<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 September 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 X 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 - 148,083,026 as of October 29, 1999
<PAGE> 2
INDEX
AMR CORPORATION
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations -- Three and nine months
ended September 30, 1999 and 1998
Condensed Consolidated Balance Sheets -- September 30, 1999 and
December 31, 1998
Condensed Consolidated Statements of Cash Flows -- Nine months
ended September 30, 1999 and 1998
Notes to Condensed Consolidated Financial Statements - September
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 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>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues
Airline Group:
Passenger - American
Airlines, Inc $3,900 $3,871 $10,971 $11,238
- American Eagle 352 304 963 849
Cargo 160 158 469 490
Other 267 257 795 739
4,679 4,590 13,198 13,316
Sabre 617 604 1,894 1,735
Other 20 17 60 51
Less: Intersegment revenues (166) (165) (508) (498)
Total operating revenues 5,150 5,046 14,644 14,604
Expenses
Wages, salaries and
benefits 1,734 1,632 5,164 4,817
Aircraft fuel 456 400 1,219 1,219
Depreciation and
amortization 317 328 984 966
Commissions to agents 314 311 900 934
Maintenance, materials and
repairs 263 251 743 704
Other rentals and
landing fees 261 231 754 667
Food service 196 184 548 523
Aircraft rentals 161 142 483 427
Other operating expenses 901 835 2,634 2,343
Total operating expenses 4,603 4,314 13,429 12,600
Operating Income 547 732 1,215 2,004
Other Income (Expense)
Interest income 26 37 72 103
Interest expense (107) (93) (294) (280)
Interest capitalized 27 28 89 71
Minority interest (13) (12) (40) (37)
Miscellaneous - net (9) 16 50 (3)
(76) (24) (123) (146)
Income From Continuing
Operations
Before Income Taxes 471 708 1,092 1,858
Income tax provision 192 277 451 734
Income From Continuing
Operations 279 431 641 1,124
Discontinued Operations, net
of applicable income taxes - 2 64 8
Net Earnings $ 279 $ 433 $ 705 $ 1,132
</TABLE>
Continued on next page.
-1-
<PAGE> 4
AMR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(Unaudited) (In millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Earnings Applicable to
Common Shares $ 279 $ 433 $ 705 $ 1,132
Earnings Per Common Share
Basic
Income from Continuing
Operations $ 1.86 $ 2.56 $ 4.17 $ 6.57
Discontinued Operations - 0.01 0.41 0.05
Net Earnings $ 1.86 $ 2.57 $ 4.58 $ 6.62
Diluted
Income from Continuing
Operations $ 1.76 $ 2.48 $ 4.04 $ 6.34
Discontinued Operations - 0.01 0.40 0.05
Net Earnings $ 1.76 $ 2.49 $ 4.44 $ 6.39
</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>
<CAPTION>
September 30, December 31,
1999 1998
(Note 1)
Assets
<S> <C> <C>
Current Assets
Cash $ 96 $ 95
Short-term investments 1,869 1,978
Receivables, net 1,742 1,543
Inventories, net 703 596
Deferred income taxes 476 476
Other current assets 226 187
Total current assets 5,112 4,875
Equipment and Property
Flight equipment, net 10,986 8,712
Other equipment and property, net 1,980 1,903
Purchase deposits for flight equipment 1,329 1,624
14,295 12,239
Equipment and Property Under Capital Leases
Flight equipment, net 1,883 1,981
Other equipment and property, net 186 166
2,069 2,147
Route acquisition costs, net 894 916
Other assets, net 1,994 2,126
$ 24,364 $ 22,303
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 1,249 $ 1,152
Accrued liabilities 2,189 2,122
Air traffic liability 2,596 2,163
Current maturities of long-term debt 307 48
Current obligations under capital leases 168 154
Total current liabilities 6,509 5,639
Long-term debt, less current maturities 3,525 2,436
Obligations under capital leases,
less current obligations 1,692 1,764
Deferred income taxes 1,752 1,491
Other liabilities, deferred gains, deferred
credits and postretirement benefits 4,388 4,275
Stockholders' Equity
Common stock 182 182
Additional paid-in capital 3,061 3,075
Treasury stock (2,111) (1,288)
Accumulated other comprehensive income (4) (4)
Retained earnings 5,370 4,733
6,498 6,698
$ 24,364 $ 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>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
