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, 1999 67 379K
2: EX-3.3 Bylaws, Amended as of 1/19/00 22 55K
3: EX-10.15(A) Deferred Compensation Agreement-Edward A. Brennan 1 9K
4: EX-10.20 Deferred Compensation Agreement-Armando M. Codina 2 11K
5: EX-10.25 Deferred Compensation Agreement-Charles Pistor,Jr. 2 11K
6: EX-10.29 Deferred Compensation Agreement-Judith Rodin 2 11K
7: EX-10.37 Stock Option Agreement Under 1998 Incentive Plan 4 19K
8: EX-10.44 Career Equity Program Deferred Stock Award 4 21K
9: EX-10.53 Performance Share Program for Years 2000 to 2002 4 17K
10: EX-10.60 American Airlines 2000 Empl. Profit Sharing Plan 5 20K
11: EX-10.65 2000 Incentive Compensation Plan 7 25K
12: EX-10.73 Amend/Restated Executive Termination Benefits 30 82K
13: EX-10.74 Amend/Restated Executive Termination Benefits 29 82K
14: EX-10.79 Amend/Restated Executive Termination Benefits 29 82K
15: EX-12 Computation of Ratio of Earnings to Fixed Charges 1 9K
16: EX-21 Significant Subsidiaries of the Registrant 2 14K
17: EX-23 Consent of Independent Public Accountants 1 9K
18: EX-27.1 Financial Data Schedule as of 12/31/99 1 9K
19: EX-27.2 Restated Financial Data Schedule 1 9K
20: EX-27.3 Restated Financial Data Schedule 1 9K
10-K405 — Form 10-K for Fiscal Year End December 31, 1999
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, 1999.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission file number 1-8400.
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AMR CORPORATION
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(Exact name of registrant as specified in its charter)
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Delaware 75-1825172
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
4333 Amon Carter Blvd.
Fort Worth, Texas 76155
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (817) 963-1234
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Securities registered pursuant to Section 12(b) of the Act:
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Title of each class Name of exchange on which registered
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Common stock, $1 par value per share New York Stock Exchange
9.00% Debentures due 2016 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Secton 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 20, 2000, was approximately $4,457,495,580. As of March
20, 2000, 148,583,186 shares of the registrant's common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K incorporates by reference certain information from
the Proxy Statement for the Annual Meeting of Stockholders to be held May 17,
2000.
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PART I
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ITEM 1. BUSINESS
AMR Corporation (AMR or the Company) was incorporated in October 1982. Following
the sale of AMR Services, AMR Combs and TeleService Resources in the first
quarter of 1999 and the spin-off of AMR's 83 percent interest in Sabre Holdings
Corporation (Sabre) in March of 2000, AMR's operations fall almost entirely in
the airline industry. AMR's principal subsidiary, American Airlines, Inc.
(American), was founded in 1934. American is one of the largest scheduled
passenger airlines in the world. At the end of 1999, American provided scheduled
jet service to more than 169 destinations throughout North America, the
Caribbean, Latin America, Europe and the Pacific. American is also one of the
largest scheduled air freight carriers in the world, providing a full range of
freight and mail services to shippers throughout its system.
In addition, AMR Eagle Holding Corporation (AMR Eagle), a wholly-owned
subsidiary of AMR, owns three regional airlines which operate as "American
Eagle" -- American Eagle Airlines, Inc., Executive Airlines, Inc. and Business
Express Airlines, Inc. (acquired in March 1999). The American Eagle carriers
provide connecting service from seven of American's high-traffic cities to
smaller markets throughout the United States, Canada, the Bahamas and the
Caribbean.
On February 7, 2000, the Company declared its intent to distribute AMR's
entire ownership interest in Sabre as a dividend on all outstanding shares of
its common stock. To effect the dividend, AMR exchanged all of its 107,374,000
shares of Sabre's Class B common stock for an equal number of shares of Sabre's
Class A common stock. Effective after the close of business on March 15, 2000,
AMR distributed 0.722652 shares of Sabre Class A Common Stock for each share of
AMR stock owned by AMR's shareholders. The record date for the Sabre stock
dividend was the close of business on March 1, 2000. On February 18, 2000, Sabre
paid a special one-time cash dividend of $675 million to shareholders of record
of Sabre common stock at the close of business on February 15, 2000. AMR
received approximately $560 million by means of this dividend. These funds will
be used for general corporate purposes.
Sabre provides electronic distribution of travel through its Sabre(R)
computer reservations system. In addition, Sabre is a provider of information
technology solutions to the travel and transportation industries. It fulfills
substantially all of the data processing, network and distributed systems needs
of American and AMR's other subsidiaries, Canadian Airlines International
Limited (Canadian), US Airways, Inc. and other customers.
Sabre has been treated as a discontinued operation in Item 6 - Selected
Consolidated Financial Data, Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations and Item 8 - Consolidated
Financial Statements. In addition, the discussion in the other Items of this
Form 10-K relates solely to American and AMR Eagle.
AMR Investment Services, Inc., a wholly-owned subsidiary of AMR, is
responsible for the investment and oversight of AMR's defined benefit and
defined contribution plans, as well as its fixed income investments. It serves
as manager of the American AAdvantage Funds, a family of mutual funds with both
institutional and retail shareholders, and provides customized fixed income
portfolio management services. As of December 31, 1999, AMR Investment Services
was responsible for management of approximately $21.7 billion in assets,
including direct management of approximately $8.4 billion in short-term
investments.
COMPETITION
Most major air carriers have developed hub-and-spoke systems and schedule
patterns in an effort to maximize the revenue potential of their service.
American operates four hubs: Dallas/Fort Worth (DFW), Chicago O'Hare, Miami and
San Juan, Puerto Rico. Delta Air Lines and United Airlines also have hub
operations at DFW and Chicago O'Hare, respectively.
1
The American Eagle carriers increase the number of markets the Company
serves by providing connections to American at American's hubs and certain other
major airports. The American Eagle carriers serve smaller markets through
Boston, DFW, Chicago, Miami, San Juan, Los Angeles and New York's John F.
Kennedy International Airport. American's competitors also own or have marketing
agreements with regional carriers which provide similar services at their major
hubs.
In addition to its extensive domestic service, the Company provides
international service to the Caribbean, Canada, Latin America, Europe and the
Pacific. The Company's operating revenues from foreign operations were
approximately $5.2 billion in 1999, $5.3 billion in 1998 and $5.2 billion in
1997. Additional information about the Company's foreign operations is included
in Note 13 to the consolidated financial statements.
The domestic airline industry is fiercely competitive. Currently, any
carrier deemed fit by the U.S. Department of Transportation (DOT) is free to
operate scheduled passenger service between any two points within the U.S. and
its possessions. On most of its domestic non-stop routes, the Company faces
competing service from at least one, and sometimes more than one, major domestic
airline including: America West Airlines, Continental Airlines, Delta Air Lines,
Northwest Airlines, Southwest Airlines, Trans World Airlines, United Airlines,
US Airways and their affiliated regional carriers. Competition is even greater
between cities that require a connection, where as many as nine airlines may
compete via their respective hubs. The Company also competes with national,
regional, all-cargo, and charter carriers and, particularly on shorter segments,
ground transportation.
On all of its routes, pricing decisions are affected, in part, by
competition from other airlines, some of which have cost structures
significantly lower than American's and can therefore operate profitably at
lower fare levels. As of December 31, 1999, approximately 56 percent of
American's bookings were impacted by competition from low-cost carriers.
The majority of the tickets for travel on American and American Eagle are
sold by travel agents. Domestic travel agents generally receive a base
commission of five percent of the price of the tickets they sell. This amount is
capped at a maximum of $50 for a domestic roundtrip itinerary and $100 for an
international roundtrip itinerary. Airlines often pay additional commissions in
connection with special revenue programs. Accordingly, airlines compete not only
with respect to the price of the tickets sold but also with respect to the
amount of commissions paid.
The growing use of electronic distribution systems provides the Company
with an ever-increasing ability to lower its distribution costs. The Company
continues to expand the capabilities of its Internet website - AA.com - and the
use of electronic ticketing throughout the Company's network. In addition, the
Company has entered into various agreements with several Internet travel
providers, including Travelocity.com, Expedia and Priceline.com. The base
commission for sales through Internet travel providers is significantly lower
than traditional travel agencies.
International air transportation is subject to extensive government
regulation. In providing international air transportation, American competes
with foreign investor-owned carriers, state-owned carriers and U.S. airlines
that have been granted authority to provide scheduled passenger and cargo
service between the U.S. and various overseas locations. American's operating
authority in these markets is subject to aviation agreements between the U.S.
and the respective countries, and in some cases, fares and schedules require the
approval of the DOT and/or the relevant foreign governments. Because
international air transportation is governed by bilateral or other agreements
between the U.S. and the foreign country or countries involved, changes in U.S.
or foreign government aviation policies could result in the alteration or
termination of such agreements, diminish the value of such route authorities, or
otherwise adversely affect American's international operations. Bilateral
agreements between the U.S. and various foreign countries served by American are
subject to frequent renegotiation. In addition, at most foreign airports, a
carrier needs slots (landing and take-off authorizations) before the carrier can
introduce new service or increase existing service. The availability of such
slots is not assured and can therefore inhibit a carrier's efforts to compete in
certain markets.
2
The major U.S. carriers have some advantage over foreign competitors in
their ability to generate traffic from their extensive domestic route systems.
In many cases, however, foreign governments, which own and subsidize some of
American's foreign competitors, limit U.S. carriers' rights to carry passengers
beyond designated gateway cities in foreign countries. To improve access to each
other's markets, various U.S. and foreign carriers -- including American -- have
established marketing relationships with other airlines. American currently has
code-sharing programs with Air Pacific, Alaska Airlines, Asiana, Canadian, China
Eastern Airlines, EVA, Finnair, TACA Group, Gulf Air, Hawaiian Airlines, Iberia,
Japan Airlines, LanChile, LOT Polish Airlines, Qantas Airways, Sabena, SNCF,
Swissair and the TAM Group. Certain of these relationships also include
reciprocity between American and the other airlines' frequent flyer programs. In
addition, the Company expects to implement or expand alliances with other
international carriers, including Aeropostal, Aer Lingus, Avianca, Aerolineas
Argentinas, British Airways, Cathay Pacific Airways and Turkish Airlines,
pending regulatory approval. In the coming years, the Company expects to develop
these programs further and to evaluate new alliances with other international
carriers.
In February 1999, American, British Airways, Canadian, Cathay Pacific
Airways and Qantas Airways formed the global alliance ONEworldTM. In September
1999, these five founding members were joined by Finnair and Iberia. The
ONEworld alliance links the networks of the member carriers to enhance customer
service and smooth connections to the destinations served by the alliance,
including linking the carriers' frequent flyer programs and access to the
carriers' airport lounge facilities. Following the acquisition of Canadian by
Air Canada, Canadian will terminate its membership in oneworld in June 2000.
Also in June 2000, Aer Lingus and LanChile will join the ONEworld alliance.
In December 1999, American reached a comprehensive agreement with
Canadian and Air Canada to resolve outstanding issues arising from Air Canada's
acquisition of Canadian. Under this agreement, American will continue to
codeshare on Canadian for ten years, or as long as the Canadian brand remains in
existence. Should Canadian be absorbed fully into Air Canada within the ten-year
period, American will be allowed to place its code on Air Canada services which
have replaced services operated by Canadian prior to its acquisition by Air
Canada.
The Company believes that it has several advantages relative to its
competition. Its fleet is efficient and quiet, and is one of the youngest fleets
in the U.S. airline industry. It has a comprehensive domestic and international
route structure, anchored by efficient hubs, which permit it to take full
advantage of whatever traffic growth occurs. The Company believes American's
AAdvantage frequent flyer program, which is the largest program in the industry,
and its superior service also give it a competitive advantage. In addition, in
February 2000, the Company announced a new program - "More Room Throughout
Coach" - which will provide more room for passengers throughout its coach
cabins. American's entire fleet will be reconfigured to increase the seat pitch
for more than 75,000 coach seats, thereby increasing the seat pitch from the
present industry standard of 31 and 32 inches to a predominant seat pitch of 34
and 35 inches. The Company believes that by providing greater comfort in the
coach cabin, it will achieve a competitive advantage to its competition.
REGULATION
GENERAL The Airline Deregulation Act of 1978, as amended, eliminated most
domestic economic regulation of passenger and freight transportation. However,
the DOT and the Federal Aviation Administration (FAA) still exercise certain
regulatory authority over air carriers. The DOT maintains jurisdiction over the
approval of international codeshare agreements, international route authorities
and certain consumer protection matters, such as advertising, denied boarding
compensation, baggage liability and computer reservations systems.
The FAA regulates flying operations generally, including establishing
personnel, aircraft and security standards. As part of that oversight, the FAA
has implemented a number of requirements that American is incorporating into its
maintenance program. These matters relate to, among other things, inspection and
maintenance of aging aircraft, corrosion control, the installation of upgraded
digital flight data recorders, enhanced ground proximity warning systems and
cargo compartment smoke detection and fire suppression systems. Based on its
current implementation schedule, American expects to be in compliance with the
applicable requirements within the required time periods.
3
The U.S. Department of Justice has jurisdiction over airline antitrust
matters. The U.S. Postal Service has jurisdiction over certain aspects of the
transportation of mail and related services. Labor relations in the air
transportation industry are regulated under the Railway Labor Act, which vests
in the National Mediation Board certain regulatory functions with respect to
disputes between airlines and labor unions relating to union representation and
collective bargaining agreements. To the extent American continues to increase
its alliances with international carriers, American may be subject to certain
regulations of foreign agencies.
The Department of Justice is investigating the competitive practices of
major carriers at major hub airports, including American's practices at DFW (for
further information, see Item 3. Legal Proceedings). Also, in April 1998, the
DOT issued proposed pricing and capacity rules that would severely limit major
carriers' ability to compete with new entrant carriers. The outcomes of the
investigations and the proposed DOT rules are unknown. However, to the extent
that (i) restrictions are imposed upon American's ability to respond to a
competitor, or (ii) competitors have an advantage because of federal assistance,
American's business may be adversely impacted.
AIRLINE FARES Airlines are permitted to establish their own domestic fares
without governmental regulation, and the industry is characterized by
substantial price competition. The DOT maintains authority over international
fares, rates and charges. International fares and rates are also subject to the
jurisdiction of the governments of the foreign countries which American serves.
While air carriers are required to file and adhere to international fare and
rate tariffs, substantial commissions, overrides and discounts to travel agents,
brokers and wholesalers characterize many international markets.
Legislation (sometimes referred to as the "Passengers' Bill of Rights")
has been discussed in various legislatures, including the Congress. This
legislation would, if enacted, (i) place various limitations on airline fares
and/or (ii) affect operating practices such as baggage handling and overbooking.
To the extent legislation is enacted that would inhibit American's flexibility
with respect to fares, its revenue management system or other aspects of its
customer service operations, American's financial results could be adversely
affected. Effective December 15, 1999, the Company, as well as other domestic
airlines, implemented a Customer Service Plan to address a number of service
goals, including, but not limited to (i) lowest fare availability, (ii) delays,
cancellations, and diversion events, (iii) baggage delivery and liability, (iv)
guaranteed fares, (v) ticket refunds, (vi) accommodation of customers with
special needs, (vii) essential customer needs during extraordinary delays,
(viii) flight oversales, (ix) Frequent Flyer Program - AAdvantage, (x) other
travel policies, (xi) service with domestic code share partners, and (xii)
handling of customer issues.
Fare discounting by competitors has historically had a negative effect on
the Company's financial results because the Company is generally required to
match competitors' fares to maintain passenger traffic. During recent years, a
number of new low-cost airlines have entered the domestic market and several
major airlines, including American, implemented efforts to lower their cost
structures. Further fare reductions, domestic and international, may occur in
the future. If fare reductions are not offset by increases in passenger traffic,
cost reductions or changes in the mix of traffic that improves yields, the
Company's operating results will be negatively impacted.
AIRPORT ACCESS In 1968, the FAA issued a rule designating New York John F.
Kennedy, New York LaGuardia, Washington Reagan, Chicago O'Hare and Newark
airports as high density traffic airports. Newark was subsequently removed from
the high density airport classification. The rule limits the number of
Instrument Flight Rule (IFR) operations - take-offs and landings - permitted per
hour and requires that a slot support each operation. Recently, legislation has
been passed in Congress that would eliminate slots at Chicago O'Hare in 2002 and
New York's John F. Kennedy and LaGuardia airports in 2007. The Company is
currently evaluating what impact, if any, the elimination of slots will have on
the Company's operations and its financial condition or results of operations.
At December 31, 1999, the net book value of the Company's slots at New York John
F. Kennedy, New York LaGuardia and Chicago O'Hare airports was approximately
$160 million. Currently, the FAA permits the purchasing, selling (except those
designated for international or essential air service), leasing, transferring
and trading of these slots by airlines and others, subject to certain
restrictions. Most foreign airports, including London Heathrow, a major European
destination for American, also have slot allocations. Most foreign authorities
do not permit the purchasing, selling or leasing of slots.
4
Although the Company is constrained by slots, it currently has sufficient
slot authorizations to operate its existing flights and has generally been able
to obtain slots to expand its operations and change its schedules. However,
there is no assurance that American or American Eagle will be able to obtain
slots for these purposes in the future because, among other factors, slot
allocations are subject to changes in government policies.
ENVIRONMENTAL MATTERS The Company is subject to various laws and government
regulations concerning environmental matters and employee safety and health in
the U.S. and other countries. U.S. federal laws that have a particular impact on
the Company include the Airport Noise and Capacity Act of 1990 (ANCA), the Clean
Air Act, the Resource Conservation and Recovery Act, the Clean Water Act, the
Safe Drinking Water Act, and the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA or the Superfund Act). The Company is
also subject to the oversight of the Occupational Safety and Health
Administration (OSHA) concerning employee safety and health matters. The U.S.
Environmental Protection Agency (EPA), OSHA, and other federal agencies have
been authorized to promulgate regulations that have an impact on the Company's
operations. In addition to these federal activities, various states have been
delegated certain authorities under the aforementioned federal statutes. Many
state and local governments have adopted environmental and employee safety and
health laws and regulations, some of which are similar to federal requirements.
As a part of its continuing safety, health and environmental program, the
Company anticipates that it will comply with such requirements without any
material adverse effect on its business.
For purposes of noise standards, jet aircraft are rated by categories or
"stages." The ANCA required the phase-out by December 31, 1999, of Stage II
aircraft operations, subject to certain exceptions. Under final regulations
issued by the FAA in 1991, air carriers were required to reduce, by modification
or retirement, the number of Stage II aircraft in their fleets 75 percent by
December 31, 1998 and 100 percent by December 31, 1999. Alternatively, a carrier
may have satisfied the regulations by operating a fleet that was at least 75
percent and 100 percent Stage III by the dates set forth in the preceding
sentence, respectively. At December 31, 1999, all of American's active fleet was
Stage III, the quietest rating category.
The ANCA recognizes the rights of airport operators with noise problems
to implement local noise abatement programs so long as they do not interfere
unreasonably with interstate or foreign commerce or the national air
transportation system. Authorities in several cities have promulgated aircraft
noise reduction programs, including the imposition of nighttime curfews. The
ANCA generally requires FAA approval of local noise restrictions on Stage III
aircraft first effective after October 1990, and establishes a regulatory notice
and review process for local restrictions on Stage II aircraft first proposed
after October 1990. While American has had sufficient scheduling flexibility to
accommodate local noise restrictions imposed to date, American's operations
could be adversely affected if locally-imposed regulations become more
restrictive or widespread.
American has been identified by the EPA as a potentially responsible
party (PRP) at the Operating Industries, Inc. Superfund Site in California.
American has signed a partial consent decree with respect to this site and is
one of several PRPs named. American has also been identified as a PRP at the
Beede Waste Oil Superfund Site in New Hampshire. American has responded to a
104(e) Request for Information regarding interaction with several companies
related to this site. At the Operating Industries, Inc. and the Beede Waste Oil
sites, American's alleged waste disposal volumes are minor compared to the other
PRPs at these sites. In 1998, the EPA named American a de minimis PRP at the
Casmalia Waste Disposal Site in California.
American, along with most other tenants at the San Francisco
International Airport (SFIA), has been ordered by the California Regional Water
Quality Control Board to engage in various studies of potential environmental
contamination at the airport and to undertake remedial measures, if necessary.
