<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X]Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 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 (I.R.S. Employer
jurisdiction Identification No.)
of incorporation or
organization)
4333 Amon Carter Blvd.
Fort Worth, Texas 76155
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, (817) 963-1234
including area code
Not Applicable
(Former name, former address and former fiscal year , if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Common Stock, $1 par value - 150,689,302 as of October 19, 2000
<PAGE> 2
INDEX
AMR CORPORATION
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations -- Three and nine months
ended September 30, 2000 and 1999
Condensed Consolidated Balance Sheets - September 30, 2000 and
December 31, 1999
Condensed Consolidated Statements of Cash Flows -- Nine months
ended September 30, 2000 and 1999
Notes to Condensed Consolidated Financial Statements - September
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 6. Exhibits and Reports on Form 8-K
SIGNATURE
<PAGE> 3
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
AMR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (In millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenues
Passenger - American Airlines Inc. $4,385 $3,900 $12,341 $10,971
- American Eagle 390 352 1,096 963
Cargo 183 160 530 469
Other revenues 298 283 877 840
Total operating revenues 5,256 4,695 14,844 13,243
Expenses
Wages, salaries and benefits 1,721 1,533 5,012 4,561
Aircraft fuel 648 456 1,768 1,219
Depreciation and amortization 307 276 889 797
Maintenance, materials and repairs 278 263 821 743
Commissions to agents 266 314 796 900
Other rentals and landing fees 250 248 743 718
Food service 204 196 587 548
Aircraft rentals 151 161 455 483
Other operating expenses 859 822 2,472 2,388
Total operating expenses 4,684 4,269 13,543 12,357
Operating Income 572 426 1,301 886
Other Income (Expense)
Interest income 42 21 108 62
Interest expense (119) (108) (353) (295)
Interest capitalized 36 27 110 89
Miscellaneous - net (6) (9) 38 15
(47) (69) (97) (129)
Income From Continuing
Operations Before Income
Taxes and Extraordinary Loss 525 357 1,204 757
Income tax provision 203 144 472 311
Income From Continuing
Operations Before
Extraordinary Loss 322 213 732 446
Income From Discontinued
Operations, net of
applicable income taxes and
minority interest - 66 43 195
Gain on Sale of Discontinued
Operations, net of - - - 64
applicable income taxes
Income Before Extraordinary Loss 322 279 775 705
Extraordinary Loss, net of
applicable income taxes (9) - (9) -
Net Earnings $ 313 $ 279 $ 766 $ 705
</TABLE>
Continued on next page.
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<PAGE> 4
AMR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(Unaudited) (In millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Earnings Applicable to
Common Shares $ 313 $ 279 $ 766 $ 705
Earnings Per Common Share
Basic
Income from Continuing
Operations $ 2.14 $ 1.42 $ 4.89 $ 2.90
Discontinued Operations - 0.44 0.30 1.68
Extraordinary Loss (0.06) - (0.06) -
Net Earnings $ 2.08 1.86 5.13 4.58
Diluted
Income from Continuing
Operations $ 1.96 $1.38 $4.55 $2.81
Discontinued Operations - 0.38 0.27 1.63
Extraordinary Loss (0.05) - (0.05) -
Net Earnings $ 1.91 $1.76 $4.77 $4.44
Number of Shares Used in
Computation
Basic 150 150 149 154
Diluted 164 155 161 159
</TABLE>
The accompanying notes are an integral part of these financial
statements.