<S> <C> <C>
Net Cash Provided by Operating Activities $ 2,163 $ 2,571
Cash Flow from Investing Activities:
Capital expenditures, including net change in
purchase deposits for flight equipment (2,876) (1,950)
Net decrease in short-term investments 113 190
Acquisitions and other investments (99) (140)
Proceeds from:
Sale of discontinued operations 259 -
Sale of equipment and property 67 224
Sale of other investments 66 -
Net cash used for investing activities (2,470) (1,676)
Cash Flow from Financing Activities:
Repurchases of common stock (930) (889)
Payments on long-term debt and capital
lease obligations (213) (349)
Proceeds from:
Issuance of long-term debt 1,367 165
Sale-leaseback transactions 54 108
Exercise of stock options 30 80
Net cash provided by (used for)
financing asctivities 308 (885)
Net increase in cash 1 10
Cash at beginning of period 95 62
Cash at end of period $ 96 $ 72
Cash Payments For:
Interest $ 197 $ 226
Income taxes 114 435
Financing Activities Not Affecting Cash:
Capital lease obligations incurred $ 54 $ 108
</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
September 30, 1999 and December 31, 1998, was $7.9 billion and $7.3
billion, respectively. Accumulated amortization of equipment and
property under capital leases at September 30, 1999 and December
31, 1998, was $1.4 billion and $1.3 billion, respectively.
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 $39 million and net earnings
was increased by approximately $23 million, or $0.15 per common
share diluted, for the three months ended September 30, 1999. For
the nine months ended September 30, 1999, depreciation and
amortization expense was reduced by approximately $119 million and
net earnings was increased by approximately $70 million, or $0.44
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 September 30, 1999, the Company had commitments to acquire
the following aircraft: 85 Boeing 737-800s, 26 Boeing 777-200IGWs, 90
Embraer EMB-135s, 25 Bombardier CRJ-700s and 11 Embraer EMB-145s.
Deliveries of these aircraft extend through 2006. Payments for these
aircraft approximate $1.0 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, 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) and adversely
impacted the Company's 1999 net earnings. On October 30, 1999,
American and the APA reached agreement on a number of issues,
including the integration of Reno and American pilot workforces, and
new processes to facilitate and foster the amicable resolution of
future issues between American and the APA.
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.
-5-
<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 all three
businesses. 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 $2 million, net of income taxes of $1.7
million, and $8 million, net of income taxes of $6.7 million, for the
three and nine months ended September 30, 1998, respectively.
Revenues from the operations of AMR Services, AMR Combs and
TeleService Resources were $122 million for the three months ended
September 30, 1998 and $97 million and $374 million for the nine
months ended September 30, 1999 and 1998, respectively.
8.During 1999, American and American Eagle entered into various
debt agreements which are secured by aircraft. Effective interest
rates on these agreements range from 5.6 percent to 6.6 percent and
mature in 2011 and 2015. As of September 30, 1999, the Company had
borrowed approximately $1.0 billion 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
callable at par after July 13, 2004.
On October 6, 1999, American issued $600 million of pass-through
certificates which are secured by 15 Boeing aircraft. Interest on
these certificates range from 6.855 to 7.324 percent and mature in
2004 and 2009. A portion of these proceeds were used to repay $170
million of secured debt borrowed by American during September 1999.
-6-
<PAGE> 9
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
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>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic earnings
per share - income from
continuing operations $ 279 $ 431 $ 641 $1,124
Impact of Sabre, Inc.
