<PAGE> 1
==============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X]Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000.
[ ]Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Transition Period From to .
------------------- ---------------------
Commission file number 1-8400.
AMR CORPORATION
------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-1825172
-------------------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
4333 Amon Carter Blvd.
Fort Worth, Texas 76155
------------------------------------------ -------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (817) 963-1234
-----------------
Not Applicable
------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
------ -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $1 par value - 149,957,759 as of July 25, 2000
===============================================================================
<PAGE> 2
INDEX
AMR CORPORATION
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations -- Three and six months ended June
30, 2000 and 1999
Condensed Consolidated Balance Sheets - June 30, 2000 and December 31, 1999
Condensed Consolidated Statements of Cash Flows -- Six months ended June
30, 2000 and 1999
Notes to Condensed Consolidated Financial Statements - June 30, 2000
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (In millions, except per share amounts)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ---------------------------
2000 1999 2000 1999
--------- -------- -------- --------
REVENUES
<S> <C> <C> <C> <C>
Passenger - American Airlines, Inc. $ 4,186 $ 3,751 $ 7,956 $ 7,071
- American Eagle 368 340 706 611
Cargo 180 164 347 309
Other revenues 277 286 579 557
--------- -------- -------- --------
Total operating revenues 5,011 4,541 9,588 8,548
EXPENSES
Wages, salaries and benefits 1,674 1,561 3,291 3,028
Aircraft fuel 567 414 1,120 763
Depreciation and amortization 294 268 582 521
Maintenance, materials and repairs 272 223 543 480
Commissions to agents 273 298 530 586
Other rentals and landing fees 256 241 493 470
Food service 198 185 383 352
Aircraft rentals 151 162 304 322
Other operating expenses 809 775 1,613 1,566
--------- -------- -------- --------
Total operating expenses 4,494 4,127 8,859 8,088
--------- -------- -------- --------
OPERATING INCOME 517 414 729 460
OTHER INCOME (EXPENSE)
Interest income 34 17 66 41
Interest expense (115) (94) (234) (187)
Interest capitalized 36 29 74 62
Miscellaneous - net 50 (6) 44 24
--------- -------- -------- --------
5 (54) (50) (60)
--------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 522 360 679 400
Income tax provision 201 144 269 167
--------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS 321 216 410 233
INCOME FROM DISCONTINUED OPERATIONS, NET OF
APPLICABLE INCOME TAXES AND MINORITY INTEREST
-- 52 43 129
GAIN ON SALE OF DISCONTINUED OPERATIONS, NET OF
APPLICABLE INCOME TAXES -- -- -- 64
--------- -------- -------- --------
NET EARNINGS $ 321 $ 268 $ 453 $ 426
========= ======== ======== ========
</TABLE>
------------------------------------------------------------------------------
Continued on next page.
-1-
<PAGE> 4
AMR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(Unaudited) (In millions, except per share amounts)
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
EARNINGS APPLICABLE TO COMMON SHARES $ 321 $ 268 $ 453 $ 426
========= ========= ========= =========
EARNINGS PER COMMON SHARE
BASIC
Income from Continuing Operations $ 2.15 $ 1.41 $ 2.75 $ 1.49
Discontinued Operations -- 0.35 0.29 1.24
--------- --------- --------- ---------
Net Earnings $ 2.15 $ 1.76 $ 3.04 $ 2.73
========= ========= ========= =========
DILUTED
Income from Continuing Operations $ 1.96 $ 1.36 $ 2.58 $ 1.45
Discontinued Operations -- 0.34 0.27 1.20
--------- --------- --------- ---------
Net Earnings $ 1.96 $ 1.70 $ 2.85 $ 2.65
========= ========= ========= =========
NUMBER OF SHARES USED IN COMPUTATION
Basic 150 153 149 156
========= ========= ========= =========
Diluted 164 158 159 161
========= ========= ========= =========
</TABLE>
------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
-2-
<PAGE> 5
AMR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (In millions) .........
