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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 For fiscal year ended December 31, 1999.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission file number 1-8400.
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AMR CORPORATION
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(Exact name of registrant as specified in its charter)
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Delaware 75-1825172
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
4333 Amon Carter Blvd.
Fort Worth, Texas 76155
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(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code (817) 963-1234
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Securities registered pursuant to Section 12(b) of the Act:
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Title of each class Name of exchange on which registered
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Common stock, $1 par value per share New York Stock Exchange
9.00% Debentures due 2016 New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
NONE
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Secton 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 20, 2000, was approximately $4,457,495,580. As of March
20, 2000, 148,583,186 shares of the registrant's common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K incorporates by reference certain information from
the Proxy Statement for the Annual Meeting of Stockholders to be held May 17,
2000.
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PART I
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ITEM 1. BUSINESS
AMR Corporation (AMR or the Company) was incorporated in October 1982. Following
the sale of AMR Services, AMR Combs and TeleService Resources in the first
quarter of 1999 and the spin-off of AMR's 83 percent interest in Sabre Holdings
Corporation (Sabre) in March of 2000, AMR's operations fall almost entirely in
the airline industry. AMR's principal subsidiary, American Airlines, Inc.
(American), was founded in 1934. American is one of the largest scheduled
passenger airlines in the world. At the end of 1999, American provided scheduled
jet service to more than 169 destinations throughout North America, the
Caribbean, Latin America, Europe and the Pacific. American is also one of the
largest scheduled air freight carriers in the world, providing a full range of
freight and mail services to shippers throughout its system.
In addition, AMR Eagle Holding Corporation (AMR Eagle), a wholly-owned
subsidiary of AMR, owns three regional airlines which operate as "American
Eagle" -- American Eagle Airlines, Inc., Executive Airlines, Inc. and Business
Express Airlines, Inc. (acquired in March 1999). The American Eagle carriers
provide connecting service from seven of American's high-traffic cities to
smaller markets throughout the United States, Canada, the Bahamas and the
Caribbean.
On February 7, 2000, the Company declared its intent to distribute AMR's
entire ownership interest in Sabre as a dividend on all outstanding shares of
its common stock. To effect the dividend, AMR exchanged all of its 107,374,000
shares of Sabre's Class B common stock for an equal number of shares of Sabre's
Class A common stock. Effective after the close of business on March 15, 2000,
AMR distributed 0.722652 shares of Sabre Class A Common Stock for each share of
AMR stock owned by AMR's shareholders. The record date for the Sabre stock
dividend was the close of business on March 1, 2000. On February 18, 2000, Sabre
paid a special one-time cash dividend of $675 million to shareholders of record
of Sabre common stock at the close of business on February 15, 2000. AMR
received approximately $560 million by means of this dividend. These funds will
be used for general corporate purposes.
Sabre provides electronic distribution of travel through its Sabre(R)
computer reservations system. In addition, Sabre is a provider of information
technology solutions to the travel and transportation industries. It fulfills
substantially all of the data processing, network and distributed systems needs
of American and AMR's other subsidiaries, Canadian Airlines International
Limited (Canadian), US Airways, Inc. and other customers.
Sabre has been treated as a discontinued operation in Item 6 - Selected
Consolidated Financial Data, Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations and Item 8 - Consolidated
Financial Statements. In addition, the discussion in the other Items of this
Form 10-K relates solely to American and AMR Eagle.
AMR Investment Services, Inc., a wholly-owned subsidiary of AMR, is
responsible for the investment and oversight of AMR's defined benefit and
defined contribution plans, as well as its fixed income investments. It serves
as manager of the American AAdvantage Funds, a family of mutual funds with both
institutional and retail shareholders, and provides customized fixed income
portfolio management services. As of December 31, 1999, AMR Investment Services
was responsible for management of approximately $21.7 billion in assets,
including direct management of approximately $8.4 billion in short-term
investments.
COMPETITION
Most major air carriers have developed hub-and-spoke systems and schedule
patterns in an effort to maximize the revenue potential of their service.
American operates four hubs: Dallas/Fort Worth (DFW), Chicago O'Hare, Miami and
San Juan, Puerto Rico. Delta Air Lines and United Airlines also have hub
operations at DFW and Chicago O'Hare, respectively.
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The American Eagle carriers increase the number of markets the Company
serves by providing connections to American at American's hubs and certain other
major airports. The American Eagle carriers serve smaller markets through
Boston, DFW, Chicago, Miami, San Juan, Los Angeles and New York's John F.
Kennedy International Airport. American's competitors also own or have marketing
agreements with regional carriers which provide similar services at their major
hubs.
In addition to its extensive domestic service, the Company provides
international service to the Caribbean, Canada, Latin America, Europe and the
Pacific. The Company's operating revenues from foreign operations were
approximately $5.2 billion in 1999, $5.3 billion in 1998 and $5.2 billion in
1997. Additional information about the Company's foreign operations is included
in Note 13 to the consolidated financial statements.
The domestic airline industry is fiercely competitive. Currently, any
carrier deemed fit by the U.S. Department of Transportation (DOT) is free to
operate scheduled passenger service between any two points within the U.S. and
its possessions. On most of its domestic non-stop routes, the Company faces
competing service from at least one, and sometimes more than one, major domestic
airline including: America West Airlines, Continental Airlines, Delta Air Lines,
Northwest Airlines, Southwest Airlines, Trans World Airlines, United Airlines,
US Airways and their affiliated regional carriers. Competition is even greater
between cities that require a connection, where as many as nine airlines may
compete via their respective hubs. The Company also competes with national,
regional, all-cargo, and charter carriers and, particularly on shorter segments,
ground transportation.
On all of its routes, pricing decisions are affected, in part, by
competition from other airlines, some of which have cost structures
significantly lower than American's and can therefore operate profitably at
lower fare levels. As of December 31, 1999, approximately 56 percent of
American's bookings were impacted by competition from low-cost carriers.
The majority of the tickets for travel on American and American Eagle are
sold by travel agents. Domestic travel agents generally receive a base
commission of five percent of the price of the tickets they sell. This amount is
capped at a maximum of $50 for a domestic roundtrip itinerary and $100 for an
international roundtrip itinerary. Airlines often pay additional commissions in
connection with special revenue programs. Accordingly, airlines compete not only
with respect to the price of the tickets sold but also with respect to the
amount of commissions paid.
The growing use of electronic distribution systems provides the Company
with an ever-increasing ability to lower its distribution costs. The Company
continues to expand the capabilities of its Internet website - AA.com - and the
use of electronic ticketing throughout the Company's network. In addition, the
Company has entered into various agreements with several Internet travel
providers, including Travelocity.com, Expedia and Priceline.com. The base
commission for sales through Internet travel providers is significantly lower
than traditional travel agencies.
International air transportation is subject to extensive government
regulation. In providing international air transportation, American competes
with foreign investor-owned carriers, state-owned carriers and U.S. airlines
that have been granted authority to provide scheduled passenger and cargo
service between the U.S. and various overseas locations. American's operating
authority in these markets is subject to aviation agreements between the U.S.
and the respective countries, and in some cases, fares and schedules require the
approval of the DOT and/or the relevant foreign governments. Because
international air transportation is governed by bilateral or other agreements
between the U.S. and the foreign country or countries involved, changes in U.S.
or foreign government aviation policies could result in the alteration or
termination of such agreements, diminish the value of such route authorities, or
otherwise adversely affect American's international operations. Bilateral
agreements between the U.S. and various foreign countries served by American are
subject to frequent renegotiation. In addition, at most foreign airports, a
carrier needs slots (landing and take-off authorizations) before the carrier can
introduce new service or increase existing service. The availability of such
slots is not assured and can therefore inhibit a carrier's efforts to compete in
certain markets.
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The major U.S. carriers have some advantage over foreign competitors in
their ability to generate traffic from their extensive domestic route systems.
In many cases, however, foreign governments, which own and subsidize some of
American's foreign competitors, limit U.S. carriers' rights to carry passengers
beyond designated gateway cities in foreign countries. To improve access to each
other's markets, various U.S. and foreign carriers -- including American -- have
established marketing relationships with other airlines. American currently has
code-sharing programs with Air Pacific, Alaska Airlines, Asiana, Canadian, China
Eastern Airlines, EVA, Finnair, TACA Group, Gulf Air, Hawaiian Airlines, Iberia,
Japan Airlines, LanChile, LOT Polish Airlines, Qantas Airways, Sabena, SNCF,
Swissair and the TAM Group. Certain of these relationships also include
reciprocity between American and the other airlines' frequent flyer programs. In
addition, the Company expects to implement or expand alliances with other
international carriers, including Aeropostal, Aer Lingus, Avianca, Aerolineas
Argentinas, British Airways, Cathay Pacific Airways and Turkish Airlines,
pending regulatory approval. In the coming years, the Company expects to develop
these programs further and to evaluate new alliances with other international
carriers.
In February 1999, American, British Airways, Canadian, Cathay Pacific
Airways and Qantas Airways formed the global alliance ONEworldTM. In September
1999, these five founding members were joined by Finnair and Iberia. The
ONEworld alliance links the networks of the member carriers to enhance customer
service and smooth connections to the destinations served by the alliance,
including linking the carriers' frequent flyer programs and access to the
carriers' airport lounge facilities. Following the acquisition of Canadian by
Air Canada, Canadian will terminate its membership in oneworld in June 2000.
Also in June 2000, Aer Lingus and LanChile will join the ONEworld alliance.
In December 1999, American reached a comprehensive agreement with
Canadian and Air Canada to resolve outstanding issues arising from Air Canada's
acquisition of Canadian. Under this agreement, American will continue to
codeshare on Canadian for ten years, or as long as the Canadian brand remains in
existence. Should Canadian be absorbed fully into Air Canada within the ten-year
period, American will be allowed to place its code on Air Canada services which
have replaced services operated by Canadian prior to its acquisition by Air
Canada.
The Company believes that it has several advantages relative to its
competition. Its fleet is efficient and quiet, and is one of the youngest fleets
in the U.S. airline industry. It has a comprehensive domestic and international
route structure, anchored by efficient hubs, which permit it to take full
advantage of whatever traffic growth occurs. The Company believes American's
AAdvantage frequent flyer program, which is the largest program in the industry,
and its superior service also give it a competitive advantage. In addition, in
February 2000, the Company announced a new program - "More Room Throughout
Coach" - which will provide more room for passengers throughout its coach
cabins. American's entire fleet will be reconfigured to increase the seat pitch
for more than 75,000 coach seats, thereby increasing the seat pitch from the
present industry standard of 31 and 32 inches to a predominant seat pitch of 34
and 35 inches. The Company believes that by providing greater comfort in the
coach cabin, it will achieve a competitive advantage to its competition.
REGULATION
GENERAL The Airline Deregulation Act of 1978, as amended, eliminated most
domestic economic regulation of passenger and freight transportation. However,
the DOT and the Federal Aviation Administration (FAA) still exercise certain
regulatory authority over air carriers. The DOT maintains jurisdiction over the
approval of international codeshare agreements, international route authorities
and certain consumer protection matters, such as advertising, denied boarding
compensation, baggage liability and computer reservations systems.
The FAA regulates flying operations generally, including establishing
personnel, aircraft and security standards. As part of that oversight, the FAA
has implemented a number of requirements that American is incorporating into its
maintenance program. These matters relate to, among other things, inspection and
maintenance of aging aircraft, corrosion control, the installation of upgraded
digital flight data recorders, enhanced ground proximity warning systems and
cargo compartment smoke detection and fire suppression systems. Based on its
current implementation schedule, American expects to be in compliance with the
applicable requirements within the required time periods.
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The U.S. Department of Justice has jurisdiction over airline antitrust
matters. The U.S. Postal Service has jurisdiction over certain aspects of the
transportation of mail and related services. Labor relations in the air
transportation industry are regulated under the Railway Labor Act, which vests
in the National Mediation Board certain regulatory functions with respect to
disputes between airlines and labor unions relating to union representation and
collective bargaining agreements. To the extent American continues to increase
its alliances with international carriers, American may be subject to certain
regulations of foreign agencies.
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 3. 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.
AIRLINE FARES Airlines are permitted to establish their own domestic fares
without governmental regulation, and the industry is characterized by
substantial price competition. The DOT maintains authority over international
fares, rates and charges. International fares and rates are also subject to the
jurisdiction of the governments of the foreign countries which American serves.
While air carriers are required to file and adhere to international fare and
rate tariffs, substantial commissions, overrides and discounts to travel agents,
brokers and wholesalers characterize many international markets.
Legislation (sometimes referred to as the "Passengers' Bill of Rights")
has been discussed in various legislatures, including the Congress. This
legislation would, if enacted, (i) place various limitations on airline fares
and/or (ii) affect operating practices such as baggage handling and overbooking.
To the extent legislation is enacted that would inhibit American's flexibility
with respect to fares, its revenue management system or other aspects of its
customer service operations, American's financial results could be adversely
affected. Effective December 15, 1999, the Company, as well as other domestic
airlines, implemented a Customer Service Plan to address a number of service
goals, including, but not limited to (i) lowest fare availability, (ii) delays,
cancellations, and diversion events, (iii) baggage delivery and liability, (iv)
guaranteed fares, (v) ticket refunds, (vi) accommodation of customers with
special needs, (vii) essential customer needs during extraordinary delays,
(viii) flight oversales, (ix) Frequent Flyer Program - AAdvantage, (x) other
travel policies, (xi) service with domestic code share partners, and (xii)
handling of customer issues.
Fare discounting by competitors has historically had a negative effect on
the Company's financial results because the Company is generally required to
match competitors' fares to maintain passenger traffic. During recent years, a
number of new low-cost airlines have entered the domestic market and several
major airlines, including American, implemented efforts to lower their cost
structures. Further fare reductions, domestic and international, may occur in
the future. If fare reductions are not offset by increases in passenger traffic,
cost reductions or changes in the mix of traffic that improves yields, the
Company's operating results will be negatively impacted.
AIRPORT ACCESS In 1968, the FAA issued a rule designating New York John F.
Kennedy, New York LaGuardia, Washington Reagan, Chicago O'Hare and Newark
airports as high density traffic airports. Newark was subsequently removed from
the high density airport classification. The rule limits the number of
Instrument Flight Rule (IFR) operations - take-offs and landings - permitted per
hour and requires that a slot support each operation. Recently, legislation has
been passed in Congress that would eliminate slots at Chicago O'Hare in 2002 and
New York's John F. Kennedy and LaGuardia airports in 2007. The Company is
currently evaluating what impact, if any, the elimination of slots will have on
the Company's operations and its financial condition or results of operations.
At December 31, 1999, the net book value of the Company's slots at New York John
F. Kennedy, New York LaGuardia and Chicago O'Hare airports was approximately
$160 million. Currently, the FAA permits the purchasing, selling (except those
designated for international or essential air service), leasing, transferring
and trading of these slots by airlines and others, subject to certain
restrictions. Most foreign airports, including London Heathrow, a major European
destination for American, also have slot allocations. Most foreign authorities
do not permit the purchasing, selling or leasing of slots.
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Although the Company is constrained by slots, it currently has sufficient
slot authorizations to operate its existing flights and has generally been able
to obtain slots to expand its operations and change its schedules. However,
there is no assurance that American or American Eagle will be able to obtain
slots for these purposes in the future because, among other factors, slot
allocations are subject to changes in government policies.
ENVIRONMENTAL MATTERS The Company is subject to various laws and government
regulations concerning environmental matters and employee safety and health in
the U.S. and other countries. U.S. federal laws that have a particular impact on
the Company include the Airport Noise and Capacity Act of 1990 (ANCA), the Clean
Air Act, the Resource Conservation and Recovery Act, the Clean Water Act, the
Safe Drinking Water Act, and the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA or the Superfund Act). The Company is
also subject to the oversight of the Occupational Safety and Health
Administration (OSHA) concerning employee safety and health matters. The U.S.
Environmental Protection Agency (EPA), OSHA, and other federal agencies have
been authorized to promulgate regulations that have an impact on the Company's
operations. In addition to these federal activities, various states have been
delegated certain authorities under the aforementioned federal statutes. Many
state and local governments have adopted environmental and employee safety and
health laws and regulations, some of which are similar to federal requirements.
As a part of its continuing safety, health and environmental program, the
Company anticipates that it will comply with such requirements without any
material adverse effect on its business.
For purposes of noise standards, jet aircraft are rated by categories or
"stages." The ANCA required the phase-out by December 31, 1999, of Stage II
aircraft operations, subject to certain exceptions. Under final regulations
issued by the FAA in 1991, air carriers were required to reduce, by modification
or retirement, the number of Stage II aircraft in their fleets 75 percent by
December 31, 1998 and 100 percent by December 31, 1999. Alternatively, a carrier
may have satisfied the regulations by operating a fleet that was at least 75
percent and 100 percent Stage III by the dates set forth in the preceding
sentence, respectively. At December 31, 1999, all of American's active fleet was
Stage III, the quietest rating category.
The ANCA recognizes the rights of airport operators with noise problems
to implement local noise abatement programs so long as they do not interfere
unreasonably with interstate or foreign commerce or the national air
transportation system. Authorities in several cities have promulgated aircraft
noise reduction programs, including the imposition of nighttime curfews. The
ANCA generally requires FAA approval of local noise restrictions on Stage III
aircraft first effective after October 1990, and establishes a regulatory notice
and review process for local restrictions on Stage II aircraft first proposed
after October 1990. While American has had sufficient scheduling flexibility to
accommodate local noise restrictions imposed to date, American's operations
could be adversely affected if locally-imposed regulations become more
restrictive or widespread.
American has been identified by the EPA as a potentially responsible
party (PRP) at the Operating Industries, Inc. Superfund Site in California.
American has signed a partial consent decree with respect to this site and is
one of several PRPs named. American has also been identified as a PRP at the
Beede Waste Oil Superfund Site in New Hampshire. American has responded to a
104(e) Request for Information regarding interaction with several companies
related to this site. At the Operating Industries, Inc. and the Beede Waste Oil
sites, American's alleged waste disposal volumes are minor compared to the other
PRPs at these sites. In 1998, the EPA named American a de minimis PRP at the
Casmalia Waste Disposal Site in California.
American, along with most other tenants at the San Francisco
International Airport (SFIA), has been ordered by the California Regional Water
Quality Control Board to engage in various studies of potential environmental
contamination at the airport and to undertake remedial measures, if necessary.
SFIA is also seeking to recover its past costs related to the contamination from
the tenants.
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The Miami International Airport Authority is currently remediating
various environmental conditions at the Miami International Airport (the
Airport) and funding the remediation costs through landing fee revenues. Future
costs of the remediation effort may be borne by carriers operating at the
Airport, including American, through increased landing fees and/or other charges
since certain of the PRPs are no longer in business. The future increase in
landing fees and/or other charges may be material but cannot be reasonably
estimated due to various factors, including the unknown extent of the remedial
actions that may be required, the proportion of the cost that will ultimately be
recovered from the responsible parties, and uncertainties regarding the
environmental agencies that will ultimately supervise the remedial activities
and the nature of that supervision.
In 1999, American was ordered by the New York State Department of
Environmental Conservation to conduct remediation of environmental contamination
located at Terminals 8 and 9 at New York's John F. Kennedy International
Airport. American is seeking to recover a portion of the related costs from
previous users of the premises.
Also in 1999, the Company entered a plea agreement with the United States
government with respect to a one count indictment relating to the storage of
hazardous materials. As part of the plea agreement, the Company was placed on
probation for three years and has adopted a comprehensive compliance program. To
the extent the Company fails to abide by the terms of the probation or its
compliance program, the Company's operations may be adversely impacted.
American and Executive Airlines, Inc., along with other tenants at the
Luis Munoz Marin International Airport in San Juan, Puerto Rico, have been named
as PRPs for environmental claims at the airport.
American Eagle Airlines, Inc. has been notified of its potential
liability under New York law at an inactive hazardous waste site in
Poughkeepsie, New York.
AMR does not expect these matters, individually or collectively, to have
a material impact on its financial position or liquidity.
LABOR
The airline business is labor intensive. Wages, salaries and benefits
represented approximately 37 percent of AMR's consolidated operating expenses
for the year ended December 31, 1999.
The majority of American's employees are represented by labor unions and
covered by collective bargaining agreements. American's relations with such
labor organizations are governed by the Railway Labor Act. Under this act, the
collective bargaining agreements among American and these organizations do not
expire but instead become amendable as of a stated date. If either party wishes
to modify the terms of any such agreement, it must notify the other party in the
manner described in the agreement. After receipt of such notice, the parties
must meet for direct negotiations, and if no agreement is reached, either party
may request the National Mediation Board (NMB) to appoint a federal mediator. If
no agreement is reached in mediation, the NMB may determine, at any time, that
an impasse exists, and if an impasse is declared, the NMB proffers binding
arbitration to the parties. Either party may decline to submit to arbitration.
If arbitration is rejected, a 30-day "cooling-off" period commences, following
which the labor organization may strike and the airline may resort to
"self-help," including the imposition of any or all of its proposed amendments
and the hiring of workers to replace strikers.
In 1995, American reached agreements with the members of the Association
of Professional Flight Attendants (APFA) and the Transport Workers Union (TWU)
on their labor contracts. American's collective bargaining agreement with the
APFA became amendable on November 1, 1998 and the collective bargaining
agreement with the TWU becomes amendable on March 1, 2001. American exchanged
proposals and commenced negotiations with the APFA on September 2, 1998. The
parties reached a tentative agreement in mid-1999 which the membership
subsequently did not ratify. Direct negotiations continue. American's current
collective bargaining agreement with the Allied Pilots Association (APA) was
ratified by the APA membership on May 5, 1997. That contract becomes amendable
August 31, 2001.
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In early February 1999, some members of the 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 in December 1998. On February
10, 1999, American obtained a temporary restraining order prohibiting the union
from unilaterally taking actions in violation of the Railway Labor Act. Because
of continuing actions by the APA and its leaders after the entry of the
temporary restraining order, American filed a motion to have the APA and its
leaders held in contempt of the court's temporary restraining order. The court
granted that motion on February 13, 1999, and the airline's operations
thereafter returned to normal. The Company and the APA subsequently agreed to a
method for combining the Reno pilot workforce into American. The parties also
are engaged in discussions over certain other issues in an effort to improve
their relationship, which includes a possible extension to the existing APA
contract.
The Communications Workers of America (CWA) filed a petition with the NMB
on October 8, 1998, seeking to represent American's passenger service employees,
who currently are not so represented. The mail ballots in the election conducted
by the NMB were counted on December 15, 1998. Forty-one percent of the employees
voted to unionize, short of the 50 percent plus one needed for unionization to
occur. The CWA challenged the results, claiming that certain of American's
actions during the campaign interfered with the employees' ability to make a
free choice. The NMB found that American's actions did not interfere and
dismissed the CWA's petition. Under the NMB's rules, no further petitions to
represent American's passenger service employees may be filed with the NMB until
August 2000.
The Air Line Pilots Association (ALPA), which represents AMR Eagle
pilots, reached agreement with AMR Eagle effective September 1, 1997, to have
all of the pilots of the Eagle carriers covered by a single collective
bargaining agreement. This agreement lasts until October 31, 2013. The parties
have the right to seek limited changes in 2000, 2004, 2008 and 2012. If the
parties are unable to agree on the limited changes, they also agreed that the
issues would be resolved by interest arbitration, without the exercise of
self-help (such as a strike). The Association of Flight Attendants (AFA), which
represents the flight attendants of the Eagle carriers, reached agreement with
AMR Eagle effective March 2, 1998, to have all flight attendants of the AMR
Eagle carriers covered by a single contract. The agreement becomes amendable on
September 2, 2002. The other union employees at the AMR Eagle carriers are
covered by separate agreements with the TWU which were effective April 28, 1998,
and are amendable April 28, 2003.
FUEL
The Company's operations are significantly affected by the availability and
price of jet fuel. American's fuel costs and consumption for the years 1997
through 1999 were:
<TABLE>
<CAPTION>
Average Cost
Per Gallon, Percent of
Gallons Average Cost Excluding AMR's
Consumed Total Cost Per Gallon Fuel Taxes Operating
Year (in millions) (in millions) (in cents) (in cents) Expenses
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1997 2,773 $ 1,860 67.1 62.1 12.1
1998 2,826 1,551 54.9 50.1 10.0
1999 2,957 1,622 54.8 50.1 9.8
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The impact of fuel price changes on the Company and its competitors is
dependent upon various factors, including hedging strategies. Although
American's average cost per gallon of fuel in 1999 was flat in comparison to
1998, actual fuel prices began to increase in April 1999 and continued
significantly throughout 1999 and into 2000. However, American has a fuel
hedging program in which it enters into fuel swap and option contracts to
protect against increases in jet fuel prices, which has had the effect of
dampening American's average cost per gallon. To reduce the impact of potential
continuing fuel price increases in 2000, American had hedged approximately 48
percent of its 2000 fuel requirements as of December 31, 1999. Based on
projected fuel usage, American estimates that a 10 percent increase in the price
per gallon of fuel would result in an increase to aircraft fuel expense of
approximately $125 million in 2000, net of fuel hedge instruments outstanding at
December 31, 1999. Due to the competitive nature of the airline industry, in the
event of continuing increases in the price of jet fuel, there can be no
assurance that American will be able to pass on increased fuel prices to its
customers by increasing its fares. Likewise, any potential benefit of lower fuel
prices may be offset by increased fare competition and lower revenues for all
air carriers.
While American does not anticipate a significant reduction in fuel
availability, dependency on foreign imports of crude oil and the possibility of
changes in government policy on jet fuel production, transportation and
marketing make it impossible to predict the future availability of jet fuel. If
there were major reductions in the availability of jet fuel, American's business
would be adversely affected.
Additional information regarding the Company's fuel program is included
in the Outlook for 2000, Item 7(A) - Quantitative and Qualitative Disclosures
about Market Risk, and in Note 6 to the consolidated financial statements.
FREQUENT FLYER PROGRAM
American established the AAdvantage frequent flyer program (AAdvantage) to
develop passenger loyalty by offering awards to travelers for their continued
patronage. AAdvantage members earn mileage credits for flights on American,
American Eagle and certain other participating airlines, or by utilizing
services of other program participants, including hotels, car rental companies
and bank credit card issuers. American sells mileage credits and related
services to the other companies participating in the program. American reserves
the right to change the AAdvantage program rules, regulations, travel awards and
special offers at any time without notice. American may initiate changes
impacting, for example, participant affiliations, rules for earning mileage
credit, mileage levels and awards, blackout dates and limited seating for travel
awards, and the features of special offers. American reserves the right to end
the AAdvantage program with six months' notice.
Mileage credits can be redeemed for free, discounted or upgraded travel
on American, American Eagle or participating airlines, or for other travel
industry awards. Once a member accrues sufficient mileage for an award, the
member may request an award certificate from American. Award certificates may be
redeemed up to one year after issuance. Most travel awards are subject to
blackout dates and capacity controlled seating. In 1999, certain changes were
made to the AAdvantage program so that miles do not expire, provided a customer
has any type of qualifying activity at least once every 36 months.
American accounts for its frequent flyer obligation on an accrual basis
using the incremental cost method. American's frequent flyer liability is
accrued each time a member accumulates sufficient mileage in his or her account
to claim the lowest level of free travel award (25,000 miles) and such award is
expected to be used for free travel. American includes fuel, food, and
reservations/ticketing costs, but not a contribution to overhead or profit, in
the calculation of incremental cost. The cost for fuel is estimated based on
total fuel consumption tracked by various categories of markets, with an amount
allocated to each passenger. Food costs are tracked by market category, with an
amount allocated to each passenger. Reservation/ticketing costs are based on the
total number of passengers, including those traveling on free awards, divided
into American's total expense for these costs. American defers the portion of
revenues received from companies participating in the AAdvantage program related
to the sale of mileage credits and recognizes such revenues over a period
approximating the period during which the mileage credits are used.
8
<PAGE> 10
At December 31, 1999 and 1998, American estimated that approximately 5.4
million and 4.9 million free travel awards, respectively, were expected to be
redeemed for free travel on American. In making the estimate of free travel
awards, American has excluded mileage in inactive accounts, mileage related to
accounts that has not yet reached the lowest level of free travel award, and
mileage in active accounts that has reached the lowest level of free travel
award but which is not expected to ever be redeemed for free travel on American.
The liability for the program mileage that has reached the lowest level of free
travel award and is expected to be redeemed for free travel on American or other
participating airlines and deferred revenues for mileage credits sold to others
participating in the program was $827 million and $695 million, representing
14.1 percent and 13.1 percent of AMR's total current liabilities, at December
31, 1999 and 1998, respectively.
The number of free travel awards used for travel on American was 2.7
million in 1999, 2.3 million in 1998 and 2.2 million in 1997, representing 9.3
percent of total revenue passenger miles in 1999, 8.8 percent in 1998 and 8.6
percent in 1997. American believes displacement of revenue passengers is minimal
given American's load factors, its ability to manage frequent flyer seat
inventory, and the relatively low ratio of free award usage to revenue passenger
miles.
OTHER MATTERS
SEASONALITY AND OTHER FACTORS The Company's results of operations for any
interim period are not necessarily indicative of those for the entire year,
since the air transportation business is subject to seasonal fluctuations.
Higher demand for air travel has traditionally resulted in more favorable
operating results for the second and third quarters of the year than for the
first and fourth quarters.
The results of operations in the air transportation business have also
significantly fluctuated in the past in response to general economic conditions.
In addition, fare initiatives, fluctuations in fuel prices, labor actions and
other factors could impact this seasonal pattern. Unaudited quarterly financial
data for the two-year period ended December 31, 1999 is included in Note 14 to
the consolidated financial statements.
No material part of the business of AMR and its subsidiaries is dependent
upon a single customer or very few customers. Consequently, the loss of the
Company's largest few customers would not have a materially adverse effect upon
AMR.
INSURANCE American carries insurance for public liability, passenger liability,
property damage and all-risk coverage for damage to its aircraft, in amounts
which, in the opinion of management, are adequate.
OTHER GOVERNMENT MATTERS In time of war or during an unlimited national
emergency or civil defense emergency, American and other major air carriers may
be required to provide airlift services to the Military Airlift Command under
the Civil Reserve Air Fleet program.
9
<PAGE> 11
ITEM 2. PROPERTIES
FLIGHT EQUIPMENT
Owned and leased aircraft operated by American and AMR Eagle at December 31,
1999, included:
<TABLE>
<CAPTION>
Weighted
Current Average
Seating Capital Operating Age
Equipment Type Capacity (1) Owned Leased Leased Total (Years)
- ---------------------------------- ------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
AMERICAN AIRCRAFT
Airbus A300-600R 192/266/267 10 - 25 35 10
Boeing 727-200 150 60 8 - 68 22
Boeing 737-800 146 24 - - 24 1
Boeing 757-200 188 56 15 31 102 7
Boeing 767-200 172 8 - - 8 17
Boeing 767-200 Extended Range 165 9 13 - 22 14
Boeing 767-300 Extended Range 207 26 13 10 49 7
Boeing 777-200 IGW 237 11 - - 11 1
Fokker 100 97 66 5 4 75 7
McDonnell Douglas DC-10-10 237/290/297 3 - - 3 21
McDonnell Douglas DC-10-30 271/282 4 - 1 5 25
McDonnell Douglas MD-11 238/255 11 - - 11 7
McDonnell Douglas MD-80 133/139 125 25 129 279 12
McDonnell Douglas MD-90 148 - - 5 5 3
------- ------- ------- ------- -----
Total 413 79 205 697 11
======= ======= ======= ======= =====
AMR EAGLE AIRCRAFT
ATR 42 46 20 - 12 32 9
Embraer 135 37 9 - - 9 -
Embraer 145 50 45 - - 45 1
Super ATR 64/66 40 - 3 43 5
Saab 340 34 22 61 31 114 8
Saab 340B Plus 34 - - 25 25 4
------- ------- ------- ------- -----
Total 136 61 71 268 6
======= ======= ======= ======= =====
</TABLE>
(1) In February 2000, American announced its "More Room Throughout Coach"
program whereby American's entire fleet will be reconfigured to increase
the seat pitch for more than 75,000 coach seats. As a result of this
program, approximately 7,200 seats will be removed from American's
aircraft.
For information concerning the estimated useful lives and residual values
for owned aircraft, lease terms for leased aircraft and amortization relating to
aircraft under capital leases, see Notes 1 and 4 to the consolidated financial
statements.
In April 1995, American announced an agreement to sell 12 of its 19
McDonnell Douglas MD-11 aircraft to Federal Express Corporation (FedEx). In
March 1998, the Company exercised its option to sell its remaining seven MD-11
aircraft to FedEx. Eight aircraft had been delivered as of December 31, 1999.
The remaining 11 aircraft will be delivered between 2000 and 2002.
In addition, during 1999, the Company reached agreements to dispose of
its remaining owned Boeing 727-200 and McDonnell Douglas DC-10-10 aircraft.
These aircraft will be removed from the fleet between 2000 and 2003.
10
<PAGE> 12
Lease expirations for the leased aircraft included in the preceding table
as of December 31, 1999, were:
<TABLE>
<CAPTION>
2005
and
Equipment Type 2000 2001 2002 2003 2004 Thereafter
- ---------------------------------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
AMERICAN AIRCRAFT
Airbus A300-600R - - - - - 25
Boeing 727-200 - 5 - 3 - -
Boeing 757-200 2 2 2 - 3 37
Boeing 767-200 Extended Range - - - - - 13
Boeing 767-300 Extended Range 6 - 1 - 4 12
Fokker 100 - 2 3 - - 4
McDonnell Douglas DC-10-30 - 1 - - - -
McDonnell Douglas MD-80 1 10 13 6 2 122
McDonnell Douglas MD-90 - - - - - 5
------ ------ ------ ------ ------ ------
9 20 19 9 9 218
====== ====== ====== ====== ====== ======
AMR EAGLE AIRCRAFT
ATR 42 1 8 - 3 - -
Super ATR - 2 1 - - -
Saab 340 16 13 2 - - 61
Saab 340B Plus - - - - - 25
------ ------ ------ ------ ------ ------
17 23 3 3 - 86
====== ====== ====== ====== ====== ======
</TABLE>
Substantially all of the Company's aircraft leases include an option to
purchase the aircraft or to extend the lease term, or both, with the purchase
price or renewal rental to be based essentially on the market value of the
aircraft at the end of the term of the lease or at a predetermined fixed amount.
GROUND PROPERTIES
American leases, or has built as leasehold improvements on leased property, most
of its airport and terminal facilities; certain corporate office, maintenance
and training facilities in Fort Worth, Texas; its principal overhaul and
maintenance base at Tulsa International Airport, Tulsa, Oklahoma; its regional
reservation offices; and local ticket and administration offices throughout the
system. American has entered into agreements with the Tulsa Municipal Airport
Trust; the Alliance Airport Authority, Fort Worth, Texas; and the Dallas/Fort
Worth, Chicago O'Hare, Raleigh/Durham, Nashville, San Juan, New York, and Los
Angeles airport authorities to provide funds for constructing, improving and
modifying facilities and acquiring equipment which are or will be leased to
American. American also utilizes public airports for its flight operations under
lease or use arrangements with the municipalities or governmental agencies
owning or controlling them and leases certain other ground equipment for use at
its facilities. During 1999, the Company began construction of an approximate
$1.3 billion terminal facility at New York's John F. Kennedy International
Airport, which the Company expects to fund primarily through future tax-exempt
financing.
For information concerning the estimated lives and residual values for
owned ground properties, lease terms and amortization relating to ground
properties under capital leases, and acquisitions of ground properties, see
Notes 1, 3 and 4 to the consolidated financial statements.
11
<PAGE> 13
ITEM 3. LEGAL PROCEEDINGS
In connection with its frequent flyer program, American was sued in several
purported class action cases currently pending in the Circuit Court of Cook
County, Illinois. In Wolens et al. v. American Airlines, Inc. and Tucker v.
American Airlines, Inc. (hereafter, "Wolens"), plaintiffs seek money damages and
attorneys' fees claiming that a change made to American's AAdvantage program in
May 1988, which limited the number of seats available to participants travelling
on certain awards, breached American's agreement with its AAdvantage members.
(Although the Wolens complaint originally asserted several state law claims,
only the plaintiffs' breach of contract claim remains after the U.S. Supreme
Court ruled that the Airline Deregulation Act preempted the other claims). In
Gutterman et al. v. American Airlines, Inc. (hereafter, "Gutterman"), plaintiffs
also seek money damages and attorneys' fees claiming that the February 1995
increase in the award mileage required to claim a certain AAdvantage travel
award breached the agreement between American and its AAdvantage members. On
June 23, 1998, the court certified the Gutterman case as a class action,
although to date no notice has been sent to the class.
In February 2000, American and the Wolens and Gutterman plaintiffs
reached a settlement of both lawsuits. Pursuant to the agreement, American and
the plaintiffs agreed to ask the court to consolidate the Wolens and Gutterman
lawsuits for purposes of settlement. Further, American and the Wolens plaintiffs
agreed to ask the court to certify a Wolens class of AAdvantage members who had
at least 35,000 unredeemed AAdvantage miles as of December 31, 1988. In
addition, American and the Gutterman plaintiffs agreed to ask the court to
decertify the existing Gutterman class and to certify a new Gutterman class of
AAdvantage members who as of December 31, 1993 (a) had redeemed 25,000 or 50,000
AAdvantage miles for certain AAdvantage awards and/or (b) had at least 4,700
unredeemed new miles in his or her account that were earned before January 1,
1992. Depending upon certain factors, Wolens and Gutterman class members will be
entitled to receive certificates entitling them to mileage off certain
AAdvantage awards or dollars off certain American fares.
As part of the settlement, American agreed to pay the Wolens and
Gutterman plaintiffs' attorneys and the cost of administering the settlement,
which amounts were accrued as of December 31, 1999. In consideration for the
relief provided for in the settlement agreement, Wolens and Gutterman class
members will release American from all claims arising from any changes that
American has made to the AAdvantage program and reaffirming American's right to
make changes to the AAdvantage program in the future. Before the settlement can
become effective, the court must approve the settlement agreement after
providing any objectors an opportunity to be heard.
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 a labor disagreement that disrupted operations 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 because American has a $45.5
million judgment against the APA. APA filed cross claims against American
alleging that American must indemnify pilots who put themselves on the sick
list. APA also filed a motion to dismiss all claims against it. A United States
District Court Magistrate recommended that the court dismiss all the claims in
the lawsuit, concluding that certain claims are preempted by federal law and
that certain other claims should be brought in state court, rather than federal
court. The Magistrate's recommendations are pending before the court. American
is vigorously defending all claims against it.
12
<PAGE> 14
ITEM 3. LEGAL PROCEEDINGS (CONTINUED)
On July 26, 1999, a class action lawsuit was filed, and in November 1999
an amended complaint 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) (1) breaches the Agent Reporting Agreement between American and
American Eagle and plaintiffs, (2) constitutes unjust enrichment, and (3)
violates the Racketeer Influenced and Corrupt Organizations Act of 1970 (RICO).
The as yet uncertified class includes all travel agencies who have been 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. Defendants' motion
to dismiss all claims is pending. 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. On November 10,
1999, the District Court stayed all of these actions pending developments in the
case brought by the Department of Justice. As a result, to date no class has
been certified. American intends to defend these lawsuits vigorously.
On March 1, 2000, American was served with a federal grand jury subpoena
calling for American to produce documents relating to de-icing operations at DFW
since 1992. American is not able at this time to determine either the full scope
of the grand jury's investigation or American's role in the investigation.
American intends to fully cooperate with the government's investigation.
13
<PAGE> 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during the
last quarter of its fiscal year ended December 31, 1999.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following information relates to the executive officers of AMR during 1999
and reflects changes made in the executive officer staff in January 2000.
<TABLE>
<S> <C>
Donald J. Carty Mr. Carty was elected Chairman, President and Chief
Executive Office of AMR and American in May 1998. He
has been President of American since March 1995.
Prior to that, he served as Executive Vice President
of AMR since October 1989. Except for two years
service as President and CEO of Canadian Pacific Air
between March 1985 and March 1987, he has been with
the Company in various finance and planning
positions since 1978. Age 53.
Gerard J. Arpey Mr. Arpey was elected Executive Vice President -
Operations of American Airlines on January 19, 2000.
He is also an Executive Vice President of AMR.
Mr. Arpey served as Chief Financial Officer of AMR
from March 1995 through January 19, 2000 and Senior
Vice President of American since April 1992. Prior
to that, he served as a Vice President of American
since October 1989. Age 41.
Thomas W. Horton Mr. Horton was elected Senior Vice President and
Chief Financial Officer of AMR and Senior Vice
President - Finance and Chief Financial Officer of
American Airlines on January 19, 2000. Prior to that
he served as a Vice President of American since
March 1994. Age 38.
Anne H. McNamara Ms. McNamara was elected Senior Vice President and
General Counsel in June 1988. She had served as Vice
President - Personnel Resources of American from
January 1988 through May 1988. She was elected
Corporate Secretary of AMR in 1982 and of American
in 1979 and held those positions through 1987.
Age 52.
Charles D. MarLett Mr. MarLett was elected Corporate Secretary in
January 1988. He joined American as an attorney in
June 1984. Age 45.
</TABLE>
There are no family relationships among the executive officers of the
Company named above.
There have been no events under any bankruptcy act, no criminal
proceedings, and no judgments or injunctions material to the evaluation of the
ability and integrity of any director or executive officer during the past five
years.
14
<PAGE> 16
PART II
- --------------------------------------------------------------------------------
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange (symbol
AMR). The approximate number of record holders of the Company's common stock at
March 20, 2000, was 13,600.
The range of closing market prices for AMR's common stock on the New York
Stock Exchange was:
<TABLE>
<CAPTION>
1999 1998
--------------------------------------- -------------------------------------
High Low High Low
----------------- ----------------- ---------------- ----------------
<S> <C> <C> <C>
QUARTER ENDED
March 31 $ 71 7/16 $ 53 3/16 $ 73 1/8 $ 61 13/16
June 30 74 5/16 60 9/16 83 1/4 68 15/16
September 30 72 3/4 52 13/16 89 1/4 50
December 31 68 1/2 53 9/16 69 15/16 47 1/8
</TABLE>
No cash dividends on common stock were declared for any period during
1999 or 1998. Payment of dividends is subject to the restrictions described in
Note 5 to the consolidated financial statements.
In April 1998, the Company's Board of Directors approved a two-for-one
stock split in the form of a stock dividend, effective on June 9, 1998 for
shareholders of record on May 26, 1998. All share information, including the
market price per share information disclosed above, and earnings per share
amounts have been presented to give effect to the stock split.