-2-
<PAGE> 5
AMR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (In millions)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
<S> <C> <C>
Assets
Current Assets
Cash $ 171 $ 85
Short-term investments 2,163 1,706
Receivables, net 1,496 1,134
Inventories, net 730 708
Deferred income taxes 612 612
Other current assets 180 179
Total current assets 5,352 4,424
Equipment and Property
Flight equipment, net 13,037 11,323
Other equipment and property, net 1,603 1,433
Purchase deposits for flight equipment 1,630 1,582
16,270 14,338
Equipment and Property Under Capital Leases
Flight equipment, net 1,680 1,851
Other equipment and property, net 97 98
1,777 1,949
Route acquisition costs, net 865 887
Other assets, net 1,635 2,776
$ 25,899 $ 24,374
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 1,299 $ 1,115
Accrued liabilities 2,284 1,956
Air traffic liability 2,929 2,255
Current maturities of long-term debt 495 302
Current obligations under capital leases 273 236
Total current liabilities 7,280 5,864
Long-term debt, less current maturities 3,795 4,078
Obligations under capital leases, less
current obligations 1,403 1,611
Deferred income taxes 2,164 1,846
Other liabilities, deferred gains, deferred
credits and postretirement benefits 4,164 4,117
Stockholders' Equity
Common stock 182 182
Additional paid-in capital 2,974 3,061
Treasury stock (1,968) (2,101)
Accumulated other comprehensive income (2) (2)
Retained earnings 5,907 5,718
7,093 6,858
$ 25,899 $ 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>
Nine Months Ended September 30,
2000 1999
<S> <C> <C>
Net Cash Provided by Operating Activities $2,732 $1,846
Cash Flow from Investing Activities:
Capital expenditures, including net change in
purchase deposits for purchase deposits (2,792) (2,751)
Net increase in short-term investments (457) (14)
Acquisitions and other investments (41) (99)
Proceeds from:
Dividend from Sabre, Inc. (Sabre) 559 -
Sale of equipment and property 239 55
Sale of other investments 94 31
Sale of discontinued operations - 259
Other - 18
Net cash used for investing activities (2,398) (2,501)
Cash Flow from Financing Activities:
Payments on long-term debt and capital
lease obligations (628) (214)
Repurchases of common stock - (871)
Proceeds from:
Issuance of long-term debt 351 1,367
Exercise of stock options 29 18
Short-term loan from Sabre - 300
Sale-leaseback transactions - 54
Net cash provided by (used for)
financing activities (248) 654
Net increase (decrease) in cash 86 (1)
Cash at beginning of period 85 87
Cash at end of period $ 171 $ 86
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 7 below), and accordingly,
related information previously reported in the September 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
September 30, 2000 and December 31, 1999, was $8.0 billion and $7.4
billion, respectively. Accumulated amortization of equipment and
property under capital leases at September 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 October 2, 2000, the Company had commitments to acquire the
following aircraft: 67 Boeing 737-800s, 21 Boeing 777-200IGWs, 20
Boeing 757-200s, 153 Embraer regional jets and 25 Bombardier CRJ-700s.
Deliveries of these aircraft extend through 2006. Payments for these
aircraft will approximate $600 million during the remainder of 2000,
$2.5 billion in 2001, $1.25 billion in 2002 and an aggregate of
approximately $1.7 billion in 2003 through 2006.
5.During the third quarter of 2000, AMR repurchased prior to
scheduled maturity approximately $167 million in face value of long-
term debt. Cash from operations provided the funding for the
repurchases. These transactions resulted in an extraordinary loss
of $14 million ($9 million after-tax).
6.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.
<PAGE> 8
AMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
7.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 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 other stock-based 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 Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Sabre
Revenues $ - $ 617 $ 542 $1,894
Minority interest - 13 10 40
Income taxes - 47 36 139
Net income - 66 43 195
AMR Services, AMR Combs
and TeleService
Resources
Revenues $ - $ - $ - $ 97
Income taxes - - - -
Net income - - - -
</TABLE>
8.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)
9.The following table sets forth the computations of basic and
diluted earnings per share from continuing operations before
extraordinary loss (in millions, except per share data):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Numerator:
Income from continuing
operations before
extraordinary loss-
numerator for basic and
diluted earnings per share $ 322 $ 213 $ 732 $ 446
Denominator:
Denominator for basic
earnings per share -
weighted-average shares 150 150 149 154
Effect of dilutive securities:
Employee options and shares 31 12 26 12
Assumed treasury shares
purchased (17) (7) (14) (7)
Dilutive potential common
shares 14 5 12 5
Denominator for diluted
earnings per share adjusted
weighted-average shares 164 155 161 159
Basic earnings per share from
continuing operations before
extraordinary loss $ 2.14 $ 1.42 $ 4.89 $ 2.90
Diluted earnings per share
from continuing operations
before extraordinary loss $ 1.96 $ 1.38 $ 4.55 $ 2.81
</TABLE>
10.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 will
adopt SFAS 133 in the first quarter of fiscal year 2001. The
Company is currently evaluating the impact of SFAS 133 on the
Company's financial condition and results of operations.
