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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 September 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 Rule 12b-2 of the Exchange Act).
Yes X No .
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes No X .
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 - 165,067,635 shares as of October
14, 2005.
INDEX
AMR CORPORATION
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations -- Three and nine months
ended September 30, 2005 and 2004
Condensed Consolidated Balance Sheets -- September 30, 2005 and
December 31, 2004
Condensed Consolidated Statements of Cash Flows -- Nine months
ended September 30, 2005 and 2004
Notes to Condensed Consolidated Financial Statements -- September
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 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 Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
Revenues
Passenger - American Airlines $4,428 $3,838 $12,534 $11,411
- Regional Affiliates 570 488 1,582 1,413
Cargo 152 149 460 452
Other revenues 335 287 968 828
Total operating revenues 5,485 4,762 15,544 14,104
Expenses
Wages, salaries and benefits 1,664 1,696 4,979 5,039
Aircraft fuel 1,582 1,056 4,030 2,781
Other rentals and landing fees 337 295 956 901
Depreciation and amortization 292 317 868 963
Commissions, booking fees and
credit card expense 292 288 849 863
Maintenance, materials and
repairs 269 265 761 741
Aircraft rentals 148 152 443 458
Food service 136 145 388 421
Other operating expenses 726 593 1,979 1,775
Special charges (credits) - (18) - (49)
Total operating expenses 5,446 4,789 15,253 13,893
Operating Income (Loss) 39 (27) 291 211
Other Income (Expense)
Interest income 40 19 104 47
Interest expense (240) (219) (697) (648)
Interest capitalized 12 22 59 60
Miscellaneous - net (4) (9) (14) (44)
(192) (187) (548) (585)
Loss Before Income Taxes (153) (214) (257) (374)
Income tax - - - -
Net Loss $(153) $(214) $(257) $(374)
Basic and Diluted Loss Per Share $(0.93) $(1.33) $(1.58) $(2.33)
The accompanying notes are an integral part of these financial statements.
-1-
AMR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (In millions)
September, 30 December, 31
2005 2004
Assets
Current Assets
Cash $ 127 $ 120
Short-term investments 3,285 2,809
Restricted cash and short-term investments 499 478
Receivables, net 1,111 836
Inventories, net 540 488
Other current assets 425 240
Total current assets 5,987 4,971
Equipment and Property
Flight equipment, net 15,111 15,292
Other equipment and property, net 2,464 2,426
Purchase deposits for flight equipment 278 319
17,853 18,037
Equipment and Property Under Capital Leases
Flight equipment, net 967 1,016
Other equipment and property, net 91 84
1,058 1,100
Route acquisition costs and airport operating
and gate lease rights, net 1,202 1,223
Other assets 3,336 3,442
$ 29,436 $28,773
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities
Accounts payable $ 1,101 $ 1,003
Accrued liabilities 1,957 2,026
Air traffic liability 3,851 3,183
Current maturities of long-term debt 790 659
Current obligations under capital leases 170 147
Total current liabilities 7,869 7,018
Long-term debt, less current maturities 12,292 12,436
Obligations under capital leases, less
current obligations 939 1,088
Pension and postretirement benefits 4,799 4,743
Other liabilities, deferred gains and
deferred credits 4,266 4,069
Stockholders' Equity (Deficit)
Preferred stock - -
Common stock 182 182
Additional paid-in capital 2,314 2,521
Treasury stock (1,081) (1,308)
Accumulated other comprehensive loss (575) (664)
Accumulated deficit (1,569) (1,312)
(729) (581)
$ 29,436 $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)
Nine Months Ended
September 30,
2005 2004
Net Cash Provided by Operating Activities $1,032 $ 803
Cash Flow from Investing Activities:
Capital expenditures, including purchase
deposits for flight equipment (586) (773)
Net increase in short-term investments (476) (532)
Net (increase) decrease in restricted cash
and short-term investments (21) 46
Proceeds from sale of equipment and property 25 59
Other - (12)
Net cash used by investing activities (1,058) (1,212)
Cash Flow from Financing Activities:
Payments on long-term debt and capital
lease obligations (881) (575)
Proceeds from:
Issuance of long-term debt 697 975
Exercise of stock options 19 6
DFW Bond Remarketing 198 -
Net cash provided by financing activities 33 406
Net increase (decrease) in cash 7 (3)
Cash at beginning of period 120 120
Cash at end of period $ 127 $ 117
Activities Not Affecting Cash
Flight equipment acquired through seller
financing $ - $ 18
Capital lease obligations incurred $ 13 $ 10
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 loss and loss per share amounts if
the Company had applied the fair value recognition provisions of
SFAS 123 to stock-based employee compensation (in millions, except
per share amounts):
Three Months Nine Months
Ended Ended
September 30, September 30,
2005 2004 2005 2004
Net loss, as reported $(153) $(214) $(257) $(374)
Add (Deduct): Stock-based
employee compensation
expense included in
reported net loss 8 (7) 26 10
Deduct: Total stock-based
employee compensation
expense determined under
fair value based methods
for all awards (22) (9) (70) (59)
Pro forma net loss $(167) $(230) $(301) $(423)
Loss per share:
Basic and diluted-as
reported $(0.93) $(1.33) $(1.58) $(2.33)
Basic and diluted-pro forma $(1.02) $(1.43) $(1.85) $(2.64)
-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 expects that the impact of adoption on its first quarter
2006 results will be similar to the amounts disclosed in the
quarterly pro forma information in this footnote. However,
subsequent to the first quarter of 2006, the impact will decrease
significantly due to the vesting period ending for the 2003
Employee Stock Incentive Plan.
3.As of September 30, 2005, the Company had commitments to acquire
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 $102 million in 2006 and an
aggregate of approximately $2.8 billion in 2011 through 2016. The
Company has pre-arranged financing for all aircraft deliveries in
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 $115 million in additional operating lease payments
and $106 million in additional payments related to capital leases
as of September 30, 2005. These amounts are being accounted for as
contingent rentals and will only be recognized if they become
payable. Conversely, as part of the concessionary agreements, the
Company will recognize a gain of $37 million related to a debt
restructuring if none of the events described above occur prior to
December 31, 2005.
4.Accumulated depreciation of owned equipment and property at
September 30, 2005 and December 31, 2004 was $10.2 billion and $9.6
billion, respectively. Accumulated amortization of equipment and
property under capital leases at September 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 $81 million, respectively,
for the three and nine months ended September 30, 2005.
Additionally, the per share net loss for the three and nine months
ended September 30, 2005 decreased $0.16 and $0.50 per share,
respectively.
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 $127 million during the nine
months ended September 30, 2005 to $960 million as of September 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 nine
month period ended September 30, 2005.
-5-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
6.In July 2005, American completed the re-marketing of $198 million
of DFW-FIC Series 2000A Unsecured Revenue Refunding Bonds that 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
which results in an increase to Other liabilities, deferred gains and
deferred credits where the tendered bonds had been classified pending
their use to offset certain future operating lease obligations.
In September 2005, American sold and leased back 89 spare engines
with a book value of $105 million to a variable interest entity
(VIE). The net proceeds received from third parties were $133
million. American is considered the primary beneficiary of the
activities of the VIE as American has substantially all of the
residual value risk associated with the transaction. As such,
American is required to consolidate the VIE in its financial
statements. At September 30, 2005, the book value of the engines
was included in Flight equipment, net on the condensed consolidated
balance sheet. The engines serve as collateral for the VIE's long-
term debt of $133 million at September 30, 2005, which has also
been included in the condensed consolidated balance sheet. The VIE
has no other significant operations.
Also in September 2005, American purchased certain obligations due
October 2006 with a face value of $261 million at par value from an
institutional investor. In conjunction with the purchase, American
borrowed an additional $245 million under an existing mortgage
agreement with a final maturity in December 2012 from the same
investor. The interest rate on the mortgage agreement remains
substantially unchanged. The additional borrowings required
American to grant a security interest in certain spare engines and
related collateral. The transaction was accounted for as a
modification of the original debt under Emerging Issues Task Force
Issue 96-19 "Debtor's Accounting for a Modification or Exchange of
Debt Instruments". As a result of this transaction, the Company's
2006 maturities of long-term debt decreased from $1.3 billion to
$1.1 billion.
During the nine month period ended September 30, 2005, AMR Eagle
borrowed approximately $319 million (net of discount), under
various debt agreements related to the purchase of regional jet
aircraft. These debt agreements are secured by the related
aircraft, have an effective interest rate of 5.0 percent, are
guaranteed by AMR and mature over various periods of time through
2021.
As of September 30, 2005, AMR had issued guarantees covering
approximately $928 million of American's tax-exempt bond debt and
American's fully drawn $803 million credit facility. American had
issued guarantees covering approximately $1.3 billion of AMR's
unsecured debt. In addition, as of September 30, 2005, AMR and
American had issued guarantees covering approximately $428 million
of AMR Eagle's secured debt and AMR had issued guarantees covering
an additional $2.8 billion of AMR Eagle's secured debt.
-6-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
7.The following tables provide the components of net periodic
benefit cost for the three and nine months ended September 30, 2005
and 2004 (in millions):
Pension Benefits
Three Months Nine Months Ended
Ended September 30,
September 30,
2005 2004 2005 2004
Components of net periodic
benefit cost
Service cost $ 93 $ 89 $ 278 $ 268
Interest cost 152 142 457 425
Expected return on assets (164) (143) (493) (427)
Amortization of:
Prior service cost 4 4 12 11
Unrecognized net loss 13 15 39 44
Net periodic benefit cost $ 98 $ 107 $ 293 $ 321
Other Postretirement Benefits
Three Months Nine Months Ended
Ended September 30,
September 30,
2005 2004 2005 2004
Components of net periodic
benefit cost
Service cost $ 19 $ 19 $ 56 $ 57
Interest cost 49 51 148 152
Expected return on assets (3) (3) (10) (9)
Amortization of:
Prior service cost (2) (3) (7) (8)
Unrecognized net loss - 2 1 6
Net periodic benefit cost $ 63 $ 66 $ 188 $ 198
The Company contributed $288 million to its defined benefit pension
plans during the nine month period ended September 30, 2005, and
completed its required 2005 calendar year funding by contributing
an additional $22 million on October 14, 2005.
-7-
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 Total
Charges Exit Costs Charges
Remaining
accrual at
December 31,
2004 $ 129 $ 26 $ 36 $191
Payments (13) (5) (34) (52)
Remaining
accrual at
September 30,
2005 $ 116 $ 21 $ 2 $139
Cash outlays related to these accruals, as of September 30, 2005,
for aircraft charges, facility exit costs and employee charges will
occur through 2014, 2018 and the end of 2005, respectively.
9.The Company includes changes in the fair value of certain
derivative financial instruments that qualify for hedge accounting
(primarily crude oil derivative contracts), changes in minimum pension
liabilities and unrealized gains and losses on available-for-sale
securities in comprehensive loss. For the three months ended September
30, 2005 and 2004, comprehensive loss was $121 million and $194
million, respectively, and for the nine months ended September 30,
2005 and 2004, comprehensive loss was $168 and $371 million,
respectively. The difference between net loss and comprehensive loss
for the three and nine months ended September 30, 2005 and 2004 is due
primarily to the accounting for the Company's derivative financial
instruments.
Ineffectiveness is inherent in hedging jet fuel with derivative
positions based in crude oil or other crude oil related
commodities. As required by Statement of Financial Accounting
Standard No. 133, "Accounting for Derivative Instruments and
Hedging Activities", the Company assesses, both at the inception of
each hedge and on an on-going basis, whether the derivatives that
are used in its hedging transactions are highly effective in
offsetting changes in cash flows of the hedged items. The Company
discontinues hedge accounting prospectively if it determines that a
derivative is no longer expected to be highly effective as a hedge
or if it decides to discontinue the hedging relationship. As a
result of its quarterly effectiveness assessment, the Company
determined that all of its derivatives settling during the
remainder of 2005 and certain of its derivatives settling in 2006
are no longer expected to be highly effective in offsetting changes
in forecasted jet fuel purchases. As a result, effective on
October 1, 2005, all subsequent changes in the fair value of those
particular hedge contracts will be recognized directly in earnings
rather than being deferred in Accumulated other comprehensive loss.
Hedge accounting will continue to be applied to derivatives used to
hedge forecasted jet fuel purchases that are expected to remain
highly effective.
-8-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
10.The following table sets forth the computations of basic and
diluted loss per share (in millions, except per share data):
Three Months Nine Months
Ended Ended
September 30, September 30,
2005 2004 2005 2004
Numerator:
Net loss - numerator for basic
and diluted loss per share $(153) $(214) $(257) $(374)
Denominator:
Denominator for basic and diluted
loss per share - weighted-
average shares 164 161 163 160
Basic and diluted loss per share $(0.93) $(1.33) $(1.58) $(2.33)
For the three month and nine month periods ended September 30,
2005 and 2004, approximately 82 million shares issuable upon
conversion of the Company's convertible notes or related to
employee stock options and deferred stock were not added to the
denominator because inclusion of such shares would be antidilutive
or because the options' exercise prices were greater than the
average market price of the common shares.
-9-
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 incurred a $153 million net loss during the third quarter
of 2005 compared to a net loss of $214 million in the same period last
year. The Company's third quarter 2005 results were impacted by the
continuing increase in fuel prices and certain other costs, offset by
an improvement in revenues, 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, and productivity improvements and other cost
reductions resulting from progress under the Turnaround Plan. The
Company's third quarter 2005 results were also impacted by an $80
million charge for the termination of a contract and a $22 million
credit for the reversal of an insurance reserve.
Fuel price increases resulted in a year-over-year increase of 62.6
cents per gallon for the third quarter. This price increase negatively
impacted fuel expense by $525 million during the quarter based on fuel
consumption of 839 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.
-10-
Mainline passenger unit revenues increased 12.6 percent for the third
quarter due to a 3.3 point load factor increase and an 8.0 percent
increase in passenger yield (passenger revenue per passenger mile)
compared to the same period in 2004. Although load factor performance
and yield showed 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); pricing transparency resulting from the use of the
internet; greater competition from low-cost carriers and from carriers
that have recently reorganized or are reorganizing, including under
the protection of Chapter 11 of the Bankruptcy Code; other carriers
that are well hedged against rising fuel costs and able to better
absorb the current high jet fuel prices; and, more recently, fare
simplification efforts by certain carriers. The Company believes that
its reduced pricing power will persist indefinitely and possibly
permanently.
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), 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.
-11-
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 $555 million senior secured revolving credit facility with
a final maturity on June 17, 2009 and a fully drawn $248 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 September 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 0.90 to 1.00 for the four quarter period ending September 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 September 30, 2005 and expects to be able to
continue to comply with this covenant for the period ending December
31, 2005. However, 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, in fact, 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
comply with these covenants. 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 contributed $288 million to its defined benefit pension
plans during the nine month period ended September 30, 2005, and
completed its required 2005 calendar year funding by contributing an
additional $22 million on October 14, 2005. Due to uncertainty
regarding the impact of proposed legislation, the Company is not yet
able to reasonably estimate its future required contributions beyond
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. Based on the current regulatory environment and
market conditions, the Company expects that its 2006 minimum required
contributions will exceed its 2005 contributions; however, there are
certain scenarios where the Company's 2006 minimum required
contribution would be less than the 2005 amount.
-12-
Cash Flow Activity
At September 30, 2005, the Company had $3.4 billion in unrestricted
cash and short-term investments, an increase of $483 million from
December 31, 2004. Net cash provided by operating activities in the
nine-month period ended September 30, 2005 was $1.0 billion, an
increase of $229 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. Capital
expenditures for the first nine months of 2005 were $586 million and
included the acquisition of 20 Embraer 145 aircraft and the cost of
improvements at New York's John F. Kennedy airport.
In July 2005, American completed the re-marketing of $198 million of
DFW-FIC Series 2000A Unsecured Revenue Refunding Bonds that 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
which results in an increase to Other liabilities, deferred gains and
deferred credits where the tendered bonds had been classified pending
their use to offset certain future operating lease obligations.
In September 2005, American sold and leased back 89 spare engines with
a book value of $105 million to a variable interest entity (VIE). The
net proceeds received from third parties were $133 million. American
is considered the primary beneficiary of the activities of the VIE as
American has substantially all of the residual value risk associated
with the transaction. As such, American is required to consolidate
the VIE in its financial statements. At September 30, 2005, the book
value of the engines was included in Flight equipment, net on the
condensed consolidated balance sheet. The engines serve as collateral
for the VIE's long-term debt of $133 million at September 30, 2005,
which has also been included in the condensed consolidated balance
sheet. The VIE has no other significant operations.
Also in September 2005, American purchased certain obligations due
October 2006 with a face value of $261 million at par value from an
institutional investor. In conjunction with the purchase, American
borrowed an additional $245 million under an existing mortgage
agreement with a final maturity in December 2012 from the same
investor. The interest rate on the mortgage agreement remains
substantially unchanged. The additional borrowings required American
to grant a security interest in certain spare engines and related
collateral. The transaction was accounted for as a modification of
the original debt under Emerging Issues Task Force Issue 96-19
"Debtor's Accounting for a Modification or Exchange of Debt
Instruments". As a result of this transaction, the Company's 2006
maturities of long-term debt decreased from $1.3 billion to $1.1
billion.
During the nine-month period ended September 30, 2005, AMR Eagle
borrowed approximately $319 million (net of discount), under various
debt agreements, related to the purchase of regional jet aircraft.
These debt agreements are secured by the related aircraft, have an
effective interest rate of 5.0 percent, are guaranteed by AMR and
mature over various periods of time through 2021.
The New York City Industrial Development Agency is in the process of
offering up to $770 million of special facility revenue bonds on
behalf of American. Proceeds from these bonds would generally be used
to reimburse American for certain construction costs related to
facility improvements at John F. Kennedy International Airport. If
these bonds are issued, American would be responsible for debt service
on the bonds and would consolidate the debt in its financial
statements. American can give no assurance as to whether or when
these bonds will be issued or, if issued, as to the amount of the
bonds that will be issued.
-13-
RESULTS OF OPERATIONS
For the Three Months Ended September 30, 2005 and 2004
Revenues
The Company's revenues increased approximately $723 million, or 15.2
percent, to $5.5 billion in the third quarter of 2005 from the same
period last year. American's passenger revenues increased by 15.4
percent, or $590 million, on a capacity (available seat mile) (ASM)
increase of 2.5 percent. American's passenger load factor increased
3.3 points to 81.2 percent and passenger revenue yield per passenger
mile increased by 8.0 percent to 11.96 cents. This resulted in an
increase in American's passenger revenue per available seat mile
(RASM) of 12.6 percent to 9.71 cents. Following is additional
information regarding American's domestic and international RASM and
capacity:
Three Months Ended September 30, 2005
RASM Y-O-Y ASMs Y-O-Y
(cents) Change (billions) Change
Domestic 9.4 13.8% 29.6 0.1%
International 10.2 10.1 16.0 7.1
Latin America 9.9 14.3 7.5 3.8
Europe 11.1 10.8 6.6 5.5
Pacific 8.3 (9.0) 1.8 31.4
Regional affiliates' passenger revenues, which are based on industry
standard proration agreements for flights connecting to American
flights, increased $82 million, or 16.8 percent, to $570 million as a
result of increased capacity and load factors. Regional affiliates'
traffic increased 21.8 percent to 2.4 billion revenue passenger miles
(RPMs), while capacity increased 17.1 percent to 3.3 billion ASMs,
resulting in a 2.7 point increase in the passenger load factor to 71.7
percent.