Effective after the close of business on March 15, 2000, AMR distributed
0.722652 shares of Sabre Class A common stock for each share of AMR stock owned
by AMR's shareholders. The record date for the Sabre stock dividend was the
close of business on March 1, 2000. As a result of the dividend, AMR's stock
price was adjusted from $60 9/16 to $25 9/16 by the New York Stock Exchange
after the market close on March 15, 2000 to exclude the value of Sabre.
15
<PAGE> 17
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(in millions, except per share amounts)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
1999 1998 (2) 1997 (2) 1996 (2) 1995 (2)
------------- ------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Total operating revenues $ 17,730 $ 17,516 $ 16,957 $ 16,249 $ 15,571
Operating income 1,156 1,988 1,595 1,477 603
Income (loss) from continuing
operations before extraordinary
loss 656 1,114 809 901 (51)
Net earnings 985 1,314 985 1,016 162
Earnings (loss) per common share from
continuing operations before
extraordinary loss and effect of
preferred stock exchange:(1)
Basic 4.30 6.60 4.54 5.23 (0.33)
Diluted 4.17 6.38 4.43 4.88 (0.33)
Net earnings per common share:(1)
Basic 6.46 7.78 5.52 5.90 1.06
Diluted 6.26 7.52 5.39 5.59 1.05
Total assets 24,374 21,455 20,287 20,004 19,339
Long-term debt, less current
maturities 4,078 2,436 2,248 2,737 4,967
Obligations under capital leases,
less current obligations 1,611 1,764 1,629 1,790 2,069
Obligation for postretirement
benefits 1,669 1,598 1,527 1,483 1,388
</TABLE>
(1) The earnings per share amounts reflect the stock split on June 9, 1998.
(2) Restated to reflect the discontinued operations of Sabre.
No dividends were declared on common shares during any of the periods
above.
Information on the comparability of results is included in Management's
Discussion and Analysis and the notes to the consolidated financial statements.
16
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
AMR Corporation (AMR or the Company) was incorporated in October 1982. AMR's
principal subsidiary, American Airlines, Inc. (American), was founded in 1934.
Following the sale of AMR Services, AMR Combs and TeleService Resources in the
first quarter of 1999, and the spin-off of AMR's 83 percent interest in Sabre
Holdings Corporation (Sabre) in March of 2000, AMR's operations fall almost
entirely in the airline industry.
RESULTS OF OPERATIONS
AMR's net earnings in 1999 were $985 million, or $6.46 per common share ($6.26
diluted). AMR's income from continuing operations in 1999 was $656 million, or
$4.30 per common share ($4.17 diluted). A labor disagreement that disrupted
operations during the first quarter of 1999 negatively impacted the Company's
1999 results by an estimated $225 million ($140 million after tax). The results
for 1999 also include the following: (i) American's December 1998 acquisition of
Reno Air, Inc. (Reno) and AMR Eagle's March 1999 acquisition of Business
Express, Inc. (Business Express), (ii) a gain of $83 million ($64 million after
tax) on the sale of AMR Services, AMR Combs and TeleService Resources, which is
included in discontinued operations, (iii) a gain of approximately $213 million
($118 million after taxes and minority interest) resulting from the sale of a
portion of the Company's holding in Equant N.V. (Equant), of which approximately
$75 million ($47 million after tax) is included in income from continuing
operations, (iv) a gain of $40 million ($25 million after tax) related to the
Company's sale of its investment in the cumulative mandatorily redeemable
convertible preferred stock of Canadian Airlines International Limited
(Canadian) and a $67 million tax benefit resulting from the tax loss on the
Company's investment in Canadian, and (v) a charge of approximately $37 million
($25 million after tax) relating to the provision for certain litigation items.
AMR's net earnings in 1998 were $1.3 billion, or $7.78 per common share ($7.52
diluted). AMR's income from continuing operations in 1998 was $1.1 billion, or
$6.60 per common share ($6.38 diluted).
REVENUES
1999 COMPARED TO 1998 The Company's revenues increased $214 million, or 1.2
percent, versus 1998. American's passenger revenues increased by 0.1 percent, or
$12 million. American's yield (the average amount one passenger pays to fly one
mile) of 13.12 cents decreased by 2.7 percent compared to 1998. For the year,
domestic yields decreased 1.1 percent, while European, Pacific and Latin
American yields decreased 7.2 percent, 6.0 percent and 4.5 percent,
respectively. The decrease in domestic yield was due primarily to increased
capacity, the labor disagreement during the first quarter of 1999, and the
impact of international yield decreases on domestic yields. The decrease in
international yields was due primarily to weak economies in certain parts of the
world, large industry capacity additions and increased fare sale activity.
American's domestic traffic increased 2.1 percent to 76.4 billion revenue
passenger miles (RPMs), while domestic capacity, as measured by available seat
miles (ASMs), increased 4.1 percent. The increase in domestic traffic was due
primarily to the addition of Reno. International traffic grew 4.6 percent to
35.7 billion RPMs on a capacity increase of 3.1 percent. The increase in
international traffic was led by a 44.2 percent increase in the Pacific on
capacity growth of 44.1 percent, a 5.7 percent increase in Europe on capacity
growth of 7.3 percent, partially offset by a 1.9 percent decrease in Latin
America on a capacity decrease of 5.1 percent. In 1999, American derived
approximately 70 percent of its passenger revenues from domestic operations and
approximately 30 percent from international operations.
AMR Eagle's passenger revenues increased $173 million, or 15.4 percent.
AMR Eagle's traffic increased to 3.4 billion RPMs, up 20.9 percent, while
capacity increased to 5.6 billion ASMs, or 26.1 percent, due primarily to the
addition of Business Express in March 1999.
17
<PAGE> 19
1998 COMPARED TO 1997 The Company's revenues of $17.5 billion in 1998 were up
$559 million, or 3.3 percent, versus 1997. American's passenger revenues
increased 2.7 percent, or $385 million. The increase in passenger revenues
resulted from a 0.9 percent increase in passenger yield from 13.37 to 13.49
cents, and a 1.8 percent increase in passenger traffic. For the year, domestic
yields increased 3.1 percent, while Pacific, Latin American and European yields
decreased 6.7 percent, 5.8 percent and 1.0 percent, respectively. The decrease
in international yields was due primarily to an increase in industry capacity
and a decline in economic conditions. In 1998, American derived approximately 70
percent of its passenger revenues from domestic operations and approximately 30
percent from international operations.
American's domestic traffic increased 0.7 percent to 74.9 billion RPMs,
while domestic capacity decreased 1.4 percent. International traffic grew 4.3
percent to 34.1 billion RPMs on a capacity increase of 6.4 percent. The increase
in international traffic was led by a 17.1 percent increase in the Pacific on
capacity growth of 29.3 percent, a 4.9 percent increase in Latin America on
capacity growth of 6.6 percent and a 1.8 percent increase in Europe on capacity
growth of 2.7 percent.
AMR Eagle's passenger revenues increased $104 million, or 10.2 percent.
The increase in passenger revenues resulted from a 0.9 percent increase in
passenger yield and a 9.2 percent increase in traffic. AMR Eagle's traffic
increased to 2.8 billion RPMs while capacity increased to 4.5 billion ASMs, up
6.0 percent.
Other revenues increased $101 million, or 10.7 percent, primarily as a
result of increased administrative service charges, higher employee travel
service charges and increased service contracts, primarily related to ramp and
consulting services.
OPERATING EXPENSES
1999 COMPARED TO 1998 The Company's operating expenses increased 6.7 percent, or
approximately $1 billion. American's cost per ASM increased by 1.5 percent to
9.39 cents. Wages, salaries and benefits increased $327 million, or 5.6 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. Fuel expense increased $92 million, or 5.7 percent, due to a 4.6
percent increase in American's fuel consumption, partially offset by a 0.2
percent decrease in American's average price per gallon. The increase in fuel
expense is net of gains of approximately $111 million recognized during 1999
related to the Company's fuel hedging program. Commissions to agents decreased
5.2 percent, or $64 million, despite a 1.2 percent increase in passenger
revenues, due to the benefit from the changes in the international commission
structure in late 1998 and the base commission structure in October 1999, and a
decrease in the percentage of commissionable transactions. Depreciation and
amortization expense increased $52 million, or 5.0 percent, due primarily to the
addition of new aircraft, partially offset by the change in depreciable lives
and residual values for certain types of aircraft in 1999 (see Note 1 to the
consolidated financial statements). Maintenance, materials and repairs expense
increased 7.3 percent, or $68 million, due primarily to the addition of Reno and
Business Express aircraft during 1999. Other rentals and landing fees increased
12.3 percent, or $103 million, due primarily to higher facilities rent and
landing fees across American's system and the addition of Reno and Business
Express. Food service increased $65 million, or 9.6 percent, due primarily to
rate increases and the addition of Reno. Aircraft rentals increased $61 million,
up 10.7 percent, primarily due to the addition of Reno and Business Express
aircraft. Other operating expenses increased $342 million, or 12.0 percent, due
primarily to increases in outsourced services, travel and incidental costs and
booking fees.
18
<PAGE> 20
1998 COMPARED TO 1997 The Company's operating expenses of $15.5 billion in 1998
were up $166 million, or 1.1 percent, versus 1997. American's cost per ASM
decreased 0.2 percent to 9.25 cents. Wages, salaries and benefits increased $282
million, or 5.1 percent, due primarily to an increase in the average number of
equivalent employees, contractual wage rate and seniority increases that are
built into the Company's labor contracts and an increase in the provision for
profit-sharing. Fuel expense decreased $319 million, or 16.6 percent, due to an
18.2 percent decrease in American's average price per gallon, partially offset
by a 1.9 percent increase in American's fuel consumption. Commissions to agents
decreased 4.1 percent, or $52 million, despite a 3.2 percent increase in
passenger revenues, due to the continued benefit from the commission rate
reduction initiated in September 1997. Maintenance, materials and repairs
expense increased 8.5 percent, or $73 million, due to an increase in airframe
and engine maintenance volumes at American's maintenance bases as a result of
the maturing of its fleet. Other operating expenses increased $192 million, or
7.2 percent, due primarily to spending on the Company's Year 2000 Readiness
program, an increase in outsourced services and higher costs resulting from
higher passenger revenues, such as credit card fees.
OTHER INCOME (EXPENSE)
Other income (expense) consists of interest income and expense, interest
capitalized and miscellaneous - net.
1999 COMPARED TO 1998 Interest income decreased $25 million, or 21.9 percent,
due primarily to lower investment balances throughout most of 1999. Interest
expense increased $21 million, or 5.6 percent, resulting primarily from an
increase in long-term debt. Interest capitalized increased 13.5 percent, or $14
million, due to an increase in purchase deposits for flight equipment throughout
most of 1999. Miscellaneous - net increased $37 million due primarily to the
sale of a portion of American's interest in Equant in 1999, which resulted in an
approximate $75 million gain, and a gain of approximately $40 million from the
sale of the Company's investment in the preferred stock of Canadian. These gains
were partially offset by the provision for the settlement of litigation items
and the write-down of certain investments held by the Company during 1999.
1998 COMPARED TO 1997 Interest expense decreased $49 million, or 11.6 percent,
due primarily to scheduled debt repayments of approximately $400 million in
1998. Interest capitalized increased $84 million, to $104 million, due primarily
to the increase in purchase deposits for flight equipment.
OPERATING STATISTICS
The following table provides statistical information for American and AMR Eagle
for the years ended December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1999 1998 1997
---------------- --------------- ---------------
<S> <C> <C> <C>
AMERICAN AIRLINES
Revenue passenger miles (millions) 112,067 108,955 107,026
Available seat miles (millions) 161,211 155,297 153,917
Cargo ton miles (millions) 2,068 1,974 2,032
Passenger load factor 69.5% 70.2% 69.5%
Breakeven load factor 63.8% 59.9% 61.0%
Passenger revenue yield per passenger mile (cents) 13.12 13.49 13.37
Passenger revenue per available seat mile (cents) 9.12 9.46 9.30
Cargo revenue yield per ton mile (cents) 30.70 32.85 33.78
Operating expenses per available seat mile (cents) 9.39 9.25 9.27
Operating aircraft at year-end 697 648 641
AMR EAGLE
Revenue passenger miles (millions) 3,371 2,788 2,553
Available seat miles (millions) 5,640 4,471 4,218
Passenger load factor 59.8% 62.4% 60.5%
Operating aircraft at year-end 268 209 199
</TABLE>
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<PAGE> 21
LIQUIDITY AND CAPITAL RESOURCES
Operating activities provided net cash of $2.3 billion in 1999, $2.8 billion in
1998 and $2.5 billion in 1997. The $533 million decrease from 1998 to 1999
resulted primarily from a decrease in income from continuing operations.
Capital expenditures in 1999 totaled $3.5 billion, compared to $2.3
billion in 1998 and $1.1 billion in 1997, and included aircraft acquisitions of
approximately $2.7 billion. In 1999, American took delivery of 24 Boeing
737-800s, 11 Boeing 777-200IGWs, six Boeing 757-200s and four Boeing 767-300ER
aircraft. AMR Eagle took delivery of 25 Embraer ERJ-145s and nine Embraer
ERJ-135 aircraft. These expenditures, as well as the expansion of certain
airport facilities, were funded primarily with internally generated cash, except
for (i) the Embraer aircraft acquisitions, which were funded through secured
debt agreements, (ii) 14 Boeing aircraft, which were financed through secured
mortgage agreements, and (iii) one Boeing 757-200 aircraft, which was financed
through a sale-leaseback transaction.
At December 31, 1999, the Company had commitments to acquire the
following aircraft: 81 Boeing 737-800s, 26 Boeing 777-200IGWs, 86 Embraer
ERJ-135s, five Embraer ERJ-145s and 25 Bombardier CRJ-700s. Deliveries of all
aircraft extend through 2006. Future payments for all aircraft, including the
estimated amounts for price escalation, will approximate $2.2 billion in 2000,
$1.8 billion in 2001, $600 million in 2002 and an aggregate of approximately
$1.0 billion in 2003 through 2006. In addition to these commitments for
aircraft, the Company expects to spend approximately $1.6 billion in 2000 for
modifications to aircraft, renovations of -- and additions to -- airport and
off-airport facilities, and the acquisition of various other equipment and
assets, of which approximately $470 million has been authorized by the Company's
Board of Directors. The Company expects to fund its 2000 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.
For the year ended December 31, 1999, the Company purchased approximately
14.1 million shares of its common stock under two separate share repurchase
programs at a total cost of approximately $871 million. Additional share
repurchases of up to $34 million, 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.
At December 31, 1999, the Company owned approximately 3.5 million
depository certificates convertible, subject to certain restrictions, into the
common stock of Equant, which completed an initial public offering in July 1998.
As of December 31, 1999, the estimated fair value of these depository
certificates was approximately $395 million, based upon the publicly traded
market value of Equant common stock. Of the 3.5 million depository certificates
owned by the Company as of December 31, 1999, approximately 2.3 million
depository certificates, with an estimated market value of approximately $259
million, are held by the Company on behalf of Sabre.
On February 7, 2000, the Company declared its intent to distribute AMR's
entire ownership interest in Sabre as a dividend on all outstanding shares of
its common stock. To effect the dividend, AMR exchanged all of its 107,374,000
shares of Sabre's Class B common stock for an equal number of shares of Sabre's
Class A common stock. Effective after the close of business on March 15, 2000,
AMR distributed 0.722652 shares of Sabre Class A common stock for each share of
AMR stock owned by AMR's shareholders. The record date for the dividend of Sabre
stock was the close of business on March 1, 2000. In addition, on February 18,
2000, Sabre paid a special one-time cash dividend of $675 million to
shareholders of record of Sabre common stock at the close of business on
February 15, 2000. Based upon its approximate 83 percent interest in Sabre, AMR
received approximately $560 million of this dividend. These funds will be used
for general corporate purposes. The dividend of AMR's entire ownership interest
in Sabre's common stock resulted in a reduction to AMR's retained earnings in
March of 2000 equal to the carrying value of the Company's investment in Sabre
on March 15, 2000, which approximated $600 million. The fair market value of
AMR's investment in Sabre on March 15, 2000, based upon the quoted market
closing price of Sabre Class A common stock on the New York Stock Exchange, was
approximately $5.2 billion.
20
<PAGE> 22
The Company's March 15, 2000 distribution of its ownership interest in
Sabre represented a designated event, as defined, under event risk covenants
contained in agreements related to certain indebtedness of the Company and
American. Under these covenants, the interest rate on such indebtedness will be
increased if, during a specified period following the occurrence of a designated
event, the credit rating of such indebtedness is downgraded below certain
levels. However, the Company has not received indication that the credit rating
on any such indebtedness will be downgraded. For additional information
concerning these event risk covenants, see Note 3 to the consolidated financial
statements.
American has a $1.0 billion credit facility agreement that expires
December 19, 2001. At American's option, interest on the agreement can be
calculated on one of several different bases. For most borrowings, American
would anticipate choosing a floating rate based upon the London Interbank
Offered Rate (LIBOR). At December 31, 1999, no borrowings were outstanding under
the agreement.
AMR (principally American Airlines) historically operates with a working
capital deficit as do most other airline companies. The existence of such a
deficit has not in the past impaired the Company's ability to meet its
obligations as they become due and is not expected to do so in the future.
OTHER INFORMATION
ENVIRONMENTAL MATTERS Subsidiaries of AMR have been notified of potential
liability with regard to several environmental cleanup sites and certain airport
locations. At sites where remedial litigation has commenced, potential liability
is joint and several. AMR's alleged volumetric contributions at these sites are
minimal. AMR does not expect these matters, individually or collectively, to
have a material impact on its results of operations, financial position or
liquidity. Additional information is included in Note 3 to the consolidated
financial statements.
YEAR 2000 PROJECT The Company did not experience any significant malfunctions or
errors in its operating or business systems on January 1, 2000, and has not
since that date. Although it is possible that the full impact of the date change
has not been fully recognized, the Company believes any such problems are likely
to be minor and correctable. In addition, the Company could still be negatively
affected if its customers or major suppliers are adversely affected by the Year
2000 or similar issues. However, the Company is not currently aware of any
significant Year 2000 or similar problems that have arisen for its customers or
major suppliers.
As of December 31, 1999, the Company's total cost of the Year 2000
Project was approximately $214 million. Costs associated with the Year 2000
Project were expensed as incurred, other than capitalized hardware costs, and
were funded through cash from operations.
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).
21
<PAGE> 23
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 the United States
District Court for the Northern District of Texas, Dallas Division, 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 Dallas
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. These two federal court lawsuits were consolidated and
stayed.
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 appealed the DOT's order to the Fifth
Circuit Court of Appeals, and on February 1, 2000, the Fifth Circuit affirmed
the DOT's order in all respects.
In January 2000, the Department of Justice, at the behest of the DOT,
filed a lawsuit in the United States District Court for the Northern District of
Texas, Dallas Division, against Fort Worth and American seeking to enforce the
DOT's order and to prevent any party from interfering with any carrier operating
under that order.
American has announced new service from Love Field beginning May 1, 2000,
to Chicago and Los Angeles and is seeking facilities at Love Field from Dallas.
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.
OUTLOOK FOR 2000
The Company is cautiously optimistic about the 2000 revenue environment. The
U.S. economy remains strong, and many of the world's economies are expected to
continue to improve. Against this backdrop, the chief concerns are the
industry's ability to match capacity growth with the demand for air travel, and
the much higher fuel prices. For American, capacity is expected to increase only
slightly in 2000. The increase in American's seating capacity from the delivery
of new aircraft will be mostly offset by the removal of approximately 7,200
seats from its fleet. (In February 2000, the Company announced its "More Room
Throughout Coach" initiative, which will provide more room to passengers
throughout the coach cabins. American's entire fleet will be reconfigured to
increase the seat pitch from the present industry standard of 31 and 32 inches
to a predominant seat pitch of 34 and 35 inches.)
Over the course of the year, the Company expects to strengthen its
position in key domestic markets, while strategically expanding its
international network. Domestically, American and AMR Eagle look to continue to
benefit from the integration of Reno and Business Express, and the marketing
relationships with U.S. Airways, Inc. and Alaska Airlines, Inc. Internationally,
while American will introduce minimal service increases, it will, where
appropriate, expand its various code-share alliances. Further, ONEworld will
admit two new partners in 2000 -- LanChile and Aer Lingus -- and, while losing
Canadian Airlines, will look to otherwise buttress its position in Canada.
22
<PAGE> 24
Pressure to reduce costs will continue, although the volatility of fuel
prices makes any prediction of overall costs very difficult. Excluding fuel, the
Company anticipates an increase in operating expenses of about five percent,
driven primarily by higher labor costs associated with the normal seniority and
scale increases in union contracts, an increase in depreciation and amortization
expense and maintenance, materials and repairs expense as the Company continues
to acquire new aircraft, and an increase in airport landing fees and facility
rent expense from higher rates. Other expense lines will see volume-driven
increases and inflationary pressures. Partially offsetting this expected
increase in costs, the Company expects savings in commission expense due to
changes made in late 1999 to the commission structure, and a decrease in the
percentage of commissionable transactions.
Overshadowing all other expenses, though, is the expected increase in
fuel expense, owing to significantly higher fuel prices. Although the Company
has hedged approximately 48 percent of its 2000 fuel requirements as of December
31, 1999, its 2000 earnings will be adversely impacted by this significant rise
in fuel prices. The magnitude of this impact will be driven by the duration of
the higher prices, which, at a minimum, will dampen the Company's first half
2000 financial results. In addition to the direct effect, the higher fuel prices
may, if sustained at their current levels for an extended period of time,
indirectly negatively impact the Company by slowing the economy and thereby the
demand for air travel.
FORWARD-LOOKING INFORMATION
The preceding discussions under Business and Management's Discussion and
Analysis of Financial Condition and Results of Operations contain various
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, which represent the Company's expectations or beliefs concerning
future events. When used in this document and in documents incorporated herein
by reference, the words "expects," "plans," "anticipates," and similar
expressions are intended to identify forward-looking statements. Forward-looking
statements include, without limitation, expectations as to results of operations
and financial condition, including changes in capacity, revenues and costs,
expectations as to future financing needs, Year 2000 expectations, overall
economic projections and the Company's plans and objectives for future
operations, including plans to develop future code-sharing programs and to
evaluate new alliances. All forward-looking statements in this report are based
upon information available to the Company on the date of this report. The
Company undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future events
or otherwise. Forward-looking statements are subject to a number of factors that
could cause actual results to differ materially from our expectations. The
following factors, in addition to other possible factors not listed, could cause
the Company's actual results to differ materially from those expressed in
forward-looking statements:
UNCERTAINTY OF FUTURE COLLECTIVE BARGAINING AGREEMENTS AND EVENTS The Company's
operations could be adversely affected by failure of the Company to reach
agreement with any labor union representing the Company's employees or by an
agreement with a labor union representing the Company's employees that contains
terms which prevent the Company from competing effectively with other airlines.
In addition, a dispute between the Company and an employee work group (outside
the confines of a collective bargaining agreement) could adversely impact the
Company's operations.
ECONOMIC AND OTHER CONDITIONS The airline industry is affected by changes in
international, national, regional and local economic conditions, inflation, war
or political instability (or the threat thereof), consumer preferences and
spending patterns, demographic trends, disruptions to the air traffic control
system, consumer perceptions of airline safety, costs of safety, security and
environmental measures, and the weather.
COMMODITY PRICES Due to the competitive nature of the airline industry, in the
event of any increase in the price of jet fuel, there can be no assurance that
the Company would be able to pass on increased fuel prices to its customers by
increasing fares.
23
<PAGE> 25
COMPETITION IN THE AIRLINE INDUSTRY Service over almost all of the Company's
routes is highly competitive. The Company faces vigorous competition from major
domestic airlines, national, regional, all-cargo and charter carriers, foreign
carriers, low-cost carriers, and, particularly on shorter segments, ground
transportation. Pricing decisions are affected by competition from other
airlines. Fare discounting by competitors has historically had a negative effect
on the Company's financial results because American is generally required to
match competitors' fares to maintain passenger traffic. No assurance can be
given that any future fare reduction would be offset by increases in passenger
traffic, a reduction in costs or changes in the mix of traffic that would
improve yields.
CHANGING BUSINESS STRATEGY Although it has no current plan to do so, the Company
may change its business strategy in the future and may not pursue some of the
goals stated herein.
GOVERNMENT REGULATION Future results of the Company's operations may vary based
upon any actions which the governmental agencies with jurisdiction over the
Company's operations may take, including the granting and timing of certain
governmental approvals (including foreign government approvals) needed for
code-sharing alliances and other arrangements with other airlines, restrictions
on competitive practices (e.g., new regulations which would curtail an airline's
ability to respond to a competitor), the adoption of regulations that impact
customer service standards, and the adoption of more restrictive locally-imposed
noise restrictions.
UNCERTAINTY IN INTERNATIONAL OPERATIONS The Company's current international
activities and prospects could be adversely affected by factors such as
reversals or delays in the opening of foreign markets, exchange controls,
currency and political risks, taxation and changes in international government
regulation of the Company's operations.
24
<PAGE> 26
ITEM 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS
The risk inherent in the Company's market risk sensitive instruments and
positions is the potential loss arising from adverse changes in the price of
fuel, foreign currency exchange rates and interest rates as discussed below. The
sensitivity analyses presented do not consider the effects that such adverse
changes may have on overall economic activity, nor do they consider additional
actions management may take to mitigate its exposure to such changes. Actual
results may differ. See Note 6 to the consolidated financial statements for
accounting policies and additional information.
AIRCRAFT FUEL The Company's earnings are affected by changes in the price and
availability of aircraft fuel. In order to provide a measure of control over
price and supply, the Company trades and ships fuel and maintains fuel storage
facilities to support its flight operations. The Company also manages the price
risk of fuel costs primarily utilizing swap and option contracts. Market risk is
estimated as a hypothetical 10 percent increase in the December 31, 1999 and
1998 cost per gallon of fuel. Based on projected 2000 fuel usage, such an
increase would result in an increase to aircraft fuel expense of approximately
$125 million in 2000, net of fuel hedge instruments outstanding at December 31,
1999. Comparatively, based on projected 1999 fuel usage, such an increase would
have resulted in an increase to aircraft fuel expense of approximately $73
million in 1999, net of fuel hedge instruments outstanding at December 31, 1998.
The change in market risk is due primarily to the increase in fuel prices. As of
December 31, 1999, the Company had hedged approximately 48 percent of its 2000
fuel requirements and approximately 10 percent of its 2001 fuel requirements,
compared to approximately 48 percent of its 1999 fuel requirements and 19
percent of its 2000 fuel requirements hedged at December 31, 1998.
FOREIGN CURRENCY The Company is exposed to the effect of foreign exchange rate
fluctuations on the U.S. dollar value of foreign currency-denominated operating
revenues and expenses. The Company's largest exposure comes from the Japanese
yen, British pound, Canadian dollar, Euro and various Latin and South American
currencies. The Company uses options to hedge a portion of its anticipated
foreign currency-denominated net cash flows. The result of a uniform 10 percent
strengthening in the value of the U.S. dollar from December 31, 1999 and 1998
levels relative to each of the currencies in which the Company has foreign
currency exposure would result in a decrease in operating income of
approximately $39 million and $22 million for the years ending December 31, 2000
and 1999, respectively, net of hedge instruments outstanding at December 31,
1999 and 1998, due to the Company's foreign-denominated revenues exceeding its
foreign-denominated expenses. This sensitivity analysis was prepared based upon
projected 2000 and 1999 foreign currency-denominated revenues and expenses as of
December 31, 1999 and 1998. Furthermore, this calculation assumes that each
exchange rate would change in the same direction relative to the U.S. dollar.
INTEREST The Company's earnings are also affected by changes in interest rates
due to the impact those changes have on its interest income from cash and
short-term investments and its interest expense from variable-rate debt
instruments. The Company has variable-rate debt instruments representing
approximately 21 percent and six percent of its total long-term debt,
respectively, at December 31, 1999 and 1998, and interest rate swaps on notional
amounts of approximately $696 million and $1.1 billion, respectively, at
December 31, 1999 and 1998. If interest rates average 10 percent more in 2000
than they did at December 31, 1999, the Company's interest expense would
increase by approximately $10 million and interest income from cash and
short-term investments would increase by approximately $11 million. In
comparison, at December 31, 1998, the Company estimated that if interest rates
averaged 10 percent more in 1999 than they did at December 31, 1998, the
Company's interest expense would have increased by approximately $6 million and
interest income from cash and short-term investments would have increased by
approximately $8 million. These amounts are determined by considering the impact
of the hypothetical interest rates on the Company's variable-rate long-term
debt, interest rate swap agreements, and cash and short-term investment balances
at December 31, 1999 and 1998.
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<PAGE> 27
Market risk for fixed-rate long-term debt is estimated as the potential
increase in fair value resulting from a hypothetical 10 percent decrease in
interest rates, and amounts to approximately $156 million and $96 million as of
December 31, 1999 and 1998, respectively. The fair values of the Company's
long-term debt were estimated using quoted market prices or discounted future
cash flows based on the Company's incremental borrowing rates for similar types
of borrowing arrangements.
INVESTMENTS The Company is subject to market risk related to its ownership of,
excluding the depository certificates held on behalf of Sabre, approximately 1.2
million and 1.4 million depository certificates convertible, subject to certain
restrictions, into the common stock of Equant, as of December 31, 1999 and 1998,
respectively. The estimated fair value of these depository certificates was
approximately $136 million and $100 million as of December 31, 1999 and 1998,
respectively, based upon the market value of Equant common stock.
In addition, the Company holds investments in certain other entities,
primarily foreign airlines, which are subject to market risk. However, the
impact of such market risk on earnings is not significant due to the
immateriality of the carrying value and the geographically diverse nature of
these holdings.
26
<PAGE> 28
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
------------
<S> <C>
Report of Independent Auditors 28
Consolidated Statements of Operations 29
Consolidated Balance Sheets 31
Consolidated Statements of Cash Flows 33
Consolidated Statements of Stockholders' Equity 34
Notes to Consolidated Financial Statements 35
</TABLE>
27
<PAGE> 29
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
AMR Corporation
We have audited the accompanying consolidated balance sheets of AMR
Corporation as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of AMR
Corporation at December 31, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
ERNST & YOUNG LLP
2121 San Jacinto
Dallas, Texas 75201
January 17, 2000, except for the second
paragraph of Note 12, for which the
date is March 15, 2000.
28
<PAGE> 30
AMR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES
Passenger - American Airlines, Inc. $ 14,707 $ 14,695 $ 14,310
- AMR Eagle 1,294 1,121 1,017
Cargo 643 656 687
Other revenues 1,086 1,044 943
------------ ------------ ------------
Total operating revenues 17,730 17,516 16,957
------------ ------------ ------------
EXPENSES
Wages, salaries and benefits 6,120 5,793 5,511
Aircraft fuel 1,696 1,604 1,923
Commissions to agents 1,162 1,226 1,278
Depreciation and amortization 1,092 1,040 1,040
Maintenance, materials and repairs 1,003 935 862
Other rentals and landing fees 942 839 842
Food service 740 675 677
Aircraft rentals 630 569 574
Other operating expenses 3,189 2,847 2,655
------------ ------------ ------------
Total operating expenses 16,574 15,528 15,362
------------ ------------ ------------
OPERATING INCOME 1,156 1,988 1,595
OTHER INCOME (EXPENSE)
Interest income 89 114 110
Interest expense (393) (372) (421)
Interest capitalized 118 104 20
Miscellaneous - net 36 (1) 32
------------ ------------ ------------
(150) (155) (259)
------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 1,006 1,833 1,336
Income tax provision 350 719 527
------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS 656 1,114 809
INCOME FROM DISCONTINUED OPERATIONS, NET OF APPLICABLE INCOME
TAXES AND MINORITY INTEREST 265 200 176
GAIN ON SALE OF DISCONTINUED OPERATIONS, NET OF APPLICABLE INCOME
TAXES 64 -- --
------------ ------------ ------------
NET EARNINGS $ 985 $ 1,314 $ 985
============ ============ ============
</TABLE>
- --------------------------------------------------------------------------------
Continued on next page.
29
<PAGE> 31
AMR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(in millions, except per share amounts)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
EARNINGS APPLICABLE TO COMMON SHARES $ 985 $ 1,314 $ 985
============ ============ ============
EARNINGS PER COMMON SHARE:
BASIC
Income from continuing operations $ 4.30 $ 6.60 $ 4.54
Discontinued operations 2.16 1.18 0.98
------------ ------------ ------------
Net earnings $ 6.46 $ 7.78 $ 5.52
============ ============ ============
DILUTED
Income from continuing operations $ 4.17 $ 6.38 $ 4.43
Discontinued operations 2.09 1.14 0.96
------------ ------------ ------------
Net earnings $ 6.26 $ 7.52 $ 5.39
============ ============ ============
- ------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE> 32
AMR CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions, except shares and par value)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
December 31,
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 85 $ 87
Short-term investments 1,706 1,448
Receivables, less allowance for uncollectible
accounts (1999 - $57; 1998 - $19) 1,134 1,225
Inventories, less allowance for obsolescence
(1999 - $279; 1998 - $214) 708 596
Deferred income taxes 612 443
Other current assets 179 170
------------ ------------
Total current assets 4,424 3,969
EQUIPMENT AND PROPERTY
Flight equipment, at cost 16,912 13,688
Less accumulated depreciation 5,589 4,976
------------ ------------
11,323 8,712
Purchase deposits for flight equipment 1,582 1,624
Other equipment and property, at cost 3,247 2,999
Less accumulated depreciation 1,814 1,669
------------ ------------
1,433 1,330
------------ ------------
14,338 11,666
EQUIPMENT AND PROPERTY UNDER CAPITAL LEASES
Flight equipment 3,141 3,159
Other equipment and property 155 146
------------ ------------
3,296 3,305
Less accumulated amortization 1,347 1,230
------------ ------------
1,949 2,075
OTHER ASSETS
Route acquisition costs, less accumulated amortization
(1999 - $269; 1998 - $240) 887 916
Airport operating and gate lease rights, less accumulated amortization
(1999 - $181; 1998 - $161) 304 312
Prepaid pension cost 257 304
Other 2,215 2,213
------------ ------------
3,663 3,745
------------ ------------
TOTAL ASSETS $ 24,374 $ 21,455
============ ============
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE> 33
AMR CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions, except shares and par value)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
December 31,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,115 $ 1,047
Accrued salaries and wages 849 917
Accrued liabilities 1,107 973
Air traffic liability 2,255 2,163
Current maturities of long-term debt 302 48
Current obligations under capital leases 236 154
------------ ------------
Total current liabilities 5,864 5,302
LONG-TERM DEBT, LESS CURRENT MATURITIES 4,078 2,436
OBLIGATIONS UNDER CAPITAL LEASES,
LESS CURRENT OBLIGATIONS 1,611 1,764
OTHER LIABILITIES AND CREDITS
Deferred income taxes 1,846 1,470
Deferred gains 613 573
Postretirement benefits 1,669 1,598
Other liabilities and deferred credits 1,835 1,614
------------ ------------
5,963 5,255
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock - $1 par value; shares authorized: 750,000,000;
Shares issued: 1999 and 1998 - 182,278,766 182 182
Additional paid-in capital 3,061 3,075
Treasury shares at cost: 1999 - 34,034,110; 1998 - 20,927,692 (2,101) (1,288)
Accumulated other comprehensive income (2) (4)
Retained earnings 5,718 4,733
------------ ------------
6,858 6,698
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 24,374 $ 21,455
============ ============
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE> 34
AMR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Year Ended December 31,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Income from continuing operations $ 656 $ 1,114 $ 809
Adjustments to reconcile income from continuing operations to net
cash provided by operating activities:
Depreciation 864 830 831
Amortization 228 210 209
Deferred income taxes 183 268 321
Gain on sale of other investments, net (95) -- --
Gain on disposition of equipment and property (15) (19) (24)
Change in assets and liabilities:
Decrease (increase) in receivables 261 (185) 72
Increase in inventories (140) (36) (41)
Increase in accounts payable and accrued liabilities 42 345 64
Increase in air traffic liability 89 119 155
Other, net 191 151 127
---------- ---------- ----------
Net cash provided by operating activities 2,264 2,797 2,523
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures, including purchase deposits
on flight equipment (3,539) (2,342) (1,139)
Net decrease (increase) in short-term investments (253) 348 (480)
Acquisitions and other investments (99) (137) --
Proceeds from:
Sale of discontinued operations 259 -- --
Sale of other investments 85 -- --
Sale of equipment and property 79 262 291
Other 18 -- --
---------- ---------- ----------
Net cash used for investing activities (3,450) (1,869) (1,328)
CASH FLOW FROM FINANCING ACTIVITIES:
Repurchase of common stock (871) (945) (740)
Payments on long-term debt and capital lease obligations (280) (547) (648)
Proceeds from:
Issuance of long-term debt 1,956 246 --
Short-term loan from affiliate 300 -- --
Sale-leaseback transactions 54 270 --
Exercise of stock options 25 85 200
---------- ---------- ----------
Net cash provided by (used for) financing activities 1,184 (891) (1,188)
---------- ---------- ----------
Net increase (decrease) in cash (2) 37 7
Cash at beginning of year 87 50 43
---------- ---------- ----------
Cash at end of year $ 85 $ 87 $ 50
========== ========== ==========
ACTIVITIES NOT AFFECTING CASH
Payment of short-term loan from affiliate against receivable from
affiliate $ 300 $ -- $ --
========== ========== ==========
Capital lease obligations incurred $ 54 $ 270 $ --
========== ========== ==========
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE> 35
AMR CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in millions, except share amounts)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulated
Additional Other
Common Paid-in Treasury Comprehensive Retained
Stock Capital Stock Income Earnings Total
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $ 182 $ 3,075 $ -- $ (23) $ 2,434 $ 5,668
Net earnings -- -- -- -- 985 985
Adjustment for minimum pension
liability, net of tax expense of $13 -- -- -- 19 -- 19
----------
Total comprehensive income 1,004
Issuance of 312,140 shares pursuant to
stock option, deferred stock and
restricted stock incentive plans -- 13 -- -- -- 13
Issuance of 11,500,000 stock options at
$5 below market value at date of
grant -- 58 -- -- -- 58
Repurchase of 14,086,750 common shares -- -- (740) -- -- (740)
Issuance of 5,005,918 shares from
Treasury pursuant to stock option,
deferred stock and restricted stock
incentive plans, net of tax benefit
of $15 -- (42) 255 -- -- 213
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1997 182 3,104 (485) (4) 3,419 6,216
Net earnings and total comprehensive
income -- -- -- -- 1,314 1,314
Repurchase of 14,342,008 common shares -- -- (944) -- -- (944)
Issuance of 2,495,148 shares from
Treasury pursuant to stock option,
deferred stock and restricted stock
incentive plans, net of tax benefit
of $17 -- (29) 141 -- -- 112
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1998 182 3,075 (1,288) (4) 4,733 6,698
Net earnings -- -- -- -- 985 985
Adjustment for minimum pension
liability, net of tax expense of $1 -- -- -- 3 -- 3
Unrealized loss on investments, net of
tax benefit of $1 -- -- -- (1) -- (1)
----------
Total comprehensive income 987
Repurchase of 14,062,358 common shares -- -- (871) -- -- (871)
Issuance of 955,940 shares from
Treasury pursuant to stock option,
deferred stock and restricted stock
incentive plans, net of tax benefit
of $4 -- (14) 58 -- -- 44
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1999 $ 182 $ 3,061 $ (2,101) $ (2) $ 5,718 $ 6,858
========== ========== ========== ========== ========== ==========
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING POLICIES
BASIS OF PRESENTATION The consolidated financial statements include the accounts
of AMR Corporation (AMR or the Company), its wholly owned subsidiaries,
including its principal subsidiary American Airlines, Inc. (American), and its
majority-owned subsidiaries, including Sabre Holdings Corporation (Sabre). All
significant intercompany transactions have been eliminated. The results of
operations, cash flows and net assets for Sabre, AMR Services, AMR Combs and
TeleService Resources have been reflected in the consolidated financial
statements as discontinued operations. Unless specifically indicated otherwise,
the information in the footnotes relates to the continuing operations of AMR.
All share and per share amounts reflect the stock split on June 9, 1998, where
appropriate. Certain amounts from prior years have been reclassified to conform
with the 1999 presentation.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
INVENTORIES Spare parts, materials and supplies relating to flight equipment are
carried at average acquisition cost and are expensed when incurred in
operations. Allowances for obsolescence are provided, over the estimated useful
life of the related aircraft and engines, for spare parts expected to be on hand
at the date aircraft are retired from service, plus allowances for spare parts
currently identified as excess. These allowances are based on management
estimates, which are subject to change.
EQUIPMENT AND PROPERTY The provision for depreciation of operating equipment and
property is computed on the straight-line method applied to each unit of
property, except that major rotable parts, avionics and assemblies are
depreciated on a group basis. The depreciable lives used for the principal
depreciable asset classifications are:
<TABLE>
<CAPTION>
Depreciable Life
----------------------------
<S> <C>
Boeing 727-200 aircraft August 31, 2003 (1)
DC-10 aircraft December 31, 2000 (1)
Other American jet aircraft 20 - 30 years
Regional aircraft and engines 16 - 20 years
Major rotable parts, avionics and assemblies Life of equipment to which
applicable
Improvements to leased flight equipment Term of lease
Buildings and improvements (principally on 10-30 years or term of lease
leased land)
Furniture, fixtures and other equipment 3-20 years
Capitalized software 3-10 years
</TABLE>
(1) Approximate final aircraft retirement date.
Residual values for aircraft, engines, major rotable parts, avionics and
assemblies are generally five to 10 percent, except when a guaranteed residual
value or other agreements exist to better estimate the residual value.
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. It also established a 30-year life
for its new Boeing 777 aircraft, first delivered in the first quarter of 1999.
As a result of this change, depreciation and amortization expense was reduced by
approximately $158 million and net earnings were increased by approximately $99
million, or $0.63 per common share diluted, for the year ended December 31,
1999.
35
<PAGE> 37
1. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Equipment and property under capital leases are amortized over the term
of the leases or, in the case of certain aircraft, over their expected useful
lives, and such amortization is included in depreciation and amortization. Lease
terms vary but are generally 10 to 25 years for aircraft and seven to 40 years
for other leased equipment and property.
MAINTENANCE AND REPAIR COSTS Maintenance and repair costs for owned and leased
flight equipment are charged to operating expense as incurred, except engine
overhaul costs incurred by AMR Eagle Holding Corporation (AMR Eagle) and costs
incurred for maintenance and repair under power by the hour maintenance contract
agreements, which are accrued on the basis of hours flown.
