<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X]Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 1999.
[ ]Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period From to
.
Commission file number 1-8400.
AMR Corporation
(Exact name of registrant as specified in its charter)
Delaware 75-1825172
(State or other (I.R.S. Employer
jurisdiction Identification No.)
of incorporation or
organization)
4333 Amon Carter Blvd.
Fort Worth, Texas 76155
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, (817) 963-1234
including area code
Not Applicable
(Former name, former address and former fiscal year , if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes No .
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Common Stock, $1 par value - 150,525,075 as of July 31, 1999
<PAGE> 2
INDEX
AMR CORPORATION
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations -- Three and six months ended
June 30, 1999 and 1998
Condensed Consolidated Balance Sheets -- June 30, 1999 and December
31, 1998
Condensed Consolidated Statements of Cash Flows -- Six months ended
June 30, 1999 and 1998
Notes to Condensed Consolidated Financial Statements -- June 30,
1999
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
<PAGE> 3
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
AMR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (In millions, except per share amounts)
<TABLE>
<Captions>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues
Airline Group:
Passenger
- American Airlines, Inc. $3,751 $3,789 $7,071 $7,367
- American Eagle 340 289 611 545
Cargo 164 169 309 332
Other 273 250 528 482
4,528 4,497 8,519 8,726
Sabre 639 577 1,277 1,131
Other 20 17 40 34
Less: Intersegment revenues (176) (167) (342) (333)
Total operating revenues 5,011 4,924 9,494 9,558
Expenses
Wages, salaries and benefits 1,765 1,627 3,430 3,186
Aircraft fuel 414 404 763 819
Depreciation and amortization 351 320 667 638
Commissions to agents 298 322 586 623
Other rentals and landing fees 253 223 493 436
Maintenance, materials and
repairs 223 223 480 453
Food service 185 175 352 339
Aircraft rentals 162 143 322 285
Other operating expenses 850 763 1,733 1,507
Total operating expenses 4,501 4,200 8,826 8,286
Operating Income 510 724 668 1,272
Other Income (Expense)
Interest income 21 33 46 67
Interest expense (95) (92) (187) (189)
Interest capitalized 29 25 62 43
Minority interest (11) (12) (27) (25)
Miscellaneous - net (6) (5) 59 (18)
(62) (51) (47) (122)
Income From Continuing
Operations Before
Income Taxes 448 673 621 1,150
Income tax provision 180 265 259 457
Income From Continuing
Operations 268 408 362 693
Discontinued Operations, net
of Applicable income taxes - 1 64 6
Net Earnings $ 268 $ 409 $426 $699
</TABLE>
Continued on next page.
-1-
<PAGE> 4
AMR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(Unaudited) (In millions, except per share amounts)
<TABLE>
<Captions>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Earnings Applicable to
Common Shares $ 268 $409 $426 $699
Earnings Per Common Share
Basic
Income from Continuing
Operations $ 1.76 $2.37 $2.32 $4.02
Discontinued Operations - 0.01 0.41 0.04
Net Earnings $ 1.76 $2.38 $2.73 $4.06
Diluted
Income from Continuing
Operations $ 1.70 $2.29 $2.25 $3.88
Discontinued Operations - 0.01 0.40 0.03
Net Earnings $ 1.70 $2.30 $2.65 $3.91
Number of Shares Used in
Computation
Basic 153 172 156 172
Diluted 158 178 161 179
</TABLE>
The accompanying notes are an integral part of these financial
statements.
-2-
<PAGE> 5
AMR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (In millions)
<TABLE>
<Captions>
June 30, December 31,
1999 1998
(Note 1)
Assets
<S> <C> <C>
Current Assets
Cash $ 79 $ 95
Short-term investments 1,486 1,978
Receivables, net 1,689 1,543
Inventories, net 657 596
Deferred income taxes 477 476
Other current assets 225 187
Total current assets 4,613 4,875
Equipment and Property
Flight equipment, net 10,576 8,712
Other equipment and property, net 1,934 1,903
Purchase deposits for flight equipment 1,204 1,624
13,714 12,239
Equipment and Property Under Capital Leases
Flight equipment, net 1,954 1,981
Other equipment and property, net 166 166
2,120 2,147
Route acquisition costs, net 901 916
Other assets, net 2,163 2,126
$ 23,511 $ 22,303
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 1,245 $ 1,152
Accrued liabilities 2,033 2,122
Air traffic liability 2,578 2,163
Current maturities of long-term debt 282 48
Current obligations under capital leases 166 154
Total current liabilities 6,304 5,639
Long-term debt, less current maturities 2,959 2,436
Obligations under capital leases,
less current obligations 1,684 1,764
Deferred income taxes 1,663 1,491
Other liabilities, deferred gains, deferred
credits and postretirement benefits 4,463 4,275
Stockholders' Equity
Common stock 182 182
Additional paid-in capital 3,058 3,075
Treasury stock (1,910) (1,288)
Accumulated other comprehensive income (4) (4)
Retained earnings 5,112 4,733
6,438 6,698
$ 23,511 $ 22,303
</TABLE>
The accompanying notes are an integral part of these financial
statements.
-3-
<PAGE> 6
AMR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In millions)
<TABLE>
<Captions>
Six Months Ended June 30,
1999 1998
<S> <C> <C>
Net Cash Provided by Operating Activities $1,253 $ 1,297
Cash Flow from Investing Activities:
Capital expenditures, including net change in
purchase deposits for flight equipment (2,061) (1,224)
Net decrease in short-term investments 496 246
Acquisitions and other investments (99) (140)
Proceeds from:
Sale of discontinued operations 259 -
Sale of other investments 66 -
Sale of equipment and property 46 196
Net cash used for investing activities (1,293) (922)
Cash Flow from Financing Activities:
Repurchases of common stock (696) (366)
Payments on long-term debt and capital
lease obligations (128) (138)
Proceeds from:
Issuance of long-term debt 770 94
Sale-leaseback transactions 54 -
Exercise of stock options 24 75
Net cash provided by (used for)
financing activities 24 (335)
Net increase (decrease) in cash (16) 40
Cash at beginning of period 95 62
Cash at end of period $ 79 $ 102
Cash Payments For:
Interest $ 121 $ 159
Income taxes 104 273
Financing Activities Not Affecting Cash:
Capital lease obligations incurred $ 54 $ -
</TABLE>
The accompanying notes are an integral part of these financial
statements.
-4-
<PAGE> 7
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, these
financial statements contain all adjustments, consisting of normal
recurring accruals, necessary to present fairly the financial
position, results of operations and cash flows for the periods
indicated. Results of operations for the periods presented herein
are not necessarily indicative of results of operations for the
entire year. The balance sheet at December 31, 1998 has been
derived from the audited financial statements at that date. For
further information, refer to the consolidated financial statements
and footnotes thereto included in the AMR Corporation (AMR or the
Company) Annual Report on Form 10-K for the year ended December 31,
1998. Certain amounts from 1998 have been reclassified to conform
with the 1999 presentation.
2.Accumulated depreciation of owned equipment and property at June
30, 1999 and December 31, 1998, was $7.7 billion and $7.3 billion,
respectively. Accumulated amortization of equipment and property
under capital leases at June 30, 1999 and December 31, 1998, was
$1.3 billion.