Cargo revenues increased 2.0 percent, or $3 million, to $152 million
as a result of a 1.9 percent increase in cargo ton miles. In
addition, the cargo division saw a $13 million increase in fuel
surcharges and other service fees. These amounts are included in
Other revenues which are discussed below.
Other revenues increased 16.7 percent, or $48 million, to $335 million
due in part to increased cargo fuel surcharges, increased third-party
maintenance contracts obtained by the Company's maintenance and
engineering group, and increases in certain passenger fees.
Operating Expenses
The Company's total operating expenses increased 13.7 percent, or $657
million, to $5.4 billion in the third quarter of 2005 compared to the
third quarter of 2004. American's mainline operating expenses per ASM
in the third quarter of 2005 increased 9.7 percent compared to the
third quarter of 2004 to 10.62 cents. These increases are due
primarily to a 49.6 percent increase in American's price per gallon of
fuel in the third quarter of 2005 relative to the third 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.
The Company's 2005 third quarter expenses were impacted by an $80
million charge for the termination of a contract and a $22 million
credit for the reversal of an insurance reserve. The Company recorded
an $18 million adjustment in Special charges in the third quarter of
2004 (see explanation below).
-14-
(in millions) Three Months
Ended Increase /
Operating Expenses September 30, (Decrease) Percentage
2005 from 2004 Change
Wages, salaries and benefits $1,664 $ (32) (1.9)%
Aircraft fuel 1,582 526 49.8 (a)
Other rentals and landing fees 337 42 14.2 (b)
Depreciation and amortization 292 (25) (7.9)
Commissions, booking fees
and credit card expense 292 4 1.4
Maintenance, materials and
repairs 269 4 1.5
Aircraft rentals 148 (4) (2.7)
Food service 136 (9) (6.2)
Other operating expenses 726 133 22.4 (c)
Special charges (credits) - 18 NM (d)
Total operating expenses $5,446 $ 657 13.7%
(a) Aircraft fuel expense increased primarily due to a 49.6 percent
increase in American's price per gallon of fuel offset by a 1.3
percent decrease in American's fuel consumption.
(b) Other rentals and landing fees increased primarily due to
additional landing fees resulting from higher rates.
(c) Other operating expenses increased primarily due to a charge of
$80 million related to the termination of a contract somewhat offset
by a $22 million credit for the reversal of an insurance reserve. An
increase in communications charges of $23 million, primarily due to
increased international services, also contributed to the increase in
the account.
(d) Special charges (credits) for 2004 included the reversal of
reserves previously established for facility exit costs of $18
million.
Other Income (Expense)
Other income (expense), historically a net expense, increased $5
million with offsetting $21 million increases in both interest income
and interest expense due primarily to higher balances and interest
rates.
Income Tax
The Company did not record a net tax benefit associated with its third
quarter 2005 and 2004 losses due to the Company providing a valuation
allowance, as discussed in Note 5 to the condensed consolidated
financial statements.
-15-
Operating Statistics
The following table provides statistical information for American and
Regional Affiliates for the three months ended September 30, 2005 and
2004.
Three Months Ended
September 30,
2005 2004
American Airlines, Inc. Mainline Jet Operations
Revenue passenger miles (millions) 37,025 34,659
Available seat miles (millions) 45,613 44,515
Cargo ton miles (millions) 539 529
Passenger load factor 81.2% 77.9%
Passenger revenue yield per passenger
mile (cents) 11.96 11.07
Passenger revenue per available seat
mile (cents) 9.71 8.62
Cargo revenue yield per ton mile (cents) 28.23 28.11
Operating expenses per available seat mile,
excluding Regional Affiliates (cents) (*) 10.62 9.68
Fuel consumption (gallons, in millions) 763 773
Fuel price per gallon (cents) 187.6 125.4
Operating aircraft at period-end 727 734
Regional Affiliates
Revenue passenger miles (millions) 2,386 1,959
Available seat miles (millions) 3,326 2,840
Passenger load factor 71.7% 69.0%
(*) Excludes $650 million and $539 million of expense incurred
related to Regional Affiliates in 2005 and 2004, respectively.
Operating aircraft at September 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 145 108
Boeing 767-300 Extended Range 58 Super ATR 41
Boeing 777-200 Extended Range 45 Saab 340B/340B Plus 28
McDonnell Douglas MD-80 354 Total 300
Total 727
The average aircraft age for American's and AMR Eagle's aircraft is
13.0 years and 5.9 years, respectively.
Of the operating aircraft listed above, 24 McDonnell Douglas MD-80s -
- - 13 owned, five operating leased and six capital leased - - as well
as two Saab 340B Plus were in temporary storage as of September 30,
2005.
-16-
Owned and leased aircraft not operated by the Company at September 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 53
Fokker 100 4 Total 63
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 September 30, 2005, remaining
owned aircraft to be delivered under these agreements include one
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 Nine Months Ended September 30, 2005 and 2004
Revenues
The Company's revenues increased approximately $1.4 billion, or 10.2
percent, to $15.5 billion for the nine months ended September 30, 2005
from the same period last year. American's passenger revenues
increased by 9.8 percent, or $1.1 billion, on a capacity (ASM)
increase of 1.8 percent. American's passenger load factor increased
3.8 points to 78.8 percent and passenger revenue yield per passenger
mile increased 2.7 percent to 11.92 cents. This resulted in an
increase in American's passenger RASM of 7.9 percent to 9.39 cents.
Following is additional information regarding American's domestic and
international RASM and capacity:
Nine Months Ended September 30, 2005
RASM Y-O-Y ASMs Y-O-Y
(cents) Change (billions) Change
Domestic 9.3 8.6% 87.3 (1.9)%
International 9.6 6.2 46.1 9.7
Latin America 9.4 6.3 22.9 8.6
Europe 10.3 9.6 18.1 6.4
Pacific 8.3 (5.9) 5.1 29.1
Regional affiliates' passenger revenues, which are based on industry
standard proration agreements for flights connecting to American
flights, increased $169 million, or 12.0 percent, to $1.6 billion as a
result of increased capacity and load factors. Regional affiliates'
traffic increased 23.0 percent to 6.6 billion RPMs, while capacity
increased 18.8 percent to 9.5 billion ASMs, resulting in a 2.4 point
increase in the passenger load factor to 69.7 percent.
Cargo revenues increased 1.8 percent, or $8 million, to $460 million
as a result of a 1.2 percent increase in cargo ton miles in addition
to a 0.7 percent increase in cargo revenue yield per ton mile. In
addition, the cargo division saw a $38 million increase in fuel
surcharges and other service fees. These amounts are included in
Other revenues which are discussed below.
Other revenues increased 16.9 percent, or $140 million, to $968
million due in part to increased cargo fuel surcharges, increased
third-party maintenance contracts obtained by the Company's
maintenance and engineering group, and increases in certain passenger
fees.
-17-
Operating Expenses
The Company's total operating expenses increased 9.8 percent, or $1.4
billion, to $15.3 billion for the nine months ended September 30, 2005
compared to the same period in 2004. American's mainline operating
expenses per ASM in the nine months ended September 30, 2005 increased
6.3 percent compared to the same period in 2004 to 10.16 cents. These
increases are due primarily to a 44.5 percent increase in American's
price per gallon of fuel in 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) Nine Months
Ended Increase /
September 30, (Decrease) Percentage
Operating Expenses 2005 from 2004 Change
Wages, salaries and benefits $4,979 $(60) (1.2)%
Aircraft fuel 4,030 1,249 44.9 (a)
Other rentals and landing fees 956 55 6.1
Depreciation and amortization 868 (95) (9.9)
Commissions, booking fees and
credit card expense 849 (14) (1.6)
Maintenance, materials and
repairs 761 20 2.7
Aircraft rentals 443 (15) (3.3)
Food service 388 (33) (7.8)
Other operating expenses 1,979 204 11.5 (b)
Special charges (credits) - 49 NM (c)
Total operating expenses $15,253 $1,360 9.8%
(a) Aircraft fuel expense increased primarily due to a 44.5 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 1.5 percent decrease in American's
fuel consumption.
(b) Other operating expenses increased in part due to a charge of $80
million related to the termination of a contract somewhat offset by a
$22 million credit for the reversal of an insurance reserve.
Increases in communications charges of $51 million and information
technology spending of $15 million also contributed to the increase in
the account.
(c) Special charges (credits) for 2004 included the reversal of
reserves previously established for aircraft return costs of $20
million, facility exit costs of $18 million and employee severance of
$11 million.
Other Income (Expense)
Other income (expense), historically a net expense, decreased $37
million. Interest income increased $57 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 $49 million due primarily to
increases in variable interest rates. Miscellaneous-net decreased $30
million, reflecting the accrual during the first quarter of 2004 of a
$23 million award rendered by an independent arbitrator related 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 nine months ended September 30, 2005 and 2004 due to
the Company providing a valuation allowance, as discussed in Note 5 to
the condensed consolidated financial statements.
-18-
Operating Statistics
The following table provides statistical information for American and
Regional Affiliates for the nine months ended September 30, 2005 and
2004.
Nine Months Ended
September 30,
2005 2004
American Airlines, Inc. Mainline Jet Operations
Revenue passenger miles (millions) 105,147 98,271
Available seat miles (millions) 133,485 131,109
Cargo ton miles (millions) 1,636 1,617
Passenger load factor 78.8% 75.0%
Passenger revenue yield per passenger
mile (cents) 11.92 11.61
Passenger revenue per available seat
mile (cents) 9.39 8.70
Cargo revenue yield per ton mile (cents) 28.11 27.92
Operating expenses per available seat mile,
excluding Regional Affiliates (cents) (*) 10.16 9.56
Fuel consumption (gallons, in millions) 2,242 2,276
Fuel price per gallon (cents) (**) 162.9 112.7
Regional Affiliates
Revenue passenger miles (millions) 6,588 5,355
Available seat miles (millions) 9,452 7,958
Passenger load factor 69.7% 67.3%
(*) Excludes $1.9 billion and $1.5 billion of expense incurred
related to Regional Affiliates in 2005 and 2004, respectively.
(**) Includes the benefit of 2.5 cents per gallon impact from the
$55 million fuel excise tax refund in 2005.
Outlook
The Company expects to post -- at the current level of fuel prices --
a significant loss in the fourth quarter.
The Company currently expects fourth quarter mainline unit costs to be
approximately 11.42 cents, including the 0.09 cent favorable impact of
the $37 million potential gain discussed in Note 3 to the condensed
consolidated financial statements.
Capacity for American's mainline jet operations is expected to remain
approximately flat in the fourth quarter of 2005 compared to the
fourth quarter of 2004.
-19-
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 September 30, 2005 cost per gallon of fuel. Based on
projected 2005 and 2006 fuel usage through September 30, 2006, such an
increase would result in an increase to aircraft fuel expense of
approximately $948 million in the twelve months ended September 30,
2006, inclusive of the impact of effective fuel hedge instruments
outstanding at September 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.
Ineffectiveness is inherent in hedging jet fuel with derivative
positions based in crude oil or other crude oil related commodities.
As required by Statement of Financial Accounting Standard No. 133,
"Accounting for Derivative Instruments and Hedging Activities", the
Company assesses, both at the inception of each hedge and on an on-
going basis, whether the derivatives that are used in its hedging
transactions are highly effective in offsetting changes in cash flows
of the hedged items. The Company discontinues hedge accounting
prospectively if it determines that a derivative is no longer expected
to be highly effective as a hedge or if it decides to discontinue the
hedging relationship. As a result of its quarterly effectiveness
assessment, the Company determined that all of its derivatives
settling during the remainder of 2005 and certain of its derivatives
settling in 2006 are no longer expected to be highly effective in
offsetting changes in forecasted jet fuel purchases. As a result,
effective on October 1, 2005, all subsequent changes in the fair value
of those particular hedge contracts will be recognized directly in
earnings rather than being deferred in Accumulated other comprehensive
loss. Hedge accounting will continue to be applied to derivatives used
to hedge forecasted jet fuel purchases that are expected to remain
highly effective.
As of September 30, 2005, the Company had hedged an insignificant
percentage of its estimated remaining 2005, 2006 and 2007 fuel
requirements with option contracts.
-20-
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 September 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 September 30,
2005. During the quarter ending on September 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.
-21-
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. In September 2005, the Court granted Summary Judgment in
favor of the Company and all other defendants. The time for
plaintiffs to file a notice of appeal has not yet run. 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.
-22-
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. On September 7,
2005, the court issued a memorandum opinion that interpreted disputed
terms in the patents. The plaintiff dismissed its claims without
prejudice to its right to appeal the September 7, 2005 opinion.
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.
-23-
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.
-24-
Item 6. Exhibits
The following exhibits are included herein:
10 Trust Agreement Under Supplemental Executive Retirement Program
for Officers of American Airlines, Inc Participating in the $uper
$aver Plus Plan.
12 Computation of ratio of earnings to fixed charges for the three
and nine months ended September 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).
-25-
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: October 21, 2005 BY: /s/ James A. Beer
James A. Beer
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
-26-
Exhibit 10
TRUST AGREEMENT
UNDER
SUPPLEMENTAL EXECUTIVE RETIREMENT PROGRAM
FOR OFFICERS OF AMERICAN AIRLINES, INC.
PARTICIPATING IN THE $UPER $AVER PLUS PLAN
Adopted September 15, 2005
TABLE OF CONTENTS
ARTICLE I - DEFINITIONS 2
Section 1.1. Account 2
Section 1.2. Actuary 2
Section 1.3. Beneficiary 2
Section 1.4. Code 2
Section 1.5. Committee 2
Section 1.6. Corporation 2
Section 1.7. Expense Account 2
Section 1.8. Fund 2
Section 1.9. Investment Manager 2
Section 1.10. Participant 3
Section 1.11. Plan 3
Section 1.12. $uper $aver Plus Plan 3
Section 1.13. Supplemental $uper $aver Plus Plan 3
Section 1.14. Trust 3
Section 1.15. Trustee 3
Section 1.16. Valuation Date 3
ARTICLE II - CREATION, PURPOSE AND ADMINISTRATION OF THE TRUST 3
Section 2.1. Purpose of the Trust; Separate Trust 3
Section 2.2. Administration of the Trust 4
Section 2.3. Irrevocable; Not Subject to Creditor Claims 4
Section 2.4. Secured Interest; Separate Account 4
ARTICLE III - ACCOUNTS 4
Section 3.1. Fund and Accounts 4
Section 3.2. Written Certifications Provided by Corporation to the
Trustee 5
Section 3.3. Benefits Payable 5
Section 3.4. Account Adjustment 5
Section 3.5. Maintenance of Accounts 6
Section 3.6. Taxability of Trust and the Participants 6
Section 3.7. Accumulation/Distribution of Trust Income 7
Section 3.8. Contributions by the Corporation for Income Taxes 7
ARTICLE IV - CONTRIBUTIONS, CERTIFICATIONS AND DISTRIBUTIONS 7
Section 4.1. Contributions to the Trust 7
Section 4.2. Provision of Benefits is Binding Obligation of Corporation 7
Section 4.3. Provision of Reports and Written Certifications by the
Corporation to the Trustee 7
Section 4.4. Distributions to Participants 8
ARTICLE V - ACTUARY 8
Section 5.1. Determination of Corporation's Fund Contributions by
Actuary 8
Section 5.2. Resignation/Removal of Actuary 8
ARTICLE VI - INVESTMENTS AND POWERS OF THE TRUSTEE 9
Section 6.1. Fund Held in Trust 9
Section 6.2. Types of Investments 9
Section 6.3. Powers and Authority of Trustee 10
Section 6.4. Investment of Fund by Investment Manager 12
Section 6.5. Making Benefit Payments Upon Retirement or Employment
Termination 13
Section 6.6. Deposit of Contributions by Trustee 13
Section 6.7. Dealings with the Trustee 13
Section 6.8. Use of Fund Assets to Pay Trust Expenses 14
ARTICLE VII - DUTIES OF THE TRUSTEE 14
Section 7.1. General Duties of the Trustee 14
Section 7.2. Valuation of Fund 14
Section 7.3. Reports and Records 14
Section 7.4. No Duty to Advance Funds or to Administer the
Supplemental $uper $aver Plus Plan 16
Section 7.5. Resignation/Removal of Trustee 16
ARTICLE VIII - COMPENSATION, IMMUNITIES AND INDEMNITY OF THE TRUSTEE 17
Section 8.1. Trustee Compensation and Expenses 17
Section 8.2. Expense Account 17
Section 8.3. Immunities 17
Section 8.4. Indemnity of the Trustee 18
Section 8.5. Determination of Interests in the Fund, Enforcement of
Trust and Legal Proceedings 19
ARTICLE IX - AMENDMENT AND TERMINATION OF THE TRUST 19
Section 9.1. Amendment of Agreement 19
Section 9.2. Termination of Agreement 19
ARTICLE X - THE COMMITTEE 20
Section 10.1. Membership and Actions of the Committee 20
Section 10.2. Committee Compensation and Expenses 20
Section 10.3. Indemnity of Committee 21
ARTICLE XI - MISCELLANEOUS 21
Section 11.1. Governing Law 21
Section 11.2. No Effect on Employment 21
Section 11.3. Successors 21
Section 11.4. Severability 22
Section 11.5. Incorporation of Plan as Part of Agreement 22
Section 11.6. Execution in Counterparts 22
Section 11.7. Effect of Divisions and Captions 22
Section 11.8. Gender and Number 22
TRUST AGREEMENT
UNDER
SUPPLEMENTAL EXECUTIVE RETIREMENT PROGRAM
FOR OFFICERS OF AMERICAN AIRLINES, INC.
PARTICIPATING IN THE $UPER $AVER PLUS PLAN
THIS AGREEMENT (the "Agreement") is made and entered into
effective as of the 15th day of September, 2005 (the "Effective
Date"), by and between AMERICAN AIRLINES, INC. (the
"Corporation"), a corporation organized and existing under the
laws of the State of Delaware, and WACHOVIA BANK, NATIONAL
ASSOCIATION (the "Trustee"), a national association organized and
existing under the laws of the United States, and the individuals
constituting the Committee described in Section 10.1 hereof (the
"Committee").