INTANGIBLE ASSETS Route acquisition costs and airport operating and gate lease
rights represent the purchase price attributable to route authorities, airport
take-off and landing slots and airport gate leasehold rights acquired. These
assets are being amortized on a straight-line basis over 40 years for route
authorities, 25 years for airport take-off and landing slots, and the term of
the lease for airport gate leasehold rights.
PASSENGER REVENUES Passenger ticket sales are initially recorded as a component
of air traffic liability. Revenue derived from ticket sales is recognized at the
time service is provided. However, due to various factors, including the complex
pricing structure and interline agreements throughout the industry, certain
amounts are recognized in revenue using estimates regarding both the timing of
the revenue recognition and the amount of revenue to be recognized. Actual
results could differ from those estimates.
ADVERTISING COSTS The Company expenses the costs of advertising as incurred.
Advertising expense was $206 million, $196 million and $181 million for the
years ended December 31, 1999, 1998 and 1997, respectively.
FREQUENT FLYER PROGRAM The estimated incremental cost of providing free travel
awards is accrued when such award levels are reached. American sells mileage
credits and related services to companies participating in its frequent flyer
program. The portion of the revenue related to the sale of mileage credits is
deferred and recognized over a period approximating the period during which the
mileage credits are used.
STATEMENTS OF CASH FLOWS Short-term investments, without regard to remaining
maturity at acquisition, are not considered as cash equivalents for purposes of
the statements of cash flows.
STOCK OPTIONS The Company accounts for its stock-based compensation plans in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25) and related Interpretations. Under APB 25,
no compensation expense is recognized for stock option grants if the exercise
price of the Company's stock option grants is at or above the fair market value
of the underlying stock on the date of grant.
36
<PAGE> 38
2. INVESTMENTS
Short-term investments consisted of (in millions):
<TABLE>
<CAPTION>
December 31,
------------------------------------
1999 1998
------------- --------------
<S> <C> <C>
Overnight investments and time deposits $ - $ 133
Corporate and bank notes 1,173 705
U. S. Government agency notes 234 -
Asset backed securities 145 353
U. S. Government agency mortgages 94 102
Other 60 155
-------------- -------------
$ 1,706 $ 1,448
============= =============
Short-term investments at December 31, 1999, by contractual maturity included (in millions):
Due in one year or less $ 750
Due between one year and three years 899
Due after three years 57
-------------
$ 1,706
=============
</TABLE>
All short-term investments are classified as available-for-sale and
stated at fair value. Net unrealized gains and losses, net of deferred taxes,
are reflected as an adjustment to stockholders' equity.
At December 31, 1998, the Company owned approximately 3.1 million
depository certificates convertible, subject to certain restrictions, into the
common stock of Equant N.V. (Equant), which completed an initial public offering
in July 1998. Approximately 1.7 million of the certificates were held by the
Company on behalf of Sabre. As of December 31, 1998, the estimated fair value of
these depository certificates was approximately $210 million, of which
approximately $110 million was held by the Company on behalf of Sabre, based
upon the publicly traded market value of Equant common stock. The carrying value
(cost basis) of the Company's investment in the depository certificates as of
December 31, 1998 was de minimis.
During 1999, the Company acquired approximately 400,000 Equant 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. In connection with two secondary offerings by Equant
in February and December 1999, the Company sold approximately 2.7 million
depository certificates for a net gain of approximately $118 million, after
taxes and minority interest. Of this amount, approximately $75 million is
included in Miscellaneous - net and approximately $71 million, net of taxes and
minority interest, related to depository certificates held by the Company on
behalf of Sabre, is included in income from discontinued operations on the
accompanying consolidated statements of operations. Accordingly, as of December
31, 1999, the Company holds approximately 3.5 million depository certificates
with an estimated market value of approximately $395 million, of which
approximately 2.3 million depository certificates with an estimated market value
of approximately $259 million, are held by the Company on behalf of Sabre. The
carrying value of the Company's investment in the depository certificates as of
December 31, 1999 was approximately $20 million.
In December 1999, the Company entered into an agreement to sell its
investment in the cumulative mandatorily redeemable convertible preferred stock
of Canadian Airlines International Limited (Canadian) for approximately $40
million, resulting in a gain of $40 million, which is included in Miscellaneous
- - net on the accompanying consolidated statements of operations. In addition,
the Company recognized a tax benefit of $67 million resulting from the tax loss
on the investment, representing the reversal of a deferred tax valuation
allowance since it is more likely than not that the tax benefit will be
realized. The valuation allowance was established in 1996 when the investment
was written-off because, at that time, it was not more likely than not that the
tax benefit of the write-off would be realized.
37
<PAGE> 39
3. COMMITMENTS AND CONTINGENCIES
At December 31, 1999, the Company had commitments to acquire the
following aircraft: 81 Boeing 737-800s, 26 Boeing 777-200IGWs, 86 Embraer
ERJ-135s, five Embraer ERJ-145s and 25 Bombardier CRJ-700s. Deliveries of all
aircraft extend through 2006. Future payments for all aircraft, including
estimated amounts for price escalation, will approximate $2.2 billion in 2000,
$1.8 billion in 2001, $600 million in 2002 and an aggregate of approximately
$1.0 billion in 2003 through 2006. In addition to these commitments for
aircraft, the Company's Board of Directors has authorized expenditures of
approximately $800 million over the next five years for modifications to
aircraft, renovations of -- and additions to -- airport and off-airport
facilities, and the acquisition of various other equipment and assets. AMR
expects to spend approximately $470 million of this authorized amount in 2000.
The Miami International Airport Authority is currently remediating
various environmental conditions at the Miami International Airport (the
Airport) and funding the remediation costs through landing fee revenues. Future
costs of the remediation effort may be borne by carriers operating at the
Airport, including American, through increased landing fees and/or other charges
since certain of the potentially responsible parties are no longer in business.
The future increase in landing fees and/or other charges may be material but
cannot be reasonably estimated due to various factors, including the unknown
extent of the remedial actions that may be required, the proportion of the cost
that will ultimately be recovered from the responsible parties, and
uncertainties regarding the environmental agencies that will ultimately
supervise the remedial activities and the nature of that supervision. In
addition, the Company is subject to environmental issues at various other
airport and non-airport locations. Management believes, after considering a
number of factors, that the ultimate disposition of these environmental issues
is not expected to materially affect the Company's consolidated financial
position, results of operations, or cash flows. Amounts recorded for
environmental issues are based on the Company's current assessments of the
ultimate outcome and, accordingly, could increase or decrease as these
assessments change.
In April 1995, American announced an agreement to sell 12 of its 19
McDonnell Douglas MD-11 aircraft to Federal Express Corporation (FedEx). In
March 1998, the Company exercised its option to sell its remaining seven MD-11
aircraft to FedEx. No significant gain or loss is expected to be recognized as a
result of these transactions. Eight aircraft had been delivered as of December
31, 1999. The remaining 11 aircraft will be delivered between 2000 and 2002. The
carrying value of the 11 remaining aircraft American has committed to sell was
approximately $690 million as of December 31, 1999.
AMR and American have included event risk covenants in approximately $3.0
billion of indebtedness. These covenants permit the holders of such indebtedness
to receive a higher rate of return (between 75 and 650 basis points above the
stated rate) if a designated event, as defined, should occur and the credit
rating of such indebtedness is downgraded below certain levels. The Company's
March 15, 2000 distribution of its ownership interest in Sabre represents a
designated event under these debt covenants. However, the Company has not
received indication that the credit rating on any such indebtedness will be
downgraded.
Special facility revenue bonds have been issued by certain
municipalities, primarily to purchase equipment and improve airport facilities
that are leased by American. In certain cases, the bond issue proceeds were
loaned to American and are included in long-term debt. Certain bonds have rates
that are periodically reset and are remarketed by various agents. In certain
circumstances, American may be required to purchase up to $437 million of the
special facility revenue bonds prior to scheduled maturity, in which case
American has the right to resell the bonds or to use the bonds to offset its
lease or debt obligations. American may borrow the purchase price of these bonds
under standby letter of credit agreements. At American's option, these letters
of credit are secured by funds held by bond trustees and by approximately $489
million of short-term investments.
38
<PAGE> 40
4. LEASES
AMR's subsidiaries lease various types of equipment and property,
including aircraft and airport and off-airport facilities. The future minimum
lease payments required under capital leases, together with the present value of
net minimum lease payments, and future minimum lease payments required under
operating leases that have initial or remaining non-cancelable lease terms in
excess of one year as of December 31, 1999, were (in millions):
<TABLE>
<CAPTION>
Capital Operating
Year Ending December 31, Leases Leases
-------------- --------------
<S> <C> <C>
2000 $ 347 $ 1,015
2001 329 1,006
2002 280 952
2003 198 965
2004 249 954
2005 and subsequent 1,081 12,169
------------- -------------
2,484(1) $ 17,061(2)
=============
Less amount representing interest 637
-------------
Present value of net minimum lease payments $ 1,847
=============
</TABLE>
(1) Future minimum payments required under capital leases include $187
million guaranteed by AMR relating to special facility revenue bonds
issued by municipalities.
(2) Future minimum payments required under operating leases include $6.5
billion guaranteed by AMR relating to special facility revenue bonds
issued by municipalities.
At December 31, 1999, the Company had 205 jet aircraft and 71 turboprop
aircraft under operating leases, and 79 jet aircraft and 61 turboprop aircraft
under capital leases. The aircraft leases can generally be renewed at rates
based on fair market value at the end of the lease term for one to five years.
Most aircraft leases have purchase options at or near the end of the lease term
at fair market value, but generally not to exceed a stated percentage of the
defined lessor's cost of the aircraft or at a predetermined fixed amount.
During 1996, American made prepayments on the cancelable operating leases
it had on 12 of its Boeing 767-300 aircraft. Upon the expiration of the amended
leases, American can purchase the aircraft for a nominal amount. As a result,
the aircraft were recorded as flight equipment under capital leases. During
1999, the Company exercised its option to purchase two of the Boeing 767-300
aircraft for a nominal fee. As such, these two aircraft were reclassified from
flight equipment under capital leases to owned flight equipment.
Rent expense, excluding landing fees, was $1.3 billion for 1999 and $1.1
billion for 1998 and 1997.
39
<PAGE> 41
5. INDEBTEDNESS
Long-term debt (excluding amounts maturing within one year) consisted of
(in millions):
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Secured variable and fixed rate indebtedness due through 2015
(effective rates from 6.232% - 9.597% at December 31, 1999) $ 2,556 $ 857
7.875% - 10.62% notes due through 2039 812 865
9.0% - 10.20% debentures due through 2021 437 437
6.0% - 7.10% bonds due through 2031 176 176
Variable rate indebtedness due through 2024
(3.55% at December 31, 1999) 86 86
Other 11 15
------------- -------------
Long-term debt, less current maturities $ 4,078 $ 2,436
============= =============
</TABLE>
Maturities of long-term debt (including sinking fund requirements) for
the next five years are: 2000 - $302 million; 2001 - $516 million; 2002 - $150
million; 2003 - $116 million; 2004 - $123 million.
American has a $1.0 billion credit facility agreement that expires
December 19, 2001. At American's option, interest on the agreement can be
calculated on one of several different bases. For most borrowings, American
would anticipate choosing a floating rate based upon the London Interbank
Offered Rate (LIBOR). At December 31, 1999, no borrowings were outstanding under
the agreement.
Certain debt is secured by aircraft, engines, equipment and other assets
having a net book value of approximately $2.7 billion. In addition, certain of
American's debt and credit facility agreements contain restrictive covenants,
including a minimum net worth requirement, which could limit American's ability
to pay dividends. At December 31, 1999, under the most restrictive provisions of
those debt and credit facility agreements, approximately $2.6 billion of the
retained earnings of American was available for payment of dividends to AMR.
Cash payments for interest, net of capitalized interest, were $237
million, $277 million and $411 million for 1999, 1998 and 1997, respectively.
6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
As part of the Company's risk management program, AMR uses a variety of
financial instruments, including interest rate swaps, fuel swap and option
contracts and currency exchange agreements. The Company does not hold or issue
derivative financial instruments for trading purposes.
NOTIONAL AMOUNTS AND CREDIT EXPOSURES OF DERIVATIVES
The notional amounts of derivative financial instruments summarized in
the tables which follow do not represent amounts exchanged between the parties
and, therefore, are not a measure of the Company's exposure resulting from its
use of derivatives. The amounts exchanged are calculated based on the notional
amounts and other terms of the instruments, which relate to interest rates,
exchange rates or other indices.
40
<PAGE> 42
6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
The Company is exposed to credit losses in the event of non-performance
by counterparties to these financial instruments, but it does not expect any of
the counterparties to fail to meet its obligations. The credit exposure related
to these financial instruments is represented by the fair value of contracts
with a positive fair value at the reporting date, reduced by the effects of
master netting agreements. To manage credit risks, the Company selects
counterparties based on credit ratings, limits its exposure to a single
counterparty under defined guidelines, and monitors the market position of the
program and its relative market position with each counterparty. The Company
also maintains industry-standard security agreements with the majority of its
counterparties which may require the Company or the counterparty to post
collateral if the value of these instruments falls below certain mark-to-market
thresholds. As of December 31, 1999, no collateral was required under these
agreements, and the Company does not expect to post collateral in the near
future.
INTEREST RATE RISK MANAGEMENT
American enters into interest rate swap contracts to effectively convert
a portion of its fixed-rate obligations to floating-rate obligations. These
agreements involve the exchange of amounts based on a floating interest rate for
amounts based on fixed interest rates over the life of the agreement without an
exchange of the notional amount upon which the payments are based. The
differential to be paid or received as interest rates change is accrued and
recognized as an adjustment of interest expense related to the obligation. The
related amount payable to or receivable from counterparties is included in
current liabilities or assets. The fair values of the swap agreements are not
recognized in the financial statements. Gains and losses on terminations of
interest rate swap agreements are deferred as an adjustment to the carrying
amount of the outstanding obligation and amortized as an adjustment to interest
expense related to the obligation over the remaining term of the original
contract life of the terminated swap agreement. In the event of the early
extinguishment of a designated obligation, any realized or unrealized gain or
loss from the swap would be recognized in income coincident with the
extinguishment.
The following table indicates the notional amounts and fair values of the
Company's interest rate swap agreements (in millions):
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------
1999 1998
---------------------------------- ----------------------------------
Notional Notional
Amount Fair Value Amount Fair Value
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Interest rate swap agreements $ 696 $ (9) $ 1,054 $ 38
</TABLE>
The fair values represent the amount the Company would pay or receive if
the agreements were terminated at December 31, 1999 and 1998, respectively.
At December 31, 1999, the weighted-average remaining life of the interest
rate swap agreements in effect was 5.1 years. The weighted-average floating
rates and fixed rates on the contracts outstanding were:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
Average floating rate 5.855% 5.599%
Average fixed rate 6.593% 6.277%
</TABLE>
Floating rates are based primarily on LIBOR and may change significantly,
affecting future cash flows.
41
<PAGE> 43
6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
FUEL PRICE RISK MANAGEMENT
American enters into fuel swap and option contracts to protect against
increases in jet fuel prices. Under the fuel swap agreements, American receives
or makes payments based on the difference between a fixed price and a variable
price for certain fuel commodities. Under the fuel option agreements, American
pays a premium to cap prices at a fixed level. The changes in market value of
such agreements have a high correlation to the price changes of the fuel being
hedged. Gains or losses on fuel hedging agreements are recognized as a component
of fuel expense when the underlying fuel being hedged is used. Any premiums paid
to enter into option contracts are recorded as a prepaid expense and amortized
to fuel expense over the respective contract periods. Gains and losses on fuel
hedging agreements would be recognized immediately should the changes in the
market value of the agreements cease to have a high correlation to the price
changes of the fuel being hedged. At December 31, 1999, American had fuel
hedging agreements with broker-dealers on approximately two billion gallons of
fuel products, which represents approximately 48 percent of its expected 2000
fuel needs and approximately 10 percent of its expected 2001 fuel needs. The
fair value of the Company's fuel hedging agreements at December 31, 1999,
representing the amount the Company would receive to terminate the agreements,
totaled $232 million. At December 31, 1998, American had fuel hedging agreements
with broker-dealers on approximately two billion gallons of fuel products, which
represented approximately 48 percent of its expected 1999 fuel needs and
approximately 19 percent of its expected 2000 fuel needs. The fair value of the
Company's fuel hedging agreements at December 31, 1998, representing the amount
the Company would pay to terminate the agreements, totaled $108 million.
FOREIGN EXCHANGE RISK MANAGEMENT
To hedge against the risk of future exchange rate fluctuations on a
portion of American's foreign cash flows, the Company enters into various
currency put option agreements on a number of foreign currencies. The option
contracts are denominated in the same foreign currency in which the projected
foreign cash flows are expected to occur. These contracts are designated and
effective as hedges of probable quarterly foreign cash flows for various periods
through December 31, 2000, which otherwise would expose the Company to foreign
currency risk. Realized gains on the currency put option agreements are
recognized as a component of passenger revenues. At December 31, 1999 and 1998,
the notional amount related to these options totaled approximately $445 million
and $597 million, respectively, and the fair value, representing the amount AMR
would receive to terminate the agreements, totaled approximately $14 million and
$10 million, respectively.
The Company has entered into Japanese yen currency exchange agreements to
effectively convert certain yen-based lease obligations into dollar-based
obligations. Changes in the value of the agreements due to exchange rate
fluctuations are offset by changes in the value of the yen-denominated lease
obligations translated at the current exchange rate. Discounts or premiums are
accreted or amortized as an adjustment to interest expense over the lives of the
underlying lease obligations. The related amounts due to or from counterparties
are included in other liabilities or other assets. The net fair values of the
Company's yen currency exchange agreements, representing the amount the Company
would receive or pay to terminate the agreements, were (in millions):
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------
1999 1998
---------------------------------- ----------------------------------
Notional Notional
Amount Fair Value Amount Fair Value
-------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Japanese yen 33.6 billion $ 41 33.7 billion $ (5)
</TABLE>
The exchange rates on the Japanese yen agreements range from 66.50 to
116.89 yen per U.S. dollar.
42
<PAGE> 44
6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair values of the Company's long-term debt were estimated using
quoted market prices where available. For long-term debt not actively traded,
fair values were estimated using discounted cash flow analyses, based on the
Company's current incremental borrowing rates for similar types of borrowing
arrangements. The carrying amounts and estimated fair values of the Company's
long-term debt, including current maturities, were (in millions):
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------
1999 1998
---------------------------------- ----------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Secured variable and fixed rate
indebtedness $ 2,651 $ 2,613 $ 890 $ 1,013
7.875% - 10.62% notes 1,014 1,024 875 973
9.0% - 10.20% debentures 437 469 437 531
6.0% - 7.10% bonds 176 174 176 189
Variable rate indebtedness 86 86 86 86
Other 16 16 20 20
------------- ------------- ------------- -------------
$ 4,380 $ 4,382 $ 2,484 $ 2,812
============= ============= ============= =============
</TABLE>
All other financial instruments, except for the investment in Equant, are
either carried at fair value or their carrying value approximates fair value.
Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133), as amended, is required to be adopted in fiscal years
beginning after June 15, 2000. SFAS 133 will require the Company to recognize
all derivatives on the balance sheet at fair value. Derivatives that are not
hedges must be adjusted to fair value through income. If the derivative is a
hedge, depending on the nature of the hedge, changes in the fair value of
derivatives will either be offset against the change in fair value of the hedged
assets, liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. The Company is currently evaluating the impact of SFAS
133 on the Company's financial condition and results of operations.
7. INCOME TAXES
The significant components of the income tax provision were (in
millions):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Current $ 167 $ 451 $ 206
Deferred 183 268 321
------------- ------------- -------------
$ 350 $ 719 $ 527
============= ============= =============
</TABLE>
The income tax provision includes a federal income tax provision of $290
million, $628 million and $462 million and a state income tax provision of $49
million, $78 million and $56 million for the years ended December 31, 1999, 1998
and 1997, respectively.
43
<PAGE> 45
7. INCOME TAXES (CONTINUED)
The income tax provision differed from amounts computed at the statutory
federal income tax rate as follows (in millions):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Statutory income tax provision $ 352 $ 641 $ 467
State income tax provision, net 32 51 36
Meal expense 19 18 20
Change in valuation allowance (67) (4) --
Other, net 14 13 4
------------ ------------ ------------
Income tax provision $ 350 $ 719 $ 527
============ ============ ============
</TABLE>
The change in valuation allowance in 1999 relates to the reversal of the
Company's investment in Canadian (see Note 2). The change in valuation allowance
in 1998 relates to the utilization of foreign tax credits.
The components of AMR's deferred tax assets and liabilities were (in
millions):
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Deferred tax assets:
Postretirement benefits other than pensions $ 614 $ 593
Rent expense 449 376
Frequent flyer obligation 307 258
Alternative minimum tax credit carryforwards 289 515
Gains from lease transactions 238 223
Other 520 359
Valuation allowance - (68)
------------- -------------
Total deferred tax assets 2,417 2,256
------------- -------------
Deferred tax liabilities:
Accelerated depreciation and amortization (3,381) (3,044)
Pensions (50) (69)
Other (220) (170)
------------- -------------
Total deferred tax liabilities (3,651) (3,283)
------------- -------------
Net deferred tax liability $ (1,234) $ (1,027)
============= =============
</TABLE>
At December 31, 1999, AMR had available for federal income tax purposes
approximately $289 million of alternative minimum tax credit carryforwards which
are available for an indefinite period.
Cash payments for income taxes were $71 million, $408 million and $294
million for 1999, 1998 and 1997, respectively.
8. COMMON AND PREFERRED STOCK
The Company has 20 million shares of preferred stock (without par value)
authorized at December 31, 1999 and 1998. On June 9, 1998, a two-for-one stock
split in the form of a stock dividend was effective for shareholders of record
on May 26, 1998. All prior period share and earnings per share amounts reflect
the stock split.
44
<PAGE> 46
9. STOCK AWARDS AND OPTIONS
Under the 1998 Long Term Incentive Plan, as amended, officers and key
employees of AMR and its subsidiaries may be granted stock options, stock
appreciation rights, restricted stock, deferred stock, stock purchase rights,
other stock-based awards and/or performance-related awards, including cash
bonuses. The total number of common shares authorized for distribution under the
1998 Long Term Incentive Plan is 10,000,000 shares. The 1998 Long Term Incentive
Plan, the successor to the 1988 Long Term Incentive Plan, which expired May 18,
1998, will terminate no later than May 21, 2008. Options granted under the 1988
and 1998 Long Term Incentive Plans (collectively, the Plans) are awarded with an
exercise price equal to the fair market value of the stock on date of grant,
become exercisable in equal annual installments over five years following the
date of grant and expire 10 years from the date of grant. Stock appreciation
rights may be granted in tandem with options awarded.
In 1999, 1998 and 1997, the total charge for stock compensation expense
included in wages, salaries and benefits expense was $53 million, $52 million
and $67 million, respectively. No compensation expense was recognized for stock
option grants under the Plans since the exercise price was the fair market value
of the underlying stock on the date of grant.
Stock option activity was:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------
1999 1998 1997
------------------------ ------------------------ ------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1 4,147,124 $ 46.60 3,506,774 $ 38.77 3,663,590 $ 33.59
Granted 1,539,585 63.19 1,216,720 63.01 895,480 52.28
Exercised (258,875) 68.17 (470,810) 31.82 (985,776) 32.17
Canceled (208,200) 49.96 (105,560) 42.34 (66,520) 33.82
---------- ---------- ----------
Outstanding at December 31 5,219,634 $ 52.06 4,147,124 $ 46.60 3,506,774 $ 38.77
========== ========== ==========
Exercisable options outstanding
at December 31 2,012,889 $ 40.63 1,586,974 $ 36.49 1,615,020 $ 31.32
========== ========== ==========
</TABLE>
The following table summarizes information about the stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Range of Number of Average Average Number of Average
Exercise Options Remaining Exercise Options Exercise
Prices Outstanding Life (years) Price Exercisable Price
---------------- ---------------- ---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
$22-$33 671,114 3.38 $ 29.92 668,614 $ 29.94
$34-$42 1,093,575 5.92 37.84 744,935 37.68
$43-$52 1,009,400 8.18 50.59 356,240 49.72
$53-$62 1,131,155 9.25 58.77 118,040 58.14
$63-$73 1,314,390 9.08 70.55 125,060 72.94
------------- ------------
5,219,634 7.55 $ 52.06 2,012,889 $ 40.63
============= ============
</TABLE>
In May 1997, in conjunction with the labor agreement reached between
American and members of the APA, the Company established the Pilots Stock Option
Plan (The Pilot Plan). The Pilot Plan granted members of the APA the option to
purchase 11.5 million shares of AMR stock at $41.69 per share, $5 less than the
average fair market value of the stock on the date of grant, May 5, 1997. These
shares were exercisable immediately.
45
<PAGE> 47
9. STOCK AWARDS AND OPTIONS (CONTINUED)
Pilot Plan option activity was:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Outstanding at January 1 5,791,381 7,438,220 -
Granted - - 11,500,000
Exercised (371,353) (1,646,839) (4,061,780)
------------ ------------ ------------
Outstanding at December 31 5,420,028 5,791,381 7,438,220
============ ============ ============
</TABLE>
The weighted-average grant date fair value of all stock option awards
granted during 1999, 1998 and 1997 was $23.17, $21.15 and $11.00, respectively.
Shares of deferred stock are awarded at no cost to officers and key
employees under the Plans' Career Equity Program and will be issued upon the
individual's retirement from AMR or, in certain circumstances, will vest on a
pro rata basis. Deferred stock activity was:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Outstanding at January 1 2,401,532 2,457,190 2,394,662
Granted 146,200 185,812 175,500
Issued (122,042) (190,911) (67,340)
Canceled (115,010) (50,559) (45,632)
------------- ------------- -------------
Outstanding at December 31 2,310,680 2,401,532 2,457,190
============= ============= =============
</TABLE>
The weighted-average grant date fair value of career equity awards
granted during 1999, 1998 and 1997 was $63.54, $57.77 and $54.98, respectively.
A performance share plan was implemented in 1993 under the terms of which
shares of deferred stock are awarded at no cost to officers and key employees
under the Plans. The fair value of the performance shares granted is equal to
the market price of the Company's stock at the date of grant. The shares vest
over a three-year performance period based upon AMR's ratio of cash flow to
adjusted gross assets. Performance share activity was:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Outstanding at January 1 1,565,616 1,737,274 1,679,460
Granted 509,822 644,680 808,736
Issued (208,265) (205,458) (190,766)
Awards settled in cash (513,370) (522,234) (513,064)
Canceled (138,159) (88,646) (47,092)
------------- ------------- -------------
Outstanding at December 31 1,215,644 1,565,616 1,737,274
============= ============= =============
</TABLE>
The weighted-average grant date fair value of performance share awards
granted during 1999, 1998 and 1997 was $62.95, $62.06 and $52.28, respectively.
There were approximately 20 million shares of AMR's common stock at
December 31, 1999 reserved for the issuance of stock upon the exercise of
options and the issuance of stock awards. See Note 12 for information regarding
the impact on stock awards and options due to the Sabre spin-off.
46
<PAGE> 48
9. STOCK AWARDS AND OPTIONS (CONTINUED)
The Company has adopted the pro forma disclosure features of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). As required by SFAS 123, pro forma information
regarding income from continuing operations and earnings per share from
continuing operations has been determined as if the Company had accounted for
its employee stock options and awards granted subsequent to December 31, 1994
using the fair value method prescribed by SFAS 123. The fair value for the stock
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions for 1999, 1998 and 1997:
risk-free interest rates ranging from 5.01% to 6.07%; dividend yields of 0%;
expected stock volatility ranging from 25.5% to 31.3%; and expected life of the
options of 4.5 years for the Plans and 1.5 years for The Pilot Plan.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options. In addition,
because SFAS 123 is applicable only to options and stock-based awards granted
subsequent to December 31, 1994, its pro forma effect is not fully reflected in
years prior to 1999.
The following table shows the Company's pro forma income from continuing
operations and earnings per share from continuing operations assuming the
Company had accounted for its employee stock options using the fair value method
(in millions, except per share amounts):
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Income from continuing operations:
As reported $ 656 $ 1,114 $ 809
Pro forma 651 1,114 785
Basic earnings per share from continuing operations:
As reported $ 4.30 $ 6.60 $ 4.54
Pro forma 4.27 6.60 4.40
Diluted earnings per share from continuing operations:
As reported $ 4.17 $ 6.38 $ 4.43
Pro forma 4.14 6.38 4.30
</TABLE>
10. RETIREMENT BENEFITS
All employees of American and employees of certain other subsidiaries are
eligible to participate in pension plans. The defined benefit plans provide
benefits for participating employees based on years of service and average
compensation for a specified period of time before retirement. Airline pilots
and flight engineers also participate in defined contribution plans for which
Company contributions are determined as a percentage of participant
compensation.
In addition to pension benefits, other postretirement benefits, including
certain health care and life insurance benefits, are also provided to retired
employees. The amount of health care benefits is limited to lifetime maximums as
outlined in the plan. Substantially all employees of American and employees of
certain other subsidiaries may become eligible for these benefits if they
satisfy eligibility requirements during their working lives.
Certain employee groups make contributions toward funding a portion of
their retiree health care benefits during their working lives. AMR funds
benefits as incurred and makes contributions to match employee prefunding.
47
<PAGE> 49
10. RETIREMENT BENEFITS (CONTINUED)
The following table provides a reconciliation of the changes in the
plans' benefit obligations and fair value of assets for the years ended December
31, 1999 and 1998, and a statement of funded status as of December 31, 1999 and
1998 (in millions):
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------------ ------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Reconciliation of benefit obligation
Obligation at January 1 $ 6,117 $ 5,666 $ 1,526 $ 1,356
Service cost 236 213 56 52
Interest cost 433 418 108 99
Actuarial loss (gain) (849) 300 (311) 84
Plan amendments 75 -- -- --
Benefit payments (388) (464) (70) (65)
Curtailments/Special termination benefits 4 -- (3) --
Settlements -- (16) -- --
---------- ---------- ---------- ----------
Obligation at December 31 $ 5,628 $ 6,117 $ 1,306 $ 1,526
========== ========== ========== ==========
Reconciliation of fair value of plan assets
Fair value of plan assets at January 1 $ 5,564 $ 5,127 $ 62 $ 49
Actual return on plan assets 7 850 1 4
Employer contributions 100 70 79 74
Benefit payments (388) (464) (70) (65)
Settlements -- (16) -- --
Transfers (1) (3) -- --
---------- ---------- ---------- ----------
Fair value of plan assets at December 31 $ 5,282 $ 5,564 $ 72 $ 62
========== ========== ========== ==========
Funded status
Accumulated benefit obligation (ABO) $ 4,700 $ 5,073 $ 1,306 $ 1,526
Projected benefit obligation (PBO) 5,628 6,117 -- --
Fair value of assets 5,282 5,564 72 62
Funded status at December 31 (346) (553) (1,234) (1,464)
Unrecognized loss (gain) 288 651 (395) (89)
Unrecognized prior service cost 139 68 (40) (45)
Unrecognized transition asset (7) (11) -- --
---------- ---------- ---------- ----------
Prepaid (accrued) benefit cost $ 74 $ 155 $ (1,669) $ (1,598)
========== ========== ========== ==========
</TABLE>
At December 31, 1999 and 1998, plan assets of approximately $71 million
and $61 million, respectively, were invested in shares of mutual funds managed
by a subsidiary of AMR.
48
<PAGE> 50
10. RETIREMENT BENEFITS (CONTINUED)
The following tables provide the components of net periodic benefit cost
for the years ended December 31, 1999, 1998 and 1997 (in millions):
<TABLE>
<CAPTION>
Pension Benefits
--------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Components of net periodic benefit cost
Defined benefit plans:
Service cost $ 236 $ 213 $ 179
Interest cost 433 418 393
Expected return on assets (514) (478) (421)
Amortization of:
Transition asset (4) (11) (12)
Prior service cost 5 4 4
Unrecognized net loss 21 22 26
Settlement loss -- 6 --
---------- ---------- ----------
Net periodic benefit cost for defined benefit
plans 177 174 169
Defined contribution plans 155 158 145
---------- ---------- ----------
Total $ 332 $ 332 $ 314
========== ========== ==========
Other Benefits
--------------------------------------
1999 1998 1997
---------- ---------- ----------
Components of net periodic benefit cost
Service cost $ 56 $ 52 $ 44
Interest cost 108 99 92
Expected return on assets (6) (5) (4)
Amortization of:
Prior service cost (5) (5) (5)
Unrecognized net gain -- (2) (9)
---------- ---------- ----------
Net periodic benefit cost $ 153 $ 139 $ 118
========== ========== ==========
</TABLE>
The following table provides the amounts recognized in the consolidated
balance sheets as of December 31, 1999 and 1998 (in millions):
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------------ ------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Prepaid benefit cost $ 244 $ 297 $ -- $ --
Accrued benefit liability (170) (142) (1,669) (1,598)
Additional minimum liability (15) (13) -- --
Intangible asset 13 7 -- --
Accumulated other comprehensive income 2 6 -- --
---------- ---------- ---------- ----------
Net amount recognized $ 74 $ 155 $ (1,669) $ (1,598)
========== ========== ========== ==========
</TABLE>
49
<PAGE> 51
10. RETIREMENT BENEFITS (CONTINUED)
The following assumptions were used by the Company in the measurement of
the benefit obligation as of December 31:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
----------------------------------- ---------------------------------
1999 1998 1999 1998
---------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
Weighted-average assumptions
Discount rate 8.25% 7.00% 8.25% 7.00%
Salary scale 4.26 4.26 -- --
Expected return on plan assets 9.50 9.50 9.50 9.50
</TABLE>
The assumed health care cost trend rate was five percent in 1999 and
1998, decreasing gradually to an ultimate rate of four percent by 2001.
A one percentage point change in the assumed health care cost trend rates
would have the following effects (in millions):
<TABLE>
<CAPTION>
One percent One percent
increase decrease
---------------- ---------------
<S> <C> <C> <C>
Impact on 1999 service and interest cost $ 24 $ (22)
Impact on postretirement benefit obligation
as of December 31, 1999 $ 115 $ (105)
</TABLE>
11. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in millions, except per share amounts):
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
NUMERATOR:
Numerator for earnings per share -income from
continuing operations $ 656 $ 1,114 $ 809
========== ========== ==========
DENOMINATOR:
Denominator for basic earnings per share -
weighted-average shares 152 169 178
Effect of dilutive securities:
Employee options and shares 12 13 14
Assumed treasury shares purchased (7) (7) (9)
---------- ---------- ----------
Dilutive potential common shares 5 6 5
Denominator for diluted earnings per share -
adjusted weighted-average shares 157 175 183
========== ========== ==========
Basic earnings per share from continuing
operations $ 4.30 $ 6.60 $ 4.54
========== ========== ==========
Diluted earnings per share from continuing
operations $ 4.17 $ 6.38 $ 4.43
========== ========== ==========
</TABLE>
50
<PAGE> 52
12. 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.
On February 7, 2000, the Company declared its intent to distribute
AMR's entire ownership interest in Sabre as a dividend on all outstanding shares
of its common stock. To effect the dividend, AMR exchanged all of its
107,374,000 shares of Sabre's Class B common stock for an equal number of shares
of Sabre's Class A common stock. Effective after the close of business on March
15, 2000, AMR distributed 0.722652 shares of Sabre Class A common stock for each
share of AMR stock owned by AMR's shareholders. The record date for the dividend
of Sabre stock was the close of business on March 1, 2000. In addition, on
February 18, 2000, Sabre paid a special one-time cash dividend of $675 million
to shareholders of record of Sabre common stock at the close of business on
February 15, 2000. Based upon its approximate 83 percent interest in Sabre, AMR
received approximately $560 million of this dividend. These funds will be used
for general corporate purposes. The dividend of AMR's entire ownership interest
in Sabre's common stock resulted in a reduction to AMR's retained earnings in
March of 2000 equal to the carrying value of the Company's investment in Sabre
on March 15, 2000, which approximated $600 million. The fair market value of
AMR's investment in Sabre on March 15, 2000, based upon the quoted market
closing price of Sabre Class A common stock on the New York Stock Exchange, was
approximately $5.2 billion. In addition, effective March 15, 2000, the Company
reduced the exercise price and increased the number of stock options and awards
by approximately 18 million to offset the dilution to the holders, which
occurred as a result of the spin-off. These changes were made to keep the
holders in the same economic position as before the spin-off. This dilution
adjustment was determined in accordance with Emerging Issues Task Force
Consensus No. 90-9, "Changes to Fixed Employee Stock Option Plans as a Result of
Equity Restructuring," and will have no impact on earnings.
The results of operations for Sabre, AMR Services, AMR Combs and
TeleService Resources have been reflected in the consolidated statements of
operations as discontinued operations. Summarized financial information of the
discontinued operations is as follows (in millions):
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1999 1998 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
SABRE
Revenues $ 2,435 $ 2,306 $ 1,788
Minority interest 57 40 36
Income taxes 196 140 124
Net income 265 192 164
AMR SERVICES, AMR COMBS AND TELESERVICE RESOURCES
Revenues $ 97 $ 513 $ 518
Income taxes - 7 10
Net income - 8 12
</TABLE>
The historical assets and liabilities of Sabre, AMR Services, AMR Combs
and TeleService Resources, which have been reflected on a net basis in other
assets on the consolidated balance sheets, are summarized as follows (in
millions):
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------
1999 1998 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Current assets $ 976 $ 1,004 $ 967
Total assets 1,951 2,198 1,758
Current liabilities 525 434 359
Total liabilities, including minority interest 912 1,263 987
Net assets of discontinued operations 1,039 935 771
</TABLE>
51
<PAGE> 53
13. SEGMENT REPORTING
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (SFAS 131) requires that a
public company report annual and interim financial and descriptive information
about its reportable operating segments. Operating segments, as defined, are
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
The Company has two primary operating segments, consisting primarily of
American and AMR Eagle, which represent one reportable segment. American is one
of the largest scheduled passenger airlines in the world. At the end of 1999,
American provided scheduled jet service to more than 169 destinations throughout
North America, the Caribbean, Latin America, Europe and the Pacific. American is
also one of the largest scheduled air freight carriers in the world, providing a
full range of freight and mail services to shippers throughout its system. AMR
Eagle owns three regional airlines which operate as "American Eagle" -- American
Eagle Airlines, Inc., Executive Airlines, Inc. and Business Express Airlines,
Inc. (acquired in March 1999). The American Eagle carriers provide connecting
service from seven of American's high-traffic cities to smaller markets
throughout the United States, Canada, the Bahamas and the Caribbean.
Revenues from other segments below the quantitative threshold for
determining reportable segments consist primarily of revenues from AMR
Investment Services, Inc., Americas Ground Services and Airline Management
Services. The difference between the financial information of the Company's one
reportable segment and the financial information included in the consolidated
statements of operations and balance sheets as a result of these entities is not
material.
The Company's operating revenues by geographic region are summarized
below (in millions):
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Domestic $ 12,563 $ 12,262 $ 11,750
Latin America 2,697 2,830 2,816
Europe 1,984 2,039 2,035
Pacific 486 385 356
------------- ------------- -------------
Total consolidated revenues $ 17,730 $ 17,516 $ 16,957
============= ============= =============
</TABLE>
The Company attributes operating revenues by geographic region based upon
the origin and destination of each flight segment. The Company's tangible assets
consist primarily of flight equipment which is mobile across geographic markets
and, therefore, has not been allocated.
52
<PAGE> 54
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited summarized financial data by quarter for 1999 and 1998 (in
millions, except per share amounts):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
1999*
Operating revenues $ 4,007 $ 4,541 $ 4,695 $ 4,487
Operating income 46 414 426 270
Income from continuing operations 17 216 213 210
Net earnings 158 268 279 280
Earnings per common share:
Basic
From continuing operations 0.11 1.41 1.42 1.42
Net earnings 0.99 1.76 1.86 1.89
Diluted
From continuing operations 0.11 1.36 1.38 1.37
Net earnings 0.99 1.70 1.76 1.84
1998*
Operating revenues $ 4,242 $ 4,506 $ 4,601 $ 4,167
Operating income 434 614 634 306
Income from continuing operations 226 351 373 164
Net earnings 290 409 433 182
Earnings per common share:
Basic
From continuing operations 1.31 2.04 2.21 1.01
Net earnings 1.68 2.38 2.57 1.12
Diluted
From continuing operations 1.26 1.97 2.14 0.98
Net earnings 1.62 2.30 2.49 1.09
</TABLE>
* Results for 1998 have been restated for discontinued operations and
the first, second and third quarters of 1999 have been restated from
amounts previously reported for the discontinued operations of Sabre.
During the first quarter of 1999, the Company recorded an after-tax
gain of approximately $64 million related to the sale of AMR Services, AMR Combs
and TeleService Resources, and a $37 million after-tax gain related to the sale
of a portion of the Company's holdings in Equant, of which approximately $18
million is recorded in income from discontinued operations (see Note 2). Results
for the fourth quarter of 1999 include the following: (i) a $25 million
after-tax gain related to the Company's sale of its investment in the preferred
stock of Canadian and a $67 million tax benefit resulting from the tax loss on
the Company's investment in Canadian (see Note 2), (ii) an after-tax gain of
approximately $81 million related to the sale of a portion of the Company's
holdings in Equant, of which approximately $53 million is recorded in income
from discontinued operations (see Note 2), (iii) a $28 million after-tax
increase in passenger revenue resulting from a change in estimate related to
certain passenger revenues earned during the first nine months of 1999, and (iv)
a $25 million after-tax provision for certain litigation settlements.
53
<PAGE> 55
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
- --------------------------------------------------------------------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference from the Company's definitive proxy statement
for the annual meeting of stockholders on May 17, 2000. Information concerning
the executive officers is included in Part I of this report on page 14.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference from the Company's definitive proxy statement
for the annual meeting of stockholders on May 17, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference from the Company's definitive proxy statement
for the annual meeting of stockholders on May 17, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference from the Company's definitive proxy statement
for the annual meeting of stockholders on May 17, 2000.
PART IV
- --------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The following financial statements and Independent Auditors'
Report are filed as part of this report:
<TABLE>
<CAPTION>
Page
--------------
<S> <C>
Report of Independent Auditors 28
Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997 29-30
Consolidated Balance Sheets at December 31, 1999 and 1998 31-32
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997 33
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1999, 1998 and 1997 34
Notes to Consolidated Financial Statements 35-53
</TABLE>
54
<PAGE> 56
(2) The following financial statement schedule and Independent
Auditors' Report are filed as part of this report:
<TABLE>
<CAPTION>
Page
--------------
<S> <C>
Report of Independent Auditors 64
Schedule II Valuation and Qualifying Accounts and Reserves 65
</TABLE>
Schedules not included have been omitted because they are not applicable
or because the required information is included in the consolidated financial
statements or notes thereto.
