Annual Report — [x] Reg. S-K Item 405 — Form 10-K
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10-K405 Form 10-K for Fiscal Year End December 31, 2000 72 387K
2: EX-10.14 Changes to Deferred Compensation Agreement 6/2/98 2 10K
3: EX-10.20 Deferred Compensation Agreement - 1/22/2001 2 11K
4: EX-10.25 Deferred Compensation Agreement - 01/22/2001 2 12K
5: EX-10.26 Deferred Compensation Agreement - 1/19/2001 2 11K
6: EX-10.35 Current Form of Stock Option Agreement 4 20K
7: EX-10.52 Performance Share Program 4 19K
8: EX-10.53 Form of Performance Share Program 7 28K
9: EX-10.60 2001 Employee Profit Sharing Plan 5 20K
10: EX-10.66 2001 Incentive Compensation Plan 8 33K
11: EX-10.74 Amend/Restated Termination Agreement 29 84K
12: EX-10.81 Amend/Restated Executive Termination Agreement 29 83K
13: EX-10.88 Asset Purchase Agreement Dated February 28, 2001 104 360K
14: EX-10.89 Amend No. 1 to Amend/Restated Asset Purchase 3 14K
15: EX-10.90 Secured Debtor Agreement Dated January 12, 2001 150 594K
16: EX-10.91 Letter Agreement Dated January 11, 2001 4 16K
17: EX-10.92 Letter Agreement Dated January 26, 2001 5 19K
18: EX-10.93 Letter Agreement Dated March 7, 2001 3 15K
19: EX-10.94 1st Amend to Secured Debtor in Possession Credit 11 32K
20: EX-12 Computation of Ratio of Earnings to Fixed Charges 1 9K
21: EX-21 Subsidiaries of the Registrant 2 14K
22: EX-23 Consent of Independent Auditors 1 10K
10-K405 — Form 10-K for Fiscal Year End December 31, 2000
Document Table of Contents
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For fiscal year ended December 31, 2000.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number 1-8400.
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AMR CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 75-1825172
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
4333 Amon Carter Blvd.
Fort Worth, Texas 76155
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (817) 963-1234
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
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Common stock, $1 par value per share New York Stock Exchange
9.00% Debentures due 2016 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 16, 2001, was approximately $5,190,797,127. As of March
16, 2001, 153,619,329 shares of the registrant's common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K incorporates by reference certain information from
the Proxy Statement for the Annual Meeting of Stockholders to be held May 16,
2001.
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PART I
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ITEM 1. BUSINESS
AMR Corporation (AMR or the Company) was incorporated in October 1982. AMR's
operations fall almost entirely in the airline industry. AMR's principal
subsidiary, American Airlines, Inc. (American), was founded in 1934. American is
one of the largest scheduled passenger airlines in the world. At the end of
2000, American provided scheduled jet service to more than 169 destinations
throughout North America, the Caribbean, Latin America, Europe and the Pacific.
American is also one of the largest scheduled air freight carriers in the world,
providing a full range of freight and mail services to shippers throughout its
system.
In addition, AMR Eagle Holding Corporation (AMR Eagle), a wholly-owned
subsidiary of AMR, owns two regional airlines which do business as "American
Eagle" -- American Eagle Airlines, Inc. and Executive Airlines, Inc. Business
Express, Inc. was merged into American Eagle Airlines, Inc. in December 2000.
The American Eagle carriers provide connecting service from eight of American's
high-traffic cities to smaller markets throughout the United States, Canada, the
Bahamas and the Caribbean.
AMR Investment Services, Inc., a wholly-owned subsidiary of AMR, is
responsible for the investment and oversight of AMR's defined benefit and
defined contribution plans, as well as its fixed income investments. It serves
as manager of the American AAdvantage Funds, a family of mutual funds with both
institutional and retail shareholders, and provides customized fixed income
portfolio management services. As of December 31, 2000, AMR Investment Services
was responsible for management of approximately $22.9 billion in assets,
including direct management of approximately $10.5 billion in short-term fixed
income investments.
Effective after the close of business on March 15, 2000, AMR distributed
0.722652 shares of Sabre Holdings Corporation (Sabre) Class A Common Stock for
each share of AMR stock owned by AMR's shareholders, thus distributing its
entire ownership interest in Sabre. As such, Sabre has been treated as a
discontinued operation in Item 6 - Selected Consolidated Financial Data, Item 7
- Management's Discussion and Analysis of Financial Condition and Results of
Operations and Item 8 - Consolidated Financial Statements. In addition, the
discussion in the other Items of this Form 10-K relates primarily to American
and AMR Eagle.
On January 10, 2001, the Company announced three transactions that are
expected to substantially increase the scope of its existing network. First, the
Company announced that it had agreed to purchase substantially all of the assets
of Trans World Airlines, Inc. (TWA) for approximately $500 million in cash and
to assume approximately $3.5 billion of TWA's obligations. The Company's
agreement with TWA contemplated that TWA would file for bankruptcy protection
under Chapter 11 of the U.S. Bankruptcy Code and conduct an auction of its
assets under the auspices of the Bankruptcy Court. During the auction, other
credible offers would compete with the Company's offer. TWA filed for bankruptcy
protection on January 10, 2001. In conjunction therewith, the Company also
agreed to provide TWA with up to $200 million in debtor-in-possession financing
to facilitate TWA's ability to maintain its operations until the completion of
this transaction. The amount available under this facility was later increased
to $330 million. As of March 19, 2001, approximately $289 million had been
provided via the debtor-in-possession financing.
1
The auction of TWA's assets was commenced on March 5, 2001, and recessed
to March 7, 2001. During the recess, the Company increased its cash bid to $625
million and agreed to leave in the TWA estate certain aircraft security
deposits, advance rental payments and rental rebates that were estimated to
bring approximately $117 million of value to TWA. The Company expects that the
increase in the Company's bid will be more than offset, however, by the benefit
to the Company of the reductions in rental rates the Company has negotiated with
TWA's aircraft lessors. On March 7, 2001, TWA's board selected the Company's bid
as the "highest and best" offer, and on March 12, 2001, the U.S. Bankruptcy
Court, District of Delaware, entered an order approving the sale of TWA's assets
to the Company. Consummation of the transaction is subject to several
contingencies, including the waiver by TWA's unions of certain provisions of
their collective bargaining agreements. The approval of the U.S. Department of
Justice (DOJ) was obtained on March 16, 2001. Certain parties have filed appeals
of the Bankruptcy Court's sale order, and have sought a stay of the transaction,
pending the appeals. A provision of the Bankruptcy Code will permit the Company
to close the transaction, despite pending appeals, unless a stay is granted. If
a stay is granted, the Company would anticipate that the appeal process would be
expedited. Upon the closing of the transaction, TWA will be integrated into
American's operations with a continued hub operation in St. Louis.
Secondly, the Company announced that it has agreed to acquire from United
Airlines, Inc. (United) certain key strategic assets (slots, gates and aircraft)
of US Airways, Inc. (US Airways) upon the consummation of the previously
announced merger between United and US Airways. In addition to the acquisition
of these assets, American will lease a number of slots and gates from United so
that American may operate half of the northeast Shuttle (New York/Washington
DC/Boston). United will operate the other half of the Shuttle. For these assets,
American will pay approximately $1.2 billion in cash to United and assume
approximately $300 million in aircraft operating leases. The consummation of
these transactions is contingent upon the closing of the proposed United/US
Airways merger. Also, the acquisition of aircraft is generally dependent upon a
certain number of US Airways' Boeing 757 cockpit crew members transferring to
American's payroll.
Finally, American has agreed to acquire a 49 percent stake in, and to
enter into an exclusive marketing agreement with, DC Air LLC (DC Air). American
has agreed to pay $82 million in cash for its ownership stake. American will
have a right of first refusal on the acquisition of the remaining 51 percent
stake in DC Air. American will also lease to DC Air a certain number of Fokker
100 aircraft with necessary crews (known in the industry as a "wet lease").
These wet leased aircraft will be used by DC Air in its operations. DC Air is
the first significant new entrant at Ronald Reagan Washington National Airport
(DCA) in over a decade. DC Air will acquire the assets needed to begin its DCA
operations from United/US Airways upon the consummation of the merger between
the two carriers. American's investment in DC Air and the other arrangements
described above are contingent upon the consummation of the merger between
United and US Airways.
As a result of the above transactions, and for several other reasons,
American and American Eagle have initiated an impairment review of certain fleet
types in accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." This review could result in an impairment charge to be taken by
the Company in 2001. The size of any resulting 2001 charge is not presently
known, but may be significant.
COMPETITION
Most major air carriers have developed hub-and-spoke systems and schedule
patterns in an effort to maximize the revenue potential of their service.
American operates four hubs: Dallas/Fort Worth (DFW), Chicago O'Hare, Miami and
San Juan, Puerto Rico. Delta Air Lines and United Airlines also have hub
operations at DFW and Chicago O'Hare, respectively.
The American Eagle carriers increase the number of markets the Company
serves by providing connections to American at American's hubs and certain other
major airports. The American Eagle carriers serve smaller markets through
Boston, DFW, Chicago, Miami, San Juan, Los Angeles and New York's LaGuardia and
John F. Kennedy International Airports. American's competitors also own or have
marketing agreements with regional carriers which provide similar services at
their major hubs.
2
In addition to its extensive domestic service, the Company provides
international service to the Caribbean, Canada, Latin America, Europe and the
Pacific. The Company's operating revenues from foreign operations were
approximately $5.8 billion in 2000, $5.2 billion in 1999 and $5.3 billion in
1998. Additional information about the Company's foreign operations is included
in Note 13 to the consolidated financial statements.
The domestic airline industry is fiercely competitive. Currently, any
carrier deemed fit by the U.S. Department of Transportation (DOT) is free to
operate scheduled passenger service between any two points within the U.S. and
its possessions. On most of its domestic non-stop routes, the Company faces
competing service from at least one, and sometimes more than one, major domestic
airline including: Alaska Airlines, America West Airlines, Continental Airlines,
Delta Air Lines, Northwest Airlines, Southwest Airlines, TWA, United, US Airways
and their affiliated regional carriers. Competition is even greater between
cities that require a connection, where as many as nine airlines may compete via
their respective hubs. The Company also competes with national, regional,
all-cargo and charter carriers and, particularly on shorter segments, ground
transportation. In addition, on all of its routes, pricing decisions are
affected, in part, by competition from other airlines, some of which have cost
structures significantly lower than American's and can therefore operate
profitably at lower fare levels.
The majority of the tickets for travel on American and American Eagle are
sold by travel agents. Domestic travel agents generally receive a base
commission of five percent of the price of the tickets they sell. This amount is
capped at a maximum of $50 for a domestic roundtrip itinerary and $100 for an
international roundtrip itinerary. Airlines often pay additional commissions in
connection with special revenue programs. Accordingly, airlines compete not only
with respect to the price of the tickets sold but also with respect to the
amount of commissions paid.
The growing use of electronic distribution systems provides the Company
with an ever-increasing ability to lower its distribution costs. The Company
continues to expand the capabilities of its Internet website - AA.com - and the
use of electronic ticketing throughout the Company's network. In addition, the
Company has entered into various agreements with several Internet travel
providers, including Travelocity.com, Expedia, priceline.com and Hotwire. The
base commission for sales through Internet travel providers is significantly
lower than traditional travel agencies.
International air transportation is subject to extensive government
regulation. In providing international air transportation, American competes
with foreign investor-owned carriers, state-owned carriers and U.S. airlines
that have been granted authority to provide scheduled passenger and cargo
service between the U.S. and various overseas locations. American's operating
authority in these markets is subject to aviation agreements between the U.S.
and the respective countries, and in some cases, fares and schedules require the
approval of the DOT and/or the relevant foreign governments. Because
international air transportation is governed by bilateral or other agreements
between the U.S. and the foreign country or countries involved, changes in U.S.
or foreign government aviation policies could result in the alteration or
termination of such agreements, diminish the value of such route authorities, or
otherwise adversely affect American's international operations. Bilateral
agreements between the U.S. and various foreign countries served by American are
subject to frequent renegotiation. In addition, at most foreign airports, a
carrier needs slots (landing and take-off authorizations) before the carrier can
introduce new service or increase existing service. The availability of such
slots is not assured and can therefore inhibit a carrier's efforts to compete in
certain markets.
The major U.S. carriers have some advantage over foreign competitors in
their ability to generate traffic from their extensive domestic route systems.
In many cases, however, foreign governments, which own and subsidize some of
American's foreign competitors, limit U.S. carriers' rights to carry passengers
beyond designated gateway cities in foreign countries. To improve access to each
other's markets, various U.S. and foreign carriers -- including American -- have
established marketing relationships with other airlines. American currently has
code-sharing programs with Aer Lingus, Air Pacific, Alaska Airlines, Asiana
Airlines, China Eastern Airlines, EVA Air, Finnair, Gulf Air, Hawaiian Airlines,
Iberia, Japan Airlines, LanChile, LOT Polish Airlines, Qantas Airways, Sabena,
SNCF, Swissair, TACA Group, the TAM Group, TAP Air Portugal, Thalys and Turkish
Airlines. American Eagle also has code-sharing programs with Continental
Airlines, Northwest Airlines, TWA and Midwest Express, in addition to
code-sharing with some of American's code-share partners. Certain of these
relationships also include reciprocity between American and the other airlines'
frequent flyer programs. In addition, the Company expects to implement or expand
alliances with other international carriers, including British Airways, Cathay
Pacific Airways,
3
China Eastern Airlines and Qantas New Zealand, pending regulatory approval. In
the coming years, the Company expects to develop these programs further and to
evaluate new alliances with other international carriers.
In February 1999, American, British Airways, Canadian Airlines
International Limited (Canadian), Cathay Pacific Airways and Qantas Airways
formed the global alliance ONEworld(TM). In September 1999, these five founding
members were joined by Finnair and Iberia. Also, in June 2000, Aer Lingus and
LanChile joined the ONEworld alliance. The ONEworld alliance links the networks
of the member carriers to enhance customer service and smooth connections to the
destinations served by the alliance, including linking the carriers' frequent
flyer programs and access to the carriers' airport lounge facilities. Following
the acquisition of Canadian by Air Canada, Canadian terminated its membership in
ONEworld in June 2000.
The Company believes that it has several advantages relative to its
competition. Its fleet is efficient and quiet, and is one of the youngest fleets
in the U.S. airline industry. It has a comprehensive domestic and international
route structure, anchored by efficient hubs, which permit it to take full
advantage of whatever traffic growth occurs. The Company believes American's
AAdvantage frequent flyer program, which is the largest program in the industry,
its More Room Throughout Coach program and its superior service also give it a
competitive advantage to its competition.
REGULATION
GENERAL The Airline Deregulation Act of 1978, as amended, eliminated most
domestic economic regulation of passenger and freight transportation. However,
the DOT and the Federal Aviation Administration (FAA) still exercise certain
regulatory authority over air carriers. The DOT maintains jurisdiction over the
approval of international codeshare agreements, international route authorities
and certain consumer protection matters, such as advertising, denied boarding
compensation and baggage liability.
The FAA regulates flying operations generally, including establishing
personnel, aircraft and security standards. As part of that oversight, the FAA
has implemented a number of requirements that American is incorporating into its
maintenance program. These matters relate to, among other things, inspection and
maintenance of aging aircraft, corrosion control, the installation of upgraded
digital flight data recorders, enhanced ground proximity warning systems, cargo
compartment smoke detection and fire suppression systems, McDonnell Douglas MD
80 metal-mylar insulation replacement, and required inspections of General
Electric compressor spools. Based on its current implementation schedule,
American expects to be in compliance with the applicable requirements within the
required time periods.
The DOJ has jurisdiction over airline antitrust matters. The U.S. Postal
Service has jurisdiction over certain aspects of the transportation of mail and
related services. Labor relations in the air transportation industry are
regulated under the Railway Labor Act, which vests in the National Mediation
Board certain regulatory functions with respect to disputes between airlines and
labor unions relating to union representation and collective bargaining
agreements. To the extent American continues to increase its alliances with
international carriers, American may be subject to certain regulations of
foreign agencies.
In April 1998, the DOT issued proposed pricing and capacity rules that
would severely limit major carriers' ability to compete with new entrant
carriers. In January 2001, following a multi-year investigation and public
docket concerning competition between major carriers and new entrant carriers,
the DOT restated its concerns with competitive practices in the industry, but
declined to issue specific competitive guidelines. In its statement of findings
and conclusions, the DOT reiterated its view that it had both the authority and
the obligation to prevent what it considers to be unfair competitive practices
in the industry, and indicated its intent to pursue enforcement actions on a
case-by-case basis. To the extent that future DOT enforcement actions either
directly or indirectly impose restrictions upon American's ability to respond to
competitors, American's business may be adversely impacted.
As described in Item 3. Legal Proceedings, the Antitrust Division of the
DOJ and several purported classes of private parties are pursuing litigation
alleging that American violated federal antitrust laws when competing with new
carriers. Although the Company believes that the litigation is without merit,
adverse court decisions could impose restrictions on American's ability to
respond to competitors, and American's business may be adversely impacted.
4
AIRLINE FARES Airlines are permitted to establish their own domestic fares
without governmental regulation, and the industry is characterized by
substantial price competition. The DOT maintains authority over international
fares, rates and charges. International fares and rates are also subject to the
jurisdiction of the governments of the foreign countries which American serves.
While air carriers are required to file and adhere to international fare and
rate tariffs, substantial commissions, overrides and discounts to travel agents,
brokers and wholesalers characterize many international markets.
Legislation (sometimes referred to as the "Passengers' Bill of Rights")
has been discussed in various legislatures (including the Congress). This
legislation could, if enacted, (i) place various limitations on airline fares
and/or (ii) affect operating practices such as baggage handling and overbooking.
Effective December 15, 1999, the Company, as well as other domestic airlines,
implemented a Customer Service Plan to address a number of service goals,
including, but not limited to (i) lowest fare availability, (ii) delays,
cancellations, and diversion events, (iii) baggage delivery and liability, (iv)
guaranteed fares, (v) ticket refunds, (vi) accommodation of customers with
special needs, (vii) essential customer needs during extraordinary delays,
(viii) flight oversales, (ix) Frequent Flyer Program - AAdvantage, (x) other
travel policies, (xi) service with domestic code share partners, and (xii)
handling of customer issues. In February 2001, the DOT Inspector General issued
a report on the various carriers' performance of their Customer Service Plans.
The report included a number of recommendations which could limit American's
flexibility with respect to various operational practices. In February 2001, a
bill proposing an "Airline Customer Service Improvement Act" was introduced in
the United States Senate. In addition, other items of legislation have been
introduced that would limit hub concentration, reallocate slots at certain
airports and impose higher landing fees at certain hours. To the extent
legislation is enacted that would inhibit American's flexibility with respect to
fares, its revenue management system, its operations or other aspects of its
customer service operations, American's financial results could be adversely
affected.
Fare discounting by competitors has historically had a negative effect on
the Company's financial results because the Company is generally required to
match competitors' fares to maintain passenger traffic. During recent years, a
number of new low-cost airlines have entered the domestic market and several
major airlines, including American, implemented efforts to lower their cost
structures. Further fare reductions, domestic and international, may occur in
the future. If fare reductions are not offset by increases in passenger traffic,
cost reductions or changes in the mix of traffic that improves yields, the
Company's operating results will be negatively impacted.
AIRPORT ACCESS In 1968, the FAA issued a rule designating New York John F.
Kennedy, New York LaGuardia, Washington Reagan, Chicago O'Hare and Newark
airports as high-density traffic airports. Newark was subsequently removed from
the high-density airport classification. The high-density rule (HDR) limits the
number of Instrument Flight Rule (IFR) operations - take-offs and landings -
permitted per hour and requires that a slot support each operation. In April
2000, legislation was signed to (i) eliminate slot restrictions at New York's
John F. Kennedy and LaGuardia airports in 2007, (ii) shrink Chicago O'Hare's
slot day from 0645 - 2114 hours to 1445 - 2014 hours starting July 2001, and
(iii) eliminate Chicago O'Hare slots in July 2002. The Company does not expect
the elimination of slot restrictions to have a material adverse impact on the
Company's operations and its financial condition or result of operations.
Pursuant to the Wendell H. Ford Aviation Investment and Reform Act for
the 21st Century (Air 21 Act), slot restrictions were lifted for service to/from
LaGuardia and certain cities classified as small and non-hub airports (new
service cities). This increase in service is to be operated by regional jets. As
a consequence, the Company and other carriers increased their service at
LaGuardia to the new service cities. In December 2000, the DOT held a lottery
for LaGuardia slots for service to the new service cities in order to ease
congestion at the airport. The congestion was a direct result of the growth of
Air 21 Act slot operations. While the Company has scaled back its service to the
new service cities to/from LaGuardia, it is not anticipated that this reduction
will have a material impact on the Company's operations and its financial
condition or result of operations.
At December 31, 2000, the net book value of the Company's slots at New
York John F. Kennedy, New York LaGuardia and Chicago O'Hare airports was
approximately $183 million. Currently, the FAA permits the purchasing, selling,
leasing or transferring of slots except those slots designated as international,
essential air service or Air 21 Act. Trading of any slot is permitted subject to
certain parameters. Most foreign airports, including London Heathrow, a major
European destination for American, also have slot allocations. Most foreign
authorities do not permit the purchasing, selling or leasing of slots.