dilutive securities (6) - - -
Numerator for diluted
earnings per share -
adjusted income from
continuing operations $ 273 $ 431 $ 641 $1,124
Denominator:
Denominator for basic
earnings per share -
weighted-average shares 150 169 154 171
Effect of dilutive
securities:
Employee options and shares 11 12 12 13
Assumed treasury shares
purchased (7) (7) (7) (7)
Dilutive potential common shares 5 5 5 6
Denominator for diluted
earnings per share - adjusted
weighted-average shares 155 174 159 177
Basic earnings per share from
continuing operations $1.86 $2.56 $4.17 $6.57
Diluted earnings per share
from continuing operations $1.76 $2.48 $4.04 $6.34
</TABLE>
-7-
<PAGE> 10
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, 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. 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>
<CAPTION>
Airline
Group Sabre Total
<S> <C> <C> <C>
Three months ended September 30, 1999
Revenues from external customers $4,669 $465 $5,134
Intersegment revenues 10 152 162
Operating income 422 121 543
Three months ended September 30, 1998
Revenues from external customers $4,576 $458 $5,034
Intersegment revenues 14 146 160
Operating income 626 98 724
Nine months ended September 30, 1999
Revenues from external customers $13,165 $1,430 $14,595
Intersegment revenues 33 464 497
Operating income 867 329 1,196
Nine months ended September 30, 1998
Revenues from external customers $13,278 $1,287 $14,565
Intersegment revenues 38 448 486
Operating income 1,661 322 1,983
The following table provides a reconciliation of reportable
segment revenues and operating income to the Company's
consolidated financial statement totals (in millions):
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
Revenues
Total external revenues for
reportable segments $5,134 $5,034 $14,595 $14,565
Intersegment revenues for
reportable segments 162 160 497 486
Other revenues 20 17 60 51
Elimination of intersegment
revenues (166) (165) (508) (498)
Total consolidated revenues $5,150 $5,046 $14,644 $14,604
Operating income
Total operating income for
reportable segments $ 543 $ 724 $ 1,196 $1,983
Other operating income 4 8 19 21
Total consolidated operating income $ 547 $ 732 $ 1,215 $2,004
</TABLE>
-8-
<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
For the Three Months Ended September 30, 1999 and 1998
Summary AMR recorded net earnings for the three months ended
September 30, 1999 of $279 million, or $1.76 per common share
diluted. This compares to net earnings of $433 million, or $2.49 per
common share diluted, for the third quarter of 1998. AMR's operating
income of $547 million decreased 25.3 percent, or $185 million,
compared to $732 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>
<CAPTION>
Three Months Ended
September 30,
1999 1998
<S> <C> <C>
Revenues
Passenger - American Airlines, Inc. $3,900 $ 3,871
- American Eagle 352 304
Cargo 160 158
Other 267 257
4,679 4,590
Expenses
Wages, salaries and benefits 1,528 1,449
Aircraft fuel 456 400
Commissions to agents 314 311
Depreciation and amortization 276 265
Maintenance, materials and repairs 263 250
Other rentals and landing fees 248 222
Food service 196 184
Aircraft rentals 161 142
Other operating expenses 815 741
Total operating expenses 4,257 3,964
Operating Income 422 626
Other Expense (69) (27)
Earnings Before Income Taxes $ 353 $ 599
Average number of equivalent employees 100,800 93,100
</TABLE>
-9-
<PAGE> 12
RESULTS OF OPERATIONS (continued)
<TABLE>
<CAPTION>
OPERATING STATISTICS
Three Months Ended
September 30,
1999 1998
<S> <C> <C>
American Airlines Jet Operations
Revenue passenger miles (millions) 30,325 29,132
Available seat miles (millions) 42,245 39,806
Cargo ton miles (millions) 541 480
Passenger load factor 71.8% 73.2%
Breakeven load factor 63.3% 60.2%
Passenger revenue yield per
passenger mile (cents) 12.86 13.29
Passenger revenue per available
seat mile (cents) 9.23 9.73
Cargo revenue yield per ton mile (cents) 29.22 32.61
Operating expenses per available
seat mile (cents) 9.21 9.22
Fuel consumption (gallons, in millions) 780 728
Fuel price per gallon (cents) 55.9 53.1
Fuel price per gallon, excluding
fuel taxes (cents) 51.0 48.4
Operating aircraft at period-end 701 645
American Eagle
Revenue passenger miles (millions) 905 753
Available seat miles (millions) 1,502 1,156
Passenger load factor 60.2% 65.1%
Operating aircraft at period-end 268 207
Operating aircraft at September 30, 1999 included:
American Airlines Aircraft: American Eagle Aircraft:
Airbus A300-600R 35 ATR 42 35
Boeing 727-200 75 Embraer 145 39
Boeing 737-800 18 Embraer 135 5
Boeing 757-200 102 Super ATR 43
Boeing 767-200 8 Saab 340A 19
Boeing 767-200 Extended Saab 340B 102
Range 22
Boeing 767-300 Extended Saab 340B Plus 25
Range 49
Boeing 777-200IGW 11 Total 268
Fokker 100 75
McDonnell Douglas DC-10-10 6
McDonnell Douglas DC-10-30 5
McDonnell Douglas MD-11 11
McDonnell Douglas MD-80 279
McDonnell Douglas MD-90 5
Total 701
</TABLE>
96.7 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 10.7 years for American's aircraft and 6.2
years for American Eagle aircraft.