Effective January 1, 1999, in order to more accurately reflect the
expected useful life of its aircraft, the Company changed its
estimate of the depreciable lives of certain aircraft types from 20
to 25 years and increased the residual value from five to 10
percent. As a result of this change, depreciation and amortization
expense was reduced by approximately $40 million and net earnings
was increased by approximately $25 million, or $0.16 per common
share diluted, for the three months ended June 30, 1999. For the
six months ended June 30, 1999, depreciation and amortization
expense was reduced by approximately $80 million and net earnings
was increased by approximately $50 million, or $0.31 per common
share diluted.
3.The Miami International Airport Authority is currently remediating
various environmental conditions at Miami International Airport
(Airport) and funding the remediation costs through landing fee
revenues. Future costs of the remediation effort may be borne by
carriers operating at the Airport, including American Airlines,
Inc. (American), through increased landing fees and/or other
charges. The ultimate resolution of this matter is not expected to
have a significant impact on the financial position or liquidity of
AMR.
4.As of June 30, 1999, the Company had commitments to acquire the
following aircraft: 91 Boeing 737-800s, 24 Boeing 777-200IGWs, 95
Embraer EMB-135s, 25 Bombardier CRJ-700s and 17 Embraer EMB-145s. In
July 1999, the Company exercised its purchase rights to acquire three
additional Boeing 777-200IGWs. Deliveries of these aircraft will
extend through 2006. Payments for these aircraft will approximate
$1.4 billion during the remainder of 1999, $2.2 billion in 2000, $1.9
billion in 2001 and an aggregate of approximately $1.5 billion in 2002
through 2006.
In April 1999, the Company announced that it will accelerate the
retirement of nine McDonnell Douglas DC-10 and 16 Boeing 727-200
aircraft earlier than anticipated, thereby eliminating American's
entire DC-10 fleet by the end of 2000 and advancing the retirement
of the Boeing 727 fleet to the end of 2003.
5.In early February 1999, some members of the Allied Pilots
Association (APA) engaged in certain activities (increased sick time
and declining to fly additional trips) that resulted in numerous
cancellations across American's system. These actions were taken in
response to the acquisition of Reno Air, Inc. (Reno) in December 1998
and adversely impacted the Company's 1999 net earnings. In an attempt
to resolve the dispute, the Company and the APA have agreed to non-
binding mediation.
6.In connection with a secondary offering by Equant N.V. in
February 1999, the Company sold approximately 923,000 depository
certificates for proceeds of $66 million. The Company recorded a pre-
tax gain of $66 million as a result of this transaction.
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<PAGE> 8
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
7.The results of operations for AMR Services, AMR Combs and
TeleService Resources have been reflected in the consolidated
statements of operations as discontinued operations. During the first
quarter of 1999, the Company completed the sales of AMR Services, AMR
Combs and TeleService Resources. As a result of these sales, the
Company recorded a gain of approximately $64 million, net of income
taxes of approximately $19 million. Earnings from the operations of
AMR Services, AMR Combs and TeleService Resources were $1 million, net
of income taxes of $1.4 million, and $6 million, net of income taxes
of $5 million, for the three and six months ended June 30, 1998,
respectively. Revenues from the operations of AMR Services, AMR Combs
and TeleService Resources were $119 million for the three months ended
June 30, 1998 and $97 million and $252 million for the six months
ended June 30, 1999 and 1998, respectively.
8.During the second quarter of 1999, American entered into various
debt agreements which are secured by aircraft. Interest on these
agreements is a variable rate based on the London Interbank Offered
Rate (LIBOR) plus an additional spread. Interest on these agreements
range from 5.47 percent to 5.9 percent and mature in 2011. As of June
30, 1999, the Company had borrowed approximately $612 million under
these agreements.
On July 13, 1999, the Company issued $150 million of unsecured debt
bearing interest at 7.875 percent, maturing on July 13, 2039, and
is callable at par after July 13, 2004.
9.The following table sets forth the computations of basic and
diluted earnings per share from continuing operations (in millions,
except per share data):
<TABLE>
<Captions>
<S> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
Numerator:
Income from continuing
operations - numerator for
basic and diluted earnings
per share $ 268 $ 408 $ 362 $ 693
Denominator:
Denominator for basic earnings
per share - weighted-average
shares 153 172 156 172
Effect of dilutive securities:
Employee options and shares 11 12 12 14
Assumed treasury shares
purchased (6) (6) (7) (7)
Dilutive potential common shares 5 6 5 7
Denominator for diluted earnings
per share - adjusted
weighted-average shares 158 178 161 179
Basic earnings per share from
continuing operations $1.76 $2.37 $2.32 $4.02
Diluted earnings per share
from continuing operations $1.70 $2.29 $2.25 $3.88
</TABLE>
-6-
<PAGE> 9
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
10.AMR's operations fall within two lines of business: the
Airline Group and Sabre, Inc. (Sabre), a majority-owned subsidiary
of AMR. The Airline Group consists primarily of American, one of
the largest scheduled passenger airlines and air freight carriers
in the world, and AMR Eagle Holding Corporation (AMR Eagle), a
separate subsidiary of AMR. At June 30, 1999, AMR Eagle owns three
regional airlines which operate as "American Eagle", and provides
connecting service to American. Sabre provides electronic
distribution of travel through its Sabre computer reservations
system and information technology solutions to the travel and
transportation industries.
Selected financial information by reportable segment is as follows
(in millions):
<TABLE>
<Captions>
Airline
Group Sabre Total
<S> <C> <C> <C>
Three months ended June 30, 1999
Revenues from external customers $4,516 $480 $4,996
Intersegment revenues 12 159 171
Operating income 408 96 504
Three months ended June 30, 1998
Revenues from external customers $4,484 $427 $4,911
Intersegment revenues 13 150 163
Operating income 608 109 717
Six months ended June 30, 1999
Revenues from external customers $8,496 $965 $9,461
Intersegment revenues 23 312 335
Operating income 445 208 653
Six months ended June 30, 1998
Revenues from external customers $8,703 $830 $9,533
Intersegment revenues 23 301 324
Operating income 1,035 224 1,259
</TABLE>
The following table provides a reconciliation of reportable
segment revenues and operating income to the Company's
consolidated financial statement totals (in millions):
<TABLE>
<Captions>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
Revenues
Total external revenues for
reportable segments $4,996 $4,911 $9,461 $9,533
Intersegment revenues for
reportable segments 171 163 335 324
Other revenues 20 17 40 34
Elimination of intersegment
revenues (176) (167) (342) (333)
Total consolidated revenues $5,011 $4,924 $9,494 $9,558
Operating income
Total operating income for
reportable segments $ 504 $ 717 $ 653 $1,259
Other operating income 6 7 15 13
Total consolidated operating
income $ 510 $ 724 $ 668 $1,272
</TABLE>
-7-
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
For the Three Months Ended June 30, 1999 and 1998
Summary AMR recorded net earnings for the three months ended June 30,
1999 of $268 million, or $1.70 per common share diluted. This
compares to net earnings of $409 million, or $2.30 per common share
diluted, for the second quarter of 1998. AMR's operating income of
$510 million decreased 29.6 percent, or $214 million, compared to
$724 million for the same period in 1998.
The following sections provide a discussion of AMR's results by
reporting segment, which are described in Footnote 10 and in AMR's
Annual Report on Form 10-K for the year ended December 31, 1998.
