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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required] For fiscal year ended December 31, 1996.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
Commission file number 1-8400.
AMR CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 75-1825172
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
4333 Amon Carter Blvd.
Fort Worth, Texas 76155
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (817) 963-1234
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Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
Title of each class Name of exchange on which registered
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<S> <C>
Common stock, $1 par value per share New York Stock Exchange
8.10% Notes due 1998 New York Stock Exchange
9.00% Debentures due 2016 New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
NONE
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(Title of Class)
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 X No .
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 7, 1997, was approximately $7,602,875,066. As of March
7, 1997, 91,052,396 shares of the registrant's common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K incorporates by reference certain information from
the Proxy Statement for the Annual Meeting of Stockholders to be held May 21,
1997.
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PART I
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ITEM 1. BUSINESS
AMR Corporation (AMR or the Company) was incorporated in October 1982. AMR's
principal subsidiary, American Airlines, Inc. (American), was founded in 1934.
For financial reporting purposes, AMR's operations fall within three major
lines of business: the Airline Group, The SABRE Group and the Management
Services Group.
AIRLINE GROUP
The Airline Group consists primarily of American's Passenger and Cargo
divisions and AMR Eagle, Inc., a separate subsidiary of AMR.
AMERICAN'S PASSENGER DIVISION is one of the largest scheduled passenger
airlines in the world. At the end of 1996, American provided scheduled jet
service to more than 160 destinations throughout North America, the Caribbean,
Latin America, Europe and the Pacific.
AMERICAN'S CARGO DIVISION is one of the largest scheduled air freight carriers
in the world. It provides a full range of freight and mail services to shippers
throughout the airline's system. In addition, through cooperative agreements
with other carriers, it has the ability to transport shipments to virtually any
country in the world.
AMR EAGLE, INC. owns the four regional airlines which operate as
"American Eagle" -- Executive Airlines, Inc., Flagship Airlines, Inc.,
Simmons Airlines, Inc. and Wings West Airlines, Inc. The American Eagle
carriers provide connecting turboprop service from six of American's
high-traffic cities to smaller markets throughout the United States, Canada,
the Bahamas and the Caribbean.
THE SABRE GROUP
REORGANIZATION AMR formed The SABRE Group in 1993 to capitalize on the
synergies of combining its information technology businesses under common
management. Pursuant to a reorganization consummated on July 2, 1996 (the
Reorganization), The SABRE Group Holdings, Inc. (a holding company incorporated
on June 25, 1996 and a subsidiary of AMR) became the successor to the
businesses of The SABRE Group which were formerly operated as divisions or
subsidiaries of American or AMR. All references herein to "The SABRE Group"
include The SABRE Group Holdings, Inc. and its consolidated subsidiary and, for
any period prior to the Reorganization, the businesses of AMR constituting The
SABRE Group. On October 17, 1996, The SABRE Group completed an initial public
offering of 23,230,000 shares of its Class A common stock constituting
approximately 17.8 percent of its economic interest. AMR retained all of The
SABRE Group's Class B common stock, representing approximately 82.2 percent of
the economic interest and 97.9 percent of the combined voting power of all
classes of voting stock of The SABRE Group.
The SABRE Group is a world leader in the electronic distribution of
travel through its proprietary travel reservation and information system,
SABRE(R), and is the largest electronic distributor of travel in the United
States. In addition, The SABRE Group is a leading provider of solutions to the
airline industry and fulfills substantially all of the information technology
requirements of American and AMR's other subsidiaries.
ELECTRONIC TRAVEL DISTRIBUTION SABRE and other global distribution systems are
the principal means of air travel distribution in the United States and a
growing means of air travel distribution internationally. Through SABRE, travel
agencies, corporate travel departments and individual consumers can access
information on and book reservations with airlines and other providers of
travel and travel-related products and services. As of December 31, 1996,
travel agencies with more than 30,000 locations in over 70 countries on six
continents subscribed to SABRE, and three million individuals subscribed to
Travelocity(sm) and easySABRE(sm), The SABRE Group's consumer-direct products.
SABRE subscribers are able to make reservations with more than 400 airlines,
more than 50 car rental companies and more than 200 hotel companies covering
approximately 35,000 hotel properties worldwide.
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INFORMATION TECHNOLOGY SOLUTIONS The SABRE Group is a leading provider of
solutions, including software development and product sales, transactions
processing and consulting, to the airline industry and employs its airline
expertise to offer solutions to other industries that face similar complex
operations issues, including the airport, railroad, logistics, hospitality and
financial services industries. The SABRE Group also provides substantially all
of the data processing, network and distributed systems needs of American and
AMR's other subsidiaries.
MANAGEMENT SERVICES GROUP
The Management Services Group consists of four AMR subsidiaries -- AMR Services
Corporation, Americas Ground Services, Inc. (AGS), AMR Investment Services, Inc.
and Airline Management Services, Inc. (AMS).
AMR SERVICES CORPORATION has six operating divisions: AMR Airline Services, AMR
Combs, AMR Distribution Systems, TeleService Resources (TSR), Data Management
Services (DMS) and the AMR Training Group. The AMR Airline Services division's
main lines of business include airline passenger, ramp and cargo handling,
cabin service and an array of other air transportation-related services for
carriers around the world. AMR Airline Services is the primary provider of
service at 17 airports for American and has contracts with approximately 200
customers in 60 cities throughout North America, Europe and Asia. AMR Combs,
the executive aviation services division of AMR Services, is a premier
corporate aviation services network of 14 facilities in major business centers
in the United States and Mexico. AMR Distribution Systems serves the logistics
marketplace and specializes in logistics management, contract warehousing,
trucking and multi-modal freight forwarding services. TSR provides
comprehensive telemarketing and reservation services for a wide range of
corporate and hospitality industry clients. As a telemarketer, TSR serves a
substantial base of Fortune 500 companies with inbound and outbound
call-handling capabilities. TSR's reservations group is one of the world's
largest third-party, private-label reservation services companies. DMS provides
data capture and document management services to American and to companies in
the insurance, financial services and transportation industries. The AMR
Training Group operates the American Airlines Training & Conference Center and
provides a wide variety of training services to American and a number of other
corporate clients.
AGS provides airline ground and cabin service handling at 11 locations in eight
countries in the Caribbean and Central and South America.
AMR INVESTMENT SERVICES, INC. serves as an investment advisor to AMR and other
institutional investors. It also manages the American AAdvantage Funds, which
have both institutional shareholders--including pension funds, financial
advisors, corporations and banks--and individual shareholders. As of December
31, 1996, AMR Investment Services was responsible for management of
approximately $16.0 billion in assets, including direct management of
approximately $5.7 billion in short-term investments.
AMS was formed in 1994 to manage the Company's service contracts with other
airlines such as the agreement to provide a variety of management, technical
and administrative services to Canadian Airlines International Limited which
the Company signed in 1994.
Additional information regarding business segments is included in Management's
Discussion and Analysis on pages 16 through 28 and in Note 15 to the
consolidated financial statements.
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COMPETITION
AIR TRANSPORTATION Most major air carriers have developed hub-and-spoke systems
and schedule patterns in an effort to maximize the revenue potential of their
service. American operates four hubs: Dallas/Fort Worth, Chicago O'Hare, Miami
and San Juan, Puerto Rico. In 1995, American implemented schedule reductions
which ended the airline's hub operations at Raleigh/Durham and Nashville. Delta
Air Lines and United Airlines have hub operations at Dallas/Fort Worth and
Chicago O'Hare, respectively.
The American Eagle carriers increase the number of markets the Airline
Group serves by providing connections to American at its hubs and certain other
major airports. The American Eagle carriers serve smaller markets through
Dallas/Fort Worth, Chicago, Miami, San Juan, Los Angeles and New York John F.
Kennedy International Airport. American's competitors also own or have
marketing agreements with regional carriers which provide service at their
major hubs.
In addition to its extensive domestic service, American provides
international service to the Caribbean, Canada, Latin America, Europe and
Japan. American's operating revenues from foreign operations were approximately
$4.7 billion in 1996 and 1995, and $4.3 billion in 1994. Additional information
about the Company's foreign operations is included in Note 14 to the
consolidated financial statements.
Service over almost all of the Airline Group's routes is highly
competitive. Currently, any carrier deemed fit by the U.S. Department of
Transportation (DOT) is free to operate scheduled passenger service between any
two points within the U.S. and its possessions. On most of its non-stop routes,
the Airline Group competes with at least one, and usually more than one, major
domestic airline including: America West Airlines, Continental Airlines, Delta
Air Lines, Northwest Airlines, Southwest Airlines, Trans World Airlines, United
Airlines, and US Airways. Competition is even greater between cities that
require a connection, where as many as eight airlines may compete via their
respective hubs. The Airline Group also competes with national, regional,
all-cargo, and charter carriers and, particularly on shorter segments, ground
transportation.
On all of its routes, pricing decisions are affected by competition
from other airlines, some of which have cost structures significantly lower
than American's and can therefore operate profitably at lower fare levels.
Approximately 39 percent of American's bookings are impacted by competition
from lower-cost carriers. American and its principal competitors use inventory
management systems that permit them to vary the number of discount seats
offered on each flight in an effort to maximize revenues, yet still be price
competitive with lower-cost carriers.
Competition in many international markets is subject to extensive
government regulation. In these markets, American competes with foreign
investor-owned carriers, state-owned airlines and U.S. carriers that have been
granted authority to provide scheduled passenger and cargo service between the
U.S. and various overseas locations. American's operating authority in these
markets is subject to aviation agreements between the U.S. and the respective
countries, and in some cases, fares and schedules require the approval of the
DOT and the relevant foreign governments. Because international air
transportation is governed by bilateral or other agreements between the U.S.
and the foreign country or countries involved, changes in U.S. or foreign
government aviation policy could result in the alteration or termination of
such agreements, diminish the value of such route authorities, or otherwise
affect American's international operations. Bilateral agreements between the
U.S. and various foreign countries served by American are subject to frequent
renegotiation.
The major U.S. carriers have some advantage over foreign competitors in
their ability to generate traffic from their extensive domestic route systems.
In many cases, however, U.S. carriers are limited in their rights to carry
passengers beyond designated gateway cities in foreign countries. Some of
American's foreign competitors are owned and subsidized by foreign governments.
To improve their access to each others' markets, various U.S. and foreign
carriers--including American--have made substantial equity investments in, or
established marketing relationships with, other carriers. American currently
has code-sharing programs with Canadian Airlines International, Qantas Airways,
Singapore Airlines, South African Airways, Gulf Air, British Midland, LOT
Polish Airlines, and Aspen Mountain Air/Lone Star Airlines. Furthermore, in
June 1996, the Company announced its plans to create a worldwide alliance
between American and British Airways Plc. Subject to regulatory approval, the
two carriers will introduce extensive code sharing across each other's networks
and establish full reciprocity between their frequent flyer programs.
Additionally, the carriers will combine their passenger and
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cargo activities between the United States and Europe and will share the
resulting profits on these services. In the coming years, the Company expects to
develop these code-sharing programs further and to evaluate new alliances with
other international carriers.
The Airline Group believes that it has several advantages relative to
its competition. Its fleet is young, efficient and quiet. It has a
comprehensive domestic and international route structure, anchored by efficient
hubs, which permit it to take full advantage of whatever traffic growth occurs.
The Company believes American's AAdvantage frequent flyer program, which is the
largest program in the industry, and its superior service also give it a
competitive advantage.
GLOBAL DISTRIBUTION SYSTEMS The SABRE Group competes in electronic travel
distribution primarily against other large and well-established global
distribution systems. SABRE's principal competitors include Amadeus/System One,
Galileo/Apollo and Worldspan. Each of these competitors offers many products
and services similar to those of The SABRE Group.
Moreover, although certain barriers exist for any new provider of
electronic commerce--barriers such as the need for significant capital
investment to acquire or develop the hardware, software and network facilities
necessary to operate effectively a global distribution system--The SABRE
Group is faced with the threat of potential new competitors, particularly as
new channels for travel distribution develop.
Competition to attract and retain travel agent subscribers is very
intense. Factors affecting the competitive success of global distribution
systems include depth and breadth of information, ease of use, reliability,
service and incentives to travel agents and range of products available to
travel providers, travel agents and consumers.
Although distribution through travel agents continues to be the primary
method of travel distribution, new channels of direct distribution to
businesses and consumers through computer online services, the Internet and
private networks are developing. The SABRE Group faces competition in these new
channels not only from its principal competitors but also from possible new
entrants in the sale of travel products. The SABRE Group has positioned certain
products to compete in these emerging distribution channels.
REGULATION
GENERAL The Airline Deregulation Act of 1978, as amended, eliminated most
domestic economic regulation of passenger and freight transportation. However,
the DOT and the Federal Aviation Administration (FAA) still exercise certain
regulatory authority over air carriers under the Federal Aviation Act of 1958,
as amended. The DOT maintains jurisdiction over international route authorities
and certain consumer protection matters, such as advertising, denied boarding
compensation, baggage liability and computer reservations systems.
The FAA regulates flying operations generally, including establishing
personnel, aircraft and security standards. In addition, the FAA has
implemented a number of requirements that the Airline Group is incorporating
into its maintenance program. These matters relate to, among other things,
inspection and maintenance of aging aircraft, corrosion control, collision
avoidance and windshear detection. Based on its current implementation
schedule, the Airline Group expects to be in compliance with the applicable
requirements within the required time periods.
The U.S. Department of Justice has jurisdiction over airline antitrust
matters. The U.S. Postal Service has jurisdiction over certain aspects of the
transportation of mail and related services. Labor relations in the air
transportation industry are regulated under the Railway Labor Act, which vests
in the National Mediation Board certain regulatory powers with respect to
disputes between airlines and labor unions arising under collective bargaining
agreements.
AIRLINE FARES Airlines are permitted to establish their own domestic fares
without governmental regulation, and the industry is characterized by
substantial price competition. The DOT maintains authority over international
fares, rates and charges. International fares and rates are also subject to the
jurisdiction of the governments of the foreign countries which American serves.
While air carriers are required to file and adhere to international fare and
rate tariffs, many international markets are characterized by substantial
commissions, overrides, and discounts to travel agents, brokers and
wholesalers.
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Fare discounting by competitors has historically had a negative effect
on the Airline Group's financial results because the Airline Group is generally
required to match competitors' fares to maintain passenger traffic. During
recent years, a number of new low-cost airlines have entered the domestic
market and several major airlines have begun to implement efforts to lower
their cost structures. Further fare reductions, domestic and international, may
occur in the future. If fare reductions are not offset by increases in
passenger traffic or changes in the mix of traffic that improves yields, the
Airline Group's operating results will be negatively impacted.
AIRPORT ACCESS In 1968, the FAA issued a rule designating New York John F.
Kennedy, New York LaGuardia, Washington National, Chicago O'Hare and Newark
airports as high density traffic airports. Newark was subsequently removed from
the high density airport classification. The rule adopted hourly take-off and
landing slot allocations for each of these airports. Currently, the FAA permits
the purchasing, selling, leasing and trading of these slots by airlines and
others, subject to certain restrictions. Certain foreign airports, including
London Heathrow, a major European destination for American, also have slot
allocations.
The Airline Group currently has sufficient slot authorizations to
operate its existing flights and has generally been able to obtain slots to
expand its operations and change its schedules. However, there is no assurance
that American will be able to obtain slots for these purposes in the future
because, among other factors, slot allocations are subject to changes in
government policies.
ENVIRONMENTAL MATTERS The Company is subject to various laws and government
regulations concerning environmental matters and employee safety and health in
the U.S. and other countries. U.S. federal laws that have a particular impact
on the Company include the Airport Noise and Capacity Act of 1990 (ANCA), the
Clean Air Act, the Resource Conservation and Recovery Act, the Clean Water Act,
the Safe Drinking Water Act, and the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA or the Superfund Act). The Company is
also subject to the oversight of the Occupational Safety and Health
Administration (OSHA) concerning employee safety and health matters. The U.S.
Environmental Protection Agency (EPA), OSHA, and other federal agencies have
been authorized to promulgate regulations that have an impact on the Company's
operations. In addition to these federal activities, various states have been
delegated certain authorities under the aforementioned federal statutes. Many
state and local governments have adopted environmental and employee safety and
health laws and regulations, some of which are similar to federal requirements.
As a part of its continuing safety, health and environmental program, the
Company has maintained compliance with such requirements without any material
adverse effect on its business.
For purposes of noise standards, jet aircraft are rated by categories
or "stages." The ANCA requires the phase-out by December 31, 1999, of Stage II
aircraft operations, subject to certain exceptions. Under final regulations
issued by the FAA in 1991, air carriers are required to reduce, by modification
or retirement, the number of Stage II aircraft in their fleets 50 percent by
December 31, 1996; 75 percent by December 31, 1998; and 100 percent by December
31, 1999. Alternatively, a carrier may satisfy the regulations by operating a
fleet that is at least 65 percent, 75 percent, and 100 percent Stage III by the
dates set forth in the preceding sentence, respectively. At December 31, 1996,
approximately 88 percent of American's active fleet was Stage III, the quietest
and most fuel efficient rating category.
The ANCA recognizes the rights of airport operators with noise problems
to implement local noise abatement programs so long as they do not interfere
unreasonably with interstate or foreign commerce or the national air
transportation system. Authorities in several cities have promulgated aircraft
noise reduction programs, including the imposition of night-time curfews. The
ANCA generally requires FAA approval of local noise restrictions on Stage III
aircraft first effective after October 1990, and establishes a regulatory
notice and review process for local restrictions on Stage II aircraft first
proposed after October 1990. While American has had sufficient scheduling
flexibility to accommodate local noise restrictions imposed to date, American's
operations could be adversely affected if locally-imposed regulations become
more restrictive or widespread.
American has been identified by the EPA as a potentially responsible
party (PRP) at the Operating Industries, Inc. Superfund Site in California.
American has signed a partial consent decree with respect to this site and is
one of several PRPs named. American's alleged waste disposal volumes are minor
compared to the other PRPs.
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American, along with most other tenants at Boston Logan International
Airport, has been notified under the Massachusetts State Superfund statute of a
claim for contribution by the Massachusetts Port Authority (Massport). Massport
has claimed that American is responsible for past and future remediation costs
at the airport. American is vigorously defending against Massport's claim.
American, along with most other tenants at the San Francisco
International Airport, has been ordered by the California Regional Water
Quality Control Board to engage in various studies of potential environmental
contamination at the airport and to undertake remedial measures, if necessary.
The Miami International Airport Authority is currently remediating
various environmental conditions at the 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, through increased landing fees since certain of the PRPs
are no longer in business. The future increase in landing fees may be material
but cannot be reasonably estimated due to various factors, including the
unknown extent of the remedial actions that may be required, the proportion of
the cost that will ultimately be recovered from the responsible parties, and
uncertainties regarding the environmental agencies that will ultimately
supervise the remedial activities and the nature of that supervision.
American and American Eagle, along with other tenants at the Luis Munoz
Marin International Airport in San Juan, Puerto Rico have been named as PRPs
for environmental claims at the airport.
AMR Combs Memphis, an AMR Services subsidiary, has been named a PRP at
an EPA Superfund Site in West Memphis, Arkansas. AMR Combs Memphis' alleged
involvement in the site is minor relative to the other PRPs.
Flagship Airlines, Inc., an AMR Eagle subsidiary, has been notified of
its potential liability under New York law at an inactive hazardous waste site
in Poughkeepsie, New York.
AMR does not expect these matters, individually or collectively, to have
a significant impact on its financial position or liquidity.
GLOBAL DISTRIBUTION SYSTEMS Regulations promulgated by the DOT govern the
relationship of SABRE with airlines and travel agencies. The current form of
these regulations was adopted in 1992 and will expire on December 31, 1997,
unless extended.
One of the principal requirements of the regulations is that displays of
airline services by global distribution systems such as SABRE must be
nondiscriminatory. This means that the global distribution system may not use
carrier identity in ordering the display of services or in building connecting
flights. Travel agencies, however, may utilize software to override the neutral
displays of such systems. In addition, global distribution systems such as
SABRE are required to charge the same fees to all air carriers for the same
level of service and to update information for all air carriers with the same
degree of care and timeliness.
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LABOR
The airline business is labor intensive. Approximately 80 percent of AMR's
employees work in the Airline Group. Wages, salaries and benefits represented
approximately 37 percent of AMR's consolidated operating expenses for the year
ended December 31, 1996. To improve its competitive position, American has
undertaken various steps to reduce its unit labor costs, including workforce
reductions.
The majority of American's employees are represented by labor unions and
covered by collective bargaining agreements. American's relations with such
labor organizations are governed by the Railway Labor Act. Under this act, the
collective bargaining agreements among American and these organizations do not
expire but instead become amendable as of a stated date. If either party wishes
to modify the terms of any such agreement, it must notify the other party
before the contract becomes amendable. After receipt of such notice, the
parties must meet for direct negotiations, and if no agreement is reached,
either party may request the National Mediation Board (NMB) to appoint a
federal mediator. If no agreement is reached in mediation, the NMB may
determine, at any time, that an impasse exists, and if an impasse is declared,
the NMB proffers binding arbitration to the parties. Either party may decline
to submit to arbitration. If arbitration is rejected, a 30-day "cooling-off"
period commences, following which the labor organization may strike and the
airline may resort to "self-help," including the imposition of its proposed
amendments and the hiring of replacement workers.
In 1995, American reached agreements with the members of the Association
of Professional Flight Attendants (APFA) and the Transport Workers Union (TWU)
on their labor contracts. American's collective bargaining agreements with the
APFA and the TWU become amendable on November 1, 1998 and March 1, 2001,
respectively.
American's collective bargaining agreement with the Allied Pilots
Association (APA) became amendable on August 31, 1994. On September 2, 1996,
American and the APA reached a tentative agreement on a new labor contract. The
tentative agreement was approved by the APA Board of Directors and sent out for
membership ratification, but subsequently rejected by the APA membership. On
January 10, 1997, the NMB proffered binding arbitration to the APA and American.
American agreed to arbitration but because the APA did not also agree, the
proffer was rejected and on January 15, 1997, the APA and American were notified
(i) that the NMB was terminating its services and (ii) that beginning February
15, 1997, either party could resort to self-help remedies, including a strike by
the members of the APA. On February 15, 1997, the APA did initiate a strike
against American but immediately thereafter President Clinton intervened and
appointed a Presidential Emergency Board (PEB), pursuant to his authority under
the Railway Labor Act. The effect of President Clinton's actions was to stop the
strike and begin a process during which the PEB reviewed the positions advocated
by both parties. On March 19, 1997, before the PEB issued its recommendations,
American and the APA reached a second tentative agreement on a new contract. The
tentative agreement will be voted on by the APA Board of Directors in early
April 1997 and if approved, will be submitted to the APA membership for
ratification. If the tentative agreement is rejected by the APA, and unless the
Congress takes additional action, either party will be permitted to resort to
self-help remedies, which include, but are not limited to, a strike by members
of the APA. The Company and the APA have agreed to a timetable under which
neither party will resort to self-help remedies for a period of 30 days
following either (i) the failure of the APA Board to approve the tentative
agreement or (ii) the failure of the APA membership to ratify the tentative
agreement. Any work stoppage by the APA members would have a material adverse
impact on the company.
A majority of the workforces at the four AMR Eagle carriers is
represented by labor unions and covered by a number of different collective
bargaining agreements. Certain of these agreements are currently in
negotiation. A 1995 decision by the NMB provides that the four AMR Eagle
carriers are to be treated as a single carrier for the limited purpose of labor
relations, which has resulted in all employees within each specific unionized
job class or craft being represented by a single union for collective
bargaining purposes. This decision does not affect the current collective
bargaining agreements or the corporate status of the four carriers -- each
continues to be a separate company with its own operating certificate.
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FUEL
The Airline Group's operations are significantly affected by the availability
and price of jet fuel. American's fuel costs and consumption for the years 1992
through 1996 were:
<TABLE>
<CAPTION>
Average
Price Per
Gallon, Percent of
Gallons Average Price Excluding AMR's
Consumed Total Cost Per Gallon Fuel Tax Operating
Year (in millions) (in millions) (in cents) (in cents) Expenses
---- ------------- -------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
1992 2,862 $ 1,862 65.1 62.5 12.9
1993 2,939 1,818 61.8 59.1 12.0
1994 2,741 1,556 56.7 54.2 10.3
1995 2,749 1,565 56.9 53.8 9.8
1996 2,734 1,866 68.2 63.3 11.7
</TABLE>
Based upon American's 1996 fuel consumption, a one cent rise in the
average annual price-per-gallon of jet fuel would increase American's monthly
fuel costs by approximately $2.3 million, not considering the offsetting effect
of American's fuel cost hedging program.
The impact of fuel price changes on the Company's competitors is
dependent upon various factors, including their hedging strategies. However,
lower fuel prices may be offset by increased price competition and lower
revenues for all air carriers. Conversely, there can be no assurance that
American will be able to pass fuel cost increases on to its customers by
increasing fares in the future.
Most of American's fuel is purchased pursuant to contracts which, by
their terms, may be terminated upon short notice. While American does not
anticipate a significant reduction in fuel availability, dependency on foreign
imports of crude oil and the possibility of changes in government policy on jet
fuel production, transportation and marketing make it impossible to predict the
future availability of jet fuel. If there were major reductions in the
availability of jet fuel, American's business would be adversely affected.
FREQUENT FLYER PROGRAM
American established the AAdvantage frequent flyer program (AAdvantage) to
develop passenger loyalty by offering awards to travelers for their continued
patronage. AAdvantage members earn mileage credits for flights on American,
American Eagle and certain other participating airlines, or by utilizing
services of other program participants, including hotels, car rental companies
and bank credit card issuers. American sells mileage credits to the other
companies participating in the program. American reserves the right to change
the AAdvantage program rules, regulations, travel awards and special offers at
any time without notice. American may initiate changes impacting, for example,
participant affiliations, rules for earning mileage credit, mileage levels and
awards, blackout dates and limited seating for travel awards, and the features
of special offers. American reserves the right to end the AAdvantage program
with six months notice.
Mileage credits can be redeemed for free, discounted or upgraded travel
on American, American Eagle or participating airlines, or for other travel
industry awards. Once a member accrues sufficient mileage for an award, the
member may request an award certificate from American. Award certificates may
be redeemed up to one year after issuance. Most travel awards are subject to
blackout dates and capacity controlled seating. All miles earned after July
1989 must be redeemed within three years or they expire.
American accounts for its frequent flyer obligation on an accrual basis
using the incremental cost method. American's frequent flyer liability is
accrued each time a member accumulates sufficient mileage in his or her account
to claim the lowest level of free travel award (25,000 miles) and such award is
expected to be used for free travel. American includes fuel, food, and
reservations/ticketing costs, but not a contribution to overhead or profit, in
the calculation of incremental cost. The cost for fuel is estimated based on
total fuel consumption tracked by various categories of markets, with an amount
allocated to each passenger. Food costs are tracked
8
<PAGE> 10
by market category, with an amount allocated to each passenger. Reservation/
ticketing costs are based on the total number of passengers, including those
traveling on free awards, divided into American's total expense for these
costs. American defers a portion of revenues from the sale of mileage credits
to companies participating in the AAdvantage program and recognizes such
revenues over a period approximating the period during which the mileage
credits are used.
At December 31, 1996 and 1995, American estimated that approximately 5.3
million and 4.7 million free travel awards, respectively, were eligible for
redemption. At December 31, 1996 and 1995, American estimated that
approximately 4.5 million and 4.0 million free travel awards, respectively,
were expected to be redeemed for free travel. In making this estimate, American
has excluded mileage in inactive accounts, mileage related to accounts that
have not yet reached the lowest level of free travel award, and mileage in
active accounts that have reached the lowest level of free travel award but
which is not expected to ever be redeemed for free travel. The liability for
the program mileage that has reached the lowest level of free travel award and
is expected to be redeemed for free travel and deferred revenues for mileage
sold to others participating in the program was $469 million and $370 million,
representing 8.4 percent and 8.0 percent of AMR's total current liabilities at
December 31, 1996 and 1995, respectively.
The number of free travel awards used for travel on American during the
years ended December 31, 1996, 1995 and 1994, was approximately 2.2 million
each year, representing 8.4 percent of total revenue passenger miles at
December 31, 1996 and 1995, and 8.5 percent at December 31, 1994. American
believes displacement of revenue passengers is insignificant given American's
load factors, its ability to manage frequent flyer seat inventory, and the
relatively low ratio of free award usage to revenue passenger miles.
OTHER MATTERS
SEASONALITY AND OTHER FACTORS The Airline Group's results of operations for any
interim period are not necessarily indicative of those for the entire year,
since the air transportation business is subject to seasonal fluctuations.
Higher demand for air travel has traditionally resulted in more favorable
operating results for the second and third quarters of the year than for the
first and fourth quarters.
The results of operations in the air transportation business have also
significantly fluctuated in the past in response to general economic
conditions. In addition, fare initiatives, fluctuations in fuel prices, labor
actions and other factors could impact this seasonal pattern. Unaudited
quarterly financial data for the two-year period ended December 31, 1996, is
included in Note 16 to the consolidated financial statements.
No material part of the business of AMR and its subsidiaries is
dependent upon a single customer or very few customers. Consequently, the loss
of the Company's largest few customers would not have a materially adverse
effect upon AMR.
INSURANCE American carries insurance for public liability, passenger liability,
property damage and all-risk coverage for damage to its aircraft, in amounts
which, in the opinion of management, are adequate.
OTHER GOVERNMENT MATTERS In time of war or during an unlimited national
emergency or civil defense emergency, American and other major air carriers may
be required to provide airlift services to the Military Airlift Command under
the Civil Reserve Air Fleet program.
9
<PAGE> 11
ITEM 2. PROPERTIES
FLIGHT EQUIPMENT
Owned and leased aircraft operated by AMR's subsidiaries at December 31, 1996,
included:
<TABLE>
<CAPTION>
Weighted-
Current Average
Equipment Type Seating Capital Operating Age
Capacity Owned Leased Leased Total (Years)
- -------------------------------- ------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
JET AIRCRAFT
Airbus A300-600R 192/266/267 10 - 25 35 7
Boeing 727-200 150 64 14 - 78 20
Boeing 757-200 188 50 9 31 90 5
Boeing 767-200 172 8 - - 8 14
Boeing 767-200 Extended Range 165 9 13 - 22 11
Boeing 767-300 Extended Range 207 16 15 10 41 6
Fokker 100 97 66 5 4 75 4
McDonnell Douglas DC-10-10 237/290 11 1 - 12 19
McDonnell Douglas DC-10-30 271 4 1 - 5 22
McDonnell Douglas MD-11 238/255 16 - - 16 4
McDonnell Douglas MD-80 139 119 25 116 260 9
------- -------- ---------- ---------- --------
Total 373 83 186 642 9
======= ======== ========== ========== ========
REGIONAL AIRCRAFT
ATR 42 46 28 2 16 46 7
Super ATR 64 28 - 5 33 3
Saab 340B 34 29 61 - 90 3
Saab 340B Plus 34 - - 25 25 1
Shorts 360 33 - - 11 11 10
------- ------- ------- ------- -----
Total 85 63 57 205 4
======= ======= ======= ======= =====
</TABLE>
For information concerning the estimated useful lives and residual
values for owned aircraft, lease terms for leased aircraft, and amortization
relating to aircraft under capital leases, see Notes 1 and 4 to the
consolidated financial statements.
