Chairman, 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))
and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
(c) 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
(d) 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: July 25, 2005 /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 June 30, 2005
(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: July 25, 2005 /s/ Gerard J. Arpey
Gerard J. Arpey
Chairman, President and Chief
Executive Officer
Date: July 25, 2005 /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.