SFIA is also seeking to recover its past costs related to the contamination from
the tenants.
5
The Miami International Airport Authority is currently remediating
various environmental conditions at the Miami International Airport (the
Airport) and funding the remediation costs through landing fee revenues. Future
costs of the remediation effort may be borne by carriers operating at the
Airport, including American, through increased landing fees and/or other charges
since certain of the PRPs are no longer in business. The future increase in
landing fees and/or other charges may be material but cannot be reasonably
estimated due to various factors, including the unknown extent of the remedial
actions that may be required, the proportion of the cost that will ultimately be
recovered from the responsible parties, and uncertainties regarding the
environmental agencies that will ultimately supervise the remedial activities
and the nature of that supervision.
In 1999, American was ordered by the New York State Department of
Environmental Conservation to conduct remediation of environmental contamination
located at Terminals 8 and 9 at New York's John F. Kennedy International
Airport. American is seeking to recover a portion of the related costs from
previous users of the premises.
Also in 1999, the Company entered a plea agreement with the United States
government with respect to a one count indictment relating to the storage of
hazardous materials. As part of the plea agreement, the Company was placed on
probation for three years and has adopted a comprehensive compliance program. To
the extent the Company fails to abide by the terms of the probation or its
compliance program, the Company's operations may be adversely impacted.
American and Executive Airlines, Inc., along with other tenants at the
Luis Munoz Marin International Airport in San Juan, Puerto Rico, have been named
as PRPs for environmental claims at the airport.
American Eagle Airlines, Inc. has been notified of its potential
liability under New York law at an inactive hazardous waste site in
Poughkeepsie, New York.
AMR does not expect these matters, individually or collectively, to have
a material impact on its financial position or liquidity.
LABOR
The airline business is labor intensive. Wages, salaries and benefits
represented approximately 37 percent of AMR's consolidated operating expenses
for the year ended December 31, 1999.
The majority of American's employees are represented by labor unions and
covered by collective bargaining agreements. American's relations with such
labor organizations are governed by the Railway Labor Act. Under this act, the
collective bargaining agreements among American and these organizations do not
expire but instead become amendable as of a stated date. If either party wishes
to modify the terms of any such agreement, it must notify the other party in the
manner described in the agreement. After receipt of such notice, the parties
must meet for direct negotiations, and if no agreement is reached, either party
may request the National Mediation Board (NMB) to appoint a federal mediator. If
no agreement is reached in mediation, the NMB may determine, at any time, that
an impasse exists, and if an impasse is declared, the NMB proffers binding
arbitration to the parties. Either party may decline to submit to arbitration.
If arbitration is rejected, a 30-day "cooling-off" period commences, following
which the labor organization may strike and the airline may resort to
"self-help," including the imposition of any or all of its proposed amendments
and the hiring of workers to replace strikers.
In 1995, American reached agreements with the members of the Association
of Professional Flight Attendants (APFA) and the Transport Workers Union (TWU)
on their labor contracts. American's collective bargaining agreement with the
APFA became amendable on November 1, 1998 and the collective bargaining
agreement with the TWU becomes amendable on March 1, 2001. American exchanged
proposals and commenced negotiations with the APFA on September 2, 1998. The
parties reached a tentative agreement in mid-1999 which the membership
subsequently did not ratify. Direct negotiations continue. American's current
collective bargaining agreement with the Allied Pilots Association (APA) was
ratified by the APA membership on May 5, 1997. That contract becomes amendable
August 31, 2001.
6
In early February 1999, some members of the APA engaged in certain
activities (increased sick time and declining to fly additional trips) that
resulted in numerous cancellations across American's system. These actions were
taken in response to the acquisition of Reno Air in December 1998. On February
10, 1999, American obtained a temporary restraining order prohibiting the union
from unilaterally taking actions in violation of the Railway Labor Act. Because
of continuing actions by the APA and its leaders after the entry of the
temporary restraining order, American filed a motion to have the APA and its
leaders held in contempt of the court's temporary restraining order. The court
granted that motion on February 13, 1999, and the airline's operations
thereafter returned to normal. The Company and the APA subsequently agreed to a
method for combining the Reno pilot workforce into American. The parties also
are engaged in discussions over certain other issues in an effort to improve
their relationship, which includes a possible extension to the existing APA
contract.
The Communications Workers of America (CWA) filed a petition with the NMB
on October 8, 1998, seeking to represent American's passenger service employees,
who currently are not so represented. The mail ballots in the election conducted
by the NMB were counted on December 15, 1998. Forty-one percent of the employees
voted to unionize, short of the 50 percent plus one needed for unionization to
occur. The CWA challenged the results, claiming that certain of American's
actions during the campaign interfered with the employees' ability to make a
free choice. The NMB found that American's actions did not interfere and
dismissed the CWA's petition. Under the NMB's rules, no further petitions to
represent American's passenger service employees may be filed with the NMB until
August 2000.
The Air Line Pilots Association (ALPA), which represents AMR Eagle
pilots, reached agreement with AMR Eagle effective September 1, 1997, to have
all of the pilots of the Eagle carriers covered by a single collective
bargaining agreement. This agreement lasts until October 31, 2013. The parties
have the right to seek limited changes in 2000, 2004, 2008 and 2012. If the
parties are unable to agree on the limited changes, they also agreed that the
issues would be resolved by interest arbitration, without the exercise of
self-help (such as a strike). The Association of Flight Attendants (AFA), which
represents the flight attendants of the Eagle carriers, reached agreement with
AMR Eagle effective March 2, 1998, to have all flight attendants of the AMR
Eagle carriers covered by a single contract. The agreement becomes amendable on
September 2, 2002. The other union employees at the AMR Eagle carriers are
covered by separate agreements with the TWU which were effective April 28, 1998,
and are amendable April 28, 2003.
FUEL
The Company's operations are significantly affected by the availability and
price of jet fuel. American's fuel costs and consumption for the years 1997
through 1999 were:
[Enlarge/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
--------------- ----------------- ------------------ ---------------- ------------- ---------------
1997 2,773 $ 1,860 67.1 62.1 12.1
1998 2,826 1,551 54.9 50.1 10.0
1999 2,957 1,622 54.8 50.1 9.8
7
The impact of fuel price changes on the Company and its competitors is
dependent upon various factors, including hedging strategies. Although
American's average cost per gallon of fuel in 1999 was flat in comparison to
1998, actual fuel prices began to increase in April 1999 and continued
significantly throughout 1999 and into 2000. However, American has a fuel
hedging program in which it enters into fuel swap and option contracts to
protect against increases in jet fuel prices, which has had the effect of
dampening American's average cost per gallon. To reduce the impact of potential
continuing fuel price increases in 2000, American had hedged approximately 48
percent of its 2000 fuel requirements as of December 31, 1999. Based on
projected fuel usage, American estimates that a 10 percent increase in the price
per gallon of fuel would result in an increase to aircraft fuel expense of
approximately $125 million in 2000, net of fuel hedge instruments outstanding at
December 31, 1999. Due to the competitive nature of the airline industry, in the
event of continuing increases in the price of jet fuel, there can be no
assurance that American will be able to pass on increased fuel prices to its
customers by increasing its fares. Likewise, any potential benefit of lower fuel
prices may be offset by increased fare competition and lower revenues for all
air carriers.
While American does not anticipate a significant reduction in fuel
availability, dependency on foreign imports of crude oil and the possibility of
changes in government policy on jet fuel production, transportation and
marketing make it impossible to predict the future availability of jet fuel. If
there were major reductions in the availability of jet fuel, American's business
would be adversely affected.
Additional information regarding the Company's fuel program is included
in the Outlook for 2000, Item 7(A) - Quantitative and Qualitative Disclosures
about Market Risk, and in Note 6 to the consolidated financial statements.
FREQUENT FLYER PROGRAM
American established the AAdvantage frequent flyer program (AAdvantage) to
develop passenger loyalty by offering awards to travelers for their continued
patronage. AAdvantage members earn mileage credits for flights on American,
American Eagle and certain other participating airlines, or by utilizing
services of other program participants, including hotels, car rental companies
and bank credit card issuers. American sells mileage credits and related
services to the other companies participating in the program. American reserves
the right to change the AAdvantage program rules, regulations, travel awards and
special offers at any time without notice. American may initiate changes
impacting, for example, participant affiliations, rules for earning mileage
credit, mileage levels and awards, blackout dates and limited seating for travel
awards, and the features of special offers. American reserves the right to end
the AAdvantage program with six months' notice.
Mileage credits can be redeemed for free, discounted or upgraded travel
on American, American Eagle or participating airlines, or for other travel
industry awards. Once a member accrues sufficient mileage for an award, the
member may request an award certificate from American. Award certificates may be
redeemed up to one year after issuance. Most travel awards are subject to
blackout dates and capacity controlled seating. In 1999, certain changes were
made to the AAdvantage program so that miles do not expire, provided a customer
has any type of qualifying activity at least once every 36 months.
American accounts for its frequent flyer obligation on an accrual basis
using the incremental cost method. American's frequent flyer liability is
accrued each time a member accumulates sufficient mileage in his or her account
to claim the lowest level of free travel award (25,000 miles) and such award is
expected to be used for free travel. American includes fuel, food, and
reservations/ticketing costs, but not a contribution to overhead or profit, in
the calculation of incremental cost. The cost for fuel is estimated based on
total fuel consumption tracked by various categories of markets, with an amount
allocated to each passenger. Food costs are tracked by market category, with an
amount allocated to each passenger. Reservation/ticketing costs are based on the
total number of passengers, including those traveling on free awards, divided
into American's total expense for these costs. American defers the portion of
revenues received from companies participating in the AAdvantage program related
to the sale of mileage credits and recognizes such revenues over a period
approximating the period during which the mileage credits are used.
8
At December 31, 1999 and 1998, American estimated that approximately 5.4
million and 4.9 million free travel awards, respectively, were expected to be
redeemed for free travel on American. In making the estimate of free travel
awards, American has excluded mileage in inactive accounts, mileage related to
accounts that has not yet reached the lowest level of free travel award, and
mileage in active accounts that has reached the lowest level of free travel
award but which is not expected to ever be redeemed for free travel on American.
The liability for the program mileage that has reached the lowest level of free
travel award and is expected to be redeemed for free travel on American or other
participating airlines and deferred revenues for mileage credits sold to others
participating in the program was $827 million and $695 million, representing
14.1 percent and 13.1 percent of AMR's total current liabilities, at December
31, 1999 and 1998, respectively.
The number of free travel awards used for travel on American was 2.7
million in 1999, 2.3 million in 1998 and 2.2 million in 1997, representing 9.3
percent of total revenue passenger miles in 1999, 8.8 percent in 1998 and 8.6
percent in 1997. American believes displacement of revenue passengers is minimal
given American's load factors, its ability to manage frequent flyer seat
inventory, and the relatively low ratio of free award usage to revenue passenger
miles.
OTHER MATTERS
SEASONALITY AND OTHER FACTORS The Company's results of operations for any
interim period are not necessarily indicative of those for the entire year,
since the air transportation business is subject to seasonal fluctuations.
Higher demand for air travel has traditionally resulted in more favorable
operating results for the second and third quarters of the year than for the
first and fourth quarters.
The results of operations in the air transportation business have also
significantly fluctuated in the past in response to general economic conditions.
In addition, fare initiatives, fluctuations in fuel prices, labor actions and
other factors could impact this seasonal pattern. Unaudited quarterly financial
data for the two-year period ended December 31, 1999 is included in Note 14 to
the consolidated financial statements.
No material part of the business of AMR and its subsidiaries is dependent
upon a single customer or very few customers. Consequently, the loss of the
Company's largest few customers would not have a materially adverse effect upon
AMR.
INSURANCE American carries insurance for public liability, passenger liability,
property damage and all-risk coverage for damage to its aircraft, in amounts
which, in the opinion of management, are adequate.
OTHER GOVERNMENT MATTERS In time of war or during an unlimited national
emergency or civil defense emergency, American and other major air carriers may
be required to provide airlift services to the Military Airlift Command under
the Civil Reserve Air Fleet program.
9
ITEM 2. PROPERTIES
FLIGHT EQUIPMENT
Owned and leased aircraft operated by American and AMR Eagle at December 31,
1999, included:
[Enlarge/Download Table]
Weighted
Current Average
Seating Capital Operating Age
Equipment Type Capacity (1) Owned Leased Leased Total (Years)
---------------------------------- ------------ ---------- ---------- ---------- ---------- ----------
AMERICAN AIRCRAFT
Airbus A300-600R 192/266/267 10 - 25 35 10
Boeing 727-200 150 60 8 - 68 22
Boeing 737-800 146 24 - - 24 1
Boeing 757-200 188 56 15 31 102 7
Boeing 767-200 172 8 - - 8 17
Boeing 767-200 Extended Range 165 9 13 - 22 14
Boeing 767-300 Extended Range 207 26 13 10 49 7
Boeing 777-200 IGW 237 11 - - 11 1
Fokker 100 97 66 5 4 75 7
McDonnell Douglas DC-10-10 237/290/297 3 - - 3 21
McDonnell Douglas DC-10-30 271/282 4 - 1 5 25
McDonnell Douglas MD-11 238/255 11 - - 11 7
McDonnell Douglas MD-80 133/139 125 25 129 279 12
McDonnell Douglas MD-90 148 - - 5 5 3
------- ------- ------- ------- -----
Total 413 79 205 697 11
======= ======= ======= ======= =====
AMR EAGLE AIRCRAFT
ATR 42 46 20 - 12 32 9
Embraer 135 37 9 - - 9 -
Embraer 145 50 45 - - 45 1
Super ATR 64/66 40 - 3 43 5
Saab 340 34 22 61 31 114 8
Saab 340B Plus 34 - - 25 25 4
------- ------- ------- ------- -----
Total 136 61 71 268 6
======= ======= ======= ======= =====
(1) In February 2000, American announced its "More Room Throughout Coach"
program whereby American's entire fleet will be reconfigured to increase
the seat pitch for more than 75,000 coach seats. As a result of this
program, approximately 7,200 seats will be removed from American's
aircraft.
For information concerning the estimated useful lives and residual values
for owned aircraft, lease terms for leased aircraft and amortization relating to
aircraft under capital leases, see Notes 1 and 4 to the consolidated financial
statements.
In April 1995, American announced an agreement to sell 12 of its 19
McDonnell Douglas MD-11 aircraft to Federal Express Corporation (FedEx). In
March 1998, the Company exercised its option to sell its remaining seven MD-11
aircraft to FedEx. Eight aircraft had been delivered as of December 31, 1999.
The remaining 11 aircraft will be delivered between 2000 and 2002.
In addition, during 1999, the Company reached agreements to dispose of
its remaining owned Boeing 727-200 and McDonnell Douglas DC-10-10 aircraft.
These aircraft will be removed from the fleet between 2000 and 2003.
10
Lease expirations for the leased aircraft included in the preceding table
as of December 31, 1999, were:
[Enlarge/Download Table]
2005
and
Equipment Type 2000 2001 2002 2003 2004 Thereafter
---------------------------------- ---------- ---------- ---------- ---------- ---------- -----------
AMERICAN AIRCRAFT
Airbus A300-600R - - - - - 25
Boeing 727-200 - 5 - 3 - -
Boeing 757-200 2 2 2 - 3 37
Boeing 767-200 Extended Range - - - - - 13
Boeing 767-300 Extended Range 6 - 1 - 4 12
Fokker 100 - 2 3 - - 4
McDonnell Douglas DC-10-30 - 1 - - - -
McDonnell Douglas MD-80 1 10 13 6 2 122
McDonnell Douglas MD-90 - - - - - 5
------ ------ ------ ------ ------ ------
9 20 19 9 9 218
====== ====== ====== ====== ====== ======
AMR EAGLE AIRCRAFT
ATR 42 1 8 - 3 - -
Super ATR - 2 1 - - -
Saab 340 16 13 2 - - 61
Saab 340B Plus - - - - - 25
------ ------ ------ ------ ------ ------
17 23 3 3 - 86
====== ====== ====== ====== ====== ======
Substantially all of the Company's aircraft leases include an option to
purchase the aircraft or to extend the lease term, or both, with the purchase
price or renewal rental to be based essentially on the market value of the
aircraft at the end of the term of the lease or at a predetermined fixed amount.
GROUND PROPERTIES
American leases, or has built as leasehold improvements on leased property, most
of its airport and terminal facilities; certain corporate office, maintenance
and training facilities in Fort Worth, Texas; its principal overhaul and
maintenance base at Tulsa International Airport, Tulsa, Oklahoma; its regional
reservation offices; and local ticket and administration offices throughout the
system. American has entered into agreements with the Tulsa Municipal Airport
Trust; the Alliance Airport Authority, Fort Worth, Texas; and the Dallas/Fort
Worth, Chicago O'Hare, Raleigh/Durham, Nashville, San Juan, New York, and Los
Angeles airport authorities to provide funds for constructing, improving and
modifying facilities and acquiring equipment which are or will be leased to
American. American also utilizes public airports for its flight operations under
lease or use arrangements with the municipalities or governmental agencies
owning or controlling them and leases certain other ground equipment for use at
its facilities. During 1999, the Company began construction of an approximate
$1.3 billion terminal facility at New York's John F. Kennedy International
Airport, which the Company expects to fund primarily through future tax-exempt
financing.
For information concerning the estimated lives and residual values for
owned ground properties, lease terms and amortization relating to ground
properties under capital leases, and acquisitions of ground properties, see
Notes 1, 3 and 4 to the consolidated financial statements.
11
ITEM 3. LEGAL PROCEEDINGS
In connection with its frequent flyer program, American was sued in several
purported class action cases currently pending in the Circuit Court of Cook
County, Illinois. In Wolens et al. v. American Airlines, Inc. and Tucker v.
American Airlines, Inc. (hereafter, "Wolens"), plaintiffs seek money damages and
attorneys' fees claiming that a change made to American's AAdvantage program in
May 1988, which limited the number of seats available to participants travelling
on certain awards, breached American's agreement with its AAdvantage members.
(Although the Wolens complaint originally asserted several state law claims,
only the plaintiffs' breach of contract claim remains after the U.S. Supreme
Court ruled that the Airline Deregulation Act preempted the other claims). In
Gutterman et al. v. American Airlines, Inc. (hereafter, "Gutterman"), plaintiffs
also seek money damages and attorneys' fees claiming that the February 1995
increase in the award mileage required to claim a certain AAdvantage travel
award breached the agreement between American and its AAdvantage members. On
June 23, 1998, the court certified the Gutterman case as a class action,
although to date no notice has been sent to the class.
In February 2000, American and the Wolens and Gutterman plaintiffs
reached a settlement of both lawsuits. Pursuant to the agreement, American and
the plaintiffs agreed to ask the court to consolidate the Wolens and Gutterman
lawsuits for purposes of settlement. Further, American and the Wolens plaintiffs
agreed to ask the court to certify a Wolens class of AAdvantage members who had
at least 35,000 unredeemed AAdvantage miles as of December 31, 1988. In
addition, American and the Gutterman plaintiffs agreed to ask the court to
decertify the existing Gutterman class and to certify a new Gutterman class of
AAdvantage members who as of December 31, 1993 (a) had redeemed 25,000 or 50,000
AAdvantage miles for certain AAdvantage awards and/or (b) had at least 4,700
unredeemed new miles in his or her account that were earned before January 1,
1992. Depending upon certain factors, Wolens and Gutterman class members will be
entitled to receive certificates entitling them to mileage off certain
AAdvantage awards or dollars off certain American fares.
As part of the settlement, American agreed to pay the Wolens and
Gutterman plaintiffs' attorneys and the cost of administering the settlement,
which amounts were accrued as of December 31, 1999. In consideration for the
relief provided for in the settlement agreement, Wolens and Gutterman class
members will release American from all claims arising from any changes that
American has made to the AAdvantage program and reaffirming American's right to
make changes to the AAdvantage program in the future. Before the settlement can
become effective, the court must approve the settlement agreement after
providing any objectors an opportunity to be heard.
On August 7, 1998, a purported class action was filed against American
Airlines in state court in Travis County, Texas (Boon Ins. Agency v. American
Airlines, Inc., et al.) claiming that the $75 reissuance fee for changes to
non-refundable tickets is an unenforceable liquidated damages clause and seeking
a refund of the fee on behalf of all passengers who paid it, as well as interest
and attorneys' fees. On September 23, 1998, Continental, Delta, and America West
were added as defendants to the lawsuit. On February 2, 1999, prior to any
discovery being taken and a class being certified, the court granted the
defendants' motion for summary judgment holding that Plaintiff's claims are
preempted by the Airline Deregulation Act. Plaintiff has filed an appeal of the
dismissal of the lawsuit. American intends to vigorously defend the granting of
the summary judgment on appeal.