AIRLINE GROUP
FINANCIAL HIGHLIGHTS
(Unaudited) (Dollars in millions)
<TABLE>
<Captions>
Three Months Ended
June 30,
1999 1998
<S> <C> <C>
Revenues
Passenger - American Airlines, Inc. $3,751 $ 3,789
- American Eagle 340 289
Cargo 164 169
Other 273 250
4,528 4,497
Expenses
Wages, salaries and benefits 1,557 1,452
Aircraft fuel 414 404
Commissions to agents 298 322
Depreciation and amortization 268 258
Other rentals and landing fees 241 215
Maintenance, materials and repairs 222 223
Food service 185 175
Aircraft rentals 162 143
Other operating expenses 773 697
Total operating expenses 4,120 3,889
Operating Income 408 608
Other Expense (56) (41)
Earnings Before Income Taxes $ 352 $ 567
Average number of equivalent employees 98,400 91,500
</TABLE>
-8-
<PAGE> 11
RESULTS OF OPERATIONS (continued)
<TABLE>
<Captions>
OPERATING STATISTICS
Three Months Ended
June 30,
1999 1998
<S> <C> <C>
American Airlines Jet Operations
Revenue passenger miles (millions) 28,908 27,923
Available seat miles (millions) 40,406 38,963
Cargo ton miles (millions) 511 509
Passenger load factor 71.5% 71.7%
Breakeven load factor 63.2% 58.9%
Passenger revenue yield per passenger
mile (cents) 12.97 13.57
Passenger revenue per available seat
mile (cents) 9.28 9.72
Cargo revenue yield per ton mile (cents) 31.67 32.75
Operating expenses per available seat
mile (cents) 9.31 9.25
Fuel consumption (gallons, in millions) 745 711
Fuel price per gallon (cents) 53.0 55.0
Fuel price per gallon, excluding fuel
taxes (cents) 48.4 50.3
Operating aircraft at period-end 697 641
American Eagle
Revenue passenger miles (millions) 885 708
Available seat miles (millions) 1,422 1,099
Passenger load factor 62.2% 64.5%
Operating aircraft at period-end 260 206
</TABLE>
Operating aircraft at June 30, 1999 included:
<TABLE>
<Captions>
<S> <C> <C> <C>
American Airlines American Eagle Aircraft:
Aircraft:
Airbus A300-600R 35 ATR 42 35
Boeing 727-200 76 Embraer 145 33
Boeing 737-800 12 Super ATR 43
Boeing 757-200 102 Saab 340A 20
Boeing 767-200 8 Saab 340B 104
Boeing 767-200 Extended 22 Saab 340B Plus 25
Range
Boeing 767-300 Extended 49 Total 260
Range
Boeing 777-200IGW 10
Fokker 100 75
McDonnell Douglas DC-10-10 8
McDonnell Douglas DC-10-30 5
McDonnell Douglas MD-11 11
McDonnell Douglas MD-80 279
McDonnell Douglas MD-90 5
Total 697
</TABLE>
93.3 percent of American's aircraft fleet is Stage III, a
classification of aircraft meeting noise standards as promulgated by
the Federal Aviation Administration.
Average aircraft age is 10.6 years for American's aircraft and 6.2
years for American Eagle aircraft.
-9-
<PAGE> 12
RESULTS OF OPERATIONS (continued)
The Airline Group's revenues increased $31 million, or 0.7 percent,
in the second quarter of 1999 versus the same period last year.
American's passenger revenues decreased by 1.0 percent, or $38
million, compared to the second quarter of 1998. American's yield
(the average amount one passenger pays to fly one mile) of 12.97
cents decreased by 4.4 percent compared to the same period in 1998.
Domestic yields decreased 2.4 percent from the second quarter of
1998. International yields decreased 8.7 percent due to a 11.6
percent decrease in the Pacific, a 10.7 percent decrease in Europe
and a 5.4 percent decrease in Latin America. The decrease in
domestic yields was due primarily to increased capacity and fare sale
activity during the second quarter of 1999, the residual effect of
the APA job action from the first quarter of 1999, and the impact of
international yield decreases on domestic yields. The decrease in
international yields was due primarily to large industry capacity
additions and increased fare sale activity in Europe.
American's traffic or revenue passenger miles (RPMs) increased 3.5
percent to 28.9 billion miles for the quarter ended June 30, 1999.
American's capacity or available seat miles (ASMs) increased 3.7
percent to 40.4 billion miles in the second quarter of 1999.
American's domestic traffic increased 2.7 percent on capacity
increases of 4.7 percent and international traffic grew 5.4 percent
on capacity increases of 1.6 percent. The increase in international
traffic was driven by a 62.3 percent increase in traffic to the
Pacific on capacity growth of 48.4 percent and a 7.3 percent increase
in traffic to Europe on capacity growth of 8.1 percent. This
increase was partially offset by a 3.8 decrease in traffic to Latin
America on a capacity decrease of 8.7 percent.
American's operations were adversely impacted by several external
factors in the second quarter of 1999. First, American experienced
record delays and cancellations due to weather, primarily at its
Dallas-Fort Worth and Chicago hubs. In addition, the implementation
of the Federal Aviation Administration's new Display Screen
Replacement (DSR) system caused numerous delays and cancellations
across American's system as three of the first five centers to
receive the new DSR system - Fort Worth, New York, and Chicago - are
high-traffic cities in American's network which are responsible for a
significant amount of American's traffic.
AMR Eagle's revenues increased 17.6 percent, or $51 million, due
primarily to the acquisition of Business Express, a regional carrier
based in the Northeast, in March 1999.
The Airline Group's other revenues increased $23 million, or 9.2
percent, primarily as a result of an increase in aircraft maintenance
work performed by American for other airlines and increased service
contracts, primarily related to ramp and consulting services.
The Airline Group's operating expenses increased 5.9 percent, or $231
million. American's Jet Operations cost per ASM increased 0.6
percent to 9.31 cents. Wages, salaries and benefits increased 7.2
percent, or $105 million, primarily due to an increase in the average
number of equivalent employees and contractual wage rate and
seniority increases that are built into the Company's labor
contracts. Aircraft fuel expense increased 2.5 percent, or $10
million, due to a 4.8 percent increase in American's fuel
consumption, partially offset by a 3.6 percent decrease in American's
average price per gallon, including taxes. Other rentals and landing
fees increased $26 million, or 12.1 percent, due to higher facilities
rent and landing fees across American's system. Aircraft rentals
increased $19 million, or 13.3 percent, due primarily to the addition
of Reno aircraft. Other operating expense increased $76 million, or
10.9 percent, due primarily to an increase in outsourced services,
booking fees, aircraft maintenance work performed by American for
other airlines, and travel and incidental costs.
Other Expense increased 36.6 percent, or $15 million, primarily due
to a decrease in interest income resulting from lower investment
balances and a decline in interest rates.
-10-
<PAGE> 13
RESULTS OF OPERATIONS (continued)
SABRE
FINANCIAL HIGHLIGHTS
(Unaudited) (Dollars in millions)
<TABLE>
<Captions>
Three Months Ended
June 30,
1999 1998
<S> <C> <C>
Revenues $ 639 $ 577
Operating Expenses 543 468
Operating Income 96 109
Other Income 4 1
Earnings Before Income Taxes $ 100 $ 110
Average number of equivalent employees 12,000 11,300
</TABLE>
Revenues
Revenues for Sabre increased $62 million, or 10.7 percent. Electronic
travel distribution revenues increased approximately $49 million, or
14.5 percent, due to growth in booking fees driven by an increase in
booking volumes and an overall increase in the average price per
booking due to a price increase implemented in February 1999. The
increase in booking fee revenues was also partially driven by an
increase in bookings made through Sabre's online travel site
(Travelocity.com). Revenues from information technology solutions
increased approximately $13 million, or 5.5 percent, primarily due to
services performed under various information technology outsourcing
agreements signed during 1998.
