<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x]Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 1997.
[ ]Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period From to .
Commission file number 1-8400.
AMR Corporation
(Exact name of registrant as specified in its charter)
Delaware 75-1825172
(State or other (I.R.S. Employer
jurisdiction Identification No.)
of incorporation or
organization)
4333 Amon Carter Blvd.
Fort Worth, Texas 76155
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, (817) 963-1234
including area code
Not Applicable
(Former name, former address and former fiscal year , if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes No .
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Common Stock, $1 par value - 91,940,107 as of August 6, 1997
<PAGE> 2
INDEX
AMR CORPORATION
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Operations -- Three months ended June 30,
1997 and 1996; Six months ended June 30, 1997 and 1996
Condensed Consolidated Balance Sheet -- June 30, 1997 and December
31, 1996
Condensed Consolidated Statement of Cash Flows -- Six months ended
June 30, 1997 and 1996
Notes to Condensed Consolidated Financial Statements -- June 30,
1997
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
<PAGE> 3
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
AMR CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited) (In millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues
Airline Group:
Passenger - American
Airlines Inc. $3,641 $3,510 $7,031 $6,797
- AMR Eagle, Inc 256 266 504 533
Cargo 174 173 338 336
Other 221 210 425 407
4,292 4,159 8,298 8,073
The SABRE Group 447 410 887 838
Management Services Group 151 151 312 308
Less: Intergroup revenues (180) (170) (361) (361)
Total operating revenues 4,710 4,550 9,136 8,858
Expenses
Wages, salaries and
benefits 1,556 1,497 3,096 2,984
Aircraft fuel 471 470 991 911
Commissions to agents 329 321 643 636
Depreciation and
amortization 310 297 622 597
Other rentals and
landing fees 227 223 445 439
Maintenance materials
and repairs 219 170 414 338
Food service 173 173 334 329
Aircraft rentals 143 162 287 326
Other operating expenses 694 651 1,367 1,311
Total operating expenses 4,122 3,964 8,199 7,871
Operating Income 588 586 937 987
Other Income (Expense)
Interest income 31 16 58 32
Interest expense (99) (123) (202) (269)
Minority interest (10) - (22) -
Miscellaneous - net (6) 1 (10) (5)
(84) (106) (176) (242)
Earnings Before Income Taxes 504 480 761 745
Income tax provision 202 187 307 295
Net Earnings $ 302 $ 293 $ 454 $ 450
Earnings Per Common Share
Primary $ 3.26 $ 3.35 $ 4.92 $ 5.44
Fully Diluted $ 3.26 $ 3.20 $ 4.92 $ 5.04
Number of Shares Used in
Computation
Primary 92 87 92 83
Fully Diluted 92 92 92 92
</TABLE>
The accompanying notes are an integral part of these financial
statements.
-1-
<PAGE> 4
AMR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
(Unaudited) (Note 1)
Assets
<S> <C> <C>
Current Assets
Cash $ 22 $ 68
Short-term investments 2,177 1,743
Receivables, net 1,524 1,382
Inventories, net 613 633
Deferred income taxes 404 404
Other current assets 235 240
Total current assets 4,975 4,470
Equipment and Property
Flight equipment, net 9,048 9,251
Other equipment and property, net 1,871 1,882
10,919 11,133
Equipment and Property Under Capital Leases
Flight equipment, net 1,940 2,016
Other equipment and property, net 159 156
2,099 2,172
Route acquisition costs, net 959 974
Other assets, net 1,751 1,748
$ 20,703 $ 20,497
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 959 $ 1,068
Accrued liabilities 1,953 2,055
Air traffic liability 2,098 1,889
Current maturities of long-term debt 297 424
Current obligations under capital leases 135 130
Total current liabilities 5,442 5,566
Long-term debt, less current maturities 2,703 2,752
Obligations under capital leases, less
current obligations 1,703 1,790
Deferred income taxes 802 743
Other liabilities, deferred gains, deferred
credits and postretirement benefits 4,047 3,978
Stockholders' Equity
Common stock 91 91
Additional paid-in capital 3,207 3,166
Treasury stock (158) -
Retained earnings 2,866 2,411
6,006 5,668
$ 20,703 $ 20,497
</TABLE>
The accompanying notes are an integral part of these financial
statements.