In April 1995, American announced an agreement to sell 12 of its
McDonnell Douglas MD-11 aircraft to Federal Express Corporation (FedEx). Three
aircraft were delivered in 1996 and the remaining nine aircraft will be
delivered between 1997 and 1999. In addition, American has the option to sell
its remaining seven MD-11 aircraft to FedEx with deliveries between 2000 and
2002.
10
<PAGE> 12
Lease expirations for leased aircraft operated by AMR's subsidiaries and
included in the preceding table as of December 31, 1996, were:
<TABLE>
<CAPTION>
2002
and
Equipment Type 1997 1998 1999 2000 2001 Thereafter
- -------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
JET AIRCRAFT
Airbus A300-600R - - - - - 25
Boeing 727-200 - - 2 4 8 -
Boeing 757-200 - - - 2 2 36
Boeing 767-200 Extended Range - - - - - 13
Boeing 767-300 Extended Range - - - 8 - 17
Fokker 100 - - - - 2 7
McDonnell Douglas DC-10-10 1 - - - - -
McDonnell Douglas DC-10-30 - 1 - - - -
McDonnell Douglas MD-80 - - - 3 9 129
========== ========== ========== ========== ========== ==========
1 1 2 17 21 227
========== ========== ========== ========== ========== ==========
REGIONAL AIRCRAFT
ATR 42 - - 3 4 - 3
Super ATR 2 - - - - -
Saab 340B - - - - - 61
Shorts 360 - - - - 11 -
========== ========== ========== ========== ========== ==========
2 - 3 4 11 64
========== ========== ========== ========== ========== ==========
</TABLE>
The table excludes leases for 25 Saab 340B Plus aircraft, eight ATR 42
aircraft, and three Super ATR aircraft which can be canceled with six months or
less notice with certain restrictions.
Substantially all of the Airline Group's aircraft leases include an
option to purchase the aircraft or to extend the lease term, or both, with the
purchase price or renewal rental to be based essentially on the market value of
the aircraft at the end of the term of the lease or at a predetermined fixed
rate.
GROUND PROPERTIES
American leases, or has built as leasehold improvements on leased property,
most of its airport and terminal facilities; certain corporate office,
maintenance and training facilities in Fort Worth, Texas; its principal
overhaul and maintenance base at Tulsa International Airport, Tulsa, Oklahoma;
its regional reservation offices; and local ticket and administration offices
throughout the system. American has entered into agreements with the Tulsa
Municipal Airport Trust; the Alliance Airport Authority, Fort Worth, Texas; and
the Dallas/Fort Worth, Chicago O'Hare, Raleigh/Durham, Nashville, San Juan, New
York, and Los Angeles airport authorities to provide funds for constructing,
improving and modifying facilities and acquiring equipment which are or will be
leased to American. American also utilizes public airports for its flight
operations under lease or use arrangements with the municipalities or
governmental agencies owning or controlling them and leases certain other
ground equipment for use at its facilities.
For information concerning the estimated lives and residual values for
owned ground properties, lease terms and amortization relating to ground
properties under capital leases, and acquisitions of ground properties, see
Notes 1, 3 and 4 to the consolidated financial statements.
11
<PAGE> 13
ITEM 3. 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 be excluded from the "fare" upon which the 25 percent
penalty is 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 believes the matter is without merit
and 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 believes the
matter is without merit and is vigorously defending it. 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 believes the Gutterman complaint is without merit and is
vigorously defending the lawsuit.
On February 10, 1995, American capped travel agency commissions for
one-way and round-trip domestic tickets at $25 and $50, respectively.
Immediately thereafter, numerous travel agencies, and two travel agency trade
association groups, filed class action lawsuits against American and other
major air carriers (Continental, Delta, Northwest, United, USAir and TWA) that
had independently imposed similar limits on travel agency commissions. The
suits were transferred to the United States District Court for the District of
Minnesota, and consolidated as a multi-district litigation captioned In Re:
Airline Travel Agency Commission Antitrust Litigation. On September 3, 1996,
American reached a tentative settlement with plaintiffs whereby American
agreed, inter alia, to pay $21.3 million in exchange for a release from all
claims. The court entered a final judgment approving the settlement on February
7, 1997.
12
<PAGE> 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during
the last quarter of its fiscal year ended December 31, 1996.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of AMR as of December 31, 1996, were:
Robert L. Crandall Mr. Crandall was elected Chairman and Chief Executive
Officer of AMR and American in March 1985. He has been
President of AMR since its formation in 1982 and served
as President of American from 1980 to March 1995. Age 61.
Donald J. Carty Mr. Carty was elected President of American in March
1995 and Executive Vice President of AMR in October
1989. Except for two years service as President of
Canadian Pacific Air between March 1985 and March 1987,
he has been with the Company in various finance and
planning positions since 1978. Age 50.
Gerard J. Arpey Mr. Arpey was elected Chief Financial Officer in
March 1995 and Senior Vice President in April 1992.
Prior to that, he served as Vice President of American
since October 1989. Age 38.
Anne H. McNamara Mrs. McNamara was elected Senior Vice President and
General Counsel in June 1988. She had served as Vice
President - Personnel Resources of American from
January 1988 through May 1988. She was elected
Corporate Secretary of AMR in 1982 and American in 1979
and held those positions through 1987. Age 49.
Charles D. MarLett Mr. MarLett was elected Corporate Secretary in January
1988. He joined American as an attorney in June 1984.
Age 42.
There are no family relationships among the executive officers of the
Company named above.
There have been no events under any bankruptcy act, no criminal
proceedings, and no judgments or injunctions material to the evaluation of the
ability and integrity of any director or executive officer during the past five
years.
13
<PAGE> 15
PART II
- --------------------------------------------------------------------------------
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange (symbol
AMR). The approximate number of record holders of the Company's common stock at
March 7, 1997, was 15,120.
The range of closing market prices for AMR's common stock on the New
York Stock Exchange was:
<TABLE>
<CAPTION>
1996 1995
------------------------------------- -------------------------------------
High Low High Low
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
QUARTER ENDED
March 31 $ 92 3/4 $ 68 5/8 $ 65 3/4 $ 54 7/8
June 30 96 3/4 86 1/2 76 1/4 64
September 30 91 1/8 76 3/4 79 3/4 68 1/8
December 31 93 79 3/8 78 64 3/8
</TABLE>
No cash dividends on common stock were declared for any period during
1996 or 1995. Payment of dividends is subject to the restrictions described in
Note 5 to the consolidated financial statements.
14
<PAGE> 16
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(in millions, except per share amounts)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total operating revenues $ 17,753 $ 16,910 $ 16,137 $ 15,816 $ 14,396
Operating income (loss) 1,839 1,015 1,006 690 (25)
Earnings (loss) before
extraordinary loss and
cumulative effect of
accounting changes 1,105 191 228 (96) (475)
Earnings (loss) before cumulative
effect of accounting changes 1,016 162 228 (110) (475)
Net earnings (loss) 1,016 162 228 (110) (935)
Earnings (loss) per common share
before extraordinary loss,
cumulative effect of
accounting changes,
and effect of preferred stock
exchange:(1)
Primary 12.64 2.48 2.26 (2.05) (6.35)
Fully diluted 12.15 2.48 2.26 (2.05) (6.35)
Net earnings (loss) per common share:
Primary 11.63 2.11 4.51 (2.23) (12.49)
Fully diluted 11.19 2.11 4.51 (2.23) (12.49)
Total assets 20,497 19,556 19,486 19,326 18,706
Long-term debt 2,752 4,983 5,603 5,431 5,643
Obligations under capital leases,
less current obligations 1,790 2,069 2,275 2,123 2,195
Obligation for postretirement
benefits 1,530 1,439 1,254 1,090 1,006
</TABLE>
(1) Information on the adjustment to the earnings per share computation for
the twelve months ended December 31, 1994, for the effect of the preferred
stock exchange is included in Note 5 to the consolidated financial
statements.
No dividends were declared on common shares during any of the periods above.
Effective January 1, 1992, AMR adopted Statements of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions," and No. 109, "Accounting for Income Taxes."
Information on the comparability of results is included in Management's
Discussion and Analysis and the notes to the consolidated financial statements.
15
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AMR was incorporated in October 1982. AMR's principal subsidiary, American
Airlines, Inc., was founded in 1934. For financial reporting purposes, AMR's
operations fall within three major lines of business: the Airline Group, The
SABRE Group and the Management Services Group.
AIRLINE GROUP
The Airline Group consists primarily of American's Passenger and Cargo
divisions and AMR Eagle, Inc., a separate subsidiary of AMR.
AMERICAN'S PASSENGER DIVISION is one of the largest scheduled passenger
airlines in the world. At the end of 1996, American provided scheduled jet
service to more than 160 destinations throughout North America, the Caribbean,
Latin America, Europe and the Pacific.
AMERICAN'S CARGO DIVISION is one of the largest scheduled air freight carriers
in the world. It provides a full range of freight and mail services to shippers
throughout the airline's system. In addition, through cooperative agreements
with other carriers, it has the ability to transport shipments to virtually any
country in the world.
AMR EAGLE, INC. owns the four regional airlines which operate as "American
Eagle"--Executive Airlines, Inc., Flagship Airlines, Inc., Simmons Airlines,
Inc. and Wings West Airlines, Inc. The American Eagle carriers provide
connecting turboprop service from six of American's high-traffic cities to
smaller markets throughout the United States, Canada, the Bahamas and the
Caribbean.
THE SABRE GROUP
The SABRE Group is a world leader in the electronic distribution of travel
through its proprietary travel reservation and information system, SABRE(R),
and is the largest electronic distributor of travel in the United States. In
addition, The SABRE Group is a leading provider of solutions to the airline
industry and fulfills substantially all of the information technology
requirements of American and AMR's other subsidiaries.
ELECTRONIC TRAVEL DISTRIBUTION SABRE and other global distribution systems are
the principal means of air travel distribution in the United States and a
growing means of air travel distribution internationally. Through SABRE, travel
agencies, corporate travel departments and individual consumers can access
information on and book reservations with airlines and other providers of
travel and travel-related products and services. As of December 31, 1996,
travel agencies with more than 30,000 locations in over 70 countries on six
continents subscribed to SABRE, and three million individuals subscribed to
Travelocity(sm) and easySABRE(sm), The SABRE Group's consumer-direct products.
SABRE subscribers are able to make reservations with more than 400 airlines,
more than 50 car rental companies and more than 200 hotel companies covering
approximately 35,000 hotel properties worldwide.
INFORMATION TECHNOLOGY SOLUTIONS The SABRE Group is a leading provider of
solutions, including software development and product sales, transactions
processing and consulting, to the airline industry and employs its airline
expertise to offer solutions to other industries that face similar complex
operations issues, including the airport, railroad, logistics, hospitality and
financial services industries. The SABRE Group also provides substantially all
of the data processing, network and distributed systems needs of American and
AMR's other subsidiaries.
MANAGEMENT SERVICES GROUP
The Management Services Group consists of four AMR subsidiaries -- AMR Services
Corporation, Americas Ground Services, Inc. (AGS), AMR Investment Services, Inc.
and Airline Management Services, Inc. (AMS).
AMR SERVICES CORPORATION has six operating divisions: AMR Airline Services, AMR
Combs, AMR Distribution Systems, TeleService Resources (TSR), Data Management
Services (DMS) and the AMR Training Group. The AMR Airline Services division's
main lines of business include airline passenger, ramp and cargo handling,
cabin
16
<PAGE> 18
service and an array of other air transportation-related services for carriers
around the world. AMR Airline Services is the primary provider of service at 17
airports for American and has contracts with approximately 200 customers in 60
cities throughout North America, Europe and Asia. AMR Combs, the executive
aviation services division of AMR Services, is a premier corporate aviation
services network of 14 facilities in major business centers in the United States
and Mexico. AMR Distribution Systems serves the logistics marketplace and
specializes in logistics management, contract warehousing, trucking and multi-
modal freight forwarding services. TSR provides comprehensive telemarketing and
reservation services for a wide range of corporate and hospitality industry
clients. As a telemarketer, TSR serves a substantial base of Fortune 500
companies with inbound and outbound call-handling capabilities. TSR's
reservations group is one of the world's largest third-party, private-label
reservation services companies. DMS provides data capture and document
management services to American and to companies in the insurance, financial
services and transportation industries. The AMR Training Group operates the
American Airlines Training & Conference Center and provides a wide variety of
training services to American and a number of other corporate clients.
AGS provides airline ground and cabin service handling at 11 locations in eight
countries in the Caribbean and Central and South America.
AMR INVESTMENT SERVICES, INC. serves as an investment advisor to AMR and other
institutional investors. It also manages the American AAdvantage Funds, which
have both institutional shareholders--including pension funds, financial
advisors, corporations and banks--and individual shareholders. As of December
31, 1996, AMR Investment Services was responsible for management of
approximately $16.0 billion in assets, including direct management of
approximately $5.7 billion in short-term investments.
AMS was formed in 1994 to manage the Company's service contracts with other
airlines such as the agreement to provide a variety of management, technical
and administrative services to Canadian Airlines International Limited which
the Company signed in 1994.
RESULTS OF OPERATIONS
SUMMARY AMR's net income in 1996 was $1.0 billion, or $11.63 per common share
($11.19 fully diluted). On October 17, 1996, The SABRE Group completed an
initial public offering of 23,230,000 shares of its Class A Common Stock,
representing 17.8 percent of the economic interest in The SABRE Group, for net
proceeds of approximately $589 million. The Company recorded a $497 million
gain in the fourth quarter of 1996 related to the initial public offering.
Additionally, AMR recorded a $251 million charge ($230 million after tax) in
the fourth quarter of 1996 associated with the Company's relationship with
Canadian Airlines International Limited (Canadian). AMR also recorded a $26
million charge ($16 million after tax) in the fourth quarter of 1996 to write
down the value of aircraft interiors the Company plans to refurbish. To reduce
interest expense, the Company repurchased and/or retired prior to scheduled
maturity approximately $1.1 billion in face value of long-term debt and capital
lease obligations. These transactions resulted in an extraordinary loss of $136
million ($89 million after tax) in 1996. Excluding these special items, net
earnings were $854 million.
AMR's net income in 1995 was $162 million ($2.11 per common share,
primary and fully diluted). During the fourth quarter of 1995, AMR recorded a
charge of $533 million ($334 million after tax) related to the cost of future
pension and other postretirement benefits for voluntary early retirement
programs offered in conjunction with renegotiated labor contracts covering
members of the Transport Workers Union (TWU) and the Association of
Professional Flight Attendants (APFA), as well as provisions for the write-down
of certain McDonnell Douglas DC-10 aircraft and the planned retirement of
certain turboprop aircraft, and other restructuring activities. In addition to
the restructuring costs, the Company's 1995 earnings include a charge of $41
million ($26 million after tax) related to the loss of an aircraft operated by
American. During 1995, AMR repurchased and/or retired prior to scheduled
maturity $378 million in face value of long-term debt, net of sinking fund
balances. In addition, $616 million in outstanding principal of certain debt
and lease obligations was refinanced during 1995. These transactions resulted
in an extraordinary loss of $45 million ($29 million after tax) in 1995.
Excluding these special charges, net earnings were $551 million.
17
<PAGE> 19
BUSINESS SEGMENTS In the second quarter of 1996, American and The SABRE Group
completed the negotiations of a new technology services agreement pursuant to
which The SABRE Group performs data processing and solutions services for
American. This new agreement reflects the recent downward trend in market
prices for data processing services. Additionally, the two companies completed
negotiations on new agreements covering the provision of air travel and certain
marketing services by American to The SABRE Group. The parties agreed to apply
the financial terms of these agreements as of January 1, 1996, which is
reflected in the reporting segments' financial highlights noted below.
As part of the Reorganization, $850 million of American's long-term debt
owed to AMR was repaid through the transfer by American to AMR of an $850
million debenture issued by The SABRE Group to American. This will reduce the
Airline Group's annual interest costs by approximately $60-70 million and
increase The SABRE Group's annual interest costs by an amount dependent upon
the outstanding balance of the debenture. On October 17, 1996, The SABRE Group
repaid approximately $532 million of this debenture with proceeds from its
initial public offering.
The following sections provide a discussion of AMR's results by
reporting segment. The gain on sale of stock by subsidiary of $497 million and
minority interest expense of $2 million have not been allocated to a reporting
segment. Additional segment information is included in Note 15 to the
consolidated financial statements.
18
<PAGE> 20
AIRLINE GROUP
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
(dollars in millions) Year Ended December 31,
-------------------------------------
1996 1995 1994
--------- --------- ---------
REVENUES
<S> <C> <C> <C>
Passenger - American Airlines, Inc. $ 13,645 $ 13,134 $ 12,652
- AMR Eagle, Inc. 1,047 976 964
Cargo 682 677 666
Other 837 714 613
--------- --------- ---------
16,211 15,501 14,895
OPERATING EXPENSES
Wages, salaries and benefits 5,191 5,082 4,923
Aircraft fuel 1,936 1,623 1,614
Commissions to agents 1,252 1,293 1,335
Depreciation and amortization 1,018 1,070 1,057
Other operating expenses 5,372 5,336 5,080
Restructuring costs -- 533 272
--------- --------- ---------
Total operating expenses 14,769 14,937 14,281
--------- --------- ---------
OPERATING INCOME 1,442 564 614
OTHER INCOME (EXPENSE) (428) (650) (617)
--------- --------- ---------
EARNINGS (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY LOSS $ 1,014 $ (86) $ (3)
========= ========= =========
Average number of equivalent employees 88,900 89,400 90,300
OPERATING STATISTICS
AMERICAN AIRLINES JET AIRLINE OPERATIONS
Revenue passenger miles (millions) 104,710 102,918 98,896
Available seat miles (millions) 152,886 155,337 152,668
Cargo ton miles (millions) 2,028 2,046 1,983
Passenger load factor 68.5% 66.3% 64.8%
Breakeven load factor excluding special charges 60.2% 59.6% 59.5%
Passenger revenue yield per passenger mile (cents) 13.03 12.76 12.79
Passenger revenue per available seat mile (cents) 8.92 8.46 8.29
Cargo revenue yield per ton mile (cents) 33.14 32.64 33.11
Operating expenses excluding special charges
per available seat mile (cents) 8.91 8.57 8.52
Operating aircraft at year-end 642 635 647
AMR EAGLE, INC
Revenue passenger miles (millions) 2,590 2,492 2,486
Available seat miles (millions) 4,431 4,488 4,379
Passenger load factor 58.5% 55.5% 56.8%
Operating aircraft at year-end 205 261 270
</TABLE>
19
<PAGE> 21
REVENUES
1996 COMPARED TO 1995 Airline Group revenues of $16.2 billion in 1996 were up
$710 million, 4.6 percent, versus 1995. American's passenger revenues increased
3.9 percent, or $511 million. The increase in passenger revenues resulted
primarily from a 2.1 percent increase in passenger yield (the average amount
one passenger pays to fly one mile) from 12.76 to 13.03 cents and a 1.7 percent
increase in passenger traffic. For the year, domestic yields increased 2.6
percent, Latin American yields increased 0.2 percent and European yields
increased 3.1 percent, while Pacific yields decreased 10.5 percent. The decline
in Pacific yields was primarily due to the foreign exchange impact of the
weaker yen. In 1996, American derived 69.6 percent of its passenger revenues
from domestic operations and 30.4 percent from international operations.
American's domestic traffic increased 2.3 percent to 72.9 billion
revenue passenger miles (RPMs), while domestic capacity, as measured by
available seat miles (ASMs), decreased 1.7 percent. International traffic grew
0.4 percent to 31.8 billion RPMs on a capacity decline of 1.2 percent. The
increase in international traffic was led by a 5.0 percent increase in Latin
America on capacity growth of 3.9 percent, offset by a 3.9 percent decrease in
Europe on a capacity decline of 6.4 percent.
The Airline Group benefited from a number of external factors in 1996.
First, a healthy U.S. economy produced strong demand for air travel. Second,
industry capacity grew at a more modest rate, which led to higher industry load
factors and a healthy pricing environment. And third, U.S. carriers benefited
from an eight-month lapse in the application of the 10 percent excise tax on
airline tickets.
The AMR Eagle carriers' passenger revenues increased by 7.3 percent or
$71 million. Traffic on the AMR Eagle carriers increased 3.9 percent to 2.6
billion RPMs, while capacity decreased 1.3 percent. Passenger yield increased
3.2 percent, in part due to the significant changes made to AMR Eagle's fleet
and route network to increase efficiency. These changes included closing its
Nashville hub and 33 other stations, and grounding 54 aircraft, primarily
19-seat Jetstream aircraft. In the first quarter of 1995, AMR Eagle redeployed
its fleet of ATR aircraft in response to the FAA's temporary restrictions on
the operation of ATR aircraft in known or forecast icing conditions. The fleet
disruption adversely impacted AMR Eagle's results in the first and second
quarters of 1995.
Other revenues increased 17.2 percent, $123 million, primarily as a
result of an increase in aircraft maintenance work and airport ground services
performed by American for other airlines and increased employee travel service
charges. The remaining portion of the increase is attributable to the growth in
passenger traffic.
1995 COMPARED TO 1994 Airline Group revenues of $15.5 billion in 1995 were up
$606 million, 4.1 percent, versus 1994. American's passenger revenues increased
3.8 percent, or $482 million. The increase in passenger revenues resulted
primarily from a 4.1 percent increase in passenger traffic, partially offset by
a 0.2 percent decrease in passenger yield from 12.79 to 12.76 cents. American's
average stage length increased approximately 8.2 percent from 1994 to 1995,
which contributed to the decrease in passenger yield since per mile fares for
longer trips tend to be lower than for shorter trips. For the year, domestic
yields decreased 1.1 percent and Latin American yields decreased 4.2 percent;
yields increased 8.1 percent in Europe and 8.2 percent in the Pacific. In 1995,
American derived 68.9 percent of its passenger revenues from domestic
operations and 31.1 percent from international operations.
American's domestic traffic increased 1.7 percent to 71.2 billion RPMs,
while domestic capacity, as measured by ASMs, decreased 1.3 percent.
International traffic grew 9.8 percent to 31.7 billion RPMs on capacity growth
of 9.6 percent. The increase in international traffic was led by a 13.4 percent
increase in Latin America on capacity growth of 12.4 percent, and a 7.4 percent
increase in Europe on capacity growth of 7.9 percent.
The AMR Eagle carriers' passenger revenues increased by 1.2 percent or
$12 million. Traffic on the AMR Eagle carriers increased 0.2 percent to 2.5
billion RPMs, while capacity grew 2.5 percent.
The Airline Group's results were adversely affected by the disruption of
American Eagle operations at the Chicago and Raleigh/Durham hubs in the first
half of 1995 in response to the FAA's temporary restrictions on the operation
of ATR aircraft in known or forecast icing conditions. In addition, in April
1995, a hailstorm at American's Dallas/Fort Worth hub temporarily disabled
approximately 10 percent of American's fleet and approximately nine percent of
AMR Eagle's fleet, forcing the carriers to temporarily reduce scheduled
service.
20
<PAGE> 22
Other revenues increased 16.5 percent, $101 million, primarily as a
result of an increase in contract maintenance and airport ground services
performed by American for other airlines. The remaining portion of the increase
is attributable to the growth in passenger traffic.
OPERATING EXPENSES
1996 COMPARED TO 1995 Airline Group operating expenses in 1995 included
restructuring costs of $533 million, related to the cost of future pension and
other postretirement benefits for voluntary early retirement programs offered
in conjunction with renegotiated labor contracts covering members of the TWU
and the APFA, as well as provisions for the write-down of certain DC-10
aircraft and the planned retirement of certain turboprop aircraft, and other
restructuring activities. Excluding the restructuring costs, the Airline
Group's operating expenses increased 2.5 percent, or $365 million. American's
capacity decreased 1.6 percent to 152.9 billion ASMs. As a result, Jet Airline
cost per ASM, excluding restructuring costs in 1995 and the write-down of
aircraft interiors in 1996, increased 4.0 percent to 8.91 cents.
Despite a 0.6 percent decrease in the average number of equivalent
employees, wages, salaries and benefits expense rose 2.1 percent, or $109
million. The increase was due primarily to contractual wage rate and seniority
increases that are built into the Company's labor contracts and an increase in
the provision for profit sharing.
Fuel expense increased 19.3 percent, $313 million, due to a 19.9 percent
increase in American's average price per gallon, including the 4.3 cents per
gallon domestic fuel tax imposed on the airline industry since October 1995.
Commissions to agents decreased 3.2 percent, $41 million, due
principally to a reduction in average rates paid to agents attributable
primarily to the change in commission structure implemented in February 1995,
partially offset by commissions on increased passenger revenues.
Other operating expenses, consisting of aircraft rentals, other rentals
and landing fees, food service costs, maintenance expenses and miscellaneous
operating expenses, increased 0.7 percent, or $36 million. Aircraft rentals
decreased 8.2 percent, $55 million, primarily 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. Maintenance materials and repairs expense
increased 8.5 percent, $54 million, primarily due to five additional aircraft
check lines added at American's maintenance bases in 1996 as a result of the
maturing of its fleet. Miscellaneous operating expenses (including outsourced
services, data processing services, booking fees, credit card fees, crew travel
expenses, advertising and communications costs) increased by 1.3 percent or $33
million, including a $26 million charge in 1996 to write down the value of
aircraft interiors American plans to refurbish.
1995 COMPARED TO 1994 Airline Group operating expenses in 1995 included the
restructuring costs of $533 million described above. Airline Group operating
expenses in 1994 included restructuring costs of $272 million, primarily
resulting from the cost of future pension and other postretirement benefits
related to agent and management voluntary early retirement programs. Excluding
the restructuring costs, the Airline Group's operating expenses increased 2.8
percent, or $395 million. American's capacity increased 1.7 percent to 155.3
billion ASMs. Jet Airline cost per ASM, excluding special charges, increased
0.6 percent to 8.57 cents.
Despite a 1.0 percent decrease in the average number of equivalent
employees, wages, salaries and benefits expense rose 3.2 percent, $159 million.
The increase was due primarily to contractual wage rate and seniority increases
that are built into the Company's labor contracts and an increase in the
provision for profit sharing.
Fuel expense increased 0.6 percent, $9 million, due to the October 1995
expiration of the fuel tax exemption for the airline industry. The expiration
of the exemption resulted in additional fuel expense of $22 million for 1995.
Absent the fuel tax, fuel expense would have decreased $13 million due
primarily to lower jet fuel prices.
21
<PAGE> 23
Commissions to agents decreased 3.1 percent, $42 million, due
principally to a reduction in average rates paid to agents attributable
primarily to the change in commission structure implemented in February 1995,
partially offset by commissions on increased passenger revenues.
Other operating expenses, consisting of aircraft rentals, other rentals
and landing fees, food service costs, maintenance expenses and miscellaneous
operating expenses, increased 5.0 percent, or $256 million. Maintenance
materials and repairs expense increased 11.7 percent, $66 million, primarily
due to reduced expense in 1994 as a result of warranty recoveries as well as
certain engine and airframe service checks that became due for the first time
in 1995. Miscellaneous operating expenses (including data processing services,
booking fees, crew travel expenses, credit card fees, advertising and
communications costs) increased by 7.4 percent or $176 million, primarily due
to costs associated with increased contract maintenance work that American
performed for other airlines. In addition, the Airline Group recognized
approximately $19 million in foreign currency exchange losses attributable to
unfavorable exchange rates, primarily in Latin America.
OTHER INCOME (EXPENSE)
Other income (expense) consists of interest income and expense, interest
capitalized and miscellaneous-net.
1996 COMPARED TO 1995 Interest expense, net of amounts capitalized, decreased
25.2 percent, $171 million, due primarily to scheduled debt repayments and the
repurchase and/or retirement prior to scheduled maturity of approximately $1.1
billion in face value of long-term debt and capital lease obligations. Also,
the Company's convertible debentures were converted into common stock of AMR in
May 1996, resulting in an $834 million decrease in long-term debt and a $43
million reduction in interest expense from 1995 to 1996. Interest income
increased $29 million, or 39.2 percent, due primarily to higher investment
balances.
Miscellaneous-net for 1996 includes a $21 million provision for a cash
payment representing American's share of a multi-carrier travel agency class
action litigation settlement. Miscellaneous - net for 1995 includes a $41
million charge related to the loss of an aircraft operated by American.
1995 COMPARED TO 1994 Interest expense, net of amounts capitalized, increased
11.9 percent, $72 million, due primarily to the issuance of $1.02 billion of
convertible debentures in exchange for 2.04 million preferred shares in late
1994, and the effect of rising short-term interest rates on floating rate debt
and interest rate swap agreements, partially offset by reductions due to the
repurchase and retirement of debt. Interest income increased $22 million due to
higher average rates and higher investment balances.
Miscellaneous - net for 1995 includes a $41 million charge related to
the loss of an aircraft operated by American. Miscellaneous - net for 1994
includes a $25 million charge related to the loss of two regional aircraft
operated by subsidiaries of AMR Eagle.
22
<PAGE> 24
THE SABRE GROUP
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
(dollars in millions) Year Ended December 31,
----------------------------------------------------------
1996 1995 1994
--------------- -------------- --------------
<S> <C> <C> <C>
REVENUES $ 1,622 $ 1,529 $ 1,407
OPERATING EXPENSES 1,295 1,149 1,057
--------------- -------------- --------------
OPERATING INCOME 327 380 350
OTHER INCOME (EXPENSE) (21) (10) (26)
--------------- -------------- --------------
EARNINGS BEFORE INCOME TAXES $ 306 $ 370 $ 324
=============== ============== ==============
Average number of equivalent employees 7,900 7,300 7,000
</TABLE>
REVENUES
1996 COMPARED TO 1995 Revenues for The SABRE Group increased 6.1 percent, $93
million, primarily due to an increase in booking volumes partially attributable
to international expansion in Europe and Latin America, an overall increase in
the price per booking charged to associates and a migration of associates to
higher participation levels within SABRE. This increase was partially offset by
a reduction in revenues due to the application of the financial terms of the
technology services agreement signed with American in 1996.
1995 COMPARED TO 1994 Revenues for The SABRE Group increased 8.7 percent, $122
million, primarily due to an overall increase in the price per booking charged
to associates, a migration of associates to higher participation levels within
SABRE and an increase in booking volumes primarily attributable to
international expansion in Europe and Latin America. Revenues from information
technology solutions provided to Canadian, under the services agreement between
AMR and Canadian which began producing revenues in November 1994, increased $36
million due to the impact of a full year of services provided. This increase
was partially offset by a decrease in such services provided to American
primarily due to a change in the pricing structure implemented in 1995.
