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, 2006.
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. x Yes No
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of "accelerated filer" and "large
accelerated filer" in Rule 12b-2 of the Exchange Act.
x Large Accelerated Filer Accelerated Filer
Non-accelerated Filer
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act). Yes x No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Common Stock, $1 par value - 214,415,972 shares as of October 13, 2006.
INDEX
AMR CORPORATION
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations -- Three and nine months
ended September 30, 2006 and 2005
Condensed Consolidated Balance Sheets -- September 30, 2006 and
December 31, 2005
Condensed Consolidated Statements of Cash Flows -- Nine months
ended September 30, 2006 and 2005
Notes to Condensed Consolidated Financial Statements -- September
30, 2006
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,
2006 2005 2006 2005
Revenues
Passenger - American Airlines $4,657 $4,428 $13,621 $12,534
- Regional Affiliates 644 570 1,915 1,582
Cargo 213 193 605 573
Other revenues 333 294 1,025 855
Total operating revenues 5,847 5,485 17,166 15,544
Expenses
Wages, salaries and benefits 1,694 1,664 5,103 4,979
Aircraft fuel 1,771 1,582 4,952 4,030
Other rentals and landing fees 317 337 967 956
Depreciation and amortization 290 292 868 868
Commissions, booking fees
and credit card expense 284 292 839 849
Maintenance, materials and
repairs 252 269 726 761
Aircraft rentals 154 148 449 443
Food service 133 136 386 388
Other operating expenses 668 726 2,001 1,979
Total operating expenses 5,563 5,446 16,291 15,253
Operating Income 284 39 875 291
Other Income (Expense)
Interest income 80 40 201 104
Interest expense (259) (240) (780) (697)
Interest capitalized 7 12 21 59
Miscellaneous - net (97) (4) (103) (14)
(269) (192) (661) (548)
Income (Loss) Before Income Taxes 15 (153) 214 (257)
Income tax - - - -
Net Earnings (Loss) $ 15 $ (153) $ 214 $ (257)
Earnings (Loss) Per Share
Basic $ 0.07 $(0.93) $ 1.07 $ (1.58)
Diluted $ 0.06 $(0.93) $ 0.91 $ (1.58)
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,
2006 2005
Assets
Current Assets
Cash $ 114 $ 138
Short-term investments 4,940 3,676
Restricted cash and short-term investments 464 510
Receivables, net 1,160 991
Inventories, net 506 515
Other current assets 289 334
Total current assets 7,473 6,164
Equipment and Property
Flight equipment, net 14,614 14,843
Other equipment and property, net 2,359 2,406
Purchase deposits for flight equipment 179 278
17,152 17,527
Equipment and Property Under Capital Leases
Flight equipment, net 784 916
Other equipment and property, net 104 103
888 1,019
Route acquisition costs and airport
operating and gate lease rights, net 1,174 1,194
Other assets 3,441 3,591
$ 30,128 $ 29,495
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities
Accounts payable $ 1,087 $ 1,078
Accrued liabilities 2,015 2,388
Air traffic liability 4,067 3,615
Current maturities of long-term debt 1,400 1,077
Current obligations under capital leases 106 162
Total current liabilities 8,675 8,320
Long-term debt, less current maturities 11,571 12,530
Obligations under capital leases, less
current obligations 836 926
Pension and postretirement benefits 5,460 4,998
Other liabilities, deferred gains and
deferred credits 4,100 4,199
Stockholders' Equity (Deficit)
Preferred stock - -
Common stock 220 195
Additional paid-in capital 2,585 2,258
Treasury stock (367) (779)
Accumulated other comprehensive loss (993) (979)
Accumulated deficit (1,959) (2,173)
(514) (1,478)
$ 30,128 $ 29,495
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,
2006 2005
Net Cash Provided by Operating Activities $ 1,729 $ 1,032
Cash Flow from Investing Activities:
Capital expenditures (348) (586)
Net increase in short-term investments (1,264) (476)
Net (increase) decrease in restricted cash
and short-term investments 46 (21)
Proceeds from sale of equipment and property 11 25
Other (8) -
Net cash used by investing activities (1,563) (1,058)
Cash Flow from Financing Activities:
Payments on long-term debt and capital
lease obligations (831) (881)
Proceeds from:
Issuance of common stock, net of
issuance costs 400 -
Reimbursement from construction reserve
account 107 -
Exercise of stock options 134 19
Issuance of long-term debt - 697
DFW Bond Remarketing - 198
Net cash provided (used) by
financing activities (190) 33
Net increase (decrease) in cash (24) 7
Cash at beginning of period 138 120
Cash at end of period $ 114 $ 127
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. and Executive Airlines, Inc. (collectively, AMR
Eagle). The condensed consolidated financial statements also include
the accounts of variable interest entities for which the Company is
the primary beneficiary. 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,
2005, as amended on July 17, 2006 (2005 Form 10-K).
Cargo fuel and security surcharge revenues of $41 million and $113
million for the three months and nine months ended September 30,
2005 have been reclassified from Other revenues to Cargo revenues
in the consolidated statement of operations to conform to the
current year presentation.
2. Under the 1998 Long Term Incentive Plan, as amended (the 1998
LTIP), officers and key employees of AMR and its subsidiaries may
be granted stock options, stock appreciation rights (SARs),
restricted stock, deferred stock, stock purchase rights, other
stock-based awards and/or performance-related awards, including
cash bonuses. The total number of common shares authorized for
distribution under the 1998 Long Term Incentive Plan is 23.7
million shares (after giving effect to a one-for-one stock dividend
in 1998 and the dividend of shares of The Sabre Group, Inc. via a
spin-off in 2000). The 1998 LTIP, the successor to the 1988 Long
Term Incentive Plan (1988 LTIP), will terminate no later than May
21, 2008.
In 2003, the Company established the 2003 Employee Stock Incentive
Plan (the 2003 Plan) to provide, among other things, equity awards
to employees as part of the 2003 restructuring process. Under the
2003 Plan, employees may be granted stock options, restricted stock
and deferred stock. As of April 19, 2006, no additional shares were
available for distribution under the 2003 Plan.
Options granted under the 1988 LTIP, 1998 LTIP and the 2003 Plan
are awarded with an exercise price equal to the fair market value
of the stock on date of grant, become exercisable in equal annual
installments over periods ranging from two to five years following
the date of grant and expire no later than ten years from the date
of grant. As of September 30, 2006, approximately 4.0 million
options/SARs outstanding under the 1998 LTIP and 2003 Plan had not
vested.
Prior to January 1, 2006, the Company accounted 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
was recognized for stock option grants if the exercise price of the
Company's stock option grants was at or above the fair market value
of the underlying stock on the date of grant. Effective January 1,
2006, the Company adopted the fair value recognition provisions of
Statement of Financial Accounting Standards No. 123(R), "Share-
Based Payment" (SFAS 123(R)) using the modified-prospective
transition method. Under this transition method, compensation cost
recognized in 2006 includes: (a) compensation cost for all share-
based payments granted prior to, but not yet vested as of January
1, 2006, based on the grant-date fair value used for pro forma
disclosures and (b) compensation cost for all share-based payments
granted subsequent to January 1, 2006, based on the grant-date fair
value estimated in accordance with the provisions of SFAS 123(R).
Results for prior periods have not been restated.