-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 September 30, 2000 and 1999
Summary AMR's income from continuing operations before extraordinary
loss during the third quarter of 2000 was $322 million, or $1.96 per
common share diluted, as compared to $213 million, or $1.38 per
common share diluted, for the same period in 1999. AMR's operating
income of $572 million increased $146 million compared to the same
period in 1999. AMR's third quarter 2000 results from continuing
operations include the effect of a labor disruption at one of the
Company's major competitors which positively impacted the Company's
net earnings by an estimated $0.22 to $0.28 per common share diluted.
The Company's revenues increased $561 million, or 11.9 percent, in
the third quarter of 2000 versus the same period last year.
American's passenger revenues increased by 12.4 percent, or $485
million, compared to the third quarter of 1999. American's yield
(the average amount one passenger pays to fly one mile) of 13.88
cents increased by 7.9 percent compared to the same period in 1999.
Domestic yields increased 7.9 percent from the third quarter of 1999.
International yields increased 8.1 percent, reflecting an increase of
13.3 percent, 4.8 percent and 4.5 percent in Europe, Latin American
and Pacific 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, a favorable pricing
climate, and a labor disruption at one of the Company's major
competitors which positively impacted the Company's revenues by
approximately $80 million to $100 million.
American's traffic or revenue passenger miles (RPMs) increased 4.2
percent to 31.6 billion miles for the quarter ended September 30,
2000. American's capacity or available seat miles (ASMs) decreased
2.0 percent to 41.4 billion miles in the third quarter of 2000.
American's domestic traffic increased 3.3 percent on a capacity
decrease of 3.4 percent and international traffic increased 5.9
percent on capacity increases of 1.1 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 an 8.7 percent increase in traffic to Europe on
capacity growth of 4.6 percent, a 7.1 percent increase in traffic to
the Pacific on a capacity increase of 0.4 percent and a 2.9 percent
increase in traffic to Latin America on a capacity decrease of 1.8
percent.
American Eagle's passenger revenues increased 10.8 percent, or $38
million. American Eagle's traffic increased to 1.0 billion RPMs, up
10.3 percent, while capacity increased to 1.6 billion ASMs, or 8.6
percent, in the third quarter of 2000.
Cargo revenues increased $23 million, or 14.4 percent, due primarily
to a fuel surcharge implemented in February 2000, the Company's
increase in cargo capacity from the addition of new aircraft in late
1999 and 2000, and a labor disruption at one of the Company's major
competitors.
The Company's operating expenses increased 9.7 percent, or $415
million. American's cost per ASM increased 11.9 percent to 10.31
cents. Wages, salaries and benefits increased 12.3 percent, or $188
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 of
approximately $75 million in the provision for profit-sharing.
Aircraft fuel expense increased 42.1 percent, or $192 million, due to
a 38.3 percent increase in the Company's average price per gallon and
a 2.7 percent increase in the Company's fuel consumption. The
increase in fuel expense is net of gains of approximately $159
million recognized during the third quarter of 2000 related to the
Company's fuel hedging program. Depreciation and amortization
expense increased $31 million, or 11.2 percent, due primarily to the
addition of new aircraft. Commissions to agents decreased 15.3
percent, or $48 million, despite an increase of approximately 12.3
percent in passenger revenues, due primarily to the benefit from the
international base commission structure changes implemented in
October 1999 and January 2000, respectively, and a decrease in
commissionable transactions.
Interest income increased $21 million due primarily to higher
investment balances. Interest expense increased $11 million, or 10.2
percent, due to an increase in the average outstanding long-term debt
balance in 2000. Interest capitalized increased 33.3 percent, or $9
million, due primarily to an increase in purchase deposits for flight
equipment.