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------------- ---------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 128 $ 85
Short-term investments 2,269 1,706
Receivables, net 1,447 1,134
Inventories, net 713 708
Deferred income taxes 612 612
Other current assets 208 179
---------------- ---------------
Total current assets 5,377 4,424
EQUIPMENT AND PROPERTY
Flight equipment, net 12,621 11,323
Other equipment and property, net 1,527 1,433
Purchase deposits for flight equipment 1,491 1,582
---------------- ---------------
15,639 14,338
EQUIPMENT AND PROPERTY UNDER CAPITAL LEASES
Flight equipment, net 1,785 1,851
Other equipment and property, net 98 98
---------------- ---------------
1,883 1,949
Route acquisition costs, net 872 887
Other assets, net 1,702 2,776
---------------- ---------------
$ 25,473 $ 24,374
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,273 $ 1,115
Accrued liabilities 2,114 1,956
Air traffic liability 2,977 2,255
Current maturities of long-term debt 496 302
Current obligations under capital leases 246 236
---------------- ---------------
Total current liabilities 7,106 5,864
Long-term debt, less current maturities 3,930 4,078
Obligations under capital leases, less current obligations 1,465 1,611
Deferred income taxes 2,012 1,846
Other liabilities, deferred gains, deferred
credits and postretirement benefits 4,186 4,117
STOCKHOLDERS' EQUITY
Common stock 182 182
Additional paid-in capital 2,999 3,061
Treasury stock (2,002) (2,101)
Accumulated other comprehensive income (2) (2)
Retained earnings 5,597 5,718
---------------- ---------------
6,774 6,858
---------------- ---------------
$ 25,473 $ 24,374
================ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 6
AMR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In millions) .........
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------------
2000 1999
---------- ---------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,809 $ 1,116
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures, including net change in purchase deposits
for flight equipment (1,917) (1,977)
Net decrease (increase) in short-term investments (563) 274
Acquisitions and other investments (41) (99)
Proceeds from:
Dividend from Sabre, Inc. (Sabre) 559 -
Sale of equipment and property 159 40
Sale of other investments 94 31
Sale of discontinued operations - 259
Other - 18
---------- ---------
Net cash used for investing activities (1,709) (1,454)
CASH FLOW FROM FINANCING ACTIVITIES:
Payments on long-term debt and capital lease obligations (364) (158)
Repurchases of common stock - (664)
Proceeds from:
Issuance of long-term debt 286 770
Exercise of stock options 21 15
Short-term loan from Sabre - 300
Sale-leaseback transactions - 54
---------- ---------
Net cash provided by (used for) financing activities (57) 317
Net increase (decrease) in cash 43 (21)
Cash at beginning of period 85 87
---------- ---------
Cash at end of period $ 128 $ 66
========== =========
ACTIVITIES NOT AFFECTING CASH:
Distribution of Sabre shares to AMR shareholders $ 581 $ --
Payment of short-term loan from Sabre against receivable from Sabre -- 300
Capital lease obligations incurred -- 54
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 7
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
------------------------------------------------------------------------------
1. The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
these financial statements contain all adjustments, consisting of normal
recurring accruals, necessary to present fairly the financial position,
results of operations and cash flows for the periods indicated. Results of
operations for the periods presented herein are not necessarily indicative
of results of operations for the entire year. The balance sheet at December
31, 1999 has been derived from the audited financial statements at that
date. The results of operations, cash flows and net assets for Sabre, Inc.
(Sabre), AMR Services, AMR Combs and TeleService Resources have been
reflected in the consolidated financial statements as discontinued
operations (see Note 6 below), and accordingly, related information
previously reported in the June 30, 1999 Form 10-Q has been restated. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the AMR Corporation (AMR or the Company)
Annual Report on Form 10-K for the year ended December 31, 1999.
2. Accumulated depreciation of owned equipment and property at June 30, 2000
and December 31, 1999, was $7.7 billion and $7.4 billion, respectively.
Accumulated amortization of equipment and property under capital leases at
June 30, 2000 and December 31, 1999, was $1.4 billion and $1.3 billion,
respectively.