-4-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
As a result of adopting SFAS 123(R), the Company's net income for
the three months and nine months ended September 30, 2006, was $5
million and $21 million lower than if the Company had continued to
account for share-based compensation for stock options under APB
25. Basic and diluted earnings per share for the three months
ended September 30, 2006 were $0.02 lower than if the Company had
continued to account for share-based compensation for stock options
under APB 25. Basic and diluted earnings per share for the nine
months ended September 30, 2006 were $0.10 and $0.08 lower,
respectively, than if the Company had continued to account for
share-based compensation for stock options under APB 25.
Prior to January 1, 2006, the Company had adopted the pro forma
disclosure features of Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), as
amended by Statement of Financial Accounting Standards No. 148,
"Accounting for Stock-Based Compensation-Transition and
Disclosure." The following table illustrates the effect on net
earnings (loss) and earnings (loss) per share amounts if the
Company had applied the fair value recognition provisions of SFAS
123 to stock-based employee compensation (in millions, except per
share amounts):
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2005
Net earnings (loss), as reported $ (153) $ (257)
Add: Stock-based employee
compensation expense
included in reported net
earnings (loss) 8 26
Deduct: Total stock-based
employee compensation
expense determined under
fair value based methods
for all awards (22) (70)
Pro forma net earnings (loss) $ (167) $ (301)
Loss per share:
Basic and diluted - as reported $(0.93) $(1.58)
Basic and diluted - pro forma $(1.02) $(1.85)
On March 29, 2006, the AMR Board of Directors amended and restated
the 2003-2005 Performance Share Plan for Officers and Key
Employees, the 2004-2006 Performance Share Plan for Officers and
Key Employees, and the 2004 Agreements for Deferred Shares
(collectively, the Amended Plans). Before amendment, the plans
allowed for settlement only in cash. The plans were amended to
permit settlement in a combination of cash and/or stock; however,
the amendments did not impact the fair value of the obligations
under the three Amended Plans. The Company anticipates using all
currently available shares under the 1998 LTIP and the 2003 Plan to
satisfy obligations under the three Amended Plans, but, based on
current estimates, a portion of the obligations will be settled in
cash. The Company will account for these obligations prospectively
as a combination of liability and equity grants. In accordance
with SFAS 123(R), the Company reclassified $187 million from
Accrued liabilities to Additional paid-in capital, representing the
vested portions of the current estimated fair value of obligations
under all three of the Amended Plans that have been settled or are
expected to be settled with stock.
-5-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
3. As of September 30, 2006, the Company had commitments to acquire
an aggregate of 47 Boeing 737-800s and seven Boeing 777-200ERs in 2013
through 2016. Future payments for all aircraft, including the
estimated amounts for price escalation, will be approximately $2.8
billion in 2011 through 2016.
4. Accumulated depreciation of owned equipment and property at
September 30, 2006 and December 31, 2005 was $11.0 billion and $10.4
billion, respectively. Accumulated amortization of equipment and
property under capital leases was $1.1 billion at September 30, 2006
and December 31, 2005.
5. As discussed in Note 8 to the consolidated financial statements
in the 2005 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 decreased $72 million during the nine
months ended September 30, 2006 to $1.3 billion as of September 30,
2006.
6. As of September 30, 2006, AMR has issued guarantees covering
approximately $1.7 billion of American's tax-exempt bond debt and
American's fully drawn $751 million credit facility. American has
issued guarantees covering approximately $1.1 billion of AMR's
unsecured debt. In addition, as of September 30, 2006, AMR and
American have issued guarantees covering approximately $388 million of
AMR Eagle's secured debt and AMR has issued guarantees covering an
additional $2.7 billion of AMR Eagle's secured debt.
On March 27, 2006, American refinanced its bank credit facility.
In general, the new credit facility adjusted the amounts borrowed
under the senior secured revolving credit facility and the senior
secured term loan facility, reduced the overall interest rate on
the combined credit facility and favorably modified certain debt
covenant requirements.
-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, 2006
and 2005 (in millions):
Pension Benefits
Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
Components of net periodic benefit cost
Service cost $ 100 $ 93 $ 299 $ 278
Interest cost 160 152 481 457
Expected return on assets (167) (164) (502) (493)
Amortization of:
Prior service cost 4 4 12 12
Unrecognized net loss 20 13 60 39
Net periodic benefit cost $ 117 $ 98 $ 350 $ 293
Other Postretirement Benefits
Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
Components of net periodic benefit cost
Service cost $ 20 $ 19 $ 58 $ 56
Interest cost 49 49 145 148
Expected return on assets (3) (3) (11) (10)
Amortization of:
Prior service cost (2) (2) (7) (7)
Unrecognized net loss - - 1 1
Net periodic benefit cost $ 64 $ 63 $ 186 $ 188
The Company contributed $184 million to its defined benefit pension
plans during the nine month period ended September 30, 2006, and
completed its required 2006 calendar year funding by contributing
an additional $39 million on October 13, 2006.
The Company expects to contribute approximately $364 million to its
defined benefit pension plans in 2007. The Company's estimates of
its defined benefit pension plan contributions reflect the
provisions of the Pension Funding Equity Act of 2004 and the
Pension Protection Act of 2006.
-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 charges during the
last few years. The following table summarizes the changes since
December 31, 2005 in the remaining accruals for these charges (in
millions):
Aircraft Facility
Charges Exit Costs Total
Remaining accrual at
December 31, 2005 $ 152 $ 36 $ 188
Adjustments (6) (16) (22)
Payments (18) (1) (19)
Remaining accrual at
September 30, 2006 $ 128 $ 19 $ 147
Cash outlays related to the accruals for aircraft charges and
facility exit costs will occur through 2017 and 2018, respectively.
9. The Company includes changes in the fair value of certain
derivative financial instruments that qualify for hedge accounting,
changes in minimum pension liabilities and unrealized gains and losses
on available-for-sale securities in comprehensive income (loss). For
the three months ended September 30, 2006 and 2005, comprehensive
income (loss) was $(31) million and $(121) million, respectively, and
for the nine months ended September 30, 2006 and 2005, comprehensive
income (loss) was $200 million and $(168) million, respectively. The
difference between net earnings (loss) and comprehensive income (loss)
for the three and nine months ended September 30, 2006 and 2005 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" (SFAS 133), 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 second quarter effectiveness
assessment, the Company determined that the majority of its
derivatives settling during the remainder of 2006 and in 2007 are
no longer expected to be highly effective in offsetting changes in
forecasted jet fuel purchases. As a result, effective on July 1,
2006, all subsequent changes in the fair value of those particular
derivative contracts are being recognized directly in earnings
rather than being deferred in Accumulated other comprehensive loss.
For the three month period ended September 30, 2006, a charge of
$99 million was recognized in Other income (expense) reflecting the
change in market value of the derivative contracts that no longer
qualify for hedge accounting. While no longer deemed highly
effective, on an economic basis, these derivatives will continue to
largely offset potential changes in the price of jet fuel. 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 earnings (loss) per share (in millions, except per share
data):
Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
Numerator:
Net earnings (loss) - numerator
for basic earnings (loss) per
share $ 15 $(153) $ 214 $(257)
Interest on senior convertible
notes - - 20 -
Net earnings (loss) adjusted
for interest on senior
convertible notes - numerator
for diluted earnings (loss)
per share $ 15 $(153) $ 234 $(257)
Denominator:
Denominator for basic earnings
(loss) per share - weighted-
average shares 213 164 201 163
Effect of dilutive securities:
Senior convertible notes - - 32 -
Employee options and shares 41 - 44 -
Assumed treasury shares purchased (17) - (18) -
Dilutive potential common shares 24 - 58 -
Denominator for diluted earnings
(loss) per share - adjusted
weighted-average shares 237 164 259 163
Basic earnings (loss) per share $ 0.07 $(0.93) $ 1.07 $(1.58)
Diluted earnings (loss) per $ 0.06 $(0.93) $ 0.91 $(1.58)
Approximately 13 million shares related to employee stock options
were not added to the denominator for the three months ended
September 30, 2006 because the options' exercise prices were
greater than the average market price of the common shares.