-8-
<PAGE> 11
RESULTS OF OPERATIONS (continued)
<TABLE>
<CAPTION>
OPERATING STATISTICS
Three Months Ended
September 30,
2000 1999
<S> <C> <C>
American Airlines
Revenue passenger miles (millions) 31,584 30,325
Available seat miles (millions) 41,418 42,245
Cargo ton miles (millions) 576 541
Passenger load factor 76.3% 71.8%
Breakeven load factor 65.4% 63.3%
Passenger revenue yield per
passenger mile (cents) 13.88 12.86
Passenger revenue per available
seat mile (cents) 10.59 9.23
Cargo revenue yield per ton mile (cents) 31.60 29.22
Operating expenses per available
seat mile (cents) 10.31 9.21
Fuel consumption (gallons, in millions) 796 780
Fuel price per gallon (cents) 77.3 55.9
Fuel price per gallon, excluding
fuel taxes (cents) 71.7 51.0
Operating aircraft at period-end 720 701
AMR Eagle
Revenue passenger miles (millions) 998 905
Available seat miles (millions) 1,631 1,502
Passenger load factor 61.2% 60.2%
Operating aircraft at period-end 270 268
</TABLE>
Operating aircraft at September 30, 2000 included:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
American Airlines AMR Eagle Aircraft:
Aircraft:
Airbus A300-600R 35 ATR 42 31
Boeing 727-200 63 Embraer 135 26
Boeing 737-800 45 Embraer 145 50
Boeing 757-200 102 Super ATR 43
Boeing 767-200 8 Saab 340 95
Boeing 767-200 Extended Saab 340B Plus 25
Range 22
Boeing 767-300 Extended Total 270
Range 49
Boeing 777-200IGW 24
Fokker 100 75
McDonnell Douglas DC-10-10 3
McDonnell Douglas DC-10-30 5
McDonnell Douglas MD-11 8
McDonnell Douglas MD-80 276
McDonnell Douglas MD-90 5
Total 720
</TABLE>
Average aircraft age is 10.8 years for American's aircraft and 6.4
years for AMR Eagle aircraft.
-9-
<PAGE> 12
RESULTS OF OPERATIONS (continued)
For the Nine Months Ended September 30, 2000 and 1999
Summary AMR's income from continuing operations before extraordinary
loss for the nine months ended September 30, 2000 was $732 million,
or $4.55 per common share diluted. This compares with income from
continuing operations of $446 million, or $2.81 per common share
diluted, for the same period in 1999. AMR's operating income of $1.3
billion increased 46.8 percent, or $415 million, compared to the same
period in 1999. AMR's 2000 results from continuing operations
include the effect of a labor disruption at one of the Company's
major competitors which positively impacted the Company's net
earnings by an estimated $0.22 to $0.28 per common share diluted
and 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.com Incorporated
(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 $1.6 billion, or 12.1
percent, during the first nine months of 2000 versus the same period
last year. American's passenger revenues increased by 12.5 percent,
or approximately $1.4 billion. American's yield of 13.86 cents
increased by 6.8 percent compared to the same period in 1999.
Domestic yields increased 6.6 percent from the first nine months of
1999. International yields increased 7.5 percent, reflecting an
increase of 12.0 percent, 10.4 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, a
favorable pricing climate, and a labor disruption at one of the
Company's major competitors which positively impacted the Company's
revenues by approximately $80 million to $100 million. The first
quarter of 1999 includes a schedule disruption which negatively
impacted the Company's operations.
American's traffic or revenue passenger miles (RPMs) increased 5.4
percent to 89.1 billion miles for the nine months ended September 30,
2000. American's capacity or available seat miles (ASMs) increased
1.0 percent to 121.5 billion miles in the first nine months of 2000.
American's domestic traffic increased 4.2 percent on a capacity
decrease of 0.5 percent and international traffic increased 7.8
percent on capacity increases of 4.2 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 12.7 percent increase in traffic to the Pacific on
capacity growth of 3.5 percent, a 10.1 percent increase in traffic to
Europe on a capacity increase of 7.9 percent and a 4.6 percent
increase in traffic to Latin America on capacity growth of 1.4
percent.
American Eagle's passenger revenues increased 13.8 percent, or $133
million. American Eagle's traffic increased to 2.8 billion RPMs, up
13.1 percent, while capacity increased to 4.7 billion ASMs, or 13.4
percent, in the first nine months of 2000.
Cargo revenues increased $61 million, or 13.0 percent, due primarily
to a fuel surcharge implemented in February 2000, the Company's
increase in cargo capacity from the addition of new aircraft in late
1999 and 2000, and a labor disruption at one of the Company's major
competitors.