-2-
<PAGE> 5
AMR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited) (In millions)
<TABLE>
<CAPTION>
Six Months Ended June
30,
1997 1996
<S> <C> <C>
Net Cash Provided by Operating Activities $1,059 $1,128
Cash Flow from Investing Activities:
Capital expenditures (461) (233)
Net decrease (increase) in
short-term investments (434) 11
Proceeds from sale of equipment and property 177 156
Net cash used for investing activities (718) (66)
Cash Flow from Financing Activities:
Payments on long-term debt and
capital lease obligations (261) (1,082)
Repurchases of common stock (158) -
Other 32 18
Net cash used for financing activities (387) (1,064)
Net decrease in cash (46) (2)
Cash at beginning of period 68 82
Cash at end of period $ 22 $ 80
Cash Payments For:
Interest $ 214 $ 280
Income taxes 231 282
</TABLE>
The accompanying notes are an integral part of these financial
statements.
-3-
<PAGE> 6
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, these
financial statements contain all adjustments, consisting of normal
recurring accruals, necessary to present fairly the financial
position, results of operations and cash flows for the periods
indicated. Results of operations for the periods presented herein
are not necessarily indicative of results of operations for the
entire year. The balance sheet at December 31, 1996 has been
derived from the audited financial statements at that date. For
further information, refer to the consolidated financial statements
and footnotes thereto included in the AMR Corporation (AMR or the
Company) Annual Report on Form 10-K for the year ended December 31,
1996.
2.Accumulated depreciation of owned equipment and property at June
30, 1997 and December 31, 1996, was $6.4 billion and $6.1 billion,
respectively. Accumulated amortization of equipment and property
under capital leases at June 30, 1997 and December 31, 1996, was
$1.0 billion and $971 million, respectively.
3.As discussed in the notes to the consolidated financial statements
included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, the Miami International Airport Authority
is currently remediating various environmental conditions at Miami
International Airport (Airport) and funding the remediation costs
through landing fee revenues. Future costs of the remediation
effort may be borne by carriers operating at the Airport, including
American Airlines, Inc. (American), through increased landing fees.
The ultimate resolution of this matter is not expected to have a
significant impact on the financial position or liquidity of AMR.
4.On May 5, 1997, the members of the Allied Pilots Association
ratified a new labor agreement that was reached with American in
March 1997. The new contract becomes amendable August 31, 2001.
Among other provisions, the agreement granted pilots options to buy
5.75 million shares of AMR stock at $83.375, $10 less than the
average fair market value of the stock on the date of grant, May 5,
1997. The options are immediately exercisable. To offset the
potential dilution from the exercise of these options, and as
previously announced, the Company intends to repurchase in the open
market or in private transactions from time to time up to 5.75
million shares of its common stock. A total of 1,902,575 shares
had been repurchased as of June 30, 1997.
5.On May 7, 1997, American confirmed the structure of its aircraft
acquisition arrangement with Boeing announced in November 1996.
The arrangement includes firm orders for 75 Boeing 737s, 12 Boeing
757s and four Boeing 767-300ERs, with deliveries commencing in 1998
and continuing through 2004. In June 1997, American confirmed an
order for seven Boeing 777-200IGW aircraft, to be delivered in
1999 and 2000. In addition to the firm orders, American
obtained "purchase rights" for additional aircraft. Subject to the
availability of delivery positions, some of which are guaranteed,
American has the right to acquire, at specified prices, new
standard-body aircraft with as little as 15 months prior notice;
wide-bodied acquisitions will require 18 months notice.
In April 1997, the Company announced that AMR Eagle will acquire 12
new ATR 72 (Super ATR) aircraft, with deliveries beginning in July
1997 and continuing through May 1998, and will remove its 11
remaining Shorts 360 aircraft from service by the end of September
1997. In June 1997, the Company announced that AMR Eagle will
acquire 67 regional jets. This includes a firm order for 42
Embraer EMB-145 aircraft, with deliveries beginning in February
1998 and continuing through November 1999, and a firm order for 25
Bombardier CRJ-700 aircraft, with deliveries beginning in the first
quarter of 2001 and continuing through the second quarter of 2003.
Payments for the firm-order aircraft noted above will approximate
$1.0 billion in 1997, $1.3 billion in 1998, $1.6 billion in 1999,
and $2.3 billion in 2000 and thereafter.