Additionally, approximately 32 million shares related to
convertible notes were not added to the denominator for the three
months ended September 30, 2006 because inclusion of such shares
would be antidilutive. Approximately 82 million shares issuable
upon conversion of the Company's convertible notes, employee stock
options and deferred stock were not added to the denominator for
the three months ended September 30, 2005 because inclusion of such
shares would be antidilutive.
For the nine months ended September 30, 2006, approximately 12
million shares related to employee stock options were not added to
the denominator because the options' exercise prices were greater
than the average market price of the common shares. Approximately
82 million shares issuable upon conversion of the Company's
convertible notes, employee stock options and deferred stock were
not added to the denominator for the nine months ended September
30, 2005 because inclusion of such shares would be antidilutive.
-9-
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
11.On September 29, 2006, the Financial Accounting Standards
Board (FASB) issued FASB Standard No. 158 "Employers' Accounting
for Defined Benefit Pension and Other Postretirement Plans, an
amendment of FASB Statements No. 87, 88, 106, and 132(R)". The
standard, among other things, requires the Company to:
- Recognize the funded status of the Company's defined benefit
plans in its consolidated financial statements.
- Recognize as a component of Other comprehensive loss the
actuarial gains and losses and the prior service costs and credits
that arise during the period but are not immediately recognized as
components of net periodic benefit cost.
The standard is effective for fiscal years ending after December
15, 2006. As of December 31, 2005, the required adjustment to the
Company's balance sheet would increase the liability for pension
and postretirement benefits and increase Accumulated other
comprehensive loss by approximately $1.0 billion.
On September 8, 2006, the FASB issued FASB Staff Position AUG AIR-1
(the FSP), "Accounting for Planned Major Maintenance Activities",
that reduces the number of acceptable methods of accounting for
planned major maintenance activities. Under the FSP, AMR Eagle
would be required to change its method of accounting for some
planned maintenance activities for certain aircraft types by
eliminating a $52 million accrual for future maintenance costs.
The FSP is applicable to fiscal years beginning after December 15,
2006 and requires retrospective application to all financial
statements presented in the Company's filings.
-10-
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," "may," "will," "should," and similar expressions are
intended to identify forward-looking statements. Similarly, statements
that describe the Company's objectives, plans or goals are 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 and industry
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: the materially weakened financial condition of the
Company, resulting from its significant losses in recent years; the
ability of the Company to generate additional revenues and
significantly reduce its costs; changes in economic and other
conditions beyond the Company's control, and the volatile results of
the Company's operations; the Company's substantial indebtedness and
other obligations; the ability of the Company to satisfy existing
financial or other covenants in certain of its credit agreements;
continued high fuel prices and further increases in the price of fuel,
and the availability of fuel; the fiercely competitive business
environment faced by the Company, and historically low fare levels;
competition with reorganized and reorganizing carriers; the Company's
reduced pricing power; the Company's likely need to raise additional
funds and its ability to do so on acceptable terms; changes in the
Company's business strategy; government regulation of the Company's
business; conflicts overseas or terrorist attacks; uncertainties with
respect to the Company's international operations; outbreaks of a
disease (such as SARS or avian flu) that affects travel behavior;
uncertainties with respect to the Company's relationships with
unionized and other employee work groups; increased insurance costs
and potential reductions of available insurance coverage; the
Company's ability to retain key management personnel; potential
failures or disruptions of the Company's computer, communications or
other technology systems; changes in the price of the Company's common
stock; and the ability of the Company to reach acceptable agreements
with third parties. Additional information concerning these and other
factors is contained in the Company's Securities and Exchange
Commission filings, including but not limited to the Company's 2005
Form 10-K (see in particular Item 1A "Risk Factors" in the 2005 Form
10-K).
Overview
The Company recorded net earnings of $15 million during the third
quarter of 2006 compared to a loss of $153 million in the same period
last year. The Company's third quarter 2006 results were impacted by
an improvement in unit revenues (passenger revenue per available seat
mile), offset by the continuing year-over-year increase in fuel prices
(although fuel prices moderated toward the end of the quarter) and a
$99 million charge to mark to market certain derivatives that no
longer qualify for hedge accounting under SFAS 133 (see Note 9 to the
condensed consolidated financial statements and the discussion below).
-11-
Mainline passenger unit revenues increased 7.7 percent for the third
quarter due to a 0.5 point load factor increase and a 7.0 percent
increase in passenger yield (passenger revenue per passenger mile)
compared to the same period in 2005. Passenger yield showed
significant year-over-year improvement as American has been successful
in implementing limited fare increases to partially offset the
continuing rise in the cost of fuel; however, 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 U.S. Bankruptcy Code; other
carriers that are better hedged against rising fuel costs and able to
better absorb the current high jet fuel prices; and fare
simplification efforts by certain carriers. The Company believes that
its reduced pricing power will persist indefinitely and possibly
permanently.
The price of jet fuel increased by 28.2 cents per gallon compared to
the third quarter of 2005. This price increase negatively impacted
fuel expense by $231 million during the quarter based on fuel
consumption of 817 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.
As a result of its second quarter effectiveness assessment, the
Company determined that more than 65 percent of its derivatives, based
on market value, settling during the remainder of 2006 and in 2007 are
no longer expected to be highly effective in offsetting changes in
forecasted jet fuel purchases. These contracts had previously risen
significantly in value and on June 30, 2006 had a market value of
approximately $133 million. As a result of the ineffectiveness
assessment on these derivatives, changes in market value subsequent to
June 30, 2006 are recognized directly in earnings ($99 million charge
as a component of Other income (expense) in the third quarter of
2006), while previously deferred gains in Other comprehensive loss
will continue to be deferred and recognized as a component of fuel
expense when the originally hedged jet fuel is used in operations.
While no longer deemed highly effective, on an economic basis, these
derivatives will continue to largely offset potential changes in the
price of jet fuel.
The Company's ability to become consistently profitable and its
ability to continue to fund its obligations on an ongoing basis will
depend on a number of factors, many of which are largely beyond the
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 1A (on pages 11-16) in the 2005 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 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 consistently profitable, if the overall industry
revenue environment does not continue to improve and fuel prices
remain at historically high levels for an extended period.
On October 13, 2006, the Wright Amendment Reform Act of 2006 (the Act)
was signed into law by the President. The Act is based on an
agreement by the cities of Dallas and Fort Worth, Texas, DFW
International Airport, Southwest Airlines, Inc., and the Company to
modify the Wright Amendment, which authorizes certain flight
operations at Dallas Love Field within limited geographic areas.
Among other things, the Act eventually eliminates domestic geographic
restrictions on operations while limiting the maximum number of gates
at Love Field. The Company believes the Act is a pragmatic resolution
of the issues related to the Wright Amendment and the use of Love
Field.