The Company's operating expenses increased 9.6 percent, or
approximately $1.2 billion. American's cost per ASM increased by 8.4
percent to 10.17 cents. Wages, salaries and benefits increased $451
million, or 9.9 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 of approximately $114 million in the provision for profit-
sharing. Aircraft fuel expense increased 45.0 percent, or $549
million, due to a 39.7 percent increase in the Company's average
price per gallon and a 4.1 percent increase in the Company's fuel
consumption. The increase in fuel expense is net of gains of
approximately $391 million recognized during the nine months ended
September 30, 2000 related to the Company's fuel hedging program.
Depreciation and amortization expense increased $92 million, or 11.5
percent, due primarily to the addition of new aircraft.
-10-
<PAGE> 13
RESULTS OF OPERATIONS (continued)
Maintenance, materials and repairs expense increased 10.5 percent, or
$78 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 11.6
percent, or $104 million, despite an increase of approximately 12.6
percent in passenger revenues, due primarily to the benefit from the
international base commission structure changes implemented in
October 1999 and January 2000, respectively, and a decrease in
commissionable transactions.
Interest income increased 74.2 percent, or $46 million, due primarily
to higher investment balances. Interest expense increased $58
million, or 19.7 percent, due to an increase in the average
outstanding long-term debt balance in 2000. Interest capitalized
increased 23.6 percent, or $21 million, due to an increase in
purchase deposits for flight equipment. Miscellaneous - net
increased $23 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.
<TABLE>
<CAPTION>
OPERATING STATISTICS
Nine Months Ended September 30,
2000 1999
<S> <C> <C>
American Airlines
Revenue passenger miles (millions) 89,055 84,522
Available seat miles (millions) 121,533 120,354
Cargo ton miles (millions) 1,693 1,483
Passenger load factor 73.3% 70.2%
Breakeven load factor 64.9% 64.3%
Passenger revenue yield per passenger
mile (cents) 13.86 12.98
Passenger revenue per available seat
mile (cents) 10.15 9.12
Cargo revenue yield per ton mile (cents) 31.00 31.21
Operating expenses per available
seat mile (cents) 10.17 9.38
Fuel consumption (gallons, in millions) 2,285 2,212
Fuel price per gallon (cents) 73.6 52.7
Fuel price per gallon, excluding
fuel taxes (cents) 68.2 48.1
Operating aircraft at period-end 720 701
AMR Eagle
Revenue passenger miles (millions) 2,822 2,496
Available seat miles (millions) 4,691 4,135
Passenger load factor 60.1% 60.4%
Operating aircraft at period-end 270 268
</TABLE>
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<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities in the nine-month period
ended September 30, 2000 was $2.7 billion, an increase of $886
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 nine months of 2000 were $2.8
billion, and included the acquisition of 13 Boeing 777-200IGWs, 21
Boeing 737-800s, 17 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 October 2, 2000, the Company had commitments to acquire the
following aircraft: 67 Boeing 737-800s, 21 Boeing 777-200IGWs, 20
Boeing 757-200s, 153 Embraer regional jets and 25 Bombardier CRJ-700s.
Deliveries of these aircraft extend through 2006. Payments for these
aircraft will approximate $600 million during the remainder of 2000,
$2.5 billion in 2001, $1.25 billion in 2002 and an aggregate of
approximately $1.7 billion in 2003 through 2006. The Company expects
to fund these capital expenditures from the Company's existing cash
and short-term investments, internally generated cash, and new
financing depending upon market conditions and the Company's evolving
view of its long-term needs.
During the third quarter of 2000, AMR repurchased prior to
scheduled maturity approximately $167 million in face value of long-
term debt. Cash from operations provided the funding for the
repurchases.
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 agreement of the cities, 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 fewer.
From October 1997 through May 2000, American, the cities of Fort Worth
and Dallas, and other parties were involved in litigation regarding flight
restrictions at Love Field. On May 1, 2000, American commenced service
from Love Field to Chicago and Los Angeles using Fokker 100 aircraft
reconfigured to hold 56 seats. These flights depart from terminal space
leased from Continental Express on a short-term basis. On August 31, 2000,
American commenced service from Love Field to New York's LaGuardia
airport using the same facilities. American is seeking long-term
facilities at Love Field from the City of Dallas for its Love Field
operations. Consultants for the City of Dallas are drafting a master
plan for Love Field and expect to make recommendations to the City of
Dallas by the end of November 2000. 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.