3. As discussed in the notes to the consolidated financial statements included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1999, the Miami International Airport Authority is currently remediating
various environmental conditions at Miami International Airport (Airport)
and funding the remediation costs through landing fee revenues. Future
costs of the remediation effort may be borne by carriers operating at the
Airport, including American Airlines, Inc. (American), a wholly-owned
subsidiary of the Company, through increased landing fees and/or other
charges. 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.
4. As of June 30, 2000, the Company had commitments to acquire the following
aircraft: 69 Boeing 737-800s, 20 Boeing 757-200s, 15 Boeing 777-200IGWs, 87
Embraer regional jets and 25 Bombardier CRJ-700s. Deliveries of these
aircraft extend through 2006. Payments for these aircraft will approximate
$1.1 billion during the remainder of 2000, $2.3 billion in 2001, $650
million in 2002 and an aggregate of approximately $1.0 billion in 2003
through 2006.
5. During 1999, the Company entered into an agreement with priceline.com
Incorporated (priceline) whereby ticket inventory provided by the Company
may be sold through priceline's e-commerce system. In conjunction with this
agreement, the Company received warrants to purchase approximately 5.5
million shares of priceline common stock. In the second quarter of 2000,
the Company sold these warrants for proceeds of approximately $94 million,
and recorded a pre-tax gain of $57 million ($36 million after-tax), which
is included in Miscellaneous - net on the consolidated statements of
operations.
6. 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.
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
-5-
<PAGE> 8
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
-------------------------------------------------------------------------------
approximately $559 million of this dividend. These funds will be used for
general corporate purposes, including the acquisition of aircraft. 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 $581 million. 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 accordingly,
had 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. The net assets of Sabre of
approximately $1.0 billion were classified in the condensed consolidated
balance sheet as of December 31, 1999 in other assets. Other summarized
financial information of the discontinued operations is as follows (in
millions):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- -------------------
2000 1999 2000 1999
------- ------ ------- -------
<S> <C> <C> <C> <C>
SABRE
Revenues $ -- $ 639 $ 542 $ 1,277
Minority interest -- 11 10 27
Income taxes -- 36 36 92
Net income -- 52 43 129
AMR SERVICES, AMR COMBS AND TELESERVICE
RESOURCES
Revenues $ -- $ -- $ -- $ 97
Income taxes -- -- -- --
Net income -- -- -- --
</TABLE>
7. In connection with a secondary offering by Equant N.V. in February 1999,
the Company sold approximately 923,000 depository certificates for a
pre-tax gain of $66 million ($37 million after-tax). Of this amount,
approximately 489,000 depository certificates, or a pre-tax gain of $35
million, related to depository certificates held by the Company on behalf
of Sabre and is included in income from discontinued operations on the
consolidated statements of operations. The remaining $31 million is
included in Miscellaneous - net on the consolidated statements of
operations.
-6-
<PAGE> 9
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
-------------------------------------------------------------------------------
8. The following table sets forth the computations of basic and diluted
earnings per share from continuing operations (in millions, except per
share data):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NUMERATOR:
Income from continuing operations -
numerator for basic and diluted
earnings per share $ 321 $ 216 $ 410 $ 233
============ ============ ============ ============
DENOMINATOR:
Denominator for basic earnings per share
- weighted-average shares 150 153 149 156
Effect of dilutive securities:
Employee options and shares 32 11 23 12
Assumed treasury shares purchased
(18) (6) (13) (7)
------------ ------------ ------------ ------------
Dilutive potential common shares 14 5 10 5
Denominator for diluted earnings per
share - adjusted weighted-average
shares 164 158 159 161
============ ============ ============ ============
Basic earnings per share from continuing
operations $ 2.15 $ 1.41 $ 2.75 $ 1.49
============ ============ ============ ============
Diluted earnings per share from continuing
operations $ 1.96 $ 1.36 $ 2.58 $ 1.45
============ ============ ============ ============
</TABLE>
-7-
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999
SUMMARY AMR's income from continuing operations during the second quarter of
2000 was $321 million, or $1.96 per common share diluted, as compared to $216
million, or $1.36 per common share diluted, for the same period in 1999. AMR's
operating income of $517 million increased $103 million compared to the same
period in 1999. AMR's second quarter 2000 results include an approximate $36
million after-tax gain, or $0.21 per common share diluted, related to the sale
of the Company's warrants to purchase 5.5 million shares of priceline.com
Incorporated (priceline) common stock.