-10-
<PAGE> 13
RESULTS OF OPERATIONS (continued)
The Airline Group's revenues increased $89 million, or 1.9 percent,
in the third quarter of 1999 versus the same period last year.
American's results for the third quarter of 1999 reflect the
acquisition of Reno. American's passenger revenues increased by 0.7
percent, or $29 million, compared to the third quarter of 1998.
American's yield (the average amount one passenger pays to fly one
mile) of 12.86 cents decreased by 3.2 percent compared to the same
period in 1998. Domestic yields decreased 1.2 percent from the third
quarter of 1998. International yields decreased 7.4 percent due to a
9.3 percent decrease in Europe, a 5.9 percent decrease in Latin
America, and a 3.0 percent decrease in the Pacific. The decrease in
domestic yields was due primarily to industry capacity additions, the
impact of international yield pressure on the domestic portion of
international journeys, and the growing presence of low-cost
competitors. The decrease in international yields was due primarily
to large industry capacity additions in the transatlantic markets.
American's traffic or revenue passenger miles (RPMs) increased 4.1
percent to 30.3 billion miles for the quarter ended September 30,
1999. American's capacity or available seat miles (ASMs) increased
6.1 percent to 42.2 billion miles in the third quarter of 1999.
American's domestic traffic increased 2.6 percent on capacity
increases of 6.8 percent and international traffic grew 7.2 percent
on capacity increases of 4.7 percent. The increase in international
traffic was driven by a 41.9 percent increase in traffic to the
Pacific on capacity growth of 35.1 percent, a 7.4 percent increase in
traffic to Europe on capacity growth of 10.5 percent, and a 1.5
increase in traffic to Latin America on a capacity decrease of 3.8
percent. During the third quarter of 1998, American's revenue and
traffic was positively impacted by the effects of pilot strikes at
two of its competitors.
AMR Eagle's revenues increased 15.8 percent, or $48 million, due
primarily to the acquisition of Business Express, a regional carrier
based in the Northeast, in March 1999.
The Airline Group's operating expenses increased 7.4 percent, or $293
million. American's Jet Operations cost per ASM decreased 0.1
percent to 9.21 cents. Wages, salaries and benefits increased 5.5
percent, or $79 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, partially offset by a decrease in the provision for profit-
sharing. Aircraft fuel expense increased 14.0 percent, or $56
million, due to a 7.1 percent increase in American's fuel consumption
and a 5.3 percent increase in American's average price per gallon,
including taxes, and net of fuel hedging activity. Other rentals and
landing fees increased $26 million, or 11.7 percent, due to higher
facilities rent and landing fees across American's system and the
addition of Reno. Aircraft rentals increased $19 million, or 13.4
percent, due primarily to the addition of Reno and Business Express
aircraft. Other operating expense increased $74 million, or 10.0
percent, due primarily to an increase in outsourced services, travel
and incidental costs, and the acquisition of Reno and Business
Express.
Other Expense increased $42 million due to an increase in interest
expense resulting from an increase in long-term debt for aircraft
financing, and a decrease in interest income resulting from lower
investment balances and a decline in interest rates.