5
Although the Company is constrained by slots, it currently has sufficient
slot authorizations to operate its existing flights and has generally been able
to obtain slots to expand its operations and change its schedules. However,
there is no assurance that the Company will be able to obtain slots for these
purposes in the future because, among other factors, domestic slot allocations
are subject to changes in government policies.
ENVIRONMENTAL MATTERS The Company is subject to various laws and government
regulations concerning environmental matters and employee safety and health in
the U.S. and other countries. U.S. federal laws that have a particular impact on
the Company include the Airport Noise and Capacity Act of 1990 (ANCA), the Clean
Air Act, the Resource Conservation and Recovery Act, the Clean Water Act, the
Safe Drinking Water Act, and the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA or the Superfund Act). The Company is
also subject to the oversight of the Occupational Safety and Health
Administration (OSHA) concerning employee safety and health matters. The U.S.
Environmental Protection Agency (EPA), OSHA, and other federal agencies have
been authorized to promulgate regulations that have an impact on the Company's
operations. In addition to these federal activities, various states have been
delegated certain authorities under the aforementioned federal statutes. Many
state and local governments have adopted environmental and employee safety and
health laws and regulations, some of which are similar to federal requirements.
As a part of its continuing safety, health and environmental program, the
Company anticipates that it will comply with such requirements without any
material adverse effect on its business.
The ANCA recognizes the rights of airport operators with noise problems
to implement local noise abatement programs so long as they do not interfere
unreasonably with interstate or foreign commerce or the national air
transportation system. Authorities in several cities have promulgated aircraft
noise reduction programs, including the imposition of nighttime curfews. The
ANCA generally requires FAA approval of local noise restrictions on aircraft.
While American has had sufficient scheduling flexibility to accommodate local
noise restrictions imposed to date, American's operations could be adversely
affected if locally-imposed regulations become more restrictive or widespread.
American has been identified by the EPA as a potentially responsible
party (PRP) at the Operating Industries, Inc. Superfund Site in California.
American has signed a partial consent decree with respect to this site and is
one of several PRPs named. American has also been identified as a PRP at the
Beede Waste Oil Superfund Site in New Hampshire. American has responded to a
104(e) Request for Information regarding interaction with several companies
related to this site. At the Operating Industries, Inc. and the Beede Waste Oil
sites, American's alleged waste disposal volumes are minor compared to the other
PRPs at these sites. In 1998, the EPA named American a de minimis PRP at the
Casmalia Waste Disposal Site in California.
American, along with most other tenants at the San Francisco
International Airport (SFIA), has been ordered by the California Regional Water
Quality Control Board to engage in various studies of potential environmental
contamination at the airport and to undertake remedial measures, if necessary.
SFIA is also seeking to recover its past costs related to the contamination from
the tenants.
The Miami International Airport Authority is currently remediating
various environmental conditions at the Miami International Airport (the
Airport) and funding the remediation costs through landing fee revenues and
other cost recovery methods. Future costs of the remediation effort may be borne
by carriers operating at the Airport, including American, through increased
landing fees and/or other charges since certain of the PRPs are no longer in
business. The future increase in landing fees and/or other charges may be
material but cannot be reasonably estimated due to various factors, including
the unknown extent of the remedial actions that may be required, the proportion
of the cost that will ultimately be recovered from the responsible parties, and
uncertainties regarding the environmental agencies that will ultimately
supervise the remedial activities and the nature of that supervision.
In 1999, American was ordered by the New York State Department of
Environmental Conservation to conduct remediation of environmental contamination
located at Terminals 8 and 9 at New York's John F. Kennedy International
Airport. American is seeking to recover a portion of the related costs from
previous users of the premises.
6
Also in 1999, the Company entered a plea agreement with the United States
government with respect to a one count indictment relating to the storage of
hazardous materials. As part of the plea agreement, the Company was placed on
probation for three years and has adopted a comprehensive compliance program. To
the extent the Company fails to abide by the terms of the probation or its
compliance program, the Company's operations may be adversely impacted.
American and Executive Airlines, Inc., along with other tenants at the
Luis Munoz Marin International Airport in San Juan, Puerto Rico, have been named
as PRPs for environmental claims at the airport.
American Eagle Airlines, Inc. has been notified of its potential
liability under New York law at an inactive hazardous waste site in
Poughkeepsie, New York.
AMR does not expect these matters, individually or collectively, to have
a material impact on its financial position, results of operations or liquidity.
LABOR
The airline business is labor intensive. Wages, salaries and benefits
represented approximately 37 percent of AMR's consolidated operating expenses
for the year ended December 31, 2000.
The majority of American's employees are represented by labor unions and
covered by collective bargaining agreements. American's relations with such
labor organizations are governed by the Railway Labor Act. Under this act, the
collective bargaining agreements among American and these organizations do not
expire but instead become amendable as of a stated date. If either party wishes
to modify the terms of any such agreement, it must notify the other party in the
manner described in the agreement. After receipt of such notice, the parties
must meet for direct negotiations, and if no agreement is reached, either party
may request the National Mediation Board (NMB) to appoint a federal mediator. If
no agreement is reached in mediation, the NMB may declare at some time that an
impasse exists, and if an impasse is declared, the NMB proffers binding
arbitration to the parties. Either party may decline to submit to arbitration.
If arbitration is rejected, a 30-day "cooling off" period commences. During that
period, a Presidential Emergency Board (PEB) may be established, which examines
the parties' positions and recommends a solution. The PEB process lasts for 30
days and is followed by a "cooling off" period of 30 days. At the end of a
"cooling off" period, the labor organization may strike and the airline may
resort to "self-help", including the imposition of any or all of its proposed
amendments and the hiring of workers to replace strikers.
American's contract with the Association of Professional Flight
Attendants (APFA) became amendable on November 1, 1998. The parties reached a
tentative agreement in mid-1999 which the APFA membership did not ratify.
Negotiations between American and the APFA continue with the assistance of a
mediator appointed by the NMB. Those mediated negotiations will continue in
April 2001. At the request of the NMB, the parties have agreed to a blackout of
communications concerning the substance of the talks for the time being.
American's agreement with the Transport Workers Union (TWU) became
amendable on March 1, 2001. American and the TWU have been negotiating changes
to the agreement for several months. In response to the formal opening of
negotiations between the parties on February 27, 2001, certain members of the
TWU engaged in an illegal work action at New York's John F. Kennedy airport and,
to a lesser extent, New York LaGuardia. This illegal work action adversely
impacted American's operations. On March 1, 2001, American obtained a temporary
restraining order against the illegal work action, and subsequently operations
at those airports returned to normal. On March 13, 2001, the U.S. District
Court, Southern District of New York, refused to issue a preliminary injunction
against the TWU, but cautioned the parties that adherence to the law to avoid
unlawful service interruptions was required.
In 1997, American reached an agreement with the members of the Allied
Pilots Association (APA). The agreement becomes amendable August 31, 2001.
7
The Air Line Pilots Association (ALPA), which represents AMR Eagle
pilots, reached agreement with AMR Eagle effective September 1, 1997, to have
all of the pilots of the Eagle carriers covered by a single collective
bargaining agreement. This agreement lasts until October 31, 2013. The parties
have the right to seek limited changes in 2000, 2004, 2008 and 2012. If the
parties are unable to agree on the limited changes, they also agreed that the
issues would be resolved by interest arbitration, without the exercise of
self-help (such as a strike). ALPA and AMR Eagle negotiated a tentative
agreement in 2000, but that agreement failed in ratification. Thereafter, the
parties participated in interest arbitration. They are awaiting the decisions of
the arbitrators.
The Association of Flight Attendants (AFA), which represents the flight
attendants of the Eagle carriers, reached agreement with AMR Eagle effective
March 2, 1998, to have all flight attendants of the AMR Eagle carriers covered
by a single contract. The agreement becomes amendable on September 2, 2002.
However, the parties have agreed to commence negotiations over amendments to the
agreement in March, 2001. The other union employees at the AMR Eagle carriers
are covered by separate agreements with the TWU which were effective April 28,
1998, and are amendable April 28, 2003.
With respect to the series of transactions described on pages 1 and 2
involving TWA, United/US Airways and DC Air, certain aspects of those
transactions are dependent upon the resolution of matters with the unions
representing the affected employees. The transaction with TWA requires, among
other things, that TWA's unions agree to waive certain provisions of their
current collective bargaining agreements as a condition to American's purchase
of the TWA assets. The DC Air transaction contemplates that American's flight
attendants and pilots would crew the aircraft involved in the wet lease
arrangement. The APA filed a grievance on March 13, 2001 seeking to arbitrate
whether the DC Air transaction would violate certain provisions of the
collective bargaining agreement between American and the APA. Finally, the union
representing American's pilots will need to resolve seniority integration issues
concerning US Airways pilots in conjunction with the aircraft asset transfer
from United/US Airways to American.
FUEL
The Company's operations are significantly affected by the availability and
price of jet fuel. The Company's fuel costs and consumption for the years 1998
through 2000 were:
[Download Table]
Average
Cost Per
Gallon, Percent of
Gallons Average Cost Excluding AMR's
Consumed Total Cost Per Gallon Fuel Taxes Operating
Year (in millions) (in millions) (in cents) (in cents) Expenses
---- ------------- ------------- ---------- ---------- ----------
1998 2,922 $1,604 54.9 50.2 10.3
1999 3,084 1,696 55.0 50.4 10.2
2000 3,197 2,495 78.1 72.8 13.6
The impact of fuel price changes on the Company and its competitors is
dependent upon various factors, including hedging strategies. The Company has a
fuel hedging program in which it enters into fuel swap and option contracts to
protect against increases in jet fuel prices, which has had the effect of
dampening the Company's average cost per gallon. During 2000, the Company's fuel
hedging program reduced the Company's fuel expense by approximately $545
million. To reduce the impact of potential continuing fuel price increases in
2001, the Company has hedged approximately 40 percent of its 2001 fuel
requirements as of December 31, 2000. Based on projected fuel usage, the Company
estimates that a 10 percent increase in the price per gallon of fuel would
result in an increase to aircraft fuel expense of approximately $194 million in
2001, net of fuel hedge instruments outstanding at December 31, 2000. The above
analysis excludes any impact of the proposed transactions discussed on pages 1
and 2. Due to the competitive nature of the airline industry, in the event of
continuing increases in the price of jet fuel, there can be no assurance that
the Company will be able to pass on increased fuel prices to its customers by
increasing its fares. Likewise, any potential benefit of lower fuel prices may
be offset by increased fare competition and lower revenues for all air carriers.
8
While the Company does not anticipate a significant reduction in fuel
availability, dependency on foreign imports of crude oil and the possibility of
changes in government policy on jet fuel production, transportation and
marketing make it impossible to predict the future availability of jet fuel. If
there were major reductions in the availability of jet fuel, the Company's
business would be adversely affected.
Additional information regarding the Company's fuel program is included
in the Outlook for 2001, Item 7(A) - Quantitative and Qualitative Disclosures
about Market Risk, and in Note 6 to the consolidated financial statements.
FREQUENT FLYER PROGRAM
American established the AAdvantage frequent flyer program (AAdvantage) to
develop passenger loyalty by offering awards to travelers for their continued
patronage. AAdvantage members earn mileage credits for flights on American,
American Eagle and certain other participating airlines, or by utilizing
services of other program participants, including hotels, car rental companies
and bank credit card issuers. American sells mileage credits and related
services to the other companies participating in the program. American reserves
the right to change the AAdvantage program rules, regulations, travel awards and
special offers at any time without notice. American may initiate changes
impacting, for example, participant affiliations, rules for earning mileage
credit, mileage levels and awards, blackout dates and limited seating for travel
awards, and the features of special offers. American reserves the right to end
the AAdvantage program with six months' notice.
Mileage credits can be redeemed for free, discounted or upgraded travel
on American, American Eagle or participating airlines, or for other travel
industry awards. Once a member accrues sufficient mileage for an award, the
member may request an award certificate from American. Award certificates may be
redeemed up to one year after issuance. Most travel awards are subject to
blackout dates and capacity controlled seating. In 1999, certain changes were
made to the AAdvantage program so that miles do not expire, provided a customer
has any type of qualifying activity at least once every 36 months.
American accounts for its frequent flyer obligation on an accrual basis
using the incremental cost method. American's frequent flyer liability is
accrued each time a member accumulates sufficient mileage in his or her account
to claim the lowest level of free travel award (25,000 miles) and such award is
expected to be used for free travel. American includes fuel, food, and
reservations/ticketing costs, but not a contribution to overhead or profit, in
the calculation of incremental cost. The cost for fuel is estimated based on
total fuel consumption tracked by various categories of markets, with an amount
allocated to each passenger. Food costs are tracked by market category, with an
amount allocated to each passenger. Reservation/ticketing costs are based on the
total number of passengers, including those traveling on free awards, divided
into American's total expense for these costs. American defers the portion of
revenues received from companies participating in the AAdvantage program related
to the sale of mileage credits and recognizes such revenues over a period
approximating the period during which the mileage credits are used. The
remaining portion of the revenue is recognized upon receipt as the related
services have been provided.
At December 31, 2000 and 1999, American estimated that approximately
6.5 million and 5.4 million free travel awards, respectively, were expected to
be redeemed for free travel on American. In making the estimate of free travel
awards, American has excluded mileage in inactive accounts, mileage related to
accounts that have not yet reached the lowest level of free travel award, and
mileage in active accounts that have reached the lowest level of free travel
award but which are not expected to ever be redeemed for free travel on
American. The liability for the program mileage that has reached the lowest
level of free travel award and is expected to be redeemed for free travel on
American or other participating airlines and deferred revenues for mileage
credits sold to others participating in the program was $976 million and $827
million, representing 14.0 percent and 14.1 percent of AMR's total current
liabilities, at December 31, 2000 and 1999, respectively.
The estimated number of free travel awards used for travel on American
was 2.8 million in 2000, 2.7 million in 1999 and 2.3 million in 1998,
representing 9.2 percent of total revenue passenger miles in 2000, 9.3 percent
in 1999 and 8.8 percent in 1998. American believes displacement of revenue
passengers is minimal given American's load factors, its ability to manage
frequent flyer seat inventory, and the relatively low ratio of free award usage
to revenue passenger miles.
9
OTHER MATTERS
SEASONALITY AND OTHER FACTORS The Company's results of operations for any
interim period are not necessarily indicative of those for the entire year,
since the air transportation business is subject to seasonal fluctuations.
Higher demand for air travel has traditionally resulted in more favorable
operating results for the second and third quarters of the year than for the
first and fourth quarters.
The results of operations in the air transportation business have also
significantly fluctuated in the past in response to general economic conditions.
In addition, fare initiatives, fluctuations in fuel prices, labor actions and
other factors could impact this seasonal pattern. Unaudited quarterly financial
data for the two-year period ended December 31, 2000 is included in Note 14 to
the consolidated financial statements.
No material part of the business of AMR and its subsidiaries is dependent
upon a single customer or very few customers. Consequently, the loss of the
Company's largest few customers would not have a materially adverse effect upon
AMR.
INSURANCE The Company carries insurance for public liability, passenger
liability, property damage and all-risk coverage for damage to its aircraft, in
amounts which, in the opinion of management, are adequate.
OTHER GOVERNMENT MATTERS In time of war or during an unlimited national
emergency or civil defense emergency, American and other major air carriers may
be required to provide airlift services to the Military Airlift Command under
the Civil Reserve Air Fleet program.
10
ITEM 2. PROPERTIES
FLIGHT EQUIPMENT
Owned and leased aircraft operated by American and AMR Eagle at December 31,
2000, included:
[Enlarge/Download Table]
Weighted
Average
Current Seating Capital Operating Age
Equipment Type Capacity(1) Owned Leased Leased Total (Years)
----------------------------- ---------------- ----- ------- --------- ----- ---------
AMERICAN AIRCRAFT
Airbus A300-600R 192/250/251 10 -- 25 35 11
Boeing 727-200 138 55 5 -- 60 24
Boeing 737-800(2) 134 51 -- -- 51 1
Boeing 757-200 176 58 13 31 102 8
Boeing 767-200 165 8 -- -- 8 18
Boeing 767-200 Extended Range 158 9 13 -- 22 14
Boeing 767-300 Extended Range 190/207/228 32 7 10 49 8
Boeing 777-200 Extended Range 230/237/252/254 27 -- -- 27 1
Fokker 100 56/87 66 5 4 75 8
McDonnell Douglas MD-11 238 7 -- -- 7 8
McDonnell Douglas MD-80 112/125/127/129 128 22 126 276 13
McDonnell Douglas MD-90 135 - -- 5 5 4
----- ----- ----- ----- -----
Total 451 65 201 717 11
===== ===== ===== ===== =====
AMR EAGLE AIRCRAFT
ATR 42 46 20 -- 11 31 10
Embraer 135 37 33 -- -- 33 1
Embraer 145 50 50 -- -- 50 2
Super ATR 64/66 40 -- 3 43 6
Saab 340 34 22 57 -- 79 9
Saab 340B Plus 34 - -- 25 25 5
----- ----- ----- ----- -----
Total 165 57 39 261 6
===== ===== ===== ===== =====
(1) American's current seating capacity includes the effect of aircraft
reconfigured under the Company's More Room Throughout Coach program.
(2) The Boeing 727-200 fleet will be removed from service by the end of 2003.
For information concerning the estimated useful lives and residual values
for owned aircraft, lease terms for leased aircraft and amortization relating to
aircraft under capital leases, see Notes 1 and 4 to the consolidated financial
statements.
The Company has agreed to sell its McDonnell Douglas MD-11 aircraft to
FedEx Corporation (FedEx). The remaining seven MD-11 aircraft will be removed
from service by December 31, 2001 and delivered to FedEx in 2001 and 2002.
11
Lease expirations for the leased aircraft included in the preceding table
as of December 31, 2000, were:
[Download Table]
2006
and
Equipment Type 2001 2002 2003 2004 2005 Thereafter
-------------- ---- ---- ---- ---- ---- ----------
AMERICAN AIRCRAFT
Airbus A300-600R -- -- -- -- -- 25
Boeing 727-200 -- 2 3 -- -- --
Boeing 757-200 2 2 -- 3 -- 37
Boeing 767-200 Extended Range -- -- -- -- -- 13
Boeing 767-300 Extended Range -- 1 -- -- 4 12
Fokker 100 2 3 -- -- -- 4
McDonnell Douglas MD-80 11 13 5 2 14 103
McDonnell Douglas MD-90 5 -- -- -- -- --
---- ---- ---- ---- ---- ----
20 21 8 5 18 194
==== ==== ==== ==== ==== ====
AMR EAGLE AIRCRAFT
ATR 42 8 -- 3 -- -- --
Super ATR 3 -- -- -- -- --
Saab 340 -- -- -- -- 21 36
Saab 340B Plus -- -- -- -- -- 25
---- ---- ---- ---- ---- ----
11 -- 3 -- 21 61
==== ==== ==== ==== ==== ====
Substantially all of the Company's aircraft leases include an option to
purchase the aircraft or to extend the lease term, or both, with the purchase
price or renewal rental to be based essentially on the market value of the
aircraft at the end of the term of the lease or at a predetermined fixed amount.
GROUND PROPERTIES
American leases, or has built as leasehold improvements on leased property, most
of its airport and terminal facilities; certain corporate office, maintenance
and training facilities in Fort Worth, Texas; its principal overhaul and
maintenance base at Tulsa International Airport, Tulsa, Oklahoma; its regional
reservation offices; and local ticket and administration offices throughout the
system. American has entered into agreements with the Tulsa Municipal Airport
Trust; the Alliance Airport Authority, Fort Worth, Texas; and the Dallas/Fort
Worth, Chicago O'Hare, Raleigh/Durham, Nashville, San Juan, New York, and Los
Angeles airport authorities to provide funds for constructing, improving and
modifying facilities and acquiring equipment which are or will be leased to
American. American also utilizes public airports for its flight operations under
lease or use arrangements with the municipalities or governmental agencies
owning or controlling them and leases certain other ground equipment for use at
its facilities. During 1999, the Company began construction of an approximate
$1.3 billion terminal facility at New York's John F. Kennedy International
Airport, which the Company expects to fund primarily through future tax-exempt
financing.
For information concerning the estimated lives and residual values for
owned ground properties, lease terms and amortization relating to ground
properties under capital leases, and acquisitions of ground properties, see
Notes 1, 3 and 4 to the consolidated financial statements.
12
ITEM 3. LEGAL PROCEEDINGS
In connection with its frequent flyer program, American was sued in several
purported class action cases currently pending in the Circuit Court of Cook
County, Illinois. In Wolens et al. v. American Airlines, Inc. and Tucker v.
American Airlines, Inc. (hereafter, "Wolens"), plaintiffs seek money damages and
attorneys' fees claiming that a change made to American's AAdvantage program in
May 1988, which limited the number of seats available to participants traveling
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 and February 23, 2001, the
court heard arguments and took evidence concerning the fairness of the
settlement and the request for fees by the plaintiffs' attorneys. The court has
not yet finally approved the settlement agreement or the plaintiffs' fee
request.
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. Although the Company believes that the litigation is without merit,
adverse court decisions could impose restrictions on American's ability to
respond to competitors, and American's business may be adversely impacted.
13
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.
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.