The Company's REVENUES increased $470 million, or 10.4 percent, in the second
quarter of 2000 versus the same period last year. American's PASSENGER REVENUES
increased by 11.6 percent, or $435 million, compared to the second quarter of
1999. American's YIELD (the average amount one passenger pays to fly one mile)
of 13.75 cents increased by 6.0 percent compared to the same period in 1999.
Domestic yields increased 5.5 percent from the second quarter of 1999.
International yields increased 7.2 percent, reflecting an increase of 12.3
percent, 9.9 percent and 4.3 percent in Pacific, Europe and Latin American
yields, respectively. The increase in revenues was due primarily to a strong
U.S. economy, which led to strong demand for air travel both domestically and
internationally, and a favorable pricing climate.
American's traffic or REVENUE PASSENGER MILES (RPMs) increased 5.3 percent to
30.4 billion miles for the quarter ended June 30, 2000. American's capacity or
AVAILABLE SEAT MILES (ASMs) decreased 0.8 percent to 40.1 billion miles in the
second quarter of 2000. American's domestic traffic increased 4.2 percent on a
capacity decrease of 2.7 percent and international traffic increased 7.7 percent
on capacity increases of 3.5 percent. The decrease in domestic capacity was due
primarily to the Company's "More Room Throughout Coach" initiative. The increase
in international traffic was driven by a 10.1 percent increase in traffic to
Europe on capacity growth of 6.4 percent, a 9.7 percent increase in traffic to
the Pacific on a capacity increase of 0.8 percent and a 4.8 percent increase in
traffic to Latin America on capacity growth of 1.8 percent.
The Company's OPERATING EXPENSES increased 8.9 percent, or $367 million.
American's cost per ASM increased 10.0 percent to 10.24 cents. WAGES, SALARIES
AND BENEFITS increased 7.2 percent, or $113 million, primarily due 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. AIRCRAFT FUEL expense increased
37.0 percent, or $153 million, due to a 33.9 percent increase in the Company's
average price per gallon and a 2.5 percent increase in the Company's fuel
consumption. The increase in fuel expense is net of gains of approximately $110
million recognized during the second quarter of 2000 related to the Company's
fuel hedging program. MAINTENANCE, MATERIALS AND REPAIRS increased $49 million,
or 22.0 percent, due primarily to an increase in airframe and engine maintenance
volumes at the Company's maintenance bases and an approximate $17 million
one-time credit the Company received in the second quarter of 1999. COMMISSIONS
TO AGENTS decreased 8.4 percent, or $25 million, despite an increase of
approximately 11.3 percent in passenger revenues, due primarily to the benefit
from the international base commission structure change implemented in October
1999 and a decrease in commissionable transactions.
INTEREST INCOME increased approximately $17 million due primarily to higher
investment balances. INTEREST EXPENSE increased approximately $21 million, or
22.3 percent, due to an increase in long-term debt. INTEREST CAPITALIZED
increased 24.1 percent, or $7 million, due to an increase in purchase deposits
for flight equipment. MISCELLANEOUS - NET increased approximately $56 million
due primarily to the $57 million gain on sale of the Company's warrants to
purchase 5.5 million shares of priceline common stock.
