American Airlines 2005 Annual Report Download - page 36

33
5 Includes noncancelable commitments to purchase goods or services, primarily
construction related costs at JFK and information technology related support.
Substantially all of our construction costs at JFK will be reimbursed through a fund
established from a previous financing transaction. The Company has made estimates
as to the timing of certain payments primarily for construction related costs. The actual
timing of payments may vary from these estimates. Substantially all of the Company’s
purchase orders issued for other purchases in the ordinary course of business contain
a 30-day cancellation clause that allows the Company to cancel an order with 30 days
notice.
6 Includes expected other postretirement benefit payments through 2015.
7 Excludes a $2.3 billion accident liability, related to the Terrorist Attacks and flight 587,
recorded in Other liabilities and deferred credits, as discussed in Note 2 to the
consolidated financial statements. This liability is offset in its entirety by a receivable,
recorded in Other assets, which the Company expects to receive from insurance
carriers as claims are resolved.
Pension Obligations In addition to the commitments summarized above, the Company is required to make
contributions to its defined benefit pension plans under the minimum funding requirements of the Employee
Retirement Income Security Act (ERISA). The Company’s estimated 2006 contributions to its defined benefit
pension plans are approximately $250 million. This estimate reflects the provisions of the Pension Funding Equity
Act of 2004. (The effect of the Pension Funding Equity Act was to defer to later years a portion of the minimum
required contributions that would otherwise have been due for the 2004 and 2005 plan years.)
Under Generally Accepted Accounting Principles, the Company’s defined benefit plans are underfunded as of
December 31, 2005 by $3.2 billion based on the Projected Benefit Obligation (PBO) and by $2.3 billion based on
the Accumulated Benefit Obligation (ABO) (refer to Note 10 to the consolidated financial statements). The
Company’s funded status at December 31, 2005 under the relevant ERISA funding standard is similar to its
funded status using the ABO methodology. Due to uncertainties regarding significant assumptions involved in
estimating future required contributions to its defined benefit pension plans, such as interest rate levels, the
amount and timing of asset returns, and, in particular, the impact of proposed legislation currently pending the
reconciliation process of the U.S. Congress, the Company is not able to reasonably estimate its future required
contributions beyond 2006. However, absent significant legislative relief or significant favorable changes in
market conditions, or both, the Company could be required to fund in 2007 a majority of the underfunded balance
under the relevant ERISA funding standard. Even with significant legislative relief (including proposed airline-
specific relief), the Company’s 2007 required minimum contributions are expected to be higher than the
Company’s 2006 contributions.
Results of Operations
The Company incurred an $861 million net loss in 2005 compared to a net loss of $761 million in 2004. The
Company’s 2005 results were impacted by the continuing increase in fuel prices and certain other costs, offset by
an improvement in revenues, a $108 million decrease in depreciation expense related to a change in the
depreciable lives of certain aircraft types described in Note 1 to the consolidated financial statements, and
productivity improvements and other cost reductions resulting from progress under the Turnaround Plan. The
Company’s 2005 results were also impacted by a $155 million aircraft charge, a $73 million facility charge, an $80
million charge for the termination of a contract, a $37 million gain related to the resolution of a debt restructuring
and a $22 million credit for the reversal of an insurance reserve. All of these amounts are included in Other
operating expenses in the consolidated statement of operations, except for a portion of the facility charge which is
included in Other rentals and landing fees. Also included in the 2005 results was a $69 million fuel tax credit. Of
this amount, $55 million is included in Aircraft fuel expense and $14 million is included in Interest income in the
consolidated statement of operations. The Company’s 2004 results include a $146 million gain on the sale of the
Company’s remaining investment in Orbitz that is included in Miscellaneous, net in the consolidated statement of
operations and net restructuring charges of $11 million included in Other operating expenses in the consolidated
statement of operations. In addition, the Company did not record a tax benefit associated with its 2005 or 2004
losses.