OPERATING EXPENSES
1996 COMPARED TO 1995 Operating expenses increased 12.7 percent, $146 million,
due primarily to increases in salaries and benefits and subscriber incentive
expenses. Salaries and benefits increased due to an increase of approximately
eight percent in the average number of equivalent employees necessary to
support The SABRE Group's revenue growth and annual salary increases.
Subscriber incentive expenses increased in order to maintain and grow The SABRE
Group's customer base. Additionally, the new agreements with American covering
air travel and certain marketing services and other changes resulting from the
Reorganization increased operating expenses in 1996.
1995 COMPARED TO 1994 Operating expenses increased 8.7 percent, $92 million,
due primarily to increases in salaries and benefits, travel service costs from
American and subscriber incentive expenses. Salaries and benefits increased due
to an increase of approximately four percent in the average number of
equivalent employees and annual salary increases. Travel service costs
increased due to an increase in the number of employees and an increase in the
negotiated rates with American. Subscriber incentive expenses increased in
order to maintain and grow The SABRE Group's customer base.
OTHER INCOME (EXPENSE)
1996 COMPARED TO 1995 Other income (expense) increased $11 million due
primarily to interest expense incurred on the $850 million subordinated
debenture payable to AMR issued in conjunction with the Reorganization,
partially offset by increased interest income.
1995 COMPARED TO 1994 Other income (expense) decreased $16 million due
primarily to a reduction in interest expense resulting from lower balances due
to affiliates.
23
<PAGE> 25
MANAGEMENT SERVICES GROUP
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
(dollars in millions) Year Ended December 31,
--------------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
REVENUES $ 620 $ 572 $ 548
OPERATING EXPENSES 550 501 506
-------- -------- --------
OPERATING INCOME 70 71 42
OTHER INCOME (EXPENSE)
Canadian Airlines charges (251) -- --
Miscellaneous - net (1) (2) 7
-------- -------- --------
(252) (2) 7
-------- -------- --------
EARNINGS (LOSS) BEFORE INCOME TAXES $ (182) $ 69 $ 49
======== ======== ========
Average number of equivalent employees 14,500 13,300 12,500
</TABLE>
REVENUES
1996 COMPARED TO 1995 Revenues for the Management Services Group increased 8.4
percent, or $48 million. This increase is due principally to AMR Services
Corporation, which experienced higher revenue as a result of increased airline
passenger, ramp and cargo handling services provided by its AMR Airline
Services division and increased telemarketing services provided by its
TeleService Resources division. This increase was partially offset by a $12
million reduction in fees for services provided to Canadian. In the fourth
quarter of 1996, AMR conceptually agreed to reduce its fees as part of
Canadian's restructuring program.
1995 COMPARED TO 1994 Revenues for the Management Services Group increased 4.4
percent, or $24 million. Revenues for Airline Management Services, which was
formed in 1994 to manage the Company's service contracts with other airlines
including Canadian, increased $25 million.
OPERATING EXPENSES
1996 COMPARED TO 1995 Operating expenses increased 9.8 percent, or $49 million,
due to a $27 million increase in wages, salaries and benefits resulting from an
increase in the average number of equivalent employees and a $22 million
increase in other operating expenses commensurate with the increase in
revenues.
1995 COMPARED TO 1994 Operating expenses decreased 1.0 percent, or $5 million,
due to a $14 million increase in wages, salaries and benefits resulting from an
increase in the average number of equivalent employees and a $19 million
decrease in other operating expenses, due primarily to the effect of the sale
of AMR Combs' Learjet Service Centers offset by increased expenses due to the
business growth of AMR Services' other lines of business.
OTHER INCOME (EXPENSE)
Other income (expense) for 1996 includes a $251 million charge associated with
the Company's relationship with Canadian. This charge includes $192 million
related to the write-off of AMR's investment in the cumulative mandatorily
redeemable convertible preferred stock of Canadian and $59 million related to
the write-off of certain deferred costs relating to AMR's agreement to provide
a variety of management, technical and administrative services to Canadian.
24
<PAGE> 26
LIQUIDITY AND CAPITAL RESOURCES
Operating activities provided net cash of $2.7 billion in 1996, $2.2 billion in
1995 and $1.6 billion in 1994. The $536 million increase from 1995 to 1996
resulted primarily from increased net earnings and an increase in the air
traffic liability due to higher revenues and fare sale activity in late 1996
compared to 1995. The $571 million increase from 1994 to 1995 resulted from an
increase in net income before non-cash restructuring costs and provisions for
losses of approximately $205 million combined with the timing of cash payments
near year-end.
Capital expenditures in 1996 totaled $547 million, compared to $928
million in 1995 and $1.1 billion in 1994, and included the acquisition of four
Boeing 757-200 aircraft by American. Additionally, during June and July 1996,
American made prepayments totaling $565 million on the cancelable operating
leases it had on 12 of its Boeing 767-300 aircraft. These expenditures, as well
as the expansion of certain airport facilities, were funded primarily with
internally generated cash.
As a result of its initial public offering, The SABRE Group received net
proceeds of approximately $589 million.
In May 1996, the Company's convertible debentures were converted into
common stock of AMR, which resulted in an $834 million decrease in long-term
debt and an $817 million increase in stockholders' equity (net of conversion
fees and issuance costs). Also during 1996, the Company repurchased and/or
retired prior to scheduled maturity approximately $1.1 billion in face value of
long-term debt and capital lease obligations. Collectively, these improvements
to the balance sheet will result in interest savings of approximately $160
million in 1997.
American has a $1.0 billion credit facility agreement which expires
December 19, 2001 (the original agreement). At American's option, interest on
the original agreement can be calculated on one of several different bases. For
most borrowings, American would anticipate choosing a floating rate based upon
the London Interbank Offered Rate (LIBOR). In February 1997, American
negotiated an additional $1.0 billion credit facility agreement, which will
expire December 31, 1997 (the new agreement). Any borrowings under the new
agreement will be secured by aircraft owned by American. To the extent that the
value of such aircraft exceeds any claims due under the new agreement, the
excess value will secure borrowings under the original agreement. At March 24,
1997, no borrowings were outstanding under either agreement.
CAPITAL COMMITMENTS
FIRM DELIVERIES At March 24, 1997, AMR had no firm orders for jet aircraft or
turboprop aircraft.
AIRCRAFT OPTIONS At December 31, 1996, AMR had 52 turboprop aircraft available
on option-42 Super ATRs and 10 ATR 42s. No jet aircraft options were outstanding
at December 31, 1996.
OTHER INFORMATION
WORKING CAPITAL AMR (principally American Airlines) historically operates with
a working capital deficit as do most other airline companies. The existence of
such a deficit has not in the past impaired the Company's ability to meet its
obligations as they become due and is not expected to do so in the future.
25
<PAGE> 27
DEFERRED TAX ASSETS As of December 31, 1996, the Company had deferred tax
assets aggregating approximately $2.8 billion, including approximately $680
million of alternative minimum tax credit carryforwards. The Company believes
substantially all the deferred tax assets will be realized through reversal of
existing taxable temporary differences.
ENVIRONMENTAL MATTERS Subsidiaries of AMR have been notified of potential
liability with regard to several environmental cleanup sites and certain
airport locations. At sites where remedial litigation has commenced, potential
liability is joint and several. AMR's alleged volumetric contributions at these
sites are minimal. AMR does not expect these matters, individually or
collectively, to have a significant impact on its financial position or
liquidity. Additional information is included in Note 3 to the consolidated
financial statements.
OUTLOOK FOR 1997
AMR's strong financial performance in 1996 reflects a strong economy as well as
the Company's efforts to strengthen the American network and hub performance,
rationalize AMR Eagle's fleet and schedule, and reduce costs wherever possible
while maintaining the airline's revenue premium versus the industry.
AIRLINE GROUP Assuming that a reasonable settlement can be worked out with the
Allied Pilots Association (APA), the Company expects 1997 to be another
satisfactory year for American. A strong U.S. economy, healthy demand for air
travel, and modest industry capacity growth allow the Company to remain
cautiously optimistic--subject to the ongoing negotiations with the APA--
about 1997 revenues. Although the outcome of the FAA financing debate remains
uncertain, the year-end lapse of the ticket tax had a positive effect on first
quarter 1997 unit revenues--as it did for eight months of 1996. The tax was
reimposed beginning March 7, 1997 through September 30, 1997. It is unclear at
this time whether the tax will be extended beyond September 1997.
The Company expects 1997 to be a year of relative schedule stability for
both American and AMR Eagle. American's focus will be to sustain its strength
at Dallas/Fort Worth and Miami, and increase market share at Chicago. Total
system capacity is expected to increase slightly. While American does not plan
to add or drop a significant number of routes in 1997, the Company does expect
to improve dependability at the airline and has been refining the schedule --
adjusting block times, lengthening connecting times, and resequencing flights--
in an effort to accomplish that goal.
Pressure to reduce costs will continue, although the volatility of fuel
prices makes any prediction of overall costs very difficult. Excluding fuel, the
Company anticipates an increase in unit costs of about two to three percent,
driven by increased maintenance costs as American's fleet continues to mature,
higher labor costs associated with the normal seniority increases in the union
contracts, and various other inflationary pressures.
In June 1996, the Company announced its plans to create a worldwide
alliance between American and British Airways Plc. Subject to regulatory
approval, the two carriers will introduce extensive code sharing across each
other's networks and establish full reciprocity between their frequent flyer
programs. Additionally, the carriers will combine their passenger and cargo
activities between the United States and Europe and will share the resulting
profits on these services.
In November 1996, the Company announced an aircraft acquisition
arrangement with Boeing, including firm orders for 103 aircraft and "purchase
rights" for 527 additional jets. This arrangement would allow the airline to
move gradually toward a very high level of fleet commonality, and provide for
modest capacity growth in future years. The Company made its arrangement with
Boeing contingent on ratification of the tentative agreement with the APA
reached in September 1996. Since this did not occur, the future of this
aircraft order is uncertain.
THE SABRE GROUP The SABRE Group expects continued profitable growth in 1997.
Though it is still in the very early days of its existence separate from
American, The SABRE Group expects that separation will enable it to increase
the scope of its technology solutions business to include more airlines and
other travel providers.
In 1997, The SABRE Group will use its strong cash flow to make the
investments necessary to sustain SABRE's position as the most successful travel
distribution system -- and to sustain industry leadership in the increasingly
important direct-to-consumer channels.
26
<PAGE> 28
MANAGEMENT SERVICES GROUP The Management Services Group comprises several
businesses whose activities are various and diverse. While most of the
businesses expect profitable growth in 1997, combined Management Services Group
results will be adversely affected by the Company's agreement -- subject to
certain conditions -- to reduce fees charged to Canadian Airlines for
management services as part of Canadian's financial restructuring. As a result,
combined Management Services Group operating results will likely be lower in
1997.
BALANCE SHEET OUTLOOK Absent any aircraft expenditures in 1997, AMR's capital
spending is expected to total approximately $800 million in 1997. Given stable
earnings and modest capital spending, the Company expects to generate surplus
cash again in 1997. The magnitude of surplus cash will be dependent on the
amount of earnings and the disposition of the suspended Boeing aircraft order.
The Company will continue to evaluate uses for its surplus cash, which could
include the retirement or refinancing of debt and other fixed obligations, as
well as the repurchase in the open market of equity. The total amount and type
of debt and/or equity retired, refinanced and repurchased will depend on market
conditions, AMR's cash position and other considerations during the year.
FORWARD-LOOKING INFORMATION
The preceding discussions under Business and Management's Discussion and
Analysis of Financial Condition and Results of Operations contain various
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended, which represent the Company's expectations or beliefs
concerning future events. When used in this document and in documents
incorporated herein by reference, the words "expects," "plans," "anticipates,"
and similar expressions are intended to identify forward-looking statements.
Forward-looking statements include, without limitation, projections relating to
results of operations and financial conditions and the Company's plans and
objectives for future operations, including plans to develop future
code-sharing programs and to evaluate new alliances. All forward-looking
statements in this report are based upon information available to the Company
on the date of this report. The Company undertakes no obligation to publicly
update or revise any forward-looking statement, whether as a result of new
information, future events or otherwise. Forward-looking statements are subject
to a number of factors that could cause actual results to differ materially
from our expectations. The following factors, in addition to other possible
factors not listed, could cause the Company's actual results to differ
materially from those expressed in forward-looking statements:
UNCERTAINTY OF FUTURE COLLECTIVE BARGAINING AGREEMENTS The Company's operations
could be adversely affected by failure of the Company to reach agreement with
any labor union representing the Company's employees or by an agreement with a
labor union representing the Company's employees that contains terms which
prevent the Company from competing effectively with other airlines.
Specifically, as discussed above, if the tentative agreement is rejected by the
APA and unless the Congress takes additional action, either party will be
permitted to resort to self-help remedies, which include, but are not limited
to, a strike by members of the APA. The Company and the APA have agreed to a
timetable under which neither party will resort to self-help remedies for a
period of 30 days following either (i) the failure of the APA Board to approve
the tentative agreement or (ii) the failure of the APA membership to ratify the
tentative agreement.
ECONOMIC AND OTHER CONDITIONS The airline industry is affected by changes in
national, regional and local economic conditions, inflation, war (or the threat
thereof), consumer preferences and spending patterns, demographic trends,
consumer perceptions of airline safety, costs of safety and security measures
and weather.
COMMODITY PRICES Due to the competitive nature of the airline industry, in the
event of any increase in the price of jet fuel, there can be no assurance that
the Airline Group would be able to pass on increased fuel prices to its
customers by increasing fares.
COMPETITION IN THE AIRLINE INDUSTRY Service over almost all of the Airline
Group's routes is highly competitive. On most of its non-stop routes, the
Airline Group competes with at least one, and usually more than one, major
domestic airline, as well as lower-cost carriers. The Airline Group also
competes with national, regional, all-cargo and charter carriers and,
particularly on shorter segments, ground transportation. Pricing decisions are
affected by competition from other airlines. Fare discounting by competitors has
historically had a negative effect on the Airline Group's financial results
because American is generally required to match competitors' fares to maintain
passenger traffic. No assurance can be give that any future fare reduction would
be offset by increases in passenger traffic or changes in the mix of traffic
that improves yields.
27
<PAGE> 29
COMPETITION IN ELECTRONIC TRAVEL DISTRIBUTION The markets in which the
Company's electronic travel distribution business competes are highly
competitive. The SABRE Group competes primarily against other large and
well-established global distribution systems and is always faced with the
potential of new competitors, particularly as new channels for distribution
develop. Increased competition could cause The SABRE Group to reduce prices, to
increase spending on marketing or product development or otherwise to take
actions that might adversely affect its operating earnings.
CHANGING BUSINESS STRATEGY Although it has no current plan to do so, the
Company may change its business strategy in the future and may not pursue some
of the goals stated herein.
GOVERNMENT REGULATION Future results of the Company's operations may vary based
upon any actions which the governmental agencies with jurisdiction over the
Company's operations may take, including the granting and timing of certain
governmental approvals needed for code sharing and other arrangements with
other airlines and the adoption of more restrictive locally-imposed noise
restrictions.
UNCERTAINTY IN INTERNATIONAL OPERATIONS The Company's current international
activities and prospects could be adversely affected by factors such as
reversals or delays in the opening of foreign markets, exchange controls,
currency and political risks, taxation and changes in international government
regulation of the Company's operations.
28
<PAGE> 30
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
------------
<S> <C>
Report of Independent Auditors 30
Consolidated Statement of Operations 31
Consolidated Balance Sheet 33
Consolidated Statement of Cash Flows 35
Consolidated Statement of Stockholders' Equity 36
Notes to Consolidated Financial Statements 37
</TABLE>
29
<PAGE> 31
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
AMR Corporation
We have audited the accompanying consolidated balance sheets of AMR
Corporation as of December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1996. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of AMR
Corporation at December 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
As discussed in Note 11 to the consolidated financial statements,
effective January 1, 1995, the Company changed its method of accounting for the
impairment of long-lived assets.
ERNST & YOUNG LLP
2121 San Jacinto
Dallas, Texas 75201
January 14, 1997, except for the first
paragraph of Note 3, for which
the date is March 24, 1997
30
<PAGE> 32
AMR CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(in millions, except per share amounts)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Year Ended December 31,
--------------------------------
1996 1995 1994
-------- -------- --------
REVENUES
<S> <C> <C> <C>
Airline Group:
Passenger - American Airlines, Inc. $ 13,645 $ 13,134 $ 12,652
- AMR Eagle, Inc. 1,047 976 964
Cargo 682 677 666
Other 837 714 613
-------- -------- --------
16,211 15,501 14,895
The SABRE Group 1,622 1,529 1,407
Management Services Group 620 572 548
Less: Intergroup revenues (700) (692) (713)
-------- -------- --------
Total operating revenues 17,753 16,910 16,137
-------- -------- --------
EXPENSES
Wages, salaries and benefits 5,961 5,779 5,550
Aircraft fuel 1,936 1,623 1,614
Commissions to agents 1,252 1,293 1,335
Depreciation and amortization 1,204 1,259 1,250
Other rentals and landing fees 895 878 852
Maintenance materials and repairs 697 641 577
Food service 672 682 670
Aircraft rentals 616 671 695
Other operating expenses 2,681 2,536 2,310
Restructuring costs -- 533 278
-------- -------- --------
Total operating expenses 15,914 15,895 15,131
-------- -------- --------
OPERATING INCOME 1,839 1,015 1,006
OTHER INCOME (EXPENSE)
Interest income 80 63 46
Interest expense (499) (670) (615)
Gain on sale of stock by subsidiary 497 -- --
Miscellaneous - net (284) (55) (67)
-------- -------- --------
(206) (662) (636)
-------- -------- --------
EARNINGS BEFORE INCOME TAXES AND EXTRAORDINARY LOSS 1,633 353 370
Income tax provision 528 162 142
-------- -------- --------
EARNINGS BEFORE EXTRAORDINARY LOSS 1,105 191 228
EXTRAORDINARY LOSS, NET OF TAX BENEFIT (89) (29) --
-------- -------- --------
NET EARNINGS $ 1,016 $ 162 $ 228
======== ======== ========
- --------------------------------------------------------------------------------------
</TABLE>
Continued on next page.
31
<PAGE> 33
AMR CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
(in millions, except per share amounts)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------
1996 1995 1994
-------- ------ -------
<S> <C> <C> <C>
NET EARNINGS $ 1,016 $ 162 $ 228
Preferred stock dividends -- -- (56)
Increase in additional paid-in capital from preferred
stock exchange -- -- 171
-------- ----- ------
EARNINGS APPLICABLE TO COMMON SHARES $ 1,016 $ 162 $ 343
======== ===== ======
EARNINGS (LOSS) PER COMMON SHARE:
PRIMARY
Before effect of preferred stock exchange and
extraordinary loss $ 12.64 $2.48 $ 2.26
Effect of preferred stock exchange -- -- 2.25
Extraordinary loss (1.01) (0.37) --
-------- ----- ------
Net earnings $ 11.63 $2.11 $ 4.51
======== ===== ======
FULLY DILUTED
Before effect of preferred stock exchange and
extraordinary loss $ 12.15 $2.48 $ 2.26
Effect of preferred stock exchange -- -- 2.25
Extraordinary loss (0.96) (0.37) --
-------- ----- ------
Net earnings $ 11.19 $2.11 $ 4.51
======== ===== ======
- ----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE> 34
AMR CORPORATION
CONSOLIDATED BALANCE SHEET
(in millions)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
December 31,
----------------
1996 1995
------- -------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $ 68 $ 82
Short-term investments 1,743 819
Receivables, less allowance for uncollectible
accounts (1996-$17; 1995-$18) 1,382 1,153
Inventories, less allowance for obsolescence
(1996-$213; 1995-$250) 633 589
Deferred income taxes 404 357
Other current assets 240 137
------- -------
Total current assets 4,470 3,137
EQUIPMENT AND PROPERTY
Flight equipment, at cost 13,223 13,396
Less accumulated depreciation 3,972 3,544
------- -------
9,251 9,852
Other equipment and property, at cost 3,982 4,204
Less accumulated depreciation 2,100 2,240
------- -------
1,882 1,964
------- -------
11,133 11,816
EQUIPMENT AND PROPERTY UNDER CAPITAL LEASES
Flight equipment 2,882 2,368
Other equipment and property 261 256
------- -------
3,143 2,624
Less accumulated amortization 971 875
------- -------
2,172 1,749
OTHER ASSETS
Route acquisition costs, less accumulated amortization
(1996 - $182; 1995 - $153) 974 1,003
Airport operating and gate lease rights, less accumulated
amortization(1996 - $123; 1995 - $104) 345 364
Prepaid pension cost 446 268
Other 957 1,219
------- -------
2,722 2,854
------- -------
TOTAL ASSETS $20,497 $19,556
======= =======
- -----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE> 35
AMR CORPORATION
CONSOLIDATED BALANCE SHEET
(in millions, except shares and par value)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
December 31,
---------------------
1996 1995
-------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 1,068 $ 817
Accrued salaries and wages 823 694
Accrued liabilities 1,232 1,305
Air traffic liability 1,889 1,466
Current maturities of long-term debt 424 228
Current obligations under capital leases 130 122
-------- --------
Total current liabilities 5,566 4,632
LONG-TERM DEBT, LESS CURRENT MATURITIES 2,752 4,983
OBLIGATIONS UNDER CAPITAL LEASES,
LESS CURRENT OBLIGATIONS 1,790 2,069
OTHER LIABILITIES AND CREDITS
Deferred income taxes 743 446
Deferred gains 647 696
Postretirement benefits 1,530 1,439
Other liabilities and deferred credits 1,801 1,571
-------- --------
4,721 4,152
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Convertible preferred stock:
20,000,000 shares authorized;
shares issued and outstanding: 1995 - 159,000 -- 78
Common stock - $1 par value; shares authorized:
150,000,000; shares issued and outstanding:
1996 - 91,000,000; 1995 - 76,400,000 91 76
Additional paid-in capital 3,166 2,239
Other (23) (91)
Retained earnings 2,434 1,418
-------- --------
5,668 3,720
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 20,497 $ 19,556
======== ========
- ---------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
<PAGE> 36
AMR CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Year Ended December 31,
-----------------------------
1996 1995 1994
------- ------- -------
CASH FLOW FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net earnings $ 1,016 $ 162 $ 228
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 1,204 1,259 1,250
Deferred income taxes 218 50 145
Gain on sale of stock by subsidiary (497) -- --
Provision for restructuring costs -- 533 278
Provisions for losses 251 41 25
Extraordinary loss 136 45 --
Change in assets and liabilities:
Increase in receivables (225) (109) (135)
Increase in inventories (66) (11) (19)
Increase (decrease) in accounts payable
and accrued liabilities 261 441 (216)
Increase (decrease) in air traffic liability 423 (7) 13
Other, net (5) (224) 40
------- ------- -------
Net cash provided by operating activities 2,716 2,180 1,609
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (547) (928) (1,114)
Net increase in short-term investments (924) (65) (239)
Investment in Canadian Airlines International Limited -- -- (177)
Proceeds from sale of equipment and property 257 68 67
------- ------- -------
Net cash used for investing activities (1,214) (925) (1,463)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from:
Sale of stock by subsidiary 589 -- --
Issuance of long-term debt -- 184 146
Sale-leaseback transactions -- -- 280
Payments on long-term debt and capital lease obligations (2,130) (1,401) (549)
Payment of preferred stock dividends -- -- (66)
Other, net 25 21 3
------- ------- -------
Net cash used for financing activities (1,516) (1,196) (186)
------- ------- -------
Net increase (decrease) in cash (14) 59 (40)
Cash at beginning of year 82 23 63
------- ------- -------
Cash at end of year $ 68 $ 82 $ 23
======= ======= =======
- -------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
35
<PAGE> 37
AMR CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in millions, except shares and per share amounts)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Additional
Preferred Common Paid-in Retained
Stock Stock Capital Other Earnings Total
---------- ---------- ----------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $ 1,081 $ 76 $ 2,035 $ - $ 1,084 $ 4,276
Net earnings - - - - 228 228
Exchange of convertible debentures
for 2,041,000 preferred shares (1,003) - 171 - - (832)
Preferred stock dividends ($30.00
per share) - - - - (56) (56)
Issuance of 127,694 shares
pursuant to stock option,
deferred stock and restricted
stock incentive plans - - 6 - - 6
Adjustment for minimum pension
liability, net of tax benefit
of $120 - - - (199) - (199)
Unrealized loss on investments,
net of tax benefit of $18 - - - (43) - (43)
---------- ---------- ----------- ----------- ---------- ----------
Balance at December 31, 1994 78 76 2,212 (242) 1,256 3,380
Net earnings - - - - 162 162
Issuance of 507,826 shares
pursuant to stock option,
deferred stock and restricted
stock incentive plans - - 27 - - 27
Adjustment for minimum pension
liability, net of tax benefit
of $120 - - - 198 - 198
Unrealized loss on investments,
net of tax benefit of $28 - - - (47) - (47)
---------- ---------- ----------- ----------- ---------- ----------
Balance at December 31, 1995 78 76 2,239 (91) 1,418 3,720
Net earnings - - - - 1,016 1,016
Issuance of 13,926,774 shares upon
conversion of convertible
subordinated debentures and
preferred stock, net of
conversion fees and issuance
costs (78) 14 881 - - 817
Issuance of 701,828 shares
pursuant to stock option,
deferred stock and restricted
stock incentive plans - 1 46 - - 47
Adjustment for minimum pension
liability, net of tax benefit
of $13 - - - (21) - (21)
Reversal of unrealized loss on
investment in Canadian Airlines
International Limited - - - 91 - 91
Unrealized loss on investments,
net of tax benefit of $1 - - - (2) - (2)
----------- --------- --------- ---------- -------- -------
Balance at December 31, 1996 $ - $ 91 $ 3,166 $ (23) $ 2,434 $ 5,668
========== ======== ======== ========== ======== =======
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
36
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
BASIS OF CONSOLIDATION The consolidated financial statements include the
accounts of AMR Corporation (AMR or the Company), its wholly-owned
subsidiaries, including its principal subsidiary American Airlines, Inc.
(American), and its majority-owned subsidiaries, including The SABRE Group
Holdings, Inc. (The SABRE Group). All significant intercompany transactions
have been eliminated. Certain amounts from prior years have been reclassified
to conform with the 1996 presentation.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
INVENTORIES Spare parts, materials and supplies relating to flight equipment
are carried at average cost and are expensed when used in operations.
Allowances for obsolescence are provided, over the estimated useful life of the
related aircraft and engines, for spare parts expected to be on hand at the
date aircraft are retired from service, as well as allowances for spare parts
currently identified as excess. These allowances are based on management
estimates, which are subject to change.
EQUIPMENT AND PROPERTY The provision for depreciation of operating equipment
and property is computed on the straight-line method applied to each unit of
property, except that spare assemblies are depreciated on a group basis. The
depreciable lives and residual values used for the principal depreciable asset
classifications are:
<TABLE>
<CAPTION>
Residual
Depreciable Life Value
---------------------------- ---------
<S> <C> <C>
Boeing 727-200 (Stage II) December 31, 19991 None
Boeing 727-200 (to be converted to Stage III) December 31, 20051 None
DC-10-10/DC-10-30 December 31, 20022 None
Other jet aircraft 20 years 5%
Regional aircraft and engines 15-17 years 10%
Major rotable parts, avionics and assemblies Life of equipment to which 0-10%
applicable
Improvements to leased flight equipment Term of lease None
Buildings and improvements (principally on 10-30 years or term of lease None
leased land)
Other equipment 3-20 years None
</TABLE>
(1) In 1996, American changed the estimated useful lives of its Boeing
727-200 aircraft and engines from an average depreciable life of 21
years to an approximate common retirement date of December 31, 1999
for those aircraft which will not be converted to Stage III noise
standards and December 31, 2005 for those which will be converted to
Stage III. The impact of this change was not material.
(2) Approximate common retirement date.
Equipment and property under capital leases are amortized over the term
of the leases and such amortization is included in depreciation and
amortization. Lease terms vary but are generally 10 to 25 years for aircraft
and 7 to 40 years for other leased equipment and property.
MAINTENANCE AND REPAIR COSTS Maintenance and repair costs for owned and leased
flight equipment are charged to operating expense as incurred, except engine
overhaul costs incurred by AMR's regional carriers, which are accrued on the
basis of hours flown.
37
<PAGE> 39
1. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS The Company continually evaluates intangible assets to
determine whether current events and circumstances warrant adjustment of the
carrying values or amortization periods.
Route acquisition costs and airport operating and gate lease rights
represent the purchase price attributable to route authorities, airport
take-off and landing slots and airport gate leasehold rights acquired. These
assets are being amortized on a straight-line basis over 40 years for route
authorities, 25 years for airport take-off and landing slots, and the term of
the lease for airport gate leasehold rights.
PASSENGER REVENUES Passenger ticket sales are initially recorded as a component
of air traffic liability. Revenue derived from ticket sales is recognized at
the time transportation is provided. However, due to various factors, including
the complex pricing structure and interline agreements throughout the industry,
certain amounts are recognized in revenue using estimates regarding both the
timing of the revenue recognition and the amount of revenue to be recognized.
Actual results could differ from those estimates.
THE SABRE GROUP REVENUES The SABRE Group provides electronic travel
distribution services and information technology solutions. As compensation for
electronic travel distribution services provided, The SABRE Group collects fees
from airline, car rental and hotel vendors. Revenue for airline reservations is
recognized at the time of the booking of the reservation, net of estimated
future cancellations. Revenue for car rental and hotel bookings is recognized
at the time the reservation is used by the customer. Fees billed on service
contracts are recognized as revenue in the month earned.
Revenue from data processing services is recognized in the period
earned. Revenue from software license fees for standard software products is
recognized when the software is delivered, provided no significant future
vendor obligations exist and collection is probable. The SABRE Group recognizes
revenue on long-term software development and consulting contracts under the
percentage of completion method of accounting. Losses, if any, on long-term
contracts are recognized when the current estimate of total contract costs
indicates a loss on a contract is probable. Fixed fees for software maintenance
are recognized ratably over the life of the contract.
ADVERTISING COSTS The Company expenses the costs of advertising as incurred.
Advertising expense was $205 million, $192 million and $201 million for the
years ended December 31, 1996, 1995 and 1994, respectively.
FREQUENT FLYER PROGRAM The estimated incremental cost of providing free travel
awards is accrued when such award levels are reached. American sells mileage
credits and related services to companies participating in its frequent flyer
program. The portion of the revenue related to the sale of mileage credits is
deferred and recognized over a period approximating the period during which the
mileage credits are used.
During 1994, the Company changed its estimate of the usage patterns of
mileage credits sold to companies participating in American's AAdvantage
frequent flyer program. The positive impact of the change in estimate on
passenger revenues for 1994 was $59 million.