-8-
<PAGE> 11
RESULTS OF OPERATIONS (CONTINUED)
OPERATING STATISTICS
<TABLE>
<CAPTION>
Three Months Ended June 30,
-----------------------------------------
2000 1999
----------------- ----------------
<S> <C> <C>
AMERICAN AIRLINES
Revenue passenger miles (millions) 30,449 28,908
Available seat miles (millions) 40,095 40,406
Cargo ton miles (millions) 571 511
Passenger load factor 75.9% 71.5%
Breakeven load factor 65.6% 63.2%
Passenger revenue yield per passenger mile (cents) 13.75 12.97
Passenger revenue per available seat mile (cents) 10.44 9.28
Cargo revenue yield per ton mile (cents) 31.04 31.67
Operating expenses per available seat mile (cents) 10.24 9.31
Fuel consumption (gallons, in millions) 759 745
Fuel price per gallon (cents) 71.0 53.0
Fuel price per gallon, excluding fuel taxes (cents) 65.9 48.4
Operating aircraft at period-end 712 697
AMR EAGLE
Revenue passenger miles (millions) 961 885
Available seat miles (millions) 1,546 1,422
Passenger load factor 62.2% 62.2%
Operating aircraft at period-end 272 260
</TABLE>
Operating aircraft at June 30, 2000 included:
<TABLE>
<CAPTION>
AMERICAN AIRLINES AIRCRAFT: AMR EAGLE AIRCRAFT:
<S> <C> <C> <C>
Airbus A300-600R 35 ATR 42 31
Boeing 727-200 64 Embraer 135 20
Boeing 737-800 36 Embraer 145 50
Boeing 757-200 102 Super ATR 43
Boeing 767-200 8 Saab 340 103
Boeing 767-200 Extended Range 22 Saab 340B Plus 25
-------
Boeing 767-300 Extended Range 49 Total 272
=======
Boeing 777-200IGW 22
Fokker 100 75
McDonnell Douglas DC-10-10 3
McDonnell Douglas DC-10-30 5
McDonnell Douglas MD-11 9
McDonnell Douglas MD-80 277
McDonnell Douglas MD-90 5
-------
Total 712
=======
</TABLE>
Average aircraft age is 10.7 years for American's aircraft and 6.5 years for AMR
Eagle aircraft.
-9-
<PAGE> 12
RESULTS OF OPERATIONS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
SUMMARY AMR's income from continuing operations for the six months ended June
30, 2000 was $410 million, or $2.58 per common share diluted. This compares with
income from continuing operations of $233 million, or $1.45 per common share
diluted, for the same period in 1999. AMR's operating income of $729 million
increased 58.5 percent, or $269 million, compared to the same period in 1999.
AMR's 2000 results from continuing operations include an approximate $36 million
after-tax gain, or $0.22 per common share diluted, related to the sale of the
Company's warrants to purchase 5.5 million shares of priceline common stock.
AMR's 1999 results from continuing operations include a labor disagreement that
disrupted the Company's operations and negatively impacted the Company's 1999
net earnings by an estimated $140 million, or $0.87 per common share diluted,
partially offset by an approximate $19 million after-tax gain, or $0.12 per
common share diluted, related to the sale of a portion of American's holdings in
Equant, N.V. (Equant).
The Company's REVENUES increased approximately $1.0 billion, or 12.2 percent,
during the first six months of 2000 versus the same period last year. American's
PASSENGER REVENUES increased by 12.5 percent, or $885 million. American's YIELD
of 13.84 cents increased by 6.1 percent compared to the same period in 1999.
Domestic yields increased 5.8 percent from the first six months of 1999.
International yields increased 7.1 percent, reflecting an increase of 16.9
percent, 8.6 percent and 4.8 percent in Pacific, Europe and Latin American
yields, respectively. The increase in revenues was due primarily to a strong
U.S. economy, which led to strong demand for air travel both domestically and
internationally, and a favorable pricing climate. In addition, the first quarter
of 1999 includes a schedule disruption which impacted the Company's operations.
American's traffic or REVENUE PASSENGER MILES (RPMs) increased 6.0 percent to
57.4 billion miles for the six months ended June 30, 2000. American's capacity
or AVAILABLE SEAT MILES (ASMs) increased 2.6 percent to 80.1 billion miles in
the first six months of 2000. American's domestic traffic increased 4.8 percent
on capacity growth of 1.1 percent and international traffic increased 8.9
percent on capacity increases of 6.0 percent. The increase in domestic capacity
was due primarily to the addition of new aircraft, mostly offset by the
Company's "More Room Throughout Coach" initiative. The increase in international
traffic was driven by a 16.2 percent increase in traffic to the Pacific on
capacity growth of 5.2 percent, an 11.0 percent increase in traffic to Europe on
a capacity increase of 9.9 percent and a 5.6 percent increase in traffic to
Latin America on capacity growth of 3.2 percent.