Expenses
Operating expenses increased $75 million, or 16.0 percent, due
primarily to increases in salaries and benefits expense, subscriber
incentive expense, depreciation and amortization, advertising,
miscellaneous selling, and product development expenses, and data
processing expense. Salaries and benefits expense increased due to an
increase in the average number of employees necessary to support
Sabre's business growth, and wage and salary increases for existing
employees. Subscriber incentive expense increased in order to
maintain and expand Sabre's travel agency subscriber base and to
respond to competitor pressures. The increase in depreciation and
amortization expense was due primarily to the amortization of the
deferred asset associated with the stock options granted to US
Airways, Inc. (US Airways). Advertising, miscellaneous selling, and
product development expenses increased in order to support Sabre's
growth initiatives. Data processing costs increased due to the growth
in bookings and transactions processed. These increases were partially
offset by a decrease in contract labor expenses due to a planned
reduction in contract labor headcount.
-11-
<PAGE> 14
RESULTS OF OPERATIONS (continued)
For the Six Months Ended June 30, 1999 and 1998
Summary AMR recorded net earnings for the six months ended June 30,
1999 of $426 million, or $2.65 per common share diluted. This
compares with net earnings of $699 million, or $3.91 per common share
diluted, for the same period in 1998. AMR's operating income of $668
million decreased 47.5 percent, or $604 million, compared to $1.3
billion for the same period in 1998. AMR's net earnings were
adversely impacted by an illegal job action by some members of the
APA during the first quarter of 1999, which negatively impacted the
Company's net earnings by an estimated $140 million, or $0.87 per
common share diluted. This was partially offset by the gain on the
sale of AMR Services, AMR Combs and TeleService Resources, and the
gain from the sale of the Equant N.V. depository certificates, such
gains aggregating approximately $101 million after taxes, or $0.63
per common share diluted.
AIRLINE GROUP
FINANCIAL HIGHLIGHTS
(Unaudited) (Dollars in millions)
<TABLE>
<Captions>
Six Months Ended June 30,
1999 1998
<S> <C> <C>
Revenues
Passenger - American Airlines, Inc. $7,071 $ 7,367
- American Eagle 611 545
Cargo 309 332
Other 528 482
8,519 8,726
Expenses
Wages, salaries and benefits 3,019 2,836
Aircraft fuel 763 819
Commissions to agents 586 623
Depreciation and amortization 521 516
Other rentals and landing fees 469 419
Maintenance, materials and repairs 479 452
Food service 352 339
Aircraft rentals 322 285
Other operating expenses 1,563 1,402
Total operating expenses 8,074 7,691
Operating Income 445 1,035
Other Expense (62) (103)
Earnings Before Income Taxes $ 383 $ 932
Average number of equivalent employees 96,250 91,250
</TABLE>
-12-
<PAGE> 15
RESULTS OF OPERATIONS (continued)
<TABLE>
<Captions>
OPERATING STATISTICS
Six Months Ended June 30,
1999 1998
<S> <C> <C>
American Airlines Jet Operations
Revenue passenger miles (millions) 54,198 53,311
Available seat miles (millions) 78,109 76,670
Cargo ton miles (millions) 942 1,005
Passenger load factor 69.4% 69.5%
Breakeven load factor 64.9% 58.6%
Passenger revenue yield per passenger
mile (cents) 13.05 13.82
Passenger revenue per available seat
mile (cents) 9.05 9.61
Cargo revenue yield per ton mile (cents) 32.36 32.65
Operating expenses per available
seat mile (cents) 9.46 9.30
Fuel consumption (gallons, in millions) 1,432 1,392
Fuel price per gallon (cents) 51.0 56.9
Fuel price per gallon, excluding
fuel taxes (cents) 46.6 52.0
Operating aircraft at period-end 697 641
American Eagle
Revenue passenger miles (millions) 1,591 1,323
Available seat miles (millions) 2,633 2,170
Passenger load factor 60.4% 61.0%
Operating aircraft at period-end 260 206
</TABLE>
-13-
<PAGE> 16
RESULTS OF OPERATIONS (continued)
The Airline Group's revenues decreased $207 million, or 2.4 percent,
during the first six months of 1999 versus the same period last year.
American's passenger revenues decreased by 4.0 percent, or $296
million, largely as a result of the illegal job action by some
members of the APA during the first quarter of 1999. American's
yield (the average amount one passenger pays to fly one mile) of
13.05 cents decreased by 5.6 percent compared to the same period in
1998. Domestic yields decreased 3.9 percent from the first six
months of 1998. International yields decreased 9.4 percent,
reflecting a 12.6 percent decrease in the Pacific, a 9.1 percent
decrease in Europe and an 8.3 percent decrease in Latin America. The
decrease in domestic yield was due primarily to increased capacity
and fare sale activity in the first six months of 1999 compared to
the same period in 1998, the APA job action, and the impact of
international yield decreases on domestic yields. The decrease in
international yields was due primarily to weak international
economies, large industry capacity additions and increased fare sale
activity.
American's traffic or revenue passenger miles (RPMs) increased 1.7
percent to 54.2 billion miles for the six months ended June 30, 1999.
American's capacity or available seat miles (ASMs) increased 1.9
percent to 78.1 billion miles in the first six months of 1999.
American's domestic traffic increased 1.4 percent on capacity growth
of 1.9 percent and international traffic grew 2.3 percent on capacity
increases of 1.9 percent. The increase in international traffic was
driven by a 50.0 percent increase in traffic to the Pacific on
capacity growth of 59.6 percent and a 2.8 percent increase in traffic
to Europe on capacity growth of 5.8 percent. This was partially
offset by a 4.0 percent decrease in traffic to Latin America on a
capacity decline of 7.1 percent.
American's operations were adversely impacted by several external
factors in the second quarter of 1999. First, American experienced
record delays and cancellations due to weather, primarily at its
Dallas-Fort Worth and Chicago hubs. In addition, the implementation
of the Federal Aviation Administration's new Display Screen
Replacement (DSR) system caused numerous delays and cancellations
across American's system as three of the first five centers to
receive the new DSR system - Fort Worth, New York, and Chicago - are
high-traffic cities in American's network which are responsible for a
significant amount of American's traffic.
AMR Eagle's revenues increased 12.1 percent, or $66 million, due
primarily to the acquisition of Business Express in March 1999.
The Airline Group's other revenues increased $46 million, or 9.5
percent, primarily as a result of an increase in aircraft maintenance
work performed by American for other airlines and increased service
contracts, primarily related to ramp and consulting services.
The Airline Group's operating expenses increased 5.0 percent, or $383
million. American's Jet Operations cost per ASM increased by 1.7
percent to 9.46 cents. Wages, salaries and benefits increased $183
million, or 6.5 percent, primarily due to an increase in the average
number of equivalent employees and contractual wage rate and
seniority increases that are built into the Company's labor
contracts. Aircraft fuel expense decreased 6.8 percent, or $56
million, due to a 10.4 percent decrease in American's average price
per gallon, including taxes, partially offset by a 2.9 percent
increase in American's fuel consumption. Other rentals and landing
fees increased $50 million, or 11.9 percent, due to higher facilities
rent and landing fees across American's system. Aircraft rentals
increased $37 million, or 13.0 percent, due primarily to the addition
of Reno aircraft. Other operating expense increased $161 million, or
11.5 percent, due primarily to an increase in outsourced services,
booking fees, aircraft maintenance work performed by American for
other airlines, and travel and incidental costs.
Other Expense decreased 39.8 percent, or $41 million, due to an
increase in capitalized interest on aircraft purchase deposits and a
$31 million gain on the sale of a portion of American's interest in
Equant N.V., partially offset by a decrease in interest income
resulting from lower investment balances and a decline in interest
rates.