(3) Exhibits required to be filed by Item 601 of Regulation S-K.
(Where the amount of securities authorized to be issued under any of AMR's
long-term debt agreements does not exceed 10 percent of AMR's assets, pursuant
to paragraph (b)(4) of Item 601 of Regulation S-K, in lieu of filing such as an
exhibit, AMR hereby agrees to furnish to the Commission upon request a copy of
any agreement with respect to such long-term debt.)
EXHIBIT
3.1 Restated Certificate of Incorporation of AMR,
incorporated by reference to AMR's Registration
Statement on Form S-4, file number 33-55191.
3.2 Bylaws of AMR, amended as of November 18, 1998,
incorporated by reference to Exhibit 3.2 to AMR's
report on Form 10-K for the year ended December 31,
1998.
3.3 Bylaws of AMR, amended as of January 19, 2000.
10.1 Employment Agreement among AMR, American Airlines
and Robert L. Crandall, dated January 1, 1988,
incorporated by reference to Exhibit 10(t) to AMR's
report on Form 10-Q for the period ended March 31,
1988; amendments thereto incorporated by reference
to Exhibit 10(ff) to AMR's report on Form 10-K for
the year ended December 31, 1989, Exhibit 10(tt) to
AMR's report on Form 10-K for the year ended
December 31, 1990, Exhibit 10(uu) to AMR's report on
Form 10-Q for the period ended June 30, 1992, and
Exhibit 10(ooo) to AMR's report on Form 10-Q for the
period ended March 31, 1995.
10.2 Amended and Restated Employment Agreement among AMR,
American Airlines and Robert L. Crandall, dated
January 21, 1998, incorporated by reference to
Exhibit 10.2 to AMR's report on Form 10-K for the
year ended December 31, 1997.
10.3 Compensation and Benefit Agreement relative to the
retirement of Robert L. Crandall, between AMR and
Robert L. Crandall, dated September 18, 1998,
incorporated by reference to Exhibit 10.3 to AMR's
report on Form 10-K for the year ended December 31,
1998.
10.4 Irrevocable Executive Trust Agreement, dated as of
May 1, 1992, between AMR and Wachovia Bank of North
Carolina N.A., incorporated by reference to Exhibit
10(vv) to AMR's report on Form 10-K for the year
ended December 31, 1992.
10.5 Deferred Compensation Agreement, dated April 14,
1973, as amended March 1, 1975, between American and
Robert L. Crandall, incorporated by reference to
Exhibit 10(c)(7) to American's Registration
Statement No. 2-76709.
10.6 Form of Executive's Termination Benefits Agreement
incorporated by reference to Exhibit 10(p) to AMR's
report on Form 10-K for the year ended December 31,
1985.
55
<PAGE> 57
10.7 Management Severance Allowance, dated as of February
23, 1990, for levels 1-4 employees of American
Airlines, Inc., incorporated by reference to Exhibit
10(oo) to AMR's report on Form 10-K for the year
ended December 31, 1989.
10.8 Management Severance Allowance, dated as of February
23, 1990, for level 5 and above employees of
American Airlines, Inc., incorporated by reference
to Exhibit 10(pp) to AMR's report on Form 10-K for
the year ended December 31, 1989.
10.9 Description of informal arrangement relating to
deferral of payment of directors' fees, incorporated
by reference to Exhibit 10(c)(11) to American's
Registration Statement No. 2-76709.
10.10 Directors Stock Equivalent Purchase Plan,
incorporated by reference to Exhibit 10(gg) to AMR's
report on Form 10-K for the year ended December 31,
1989.
10.11 Directors Stock Incentive Plan dated May 18, 1994,
as amended, incorporated by reference to Exhibit
10.9 to AMR's report on Form 10-K for the year ended
December 31, 1996.
10.13 Deferred Compensation Agreement, dated as of
December 27, 1995, between AMR and Howard P. Allen,
incorporated by reference to Exhibit 10(sss) to
AMR's report on Form 10-K for the year ended
December 31, 1995.
10.14 Deferred Compensation Agreement, dated as of January
31, 1990, between AMR and Edward A. Brennan,
incorporated by reference to Exhibit 10(hh) to AMR's
report on Form 10-K for the year ended December 31,
1989.
10.15 Deferred Compensation Agreement, dated as of June 1,
1998, between AMR and Edward A. Brennan,
incorporated by reference to Exhibit 10.15 to AMR's
report on Form 10-K for the year ended December 31,
1998.
10.15(a) Deferred Compensation Agreement, dated as of January
11, 2000, between AMR and Edward A. Brennan.
10.16 Deferred Compensation Agreement, dated as of
February 7, 1996, between AMR and Armando M. Codina,
incorporated by reference to Exhibit 10(ttt) to
AMR's report on Form 10-K for the year ended
December 31, 1995.
10.17 Deferred Compensation Agreement, dated as of
February 10, 1997, between AMR and Armando M.
Codina, incorporated by reference to Exhibit 10.13
to AMR's report on Form 10-K for the year ended
December 31, 1996.
10.18 Deferred Compensation Agreement, dated as of
February 19, 1998, between AMR and Armando M.
Codina, incorporated by reference to Exhibit 10.15
to AMR's report on Form 10-K for the year ended
December 31, 1997.
10.19 Deferred Compensation Agreement, dated as of January
13, 1999, between AMR and Armando M. Codina,
incorporated by reference to Exhibit 10.19 to AMR's
report on Form 10-K for the year ended December 31,
1998.
10.20 Deferred Compensation Agreement, dated as of January
12, 2000, between AMR and Armando M. Codina.
10.21 Deferred Compensation Agreement, dated as of
February 23, 1996, between AMR and Charles H.
Pistor, Jr., incorporated by reference to Exhibit
10(vvv) to AMR's report on Form 10-K for the year
ended December 31, 1995.
56
<PAGE> 58
10.22 Deferred Compensation Agreement, dated as of January
30, 1997, between AMR and Charles H. Pistor, Jr.,
incorporated by reference to Exhibit 10.17 to AMR's
report on Form 10-K for the year ended December 31,
1996.
10.23 Deferred Compensation Agreement, dated as of
February 19, 1998, between AMR and Charles H.
Pistor, Jr., incorporated by reference to Exhibit
10.21 to AMR's report on Form 10-K for the year
ended December 31, 1997.
10.24 Deferred Compensation Agreement, dated as of January
7, 1999, between AMR and Charles H. Pistor, Jr.,
incorporated by reference to Exhibit 10.27 to AMR's
report on Form 10-K for the year ended December 31,
1998.
10.25 Deferred Compensation Agreement, dated as of January
24, 2000, between AMR and Charles H. Pistor, Jr.
10.26 Deferred Compensation Agreement, dated as of July
16, 1997, between AMR and Judith Rodin, incorporated
by reference to Exhibit 10.22 to AMR's report on
Form 10-K for the year ended December 31, 1997.
10.27 Deferred Compensation Agreement, dated as of
February 19, 1998, between AMR and Judith Rodin,
incorporated by reference to Exhibit 10.23 to AMR's
report on Form 10-K for the year ended December 31,
1997.
10.28 Deferred Compensation Agreement, dated as of January
7, 1999, between AMR and Judith Rodin, incorporated
by reference to Exhibit 10.30 to AMR's report on
Form 10-K for the year ended December 31, 1998.
10.29 Deferred Compensation Agreement, dated as of January
12, 2000, between AMR and Judith Rodin.
10.30 Description of American's Split Dollar Insurance
Program, dated December 28, 1977, incorporated by
reference to Exhibit 10(c)(1) to American's
Registration Statement No. 2-76709.
10.31 AMR Corporation 1988 Long-Term Incentive Plan,
incorporated by reference to Exhibit 10(t) to AMR's
report on Form 10-K for the year ended December 31,
1988.
10.32 Amendment to AMR's 1988 Long-term Incentive Plan
dated May 18, 1994, incorporated by reference to
Exhibit A to AMR's definitive proxy statement with
respect to the annual meeting of stockholders held
on May 18, 1994.
10.33 AMR Corporation 1998 Long-Term Incentive Plan, as
amended, incorporated by reference to Exhibit 10.34
to AMR's report on Form 10-K for the year ended
December 31, 1998.
10.34 Form of Stock Option Agreement for Corporate
Officers under the AMR 1988 Long-Term Incentive
Plan, incorporated by reference to Exhibit 10(rr) to
AMR's report on Form 10-K for the year ended
December 31, 1990.
10.35 Current form of Stock Option Agreement under the AMR
1988 Long-Term Incentive Plan, incorporated by
reference to Exhibit 10.28 to AMR's report on Form
10-K for the year ended December 31, 1997.
10.36 Current form of Stock Option Agreement under the AMR
1998 Long-Term Incentive Plan, incorporated by
reference to Exhibit 10.37 to AMR's report on Form
10-K for the year ended December 31, 1998.
10.37 Current form of Stock Option Agreement under the AMR
1998 Long-Term Incentive Plan.
57
<PAGE> 59
10.38 Form of Career Equity Program Agreement,
incorporated by reference to Exhibit 10(nnn) to
AMR's report on Form 10-K for the year ended
December 31, 1994.
10.39 Current Form of Career Equity Program Deferred Stock
Award Agreement for Corporate Officers under the AMR
1988 Long-Term Incentive Plan, incorporated by
reference to Exhibit 10.30 to AMR's report on Form
10-K for the year ended December 31, 1997.
10.40 Current form of Career Equity Program Deferred Stock
Award Agreement for non-officers under the AMR 1988
Long-Term Incentive Plan, incorporated by reference
to Exhibit 10.31 to AMR's report on Form 10-K for
the year ended December 31, 1997.
10.41 Current Form of Career Equity Program Deferred Stock
Award Agreement for Corporate Officers under the AMR
1998 Long-Term Incentive Plan, incorporated by
reference to Exhibit 10.41 to AMR's report on Form
10-K for the year ended December 31, 1998.
10.42 Current form of Career Equity Program Deferred Stock
Award Agreement for non-officers under the AMR 1998
Long-Term Incentive Plan, incorporated by reference
to Exhibit 10.42 to AMR's report on Form 10-K for
the year ended December 31, 1998.
10.43 Current form of Career Equity Program Deferred Stock
Award Agreement for Senior Officers under the AMR
1998 Long-Term Incentive Plan, incorporated by
reference to Exhibit 10.42(a) to AMR's report on
Form 10-K for the year ended December 31, 1998.
10.44 Current form of Career Equity Program Deferred Stock
Award Agreement for Employees under the AMR 1998
Long-Term Incentive Plan.
10.45 Form of Guaranty to Career Equity Program under the
AMR 1988 Long-Term Incentive Plan, incorporated by
reference to Exhibit 10(ccc) to AMR's report on Form
10-K for the year ended December 31, 1993.
10.46 Performance Share Program for the years 1994 to 1996
under the 1988 Long-term Incentive Program,
incorporated by reference to Exhibit 10(lll) to
AMR's report on Form 10-K for the year ended
December 31, 1994.
10.47 Performance Share Program for the years 1995 to 1997
under the 1988 Long-term Incentive Program,
incorporated by reference to Exhibit 10(ooo) to
AMR's report on Form 10-K for the year ended
December 31, 1995.
10.48 Performance Share Program for the years 1996 to 1998
under the 1988 Long-term Incentive Program,
incorporated by reference to Exhibit 10.26 to AMR's
report on Form 10-K for the year ended December 31,
1996.
10.49 Performance Share Program for the years 1997 to 1999
under the 1988 Long-term Incentive Program,
incorporated by reference to Exhibit 10.27 to AMR's
report on Form 10-K for the year ended December 31,
1996.
10.50 Form of Performance Share Program for the years 1997
to 1999 under the 1988 Long-term Incentive Program,
incorporated by reference to Exhibit 10.37 to AMR's
report on Form 10-K for the year ended December 31,
1997.
10.51 Performance Share Program for the years 1998 to 2000
under the 1988 Long-term Incentive Program,
incorporated by reference to Exhibit 10.38 to AMR's
report on Form 10-K for the year ended December 31,
1997.
58
<PAGE> 60
10.52 Performance Share Program for the years 1999 to 2001
under the 1998 Long-term Incentive Program,
incorporated by reference to Exhibit 10.50 to AMR's
report on Form 10-K for the year ended December 31,
1998.
10.53 Performance Share Program for the years 2000 to 2002
under the 1998 Long-term Incentive Program.
10.54 American Airlines, Inc. Supplemental Executive
Retirement Program, as amended January 1997,
incorporated by reference to Exhibit 10.28 to AMR's
report on Form 10-K for the year ended December 31,
1996.
10.55 AMR Corporation 1987 Executive Deferral Plan, as
amended through 1999, incorporated by reference to
Exhibit 10.52 to AMR's report on Form 10-K for the
year ended December 31, 1998.
10.56 American Airlines, Inc. 1996 Employee Profit Sharing
Plan, incorporated by reference to Exhibit 10.29 to
AMR's report on Form 10-K for the year ended
December 31, 1996.
10.57 American Airlines, Inc. 1997 Employee Profit Sharing
Plan, incorporated by reference to Exhibit 10.30 to
AMR's report on Form 10-K for the year ended
December 31, 1996.
10.58 American Airlines, Inc. 1998 Employee Profit Sharing
Plan, incorporated by reference to Exhibit 10.43 to
AMR's report on Form 10-K for the year ended
December 31, 1997.
10.59 American Airlines, Inc. 1999 Employee Profit Sharing
Plan, incorporated by reference to Exhibit 10.56 to
AMR's report on Form 10-K for the year ended
December 31, 1998.
10.60 American Airlines, Inc. 2000 Employee Profit Sharing
Plan.
10.61 American Airlines, Inc. 1996 Incentive Compensation
Plan for Officers and Key Employees, incorporated by
reference to Exhibit 10(qqq) to AMR's report on Form
10-K for the year ended December 31, 1995.
10.62 American Airlines, Inc. 1997 Incentive Compensation
Plan for Officers and Key Employees, incorporated by
reference to Exhibit 10.32 to AMR's report on Form
10-K for the year ended December 31, 1996.
10.63 American Airlines, Inc. 1998 Incentive Compensation
Plan for Officers and Key Employees, incorporated by
reference to Exhibit 10.46 to AMR's report on Form
10-K for the year ended December 31, 1997.
10.64 American Airlines, Inc. 1999 Incentive Compensation
Plan for Officers and Key Employees, incorporated by
reference to Exhibit 10.60 to AMR's report on Form
10-K for the year ended December 31, 1998.
10.65 American Airlines, Inc. 2000 Incentive Compensation
Plan for Officers and Key Employees.
10.66 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Gerard
J. Arpey, dated May 21, 1998, incorporated by
reference to Exhibit 10.61 to AMR's report on Form
10-K for the year ended December 31, 1998.
10.67 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Robert
W. Baker, dated May 21, 1998, incorporated by
reference to Exhibit 10.62 to AMR's report on Form
10-K for the year ended December 31, 1998.
59
<PAGE> 61
10.68 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Peter
M. Bowler, dated May 21, 1998, incorporated by
reference to Exhibit 10.63 to AMR's report on Form
10-K for the year ended December 31, 1998.
10.69 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Donald
J. Carty, dated May 21, 1998, incorporated by
reference to Exhibit 10.64 to AMR's report on Form
10-K for the year ended December 31, 1998.
10.70 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Peter
J. Dolara, dated May 21, 1998, incorporated by
reference to Exhibit 10.65 to AMR's report on Form
10-K for the year ended December 31, 1998.
10.71 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Daniel
P. Garton, dated May 21, 1998, incorporated by
reference to Exhibit 10.66 to AMR's report on Form
10-K for the year ended December 31, 1998.
10.72 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Michael
W. Gunn, dated May 21, 1998, incorporated by
reference to Exhibit 10.67 to AMR's report on Form
10-K for the year ended December 31, 1998.
10.73 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Thomas
W. Horton, dated January 19, 2000.
10.74 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Henry
C. Joyner, dated January 19, 2000.
10.75 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Thomas
J. Kiernan, dated May 21, 1998, incorporated by
reference to Exhibit 10.68 to AMR's report on Form
10-K for the year ended December 31, 1998.
10.76 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and David
L. Kruse, dated May 21, 1998, incorporated by
reference to Exhibit 10.69 to AMR's report on Form
10-K for the year ended December 31, 1998.
10.77 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Charles
D. MarLett, dated May 21, 1998, incorporated by
reference to Exhibit 10.70 to AMR's report on Form
10-K for the year ended December 31, 1998.
10.78 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Anne H.
McNamara, dated May 21, 1998, incorporated by
reference to Exhibit 10.71 to AMR's report on Form
10-K for the year ended December 31, 1998.
10.79 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and William
K. Ris, Jr., dated October 20, 1999.
10.80 Aircraft Sales Agreement by and between American
Airlines, Inc. and Federal Express Corporation,
dated April 7, 1995, incorporated by reference to
Exhibit 10(rrr) to AMR's report on Form 10-K for the
year ended December 31, 1995. Confidential treatment
was granted as to a portion of this document.
10.81 Aircraft Purchase Agreement by and between American
Airlines, Inc. and The Boeing Company, dated October
31, 1997, incorporated by reference to Exhibit 10.48
to AMR's report on Form 10-K for the year ended
December 31, 1997. Confidential treatment was
granted as to a portion of this document.
60
<PAGE> 62
10.82 Aircraft Purchase Agreement by and between AMR Eagle
Holding Corporation and Bombardier Inc., dated
January 31, 1998, incorporated by reference to
Exhibit 10.49 to AMR's report on Form 10-K for the
year ended December 31, 1997. Confidential treatment
was granted as to a portion of this document.
10.83 Aircraft Purchase Agreement by and between AMR
Eagle, Inc. and Embraer-Empresa Brasileira de
Aeronautica S.A., dated December 22, 1997,
incorporated by reference to Exhibit 10.50 to AMR's
report on Form 10-K for the year ended December 31,
1997. Confidential treatment was granted as to a
portion of this document.
10.84 Aircraft Purchase Agreement by and between AMR Eagle
Holding Corporation and Embraer-Empresa Brasileira
de Aeronautica S.A., dated September 30, 1998,
incorporated by reference to Exhibit 10.76 to AMR's
report on Form 10-K for the year ended December 31,
1998. Confidential treatment was granted as to a
portion of this document.
12 Computation of ratio of earnings to fixed charges
for the years ended December 31, 1995, 1996, 1997,
1998 and 1999
21 Significant subsidiaries of the registrant as of
December 31, 1999.
23 Consent of Independent Auditors.
27.1 Financial Data Schedule as of December 31, 1999.
27.2 Restated Financial Data Schedule as of December 31,
1998.
27.3 Restated Financial Data Schedule as of December 31,
1997.
61
<PAGE> 63
(b) Reports on Form 8-K:
On December 15, 1999, AMR filed a report on Form 8-K relative to a press
release issued to announce that the Company intends to distribute in the first
quarter of 2000 all of its remaining ownership in Sabre Holdings Corporation.
On December 20, 1999, AMR filed a report on Form 8-K relative to a
statement issued by Don Carty, Chairman and Chief Executive Officer of the
Company and American Airlines, Inc., regarding the Company's plea agreement to
the illegal storage of hazardous materials at the Company's facilities at Miami
International Airport.
On January 20, 2000, AMR filed a report on Form 8-K relative to a press
release issued to report the Company's fourth quarter and full year 1999
earnings.
On February 9, 2000, AMR filed a report on Form 8-K relative to a press
release issued to announce that the Company declared on February 7, 2000, its
intent to distribute a dividend on all outstanding shares of AMR's common stock
and to set the timeline for the Sabre spin-off.
62
<PAGE> 64
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AMR CORPORATION
/s/ Donald J. Carty
- -------------------------------------------------------
Donald J. Carty
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
/s/ Thomas W. Horton
- -------------------------------------------------------
Thomas W. Horton
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: March 27, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates noted:
Directors:
<TABLE>
<S> <C>
/s/ David L. Boren /s/ Ann D. McLaughlin
- ------------------------------------------------------- ----------------------------------------------------
David L. Boren Ann D. McLaughlin
/s/ Edward A. Brennan /s/ Charles H. Pistor, Jr.
- ------------------------------------------------------- ----------------------------------------------------
Edward A. Brennan Charles H. Pistor, Jr.
/s/ Armando M. Codina /s/ Philip J. Purcell
- ------------------------------------------------------- ----------------------------------------------------
Armando M. Codina Philip J. Purcell
/s/ Earl G. Graves /s/ Joe M. Rodgers
- ------------------------------------------------------- ----------------------------------------------------
Earl G. Graves Joe M. Rodgers
/s/ Dee J. Kelly /s/ Judith Rodin
- ------------------------------------------------------- ----------------------------------------------------
Dee J. Kelly Judith Rodin
</TABLE>
Date: March 27, 2000
63
<PAGE> 65
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
AMR Corporation
We have audited the consolidated financial statements of AMR Corporation as of
December 31, 1999 and 1998, and for each of the three years in the period ended
December 31, 1999, and have issued our report thereon dated January 17, 2000,
except for the second paragraph of Note 12, for which the date is March 15,
2000. Our audits also included Schedule II - Valuation and Qualifying Accounts
and Reserves. This schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this schedule based on our
audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
2121 San Jacinto
Dallas, Texas 75201
January 17, 2000, except for the second
paragraph of Note 12, for which the
date is March 15, 2000.
64
<PAGE> 66
AMR CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN MILLIONS)
<TABLE>
<CAPTION>
INCREASES SALES,
BALANCE CHARGED TO RETIRE- BALANCE
AT INCOME WRITE-OFFS MENTS AT
BEGINNING STATEMENT (NET OF AND END OF
OF YEAR ACCOUNTS PAYMENTS RECOVERIES) TRANSFERS YEAR
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Allowance for
obsolescence of inventories $ 214 $ 59 $ -- $ -- $ 6 $ 279
Allowance for
uncollectible accounts 19 34 -- 4 -- 57
Reserves for environmental
remediation costs 23 48 (6) -- -- 65
Reserves for litigation -- 39 (8) -- -- 31
YEAR ENDED DECEMBER 31, 1998
Allowance for
obsolescence of inventories 203 40 -- -- (29) 214
Allowance for
uncollectible accounts 9 12 -- (2) -- 19
Reserves for environmental
remediation costs 14 12 (3) -- -- 23
YEAR ENDED DECEMBER 31, 1997
Allowance for
obsolescence of inventories 212 36 -- -- (45) 203
Allowance for
uncollectible accounts 7 11 -- (9) -- 9
Reserves for environmental
remediation costs 18 -- (4) -- -- 14
</TABLE>
65
<PAGE> 67
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
<S> <C>
3.3 Bylaws of AMR, amended as of January 19, 2000.
10.15(a) Deferred Compensation Agreement, dated as of January
11, 2000, between AMR and Edward A. Brennan.
10.20 Deferred Compensation Agreement, dated as of January
12, 2000, between AMR and Armando M. Codina.
10.25 Deferred Compensation Agreement, dated as of January
24, 2000, between AMR and Charles H. Pistor, Jr.
10.29 Deferred Compensation Agreement, dated as of January
12, 2000, between AMR and Judith Rodin.
10.37 Current form of Stock Option Agreement under the AMR
1998 Long-Term Incentive Plan.
10.44 Current form of Career Equity Program Deferred Stock
Award Agreement for Employees under the AMR 1998
Long-Term Incentive Plan.
10.53 Performance Share Program for the years 2000 to 2002
under the 1998 Long-term Incentive Program.
10.60 American Airlines, Inc. 2000 Employee Profit Sharing
Plan.
10.65 American Airlines, Inc. 2000 Incentive Compensation
Plan for Officers and Key Employees.
10.73 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Thomas
W. Horton, dated January 19, 2000.
10.74 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Henry
C. Joyner, dated January 19, 2000.
10.79 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and William
K. Ris, Jr., dated October 20, 1999.
12 Computation of ratio of earnings to fixed charges
for the years ended December 31, 1995, 1996, 1997,
1998 and 1999
21 Significant subsidiaries of the registrant as of
December 31, 1999.
23 Consent of Independent Auditors.
27.1 Financial Data Schedule as of December 31, 1999.
27.2 Restated Financial Data Schedule as of December 31,
1998.
27.3 Restated Financial Data Schedule as of December 31,
1997.
</TABLE>
<PAGE> 1
Exhibit 3.3
AMR CORPORATION
BYLAWS
(As amended January 19, 2000)
ARTICLE I
Offices
The registered office of the corporation in the State of
Delaware is to be located in the City of Wilmington, County of New Castle. The
corporation may have other offices within and without the State of Delaware.
ARTICLE II
Meetings of Stockholders
Section l. Annual Meetings. An annual meeting of stockholders
to elect directors and to take action upon such other matters as may properly
come before the meeting shall be held on the third Wednesday in May of each
year, or on such other day, and at such time and at such place, within or
without the State of Delaware, as the board of directors or the chairman of the
board may from time to time fix.
Any stockholder wishing to bring a matter before an annual
meeting must notify the secretary of the corporation of such fact not less than
sixty nor more than ninety days before the date of the meeting. Such notice
shall be in writing and shall set forth the business proposed to be brought
before the meeting, shall identify the stockholder and shall disclose the
stockholder's interest in the proposed business.
<PAGE> 2
Section 2. Special Meetings. A special meeting of stockholders
shall be called by the secretary upon receipt of a request in writing of the
board of directors, the chairman of the board or the president. Any such meeting
shall be held at the principal business office of the corporation unless the
board shall name another place therefor, at the time specified by the body or
persons calling such meeting.
Section 3. Nominees For Election As Director. Nominations for
election as director, other than those made by or at the direction of the board
of directors, must be made by timely notice to the secretary, setting forth as
to each nominee the information required to be included in a proxy statement
under the proxy rules of the Securities and Exchange Commission. If such
election is to occur at an annual meeting of stockholders, notice shall be
timely if it meets the requirements of such proxy rules for proposals of
security holders to be presented at an annual meeting. If such election is to
occur at a special meeting of stockholders, notice shall be timely if received
not less than ninety days prior to such meeting.
Section 4. Notice of Meetings. Written notice of each meeting
of stockholders shall be given which shall state the place, date and hour of the
meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called. Unless otherwise provided by law, such notice shall
be mailed, postage prepaid, to each stockholder entitled to vote at such
meeting, at his address as it appears on the records of the corporation, not
less than ten nor more than sixty days before the date of the meeting. When a
meeting is adjourned to another time or place, notice need not be given of the
adjourned meeting if the time and place thereof are announced at the meeting at
which the adjournment is taken, unless the adjournment is for more than thirty
days or a new record date is
2
<PAGE> 3
fixed for the adjourned meeting, in which case a notice of the adjourned meeting
shall be given to each stockholder of record entitled to vote at the meeting.
Section 5. Chairman and Secretary at Meetings. At any meeting
of stockholders the chairman of the board, or in his absence, the president, or
if neither such person is available, then a person designated by the board of
directors, shall preside at and act as chairman of the meeting. The secretary,
or in his absence a person designated by the chairman of the meeting, shall act
as secretary of the meeting.
Section 6. Proxies. Each stockholder entitled to vote at a
meeting of stockholders may authorize another person or persons to act for him
by proxy, but no such proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period.
Section 7. Quorum. At all meetings of the stockholders the
holders of one-third of the number of shares of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum requisite for the election of directors and the transaction
of other business, except as otherwise provided by law or by the certificate of
incorporation or by any resolution of the board of directors creating any series
of Preferred Stock.
If holders of the requisite number of shares to constitute a
quorum shall not be present in person or represented by proxy at any meeting of
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have the power to adjourn the meeting from time to
time until a quorum shall be present or represented. At any such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified.
3
<PAGE> 4
Section 8. Voting. At any meeting of stockholders, except as
otherwise provided by law or by the certificate of incorporation or by any
resolution of the board of directors creating any series of Preferred Stock:
(a) Each holder of record of a share or shares of stock on the
record date for determining stockholders entitled to vote at such meeting shall
be entitled to one vote in person or by proxy for each share of stock so held.
(b) Directors shall be elected by a plurality of the votes
cast by the holders of Common Stock, present in person or by proxy.
(c) Each other question properly presented to any meeting of
stockholders shall be decided by a majority of the votes cast on the question
entitled to vote thereon.
(d) Elections of directors shall be by ballot but the vote
upon any other question shall be by ballot only if so ordered by the chairman of
the meeting or if so requested by stockholders, present in person or represented
by proxy, entitled to vote on the question and holding at least l0% of the
shares so entitled to vote.
Section 9. Action By Written Consent. Any stockholder seeking
to act by written consent of stockholders shall notify the secretary in writing
of such intent and shall request the board of directors to fix a record date for
determining the stockholders entitled to vote by consent. The notice shall
specify the actions sought to be taken and, if the election of one or more
individuals as director is sought, shall include as to each nominee the
information required to be included in a proxy statement under the proxy rules
of the Securities and Exchange Commission. Such record date shall not be more
than ten (10) days after the date upon which the resolution fixing the record
date is adopted by the board of directors.
4
<PAGE> 5
The board of directors shall promptly, but in all events
within ten (10) days after the date on which the written request for fixing a
record date was received by the secretary, adopt a resolution fixing the record
date. If no record date has been fixed by the board of directors within ten (10)
days of the date on which such a request is received, the record date for
determining stockholders entitled to vote by consent, when no prior action by
the board of directors is required by applicable law, shall be the first date on
which a signed written consent setting forth the action taken or proposed to be
taken was delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business, or any officer or agent
of the corporation having custody of the book in which proceedings of meetings
of stockholders are recorded. Delivery made to the corporation's registered
office shall be by hand or by certified or registered mail, return receipt
requested. If no record date has been fixed by the board of directors and prior
action by the board of directors is required by applicable law, the record date
for determining stockholders entitled to vote by consent shall be at the close
of business on the date on which the board of directors adopts the resolution
taking such prior action.
Section l0. List of Stockholders. At least ten days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder shall be prepared. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where
5
<PAGE> 6
the meeting is to be held. The list shall also be produced and kept at the time
and place of the meeting during the whole time thereof, and may be inspected by
any stockholder who is present.
Section ll. Judges of Election. Whenever a vote at a meeting
of stockholders shall be by ballot, or whenever written consent to action is
sought, the proxies and ballots or consents shall be received and taken charge
of, and all questions touching on the qualification of voters and the validity
of proxies and consents and the acceptance and rejection of votes shall be
decided by two judges of election. In the case of a meeting of stockholders,
such judges of election shall be appointed by the board of directors before or
at the meeting, and if no such appointment shall have been made, then by the
stockholders at the meeting. In the case of a solicitation of consents, such
judges of election shall be appointed by the board of directors on or before the
record date for determining the stockholders entitled to vote by consent, and if
no such appointment shall have been made, then by the chairman of the board or
the president. If for any reason either of the judges of election previously
appointed shall fail to attend or refuse or be unable to serve, a judge of
election in place of any so failing to attend or refusing or unable to serve,
shall be appointed by the board of directors, the stockholders at the meeting,
the chairman of the board or the president.
ARTICLE III
Directors: Number, Election, Etc.
Section l. Number. The board of directors shall consist of
such number of members, not less than three, as the board of directors may from
time to time determine by resolution, plus such additional persons as the
holders of the Preferred Stock may be entitled from time to time, pursuant to
the provisions of any resolution of the board of directors creating any series
of Preferred Stock, to elect to the board of directors.
6
<PAGE> 7
Section 2. Election, Term, Vacancies. Directors shall be
elected each year at the annual meeting of stockholders, except as hereinafter
provided, and shall hold office until the next annual election and until their
successors are duly elected and qualified. Vacancies and newly created
directorships resulting from any increase in the authorized number of directors
may be filled by a majority of the directors then in office, although less than
a quorum.
Section 3. Resignation. Any director may resign at any time by
giving written notice of such resignation to the board of directors, the
chairman of the board, the president or the secretary. Any such resignation
shall take effect at the time specified therein or, if no time be specified,
upon the receipt thereof by the board of directors or one of the above-named
officers and, unless specified therein, the acceptance of such resignation shall
not be necessary to make it effective.
Section 4. Removal. Any director may be removed from office at
any time, with or without cause, by a vote of a majority of a quorum of the
stockholders entitled to vote at any regular meeting or at any special meeting
called for the purpose.
Section 5. Fees and Expenses. Directors shall receive such
fees and expenses as the board of directors shall from time to time prescribe.
ARTICLE IV
Meetings of Directors
Section l. Regular Meetings. Regular meetings of the board of
directors shall be held at the principal office of the corporation, or at such
other place (within or without the State of Delaware), and at such time, as may
from time to time be prescribed by the board of directors or stockholders. A
regular annual meeting of the board of directors for the election of officers
and the transaction of other business shall be held on the same day as the
annual meeting of the stockholders or on such other day and at such time and
place as the board of directors shall determine. No notice need be given of any
regular meeting.
7
<PAGE> 8
Section 2. Special Meetings. Special meetings of the board of
directors may be held at such place (within or without the State of Delaware)
and at such time as may from time to time be determined by the board of
directors or as may be specified in the call and notice of any meeting. Any such
meeting shall be held at the call of the chairman of the board, the president, a
vice president, the secretary, or two or more directors. Notice of a special
meeting of directors shall be mailed to each director at least three days prior
to the meeting date, provided that in lieu thereof, notice may be given to each
director personally or by telephone, or dispatched by telegraph, at least one
day prior to the meeting date.
Section 3. Waiver of Notice. In lieu of notice of meeting, a
waiver thereof in writing, signed by the person or persons entitled to said
notice whether before or after the time stated therein, shall be deemed
equivalent thereto. Any director present in person at a meeting of the board of
directors shall be deemed to have waived notice of the time and place of
meeting.
Section 4. Action Without Meeting. Unless otherwise restricted
by the certificate of incorporation, any action required or permitted to be
taken at any meeting of the board of directors or of any committee thereof may
be taken without a meeting if all members of the board of directors or of such
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of the proceedings of the board of directors
or of such committee.
Section 5. Quorum. At all meetings of the board, one-third of
the total number of directors shall constitute a quorum for the transaction of
business. The act of a majority of the directors present at any meeting at which
there is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by law.
<PAGE> 9
If at any meeting there is less than a quorum present, a
majority of those present (or if only one be present, then that one), may
adjourn the meeting from time to time without further notice other than
announced at the meeting until a quorum is present. At such adjourned meeting at
which a quorum is present, any business may be transacted which might have been
transacted at the meeting as originally scheduled.
Section 6. Business Transacted. Unless otherwise indicated in
the notice of meeting or required by law, the certificate of incorporation or
bylaws of the corporation, any and all business may be transacted at any
directors' meeting.
ARTICLE V
Powers of the Board of Directors
The management of all the property and business of the
corporation and the regulation and government of its affairs shall be vested in
the board of directors. In addition to the powers and authorities by these
bylaws and the certificate of incorporation expressly conferred on them, the
board of directors may exercise all such powers of the corporation and do all
such lawful acts and things as are not by law, or by the certificate of
incorporation or by these bylaws directed or required to be exercised or done by
the stockholders.
ARTICLE VI
Committees
Section l. Executive Committee. The board of directors may, by
resolution passed by a majority of the whole board, designate an executive
committee, to consist of three or more members. The chief executive officer plus
one other member of the executive committee shall constitute a quorum.
9
<PAGE> 10
The executive committee shall have and may exercise all the
powers and authority of the board of directors in the management of the business
and affairs of the corporation, with the exception of such powers and authority
as may be specifically reserved to the board of directors by law or by
resolution adopted by the board of directors.
Section 2. Audit Committee. The board of directors may, by
resolution passed by a majority of the whole board, designate an audit
committee, to consist of three or more members, none of the members of which
shall be employees or officers of the corporation. A majority of the members of
the audit committee shall constitute a quorum.
The audit committee shall from time to time review and make
recommendations to the board of directors with respect to the selection of
independent auditors, the fees to be paid such auditors, the adequacy of the
audit and accounting procedures of the corporation, and such other matters as
may be specifically delegated to the committee by the board of directors. In
this connection the audit committee shall, at its request, meet with
representatives of the independent auditors and with the financial officers of
the corporation separately or jointly.
Section 3. Compensation/Nominating Committee. The board of
directors may, by resolution passed by a majority of the whole board, designate
a compensation/nominating committee, to consist of three or more members of the
board of directors, except that no member of the compensation/nominating
committee may (i) be an employee or officer of the corporation or (ii) maintain
a relationship with the Corporation that would cause such member to be
ineligible for membership on the compensation/nominating committee pursuant to
rules or regulations adopted by the Securities and Exchange Commission, the
Internal Revenue Service or any other governmental agency. A majority of the
members of the compensation/nominating committee shall constitute a quorum.
10
<PAGE> 11
The compensation/nominating committee shall from time to time
review and make recommendations to the board of directors with respect to the
management remuneration policies of the corporation including but not limited to
salary rates and fringe benefits of elected officers, other remuneration plans
such as incentive compensation, deferred compensation and stock option plans,
directors' compensation and benefits. The compensation/nominating committee
shall also make recommendations to the board of directors (i) concerning
suitable candidates for election to the board, (ii) regarding assignments to
board committees, and (iii) with respect to promotions, changes and succession
among the senior management of the corporation and such other matters as may be
specifically delegated to the committee by the board of directors.
Section 4. Governance Committee. The board of directors may,
by resolution passed by a majority of the whole board, designate a governance
committee, to consist of three or more members, none of the members of which
shall be employees or officers of the corporation. A majority of the members of
the nominating and governance committee shall constitute a quorum.
The governance committee shall make recommendations to the
board of directors concerning the practices and procedures for the proper and
efficient management of the board of directors as determined by the committee.
The governance committee shall perform such other duties as may be specifically
delegated to the committee by the board of directors.
Section 5. Committee Procedure, Seal.
(a) The executive, compensation/nominating, governance, and
audit committees shall keep regular minutes of their meetings, which shall be
reported to the board of directors, and shall fix their own rules of procedures.
11
<PAGE> 12
(b) The executive, compensation/nominating, governance, and
audit committees may each authorize the seal of the corporation to be affixed to
all papers which may require it.
(c) In the absence, or disqualification, of a member of any
committee, the members of that committee present at any meeting and not
disqualified from voting, whether or not constituting a quorum, may unanimously
appoint another member of the board of directors to act at the meeting in the
place of such absent or disqualified member.
Section 6. Special Committees. The board of directors may,
from time to time, by resolution passed by a majority of the whole board,
designate one or more special committees. Each such committee shall have such
duties and may exercise such powers as are granted to it in the resolution
designating the members thereof. Each such committee shall fix its own rules of
procedure.
ARTICLE VII
Indemnification
Section l. Nature of Indemnity. The corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative by reason of the fact that he
is or was or has agreed to become a director or officer of the corporation, or
is or was serving or has agreed to serve at the request of the corporation as a
director or officer, of another corporation, partnership, joint venture, trust
or other enterprise, or by reason of any action alleged to have been taken or
omitted in such capacity, and may indemnify any person who was or is a party or
is threatened to be made a party to such an action by reason of the fact that he
is or was or has agreed to become an employee or agent of the corporation, or is
or was serving or has agreed to serve at the request of
12
<PAGE> 13
the corporation as an employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or on his behalf in connection with such action, suit or
proceeding and any appeal therefrom, if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding had no
reasonable cause to believe his conduct was unlawful; except that in the case of
an action or suit by or in the right of the corporation to procure a judgment in
its favor (l) such indemnification shall be limited to expenses (including
attorneys' fees) actually and reasonably incurred by such person in the defense
or settlement of such action or suit, and (2) no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Delaware Court of
Chancery or such other court shall deem proper.
The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
Section 2. Successful Defense. To the extent that a director,
officer, employee or agent of the corporation has been successful on the merits
or otherwise in defense of any action, suit
13
<PAGE> 14
or proceeding referred to in Section l hereof or in defense of any claim, issue
or matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.
Section 3. Determination That Indemnification Is Proper.
(a) Any indemnification of a director or officer of the
corporation under Section l hereof (unless ordered by a court) shall be made by
the corporation unless a determination is made that indemnification of the
director or officer is not proper in the circumstances because he has not met
the applicable standard of conduct set forth in Section l hereof. Such
determination shall be made, with respect to a director or officer, (1) by a
majority vote of the directors who are not parties to such action, suit or
proceeding, even though less than a quorum, or (2) by a committee of such
directors designated by a majority vote of such directors, even though less than
a quorum, or (3) if there are no such directors, or if such directors so direct,
by independent legal counsel in a written opinion, or (4) by the stockholders.
(b) Any indemnification of an employee or agent of the
corporation (who is not also a director or officer of the corporation) under
Section l hereof (unless ordered by a court) may be made by the corporation upon
a determination that indemnification of the employee or agent is proper in the
circumstances because such person has met the applicable standard of conduct set
forth in Section l hereof. Such determination, in the case of an employee or
agent, may be made (1) in accordance with the procedures outlined in the second
sentence of Section 3(a), or (2) by an officer of the corporation, upon
delegation of such authority by a majority of the Board of Directors.
Section 4. Advance Payment of Expenses. Expenses (including
attorneys' fees) incurred by a director or officer in defending any civil,
criminal, administrative or investigative action,
14
<PAGE> 15
suit or proceeding shall be paid by the corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of the director or officer to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
corporation as authorized in this Article. Such expenses (including attorneys'
fees) incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the corporation deems appropriate. The board of directors
may authorize the corporation's counsel to represent a director, officer,
employee or agent in any action, suit or proceeding, whether or not the
corporation is a party to such action, suit or proceeding.
Section 5. Procedure for Indemnification of Directors or
Officers. Any indemnification of a director or officer of the corporation under
Sections l and 2, or advance of costs, charges and expenses of a director or
officer under Section 4 of this Article, shall be made promptly, and in any
event within 60 days, upon the written request of the director or officer. If
the corporation fails to respond within 60 days, then the request for
indemnification shall be deemed to be approved. The right to indemnification or
advances as granted by this Article shall be enforceable by the director or
officer in any court of competent jurisdiction if the corporation denies such
request, in whole or in part. Such person's costs and expenses incurred in
connection with successfully establishing his right to indemnification, in whole
or in part, in any such action shall also be indemnified by the corporation. It
shall be a defense to any such action (other than an action brought to enforce a
claim for the advance of costs, charges and expenses under Section 4 of this
Article where the required undertaking, if any, has been received by the
corporation) that the claimant has not met the standard of conduct set forth in
Section l of this Article, but the burden of proving such defense shall be on
the corporation. Neither the failure of the corporation (including its board of
directors or a committee thereof, its
15
<PAGE> 16
independent legal counsel, and its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he has met the applicable standard of
conduct set forth in Section l of this Article, nor the fact that there has been
an actual determination by the corporation (including its board of directors or
a committee thereof, its independent legal counsel, and its stockholders) that
the claimant has not met such applicable standard of conduct, shall be a defense
to the action or create a presumption that the claimant has not met the
applicable standard of conduct.