14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during the
last quarter of its fiscal year ended December 31, 2000.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following information relates to the executive officers of AMR as of
December 31, 2000.
Donald J. Carty Mr. Carty was elected Chairman, President and Chief
Executive Office of AMR and American in May 1998. He
has been President of American since March 1995.
Prior to that, he served as Executive Vice President
of AMR from October 1989 to March 1995. Except for
two years service as President and CEO of Canadian
Pacific Air between March 1985 and March 1987, he
has been with the Company in various finance and
planning positions since 1978. Age 54.
Robert W. Baker Mr. Baker was elected Vice Chairman of AMR and
American in January 2000. He served as Executive
Vice President - Operations of American from 1989 to
January 2000 and a Senior Vice President of American
from 1985 to September 1989. Prior to that, he
served in various management positions at American
since 1968. Age 56.
Gerard J. Arpey Mr. Arpey was elected Executive Vice President -
Operations of American in January 2000. He is also
an Executive Vice President of AMR. Mr. Arpey served
as Chief Financial Officer of AMR from 1995 through
2000 and Senior Vice President of American from 1992
to January 2000. Prior to that, he served in various
management positions at American since 1982. Age 42.
Daniel P. Garton Mr. Garton was elected Executive Vice President -
Customer Service of American in January 2000. He is
also an Executive Vice President of AMR. He served
as Senior Vice President - Customer Service of
American from 1998 to January 2000. Prior to that,
he served as President of AMR Eagle from 1995 to
1998. Except for two years service as Senior Vice
President and CFO of Continental Airlines between
1993 and 1995, he has been with the Company in
various management positions since 1984. Age 43.
Michael W. Gunn Mr. Gunn was elected Executive Vice President -
Marketing and Planning of American in January 2000.
He is also an Executive Vice President of AMR. He
served as Senior Vice President - Marketing from
1985 to January 2000. Prior to that, he has served
in various management positions at American since
1970. Age 55.
Thomas W. Horton Mr. Horton was elected Senior Vice President and
Chief Financial Officer of AMR and American in
January 2000. Prior to that, he served as a Vice
President of American from 1994 to January 2000 and
has served in various management positions of
American since 1985. Age 39.
Anne H. McNamara Ms. McNamara was elected Senior Vice President and
General Counsel in 1988. She served as Vice
President - Personnel Resources of American during
1988. She was elected Corporate Secretary of AMR in
1982 and of American in 1979 and held those
positions through 1987. Prior to that, she served as
an attorney since 1976. Age 53.
Charles D. MarLett Mr. MarLett was elected Corporate Secretary in
January 1988. He joined American as an attorney in
June 1984. Age 46.
15
EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)
There are no family relationships among the executive officers of the
Company named on the preceding page.
There have been no events under any bankruptcy act, no criminal
proceedings, and no judgments or injunctions material to the evaluation of the
ability and integrity of any director or executive officer during the past five
years.
16
PART II
--------------------------------------------------------------------------------
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange (symbol
AMR). The approximate number of record holders of the Company's common stock at
March 16, 2001 was 13,250.
The range of closing market prices for AMR's common stock on the New York
Stock Exchange was:
[Download Table]
2000 1999
----------------------- -----------------------
High Low High Low
--------- --------- --------- ---------
QUARTER ENDED
March 31 $67 3/8 $30 $71 7/16 $53 3/16
June 30 37 7/8 26 7/16 74 5/16 60 9/16
September 30 34 11/16 26 1/8 72 3/4 52 13/16
December 31 39 3/16 27 15/16 68 1/2 53 9/16
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. As a result of the dividend, AMR's stock price was
adjusted from $60 9/16 to $25 9/16 by the New York Stock Exchange after the
market close on March 15, 2000 to exclude the value of Sabre. The pre-March 15,
2000 stock prices in the above table have not been adjusted to give effect to
this distribution.
No cash dividends on common stock were declared for any period during
2000 or 1999. Payment of dividends is subject to the restrictions described in
Note 5 to the consolidated financial statements.
17
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
[Enlarge/Download Table]
(in millions, except per share amounts)
---------------------------------------------------------------------------------------------
2000 1999 1998(2) 1997(2) 1996(2)
------- ------- ------- ------- -------
Total operating revenues $19,703 $17,730 $17,516 $16,957 $16,249
Operating income 1,381 1,156 1,988 1,595 1,477
Income from continuing operations
before extraordinary loss 779 656 1,114 809 901
Net earnings 813 985 1,314 985 1,016
Earnings per common share from
continuing operations before
extraordinary loss:(1)
Basic 5.20 4.30 6.60 4.54 5.23
Diluted 4.81 4.17 6.38 4.43 4.88
Net earnings per common share:(1)
Basic 5.43 6.46 7.78 5.52 5.90
Diluted 5.03 6.26 7.52 5.39 5.59
Total assets 26,213 24,374 21,455 20,287 20,004
Long-term debt, less current
maturities 4,151 4,078 2,436 2,248 2,737
Obligations under capital leases,
less current obligations 1,323 1,611 1,764 1,629 1,790
Obligation for postretirement
benefits 1,706 1,669 1,598 1,527 1,483
(1) The earnings per share amounts reflect the stock split on June 9, 1998.
(2) Restated to reflect discontinued operations.
No dividends were declared on common shares during any of the periods
above.
Information on the comparability of results is included in Management's
Discussion and Analysis and the notes to the consolidated financial statements.
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AMR Corporation (AMR or the Company) was incorporated in October 1982. AMR's
principal subsidiary, American Airlines, Inc. (American), was founded in 1934.
AMR's operations fall almost entirely in the airline industry.
RESULTS OF OPERATIONS
AMR's net earnings in 2000 were $813 million, or $5.43 per common share ($5.03
diluted). AMR's income from continuing operations before extraordinary loss in
2000 was $779 million, or $5.20 per common share ($4.81 diluted). The results
for 2000 include the following special items: (i) a gain of $57 million ($36
million after tax) from the sale of the Company's warrants to purchase 5.5
million shares of priceline.com Incorporated (priceline) common stock, (ii) a
gain of approximately $41 million ($26 million after tax) from the recovery of
start-up expenses from the Canadian Airlines International Limited (Canadian)
services agreement, and (iii) a charge of $56 million ($35 million after tax)
for the Company's employee home computer program.
AMR's net earnings in 1999 were $985 million, or $6.46 per common share
($6.26 diluted). AMR's income from continuing operations in 1999 was $656
million, or $4.30 per common share ($4.17 diluted). A labor disagreement that
disrupted operations during the first quarter of 1999 negatively impacted the
Company's 1999 results by an estimated $225 million ($140 million after tax).
The results for 1999 also include the following: (i) American's December 1998
acquisition of Reno Air, Inc. (Reno) and AMR Eagle's March 1999 acquisition of
Business Express, Inc. (Business Express), (ii) a gain of $83 million ($64
million after tax) on the sale of AMR Services, AMR Combs and TeleService
Resources, which is included in discontinued operations, (iii) a gain of
approximately $213 million ($118 million after taxes and minority interest)
resulting from the sale of a portion of the Company's holding in Equant N.V.
(Equant), of which approximately $75 million ($47 million after tax) is included
in income from continuing operations, (iv) a gain of $40 million ($25 million
after tax) from the Company's sale of its investment in the cumulative
mandatorily redeemable convertible preferred stock of Canadian and a $67 million
tax benefit resulting from the tax loss on the Company's investment in Canadian,
and (v) a charge of approximately $37 million ($25 million after tax) relating
to the provision for certain litigation items.
REVENUES
2000 COMPARED TO 1999 The Company's revenues increased approximately $2.0
billion, or 11.1 percent, versus 1999. American's passenger revenues increased
by 11.4 percent, or $1.7 billion. American's yield (the average amount one
passenger pays to fly one mile) of 14.05 cents increased by 7.1 percent compared
to 1999. For the year, domestic yields increased 7.5 percent while European,
Latin American and Pacific yields increased 9.9 percent, 4.2 percent and 3.8
percent, 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, the impact of a domestic fuel
surcharge implemented in January 2000 and increased in September 2000, a labor
disruption at one of the Company's competitors which positively impacted the
Company's revenues by approximately $80 to $100 million, and a schedule
disruption which negatively impacted the Company's operations in 1999.
American's domestic traffic increased 2.7 percent to 78.5 billion revenue
passenger miles (RPMs), while domestic capacity, as measured by available seat
miles (ASMs), decreased 1.6 percent. The decrease in domestic capacity was due
primarily to the Company's More Room Throughout Coach program. (The Company's
More Room Throughout Coach program reconfigures American's entire fleet to
increase the seat pitch from the present industry standard of 31 and 32 inches
to a predominant seat pitch of 34 and 35 inches.) International traffic grew 6.8
percent to 38.1 billion RPMs on capacity growth of 3.1 percent. The increase in
international traffic was led by a 12.2 percent increase in the Pacific on
capacity growth of 2.5 percent, an 8.5 percent increase in Europe on capacity
growth of 6.7 percent, and a 4.1 percent increase in Latin America on capacity
growth of 0.4 percent. In 2000, American derived approximately 70 percent of its
passenger revenues from domestic operations and approximately 30 percent from
international operations.
19
AMR Eagle's passenger revenues increased $158 million, or 12.2 percent.
AMR Eagle's traffic increased to 3.7 billion RPMs, up 10.7 percent, while
capacity increased to 6.3 billion ASMs, or 10.9 percent. The increase in
revenues was due primarily to growth in AMR Eagle capacity aided by a strong
U.S. economy, which led to strong demand for air travel, and a favorable pricing
environment.
Cargo revenues increased 12.1 percent, or $78 million, due primarily to a
fuel surcharge implemented in February 2000 and increased in October 2000 and
the increase in cargo capacity from the addition of 16 Boeing 777-200ER aircraft
in 2000.
1999 COMPARED TO 1998 The Company's revenues increased $214 million, or 1.2
percent, versus 1998. American's passenger revenues increased by 0.1 percent, or
$12 million. American's yield of 13.12 cents decreased by 2.7 percent compared
to 1998. For the year, domestic yields decreased 1.1 percent, while European,
Pacific and Latin American yields decreased 7.2 percent, 6.0 percent and 4.5
percent, respectively. The decrease in domestic yield was due primarily to
increased capacity, the labor disagreement during the first quarter of 1999, and
the impact of international yield decreases on domestic yields. The decrease in
international yields was due primarily to weak economies in certain parts of the
world, large industry capacity additions and increased fare sale activity.
American's domestic traffic increased 2.1 percent to 76.4 billion RPMs,
while domestic capacity increased 4.1 percent. The increase in domestic traffic
was due primarily to the addition of Reno. International traffic grew 4.6
percent to 35.7 billion RPMs on a capacity increase of 3.1 percent. The increase
in international traffic was led by a 44.2 percent increase in the Pacific on
capacity growth of 44.1 percent and a 5.7 percent increase in Europe on capacity
growth of 7.3 percent, partially offset by a 1.9 percent decrease in Latin
America on a capacity decrease of 5.1 percent. In 1999, American derived
approximately 70 percent of its passenger revenues from domestic operations and
approximately 30 percent from international operations.
AMR Eagle's passenger revenues increased $173 million, or 15.4 percent.
AMR Eagle's traffic increased to 3.4 billion RPMs, up 20.9 percent, while
capacity increased to 5.6 billion ASMs, or 26.1 percent, due primarily to the
addition of Business Express in March 1999.
OPERATING EXPENSES
2000 COMPARED TO 1999 The Company's operating expenses increased 10.5 percent,
or approximately $1.7 billion. American's cost per ASM increased by 10.5 percent
to 10.38 cents, partially driven by a reduction in ASMs due to the Company's
More Room Throughout Coach program. Adjusting for this program, American's cost
per ASM grew approximately 7.2 percent. Wages, salaries and benefits increased
$663 million, or 10.8 percent, primarily due to an increase in the average
number of equivalent employees and contractual wage rate and seniority increases
that are built into the Company's labor contracts, an increase of approximately
$93 million in the provision for profit-sharing, and a charge of approximately
$56 million for the Company's employee home computer program. Aircraft fuel
expense increased $799 million, or 47.1 percent, due to an increase of 42.0
percent in the Company's average price per gallon and a 3.7 percent increase in
the Company's fuel consumption. The increase in fuel expense is net of gains of
approximately $545 million recognized during 2000 related to the Company's fuel
hedging program. Depreciation and amortization expense increased $110 million,
or 10.1 percent, due primarily to the addition of new aircraft, many of which
replaced older aircraft. Maintenance, materials and repairs expense increased
$92 million, or 9.2 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 1999. Commissions to agents
decreased 10.8 percent, or $125 million, despite an 11.4 percent increase in
passenger revenues, due primarily to commission structure changes implemented in
October 1999 and January 2000, and a decrease in the percentage of
commissionable transactions.
20
1999 COMPARED TO 1998 The Company's operating expenses increased 6.7 percent, or
approximately $1 billion. American's cost per ASM increased by 1.5 percent to
9.39 cents. Wages, salaries and benefits increased $327 million, or 5.6 percent,
primarily due to an increase in the average number of equivalent employees and
contractual wage rate and seniority increases that are built into the Company's
labor contracts, partially offset by a decrease in the provision for
profit-sharing. Aircraft fuel expense increased $92 million, or 5.7 percent, due
to a 5.5 percent increase in the Company's fuel consumption and a 0.2 percent
increase in the Company's average price per gallon. The increase in fuel expense
is net of gains of approximately $111 million recognized during 1999 related to
the Company's fuel hedging program. Depreciation and amortization expense
increased $52 million, or 5.0 percent, due primarily to the addition of new
aircraft, partially offset by the change in depreciable lives and residual
values for certain types of aircraft in 1999 (see Note 1 to the consolidated
financial statements). Maintenance, materials and repairs expense increased 7.3
percent, or $68 million, due primarily to the addition of Reno and Business
Express aircraft during 1999. Commissions to agents decreased 5.2 percent, or
$64 million, despite a 1.2 percent increase in passenger revenues, due to the
benefit from the changes in the international commission structure in late 1998
and the base commission structure in October 1999, and a decrease in the
percentage of commissionable transactions. Other rentals and landing fees
increased 12.3 percent, or $103 million, due primarily to higher facilities rent
and landing fees across American's system and the addition of Reno and Business
Express. Food service increased $65 million, or 9.6 percent, due primarily to
rate increases and the addition of Reno. Aircraft rentals increased $61 million,
up 10.7 percent, primarily due to the addition of Reno and Business Express
aircraft. Other operating expenses increased $342 million, or 12.0 percent, due
primarily to increases in outsourced services, travel and incidental costs and
booking fees.
OTHER INCOME (EXPENSE)
Other income (expense) consists of interest income and expense, interest
capitalized and miscellaneous - net.
2000 COMPARED TO 1999 Interest income increased $59 million, or 62.1 percent,
due primarily to higher investment balances. Interest expense increased $74
million, or 18.8 percent, resulting primarily from financing new aircraft
deliveries. Interest capitalized increased 28.0 percent, or $33 million, due to
an increase in purchase deposits for flight equipment. Miscellaneous - net
increased $38 million due primarily to a $57 million gain on the sale of the
Company's warrants to purchase 5.5 million shares of priceline common stock in
the second quarter of 2000 and a gain of approximately $41 million from the
recovery of start-up expenses from the Canadian services agreement. During 1999,
the Company recorded a gain of approximately $75 million from the sale of a
portion of American's interest in Equant and a gain of approximately $40 million
related to the sale of the Company's investment in the preferred stock of
Canadian. These gains were partially offset by the provision for the settlement
of litigation items and the write-down of certain investments held by the
Company during 1999.
1999 COMPARED TO 1998 Interest income decreased $38 million, or 28.6 percent,
due primarily to lower investment balances throughout most of 1999. Interest
expense increased $21 million, or 5.6 percent, resulting primarily from an
increase in long-term debt. Interest capitalized increased 13.5 percent, or $14
million, due to an increase in purchase deposits for flight equipment throughout
most of 1999. Miscellaneous - net increased $50 million due primarily to the
sale of a portion of American's interest in Equant in 1999, which resulted in an
approximate $75 million gain, and a gain of approximately $40 million from the
sale of the Company's investment in the preferred stock of Canadian. These gains
were partially offset by the provision for the settlement of litigation items
and the write-down of certain investments held by the Company during 1999.
21
OPERATING STATISTICS
The following table provides statistical information for American and AMR Eagle
for the years ended December 31, 2000, 1999 and 1998.
[Enlarge/Download Table]
Year Ended December 31,
---------------------------------------
2000 1999 1998
------- ------- -------
AMERICAN AIRLINES
Revenue passenger miles (millions) 116,594 112,067 108,955
Available seat miles (millions) 161,030 161,211 155,297
Cargo ton miles (millions) 2,280 2,068 1,974
Passenger load factor 72.4% 69.5% 70.2%
Breakeven load factor 65.9% 63.8% 59.9%
Passenger revenue yield per passenger mile (cents) 14.05 13.12 13.49
Passenger revenue per available seat mile (cents) 10.17 9.12 9.46
Cargo revenue yield per ton mile (cents) 31.31 30.70 32.85
Operating expenses per available seat mile (cents) 10.38 9.39 9.25
Operating aircraft at year-end 717 697 648
AMR EAGLE
Revenue passenger miles (millions) 3,731 3,371 2,788
Available seat miles (millions) 6,256 5,640 4,471
Passenger load factor 59.6% 59.8% 62.4%
Operating aircraft at year-end 261 268 209
LIQUIDITY AND CAPITAL RESOURCES
Operating activities provided net cash of $3.1 billion in 2000, $2.3 billion in
1999 and $2.8 billion in 1998. The $878 million increase from 1999 to 2000
resulted primarily from a decrease in working capital.
Capital expenditures in 2000 totaled $3.7 billion, compared to $3.5
billion in 1999 and $2.3 billion in 1998, and included aircraft acquisitions of
approximately $3.1 billion. In 2000, American took delivery of 27 Boeing
737-800s and 16 Boeing 777-200ERs. AMR Eagle took delivery of 24 Embraer 135
aircraft and five Embraer 145 aircraft. These expenditures, as well as the
expansion of certain airport facilities, were funded primarily with internally
generated cash and the $559 million cash dividend from Sabre Holdings
Corporation, except for (i) 11 Boeing aircraft which were financed through
secured mortgage agreements, and (ii) the Embraer aircraft acquisitions which
were funded through secured debt agreements.
At December 31, 2000, the Company had commitments to acquire the
following aircraft: 66 Boeing 737-800s, 23 Boeing 757-200s, 20 Boeing
777-200ERs, 146 Embraer regional jets and 25 Bombardier CRJ-700s. Deliveries of
all aircraft extend through 2006. Future payments for all aircraft, including
the estimated amounts for price escalation, will approximate $2.7 billion in
2001, $1.6 billion in 2002, $900 million in 2003 and an aggregate of
approximately $1.3 billion in 2004 through 2006. In addition to these
commitments for aircraft, the Company expects to spend approximately $1.0
billion in 2001 for modifications to aircraft, renovations of - and additions to
- airport and off-airport facilities, and the acquisition of various other
equipment and assets, of which approximately $855 million has been authorized by
the Company's Board of Directors. The Company expects to fund its 2001 capital
expenditures from the Company's existing cash and short-term investments,
internally generated cash or new financing depending upon market conditions
and the Company's evolving view of its long-term needs.
22
On January 10, 2001, the Company announced three transactions that are
expected to substantially increase the scope of its existing network. First, the
Company announced that it had agreed to purchase substantially all of the assets
of Trans World Airlines, Inc. (TWA) for approximately $500 million in cash and
to assume approximately $3.5 billion of TWA's obligations. The Company's
agreement with TWA contemplated that TWA would file for bankruptcy protection
under Chapter 11 of the U.S. Bankruptcy Code and conduct an auction of its
assets under the auspices of the Bankruptcy Court. During the auction, other
credible offers would compete with the Company's offer. TWA filed for bankruptcy
protection on January 10, 2001. In conjunction therewith, the Company also
agreed to provide TWA with up to $200 million in debtor-in-possession financing
to facilitate TWA's ability to maintain its operations until the completion of
this transaction. The amount available under this facility was later increased
to $330 million. As of March 19, 2001, approximately $289 million had been
provided via the debtor-in-possession financing.
The auction of TWA's assets was commenced on March 5, 2001, and recessed
to March 7, 2001. During the recess, the Company increased its cash bid to $625
million and agreed to leave in the TWA estate certain aircraft security
deposits, advance rental payments and rental rebates that were estimated to
bring approximately $117 million of value to TWA. The Company expects that the
increase in the Company's bid will be more than offset, however, by the benefit
to the Company of the reductions in rental rates the Company has negotiated with
TWA's aircraft lessors. On March 7, 2001, TWA's board selected the
Company's bid as the "highest and best" offer, and on March 12, 2001, the U.S.
Bankruptcy Court, District of Delaware, entered an order approving the sale of
TWA's assets to the Company. Consummation of the transaction is subject to
several contingencies, including the waiver by TWA's unions of certain
provisions of their collective bargaining agreements. The approval of the U.S.
Department of Justice was obtained on March 16, 2001. Certain parties have
filed appeals of the Bankruptcy Court's sale order, and have sought a stay of
the transaction, pending the appeals. A provision of the Bankruptcy Code will
permit the Company to close the transaction, despite pending appeals, unless a
stay is granted. If a stay is granted, the Company would anticipate that the
appeal process would be expedited. Upon the closing of the transaction, TWA will
be integrated into American's operations with a continued hub operation in St.