-12-
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 2005 Form 10-K. As of the
date of this Form 10-Q, 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. However, to maintain sufficient liquidity as
the Company continues to implement its restructuring and cost
reduction initiatives, and because the Company has significant debt,
lease and other obligations in the next several years, as well as
substantial pension funding obligations, the Company will likely 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 recent financial results,
substantial indebtedness, reduced credit ratings, high fuel prices,
historically weak revenues and the financial difficulties being
experienced in the airline industry. The inability of the Company to
obtain any necessary funding on acceptable terms would have a material
adverse impact on the ability of the Company to sustain its operations
over the long-term.
The Company's substantial indebtedness and other obligations could
have important consequences. For example, they 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 and other
obligations, 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 $305 million senior secured revolving credit facility with
a final maturity on June 17, 2009 and a fully drawn $446 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 $1.25 billion
for each quarterly period through the life of the Credit Facility. In
addition, the Credit Facility contains a covenant (the EBITDAR
Covenant) requiring AMR to maintain a ratio of cash flow (defined as
consolidated net income, before interest expense (less capitalized
interest), income taxes, depreciation and amortization and rentals,
adjusted for certain gains or losses and non-cash items) to fixed
charges (comprising interest expense (less capitalized interest) and
rentals). The required ratio was 1.10 to 1.00 for the four quarter
period ending September 30, 2006 and will increase gradually to 1.50
to 1.00 for the four quarter period ending June 30, 2009 and for each
four quarter period ending on each fiscal quarter thereafter. AMR and
American were in compliance with the Liquidity Covenant and the
EBITDAR covenant as of September 30, 2006 and expect to be able to
continue to comply with these covenants. 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 and otherwise adversely affect the Company.
-13-
Pension Funding Obligation
The Company contributed $184 million to its defined benefit pension
plans during the nine months ended September 30, 2006 and completed
its required 2006 calendar year funding by contributing an additional
$39 million on October 13, 2006.
The Company expects to contribute approximately $364 million to its
defined benefit pension plans in 2007. The Company's estimates of its
defined benefit pension plan contributions reflect the provisions of
the Pension Funding Equity Act of 2004 and the Pension Protection Act
of 2006.
Cash Flow Activity
At September 30, 2006, the Company had $5.1 billion in unrestricted
cash and short-term investments, an increase of $1.2 billion from
December 31, 2005. Net cash provided by operating activities in the
nine-month period ended September 30, 2006 was $1.7 billion, an
increase of $697 million over the same period in 2005. The increase
was primarily the result of improved economic conditions which allowed
the industry to increase fare levels. The Company contributed $184
million to its defined benefit pension plans in the first nine months
of 2006 compared to $288 million during the first nine months of 2005.
Capital expenditures for the first nine months of 2006 were $348
million and primarily included the acquisition of two Boeing 777-200ER
aircraft and the cost of improvements at New York's John F. Kennedy
airport (JFK). Substantially all of the Company's construction costs
at JFK are being reimbursed through a fund established from a previous
financing transaction.
During the second quarter of 2006, the Company completed a public
offering of 15,002,091 shares of its common stock. The Company
realized $400 million from the equity sale.
-14-
RESULTS OF OPERATIONS
For the Three Months Ended September 30, 2006 and 2005
Revenues
The Company's revenues increased approximately $362 million, or 6.6
percent, to $5.8 billion in the third quarter of 2006 compared to the
same period in 2005. American's passenger revenues increased by 5.2
percent, or $229 million, on a capacity (available seat mile) (ASM)
decrease of 2.4 percent. American's passenger load factor increased
0.5 points to 81.7 percent and passenger revenue yield per passenger
mile increased by 7.0 percent to 12.80 cents. This resulted in an
increase in American's passenger revenue per available seat mile
(RASM) of 7.7 percent to 10.46 cents. Following is additional
information regarding American's domestic and international RASM and
capacity based on geographic areas defined by the Department of
Transportation (DOT):
Three Months Ended September 30, 2006
RASM Y-O-Y ASMs Y-O-Y
(cents) Change (billions) Change
DOT Domestic 10.2 7.8% 28.2 (5.0)%
International 11.0 7.1 16.4 2.5
DOT Latin America 11.2 13.1 7.3 (3.1)
DOT Atlantic 11.4 1.9 6.9 3.6
DOT Pacific 9.0 8.0 2.2 21.3
The Company's Regional Affiliates include two wholly owned
subsidiaries, American Eagle Airlines, Inc. and Executive Airlines,
Inc. (collectively, AMR Eagle), and two independent carriers with
which American has capacity purchase agreements, Trans States
Airlines, Inc. (Trans States) and Chautauqua Airlines, Inc.
(Chautauqua).
Regional Affiliates' passenger revenues, which are based on industry
standard proration agreements for flights connecting to American
flights, increased $74 million, or 13.0 percent, to $644 million as a
result of increased capacity, load factors and passenger yield.
Regional affiliates' traffic increased 8.0 percent to 2.6 billion
revenue passenger miles (RPMs), while capacity increased 4.5 percent
to 3.5 billion ASMs, resulting in a 2.5 point increase in the
passenger load factor to 74.2 percent.
Cargo revenues increased 10.4 percent, or $20 million, to $213 million
primarily as a result of a $13 million increase in mail revenue and an
$8 million increase in fuel surcharges.
Other revenues increased 13.3 percent, or $39 million, to $333 million
due in part to 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 2.1 percent, or $117
million, to $5.6 billion in the third quarter of 2006 compared to the
third quarter of 2005. American's mainline operating expenses per ASM
in the third quarter of 2006 increased 3.8 percent compared to the
third quarter of 2005 to 11.02 cents. These increases are due
primarily to a 15.0 percent increase in American's price per gallon of
fuel in the third quarter of 2006 relative to the third quarter of
2005. 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 operating 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.
-15-
(in millions) Three Months
Ended Increase/
September 30, (Decrease) Percentage
Operating Expenses 2006 from 2005 Change
Wages, salaries and
benefits $ 1,694 $ 30 1.8%
Aircraft fuel 1,771 189 11.9 (a)
Other rentals and
landing fees 317 (20) (5.9)
Depreciation and
amortization 290 (2) (0.7)
Commissions, booking fees
and credit card expense 284 (8) (2.7)
Maintenance, materials
and repairs 252 (17) (6.3)
Aircraft rentals 154 6 4.1
Food service 133 (3) (2.2)
Other operating expenses 668 (58) (8.0) (b)
Total operating expenses $ 5,563 $ 117 2.1%
(a) Aircraft fuel expense increased primarily due to a 15.0 percent
increase in American's price per gallon of fuel (including the impact
of fuel hedging), partially offset by a 2.9 percent decrease in
American's fuel consumption.
(b) Other operating expenses decreased primarily due to a 2005 charge
of $80 million related to the termination of a contract, which was
partially offset by a $22 million credit for the reversal of an
insurance reserve.
Other Income (Expense)
Other income (expense), historically a net expense, increased $77
million due primarily to the impact of the Company's ineffective fuel
derivatives as discussed in Note 9 to the condensed consolidated
financial statements. Both interest income and interest expense
increased during 2006 versus 2005. Interest income increased due to
increases in interest rates and cash and short-term investment
balances. Interest expense increased due to an increase in interest
rates on variable rate debt instruments.
Income Tax
The Company did not record a net tax provision (benefit) associated
with its third quarter 2006 and 2005 earnings (losses) due to the
Company providing a valuation allowance, as discussed in Note 5 to the
condensed consolidated financial statements.