RECITALS
WHEREAS, in January 1985, the Board of Directors of AMR
Corporation established the Supplemental Executive Retirement
Program for Officers of American Airlines, Inc., as subsequently
amended (the "Plan"), a copy of which is attached hereto as
Exhibit A and made a part of this Agreement for all purposes, in
part, for the purpose of paying under the Plan supplemental
retirement benefits to certain officers of the Corporation who
are participants (the "Participants") in AMR Corporation's $uper
$aver Plus Plan, a copy of which is attached hereto as Exhibit B
and made a part of this Agreement for all purposes (such
supplemental benefit scheme under the Plan to be referred to
herein as the "Supplemental $uper $aver Plus Plan"); and
WHEREAS, the Supplemental $uper $aver Plus Plan has not been
funded to date for the benefit of the Participants; and
WHEREAS, the Corporation seeks to establish an irrevocable
trust to fund retirement benefits of the Participants of the
Supplemental $uper $aver Plus Plan; and
WHEREAS, the Corporation desires the Trustee to be
responsible for the protection and conservation of the assets of
the Trust, and the Trustee is willing to undertake such
responsibility under the terms of the Agreement; thus, the
Corporation will deliver assets to the Trustee to hold in trust
for the purpose of accumulating funds to pay benefits under the
Supplemental $uper $aver Plus Plan as they become due and
payable; and
WHEREAS, the Corporation desires for the Committee to be
responsible for the administration of the Trust, and the
individuals identified in Schedule B have agreed to serve as the
Committee responsible for the administration of the Trust and are
willing to undertake the responsibility and duties of the
Committee pursuant to the terms of the Agreement; and
WHEREAS, the Corporation intends the Trust to operate as a
secular trust for Federal income tax purposes, whereby the
Participants will be subject to current taxation on the funds
held in the Trust; and
1
WHEREAS, the trust established by this Agreement is not
intended to be a "grantor trust" pursuant to Sections 671 through
679 of the Internal Revenue Code of 1986, as amended (the
"Code"), but is intended to be a taxable trust pursuant to
Sections 641 et seq. of the Code.
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, the Corporation, the Trustee and the Committee
hereby agree as follows.
ARTICLE I
DEFINITIONS
Each word or phrase used herein which is in quotations shall
have the meaning set forth in this Article I, unless a different
meaning is clearly required by context.
Section 1.1. Account. "Account" means the separate
account established and maintained under the Fund with respect to
each Participant to provide a source of funds for the benefits
payable by the Corporation to, or with respect to, each such
Participant under the Supplemental $uper $aver Plus Plan.
Section 1.2. Actuary. "Actuary" means the then acting
actuary or firm of actuaries employed by the Corporation to
advise the Corporation with respect to contributions to be made
under the Supplemental $uper $aver Plus Plan. The initial
Actuary shall be Towers, Perrin, Forster & Crosby, Inc. and
Subsidiaries.
Section 1.3. Beneficiary. "Beneficiary" holds the
identical definition of the term as defined in the Plan.
Section 1.4. Code. "Code" means the Internal Revenue Code
of 1986, as amended.
Section 1.5. Committee. "Committee" means the
committee of persons to whom the Corporation has delegated the
responsibility of the Trust's administration.
Section 1.6. Corporation. "Corporation" means American
Airlines, Inc. and any successor thereto, or to the business
thereof, by whatever form or manner resulting.
Section 1.7. Expense Account. "Expense Account" means a
separate account of the Fund whereby the Corporation may make
contributions to be utilized by the Trustee to pay the
compensation, fees and expenses of the Trustee and the Committee
and other expenses of the Trust.
Section 1.8. Fund. "Fund" means the money and property
held by the Trustee under this Agreement.
Section 1.9. Investment Manager. "Investment Manager"
means the then acting manager of all or any of the assets of the
Fund that is appointed by the Committee to exercise investment
responsibility with respect to all or such portion of the Fund as
determined by the Committee.
2
Section 1.10. Participant. "Participant" means a
"Participant" in the Plan as defined in the Plan who is a
participant of the $uper $aver Plus Plan, and thus, a participant
of the Supplemental $uper $aver Plus Plan as referred to herein.
Attached hereto as Schedule A is a list of the names of the
Participants of the Supplemental $uper $aver Plus Plan as of the
Effective Date of this Agreement. The Corporation will revise
the list from time to time to reflect changes in the identity of
the Participants of the Supplemental $uper $aver Plus Plan.
Section 1.11. Plan. "Plan" means the Supplemental
Executive Retirement Program for Officers of American Airlines,
Inc. originally effective January 1, 1985, and as amended from
time to time, including certain retirement benefits heretofore
authorized and which may hereafter be authorized to be payable to
certain employees of the Corporation.
Section 1.12. $uper $aver Plus Plan. "$uper $aver Plus
Plan" means the plan referred to as "$uper Saver Plus" under
$uper $aver, A 401(k) Capital Accumulation Plan for Employees of
Participating AMR Corporation Subsidiaries, originally effective
July 1, 1988, and as amended from time to time.
Section 1.13. Supplemental $uper $aver Plus Plan.
"Supplemental $uper $aver Plus Plan" means the benefit scheme
under the Plan whereby supplemental benefits are afforded to
officers of the Corporation who are participants of the $uper
$aver Plus Plan.
Section 1.14. Trust. "Trust" means the trust provided
for under this Agreement.
Section 1.15. Trustee. "Trustee" means the then acting
trustee of the Trust. The initial trustee of the Trust is
Wachovia Bank, National Association.
Section 1.16. Valuation Date. "Valuation Date" means (i)
the last business day of each calendar quarter; (ii) in the case
of a Participant who retires or whose employment with the
Corporation is terminated for any reason, the last business day
of the calendar month coincident with or immediately preceding
the date of such retirement or termination; and (iii) each other
date or dates specified by the Committee to the Trustee for the
valuation of the Fund and adjustment of Accounts.
ARTICLE II
CREATION, PURPOSE AND
ADMINISTRATION OF THE TRUST
Section 2.1. Purpose of the Trust; Separate Trust. This
Trust is established by the Corporation, the Trustee and the
Committee for the purpose of accumulating funds to pay benefits
under the Supplemental $uper $aver Plus Plan. Payments from the
Fund to Participants or their Beneficiaries shall be in discharge
of the Corporation's liability under the terms of the
Supplemental $uper $aver Plus Plan under the Plan to such
Participants to the extent such benefits are paid from the Fund.
The Corporation intends that each Account established pursuant to
Article III be treated as a separate trust designed to satisfy,
in whole or in part, the Corporation's liability under the
Supplemental $uper $aver Plus Plan to the Participant with
respect to whose benefit such Account is maintained.
3
Section 2.2. Administration of the Trust. The Committee
shall be solely responsible for the administration of the Trust.
The Committee shall, upon request of the Trustee, furnish the
Trustee with such reasonable information as is necessary or
appropriate for the Trustee to carry out its responsibilities
under this Agreement, and the Trustee shall be entitled to rely
conclusively on the information received from the Committee. The
Corporation shall be responsible for the administration of the
Supplemental $uper $aver Plus Plan. The Corporation shall, upon
request of either the Committee or the Trustee, furnish each of
the Committee and the Trustee with such reasonable information as
each of the Committee or the Trustee shall deem necessary or
appropriate to carry out the intent and purposes of the Trust,
and each of the Committee and the Trustee shall be entitled to
rely conclusively on the information received from the
Corporation, unless, in the case of the Trustee, the Committee
has informed the Trustee in writing not to rely on such
information.
Section 2.3. Irrevocable; Not Subject to Creditor Claims.
Subject to the provisions of Section 9.2 hereof, this Trust shall
be irrevocable. In addition, the Fund shall not be subject to
the claims of the creditors of the Corporation in a bankruptcy or
other insolvency proceeding under Federal or state law, but shall
be maintained for the exclusive purpose of providing benefits to
Participants under the Supplemental $uper $aver Plus Plan.
Section 2.4. Secured Interest; Separate Account. Each
Participant shall have a secured interest in the Account
maintained in the Fund with respect to the benefits payable under
the Supplemental $uper $aver Plus Plan. Each Participant's
Account will be maintained as a separate account within the
meaning of Section 404(a)(5) of the Code. The Corporation agrees
that during the existence of the Trust, the Corporation shall not
permit or cause, or amend this Agreement to permit or cause, the
Fund, or any part hereof, to be used for or diverted to purposes
other than the payment of benefits under the Supplemental $uper
$aver Plus Plan to Participants and their Beneficiaries.
ARTICLE III
ACCOUNTS
Section 3.1. Fund and Accounts.
(a) The Fund under this Trust shall consist of such
sums of money or other property (and the earnings thereon)
as shall from time to time be paid or delivered to the
Trustee and held by it pursuant to the terms of this
Agreement. Simultaneously with the execution of this
Agreement, the Corporation shall deposit TWENTY NINE
THOUSAND FIVE HUNDRED SIXTY SIX DOLLARS ($29,566), which
shall become the initial principal of the Fund.
4
(b) At the time the Corporation makes an initial
contribution to the Trust with respect to the benefits of a
Participant, it shall notify the Trustee of such fact and an
Account shall be established by the Trustee under the Fund
with respect to such Participant and the amount so
contributed or directed to be allocated shall be credited to
such Account. Any subsequent contributions to the Trust
with respect to the benefits of such Participant also shall
be credited to such Account. The Corporation shall provide
the Trustee with such information or reports as are
necessary to credit contributions to the Account maintained
with respect to each Participant in accordance with Section
4.3 hereof.
Section 3.2. Written Certifications Provided by
Corporation to the Trustee. Subject to this Section 3.2, the
Trustee shall have responsibility for the maintenance of Account
records, including, without limitation, the responsibility for
making determinations regarding the adjustment of such Accounts
under Section 3.4 hereof. The Corporation shall provide the
Trustee from time to time, but not less frequently than annually,
with written certifications pursuant to Section 4.3 hereof
concerning the amount and form of benefits payable to each
Participant under the Supplemental $uper $aver Plus Plan and the
time or times when such benefits shall become payable. Each such
certification shall state that it is made in accordance with the
terms of the Supplemental $uper $aver Plus Plan under the Plan,
is binding on the Trustee, and may not be modified, amended or
rescinded in any manner whatsoever, except by a subsequent
certification which complies with the requirements of Section 4.3
hereof. The Trustee shall not be bound by, and shall ignore, any
such certification which does not comply with the requirements of
Section 4.3 hereof. The Trustee shall make payments to
Participants and Beneficiaries strictly in accordance with the
terms of Section 4.4 hereof and shall have no responsibility or
duty to evaluate such certifications or other reports with
respect to their validity, accuracy or completeness or to make
any inquiry regarding the data or information contained therein.
If the Corporation does not provide the Trustee with the
information necessary to establish an Account pursuant to this
Section 3.2 and Section 4.3 hereof, the Trustee shall deposit any
contributions for which it has not received information into the
Expense Account, and shall maintain the contributions in the
Expense Account until it has received such information.
Section 3.3. Benefits Payable. Any benefits becoming
payable under the Supplemental $uper $aver Plus Plan to a
Participant or Beneficiary shall be paid from the Fund and
charged against the Account maintained with respect to the
benefits of such Participant. No payment shall be made from the
Fund to or with respect to a Participant to the extent that such
payment would exceed the balance then remaining in the Account
maintained with respect to such Participant.
Section 3.4. Account Adjustment. As of each Valuation
Date, and based upon the results of its valuation of the Fund as
of such Valuation Date, the Trustee shall adjust each Account to
reflect the realized and unrealized gains and losses and the
income and expenses of the Fund on an accrual basis since the
preceding Valuation Date. Such adjustments shall be made on the
basis of the relative balance in each Account immediately after
the adjustment made as of the preceding Valuation Date, reduced
by any benefits charged thereto under Section 3.3 hereof since
such preceding Valuation Date, and increased by any contribution
made to the Fund under Sections 3.8 and 4.1 hereof since the
preceding Valuation Date. As of any date other than a Valuation
Date, the balance of any Account shall be the balance of such
Account as of the preceding Valuation Date, reduced by any
benefit payments charged thereto under Section 3.3 hereof since
the preceding Valuation Date and increased by any contributions
credited thereto under Sections 3.8 and 4.1 hereof since the
preceding Valuation Date.
5
Section 3.5. Maintenance of Accounts. Once established,
an Account shall be maintained with respect to the benefits of
each Participant until it has been liquidated through
distribution to the Participant, or a Beneficiary thereof.
Section 3.6. Taxability of the Trust and the Participants.
(a) It is intended that the Trust not constitute a
"grantor trust" under Sections 671 through 679 of the Code,
and, notwithstanding any provision of this Agreement to the
contrary, the Corporation, as the grantor of the Trust,
shall not possess any power under this Agreement that would
cause the Trust to constitute a "grantor trust." It is
intended that the Trust constitute a taxable entity under
Sections 641 et. seq. of the Code. Accordingly, the Trustee
acknowledges and agrees that the Corporation is not the
owner of the Trust for Federal income tax purposes.
Notwithstanding any provision of this Agreement to the
contrary, none of the powers granted to the Trustee shall be
construed to enable the Corporation, the Trustee or anyone
else, to buy, exchange or otherwise deal with the Fund for
less than adequate and full consideration in money or
money's worth, or to enable the Corporation, the Trustee or
any entity in which the Corporation, the Trustee, or both,
have a substantial interest, to borrow from the Fund,
directly or indirectly, without adequate interest or
security; no one but the Trustee (or the Investment Manager)
may vote or direct the vote of any corporate shares or other
securities of the Trust, or control the Trust's investments
or reinvestments by substituting other property of equal
value; the Trustee is not required to surrender Trust assets
upon being tendered substitute assets, regardless of the
relative values of the assets involved.
(b) The Trust is a funded trust and, as such, it
is intended that each Participant in respect of whom an
Account is maintained be taxed in accordance with Section
402(b) of the Code. Consequently, contributions to the
Trust by the Corporation shall be taxable to the
Participants in accordance with Section 402(b)(1) of the
Code. (The Corporation shall take a deduction for the
amount of such contributions, for United States federal
income tax purposes, in accordance with Section 404(a)(5) of
the Code.) Except as is necessary to satisfy the Trust's
obligation upon a distribution to withhold taxes and to pay
over such withheld amounts to the appropriate taxing
authorities, the Trust shall not have any obligation or
liability for the payment of any income, estate, gift or
employment taxes payable by a Participant or Beneficiary, or
the estate of a Participant or Beneficiary, with respect to
benefits payable under the Supplemental $uper $aver Plus
Plan. The Trustee shall have the sole responsibility to
file any tax returns, reports or other information as may be
required by any Federal, state, local or other taxing or
governmental authority with respect to the Trust, its income
and distributions and withholding therefrom. The
Corporation shall be liable for the payment of employment
taxes due as a result of contributions made by the
Corporation on behalf of a Participant (and the filing of
any tax returns, reports or other information as required
with respect to such payments).
6
Section 3.7. Accumulation/Distribution of Trust Income.
All of the income and gain derived from the Fund shall be
accumulated and allocated to the Accounts of the Participants
pursuant to Section 3.4 hereof; provided, however, that the
Committee shall have the right, in its sole and absolute
discretion, to instruct the Trustee to distribute all or a
portion of such income and gain from the Participants' respective
Accounts to the Participants.
Section 3.8. Contributions by the Corporation for Income
Taxes. If the income and gain derived by the Trust in any
taxable year is subject to United States Federal, state or local
income tax (e.g., because the Committee has elected not to
distribute such income and gain to the Participants) the Trustee
shall pay such income taxes from the Fund except to the extent
that the Corporation contributes to the Trust an amount to enable
the Trustee to pay such income taxes. To the extent such taxes
are paid from the Fund, the Accounts shall be reduced on a pro-
rata basis.
ARTICLE IV
CONTRIBUTIONS, CERTIFICATIONS AND DISTRIBUTIONS
Section 4.1. Contributions to the Trust. The Corporation
may make such contributions to the Trust as it shall determine in
its sole and absolute discretion, are necessary to provide
benefits to the Participants under the Supplemental $uper $aver
Plus Plan and for the Trust to pay any income taxes due on its
income and gain (as provided in Section 3.8 hereof).
Notwithstanding anything to the contrary contained herein, no
person, including, without limitation, the Trustee, the Actuary,
any Participant or former Participant, or any Beneficiary
thereof, shall have the right to require the Corporation to make
any contribution to the Trust or to question the accuracy or
correctness of any amounts so contributed.
Section 4.2. Provision of Benefits is Binding Obligation
of Corporation. Except to the extent that benefits to which a
Participant, or the Beneficiary thereof, is entitled under the
Supplemental $uper $aver Plus Plan are actually paid from the
Fund, nothing contained in this Agreement shall relieve the
Corporation of its obligations under the Supplemental $uper $aver
Plus Plan to or with respect to such Participant.
7
Section 4.3. Provision of Reports and Written
Certifications by the Corporation to the Trustee. The
Corporation shall maintain, and furnish the Trustee with, such
reports, documents, and information as shall be required by the
Trustee to carry out its obligations under this Agreement,
including, without limitation, written reports setting forth the
identity of Participants with respect to whose benefits
contributions are made to the Trust and the amount of such
contributions, and the written certifications regarding
Participants' benefits described below. At or about the time an
Account is established with respect to the benefits of a
Participant, the Corporation shall furnish the Trustee with a
written certification which includes the amount of the
Participant's benefits, the time or times as of which such
benefits shall become payable, the present value of such benefits
as of a specific date or dates, any conditions which must be
satisfied in order for the Participant to become entitled to such
benefits, and the identity of the Participant's Beneficiary and
the specific conditions under which benefits shall become payable
to such Beneficiary. Such certifications may be revised by the
Corporation at any time, and from time to time, to reflect, among
other things, entitlement of the Participant to increased
benefits or an earlier time of payment under the Supplemental
$uper $aver Plus Plan and to reflect changes in Beneficiary
designations by the Participant. No certification shall be
revised, nor shall the Trustee be bound by or honor any such
revision, to decrease the benefits of a Participant or to impose
additional or more stringent conditions with respect to a
Participant's eligibility for benefits. The Trustee shall rely
on the most recent reports, documents, information, and
certifications furnished to it by the Corporation which comply
with the preceding sentence.
Section 4.4. Distributions to Participants. At such time
as a Participant, or the Beneficiary thereof, is entitled to the
receipt of benefits from the Supplemental $uper $aver Plus Plan,
he or she shall be entitled to receive from the Account
maintained with respect to such Participant the amount in cash or
property, as the case may be, to which he or she is entitled
under the terms of the Supplemental $uper $aver Plus Plan taking
into account any prior distributions made to the Participant
under the Supplemental $uper $aver Plus Plan. The Trustee also
shall make payments from the Fund to each Participant or
Beneficiary entitled thereto under the Supplemental $uper $aver
Plus Plan in accordance with Section 3.7 hereof upon written
direction from the Committee. All distributions made by the
Trust shall be in accordance with the most recent certification
filed with the Trustee pursuant to and in compliance with Section
4.3 hereof promptly upon receipt of written direction from the
Corporation or upon receipt of evidence submitted by the
Participant satisfactory to the Trustee that the Participant has
retired or otherwise terminated his employment with the
Corporation, voluntarily or otherwise. The Trustee shall not be
required to engage in its own independent investigation regarding
any such payment, but shall provide the Corporation with written
confirmation of the fact and amount of such payment after it is
made.
ARTICLE V
ACTUARY
Section 5.1. Determination of Corporation's Fund
Contributions by Actuary. The Actuary shall calculate from time
to time the amount of the contributions that it estimates should
be made to the Fund by the Corporation for the purpose to
accumulate funds to provide benefits under the Supplemental $uper
$aver Plus Plan; provided, however that, pursuant to Section 4.1
hereof, the Corporation may determine, in its sole and absolute
discretion, whether, and to what extent, the Corporation shall
make contributions to the Fund.