Louis. The Company expects to fund the acquisition of TWA's assets with its
existing cash or short-term investments, internally generated cash or new
financing depending on market conditions and the Company's evolving view of its
long-term needs.
Secondly, the Company announced that it has agreed to acquire from United
Airlines, Inc. (United) certain key strategic assets (slots, gates and aircraft)
of US Airways, Inc. (US Airways) upon the consummation of the previously
announced merger between United and US Airways. In addition to the acquisition
of these assets, American will lease a number of slots and gates from United so
that American may operate half of the northeast Shuttle (New York/Washington
DC/Boston). United will operate the other half of the Shuttle. For these assets,
American will pay approximately $1.2 billion in cash to United and assume
approximately $300 million in aircraft operating leases. The consummation of
these transactions is contingent upon the closing of the proposed United/US
Airways merger. Also, the acquisition of aircraft is generally dependent upon a
certain number of US Airways' Boeing 757 cockpit crew members transferring to
American's payroll.
Finally, American has agreed to acquire a 49 percent stake in, and to
enter into an exclusive marketing agreement with, DC Air LLC (DC Air). American
has agreed to pay $82 million in cash for its ownership stake. American will
have a right of first refusal on the acquisition of the remaining 51 percent
stake in DC Air. American will also lease to DC Air a certain number of Fokker
100 aircraft with necessary crews (known in the industry as a "wet lease").
These wet leased aircraft will be used by DC Air in its operations. DC Air is
the first significant new entrant at Ronald Reagan Washington National Airport
(DCA) in over a decade. DC Air will acquire the assets needed to begin its DCA
operations from United/US Airways upon the consummation of the merger between
the two carriers. American's investment in DC Air and the other arrangements
described above are contingent upon the consummation of the merger between
United and US Airways.
American has $1.0 billion in credit facility agreements that expire
December 15, 2005, subject to certain conditions. At American's option, interest
on these agreements can be calculated on one of several different bases. For
most borrowings, American would anticipate choosing a floating rate based upon
the London Interbank Offered Rate (LIBOR). At December 31, 2000, no borrowings
were outstanding under these agreements.
23
AMR (principally American Airlines) historically operates with a working
capital deficit as do most other airline companies. The existence of such a
deficit has not in the past impaired the Company's ability to meet its
obligations as they become due and is not expected to do so in the future.
OTHER INFORMATION
ENVIRONMENTAL MATTERS Subsidiaries of AMR have been notified of potential
liability with regard to several environmental cleanup sites and certain airport
locations. At sites where remedial litigation has commenced, potential liability
is joint and several. AMR's alleged volumetric contributions at these sites are
minimal compared to others. AMR does not expect these matters, individually or
collectively, to have a material impact on its results of operations, financial
position or liquidity. Additional information is included in Note 3 to the
consolidated financial statements.
NEW ACCOUNTING PRONOUNCEMENT Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities", as amended (SFAS 133), was adopted by the Company on
January 1, 2001. SFAS 133 requires 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 adoption of SFAS 133 did not have a material impact on the Company's net
earnings. However, the Company recorded a transition adjustment of approximately
$100 million in accumulated other comprehensive income in the first quarter of
2001.
OUTLOOK FOR 2001
The Company is cautious in its outlook for 2001. On the revenue front, the
primary concern is a slowing U.S. economy. American's strong revenue performance
the past several years was marked by a growing U.S. economy coupled with a
modest increase in industry capacity. Our revenue performance in 2001 will be
dictated by how well the industry manages that relationship going forward.
Absent the TWA, United/US Airways and DC Air transactions, American's
capacity in 2001 is expected to grow about three percent, slightly less than the
industry average. AMR Eagle's capacity will grow about 11 percent, reflecting
the delivery of 31 new regional jets (RJs). Should the demand for air travel
slow more quickly than expected, both carriers have the flexibility to further
accelerate the retirement of certain older aircraft to keep the Company's
capacity growth in line with general economic conditions.
With the transactions, if approved, the Company expects to strengthen its
position in several key domestic markets. The TWA transaction will provide
American with a hub operation in St. Louis which will serve to strengthen the
Company's position as an east/west carrier. In addition, these proposed
transactions will allow the Company to gain additional slots and real estate at
New York's Kennedy and LaGuardia airports, Washington Reagan, Boston and other
major airports across the domestic system. At the same time, the Company will
continue to improve the regional airline feed to American by strengthening AMR
Eagle with the replacement of turboprop aircraft with RJs and the expansion of
connecting service at Chicago O'Hare, DFW and key East Coast cities. The Company
has reached agreements with three regional carriers feeding TWA in St. Louis.
These agreements will provide for continued feed traffic from St. Louis should
the TWA transaction be approved.
On the international front, the Company will continue to pursue its
relationship with Swissair/Sabena, and its bilateral agreement with EVA of
Taiwan -- coupled with the Company's existing Asian carrier alliances -- will
allow the Company to strengthen its presence in several Asian markets. The
Company is also working to make the ONEworld alliance pay off in more
significant ways, in part by strengthening its relationship with British
Airways.
24
Pressure to reduce costs will continue, although the volatility of fuel
prices makes any prediction of overall costs very difficult. Excluding fuel
expense and the impact of the Company's More Room Throughout Coach program, the
Company anticipates an increase in unit cost of one to two percent driven
primarily by higher labor and aircraft ownership costs. On the labor front, the
Company has or will have all three of its union contracts open for negotiation
in 2001. The expected result is upward pressure on labor rates. Aircraft
depreciation and maintenance, materials and repairs expense will also be up,
reflecting 2000 and 2001 aircraft deliveries. Other expense lines will see
volume-driven increases and inflationary pressures. Partially offsetting these
expected increases, the Company anticipates future reductions in distribution
costs due to reduced commission expense and increased penetration rates for
electronic tickets. And although oil prices are largely expected to decrease in
2001 as compared to 2000 levels, the resulting benefit will be offset by lower
fuel hedging gains in 2001 from the Company's fuel hedging program.
Lastly, as a result of the proposed TWA, United/US Airways and DC Air
transactions, and for several other reasons, American and American Eagle have
initiated an impairment review of certain fleet types in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
This review could result in an impairment charge to be taken by the Company in
2001. The size of any resulting 2001 charge is not presently known, but may be
significant.
FORWARD-LOOKING INFORMATION
The preceding discussions under Business, Properties, Legal Proceedings and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contain various forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which represent the Company's
expectations or beliefs concerning future events. When used in this document and
in documents incorporated herein by reference, the words "expects," "plans,"
"anticipates," and similar expressions are intended to identify forward-looking
statements. Forward-looking statements include, without limitation, expectations
as to results of operations and financial condition, including changes in
capacity, revenues and costs, expectations as to future financing needs, overall
economic projections and the Company's plans and objectives for future
operations, including its ability to successfully integrate into its operations
assets the Company may acquire in its previously announced transactions with
TWA, United/US Airways and DC Air, and plans to develop future code-sharing
programs and to evaluate new alliances. All forward-looking statements in this
report are based upon information available to the Company on the date of this
report. The Company undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future events
or otherwise. Forward-looking statements are subject to a number of factors that
could cause actual results to differ materially from our expectations. The
following factors, in addition to other possible factors not listed, could cause
the Company's actual results to differ materially from those expressed in
forward-looking statements:
UNCERTAINTY OF FUTURE COLLECTIVE BARGAINING AGREEMENTS AND EVENTS The Company's
operations could be adversely affected by failure of the Company to reach
agreement with any labor union representing the Company's employees or by an
agreement with a labor union representing the Company's employees that contains
terms which prevent the Company from competing effectively with other airlines.
In addition, a dispute between the Company and an employee work group (outside
the confines of a collective bargaining agreement) could adversely impact the
Company's operations.
ECONOMIC AND OTHER CONDITIONS The airline industry is affected by changes in
international, national, regional and local economic conditions, inflation, war
or political instability (or the threat thereof), consumer preferences and
spending patterns, demographic trends, disruptions to the air traffic control
system, consumer perceptions of airline safety, costs of safety, security and
environmental measures, and the weather.
COMMODITY PRICES Due to the competitive nature of the airline industry, in the
event of any increase in the price of jet fuel, there can be no assurance that
the Company would be able to pass on increased fuel prices to its customers by
increasing fares.
25
COMPETITION IN THE AIRLINE INDUSTRY Service over almost all of the Company's
routes is highly competitive. The Company faces vigorous competition from major
domestic airlines, national, regional, all-cargo and charter carriers, foreign
carriers, low-cost carriers, and, particularly on shorter segments, ground
transportation. Pricing decisions are affected by competition from other
airlines. Fare discounting by competitors has historically had a negative effect
on the Company's financial results because American is generally required to
match competitors' fares to maintain passenger traffic. No assurance can be
given that any future fare reduction would be offset by increases in passenger
traffic, a reduction in costs or changes in the mix of traffic that would
improve yields.
CHANGING BUSINESS STRATEGY Although it has no current plan to do so, the Company
may change its business strategy in the future and may not pursue some of the
goals stated herein.
GOVERNMENT REGULATION Future results of the Company's operations may vary based
upon any actions which the governmental agencies with jurisdiction over the
Company's operations may take, including the granting and timing of certain
governmental approvals (including foreign government approvals) needed for
code-sharing alliances and other arrangements with other airlines, restrictions
on competitive practices (e.g., Court Orders, or Agency regulations or orders,
that would curtail an airline's ability to respond to a competitor), the
adoption of regulations that impact customer service standards, and the adoption
of more restrictive locally-imposed noise restrictions.
UNCERTAINTY IN INTERNATIONAL OPERATIONS The Company's current international
activities and prospects could be adversely affected by factors such as
reversals or delays in the opening of foreign markets, exchange controls,
currency and political risks, taxation and changes in international government
regulation of the Company's operations.
INDUSTRY CONSOLIDATION The Company has announced a series of transactions with
TWA, United/US Airways and DC Air (see page 23). These transactions are subject
to a number of conditions and there can be no assurance that they will occur as
planned. If these transactions do not occur and yet other U.S. carriers merge or
create or expand marketing alliances, such mergers or new or expanded marketing
alliances could adversely affect the Company.
26
ITEM 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS
The risk inherent in the Company's market risk sensitive instruments and
positions is the potential loss arising from adverse changes in the price of
fuel, foreign currency exchange rates and interest rates as discussed below. The
sensitivity analyses presented do not consider the effects that such adverse
changes may have on overall economic activity, nor do they consider additional
actions management may take to mitigate its exposure to such changes. Actual
results may differ. See Note 6 to the consolidated financial statements for
accounting policies and additional information. In addition, the following
analyses exclude any impact of the proposed transactions discussed on page 23.
AIRCRAFT FUEL The Company's earnings are affected by changes in the price and
availability of aircraft fuel. In order to provide a measure of control over
price and supply, the Company trades and ships fuel and maintains fuel storage
facilities to support its flight operations. The Company also manages the price
risk of fuel costs primarily utilizing swap and option contracts. Market risk is
estimated as a hypothetical 10 percent increase in the December 31, 2000 and
1999 cost per gallon of fuel. Based on projected 2001 fuel usage, such an
increase would result in an increase to aircraft fuel expense of approximately
$194 million in 2001, net of fuel hedge instruments outstanding at December 31,
2000. Comparatively, based on projected 2000 fuel usage, such an increase would
have resulted in an increase to aircraft fuel expense of approximately $131
million in 2000, net of fuel hedge instruments outstanding at December 31, 1999.
The change in market risk is due primarily to the increase in fuel prices. As of
December 31, 2000, the Company had hedged approximately 40 percent of its 2001
fuel requirements, approximately 15 percent of its 2002 fuel requirements, and
approximately seven percent of its 2003 fuel requirements, compared to
approximately 48 percent of its 2000 fuel requirements and 10 percent of its
2001 fuel requirements hedged at December 31, 1999.
FOREIGN CURRENCY The Company is exposed to the effect of foreign exchange rate
fluctuations on the U.S. dollar value of foreign currency-denominated operating
revenues and expenses. The Company's largest exposure comes from the Canadian
dollar, British pound, Japanese yen, Euro and various Latin and South American
currencies. The Company uses options to hedge a portion of its anticipated
foreign currency-denominated ticket sales. The result of a uniform 10 percent
strengthening in the value of the U.S. dollar from December 31, 2000 and 1999
levels relative to each of the currencies in which the Company has foreign
currency exposure would result in a decrease in operating income of
approximately $33 million and $39 million for the years ending December 31, 2001
and 2000, respectively, net of hedge instruments outstanding at December 31,
2000 and 1999, due to the Company's foreign-denominated revenues exceeding its
foreign-denominated expenses. This sensitivity analysis was prepared based upon
projected 2001 and 2000 foreign currency-denominated revenues and expenses as of
December 31, 2000 and 1999.
INTEREST The Company's earnings are also affected by changes in interest rates
due to the impact those changes have on its interest income from cash and
short-term investments, and its interest expense from variable-rate debt
instruments. The Company has variable-rate debt instruments representing
approximately 29 percent and 21 percent of its total long-term debt,
respectively, at December 31, 2000 and 1999, and interest rate swaps on notional
amounts of approximately $158 million and $696 million, respectively, at
December 31, 2000 and 1999. During 2000, the Company terminated interest rate
swap agreements on notional amounts of approximately $425 million. The cost of
terminating these interest rate swap agreements was not material. If interest
rates average 10 percent more in 2001 than they did at December 31, 2000, the
Company's interest expense would increase by approximately $11 million and
interest income from cash and short-term investments would increase by
approximately $15 million. In comparison, at December 31, 1999, the Company
estimated that if interest rates averaged 10 percent more in 2000 than they did
at December 31, 1999, the Company's interest expense would have increased by
approximately $10 million and interest income from cash and short-term
investments would have increased by approximately $11 million. These amounts are
determined by considering the impact of the hypothetical interest rates on the
Company's variable-rate long-term debt, interest rate swap agreements, and cash
and short-term investment balances at December 31, 2000 and 1999.
27
Market risk for fixed-rate long-term debt is estimated as the potential
increase in fair value resulting from a hypothetical 10 percent decrease in
interest rates, and amounts to approximately $148 million and $156 million as of
December 31, 2000 and 1999, respectively. The fair values of the Company's
long-term debt were estimated using quoted market prices or discounted future
cash flows based on the Company's incremental borrowing rates for similar types
of borrowing arrangements.
INVESTMENTS The Company is subject to market risk related to its ownership of
approximately 1.2 million depository certificates convertible, subject to
certain restrictions, into the common stock of Equant, as of December 31, 2000
and 1999. The estimated fair value of these depository certificates was
approximately $32 million and $136 million as of December 31, 2000 and 1999,
respectively, based upon the market value of Equant common stock.
In addition, the Company holds investments in certain other entities
which are subject to market risk. However, the impact of such market risk on
earnings is not significant due to the immateriality of the carrying value and
the geographically diverse nature of these holdings.
28
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
[Download Table]
Page
----
Report of Independent Auditors 30
Consolidated Statements of Operations 31
Consolidated Balance Sheets 33
Consolidated Statements of Cash Flows 35
Consolidated Statements of Stockholders' Equity 36
Notes to Consolidated Financial Statements 37
29
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
AMR Corporation
We have audited the accompanying consolidated balance sheets of AMR
Corporation as of December 31, 2000 and 1999, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 2000. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of AMR
Corporation at December 31, 2000 and 1999, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
ERNST & YOUNG LLP
2121 San Jacinto
Dallas, Texas 75201
January 16, 2001, except for Note 15,
for which the date is March 19, 2001.
30
AMR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
--------------------------------------------------------------------------------
[Enlarge/Download Table]
Year Ended December 31,
------------------------------------
2000 1999 1998
-------- -------- --------
REVENUES
Passenger - American Airlines, Inc. $ 16,377 $ 14,707 $ 14,695
- AMR Eagle 1,452 1,294 1,121
Cargo 721 643 656
Other revenues 1,153 1,086 1,044
-------- -------- --------
Total operating revenues 19,703 17,730 17,516
-------- -------- --------
EXPENSES
Wages, salaries and benefits 6,783 6,120 5,793
Aircraft fuel 2,495 1,696 1,604
Depreciation and amortization 1,202 1,092 1,040
Maintenance, materials and repairs 1,095 1,003 935
Commissions to agents 1,037 1,162 1,226
Other rentals and landing fees 999 942 839
Food service 777 740 675
Aircraft rentals 607 630 569
Other operating expenses 3,327 3,189 2,847
-------- -------- --------
Total operating expenses 18,322 16,574 15,528
-------- -------- --------
OPERATING INCOME 1,381 1,156 1,988
OTHER INCOME (EXPENSE)
Interest income 154 95 133
Interest expense (467) (393) (372)
Interest capitalized 151 118 104
Miscellaneous - net 68 30 (20)
-------- -------- --------
(94) (150) (155)
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND EXTRAORDINARY LOSS 1,287 1,006 1,833
Income tax provision 508 350 719
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE
EXTRAORDINARY LOSS 779 656 1,114
INCOME FROM DISCONTINUED OPERATIONS, NET OF
APPLICABLE INCOME TAXES AND MINORITY INTEREST 43 265 200
GAIN ON SALE OF DISCONTINUED OPERATIONS, NET OF
APPLICABLE INCOME TAXES -- 64 --
-------- -------- --------
INCOME BEFORE EXTRAORDINARY LOSS 822 985 1,314
EXTRAORDINARY LOSS, NET OF APPLICABLE INCOME TAXES (9) -- --
-------- -------- --------
NET EARNINGS $ 813 $ 985 $ 1,314
======== ======== ========
--------------------------------------------------------------------------------
Continued on next page.