-11-
<PAGE> 14
RESULTS OF OPERATIONS (continued)
SABRE
FINANCIAL HIGHLIGHTS
(Unaudited) (Dollars in millions)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1999 1998
<S> <C> <C>
Revenues $ 617 $ 604
Operating Expenses 496 506
Operating Income 121 98
Other Income 4 15
Earnings Before Income Taxes $ 125 $ 113
Average number of equivalent employees 11,700 11,700
</TABLE>
Revenues
Revenues for Sabre increased $13 million, or 2.2 percent. Electronic
travel distribution revenues increased approximately $37 million, or
10.9 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
decreased approximately $24 million, or 9.1 percent, primarily due to
services performed under the information technology services agreement
with US Airways, Inc. (US Airways) moving into a steady state,
partially offset by increased revenues from other information
technology outsourcing agreements signed during 1998.
Expenses
Operating expenses decreased $10 million, or 2.0 percent, due
primarily to decreases in contract labor expense and depreciation and
amortization expense, partially offset by increases in salaries,
benefits and employee-related expenses, subscriber incentive expense,
and advertising and miscellaneous selling expenses. Contract labor
expenses decreased due to a planned reduction in contract labor
headcount. Depreciation and amortization expense decreased primarily
due to the reversal of approximately $19 million of amortization
expense on the deferred asset associated with the stock options
granted to US Airways due to a reduction in the market price of
Sabre's common stock. Salaries, benefits and employee-related
expenses increased as a result of sales growth initiatives and
increased administrative requirements to support Sabre's growth,
higher average salaries and benefits costs, and severance charges
related to the reduction in force of approximately 330 employees at
the end of August 1999. Subscriber incentive expense increased in
order to maintain and expand Sabre's travel agency subscriber base.
Advertising and miscellaneous selling expenses increased in order to
support Sabre's growth initiatives.
Other Income
Other income decreased 73.3 percent, or $11 million, due primarily to
a favorable court judgement relating to Ticketnet Corporation, an
inactive subsidiary of Sabre, in the third quarter of 1998.
-12-
<PAGE> 15
RESULTS OF OPERATIONS (continued)
For the Nine Months Ended September 30, 1999 and 1998
Summary AMR recorded net earnings for the nine months ended September
30, 1999 of $705 million, or $4.44 per common share diluted. This
compares with net earnings of $1,132 million, or $6.39 per common
share diluted, for the same period in 1998. AMR's operating income
of $1.2 billion decreased 39.4 percent, or $789 million, compared to
$2.0 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 $0.88 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 $0.64
per common share diluted.
AIRLINE GROUP
FINANCIAL HIGHLIGHTS
(Unaudited) (Dollars in millions)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
<S> <C> <C>
Revenues
Passenger - American Airlines, Inc. $10,971 $ 11,238
- American Eagle 963 849
Cargo 469 490
Other 795 739
13,198 13,316
Expenses
Wages, salaries and benefits 4,547 4,285
Aircraft fuel 1,219 1,219
Commissions to agents 900 934
Depreciation and amortization 797 781
Maintenance, materials and repairs 742 702
Other rentals and landing fees 717 641
Food service 548 523
Aircraft rentals 483 427
Other operating expenses 2,378 2,143
Total operating expenses 12,331 11,655
Operating Income 867 1,661
Other Expense (131) (130)
Earnings Before Income Taxes $ 736 $ 1,531
Average number of equivalent employees 97,800 91,900
</TABLE>
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<PAGE> 16
RESULTS OF OPERATIONS (continued)
<TABLE>
<CAPTION>
OPERATING STATISTICS
Nine Months Ended
September 30,
1999 1998
<S> <C> <C>
American Airlines Jet Operations
Revenue passenger miles (millions) 84,522 82,443
Available seat miles (millions) 120,354 116,476
Cargo ton miles (millions) 1,483 1,485
Passenger load factor 70.2% 70.8%
Breakeven load factor 64.3% 59.2%
Passenger revenue yield per passenger
mile (cents) 12.98 13.63
Passenger revenue per available seat
mile (cents) 9.12 9.65
Cargo revenue yield per ton mile (cents) 31.21 32.64
Operating expenses per available seat
mile (cents) 9.38 9.27
Fuel consumption (gallons, in millions) 2,212 2,120
Fuel price per gallon (cents) 52.7 55.6
Fuel price per gallon, excluding fuel
taxes (cents) 48.1 50.8
Operating aircraft at period-end 701 645
American Eagle
Revenue passenger miles (millions) 2,496 2,076
Available seat miles (millions) 4,135 3,326
Passenger load factor 60.4% 62.4%
Operating aircraft at period-end 268 207
</TABLE>
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<PAGE> 17
RESULTS OF OPERATIONS (continued)
The Airline Group's revenues decreased $118 million, or 0.9 percent,
during the first nine months of 1999 versus the same period last
year. American's results for the nine months ended September 30, 1999
reflect the acquisition of Reno. American's passenger revenues
decreased by 2.4 percent, or $267 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 of 12.98 cents decreased by 4.8
percent compared to the same period in 1998. Domestic yields
decreased 3.0 percent from the first nine months of 1998.