On May 20, 1999, several class action lawsuits filed against the Allied
Pilots Association (APA) seeking compensation for passengers and cargo shippers
adversely affected by a labor disagreement that disrupted operations in February
1999 were consolidated in the United States District Court for the Northern
District of Texas, Dallas Division (In re Allied Pilots Association Class Action
Litigation). Plaintiffs are not seeking to hold American independently liable.
Instead, Plaintiffs named American as a defendant because American has a $45.5
million judgment against the APA. APA filed cross claims against American
alleging that American must indemnify pilots who put themselves on the sick
list. APA also filed a motion to dismiss all claims against it. A United States
District Court Magistrate recommended that the court dismiss all the claims in
the lawsuit, concluding that certain claims are preempted by federal law and
that certain other claims should be brought in state court, rather than federal
court. The Magistrate's recommendations are pending before the court. American
is vigorously defending all claims against it.
12
ITEM 3. LEGAL PROCEEDINGS (CONTINUED)
On July 26, 1999, a class action lawsuit was filed, and in November 1999
an amended complaint was filed, against AMR Corporation, American Airlines,
Inc., AMR Eagle Holding Corporation, Airlines Reporting Corporation, and the
Sabre Group Holdings, Inc. in the United States District Court for the Central
District of California, Western Division (Westways World Travel, Inc. v. AMR
Corp., et al.). The lawsuit alleges that requiring travel agencies to pay debit
memos to American for violations of American's fare rules (by customers of the
agencies) (1) breaches the Agent Reporting Agreement between American and
American Eagle and plaintiffs, (2) constitutes unjust enrichment, and (3)
violates the Racketeer Influenced and Corrupt Organizations Act of 1970 (RICO).
The as yet uncertified class includes all travel agencies who have been or will
be required to pay monies to American for debit memos for fare rules violations
from July 26, 1995 to the present. Plaintiffs seek to enjoin American from
enforcing the pricing rules in question and to recover the amounts paid for
debit memos, plus treble damages, attorneys' fees, and costs. Defendants' motion
to dismiss all claims is pending. American intends to vigorously defend the
lawsuit.
On May 13, 1999, the United States (through the Antitrust Division of the
Department of Justice) sued AMR Corporation, American Airlines, Inc., and AMR
Eagle Holding Corporation in federal court in Wichita, Kansas. The lawsuit
alleges that American unlawfully monopolized or attempted to monopolize airline
passenger service to and from Dallas/Fort Worth International Airport (DFW) by
increasing service when new competitors began flying to DFW, and by matching
these new competitors' fares. The Department of Justice seeks to enjoin American
from engaging in the alleged improper conduct and to impose restraints on
American to remedy the alleged effects of its past conduct. American intends to
defend the lawsuit vigorously.
Between May 14, 1999 and June 7, 1999, seven class action lawsuits were
filed against AMR Corporation, American Airlines, Inc., and AMR Eagle Holding
Corporation in the United States District Court in Wichita, Kansas seeking
treble damages under federal and state antitrust laws, as well as injunctive
relief and attorneys' fees. (King v. AMR Corp., et al.; Smith v. AMR Corp., et
al.; Team Electric v. AMR Corp., et al.; Warren v. AMR Corp., et al.; Whittier
v. AMR Corp., et al.; Wright v. AMR Corp., et al.; and Youngdahl v. AMR Corp.,
et al.). Collectively, these lawsuits allege that American unlawfully
monopolized or attempted to monopolize airline passenger service to and from DFW
by increasing service when new competitors began flying to DFW, and by matching
these new competitors' fares. Two of the suits (Smith and Wright) also allege
that American unlawfully monopolized or attempted to monopolize airline
passenger service to and from DFW by offering discounted fares to corporate
purchasers, by offering a frequent flyer program, by imposing certain conditions
on the use and availability of certain fares, and by offering override
commissions to travel agents. The suits propose to certify several classes of
consumers, the broadest of which is all persons who purchased tickets for air
travel on American into or out of DFW since 1995 to the present. On November 10,
1999, the District Court stayed all of these actions pending developments in the
case brought by the Department of Justice. As a result, to date no class has
been certified. American intends to defend these lawsuits vigorously.
On March 1, 2000, American was served with a federal grand jury subpoena
calling for American to produce documents relating to de-icing operations at DFW
since 1992. American is not able at this time to determine either the full scope
of the grand jury's investigation or American's role in the investigation.
American intends to fully cooperate with the government's investigation.
13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during the
last quarter of its fiscal year ended December 31, 1999.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following information relates to the executive officers of AMR during 1999
and reflects changes made in the executive officer staff in January 2000.
[Download Table]
Donald J. Carty Mr. Carty was elected Chairman, President and Chief
Executive Office of AMR and American in May 1998. He
has been President of American since March 1995.
Prior to that, he served as Executive Vice President
of AMR since October 1989. Except for two years
service as President and CEO of Canadian Pacific Air
between March 1985 and March 1987, he has been with
the Company in various finance and planning
positions since 1978. Age 53.
Gerard J. Arpey Mr. Arpey was elected Executive Vice President -
Operations of American Airlines on January 19, 2000.
He is also an Executive Vice President of AMR.
Mr. Arpey served as Chief Financial Officer of AMR
from March 1995 through January 19, 2000 and Senior
Vice President of American since April 1992. Prior
to that, he served as a Vice President of American
since October 1989. Age 41.
Thomas W. Horton Mr. Horton was elected Senior Vice President and
Chief Financial Officer of AMR and Senior Vice
President - Finance and Chief Financial Officer of
American Airlines on January 19, 2000. Prior to that
he served as a Vice President of American since
March 1994. Age 38.
Anne H. McNamara Ms. McNamara was elected Senior Vice President and
General Counsel in June 1988. She had served as Vice
President - Personnel Resources of American from
January 1988 through May 1988. She was elected
Corporate Secretary of AMR in 1982 and of American
in 1979 and held those positions through 1987.
Age 52.
Charles D. MarLett Mr. MarLett was elected Corporate Secretary in
January 1988. He joined American as an attorney in
June 1984. Age 45.
There are no family relationships among the executive officers of the
Company named above.
There have been no events under any bankruptcy act, no criminal
proceedings, and no judgments or injunctions material to the evaluation of the
ability and integrity of any director or executive officer during the past five
years.
14
PART II
--------------------------------------------------------------------------------
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange (symbol
AMR). The approximate number of record holders of the Company's common stock at
March 20, 2000, was 13,600.
The range of closing market prices for AMR's common stock on the New York
Stock Exchange was:
[Enlarge/Download Table]
1999 1998
--------------------------------------- -------------------------------------
High Low High Low
----------------- ----------------- ---------------- ----------------
QUARTER ENDED
March 31 $ 71 7/16 $ 53 3/16 $ 73 1/8 $ 61 13/16
June 30 74 5/16 60 9/16 83 1/4 68 15/16
September 30 72 3/4 52 13/16 89 1/4 50
December 31 68 1/2 53 9/16 69 15/16 47 1/8
No cash dividends on common stock were declared for any period during
1999 or 1998. Payment of dividends is subject to the restrictions described in
Note 5 to the consolidated financial statements.
In April 1998, the Company's Board of Directors approved a two-for-one
stock split in the form of a stock dividend, effective on June 9, 1998 for
shareholders of record on May 26, 1998. All share information, including the
market price per share information disclosed above, and earnings per share
amounts have been presented to give effect to the stock split.
Effective after the close of business on March 15, 2000, AMR distributed
0.722652 shares of Sabre Class A common stock for each share of AMR stock owned
by AMR's shareholders. The record date for the Sabre stock dividend was the
close of business on March 1, 2000. As a result of the dividend, AMR's stock
price was adjusted from $60 9/16 to $25 9/16 by the New York Stock Exchange
after the market close on March 15, 2000 to exclude the value of Sabre.
15
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(in millions, except per share amounts)
[Enlarge/Download Table]
--------------------------------------------------------------------------------------------------------------------------------
1999 1998 (2) 1997 (2) 1996 (2) 1995 (2)
------------- ------------- --------------- --------------- -------------
Total operating revenues $ 17,730 $ 17,516 $ 16,957 $ 16,249 $ 15,571
Operating income 1,156 1,988 1,595 1,477 603
Income (loss) from continuing
operations before extraordinary
loss 656 1,114 809 901 (51)
Net earnings 985 1,314 985 1,016 162
Earnings (loss) per common share from
continuing operations before
extraordinary loss and effect of
preferred stock exchange:(1)
Basic 4.30 6.60 4.54 5.23 (0.33)
Diluted 4.17 6.38 4.43 4.88 (0.33)
Net earnings per common share:(1)
Basic 6.46 7.78 5.52 5.90 1.06
Diluted 6.26 7.52 5.39 5.59 1.05
Total assets 24,374 21,455 20,287 20,004 19,339
Long-term debt, less current
maturities 4,078 2,436 2,248 2,737 4,967
Obligations under capital leases,
less current obligations 1,611 1,764 1,629 1,790 2,069
Obligation for postretirement
benefits 1,669 1,598 1,527 1,483 1,388
(1) The earnings per share amounts reflect the stock split on June 9, 1998.
(2) Restated to reflect the discontinued operations of Sabre.
No dividends were declared on common shares during any of the periods
above.
Information on the comparability of results is included in Management's
Discussion and Analysis and the notes to the consolidated financial statements.
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
AMR Corporation (AMR or the Company) was incorporated in October 1982. AMR's
principal subsidiary, American Airlines, Inc. (American), was founded in 1934.
Following the sale of AMR Services, AMR Combs and TeleService Resources in the
first quarter of 1999, and the spin-off of AMR's 83 percent interest in Sabre
Holdings Corporation (Sabre) in March of 2000, AMR's operations fall almost
entirely in the airline industry.
RESULTS OF OPERATIONS
AMR's net earnings in 1999 were $985 million, or $6.46 per common share ($6.26
diluted). AMR's income from continuing operations in 1999 was $656 million, or
$4.30 per common share ($4.17 diluted). A labor disagreement that disrupted
operations during the first quarter of 1999 negatively impacted the Company's
1999 results by an estimated $225 million ($140 million after tax). The results
for 1999 also include the following: (i) American's December 1998 acquisition of
Reno Air, Inc. (Reno) and AMR Eagle's March 1999 acquisition of Business
Express, Inc. (Business Express), (ii) a gain of $83 million ($64 million after
tax) on the sale of AMR Services, AMR Combs and TeleService Resources, which is
included in discontinued operations, (iii) a gain of approximately $213 million
($118 million after taxes and minority interest) resulting from the sale of a
portion of the Company's holding in Equant N.V. (Equant), of which approximately
$75 million ($47 million after tax) is included in income from continuing
operations, (iv) a gain of $40 million ($25 million after tax) related to the
Company's sale of its investment in the cumulative mandatorily redeemable
convertible preferred stock of Canadian Airlines International Limited
(Canadian) and a $67 million tax benefit resulting from the tax loss on the
Company's investment in Canadian, and (v) a charge of approximately $37 million
($25 million after tax) relating to the provision for certain litigation items.
AMR's net earnings in 1998 were $1.3 billion, or $7.78 per common share ($7.52
diluted). AMR's income from continuing operations in 1998 was $1.1 billion, or
$6.60 per common share ($6.38 diluted).
REVENUES
1999 COMPARED TO 1998 The Company's revenues increased $214 million, or 1.2
percent, versus 1998. American's passenger revenues increased by 0.1 percent, or
$12 million. American's yield (the average amount one passenger pays to fly one
mile) of 13.12 cents decreased by 2.7 percent compared to 1998. For the year,
domestic yields decreased 1.1 percent, while European, Pacific and Latin
American yields decreased 7.2 percent, 6.0 percent and 4.5 percent,
respectively. The decrease in domestic yield was due primarily to increased
capacity, the labor disagreement during the first quarter of 1999, and the
impact of international yield decreases on domestic yields. The decrease in
international yields was due primarily to weak economies in certain parts of the
world, large industry capacity additions and increased fare sale activity.
American's domestic traffic increased 2.1 percent to 76.4 billion revenue
passenger miles (RPMs), while domestic capacity, as measured by available seat
miles (ASMs), increased 4.1 percent. The increase in domestic traffic was due
primarily to the addition of Reno. International traffic grew 4.6 percent to
35.7 billion RPMs on a capacity increase of 3.1 percent. The increase in
international traffic was led by a 44.2 percent increase in the Pacific on
capacity growth of 44.1 percent, a 5.7 percent increase in Europe on capacity
growth of 7.3 percent, partially offset by a 1.9 percent decrease in Latin
America on a capacity decrease of 5.1 percent. In 1999, American derived
approximately 70 percent of its passenger revenues from domestic operations and
approximately 30 percent from international operations.
AMR Eagle's passenger revenues increased $173 million, or 15.4 percent.
AMR Eagle's traffic increased to 3.4 billion RPMs, up 20.9 percent, while
capacity increased to 5.6 billion ASMs, or 26.1 percent, due primarily to the
addition of Business Express in March 1999.
17
1998 COMPARED TO 1997 The Company's revenues of $17.5 billion in 1998 were up
$559 million, or 3.3 percent, versus 1997. American's passenger revenues
increased 2.7 percent, or $385 million. The increase in passenger revenues
resulted from a 0.9 percent increase in passenger yield from 13.37 to 13.49
cents, and a 1.8 percent increase in passenger traffic. For the year, domestic
yields increased 3.1 percent, while Pacific, Latin American and European yields
decreased 6.7 percent, 5.8 percent and 1.0 percent, respectively. The decrease
in international yields was due primarily to an increase in industry capacity
and a decline in economic conditions. In 1998, American derived approximately 70
percent of its passenger revenues from domestic operations and approximately 30
percent from international operations.
American's domestic traffic increased 0.7 percent to 74.9 billion RPMs,
while domestic capacity decreased 1.4 percent. International traffic grew 4.3
percent to 34.1 billion RPMs on a capacity increase of 6.4 percent. The increase
in international traffic was led by a 17.1 percent increase in the Pacific on
capacity growth of 29.3 percent, a 4.9 percent increase in Latin America on
capacity growth of 6.6 percent and a 1.8 percent increase in Europe on capacity
growth of 2.7 percent.
AMR Eagle's passenger revenues increased $104 million, or 10.2 percent.
The increase in passenger revenues resulted from a 0.9 percent increase in
passenger yield and a 9.2 percent increase in traffic. AMR Eagle's traffic
increased to 2.8 billion RPMs while capacity increased to 4.5 billion ASMs, up
6.0 percent.
Other revenues increased $101 million, or 10.7 percent, primarily as a
result of increased administrative service charges, higher employee travel
service charges and increased service contracts, primarily related to ramp and
consulting services.
OPERATING EXPENSES
1999 COMPARED TO 1998 The Company's operating expenses increased 6.7 percent, or
approximately $1 billion. American's cost per ASM increased by 1.5 percent to
9.39 cents. Wages, salaries and benefits increased $327 million, or 5.6 percent,
primarily due to an increase in the average number of equivalent employees and
contractual wage rate and seniority increases that are built into the Company's
labor contracts, partially offset by a decrease in the provision for
profit-sharing. Fuel expense increased $92 million, or 5.7 percent, due to a 4.6
percent increase in American's fuel consumption, partially offset by a 0.2
percent decrease in American's average price per gallon. The increase in fuel
expense is net of gains of approximately $111 million recognized during 1999
related to the Company's fuel hedging program. Commissions to agents decreased
5.2 percent, or $64 million, despite a 1.2 percent increase in passenger
revenues, due to the benefit from the changes in the international commission
structure in late 1998 and the base commission structure in October 1999, and a
decrease in the percentage of commissionable transactions. Depreciation and
amortization expense increased $52 million, or 5.0 percent, due primarily to the
addition of new aircraft, partially offset by the change in depreciable lives
and residual values for certain types of aircraft in 1999 (see Note 1 to the
consolidated financial statements). Maintenance, materials and repairs expense
increased 7.3 percent, or $68 million, due primarily to the addition of Reno and
Business Express aircraft during 1999. Other rentals and landing fees increased
12.3 percent, or $103 million, due primarily to higher facilities rent and
landing fees across American's system and the addition of Reno and Business
Express. Food service increased $65 million, or 9.6 percent, due primarily to
rate increases and the addition of Reno. Aircraft rentals increased $61 million,
up 10.7 percent, primarily due to the addition of Reno and Business Express
aircraft. Other operating expenses increased $342 million, or 12.0 percent, due
primarily to increases in outsourced services, travel and incidental costs and
booking fees.
18
1998 COMPARED TO 1997 The Company's operating expenses of $15.5 billion in 1998
were up $166 million, or 1.1 percent, versus 1997. American's cost per ASM
decreased 0.2 percent to 9.25 cents. Wages, salaries and benefits increased $282
million, or 5.1 percent, due primarily to an increase in the average number of
equivalent employees, contractual wage rate and seniority increases that are
built into the Company's labor contracts and an increase in the provision for
profit-sharing. Fuel expense decreased $319 million, or 16.6 percent, due to an
18.2 percent decrease in American's average price per gallon, partially offset
by a 1.9 percent increase in American's fuel consumption. Commissions to agents
decreased 4.1 percent, or $52 million, despite a 3.2 percent increase in
passenger revenues, due to the continued benefit from the commission rate
reduction initiated in September 1997. Maintenance, materials and repairs
expense increased 8.5 percent, or $73 million, due to an increase in airframe
and engine maintenance volumes at American's maintenance bases as a result of
the maturing of its fleet. Other operating expenses increased $192 million, or
7.2 percent, due primarily to spending on the Company's Year 2000 Readiness
program, an increase in outsourced services and higher costs resulting from
higher passenger revenues, such as credit card fees.
OTHER INCOME (EXPENSE)
Other income (expense) consists of interest income and expense, interest
capitalized and miscellaneous - net.
1999 COMPARED TO 1998 Interest income decreased $25 million, or 21.9 percent,
due primarily to lower investment balances throughout most of 1999. Interest
expense increased $21 million, or 5.6 percent, resulting primarily from an
increase in long-term debt. Interest capitalized increased 13.5 percent, or $14
million, due to an increase in purchase deposits for flight equipment throughout
most of 1999. Miscellaneous - net increased $37 million due primarily to the
sale of a portion of American's interest in Equant in 1999, which resulted in an
approximate $75 million gain, and a gain of approximately $40 million from the
sale of the Company's investment in the preferred stock of Canadian. These gains
were partially offset by the provision for the settlement of litigation items
and the write-down of certain investments held by the Company during 1999.
1998 COMPARED TO 1997 Interest expense decreased $49 million, or 11.6 percent,
due primarily to scheduled debt repayments of approximately $400 million in
1998. Interest capitalized increased $84 million, to $104 million, due primarily
to the increase in purchase deposits for flight equipment.
OPERATING STATISTICS
The following table provides statistical information for American and AMR Eagle
for the years ended December 31, 1999, 1998 and 1997.
[Enlarge/Download Table]
Year Ended December 31,
------------------------------------------------------------
1999 1998 1997
---------------- --------------- ---------------
AMERICAN AIRLINES
Revenue passenger miles (millions) 112,067 108,955 107,026
Available seat miles (millions) 161,211 155,297 153,917
Cargo ton miles (millions) 2,068 1,974 2,032
Passenger load factor 69.5% 70.2% 69.5%
Breakeven load factor 63.8% 59.9% 61.0%
Passenger revenue yield per passenger mile (cents) 13.12 13.49 13.37
Passenger revenue per available seat mile (cents) 9.12 9.46 9.30
Cargo revenue yield per ton mile (cents) 30.70 32.85 33.78
Operating expenses per available seat mile (cents) 9.39 9.25 9.27
Operating aircraft at year-end 697 648 641
AMR EAGLE
Revenue passenger miles (millions) 3,371 2,788 2,553
Available seat miles (millions) 5,640 4,471 4,218
Passenger load factor 59.8% 62.4% 60.5%
Operating aircraft at year-end 268 209 199
19
LIQUIDITY AND CAPITAL RESOURCES
Operating activities provided net cash of $2.3 billion in 1999, $2.8 billion in
1998 and $2.5 billion in 1997. The $533 million decrease from 1998 to 1999
resulted primarily from a decrease in income from continuing operations.