Section 5.2. Resignation/Removal of Actuary. The Actuary
may resign at any time by delivery of written notice of
resignation to the Corporation. Such resignation shall take
effect as of a future date specified in the notice of
resignation, which date shall not be earlier than the date ninety
(90) days after the day on which the notice is received. The
Actuary may be removed by the Corporation at any time by delivery
of written notice of such removal to the Actuary. Such removal
shall take effect as of a future date specified in the notice of
removal, which date shall not be earlier than the date sixty (60)
days after the day on which the notice is received, or such
earlier date as may be agreed to by the Actuary and the
Corporation. Notwithstanding the foregoing, in no event will any
such resignation or removal be effective until a successor
Actuary has been appointed upon such resignation or removal.
Upon the Corporation's receipt of notice of such resignation or
removal, the Corporation shall appoint a successor Actuary, by
written instrument, to serve commencing on the effective date of
the former Actuary's resignation or removal. If a successor is
not appointed by the Corporation within sixty (60) days after the
issuance of notice of the Actuary's resignation or removal, the
Committee shall appoint the successor Actuary.
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ARTICLE VI
INVESTMENTS AND POWERS OF THE TRUSTEE
Section 6.1. Fund Held in Trust. The Fund shall be held
in trust by the Trustee. The sole responsibilities, powers and
duties of the Trustee with respect to the Trust and the Fund
shall be as set forth in this Agreement. The Trustee shall be a
directed trustee only, with no discretionary authority or
responsibility, with respect to the Fund except to the extent
that it has discretion within investment guidelines provided to
it in writing by the Committee.
Section 6.2. Types of Investments.
(a) Except as otherwise provided in Section 6.4
hereof, the Trustee shall invest and reinvest the assets of
the Trust, without distinction between principal and income,
pursuant to investment guidelines delivered to it in a
manner which has the primary purpose of preservation of
principal and liquidity of the Fund and, secondarily, to the
extent consistent with the goal to preserve principal and
liquidity of the Fund, which maximizes the income of the
Fund. The Trustee is expressly authorized to invest the
Fund, or any portion thereof, in any property, real,
personal or mixed, wherever situated, and whether or not
productive of income or consisting of wasting assets,
including, without limitation, common and preferred stocks,
mutual funds, bonds, notes, debentures, securities
convertible into common stock, leaseholds, mortgages
(including, without limitation, any collective or part
interest in any bond and mortgage or note and mortgage),
interest bearing accounts and certificates of deposit, oil,
mineral or gas properties, royalties, interests or rights
(including equipment pertaining thereto), equipment trust
certificates, investment trust certificates, savings bank
deposits, and commercial paper, provided that the assets of
the Trust shall at no time be invested in the equity or debt
securities, whether secured or unsecured, of the
Corporation, its affiliates or its trades or businesses
except to the extent such security may be held in a mutual
fund. Pending such investment and reinvestment, the Trustee
may temporarily invest and reinvest the funds, at its
discretion, in any marketable short and medium term fixed
income securities, United States Treasury Bills, other short
and medium term government obligations, commercial paper,
other money market instruments and part interests in any one
or more of the foregoing or money market mutual funds, or
may maintain cash balances consistent with the liquidity
needs of the Trust as determined by the Trustee.
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(b) The Trustee shall, at the direction of the
Committee, purchase life insurance and/or annuity contracts
providing flexible funding or similar vehicles or for the
investment of assets in separate accounts invested in any
securities and other property including real estate,
regardless of whether or not the insurance carrier shall
have assumed any contractual or other liability as to the
benefits to be provided thereunder, the value thereof, or
the return therefrom. Such life insurance and/or annuity
contracts shall be considered investments of the Trust and
all rights, privileges, options and elections contained
therein shall vest in the Trustee but shall be exercised,
assigned or otherwise disposed of as directed by the
Committee. The insurance carrier under any such contract
shall have full responsibility for the management and
control of the assets held thereunder.
Section 6.3. Powers and Authority of Trustee. In addition
to the powers elsewhere conferred upon the Trustee under this
Agreement and subject to Sections 6.2 and 6.4 hereof, the Trustee
shall be authorized and empowered, in its discretion, to exercise
any and all of the following rights, powers and privileges with
respect to any cash, securities or other properties held by the
Trustee in trust hereunder, acting in accordance with written
instructions received from the Committee:
(a) To sell any such property at such time and upon
such terms and conditions as the Trustee deems appropriate.
Such sales may be public or private, for cash or credit, and
may be made without notice or advertisement of any kind.
(b) To exchange, mortgage, pledge or lease any such
property and to convey, transfer or dispose of any such
property on such terms and conditions as the Trustee deems
appropriate.
(c) To grant options for the sale, transfer, exchange
or disposal of any such property.
(d) To exercise all voting rights pertaining to any
securities; to consent to or request any action on the part
of the issuer of any such securities; and to give general or
special proxies or powers of attorney with or without power
of substitution.
(e) To consent to or participate in amalgamations,
reorganizations, recapitalizations, consolidations, mergers,
liquidations or similar transactions with respect to any
securities, and to accept and to hold any other securities
issued in connection therewith.
(f) To exercise any subscription rights or conversion
privileges with respect to any securities held in the Fund.
10
(g) To collect and receive any and all money and other
property of whatsoever kind or nature due or owing or
belonging to the Fund and to give full discharge and
acquittance therefor; and to extend the time of payment of
any obligation at any time owing to the Fund, as long as
such extension is for a reasonable period and continues to
bear reasonable interest.
(h) To cause any securities or other property to be
registered in, or transferred to, the individual name of the
Trustee or in the name of one or more of its nominees, or
one or more nominees of any system for the centralized
handling of securities, or it may retain them unregistered
and in form permitting transferability by delivery, but the
books and records of the Trust shall at all times show that
all such investments are a part of the Fund.
(i) To organize under the laws of any state a
corporation for the purpose of acquiring and holding title
to any property which the Trustee is authorized to acquire
under this Agreement and to exercise with respect thereto
any or all of the powers set forth in this Agreement.
(j) To manage, operate, repair, improve, develop,
preserve, mortgage or lease for any period any real property
or any oil, mineral or gas properties, royalties, interest
or rights held by it directly or through any corporation,
either alone or by joining with others, using other Trust
assets for any of such purposes; to modify, extend, renew,
waive or otherwise adjust any or all of the provisions of
any such mortgage or lease; and to make provision for
amortization of the investment in or depreciation of the
value of such property.
(k) To settle, compromise, or submit to arbitration
any claims, debts or damages due or owing to or from the
Trust; to commence or defend suits or legal proceedings
whenever, in its judgment, any interest of the Trust
requires it; and to represent the Trust in all suits or
legal proceedings in any court of law or equity or before
any other body or tribunal, insofar as such suits or
proceedings relate to any property forming part of the Fund
or to the administration of the Fund.
(l) To borrow money from itself or others for the
purposes of the Trust.
(m) To purchase, hold and sell interests or units of
participation in any collective or common trust fund
established by the Trustee, including any such funds which
may be established in the future.
(n) Generally to do all acts, whether or not expressly
authorized which the Trustee deems necessary or appropriate
to perform its duties and discharge its responsibilities
under this Agreement.
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(o) To retain the services of outside legal counsel
and/or other professionals as may be necessary to assist it
in connection with the administration of the Trust and/or
management or conservation of the Fund's assets, including
defending the Trust from attack, claims or litigation
regarding its assets.
(p) To pay expenses of the Trust that are incurred in
connection with the administration of the Trust and/or the
management of the Fund's assets.
Section 6.4. Investment of Fund by Investment Manager.
(a) Appointment of Investment Manager. The Committee
may appoint one or more Investment Managers, which may be
the Trustee or an affiliate of the Trustee, to manage
(including the power to acquire and dispose of) all or any
of the assets of the Fund. In the event of such
appointment, the Committee shall establish the portion of
the assets of the Fund that shall be subject to the
management of any such Investment Manager and shall notify
the Trustee in writing of such appointment and the assets
subject to the Investment Manager's discretion. If there
shall be more than one Investment Manager, the portion of
the Fund to be invested by each such Investment Manager
shall be held in a separate account and the powers and
authority of each such Investment Manager shall be divided
as set forth in the instruments appointing such Investment
Managers. To the maximum extent permitted by law, the
Trustee shall be protected in assuming that the appointment
of an Investment Manager remains in effect until it is
otherwise notified by the Committee in writing. With
respect to the assets over which an Investment Manager has
investment responsibility, the Investment Manager shall
possess all of the investment powers and responsibilities
granted to the Committee hereunder, and the Trustee shall
invest and reinvest such assets pursuant to the direction of
the Investment Manager. Notwithstanding the foregoing, to
the extent so provided in the document by which the
Investment Manager accepts its appointment, the Committee
may:
(i) Direct the Investment Manager that certain
investments or types of investments shall be made or
liquidated;
(ii) Direct the Investment Manager that certain
investments or types of investments not be made; and
(iii) Require that the Investment Manager
obtain approval from the Committee prior to acquiring
or disposing of all or any assets under its control.
(b) Successor Investment Manager. The Committee may
terminate its appointment of an Investment Manager at any
time and shall in writing notify the Trustee of such
termination, and may thereafter appoint a successor
Investment Manager in the same manner as provided in this
Section 6.4. Such successor Investment Manager shall
thereafter, until its appointment shall be terminated, be
deemed to be an Investment Manager for all purposes of this
Agreement. In the event that a Committee does not exist,
the Trustee shall terminate any Investment Manager that is
not an affiliate of the Trustee and shall immediately
appoint its affiliate, Evergreen Investments, as Investment
Manager.
12
(c) Affect of Appointment of Investment Manager on
Trustee. So long as an Investment Manager (other than the
Trustee or one of its affiliates) is serving as such, the
Trustee shall be under no duty or obligation to review the
assets comprising any portion of the Fund managed by the
Investment Manager, to make any recommendations with respect
to the investment or reinvestment thereof, or to determine
whether any direction received from any Investment Manager
is proper or within the terms of this Agreement or to
monitor the activities of any Investment Manager. The
Trustee shall have no liability or responsibility to the
Corporation, the Committee or any persons claiming any
interest in the Fund for acting without question on the
direction of, or for failing to act in the absence of any
direction from, the Committee or any Investment Manager
unless the Trustee participated knowingly in, or knowingly
undertook to conceal, an act or omission of the Committee or
of any Investment Manager constituting a breach of its
duties hereunder, knowing such act or omission was a breach
of such duties; provided, however, that the Trustee shall
not be deemed to have "participated" in a breach (i) by the
Committee or to have "knowledge" of any such breach as a
result of accepting any property contributed to the Trust in
the Corporation's discretion or retaining such property as
an investment for the Fund at the Committee's direction; and
(ii) by the Committee or any Investment Manager for the
purposes of this undertaking solely as a result of the
performance by the Trustee or its officers, employees or
agents of any custodial, reporting, recording, and
bookkeeping functions with respect to any assets of the Fund
managed by any Investment Manager, or with respect to which
the Trustee has received directions from the Committee, or
solely as a result of settling purchase and sale
transactions entered into or directed by any Investment
Manager or the Committee, or to have "knowledge" of any such
breach solely as a result of the information received by the
Trustee or its officers, employees or agents in the normal
course in performing such functions, or settling such
transactions. If the Trustee has actual knowledge of a
breach committed by an Investment Manager, it shall promptly
notify the Committee in writing thereof, and the Trustee,
except as required by applicable law, shall thereafter have
no responsibility to remedy such breach.
Section 6.5. Making Benefit Payments Upon Retirement or
Employment Termination. Upon receipt of (i) direction from the
Corporation consistent with certifications theretofore delivered
to the Trustee pursuant to Section 4.3 hereof or (ii) evidence
submitted by a Participant satisfactory to the Trustee that the
Participant has retired or otherwise terminated his employment
with the Corporation, the Trustee shall promptly make benefit
payments by its check, mailed to the payee at the address
furnished to the Trustee in accordance with the most recent
certifications theretofore furnished to the Trustee with respect
to the Participant. Taxes withheld from benefit payments shall
be paid by the Trustee to the appropriate taxing authorities.
All returns, records and forms required to be filed with the
Federal, state and local taxing authorities or delivered to each
Participant and Beneficiary shall be the sole responsibility of
the Trustee. All income taxes required to be paid by each
Participant (and any returns, records and forms required with
respect to such taxes) shall be the sole responsibility of such
Participant.
13
Section 6.6. Deposit of Contributions by Trustee. The
Trustee shall accept for deposit in the Fund all contributions in
cash made by the Corporation under this Agreement and shall
promptly acknowledge receipt of same. The Trustee shall have no
responsibility to determine or to question the accuracy or
correctness of any amounts so contributed.
Section 6.7. Dealings with the Trustee. Persons dealing
with the Trustee shall be under no obligation to see to the
proper application of any money paid or property delivered to the
Trustee or to inquire into the Trustee's authority as to any
transaction.
Section 6.8. Use of Fund Assets to Pay Trust Expenses. If
the amount in the Expense Account is insufficient to pay the
expenses of the Trust, the Trustee may, in its discretion or at
the discretion of the Committee, use assets of the Fund (other
than those deposited in the Expense Account) to pay the expenses
of the Trust, including, without limitation, any (i) legal or
other professional expenses incurred in connection with the
management, protection or conservation of the assets of the Fund
and (ii) insurance premiums that may be incurred with respect to
any fiduciary liability insurance that may be obtained by the
Trust to cover potential claims for indemnification that may be
made by members of the Committee pursuant to Section 10.3 hereof.
ARTICLE VII
DUTIES OF THE TRUSTEE
Section 7.1. General Duties of the Trustee.
(a) It shall be the duty of the Trustee to
protect and conserve all property received by it hereunder
which, together with the income and gains therefrom and
additions thereto, shall constitute the Fund. The Trustee
shall manage, invest and reinvest the Fund, collect the
income thereof, and make payments therefrom, all as herein
provided.
(b) The Trustee shall discharge its duties with the
care, skill, prudence, and diligence under the circumstances
then prevailing that a prudent man acting in a like capacity
and familiar with such matters would use in the conduct of
an enterprise of a like character and with like aims, and,
in accordance with the documents and instruments governing
the Supplemental $uper $aver Plus Plan and the Trust.
Section 7.2. Valuation of Fund. The Trustee shall value
the Fund as of each Valuation Date at current fair market value
and shall report the results of such valuation to the Committee.
The Trustee shall value the assets of the Trust at market and on
such other basis or bases (including, without limitation, cost)
as the Committee shall reasonably request. The market value of
the assets shall be equal to the market value of the securities
and other assets in the Fund, plus cash, interest, dividends and
other sums received and accrued but not yet invested. The market
value of the securities and other assets in the Fund shall be
based on such market quotations and other information as are
available to the Trustee and as may in the Trustee's discretion
be appropriate.
14
Section 7.3. Reports and Records. The Trustee shall:
(a) Keep accurate and detailed accounts of all
investments, receipts, disbursements and other transactions
in the Fund as it shall deem necessary and proper with
respect to its administration of the Trust, and permit
inspection of such accounts, records and assets of the Trust
by any duly authorized representative of the Corporation,
the members of the Committee or the Participants during
regular business hours.
(b) Within sixty (60) days (or such shorter period of
time as the Corporation shall reasonably request) following
the close of the accounting year, and at such other
intervals as are mutually agreed to by the Trustee, the
Corporation and the Committee, the Trustee shall file with
the Corporation, the Committee and, unless the Corporation
otherwise directs in writing, the Participants a written
account with respect to the transactions effected by the
Trustee during such accounting year or other period. The
Corporation and the Committee shall file written objections,
if any, with respect to the propriety of the Trustee's acts
and transactions shown in such account within a period of
ninety (90) days from the date of filing such annual or
other account. If within ninety (90) days after the receipt
of the account or any amended account the Corporation or the
Committee has not signed and returned a counterpart to the
Trustee, nor filed with the Trustee notice of any objection
to any act or transaction of the Trustee, the account or
amended account shall become an account settled as between
the Trustee and the Corporation and/or the Committee. If
any objection has been filed, and if the Corporation and/or
the Committee are satisfied that it should be withdrawn or
if the account is adjusted to their satisfaction, the
Corporation and/or the Committee shall in writing filed with
the Trustee signify their approval of the account, and the
account shall become an account settled as between the
Trustee and the Corporation and the Committee.
When an account becomes an account settled, such
account shall be finally settled, and the Trustee shall be
completely discharged and released, as if such account had
been settled and allowed by a judgment or decree of a court
of competent jurisdiction in an action or proceeding in
which the Trustee, the Corporation, the Committee and all
persons having or claiming to have any interest in the Fund
or under the Supplemental $uper $aver Plus Plan were
parties.
The Trustee, the Corporation or the Committee shall
have the right to apply at any time to a court of competent
jurisdiction for judicial settlement of any account of the
Trustee not previously settled as hereinabove provided. In
any such action or proceeding it shall be necessary to join
as parties only the Trustee, the Corporation and the
Committee (although the Trustee may also join other parties
as it deems appropriate), and any judgment or decree entered
therein shall be conclusive.
(c) Make such periodic reports to the Corporation and
the Committee as may be mutually agreed to by the Trustee,
the Corporation and the Committee, as applicable.
15
(d) Prepare and timely file such tax returns and such
other reports and documents, together with supporting data
and schedules, as may be required of the Trustee by law,
with any taxing authority or any other government authority,
whether local, state or Federal.
(e) Provide the Participants with copies of all such
reports, returns, filing and documents required by law, and
provide the Corporation each year with any necessary reports
or documents in sufficient time for the Corporation to
finalize the preparation and issuance of Form W-2's to the
Participants on or before January 31 of the respective year.
Section 7.4. No Duty to Advance Funds or to Administer the
Supplemental $uper $aver Plus Plan. The Trustee shall have no
obligation to advance its own funds for the purpose of fulfilling
its responsibilities under this Agreement, and its obligation to
incur expenses shall at all times be limited to amounts in the
Trust available to be applied toward such expenses. The Trustee
shall not be responsible in any respect for administering the
Supplemental $uper $aver Plus Plan.
Section 7.5. Resignation/Removal of Trustee. The Trustee
may resign at any time by delivery of written notice of
resignation to the Committee. Such resignation shall take effect
as of a future date specified in the notice of resignation, which
date shall not be earlier than the date ninety (90) days after
the day on which the notice is received, or such earlier date as
may be agreed to by the Trustee and the Committee. In addition,
the Trustee may be removed by the Committee at any time by
delivery of written notice of such removal to the Trustee. Such
removal shall take effect as of a future date specified in the
notice of removal, which date shall not be earlier than the date
sixty (60) days after the day on which the notice is received, or
such earlier date as may be agreed to by the Trustee and the
Committee.
Upon the Committee's receipt of notice of such resignation
or removal, the Committee shall appoint a successor Trustee by
written instrument, to serve commencing on the effective date of
the former Trustee's resignation or removal. If a successor is
not appointed by the Committee within sixty (60) days after the
issuance of notice of the Trustee's resignation or removal, the
Trustee may apply to a court of competent jurisdiction for the
appointment of his or its successor. All expenses of the Trustee
in connection with the proceeding shall be allowed as an
administration expense of the Trust. The Trustee shall continue
to serve until a successor accepts the Trust and receives
delivery of the Fund. The appointment of a successor Trustee
shall be effective when accepted in writing by the new Trustee.