INCOME TAXES AMR and its eligible subsidiaries file a consolidated federal
income tax return. Deferred income taxes reflect the net tax effects of
temporary differences between the financial reporting carrying amounts of
assets and liabilities and the income tax amounts.
DEFERRED GAINS Gains on the sale and leaseback of equipment and property are
deferred and amortized over the terms of the related leases as a reduction of
rent expense.
STATEMENT OF CASH FLOWS Short-term investments, without regard to remaining
maturity at acquisition, are not considered as cash equivalents for purposes of
the statement of cash flows.
38
<PAGE> 40
1. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
EARNINGS (LOSS) PER COMMON SHARE Earnings (loss) per share computations are
based upon the earnings applicable to common shares and the average number of
shares of common stock outstanding and dilutive common stock equivalents (stock
options, warrants and deferred stock) outstanding. The convertible subordinated
debentures and the convertible preferred stock were not common stock
equivalents during the periods they were outstanding. The number of shares used
in the computations of primary earnings per common share for the years ended
December 31, 1996, 1995 and 1994, was 87.4 million, 76.8 million and 76.2
million, respectively. The number of shares used in the computations of fully
diluted earnings per common share for the years ended December 31, 1996, 1995
and 1994, was 92.1 million, 76.8 million and 76.2 million, respectively.
Information on the adjustment to the earnings per share computation for
the year ended December 31, 1994, for the effect of the preferred stock
exchange is included in Note 5.
STOCK OPTIONS The Company accounts for its stock-based compensation plans in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25) and related Interpretations. Under APB 25,
no compensation expense is recognized for stock option grants if the exercise
price of the Company's stock option grants is at or above the fair market value
of the underlying stock on the date of grant.
2. INVESTMENTS
Short-term investments consisted of (in millions):
<TABLE>
<CAPTION>
December 31,
-------------------
1996 1995
------ ------
<S> <C> <C>
Overnight investments and time deposits $ 81 $ 136
Corporate notes 1,302 457
Other debt securities 360 226
------ ------
$1,743 $ 819
====== ======
Short-term investments at December 31, 1996, by contractual maturity
included (in millions):
Due in one year or less $1,150
Due after one year through three years 449
Due after three years 144
------
$1,743
======
</TABLE>
All short-term investments are classified as available-for-sale and
stated at fair value. Net unrealized gains and losses, net of deferred taxes,
are reflected as an adjustment to stockholders' equity.
39
<PAGE> 41
3. COMMITMENTS AND CONTINGENCIES
American's collective bargaining agreement with the Allied Pilots
Association (APA) became amendable on August 31, 1994. On September 2, 1996,
American and the APA reached a tentative agreement on a new labor contract. The
tentative agreement was approved by the APA Board of Directors and sent out for
membership ratification, but subsequently rejected by the APA membership. On
January 10, 1997, the National Mediation Board (NMB) proffered binding
arbitration to the APA and American. American agreed to arbitration but because
the APA did not also agree, the proffer was rejected and on January 15, 1997,
the APA and American were notified (i) that the NMB was terminating its services
and (ii) that beginning February 15, 1997, either party could resort to
self-help remedies, including a strike by the members of the APA. On February
15, 1997, the APA did initiate a strike against American but immediately
thereafter President Clinton intervened and appointed a Presidential Emergency
Board (PEB), pursuant to his authority under the Railway Labor Act. The effect
of President Clinton's actions was to stop the strike and begin a process during
which the PEB reviewed the positions advocated by both parties. On March 19,
1997, before the PEB issued its recommendations, American and the APA reached a
second tentative agreement on a new contract. The tentative agreement will be
voted on by the APA Board of Directors in early April 1997 and if approved, will
be submitted to the APA membership for ratification. If the tentative agreement
is rejected by the APA, and unless the Congress takes additional action, either
party will be permitted to resort to self-help remedies, which include, but are
not limited to, a strike by members of the APA. The Company and the APA have
agreed to a timetable under which neither party will resort to self-help
remedies for a period of 30 days following either (i) the failure of the APA
Board to approve the tentative agreement or (ii) the failure of the APA
membership to ratify the tentative agreement. Any work stoppage by the APA
members would have a material adverse impact on the company.
In November 1996, the Company announced an aircraft acquisition
arrangement with Boeing, including firm orders for 103 aircraft and "purchase
rights" for 527 additional jets. This arrangement would allow the airline to
move gradually toward a very high level of fleet commonality, and provide for
modest capacity growth in future years. The Company made its arrangement with
Boeing contingent on ratification of the tentative agreement with the APA
reached in September 1996. Since this did not occur, the future of this
aircraft order is uncertain.
The Miami International Airport Authority is currently remediating
various environmental conditions at the 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, through increased landing fees since certain of the
potentially responsible parties are no longer in business. The future increase
in landing fees may be material but cannot be reasonably estimated due to
various factors, including the unknown extent of the remedial actions that may
be required, the proportion of the cost that will ultimately be recovered from
the responsible parties, and uncertainties regarding the environmental agencies
that will ultimately supervise the remedial activities and the nature of that
supervision. The ultimate resolution is not, however, expected to have a
significant impact on the financial position or the liquidity of AMR.
The Company has authorized expenditures of approximately $350 million
for modifications to aircraft, renovations of, and additions to, airport and
office facilities, and the acquisition of various other equipment and
assets. AMR expects to spend approximately $200 million of this amount in
1997.
In April 1995, American announced an agreement to sell 12 of its
McDonnell Douglas MD-11 aircraft to Federal Express Corporation (FedEx), with
delivery of the aircraft between 1996 and 1999. No gain or loss is expected to
be recognized as a result of this transaction. Three aircraft had been
delivered as of December 31, 1996. The carrying value of the nine remaining
aircraft American has committed to sell was approximately $600 million as of
December 31, 1996. In addition, American has the option to sell its remaining
seven MD-11 aircraft to FedEx with deliveries between 2000 and 2002.
AMR and American have included an event risk covenant in approximately
$3.1 billion of debt and lease agreements. The covenant permits the holders of
such instruments to receive a higher rate of return (between 50 and 700 basis
points above the stated rate) if a designated event, as defined, should occur
and the credit rating of the debentures or the debt obligations underlying the
lease agreements is downgraded below certain levels.
40
<PAGE> 42
3. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Special facility revenue bonds have been issued by certain
municipalities, primarily to purchase equipment and improve airport facilities
which are leased by American. In certain cases, the bond issue proceeds were
loaned to American and are included in long-term debt. Certain bonds have rates
that are periodically reset and are remarketed by various agents. In certain
circumstances, American may be required to purchase up to $437 million of the
special facility revenue bonds prior to scheduled maturity, in which case
American has the right to resell the bonds or to use the bonds to offset its
lease or debt obligations. American may borrow the purchase price of these
bonds under standby letter of credit agreements. At American's option, these
letters of credit are secured by funds held by bond trustees and by
approximately $439 million of short-term investments.
4. LEASES
AMR's subsidiaries lease various types of equipment and property,
including aircraft, passenger terminals, equipment and various other
facilities. The future minimum lease payments required under capital leases,
together with the present value of net minimum lease payments, and future
minimum lease payments required under operating leases that have initial or
remaining non-cancelable lease terms in excess of one year as of December 31,
1996, were (in millions):
<TABLE>
<CAPTION>
Capital Operating
Year Ending December 31, Leases Leases
--------- ---------
<S> <C> <C>
1997 $ 260 $ 992
1998 255 987
1999 250 974
2000 315 924
2001 297 919
2002 and subsequent 1,479 14,122
------- -------
2,856(1) $18,918(2)
=======
Less amount representing interest 936
--------
Present value of net minimum lease payments $ 1,920
========
</TABLE>
(1) Future minimum payments required under capital leases include $202
million guaranteed by AMR relating to special
facility revenue bonds issued by municipalities.
(2) Future minimum payments required under operating leases include $6.4
billion guaranteed by AMR relating to special facility revenue bonds
issued by municipalities.
At December 31, 1996, the Company had 186 jet aircraft and 81 turboprop
aircraft under operating leases, and 83 jet aircraft and 63 turboprop aircraft
under capital leases. The aircraft leases can generally be renewed at rates
based on fair market value at the end of the lease term for one to five years.
Most aircraft leases have purchase options at or near the end of the lease term
at fair market value, but generally not to exceed a stated percentage of the
defined lessor's cost of the aircraft.
In 1994, the Company entered into capital leases aggregating $280
million. During 1996, American made prepayments totaling $565 million on the
cancelable operating leases it had on 12 of its Boeing 767-300 aircraft. Upon
the expiration of the amended leases, American can purchase the aircraft for a
nominal amount. As a result, the aircraft are recorded as flight equipment
under capital leases.
Rent expense, excluding landing fees, was $1.2 billion for 1996 and $1.3
billion for 1995 and 1994.
41
<PAGE> 43
5. INDEBTEDNESS
Long-term debt (excluding amounts maturing within one year) consisted of
(in millions):
<TABLE>
<CAPTION>
December 31,
----------------
1996 1995
------ ------
<S> <C> <C>
6.25% - 10.70% notes due through 2021 $1,859 $2,368
8.625% - 10.20% debentures due through 2021
(net of unamortized discount of $5 at December 31, 1996) 506 972
6.125% convertible subordinated debentures due 2024 -- 834
Variable rate indebtedness due through 2024
(3.55% - 6.824% at December 31, 1996) 162 475
6.0% - 9.25% bonds due through 2031 176 275
Other 49 59
------ ------
Long-term debt, less current maturities $2,752 $4,983
====== ======
</TABLE>
Maturities of long-term debt (including sinking fund requirements) for the next
five years are: 1997-$424 million; 1998-$401 million; 1999-$36 million;
2000-$232 million; 2001-$439 million.
Certain debt is secured by aircraft, engines, equipment and other assets
having a net book value of approximately $826 million.
In November 1994, AMR issued $1.02 billion in face value of convertible
subordinated debentures in exchange for 2.04 million shares of its outstanding
convertible preferred stock with a carrying value of $1.0 billion. Each $1,000
debenture was convertible into common stock of AMR at a conversion price of $79
per share, equivalent to 12.658 shares per $1,000 debenture. As a result of the
exchange, the Company recorded a $171 million non-cash increase in additional
paid-in capital, representing the difference in the fair value of the new
debentures and the carrying value of the preferred shares exchanged. While this
amount did not impact net earnings for the year ended December 31, 1994, it is
included in the computation of earnings per share. In May 1996, the Company's
convertible debentures were converted into common stock of AMR, which resulted
in an $834 million decrease in long-term debt and an $817 million increase in
stockholders' equity (net of conversion fees and issuance costs).
During 1996, AMR repurchased and/or retired prior to scheduled maturity
approximately $1.1 billion in face value of long-term debt and capital lease
obligations. Cash from operations provided the funding for the repurchases and
retirements. These transactions resulted in an extraordinary loss of $136
million ($89 million after tax) in 1996.
During 1995, AMR repurchased and/or retired prior to scheduled maturity
$378 million in face value of long-term debt, net of sinking fund balances.
Cash from operations provided the funding for the repurchases and retirements.
In addition, $616 million in outstanding principal of certain debt and lease
obligations was refinanced during 1995. These transactions resulted in an
extraordinary loss of $45 million ($29 million after tax) in 1995.
American has a $1.0 billion credit facility agreement which expires
December 19, 2001. At American's option, interest on the agreement can be
calculated on one of several different bases. For most borrowings, American
would anticipate choosing a floating rate based upon the London Interbank
Offered Rate (LIBOR). At December 31, 1996, no borrowings were outstanding
under the agreement.
42
<PAGE> 44
5. INDEBTEDNESS (CONTINUED)
Certain of American's debt and credit facility agreements contain
certain restrictive covenants, including a cash flow coverage test and a
minimum net worth requirement. Certain of these restrictions could affect AMR's
ability to pay dividends. At December 31, 1996, under the most restrictive
provisions of those agreements, approximately $1.5 billion of American's
retained earnings were available for payment of dividends to AMR.
Cash payments for interest were $515 million, $685 million and $609
million for 1996, 1995 and 1994, respectively.
6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
As part of the Company's risk management program, AMR uses a variety of
financial instruments, including interest rate swaps, fuel swaps and currency
exchange agreements. The Company does not hold or issue derivative financial
instruments for trading purposes.
NOTIONAL AMOUNTS AND CREDIT EXPOSURES OF DERIVATIVES
The notional amounts of derivative financial instruments summarized in
the tables which follow do not represent amounts exchanged between the parties
and, therefore, are not a measure of the Company's exposure resulting from its
use of derivatives. The amounts exchanged are calculated based on the notional
amounts and other terms of the instruments, which relate to interest rates,
exchange rates or other indices.
The Company is exposed to credit losses in the event of non-performance
by counterparties to these financial instruments, but it does not expect any of
the counterparties to fail to meet its obligations. The credit exposure related
to these financial instruments is represented by the fair value of contracts
with a positive fair value at the reporting date, reduced by the effects of
master netting agreements. To manage credit risks, the Company selects
counterparties based on credit ratings, limits its exposure to a single
counterparty under defined guidelines, and monitors the market position of the
program and its relative market position with each counterparty. The Company
also maintains industry-standard security agreements with the majority of its
counterparties which may require the Company or the counterparty to post
collateral if the value of these instruments falls below certain mark-to-market
thresholds. As of December 31, 1996, no collateral was required under these
agreements, and the Company does not expect to post collateral in the near
future.
INTEREST RATE RISK MANAGEMENT
American enters into interest rate swap contracts to effectively convert
a portion of its fixed-rate obligations to floating-rate obligations. These
agreements involve the exchange of amounts based on a floating interest rate
for amounts based on fixed interest rates over the life of the agreement
without an exchange of the notional amount upon which the payments are based.
The differential to be paid or received as interest rates change is accrued and
recognized as an adjustment of interest expense related to the obligation. The
related amount payable to or receivable from counterparties is included in
current liabilities or assets. The fair values of the swap agreements are not
recognized in the financial statements. Gains and losses on terminations of
interest rate swap agreements are deferred as an adjustment to the carrying
amount of the outstanding obligation and amortized as an adjustment to interest
expense related to the obligation over the remaining term of the original
contract life of the terminated swap agreement. In the event of the early
extinguishment of a designated obligation, any realized or unrealized gain or
loss from the swap would be recognized in income coincident with the
extinguishment. Because American's operating results tend to be better in
economic cycles with relatively high interest rates and its capital investments
tend to be financed with long-term fixed-rate instruments, interest rate swaps
in which American pays the floating rate and receives the fixed rate are used
to reduce the impact of economic cycles on American's net income.
43
<PAGE> 45
6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
The following table indicates the notional amounts and fair values of
the Company's interest rate swap agreements (in millions):
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------
1996 1995
------------------------- -------------------------
Notional Notional
Amount Fair Value Amount Fair Value
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Interest rate swap agreements $ 1,480 $ (9) $ 1,980 $ 12
</TABLE>
The fair values represent the amount the Company would pay or receive to
terminate the agreements at December 31, 1996 and 1995, respectively.
At December 31, 1996, the weighted-average remaining life of the
interest rate swap agreements in effect was 2.9 years. The weighted-average
floating rates and fixed rates on the contracts outstanding were:
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Average floating rate 5.728% 5.786%
Average fixed rate 5.627% 5.304%
</TABLE>
Floating rates are based primarily on LIBOR and may change
significantly, affecting future cash flows.
FUEL PRICE RISK MANAGEMENT
American enters into fuel swap contracts to protect against increases in
jet fuel prices. Under the agreements, American receives or makes payments
based on the difference between a fixed price and a variable price for certain
fuel commodities. Gains and losses on fuel swap agreements are recognized as a
component of fuel expense when the underlying fuel being hedged is used. At
December 31, 1996, American had agreements with broker-dealers to exchange
payments on approximately 405 million gallons of fuel products, which
represents approximately 12 percent of its expected 1997 fuel needs and
approximately three percent of its expected 1998 fuel needs. The fair value of
the Company's fuel swap agreements at December 31, 1996, representing the
amount the Company would receive to terminate the agreements, totaled $31
million.
44
<PAGE> 46
6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
FOREIGN EXCHANGE RISK MANAGEMENT
To hedge against the risk of future currency exchange rate fluctuations
on certain debt and lease obligations and related interest payable in foreign
currencies, the Company has entered into various foreign currency exchange
agreements. Changes in the value of the agreements due to exchange rate
fluctuations are offset by changes in the value of the foreign currency
denominated debt and lease obligations translated at the current exchange rate.
Discounts or premiums are accreted or amortized as an adjustment to interest
expense over the lives of the underlying debt or lease obligations. The related
amounts due to or from counterparties are included in other liabilities or
other assets. The net fair values of the Company's currency exchange
agreements, representing the amount AMR and American would receive to terminate
the agreements, were:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------
1996 1995
----------------------------- -------------------------------
Notional Fair Value Notional Fair Value
Amount (in millions) Amount (in millions)
---------- --------------- ----------- --------------
<S> <C> <C> <C> <C>
Swiss francs - $ - 195 million $ 80
Japanese yen 24.7 billion 14 25.0 billion 28
</TABLE>
The exchange rates on the Japanese yen agreements range from 66.50 to
125.59 yen per U.S. dollar.
To hedge against the risk of future exchange rate fluctuations on a
portion of American's foreign cash flows, the Company enters into various
currency put option agreements on a number of foreign currencies. The option
contracts are denominated in the same foreign currency in which the projected
foreign cash flows are expected to occur. These contracts are designated and
effective as hedges of probable quarterly foreign cash flows for various
periods through September 30, 1999, which otherwise would expose the Company to
foreign currency risk. Realized gains on the currency put option agreements are
recognized as a component of passenger revenues. At December 31, 1996, the
notional amount related to these options totaled approximately $629 million and
the fair value, representing the amount AMR would receive to terminate the
agreements, totaled approximately $20 million.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair values of the Company's long-term debt were estimated using
quoted market prices where available. For long-term debt not actively traded,
fair values were estimated using discounted cash flow analyses, based on the
Company's current incremental borrowing rates for similar types of borrowing
arrangements. The carrying amounts and estimated fair values of the Company's
long-term debt, including current maturities, were (in millions):
<TABLE>
<CAPTION>
December 31,
------------------------------------
1996 1995
------------------ ----------------
Carrying Fair Carrying Fair
Value Value Value Value
-------- ------- ------ -------
<S> <C> <C> <C> <C>
6.25% - 10.70% notes $2,214 $2,406 $2,454 $2,750
8.625% - 10.20% debentures 564 648 973 1,135
6.125% convertible subordinated
debentures -- -- 834 1,036
Variable rate indebtedness 165 165 601 601
6.0% - 9.25% bonds 176 180 275 341
Other 57 58 74 80
------ ------ ------ ------
$3,176 $3,457 $5,211 $5,943
====== ====== ====== ======
</TABLE>
45
<PAGE> 47
6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
All other financial instruments are either carried at fair value or
their carrying value approximates fair value.
7. INCOME TAXES
The significant components of the income tax provision were (in
millions):
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Current $ 310 $ 112 $ (3)
Deferred 218 50 217
Benefit of operating loss carryforwards -- -- (72)
----- ----- -----
$ 528 $ 162 $ 142
===== ===== =====
</TABLE>
The income tax provision includes a federal income tax provision of $463
million, $133 million and $108 million for the years ended December 31, 1996,
1995 and 1994, respectively.
The income tax provision differed from amounts computed at the statutory
federal income tax rate as follows (in millions):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Statutory income tax provision $ 572 $ 125 $ 130
Gain on sale of stock by subsidiary (174) -- --
Change in valuation allowance 60 -- --
State income tax provision, net 36 11 15
Meal expense 18 22 21
Rate difference on net operating loss carryback -- -- (16)
Other, net 16 4 (8)
----- ----- -----
Income tax provision $ 528 $ 162 $ 142
===== ===== =====
</TABLE>
The change in valuation allowance in 1996 relates to the deferred tax
asset resulting from the write-off of AMR's investment in Canadian Airlines
International Limited (see Note 13) and expiring foreign tax credits.
46
<PAGE> 48
7. INCOME TAXES (CONTINUED)
The components of AMR's deferred tax assets and liabilities were (in
millions):
<TABLE>
<CAPTION>
December 31,
------------------
1996 1995
------- -------
Deferred tax assets:
<S> <C> <C>
Alternative minimum tax credit carryforwards $ 680 $ 443
Postretirement benefits other than pensions 550 504
Operating loss carryforwards 345 718
Gains from lease transactions 248 253
Rent expense 231 120
Frequent flyer obligation 172 130
Other 603 530
Valuation allowance (72) (12)
------- -------
Total deferred tax assets 2,757 2,686
------- -------
Deferred tax liabilities:
Accelerated depreciation and amortization (2,679) (2,443)
Pensions (144) (65)
Other (273) (267)
------- -------
Total deferred tax liabilities (3,096) (2,775)
------- -------
Net deferred tax liability $ (339) $ (89)
======= =======
</TABLE>
At December 31, 1996, AMR had available for federal income tax purposes
approximately $680 million of alternative minimum tax credit carryforwards
available for an indefinite period, and approximately $943 million of net
operating loss carryforwards for regular tax purposes which expire as follows:
2008 - $575 million; 2009 - $364 million; and 2010 - $4 million.
Cash payments (refunds) for income taxes were $194 million, $(36)
million and $(21) million for 1996, 1995 and 1994, respectively.
8. PREFERRED STOCK
In 1993, AMR issued 2.2 million shares of 6% Series A cumulative
convertible preferred stock. At the holder's option, each preferred share was
convertible into 6.3492 shares of common stock at any time. In 1994, AMR
exchanged $1.02 billion in face value of newly issued 6.125% convertible
subordinated debentures due 2024 for 2.04 million of the preferred shares. See
Note 5 for a more detailed description of the debentures. In 1996, AMR called
for redemption all of its then outstanding preferred stock (approximately
159,000 shares) and subsequently issued 1.0 million shares of common stock upon
the conversion of the preferred shares.
47
<PAGE> 49
9. STOCK AWARDS AND OPTIONS
Under the 1988 Long Term Incentive Plan (1988 Plan), as amended in 1994,
officers and key employees of AMR and its subsidiaries may be granted stock
options, stock appreciation rights, restricted stock, deferred stock, stock
purchase rights and/or other stock-based awards. The total number of common
shares authorized for distribution under the 1988 Plan is 7,200,000 shares. In
the event that additional shares of the Company's common stock are issued, 7.65
percent of such newly issued shares will be allocated to the 1988 Plan. The
1988 Plan will terminate no later than May 18, 1998. Options are awarded with
an exercise price equal to the fair market value of the stock on date of grant,
becoming exercisable in equal annual installments over five years following the
date of grant and expiring 10 years from the date of grant. Stock appreciation
rights may be granted in tandem with options awarded. As of January 1, 1996,
all outstanding stock appreciation rights were canceled, while the underlying
stock options remain in effect.
The Company accounts for its stock-based compensation plans in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" and related Interpretations. In 1996, the total
charge for stock compensation expense included in wages, salaries and benefits
expense was $49 million. No compensation expense was recognized for stock
option grants since the exercise price of the Company's stock option grants was
the fair market value of the underlying stock on the date of grant.
The Company has adopted the pro forma disclosure features of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FAS 123). As required by FAS 123, pro forma information
regarding net income and earnings per share has been determined as if the
Company and The SABRE Group had accounted for its employee stock options and
awards granted subsequent to December 31, 1994 using the fair value method
prescribed by FAS 123. The pro forma effect of FAS 123 is immaterial to 1996
and 1995 net earnings and earnings per share. Because FAS 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.
Stock option activity was:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------
1996 1995 1994
-------------------------------- ------------- -----------
Weighted-Average
Options Exercise Price Options Options
----------- ------------------ ------------- -----------
<S> <C> <C> <C> <C>
Outstanding at January 1 2,322,780 $ 62.85 2,404,010 2,107,950
Granted 392,475 78.43 440,600 409,400
Exercised(1) (580,800) 59.41 (390,510) (41,600)
Canceled(2) (302,660) 62.97 (131,320) (71,740)
--------- ---------- ---------
Outstanding at December 31 1,831,795 $ 67.19 2,322,780 2,404,010
========= ========== =========
</TABLE>
(1) At prices ranging from $40.9375 to $78.0625 in 1996; $39.6875 to $66.75
in 1995; and $39.6875 to $64.1875 in 1994.
(2) Includes 235,950 options canceled upon conversion to The SABRE Group
stock options for 1996 and 20,500 options canceled upon exercise of stock
appreciation rights for 1995.
Stock options outstanding at December 31, 1996 had a weighted-average
remaining contractual life of 6.9 years, and exercise prices ranging from
$40.9375 to $94.4375 (approximately 97 percent of options outstanding at
December 31, 1996 had exercise prices ranging from $52.25 to $79.56).
48
<PAGE> 50
9. STOCK AWARDS AND OPTIONS (CONTINUED)
The aggregate purchase price of outstanding options, number of
exercisable options outstanding and stock awards available for grant were:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Aggregate purchase price (in millions) $ 123 $ 146 $ 144
Exercisable options outstanding 807,510 1,195,580 1,282,790
Stock awards available for grant 2,355,793 2,549,116 3,239,948
</TABLE>
The weighted-average exercise price of exercisable options outstanding
at December 31, 1996 was $62.63.
Shares of deferred stock are awarded at no cost to officers and key
employees under the 1988 Plan's Career Equity Program and will be issued upon
the individual's retirement from AMR or, in certain circumstances, will vest on
a pro rata basis. Deferred stock activity was:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Outstanding at January 1 1,424,058 1,496,803 1,510,860
Granted 102,650 120,300 88,800
Issued (54,724) (116,016) (56,625)
Canceled(1) (274,653) (77,029) (46,232)
---------- ---------- ----------
Outstanding at December 31 1,197,331 1,424,058 1,496,803
========== ========== ==========
</TABLE>
(1) Includes 210,400 shares canceled upon conversion to The SABRE Group
stock options and awards for 1996.
The weighted-average grant date fair value of career equity awards
granted during 1996 was $79.27.
A performance share plan was implemented in 1993 under the terms of
which shares of deferred stock are awarded at no cost to officers and key
employees under the 1988 Plan. The shares vest over a three-year performance
period based upon AMR's ratio of operating cash flow to adjusted assets.
Performance share activity was:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Outstanding at January 1 824,411 508,330 246,650
Granted 382,307 340,991 271,800
Issued (68,504) -- --
Awards settled in cash (178,088) -- --
Canceled(1) (120,396) (24,910) (10,120)
-------- -------- --------
Outstanding at December 31 839,730 824,411 508,330
======== ======== ========
</TABLE>
1 Includes 90,551 shares canceled upon conversion to The SABRE Group
stock awards for 1996.
The weighted-average grant date fair value of performance share awards
granted during 1996 was $78.81.
There were 6.2 million shares of AMR's common stock at December 31, 1996
reserved for the issuance of stock upon the exercise of options and the
issuance of stock awards.
49
<PAGE> 51
9. STOCK AWARDS AND OPTIONS (CONTINUED)
The SABRE Group has established the 1996 Long Term Incentive Plan (1996
Plan), whereby its officers and other key employees may be granted stock
options and other stock-based awards. Initially, 13 million shares of The SABRE
Group's Class A Common Stock were authorized to be issued under the 1996 Plan.
At December 31, 1996, approximately three million shares of The SABRE Group's
Class A Common Stock were outstanding under the 1996 Plan.
10. RETIREMENT BENEFITS
Substantially all employees of American and employees of certain other
subsidiaries are eligible to participate in pension plans. The defined benefit
plans provide benefits for participating employees based on years of service
and average compensation for a specified period of time before retirement.
Airline pilots and flight engineers also participate in defined contribution
plans for which Company contributions are determined as a percentage of
participant compensation.
Total costs for all pension plans were (in millions):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Defined benefit plans:
Service cost - benefits earned during the period $ 204 $ 165 $ 204
Interest cost on projected benefit obligation 375 323 292
Loss (return) on assets (91) (1,288) 232
Net amortization and deferral (322) 1,008 (541)
------- ------- -------
Net periodic pension cost for defined
benefit plans 166 208 187
Defined contribution plans 132 124 119
------- ------- -------
Total $ 298 $ 332 $ 306
======= ======= =======
</TABLE>
In addition to the pension costs shown above, in late 1995 and 1994, AMR
offered early retirement programs to select groups of employees as part of its
restructuring efforts. In accordance with Statement of Financial Accounting
Standards No. 88, "Employers' Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits," AMR recognized
additional pension expense of $220 million and $154 million associated with
these programs in 1995 and 1994, respectively, which was included in
restructuring costs. Of these amounts, $118 million and $120 million were for
special termination benefits and $102 million and $34 million were for the
actuarial losses resulting from the early retirements for 1995 and 1994,
respectively.
50
<PAGE> 52
10. RETIREMENT BENEFITS (CONTINUED)
The funded status and actuarial present value of benefit obligations of
the defined benefit plans were (in millions):
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------
1996 1995
---------------------------- -----------------------------
Plans with Plans with Plans with Plans with
Assets in Accumulated Assets in Accumulated
Excess of Benefit Excess of Benefit
Accumulated Obligation Accumulated Obligation
Benefit Excess of Benefit Excess of
Obligation Assets Obligation Assets
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Vested benefit obligation $ 2,729 $ 1,435 $ 4,145 $ 42
========== ======== ======= ========
Accumulated benefit obligation
$ 2,882 $ 1,510 $ 4,279 $ 46
Effect of projected future salary
increases 650 202 728 20
---------- -------- ------- --------
Projected benefit obligation 3,532 1,712 5,007 66
---------- -------- ------- --------
Plan assets at fair value 3,154 1,463 4,545 6
Plan assets less than projected
benefit obligation (378) (249) (462) (60)
Unrecognized net loss 729 237 703 19
Unrecognized prior service cost 37 29 14 9
Unrecognized transition asset (32) -- (45) (1)
Adjustment to record minimum
pension liability -- (69) -- (12)
---------- -------- ------- --------
Prepaid (accrued) pension cost(1)
$ 356 $ (52) $ 210 $ (45)
========== ======== ======= ========
</TABLE>
(1) AMR's funding policy is to make contributions equal to, or in excess
of, the minimum funding requirements of the Employee Retirement Income
Security Act of 1974.
Plan assets consist primarily of domestic and foreign government and
corporate debt securities, marketable equity securities, and money market and
mutual fund shares, of which approximately $71 million and $119 million of plan
assets at December 31, 1996 and 1995, respectively, were invested in shares of
mutual funds managed by a subsidiary of AMR.
The projected benefit obligation was calculated using weighted-average
discount rates of 7.75% and 7.25% at December 31, 1996 and 1995, respectively;
rates of increase for compensation of 4.20% at December 31, 1996 and 1995; and
the 1983 Group Annuity Mortality Table. The weighted-average expected long-term
rate of return on assets was 9.50% in 1996, 1995 and 1994. The vested benefit
obligation and plan assets at fair value at December 31, 1996, for plans whose
benefits are guaranteed by the Pension Benefit Guaranty Corporation were $4.1
billion and $4.6 billion, respectively.