Section 6. Survival; Preservation of Other Rights.
The foregoing indemnification provisions shall be deemed to be
a contract between the corporation and each director, officer, employee and
agent who serves in such capacity at any time while these provisions as well as
the relevant provisions of the Delaware Corporation Law are in effect and any
repeal or modification thereof shall not affect any right or obligation then
existing with respect to any state of facts then or previously existing or any
action, suit, or proceeding previously or thereafter brought or threatened based
in whole or in part upon any such state of facts. Such a "contract right" may
not be modified retroactively without the consent of such director, officer,
employee or agent.
The indemnification provided by this Article VII shall not be
deemed exclusive of any other rights to which those indemnified may be entitled
under any bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
16
<PAGE> 17
Section 7. Insurance. The corporation shall purchase and
maintain insurance on behalf of any person who is or was or has agreed to become
a director or officer of the corporation, or is or was serving at the request of
the corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him or on his behalf in any such capacity, or arising out of
his status as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of this Article,
provided that such insurance is available on acceptable terms, which
determination shall be made by a vote of a majority of the entire board of
directors.
Section 8. Savings Clause. If this Article or any portion
hereof shall be invalidated on any ground by any court of competent
jurisdiction, then the corporation shall nevertheless indemnify each director or
officer and may indemnify each employee or agent of the corporation as to costs,
charges and expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement with respect to any action, suit or proceeding, whether
civil, criminal, administrative or investigative, including an action by or in
the right of the corporation, to the full extent permitted by any applicable
portion of this Article that shall not have been invalidated and to the full
extent permitted by applicable law.
ARTICLE VIII
Officers
Section l. General. The officers of the corporation shall be
the chairman of the board, a vice-chairman, president, one or more vice
presidents (including executive vice presidents and senior vice presidents), a
secretary, a controller, a treasurer, and such other subordinate officers as may
from time to time be designated and elected by the board of directors.
17
<PAGE> 18
Section 2. Other Offices. The chairman of the board shall be
chosen by the board of directors from among their own number. The other officers
of the corporation may or may not be directors.
Section 3. Term. Officers of the corporation shall be elected
by the board of directors and shall hold their respective offices during the
pleasure of the board and any officer may be removed at any time, with or
without cause, by a vote of the majority of the directors. Each officer shall
hold office from the time of his appointment and qualification until the next
annual election of officers or until his earlier resignation or removal except
that upon election thereof a shorter term may be designated by the board of
directors. Any officer may resign at any time upon written notice to the
corporation.
Section 4. Compensation. The compensation of officers of the
corporation shall be fixed, from time to time, by the board of directors.
Section 5. Vacancy. In case any office becomes vacant by
death, resignation, retirement, disqualification, removal from office, or any
other cause, the board of directors may abolish the office (except that of
president, secretary and treasurer) or elect an officer to fill such vacancy.
ARTICLE IX
Duties of Officers
Section l. Chairman of the Board, Vice-Chairman, President.
The chairman of the board shall be the chief executive officer of the
corporation. He shall have general supervisory powers over all other officers,
employees and agents of the corporation for the proper performance of their
duties and shall otherwise have the general powers and duties of supervision and
management
18
<PAGE> 19
usually vested in the chief executive officer of a corporation. The
vice-chairman shall perform such duties as shall be assigned to him by the board
of directors or the chairman of the board. The president shall have the general
powers and duties of supervision and management of the corporation as the
chairman shall assign. The chairman of the board shall preside at and act as
chairman of all meetings of the board of directors. The president shall preside
at any meeting of the board of directors in the event of the absence of the
chairman of the board. The offices of chairman of the board and president may be
filled by the same individual.
Section 2. Vice Presidents. Each vice president (including
executive vice presidents and senior vice presidents) shall perform such duties
as shall be assigned to him by the board of directors, the chairman of the board
or the president.
Section 3. Secretary. The secretary shall record all
proceedings of the meetings of the corporation, its stockholders and the board
of directors and shall perform such other duties as shall be assigned to him by
the board of directors, the chairman of the board, or the president. Any part or
all of the duties of the secretary may be delegated to one or more assistant
secretaries.
Section 4. Controller. The controller shall perform such
duties as shall be assigned to him by the chairman of the board, the president
or such vice president as may be responsible for financial matters. Any or all
of the duties of the controller may be delegated to one or more assistant
controllers.
Section 5. Treasurer. The treasurer shall, under the direction
of the chairman of the board, the president or such vice president as may be
responsible for financial matters, have the custody of the funds and securities
of the corporation, subject to such regulations as may be imposed by the board
of directors. He shall deposit, or have deposited, all monies and other valuable
effects
19
<PAGE> 20
in the name and to the credit of the corporation in such depositories as may be
designated by the board of directors or as may be designated by the appropriate
officers pursuant to a resolution of the board of directors. He shall disburse,
or have disbursed, the funds of the corporation as may be ordered by the board
of directors or properly authorized officers, taking proper vouchers therefor.
If required by the board of directors he shall give the corporation bond in such
sum and in such form and with such security as may be satisfactory to the board
of directors, for the faithful performance of the duties of his office. He shall
perform such other duties as shall be assigned to him by the board of directors,
the chairman of the board, the president or such vice president as may be
responsible for financial matters. Any or all of the duties of the treasurer may
be delegated to one or more assistant treasurers.
Section 6. Other Officers' Duties. Each other officer shall
perform such duties and have such responsibilities as may be delegated to him by
the superior officer to whom he is made responsible by designation of the
chairman of the board or the president.
Section 7. Absence or Disability. The board of directors or
the chairman of the board may delegate the powers and duties of any absent or
disabled officer to any other officer or to any director for the time being. In
the event of the absence or temporary disability of the chairman of the board,
the president shall assume his powers and duties while he is absent or so
disabled.
ARTICLE X
Stock
Section l. Certificates. Certificates of stock of the
corporation shall be signed by, or in the name of the corporation by, the
chairman of the board, the president or a vice president, and by the treasurer
or an assistant treasurer, or the secretary or an assistant secretary of the
corporation. If such certificate is countersigned, (l) by a transfer agent other
than the corporation or its employee,
<PAGE> 21
or (2) by a registrar other than the corporation or its employee, then any other
signature on the certificate may be a facsimile. In case any officer, transfer
agent, or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent, or
registrar before such certificate is issued, it may be issued by the corporation
with the same effect as if he were such officer, transfer agent, or registrar at
the date of issue.
Section 2. Transfers. Shares of stock shall be transferable on
the books of the corporation by the holder of record thereof in person or by his
attorney upon surrender of such certificate with an assignment endorsed thereon
or attached thereto duly executed and with such proof of authenticity of
signatures as the corporation may reasonably require. The board of directors may
from time to time appoint such transfer agents or registrars as it may deem
advisable and may define their powers and duties. Any such transfer agent or
registrar need not be an employee of the corporation.
Section 3. Record Holder. The corporation may treat the holder
of record of any shares of stock as the complete owner thereof entitled to
receive dividends and vote such shares, and accordingly shall not be bound to
recognize any interest in such shares on the part of any other person, whether
or not it shall have notice thereof.
Section 4. Lost and Damaged Certificates. The corporation may
issue a new certificate of stock to replace a certificate alleged to have been
lost, stolen, destroyed or mutilated upon such terms and conditions as the board
of directors may from time to time prescribe.
Section 5. Fixing Record Date. In order that the corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment
21
<PAGE> 22
of any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the board of directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action
ARTICLE XI
Miscellaneous
Section l. Fiscal Year. The fiscal year of the corporation
shall begin upon the first day of January and terminate upon the 3lst day of
December, in each year.
Section 2. Stockholder Inspection of Books and Records. The
board of directors from time to time shall determine whether and to what extent
and at what times and places and under what conditions and regulations the
accounts and books of the corporation, or any of them, shall be open to the
inspection of a stockholder and no stockholder shall have any right to inspect
any account, book or document of the corporation except as conferred by statute
or authorized by resolution of the board of directors.
Section 3. Seal. The corporate seal shall be circular in form
and have inscribed thereon the name of the corporation and the words "Corporate
Seal, Delaware."
ARTICLE XII
Amendments to Bylaws
Subject to the provisions of any resolution of the board of
directors creating any series of Preferred Stock, the board of directors shall
have power from time to time to make, alter or repeal bylaws, but any bylaws
made by the board of directors may be altered, amended or repealed by the
stockholders at any annual meeting of stockholders, or at any special meeting
provided that notice of such proposed alteration, amendment or repeal is
included in the notice of such special meeting.
22
<PAGE> 1
Exhibit 10.15(a)
January 11, 2000
Mr. Edward A. Brennan
400 North Michigan Avenue
Suite 400
Chicago IL 60611
Dear Ed:
For calendar year 2000, you've elected to defer the retainers and fees
that would otherwise be paid for your service on the Board of Directors (and
related Committees) of AMR Corporation.
In accordance with our discussion of this date, you have elected to
continue the deferral arrangement currently in effect (see the attached
agreement).
Please sign this letter below evidencing your intent to continue the
current deferral arrangement and return one original (two originals are
enclosed) to me.
Thank you for your cooperation and if there are questions please let me
know.
Very truly yours,
Charles D. MarLett
Corporate Secretary
DEFERRAL OF 2000 FEES AND RETAINERS TO BE IN ACCORDANCE WITH JUNE 2, 1998
LETTER:
AGREED:
------------------------------
EDWARD A. BRENNAN
Attachment
<PAGE> 1
Exhibit 10.20
January 12, 2000
Mr. Armando M. Codina
Chairman
Codina Group, Inc.
Two Alhambra Plaza, PH2
Coral Gables, FL 33134
Dear Armando:
This will confirm the following agreement relating to the
deferral of, and payment of, your directors' fees in 2000:
1. All directors' fees and retainers ("Fees") payable to you
in connection with your service on the boards of directors (including committees
of such boards) of AMR Corporation and American Airlines, Inc. for the period
January 1, 2000, through December 31, 2000, will be deferred and paid to you in
accordance with the following:
2. Fees will be converted to Stock Equivalent Units in
accordance with the Directors' Stock Equivalent Purchase Plan, a copy of which
is attached hereto as Exhibit A.
3. On or before January 31, 2010, all the Stock Equivalent
Units will be converted to cash and paid to you by multiplying the number of
Stock Equivalent Units as of December 31, 2009, by the arithmetic mean of the
high and low of AMR stock ("fair market value") during December 2009.
4. AMR's obligation to make payments pursuant to paragraph 3
hereof will not be released or modified by reason of your death. In such event,
the number of Stock Equivalent Units as of your date of death will be multiplied
by the fair market value of AMR stock during the calendar month immediately
preceding your death, and the amount paid to Margarita Codina.
<PAGE> 2
If the foregoing is satisfactory to you, please indicate by
signing one of the originals (two are enclosed) and returning it to me.
Very truly yours,
Charles D. MarLett
Corporate Secretary
Accepted and agreed:
- -----------------------------------------
Armando M. Codina
- -----------------------------------------
Date
<PAGE> 1
Exhibit 10.25
January 24, 2000
Mr. Charles H. Pistor, Jr.
4200 Belclaire
Dallas, Texas 75205
Dear Charles:
This will confirm the following agreement relating to the
deferral of, and payment of, your directors' fees and retainers:
1. All directors' fees and retainers payable to you in
connection with your service on the boards of directors (including committees of
such boards) of AMR Corporation ("AMR") and American Airlines, Inc. for the
period January 1, 2000, through December 31, 2000, will be paid to you on a
deferred basis as set forth below.
2. Interest will be accrued on the amounts to be paid on a
deferred basis pursuant to paragraph 1 above, from the date such fees would
otherwise have been paid to the date actually paid, at the prime rate which The
Chase Manhattan Bank (National Association) from time to time charges in New
York for 90-day loans to responsible commercial borrowers, such interest to be
compounded monthly.
3. The total amount to be paid on a deferred basis plus the
aggregate amount of interest accrued thereon and to accrue on the portion unpaid
from time to time will be paid to you in a lump sum distribution during the
month of January 2004.
4. AMR's obligation to make payments pursuant to paragraph 3
hereof will not be released or modified by reason of your death. In the event of
your death prior to the payments contemplated by paragraph 3 hereof, the amounts
deferred and interest thereon will be paid to Regina Pistor.
<PAGE> 2
If the foregoing is satisfactory to you, please indicate by
signing and returning the enclosed copy of this letter.
Very truly yours,
Charles D. MarLett
Corporate Secretary
Accepted and agreed:
- --------------------------------
Charles H. Pistor, Jr.
- --------------------------------
Date
<PAGE> 1
Exhibit 10.29
January 12, 2000
Judith Rodin, PhD.
President
University of Pennsylvania
100 College Hall
Philadelphia, PA 19104
Dear Judith:
This will confirm the following agreement relating to the
deferral of, and payment of, your directors' fees and retainers in 2000:
1. All directors' fees and retainers ("Fees") payable to you
in connection with your service on the boards of directors (including committees
of such boards) of AMR Corporation and American Airlines, Inc. for the period
January 1, 2000 through December 31, 2000, will be deferred and paid to you in
accordance with the following:
2. Fees will be converted to Stock Equivalent Units in
accordance with the Directors' Stock Equivalent Purchase Plan, a copy of which
is attached hereto as Exhibit A.
3. Upon your retirement from the Board of Directors of AMR all
the Stock Equivalent Units will be converted to cash and paid to you by
multiplying the number of Stock Equivalent Units as of the date of your
retirement by the arithmetic mean of the high and low of AMR stock ("fair market
value") during the calendar month immediately preceding such retirement date.
Such payment will occur within 30 days of your retirement date.
4. AMR's obligation to make payments pursuant to paragraph 3
hereof will not be released or modified by reason of your death. In such event,
the number of Stock Equivalent Units as of your date of death will be multiplied
by the fair market value of AMR stock during the calendar month immediately
preceding your death, and the amount paid to the Trustees under your Revocable
Agreement of Trust, dated September 15, 1997, as amended November 3, 1997,
Judith Rodin Settlor and Trustee.
<PAGE> 2
If the foregoing is satisfactory to you, please indicate by
signing one of the originals (two are enclosed) and returning it to me.
Very truly yours,
Charles D. MarLett
Corporate Secretary
Accepted and agreed:
Judith Rodin
Date
<PAGE> 1
EXHIBIT 10.37
Grant # XXXX
STOCK OPTION
STOCK OPTION granted _____________, by AMR Corporation, a Delaware
corporation (the "Corporation"), and _____________ ____________, employee number
______, an employee of the Corporation or one of its Subsidiaries or Affiliates
(the "Optionee").
W I T N E S S E T H:
WHEREAS, the stockholders of the Corporation approved the 1998 Long Term
Incentive Plan at the Corporation's annual meeting held on May 20, 1998 (such
plan, as may be amended from time to time, to be referenced the "1998 Plan");
WHEREAS, the 1998 Plan provides for the grant of an option to purchase
shares of the Corporation's Common Stock to those individuals selected by the
Committee or, in lieu thereof, the Board of Directors of AMR Corporation (the
"Board"); and
WHEREAS, the Board has determined that the Optionee is eligible under the
Plan and that it is to the advantage and interest of the Corporation to grant
the option provided for herein to the Optionee as an incentive for Optionee to
remain in the employ of the Corporation or one of its Subsidiaries or
Affiliates, and to encourage ownership by the Optionee of the Corporation's
Common Stock, $1 par value (the "Common Stock").
NOW, THEREFORE:
1. Option Grant. The Corporation hereby grants to the Optionee a
non-qualified stock option, subject to the terms and conditions hereinafter set
forth, to purchase all or any part of an aggregate of ___________ shares of
Common Stock at a price of $ _______________ per share (being the fair market
value of the Common Stock on the date hereof), exercisable iN approximately
equal installments on and after the following dates and with respect to the
following number of shares of Common Stock:
<TABLE>
<CAPTION>
Exercisable On and After Number of Shares
------------------------ ----------------
<S> <C>
___________ ___________
___________ ___________
___________ ___________
___________ ___________
___________ ___________
</TABLE>
1
<PAGE> 2
provided, that in no event shall this option be exercisable in whole or in part
ten years from the date hereof and that the Corporation shall in no event be
obligated to issue fractional shares. The right to exercise this option and to
purchase the number of shares comprising each such installment shall be
cumulative, and once such right has become exercisable it may be exercised in
whole at any time and in part from time to time until the date of termination of
the Optionee's rights hereunder.
2. Restriction on Exercise. Notwithstanding any other provision hereof,
this option shall not be exercised if at such time such exercise or the delivery
of certificates representing shares of Common Stock purchased pursuant hereto
shall constitute a violation of any provision of any applicable Federal or State
statute, rule or regulation, or any rule or regulation of any securities
exchange on which the Common Stock may be listed.
3. Manner of Exercise. This option may be exercised with respect to all or
any part of the shares of Common Stock then subject to such exercise by written
notice from the Optionee to the Corporation addressed to P.O. Box 619616,
Dallas/Fort Worth Airport, Texas 75261-9616, Attention: Executive Compensation.
Such notice shall be accompanied (i) by the payment of the option price in cash
or by check or (ii) by whatevever other form of payment may be authorized by the
Corporation, and, in the event that at the time of such exercise the shares of
Common Stock as to which this option is exercisable have not been registered
under the Securities Act of 1933, shall include a representation by the Optionee
that at the time of such exercise he is acquiring the shares of Common Stock for
investment only and not with a view to distribution. Subject to compliance by
the Optionee with all the terms and conditions hereof, the Corporation shall
promptly thereafter deliver to the Optionee a certificate or certificates for
such shares with all requisite transfer stamps attached.
4. Termination of Option. This option shall terminate and may no longer be
exercised if (i) the Optionee ceases to be an employee of the Corporation or one
of its Subsidiaries or Affiliates; or (ii) the Optionee becomes an employee of a
Subsidiary that is not wholly owned, directly or indirectly, by the Corporation;
or (iii) the Optionee takes a leave of absence without reinstatement rights,
unless otherwise agreed in writing between the Corporation and the Optionee;
except that
(a) If the Optionee's employment by the Corporation (and any Subsidiary or
Affiliate) terminates by reason of death, the vesting of the option will be
accelerated and the option will remain exerciseable until its expiration;
2
<PAGE> 3
(b) If the Optionee's employment by the Corporation (and any Subsidiary or
Affiliate) terminates by reason of Disability, the option will continue to vest
in accordance with its terms and may be exercised until its expiration;
provided, however, that if the Optionee dies after such Disability the vesting
of the option will be accelerated and the option will remain exerciseable until
its expiration;
(c) If the Optionee's employment by the Corporation (and any Subsidiary or
Affiliate) terminates by reason of Normal or Early Retirement, the option will
continue to vest in accordance with its terms and may be exercised until its
expiration; provided, however, that if the Optionee dies after Retirement the
vesting of the option will be accelerated and the option will remain
exerciseable until its expiration;
(d) If the Optionee's employment by the Corporation (and any Subsidiary or
Affiliate) is involuntarily terminated by the Corporation or a Subsidiary or
Affiliate (as the case may be) without Cause, the option may thereafter be
exercised, to the extent it was exercisable at the time of termination, for a
period of three months from the date of such termination of employment or until
the stated term of such option, whichever period is shorter; and
(e) In the event of a Change in Control or a Potential Change in Control of
the Corporation, this option shall become exercisable in accordance with the
1998 Plan, or its successor.
5. Adjustments in Common Stock. In the event of any stock dividend, stock
split, merger, consolidation, reorganization, recapitalization or other change
in the corporate structure, appropriate adjustments may be made by the Board in
the number of shares, class or classes of securities and the price per share.
6. Non-Transferability of Option. Unless the Committee shall permit (on
such terms and conditions as it shall establish), an option may not be
transferred except by will or the laws of descent and distribution to the extent
provided herein. During the lifetime of the Optionee this option may be
exercised only by him or her (unless otherwise determined by the Committee).
7. Miscellaneous.
(a) This option (i) shall be binding upon and inure to the benefit of any
successor of the Corporation, (ii) shall be governed by the laws of the State of
Texas, and any applicable laws of the United States, and (iii) may not be
amended except in writing. No contract or right of employment shall be implied
by this option.
3
<PAGE> 4
(b) If this option is assumed or a new option is substituted therefore in
any corporate reorganization (including, but not limited to, any transaction of
the type referred to in Section 425(a) of the Internal Revenue Code of 1986, as
amended), employment by such assuming or substituting corporation or by a parent
corporation or a subsidiary thereof shall be considered for all purposes of this
option to be employment by the Corporation.
(c) In the event the Optionee's employment is terminated by reason of Early
or Normal Retirement and the Optionee subsequently is employed by a competitor
of the Corporation, the Corporation reserves the right, upon notice to the
Optionee, to declare the option forfeited and of no further validity.
8. Securities Law Requirements. The Corporation shall not be required to
issue shares upon the exercise of this option unless and until (a) such shares
have been duly listed upon each stock exchange on which the Corporation's Stock
is then registered; and (b) a registration statement under the Securities Act of
1933 with respect to such shares is then effective.
The Board may require the Optionee to furnish to the Corporation, prior to
the issuance of any shares of Stock in connection with the exercise of this
option, an agreement, in such form as the Board may from time to time deem
appropriate, in which the Optionee represents that the shares acquired by him
upon such exercise are being acquired for investment and not with a view to the
sale or distribution thereof.
9. Option Subject to 1998 Plan. This option shall be subject to all the
terms and provisions of the 1998 Plan and the Optionee shall abide by and be
bound by all rules, regulations and determinations of the Board now or hereafter
made in connection with the administration of the 1998 Plan. Capitalized terms
not otherwise defined herein shall have the meanings set forth for such terms in
the 1998 Plan.
IN WITNESS WHEREOF, the Corporation has executed this Stock Option as of
the day and year first above written.
AMR Corporation
- ------------------------------ ----------------------------
Optionee Charles D. MarLett
Corporate Secretary
<PAGE> 1
EXHIBIT 10.44
Grant___________
CAREER EQUITY PROGRAM
DEFERRED STOCK AWARD AGREEMENT
This AGREEMENT made as of ____________, by and between AMR Corporation, a
Delaware corporation (the "Corporation"), and _________ ________ (the
"Employee"), employee number ________.
WHEREAS, the 1998 Long Term Incentive Plan was approved by the shareholders
of the Corporation at the Corporation's annual meeting held on May 20, 1998
(such Plan, as may be amended from time to time, to be referenced the "1998
Plan"); and
WHEREAS, pursuant to the Career Equity Program adopted by the Board of
Directors of the Corporation (the "Board"), the Board has determined to make a
Career Equity Program grant to the Employee of Deferred Stock (subject to the
terms of the 1998 Plan and this Agreement), as an inducement for the Employee to
remain an employee of the Corporation, and to retain and motivate such Employee
during his employment with the Corporation.
NOW, THEREFORE, the Corporation and the Employee hereby agree as follows:
1. Grant of Award. The Employee is hereby granted as of ____________, (the
"Grant Date") a Deferred Stock Award (the "Award"), subject to the terms and
conditions hereinafter set forth, with respect to __________ shares of Common
Stock, $1.00 par value, of the Corporation ("Stock"). The shares of Stock
covered by the Award shall vest in accordance with Sections 2, 3, 4, 5, and 6
hereof.
2. Vesting - Normal Retirement or Early Retirement. In the event of the
termination of Employee's employment with the Corporation (or any Subsidiary or
Affiliate thereof) on or after the Grant Date due to Normal Retirement (which is
defined as retirement from employment with the Corporation, or any Subsidiary or
Affiliate thereof, at or after age 60), the shares of Stock covered by the Award
shall become fully vested.
In the event of the termination of the Employee's employment with the
Corporation (or any Subsidiary or Affiliate thereof) on or after the Grant Date
due to Early Retirement (which is defined as an early retirement from employment
with the Corporation, or any Subsidiary or Affiliate thereof, at or after age 55
but before age 60), the shares of stock covered by the Award shall vest in
accordance with the following schedule:
1
<PAGE> 2
<TABLE>
<CAPTION>
Percentage of
Award
Age Vested
--- ------------
<S> <C>
55 85%
56 88%
57 91%
58 94%
59 97%
</TABLE>
Employee will receive pro rata vesting for each full month of employment in
partial years.
Subject to Sections 4 and 7, share certificates for the number of shares
covered by a vested Award shall be issued and delivered to the Employee on or
about the date of Retirement.
Notwithstanding anything to the contrary contained herein and for the
purposes of this Award, in order to be eligible for the benefits hereunder
associated with Early Retirement, the recipient must be entitled to receive
early retirement pension benefits under the then existing policies of the
Corporation, Subsidiary or Affiliate, as applicable.
3. Vesting - Death or Disability. In the event of the termination of
Employee's employment with the Corporation (or any Subsidiary or Affiliate
thereof) on or after the Grant Date due to the Employee's death or Disability,
the shares of Stock covered by the Award shall vest at a rate of 20% for each
full year of employment with the Corporation (or any Subsidiary or Affiliate
thereof) after the Grant Date (with pro rata vesting for each full month of
employment in partial years). In such case, share certificates for the number of
shares so vested shall be issued and delivered to the Employee (or, in the event
of the Employee's death, the Employee's designated beneficiary for purposes of
the Award, or in the absence of an effective beneficiary designation, the
Employee's estate) within 60 days after the Employee's death or Disability.
4. Vesting - Termination Not for Cause. If the Employee's employment with
the Corporation (or any Subsidiary or Affiliate thereof) is terminated on or
after the Grant Date by the Corporation (or any Subsidiary or Affiliate thereof)
other than pursuant to Section 5, the shares of Stock covered by the Award shall
vest at a rate of 10% for each full year of employment with the Corporation (or
any Subsidiary or Affiliate thereof) after the Grant Date (with pro rata vesting
for each full month of employment in partial years); provided, that no shares of
Stock shall vest under this Section 4 if the Employee has not been employed for
at least one full year after the Grant Date. Share certificate(s) for the number
of shares that vest pursuant to this Section 4 shall be issued and delivered to
the Employee (i) in five equal annual installments with the first installment
being made one year after the date of such termination, or (ii) in one share
certificate, to be issued within 90 days of the date of such termination, in
each case, at
2
<PAGE> 3
the option of the Corporation; provided, however, that in the event of such
termination, vesting of the shares under the Award as provided herein may be
predicated upon the Employee agreeing to such terms and conditions as required
by the Corporation, including, but not limited to, non-competition and
non-disclosure agreements.
5. Vesting - Termination for Cause; Other. In the event that (a) the
Employee's employment with the Corporation (or any Subsidiary or Affiliate
thereof) is terminated for Cause; or (b) the Employee terminates his employment
with the Corporation, or any Subsidiary or Affiliate thereof, (other than for
reasons of Retirement or Disability); or (c) the Employee becomes an employee of
a Subsidiary that is not wholly owned, directly or indirectly, by the
Corporation; or (d) the Employee takes a leave of absence without reinstatement
rights, unless otherwise agreed in writing between the Corporation and the
Employee; or (e) the Employee is no longer a management level employee at the
time his/her employment with the Corporation (or any Subsidiary or Affiliate
thereof) is terminated, then all shares of Stock covered by the Award shall be
forfeited.
6. Vesting - Change in Control; Potential Change in Control. In the event
of a Change in Control or Potential Change in Control of the Corporation, shares
under the Award shall vest in accordance with the 1998 Plan or its successor.
7. Elective Deferrals. At any time at least 12 months prior to the date of
the Employee's Retirement, the Employee may elect in writing, subject to
approval by the Corporation, to voluntarily defer the receipt of the shares of
Stock covered by the Award for a specified additional period beyond the date of
the Employee's termination of employment (the "Elective Deferral Period"). Any
shares deferred pursuant to this Section 7 shall be issued to the Employee
within 60 days after the end of the Elective Deferral Period. In the event of
the death of the Employee during the Elective Deferral Period, the shares so
deferred shall be issued to the Employee's designated Beneficiary (or to the
Employee's estate, in the absence of an effective beneficiary designation)
within 60 days after the Board receives written notification of death.
8. Transfer Restrictions. This Award is non-transferable otherwise than by
will or by the laws of descent and distribution, and may not otherwise be
assigned, pledged or hypothecated and shall not be subject to execution,
attachment or similar process. Upon any attempt by the Employee (or the
Employee's successor in interest after the Employee's death) to effect any such
disposition, or upon the levy of any such process, the Award shall immediately
become null and void, at the discretion of the Board.
9. Miscellaneous. This Agreement (a) shall be binding upon and inure to the
benefit of any successor of the Corporation, (b) shall be governed by the laws
of the State of Texas and any applicable laws of the United States, and (c) may
not be amended without the written consent of both the Corporation and the
Employee. No contract or right of employment shall be implied by this Agreement.
If this Award is assumed or a new award is substituted therefore in any
corporate reorganization,
3
<PAGE> 4
employment by such assuming or substituting corporation or by a parent
corporation or subsidiary or affiliate thereof shall be considered for all
purposes of this Award to be employment by the Corporation. In the event
Employee does not forward to the Corporation, within the applicable period,
required taxes with respect to any Award distributed pursuant to this Agreement,
the Corporation may withhold from any payments to be made to the Employee by the
Corporation (or any Subsidiary or Affiliate thereof), an amount(s) equal to such
taxes.
10. Securities Law Requirements. The Corporation shall not be required to
issue shares pursuant to this Award unless and until (a) such shares have been
duly listed upon each stock exchange on which the Corporation's Stock is then
registered; and (b) a registration statement under the Securities Act of 1933
with respect to such shares is then effective.
The Board may require the Employee to furnish to the Corporation, prior to
the issuance of any shares of Stock in connection with this Award, an agreement,
in such form as the Board may from time to time deem appropriate, in which the
Employee represents that the shares acquired by him under the Award are being
acquired for investment and not with a view to the sale or distribution thereof.
11. Incorporation of 1998 Plan Provisions. This Agreement is made pursuant
to the 1998 Plan and is subject to all of the terms and provisions of the 1998
Plan as if the same were fully set forth herein. Capitalized terms not otherwise
defined herein shall have the meanings set forth for such terms in the 1998
Plan.
12. Participation in Long-Term Incentive Plans. If at the time of i)
Employee's Retirement from the Corporation (or any Subsidiary or Affiliate
thereof) or ii) the termination of Employee's employment with the Corporation
(or any Subsidiary or Affiliate thereof) for reasons contemplated by Sections 3
or 4, the Employee has received payment(s) under the terms of a long-term
incentive plan(s) adopted by any Subsidiary or Affiliate of the Corporation, the
Employee agrees that in lieu of the shares of Stock that have vested pursuant to
this award, the Employee will receive shares of stock having a fair market value
as of the vesting date equal to the positive difference, if any, between the
fair market value (as of the vesting date) of the shares of Stock that have
vested hereunder and the aggregate nominal value of the payment(s) made under
such long-term incentive plan(s).
EMPLOYEE AMR CORPORATION
- ----------------------------- ------------------------------------
C. D. MarLett
Corporate Secretary
4
<PAGE> 1
EXHIBIT 10.53
AMR CORPORATION
2000 - 2002 PERFORMANCE SHARE PLAN
FOR OFFICERS AND KEY EMPLOYEES
Purpose
The purpose of the 2000 - 2002 AMR Corporation Performance Share Plan ("Plan")
for Officers and Key Employees is to provide greater incentive to officers and
key employees of the subsidiaries of AMR Corporation ("AMR" or "the
Corporation"), to achieve the highest level of individual performance, and to
meet or exceed specified goals which will contribute to the success of the
Corporation. This Plan is adopted pursuant to the 1998 Long Term Incentive Plan,
"LTIP", as amended.
Definitions
Capitalized terms not otherwise defined in the Plan or the award agreement for
performance shares between the Corporation and the employee, will have the
meanings set forth in the LTIP.
For purposes of the Plan, the following definitions will control:
"Adjusted Investment" is defined as the sum of AMR's consolidated notes payable,
current maturities of long-term debt and capital leases, long-term debt, capital
leases, Present Value of Operating Leases, and stockholders' equity, and any
extraordinary or unusual items which may be added or deducted at the discretion
of the Committee and the Board of Directors.
"Affiliate" is defined as a subsidiary of AMR or any entity that is designated
by the Committee as a participating employer under the Plan, provided that AMR
directly or indirectly owns at least 20% of the combined voting power of all
classes of stock of such entity.
"American" is defined as AMR less AMR subsidiaries other than American Airlines,
Inc.
"Average Adjusted Investment" is defined as the sum of Adjusted Investment as of
December 31 of a given year during the measurement period, plus Adjusted
Investment as of the December 31 of the prior fiscal year, divided by two.
"Calculated Amortization of Operating Leases" is defined as the amortization
expense associated with the Capitalized Value of Operating Leases as if such
leases were accounted for as capital leases, and is determined by the straight
line method over the lease term.
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"Capitalized Value of Operating Leases" is defined as the initial present value
of the lease payments required under American's aircraft operating leases over
the initial stated lease term, calculated using a discount rate of Prime plus
one percent.
"Committee" is defined as the Compensation / Nominating Committee of the AMR
Board of Directors.
"Measurement Period" is defined as the three year period beginning January 1,
2000 and ending December 31, 2002.
"Adjusted Earnings" is defined as the sum of AMR's pre-tax income, interest
expense, aircraft rental expense, less Calculated Amortization of Operating
Leases and any accounting adjustments or extraordinary or unusual items which
may be added or deducted at the discretion of the Committee.
"Average Plan Earnings" is defined as the sum of Adjusted Earnings for each of
the years during the measurement period, divided by three.
"Plan Average Adjusted Investment" is defined as the sum of Average Adjusted
Investment for each of the years during the measurement period, divided by
three.
"Present Value of Operating Leases" is defined as the present value of the lease
payments required under aircraft operating leases over the remaining lease term,
calculated using the discount rate used in the determination of the Capitalized
Value of Operating Leases.
"Prime" is defined as the base rate on corporate loans posted by at least 75% of
the 30 largest U.S. banks which is published daily in the Wall Street Journal.
"Return on Investment" or "ROI" is defined as Average Plan Earnings divided by
Plan Average Adjusted Investment, stated as a percentage.
For purposes of determining ROI, the assets, liabilities, shareholder equity and
earnings of The Sabre Group are to be excluded.
Unless otherwise indicated, the sources for all of the financial data specified
above are the applicable Annual Reports on Form 10-K filed by the Corporation.
2
<PAGE> 3
Accumulation of Shares
The number of shares under the Plan to be distributed to individual participants
is based on the applicable award agreement between the Corporation and the
employee and is determined by (i) the Corporation's ROI (ii), the Corporation's
pre-tax income, (iii) and the terms and conditions of the award agreement
between the Corporation and the employee. The distribution percentage of shares
is specified below:
GRANTED SHARES - PERCENT OF TARGET
AMR'S ROI
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
>= 5.5% >= 7.5% >= 9.5% >= 11.5% >= 13.5%
< 5.5% and < 7.5% and < 9.5% and < 11.5% and < 13.5% and < 15.5% >= 15.5%
- ------ ---------- ---------- ----------- ----------- ---------- ---------
0% 50% 75% 100% 125% 150% 175%
</TABLE>
No shares will be distributed if the Corporation's cumulative pre-tax income
during the measurement period is less than, or equal to, $0.
Administration
The Committee shall have authority to administer and interpret the Plan,
establish administrative rules, approve eligible participants, and take any
other action necessary for the proper operation of the Plan. The distribution
percentage, if any, of the fund shall be computed by the General Auditor of
American based on a certification of AMR's ROI by AMR's independent auditors. A
summary of awards under the Plan shall be provided to the Board of Directors at
the first regular meeting following determination of the awards. The Committee
may determine to pay a cash equivalent in lieu of the stock award.
General
Neither this Plan nor any action taken hereunder shall be construed as giving
any employee or participant the right to be retained in the employ of American
or an Affiliate.
Nothing in the Plan shall be deemed to give any employee any right,
contractually or otherwise, to participate in the Plan or in any benefits
hereunder, other than the right to receive an award as may have been expressly
awarded by the Committee.
In the event of any act of God, war, natural disaster, aircraft grounding,
revocation of operating certificate, terrorism, strike, lockout, labor dispute,
work stoppage, fire, epidemic or quarantine restriction, act of government,
critical materials shortage, or any other act beyond the control of the
Corporation, whether similar or dissimilar, (each a "Force Majeure Event"),
which Force Majeure Event affects the Corporation or its subsidiaries or its
Affiliates, the Committee, at its sole discretion, may (i)
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<PAGE> 4
terminate or (ii) suspend, delay, defer (for such period of time as the Board
may deem necessary), or substitute any awards due currently or in the future
under the Plan, including, but not limited to, any awards that have accrued to
the benefit of participants but have not yet been paid.
In consideration of the employee's privilege to participate in the Plan, the
employee agrees (i) not to disclose any trade secrets of, or other
confidential/restricted information of, American, to any unauthorized party and,
(ii) not to make any unauthorized use of such trade secrets or confidential or
restricted information during his or her employment with American or after such
employment is terminated, and (iii) not to solicit any current employees of
American or any subsidiaries of AMR Corporation to join the employee at his or
her new place of employment after his or her employment with American is
terminated.
The Board of Directors may amend, suspend, or terminate the Plan at any time.
4
<PAGE> 1
EXHIBIT 10.60
AMERICAN AIRLINES, INC.
2000 EMPLOYEE PROFIT SHARING PLAN
Purpose
The purpose of the 2000 American Airlines Employee Profit Sharing Plan ("Plan")
is to provide participating employees with a sense of commitment to, and direct
financial interest in, the success of American Airlines, Inc. ("American").
Definitions
Capitalized terms not otherwise defined in the Plan will have the meanings set
forth in the 1998 Long Term Incentive Plan, as amended (the "LTIP").
"AMR" is defined as AMR Corporation.
"Adjusted Investment" is defined as the sum of American's notes payable, current
maturities of long-term debt and capital leases, long-term debt, capital leases,
Present Value of Operating Leases, and stockholders' equity, and any accounting
adjustments or extraordinary or unusual items which may be added or deducted at
the discretion of the Committee and the Board of Directors.
"Affiliate" is defined as a subsidiary of AMR or any entity that is designated
by the Committee as a participating employer under the Plan, provided that AMR
directly or indirectly owns at least 20% of the combined voting power of all
classes of stock of such entity.
"AMR Minority Interest" is defined as outside stockholder's equity in earnings
(loss) of AMR subsidiaries other than American Airlines, Inc.
"American" is defined as AMR Corporation less AMR subsidiaries other than
American Airlines, Inc. and subsidiaries of American Airlines, Inc.
"Average Adjusted Investment" is defined as the sum of Adjusted Investment as of
12/31/99, 3/31/00, 6/30/00, and 9/30/00, divided by four.
"Calculated Amortization of Operating Leases" is defined as the amortization
expense associated with the Capitalized Value of Operating Leases as if such
leases were accounted for as capital leases, and is determined by the straight
line method over the lease term.
"Capitalized Value of Operating Leases" is defined as the initial present value
of the lease payments required under American's aircraft operating leases over
the initial stated lease term, calculated using a discount rate of Prime plus
one percent.
"Committee" is defined as the AMR Incentive Compensation Committee.
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<PAGE> 2
"Fund" is defined as the profit sharing fund, if any, accumulated in accordance
with this Plan.
"Plan Earnings" is defined as the sum of American's pre-tax income, interest
expense, aircraft rental expense, and any accruals for American's Pilot Variable
Compensation Plan, TWU Profit Sharing Plan, Employee Profit Sharing Plan, and
Incentive Compensation Plan, plus or less AMR Minority Interest, less Calculated
Amortization of Operating Leases and any accounting adjustments or extraordinary
or unusual items which may be added or deducted at the discretion of the
Committee and approved by the Board of Directors.
"Present Value of Operating Leases" is defined as the present value of the lease
payments required under American's aircraft operating leases over the remaining
lease term, calculated using the discount rate of Prime plus one percent.
Amounts for 3/31/00, 6/30/00, and 9/30/00 are computed by determining the
difference between the Present Value of Operating Leases as of 12/31/00 and
12/31/99 and allocating that difference evenly over the four quarters of 2000.
"Prime" is defined as the base rate on corporate loans posted by at least 75% of
the 30 largest U.S. banks which is published daily in the Wall Street Journal.
"Qualified Earnings" is defined as base pay, overtime, holiday pay, skill
premiums, longevity pay, sick pay, vacation pay, shift differential, market rate
differential, overrides and license premiums and does not include payments such
as travel and incidental expenses, moving expenses, relocation allowance (COLA),
payouts from any retirement plan, disability payments, workers compensation
payments, imputed income from D-3 service charges or other benefits provided by
American, nor does it include any special one-time monetary awards or allowances
such as IdeAAs in Action payments, lump sum payments, or incentive compensation
or profit sharing payments.
"Return on Investment" or "ROI" is defined as Plan Earnings divided by Average
Adjusted Investment, stated as a percentage.
Eligibility for Participation
In order to be eligible for a profit sharing award, the individual must:
o Have worked during the Plan year as a regular full-time or part-time
employee at American in a participating workgroup (flight attendant,
reservations, coordinator/planner, airport agent, support staff, management
levels 04 and below).
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<PAGE> 3
o Have an adjusted seniority date prior to July 1st of the Plan year.
Eligible Earnings from the time worked at American will be included in the
award calculation.
o Be employed at American or an Affiliate at the time awards are paid. If at
the time awards are paid under the Plan, an individual has retired from
American or an Affiliate, has been laid off, is on a leave of absence with
re-instatement rights, is disabled or has died, the award which the
individual otherwise would have received under the Plan but for such
retirement, lay-off, leave, disability or death may be paid to the
individual or his/her estate in the event of death, at the discretion of
the Committee.
Notwithstanding the foregoing, however, an employee will not be eligible to
participate in the Plan if such employee is, at the same time, eligible to
participate in:
i) the 2000 American Airlines Incentive Compensation Plan for Officers and
Key Employees,
ii) the Pilot Profit Sharing (as implemented in 1997),
iii) the TWU Profit Sharing Plan for members of the Transport Workers Union
(as implemented in 1995 and revised in 1996),
iv) any incentive compensation, profit sharing, commission or other bonus
plan for employees of any division of American, or
v) any incentive compensation, profit sharing, commission or other bonus
plan sponsored by an Affiliate.