-14-
<PAGE> 17
RESULTS OF OPERATIONS (continued)
SABRE
FINANCIAL HIGHLIGHTS
(Unaudited) (Dollars in millions)
<TABLE>
<Captions>
Six Months Ended June 30,
1999 1998
<S> <C> <C>
Revenues $1,277 $ 1,131
Operating Expenses 1,069 907
Operating Income 208 224
Other Income 41 3
Earnings Before Income Taxes $ 249 $ 227
Average number of equivalent employees 12,100 11,000
</TABLE>
Revenues
Revenues for Sabre increased $146 million, or 12.9 percent.
Electronic travel distribution revenues increased approximately $85
million, or 12.4 percent, due to growth in booking fees driven by an
increase in booking volumes and an overall increase in the average
price per booking due to a price increase implemented in February
1999. The increase in booking fee revenues was also partially driven
by an increase in bookings made through the Travelocity.com site.
Revenues from information technology solutions increased approximately
$61 million, or 13.6 percent, primarily due to services performed
under the information technology services agreement with US Airways
and services performed under other information technology outsourcing
agreements signed during 1998.
Expenses
Operating expenses increased $162 million, or 17.9 percent, due
primarily to increases in salaries, benefits and employee-related
costs, subscriber incentive expense, depreciation and amortization,
advertising and miscellaneous selling expenses, and data processing
costs. Salaries, benefits and employee-related costs increased due to
an increase in the average number of employees necessary to support
Sabre's business growth, and wage and salary increases for existing
employees. Subscriber incentive expense increased in order to
maintain and expand Sabre's travel agency subscriber base and to
respond to competitor pressures. The increase in depreciation and
amortization expense was due primarily to the amortization of the
deferred asset associated with the stock options granted to US
Airways, the acquisition of information technology assets to support
the US Airways' contract, and normal additions. These increases were
partially offset by a decrease in depreciation expense due to the sale
of data center mainframe equipment to an unrelated party in October
1998. Advertising and miscellaneous selling expenses increased in
order to support the Company's growth initiatives. Data processing
costs increased due to the growth in bookings and transactions processed.
In an effort to balance costs with revenue growth, and as a result of
certain inefficiencies uncovered after Sabre's March 1999 reorganization,
Sabre is reviewing a number of alternatives aimed at strategically
managing costs and improving operating margins in the latter half
of 1999. Such alternatives may result in headcount reductions in
certain areas, reduced spending on discretionary items, and
prioritization and streamlining of current development projects in
order to focus resources on those that provide the best long-term
solution. Sabre intends to implement such measures without
compromising the service levels or commitments to its existing
customers or reducing sales and marketing efforts to continue to grow
the outsourcing business.
Other Income
Other income increased $38 million primarily due to a $35 million
gain on the sale of Equant N.V. depository certificates held by
American for the economic benefit of Sabre.
-15-
<PAGE> 18
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities in the six-month period
ended June 30, 1999 was $1.3 billion, a decrease of $44 million over
the same period in 1998. This decrease resulted primarily from a
decrease in net earnings, partially offset by an increase in the air
traffic liability due to higher advanced sales. Capital expenditures
for the first six months of 1999 were $2.1 billion, and included the
acquisition of 12 Boeing 737-800s, 10 Boeing 777-200IGWs, six Boeing
757-200s, four Boeing 767-300ERs and 13 Embraer 145 aircraft. These
capital expenditures were financed with internally generated cash,
except for 12 Boeing aircraft which were financed through secured
mortgage agreements, one Boeing aircraft which was financed through a
sale-leaseback transaction, and the Embraer aircraft which were
funded through secured debt agreements.
As of June 30, 1999, the Company had commitments to acquire the
following aircraft: 91 Boeing 737-800s, 24 Boeing 777-200IGWs, 95
Embraer EMB-135s, 25 Bombardier CRJ-700s and 17 Embraer EMB-145s. In
July 1999, the Company exercised its purchase rights to acquire three
additional Boeing 777-200IGWs. Deliveries of these aircraft will
extend through 2006. Payments for these aircraft will approximate
$1.4 billion during the remainder of 1999, $2.2 billion in 2000, $1.9
billion in 2001 and an aggregate of approximately $1.5 billion in 2002
through 2006. The Company expects to fund its remaining 1999 capital
expenditures from the Company's existing cash and short-term
investments, internally generated cash, and new financing depending
upon capital market conditions and the Company's evolving view of its
long-term needs.
In April 1999, the Company announced that it will accelerate the
retirement of nine McDonnell Douglas DC-10 and 16 Boeing 727-200
aircraft earlier than anticipated, thereby eliminating American's
entire DC-10 fleet by the end of 2000 and advancing the retirement of
the Boeing 727 fleet to the end of 2003.
On July 13, 1999, the Company issued $150 million of unsecured debt
bearing interest at 7.875 percent, maturing on July 13, 2039, and is
callable at par after July 13, 2004.
During the six months ended June 30, 1999, the Company purchased
approximately 10.7 million shares of its common stock at a cost of
approximately $664 million. Additional share repurchases of up to
$241 million, which is the remaining amount currently authorized by
the Company's Board of Directors, may be made from time to time,
depending on market conditions, and may be discontinued at any time.
In March 1999, Sabre's Board of Directors authorized, subject to
certain business and market conditions, the repurchase of up to 1.0
million shares of Sabre's Class A Common Stock. During the six months
ended June 30, 1999, Sabre purchased approximately 545,000 shares at a
cost of approximately $32 million.
In connection with a secondary offering by Equant N.V. in February
1999, the Company sold approximately 923,000 depository certificates
for proceeds of $66 million. During the first six months of 1999,
the Company acquired approximately 400,000 depository certificates
from other airlines. In addition, based upon a reallocation between
the owners of the certificates in July 1999, the Company received an
additional 2.6 million certificates. Accordingly, as of July 30,
1999, the Company holds approximately 5.3 million depository
certificates with an estimated market value of approximately $474
million.
-16-
<PAGE> 19
YEAR 2000 READINESS
State of Readiness In 1995, the Company implemented a project (the
Year 2000 Project) to ensure that hardware and software systems
operated by the Company, including software licensed to or operated
for third parties by Sabre, are designed to operate and properly
manage dates beyond December 31, 1999 (Year 2000 Readiness). The Year
2000 Project consists of six phases: (i) awareness, (ii) assessment,
(iii) analysis, design and remediation, (iv) testing and validation,
(v) quality assurance review (to ensure consistency throughout the
Year 2000 Project) and (vi) creation of business continuity strategy,
including plans in the event of Year 2000 failures. In developing the
Company's proprietary software analysis, remediation and testing
methodology for Year 2000 Readiness, it studied the best practices of
the Institute of Electrical and Electronics Engineers and the British
Standards Institution. The Company has assessed (i) the Company's
over 1,000 information technology and operating systems that will be
utilized after December 31, 1999 (IT Systems); (ii) non-information
technology systems, including embedded technology, facilities, and
other systems (Non-IT Systems); and (iii) the Year 2000 Readiness of
its critical third party service providers.
IT Systems The Company has completed the first three phases of
the Year 2000 Project for all of its IT Systems. The Company has
successfully completed the testing and validation phase and quality
assurance review phase for 99 percent of its IT Systems, including its
computer reservations and flight operating systems that perform such
"mission critical" functions as passenger bookings, ticketing,
passenger check-in, aircraft weight and balance, flight planning and
baggage and cargo processing. As of July 1, 1999, approximately 43
percent of those IT Systems (including the computer reservations
systems) are already successfully processing Year 2000 dates in
actual use.