AMR Eagle's passenger REVENUES increased 15.5 percent, or $95 million, due
primarily to the acquisition of Business Express, Inc. in March 1999.
Cargo REVENUES increased $38 million, or 12.3 percent, due primarily to a fuel
surcharge implemented in February 2000 and the Company's increase in cargo
capacity from the addition of new aircraft in late 1999 and 2000.
The Company's OPERATING EXPENSES increased 9.5 percent, or $771 million.
American's cost per ASM increased by 6.8 percent to 10.10 cents. WAGES, SALARIES
AND BENEFITS increased $263 million, or 8.7 percent, primarily due 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. AIRCRAFT FUEL expense increased
46.8 percent, or $357 million, due to a 40.4 percent increase in the Company's
average price per gallon and a 4.9 percent increase in the Company's fuel
consumption. The increase in fuel expense is net of gains of approximately $232
million recognized during the six months ended June 30, 2000 related to the
Company's fuel hedging program. DEPRECIATION AND AMORTIZATION expense increased
$61 million, or 11.7 percent, due primarily to the addition of new aircraft.
MAINTENANCE, MATERIALS AND REPAIRS expense increased 13.1 percent, or $63
million, due primarily to an increase in airframe and engine maintenance volumes
at the Company's maintenance bases and an approximate $17 million one-time
credit the Company received in the second quarter of 1999. COMMISSIONS TO AGENTS
decreased 9.6 percent, or $56 million, despite an increase of approximately 12.8
percent in passenger revenues, due primarily to the benefit from the
international base commission structure change implemented in October 1999 and a
decrease in commissionable transactions.
-10-
<PAGE> 13
RESULTS OF OPERATIONS (CONTINUED)
INTEREST INCOME increased approximately 61.0 percent, or $25 million, due
primarily to higher investment balances. INTEREST EXPENSE increased
approximately $47 million, or 25.1 percent, due to an increase in long-term
debt. INTEREST CAPITALIZED increased 19.4 percent, or $12 million, due to an
increase in purchase deposits for flight equipment. MISCELLANEOUS - NET
increased approximately 83.3 percent, or $20 million, due primarily to the gain
on sale of the Company's warrants to purchase 5.5 million shares of priceline
common stock in the second quarter of 2000, which resulted in a $57 million
gain. In the first quarter of 1999, the Company recorded an approximate $31
million gain on the sale of a portion of the Company's interest in Equant.
OPERATING STATISTICS
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------------------
2000 1999
---------------- ----------------
<S> <C> <C>
AMERICAN AIRLINES
Revenue passenger miles (millions) 57,471 54,198
Available seat miles (millions) 80,115 78,109
Cargo ton miles (millions) 1,117 942
Passenger load factor 71.7% 69.4%
Breakeven load factor 64.6% 64.9%
Passenger revenue yield per passenger mile (cents) 13.84 13.05
Passenger revenue per available seat mile (cents) 9.93 9.05
Cargo revenue yield per ton mile (cents) 30.69 32.36
Operating expenses per available seat mile (cents) 10.10 9.46
Fuel consumption (gallons, in millions) 1,489 1,432
Fuel price per gallon (cents) 71.6 51.0
Fuel price per gallon, excluding fuel taxes (cents) 66.3 46.6
Operating aircraft at period-end 712 697
AMR EAGLE
Revenue passenger miles (millions) 1,822 1,591
Available seat miles (millions) 3,060 2,633
Passenger load factor 59.6% 60.4%
Operating aircraft at period-end 272 260
</TABLE>
-11-
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
NET CASH PROVIDED BY OPERATING ACTIVITIES in the six-month period ended June 30,
2000 was $1.8 billion, an increase of $693 million over the same period in 1999.