International yields decreased 8.7 percent, reflecting a 9.1 percent
decrease in Europe, an 8.9 percent decrease in the Pacific and a 7.5
percent decrease in Latin America. The decrease in domestic yield was
due primarily to increased capacity and fare sale activity in the
first half 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 2.5
percent to 84.5 billion miles for the nine months ended September 30,
1999. American's capacity or available seat miles (ASMs) increased
3.3 percent to 120.4 billion miles in the first nine months of 1999.
American's domestic traffic increased 1.8 percent on capacity growth
of 3.5 percent and international traffic grew 4.1 percent on capacity
increases of 2.9 percent. The increase in international traffic was
driven by a 46.7 percent increase in traffic to the Pacific on
capacity growth of 50.2 percent and a 4.5 percent increase in traffic
to Europe on capacity growth of 7.5 percent. This was partially
offset by a 2.1 percent decrease in traffic to Latin America on a
capacity decline of 6.0 percent.
American's operations were adversely impacted by several external
factors primarily 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 13.4 percent, or $114 million, due
primarily to the acquisition of Business Express in March 1999.
The Airline Group's operating expenses increased 5.8 percent, or $676
million. American's Jet Operations cost per ASM increased by 1.2
percent to 9.38 cents. Wages, salaries and benefits increased $262
million, or 6.1 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, partially offset by a decrease in the provision for profit-
sharing. Other rentals and landing fees increased $76 million, or
11.9 percent, due to higher facilities rent and landing fees across
American's system and the addition of Reno. Aircraft rentals
increased $56 million, or 13.1 percent, due primarily to the addition
of Reno and Business Express aircraft. Other operating expense
increased $235 million, or 11.0 percent, due primarily to an increase
in outsourced services, travel and incidental costs, booking fees,
aircraft maintenance work performed by American for other airlines,
and the acquisition of Reno and Business Express.
Other Expense increased 0.8 percent, or $1 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., offset by a decrease in interest income resulting from
lower investment balances and a decline in interest rates and an
increase in interest expense resulting from an increase in long-term
debt for aircraft financing.
-15-
<PAGE> 18
RESULTS OF OPERATIONS (continued)
SABRE
FINANCIAL HIGHLIGHTS
(Unaudited) (Dollars in millions)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
<S> <C> <C>
Revenues $1,894 $1,735
Operating Expenses 1,565 1,413
Operating Income 329 322
Other Income 45 18
Earnings Before Income Taxes $ 374 $ 340
Average number of equivalent employees 12,000 13,000
</TABLE>
Revenues
Revenues for Sabre increased $159 million, or 9.2 percent. Electronic
travel distribution revenues increased approximately $123 million, or
12.0 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 $36
million, or 5.1 percent, primarily due to services performed under the
various information technology services agreements signed during 1998.
Expenses
Operating expenses increased $152 million, or 10.8 percent, due
primarily to increases in salaries, benefits and employee-related
expenses, subscriber incentive expense, data processing expenses, and
advertising and miscellaneous selling expenses, partially offset by a
decrease in depreciation and amortization expense, contract labor
expenses, and expenses associated with the marketing cooperation
agreement with American. Salaries, benefits and employee-related
expenses increased as a result of sales growth initiatives and
increased administrative requirements to support Sabre's growth,
higher average salaries and benefits costs, and severance charges
related to the reduction in force of approximately 330 employees at
the end of August 1999. Subscriber incentive expense increased in
order to maintain and expand Sabre's travel agency subscriber base.
