American Airlines 2005 Annual Report Download - page 34

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The Company’s cash flow from operating activities improved in 2005. Net cash provided by operating activities
during the year ended December 31, 2005 was $1.0 billion, an increase of $307 million over 2004, due primarily
to an improved revenue environment.
Capital expenditures during 2005 were $681 million and primarily included the acquisition of 20 Embraer 145
aircraft and the cost of improvements at JFK. A portion of the improvements at JFK were reimbursed to the
Company through a financing transaction discussed further above and in Note 6 to the consolidated financial
statements.
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 84 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, 2005, future lease payments
required under these leases totaled $2.6 billion.
Certain 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
$1.9 billion of these bonds (with total future payments of approximately $4.8 billion as of December 31, 2005) are
guaranteed by American, AMR, or both. Approximately $523 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: $28 million in 2006, $100 million in 2007, $218 million in 2008, $112
million in 2014 and $65 million in 2015. 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 $198 million of special facility revenue
bonds with mandatory tender provisions were successfully remarketed in 2005. They were acquired by American
in 2003 under a mandatory tender provision. Thus, the receipt by American of the proceeds from the remarketing
in July 2005 resulted in an increase to Other liabilities and deferred credits where the tendered bonds had been
classified pending their use to offset certain future operating lease obligations.
In addition, the Company has other operating leases, primarily for aircraft and airport facilities, with total future
lease payments of $4.8 billion as of December 31, 2005. Entering into aircraft leases allows the Company to
obtain aircraft without immediate cash outflows.