31
AMR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(in millions, except per share amounts)
--------------------------------------------------------------------------------
[Download Table]
Year Ended December 31,
--------------------------------------
2000 1999 1998
--------- --------- ---------
EARNINGS APPLICABLE TO COMMON SHARES $ 813 $ 985 $ 1,314
========= ========= =========
EARNINGS PER SHARE:
BASIC
Income from continuing operations $ 5.20 $ 4.30 $ 6.60
Discontinued operations 0.30 2.16 1.18
Extraordinary loss (0.07) -- --
--------- --------- ---------
Net earnings $ 5.43 $ 6.46 $ 7.78
========= ========= =========
DILUTED
Income from continuing operations $ 4.81 $ 4.17 $ 6.38
Discontinued operations 0.27 2.09 1.14
Extraordinary loss (0.05) -- --
--------- --------- ---------
Net earnings $ 5.03 $ 6.26 $ 7.52
========= ========= =========
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
32
AMR CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions, except shares and par value)
--------------------------------------------------------------------------------
[Download Table]
December 31,
-------------------
2000 1999
------- -------
ASSETS
CURRENT ASSETS
Cash $ 89 $ 85
Short-term investments 2,144 1,706
Receivables, less allowance for uncollectible
accounts (2000 - $27; 1999 - $57) 1,303 1,134
Inventories, less allowance for obsolescence
(2000 - $332; 1999 - $279) 757 708
Deferred income taxes 695 612
Other current assets 191 179
------- -------
Total current assets 5,179 4,424
EQUIPMENT AND PROPERTY
Flight equipment, at cost 20,041 16,912
Less accumulated depreciation 6,320 5,589
------- -------
13,721 11,323
Purchase deposits for flight equipment 1,700 1,582
Other equipment and property, at cost 3,639 3,247
Less accumulated depreciation 1,968 1,814
------- -------
1,671 1,433
------- -------
17,092 14,338
EQUIPMENT AND PROPERTY UNDER CAPITAL LEASES
Flight equipment 2,618 3,141
Other equipment and property 159 155
------- -------
2,777 3,296
Less accumulated amortization 1,233 1,347
------- -------
1,544 1,949
OTHER ASSETS
Route acquisition costs and airport operating and
gate lease rights, less accumulated amortization
(2000 - $498; 1999 - $450) 1,143 1,191
Other 1,255 2,472
------- -------
2,398 3,663
------- -------
TOTAL ASSETS $26,213 $24,374
======= =======
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
33
AMR CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions, except shares and par value)
--------------------------------------------------------------------------------
[Enlarge/Download Table]
December 31,
----------------------
2000 1999
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,267 $ 1,115
Accrued salaries and wages 955 849
Accrued liabilities 1,276 1,107
Air traffic liability 2,696 2,258
Current maturities of long-term debt 569 302
Current obligations under capital leases 227 236
-------- --------
Total current liabilities 6,990 5,867
LONG-TERM DEBT, LESS CURRENT MATURITIES 4,151 4,078
OBLIGATIONS UNDER CAPITAL LEASES,
LESS CURRENT OBLIGATIONS 1,323 1,611
OTHER LIABILITIES AND CREDITS
Deferred income taxes 2,385 1,846
Deferred gains 508 613
Postretirement benefits 1,706 1,669
Other liabilities and deferred credits 1,974 1,832
-------- --------
6,573 5,960
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock - $1 par value; shares authorized: 750,000,000;
Shares issued: 2000 and 1999 - 182,278,766 182 182
Additional paid-in capital 2,911 3,061
Treasury shares at cost: 2000 - 30,216,218; 1999 - 34,034,110 (1,865) (2,101)
Accumulated other comprehensive income (2) (2)
Retained earnings 5,950 5,718
-------- --------
7,176 6,858
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 26,213 $ 24,374
======== ========
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
34
AMR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
--------------------------------------------------------------------------------
[Enlarge/Download Table]
Year Ended December 31,
---------------------------------
2000 1999 1998
------- ------- -------
CASH FLOW FROM OPERATING ACTIVITIES:
Income from continuing operations after extraordinary loss $ 770 $ 656 $ 1,114
Adjustments to reconcile income from continuing operations after
extraordinary loss to net cash provided by operating activities:
Depreciation 928 864 830
Amortization 274 228 210
Deferred income taxes 461 183 268
Extraordinary loss on early extinguishment of debt 14 -- --
Gain on sale of other investments, net (57) (95) --
Gain on disposition of equipment and property -- (15) (19)
Change in assets and liabilities:
Decrease (increase) in receivables (169) 261 (185)
Increase in inventories (111) (140) (36)
Increase in accounts payable and accrued liabilities 579 42 343
Increase in air traffic liability 438 84 128
Other, net 15 196 144
------- ------- -------
Net cash provided by operating activities 3,142 2,264 2,797
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures, including purchase deposits
on flight equipment (3,678) (3,539) (2,342)
Net decrease (increase) in short-term investments (438) (253) 348
Acquisitions and other investments (50) (99) (137)
Proceeds from:
Dividend from Sabre Holdings Corporation 559 -- --
Sale of equipment and property 238 79 262
Sale of other investments 94 85 --
Sale of discontinued operations -- 259 --
Other -- 18 --
------- ------- -------
Net cash used for investing activities (3,275) (3,450) (1,869)
CASH FLOW FROM FINANCING ACTIVITIES:
Payments on long-term debt and capital lease obligations (766) (280) (547)
Proceeds from:
Issuance of long-term debt 836 1,956 246
Exercise of stock options 67 25 85
Short-term loan from Sabre Holdings Corporation -- 300 --
Sale-leaseback transactions -- 54 270
Repurchase of common stock -- (871) (945)
------- ------- -------
Net cash provided by (used for) financing activities 137 1,184 (891)
------- ------- -------
Net increase (decrease) in cash 4 (2) 37
Cash at beginning of year 85 87 50
------- ------- -------
Cash at end of year $ 89 $ 85 $ 87
======= ======= =======
ACTIVITIES NOT AFFECTING CASH
Distribution of Sabre Holdings Corporation shares to AMR
shareholders $ 581 $ -- $ --
======= ======= =======
Payment of short-term loan from Sabre Holdings Corporation $ -- $ 300 $ --
======= ======= =======
Capital lease obligations incurred $ -- $ 54 $ 270
======= ======= =======
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
35
AMR CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in millions, except share amounts)
--------------------------------------------------------------------------------
[Enlarge/Download Table]
Accumulated
Additional Other
Common Paid-in Treasury Comprehensive Retained
Stock Capital Stock Income Earnings Total
------- ---------- -------- ------------- -------- -------
Balance at January 1, 1998 $ 182 $ 3,104 $ (485) $ (4) $ 3,419 $ 6,216
Net earnings and total comprehensive
income -- -- -- -- 1,314 1,314
Repurchase of 14,342,008 common shares -- -- (944) -- -- (944)
Issuance of 2,495,148 shares from
Treasury pursuant to stock option,
deferred stock and restricted stock
incentive plans, net of tax benefit of $17 -- (29) 141 -- -- 112
------- ------- ------- ------- ------- -------
Balance at December 31, 1998 182 3,075 (1,288) (4) 4,733 6,698
Net earnings -- -- -- -- 985 985
Adjustment for minimum pension
liability, net of tax expense of $1 -- -- -- 3 -- 3
Unrealized loss on investments, net of
tax benefit of $1 -- -- -- (1) -- (1)
-------
Total comprehensive income 987
Repurchase of 14,062,358 common shares -- -- (871) -- -- (871)
Issuance of 955,940 shares from
Treasury pursuant to stock option,
deferred stock and restricted stock
incentive plans, net of tax benefit of $4 -- (14) 58 -- -- 44
------- ------- ------- ------- ------- -------
Balance at December 31, 1999 182 3,061 (2,101) (2) 5,718 6,858
Net earnings -- -- -- -- 813 813
Adjustment for minimum pension
liability, net of tax expense of $3 -- -- -- (5) -- (5)
Unrealized gain on investments, net of
tax expense of $2 -- -- -- 5 -- 5
-------
Total comprehensive income 813
Distribution of Sabre Holdings
Corporation shares to AMR shareholders -- -- -- -- (581) (581)
Issuance of 3,817,892 shares from
Treasury pursuant to stock option,
deferred stock and restricted stock
incentive plans, net of tax benefit of $11 -- (150) 236 -- -- 86
------- ------- ------- ------- ------- -------
Balance at December 31, 2000 $ 182 $ 2,911 $(1,865) $ (2) $ 5,950 $ 7,176
======= ======= ======= ======= ======= =======
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
BASIS OF PRESENTATION The consolidated financial statements include the accounts
of AMR Corporation (AMR or the Company) and its wholly owned subsidiaries,
including its principal subsidiary American Airlines, Inc. (American). All
significant intercompany transactions have been eliminated. The results of
operations, cash flows and net assets for Sabre Holdings Corporation (Sabre),
AMR Services, AMR Combs and TeleService Resources have been reflected in the
consolidated financial statements as discontinued operations. Unless
specifically indicated otherwise, the information in the footnotes relates to
the continuing operations of AMR. All share and per share amounts reflect the
stock split on June 9, 1998, where appropriate. Certain amounts from prior years
have been reclassified to conform with the 2000 presentation.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
INVENTORIES Spare parts, materials and supplies relating to flight equipment are
carried at average acquisition cost and are expensed when incurred in
operations. Allowances for obsolescence are provided, over the estimated useful
life of the related aircraft and engines, for spare parts expected to be on hand
at the date aircraft are retired from service, plus allowances for spare parts
currently identified as excess. These allowances are based on management
estimates, which are subject to change.
EQUIPMENT AND PROPERTY The provision for depreciation of operating equipment and
property is computed on the straight-line method applied to each unit of
property, except that major rotable parts, avionics and assemblies are
depreciated on a group basis. The depreciable lives used for the principal
depreciable asset classifications are:
[Download Table]
Depreciable Life
----------------
Boeing 727-200 aircraft 2003(1)
Other American jet aircraft 20 - 30 years
Regional aircraft and engines 16 - 20 years
Major rotable parts, avionics and assemblies Life of equipment to which
applicable
Improvements to leased flight equipment Term of lease
Buildings and improvements (principally on 10-30 years or term of lease
leased land)
Furniture, fixtures and other equipment 3-20 years
Capitalized software 3-10 years
(1) Approximate final aircraft retirement date.
Residual values for aircraft, engines, major rotable parts, avionics and
assemblies are generally five to 10 percent, except when a guaranteed residual
value or other agreements exist to better estimate the residual value.
Effective January 1, 1999, in order to more accurately reflect the
expected useful life of its aircraft, the Company changed its estimate of the
depreciable lives of certain aircraft types from 20 to 25 years and increased
the residual value from five to 10 percent. It also established a 30-year life
for its new Boeing 777 aircraft, first delivered in the first quarter of 1999.
As a result of this change, depreciation and amortization expense was reduced by
approximately $158 million and net earnings were increased by approximately $99
million, or $0.63 per common share diluted, for the year ended December 31,
1999.
37
1. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Equipment and property under capital leases are amortized over the term
of the leases or, in the case of certain aircraft, over their expected useful
lives, and such amortization is included in depreciation and amortization. Lease
terms vary but are generally 10 to 25 years for aircraft and seven to 40 years
for other leased equipment and property.
MAINTENANCE AND REPAIR COSTS Maintenance and repair costs for owned and leased
flight equipment are charged to operating expense as incurred, except engine
overhaul costs incurred by AMR Eagle Holding Corporation (AMR Eagle) and costs
incurred for maintenance and repair under power by the hour maintenance contract
agreements, which are accrued on the basis of hours flown.
INTANGIBLE ASSETS Route acquisition costs and airport operating and gate lease
rights represent the purchase price attributable to route authorities, airport
take-off and landing slots and airport gate leasehold rights acquired. These
assets are being amortized on a straight-line basis over 40 years for route
authorities, primarily 25 years for airport take-off and landing slots, and the
term of the lease for airport gate leasehold rights.
PASSENGER REVENUES Passenger ticket sales are initially recorded as a component
of air traffic liability. Revenue derived from ticket sales is recognized at the
time service is provided. However, due to various factors, including the complex
pricing structure and interline agreements throughout the industry, certain
amounts are recognized in revenue using estimates regarding both the timing of
the revenue recognition and the amount of revenue to be recognized. Actual
results could differ from those estimates.
ADVERTISING COSTS The Company expenses the costs of advertising as incurred.
Advertising expense was $221 million, $206 million and $196 million for the
years ended December 31, 2000, 1999 and 1998, respectively.
FREQUENT FLYER PROGRAM The estimated incremental cost of providing free travel
awards is accrued when such award levels are reached. American sells mileage
credits and related services to companies participating in its frequent flyer
program. The portion of the revenue related to the sale of mileage credits is
deferred and recognized over a period approximating the period during which the
mileage credits are used. The remaining portion of the revenue is recognized
upon receipt as the related services have been provided.
STATEMENTS OF CASH FLOWS Short-term investments, without regard to remaining
maturity at acquisition, are not considered as cash equivalents for purposes of
the statements of cash flows.
STOCK OPTIONS The Company accounts for its stock-based compensation plans in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25) and related Interpretations. Under APB 25,
no compensation expense is recognized for stock option grants if the exercise
price of the Company's stock option grants is at or above the fair market value
of the underlying stock on the date of grant.
38
2. INVESTMENTS
Short-term investments consisted of (in millions):
[Download Table]
December 31,
-----------------
2000 1999
------ ------
Overnight investments and time deposits $ 361 $ --
Corporate and bank notes 906 1,173
U. S. Government agency mortgages 442 94
Asset backed securities 361 145
U. S. Government agency notes -- 234
Other 74 60
------ ------
$2,144 $1,706
====== ======
Short-term investments at December 31, 2000, by contractual maturity
included (in millions):
[Download Table]
Due in one year or less $ 994
Due between one year and three years 1,104
Due after three years 46
------
$2,144
======
All short-term investments are classified as available-for-sale and
stated at fair value. Unrealized gains and losses, net of deferred taxes, are
reflected as an adjustment to stockholders' equity.
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 gain of $57
million, which is included in Miscellaneous - net on the accompanying
consolidated statements of operations.
At December 31, 1998, the Company owned approximately 3.1 million
depository certificates convertible, subject to certain restrictions, into the
common stock of Equant N.V. (Equant), which completed an initial public offering
in July 1998. Approximately 1.7 million of the certificates were held by the
Company on behalf of Sabre. During 1999, the Company acquired approximately
400,000 Equant depository certificates from other airlines. In addition, based
upon a reallocation between the owners of the certificates in July 1999, the
Company received an additional 2.6 million certificates, of which approximately
2.2 million certificates were held for the benefit of Sabre. In connection with
two secondary offerings by Equant in February and December 1999, the Company
sold approximately 2.7 million depository certificates for a net gain of
approximately $118 million, after taxes and minority interest. Of this amount,
approximately $75 million is included in Miscellaneous - net and approximately
$71 million, net of taxes and minority interest, related to depository
certificates held by the Company on behalf of Sabre, is included in income from
discontinued operations on the accompanying consolidated statements of
operations.
As of December 31, 2000 and 1999, the Company holds approximately 1.2
million depository certificates with an estimated market value of approximately
$32 million and $136 million, respectively. The carrying value of the Company's
investment in the depository certificates as of December 31, 2000 and 1999, was
approximately $20 million, and is included in other assets on the accompanying
consolidated balance sheets.
39
2. INVESTMENTS (CONTINUED)
In December 1999, the Company entered into an agreement to sell its
investment in the cumulative mandatorily redeemable convertible preferred stock
of Canadian Airlines International Limited (Canadian) for approximately $40
million, resulting in a gain of $40 million, which is included in Miscellaneous
- net on the accompanying consolidated statements of operations. In addition,
the Company recognized a tax benefit of $67 million resulting from the tax loss
on the investment, representing the reversal of a deferred tax valuation
allowance since it is more likely than not that the tax benefit will be
realized. The valuation allowance was established in 1996 when the investment
was written-off because, at that time, it was not more likely than not that the
tax benefit of the write-off would be realized. During 2000, the Company
recorded a gain of approximately $41 million from the recovery of start-up
expenses (previously written-off) from the Canadian services agreement entered
into during 1995, which is included in Miscellaneous - net on the accompanying
consolidated statements of operations.
3. COMMITMENTS AND CONTINGENCIES
At December 31, 2000, the Company had commitments to acquire the
following aircraft: 66 Boeing 737-800s, 23 Boeing 757-200s, 20 Boeing
777-200ERs, 146 Embraer regional jets and 25 Bombardier CRJ-700s. Deliveries of
all aircraft extend through 2006. Future payments for all aircraft, including
the estimated amounts for price escalation, will approximate $2.7 billion in
2001, $1.6 billion in 2002, $900 million in 2003 and an aggregate of
approximately $1.3 billion in 2004 through 2006. In addition to these
commitments for aircraft, the Company's Board of Directors has authorized
expenditures of approximately $2.8 billion over the next five years for
modifications to aircraft, renovations of - and additions to - airport and
off-airport facilities, and the acquisition of various other equipment and
assets. AMR expects to spend approximately $855 million of this authorized
amount in 2001.
The Miami International Airport Authority is currently remediating
various environmental conditions at the Miami International Airport (the
Airport) and funding the remediation costs through landing fee revenues and
other cost recovery methods. Future costs of the remediation effort may be borne
by carriers operating at the Airport, including American, through increased
landing fees and/or other charges since certain of the potentially responsible
parties are no longer in business. The future increase in landing fees and/or
other charges may be material but cannot be reasonably estimated due to various
factors, including the unknown extent of the remedial actions that may be
required, the proportion of the cost that will ultimately be recovered from the
responsible parties, and uncertainties regarding the environmental agencies that
will ultimately supervise the remedial activities and the nature of that
supervision. In addition, the Company is subject to environmental issues at
various other airport and non-airport locations. Management believes, after
considering a number of factors, that the ultimate disposition of these
environmental issues is not expected to materially affect the Company's
consolidated financial position, results of operations or cash flows. Amounts
recorded for environmental issues are based on the Company's current assessments
of the ultimate outcome and, accordingly, could increase or decrease as these
assessments change.
The Company has agreed to sell its McDonnell Douglas MD-11 aircraft to
FedEx Corporation (FedEx). No significant gain or loss is expected to be
recognized as a result of this transaction. As of December 31, 2000, the
carrying value of the remaining aircraft American has committed to sell was
approximately $462 million.
AMR and American have included event risk covenants in approximately $2.2
billion of indebtedness. These covenants permit the holders of such indebtedness
to receive a higher rate of return (between 75 and 650 basis points above the
stated rate) if a designated event, as defined, should occur and the credit
rating of such indebtedness is downgraded below certain levels within a certain
period of time following the event.
40
3. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Special facility revenue bonds have been issued by certain
municipalities, primarily to purchase equipment and improve airport facilities
that are leased by American. In certain cases, the bond issue proceeds were
loaned to American and are included in long-term debt. Certain bonds have rates
that are periodically reset and are remarketed by various agents. In certain
circumstances, American may be required to purchase up to $544 million of the
special facility revenue bonds prior to scheduled maturity, in which case
American has the right to resell the bonds or to use the bonds to offset its
lease or debt obligations. American may borrow the purchase price of these bonds
under standby letter of credit agreements. At American's option, certain letters
of credit are secured by funds held by bond trustees and by approximately $540
million of short-term investments.
4. LEASES
AMR's subsidiaries lease various types of equipment and property,
including aircraft, and airport and off-airport facilities. The future minimum
lease payments required under capital leases, together with the present value of
such payments, and future minimum lease payments required under operating leases
that have initial or remaining non-cancelable lease terms in excess of one year
as of December 31, 2000, were (in millions):
[Download Table]
Capital Operating
Year Ending December 31, Leases Leases
------- ---------
2001 $ 320 $ 984
2002 276 921
2003 195 931
2004 246 913
2005 178 900
2006 and subsequent 867 11,306
------ ------
2,082(1) $15,955(2)
=======
Less amount representing interest 532
------
Present value of net minimum lease payments $1,550
======
(1) Includes $191 million guaranteed by AMR relating to special facility
revenue bonds issued by municipalities.
(2) Includes $6.4 billion guaranteed by AMR relating to special facility
revenue bonds issued by municipalities.
At December 31, 2000, the Company had 201 jet aircraft and 39 turboprop
aircraft under operating leases, and 65 jet aircraft and 57 turboprop aircraft
under capital leases. The aircraft leases can generally be renewed at rates
based on fair market value at the end of the lease term for one to five years.
Most aircraft leases have purchase options at or near the end of the lease term
at fair market value, but generally not to exceed a stated percentage of the
defined lessor's cost of the aircraft or at a predetermined fixed amount.
During 1996, American made prepayments on the cancelable operating leases
it had on 12 of its Boeing 767-300 aircraft. Upon the expiration of the amended
leases, American can purchase the aircraft for a nominal amount. As a result,
the aircraft were recorded as flight equipment under capital leases. During 2000
and 1999, the Company exercised its option to purchase six and two of the Boeing
767-300 aircraft for a nominal fee, respectively. As such, these aircraft were
reclassified from flight equipment under capital leases to owned flight
equipment.
Rent expense, excluding landing fees, was $1.3 billion for 2000 and 1999,
and $1.1 billion for 1998.
41
5. INDEBTEDNESS
Long-term debt (excluding amounts maturing within one year) consisted of
(in millions):
[Download Table]
December 31,
-----------------
2000 1999
------ ------
Secured variable and fixed rate indebtedness due through 2016
(effective rates from 6.71% - 9.597% at December 31, 2000) $3,209 $2,556
7.875% - 10.62% notes due through 2039 345 812
9.0% - 10.20% debentures due through 2021 332 437
6.0% - 7.10% bonds due through 2031 176 176
Unsecured variable rate indebtedness due through 2024
(3.55% at December 31, 2000) 86 86
Other 3 11
------ ------
Long-term debt, less current maturities $4,151 $4,078
====== ======
Maturities of long-term debt (including sinking fund requirements) for
the next five years are: 2001 - $569 million; 2002 - $201 million; 2003 - $169
million; 2004 - $228 million; 2005 - $482 million.
During the third quarter of 2000, the Company 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).
American has $1.0 billion in credit facility agreements that expire
December 15, 2005, subject to certain conditions. At American's option, interest
on these agreements can be calculated on one of several different bases. For
most borrowings, American would anticipate choosing a floating rate based upon
the London Interbank Offered Rate (LIBOR). At December 31, 2000, no borrowings
were outstanding under these agreements.
Certain debt is secured by aircraft, engines, equipment and other assets
having a net book value of approximately $3.4 billion. In addition, certain of
American's debt and credit facility agreements contain restrictive covenants,
including a minimum net worth requirement, which could limit American's ability
to pay dividends. At December 31, 2000, under the most restrictive provisions of
those debt and credit facility agreements, approximately $1.5 billion of the
retained earnings of American was available for payment of dividends to AMR.
Cash payments for interest, net of capitalized interest, were $301
million, $237 million and $277 million for 2000, 1999 and 1998, respectively.
6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
As part of the Company's risk management program, AMR uses a variety of
financial instruments, including interest rate swaps, fuel swap and option
contracts, and currency exchange agreements. The Company does not hold or issue
derivative financial instruments for trading purposes.
NOTIONAL AMOUNTS AND CREDIT EXPOSURES OF DERIVATIVES
The notional amounts of derivative financial instruments summarized in
the tables which follow do not represent amounts exchanged between the parties
and, therefore, are not a measure of the Company's exposure resulting from its
use of derivatives. The amounts exchanged are calculated based on the notional
amounts and other terms of the instruments, which relate to interest rates,
exchange rates or other indices.
42
6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
The Company is exposed to credit losses in the event of non-performance
by counterparties to these financial instruments, but it does not expect any of
the counterparties to fail to meet its obligations. The credit exposure related
to these financial instruments is represented by the fair value of contracts
with a positive fair value at the reporting date, reduced by the effects of
master netting agreements. To manage credit risks, the Company selects
counterparties based on credit ratings, limits its exposure to a single
counterparty under defined guidelines, and monitors the market position of the
program and its relative market position with each counterparty. The Company
also maintains industry-standard security agreements with the majority of its
counterparties which may require the Company or the counterparty to post
collateral if the value of these instruments falls below certain mark-to-market
thresholds. As of December 31, 2000, no collateral was required under these
agreements, and the Company does not expect to post collateral in the near
future.