-4-
<PAGE> 7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6.On July 16, 1997, the Company announced that its board of directors
authorized management to repurchase up to an additional $500
million of its outstanding common stock in the open market or in
private transactions from time to time over a 24-month period.
-5-
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
For the Three Months Ended June 30, 1997 and 1996
Summary AMR recorded net earnings for the three months ended June 30,
1997, of $302 million, or $3.26 per common share. This compares to
net earnings of $293 million, or $3.35 per common share ($3.20
fully diluted) for the second quarter of 1996. AMR's operating
income of $588 million increased slightly compared to $586 million
for the same period in 1996.
AMR's operations fall within three major lines of business - the
Airline Group, which includes American Airlines, Inc.'s Passenger and
Cargo Divisions and AMR Eagle, Inc.; The SABRE Group, which includes
AMR's information technology and consulting businesses; and the
Management Services Group, which includes AMR's airline management,
aviation services, and investment service activities.
The following sections provide a discussion of AMR's results by
reporting segment, which are described in AMR's Annual Report on Form
10-K for the year ended December 31, 1996.
AIRLINE GROUP
FINANCIAL HIGHLIGHTS
(Unaudited) (Dollars in millions)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1997 1996
<S> <C> <C>
Revenues
Passenger - American Airlines, Inc. $3,641 $3,510
- AMR Eagle, Inc. 256 266
Cargo 174 173
Other 221 210
4,292 4,159
Expenses
Wages, salaries and benefits 1,345 1,306
Aircraft fuel 471 470
Commissions to agents 329 321
Depreciation and amortization 260 247
Other operating expenses 1,407 1,331
Total operating expenses 3,812 3,675
Operating Income 480 484
Other Income (Expense) (77) (105)
Earnings Before Income Taxes $ 403 $ 379
Average number of equivalent employees 90,500 87,800
</TABLE>
-6-
<PAGE> 9
Results of Operations (continued)
<TABLE>
<CAPTION>
OPERATING STATISTICS
Three Months Ended
June 30,
1997 1996
<S> <C> <C>
American Airlines Jet Operations
Revenue passenger miles (millions) 27,318 26,679
Available seat miles (millions) 38,738 38,440
Cargo ton miles (millions) 521 520
Passenger load factor 70.5% 69.4%
Breakeven load factor 60.0% 58.5%
Passenger revenue yield per passenger mile 13.33 13.16
(cents)
Passenger revenue per available seat mile 9.40 9.13
(cents)
Cargo revenue yield per ton mile (cents) 32.88 32.74
Operating expenses per available seat mile 9.15 8.84
(cents)
Fuel consumption (gallons, in millions) 697 687
Fuel price per gallon (cents) 65.3 66.0
Fuel price per gallon, excluding fuel tax 60.4 61.3
(cents)
Operating aircraft at period-end 644 637
AMR Eagle, Inc.
Revenue passenger miles (millions) 652 675
Available seat miles (millions) 1,047 1,102
Passenger load factor 62.3% 61.2%
Operating aircraft at period-end 203 227
</TABLE>
<TABLE>
<CAPTION>
Operating aircraft at June 30, 1997, included:
<S> <C> <C> <C>
Jet Aircraft: Regional Aircraft:
Airbus A300-600R 35 ATR 42 46
Boeing 727-200 81 Super ATR 33
Boeing 757-200 90 Saab 340B 90
Boeing 767-200 8 Saab 340B Plus 25
Boeing 767-200 Shorts 360 9
Extended Range 22
Boeing 767-300 Total 203
Extended Range 41
Fokker 100 75
McDonnell Douglas DC-10-10 13
McDonnell Douglas DC-10-30 5
McDonnell Douglas MD-11 14
McDonnell Douglas MD-80 260
Total 644
</TABLE>
87.4% of the jet aircraft fleet is Stage III, a classification of
aircraft meeting noise standards as promulgated by the Federal
Aviation Administration.
Average aircraft age is 9.6 years for jet aircraft and 5.4 years for
regional aircraft.
-7-
<PAGE> 10
Results of Operations (continued)
The Airline Group's revenues increased $133 million or 3.2 percent in
the second quarter of 1997 versus the same period last year.
American's passenger revenues increased by 3.7 percent, $131 million.