Awards under the Plan will be determined on a proportionate basis for
participation in more than one plan during a Plan year. Employees who transfer
from/to Affiliates or any other plan described above during a Plan year, and
satisfy eligibility requirements, will receive awards from each plan on a
proportionate basis.
The Profit Sharing Fund Accumulation
Performance will be measured by ROI and the Fund will accumulate based on that
performance. The Fund is established at 1% of Qualified Earnings when ROI is
equal to 6.4%. The fund will accumulate on a straight-line basis at the rate of
0.583% of qualified earnings for each additional point of ROI.
The profit sharing fund will not exceed an amount equal to 8% of Qualified
Earnings at levels of ROI above 18.4%.
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<PAGE> 4
Award Distribution
For eligible domestic employees (where domestic means the United States, Puerto
Rico and the Virgin Islands), individual awards will be distributed based on an
employee's Qualified Earnings for the Plan year multiplied by the appropriate
percentage of Qualified Earnings based upon the ROI achieved for the Plan year.
The percent of Qualified Earnings used for Fund accumulation and award
distribution will be the same.
A portion of the Fund will be allocated for eligible international employees
based on the aggregate of all eligible international employees' Qualified
Earnings as a percentage of the aggregate of all eligible employees' total
Qualified Earnings. This portion of the Fund will be set aside for distribution
at the discretion of the American officer(s) responsible for such international
employees, subject only to the Committee's approval.
Administration
The Plan will be administered by the Committee which is comprised of officers of
American appointed by the Chairman of AMR. The Committee will have authority to
administer and interpret the Plan, establish administrative rules, determine
eligibility and take any other action necessary for the proper and efficient
operation of the Plan. The amount, if any, of the Fund shall be computed by the
General Auditor of American based on a certification of ROI by AMR's independent
auditors. A summary of awards under the Plan shall be provided to the Board of
Directors at the first regular meeting following determination of the awards.
Method of Payment
The Committee shall determine the method of payment of awards. Subject to the
terms of the Plan, awards shall be paid as soon as practicable after audited
financial statements for the year 2000 are available. Individuals, except
retirees, may elect to defer their awards into the 401(k) plan established by
American.
General
Neither this Plan nor any action taken thereunder shall be construed as giving
to any employee the right to be retained in the employ of American or any
Affiliate.
Nothing in the Plan shall be deemed to give any employee any right,
contractually or otherwise, to participate in the Plan or in any benefits
thereunder, other than the right to receive payment of such award as may have
been expressly determined by the Committee.
In the event of any act of God, war, natural disaster, aircraft grounding,
revocation of operating certificate, terrorism, strike, lockout, labor dispute,
work stoppage, fire,
4
<PAGE> 5
epidemic or quarantine restriction, act of government, critical materials
shortage, or any other act beyond the control of the Corporation, whether
similar or dissimilar, (each a "Force Majeure Event"), which Force Majeure Event
affects the Corporation or its Subsidiaries or its Affiliates, the Committee, at
its sole discretion, may (i) terminate or (ii) suspend, delay, defer (for such
period of time as the Committee may deem necessary), or substitute any payments
due currently or in the future under the Plan, including, but not limited to,
any payments that have accrued to the benefit of participants but have not yet
been paid.
In consideration of the employee's privilege to participate in the Plan, the
employee agrees (i) not to disclose any trade secrets of, or other
confidential/restricted information of, American, to any unauthorized party and,
(ii) not to make any unauthorized use of such trade secrets or confidential or
restricted information during his or her employment with American or after such
employment is terminated, and (iii) not to solicit any current employees of
American or any subsidiaries of AMR to join the employee at his or her new place
of employment after his or her employment with American is terminated.
The Committee may amend, suspend, or terminate the Plan at any time.
5
<PAGE> 1
EXHIBIT 10.65
AMERICAN AIRLINES, INC.
2000 INCENTIVE COMPENSATION PLAN FOR OFFICERS AND KEY
EMPLOYEES
Purpose
The purpose of the 2000 American Airlines Incentive Compensation Plan ("Plan")
for officers and key employees is to provide greater incentive to officers and
key employees of American Airlines, Inc. ("American"), to achieve the highest
level of individual performance, and to meet or exceed specified goals which
will contribute to the success of American.
Definitions
Capitalized terms not otherwise defined in the Plan will have the meanings set
forth in the 1998 Long Term Incentive Plan, as amended (the "LTIP").
"AMR" is defined as AMR Corporation.
"AMR Minority Interest" is defined as outside stockholder's equity in earnings
(loss) of AMR subsidiaries other than American Airlines, Inc.
"Adjusted Investment" is defined as the sum of American's notes payable, current
maturities of long-term debt and capital leases, long-term debt, capital leases,
Present Value of Operating Leases, and stockholders' equity, and any
extraordinary or unusual items which may be added or deducted by the Committee.
"Affiliate" is defined as a subsidiary of AMR or any entity that is designated
by the Committee as a participating employer under the Plan, provided that AMR
directly or indirectly owns at least 20% of the combined voting power of all
classes of stock of such entity.
"American" is defined as AMR Corporation less AMR subsidiaries other than
American Airlines, Inc. and subsidiaries of American Airlines, Inc.
"Average Adjusted Investment" is defined as the sum of Adjusted Investment as of
12/31/99, 3/31/00, 6/30/00, and 9/30/00, divided by four.
"Calculated Amortization of Operating Leases" is defined as the amortization
expense associated with the Capitalized Value of Operating Leases as if such
leases
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<PAGE> 2
were accounted for as capital leases, and is determined by the straight line
method over the lease term.
"Capitalized Value of Operating Leases" is defined as the initial present value
of the lease payments required under American's aircraft operating leases over
the initial stated lease term, calculated using a discount rate of Prime plus
one percent.
"Committee" is defined as the Compensation/Nominating Committee of the AMR Board
of Directors.
"Competitors" is defined as Continental Airlines (CO), Delta Airlines (DL),
Northwest Airlines (NW), United Airlines (UA) and US Airways (US).
"DOT Rank" is defined as American's relative rank with respect to its
Competitors in the category of arrivals+14 (A+14) as determined by the U.S.
Department of Transportation (DOT). This ranking is based on DOT's aggregated
A+14 data for the second, third, and fourth quarters of the Plan year.
"Fund" is defined as the incentive compensation fund, if any, accumulated in
accordance with this plan.
"Maximum ROI" is defined as 14.23%.
"Named Executive Officers" is defined as the officers of American who are named
in the AMR proxy statement for the year in which awards under the Plan are paid.
"Plan Earnings" is defined as the sum of American's pre-tax income, interest
expense, aircraft rental expense, AMR Minority Interest Expense, and any
accruals for American's Pilot Variable Compensation Plan, TWU Profit Sharing
Plan, Employee Profit Sharing Plan, and Incentive Compensation Plan, less
Calculated Amortization of Operating Leases and any accounting adjustments or
extraordinary or unusual items which may be added or deducted by the Committee.
"Present Value of Operating Leases" is defined as the present value of the lease
payments required under American's aircraft operating leases over the remaining
lease term, calculated using the discount rate used in the determination of the
Capitalized Value of Operating Leases. Amounts for 3/31/00, 6/30/00, and 9/30/00
are computed by determining the difference between the Present Value of
Operating Leases as of 12/31/00 and 12/31/99 and allocating the difference
evenly over the four quarters of 2000.
"Prime" is defined as the base rate on corporate loans posted by at least 75% of
the 30 largest U.S. banks which is published daily in The Wall Street Journal.
"Qualified Earnings" is defined as base pay, overtime, holiday pay, skill
premiums, longevity pay, sick pay, vacation pay, shift differential, market rate
differential,
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<PAGE> 3
overrides and license premiums and does not include such things as travel and
incidental expenses, moving expenses, relocation allowance (COLA), payouts from
any retirement plan, disability payments, Workers Compensation payments, imputed
income from D-3 service charges or life insurance, nor does it include any
special monetary awards or allowances such as IdeAAs in Action payments, lump
sum payments, or incentive compensation or profit sharing payments.
"Return on Investment" or "ROI" is defined as Plan Earnings divided by Average
Adjusted Investment, stated as a percentage.
"Survey America Rank" is defined as American's relative rank with respect to its
Competitors in the category of "Overall Rating of Travel Experience" in the
coach cabin as reported in Plog Inc.'s Survey America. The Survey America
ranking is based on aggregated data for American and its Competitors from the
second, third, and fourth quarters of the Plan year.
"Target Award" is defined as the award (stated as a percentage of Qualified
Earnings) for an eligible participant when Target ROI is achieved; subject,
however, to adjustment by the Committee or senior management, as the case may
be, based upon the participant's individual performance.
"Target ROI" is defined as 11.0%.
"Threshold ROI" is defined as 6.4%.
Eligibility for Participation
In order to be eligible to participate in the Plan, an individual must be an
officer or key employee (as designated by American's Chairman and CEO) of
American. Additionally, the individual must have been employed by American or an
Affiliate as an officer or key employee for at least three consecutive months
during the Plan year. The three months service requirement may be waived in
cases of mandatory retirement prior to completing three months of service.
During a Plan year, individuals with less than twelve months eligibility in the
Plan may be eligible to participate in the Plan on a pro rata basis, at the
discretion of the Committee. In addition, the Committee, at its discretion, may
permit participation by officers and key employees of Affiliates who have been
so employed by the Affiliate for at least three consecutive months during the
Plan year.
Notwithstanding the forgoing, however, an officer or key employee will not be
eligible to participate in the Plan if such officer or key employee is, at the
same time, eligible to participate in a commission, incentive, profit sharing or
other bonus compensation program sponsored by American or an Affiliate, unless
the Committee otherwise decides.
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In order to receive an award under the Plan, an individual must satisfy the
aforementioned eligibility requirements and must be an employee of American or
an Affiliate at the time an award under the Plan is paid. If at the time awards
are paid under the Plan, an individual has retired from American or an
Affiliate, is on leave of absence with reinstatement rights, is disabled, or has
died, the award which the individual otherwise would have received under the
Plan but for such retirement, leave, disability, or death may be paid to the
individual, or his/her estate in the event of death, at the discretion of the
Committee.
The Incentive Compensation Fund
Performance will be measured by ROI and the Fund will accumulate based on that
performance. The Fund is established at 50% of the Target Award when ROI is
equal to 6.4%.
Beyond the Threshold ROI, the Fund will accumulate on a linear basis such that
at the Target ROI of 11.0%, the Fund size equals 100% of Target Awards.
Following the attainment of Target ROI, the Fund will accumulate on a linear
basis such that maximum awards are funded at Maximum ROI and beyond.
The Fund will not exceed an amount equal to 175% of the Target Award at ROI
levels above 14.23% based purely on the financial measure. The Fund may exceed
175% of the Target Award on the basis of customer service rankings, as discussed
below. The Fund will not exceed an amount equal to 200% of the Target Award at
any ROI levels regardless of customer service rankings.
At each level of ROI greater than or equal to the Threshold ROI, the Fund will
either increase by an additional 10 or 25 percent of target or decrease by 10
percent of target, according to whether the following customer service measures
are met. For 2Q00, 3Q00 and 4Q00:
If American's DOT Rank is 1 or 2; and if American's Survey America Rank
is 1 or 2, the Fund will be increased by 25 percent of target. If
American ranks 1 or 2 on one measure; and ranks 3 or 4 on the other
measure, the Fund will be increased by 10% of target. If American ranks
5 or 6 on one measure but not the other; or if American ranks 3 or 4 on
both measures, the Fund will not change. If American's DOT Rank is 5 or
6; and American's Survey America Rank is 5 or 6, the Fund will be
decreased by 10 percent of target.
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Percentage Target Award in Addition to the Fund
<TABLE>
<S> <C> <C>
---------------- ----------------- ----------------
1 0% 10% 25%
2 Of target Of target Of target
---------------- ----------------- ----------------
DOT A+14 3 0% 0% 10%
Ranking 4 Of target Of target Of target
---------------- ----------------- ----------------
5 (10%) 0% 0%
6 Of target Of target Of target
---------------- ----------------- ----------------
6 5 4 3 2 1
</TABLE>
Survey America Ranking
(Overall coach experience)
Allocation of Individual Awards
The Chairman and CEO of American, in consultation with the executive and senior
vice presidents of American will determine awards for non-officer eligible
employees based upon the eligible employee's performance. An award under the
Plan to a non-officer eligible employee, when combined with any other award for
the Plan year whether such other award is under an incentive compensation,
commission, profit sharing or other bonus compensation plan, may not exceed 100%
of such eligible employee's base salary.
The Committee, in consultation with the Chairman and CEO of American, will
determine awards for officers of American, including the Named Executive
Officers. The awards for officers will be equal to the appropriate Target Award,
plus any enhancement for operating performance, adjusted for individual
performance. The award for a Named Executive Officer will be equal to the
appropriate Target Award, plus any enhancement for operating performance. In no
event, will an award to an officer, including a Named Executive Officer, exceed
the amount set forth in Section(11b) of the 1998 LTIP.
The aggregate of all awards paid hereunder will not exceed the lesser of: (2.0
times the Fund at Target ROI) or (50% of the total base salaries of all eligible
participants in the Plan). If an award is made under the Plan that is greater
that the amount determined in accordance with the appropriate Target Award plus
an enhancement for operating performance, such differential will be from the
general fund of American. In the discretion of the Committee, the Fund may not
be fully distributed.
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Administration
The Committee shall have authority to administer and interpret the Plan,
establish administrative rules, approve eligible participants, and take any
other action necessary for the proper operation of the Plan. In calculating ROI
the Committee may include or exclude special or non-recurring items.
Notwithstanding anything to the contrary contained herein, no awards will be
made under the Plan unless awards are also made under the 2000 American Airlines
Employee Profit Sharing Plan, the 2000 Pilot Variable Compensation Plan for
members of the Allied Pilots Association, and the 2000 TWU Profit Sharing Plan
for members of the Transport Workers Union. The amount if any, of the Fund shall
be computed by the General Auditor of American based on a certification of ROI
by AMR's independent auditors. A summary of awards under the Plan shall be
provided to the Committee at the first regular meeting following determination
of the awards.
Method of Payment
The Committee will determine the method of payment of awards. Except as provided
herein, awards shall be paid as soon as practicable after audited financial
statements for the year 2000 are available. Individuals, except retirees, may
elect to defer their awards into a 401(k) plan established by American or AMR or
into a deferred compensation program, if any, administered by American or AMR.
General
Neither this Plan nor any action taken hereunder shall be construed as giving
any employee or participant the right to be retained in the employ of American
or an Affiliate.
Nothing in the Plan shall be deemed to give any employee any right,
contractually or otherwise, to participate in the Plan or in any benefits
hereunder, other than the right to receive payment of such incentive
compensation as may have been expressly awarded by the Committee.
In the event of any act of God, war, natural disaster, aircraft grounding,
revocation of operating certificate, terrorism, strike, lockout, labor dispute,
work stoppage, fire, epidemic or quarantine restriction, act of government,
critical materials shortage, or any other act beyond the control of American,
whether similar or dissimilar, (each a "Force Majeure Event"), which Force
Majeure Event affects American or its subsidiaries or its Affiliates, the
Committee in its sole discretion, may (i) terminate or (ii) suspend, delay,
defer (for such period of time as the Board may deem necessary), or substitute
any payments due currently or in the future under the Plan,
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including, but not limited to, any payments that have accrued to the benefit of
participants but have not yet been paid.
In consideration of the employee's privilege to participate in the Plan, the
employee agrees (i) not to disclose any trade secrets of, or other
confidential/restricted information of, American, or its Affiliate, to any
unauthorized party and, (ii) not to make any unauthorized use of such trade
secrets or confidential or restricted information during his or her employment
with American, or its Affiliate, or after such employment is terminated, and
(iii) not to solicit any current employees of American, or its Affiliate, to
join the employee at his or her new place of employment after his or her
employment with American, or its Affiliate, is terminated.
The Board of Directors may amend, suspend, or terminate the Plan at any time.
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EXHIBIT 10.73
AMENDED AND RESTATED
EXECUTIVE TERMINATION BENEFITS AGREEMENT
THIS AMENDED AND RESTATED EXECUTIVE TERMINATION BENEFITS AGREEMENT
(this "Agreement"), dated as of the 19th day of January, 2000 is among AMR
CORPORATION, a Delaware corporation, AMERICAN AIRLINES, INC., a Delaware
corporation (collectively the "Company"), and THOMAS W. HORTON (the
"Executive").
W I T N E S S E T H:
WHEREAS, the Company considers it essential to the best interests of
the Company and its stockholders that its management be encouraged to remain
with the Company and to continue to devote full attention to the Company's
business in the event an effort is made to obtain control of the Company through
a tender offer or otherwise;
WHEREAS, the Company recognizes that the possibility of a change in
control and the uncertainty and questions which it may raise among management
may result in the departure or distraction of management personnel to the
detriment of the Company and its stockholders;
WHEREAS, the Company's Board of Directors (the "Board") has determined
that appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of the Company's management to their
assigned duties without distraction in the face of the potentially disturbing
circumstances arising from the possibility of a change in control of the
Company;
WHEREAS, the Executive is a key Executive of the Company;
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WHEREAS, the Company believes the Executive has made valuable
contributions to the productivity and profitability of the Company;
WHEREAS, should the Company receive any proposal from a third person
concerning a possible business combination with or acquisition of equity
securities of the Company, the Board believes it imperative that the Company and
the Board be able to rely upon the Executive to continue in his position, and
that the Company be able to receive and rely upon his advice as to the best
interests of the Company and its stockholders without concern that he might be
distracted by the personal uncertainties and risks created by such a proposal;
and
WHEREAS, should the Company receive any such proposals, in addition to
the Executive's regular duties, he may be called upon to assist in the
assessment of such proposals, advise management and the Board as to whether such
proposals would be in the best interests of the Company and its stockholders,
and to take such other actions as the Board might determine to be appropriate.
NOW, THEREFORE, to assure the Company that it will have the continued
undivided attention and services of the Executive and the availability of his
advice and counsel notwithstanding the possibility, threat or occurrence of a
bid to take over control of the Company, and to induce the Executive to remain
in the employ of the Company, and for other good and valuable consideration, the
Company and the Executive agree as follows:
1. Change in Control
For purposes of this Agreement, a Change in Control of the Company
shall be deemed to have taken place if:
(a) any person as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended from time to time (the "Exchange Act"), and as
used in Sections 13(d)
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and 14(d) thereof, including a "group" as defined in Section 13(d) of the
Exchange Act (a "Person"), but excluding the Company, any subsidiary of the
Company and any employee benefit plan sponsored or maintained by the Company or
any subsidiary of the Company (including any trustee of such plan acting as
trustee), directly or indirectly, becomes the "beneficial owner" (as defined in
Rule 13(d)-3 under the Exchange Act, as amended from time to time) of securities
of the Company representing 15% or more of the combined voting power of the
Company's then outstanding securities; or
(b) individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company or the acquisition of the assets of another corporation (a "Business
Combination"), in each case, unless, following such Business Combination, (i)
all or substantially all of the individuals and entities who were the beneficial
owners, respectively, of the then outstanding shares of common stock of the
Company and the combined voting power of the then outstanding voting securities
of the Company entitled to vote generally in the election of directors
immediately prior to such Business Combination
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beneficially own, directly or indirectly, more than 60% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries), (ii) no Person
(excluding any employee benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 15% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination, and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Incumbent Board, providing for
such Business Combination; or
(d) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
2. Circumstances Triggering Receipt of Severance Benefits
(a) Subject to Section 2(c), the Company will provide the
Executive with the benefits set forth in Section 4 upon any termination of the
Executive's employment:
(i) by the Company at any time within the first 24 months
after a Change in Control;
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(ii) by the Executive for "Good Reason" (as defined in
Section 2(b) below) at any time within the first 24 months after
a Change in Control;
(iii) by the Executive pursuant to Section 2(d); or
(iv) by the Company or the Executive pursuant to Section
2(e).
(b) In the event of the occurrence of a Change in Control, the
Executive may terminate employment with the Company and/or any subsidiary for
"Good Reason" with the right to benefits set forth in Section 4 upon the
occurrence of one or more of the following events (regardless of whether any
other reason, other than Cause as provided below, for such termination exists or
has occurred, including without limitation other employment):
(i) Failure to elect or reelect or otherwise to maintain the
Executive in the office or the position, or a substantially
equivalent office or position, of or with the Company and/or a
subsidiary, as the case may be, which the Executive held
immediately prior to a Change in Control, or the removal of the
Executive as a director of the Company and/or a subsidiary (or
any successor thereto) if the Executive shall have been a
director of the Company and/or a subsidiary immediately prior to
the Change in Control;
(ii) (A) A significant adverse change in the nature or scope
of the authorities, powers, functions, responsibilities or duties
attached to the position with the Company and/or any subsidiary
which the Executive held immediately prior to the Change in
Control, (B) a reduction in the aggregate of the Executive's
annual base salary rate and annual incentive compensation target
to be received from the Company and/or any subsidiary, or (C) the
termination or denial of the Executive's rights to Employee
Benefits (as defined below) or a reduction in the
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scope or value thereof, any of which is not remedied by the
Company within 10 calendar days after receipt by the Company of
written notice from the Executive of such change, reduction or
termination, as the case may be;
(iii) A determination by the Executive (which determination
will be conclusive and binding upon the parties hereto provided
it has been made in good faith and in all events will be presumed
to have been made in good faith unless otherwise shown by the
Company by clear and convincing evidence) that a change in
circumstances has occurred following a Change in Control,
including, without limitation, a change in the scope of the
business or other activities for which the Executive was
responsible immediately prior to the Change in Control, which has
rendered the Executive substantially unable to carry out, has
substantially hindered Executive's performance of, or has caused
the Executive to suffer a substantial reduction in, any of the
authorities, powers, functions, responsibilities or duties
attached to the position held by the Executive immediately prior
to the Change in Control, which situation is not remedied within
10 calendar days after written notice to the Company from the
Executive of such determination;
(iv) The liquidation, dissolution, merger, consolidation or
reorganization of the Company or transfer of all or substantially
all of its business and/or assets, unless the successor or
successors (by liquidation, merger, consolidation,
reorganization, transfer or otherwise) to which all or
substantially all of its business and/or assets have been
transferred (directly or by operation of law) assumed all duties
and obligations of the Company under this Agreement pursuant to
Section 9(a);
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(v) The Company relocates its principal executive offices,
or requires the Executive to have his principal location of work
changed, to any location that is in excess of 50 miles from the
location thereof immediately prior to the Change in Control, or
requires the Executive to travel away from his office in the
course of discharging his responsibilities or duties hereunder at
least 20% more (in terms of aggregate days in any calendar year
or in any calendar quarter when annualized for purposes of
comparison to any prior year) than was required of Executive in
any of the three full years immediately prior to the Change in
Control without, in either case, his prior written consent; or
(vi) Without limiting the generality or effect of the
foregoing, any material breach of this Agreement by the Company
or any successor thereto, which breach is not remedied within 10
calendar days after written notice to the Company from the
Executive describing the nature of such breach.
(c) Notwithstanding Sections 2(a) and (b) above, no benefits
shall be payable by reason of this Agreement in the event of:
(i) Termination of the Executive's employment with the
Company and its subsidiaries by reason of the Executive's death
or Disability, provided that the Executive has not previously
given a valid "Notice of Termination" pursuant to Section 3. For
purposes hereof, "Disability" shall be defined as the inability
of Executive due to illness, accident or other physical or mental
disability to perform his duties for any period of six
consecutive months or for any period of eight
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months out of any 12-month period, as determined by an
independent physician selected by the Company and reasonably
acceptable to the Executive (or his legal representative),
provided that the Executive does not return to work on
substantially a full-time basis within 30 days after written
notice from the Company, pursuant to Section 3, of an intent to
terminate the Executive's employment due to Disability;
(ii) Termination of the Executive's employment with the
Company and its subsidiaries on account of the Executive's
retirement at or after age 65, pursuant to the Company's
Retirement Benefit Plan; or
(iii) Termination of the Executive's employment with the
Company and its subsidiaries for Cause. For the purposes hereof,
"Cause" shall be defined as a felony conviction of the Executive
or the failure of the Executive to contest prosecution for a
felony, or the Executive's willful misconduct or dishonesty, any
of which is directly and materially harmful to the business or
reputation of the Company or any subsidiary or affiliate.
Notwithstanding the foregoing, the Executive shall not be deemed
to have been terminated for "Cause" hereunder unless and until
there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than
three quarters of the Board then in office at a meeting of the
Board called and held for such purpose, after reasonable notice
to the Executive and an opportunity for the Executive, together
with his counsel (if the Executive chooses to have counsel
present at such meeting), to be heard before the Board, finding
that, in the good faith opinion of the Board, the Executive had
committed an act constituting
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"Cause" as herein defined and specifying the particulars thereof
in detail. Nothing herein will limit the right of the Executive
or his beneficiaries to contest the validity or propriety of any
such determination.
This Section 2(c) shall not preclude the payment of any amounts otherwise
payable to the Executive under any of the Company's employee benefit plans,
stock plans, programs and arrangements and/or under any Employment Agreement.
(d) Notwithstanding anything contained in this Agreement to the
contrary, in the event of a Change in Control, the Executive may terminate
employment with the Company and any subsidiary for any reason, or without
reason, by providing Notice of Termination pursuant to Section 3 during the
30-day period immediately following the first anniversary of the first
occurrence of a Change in Control with the right to the benefits set forth in
Section 4.
(e) Any termination of employment of the Executive, including a
termination for "Good Reason," but excluding a termination for "Cause," or the
removal of the Executive from the office or position in the Company or any
subsidiary that occurs (i) not more than 180 days prior to the date on which a
Change in Control occurs and (ii) following the commencement of any discussion
with a third person that ultimately results in a Change in Control shall be
deemed to be a termination or removal of the Executive after a Change in Control
for purposes of this Agreement.
3. Notice of Termination
Any termination of the Executive's employment with the Company and its
subsidiaries as contemplated by Section 2 shall be communicated by written
"Notice of Termination" to the other party hereto. Any "Notice of Termination"
shall indicate the effective date of termination which shall not be less than 30
days or more than 60 days after the date the Notice of
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Termination is delivered (the "Termination Date"), the specific provision in
this Agreement relied upon, and, except for a termination pursuant to Section
2(d), will set forth in reasonable detail the facts and circumstances claimed to
provide a basis for such termination including, if applicable, the failure after
provision of written notice by the Executive to effect a remedy pursuant to the
final clause of Section 2(b)(ii), 2(b)(iii) or 2(b)(vi).
4. Termination Benefits
Subject to the conditions set forth in Section 2, the following
benefits shall be paid or provided to the Executive:
(a) Compensation
The Company shall pay to the Executive three times the sum of (i)
"Base Pay", which shall be an amount equal to the greater of (A) the Executive's
effective annual base salary at the Termination Date or (B) the Executive's
effective annual base salary immediately prior to the Change in Control, plus
(ii) "Incentive Pay" equal to the greater of (x) the target annual bonus payable
to the Executive under the Company's Incentive Compensation Plan or any other
annual bonus plan for the fiscal year of the Company in which the Change in
Control occurred or (y) the highest annual bonus earned by the Executive under
the Company's Incentive Compensation Plan or any other annual bonus plan
(whether paid currently or on a deferred basis) with respect to any 12
consecutive month period during the three fiscal years of the Company
immediately preceding the fiscal year of the Company in which the Change in
Control occurred, plus (iii) "Performance Returns" equal to the highest annual
payment of performance returns paid to the Executive with respect to any 12
consecutive month period during the three fiscal years of the Company
immediately preceding the fiscal year of the Company in which the Change in
Control occurred.
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(b) Welfare Benefits
For a period of 36 months following the Termination Date (the
"Continuation Period"), the Company shall arrange to provide the Executive with
benefits, including travel accident, major medical, dental, vision care and
other welfare benefit programs in effect immediately prior to the Change in
Control ("Employee Benefits") substantially similar to those that the Executive
was receiving or entitled to receive immediately prior to the Termination Date
(or, if greater, immediately prior to the reduction, termination, or denial
described in Section 2(b)(ii)(C)). If and to the extent that any benefit
described in this Section 4(b) is not or cannot be paid or provided under any
policy, plan, program or arrangement of the Company or any subsidiary, as the
case may be, then the Company will itself pay or provide for the payment to the
Executive, his dependents and beneficiaries, of such Employee Benefits along
with, in the case of any benefit which is subject to tax because it is not or
cannot be paid or provided under any such policy, plan, program or arrangement
of the Company or any subsidiary, an additional amount such that after payment
by the Executive, or his dependents or beneficiaries, as the case may be, of all
taxes so imposed, the recipient retains an amount equal to such taxes. Employee
Benefits otherwise receivable by the Executive pursuant to this Section 4(b)
will be reduced to the extent comparable welfare benefits are actually received
by the Executive from another employer during the Continuation Period, and any
such benefits actually received by the Executive shall be reported by the
Executive to the Company.
(c) Retirement Benefits
The Executive shall be deemed to be completely vested in Executive's
currently accrued benefits under the Company's Retirement Benefit Plan and
Supplemental Executive Retirement Plan ("SERP") in effect as of the date of
Change in Control (collectively, the "Plans"),
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regardless of his actual vesting service credit thereunder. In addition, the
Executive shall be deemed to earn service credit for benefit calculation
purposes thereunder for the Continuation Period. Benefits under the Plans will
become payable at any time designated by the Executive following termination of
the Executive's employment with the Company and its subsidiaries after the
Executive reaches age 55, subject to the terms of the Plans regarding the
actuarial adjustment of benefit payments commencing prior to normal retirement
age. The benefits to be paid pursuant to the Plans shall be calculated as though
the Executive's compensation rate for each of the five years immediately
preceding his retirement equaled the sum of Base Pay plus Incentive Pay plus
Performance Returns. Any benefits payable pursuant to this Section 4(c) that are
not payable out of the Plans for any reason (including but not limited to any
applicable benefit limitations under the Employee Retirement Income Security Act
of 1974, as amended, or any restrictions relating to the qualification of the
Company's Retirement Benefit Plan under Section 401(a) of the Internal Revenue
Code of 1986, as amended (the "Code")) shall be paid directly by the Company out
of its general assets.
(d) Relocation Benefits
If the Executive moves his residence in order to pursue other business
or employment opportunities during the Continuation Period and requests in
writing that the Company provide relocation services, he will be reimbursed for
any expenses incurred in that initial relocation (including taxes payable on the
reimbursement) which are not reimbursed by another employer. Benefits under this
provision will include assistance in selling the Executive's home and all other
assistance and benefits which were customarily provided by the Company to
transferred executives prior to the Change in Control.
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(e) Executive Outplacement Counseling
At the request of the Executive made in writing during the
Continuation Period, the Company shall engage an outplacement counseling service
of national reputation to assist the Executive in obtaining employment.
(f) Stock Based Compensation Plans
(i) Any issued and outstanding Stock Options (to the extent they
have not already become exercisable) shall become exercisable as of
the date on which the Change in Control occurs, unless otherwise
specifically provided at the time such options are granted.
(ii) The Company's right to rescind any award of stock to the
Executive under the Company's 1988 Long Term Incentive Plan or the
Company's 1998 Long Term Incentive Plan (or any successor plan) shall
terminate upon a Change in Control, and all restrictions on the sale,
pledge, hypothecation or other disposition of shares of stock awarded
pursuant to such plan shall be removed at the Termination Date, unless
otherwise specifically provided at the time such award(s) are made.
(iii) The Executive's rights under any other stock based
compensation plan shall vest (to the extent they have not already
vested) and any performance criteria shall be deemed met at target as
of the date on which a Change in Control occurs, unless otherwise
specifically provided at the time such right(s) are granted.
(g) Split Dollar Life Insurance
The Company shall pay to the Executive a lump sum equal to the
cost on the Termination Date of purchasing, at standard independent insurance
premium rates, an individual
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paid up insurance policy providing benefits equal to the benefits provided by
the Company's Split Dollar Life Insurance coverage immediately prior to the date
of the Change in Control.
(h) Other Benefits
(i) The Executive shall have all flight privileges provided by
the Company to Directors as of the date of Change in Control until the
Executive reaches age 55, at which time he shall have all flight
privileges provided by the Company to its retirees who held the same
or similar position as the Executive immediately prior to the Change
in Control.
(ii) The Executive, at the Executive's option, shall be entitled
to continue the use of the Executive's Company-provided automobile
during the Continuation Period under the same terms that applied to
the automobile immediately prior to the Change in Control, or to
purchase the automobile at its book value as of the Termination Date.
(iii) The Company shall pay to the Executive an amount equal to
the cost to the Company of providing any other perquisites and
benefits of the Company in effect immediately prior to the Change in
Control, calculated as if such benefits were continued during the
Continuation Period.
(i) Accrued Amounts
The Company shall pay to the Executive all other amounts accrued or
earned by the Executive through the Termination Date and amounts otherwise owing
under the then existing plans and policies of the Company, including but not
limited to all amounts of compensation previously deferred by the Executive
(together with any accrued interest thereon) and not yet paid by the Company,
and any accrued vacation pay not yet paid by the Company.
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(j) The Company shall pay to the Executive the amounts due pursuant to
Sections 4(a), 4(g) and 4(h)(iii) in a lump sum on the first business day of the
month following the Termination Date. The Company shall pay to the Executive the
amounts due pursuant to Section 4(i) in accordance with the terms and conditions
of the existing plans and policies of the Company.
5. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, but
subject to Section 5(h), in the event that this Agreement shall become operative
and it shall be determined (as hereafter provided) that any payment (other than
the Gross-Up payments provided for in this Section 5) or distribution by the
Company or any of its subsidiaries to or for the benefit of the Executive,
whether paid or payable or distributed or distributable pursuant to the terms of
this Agreement or otherwise pursuant to or by reason of any other agreement,
policy, plan, program or arrangement, including without limitation any stock
option, stock appreciation right or similar right, restricted stock, deferred
stock or the lapse or termination of any restriction on, deferral period or the
vesting or exercisability of any of the foregoing (a "Payment"), would be
subject to the excise tax imposed by Section 4999 of the Code (or any successor
provision thereto) by reason of being considered "contingent on a change in
ownership or control" of the Company, within the meaning of Section 280G of the
Code (or any successor provision thereto) or to any similar tax imposed by state
or local law, or any interest or penalties with respect to such tax (such tax or
taxes, together with any such interest and penalties, being hereafter
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment or payments (collectively, a "Gross-Up
Payment"). The Gross-Up Payment shall be in an amount such that, after payment
by the Executive of all taxes (including any interest or
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penalties imposed with respect to such taxes), including any Excise Tax and any
income tax imposed upon the Gross-Up Payment, the Executive retains an amount of
the Gross-Up Payment equal to the Excise Tax imposed upon the Payment.
(b) Subject to the provisions of Section 5(f), all determinations
required to be made under this Section 5, including whether an Excise Tax is
payable by the Executive and the amount of such Excise Tax and whether a
Gross-Up Payment is required to be paid by the Company to the Executive and the
amount of such Gross-Up Payment, if any, shall be made by a nationally
recognized accounting firm (the "Accounting Firm") selected by the Executive in
his sole discretion. The Executive shall direct the Accounting Firm to submit
its determination and detailed supporting calculations to both the Company and
the Executive within 30 calendar days after the Change in Control Date, the
Termination Date, if applicable, and any such other time or times as may be
requested by the Company or the Executive. If the Accounting Firm determines
that any Excise Tax is payable by the Executive, the Company shall pay the
required Gross-Up Payment to the Executive within five business days after
receipt of such determination and calculations with respect to any Payment to
the Executive. If the Accounting Firm determines that no Excise Tax is payable
by the Executive, it shall, at the same time as it makes such determination,
furnish the Company and the Executive an opinion that the Executive has
substantial authority not to report any Excise Tax on his federal, state or
local income or other tax return. As a result of the uncertainty in the
application of Section 4999 of the Code (or any successor provision thereto) and
the possibility of similar uncertainty regarding applicable state or local tax
law at the time of any determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made (an "Underpayment"), consistent with the calculations
required to be made hereunder. In the
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event that the Company exhausts or fails to pursue its remedies pursuant to
Section 5(f) and the Executive thereafter is required to make a payment of any
Excise Tax, the Executive shall direct the Accounting Firm to determine the
amount of the Underpayment that has occurred and to submit its determination and
detailed supporting calculations to both the Company and the Executive as
promptly as possible. Any such Underpayment shall be promptly paid by the
Company to, or for the benefit of, the Executive within five business days after
receipt of such determination and calculations.
(c) The Company and the Executive shall each provide the Accounting
Firm access to and copies of any books, records and documents in the possession
of the Company or the Executive, as the case may be, reasonably requested by the
Accounting Firm, and otherwise cooperate with the Accounting Firm in connection
with the preparation and issuance of the determinations and calculations
contemplated by Section 5(b). Any determination by the Accounting Firm as to the
amount of the Gross-Up Payment shall be binding upon the Company and the
Executive.
(d) The federal, state and local income or other tax returns filed by
the Executive shall be prepared and filed on a consistent basis with the
determination of the Accounting Firm with respect to the Excise Tax payable by
the Executive. The Executive shall make proper payment of the amount of any
Excise Payment, and at the request of the Company, provide to the Company true
and correct copies (with any amendments) of his federal income tax return as
filed with the Internal Revenue Service and corresponding state and local tax
returns, if relevant, as filed with the applicable taxing authority, and such
other documents reasonably requested by the Company, evidencing such payment. If
prior to the filing of the Executive's federal income tax return, or
corresponding state or local tax return, if relevant, the Accounting
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<PAGE> 18
Firm determines that the amount of the Gross-Up Payment should be reduced, the
Executive shall within five business days pay to the Company the amount of such
reduction.
(e) The fees and expenses of the Accounting Firm for its services in
connection with the determinations and calculations contemplated by Section 5(b)
shall be borne by the Company. If such fees and expenses are initially paid by
the Executive, the Company shall reimburse the Executive the full amount of such
fees and expenses within five business days after receipt from the Executive of
a statement therefor and reasonable evidence of his payment thereof.
(f) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service or any other taxing authority that, if successful,
would require the payment by the Company of a Gross-Up Payment or any additional
Gross-Up Payment. Such notification shall be given as promptly as practicable
but no later than 10 business days after the Executive actually receives notice
of such claim and the Executive shall further apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid (in each
case, to the extent known by the Executive). The Executive shall not pay such
claim prior to the earlier of (x) the expiration of the 30-calendar-day period
following the date on which he gives such notice to the Company and (y) the date
that any payment of amount with respect to such claim is due. If the Company
notifies the Executive in writing prior to the expiration of such period that it
desires to contest such claim, the Executive shall:
(i) provide the Company with any written records or documents in
his possession relating to such claim reasonably requested by the
Company;
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time,
including without
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limitation accepting legal representation with respect to such claim
by an attorney competent in respect of the subject matter and
reasonably selected by the Company;
(iii) cooperate with the Company in good faith in order
effectively to contest such claim; and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and shall indemnify and hold harmless the Executive, on an after-tax
basis, for and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such contest and payment
of costs and expenses. Without limiting the foregoing provisions of this Section
5(f), the Company shall control all proceedings taken in connection with the
contest of any claim contemplated by this Section 5(f) and, at its sole option,
may pursue or forego any and all administrative appeals, proceedings, hearings
and conferences with the taxing authority in respect of such claim (provided,
however, that the Executive may participate therein at his own cost and expense)
and may, at its option, either direct the Executive to pay the tax claimed and
sue for a refund or contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however, that if the
Company directs the Executive to pay the tax claimed and sue for a refund, the
Company shall advance the amount of such payment to the Executive on an
interest-free basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any
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<PAGE> 20
Excise Tax or income or other tax, including interest or penalties with respect
thereto, imposed with respect to such advance; and provided further, however,
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which the contested amount
is claimed to be due is limited solely to such contested amount. Furthermore,
the Company's control of any such contested claim shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(g) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 5(f), the Executive receives any refund with
respect to such claim, the Executive shall (subject to the Company's complying
with the requirements of Section 5(f)) promptly pay to the Company the amount of
such refund (together with any interest paid or credited thereon after any taxes
applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 5(f), a determination is made that
the Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial or refund prior to the expiration of 30 calendar days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of any such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid by the Company to
the Executive pursuant to this Section 5.
(h) Notwithstanding any provision of this Agreement to the contrary,
if (i) but for this sentence, the Company would be obligated to make a Gross-Up
Payment to the Executive, (ii) the aggregate "present value" of the "parachute
payments" to be paid or provided
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<PAGE> 21
(h) Notwithstanding any provision of this Agreement to the contrary,
if (i) but for this sentence, the Company would be obligated to make a Gross-Up
Payment to the Executive, (ii) the aggregate "present value" of the "parachute
payments" to be paid or provided
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<PAGE> 22
to the Executive under this Agreement or otherwise does not exceed 1.15
multiplied by three times the Executive's "base amount," and (iii) but for this
sentence, the net after-tax benefit to the Executive of the Gross-Up Payment
would not exceed $50,000 (taking into account both income taxes and any Excise
Tax), then the payments and benefits to be paid or provided under this Agreement
(including any stock based compensation pursuant to Section 4(f)) will be
reduced to the minimum extent necessary (but in no event to less than zero) so
that no portion of any payment or benefit to the Executive, as so reduced,
constitutes an "excess parachute payment." For purposes of this Section 5(h),
the terms "excess parachute payment," "present value," "parachute payment," and
"base amount" will have the meanings assigned to them by Section 280G of the
Code. The determination of whether any reduction in such payments or benefits to
be provided under this Agreement is required pursuant to the preceding sentence
will be made at the expense of the Company, if requested by the Executive or the
Company, by the Accounting Firm. The fact that the Executive's right to payments
or benefits may be reduced by reason of the limitations contained in this
Section 5(h) will not of itself limit or otherwise affect any other rights of
the Executive other than pursuant to this Agreement. In the event that any
payment or benefit intended to be provided under this Agreement or otherwise is
required to be reduced pursuant to this Section 5(h), the Executive will be
entitled to designate the payments and/or benefits to be so reduced in order to
give effect to this Section 5(h). The Company will provide the Executive with
all information reasonably requested by the Executive to permit the Executive to
make such designation. In the event that the Executive fails to make such
designation within 10 business days of the Termination Date, the Company may
effect such reduction in any manner it deems appropriate.
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<PAGE> 23
6. No Mitigation Obligation. The Company hereby acknowledges that it
will be difficult and may be impossible for the Executive to find reasonably
comparable employment following the Termination Date. Accordingly, the payment
of the severance compensation by the Company to the Executive in accordance with
the terms of this Agreement is hereby acknowledged by the Company to be
reasonable, and the Executive will not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise,
nor will any profits, income, earnings or other benefits from any source
whatsoever create any mitigation, offset, reduction or any other obligation on
the part of the Executive hereunder or otherwise, except as expressly provided
in the last sentence of Section 4(b).