INTEREST RATE RISK MANAGEMENT
American utilizes interest rate swap contracts to effectively convert a
portion of its fixed-rate obligations to floating-rate obligations. These
agreements involve the exchange of amounts based on a floating interest rate for
amounts based on fixed interest rates over the life of the agreement without an
exchange of the notional amount upon which the payments are based. The
differential to be paid or received as interest rates change is accrued and
recognized as an adjustment of interest expense related to the obligation. The
related amount payable to or receivable from counterparties is included in
current liabilities or assets. The fair values of the swap agreements are not
recognized in the financial statements. Gains and losses on terminations of
interest rate swap agreements are deferred as an adjustment to the carrying
amount of the outstanding obligation and amortized as an adjustment to interest
expense related to the obligation over the remaining term of the original
contract life of the terminated swap agreement. In the event of the early
extinguishment of a designated obligation, any realized or unrealized gain or
loss from the swap would be recognized in income coincident with the
extinguishment.
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.
The following table indicates the notional amounts and fair values of the
Company's interest rate swap agreements (in millions):
[Download Table]
December 31,
---------------------------------------------
2000 1999
--------------------- ---------------------
Notional Notional
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
Interest rate swap agreements $ 158 $ 4 $ 696 $ (9)
The fair values represent the amount the Company would receive or pay if
the agreements were terminated at December 31, 2000 and 1999, respectively.
At December 31, 2000, the weighted-average remaining life of the interest
rate swap agreements in effect was 9.7 years. The weighted-average floating
rates and fixed rates on the contracts outstanding were:
[Download Table]
December 31,
----------------
2000 1999
------ ------
Average floating rate 6.798% 5.855%
Average fixed rate 6.631% 6.593%
Floating rates are based primarily on LIBOR and may change significantly,
affecting future cash flows.
43
6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
FUEL PRICE RISK MANAGEMENT
American enters into fuel swap and option contracts to protect against
increases in jet fuel prices. Under the fuel swap agreements, American receives
or makes payments based on the difference between a fixed price and a variable
price for certain fuel commodities. Under the fuel option agreements, American
pays a premium to cap prices at a fixed level. The changes in market value of
such agreements have a high correlation to the price changes of the fuel being
hedged. Effective gains or losses on fuel hedging agreements are recognized as a
component of fuel expense when the underlying fuel being hedged is used. Any
premiums paid to enter into option contracts are recorded as assets. Gains and
losses on fuel hedging agreements would be recognized immediately should the
changes in the market value of the agreements cease to have a high correlation
to the price changes of the fuel being hedged. At December 31, 2000, American
had fuel hedging agreements with broker-dealers on approximately 2.3 billion
gallons of fuel products, which represented approximately 40 percent of its
expected 2001 fuel needs, approximately 15 percent of its expected 2002 fuel
needs, and approximately seven percent of its expected 2003 fuel needs. The fair
value of the Company's fuel hedging agreements at December 31, 2000,
representing the amount the Company would receive to terminate the agreements,
totaled $223 million. At December 31, 1999, American had fuel hedging agreements
with broker-dealers on approximately 2.0 billion gallons of fuel products, which
represents approximately 48 percent of its expected 2000 fuel needs and
approximately 10 percent of its expected 2001 fuel needs. The fair value of the
Company's fuel hedging agreements at December 31, 1999, representing the amount
the Company would receive to terminate the agreements, totaled $232 million.
FOREIGN EXCHANGE RISK MANAGEMENT
To hedge against the risk of future exchange rate fluctuations on a
portion of American's foreign cash flows, the Company enters into various
currency put option agreements on a number of foreign currencies. The option
contracts are denominated in the same foreign currency in which the projected
foreign cash flows are expected to occur. These contracts are designated and
effective as hedges of probable quarterly foreign cash flows for various periods
through December 31, 2001, which otherwise would expose the Company to foreign
currency risk. Realized gains on the currency put option agreements are
recognized as a component of passenger revenues. At December 31, 2000 and 1999,
the notional amount related to these options totaled approximately $456 million
and $445 million, respectively, and the fair value, representing the amount AMR
would receive to terminate the agreements, totaled approximately $20 million and
$14 million, respectively.
The Company has entered into Japanese yen currency exchange agreements to
effectively convert certain yen-based lease obligations into dollar-based
obligations. Changes in the value of the agreements due to exchange rate
fluctuations are offset by changes in the value of the yen-denominated lease
obligations translated at the current exchange rate. Discounts or premiums are
accreted or amortized as an adjustment to interest expense over the lives of the
underlying lease obligations. The related amounts due to or from counterparties
are included in other liabilities or other assets. The net fair values of the
Company's yen currency exchange agreements, representing the amount the Company
would pay or receive to terminate the agreements, were (in millions):
[Download Table]
December 31,
-------------------------------------------------
2000 1999
----------------------- -----------------------
Notional Notional
Amount Fair Value Amount Fair Value
------------ ---------- ------------ ----------
Japanese yen 31.0 billion $ (5) 33.6 billion $ 41
The exchange rates on the Japanese yen agreements range from 66.5 to
113.5 yen per U.S. dollar.
44
6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair values of the Company's long-term debt were estimated using
quoted market prices where available. For long-term debt not actively traded,
fair values were estimated using discounted cash flow analyses, based on the
Company's current incremental borrowing rates for similar types of borrowing
arrangements. The carrying amounts and estimated fair values of the Company's
long-term debt, including current maturities, were (in millions):
[Download Table]
December 31,
----------------------------------------
2000 1999
------------------ ------------------
Carrying Fair Carrying Fair
Value Value Value Value
-------- ------ -------- ------
Secured variable and fixed rate
indebtedness $3,366 $3,455 $2,651 $2,613
7.875% - 10.62% notes 749 759 1,014 1,024
9.0% - 10.20% debentures 332 358 437 469
6.0% - 7.10% bonds 176 179 176 174
Unsecured variable rate indebtedness
86 86 86 86
Other 11 11 16 16
------ ------ ------ ------
$4,720 $4,848 $4,380 $4,382
====== ====== ====== ======
All other financial instruments, except for the investment in Equant, are
either carried at fair value or their carrying value approximates fair value.
Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended (SFAS 133), was adopted by the Company on January 1,
2001. SFAS 133 requires 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 adoption of SFAS 133 did not have a material impact on the Company's net
earnings. However, the Company recorded a transition adjustment of approximately
$100 million in accumulated other comprehensive income in the first quarter of
2001.
7. INCOME TAXES
The significant components of the income tax provision were (in
millions):
[Download Table]
Year Ended December 31,
-----------------------
2000 1999 1998
---- ---- ----
Current $ 47 $167 $451
Deferred 461 183 268
---- ---- ----
$508 $350 $719
==== ==== ====
The income tax provision includes a federal income tax provision of $454
million, $290 million and $628 million and a state income tax provision of $47
million, $49 million and $78 million for the years ended December 31, 2000, 1999
and 1998, respectively.
45
7. INCOME TAXES (CONTINUED)
The income tax provision differed from amounts computed at the statutory
federal income tax rate as follows (in millions):
[Download Table]
Year Ended December 31,
--------------------------
2000 1999 1998
----- ----- -----
Statutory income tax provision $ 450 $ 352 $ 641
State income tax provision, net of federal benefit 30 32 51
Meal expense 19 19 18
Change in valuation allowance -- (67) (4)
Other, net 9 14 13
----- ----- -----
Income tax provision $ 508 $ 350 $ 719
===== ===== =====
The change in valuation allowance in 1999 relates to the realization of a
tax loss on the sale of the Company's investment in Canadian (see Note 2). The
change in valuation allowance in 1998 relates to the utilization of foreign tax
credits.
The components of AMR's deferred tax assets and liabilities were (in
millions):
[Download Table]
December 31,
--------------------
2000 1999
------- -------
Deferred tax assets:
Postretirement benefits other than pensions $ 632 $ 614
Rent expense 522 449
Frequent flyer obligation 362 307
Gains from lease transactions 225 238
Alternative minimum tax credit carryforwards 184 289
Other 541 520
------- -------
Total deferred tax assets 2,466 2,417
------- -------
Deferred tax liabilities:
Accelerated depreciation and amortization (3,822) (3,381)
Pensions (89) (50)
Other (245) (220)
------- -------
Total deferred tax liabilities (4,156) (3,651)
------- -------
Net deferred tax liability $(1,690) $(1,234)
======= =======
At December 31, 2000, AMR had available for federal income tax purposes
approximately $184 million of alternative minimum tax credit carryforwards which
are available for an indefinite period.
Cash payments for income taxes were $49 million, $71 million and $408
million for 2000, 1999 and 1998, respectively.
8. COMMON AND PREFERRED STOCK
On June 9, 1998, a two-for-one stock split in the form of a stock
dividend was effective for shareholders of record on May 26, 1998. All prior
period share and earnings per share amounts reflect the stock split. The Company
has 20 million shares of preferred stock (without par value) authorized at
December 31, 2000 and 1999.
46
9. STOCK AWARDS AND OPTIONS
Under the 1998 Long Term Incentive Plan, as amended, officers and key
employees of AMR and its subsidiaries may be granted stock options, stock
appreciation rights, restricted stock, deferred stock, stock purchase rights,
other stock-based awards and/or performance-related awards, including cash
bonuses. The total number of common shares authorized for distribution under the
1998 Long Term Incentive Plan is 23,700,000 shares. The 1998 Long Term Incentive
Plan, the successor to the 1988 Long Term Incentive Plan, which expired May 18,
1998, will terminate no later than May 21, 2008. Options granted under the 1988
and 1998 Long Term Incentive Plans (collectively, the Plans) are awarded with an
exercise price equal to the fair market value of the stock on date of grant,
become exercisable in equal annual installments over five years following the
date of grant and expire 10 years from the date of grant. Stock appreciation
rights may be granted in tandem with options awarded.
As a result of the Sabre spin-off in March 2000, AMR's stock price was
adjusted from $60 9/16 to $25 9/16 by the New York Stock Exchange. Accordingly,
all outstanding stock options and other stock-based awards, including the
related exercise prices, were adjusted to preserve the intrinsic value of the
stock options and awards. See Note 12 for information regarding the Sabre
spin-off.
In 2000, 1999 and 1998, the total charge for stock compensation expense
included in wages, salaries and benefits expense was $52 million, $53 million
and $52 million, respectively. No compensation expense was recognized for stock
option grants under the Plans since the exercise price was the fair market value
of the underlying stock on the date of grant.
Stock option activity was:
[Enlarge/Download Table]
Year Ended December 31,
-------------------------------------------------------------------------------
2000 1999 1998
----------------------- ----------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
---------- -------- ---------- -------- ---------- --------
Outstanding at January 1 5,219,634 $52.06 4,147,124 $46.60 3,506,774 $38.77
Sabre adjustment 7,150,899 -- -- -- -- --
Granted 6,003,111 30.21 1,539,585 63.19 1,216,720 63.01
Exercised (1,557,034) 32.85 (258,875) 68.17 (470,810) 31.82
Canceled (247,703) 23.38 (208,200) 49.96 (105,560) 42.34
---------- ---------- ----------
Outstanding at December 31 16,568,907 $25.42 5,219,634 $52.06 4,147,124 $46.60
========== ========== ==========
Exercisable options outstanding
at December 31 5,334,444 $19.79 2,012,889 $40.63 1,586,974 $36.49
========== ========== ==========
The following table summarizes information about the stock options
outstanding at December 31, 2000:
[Download Table]
Weighted Weighted Weighted
Range of Number of Average Average Number of Average
Exercise Options Remaining Exercise Options Exercise
Prices Outstanding Life (years) Price Exercisable Price
-------- ----------- ----------- -------- ----------- --------
Under $20 3,073,130 4.21 $14.93 2,769,990 $14.75
$20-$30 8,113,906 8.26 24.71 1,992,625 23.62
Over $30 5,381,871 9.14 32.48 571,829 30.83
---------- ---- ------ --------- ------
16,568,907 7.79 $25.42 5,334,444 $19.79
========== =========
47
9. STOCK AWARDS AND OPTIONS (CONTINUED)
In May 1997, in conjunction with the labor agreement reached between
American and members of the Allied Pilots Association (APA), the Company
established the Pilots Stock Option Plan (The Pilot Plan). The Pilot Plan
granted members of the APA the option to purchase 11.5 million shares of AMR
stock at $41.69 per share, $5 less than the average fair market value of the
stock on the date of grant, May 5, 1997. These shares were exercisable
immediately. In conjunction with the Sabre spin-off, the exercise price was
adjusted to $17.59 per share. Pilot Plan option activity was:
[Download Table]
Year Ended December 31,
---------------------------------------------
2000 1999 1998
----------- ----------- -----------
Outstanding at January 1 5,420,028 5,791,381 7,438,220
Sabre adjustment 7,421,048 -- --
Exercised (1,850,886) (371,353) (1,646,839)
----------- ----------- -----------
Outstanding at December 31 10,990,190 5,420,028 5,791,381
=========== =========== ===========
The weighted-average grant date fair value of all stock option awards
granted during 2000, 1999 and 1998 was $16.54, $23.17 and $21.15, respectively.
Shares of deferred stock are awarded at no cost to officers and key
employees under the Plans' Career Equity Program and will be issued upon the
individual's retirement from AMR or, in certain circumstances, will vest on a
pro rata basis. Deferred stock activity was:
[Download Table]
Year Ended December 31,
------------------------------------------
2000 1999 1998
---------- ---------- ----------
Outstanding at January 1 2,310,680 2,401,532 2,457,190
Sabre adjustment 3,165,632 -- --
Granted -- 146,200 185,812
Issued (479,177) (122,042) (190,911)
Canceled (40,638) (115,010) (50,559)
---------- ---------- ----------
Outstanding at December 31 4,956,497 2,310,680 2,401,532
========== ========== ==========
The weighted-average grant date fair value of career equity awards
granted during 1999 and 1998 was $63.54 and $57.77, respectively.
48
9. STOCK AWARDS AND OPTIONS (CONTINUED)
A performance share plan was implemented in 1993 under the terms of which
shares of deferred stock are awarded at no cost to officers and key employees
under the Plans. The fair value of the performance shares granted is equal to
the market price of the Company's stock at the date of grant. The shares vest
over a three-year performance period based upon certain specified financial
measures of AMR. Performance share activity was:
[Download Table]
Year Ended December 31,
------------------------------------------
2000 1999 1998
---------- ---------- ----------
Outstanding at January 1 1,215,644 1,565,616 1,737,274
Sabre adjustment 1,665,432 -- --
Granted 1,277,539 509,822 644,680
Issued (399,517) (208,265) (205,458)
Awards settled in cash (1,200,177) (513,370) (522,234)
Canceled (51,166) (138,159) (88,646)
---------- ---------- ----------
Outstanding at December 31 2,507,755 1,215,644 1,565,616
========== ========== ==========
The weighted-average grant date fair value of performance share awards
granted during 2000, 1999 and 1998 was $32.93, $62.95 and $62.06, respectively.
The Company has adopted the pro forma disclosure features of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). As required by SFAS 123, pro forma information
regarding income from continuing operations before extraordinary loss and
earnings per share from continuing operations before extraordinary loss has been
determined as if the Company had accounted for its employee stock options and
awards granted subsequent to December 31, 1994 using the fair value method
prescribed by SFAS 123. The fair value for the stock options was estimated at
the date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 2000, 1999 and 1998: risk-free interest rates
ranging from 5.01% to 6.15%; dividend yields of 0%; expected stock volatility
ranging from 29.9% to 43.5%; and expected life of the options of 4.5 years for
the Plans and 1.5 years for The Pilot Plan.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options. In addition,
because SFAS 123 is applicable only to options and stock-based awards granted
subsequent to December 31, 1994, its pro forma effect is not fully reflected in
years prior to 1999.
49
9. STOCK AWARDS AND OPTIONS (CONTINUED)
The following table shows the Company's pro forma income from continuing
operations before extraordinary loss and earnings per share from continuing
operations before extraordinary loss assuming the Company had accounted for its
employee stock options using the fair value method (in millions, except per
share amounts):
[Download Table]
Year Ended December 31,
-------------------------------
2000 1999 1998
------- ------- -------
Income from continuing operations before
extraordinary loss:
As reported $ 779 $ 656 $ 1,114
Pro forma 772 651 1,114
Basic earnings per share from continuing
operations before extraordinary loss:
As reported $ 5.20 $ 4.30 $ 6.60
Pro forma 5.15 4.27 6.60
Diluted earnings per share from continuing
operations before extraordinary loss:
As reported $ 4.81 $ 4.17 $ 6.38
Pro forma 4.77 4.14 6.38
10. RETIREMENT BENEFITS
All regular employees of the Company are eligible to participate in
pension plans. The defined benefit plans provide benefits for participating
employees based on years of service and average compensation for a specified
period of time before retirement. Airline pilots and flight engineers also
participate in defined contribution plans for which Company contributions are
determined as a percentage of participant compensation.
In addition to pension benefits, other postretirement benefits, including
certain health care and life insurance benefits, are also provided to retired
employees. The amount of health care benefits is limited to lifetime maximums as
outlined in the plan. Substantially all employees of American and employees of
certain other subsidiaries may become eligible for these benefits if they
satisfy eligibility requirements during their working lives.
Certain employee groups make contributions toward funding a portion of
their retiree health care benefits during their working lives. AMR funds
benefits as incurred and makes contributions to match employee prefunding.
50
10. RETIREMENT BENEFITS (CONTINUED)
The following table provides a reconciliation of the changes in the
plans' benefit obligations and fair value of assets for the years ended December
31, 2000 and 1999, and a statement of funded status as of December 31, 2000 and
1999 (in millions):
[Enlarge/Download Table]
Pension Benefits Other Benefits
-------------------- --------------------
2000 1999 2000 1999
------- ------- ------- -------
Reconciliation of benefit obligation
Obligation at January 1 $ 5,628 $ 6,117 $ 1,306 $ 1,526
Service cost 213 236 43 56
Interest cost 467 433 108 108
Actuarial loss (gain) 499 (849) 328 (311)
Plan amendments -- 75 -- --
Benefit payments (373) (388) (77) (70)
Curtailments/Special termination benefits -- 4 -- (3)
------- ------- ------- -------
Obligation at December 31 $ 6,434 $ 5,628 $ 1,708 $ 1,306
======= ======= ======= =======
Reconciliation of fair value of plan assets
Fair value of plan assets at January 1 $ 5,282 $ 5,564 $ 72 $ 62
Actual return on plan assets 735 7 5 1
Employer contributions 85 100 88 79
Benefit payments (373) (388) (77) (70)
Transfers 2 (1) -- --
------- ------- ------- -------
Fair value of plan assets at December 31 $ 5,731 $ 5,282 $ 88 $ 72
======= ======= ======= =======
Funded status
Accumulated benefit obligation (ABO) $ 5,306 $ 4,700 $ 1,708 $ 1,306
Projected benefit obligation (PBO) 6,434 5,628 -- --
Fair value of assets 5,731 5,282 88 72
Funded status at December 31 (703) (346) (1,620) (1,234)
Unrecognized loss (gain) 523 288 (51) (395)
Unrecognized prior service cost 129 139 (35) (40)
Unrecognized transition asset (6) (7) -- --
------- ------- ------- -------
Prepaid (accrued) benefit cost $ (57) $ 74 $(1,706) $(1,669)
======= ======= ======= =======
At December 31, 2000 and 1999, plan assets of approximately $88 million
and $71 million, respectively, were invested in shares of mutual funds managed
by a subsidiary of AMR.
51
10. RETIREMENT BENEFITS (CONTINUED)
The following tables provide the components of net periodic benefit cost
for the years ended December 31, 2000, 1999 and 1998 (in millions):
[Download Table]
Pension Benefits
---------------------------
2000 1999 1998
----- ----- -----
Components of net periodic benefit cost
Defined benefit plans:
Service cost $ 213 $ 236 $ 213
Interest cost 467 433 418
Expected return on assets (490) (514) (478)
Amortization of:
Transition asset (1) (4) (11)
Prior service cost 10 5 4
Unrecognized net loss 17 21 22
Settlement loss -- -- 6
----- ----- -----
Net periodic benefit cost for defined benefit
plans 216 177 174
Defined contribution plans 174 155 158
----- ----- -----
Total $ 390 $ 332 $ 332
===== ===== =====
[Download Table]
Other Benefits
---------------------------
2000 1999 1998
----- ----- -----
Components of net periodic benefit cost
Service cost $ 43 $ 56 $ 52
Interest cost 108 108 99
Expected return on assets (7) (6) (5)
Amortization of:
Prior service cost (5) (5) (5)
Unrecognized net gain (14) -- (2)
----- ----- -----
Net periodic benefit cost $ 125 $ 153 $ 139
===== ===== =====
The following table provides the amounts recognized in the consolidated
balance sheets as of December 31, 2000 and 1999 (in millions):
[Download Table]
Pension Benefits Other Benefits
-------------------- --------------------
2000 1999 2000 1999
------- ------- ------- -------
Prepaid benefit cost $ 107 $ 244 $ -- $ --
Accrued benefit liability (225) (170) (1,706) (1,669)
Additional minimum liability (21) (15) -- --
Intangible asset 72 13 -- --
Accumulated other comprehensive income 10 2 -- --
------- ------- ------- -------
Net amount recognized $ (57) $ 74 $(1,706) $(1,669)
======= ======= ======= =======
52
10. RETIREMENT BENEFITS (CONTINUED)
The following assumptions were used by the Company in the measurement of
the benefit obligation as of December 31:
[Download Table]
Pension Benefits Other Benefits
-------------------- --------------------
2000 1999 2000 1999
------- ------- ------- -------
Weighted-average assumptions
Discount rate 7.75% 8.25% 7.75% 8.25%
Salary scale 4.26 4.26 -- --
Expected return on plan assets 9.50 9.50 9.50 9.50
The assumed health care cost trend rate was changed to seven percent,
effective December 31, 2000, decreasing gradually to an ultimate rate of four
percent by 2004. The previously assumed health care cost trend rate was five
percent in 1999, decreasing gradually to an ultimate rate of four percent by
2001.
