American Airlines 2007 Annual Report Download - page 65

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6. Indebtedness (Continued)
In November 2005, the New York City Industrial Development Agency issued facilities sublease revenue bonds
for John F. Kennedy International Airport to provide reimbursement to American for certain facility construction
and other related costs. The Company recorded the issuance of $775 million (net of $25 million discount) as
long-term debt on the consolidated balance sheet as of December 31, 2005. The bonds bear interest at fixed
rates, with an average effective rate of 8.06 percent, and mature over various periods of time, with a final maturity
in 2031. Proceeds from the offering were to be used to reimburse costs associated with the Company’s terminal
construction project at JFK. As of December 31, 2007, the Company had $99 million held in a debt service
reserve fund for revenue bonds.
During the year ended December 31, 2005, AMR Eagle borrowed approximately $319 million, net of discount,
under various debt agreements related to the purchase of regional jet aircraft. These debt agreements are
secured by the related aircraft and have effective interest rates ranging from 5.00 percent to 5.13 percent. The
debt agreements are guaranteed by AMR and mature over various periods of time through 2021.
The Company has outstanding $324 million principal amount of its 4.50 percent senior convertible notes due
2024 (the 4.50 Notes) and $300 million principal amount of its 4.25 percent senior convertible notes due 2023
(the 4.25 Notes). Each note is convertible into AMR common stock at a conversion rate of 45.3515 shares for the
4.50 Notes and 57.61 shares for the 4.25 Notes, per $1,000 principal amount of notes (which represents an
equivalent conversion price of $22.05 per share for the 4.50 Notes and $17.36 per share for the 4.25 Notes),
subject to adjustment in certain circumstances. These notes are guaranteed by American. The 4.25 and 4.50
notes have become convertible into shares of AMR common stock, and as a result the holders may convert their
notes at any time prior to maturity. Any conversion of notes may be settled by the Company in cash, common
stock or a combination of cash and common stock. On each of February 15, 2009, 2014 and 2019 for the 4.50
Notes, and on September 23, 2008, 2013 and 2018 for the 4.25 notes, the holders may require us to purchase all
or a portion of their notes at a price equal to 100% of their principal amount plus unpaid interest which may be
paid in cash, common stock or a combination of cash and common stock. Accordingly, the Company reclassified
the $300 million principal amount of the 4.25 Notes to Current maturities of long term debt as the first put date for
those notes is during 2008. After February 15, 2009 and September 23, 2008, the Company may call all or any
portion of the 4.50 Notes and 4.25 Notes, respectively, for redemption. In such case, holders may still elect to
convert the notes into shares of AMR common stock, and any such conversions will be settled as described
above.
Certain debt is secured by aircraft, engines, equipment and other assets having a net book value of
approximately $10.7 billion as of December 31, 2007.
As of December 31, 2007, AMR has issued guarantees covering approximately $1.7 billion of American’s tax-
exempt bond debt and American has issued guarantees covering approximately $1.1 billion of AMR’s unsecured
debt. In addition, as of December 31, 2007, AMR and American have issued guarantees covering approximately
$347 million of AMR Eagle’s secured debt, and AMR has issued guarantees covering an additional $2.3 billion of
AMR Eagle’s secured debt.
Cash payments for interest, net of capitalized interest, were $861 million, $944 million and $828 million for 2007,
2006 and 2005, respectively.
7. Financial Instruments and Risk Management
As part of the Company's risk management program, AMR uses a variety of financial instruments, primarily fuel
option and collar contracts. The Company does not hold or issue derivative financial instruments for trading
purposes.