American Airlines 1998 Annual Report Download - page 54

52
SFAS 123 is applicable only to options and stock-based
awards granted subsequent to December 31, 1994, its
pro forma effect will not be fully reflected until 1999.
The Company’s pro forma net earnings and earnings
per share assuming the Company had accounted for its
employee stock options using the fair value method would
have resulted in 1998 net earnings of $1,311 million and
basic and diluted earnings per share of $7.76 and $7.51,
respectively, and 1997 net earnings of $960 million and
basic and diluted earnings per share of $5.38 and $5.25,
respectively. The pro forma impact of SFAS 123 on the
Company’s 1996 net earnings and earnings per share was
not material.
10.RETIREMENT BENEFITS
Substantially all employees of American and employees of
certain other subsidiaries are eligible to participate in pen-
sion plans. The defined benefit plans provide benefits for
participating employees based on years of service and aver-
age compensation for a specified period of time before
retirement. Airline pilots and flight engineers also partici-
pate in defined contribution plans for which Company
contributions are determined as a percentage of participant
compensation.
In October 1997, American spun off the portion of its
defined benefit pension plan applicable to employees of The
Sabre Group to the Legacy Pension Plan, a defined benefit
plan established by The Sabre Group effective January 1,
1997. At the date of the spin-off, the net obligation attribut-
able to The Sabre Group employees participating in
American’s plan was approximately $20 million. The Sabre
Group also established The Sabre Group Retirement Plan
(SGRP), a defined contribution plan. Upon establishment,
substantially all employees of The Sabre Group under the
age of 40 at December 31, 1996 and all new employees
began participating in the SGRP. Costs for the SGRP were
$16 million and $11 million in 1998 and 1997, respec-
tively.
In addition to pension benefits, other postretirement
benefits, including certain health care and life insurance
benefits, are also provided to retired employees. The
amount of health care benefits is limited to lifetime maxi-
mums as outlined in the plan. Substantially all employees of
American and employees of certain other subsidiaries may
become eligible for these benefits if they satisfy eligibility
requirements during their working lives.
Certain employee groups make contributions toward
funding a portion of their retiree health care benefits during
their working lives. AMR funds benefits as incurred and
makes contributions to match employee prefunding.
The following table provides a reconciliation of the
changes in the plans’ benefit obligations and fair value of
assets for the years ended December 31, 1998 and 1997,
and a statement of funded status as of December 31, 1998
and 1997 (in millions):
Pension Benefits Other Benefits
1998 1997 1998 1997
Reconciliation of
benefit obligation
Obligation at January 1 $5,825 $5,166 $1,398 $1,213
Service cost 224 189 57 48
Interest cost 430 403 103 95
Actuarial loss 330 475 81 109
Benefit payments (464) (408) (66) (67)
Settlements (16) - --
Obligation at December 31 $6,329 $5,825 $1,573 $1,398
Reconciliation of fair
value of plan assets
Fair value of plan
assets at January 1 $5,219 $4,617 $56$39
Actual return on plan assets 858 977 58
Employer contributions 78 33 76 76
Benefit payments (464) (408) (66) (67)
Settlements (16) - --
Fair value of plan assets
at December 31 $5,675 $5,219 $71$56
Funded status
Accumulated benefit
obligation (ABO) $5,187 $4,859 $1,573 $1,398
Projected benefit
obligation (PBO) 6,329 5,825 --
Fair value of assets 5,675 5,219 71 56
Funded status at December 31 (654) (606) (1,502) (1,342)
Unrecognized loss (gain) 709 788 (101) (179)
Unrecognized prior service cost 68 63 (46) (52)
Unrecognized transition asset (11) (20) --
Prepaid (accrued) benefit cost $112 $225 $(1,649) $(1,573)
At December 31, 1998 and 1997, plan assets of
approximately $111 million and $92 million, respectively,
were invested in shares of mutual funds managed by a
subsidiary of AMR.
189
403
475
977
33
(408)
5,825
5,219