Data processing costs increased due to the growth in bookings and
transactions processed. Advertising and miscellaneous selling
expenses increased in order to support Sabre's growth initiatives.
Depreciation and amortization expense decreased primarily due to a
reduction in the reserve for obsolete computer equipment, partially
offset by additional depreciation expense associated with new
equipment additions. Contract labor expenses decreased due to a
planned reduction in contract labor headcount.
Other Income
Other income increased $27 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, partially offset by a favorable
court judgement relating to Ticketnet Corporation, an inactive
subsidiary of Sabre, in the third quarter of 1998.
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<PAGE> 19
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities in the nine-month period
ended September 30, 1999 was $2.2 billion, a decrease of $408 million
over the same period in 1998. This decrease resulted primarily from a
decrease in net earnings. Capital expenditures for the first nine
months of 1999 were $2.9 billion, and included the acquisition of 18
Boeing 737-800s, 11 Boeing 777-200IGWs, six Boeing 757-200s, four
Boeing 767-300ERs, 19 Embraer 145s and five Embraer 135 aircraft.
These capital expenditures were financed with internally generated
cash, except for 14 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. On October 6, 1999,
American issued $600 million of pass-through certificates which are
secured by 15 Boeing aircraft. Interest on these certificates range
from 6.855 to 7.324 percent and mature in 2004 and 2009. A portion of
these proceeds were used to repay $170 million of secured debt
borrowed by American during September 1999.
As of September 30, 1999, the Company had commitments to acquire
the following aircraft: 85 Boeing 737-800s, 26 Boeing 777-200IGWs, 90
Embraer EMB-135s, 25 Bombardier CRJ-700s and 11 Embraer EMB-145s.
Deliveries of these aircraft extend through 2006. Payments for these
aircraft approximate $1.0 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, 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
callable at par after July 13, 2004.
During the nine months ended September 30, 1999, the Company
purchased approximately 14.1 million shares of its common stock at a
cost of approximately $871 million. Additional share repurchases of
up to $34 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 nine
months ended September 30, 1999, Sabre purchased all such shares at a
cost of approximately $59 million. On September 15, 1999, Sabre's
Board of Directors authorized, subject to certain business and market
conditions, the repurchase of up to an additional $100 million of
Sabre's Class A Common Stock.
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 half 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 September
30, 1999, the Company holds approximately 5.3 million depository
certificates with an estimated market value of approximately $433
million.
-17-
<PAGE> 20
On October 4, 1999, Sabre announced the terms of a merger of
Travelocity, an operating unit of Sabre (Travelocity) and Preview
Travel, Inc. (Preview), an independent publicly traded company engaged
in consumer direct travel distribution over the Internet. Under the
terms of the merger agreement, shareholders of Preview will receive
one share of Travelocity.com Inc., a newly created subsidiary of
Sabre, for each share of Preview held, and Preview will be merged into
Travelocity.com Inc., which will be the surviving entity. Sabre will
attempt to obtain a listing of the shares of Travelocity.com Inc. on
the NASDAQ exchange. Assuming that the listing is obtained,
Travelocity.com Inc. will be a publicly traded company. Immediately
prior to the merger, Sabre will contribute the existing assets and
businesses of Travelocity and approximately $50 million in cash to
Travelocity.com LP, a Delaware limited partnership (the Partnership).
Immediately following the merger, Travelocity.com Inc. will contribute
the assets and businesses obtained from the acquisition of Preview to
the Partnership. As a result of the merger agreement, Sabre will own
an economic interest of 70 percent in the combined businesses,
composed of a 64 percent direct interest in the Partnership and an 18
percent interest in Travelocity.com Inc., which will hold a 36 percent
interest in the Partnership.
Upon consummation of the merger, Sabre anticipates that it will
recognize a gain and record goodwill based upon the ownership of
Travelocity exchanged for the ownership interest in Preview. In
addition, during the ten days following the merger, Travelocity.com
Inc. has the right to cause Sabre to purchase with cash up to an
additional $50 million in Travelocity.com Inc. common stock.