Capital expenditures in 1999 totaled $3.5 billion, compared to $2.3
billion in 1998 and $1.1 billion in 1997, and included aircraft acquisitions of
approximately $2.7 billion. In 1999, American took delivery of 24 Boeing
737-800s, 11 Boeing 777-200IGWs, six Boeing 757-200s and four Boeing 767-300ER
aircraft. AMR Eagle took delivery of 25 Embraer ERJ-145s and nine Embraer
ERJ-135 aircraft. These expenditures, as well as the expansion of certain
airport facilities, were funded primarily with internally generated cash, except
for (i) the Embraer aircraft acquisitions, which were funded through secured
debt agreements, (ii) 14 Boeing aircraft, which were financed through secured
mortgage agreements, and (iii) one Boeing 757-200 aircraft, which was financed
through a sale-leaseback transaction.
At December 31, 1999, the Company had commitments to acquire the
following aircraft: 81 Boeing 737-800s, 26 Boeing 777-200IGWs, 86 Embraer
ERJ-135s, five Embraer ERJ-145s and 25 Bombardier CRJ-700s. Deliveries of all
aircraft extend through 2006. Future payments for all aircraft, including the
estimated amounts for price escalation, will approximate $2.2 billion in 2000,
$1.8 billion in 2001, $600 million in 2002 and an aggregate of approximately
$1.0 billion in 2003 through 2006. In addition to these commitments for
aircraft, the Company expects to spend approximately $1.6 billion in 2000 for
modifications to aircraft, renovations of -- and additions to -- airport and
off-airport facilities, and the acquisition of various other equipment and
assets, of which approximately $470 million has been authorized by the Company's
Board of Directors. The Company expects to fund its 2000 capital expenditures
from the Company's existing cash and short-term investments, internally
generated cash, and new financing depending upon capital market conditions and
the Company's evolving view of its long-term needs.
For the year ended December 31, 1999, the Company purchased approximately
14.1 million shares of its common stock under two separate share repurchase
programs at a total cost of approximately $871 million. Additional share
repurchases of up to $34 million, the remaining amount currently authorized by
the Company's Board of Directors, may be made from time to time, depending on
market conditions, and may be discontinued at any time.
At December 31, 1999, the Company owned approximately 3.5 million
depository certificates convertible, subject to certain restrictions, into the
common stock of Equant, which completed an initial public offering in July 1998.
As of December 31, 1999, the estimated fair value of these depository
certificates was approximately $395 million, based upon the publicly traded
market value of Equant common stock. Of the 3.5 million depository certificates
owned by the Company as of December 31, 1999, approximately 2.3 million
depository certificates, with an estimated market value of approximately $259
million, are held by the Company on behalf of Sabre.
On February 7, 2000, the Company declared its intent to distribute AMR's
entire ownership interest in Sabre as a dividend on all outstanding shares of
its common stock. To effect the dividend, AMR exchanged all of its 107,374,000
shares of Sabre's Class B common stock for an equal number of shares of Sabre's
Class A common stock. Effective after the close of business on March 15, 2000,
AMR distributed 0.722652 shares of Sabre Class A common stock for each share of
AMR stock owned by AMR's shareholders. The record date for the dividend of Sabre
stock was the close of business on March 1, 2000. In addition, on February 18,
2000, Sabre paid a special one-time cash dividend of $675 million to
shareholders of record of Sabre common stock at the close of business on
February 15, 2000. Based upon its approximate 83 percent interest in Sabre, AMR
received approximately $560 million of this dividend. These funds will be used
for general corporate purposes. The dividend of AMR's entire ownership interest
in Sabre's common stock resulted in a reduction to AMR's retained earnings in
March of 2000 equal to the carrying value of the Company's investment in Sabre
on March 15, 2000, which approximated $600 million. The fair market value of
AMR's investment in Sabre on March 15, 2000, based upon the quoted market
closing price of Sabre Class A common stock on the New York Stock Exchange, was
approximately $5.2 billion.
20
The Company's March 15, 2000 distribution of its ownership interest in
Sabre represented a designated event, as defined, under event risk covenants
contained in agreements related to certain indebtedness of the Company and
American. Under these covenants, the interest rate on such indebtedness will be
increased if, during a specified period following the occurrence of a designated
event, the credit rating of such indebtedness is downgraded below certain
levels. However, the Company has not received indication that the credit rating
on any such indebtedness will be downgraded. For additional information
concerning these event risk covenants, see Note 3 to the consolidated financial
statements.
American has a $1.0 billion credit facility agreement that expires
December 19, 2001. At American's option, interest on the agreement can be
calculated on one of several different bases. For most borrowings, American
would anticipate choosing a floating rate based upon the London Interbank
Offered Rate (LIBOR). At December 31, 1999, no borrowings were outstanding under
the agreement.
AMR (principally American Airlines) historically operates with a working
capital deficit as do most other airline companies. The existence of such a
deficit has not in the past impaired the Company's ability to meet its
obligations as they become due and is not expected to do so in the future.
OTHER INFORMATION
ENVIRONMENTAL MATTERS Subsidiaries of AMR have been notified of potential
liability with regard to several environmental cleanup sites and certain airport
locations. At sites where remedial litigation has commenced, potential liability
is joint and several. AMR's alleged volumetric contributions at these sites are
minimal. AMR does not expect these matters, individually or collectively, to
have a material impact on its results of operations, financial position or
liquidity. Additional information is included in Note 3 to the consolidated
financial statements.
YEAR 2000 PROJECT The Company did not experience any significant malfunctions or
errors in its operating or business systems on January 1, 2000, and has not
since that date. Although it is possible that the full impact of the date change
has not been fully recognized, the Company believes any such problems are likely
to be minor and correctable. In addition, the Company could still be negatively
affected if its customers or major suppliers are adversely affected by the Year
2000 or similar issues. However, the Company is not currently aware of any
significant Year 2000 or similar problems that have arisen for its customers or
major suppliers.
As of December 31, 1999, the Company's total cost of the Year 2000
Project was approximately $214 million. Costs associated with the Year 2000
Project were expensed as incurred, other than capitalized hardware costs, and
were funded through cash from operations.
DALLAS LOVE FIELD In 1968, as part of an agreement between the cities of Fort
Worth and Dallas to build and operate Dallas/Fort Worth Airport (DFW), a bond
ordinance was enacted by both cities (the Bond Ordinance). The Bond Ordinance
required both cities to direct all scheduled interstate passenger operations to
DFW and was an integral part of the bonds issued for the construction and
operation of DFW. In 1979, as part of a settlement to resolve litigation with
Southwest Airlines, the cities agreed to expand the scope of operations allowed
under the Bond Ordinance at Dallas' Love Field. Congress enacted the Wright
Amendment to prevent the federal government from acting inconsistent with this
agreement. The Wright Amendment limited interstate operations at Love Field to
the four states contiguous to Texas (New Mexico, Oklahoma, Arkansas, and
Louisiana) and prohibited through ticketing to any destination outside that
perimeter. In 1997, without the consent of either city, Congress amended the
Wright Amendment by (i) adding three states (Kansas, Mississippi, and Alabama)
to the perimeter and (ii) removing some federal restrictions on large aircraft
configured with 56 seats or less (the 1997 Amendment).
21
In October 1997, the City of Fort Worth filed suit in state district
court against the City of Dallas and others seeking to enforce the Bond
Ordinance. Fort Worth contends that the 1997 Amendment does not preclude the
City of Dallas from exercising its proprietary rights to restrict traffic at
Love Field in a manner consistent with the Bond Ordinance and, moreover, that
Dallas has an obligation to do so. American joined in this litigation. On
October 15, 1998, the state district court granted summary judgment in favor of
Fort Worth and American, which summary judgment is being appealed to the Fort
Worth Court of Appeals. In the same lawsuit, DFW filed claims alleging that
irrespective of whether the Bond Ordinance is enforceable, the DFW Use Agreement
prohibits American and other DFW signatory airlines from moving any interstate
operations to Love Field. These claims remain unresolved.
Dallas filed a separate declaratory judgment action in the United States
District Court for the Northern District of Texas, Dallas Division, seeking to
have the court declare that, as a matter of law, the 1997 Amendment precludes
Dallas from exercising any restrictions on operations at Love Field. Further, in
May 1998, Continental Airlines and Continental Express filed a lawsuit in Dallas
federal court seeking a judicial declaration that the Bond Ordinance cannot be
enforced to prevent them from operating flights from Love Field to Cleveland
using regional jets. These two federal court lawsuits were consolidated and
stayed.
In December 1998, the Department of Transportation (DOT) issued an order
on the federal law questions concerning the Bond Ordinance, local proprietary
powers, DFW's Use Agreement with DFW carriers such as American, and the Wright
and 1997 Amendments, and concluded that the Bond Ordinance was preempted by
federal law and was therefore not enforceable. The DOT also found that the DFW
Use Agreement did not preclude American from conducting interstate operations at
Love Field. Fort Worth, American and DFW appealed the DOT's order to the Fifth
Circuit Court of Appeals, and on February 1, 2000, the Fifth Circuit affirmed
the DOT's order in all respects.
In January 2000, the Department of Justice, at the behest of the DOT,
filed a lawsuit in the United States District Court for the Northern District of
Texas, Dallas Division, against Fort Worth and American seeking to enforce the
DOT's order and to prevent any party from interfering with any carrier operating
under that order.
American has announced new service from Love Field beginning May 1, 2000,
to Chicago and Los Angeles and is seeking facilities at Love Field from Dallas.
As a result of the foregoing, the future of interstate flight operations at Love
Field and American's DFW hub are uncertain. An increase in operations at Love
Field to new interstate destinations could adversely impact American's business.
OUTLOOK FOR 2000
The Company is cautiously optimistic about the 2000 revenue environment. The
U.S. economy remains strong, and many of the world's economies are expected to
continue to improve. Against this backdrop, the chief concerns are the
industry's ability to match capacity growth with the demand for air travel, and
the much higher fuel prices. For American, capacity is expected to increase only
slightly in 2000. The increase in American's seating capacity from the delivery
of new aircraft will be mostly offset by the removal of approximately 7,200
seats from its fleet. (In February 2000, the Company announced its "More Room
Throughout Coach" initiative, which will provide more room to passengers
throughout the coach cabins. American's entire fleet will be reconfigured to
increase the seat pitch from the present industry standard of 31 and 32 inches
to a predominant seat pitch of 34 and 35 inches.)
Over the course of the year, the Company expects to strengthen its
position in key domestic markets, while strategically expanding its
international network. Domestically, American and AMR Eagle look to continue to
benefit from the integration of Reno and Business Express, and the marketing
relationships with U.S. Airways, Inc. and Alaska Airlines, Inc. Internationally,
while American will introduce minimal service increases, it will, where
appropriate, expand its various code-share alliances. Further, ONEworld will
admit two new partners in 2000 -- LanChile and Aer Lingus -- and, while losing
Canadian Airlines, will look to otherwise buttress its position in Canada.
22
Pressure to reduce costs will continue, although the volatility of fuel
prices makes any prediction of overall costs very difficult. Excluding fuel, the
Company anticipates an increase in operating expenses of about five percent,
driven primarily by higher labor costs associated with the normal seniority and
scale increases in union contracts, an increase in depreciation and amortization
expense and maintenance, materials and repairs expense as the Company continues
to acquire new aircraft, and an increase in airport landing fees and facility
rent expense from higher rates. Other expense lines will see volume-driven
increases and inflationary pressures. Partially offsetting this expected
increase in costs, the Company expects savings in commission expense due to
changes made in late 1999 to the commission structure, and a decrease in the
percentage of commissionable transactions.
Overshadowing all other expenses, though, is the expected increase in
fuel expense, owing to significantly higher fuel prices. Although the Company
has hedged approximately 48 percent of its 2000 fuel requirements as of December
31, 1999, its 2000 earnings will be adversely impacted by this significant rise
in fuel prices. The magnitude of this impact will be driven by the duration of
the higher prices, which, at a minimum, will dampen the Company's first half
2000 financial results. In addition to the direct effect, the higher fuel prices
may, if sustained at their current levels for an extended period of time,
indirectly negatively impact the Company by slowing the economy and thereby the
demand for air travel.
FORWARD-LOOKING INFORMATION
The preceding discussions under Business and Management's Discussion and
Analysis of Financial Condition and Results of Operations contain various
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, which represent the Company's expectations or beliefs concerning
future events. When used in this document and in documents incorporated herein
by reference, the words "expects," "plans," "anticipates," and similar
expressions are intended to identify forward-looking statements. Forward-looking
statements include, without limitation, expectations as to results of operations
and financial condition, including changes in capacity, revenues and costs,
expectations as to future financing needs, Year 2000 expectations, overall
economic projections and the Company's plans and objectives for future
operations, including plans to develop future code-sharing programs and to
evaluate new alliances. All forward-looking statements in this report are based
upon information available to the Company on the date of this report. The
Company undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future events
or otherwise. Forward-looking statements are subject to a number of factors that
could cause actual results to differ materially from our expectations. The
following factors, in addition to other possible factors not listed, could cause
the Company's actual results to differ materially from those expressed in
forward-looking statements:
UNCERTAINTY OF FUTURE COLLECTIVE BARGAINING AGREEMENTS AND EVENTS The Company's
operations could be adversely affected by failure of the Company to reach
agreement with any labor union representing the Company's employees or by an
agreement with a labor union representing the Company's employees that contains
terms which prevent the Company from competing effectively with other airlines.
In addition, a dispute between the Company and an employee work group (outside
the confines of a collective bargaining agreement) could adversely impact the
Company's operations.
ECONOMIC AND OTHER CONDITIONS The airline industry is affected by changes in
international, national, regional and local economic conditions, inflation, war
or political instability (or the threat thereof), consumer preferences and
spending patterns, demographic trends, disruptions to the air traffic control
system, consumer perceptions of airline safety, costs of safety, security and
environmental measures, and the weather.
COMMODITY PRICES Due to the competitive nature of the airline industry, in the
event of any increase in the price of jet fuel, there can be no assurance that
the Company would be able to pass on increased fuel prices to its customers by
increasing fares.
23
COMPETITION IN THE AIRLINE INDUSTRY Service over almost all of the Company's
routes is highly competitive. The Company faces vigorous competition from major
domestic airlines, national, regional, all-cargo and charter carriers, foreign
carriers, low-cost carriers, and, particularly on shorter segments, ground
transportation. Pricing decisions are affected by competition from other
airlines. Fare discounting by competitors has historically had a negative effect
on the Company's financial results because American is generally required to
match competitors' fares to maintain passenger traffic. No assurance can be
given that any future fare reduction would be offset by increases in passenger
traffic, a reduction in costs or changes in the mix of traffic that would
improve yields.
CHANGING BUSINESS STRATEGY Although it has no current plan to do so, the Company
may change its business strategy in the future and may not pursue some of the
goals stated herein.
GOVERNMENT REGULATION Future results of the Company's operations may vary based
upon any actions which the governmental agencies with jurisdiction over the
Company's operations may take, including the granting and timing of certain
governmental approvals (including foreign government approvals) needed for
code-sharing alliances and other arrangements with other airlines, restrictions
on competitive practices (e.g., new regulations which would curtail an airline's
ability to respond to a competitor), the adoption of regulations that impact
customer service standards, and the adoption of more restrictive locally-imposed
noise restrictions.
UNCERTAINTY IN INTERNATIONAL OPERATIONS The Company's current international
activities and prospects could be adversely affected by factors such as
reversals or delays in the opening of foreign markets, exchange controls,
currency and political risks, taxation and changes in international government
regulation of the Company's operations.
24
ITEM 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS
The risk inherent in the Company's market risk sensitive instruments and
positions is the potential loss arising from adverse changes in the price of
fuel, foreign currency exchange rates and interest rates as discussed below. The
sensitivity analyses presented do not consider the effects that such adverse
changes may have on overall economic activity, nor do they consider additional
actions management may take to mitigate its exposure to such changes. Actual
results may differ. See Note 6 to the consolidated financial statements for
accounting policies and additional information.
AIRCRAFT FUEL The Company's earnings are affected by changes in the price and
availability of aircraft fuel. In order to provide a measure of control over
price and supply, the Company trades and ships fuel and maintains fuel storage
facilities to support its flight operations. The Company also manages the price
risk of fuel costs primarily utilizing swap and option contracts. Market risk is
estimated as a hypothetical 10 percent increase in the December 31, 1999 and
1998 cost per gallon of fuel. Based on projected 2000 fuel usage, such an
increase would result in an increase to aircraft fuel expense of approximately
$125 million in 2000, net of fuel hedge instruments outstanding at December 31,
1999. Comparatively, based on projected 1999 fuel usage, such an increase would
have resulted in an increase to aircraft fuel expense of approximately $73
million in 1999, net of fuel hedge instruments outstanding at December 31, 1998.
The change in market risk is due primarily to the increase in fuel prices. As of
December 31, 1999, the Company had hedged approximately 48 percent of its 2000
fuel requirements and approximately 10 percent of its 2001 fuel requirements,
compared to approximately 48 percent of its 1999 fuel requirements and 19
percent of its 2000 fuel requirements hedged at December 31, 1998.
FOREIGN CURRENCY The Company is exposed to the effect of foreign exchange rate
fluctuations on the U.S. dollar value of foreign currency-denominated operating
revenues and expenses. The Company's largest exposure comes from the Japanese
yen, British pound, Canadian dollar, Euro and various Latin and South American
currencies. The Company uses options to hedge a portion of its anticipated
foreign currency-denominated net cash flows. The result of a uniform 10 percent
strengthening in the value of the U.S. dollar from December 31, 1999 and 1998
levels relative to each of the currencies in which the Company has foreign
currency exposure would result in a decrease in operating income of
approximately $39 million and $22 million for the years ending December 31, 2000
and 1999, respectively, net of hedge instruments outstanding at December 31,
1999 and 1998, due to the Company's foreign-denominated revenues exceeding its
foreign-denominated expenses. This sensitivity analysis was prepared based upon
projected 2000 and 1999 foreign currency-denominated revenues and expenses as of
December 31, 1999 and 1998. Furthermore, this calculation assumes that each
exchange rate would change in the same direction relative to the U.S. dollar.
INTEREST The Company's earnings are also affected by changes in interest rates
due to the impact those changes have on its interest income from cash and
short-term investments and its interest expense from variable-rate debt
instruments. The Company has variable-rate debt instruments representing
approximately 21 percent and six percent of its total long-term debt,
respectively, at December 31, 1999 and 1998, and interest rate swaps on notional
amounts of approximately $696 million and $1.1 billion, respectively, at
December 31, 1999 and 1998. If interest rates average 10 percent more in 2000
than they did at December 31, 1999, the Company's interest expense would
increase by approximately $10 million and interest income from cash and
short-term investments would increase by approximately $11 million. In
comparison, at December 31, 1998, the Company estimated that if interest rates
averaged 10 percent more in 1999 than they did at December 31, 1998, the
Company's interest expense would have increased by approximately $6 million and
interest income from cash and short-term investments would have increased by
approximately $8 million. These amounts are determined by considering the impact
of the hypothetical interest rates on the Company's variable-rate long-term
debt, interest rate swap agreements, and cash and short-term investment balances
at December 31, 1999 and 1998.
25
Market risk for fixed-rate long-term debt is estimated as the potential
increase in fair value resulting from a hypothetical 10 percent decrease in
interest rates, and amounts to approximately $156 million and $96 million as of
December 31, 1999 and 1998, respectively. The fair values of the Company's
long-term debt were estimated using quoted market prices or discounted future
cash flows based on the Company's incremental borrowing rates for similar types
of borrowing arrangements.
INVESTMENTS The Company is subject to market risk related to its ownership of,
excluding the depository certificates held on behalf of Sabre, approximately 1.2
million and 1.4 million depository certificates convertible, subject to certain
restrictions, into the common stock of Equant, as of December 31, 1999 and 1998,
respectively. The estimated fair value of these depository certificates was
approximately $136 million and $100 million as of December 31, 1999 and 1998,
respectively, based upon the market value of Equant common stock.
In addition, the Company holds investments in certain other entities,
primarily foreign airlines, which are subject to market risk. However, the
impact of such market risk on earnings is not significant due to the
immateriality of the carrying value and the geographically diverse nature of
these holdings.