American's yield (the average amount one passenger pays to fly one
mile) of 13.33 cents increased by 1.3 percent compared to the same
period in 1996. Domestic yields decreased 0.8 percent from second
quarter 1996. International yields increased 6.4 percent, due to a
9.0 percent increase in Latin America, an 8.5 percent increase in the
Pacific and a 3.1 percent increase in Europe.
American's traffic or revenue passenger miles (RPMs) increased 2.4
percent to 27.3 billion miles for the quarter ended June 30, 1997.
American's capacity or available seat miles (ASMs) increased 0.8
percent to 38.7 billion miles in the second quarter of 1997,
primarily as a result of seven additional operating aircraft.
American's domestic traffic increased 1.6 percent on capacity
increases of 0.6 percent and international traffic grew 4.2 percent
on capacity increases of 1.3 percent. The increase in international
traffic was driven by a 6.2 percent increase in traffic to Latin
America on capacity growth of 4.4 percent and a 3.7 percent increase
in traffic to Europe on a capacity decrease of 2.0 percent.
The Airline Group's operating expenses increased 3.7 percent, $137
million. American's Jet Operations cost per ASM increased 3.5
percent to 9.15 cents. Other operating expenses increased by $76
million, primarily as a result of a $48 million increase in
maintenance materials and repairs expense due to additional aircraft
check lines added at American's maintenance bases as a result of the
maturing of its fleet. Aircraft rentals decreased $19 million as a
result of American's decision to prepay the cancelable operating
leases it had on 12 of its Boeing 767-300 aircraft during June and
July 1996. Following the prepayments, these aircraft have been
accounted for as capital leases and the related costs included in
amortization expense.
Other Income (Expense) decreased 26.7 percent or $28 million.
Interest expense decreased $27 million primarily due to the
retirement of debt prior to scheduled maturity and the conversion in
May 1996 of $1.02 billion in convertible subordinated debentures.
Interest income increased approximately $11 million due to higher
investment balances.
-8-
<PAGE> 11
Results of Operations (continued)
THE SABRE GROUP
FINANCIAL HIGHLIGHTS
(Unaudited) (Dollars in millions)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1997 1996
<S> <C> <C>
Revenues $ 447 $ 410
Operating Expenses 354 329
Operating Income 93 81
Other Income (Expense) 3 (1)
Earnings Before Income Taxes $ 96 $ 80
Average number of equivalent employees 8,400 7,900
</TABLE>
Revenues
Revenues for The SABRE Group increased 9.0 percent, $37 million,
primarily due to growth in booking fees from associates. This growth
was driven by an increase in booking volumes, primarily in Europe and
Latin America, and an overall increase in the price per booking
charged to associates. Revenues from technology solution services
provided by The SABRE Group to its unaffiliated customers increased
approximately $6 million due to an increase in software development
and consulting and software license fee revenues.
Expenses
Operating expenses increased 7.6 percent, $25 million, due primarily
to an increase in salaries, benefits and employee related costs, and
subscriber incentive expenses. Salaries, benefits and employee
related costs increased due to an increase in the average number of
equivalent employees necessary to support The SABRE Group's revenue
growth and to annual salary increases. Employee related costs also
increased due to increased travel expenses. Subscriber incentive
expenses increased in order to maintain and grow The SABRE Group's
travel agency subscriber base.
-9-
<PAGE> 12
Results of Operations (continued)
MANAGEMENT SERVICES GROUP
FINANCIAL HIGHLIGHTS
(Unaudited) (Dollars in millions)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1997 1996
<S> <C> <C>
Revenues $ 151 $ 151
Operating Expenses 136 130
Operating Income 15 21
Other Income (Expense) - -
Earnings Before Income Taxes $ 15 $ 21
Average number of equivalent employees 15,500 14,800
</TABLE>
Revenues
Revenues for the Management Services Group for the second quarter of
1997 were comparable to the same period in 1996. AMR Services
Corporation experienced higher revenue as a result of increased
revenues provided by its AMR Distribution Systems division and
increased airline passenger, ramp and cargo handling services
provided by its AMR Airline Services division. This increase was
offset by lower revenue for AMR Combs due to the March 1997 sale of
its aircraft parts division and a reduction in fees for services
provided by Airline Management Services to Canadian Airlines
International Limited.