This increase resulted primarily from an increase in the air traffic liability
due to higher advanced sales and an increase in income from continuing
operations. Capital expenditures for the first six months of 2000 were $1.9
billion, and included the acquisition of 11 Boeing 777-200IGWs, 12 Boeing
737-800s, 11 Embraer 135 aircraft and five Embraer 145 aircraft. These capital
expenditures were financed with internally generated cash and the $559 million
of cash received from the Sabre dividend, except for the Embraer aircraft
acquisitions which were funded through secured debt agreements.
As of June 30, 2000, the Company had commitments to acquire the following
aircraft: 69 Boeing 737-800s, 20 Boeing 757-200s, 15 Boeing 777-200IGWs, 87
Embraer regional jets and 25 Bombardier CRJ-700s. Deliveries of these aircraft
extend through 2006. Payments for these aircraft will approximate $1.1 billion
during the remainder of 2000, $2.3 billion in 2001, $650 million in 2002 and an
aggregate of approximately $1.0 billion in 2003 through 2006. The Company
expects to fund its remaining 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.
OTHER INFORMATION
DALLAS LOVE FIELD
In 1968, as part of an agreement between the cities of Fort Worth and Dallas to
build and operate Dallas/Fort Worth Airport (DFW), a bond ordinance was enacted
by both cities (the Bond Ordinance). The Bond Ordinance required both cities to
direct all scheduled interstate passenger operations to DFW and was an integral
part of the bonds issued for the construction and operation of DFW. In 1979, as
part of a settlement to resolve litigation with Southwest Airlines, the cities
agreed to expand the scope of operations allowed under the Bond Ordinance at
Dallas' Love Field. Congress enacted the Wright Amendment to prevent the federal
government from acting inconsistent with this agreement. The Wright Amendment
limited interstate operations at Love Field to the four states contiguous to
Texas (New Mexico, Oklahoma, Arkansas, and Louisiana) and prohibited through
ticketing to any destination outside that perimeter. In 1997, without the
consent of either city, Congress amended the Wright Amendment by (i) adding
three states (Kansas, Mississippi, and Alabama) to the perimeter and (ii)
removing some federal restrictions on large aircraft configured with 56 seats or
less (the 1997 Amendment).
In October 1997, the City of Fort Worth filed suit in state district court
against the City of Dallas and others seeking to enforce the Bond Ordinance.
Fort Worth contended 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 American and Fort
Worth. On May 25, 2000, the Fort Worth Court of Appeals overturned the district
court order and concluded that the Bond Ordinance was preempted by federal law.
American and Fort Worth filed motions asking the Fort Worth Court of Appeals to
reconsider its decision. In the same lawsuit, DFW filed claims alleging that
irrespective of whether the Bond Ordinance was enforceable, the DFW Use
Agreement prohibited American and other DFW signatory airlines from moving any
interstate operations to Love Field.
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
the City of 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.
-12-
<PAGE> 15
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. American, Fort Worth and DFW each filed
petitions for writ of certiorari with the United States Supreme Court, which
were denied on June 29, 2000. Shortly thereafter, American, Fort Worth and DFW
dismissed all remaining motions and claims in the Texas state court litigation.
Consequently, litigation over the right to provide scheduled passenger
operations at Love Field on aircraft with fewer than 57 seats to destinations
beyond the Wright Amendment perimeter has ended.
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.
On May 1, 2000, American commenced service from Love Field to Chicago and
Los Angeles using terminal space leased from Continental Express on a short-term
basis. American has further announced that it will offer service from Love Field
to New York's LaGuardia airport commencing August 31, 2000. American is seeking
long-term facilities at Love Field from the City of Dallas for its Love Field
operations. As a result of the foregoing, an increase in operations at Love
Field and/or the inability of American to obtain adequate facilities to compete
effectively at Love Field could adversely impact American's business.
INDUSTRY CONSOLIDATION
Two competitors of the Company, UAL Corporation and US Airways Group, Inc.,
recently announced that they have entered into a definitive merger agreement. If
that merger were to be consummated or other significant consolidation were to
occur in the airline industry, conditions and competition in the industry could
be significantly altered. If the Company were involved in a business combination
with a competitor, the financial condition and prospects of the resulting
corporation could be materially different from those of the Company.