-16-
Operating Statistics
The following table provides statistical information for American and
Regional Affiliates for the three months ended September 30, 2006 and
2005.
Three Months Ended September 30,
2006 2005
American Airlines, Inc. Mainline Jet Operations
Revenue passenger miles (millions) 36,382 37,025
Available seat miles (millions) 44,532 45,613
Cargo ton miles (millions) 557 539
Passenger load factor 81.7% 81.2%
Passenger revenue yield per passenger
mile (cents) 12.80 11.96
Passenger revenue per available seat
mile (cents) 10.46 9.71
Cargo revenue yield per ton mile (cents) 38.32 36.03
Operating expenses per available seat mile,
excluding Regional Affiliates (cents) (*) 11.02 10.62
Fuel consumption (gallons, in millions) 741 763
Fuel price per gallon (cents) 215.8 187.6
Operating aircraft at period-end 699 727
Regional Affiliates
Revenue passenger miles (millions) 2,578 2,386
Available seat miles (millions) 3,475 3,326
Passenger load factor 74.2% 71.7%
(*) Excludes $702 million and $650 million of expense incurred
related to Regional Affiliates in 2006 and 2005, respectively.
Operating aircraft at September 30, 2006, included:
American Airlines Aircraft AMR Eagle Aircraft
Airbus A300-600R 34 Bombardier CRJ-700 25
Boeing 737-800 77 Embraer 135 39
Boeing 757-200 142 Embraer 140 59
Boeing 767-200 Extended Range 15 Embraer 145 108
Boeing 767-300 Extended Range 58 Super ATR 41
Boeing 777-200 Extended Range 46 Saab 340B/340B Plus 37
McDonnell Douglas MD-80 327 Total 309
Total 699
The average aircraft age for American's and AMR Eagle's aircraft is
13.7 years and 7.2 years, respectively.
Of the operating aircraft listed above, 24 McDonnell Douglas MD-80
aircraft - - 12 owned and 12 operating leased - - and eleven operating
leased Saab 340B Plus aircraft were in temporary storage as of
September 30, 2006.
-17-
Owned and leased aircraft not operated by the Company at September 30,
2006, included:
American Airlines Aircraft AMR Eagle Aircraft
Boeing 777-200 Extended Range 1 Embraer 145 10
Boeing 757-200 1 Saab 340B 37
Boeing 767-200 2 Total 47
Boeing 767-200 Extended Range 3
Fokker 100 4
McDonnell Douglas MD-80 26
Total 37
American leased its Boeing 777-200ER not operated by the Company to
The Boeing Company through January 2007.
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, 2006 and 2005
Revenues
The Company's revenues increased approximately $1.6 billion, or 10.4
percent, to $17.2 billion for the nine months ended September 30, 2006
from the same period last year. American's passenger revenues
increased 8.7 percent, or $1.1 billion, while capacity (ASM) decreased
by 1.2 percent. American's passenger load factor increased 1.8 points
to 80.6 percent and passenger revenue yield per passenger mile
increased by 7.5 percent to 12.82 cents. This resulted in an increase
in American's passenger RASM of 10.0 percent to 10.33 cents. Following
is additional information regarding American's domestic and
international RASM and capacity based on geographic areas defined by
the DOT:
Nine Months Ended September 30, 2006
RASM Y-O-Y ASMs Y-O-Y
(cents) Change (billions) Change
DOT Domestic 10.3 11.4% 84.2 (3.6)%
International 10.3 7.4 47.7 3.3
DOT Latin America 10.7 13.8 22.3 (2.9)
DOT Atlantic 10.5 2.7 19.1 5.4
DOT Pacific 8.4 1.3 6.3 23.1
Regional Affiliates' passenger revenues, which are based on industry
standard proration agreements for flights connecting to American
flights, increased $333 million, or 21.0 percent, to $1.9 billion as a
result of increased capacity, load factors and passenger yield.
Regional Affiliates' traffic increased 14.2 percent to 7.5 billion
revenue passenger miles (RPMs), while capacity increased 7.6 percent
to 10.2 billion ASMs, resulting in a 4.3 point increase in the
passenger load factor to 74.0 percent.
Cargo revenues increased 5.6 percent, or $32 million, to $605 million
as a result of a $28 million increase in fuel surcharges.
Other revenues increased 19.9 percent, or $170 million, to $1.0
billion due in part to increased third-party maintenance contracts
obtained by the Company's maintenance and engineering group and
increases in certain passenger fees.
-18-
Operating Expenses
The Company's total operating expenses increased 6.8 percent, or $1.0
billion, to $16.3 billion for the nine months ended September 30, 2006
compared to the same period in 2005. American's mainline operating
expenses per ASM in the nine months ended September 30, 2006 increased
7.3 percent compared to the same period in 2005 to 10.90 cents. These
increases are due primarily to a 25.8 percent increase in American's
price per gallon of fuel in 2006 relative to the same period in 2005,
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 2006 from 2005 Change
Wages, salaries and
benefits $ 5,103 $ 124 2.5%
Aircraft fuel 4,952 922 22.9 (a)
Other rentals and
landing fees 967 11 1.2
Depreciation and
amortization 868 - -
Commissions, booking fees
and credit card expense 839 (10) (1.2)
Maintenance, materials
and repairs 726 (35) (4.6)
Aircraft rentals 449 6 1.4
Food service 386 (2) (0.5)
Other operating expenses 2,001 22 1.1
Total operating expenses $ 16,291 $1,038 6.8%
(a) Aircraft fuel expense increased primarily due to a 25.8 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), partially offset by a 2.6 percent decrease in
American's fuel consumption.
Other Income (Expense)
Other income (expense), historically a net expense, increased $113
million due primarily to the impact of the Company's ineffective fuel
derivatives as discussed in Note 9 to the condensed consolidated
financial statements. Both interest income and interest expense
increased during 2006 versus 2005. Interest income increased due to
increases in interest rates and cash and short-term investment
balances. Interest expense increased due to an increase in interest
rates on variable rate debt instruments.
Income Tax
The Company did not record a net tax provision (benefit) associated
with its earnings (losses) for the nine months ended September 30,
2006 and 2005 due to the Company providing a valuation allowance, as
discussed in Note 5 to the condensed consolidated financial
statements.
-19-
Operating Statistics
The following table provides statistical information for American and
Regional Affiliates for the nine months ended September 30, 2006 and 2005.
Nine Months Ended September 30,
2006 2005
American Airlines, Inc. Mainline Jet Operations
Revenue passenger miles (millions) 106,253 105,147
Available seat miles (millions) 131,883 133,485
Cargo ton miles (millions) 1,640 1,636
Passenger load factor 80.6% 78.8%
Passenger revenue yield per passenger
mile (cents) 12.82 11.92
Passenger revenue per available seat
mile (cents) 10.33 9.39
Cargo revenue yield per ton mile (cents) 36.88 35.02
Operating expenses per available seat mile,
excluding Regional Affiliates (cents) (*) 10.90 10.16
Fuel consumption (gallons, in millions) 2,183 2,242
Fuel price per gallon (cents) (**) 205.0 162.9
Regional Affiliates
Revenue passenger miles (millions) 7,522 6,588
Available seat miles (millions) 10,168 9,452
Passenger load factor 74.0% 69.7%
(*) Excludes $2.0 billion and $1.9 billion of expense incurred
related to Regional Affiliates in 2006 and 2005, respectively.
(**) Includes the benefit of 2.5 cents per gallon impact from the
$55 million fuel excise tax refund in 2005.
