American Airlines 2004 Annual Report Download - page 27

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Other Operating and Investing Activities
The Company’s cash flow from operating activities improved in 2004. Net cash provided by operating activities
during the year ended December 31, 2004 was $717 million, an increase of $116 million over 2003. Net cash
provided by operating activities in 2003 included the receipt of a $572 million federal income tax refund and the
receipt of $358 million from the U.S. government under the Emergency Wartime Supplemental Appropriations Act
(the Appropriations Act), offset by $521 million of redemption payments under operating leases for special facility
revenue bonds. The Company does not expect to receive significant additional federal income tax refunds.
Capital expenditures during 2004 were $1.0 billion and included the acquisition of 36 Embraer 145 and six
Bombardier CRJ-700 aircraft.
During 2003, the Company sold its interests in Worldspan, a computer reservations company, and Hotwire, a
discount travel website. The Company received $180 million in cash and a $39 million promissory note for its
interest in Worldspan. It received $84 million in cash, $80 million of which was recognized as a gain, for its interest
in Hotwire. In addition, during 2003, the Company sold a portion of its interest in Orbitz, a travel planning website,
in connection with an Orbitz initial public offering and a secondary offering resulting in total proceeds of $65 million,
and a gain of $70 million.
During 2004, the Company sold its remaining interest in Orbitz resulting in total proceeds of $185 million and a
gain of $146 million.
Working Capital
AMR (principally American) historically operates with a working capital deficit, as do most other airline companies.
In addition, the Company has historically relied heavily on external financing to fund capital expenditures. More
recently, the Company has also relied on external financing to fund operating losses.
Off Balance Sheet Arrangements
American has determined that it holds a significant variable interest in, but is not the primary beneficiary of, certain
trusts that are the lessors under 87 of its aircraft operating leases. These leases contain a fixed price purchase
option, which allows American to purchase the aircraft at a predetermined price on a specified date. However,
American does not guarantee the residual value of the aircraft. As of December 31, 2004, future lease payments
required under these leases totaled $2.9 billion.
Special facility revenue bonds have been issued by certain municipalities primarily to purchase equipment and
improve airport facilities that are leased by American and accounted for as operating leases. Approximately $1.7
billion of these bonds (with total future payments of approximately $4.6 billion as of December 31, 2004) are
guaranteed by American, AMR, or both. Approximately $532 million of these special facility revenue bonds contain
mandatory tender provisions that require American to make operating lease payments sufficient to repurchase the
bonds at various times: $104 million in 2005, $28 million in 2006, $100 million in 2007, $188 million in 2008 and
$112 million in 2014. Although American has the right to remarket the bonds, there can be no assurance that
these bonds will be successfully remarketed. Any payments to redeem or purchase bonds that are not
remarketed would generally reduce existing rent leveling accruals or be considered prepaid facility rentals and
would reduce future operating lease commitments. Approximately $112 million of special facility revenue bonds
with mandatory tender provisions were successfully remarketed in 2004.
In addition, the Company has other operating leases, primarily for aircraft, with total future lease payments of $4.9
billion as of December 31, 2004. Entering into aircraft leases allows the Company to obtain aircraft without
immediate cash outflows.