7. Legal Fees and Expenses.
(a) It is the intent of the Company that the Executive not be
required to incur legal fees and the related expenses associated with the
interpretation, enforcement or defense of Executive's rights under this
Agreement by litigation or otherwise because the cost and expense thereof would
substantially detract from the benefits intended to be extended to the Executive
hereunder. Accordingly, if it should appear to the Executive that the Company
has failed to comply with any of its obligations under this Agreement or in the
event that the Company or any other person takes or threatens to take any action
to declare this Agreement void or unenforceable, or institutes any litigation or
other action or proceeding designed to deny, or to recover from, the Executive
any or all of the benefits provided or intended to be provided to the Executive
hereunder, the Company irrevocably authorizes the Executive from time to time to
retain counsel of Executive's choice, at the expense of the Company as hereafter
provided, to advise and represent the Executive in connection with any such
interpretation, enforcement or
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<PAGE> 24
defense, including without limitation the initiation or defense of any
litigation or other legal action, whether by or against the Company or any
director, officer, stockholder or other person affiliated with the Company, in
any jurisdiction. Notwithstanding any existing or prior attorney-client
relationship between the Company and such counsel, the Company irrevocably
consents to the Executive's entering into an attorney-client relationship with
such counsel, and in that connection the Company and the Executive agree that a
confidential relationship shall exist between the Executive and such counsel.
Without respect to whether the Executive prevails, in whole or in part, in
connection with any of the foregoing, the Company will pay and be solely
financially responsible for any and all attorneys' and related fees and expenses
incurred by the Executive in connection with any of the foregoing.
(b) Without limiting the obligations of the Company pursuant to
Section 7(a) hereof, in the event a Change in Control occurs, the performance of
the Company's obligations under this Section 7 shall be secured by amounts
deposited or to be deposited in trust pursuant to certain trust agreements to
which the Company shall be a party, which amounts deposited shall in the
aggregate be not less than $2,000,000, providing that the fees and expenses of
counsel selected from time to time by the Executive pursuant to Section 7(a)
shall be paid, or reimbursed to the Executive if paid by the Executive, either
in accordance with the terms of such trust agreements, or, if not so provided,
on a regular, periodic basis upon presentation by the Executive to the trustee
of a statement or statements prepared by such counsel in accordance with its
customary practices. Any failure by the Company to satisfy any of its
obligations under this Section 7(b) shall not limit the rights of the Executive
hereunder. Subject to the foregoing, the Executive shall have the status of a
general unsecured creditor of the Company and shall have no right to, or
security interest in, any assets of the Company or any subsidiary.
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<PAGE> 25
8. Continuing Obligations
(a) The Executive hereby agrees that all documents, records,
techniques, business secrets and other information which have come into his
possession from time to time during his employment with the Company shall be
deemed to be confidential and proprietary to the Company and, except for
personal documents and records of the Executive, shall be returned to the
Company. The Executive further agrees to retain in confidence any confidential
information known to him concerning the Company and its subsidiaries and their
respective businesses so long as such information is not publicly disclosed,
except that Executive may disclose any such information required to be disclosed
in the normal course of his employment with the Company or pursuant to any court
order or other legal process.
(b) The Executive hereby agrees that during the Continuation
Period, he will not directly or indirectly solicit any employee of the Company
or any of its subsidiaries or affiliated companies to join the employ of any
entity that competes with the Company or any of its subsidiaries or affiliated
companies.
9. Successors
(a) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of such successor entity to enter into such agreement prior to the
effective date of any such succession (or, if later, within three business days
after first receiving a written request for such agreement) shall constitute a
breach of this Agreement and shall entitle the Executive to
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<PAGE> 26
terminate his employment pursuant to Section 2(a)(ii) and to receive the
payments and benefits provided under Section 4. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which executes and delivers the
Agreement provided for in this Section 9 or which otherwise becomes bound by all
the terms and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive dies while any amounts are payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to his devisee, legatee or other designee or, if there is no such
designee, to his estate.
10. Notices
For all purposes of this Agreement, all communications, including
without limitation notices, consents, requests or approvals, required or
permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five business days
after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or three business days after having been
sent by a nationally recognized overnight courier service such as FedEx, UPS, or
Purolator, addressed to the Company (to the attention of the Secretary of the
Company, with a copy to the General Counsel of the Company) at its principal
executive office and to the Executive at his principal residence, or to such
other address as any party may have furnished to the other in writing and in
accordance herewith, except that notices of changes of address shall be
effective only upon receipt.
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<PAGE> 27
11. Governing Law
THE VALIDITY, INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
12. Miscellaneous
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement (or in any
employment or other written agreement relating to the Executive).
Notwithstanding any provision of this Agreement to the contrary, the parties'
respective rights and obligations under Sections 4, 5 and 7 will survive any
termination or expiration of this Agreement or the termination of the
Executive's employment following a Change in Control for any reason whatsoever.
Nothing expressed or implied in this Agreement will create any right or duty on
the part of the Company or the Executive to have the Executive remain in the
employment of the Company or any subsidiary prior to or following any Change in
Control. The Company may withhold from any amounts payable under this Agreement
all federal, state, city or other taxes as the Company is required to withhold
pursuant to any law or government regulation or ruling. In the event that the
Company refuses or otherwise fails to make a payment when due and it is
ultimately decided that the Executive is entitled to such
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<PAGE> 28
payment, such payment shall be increased to reflect an interest factor,
compounded annually, equal to the prime rate in effect as of the date the
payment was first due plus two points. For this purpose, the prime rate shall be
based on the rate identified by Chase Manhattan Bank as its prime rate.
13. Separability
The invalidity or unenforceability of any provisions of this Agreement
hall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
14. Non-assignability
This Agreement is personal in nature and neither of the parties hereto
shall, without the consent of the other, assign or transfer this Agreement or
any rights or obligations hereunder, except as provided in Section 9. Without
limiting the foregoing, the Executive's right to receive payments hereunder
shall not be assignable or transferable, whether by pledge, creation of a
security interest or otherwise, other than a transfer by his will or by the laws
of descent or distribution, and in the event of any attempted assignment or
transfer by Executive contrary to this Section 14 the Company shall have no
liability to pay any amount so attempted to be assigned or transferred to any
person other than the Executive or, in the event of his death, his designated
beneficiary or, in the absence of an effective beneficiary designation, the
Executive's estate.
15. Effectiveness; Term
This Agreement will be effective and binding as of the date first
above written immediately upon its execution, but, anything in this Agreement to
the contrary notwithstanding, this Agreement will not be operative unless and
until a Change in Control occurs. Upon the
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<PAGE> 29
occurrence of a Change in Control at any time during the Term (as defined
below), without further action, this Agreement shall become immediately
operative. For purposes of this Agreement, "Term" means the period commencing as
of the date first above written and expiring as of the later of (i) the fifth
anniversary of the date first above written or (ii) the second anniversary of
the first occurrence of a Change in Control; provided, however, that (A)
commencing on the fifth anniversary of the date first above written and each
fifth anniversary date thereafter, the Term of this Agreement will automatically
be extended for an additional five years unless, not later than 180 days
preceding each such fifth anniversary date, the Company or the Executive shall
have given notice that it or the Executive, as the case may be, does not wish to
have the Term extended and (B) subject to Section 2(e), if, prior to a Change in
Control, the Executive ceases for any reason to be an employee of the Company
and any subsidiary, thereupon without further action the Term shall be deemed to
have expired and this Agreement will immediately terminate and be of no further
effect. For purposes of this Section 15, the Executive shall not be deemed to
have ceased to be an employee of the Company and any subsidiary by reason of the
transfer of Executive's employment between the Company and any subsidiary, or
among any subsidiaries.
16 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
17 Prior Agreement. This Agreement supersedes and terminates any and
all prior Executive Termination Benefits Agreements by and among Company and the
Executive.
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<PAGE> 30
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above set forth, thereby
mutually and voluntarily agreeing that this Agreement supersedes and replaces
any prior similar agreements for such termination benefits.
AMR CORPORATION
By: /s/ Donald J. Carty
---------------------------------
AMERICAN AIRLINES, INC.
By: /s/ Thomas J. Kiernan
---------------------------------
THOMAS W. HORTON
/s/ Thomas W. Horton
-------------------------------------
29
<PAGE> 1
EXHIBIT 10.74
AMENDED AND RESTATED
EXECUTIVE TERMINATION BENEFITS AGREEMENT
THIS AMENDED AND RESTATED EXECUTIVE TERMINATION BENEFITS AGREEMENT
(this "Agreement"), dated as of the 19th day of January, 2000 is among AMR
CORPORATION, a Delaware corporation, AMERICAN AIRLINES, INC., a Delaware
corporation (collectively the "Company"), and HENRY C. JOYNER (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company considers it essential to the best interests of
the Company and its stockholders that its management be encouraged to remain
with the Company and to continue to devote full attention to the Company's
business in the event an effort is made to obtain control of the Company through
a tender offer or otherwise;
WHEREAS, the Company recognizes that the possibility of a change in
control and the uncertainty and questions which it may raise among management
may result in the departure or distraction of management personnel to the
detriment of the Company and its stockholders;
WHEREAS, the Company's Board of Directors (the "Board") has determined
that appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of the Company's management to their
assigned duties without distraction in the face of the potentially disturbing
circumstances arising from the possibility of a change in control of the
Company;
WHEREAS, the Executive is a key Executive of the Company;
<PAGE> 2
WHEREAS, the Company believes the Executive has made valuable
contributions to the productivity and profitability of the Company;
WHEREAS, should the Company receive any proposal from a third person
concerning a possible business combination with or acquisition of equity
securities of the Company, the Board believes it imperative that the Company and
the Board be able to rely upon the Executive to continue in his position, and
that the Company be able to receive and rely upon his advice as to the best
interests of the Company and its stockholders without concern that he might be
distracted by the personal uncertainties and risks created by such a proposal;
and
WHEREAS, should the Company receive any such proposals, in addition to
the Executive's regular duties, he may be called upon to assist in the
assessment of such proposals, advise management and the Board as to whether such
proposals would be in the best interests of the Company and its stockholders,
and to take such other actions as the Board might determine to be appropriate.
NOW, THEREFORE, to assure the Company that it will have the continued
undivided attention and services of the Executive and the availability of his
advice and counsel notwithstanding the possibility, threat or occurrence of a
bid to take over control of the Company, and to induce the Executive to remain
in the employ of the Company, and for other good and valuable consideration, the
Company and the Executive agree as follows:
1. Change in Control
For purposes of this Agreement, a Change in Control of the Company
shall be deemed to have taken place if:
(a) any person as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended from time to time (the "Exchange Act"), and as
used in Sections 13(d) and
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<PAGE> 3
14(d) thereof, including a "group" as defined in Section 13(d) of the Exchange
Act (a "Person"), but excluding the Company, any subsidiary of the Company and
any employee benefit plan sponsored or maintained by the Company or any
subsidiary of the Company (including any trustee of such plan acting as
trustee), directly or indirectly, becomes the "beneficial owner" (as defined in
Rule 13(d)-3 under the Exchange Act, as amended from time to time) of securities
of the Company representing 15% or more of the combined voting power of the
Company's then outstanding securities; or
(b) individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
(c) consummation of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets of the
Company or the acquisition of the assets of another corporation (a "Business
Combination"), in each case, unless, following such Business Combination, (i)
all or substantially all of the individuals and entities who were the beneficial
owners, respectively, of the then outstanding shares of common stock of the
Company and the combined voting power of the then outstanding voting securities
of the Company entitled to vote generally in the election of directors
immediately prior to such Business Combination
3
<PAGE> 4
beneficially own, directly or indirectly, more than 60% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries), (ii) no Person
(excluding any employee benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 15% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination, and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Incumbent Board, providing for
such Business Combination; or
(d) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
2. Circumstances Triggering Receipt of Severance Benefits
(a) Subject to Section 2(c), the Company will provide the
Executive with the benefits set forth in Section 4 upon any termination of the
Executive's employment:
(i) by the Company at any time within the first 24
months after a Change in Control;
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<PAGE> 5
(ii) by the Executive for "Good Reason" (as defined
in Section 2(b) below) at any time within the first 24 months
after a Change in Control;
(iii) by the Executive pursuant to Section 2(d); or
(iv) by the Company or the Executive pursuant to
Section 2(e).
(b) In the event of the occurrence of a Change in Control, the
Executive may terminate employment with the Company and/or any subsidiary for
"Good Reason" with the right to benefits set forth in Section 4 upon the
occurrence of one or more of the following events (regardless of whether any
other reason, other than Cause as provided below, for such termination exists or
has occurred, including without limitation other employment):
(i) Failure to elect or reelect or otherwise to
maintain the Executive in the office or the position, or a
substantially equivalent office or position, of or with the
Company and/or a subsidiary, as the case may be, which the
Executive held immediately prior to a Change in Control, or
the removal of the Executive as a director of the Company
and/or a subsidiary (or any successor thereto) if the
Executive shall have been a director of the Company and/or a
subsidiary immediately prior to the Change in Control;
(ii) (A) A significant adverse change in the nature
or scope of the authorities, powers, functions,
responsibilities or duties attached to the position with the
Company and/or any subsidiary which the Executive held
immediately prior to the Change in Control, (B) a reduction in
the aggregate of the Executive's annual base salary rate and
annual incentive compensation target to be received from the
Company and/or any subsidiary, or (C) the termination or
denial of the Executive's rights to Employee Benefits (as
defined below) or a reduction in the
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<PAGE> 6
scope or value thereof, any of which is not remedied by the
Company within 10 calendar days after receipt by the Company
of written notice from the Executive of such change, reduction
or termination, as the case may be;
(iii) A determination by the Executive (which
determination will be conclusive and binding upon the parties
hereto provided it has been made in good faith and in all
events will be presumed to have been made in good faith unless
otherwise shown by the Company by clear and convincing
evidence) that a change in circumstances has occurred
following a Change in Control, including, without limitation,
a change in the scope of the business or other activities for
which the Executive was responsible immediately prior to the
Change in Control, which has rendered the Executive
substantially unable to carry out, has substantially hindered
Executive's performance of, or has caused the Executive to
suffer a substantial reduction in, any of the authorities,
powers, functions, responsibilities or duties attached to the
position held by the Executive immediately prior to the Change
in Control, which situation is not remedied within 10 calendar
days after written notice to the Company from the Executive of
such determination;
(iv) The liquidation, dissolution, merger,
consolidation or reorganization of the Company or transfer of
all or substantially all of its business and/or assets, unless
the successor or successors (by liquidation, merger,
consolidation, reorganization, transfer or otherwise) to which
all or substantially all of its business and/or assets have
been transferred (directly or by operation of
6
<PAGE> 7
law) assumed all duties and obligations of the Company under
this Agreement pursuant to Section 9(a);
(v) The Company relocates its principal executive
offices, or requires the Executive to have his principal
location of work changed, to any location that is in excess of
50 miles from the location thereof immediately prior to the
Change in Control, or requires the Executive to travel away
from his office in the course of discharging his
responsibilities or duties hereunder at least 20% more (in
terms of aggregate days in any calendar year or in any
calendar quarter when annualized for purposes of comparison to
any prior year) than was required of Executive in any of the
three full years immediately prior to the Change in Control
without, in either case, his prior written consent; or
(vi) Without limiting the generality or effect of the
foregoing, any material breach of this Agreement by the
Company or any successor thereto, which breach is not remedied
within 10 calendar days after written notice to the Company
from the Executive describing the nature of such breach.
(c) Notwithstanding Sections 2(a) and (b) above, no benefits
shall be payable by reason of this Agreement in the event of:
(i) Termination of the Executive's employment with
the Company and its subsidiaries by reason of the Executive's
death or Disability, provided that the Executive has not
previously given a valid "Notice of Termination" pursuant to
Section 3. For purposes hereof, "Disability" shall be defined
as the inability of Executive due to illness, accident or
other physical or mental disability to perform his duties for
any period of six consecutive months or for any period of
eight
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<PAGE> 8
months out of any 12-month period, as determined by an
independent physician selected by the Company and reasonably
acceptable to the Executive (or his legal representative),
provided that the Executive does not return to work on
substantially a full-time basis within 30 days after written
notice from the Company, pursuant to Section 3, of an intent
to terminate the Executive's employment due to Disability;
(ii) Termination of the Executive's employment with
the Company and its subsidiaries on account of the Executive's
retirement at or after age 65, pursuant to the Company's
Retirement Benefit Plan; or
(iii) Termination of the Executive's employment with
the Company and its subsidiaries for Cause. For the purposes
hereof, "Cause" shall be defined as a felony conviction of the
Executive or the failure of the Executive to contest
prosecution for a felony, or the Executive's wilful misconduct
or dishonesty, any of which is directly and materially harmful
to the business or reputation of the Company or any subsidiary
or affiliate. Notwithstanding the foregoing, the Executive
shall not be deemed to have been terminated for "Cause"
hereunder unless and until there shall have been delivered to
the Executive a copy of a resolution duly adopted by the
affirmative vote of not less than three quarters of the Board
then in office at a meeting of the Board called and held for
such purpose, after reasonable notice to the Executive and an
opportunity for the Executive, together with his counsel (if
the Executive chooses to have counsel present at such
meeting), to be heard before the Board, finding that, in the
good faith opinion of the Board, the Executive had committed
an act constituting
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"Cause" as herein defined and specifying the particulars
thereof in detail. Nothing herein will limit the right of the
Executive or his beneficiaries to contest the validity or
propriety of any such determination.
This Section 2(c) shall not preclude the payment of any amounts
otherwise payable to the Executive under any of the Company's employee benefit
plans, stock plans, programs and arrangements and/or under any Employment
Agreement.
(d) Notwithstanding anything contained in this Agreement to
the contrary, in the event of a Change in Control, the Executive may terminate
employment with the Company and any subsidiary for any reason, or without
reason, by providing Notice of Termination pursuant to Section 3 during the
30-day period immediately following the first anniversary of the first
occurrence of a Change in Control with the right to the benefits set forth in
Section 4.
(e) Any termination of employment of the Executive, including
a termination for "Good Reason," but excluding a termination for "Cause," or the
removal of the Executive from the office or position in the Company or any
subsidiary that occurs (i) not more than 180 days prior to the date on which a
Change in Control occurs and (ii) following the commencement of any discussion
with a third person that ultimately results in a Change in Control shall be
deemed to be a termination or removal of the Executive after a Change in Control
for purposes of this Agreement.
3. Notice of Termination
Any termination of the Executive's employment with the Company and its
subsidiaries as contemplated by Section 2 shall be communicated by written
"Notice of Termination" to the other party hereto. Any "Notice of Termination"
shall indicate the effective date of termination which shall not be less than 30
days or more than 60 days after the date the Notice of
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Termination is delivered (the "Termination Date"), the specific provision in
this Agreement relied upon, and, except for a termination pursuant to Section
2(d), will set forth in reasonable detail the facts and circumstances claimed to
provide a basis for such termination including, if applicable, the failure after
provision of written notice by the Executive to effect a remedy pursuant to the
final clause of Section 2(b)(ii), 2(b)(iii) or 2(b)(vi).
4. Termination Benefits
Subject to the conditions set forth in Section 2, the following
benefits shall be paid or provided to the Executive:
(a) Compensation
The Company shall pay to the Executive three times the sum of
(i) "Base Pay", which shall be an amount equal to the greater of (A) the
Executive's effective annual base salary at the Termination Date or (B) the
Executive's effective annual base salary immediately prior to the Change in
Control, plus (ii) "Incentive Pay" equal to the greater of (x) the target annual
bonus payable to the Executive under the Company's Incentive Compensation Plan
or any other annual bonus plan for the fiscal year of the Company in which the
Change in Control occurred or (y) the highest annual bonus earned by the
Executive under the Company's Incentive Compensation Plan or any other annual
bonus plan (whether paid currently or on a deferred basis) with respect to any
12 consecutive month period during the three fiscal years of the Company
immediately preceding the fiscal year of the Company in which the Change in
Control occurred, plus (iii) "Performance Returns" equal to the highest annual
payment of performance returns paid to the Executive with respect to any 12
consecutive month period during the three fiscal years of the Company
immediately preceding the fiscal year of the Company in which the Change in
Control occurred.
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(b) Welfare Benefits
For a period of 36 months following the Termination Date (the
"Continuation Period"), the Company shall arrange to provide the Executive with
benefits, including travel accident, major medical, dental, vision care and
other welfare benefit programs in effect immediately prior to the Change in
Control ("Employee Benefits") substantially similar to those that the Executive
was receiving or entitled to receive immediately prior to the Termination Date
(or, if greater, immediately prior to the reduction, termination, or denial
described in Section 2(b)(ii)(C)). If and to the extent that any benefit
described in this Section 4(b) is not or cannot be paid or provided under any
policy, plan, program or arrangement of the Company or any subsidiary, as the
case may be, then the Company will itself pay or provide for the payment to the
Executive, his dependents and beneficiaries, of such Employee Benefits along
with, in the case of any benefit which is subject to tax because it is not or
cannot be paid or provided under any such policy, plan, program or arrangement
of the Company or any subsidiary, an additional amount such that after payment
by the Executive, or his dependents or beneficiaries, as the case may be, of all
taxes so imposed, the recipient retains an amount equal to such taxes. Employee
Benefits otherwise receivable by the Executive pursuant to this Section 4(b)
will be reduced to the extent comparable welfare benefits are actually received
by the Executive from another employer during the Continuation Period, and any
such benefits actually received by the Executive shall be reported by the
Executive to the Company.
(c) Retirement Benefits
The Executive shall be deemed to be completely vested in
Executive's currently accrued benefits under the Company's Retirement Benefit
Plan and Supplemental Executive Retirement Plan ("SERP") in effect as of the
date of Change in Control (collectively, the
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"Plans"), regardless of his actual vesting service credit thereunder. In
addition, the Executive shall be deemed to earn service credit for benefit
calculation purposes thereunder for the Continuation Period. Benefits under the
Plans will become payable at any time designated by the Executive following
termination of the Executive's employment with the Company and its subsidiaries
after the Executive reaches age 55, subject to the terms of the Plans regarding
the actuarial adjustment of benefit payments commencing prior to normal
retirement age. The benefits to be paid pursuant to the Plans shall be
calculated as though the Executive's compensation rate for each of the five
years immediately preceding his retirement equaled the sum of Base Pay plus
Incentive Pay plus Performance Returns. Any benefits payable pursuant to this
Section 4(c) that are not payable out of the Plans for any reason (including but
not limited to any applicable benefit limitations under the Employee Retirement
Income Security Act of 1974, as amended, or any restrictions relating to the
qualification of the Company's Retirement Benefit Plan under Section 401(a) of
the Internal Revenue Code of 1986, as amended (the "Code")) shall be paid
directly by the Company out of its general assets.
(d) Relocation Benefits
If the Executive moves his residence in order to pursue other
business or employment opportunities during the Continuation Period and requests
in writing that the Company provide relocation services, he will be reimbursed
for any expenses incurred in that initial relocation (including taxes payable on
the reimbursement) which are not reimbursed by another employer. Benefits under
this provision will include assistance in selling the Executive's home and all
other assistance and benefits which were customarily provided by the Company to
transferred executives prior to the Change in Control.
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(e) Executive Outplacement Counseling
At the request of the Executive made in writing during the
Continuation Period, the Company shall engage an outplacement counseling service
of national reputation to assist the Executive in obtaining employment.
(f) Stock Based Compensation Plans
(i) Any issued and outstanding Stock Options (to the
extent they have not already become exercisable) shall become
exercisable as of the date on which the Change in Control
occurs, unless otherwise specifically provided at the time
such options are granted.
(ii) The Company's right to rescind any award of
stock to the Executive under the Company's 1988 Long Term
Incentive Plan or the Company"s 1998 Long Term Incentive Plan
(or any successor plan) shall terminate upon a Change in
Control, and all restrictions on the sale, pledge,
hypothecation or other disposition of shares of stock awarded
pursuant to such plan shall be removed at the Termination
Date, unless otherwise specifically provided at the time such
award(s) are made.
(iii) The Executive's rights under any other stock
based compensation plan shall vest (to the extent they have
not already vested) and any performance criteria shall be
deemed met at target as of the date on which a Change in
Control occurs, unless otherwise specifically provided at the
time such right(s) are granted.
(g) Split Dollar Life Insurance
The Company shall pay to the Executive a lump sum equal to the
cost on the Termination Date of purchasing, at standard independent insurance
premium rates, an individual
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paid up insurance policy providing benefits equal to the benefits provided by
the Company's Split Dollar Life Insurance coverage immediately prior to the date
of the Change in Control.
(h) Other Benefits
(i) The Executive shall have all flight privileges
provided by the Company to Directors as of the date of Change
in Control until the Executive reaches age 55, at which time
he shall have all flight privileges provided by the Company to
its retirees who held the same or similar position as the
Executive immediately prior to the Change in Control.
(ii) The Executive, at the Executive's option, shall
be entitled to continue the use of the Executive's
Company-provided automobile during the Continuation Period
under the same terms that applied to the automobile
immediately prior to the Change in Control, or to purchase the
automobile at its book value as of the Termination Date.
(iii) The Company shall pay to the Executive an
amount equal to the cost to the Company of providing any other
perquisites and benefits of the Company in effect immediately
prior to the Change in Control, calculated as if such benefits
were continued during the Continuation Period.
(i) Accrued Amounts
The Company shall pay to the Executive all other amounts
accrued or earned by the Executive through the Termination Date and amounts
otherwise owing under the then existing plans and policies of the Company,
including but not limited to all amounts of compensation previously deferred by
the Executive (together with any accrued interest thereon) and not yet paid by
the Company, and any accrued vacation pay not yet paid by the Company.
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(j) The Company shall pay to the Executive the amounts due
pursuant to Sections 4(a), 4(g) and 4(h)(iii) in a lump sum on the first
business day of the month following the Termination Date. The Company shall pay
to the Executive the amounts due pursuant to Section 4(i) in accordance with the
terms and conditions of the existing plans and policies of the Company.
5. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, but subject to Section 5(h), in the event that this Agreement
shall become operative and it shall be determined (as hereafter provided) that
any payment (other than the Gross-Up payments provided for in this Section 5) or
distribution by the Company or any of its subsidiaries to or for the benefit of
the Executive, whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise pursuant to or by reason of any
other agreement, policy, plan, program or arrangement, including without
limitation any stock option, stock appreciation right or similar right,
restricted stock, deferred stock or the lapse or termination of any restriction
on, deferral period or the vesting or exercisability of any of the foregoing (a
"Payment"), would be subject to the excise tax imposed by Section 4999 of the
Code (or any successor provision thereto) by reason of being considered
"contingent on a change in ownership or control" of the Company, within the
meaning of Section 280G of the Code (or any successor provision thereto) or to
any similar tax imposed by state or local law, or any interest or penalties with
respect to such tax (such tax or taxes, together with any such interest and
penalties, being hereafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment or payments
(collectively, a "Gross-Up Payment"). The Gross-Up Payment shall be in an amount
such that, after payment by the Executive of all taxes (including any interest
or
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penalties imposed with respect to such taxes), including any Excise Tax and any
income tax imposed upon the Gross-Up Payment, the Executive retains an amount of
the Gross-Up Payment equal to the Excise Tax imposed upon the Payment.
(b) Subject to the provisions of Section 5(f), all
determinations required to be made under this Section 5, including whether an
Excise Tax is payable by the Executive and the amount of such Excise Tax and
whether a Gross-Up Payment is required to be paid by the Company to the
Executive and the amount of such Gross-Up Payment, if any, shall be made by a
nationally recognized accounting firm (the "Accounting Firm") selected by the
Executive in his sole discretion. The Executive shall direct the Accounting Firm
to submit its determination and detailed supporting calculations to both the
Company and the Executive within 30 calendar days after the Change in Control
Date, the Termination Date, if applicable, and any such other time or times as
may be requested by the Company or the Executive. If the Accounting Firm
determines that any Excise Tax is payable by the Executive, the Company shall
pay the required Gross-Up Payment to the Executive within five business days
after receipt of such determination and calculations with respect to any Payment
to the Executive. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, it shall, at the same time as it makes such
determination, furnish the Company and the Executive an opinion that the
Executive has substantial authority not to report any Excise Tax on his federal,
state or local income or other tax return. As a result of the uncertainty in the
application of Section 4999 of the Code (or any successor provision thereto) and
the possibility of similar uncertainty regarding applicable state or local tax
law at the time of any determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made (an "Underpayment"), consistent with the calculations
required to be made hereunder. In the
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event that the Company exhausts or fails to pursue its remedies pursuant to
Section 5(f) and the Executive thereafter is required to make a payment of any
Excise Tax, the Executive shall direct the Accounting Firm to determine the
amount of the Underpayment that has occurred and to submit its determination and
detailed supporting calculations to both the Company and the Executive as
promptly as possible. Any such Underpayment shall be promptly paid by the
Company to, or for the benefit of, the Executive within five business days after
receipt of such determination and calculations.
(c) The Company and the Executive shall each provide the
Accounting Firm access to and copies of any books, records and documents in the
possession of the Company or the Executive, as the case may be, reasonably
requested by the Accounting Firm, and otherwise cooperate with the Accounting
Firm in connection with the preparation and issuance of the determinations and
calculations contemplated by Section 5(b). Any determination by the Accounting
Firm as to the amount of the Gross-Up Payment shall be binding upon the Company
and the Executive.
(d) The federal, state and local income or other tax returns
filed by the Executive shall be prepared and filed on a consistent basis with
the determination of the Accounting Firm with respect to the Excise Tax payable
by the Executive. The Executive shall make proper payment of the amount of any
Excise Payment, and at the request of the Company, provide to the Company true
and correct copies (with any amendments) of his federal income tax return as
filed with the Internal Revenue Service and corresponding state and local tax
returns, if relevant, as filed with the applicable taxing authority, and such
other documents reasonably requested by the Company, evidencing such payment. If
prior to the filing of the Executive's federal income tax return, or
corresponding state or local tax return, if relevant, the Accounting
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Firm determines that the amount of the Gross-Up Payment should be reduced, the
Executive shall within five business days pay to the Company the amount of such
reduction.
(e) The fees and expenses of the Accounting Firm for its
services in connection with the determinations and calculations contemplated by
Section 5(b) shall be borne by the Company. If such fees and expenses are
initially paid by the Executive, the Company shall reimburse the Executive the
full amount of such fees and expenses within five business days after receipt
from the Executive of a statement therefor and reasonable evidence of his
payment thereof.
(f) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service or any other taxing authority that, if
successful, would require the payment by the Company of a Gross-Up Payment or
any additional Gross-Up Payment. Such notification shall be given as promptly as
practicable but no later than 10 business days after the Executive actually
receives notice of such claim and the Executive shall further apprise the
Company of the nature of such claim and the date on which such claim is
requested to be paid (in each case, to the extent known by the Executive). The
Executive shall not pay such claim prior to the earlier of (x) the expiration of
the 30-calendar-day period following the date on which he gives such notice to
the Company and (y) the date that any payment of amount with respect to such
claim is due. If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) provide the Company with any written records or
documents in his possession relating to such claim reasonably
requested by the Company;
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing
from time to time, including without
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limitation accepting legal representation with respect to such
claim by an attorney competent in respect of the subject
matter and reasonably selected by the Company;
(iii) cooperate with the Company in good faith in
order effectively to contest such claim; and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and shall indemnify and hold harmless the Executive, on an after-tax
basis, for and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such contest and payment
of costs and expenses. Without limiting the foregoing provisions of this Section
5(f), the Company shall control all proceedings taken in connection with the
contest of any claim contemplated by this Section 5(f) and, at its sole option,
may pursue or forego any and all administrative appeals, proceedings, hearings
and conferences with the taxing authority in respect of such claim (provided,
however, that the Executive may participate therein at his own cost and expense)
and may, at its option, either direct the Executive to pay the tax claimed and
sue for a refund or contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however, that if the
Company directs the Executive to pay the tax claimed and sue for a refund, the
Company shall advance the amount of such payment to the Executive on an
interest-free basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any
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Excise Tax or income or other tax, including interest or penalties with respect
thereto, imposed with respect to such advance; and provided further, however,
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which the contested amount
is claimed to be due is limited solely to such contested amount. Furthermore,
the Company's control of any such contested claim shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(g) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 5(f), the Executive receives any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 5(f)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
any taxes applicable thereto). If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 5(f), a determination is made
that the Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its intent to
contest such denial or refund prior to the expiration of 30 calendar days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of any such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid by the
Company to the Executive pursuant to this Section 5.
(h) Notwithstanding any provision of this Agreement to the
contrary, if (i) but for this sentence, the Company would be obligated to make a
Gross-Up Payment to the Executive, (ii) the aggregate "present value" of the
"parachute payments" to be paid or provided
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to the Executive under this Agreement or otherwise does not exceed 1.15
multiplied by three times the Executive's "base amount," and (iii) but for this
sentence, the net after-tax benefit to the Executive of the Gross-Up Payment
would not exceed $50,000 (taking into account both income taxes and any Excise
Tax), then the payments and benefits to be paid or provided under this Agreement
(including any stock based compensation pursuant to Section 4(f)) will be
reduced to the minimum extent necessary (but in no event to less than zero) so
that no portion of any payment or benefit to the Executive, as so reduced,
constitutes an "excess parachute payment." For purposes of this Section 5(h),
the terms "excess parachute payment," "present value," "parachute payment," and
"base amount" will have the meanings assigned to them by Section 280G of the
Code. The determination of whether any reduction in such payments or benefits to
be provided under this Agreement is required pursuant to the preceding sentence
will be made at the expense of the Company, if requested by the Executive or the
Company, by the Accounting Firm. The fact that the Executive's right to payments
or benefits may be reduced by reason of the limitations contained in this
Section 5(h) will not of itself limit or otherwise affect any other rights of
the Executive other than pursuant to this Agreement. In the event that any
payment or benefit intended to be provided under this Agreement or otherwise is
required to be reduced pursuant to this Section 5(h), the Executive will be
entitled to designate the payments and/or benefits to be so reduced in order to
give effect to this Section 5(h). The Company will provide the Executive with
all information reasonably requested by the Executive to permit the Executive to
make such designation. In the event that the Executive fails to make such
designation within 10 business days of the Termination Date, the Company may
effect such reduction in any manner it deems appropriate.
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6. No Mitigation Obligation. The Company hereby acknowledges that it
will be difficult and may be impossible for the Executive to find reasonably
comparable employment following the Termination Date. Accordingly, the payment
of the severance compensation by the Company to the Executive in accordance with
the terms of this Agreement is hereby acknowledged by the Company to be
reasonable, and the Executive will not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise,
nor will any profits, income, earnings or other benefits from any source
whatsoever create any mitigation, offset, reduction or any other obligation on
the part of the Executive hereunder or otherwise, except as expressly provided
in the last sentence of Section 4(b).
7. Legal Fees and Expenses.
(a) It is the intent of the Company that the Executive not be
required to incur legal fees and the related expenses associated with the
interpretation, enforcement or defense of Executive's rights under this
Agreement by litigation or otherwise because the cost and expense thereof would
substantially detract from the benefits intended to be extended to the Executive
hereunder. Accordingly, if it should appear to the Executive that the Company
has failed to comply with any of its obligations under this Agreement or in the
event that the Company or any other person takes or threatens to take any action
to declare this Agreement void or unenforceable, or institutes any litigation or
other action or proceeding designed to deny, or to recover from, the Executive
any or all of the benefits provided or intended to be provided to the Executive
hereunder, the Company irrevocably authorizes the Executive from time to time to
retain counsel of Executive's choice, at the expense of the Company as hereafter
provided, to advise and represent the Executive in connection with any such
interpretation, enforcement or
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defense, including without limitation the initiation or defense of any
litigation or other legal action, whether by or against the Company or any
director, officer, stockholder or other person affiliated with the Company, in
any jurisdiction. Notwithstanding any existing or prior attorney-client
relationship between the Company and such counsel, the Company irrevocably
consents to the Executive's entering into an attorney-client relationship with
such counsel, and in that connection the Company and the Executive agree that a
confidential relationship shall exist between the Executive and such counsel.
Without respect to whether the Executive prevails, in whole or in part, in
connection with any of the foregoing, the Company will pay and be solely
financially responsible for any and all attorneys' and related fees and expenses
incurred by the Executive in connection with any of the foregoing.
(b) Without limiting the obligations of the Company pursuant
to Section 7(a) hereof, in the event a Change in Control occurs, the performance
of the Company's obligations under this Section 7 shall be secured by amounts
deposited or to be deposited in trust pursuant to certain trust agreements to
which the Company shall be a party, which amounts deposited shall in the
aggregate be not less than $2,000,000, providing that the fees and expenses of
counsel selected from time to time by the Executive pursuant to Section 7(a)
shall be paid, or reimbursed to the Executive if paid by the Executive, either
in accordance with the terms of such trust agreements, or, if not so provided,
on a regular, periodic basis upon presentation by the Executive to the trustee
of a statement or statements prepared by such counsel in accordance with its
customary practices. Any failure by the Company to satisfy any of its
obligations under this Section 7(b) shall not limit the rights of the Executive
hereunder. Subject to the foregoing, the Executive shall have the status of a
general unsecured creditor of the Company and shall have no right to, or
security interest in, any assets of the Company or any subsidiary.
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8. Continuing Obligations
(a) The Executive hereby agrees that all documents, records,
techniques, business secrets and other information which have come into his
possession from time to time during his employment with the Company shall be
deemed to be confidential and proprietary to the Company and, except for
personal documents and records of the Executive, shall be returned to the
Company. The Executive further agrees to retain in confidence any confidential
information known to him concerning the Company and its subsidiaries and their
respective businesses so long as such information is not publicly disclosed,
except that Executive may disclose any such information required to be disclosed
in the normal course of his employment with the Company or pursuant to any court
order or other legal process.
(b) The Executive hereby agrees that during the Continuation
Period, he will not directly or indirectly solicit any employee of the Company
or any of its subsidiaries or affiliated companies to join the employ of any
entity that competes with the Company or any of its subsidiaries or affiliated
companies.
9. Successors
(a) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of such successor entity to enter into such agreement prior to the
effective date of any such succession (or, if later, within three business days
after first receiving a written request for such agreement) shall constitute a
breach of this Agreement and shall entitle the Executive to
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terminate his employment pursuant to Section 2(a)(ii) and to receive the
payments and benefits provided under Section 4. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which executes and delivers the
Agreement provided for in this Section 9 or which otherwise becomes bound by all
the terms and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive dies while any amounts are payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to his devisee, legatee or other designee or, if there is no such
designee, to his estate.
10. Notices
For all purposes of this Agreement, all communications, including
without limitation notices, consents, requests or approvals, required or
permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five business days
after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or three business days after having been
sent by a nationally recognized overnight courier service such as FedEx, UPS, or
Purolator, addressed to the Company (to the attention of the Secretary of the
Company, with a copy to the General Counsel of the Company) at its principal
executive office and to the Executive at his principal residence, or to such
other address as any party may have furnished to the other in writing and in
accordance herewith, except that notices of changes of address shall be
effective only upon receipt.
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11. Governing Law
THE VALIDITY, INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
12. Miscellaneous
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement (or in any
employment or other written agreement relating to the Executive).
Notwithstanding any provision of this Agreement to the contrary, the parties'
respective rights and obligations under Sections 4, 5 and 7 will survive any
termination or expiration of this Agreement or the termination of the
Executive's employment following a Change in Control for any reason whatsoever.
Nothing expressed or implied in this Agreement will create any right or duty on
the part of the Company or the Executive to have the Executive remain in the
employment of the Company or any subsidiary prior to or following any Change in
Control. The Company may withhold from any amounts payable under this Agreement
all federal, state, city or other taxes as the Company is required to withhold
pursuant to any law or government regulation or ruling. In the event that the
Company refuses or otherwise fails to make a payment when due and it is
ultimately decided that the Executive is entitled to such
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payment, such payment shall be increased to reflect an interest factor,
compounded annually, equal to the prime rate in effect as of the date the
payment was first due plus two points. For this purpose, the prime rate shall be
based on the rate identified by Chase Manhattan Bank as its prime rate.
13. Separability
The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
14. Non-assignability
This Agreement is personal in nature and neither of the parties hereto
shall, without the consent of the other, assign or transfer this Agreement or
any rights or obligations hereunder, except as provided in Section 9. Without
limiting the foregoing, the Executive's right to receive payments hereunder
shall not be assignable or transferable, whether by pledge, creation of a
security interest or otherwise, other than a transfer by his will or by the laws
of descent or distribution, and in the event of any attempted assignment or
transfer by Executive contrary to this Section 14 the Company shall have no
liability to pay any amount so attempted to be assigned or transferred to any
person other than the Executive or, in the event of his death, his designated
beneficiary or, in the absence of an effective beneficiary designation, the
Executive's estate.
15. Effectiveness; Term
This Agreement will be effective and binding as of the date first above
written immediately upon its execution, but, anything in this Agreement to the
contrary notwithstanding, this Agreement will not be operative unless and until
a Change in Control occurs. Upon the
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occurrence of a Change in Control at any time during the Term (as defined
below), without further action, this Agreement shall become immediately
operative. For purposes of this Agreement, "Term" means the period commencing as
of the date first above written and expiring as of the later of (i) the fifth
anniversary of the date first above written or (ii) the second anniversary of
the first occurrence of a Change in Control; provided, however, that (A)
commencing on the fifth anniversary of the date first above written and each
fifth anniversary date thereafter, the Term of this Agreement will automatically
be extended for an additional five years unless, not later than 180 days
preceding each such fifth anniversary date, the Company or the Executive shall
have given notice that it or the Executive, as the case may be, does not wish to
have the Term extended and (B) subject to Section 2(e), if, prior to a Change in
Control, the Executive ceases for any reason to be an employee of the Company
and any subsidiary, thereupon without further action the Term shall be deemed to
have expired and this Agreement will immediately terminate and be of no further
effect. For purposes of this Section 15, the Executive shall not be deemed to
have ceased to be an employee of the Company and any subsidiary by reason of the
transfer of Executive's employment between the Company and any subsidiary, or
among any subsidiaries.
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
17. Prior Agreement. This Agreement supersedes and terminates any and
all prior Executive Termination Benefits Agreements by and among Company and the
Executive.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above set forth, thereby
mutually and voluntarily agreeing that this Agreement supersedes and replaces
any prior similar agreements for such termination benefits.