OTHER INFORMATION
The Company has previously indicated that it is considering a
potential spin-off transaction in which AMR would distribute to its
shareholders all of its ownership interest in Sabre. In the event of
a spin-off of Sabre, the earnings and assets of Sabre would no longer
be available to AMR.
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 five phases of
the Year 2000 Project for all of its IT Systems, including its
computer reservations and flight operating system applications 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 October 1, 1999,
approximately 45 percent of those IT Systems (including the computer
reservations systems) are already successfully processing Year 2000
dates in actual use. The Company has installed Year 2000 Readiness
hardware and software at all of its locations worldwide. The Company
is following structured clean management processes to keep all of its
IT Systems Year 2000 ready.
Non-IT Systems The Company has completed the first five phases
of the Year 2000 project for all of its Non-IT Systems which includes
aircraft avionics and flight simulators. The Company believes that is
has adequate contingency plans to ensure business continuity if any of
its Non-IT systems are not Year 2000 ready.
-18-
<PAGE> 21
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 over 90 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.
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
$210 million was incurred as of September 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 ready. 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. Somewhat mitigating this risk is that the Company
will be operating a reduced holiday schedule due to soft passenger demand.
In addition, the Company may undertake initiatives to encourage personnel
to work as scheduled. The fourth risk area relates to the failure of
critical internal business processes, services, systems and facilities.
-19-
<PAGE> 22
The Company has tested all systems including those not impacted by
dates and has completed approximately 98 percent of its business
continuity plans to manage potential internal Year 2000 failures. 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. In addition, the Company will
assess its operational readiness by evaluating mission critical
systems and reporting the status to the Enterprise Command Center.
Appropriate actions will be taken when issues regarding industry
readiness impacts the airline's 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 ready, the Company will continue to refine its
contingency plans during the fourth quarter.
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.
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.
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<PAGE> 23
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 in market risk 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.
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<PAGE> 24
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
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 attorneys' 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 has a motion for
judgement on the pleadings pending and 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.
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 $45.5 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.
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<PAGE> 25
PART II
Item 1. Legal Proceedings (Continued)
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.
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.
-23-
<PAGE> 26
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 nine months ended September 30, 1999 and 1998.
27 Financial Data Schedule as of September 30, 1999.
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.
On October 21, 1999, AMR filed a report on Form 8-K relative to a
press release issued to report the Company's third quarter 1999
earnings.
-24-
<PAGE> 27
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: November 5, 1999 BY: /s/ Gerard J. Arpey
Gerard J. Arpey
Senior Vice President and Chief
Financial Officer
-25-
<PAGE> 28
Exhibit 12
AMR CORPORATION
Computation of Ratio of Earnings to Fixed Charges
(in millions)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Earnings:
Earnings from continuing
operations before income taxes $471 $708 $1,092 $1,858
Add: Total fixed charges
(per below) 330 289 955 860
Less: Interest capitalized 27 28 89 71
Total earnings $774 $969 $1,958 $2,647
Fixed charges:
Interest, including interest
capitalized $104 $90 $287 $279
Portion on rental expense
representative of the
interest factor 223 197 660 578
Amortization of debt expense 3 2 8 3
Total fixed charges $330 $289 $955 $860
Ratio of earnings to fixed
charges 2.35 3.35 2.05 3.08
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 96
<SECURITIES> 1,869
<RECEIVABLES> 1,778
<ALLOWANCES> 36
<INVENTORY> 703
<CURRENT-ASSETS> 5,112
<PP&E> 25,672
<DEPRECIATION> 9,308
<TOTAL-ASSETS> 24,364
<CURRENT-LIABILITIES> 6,509
<BONDS> 5,217
0
0
<COMMON> 1,132
<OTHER-SE> 5,366
<TOTAL-LIABILITY-AND-EQUITY> 24,364
<SALES> 0
<TOTAL-REVENUES> 14,644
<CGS> 0
<TOTAL-COSTS> 13,429
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 294
<INCOME-PRETAX> 1,092
<INCOME-TAX> 451
<INCOME-CONTINUING> 641
<DISCONTINUED> 64
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 705
<EPS-BASIC> 4.58
<EPS-DILUTED> 4.44
</TABLE>