A one percentage point change in the assumed health care cost trend rates
would have the following effects (in millions):
[Download Table]
One percent One percent
increase decrease
----------- -----------
Impact on 2000 service and interest cost $ 20 $ (19)
Impact on postretirement benefit obligation
as of December 31, 2000 $137 $(131)
Effective January 1, 2001, American established a defined contribution
plan for non-contract employees in which the Company will contribute a match up
to 5.5 percent on employee contributions of pensionable earnings to the
Company's existing 401(k) plan. During 2000, American provided a one-time
election for current non-contract employees to remain in the defined benefit
plan or discontinue accruing future credited service in the defined benefit plan
as of January 1, 2001 and begin participation in the defined contribution plan.
53
11. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in millions, except per share amounts):
[Download Table]
Year Ended December 31,
---------------------------------
2000 1999 1998
------- ------- -------
NUMERATOR:
Numerator for earnings per share -
income from continuing operations
before extraordinary loss $ 779 $ 656 $ 1,114
======= ======= =======
DENOMINATOR:
Denominator for basic earnings per
share - weighted-average shares 150 152 169
Effect of dilutive securities:
Employee options and shares 27 12 13
Assumed treasury shares purchased (15) (7) (7)
------- ------- -------
Dilutive potential common shares 12 5 6
Denominator for diluted earnings per
share - adjusted weighted-average
shares 162 157 175
======= ======= =======
Basic earnings per share from
continuing operations before
extraordinary loss $ 5.20 $ 4.30 $ 6.60
======= ======= =======
Diluted earnings per share from continuing
operations before extraordinary loss $ 4.81 $ 4.17 $ 6.38
======= ======= =======
12. DISCONTINUED OPERATIONS
During the first quarter of 1999, the Company sold AMR Services, AMR
Combs and TeleService Resources. As a result of these sales, the Company
recorded a gain of approximately $64 million, net of income taxes of
approximately $19 million.
On February 7, 2000, the Company declared its intent to distribute AMR's
entire ownership interest in Sabre as a dividend on all outstanding shares of
its common stock. To effect the dividend, AMR exchanged all of its 107,374,000
shares of Sabre's Class B common stock for an equal number of shares of Sabre's
Class A common stock. Effective after the close of business on March 15, 2000,
AMR distributed 0.722652 shares of Sabre Class A common stock for each share of
AMR stock owned by AMR's shareholders. The record date for the dividend of Sabre
stock was the close of business on March 1, 2000. In addition, on February 18,
2000, Sabre paid a special one-time cash dividend of $675 million to
shareholders of record of Sabre common stock at the close of business on
February 15, 2000. Based upon its approximate 83 percent interest in Sabre, AMR
received approximately $559 million of this dividend. 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. The fair market value of AMR's investment in Sabre on March 15, 2000,
based upon the quoted market closing price of Sabre Class A common stock on the
New York Stock Exchange, was approximately $5.2 billion. In addition, effective
March 15, 2000, the Company reduced the exercise price and increased the number
of employee stock options and awards by approximately 19 million to offset the
dilution to the holders, which occurred as a result of the spin-off. These
changes were made to
54
12. DISCONTINUED OPERATIONS (CONTINUED)
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 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. Summarized financial information of the
discontinued operations is as follows (in millions):
[Download Table]
Year Ended December 31,
----------------------------
2000 1999 1998
------ ------ ------
SABRE
Revenues $ 542 $2,435 $2,306
Minority interest 10 57 40
Income taxes 36 196 140
Net income 43 265 192
AMR SERVICES, AMR COMBS AND
TELESERVICE RESOURCES
Revenues $ -- $ 97 $ 513
Income taxes -- -- 7
Net income -- -- 8
The historical assets and liabilities of Sabre, AMR Services, AMR Combs
and TeleService Resources at December 31, 1999, which have been reflected on a
net basis in other assets on the consolidated balance sheets, are summarized as
follows (in millions):
[Download Table]
Current assets $ 976
Total assets 1,951
Current liabilities 525
Total liabilities, including minority interest 912
Net assets of discontinued operations 1,039
13. SEGMENT REPORTING
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information", as amended (SFAS 131),
requires that a public company report annual and interim financial and
descriptive information about its reportable operating segments. Operating
segments, as defined, are components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance.
The Company has two primary operating segments, consisting primarily of
American and AMR Eagle, which represent one reportable segment. American is one
of the largest scheduled passenger airlines in the world. At the end of 2000,
American provided scheduled jet service to more than 169 destinations throughout
North America, the Caribbean, Latin America, Europe and the Pacific. American is
also one of the largest scheduled air freight carriers in the world, providing a
full range of freight and mail services to shippers throughout its system. AMR
Eagle owns two regional airlines which do business as "American Eagle" --
American Eagle Airlines, Inc. and Executive Airlines, Inc. The American Eagle
carriers provide connecting service from eight of American's high-traffic cities
to smaller markets throughout the United States, Canada, the Bahamas and the
Caribbean.
55
13. SEGMENT REPORTING (CONTINUED)
Revenues from other segments are below the quantitative threshold for
determining reportable segments and consist primarily of revenues from AMR
Investment Services, Inc., Americas Ground Services and Airline Management
Services. The difference between the financial information of the Company's one
reportable segment and the financial information included in the consolidated
statements of operations and balance sheets as a result of these entities is not
material.
The Company's operating revenues by geographic region are summarized
below (in millions):
[Download Table]
Year Ended December 31,
-------------------------------
2000 1999 1998
------- ------- -------
Domestic $13,881 $12,563 $12,262
Latin America 2,907 2,697 2,830
Europe 2,338 1,984 2,039
Pacific 577 486 385
------- ------- -------
Total consolidated revenues $19,703 $17,730 $17,516
======= ======= =======
The Company attributes operating revenues by geographic region based upon
the origin and destination of each flight segment. The Company's tangible assets
consist primarily of flight equipment which is mobile across geographic markets
and, therefore, has not been allocated.
56
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited summarized financial data by quarter for 2000 and 1999 (in
millions, except per share amounts):
[Download Table]
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
2000
Operating revenues $ 4,577 $ 5,011 $ 5,256 $ 4,859
Operating income 212 517 572 80
Income from continuing operations
before extraordinary loss 89 321 322 47
Net earnings 132 321 313 47
Earnings per share:
Basic
From continuing operations
before extraordinary loss 0.60 2.15 2.14 0.31
Net earnings 0.89 2.15 2.08 0.31
Diluted
From continuing operations
before extraordinary loss 0.57 1.96 1.96 0.29
Net earnings 0.86 1.96 1.91 0.29
1999
Operating revenues $ 4,007 $ 4,541 $ 4,695 $ 4,487
Operating income 46 414 426 270
Income from continuing operations 17 216 213 210
Net earnings 158 268 279 280
Earnings per share:
Basic
From continuing operations 0.11 1.41 1.42 1.42
Net earnings 0.99 1.76 1.86 1.89
Diluted
From continuing operations 0.11 1.36 1.38 1.37
Net earnings 0.96 1.70 1.76 1.84
During the second quarter of 2000, the Company recorded an after-tax gain
of approximately $36 million from the sale of the Company's warrants to purchase
5.5 million shares of priceline common stock (see Note 2). During the third
quarter of 2000, the Company recorded a $9 million after-tax extraordinary loss
on the repurchase prior to scheduled maturity of long-term debt (see Note 5).
Results for the fourth quarter of 2000 include an after-tax gain of
approximately $26 million for the recovery of start-up expenses related to the
Canadian services agreement (see Note 2) and an after-tax charge of
approximately $35 million for the Company's employee home computer program.
During the first quarter of 1999, the Company recorded an after-tax gain
of approximately $64 million from the sale of AMR Services, AMR Combs and
TeleService Resources, and a $37 million after-tax gain from the sale of a
portion of the Company's holdings in Equant, of which approximately $18 million
is recorded in income from discontinued operations (see Note 2). Results for the
fourth quarter of 1999 include the following: (i) a $25 million after-tax gain
related to the Company's sale of its investment in the preferred stock of
Canadian and a $67 million tax benefit resulting from the tax loss on the
Company's investment in Canadian (see Note 2), (ii) an after-tax gain of
approximately $81 million related to the sale of a portion of the Company's
holdings in Equant, of which approximately $53 million is recorded in income
from discontinued operations (see Note 2), (iii) a $28 million after-tax
increase in passenger revenue resulting from a change in estimate related to
certain passenger revenues earned during the first nine months of 1999, and (iv)
a $25 million after-tax provision for certain litigation settlements.
57
15. SUBSEQUENT EVENTS
On January 10, 2001, the Company announced three transactions that are
expected to substantially increase the scope of its existing network. First, the
Company announced that it had agreed to purchase substantially all of the assets
of Trans World Airlines, Inc. (TWA) for approximately $500 million in cash and
to assume approximately $3.5 billion of TWA's obligations. The Company's
agreement with TWA contemplated that TWA would file for bankruptcy protection
under Chapter 11 of the U.S. Bankruptcy Code and conduct an auction of its
assets under the auspices of the Bankruptcy Court. During the auction, other
credible offers would compete with the Company's offer. TWA filed for bankruptcy
protection on January 10, 2001. In conjunction therewith, the Company also
agreed to provide TWA with up to $200 million in debtor-in-possession financing
to facilitate TWA's ability to maintain its operations until the completion of
this transaction. The amount available under this facility was later increased
to $330 million. As of March 19, 2001, approximately $289 million had been
provided via the debtor-in-possession financing.
The auction of TWA's assets was commenced on March 5, 2001, and recessed
to March 7, 2001. During the recess, the Company increased its cash bid to $625
million and agreed to leave in the TWA estate certain aircraft security
deposits, advance rental payments and rental rebates that were estimated to
bring approximately $117 million of value to TWA. On March 7, 2001, TWA's board
selected the Company's bid as the "highest and best" offer, and on March 12,
2001, the U.S. Bankruptcy Court, District of Delaware, entered an order
approving the sale of TWA's assets to the Company. Consummation of the
transaction is subject to several contingencies, including the waiver by TWA's
unions of certain provisions of their collective bargaining agreements. The
approval of the U.S. Department of Justice was obtained on March 16, 2001.
Certain parties have filed appeals of the Bankruptcy Court's sale order, and
have sought a stay of the transaction, pending the appeals. A provision of the
Bankruptcy Code will permit the Company to close the transaction, despite
pending appeals, unless a stay is granted. If a stay is granted, the Company
would anticipate that the appeal process would be expedited. Upon the closing of
the transaction, TWA will be integrated into American's operations with a
continued hub operation in St. Louis.
Secondly, the Company announced that it has agreed to acquire from United
Airlines, Inc. (United) certain key strategic assets (slots, gates and aircraft)
of US Airways, Inc. (US Airways) upon the consummation of the previously
announced merger between United and US Airways. In addition to the acquisition
of these assets, American will lease a number of slots and gates from United so
that American may operate half of the northeast Shuttle (New York/Washington
DC/Boston). United will operate the other half of the Shuttle. For these assets,
American will pay approximately $1.2 billion in cash to United and assume
approximately $300 million in aircraft operating leases. The consummation of
these transactions is contingent upon the closing of the proposed United/US
Airways merger. Also, the acquisition of aircraft is generally dependent upon a
certain number of US Airways' Boeing 757 cockpit crew members transferring to
American's payroll.
Finally, American has agreed to acquire a 49 percent stake in, and to
enter into an exclusive marketing agreement with, DC Air LLC (DC Air). American
has agreed to pay $82 million in cash for its ownership stake. American will
have a right of first refusal on the acquisition of the remaining 51 percent
stake in DC Air. American will also lease to DC Air a certain number of Fokker
100 aircraft with necessary crews (known in the industry as a "wet lease").
These wet leased aircraft will be used by DC Air in its operations. DC Air is
the first significant new entrant at Ronald Reagan Washington National Airport
(DCA) in over a decade. DC Air will acquire the assets needed to begin its DCA
operations from United/US Airways upon the consummation of the merger between
the two carriers. American's investment in DC Air and the other arrangements
described above are contingent upon the consummation of the merger between
United and US Airways.
As a result of the above transactions, and for several other reasons,
American and American Eagle have initiated an impairment review of certain fleet
types in accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." This review could result in an impairment charge to be taken by
the Company in 2001. The size of any resulting 2001 charge is not presently
known, but may be significant.
58
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
--------------------------------------------------------------------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference from the Company's definitive proxy statement
for the annual meeting of stockholders on May 16, 2001. Information concerning
the executive officers is included in Part I of this report on page 15.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference from the Company's definitive proxy statement
for the annual meeting of stockholders on May 16, 2001.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference from the Company's definitive proxy statement
for the annual meeting of stockholders on May 16, 2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference from the Company's definitive proxy statement
for the annual meeting of stockholders on May 16, 2001.
PART IV
--------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The following financial statements and Independent Auditors' Report are
filed as part of this report:
[Download Table]
Page
-----
Report of Independent Auditors 30
Consolidated Statements of Operations for the Years Ended
December 31, 2000, 1999 and 1998 31-32
Consolidated Balance Sheets at December 31, 2000 and 1999 33-34
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998 35
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 2000, 1999 and 1998 36
Notes to Consolidated Financial Statements 37-58
59
(2) The following financial statement schedule and Independent Auditors'
Report are filed as part of this report:
[Download Table]
Page
-----
Report of Independent Auditors 69
Schedule II Valuation and Qualifying Accounts and Reserves 70
Schedules not included have been omitted because they are not
applicable or because the required information is included in the
consolidated financial statements or notes thereto.
(3) Exhibits required to be filed by Item 601 of Regulation S-K. (Where the
amount of securities authorized to be issued under any of AMR's
long-term debt agreements does not exceed 10 percent of AMR's assets,
pursuant to paragraph (b)(4) of Item 601 of Regulation S-K, in lieu of
filing such as an exhibit, AMR hereby agrees to furnish to the
Commission upon request a copy of any agreement with respect to such
long-term debt.)
[Download Table]
EXHIBIT
-------
3.1 Restated Certificate of Incorporation of AMR, incorporated by
reference to AMR's Registration Statement on Form S-4, file
number 33-55191.
3.2 Bylaws of AMR, amended as of November 18, 1998, incorporated
by reference to Exhibit 3.2 to AMR's report on Form 10-K for
the year ended December 31, 1998.
3.3 Bylaws of AMR, amended as of January 19, 2000, incorporated by
reference to Exhibit 3.3 to AMR's report on Form 10-K for the
year ended December 31, 1999.
10.1 Employment Agreement among AMR, American Airlines and Robert
L. Crandall, dated January 1, 1988, incorporated by reference
to Exhibit 10(t) to AMR's report on Form 10-Q for the period
ended March 31, 1988; amendments thereto incorporated by
reference to Exhibit 10(ff) to AMR's report on Form 10-K for
the year ended December 31, 1989, Exhibit 10(tt) to AMR's
report on Form 10-K for the year ended December 31, 1990,
Exhibit 10(uu) to AMR's report on Form 10-Q for the period
ended June 30, 1992, and Exhibit 10(ooo) to AMR's report on
Form 10-Q for the period ended March 31, 1995.
10.2 Amended and Restated Employment Agreement among AMR, American
Airlines and Robert L. Crandall, dated January 21, 1998,
incorporated by reference to Exhibit 10.2 to AMR's report on
Form 10-K for the year ended December 31, 1997.
10.3 Compensation and Benefit Agreement relative to the retirement
of Robert L. Crandall, between AMR and Robert L. Crandall,
dated September 18, 1998, incorporated by reference to Exhibit
10.3 to AMR's report on Form 10-K for the year ended December
31, 1998.
10.4 Irrevocable Executive Trust Agreement, dated as of May 1,
1992, between AMR and Wachovia Bank of North Carolina N.A.,
incorporated by reference to Exhibit 10(vv) to AMR's report on
Form 10-K for the year ended December 31, 1992.
10.5 Deferred Compensation Agreement, dated April 14, 1973, as
amended March 1, 1975, between American and Robert L.
Crandall, incorporated by reference to Exhibit 10(c)(7) to
American's Registration Statement No. 2-76709.
10.6 Form of Executive's Termination Benefits Agreement
incorporated by reference to Exhibit 10(p) to AMR's report on
Form 10-K for the year ended December 31, 1985.
60
[Download Table]
10.7 Management Severance Allowance, dated as of February 23, 1990,
for levels 1-4 employees of American Airlines, Inc.,
incorporated by reference to Exhibit 10(oo) to AMR's report on
Form 10-K for the year ended December 31, 1989.
10.8 Management Severance Allowance, dated as of February 23, 1990,
for level 5 and above employees of American Airlines, Inc.,
incorporated by reference to Exhibit 10(pp) to AMR's report on
Form 10-K for the year ended December 31, 1989.
10.9 Description of informal arrangement relating to deferral of
payment of directors' fees, incorporated by reference to
Exhibit 10(c)(11) to American's Registration Statement No.
2-76709.
10.10 Directors Stock Equivalent Purchase Plan, incorporated by
reference to Exhibit 10(gg) to AMR's report on Form 10-K for
the year ended December 31, 1989.
10.11 Directors Stock Incentive Plan dated May 18, 1994, as amended,
incorporated by reference to Exhibit 10.9 to AMR's report on
Form 10-K for the year ended December 31, 1996.
10.12 Deferred Compensation Agreement, dated as of June 1, 1998,
between AMR and Edward A. Brennan, incorporated by reference
to Exhibit 10.15 to AMR's report on Form 10-K for the year
ended December 31, 1998.
10.13 Deferred Compensation Agreement, dated as of January 11, 2000,
between AMR and Edward A. Brennan, incorporated by reference
to Exhibit 10.15(a) to AMR's report on Form 10-K for the year
ended December 31, 1999.
10.14 Changes to the Deferred Compensation Agreement, dated as of
June 2, 1998, between AMR and Edward A. Brennan.
10.15 Deferred Compensation Agreement, dated as of February 7, 1996,
between AMR and Armando M. Codina, incorporated by reference
to Exhibit 10(ttt) to AMR's report on Form 10-K for the year
ended December 31, 1995.
10.16 Deferred Compensation Agreement, dated as of February 10,
1997, between AMR and Armando M. Codina, incorporated by
reference to Exhibit 10.13 to AMR's report on Form 10-K for
the year ended December 31, 1996.
10.17 Deferred Compensation Agreement, dated as of February 19,
1998, between AMR and Armando M. Codina, incorporated by
reference to Exhibit 10.15 to AMR's report on Form 10-K for
the year ended December 31, 1997.
10.18 Deferred Compensation Agreement, dated as of January 13, 1999,
between AMR and Armando M. Codina, incorporated by reference
to Exhibit 10.19 to AMR's report on Form 10-K for the year
ended December 31, 1998.
10.19 Deferred Compensation Agreement, dated as of January 12, 2000,
between AMR and Armando M. Codina, incorporated by reference
to Exhibit 10.20 to AMR's report on Form 10-K for the year
ended December 31, 1999.
10.20 Deferred Compensation Agreement, dated as of January 22, 2001,
between AMR and Armando M. Codina.
10.21 Deferred Compensation Agreement, dated as of July 16, 1997,
between AMR and Judith Rodin, incorporated by reference to
Exhibit 10.22 to AMR's report on Form 10-K for the year ended
December 31, 1997.
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[Download Table]
10.22 Deferred Compensation Agreement, dated as of February 19,
1998, between AMR and Judith Rodin, incorporated by reference
to Exhibit 10.23 to AMR's report on Form 10-K for the year
ended December 31, 1997.
10.23 Deferred Compensation Agreement, dated as of January 7, 1999,
between AMR and Judith Rodin, incorporated by reference to
Exhibit 10.30 to AMR's report on Form 10-K for the year ended
December 31, 1998.
10.24 Deferred Compensation Agreement, dated as of January 12, 2000,
between AMR and Judith Rodin, incorporated by reference to
Exhibit 10.29 to AMR's report on Form 10-K for the year ended
December 31, 1999.
10.25 Deferred Compensation Agreement, dated as of January 22, 2001,
between AMR and Judith Rodin.
10.26 Deferred Compensation Agreement, dated as of January 19, 2001,
between AMR and Philip J. Purcell.
10.27 Description of American's Split Dollar Insurance Program,
dated December 28, 1977, incorporated by reference to Exhibit
10(c)(1) to American's Registration Statement No. 2-76709.
10.28 AMR Corporation 1988 Long-Term Incentive Plan, incorporated by
reference to Exhibit 10(t) to AMR's report on Form 10-K for
the year ended December 31, 1988.
10.29 Amendment to AMR's 1988 Long-term Incentive Plan dated May 18,
1994, incorporated by reference to Exhibit A to AMR's
definitive proxy statement with respect to the annual meeting
of stockholders held on May 18, 1994.
10.30 AMR Corporation 1998 Long-Term Incentive Plan, as amended,
incorporated by reference to Exhibit 10.34 to AMR's report on
Form 10-K for the year ended December 31, 1998.