Using dedicated testing environments and applying rigorous test
standards, the Company is actively testing the remaining one percent
of its IT Systems to determine if they are Year 2000 ready or if
further remediation is necessary. The Company estimates completing
the testing and validation phase and quality assurance review phase,
and the business continuity phase for its remaining IT Systems during
the third quarter of 1999.
Non-IT Systems The Company has completed the first five phases
of the Year 2000 project for 99 percent of its Non-IT Systems, such as
aircraft avionics and flight simulators. The Company estimates
completing the final phase of business continuity for its Non-IT
systems during the third quarter of 1999.
Third Party Services The Company's business is dependent upon
entities which supply critical infrastructure to the airline
industry, such as the air traffic control and related systems of the
Federal Aviation Administration and international aviation
authorities, the Department of Transportation, and airport
authorities. Those service providers depend on their hardware and
software systems and on interfaces with the Company's IT Systems.
The Company is actively involved in the Air Transport Association
(ATA) and the International Air Transport Association (IATA) Year
2000 Airline Industry Program to ensure the readiness of airports,
air traffic service providers, and commercial airline suppliers
worldwide. As part of this program, the ATA and IATA are monitoring
approximately 2,500 airports, 185 air traffic control service
providers, and more than 5,000 commercial airline suppliers
throughout the world regarding their Year 2000 Readiness. The
results of these studies indicate that a majority of the domestic and
international airports in which American operates have made
significant progress towards their Year 2000 Readiness.
Nevertheless, the Company continues to closely monitor the progress
of a number of key airports that, if not properly prepared for the
Year 2000, could disrupt the Company's ability to provide services to
its customers.
In addition, the Company relies on third party service providers
for many services, such as telecommunications, electrical power, and
data and credit card transaction processing. Those service providers
depend on their hardware and software systems and on interfaces with
the Company's IT Systems. The Company is monitoring its critical service
providers regarding their Year 2000 Readiness and has received
responses from approximately 87 percent of its critical service
providers. Such respondents assured the Company that their software
and hardware is or will be Year 2000 ready. To the extent practical,
the Company will implement contingencies for the third party critical
service providers that have not responded.
The Company does not expect the Year 2000 issues it might
encounter with third parties to be materially different from those
encountered by other airlines, including the Company's competitors.
-17-
<PAGE> 20
Costs of Year 2000 Project The Company expects to incur significant
hardware, software and labor costs, as well as consulting and other
expenses, in its Year 2000 Project. The Company's total estimated cost
of the project is $215 to $220 million, of which approximately
$204 million was incurred as of June 30, 1999. Costs associated with
the Year 2000 Project are expensed as incurred, other than capitalized
hardware costs, and have been funded through cash from operations.
Risks of Year 2000 Non-readiness The economy in general, and the
travel and transportation industries in particular, may be adversely
affected by risks associated with the Year 2000. The Company's
business, financial condition, and results of operations could be
materially adversely affected if systems that it operates or systems
that are operated by third party service providers upon which the
Company relies are not Year 2000 ready in time. There can be no
assurance that these systems will continue to properly function and
interface and will otherwise be Year 2000 ready. Management believes
that its most likely Year 2000 risks relate to the failure of third
parties with whom it has material relationships to be Year 2000 ready.
Although the Company is not aware of any threatened claims related
to the Year 2000, the Company may be subject to litigation arising
from such claims and, depending on the outcome, such litigation could
have a material adverse affect on the Company. There can be no
assurance that the Company's insurance coverage would be adequate to
offset these and other business risks related to the Year 2000 issue.
Business Continuity Plans The Company has identified four potential
risk areas related to the Year 2000 and is developing and refining
plans to continue its business in the event of Year 2000 failures in
response to those risks. The Company believes that its most likely
Year 2000 risks relate to the failure of third parties with whom it
has material relationships to be Year 2000 compliant. In response to
this risk, the Company has been actively participating with the ATA
and IATA Year 2000 Airline Industry program to ensure the readiness of
airports and air traffic services worldwide. The Company is in the
process of collecting additional business continuity information from
such suppliers in order to effectively manage any failures. The second
risk area relates to the effective prioritization and management of
any Year 2000 failures. The Company is establishing an Enterprise
Command Center in order to prioritize issues, manage resources,
coordinate problem resolution and communicate status in the event of
Year 2000 failures. The third risk area relates to the possibility
that the Company's employees will fail to report to work on or around
December 31, 1999, thereby potentially disrupting the Company's operations.
In order to mitigate such risk, American may voluntarily reduce its
schedule during this timeframe. The fourth risk area relates to the
failure of critical internal business processes, services, systems and
facilities. Although the Company has tested all systems including those
not impacted by dates, the Company is developing business continuity
plans to manage potential internal Year 2000 failures and expects to
complete these plans by September 30, 1999. The Company's business continuity
plans include performing certain processes manually; maintaining
dedicated staff to be available at crucial dates to remedy unforeseen
problems; installing defensive code to protect real-time systems from
improperly formatted date data supplied by third parties; repairing or
obtaining replacement systems; and reducing or suspending certain non-
critical aspects of the Company's services or operations. Because of
the pervasiveness and complexity of the Year 2000 issue, and in
particular the uncertainty concerning the efforts and success of third
parties to be Year 2000 compliant, the Company will continue to refine
its contingency plans during 1999.
The costs of the project and the date on which the Company plans
to complete the Year 2000 Readiness program are based on management's
best estimates, which were derived utilizing numerous assumptions of
future events including the continued availability of certain
resources, third party modification plans and other factors.
Even though the Company has met all established deadlines and the cost
estimates have remained constant, actual results could differ materially
from these estimates. Specific factors that might cause such material
differences include, but are not limited to, the availability and
cost of personnel trained in this area, the ability to locate and
correct all relevant computer codes, the failure of third parties to
be Year 2000 ready, and similar uncertainties.
-18-
<PAGE> 21
DALLAS LOVE FIELD
In 1968, as part of an agreement between the cities of Fort Worth and
Dallas to build and operate Dallas/Fort Worth Airport (DFW), a bond
ordinance was enacted by both cities (the Bond Ordinance). The Bond
Ordinance required both cities to direct all scheduled interstate
passenger operations to DFW and was an integral part of the bonds
issued for the construction and operation of DFW. In 1979, as part of
a settlement to resolve litigation with Southwest Airlines, the cities
agreed to expand the scope of operations allowed under the Bond
Ordinance at Dallas' Love Field. Congress enacted the Wright
Amendment to prevent the federal government from acting inconsistent
with this agreement. The Wright Amendment limited interstate
operations at Love Field to the four states contiguous to Texas (New
Mexico, Oklahoma, Arkansas and Louisiana) and prohibited through
ticketing to any destination outside that perimeter. In 1997, without
the consent of either city, Congress amended the Wright Amendment by
(i) adding three states (Kansas, Mississippi and Alabama) to the
perimeter and (ii) removing some federal restrictions on large
aircraft configured with 56 seats or less (the 1997 Amendment). In
October 1997, the City of Fort Worth filed suit in state district
court against the City of Dallas and others seeking to enforce the
Bond Ordinance. Fort Worth contends that the 1997 Amendment does not
preclude the City of Dallas from exercising its proprietary rights to
restrict traffic at Love Field in a manner consistent with the Bond
Ordinance and, moreover, that Dallas has an obligation to do so.