Expenses
Operating expenses increased 4.6 percent, $6 million, due primarily
to an increase in wages, salaries and benefits resulting from an
increase in the average number of equivalent employees.
-10-
<PAGE> 13
Results of Operations (continued)
For the Six Months Ended June 30, 1997 and 1996
Summary AMR recorded net earnings for the six months ended June 30,
1997, of $454 million, or $4.92 per common share. This compares with
net earnings of $450 million, or $5.44 per common share ($5.04 fully
diluted) for the same period in 1996. AMR's operating income
decreased 5.1 percent or $50 million.
AIRLINE GROUP
FINANCIAL HIGHLIGHTS
(Unaudited) (Dollars in millions)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1996
<S> <C> <C>
Revenues
Passenger - American Airlines, Inc. $7,031 $6,797
- AMR Eagle, Inc. 504 533
Cargo 338 336
Other 425 407
8,298 8,073
Expenses
Wages, salaries and benefits 2,679 2,607
Aircraft fuel 991 911
Commissions to agents 643 636
Depreciation and amortization 522 499
Other operating expenses 2,759 2,674
Total operating expenses 7,594 7,327
Operating Income 704 746
Other Income (Expense) (157) (239)
Earnings Before Income Taxes $ 547 $ 507
Average number of equivalent employees 90,200 88,900
</TABLE>
-11-
<PAGE> 14
Results of Operations (continued)
<TABLE>
<CAPTION>
OPERATING STATISTICS
Six Months Ended
June 30,
1997 1996
<S> <C> <C>
American Airlines Jet Operations
Revenue passenger miles (millions) 52,613 51,311
Available seat miles (millions) 76,258 75,994
Cargo ton miles (millions) 1,001 1,018
Passenger load factor 69.0% 67.5%
Breakeven load factor 61.4% 59.2%
Passenger revenue yield per passenger mile 13.36 13.25
(cents)
Passenger revenue per available seat mile 9.22 8.94
(cents)
Cargo revenue yield per ton mile (cents) 33.31 32.50
Operating expenses per available seat mile 9.27 8.91
(cents)
Fuel consumption (gallons, in millions) 1,370 1,350
Fuel price per gallon (cents) 69.9 65.0
Fuel price per gallon, excluding fuel tax 65.0 60.2
(cents)
Operating aircraft at period-end 644 637
AMR Eagle, Inc.
Revenue passenger miles (millions) 1,254 1,311
Available seat miles (millions) 2,090 2,239
Passenger load factor 60.0% 58.6%
Operating aircraft at period-end 203 227
</TABLE>
<PAGE> 15
Results of Operations (continued)
The Airline Group's revenues increased $225 million or 2.8 percent
during the first six months of 1997 versus the same period last year.
American's passenger revenues increased by 3.4 percent, $234 million.
American's yield (the average amount one passenger pays to fly one
mile) of 13.36 cents increased by 0.8 percent compared to the same
period in 1996. Domestic yields decreased 0.2 percent from the first
six months of 1996. International yields increased 3.5 percent,
reflecting a 4.4 percent increase in Latin America, a 1.9 percent
increase in Europe and a 1.1 percent increase in the Pacific.
American's traffic or revenue passenger miles (RPMs) increased 2.5
percent to 52.6 billion miles for the six months ended June 30, 1997.
American's capacity or available seat miles (ASMs) increased 0.3
percent to 76.3 billion miles in the first six months of 1997,
primarily as a result of seven additional operating aircraft.
American's domestic traffic increased 2.2 percent on capacity
increases of 0.5 percent and international traffic grew 3.3 percent
on capacity decreases of 0.1 percent. The overall increase in
international traffic was driven by a 7.8 percent increase in
traffic to Latin America on capacity growth of 3.2 percent,
partially offset by a 9.0 percent decrease in Pacific traffic on a
capacity decrease of 5.9 percent.
The Airline Group's operating expenses increased 3.6 percent, $267
million. American's Jet Operations cost per ASM increased by 4.0
percent to 9.27 cents. Aircraft fuel expense increased 8.8 percent,
$80 million, due primarily to a 7.5 percent increase in American's
average price per gallon including tax. Other operating expenses
increased by $85 million, primarily as a result of a $75 million
increase in maintenance materials and repairs expense due to
additional aircraft check lines added at American's maintenance bases
as a result of the maturing of its fleet. Aircraft rentals decreased
$39 million as a result of American's decision to prepay the
cancelable operating leases it had on 12 of its Boeing 767-300
aircraft during June and July 1996. Following the prepayments, these
aircraft have been accounted for as capital leases and the related
costs included in amortization expense.