10.31 Form of Stock Option Agreement for Corporate Officers under
the AMR 1988 Long-Term Incentive Plan, incorporated by
reference to Exhibit 10(rr) to AMR's report on Form 10-K for
the year ended December 31, 1990.
10.32 Current form of Stock Option Agreement under the AMR 1988
Long-Term Incentive Plan, incorporated by reference to Exhibit
10.28 to AMR's report on Form 10-K for the year ended December
31, 1997.
10.33 Current form of Stock Option Agreement under the AMR 1998
Long-Term Incentive Plan, incorporated by reference to Exhibit
10.37 to AMR's report on Form 10-K for the year ended December
31, 1998.
10.34 Current form of Stock Option Agreement under the AMR 1998
Long-Term Incentive Plan, incorporated by reference to Exhibit
10.37 to AMR's report on Form 10-K for the year ended December
31, 1999.
10.35 Current form of Stock Option Agreement under the AMR 1998
Long-Term Incentive Plan.
10.36 Form of Career Equity Program Agreement, incorporated by
reference to Exhibit 10(nnn) to AMR's report on Form 10-K for
the year ended December 31, 1994.
10.37 Current Form of Career Equity Program Deferred Stock Award
Agreement for Corporate Officers under the AMR 1988 Long-Term
Incentive Plan, incorporated by reference to Exhibit 10.30 to
AMR's report on Form 10-K for the year ended December 31,
1997.
62
[Download Table]
10.38 Current form of Career Equity Program Deferred Stock Award
Agreement for non-officers under the AMR 1988 Long-Term
Incentive Plan, incorporated by reference to Exhibit 10.31 to
AMR's report on Form 10-K for the year ended December 31,
1997.
10.39 Current Form of Career Equity Program Deferred Stock Award
Agreement for Corporate Officers under the AMR 1998 Long-Term
Incentive Plan, incorporated by reference to Exhibit 10.41 to
AMR's report on Form 10-K for the year ended December 31,
1998.
10.40 Current form of Career Equity Program Deferred Stock Award
Agreement for non-officers under the AMR 1998 Long-Term
Incentive Plan, incorporated by reference to Exhibit 10.42 to
AMR's report on Form 10-K for the year ended December 31,
1998.
10.41 Current form of Career Equity Program Deferred Stock Award
Agreement for Senior Officers under the AMR 1998 Long-Term
Incentive Plan, incorporated by reference to Exhibit 10.42(a)
to AMR's report on Form 10-K for the year ended December 31,
1998.
10.42 Current form of Career Equity Program Deferred Stock Award
Agreement for Employees under the AMR 1998 Long-Term Incentive
Plan, incorporated by reference to Exhibit 10.44 to AMR's
report on Form 10-K for the year ended December 31, 1999.
10.43 Form of Guaranty to Career Equity Program under the AMR 1988
Long-Term Incentive Plan, incorporated by reference to Exhibit
10(ccc) to AMR's report on Form 10-K for the year ended
December 31, 1993.
10.44 Performance Share Program for the years 1994 to 1996 under the
1988 Long-Term Incentive Program, incorporated by reference to
Exhibit 10(lll) to AMR's report on Form 10-K for the year
ended December 31, 1994.
10.45 Performance Share Program for the years 1995 to 1997 under the
1988 Long-Term Incentive Program, incorporated by reference to
Exhibit 10(ooo) to AMR's report on Form 10-K for the year
ended December 31, 1995.
10.46 Performance Share Program for the years 1996 to 1998 under the
1988 Long-Term Incentive Program, incorporated by reference to
Exhibit 10.26 to AMR's report on Form 10-K for the year ended
December 31, 1996.
10.47 Performance Share Program for the years 1997 to 1999 under the
1988 Long-Term Incentive Program, incorporated by reference to
Exhibit 10.27 to AMR's report on Form 10-K for the year ended
December 31, 1996.
10.48 Form of Performance Share Program for the years 1997 to 1999
under the 1988 Long-Term Incentive Program, incorporated by
reference to Exhibit 10.37 to AMR's report on Form 10-K for
the year ended December 31, 1997.
10.49 Performance Share Program for the years 1998 to 2000 under the
1988 Long-Term Incentive Program, incorporated by reference to
Exhibit 10.38 to AMR's report on Form 10-K for the year ended
December 31, 1997.
10.50 Performance Share Program for the years 1999 to 2001 under the
1998 Long-Term Incentive Program, incorporated by reference to
Exhibit 10.50 to AMR's report on Form 10-K for the year ended
December 31, 1998.
10.51 Performance Share Program for the years 2000 to 2002 under the
1998 Long-Term Incentive Program, incorporated by reference to
Exhibit 10.53 to AMR's report on Form 10-K for the year ended
December 31, 1999.
63
[Download Table]
10.52 Performance Share Program for the years 2001 to 2003 under the
1998 Long-Term Incentive Program.
10.53 Form of Performance Share Program for the years 2001 to 2003
under the 1998 Long-Term Incentive Program.
10.54 American Airlines, Inc. Supplemental Executive Retirement
Program, as amended January 1997, incorporated by reference to
Exhibit 10.28 to AMR's report on Form 10-K for the year ended
December 31, 1996.
10.55 AMR Corporation 1987 Executive Deferral Plan, as amended
through 1999, incorporated by reference to Exhibit 10.52 to
AMR's report on Form 10-K for the year ended December 31,
1998.
10.56 American Airlines, Inc. 1996 Employee Profit Sharing Plan,
incorporated by reference to Exhibit 10.29 to AMR's report on
Form 10-K for the year ended December 31, 1996.
10.57 American Airlines, Inc. 1997 Employee Profit Sharing Plan,
incorporated by reference to Exhibit 10.30 to AMR's report on
Form 10-K for the year ended December 31, 1996.
10.58 American Airlines, Inc. 1998 Employee Profit Sharing Plan,
incorporated by reference to Exhibit 10.43 to AMR's report on
Form 10-K for the year ended December 31, 1997.
10.59 American Airlines, Inc. 1999 Employee Profit Sharing Plan,
incorporated by reference to Exhibit 10.56 to AMR's report on
Form 10-K for the year ended December 31, 1998.
10.59(a) American Airlines, Inc. 2000 Employee Profit Sharing Plan,
incorporated by reference to Exhibit 10.60 to AMR's report on
Form 10-K for the year ended December 31, 1999.
10.60 American Airlines, Inc. 2001 Employee Profit Sharing Plan.
10.61 American Airlines, Inc. 1996 Incentive Compensation Plan for
Officers and Key Employees, incorporated by reference to
Exhibit 10(qqq) to AMR's report on Form 10-K for the year
ended December 31, 1995.
10.62 American Airlines, Inc. 1997 Incentive Compensation Plan for
Officers and Key Employees, incorporated by reference to
Exhibit 10.32 to AMR's report on Form 10-K for the year ended
December 31, 1996.
10.63 American Airlines, Inc. 1998 Incentive Compensation Plan for
Officers and Key Employees, incorporated by reference to
Exhibit 10.46 to AMR's report on Form 10-K for the year ended
December 31, 1997.
10.64 American Airlines, Inc. 1999 Incentive Compensation Plan for
Officers and Key Employees, incorporated by reference to
Exhibit 10.60 to AMR's report on Form 10-K for the year ended
December 31, 1998.
10.65 American Airlines, Inc. 2000 Incentive Compensation Plan for
Officers and Key Employees, incorporated by reference to
Exhibit 10.65 to AMR's report on Form 10-K for the year ended
December 31, 1999.
10.66 American Airlines, Inc. 2001 Incentive Compensation Plan for
Officers and Key Employees.
10.67 Amended and Restated Executive Termination Benefits Agreement
between AMR, American Airlines and Gerard J. Arpey, dated May
21, 1998, incorporated by reference to Exhibit 10.61 to AMR's
report on Form 10-K for the year ended December 31, 1998.
64
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10.68 Amended and Restated Executive Termination Benefits Agreement
between AMR, American Airlines and Robert W. Baker, dated May
21, 1998, incorporated by reference to Exhibit 10.62 to AMR's
report on Form 10-K for the year ended December 31, 1998.
10.69 Amended and Restated Executive Termination Benefits Agreement
between AMR, American Airlines and Peter M. Bowler, dated May
21, 1998, incorporated by reference to Exhibit 10.63 to AMR's
report on Form 10-K for the year ended December 31, 1998.
10.70 Amended and Restated Executive Termination Benefits Agreement
between AMR, American Airlines and Donald J. Carty, dated May
21, 1998, incorporated by reference to Exhibit 10.64 to AMR's
report on Form 10-K for the year ended December 31, 1998.
10.71 Amended and Restated Executive Termination Benefits Agreement
between AMR, American Airlines and Peter J. Dolara, dated May
21, 1998, incorporated by reference to Exhibit 10.65 to AMR's
report on Form 10-K for the year ended December 31, 1998.
10.72 Amended and Restated Executive Termination Benefits Agreement
between AMR, American Airlines and Daniel P. Garton, dated May
21, 1998, incorporated by reference to Exhibit 10.66 to AMR's
report on Form 10-K for the year ended December 31, 1998.
10.73 Amended and Restated Executive Termination Benefits Agreement
between AMR, American Airlines and Michael W. Gunn, dated May
21, 1998, incorporated by reference to Exhibit 10.67 to AMR's
report on Form 10-K for the year ended December 31, 1998.
10.74 Amended and Restated Executive Termination Benefits Agreement
between AMR, American Airlines and Monte E. Ford, dated
November 15, 2000.
10.75 Amended and Restated Executive Termination Benefits Agreement
between AMR, American Airlines and Thomas W. Horton, dated
January 19, 2000, incorporated by reference to Exhibit 10.73
to AMR's report on Form 10-K for the year ended December 31,
1999.
10.76 Amended and Restated Executive Termination Benefits Agreement
between AMR, American Airlines and Henry C. Joyner, dated
January 19, 2000, incorporated by reference to Exhibit 10.74
to AMR's report on Form 10-K for the year ended December 31,
1999.
10.77 Amended and Restated Executive Termination Benefits Agreement
between AMR, American Airlines and Thomas J. Kiernan, dated
May 21, 1998, incorporated by reference to Exhibit 10.68 to
AMR's report on Form 10-K for the year ended December 31,
1998.
10.78 Amended and Restated Executive Termination Benefits Agreement
between AMR, American Airlines and David L. Kruse, dated May
21, 1998, incorporated by reference to Exhibit 10.69 to AMR's
report on Form 10-K for the year ended December 31, 1998.
10.79 Amended and Restated Executive Termination Benefits Agreement
between AMR, American Airlines and Charles D. MarLett, dated
May 21, 1998, incorporated by reference to Exhibit 10.70 to
AMR's report on Form 10-K for the year ended December 31,
1998.
10.80 Amended and Restated Executive Termination Benefits Agreement
between AMR, American Airlines and Anne H. McNamara, dated May
21, 1998, incorporated by reference to Exhibit 10.71 to AMR's
report on Form 10-K for the year ended December 31, 1998.
10.81 Amended and Restated Executive Termination Benefits Agreement
between AMR, American Airlines and Susan M. Oliver, dated
September 22, 2000.
65
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10.82 Amended and Restated Executive Termination Benefits Agreement
between AMR, American Airlines and William K. Ris, Jr., dated
October 20, 1999, incorporated by reference to Exhibit 10.79
to AMR's report on Form 10-K for the year ended December 31,
1999.
10.83 Aircraft Sales Agreement by and between American Airlines,
Inc. and Federal Express Corporation, dated April 7, 1995,
incorporated by reference to Exhibit 10(rrr) to AMR's report
on Form 10-K for the year ended December 31, 1995.
Confidential treatment was granted as to a portion of this
document.
10.84 Aircraft Purchase Agreement by and between American Airlines,
Inc. and The Boeing Company, dated October 31, 1997,
incorporated by reference to Exhibit 10.48 to AMR's report on
Form 10-K for the year ended December 31, 1997. Confidential
treatment was granted as to a portion of this document.
10.85 Aircraft Purchase Agreement by and between AMR Eagle Holding
Corporation and Bombardier Inc., dated January 31, 1998,
incorporated by reference to Exhibit 10.49 to AMR's report on
Form 10-K for the year ended December 31, 1997. Confidential
treatment was granted as to a portion of this document.
10.86 Aircraft Purchase Agreement by and between AMR Eagle, Inc. and
Embraer-Empresa Brasileira de Aeronautica S.A., dated December
22, 1997, incorporated by reference to Exhibit 10.50 to AMR's
report on Form 10-K for the year ended December 31, 1997.
Confidential treatment was granted as to a portion of this
document.
10.87 Aircraft Purchase Agreement by and between AMR Eagle Holding
Corporation and Embraer-Empresa Brasileira de Aeronautica
S.A., dated September 30, 1998, incorporated by reference to
Exhibit 10.76 to AMR's report on Form 10-K for the year ended
December 31, 1998. Confidential treatment was granted as to a
portion of this document.
10.88 Amended and Restated Asset Purchase Agreement, dated as of
February 28, 2001, by and between American Airlines, Inc.
and Trans World Airlines, Inc.
10.89 Amendment No. 1 to Amended and Restated Asset Purchase
Agreement, dated as of March 9, 2001, by and between American
Airlines, Inc. and Trans World Airlines, Inc.
10.90 Secured Debtor In Possession Credit and Security Agreement
dated as of January 10, 2001 among Trans World Airlines, Inc.
and AMR Finance, Inc.
10.91 Letter Agreement/Amendment to Secured Debtor In Possession
Credit and Security Agreement dated as of January 11, 2001
between Trans World Airlines, Inc. and AMR Finance, Inc.
10.92 Letter Agreement/Amendment to Secured Debtor In Possession
Credit and Security Agreement dated as of January 26, 2001
between Trans World Airlines, Inc. and AMR Finance, Inc.
10.93 Letter Agreement/Amendment to Secured Debtor In Possession
Credit and Security Agreement dated as of March 7, 2001
between Trans World Airlines, Inc. and AMR Finance, Inc.
10.94 First Amendment to Secured Debtor In Possession Credit and
Security Agreement dated as of March 12, 2001 between Trans
World Airlines, Inc. and AMR Finance, Inc.
66
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12 Computation of ratio of earnings to fixed charges for the
years ended December 31, 1996, 1997, 1998, 1999 and 2000.
21 Significant subsidiaries of the registrant as of December 31,
2000.
23 Consent of Independent Auditors.
(b) Reports on Form 8-K:
Form 8-Ks filed under Item 5 - Other Events
On October 19, 2000, AMR filed a report on Form 8-K relative to a press
release issued to report the Company's third quarter 2000 earnings, information
relating to American's hosting of its biennial Analyst & Investor Conference,
the future dates of AMR's earnings report, and information on how to access
AMR's web site.
On November 1, 2000, AMR filed a report on Form 8-K relative to certain
data regarding its fleet plan, unit costs, capacity, traffic and fuel.
Form 8-Ks furnished under Item 9 - Regulation FD Disclosure
On November 10, 2000, AMR filed a report on Form 8-K relative to an
upcoming presentation by AMR's Chairman and CEO Don Carty as part of the 15th
Annual Salomon Smith Barney Transportation Conference in New York City.
On November 27, 2000, AMR filed a report on Form 8-K relative to certain
data regarding its fleet plan, unit costs, capacity, traffic and fuel.
On December 14, 2000, AMR filed a report on Form 8-K relative to certain
data regarding its fleet plan, unit costs, capacity, operational considerations,
traffic and fuel.
67
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AMR CORPORATION
/s/ Donald J. Carty
-------------------------------------------------
Donald J. Carty
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
/s/ Thomas W. Horton
-------------------------------------------------
Thomas W. Horton
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: March 22, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates noted:
Directors:
/s/ David L. Boren /s/ Michael A. Miles
----------------------------- ----------------------------
David L. Boren Michael A. Miles
/s/ Edward A. Brennan /s/ Charles H. Pistor, Jr.
----------------------------- ----------------------------
Edward A. Brennan Charles H. Pistor, Jr.
/s/ Armando M. Codina /s/ Philip J. Purcell
----------------------------- ----------------------------
Armando M. Codina Philip J. Purcell
/s/ Earl G. Graves /s/ Joe M. Rodgers
----------------------------- ----------------------------
Earl G. Graves Joe M. Rodgers
/s/ Ann McLaughlin Korologos /s/ Judith Rodin
----------------------------- ----------------------------
Ann McLaughlin Korologos Judith Rodin
Date: March 22, 2001
68
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
AMR Corporation
We have audited the consolidated financial statements of AMR Corporation as of
December 31, 2000 and 1999, and for each of the three years in the period ended
December 31, 2000, and have issued our report thereon dated January 16, 2001,
except for Note 15, for which the date is March 19, 2001. Our audits also
included Schedule II - Valuation and Qualifying Accounts and Reserves. This
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this schedule based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
2121 San Jacinto
Dallas, Texas 75201
January 16, 2001, except for Note 15,
for which the date is March 19, 2001.
69
AMR CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN MILLIONS)
[Enlarge/Download Table]
INCREASES SALES,
BALANCE CHARGED TO RETIRE- BALANCE
AT INCOME WRITE-OFFS MENTS AT
BEGINNING STATEMENT (NET OF AND END OF
OF YEAR ACCOUNTS PAYMENTS RECOVERIES) TRANSFERS YEAR
--------- -------- -------- ----------- --------- -------
YEAR ENDED DECEMBER 31, 2000
Allowance for
obsolescence of inventories $279 $ 62 $ -- $ -- $ (9) $332
Allowance for
uncollectible accounts 57 18 -- (48) -- 27
Reserves for maintenance activities 38 52 (55) -- -- 35
Reserves for environmental
remediation costs 65 24 (19) -- -- 70
Reserves for litigation 31 -- (2) -- -- 29
YEAR ENDED DECEMBER 31, 1999
Allowance for
obsolescence of inventories 214 59 -- -- 6 279
Allowance for
uncollectible accounts 19 34 -- 4 -- 57
Reserves for maintenance activities 31 50 (43) -- -- 38
Reserves for environmental
remediation costs 23 48 (6) -- -- 65
Reserves for litigation -- 39 (8) -- -- 31
YEAR ENDED DECEMBER 31, 1998
Allowance for
obsolescence of inventories 203 40 -- -- (29) 214
Allowance for
uncollectible accounts 9 12 -- (2) -- 19
Reserves for maintenance activities 35 3 (4) -- (3) 31
Reserves for environmental
remediation costs 14 12 (3) -- -- 23
70
INDEX TO EXHIBITS
[Download Table]
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.14 Changes to the Deferred Compensation Agreement, dated as of
June 2, 1998, between AMR and Edward A. Brennan.
10.20 Deferred Compensation Agreement, dated as of January 22, 2001,
between AMR and Armando M. Codina.
10.25 Deferred Compensation Agreement, dated as of January 22, 2001,
between AMR and Judith Rodin.
10.26 Deferred Compensation Agreement, dated as of January 19, 2001,
between AMR and Philip J. Purcell.
10.35 Current form of Stock Option Agreement under the AMR 1998
Long-Term Incentive Plan.
10.52 Performance Share Program for the years 2001 to 2003 under the
1998 Long-Term Incentive Program.
10.53 Form of Performance Share Program for the years 2001 to 2003
under the 1998 Long-Term Incentive Program.
10.60 American Airlines, Inc. 2001 Employee Profit Sharing Plan.
10.66 American Airlines, Inc. 2001 Incentive Compensation Plan for
Officers and Key Employees.
10.74 Amended and Restated Executive Termination Benefits Agreement
between AMR, American Airlines and Monte E. Ford, dated
November 15, 2000.
10.81 Amended and Restated Executive Termination Benefits Agreement
between AMR, American Airlines and Susan M. Oliver, dated
September 22, 2000.
10.88 Asset Purchase Agreement, dated as of February 28, 2001, by
and between American Airlines, Inc. and Trans World Airlines,
Inc.
10.89 Amendment No. 1 to Amended and Restated Asset Purchase
Agreement, dated as of March 9, 2001, by and between American
Airlines, Inc. and Trans World Airlines, Inc.
10.90 Secured Debtor In Possession Credit and Security Agreement
dated as of January 10, 2001 among Trans World Airlines, Inc.
and AMR Finance, Inc.
10.91 Letter Agreement/Amendment to Secured Debtor In Possession
Credit and Security Agreement dated as of January 11, 2001
between Trans World Airlines, Inc. and AMR Finance, Inc.
10.92 Letter Agreement/Amendment to Secured Debtor In Possession
Credit and Security Agreement dated as of January 26, 2001
between Trans World Airlines, Inc. and AMR Finance, Inc.
10.93 Letter Agreement/Amendment to Secured Debtor In Possession
Credit and Security Agreement dated as of March 7, 2001
between Trans World Airlines, Inc. and AMR Finance, Inc.
10.94 First Amendment to Secured Debtor In Possession Credit and
Security Agreement dated as of March 12, 2001 between Trans
World Airlines, Inc. and AMR Finance, Inc.
12 Computation of ratio of earnings to fixed charges for the
years ended December 31, 1996, 1997, 1998, 1999 and 2000.
21 Significant subsidiaries of the registrant as of December 31,
2000.
23 Consent of Independent Auditors.
Dates Referenced Herein and Documents Incorporated by Reference
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