American joined in this litigation. On October 15, 1998, the state
district court granted summary judgment in favor of Fort Worth and
American, which summary judgment is being appealed to the Fort Worth
Court of Appeals. In the same lawsuit, DFW filed claims alleging that
irrespective of whether the Bond Ordinance is enforceable, the DFW Use
Agreement prohibits American and other DFW signatory airlines from
moving any interstate operations to Love Field. These claims remain
unresolved. Dallas filed a separate declaratory judgment action in
federal district court seeking to have the court declare that, as a
matter of law, the 1997 Amendment precludes Dallas from exercising any
restrictions on operations at Love Field. Further, in May 1998,
Continental Airlines and Continental Express filed a lawsuit in
federal court seeking a judicial declaration that the Bond Ordinance
cannot be enforced to prevent them from operating flights from Love
Field to Cleveland using regional jets. In December 1998, the
Department of Transportation (DOT) issued an order on the federal law
questions concerning the Bond Ordinance, local proprietary powers,
DFW's Use Agreement with DFW carriers such as American, and the Wright
and 1997 Amendments, and concluded that the Bond Ordinance was
preempted by federal law and was therefore, not enforceable. The DOT
also found that the DFW Use Agreement did not preclude American from
conducting interstate operations at Love Field. Fort Worth, American
and DFW have appealed the DOT's order to the Fifth Circuit Court of
Appeals.
As a result of the foregoing, the future of interstate flight
operations at Love Field and American's DFW hub are uncertain. An
increase in operations at Love Field to new interstate destinations
could adversely impact American's business.
FORWARD-LOOKING INFORMATION
Statements in this report 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 report, the words
"expects," "plans," "anticipates," and similar expressions are
intended to identify forward-looking statements. 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.
Additional information concerning these and other factors is contained
in the Company's Securities and Exchange Commission filings, including
but not limited to the Form 10-K for the year ended December 31, 1998.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes from the information provided in
Item 7A. Quantitative and Qualitative Disclosures About Market Risk of
the Company's Annual Report on Form 10-K for the year ended December
31, 1998.
-19-
<PAGE> 22
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
In January 1985, American announced a new fare category, the "Ultimate
SuperSaver," a discount, advance purchase fare that carried a 25
percent penalty upon cancellation. On December 30, 1985, a class
action lawsuit was filed in Circuit Court, Cook County, Illinois
entitled Johnson vs. American Airlines, Inc. The Johnson plaintiff
alleges that the 10 percent federal excise transportation tax should
have been excluded from the "fare" upon which the 25 percent penalty
was assessed. Summary judgment was granted in favor of American but
subsequently reversed and vacated by the Illinois Appellate Court. In
August 1997, the Court denied the plaintiffs' motion for class
certification. American is vigorously defending the lawsuit.
In connection with its frequent flyer program, American was sued in
two purported class action cases (Wolens et al v. American Airlines,
Inc. and Tucker v. American Airlines, Inc.) that were consolidated and
are currently pending in the Circuit Court of Cook County, Illinois.
The litigation arises from certain changes made to American's
AAdvantage frequent flyer program in May 1988 which limited the number
of seats available to participants traveling on certain awards. In the
consolidated action, the plaintiffs seek to represent all persons who
joined the AAdvantage program before May 1988 and accrued mileage
credits before the seat limitations were introduced and allege that
these changes breached American's contract with AAdvantage members.
Plaintiffs seek money damages and attorney's fees. The complaint
originally asserted several state law claims, however only the
plaintiffs' breach of contract claim remains after the U. S. Supreme
Court ruled that the Airline Deregulation Act preempted the other
claims. Although the case has been pending for numerous years, it
still is in its preliminary stages. The court has not ruled on the
plaintiffs' motion for class certification. American is vigorously
defending the lawsuit.
Gutterman et al. v. American Airlines, Inc. is also pending in the
Circuit Court of Cook County, Illinois. 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, giving rise to the Gutterman
litigation filed on that same date. The Gutterman plaintiffs claim
that the increase in award mileage level violated the terms and
conditions of the agreement between American and AAdvantage members.
On June 23, 1998, the Court certified the case as a class action,
although to date no notice has been sent to the class. The class
consists of all members who earned miles between January 1, 1992 and
February 1, 1995 (the date the change became effective). On July 13,
1998, the Court denied American's motion for summary judgment as to
the claims brought by plaintiff Steven Gutterman. On July 30, 1998,
the plaintiffs filed a motion for summary judgment as to liability,
which motion has not been ruled upon. American is vigorously
defending the lawsuit.
A federal grand jury in Miami is investigating whether American
and American Eagle handled hazardous materials and processed courier
shipments, cargo and excess baggage in accordance with applicable
laws and regulations. In connection with this investigation, federal
agents executed a search warrant at American's Miami facilities on
October 22, 1997. Since that time, a number of employees have
testified before the grand jury. In addition, American has been
served with three subpoenas calling for the production of documents
relating to the handling of courier shipments, cargo, excess baggage
and hazardous materials handling and spills. American produced
documents responsive to the three subpoenas. American intends to
cooperate fully with the government's investigation.
On August 7, 1998, a purported class action was filed against
American Airlines in state court in Travis County, Texas (Boon Ins.
Agency v. American Airlines, Inc., et al.) claiming that the $75
reissuance fee for changes to non-refundable tickets is an
unenforceable liquidated damages clause and seeking a refund of the
fee on behalf of all passengers who paid it, as well as interest and
attorneys' fees. On September 23, 1998, Continental, Delta and
America West were added as defendants to the lawsuit. On February 2,
1999, prior to any discovery being taken and a class being certified,
the court granted the defendants' motion for summary judgment holding
that Plaintiff's claims are preempted by the Airline Deregulation
Act. Plaintiff has filed an appeal of the dismissal of the lawsuit.
American intends to vigorously defend the granting of the summary
judgment on appeal.
-20-
<PAGE> 23
PART II
Item 1. Legal Proceedings (Continued)
On May 20, 1999, several class action lawsuits filed against the
Allied Pilots Association (APA) seeking compensation for passengers
and cargo shippers adversely affected by an illegal sick-out by some
of American's pilots in February 1999 were consolidated in the United
States District Court for the Northern District of Texas, Dallas
Division (In re Allied Pilots Association Class Action Litigation).
Plaintiffs are not seeking to hold American independently liable.
Instead, Plaintiffs named American as a defendant inasmuch as American
has a $45 million judgment against the APA that exceeds APA's total
assets. Plaintiffs claim they are entitled to some or all of the
APA's limited funds. APA filed cross claims against American alleging
that American must indemnify pilots who put themselves on the sick
list. American is vigorously defending all claims against it.
On July 26, 1999, a class action lawsuit was filed against AMR
Corporation, American Airlines, Inc., AMR Eagle Holding Corporation,
Airlines Reporting Corporation, and the Sabre Group Holdings, Inc. in
the United States District Court for the Central District of
California, Western Division (Westways World Travel, Inc. v. AMR
Corp., et al). The lawsuit alleges that requiring travel agencies to
pay debit memos to American for violations of American's fare rules
(by customers of the agencies) violates the Racketeer Influenced and
Corrupt Organizations Act of 1970 (RICO). The as yet uncertified
class includes all travel agencies who have or will be required to pay
monies to American for debit memos for fare rules violations from July
26, 1995 to the present. Plaintiffs seek to enjoin American from
enforcing the pricing rules in question and to recover the amounts
paid for debit memos, plus treble damages, attorneys' fees, and costs.
American intends to vigorously defend the lawsuit.