AMR CORPORATION
By: /s/ Donald J. Carty
--------------------------------------
AMERICAN AIRLINES, INC.
By: /s/ Thomas J. Kiernan
--------------------------------------
HENRY C. JOYNER
/s/ Henry C. Joyner
-----------------------------------------
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<PAGE> 1
Exhibit 10.79
AMENDED AND RESTATED
EXECUTIVE TERMINATION BENEFITS AGREEMENT
THIS AMENDED AND RESTATED EXECUTIVE TERMINATION BENEFITS AGREEMENT
(this "Agreement"), dated as of the 20th day of October, 1999 is among AMR
CORPORATION, a Delaware corporation, AMERICAN AIRLINES, INC., a Delaware
corporation (collectively the "Company"), and WILLIAM K. RIS, JR. (the
"Executive").
W I T N E S S E T H:
WHEREAS, the Company considers it essential to the best interests of
the Company and its stockholders that its management be encouraged to remain
with the Company and to continue to devote full attention to the Company's
business in the event an effort is made to obtain control of the Company through
a tender offer or otherwise;
WHEREAS, the Company recognizes that the possibility of a change in
control and the uncertainty and questions which it may raise among management
may result in the departure or distraction of management personnel to the
detriment of the Company and its stockholders; WHEREAS, the Company's Board of
Directors (the "Board") has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of the
Company's management to their assigned duties without distraction in the face of
the potentially disturbing circumstances arising from the possibility of a
change in control of the Company;
WHEREAS, the Executive is a key Executive of the Company;
<PAGE> 2
WHEREAS, the Company believes the Executive has made valuable
contributions to the productivity and profitability of the Company;
WHEREAS, should the Company receive any proposal from a third person
concerning a possible business combination with or acquisition of equity
securities of the Company, the Board believes it imperative that the Company and
the Board be able to rely upon the Executive to continue in his position, and
that the Company be able to receive and rely upon his advice as to the best
interests of the Company and its stockholders without concern that he might be
distracted by the personal uncertainties and risks created by such a proposal;
and
WHEREAS, should the Company receive any such proposals, in addition to
the Executive's regular duties, he may be called upon to assist in the
assessment of such proposals, advise management and the Board as to whether such
proposals would be in the best interests of the Company and its stockholders,
and to take such other actions as the Board might determine to be appropriate.
NOW, THEREFORE, to assure the Company that it will have the continued
undivided attention and services of the Executive and the availability of his
advice and counsel notwithstanding the possibility, threat or occurrence of a
bid to take over control of the Company, and to induce the Executive to remain
in the employ of the Company, and for other good and valuable consideration, the
Company and the Executive agree as follows:
1. Change in Control
For purposes of this Agreement, a Change in Control of the Company
shall be deemed to have taken place if:
(a) any person as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended from time to time (the "Exchange Act"), and as
used in Sections 13(d) and
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14(d) thereof, including a "group" as defined in Section 13(d) of the Exchange
Act (a "Person"), but excluding the Company, any subsidiary of the Company and
any employee benefit plan sponsored or maintained by the Company or any
subsidiary of the Company (including any trustee of such plan acting as
trustee), directly or indirectly, becomes the "beneficial owner" (as defined in
Rule 13(d)-3 under the Exchange Act, as amended from time to time) of securities
of the Company representing 15% or more of the combined voting power of the
Company's then outstanding securities; or
(b) individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
(c) consummation of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets of the
Company or the acquisition of the assets of another corporation (a "Business
Combination"), in each case, unless, following such Business Combination, (i)
all or substantially all of the individuals and entities who were the beneficial
owners, respectively, of the then outstanding shares of common stock of the
Company and the combined voting power of the then outstanding voting securities
of the Company entitled to vote generally in the election of directors
immediately prior to such Business Combination
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beneficially own, directly or indirectly, more than 60% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries), (ii) no Person
(excluding any employee benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 15% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination, and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Incumbent Board, providing for
such Business Combination; or
(d) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
2. Circumstances Triggering Receipt of Severance Benefits
(a) Subject to Section 2(c), the Company will provide the
Executive with the benefits set forth in Section 4 upon any termination of the
Executive's employment:
(i) by the Company at any time within the first 24
months after a Change in Control;
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<PAGE> 5
(ii) by the Executive for "Good Reason" (as defined
in Section 2(b) below) at any time within the first 24 months
after a Change in Control;
(iii) by the Executive pursuant to Section 2(d); or
(iv) by the Company or the Executive pursuant to
Section 2(e).
(b) In the event of the occurrence of a Change in Control, the
Executive may terminate employment with the Company and/or any subsidiary for
"Good Reason" with the right to benefits set forth in Section 4 upon the
occurrence of one or more of the following events (regardless of whether any
other reason, other than Cause as provided below, for such termination exists or
has occurred, including without limitation other employment):
(i) Failure to elect or reelect or otherwise to
maintain the Executive in the office or the position, or a
substantially equivalent office or position, of or with the
Company and/or a subsidiary, as the case may be, which the
Executive held immediately prior to a Change in Control, or
the removal of the Executive as a director of the Company
and/or a subsidiary (or any successor thereto) if the
Executive shall have been a director of the Company and/or a
subsidiary immediately prior to the Change in Control;
(ii) (A) A significant adverse change in the nature
or scope of the authorities, powers, functions,
responsibilities or duties attached to the position with the
Company and/or any subsidiary which the Executive held
immediately prior to the Change in Control, (B) a reduction in
the aggregate of the Executive's annual base salary rate and
annual incentive compensation target to be received from the
Company and/or any subsidiary, or (C) the termination or
denial of the Executive's rights to Employee Benefits (as
defined below) or a reduction in the
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<PAGE> 6
scope or value thereof, any of which is not remedied by the
Company within 10 calendar days after receipt by the Company
of written notice from the Executive of such change, reduction
or termination, as the case may be;
(iii) A determination by the Executive (which
determination will be conclusive and binding upon the parties
hereto provided it has been made in good faith and in all
events will be presumed to have been made in good faith unless
otherwise shown by the Company by clear and convincing
evidence) that a change in circumstances has occurred
following a Change in Control, including, without limitation,
a change in the scope of the business or other activities for
which the Executive was responsible immediately prior to the
Change in Control, which has rendered the Executive
substantially unable to carry out, has substantially hindered
Executive's performance of, or has caused the Executive to
suffer a substantial reduction in, any of the authorities,
powers, functions, responsibilities or duties attached to the
position held by the Executive immediately prior to the Change
in Control, which situation is not remedied within 10 calendar
days after written notice to the Company from the Executive of
such determination;
(iv) The liquidation, dissolution, merger,
consolidation or reorganization of the Company or transfer of
all or substantially all of its business and/or assets, unless
the successor or successors (by liquidation, merger,
consolidation, reorganization, transfer or otherwise) to which
all or substantially all of its business and/or assets have
been transferred (directly or by operation of
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law) assumed all duties and obligations of the Company under
this Agreement pursuant to Section 9(a);
(v) The Company relocates its principal executive
offices, or requires the Executive to have his principal
location of work changed, to any location that is in excess of
50 miles from the location thereof immediately prior to the
Change in Control, or requires the Executive to travel away
from his office in the course of discharging his
responsibilities or duties hereunder at least 20% more (in
terms of aggregate days in any calendar year or in any
calendar quarter when annualized for purposes of comparison to
any prior year) than was required of Executive in any of the
three full years immediately prior to the Change in Control
without, in either case, his prior written consent; or
(vi) Without limiting the generality or effect of the
foregoing, any material breach of this Agreement by the
Company or any successor thereto, which breach is not remedied
within 10 calendar days after written notice to the Company
from the Executive describing the nature of such breach.
(c) Notwithstanding Sections 2(a) and (b) above, no benefits
shall be payable by reason of this Agreement in the event of:
(i) Termination of the Executive's employment with
the Company and its subsidiaries by reason of the Executive's
death or Disability, provided that the Executive has not
previously given a valid "Notice of Termination" pursuant to
Section 3. For purposes hereof, "Disability" shall be defined
as the inability of Executive due to illness, accident or
other physical or mental disability to perform his duties for
any period of six consecutive months or for any period of
eight
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<PAGE> 8
months out of any 12-month period, as determined by an
independent physician selected by the Company and reasonably
acceptable to the Executive (or his legal representative),
provided that the Executive does not return to work on
substantially a full-time basis within 30 days after written
notice from the Company, pursuant to Section 3, of an intent
to terminate the Executive's employment due to Disability;
(ii) Termination of the Executive's employment with
the Company and its subsidiaries on account of the Executive's
retirement at or after age 65, pursuant to the Company's
Retirement Benefit Plan; or
(iii) Termination of the Executive's employment with
the Company and its subsidiaries for Cause. For the purposes
hereof, "Cause" shall be defined as a felony conviction of the
Executive or the failure of the Executive to contest
prosecution for a felony, or the Executive's wilful misconduct
or dishonesty, any of which is directly and materially harmful
to the business or reputation of the Company or any subsidiary
or affiliate. Notwithstanding the foregoing, the Executive
shall not be deemed to have been terminated for "Cause"
hereunder unless and until there shall have been delivered to
the Executive a copy of a resolution duly adopted by the
affirmative vote of not less than three quarters of the Board
then in office at a meeting of the Board called and held for
such purpose, after reasonable notice to the Executive and an
opportunity for the Executive, together with his counsel (if
the Executive chooses to have counsel present at such
meeting), to be heard before the Board, finding that, in the
good faith opinion of the Board, the Executive had committed
an act constituting
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"Cause" as herein defined and specifying the particulars
thereof in detail. Nothing herein will limit the right of the
Executive or his beneficiaries to contest the validity or
propriety of any such determination.
This Section 2(c) shall not preclude the payment of any amounts
otherwise payable to the Executive under any of the Company's employee benefit
plans, stock plans, programs and arrangements and/or under any Employment
Agreement.
(d) Notwithstanding anything contained in this Agreement to
the contrary, in the event of a Change in Control, the Executive may terminate
employment with the Company and any subsidiary for any reason, or without
reason, by providing Notice of Termination pursuant to Section 3 during the
30-day period immediately following the first anniversary of the first
occurrence of a Change in Control with the right to the benefits set forth in
Section 4.
(e) Any termination of employment of the Executive, including
a termination for "Good Reason," but excluding a termination for "Cause," or the
removal of the Executive from the office or position in the Company or any
subsidiary that occurs (i) not more than 180 days prior to the date on which a
Change in Control occurs and (ii) following the commencement of any discussion
with a third person that ultimately results in a Change in Control shall be
deemed to be a termination or removal of the Executive after a Change in Control
for purposes of this Agreement.
3. Notice of Termination
Any termination of the Executive's employment with the Company and its
subsidiaries as contemplated by Section 2 shall be communicated by written
"Notice of Termination" to the other party hereto. Any "Notice of Termination"
shall indicate the effective date of termination which shall not be less than 30
days or more than 60 days after the date the Notice of
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<PAGE> 10
Termination is delivered (the "Termination Date"), the specific provision in
this Agreement relied upon, and, except for a termination pursuant to Section
2(d), will set forth in reasonable detail the facts and circumstances claimed to
provide a basis for such termination including, if applicable, the failure after
provision of written notice by the Executive to effect a remedy pursuant to the
final clause of Section 2(b)(ii), 2(b)(iii) or 2(b)(vi).
4. Termination Benefits
Subject to the conditions set forth in Section 2, the following
benefits shall be paid or provided to the Executive:
(a) Compensation
The Company shall pay to the Executive three times the sum of
(i) "Base Pay", which shall be an amount equal to the greater of (A) the
Executive's effective annual base salary at the Termination Date or (B) the
Executive's effective annual base salary immediately prior to the Change in
Control, plus (ii) "Incentive Pay" equal to the greater of (x) the target annual
bonus payable to the Executive under the Company's Incentive Compensation Plan
or any other annual bonus plan for the fiscal year of the Company in which the
Change in Control occurred or (y) the highest annual bonus earned by the
Executive under the Company's Incentive Compensation Plan or any other annual
bonus plan (whether paid currently or on a deferred basis) with respect to any
12 consecutive month period during the three fiscal years of the Company
immediately preceding the fiscal year of the Company in which the Change in
Control occurred, plus (iii) "Performance Returns" equal to the highest annual
payment of performance returns paid to the Executive with respect to any 12
consecutive month period during the three fiscal years of the Company
immediately preceding the fiscal year of the Company in which the Change in
Control occurred.
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(b) Welfare Benefits
For a period of 36 months following the Termination Date (the
"Continuation Period"), the Company shall arrange to provide the Executive with
benefits, including travel accident, major medical, dental, vision care and
other welfare benefit programs in effect immediately prior to the Change in
Control ("Employee Benefits") substantially similar to those that the Executive
was receiving or entitled to receive immediately prior to the Termination Date
(or, if greater, immediately prior to the reduction, termination, or denial
described in Section 2(b)(ii)(C)). If and to the extent that any benefit
described in this Section 4(b) is not or cannot be paid or provided under any
policy, plan, program or arrangement of the Company or any subsidiary, as the
case may be, then the Company will itself pay or provide for the payment to the
Executive, his dependents and beneficiaries, of such Employee Benefits along
with, in the case of any benefit which is subject to tax because it is not or
cannot be paid or provided under any such policy, plan, program or arrangement
of the Company or any subsidiary, an additional amount such that after payment
by the Executive, or his dependents or beneficiaries, as the case may be, of all
taxes so imposed, the recipient retains an amount equal to such taxes. Employee
Benefits otherwise receivable by the Executive pursuant to this Section 4(b)
will be reduced to the extent comparable welfare benefits are actually received
by the Executive from another employer during the Continuation Period, and any
such benefits actually received by the Executive shall be reported by the
Executive to the Company.
(c) Retirement Benefits
The Executive shall be deemed to be completely vested in
Executive's currently accrued benefits under the Company's Retirement Benefit
Plan and Supplemental Executive Retirement Plan ("SERP") in effect as of the
date of Change in Control (collectively, the
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"Plans"), regardless of his actual vesting service credit thereunder. In
addition, the Executive shall be deemed to earn service credit for benefit
calculation purposes thereunder for the Continuation Period. Benefits under the
Plans will become payable at any time designated by the Executive following
termination of the Executive's employment with the Company and its subsidiaries
after the Executive reaches age 55, subject to the terms of the Plans regarding
the actuarial adjustment of benefit payments commencing prior to normal
retirement age. The benefits to be paid pursuant to the Plans shall be
calculated as though the Executive's compensation rate for each of the five
years immediately preceding his retirement equaled the sum of Base Pay plus
Incentive Pay plus Performance Returns. Any benefits payable pursuant to this
Section 4(c) that are not payable out of the Plans for any reason (including but
not limited to any applicable benefit limitations under the Employee Retirement
Income Security Act of 1974, as amended, or any restrictions relating to the
qualification of the Company's Retirement Benefit Plan under Section 401(a) of
the Internal Revenue Code of 1986, as amended (the "Code")) shall be paid
directly by the Company out of its general assets.
(d) Relocation Benefits
If the Executive moves his residence in order to pursue other
business or employment opportunities during the Continuation Period and requests
in writing that the Company provide relocation services, he will be reimbursed
for any expenses incurred in that initial relocation (including taxes payable on
the reimbursement) which are not reimbursed by another employer. Benefits under
this provision will include assistance in selling the Executive's home and all
other assistance and benefits which were customarily provided by the Company to
transferred executives prior to the Change in Control.
(e) Executive Outplacement Counseling
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At the request of the Executive made in writing during the
Continuation Period, the Company shall engage an outplacement counseling service
of national reputation to assist the Executive in obtaining employment.
(f) Stock Based Compensation Plans
(i) Any issued and outstanding Stock Options (to the
extent they have not already become exercisable) shall become
exercisable as of the date on which the Change in Control
occurs, unless otherwise specifically provided at the time
such options are granted.
(ii) The Company's right to rescind any award of
stock to the Executive under the Company's 1988 Long Term
Incentive Plan or the Company"s 1998 Long Term Incentive Plan
(or any successor plan) shall terminate upon a Change in
Control, and all restrictions on the sale, pledge,
hypothecation or other disposition of shares of stock awarded
pursuant to such plan shall be removed at the Termination
Date, unless otherwise specifically provided at the time such
award(s) are made.
(iii) The Executive's rights under any other stock
based compensation plan shall vest (to the extent they have
not already vested) and any performance criteria shall be
deemed met at target as of the date on which a Change in
Control occurs, unless otherwise specifically provided at the
time such right(s) are granted.
(g) Split Dollar Life Insurance
The Company shall pay to the Executive a lump sum equal to the
cost on the Termination Date of purchasing, at standard independent insurance
premium rates, an individual
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paid up insurance policy providing benefits equal to the benefits provided by
the Company's Split Dollar Life Insurance coverage immediately prior to the date
of the Change in Control.
(h) Other Benefits
(i) The Executive shall have all flight privileges
provided by the Company to Directors as of the date of Change
in Control until the Executive reaches age 55, at which time
he shall have all flight privileges provided by the Company to
its retirees who held the same or similar position as the
Executive immediately prior to the Change in Control.
(ii) The Executive, at the Executive's option, shall
be entitled to continue the use of the Executive's
Company-provided automobile during the Continuation Period
under the same terms that applied to the automobile
immediately prior to the Change in Control, or to purchase the
automobile at its book value as of the Termination Date.
(iii) The Company shall pay to the Executive an
amount equal to the cost to the Company of providing any other
perquisites and benefits of the Company in effect immediately
prior to the Change in Control, calculated as if such benefits
were continued during the Continuation Period.
(i) Accrued Amounts
The Company shall pay to the Executive all other amounts
accrued or earned by the Executive through the Termination Date and amounts
otherwise owing under the then existing plans and policies of the Company,
including but not limited to all amounts of compensation previously deferred by
the Executive (together with any accrued interest thereon) and not yet paid by
the Company, and any accrued vacation pay not yet paid by the Company.
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(j) The Company shall pay to the Executive the amounts due
pursuant to Sections 4(a), 4(g) and 4(h)(iii) in a lump sum on the first
business day of the month following the Termination Date. The Company shall pay
to the Executive the amounts due pursuant to Section 4(i) in accordance with the
terms and conditions of the existing plans and policies of the Company.
5. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, but subject to Section 5(h), in the event that this Agreement
shall become operative and it shall be determined (as hereafter provided) that
any payment (other than the Gross-Up payments provided for in this Section 5) or
distribution by the Company or any of its subsidiaries to or for the benefit of
the Executive, whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise pursuant to or by reason of any
other agreement, policy, plan, program or arrangement, including without
limitation any stock option, stock appreciation right or similar right,
restricted stock, deferred stock or the lapse or termination of any restriction
on, deferral period or the vesting or exercisability of any of the foregoing (a
"Payment"), would be subject to the excise tax imposed by Section 4999 of the
Code (or any successor provision thereto) by reason of being considered
"contingent on a change in ownership or control" of the Company, within the
meaning of Section 280G of the Code (or any successor provision thereto) or to
any similar tax imposed by state or local law, or any interest or penalties with
respect to such tax (such tax or taxes, together with any such interest and
penalties, being hereafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment or payments
(collectively, a "Gross-Up Payment"). The Gross-Up Payment shall be in an amount
such that, after payment by the Executive of all taxes (including any interest
or
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penalties imposed with respect to such taxes), including any Excise Tax and
any income tax imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment.
(b) Subject to the provisions of Section 5(f), all
determinations required to be made under this Section 5, including whether an
Excise Tax is payable by the Executive and the amount of such Excise Tax and
whether a Gross-Up Payment is required to be paid by the Company to the
Executive and the amount of such Gross-Up Payment, if any, shall be made by a
nationally recognized accounting firm (the "Accounting Firm") selected by the
Executive in his sole discretion. The Executive shall direct the Accounting Firm
to submit its determination and detailed supporting calculations to both the
Company and the Executive within 30 calendar days after the Change in Control
Date, the Termination Date, if applicable, and any such other time or times as
may be requested by the Company or the Executive. If the Accounting Firm
determines that any Excise Tax is payable by the Executive, the Company shall
pay the required Gross-Up Payment to the Executive within five business days
after receipt of such determination and calculations with respect to any Payment
to the Executive. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, it shall, at the same time as it makes such
determination, furnish the Company and the Executive an opinion that the
Executive has substantial authority not to report any Excise Tax on his federal,
state or local income or other tax return. As a result of the uncertainty in the
application of Section 4999 of the Code (or any successor provision thereto) and
the possibility of similar uncertainty regarding applicable state or local tax
law at the time of any determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made (an "Underpayment"), consistent with the calculations
required to be made hereunder. In the
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event that the Company exhausts or fails to pursue its remedies pursuant to
Section 5(f) and the Executive thereafter is required to make a payment of any
Excise Tax, the Executive shall direct the Accounting Firm to determine the
amount of the Underpayment that has occurred and to submit its determination and
detailed supporting calculations to both the Company and the Executive as
promptly as possible. Any such Underpayment shall be promptly paid by the
Company to, or for the benefit of, the Executive within five business days after
receipt of such determination and calculations.
(c) The Company and the Executive shall each provide the
Accounting Firm access to and copies of any books, records and documents in the
possession of the Company or the Executive, as the case may be, reasonably
requested by the Accounting Firm, and otherwise cooperate with the Accounting
Firm in connection with the preparation and issuance of the determinations and
calculations contemplated by Section 5(b). Any determination by the Accounting
Firm as to the amount of the Gross-Up Payment shall be binding upon the Company
and the Executive.
(d) The federal, state and local income or other tax returns
filed by the Executive shall be prepared and filed on a consistent basis with
the determination of the Accounting Firm with respect to the Excise Tax payable
by the Executive. The Executive shall make proper payment of the amount of any
Excise Payment, and at the request of the Company, provide to the Company true
and correct copies (with any amendments) of his federal income tax return as
filed with the Internal Revenue Service and corresponding state and local tax
returns, if relevant, as filed with the applicable taxing authority, and such
other documents reasonably requested by the Company, evidencing such payment. If
prior to the filing of the Executive's federal income tax return, or
corresponding state or local tax return, if relevant, the Accounting
17
<PAGE> 18
Firm determines that the amount of the Gross-Up Payment should be reduced, the
Executive shall within five business days pay to the Company the amount of such
reduction.
(e) The fees and expenses of the Accounting Firm for its
services in connection with the determinations and calculations contemplated by
Section 5(b) shall be borne by the Company. If such fees and expenses are
initially paid by the Executive, the Company shall reimburse the Executive the
full amount of such fees and expenses within five business days after receipt
from the Executive of a statement therefor and reasonable evidence of his
payment thereof.
(f) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service or any other taxing authority that, if
successful, would require the payment by the Company of a Gross-Up Payment or
any additional Gross-Up Payment. Such notification shall be given as promptly as
practicable but no later than 10 business days after the Executive actually
receives notice of such claim and the Executive shall further apprise the
Company of the nature of such claim and the date on which such claim is
requested to be paid (in each case, to the extent known by the Executive). The
Executive shall not pay such claim prior to the earlier of (x) the expiration of
the 30-calendar-day period following the date on which he gives such notice to
the Company and (y) the date that any payment of amount with respect to such
claim is due. If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) provide the Company with any written records or
documents in his possession relating to such claim reasonably
requested by the Company;
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing
from time to time, including without
18
<PAGE> 19
limitation accepting legal representation with respect to such
claim by an attorney competent in respect of the subject
matter and reasonably selected by the Company;
(iii) cooperate with the Company in good faith in
order effectively to contest such claim; and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and shall indemnify and hold harmless the Executive, on an after-tax
basis, for and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such contest and payment
of costs and expenses. Without limiting the foregoing provisions of this Section
5(f), the Company shall control all proceedings taken in connection with the
contest of any claim contemplated by this Section 5(f) and, at its sole option,
may pursue or forego any and all administrative appeals, proceedings, hearings
and conferences with the taxing authority in respect of such claim (provided,
however, that the Executive may participate therein at his own cost and expense)
and may, at its option, either direct the Executive to pay the tax claimed and
sue for a refund or contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however, that if the
Company directs the Executive to pay the tax claimed and sue for a refund, the
Company shall advance the amount of such payment to the Executive on an
interest-free basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any
19
<PAGE> 20
Excise Tax or income or other tax, including interest or penalties with respect
thereto, imposed with respect to such advance; and provided further, however,
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which the contested amount
is claimed to be due is limited solely to such contested amount. Furthermore,
the Company's control of any such contested claim shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(g) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 5(f), the Executive receives any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 5(f)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
any taxes applicable thereto). If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 5(f), a determination is made
that the Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its intent to
contest such denial or refund prior to the expiration of 30 calendar days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of any such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid by the
Company to the Executive pursuant to this Section 5.
(h) Notwithstanding any provision of this Agreement to the
contrary, if (i) but for this sentence, the Company would be obligated to make a
Gross-Up Payment to the Executive, (ii) the aggregate "present value" of the
"parachute payments" to be paid or provided
20
<PAGE> 21
to the Executive under this Agreement or otherwise does not exceed 1.15
multiplied by three times the Executive's "base amount," and (iii) but for this
sentence, the net after-tax benefit to the Executive of the Gross-Up Payment
would not exceed $50,000 (taking into account both income taxes and any Excise
Tax), then the payments and benefits to be paid or provided under this Agreement
(including any stock based compensation pursuant to Section 4(f)) will be
reduced to the minimum extent necessary (but in no event to less than zero) so
that no portion of any payment or benefit to the Executive, as so reduced,
constitutes an "excess parachute payment." For purposes of this Section 5(h),
the terms "excess parachute payment," "present value," "parachute payment," and
"base amount" will have the meanings assigned to them by Section 280G of the
Code. The determination of whether any reduction in such payments or benefits to
be provided under this Agreement is required pursuant to the preceding sentence
will be made at the expense of the Company, if requested by the Executive or the
Company, by the Accounting Firm. The fact that the Executive's right to payments
or benefits may be reduced by reason of the limitations contained in this
Section 5(h) will not of itself limit or otherwise affect any other rights of
the Executive other than pursuant to this Agreement. In the event that any
payment or benefit intended to be provided under this Agreement or otherwise is
required to be reduced pursuant to this Section 5(h), the Executive will be
entitled to designate the payments and/or benefits to be so reduced in order to
give effect to this Section 5(h). The Company will provide the Executive with
all information reasonably requested by the Executive to permit the Executive to
make such designation. In the event that the Executive fails to make such
designation within 10 business days of the Termination Date, the Company may
effect such reduction in any manner it deems appropriate.
21
<PAGE> 22
6. No Mitigation Obligation. The Company hereby acknowledges that
it will be difficult and may be impossible for the Executive to find reasonably
comparable employment following the Termination Date. Accordingly, the payment
of the severance compensation by the Company to the Executive in accordance with
the terms of this Agreement is hereby acknowledged by the Company to be
reasonable, and the Executive will not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise,
nor will any profits, income, earnings or other benefits from any source
whatsoever create any mitigation, offset, reduction or any other obligation on
the part of the Executive hereunder or otherwise, except as expressly provided
in the last sentence of Section 4(b).
7. Legal Fees and Expenses.
(a) It is the intent of the Company that the Executive not be
required to incur legal fees and the related expenses associated with the
interpretation, enforcement or defense of Executive's rights under this
Agreement by litigation or otherwise because the cost and expense thereof would
substantially detract from the benefits intended to be extended to the Executive
hereunder. Accordingly, if it should appear to the Executive that the Company
has failed to comply with any of its obligations under this Agreement or in the
event that the Company or any other person takes or threatens to take any action
to declare this Agreement void or unenforceable, or institutes any litigation or
other action or proceeding designed to deny, or to recover from, the Executive
any or all of the benefits provided or intended to be provided to the Executive
hereunder, the Company irrevocably authorizes the Executive from time to time to
retain counsel of Executive's choice, at the expense of the Company as hereafter
provided, to advise and represent the Executive in connection with any such
interpretation, enforcement or
22
<PAGE> 23
defense, including without limitation the initiation or defense of any
litigation or other legal action, whether by or against the Company or any
director, officer, stockholder or other person affiliated with the Company, in
any jurisdiction. Notwithstanding any existing or prior attorney-client
relationship between the Company and such counsel, the Company irrevocably
consents to the Executive's entering into an attorney-client relationship with
such counsel, and in that connection the Company and the Executive agree that a
confidential relationship shall exist between the Executive and such counsel.
Without respect to whether the Executive prevails, in whole or in part, in
connection with any of the foregoing, the Company will pay and be solely
financially responsible for any and all attorneys' and related fees and expenses
incurred by the Executive in connection with any of the foregoing.
(b) Without limiting the obligations of the Company pursuant
to Section 7(a) hereof, in the event a Change in Control occurs, the performance
of the Company's obligations under this Section 7 shall be secured by amounts
deposited or to be deposited in trust pursuant to certain trust agreements to
which the Company shall be a party, which amounts deposited shall in the
aggregate be not less than $2,000,000, providing that the fees and expenses of
counsel selected from time to time by the Executive pursuant to Section 7(a)
shall be paid, or reimbursed to the Executive if paid by the Executive, either
in accordance with the terms of such trust agreements, or, if not so provided,
on a regular, periodic basis upon presentation by the Executive to the trustee
of a statement or statements prepared by such counsel in accordance with its
customary practices. Any failure by the Company to satisfy any of its
obligations under this Section 7(b) shall not limit the rights of the Executive
hereunder. Subject to the foregoing, the Executive shall have the status of a
general unsecured creditor of the Company and shall have no right to, or
security interest in, any assets of the Company or any subsidiary.
23
<PAGE> 24
8. Continuing Obligations
(a) The Executive hereby agrees that all documents, records,
techniques, business secrets and other information which have come into his
possession from time to time during his employment with the Company shall be
deemed to be confidential and proprietary to the Company and, except for
personal documents and records of the Executive, shall be returned to the
Company. The Executive further agrees to retain in confidence any confidential
information known to him concerning the Company and its subsidiaries and their
respective businesses so long as such information is not publicly disclosed,
except that Executive may disclose any such information required to be disclosed
in the normal course of his employment with the Company or pursuant to any court
order or other legal process.
(b) The Executive hereby agrees that during the Continuation
Period, he will not directly or indirectly solicit any employee of the Company
or any of its subsidiaries or affiliated companies to join the employ of any
entity that competes with the Company or any of its subsidiaries or affiliated
companies.
9. Successors
(a) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of such successor entity to enter into such agreement prior to the
effective date of any such succession (or, if later, within three business days
after first receiving a written request for such agreement) shall constitute a
breach of this Agreement and shall entitle the Executive to
24
<PAGE> 25
terminate his employment pursuant to Section 2(a)(ii) and to receive the
payments and benefits provided under Section 4. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which executes and delivers the
Agreement provided for in this Section 9 or which otherwise becomes bound by all
the terms and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive dies while any amounts are payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to his devisee, legatee or other designee or, if there is no such
designee, to his estate.
10. Notices
For all purposes of this Agreement, all communications, including
without limitation notices, consents, requests or approvals, required or
permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five business days
after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or three business days after having been
sent by a nationally recognized overnight courier service such as FedEx, UPS, or
Purolator, addressed to the Company (to the attention of the Secretary of the
Company, with a copy to the General Counsel of the Company) at its principal
executive office and to the Executive at his principal residence, or to such
other address as any party may have furnished to the other in writing and in
accordance herewith, except that notices of changes of address shall be
effective only upon receipt.
25
<PAGE> 26
11. Governing Law
THE VALIDITY, INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
12. Miscellaneous
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement (or in any
employment or other written agreement relating to the Executive).
Notwithstanding any provision of this Agreement to the contrary, the parties'
respective rights and obligations under Sections 4, 5 and 7 will survive any
termination or expiration of this Agreement or the termination of the
Executive's employment following a Change in Control for any reason whatsoever.
Nothing expressed or implied in this Agreement will create any right or duty on
the part of the Company or the Executive to have the Executive remain in the
employment of the Company or any subsidiary prior to or following any Change in
Control. The Company may withhold from any amounts payable under this Agreement
all federal, state, city or other taxes as the Company is required to withhold
pursuant to any law or government regulation or ruling. In the event that the
Company refuses or otherwise fails to make a payment when due and it is
ultimately decided that the Executive is entitled to such
26
<PAGE> 27
payment, such payment shall be increased to reflect an interest factor,
compounded annually, equal to the prime rate in effect as of the date the
payment was first due plus two points. For this purpose, the prime rate shall be
based on the rate identified by Chase Manhattan Bank as its prime rate.
13. Separability
The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
14. Non-assignability
This Agreement is personal in nature and neither of the parties hereto
shall, without the consent of the other, assign or transfer this Agreement or
any rights or obligations hereunder, except as provided in Section 9. Without
limiting the foregoing, the Executive's right to receive payments hereunder
shall not be assignable or transferable, whether by pledge, creation of a
security interest or otherwise, other than a transfer by his will or by the laws
of descent or distribution, and in the event of any attempted assignment or
transfer by Executive contrary to this Section 14 the Company shall have no
liability to pay any amount so attempted to be assigned or transferred to any
person other than the Executive or, in the event of his death, his designated
beneficiary or, in the absence of an effective beneficiary designation, the
Executive's estate.
15. Effectiveness; Term
This Agreement will be effective and binding as of the date first above
written immediately upon its execution, but, anything in this Agreement to the
contrary notwithstanding, this Agreement will not be operative unless and until
a Change in Control occurs. Upon the
27
<PAGE> 28
occurrence of a Change in Control at any time during the Term (as defined
below), without further action, this Agreement shall become immediately
operative. For purposes of this Agreement, "Term" means the period commencing as
of the date first above written and expiring as of the later of (i) the fifth
anniversary of the date first above written or (ii) the second anniversary of
the first occurrence of a Change in Control; provided, however, that (A)
commencing on the fifth anniversary of the date first above written and each
fifth anniversary date thereafter, the Term of this Agreement will automatically
be extended for an additional five years unless, not later than 180 days
preceding each such fifth anniversary date, the Company or the Executive shall
have given notice that it or the Executive, as the case may be, does not wish to
have the Term extended and (B) subject to Section 2(e), if, prior to a Change in
Control, the Executive ceases for any reason to be an employee of the Company
and any subsidiary, thereupon without further action the Term shall be deemed to
have expired and this Agreement will immediately terminate and be of no further
effect. For purposes of this Section 15, the Executive shall not be deemed to
have ceased to be an employee of the Company and any subsidiary by reason of the
transfer of Executive's employment between the Company and any subsidiary, or
among any subsidiaries.
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
17. Prior Agreement. This Agreement supersedes and terminates any
and all prior Executive Termination Benefits Agreements by and among Company and
the Executive.
28
<PAGE> 29
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above set forth, thereby
mutually and voluntarily agreeing that this Agreement supersedes and replaces
any prior similar agreements for such termination benefits.
AMR CORPORATION
By: /s/ Donald J. Carty
--------------------------------
AMERICAN AIRLINES, INC.
By: /s/ Thomas J. Kiernan
--------------------------------
WILLIAM K. RIS, JR.
/s/ William K. Ris, Jr.
-----------------------------------
29
<PAGE> 1
EXHIBIT 12
AMR CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN MILLIONS)
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Earnings:
Earnings (Loss) from continuing
operations before income taxes and
extraordinary loss $ (44) $ 1,295 $ 1,336 $ 1,883 $ 1,006
Add: Total fixed charges (per below) 1,489 1,281 1,166 1,117 1,227
Less: Interest capitalized 14 10 20 104 118
-------- -------- -------- -------- --------
Total earnings $ 1,431 $ 2,566 $ 2,482 $ 2,896 $ 2,115
======== ======== ======== ======== ========
Fixed charges:
Interest $ 683 $ 514 $ 420 $ 369 $ 383
Portion on rental expense representative
of the interest factor 797 763 744 743 832
Amortization of debt expense 9 4 2 5 12
-------- -------- -------- -------- --------
Total fixed charges $ 1,489 $ 1,281 1,166 1,117 1,227
======== ======== ======== ======== ========
Ratio of earnings to fixed charges 0.96 2.00 2.13 2.59 1.72
======== ======== ======== ======== ========
</TABLE>
<PAGE> 1
EXHIBIT 21
AMR CORPORATION
SUBSIDIARIES OF THE REGISTRANT
AS OF DECEMBER 31, 1999
Subsidiary companies of the Registrant are listed below. With respect to the
companies named, all voting securities are owned directly or indirectly by the
Registrant, except where otherwise indicated.
<TABLE>
<CAPTION>
STATE OR
SOVEREIGN POWER
NAME OF SUBSIDIARY OF INCORPORATION
- ------------------ ----------------
<S> <C>
Subsidiaries included in the Registrant's consolidated financial statements
Airline Management Services, Inc. Delaware
American Airlines, Inc. Delaware
Admirals Club, Inc. (Massachusetts only) Massachusetts
AEROSAN (50%) Chile
American Airlines Australian Tours, Inc. Delaware
American Airlines de Mexico, S.A. Mexico
American Airlines de Venezuela, S.A. Venezuela
American Airlines Deutschland Holding GmbH Germany
American Airlines Holding Company, Inc. Delaware
American Holidays Limited (50/50 AA/AMR) United Kingdom
American Airlines Overseas Finance, N.V. Neth. Antilles
AMR Aircraft Sales & Leasing Company Delaware
AMR Training Group, Inc. Delaware
AMR Ventures III, Inc. Delaware
Bonanza Acquisitions, Inc. Nevada
Texas Aero Engine Services, L.L.C, dba TAESL (50/50 AA/Rolls-Royce) Delaware
Americas Ground Services, Inc. Delaware
Aerodespachos Colombia, S.A. Colombia
Caribbean Dispatch Services, Ltd. St. Lucia
Dispatch Services 93, S.A. Venezuela
DSA Dominican Republic
International Ground Services, S.A. de C.V. Mexico
Panama Dispatch Panama
Peru Dispatch Company Peru
AMR/American Airlines Foundation Texas
American Airlines Center Foundation, Inc. Texas
American Airlines, American Eagle Family Fund, Inc. Texas
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
STATE OR
SOVEREIGN POWER
NAME OF SUBSIDIARY OF INCORPORATION
- ------------------ ----------------
<S> <C>
AMR Eagle Holding Corporation Delaware
AMR Commuter Finance, Inc. Delaware
American Eagle Airlines, Inc. Delaware
AMR Eagle Maintenance Services Group, Inc. Delaware
AMR Eagle Regional Aircraft Maintenance Center, Inc. Delaware
AMR Leasing Corporation. Delaware
Aero Perlas (20%) Panama
Business Express Airlines, Inc. Delaware
Eagle Aviation Leasing, Inc. Delaware
Eagle Aviation Services, Inc. Delaware
Executive Airlines, Inc. Delaware
Wings West Aviation Services, Inc. Delaware
AMR Financial Services, Inc. Delaware
AMR Foreign Sales Corporation, Ltd. Bermuda
AMR Holding Company, Inc. Delaware
AMR Investment Services, Inc. Delaware
AMR Services (Deutschland) GmbH Germany
Avion Assurance Ltd. Bermuda
Cargo Services, Inc. Delaware
SC Investment, Inc. Delaware
The C.R. Smith Aviation Museum Foundation Delaware
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statements
(Form S-8 No. 2-68366, Form S-8 No. 33-60725, Form S-8 No. 33-60727, Form S-8
No. 333-13751, Form S-8 No. 333-19325, Form S-8 No. 333-70239, Form S-8 No.
33-27866, Form S-8 No. 333-56947, Form S-3 No. 33-42027, Form S-3 No. 33-46325,
Form S-3 No. 33-52121, and Form S-3 No. 333-68211) of AMR Corporation, and in
the related Prospectuses, of our reports dated January 17, 2000, except for the
second paragraph of Note 12, for which the date is March 15, 2000, with respect
to the consolidated financial statements and schedule of AMR Corporation
included in this Annual Report (Form 10-K) for the year ended December 31, 1999.
ERNST & YOUNG LLP
Dallas, Texas
March 27, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000006201
<NAME> AMR CORPORATION
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 85
<SECURITIES> 1,706
<RECEIVABLES> 1,191
<ALLOWANCES> 57
<INVENTORY> 708
<CURRENT-ASSETS> 4,424
<PP&E> 25,038
<DEPRECIATION> 8,751
<TOTAL-ASSETS> 24,374
<CURRENT-LIABILITIES> 5,864
<BONDS> 5,689
0
0
<COMMON> 1,142
<OTHER-SE> 5,716
<TOTAL-LIABILITY-AND-EQUITY> 24,374
<SALES> 0
<TOTAL-REVENUES> 17,730
<CGS> 0
<TOTAL-COSTS> 16,574
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 393
<INCOME-PRETAX> 1,006
<INCOME-TAX> 350
<INCOME-CONTINUING> 656
<DISCONTINUED> 329
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 985
<EPS-BASIC> 6.46
<EPS-DILUTED> 6.26
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0000006201
<NAME> AMR CORPORATION
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 87
<SECURITIES> 1,448
<RECEIVABLES> 1,244
<ALLOWANCES> 19
<INVENTORY> 596
<CURRENT-ASSETS> 3,969
<PP&E> 21,616
<DEPRECIATION> 7,875
<TOTAL-ASSETS> 21,455
<CURRENT-LIABILITIES> 5,302
<BONDS> 4,200
0
0
<COMMON> 1,969
<OTHER-SE> 4,729
<TOTAL-LIABILITY-AND-EQUITY> 21,455
<SALES> 0
<TOTAL-REVENUES> 17,516
<CGS> 0
<TOTAL-COSTS> 15,528
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 372
<INCOME-PRETAX> 1,833
<INCOME-TAX> 719
<INCOME-CONTINUING> 1,114
<DISCONTINUED> 200
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,314
<EPS-BASIC> 7.78
<EPS-DILUTED> 7.52
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0000006201
<NAME> AMR CORPORATION
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 50
<SECURITIES> 1,796
<RECEIVABLES> 1,048
<ALLOWANCES> 9
<INVENTORY> 624
<CURRENT-ASSETS> 4,119
<PP&E> 19,695
<DEPRECIATION> 7,118
<TOTAL-ASSETS> 20,287
<CURRENT-LIABILITIES> 5,274
<BONDS> 3,877
0
0
<COMMON> 2,801
<OTHER-SE> 3,415
<TOTAL-LIABILITY-AND-EQUITY> 20,287
<SALES> 0
<TOTAL-REVENUES> 16,957
<CGS> 0
<TOTAL-COSTS> 15,362
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 421
<INCOME-PRETAX> 1,336
<INCOME-TAX> 527
<INCOME-CONTINUING> 809
<DISCONTINUED> 176
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 985
<EPS-BASIC> 5.52
<EPS-DILUTED> 5.39
</TABLE>