Outlook
The Company currently expects fourth quarter mainline unit costs to
decrease more than four percent year over year. Capacity for
American's mainline jet operations in the fourth quarter is expected
to decrease approximately 0.5 percent year over year.
-20-
Item 3. Quantitative and Qualitative Disclosures about Market Risk
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 2005 Form 10-K. The
change in market risk for aircraft fuel is discussed below for
informational purposes due to the sensitivity of the Company's
financial results to changes in fuel prices.
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, 2006 cost per gallon of fuel. Based on
projected 2006 and 2007 fuel usage through September 30, 2007, such an
increase would result in an increase to aircraft fuel expense of
approximately $579 million in the twelve months ended September 30,
2007, inclusive of the impact of effective fuel hedge instruments
outstanding at September 30, 2006. Comparatively, based on projected
2006 fuel usage, such an increase would have resulted in an increase
to aircraft fuel expense of approximately $528 million in the twelve
months ended December 31, 2006, inclusive of the impact of effective
fuel hedge instruments outstanding at December 31, 2005. 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 second quarter effectiveness
assessment, the Company determined that more than 65 percent of its
derivatives, based on market value, settling during the remainder of
2006 and in 2007 are no longer expected to be highly effective in
offsetting changes in forecasted jet fuel purchases. As a result,
effective on July 1, 2006, all subsequent changes in the fair value of
those particular hedge contracts are being recognized directly in
earnings rather than being deferred in Accumulated other comprehensive
loss. On an economic basis, these derivatives will continue to largely
offset potential changes in the price of jet fuel. Hedge accounting
will continue to be applied to derivatives used to hedge forecasted
jet fuel purchases that are expected to remain highly effective.
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, 2006. 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,
2006. During the quarter ending on September 30, 2006, 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, American, AMR Eagle,
Airlines Reporting Corporation, and the Sabre Group Holdings, Inc. in
the United States District Court for the Central District of
California, Western Division (Westways World Travel, Inc. v. AMR
Corp., et al.). The lawsuit alleges that requiring travel agencies to
pay debit memos to American for violations of 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.
The plaintiffs sought to enjoin American from enforcing the pricing
rules in question and to recover the amounts paid for debit memos,
plus treble damages, attorneys' fees, and costs. On February 24, 2005,
the court decertified the class. The claims against Airlines
Reporting Corporation have been dismissed, and in September 2005, the
Court granted Summary Judgment in favor of the Company and all other
defendants. Plaintiffs have filed an appeal to the United States
Court of Appeals for the Ninth Circuit. Although the Company believes
that the litigation is without merit, a final adverse court decision
could impose restrictions on the Company's relationships with travel
agencies, which could have a material adverse impact on the Company.
Between April 3, 2003 and June 5, 2003, three lawsuits were filed by
travel agents, some of whom opted out of a prior class action (now
dismissed) to pursue their claims individually against American, other
airline defendants, and in one case against certain airline defendants
and Orbitz LLC. The cases, Tam Travel et. al., v. Delta Air Lines et.
al., in the United States District Court for the Northern District of
California, San Francisco (51 individual agencies), Paula Fausky d/b/a
Timeless Travel v. American Airlines, et. al, in the United States
District Court for the Northern District of Ohio, Eastern Division (29
agencies) and Swope Travel et al. v. Orbitz et. al. in the United
States District Court for the Eastern District of Texas, Beaumont
Division (71 agencies) were consolidated for pre-trial purposes in the
United States District Court for the Northern District of Ohio,
Eastern Division. Collectively, these lawsuits seek damages and
injunctive relief alleging that the certain airline defendants and
Orbitz LLC: (i) conspired to prevent travel agents from acting as
effective competitors in the distribution of airline tickets to
passengers in violation of Section 1 of the Sherman Act; (ii)
conspired to monopolize the distribution of common carrier air travel
between airports in the United States in violation of Section 2 of the
Sherman Act; and that (iii) between 1995 and the present, the airline
defendants conspired to reduce commissions paid to U.S.-based travel
agents in violation of Section 1 of the Sherman Act. On September 23,
2005, the Fausky plaintiffs dismissed their claims with prejudice. On
September 14, 2006, the court dismissed with prejudice 28 of the Swope
plaintiffs. American continues to vigorously defend these lawsuits.
A final adverse court decision awarding substantial money damages or
placing material restrictions on the Company's distribution practices
would have a material adverse impact on the Company.
Miami-Dade County (the County) is currently investigating and
remediating various environmental conditions at the Miami
International Airport (MIA) and funding the remediation costs through
landing fees and various cost recovery methods. American and AMR
Eagle have been named as potentially responsible parties (PRPs) for
the contamination at MIA. During the second quarter of 2001, the
County filed a lawsuit against 17 defendants, including American, in
an attempt to recover its past and future cleanup costs (Miami-Dade
County, Florida v. Advance Cargo Services, Inc., et al. in the Florida
Circuit Court). The Company is vigorously defending the lawsuit. In
addition to the 17 defendants named in the lawsuit, 243 other agencies
and companies were also named as PRPs and contributors to the
contamination. The case is currently stayed while the parties pursue
an alternative dispute resolution process. The County has proposed
draft allocation models for remedial costs for the Terminal and Tank
Farm areas of MIA. While it is anticipated that American and AMR
Eagle will be allocated equitable shares of remedial costs, the
Company does not expect the allocated amounts to have a material
adverse effect on the Company.
-22-
American is defending an appeal of a lawsuit, filed as a class action
but not certified as such, arising from allegedly improper failure to
refund certain governmental taxes and fees collected by American upon
the sale of nonrefundable tickets when such tickets are not used for
travel. In Harrington v. Delta Air Lines, Inc., et al., (filed
November 24, 2004 in the United States District Court for the District
of Massachusetts), the plaintiffs sought unspecified actual damages
(trebled), declaratory judgment, injunctive relief, costs, and
attorneys' fees. The suit asserted various causes of action,
including breach of contract, conversion, and unjust enrichment
against American and numerous other airline defendants. The defendants
filed a motion to dismiss which was granted. Plaintiffs have filed a
notice of appeal with the First Circuit Court of Appeals. American is
vigorously defending the suit and believes it to be without merit.
However, a final adverse court decision requiring American to refund
collected taxes and/or fees could have a material adverse impact on
the Company.
On March 11, 2004, a patent infringement lawsuit was filed against
AMR, American, AMR Eagle Holding Corporation, and American Eagle 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, and the plaintiff is pursuing such an
appeal. 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 a material
adverse impact on the Company.
On July 12, 2004, a consolidated class action complaint, that was
subsequently amended on November 30, 2004, was filed against American
and the Association of Professional Flight Attendants (APFA), the
Union which represents the American'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 American successfully reached with its unions in order to
avoid filing for bankruptcy in 2003. In a related case (Sherry
Cooper, et al. v. TWA Airlines, LLC, et al., also in the United States
District Court for the Eastern District of New York), the court denied
a preliminary injunction against implementation of the RPA on June 30,
2003. The Marcoux suit alleges various claims against the 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 American of provisions of the Railway Labor
Act (RLA) through improper coercion of flight attendants into voting
or changing their vote for ratification, and violations of the
Racketeer Influenced and Corrupt Organizations Act of 1970 (RICO). On
March 28, 2006, the district court dismissed all of various state law
claims against American, all but one of the LMRDA claims against the
APFA, and the claimed violations of RICO. This leaves the claimed
violations of the RLA and the duty of fair representation against
American and the APFA (as well as one LMRDA claim and one claim
against the APFA of a breach of the union constitution). Although the
Company believes the case against it is without merit and both
American and the Union are vigorously defending the lawsuit, a final
adverse court decision invalidating the RPA and awarding substantial
money damages would have a material adverse impact on the Company.