FORWARD-LOOKING INFORMATION
Statements in this report contain various forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, which represent the
Company's expectations or beliefs concerning future events. When used in this
report, the words "expects," "plans," "anticipates," and similar expressions are
intended to identify forward-looking statements. All forward-looking statements
in this report are based upon information available to the Company on the date
of this report. The Company undertakes no obligation to publicly update or
revise any forward-looking statement, whether as a result of new information,
future events or otherwise. Forward-looking statements are subject to a number
of factors that could cause actual results to differ materially from our
expectations. Additional information concerning these and other factors is
contained in the Company's Securities and Exchange Commission filings, included
but not limited to the Form 10-K for the year ended December 31, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in market risk from the information provided
in Item 7A. Quantitative and Qualitative Disclosures About Market Risk of the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
-13-
<PAGE> 16
PART II: OTHER INFORMATION
ITEM 1. 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.
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 between 4,700 and
24,999 unredeemed miles in his or her account that were earned in 1992 or 1993.
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 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. On May 2, 2000, the court preliminarily
approved the settlement and authorized sending notice of the settlement to class
members. Before the settlement can become effective, the court must give final
approval of 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 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. On March 30, 2000, the Texas Court of Appeals in
Austin affirmed the granting of defendants' motion for summary judgment. The
plaintiff is seeking review by the Supreme Court of Texas. American is
vigorously defending all claims against it.
-14-
<PAGE> 17
PART II
ITEM 1. LEGAL PROCEEDINGS (CONTINUED)
On May 20, 1999, several class action lawsuits filed against the Allied
Pilots Association (APA) seeking compensation for passengers and cargo shippers
adversely affected by 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 in one
of the cases now consolidated in the Northern District of Texas 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. On July 24, 2000,
American announced that it had reached a tentative agreement with the APA that
would modify the existing labor contract between American and the APA which, if
approved by the APA membership, will resolve among other issues American's $45.5
million judgment against the APA. If this agreement is approved, it may impact
claims against American in this litigation. In the meanwhile, American is
vigorously defending all claims against it.
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.
-15-
<PAGE> 18
PART II
ITEM 1. LEGAL PROCEEDINGS (CONTINUED)
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The owners of 134,113,443 shares of common stock, or 90 percent of shares
outstanding, were represented at the annual meeting of stockholders on May 17,
2000 at the American Airlines Training & Conference Center, 4501 Highway 360
South, Fort Worth, Texas.
Elected as directors of the Corporation, each receiving a minimum of 132,601,686
votes were:
<TABLE>
<S> <C>
David L. Boren Ann D. McLaughlin
Edward A. Brennan Charles H. Pistor, Jr.
Donald J. Carty Philip J. Purcell
Armando M. Codina Joe M. Rodgers
Earl G. Graves Judith Rodin
</TABLE>
Stockholders ratified the appointment of Ernst & Young LLP as independent
auditors for the Corporation for 2000. The vote was 133,752,052 in favor; 62,885
against; and 298,506 abstaining.
A stockholder proposal relating to the future location of the annual meetings of
stockholders - submitted by Mrs. Evelyn Y. Davis - was defeated. The vote was
4,818,151 in favor; 109,828,256 against; 1,136,947 abstaining; and 18,330,089
non-voting.
-16-
<PAGE> 19
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are included herein:
12 Computation of ratio of earnings to fixed charges for the three and six
months ended June 30, 2000 and 1999.
27.1 Financial Data Schedule as of June 30, 2000.
27.2 Restated Financial Data Schedule as of June 30, 1999.
On April 20, 2000, AMR filed a report on Form 8-K relative to a press
release issued to report the Company's second quarter 2000 earnings.
-17-
<PAGE> 20
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMR CORPORATION
Date: July 28, 2000 BY: /s/ Thomas W. Horton
--------------------
Thomas W. Horton
Senior Vice President and Chief
Financial Officer
-18-
<PAGE> 21
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
12 Computation of ratio of earnings to fixed charges for the three and
six months ended June 30, 2000 and 1999.
27.1 Financial Data Schedule as of June 30, 2000.
27.2 Restated Financial Data Schedule as of June 30, 1999.
</TABLE>
