American Airlines 2000 Annual Report Download - page 25

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5. IN DEBT EDN ESS
Long-term debt (excluding amounts maturing within
one year) consisted of (in millions):
December 31,
200 0 1999
Secured variable and fixed rate indebtedness
due through 2016 (effective rates
from 6.71%–9.597% at December 31, 2000) $3,2 09 $2,556
7.875%–10.62% notes due through 2039 345 812
9.0%–10.20% debentures due through 2021 3 32 437
6.0%–7.10% bonds due through 2031 1 76 176
Unsecured variable rate indebtedness
due through 2024 (3.55% at Decem-
ber 31, 2000) 86 86
Other 311
Long-term debt, less current maturities $4,1 51 $4,078
Maturities of long-term debt (including sinking
fund requirements) for the next five years are: 2001 –
$569 million; 2002 – $201 million; 2003 – $169 million;
2004 – $228 million; 2005 – $482 million.
During the third quarter of 2000, the Company
repurchased prior to scheduled maturity approximately
$167 million in face value of long-term debt. Cash from
operations provided the funding for the repurchases.
These transactions resulted in an extraordinary loss of
$14 million ($9 million after-tax).
American has $1.0 billion in credit facility
agreements that expire December 15, 2005, subject
to certain conditions. At American’s option, interest
on these agreements can be calculated on one of sev-
eral different bases. For most borrowings, American
would anticipate choosing a floating rate based upon
the London Interbank Offered Rate (LIBOR). At Decem-
ber 31, 2000, no borrowings were outstanding under
these agreements.
Certain debt is secured by aircraft, engines,
equipment and other assets having a net book value
of approximately $3.4 billion. In addition, certain of
American’s debt and credit facility agreements contain
restrictive covenants, including a minimum net worth
requirement, which could limit American’s ability to
pay dividends. At December 31, 2000, under the most
restrictive provisions of those debt and credit facility
agreements, approximately $1.5 billion of the retained
earnings of American was available for payment of divi-
dends to AMR.
Cash payments for interest, net of capitalized
interest, were $301 million, $237 million and $277 mil-
lion for 2000, 1999 and 1998, respectively.
6. FI NANCI AL INSTRU MENT S AND RI SK MANAGEM ENT
As part of the Company’s risk management program,
AMR uses a variety of financial instruments, including
interest rate swaps, fuel swap and option contracts,
and currency exchange agreements. The Company
does not hold or issue derivative financial instruments
for trading purposes.
Notional Amounts and Credit Exposures of
Derivatives The notional amounts of derivative finan-
cial instruments summarized in the tables which follow
do not represent amounts exchanged between the
parties and, therefore, are not a measure of the
Company’s exposure resulting from its use of deriva-
tives. The amounts exchanged are calculated based
on the notional amounts and other terms of the instru-
ments, which relate to interest rates, exchange rates or
other indices.
The Company is exposed to credit losses in the
event of non-performance by counterparties to these
financial instruments, but it does not expect any of the
counterparties to fail to meet its obligations. The credit
exposure related to these financial instruments is repre-
sented by the fair value of contracts with a positive fair
value at the reporting date, reduced by the effects of
master netting agreements. To manage credit risks, the
Company selects counterparties based on credit ratings,
limits its exposure to a single counterparty under
defined guidelines, and monitors the market position of
the program and its relative market position with each
counterparty. The Company also maintains industry-
standard security agreements with the majority of its
counterparties which may require the Company or the
counterparty to post collateral if the value of these
instruments falls below certain mark-to-market thresh-
olds. As of December 31, 2000, no collateral was
required under these agreements, and the Company
does not expect to post collateral in the near future.
Interest Rate Risk Management American utilizes inter-
est rate swap contracts to effectively convert a portion
of its fixed-rate obligations to floating-rate obligations.
These agreements involve the exchange of amounts
based on a floating interest rate for amounts based on