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<PAGE> 15
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. The Company is considering its strategic response
to the possibility of industry consolidation, and from time to time is
engaged in discussions with other carriers regarding potential
significant business combinations and acquisitions of assets. To date
these discussions have not resulted in a definitive agreement between
the Company and any other carrier to enter into such a business
combination or asset acquisition; however, there can be no assurance
that the Company will not enter into such a transaction in the future.
If any significant airline industry consolidation were to occur,
including any business combination involving the Company or
significant asset acquisition by the Company, the financial condition
and prospects of the Company or the resulting corporation could be
materially different from those of the Company currently.
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 except as discussed below.
Based on projected fuel usage for the next twelve months, a
hypothetical 10 percent increase in the September 29, 2000 cost per
gallon of fuel would result in an increase to American's aircraft fuel
expense of approximately $192 million for the next twelve months, net
of fuel hedge instruments outstanding at September 30, 2000. The
change in market risk from December 31, 1999 is due primarily to the
increase in fuel prices. As of September 30, 2000, the Company has
hedged approximately 70 percent of its remaining 2000 fuel
requirements and approximately 35 percent of its 2001 fuel
requirements.
During 2000, the Company terminated interest rate swap agreements
on notional amounts of approximately $425 million which had
effectively converted a portion of its fixed-rate obligations to
floating-rate obligations. The cost of terminating these interest rate
swap agreements was not material and the impact of the termination of
these interest rate swap agreements on the Company's interest rate
market risk was not significant.
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<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 fees 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. On September 28, 2000, the court
heard arguments from a number of class members who are objecting to
various terms of the settlement. The court did not rule on the
merits of any objections, and therefore has not yet decided whether
it will finally approve the settlement agreement.
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 appealed and on March 30, 2000, the Texas Court of
Appeals in Austin affirmed the granting of defendants' motion for
summary judgment. On August 17, 2000, the Texas Supreme Court denied
the plaintiff's petition for review.
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<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).
Although American was named as a defendant, plaintiffs were 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, the value of which is believed to exceed the
APA's total assets. The APA moved to dismiss all claims alleged
against it, and on September 26, 2000, the court dismissed all of the
Plaintiffs' claims against the APA. In so doing, however, the court
refused to dismiss certain state law claims with prejudice, but
instead concluded that these state law claims were not preempted by
federal law and could proceed in a state court. On October 3, 2000,
Plaintiffs filed a complaint in Texas state court against the APA. In
the complaints, Plaintiffs allege that in the event the APA does not
have enough assets to satisfy American's $45.5 million judgment and
any judgment the Plaintiffs' recover, any judgment in their case
should be considered equal to or superior to American's interest in
the $45.5 million judgment against the APA. American intends to
vigorously defend all claims against it in this action.
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. The
case has been set for trial on May 22, 2001. 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.
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<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 has produced documents
to the grand jury, but 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 cooperate fully with the
government's investigation.
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein:
12 Computation of ratio of earnings to fixed charges for the three
and nine months ended September 30, 2000 and 1999.
27.1 Financial Data Schedule as of September 30, 2000.
27.2 Restated Financial Data Schedule as of September 30, 1999.
On July 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.
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<PAGE> 19
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: October 26, 2000 BY: /s/ Thomas W. Horton
Thomas W. Horton
Senior Vice President and Chief
Financial Officer
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<PAGE> 20
Exhibit 12
AMR CORPORATION
Computation of Ratio of Earnings to Fixed Charges
(in millions)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Earnings:
Earnings from continuing
operations before income taxes
and extraordinary loss $525 $357 $1,204 $757
Add: Total fixed charges
(per below) 327 323 986 933
Less: Interest capitalized 36 27 110 89
Total earnings $816 $653 $2,080 $1,601
Fixed charges:
Interest, including interest
capitalized $114 $105 $ 340 $ 288
Portion of rental expense
representative of the
interest factor 208 215 633 637
Amortization of debt expense 5 3 13 8
Total fixed charges $327 $323 $986 $933
Ratio of earnings to fixed charges 2.50 2.02 2.11 1.72
</TABLE>
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