Upon the successor Trustee's acceptance of appointment and after
the final account of the former Trustee has been settled, the
former Trustee shall transfer and deliver the Fund to such
successor. The former Trustee shall exercise any instrument
necessary or reasonably required by the Committee or the
successor Trustee to evidence the transfer. Moreover, the former
Trustee shall deliver to the successor Trustee the originals of
all reports, records, documents, and other written information in
its possession regarding the Supplemental $uper $aver Plus Plan,
the Fund, and the Participants and shall deliver copies thereof
to the Committee and to a person designated by a majority of the
persons who are Participants (or the Beneficiary of a deceased
Participant) on the date of such resignation or removal, and
thereupon shall be entitled to all unpaid compensation, fees and
reimbursements to which it is entitled under this Agreement and
shall be relieved of all responsibilities and duties under this
Agreement.
16
All of the provisions set forth herein with respect to the
Trustee shall relate to each successor with the same force and
effect as if such successor had been originally named as a
Trustee hereunder. Any successor Trustee shall have the same
powers, rights and duties as its predecessor and shall have the
same title to the Fund as its predecessor.
The successor Trustee need not examine the records and
accounts of any prior Trustee. The successor Trustee shall not
be responsible for, and the Corporation shall indemnify and
defend the successor Trustee from, any claim or liability
resulting from any action or inaction of any prior Trustee or
from any other past event, or any condition existing at the time
it becomes successor Trustee.
ARTICLE VIII
COMPENSATION, IMMUNITIES
AND INDEMNITY OF THE TRUSTEE
Section 8.1. Trustee Compensation and Expenses. The
Trustee shall be entitled to such compensation and fees for its
services under this Agreement as shall be agreed upon from time
to time with the Corporation. Likewise, the Corporation shall
reimburse the Trustee for any expenses incurred by it, including,
but not limited to, all proper charges and disbursements of the
Trustee, and reasonable fees for legal services rendered to the
Trustee (whether or not rendered in connection with a judicial or
administrative proceeding). Such compensation, fees and
reimbursement shall be paid to the Trustee pursuant to the terms
set forth at Section 8.2 hereof. The Trustee's entitlement to
compensation, fees or reimbursement hereunder shall not be
affected by the resignation or removal of the Trustee or the
termination of the Trust.
Section 8.2. Expense Account. The Corporation may from
time to time make contributions to the Fund to be held in an
Expense Account and to be utilized to pay the compensation, fees
and expenses of the Trustee and the Committee and other expenses
of the Trust. To the extent that there are monies in the Expense
Account, the Trustee shall utilize such Expense Account for
payment of the compensation, fees and expenses of the Trustee and
the Committee, for payment of the indemnities referred to in
Sections 8.4 and 10.3 hereof, and for other expenses of the
Trust, and, in the absence of sufficient monies, shall seek
reimbursement from the Corporation. In the event that the
Corporation shall fail or refuse to make such reimbursement
within sixty (60) days of demand, the Trustee may satisfy such
obligations out of the other assets of the Fund in such manner as
the Trustee deems to be reasonable in the circumstances, taking
into account the amount of liquid assets, the anticipated needs
to make distributions to Participants (or the Beneficiaries
thereof), and such other factors as the Trustee deems relevant.
If the Trustee satisfies any obligations of the Corporation to
pay fees and expenses from other Fund assets, the Corporation
shall immediately upon demand by the Trustee deposit into the
Trust an amount of cash equal to the amount paid from such Fund
assets if, at that time, the Trustee could not replace such
assets with a cash amount equal to the liquidation value of such
assets. If such funds are not deposited within sixty (60) days
of such demand, the Trustee may, in its sole and absolute
discretion, commence legal action against the Corporation for
recovery of the amount paid out of the Fund. Notwithstanding
anything herein to the contrary, no amount held in the Expense
Account shall be used for purposes other than paying the
compensation, fees and expenses of the Trustee and the Committee
and other expenses of the Trust, and shall not be distributed to
or for the benefit of the Participants (or the Beneficiaries
thereof).
17
Section 8.3. Immunities. The Trustee shall have the
following privileges and immunities:
(a) The Corporation and the Committee shall furnish
the Trustee with instruments evidencing individuals
designated by the Corporation or the Committee, as the case
may be, who are empowered to give directions, statements, or
certificates to the Trustee. A written direction, statement
or certificate to the Trustee signed by any such individual
shall be deemed to be the direction, statement or
certificate of the Corporation or the Committee, as the case
may be, and the Trustee may rely upon such directions,
statements, or certificates to the extent not prohibited by
law. The Corporation and the Committee shall furnish the
Trustee from time to time with instruments evidencing the
termination of such designated individuals or the
appointment of new such designated individuals and the
Trustee shall be entitled to rely upon such instruments as
evidence of the identity and authority of such designated
individuals and shall not be charged with notice of any
change with respect thereto until the Corporation or the
Committee, as the case may be, has furnished the Trustee
with instruments relative to such change.
(b) The Trustee is authorized to seek the advice of,
and consult with, legal counsel with respect to any matter
involving the Trust. Such counsel may, but need not, be
legal counsel to the Corporation. The Trustee shall be
entitled to rely on the advice of legal counsel with respect
to any matter involving the Trust. The Trustee may also
from time to time employ agents and expert assistants and
delegate to them such ministerial duties it may see fit. In
the event that the Trustee does delegate such ministerial
duties, it shall periodically review the performance of the
person to whom these duties have been delegated. The
Trustee shall be reimbursed by the Corporation for all costs
arising from the employ of legal counsel, agents and expert
assistants pursuant to the terms set forth at Section 8.2
hereof.
Section 8.4. Indemnity of the Trustee.
(a) The Corporation hereby indemnifies and holds the
Trustee harmless from and against any and all losses,
damages, costs, expenses or liabilities, including
reasonable fees for legal services and other costs of
litigation, to which the Trustee may become subject pursuant
to, arising out of, occasioned by, incurred in connection
with, or in any way associated with this Agreement,
including any reasonable discretionary action which the
Trustee may take under the Trust, except for any act or
omission constituting gross negligence or willful misconduct
of the Trustee. If one or more liabilities shall arise, or
if the Corporation fails to indemnify the Trustee as
provided herein, or both, then the Trustee may engage
counsel of the Trustee's choice, but at the Corporation's
expense, either to conduct the defense against such
liabilities, or to conduct such actions as may be necessary
to obtain the indemnity provided for herein, or to take both
such actions. The Trustee shall notify the Corporation
within fifteen (15) days after the Trustee has engaged
counsel of the name and address of such counsel.
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(b) If the Trustee shall be entitled to
indemnification by the Corporation pursuant to this Section
8.4, and the Corporation shall not provide such
indemnification upon demand, the Trustee may apply the
assets of the Fund in full satisfaction of the obligations
for indemnity by the Corporation, and any legal proceeding
by the Trustee against the Corporation for such
indemnification shall be in behalf of the Trust.
Section 8.5. Determination of Interests in the Fund,
Enforcement of Trust and Legal Proceedings. The interest of the
Participants (and the Beneficiaries thereof) in the Fund shall be
determined in accordance with the terms of the Supplemental $uper
$aver Plus Plan under the Plan. The Trustee shall have no duty
to question any direction given by the Corporation or the
Committee to the Trustee, including any direction advising the
Trustee as to such interests under the Supplemental $uper $aver
Plus Plan. The Corporation and the Committee shall have
authority to enforce this Agreement. To protect the Fund from
the expenses which might otherwise be incurred, no person other
than the Corporation or the Committee may institute or maintain
any action or proceeding against the Trustee or the Fund, or join
in any such action or proceeding, in the absence of written
authorization by the Corporation or the Committee. Except as
otherwise provided in this Section 8.5, in any action or
proceeding affecting the Fund, the only necessary parties shall
be the Corporation, the Committee and the Trustee, and no other
person shall be entitled to any notice or process.
ARTICLE IX
AMENDMENT AND TERMINATION OF THE TRUST
Section 9.1. Amendment of Agreement. By a duly executed,
written instrument delivered to the Trustee and acknowledged in
the same form as this Agreement, the Corporation shall have the
right at any time and from time to time to amend this Agreement
in whole or in part, except that: (i) the duties and
responsibilities of the Trustee or the Committee shall not be
increased, and the protections afforded to the Trustee or the
Committee shall not be impaired without the written consent of
the Trustee or the Committee, as the case may be; (ii) the
protection afforded with respect to obligations payable to or on
behalf of the Participants hereunder may not be impaired without
the unanimous written consent of the Participants; and (iii) the
Corporation shall not have the power to revoke this Trust or to
revest title in itself to the assets comprising the Fund. Any
such amendment shall be effective upon (a) delivery of such
amendment to the Trustee and the Committee, together with a
certified copy of the resolution of the Board of Directors of the
Corporation or of its Compensation Committee, as the case may be;
and (b) endorsement by each the Trustee and the Committee on such
instrument upon receipt thereof, together with any required
consent or consents thereto. No such amendment shall adversely
affect any benefits accrued under the Supplemental $uper $aver
Plus Plan with respect to the Participants. All instruments
amending this Agreement shall be noted upon or kept attached to
the executed original of this Agreement.
19
Section 9.2. Termination of Agreement. This Agreement may
not be terminated until the liability of the Corporation for the
payment of all benefits to all Participants, and the
Beneficiaries thereof, has been satisfied in full or until such
time as no funds remain on deposit in the Fund pursuant to this
Agreement; provided, however, that with the written consent of a
Participant, or the Beneficiary thereof, the Committee may
terminate this Agreement at any time with respect to such
consenting Participant or Beneficiary. Notwithstanding anything
herein to the contrary, this Trust shall terminate no later than
twenty-one (21) years after the death of the last survivor of all
of the Participants included in the original list of Participants
attached hereto as Schedule A, and those persons now living who
have been designated as Beneficiaries of such Participants in
accordance with the terms of the Supplemental $uper $aver Plus
Plan.
ARTICLE X
THE COMMITTEE
Section 10.1. Membership and Actions of the Committee.
(a) The Committee shall at all times consist of a
minimum of three (3) individuals, all of whom shall be
Participants of the Plan. The initial Committee members are
identified in Schedule B attached hereto. Any member of the
Committee may resign upon thirty (30) days prior written
notice to the Corporation. Moreover, any member of the
Committee may be removed at any time by the Corporation.
(b) In the event of a vacancy on the Committee, the
other member(s) of the Committee shall appoint a successor.
In the event that there is at any time no member of the
Committee then in office, successor members shall be
appointed by the Corporation.
(c) Any action by the Committee shall require the
written approval of at least a majority of the members of
the Committee. A Committee member shall not be liable
hereunder for any act taken, or omitted to be taken, in good
faith, except for any act or omission constituting gross
negligence or willful misconduct by such Committee member.
(d) All of the provisions set forth herein with
respect to a member of the Committee shall relate to each
successor with the same force and effect as if such
successor had been originally named as a member of the
Committee.
(e) The Committee is authorized to seek the advice of,
and consult with, legal counsel with respect to any matter
involving the Trust. Such counsel may, but need not, be
legal counsel to the Corporation. The Committee shall be
entitled to rely on the advice of legal counsel with respect
to any matter involving the Trust. The Committee may also
from time to time employ agents and expert assistants and
delegate to them such ministerial duties as it may see fit.
In the event that the Committee does delegate such
ministerial duties, it shall periodically review the
performance of the person to whom these duties have been
delegated. The Committee members shall be reimbursed by the
Corporation for all costs arising from the employ of legal
counsel, agents and expert assistants pursuant to the terms
set forth at Section 8.2 hereof.
20
Section 10.2. Committee Compensation and Expenses. The
Committee members shall be entitled to such compensation and fees
for their services under this Agreement as shall be agreed upon
from time to time with the Corporation. Likewise, the
Corporation shall reimburse the Committee members for any
expenses incurred by them, including, but not limited to, all
proper charges and disbursements of the Committee members, and
reasonable fees for legal services rendered to the Committee
(whether or not rendered in connection with a judicial or
administrative proceeding). Such compensation, fees and
reimbursement shall be paid to the Committee members pursuant to
the terms set forth at Section 8.2 hereof. The Committee
members' entitlement to compensation, fees or reimbursement
hereunder shall not be affected by the resignation or removal of
any member or members of the Committee or the termination of the
Trust.
Section 10.3. Indemnity of Committee.
(a) The Corporation hereby indemnifies and holds each
member of the Committee harmless from and against any and
all liabilities, including reasonable fees for legal
services and other costs of litigation, to which each such
member of the Committee may become subject pursuant to,
arising out of, occasioned by, incurred in connection with,
or in any way associated with this Trust or Agreement,
except for any act or omission constituting gross negligence
or willful misconduct of such member of the Committee. If
one or more liabilities shall arise, or if the Corporation
fails to indemnify such member of the Committee as provided
herein, or both, then the Committee member may engage
counsel of the Committee member's choice, but at the
Corporation's expense, either to conduct the defense against
such liabilities, or to conduct such actions as may be
necessary to obtain the indemnity provided for herein, or to
take both such actions. The Committee member shall notify
the Corporation within fifteen (15) days after the Committee
member has so engaged counsel of the name and address of
such counsel.
(b) If a Committee member shall be entitled to
indemnification pursuant to this Section 10.3, and the
Corporation shall not provide such indemnification upon
demand, the Trustee shall satisfy any indemnity to a
Committee member pursuant to this Section 10.3 out of the
assets of the Fund in full satisfaction of the obligations
for indemnity by the Corporation, and any legal proceeding
by the Committee member against the Corporation for such
indemnification shall be in behalf of the Trust.
ARTICLE XI
MISCELLANEOUS
Section 11.1. Governing Law. This Trust is created and
accepted in the State of Delaware. All questions pertaining to
the validity or construction of this Agreement and the acts and
transactions of the parties hereto and their respective
successors shall be determined in accordance with the laws of the
State of Texas, except as to matters governed by Federal law.
21
Section 11.2. No Effect on Employment. Nothing contained
in this Agreement shall create, or be construed or interpreted to
create, any new or additional obligations on the part of the
Corporation or its affiliates to retain any person in its employ
or interfere in any way with the right of the Corporation or its
affiliates to discharge any employee.
Section 11.3. Successors. This Agreement shall be binding
upon, and the powers herein granted to the Corporation and the
Trustee, respectively, shall be exercisable by, the respective
successors and assigns of the Corporation and the Trustee.
Section 11.4. Severability. Should any provision of this
Agreement be determined by a court of competent jurisdiction to
be unlawful or unenforceable, such determination shall not
adversely affect the remaining provisions of this Agreement,
unless it shall make impossible the maintenance or operation of
the Trust for its intended purposes. To the extent any provision
of this Agreement is determined to be unlawful or unenforceable,
this Agreement shall be construed to be carried out to the
fullest extent possible in a lawful and enforceable manner.
Section 11.5. Incorporation of Plan as Part of Agreement.
The Plan is expressly incorporated herein and made a part hereof
with the same force and effect as if fully set forth. A copy of
the Plan as in effect on the date hereof is attached hereto as
Exhibit A. The Corporation shall deliver to the Trustee a copy
of all amendments to the Plan hereafter adopted.
Section 11.6. Execution in Counterparts. This Agreement
may be executed in any number of counterparts, each of which
shall be considered an original and said counterparts shall
constitute but one and the same instrument.
Section 11.7. Effect of Divisions and Captions. The
division of this Agreement into articles, paragraphs, sections
and subsections and the use of captions are solely for
convenience and shall have no legal effect in construing the
provisions of this Agreement.
Section 11.8. Gender and Number. Whenever the masculine,
feminine, or neuter gender is used inappropriately in this
Agreement, this Agreement shall be read as if the appropriate
gender was used, and, unless the context otherwise requires, the
singular shall include the plural, and vice versa.
22
IN WITNESS WHEREOF, the Corporation, the Trustee and the
Committee have entered in to this Agreement as of the Effective
Date.
CORPORATION:
AMERICAN AIRLINES, INC.,
a Delaware corporation
Attest: By: /s/ Charles D. MarLett
Charles D. MarLett, Corporate Secretary
TRUSTEE:
WACHOVIA BANK,
NATIONAL ASSOCIATION
Attest: By:
Name:
Title:
COMMITTEE:
Attest: By: /s/ Gerard J. Arpey
Gerard J. Arpey
Attest: By: /s/ James A. Beer
James A. Beer
Attest: By: /s/ Jeffrey J. Brundage
Jeffrey J. Brundage
Attest: By: /s/ Gary F. Kennedy
Gary F. Kennedy
SUBSCRIBED AND SWORN TO before me, Sandra Symanovich, by
CHARLES D. MARLETT, this 15th day of September, 2005.
/s/ Sandra Symanovich
Notary Public
SUBSCRIBED AND SWORN TO before me by , this day of
September, 2005.
Notary Public
SUBSCRIBED AND SWORN TO before me, Sandra Symanovich, by
GERARD J. ARPEY , this 15th day of September, 2005.
/s/ Sandra Symanovich
Notary Public
SUBSCRIBED AND SWORN TO before me, Sandra Symanovich, by
JAMES A. BEER, this 15th day of September, 2005.
/s/ Sandra Symanovich
Notary Public
SUBSCRIBED AND SWORN TO before me, Sandra Symanovich, by
JEFFREY J. BRUNDAGE , this 15th day of September, 2005.
/s/ Sandra Symanovich
Notary Public
SUBSCRIBED AND SWORN TO before me, Sandra Symanovich, by
GARY F. KENNEDY , this 15th day of September, 2005.
/s/ Sandra Symanovich
Notary Public
SCHEDULE A
The persons identified herein constitute the Participants of
the Supplemental $uper $aver Plus Plan as of the Effective Date
of the Trust.
Robert C. Cordes
Monte E. Ford
Susan B. Garcia
William T. Greene
Andrews O. Watson
SCHEDULE B
The individuals designated herein constitute the initial
members of the Committee responsible for administering the Trust.
(1) Gerard J. Arpey
(2) James A. Beer
(3) Jeffrey J. Brundage
(4) Gary F. Kennedy
EXHIBIT A
THE
SUPPLEMENTAL EXECUTIVE RETIREMENT PROGRAM (SERP) FOR OFFICERS
OF
AMERICAN AIRLINES, INC.
AND THE
SERP SUMMARY PLAN DESCRIPTION
ORIGINALLY EFFECTIVE JANUARY 1, 1985
Amended and Restated Effective October 15, 2002
THE
SUPPLEMENTAL EXECUTIVE RETIREMENT PROGRAM (SERP) FOR OFFICERS
OF
AMERICAN AIRLINES, INC.
AND THE
SERP SUMMARY PLAN DESCRIPTION
ORIGINALLY EFFECTIVE JANUARY 1, 1985
TABLE OF CONTENTS
Page
ARTICLE I NAME AND PURPOSE OF THE PLAN 1
ARTICLE II DEFINITIONS 1
ARTICLE III ELIGIBILITY AND PARTICIPATION 5
ARTICLE IV BENEFITS IN CONNECTION WITH THE BASE DEFINED
BENEFIT PLAN 6
ARTICLE V CONTRIBUTIONS AND EARNINGS CREDITS IN CONNECTION
WITH THE $UPER $AVER PLUS PLAN 7
ARTICLE VI PAYMENT OF BENEFITS 7
ARTICLE VII AMENDMENT AND TERMINATION 10
ARTICLE VIII GENERAL CONDITIONS 10
ARTICLE IX FUNDING 12
ARTICLE X TRUST 12
ARTICLE XI ERISA RIGHTS 13
ARTICLE XII CLAIMS PROCEDURES 14
ARTICLE XIII FINALITY OF DECISIONS OR ACTS 16
ARTICLE XIV GENERAL INFORMATION ABOUT YOUR PLAN 16
ARTICLE I
NAME AND PURPOSE OF THE PLAN
Section 1.1 Name and Purpose of the Plan
This Supplemental Executive Retirement Program for Officers
of American Airlines, Inc. (the "Plan") provides supplemental
retirement benefits to selected officers of American Airlines,
Inc. A separate Supplemental Executive Retirement Program (For
Non-Officers) provides certain supplemental retirement benefits
to other key employees as designated by the Board of Directors or
the Chairman of AMR.