On May 13, 1999, the United States (through the Antitrust Division
of the Department of Justice) sued AMR Corporation, American Airlines,
Inc., and AMR Eagle Holding Corporation in federal court in Wichita,
Kansas. The lawsuit alleges that American unlawfully monopolized or
attempted to monopolize airline passenger service to and from
Dallas/Fort Worth International Airport (DFW) by increasing service
when new competitors began flying to DFW, and by matching these new
competitors' fares. The Department of Justice seeks to enjoin American
from engaging in the alleged improper conduct and to impose restraints
on American to remedy the alleged effects of its past conduct.
American intends to defend the lawsuit vigorously.
Between May 14, 1999 and June 7, 1999, seven class action lawsuits
were filed against AMR Corporation, American Airlines, Inc., and AMR
Eagle Holding Corporation in the United States District Court in
Wichita, Kansas seeking treble damages under federal and state
antitrust laws, as well as injunctive relief and attorneys' fees.
(King v. AMR Corp., et al.; Smith v. AMR Corp., et al.; Team Electric
v. AMR Corp., et al.; Warren v. AMR Corp., et al.; Whittier v. AMR
Corp., et al.; Wright v. AMR Corp., et al.; and Youngdahl v. AMR
Corp., et al.). Collectively, these lawsuits allege that American
unlawfully monopolized or attempted to monopolize airline passenger
service to and from DFW by increasing service when new competitors
began flying to DFW, and by matching these new competitors' fares. Two
of the suits (Smith and Wright) also allege that American unlawfully
monopolized or attempted to monopolize airline passenger service to
and from DFW by offering discounted fares to corporate purchasers, by
offering a frequent flyer program, by imposing certain conditions on
the use and availability of certain fares, and by offering override
commissions to travel agents. The suits propose to certify several
classes of consumers, the broadest of which is all persons who
purchased tickets for air travel on American into or out of DFW since
1995 to the present, although to date no class has been certified.
American intends to defend these lawsuits vigorously.
Also since the filing of the Department of Justice case, one class
action lawsuit filed on April 13, 1999, against AMR Corporation,
American Airlines, Inc., and AMR Eagle Holding Corporation in federal
court in Fort Lauderdale, Florida, (Zifrony v. AMR Corp., et al.),
alleging that American violated federal antitrust law by monopolizing
and attempting to monopolize airline passenger service to and from DFW
and Miami International Airport, was dismissed.
-21-
<PAGE> 24
Item 4. Submission of Matters to a Vote of Security Holders
The owners of 140,165,083 shares of common stock, or 89 percent of
shares outstanding, were represented at the annual meeting of
stockholders on May 19, 1999 at the American Airlines Training &
Conference Center, 4501 Highway 360 South, Fort Worth, Texas.
Elected as directors of the Corporation, each receiving a minimum of
139,531,183 votes were:
David L. Boren Ann D. McLaughlin
Edward A. Brennan Charles H. Pistor, Jr.
Donald J. Carty Joe M. Rodgers
Armando M. Codina Judith Rodin
Earl G. Graves Maurice Segall
Dee J. Kelly
Stockholders ratified the appointment of Ernst & Young LLP as
independent auditors for the Corporation for 1999. The vote was
139,819,436 in favor; 67,519 against; and 278,128 abstaining.
Item 5. Other Information
The Department of Justice is investigating the competitive practices
of major carriers at major hub airports, including American's
practices at DFW (for further information, see Item 1. Legal
Proceedings). Also, in April 1998, the DOT issued proposed pricing
and capacity rules that would severely limit major carriers' ability
to compete with new entrant carriers. The outcomes of the
investigations and the proposed DOT rules are unknown. However, to
the extent that (i) restrictions are imposed upon American's ability
to respond to a competitor, or (ii) competitors have an advantage
because of federal assistance, American's business may be adversely
impacted.
-22-
<PAGE> 25
PART II
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein:
12 Computation of ratio of earnings to fixed charges for the three
and six months ended June 30, 1999 and 1998.
27.1 Financial Data Schedule as of June 30, 1999.
27.2 Restated Financial Data Schedule as of June 30, 1998.
On April 22, 1999, AMR filed a report on Form 8-K relative to a
press release issued to report the Company's first quarter 1999
earnings and to announce the acceleration of the retirement of nine DC-
10 widebody aircraft and 16 Boeing 727 narrowbody aircraft.
On July 12, 1999, AMR filed a report on Form 8-K relative to
filing documents with reference to the Registration Statement on Form
S-3 (Registration No. 333-68211) (which Registration Statement
constitutes a post-effective amendment to Registration Statements on
Form S-3 (Registration Nos. 33-46325 and 33-52121)) of AMR
Corporation.
On July 22, 1999, AMR filed a report on Form 8-K relative to a
press release issued to report the Company's second quarter 1999
earnings.
-23-
<PAGE> 26
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
AMR CORPORATION
Date: August 16, 1999 BY: /s/ Gerard J. Arpey
Gerard J. Arpey
Senior Vice President and Chief
Financial Officer
-24-
<PAGE> 27
Exhibit 12
AMR CORPORATION
Computation of Ratio of Earnings to Fixed Charges
(in millions)
<TABLE>
<Captions>
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Earnings:
Earnings from continuing
operations before income taxes $448 $673 $621 $1,150
Add: Total fixed charges
(per below) 317 288 625 570
Less: Interest capitalized 29 25 62 43
Total earnings $736 $936 $1,184 $1,677
Fixed charges:
Interest, including interest
capitalized $ 92 $92 $183 $188
Portion on rental expense
representative of the
interest factor 222 195 437 381
Amortization of debt expense 3 1 5 1
Total fixed charges $317 $288 $625 $570
Ratio of earnings to fixed
charges 2.32 3.25 1.89 2.94
</TABLE>
-25-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 79
<SECURITIES> 1,486
<RECEIVABLES> 1,724
<ALLOWANCES> 35
<INVENTORY> 657
<CURRENT-ASSETS> 4,613
<PP&E> 24,891
<DEPRECIATION> 9,057
<TOTAL-ASSETS> 23,511
<CURRENT-LIABILITIES> 6,304
<BONDS> 4,643
0
0
<COMMON> 1,330
<OTHER-SE> 5,108
<TOTAL-LIABILITY-AND-EQUITY> 23,511
<SALES> 0
<TOTAL-REVENUES> 9,494
<CGS> 0
<TOTAL-COSTS> 8,826
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 187
<INCOME-PRETAX> 621
<INCOME-TAX> 259
<INCOME-CONTINUING> 362
<DISCONTINUED> 64
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 426
<EPS-BASIC> 2.73
<EPS-DILUTED> 2.65
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 102
<SECURITIES> 2,124
<RECEIVABLES> 1,717
<ALLOWANCES> 25
<INVENTORY> 648
<CURRENT-ASSETS> 5,187
<PP&E> 21,807
<DEPRECIATION> 8,190
<TOTAL-ASSETS> 21,904
<CURRENT-LIABILITIES> 5,844
<BONDS> 3,833
0
0
<COMMON> 2,556
<OTHER-SE> 4,085
<TOTAL-LIABILITY-AND-EQUITY> 21,904
<SALES> 0
<TOTAL-REVENUES> 9,558
<CGS> 0
<TOTAL-COSTS> 8,286
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 189
<INCOME-PRETAX> 1,150
<INCOME-TAX> 457
<INCOME-CONTINUING> 693
<DISCONTINUED> 6
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 699
<EPS-BASIC> 4.06
<EPS-DILUTED> 3.91
</TABLE>