Other Income (Expense) decreased 34.3 percent or $82 million.
Interest expense decreased $71 million primarily due to the
retirement of debt prior to scheduled maturity and the conversion in
May 1996 of $1.02 billion in convertible subordinated debentures.
Interest income increased approximately $20 million due to higher
investment balances.
-13-
<PAGE> 16
Results of Operations (continued)
THE SABRE GROUP
FINANCIAL HIGHLIGHTS
(Unaudited) (Dollars in millions)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1996
<S> <C> <C>
Revenues $ 887 $ 838
Operating Expenses 686 641
Operating Income 201 197
Other Income (Expense) 4 (2)
Earnings Before Income Taxes $ 205 $ 195
Average number of equivalent employees 8,300 7,900
</TABLE>
Revenues
Revenues for The SABRE Group increased 5.8 percent, $49 million,
primarily due to growth in booking fees from associates. This growth
was driven by an increase in booking volumes, primarily in Europe and
Latin America, and an overall increase in the price per booking
charged to associates. Revenues from technology solution services
provided by The SABRE Group to its unaffiliated customers increased
approximately $8 million due to an increase in software development
and consulting and software license fee revenues.
Expenses
Operating expenses increased 7.0 percent, $45 million, due primarily
to an increase in salaries, benefits and employee related costs, and
subscriber incentive expenses. Salaries, benefits and employee
related costs increased due to an increase in the average number of
equivalent employees necessary to support The SABRE Group's revenue
growth and to annual salary increases. Employee related costs also
increased due to increased travel expenses. Subscriber incentive
expenses increased in order to maintain and grow The SABRE Group's
travel agency subscriber base.
-14-
<PAGE> 17
Results of Operations (continued)
MANAGEMENT SERVICES GROUP
FINANCIAL HIGHLIGHTS
(Unaudited) (Dollars in millions)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1996
<S> <C> <C>
Revenues $ 312 $ 308
Operating Expenses 280 264
Operating Income 32 44
Other Income (Expense) (1) (1)
Earnings Before Income Taxes $ 31 $ 43
Average number of equivalent employees 15,500 14,100
</TABLE>
Revenues
Revenues for the Management Services Group increased 1.3 percent, or
$4 million. AMR Services Corporation experienced higher revenue as a
result of increased revenues provided by its AMR Distribution Systems
division and increased airline passenger, ramp and cargo handling
services provided by its AMR Airline Services division. This
increase was offset by lower revenue for AMR Combs due to the March
1997 sale of its aircraft parts division and a reduction in fees for
services provided by Airline Management Services to Canadian Airlines
International Limited.
Expenses
Operating expenses increased 6.1 percent, $16 million, due primarily
to an increase in wages, salaries and benefits resulting from an
increase in the average number of equivalent employees.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities in the six month period
ended June 30, 1997, was $1.1 billion, a decrease of $69 million over
the same period in 1996. Capital expenditures for the first six
months of 1997 were $461 million, and included purchase deposits on
new aircraft orders of $190 million. These capital expenditures were
financed with internally generated cash. Proceeds from the sale of
equipment and property of $177 million for the first six months of
1997 include proceeds received upon the delivery of two of American's
McDonnell Douglas MD-11 aircraft to Federal Express Corporation in
accordance with the 1995 agreement between the two parties.
On May 7, 1997, American confirmed the structure of its aircraft
acquisition arrangement with Boeing announced in November 1996. The
arrangement includes firm orders for 75 Boeing 737s, 12 Boeing 757s
and four Boeing 767-300ERs, with deliveries commencing in 1998 and
continuing through 2004. In June 1997, American confirmed an order
for seven Boeing 777-200IGW aircraft, to be delivered in 1999 and 2000.
In April 1997, the Company announced that AMR Eagle will acquire 12
new ATR 72 (Super ATR) aircraft, with deliveries beginning in July
1997 and continuing through May 1998, and will remove its 11
remaining Shorts 360 aircraft from service by the end of September
1997. In June 1997, the Company announced that AMR Eagle will
acquire 67 regional jets. This includes a firm order for 42 Embraer
EMB-145 aircraft, with deliveries beginning in February 1998 and
continuing through November 1999, and a firm order for 25 Bombardier
CRJ-700 aircraft, with deliveries beginning in the first quarter of
2001 and continuing through the second quarter of 2003.