51
<PAGE> 53
10. RETIREMENT BENEFITS (CONTINUED)
AMR intends to spin off the portion of its defined benefit pension plan
applicable to employees of The SABRE Group to the Legacy Pension Plan (LPP), a
defined benefit plan established by The SABRE Group effective January 1, 1997.
The net obligation attributable to The SABRE Group employees participating in
AMR's plan was approximately $40 million at December 31, 1996. The SABRE Group
also established The SABRE Group Retirement Plan (SGRP), a defined contribution
plan. Commencing January 1, 1997, employees of The SABRE Group who were under
the age of 40 as of December 31, 1996 will participate in the SGRP. Employees
of The SABRE Group who were age 40 or over as of December 31, 1996 will have
the option of participating in either the SGRP or the LPP.
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
maximums 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.
Net other postretirement benefit cost was (in millions):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1996 1995 1994
----- ----- ------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 58 $ 48 $ 62
Interest cost on accumulated other postretirement
benefit obligation 102 101 87
Return on assets (3) (2) (1)
Net amortization and deferral (5) (6) (4)
----- ----- -----
Net other postretirement benefit cost $ 152 $ 141 $ 144
===== ===== =====
</TABLE>
In addition to net other postretirement benefit cost, in late 1995 and
1994, AMR offered early retirement programs to select groups of employees as
part of its restructuring efforts. In accordance with Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions," AMR recognized additional other postretirement
benefit expense of $93 million and $71 million associated with these programs
in 1995 and 1994, respectively. Of these amounts, $26 million and $43 million
were for special termination benefits and $67 million and $28 million were for
the net actuarial losses resulting from the early retirements for 1995 and
1994, respectively.
52
<PAGE> 54
10. RETIREMENT BENEFITS (CONTINUED)
The funded status of the plan, reconciled to the accrued other
postretirement benefit cost recognized in AMR's balance sheet, was (in
millions):
<TABLE>
<CAPTION>
December 31,
-----------------
1996 1995
------- -------
<S> <C> <C>
Retirees $ 593 $ 705
Fully eligible active plan participants 128 176
Other active plan participants 492 554
------- -------
Accumulated other postretirement benefit obligation 1,213 1,435
Plan assets at fair value 39 28
------- -------
Accumulated other postretirement benefit obligation
in excess of plan assets 1,174 1,407
Unrecognized net gain (loss) 300 (29)
Unrecognized prior service benefit 56 61
------- -------
Accrued other postretirement benefit cost $ 1,530 $ 1,439
======= =======
</TABLE>
Plan assets consist primarily of shares of a mutual fund managed by a
subsidiary of AMR.
For 1996 and 1995, future benefit costs were estimated assuming per
capita cost of covered medical benefits would increase at a six and eight
percent annual rate, respectively, decreasing gradually to a four percent
annual growth rate in 1999 and thereafter. A one percent increase in this
annual trend rate would have increased the accumulated other postretirement
benefit obligation at December 31, 1996, by approximately $129 million and 1996
other postretirement benefit cost by approximately $23 million. The
weighted-average discount rate used in estimating the accumulated other
postretirement benefit obligation was 7.75% and 7.25% at December 31, 1996 and
1995, respectively.
11. RESTRUCTURING COSTS
In 1995 and 1994, the Company recorded $533 million and $278 million,
respectively, for restructuring costs which included (in millions):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1995 1994
---- ----
<S> <C> <C>
Special termination benefits:
Pension $118 $120
Other postretirement benefits 26 43
Other termination benefits 19 --
Actuarial losses:
Pension 102 34
Other postretirement benefits 67 28
---- ----
Total cost of early retirement programs 332 225
Provisions for aircraft impairment and retirement 193 --
Severance -- 28
Other 8 25
---- ----
$533 $278
==== ====
</TABLE>
53
<PAGE> 55
11. RESTRUCTURING COSTS (CONTINUED)
In 1995, approximately 2,100 mechanics and fleet service clerks and 300
flight attendants elected early retirement under programs offered in
conjunction with renegotiated union labor contracts, and the majority of these
employees left the Company's workforce during 1996. The Company recorded
restructuring costs of $332 million in 1995 related to these early retirement
programs. A large portion of the funding for the programs was done in 1995. The
remaining cash payments associated with these programs will be expended as
required for funding the appropriate pension and other postretirement benefit
plans in future years.
The aircraft portion of the 1995 restructuring costs includes a $145
million provision related to the write-down of certain McDonnell Douglas DC-10
aircraft. Effective January 1, 1995, AMR adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," which requires impairment
losses to be recorded on long-lived assets used in operations when indicators
of impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount. In 1995,
the Company evaluated its fleet operating plan with respect to the DC-10-10
fleet and, as a result, believes that the estimated future cash flows expected
to be generated by these aircraft will not be sufficient to recover their net
book value. Management estimated the undiscounted future cash flows utilizing
models used by the Company in making fleet and scheduling decisions. As a
result of this analysis, the Company determined that a write-down of the
DC-10-10 aircraft to the net present value of their estimated discounted future
cash flows was warranted, which resulted in a $112 million charge. In addition,
the Company recorded a $33 million charge to reflect a diminution in the
estimated market value of certain DC-10 aircraft previously grounded by the
Company. No cash costs have been incurred or are expected as a result of these
DC-10 write-downs.
Also included in the aircraft restructuring costs is a $48 million
charge related to the planned early retirement in 1996 of certain turboprop
aircraft operated by AMR's regional carriers. The charge relates primarily to
future lease commitments on these aircraft past the dates they will be removed
from service and write-down of related inventory to its estimated fair value.
Cash payments on the leases in 1996 totaled approximately $8 million, and
additional payments will occur over the remaining lease terms.
In 1994, approximately 1,700 agents and 600 management employees elected
early retirement under programs offered to select groups of employees and left
the Company's workforce during 1995. The Company recorded restructuring costs
of $225 million in 1994 related to these early retirement programs. A large
portion of the funding for these programs was done in 1994. The remaining cash
payments associated with these programs will be expended as required for
funding the appropriate pension and other postretirement benefit plans in
future years.
The $28 million severance provision recorded in 1994 was for additional
workforce reductions affecting approximately 2,300 agent and management
personnel as a result of scheduled service reductions and improved
administrative efficiencies. Cash outlays for severance payments in 1996 and
1995 totaled approximately $6 million and $22 million, respectively.
The remaining $25 million included in the 1994 restructuring costs
represents provisions for excess leased facilities and other restructuring
activities. Cash outlays are estimated to be approximately $18 million, of
which approximately $3 million occurred in both 1996 and 1995.
54
<PAGE> 56
12. GAIN ON SALE OF STOCK BY SUBSIDIARY
Pursuant to a reorganization consummated on July 2, 1996 (the
Reorganization), The SABRE Group Holdings, Inc. (a holding company incorporated
on June 25, 1996) became the successor to the businesses of The SABRE Group
which were formerly operated as divisions or subsidiaries of American or AMR.
During October 1996, The SABRE Group Holdings, Inc. completed an initial public
offering of 23,230,000 shares of its Class A Common Stock, representing 17.8
percent of its economic interest, at $27 per share for net proceeds of
approximately $589 million. This transaction resulted in a reduction of the
Company's economic interest in The SABRE Group from 100 percent to 82.2
percent. In accordance with the Company's policy of recognizing gains or losses
on the sale of a subsidiary's stock based on the difference between the
offering price and the Company's carrying amount of such stock, the Company
recorded a $497 million gain. The issuance of stock by The SABRE Group
Holdings, Inc. was not subject to federal income taxes. In accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," no income tax expense was recognized on the gain.
13. OTHER INCOME (EXPENSE) - MISCELLANEOUS
Other income (expense) - miscellaneous, net included the following (in
millions):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Canadian Airlines charges $(251) $-- $--
Loss of aircraft -- (41) (25)
Litigation settlement (21) -- --
Minority interest (2) -- --
Other, net (10) (14) (42)
----- ----- -----
$(284) $ (55) $ (67)
===== ===== =====
</TABLE>
During the fourth quarter of 1996, the Company determined that the
decline in the value of its investment in the cumulative mandatorily redeemable
convertible preferred stock of Canadian Airlines International Limited
(Canadian) was not temporary and, in accordance with Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," recorded a $192 million charge to write down the investment
to its estimated fair value. At December 31, 1995, the investment was recorded
at its estimated fair value of $55 million, with the unrealized loss on the
investment of $137 million, net of deferred taxes, recorded directly as a
reduction in stockholders' equity. Additionally, the Company recorded a charge
of $59 million in the fourth quarter of 1996 to write off certain deferred
costs relating to the Company's agreement to provide a variety of services to
Canadian.
The charges for loss of aircraft relate to the loss of an aircraft
operated by American in 1995 and the loss of two regional aircraft operated by
subsidiaries of AMR Eagle, Inc. in 1994. The litigation settlement represents
American's share of a 1996 multi-carrier travel agency class action litigation
settlement.
14. FOREIGN OPERATIONS
American conducts operations in various foreign countries. American's
operating revenues from foreign operations were (in millions):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Latin America $2,438 $2,316 $2,134
Europe 1,967 2,059 1,839
Pacific 336 373 347
------ ------ ------
Foreign operating revenues $4,741 $4,748 $4,320
====== ====== ======
</TABLE>
55
<PAGE> 57
15. SEGMENT INFORMATION
AMR's operations fall within three industry segments: the Airline Group,
The SABRE Group, and the Management Services Group. For a description of each
of these groups, refer to Management's Discussion and Analysis on pages 16 and
17.
The following table presents selected financial data by industry segment
(in millions):
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1995 1994
------- ------- -------
Airline Group:
<S> <C> <C> <C>
Total revenues $16,211 $15,501 $14,895
Intergroup revenues 41 -- --
Operating income 1,442 564 614
Depreciation and amortization expense 1,018 1,070 1,057
Restructuring costs -- 533 272
Capital expenditures 336 747 934
Identifiable assets 18,560 18,290 18,154
The SABRE Group:
Total revenues 1,622 1,529 1,407
Intergroup revenues 500 548 590
Operating income 327 380 350
Depreciation and amortization expense 165 172 175
Restructuring costs -- -- 6
Capital expenditures 186 165 169
Identifiable assets 1,246 596 586
Management Services Group:
Total revenues 620 572 548
Intergroup revenues 159 144 123
Operating income 70 71 42
Depreciation and amortization expense 21 17 18
Capital expenditures 25 16 11
Identifiable assets 287 313 374
</TABLE>
Identifiable assets are gross assets used by a business segment,
including an allocated portion of assets used jointly by more than one business
segment. General corporate and other assets not allocated to business segments
were $404 million, $357 million and $372 million at December 31, 1996, 1995 and
1994, respectively, and consist primarily of income tax assets.
In the second quarter of 1996, American and The SABRE Group completed
the negotiations of a new technology services agreement pursuant to which The
SABRE Group performs data processing and solutions services for American. This
new agreement reflects the recent downward trend in market prices for data
processing services. Additionally, the two companies completed negotiations on
new agreements covering the provision of air travel and certain marketing
services by American to The SABRE Group. The parties agreed to apply the
financial terms of these agreements as of January 1, 1996, which is reflected
in the selected segment financial data in the above table. Excluding the
effects of the new agreements and the Reorganization, operating income for 1996
would have approximated $1.38 billion for the Airline Group and $392 million
for The SABRE Group.
56
<PAGE> 58
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited summarized financial data by quarter for 1996 and 1995 (in
millions, except per share amounts):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- ------- ------- -------
<S> <C> <C> <C> <C>
1996
Operating revenues $ 4,308 $ 4,550 $ 4,562 $ 4,333
Operating income 401 586 588 264
Earnings before extraordinary loss 157 293 282 373
Net earnings 157 293 282 284
Earnings per common share:
Primary
Before extraordinary loss 2.02 3.35 3.06 4.05
Net earnings 2.02 3.35 3.06 3.08
Fully diluted
Before extraordinary loss 1.84 3.20 3.06 4.05
Net earnings 1.84 3.20 3.06 3.08
1995
Operating revenues $ 3,970 $4,307 $4,445 $ 4,188
Operating income (loss) 252 482 521 (240)
Earnings (loss) before
extraordinary loss 37 191 233 (270)
Net earnings (loss) 37 178 229 (282)
Earnings (loss) per common share:
Primary
Before extraordinary loss 0.48 2.48 3.01 (3.54)
Net earnings (loss) 0.48 2.31 2.96 (3.69)
Fully diluted
Before extraordinary loss 0.48 2.23 2.68 (3.54)
Net earnings (loss) 0.48 2.08 2.64 (3.69)
</TABLE>
Results for the third quarter of 1996 include a $21 million provision
for American's share of a multi-carrier travel agency class action litigation
settlement. Results for the fourth quarter of 1996 include a $497 million gain
recorded by the Company related to the initial public offering of The SABRE
Group (See Note 12), a $251 million charge related to the write-off of the
Company's investment in Canadian and certain deferred costs relating to the
Company's agreement to provide a variety of services to Canadian (See Note 13)
and a $26 million charge to write down the value of aircraft interiors the
Company plans to refurbish.
Results for the fourth quarter of 1995 include $533 million in
restructuring costs, primarily representing the cost of early retirement
programs for certain Airline Group employees, provisions for the write-down of
certain DC-10 aircraft and the planned retirement of certain turboprop
aircraft. Results for the fourth quarter of 1995 also include a $41 million
charge related to the loss of an aircraft operated by American.
57
<PAGE> 59
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
- -------------------------------------------------------------------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference from the Company's definitive proxy statement
for the annual meeting of stockholders on May 21, 1997. Information concerning
the executive officers is included in Part I of this report on page 13.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference from the Company's definitive proxy statement
for the annual meeting of stockholders on May 21, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference from the Company's definitive proxy statement
for the annual meeting of stockholders on May 21, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference from the Company's definitive proxy statement
for the annual meeting of stockholders on May 21, 1997.
PART IV
- --------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The following financial statements and Independent Auditor's Report
are filed as part of this report:
<TABLE>
<CAPTION>
Page
--------------
<S> <C>
Report of Independent Auditors 30
Consolidated Statement of Operations for the Years Ended
December 31, 1996, 1995 and 1994 31-32
Consolidated Balance Sheet at December 31, 1996 and 1995 33-34
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 35
Consolidated Statement of Stockholders' Equity for the Years Ended
December 31, 1996, 1995 and 1994 36
Notes to Consolidated Financial Statements 37-57
</TABLE>
58
<PAGE> 60
(2) The following financial statement schedule is filed as part of this
report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Schedule II Valuation and Qualifying Accounts and Reserves 64
</TABLE>
Schedules not included have been omitted because they are not
applicable or because the required information is included in the
consolidated financial statements or notes thereto.
(3) Exhibits required to be filed by Item 601 of Regulation S-K.
(Where the amount of securities authorized to be issued under any
of AMR's long-term debt agreements does not exceed 10 percent of
AMR's assets, pursuant to paragraph (b)(4) of Item 601 of
Regulation S-K, in lieu of filing such as an exhibit, AMR hereby
agrees to furnish to the Commission upon request a copy of any
agreement with respect to such long-term debt.)
<TABLE>
<CAPTION>
EXHIBIT
-------
<S> <C>
3.1 Restated Certificate of Incorporation of AMR,
incorporated by reference to AMR's Registration
Statement on Form S-4, file number 33-55191.
3.2 Amended Bylaws of AMR, incorporated by reference to
Exhibit 10(ppp) to AMR's report on Form 10-Q for the period
ended June 30, 1995.
10.1 Employment Agreement among AMR, American Airlines and
Robert L. Crandall, dated January 1, 1988, incorporated by
reference to Exhibit 10(t) to AMR's report on Form
10-Q for the period ended March 31, 1988; amendments
thereto incorporated by reference to Exhibit 10(ff)
to AMR's report on Form 10-K for the year ended
December 31, 1989, Exhibit 10(tt) to AMR's report on
Form 10-K for the year ended December 31, 1990,
Exhibit 10(uu) to AMR's report on Form 10-Q for the
period ended June 30, 1992, and Exhibit 10(ooo) to
AMR's report on Form 10-Q for the period ended March 31,
1995.
10.2 Irrevocable Executive Trust Agreement, dated as of
May 1, 1992, between AMR and Wachovia Bank of North
Carolina N.A., incorporated by reference to Exhibit
10(vv) to AMR's report on Form 10-K for the year
ended December 31, 1992.
10.3 Deferred Compensation Agreement, dated April 14, 1973, as
amended March 1, 1975, between American and Robert L.
Crandall, incorporated by reference to Exhibit 10(c)(7) to
American's Registration Statement No. 2-76709.
10.4 Form of Executive's Termination Benefits Agreement
incorporated by reference to Exhibit 10(p) to AMR's report
on Form 10-K for the year ended December 31, 1985.
10.5 Management Severance Allowance, dated as of February 23,
1990, for levels 1-4 employees of American Airlines, Inc.,
incorporated by reference to Exhibit 10(oo) to AMR's report
on Form 10-K for the year ended December 31, 1989.
10.6 Management Severance Allowance, dated as of February 23,
1990, for level 5 and above employees of American Airlines,
Inc., incorporated by reference to Exhibit 10(pp) to AMR's
report on Form 10-K for the year ended December 31, 1989.
10.7 Description of informal arrangement relating to deferral of
payment of directors' fees, incorporated by reference to
Exhibit 10(c)(11) to American's Registration Statement
No. 2-76709.
10.8 Directors Stock Equivalent Purchase Plan, incorporated by
reference to Exhibit 10(gg) to AMR's report on Form 10-K for
the year ended December 31, 1989.
10.9 Directors Stock Incentive Plan dated May 18, 1994, as
amended.
</TABLE>
59
<PAGE> 61
<TABLE>
<S> <C>
10.10 Deferred Compensation Agreement, dated as of December 27,
1995, between AMR and Howard P. Allen, incorporated by
reference to Exhibit 10(sss) to AMR's report on Form 10-K
for the year ended December 31, 1995.
10.11 Deferred Compensation Agreement, dated as of January 31,
1990, between AMR and Edward A. Brennan, incorporated by
reference to Exhibit 10(hh) to AMR's report on Form 10-K for
the year ended December 31, 1989.
10.12 Deferred Compensation Agreement, dated as of
February 7, 1996, between AMR and Armando M. Codina,
incorporated by reference to Exhibit 10(ttt) to
AMR's report on Form 10-K for the year ended
December 31, 1995.
10.13 Deferred Compensation Agreement, dated as of February
10, 1997, between AMR and Armando M. Codina.
10.14 Deferred Compensation Agreement, dated as of
February 9, 1996, between AMR and Charles T. Fisher,
III, incorporated by reference to Exhibit 10(uuu) to
AMR's report on Form 10-K for the year ended
December 31, 1995.
10.15 Deferred Compensation Agreement, dated as of January 30,
1997, between AMR and Charles T. Fisher, III.
10.16 Deferred Compensation Agreement, dated as of
February 23, 1996, between AMR and Charles H.
Pistor, Jr., incorporated by reference to Exhibit
10(vvv) to AMR's report on Form 10-K for the year
ended December 31, 1995.
10.17 Deferred Compensation Agreement, dated as of January
30, 1997, between AMR and Charles H. Pistor, Jr.
10.18 Description of American's Split Dollar Insurance
Program, dated December 28, 1997, incorporated by
reference to Exhibit 10(c)(1) to American's Registration
Statement No. 2-76709.
10.19 AMR Corporation 1988 Long-Term Incentive Plan,
incorporated by reference to Exhibit 10(t) to AMR's
report on Form 10-K for the year ended December 31,
1988.
10.20 Amendment to AMR's 1988 Long-term Incentive Plan
dated May 18, 1994, incorporated by reference to
Exhibit A to AMR's definitive proxy statement with
respect to the annual meeting of stockholders held
on May 18, 1994.
10.21 Form of Stock Option Agreement for Corporate
Officers under the AMR 1988 Long-Term Incentive
Plan, incorporated by reference to Exhibit 10(rr) to
AMR's report on Form 10-K for the year ended
December 31, 1990.
10.22 Current form of Career Equity Program Agreement,
incorporated by reference to Exhibit 10(nnn) to AMR's
report on Form 10-K for the year ended December 31,
1994.
10.23 Form of Guaranty to Career Equity Program under the
AMR 1988 Long-Term Incentive Plan, incorporated by
reference to Exhibit 10(ccc) to AMR's report on Form
10-K for the year ended December 31, 1993.
10.24 Performance Share Program for the years 1994 to 1996
under the 1988 Long-term Incentive Program,
incorporated by reference to Exhibit 10(lll) to
AMR's report on Form 10-K for the year ended
December 31, 1994.
</TABLE>
60
<PAGE> 62
<TABLE>
<S> <C>
10.25 Performance Share Program for the years 1995 to 1997
under the 1988 Long-term Incentive Program,
incorporated by reference to Exhibit 10(ooo) to
AMR's report on Form 10-K for the year ended
December 31, 1995.
10.26 Performance Share Program for the years 1996 to 1998 under the 1988 Long-term Incentive Program.
10.27 Performance Share Program for the years 1997 to 1999 under the 1988 Long-term Incentive Program.
10.28 American Airlines, Inc. Supplemental Executive Retirement Program, as amended January 1997.
10.29 American Airlines, Inc. 1996 Employee Profit Sharing Plan.
10.30 American Airlines, Inc. 1997 Employee Profit Sharing Plan.
10.31 American Airlines, Inc. 1996 Incentive Compensation Plan for Officers and Key Employees,
incorporated by reference to Exhibit 10(qqq) to AMR's report on Form 10-K for the year ended
December 31, 1995.
10.32 American Airlines, Inc. 1997 Incentive Compensation Plan for Officers and Key Employees.
10.33 Aircraft Sales Agreement by and between American
Airlines, Inc. and Federal Express Corporation,
dated April 7, 1995, incorporated by reference to
Exhibit 10(rrr) to AMR's report on Form 10-K for the
year ended December 31, 1995. Confidential treatment
was granted as to a portion of this document.
10.34 The SABRE Group, Inc. Long-Term Incentive Plan,
incorporated by reference to Exhibit 10.25 to The
SABRE Group Holdings, Inc.'s Registration Statement
on Form S-1, file number 333-09747.
10.35 The SABRE Group, Inc. Directors' Stock Incentive
Plan, incorporated by reference to Exhibit 10.26 to
The SABRE Group Holdings, Inc.'s Registration
Statement on Form S-1, file number 333-09747.
10.36 Form of Executive Termination Benefits Agreement for The Sabre Group, Inc., incorporated by
reference to Exhibit 10.27 to The SABRE Group Holdings, Inc.'s Registration Statement on Form
S-1, file number 333-09747.
11.1 Computation of primary earnings per share for the years ended December 31, 1996, 1995 and 1994
appears on page 65 hereof.
11.2 Computation of fully diluted earnings per share for the years ended December 31, 1996, 1995 and
1994 appears on page 66 hereof.
21 Significant subsidiaries of the registrant as of December 31, 1996 appears on page 67 hereof.
23 Consent of Independent Auditors appears on page 70 hereof.
27 Financial Data Schedule.
</TABLE>
61
<PAGE> 63
(b) Reports on Form 8-K:
Form 8-K dated January 15, 1997 to report a press release issued
regarding AMR's fourth quarter 1996 earnings.
Form 8-K dated January 21, 1997 to report events regarding labor
negotiations with the Allied Pilots Association.
Form 8-K dated February 6, 1997 to report American's drawing under an
existing credit facility agreement and negotiation of an additional credit
facility agreement.
Form 8-K dated March 3, 1997 to report events regarding labor
negotiations with the Allied Pilots Association.
62
<PAGE> 64
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
/s/ Robert L. Crandall
- ------------------------------------------------------
Robert L. Crandall
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
/s/ Gerard J. Arpey
- ------------------------------------------------------
Gerard J. Arpey
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: March 19, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates noted:
<TABLE>
<CAPTION>
Directors:
<S> <C>
/s/ David L. Boren /s/ Dee J. Kelly
- -------------------------------------- --------------------------------------
David L. Boren Dee J. Kelly
/s/ Edward A. Brennan /s/ Ann D. McLaughlin
- -------------------------------------- --------------------------------------
Edward A. Brennan Ann D. McLaughlin
/s/ Armando M. Codina /s/ Charles H. Pistor, Jr.
- -------------------------------------- --------------------------------------
Armando M. Codina Charles H. Pistor, Jr.
/s/ Christopher F. Edley /s/ Joe M. Rodgers
- -------------------------------------- --------------------------------------
Christopher F. Edley Joe M. Rodgers
/s/ Charles T. Fisher, III /s/ Maurice Segall
- -------------------------------------- --------------------------------------
Charles T. Fisher, III Maurice Segall
</TABLE>
Date: March 19, 1997
63
<PAGE> 65
AMR CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(DEDUCTED FROM ASSET TO WHICH APPLICABLE)
(IN MILLIONS)
<TABLE>
<CAPTION>
CHARGED TO
---------- SALES,
BALANCE RETIRE- BALANCE
AT OTHER DEPREC. MENTS AT
BEGINNING OPERATING AND RESTRUCT NET AND END OF
OF YEAR EXPENSES AMORT. COSTS WRITE-OFF TRANSFERS YEAR
------- -------- ------ ----- --------- --------- ----
YEAR ENDED DECEMBER 31, 1996
<S> <C> <C> <C> <C> <C> <C> <C>
Allowance for
uncollectible accounts $ 18 $ 20 $ - $ - $(21) $ - $ 17
Allowance for
obsolescence of inventories 250 - 23 - - (60) 213
YEAR ENDED DECEMBER 31, 1995
Allowance for
uncollectible accounts 26 17 - - (25) - 18
Allowance for
obsolescence of inventories 179 - 38 18 - 15 250
YEAR ENDED DECEMBER 31, 1994
Allowance for
uncollectible accounts 33 20 - - (27) - 26
Allowance for
obsolescence of inventories 168 - 29 - - (18) 179
</TABLE>
64
<PAGE> 66
<TABLE>
<CAPTION>
Exhibit Index
-------------
<S> <C>
10.9 Directors Stock Incentive Plan dated May 18, 1994, as
amended.
10.13 Deferred Compensation Agreement, dated as of February 10,
1997, between AMR and Armando M. Codina.
10.15 Deferred Compensation Agreement, dated as of January 30, 1997, between AMR and Charles T.
Fisher, III.
10.17 Deferred Compensation Agreement, dated as of January 30, 1997, between AMR and Charles H.
Pistor, Jr.
10.26 Performance Share Program for the years 1996 to 1998 under the 1988 Long-term Incentive Program.
10.27 Performance Share Program for the years 1997 to 1999 under the 1988 Long-term Incentive Program.
10.28 American Airlines, Inc. Supplemental Executive
Retirement Program, as amended January 1997.
10.29 American Airlines, Inc. 1996 Employee Profit Sharing
Plan.
10.30 American Airlines, Inc. 1997 Employee Profit Sharing
Plan.
10.32 American Airlines, Inc. 1997 Incentive Compensation
Plan for Officers and Key Employees.
11.1 Computation of primary earnings per share for the
years ended December 31, 1996, 1995 and 1994
appears on page 65 hereof.
11.2 Computation of fully diluted earnings per share for
the years ended December 31, 1996, 1995 and 1994
appears on page 66 hereof.
21 Significant subsidiaries of the registrant as of
December 31, 1996 appears on page 67 hereof.
23 Consent of Independent Auditors appears on page 70
hereof.
27 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10.9
EXHIBIT A
AMR CORPORATION
1994 DIRECTORS STOCK INCENTIVE PLAN, AS AMENDED
1. PURPOSES
The purposes of this AMR Corporation 1994 Directors Stock Incentive
Plan, as amended, (the "Plan") are to enable AMR Corporation (the "Company") to
attract, retain and motivate the best qualified directors and to enhance a
long-term mutuality of interest between the directors and stockholders of the
Company by providing the directors with a direct economic interest in the
Common Stock of the Company.
2. DEFINITIONS
Unless the context requires otherwise, the following words as used in
the Plan shall have the meanings ascribed to each below, it being understood
that masculine, feminine and neuter pronouns are used interchangeably, and that
each comprehends the others.
(a) "AMR Total Compensation" shall mean the nominal amount of cash
paid to each Eligible Director for services as a member of the Board
(including, without limitation, fees paid for service on committees or for
attendance at meetings) for the last completed fiscal year of the Company, plus
the value of each equity award made to each Eligible Director for such fiscal
year, with each equity award valued in the same manner described below
with respect to similar type awards for purposes of determining Annual Equity
Compensation; provided, that, for purposes of determining AMR Total
Compensation, the annual award of Deferred Shares made pursuant to Section 8
hereof shall be disregarded.
(b) "Annual Equity Compensation" shall mean, with respect to each
of the companies in the Comparator Group, the sum of the values of each equity
award made to a majority of the independent directors of such company
determined in accordance with the following guidelines:
(i) any stock option shall be valued using the
Black-Scholes method of option valuation based on the following
assumptions: (A) the risk free rate of return shall be equal to the
one year Treasury bill rate reported in The Wall Street Journal on the
last business day immediately preceding the date as of which the
determination is being made; (B) the term of the option shall be its
stated term, regardless of any potential limitations on, or conditions
to the availability, of such term; (C) the stock price of the
underlying stock shall be the closing price of a share of stock (or,
if applicable, the average of the closing bid and asked prices) on the
exchange or national securities quotation system on which such shares
principally trade on the last day immediately preceding the date as of
which such equity award was made; (D) the stock price volatility of
each company's stock shall be determined based on the twelve month
period ended on the immediately preceding June 30; and (E) the
exercise price shall be that stated in the option award and without
regard to any possible adjustment thereto;
(ii) any award of shares of stock or deferred shares of
stock, or any cash award to be valued by reference to shares of stock,
shall be valued based on the closing price of a share of such stock
(or, if applicable, the average of the closing bid and asked prices)
on the exchange or national
<PAGE> 2
securities quotation system on which such shares principally trade on
the last day immediately preceding the date as of which such equity
award was made, minus the amount, if any, required to be paid to
receive such award (or payment thereon);
(iii) the value of any such award shall be determined
without regard to any restrictions related thereto, including, without
limitation, any restriction requiring the continued performance of
services;
(iv) if any award is made to a majority of all independent
directors, but less frequently than annually (a "Nonrecurring Award"),
each independent director shall be deemed to receive annually an award
equal to the value of the Nonrecurring Award, determined in the manner
described herein, divided by (x) the vesting period, if any,
applicable to such award or (y) if no vesting period is stated or
required, five years; and
(v) if an equity award is made to some but not all
independent directors based on the fact that the directors receiving
such equity award were not eligible to participate in a retirement
plan or program for independent directors, such award shall be
disregarded.