Prior to January 1, 2001, the supplemental benefits provided
under this Plan consisted only of supplemental retirement
benefits in excess of the maximum pension benefits payable under
a Participant's Base Defined Benefit Plan and a supplemental
retirement benefit based on a Participant's Incentive
Compensation and Performance Returns. These continuing benefits
are described in Article IV of the Plan.
Effective January 1, 2001, certain Participants, who
participate in the $uper $aver Plus Plan, either because they
elected to forego participation in a Base Defined Benefit Plan,
or because they were not eligible to elect to participate in a
Base Defined Benefit Plan, shall be eligible to receive benefits
under Article V of the Plan, as set forth in this amended and
restated Plan.
ARTICLE II
DEFINITIONS
Section 2.1 Account. A bookkeeping entry maintained for
each Active Funding Participant to reflect the amount of Funded
Accrued Benefit contributed to the trust on account of such
Active Funding Participant.
Section 2.2 Act. The Employee Retirement Income Security
Act of 1974, as amended.
Section 2.3 Active Funding Participant
A Participant who currently performs active duties of
employment while a Participant pursuant to Section 3.1 and who is
vested in a benefit under Article IV of this Plan, as of October
1, 2002.
Section 2.4 AMR. AMR Corporation
Section 2.5 Annual Defined Benefit Retirement Benefit.
The amount determined by subtracting the Base Defined Benefit
Plan Benefit from the greatest of (i) the Base Plan Social
Security Offset Benefit, (ii) the Final Average Earnings Benefit,
or (iii) the Basic Benefit. If the Base Defined Benefit Plan of
a Participant is the American Airlines, Inc. Pilot Retirement
Benefit Program, the Annual Defined Benefit Retirement Benefit
shall be the amount determined by subtracting the Base Defined
Benefit Plan Benefit from the amount that would have been payable
under the Base Defined Benefit Plan in the absence of the Base
Defined Benefit Plan limits on compensation and benefits under
the Code, plus the Supplemental Incentive Compensation Retirement
Benefit and the Supplemental Performance Return Retirement
Benefit (for such purposes variable benefits shall be
disregarded).
1
Section 2.6 Average Incentive Compensation. An amount
calculated as follows:
(a) The sum of a Participant's four highest annual
Incentive Compensation awards (or the sum of all such awards
if the Participant has fewer than four such awards) paid
to a Participant during the time period beginning on or after
January 1, 1985, and ending on the first to occur of:
(1) the Participant's actual retirement under the
Base Defined Benefit Plan, or under $uper $aver if the
Participant is not participating in a Base Defined
Benefit Plan,
(2) the date of the Participant's death, or
(3) the date of the Participant's retirement.
If a Participant is credited with less than a full year of
Credited Service as a Participant in any year in which
Incentive Compensation is paid, that portion of the
Participant's Incentive Compensation that is taken into
account will be prorated based on the Credited Service
earned by the Participant for such year.
(b) Divide the sum determined in (a), above, by four
(or by the number of such awards if the Participant has
fewer than four such awards).
Section 2.7 Average Performance Return. An amount
calculated as follows:
(c) The sum of a Participant's four highest annual
Performance Return awards (or the sum of all such awards if
the Participant has fewer than four such awards) paid to the
Participant during the Participant's career and ending on
the first to occur of:
(1) the Participant's actual retirement under the
Base Defined Benefit Plan, or under $uper $aver if the
Participant is not participating in a Base Defined
Benefit Plan,
(2) the date of the Participant's death, or
(3) the date of the Participant's retirement.
(d) Divide the sum determined in (a), above, by four
(or by the number of such awards if the Participant has fewer
than four such awards).
Section 2.8 Base Defined Benefit Plan. The defined benefit
retirement benefit plan (or plans) of the Company which qualifies
under section 401 of the Code and under which certain Participants
covered under this Plan are eligible to receive benefits.
Section 2.9 Base Defined Benefit Plan Benefit. The annual
benefit a Participant or Beneficiary is entitled to receive from
the Base Defined Benefit Plan upon retirement, disability, death
or termination of employment, subject to the Base Defined Benefit
Plan provisions which limit such benefit to the maximum amount
permitted by the Code.
2
Section 2.10 Base Plan Social Security Offset Benefit
The annual amount of a Participant's or Beneficiary's benefit
under any "Social Security Offset Benefit," as defined in the
Base Defined Benefit Plan, computed without regard to the Base
Defined Benefit Plan limits on compensation and benefits under
the Code, plus the Supplemental Incentive Compensation and
Performance Return Retirement Benefit.
Section 2.11 Basic Benefit
The annual amount of a Participant's or Beneficiary's benefit
under any "Basic Benefit," as defined in the Base Defined Benefit
Plan, computed without regard to the Base Defined Benefit Plan
limits on compensation and benefits under the Code, plus the
Supplemental Incentive Compensation and Performance Return
Retirement Benefit.
Section 2.12 Beneficiary
A person designated by a Participant who, as permitted under
the terms of the Plan, is or may be entitled to a benefit under
the Plan in the event of the death of the Participant. If no
Beneficiary is designated, or if the designated Beneficiary is
not then living, benefits will be paid pursuant to Section 6.5.
Section 2.13 Board of Directors
The Board of Directors of AMR.
Section 2.14 Code
The Internal Revenue Code of 1986, as amended.
Section 2.15 Committee
The administrative committee appointed by the Board of
Directors to manage and administer this Plan.
Section 2.16 Company
Any subsidiary of American Airlines, Inc. or any subsidiary of
AMR, which is designated for inclusion as a participating
employer in the Plan, as determined by the Board of Directors.
Section 2.17 Credited Service
The term "Credited Service" under this Plan has the same
meaning for purposes of this Plan as it has in the applicable
Base Defined Benefit Plan.
Section 2.18 Executive Deferral Plan. The AMR Corporation
1987 Executive Deferral Plan, as amended.
Section 2.19 Final Average Earnings Benefit
The annual amount of a Participant's or Beneficiary's benefit
under any "Final Average Earnings Benefit," as defined in the
Base Defined Benefit Plan, computed without regard to the Base
Defined Benefit Plan limits on compensation and benefits under
the Code, plus the Supplemental Incentive Compensation and
Performance Return Retirement Benefit.
Section 2.20 Funded Accrued Benefit
The portion of the present value of the benefit under Article
IV represented by a credit to a bookkeeping account of an Active
Funding Participant as a Funded Accrued Benefit in the Trust, at
the discretion of the Committee.
Section 2.21 Incentive Compensation
Compensation paid to a Participant on or after January 1,
1985, in accordance with one of the incentive compensation plans
adopted by the Board of Directors or the Board of Directors of
American Airlines, Inc., whether paid currently or deferred. For
purposes of this definition, long-term, multi-year incentive
compensation plans shall not be considered to be incentive
compensation plans.
3
Section 2.22 Non-Active Funding Participant
A Participant who is not yet vested in a benefit under this
Plan, or who is on a Management Leave of Absence under the AMR
Mangement Leave of Absence Policy or who is retired or otherwise
separated from employment.
Section 2.23 Non-Funded Accrued Benefit
The portion of the benefit under Article IV or under Article V
not represented by a credit to the Account of a Participant as a
Funded Accrued Benefit.
Section 2.24 Non-Officer SERP
The Supplemental Executive Retirement Program for Non-Officers
of American Airlines, Inc.
Section 2.25 Participant
An individual who is participating in the Plan on October 15,
2002 shall be a Participant. An elected officer of American
Airlines, Inc., who is a participant in a Base Defined Benefit
Plan or the $uper $aver Plus Plan shall be a Participant. An
individual who is an appointed officer of American Airlines, Inc.
or a designated officer of another Company may be a Participant
only if (i) he or she is a participant in a Base Defined Benefit
Plan or the $uper $aver Plus Plan and (ii) is designated as a
Participant by the Board of Directors or under a writing signed
by the Chairman of AMR.
Section 2.26 Performance Return
Compensation paid to a Participant pursuant to a specified
portion of career equity shares granted to the Participant, as
determined by the Board of Directors.
Section 2.27 Plan
The Supplemental Executive Retirement Program of American
Airlines, Inc., as amended. The Plan may also be referred to
herein as the "SERP". There is a separate, but related,
Supplemental Executive Retirement Program for Non-Officers of
American Airlines, Inc., for key employees who are not officers.
This Plan features a supplement to defined benefit plan benefits
as described in Article IV and a supplement to $uper $aver Plus
Plan benefits, as described in Article V.
Section 2.28 $uper $aver. $uper $aver, a 401(k) Capital
Accumulation Plan for Employees of Participating AMR Corporation
Subsidiaries, which qualifies under sections 401(a) and 401(k) of
the Code, and under which certain Participants are eligible to
receive benefits.
Section 2.29 $uper $aver Plus Plan
$uper $aver Plus, a Supplement to $uper $aver, which describes
a program of employer contribution-provided benefits in addition
to those available under the regular provisions of $uper $aver.
Section 2.30 $uper $aver Plus Plan Accout
A bookkeeping entry maintained for each Participant to record
the deemed contributions and earnings credited under the name
of the Particpant pursuant to Article V.
Section 2.31 $uper Saver Plus Plan Excess Contribution
A contribution credited to the Participant's $uper $aver Plus
Plan Account that is equal to the total employer contributions
(exclusive of cash or deferred contributions under sections 401(k)
and 402(g) of the Code) that would have been credited under the
Participant's accounts in the $uper $aver Plus Plan, based upon
the Participant's elections under the $uper $aver Plus Plan, but
for the provisions of sections 401(a)(17), 415 and 402(g) of the
Code (or any Code sections replacing such sections with
comparable limitations). Additionally, the credited $uper $aver
Plus Plan Excess Contribution shall include the amount that
would have been credited to the Participant's account under the
$uper $aver Plus Plan based on the Participant's contribution
rate election under $uper $aver if Incentive Compensation had
constituted compensation subject to deferral under $uper $aver
and the $uper $aver Plus Plan.
4
Section 2.32 Supplemental Incentive Compensation Retirement
Benefit
The amount determined by multiplying the Average Incentive
Compensation by two percent for each year of Credited Service.
Section 2.33 Supplemental Incentive Compensation and
Performance Return Retirement Benefit
The difference between the benefits calculated under any
"Social Security Offset Benefit" formula as defined in the Base
Defined Benefit Plan, including and excluding Average Incentive
Compensation and Average Performance Return, in each case
computed without regard to the Base Defined Benefit Plan limits
on compensation and benefits under the Code.
Section 2.34 Supplemental Performance Return Retirement
Benefit
The amount determined by multiplying the Average Performance
Return by two percent for each year of Credited Service.
Section 2.35 Trust
The Trust Agreement Under Supplemental Retirement Program for
Officers of American Airlines, Inc. entered into between American
Airlines, Inc. and Wachovia Bank National Association.
Section 2.36 Trustee
Wachovia Bank National Association.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
Section 3.1 An individual who is participating in the Plan
on October 15, 2002. An elected officer of American Airlines, Inc.
who is participating in a Base Defined Benefit Plan or the
$uper $aver Plus Plan is a Participant in the Plan. An appointed
officer of American Airlines, Inc. or an officer of another
Company may be a Participant only if he or she is a participant
in a Base Defined Benefit Plan or the $uper $aver Plus Plan and
is designated as a Participant by the Board of Directors or under
a writing signed by the Chairman of AMR. As provided in Section
8.5 with respect to Active Funding Participants, this Plan is an
"employee pension benefit plan" (as defined in section 3(2) of
the Act) that is an "individual account plan" and "defined
contribution plan" (as defined in section 3(34) of the Act), and
as to all other benefits, the Plan is a plan described in
sections 201(2), 301(a)(3) and 401(a)(1) of the Act. The Plan is
exempt from Part 3 of Subtitle B of Title I of the Act pursuant
to section 301(a)(8) of the Act.
5
Section 3.2 Any Participant in this Plan who was a
Participant prior to January 1, 2001, and who ceased to continue
to accrue service for benefits under the Base Defined Benefit
Plan as of such date pursuant to an election to participate in
the $uper $aver Plus Plan shall remain eligible for the benefits
accrued under Article IV of the Plan for service prior to such
date. No further accruals of service for benefits under Article
IV of the Plan shall occur, however, after the effective date of
the Participant's election to forego participation in the Base
Defined Benefit Plan. Such Participants who forego participation
in the Base Defined Benefit Plan shall be eligible to receive
benefits determined under Article IV with respect to service for
periods prior to January 1, 2001, and/or under Article V of the
Plan, for periods commencing on and after January 1, 2001.
Section 3.3 Participants who continue to accrue service for
benefits in the Base Defined Benefit Plan after January 1, 2001,
or who commence participation thereafter and who do not accrue
benefits under Article V of the Plan, shall continue to accrue
benefits as provided herein only under Article IV of the Plan.
Section 3.4 A Participant who is elected as an officer and
later becomes a non-officer will have any SERP benefit pursuant
to Article V as an officer frozen (subject to adjustment pursuant
to Section 5.2 in the case of benefits under Article V) as of the
last date the Participant serves as an officer, but such Account
shall remain payable under this Plan. In the event that the
Participant is not thereafter designated for participation in the
Non-Officer SERP, any benefit of the Participant subject to
Article IV shall be frozen as of the last date the Participant
serves as an officer, but shall remain payable under this Plan.
In the event that a Participant who is elected as an officer and
later becomes a non-officer is designated for participation in
the Non-Officer SERP, any accrued benefit under Article IV that
is based on Incentive Compensation or Performance Return shall be
frozen as of the last date of the Participant serves as an
officer, but shall remain payable under this Plan, and the
remaining accrued benefit under Article IV shall be transferred
to the Non-Officer SERP and shall be a part of the accrued
benefit under Article IV thereunder, without causing duplication
of benefits.
ARTICLE IV
BENEFITS IN CONNECTION WITH THE BASE DEFINED BENEFIT PLAN
Section 4.1 The Plan will pay an Annual Defined Benefit
Retirement Benefit to a Participant who earned benefits under
this Plan while participating in the Base Defined Benefit Plan.
The portion of any such Annual Defined Benefit Retirement
Benefit that is satisfied on an after tax basis by a credit to
the Account for an Active Funding Participant shall be paid from,
and credited against, the Participant's Account and paid through
the Trust.
Section 4.2 If no benefit is payable under the Base Defined
Benefit Plan, then no benefit will be payable under Article IV of
the Plan.
6
ARTICLE V
CONTRIBUTIONS AND EARNINGS CREDITS
IN CONNECTION WITH THE $UPER $AVER PLUS PLAN
Section 5.1 If a Participant in this Plan is participating
in the $uper $aver Plus Plan, the Committee shall credit annually
to the Participant's $uper $aver Plus Plan Account a $uper $aver
Plus Plan Excess Contribution, at the discretion of the
Committee.
Section 5.2 In addition to the $uper $aver Plus Plan Excess
Contribution provided for under this Article V pursuant to
Section 5.1, the Committee shall periodically, at such times as
shall be determined in its sole discretion, credit or debit, as
the case may be, to a Participant's $uper $aver Plus Plan
Account, the earnings or losses that would have accrued to such
$uper $aver Plus Plan Account if such $uper $aver Plus Plan
Account were invested in the investment funds elected by the
Participant for the investment of amounts credited to his or her
accounts in the Executive Deferral Plan during the relevant
computation period. If the Participant for whom a $uper $aver
Plus Plan Excess Contribution under this Article V is credited is
not a participant in the Executive Deferral Plan, the Participant
will be required to designate investment funds (as available
under the Executive Deferral Plan) for the purpose of determining
such credits and debits to the $uper $aver Plus Plan Account. If
no such election is made, until the election is made the $uper
$aver Plus Plan Account will be credited or debited as determined
by the Committee, in its sole discretion. The Committee will
promulgate procedures for changing such elections from time to
time as it shall determine, in its sole and absolute discretion.
Section 5.3 If no benefit is payable under the $uper $aver
Plus Plan, then no benefit will be payable under Article V of the
Plan. In making such determination, benefits attributable to
contributions under $uper $aver, other than under the $uper $aver
Plus Plan, shall be disregarded. The amount of any Funded
Accrued Benefit contribution under this Article V shall be paid
to the Trust, net of taxes, and credited to the Participant's
Account. Amounts paid to a Participant on account of this
Article V from an Account shall be charged against the
Participant's $uper $aver Plus Plan Account.
ARTICLE VI
PAYMENT OF BENEFITS
Section 6.1 Except as otherwise provided in this Article VI
and in Sections 7.3 and 8.2, benefits under Article IV shall be
payable at the same time and in the same manner hereunder as
under the Base Defined Benefit Plan. Any benefit payable under
Article IV on account of the death of the Participant shall be
payable pursuant to the Participant's benefit elections pursuant
to Section 6.2; provided, however, that if the Participant has
elected a Lump-Sum Payment under Section 6.4 and such election
was made and filed with the Committee or its delegate (at least
twelve months prior to death, in the case of any Non-Funded
Accrued Benefits) in the event of the Participant's death prior
to being paid any benefits hereunder, notwithstanding anything to
the contrary in Section 4.2, the Participant's Beneficiary shall
receive the Lump-Sum Payment within sixty days of the date on
which the Participant would have been entitled to commence
receipt of benefits, had he or she survived. For such purpose,
the Participant may designate a Beneficiary for the Lump-Sum
Payment, subject to the designation procedures specified in
Section 6.3. Funded Accrued Benefits shall be paid from the
Trust.
7
Section 6.2 All provisions of the Base Defined Benefit
Plan and the Super $aver Plus Plan consistent with this Plan will
apply in determining the amount of benefits hereunder, including,
but not limited to, social security offset provisions, early
retirement reductions, optional forms of benefit, pre-retirement
surviving spouse's annuity, and spousal consent requirements.
Section 6.3 Except as provided in Sections 6.1, 6.4 and 6.6,
Annual Defined Benefit Retirement Benefits under Article IV under
this Plan will be paid in monthly installments only, unless the
Committee in its sole discretion directs payment in another form.
The portion of the Annual Defined Benefit Retirement Benefit
and/or amounts credited under Article V that were satisfied by
amounts credited to the Account of an Active Funding Participant
shall be paid from amounts credited to such Participant's Account
through the Trust. A Participant entitled to benefits under
Article IV may elect any of the standard forms of monthly
payments provided under the Base Defined Benefit Plan, subject to
Section 6.4, provided that if a lump-sum under Section 6.4 or
Section 6.6 is not payable, the method selected must be the same
as that selected under the Base Defined Benefit Plan, unless the
Committee directs otherwise.