26
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
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Page
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Report of Independent Auditors 28
Consolidated Statements of Operations 29
Consolidated Balance Sheets 31
Consolidated Statements of Cash Flows 33
Consolidated Statements of Stockholders' Equity 34
Notes to Consolidated Financial Statements 35
27
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
AMR Corporation
We have audited the accompanying consolidated balance sheets of AMR
Corporation as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of AMR
Corporation at December 31, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
ERNST & YOUNG LLP
2121 San Jacinto
Dallas, Texas 75201
January 17, 2000, except for the second
paragraph of Note 12, for which the
date is March 15, 2000.
28
AMR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
[Enlarge/Download Table]
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Year Ended December 31,
------------------------------------------------
1999 1998 1997
------------ ------------ ------------
REVENUES
Passenger - American Airlines, Inc. $ 14,707 $ 14,695 $ 14,310
- AMR Eagle 1,294 1,121 1,017
Cargo 643 656 687
Other revenues 1,086 1,044 943
------------ ------------ ------------
Total operating revenues 17,730 17,516 16,957
------------ ------------ ------------
EXPENSES
Wages, salaries and benefits 6,120 5,793 5,511
Aircraft fuel 1,696 1,604 1,923
Commissions to agents 1,162 1,226 1,278
Depreciation and amortization 1,092 1,040 1,040
Maintenance, materials and repairs 1,003 935 862
Other rentals and landing fees 942 839 842
Food service 740 675 677
Aircraft rentals 630 569 574
Other operating expenses 3,189 2,847 2,655
------------ ------------ ------------
Total operating expenses 16,574 15,528 15,362
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OPERATING INCOME 1,156 1,988 1,595
OTHER INCOME (EXPENSE)
Interest income 89 114 110
Interest expense (393) (372) (421)
Interest capitalized 118 104 20
Miscellaneous - net 36 (1) 32
------------ ------------ ------------
(150) (155) (259)
------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 1,006 1,833 1,336
Income tax provision 350 719 527
------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS 656 1,114 809
INCOME FROM DISCONTINUED OPERATIONS, NET OF APPLICABLE INCOME
TAXES AND MINORITY INTEREST 265 200 176
GAIN ON SALE OF DISCONTINUED OPERATIONS, NET OF APPLICABLE INCOME
TAXES 64 -- --
------------ ------------ ------------
NET EARNINGS $ 985 $ 1,314 $ 985
============ ============ ============
--------------------------------------------------------------------------------
Continued on next page.
29
AMR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(in millions, except per share amounts)
[Enlarge/Download Table]
------------------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------
1999 1998 1997
------------ ------------ ------------
EARNINGS APPLICABLE TO COMMON SHARES $ 985 $ 1,314 $ 985
============ ============ ============
EARNINGS PER COMMON SHARE:
BASIC
Income from continuing operations $ 4.30 $ 6.60 $ 4.54
Discontinued operations 2.16 1.18 0.98
------------ ------------ ------------
Net earnings $ 6.46 $ 7.78 $ 5.52
============ ============ ============
DILUTED
Income from continuing operations $ 4.17 $ 6.38 $ 4.43
Discontinued operations 2.09 1.14 0.96
------------ ------------ ------------
Net earnings $ 6.26 $ 7.52 $ 5.39
============ ============ ============
------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
30
AMR CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions, except shares and par value)
[Enlarge/Download Table]
---------------------------------------------------------------------------------------------------------------
December 31,
-----------------------------
1999 1998
------------ ------------
ASSETS
CURRENT ASSETS
Cash $ 85 $ 87
Short-term investments 1,706 1,448
Receivables, less allowance for uncollectible
accounts (1999 - $57; 1998 - $19) 1,134 1,225
Inventories, less allowance for obsolescence
(1999 - $279; 1998 - $214) 708 596
Deferred income taxes 612 443
Other current assets 179 170
------------ ------------
Total current assets 4,424 3,969
EQUIPMENT AND PROPERTY
Flight equipment, at cost 16,912 13,688
Less accumulated depreciation 5,589 4,976
------------ ------------
11,323 8,712
Purchase deposits for flight equipment 1,582 1,624
Other equipment and property, at cost 3,247 2,999
Less accumulated depreciation 1,814 1,669
------------ ------------
1,433 1,330
------------ ------------
14,338 11,666
EQUIPMENT AND PROPERTY UNDER CAPITAL LEASES
Flight equipment 3,141 3,159
Other equipment and property 155 146
------------ ------------
3,296 3,305
Less accumulated amortization 1,347 1,230
------------ ------------
1,949 2,075
OTHER ASSETS
Route acquisition costs, less accumulated amortization
(1999 - $269; 1998 - $240) 887 916
Airport operating and gate lease rights, less accumulated amortization
(1999 - $181; 1998 - $161) 304 312
Prepaid pension cost 257 304
Other 2,215 2,213
------------ ------------
3,663 3,745
------------ ------------
TOTAL ASSETS $ 24,374 $ 21,455
============ ============
---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
31
AMR CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions, except shares and par value)
[Enlarge/Download Table]
---------------------------------------------------------------------------------------------------------
December 31,
------------------------------
1999 1998
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,115 $ 1,047
Accrued salaries and wages 849 917
Accrued liabilities 1,107 973
Air traffic liability 2,255 2,163
Current maturities of long-term debt 302 48
Current obligations under capital leases 236 154
------------ ------------
Total current liabilities 5,864 5,302
LONG-TERM DEBT, LESS CURRENT MATURITIES 4,078 2,436
OBLIGATIONS UNDER CAPITAL LEASES,
LESS CURRENT OBLIGATIONS 1,611 1,764
OTHER LIABILITIES AND CREDITS
Deferred income taxes 1,846 1,470
Deferred gains 613 573
Postretirement benefits 1,669 1,598
Other liabilities and deferred credits 1,835 1,614
------------ ------------
5,963 5,255
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock - $1 par value; shares authorized: 750,000,000;
Shares issued: 1999 and 1998 - 182,278,766 182 182
Additional paid-in capital 3,061 3,075
Treasury shares at cost: 1999 - 34,034,110; 1998 - 20,927,692 (2,101) (1,288)
Accumulated other comprehensive income (2) (4)
Retained earnings 5,718 4,733
------------ ------------
6,858 6,698
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 24,374 $ 21,455
============ ============
---------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
32
AMR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
[Enlarge/Download Table]
---------------------------------------------------------------------------------------------------------------
Year Ended December 31,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
CASH FLOW FROM OPERATING ACTIVITIES:
Income from continuing operations $ 656 $ 1,114 $ 809
Adjustments to reconcile income from continuing operations to net
cash provided by operating activities:
Depreciation 864 830 831
Amortization 228 210 209
Deferred income taxes 183 268 321
Gain on sale of other investments, net (95) -- --
Gain on disposition of equipment and property (15) (19) (24)
Change in assets and liabilities:
Decrease (increase) in receivables 261 (185) 72
Increase in inventories (140) (36) (41)
Increase in accounts payable and accrued liabilities 42 345 64
Increase in air traffic liability 89 119 155
Other, net 191 151 127
---------- ---------- ----------
Net cash provided by operating activities 2,264 2,797 2,523
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures, including purchase deposits
on flight equipment (3,539) (2,342) (1,139)
Net decrease (increase) in short-term investments (253) 348 (480)
Acquisitions and other investments (99) (137) --
Proceeds from:
Sale of discontinued operations 259 -- --
Sale of other investments 85 -- --
Sale of equipment and property 79 262 291
Other 18 -- --
---------- ---------- ----------
Net cash used for investing activities (3,450) (1,869) (1,328)
CASH FLOW FROM FINANCING ACTIVITIES:
Repurchase of common stock (871) (945) (740)
Payments on long-term debt and capital lease obligations (280) (547) (648)
Proceeds from:
Issuance of long-term debt 1,956 246 --
Short-term loan from affiliate 300 -- --
Sale-leaseback transactions 54 270 --
Exercise of stock options 25 85 200
---------- ---------- ----------
Net cash provided by (used for) financing activities 1,184 (891) (1,188)
---------- ---------- ----------
Net increase (decrease) in cash (2) 37 7
Cash at beginning of year 87 50 43
---------- ---------- ----------
Cash at end of year $ 85 $ 87 $ 50
========== ========== ==========
ACTIVITIES NOT AFFECTING CASH
Payment of short-term loan from affiliate against receivable from
affiliate $ 300 $ -- $ --
========== ========== ==========
Capital lease obligations incurred $ 54 $ 270 $ --
========== ========== ==========
---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
33
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, 1997 $ 182 $ 3,075 $ -- $ (23) $ 2,434 $ 5,668
Net earnings -- -- -- -- 985 985
Adjustment for minimum pension
liability, net of tax expense of $13 -- -- -- 19 -- 19
----------
Total comprehensive income 1,004
Issuance of 312,140 shares pursuant to
stock option, deferred stock and
restricted stock incentive plans -- 13 -- -- -- 13
Issuance of 11,500,000 stock options at
$5 below market value at date of
grant -- 58 -- -- -- 58
Repurchase of 14,086,750 common shares -- -- (740) -- -- (740)
Issuance of 5,005,918 shares from
Treasury pursuant to stock option,
deferred stock and restricted stock
incentive plans, net of tax benefit
of $15 -- (42) 255 -- -- 213
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1997 182 3,104 (485) (4) 3,419 6,216
Net earnings and total comprehensive
income -- -- -- -- 1,314 1,314
Repurchase of 14,342,008 common shares -- -- (944) -- -- (944)
Issuance of 2,495,148 shares from
Treasury pursuant to stock option,
deferred stock and restricted stock
incentive plans, net of tax benefit
of $17 -- (29) 141 -- -- 112
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1998 182 3,075 (1,288) (4) 4,733 6,698
Net earnings -- -- -- -- 985 985
Adjustment for minimum pension
liability, net of tax expense of $1 -- -- -- 3 -- 3
Unrealized loss on investments, net of
tax benefit of $1 -- -- -- (1) -- (1)
----------
Total comprehensive income 987
Repurchase of 14,062,358 common shares -- -- (871) -- -- (871)
Issuance of 955,940 shares from
Treasury pursuant to stock option,
deferred stock and restricted stock
incentive plans, net of tax benefit
of $4 -- (14) 58 -- -- 44
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1999 $ 182 $ 3,061 $ (2,101) $ (2) $ 5,718 $ 6,858
========== ========== ========== ========== ========== ==========
---------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING POLICIES
BASIS OF PRESENTATION The consolidated financial statements include the accounts
of AMR Corporation (AMR or the Company), its wholly owned subsidiaries,
including its principal subsidiary American Airlines, Inc. (American), and its
majority-owned subsidiaries, including Sabre Holdings Corporation (Sabre). All
significant intercompany transactions have been eliminated. The results of
operations, cash flows and net assets for Sabre, AMR Services, AMR Combs and
TeleService Resources have been reflected in the consolidated financial
statements as discontinued operations. Unless specifically indicated otherwise,
the information in the footnotes relates to the continuing operations of AMR.
All share and per share amounts reflect the stock split on June 9, 1998, where
appropriate. Certain amounts from prior years have been reclassified to conform
with the 1999 presentation.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
INVENTORIES Spare parts, materials and supplies relating to flight equipment are
carried at average acquisition cost and are expensed when incurred in
operations. Allowances for obsolescence are provided, over the estimated useful
life of the related aircraft and engines, for spare parts expected to be on hand
at the date aircraft are retired from service, plus allowances for spare parts
currently identified as excess. These allowances are based on management
estimates, which are subject to change.
EQUIPMENT AND PROPERTY The provision for depreciation of operating equipment and
property is computed on the straight-line method applied to each unit of
property, except that major rotable parts, avionics and assemblies are
depreciated on a group basis. The depreciable lives used for the principal
depreciable asset classifications are:
[Download Table]
Depreciable Life
----------------------------
Boeing 727-200 aircraft August 31, 2003 (1)
DC-10 aircraft December 31, 2000 (1)
Other American jet aircraft 20 - 30 years
Regional aircraft and engines 16 - 20 years
Major rotable parts, avionics and assemblies Life of equipment to which
applicable
Improvements to leased flight equipment Term of lease
Buildings and improvements (principally on 10-30 years or term of lease
leased land)
Furniture, fixtures and other equipment 3-20 years
Capitalized software 3-10 years
(1) Approximate final aircraft retirement date.
Residual values for aircraft, engines, major rotable parts, avionics and
assemblies are generally five to 10 percent, except when a guaranteed residual
value or other agreements exist to better estimate the residual value.
Effective January 1, 1999, in order to more accurately reflect the
expected useful life of its aircraft, the Company changed its estimate of the
depreciable lives of certain aircraft types from 20 to 25 years and increased
the residual value from five to 10 percent. It also established a 30-year life
for its new Boeing 777 aircraft, first delivered in the first quarter of 1999.
As a result of this change, depreciation and amortization expense was reduced by
approximately $158 million and net earnings were increased by approximately $99
million, or $0.63 per common share diluted, for the year ended December 31,
1999.
35
1. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Equipment and property under capital leases are amortized over the term
of the leases or, in the case of certain aircraft, over their expected useful
lives, and such amortization is included in depreciation and amortization. Lease
terms vary but are generally 10 to 25 years for aircraft and seven to 40 years
for other leased equipment and property.
MAINTENANCE AND REPAIR COSTS Maintenance and repair costs for owned and leased
flight equipment are charged to operating expense as incurred, except engine
overhaul costs incurred by AMR Eagle Holding Corporation (AMR Eagle) and costs
incurred for maintenance and repair under power by the hour maintenance contract
agreements, which are accrued on the basis of hours flown.
INTANGIBLE ASSETS Route acquisition costs and airport operating and gate lease
rights represent the purchase price attributable to route authorities, airport
take-off and landing slots and airport gate leasehold rights acquired. These
assets are being amortized on a straight-line basis over 40 years for route
authorities, 25 years for airport take-off and landing slots, and the term of
the lease for airport gate leasehold rights.
PASSENGER REVENUES Passenger ticket sales are initially recorded as a component
of air traffic liability. Revenue derived from ticket sales is recognized at the
time service is provided. However, due to various factors, including the complex
pricing structure and interline agreements throughout the industry, certain
amounts are recognized in revenue using estimates regarding both the timing of
the revenue recognition and the amount of revenue to be recognized. Actual
results could differ from those estimates.
ADVERTISING COSTS The Company expenses the costs of advertising as incurred.
Advertising expense was $206 million, $196 million and $181 million for the
years ended December 31, 1999, 1998 and 1997, respectively.
FREQUENT FLYER PROGRAM The estimated incremental cost of providing free travel
awards is accrued when such award levels are reached. American sells mileage
credits and related services to companies participating in its frequent flyer
program. The portion of the revenue related to the sale of mileage credits is
deferred and recognized over a period approximating the period during which the
mileage credits are used.
STATEMENTS OF CASH FLOWS Short-term investments, without regard to remaining
maturity at acquisition, are not considered as cash equivalents for purposes of
the statements of cash flows.
STOCK OPTIONS The Company accounts for its stock-based compensation plans in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25) and related Interpretations. Under APB 25,
no compensation expense is recognized for stock option grants if the exercise
price of the Company's stock option grants is at or above the fair market value
of the underlying stock on the date of grant.
36
2. INVESTMENTS
Short-term investments consisted of (in millions):
[Enlarge/Download Table]
December 31,
------------------------------------
1999 1998
------------- --------------
Overnight investments and time deposits $ - $ 133
Corporate and bank notes 1,173 705
U. S. Government agency notes 234 -
Asset backed securities 145 353
U. S. Government agency mortgages 94 102
Other 60 155
-------------- -------------
$ 1,706 $ 1,448
============= =============
Short-term investments at December 31, 1999, by contractual maturity included (in millions):
Due in one year or less $ 750
Due between one year and three years 899
Due after three years 57
-------------
$ 1,706
=============
All short-term investments are classified as available-for-sale and
stated at fair value. Net unrealized gains and losses, net of deferred taxes,
are reflected as an adjustment to stockholders' equity.
At December 31, 1998, the Company owned approximately 3.1 million
depository certificates convertible, subject to certain restrictions, into the
common stock of Equant N.V. (Equant), which completed an initial public offering
in July 1998. Approximately 1.7 million of the certificates were held by the
Company on behalf of Sabre. As of December 31, 1998, the estimated fair value of
these depository certificates was approximately $210 million, of which
approximately $110 million was held by the Company on behalf of Sabre, based
upon the publicly traded market value of Equant common stock. The carrying value
(cost basis) of the Company's investment in the depository certificates as of
December 31, 1998 was de minimis.
During 1999, the Company acquired approximately 400,000 Equant depository
certificates from other airlines. In addition, based upon a reallocation between
the owners of the certificates in July 1999, the Company received an additional
2.6 million certificates. In connection with two secondary offerings by Equant
in February and December 1999, the Company sold approximately 2.7 million
depository certificates for a net gain of approximately $118 million, after
taxes and minority interest. Of this amount, approximately $75 million is
included in Miscellaneous - net and approximately $71 million, net of taxes and
minority interest, related to depository certificates held by the Company on
behalf of Sabre, is included in income from discontinued operations on the
accompanying consolidated statements of operations. Accordingly, as of December
31, 1999, the Company holds approximately 3.5 million depository certificates
with an estimated market value of approximately $395 million, of which
approximately 2.3 million depository certificates with an estimated market value
of approximately $259 million, are held by the Company on behalf of Sabre. The
carrying value of the Company's investment in the depository certificates as of
December 31, 1999 was approximately $20 million.
In December 1999, the Company entered into an agreement to sell its
investment in the cumulative mandatorily redeemable convertible preferred stock
of Canadian Airlines International Limited (Canadian) for approximately $40
million, resulting in a gain of $40 million, which is included in Miscellaneous
- net on the accompanying consolidated statements of operations. In addition,
the Company recognized a tax benefit of $67 million resulting from the tax loss
on the investment, representing the reversal of a deferred tax valuation
allowance since it is more likely than not that the tax benefit will be
realized. The valuation allowance was established in 1996 when the investment
was written-off because, at that time, it was not more likely than not that the
tax benefit of the write-off would be realized.
37
3. COMMITMENTS AND CONTINGENCIES
At December 31, 1999, the Company had commitments to acquire the
following aircraft: 81 Boeing 737-800s, 26 Boeing 777-200IGWs, 86 Embraer
ERJ-135s, five Embraer ERJ-145s and 25 Bombardier CRJ-700s. Deliveries of all
aircraft extend through 2006. Future payments for all aircraft, including
estimated amounts for price escalation, will approximate $2.2 billion in 2000,
$1.8 billion in 2001, $600 million in 2002 and an aggregate of approximately
$1.0 billion in 2003 through 2006. In addition to these commitments for
aircraft, the Company's Board of Directors has authorized expenditures of
approximately $800 million over the next five years for modifications to
aircraft, renovations of -- and additions to -- airport and off-airport
facilities, and the acquisition of various other equipment and assets. AMR
expects to spend approximately $470 million of this authorized amount in 2000.
The Miami International Airport Authority is currently remediating
various environmental conditions at the Miami International Airport (the
Airport) and funding the remediation costs through landing fee revenues. Future
costs of the remediation effort may be borne by carriers operating at the
Airport, including American, through increased landing fees and/or other charges
since certain of the potentially responsible parties are no longer in business.
The future increase in landing fees and/or other charges may be material but
cannot be reasonably estimated due to various factors, including the unknown
extent of the remedial actions that may be required, the proportion of the cost
that will ultimately be recovered from the responsible parties, and
uncertainties regarding the environmental agencies that will ultimately
supervise the remedial activities and the nature of that supervision. In
addition, the Company is subject to environmental issues at various other
airport and non-airport locations. Management believes, after considering a
number of factors, that the ultimate disposition of these environmental issues
is not expected to materially affect the Company's consolidated financial
position, results of operations, or cash flows. Amounts recorded for
environmental issues are based on the Company's current assessments of the
ultimate outcome and, accordingly, could increase or decrease as these
assessments change.
In April 1995, American announced an agreement to sell 12 of its 19
McDonnell Douglas MD-11 aircraft to Federal Express Corporation (FedEx). In
March 1998, the Company exercised its option to sell its remaining seven MD-11
aircraft to FedEx. No significant gain or loss is expected to be recognized as a
result of these transactions. Eight aircraft had been delivered as of December
31, 1999. The remaining 11 aircraft will be delivered between 2000 and 2002. The
carrying value of the 11 remaining aircraft American has committed to sell was
approximately $690 million as of December 31, 1999.