(c) "Award" shall mean any Share awarded under the Plan.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Change in Control" shall mean the occurrence of any of the
following:
(i) When any "person" as defined in Section 3(a)(9) of
the Securities Exchange Act of 1934, as amended, (the "Exchange Act")
and as used in Sections 13(d) and 14(d) thereof, including a "group"
as defined in Section 13(d) of the Exchange Act but excluding the
Company and any subsidiary and any employee benefit plan sponsored or
maintained by the Company or any subsidiary (including any trustee of
such plan acting as trustee), directly or indirectly, becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act)
of securities of the Company representing 20 percent or more of the
combined voting power of the Company's then outstanding securities or
(ii) When during any period of 24 consecutive months
during the existence of the Plan, the individuals who, at the
beginning of such period, constitute the Board (the "Incumbent
Directors") cease for any reason other than death to constitute at
least a majority thereof, provided, however, that a director who was
not a director at the beginning of such 24-month period shall be
deemed to have satisfied such 24-month requirement (and be an
Incumbent Director) if such director was elected by, or on the
recommendation of, or with the approval of, at least two-thirds of the
directors who then qualified as Incumbent Directors either actually
(because there were directors at the beginning of such 24-month
period) or by prior operation of this paragraph; or
(iii) The occurrence of a transaction requiring stockholder
approval for the acquisition of the Company by an entity other than
the Company or a subsidiary through purchase of assets, or by merger,
or otherwise.
(f) "Comparator Group" shall mean that group of 10 companies whose
equity is registered under Section 12(g) of the Exchange Act that are ranked
(i) immediately above the Company on the Fortune 500 list of companies (in
terms of revenue) and (ii) immediately below the Company on such list
<PAGE> 3
(for a total of 20 companies), provided, that, if any such company provides an
equity award based on a security that is not traded on an established
securities market or that is otherwise not susceptible of being accurately
valued using the principles set forth in Annual Equity Compensation, then such
company shall be replaced in the Comparator Group by the next company in the
applicable ranking on the Fortune 500 list.
(g) "Consultant" shall mean an independent executive compensation
consulting firm chosen by the Directors to perform the examination set forth in
Section 7.
(h) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(i) "Common Stock" shall mean the common stock of the Company, par
value $1.00, any common stock into which such common stock may be changed, and
any common stock resulting from any reclassification of such common stock.
(j) "Deferred Share" shall mean a contractual right to receive one
Share at the time and subject to the conditions set forth in Sections 6 and 8.
(k) "Disability" means disability as determined under procedures
established by the Board for purposes of the Plan.
(l) "Eligible Director" shall mean a director of the Company who
is not an officer or employee of the Company or any of its subsidiaries.
(m) "Fair Market Value" as of any given date shall mean the mean
between the highest and lowest quoted selling prices, regular way, of a Share
on the New York Stock Exchange on such date or, if no Shares are sold on such
date, on the last preceding business day on which any such sale was reported.
(n) "New Director" shall mean an Eligible Director who is first
elected to the Board after May 15, 1996.
(o) "Share" shall mean a share of Common Stock.
3. EFFECTIVE DATE
Provided this Plan is approved by the Company's stockholders at the
1994 annual meeting of stockholders, the effective date of the Plan shall be
May 18, 1994.
4. ADMINISTRATION
(a) Powers of the Board. This Plan shall be administered by the
Board. The Board may delegate its powers and functions hereunder to a duly
appointed committee of the Board. The Board shall have full authority to
interpret this Plan; to establish, amend and rescind rules for carrying out
this Plan; to administer this Plan; and to make all other determinations and to
take such steps in connection with this Plan as the Board, in its discretion,
deems necessary or desirable for administering this Plan.
(b) Disinterested Status. Notwithstanding the foregoing, neither
the Board, any committee thereof nor any person designated pursuant to (c)
below may take any action which would cause any Eligible Director to cease to
be a "disinterested person" for purposes of Rule 16b-3 promulgated under the
<PAGE> 4
Exchange Act as then in effect or any successor provisions ("Rule 16b-3"), with
regard to this Plan or any other stock option or other equity plan of the
Company. In particular, neither the Board, any committee thereof nor any person
designated pursuant to (c) below shall have any discretion as to:
(i) the selection of Eligible Directors as eligible to
receive awards pursuant to the Plan; or
(ii) the number of Shares awarded pursuant to Sections
6 and 8.
(c) Delegation. The Board may designate the Corporate Secretary of
the Company, other officers or employees of the Company or competent
professional advisors to assist the Board in the administration of this Plan,
and may grant authority to such persons to execute agreements or other
documents on its behalf.
(d) Agents and Indemnification. The Board may employ such legal
counsel, consultants and agents as it may deem desirable for the administration
of this Plan, and may rely upon any opinion received from any such counsel or
consultant or agent. No member or former member of the Board or any committee
thereof or any person designated pursuant to paragraph (c) above shall be
liable for any action or determination made in good faith with respect to this
Plan. To the maximum extent permitted by applicable law and the Company's
Certificate of Incorporation and Bylaws, each member or former member of the
Board or any committee thereof or any person designated pursuant to (c) above
shall be indemnified and held harmless by the Company against any cost or
expense (including counsel fees) or liability (including any sum paid in
settlement of a claim with the approval of the Company) arising from any act,
or omission to act, in connection with this Plan unless arising from such
person's own fraud or bad faith. Such indemnification shall be in addition to
any rights of indemnification the person may have as a director, officer or
employee or under the Company's Certificate of Incorporation or Bylaws.
Expenses incurred by the Board in the engagement of any such counsel,
consultant or agent shall be paid by the Company.
5. SHARES; ADJUSTMENT UPON CERTAIN EVENTS
(a) Shares Available. Shares to be delivered under this Plan shall
be made available, at the discretion of the Board, either from authorized but
unissued Shares or from issued Shares reacquired by the Company. The aggregate
number of Shares that may be issued under this Plan shall not exceed 100,000
Shares, except as provided in this Section.
(b) No Limit on Corporate Action. The existence of this Plan and
the Deferred Shares granted hereunder shall not affect in any way the right or
power of the Board or the stockholders of the Company to make or authorize any
adjustment, recapitalization, reorganization or other change in the Company's
capital structure or its business, any merger or consolidation of the Company,
any issue of bonds, debentures, preferred or prior preference stocks ahead of
or affecting Common Stock, the dissolution or liquidation of the Company or any
sale or transfer of all or part of its assets or business, or any other
corporate act or proceeding.
(c) Recapitalization and Similar Events. The Deferred Shares
awarded under Sections 6 and 8 relate to Shares of Common Stock as presently
constituted, but if and whenever the Company shall effect a subdivision,
reorganization, recapitalization or consolidation of Shares or the payment of a
stock dividend on Shares without receipt of consideration, the number and kind
of Deferred Shares to be awarded under
<PAGE> 5
Sections 6 and 8 and the aggregate number and kind of shares of capital stock
issuable under the Plan shall be proportionately adjusted.
(d) No Adjustment If Value Received. Except as hereinbefore
expressly provided, the issuance by the Company of shares of stock of any class
of securities convertible into shares of stock of any class, for cash,
property, labor or services, upon direct sale, upon the exercise of rights or
warrants to subscribe therefor, or upon conversion of shares or other
securities, and in any case whether or not for fair value, shall not affect,
and no adjustment by reason thereof shall be made with respect to, the number
of Deferred Shares to be awarded to a Participant pursuant to Sections 6 and 8.
6. DEFERRED SHARE AWARDS - ANNUAL
(a) Awards to Eligible Directors. On the first business day after
each annual meeting of stockholders of the Company occurring during the term of
the Plan, each Eligible Director shall receive an award of 300 Deferred Shares.
(b) Service Requirement. If any Eligible Director ceases to be a
director of the Company for any reason other than death or Disability prior to
the date which is six months after the date of any grant of Deferred Shares
under Section 6(a), such Eligible Director shall forfeit any and all of his
rights and interests in such Deferred Shares to the Company and shall not be
entitled to receive any compensation therefor. In the event that an Eligible
Director shall cease to be a director due to his death or Disability prior to
completing at least six months service as a director, the beneficiary or
beneficiaries of such Eligible Director shall be entitled to receive without
any restriction any Shares issuable in respect of any Deferred Shares awarded
to such Eligible Director at the time indicated under Section 9. After
completing six months of service as a director following a grant of Shares
under Section 6(a), an Eligible Director's rights and interests in such
Deferred Shares shall be nonforfeitable.
7. ADJUSTMENT TO ANNUAL AWARDS
(a) On or about July 1, 1998, and each second July 1 thereafter,
the Consultant will examine the compensation of the independent members of the
boards of directors at each of the companies within the Comparator Group for
the last completed fiscal year of such company reported in such company's most
recent proxy statement or annual report in accordance with the following
guidelines:
(i) the Annual Equity Compensation Value, if any, for
each independent director at each company within the Comparator Group
will be determined by the Consultant;
(ii) annual cash compensation, if any, for each
independent director at each company within the Comparator Group will
be valued at nominal value, regardless of whether such cash
compensation is paid or deferred (the "Cash Compensation");
(iii) Annual Equity Compensation Value and the Cash
Compensation for each company within the Comparator Group will be
summed to determine the total annual compensation for each independent
director at each company (excluding any non-cash and non-equity
benefits or perquisites made available to each such director) within
the Comparator Group (the "Total Compensation");
<PAGE> 6
(iv) the Consultant will determine the arithmetic average
of Total Compensation for the Comparator Group and will determine,
further, the value of 85% of such average (the "Threshold
Compensation");
(v) if AMR total compensation for each Eligible Director
is less than the Threshold Compensation, the number of Shares
referenced in Section 6(a) shall be increased, effective as of the
next following annual meeting of shareholders, in increments of 50,
until AMR Total Compensation for each Eligible Director (as increased
pursuant to this Section 7(a)(v) and as valued in accordance with
Section 7(a)(i)) is equal to, or greater than, Threshold Compensation.
(b) The results of the Consultant's examination will be reported
to the Board no later than the first occurrence of October 31 following the
examination.
8. DEFERRED SHARE AWARDS - NEW DIRECTORS
(a) Awards to New Directors. On the first business day after each
annual meeting of stockholders of the Company occurring during the term of the
Plan, each New Director shall receive an award of 150 Deferred Shares.
(b) Service Requirement. If any New Director ceases to be a
director of the Company for any reason other than death, Disability or
retirement at or after age 70 prior to the date which is two years after the
date of any grant of Deferred Shares under Section 8(a), such New Director
shall forfeit any and all of his rights and interests in such Deferred Shares
to the Company and shall not be entitled to receive any compensation therefor.
In the event that a New Director shall cease to be a director due to his death,
Disability or retirement at or after age 70 prior to completing at least two
years of service as a director, the New Director or the beneficiary or
beneficiaries of such New Director, shall be entitled to receive without any
restriction any Shares issuable in respect of any Deferred Shares awarded to
such New Director at the time indicated under Section 9. After completing two
years of service as a director following a grant of Shares under Section 8(a),
a New Director's rights and interests in such Deferred Shares shall be
nonforfeitable.
9. DISTRIBUTION; CHANGE IN CONTROL - DEFERRAL
(a) An Eligible Director who ceases to be a member of the Board
(or, in the case of a deceased Eligible Director, the beneficiary or
beneficiaries of the Eligible Director) shall receive one Share for each of the
Eligible Director's Deferred Shares which had become nonforfeitable on or
before the date the Eligible Director ceased to be a member of the Board. Upon
receipt of the Shares, the Eligible Director shall forfeit all rights to the
underlying Deferred Shares and the number of Shares eligible for distribution
under Section 5(a) of the Plan shall be reduced only by the number of Shares so
distributed. Any Shares to be issued under the first sentence of this Section
9(a) shall be transferred to the Eligible Director (or, in the case of a
deceased Eligible Director, the beneficiary or beneficiaries of the Eligible
Director) six months and one day after the last acquisition of beneficial
ownership by the Eligible Director. The Board may decide to distribute cash in
lieu of Shares to the Eligible Director. In such an event, the cash amount
shall be equal to the Fair Market Value of the Shares on the distribution date.
In the event that any Award would result in the issuance of a fractional Share,
the Company shall pay the Eligible Director (or the Eligible Director's
beneficiary or beneficiaries) a cash amount equal to the Fair Market Value of
such fractional share on the payment date in lieu of issuing any fractional
Share. If any award of Deferred Shares under Sections 6(a) or 8(a) is
forfeited or is otherwise terminated prior to distribution in the form of
<PAGE> 7
Shares, such Deferred Shares shall again be available for distribution in
connection with future awards under the Plan.
(b) Notwithstanding anything else contained in the Plan to the
contrary, in the event of a Change in Control the Company shall immediately
distribute to each Eligible Director (or, in the case of a deceased Eligible
Director, the beneficiary or beneficiaries of the Eligible Director) one Share
for each of the Eligible Director's Deferred Shares which were granted at least
six months before the date on which the Change of Control occurred.
(c) An Eligible Director may, at any time prior to the cessation
of such Eligible Director's service on the Board, elect in writing to
voluntarily defer receipt of any distribution under Section 9(a) for an
additional period specified in such election (the "Elective Deferral Period");
provided, however, that any election received by the Company within one year of
the date on which such cessation of service occurs shall be void and without
effect e.g. if the Eligible Director ceases service on the Board on May 15,
1998, an election received by the Company after May 14, 1997, shall have no
effect.) Any distribution deferred pursuant to this Section 9(c) shall be made
to the Eligible Director (or in the case of a deceased Eligible Director, the
beneficiary or beneficiaries of the Eligible Director) within 30 days after the
end of the elective Deferral Period.
10. NONTRANSFERABILITY OF AWARDS
No Award shall be transferable by the Eligible Director otherwise than
by will or under the applicable laws of descent and distribution prior to the
time the related Shares are issued under Section 9. During the period prior to
the transfer of any Shares in respect of an Award pursuant to Section 9, such
Award shall not be sold, assigned, negotiated, pledged or hypothecated in any
way (whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process. Upon any attempt to sell, assign,
negotiate, pledge or hypothecate any Award, or in the event of any levy upon
any Award by reason of any attachment or similar process, in either case
contrary to the provisions hereof, such Award shall immediately become null and
void.
11. RIGHTS AS A STOCKHOLDER
An Eligible Director shall have no rights as a stockholder with
respect to any Deferred Shares until he shall have become the holder of record
of the related Share(s), pursuant to Section 9. At the time any dividends or
other distributions are paid on or made with respect to a Share, each Eligible
Director shall be credited with that number of additional Deferred Shares as is
equal to the quotient of (i) the dollar amount of any such dividend or
distribution with respect to the Eligible Director's vested Deferred Shares
(or, in the case of any distribution made in property, the value of such
property as reported to shareholders for Federal income tax purposes) divided
by (ii) the Fair Market Value on the date such dividend or distribution is
declared. Any such additional Deferred Shares shall become nonforfeitable and
payable as provided under Section 9 as though granted on the same day as the
Deferred Shares to which they relate.
12. DETERMINATIONS
Each determination, interpretation or other action made or taken
pursuant to the provisions of this Plan by the Board shall be final and binding
for all purposes and upon all persons, including, without limitation, the
Company, the directors, officers and other employees of the Company, the
Eligible Director and their respective heirs, executors, administrators,
personal representatives and other successors in interest.
<PAGE> 8
13. TERMINATION, AMENDMENT AND MODIFICATION
(a) Termination and Amendment. This Plan shall terminate at the
close of business on May 19, 2004, unless sooner terminated by action of the
stockholders of the Company, or by resolution adopted by the Board, and no
Awards shall be granted under this Plan thereafter. The Board at any time or
from time to time may further amend this Plan to effect (i) amendments
necessary or desirable in order that this Plan and the Awards shall conform to
all applicable laws and regulations and (ii) any other amendments deemed
appropriate. Notwithstanding the foregoing, (y) the provisions of the Plan
relating to the award of Deferred Shares may not be amended more than once
every six months other than to comport with changes in the Code and the rules
thereunder and (z) the Board may not effect any amendment that would require
the approval of the stockholders of the Company under Rule 16b-3 (or its
successor provision) or the listing requirements of the New York Stock Exchange
(if applicable to the Company at the time such amendment is adopted or will be
effective) unless such approval is obtained.
(b) No Effect on Excising Rights. Except as required by law, no
termination, amendment or modification of this Plan may, without the consent of
an Eligible Director or the permitted transferee of an Award, alter or impair
the rights and obligations arising under any then outstanding Award.
14. NON-EXCLUSIVITY
Neither the adoption of this Plan by the Board nor the submission of
this Plan to the stockholders of the Company for approval shall be construed as
creating any limitations on the power of the Board to adopt such other
compensatory arrangements as it may, in its discretion, deem desirable.
15. GENERAL PROVISIONS
(a) No Right to Serve as a Director. This Plan shall not impose
any obligations on the Company to retain any Eligible Director as a director
nor shall it impose any obligation on the part of any Eligible Director to
remain as a director of the Company.
(b) No Right to Particular Assets. Nothing contained in this Plan
and no action taken pursuant to this Plan shall create or be construed to
create a trust of any kind or any fiduciary relationship between the Company
and any Eligible Director, the executor, administrator or other personal
representative or designated beneficiary of such Eligible Director, or any
other persons. Any reserves that may be established by the Company in
connection with this Plan shall continue to be part of the general funds of the
Company, and no 'individual or entity other than the Company shall have any
interest in such funds until paid to an Eligible Director. To the extent that
any Eligible Director or his executor, administrator, or other personal
representative, as the case may be, acquires a right to receive any payment
from the Company pursuant to this Plan, such right shall be no greater than the
right of an unsecured general creditor of the Company.
(c) Listing of Shares and Related Matters. If at any time the
Board shall determine in its discretion that the listing, registration or
qualification of the Shares covered by this Plan upon any national securities
exchange or under any state or federal law, or the consent or approval of any
governmental regulatory body is necessary of desirable as a condition of, or in
connection with, the delivery of Shares under this plan, no Shares will be
delivered unless and until such listing, registration, qualification, consent
<PAGE> 9
or approval shall have been effected or obtained, or otherwise provided for,
free of any conditions not acceptable to the Board.
(d) Notices. Each Eligible Director shall be responsible for
furnishing the Board with the current and proper address for the mailing of
notices and delivery of agreements and Shares. Any notices required or
permitted to be given shall be deemed given if directed to the person to whom
addressed at such address and mailed by regular United States mail, first-class
and prepaid. If any item mailed to such address is returned as undeliverable to
the addressee, mailing will be suspended until the Eligible Director furnishes
the proper address.
(e) Severability of Provisions. If any provision of this Plan
shall be held invalid or unenforceable, such invalidity or non-enforceability
shall not affect any other provisions hereof, and this Plan shall be construed
and enforced as if such provision had not been included.
(f) Incapacity. Any benefit payable to or for the benefit of an
incompetent person or other person incapable of receipting therefor shall be
deemed paid when paid to such person's guardian or to the party providing or
reasonably appearing to provide for the care of such person, and such payment
shall fully discharge the Board, the Company and other parties with respect
thereto.
(g) Headings and Captions. The headings and captions herein are
provided for reference and convenience only, shall not be considered part of
this Plan, and shall not be employed in the construction of this Plan.
(h) Controlling Law. This Plan shall be construed and enforced
according to the laws of the State of Texas.
<PAGE> 1
EXHIBIT 10.13
February 10, 1997
Mr. Armando M. Codina
Chairman
Codina Group, Inc.
Two Alhambra Plaza, PH2
Coral Gables, FL 33134
Dear Armando:
This will confirm the following agreement relating to the
deferral of, and payment of, your directors' fees:
1. All directors' fees and retainers payable to you in
connection with your service on the boards of directors (including committees
of such boards) of AMR Corporation and American Airlines, Inc. for the period
beginning on and after January 1, 1997 and ending on the earlier of December
31, 2006, or your retirement from such boards (the "deferral termination date")
shall be paid to you on a deferred basis as set forth below.
2. Directors' fees shall be converted to Stock
Equivalent Units in accordance with the Directors' Stock Equivalent Purchase
Plan, a copy of which is attached hereto as Exhibit A.
3. Upon the deferral termination date, the Stock
Equivalent Units shall be converted to cash and paid to you by multiplying the
number of stock equivalent units as of the deferral termination date by the
arithmetic mean of the high and low of AMR stock ("fair market value") during
the calendar month immediately preceding the deferral termination date.
4. AMR's obligation to make payments pursuant to
paragraph 3 hereof shall not be released or modified by reason of your death.
In such event, the number of stock equivalent units as of your date of death
shall be multiplied by the fair market value of AMR stock during the calendar
month immediately preceding your death, and the product paid to Margarita
Codina.
If the foregoing is satisfactory to you, please indicate by
signing and returning the enclosed copy of this letter.
Very truly yours,
Charles D. MarLett
Corporate Secretary
Accepted and agreed:
Armando M. Codina
<PAGE> 1
EXHIBIT 10.15
January 30, 1997
Mr. Charles T. Fisher, III
Renaissance Center
Tower 100
Suite 2412
Detroit, Michigan 48243
Dear Chick:
This will confirm the following agreement relating to the
deferral of, and payment of, your directors' fees:
1. All directors' fees and retainers payable to you in
connection with your service on the boards of directors (including committees
of such boards) of AMR Corporation ("AMR") and American Airlines, Inc. for the
period beginning on and after January 1, 1997, and ending upon December 31,
1997, shall be paid to you on a deferred basis as set forth below.
2. Interest shall be accrued on the amounts to be paid
on a deferred basis pursuant to paragraph 1 above, from the date such fees
would otherwise have been paid to the date actually paid, at the prime rate
which The Chase Manhattan Bank (National Association) from time to time charges
in New York for 90-day loans to responsible commercial borrowers, such interest
to be compounded monthly.
3. The total amount to be paid on a deferred basis plus
the aggregate amount of interest accrued thereon and to accrue on the portion
unpaid from time to time shall be paid to you in four installments as follows:
a) on January 1, 2002, 25% of the deferred fees
and 25% of the interest accrued through December 31 of the immediately
preceding year;
b) on January 1, 2003, 25% of the deferred fees
and 25% of the interest accrued through December 31 of the immediately
preceding year;
c) on January 1, 2004, 25% of the deferred fees
and 25% of the interest accrued through December 31 of the immediately
preceding year; and
<PAGE> 2
d) on January 1, 2005, 25% of the deferred fees
and all interest accrued and remaining to be paid on such payment
date.
4. AMR's obligation to make payments pursuant to
paragraph 3 hereof shall not be released or modified by reason of your death:
In the event of your death prior to your retirement from the Board of AMR, the
amount deferred and all interest accrued thereon shall be made to Charles T.
Fisher, III, trustee, under the Charles T. Fisher, III Revocable Living Trust,
dated March 24, 1988, as amended c/o NBD Bank, Detroit, Michigan.
If the foregoing is satisfactory to you, please indicate by
signing and returning the enclosed copy of this letter.
Very truly yours,
Charles D. MarLett
Corporate Secretary
Accepted and agreed:
Charles T. Fisher, III
- -------------------------------
Date
<PAGE> 1
EXHIBIT 10.17
January 30, 1997
Mr. Charles H. Pistor, Jr.
4200 Belclaire
Dallas, Texas 75205
Dear Charlie:
This will confirm the following agreement relating to the
deferral of, and payment of, your directors' fees:
1. All directors' fees and retainers payable to you in
connection with your service on the boards of directors (including committees
of such boards) of AMR Corporation ("AMR") and American Airlines, Inc. for the
period beginning on and after January 1, 1997, and ending upon December 31,
1997, shall be paid to you on a deferred basis as set forth below.
2. Interest shall be accrued on the amounts to be paid
on a deferred basis pursuant to paragraph 1 above, from the date such fees
would otherwise have been paid to the date actually paid, at the prime rate
which The Chase Manhattan Bank (National Association) from time to time charges
in New York for 90-day loans to responsible commercial borrowers, such interest
to be compounded monthly.
3. The total amount to be paid on a deferred basis plus
the aggregate amount of interest accrued thereon and to accrue on the portion
unpaid from time to time shall be paid to you in four installments as follows:
a) on January 1, 2000, 25% of the deferred fees
and 25% of the interest accrued through December 31 of the immediately
preceding year;
b) on January 1, 2001, 25% of the deferred fees
and 25% of the interest accrued through December 31 of the immediately
preceding year;
c) on January 1, 2002, 25% of the deferred fees
and 25% of the interest accrued through December 31 of the immediately
preceding year; and
<PAGE> 2
d) on January 1, 2003, 25% of the deferred fees
and all interest accrued and remaining to be paid on such payment
date.
4. AMR's obligation to make payments pursuant to
paragraph 3 hereof shall not be released or modified by reason of your death:
In the event of your death prior to your retirement from the Board of AMR, the
amount deferred and all interest accrued thereon shall be made to Regina
Pistor.
If the foregoing is satisfactory to you, please indicate by
signing and returning the enclosed copy of this letter.
Very truly yours,
Charles D. MarLett
Corporate Secretary
Accepted and agreed:
Charles H. Pistor, Jr.
_____________________________
Date
<PAGE> 1
EXHIBIT 10.26
1996-1998 PERFORMANCE SHARE PROGRAM
DEFERRED STOCK AWARD AGREEMENT
This AGREEMENT made as of October 3, 1996, by and between AMR
Corporation, a Delaware corporation (the "Corporation"), and ( ). ( ) (the
"Employee"), employee number ( ).
WHEREAS, the stockholders of the Corporation approved the 1988
Long Term Incentive Plan (the "1988 Plan") at the Corporation's annual meeting
held on May 18, 1988; and
WHEREAS, pursuant to the Performance Share Program (the
"Program") adopted by the Board of Directors of the Corporation (the "Board"),
the Board has determined to make a Program grant to the Employee of Deferred
Stock (subject to the terms of the l988 Plan and this Agreement), as an
inducement for the Employee to remain an employee of the Corporation (or a
Subsidiary or Affiliate thereof), and to retain and motivate such Employee
during such employment.
NOW, THEREFORE, the Corporation and the Employee hereby agree
as follows:
l. Grant of Award. The Employee is hereby granted as of
October 3, 1996, (the "Grant Date") a Deferred Stock Award (the "Award"),
subject to the terms and conditions hereinafter set forth, with respect to
( ) shares of Common Stock, $l.00 par value, of the Corporation ("Stock").
The shares of Stock covered by the Award shall vest in accordance with Section
2.
2. Vesting. (a) The Award will vest, if at all, in
accordance with Schedule A, attached hereto and made a part of this Agreement.
(b) In the event of the termination of
Employee's employment with the Corporation (or a Subsidiary or Affiliate
thereof) prior to the end of three year measurement period set forth in
Schedule A (the "Measurement Period") due to the Employee's death, Disability,
Retirement or termination not for Cause (each an "Early Termination") the Award
will vest, if at all, on a prorata basis and will be paid to the Employee (or,
in the event of the Employee's death, the Employee's designated beneficiary for
purposes of the Award, or in the absence of an effective beneficiary
designation, the Employee's estate) as soon as practicable after the end of the
Measurement Period. The prorata share will be a percentage where the
denominator is 36 and the numerator is the number of months from January 1,
1996 through the month of the Early Termination, inclusive.
<PAGE> 2
(c) In the event of the termination of Employee's employment
with the Corporation (or any Subsidiary or Affiliate thereof) for Cause, or if
the Employee terminates his employment with the Corporation (or any Subsidiary
or Affiliate thereof) prior to the distribution of any Award hereunder, the
Award shall be forfeited in its entirety.
(d) In the event of a Change in Control or Potential Change
in Control of the Corporation, the Award shall vest in accordance with the l988
Plan.
(e) If prior to the distribution of any Award hereunder, the
Employee becomes an employee of a Subsidiary that is not wholly owned, directly
or indirectly, by the Corporation, then the Award shall be forfeited in its
entirety.
3. Payment in Cash. Upon a determination by the Board,
an Award may be paid in cash or other consideration in accordance with a
formula as adopted by the Board.
4. Elective Deferrals. At any time at least 12 months prior
to the end of the Measurement Period, the Employee may elect in writing,
subject to Board approval, to voluntarily defer the receipt of the Stock for a
specified additional period beyond the end of the Measurement Period (the
"Elective Deferral Period"). Any Stock deferred pursuant to this Section 3
shall be issued to the Employee within 60 days after the end of the Elective
Deferral Period. In the event of the death of the Employee during the Elective
Deferral Period, the Stock so deferred shall be issued to the Employee's
designated Beneficiary (or to the Employee's estate, in the absence of an
effective beneficiary designation) within 60 days after the Corporation
receives written notification of death.
5. Transfer Restrictions. This Award is non-transferable
otherwise than by will or by the laws of descent and distribution, and may not
otherwise be assigned, pledged or hypothecated and shall not be subject to
execution, attachment or similar process. Upon any attempt by the Employee (or
the Employee's successor in interest after the Employee's death) to effect any
such disposition, or upon the levy of any such process, the Award may
immediately become null and void, at the discretion of the Board.
6. Miscellaneous. This Agreement (a) shall be binding upon
and inure to the benefit of any successor of the Corporation, (b) shall be
governed by the laws of the State of Texas and any applicable laws of the
United States, and (c) may not be amended without the written consent of both
the Corporation and the Employee. No contract or right of employment shall be
implied by this Agreement.
-2-
<PAGE> 3
7. Securities Law Requirements. The Corporation shall not be
required to issue Stock pursuant to this Award unless and until (a) such shares
have been duly listed upon each stock exchange on which the Corporation's Stock
is then registered; and (b) a registration statement under the Securities Act
of 1933 with respect to such shares is then effective.
The Board may require the Employee to furnish to the
Corporation, prior to the issuance of the Stock in connection with this Award,
an agreement, in such form as the Board may from time to time deem appropriate,
in which the Employee represents that the shares acquired by him under the
Award are being acquired for investment and not with a view to the sale or
distribution thereof.
8. Incorporation of l988 Plan Provisions. This Agreement is
made pursuant to the l988 Plan and is subject to all of the terms and
provisions of the l988 Plan as if the same were fully set forth herein.
Capitalized terms not otherwise defined herein (inclusive of Schedule A) shall
have the meanings set forth for such terms in the l988 Plan.
IN WITNESS HEREOF, the Employee and the Corporation have executed this
Performance Share Grant as of the day and year first above written.
EMPLOYEE AMR CORPORATION
By:
- ---------------------- ----------------------
Charles D. MarLett
Corporate Secretary
-3-
<PAGE> 4
SCHEDULE A
AMR CORPORATION
1996 - 1998 PERFORMANCE SHARE PLAN
FOR OFFICERS AND KEY EMPLOYEES
Purpose
The purpose of the 1996 - 1998 AMR Corporation Performance Share Plan ("Plan")
for Officers and Key Employees is to provide greater incentive to officers and
key employees of AMR Corporation ("AMR" or "the Corporation"), to achieve the
highest level of individual performance, and to meet or exceed specified goals
which will contribute to the success of the Corporation.