Section 6.4 In lieu of monthly payments pursuant to 6.3, a
Participant may elect to claim a lump-sum, one-time payment equal
to the present value of any Annual Defined Benefit Retirement
Benefits to be paid pursuant to Article IV of the Plan (the
"Lump-Sum Payment"). Such claim shall:
(a) be in writing,
(b) be in the form prescribed by the Company,
(c) be addressed to the Company's Vice President,
Human Resources, or successor, and
(d) shall be made by a Participant with respect to any
Non-Funded Accrued Benefit at least twelve months (or such
lesser period as the Committee may permit, in its sole
discretion) before he or she commences payments, or one year
before age sixty-five, whichever is the first to occur. A
lump-sum election may be made with respect to Funded Accrued
Benefits at any time before retirement.
In addition to the foregoing, the Participant must execute a
general release and provide consent of spouse, if married. In
calculating the Lump-Sum Payment, the interest rate shall be
equal to the applicable interest rate promulgated by the Internal
Revenue Service under section 417(e)(3) of the Code for the third
month preceding the Participant's retirement date. The mortality
rate shall be the 1983 GAM male table for male Participants, and
the 1983 GAM female table for female Participants. A lump-sum
election may be revoked if the Company is notified in writing (at
least twelve months prior to commencement of benefits, in the
case of Non-Funded Accrued Benefits). No later election of a
Lump-Sum Payment may be made after such revocation. Upon
acceptance of the lump-sum claim, the Lump-Sum Payment will be
paid to the Participant within thirty days of the Participant's
first receipt of benefits under the Base Defined Benefit Plan.
8
Section 6.5 Benefits under Article V shall be paid in a
lump-sum equal to the $uper $aver Plus Plan Account balance, net
of taxes. Benefits under Article V paid to a Particpant from the
Trust as a result of a credit to an Account shall be credited
against amount payable from the $uper $aver Plus Plan Account.
Notwithstanding Section 6.1, a Participant's election under the
$uper $aver Plus Plan to receive payment of $uper $aver Plus Plan
benefits in any form other than a lump-sum cash payment shall be
ineffective with respect to accrued benefits under Article V of
this Plan. Payment of benefits pursuant to Article V shall be
made in a lump-sum cash payment as of the date on which any post-
separation benefit commences under the $uper $aver Plus Plan. A
Participant may designate a Beneficiary or Beneficiaries to
receive benefits under Article V payable in the event of the
Participant's death, if any. Any such designation shall be made
in the manner required by the Committee or its delegate. If, for
any reason, there is no surviving designated Beneficiary,
benefits will be payable to the parties who would be entitled to
receive such amounts if they were paid under $uper $aver on
account of the Participant's death. Such amounts will be paid in
a lump-sum within sixty days following the date of the
Participant's death.
Section 6.6 Upon a Change in Control or Potential Change in
Control (each as defined in the 1998 Long-Term Incentive Plan of
AMR, or its successor plan) with respect to AMR, a Participant
will receive a lump-sum, one-time payment equal to the present
value of the remaining Annual Defined Benefit Retirement Benefit
to be paid pursuant to Article IV of the Plan (and the entire
amount credited to his or her Account pursuant to Article V, if
applicable) (the "Change in Control Payment"), unless the
Participant elects to continue to receive previously elected
monthly payments. Such an election shall:
(a) be in writing,
(b) be in a form prescribed by the Company,
(c) be addressed to the Company's Vice President,
Human Resources, or successor, and
(d) shall be made by the Participant within thirty
days following the Change in Control or the Potential Change
in Control.
The Change in Control Payment shall be computed by
assuming that payments under the Base Defined Benefit Plan would
commence at the earliest possible retirement age for the
Participant, assuming that the Participant separated from
employment as of the Change in Control or Potential Change in
Control. In the event a Participant is not vested in benefits
under the Base Defined Benefit Plan, he shall nevertheless be
deemed to have satisfied the vesting requirements of the Base
Defined Benefit Plan (and of the $uper $aver Plus Plan) for
purposes of computing the amount of the Change in Control
Payment.
Section 6.7 Prior to receiving the Change in Control
Payment attributable to the Annual Defined Benefit Retirement
Benefit, the Participant may be required to execute a general
release and to provide consent of spouse, if married. In
calculating the portion of a Change in Control Payment
attributable to an Annual Defined Benefit Retirement Benefit, the
interest rate shall be equal to the applicable interest rate
promulgated by the Internal Revenue Service under section 417(e)
(3) of the Code for the third month preceding the Change in
Control or Potential Change in Control. The mortality table
used shall be the 1983 GAM male table for male Participants,
and the 1983 GAM female table for female Participants. The
Change in Control Payments will be paid to the Participant within
sixty days following the Change in Control or the Potential
Change in Control.
9
Section 6.8 In the event the Participant has any
outstanding debt with the Company, such as for payment of taxes,
the Company or the Committee may withhold or deduct from any
payments to be made to the Participant under this Plan an
amount(s) equal to such outstanding debt.
ARTICLE VII
AMENDMENT AND TERMINATION
Section 7.1 The Board of Directors, or such person or
persons, including the Committee, as may be authorized in
writing by the Board of Directors, may amend or terminate the
Plan at any time.
Section 7.2 No such amendment or termination pursuant to
Section 7.1 shall adversely affect a benefit payable under this
Plan with respect to a Participant's employment by the Company
prior to the date of such amendment or termination unless such
benefit is or becomes payable under a successor plan or practice
adopted by the Board of Directors or its designee.
Section 7.3 Notwithstanding Sections 7.1 and 7.2 of the
Plan, no changes or amendments (including pertaining to
termination) to the Plan will be permitted after a Change in
Control or Potential Change in Control, as each of these terms
is defined in the 1998 Long Term Incentive Plan of AMR, or its
successor plan.
ARTICLE VIII
GENERAL CONDITIONS
Section 8.1 The right to receive benefits under the Plan
may not be anticipated, alienated, sold, transferred, assigned,
pledged, encumbered or subjected to any charge or legal process,
and if any attempt is made to do so or a person eligible for any
benefit becomes bankrupt, the interest under the Plan of the
person affected may be terminated by the Committee and the
Committee may in its sole discretion cause the same to be held or
applied for the benefit of one or more of the dependents of such
person.
Section 8.2 Notwithstanding the provisions in Section 8.1,
upon receipt by the Plan of a "domestic relations order" (as
defined in section 206(d)(3)(B)(ii) of the Act) purporting to be
a "qualified domestic relations order" (as defined in section
206(d)(3)(B)(i) of the Act), the Committee shall review such
order using the domestic relations order review procedures in
effect under the Base Defined Benefit Plan or $uper $aver, as
applicable to benefits under Article IV or Article V
respectively. Upon the determination that a domestic relations
order meets the Plan's requirements to be a qualified domestic
relations order, the "alternate payee" (as defined in section
206(d)(3)(K) of the Act) shall be eligible to receive benefits
payable under the terms of the qualified domestic relations
order. Notwithstanding the foregoing, however, an alternate
payee under a domestic relations order shall only be eligible to
receive benefits from the Plan when the Participant begins
receiving benefits from the Base Defined Benefit Plan (or the
$uper $aver Plus Plan, as applicable).
10
Section 8.3 All questions pertaining to the construction,
validity and effect of the Plan shall be determined in accordance
with the laws of the United States and the State of Texas.
Section 8.4 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,
whether similar or dissimilar, beyond the control of the Company
(each, a "Force Majeure Event"), which Force Majeure Event
affects the Company or its Subsidiaries or its Affiliates, the
Board of Directors, at its sole discretion, may suspend, delay,
defer or substitute (for such period of time as the Board of
Directors may deem necessary) any payments due currently or in
the future under the Plan, including, but not limited to, any
payments that have accrued to the benefit of a Participant but
have not yet been paid.
Section 8.5 With respect to Non-Funded Accrued Benefits,
this non-qualified plan shall be, and is intended to be, a plan
that is unfunded and maintained by the Company to provide
deferred compensation to a select group of management or highly-
compensated employees, pursuant to sections 201(2), 301(a)(3),
and 401(a) (1) of the Act. With respect to Funded Accrued
Benefits, this Plan is an "employee pension benefit plan"
described in section 3(2) of the Act that is an "individual
account plan" and "defined contribution" plan as described in
section 3(34) of the Act that is not subject to Part 3 of
Subtitle B of Title I of the Act, pursuant to section 301(a)(8)
of the Act.
Section 8.6 American Airlines, Inc., is the sponsor of the
Plan and the Committee or its delegate shall be the Plan
Administrator, and shall have authority to manage the operation
and administration of the Plan. The Committee may designate one
or more individuals to carry out any of its administrative
responsibilities in connection with the Plan. The Company may
employ one or more persons to render advice to any director,
officer or employee of the Company with respect to such
individual's responsibilities under the Plan. The Committee may
act by majority vote of its members at a meeting or by a signed
writing. The Committee may engage agents to assist it and may
engage legal counsel who may be legal counsel for the Company.
All reasonable expenses incurred by the Committee. In
administering the Plan, the Committee may conclusively rely upon
the Company's payroll and personnel records and employee benefit
plan records maintained in the ordinary course of business. The
Board of Directors may remove any member of a Committee at any
time and a member may resign by written notice to the Board of
Directors. The Committee shall have the exclusive discretionary
authority to interpret and construe the terms of the Plan and the
exclusive discretionary authority to determine eligibility for,
and the amount of, all benefits hereunder. Any such
determinations or interpretations of the Plan adopted by the
Committee shall be final and conclusive and shall bind all
parties.
11
ARTICLE IX
FUNDING
Section 9.1 The Company will pay the entire cost of the
Plan, through the Trust, directly or under Section 10.2 as
applicable. Amounts payable to an Active Funding Participant will
first be paid from the Trust through amounts credited to such
Participant's Account. Any remaining amounts payable, and all
amounts payable to Non-Active Funding Participants shall be paid
as they become payable from the Company's general assets or
through a trust established pursuant to Section 10.2.
ARTICLE X
TRUST
Section 10.1 The Company established the Trust, an
irrevocable trust effective October 15, 2002, pursuant to
the Trust Agreement Under Supplemental Retirement Program for
Officers of American Airlines, Inc., to fund the anticipated
after-tax distributions of Funded Accrued Benefits under the
Plan, as determined by the Committee as of October 1, 2002.
Wachovia Bank National Association will serve as the initial
Trustee of the Trust and will hold the Trust assets for the
purpose of accumulating funds to pay benefits under the Plan as
they become due and payable. The Trust is a so-called "secular
trust" for Federal income tax purposes. The assets of the Trust
are not subject to the claims of creditors of the Company or any
of its corporate affiliates. Moreover, the contributions to the
Trust and the Trust's earnings will generally be taxable income
to Participants, although subsequent distributions from the
already taxed amounts will be made to Participants free of
Federal income tax.
Section 10.2 To assist in the payment of Non-Funded Accrued
Benefits following a Change in Control or Potential Change in
Control (each as defined in the 1998 Long-Term Incentive Plan of
AMR, or its successor plan) with respect to AMR, the Board of
Directors or the Company's General Counsel or the Company's
Corporate Secretary may establish a trust or utilize a trust
heretofore established, to fund Non-Funded Accrued Benefits under
the Plan.
Section 10.3 The trust which may be established or
otherwise utilized pursuant to Section 10.2 will be maintained:
(a) with a nationally recognized banking institution
with experience in serving as a trustee for such matters,
(b) pursuant to such documentation as recommended by
outside counsel to the Company, and
(c) funded so as to enable the trust to pay some or
all of the Non-Funded Accrued Benefits contemplated under the
Plan, as may be determined by the Company's independent
compensation consultant, selected by the Company, in its sole and
absolute discretion.
12
Section 10.4 In addition, the Board of Directors, the
Company's General Counsel or the Company's Corporate Secretary
may take those additional actions deemed reasonably necessary to
accomplish the stated purpose of Section 10.2.
ARTICLE XI
ERISA RIGHTS
Section 11.1 As a Participant in any Funded Accrued
Benefits under the Plan, you are entitled to certain rights and
protections under ERISA. ERISA provides that all Plan
Participants shall be entitled to:
Examine, without charge, at the Plan Administrator's office,
all Plan documents, including copies of all documents filed
with the U.S. Department of Labor, such as Summary Annual
Reports (SARs) and a copy of the latest Form 5500 annual report
filed by the Plan with the U.S. Department of Labor and
available at the Public Disclosure Room of the Pension and
Welfare Benefit Administration.
Obtain copies of all Plan documents and other Plan
information including copies of the latest Form 5500 annual
report and current Summary Plan Description (SPD) upon written
request to the Plan Administrator. The Plan Administrator may
charge a reasonable amount for the copies.
Receive a summary of the Plan's annual financial report
(SAR). The Plan Administrator is required by law to furnish
each Participant with a SAR.
Obtain a statement telling you whether you have a right to
receive a pension at Normal Retirement Age under the Plan and,
if so, what the benefit amount would be at Normal Retirement
Age if you were to stop working now. This statement must be
requested in writing and is not required to be given more often
than once a year. This statement must be provided free of
charge.
In addition to creating rights for Plan Participants, ERISA
imposes duties upon the people responsible for the Plan's
operation. The people who supervise the Plan's operation, called
"Fiduciaries," have a duty to do their jobs prudently and solely
in the interest of you and other Plan Participants and
beneficiaries. Fiduciaries who violate ERISA may be removed and
required to make good any losses they have caused the Plan.
If a claim for a benefit is denied or ignored in whole or in
part, you must receive a written explanation of the reason for
the denial. You have the right to have the Plan Administrator
review and reconsider the claim. No one, including an employer
or any other person, may fire you or discriminate against you in
any way to prevent you from obtaining a benefit from the Plan or
exercising your rights under ERISA.
Under ERISA, there are steps you can take to enforce the above
rights. For instance, if you request materials from the Plan
Administrator and do not receive them within 30 days, you may sue
in federal court. The court may require the Plan Administrator to
provide the materials and pay you up to $110 a day until you
receive the materials -- unless the materials were not sent
because of reasons beyond the Plan Administrator's control. If
you have a claim for benefits that is denied or ignored, in whole
or in part, you may file suit in a state or federal court. In
addition, if you disagree with the Plan's decision or lack
thereof concerning the qualified status of a domestic relations
order, you may file suit in federal court.
13
If the Plan's Fiduciaries misuse the Plan's money, or if you are
discriminated against for asserting your rights, you may seek
assistance from the U.S. Department of Labor, or you may file
suit in a federal court. The court will decide who should pay
court costs and legal fees. If you are successful, the court may
order the person you have sued to pay those costs and fees. If
you lose (i.e., if the court finds your claim frivolous), the
court may order you to pay these costs and fees.
If you have any questions about the Plan, contact the Plan
Administrator. If there are any questions about this section or
about your rights under ERISA, you should contact the nearest
office of the Pension and Welfare Benefits Administration of the
U.S. Department of Labor listed in your telephone directory or
the Division of Technical Assistance and Inquiries, Pension and
Welfare Benefits Administration, U.S. Department of Labor, 200
Constitution Avenue, N.W. Washington, D.C 20210. You may also
obtain certain publications about your rights and
responsibilities under ERISA by calling the publications hotline
of the Pension and Welfare Benefits Administration.
ARTICLE XII
CLAIMS PROCEDURES
Section 12.1 A claim for retirement benefits under the Plan
must be submitted to the Plan Administrator at the time and in
the manner prescribed by the Plan Administrator.
If the Plan Administrator determines that you are not entitled to
receive all or part of the benefits you claim, a notice will be
provided to you within a reasonable period of time, but no later
than 90 days from the day your claim was received by the Plan
Administrator. This notice (which will be provided to you in
writing by mail or hand delivery, or through email) will
describe:
The Plan Administrator's determination;
The basis for the determination (along with appropriate
references to pertinent Plan provisions on which the denial is
based);
A description of any additional material or information
necessary to perfect the claim and an explanation of why such
material is necessary, and
The procedure you must follow to obtain a review of the
determination, including a description of the appeals procedure
and your right to bring a cause of action for benefits under
section 502(a) of ERISA. This notice will also, if appropriate,
explain how you may properly complete your claim and why the
submission of additional information may be necessary.
14
In certain instances, the Plan Administrator may not be able to
make a determination within 90 days from the day your claim for
benefits was submitted. In such situations, the Plan
Administrator, in its sole and absolute discretion, may extend
the 90-day period for up to 180 days, as long as the Plan
Administrator provides you with a written notice
within the initial 90-day period that explains:
The reason for the extension, and
The date on which a decision is expected.
Section 12.2 If your claim for benefits is denied, either
in whole or in part, you may appeal the Plan Administrator's
denial by requesting a review of your claim by the Committee (or
its delegate). Your written request for an appeal must be
received by the Plan Administrator within 60 days of the date you
received your notice that the Plan Administrator denied your
claim.
As part of your appeal, you may submit written comments,
documents, records and other information relating to your claim
for benefits. You may also request reasonable access to, and
copies of, all documents, records, and other information relevant
to your claim. You will not be charged for this information. The
Committee's (or its delegate's) review of the Plan
Administrator's adverse determination will take into account all
comments, documents, records and other information you submitted,
without regard to whether such information was submitted and
considered in the Plan Administrator's initial determination of
your claim.
If, after reviewing your appeal and any further information that
you have submitted, the Committee (or its delegate) denies your
claim, either in whole or in part, a notice (which will be
provided to you in writing by mail or hand delivery, or through
email) will be provided to you within a reasonable period of
time, but not later than 60 days from the day your request for a
review was received by the Plan Administrator. In the event that
an extension of time for processing is required, you will be
provided a written notice of the extension not later than 60 days
from the day your request for a review was received by the Plan
Administrator. In such situations, the Committee (or its
delegate), in its sole and absolute discretion, may extend the 60-
day period for up to 120 days, as long as the Committee (or its
delegate) provides you with a written notice within the initial
60-day period that explains:
The reason for the extension, and
The date on which a decision is expected.
The notice describing the Committee's (or its delegate's)
decision will describe:
The specific reason or reasons for its decision, including
any adverse determinations;
References to the specific Plan or Base Defined Benefit Plan
or $uper $aver Plus Plan provisions on which the Committee (or
its delegate) based its determination;
Your right to receive, upon request and free of charge,
reasonable access to, and copies of, all documents, records, and
other information relevant to your claim;
15
A description of any voluntary appeals procedures, if any,
and your right to obtain information about such procedures, and
Your right to bring a cause of action for benefits under
section 502(a) of ERISA.
ARTICLE XIII
FINALITY OF DECISIONS OR ACTS
Section 13.1 The Committee has the express authority to
elect the actuarial assumptions to be used in funding any
benefits payable under the Plan, to interpret any provision of
this Plan and to determine, at its sole discretion, the meaning
and application of any such provision as to each Paricipant or
Beneficiary under the Plan, in accordance with the facts and
circumstances of each particular claim. Except for the right of
a Participant or Beneficiary to appeal the denial of a claim, any
decision or action of the Committee, within their scope of
authority, shall be final and binding on all persons claiming a
right to benefits under the Plan. No benefit shall be payable
that the Committee does not deem is payable under the terms of
the Plan.
ARTICLE XIV
GENERAL INFORMATION ABOUT YOUR PLAN
Plan Name: The Supplemental Executive Retirement Program
(SERP) for Officers of American Airlines,
Inc.
Plan Sponsor: American Airlines, Inc.