-15-
<PAGE> 18
Results of Operations (continued)
Payments for the firm-order aircraft noted above will approximate
$1.0 billion in 1997, $1.3 billion in 1998, $1.6 billion in 1999, and
$2.3 billion in 2000 and thereafter.
As discussed in Note 4, in May 1997, the Company confirmed its intent
to repurchase in the open market or in private transactions from time
to time up to 5.75 million shares of its common stock to offset the
potential dilution from the exercise of the options granted to the
pilots. A total of 1,902,575 shares had been repurchased as of June
30.
In June 1997, Standard & Poor's raised its corporate credit ratings
and senior debt ratings of AMR Corporation and its subsidiary
American Airlines, Inc. to triple 'B' minus from double 'B' plus.
On July 16, 1997, the Company announced that its board of directors
authorized management to repurchase up to an additional $500 million
of its outstanding common stock in the open market or in private
transactions from time to time over a 24-month period.
Other
The Federal airline passenger excise tax, which was reimposed in the
first quarter of 1997, is scheduled to expire on September 30, 1997.
A replacement tax mechanism will take effect on October 1, 1997.
Over a five year period on a sliding scale, the airline ticket tax
will be reduced from ten percent to 7.5 percent and a $3 per
passenger segment fee will be phased in. Additionally, the fee for
international arrivals and departures will be increased from $6 per
departure to $12 for each arrival and departure and a 7.5 percent
tax will be added on the purchase of frequent flyer miles. The
ultimate impact of the new taxes on AMR cannot be determined at
this time.
-16-
<PAGE> 19
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
In January 1985, American announced a new fare category, the "Ultimate
SuperSaver," a discount, advance purchase fare that carried a 25
percent penalty upon cancellation. On December 30, 1985, a class
action lawsuit was filed in Circuit Court, Cook County, Illinois
entitled Johnson vs. American Airlines, Inc. The Johnson plaintiffs
allege that the 10 percent federal excise transportation tax should
have been excluded from the "fare" upon which the 25 percent penalty
was assessed. The case has not been certified as a class action.
Summary judgment was granted in favor of American but subsequently
reversed and vacated by the Illinois Appellate Court. American is
vigorously defending the lawsuit.
American has been sued in two class action cases that have been
consolidated in the Circuit Court of Cook County, Illinois, in
connection with certain changes made to American's AAdvantage frequent
flyer program in May 1988. (Wolens et al v. American Airlines, Inc.,
No. 88 CH 7554, and Tucker v. American Airlines, Inc., No. 89 CH 199.)
In both cases, the plaintiffs seek to represent all persons who joined
the AAdvantage program before May 1988. Although the complaint
originally involved numerous claims, after a January 18, 1995
preemption ruling by the U.S. Supreme Court, only the plaintiffs'
breach of contract claim remains. Currently, the plaintiffs allege
that in May 1988, American implemented changes that limited the number
of seats available to participants traveling on certain awards and
established blackout dates during which no AAdvantage seats would be
available for certain awards and that these changes breached
American's contracts with AAdvantage members. The case has not been
certified as a class action. Although the case has been pending for
numerous years, it still is in a preliminary stage. American is
vigorously defending the lawsuit. Plaintiffs seek money damages for
the alleged breach and attorneys' fees.
In December 1993, American announced that the number of miles
required to claim a certain travel award under American's AAdvantage
frequent flyer program would be increased effective February 1, 1995.
On February 1, 1995, a class action lawsuit entitled Gutterman vs.
American Airlines, Inc., was filed in the Circuit Court of Cook
County, Illinois. The Gutterman plaintiffs claim that this increase
in mileage level violated the terms and conditions of the agreement
between American and AAdvantage members. On February 9, 1995, a
virtually identical class action lawsuit entitled Benway vs. American
Airlines, Inc., was filed in District Court, Dallas County, Texas.
After limited discovery and prior to class certification, a summary
judgment dismissing the Benway case was entered by the Dallas County
court in July 1995. Although American's motion to dismiss the
Gutterman lawsuit was denied, American's motion for summary judgment
is still pending. No class has been certified in the Gutterman
lawsuit and to date only very limited discovery has been undertaken.