Definitions
Unless otherwise indicated in the 1988 Long Term Incentive Plan as amended or
the applicable award agreement between the Corporation and the Employee
relating to the performance shares, the following definitions will control:
"Adjusted Earnings/(Loss)" is defined as the sum of the Corporation's
Consolidated earnings/(loss) applicable to common shares, preferred dividends,
and American Airlines Inc. ("American") aircraft rental expense - net of the
Related Tax Impact, less: Calculated Interest on Operating Leases - net of the
Related Tax Impact, and Calculated Amortization of Operating Leases - net of
the Related Tax Impact.
"Net Cash Flow" is defined as the sum of Adjusted Earnings/(Loss), the
Corporation's depreciation and amortization expense, Calculated Interest on
Operating Leases - net of the Related Tax Impact, Calculated Amortization of
Operating Leases, and any accounting adjustments or extraordinary or unusual
items (net of the Related Tax Impact) or other non-cash items which may be
added or deducted at the discretion of the AMR Incentive Compensation Committee
("Committee") and approved by the AMR Board of Directors.
"Plan Average Net Cash Flow" is defined as the sum of the Net Cash Flow amounts
for all of the fiscal years in the measurement period divided by three.
-4-
<PAGE> 5
"Adjusted Gross Assets" is defined as the Corporation's consolidated total
assets plus the Capitalized Value of Operating Leases plus Accumulated
Depreciation on Equipment and Property plus Accumulated Amortization on
Equipment and Property under Capital Leases, minus cash and short-term
investments.
"Capitalized Value of Operating Leases" is defined as the initial present value
of the lease payments required under American's aircraft operating leases over
the initial stated lease term, calculated using a discount rate of Prime plus
one percent.
"Prime" is defined as the base rate on Corporate Loans posted by at least 75%
of the 30 largest U.S. banks which is published daily in the Wall Street
Journal.
"Calculated Interest on Operating Leases" is defined as the interest expense
imputed in American's operating leases and is determined by applying the
interest rate used in determining the Capitalized Value of Operating Leases to
the average obligation balance of such leases (calculated as the remaining
obligation balance at the end of the fiscal year plus the remaining obligation
balance at the end of the prior fiscal year, divided by two).
"Calculated Amortization of Operating Leases" is defined as the amortization
expense associated with Capitalized Value of Operating Leases and is determined
by the straight line method of amortization over the lease term.
"Related Tax Impact" of an adjustment made in determining Adjusted
Earnings/(Loss) or Net Cash Flow is defined as the amount of that adjustment
multiplied by the Corporation's estimated marginal tax rate for the relevant
year, as determined by the Tax Department.
"Measurement Period" is defined as the three year period beginning January 1,
1996 and ending December 31, 1998.
"Average Adjusted Gross Assets" is Adjusted Gross Assets as of December 31 of a
given year during the measurement period, plus Adjusted Gross Assets as of
December 31 of the prior fiscal year, divided by two.
"Plan Average Adjusted Gross Assets" is the sum of Average Adjusted Gross
Assets for each of the years during the measurement period divided by three.
"Cash Flow Return on Gross Assets" is defined as Plan Average Net Cash Flow
divided by Plan Average Adjusted Gross Assets.
-5-
<PAGE> 6
"Comparison Airlines" shall consist of UAL Corp., Delta Airlines Inc.,
Southwest Airlines Inc., and USAir Group.
Unless otherwise indicated, the sources for all of the financial data specified
above are the applicable Annual Reports on Form 10-K filed by the Corporation.
Accumulation of Shares
The number of shares under the Plan to be distributed to individual
participants is based on the applicable award agreement between the Corporation
and the Employee and is determined by (i) the Corporation's Cash Flow Return on
Gross Assets ("CFROGA"), and (ii) the Corporation's relative rank among the
Comparison Airlines with regard to Cash Flow Return on Gross Assets. The
accumulation of shares is specified below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
GRANTED SHARES - PERCENT OF TARGET
AMR'S CFROGA
--------------------------------------------------------------------------------------
Greater than Greater than Greater than
or = 5.70% or = 6.80% or = 7.90%
AMR's Less than and less and less and less Greater than
Ranking 5.70% than 6.80% than 7.90% than 8.60% or = 8.60%
- ------- ---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
1st 75% 100% 125% 150% 175%
2nd 50% 75% 100% 125% 150%
3rd 25% 50% 75% 100% 125%
4th 0% 25% 50% 75% 100%
5th 0% 0% 0% 0% 0%
- -----------------------------------------------------------------------------------------------------
</TABLE>
Administration
The Compensation/Nominating Committee of the Corporation shall have authority
to administer and interpret the Plan, establish administrative rules, approve
eligible participants, and take any other action necessary for the proper
operation of the Plan. In computing the Cash Flow Return on Assets of the
Comparison Airlines, the Committee may include or exclude special or
non-recurring items. The amount, if any, of the fund shall be computed by the
General Auditor of American based on a certification of CFROGA by American's
independent auditors. A summary of awards under the Plan shall be provided to
the Board of Directors at the first regular meeting following determination of
the awards. The Committee may determine to pay a cash equivalent in lieu of
the stock award.
-6-
<PAGE> 7
General
Nothing in the Plan shall be deemed to give any employee the right,
contractually or otherwise, to participate in the Plan or in any benefits
hereunder, other than the right to receive shares as may have been expressly
awarded by the Committee.
In consideration of the employee's privilege to participate in the Plan, the
employee agrees not to disclose any trade secrets of, or other
confidential/restricted information during his or her employment with the
Corporation or any of its Affiliates or after such employment is terminated.
The Board of Directors may amend, suspend, or terminate the Plan at any time.
-7-
<PAGE> 1
EXHIBIT 10.27
AMR CORPORATION
1997 - 1999 PERFORMANCE SHARE PLAN
FOR OFFICERS AND KEY EMPLOYEES
Purpose
The purpose of the 1997 - 1999 AMR Corporation Performance Share Plan ("Plan")
for Officers and Key Employees is to provide greater incentive to officers and
key employees of AMR Corporation ("AMR" or "the Corporation"), to achieve the
highest level of individual performance, and to meet or exceed specified goals
which will contribute to the success of the Corporation.
Definitions
Unless otherwise indicated in the 1988 Long Term Incentive Plan as amended or
the applicable award agreement between the Corporation and the Employee
relating to the performance shares, the following definitions will control:
"AMR" is defined as AMR Corporation.
"Committee" is defined as the Compensation/Nominating Committee of the AMR
Board of Directors.
"Adjusted Earnings/(Loss)" is defined as the sum of the Corporation's
Consolidated earnings/(loss) applicable to common shares, preferred dividends,
and American Airlines Inc. ("American") aircraft rental expense - net of the
Related Tax Impact, less: Calculated Interest on Operating Leases - net of the
Related Tax Impact, and Calculated Amortization of Operating Leases - net of
the Related Tax Impact.
"Net Cash Flow" is defined as the sum of Adjusted Earnings/(Loss), the
Corporation's depreciation and amortization expense, Calculated Interest on
Operating Leases - net of the Related Tax Impact, Calculated Amortization of
Operating Leases, and any accounting adjustments or extraordinary or unusual
items (net of the Related Tax Impact) or other non-cash items which may be
added or deducted at the discretion of the AMR Incentive Compensation Committee
and approved by the AMR Board of Directors.
"Plan Average Net Cash Flow" is defined as the sum of the Net Cash Flow amounts
for all of the fiscal years in the measurement period divided by three.
"Adjusted Gross Assets" is defined as the Corporation's consolidated total
assets plus the Capitalized Value of Operating Leases plus Accumulated
Depreciation on Equipment and Property plus Accumulated Amortization on
Equipment and Property under Capital Leases, minus cash and short-term
investments.
<PAGE> 2
"Capitalized Value of Operating Leases" is defined as the initial present value
of the lease payments required under American's aircraft operating leases over
the initial stated lease term, calculated using a discount rate of Prime plus
one percent.
"Prime" is defined as the base rate on Corporate Loans posted by at least 75%
of the 30 largest U.S. banks which is published daily in the Wall Street
Journal.
"Calculated Interest on Operating Leases" is defined as the interest expense
imputed in American's operating leases and is determined by applying the
interest rate used in determining the Capitalized Value of Operating Leases to
the average obligation balance of such leases (calculated as the remaining
obligation balance at the end of the fiscal year plus the remaining obligation
balance at the end of the prior fiscal year, divided by two).
"Calculated Amortization of Operating Leases" is defined as the amortization
expense associated with Capitalized Value of Operating Leases and is determined
by the straight line method of amortization over the lease term.
"Related Tax Impact" of an adjustment made in determining Adjusted
Earnings/(Loss) or Net Cash Flow is defined as the amount of that adjustment
multiplied by the Corporation's estimated marginal tax rate for the relevant
year, as determined by the Tax Department.
"Measurement Period" is defined as the three year period beginning January 1,
1997 and ending December 31, 1999.
"Average Adjusted Gross Assets" is Adjusted Gross Assets as of December 31 of a
given year during the measurement period, plus Adjusted Gross Assets as of
December 31 of the prior fiscal year, divided by two.
"Plan Average Adjusted Gross Assets" is the sum of Average Adjusted Gross
Assets for each of the years during the measurement period divided by three.
"Cash Flow Return on Gross Assets" is defined as Plan Average Net Cash Flow
divided by Plan Average Adjusted Gross Assets.
"Comparison Airlines" shall consist of Delta Air Lines Inc., Southwest Airlines
Inc., UAL Corp., and USAir Group.
Unless otherwise indicated, the sources for all of the financial data specified
above are the applicable Annual Reports on Form 10-K filed by the Corporation.
2
<PAGE> 3
Accumulation of Shares
The number of shares under the Plan to be distributed to individual
participants is based on the applicable award agreement between the Corporation
and the Employee and is determined by (i) the Corporation's Cash Flow Return on
Gross Assets ("CFROGA"), and (ii) the Corporation's relative rank among the
Comparison Airlines with regard to Cash Flow Return on Gross Assets. The
accumulation of shares is specified below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
GRANTED SHARES - PERCENT OF TARGET
AMR'S CFROGA
--------------------------------------------------------------------------------------
Greater than Greater than Greater than
or = 5.70% or = 6.80% or = 7.90%
AMR's Less than and less and less and less Greater than
Ranking 5.70% than 6.80% than 7.90% than 8.60% or = 8.60%
- ------- ---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
1st 75% 100% 125% 150% 175%
2nd 50% 75% 100% 125% 150%
3rd 25% 50% 75% 100% 125%
4th 0% 0% 50% 75% 100%
5th 0% 0% 0% 0% 0%
- -----------------------------------------------------------------------------------------------------
</TABLE>
Administration
The Committee shall have authority to administer and interpret the Plan,
establish administrative rules, approve eligible participants, and take any
other action necessary for the proper operation of the Plan. In computing the
Cash Flow Return on Gross Assets of the Comparison Airlines, the Committee may
include or exclude special or non-recurring items. The amount, if any, of the
fund shall be computed by the General Auditor of American based on a
certification of CFROGA by American's independent auditors. A summary of
awards under the Plan shall be provided to the Board of Directors at the first
regular meeting following determination of the awards. The Committee may
determine to pay a cash equivalent in lieu of the stock award.
General
Neither this Plan nor any action taken hereunder shall be construed as giving
any employee or participant the right to be retained in the employ of American
or an Affiliate.
Nothing in the Plan shall be deemed to give any employee any right,
contractually or otherwise, to participate in the Plan or in any benefits
hereunder, other than the right to receive an award as may have been expressly
awarded by the Committee.
In the event of any act of God, war, natural disaster, aircraft grounding,
revocation of operating certificate, terrorism, strike, lockout, labor dispute,
work stoppage, fire, epidemic or quarantine restriction, act of government,
critical materials shortage, or any other act beyond the control of the
Company, whether similar or dissimilar, (each a "Force Majeure Event"), which
Force Majeure Event affects the Company or
3
<PAGE> 4
its Subsidiaries or its Affiliate, the Board of Directors of the Company, at
its sole discretion, may (i) terminate or (ii) suspend, delay, defer (for such
period of time as the Board may deem necessary), or substitute any awards due
currently or in the future under the Plan, including, but not limited to, any
awards that have accrued to the benefit of participants but have not yet been
paid.
In consideration of the employee's privilege to participate in the Plan, the
employee agrees (i) not to disclose any trade secrets of, or other
confidential/restricted information of, American, to any unauthorized party
and, (ii) not to make any unauthorized use of such trade secrets or
confidential or restricted information during his or her employment with
American or after such employment is terminated, and (iii) not to solicit any
current employees of American or any subsidiaries of AMR Corporation to join
the employee at his or her new place of employment after his or her employment
with American is terminated.
The Board of Directors may amend, suspend, or terminate the Plan at any time.
4
<PAGE> 1
EXHIBIT 10.28
AMERICAN AIRLINES, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PROGRAM, AS AMENDED
EFFECTIVE JANUARY 1, 1985
Amended January 1997
<PAGE> 2
SUPPLEMENTAL EXECUTIVE RETIREMENT PROGRAM OF
AMERICAN AIRLINES, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Subject
------- -------
<S> <C>
I Definitions
II Benefits
III Payments of Benefits
IV Amendment and Termination
V General Conditions
VI Funding
</TABLE>
1
<PAGE> 3
SUPPLEMENTAL EXECUTIVE RETIREMENT PROGRAM OF
AMERICAN AIRLINES, INC.
PURPOSE
This Plan provides supplemental pension benefits to the elected officers of
American Airlines, Inc. and other key employees (as designated by the Chairman
of American Airlines, Inc.). The supplemental benefits consist of amounts in
excess of the maximum pension benefits payable under a Participant's Base Plan
and a retirement benefit based on a Participant's Incentive Compensation and
Performance Returns.
ARTICLE I
DEFINITIONS
1.1 Act - The Employee Retirement Income Security Act of 1974, as amended,
and any successor thereto.
1.2 Average Incentive Compensation - An amount calculated as follows:
(a) The sum of a Participant's five highest annual Incentive
Compensation awards (or the sum of all awards if a Participant
has fewer than five such awards) paid to a participant during
the time period beginning on or after January 1, 1985, and
ending the earlier of: i) the Participant's actual retirement
under the Base Plan, ii) the Participant's death, or iii) the
Participant's retirement. If an individual earns less than a
full year of Credited Service as a Participant in any year in
which Incentive Compensation is paid, that portion of the
Incentive Compensation taken into account will be prorated
based on the number of months in which the individual earns
any Credited Service while a Participant.
(b) Divide the sum determined in (a), above, by 5.
1.3 Average Performance Returns - An amount calculated as follows:
(a) The sum of a Participant's five highest annual Performance
Return awards (or the sum of all awards if a Participant has
fewer than five such awards) paid in the ten calendar years
preceding the first to occur of: i) the Participant's actual
retirement under the Base Plan, ii) the Participant's death,
or iii) the Participant's retirement.
(b) Divide the sum determined in (a), above, by 5.
2
<PAGE> 4
SUPPLEMENTAL EXECUTIVE RETIREMENT PROGRAM OF
AMERICAN AIRLINES, INC.
1.4 Base Plan - The Retirement Benefit Plan(s) of the Company
which qualify under Section 401 of the Code (or its successor
provision) and under which a Participant is eligible to
receive benefits.
1.5 Base Plan Benefit - The annual benefit which a Participant or
beneficiary is entitled to receive from the Base Plan upon
retirement, disability, death or termination of employment,
subject to Base Plan provisions which limit such benefit to
the maximum amount permitted by the Code.
1.6 Code - The Internal Revenue Code of 1986, as amended.
1.7 Committee - The administrative committee appointed to manage
and administer the Plan.
1.8 Company - American Airlines, Inc. and any subsidiary thereof
or of AMR Corporation ("AMR") which is designated for
inclusion in the Plan as determined by the Board of Directors
of AMR.
1.9 Credited Service - Credited Service as defined and determined
under the Participant's Base Plan.
1.10 Excess Retirement Benefit - The amount by which the
Participant's Total Benefit exceeds the corresponding Base
Plan Benefit, if any.
1.11 Incentive Compensation - Compensation paid to a participant on
or after January 1, 1985, in accordance with one of the
incentive compensation plans adopted by the Board of Directors
of the Company, whether paid currently or deferred. For
purposes of this definition, long-term, multi-year incentive
compensation plans are not included.
1.12 Participant - An elected officer of American Airlines, Inc.
(or designated officers of another Company) who is a
participant in a Base Plan or an individual who has been
designated as being a Participant in a writing signed by the
Chairman of the Company.
1.13 Performance Returns - Compensation paid to a Participant, on a
specified portion of career equity shares granted to a
Participant, as determined by the Board of Directors of the
Company.
1.14 Plan - The Supplemental Executive Retirement Program of
American Airlines, Inc.
3
<PAGE> 5
SUPPLEMENTAL EXECUTIVE RETIREMENT PROGRAM OF
AMERICAN AIRLINES, INC.
1.15 Supplemental Incentive Compensation Retirement Benefit - The
amount determined by multiplying the Average Incentive
Compensation by 2% for each year of Credited Service.
1.16 Supplemental Performance Return Retirement Benefit - The
amount determined by multiplying the Average Performance
Return by 2% for each year of Credited Service.
1.17 Total Benefit - The annual amount of a Participant's or a
beneficiary's benefit under the Base Plan computed without
regard to Base Plan provisions which limit the benefit to the
maximum amount permitted by the Code.
Article II
BENEFITS
2.1 The Plan will pay a Participant an annual retirement benefit
equal to the sum of a Participant's Excess Retirement Benefit,
Supplemental Incentive Compensation Retirement Benefit, and
Supplemental Performance Return Retirement Benefit.
2.2 The benefit under Section 2.1 of this Plan will be reduced by
a Social Security offset amount, if any, determined in
accordance with the applicable provisions of the Base Plan.
2.3 If no benefit is payable under the Base Plan, then no benefit
will be payable under this Plan.
ARTICLE III
PAYMENT OF BENEFITS
3.1 Except as provided in Sections 3.3, 3.4, 3.5 and 5.3, benefits
hereunder shall be payable at the same time and in the same
manner hereunder as under the Base Plan. Any designation
of beneficiary or contingent annuitant or revocation in effect
under the Base Plan shall be in effect under this Plan.
3.2 All rules of the Base Plan consistent with this Plan will
apply, including but not limited to, Social Security offset
provisions, early retirement reductions, optional forms of
benefit, pre-retirement surviving spouse's annuity, and
spousal consent requirements.
4
<PAGE> 6
SUPPLEMENTAL EXECUTIVE RETIREMENT PROGRAM OF
AMERICAN AIRLINES, INC.
3.3 Except as provided in Sections 3.4 and 3.5, all benefits under
this Plan will be paid in monthly installments only, unless
the Committee in its sole discretion directs payment in
another form. The Participant may elect any of the standard
equity forms provided under the Base Plan.
3.4 In lieu of monthly payments pursuant to 3.3, a Participant may
elect to claim a lump-sum, one-time payment equal to the
present value of the Benefits to be paid pursuant to Article
II of this Agreement (the "Lump-Sum Payment"). Such claim
shall i) be in writing, ii) be in a form as prescribed by the
Company, iii) be addressed to the Company's Vice President
Human Resources, or successor, and iv) be made by a
Participant at least one year (or such lesser period as the
Committee may permit) before he or she commences payments or
one year before age 65, whichever is the first to occur. In
addition to the foregoing, the Participant must execute a
general release; submit to a physical examination to provide
medical evidence of normal life expectancy satisfactory to the
Company; and provide consent of spouse, if married. If the
Participant's claim is denied, the Participant or the
Participant's spouse will receive a written notice. Any appeal
of a denied claim under this Section 3.4 will be processed in
accordance with the appeal procedures of the Base Plan. In
calculating the Lump-Sum Payment, the interest rate shall be
equal to that rate of interest then being earned on bonds
rated Moody's AAA Corporate Bond Rate for the third month
preceding the Participant's retirement date plus 100 basis
points. Upon acceptance of the lump-sum claim, the Lump-Sum
Payment will be paid to the Participant within 30 days of the
Participant's first receipt of benefits under the Base Plan.
3.5 Upon a Change in Control or Potential Change in Control (each
as defined in the 1988 Long-Term Incentive Plan (or its
successor plan) of AMR) with respect to AMR, a Participant
will receive a lump-sum, one-time payment equal to the
present value of the remaining Benefits to be paid pursuant to
Article II of this Agreement (the "Change in Control
Payment"), unless the Participant elects to continue to
receive monthly payments pursuant to Section 3.3. Such an
election shall i) be in writing, ii) be in a form as
prescribed by the Company, iii) be addressed to the Company's
Vice President Human Resources, or successor, and iv) be made
by the Participant within 30 days following the Change in
Control or the Potential Change in Control. Prior to receiving
the Change in Control Payment, the Participant may be required
to execute a general release and to provide consent of spouse,
if married. In calculating the Change in Control Payment, the
interest rate shall be equal to that rate of interest then
being earned on bonds rated Moody's AAA Corporate Bond Rate
for the third month preceding the Change in Control or
Potential Change in Control plus 100 basis points. The Change
in Control Payment will be paid to the
5
<PAGE> 7
SUPPLEMENTAL EXECUTIVE RETIREMENT PROGRAM OF
AMERICAN AIRLINES, INC.
Participant within 60 days following the Change in Control or
the Potential Change in Control.
ARTICLE IV
AMENDMENT AND TERMINATION
4.1 The Board of Directors of the Company, or such person or
persons, including the Committee, as may be designated in
writing, may amend or terminate the Plan at any time.
4.2 No such amendment or termination pursuant to Section 4.1 shall
adversely affect a benefit payable under this Plan with
respect to a Participant's employment by the Company prior to
the date of such amendment or termination unless such benefit
is or becomes payable under a successor plan or practice
adopted by the Board of Directors or its designee.
4.3 Notwithstanding Sections 4.1 and 4.2 of the Plan, no changes
or amendments (including termination) to the Plan will be
permitted after a Change in Control or Potential Change in
Control (each as defined in the 1988 Long Term Incentive Plan
(or its successor plan) of AMR).
ARTICLE V
GENERAL CONDITIONS
5.1 The right to receive benefits under the Plan may not be
anticipated, alienated, sold, transferred, assigned, pledged,
encumbered or subjected to any charge or legal process, and if
any attempt is made to do so or a person eligible for any
benefit becomes bankrupt, the interest under the Plan of the
person affected may be terminated by the Committee and the
Committee may in its sole discretion cause the same to be held
or applied for the benefit of one or more of the dependents of
such person.
5.2 All questions pertaining to the construction, validity and
effect of the Plan shall be determined in accordance with the
laws of the United States and the State of Texas.
5.3 In the event of any act of God, war, natural disaster,
aircraft grounding, revocation of operating certificate,
terrorism, strike, lockout, labor dispute, work stoppage,
fire, epidemic or quarantine restriction, act of government,
critical materials shortage, or any other act, whether similar
or dissimilar, beyond the control of the Company (each, a
"Force Majeure Event"), which Force Majeure Event affects the
Company or its Subsidiaries or its
6
<PAGE> 8
SUPPLEMENTAL EXECUTIVE RETIREMENT PROGRAM OF
AMERICAN AIRLINES, INC.
Affiliates, the Board of Directors of the Company, at its sole
discretion, may suspend, delay, defer or substitute (for such
period of time as the Board of Directors of the Company may
deem necessary) any payments due currently or in the future
under the Plan, including, but not limited to, any payments
that have accrued to the benefit of Participant but have not
yet been paid.
5.4 This non-qualified plan shall be a plan that is unfunded and
maintained by Company to provide deferred compensation to a
select group of management or highly-compensated employees (a
"top-hat" plan) as defined in sections 201(2), 301(a)(3), and
401(a)(1) of the Act.
ARTICLE VI
FUNDING
The Company will pay the entire cost of the Plan. It is the intent of the
Company to pay benefits as they become payable from its general assets.
ARTICLE VII
TRUST
7.1 To assist in the payment of benefits following a Change in
Control or Potential Change in Control (each as defined in the
1988 Long-Term Incentive Plan (or its successor plan) of AMR)
with respect to AMR, the Board of Directors of the Company or
its General Counsel or its Corporate Secretary may establish a
trust.
7.2 The trust which may be established pursuant to Section 7.1
will be: i) with a nationally recognized banking institution
with experience in serving as a trustee for such matters, ii)
pursuant to such documentation as recommended by outside
counsel to the Company, and iii) funded so as to enable the
trust to pay the benefits contemplated under the Plan as may
be determined by the Company's independent compensation
consultant. In addition, the Company's Board of Directors, its
General Counsel or its Corporate Secretary, may take those
additional actions deemed reasonably necessary to accomplish
the stated purpose of Section 7.1.
7
<PAGE> 9
SUPPLEMENTAL EXECUTIVE RETIREMENT PROGRAM (SERP)
LUMP-SUM PAYMENT
EXAMPLE CALCULATION
<TABLE>
<CAPTION>
OFFICER AGE 60
--------------
<S> <C>
AGE 60
GENDER MALE
RETIREMENT DATE May-94
ANNUAL SERP BENEFIT (1) $53,000
MOODY'S AAA + 1% (2) 8.08%
PAYMENT TIME (3) IMMEDIATE
LUMP-SUM FACTOR (4) 9.5720
ANNUAL SERP BENEFIT $53,000
LUMP-SUM FACTOR X 9.5720
--------
LUMP-SUM PAYMENT $507,316
(Annual SERP Benefit x Lump-Sum Factor)
</TABLE>
Notes:
(1) The Annual SERP Benefit is calculated using current SERP policy and a
Single Life Annuity. Single Life Annuity yields the greatest benefit as there
is no survivor benefit for a spouse.
(2) The interest rate is the average Moody's AAA rate for the third month
prior to retirement plus 1% (average February rate for May retirement). The
Pilot Plan utilizes 120% of the PBGC for the second month prior to retirement.
PBGC is a beginning of the month rate. (March 1 rate for May retirement).
(3) Assumed immediate distribution of the Lump-Sum Payment.
(4) The Lump-Sum Factor is based on four variables: gender and age of
officer, interest rate and mortality table. Lump-Sum Tables (one male/one
female) are created each month based on the 1983 Group Annuity Mortality Table
and the applicable Moody's interest rate The Lump-Sum Tables are a list of ages
and present value factors.
8
<PAGE> 1
EXHIBIT 10.29
AMERICAN AIRLINES, INC.
1996 EMPLOYEE PROFIT SHARING PLAN
Purpose
The purpose of the 1996 American Airlines Employee Profit Sharing Plan ("Plan")
is to provide participating employees with a sense of commitment to, and direct
financial interest in, the success of American Airlines, Inc. ("American").
Definitions
"Fund" is defined as the profit sharing fund, if any, accumulated in accordance
with this plan.
"Qualified Earnings" is defined as an employee's pensionable earnings and does
not include income items such as moving expenses and related benefits,
disability payments, company paid insurance, D-3 imputed income, incentive or
profit sharing awards paid in the Plan year and other awards and allowances.
"Return on Investment" or "ROI" is defined as Plan Earnings divided by Adjusted
Investment, stated as a percentage.
"Plan Earnings" is defined as AMR Corporation's ("AMR") pretax income plus
AMR's interest expense, plus any accruals for American's profit sharing and
incentive compensation plans, plus aircraft rental expense, less Calculated
Amortization for Operating Leases and less pretax income and interest expense
attributable to AMR subsidiaries other than American. For purposes of such
calculation, the AMR Incentive Compensation Committee ("Committee") may include
or exclude from Plan Earnings special or non-recurring gains or losses at its
discretion.
"Adjusted Investment" is defined as AMR's Debt (as hereinafter defined) plus
the present value of operating lease rental payments, plus AMR stockholders'
equity, less stockholders equity attributable to AMR subsidiaries other than
American. "AMR's Debt" is defined as notes payable plus the current and
noncurrent portions of both long-term debt and capital leases, less any
long-term debt and capital leases relating to AMR subsidiaries other than
American.
"Calculated Amortization for Operating Leases" is defined as the present value,
at inception, of operating lease rental payments, amortized over the life of
the lease, using the effective interest method.
<PAGE> 2
"Affiliate is defined as a subsidiary of AMR or any entity that is designated
by the Board as a participating employer under the Plan, provided that AMR
directly or indirectly owns at least 20% of the combined voting power of all
classes of stock of such entity.
ROI calculation for 1996
The SABRE Group became a separate legal entity on July 1, 1996. Therefore, the
ROI for 1996 will be calculated as a simple average of the annualized ROI for
the first six months of 1996 and the annualized ROI for the second six months
of 1996, as defined below.
For the purpose of ROI calculation for the first six months, Plan Earnings will
include SABRE earnings. ROI for the first six months will be computed by
multiplying the Plan Earnings for the first six months by two and then dividing
by the average Adjusted Investment for the first six months.
For the purpose of ROI calculation for the second six months, Plan Earnings
will exclude SABRE earnings. ROI for the second six months will be computed by
multiplying the Plan Earnings for the second six months by two and then
dividing by the average Adjusted Investment for the second six months.
Eligibility for Participation
In order to be eligible for a profit sharing award, the individual must:
o Have worked during the plan year as a regular full-time or part-time
employee at American in a participating workgroup (flight attendant,
reservations, coordinator/planner, airport agent, support staff,
management levels 04 and below)
o Must have completed six months of service as a regular employee at
American or an Affiliate during his/her tenure. If the six months
service requirement is fulfilled during the plan year, eligible
earnings from the time worked at American during those six months will
be included in the award calculation.
o Must be actively employed at American or an AMR company at the time
awards are paid. If at the time awards are paid under the Plan, an
individual has retired from American or an Affiliate, has been laid
off, is disabled or has died, the award which the individual otherwise
would have received under the Plan but for such retirement, lay-off,
disability or death may be paid to the individual or his/her estate in
the event of death, at the discretion of the Committee.
<PAGE> 3
Notwithstanding the foregoing, however, an employee will not be eligible to
participate in the Plan if such employee is, at the same time, eligible to
participate in:
i) the 1996 American Airlines Incentive Compensation Plan for
Officers and Key Employees,
ii) the Variable Compensation Program for members of the Allied
Pilots Association (as implemented in 1991),
iii) the TWU Profit Sharing Plan for members of the Transport
Workers Union (as implemented in 1995 and revised in 1996)
iv) any incentive compensation, profit sharing, or other bonus plan
for employees of any division of American, or
v) any incentive compensation, profit sharing, or other bonus plan
sponsored by an Affiliate.
Profit Sharing awards will be determined on a proportionate basis for
participation in more than one plan. Employees who transfer from/to Affiliates
or any other plan described above, and satisfy aforementioned eligibility
requirements, will receive awards from each plan on a proportionate basis.
The Profit Sharing Fund Accumulation
Performance will be measured by ROI and the fund will accumulate based on that
performance. The profit sharing fund is established at 1% of Qualified Earnings
when ROI is equal to 7.2%. The fund will accumulate on a straight-line basis at
the rate of 0.583% of qualified earnings for each additional point of ROI.
The profit sharing fund will not exceed an amount equal to 8% of qualified
earnings at levels of ROI above 19.2%.
Minimum Payout Guarantee for 1996
All regular employees on payroll on or before July 1, 1996 are eligible for the
greater of: a) the percentage of Qualified Earnings that the Plan would
distribute, or b) 2% of Qualified Earnings.
