American Airlines 2006 Annual Report Download - page 38

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5 Includes noncancelable commitments to purchase goods or services, primarily
construction related costs at JFK and information technology related support.
Substantially all of the Company’s 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 pension contributions based on actuarially determined estimates
and other postretirement benefit payments based on estimated payments through
2015. See Note 10 to the consolidated financial statements.
7 Excludes a $2.2 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 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). As included in the
table above, the Company’s estimated 2007 contributions to its defined benefit pension plans are approximately
$364 million. This estimate reflects the provisions of the Pension Funding Equity Act of 2004 and the Pension
Protection Act of 2006.
Results of Operations
The Company recorded net earnings of $231 million in 2006 compared to a net loss of $857 million in 2005. The
Company’s 2006 results reflected an improvement in revenues somewhat offset by fuel prices and certain other
costs that were higher in 2006 compared to 2005. The 2006 and 2005 results were impacted by a decrease in
depreciation expense of $108 million in each year related to a change in the depreciable lives of certain aircraft
types discussed further below, in Critical Accounting Policies in this Item 7, and 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. In addition, the Company did not record a
tax provision or benefit associated with its 2006 earnings or 2005 and 2004 losses.
Although the Company is currently receiving a depreciation expense benefit from the change in estimate of
depreciable lives discussed above, the Company’s operating expenses excluding depreciation will likely be higher
during the extended life of the MD-80 aircraft than they would be for new aircraft. For example, based on current
estimates, the Company’s MD-80 aircraft consume more fuel and incur higher maintenance expense than a new
aircraft that requires minimal maintenance during the first several years of operation.