American is vigorously defending the lawsuit.
-17-
<PAGE> 20
PART II
Item 4. Submission of Matters to a vote of Security Holders
The owners of 73,958,787 shares of common stock, or 81 percent of
shares outstanding, were represented at the annual meeting of
stockholders on May 21, 1997 at The Omni Hotel Park West, 1590 LBJ
Freeway, Dallas, Texas.
Elected as directors of the Corporation, each receiving a minimum of
72,415,608 votes were:
David L. Boren Earl G. Graves
Edward A. Brennan Dee J. Kelly
Armando M. Codina Ann D. McLaughlin
Robert L. Crandall Charles H. Pistor, Jr.
Christopher F. Edley Joe M. Rodgers
Charles T. Fisher, III Maurice Segall
Stockholders ratified the appointment of Ernst & Young LLP as
independent auditors for the Corporation for 1997. The vote was
73,843,997 in favor; 53,721 against; and 61,069 abstaining.
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein:
11 Computation of earnings per share.
27 Financial Data Schedule.
On April 16, 1997, AMR filed a report on Form 8-K relative to the
Company's negotiations with the Allied Pilots Association and a press
release announcing the Company's first quarter 1997 earnings.
On July 16, 1997, AMR filed a report on Form 8-K relative to a press
release issued to report the Company's second quarter 1997 earnings
and to announce that the Company's board of directors authorized
management to repurchase additional shares of its outstanding common
stock.
-18-
<PAGE> 21
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
AMR CORPORATION
Date: August 13, 1997 BY: /s/ Gerard J. Arpey
Gerard J. Arpey
Senior Vice President and Chief
Financial Officer
-19-
<PAGE> 22
EXHIBIT 11
AMR CORPORATION
Computation of Earnings Per Share
(In millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Primary:
Earnings applicable to $ 302 $ 293 $ 454 $ 450
common shares
Average shares outstanding 90 86 91 81
Add shares issued upon
assumed conversion of
dilutive options, stock
appreciation rights
and warrants and shares
assumed issued for deferred
stock granted 7 3 4 4
Less assumed treasury
shares purchased (5) (2) (3) (2)
Total primary shares 92 87 92 83
Primary earnings per share $ 3.26 $ 3.35 $ 4.92 $ 5.44
Fully diluted:
Earnings applicable to 302 293 454 450
common shares
Adjustments:
Add interest upon
assumed conversion
of 6.125%
convertible subordinated
debentures, net of tax - 3 (a) - 14 (a)
Add dividends upon
assumedconversion of
convertible preferred
stock - - - 1
Earnings, as adjusted $ 302 $ 296 $ 454 $ 465
Average shares outstanding 90 86 91 81
Add shares issued upon:
Assumed conversion of
6.125% convertible
subordinated debentures - 4 - 8
Assumed conversion of
preferred stock - 1 - 1
Assumed conversion of
dilutive options,
stock appreciation
rights and warrants
and shares assumed
issued for deferred stock
granted 7 3 4 4
Less assumed treasury
shares purchased (5) (2) (3) (2)
Total fully diluted shares 92 92 92 92
Fully diluted
earnings per share $ 3.26 $ 3.20 $ 4.92 $ 5.04
</TABLE>
(a) Through date of actual conversion.
-20-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 22
<SECURITIES> 2,177
<RECEIVABLES> 1,544
<ALLOWANCES> 20
<INVENTORY> 613
<CURRENT-ASSETS> 4,975
<PP&E> 20,471
<DEPRECIATION> 7,453
<TOTAL-ASSETS> 20,703
<CURRENT-LIABILITIES> 5,442
<BONDS> 4,406
0
0
<COMMON> 3,140
<OTHER-SE> 2,866
<TOTAL-LIABILITY-AND-EQUITY> 20,703
<SALES> 0
<TOTAL-REVENUES> 9,136
<CGS> 0
<TOTAL-COSTS> 8,199
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 202
<INCOME-PRETAX> 761
<INCOME-TAX> 307
<INCOME-CONTINUING> 454
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 454
<EPS-PRIMARY> 4.92
<EPS-DILUTED> 4.92
</TABLE>