4333 Amon Carter Blvd.
MD 5146
Fort Worth, TX 76155
Employer ID No.: 13-1502798
Plan Number: 888
Type of Plan: As described in Section 8.5
Plan Administrator: American Airlines, Inc.
4333 Amon Carter Blvd.
MD 5112
Fort Worth, TX 76155
Telephone: 817-967-3558
16
Legal Agent: C T Corporation System
Registered Office
350 North St. Paul Street
Dallas, TX 75201
Trustee: Wachovia Bank National Association
Trustee(s) Address: Wachovia Bank National Association
Attn: Executive Services
One West Fourth Street
Winston-Salem, NC 27150
Funding Arrangement: Company Assets for Non-Funded Accrued Benefits
Trust for Funded Accrued Benefits
Plan Year: January 1 to December 31
17
AS AMENDED AND RESTATED EFFECTIVE OCTOBER 15, 2002.
American Airlines, Inc.
By: /s/ Charles D. MarLett
Name & Title: Charles D. MarLett,
Corporate Secretary
18
EXHIBIT B
SUPPLEMENT NO. 9
TO
$UPER $AVER
$UPER $AVER PLUS
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS 1
Section 1.1 Account 1
Section 1.2 AMS Employee 1
Section 1.3 Choice Year 1
Section 1.4 Company 1
Section 1.5 Default Election or Default 2
Section 1.6 Election or Elect 2
Section 1.7 Election Period 2
Section 1.8 Eligibility Service 2
Section 1.9 Employer Contribution Account 2
Section 1.10 Employer Matching Contributions 2
Section 1.11 Five-Year Break in Service 2
Section 1.12 Laid Off Reno Employees 2
Section 1.13 One-Year Break in Service 2
Section 1.14 Pension Plan 2
Section 1.15 Pensionable Pay 3
Section 1.16 Restoration Account 3
Section 1.17 Restoration Amount 3
Section 1.18 Sabre Dual Retirees 3
Section 1.19 $uper $aver Plus 3
Section 1.20 Vesting Service 3
ARTICLE II ELIGIBILITY 3
Section 2.1 Eligibility to Participate 3
Section 2.2 Commencement of Participation 4
ARTICLE III CONTRIBUTIONS 5
Section 3.1 Employer Matching Contributions 5
ARTICLE IV VESTING 5
Section 4.1 Participant Vesting 5
Section 4.2 Crediting Vesting Service 6
Section 4.3 Forfeiture and Restoration of Non-Vested
Benefits 6
ARTICLE V WITHDRAWALS DURING EMPLOYMENT 8
Section 5.1 Loans 8
Section 5.2 Withdrawals 8
SUPPLEMENT NO. 9 TO $UPER $AVER
$UPER $AVER PLUS
INTRODUCTION
Effective January 1, 2001, American Airlines, Inc.
("Company") establishes $uper $aver Plus for the benefit of
its eligible AMS Employees pursuant to the terms and
provisions of this Supplement No. 9 to the Plan. $uper $aver
Plus is intended to supplement the provisions of, and form a
part of, the Plan with respect to eligible AMS Employees (as
hereinafter defined, but specifically including Employees of
the Company who are classified as an "agent," "management,"
"specialist," "representative," "support personnel,"
"officer," or "non-union employee" and excluding regular
Employees of any other Affiliated Company and Employees of
the Company who are not specifically included or who are
covered by a collective bargaining agreement) and, in
conjunction with the other provisions of the Plan, to
constitute a qualified plan under sections 401(a) and 401(k)
of the Code. Therefore, except as provided otherwise in this
Supplement No. 9, $uper $aver Plus shall be administered in
accordance with the provisions of the Plan.
ARTICLE I
DEFINITIONS
In addition to the definitions set forth in the Plan,
the following definitions, when used in this Supplement,
shall have the respective meanings set forth below unless
the context clearly indicates otherwise:
Section 1.1 Account means, in addition to the Accounts
described in Section 2.1 of the Plan, a Participant's
Employer Contribution Account, maintained by the Trustee or
the Recordkeeper reflecting the monetary value of the
undivided interest in the Trust Fund of each Participant,
each Former Participant and each Beneficiary attributable to
Employer Matching Contributions made pursuant to Super Saver
Plus on his behalf in accordance with Section 3.1 hereof.
Section 1.2 AMS Employee means:
(a) a regular non-union employee of the Company,
(b) whose job is classified as agent, management,
specialist, representative, support personnel, officer or
other non-union employee, and
(c) who is paid on the Company's U.S. payroll,
including Puerto Rico and the U.S. Virgin Islands.
Section 1.3 Choice Year means a year in which an AMS
Employee is given the opportunity to choose between
participating in $uper $aver Plus or the Pension Plan.
1
Section 1.4 Company means American Airlines, Inc.
Section 1.5 Default Election or Default means the
decision which will determine whether an AMS Employee will
participate in $uper $aver Plus or the Pension Plan in the
event an Election is not made.
Section 1.6 Election or Elect means an affirmative
choice made by an AMS Employee to participate in $uper $aver
Plus or the Pension Plan.
Section 1.7 Election Period means the 90 day period
in which an Election may be made.
Section 1.8 Eligibility Service means a 12 month
period of service with an Affiliated Employer, commencing on
the date an Employee first performs an Hour of Service for
an Affiliated Employer and, for each Plan Year thereafter,
commencing with first day of the Plan Year that includes the
first anniversary of the date specified above, during which
the Employee performs at least the requisite number of Hours
of Service as determined under the Pension Plan or other
applicable plan. In the case of an Employee employed as an
American Airlines pilot or an American Airlines flight
attendant, the applicable plan is the American Airlines,
Inc. Pilot Retirement Benefit Program or The Retirement
Benefit Plan of American Airlines, Inc. for Flight
Attendants, respectively; and for an Employee represented by
the Transport Workers Union of America, AFL-CIO, the
applicable plan is The Retirement Benefit Plan of American
Airlines, Inc. Employees Represented by the Transport Worker
Union of American, AFL-CIO.
Section 1.9 Employer Contribution Account means the
portion of the individual Account maintained by the Trustee
or the Recordkeeper for each Participant, each Former
Participant and each Beneficiary showing the monetary value
of the person's individual interest in the Trust Fund
attributable to Employer Matching Contributions.
Section 1.10 Employer Matching Contributions means
contributions paid by the Company in accordance with Section
3.1 hereof.
Section 1.11 Five-Year Break in Service means any
five consecutive One-Year Breaks in Service.
Section 1.12 Laid Off Reno Employees means the former
Reno Air employees who were laid off in July 2000.
Section 1.13 One-Year Break in Service means a Plan
Year during which an Employee has fewer than 501 Hours
of Service.
Section 1.14 Pension Plan means The Retirement Benefit
Plan of American Airlines, Inc. for Agents, Management,
Specialists, Support Personnel and Officers.
2
Section 1.15 Pensionable Pay means the compensation
used to determine benefits under the Pension Plan and
Section 3.1 of this Supplement No. 9.
Section 1.16 Restoration Account means a sub-account
of the Employer Contribution Account to which the
Restoration Amount is credited in accordance with Section
4.2(b) of this Supplement No. 9.
Section 1.17 Restoration Amount means the non-vested
amount previously forfeited from a Former Participant's
Account by reason of a distribution or deemed distribution.
Section 1.18 Sabre Dual Retirees means the group of
Employees employed by the Company and Sabre Inc. and defined
as "dual retirees" within the administrative records of the
Pension Plan.
Section 1.19 $uper $aver Plus means the program of
benefits under this Supplement No. 9 to the Plan.
Section 1.20 Vesting Service means service described
in Section 4.2 hereof required to be performed by a
Participant to enable such Participant to obtain
nonforfeitable rights to Employer Matching Contributions in
accordance with Section 4.1 hereof.
ARTICLE II
ELIGIBILITY
Section 2.1 Eligibility to Participate. Effective on
and after January 1, 2001, an AMS Employee is eligible
to receive Employer Matching Contributions as described in
Section 3.1 of this Supplement No. 9 if he has completed the
required period of Eligibility Service and he Elects or
Defaults to participate in $uper $aver Plus in accordance
with the terms of this Section 2.1. Notwithstanding the
foregoing, an Employer Matching Contribution will be
contributed to a Participant's Employer Matching Account
only to the extent provided in Section 3.1.
(a) Choice Year 2000. All AMS Employees are entitled
to choose to participate in $uper $aver Plus or the Pension
Plan as follows:
(i) AMS Employees Hired Prior to January 1, 2000.
These AMS Employees may Elect to participate in $uper
$aver Plus. They will Default to participation in the
Pension Plan.
(ii) AMS Employees Hired On or After January 1,
2000. These AMS Employees may Elect to participate in
the Pension Plan. They will Default to participation in
$uper $aver Plus.
(iii) AMS Employees on Leave of Absence as of
December 31, 2000, with Right of Recall. These AMS
Employees will be given an Election Period during which
to make an Election upon their return from leave of
absence. The Election Period shall commence on the
first day of the month following the month in which
they return to work. They will Default to participation
as described in (i) or (ii) above as applicable.
3
(iv) AMS Employees Transferred to Non-Eligible
Employment on or before December 31, 2000. These AMS
Employees will be given an Election Period during which
to make an Election if they subsequently return to a
position as an eligible AMS Employee. The Election
Period shall commence on the first day of the month
following the month of transfer. They will Default to
participation as described in (i) or (ii) above as
applicable.
(b) Choice Year 2001. Those Employees who in 2001 are
newly hired AMS Employees (including Employees whose
employment terminated prior to January 1, 2001 and who were
reemployed as an AMS Employee in 2001) or Employees
transferred to positions as AMS Employees are entitled to
choose to participate in $uper $aver Plus or the Pension
Plan, and they are eligible to receive Employer Matching
Contributions commencing after they meet the eligibility
requirements and Elect or Default to participation in $uper
$aver Plus as follows:
(i) Newly Hired AMS Employees. These AMS
Employees may Elect during their Election Period to
participate in the Pension Plan. They will Default to
$uper $aver Plus. Their Election Period commences on
the first day of the month after completion of six
months of service following the date of hire.
(ii) Employees Transferred to Positions as
AMS Employees. Except as provided in (a)(iv) above,
these AMS Employees may Elect during their Election
Period to participate in the Pension Plan. They will
Default to $uper $aver Plus. Their Election Period
commences on the first day of the month following the
month of transfer.
(iii) Notwithstanding (b)(ii) above, the
following employee groups may Elect to participate in
$uper $aver Plus but they will Default to the Pension
Plan, and their Election Period commences on the first
day of the month following the month of transfer:
(A) Sabre Dual Retirees
(B) Laid Off Reno Employees
(C) Employees transferred from a
position covered by a collective bargaining
agreement.
(iv) Notwithstanding anything to the contrary
in (b)(i), (ii), or (iii) above, once an AMS Employee
has an Election or a Default Election on file, that
Election or Default Election will not be changed due to
a subsequent return to a position as an AMS Employee.
4
(c) No other Employee of the Company or any Affiliated
Company is eligible to Participate in $uper $aver Plus.
Section 2.2 Commencement of Participation.
Participation in $uper $aver Plus shall commence as soon as
administratively possible after the AMS Employee satisfies
the conditions of eligibility, including completion of the
required period of Eligibility Service and making an
Election or Default Election, in accordance with Section 2.1
hereof, but in no event shall such participation commence
later than 6 months after all such conditions have been
satisfied.
ARTICLE III
CONTRIBUTIONS
Section 3.1 Employer Matching Contributions.
(a) Subject to the provisions of the Plan,
including the restrictions and limitations contained in
ARTICLE VI and ARTICLE VII of the Plan, commencing on and
after the Effective Date, the Company shall contribute for
each Plan Year as an Employer Matching Contribution 100% of
the Employee Before-tax Contributions up to 5.5% of a
Participant's Pensionable Pay contributed to the Plan on
behalf of such Participant as an Employee Before-tax
Contribution. For purposes of this Section 3.1, the
determination of the percentage of a Participant's
Pensionable Pay contributed to the Plan on behalf of such
Participant shall be made on a year-to-date basis.
(b) Employer Matching Contributions made to the
Plan pursuant to this Section 3.1 generally shall be made as
soon as administratively feasible following each pay date,
and in no event later than the date described in Section 4.7
of the Plan.
ARTICLE IV
VESTING
Section 4.1 Participant Vesting.
(a) A Participant's nonforfeitable interest in
his Employer Contribution Account shall be determined as
follows:
Years of Vesting Service Vesting Percentage
Less than 3 0%
3 or more 100%
Notwithstanding anything to the contrary contained in this
Section 4.1, amounts credited to a Participant's Employer
Contribution Account shall become fully vested upon the
occurrence, while employed by an Affiliated Company, of any
of the following events, whether or not he has then
completed the years of Vesting Service required for full
vesting:
(i) the Participant's attainment of his
Normal Retirement Date
5
(ii) the Participant's Disability; or
(iii) the Participant's death.
(b) The value of a Participant's nonforfeitable
interest in his Employer Contribution Account shall be
determined as of the Valuation Date.
Section 4.2 Crediting Vesting Service.
(a) For purposes of Section 4.1, a Participant
will be credited with one year of Vesting Service for each
Plan Year in which he completes 1,000 Hours of Service. All
service for an Affiliated Company will be included in
determining such Employee's years of Vesting Service. The
Recordkeeper may establish separate subaccounts for
Employees, or classifications of Employees, as necessary to
calculate the vesting requirements of this $uper $aver Plus.
(b) Except as provided in the following sentence,
in the case of an Employee who terminates employment with an
Employer and who later resumes employment with the Employer,
years of Vesting Service prior to his resumption of
employment shall be credited to such Employee. However, if a
Participant did not have a nonforfeitable right to amounts
credited to his Employer Contribution Account at the time of
his termination of employment with an Employer and the
Participant incurs a Five-Year Break in Service, his
employment with an Employer after such Five-Year Break in
Service shall not be taken into account in determining the
Participant's nonforfeitable percentage in his Employer
Contribution Account derived from Employer Matching
Contributions that accrued prior to such Five-Year Break in
Service.
(c) Solely for the purpose of determining a Five-
Year Break in Service, the Plan shall credit each
Participant with hours of service for each hour in any
customary period of work, during which the Participant is on
an unpaid leave of absence granted as such by an Employer or
a parental leave of absence, but only to the extent
necessary to prevent a One-Year Break in Service, and in
accordance with applicable law and uniformly administered
policy. Persons on an unpaid military leave shall receive
hours of service credit for the period that their employment
rights are protected by law, to the extent required by law.
Section 4.3 Forfeiture and Restoration of Non-Vested
Benefits.
(a) If a Participant terminates employment with
an Affiliated Company prior to the time he is fully vested
in amounts credited to his Employer Matching Account, the
non-vested portion of the Participant's benefits under $uper
$aver Plus, if any, shall be forfeited, subject to
restoration as provided in Section 4.3(c) hereof, as of the
earlier to occur of:
(i) in the case where the Participant does
not receive a distribution of his entire vested Account
balance, on the last day of the Plan Year in which the
Participant first incurs a Five-Year Break in service
or
6
(ii) immediately upon receipt of his
distribution if the Participant receives a distribution
of his entire vested Account balance.
(b) For purposes of this Section 4.2(c), if the
vested balance of a Participant's Employer Matching Account
is zero, the Participant shall be deemed to have received a
distribution of such vested Account at the time of his
termination of employment. The forfeited amount shall remain
in the Trust Fund and shall be applied first to restore the
Employer Contribution Accounts of Former Participants in
accordance with Section 4.3(c) and then to reduce future
Employer Matching Contributions under $uper $aver Plus for
the Plan Year during which the effective date of the
distribution (or, if applicable, the Five-Year Break in
Service) occurs.
(c) In the case of a Former Participant whose non-
vested Account balance was forfeited by reason of a
distribution (or deemed distribution) to the Participant, if
such individual returns to employment with an Employer prior
to incurring a Five-Year Break in Service, the amount
previously forfeited from such individual's Account shall be
restored (unadjusted for any gains or losses) as part of
such individual's Account and credited to an Employer
contribution sub-account, hereinafter called the
"Restoration Account", if the Participant repays to the Plan
the full amount of the distribution prior to the earlier of:
(i) the Plan's termination, or
(ii) the lapse of five years following the
Participant's reemployment by the Employer (provided
that the Participant must be an Employee at the time of
repayment.)
(d) A Participant's forfeiture incurred as a
result of a deemed distribution shall be automatically
restored if the Participant returns to employment with an
Employer prior to the earlier of:
(i) the Plan's termination, or
(ii) his incurring a Five-Year Break in
Service.
(e) As of the Valuation Date that immediately
follows the repayment
described in Section 4.3(c), and prior to any allocation of:
(i) the Trust Fund earnings pursuant to
Section 8.5 of the Plan,
(ii) forfeitures pursuant to Section 4.3(a)
hereof or
(iii) Employer Matching Contributions
pursuant to Section 3.1 hereof, there shall be
allocated to the Participant's Restoration Account an
amount (the "Restoration Amount") of the Trust Fund
equal to the amount of his previously forfeited non-
vested Account balance. The Restoration Amount shall be
credited first against forfeitures arising for the Plan
Year, and if such forfeitures are not sufficient to
satisfy the Restoration Amount in full, the Restoration
Amount shall be satisfied out of Employer contributions
for the Plan Year, which contributions shall be
supplemented for the Plan Year by an amount equal to
such remainder. The Restoration Amount shall not be
deemed an Annual Addition, as defined Section 7.2(a)(i)
of the Plan, or portion thereof for any Limitation
Year. The Pension Benefits Administration Committee
shall give timely notice to any rehired Employee, if
such Employee is eligible to make a repayment, of his
right to make such repayment before the expiration of
the periods specified above, and such notice shall also
include an explanation of the consequences of not
making such repayment.
7
ARTICLE V
WITHDRAWALS DURING EMPLOYMENT
Section 5.1 Loans. In determining the amount
available to a Participant for a loan under Section 11.2 of
the Plan, the amount of the Participant's Employer
Contributions Account may be included with the Participant's
Employee After-tax Account, the Participant's Employee
Before-Tax Contribution Account, Profit Sharing Fund Account,
Rollover Account and Prior Plan Account, if any, but only
to the extent the Employer Contributions Account is vested.
Section 5.2 Withdrawals. No in service withdrawals
of amounts credited to Employer Matching Contribution
Accounts are allowed.
Exhibit 12
AMR CORPORATION
Computation of Ratio of Earnings to Fixed Charges
(in millions)
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
Earnings (loss):
Earnings (loss) before income
taxes $(153) $(214) $(257) $(374)
Add: Total fixed charges (per
below) 471 442 1,363 1,318
Less: Interest capitalized 12 22 59 60
Total earnings (loss) before
income taxes $306 $206 $1,047 $884
Fixed charges:
Interest, including interest
capitalized $224 $207 $653 $613
Portion of rental expense
representative of the interest
factor 228 219 656 660
Amortization of debt expense 19 16 54 45
Total fixed charges $471 $442 $1,363 $1,318
Coverage deficiency $165 $236 $316 $434
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: October 21, 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: October 21, 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 September 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: October 21, 2005 /s/ Gerard J. Arpey
Gerard J. Arpey
Chairman, President and Chief Executive
Officer
Date: October 21, 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.