AMR and American have included event risk covenants in approximately $3.0
billion of indebtedness. These covenants permit the holders of such indebtedness
to receive a higher rate of return (between 75 and 650 basis points above the
stated rate) if a designated event, as defined, should occur and the credit
rating of such indebtedness is downgraded below certain levels. The Company's
March 15, 2000 distribution of its ownership interest in Sabre represents a
designated event under these debt covenants. However, the Company has not
received indication that the credit rating on any such indebtedness will be
downgraded.
Special facility revenue bonds have been issued by certain
municipalities, primarily to purchase equipment and improve airport facilities
that are leased by American. In certain cases, the bond issue proceeds were
loaned to American and are included in long-term debt. Certain bonds have rates
that are periodically reset and are remarketed by various agents. In certain
circumstances, American may be required to purchase up to $437 million of the
special facility revenue bonds prior to scheduled maturity, in which case
American has the right to resell the bonds or to use the bonds to offset its
lease or debt obligations. American may borrow the purchase price of these bonds
under standby letter of credit agreements. At American's option, these letters
of credit are secured by funds held by bond trustees and by approximately $489
million of short-term investments.
38
4. LEASES
AMR's subsidiaries lease various types of equipment and property,
including aircraft and airport and off-airport facilities. The future minimum
lease payments required under capital leases, together with the present value of
net minimum lease payments, and future minimum lease payments required under
operating leases that have initial or remaining non-cancelable lease terms in
excess of one year as of December 31, 1999, were (in millions):
[Download Table]
Capital Operating
Year Ending December 31, Leases Leases
-------------- --------------
2000 $ 347 $ 1,015
2001 329 1,006
2002 280 952
2003 198 965
2004 249 954
2005 and subsequent 1,081 12,169
------------- -------------
2,484(1) $ 17,061(2)
=============
Less amount representing interest 637
-------------
Present value of net minimum lease payments $ 1,847
=============
(1) Future minimum payments required under capital leases include $187
million guaranteed by AMR relating to special facility revenue bonds
issued by municipalities.
(2) Future minimum payments required under operating leases include $6.5
billion guaranteed by AMR relating to special facility revenue bonds
issued by municipalities.
At December 31, 1999, the Company had 205 jet aircraft and 71 turboprop
aircraft under operating leases, and 79 jet aircraft and 61 turboprop aircraft
under capital leases. The aircraft leases can generally be renewed at rates
based on fair market value at the end of the lease term for one to five years.
Most aircraft leases have purchase options at or near the end of the lease term
at fair market value, but generally not to exceed a stated percentage of the
defined lessor's cost of the aircraft or at a predetermined fixed amount.
During 1996, American made prepayments on the cancelable operating leases
it had on 12 of its Boeing 767-300 aircraft. Upon the expiration of the amended
leases, American can purchase the aircraft for a nominal amount. As a result,
the aircraft were recorded as flight equipment under capital leases. During
1999, the Company exercised its option to purchase two of the Boeing 767-300
aircraft for a nominal fee. As such, these two aircraft were reclassified from
flight equipment under capital leases to owned flight equipment.
Rent expense, excluding landing fees, was $1.3 billion for 1999 and $1.1
billion for 1998 and 1997.
39
5. INDEBTEDNESS
Long-term debt (excluding amounts maturing within one year) consisted of
(in millions):
[Enlarge/Download Table]
December 31,
-----------------------------------
1999 1998
------------- -------------
Secured variable and fixed rate indebtedness due through 2015
(effective rates from 6.232% - 9.597% at December 31, 1999) $ 2,556 $ 857
7.875% - 10.62% notes due through 2039 812 865
9.0% - 10.20% debentures due through 2021 437 437
6.0% - 7.10% bonds due through 2031 176 176
Variable rate indebtedness due through 2024
(3.55% at December 31, 1999) 86 86
Other 11 15
------------- -------------
Long-term debt, less current maturities $ 4,078 $ 2,436
============= =============
Maturities of long-term debt (including sinking fund requirements) for
the next five years are: 2000 - $302 million; 2001 - $516 million; 2002 - $150
million; 2003 - $116 million; 2004 - $123 million.
American has a $1.0 billion credit facility agreement that expires
December 19, 2001. At American's option, interest on the agreement can be
calculated on one of several different bases. For most borrowings, American
would anticipate choosing a floating rate based upon the London Interbank
Offered Rate (LIBOR). At December 31, 1999, no borrowings were outstanding under
the agreement.
Certain debt is secured by aircraft, engines, equipment and other assets
having a net book value of approximately $2.7 billion. In addition, certain of
American's debt and credit facility agreements contain restrictive covenants,
including a minimum net worth requirement, which could limit American's ability
to pay dividends. At December 31, 1999, under the most restrictive provisions of
those debt and credit facility agreements, approximately $2.6 billion of the
retained earnings of American was available for payment of dividends to AMR.
Cash payments for interest, net of capitalized interest, were $237
million, $277 million and $411 million for 1999, 1998 and 1997, respectively.
6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
As part of the Company's risk management program, AMR uses a variety of
financial instruments, including interest rate swaps, fuel swap and option
contracts and currency exchange agreements. The Company does not hold or issue
derivative financial instruments for trading purposes.
NOTIONAL AMOUNTS AND CREDIT EXPOSURES OF DERIVATIVES
The notional amounts of derivative financial instruments summarized in
the tables which follow do not represent amounts exchanged between the parties
and, therefore, are not a measure of the Company's exposure resulting from its
use of derivatives. The amounts exchanged are calculated based on the notional
amounts and other terms of the instruments, which relate to interest rates,
exchange rates or other indices.
40
6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
The Company is exposed to credit losses in the event of non-performance
by counterparties to these financial instruments, but it does not expect any of
the counterparties to fail to meet its obligations. The credit exposure related
to these financial instruments is represented by the fair value of contracts
with a positive fair value at the reporting date, reduced by the effects of
master netting agreements. To manage credit risks, the Company selects
counterparties based on credit ratings, limits its exposure to a single
counterparty under defined guidelines, and monitors the market position of the
program and its relative market position with each counterparty. The Company
also maintains industry-standard security agreements with the majority of its
counterparties which may require the Company or the counterparty to post
collateral if the value of these instruments falls below certain mark-to-market
thresholds. As of December 31, 1999, no collateral was required under these
agreements, and the Company does not expect to post collateral in the near
future.
INTEREST RATE RISK MANAGEMENT
American enters into interest rate swap contracts to effectively convert
a portion of its fixed-rate obligations to floating-rate obligations. These
agreements involve the exchange of amounts based on a floating interest rate for
amounts based on fixed interest rates over the life of the agreement without an
exchange of the notional amount upon which the payments are based. The
differential to be paid or received as interest rates change is accrued and
recognized as an adjustment of interest expense related to the obligation. The
related amount payable to or receivable from counterparties is included in
current liabilities or assets. The fair values of the swap agreements are not
recognized in the financial statements. Gains and losses on terminations of
interest rate swap agreements are deferred as an adjustment to the carrying
amount of the outstanding obligation and amortized as an adjustment to interest
expense related to the obligation over the remaining term of the original
contract life of the terminated swap agreement. In the event of the early
extinguishment of a designated obligation, any realized or unrealized gain or
loss from the swap would be recognized in income coincident with the
extinguishment.
The following table indicates the notional amounts and fair values of the
Company's interest rate swap agreements (in millions):
[Enlarge/Download Table]
December 31,
-------------------------------------------------------------------------
1999 1998
---------------------------------- ----------------------------------
Notional Notional
Amount Fair Value Amount Fair Value
-------------- --------------- -------------- --------------
Interest rate swap agreements $ 696 $ (9) $ 1,054 $ 38
The fair values represent the amount the Company would pay or receive if
the agreements were terminated at December 31, 1999 and 1998, respectively.
At December 31, 1999, the weighted-average remaining life of the interest
rate swap agreements in effect was 5.1 years. The weighted-average floating
rates and fixed rates on the contracts outstanding were:
[Download Table]
December 31,
-------------------------------------
1999 1998
--------------- ---------------
Average floating rate 5.855% 5.599%
Average fixed rate 6.593% 6.277%
Floating rates are based primarily on LIBOR and may change significantly,
affecting future cash flows.
41
6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
FUEL PRICE RISK MANAGEMENT
American enters into fuel swap and option contracts to protect against
increases in jet fuel prices. Under the fuel swap agreements, American receives
or makes payments based on the difference between a fixed price and a variable
price for certain fuel commodities. Under the fuel option agreements, American
pays a premium to cap prices at a fixed level. The changes in market value of
such agreements have a high correlation to the price changes of the fuel being
hedged. Gains or losses on fuel hedging agreements are recognized as a component
of fuel expense when the underlying fuel being hedged is used. Any premiums paid
to enter into option contracts are recorded as a prepaid expense and amortized
to fuel expense over the respective contract periods. Gains and losses on fuel
hedging agreements would be recognized immediately should the changes in the
market value of the agreements cease to have a high correlation to the price
changes of the fuel being hedged. At December 31, 1999, American had fuel
hedging agreements with broker-dealers on approximately two billion gallons of
fuel products, which represents approximately 48 percent of its expected 2000
fuel needs and approximately 10 percent of its expected 2001 fuel needs. The
fair value of the Company's fuel hedging agreements at December 31, 1999,
representing the amount the Company would receive to terminate the agreements,
totaled $232 million. At December 31, 1998, American had fuel hedging agreements
with broker-dealers on approximately two billion gallons of fuel products, which
represented approximately 48 percent of its expected 1999 fuel needs and
approximately 19 percent of its expected 2000 fuel needs. The fair value of the
Company's fuel hedging agreements at December 31, 1998, representing the amount
the Company would pay to terminate the agreements, totaled $108 million.
FOREIGN EXCHANGE RISK MANAGEMENT
To hedge against the risk of future exchange rate fluctuations on a
portion of American's foreign cash flows, the Company enters into various
currency put option agreements on a number of foreign currencies. The option
contracts are denominated in the same foreign currency in which the projected
foreign cash flows are expected to occur. These contracts are designated and
effective as hedges of probable quarterly foreign cash flows for various periods
through December 31, 2000, which otherwise would expose the Company to foreign
currency risk. Realized gains on the currency put option agreements are
recognized as a component of passenger revenues. At December 31, 1999 and 1998,
the notional amount related to these options totaled approximately $445 million
and $597 million, respectively, and the fair value, representing the amount AMR
would receive to terminate the agreements, totaled approximately $14 million and
$10 million, respectively.
The Company has entered into Japanese yen currency exchange agreements to
effectively convert certain yen-based lease obligations into dollar-based
obligations. Changes in the value of the agreements due to exchange rate
fluctuations are offset by changes in the value of the yen-denominated lease
obligations translated at the current exchange rate. Discounts or premiums are
accreted or amortized as an adjustment to interest expense over the lives of the
underlying lease obligations. The related amounts due to or from counterparties
are included in other liabilities or other assets. The net fair values of the
Company's yen currency exchange agreements, representing the amount the Company
would receive or pay to terminate the agreements, were (in millions):
[Enlarge/Download Table]
December 31,
-------------------------------------------------------------------------
1999 1998
---------------------------------- ----------------------------------
Notional Notional
Amount Fair Value Amount Fair Value
-------------- ------------- -------------- --------------
Japanese yen 33.6 billion $ 41 33.7 billion $ (5)
The exchange rates on the Japanese yen agreements range from 66.50 to
116.89 yen per U.S. dollar.
42
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):
[Enlarge/Download Table]
December 31,
-------------------------------------------------------------------------
1999 1998
---------------------------------- ----------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
-------------- --------------- -------------- --------------
Secured variable and fixed rate
indebtedness $ 2,651 $ 2,613 $ 890 $ 1,013
7.875% - 10.62% notes 1,014 1,024 875 973
9.0% - 10.20% debentures 437 469 437 531
6.0% - 7.10% bonds 176 174 176 189
Variable rate indebtedness 86 86 86 86
Other 16 16 20 20
------------- ------------- ------------- -------------
$ 4,380 $ 4,382 $ 2,484 $ 2,812
============= ============= ============= =============
All other financial instruments, except for the investment in Equant, are
either carried at fair value or their carrying value approximates fair value.
Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133), as amended, is required to be adopted in fiscal years
beginning after June 15, 2000. SFAS 133 will require the Company to recognize
all derivatives on the balance sheet at fair value. Derivatives that are not
hedges must be adjusted to fair value through income. If the derivative is a
hedge, depending on the nature of the hedge, changes in the fair value of
derivatives will either be offset against the change in fair value of the hedged
assets, liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. The Company is currently evaluating the impact of SFAS
133 on the Company's financial condition and results of operations.
7. INCOME TAXES
The significant components of the income tax provision were (in
millions):
[Download Table]
Year Ended December 31,
---------------------------------------------------------
1999 1998 1997
------------- ------------- -------------
Current $ 167 $ 451 $ 206
Deferred 183 268 321
------------- ------------- -------------
$ 350 $ 719 $ 527
============= ============= =============
The income tax provision includes a federal income tax provision of $290
million, $628 million and $462 million and a state income tax provision of $49
million, $78 million and $56 million for the years ended December 31, 1999, 1998
and 1997, respectively.
43
7. INCOME TAXES (CONTINUED)
The income tax provision differed from amounts computed at the statutory
federal income tax rate as follows (in millions):
[Enlarge/Download Table]
Year Ended December 31,
--------------------------------------------------------
1999 1998 1997
------------ ------------ ------------
Statutory income tax provision $ 352 $ 641 $ 467
State income tax provision, net 32 51 36
Meal expense 19 18 20
Change in valuation allowance (67) (4) --
Other, net 14 13 4
------------ ------------ ------------
Income tax provision $ 350 $ 719 $ 527
============ ============ ============
The change in valuation allowance in 1999 relates to the reversal of the
Company's investment in Canadian (see Note 2). The change in valuation allowance
in 1998 relates to the utilization of foreign tax credits.
The components of AMR's deferred tax assets and liabilities were (in
millions):
[Enlarge/Download Table]
December 31,
-----------------------------------
1999 1998
------------- -------------
Deferred tax assets:
Postretirement benefits other than pensions $ 614 $ 593
Rent expense 449 376
Frequent flyer obligation 307 258
Alternative minimum tax credit carryforwards 289 515
Gains from lease transactions 238 223
Other 520 359
Valuation allowance - (68)
------------- -------------
Total deferred tax assets 2,417 2,256
------------- -------------
Deferred tax liabilities:
Accelerated depreciation and amortization (3,381) (3,044)
Pensions (50) (69)
Other (220) (170)
------------- -------------
Total deferred tax liabilities (3,651) (3,283)
------------- -------------
Net deferred tax liability $ (1,234) $ (1,027)
============= =============
At December 31, 1999, AMR had available for federal income tax purposes
approximately $289 million of alternative minimum tax credit carryforwards which
are available for an indefinite period.
Cash payments for income taxes were $71 million, $408 million and $294
million for 1999, 1998 and 1997, respectively.
8. COMMON AND PREFERRED STOCK
The Company has 20 million shares of preferred stock (without par value)
authorized at December 31, 1999 and 1998. On June 9, 1998, a two-for-one stock
split in the form of a stock dividend was effective for shareholders of record
on May 26, 1998. All prior period share and earnings per share amounts reflect
the stock split.
44
9. STOCK AWARDS AND OPTIONS
Under the 1998 Long Term Incentive Plan, as amended, officers and key
employees of AMR and its subsidiaries may be granted stock options, stock
appreciation rights, restricted stock, deferred stock, stock purchase rights,
other stock-based awards and/or performance-related awards, including cash
bonuses. The total number of common shares authorized for distribution under the
1998 Long Term Incentive Plan is 10,000,000 shares. The 1998 Long Term Incentive
Plan, the successor to the 1988 Long Term Incentive Plan, which expired May 18,
1998, will terminate no later than May 21, 2008. Options granted under the 1988
and 1998 Long Term Incentive Plans (collectively, the Plans) are awarded with an
exercise price equal to the fair market value of the stock on date of grant,
become exercisable in equal annual installments over five years following the
date of grant and expire 10 years from the date of grant. Stock appreciation
rights may be granted in tandem with options awarded.
In 1999, 1998 and 1997, the total charge for stock compensation expense
included in wages, salaries and benefits expense was $53 million, $52 million
and $67 million, respectively. No compensation expense was recognized for stock
option grants under the Plans since the exercise price was the fair market value
of the underlying stock on the date of grant.
Stock option activity was:
[Enlarge/Download Table]
Year Ended December 31,
------------------------------------------------------------------------------
1999 1998 1997
------------------------ ------------------------ ------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
---------- ---------- ---------- ---------- ---------- ----------
Outstanding at January 1 4,147,124 $ 46.60 3,506,774 $ 38.77 3,663,590 $ 33.59
Granted 1,539,585 63.19 1,216,720 63.01 895,480 52.28
Exercised (258,875) 68.17 (470,810) 31.82 (985,776) 32.17
Canceled (208,200) 49.96 (105,560) 42.34 (66,520) 33.82
---------- ---------- ----------
Outstanding at December 31 5,219,634 $ 52.06 4,147,124 $ 46.60 3,506,774 $ 38.77
========== ========== ==========
Exercisable options outstanding
at December 31 2,012,889 $ 40.63 1,586,974 $ 36.49 1,615,020 $ 31.32
========== ========== ==========
The following table summarizes information about the stock options
outstanding at December 31, 1999:
[Enlarge/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
---------------- ---------------- ---------------- ---------------- ---------------- ---------------
$22-$33 671,114 3.38 $ 29.92 668,614 $ 29.94
$34-$42 1,093,575 5.92 37.84 744,935 37.68
$43-$52 1,009,400 8.18 50.59 356,240 49.72
$53-$62 1,131,155 9.25 58.77 118,040 58.14
$63-$73 1,314,390 9.08 70.55 125,060 72.94
------------- ------------
5,219,634 7.55 $ 52.06 2,012,889 $ 40.63
============= ============
In May 1997, in conjunction with the labor agreement reached between
American and members of the APA, the Company established the Pilots Stock Option
Plan (The Pilot Plan). The Pilot Plan granted members of the APA the option to
purchase 11.5 million shares of AMR stock at $41.69 per share, $5 less than the
average fair market value of the stock on the date of grant, May 5, 1997. These
shares were exercisable immediately.
45
9. STOCK AWARDS AND OPTIONS (CONTINUED)
Pilot Plan option activity was:
[Enlarge/Download Table]
Year Ended December 31,
--------------------------------------------------------
1999 1998 1997
------------ ------------ ------------
Outstanding at January 1 5,791,381 7,438,220 -
Granted - - 11,500,000
Exercised (371,353) (1,646,839) (4,061,780)
------------ ------------ ------------
Outstanding at December 31 5,420,028 5,791,381 7,438,220
============ ============ ============
The weighted-average grant date fair value of all stock option awards
granted during 1999, 1998 and 1997 was $23.17, $21.15 and $11.00, respectively.
Shares of deferred stock are awarded at no cost to officers and key
employees under the Plans' Career Equity Program and will be issued upon the
individual's retirement from AMR or, in certain circumstances, will vest on a
pro rata basis. Deferred stock activity was:
[Enlarge/Download Table]
Year Ended December 31,
---------------------------------------------------------
1999 1998 1997
------------- ------------- -------------
Outstanding at January 1 2,401,532 2,457,190 2,394,662
Granted 146,200 185,812 175,500
Issued (122,042) (190,911) (67,340)
Canceled (115,010) (50,559) (45,632)
------------- ------------- -------------
Outstanding at December 31 2,310,680 2,401,532 2,457,190
============= ============= =============
The weighted-average grant date fair value of career equity awards
granted during 1999, 1998 and 1997 was $63.54, $57.77 and $54.98, respectively.
A performance share plan was implemented in 1993 under the terms of which
shares of deferred stock are awarded at no cost to officers and key employees
under the Plans. The fair value of the performance shares granted is equal to
the market price of the Company's stock at the date of grant. The shares vest
over a three-year performance period based upon AMR's ratio of cash flow to
adjusted gross assets. Performance share activity was:
[Enlarge/Download Table]
Year Ended December 31,
----------------------------------------------------------
1999 1998 1997
------------- ------------- -------------
Outstanding at January 1 1,565,616 1,737,274 1,679,460
Granted 509,822 644,680 808,736
Issued (208,265) (205,458) (190,766)
Awards settled in cash (513,370) (522,234) (513,064)
Canceled (138,159) (88,646) (47,092)
------------- ------------- -------------
Outstanding at December 31 1,215,644 1,565,616 1,737,274
============= ============= =============
The weighted-average grant date fair value of performance share awards
granted during 1999, 1998 and 1997 was $62.95, $62.06 and $52.28, respectively.
