American Airlines 2008 Annual Report Download - page 76

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73
8. Income Taxes (Continued)
Cash payments (refunds) for income taxes were ($14) million, $7 million and $1 million for 2008, 2007 and 2006,
respectively.
Under special tax rules (the Section 382 Limitation), cumulative stock ownership changes among material
shareholders exceeding 50 percent during a 3-year period can potentially limit a company’s future use of net
operating losses and tax credits (NOL’s). The Section 382 limitation may be increased by certain “built-in gains,”
as provided by current IRS guidance. Based on available information, the Company believes it is not currently
subject to the Section 382 Limitation. If triggered under current conditions, the Section 382 limitation is not
expected to significantly impact the recorded value of deferred taxes or timing of utilization of the Company’s
NOL's.
9. Share Based Compensation
AMR grants stock compensation under two plans: the 1998 Long Term Incentive Plan and the 2003 Employee
Stock Incentive Plan (the 2003 Plan).
Under the 1998 Long Term Incentive Plan, as amended, officers and key employees of AMR and its subsidiaries
may be granted certain types of stock or performance based awards. At December 31, 2008, the Company had
stock option/settled stock appreciation right (SSAR) awards, performance share awards, deferred share awards
and other awards outstanding under this plan. The total number of common shares authorized for distribution
under the 1998 Long Term Incentive Plan is 23,700,000 shares. The 1998 Long Term Incentive Plan, the
successor to the 1988 Long Term Incentive Plan (collectively, the LTIP Plans), was terminated in 2008.
In 2003, the Company established the 2003 Plan to provide equity awards to employees. Under the 2003 Plan,
employees may be granted stock options/SSARs, restricted stock and deferred stock. At December 31, 2008, the
Company had stock options/SSARs and deferred awards outstanding under the 2003 Plan. The total number of
shares authorized for distribution under the 2003 Plan is 42,680,000 shares.
In 2008, 2007 and 2006, the total charge for share-based compensation expense included in wages, salaries and
benefits expense was $53 million, $131 million and $219 million, respectively. In 2008, 2007 and 2006, the
amount of cash used to settle equity instruments granted under share-based compensation plans was $24 million,
$11 million and $29 million, respectively.
Stock Options/SSARs During 2006, the AMR Board of Directors approved an amendment covering all of the
outstanding stock options previously granted under the LTIP Plans. The Amendment added to each of the
outstanding options an additional stock settled stock appreciation right (SSAR) in tandem with each of the then
outstanding stock options. The addition of the SSAR did not impact the fair value of the stock options, but simply
allowed the Company to settle the exercise of the option by issuing the net number of shares equal to the in-the-
money value of the option. This amendment is estimated to make available enough shares to permit the
Company to settle all outstanding performance and deferred share awards in stock rather than cash.
Options/SSARs granted under the LTIP Plans and the 2003 Plan are awarded with an exercise price equal to the
fair market value of the stock on date of grant, become exercisable in equal annual installments over periods
ranging from two to five years and expire no later than ten years from the date of grant. Expense for the options is
recognized on a straight-line basis. The fair value of each award is estimated on the date of grant using the
modified Black-Scholes option valuation model and the assumptions noted in the following table. Expected
volatilities are based on implied volatilities from traded options on the Company’s stock, historical volatility of the
Company’s stock, and other factors. The Company uses historical employee exercise data to estimate the
expected term of awards granted used in the valuation model. The risk-free rate is based on the U.S. Treasury
yield curve in effect at the time of grant. The dividend yield is assumed to be zero based on the Company’s history
and expectation of not paying dividends.