-23-
On February 14, 2006, the Antitrust Division of the United States
Department of Justice (the "DOJ") served the Company with a grand jury
subpoena as part of an ongoing investigation into possible criminal
violations of the antitrust laws by certain domestic and foreign air
cargo carriers. At this time, the Company does not believe it is a
target of the DOJ investigation. The New Zealand Commerce Commission
notified the Company on February 17, 2006 that it is also
investigating whether the Company and certain other cargo carriers
entered into agreements relating to fuel surcharges, security
surcharges, war risk surcharges, and customs clearance surcharges. On
February 22, 2006, the Company received a letter from the Swiss
Competition Commission informing the Company that it too is
investigating whether the Company and certain other cargo carriers
entered into agreements relating to fuel surcharges, security
surcharges, war risk surcharges, and customs clearance surcharges.
The Company intends to cooperate fully with these investigations. In
the event that these investigations uncover violations of the U.S.
antitrust laws or the competition laws of some other jurisdiction,
such findings and related legal proceedings could have a material
adverse impact on the Company. Approximately 38 purported class
action lawsuits have been filed against the Company and certain
foreign and domestic air carriers alleging that the defendants
violated U.S. antitrust laws by illegally conspiring to set prices and
surcharges on cargo shipments: Animal Land, Inc. v. Air Canada et al.
filed in the United States District Court for the Eastern District of
New York on February 17, 2006; Joan Adams v. British Airways et al.
filed in the United States District Court for the Eastern District of
New York on February 22, 2006; Rock International Transport v. Air
Canada et al. filed in the United States District Court for the
Eastern District of New York on February 24, 2006; Helen's Wooden
Crafting Co. v. Air Canada et al. filed in the United States District
Court for the Eastern District of New York on February 24, 2006; ABM
Int'l, Inc. v. Ace Aviation Holdings, Inc. et al. filed in the United
States District Court for the Eastern District of New York on February
28, 2006; Blumex USA, Inc. v. Air Canada et al. filed in the United
States District Court for the Northern District of Illinois on March
1, 2006; Mamlaka Video v. Air Canada et al. filed in the United States
District Court for the Eastern District of New York on March 3, 2006;
Spraying Systems Co. v. ACE Aviation Holdings, Inc. et al. filed in
the United States District Court for the Eastern District of New York
on March 3, 2006; Mitchell Spitz v. Air France-KLM et al. filed in the
United States District Court for the Eastern District of New York on
March 6, 2006; JCK Industries, Inc. v. British Airways, PLC et al.
filed in the United States District Court for the Eastern District of
New York on March 6, 2006; Marc Seligman v. Air Canada et al. filed in
the United States District Court for the Southern District of Florida
on March 6, 2006; CID Marketing and Promotion Inc. v. AMR Corporation
et al. filed in the United States District Court for the Eastern
District of Pennsylvania on March 7, 2006; Lynn Culver v. Air Canada
et al. filed in the United States District Court for the District of
Columbia on March 8, 2006; JSL Carpet Corp. v. ACE Aviation Holdings,
Inc. et al. filed in the United States District Court for the Eastern
District of New York on March 10, 2006; Y. Hata & Co, Ltd. v. Air
France-KLM et al. filed in the United States District Court for the
Northern District of California on March 13, 2006; FTS International
Express v. ACE Aviation Holdings, Inc. et al. filed in the United
States District Court for the District of Columbia on March 15, 2006;
Thule, Inc. v. Air Canada et al. filed in the United States District
Court for the Eastern District of New York on March 28, 2006; Rosetti
Handbags and Accessories, Ltd. v. Air France ADS et al. filed in the
United States District Court for the Eastern District of New York on
March 31, 2006; W.I.T. Entertainment Inc. v. AMR Corporation et al.
filed in the United States District Court for the Southern District of
Florida on April 3, 2006; Jeff Rapps v. British Airways PLC et al.
filed in the United States District Court for the Eastern District of
New York on April 7, 2006; Funke Design Build, Inc. v. AMR Corporation
et al. filed in the United States District Court for the Northern
District of Illinois on April 7, 2006; Sul-American Export Inc. v. Air
France ADS et al. filed in the United States District Court for the
Eastern District of New York on April 7, 2006; La Regale Ltd. v.
British Airways PLC et al. filed in the United States District Court
for the Eastern District of New York on April 12, 2006; J.A. Transport
Inc. v. ACE Aviation Holdings, Inc. et al. filed in the United States
District Court for the District of Columbia on April 12, 2006; Caribe
Air Cargo, Inc. v. ACE Aviation Holdings, Inc. et al. filed in the
United States District Court for the District of Columbia on April 13,
2006; Gold Eye Distributors, Inc. v. Air France ADS et al. filed in
the United States District Court for the Eastern District of New York
on April 14, 2006; Ralph Olarte v. British Airways PLC et al. filed in
the United States District Court for the District of Columbia on April
19, 2006; Capogiro LLC v. ACE Aviation Holdings, Inc. et al. filed in
the United States District Court for the District of Columbia on April
20, 2006; Ali Fayazi v. British Airways PLC et al. filed in the United
States District Court for the Eastern District of New York on April
26, 2006; Janice Perlman v. British Airways PLC et al. filed in the
United States District Court for the Eastern District of New York on
May 9, 2006; Leslie Young v. British Airways PLC et al. filed in the
United States District Court for the Eastern District of New York on
May 12, 2006; Craig Antell, M.D. v. British Airways PLC et al. filed
in the United States District Court for the Eastern District of New
York on May 16, 2006; Eurotrendz v. British Airways PLC et al. filed
in the United States District Court for the Eastern District of New
York on May 18, 2006; David Asher Rakoff v. British Airways PLC et al.
filed in the United States District Court for the Eastern District of
New York on May 22, 2006; Kalla Hirschbein v. British Airways PLC et
al. filed in the United States District Court for the Eastern District
of New York on June 1, 2006; Association des Utilisateurs du Transport
de Fret v. ACE Aviation Holdings, Inc. et al. filed in the United
States District Court for the District of Columbia on June 6, 2006;
and McDuffee New York, Inc. v. ACE Aviation Holdings, Inc. et al.
filed in the United States District Court for the Northern District of
Illinois on June 27, 2006. These cases have been consolidated in the
United States District Court for the Eastern District of New York,
together with approximately 47 other class action lawsuits in which
the Company has not been named as a defendant. Plaintiffs are seeking
trebled money damages and injunctive relief. American will vigorously
defend these lawsuits; however, any adverse judgment could have a
material adverse impact on the Company.
-24-
On June 20, 2006, DOJ served the Company with a grand jury subpoena as
part of an ongoing investigation into possible criminal violations of
the antitrust laws by certain domestic and foreign passenger carriers.
At this time, the Company does not believe it is a target of the DOJ
investigation. The Company intends to cooperate fully with this
investigation. In the event that this investigation uncovers
violations of the U.S. antitrust laws or the competition laws of some
other jurisdiction, such findings and related legal proceedings could
have a material adverse impact on the Company. Approximately 46
purported class action lawsuits have been filed against the Company
and certain foreign and domestic air carriers alleging that the
defendants violated U.S. antitrust laws by illegally conspiring to set
prices and surcharges for passenger transportation: Saldana v.