There were approximately 20 million shares of AMR's common stock at
December 31, 1999 reserved for the issuance of stock upon the exercise of
options and the issuance of stock awards. See Note 12 for information regarding
the impact on stock awards and options due to the Sabre spin-off.
46
9. STOCK AWARDS AND OPTIONS (CONTINUED)
The Company has adopted the pro forma disclosure features of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). As required by SFAS 123, pro forma information
regarding income from continuing operations and earnings per share from
continuing operations has been determined as if the Company had accounted for
its employee stock options and awards granted subsequent to December 31, 1994
using the fair value method prescribed by SFAS 123. The fair value for the stock
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions for 1999, 1998 and 1997:
risk-free interest rates ranging from 5.01% to 6.07%; dividend yields of 0%;
expected stock volatility ranging from 25.5% to 31.3%; and expected life of the
options of 4.5 years for the Plans and 1.5 years for The Pilot Plan.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options. In addition,
because SFAS 123 is applicable only to options and stock-based awards granted
subsequent to December 31, 1994, its pro forma effect is not fully reflected in
years prior to 1999.
The following table shows the Company's pro forma income from continuing
operations and earnings per share from continuing operations assuming the
Company had accounted for its employee stock options using the fair value method
(in millions, except per share amounts):
[Enlarge/Download Table]
Year Ended December 31,
----------------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
Income from continuing operations:
As reported $ 656 $ 1,114 $ 809
Pro forma 651 1,114 785
Basic earnings per share from continuing operations:
As reported $ 4.30 $ 6.60 $ 4.54
Pro forma 4.27 6.60 4.40
Diluted earnings per share from continuing operations:
As reported $ 4.17 $ 6.38 $ 4.43
Pro forma 4.14 6.38 4.30
10. RETIREMENT BENEFITS
All employees of American and employees of certain other subsidiaries are
eligible to participate in pension plans. The defined benefit plans provide
benefits for participating employees based on years of service and average
compensation for a specified period of time before retirement. Airline pilots
and flight engineers also participate in defined contribution plans for which
Company contributions are determined as a percentage of participant
compensation.
In addition to pension benefits, other postretirement benefits, including
certain health care and life insurance benefits, are also provided to retired
employees. The amount of health care benefits is limited to lifetime maximums as
outlined in the plan. Substantially all employees of American and employees of
certain other subsidiaries may become eligible for these benefits if they
satisfy eligibility requirements during their working lives.
Certain employee groups make contributions toward funding a portion of
their retiree health care benefits during their working lives. AMR funds
benefits as incurred and makes contributions to match employee prefunding.
47
10. RETIREMENT BENEFITS (CONTINUED)
The following table provides a reconciliation of the changes in the
plans' benefit obligations and fair value of assets for the years ended December
31, 1999 and 1998, and a statement of funded status as of December 31, 1999 and
1998 (in millions):
[Enlarge/Download Table]
Pension Benefits Other Benefits
------------------------ ------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
Reconciliation of benefit obligation
Obligation at January 1 $ 6,117 $ 5,666 $ 1,526 $ 1,356
Service cost 236 213 56 52
Interest cost 433 418 108 99
Actuarial loss (gain) (849) 300 (311) 84
Plan amendments 75 -- -- --
Benefit payments (388) (464) (70) (65)
Curtailments/Special termination benefits 4 -- (3) --
Settlements -- (16) -- --
---------- ---------- ---------- ----------
Obligation at December 31 $ 5,628 $ 6,117 $ 1,306 $ 1,526
========== ========== ========== ==========
Reconciliation of fair value of plan assets
Fair value of plan assets at January 1 $ 5,564 $ 5,127 $ 62 $ 49
Actual return on plan assets 7 850 1 4
Employer contributions 100 70 79 74
Benefit payments (388) (464) (70) (65)
Settlements -- (16) -- --
Transfers (1) (3) -- --
---------- ---------- ---------- ----------
Fair value of plan assets at December 31 $ 5,282 $ 5,564 $ 72 $ 62
========== ========== ========== ==========
Funded status
Accumulated benefit obligation (ABO) $ 4,700 $ 5,073 $ 1,306 $ 1,526
Projected benefit obligation (PBO) 5,628 6,117 -- --
Fair value of assets 5,282 5,564 72 62
Funded status at December 31 (346) (553) (1,234) (1,464)
Unrecognized loss (gain) 288 651 (395) (89)
Unrecognized prior service cost 139 68 (40) (45)
Unrecognized transition asset (7) (11) -- --
---------- ---------- ---------- ----------
Prepaid (accrued) benefit cost $ 74 $ 155 $ (1,669) $ (1,598)
========== ========== ========== ==========
At December 31, 1999 and 1998, plan assets of approximately $71 million
and $61 million, respectively, were invested in shares of mutual funds managed
by a subsidiary of AMR.
48
10. RETIREMENT BENEFITS (CONTINUED)
The following tables provide the components of net periodic benefit cost
for the years ended December 31, 1999, 1998 and 1997 (in millions):
[Enlarge/Download Table]
Pension Benefits
--------------------------------------
1999 1998 1997
---------- ---------- ----------
Components of net periodic benefit cost
Defined benefit plans:
Service cost $ 236 $ 213 $ 179
Interest cost 433 418 393
Expected return on assets (514) (478) (421)
Amortization of:
Transition asset (4) (11) (12)
Prior service cost 5 4 4
Unrecognized net loss 21 22 26
Settlement loss -- 6 --
---------- ---------- ----------
Net periodic benefit cost for defined benefit
plans 177 174 169
Defined contribution plans 155 158 145
---------- ---------- ----------
Total $ 332 $ 332 $ 314
========== ========== ==========
Other Benefits
--------------------------------------
1999 1998 1997
---------- ---------- ----------
Components of net periodic benefit cost
Service cost $ 56 $ 52 $ 44
Interest cost 108 99 92
Expected return on assets (6) (5) (4)
Amortization of:
Prior service cost (5) (5) (5)
Unrecognized net gain -- (2) (9)
---------- ---------- ----------
Net periodic benefit cost $ 153 $ 139 $ 118
========== ========== ==========
The following table provides the amounts recognized in the consolidated
balance sheets as of December 31, 1999 and 1998 (in millions):
[Enlarge/Download Table]
Pension Benefits Other Benefits
------------------------ ------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
Prepaid benefit cost $ 244 $ 297 $ -- $ --
Accrued benefit liability (170) (142) (1,669) (1,598)
Additional minimum liability (15) (13) -- --
Intangible asset 13 7 -- --
Accumulated other comprehensive income 2 6 -- --
---------- ---------- ---------- ----------
Net amount recognized $ 74 $ 155 $ (1,669) $ (1,598)
========== ========== ========== ==========
49
10. RETIREMENT BENEFITS (CONTINUED)
The following assumptions were used by the Company in the measurement of
the benefit obligation as of December 31:
[Enlarge/Download Table]
Pension Benefits Other Benefits
----------------------------------- ---------------------------------
1999 1998 1999 1998
---------------- --------------- --------------- -------------
Weighted-average assumptions
Discount rate 8.25% 7.00% 8.25% 7.00%
Salary scale 4.26 4.26 -- --
Expected return on plan assets 9.50 9.50 9.50 9.50
The assumed health care cost trend rate was five percent in 1999 and
1998, decreasing gradually to an ultimate rate of four percent by 2001.
A one percentage point change in the assumed health care cost trend rates
would have the following effects (in millions):
[Download Table]
One percent One percent
increase decrease
---------------- ---------------
Impact on 1999 service and interest cost $ 24 $ (22)
Impact on postretirement benefit obligation
as of December 31, 1999 $ 115 $ (105)
11. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in millions, except per share amounts):
[Enlarge/Download Table]
Year Ended December 31,
------------------------------------------
1999 1998 1997
---------- ---------- ----------
NUMERATOR:
Numerator for earnings per share -income from
continuing operations $ 656 $ 1,114 $ 809
========== ========== ==========
DENOMINATOR:
Denominator for basic earnings per share -
weighted-average shares 152 169 178
Effect of dilutive securities:
Employee options and shares 12 13 14
Assumed treasury shares purchased (7) (7) (9)
---------- ---------- ----------
Dilutive potential common shares 5 6 5
Denominator for diluted earnings per share -
adjusted weighted-average shares 157 175 183
========== ========== ==========
Basic earnings per share from continuing
operations $ 4.30 $ 6.60 $ 4.54
========== ========== ==========
Diluted earnings per share from continuing
operations $ 4.17 $ 6.38 $ 4.43
========== ========== ==========
50
12. DISCONTINUED OPERATIONS
During the first quarter of 1999, the Company completed the sales of AMR
Services, AMR Combs and TeleService Resources. As a result of these sales, the
Company recorded a gain of approximately $64 million, net of income taxes of
approximately $19 million.
On February 7, 2000, the Company declared its intent to distribute
AMR's entire ownership interest in Sabre as a dividend on all outstanding shares
of its common stock. To effect the dividend, AMR exchanged all of its
107,374,000 shares of Sabre's Class B common stock for an equal number of shares
of Sabre's Class A common stock. Effective after the close of business on March
15, 2000, AMR distributed 0.722652 shares of Sabre Class A common stock for each
share of AMR stock owned by AMR's shareholders. The record date for the dividend
of Sabre stock was the close of business on March 1, 2000. In addition, on
February 18, 2000, Sabre paid a special one-time cash dividend of $675 million
to shareholders of record of Sabre common stock at the close of business on
February 15, 2000. Based upon its approximate 83 percent interest in Sabre, AMR
received approximately $560 million of this dividend. These funds will be used
for general corporate purposes. The dividend of AMR's entire ownership interest
in Sabre's common stock resulted in a reduction to AMR's retained earnings in
March of 2000 equal to the carrying value of the Company's investment in Sabre
on March 15, 2000, which approximated $600 million. The fair market value of
AMR's investment in Sabre on March 15, 2000, based upon the quoted market
closing price of Sabre Class A common stock on the New York Stock Exchange, was
approximately $5.2 billion. In addition, effective March 15, 2000, the Company
reduced the exercise price and increased the number of stock options and awards
by approximately 18 million to offset the dilution to the holders, which
occurred as a result of the spin-off. These changes were made to keep the
holders in the same economic position as before the spin-off. This dilution
adjustment was determined in accordance with Emerging Issues Task Force
Consensus No. 90-9, "Changes to Fixed Employee Stock Option Plans as a Result of
Equity Restructuring," and will have no impact on earnings.
The results of operations for Sabre, AMR Services, AMR Combs and
TeleService Resources have been reflected in the consolidated statements of
operations as discontinued operations. Summarized financial information of the
discontinued operations is as follows (in millions):
[Enlarge/Download Table]
Year Ended December 31,
----------------------------------------------------------
1999 1998 1997
---------------- ---------------- ----------------
SABRE
Revenues $ 2,435 $ 2,306 $ 1,788
Minority interest 57 40 36
Income taxes 196 140 124
Net income 265 192 164
AMR SERVICES, AMR COMBS AND TELESERVICE RESOURCES
Revenues $ 97 $ 513 $ 518
Income taxes - 7 10
Net income - 8 12
The historical assets and liabilities of Sabre, AMR Services, AMR Combs
and TeleService Resources, which have been reflected on a net basis in other
assets on the consolidated balance sheets, are summarized as follows (in
millions):
[Enlarge/Download Table]
December 31,
----------------------------------------------------------
1999 1998 1997
---------------- ---------------- ----------------
Current assets $ 976 $ 1,004 $ 967
Total assets 1,951 2,198 1,758
Current liabilities 525 434 359
Total liabilities, including minority interest 912 1,263 987
Net assets of discontinued operations 1,039 935 771
51
13. SEGMENT REPORTING
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (SFAS 131) requires that a
public company report annual and interim financial and descriptive information
about its reportable operating segments. Operating segments, as defined, are
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
The Company has two primary operating segments, consisting primarily of
American and AMR Eagle, which represent one reportable segment. American is one
of the largest scheduled passenger airlines in the world. At the end of 1999,
American provided scheduled jet service to more than 169 destinations throughout
North America, the Caribbean, Latin America, Europe and the Pacific. American is
also one of the largest scheduled air freight carriers in the world, providing a
full range of freight and mail services to shippers throughout its system. AMR
Eagle owns three regional airlines which operate as "American Eagle" -- American
Eagle Airlines, Inc., Executive Airlines, Inc. and Business Express Airlines,
Inc. (acquired in March 1999). The American Eagle carriers provide connecting
service from seven of American's high-traffic cities to smaller markets
throughout the United States, Canada, the Bahamas and the Caribbean.
Revenues from other segments below the quantitative threshold for
determining reportable segments consist primarily of revenues from AMR
Investment Services, Inc., Americas Ground Services and Airline Management
Services. The difference between the financial information of the Company's one
reportable segment and the financial information included in the consolidated
statements of operations and balance sheets as a result of these entities is not
material.
The Company's operating revenues by geographic region are summarized
below (in millions):
[Enlarge/Download Table]
Year Ended December 31,
----------------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
Domestic $ 12,563 $ 12,262 $ 11,750
Latin America 2,697 2,830 2,816
Europe 1,984 2,039 2,035
Pacific 486 385 356
------------- ------------- -------------
Total consolidated revenues $ 17,730 $ 17,516 $ 16,957
============= ============= =============
The Company attributes operating revenues by geographic region based upon
the origin and destination of each flight segment. The Company's tangible assets
consist primarily of flight equipment which is mobile across geographic markets
and, therefore, has not been allocated.
52
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited summarized financial data by quarter for 1999 and 1998 (in
millions, except per share amounts):
[Enlarge/Download Table]
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------------- --------------- --------------- ---------------
1999*
Operating revenues $ 4,007 $ 4,541 $ 4,695 $ 4,487
Operating income 46 414 426 270
Income from continuing operations 17 216 213 210
Net earnings 158 268 279 280
Earnings per common share:
Basic
From continuing operations 0.11 1.41 1.42 1.42
Net earnings 0.99 1.76 1.86 1.89
Diluted
From continuing operations 0.11 1.36 1.38 1.37
Net earnings 0.99 1.70 1.76 1.84
1998*
Operating revenues $ 4,242 $ 4,506 $ 4,601 $ 4,167
Operating income 434 614 634 306
Income from continuing operations 226 351 373 164
Net earnings 290 409 433 182
Earnings per common share:
Basic
From continuing operations 1.31 2.04 2.21 1.01
Net earnings 1.68 2.38 2.57 1.12
Diluted
From continuing operations 1.26 1.97 2.14 0.98
Net earnings 1.62 2.30 2.49 1.09
* Results for 1998 have been restated for discontinued operations and
the first, second and third quarters of 1999 have been restated from
amounts previously reported for the discontinued operations of Sabre.
During the first quarter of 1999, the Company recorded an after-tax
gain of approximately $64 million related to the sale of AMR Services, AMR Combs
and TeleService Resources, and a $37 million after-tax gain related to the sale
of a portion of the Company's holdings in Equant, of which approximately $18
million is recorded in income from discontinued operations (see Note 2). Results
for the fourth quarter of 1999 include the following: (i) a $25 million
after-tax gain related to the Company's sale of its investment in the preferred
stock of Canadian and a $67 million tax benefit resulting from the tax loss on
the Company's investment in Canadian (see Note 2), (ii) an after-tax gain of
approximately $81 million related to the sale of a portion of the Company's
holdings in Equant, of which approximately $53 million is recorded in income
from discontinued operations (see Note 2), (iii) a $28 million after-tax
increase in passenger revenue resulting from a change in estimate related to
certain passenger revenues earned during the first nine months of 1999, and (iv)
a $25 million after-tax provision for certain litigation settlements.
53
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
--------------------------------------------------------------------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference from the Company's definitive proxy statement
for the annual meeting of stockholders on May 17, 2000. Information concerning
the executive officers is included in Part I of this report on page 14.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference from the Company's definitive proxy statement
for the annual meeting of stockholders on May 17, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference from the Company's definitive proxy statement
for the annual meeting of stockholders on May 17, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference from the Company's definitive proxy statement
for the annual meeting of stockholders on May 17, 2000.
PART IV
--------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The following financial statements and Independent Auditors'
Report are filed as part of this report:
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Page
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Report of Independent Auditors 28
Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997 29-30
Consolidated Balance Sheets at December 31, 1999 and 1998 31-32
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997 33
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1999, 1998 and 1997 34
Notes to Consolidated Financial Statements 35-53
54
(2) The following financial statement schedule and Independent
Auditors' Report are filed as part of this report:
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Page
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Report of Independent Auditors 64
Schedule II Valuation and Qualifying Accounts and Reserves 65
Schedules not included have been omitted because they are not applicable
or because the required information is included in the consolidated financial
statements or notes thereto.
(3) Exhibits required to be filed by Item 601 of Regulation S-K.
(Where the amount of securities authorized to be issued under any of AMR's
long-term debt agreements does not exceed 10 percent of AMR's assets, pursuant
to paragraph (b)(4) of Item 601 of Regulation S-K, in lieu of filing such as an
exhibit, AMR hereby agrees to furnish to the Commission upon request a copy of
any agreement with respect to such long-term debt.)
EXHIBIT
3.1 Restated Certificate of Incorporation of AMR,
incorporated by reference to AMR's Registration
Statement on Form S-4, file number 33-55191.
3.2 Bylaws of AMR, amended as of November 18, 1998,
incorporated by reference to Exhibit 3.2 to AMR's
report on Form 10-K for the year ended December 31,
1998.
3.3 Bylaws of AMR, amended as of January 19, 2000.
10.1 Employment Agreement among AMR, American Airlines
and Robert L. Crandall, dated January 1, 1988,
incorporated by reference to Exhibit 10(t) to AMR's
report on Form 10-Q for the period ended March 31,
1988; amendments thereto incorporated by reference
to Exhibit 10(ff) to AMR's report on Form 10-K for
the year ended December 31, 1989, Exhibit 10(tt) to
AMR's report on Form 10-K for the year ended
December 31, 1990, Exhibit 10(uu) to AMR's report on
Form 10-Q for the period ended June 30, 1992, and
Exhibit 10(ooo) to AMR's report on Form 10-Q for the
period ended March 31, 1995.
10.2 Amended and Restated Employment Agreement among AMR,
American Airlines and Robert L. Crandall, dated
January 21, 1998, incorporated by reference to
Exhibit 10.2 to AMR's report on Form 10-K for the
year ended December 31, 1997.
10.3 Compensation and Benefit Agreement relative to the
retirement of Robert L. Crandall, between AMR and
Robert L. Crandall, dated September 18, 1998,
incorporated by reference to Exhibit 10.3 to AMR's
report on Form 10-K for the year ended December 31,
1998.
10.4 Irrevocable Executive Trust Agreement, dated as of
May 1, 1992, between AMR and Wachovia Bank of North
Carolina N.A., incorporated by reference to Exhibit
10(vv) to AMR's report on Form 10-K for the year
ended December 31, 1992.
10.5 Deferred Compensation Agreement, dated April 14,
1973, as amended March 1, 1975, between American and
Robert L. Crandall, incorporated by reference to
Exhibit 10(c)(7) to American's Registration
Statement No. 2-76709.
10.6 Form of Executive's Termination Benefits Agreement
incorporated by reference to Exhibit 10(p) to AMR's
report on Form 10-K for the year ended December 31,
1985.
55
10.7 Management Severance Allowance, dated as of February
23, 1990, for levels 1-4 employees of American
Airlines, Inc., incorporated by reference to Exhibit
10(oo) to AMR's report on Form 10-K for the year
ended December 31, 1989.
10.8 Management Severance Allowance, dated as of February
23, 1990, for level 5 and above employees of
American Airlines, Inc., incorporated by reference
to Exhibit 10(pp) to AMR's report on Form 10-K for
the year ended December 31, 1989.
10.9 Description of informal arrangement relating to
deferral of payment of directors' fees, incorporated
by reference to Exhibit 10(c)(11) to American's
Registration Statement No. 2-76709.