Award Distribution
For domestic employees, individual awards will be distributed based on an
employee's Qualified Earnings for the Plan year multiplied by the appropriate
percentage of Qualified Earnings based upon the ROI achieved for the Plan year.
The percent of Qualified Earnings used for fund accumulation and award
distribution will be the same.
<PAGE> 4
A portion of the Fund will be allocated for international employees based on
eligible international employees' Qualified Earnings as a percentage of
eligible employees' total Qualified Earnings. This portion of the Fund will be
set aside for distribution at the discretion of the appropriate Senior Vice
President, subject only to the Committee's approval.
Administration
The Plan will be administered by a Committee comprised of officers of American
appointed by the Chairman of AMR. The Committee will have authority to
administer and interpret the Plan, establish administrative rules, determine
eligibility and take any other action necessary for the proper and efficient
operation of the Plan. The amount, if any, of the Fund shall be computed by the
General Auditor of American based on a certification of ROI by American's
independent auditors. A summary of awards under the Plan shall be provided to
the Board of Directors at the first regular meeting following determination of
the awards.
Method of Payment
The Committee shall determine the method of payment of awards. Awards shall be
paid as soon as practicable after audited financial statements for the year
1996 are available. Individuals, except retirees, may elect to defer their
awards into the 401(k) plan established by American.
General
Neither this Plan nor any action taken thereunder shall be construed as giving
to any employee or participant the right to be retained in the employ of
American or any Affiliate.
Nothing in the Plan shall be deemed to give any employee any right,
contractually or otherwise, to participate in the Plan or in any benefits
thereunder, other than the right to receive payment of such award as may have
been expressly determined by the Committee.
In consideration of the employee's privilege to participate in the Plan, the
employee agrees (1) not to disclose any trade secrets of, or other
confidential/restricted information of, American, to any unauthorized party
and, (ii) not to make any unauthorized use of such trade secrets or
confidential or restricted information during his or her employment with
American or after such employment is terminated, and (iii) not to solicit any
current employees of American or any subsidiaries of AMR corporation to join
the employee at his or her new place of employment after his or her employment
with American is terminated.
The Committee may amend, suspend, or terminate the Plan at any time.
<PAGE> 1
EXHIBIT 10.30
AMERICAN AIRLINES, INC.
1997 EMPLOYEE PROFIT SHARING PLAN
Purpose
The purpose of the 1997 American Airlines Employee Profit Sharing Plan ("Plan")
is to provide participating employees with a sense of commitment to, and direct
financial interest in, the success of American Airlines, Inc. ("American").
Definitions
"AMR" is defined as AMR Corporation.
"American" is defined as AMR Corporation less AMR subsidiaries other than
American Airlines, Inc.
"Committee" is defined as the AMR Incentive Compensation Committee.
"Fund" is defined as the profit sharing fund, if any, accumulated in accordance
with this plan.
"Qualified Earnings" is defined as base pay, overtime, holiday pay, skill
premiums, longevity pay, sick pay, vacation pay, shift differential, market
rate differential, overrides and license premiums and does not include such
things as travel and incidental expenses, moving expenses, relocation allowance
(COLA), payouts from any retirement plan, disability payments, Workers
Compensation payments, imputed income from D-3 service charges or Company
provided life insurance, nor does it include any special monetary awards or
allowances such as IdeAAs in Action payments, lump sum payments, or incentive
compensation or profit sharing payments.
"Plan Earnings" is defined as the sum of American's pre-tax income, interest
expense, aircraft rental expense, and any accruals for American's Pilot
Variable Compensation Plan, TWU Profit Sharing Plan, Employee Profit Sharing
Plan, and Incentive Compensation Plan, less Calculated Amortization of
Operating Leases and any accounting adjustments or extraordinary or unusual
items which may be added or deducted at the discretion of the Committee and
approved by the Board of Directors.
"Adjusted Investment" is defined as the sum of American's notes payable,
current maturities of long term debt and capital leases, long term debt,
capital leases, present value of operating leases, and stockholders' equity,
and any extraordinary or unusual items which may be added or deducted at the
discretion of the Committee and the Board of Directors.
<PAGE> 2
"Present Value of Operating Leases" is defined as the present value of the
lease payments required under American's aircraft operating leases over the
remaining lease term, calculated using a discount rate of Prime plus one
percent. Amounts for 3/31/97, 6/30/97, and 9/30/97 are computed by determining
the difference between the Present Value of Operating Leases as of 12/13/97 and
12/31/96 and allocating that difference evenly over the four quarters of 1997.
"Capitalized Value of Operating Leases" is defined as the initial present value
of the lease payments required under American's aircraft operating leases over
the initial stated lease term, calculated using a discount rate of Prime plus
one percent.
"Calculated Amortization of Operating Leases" is defined as the amortization
expense associated with the Capitalized Value of Operating Leases and is
determined by the straight line method over the lease term.
"Prime" is defined as the base rate on Corporate Loans posted by at least 75%
of the 30 largest U.S. banks which is published daily in the Wall Street
Journal.
"Average Adjusted Investment" is defined as the sum of Adjusted Investment as
of 12/31/96, 3/31/97, 6/30/97, and 9/30/97, divided by four.
"Return on Investment" or "ROI" is defined as Plan Earnings divided by Average
Adjusted Investment, stated as a percentage.
"Affiliate" is defined as a subsidiary of AMR or any entity that is designated
by the Board as a participating employer under the Plan, provided that AMR
directly or indirectly owns at least 20% of the combined voting power of all
classes of stock of such entity.
Eligibility for Participation
In order to be eligible for a profit sharing award, the individual must:
o Have worked during the plan year as a regular full-time or part-time
employee at American in a participating workgroup (flight attendant,
reservations, coordinator/planner, airport agent, support staff,
management levels 04 and below).
o Must have completed six consecutive months of service as a regular
employee at American or an Affiliate during his/her tenure. If the
six months service requirement is fulfilled during the plan year,
eligible earnings from the time worked at American during those six
months will be included in the award calculation.
o Must be actively employed at American or an Affiliate at the time
awards are paid under the Plan, an individual has retired
from
<PAGE> 3
American or an Affiliate, has been laid off, is disabled or has died,
the award which the individual otherwise would have received under the
Plan but for such retirement, lay-off, disability or death may be paid
to the individual or his/her estate in the event of death, at the
discretion of the Committee.
Notwithstanding the foregoing, however, an employee will not be eligible to
participate in the Plan if such employee is, at the same time, eligible to
participate in:
i) the 1997 American Airlines Incentive Compensation Plan for
Officers and Key Employees,
ii) the Variable Compensation Program for members of the Allied
Pilots Association (as implemented in 1991),
iii) the TWU Profit Sharing Plan for members of the Transport
Workers Union (as implemented in 1995 and revised in 1996),
iv) any incentive compensation, profit sharing, commission or
other bonus plan for employees of any division of American, or
v) any incentive compensation, profit sharing, commission or
other bonus plan sponsored by an Affiliate.
Profit Sharing awards will be determined on a proportionate basis for
participation in more than one plan. Employees who transfer from/to Affiliates
or any other plan described above, and satisfy aforementioned eligibility
requirements, will receive awards from each plan on a proportionate basis.
The Profit Sharing Fund Accumulation
Performance will be measured by ROI and the Fund will accumulate based on that
performance. The Fund is established at 1% of Qualified Earnings when ROI is
equal to 6.4%. The fund will accumulate on a straight-line basis at the rate of
0.583% of qualified earnings for each additional point of ROI.
The profit sharing fund will not exceed an amount equal to 8% of Qualified
Earnings at levels of ROI above 18.4%.
Minimum Payout Guarantee for 1997
All regular employees on payroll on or before July 1, 1996 and who are
otherwise eligible to receive a profit sharing award are eligible for an award
hereunder equal to the greater of: a) the percentage of Qualified Earnings that
the Plan would distribute in accordance with the foregoing formula, or b) 2% of
Qualified Earnings.
Award Distribution
For domestic employees, individual awards will be distributed based on an
employee's Qualified Earnings for the Plan year multiplied by the appropriate
<PAGE> 4
percentage of Qualified Earnings based upon the ROI achieved for the Plan year.
The percent of Qualified Earnings used for fund accumulation and award
distribution will be the same.
A portion of the Fund will be allocated for international employees based on
eligible international employees' Qualified Earnings as a percentage of
eligible employees' total Qualified Earnings. This portion of the Fund will be
set aside for distribution at the discretion of the appropriate Senior Vice
President, subject only to the Committee's approval.
Administration
The Plan will be administered by a Committee comprised of officers of American
appointed by the Chairman of AMR. The Committee will have authority to
administer and interpret the Plan, establish administrative rules, determine
eligibility and take any other action necessary for the proper and efficient
operation of the Plan. The amount, if any, of the Fund shall be computed by the
General Auditor of American based on a certification of ROI by American's
independent auditors. A summary of awards under the Plan shall be provided to
the Board of Directors at the first regular meeting following determination of
the awards.
Method of Payment
The Committee shall determine the method of payment of awards. Awards shall be
paid as soon as practicable after audited financial statements for the year
1997 are available. Individuals, except retirees, may elect to defer their
awards into the 401(k) plan established by American.
General
Neither this Plan nor any action taken thereunder shall be construed as giving
to any employee or participant the right to be retained in the employ of
American or any Affiliate.
Nothing in the Plan shall be deemed to give any employee any right,
contractually or otherwise, to participate in the Plan or in any benefits
thereunder, other than the right to receive payment of such award as may have
been expressly determined by the Committee.
In the event of any act of God, war, natural disaster, aircraft grounding,
revocation of operating certificate, terrorism, strike, lockout, labor dispute,
work stoppage, fire, epidemic or quarantine restriction, act of government,
critical materials shortage, or any other act beyond the control of the
Company, whether similar or dissimilar, (each a "Force Majeure Event"), which
Force Majeure Event affects the Company or
<PAGE> 5
its Subsidiaries or its Affiliates, the Board of Directors of the Company, at
its sole discretion, may (i) terminate or (ii) suspend, delay, defer (for such
period of time as the Board may deem necessary), or substitute any payments due
currently or in the future under the Plan, including, but not limited to, any
payments that have accrued to the benefit of participants but have not yet been
paid.
In consideration of the employee's privilege to participate in the Plan, the
employee agrees (i) not to disclose any trade secrets of, or other
confidential/restricted information of, American, to any unauthorized party
and, (ii) not to make any unauthorized use of such trade secrets or
confidential or restricted information during his or her employment with
American or after such employment is terminated, and (iii) not to solicit any
current employees of American or any subsidiaries of AMR Corporation to join
the employee at his or her new place of employment after his or her employment
with American is terminated.
The Committee may amend, suspend, or terminate the Plan at any time.
<PAGE> 1
EXHIBIT 10.32
AMERICAN AIRLINES, INC.
1997 INCENTIVE COMPENSATION PLAN
FOR OFFICERS AND KEY EMPLOYEES
Purpose
The purpose of the 1997 American Airlines Incentive Compensation Plan ("Plan")
for Officers and Key Employees is to provide greater incentive to officers and
key employees of American Airlines, Inc. ("American"), to achieve the highest
level of individual performance, and to meet or exceed specified goals which
will contribute to the success of American.
Definitions
"AMR" is defined as AMR Corporation.
"American" is defined as AMR Corporation less AMR subsidiaries other than
American Airlines, Inc.
"Committee" is defined as the Compensation/Nominating Committee of the AMR
Board of Directors.
"Fund" is defined as the incentive compensation fund, if any, accumulated in
accordance with this Plan.
"Qualified Earnings" is defined as base pay, overtime, holiday pay, skill
premiums, longevity pay, sick pay, vacation pay, shift differential, market
rate differential, overrides and license premiums and does not include such
things as travel and incidental expenses, moving expenses, relocation allowance
(COLA), payouts from any retirement plan, disability payments, Workers
Compensation payments, imputed income from D-3 service charges or Company
provided life insurance, nor does it include any special monetary awards or
allowances such as IdeAAs in Action payments, lump sum payments, or incentive
compensation or profit sharing payments.
"Target Award" is defined as the award (stated as a percentage of Qualified
Earnings) for an eligible participant when Target CFROGA is achieved: subject,
however, to adjustment by the Committee or senior management, as the case may
be, based upon the participant's individual performance.
"Adjusted Earnings/(Loss)" is defined as the sum of American's net
earnings/(loss), aircraft rental expense - net of the Related Tax Impact, and
Net Interest Expense -
<PAGE> 2
net of the Related Tax Impact, less: Calculated Amortization on Operating
Leases - net of the Related Tax Impact.
"Net Interest Expense" is defined as interest expense less interest income.
"Calculated Amortization on Operating Leases" is defined as the amortization
expense associated with Capitalized Value of Operating Leases and is determined
by the straight line method of amortization over the lease term.
"Net Cash Flow" is defined as the sum of Adjusted Earnings/(Loss), depreciation
and amortization expense, Calculated Amortization on Operating Leases, and any
accounting adjustments or extraordinary or unusual items (net of the Related
Tax Impact) or other non-cash items which may be added or deducted at the
discretion of the AMR Incentive Compensation Committee and approved by the AMR
Board of Directors.
"Adjusted Gross Assets" is defined as the sum of American's total assets, the
Capitalized Value of Operating Leases, Accumulated Depreciation on Equipment
and Property, and Accumulated Amortization on Equipment and Property under
Capital Leases, less cash and short-term investments, and other assets which
may be added or deducted at the discretion of the AMR Incentive Compensation
Committee and approved by the AMR Board of Directors.
"Capitalized Value of Operating Leases" is defined as the initial present value
of the lease payments required under American's aircraft operating leases over
the initial stated lease term, calculated using a discount rate of Prime plus
one percent.
"Prime" is defined as the base rate on Corporate Loans posted by at least 75%
of the 30 largest U.S. banks which is published daily in the Wall Street
Journal.
"Related Tax Impact" of an adjustment made in determining Adjusted Net
Earnings/(Loss) or Net Cash Flow is defined as the amount of that adjustment
multiplied by American's estimated marginal tax rate.
"Average Adjusted Gross Assets" is defined as the sum of Adjusted Gross Assets
as of 12/31/96, 3/31/97, 6/30/97, and 9/30/97, divided by four.
"Cash Flow Return on Gross Assets" or "CFROGA" is defined as Net Cash Flow
divided by Average Adjusted Gross Assets, stated as a percentage.
"Comparison Airlines" shall consist of UAL Corp., Delta Air Lines, Inc.,
Southwest Airlines, Inc., and USAir Group.
"Affiliate" is defined as a subsidiary of AMR or any entity that is designated
by the Board as a participating employer under the Plan, provided that AMR
directly or indirectly owns at least 20% of the combined voting power of all
classes of stock of such entity.
<PAGE> 3
"Threshold CFROGA" is defined as 6.7%.
Eligibility for Participation
In order to be eligible to participate in the Plan, an individual must be an
officer or key employee (as designated by American's Chairman and CEO) of
American. Additionally, the individual must have been employed by American or
an Affiliate as an officer or key employee for at least three consecutive
months during the Plan year. The three months service requirement may be waived
in cases of mandatory retirement prior to completing three months of service.
During a Plan year, individuals with less than twelve months eligibility in the
Plan may be eligible to participate in the Plan on a pro rata basis, at the
discretion of the Committee. In addition, the Committee, in its discretion, may
permit participation by officers and key employees of Affiliates who have been
so employed by the Affiliate for at least three consecutive months during the
Plan year.
Notwithstanding the forgoing, however, an officer or key employee will not be
eligible to participate in the Plan if such officer or key employee is, at the
same time, eligible to participate in a commission, incentive, profit sharing
or other bonus compensation program sponsored by American or an Affiliate,
unless the Committee otherwise decides.
In order to receive an award under the Plan, an individual must satisfy the
aforementioned eligibility requirements and must be an employee of American or
an Affiliate at the time an award under the Plan is paid. If at the time awards
are paid under the Plan, an individual has retired from American or an
Affiliate, is disabled, or has died, the award which the individual otherwise
would have received under the Plan but for such retirement, disability, or
death may be paid to the individual, or his/her estate in the event of death,
at the discretion of the Committee.
The Incentive Compensation Fund
a) As CFROGA exceeds the Threshold CFROGA, the Fund will begin to
accumulate.
b) Target CFROGA will vary from 7.4% - 7.8% depending upon CFROGA
rank among the Comparison Airlines. At target CFROGA, the Fund
will accumulate to a size that will allow Target Awards for
all eligible participants.
c) Maximum Payout CFROGA will vary from 9.0% to 10.2% depending
on CFROGA rank among the comparison airlines. At Maximum
Payout the CFROGA, Fund will accumulate to a size that will
allow 210% of
<PAGE> 4
Target Awards for all eligible participants.
d) Once Threshold CFROGA has been attained, the Fund will
accumulate on a linear basis such that at Target CFROGA, the
Fund size equals 100% of Target Awards. Following the
attainment of Target CFROGA, the Fund will accumulate on a
linear basis such that maximum awards are funded at Maximum
Payout CFROGA.
<TABLE>
<CAPTION>
American's --CFROGA-- --------------
Competitive ---------- Comparison
Rank Threshold Target Max Payout Airlines
---- --------- ------ ---------- --------
<S> <C> <C> <C> <C>
1 6.7% 7.4% 9.0% Delta
2 6.7% 7.5% 9.3% UAL
3 6.7% 7.6% 9.6% USAir
4 6.7% 7.7% 9.9% Southwest
5 6.7% 7.8% 10.2% --------------
</TABLE>
Allocation of Individual Awards
Individual awards for officers of American under the Plan will be determined by
the Committee based upon each participant's performance. Individual awards for
key employees of American will be determined by the senior management of
American based upon each participant's performance. Unless the Committee or
senior management, as the case may be, decides otherwise, an award made under
the Plan, in combination with any other award made under an incentive,
commission, profit sharing or other bonus compensation program sponsored by
American or an Affiliate may not, in the aggregate, exceed 100% of the
participant's base salary. At the discretion of the Committee, the Fund may not
be fully distributed. In addition, the aggregate of all awards paid hereunder
will not exceed the lesser of 2.1 times the target fund or 50% of total base
salaries of all participants.
Administration
The Committee shall have authority to administer and interpret the Plan,
establish administrative rules, approve eligible participants, and take any
other action necessary for the proper operation of the Plan. In computing the
Cash Flow Return on Gross Assets of the Comparison Airlines, the Committee may
include or exclude special or non-recurring items. Notwithstanding anything to
the contrary contained herein, no awards will be made under the Plan unless
awards are also made under the 1997 American Airlines Employee Profit Sharing
Plan, the 1997 Pilot Variable Compensation Plan for members of the Allied
Pilots Association, and the 1997 TWU Profit Sharing Plan for members of the
Transport Workers Union. The amount, if any, of the Fund shall be computed by
the General Auditor of American based on a certification of CFROGA by
American's independent auditors. A summary of awards
<PAGE> 5
under the Plan shall be provided to the Board of Directors at the first regular
meeting following determination of the awards.
Method of Payment
The Committee will determine the method of payment of awards. Awards shall be
paid as soon as practicable after audited financial statements for the year
1997 are available. Individuals, except retirees, may elect to defer their
awards into a 401(k) plan established by American or AMR or into a deferred
compensation program, if any, administered by American or AMR.
General
Neither this Plan nor any action taken hereunder shall be construed as giving
any employee or participant the right to be retained in the employ of American
or an Affiliate.
Nothing in the Plan shall be deemed to give any employee any right,
contractually or otherwise, to participate in the Plan or in any benefits
hereunder, other than the right to receive payment of such incentive
compensation as may have been expressly awarded by the Committee.
In the event of any act of God, war, natural disaster, aircraft grounding,
revocation of operating certificate, terrorism, strike, lockout, labor dispute,
work stoppage, fire, epidemic or quarantine restriction, act of government,
critical materials shortage, or any other act beyond the control of the
Company, whether similar or dissimilar, (each a "Force Majeure Event"), which
Force Majeure Event affects the Company or its Subsidiaries or its Affiliates,
the Board of Directors of the Company, at its sole discretion, may (i)
terminate or (ii) suspend, delay, defer (for such period of time as the Board
may deem necessary), or substitute any payments due currently or in the future
under the Plan, including, but not limited to, any payments that have accrued
to the benefit of participants but have not yet been paid.
In consideration of the employee's privilege to participate in the Plan, the
employee agrees (i) not to disclose any trade secrets of, or other
confidential/restricted information of, American, to any unauthorized party
and, (ii) not to make any unauthorized use of such trade secrets or
confidential or restricted information during his or her employment with
American or after such employment is terminated, and (iii) not to solicit any
current employees of American or any subsidiaries of AMR Corporation to join
the employee at his or her new place of employment after his or her employment
with American is terminated.
The Board of Directors may amend, suspend, or terminate the Plan at any time.
<PAGE> 1
EXHIBIT 11.1
AMR CORPORATION
COMPUTATION OF PRIMARY EARNINGS PER SHARE
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
NET EARNINGS $ 1,016 $ 162 $ 228
Preferred stock dividends -- -- (56)
Increase in additional paid-in capital from preferred
stock exchange -- -- 171
------- ------- -------
EARNINGS APPLICABLE TO COMMON SHARES $ 1,016 $ 162 $ 343
======= ======= =======
Average number of shares outstanding 86 76 76
Add shares issued upon assumed exercise of dilutive options,
stock appreciation rights and warrants and shares assumed
issued for deferred stock granted 3 3 --
Less assumed treasury shares repurchased (2) (2) --
------- ------- -------
TOTAL PRIMARY SHARES 87 77 76
======= ======= =======
PRIMARY EARNINGS PER SHARE $ 11.63 $ 2.11 $ 4.51
======= ======= =======
</TABLE>
65
<PAGE> 1
EXHIBIT 11.2
AMR CORPORATION
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
NET EARNINGS $ 1,016 $ 162 $ 228
Preferred stock dividends -- -- (56)
Increase in additional paid-in capital from preferred
stock exchange -- -- 171
------- ------- --------
EARNINGS APPLICABLE TO COMMON SHARES 1,016 162 343
Adjustments:
Add interest upon assumed conversion of convertible
subordinated debentures, net of tax 14(a) -- --
Add dividends upon assumed conversion of convertible
preferred stock 1(a) -- --
======= ======= ========
EARNINGS, AS ADJUSTED $ 1,031 $ 162 $ 343
======= ======= ========
Average number of shares outstanding 86 76 76
Add shares issued upon:
Assumed conversion of convertible subordinated debentures
4 -- --
Assumed conversion of convertible preferred stock 1 -- --
Assumed exercise of dilutive options, stock appreciation
rights and warrants and shares assumed issued for
deferred stock granted 3 3 --
Less assumed treasury shares repurchased (2) (2) --
======= ======= ========
TOTAL FULLY DILUTED SHARES 92 77 76
======= ======= ========
FULLY DILUTED EARNINGS PER SHARE $ 11.19 $ 2.11 $ 4.51
======= ======= ========
</TABLE>
(a) Through date of actual conversion.
66
<PAGE> 1
EXHIBIT 21
AMR CORPORATION
SUBSIDIARIES OF THE REGISTRANT
AS OF DECEMBER 31, 1996
Subsidiary companies of the Registrant are listed below. With respect to the
companies named, all voting securities are owned directly or indirectly by the
Registrant, except where otherwise indicated
<TABLE>
<CAPTION>
STATE OR
SOVEREIGN POWER
NAME OF SUBSIDIARY OF INCORPORATION
- ------------------ -----------------
<S> <C>
Subsidiaries included in the Registrant's consolidated financial statements
Delaware
AMR Aircraft Sales & Leasing Company Texas
AMR/American Airlines Foundation Delaware
AMR Commuter Finance, Inc. Delaware
AMR Eagle, Inc. Delaware
AMR Eagle Maintenance Services Group, Inc. Delaware
AMR Eagle Regional Aircraft Maintenance Center, Inc. Panama
Aero Perlas (20%) Delaware
Eagle Aviation Leasing, Inc. Delaware
Eagle Aviation Services, Inc. Delaware
Executive Airlines, Inc. Delaware
Flagship Airlines, Inc. Delaware
Inventory Support, Inc. Michigan
Simmons Airlines, Inc. California
Wings West Airlines, Inc. Delaware
AMR Financial Services, Inc. Bermuda
AMR Foreign Sales Corporation, Ltd. Delaware
AMR Holding Company, Inc. Delaware
AMR Investment Services, Inc. Delaware
AMR Leasing Corporation Delaware
AMR Services Holding Corporation Delaware
AMR Services Corporation Delaware
AMR Combs, Inc. Delaware
AMR Combs BJS, Inc. Delaware
Jet Solutions LLC Delaware
Aircraft Deicing Services Funding, Inc. Delaware
Aircraft Deicing Services, Inc. Alabama
AMR Combs-Birmingham, Inc. Delaware
AMR Combs-Grand Rapids, Inc. Poland
AMR Polskie Uslugi Lotniskowe Delaware
AMR Runway Technologies, Inc. Mexico
AMR Services & Logistics Co. of Mexico United Kingdom
AMR Services (UK) Ltd. United Kingdom
AMR Two Flags Aviation Services Limited Germany
AMR Services Deutschland GmbH Delaware
AMR Services Security Service Corporation Delaware
AMRS Finance Company France
AMRS France Holding, S. A. France
Societe de Fret et de Services Spain
Sociedad de Handling Servicios S. A. Florida
Miami International Airport Cargo Facilities & Services, Inc. Delaware
Caribbean Data Services, Ltd. Delaware
Teleservice Resources, Inc. Delaware
TSR Government Services, Inc.
</TABLE>
67
<PAGE> 2
EXHIBIT 21
(Continued)
<TABLE>
<CAPTION>
STATE OR
SOVEREIGN POWER
NAME OF SUBSIDIARY OF INCORPORATION
- ------------------ ----------------
<S> <C>
AMR Training & Consulting Group, Inc. Delaware
Airline Management Services Holding, Inc. Nevada
Airline Management Services, Inc. Delaware
Aurora Airline Investments, Inc. Delaware
American Airlines, Inc. Delaware
AMR Ventures III, Inc. Delaware
Admirals Club, Inc. Massachusetts
American Airlines Australian Tours, Inc. Delaware
American Airlines Deutschland Holding GmbH Germany
American Airlines Fuel Corporation Delaware
American Airlines Holding Company, Inc. Delaware
Americas Marketing Network, Inc. Delaware
DFW Terminal Corporation Texas
International Ground Services, S. A. de C. V. Mexico
Wingate Travel S. A. (49%) France
ATC Loisiers S. A. France
Africa Travel Services Angola
Wingate Japan KK Japan
Wingate Travel Hong Kong Ltd. Hong Kong
American Holidays Limited United Kingdom
Americas Ground Services, Inc. Delaware
Aerodespachos Colombia S. A. Columbia
AEROSAN (50%) Chili
Caribbean Dispatch Services Ltd. St. Lucia
Dispatch Services DS Venezuela
DSA Dominican Republic
Panama Dispatch Panama
Peru Dispatch Company Peru
Avion Assurance Ltd. Bermuda
Cargo Services, Inc. Delaware
The C. R. Smith Aviation Museum Foundation (non-profit) Delaware
</TABLE>
68
<PAGE> 3
EXHIBIT 21
(Continued)
<TABLE>
<CAPTION>
STATE OR
SOVEREIGN POWER
NAME OF SUBSIDIARY OF INCORPORATION
- ------------------ -----------------
<S> <C>
The SABRE Group Holdings, Inc. (82.2% economic interest) Delaware
The SABRE Group, Inc. Delaware
Axess International Network, Inc. (25%) Japan
ENCOMPASS Holding, Inc. Delaware
Prize Ltd. (50%) Latvia
SABRE Decision Technologies International, Inc. Delaware
SABRE Decision Technologies Pty Ltd. Australia
SABRE Decision Technologies Licensing, Inc. Delaware
SABRE International Holdings, Inc. Delaware
SABRE International, Inc. Delaware
SABRE Belgium (99% owned by SABRE International, Inc.) Belgium
SABRE Computer-Reservierungssytem GmbH Austria
SABRE Danmark ApS Denmark
SABRE Deutschland Marketing GmbH Germany
SABRE Deutschland Services GmbH Germany
SABRE Espana Marketing, S. A. Spain
SABRE Europe Management Services Ltd. (99%) United Kingdom
SABRE France Sarl France
SABRE Hellas SA Greece
SABRE Ireland Ltd. Ireland
SABRE Italia S.r.l. (99%) Italy
SABRE Marketing Nederland BV Netherlands
SABRE Norge AS Norway
SABRE Portugal Servicios LDA (99%) Portugal
SABRE Servicios Colombia LTDA (99%) Colombia
SABRE Suomi Oy Finland
SABRE Sverige AB Sweden
SABRE UK Marketing Ltd. (99%) United Kingdom
STIN Luxembourg S.A. (99%) Luxembourg
SST Finance, Inc. Delaware
SST Holding, Inc. Delaware
SABRE Sociedad Technologica S. A. (50%) Mexico
SABRE Services Administration Mexico
TSGL, Inc. Delaware
TSGL Holding, Inc. Delaware
TSGL-SCS, Inc. Delaware
Ticketnet Corporation Canada
148548 Canada, Inc. Canada
</TABLE>
69
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statements
(Form S-8 No. 2-68366, Form S-8 No. 33-60725, Form S-8 No. 33-60727, Form S-8
No. 333-13751, Form S-8 No. 333-19325, Form S-3 No. 33-42027, Form S-3
No. 33-46325, and Form S-3 No. 33-52121) of AMR Corporation, and in the related
Prospectuses, of our report dated January 14, 1997 (except for the first
paragraph of Note 3, for which the date is March 24, 1997), with respect to
the consolidated financial statements and schedule of AMR Corporation included
in this Annual Report (Form 10-K) for the year ended December 31, 1996.
ERNST & YOUNG LLP
Dallas, Texas
March 24, 1997
70
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000006201
<NAME> AMR CORPORATION
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 68
<SECURITIES> 1,743
<RECEIVABLES> 1,399
<ALLOWANCES> 17
<INVENTORY> 633
<CURRENT-ASSETS> 4,470
<PP&E> 20,348
<DEPRECIATION> 7,043
<TOTAL-ASSETS> 20,497
<CURRENT-LIABILITIES> 5,566
<BONDS> 4,542
0
0
<COMMON> 3,257
<OTHER-SE> 2,411
<TOTAL-LIABILITY-AND-EQUITY> 20,497
<SALES> 0
<TOTAL-REVENUES> 17,753
<CGS> 0
<TOTAL-COSTS> 15,914
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 499
<INCOME-PRETAX> 1,633
<INCOME-TAX> 528
<INCOME-CONTINUING> 1,105
<DISCONTINUED> 0
<EXTRAORDINARY> 89
<CHANGES> 0
<NET-INCOME> 1,016
<EPS-PRIMARY> 11.63
<EPS-DILUTED> 11.19
</TABLE>