American Airlines, Inc. et al. filed in the United States District
Court for the Southern District of New York on June 23, 2006; McGovern
v. AMR Corporation, et al. filed in the United States District Court
for the Northern District of Illinois on June 23, 2006; Baharani v.
British Airways PLC et al. filed in the United States District Court
for the Southern District of Florida on June 23, 2006; Boccara v.
British Airways PLC et al. filed in the United States District Court
for the Northern District of Florida on June 23, 2006; Chin v. AMR
Corporation et al. filed in the United States District Court for the
Northern District of Illinois on June 26, 2006; McDuffee New York,
Inc. v. ACE Aviation Holdings, Inc. et al. filed in the United States
District Court for the Northern District of Illinois on June 27, 2006;
McGrath v. AMR Corporation et al. filed in the United States District
Court for the Northern District of Illinois on June 27, 2006; Fadden
v. AMR Corporation et al. filed in the United States District Court
for the Northern District of Illinois on June 28, 2006; Szelewski v.
AMR Corporation et al. filed in the United States District Court for
the Northern District of Illinois on June 28, 2006; Golin v. AMR
Corporation et al. filed in the United States District Court for the
Northern District of California on June 29, 2006; Mazzocco v. AMR
Corporation et al. filed in the United States District Court for the
Eastern District of New York on June 29, 2006; McIntyre Group, Ltd. v.
AMR Corporation et al. filed in the United States District Court for
the Northern District of California on June 29, 2006; Miller v.
British Airways PLC et al. filed in the United States District Court
for the Eastern District of Pennsylvania on June 29, 2006; Nelson v.
AMR Corporation filed in the United States District Court for the
Eastern District of New York on June 29, 2006; Weiss v. British
Airways PLC et al. filed in the United States District Court for the
Eastern District of Pennsylvania on June 30, 2006; Marco v. American
Airlines, Inc. et al. filed in the United States District Court for
the Central District of California on June 30, 2006; Finegan v.
British Airways PLC et al., filed in the United States District Court
for the Eastern District of New York on July 6, 2006; Sederholm v. AMR
Corp. et al. filed in the United States District Court for the
Northern District of Illinois on July 10, 2006; El-Demerdash v. AMR
Corp. et al. filed in the United States District Court for the
Northern District of Illinois on July 11, 2006; Molinaro v. British
Airways PLC et al. filed in the United States District Court for the
Eastern District of New York on July 11, 2006; El-Demerdash v. AMR
Corp. et al. filed in the United States District Court for the
Northern District of Illinois on July 13, 2006; Hastings v. American
Airlines, Inc. et al. filed in the United States District Court for
the Northern District of Illinois on July 13, 2006; Wayman v. British
Airways PLC et al. filed in the United States District Court for the
Northern District of Illinois on July 13, 2006; Waters v. British
Airways PLC et al. filed in the United States District Court for the
Eastern District of New York on July 14, 2006; Olmert v. American
Airlines, Inc. et al. filed in the United States District Court for
the Northern District of California on July 13, 2006; Fischer v.
British Airways PLC et al. filed in the United States District Court
for the Northern District of Illinois on July 17, 2006; Carney v.
British Airways et al. filed in the United States District Court for
the Northern District of Illinois on July 18, 2006; Hardingham v.
British Airways PLC et al. filed in the United States District Court
for the Northern District of California on July 18, 2006; Penrose v.
British Airways et al. filed in the United States District Court for
the Eastern District of New York on July 21, 2006; Taylor v. British
Airways et al. filed in the United States District Court for the
Northern District of California on July 21, 2006; Wolff v. British
Airways et al. filed in the United States District Court for the
Eastern District of New York on July 21, 2006; Harris v. British
Airways PLC et al. filed in the United States District Court for the
Northern District of California on July 25, 2006; Comeaux v. AMR Corp.
et al. filed in the United States District Court for the Southern
District of Texas on July 26, 2006; Oliff v. British Airways et al.
filed in the United States District Court for the Eastern District of
Virginia on July 26, 2005; Kastin v. AMR Corp. et al. filed in the
United States District Court for the Southern District of New York on
July 28, 2006; Page v. British Airways et al. filed in the United
States District Court for the Northern District of California on July
31, 2006; Van Meter v. British Airways et al. filed in the United
States District Court for the Northern District of Illinois on July
31, 2006; Vesely v. British Airways et al. filed in the United States
District Court for the Northern District of California on July 31,
2006; Davis v. British Airways et al. filed in the United States
District Court for the Northern District of California on August 1,
2006; Hecht v. AMR Corp., et al. filed in the United States District
Court for the Northern District of Illinois on August 3, 2006;
Lockmanese v. British Airways et al. filed in the United States
District Court for the Northern District of California on August 7,
2006; Martin v. American Airlines, Inc. et al. filed in the United
States District Court for the Southern District of Florida on August
9, 2006; Madnick v. AMR Corp. et al. filed in the United States
District Court for the Southern District of Florida on August 24,
2006; Szlavik v. American Airlines, Inc. et al. filed in the United
States District Court for the District of Maryland on August 31, 2006;
and Brennan v. British Airways, et al. filed in the United States
District Court for the Northern District of California on September 6,
2006. These cases are expected to be consolidated in an as yet
undetermined court together with approximately 49 other class action
lawsuits in which the Company has not been named as a defendant.
Plaintiffs are seeking trebled money damages and injunctive relief.
American will vigorously defend these lawsuits; however, any adverse
judgment could have a material adverse impact on the Company.
-25-
American is defending a lawsuit (Love Terminal Partners, L.P. et al.
v. The City of Dallas, Texas et al.) filed on July 17, 2006 in the
United States District Court in Dallas. The suit was brought by two
lessees of facilities at Dallas Love Field Airport against American,
the cities of Fort Worth and Dallas, Southwest Airlines, Inc., and the
Dallas/Fort Worth International Airport Board. The suit alleges that
an agreement by and between the five defendants with respect to Dallas
Love Field violates Sections 1 and 2 of the Sherman Act. Plaintiffs
seek injunctive relief and compensatory and statutory damages.
American will vigorously defend this lawsuit; however, any adverse
judgment could have a material adverse impact on the Company.
On August 21, 2006, a patent infringement lawsuit was filed against
American and American Beacon Advisors, Inc. (a wholly-owned subsidiary
of the Company), in the United States District Court for the Eastern
District of Texas (Ronald A. Katz Technology Licensing, L.P. v.
American Airlines, Inc., et al.). The plaintiff alleges that American
and American Beacon infringe a number of the plaintiff's patents, each
of which relates to automated telephone call processing systems. The
plaintiff is seeking past and future royalties, injunctive relief,
costs and attorneys' fees. Although the Company believes that the
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 automated
telephone call system operations would have a material adverse impact
on the Company.
-26-
Item 6. Exhibits
The following exhibits are included herein:
10.1 Form of Amendment of Stock Option Agreements Under the 1998 Long-
Term Incentive Plan to Add Stock Appreciation Rights.
12 Computation of ratio of earnings to fixed charges for the three
and nine months ended September 30, 2006 and 2005.
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).
-27-
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 20, 2006 BY: /s/ Thomas W. Horton
Thomas W. Horton
Executive Vice President and Chief
Financial Officer
(Principal Financial and Accounting Officer)
-28-