10.10 Directors Stock Equivalent Purchase Plan,
incorporated by reference to Exhibit 10(gg) to AMR's
report on Form 10-K for the year ended December 31,
1989.
10.11 Directors Stock Incentive Plan dated May 18, 1994,
as amended, incorporated by reference to Exhibit
10.9 to AMR's report on Form 10-K for the year ended
December 31, 1996.
10.13 Deferred Compensation Agreement, dated as of
December 27, 1995, between AMR and Howard P. Allen,
incorporated by reference to Exhibit 10(sss) to
AMR's report on Form 10-K for the year ended
December 31, 1995.
10.14 Deferred Compensation Agreement, dated as of January
31, 1990, between AMR and Edward A. Brennan,
incorporated by reference to Exhibit 10(hh) to AMR's
report on Form 10-K for the year ended December 31,
1989.
10.15 Deferred Compensation Agreement, dated as of June 1,
1998, between AMR and Edward A. Brennan,
incorporated by reference to Exhibit 10.15 to AMR's
report on Form 10-K for the year ended December 31,
1998.
10.15(a) Deferred Compensation Agreement, dated as of January
11, 2000, between AMR and Edward A. Brennan.
10.16 Deferred Compensation Agreement, dated as of
February 7, 1996, between AMR and Armando M. Codina,
incorporated by reference to Exhibit 10(ttt) to
AMR's report on Form 10-K for the year ended
December 31, 1995.
10.17 Deferred Compensation Agreement, dated as of
February 10, 1997, between AMR and Armando M.
Codina, incorporated by reference to Exhibit 10.13
to AMR's report on Form 10-K for the year ended
December 31, 1996.
10.18 Deferred Compensation Agreement, dated as of
February 19, 1998, between AMR and Armando M.
Codina, incorporated by reference to Exhibit 10.15
to AMR's report on Form 10-K for the year ended
December 31, 1997.
10.19 Deferred Compensation Agreement, dated as of January
13, 1999, between AMR and Armando M. Codina,
incorporated by reference to Exhibit 10.19 to AMR's
report on Form 10-K for the year ended December 31,
1998.
10.20 Deferred Compensation Agreement, dated as of January
12, 2000, between AMR and Armando M. Codina.
10.21 Deferred Compensation Agreement, dated as of
February 23, 1996, between AMR and Charles H.
Pistor, Jr., incorporated by reference to Exhibit
10(vvv) to AMR's report on Form 10-K for the year
ended December 31, 1995.
56
10.22 Deferred Compensation Agreement, dated as of January
30, 1997, between AMR and Charles H. Pistor, Jr.,
incorporated by reference to Exhibit 10.17 to AMR's
report on Form 10-K for the year ended December 31,
1996.
10.23 Deferred Compensation Agreement, dated as of
February 19, 1998, between AMR and Charles H.
Pistor, Jr., incorporated by reference to Exhibit
10.21 to AMR's report on Form 10-K for the year
ended December 31, 1997.
10.24 Deferred Compensation Agreement, dated as of January
7, 1999, between AMR and Charles H. Pistor, Jr.,
incorporated by reference to Exhibit 10.27 to AMR's
report on Form 10-K for the year ended December 31,
1998.
10.25 Deferred Compensation Agreement, dated as of January
24, 2000, between AMR and Charles H. Pistor, Jr.
10.26 Deferred Compensation Agreement, dated as of July
16, 1997, between AMR and Judith Rodin, incorporated
by reference to Exhibit 10.22 to AMR's report on
Form 10-K for the year ended December 31, 1997.
10.27 Deferred Compensation Agreement, dated as of
February 19, 1998, between AMR and Judith Rodin,
incorporated by reference to Exhibit 10.23 to AMR's
report on Form 10-K for the year ended December 31,
1997.
10.28 Deferred Compensation Agreement, dated as of January
7, 1999, between AMR and Judith Rodin, incorporated
by reference to Exhibit 10.30 to AMR's report on
Form 10-K for the year ended December 31, 1998.
10.29 Deferred Compensation Agreement, dated as of January
12, 2000, between AMR and Judith Rodin.
10.30 Description of American's Split Dollar Insurance
Program, dated December 28, 1977, incorporated by
reference to Exhibit 10(c)(1) to American's
Registration Statement No. 2-76709.
10.31 AMR Corporation 1988 Long-Term Incentive Plan,
incorporated by reference to Exhibit 10(t) to AMR's
report on Form 10-K for the year ended December 31,
1988.
10.32 Amendment to AMR's 1988 Long-term Incentive Plan
dated May 18, 1994, incorporated by reference to
Exhibit A to AMR's definitive proxy statement with
respect to the annual meeting of stockholders held
on May 18, 1994.
10.33 AMR Corporation 1998 Long-Term Incentive Plan, as
amended, incorporated by reference to Exhibit 10.34
to AMR's report on Form 10-K for the year ended
December 31, 1998.
10.34 Form of Stock Option Agreement for Corporate
Officers under the AMR 1988 Long-Term Incentive
Plan, incorporated by reference to Exhibit 10(rr) to
AMR's report on Form 10-K for the year ended
December 31, 1990.
10.35 Current form of Stock Option Agreement under the AMR
1988 Long-Term Incentive Plan, incorporated by
reference to Exhibit 10.28 to AMR's report on Form
10-K for the year ended December 31, 1997.
10.36 Current form of Stock Option Agreement under the AMR
1998 Long-Term Incentive Plan, incorporated by
reference to Exhibit 10.37 to AMR's report on Form
10-K for the year ended December 31, 1998.
10.37 Current form of Stock Option Agreement under the AMR
1998 Long-Term Incentive Plan.
57
10.38 Form of Career Equity Program Agreement,
incorporated by reference to Exhibit 10(nnn) to
AMR's report on Form 10-K for the year ended
December 31, 1994.
10.39 Current Form of Career Equity Program Deferred Stock
Award Agreement for Corporate Officers under the AMR
1988 Long-Term Incentive Plan, incorporated by
reference to Exhibit 10.30 to AMR's report on Form
10-K for the year ended December 31, 1997.
10.40 Current form of Career Equity Program Deferred Stock
Award Agreement for non-officers under the AMR 1988
Long-Term Incentive Plan, incorporated by reference
to Exhibit 10.31 to AMR's report on Form 10-K for
the year ended December 31, 1997.
10.41 Current Form of Career Equity Program Deferred Stock
Award Agreement for Corporate Officers under the AMR
1998 Long-Term Incentive Plan, incorporated by
reference to Exhibit 10.41 to AMR's report on Form
10-K for the year ended December 31, 1998.
10.42 Current form of Career Equity Program Deferred Stock
Award Agreement for non-officers under the AMR 1998
Long-Term Incentive Plan, incorporated by reference
to Exhibit 10.42 to AMR's report on Form 10-K for
the year ended December 31, 1998.
10.43 Current form of Career Equity Program Deferred Stock
Award Agreement for Senior Officers under the AMR
1998 Long-Term Incentive Plan, incorporated by
reference to Exhibit 10.42(a) to AMR's report on
Form 10-K for the year ended December 31, 1998.
10.44 Current form of Career Equity Program Deferred Stock
Award Agreement for Employees under the AMR 1998
Long-Term Incentive Plan.
10.45 Form of Guaranty to Career Equity Program under the
AMR 1988 Long-Term Incentive Plan, incorporated by
reference to Exhibit 10(ccc) to AMR's report on Form
10-K for the year ended December 31, 1993.
10.46 Performance Share Program for the years 1994 to 1996
under the 1988 Long-term Incentive Program,
incorporated by reference to Exhibit 10(lll) to
AMR's report on Form 10-K for the year ended
December 31, 1994.
10.47 Performance Share Program for the years 1995 to 1997
under the 1988 Long-term Incentive Program,
incorporated by reference to Exhibit 10(ooo) to
AMR's report on Form 10-K for the year ended
December 31, 1995.
10.48 Performance Share Program for the years 1996 to 1998
under the 1988 Long-term Incentive Program,
incorporated by reference to Exhibit 10.26 to AMR's
report on Form 10-K for the year ended December 31,
1996.
10.49 Performance Share Program for the years 1997 to 1999
under the 1988 Long-term Incentive Program,
incorporated by reference to Exhibit 10.27 to AMR's
report on Form 10-K for the year ended December 31,
1996.
10.50 Form of Performance Share Program for the years 1997
to 1999 under the 1988 Long-term Incentive Program,
incorporated by reference to Exhibit 10.37 to AMR's
report on Form 10-K for the year ended December 31,
1997.
10.51 Performance Share Program for the years 1998 to 2000
under the 1988 Long-term Incentive Program,
incorporated by reference to Exhibit 10.38 to AMR's
report on Form 10-K for the year ended December 31,
1997.
58
10.52 Performance Share Program for the years 1999 to 2001
under the 1998 Long-term Incentive Program,
incorporated by reference to Exhibit 10.50 to AMR's
report on Form 10-K for the year ended December 31,
1998.
10.53 Performance Share Program for the years 2000 to 2002
under the 1998 Long-term Incentive Program.
10.54 American Airlines, Inc. Supplemental Executive
Retirement Program, as amended January 1997,
incorporated by reference to Exhibit 10.28 to AMR's
report on Form 10-K for the year ended December 31,
1996.
10.55 AMR Corporation 1987 Executive Deferral Plan, as
amended through 1999, incorporated by reference to
Exhibit 10.52 to AMR's report on Form 10-K for the
year ended December 31, 1998.
10.56 American Airlines, Inc. 1996 Employee Profit Sharing
Plan, incorporated by reference to Exhibit 10.29 to
AMR's report on Form 10-K for the year ended
December 31, 1996.
10.57 American Airlines, Inc. 1997 Employee Profit Sharing
Plan, incorporated by reference to Exhibit 10.30 to
AMR's report on Form 10-K for the year ended
December 31, 1996.
10.58 American Airlines, Inc. 1998 Employee Profit Sharing
Plan, incorporated by reference to Exhibit 10.43 to
AMR's report on Form 10-K for the year ended
December 31, 1997.
10.59 American Airlines, Inc. 1999 Employee Profit Sharing
Plan, incorporated by reference to Exhibit 10.56 to
AMR's report on Form 10-K for the year ended
December 31, 1998.
10.60 American Airlines, Inc. 2000 Employee Profit Sharing
Plan.
10.61 American Airlines, Inc. 1996 Incentive Compensation
Plan for Officers and Key Employees, incorporated by
reference to Exhibit 10(qqq) to AMR's report on Form
10-K for the year ended December 31, 1995.
10.62 American Airlines, Inc. 1997 Incentive Compensation
Plan for Officers and Key Employees, incorporated by
reference to Exhibit 10.32 to AMR's report on Form
10-K for the year ended December 31, 1996.
10.63 American Airlines, Inc. 1998 Incentive Compensation
Plan for Officers and Key Employees, incorporated by
reference to Exhibit 10.46 to AMR's report on Form
10-K for the year ended December 31, 1997.
10.64 American Airlines, Inc. 1999 Incentive Compensation
Plan for Officers and Key Employees, incorporated by
reference to Exhibit 10.60 to AMR's report on Form
10-K for the year ended December 31, 1998.
10.65 American Airlines, Inc. 2000 Incentive Compensation
Plan for Officers and Key Employees.
10.66 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Gerard
J. Arpey, dated May 21, 1998, incorporated by
reference to Exhibit 10.61 to AMR's report on Form
10-K for the year ended December 31, 1998.
10.67 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Robert
W. Baker, dated May 21, 1998, incorporated by
reference to Exhibit 10.62 to AMR's report on Form
10-K for the year ended December 31, 1998.
59
10.68 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Peter
M. Bowler, dated May 21, 1998, incorporated by
reference to Exhibit 10.63 to AMR's report on Form
10-K for the year ended December 31, 1998.
10.69 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Donald
J. Carty, dated May 21, 1998, incorporated by
reference to Exhibit 10.64 to AMR's report on Form
10-K for the year ended December 31, 1998.
10.70 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Peter
J. Dolara, dated May 21, 1998, incorporated by
reference to Exhibit 10.65 to AMR's report on Form
10-K for the year ended December 31, 1998.
10.71 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Daniel
P. Garton, dated May 21, 1998, incorporated by
reference to Exhibit 10.66 to AMR's report on Form
10-K for the year ended December 31, 1998.
10.72 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Michael
W. Gunn, dated May 21, 1998, incorporated by
reference to Exhibit 10.67 to AMR's report on Form
10-K for the year ended December 31, 1998.
10.73 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Thomas
W. Horton, dated January 19, 2000.
10.74 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Henry
C. Joyner, dated January 19, 2000.
10.75 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Thomas
J. Kiernan, dated May 21, 1998, incorporated by
reference to Exhibit 10.68 to AMR's report on Form
10-K for the year ended December 31, 1998.
10.76 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and David
L. Kruse, dated May 21, 1998, incorporated by
reference to Exhibit 10.69 to AMR's report on Form
10-K for the year ended December 31, 1998.
10.77 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Charles
D. MarLett, dated May 21, 1998, incorporated by
reference to Exhibit 10.70 to AMR's report on Form
10-K for the year ended December 31, 1998.
10.78 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Anne H.
McNamara, dated May 21, 1998, incorporated by
reference to Exhibit 10.71 to AMR's report on Form
10-K for the year ended December 31, 1998.
10.79 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and William
K. Ris, Jr., dated October 20, 1999.
10.80 Aircraft Sales Agreement by and between American
Airlines, Inc. and Federal Express Corporation,
dated April 7, 1995, incorporated by reference to
Exhibit 10(rrr) to AMR's report on Form 10-K for the
year ended December 31, 1995. Confidential treatment
was granted as to a portion of this document.
10.81 Aircraft Purchase Agreement by and between American
Airlines, Inc. and The Boeing Company, dated October
31, 1997, incorporated by reference to Exhibit 10.48
to AMR's report on Form 10-K for the year ended
December 31, 1997. Confidential treatment was
granted as to a portion of this document.
60
10.82 Aircraft Purchase Agreement by and between AMR Eagle
Holding Corporation and Bombardier Inc., dated
January 31, 1998, incorporated by reference to
Exhibit 10.49 to AMR's report on Form 10-K for the
year ended December 31, 1997. Confidential treatment
was granted as to a portion of this document.
10.83 Aircraft Purchase Agreement by and between AMR
Eagle, Inc. and Embraer-Empresa Brasileira de
Aeronautica S.A., dated December 22, 1997,
incorporated by reference to Exhibit 10.50 to AMR's
report on Form 10-K for the year ended December 31,
1997. Confidential treatment was granted as to a
portion of this document.
10.84 Aircraft Purchase Agreement by and between AMR Eagle
Holding Corporation and Embraer-Empresa Brasileira
de Aeronautica S.A., dated September 30, 1998,
incorporated by reference to Exhibit 10.76 to AMR's
report on Form 10-K for the year ended December 31,
1998. Confidential treatment was granted as to a
portion of this document.
12 Computation of ratio of earnings to fixed charges
for the years ended December 31, 1995, 1996, 1997,
1998 and 1999
21 Significant subsidiaries of the registrant as of
December 31, 1999.
23 Consent of Independent Auditors.
27.1 Financial Data Schedule as of December 31, 1999.
27.2 Restated Financial Data Schedule as of December 31,
1998.
27.3 Restated Financial Data Schedule as of December 31,
1997.
61
(b) Reports on Form 8-K:
On December 15, 1999, AMR filed a report on Form 8-K relative to a press
release issued to announce that the Company intends to distribute in the first
quarter of 2000 all of its remaining ownership in Sabre Holdings Corporation.
On December 20, 1999, AMR filed a report on Form 8-K relative to a
statement issued by Don Carty, Chairman and Chief Executive Officer of the
Company and American Airlines, Inc., regarding the Company's plea agreement to
the illegal storage of hazardous materials at the Company's facilities at Miami
International Airport.
On January 20, 2000, AMR filed a report on Form 8-K relative to a press
release issued to report the Company's fourth quarter and full year 1999
earnings.
On February 9, 2000, AMR filed a report on Form 8-K relative to a press
release issued to announce that the Company declared on February 7, 2000, its
intent to distribute a dividend on all outstanding shares of AMR's common stock
and to set the timeline for the Sabre spin-off.
62
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AMR CORPORATION
/s/ Donald J. Carty
-------------------------------------------------------
Donald J. Carty
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
/s/ Thomas W. Horton
-------------------------------------------------------
Thomas W. Horton
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: March 27, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates noted:
Directors:
[Enlarge/Download Table]
/s/ David L. Boren /s/ Ann D. McLaughlin
------------------------------------------------------- ----------------------------------------------------
David L. Boren Ann D. McLaughlin
/s/ Edward A. Brennan /s/ Charles H. Pistor, Jr.
------------------------------------------------------- ----------------------------------------------------
Edward A. Brennan Charles H. Pistor, Jr.
/s/ Armando M. Codina /s/ Philip J. Purcell
------------------------------------------------------- ----------------------------------------------------
Armando M. Codina Philip J. Purcell
/s/ Earl G. Graves /s/ Joe M. Rodgers
------------------------------------------------------- ----------------------------------------------------
Earl G. Graves Joe M. Rodgers
/s/ Dee J. Kelly /s/ Judith Rodin
------------------------------------------------------- ----------------------------------------------------
Dee J. Kelly Judith Rodin
Date: March 27, 2000
63
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
AMR Corporation
We have audited the consolidated financial statements of AMR Corporation as of
December 31, 1999 and 1998, and for each of the three years in the period ended
December 31, 1999, and have issued our report thereon dated January 17, 2000,
except for the second paragraph of Note 12, for which the date is March 15,
2000. Our audits also included Schedule II - Valuation and Qualifying Accounts
and Reserves. This schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this schedule based on our
audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
2121 San Jacinto
Dallas, Texas 75201
January 17, 2000, except for the second
paragraph of Note 12, for which the
date is March 15, 2000.
64
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, 1999
Allowance for
obsolescence of inventories $ 214 $ 59 $ -- $ -- $ 6 $ 279
Allowance for
uncollectible accounts 19 34 -- 4 -- 57
Reserves for environmental
remediation costs 23 48 (6) -- -- 65
Reserves for litigation -- 39 (8) -- -- 31
YEAR ENDED DECEMBER 31, 1998
Allowance for
obsolescence of inventories 203 40 -- -- (29) 214
Allowance for
uncollectible accounts 9 12 -- (2) -- 19
Reserves for environmental
remediation costs 14 12 (3) -- -- 23
YEAR ENDED DECEMBER 31, 1997
Allowance for
obsolescence of inventories 212 36 -- -- (45) 203
Allowance for
uncollectible accounts 7 11 -- (9) -- 9
Reserves for environmental
remediation costs 18 -- (4) -- -- 14
65
EXHIBIT INDEX
[Download Table]
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
3.3 Bylaws of AMR, amended as of January 19, 2000.
10.15(a) Deferred Compensation Agreement, dated as of January
11, 2000, between AMR and Edward A. Brennan.
10.20 Deferred Compensation Agreement, dated as of January
12, 2000, between AMR and Armando M. Codina.
10.25 Deferred Compensation Agreement, dated as of January
24, 2000, between AMR and Charles H. Pistor, Jr.
10.29 Deferred Compensation Agreement, dated as of January
12, 2000, between AMR and Judith Rodin.
10.37 Current form of Stock Option Agreement under the AMR
1998 Long-Term Incentive Plan.
10.44 Current form of Career Equity Program Deferred Stock
Award Agreement for Employees under the AMR 1998
Long-Term Incentive Plan.
10.53 Performance Share Program for the years 2000 to 2002
under the 1998 Long-term Incentive Program.
10.60 American Airlines, Inc. 2000 Employee Profit Sharing
Plan.
10.65 American Airlines, Inc. 2000 Incentive Compensation
Plan for Officers and Key Employees.
10.73 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Thomas
W. Horton, dated January 19, 2000.
10.74 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Henry
C. Joyner, dated January 19, 2000.
10.79 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and William
K. Ris, Jr., dated October 20, 1999.
12 Computation of ratio of earnings to fixed charges
for the years ended December 31, 1995, 1996, 1997,
1998 and 1999
21 Significant subsidiaries of the registrant as of
December 31, 1999.
23 Consent of Independent Auditors.
27.1 Financial Data Schedule as of December 31, 1999.
27.2 Restated Financial Data Schedule as of December 31,
1998.
27.3 Restated Financial Data Schedule as of December 31,
1997.
Dates Referenced Herein and Documents Incorporated by Reference
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